IT expert reacts to STAR news item

Gentlemen:

I would like to state my side on the subject of the news report on page 7 of the July 17, 2010 issue of The Philippine STAR – “IT expert to be charged for unauthorized sale of tech company” written by Mr. Edu Punay.

Very simply, the conflict between Ms. Bitong and me did not arise because we sold our company’s (Systems Standards, Inc., or SSI) shares in another corporation (Vinta Systems, Inc.). She and I decided that 2-1/2 years before the shares were actually sold. The conflict arose because of our disagreement regarding the disposition of the funds earned from the sale of those shares.

Ms. Bitong wanted her and me, as the biggest creditors, to be paid proportionately, at the same time as the creditor banks. But while she and I are creditors, we are also board directors and the major shareholders of the company. We, the majority of the directors, believed it more proper to pay the SSI bank loans first, then the shareholder-creditors after, should there be a balance left from the funds. We believe that that would be more moral and ethical.

Not getting what she wanted, Ms Bitong filed a criminal case for estafa against us, the majority directors. The case was quickly dismissed by the Makati Prosecutor (some two years ago), for lack of probable cause, but reversed by the Department of Justice in mid-June, 2010, just a month ago (one of the “midnight” DOJ decisions).

She also filed a civil case against us which is currently being tried in a Makati Court.

Some highlights:

1. Ms. Nora Bitong is not majority owner of SSI. She only owns 40 percent of the stocks. The 60 percent has always been owned and controlled by my group.

2. Vinta Systems, Inc. is not wholly-owned by SSI. SSI originally owned only 50 percent of Vinta. The other 50 percent was owned by Peter Valdes, the technology partner.

3. During the March 5, 2005 board meeting, discussions between Peter Valdes, SSI’s partner, and Aureos Capital, the potential buyer, were only in their initial stages. According to Valdes, they only started meeting sometime in January, 2005. (A few years before that, my discussions with two potential buyers, on separate occasions, were already very serious. Yet, both negotiations still fell through.)

4. My statement (during the March 5, 2005 meeting) that “there were no substantial developments” in the sale of SSI-owned Vinta shares, did not pave the way for the conversion of my cash advances into Vinta shares. I started advancing funds for Vinta operations in June, 2004 (if I didn’t, the company would have closed); I requested for the conversion of those advances in writing in August, 2004. The request was verbally approved soon after it was made. The March 5, 2005 approval was only a formality. Clearly, there were no false pretenses, nor fraudulent acts committed! Had the DOJ bothered to check the veracity of the allegations, I could have shown them the documents.

5. The majority of the board members who were present during the July 3, 2006 meeting approved the sale of some of SSI’s shares in Vinta. Ms Bitong was absent (we didn’t know that she was away), but her two sons were in attendance. Even if she were present, we would have approved the sale anyway because we had control of the board and there was urgency in the matter. In a succeeding SSI board meeting, majority of the board members passed a resolution giving priority to the payment of the bank loans from the proceeds of the sale of SSI-owned Vinta shares.

6. The Aureos transaction and the sale of some of SSI’s shares were only concluded in December, 2006. From June, 2004 up to December, 2006, I was the only shareholder who provided the funds that kept Vinta’s operations alive.

7. My actions caused no damage to SSI. In fact, in the succeeding three years (2007-2009) after the sale of Vinta shares, I was able to successfully negotiate full settlement of all the bank loans of SSI, except for one (P4 million remaining), with almost all of the banks agreeing to condone the interest and penalties on the loans, amounting to approximately P70 million, and even agreeing to a 50 percent discount (average) on their principal amounts. Thus, in the last few years of SSI, I was able to save the company some P70 million (interest and penalties), plus P25 million (principal), plus another P15 million from its capital commitment in Vinta. How can Ms. Bitong say that I disadvantaged SSI?

Thank you for your kind consideration.

Augusto C. Lagman

6053 Palma Street, Makati City