John Carmack vs. ZeniMax Media
John Carmack vs. ZeniMax Media
John Carmack vs. ZeniMax Media
JOHN CARMACK,
Plaintiff Civil Case No. ______________
v.
ZENIMAX MEDIA INC., JURY TRIAL DEMANDED
Defendant.
1. Defendant ZeniMax Media Inc. will soon be obligated to pay Plaintiff John
Carmack more than $45 million in cash under the terms of the Asset Purchase Agreement and a
Convertible Promissory Note by which ZeniMax bought the assets of id Software, Inc. in 2009.
Mr. Carmacks right to receive that money ripens no later than June 23, 2017, the eighth
anniversary of id Softwares sale to ZeniMax. It is the final payment due to Mr. Carmack for the
sale of id Software, the world-famous video game studio he founded and led for more than 20
years.
2. But ZeniMax clearly doesnt want to pay. And while Mr. Carmack awaits
ZeniMaxs seemingly inevitable refusal to honor its obligation to pay the remainder of the
purchase price, ZeniMax is already in breach of the Asset Purchase Agreement and Convertible
Promissory Note. Pursuant to those contracts, Mr. Carmack has the absolute right to convert all
or any portion of the Unpaid Principal Balance solely into shares of ZeniMaxs Common
Stock . . . . All of those shares are subject to a $45 per share put option that will mature no later
3. On February 16, 2017, Mr. Carmack elected to convert the remaining balance of
his Convertible Promissory Note into shares of ZeniMax common stock, and offered to sell all of
his shares back to the company at the put option price of $45 per share. But ZeniMax failed to
issue any shares of stock in response to Mr. Carmacks conversion notice, depriving him of the
ability to either sell the shares or exercise the put option when it ripens later this year. This
lawsuit seeks to rectify ZeniMaxs existing breach of the Asset Purchase Agreement and
payment obligations under the put option, and will serve as a vehicle for further breach of
contract claims in the highly likely event of ZeniMaxs upcoming refusal to honor the put option.
million for that purchase. Now that the final installment of that bill is coming due, ZeniMax is
simply refusing to pay. But sour grapes is not an affirmative defense to breach of contract. This
Court should enter judgment against ZeniMax for all the money that it agreed to pay Mr.
PARTIES
5. John Carmack is an individual who is a citizen of the State of Texas and a resident
of Dallas County, Texas. He is a computer programmer. In 1991, at the age of 20, he became
one of the founders of id Software, Inc. With Mr. Carmacks innovative graphics programming,
id Software became a pioneer in the genre of first-person shooter games. Under his technical
guidance, id Software generated a number of highly successful game tiles, including the Doom,
Quake, and Wolfenstein franchises. After ZeniMax allowed his Employment Agreement to lapse
in 2013, Mr. Carmack left the company and became the Chief Technology Officer of Oculus VR,
6. ZeniMax Media Inc. is a Delaware corporation with its principal place of business
videogame studios and its in-house game publisher, Bethesda Softworks. In 2009, ZeniMax
purchased the assets of id Software, Inc. for what was agreed to be a total of $150 million. At
that same time, ZeniMax entered into a four-year Employment Agreement with Mr. Carmack,
which expired on June 23, 2013. ZeniMax may be served with process through its registered
agent for service of process, CT Corporation System, 1999 Bryan St., Ste. 900, Dallas, TX
75201-3136.
7. This Court has original jurisdiction because the matter in controversy exceeds the
sum or value of $75,000 and is between citizens of different states. 28 U.S.C. 1332(a)(1).
8. Venue is proper in the United States District Court for the Northern District of
Texas, Dallas Division because a substantial part of the events or omissions giving rise to the
claim occurred in this District. 28 U.S.C. 1391(b)(2). Furthermore, ZeniMax voluntarily and
irrevocably submitted to the jurisdiction and venue of this Court in Section 14.06(d) of the
FACTS
9. On June 23, 2009, ZeniMax purchased the assets of id Software, Inc. and placed
them into a newly created company, id Software LLC. From that day to the present, ZeniMax
10. The sale was accomplished via an Asset Purchase Agreement, which obligated
ZeniMax to pay id Softwares selling shareholders a total of $150 million for the sale. Of that
sum, $45 million was paid in cash at closing. An additional $40 million was paid to the
shareholders pursuant to cash promissory notes over the course of the next four years.
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11. The final $65 million in consideration for the purchase came in the form of
Convertible Promissory Notes, whereby ZeniMax agreed to pay the selling shareholders that
amount in cash or shares of ZeniMaxs common stock. Each of the Convertible Promissory
Notes permitted their holders to convert the notes to shares of common stock at any time prior to
their Maturity Date, which was defined to occur upon the earliest of an initial public offering, a
change of control, or the eighth anniversary of the closing of the sale of id Software.
