Cryptologic Dispute Now a Public Affair: Concern to Shareholders

Former Cryptologic CEO, Javaid Aziz, who ran the publicly traded online software company business from April 2007 to February 2008, has been trying to establish a foothold in an effort to gain control.  The company this week rejected calls from Aziz to hold an "extraordinary meeting" according to the Financial Times of London.   Aziz enjoys more than a 10 percent stake in the company and has been demanding that Cryptologic's Chairperson removed.  The Board has issued a statement alleging Aziz to be a distraction and additionally published emails to and from Aziz in what many view as "pubic desperation".

CryptoLogic sent the letter to Mr. Aziz on February 22 and provided him until 5:00 pm Eastern Time on February 23 to advise the company of how he intended to address the deficiencies in his requisitions. At the time of this release, the company has not received a response.

The letter also expresses the board's strong view that an EGM - with its substantial distraction and expense -- is not in the best interests of shareholders at a time when the board and management are focusing on returning the company to profitability. CryptoLogic's new business strategy is in the advanced stages of implementation, and shareholders will have an opportunity to evaluate the company's progress at an annual general meeting expected in late May or early June.

The complete letter to Mr. Aziz will be available on the EDGAR and SEDAR sites, which are accessible from the investor page of the CryptoLogic site (http://www.cryptologic.com/investor23.asp). To view a copy of the letter, visit: http://media3.marketwire.com/docs/cry223.pdf

According to the Financial Times report, Stephen Taylor, chief financial officer, said Mr Aziz made repeated demands for money and threats to sue while he was at the helm.

Mr Aziz dismissed the attack by CryptoLogic as an attempt to distract shareholders from what he alleged was a problem of corporate governance at the company.  Aziz also claimed he never asked for compensation and that his grievance was over the strike price of the share options that he was granted..

Cryptologic has long been among the online gambling industry's most stable publicly traded companies.  In recent months, the firm has lost some of its most cherished clients including the Playboy Casino and Sun Poker.  Of even more significance was the loss of Cryptologic's largest licensee, William Hill, to Playtech last month. 

Aziz sent a letter to the board expressing his view that the company should promptly execute on a recovery plan designed to stabilize revenues, streamline size and operations, achieve cost reductions, more effectively manage cash flows, and take other steps to improve operating and financial performance.

Among the allegations made by Mr. Aziz, that "The Board of Management have effectively Squandered $4.2M of shareholder funds in an abortive foreign exchange transaction (as reported by the Company).

Who on the Board has been held accountable for this loss which represents in excess of 10% of the Company's cash and cash equivalents as reported for Q3 2008 and a shareholder value loss of 30 cents per share?

"(They have) Mis-managed the cost and expense structure of the Company such that operating expenses in Q3 2008 at $16.5M were 40% higher than Q3 2007 at $11.8M.

Who on the Board has been held accountable for this loss of $4.7M in cash (as a result of excessive operating expenses) and a shareholder value loss of 34 cents per share? It would appear that the Board and Management are not focused on execution and the day to day operations of the Company. It is this apparent lack of accountability that concerns me the most and is my primary motive for writing to you again."

He closes in his letter by saying that "What is missing from the Company's new strategy is the thought, the vision and the insight to make Cryptologic relevant in the internet gaming segment and to give it size and bulk to compete globally and keep pace with the industry leaders."

Playtech, an Israeli owned UK listed online gambling software provider, has vowed to essentially take over the European market.  Cryptologic remains vulnerable.

"We think that this is the right time to prepare the company to be almost the only alternative out there," Playtech's Vice Chairman, Avigur Zmora, told Reuters last month.