Attached files
| file | filename |
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| 8-K - USA TECHNOLOGIES 8-K 12-18-2009 - CANTALOUPE, INC. | form8k.htm |
| EX-99.3 - EXHIBIT 99.3 - CANTALOUPE, INC. | ex99_3.htm |
| EX-99.2 - EXHIBIT 99.2 - CANTALOUPE, INC. | ex99_2.htm |
Exhibit
99.1
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DECHERT
LLP
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Steven
B. Feirson (21357)
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steven.feirson@dechert.com
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Michael
S. Doluisio (75060)
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michael.doluisio@dechert.com
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Tara
L. Cooney (201822)
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tara.cooney@dechert.com
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Peter
Kreher (210131)
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peter.kreher@dechert.com
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Cira
Centre
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2929
Arch Street
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Philadelphia,
PA 19104
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Tel.
(215) 994-4000
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Attorneys
for Plaintiffs
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Fax
(215) 994-2222
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UNITED
STATES DISTRICT COURT FOR
THE
EASTERN DISTRICT OF PENNSYLVANIA
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Bradley
M. Tirpak and
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Craig
W. Thomas, d/b/a/
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Shareholder
Advocates for
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Value
Enhancement,
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Plaintiffs,
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v.
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2:09-cv-05920-TJS
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USA
Technologies, Inc., George R. Jensen,
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Jr.,
Stephen P. Herbert, Douglas M. Lurio,
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Steven
Katz, William L. Van Alen, Jr.,
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Joel
Brooks, Steven D. Barnhart, and
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Jack
E. Price,
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Defendants.
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AMENDED
COMPLAINT
Plaintiffs,
Bradley M. Tirpak (“Mr. Tirpak”) and Craig W. Thomas (“Mr.Thomas”)
(together, “Plaintiffs”) d/b/a Shareholder Advocates for Value Enhancement
(“Committee”), through their undersigned counsel, respectfully request
declaratory relief and temporary, preliminary, and permanent injunctive relief
invalidating the Defendants’ illegal manipulation of the date of the annual
meeting of the shareholders of USA Technologies, Inc. (“USAT” or “the Company”)
scheduled for December 15, 2009 (the “Annual Meeting”).
Just
three business days before the Annual Meeting, when it became clear that the
majority of shareholder votes would be cast in favor of Plaintiffs’ minority
slate of directors (the tally as of December 11, 2009 was over 7.4 million votes
in favor of Plaintiffs’ nominees out of 10.3 million votes cast), the Company
and its Board of Directors purported to cancel the Annual Meeting and announced
a new meeting date six months later, June 15, 2010. Defendants’ conduct, which
is a blatant violation of the most fundamental fiduciary principles of corporate
law and an obliteration of each shareholder’s right to vote on the election of
directors, was undertaken for one reason and one reason only – to entrench the
directors and insulate them from a long record of abysmal performance (the
Company has not turned a profit in any quarter since its inception) and to
enable the officer directors to continue to reap huge and unjustified financial
rewards (George Jensen, the Chairman and CEO, and Stephen Herbert, a director
and the President and COO, have received combined compensation of over $13
million during the past six years). In short, Defendants cancelled
the Annual Meeting because they knew they were going to lose the
election. Plaintiffs allege as follows:
PARTIES
1.
Plaintiff Bradley M. Tirpak is a resident of the United Kingdom who
resides at 51e Ossington Street, W24LY, London, United Kingdom. As of
September 30, 2009 – the record date the Company selected for the December 15,
2009 Annual Meeting (the “Record Date”) – Mr. Tirpak beneficially owned 12,500
shares of common stock in the Company.
2.
Plaintiff Craig W. Thomas is a resident of Connecticut
who resides at 185 Milbank Avenue West, Greenwich, Connecticut
06830. As of the Record Date, Mr. Thomas owned 371,500 shares of
common stock, including 135,000 shares underlying currently exercisable
warrants.
3.
Defendant USAT is a Pennsylvania corporation with its
principal place of business located at 100 Deerfield Lane, Suite 140, Malvern,
Pennsylvania 19355. USAT is a public company involved in networking
wireless non-cash transactions, associated financial/network services, and
energy management. USAT provides networked credit card and other
non-cash systems in the vending, commercial laundry, hospitality and digital
imaging industries.
4.
Defendant George R. Jensen, Jr. (“Jensen”) is, upon information and
belief, a Pennsylvania resident. Jensen has been USAT’s Chief Executive Officer
(“CEO”) and a director since USAT’s inception in 1992, and is currently Chairman
of the Board of USAT. Defendant Jensen has a current place of business located
at 100 Deerfield Lane, Suite 140, Malvern, Pennsylvania 19355.
5.
