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UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT 

INTRODUCTION 

Plaintiff David Summers (“Plaintiff”), by Plaintiff’s undersigned attorneys, derivatively 

and on behalf of Nominal Defendant RTI Surgical Holdings, Inc. (“RTI” or the “Company”), 

files this Verified Shareholder Derivative Complaint against Individual Defendants Camille I. 

Farhat, Brian K. Hutchison, Jonathon M. Singer, Robert P. Jordheim, Johannes W. Louw, Peter 

F. Gearen, Thomas A. McEachin, Curtis M. Selquist, Mark D. Stolper, Christopher R. Sweeney, 

Paul G. Thomas, Nicholas J. Valeriani, and Shirley A. Weis (collectively, the “Individual 

DAVID SUMMERS, derivatively on behalf of 

RTI SURGICAL HOLDINGS, INC., 

 

 Plaintiff, 

 

 vs. 

 

CAMILLE I. FARHAT, BRIAN K. 

HUTCHISON, JONATHON M. SINGER, 

ROBERT P. JORDHEIM, JOHANNES W. 

LOUW, PETER F. GEAREN, THOMAS A. 

MCEACHIN, CURTIS M. SELQUIST, 

MARK D. STOLPER, CHRISTOPHER R. 

SWEENEY, PAUL G. THOMAS, NICHOLAS 

J. VALERIANI, and SHIRLEY A. WEIS, 

 Defendants, 

 and 

RTI SURGICAL HOLDINGS, INC., 

Nominal Defendant. 

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Case No.: 

JURY TRIAL DEMANDED 

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Defendants,” and together with RTI, the “Defendants”) for breaches of their fiduciary duties as 

directors and/or officers of RTI, unjust enrichment, waste of corporate assets, and violations of 

Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). 

As for Plaintiff’s complaint against the Individual Defendants, Plaintiff alleges the following 

based upon personal knowledge as to Plaintiff’s and Plaintiff’s own acts, and information and 

belief as to all other matters, based upon, inter alia, the investigation conducted by and through 

Plaintiff’s attorneys, which included, among other things, a review of the Defendants’ public 

documents, conference calls, and announcements made by Defendants, United States Securities 

and Exchange Commission (“SEC”) filings, wire and press releases published by and regarding 

RTI, legal filings, news reports, securities analysts’ reports and advisories about the Company, 

and information readily obtainable on the Internet. Plaintiff believes that substantial evidentiary 

support will exist for the allegations set forth herein after a reasonable opportunity for discovery. 

NATURE OF THE ACTION 

1. This is a shareholder derivative action that seeks to remedy wrongdoing 

committed by RTI’s directors and/or officers from March 7, 2016 through the present (the 

“Relevant Period”). 

2. RTI purports to be a leading global surgical implant company that provides 

surgeons with safe biologic, metal and synthetic implants. The Company’s implants are utilized 

in sports medicine, general surgery, spine, orthopedic and trauma procedures, and are distributed 

in almost 50 countries. 

3. On March 8, 2019, RTI Surgical, Inc. executed a merger and acquisition 

transaction to acquire Paradigm Spine, LLC, a motion preservation and non-fusion spinal 

implant technology company. The resulting entity reorganized itself as RTI Surgical Holdings, 

Inc., and RTI Surgical, Inc. (referred to as “Legacy RTI” following the acquisition), became a 

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wholly owned subsidiary of the Company.1

 

4. During the Relevant Period, the Company had four main lines of businesses 

comprised of four franchises: spine; sports; original equipment manufacturer (“OEM”); and 

international. Since 2016, at least, OEM has accounted for the largest portion of the Company’s 

overall revenue within its franchises. 

5. From as early as 2014, the Company has improperly recognized and reported 

revenue for certain contractual arrangements, primarily with RTI’s OEM customers. 

Specifically, RTI inappropriately recognized revenue for certain invoices at earlier dates, due, in 

part, to deliveries made outside of agreed-upon delivery windows. Moreover, an improper 

adjustment was made to a product return provision in RTI’s Direct Division in July 2017. RTI’s 

accounting treatment of these contractual arrangements would result in an SEC investigation, an 

internal investigation by the Company’s Audit Committee, RTI’s inability to timely file its 

annual report for the fiscal year ended December 31, 2019 (the “2019 10-K”) and the need to 

restate several years of SEC filings deemed incorrect and unreliable. 

6. The Company’s improper accounting practices related to, inter alia, the manner in 

which the Company was recording revenue from third parties, resulted in material errors in the 

Company’s financial statements filed throughout the Relevant Period. However, during this time, 

the Company maintained that its internal control over financial reporting was effective and that 

its disclosures were complete. 

7. Despite the Company’s long-standing material weaknesses in its revenue 

recognition, investors remained uninformed of RTI’s inaccurate financial reporting until March 

16, 2020, when the Company issued a press release filed with a current report on a Form 8-K 

 

1

 Prior to the acquisition, the Company’s financial statements were that of RTI Surgical Inc.’s and its 

subsidiaries. Following March 8, 2019, RTI is the successor reporting company. 

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with the SEC, revealing that RTI would not be able to timely file its annual report on Form 10-K 

for the fiscal year ended December 31, 2019. The press release disclosed that the delay was due 

to RTI’s internal audit investigation of current and prior period matters relating to the 

Company’s revenue recognition practices, which had been triggered by an ongoing SEC inquiry 

related to the periods 2014 through 2016. The press release disclosed that RTI was not in a 

position to file its 2019 10-K and would file a Notification of Late Filing to obtain an extension 

from the SEC. 

8. On this news, RTI’s share price dropped $0.40 (over 14.5%) from closing at 

$2.75 on March 16, 2020, to close at $2.35 on March 17, 2020. 

9. On March 20, 2020, the Company filed a current report on a Form 8-K with the 

SEC announcing that it had received a letter from the Listing Qualifications Department of the 

Nasdaq Stock Market LLC, indicating that the Company was not in compliance with the timely 

filing requirement for continued listing under Nasdaq Listing Rule 5250(c)(1). In the same 

report, the Company announced that its Vice President of Financial Planning and Analysis, 

Johannes W. Louw (“Louw”) who had recently been promoted to Chief Financial Officer 

(“CFO”) in January 2020, would end his employment with RTI by April 8, 2020. 

10. On April 9, 2020, the Company filed a current report on a Form 8-K with the SEC 

announcing that the internal audit investigation remained ongoing and that investors should no 

longer rely on prior financial reports and reports concerning the internal controls over financial 

reporting for the fiscal years ended December 31, 2014, 2015, 2016, 2017 and 2018 and RTI’s 

unaudited financial statements for the quarterly periods for 2016-2018 and the nine months 

ended September 30, 2019. RTI further announced its impending plans to restate those 

previously released financial statements. 

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11. As of the time of filing this Complaint, there has been no restatement of any prior 

financial period, and the Company has yet to publish its annual report for the fiscal year 2019 or 

its quarterly report for the quarter ended March 31, 2020, which was due in May. 

12. During the Relevant Period, the Individual Defendants breached their fiduciary 

duties by personally making and/or causing the Company to make to the investing public a series 

of materially false and misleading statements regarding the Company’s business, operations, and 

prospects. Specifically, the Individual Defendants willfully or recklessly made and/or caused the 

Company to make false and misleading statements to the investing public that failed to disclose, 

inter alia, that: (1) the Company improperly recognized and accounted for revenues for certain 

contractual arrangements, primarily involving OEM customers due, in part, to early deliveries 

made outside of agreed-to delivery windows; (2) the Company’s internal controls over financial 

reporting were ineffective; (3) consequently, the Company would be subject to SEC scrutiny, be 

forced to delay the filing of its annual report and ultimately need to restate several years of its 

previously reported financial statements; and (4) the Company failed to maintain internal 

controls. As a result of the foregoing, the Company’s public statements were materially false and 

misleading at all relevant times. 

13. The Individual Defendants failed to correct and/or caused the Company to fail to 

correct these false and misleading statements and omissions of material fact, rendering them 

personally liable to the Company for breaching their fiduciary duties. 

14. The Individual Defendants also breached their fiduciary duties by causing the 

Company to fail to maintain internal controls and to fail to timely file its financial statements 

with the SEC. 

15. Furthermore, during the Relevant Period, when the Company’s stock price was 

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artificially inflated due to the false and misleading statements discussed herein, the Individual 

Defendants caused the Company to repurchase its own stock at prices that were artificially 

inflated due to the foregoing misrepresentations, while one of them engaged in improper insider 

sales, netting proceeds of approximately $44,444. Approximately 1,006,318 shares of the 

Company’s common stock were repurchased during the Relevant Period for over $4.5 million. 

As the Company’s stock was actually only worth $2.35 per share during that time, the price at 

closing on March 17, 2020, the Company overpaid by over $2.1 million in total. 

16. In light of the Individual Defendants’ misconduct, which has subjected RTI, its 

Chief Executive Officer (‘CEO”), its former CEO, its Chief Financial and Administrative Officer 

(“CFAO”), its former CFO, Executive Vice President, and interim CEO, and its most recent CFO 

to being named as defendants in a federal securities fraud class action lawsuit pending in the 

United States District Court for the Northern District of Illinois (the “Securities Class Action”), 

the need to undertake internal investigations, the need to implement adequate internal controls 

over its financial reporting, the losses from the waste of corporate assets, the losses due to the 

unjust enrichment of the Individual Defendants who were improperly over-compensated by the 

Company and/or who benefited from the wrongdoing alleged herein, the Company will have to 

expend many millions of dollars. 

17. In light of the breaches of fiduciary duty engaged in by the Individual Defendants, 

most of whom are the Company’s current directors, their collective engagement in fraud, the 

substantial likelihood of the directors’ liability in this derivative action and the CEO’s liability in 

the Securities Class Action, their being beholden to each other, their longstanding business and 

personal relationships with each other, and their not being disinterested and/or independent 

directors, a majority of RTI’s Board of Directors (the “Board”) cannot consider a demand to 

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commence litigation against themselves on behalf of the Company with the requisite level of 

disinterestedness and independence. 

JURISDICTION AND VENUE 

18. This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 because 

Plaintiff’s claims raise a federal question under Section 14(a) of the Exchange Act, 15 U.S.C. § 

78n(a)(1), Rule 14a-9 of the Exchange Act, 17 C.F.R. § 240.14a-9, Sections 10(b) and 20(a) of 

the Exchange Act (15 U.S.C. §§ 78j(b), 78t(a) and 78t-1), and SEC Rule 10b-5 (17 C.F.R. § 

240.10b-5) promulgated thereunder. 

19. Plaintiff’s claims also raise a federal question pertaining to the claims made in the 

Securities Class Action based on violations of the Exchange Act. 

