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Wednesday, October 31, 2001 - Page updated at 12:00 AM

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Loudeye's chairman quits, sells back shares

Seattle Times technology reporter

Martin Tobias, founder of Seattle-based Loudeye Technologies and its majority shareholder, has sold 4 million shares back to the company and stepped down as chairman.

John Baker, the chief executive officer since March, was elected chairman. Tobias remains the largest shareholder, with 4.6 million shares.

Loudeye, which digitally encodes audio and video to be played via the Internet, repurchased the stock for $2 million, or 50 cents a share.

The company also gave Tobias a $2 million secured line of credit, using certain property and his remaining 4.6 million Loudeye shares as collateral.

Yesterday's announcement, in essence, ends Tobias' direct involvement with the company he founded in August 1997.

Baker said the company repurchased the shares to prevent the stock from falling each time Tobias sold off a chunk of his stake.

"His selling in the public market was not a good sign and sends the wrong message to the market place," Baker said. Through the purchase, "we provided him with liquidity and put him on the sidelines as a seller of the company's stock."

Tobias has steadily sold off shares. He filed 21 separate requests with the Securities and Exchange Commission between May and August to sell 1.8 million shares for roughly $3 million, according to SEC documents.

Under the agreement, Tobias cannot sell his remaining shares without Loudeye's consent until Jan. 31, 2003, or he repays any credit he uses from the company.

Tobias yesterday said he sold part of his shares back to Loudeye to free up cash for other ventures, mainly a commercial-development project he owns at Bell Street and Elliott Way in Seattle and because his large stake still made him a company insider.

"It's hard to do other things in any business where I might have a conflict," he said.

"If I'm going to do something else, I need not be an insider (at Loudeye)."

Loudeye debuted a star on the Nasdaq in March 2000, when demand for stock in streaming media companies doubled its initial public offering price from $8 to $16. On the first day of trading, its share price tripled to $40.

Less than two weeks later, the Nasdaq began its rapid fall and Loudeye's shares fell with it. After peaking at $45 in Loudeye's first week as a public company, the stock has lost most of its value, trading under $1 since mid-August.

CIBC World Markets analyst John Corcoran said yesterday's announcement should clear up confusion among investors.

"It rationalizes the management structure and addresses the issue of the founder of the company holding a lot of stock," he said.

The company last week reported a fourth-quarter loss of $12 million, or 27 cents a share, and said it won't be cash-flow positive until the end of next year. Sales were $2.5 million, a 27 percent drop from a year-ago.

Meanwhile, the company has sought to diversify in the past year, using its stockpile of cash. Since Baker took the helm, it has acquired five companies.

Previously Loudeye focused solely on encoding audio and video for media and entertainment companies; now it also sells corporate services.

The company recently acquired Seattle-based Activate, which Webcasts events for Fortune 500 companies, including investor conference calls, sales presentations and corporate training.

Loudeye paid $1 million in cash and will pay $3 million, with either cash or stock, next year for the acquisition, which amounts to pennies on the dollar to Activate's earlier value (its digital operation center alone cost $20 million to build). Loudeye has $69 million in cash.

Corcoran said the company was one of the first companies in a market that hasn't grown as fast as once expected.

"They're ahead of the growth curve," he said. "They're repositioning itself while the market catches up."

Loudeye's shares closed yesterday at 58 cents, up 7 cents.

Monica Soto may be reached at (206) 515-5632, msoto@seattletimes.com.

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