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labels wouldn't sue directors and investors or that Bertelsmann would cover the first $10 million in any damages against them. Bertelsmann agreed. Second, they asked that if Bertelsmann and the labels settled during a bankruptcy reorganization, the group would get included in any similar releases from liability. Again, Bertelsmann agreed. Finally, Barry and Hummer asked that if Napster went into bankruptcy, came out the other side, and then won music-distribution licenses from the major labels, those licenses would include the personal-liability releases. That last demand was too much for the German company, according to someone on the Napster side of the talks. "They finally said, 'Basta! [Enough!],'" the person said. Barry recalled the breakdown differently, blaming it on Bertelsmann. But Napster executives said the more fundamental problem was that Barry had difficulty accepting that Hummer Winblad would have little remaining stake in Napster when it was all over. "Hank was upset that Bertelsmann wanted them gone," one executive said.

Soon the deadline on Bertelsmann's offer expired, and it withdrew the deal, just as Conway had feared. It was like all the other negotiating experiences that Bertelsmann and the labels had with Napster before, only worse and over less. "From the beginning, it was really tough to negotiate with the Napster team," Middelhoff said. "Sometimes they changed their minds; sometimes they had different camps on their side. They continued to believe Napster had a tremendous upside and tremendous potential market capitalization."

AFTER THE TALKS FOR AN equity deal collapsed and Fanning's lawsuit continued, Bertelsmann made a surprise, last-ditch proposal on May 3 to at least buy Napster's assets through a planned Chapter 11 bankruptcy reorganization. The creditors would get $5 million and the shareholders would get nothing, but the technology, the brand, and the employees would stay together, and Napster could escape Chapter 7 bankruptcy liquidation. As long as talks on that plan made progress, Bertelsmann promised to put in the first new money in six months, a desperately needed $50,000 per day to meet the payroll. Barry and Hummer asked questions