here's an interesting article on what happened with Harmonix and Viacom:http://www.donerlaw.com/client-alerts/?p=190
excerpts (see link for full text):
Harmonix is one of the companies behind such videogame franchises as Guitar Hero and Rock Band, iconic properties of the first decade of this century. Viacom wanted to be in that space and, in September 2006, it bought Harmonix for $175 million in cash plus an earn-out for the years 2007 and 2008. For each of those years, the earn-out formula was gross sales of Harmonix’s games, less manufacturing and sales costs, less a flat $45 million; then 3.5 times the remainder .
In September 2008, Viacom paid $150 million as the earn-out for 2007, the first earn-out year. In calculating the first year earn-out, Viacom didn’t deduct the costs of goods that were unsold at year-end. At the time of this earn-out payment, Viacom, per evidence in the case, was “delighted to have Harmonix ‘in the family’ and thrilled with the progress of the Rock Band franchise.” But that month, Lehman Bros. filed for bankruptcy. Soon, the economy was in a tailspin. Had Viacom overpaid?
In March 2010, Viacom delivered to Harmonix a final earn-out statement for 2008 which, despite some $768 million in sales, showed no earn-out due. In preparing this statement, Viacom deducted not only cost of goods sold, but also the cost of unsold goods at year-end 2008.
Harmonix objected to the 2007 and 2008 earn-out calculations, and the parties, pursuant to their underlying agreement, proceeded to arbitration. In the arbitration, Viacom not only argued for deduction of costs of unsold year-end inventory but, in a variant of that position, argued that it was entitled to deduct an inventory write-down for 2008. Viacom pointed to an inventory write-down in its corporate financial statements, and claimed the right to make a parallel write-down in the earn-out statement.
In a December 2011 award, the arbitrators, siding with Harmonix, rejected both arguments, and determined the 2008 earn-out to be $298.8 million. In another part of the arbitrators’ decision which wasn’t challenged in court, the arbitrators added $84.4 million to the $150 million earn-out previously paid for 2007.
The total price Viacom paid for Harmonix, including upfront cash and earn-outs, was over $708 million. There may have been other costs as well.
Yes, Viacom apparently overpaid. The earn-out was cranked up to eleven! (See This is Spinal Tap!) Within a few years of the sale, Guitar Hero and Rock Band were (excuse the puns) played out, and Viacom ultimately sold the company back to the founders, reportedly for a song . . . plus a spot of sympathy from the Taxman .
And then to add insult to injury:http://www.bloomberg.com/news/2012-12-13/viacom-ordered-to-give-up-claims-to-harmonix-deal-funds.html
Viacom Inc. (VIAB), owner of MTV, Nickelodeon and Comedy Central, must allow $12 million to be paid to former investors in Harmonix Music Systems Inc., maker of the video game “Rock Band,” as part of a buyout, a judge ruled.
Viacom sought access to the $12 million to indemnify the media conglomerate for the costs of defending patent- infringement lawsuits over the game, in which players assume the identity of rock stars and perform for crowds. The purchase agreement set aside the funds in case problems with the deal cropped up, Strine said.
Harmonix officials never agreed to indemnify Viacom “against losses arising out of infringements of intellectual property rights that took place at the time of Rock Band’s publication in 2007,” Strine said in his 21-page decision.
As part of the 2006 buyout agreement, Viacom and Harmonix executives agreed to set aside $12 million to indemnify Viacom for “losses arising out of breach of representations and warranties made by Harmonix,” Strine noted in his ruling.
The money was to be held in escrow for 18 months and if Viacom didn’t lodge legitimate indemnification claims, it would be dispersed to Harmonix’s former stockholders, the judge said.
Viacom officials requested indemnification for losses tied to defending patent claims over Rock Band, which was still in development when Harmonix was acquired, Strine said. Company officials said they paid out $28 million in legal fees defending against intellectual-property claims over the game, the judge said.
Viacom hired lawyers to defend the company against claims by companies such as Activision Blizzard (ATVI) Inc., the largest video-game publisher, Konami Digital Entertainment Co. (9766) and Gibson Guitar Corp. over the game.
Gibson, the closely held maker of B.B. King’s “Lucille” and Jimmy Page’s “Les Paul” guitars, sued Viacom and Harmonix in 2008. Nashville-based Gibson claimed the video game infringed a patent covering a way of using a musical instrument to take part in a simulated concert.
Representatives of Harmonix’s former stockholders refused to honor the indemnification request, saying it wasn’t based on losses covered by the acquisition agreement.
When Viacom officials refused to agree to allow the $12 million to be paid to ex-Harmonix investors, lawyers for the shareholders sued in Delaware.