A Pared-Down Pay By Touch Takes Bids for ‘Non-Core’ Units

Biometric-authentication and loyalty-services technology provider Pay By Touch is in bankruptcy, has cut costs drastically, and is shopping some of its subsidiaries, but the company's former chief executive–who is now a member of the firm's newly constituted board of directors–says Pay By Touch is solid at its core. “This company is worth a lot of money,” director John Morris tells Digital Transactions News. “The business opportunity is phenomenal.” He adds that despite Pay By Touch's governance troubles and bankruptcy in recent months, “there's been virtually no erosion of the client base as a result of this activity.” Solidus Networks Inc., which does business as San Francisco-based Pay By Touch, on Wednesday announced the new board and said it is selling what it calls non-core assets, and Morris tells Digital Transactions News at least some bids have already come in. The financially strapped company last month voluntarily filed for Chapter 11 reorganization in U.S. Bankruptcy Court in Los Angeles after some employees tried to bring it into bankruptcy involuntarily (Digital Transactions News, Dec. 27, 2007). The new board represents a victory for Plainfield Asset Management LLC, which in a fight with Pay By Touch's former chairman, chief executive, and controlling shareholder, John P. Rogers, went to Delaware Chancery Court late last year to seat its own directors. Plainfield, a hedge-fund firm with equity and debt investments in Pay By Touch, said the company was in default of its lending covenants, which gave Plainfield the right to seat its own board in such an occurrence. Rogers, who had fired independent board member Arthur Petrie and chief operating officer Eula Adams, fought the move, starting the legal fight in Delaware, when Solidus is incorporated. But rather than wait for a court determination, the two sides settled the governance issue last month, according to Morris. Plainfield declined comment. Plainfield wanted to bring back the ousted members and keep Rogers on but only as a director, which is now how the board is composed. Members include Petrie, who is now the chairman; Adams, again chief operating officer; Morris, who court documents say resigned when Petrie and Adams were fired; chief financial officer Robert Sigler; and Rogers, who has no executive duties. (Rogers has filed for personal bankruptcy in the Los Angeles court.) The top executive remains corporate-turnaround specialist Thomas Lumsden of FTI Consulting Inc.'s San Francisco office, whom the Delaware court appointed in November on an interim basis and whose title is chief restructuring officer. Morris says he is playing an advisory role as the restructuring gets into high gear. He says the company has cut up to three-fourths of its operating expenses, has adequate interim financing, the amount of which he can't divulge, and is current in meeting payroll obligations. A news release Wednesday said staff has been pared, but the company didn't disclose the number of layoffs. Pay By Touch also has hired investment banker Jefferies & Co. to find potential investors. “We're trying to move forward very rapidly on this,” says Morris. On the block are several so-called non-core subsidiaries operating under bankruptcy protection, including Paycheck Secure, ATM Direct, and Payment Solutions, the merchant processor that formerly operated as CardSystems Solutions Inc. Some observers were surprised that Paycheck Secure, which provides biometric-based paycheck-cashing services and came to Pay By Touch when the company bought rival BioPay LLC, is on the block. But Morris says Paycheck Secure serves convenience stores and other small businesses while Pay By Touch is focusing on larger retailers such as Shell Oil outlets and SuperValu Inc.'s Jewel/Osco supermarket-pharmacies. “We have not done that integration work” with Paycheck Secure, he says. “The core is viewed as being more around big, multilane retailers.” Core subsidiaries not part of the bankruptcy filing include Loyalty Acquisition, which does business as Capture Resource, and S&H Marketing Services, which does business as S&H Greenpoints. As part of its effort to focus on biometric authentication, payments, and personalized marketing, Pay By Touch says it has suspended its efforts in health care, government, online, and new international businesses other than a project with Citibank in Singapore. Morris is optimistic that buyers will be found soon for the subsidiaries, and he hints the entire company could be sold if a “strategic” buyer is found. “We're beyond serious lookers, particularly on the subsidiaries,” he says. “We've received specific bids.”