| 1 Pharmaceutical Regulatory and Compliance Conference 2008 FCPA and the Practical Implications to...

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Pharmaceutical Regulatory and Compliance Conference

2008

FCPA and the Practical Implications to Interactions with HCPs November 8, 2007

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FCPA Overview

• Roots in the 1970s– 400+ companies making questionable or illegal payments– $300+ million

• Prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business.– Since 1998 also applies to foreign entities who further a

corrupt payment while in the US• The Department of Justice is the chief enforcement agency• Coordinate role played by the Securities and Exchange

Commission (SEC). – Books and record requirements

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FCPA – Five Elements

• Who: Potentially any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm.

• Corrupt Intent: The person making or authorizing the payment must have a corrupt intent and the payment must be intended to induce misuse of an official position.

• Payment: The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value.

Source: www.usdoj.gov/criminal/fraud/docs/dojdocb.html

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FCPA Five Elements

• Recipient: The FCPA applies to payments to any public official, regardless of rank or position. Also includes candidates and party officials.

• Business Purpose: Payments made in order to assist the firm in obtaining or retaining business for or with, or directing business to, any person.


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Facilitation Payments

• Permits payments for routine items: obtaining permits, licenses, or other official documents; processing governmental papers, such as visas and work orders; providing police protection, mail pick-up and delivery; providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products; and scheduling inspections associated with contract performance or transit of goods across country.


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The Anti-Corruption Landscape

• Clear consensus that corruption must be avoided.– OECD– EU Anti-Bribery Conventions– World Bank– Public opinion

• Stepped up, and coordinated enforcement.– DOJ and SEC

• Robust penalties.– Fines– Internal monitors

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The Anti-Corruption Landscape

• Enforcement efforts affecting a wide range of industries.– Defense

– Oil & gas

– Medical devices

– Pharmaceuticals

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Multiple Challenges

• Cultures of corruption.– Large number of countries with widespread corruption

• Transparency International bottom scores:

– Sudan

– Guinea

– Iraq

– Myanamar

– Haiti

• China constant source of concern

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Multiple Challenges

• Difficulty in controlling remote offices and agents.– Challenges in auditing and monitoring

• Sometimes difficult to know who is a government official.– Especially for pharma and medical devices

• Can be too tempting.– Easy to see what you can get, hard to remember that

how you get it counts

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Reputational Complication

• Damage goes beyond the fine.– Long-term reputational consequences

• Stock price

• Recruiting

• Press mentions

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What Countries Are Doing -- Communicating

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What Companies Are Doing – Agents & Contractors

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What Companies Are Doing -- Detection

• Whether domestically or internationally, companies rely on multiple reporting tools for detecting violations.

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What Companies Are Doing -- Detection

• Supervisors are generally seen as the first line of detection, but there was no strong pattern.

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Speakers

• Adam Turteltaub– Corporate Relations

Executive– LRN– [email protected]

• William Jacobson– Assistant Chief, Fraud

Section, Criminal Division– US Department of Justice– William.jacobson@usdoj.

gov

• Gary Giampetruzzi– Senior Corporate Counsel– Pfizer, Inc.– [email protected]

• Michael Horowitz– Commissioner, US Sentencing

Commission– Partner, Cadwalader

Wickersham & Taft– [email protected]

mailto:[email protected]





FCPA and the Practical Implications to Interactions with HCPs Gary GiampetruzziAssistant General CounselPfizer, Inc.

General Program Guidance From The Cases Focus on maintenance of controls by companies (and individuals?)

Development of clear FCPA policies and program elements— Communication, regular training, and annual certifications— Reporting systems, and appropriate discipline when violations occur

Development of FCPA procedures reasonably capable of preventing violations— Should be a risk-based approach to controls / procedures— Due diligence and post-retention oversight of third-party relationships— Appropriate contractual language with third-party agreements setting forth

anti-corruption reps and warranties, compliance with anti-corruption laws, etc.

— Controls to ensure that books, records and accounts are maintained accurately

Senior management reporting on FCPA status to audit committee, etc.

