OnLive has announced that it has entered “Assignment for the Benefit of Creditors,” (a form of bankruptcy) and that all of its employees have been laid off. This move was followed by an announcement that one of their major investors, Lauder Partners, has acquired all of OnLive’s assets, will form a new company with those assets called OnLive and that the cloud gaming service will continue unimpeded.

“Almost half of OnLive’s staff were offered employment at their current salaries in the new company immediately upon the transfer, and the non-hired staff will be given offers to do consulting in return for options in the new company,” said Lauder Partners in a statement. “Upon closing additional funding, the company plans to hire more staff, both former OnLive employees as well as new employees.”

The statement by Lauder Partners also made clear that whatever the terms of this agreement, it was not a reward for OnLive founder, president and CEO Steve Perlman and all of the stock in the old OnLive now has no value. “Like all shareholders, neither Steve nor any of his companies received any stock in the new company or compensation in this transaction at all,” detailed Lauder Partners. “Steve is receiving no compensation whatsoever and most execs are receiving reduced compensation to allow the company to hire as many employees as possible within the current budget.”

Perlman gave some insight into why OnLive may have failed in its first incarnation. “There’s no way to exactly estimate how many servers we’d need. So we literally bought thousands of them, and all the equipment and networks to go with it,” said Perlman to employees. “If you’ve got 8,000 servers and 1,600 users, how could we ever get to cash flow positive, right ”

“We made it through the whole recession without any disconnects, any layoffs, or any down rounds,” Perlman noted; this won’t be the case anymore as many former employees will not be offered a full time job in the new OnLive, with some being offered consulting positions and others stock options in the new venture.

For his part, Perlman offered regret and condolences during his speech to employees and accepted blame for the current situation OnLive is in. “I’m the one that brought you here. I’m the one that ultimately made decisions. And I’m the one that ultimately takes responsibility. So I am sorry, and it didn’t end up exactly as we’d hoped,” he said.

Source: Joystiq