Ani­ka Gumbs-San­di­ford

It's a case of a blame game as the le­gal wran­gle in­volv­ing the $30 mil­lion deal bro­kered be­tween Evolv­ing Tec­Knolo­gies and En­ter­prise De­vel­op­ment Com­pa­ny Ltd (eTeck) and Hong Kong-based firm Bam­boo Net­works Ltd (BNL) deep­ens. New in­for­ma­tion sur­fac­ing re­vealed that long be­fore the mul­ti-mil­lion dol­lar in­for­ma­tion tech­nol­o­gy (IT) deal turned sour, the for­mer Ken Julien-led board was fore­warned about the in­vest­ment.

The com­pa­ny formed part of for­mer prime min­is­ter Patrick Man­ning's brain­child Vi­sion 20/20 plan. Of­fi­cial doc­u­ments ob­tained by Sun­day Guardian showed that for­mer Min­is­ter in the Min­istry of Fi­nance, Chris­tine Sa­hadeo, sig­nalled ear­ly that she was against the in­vest­ment and ad­vised the board to scrap the deal.

Sa­hadeo's warn­ing is stat­ed in a De­cem­ber 2004 let­ter sent to Julien. The let­ter stat­ed:

"The rep­re­sen­ta­tive of the Min­istry of Fi­nance has con­clud­ed that BNL is in a poor fi­nan­cial state with the com­pa­ny be­ing in­sol­vent, the com­pa­ny has a short track record and lacks prop­er man­age­ment struc­ture. In this re­gard, it is rec­om­mend­ed that eTeck not in­vest in BNL." In­ter­viewed on Fri­day, the for­mer min­is­ter al­so re­it­er­at­ed her po­si­tion stat­ing: "I did my work on a strict due dili­gence but sub­se­quent to that it ap­pears the com­pa­ny (BNL) did a lot of work and was re­port­ed as one of the top IT com­pa­nies, so it ap­peared the com­pa­ny did a turn­around and was deemed one of the front run­ners in IT. They were aware of the risk but recog­nised the break­through the com­pa­ny was hav­ing and it was based on that type of part­ner­ship they put for­ward their case.

"When you have a board it al­so has au­ton­o­my. A min­is­ter can on­ly of­fer guid­ance but the truth is the buck stops with the board." But due dili­gence con­duct­ed by the for­mer chair­man, and di­rec­tors Ul­ric Mc Nicol, Bri­an Copeland, Rene Mon­teil, Eu­gene Tiah and So­nia Noel showed oth­er­wise, and on No­vem­ber 17, eTeck en­tered in­to a mem­o­ran­dum of un­der­stand­ing (MoU) with BNL to es­tab­lish a busi­ness process op­er­a­tion fa­cil­i­ty at Waller­field In­dus­tri­al Tech­nol­o­gy Park showed oth­er­wise.

The MoU agree­ment stat­ed:

• That BNL and eTeck shall col­lab­o­rate with a view to the joint de­vel­op­ment, pro­mo­tion and mar­ket­ing of the ser­vices of the project that will de­liv­er soft­ware de­vel­op­ment ser­vices, BPO ser­vices and tech­nol­o­gy con­sult­ing ser­vices to in­ter­na­tion­al and do­mes­tic clients. This col­lab­o­ra­tion will re­sult in a ful­ly-owned sub­sidiary of BNL to be lo­cat­ed in T&T.

• To for­malise an eq­ui­ty in­vest­ment by eTeck in BNL.

• To cre­ate a sales and mar­ket­ing plan to bring busi­ness to the project from in­ter­na­tion­al and do­mes­tic clients on a col­lab­o­ra­tive ba­sis.

• To joint­ly co­op­er­ate with do­mes­tic uni­ver­si­ties and vo­ca­tion­al in­sti­tu­tions for the de­vel­op­ment of ad­vanced soft­ware skills and process train­ing pro­grammes.

• To for­malise a pack­age of gov­ern­ment in­cen­tives and sup­port as may be ap­plic­a­ble to the project to max­imise the prob­a­bil­i­ty of long-term suc­cess of the ini­tia­tive.

So who or what is re­spon­si­ble for the project not get­ting off the ground al­most sev­en years af­ter the in­vest­ment was made? The le­gal bat­tle comes up for hear­ing on April 18 be­fore Jus­tice Devin­dra Ram­per­sad in the Port-of-Spain High Court.