20. This Court has supplemental jurisdiction over Plaintiff’s state law claims pursuant 

to 28 U.S.C. § 1367(a). 

21. Additionally, diversity jurisdiction is conferred by 28 U.S.C. § 1332. Plaintiff and 

the Individual Defendants are citizens of different states and the amount in controversy exceeds 

the sum or value of $75,000, exclusive of interest and costs. 

22. This derivative action is not a collusive action to confer jurisdiction on a court of 

the United States that it would not otherwise have. 

23. The Court has personal jurisdiction over each of the Defendants because each 

Defendant is either a corporation incorporated in this District, or he or she is an individual who 

has minimum contacts with this District to justify the exercise of jurisdiction over them. 

24. Venue is proper in this District pursuant to 28 U.S.C. §§ 1391 and 1401 because a 

substantial portion of the transactions and wrongs complained of herein occurred in this District, 

and the Defendants have received substantial compensation in this District by engaging in 

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numerous activities that had an effect in this District. 

25. Venue is proper in this District because RTI and the Individual Defendants have 

conducted business in this District, and Defendants’ actions have had an effect in this District. 

PARTIES 

Plaintiff 

26. Plaintiff is a current shareholder of RTI common stock. Plaintiff has continuously 

held RTI common stock at all relevant times. Plaintiff is a citizen of Ohio. 

Nominal Defendant RTI 

27. RTI is a Delaware corporation with its principal executive offices at 520 Lake 

Cook Road, Suite 315, Deerfield, Illinois 60015. RTI’s shares trade on the NASDAQ Global 

Select Market (“NASDAQ”) under the ticker symbol “RTIX.” 

Defendant Farhat 

28. Defendant Camille I. Farhat (“Farhat”) has served as the Company’s President, 

CEO, and as a Company director since March 2017. He also provided certain consulting services 

to RTI during 2016. According to the Company’s Schedule 14A filed with the SEC on March 25, 

2019 (the “2019 Proxy Statement”), as of March 14, 2019, Defendant Farhat beneficially owned 

1,110,619 shares of the Company’s common stock, which represented 1.5% of the Company’s 

outstanding shares of common stock on that date. Given that the price per share of the 

Company’s common stock at the close of trading on March 14, 2019 was $5.81, Defendant 

Farhat owned approximately $6.4 million worth of RTI stock. 

29. For the fiscal year ended December 31, 2018, Defendant Farhat received 

$1,219,629 in compensation from the Company. This included $651,119 in salary, $550,383 in 

in non-equity incentive plan compensation, and $18,127 in all other compensation. 

30. The 2019 Proxy Statement stated the following about Defendant Farhat: 

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Mr. Farhat joined RTI Surgical as President and Chief Executive Officer in March 

2017. Mr. Farhat’s experience is built from extensive work across multiple 

companies in ten countries and nine industries, including experience in the 

healthcare industry globally spanning pharmaceuticals, implantable devices, 

capital equipment, consumables and services. During 2016 and until he became 

our President and Chief Executive Officer in March 2017, Mr. Farhat provided 

certain consulting services and fulfilled his board obligations. Prior to that, 

Mr. Farhat was President and Chief Executive Officer of American Medical 

Systems (AMS) from 2012 to 2015. Prior to AMS, Mr. Farhat advanced several 

business segments for Baxter International, serving as Global General Manager of 

Baxter Pharmaceuticals & Technologies from 2008 to 2011 and Global General 

Manager of Global Infusion Systems from 2006 to 2008. Prior to Baxter 

Pharmaceuticals & Technologies, Mr. Farhat was Vice President of Business 

Development at Medtronic, and previously Global General Manager of 

Medtronic’s gastroenterology and urology divisions from 2003 to 2006. Earlier in 

his career, Mr. Farhat gained executive and leadership experience during his 

thirteen years at General Electric. Mr. Farhat earned a Master of Business 

Administration from Harvard University, a degree in European Union Studies 

from Institut National d’Etudes Politiques de Paris and graduated summa cum 

laude from Northeastern University with a bachelor’s degree in international 

finance and accounting. Mr. Farhat serves on the Board of Directors of 

ADVAMED (the Advanced Medical Technology Association), the Board of 

Directors of Cardiac Science, and Northwestern University’s Cerebrovascular 

Neurosurgery Advisory Council. Mr. Farhat brings to the Board significant 

experience revitalizing and profitably growing global businesses within the health 

care industry. 

31. Upon information and belief, Defendant Farhat is a citizen of the State of Illinois. 

Defendant Hutchison 

32. Defendant Brian K. Hutchison (“Hutchison”) served as the Company’s President 

and CEO from December 2001 through December 16, 2016, when he retired from his positions. 

33. For the fiscal year ended December 31, 2016, Defendant Hutchison received 

$1,388,802 in compensation from the Company. This included $590,796 in salary, $600,000 in 

stock awards, $150,000 in option awards, $25,150 in nonqualified deferred compensation 

earnings, and $22,856 in all other compensation. 

34. Upon information and belief, Defendant Hutchison is a citizen of the State of 

Florida. 

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Defendant Singer 

35. Defendant Jonathon M. Singer (“Singer”) has served as the Company’s CFAO 

since September 2017, and Corporate Secretary since November 2017. On January 10, 2020, 

RTI promoted Defendant Singer to Chief Operating Officer (“COO”), contingent and effective 

upon the Company’s proposed sale of its OEM business. Previously, Defendant Singer served as 

a Company director from May 2016 to September 2017. According to the 2019 Proxy Statement, 

as of March 14, 2019, Defendant Singer beneficially owned 339,230 shares of the Company’s 

common stock. Given that the price per share of the Company’s common stock at the close of 

trading on March 14, 2019 was $5.81, Defendant Singer owned approximately $1.9 million 

worth of RTI stock. 

36. For the fiscal year ended December 31, 2018, Defendant Singer received 

$2,188,311 in compensation from the Company. This included $450,000 in salary, $1,000,000 in 

bonus, $247,350 in stock awards, $247,487 in option awards, $223,763 in in non-equity 

incentive plan compensation, and $19,711 in all other compensation. 

37. During the period of time when the Company materially misstated information to 

the investing public to keep the stock price inflated, and before the scheme was exposed, 

Defendant Singer made the following sale of the Company’s common stock: 

Date Number of Shares Price Proceeds 

February 28, 2020 5,510 $ 3.70 $ 20,387 

February 26, 2020 5,940 $ 4.05 $ 24,057 

Thus, in total, before the fraud was exposed, he sold 11,450 Company shares on inside 

information, for which he received approximately $44,444. His insider sales made with 

knowledge of material non-public information before the material misstatements and omissions 

were exposed demonstrate his motive in facilitating and participating in the scheme. 

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38. The 2019 Proxy Statement stated the following about Defendant Singer: 

Jonathon M. Singer was named Chief Financial and Administrative Officer in 

September 2017, and Corporate Secretary in November 2017. Mr. Singer 

previously served as a member of the Board of Directors from May 2016 to 

September 2017. Mr. Singer previously served as Chief Financial Officer of 

Sagent Pharmaceuticals from 2011 until 2017, and was appointed Executive Vice 

President and Chief Financial Officer in March 2012. Mr. Singer was Senior Vice 

President, Treasurer, Secretary and Chief Financial Officer of Landauer, Inc. from 

2006 to 2011. From 2004 to 2006, Mr. Singer served as Vice President of Global 

Finance and Chief Financial Officer of the Medial Segment for Teleflex Inc. Prior 

to 2004, Mr. Singer worked in various capacities for R.R. Donnelley & Sons 

Company, Cardinal Health Inc., and KPMG LLP. Mr. Singer is a certified public 

accountant and received a Bachelor’s Degree in Business Administration from 

Miami University in Ohio and a Master’s Degree from Northwestern University’s 

Kellogg Graduate School of Management. 

39. Upon information and belief, Defendant Singer is a citizen of the State of Illinois. 

Defendant Jordheim 

40. Defendant Robert P. Jordheim served as the Company’s Executive Vice President 

and CFO from March 15, 2017 through October 31, 2017, and from June 2010 through 

December 16, 2016, and as interim President and CEO from December 16, 2016 through March 

15, 2017. 

41. For the fiscal year ended December 31, 2017, Defendant Jordheim received 

$1,009,489 in compensation from the Company. This included $335,499 in salary, $53,920 in 

bonus, $140,000 in stock awards, $140,099 in option awards, and $339,972 in all other 

compensation. 

42. Upon information and belief, Defendant Jordheim is a citizen of the State of 

Florida. 

Defendant Louw 

43. Defendant Louw served as the Company’s Vice President of Financial Planning 

and Analysis from September 2018 until April 2020, when he was terminated from RTI. On 

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January 10, 2020, RTI promoted Defendant Louw to CFO, contingent and effective upon the 

Company’s proposed sale of its OEM business. Defendant Louw served in various capacities 

since joining RTI’s finance team in June 2003, including as interim CFO, and Vice President of 

Finance and Corporate Controller. According to the 2019 Proxy Statement, as of March 14, 

2019, Defendant Louw beneficially owned 124,646 shares of the Company’s common stock. 

Given that the price per share of the Company’s common stock at the close of trading on March 

14, 2019 was $5.81, Defendant Louw owned approximately $724,193 worth of RTI stock. 

44. For the fiscal year ended December 31, 2018, Defendant Louw received $460,132 

in compensation from the Company. This included $236,187 in salary, $64,525 in stock awards, 

$64,636 in option awards, $72,807 in in non-equity incentive plan compensation, and $319 in all 

other compensation. 

45. The 2019 Proxy Statement stated the following about Defendant Louw: 

Johannes W. Louw joined the RTI finance team in June 2003. He currently serves 

as Vice President, Financial Planning and Analysis. He served as RTI’s interim 

Chief Financial Officer from December 2016 until March 2017. He also served as 

RTI’s Vice President of Finance and Corporate Controller from June 2010 until 

September 2018. Additionally, during his tenure with the Company, his 

responsibilities have included leading roles in the Company’s business 

development activities, financing, implementation and oversight of the 

Company’s internal control over financial reporting pursuant to the SarbanesOxley Act of 2002. Prior to his tenure at the Company, Mr. Louw served as an 

auditor for Deloitte & Touche LLP both domestically and internationally. 

Mr. Louw earned bachelor degrees in Commerce and Computer Science from the 

University of Cape Town and a master’s degree equivalent postgraduate diploma 

in accounting from the University of Cape Town. Mr. Louw is a Certified Public 

Accountant. 

