Attached files
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8-K - USA TECHNOLOGIES 8-K 12-18-2009 - CANTALOUPE, INC. | form8k.htm |
EX-99.1 - EXHIBIT 99.1 - CANTALOUPE, INC. | ex99_1.htm |
EX-99.3 - EXHIBIT 99.3 - CANTALOUPE, INC. | ex99_3.htm |
Exhibit
99.2
IN THE
UNITED STATES DISTRICT COURT
FOR THE
EASTERN DISTRICT OF PENNSYLVANIA
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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CIVIL
ACTION NO. 09-CV-5920
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USA
TECHNOLOGIES, INC.,
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GEORGE
R. JENSEN, JR.,
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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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ANSWER
AND AFFIRMATIVE DEFENSES OF
DEFENDANTS
TO PLAINTIFFS’ AMENDED COMPLAINT,
AND
COUNTERCLAIMS OF DEFENDANT USA TECHNOLOGIES, INC.
Defendant
USA Technologies, Inc. (the “Company”), and defendants 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 (collectively, the
“Individual Defendants,” and together with the Company, “Defendants”), by their
undersigned counsel, hereby answer and assert affirmative defenses to
plaintiffs’ Amended Complaint as follows:
ANSWER
1. Admitted
in part and denied in part. Defendants lack knowledge or information
sufficient to form a belief about the truth of the allegations in the first
sentence of paragraph 1. Defendants admit the allegations in the
second sentence of paragraph 1.
2.
Admitted in part and denied in part. Defendants lack knowledge or
information sufficient to form a belief about the truth of the allegations in
the first sentence of paragraph 2. Defendants deny the allegations in
the second sentence of paragraph 2.
3.
Admitted.
4.
Admitted.
5.
Admitted.
6.
Admitted.
7.
Admitted in part and denied in part. Defendants admit the
allegations in paragraph 7, except deny that Steven Katz & Associates, Inc.
received $72,600 in fees from the Company during the fiscal year ended June 30,
2007. To the contrary, Steven Katz & Associates, Inc. received
this amount in fees from the Company during the fiscal year ended June 30,
2005.
8.
Admitted.
9.
Admitted in part and denied in part. Defendants admit the
allegations in paragraph 9, except they deny that the Suite number for Mr.
Brooks’ place of business is 140. Rather, the Suite number is
420.
10.
Admitted in part and denied in part. Defendants admit the allegations
in paragraph 10, except deny that the address alleged is for Mr. Barnhart’s
place of business. Rather, it is his home address.
11.
Admitted.
12.
Denied. The allegations in paragraph 12 refer to other
allegations in the Amended Complaint, which speak for themselves, and
plaintiffs’ characterization of those allegations is therefore
denied.
2
13. –
15. The allegations in paragraphs 13 – 15 are conclusions of law to
which no response is required.
16. Admitted
in part and denied in part. Defendants deny the allegations in
paragraph 16, except admit the Company has not had an operating profit in any
quarter since its inception, Messrs. Jensen and Herbert have held their current
positions at the Company from 2003 to the present, and the allegations in the
third sentence of paragraph 16.
17. Denied. The
allegations in paragraph 17 refer to the contents of a report by Institutional
Shareholder Services, which is a written document that speaks for itself, and
Plaintiffs’ characterization of its contents is therefore denied.
18. Denied. The
allegations in paragraph 18 refer to the contents of a report by Institutional
Shareholder Services, which is a written document that speaks for itself, and
Plaintiffs’ characterization of its contents is therefore denied.
19. Denied.
20. Admitted
in part and denied in part. Defendants deny the allegations in
paragraph 20, except admit the allegations in the first sentence of paragraph
20.
21. Admitted. By
way of further answer, the more than $1.7 million in total compensation received
by Messrs. Jensen and Herbert in fiscal 2009 included compensation in the form
of both cash and stock.
22. Denied.
23. Denied.
24. Admitted
in part and denied in part. It is admitted that, on October 15, 2009,
Mr. Thomas discussed his suggestion that the Company should bring in three new
independent directors with Mr. Jensen. The remaining allegations of
paragraph 24 are denied.
3
25. Defendants
lack knowledge or information sufficient to form a belief about the truth of the
allegations in paragraph 25.
26. Admitted.
27. Admitted
in part and denied in part. Defendants admit the allegations in the
first sentence of paragraph 27. Defendants lack knowledge or
information sufficient to form a belief about the truth of the allegations in
the second sentence of paragraph 27.
28. Denied. Defendants
lack knowledge or information sufficient to form a belief about the truth of the
allegations in paragraph 28.
29. Admitted
in part and denied in part. Defendants admit that, on October 20,
2009, the Company filed a Form 8-K announcing certain changes without prior
notice to Messrs. Tirpak and Thomas. The remainder of the allegations
in paragraph 29 refer to the contents of the Company’s Form 8-K dated October
20, 2009, which is a written document that speaks for itself, and Plaintiffs’
characterization of its contents is therefore denied.
30. Admitted
in part and denied in part. The allegations in the first sentence of
paragraph 30 refer to the contents of the Company’s Form 8-K dated October 20,
2009, which is a written document that speaks for itself, and Plaintiffs’
characterization of its contents is therefore denied. Defendants
admit the allegations in the second sentence of paragraph
30. Defendants deny the remaining allegations in paragraph
30.
31. Admitted
in part and denied in part. The allegations in the second sentence of
paragraph 31 refer to the contents of the Company’s March 18, 2009 filing with
the United States Securities and Exchange Commission (the “SEC”), which is a
written document that speaks for itself, and Plaintiffs’ characterization of its
contents is therefore denied. Defendants deny the remaining
allegations in paragraph 31, except admit that the December 15, 2009 meeting
date was earlier than the date the Company contemplated for the meeting date in
2010 when it made its March 18, 2009 filing.
4
32. Denied. The
allegations in the first sentence of paragraph 32 refer to the contents of the
Company’s October 20, 2009 Form 8-K, which is a written document that speaks for
itself, and Plaintiffs’ characterization of its contents is therefore
denied. The allegations in the second sentence of paragraph 32 refer
to the contents of the Company’s March 18, 2009 SEC filing, which is a written
document that speaks for itself, and Plaintiffs’ characterization of its
contents is therefore denied. Defendants deny the remaining
allegations in paragraph 32.
33. –
35. Denied. The allegations in paragraphs 33 – 35 refer to
the contents of the Company’s October 20, 2009 Form 8-K, which is a written
document that speaks for itself, and Plaintiffs’ characterization of its
contents is therefore denied.
36. Denied. The
allegations in the first sentence of paragraph 36 refer to the contents of the
Company’s October 20, 2009 Form 8-K, which is a written document that speaks for
itself, and Plaintiffs’ characterization of its contents is therefore
denied. Defendants deny the allegations in the second sentence of
paragraph 36.
37. Admitted
in part and denied in part. Defendants admit the allegations in the
first sentence of paragraph 37. The remainder of the allegations in
paragraph 37 refer to the contents of the Company’s October 27, 2009 Proxy
Statement, which is a written document that speaks for itself, and Plaintiff’s
characterization of its contents is therefore denied.
38. –
39. Denied. The allegations in paragraphs 38 – 39 refer to
the contents of the Company’s October 27, 2009 Proxy Statement, which is a
written document that speaks for itself, and Plaintiff’s characterization of its
contents is therefore denied.
5
40. Denied. The
allegations in paragraph 40 refer to the contents of the Company’s October 27,
2009 Proxy Statement and exhibits thereto, which are written documents that
speak for themselves, and Plaintiffs’ characterization of their contents is
therefore denied.
