On September 30, 2015, the Raydon Corporation ESOP (the “Raydon ESOP”) purchased 100% of the outstanding shares of Raydon Corporation (Raydon), a Florida-based military simulation training contractor, for $60.5 million.
Stephanie Woznicki, a former Raydon employee, filed a class action complaint on December 5, 2018, alleging that, among other things, (i) according to the 2015 Form 5500 for the Raydon ESOP filed with the Department of Labor on June 22, 2016, the fair market value of the stock held by the Raydon ESOP was $5.11 million as of December 31, 2015; (ii) Lubbock National Bank, the Raydon ESOP’s Trustee, did not conduct a “thorough and independent review” of the valuation report prepared in connection with the stock purchase; and (iii) Donald K. Ariel and David P. Donovan, the selling shareholders, failed to disclose to Lubbock National Bank that Raydon lost a $99.4 million contract prior to the stock purchase.1 As a result, the Complaint alleges that Lubbock National Bank caused the Raydon ESOP to pay more than adequate consideration for Raydon’s stock.
Takeaways
- Lubbock National Bank, the Raydon ESOP’s trustee, did not conduct a “thorough and independent review” of the valuation report.
- If true, the failure of the selling shareholders to disclose to the ESOP Trustee (Lubbock National Bank) that Raydon lost a $99.4 million contract prior to the stock purchase would be a significant breach of fiduciary duty.
1 Class Action Complaint, Woznicki v. Raydon Corporation, No. 6:18-cv-02090-CEM-GJK (M.D. Fla. Dec. 5, 2018), ECF No. 1.