Defendant Stephen P. Herbert (“Herbert”) is, upon information and belief, a
Pennsylvania resident. Herbert has been a director of USAT since April 1996, an
officer of the Company since May 1996, and President and Chief Operating Officer
(“COO”) since 1999. Defendant Herbert has a current place of business at 100
Deerfield Lane, Suite 140, Malvern, Pennsylvania 19355. Defendants Jensen and
Herbert at times in this Verified Complaint will collectively be referred to as
the Officer Defendants.
2
6.
Defendant Douglas M.
Lurio is, upon information and belief, a Pennsylvania resident who has served as
a director of USAT since 1999. Defendant Lurio, upon information and
belief, has a current place of business at 2005 Market Street, Suite 3320,
Philadelphia, Pennsylvania 19103. Defendant Lurio is the President and owner of
Lurio & Associates, P.C. During the years ended June 30, 2009 and 2008, the
Company incurred approximately $438,000 and $317,000, respectively, in
connection with legal services provided by Lurio & Associates,
P.C. Ex. 1, Oct. 27, 2009 USAT Proxy Statement at 29.1
7.
Defendant Steven Katz (“Katz”) is, upon information and
belief, a New Jersey resident who has served as a director of USAT since
1999. Katz, upon information and belief, has a current place of
business at 440 South Main Street, Milltown, New Jersey 08850. Defendant Katz is
President of Steven Katz & Associates, Inc., a consulting firm that, during
the fiscal year ended June 30, 2007, received $72,600 in fees from the Company
for consulting services. Ex. 2, Glass Lewis & Co. Proxy Paper for
Apr. 29, 2009 Meeting at 5.
8.
Defendant William L. Van Alen, Jr. (“Van Alen”) is, upon
information and belief, a Pennsylvania resident who has served as a director of
USAT since 1993. Defendant Van Alen, upon information and belief, has a current
place of business at P.O. Box 727, Edgemont, Pennsylvania 19028.
_______________
1 A
true and correct copy of each exhibit is attached hereto and incorporated
herein.
3
9.
Defendant Joel Brooks (“Brooks”) is, upon information and belief, a New
Jersey resident who has served as a director of USAT since
2007. Defendant Brooks, upon information and belief, has a current
place of business at 303 George Street, Suite 140, New Brunswick, New Jersey
08901.
10.
Defendant Steven D. Barnhart (“Barnhart”) is, upon information and
belief, an Illinois resident who was appointed to the Board of Directors in
October 2009 and continues to serve as a director of USAT. Defendant
Barnhart, upon information and belief, has a current place of business at 1143
N. Sheridan Road, Lake Forest, Illinois 60045.
11. Defendant
Jack E. Price (“Price”) is, upon information and belief, a Washington resident
who was appointed to the Board of Directors in October 2009 and continues to
serve as a director of USAT, and who has a current place of business at 40 Lake
Bellevue, Suite 100, Bellevue, Washington 98005.
12. At
times throughout this Amended Complaint, defendants other than USAT will be
referred to collectively as the Individual Defendants.
JURISDICTION AND
VENUE
13. This
Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 because the
amount in controversy exceeds $75,000 and there is diversity of citizenship
between Plaintiffs and Defendants.
14. This
Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331 and
1367(a) because Count III arises under federal law.
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15. Venue
is proper in this judicial district pursuant to 28 U.S.C. § 1391 (a)(2), (a)(3),
(b)(2), (b)(3), and (c).
FACTUAL BACKGROUND TO BOTH
COUNTS
Current
Company Leadership Has Failed To Effectively Lead,
Has
Failed to Maximize Value, And Has Been Excessively Compensated
16. The
Company has failed to turn an operating profit in any quarter since its
inception. Since 2003, the Company’s common stock has declined more than
95%. Thus, $100.00 invested in USAT’s common stock on September 30,
2003 was worth only $4.25 on September 30, 2009. Defendants Jensen
and Herbert presided over this entire six-year period of abysmal
performance.
17. As
of October 1, 2009, USAT received a corporate governance rating from
Institutional Shareholder Services, Inc. (“ISS”), an independent, leading
provider of corporate governance analysis and information, that was worse than
88% of all of the companies ISS evaluated in their Corporate Governance Quotient
Database.
18. On
that same date, USAT received a corporate governance rating from ISS that was
worse than 93% of other Technology and Hardware companies that ISS evaluated in
their Corporate Governance Quotient Database.
19. Despite
this poor performance, management and inside directors have continued to receive
substantial compensation. Specifically, from fiscal year 2004 through
fiscal year 2009, Defendants Jensen and Herbert, have been paid, in the
aggregate, over $13 million in cash and stock.
20.
In September 2008, the Board approved new contracts for Defendants Jensen and
Herbert, which included approximately a 12% raise in base
salary. Less than three months later, the Company reported it had
laid off approximately 30% of its employees.
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21. In
fiscal year 2009, Defendants Jensen and Herbert received compensation of more
than $1.7 million – more than 14% of the Company’s revenue in fiscal year
2009.
22. Since
and including fiscal year 2004, the Board has extracted the equivalent of over
24% of the Company’s revenues and given it, in cash and stock compensation, to
Defendants Jensen and Herbert.