41. Denied.
42. Denied. Defendants
lack knowledge or information sufficient to form a belief about the truth of the
allegations in the first sentence of paragraph 42. Defendants deny
the allegations in the second sentence of paragraph 42.
43. Denied. Defendants
lack knowledge or information sufficient to form a belief about the truth of the
allegations in paragraph 43.
44. Denied. The
allegations in paragraph 44 refer to the contents of Plaintiffs’ proxy
statement, which is a written document that speaks for itself, and Plaintiffs’
characterization of its contents is therefore denied.
45. Admitted
in part and denied in part. Defendants deny the allegations in
paragraph 45, except admit that, on October 30, 2009, Mr. Tirpak notified the
Company of his intent to nominate Peter A. Michel, Alan J. Gotcher, and himself
as director candidates.
46. Denied. Defendants
lack knowledge or information sufficient to form a belief about the truth of the
allegations in paragraph 46.
47. Admitted.
48. Denied. The
allegations in paragraph 48 refer to the contents of Plaintiffs’ November 19,
2009 Preliminary Proxy Statement, which is a written document that speaks for
itself, and Plaintiffs’ characterization of its contents is therefore
denied.
49. Admitted
in part and denied in part. Defendants deny the allegations in the
first sentence of paragraph 49. Defendants admit that the Company
issued a letter to shareholders on November 20, 2009. The remaining
allegations in the second sentence of paragraph 49, and the allegations in the
third and fourth sentences of paragraph 49, refer to the contents of the
Company’s November 20, 2009 letter to shareholders, which is a written document
that speaks for itself, and Plaintiff’s characterization of its contents is
therefore denied. Defendants admit the allegations in the fifth
sentence of paragraph 49. Defendants deny the remaining allegations
in paragraph 49.
6
50. Denied. By
way of further answer, Defendants incorporate herein by reference the
allegations that form the basis for the Company’s counterclaims.
51. Admitted
in part and denied in part. Defendants admit that, on November 24,
2009, the Company sent a letter to shareholders, and that this letter was
publicly released and available on various Internet sites. The
remainder of the allegations in paragraph 51 refer to the contents of the
Company’s November 24, 2009 letter to shareholders, which is a written document
that speaks for itself, and Plaintiffs’ characterization of its contents is
therefore denied.
52. Admitted
in part and denied in part. Defendants admit the allegations in the
first sentence of paragraph 52. The allegations in the second
sentence of paragraph 52 refer to the contents of Plaintiffs’ November 30, 2009
Proxy Statement, which is a written document that speaks for itself, and
Plaintiffs’ characterization of its contents is therefore denied.
53. Admitted
in part and denied in part. Defendants admit that, on December 1,
2009, the Company sent a letter to shareholders. Defendants further
admit that this letter was publicly released and available on various Internet
sites. The remainder of the allegations in the third sentence of
paragraph 53 refer to the contents of the Company’s December 1, 2009 letter to
shareholders, which is a written document that speaks for itself, and
Plaintiffs’ characterization of its contents is therefore
denied. Defendants deny the remaining allegations in paragraph
53.
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54. Denied. The
allegations in paragraph 54 refer to the contents of the Company’s December 1,
2009 letter to shareholders, which is a written document that speaks for itself,
and Plaintiffs’ characterization of its contents is therefore
denied.
55. Denied. By
way of further answer, Defendants incorporate herein by reference the
allegations that form the basis for the Company’s counterclaims.
56. –
58. Denied. The allegations in paragraphs 56 – 58 refer to
the contents of the Glass Lewis & Company Proxy Paper, and accompanying
press release, which are written documents that speak for themselves, and
Plaintiffs’ characterization of their contents is therefore denied.
59. Admitted
in part and denied in part. Defendants admit that, on December 7,
2009, the Company issued a letter to shareholders. The remainder of
the allegations in the first sentence of paragraph 59, and the allegations in
the second sentence of paragraph 59, refer to the contents of the Company’s
December 7, 2009 letter to shareholders, which is a written document that speak
for itself, and Plaintiffs’ characterization of its contents is therefore
denied. Defendants deny the remaining allegations in paragraph
59.
60. –
62. The allegations in paragraphs 60 – 62 refer to the contents of
RiskMetrics Group’s recommendations, and accompanying press release, which are
written documents that speak for themselves, and Plaintiffs’ characterization of
their contents is therefore denied.
63. Denied. The
allegations in paragraph 63 refer to the contents of a Company press release,
which is a written document that speaks for itself, and Plaintiffs’
characterization of its contents is therefore denied.
64. Denied.
8
65. Admitted
in part and denied in part. Defendants admit the allegations in the
first sentence in paragraph 65. Defendants lack knowledge or
information sufficient to form a belief about the truth of the allegations in
the second sentence of paragraph 65.
66. Admitted
in part and denied in part. The allegations in the first and second
sentences of paragraph 66 refer to the contents of Broadridge’s December 8, 2009
email, which is a written document that speaks for itself, and Plaintiffs’
characterization of its contents is therefore denied. Defendants
admit the remaining allegations in paragraph 66. By way of further
answer, the votes cast for Plaintiffs’ nominees were attributable to false and
misleading statements of fact, and omissions of material facts, in Plaintiffs’
proxy solicitation materials. Defendants incorporate herein by
reference the allegations that form the basis for the Company’s
counterclaims.
67. Admitted
in part and denied in part. The allegations in the first, second and
fourth sentences of paragraph 67 refer to the contents of Broadridge’s December
9, 2009 10:06am email, which is a written document that speaks for itself, and
Plaintiffs’ characterization of its contents is therefore denied. The
allegations in the fifth sentence of paragraph 67 refer to the recommendations
of Glass Lewis and RiskMetrics, which are contained in written documents that
speak for themselves, and Plaintiffs’ characterization of their contents is
therefore denied. Defendants deny the remaining allegations in
paragraph 67, except admit that they saw that votes were shifting in favor of
Plaintiffs’ nominees on December 9, 2009. By way of further answer,
this shift was attributable to false and misleading statements of fact, and
omissions of material facts, in Plaintiffs’ proxy solicitation
materials. Defendants incorporate herein by reference the allegations
that form the basis for the Company’s counterclaims.
68. Admitted
in part and denied in part. Defendants admit that the Company made an
announcement on December 9, 2009 postponing the December 15, 2009 meeting, and
deny the remaining allegations in the first sentence of paragraph
68. The allegations in the second sentence of paragraph 68 refer to
the contents of Broadridge’s December 9, 2009 5:47pm email, which is a written
document that speaks for itself, and Plaintiffs’ characterization of its
contents is therefore denied.
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69. Denied.
70. Admitted
in part and denied in part. Defendants deny the allegations in the
first sentence of paragraph 70. Defendants admit the allegations in
the second sentence of paragraph 70, and incorporate herein by reference the
allegations that form the basis for the Company’s counterclaims.
71. Denied. The
allegations in paragraph 71 refer to the Company’s December 9, 2009 press
release, and November 20, November 24, December 1 and December 7 letters to
shareholders, which are written documents that speak for themselves, and
Plaintiffs’ characterization of their contents is therefore denied.
72. Denied.
COUNT
I – Breach of Fiduciary Duty
73. Defendants
incorporate herein by reference their answers to paragraphs 1 – 72 as if fully
set forth herein.
