Mar 7, 2020

USA Technologies Shareholder Kurt King Issues Letter to Boar

Bizclik Editor
5 min
NEW YORK, March 6, 2020 /PRNewswire/ -- The following lette...

NEW YORK, March 6, 2020 /PRNewswire/ -- The following letter was issued to the board of directors of USA Technologies by shareholder Kurt King, calling out egregious corporate governance actions in advance of the company's annual meeting on April 30.

March 6, 2020
Board of Directors
USA Technologies, Inc.
100 Deerfield Lane, Suite 300
Malvern, PA  19355

I am Kurt King, beneficial owner of 600,000 shares of USA Technologies, Inc. ("USAT"). This equates to roughly 1% of the company's outstanding shares. I have owned the stock for more than a year and intend to be a long-term holder.

While I presently invest exclusively on behalf of myself and my family, my background includes more than 20 years as an institutional investor and analyst. Most recently, from 2006 to 2016, I was portfolio manager of Harvest Technology Partners, a San Francisco-based technology fund. While managing my fund I came to know USAT and Cantaloupe as well as the broader unattended payments market.

I initiated my USAT position in February, 2019 on the belief that 1) USAT is a leader in the attractive, high-growth unattended payments market, and 2) the stock was excessively cheap at the time due to a series of management and governance failures that appeared to have reached its pinnacle with the resignation of USAT's auditor.

As we now know, the auditor's resignation last February was not the end of the management and governance failures. Subsequent events included the failure to meet Nasdaq's deadline for filing delinquent financials last September, the financing done with Antara under egregious terms in October, the need to restate FY19 and 1Q FY20 financials disclosed in February of 2020, and USAT's cringe-inducing delisting from Nasdaq also announced in February. Operating performance has deteriorated under your watch and the company continues to burn cash. You refused to work constructively with USAT's largest shareholder, Hudson Executive Capital, whose help could have mitigated the string of debacles of the past year-plus. Hudson has explicitly eschewed launching proxy contests but found it had no reasonable alternative with USAT.

This letter is prompted by your troubling announcement of leadership changes on March 2. You made several seemingly-permanent and likely expensive decisions despite the high likelihood the current board, CEO and CFO will be replaced following the April 30 annual meeting. As you are well aware, Hudson's proxy proposal initiated in October received yes votes from holders of 60.6% of shares with only 0.3% of shares opposed as of Hudson's filing in January. This extraordinary result was achieved despite you having denied Hudson USAT's shareholder list, leaving Hudson unable to identify and directly solicit a significant portion of shareholders. The three open letters to the board recently filed by shareholders have all been adamantly supportive of Hudson, including this letter. Public arguments against Hudson have been zero other than from USAT management. Given the overwhelming evidence of support for Hudson, your actions to entrench and enrich yourselves ahead of the annual meeting seem to reflect extremely poor judgment at best.

The most egregious of your recent decisions is that USAT's newly-appointed permanent CEO, Don Layden, will be entitled to a multi-million dollar exit package when his two-month tenure presumably ends on April 30. Further resources will be wasted by the exit of your newly-hired CFO. The disingenuousness of your March 2 actions was most clear in your addition of three of Hudson's board nominees to your own board slate without the nominees' knowledge, creating the false impression the nominations were the result of some sort of desirable middle-ground agreement.

I believe informed investors can see right through your game; your intent to obstruct Hudson and entrench yourselves has been obvious since the proxy contest began last October. My concern is the potentially-costly confusion your latest actions could create among customers, suppliers, employees and potential new investors who haven't closely followed the story.

I believe it would be disastrous for USAT shareholders were you to somehow win the upcoming vote. USAT's legacy management and board came to be widely distrusted by investors thanks to mis-management and the perceived deceptiveness of its senior leaders; I think many investors came to view USAT as uninvestable for these reasons. I believe your unfortunate conduct during the proxy contest will rightly lead investors to view you as a continuation of the legacy USAT, to wit, "meet the new boss, same as the old boss." In the four trading days completed since your announcement USAT's stock has declined 9% while the Nasdaq has gained 2%; investors' negative response to your actions seems unmistakable. While Hudson's involvement offers many positives, the most immediate will be the opportunity for investors to see a clean sweep of USAT's legacy leadership.

Regarding Hudson, its involvement seems like a downside-free win for USAT and its shareholders. USAT should benefit significantly from the successful, big-company standards and practices likely to be imparted by the new board, as well as the board's relationships across the fintech industry. The opportunity seems ripe for the board to recruit a stellar new CEO and CFO given the abundant talent available due to recent consolidation activity in fintech. It is easy to foresee a better-managed USAT eventually becoming an attractive acquisition candidate for a large fintech company and at a multiple of USAT's current valuation.

Investing in stocks is a contest of opinions. Smart people can take the same set of facts and reach opposite conclusions. This is particularly true of companies with complicated histories, which certainly describes USAT. But regarding USAT and the current proxy contest I've yet to find any disagreement at all among objective observers. It is obvious Hudson provides the best path forward. The shareholder vote on April 30 cannot come soon enough.


Kurt King

Note:  Law firm Kleinberg Kaplan is legal advisor to Mr. King. He is represented by Christopher Davis, chair of the firm's shareholder activism practice.

Media contact:  Allan Ripp 212-262-7477 [email protected]

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