The
Individual Defendants’ October 2009 Efforts to Entrench Themselves
23. Since
at least October 2009, the Individual Defendants have sought to entrench
themselves by erecting barriers to prevent any accountability to shareholders
for the Company’s failure to achieve profitability and for the disparity between
such failure and the rewards provided to management.
24. During
the week of October 5, 2009, Mr. Thomas approached Defendant Jensen to discuss
the possibility of increased non-management shareholder representation on the
Board of Directors.
25. Mr.
Thomas also discussed his belief that the Company needed increased shareholder
representation on the Board with Mr. Tirpak.
26. Together,
Plaintiffs discussed possible candidates and had a meeting with the Company’s
Chief Financial Officer, David DeMedio, on Monday, October 12,
2009.
27. Later
that week, Mr. Thomas had a telephone conversation with Defendant Jensen during
which Mr. Jensen noted that the Company was considering some changes. Mr. Thomas
ended the call with the impression that Mr. Jensen would be receptive to
receiving a list of nominees from Mr. Thomas.
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28. Following
that conversation, and in the belief that management would consider in good
faith the addition of directors recommended by shareholders at the next annual
meeting, Messrs. Tirpak and Thomas contacted two shareholders to determine
whether or not such shareholders could recommend candidates as nominees to serve
on the Board of the Company.
29. On
Tuesday, October 20, 2009, without notice to Mr. Tirpak or Mr. Thomas, the
Company announced five changes unilaterally implemented by the Board effective
October 19, 2009. Ex. 3, Form 8-K dated Oct. 20, 2009. Each of these
changes, on its own and in the aggregate, was calculated to entrench management
and/or prevent shareholder representation on the Company’s Board of
Directors.
30. First,
the Company announced it had advanced the date of the 2010 Annual Meeting of the
shareholders, to December 15, 2009.
The Company’s 2009 Annual Meeting had been held just eight months earlier – on
April 29, 2009. For the past four years, the Company has held its
annual meeting between February and May. The intent of advancing the
meeting date was to attempt to shorten the campaign period in two
ways:
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a.
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To
make it extremely difficult for any shareholders that had been able to
meet the new advance notice provisions to successfully complete the
numerous, time-consuming and costly steps required of a proxy contest in
time for the December 15, 2009 Annual Meeting. Among other things,
Plaintiffs would need to review the Company’s Proxy Statement, prepare
their own preliminary proxy statement, engage in communications with the
Securities & Exchange Commission regarding the content of their
preliminary proxy statement and finalization of their proxy statement,
mail the proxy statement to all shareholders, and engage attorneys and
advisors. Plaintiffs, two individuals, would have to be prepared to pay
for all of these expenses.
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b.
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To
capitalize on the built-in advantage an incumbent board of directors has
in a proxy contest over shareholder-nominated director candidates who are
generally lesser-known to the shareholder base and need more time to
campaign and get their information out to
shareholders.
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31. The
new meeting date for the 2010 Annual Meeting also directly contradicted
Defendants’ statement to shareholders that the 2010 Annual Meeting would be held
sometime in 2010 – not in 2009. In a March 18, 2009 filing with the
Securities & Exchange Commission, the Company advised that “[w]ritten notice
of proposals of shareholders submitted for consideration at the 2010 Annual
Meeting but not for inclusion in the proxy statement must have been received by
the Company on or before February 2, 2010 . . . .” Ex. 4, Mar. 18, 2009 USAT
Proxy Statement at 25.
32. Second,
the Company announced that it had adopted new advance notice provisions in its
bylaws that, when coupled with the new meeting date, provided only ten (10)
calendar days for shareholders to nominate directors or propose other action to
be brought at the December 15, 2009 Annual Meeting. Ex. 3, Form 8-K
dated Oct. 20, 2009. The Company had previously advised shareholders that they
were required to notify the Company of shareholder proposals to be considered at
the Annual Meeting by February 2, 2010. Compare with Ex. 4, Mar. 18,
2009 USAT Proxy Statement at 25. The Company’s October 20, 2009
announcement effectively shortened shareholders’ time to participate in this
aspect of the corporate democracy by over ninety (90) days. This
change was calculated to make it virtually impossible for any shareholder to
have enough time to consider potential nominees and mount a challenge in the
first instance.
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33. Third,
the Company announced that the record date for the Annual Meeting was September
30, 2009 – a date that was a full twenty (20) days prior to the date on which
Company announced that it would hold the Annual Meeting on December 15, 2009.
Only holders of common stock or certain preferred stock of record at the close
of business on the Record Date would be entitled to notice of and to vote at the
December 15, 2009 Annual Meeting.
34. Fourth,
the Company announced adoption of a new bylaw staggering the Board of Directors
into three classes whereby directors would not be subject to annual
elections.
35. Fifth,
the Company announced that it had amended the bylaws to prohibit shareholders
from calling special meetings.
