United States District Court, D. Connecticut
IN RE TANGOE, INC. STOCKHOLDERS LITIGATION
RULING AND ORDER ON MOTION TO DISMISS
HONORABLE VICTOR A. BOLDEN UNITED STATES DISTRICT JUDGE
owners of shares of Tangoe common stock, filed a consolidated
class action Complaint (“CAC”) against David
Coit, James D. Foy, Gary Golding, Ronald Kaiser, Jackie R.
Kimzey, Gerald D. Kokos, Richard Pontin, Tangoe, Inc., and
Noah Walley (“Defendants”), alleging violations
of Sections 14(e), 14(d)(4), and 20(a) of the Securities
Exchange Act of 1934 (“the Exchange Act”), 15
U.S.C. §§ 78n(d)(4), 78t(a), and SEC Rule 14d-9, in
connection with a tender offer for the sale of outstanding
shares of Tangoe in 2017. CAC ¶¶ 1, 11, ECF No. 46.
have moved to dismiss this case, arguing that Plaintiffs
failed to state a claim under Federal Rules of Civil
Procedure 12(b)(6) and 9(b), as well as under the Private
Securities Litigation Reform Act, 15 U.S.C. §
78u-4(b)(2). Mot. Dismiss, ECF No. 47.
reasons that follow, Defendants' motion to dismiss is
extent that the deficiencies identified in this ruling can be
addressed, Plaintiffs may file a motion for leave to amend
the Complaint by September 7, 2018.
AND PROCEDURAL BACKGROUND
bring claims against the following Defendants:
. Tangoe, a Delaware Corporation and a
“global telecom expense management solutions
company.” CAC ¶ 12. Previously based in
Connecticut and now based in New Jersey, Mot. Dismiss at 2,
Tangoe's stock traded on the National Association of
Securities Dealers Automated Quotations
(“NASDAQ”), under the symbol “TNGO, ”
until NASDAQ delisted it on March 14, 2017. CAC ¶ 12.
. James D. Foy, who allegedly served as
Tangoe's Chief Executive Officer (“CEO”)
since May 2, 2016, and as a member of its Board of Directors
(the “Board”) since March 2014. Id.
. Gerald G. Kokos, who allegedly served as a
member of Tangoe's Board since September 2002, and as its
Lead Director and Executive Chairman since May 2, 2016.
Id. ¶ 14.
. David M. Coit, who allegedly has served as
a member of the Board since August 2006. Id. ¶
. Gary Golding, who allegedly has served as
a member of the Board since September 2002. Id.
. Ronald W. Kaiser, who allegedly has served
as a member of the Board since January 2009. Id.
. Jackie R. Kimzey, who allegedly has served
as a member of the Board since March 2008. Id.
. Richard S. Pontin, who allegedly has
served as a member of the Board since March 2007.
Id. ¶ 19.
. Noah J. Walley, who allegedly has served
as a member of the Board since July 2008. Id. ¶
Securities and Exchange Commission (“SEC”) and
allege that, on March 7, 2016, Defendants announced that
Tangoe's financial statements for 2013, 2014, and the
first three quarters of 2015 needed revision because of
“errors in recognizing revenue, primarily non-recurring
revenue.” CAC ¶ 33. The announcement allegedly
assured investors that Tangoe's core operations and cash
flow would be “minimally affected or unaffected.”
Id. Tangoe's stock price allegedly immediately
dropped after the announcement, but “several analysts
maintained price targets ranging from $7.00 to $14.00 per
March 15, 2016, in a Form 12b-25, Tangoe allegedly reported
that it would not timely file its Form 10-K. Id.
¶ 34. Tangoe allegedly stated that “[a]lthough the
Company cannot at this time estimate when it will complete
the Restatement and file its restated financial statements
and its Form 10-K for the year ended December 31, 2015, it is
diligently pursuing completion of the Restatement
and intends to file the Form 10-K as soon as reasonably
practicable.” Id. ¶ 34 (emphasis added by
Plaintiffs in CAC). NASDAQ allegedly responded by informing
Tangoe that it was in violation of NASDAQ rules and could be
delisted if it did not comply by May 20, 2016. Id.
April 2016, Tangoe allegedly replaced its Chief Financial
Officer (“CFO”) Gary P. Martino with an interim
CFO, Jay Zager. Id. ¶ 35. In early May, Tangoe
allegedly replaced its Chairman and CEO, Albert R. Subbloie,
Jr., with an interim CEO, James D. Foy, and an interim
Chariman, Gerald G. Kokos. Id. On May 16, 2016,
Tangoe allegedly engaged Mr. Stifel as its advisor.