46. Upon information and belief, Defendant Louw is a citizen of the State of Illinois. 

Defendant Gearen 

47. Defendant Peter F. Gearen (“Gearen”) joined RTI as a Company director in 1998. 

He was appointed Vice Chairman of the Board in February 2016, and served in such capacity 

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until March 2019. According to the 2019 Proxy Statement, as of March 14, 2019, Defendant 

Gearen beneficially owned 165,884 shares of the Company’s common stock. Given that the price 

per share of the Company’s common stock at the close of trading on March 14, 2019 was $5.81, 

Defendant Gearen owned approximately $963,786 worth of RTI stock. 

48. For the fiscal year ended December 31, 2018, Defendant Gearen received 

$130,000 in compensation from the Company. This included $55,000 in fees earned or paid in 

cash and $75,000 in stock awards. 

49. The 2019 Proxy Statement stated the following about Defendant Gearen: 

Dr. Gearen joined our Board of Directors in 1998 and was appointed Vice 

Chairman of the Board of Directors in February 2016. Dr. Gearen retired from 

practice on June 30, 2012. Dr. Gearen was an Associate Professor of Orthopedics 

at the University of Florida College of Medicine from 1993 to 2012. Dr. Gearen 

also was Chief of Staff at the Shands Hospital at the University of Florida and 

served as Assistant Dean of Clinical Affairs at the University of Florida College 

of Medicine from 1992 until 1999. Dr. Gearen was appointed Chairman of the 

Department of Orthopedics in May 2002 and stepped down as Chairman on 

June 30, 2010. Dr. Gearen holds a B.A. from Spring Hill College and an M.D. 

from the Stritch Loyola Medical School. Dr. Gearen has a depth of medical 

experience and healthcare knowledge and, as a former practicing orthopedic 

surgeon, is knowledgeable about our products and the orthopedic products market 

in general. Dr. Gearen will not be standing for re-election at the Annual Meeting. 

50. Upon information and belief, Defendant Gearen is a citizen of the State of 

Florida. 

Defendant McEachin 

51. Defendant Thomas A. McEachin (“McEachin”) has served as a Company director 

since December 2015. He also serves as chair of the Audit Committee. According to the 2019 

Proxy Statement, as of March 14, 2019, Defendant McEachin beneficially owned 85,746 shares 

of the Company’s common stock. Given that the price per share of the Company’s common 

stock at the close of trading on March 14, 2019 was $5.81, Defendant McEachin owned 

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approximately $498,184 worth of RTI stock. 

52. For the fiscal year ended December 31, 2018, Defendant McEachin received 

$135,000 in compensation from the Company. This included $60,000 in fees earned or paid in 

cash and $75,000 in stock awards. 

53. The 2019 Proxy Statement stated the following about Defendant McEachin: 

Mr. McEachin joined the Board of Directors in December 2015. He has been 

retired since 2012. Prior to his retirement, he served in executive capacities with 

Covidien Surgical Solutions, a division of Covidien plc, from 2008 to 2012, first 

as Vice President, Finance from 2008 to 2011, and then as Vice President and 

Group Chief Financial Officer from 2011 to 2012. From 1997 to 2008, 

Mr. McEachin served United Technologies and its subsidiaries in various finance 

capacities. Prior to joining United Technologies, Mr. McEachin served in various 

executive capacities with Digital Equipment Corporation from 1986 to 1997 and 

Xerox Corporation from 1975 to 1986. Mr. McEachin holds a B.S. from New 

York University and an MBA from Stanford University. Mr. McEachin’s finance 

and executive management experience provides our Board of Directors with 

valuable financial reporting, compliance, accounting and controls, and corporate 

governance experience. Mr. McEachin also qualifies as an “Audit Committee 

Financial Expert.” 

54. Upon information and belief, Defendant McEachin is a citizen of the State of 

Florida. 

Defendant Selquist 

55. Defendant Curtis M. Selquist (“Selquist”) has served as a Company director since 

July 2013 and as Chairman of the Board since February 2016. He also serves as chair of the 

Nominating & Governance Committee. According to the 2019 Proxy Statement, as of March 14, 

2019, Defendant Selquist beneficially owned 115,372 shares of the Company’s common stock. 

Given that the price per share of the Company’s common stock at the close of trading on March 

14, 2019 was $5.81, Defendant Selquist owned approximately $670,311 worth of RTI stock. 

56. For the fiscal year ended December 31, 2018, Defendant Selquist received 

$175,000 in compensation from the Company. This included $100,000 in fees earned or paid in 

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cash and $75,000 in stock awards. 

57. The 2019 Proxy Statement stated the following about Defendant Selquist: 

Mr. Selquist joined the Board of Directors pursuant to the Investment Agreement 

by and between the Company and WSHP Biologics Holdings, LLC, an affiliate of 

Water Street Healthcare Partners, in July 2013 (the “Investment Agreement”). He 

has served as the Chairman of the Board of Directors since February 2016. 

Mr. Selquist has been an Operating Partner at Water Street, a strategic investor 

focused exclusively on the healthcare industry, since April 2007. Mr. Selquist has 

led and grown a number of global healthcare businesses during a 

distinguished 35-year career at Johnson & Johnson. Prior to joining Water Street, 

he was the Company Group Chairman of Johnson & Johnson Medical and 

Johnson & Johnson Healthcare Systems. Mr. Selquist also served as President of 

Johnson & Johnson Latin America. He was subsequently appointed Worldwide 

President of Johnson & Johnson, Merck Consumer Pharmaceuticals and Company 

Group Chairman, responsible for Johnson & Johnson Medical. Mr. Selquist was 

the founding Chairman of the Global Healthcare Exchange. He also served as 

Chairman of the National Alliance for Health Information Technology, and as a 

board member of the National Quality Forum. Mr. Selquist also chaired the 

National Quality Forum Leadership Network. Mr. Selquist serves as the Lead 

Director of Breg, Inc. (a manufacturer of medical braces and splints). He is also a 

Director of Temp Time, Inc. (a cold chain temperature monitoring business) 

where he serves as Chair of the Board, Chair of the Compensation Committee and 

a member of the Audit Committee. He was a Director of Health Fitness 

Corporation (a provider of health management and corporate fitness solutions) 

from 2007-2010, where he served on the Compensation Committee and Strategy 

Committee as Chair. He received a bachelor’s degree in Finance and Management 

from Bradley University. We believe that Mr. Selquist’s experience in the 

healthcare industry and numerous leadership positions qualifies him to be the 

Chairman of our company. 

 

58. Upon information and belief, Defendant Selquist is a citizen of the State of New 

York. 

Defendant Stolper 

59. Defendant Mark D. Stolper (“Stolper”) has served as a Company director since 

March 2017. He also serves as a member of the Audit Committee and Compensation Committee. 

According to the 2019 Proxy Statement, as of March 14, 2019, Defendant Stolper beneficially 

owned 66,784 shares of the Company’s common stock. Given that the price per share of the 

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Company’s common stock at the close of trading on March 14, 2019 was $5.81, Defendant 

Stolper owned approximately $388,015 worth of RTI stock. 

60. For the fiscal year ended December 31, 2018, Defendant Stolper received 

$132,500 in compensation from the Company. This included $57,500 in fees earned or paid in 

cash and $75,000 in stock awards. 

61. The 2019 Proxy Statement stated the following about Defendant Stolper: 

Mr. Stolper joined the Board of Directors in March 2017. He has served as 

Executive Vice President and Chief Financial Officer of RadNet, Inc., the largest 

owner and operator of freestanding medical diagnostic imaging centers, since July 

2004, and he previously served as a member of the Board of Directors of RadNet, 

Inc. from March 2004 to July 2004. He has had diverse experiences in investment 

banking, private equity, venture capital investing and operations as follows: from 

1993 to 1995, Mr. Stolper was a member of the corporate finance group at Dillon, 

Read & Co., Inc.; from 1995 to 1997, Mr. Stolper was a member of Archon 

Capital Partners; from 1997 to 1999, Mr. Stolper worked in business development 

for Eastman Kodak; and in 1999, Mr. Stolper co-founded Broadstream Capital 

Partners. Mr. Stolper has served on the Board of Directors, Compensation 

Committee and Audit Committee of Rotech Healthcare since February 2016. 

Previously, Mr. Stolper served as a member of the Board of Directors of the 

following companies: On Track Innovations, Ltd. from 2012 until 2016; Surgical 

Solutions LLC from 2015 to February 2017; Alco Stores, Inc. from 2014 to 2015; 

Compumed, Inc. from 2008 to 2014; and Physiotherapy Associates from 2013 to 

2016. Mr. Stolper graduated with a liberal arts degree from the University of 

Pennsylvania and a finance degree from the Wharton School. Additionally, 

Mr. Stolper earned a postgraduate Award in Accounting from the University of 

California, Los Angeles. Mr. Stolper’s financial background in life sciences 

(particularly as a sitting Chief Financial Officer of a publicly-traded company), 

extensive experience in serving on boards of directors of both public and private 

companies, and broad mergers and acquisitions experience qualify him to serve 

on our Board of Directors. 

 

62. Upon information and belief, Defendant Stolper is a citizen of the State of 

California. 

Defendant Sweeney 

63. Defendant Christopher R. Sweeney (“Sweeney”) has served as a Company 

director since October 2015. According to the 2019 Proxy Statement, as of March 14, 2019, 

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Defendant Sweeney beneficially owned 75,723 shares of the Company’s common stock. Given 

that the price per share of the Company’s common stock at the close of trading on March 14, 

2019 was $5.81, Defendant Sweeney owned approximately $439,950 worth of RTI stock. 

64. For the fiscal year ended December 31, 2018, Defendant Sweeney received 

$115,000 in compensation from the Company. This included $40,000 in fees earned or paid in 

cash and $75,000 in stock awards. 

65. The 2019 Proxy Statement stated the following about Defendant Sweeney: 

Mr. Sweeney joined the Board of Directors in October 2015 pursuant to the 

Investment Agreement. Mr. Sweeney has been employed by Water Street, a 

strategic investor focused exclusively on the healthcare industry, since 2005, 

serving initially as a principal and, since 2010, as a partner. Prior to joining Water 

Street, Mr. Sweeney was employed in various capacities with Cleary & Oxford, a 

middle market healthcare investment firm, from 1997-2005, ultimately serving as 

a principal. Mr. Sweeney holds a degree from Williams College. We believe that 

his investment banking experience as an investor in healthcare companies 

qualifies him to provide valuable insight to our Board of Directors. 

66. Upon information and belief, Defendant Sweeney is a citizen of the State of 

Illinois. 

Defendant Thomas 

67. Defendant Paul G. Thomas (“Thomas”) has served as a Company director since 

June 2016. He also serves as a member of the Compensation Committee and Nominating & 

Governance Committee. According to the 2019 Proxy Statement, as of March 14, 2019, 

Defendant Thomas beneficially owned 75,723 shares of the Company’s common stock. Given 

that the price per share of the Company’s common stock at the close of trading on March 14, 

2019 was $5.81, Defendant Thomas owned approximately $439,950 worth of RTI stock. 

