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id Turns Down Activision, Gets Sued 74

Posted by Zonk from the legal-snipers dept.
Gamespot is reporting on an article from the WSJ, stating that id software turned down a takeover bid by Activision earlier this year. Former employee Adrian Carmack, who was let go around that time, now states that his termination from the company was the result of a subtle ousting by the other owners. From the article: "... it is Carmack's contention that the other id owners deliberately rejected all of Activision's offers so they could then fire him, thereby acquiring his shares for a fraction of what the publisher would have paid for them. He claims that his fellow co-owners, which control a combined 59 percent of id, began a death-of-a-1,000-cuts-style approach to force him out--closely monitoring his hours, stripping him of privileges, and denying him access to board-related documents. The other board members also ceased redistributing profits as dividends in 2004 (for the five years prior to that, Carmack had received approximately $3.5 million per year)." Coverage also available from Gamasutra.
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id Turns Down Activision, Gets Sued More

id Turns Down Activision, Gets Sued

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  • Actually both should have been in the Summary. Also how does the rejection of Activision lead to his firing?

    • Re:Employee? Part-owner is more appropriate! (Score:5, Interesting)

      by the morgawr ( 670303 ) on Wednesday September 28, 2005 @04:20PM (#13670445) Homepage Journal
      He's under contract to sell back his shares if he is ever fired. He claims the other owners refused the offer so that they would have time to fire him, forcing him to sell his shares at a lower price to them and netting the remaining owners more money when they sell.

      It's equally possible that this is a fued over whether they should sell. After all, activision did low-ball the buy out price of the company. AC may have upset the other owners by being eager to accept the activision offer.

      • A contract that forces you to sell your shares when you're fired? That is an invitation to the other owners to fire you under some pretext, when it suits them to push you out.
        The same goes for stock options that are somehow cancelled if you leave the company early.
        In both cases, I would decline to invest or insist on cash instead.
      • Actually being forced to sell when you leave a company is pretty common. The company I work at has a buyback clause in all employee option agreements. So far only one founder has managed to keep even a miniscule stake in the company after being ousted.

        As the most senior employee of the company I am high on the list of people to be canned when the company goes public. I have even heard rumors that there will be a management shakeup primarily to consolidate management owned stock under the boardmember with
    • Also how does the rejection of Activision lead to his firing?

      RTFA: "The Journal reports that it is [Adrian] Carmack's contention that the other id owners deliberately rejected all of Activision's offers so they could then fire him, thereby acquiring his shares for a fraction of what the publisher would have paid for them. He claims that his fellow co-owners, which control a combined 59 percent of id, began a death-of-a-1,000-cuts-style approach to force him out--closely monitoring his hours, stripping him

  • Summary (Score:5, Informative)

    by imr ( 106517 ) on Wednesday September 28, 2005 @04:28PM (#13670533)
    He tried to sell out the compagny in order to get 40M$ in the process, he didnt succeed, then the others didnt trust him anymore, tried to buy his shares for 20M$, he refused, got spit out and from his contract he just can get 11M$ instead of the proposed 20M$.
    He now tries to get the contract broken to get more than 11M$.
    Sucker.

    • Re:Summary (Score:3, Insightful)

      by BrookHarty ( 9119 )
      contracts are only as good as your lawyer can argue against them.
    • I think the term you are looking for is "sell", not "sell out". He is the largest share holder and has every right to explore any buyout offered to the company.

      The previously refused offer of over $100 million indicate his 41% is worth more than 11 or 20 million. Activision offered $90 million for just the distribution rights to Doom 3 as well. We'll let a court decide, but on the surface, those numbers don't add up and seem to support his claim. If they had offered to buy his shares at market value, th

      • Re:Summary (Score:3, Insightful)

        by imr ( 106517 )
        The reason they do not trust him might be that he prefered to cash out the company instead of remaining independant.

        id's success and identity is based on being independant.
        They are financially independant, they are neutral on the graphic cards issue giving good and bad points whenever it's due, they are vocal on the patent issue whenever it prevents them from working, even their code is portable and proprietary vendor independant. And they do the game they want, good or bad.

        So i understand perfectly that th
      • "The fact that the others didn't trust him because he wanted to sell the company is not legal grounds for termination"

        Where did you go to law school? Moron-U?! A lack of trust in a partner is a perfectly legal reason to kick out a co-owner in a closely held company like id.

  • Doom3 (Score:3, Insightful)

    by AvitarX ( 172628 ) <me@@@brandywinehundred...org> on Wednesday September 28, 2005 @04:33PM (#13670579) Journal
    The Doom3 art direction could not have anything to do with this could it?
    This [penny-arcade.com] sums it up (scroll down).