36. In
the same Form 8-K announcing these dramatic corporate governance changes, USAT
announced that it had expanded the Board of Directors and appointed and seated
two new directors. These two new directors – Defendants Barnhart and Price –
were handpicked by the insider-controlled Board of Directors.
37. On
Tuesday, October 27, 2009, the Company filed its proxy statement with the
Securities & Exchange Commission (“the Company Proxy
Statement”). Ex. 1, Oct. 27, 2009 USAT Proxy
Statement. Among other things, the Company Proxy Statement advised
that shareholders would be voting on the election of three classes of directors
– Class I, Class II, and Class III. The initial term of Class I directors was to
last until the 2011 Annual Meeting; the initial term of Class II directors was
to last until the 2012 Annual Meeting; and the initial term of Class III
directors was to last until the 2013 Annual Meeting. Following the expiration of
each class of directors’ initial term, each class of directors was to be elected
for a three year term.
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38. The
Company Proxy Statement disclosed that three of the inside directors –
Defendants Jensen, Herbert, and Lurio – would be seeking election as Class III
Directors. Accordingly, if elected, these insider directors would
remain on the Board and would not have to face another shareholder election
until 2013.
39. The
Company announced that 22,709,725 shares of common stock (1 vote each) and
512,365 preferred (1/100 vote each) were entitled to vote at the December 15,
2009 Annual Meeting.
40. The
Company Proxy Statement, and Defendant Jensen’s personal letter to shareholders
included within the Company Proxy Statement, made clear that the shareholders’
vote at this meeting was important. Defendant Jensen
wrote: “Whether or not you attend the Annual Meeting, it is important
that your shares be represented and voted at the meeting.” Ex. 1,
Oct. 27, 2009 USAT Proxy Statement. Defendant Jensen “urge[d]”
shareholders to “authorize [their] proxy as soon as possible.” The
Company made clear to shareholders that those holders of shares as of the Record
Date would be “entitled to notice of, and to vote at,” the December 15, 2009
Annual Meeting. Id. at 3. The Proxy Cards the
Company sent to shareholders stated: “This proxy when properly
executed will be voted in the manner directed by the undersigned.”
41. As
a result of the changes announced by Defendants on October 20, 2009, any Company
shareholders who wanted to submit nominations – including Plaintiffs – had to
rush to prepare by October 30, 2009 any notice of intent to nominate directors
in time for the December 15, 2009 Annual Meeting.
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THE
PROXY CONTEST
42. Believing
that the actions announced by the Board on October 20, 2009 were inconsistent
with the discussions they had previously held with management, Messrs. Tirpak
and Thomas considered various possible courses of action, including nominating
directors and seeking their election through the solicitation of less than ten
(10) persons. In connection with that approach, Messrs. Tirpak and Thomas had
preliminary conversations with and sent material to fewer than ten (10) persons
(inclusive of the persons from whom nominees were sought
previously).
43. While
the shareholders Messrs. Tirpak and Thomas spoke with were generally unhappy
with actions taken by the Board, none of these shareholders agreed to vote for
the Committee’s nominees, nor to provide the Committee any proxies, nor to
provide financing for the proxy solicitation, nor to act in any other way that
would make them a participant in the solicitation. After
consideration of the alternatives, Messrs. Tirpak and Thomas determined to form
the Committee and file a preliminary proxy statement and conduct a broad
solicitation.
44. These
conversations with shareholders were publicly disclosed in the Committee’s proxy
statement.
45. On
Friday, October 30, 2009, within the expedited ten (10) day period the Company
announced on October 20, 2009, Mr. Tirpak notified the Company of his intent to
nominate Peter A. Michel, Alan J. Gotcher, and himself to serve as directors at
the December 15, 2009 Annual Meeting.
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46. Plaintiffs
formed the Committee, which retained Morrow & Co., LLC (“Morrow”), to act as
an advisor and to provide solicitation services in connection with the election
of directors at the December 15, 2009 Annual Meeting.
47. On
November 19, 2009, the Committee filed its Preliminary Proxy Statement with the
Securities & Exchange Commission (“Committee Preliminary Proxy
Statement”). Ex. 5, Nov. 19, 2009 Committee Preliminary Proxy
Statement.
48. The
Committee made clear, in its Preliminary Proxy Statement, that if elected, its
nominees, Mr. Tirpak, Mr. Michel, and Mr. Gotcher, would, consistent with their
fiduciary duties:
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a.
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Advocate
for the removal of the staggered
Board;
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b.
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Advocate
for the reinstatement of the right for shareholders to call a special
meeting;
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c.
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Advocate
for board nominees who have been vetted by an independent nominating
committee and determined to be free from conflicting affiliate
relationships;
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d.
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Examine
the operations of the Company with an eye toward maximizing shareholder
value, including advocating a review of management compensation to ensure
alignment of management’s interests with that of common
shareholders.