12. At the time of the sale, Mr. Carmack was the majority shareholder of id Software,
Inc., and his Convertible Promissory Note was issued with the face value of $45,118,094.77. In
early 2011, Mr. Carmack converted approximately half of the original Convertible Promissory
Note into shares of ZeniMaxs common stock. As a result, his original Convertible Promissory
Note was canceled and replaced with a new Convertible Promissory Note in the amount of
$22,559,047.77. A true and correct copy of that Convertible Promissory Note is attached hereto
as Exhibit 1. Also as a result of that conversion, he is currently the owner of stock certificate
number 97, representing 500,527 shares of common stock. A true and correct copy of that stock
13. All of the common stock that Mr. Carmack has previously received under his
Convertible Promissory Note, plus the stock that he has the right to receive in the future, is
subject to a $45 per share put option under section 9.07 of the Asset Purchase Agreement. The
put option will ripen no later than the eighth anniversary of the sale of id Software, which will
occur on June 23, 2017. Mr. Carmack intends to exercise that put option for the full
$45,118,094.77 that ZeniMax still owes him from the sale of id Software, Inc.
14. Neither the Asset Purchase Agreement nor the Convertible Promissory Note allow
ZeniMax to ignore its obligation to issue stock after Mr. Carmack issues a conversion notice.
15. On February 16, 2017, written notice was delivered to ZeniMax to convert the
ZeniMaxs common stock. That conversion was requested in preparation for two events. First,
Mr. Carmack was offering to sell all of his stock to ZeniMax at the price of $45 per share
pursuant to the terms of the companys shareholders agreement. Second, he was preparing to
exercise his $45 per share put option in the event that neither the company nor any of its other
16. ZeniMax is obligated by its written shareholders agreement to either purchase the
shares on the terms offered by Mr. Carmack or to notify the other shareholders of the company
that they have the right to purchase the offered shares. It remains to be seen whether ZeniMax
will follow through on that contractual obligation. In any event, the $45 per share offer price
represents a substantial discount from the valuation that the companys CEO, Robert Altman,
17. All told, Mr. Carmacks offer to sell included 1,004,418 shares of stock,
consisting of the 500,527 shares of common stock he already owns, the 501,312 shares of
common stock he sought to convert under the Convertible Promissory Note, and 2,579 shares of
Series A Preferred stock that he purchased in 2011. In total, it would amount to approximately
18. Pursuant to Section 2.5(a) of the Convertible Promissory Note and Section
2.04(c)(ii) of the Asset Purchase Agreement, Mr. Carmack was to become the owner of 501,312
shares of ZeniMax common stock on March 3, 2017, ten business days after the company
received the conversion notice and the original of Mr. Carmacks Convertible Promissory Note.
conversion notice and sale offer. By that letter, ZeniMax made it clear that the company would
not voluntarily comply on a timely basis with the conversion notice. The content and tone of the
letter also made it clear that ZeniMax was unlikely to comply with its obligations under the
shareholders agreement by either buying the offered shares or notifying the other shareholders
of their right to purchase them. ZeniMax also kept the original copy of Mr. Carmacks
Convertible Promissory Note, which had been delivered to the company along with the
conversion notice.
20. ZeniMaxs failure to issue the conversion shares is a breach of the Asset Purchase
Agreement and the Convertible Promissory Note. ZeniMaxs failure and refusal to issue
common stock to Mr. Carmack for the unpaid $22,559,047.77 balance of the Convertible
Promissory Note deprives Mr. Carmack of the bargained-for consideration ZeniMax agreed to
has until March 18, 2017 30 days after delivery of the offer of sale to provide notice to
Mr. Carmack whether it will elect to purchase some or all of the offered shares. If it declines to
purchase the offered shares, ZeniMax would then have 10 additional days to notify the other
22. ZeniMax is a private company. Its stock is not traded on any public exchange,
and the shareholders agreement imposes significant restrictions on the ability of any shareholder
to sell or transfer shares privately. If, as appears highly likely, ZeniMax refuses to notify
shareholders that they have the right to purchase Mr. Carmacks shares, he will be deprived of
access to the only meaningful market for the sale of his shares.
23. ZeniMaxs stated basis for its failure to comply with the Convertible Promissory
Agreement and ZeniMaxs alleged intellectual property rights. Those allegations were recently
put to trial in ZeniMax Media Inc. v. Oculus VR, LLC, Case No. 3:14-CV-01849-K (N.D. Tex.).
Mr. Carmack was a Defendant in that case, and there was extensive testimony and evidence
about the alleged conduct that ZeniMax now asserts as the basis for its current refusal to comply
with its contracts. Yet ZeniMax did not bring any claim for breach of contract against Mr.