68. For the fiscal year ended December 31, 2018, Defendant Thomas received 

$128,131 in compensation from the Company. This included $53,131 in fees earned or paid in 

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cash and $75,000 in stock awards. 

69. The 2019 Proxy Statement stated the following about Defendant Thomas: 

Mr. Thomas joined the Board of Directors in June 2016. He has served as the 

Founder and Chief Executive Officer of Prominex, a point-of-care molecular 

diagnostic company focused on infectious diseases since January 2018. Prior to 

Prominex, he served as Founder, Chief Executive Officer and President of Roka 

Bioscience, a molecular diagnostics company focused on food safety applications, 

from September 2009 until January 2017. Mr. Thomas previously served as 

Chairman, Chief Executive Officer and President of LifeCell Corporation, a 

publicly traded regenerative medicine company, from 1998 until it was acquired 

by KCI in 2008 in a transaction valued at $1.8 billion. Mr. Thomas previously 

held various senior positions, including President of the Pharmaceutical Products 

Division, during his tenure of 15 years with Ohmeda, a world leader in inhalation 

anesthetics and acute care pharmaceuticals. Mr. Thomas currently serves on the 

Boards of Abiomed. Mr. Thomas formerly served on the Board of Directors of 

Roka Bioscience and Aegerion Pharmaceuticals. Mr. Thomas received his M.B.A. 

degree from Columbia University Graduate School of Business and completed his 

postgraduate studies in Chemistry at the University of Georgia Graduate School 

of Arts and Science. He received his B.S. degree in Chemistry from St. Michael’s 

College in Vermont. Mr. Thomas’s extensive leadership experience with 

companies in the life science industry qualifies him to serve as a member of our 

Board of Directors. In addition, we regard Mr. Thomas’s experience as a Chief 

Executive Officer to be of great importance to the Company in providing a broad 

perspective of the industry, as well as management issues. 

70. Upon information and belief, Defendant Thomas is a citizen of the State of 

California. 

Defendant Valeriani 

71. Defendant Nicholas J. Valeriani (“Valeriani”) has served as a Company director 

since June 2016. He also serves as a member of the Compensation Committee and Nominating & 

Governance Committee. According to the 2019 Proxy Statement, as of March 14, 2019, 

Defendant Valeriani beneficially owned 86,723 shares of the Company’s common stock. Given 

that the price per share of the Company’s common stock at the close of trading on March 14, 

2019 was $5.81, Defendant Valeriani owned approximately $503,860 worth of RTI stock. 

72. For the fiscal year ended December 31, 2018, Defendant Valeriani received 

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$127,500 in compensation from the Company. This included $52,500 in fees earned or paid in 

cash and $75,000 in stock awards. 

73. The 2019 Proxy Statement stated the following about Defendant Valeriani: 

Mr. Valeriani joined the Board of Directors in June 2016. He retired as the Chief 

Executive Officer of West Health, The Gary and Mary West Health Institute, an 

independent nonprofit medical research organization that works to create new and 

more effective ways of delivering healthcare at lower costs, a position he held 

until 2015. Previously, Mr. Valeriani served 34 years in key positions at 

Johnson & Johnson, including Company Group Chairman of Johnson & Johnson 

Ortho-Clinical Diagnostics from 2009 to 2012; Vice President, Office of Strategy 

and Growth from 2007 to 2009; Worldwide Chairman, Medical Devices and 

Diagnostics from 2005 to 2007; and Corporate Vice President, Human Resources 

from 2003 to 2005. Mr. Valeriani also served on the Executive Committee of 

Johnston & Johnson during his tenure. Mr. Valeriani currently serves on the 

Board of Directors of Edwards Lifesciences Corp., SPR Therapeutics, Inc, and 

AgNovos Healthcare, LLC. Mr. Valeriani received a Bachelor’s Degree in 

Industrial Engineering and a Master of Business Administration from Rutgers 

University. Mr. Valeriani’s experience in the global medical device industry and 

his leadership in the areas of strategy, growth and human resources qualifies him 

to serve on our Board of Directors. 

74. Upon information and belief, Defendant Valeriani is a citizen of the State of New 

Jersey. 

Defendant Weis 

75. Defendant Shirley A. Weis (“Weis”) has served as a Company director since 

October 2014. She also serves as chair of the Compensation Committee. According to the 2019 

Proxy Statement, as of March 14, 2019, Defendant Weis beneficially owned 96,839 shares of the 

Company’s common stock. Given that the price per share of the Company’s common stock at the 

close of trading on March 14, 2019 was $5.81, Defendant Weis owned approximately $562,634 

worth of RTI stock. 

76. For the fiscal year ended December 31, 2018, Defendant Weis received $142,913 

in compensation from the Company. This included $67,913 in fees earned or paid in cash and 

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$75,000 in stock awards. 

77. The 2019 Proxy Statement stated the following about Defendant Weis: 

Ms. Weis joined the Board of Directors in October 2014. She is president of Weis 

Associates, LLC, a consulting firm focused on healthcare management, strategic 

planning and leadership development, and emerita Vice President & Chief 

Administrative Officer of Mayo Clinic. Ms. Weis has worked at Mayo Clinic in 

many different capacities since 1995, but, most recently, she was charged with 

overseeing the operations of 87 corporations that make up the Mayo Clinic 

system, including a 57,000 member staff. Ms. Weis was a member of the Mayo 

Clinic Board of Trustees and served as the secretary for the Mayo Clinic Board of 

Governors. Ms. Weis currently holds a position on the Board of Directors of 

Sentry Insurance Company where she is a member of the Audit, Finance and 

Compensation Committees. She recently joined the board of The Medical 

Memory, LLC and serves on the Compensation Committee. Ms. Weis is Professor 

of Practice in the W.P. Carey School of Business and the College of Nursing and 

Health Innovation at Arizona State University. Ms. Weis graduated with a 

master’s degree in management from Aquinas College and received an honorary 

doctor of science degree from Michigan State University. Ms. Weis’s background 

at the Mayo Clinic provides our Board of Directors with valuable healthcare and 

business strategy from the perspective of a purchaser of medical products. In 

addition, she has significant consulting and management experience, which has 

enabled her to provide valuable insight to our Board of Directors. 

78. Upon information and belief, Defendant Weis is a citizen of the State of Arizona. 

FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS 

79. By reason of their positions as officers, directors, and/or fiduciaries of RTI and 

because of their ability to control the business and corporate affairs of RTI, the Individual 

Defendants owed RTI and its shareholders fiduciary obligations of trust, loyalty, good faith, and 

due care, and were and are required to use their utmost ability to control and manage RTI in a 

fair, just, honest, and equitable manner. The Individual Defendants were and are required to act 

in furtherance of the best interests of RTI and its shareholders so as to benefit all shareholders 

equally. 

80. Each director and officer of the Company owes to RTI and its shareholders the 

fiduciary duty to exercise good faith and diligence in the administration of the Company and in 

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the use and preservation of its property and assets and the highest obligations of fair dealing. 

81. The Individual Defendants, because of their positions of control and authority as 

directors and/or officers of RTI, were able to and did, directly and/or indirectly, exercise control 

over the wrongful acts complained of herein. 

82. To discharge their duties, the officers and directors of RTI were required to 

exercise reasonable and prudent supervision over the management, policies, controls, and 

operations of the Company. 

83. Each Individual Defendant, by virtue of his or her position as a director and/or 

officer, owed to the Company and to its shareholders the highest fiduciary duties of loyalty, good 

faith, and the exercise of due care and diligence in the management and administration of the 

affairs of the Company, as well as in the use and preservation of its property and assets. The 

conduct of the Individual Defendants complained of herein involves a knowing and culpable 

violation of their obligations as directors and officers of RTI, the absence of good faith on their 

part, or a reckless disregard for their duties to the Company and its shareholders that the 

Individual Defendants were aware or should have been aware posed a risk of serious injury to the 

Company. The conduct of the Individual Defendants who were also officers and directors of the 

Company has been ratified by the remaining Individual Defendants who collectively comprised 

RTI’s Board at all relevant times. 

84. As senior executive officers and directors of a publicly-traded company whose 

common stock was registered with the SEC pursuant to the Exchange Act and traded on the 

NASDAQ, the Individual Defendants had a duty to prevent and not to effect the dissemination of 

inaccurate and untruthful information with respect to the Company’s financial condition, 

performance, growth, operations, financial statements, business, products, management, 

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earnings, internal controls, and present and future business prospects, and had a duty to cause the 

Company to disclose omissions of material fact in its regulatory filings with the SEC all those 

facts described in this Complaint that it failed to disclose, so that the market price of the 

Company’s common stock would be based upon truthful and accurate information. 

85. To discharge their duties, the officers and directors of RTI were required to 

exercise reasonable and prudent supervision over the management, policies, practices, and 

internal controls of the Company. By virtue of such duties, the officers and directors of RTI were 

required to, among other things: 

(a) ensure that the Company was operated in a diligent, honest, and prudent 

manner in accordance with the laws and regulations of Illinois and the United States, and 

pursuant to RTI’s own Code of Conduct and Code of Ethics (defined below); 

(b) conduct the affairs of the Company in an efficient, business-like manner 

so as to make it possible to provide the highest quality performance of its business, to avoid 

wasting the Company’s assets, and to maximize the value of the Company’s stock; 

(c) remain informed as to how RTI conducted its operations, and, upon 

receipt of notice or information of imprudent or unsound conditions or practices, to make 

reasonable inquiry in connection therewith, and to take steps to correct such conditions or 

practices; 

(d) establish and maintain systematic and accurate records and reports of the 

business and internal affairs of RTI and procedures for the reporting of the business and internal 

affairs to the Board and to periodically investigate, or cause independent investigation to be 

made of, said reports and records; 

(e) maintain and implement an adequate and functioning system of internal 

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legal, financial, and management controls, such that RTI’s operations would comply with all 

applicable laws and RTI’s financial statements and regulatory filings filed with the SEC and 

disseminated to the public and the Company’s shareholders would be accurate; 

(f) exercise reasonable control and supervision over the public statements 

made by the Company’s officers and employees and any other reports or information that the 

Company was required by law to disseminate; 

(g) refrain from unduly benefiting themselves and other Company insiders at 

the expense of the Company; and 

(h) examine and evaluate any reports of examinations, audits, or other 

financial information concerning the financial affairs of the Company and to make full and 

accurate disclosure of all material facts concerning, inter alia, each of the subjects and duties set 

forth above. 

86. Each of the Individual Defendants further owed to RTI and the shareholders the 

duty of loyalty requiring that each favor RTI’s interest and that of its shareholders over their own 

while conducting the affairs of the Company and refrain from using their position, influence or 

knowledge of the affairs of the Company to gain personal advantage. 