74. –
85. Denied. The allegations in paragraphs 74 – 85 are
conclusions of law to which no response is required. To the extent
any of these allegations are deemed factual, Defendants deny them.
COUNT
II – Wrongful Interference With Shareholder Voting Rights
86. Defendants
incorporate herein by reference their answers to paragraphs 1 – 85 as if fully
set forth herein.
10
87. –
91. Denied. The allegations in paragraphs 87 – 91 are
conclusions of law to which no response is required. To the extent
any of these allegations are deemed factual, Defendants deny them.
COUNT
III – Claim Under Rule l4a-9
92. Defendants
incorporate herein by reference their answers to paragraphs 1 – 91 as if fully
set forth herein.
93. –
98. Denied. The allegations in paragraphs 93 – 98 are
conclusions of law to which no response is required. To the extent
any of these allegations are deemed factual, Defendants deny them.
WHEREFORE,
Defendants respectfully request judgment in their favor and against Plaintiffs,
together with costs, fees and such other relief as the Court deems
proper.
AFFIRMATIVE
DEFENSES
99.
Plaintiffs’ Amended Complaint fails to state a claim upon
which relief can be granted.
100. Plaintiffs’
claims fail in whole or in part based on the Pennsylvania business judgment rule
and the provisions of the Pennsylvania Business Corporation Law.
101. Plaintiffs’
claims fail in whole or in part because the Individual Defendants owe their
fiduciary duty to the Company and not to individual shareholders.
102. Plaintiffs’
claims fail in whole or in part under the doctrine of waiver and/or
estoppel.
103. Plaintiffs’
claims fail in whole or in part by virtue of their unclean hands, and for the
reasons set forth in the Company’s counterclaims.
104. Defendants
reserve the right to supplement their affirmative defenses as discovery in this
action proceeds and reveals new facts not currently known to
Defendants.
11
WHEREFORE,
Defendants respectfully request judgment in their favor and against Plaintiffs,
together with costs, fees and such other relief as the Court deems
proper.
THE
COMPANY’S COUNTERCLAIMS
The
Company, by its undersigned counsel, for its Counterclaims against Plaintiffs,
hereby avers as follows:
105. Counterclaim
plaintiff is the Company.
106. Counterclaim
defendants are Plaintiffs.
Preliminary
Statement
107.
In a blatant attempt to seize control of the Company, Plaintiffs –
two dissident shareholders with covert allies – have sought to utilize false and
misleading statements concerning the Company and their status and intentions to
cause the Company’s shareholders to provide them with proxies to elect three
members of the Company’s classified eight-member Board of Directors (the
“Board”). In soliciting the shareholders’ proxies, Plaintiffs have
committed numerous violations of the Securities Exchange Act of 1934 (the
“Exchange Act”). Specifically, Plaintiffs made a proxy solicitation
to more than ten (10) persons without having filed it with the SEC, which
constitutes a violation of Section 14(a) of the Exchange Act. In
further violation of Section 14(a) of the Exchange Act, Plaintiffs have made
numerous false and/or misleading statements of material fact, and/or omissions
of material fact, in their various written proxy
solicitations. Plaintiffs additionally violated Section 14(a) earlier
this week when, on Monday, December 14, they misrepresented to certain Company
shareholders and others that an “existing Court Order” from this Court required
that a meeting be held just hours later, on the morning of December 15, at which
time the vote for Plaintiffs’ director candidates would take place, when in fact
no such Court Order then existed. Finally, Plaintiffs violated
Section 13(d) of the Exchange Act because, in connection with the proposed vote
for their director candidates, they formed a “group” with other Company
shareholders that, collectively, held more than 5% of the Company’s stock, but
did not file a Schedule 13D as required in these circumstances. The
Company seeks the cancellation of any and all votes that Plaintiffs have
obtained on the basis of their poisonous proxy solicitations to date, and an
Order directing that the Company’s annual meeting of shareholders (the “Annual
Meeting”) – at which a new vote for the director candidates would take place –
be held on June 15, 2010, as scheduled by the Board.
12
Facts Underlying Section
14(a) Violations
108. On
October 27, 2009, the Company filed with the SEC a Proxy Statement scheduling
the Company’s 2010 Annual Meeting for December 15, 2009. (See Pltfs. Am. Compl. Exh.
1). This Proxy Statement advised, among other things, that a vote
would be held at the Annual Meeting to elect the Company’s eight members of its
Board, and further contained the Company’s proposals to vote for particular
individuals for each of the Board’s three Classes of directors. The
Company proposed William L. Van Alen, Steven Katz and Joel Brooks as the
Company’s Class II Directors, all of whom are considered independent directors
under Pennsylvania law and by NASDAQ.
Plaintiffs’
Unfiled Proxy Solicitation
109. In
either late October or early November 2009, Plaintiffs provided to certain
Company shareholders a solicitation of proxy, which was never filed with the SEC
(the “Unfiled Proxy Solicitation,” a copy of which is attached hereto as Exh.
21). In the Unfiled Proxy Solicitation, Plaintiffs proposed as Class
II Director candidates the following three individuals: Mr. Tirpak,
Alan J. Gotcher and Peter A. Michel. Plaintiffs proposed these
candidates as an alternative to the Company’s proposed Class II slate consisting
of independent directors Messrs. Van Alen, Katz and Brooks.
13
110. Upon
information and belief, Plaintiffs provided the Unfiled Proxy Solicitation to
more than ten persons.
Plaintiffs’
Filed Proxy Solicitations
111. Thereafter,
Plaintiffs made a number of filings with the SEC in connection with their proxy
solicitations, including a Preliminary Proxy Statement filed November 19, 2009
(attached to Pltfs. Am. Compl. as Exh. 5), a Press Release dated November 19,
2009 (attached hereto as Exh. 22), a Press Release dated November 23, 2009
(attached hereto as Exh. 23), a Website Posting dated November 24, 2009
(attached hereto as Exh. 24), a Preliminary Proxy Statement filed November 27,
2009 (attached hereto as Exh. 25), a Definitive Proxy Statement filed November
30, 2009 (attached hereto as Exh. 26), a Press Release dated November 30, 2009
(attached to Pltfs. Am. Compl. as Exh. 8), a Press Release dated December 2,
2009 (attached hereto as Exh. 27), a Presentation delivered to RiskMetrics on
December 2, 2009 (attached hereto as Exh. 28), a Press Release dated December 3,
2009 (attached to Pltfs. Am. Compl. as Exh. 11), a Website posting dated
December 8, 2009 (attached hereto as Exh. 29), and a Press Release dated
December 9, 2009 (attached to Pltfs. Am. Compl. as Exh. 14) (collectively, the
“Filed Proxy Solicitations”).
Plaintiffs’
False and Misleading Statements
in
Their Unfiled and Filed Proxy Solicitations
112. In
the Unfiled Proxy Solicitation and the Filed Proxy Solicitations, Plaintiffs
made numerous statements that contained false and/or misleading statements of
material fact, and/or omitted material facts. These statements are
alleged in detail below. Although just one example of each statement
is alleged below, Plaintiffs made certain of these statements, or substantially
similar statements, multiple times in their various proxy solicitations in order
to prejudice the Company’s shareholders against the slate of directors proposed
by the Company.
14
113. Plaintiffs’
Statement: “SAVE is
not seeking control of the Board.” (Press Release, Nov. 30,
2009, Exh. 8). This statement is false and/or
misleading. It is undisputed that Plaintiffs seek the immediate
election of three of Plaintiffs’ candidates for the Company’s eight-member
Board. In addition, in a section of the Unfiled Proxy Solicitation
entitled “Governance Goals,” Plaintiffs propose, among other things, the
following:
“We
propose to reduce the board from 8 to 7 members to save money.