19, 2016, Tangoe allegedly announced that it had received a
second notice from NASDAQ, indicating it was not in
compliance with NASDAQ's rules requiring periodic
financial reporting with the SEC. Id. ¶ 36.
Plaintiffs allege that, “[a]gain, the Company stressed
that they were diligently pursuing completion of the
Restatement and intended to file its 10-Q for the quarterly
period ended March 31, 2016, as soon as reasonably
August 10, 2016, Tangoe allegedly filed another Form 12b-25,
stating that its quarterly Form 10-Q for the period ending on
June 30, 2016, would not be timely filed. Id. ¶
37. Plaintiffs allege that “[t]he Company went on to
explain that the amount of misstated revenue was
significantly more than previously announced, ” and
that “the Restatement would not be completed prior to
September 12, 2016.” Id. Tangoe allegedly
sought another extension from NASDAQ to regain compliance
with the filing requirements, and NASDAQ stated that, if
Tangoe did not “submit an updated plan for the
Restatement, ” by August 30, 2016, it would be
September 13, 2016, NASDAQ allegedly sent Tangoe a letter
with a plan to delist Tangoe's stock as a result of its
repeated violations of filing requirements. Id.
¶ 38. NASDAQ allegedly indicated that the stock would be
suspended starting September 22, 2016, and that NASDAQ would
file a Form 25-NSE with the SEC, which would remove the
company's listing from NASDAQ. Id. Tangoe stated
that it planned to appeal the decision, submit an amended
plan to deal with the Restatement, and request a maximum
extension to file until March 2017. Id.
November 9, 2016, NASDAQ allegedly granted Tangoe a maximum
extension until March 10, 2017, to finish the Restatement and
come up to date with all required filings. Id.
¶ 39. Plaintiffs allege that “[t]he Company stated
that it was hopeful that it would regain compliance with
Nasdaq's filing requirement, but made no
November 10, 2016, Tangoe allegedly filed another Form
12b-25, indicating that it would not timely file a quarterly
Form 10-Q for the period ending on September 30, 2016.
Id. ¶ 40. Plaintiffs allege that “[t]his
time, the Company indicated that the misstated revenue was
nearly double the amount originally represented, and that
operating income would be substantially
affected.” Id. (emphasis added by Plaintiffs
in CAC). Tangoe also allegedly stated:
The internal investigation overseen by the Audit Committee in
connection with the Restatement is substantially
complete. The Company has also substantially completed
its internal review of the financial statements for the
periods being restated and is currently working with the
Company's independent registered public accounting firm
as it audits the restated year-end financial statements. In
addition, the Company is completing its closing procedures
and preparing interim financial statements for its quarters
ending March 31, 2016, June 30, 2016 and September 30, 2016,
after which it will work with its independent registered
public accounting firm as it reviews the interim financial
Id. (emphasis added by Plaintiffs in CAC).
alleged that, on December 14, 2016, “[d]ue to the
potential uncertainty of holding an annual [stockholder]
meeting without the ability to solicit proxies, the Board
concluded that they did not want to risk losing their seats
at an election solely voted on by stockholders in attendance
at the meeting.” Id. ¶ 41.
December 20, 2016, the Audit Committee allegedly told the
Board that “it was not practical to complete the
Restatement by the March 10 delisting deadline, ” and,
on December 28, 2016, the Audit Committee allegedly confirmed
that it could not “conclude with any degree of
reliability that the Restatement would be complete by the
March 10, 2017 deadline at any reasonable cost.”
Id. ¶¶ 42-43. On January 3, 2017, Tangoe
allegedly “notified Nasdaq that it was unlikely to
complete the Restatement by the March 10, 2017
deadline.” Id. ¶ 44. Plaintiffs allege
that “[a]ccording to the Recommendation Statement, it
was at this point that the Board noted the potential for an
acquisition transaction in the near term may obviate the need
to complete a Restatement.” Id. Plaintiffs
also allege that “[t]he Recommendation Statement also
revealed that despite the Company's statements in its
November press release that things were ‘substantially
complete,' Tangoe had not begun to implement the audit
plan of its independent registered accounting firm, ”
and therefore “the Board decided to shift focus to
producing a quality of earnings report to help execute a
potential transaction.” Id.
January 4, 2017, NASDAQ allegedly informed Tangoe that its
stock could be delisted for failure to hold an annual
stockholder meeting. Id. ¶ 45. Plaintiffs
allege that “[g]iven this additional basis to delist
Tangoe, it appears that the decision to shift focus to
selling the Company was not the result of the inability to
timely complete the Restatement, but a consequence of the
Board's selfish decision to avoid being ousted at an
annual stockholder meeting.” Id.