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49. The
Company quickly went on the attack. On November 20, 2009, just one
day after the Committee filed its Preliminary Proxy Statement, the Company
issued an open letter to shareholders urging shareholders to reject the
Committee’s proxy. The company claimed that the Plaintiffs, who the
Company referred to as “dissidents,” “filed public documents distorting the
facts regarding [USAT’s] Board and its actions, and have made other confusing
accusations” and stated that the Committee’s proxy contained “grossly misleading
information.” Ex. 6, Nov. 20, 2009 USAT Letter to
Shareholders. The Company provided information attacking this
supposed misleading and inaccurate information. This letter was
publicly released and available on various Internet sites. Id. Despite the fact that the
Committees’ Preliminary Proxy Statement purportedly contained misleading
information, Defendants made no efforts to delay the December 15, 2009 Annual
Meeting.
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50. In
fact, neither the Committee’s Preliminary Proxy Statement nor any of its other
communications with shareholders contains a misleading statement.
51. On
November 24, 2009, the Company sent another letter to shareholders, providing
further information detailing what the Company referred to as inaccurate
information spread by the Committee. Ex. 7, Nov. 24, 2009 USAT Letter
to Shareholders. This letter was also publicly released and available on various
Internet sites. Id.
52. On
November 30, 2009, the Committee filed its definitive proxy statement
(“Committee Proxy Statement”) and mailed its proxy materials to
shareholders. Ex. 8, Nov. 30, 2009 Committee Proxy
Statement. In a public release, Mr. Tirpak stated, among other
things, that the Committee “urge[s] shareholders to send a message to management
and directors that the time for change is NOW by electing our minority slate of
three highly qualified independent nominees to the Board.” Ex. 9,
Nov. 30, 2009 press release and letter to shareholders.
53. Again,
the Company demonstrated its ability to mobilize, respond, and get its
counter-message out to shareholders immediately. Just one day after
the Committee filed its Proxy Statement and issued its November 30, 2009 press
release, the Company sent another letter to USAT’s shareholders. In
this letter, dated December 1, 2009 and also released publicly and made
available on various Internet websites, Ex. 10 (Dec. 1, 2009 USAT Letter to
Shareholders), the Company again claimed that the Committee was spreading
misleading information: “the Dissidents continue to mislead our shareholders on
their basic intent, the background of their candidates, and with the data which
they choose to state their case.”
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54. On
multiple pages in its December 1, 2009 letter to shareholders, the Company again
delivered its counter-message, and explained why it believed that the Committee
was misleading shareholders. Among other things, the Company stated,
“The Dissidents Claim That They are Acting on Behalf of Shareholders – They are
Not.” The Company also stated, “The Dissidents State That They Do Not
Seek a Change In Control. We Believe That This Is Simply Not
True.” The Company referred to “a document selectively circulated by
the Dissidents to certain of our shareholders but not filed with the Securities
and Exchange Commission.”
55. Despite
the fact that the Committee Proxy Statement contained what the Company
characterized as misleading information, the Defendants at this time again made
no effort to delay the December 15, 2009 Annual Meeting. And, as
noted above, none of Plaintiffs’ statements was misleading.
LEADING SHAREHOLDERS’ RIGHTS
ORGANIZATIONS RECOMMEND
THAT SHAREHOLDERS VOTE FOR
PLAINTIFFS’ SLATE OF DIRECTORS
56. During
USAT’s letter-writing campaign, the two leading, independent, shareholders’
rights organizations publicly announced their recommendations that shareholders
vote in favor of the Committee’s director nominees.
57. On
Wednesday, December 2, 2009, Glass Lewis, an independent and leading
shareholders’ rights organization, recommended that USAT shareholders vote in
favor of each of the Committee’s nominees. In its report recommending
the election of the Committee’s nominees, (Ex. 11, Glass Lewis & Co. Proxy
Paper for Dec. 10, 2009 Meeting at p. 9), Glass Lewis stated:
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a.
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“[W]e
believe that the board’s recent amendments to the Company’s bylaws call
into question whether the board is truly acting in shareholders’ best
interest.”
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b.
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“Based
on these actions by the board, together with the Company’s severe
underperformance in recent years, we believe that a change to the current
board could prove beneficial for
shareholders.”
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c.
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“In
our view, the presence of these nominees may prove beneficial for the
board and provide a much-needed impetus to effect
change.”
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58. A
press release regarding Glass Lewis’ endorsement of the Committee’s nominees was
publicly available on various Internet sites on December 3, 2009. Ex.
12, Dec. 3, 2009 Committee Press Release.
59. On
December 7, 2009, the Company issued yet another letter to shareholders, urging
them to vote the Company’s proxy card and to reject the Committee’s proxy
card. Again, the Company claimed the Committee was acting under “a
smokescreen of misleading assertions.” Ex. 13, Dec. 7, 2009 USAT
Letter to Shareholders. Nevertheless, the Company again took no steps at this
time to cancel the December 15, 2009 Annual Meeting.
