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US: Titan to Pay Fine and Plead Guilty in Bribery Probe

by Jonathon Karp and Andy PasztorWall Street Journal
January 20th, 2005

Defense contractor Titan Corp. tentatively agreed to plead guilty to criminal charges and pay less than $30 million to resolve a yearlong overseas-bribery investigation, people familiar with the situation say.

That probe scuttled Lockheed Martin Corp.'s proposed $1.6 billion acquisition of Titan in June and rocked investor confidence in the San Diego company. Under the current deal to end investigations by the Justice Department and Securities and Exchange Commission, Titan will admit that payments by its overseas consultants violated the Foreign Corrupt Practices Act, these people say.

Titan has set aside $28.5 million to cover possible fines and penalties to settle the case, and the people briefed on the agreement said the total would be "less than $30 million." Though it is expected to be one of the biggest penalties ever imposed under the antibribery law, a settlement would clear the way for Titan to find another merger partner. The company has carved a niche in the growing business of providing information-technology services for the Pentagon and intelligence agencies.

The settlement could be announced by the end of the month, but the details are still subject to change. Titan has been eager to resolve this matter. But unlike in June, when a draft agreement fell apart after a dispute between the State Department and the Justice Department over certain wording, there is no deadline for achieving a settlement. It isn't clear whether current or former Titan employees will be charged under the latest agreement. Justice Department policy is to pursue individuals in every case in which a company pleads guilty.

The Justice Department, the SEC and Titan declined to comment. The company has said it is cooperating with government authorities.

A defense contractor or one of its units that pleads guilty to making illegal foreign payments and certain other felonies is subject to being barred from competing for new government contracts. The Pentagon can waive that punishment, and is slated to do so for Titan when the plea agreement is announced, the people familiar with the agreement say.

Even amid the bribery investigation and prisoner-abuse scandal at Iraq's Abu Ghraib prison, where Titan employees worked as interpreters, the Pentagon didn't shy away from giving the company business. Since the Lockheed acquisition collapsed in June, Titan has won contracts valued at as much as $2.8 billion, if all options are exercised over several years. Those deals call for it to provide the Pentagon with everything from software development and naval-engineering services to linguists for military intelligence.

The new business affirmed the growth potential for Titan, which expects to report 2004 revenue of nearly $2.1 billion. But costs related to the bribery investigation, including legal bills and charges for discontinued operations from affected business units, have weighed on the bottom line. For the first nine months of last year, Titan posted a net loss of $47.7 million, reflecting $54.8 million in costs related to the bribery probe and the failed merger with Lockheed.

The suspicious payments by Titan consultants in the Middle East, Asia and Africa emerged during merger talks with Lockheed. They stemmed from Titan's forays into nondefense businesses, such as wireless telecommunications, in risky developing countries. Titan has since decided to sell or close some of those units, and in recent months has moved to restore investor confidence by naming Wall Street financier Peter Cohen as lead outside director and implementing a new corporate ethics and compliance policy.

Titan saw its stock price plummet last year as Lockheed lowered its offer from $22 a share to $20 share because of Titan's legal woes. After the deal's collapse, Titan's stock fell to a low of $11.40 in August, though it has since rebounded. In 4 p.m. New York York Stock Exchange composite trading yeserday, Titan shares were down 32 cents at $15.17.



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