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updated 12/14/2003 7:35:42 PM ET 2003-12-15T00:35:42

Two former employees who helped Bertelsmann build up its online operations in the mid-1990s deserve at least €200 million ($246 million) for their work, a U.S. jury has concluded, after finding the German media group liable for breach of contract.

Jan Henric Buettner and Andreas von Blottnitz argued that Thomas Middelhoff, Bertelsmann's former chief executive, had promised them an equity interest in the company's online business, which became the European arm of America Online.

Although the exact amount for which Bertelsmann could be liable remains unclear, the verdict could represent a significant setback to the company's plans to reduce debt at a time when it is also struggling to address weaknesses in some of its business areas.

Bertelsmann managers, confident that the case would not go against the group, had made no provisions for a negative outcome.

In 2000, Bertelsmann sold its 50 percent stake in AOL Europe to Time Warner for $6.75 billion. The two men sued for compensation after alleging that Mr. Middelhoff had reneged on oral and contractual promises of an equity stake in the company, which would have meant significant benefits from the disposal.

Mr. Middelhoff, at the time in charge of multimedia and corporate development, denied making promises of equity participation to the two executives.

Mr. Buettner and Mr. von Blottnitz had initially sought $5 billion in damages, which they later reduced to $3 billion.

A jury in Santa Barbara, California - where the plaintiffs live - found in favor of the two men late on Thursday, but there is confusion over the size of damages.

A hearing on the jury's verdict is due next week, after which a judge is expected to issue a final judgment, including damages. If they stay in the range of €200 million, or higher, Bertelsmann is likely to appeal.

Bertelsmann said yesterday that many of the plaintiffs' claims had been exposed as "incorrect and as distortions of the actual events".

But Bill Price of Quinn Emanuel, the plaintiffs' lawyers, told reporters: "We clearly established that Bertelsmann had no interest or experience in setting up an online service and that was their only option to realize the project was through Jan and Andreas."

Copyright The Financial Times Ltd. All rights reserved.

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