March 10, 2017, Tangoe informed stockholders that NASDAQ had
made a final determination to delist the company's common
stock, and, four days later, trading of Tangoe's shares
ended. Id. ¶ 46.
allege that “during the course of these efforts, the
Company devoted significant internal resources to pursue the
Restatement, expended approximately $16 million in costs in
2015 and 2016 for outside assistance on the Restatement, yet
failed to ever issue a Restatement or any audited financial
statements from the time of the Restatement through the
closing of the Transaction.” Id. ¶ 47.
allege that, on March 23, 2017, undisclosed stockholders
owning 7% of Tangoe's common stock threatened a proxy
contest to unseat a majority of the Board if the Board did
not complete a transaction. Id. ¶ 55.
Awards and Benefits to Board Members and Management
allege that, while the Restatement was still pending,
“SEC rules barred Tangoe from issuing traditional
equity awards to the Board or management.” Id.
¶ 48. Plaintiffs allege that Tangoe's Board and
management avoided those rules by entering “into Equity
Award Replacement Compensation Agreements
(‘EARCAs') with the Company, ” so that
“Tangoe's officers and directors could still
receive equity compensation, but that compensation would only
have value upon a ‘change in control.'”
allege that Tangoe and Mr. Foy, who was, at that point, the
interim CEO, entered into an employment agreement on June 6,
2016, under which Mr. Foy became the acting CEO and,
“subject to the Company's ability to register the
grant of such award on a Form S-8, Mr. Foy [would] be
entitled to receive an award of 100, 000 restricted stock
units (RSUs).” Id. ¶ 49. On June 8, 2016,
Mr. Coit, Mr. Golding, Mr. Kaiser, Mr. Kimzey, Mr. Pontin,
and Mr. Walley each allegedly received “EARCAs with
respect to 15, 142 measurement shares.” Id.
28, 2016, the Board allegedly changed Mr. Foy's
employment agreement to make him the CEO and to provide him
with 100, 000 restricted stock units that would vest upon
change in control and 100, 000 new EARCA shares. Id.
¶ 50. That same day, Scott Snyder allegedly received 50,
000 EARCA shares and Charles Gamble allegedly received 20,
000 EARCA shares, all due to vest and be converted to common
shares upon a change in control. Id.
August 15, 2016, the Board allegedly made Mr. Zager, then the
interim CFO, the CFO, and paid him $400, 000 in cash.
Id. ¶ 51. The Board also allegedly granted Mr.
Foy 400, 000 EARCA shares and Mr. Zager 100, 000 EARCA
shares, all to vest upon a change in control of the company.
Id. Plaintiffs allege that these shares were
different from the other EARCA shares, however, because
“25% of the shares would only vest upon a change in
control of the Company resulting in consideration payable to
holders of common stock of the Company exceeding specified
thresholds, ” though Tangoe allegedly “never
stated what those thresholds were.” Id.
January 11, 2017, the Board allegedly approved a
“Retention Agreement” for Mr. Foy, under which he
would receive severance benefits in the event of termination
for reasons other than cause, death, disability, or
resignation for good reason. Id. ¶ 53.
Plaintiffs allege that “[a]ssuming a Qualifying
Termination followed the Merger, the retention agreement
secured Foy an additional $892, 140, consisting of $656, 250
in salary-based severance and $235, 890 in bonus-based
February 2, 2017, the Board allegedly approved amendments to
Mr. Foy and Mr. Zager's respective EARCAs,
“lowering the minimum threshold consideration necessary
to trigger their respective vesting provisions.”
Id. ¶ 54.
allege that, “[r]ather than act in the best interest of
all stockholders by completing the Restatement and executing
the Company's standalone plan, as it had determined to do
in the spring of 2016, the Board acted selfishly and
disloyally by pushing through an inadequate offer with Marlin
and, at the same time, ensuring that millions of dollars in
equity award equivalents would vest upon consummating the
Transaction.” Id. ¶ 56. Plaintiffs
further allege that the Individual Defendants
“understood that they were set to collectively receive
nearly $5 million in exchange for their measurement shares
under the EARCAs” if they voted for the transaction
with Marlin, and “[i]f the Director Defendants voted
against the Transaction and opted to complete the Restatement
and proceed as a standalone company, their EARCAs would have
been worthless.” Id. ¶ 57.
