As Competition Heats up, USA Technologies Settles With Dissidents

USA Technologies Inc. and a dissident shareholder group buried the hatchet last week, but their settlement agreement sets some high hurdles for the provider of vending-machine card readers and remote networking transaction-processing services to clear. If not, the dissidents could reassert themselves?just as competition for processing payments from unattended locations such as vending machines is heating up. Under the pact, the dissidents got two of their members on Malvern, Pa.-based USA Technologies' board of directors, and they could name a third if the company doesn't have positive earnings before interest, taxes, depreciation, and amortization (EBITDA) for the quarter ending Dec. 31, 2010. USA Technologies also must have at least 100,000 devices connected to its network at year's end. As of Sept. 30, 2009, the latest date for which figures are available, the company's USALive network linked some 57,000 devices. That was up 36% from 42,000 installations a year earlier, but the settlement agreement calls for the network's installed base to grow 75% in 15 months. A news release announcing the agreement didn't say how the company would meet that goal, and an executive did not return a call from Digital Transactions News. The proxy fight broke out last fall when two dissident shareholders, Bradley M. Tirpak and Craig W. Thomas, formed a group called Shareholder Advocates for Value Enhancement (SAVE). The two were upset about USA Technologies' lack of profitability, poor stock performance, and corporate governance policies that they said crimped shareholders' rights. With the company's annual meeting coming up on Dec. 15, SAVE slated three independent director nominees, one of whom was Tirpak. That triggered rounds of mudslinging on both sides (Digital Transactions News, Nov. 25, 2009) and, of course, lawsuits. USA Technologies postponed the meeting for six months, until June 15. The settlement agreement increases USA Technologies' board of directors from eight to nine members, with Tirpak and one of SAVE's nominees, Peter A. Michel, taking seats. William L. Van Alen Jr., a company director since 1993, resigned, opening up an existing seat. In announcing the settlement with SAVE, USA Technologies chairman and chief executive George Jensen said in the release that, “reaching this agreement, we believe, serves the best interests of the company, its customers, and its shareholders. We look forward to working productively with the new members of the board as we work to achieve our strategic plan.” The two sides dismissed their claims and counterclaims filed against each other in federal court, and USA Technologies agreed to pay SAVE's $1.16 million in out-of-pocket expenses for the proxy contest. The company's insurer will cover $450,000 of that. USA Technologies also agreed to change various governance and board-election procedures that SAVE said management installed to protect itself, including staggering the board into three classes with directors serving for one, two, or three years. By 2012, the board will have just one class with all directors elected annually. Stockholders also will be able to call special shareholder meetings in certain circumstances. “With this settlement, we believe the company has taken a significant step forward in improving its corporate governance,” Tirpak said in the release. “Peter [Michel] and I believe in the company and its products and look forward to working constructively with the board and management to enhance shareholder value.” As part of the settlement, SAVE withdrew its nominees for consideration at the 2010 annual meeting. SAVE also said it would abide by a “standstill” provision until Dec. 31, 2011, that limits its common-stock holdings to no more than 10% of the company and restricts its right to start another dissident action. SAVE's call for USA Technologies to become profitable?the company's latest annual report chronicles five straight years of losses?and expand its network quickly comes just as competition for processing non-cash payments from vending machines and other remote locations is getting tougher. For example, Scottsdale, Ariz.-based Apriva Inc., the leading player in the wireless transaction services niche, is eyeing the vending-machine market and is integrating Visa Inc.'s payWave contactless card into its offerings. Executive vice president Bill Clark tells Digital Transactions News that based on information he received from a major bottler, up to 1.5 million vending machines are candidates for wireless payment-network connections. “It's kind of a green-field opportunity, from my point of view, for merchant acquirers,” he says.