60. On
December 8, 2009, the Committee received another major endorsement, this one
from RiskMetrics Group (“RiskMetrics”), a leading, independent, shareholders’
rights organization affiliated with Independent Shareholder
Services. In its December 8, 2009 report, (Ex. 14, RiskMetrics Group
Recommendations for Dec. 15, 2009 Meeting), RiskMetrics concluded: “We recommend
shareholders vote FOR Bradley Tirpak, Alan Gotcher, and Peter
Michel.”
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61. In
its report, with respect to USAT’s recent bylaw changes, RiskMetrics noted
“[t]hese amendments and their timing, in light of the company’s sustained poor
performance, leave the impression of a board acting to entrench
itself.” Id.
at 20. RiskMetrics identified certain aspects of compensation at USAT as
“problematic.” Id. At 17. RiskMetrics went
on in its report to say:
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a.
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RiskMetrics
“believe[d] greater management oversight may be
warranted[.]”
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b.
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“[T]he
presence of the [Committee’s] nominees on the USAT board would likely
prove beneficial to shareholder
value.”
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c.
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“[t]he
long-term financial and operational performance of the company and the
[Committee’s] nominees’ skill sets and backgrounds establish both the need
for change and [the Committee’s] ability to effect
change.”
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Id. at 20.
62. A
press release regarding RiskMetrics’ endorsement of the Committee’s nominees was
publicly available on the Internet at various sites as early as 7:00am (ET) on
December 9, 2009. Ex. 15, Dec. 9, 2009 Committee Press
Release.
63. Almost
immediately after this press release was issued, the Company responded by
issuing its own press release stating that it “strongly believe[d]” RiskMetrics
had “reached the wrong conclusion” and urging shareholders to vote in favor of
the Company’s nominees. The Company’s press release made no mention
of postponing the annual meeting.
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RECOGNIZING THAT THE COMMITTEE’S
NOMINEES HAD THE SUPPORT
OF THE SHAREHOLDER BASE, AND ELECTION
OF THE COMMITTEE’S
NOMINEES WAS IMMINENT, DEFENDANTS
CANCEL THE VOTE
64. In
early December 2009, it became readily apparent to both USAT and Plaintiffs that
the momentum of the shareholder base was in favor of the Committee’s
nominees.
65. On
December 1, the Committee’s proxy went final at the SEC. On December
2, the Committee mailed its proxies to shareholders, who began to receive them
on Saturday, December 5 and Monday, December 7.
66. By
December 8, 2009, data provided to both USAT’s and the Committee’s proxy
advisory firms demonstrated that dramatic numbers of votes were being cast for
the Committee’s nominees. Late in the morning on December 8,
Broadridge – a company used by virtually all of the broker-dealers to tabulate
proxy voting for shares held in “street name” (that is, owned by brokers on
behalf of the beneficial owners) – notified both USAT and the Committee that
there were currently approximately 2,762,066 street name votes in favor of USAT,
and approximately 855,548 in favor of the Committee’s nominees. Ex.
16, Dec. 8, 2009 Broadridge email as at 11:46am. The Defendants did not cancel
the December 15, 2009 Annual Meeting upon receiving this
information.
67. By
December 9, 2009, the tally of street votes that Broadridge provided to USAT and
the Committee showed that the Committee had considerably narrowed the gap. As of
the time of Broadridge’s 10:06am email, again to both USAT and the Committee,
2,912,142 votes were in favor of USAT’s nominees, and 2,724,183 votes were in
favor of the Committee’s nominees. Ex. 17, Dec. 9, 2009 Broadridge
email at 10:06am. Thus, USAT saw that votes were shifting in favor of
the Committee’s nominees. USAT had gone from being nearly 2 million
votes ahead of the Committee’s nominees to just 200,000 votes ahead in less than
a day. Two independent shareholders’ rights organizations – Glass
Lewis and RiskMetrics – had both recommended the Committee’s
nominees. Thus, it had to have been clear to the Company that they
were going to lose, as many institutional shareholders will cast votes based
upon these recommendations.
17
68. In
the face of likely defeat, at the end of the day on December 9, 2009 – just
three business days before the election – the Company and the Individual
Defendants made an announcement that purported to cancel the December 15, 2009
Annual Meeting, and set a new meeting date six months in the future – June 15,
2010. By 5:47pm on December 9, 2009, Broadridge was reporting to both
the Committee and USAT that the street votes were in
favor of the Committee’s nominees, by a margin of 3,541,496 to
2,807,4272
votes. Ex. 18, Dec. 9, 2009 Broadridge email at 5:47pm.
69. The
Company purported to change the meeting date in order to obstruct the stated
will of the majority of shareholder votes cast, votes calling for change in the
corporate governance of the Company. See Ex. 19, Dec. 9,
2009 USAT Press Release. Indeed, as of December 11, 2009, over 10.3
million shares had voted. By the Committee’s calculations, over 7.4
million of those 10.3 million shares are in the Committee’s nominees’
favor. Ex. 20, Dec. 11, 2009 Morrow Vote Update.