The Sale of the Company
allege that “accounting failures marred the sales
process from the start” because Tangoe was unable to
provide potential bidders with “any accurate, audited
GAAP financial statements, ” and therefore “many
potential bidders were unable to participate in the sales
process.” Id. ¶ 58.
allege that, between June 2016 and December 2016, Tangoe had
“preliminary discussions with several parties regarding
potential investment in the Company and/or acquisition of the
Company, ” including Vector Capital IV., L.P. and its
affiliates, which owned 9.9% of Tangoe's outstanding
common stock, Clearlake Capital Partners IV GP, L.P. and its
affiliates, which, as of June 23, 2016, owned 14.9% of
Tangoe's outstanding common stock, and Marlin and its
associates, which, as of June 24, 2016, owned 10.4% of
Tangoe's outstanding common stock. Id.
¶¶ 59-60, 61.
allege that, in December 2016, Marlin verbally proposed a
transaction at $7.00 per share, and Clearlake and Vector
proposed a joint transaction at a price ranging between $7.00
and $7.50 per share. Id. ¶ 63. Plaintiffs
allege that, on December 29, 2016, Tangoe “received a
revised letter from Marlin substantially similar to the
letter of December 27, 2016, but confirming that neither
continued listing of the Common Stock on Nasdaq nor audited
financial statements would be a closing condition.”
Id. ¶ 64. Also, on that day, Marlin submitted a
second amendment to its Schedule 13D with the SEC.
Id. The amendment stated that Marlin wanted to
acquire “all of the outstanding common stock, through a
tender offer or otherwise, for $7.50 per share in cash,
subject to, among other things, reaching agreement on all
material terms.” Id.
January 3, 2017, Tangoe allegedly issued a press release
“confirming receipt of the proposal from Marlin and the
joint proposal from Clearlake and Vector, that the Company
had notified Nasdaq that it was unlikely to complete the
Restatement by the March 10, 2017 deadline, that the Board
would carefully evaluate the proposals and was focused on
maximizing stockholder value, and that the Company had
retained Stifel as financial advisor to assist in these
efforts.” Id. ¶ 65.
March 9, 2017, Tangoe allegedly received a letter from Marlin
proposing to acquire Tangoe for a cash tender offer of $6.50
per share. Id. ¶ 66. On March 28, 2017, Mr. Foy
and Mr. Kokos spoke with Marlin representatives about
integrating the two management teams. Id. ¶ 67.
On April 28, 2017, Tangoe and Marlin announced a merger
agreement at $6.50 per share. Id. ¶ 68.
allege that the $6.50 offer price “does not represent
fair value for Tangoe stockholders, ” and that Tangoe
previously had been trading at an average price above $8.00.
Id. ¶ 69. Plaintiffs allege that, since Tangoe
went public in 2011, it “has established itself as a
leader in the connection lifecycle management space, ”
that it “holds a significant size advantage to many of
its competitors, ” that its clients include established
entities such as “IBM, SAP, American Express, PWC,
FedEx, Kraft Foods, CVS, and Comcast, ” and that it has
maintained a net cash balance. Id. ¶ 70.
Moreover, Plaintiffs allege that analysts project “a
positive outlook for Tangoe, ” including growth and
high price targets. Id. ¶ 72. Plaintiffs
therefore allege that “the fluctuations in Tangoe's
stock price did not reflect changes in its underlying value,
but the lack of information disseminated by the Tangoe
Board.” Id. ¶ 75.
The Recommendation Statement
12, 2017, Tangoe allegedly filed a Recommendation Statement
with the SEC in support of the Tender Offer commenced by
Marlin. Id. ¶ 76. Plaintiffs allege that the
Recommendation Statement “contained material
misrepresentations and omissions of fact that forced
Tangoe's stockholders to decide whether to tender their
shares without adequate information.” Id.
Plaintiffs allege that those misstatements included:
(i) the circumstances surrounding the Company's failure
to complete the Restatement, including the likelihood that
Tangoe could ever complete the Restatement and, if
completable, a reasonable estimation of when it believed the
Restatement would be completed and the Company's stock
relisted; (ii) any non-merger alternative options left for
the Company in light of the Restatement and delisting; (iii)
the conflicts of interest faced by Tangoe's management
and directors as a result of the EARCAs and their subsequent
revisions; (iv) the severity and degree of the numerous
revisions of the Company's financial projections; (v) the
valuation analyses prepared by Stifel in support of its
“fairness opinion”; and (vi) the complete lack of
any audited GAAP financial statements.