State claims prop­er checks not fol­lowed

The State is claim­ing that the for­mer board was in breach for fail­ing to car­ry out the prop­er back­ground and fi­nan­cial checks on the com­pa­ny and as a re­sult should be made to re­pay the $30 mil­lion in­vest­ment. Cit­ing grounds for the re­im­burse­ment, the State in its claim filed on Oc­to­ber 18 stat­ed:

• The de­fen­dants when util­is­ing the claimant's monies to in­vest in an out­side cor­po­rate en­ti­ty owed to the claimant a du­ty to ex­er­cise the care, dili­gence and skill that a rea­son­ably pru­dent per­son would ex­er­cise in com­pa­ra­ble cir­cum­stances

• In or about De­cem­ber 2004, the claimant's busi­ness de­vel­op­ment man­ag­er, John Soo Ping Chow, to­geth­er with Jag­ger­nauth Soom, the per­ma­nent sec­re­tary in the Min­istry of Fi­nance, vis­it­ed what pur­port­ed to be the op­er­a­tion of BNL in Hong Kong and main­land Chi­na. As a re­sult of the fore­go­ing vis­it the min­istry ad­vised the claimant on or about De­cem­ber 30, 2004, that it should not in­vest in BNL. Among the stat­ed rea­sons for the ad­vice was the poor fi­nan­cial po­si­tion of BNL, which was in­sol­vent, BNL's short track record and its lack of prop­er man­age­ment struc­ture.

• On May 17, 2005, a res­o­lu­tion was passed by the claimant's board of di­rec­tors ap­prov­ing the ex­e­cu­tion of a cor­po­ra­tion agree­ment pur­suant to which the in­vest­ment was to be made and on the same day, the agree­ment was ex­e­cut­ed by Ken­neth Julien on be­half of the claimant.

• The agree­ment pro­vid­ed that US$3.75 mil­lion of the in­vest­ment would be rein­vest­ed in T&T by BNL. How­ev­er, the agree­ment con­tained no safe­guard pro­vi­sion where­by the US$3.75 mil­lion was placed in es­crow, for ex­am­ple, pend­ing the in­vest­ment in Trinidad. Fur­ther the in­vest­ment was payable un­der the terms of the agree­ment be­fore BNL had per­formed any of its oblig­a­tions un­der the agree­ment

• Fol­low­ing the ex­e­cu­tion of the agree­ment BNL has failed to per­form any of its oblig­a­tions set out in the agree­ment and has failed and/or re­fused to re­turn the in­vest­ment to the claimant de­spite re­peat­ed re­quests.

For­mer eTeck mem­bers:

Agree­ment was above board

The for­mer board, how­ev­er, has re­fut­ed the claim and is con­tend­ing that the rel­e­vant in­ves­ti­ga­tions were done to en­ter in­to the agree­ment. Ad­mit­ting that the rec­om­men­da­tion of the min­istry was not adopt­ed, eTeck is chal­leng­ing the claim on the fol­low­ing ba­sis:

• BNL was a small but ver­sa­tile com­pa­ny

• BNL had a suc­cess­ful Japan­ese op­er­a­tion in the IT ser­vices sec­tor, a mar­ket that was rapid­ly grow­ing and that was very lu­cra­tive but one that was very dif­fi­cult to pen­e­trate be­cause of the dom­i­nance by small Chi­nese and In­di­an com­pa­nies

• BNL's op­er­a­tions were func­tion­al and aus­tere, in­di­cat­ing no wastage of re­sources

• BNL had strong fi­nan­cial back­ing from an in­vest­ment group called Tiger Man­age­ment, a re­put­ed in­vest­ment firm

• BNL was CM­MI lev­el V rat­ed, the high­est rat­ing glob­al­ly for IT process­es with­in the in­dus­try, a rat­ing usu­al­ly held by the large IT firms such as Ac­cen­ture and In­fos­ys

• BNL had ex­pressed a de­sire to work with the gov­ern­ment of T&T, eTeck, Uni­ver­si­ty of the West In­dies, Uni­ver­si­ty of Trinidad and To­ba­go and oth­er com­pa­nies in T&T to de­vel­op the lo­cal IT in­dus­try

• BNL al­so saw the es­tab­lish­ment of the T&T op­er­a­tion as the ide­al near-shore lo­ca­tion to ser­vice their North Amer­i­can clients

In ad­di­tion, the com­pa­ny stat­ed that based on the min­is­ter's rec­om­men­da­tion, clar­i­ty was sought and the board con­sid­ered a pre­sen­ta­tion on BNL. The for­mer di­rec­tors are fur­ther con­tend­ing that the man­ag­er of busi­ness de­vel­op­ment/con­sul­tant ad­vised that BNL's con­sol­i­dat­ed rev­enue and ex­pens­es trend for the pe­ri­od Jan­u­ary 2 to Au­gust 4, 2004, re­vealed that its fi­nan­cial state was im­prov­ing de­spite ac­cu­mu­lat­ed loss­es to date.