87. At all times relevant hereto, the Individual Defendants were the agents of each 

other and of RTI and were at all times acting within the course and scope of such agency. 

88. Because of their advisory, executive, managerial, and directorial positions with 

RTI, each of the Individual Defendants had access to adverse, non-public information about the 

Company. 

89. The Individual Defendants, because of their positions of control and authority, 

were able to and did, directly or indirectly, exercise control over the wrongful acts complained of 

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herein, as well as the contents of the various public statements made by RTI. 

CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION 

90. In committing the wrongful acts alleged herein, the Individual Defendants have 

pursued, or joined in the pursuit of, a common course of conduct, and have acted in concert with 

and conspired with one another in furtherance of their wrongdoing. The Individual Defendants 

caused the Company to conceal the true facts as alleged herein. The Individual Defendants 

further aided and abetted and/or assisted each other in breaching their respective duties. 

91. The purpose and effect of the conspiracy, common enterprise, and common 

course of conduct was, among other things, to facilitate and disguise the Individual Defendants’ 

violations of law, including breaches of fiduciary duty, unjust enrichment, and waste of corporate 

assets. 

92. The Individual Defendants accomplished their conspiracy, common enterprise, 

and common course of conduct by causing the Company purposefully or recklessly to conceal 

material facts, fail to correct such misrepresentations, and violate applicable laws. In furtherance 

of this plan, conspiracy, and course of conduct, the Individual Defendants collectively and 

individually took the actions set forth herein. Because the actions described herein occurred 

under the authority of the Board, each of the Individual Defendants who are directors of RTI, 

was a direct, necessary, and substantial participant in the conspiracy, common enterprise, and 

common course of conduct complained of herein. 

93. Each of the Individual Defendants aided and abetted and rendered substantial 

assistance in the wrongs complained of herein. In taking such actions to substantially assist the 

commission of the wrongdoing complained of herein, each of the Individual Defendants acted 

with actual or constructive knowledge of the primary wrongdoing, either took direct part in, or 

substantially assisted the accomplishment of that wrongdoing, and was or should have been 

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aware of his or her overall contribution to and furtherance of the wrongdoing. 

94. At all times relevant hereto, each of the Individual Defendants was the agent of 

each of the other Individual Defendants and of RTI and was at all times acting within the course 

and scope of such agency. 

RTI’S CODE OF CONDUCT

95. The Company’s Code of Conduct “is a summary of the principles and standards 

of business conduct expected of all employees []” and provides that “[a]ll of our officers, 

directors and employees must conduct themselves accordingly and seek to avoid even the 

appearance of improper behavior.” 

96. The Code of Conduct provides that each employee must “[p]rovide full, fair, 

accurate, timely and understandable disclosure in reports and documents that the Company files 

with or submits to the Securities and Exchange Commission and in other public communications 

made by the Company.” 

97. The Code of Conduct further provides that each employee must “[r]ecognize and 

report possible violations of this Code, as well as all policies, guidelines, applicable laws and 

regulatory requirements under which the Company operates.” 

98. Pursuant to the Code of Conduct, RTI leaders and managers have “the increased 

responsibility of leading by example. We rely on our leaders and managers to reinforce the 

principles of our Code and Values through all levels of our workforce.” 

99. The Code of Conduct also provides that RTI is committed to “offer only those 

products and services that we can deliver and strive to meet or exceed the commitments that we 

made. We compete fairly, engaging only in legal and ethical practice. Lastly, we meet our 

contractual obligations by reporting information accurately and charging honestly for our 

products and services.” 

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100. In a section titled, “Securities Trading & Insider Information,” the Code of 

Conduct states that: 

Company policy forbids unauthorized disclosure of material non-public 

information about the Company or the companies it deals with, and both 

Company policy and the law forbid profiting from material non- public 

information relating to the Company or the companies with whom we do 

business. Material information includes any information that a reasonable investor 

is likely to consider important in determining whether to buy, sell or hold the 

Company’s stock. 

RTI’S CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS 

101. In addition to adhering with the Code of Conduct, the Code of Conduct further 

provides that “senior executive officers and those responsible for our financial reporting face 

additional responsibilities and are required to sign the Code of Ethics for Senior Financial 

Officers which imposes strict obligations on them to take careful steps to assure that the 

Company properly tracks and reports our financial performance.” 

102. The Code of Ethics for Senior Financial Officers (the “Code of Ethics”) aims to 

ensure “proper disclosure of financial information in filings with, or submissions to, the 

Securities and Exchange Commission and to deter wrongdoing.” The Code of Ethics is 

“applicable to the Company’s Chief Executive Officer, President, Chief Financial Officer, 

Director of Finance/Controller and other senior financial professional performing similar 

functions (‘Senior Financial Professionals’).” The Code of Ethics “is intended to supplement the 

[Code of Conduct] that is applicable to all employees and directors of the Company.” 

103. In a section titled “Honest and Ethical Conduct,” the Code of Ethics provides that: 

Senior Financial Professionals shall conduct themselves and their activities on 

behalf of the Company in an honest and ethical manner and in a manner, that 

complies with this Code, the Company’s other policies and all applicable laws 

and regulations. Additionally, the Senior Financial Professionals shall promote a 

culture of honesty, integrity, ethical behavior and accountability among all 

employees of the Company and encourage employees to conduct themselves in 

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accordance with this Code. 

104. In a section titled “Maintenance of Records,” the Code of Ethics states that: 

Senior Financial Professionals shall maintain all Company accounting records and 

reports derived from Company accounting records in accordance with applicable 

laws, in a manner that fairly and accurately reflects the transactions or 

occurrences to which they relate and ensures that the Company accounting 

records fairly and accurately reflect in reasonable detail the Company’s assets, 

liabilities, revenues and expenses and do not contain any false or intentionally 

misleading entries. In this regard, compliance with the Company’s system of 

internal controls is required at all times. 

105. In a section titled “Disclosure in SEC Filings and Other Public Communications,” 

the Code of Ethics states that:

Senior Financial Professionals shall conduct themselves in a manner that 

promotes the full, fair, accurate, timely and understandable disclosure of all 

material information required to be included in: (1) each report or other document 

the Company files with, or submits to, the SEC and (2) in all other public 

communications made by the Company. To this end, the Senior Financial 

Professionals will establish and apply the Company’s internal controls and 

disclosure controls and procedures in a manner that will enable the Company’s 

financial statements to present fairly, in all material respects, the financial 

position, results of operations and cash flows of the Company. 

106. In a section titled “Compliance with Applicable Laws, Rules and Regulations,” 

the Code of Ethics states that: 

The Senior Financial Professionals shall conduct themselves, and shall encourage 

all employees to conduct themselves, to ensure and facilitate compliance by the 

Company with the laws, rules and regulations applicable to its business. To this 

end, they are charged with overseeing the Company’s various programs and 

policies concerning: (1) the “Whistleblower Protection” provisions of the 

Sarbanes-Oxley Act and similar laws applicable to the Company and (2) 

identifying and promptly reporting to the Audit Committee and correcting any 

material deviation from applicable laws, rules and regulations and Company 

policies. 

107. The Code of Ethics further provides that “Senior Financial Professionals are 

required to report to the Audit Committee any known or suspected violation of this Code by any 

Senior Financial Professional.” 

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108. In violation of the Code of Conduct and/or the Code of Ethics, the Individual 

Defendants conducted little, if any, oversight over the Company’s internal controls over public 

reporting and of the Company’s engagement in the Individual Defendants’ scheme to issue 

materially false and misleading statements to the public and to facilitate and disguise the 

Individual Defendants’ violations of law, including breaches of fiduciary duty, waste of 

corporate assets, unjust enrichment, and violations of the Exchange Act. Moreover, one of the 

Individual Defendants violated the Code of Conduct by engaging in insider trading. Also in 

violation of the Code of Conduct and/or the Code of Ethics, the Individual Defendants failed to 

maintain the accuracy of Company records and reports, comply with laws and regulations, 

conduct business in an honest and ethical manner, and properly report violations of the Code of 

Conduct and/or the Code of Ethics.

INDIVIDUAL DEFENDANTS’ MISCONDUCT

 Background 

109. RTI purports to be a leading global surgical implant company that provides 

surgeons with safe biologic, metal and synthetic implants. The Company’s implants are utilized 

in sports medicine, general surgery, spine, orthopedic and trauma procedures, and are distributed 

in almost 50 countries. 

110. On March 8, 2019, RTI Surgical, Inc. executed a merger and acquisition 

transaction to acquire Paradigm Spine, LLC, a motion preservation and non-fusion spinal 

implant technology company. The resulting entity reorganized itself as RTI Surgical Holdings, 

Inc., and RTI Surgical, Inc. (referred to as “Legacy RTI” following the acquisition), became a 

wholly owned subsidiary of the Company.2

 

 

2

 Prior to the acquisition, the Company’s financial statements were that of RTI Surgical Inc.’s and 

subsidiaries. Following March 8, 2019, RTI is the successor reporting company. 

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111. RTI operates in one reportable segment composed of four franchise lines of 

business: spine; sports; OEM (aka Original Equipment Manufacturer) and international. Through 

its OEM franchise, RTI partners with OEM customers to “deliver surgical solutions with the goal 

of improving patient lives.”3

 The OEM unit of RTI specializes in the design, development, and 

manufacture of biologic, metal and synthetic implants for medical technology companies. Since 

2016, at least, RTI’s OEM franchise has accounted for the largest percentage of its total revenues 

amongst the four franchises. During the fiscal year ended December 31, 2018, OEM accounted 

for 43% of RTI’s total revenues. 

112. In 2017, the Company began implementing a transformation strategy to focus its 

business on its OEM and spine operations. 

113. Although RTI’s OEM business had recently delivered record results during the 

second quarter of 2019,4 on January 13, 2020, RTI issued a press release announcing that the 

Company had agreed to sell its OEM business to Montagu Private Equity LLP (the “Buyer”), a 

private European equity firm for a total consideration of $490 million.5

 The sale of its OEM 

business would render RTI a “Global Pure Play Spine Company.” The Company’s Board 

unanimously approved the transaction. According to RTI’s January 13, 2020 press release, “[t]he 

sale of the OEM business to Montagu complete[d] the first phase of [RTI’s] strategic 

transformation to reduce complexity, drive operational excellence and accelerate the growth of 

RTI Surgical[.]” 

False and Misleading Statements 

March 7, 2016 10-K 

 

3

 https://www.rtix.com/en_us/oem. Last visited June 1, 2020. 

4

https://seekingalpha.com/article/4281148-rti-surgical-holdings-inc-rtix-ceo-camille-farhat-on-q2-2019-

results-earnings-call-transcript?part=single. Last visited June 1, 2020. 

