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Most of Napster's 42 employees, including co-founder Shawn Fanning, were laid off Tuesday afternoon. Following the court’s decision, Chief Executive Konrad Hilbers, whose alleged allegiance to former employer Bertelsmann was at the center of the proceedings, also resigned.

MUSIC’S OVER FOR NAPSTER

Company Lays Off Most of Staff Including Co-Founder Shawn Fanning Following Block of Sale to Bertelsmann
Napster appeared all but dead late Tuesday after a bankruptcy-court judge blocked the company's sale to German media concern Bertelsmann.

After the decision (hitsdailydouble.com 9/3), the company laid off most of its staff Tuesday afternoon and stripped the front page of its Website to a three-word message: "Napster Was Here."

A company spokeswoman said most of Napster's 42 employees, including co-founder Shawn Fanning, were laid off Tuesday afternoon. Following the court’s decision, Chief Executive Konrad Hilbers, whose alleged allegiance to former employer Bertelsmann was at the center of the proceedings, resigned.

Hilbers said the court decision made a new Napster service unlikely. "I was sitting here in shock after hearing the decision," Hilbers told the Wall Street Journal. "It's very, very disappointing."

Judge Peter J. Walsh of U.S. Bankruptcy Court in Wilmington, Del. said he based his decision on evidence that suggested Hilbers wasn't acting in the best interest of Napster creditors when Napster negotiated an agreement for Bertelsmann to acquire Napster's assets for $9 million. Several recording companies and music publishers had objected to the terms of Napster's proposed sale to Bertelsmann, saying Hilbers was more concerned about his former employer, the Journal reports.

According to the Wall Street Journal, Walsh cited an e-mail from Hilbers to Bertelsmann executives in which Hilbers wrote, "My decision-making was always driven by what I thought was a better decision for Bertelsmann."

Responding to the ruling, Hilbers said his "guiding principle was always to look out for the stakeholders" of Napster when running the company. A person close to Napster said Napster's venture-capital investors negotiated the final Bertelsmann deal, not Hilbers.

With little money left in its coffers and no apparent source of funding, Napster said it will probably file a petition to liquidate its assets under Chapter 7 in the coming days. Napster had filed for Chapter 11 bankruptcy protection earlier this year, hoping to keep its staff, technology and brand name together as part of a plan to revive the Napster online service under Bertelsmann's ownership with songs licensed from the recording industry.

Even if the court had approved the sale, there was considerable doubt Bertelsmann would move forward with a plan to revive the Napster service, which has been offline for more than a year because of a preliminary court order in Napster's long-running legal battle with the recording industry.

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