Id. ¶ 77. Plaintiffs allege that Tangoe has
been “unclear and misleading in their communications
with stockholders, Nasdaq, and the SEC, ” since March
2016 and continued to do so even after the release of the
Recommendation Statement. Id. ¶ 78.
allege that the Recommendation Statement failed to state
whether Tangoe had a legitimate chance of completing the
Restatement and regaining compliance with NASDAQ,
“misstated the Board's desire to complete the
Restatement, ” and “failed to discuss what would
happen with the Restatement in the event a deal to acquire
Tangoe could not have been made.” Id. ¶
79. Moreover, Plaintiffs allege that Tangoe possessed
information that it concealed from stockholders and the
public related to the Restatement. Id. ¶ 80.
Plaintiffs allege that, as a result, stockholders did not
have the means “to evaluate the choice they were being
asked to make- accept the Offer Price that reflected the
depressed value caused by the Company's regulatory
non-compliance or stay the course in hopes that the Company
might return to the good graces of regulators.”
Id. ¶ 81. As a consequence, Plaintiffs allege,
the market did not “absorb and reflect the true value
of the Company, ” placing stockholders in a compromised
position, and driving potential bidders away. Id.
5, 2017, the SEC allegedly sent a letter to Tangoe,
expressing concern that Tangoe's delinquency in reporting
information “would prevent Tangoe investors from making
an informed decision.” Id. ¶ 84. In a
second letter, dated June 14, 2017, the SEC wrote:
“[W]e remind the company and its management of their
obligation to ensure that investors have been provided with
all material information necessary to evaluate the proposed
transaction, particularly given that the company is not
current in its Exchange Act reporting obligations.”
Id. ¶ 84. Plaintiffs allege that stockholders
should have been provided information about what would happen
if the transaction with Marlin did not go forward.
Id. ¶ 85.
also allege that the Recommendation Statement “failed
to provide full and adequate disclosure of the conflicts of
interest faced by Tangoe's officers and directors,
” including that their EARCAs “were only payable
upon a change in control, termination without cause, or the
death of the party.” Id. ¶ 86.
Specifically, Plaintiffs allege that information that
Defendants had adjusted the thresholds for their payouts
“would have informed stockholders how much the failure
to complete the Restatement cost them.” Id.
addition, Plaintiffs allege that Defendants manipulated
financial projections and omitted material information from
statements to “make the eventual Offer Price appear
more attractive to Tangoe stockholders.” Id.
¶ 90. Plaintiffs allege that when Tangoe published a
Discounted Cash Flow Analysis, it failed to disclose key
components of the analysis that would have been
“material to Tangoe stockholders, ” and their
omission rendered the Discounted Cash Flow Analysis (part of
the Recommendation Statement) “incomplete and
misleading.” Id. ¶¶ 91- 93.
Plaintiffs also allege that two other analyses, Selected
Company and Selected Transactions, “the Recommendation
Statement failed to disclose individual multiples for the
companies and transactions observed in the analysis, ”
leaving stockholders without “the information to
determine how the selected companies and transactions
actually compared to” Tangoe or the Transaction with
Marlin. Id. ¶ 94. Moreover, Plaintiffs allege
that the analyses failed to include an implied valuation
range for the comparable analyses, and the “only
valuation performed, the DCF, was watered down by
artificially deflated projections and incompletely disclosed
to stockholders.” Id. ¶ 95. Plaintiffs
assert that the “above-referenced omitted information,
if disclosed, would have significantly altered the total mix
of information available to Tangoe's stockholders.”
Id. ¶ 96.
18, 2017, Mr. McArthur, on behalf of himself and a proposed
class, filed a Complaint alleging violations of Section
14(d), 14(e), and 20(a) of the Securities Exchange Act of
1934. Compl., ECF No. 1. On June 1, 2017, Defendants filed a
notice of a related case, Joseph Levine v. Tangoe, Inc.,
et. al., No. 3:17-cv-00873 (AWT). ECF No. 17. On August
7, 2017, Mr. McArthur and Mr. Levine moved to consolidate the
related cases, to be appointed co-lead plaintiffs, and
approval of Levi & Korinsky LLP and Monteverde &
Associates PC as co-lead counsel. ECF No. 32. The Court
granted the unopposed motion, see ECF No. 44, on
October 4, 2017. ECF No. 45.
November 3, 2017, Plaintiffs filed a Consolidated Class
Action Complaint, again alleging violations of Sections
14(d), 14(e), and 20(a) of the Securities Exchange Act of
1934. ECF No. 46. In Count One, Plaintiffs allege that
“Tangoe filed and delivered the Recommendation
Statement to its stockholders, which Defendants knew or
recklessly disregarded contained material omissions and
misstatements, ” including “information about the
consideration offered to stockholders via the tender offer,
the intrinsic value of the Company, and potential ...