Update: OnLive has issued the following statement (via The Verge), confirming the buyout:
"We can now confirm that the assets of OnLive, Inc. have been acquired into a newly-formed company and is backed by substantial funding, and which will continue to operate the OnLive Game and Desktop services, as well as support all of OnLive's apps and devices, as well as game, productivity and enterprise partnerships. The new company is hiring a large percentage of OnLive, Inc.'s staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services."
"We apologize that we were unable to comment on this transaction until it completed, and were limited to reporting on news related to OnLive's businesses. Now that the transaction is complete, we are able to make this statement."
Additionally, IDG News reporter Martyn Williams tweeted "Confirmed: employees leaving #OnLive headquarters with moving boxes. Am outside now."
Original story: The rumour mill has been going haywire today with reports of trouble afoot at OnLive, but it's ultimately concluded with various reports that a majority of its staff has been laid off without severance as the cloud gaming company filed for an alternative to bankruptcy.
It all started when game designer Brian Fargo tweeted that he received a message from an OnLive employee stating the company was being shuttered.
"I wanted to send a note that by the end of the day today, OnLive as an entity will no longer exist," said the anonymous messenger. "Unfortunately, my job and everyone else's was included. A new company will be formed and the management of the company will be in contact with you about the current initiatives in place, including the titles that will remain on the service."
We followed up with OnLive who assured us "We can't comment on rumors, but OnLive is just fine." The rep then invited me to lunch if I were ever in the area.
Things seemed to settle down for a few hours and it appeared to be a hoax, but a shocking number of reports have come in stating that the company has let most of its staff go and is completely restructuring in last-ditch effort to avoid bankruptcy.
According to an anonymous source at Endgadget, a meeting was held at OnLive's Palo Alto offices at 10 a.m. PST this morning, wherein the company's CEO Steve Pearlman announced a massive layoff of at least 50 per cent of the staff with no severance allotted and stock holdings essentially worth nothing.
Everyone affected would be losing their jobs immediately and have their key cards deactivated by 4 p.m.
The source suggested that OnLive is being bought out by an unknown party to save operating costs, which were purportedly around $5 million a month.
Kotaku reported that OnLive filed for an alternative to bankruptcy called an Assignment for the Benefit of Creditors - a status that affords more protection from creditors for financially troubled companies.
Evidently, Pearlman said the company would cease to exist as it is now and no one would be employed by OnLive, though some employees would be rehired by the new company following the buyout.
According to an anonymous source at GamePolitics, the meeting concluded with everyone clapping "because they don't know what else to do."
When asked about severance the now ex-employee said, "We just got paid for the first half of August. We got eight hours for the couple of hours we worked into the second pay period. We got our PTO."
Regarding employees getting absorbed into the new company, the source said, "There were few people who had been given a one-month agreement with the new entity, which he did not explain. Basically by using this form of bankruptcy there's a certain amount of protection from the creditors... obviously he lands okay and everyone else is on their own."
We'll continue to update this story as it develops.