________________
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2
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Indeed,
the number of votes in favor of the Company’s nominees actually decreased from the
morning of December 9 to the evening of December 9 because proxies
previously granted in favor of the Company’s nominees were apparently
revoked and replaced with proxies in favor of the Committee’s
nominees.
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18
70. The
Company’s stated reason for the cancellation of the December 15, 2009 Annual
Meeting is a pretext. The Company stated that it cancelled the meeting due to
“what the Board believes to be misleading, inaccurate and selective disclosure
regarding the Company by the dissident shareholders seeking to replace three of
the Company’s directors with their own nominees.” Ex. 19, Dec. 9,
2009 USAT Press Release.
71. The
stated reason given on December 9, 2009 by the Company is not materially
different than the claims the Company publicly made in their November 20,
November 24, December 1 and December 7 letters to shareholders – as many as 20
days prior to the cancellation of the meeting. See Exs. 6, 7, 10,
13. The Company’s December 9, 2009 press release does not make any new claim,
nor explain why an adjournment of six months is necessary.
72. Defendants
have no legitimate basis for cancelling the December 15 Annual Meeting. They
cancelled the meeting for one reason: to avoid losing.
COUNT I
BREACH OF FIDUCIARY
DUTY
73. Plaintiffs
incorporate by reference the foregoing paragraphs as if fully set forth
herein.
74. The
Individual Defendants, as officers and directors of USAT, owe fiduciary duties
of loyalty, care and good faith to Plaintiffs, and to all other shareholders of
USAT.
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75. The
Individual Defendants owe a duty to USAT’s shareholders to protect the
shareholders’ voting rights, and to refrain from taking any action that
interferes with the shareholders’ core right to participate in a fair and
equitable corporate democracy.
76. In
denigration of these basic tenets of corporate law, the Individual Defendants
knowingly violated their fiduciary duties of loyalty, care and good
faith.
77. As
set forth above, the Individual Defendants have breached their fiduciary duties
of loyalty, care and good faith by canceling the December 15, 2009 Annual
Meeting for the primary purpose of thwarting the free exercise of USAT’s
shareholders’ franchise and attempting to nullify the majority vote against
certain of the Company’s board nominees and in favor of the Committee’s
nominees.
78. These
improper actions were particularly directed at the Plaintiffs and intended to
derail all past and future shareholder advocacy by the Plaintiffs and, more
immediately, the proxy fight the Plaintiffs had begun weeks
earlier.
79. The
actions of the Individual Defendants lacked any business justification or even
any rational justification, and were designed to perpetuate the Individual
Defendants’ control over the Company to the detriment of the will of the
Company’s shareholders.
80. The
Individual Defendants have acted in their own self-interest and to further their
individual personal, financial and economic interests to the detriment of
Plaintiffs and all shareholders.
81
The Individual Defendants’ conduct is inequitable and a misuse of
the mechanisms provided to them by the Company.
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82. Absent
immediate and permanent injunctive relief, the Individual
Defendants
will continue to breach their fiduciary duties owed to Plaintiffs and all USAT
shareholders to benefit themselves, to harm the Company, to disenfranchise the
USAT shareholders of their right to vote, and to continue to evade
accountability to all shareholders, all to Plaintiffs’ irreparable
harm.
83. As
set forth in detail above, as a direct, proximate and certain result of the
Defendants’ illegal and inequitable misconduct, Plaintiffs have been and will
continue to be irreparably harmed. Plaintiffs (i) have already
expended tremendous amounts of time, money, and energy to identify the
Committee’s nominees and solicit proxies, (ii) have planned for nearly two
months on the Annual Meeting to be held December 15, 2009, (iii) have mounted a
proxy contest on the basis of a September 30, 2009 record date that – if the
Court does not intervene – may expire, thereby nullifying all proxies voted in
the Committee’s favor, and (iv) have been successful in helping get the
shareholders’ will brought to public light by way of the voting in this
election.
84. The
majority of voting shareholders have made clear that they are in favor of the
Committee’s Nominees. They – and Plaintiffs – are entitled to the
change for which they have voted. Any vote taking place in the future, with a
new record date, will not only be a different vote based on a different
shareholder set, but will also foster continued entrenchment by the Individual
Defendants and continued harm on the Company by way of the lack of independent,
shareholder-aligned oversight.
85. Unless
Plaintiffs obtain injunctive relief, (i) the Committee’s nominees will not take
their rightful place on the Board of USAT, (ii) the shareholders of USAT will be
stuck for at least six (6) more months with a Board they have voted against,
(iii) the Board will remain unhindered during such six months to further enrich
and entrench themselves, and (iv) the Defendants will have succeeded in their
transparent plan to entrench themselves – at significant cost to USAT and its
shareholders.
