A Proxy Fight Breaks Out at USA Technologies

USA Technologies Inc., the provider of contactless card readers and wireless transaction-processing services for vending machines, laundries and other venues, has become the latest payments-industry tech company whose management finds itself embroiled in a fight with shareholders angry about losses and slumping stock prices. Malvern, Pa.-based USA Technologies sent a letter to shareholders on Tuesday urging them to reject any proxy solicitations from dissident shareholders Bradley M. Tirpak and Craig W. Thomas. The two, who are leading a group they call Shareholder Advocates for Value Enhancement (SAVE), on Nov. 19 filed a preliminary proxy statement with the Securities and Exchange Commission announcing their slate of three independent director nominees, one of whom is Tirpak. The company's annual shareholder meeting is Dec. 15. In their proxy, the dissidents say the company's common stock value has declined by more than 95% since Sept. 30, 2003. The leadership, they say, has been focused on “enriching themselves” through sweet compensation deals. According to the proxy, senior management that includes chairman and chief executive George R. Jensen Jr. and president and chief operating officer Stephen P. Herbert since September 2003 have been paid “over $17 million in cash and stock” even though the company hasn't made a quarterly profit since then. The board of directors, meanwhile, recently approved changes that make it harder for common shareholders to change the company's course by banning them from calling special meetings, restricting their ability to nominate directors, and staggering the board into three classes. Tirpak describes himself as a portfolio manager who works out of London and New York with 12 years of experience in managing public equity investments. Thomas, based in New York, is a managing member of Thematic Capital Partners LLC and KC Trading Partners LP. Collectively they hold 2.1% of USA Technologies' shares. In Tuesday's letter, Jensen scoffed at the dissidents' allegations, saying their preliminary proxy “contains confusing and inaccurate information. It also omits important information.” One confusing point, he said, involves the top officers' compensation, which he said has averaged approximately $276,000 per year in cash for the CEO, president and chief financial officer over the past five years, and approximately 53,000 shares of common stock per year. Jensen also said the company has a strategic plan to achieve profitability, is seeing improving operating results, and has an experienced and skilled management team to carry it out. The dissidents, he said, “lack the appropriate skills … [and] have not presented a plan for the company.” Jensen's letter describes Tirpak as a former hedge fund manager who was a defendant in a class-action lawsuit over alleged securities fraud that was settled for $2.25 million. One of the dissidents' director nominees headed a tech company but apparently was forced out because of losses, and the other nominee presided over a bankrupt company, according to the letter. Despite the mudslinging on both sides, USA Technologies' recent financial reports indicate that distribution of company's ePort devices, which read magnetic-stripe and contactless cards, and transaction volumes on its small wireless payment network have increased, but the firm is still losing money. Some 57,000 devices were connected to the network as of Sept. 30, up 36% from 42,000 a year earlier. Over the same period transactions increased 57% to 7.4 million from 4.7 million, and dollar volume grew 27% to $14.6 million from $11.6 million. The company added 75 new ePort customers since June, bringing the total to about 600. USA Technologies posted a net loss of $2.93 million in its first fiscal 2010 quarter ended Sept. 30 versus a $3.85 million loss a year earlier. Revenues grew 13% to $3.83 million from $3.39 million. The company lost $14.5 million in fiscal 2009 ended June 30, according to its annual report, the fifth straight year of losses listed in the report. The good news was that 2009's loss was the smallest of the period. Entrepreneurial companies such as USA Technologies often face tough choices when they go public and investors put more emphasis on profits than the founders do, according to James Van Dyke, president of Javelin Strategy and Research, Pleasanton, Calif. “As long you make the money, you can do whatever you want,” he says. “You miss one significant profit goal, and your soul is replaced by somebody else's.” Bill-payment technology provider Online Resources Corp. lost a proxy fight earlier this year with the company's largest shareholder, who agitated for better financial returns (Digital Transactions News, May 11).