Regular audits to ensure that program has been implemented in an effective manner

An FCPA Code of Conduct? Start With Your FCPA Risk Areas

Direct Healthcare Regulators

•Product approval and registration•Product pricing•Product reimbursement•Placement on hospital formularies

Government-employed doctors

•Gifts and hospitality•Congresses and meetings•Consultant arrangements•Education and research grants

Other public officials

•Customs and importation officials•Charitable and political contributions, etc.•Third-party agreements (ex. wholesalers, distributors and other service providers)

Foreign Officials

Global Policy on Interactions with Healthcare Professionals

Primacy of Patient And Healthcare Professional

Relationship

Corporate Citizenship

Transparency

Core Global Policy Principles

Dealing With Specific Areas Of Risk

Ex. Support for Third Party Medical Meetings and Conferences

The main purpose of medical congresses, conferences, symposia and similar programs supported by Pfizer must be scientific exchange

and/or medical education. . . . In no instance will Pfizer provide financial

support as an inducement for a healthcare professional to

use, prescribe or recommend a Pfizer product or otherwise influence the

outcome of a clinical trial.

Don’t Forget The Controls: A Global FCPA Procedure

A comprehensive, corporate-developed global procedure— Real controls; not merely another statement of policy (ex. GPIHP)

Implementation by local markets to enforce and implement corporate procedure

— Local market identification of public officials— Detailed written procedures govern gifts and hospitality, congresses,

consultant arrangements, research and other grants, third-party relationships, etc. with officials

— Local implementation reviewed by Legal, with annual certifications— Essentially becomes gap analysis with existing implementing SOPs

Local systems, processes and controls subject to periodic auditing— Local trend analysis on interactions in consultation with Corporate

Compliance

Appropriate record retention and training, training and more training

Fundamental Point: Policies Are Not Procedures

Policy Procedure

Directional guidance

No specification of process

Detailed guidance

Process steps and controls outlined

Example: Dealing With Third-Party Consultants

Healthcare professionals may be hired as consultants to provide bona fide services, such as assisting in the development of medicines, participating in clinical trials, etc.

In no instance will Pfizer retain any healthcare professional, regardless of qualification, as an inducement for such healthcare professional to use, prescribe, or recommend products.

In some countries, many healthcare professionals are employed by government or regulatory authorities. Pfizer will ensure that all such relationships are appropriately reviewed to ensure compliance with Pfizer policies and applicable laws.

Consider the subject market / territory

Identify relationships with gov’t officials

Determine the competence / integrity of the third party (questionnaires, interviews, etc.)

Reasonableness of compensation (vs. work to be performed, fair market value)

Ensure compliance with local laws

Integrate standard FCPA language and safeguards into the third-party agreement

Maintain continuing oversight of third-party

Maintain accurate books and records, including the due diligence file

GPIHP (Policy) FCPA Procedure

FCPA Training (Along With More Communications)

Prior training approach - The first 150 years— Mostly non-web based (ex. Compliance and Values Workshops)— New employee orientations, various corporate and divisional programs

The past several years – Addition of web-based training— More than 45,000 colleagues trained in the U.S. and Puerto Rico— Pfizer Code of Conduct module; healthcare law and other modules— Feedback (92% liked the course; 91% better understand rules; 94% intend

to use)

Initial international roll outs complete— Almost 50,000 additional colleagues trained— More than 80 countries worldwide, and approximately 30 languages

Proactive collaborative market education and review

Online FCPA and other certifications

Pfizer Compliance Education Center (PCEC)

Auditing and Assessing An FCPA Program

Legal Division survey

Global Colleague and Values survey

Global compliance survey

Employee exit interviews

Corporate Compliance website

PCEC feedback and statistics

Feedback and statistics from the Open Door and Compliance Hotline

Auditing and Monitoring functions (Healthcare, Manufacturing, R&D, etc.)

Global Compliance Liaisons(eyes and ears on the ground)

Identifying Issues: A Viable Open Door Policy

Referable Compliance Issues (RCIs)

Definition— Significant violations of applicable law or company policy or procedure— “Significance” determined by severity of action or consequence and nature

of law (i.e. intentional, criminal, or repeated behavior; participation of a manager; serious financial, operational, investor relations, health, or safety consequences)

Points of process1. Handled exclusively at the direction of Corporate Compliance and GI2. Reported to the Corporate Compliance Officer; Audit and Compliance

Committees

Response to changed environment— Need to ensure corporate awareness of significant compliance issues (ex.

