Groovians Short-Changed? Chris Stone Re-resurfaces

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All may not be so copacetic at Groove Networks in the wake of Microsoft's announced plan to buy the company last month.

Nearly everyone knew that the dollar figure was not exactly humongous--it was reported here to be in the $150 to $155 million range. While that ain't peanuts, it isn't exactly a whopping amount given that Groove was no spring chicken that sources say had yet to crack a profit.

One local VC/software watcher said Groove pulled in something like $175 million in investment over eight years and had trailing 12-month revenues of just over $20 million at the time the deal was announced.

On Saturday, The Boston Globe cited factoids that surfaced when a former Groove exec filed suit to stop the buyout in Delaware. According to court documents, Microsoft paid $120 million for the part of Groove it did not already own. That deal left groups of Groove common and junior-preferred stockholders, holding a cash-less bag. The plaintiff, Michael Matthews, alleged that Groove management and directors breached their fiduciary responsibility to adequately pay those employees.

The Globe story outlined the suit filed by Matthews, Groove's EVP for sales and marketing. A Delaware judge denied his attempt to stop the deal.

Sources close to Microsoft told CRN last month that a few Groove execs, including president and COO David Scult, VP and general counsel Jeff Seul and finance chief Jack Martin got a million dollars each from the deal. Of course that figure could include any combination of stock or cash.

According to The Globe account, the VCs did best from the buyout. Accel Partners ostensibly pocketed $3.4 million and Groove director James Breyer (also of Accel) got about $1.7 million. Perhaps shockingly, Groove founder Ray Ozzie allegedly got just short of $400,000 in the buyout. Ozzie will become a CTO at Microsoft.

In a statement, Groove stands by the pact announced March 10, and slated to close this month.

The deal "has been approved by all of the company's principal investors, with the exception of Michael Matthews, a former Groove Networks executive. The company's principal investors other than Mr. Matthews continue to support the transaction. Mr. Matthews' attempt to block the acquisition of Groove Networks by Microsoft by way of a temporary restraining order was denied ... in Delaware Chancery Court by Chancellor William B. Chandler III. Groove Networks and Microsoft are proceeding toward closing of the transaction according to the terms of the merger agreement."


Industry vet Chris Stone is now president and CEO of StreamServe, a Burlington, Mass. maker of document management software.

Until last fall, Stone was vice chairman of Novell, right down Route 128 in Waltham, Mass. Before that he drove the Object Management Group (OMG) and its CORBA work.

Since his Novell exit, he was named an advisor then somewhat mysteriously unnamed an advisor to startup Virtual Iron, also in Massachusetts.

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