5

http://www.rtix.com/en_us/news/2020/rti-surgical-holdings-inc-announces-sale-of-oem-business-andpreliminary-fourth-quarter-and-full-year-2019-revenues. Last visited June 1, 2020.

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114. On March 7, 2016, the Company filed its annual report with the SEC for the fiscal 

year ended December 31, 2015 on a Form 10-K (the “2015 10-K”), which was signed by 

Defendants Hutchison, Jordheim, Selquist, Gearen, McEachin, Sweeney, and Weis, and nonparties Dean H. Bergy, Philip R. Chapman, and Adrian J.R. Smith.

115. The 2015 10-K described the Company’s revenue recognition practices, including 

when revenue is recognized and how it is recorded, in relevant part, as follows: 

Revenue Recognition—Revenue is recognized upon shipping, or receipt by the 

Company’s customers of the implant, depending on the Company’s distribution 

agreements with the Company’s customers or distributors. Other revenues are 

recognized when all significant contractual obligations have been satisfied. 

The Company permits returns of implants in accordance with the terms of 

contractual agreements with customers if the implant is returned in a timely 

manner, in unopened packaging, and from the normal channels of distribution. 

Allowances for returns are provided based upon analysis of the Company’s 

historical patterns of returns matched against the revenues from which they 

originated. 

The Company records estimated implant returns, discounts, rebates and other 

distribution incentives as a reduction of revenue in the same period revenue is 

recognized. Estimates of implant returns are recorded for anticipated implant 

returns based on historical distributions and returns information. Estimates of 

discounts, rebates and other distribution incentives are recorded based on 

contractual terms, historical experience and trend analysis. 

116. With respect to RTI’s internal controls over financial reporting, the 2015 10-K 

maintained the following in relevant part: 

The Company’s management assessed the effectiveness of the Company’s 

internal control over financial reporting as of December 31, 2015. In making this 

assessment, it used the criteria set forth by the Committee of Sponsoring 

Organizations of the Treadway Commission (“COSO”) in Internal Control – 

Integrated Framework (2013). Based on this assessment, management believes 

that, as of December 31, 2015, the Company’s internal control over financial 

reporting is effective based on those criteria. 

(Emphasis added). 

117. Attached to the 2015 10-K were certifications pursuant to Rule 13a-14(a) and 

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15d-14(a) under the Exchange Act and the Sarbanes-Oxley Act of 2002 (“SOX”) signed by 

Defendants Hutchison and Jordheim, attesting to the accuracy of the 2015 10-K. 

March 13, 2017 10-K 

118. On March 13, 2017, the Company filed its annual report with the SEC for the 

fiscal year ended December 31, 2016 on a Form 10-K (the “2016 10-K”), which was signed by 

Defendants Jordheim, Louw, Selquist, Gearen, McEachin, Singer, Sweeney, Thomas, Valeriani, 

and Weis. 

119. The 2016 10-K described the Company’s revenue recognition practices as 

follows:

Revenue Recognition—Revenue is recognized upon shipping, or receipt by the 

Company’s customers of the implant, depending on the Company’s distribution 

agreements with the Company’s customers or distributors. Other revenues are 

recognized when all significant contractual obligations have been satisfied. 

The Company permits returns of implants in accordance with the terms of 

contractual agreements with customers if the implant is returned in a timely 

manner, in unopened packaging, and from the normal channels of distribution. 

Allowances for returns are provided based upon analysis of the Company’s 

historical patterns of returns matched against the revenues from which they 

originated. 

The Company records estimated implant returns, discounts, rebates and other 

distribution incentives as a reduction of revenue in the same period revenue is 

recognized. Estimates of implant returns are recorded for anticipated implant 

returns based on historical distributions and returns information. Estimates of 

discounts, rebates and other distribution incentives are recorded based on 

contractual terms, historical experience and trend analysis. 

Other revenues consists of service processing, tissue recovery fees, biomedical 

laboratory fees, recognition of previously deferred revenues, shipping fees, 

distribution of reproductions of our allografts to distributors for demonstration 

purposes and restocking fees which is included in revenues. 

120. With respect to RTI’s internal controls over financial reporting, the 2016 10-K 

maintained the following in relevant part: 

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The Company’s management assessed the effectiveness of the Company’s 

internal control over financial reporting as of December 31, 2016. In making this 

assessment, it used the criteria set forth by the Committee of Sponsoring 

Organizations of the Treadway Commission (“COSO”) in Internal Control – 

Integrated Framework (2013). Based on this assessment, management believes 

that, as of December 31, 2016, the Company’s internal control over financial 

reporting is effective based on those criteria. 

(Emphasis added). 

121. Attached to the 2016 10-K were SOX certifications signed by Defendants 

Jordheim and Louw, attesting to the accuracy of the 2016 10-K. 

March 2, 2018 Form 10-K 

122. On March 2, 2018, the Company filed its annual report with the SEC for the fiscal 

year ended December 31, 2017 on a Form 10-K (the “2017 10-K”), which was signed by 

Defendants Farhat, Singer, Selquist, Gearen, McEachin, Stolper, Sweeney, Thomas, Valeriani, 

and Weis. 

123. The 2017 10-K described the Company’s revenue recognition practices as 

follows:

Revenue Recognition—Revenue is recognized upon shipping, or receipt by the 

Company’s customers of the implant, depending on the Company’s distribution 

agreements with the Company’s customers or distributors. Other revenues are 

recognized when all significant contractual obligations have been satisfied. 

The Company permits returns of implants in accordance with the terms of 

contractual agreements with customers if the implant is returned in a timely 

manner, in unopened packaging, and from the normal channels of distribution. 

Allowances for returns are provided based upon analysis of the Company’s 

historical patterns of returns matched against the revenues from which they 

originated. 

 

The Company records estimated implant returns, discounts, rebates and other 

distribution incentives as a reduction of revenue in the same period revenue is 

recognized. Estimates of implant returns are recorded for anticipated implant 

returns based on historical distributions and returns information. Estimates of 

discounts, rebates and other distribution incentives are recorded based on 

contractual terms, historical experience and trend analysis. 

Other revenues consist of service processing, tissue recovery fees, biomedical 

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laboratory fees, recognition of previously deferred revenues, shipping fees, 

distribution of reproductions of our allografts to distributors for demonstration 

purposes and restocking fees which is included in revenues. 

124. The 2017 10-K also stated the following, in relevant part, regarding RTI’s 

revenue from contracts with customers and the Company’s recent adoption of a five-step 

framework standard issued by the Financial Accounting Standards Board (“FASB”): 

Revenue from Contracts with Customers — In May 2014, the FASB, issued a 

new revenue recognition standard which amends revenue recognition principles 

and provides a single, comprehensive set of criteria for revenue recognition within 

and across all industries. The new standard provides a five-step framework 

whereby revenue is recognized when control of promised goods or services are 

transferred to a customer at an amount that reflects the consideration to which the 

entity expects to be entitled in exchange for those goods or services. The standard 

also requires enhanced disclosures pertaining to revenue recognition in both 

interim and annual periods. In August 2015, the FASB deferred the effective date 

of the new revenue standard from January 1, 2017 to January 1, 2018. In March 

2016, the FASB issued amendments to clarify the implementation guidance on 

principal versus agent considerations. In April 2016, the FASB issued 

amendments to clarify the guidance on accounting for licenses of intellectual 

property and identifying performance obligations. In May 2016, the FASB issued 

amendments related to collectability, non-cash consideration, the presentation of 

sales and other similar taxes collected from customers and transition. The 

standard allows for adoption using a full retrospective method or a modified 

retrospective method. On January 1, 2018, the Company adopted this standard 

using the modified retrospective method. The Company’s implementation 

approach included performing a detailed review of its agreements. The Company 

has reviewed all types of customer contracts and has gone through the five step 

process outlined in the new revenue recognition standard for each type of 

contract. The new five step process required by the new revenue recognition 

standard provides results substantially consistent with the Company’s current 

revenue recognition policies. In addition, the Company designed internal controls 

to enable the preparation of financial information. The Company is in the process 

of finalizing its conclusions on key accounting assessments related to the new 

standard, including its assessment that the impact of accounting for costs incurred 

to obtain a contract. 

The Company identified two contracts which previously resulted in revenue 

recognition occurring at the time of shipment; however, under the new revenue 

recognition standard, the Company is required to recognize revenue over time. 

The Company currently estimates the impact of adopting the new revenue 

standard on the two contracts will result in a $1,800 to $2,200 reduction in 

accumulated deficit, the cumulative effect adjustment under the modified 

retrospective approach, a $2,500 to $3,000 increase in accounts receivable, and a 

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$700 to $800 decrease in deferred tax assets. The Company also identified a 

contract that contains significant upfront payments; however, the Company has 

not yet finalized its assessment of the contract. Except for the three contracts 

discussed above, the Company does not anticipate the finalization of this 

assessment will result in a material impact to the Company’s financial position, 

results of operations, and disclosures. 

125. With respect to RTI’s internal controls over financial reporting, the 2017 10-K 

maintained the following in relevant part: 

The Company’s management assessed the effectiveness of the Company’s 

internal control over financial reporting as of December 31, 2017. In making this 

assessment, it used the criteria set forth by the Committee of Sponsoring 

Organizations of the Treadway Commission (“COSO”) in Internal Control – 

Integrated Framework (2013). Based on this assessment, management believes 

that, as of December 31, 2017, the Company’s internal control over financial 

reporting is effective based on those criteria. 

(Emphasis added). 

126. Attached to the 2017 10-K were SOX certifications signed by Defendants Farhat 

and Singer, attesting to the accuracy of the 2017 10-K. 

March 26, 2018 Proxy Statement 

127. On March 26, 2018, the Company filed its Schedule 14A with the SEC (the “2018 

Proxy Statement”). Defendants Farhat, Gearen, McEachin, Selquist, Singer, Stolper, Sweeney, 

Thomas, Valeriani, and Weis solicited the 2018 Proxy Statement filed pursuant to Section 14(a) 

of the Exchange Act, which contained material misstatements and omissions.6

128. With respect to the Company’s Code of Ethics, the 2018 Proxy Statement stated, 

“[o]ur Board of Directors has adopted a Code of Ethics for Senior Financial Professionals, 

applicable to our Chief Executive Officer, Chief Financial Officer and Vice President of Finance, 

Controller.” With respect to the Company’s Code of Conduct, the 2018 Proxy Statement stated, 

 

6

 Plaintiff’s allegations with respect to the misleading statements in the 2018 Proxy Statement are based 

solely on negligence; they are not based on any allegation of reckless or knowing conduct by or on behalf 

of the Individual Defendants, and they do not allege, and do not sound in, fraud. Plaintiff specifically 

disclaims any allegations of, reliance upon any allegation of, or reference to any allegation of fraud, 

scienter, or recklessness with regard to these allegations and related claims. 