Sarbanes)— Provides ability to investigate and decide whether to disclose

Identifying Issues: Hotlines in Every Country and Region

Global Compliance Liaisons / Regional Compliance Directors

Liaison Partnership between Corporate Compliance and leadership of local markets

— Designated Compliance Liaisons in every market around the world— Liaise between market and Corporate Compliance— Ensures that Corporate Compliance Officer (CEO, CFO, Board and Audit

Committee of Board) up-to-date on compliance issues at every Pfizer location around the world

Report Referable Compliance Issues to Corporate Compliance Group— Act as chief point of contact between business and Compliance Group

Be an on-site source of compliance information for colleagues— Spreads compliance knowledge and empowers colleagues— Drives compliance into the business

Regional Compliance Directors— Beijing, New Delhi, Buenos Aires, Karlsruhe, Istanbul, Hong Kong, etc.

Don’t Be Afraid To Ask: A Global Compliance Survey

Cadwalader, Wickersham & Taft LLPNew York London Charlotte Washington Beijing

8th Annual Pharmaceutical Regulatory & Compliance Congress

Michael E. Horowitz, Esq.Partner, Cadwalader, Wickersham & Taft [email protected]; (202) 862-2253

Cadwalader, Wickersham & Taft LLP 33

Potential Industry FCPA Issues

• Direct Regulators

– Product Registration– Reimbursement Rules– Importation/Customs– Distributors/Agents

• Government-Employed Doctors

– Employee of Government Hospital or University– Clinical Trials, Gifts, Conference Travel, Honorarium,

Consultants/KOLs– Charitable Donations


Health/Pharma Industry – Recent Cases

• Syncor (2002) – Cardinal Health acquisition. Improper payments to gov’t physicians:• At least $400,000 in commissions to influence purchasing decisions; cash

payments improperly recorded as promotional and advertising expenses• At least $113,000 in referral fees (much in cash) to influence doctors• Loans never repaid, personal expenses not incurred, “over invoicing”

arrangements to generate cash gifts• At least $245,000 involving sponsorship at educational seminars (registration

fees, travel, lodging, meals), gifts of computer equipment, digital cameras, expensive wines, wristwatches, software and office furniture, sponsorship of social functions and hospital fundraisers, etc.

• Syncor Taiwan pleaded guilty to violating FCPA anti-bribery and books & records provisions; sentenced to 3 years of supervised probation and $2 million fine

• Syncor International charged by SEC with violating FCPA anti-bribery, books & records, and internal controls provisions; paid $500,000 civil penalty; required to retain independent consultant


Syncor– Lessons Learned

• Enforcement action can slow closing of transactions

▪ Acquisition by Cardinal Health was delayed until investigation concluded and agreements were struck with DOJ and SEC

• FCPA liability/exposure can have an impact on pricing

▪ Cardinal Health purchased for lower price than originally negotiated

• Parent liability established through the foreign subsidiary’s books and records

• Notable as first Healthcare Industry FCPA prosecution - established U.S. government position that state-employed doctors are government officials for purposes of the FCPA

• Notable as first case in which DOJ criminally prosecuted a foreign subsidiary of a U.S. company


Health/Pharma Industry – Recent Cases (cont)

• Schering Plough (2004)

– At request of director of Polish regional government health care fund, Schering made $76,000 in donations to Polish charity; payments structured to avoid detection and exceeded local manager approval levels (no knowledge at U.S. headquarters).

– During time period when donations made, sales of two oncology products increased disproportionately in that Polish region

– SEC Resolution: $500,000 civil penalty and Schering retained independent consultant to review and make recommendations on FCPA procedures; Company agreed to adopt all recommendations.



• Micrus (2005) – private medical device company

– Payment of more than $105,000 to doctors employed at publicly owned and operated hospitals in France, Turkey, Spain, and Germany in return for the hospitals' use of Micrus' products.

– Payments "disguised" in Micrus' books as stock options, honorariums and commissions paid in return for the doctors' service on "advisory committees.“

– Additional payments totaling $250,000 for which Micrus had failed to obtain necessary prior administrative or legal approval required under the laws of the relevant foreign jurisdiction.

– Non-prosecution agreement, fine of $450,000, adopt compliance program, retain independent compliance expert for 3 years



• DPC (Tianjin) (2005) – provider of medical products

– Approximately $1.6 million in bribes from 1991 to 2002 in form of illegal "commissions" to physicians and laboratory personnel employed by government-owned hospitals in PRC to obtain hospital business.

– Payments authorized by DPC Tianjin's general manager, and paid in cash and hand-delivered by DPC Tianjin salespeople to person who controlled purchasing decisions for particular hospital department.

– DPC Tianjin recorded payments on its books and records as "selling expenses.“

– DPC pleaded guilty to violations of the FCPA, and settled with SEC. Agreed to pay $4.8 million in fines and disgorgement, and retain independent monitor.


