Scour Assets Sell for $9M

CenterSpan Communications Corp. (Nasdaq: CSCC) was given the green light to purchase the assets of Internet entertainment firm Scour, Inc. Tuesday by a Los Angeles bankruptcy court.

The high-profile Scour -- which operated a controversial multimedia file-sharing and searching network -- was placed on the auction block after it declared bankruptcy in October to stave off a batch of copyright infringement lawsuits.

As the highest bidder in the auction, Oregon-based CenterSpan will pay US$5.5 million in cash and $3.5 million in stock for the acquisition. The company said the purchase will enable it to "take title to the Scour assets free and clear of any and all liabilities."

For its part, Scour said the proceeds from the sale transaction will be used to discharge liabilities and satisfy creditors' claims in its bankruptcy case.

"We are happy and satisfied our creditors will be paid and that the process has allowed Scour to maximize the value of its assets," Scour president Dan Rodrigues said.

Bidding War

CenterSpan had competition in the bidding war for Scour's assets.

Last month, high-profile firm Listen.com introduced its own offer to buy the digital file swapping venture for $5.5 million in cash and stock that it valued at $14.78 per share, or about $8.5 million in total. Backed by all five major record labels, Listen.com distributes digital music and runs an Internet radio service.

However, after hearing testimony from a valuation expert retained by Listen.com, the judge presiding over Scour's bankruptcy proceeding ruled that the company's stock was only worth $2.96 per share for purposes of the auction. Based on that valuation, Listen's entire bid was slashed to $6.56 million.

At Tuesday's hearing, Listen representatives said they were not willing to top CenterSpan's bid.

Listen Audio, Inc., which provides software and services for Internet music delivery, had also placed a bid for Scour's assets, but pulled out of the running when it could not beat CenterSpan's high price.

In awarding Scour's assets to CenterSpan, the judge noted that not only was the company's bid the highest, but also there is a public market for its stock, assuring it more liquidity.

Lawsuits End

The acquisition also brings an end to Scour's costly legal woes. The company said its attorney expected a settlement of the copyright infringement suits brought over the summer by the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA) and the National Music Publishers Association (NMPA).

At the heart of the litigation was the company's peer-to-peer digital file-sharing service Scour Exchange, which is used by millions of registered members.

The suits had made it virtually impossible for Scour to acquire additional venture funding, resulting in massive layoffs. Soon after, it was forced to file for bankruptcy protection, a move that froze all legal action and allowed the company to keep its services operational.

However, last month Scour decided to shut down the swapping network in an effort to smooth the progress of its assets sale.

Content For a Fee

CenterSpan, a developer of peer-to-peer networking programs, said it plans to relaunch the Scour exchange in the first quarter of 2001 as part of a file-sharing network that it is creating. Dubbed C-Star, the network would incorporate a digital rights management (DRM) technology platform -- which allows a content provider to set restrictions on the use of digital media -- and compensate copyright holders.

"Scour represents a significant opportunity for us to accelerate public visibility of C-Star and create critical mass for the secure and legal distribution of digital content for a fee over the Internet," said CenterSpan chairman and CEO Frank G. Hausmann.

Hausmann added that a recent private equity investment of $10 million "will give us more than adequate operating and opportunistic cash to execute our strategy."

Final Sale

Scour's sale order is expected to be signed by the bankruptcy judge before the end of the week.

CenterSpan has agreed to complete the transaction within two business days after the sale order becomes final.