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“[o]ur Board of Directors has also adopted a Code of Conduct applicable to all of our directors, 

officers and employees.” 

129. The 2018 Proxy Statement was false and misleading because, despite assertions to 

the contrary, the Code of Conduct and Code of Ethics were not followed, as evidenced by the 

numerous false and misleading statements alleged herein, including material revenue 

misstatements in RTI’s SEC filings, the insider trading engaged in by one of the Individual 

Defendants, and the Individual Defendants’ failures to report violations of the Code of Conduct 

and/or Code of Ethics. 

130. The Individual Defendants also caused the 2018 Proxy Statement to be false and 

misleading with regard to executive compensation in that they purported to employ “pay-forperformance” elements, including linking incentive award opportunities “to challenging 

performance goals that reinforce key business objectives and long-term shareholder value 

creation[,]”while failing to disclose that the Company’s share price was artificially inflated as a 

result of false and misleading statements alleged herein. On the contrary, the 2018 Proxy 

Statement maintained that the Company’s performance in 2017 and executive compensation 

awards “demonstrate[d] a strong alignment between executive compensation, Company 

performance, and shareholder value creation.” 

131. The 2018 Proxy Statement also failed to disclose, inter alia, that: (1) the 

Company improperly recognized and accounted for revenues for certain contractual 

arrangements, primarily involving OEM customers due, in part, to early deliveries made outside 

of agreed-to delivery windows; (2) the Company’s internal controls over financial reporting were 

ineffective; (3) consequently, the Company would be subject to SEC scrutiny, be forced to delay 

the filing of its annual report and ultimately need to restate several years of its previously 

reported financial statements; and (4) the Company failed to maintain internal controls. As a 

result of the foregoing, the Company’s public statements were materially false and misleading at 

all relevant times. 

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March 5, 2019 Form 10-K 

132. On March 5, 2019, the Company filed its annual report with the SEC for the fiscal 

year ended December 31, 2018 on a Form 10-K (the “2018 10-K”), which was signed by 

Defendants Farhat, Singer, Selquist, Gearen, McEachin, Stolper, Sweeney, Thomas, Valeriani, 

and Weis. 

133. The 2018 10-K described the Company’s revenue recognition practices as 

follows:

Revenue Recognition—The Company recognizes revenue upon shipping, or 

receipt by the Company’s customers of its products and implants, depending on 

the Company’s distribution agreements with its customers or distributors. The 

Company’s performance obligations consist mainly of transferring control of 

implants identified in the contracts. The Company typically transfers control at a 

point in time upon shipment or delivery of the implants for direct sales, or upon 

implantation for sales of consigned inventory. The customer is able to direct the 

use of, and obtain substantially all of the benefits from, the implant at the time the 

implant is shipped, delivered, or implanted, respectively based on the terms of the 

contract. For performance obligations related to the Company’s contracts with 

exclusively built inventory clauses, the Company typically satisfies its 

performance obligations evenly over the contract term as inventory is built. Such 

exclusively manufactured inventory has no alternative use and the Company has 

an enforceable right to payment for performance to date. The Company uses the 

input method to measure the manufacturing activities completed to date, which 

depicts the progress of the Company’s performance obligation of transferring 

control of exclusively built inventory. For the contracts with upfront and annual 

exclusivity fees, revenue related to those fees is recognized over the contract term 

following a consistent method of measuring progress towards satisfaction of the 

performance obligation. The Company uses the method and measure of progress 

that best depicts the transfer of control to the customer of the goods or services to 

date relative to the remaining goods or services promised under the contract. 

 

The Company permits returns of implants in accordance with the terms of 

contractual agreements with customers if the implant is returned in a timely 

manner, in unopened packaging, and from the normal channels of distribution. 

Allowances for returns are provided based upon analysis of the Company’s 

historical patterns of returns matched against the revenues from which they 

originated. 

The Company records estimated implant returns, discounts, rebates and other 

distribution incentives as a reduction of revenue in the same period revenue is 

recognized. Estimates of implant returns are recorded for anticipated implant 

returns based on historical distributions and returns information. Estimates of 

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discounts, rebates and other distribution incentives are recorded based on 

contractual terms, historical experience and trend analysis. 

Other revenues consist of service processing, tissue recovery fees, biomedical 

laboratory fees, recognition of previously deferred revenues, shipping fees, 

distribution of reproductions of our allografts to distributors for demonstration 

purposes and restocking fees which is included in revenues. 

134. The 2018 10-K also stated the following, in relevant part, regarding RTI’s 

revenue from contracts with customers: 

Revenue from Contracts with Customers—On January 1, 2018, the Company 

adopted a new accounting standard issued by the FASB on revenue recognition 

using the modified retrospective method. This new accounting standard outlines a 

single comprehensive model to use in accounting for revenue arising from 

contracts with customers. This standard supersedes existing revenue recognition 

requirements and eliminates most industry-specific guidance from GAAP. The 

core principle of the new accounting standard is to recognize revenue to depict the 

transfer of promised goods or services to customers in an amount that reflects the 

consideration to which the entity expects to be entitled in exchange for those 

goods or services. In addition, the adoption of this new accounting standard 

resulted in increased disclosure, including qualitative and quantitative disclosures 

about the nature, amount, timing and uncertainty of revenue and cash flows 

arising from contracts with customers. The new accounting standard was applied 

to all contracts, apart from contracts for which all or substantially all revenue was 

recognized before January 1, 2018. Additionally, the Company elected to account 

for shipping and handling activities as a fulfillment cost rather than a separate 

performance obligation. 

The Company identified three contracts which previously resulted in revenue 

recognition occurring at the time of shipment; however, under the new revenue 

recognition standard, the Company is required to recognize revenue over time. 

The assessment of our January 1, 2018, consolidated balance sheet under ASC 

Topic 606 resulted in a cumulative-effect adjustment to opening retained 

earnings, unbilled accounts receivable and costs incurred for inventory. 

135. The 2018 10-K further reported OEM revenues for the fiscal years ended 

December 31, 2018 and 2017, respectively, as follows: 

OEM—Revenues from OEM increased $10.0 million, or 9.0%, to $120.7 million 

for the year ended December 31, 2018 compared to $110.7 million for the year 

ended December 31, 2017. OEM revenues increased primarily as a result of 

higher orders and due to timing of delivery to certain OEM distributors, primarily 

in the dental and trauma markets. 

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136. As for RTI’s internal controls over financial reporting, the 2018 10-K maintained 

the following in relevant part: 

The Company’s management assessed the effectiveness of the Company’s 

internal control over financial reporting as of December 31, 2018. In making this 

assessment, it used the criteria set forth by the Committee of Sponsoring 

Organizations of the Treadway Commission (“COSO”) in Internal Control – 

Integrated Framework (2013). Based on this assessment, management believes 

that, as of December 31, 2018, the Company’s internal control over financial 

reporting is effective based on those criteria. 

(Emphasis added). 

137. Attached to the 2018 10-K were SOX certifications signed by Defendants Farhat 

and Singer, attesting to the accuracy of the 2018 10-K. 

March 25, 2019 Proxy Statement 

138. On March 25, 2019, the Company filed the 2019 Proxy Statement. Defendants 

Farhat, Gearen, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis solicited 

the 2019 Proxy Statement filed pursuant to Section 14(a) of the Exchange Act, which contained 

material misstatements and omissions.7

139. With respect to the Company’s Code of Ethics, the 2019 Proxy Statement stated, 

“[o]ur Board of Directors has adopted a Code of Ethics for Senior Financial Professionals, 

applicable to our Chief Executive Officer, Chief Financial Officer and Vice President of Finance, 

Controller.” With respect to the Company’s Code of Conduct, the 2019 Proxy Statement stated, 

“[o]ur Board of Directors has also adopted a Code of Conduct applicable to all of our directors, 

officers and employees.” 

 

7

 Plaintiff’s allegations with respect to the misleading statements in the 2019 Proxy Statement are based 

solely on negligence; they are not based on any allegation of reckless or knowing conduct by or on behalf 

of the Individual Defendants, and they do not allege, and do not sound in, fraud. Plaintiff specifically 

disclaims any allegations of, reliance upon any allegation of, or reference to any allegation of fraud, 

scienter, or recklessness with regard to these allegations and related claims. 

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140. The 2019 Proxy Statement was false and misleading because, despite assertions to 

the contrary, the Code of Conduct and Code of Ethics were not followed, as evidenced by the 

numerous false and misleading statements alleged herein, including material revenue 

misstatements in RTI’s SEC filings, the insider trading engaged in by one of the Individual 

Defendants, and the Individual Defendants’ failures to report violations of the Code of Conduct 

and/or Code of Ethics. 

141. The Individual Defendants also caused the 2019 Proxy Statement to be false and 

misleading with regard to executive compensation in that they purported to employ “pay-forperformance” elements, including linking incentive award opportunities “to challenging 

performance goals that reinforce key business objectives and long-term shareholder value 

creation[,]”while failing to disclose that the Company’s share price was artificially inflated as a 

result of false and misleading statements alleged herein. On the contrary, the 2019 Proxy 

Statement maintained that the Company’s performance in 2018 and executive compensation 

awards “demonstrate[d] a strong alignment between executive compensation, Company 

performance, and stockholder value creation.” 

142. The 2019 Proxy Statement also failed to disclose, inter alia, that: (1) the 

Company improperly recognized and accounted for revenues for certain contractual 

arrangements, primarily involving OEM customers due, in part, to early deliveries made outside 

of agreed-to delivery windows; (2) the Company’s internal controls over financial reporting were 

ineffective; (3) consequently, the Company would be subject to SEC scrutiny, be forced to delay 

the filing of its annual report and ultimately need to restate several years of its previously 

reported financial statements; and (4) the Company failed to maintain internal controls. As a 

result of the foregoing, the Company’s public statements were materially false and misleading at 

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all relevant times. 

143. The statements in ¶¶114-126 and 132-137 were materially false and misleading, 

and they failed to disclose material facts necessary to make the statements made not false and 

misleading. Specifically, the Individual Defendants improperly failed to disclose, inter alia, that: 

(1) the Company improperly recognized and accounted for revenues for certain contractual 

arrangements, primarily involving OEM customers due, in part, to early deliveries made outside 

of agreed-to delivery windows; (2) the Company’s internal controls over financial reporting were 

ineffective; (3) consequently, the Company would be subject to SEC scrutiny, be forced to delay 

the filing of its annual report and ultimately need to restate several years of its previously 

reported financial statements; and (4) the Company failed to maintain internal controls. As a 

result of the foregoing, the Company’s public statements were materially false and misleading at 

all relevant times. 