Health/Pharma Industry – Recent SEC Filings (alphabetical order)

• AstraZeneca: SEC request for policies, audits, correspondence, and compliance documents re: FCPA, as well as for any payments to doctors and internal accounting controls for several specific countries

• Bristol-Myers Squibb: SEC informal inquiry (now formal) into company’s German subsidiary and certain employees and/or agents; investigation apparently initiated by Munich prosecutors

• GlaxoSmithKline: SEC subpoena regarding participation in U.N. oil-for-food program; SEC investigation into sales and marketing practices in Verona, Italy region (clinical studies, congresses, medical education)

• Immucor: Self-report to SEC; settle with prosecutor in Milan; alleged improper cash payments to physicians in exchange for favorable contract awards by hospital

• Johnson & Johnson: Voluntary disclosure to SEC and DOJ; overseas units are believed to have made improper payments related to sale of medical devices in two small market countries

• Pfizer: Voluntary disclosure to SEC and DOJ regarding potentially improper payments related to sales activities in several foreign markets


Potential Industry FCPA Red Flags

• Large aggregate payments/benefits to physician

• Physician has purchasing authority for gov’t hospital or active in regulatory approvals

• Conferences/training are not appropriate to physician’s practice

• Extensive or inappropriate entertainment/dinner/travel

• Unusual increase in product purchases or prescriptions written

• High commissions or unusually large fees/gifts

• Insufficient/incomplete due diligence (i.e. gov’t relationship, credit)


Potential Industry FCPA Red Flags

• Distributor/agent lacks expertise or track record

• Distributor/agent unusually successful in obtaining government contracts/benefits

• Payments into offshore accounts

• Inadequate, generic or otherwise questionable descriptions on invoices/requests

• Missing or incomplete documentation

• Substantial activity for new vendor/physician

• Invoices paid too quickly; payments in cash or check


M&A Due Diligence – Areas of Special Interest

• Foreign Operations in Suspect Markets– Low C.P.I. Score– Previous Allegations

• Lack of a Compliance Operation/No FCPA Procedure• Joint Venture/Joint Distributorship Responsibilities• Non-public Company• Foreign Representatives and Agents

– Commission Payments– Finders Fees

• Foreign Discontinued Operations


Some Additional Issues

• Low CPI Countries are usually poorer and in need of training and medical assistance

• Usually few employees

• Low revenue countries/remote locations

• Often operate through distributors/agents

Cadwalader, Wickersham & Taft LLPNew York London Charlotte Washington Beijing

M&A ExamplesM&A Examples

Michael E. HorowitzPartner, Cadwalader, Wickersham & Taft

[email protected]; (202) 862-2253


ABB Vetco Gray - Allegations

• Acquisition by “Equity Club” (JP Morgan Partners, Candover Acquisition by “Equity Club” (JP Morgan Partners, Candover Partners Limited and 3i Group) of Upstream Oil and Gas business Partners Limited and 3i Group) of Upstream Oil and Gas business of ABB Limited, a Swiss company with ADR’s listed on NYSEof ABB Limited, a Swiss company with ADR’s listed on NYSE

• ProblemProblem: ABB Vetco Gray of Houston, Texas and ABB Vetco Gray : ABB Vetco Gray of Houston, Texas and ABB Vetco Gray of UK paid more than $1 million to officials of NAPIMS (Nigerian of UK paid more than $1 million to officials of NAPIMS (Nigerian gov’t agency) to obtain confidential bid information and favorable gov’t agency) to obtain confidential bid information and favorable recommendations from Nigerian gov’t agencies in connection with 7 recommendations from Nigerian gov’t agencies in connection with 7 oil & gas construction contracts in Nigeria for which companies oil & gas construction contracts in Nigeria for which companies expected to realize profits greater than $12 millionexpected to realize profits greater than $12 million

• Payments also made to government officials in Angola and Payments also made to government officials in Angola and Kazakhstan for similar reasonsKazakhstan for similar reasons

• Payments included cash and gifts to NAPIMS officials, travel and Payments included cash and gifts to NAPIMS officials, travel and entertainment, per diem paymentsentertainment, per diem payments


