NEWS - Monday, December 27, 2010

Hamonix Shareholders File Law Suit Against Viacom

A group of former shareholders of Rock Band developer Harmonix are suing Viacom, alleging the developer’s (soon-to-be former) owner have attempted to renege on promised performance-based bonus payouts.
As Gamasutra reports, the central issue is an earn-out formula that was originally in the acquisition deal when Viacom purchased Harmonix back in 2006. The formula would have Viacom pay Harmonix shareholders bonuses that equal 3.5 times any gross profit in excess of $32 million for 2007 and in excess of $45 million for 2008. Viacom indeed paid $150 million in bonuses for Harmonix’s 2007 performance, and they were expected to pay in excess of another $150 million for Hamonix’s 2008 performance. According to the lawsuit, though, Viacom never paid the second, 2008-based bonus.

Furthermore, the crux of the lawsuit is that Harmonix’s former shareholders -- which include founders Alex Rigopulos and Eran Egozy -- allege that Viacom have attempted what they consider to be dirty tricks to reduce the amount of bonus payments it should have to owe. One example, according to the plaintiffs, is that Viacom "decided to forego the opportunity to reduce [Electronic Arts’] distribution fees during 2008 (or in any other way enhance Harmonix?s net income or Gross Profit for 2008), and instead demanded benefits for itself (rather than Harmonix) in exchange for allowing EA to continue distributing Rock Band."

In effect, not lowering EA’s distribution fees eventually meant less gross profits, and therefore less bonus payments for Harmonix. "Although a reduced 2008 EA distribution fee would have increased Harmonix’s gross profit and operating profits in 2008, Viacom realized that every $1.00 of distribution fees that Harmonix saved during 2008 would require Viacom to pay an additional $3.50 of earn-outs to the [ex-shareholders]."

As a result, Harmonix’s ex-shareholders group are now seeking to "recover damages arising from Viacom’s manipulation of these earn-out payments by diverting opportunities from Harmonix for its own benefit in breach of the implied covenant of good faith and fair dealing that inheres in Viacom’s contract with Harmonix."

Viacom hasn’t commented on the lawsuit yet. Back in November, Viacom announced it was planning to sell Harmonix.



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