Napster auction gets court OK & delay

Hearing for the proposed sale to take place Aug. 29

By JUSTIN OPPELAAR

NEW YORK -- Delaware's bankruptcy court on Tuesday approved Napster's plan for auctioning off assets in its Chapter 11 bankruptcy. But the court also bowed to concerns raised by the major labels and delayed the sale hearing by a month to give them more time to scrutinize the Napster selloff. The labels are concerned over the deal's effects on their long-running copyright suit against the netco.

The hearing for the proposed sale will now take place on Aug. 29, with an auction process beginning two days earlier. Any interested parties will be allowed to air their objections no later than Aug. 21.

Bertelsmann has agreed in principle to buy out Napster, by forgiving $91 million in debts it owes the German conglom and paying out $9 million as a sop to the embattled netco's other creditors.

The court also approved a $5 million line of credit to the hobbled file-swapping pioneer from its would-be acquirer Bertelsmann. The credit line, which includes $4 million for operating expenses and roughly $1.1 million more for an employee retention plan, raises the total value of the deal to $105 million.

Napster filed for bankruptcy earlier this month, after battling the labels in court for more than two years and struggling unsuccessfully to develop a legal, subscription-based service to replace its wildly popular free offering.

Netco's peer-to-peer service, which at one point boasted more than 60 million users, peaked in February 2001 but was effectively shut down when a California federal judge slapped it with an injunction.