ABB Vetco Gray – Enforcement Actions

• DOJ charged ABB Vetco Gray Inc. as a “domestic concern,” and ABB DOJ charged ABB Vetco Gray Inc. as a “domestic concern,” and ABB Vetco Gray UK Ltd. under 1998 law expanding jurisdiction to foreign Vetco Gray UK Ltd. under 1998 law expanding jurisdiction to foreign companies that take acts in U.S. in furtherance of a bribecompanies that take acts in U.S. in furtherance of a bribe

• Both companies pleaded guilty to violations of FCPA’s anti-bribery and books & Both companies pleaded guilty to violations of FCPA’s anti-bribery and books & records provisions; records provisions; eacheach fined $5.25 million fined $5.25 million

• SEC alleged violations of FCPA’s anti-bribery, books & records, SEC alleged violations of FCPA’s anti-bribery, books & records, andand internal controls provisions by Swiss parent; agreed to pay $5.9 million internal controls provisions by Swiss parent; agreed to pay $5.9 million in disgorgement and prejudgment interest, and $10.5 million penalty in disgorgement and prejudgment interest, and $10.5 million penalty (penalty satisfied by payment of criminal fines by subsidiaries)(penalty satisfied by payment of criminal fines by subsidiaries)

• Parent required to retain Independent Consultant to review FCPA compliance Parent required to retain Independent Consultant to review FCPA compliance procedures even though it sold Vetco Gray entitiesprocedures even though it sold Vetco Gray entities


ABB Vetco Gray – Lessons Learned

• Necessity to conduct rigorous due diligence and monitor activities Necessity to conduct rigorous due diligence and monitor activities of foreign agents, consultants, representatives, distributors, of foreign agents, consultants, representatives, distributors, suppliers and joint venture partnerssuppliers and joint venture partners

• Upon acquiring company, FCPA risk areas to be addressed:Upon acquiring company, FCPA risk areas to be addressed:▪ System of internal controlsSystem of internal controls▪ Compliance program and due diligence procedures Compliance program and due diligence procedures ▪ Disciplinary actionsDisciplinary actions▪ Change in business cultureChange in business culture

• Government investigation can slow closing -- acquisition by Government investigation can slow closing -- acquisition by Equity Club delayed until agreements struck with DOJ and SECEquity Club delayed until agreements struck with DOJ and SEC

• FCPA liability/exposure can have an impact on pricing – Equity FCPA liability/exposure can have an impact on pricing – Equity Club purchased for lower price than originally negotiatedClub purchased for lower price than originally negotiated


InVision Technologies, Inc. - Allegations

• GE acquisition of InVision Technologies, manufacturer of airport GE acquisition of InVision Technologies, manufacturer of airport security/explosive detection systemssecurity/explosive detection systems

• InVision sold equipment via local agents and distributorsInVision sold equipment via local agents and distributors• InVision aware of high probability that agents/distributors in InVision aware of high probability that agents/distributors in

Thailand, China and Philippines paid or offered to pay money Thailand, China and Philippines paid or offered to pay money (travel expenses and/or gifts) to foreign officials or political (travel expenses and/or gifts) to foreign officials or political parties in connection with sale of machinesparties in connection with sale of machines

• SEC alleged InVision improperly accounted for certain payments SEC alleged InVision improperly accounted for certain payments as “cost of goods sold,” realizing profits of approximately as “cost of goods sold,” realizing profits of approximately $589,000 from sale of two machines in China$589,000 from sale of two machines in China

• SEC alleged InVision failed to develop adequate process to select SEC alleged InVision failed to develop adequate process to select and train its foreign sales agents and distributorsand train its foreign sales agents and distributors


InVision Technologies, Inc. – Enforcement Actions

• DOJ Deferred Prosecution Agreement -- $800,000 penalty, accepted responsibility DOJ Deferred Prosecution Agreement -- $800,000 penalty, accepted responsibility for misconduct, and agreed to statement of facts summarizing improper transactionsfor misconduct, and agreed to statement of facts summarizing improper transactions

• Required to integrate InVision business into GE’s FCPA Required to integrate InVision business into GE’s FCPA compliance program and retain Independent Consultant to compliance program and retain Independent Consultant to evaluate GE’s effortsevaluate GE’s efforts

• SEC – Disgorged $589,000 in profits, an additional $28,700 in interest, and penalty SEC – Disgorged $589,000 in profits, an additional $28,700 in interest, and penalty of $500,000; SEC alleged violations of the FCPA’s anti-bribery, books & records, of $500,000; SEC alleged violations of the FCPA’s anti-bribery, books & records, andand internal controls provisions (failure to have system of internal controls to detect internal controls provisions (failure to have system of internal controls to detect and prevent FCPA violations)and prevent FCPA violations)