We
propose to remove the corporate counsel from [the] board. . . .
We
propose only one member of management should sit on the board.
We
propose to separate the Chairman and CEO role for improved independence and
propose to nominate an independent Chairman.”
If
Plaintiffs were successful in reconfiguring the Board as they propose, there
would be at least one vacancy on a seven-member Board, to be filled by the
remaining six Board members, three of whom would be Plaintiffs’ nominees and
three of whom would be the Company’s nominees. Thus, by virtue of their equal
representation on the Board, Plaintiffs would have veto power over Board
decisions and, therefore, effective control of the Board and the
Company. Furthermore, if the director leaving the Board when the
Board is reduced in size is a director other than a management member or the
Company’s corporate counsel, there would be two vacancies on the Board to be
filled by a five-member Board consisting of three of Plaintiffs’ directors and
two of the Company’s nominees, thereby virtually ensuring absolute control of
the Board and the Company by Plaintiffs. The Unfiled Proxy
Solicitation also states that “[o]ur candidates are qualified to step into the CEO role if
needed” and “[o]ur directors have the experience to step in and run the company”
(emphasis added). These statements are a further manifestation of
Plaintiffs’ intention to obtain control of the Board and the
Company.
15
114. Plaintiffs’
Statement: “We
propose to separate the Chairman and CEO role for improved independence and
propose to nominate an independent Chairman.” (Unfiled Proxy
Solicitation, Exh. 21). This statement omits the material fact that,
if the Chairman and CEO role were separated as Plaintiffs propose, it would
trigger a clause in the employment agreement of Mr. Jensen, the current CEO,
that would permit him to recover a severance payment in an amount equal to at
least two years worth of salary and health benefits, estimated at approximately
$790,000.
115. Plaintiffs’
Statement: “The
directors we seek to replace have destroyed shareholder
value.” (Unfiled Proxy Solicitation, Exh. 21). This
statement is false and/or misleading, and/or omits material facts, because it
distorts and omits the fact that, in its September 30, 2009 quarterly report,
the Company reported shareholder equity in excess of $30 million, which is the
fourth highest amount of reported shareholder equity since the quarter ended
December 31, 2003. In view of this fact, Plaintiffs’ calamitous
assertion that shareholder value has been “destroyed” is plainly
misleading.
116. As
an example of how the Company’s recent corporate governance changes purportedly
reduced shareholders’ ability to effect change, Plaintiffs cited the “[a]doption of new advanced notice
bylaws that, when coupled with the new meeting date, provided only 10 calendar
days for shareholders to nominate directors or propose other action to be
brought at the Annual Meeting.” (Preliminary Proxy Statement,
Nov. 19, 2009, Exh. 5). This statement is false because Section
3.02(c) of the Company’s bylaws provides for 10 days notice after either the
announcement of the meeting or the date notice of the meeting is first mailed to
shareholders, whichever date is later in time. In
this case, the mailing was not made until October 28, 2009, and therefore
nominations could have been made until November 7, 2009, a date in excess of 10
days from October 20, when the meeting was first announced.
16
117. Plaintiffs’
Statement: “[T]he
Company also announced it had expanded the Board and appointed and seated two
new directors — directors who were handpicked by an insider controlled
Board. It was not until 13 days later, on November 2, 2009, that the
Company constituted a nominating committee.” (Preliminary
Proxy Statement, Nov. 19, 2009, Exh. 5). The statement that the
directors were “handpicked by an insider controlled Board” is manifestly
false. In compliance with NASDAQ’s listing requirements and as
disclosed in the Company’s proxy statement, all directors were recommended for
nomination to the Board by a majority of the independent
directors. The Board nominating committee is comprised of independent
directors, as is a majority of the Company’s Board.
118. Plaintiffs
assert that their goal is to “Advocate for board nominees who
have been vetted by an independent nominating committee and determined to be
free from conflicting affiliate relationships.” (Preliminary
Proxy Statement, Nov. 19, 2009, Exh. 5). This statement is misleading
in that it suggests that the Company does not share the same goal. In
fact, all of the Company’s director candidates have been vetted and recommended
for selection by the independent directors, all in accordance with the NASDAQ
listing standards and as described in the Company’s proxy
statement.
119. “The board has no outside
shareholder representation.” (Unfiled Proxy
Solicitation, Exh. 21). This statement is false. The
Board, even as constituted today, has a majority of five independent directors
constituting “outside shareholder representation.”
120. Plaintiffs’
Statements: “Director Katz also has business
relationships with the Company for his consulting company earning $72,600 in
2007. He is not independent;” “No independent nomination committee until we nominated our
candidates;” and “Until
last month, 4 of the 7 board members were NOT
independent.” (RiskMetrics Presentation, Dec. 2, 2009, Exh.
28). These statements are false and/or misleading as Mr. Katz is in
fact independent under the applicable NASDAQ listing rules. Moreover,
all nominees were recommended to the Board by the independent directors, as
required by the NASDAQ listing standards. Finally, since at least April 2006, a
majority of the Board has been independent as required by the NASDAQ listing
standards.
17
121. Plaintiffs’
Statement: “It took
shareholder
interest to get a 50%
independent board.” (RiskMetrics Presentation, Dec. 2, 2009,
Exh. 28). This statement is false given that, since at least March
2007, a majority of the Board has been independent as required by the NASDAQ
listing standards.
122. Plaintiffs’
Statement: “Timeline: Why We Initiated This
Proposal.
October
15, 2009: We approached CEO requesting shareholder representation on the
board, The CEO responded by requesting our candidates.
October
15-20: We contacted potential candidates.
October
20: The Company responded by:
--
Changing the annual meeting date from April to Dec 15th
--
Staggering the Board
--
Expanding the board from 7 to 8 people and nominating 2 new
directors
--
Putting all three insiders on the 2012 ballot
--
Giving shareholders only 10 days to respond
--
Changing “change of control” definition in management contracts
--Making
the record date retroactive to Sept. 30, 2009
October
30: We nominated our directors.”
(Unfiled
Proxy Solicitation, Exh. 28). These statements are false and/or
misleading, and/or omit material facts. Plaintiffs’ “Timeline” of
purported facts makes it appear as if Mr. Jensen misled Plaintiffs into
believing that he was amenable to the idea of additional independent directors,
when all the while he planned to eschew the idea in favor of taking steps to
entrench current management. In reality, Mr. Jensen, in response to
Plaintiffs’ request for three additional independent directors, informed Mr.
Tirpak that the Company had already found two additional independent directors,
and further advised Plaintiffs that current management would support one of
their candidates for the third proposed additional independent director
position. Although Mr. Tirpak informed Mr. Jensen that the two
additional defendant directors were suitable nominees, Mr. Tirpak subsequently
decided to launch a proxy solicitation to elect Plaintiffs’ three
nominees. Plaintiffs failed to include these facts in their
“Timeline,” thereby making it entirely misleading. Moreover, contrary
to Plaintiffs’ false and misleading “Timeline,” the “change of control”
definition in management contracts was added to the management contracts in
September 2009 before the Company had any notice that Plaintiffs wanted to elect
three directors to the Company’s Board.
