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A $5.8 million settlement has been reached in a “corporate raid” case in Delaware between two office supply companies, one of which allegedly hired away a slew of employees and took confidential information from the other. David J. Wolfsohn of Hangley Aronchick Segal & Pudlin represented plaintiff US Office Products Co., an office supply company with about 4,500 employees, 800 of whom were sales representatives. The company had locations in almost every state and grossed about $1 billion in income annually, according to a brief from the plaintiff. The case, USOP Liquidating v. Allied Office Supplies Inc., was filed in federal court in Delaware. USOP began to experience serious financial problems in mid-2000, the brief said, and decided to look for a strategic buyer. In March 2001, USOP entered into an agreement with Corporate Express for the purchase of its assets in the amount of $250 million, the brief said. At the same time, USOP announced that it was filing a voluntary petition for bankruptcy. Included in the asset purchase agreement between USOP and Corporate Express, the brief said, were material adverse change provisions that allowed Corporate Express to walk away from the deal if USOP’s gross daily revenues fell by more than 15 percent between the dates of the agreement and closing. “While USOP’s sales did generally decline in March, they did not do so at a rate that was unexpected or that posed a threat of tripping the 15 percent” material adverse change provision, the brief said. “Nor did USOP lose sales representatives to competitors at a rate that was significantly above its historical average for the preceding months.” The alleged “corporate raid” began in early April 2001, the brief said. Allied Office Supplies Inc., it said, was a smaller, regional company that did business in the mid-Atlantic and Northeast portions of the United States. It sold about the same types of products as USOP to about the same types of customers, the brief said. “During the first week of April, USOP became aware that Allied was aggressively recruiting sales representatives in USOP’s Philadelphia-area office, located in Mount Laurel, N.J.,” the brief said. “Allied was offering guaranteed salaries and huge bonuses that were unlike anything that either Allied or any other competitor had offered to sales representatives in the past.” Several of those sales representatives had signed non-compete agreements, the brief said. USOP soon learned that Allied was soliciting all USOP employees, sending them proposed employment agreements offering guaranteed salaries and “huge” sign-on bonuses, the brief said. “Allied’s recruitment efforts extended not only to sales representatives, but also to the truck drivers, warehousemen, and operations managers upon whom the sales representatives depended,” the brief said. Allied had the recruited USOP sales representatives and support personnel resign en masse and without notice, the brief said. Thirty-eight sales representatives and 39 managers and support personnel in five markets were “enticed” to leave USOP for Allied, the brief said. Many of the employees who went to Allied took with them confidential USOP information, including detailed customer information and pricing lists, the brief said. Possibly “thousands” of pages of information was taken from USOP’s offices, the brief said. USOP claimed Allied managers and support personnel took that information and entered it into Allied’s computer system so that the information could be used to solicit USOP customers with prices lower than or equal to USOP’s, the brief said. According to the brief, Allied was owned by a holding company, which in turn was controlled by Atlantic Equity and First Atlantic, a private venture capital investment fund and its general partner, respectively. Both were named defendants in the suit, after evidence surfaced that they had helped Allied strategize its plans against USOP. The First Atlantic defendants and Allied implemented a “Project Moses” with the goal of acquiring USOP’s most valuable assets, the brief said. As a result of those efforts, the brief said, USOP was forced to accept a lower purchase price from Corporate Express, which “took the damage and uncertainty caused by Allied as easy leverage to renegotiate the asset purchase agreement.” The transaction was completed on May 14, 2001, for a price that was $75 million less than first agreed upon, the brief said. USOP filed a motion for a temporary restraining order and preliminary and permanent injunctive relief just a few weeks earlier, on April 12, 2001. Chief Bankruptcy Judge Peter J. Walsh granted the TRO and enjoined Allied and its officers from recruiting or attempting to recruit any USOP employee, making any false or misleading statements concerning USOP’s financial condition or using any of USOP’s confidential information or trade secrets. Walsh later granted a preliminary injunction to USOP. Wolfsohn said the suit was based on two theories of damages from Allied’s alleged tortious conduct: Allied’s actions in using USOP’s confidential information and in making misleading statements to USOP’s customers in an effort to get them to switch over to Allied. Allied’s actions meant that USOP was “put into a weak negotiating position and got less money,” Wolfsohn said. The parties reached a final settlement in the suit Friday, settling for a total of $5.8 million. Allied and its CEO, Howard Brown, were responsible for $4.85 million, which was paid by its insurance policy with The Hartford, Wolfsohn said. The Fireman’s Fund paid $750,000 on behalf of Allied. The Hartford also insured First Atlantic, which was responsible for $100,000. Stuart J. Glick and Tracey Salmon Smith of Sills Cummis Radin Tischman Epstein & Gross represented Brown and Allied. Glick was out of the office at press time, and Salmon Smith did not return phone calls for comment.

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