This article is bullshit. The CEO of a company cannot "take back" or "wipe out" your right to purchase stock, aka stock options.<p>More likely what happened is that the company sold for equal or less than the outstanding preferred stock overhang. Another way of saying this: OnLive's investors got all the money (they raised $56MM) and the founders and employees got ZERO for their common stock.<p>A stock option is a binding CONTRACT to purchase stock (typically common stock when you're dealing w/ employee stock options) at a set price. If a company is acquired and the price of common stock is below the "strike price" of the employee stock options then the employee has a valueless option to buy stock for more than it's worth.<p>Oftentimes in an "exit" that's just shy of bankruptcy, common stock holders will get nothing and investors will get all the proceeds, often at pennies or nickels on the dollar.<p>So... Did OnLive screw its employees? Highly unlikely.
I think the most heartbreaking thing about all of this is the lady in the comments who said her husband just lost his job and she's pregnant with health complications. This is ridiculous, if someone bought OnLive, they just bought a publicly tainted company and apparently it's EA (a company that is no stranger to being dicks).
Luckily this sort of thing rarely happens. The reason is that you need great engineers to trust you if you want to succeed. By founding a startup you are taking great personal risk, but your employees are also taking some of that risk with you. Most startups pay (very very) below market salaries, and bring employees up to parity with a much less terrible place to work (very few very bright people would prefer to work in at a big company), and by giving out options.<p>I suspect that the CEO and other high level managers at this company will have serious trouble recruiting the next time they want to start something new, because they now have nothing to offer. Nobody is going to trust their promises, stock options they issue will be seen as basically worthless (since everyone will think they are likely to be screwed out of them), so they will have to pay market rates (which is probably 2x-6x what startups generally pay in total compensation).<p>If I were a founder of a company, and I were faced with this choice, I would probably rather let the company fold than cash out (or in this case probably just not go under) while leaving employees behind. Failure is rarely punished in the valley, but nowhere is dishonesty or double dealing more likely to be recognized and rejected.
If something that you have equity in has no value or little value.. then it's all really a mute point. Remember kids start ups are high risk ventures; your equity can be diluted, and taken away... all legally.
So their PR firm has put out this statement: <a href="http://www.engadget.com/2012/08/17/onlive-confirms/" rel="nofollow">http://www.engadget.com/2012/08/17/onlive-confirms/</a><p>It feels a bit (actually a lot) strange that they'd dissolve the entire company and lay off everyone to attempt to get out of an agreement for servers or something. It just doesn't add up. Also, why the employee reports aren't saying this... just strange. PR spin at its best?
There appears to be quite a bit of confusion as to what happened here. The TechCrunch article doesn't really provide enough detail, saying only that the staff was fired in order to "reduce the company’s liability" which doesn't really make sense.<p>I am not a lawyer, but as an investor I have seen this happen before. My guess (no connection to the company, wasn't aware of them prior to today) is that in lieu of filing for bankruptcy, they did an Assignment for the Benefit of Creditors.<p>But what may have happened is:
1. OnLive recognizes that they're essentially bankrupt. Directors and managers now have a fiduciary duty to maximize the recovery for creditors, not for shareholders.<p>2. Instead of going through a formal bankruptcy process, the company does an Assignment for the Benefit of Creditors (see a good explanation here [1]). Any price paid for the assets by a buyer above what is owed to the creditors goes to satisfy the liquidation preferences, though it's unlikely there will be much if any recovery of value above the debts owed to the creditors. The value of the common equity is totally wiped out (both common stock and employee options) as the total value of the assets is well below the amount due creditors + the liquidation preferences.<p>3. A buyer for the assets (the source of money with which to pay off the creditors who now own the assets of the defunct company) forms a new company, call it OnLive Asset Acquisition Corp.<p>4. OnLive Asset Acquisition Corp purchases the assets (not the stock) of the defunct corporation now owned by creditors. The new acquirer buys the assets so as to avoid any existing/potential liabilities of the defunct corporation from whom it purchases the assets. Imagine there's a company whose only asset is a rack of servers that you wish to purchase. To gain ownership of the servers, you could buy all the shares of the company or you could just buy the servers as an asset with no encumbrances. You would likely do the latter, as buying the stock comes with potential liabilities for past/future money owed or lawsuits. That's likely what happened here, but for IP, etc.<p>5. The original employer OnLive is no longer operating. The employees are all terminated, as their employer is gone and its operating assets are owned by a new company. The new company may or may not seek to hire some or all of the employees of the defunct company.<p>6. Even if employees had been able to exercise their options, they were virtually certain to be worthless. There is no way the price paid by the new owner for the assets of the dead company would exceed the debts + liquidation preferences (otherwise the directors wouldn't have liquidated it). Had the employees exercised their options, any cash they paid to do so would have gone to the creditors to satisfy the company's debts and they would have received zero in proceeds.<p>It's a sad story for the employees, but there are rarely any happy outcomes for a company in bankruptcy.<p>Again, I'm purely speculating on what happened. But based on the facts disclosed so far, it's not clear that one can conclude that the employees received a specific and unusual screwing by management vs. a typical screwing associated with the liquidation of a bankrupt employer.<p>[1] <a href="http://bankruptcy.cooley.com/2008/03/articles/the-financially-troubled-compa/assignments-for-the-benefit-of-creditors-simple-as-abc/" rel="nofollow">http://bankruptcy.cooley.com/2008/03/articles/the-financiall...</a>
In another thread, the rumor is that they were going out of business, not getting acquired.<p><a href="http://news.ycombinator.com/item?id=4398439" rel="nofollow">http://news.ycombinator.com/item?id=4398439</a>
Quite splendidly some one has edited - <a href="http://www.crunchbase.com/person/steve-perlman" rel="nofollow">http://www.crunchbase.com/person/steve-perlman</a> his middle name as (The DICK)<p>Revision history here
<a href="http://www.crunchbase.com/person/steve-perlman/diff/8/9" rel="nofollow">http://www.crunchbase.com/person/steve-perlman/diff/8/9</a> at 4:59pm by 24.6.50.198
Loiks like TheVerge was covering this live and had a reporter stationed outside. www.theverge.com/2012/8/17/3250507/onlive-employees-fired-all-hands-meeting-acquisition-imminent<p>Onlive declared a "variation of bankruptcy" to get out of employee liabilities.
The se kinds of things seem to be more and more common. I hope employees take note and protect themselves when they sign up in new places (read no more cliff agreements).