18
123. In
an effort to try to show that Mr. Jensen’s interests are not aligned with those
of the Company’s common shareholders, Plaintiffs make several false statements
to create the false appearance that the value of Mr. Jensen’s preferred
shareholdings are dramatically higher than the value of his common share
holdings. Specifically, Plaintiffs falsely assert that Mr. Jensen’s
preferred share holdings are worth $2.4 to $2.5 million. For
example:
“[T]he CEO holds Series A preferred
stock worth nearly $2.5 million.” (Press Release, Nov. 30,
2009, Exh. 8).
“Mr. Jensen, through his ownership
of a special security, is entitled to a preferred return of nearly $2.5 million
prior to common shareholders being entitled to a single dollar, a preferred
return that increases through additional accrued dividends yearly regardless of
Company performance.” (Preliminary Proxy Statement, Nov. 19,
2009, Exh. 5).
“Mr. Jensen holds 80,000 shares of
Preferred Stock with a liquidation preference of almost $2,500,000 as of
September 30, 2009. Mr. Jensen’s Preferred Stock holdings are more
than 21 times the value of his directly held Common Stock holdings based on the
closing price of $1.70 of the Common Stock on September 30, 2009, and the value
continues to increase from yearly accrued dividends, regardless of the
performance of the Company.” (Preliminary Proxy Statement,
Nov. 19, 2009, Exh. 5).
19
“The CEO directly owns $2.4mm of
USATP and only $106k of USAT.” (RiskMetrics Presentation,
12/2/09, Exh. 28).
“Further, George Jensen himself owns
directly (i.e., excluding those shares he may be deemed to own beneficially but
in which he has no direct economic interest) only 65,802 common shares as of the
record date and, as far as we can tell based on Company disclosure, currently.
Worse, this economic interest in the common stock (valued at under $110,000
based on the Friday, November 27, 2009 closing price of $1.60) is dwarfed by his
economic interest in the debt like preferred stock he owns (with a liquidation
value of approximately $2.5 million as of the end of the first quarter of fiscal
year 2010) giving Mr. Jensen different and potentially conflicting interests to
the interests of common shareholders.” (Website Posting, Dec.
8, 2009, Exh. 29).
As an
initial matter, the use of the term “special security” is
misleading. Mr. Jensen is the owner of shares of Series A Convertible
Preferred Stock. This preferred stock is publicly traded on the
NASDAQ Global Market under the symbol USATP, and is entitled to vote at the
Annual Meeting. In fact, Mr. Tirpak himself is the owner of 1,000
shares of this purported “special security.” In addition, all of Mr.
Jensen’s preferred stock was purchased on the open market for an aggregate
amount of approximately $600,000. Plaintiffs’ attempt to value Mr.
Jensen’s preferred stock at $2.4 to $2.5 million is based on the liquidation
preference of the stock. The liquidation preference of the preferred
stock is not an appropriate way to value it because it would be triggered only
if the Company were in liquidation and, even then, it would be payable only if
there were enough assets following payment of all debts. The only way
to properly value the preferred stock is by way of its market
value. As of October 30, 2009, the per share value of Mr.
Jensen’s preferred stock was $9.50 per share for a total value of $760,000
(80,000 shares held by Mr. Jensen times $9.50), which is less than a third of
the liquidation value. In addition, the statement that Mr. Jensen is
entitled to receive $2.5 million prior to common shareholders being entitled to
a single dollar is wrong. To the contrary, the corporation is
permitted to purchase, redeem, or otherwise acquire shares of Common Stock of
the Company from time to time regardless of whether or not all accumulations of
dividends earned on the Preferred Stock have been paid.
20
124. Plaintiffs’
Statement: “The CEO
is the largest creditor to the company with a position in the preferred stock
that is >20x larger than his direct holdings in the common
stock.” (RiskMetrics Presentation, Dec. 2, 2009, Ex.
28). This statement is false and/or misleading. As an
initial matter, for the reasons alleged above, Mr. Jensen’s preferred stock
holdings are not twenty times larger than his common stock
holdings. In addition, Mr. Jensen is not a creditor to the
Company. Plaintiffs nevertheless try in this statement to equate Mr.
Jensen’s ownership of preferred shares to Mr. Jensen being a creditor, but that
comparison is false and misleading.
125. A
critical argument by Plaintiffs in their proxy solicitation materials is the
false and misleading statement that the CEO and other current members of
management are motivated by their own cash compensation, and not by the
Company’s market share price. As part of these arguments, Plaintiffs
make several statements about Mr. Jensen’s compensation, but they fail to
include any break down of that compensation into its cash and stock
components. Moreover, Plaintiffs have repeatedly omitted the material
fact that Mr. Jensen has not sold any Company stock for the last five years
during which his stock-related compensation, which was originally valued at the
time of the award at the then market price of the Company’s common stock, has
declined in value to only a fraction of its prior value. The same
holds true for Mr. Herbert’s stock-related compensation. Thus, for
example, Plaintiffs assert:
(a) “CEO is motivated by cash
compensation, not share price. CEO earns 4x more annually
than his investment in the company.” (Unfiled Proxy
Solicitation, Exh. 21). In fact, Mr. Jensen’s cash compensation in
2009 was only $365,000 and, therefore, was not four times more than his
investment in common stock (worth $221,392 as of September 30, 2009), as the
Unfiled Proxy Statement suggests.
21
(b) “Jensen Compensation . . . FY 2004 .
. . [$5,105,000]” (Unfiled Proxy Solicitation, Exh.
21). The cash component of Mr. Jensen’s compensation in 2004 was only
$485,000, and the remainder of the $5.105 million identified in the Unfiled
Proxy Solicitation consisted of stock-related compensation valued at the then
market price of the Company’s common stock. Moreover, contrary to
Plaintiffs’ false and misleading statement, the only reason that Mr. Jensen’s
compensation was disclosed as $5,105,000 was because, as publicly disclosed at
the time, Mr. Jensen voluntarily surrendered a very valuable right to obtain a
non-diluted 7% of a third party’s purchase price for the Company’s stock or
assets in exchange for 10,500,000 shares of the Company’s common stock and a
provision that, upon a change of control, Mr. Jensen would receive what is today
140,000 shares of the Company’s common stock. Plaintiffs’ failure to
disclose these facts renders their statement misleading.
(c) “[E]ven as the Company failed to
turn a profit in any quarter, senior management, including Mr. George Jensen,
the Company chief executive officer and Chairman of the Board, and Mr. Stephen
Herbert, the chief operating officer and Company President, have been paid, in
the aggregate, over $17 million in cash and stock. In fiscal year
2009 alone, Mr. Jensen and Mr. Herbert received aggregate compensation of more
than $1.7 million more than 14% of the Company’s aggregate revenue in fiscal
year 2009.” (Preliminary Proxy Statement, Nov. 19, 2009, Exh.
5). The $17 million of cash and stock referred to in the Preliminary
Proxy Statement that was paid to senior management (the top five most highly
paid employees of the Company), consists of $8 million of cash compensation and
$9.7 million of stock compensation. During the fiscal year 2009,
Messrs. Jensen and Herbert together received cash compensation of $718,958,
representing only 6% of revenues. The failure of Plaintiffs to
include these facts in their statement renders it misleading.
22
(d) “Since, and including, fiscal year
2004, the Board has spent an amount equal to over 24% of the Company’s revenues
during such period on the cash and stock compensation of just Mr. Jensen and Mr.
Herbert.” (Preliminary Proxy Statement, Nov. 19, 2009, Exh.
5). Since and including fiscal year 2004, Messrs. Jensen and Herbert
received cash compensation of only 7.6% of revenues. The failure of
Plaintiffs to include this fact in their statement renders it
misleading.
