I was given a company credit card by an employer I

I was given a company credit card by an employer I worked for in the late 90's through 2002. The balance was always paid by the employer and I never saw the monthly statements. I left under good terms at a time when the company was having financial problems.
Skip forward to today (2011) and I receive a call from collection agency saying there was an unpaid balance on this card and I am responsible for it. Since the statute of limitations has passed they are threatening to issue a 1099c to the IRS.
I'm told the original balance was $6,000, which would have taken me many months to run up given the amount I would have used the card.
I'm told the amount I'd need to pay is $2,200 if the 1099c is issued.
They offerred to settle for about 1,500 but said I could make a counter offer.
I live an work in Wisconsin.
Does anyone have advice on how I should proceed? My main concern is keeping this off my credit record. I have an excellent credit rating now and down't want it damaged. To the best of my knowledge this has never been on my report. I check regularly.
I'm angry right now so my inclination is to hire a lawyer and fight this but maybe it would be cheaper in the log run to settle. Is it normal to be offerred the chance to counter-offer? If so, any idea what they would take?
Please let me know if you need any additional information.