In ad­di­tion, the board was al­so in­formed that eTeck's in­vest­ment would re­sult in a share­hold­ing of be­tween 14 to 21 per cent in BNL. Sun­day Guardian learnt that the share­hold­ing arrange­ment is list­ed in the board's min­utes from the com­pa­ny's 48th meet­ing. It was on this ba­sis, Sun­day Guardian un­der­stands, the board, up­on re­ceiv­ing the as­sur­ance from eTeck's staff, con­sid­ered the min­is­ter's let­ter, the Dunn and Brad­street re­port and the re­sults of eTeck's own due dili­gence ex­er­cise and formed the fol­low­ing view:

• While BNL had ac­cu­mu­lat­ed loss­es in its ini­tial years, it was not bank­rupt and con­tin­ued to be ful­ly op­er­a­tional

• Com­pa­nies in the soft­ware and re­lat­ed in­dus­tries demon­strat­ed a pat­tern of ini­tial loss­es be­cause of the ear­ly in­vest­ment in hu­man re­sources

• There was an en­try price to en­ter this type of in­dus­try

• The larg­er, more well-known com­pa­nies, name­ly IBM, Ac­cen­ture, etc, had not been re­spon­sive to in­vi­ta­tions to pur­sue the de­vel­op­ment of such an in­dus­try in Trinidad.

It was al­so not­ed that on Jan­u­ary 1, 2005, the pres­i­dent of eTeck wrote to the per­ma­nent sec­re­tary in the Min­istry of Trade and In­dus­try at the time and ex­plained fur­ther the val­ue of the in­vest­ment. The let­ter stat­ed: "That the ini­tial val­u­a­tion of BNL was per­formed by Tiger Tech­nolo­gies, a US$ bil­lion hedge fund; that the val­u­a­tion, which re­sult­ed in the terms of this third round of in­vest­ment had been ne­go­ti­at­ed pri­or to the sign­ing of the MoU be­tween eTeck and BNL in No­vem­ber 2004; that the terms in­di­cat­ed that a share price of US $0.60 would be in­sti­tut­ed for this round; that this share price equat­ed to cap­i­tal­iza­tion of US $15.0 mil­lion for BNL; that eTeck's sub­se­quent analy­sis of po­ten­tial fu­ture earn­ings by BNL, as well as the planned strate­gic ex­pan­sion in­to the en­er­gy sec­tor in Trinidad and the planned en­try in­to the US mar­ket­place had re­sult­ed in eTeck ac­cept­ing the share price of US $0.60 per share as fair; that eTeck had al­so dis­cussed the re­duc­tion in the val­u­a­tion of BNL (US$23.5 mil­lion) from the sec­ond round of in­vest­ment to the third round and had ac­cept­ed that a re­duc­tion of 35 per cent was char­ac­ter­is­tic for com­pa­nies that were re­quest­ing fur­ther fund­ing to achieve prof­itable sta­tus; that the ma­jor fac­tors that con­tributed to the ac­cep­tance of the in­vest­ment terms for se­ries C were the val­u­a­tion by Tiger Tech­nolo­gies, a fund that had a his­tor­i­cal rate of re­turn of more than 20 per cent per an­num, and the po­ten­tial of the pro­posed ex­pan­sion in­to the en­er­gy sec­tor; that the share price re­flect­ed the pre-in­vest­ment val­ue of BNL of US$15,000,000."

In the fi­nal analy­sis, how­ev­er, the com­pa­ny stat­ed that BNL did not re­turn the in­vest­ment. At­tempts by Sun­day Guardian to con­tact Julien on Fri­day and yes­ter­day proved fu­tile. When con­tact­ed his son Philip said his fa­ther left the coun­try yes­ter­day and will be re­turn­ing on April 18.