(e) “Since FY 2004, Management has
earned $13 mm for losing nearly $100mm.” (RiskMetrics
Presentation, Dec. 2, 2009, Exh. 28). Once again, this statement is
misleading in that it fails to allocate the $13 million of compensation into
cash and stock-related components, which renders this statement
misleading.
126. Plaintiffs’
Statement: “We note
that, based on the current composition of the Board, the election of the three
Committee Nominees should not trigger [the] automatic stock grant [contained in
the employment contracts of Messrs. Jensen and Herbert] because the Committee Nominees will not
constitute a majority of the Board.” (Definitive Proxy
Statement, Nov. 30, 2009, Exh. 26). This statement is false and
misleading. For, if Plaintiffs implemented their plan as set forth in
the Unfiled Proxy Solicitation, the “continuing directors” would no longer
constitute a majority of the Board and, as a result, the automatic stock grants
in the Company’s Long-Term Equity Incentive Program and Mr. Jensen’s employment
agreement would be triggered.
127. Plaintiffs’
Statement:
“The
Board gave management $2.7 mm in bonuses for MISSING
targets.***
After
the company missed the targets, the Compensation Committee recommended that
results be “normalized.”
Due
to this “normalization” management received 241,249 shares in 2007 and 191,729
shares in 2008.”
23
(RiskMetrics
Presentation, Dec. 2, 2009, Exh. 28). These statements are false
and/or misleading. The targets referred to in Plaintiffs’ statement
are targets contained in management’s long-term incentive
plans. These targets were formulated when the Company’s business plan
focused on higher per unit profit margins, but the business plan thereafter
shifted its focus to that of maximization of unit sales. Moreover,
the amount of stock compensation awarded for satisfying targets was $2.2 million
and not $2.7 million. A number of targets, however, were nevertheless
achieved prior to normalization and management was awarded $1.3 million in stock
for reaching the pre-normalization targets. The remaining amount of
the $0.9 million in stock was awarded as a result of the “normalization” of
targets to make them fair given the shift in focus in the Company’s business
plan. In view of these facts, Plaintiffs’ assertion that the Company
was paid bonuses of $2.7 million for “missing targets” is egregiously
misleading.
128. Another
of Plaintiffs’ arguments in their proxy solicitation materials is that
Plaintiffs own a substantial amount of common stock, including more than the
current members of the Board, thus implying that Plaintiffs’ interests are more
aligned with those of common shareholders than the current Board’s
interests. Plaintiffs make several false statements on this
topic. For example, Plaintiffs asserted in the Preliminary Proxy
Statement filed on November 27, 2009 that, as of the September 30, 2009 record
date in place at the time, Mr. Thomas beneficially owned 135,000 shares
underlying currently exercisable warrants. (Exh. 25). This
statement was false in that Mr. Thomas’ shares underlying the warrants are not
exercisable until January 1, 2010. Accordingly, they were not
beneficially owned by Mr. Thomas as of the record date of September 30, 2009
under Exchange Act rules.
24
129. As
part of their argument that they own significantly more stock than current Board
members, Plaintiffs make several misleading apples-to-oranges comparisons of
their own beneficial
stock ownership with direct stock ownership by
current Board members. Thus, for example, Plaintiffs
assert:
(a) Plaintiffs’
Statement: “While
the entire Board of Directors directly own less than 1% of the Company’s common
shares, the committee members of SAVE beneficially own more than TWICE that
amount. We are currently the beneficial owners of more than 468,320 common
shares.” (Press Release, Nov. 30, 2009, Exh.
8). This statement compares direct ownership of Board members with
the beneficial ownership of Messrs. Tirpak and Thomas. Taking a
proper apples-to-apples comparison, the total beneficial ownership of members of
the Board is 459,597 shares or nearly the same amount as the 468,320 shares
beneficially held by Messrs. Tirpak and Thomas. As such, Plaintiffs’
comparison is completely misleading.
(b) Plaintiffs’
Statement: “SAVE
committee members own more than twice the amount of USAT common shares than
those owned directly by the Company’s entire Board of
Directors.” (Press Release, Nov. 30, 2009, Exh.
8). Yet, under an apples-to-apples comparison, as of November 30,
2009, the members of the Board directly owned 366,618 shares, which was
significantly more – not less – than one-half the amount of 468,320 shares
directly owned by Messrs. Tirpak and Thomas. Again, Plaintiffs’
comparison is misleading.
(c) Plaintiffs’
Statement: “The
members of SAVE own more than 5x the amount of stock that Mr. Jensen owns
directly.” (Press Release, Nov. 30, 2009, Exh.
8). Yet, under an apples-to-apples comparison, as of November 30,
2009, Mr. Jensen directly owned 156,602 shares, and Messrs. Tirpak and Thomas
directly owned 468,320, which is not five times the amount owned by Mr.
Jensen. Plaintiffs’ comparison is thus misleading.
25
130. Plaintiffs’
Statement: “Management has a history of selling
this stock.” (RiskMetrics Presentation, Dec. 2, 2009, Exh.
28). This statement is false. Management has not sold any
shares for at least the last five years.
131. Plaintiffs’
Statement: “USAT
has continuously failed to execute on partnerships with Air-Serve, Merit, First
Data and large bottling companies.” (Unfiled Proxy
Solicitation, Exh. 21). This statement is false and/or
misleading. The Company has in no way failed to execute on these
partnerships. In fact, all units that have been sold to these
customers have been delivered in working condition on time and per the
instructions of the purchase order, and all services in connection with these
units have been provided and continue to be provided. Notably, this
false statement by Plaintiffs on this topic is not only misleading to
shareholders, but it is also potentially highly damaging to the Company’s
relationship with the customers identified therein.
132. Plaintiffs’
Statement: “Operations: Our Plan . . .
Renegotiate current wireless contract” (Unfiled Proxy
Solicitation, Exh. 21). Plaintiffs’ statement, which was provided to
shareholders either in late October or early November 2009, misleadingly implies
that the Company was not taking any steps to renegotiate its wireless
contract. In fact, since at least as early as October 1, 2009,
Plaintiffs knew the Company was actively renegotiating its contract with its
wireless supplier, and a contract – which significantly reduced the Company’s
wireless costs – was entered into on November 3, 2009 and became effective on
November 11, 2009.
133. Plaintiffs’
Statement:
“Promises are not
Profits.
In
response to filing our proxy, management has, once again, promised that USAT is
on the verge of a golden era, with those elusive profits just around the corner.
This is NOT the first time we
have heard USAT promises:
26
What they
said:
“This
month, this quarter, this fiscal year will be the most exciting for USA
Technologies. I’ve listed some of the reasons why. In the weeks and months ahead
we will share more of the reasons with you as they unfold, and there are many.”
– CEO’s Letter to Shareholders July 26, 2006
What they
did:
Reported
record loss in FY 2007 of over
$15 million
What they
said:
“The
markets we serve are coming together. We invested aggressively...Now we are
beginning to reap the rewards.” – CEO’s Letter to Shareholders
September 2007
What they
did:
Reported
new record loss in FY 2008 of over $17 million
(Press
Release, Dec. 2, 2009, Exh. 27). The juxtaposition of these
statements by Mr. Jensen with Plaintiffs’ “What they did” assertions is
completely misleading. In the first two quotations above, Mr. Jensen
was commenting on revenues in 2007 and 2008,
which were the highest
in the Company’s history. As known by Plaintiffs, prior to November
2009, neither Mr. Jensen nor the Company ever gave any public guidance
concerning the Company’s profitability. It is misleading to juxtapose
these quotations against Plaintiffs’ statements about losses.