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COUNT II
WRONGFUL INTERFERENCE WITH
SHAREHOLDERS’ VOTING RIGHTS
86. Plaintiffs
incorporate by reference the foregoing paragraphs as if fully set forth
herein.
87. Directors
must respect the fundamental principles of corporate democracy and cannot take
actions designed to undermine shareholders’ voting rights.
88. The
Individual Defendants violated these principles by canceling the December 15,
2009 Annual Meeting for the primary purpose of thwarting the free exercise of
USAT’s shareholders’ franchise and attempting to nullify the majority vote
against certain of the Company’s board members and in favor of the Committee’s
nominees.
89. The
Individual Defendants decision to cancel the December 15, 2009 Annual Meeting
was an abuse of position that, even if exercised in the belief that the Company
was thereby well served, violates the principles of corporate democracy that
enable shareholders to control their own company.
90. Absent
preliminary and permanent injunctive relief, the Individual Defendants’ wrongful
interference with shareholders’ voting rights will harm the Company,
disenfranchise USAT shareholders, and allow the Individual Defendants to
continue to evade accountability to shareholders, all to Plaintiffs’ irreparable
harm.
22
91. Unless
Plaintiffs obtain injunctive relief, (i) the Committee’s nominees will not take
their rightful place on the Board of USAT, (ii) the shareholders of USAT will be
stuck for at least six (6) more months with a Board they have voted against,
(iii) the Board will remain unhindered during such six months to further enrich
and entrench themselves, and (iv) the Defendants will have succeeded in their
transparent plan to entrench themselves – at significant cost to USAT and its
shareholders.
COUNT
III
VIOLATION OF RULE
14a-9
92. Plaintiffs
incorporate by reference the foregoing paragraphs as if fully set forth
herein.
93. The
Company’s proxy statements failed to disclose to shareholders that if the vote
did not go in favor of the Company’s nominees, the annual meeting would be
postponed.
94. This
omission made Defendants’ statements to shareholders that their votes were
“important” and that the Annual Meeting was “critical” false and
misleading. This omission also rendered misleading the Defendants’
statement that the proxies they solicited “when properly executed will be voted
in the manner directed by the undersigned.”
95. This
omission was material because there is a substantial likelihood that a
reasonable shareholder would view it as significantly altering the “total mix”
of available information.
23
96. This
omission caused Plaintiffs – and all other shareholders – injury because it
resulted in their disenfranchisement.
97. The
proxy solicitation was an essential link in the accomplishment of the
transaction, because it was essential to whether or not Plaintiffs – and all
other shareholders – would get to exercise their fundamental right to vote for
directors.
98. Absent
immediate and permanent injunctive relief, these material misrepresentations and
omissions will disenfranchise the Plaintiffs – and all shareholders– to their
irreparable harm.
24
WHEREFORE, Plaintiffs
respectfully request that this Court enter judgment:
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(1)
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declaring
that USAT’s action purporting to cancel the December 15, 2009 Annual
Meeting is null and void;
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(2)
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ordering
that the December 15, 2009 Annual Meeting take place as
scheduled;
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(3)
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ordering
that all votes be counted in accordance with Pennsylvania
law;
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(4)
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granting
any and all equitable relief deemed necessary by this Court to ensure that
the fundamental principles of corporate democracy are properly and timely
enforced;
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(5)
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enjoining
Defendants from improperly interfering with the election and, if the
Committee’s nominees are elected, enjoining Defendants from interfering in
their seating on the Board of
Directors;
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(6)
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awarding
Plaintiffs the costs of the proxy solicitation and the costs and
disbursements of this action, including reasonable attorneys’ fees;
and
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(7)
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granting
such other and further relief as this Court may deem just and
proper.
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| Dated: December 17, 2009 | Respectfully submitted, |
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/s/ Michael S. Doluisio
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Steven
B. Feirson
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Michael
S. Doluisio
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Tara
L. Cooney
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Peter
Kreher
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Dechert
LLP
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Cira
Centre
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2929
Arch Street
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Philadelphia,
PA 19104
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Tel:
(215) 994-4000
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Fax:
(215) 994-2222
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Counsel
for Plaintiffs Bradley M. Tirpak and Craig W.
Thomas.
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25
CERTIFICATE OF
SERVICE
I,
Michael S. Doluisio, hereby certify that on December 17, 2009 I caused a true
and correct copy of the Amended Complaint to be served via hand delivery
to:
David H.
Pittinsky
Ballard
Spahr LLP
1735
Market Street
Philadelphia,
PA 19103
Attorneys
for USA Technologies, Inc.
George
R. Jensen, Jr., Stephen P.
Herbert,
Douglas M. Lurio, Steven
Katz,
William L Van Alen, Jr., Joel
Brooks,
Steven D. Barnhart, and
Jack
E. Price
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/s/ Michael S.
Doluisio
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Michael
S. Doluisio
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