UPDATE 1-GTSI says US lifts contract suspension, CEO to resign

Tue Oct 19, 2010 2:03pm EDT

* CEO, general counsel to quit as part of deal with SBA

* To stop work with small businesses as prime contractors

* GTSI shares rise as much as 18 pct

Oct 19 (Reuters) - GTSI Corp GTSI.O said a U.S. regulator lifted a federal contract suspension on the IT services provider, but its chief executive and general counsel will resign to facilitate the agreement.

GTSI said Chief Executive Scott Friedlander and general counsel Charles DeLeon will resign effective Oct. 26.

However, the company said the Small Business Administration's (SBA) investigation into its conduct as a subcontractor for certain small businesses was continuing, and could result in administrative, civil or criminal penalties.

Earlier this month, the SBA suspended the company from receiving any new business from the federal government and said it was investigating possible violations related to a contract GTSI had with the Department of Homeland Securities.

The suspension also resulted in the withdrawal of a $67 million takeover offer for GTSI by privately owned Eyak Technologies LLC. [ID:nSGE6930GU]

Under its agreement with the SBA, GTSI will immediately cease working with small businesses that serve as prime contractors, a practice that accounted for about 15 percent of the company's annual revenue.

The agreement will end either on the 90th day after the completion of the SBA probe on Oct. 19, 2013, or the notification date of any proposed debarment by the SBA -- whichever comes earlier.

Shares of GTSI were trading up 13 percent at $4.80 in afternoon trade on Nasdaq. They have fallen 42 percent since the SBA move on Oct. 1. (Reporting by Siddharth Cavale in Bangalore; Editing by Anne Pallivathuckal)