134. Plaintiffs’
Statement:
What they
said:
“With
a strong balance sheet, growing revenue and on-going relationships with some of
the most influential global companies, USA Technologies is on the path to
continuous and accelerating growth.” - Quarterly earnings release Feb. 11,
2008
What they
did:
Reported
revenues declined 25% and gross
profit declined 16% in FY 2009.
27
(Press
Release, Dec. 2, 2009, Exh. 27). This comparison is misleading
because Mr. Jensen’s statement was made in the context of fiscal year 2008,
after the Company had just had record revenues both two years (FY2006 and
FY2007) in a row and two quarters (ended Sept. 30, 2007 and Dec. 31, 2007) in a
row. In addition, the two quarters after that statement was made set
record revenue. Plaintiffs’ “What they did” assertion relates to
results for fiscal year 2009.
135. Plaintiffs’
Statement: “USAT is
burning cash at an alarming rate. In the Sept. 30, 2009 quarter, cash
burn increased 60% over the previous year to
$2.8mm.” (RiskMetrics Presentation, Dec. 2, 2009, Exh.
28). This statement is misleading as it fails to reflect the
extraordinary amount of receivables collected (which decreased cash use) in the
September 2008 quarter and the monies paid in the September 2009 quarter to fund
the Quick Start program. If these extraordinary items are taken into
account, there is a 34% decrease in cash used in operations in the September
2009 quarter compared to the September 2008 quarter. These
extraordinary items are evident in the Company’s Form 10-Qs.
136. Plaintiffs’
Statement: “Except
as disclosed in this proxy statement, there are no arrangements or
understandings between the Committee and any Committee[sic] and any Committee
Nominee or any other person or persons with respect to the nomination of the
Committee Nominees.” (Preliminary Proxy Statement, Nov. 19,
2009, Exh. 8). This statement was false when made. Upon
information and belief, as of the time the November 19, 2009 Preliminary Proxy
Statement was filed, Plaintiffs had entered into agreements with certain large
shareholders of the Company that they would vote for Plaintiffs’ proposed
directors. Specifically, S.A.C. Capital Associates, LLC (“SAC”), the
owner of 1,950,426 shares (or 12.64% of the Company’s outstanding shares), and
the former employer of Mr. Thomas, had entered into an agreement with Plaintiffs
to vote for Plaintiffs’ slate. Moreover, from 2003 to 2007, Mr.
Tirpak was a Portfolio Manager at Sigma Capital Management, managing an
investment fund, affiliated with SAC. In addition, Aberdeen
Investment Management, Inc. (“Aberdeen”), an investment adviser, and its clients
have entered into an agreement to vote their 1,700,000 shares or approximately
7.5% of the Company’s outstanding shares in favor of Plaintiffs’
nominees.
28
137. Plaintiffs’
proxy solicitation materials provide information about Mr. Tirpak’s background,
but they omit certain material information. Specifically, Mr. Tirpak,
a former hedge fund manager, was one of two defendants in a class action lawsuit
alleging securities fraud that was settled through the payment of
$2,250,000. Mr. Tirpak’s involvement as a defendant in the class
action is material information that shareholders should have been, but were not,
given when considering Mr. Tirpak’s fitness to serve as a director of the
Company.
138. In
response to being called out by the Company on this omission in Mr. Tirpak’s
background, Plaintiffs responded:
Management
drags up allegations made against Tirpak’s employer CSFB from 12 years
ago.
Bradley Tirpak was only
included in this lawsuit 12 years ago because another employee without
authorization released an internal memo with Mr. Tirpak’s name on
it. Once Credit Suisse First Boston (CSFB) learned the facts, they
removed Mr. Tirpak’s name from the memo, suspended the other employee and
indemnified Mr. Tirpak. The SEC brought no enforcement action against Mr.
Tirpak. The lawsuit was a CSFB issue. He remained at CSFB for three
more years and was promoted.
(Press
Release, Dec. 2, 2009, Exh. 27). This statement is
false. According to the complaint against Mr. Tirpak, the memorandum
was not an internal memorandum and Mr. Tirpak was the author.
139. Plaintiffs’
proxy solicitation materials provide information about Mr. Gotcher’s background,
but they omit certain material information. Specifically, Plaintiffs
omit certain details about Mr. Gotcher’s tenure at Altair Nanotechnologies, Inc
(“Altair”). Until February 2008, Mr. Gotcher was President and CEO of
Altair. During his stewardship, Altair’s net losses steadily
increased. On February 27, 2008, Mr. Gotcher agreed to resign as
President and CEO of Altair. Altair’s board of directors “determined
that the level of progress made at this point in the development timeline of the
company did not keep pace with the expectations that were
set.” Source: “Altairnano CEO Alan Gotcher Ousted,”
Cleantech Group News report dated February 29, 2008. This is material
information for shareholders to consider in the election of
directors.
29
Plaintiffs’
False and Misleading Statements
to
Shareholders on December 14, 2009
140. As
a result of Plaintiffs’ violations of Section 14(a) as alleged above, the
Company, on December 9, 2009, was constrained to reschedule the Annual Meeting
to June 15, 2010. As the Company explained in its SEC filing that
day:
The Board
rescheduled the Annual Meeting due to what the Board believes to be misleading,
inaccurate and selective disclosure regarding the Company made by the dissident
shareholders seeking to replace three of the Company’s directors with their own
nominees. The Board was also concerned that, prior to filing their
preliminary proxy statement with [the SEC], the dissidents had selectively
disclosed to certain shareholders an extensive written presentation containing
information that has not been disclosed to all shareholders. The
Board believes that this information provides insight into the dissidents’ true
intentions in launching its proxy contest. This written presentation
has never been filed with the SEC or made generally available to the Company’s
shareholders.
(Company’s
Schedule 14A, dated Dec. 9, 2009, attached to Pltfs. Am. Compl. as Exh.
18).
141. In
response to the Company’s decision to reschedule the Annual Meeting, Plaintiffs,
on December 14, 2009, filed the instant action, seeking, among other relief, a
temporary restraining order requiring that the Annual Meeting go forward on
December 15 as previously scheduled. Counsel for the parties met in
Court on December 14, and agreed to enter into a stipulation to resolve
temporarily the parties’ disputes, subject to further proceedings in the instant
action on an expedited schedule. The parties’ stipulation provided,
among other things, that the December 15 meeting would go forward for the sole
purpose of tallying the votes, but that the meeting would immediately thereafter
adjourn, and that any vote taken at the meeting would be subject to the outcome
of further proceedings in this action, including the Company’s counterclaims
seeking that any vote taken at the December 15 meeting be declared null and
void.
30
142. Counsel
for the parties agreed on December 14, 2009 to have the stipulation reached by
the parties on December 14 signed and entered by the Court as an
Order. The Court, however, did not sign and enter the stipulation as
an Order until December 17, 2009.
