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Napster, the sanitized incarnation of the formerly illegal online music exchange, is having a heavy news period. Since last week, it’s announced its intention to sell films online, plus plans to begin a German music service, and a new financing deal that will reap more than $52 million in funding from private investors. “From the perspective of a lawyer, it’s been an exciting time to be involved in the business,” said Karen Dreyfus, a partner in O’Melveny & Myers’ Menlo Park, Calif., office who represented Napster in the financing deal. “Just a few years ago, people didn’t think online music distribution was going to be a successful business model.” Evidently that’s changed since a small group of investors had enough faith in Napster to make an investment after just a few weeks of consideration. Dreyfus said Napster’s decision last September to sell its software division and focus solely on distribution services is largely responsible for the investors’ faith. “It’s sort of emblematic of a new beginning for the company,” she said. “This is the first time they’ve raised money since they’ve been purely a music company.” The funding deal was structured as a private investment in public equity, Dreyfus said, to provide substantial cash on short order. “This PIPE transaction came together rather quickly, so we only spent a couple of weeks on it. And that’s one of the reasons that companies use these PIPE transactions,” Dreyfus said. The PIPE structure allows institutional investors to receive equity in a company that they can then sell as public stock. “They really became popular two years ago when the public offering market was not very strong,” Dreyfus said. Even though the market has improved since then, PIPEs have remained popular as an efficient method of raising quick cash. Dreyfus worked with O’Melveny associates Ayelette Robinson and Gene Levoff on the deal. The investors, whose names have not been disclosed, were represented by Hahn & Hessen in New York.

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