Zylotech turns cold shoulder on $1.5 million bailout

However, Zylotech then issued a further general announcement stating that Fraser-Clay's requisition had been received, but declaring only the initial $500,000 investment loan. The further $1 million offered by Fraser-Clay was not mentioned in the announcement.

"The directors also consider that the funding arrangements proposed is not in the interest of shareholders," Zylotech's McKay stated in the general announcement. "The directors are exploring other options and to this end has mandated a financial advisor, Novus Capital Partners to advise the company."

On 17 February CRN emailed McKay a number of questions regarding the Fraser-Clay requisition. CRN asked why Zylotech thought the requisition was deficient and invalid, why the funding proposal was not in the shareholders' interests, and if the requisition was not material to shareholders' interests, why had Zylotech now put out three announcements about it?

CRN had received no response from Zylotech at time of print. Interim CEO and company secretary Steve McKay has refused repeated requests for comment.

In an interview with CRN, Fraser-Clay said he has been an avid supporter of the company and has helped Zylotech's former CEO, Nicholas Sikitotis, by spruiking the company to channel partners overseas.

"I have offered my help to the current board but they have regarded me as a threat," said Fraser-Clay. "The company has a very good product and so much of the ugliness hurts the reputation of the senior staff who aren't involved with the board."

He said the synergies between MVSS and Zylotech are very similar; both companies using the same channel partners, IBM and Avnet; both use very talented engineers; and both use the same BDM sales managers.

The two companies also share customers. MVSS maintains UNIX servers for an airport where Zylotech set up the security infrastructure, said Fraser-Clay.

However he has not been able to figure out why, for the past 10 years, Zylotech "hasn't run at a profit". Fraser-Clay alleged the company has been burning money and hasn't been focused on moving forward.

"On top of the in-fighting between the current directors of the company, there are just too many directors all looking for power," said Fraser-Clay. "The company is struggling and the board needs to get on with generating revenue.

"I am willing to put $1.5 million of my own money into the company and help it get back on track. My condition is that the entire board stand down because I have no faith in them being a part in the company moving forward."

Fraser-Clay said the three replacement directors put forward in his requisition were business minded people who have industry experience and could better lead the company.

Fraser-Clay said that he will wait for a couple of weeks for Zylotech's board to call an EGM, as demanded by his requisition. Otherwise, he said he will call an EGM himself as entitled by his holding of more than five percent of shares.

"They have been less than transparent in their actions which need to be accounted for. When they held an Annual General Meeting (AGM) to get rid of Sikiotis the board brought three new members on board without informing shareholders.

"Another AGM was held on the 2 February and again they didn't forward the new directors, and that's unethical."

Zylotech signed up with Avnet in November 2007 and deals with 10-15 resellers.

Michael Costigan, marketing director of Asia Pacific at distributor Avnet, said he didn't wish to comment on the internal problems at the company. However, Costigan said the space the Zylotech plays in is coming into its own right now.

"Avnet's growing regionally and we are looking at India, where Zylotech has already won tenders," he said.

"Our resellers are embracing the product and we haven't done a hard push on the product." 

Extracts from the faxes sent by Fraser-Clay's lawyers and Zylotech's ASX announcements can be viewed in CRN, issue 264, out now.