    • Re:Doom3 (Score:4, Interesting)

      by the morgawr ( 670303 ) on Wednesday September 28, 2005 @04:40PM (#13670633) Homepage Journal
      Good point. Esp. since they are having another company do that art and game design for Quake4. It may be that they decided to take Gabe's advice and just focus on engine design....
    • Months later those guys basically said they were wrong in their criticisms of the game, that while it looked stupid in still images, it was considerably more creepy in motion. If you thought the game was shitty, that's fine, but don't call on these guys [penny-arcade.com] to back up your opinion when they don't actually share it.

  • Democracy at work (Score:3, Funny)

    by mc6809e ( 214243 ) on Wednesday September 28, 2005 @05:14PM (#13670993)
    What is so unusual about 51% of the people screwing the other 49%?

    In the board room or at the ballot, you see the same thing.

     

    • Re:Democracy at work (Score:3, Interesting)

      by ivan256 ( 17499 ) *
      Uh. The 41% was one guy, and the 59% was 5 guys. This one guy was taking home 41% of the cash while the other people (who probably worked just as hard for it) had to split the remaining 59% five ways... And it seems like they didn't even have a problem with it until he tried to cash out at massive profit for himself and massive profit divided by five for everybody else.

      Did he think they'd send him a fruit basket for that?

      If you started a company with five other guys, and one of them was taking home $3.5 mi
  • how exactly did they FORCE him to sell his shares for less than their worth? the market wants to know!
    • how exactly did they FORCE him to sell his shares for less than their worth? the market wants to know!

      id Software is a privately traded company -- it's not like he could have taken them and sold them on the market, and it was probably a part of his contract that he had to sell them when he left the company.

  • Undervalued... (Score:4, Insightful)

    by Mingco ( 883841 ) on Wednesday September 28, 2005 @07:46PM (#13672229)
    If Activision offers $200M for your company, and you reject it because you consider it too low of an offer, then buying out Adrian for $11M is clearly underpaying him for his shares if he has anything more than 5% of the shares. If he's been receiving $3M+ in dividends, chances are he owns more than 5%. Note: Just because the rest of the owners have 59% doesn't mean that Adrian has the remaining 41%. Many of the remaining shares can be owned by the company in order to give away as employee stock options, sell to investors, or various other situations.

    • Re:Undervalued... (Score:3, Insightful)

      by suraklin ( 28841 )
      If Activision offers $200M for your company, and you reject it because you consider it too low of an offer

      Id could also be telling Activision $200M is too low because they may not want to sell their company for any amount of money. Maybe the still employed carmack and crew like not working for a huge corporation. And maybe adrien wanted to cash out his chips and sellout.
    • Note: Just because the rest of the owners have 59% doesn't mean that Adrian has the remaining 41%.

      You're right, but then again reading the article would have made that clear:

      "... the onetime Doom 3 designer, who owns 41 percent of id..."
       
  • While everyone's arguing about the man's speculative spending habits, let's get back to the point: he got fired so the company could screw him out of his shares for cheap, rather than selling out to Activision, seeing a big boost in stock value, and then having to pay full price for Carmack's piece of the property.

    Under the terms of his contract, he is forced to sell his shares for 11 million, whereas if the Activision deal had gone through, they would be worth something like 42-43 mil. Fire one person, ge
  • Adrian Carmack might have a good case, if Id sold the company soon after his firing, especially if Activision was the buyer. Since that never happened, I don't see how he can get around the "We decided not to sell." argument that Id will certainly be making in court. Last time I checked, there was no such law stating that a company had to accept a buyout offer just because it was a really large offer.

    Now, Id isn't even a publicly traded company, right? So, stock price manipulation is not really possible,
    • I would assume it would be for shares of Activision the employees, and Carmack would receive in this deal. Not for Id shares which don't exist.
      • Maybe I'm wrong.

        To me it looked like they were talking about shares of Id. Just because a company isn't privately traded doesn't mean it isn't divided into shares. Typically there's some silent partners, and the founding employees own various pieces of the pie. Had Id been on the market, it could be argued that the buyout dance with Activision was a tool to manipulate the price. But, when the news watching public can't set the price, that doesn't really apply.
        • Every corporation has shares; it's a basic requirement of being a corporation. In a "closely held" corporation, the shares aren't traded on a public stock exchange. The law surrounding forcing out minority shareholders of closely held corporations is a little different than the law dealing with publicly traded corporations. Unfortunately for Adrian Carmack, closely held corporations are given a little more leeway where forcing out minority shareholders is concerned, except where the minority shareholder
  • ...he saved some of that 17.5 million from the last five years so he'll have something to live on until he can find work....
  • Carmack further claims that towards the end of his time at the company his hours at work were tracked,
    How DARE they track how often he comes to work. The unmitigated gall of those people!!

    Sorry, but that one statement turned me against this guy.

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