InVision Technologies, Inc. – Lessons Learned

• Government investigation slowed closing – GE announced acquisition in Government investigation slowed closing – GE announced acquisition in March 2004, but transaction did not close until December 2004, after March 2004, but transaction did not close until December 2004, after company agreed to deferred prosecutioncompany agreed to deferred prosecution

• Voluntary disclosure allowed the transaction to close – Credibility of GE’s Voluntary disclosure allowed the transaction to close – Credibility of GE’s compliance program was an important factorcompliance program was an important factor


Titan Corporation - Allegations

• Proposed acquisition by Lockheed Martin of Titan Corp.Proposed acquisition by Lockheed Martin of Titan Corp.• Titan employed consultant and paid $3.5 million to business advisor of Titan employed consultant and paid $3.5 million to business advisor of

Benin’s PresidentBenin’s President▪ $2 million in indirect contributions to President’s re-election $2 million in indirect contributions to President’s re-election

campaign; at least two wires of $500,000 from Titan’s US account campaign; at least two wires of $500,000 from Titan’s US account to agent’s Monaco account; remaining payments in cashto agent’s Monaco account; remaining payments in cash

▪ Payments characterized on Titan’s books as “social program Payments characterized on Titan’s books as “social program payments” required by contract with Benin governmentpayments” required by contract with Benin government

• Titan gave a $1,850 pair of earrings to Benin President’s wifeTitan gave a $1,850 pair of earrings to Benin President’s wife• Titan falsified documents to enable agents to under-report commission Titan falsified documents to enable agents to under-report commission

payments in Nepal, Bangladesh, and Sri Lanka payments in Nepal, Bangladesh, and Sri Lanka • SEC alleges Titan falsely reported to U.S. government commission SEC alleges Titan falsely reported to U.S. government commission

payments on equipment exported to Sri Lanka, France and Japanpayments on equipment exported to Sri Lanka, France and Japan


Titan Corporation – Enforcement Actions

• Titan pleaded guilty to violating FCPA’s anti-bribery and books & Titan pleaded guilty to violating FCPA’s anti-bribery and books & records provisions, as well as tax violation; sentenced to 3 years records provisions, as well as tax violation; sentenced to 3 years supervised probation and $13 million fine; ordered to institute FCPA supervised probation and $13 million fine; ordered to institute FCPA compliance program and internal controlscompliance program and internal controls

• SEC alleged violation of FCPA anti-bribery, books & records, SEC alleged violation of FCPA anti-bribery, books & records, andand internal controls provisions; paid $15.5 million in disgorgement and internal controls provisions; paid $15.5 million in disgorgement and prejudgment interest, and $13 million penalty (satisfied DOJ fine)prejudgment interest, and $13 million penalty (satisfied DOJ fine)

• Titan required to retain independent consultant to review its FCPA compliance Titan required to retain independent consultant to review its FCPA compliance procedures and to adopt consultant’s recommendationsprocedures and to adopt consultant’s recommendations

• SEC issued 21(a) Report criticizing Titan proxy for including false FCPA SEC issued 21(a) Report criticizing Titan proxy for including false FCPA representations and warrantiesrepresentations and warranties


Titan Corporation – Lessons Learned

• Reps & Warranties in merger agreement must be accurate (or qualified) Reps & Warranties in merger agreement must be accurate (or qualified) when included in proxy statementwhen included in proxy statement

• Internal controls must be designed to detect “red flags,” such as offshore Internal controls must be designed to detect “red flags,” such as offshore payments and inconsistent invoicespayments and inconsistent invoices

• Must conduct meaningful due diligence on foreign agents and consultantsMust conduct meaningful due diligence on foreign agents and consultants• Must ensure services alleged to be performed are actually providedMust ensure services alleged to be performed are actually provided• Risk of additional prosecution under International Traffic in Arms Risk of additional prosecution under International Traffic in Arms

Regulations (“ITAR”) and possible suspension of export privilegesRegulations (“ITAR”) and possible suspension of export privileges• Potential U.S. and foreign tax exposurePotential U.S. and foreign tax exposure• Possible contractor debarment issuesPossible contractor debarment issues• Deal failed when Titan was unable to meet contractual agreement to settle Deal failed when Titan was unable to meet contractual agreement to settle

with U.S. Government by certain timewith U.S. Government by certain time

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