Aziz on the Hook for Breach of Contract, Crypto Says

23 February 2009
After this article was published, comments were added from Javaid Aziz, CryptoLogic and Roth Capital Partners.

After CryptoLogic Ltd. last week called Javaid Aziz's request for an extraordinary general meeting "disruptive" and "ill-timed," the company accused Mr. Aziz Monday of being in material breach of various contractual obligations related to his severance from the company.

The public dispute, which involves Mr. Aziz, who is CryptoLogic's former chief executive, and the company's current board of directors, has run the better part of three months. In that time, Mr. Aziz has acquired a 12.5 percent shareholding in CryptoLogic and has used it as a platform by which to criticize unambiguously the company's management and performance.

Monday's statement alleges that because Mr. Aziz is in breach of contract, CryptoLogic is seeking the return of 1.54 million euros, held in escrow, that was to be paid to Mr. Aziz if the company should undergo a change of control on or before April 30, 2009.

In an e-mail to IGamingNews Monday, Mr. Aziz claimed that he had not breached his contract, calling CryptoLogic's statement "spurious and unfounded."

The company did not specify what contractual obligations, exactly, Mr. Aziz had breached, and it is unknown at this time whether CryptoLogic's decision to seek legal redress comes in reaction to Mr. Aziz's growing shareholding, critical remarks, request for an EGM -- or all.

"While we regret being forced to take this step, CryptoLogic made substantial payments and commitments to Mr. Aziz in negotiating his severance, and we believe that his failure to adhere to his obligation has been damaging to the company and its shareholders," Brian H. Hadfield, current chief executive, said Monday. "This action is necessary to protect the interests of the company and its shareholders, which is at all times the sole focus of management and the board."

Meanwhile, in a separate prepared statement, CryptoLogic added that Mr. Aziz's shareholding appeared insufficient to call a shareholders meeting. In order to call a meeting, Mr. Aziz's holding must equal, at minimum, 10 percent of the issued and outstanding voting stock of the company.

Mr. Aziz, however, said his shareholding satisfied that requirement.

"I can categorically tell you that I have paid for and own 1,038,994 shares which, when added to those owned by Cede & Co (350,000), total 1,388,994 shares which is 10.05% of the voting shares of CryptoLogic," he said.

Mr. Aziz was further critical of CryptoLogic's board for failing in Monday's statements to acknowledge his concerns about the autonomy of the company's director in relation to his law firm, which advises CryptoLogic.

"I believe the lack of independence is a major contributory factor to the poor business performance of CryptoLogic and the catastrophic erosion of shareholder value," Mr. Aziz said.

CryptoLogic declined to comment beyond what was said in its respective stock-exchange releases, but did release the following to IGamingNews Monday:

“CryptoLogic does not believe it is appropriate or in the best interests of the corporation to try this matter through the media," said Nick Catros, the company's vice president and general counsel. "The details of our claim have been provided to Mr. Aziz, and will be made a part of the public record at the appropriate time and in the appropriate manner, should matters proceed to the degree necessary to do so. For now, suffice it to say that the company believes that its claims have substantial merit and that the remedies sought are expressly set forth in its agreements with Mr. Aziz. Beyond that, it would not be appropriate for the company to comment further at this time.”

In a note to clients Monday, Todd Eilers, an analyst with Roth Capital Partners, said he expects Mr. Aziz will request clarification on the voting-shares calculations used by CryptoLogic, as well as resubmit his EGM request after trimming off any technical deficiencies.

"We . . . continue to believe that Mr. Aziz's actions are positive for shareholders as it should continue to fuel M&A speculation and put added pressure on management to execute on its current restructuring plan," Mr. Eilers said.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.