143. Notwithstanding
that the Court had not yet entered the parties’ stipulation as an Order on
December 14, Plaintiffs, upon information and belief, contacted certain Company
shareholders on December 14, and represented to them that an “existing Court
Order” required that the annual shareholder meeting take place on December
15. This statement by Plaintiffs to shareholders constituted a false
and/or misleading statement of material fact, and/or omitted material facts, in
that there was no existing Court Order on December 14 requiring that the annual
shareholder meeting occur on December 15, but rather there was only the parties’
stipulation. Moreover, in making this statement to shareholders,
Plaintiffs failed to advise them that, under the parties’ stipulation, any votes
tallied at the December 15 meeting would be subject to the outcome of further
proceedings in this action, including the Company’s counterclaims seeking that
any vote taken at the December 15 meeting be declared null and
void. In addition, even after Defendants’ counsel complained to
Plaintiffs’ counsel about Plaintiffs’ conduct in this respect, Plaintiffs
continued with their misrepresentations concerning the entry of the Court
Order. As a result, Plaintiffs’ statement to shareholders on December
14 misleadingly made it appear as if the Court agreed with Plaintiffs’ position
in this dispute, and that the Court therefore immediately granted Plaintiffs’
requested relief in this action.
31
144. Plaintiffs’
false and misleading statement to shareholders on December 14 was a further
unlawful attempt by Plaintiffs to prejudice shareholders against the Company,
and the Company’s slate of director candidates, in connection with the votes of
shareholders at the December 15 meeting.
Facts Underlying Section
13(d) Violations
145. Plaintiffs
and Aberdeen and its clients that own Company shares have entered into an
agreement to act together to vote for Plaintiffs’ slate of Class II director
candidates.
146. Plaintiffs
and SAC, which is a hedge fund that owns a large number of shares of the
Company, have entered into an agreement to act together to vote for Plaintiffs’
slate of Class II director candidates.
147. Plaintiffs
and Aberdeen and its clients that own Company shares together are directly or
indirectly, the beneficial owners of more than 5% of the Company’s common
stock.
148. Plaintiffs
and SAC together are, directly or indirectly, the beneficial owners of more than
5% of the Company’s common stock.
149. Plaintiffs
have never filed a Schedule 13D with the SEC, nor sent a Schedule 13D to the
Company or to NASDAQ, as required under these circumstances.
COUNT I – Violation
of 15 U.S.C. § 78n(a)
for
making Unfiled Proxy Solicitation
to
More Than Ten (10) Persons
150. The
Company incorporates herein by reference paragraphs 105 – 149 as if set forth
fully herein.
151. Under
15 U.S.C. § 78n(a), a person may not solicit a proxy in contravention of SEC
rules and regulations.
152. Under
17 C.F.R. § 240.14a-2(b)(2), the SEC prohibits a person from making a proxy
solicitation to more than ten persons that has not been filed with the
SEC.
32
153. As
alleged above, Plaintiffs made the Unfiled Proxy Solicitation to more than ten
persons.
154. The
Company has been injured as a result of Plaintiffs’ violations of these
provisions because the Unfiled Proxy Solicitation contained false and misleading
statements of material fact and omissions of material fact, thereby preventing a
fair and truthful shareholder voting contest.
WHEREFORE,
the Company respectfully requests judgment in its favor and against Plaintiffs
and an Order: (A) declaring null and void any and all votes that
Plaintiffs have obtained on the basis of their proxy solicitations to date; and
(B) directing that the Annual Meeting – at which a new vote for the director
candidates would take place – be held on June 15, 2010 with a new record
date. The Company further respectfully requests such other relief as
the Court deems proper.
COUNT II – Violation
of 15 U.S.C. § 78n(a) Based on
False
and Misleading Statements of Material Fact, and
Material
Omissions in Plaintiffs’ SEC Filings
155. The
Company incorporates herein by reference paragraphs 105 – 154 as if set forth
fully herein.
156. Under
15 U.S.C. § 78n(a), a person may not solicit a proxy in contravention of SEC
rules and regulations.
157. Under
17 C.F.R. § 240.14a-9, “No solicitation subject to this regulation shall be made
by means of any proxy statement, form of proxy, notice of meeting or other
communication, written or oral, containing any statement which, at the time and
in the light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or misleading. . .
.”
33
158. As
alleged above, Plaintiffs’ various proxy solicitation materials, and Plaintiffs’
statements to shareholders and others on December 14, 2009, contained numerous
false and misleading statements of material fact, and omitted material
facts.
159. The
Company has been injured as a result of Plaintiffs’ actions, which have
prevented a fair and truthful shareholder voting contest.
WHEREFORE,
the Company respectfully requests judgment in its favor and against Plaintiffs
and an Order: (A) declaring null and void any and all votes that
Plaintiffs have obtained on the basis of their proxy solicitations to date; and
(B) directing that the Annual Meeting – at which a new vote for the director
candidates would take place – be held on June 15, 2010 with a new record
date. The Company further respectfully requests such other relief as
the Court deems proper.
COUNT III --
Violation of Section 13(d) of the Exchange Act
160. The
Company incorporates herein by reference paragraphs 105 - 159 as if fully set
forth herein.
161. Plaintiffs
and Aberdeen and its clients that own Company shares constituted a “group” under
15 U.S.C. § 78m(d)(3), 17 C.F.R. § 240.13d-3(a), and 17 C.F.R.
§ 240.13d-5(b)(1), for purposes of voting for Plaintiffs’ Class II
Director candidates.
162. Plaintiffs
and Aberdeen and its clients that own Company shares, together, directly or
indirectly, beneficially own more than 5% of the Company’s common
stock.
163. Plaintiffs
and SAC constituted a “group” under 15 U.S.C. § 78m(d)(3), 17 C.F.R. §
240.13d-3(a), and 17 C.F.R. § 240.13d-5(b)(1), for purposes of voting for
Plaintiffs’ Class II Director candidates.
164. Plaintiffs
and SAC, together, directly or indirectly, beneficially own more than 5% of the
Company’s common stock.
34
165. Plaintiffs
have never filed a Schedule 13D with the SEC, nor sent a Schedule 13D to the
Company or to NASDAQ, as required under these circumstances.
WHEREFORE,
the Company respectfully requests judgment in its favor and against Plaintiffs
and an Order: (A) declaring null and void any and all votes that
Plaintiffs have obtained on the basis of their proxy solicitations to date; and
(B) directing that the Annual Meeting – at which a new vote for the director
candidates would take place – be held on June 15, 2010 with a new record
date. The Company further respectfully requests such other relief as
the Court deems proper.
/s/
David H. Pittinsky
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David
H. Pittinsky
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Joel
E. Tasca
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Tejal
K. Mehta
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Jonathan
S. Satinsky
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Attorney
I.D. Nos. 04552, 81363, 208090, 209295
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BALLARD
SPAHR LLP
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1735
Market Street, 51st Floor
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Philadelphia,
PA 19103-7599
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Telephone:
(215) 864-8117/8188/8232
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Facsimile:
(215) 864-8999
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pittinsky@ballardspahr.com
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tasca@ballardspahr.com
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mehtat@ballardspahr.com
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satinsky@ballardspahr.com
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Attorneys
for Defendants
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Dated: December
18, 2009
35
CERTIFICATE OF
SERVICE
I hereby
certify that on this 18th day of December, 2009, I have caused a true and
correct copy of the foregoing Answer and Affirmative Defenses of Defendants to
Plaintiffs’ Amended Complaint, and Counterclaims of Defendant USA Technologies,
Inc. to be served on the following counsel via ECF:
Steven B.
Feirson, Esquire
Michael
S. Doluisio, Esquire
Tara L.
Cooney, Esquire
Peter
Kreher, Esquire
DECHERT
LLP
2929 Arch
Street
Philadelphia,
PA 19104
Counsel
for Plaintiffs
Bradley
M. Tirpak and Craig Thomas
d/b/a
Shareholder Advocates for Value Enhancement
/s/
Joel E. Tasca
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Joel
E. Tasca
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