Carmack as part of that lawsuit, and all such claims are now plainly barred by the doctrines of
claim and issue preclusion. Furthermore, the jury returned a verdict in favor of Mr. Carmack,
finding that he was not liable for misappropriation of trade secrets or copyright infringement, and
only ruling for ZeniMax on a conversion claim for which the company neither sought nor
recovered any damages. ZeniMaxs invocation of the same alleged acts that it just went to trial
on is an exercise in bad faith and distraction, not a legitimate basis to avoid paying the money it
24. ZeniMaxs obvious unwillingness to honor its forthcoming put option obligations
pursuant to the Asset Purchase Agreement also gives rise to a justiciable controversy that can
and should be resolved by declaratory judgment. Tellingly, Mr. Altman has pointedly declined
to confirm the company would honor its financial commitment, and ZeniMaxs recent
correspondence indicates that the company is actively considering litigation over the issue of Mr.
25. Mr. Carmack incorporates by reference each of the facts alleged above.
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26. The Asset Purchase Agreement is a valid and enforceable contract between
Mr. Carmack and ZeniMax, whereby Mr. Carmack and the other shareholders of id Software,
Inc. agreed to sell the assets of their company to the ZeniMax-owned entity that became known
as id Software LLC.
27. The Convertible Promissory Note is also a valid and enforceable contract between
ZeniMax and Mr. Carmack, made in consideration for the covenants and agreements set forth in
the Asset Purchase Agreement and representing a substantial portion of the purchase price by
28. Pursuant to the Asset Purchase Agreement and the Convertible Promissory Note,
29. Mr. Carmack performed his obligations under the Asset Purchase Agreement and
30. ZeniMax is in breach of its contractual obligations under Section 2.04(c)(ii) of the
Asset Purchase Agreement and Section 2.2 of the Convertible Promissory Note. Under both of
those provisions, ZeniMax is obligated to convert the unpaid principal balance of the Convertible
Promissory Note to shares of ZeniMaxs common stock upon at least 10 business days prior
written notice from Mr. Carmack. Mr. Carmacks conversion notice and the original of the
Convertible Promissory Note were delivered to ZeniMax on February 16, 2017, but ZeniMax
failed to comply with its obligation to issue the stock to Mr. Carmack.
31. ZeniMaxs breach of the Asset Purchase Agreement and the Convertible
Promissory Note have caused serious injury to Mr. Carmack, as the breach has deprived him of
32. Mr. Carmack incorporates by reference each of the facts alleged above.
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33. A justiciable controversy exists between ZeniMax and John Carmack regarding
the parties rights and obligations under the Asset Purchase Agreement and the Convertible
Promissory Note.
Mr. Carmack seeks a declaration regarding the put option rights he has under the terms of the
Asset Purchase Agreement and the Convertible Promissory Note. Specifically, Mr. Carmack
asks the Court to declare that ZeniMax is obligated to honor the $45 per share put option
provided for in section 9.07 of the Asset Purchase Agreement for all shares of ZeniMaxs
common stock acquired under his original Convertible Promissory Note and the replacement for
ATTORNEY FEES
35. Mr. Carmack incorporates by reference each of the facts alleged above.
36. Under Section 22.3 of the Employment Agreement between Mr. Carmack and
In the event of any legal proceeding between the parties to this Agreement, the
parties hereby agree the prevailing litigant shall be entitled to recover his/its
attorneys fees, expenses, and costs of court from the losing litigant, in addition to
such other relief which may be awarded by a court of competent jurisdiction.
Accordingly, Mr. Carmack seeks recovery for his attorney fees, expenses, and costs of court
38. ZeniMax is already in breach of its contractual obligations under the Asset
Purchase Agreement and the Convertible Promissory Note. In all likelihood, ZeniMax will soon
be further violating those agreements and even its own shareholders agreement. Accordingly,
Mr. Carmack reserves all right to amend, whether as of right or through motion for leave, to
address any future breaches of ZeniMaxs contracts with Mr. Carmack or violations of any other
Based on the foregoing, Mr. Carmack asks that the Court issue citation for Defendant
ZeniMax Media Inc. to appear and answer, and that Mr. Carmack be awarded judgment against
ZeniMax for monetary damages of at least $22,559,047.77, plus recovery of his attorney fees,
pre- and post-judgment interest, and costs of court. Mr. Carmack further requests that the Court
enter a declaratory judgment that ZeniMax is obligated to honor the $45 per share put option
provided for in section 9.07 of the Asset Purchase Agreement for all shares of ZeniMaxs
common stock acquired under his original Convertible Promissory Note and the replacement for
the original Convertible Promissory Note. Mr. Carmack further requests all additional and
Respectfully submitted,
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