The Truth Emerges

144. On March 16, 2020, the Company issued a press release filed with a current report 

on a Form 8-K announcing its intention to file a Form 12b-25 with the SEC to obtain an 

extension for filing its annual report on Form 10-K for the fiscal year ended December 31, 2019. 

The press release revealed that the Audit Committee of the RTI’s Board, with the assistance of 

independent legal and forensic accounting advisors was “in the process of conducting an 

internal investigation of current and prior period matters relating to the Company’s revenue 

recognition practices regarding the timing of revenue with respect to certain contractual 

arrangements, primarily with OEM customers, including the accounting treatment, financial 

reporting and internal controls related to such arrangements.” (Emphasis added). The press 

release continued to disclose that the Audit Committee’s investigation was “precipitated by an 

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ongoing SEC investigation related to the periods 2014 through 2016.” As a result of the Audit 

Committee’s investigation, RTI would be unable to timely file its 2019 10-K. The press release 

stated that RTI would not be able to assure that its 2019 10-K would be filed within the extension 

period (through March 31, 2019). 

145. On this news, RTI’s share price dropped $0.40 (over 14.5%) from closing at 

$2.75 on March 16, 2020, to close at $2.35 on March 17, 2020. 

Subsequent Events and Disclosures 

March 20, 2020 Form 8-K and Press Release 

146. On March 20, 2020, the Company issued a press release filed with a current report 

on a Form 8-K with the SEC announcing that it had received a letter from the Listing 

Qualifications Department of the Nasdaq Stock Market LLC, indicating that the Company was 

not in compliance with the timely filing requirement for continued listing under Nasdaq Listing 

Rule 5250(c)(1). In the same report, the Company announced that Defendant Louw, who had 

recently been promoted to CFO in January 2020, would end his employment with RTI by April 

8, 2020. 

March 30, 2020 Form 8-K 

147. On March 30, 2020, the Company filed a current report on a Form 8-K with the 

SEC announcing that on March 28 2020, RTI received a letter from the Buyer’s counsel stating 

that the Company was in breach of its agreement with the Buyer for the sale of its OEM business 

due to its failure to timely file its Schedule 14A with the SEC for 2020 (the “2020 Proxy 

Statement”), and would have 30 days to cure the breach. The current report further disclosed that 

the Company was postponing its special meeting of shareholders, scheduled for May 13, 2020 in 

order to obtain shareholder vote over the OEM business sale, and its annual meeting, scheduled 

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for the same day. The current report did not provide new record dates. 

April 9, 2020 Form 8-K 

148. On April 9, 2020, the Company filed a current report on a Form 8-K with the SEC 

revealing certain findings of Audit Committee’s internal investigation. The current report 

maintained that the Audit Committee’s investigation remained ongoing, and revealed that on 

April 7, 2020, RTI’s Audit Committee had concluded that the Company would restate its 

previously issued audited financial statements for the years ended December 31, 2014, 2015, 

2016, 2017 and 2018 and its unaudited financial statements for the quarterly periods for 2016 

through 2018, and the nine months ended September 30, 2019. The current report further stated, 

“[a]ccordingly, investors should no longer rely upon the Company’s previously released 

financial statements as of and for the years ended December 31, 2018, 2017, 2016, 2015, and 

2014, and the reports on the financial statements and other financial data released related to 

the Relevant Periods.” (Emphasis added). 

149. Moreover, the current report provided further details pertaining to RTI’s improper 

revenue recognition of certain contracts initially revealed on March 16, 2020. Specifically, the 

current report stated in relevant part: 

The Company has concluded that revenue for certain invoices should have been 

recognized at a later date than when originally recognized. In response to 

binding purchase orders from certain OEM customers, goods were shipped and 

received by the customers before requested delivery dates and agreed-upon 

delivery windows. In many instances, the OEM customers requested or 

approved the early shipments, but the Company has determined that on other 

occasions the goods were delivered early without obtaining the customers’ 

affirmative approval. In addition, the Company has concluded that in July 

2017, an adjustment was improperly made to a product return provision in the 

Direct Division. Accordingly, the Company will revise its financial statements to 

correct these errors and any others as it finalizes the Investigation. The Company 

and the Audit Committee of the Board of Directors have discussed these matters 

with Deloitte & Touche LLP, the Company’s independent registered public 

accounting firm. 

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(Emphasis added). 

150. Lastly, the current report announced a date for the Company’s previously 

postponed special meeting of shareholders and annual meeting for June 15, 2020.8

 

April 29, 2020 Form 8-K 

151. On April 29, 2020, the Company filed a current report on a Form 8-K with the 

SEC announcing an amendment to its purchase agreement with the Buyer for the sale of its OEM 

business that, among other things, reduced the base purchase price by $50 million; from 

$490,000,000 to $440,000,000. The amendment provided the Company with, inter alia, an 

extension on the closing of the transaction and an extension to file its 2020 Proxy Statement and 

the 2019 10-K with the SEC. 

152. In the same current report, RTI disclosed that in connection with Defendant 

Louw’s departure from the Company, RTI entered into a Separation Agreement and Release of 

Claims and a Consultant Agreement with Defendant Louw whereby Defendant Louw would be 

paid a separation payment by RTI in the amount of $195, 294, in exchange for his agreement to 

release the Company from certain claims arising prior to April 24, 2020 and reaffirmance of 

employment obligations to the Company with respect to confidentiality. Defendant Louw also 

agreed to provide consulting services to RTI until the earlier of: 

(i) the consummation of the sale of the Company’s OEM business pursuant to the 

Purchase Agreement; and (ii) the termination of such agreement. In exchange for 

such consultant services, RTI Surgical agreed to pay to Mr. Louw the following 

compensation: (i) $23,741 per month; (ii) reimbursement for reasonable and 

documented out-of-pocked expenses incurred by Mr. Louw in connection with 

performance of such services; and (iii) reimbursement of actual travel expenses in 

accordance with RTI’s travel policy at the time of travel.

153. As of the time of filing this Complaint, there has been no restatement of any prior 

 

8

 In another current report filed on Form 8-K with the SEC on May 6, 2020, the Company announced that 

it would be delaying both meetings once again until July 15, 2020. 

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financial period, and the Company has yet to publish its annual report for the fiscal year 2019, its 

2020 Proxy Statement, or its quarterly report for the quarter ended March 31, 2020, which was 

due in May. 

Repurchases During the Relevant Period 

154. During the Relevant Period, the Individual Defendants caused the Company to 

initiate repurchases of its common stock that substantially damaged the Company. In total, the 

Company spent an aggregate amount of over $4.5 million to repurchase approximately 1,006,318 

shares of its own common stock at artificially inflated prices from August 2016 through March 

2019. 

155. As the Company’s stock was actually worth only $2.35 per share, the price at 

closing on March 17, 2020, the Company overpaid approximately $2.1 million in total for these 

repurchases. 

156. According to the 2016 10-K, during the month of August 2016, the Company 

purchased 109,506 shares of its common stock for approximately $362, 464 at an average price 

of $3.31 per share. 

157. As the Company’s stock was actually worth only $2.35 per share, the price at 

closing on March 17, 2020, the amount the Company overpaid for repurchases of its own stock 

during August 2016 was approximately $105,125. 

158. According to the 2017 10-K, during January 2017, February 2017, and November 

2017, the Company purchased 745,122 shares of its common stock for approximately $3.4 

million, at an average price of $4.65 per share. 

159. As the Company’s stock was actually worth only $2.35 per share, the price at 

closing on March 17, 2020, the amount the Company overpaid for repurchases of its own stock 

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during January, February, and November 2017 was approximately $1.7 million. 

160. According to the 2018 10-K during the months of January, April, May, July, and 

August 2018, the Company purchased 107,109 shares of its common stock for approximately 

$478,591, at an average price of $4.47 per share. 

161. As the Company’s stock was actually worth only $2.35 per share, the price at 

closing on March 17, 2020, the amount the Company overpaid for repurchases of its own stock 

during January, April, May, July, and August was approximately $226,885. 

162. According to the Company’s quarterly report on Form 10-Q filed with the SEC on 

May 7, 2019, during the three month period ended March 31, 2019, the Company purchased 

29,021 shares of its common stock for approximately $136,435, at an average price of $4.70 per 

share. 

163. As the Company’s stock was actually worth only $2.35 per share, the price at 

closing on March 17, 2020, the amount the Company overpaid for repurchases of its own stock 

during the three month period ended March 31, 2019 was approximately $68,199. 

164. According to the Company’s quarterly report on Form 10-Q filed with the SEC on 

August 5, 2019, during the three month period ended June 30, 2019, the Company purchased 

7,748 shares of its common stock for approximately $38,032, at an average price of $4.94 per 

share. 

165. As the Company’s stock was actually worth only $2.35 per share, the price at 

closing on March 17, 2020, the amount the Company overpaid for repurchases of its own stock 

during the three month period ended June 30, 2019 was approximately $19,825. 

166. According to the Company’s quarterly report on Form 10-Q filed with the SEC on 

November 7, 2019, during the three month period ended September 30, 2019, the Company 

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purchased 7,812 shares of its common stock for approximately $31,908, at an average price of 

$4.11 per share. 

167. As the Company’s stock was actually worth only $2.35 per share, the price at 

closing on March 17, 2020, the amount the Company overpaid for repurchases of its own stock 

during the three month period ended September 30, 2019 was approximately $13,550. 

168. Thus, in total, during the Relevant Period, the Company overpaid for repurchases 

of its own stock by over $2.1 million. 

DAMAGES TO RTI 

169. As a direct and proximate result of the Individual Defendants’ conduct, RTI has 

lost and expended, and will lose and expend, many millions of dollars. 

170. Such expenditures include, but are not limited to, legal fees associated with the 

Securities Class Action filed against the Company and certain of its current and former officers, 

any internal investigations, and amounts paid to outside lawyers, accountants, and investigators 

in connection thereto, including the ongoing SEC investigation. 

171. Such losses include, but are not limited to, handsome compensation and benefits 

paid to the Individual Defendants who breached their fiduciary duties to the Company. 

172. Such losses include the Company’s overpayment by approximately $2.1 million 

for repurchases of its own stock during the Relevant Period, during which the Company’s stock 

price was artificially inflated due to the false and misleading statements discussed herein as well 

as the $50,000,000 reduction in the Company’s purchase agreement with the Buyer for the sale 

of its OEM business. 

173. Further, these expenditures include the costs of the investigation into certain 

revenue recognition items overseen by the Audit Committee, and the costs of restating the 

Company’s financial results for the fiscal years 2014, 2015, 2016, 2017, and 2018 and the 

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Company’s unaudited financial statements for the quarterly periods for 2016 through 2018 and 

the three quarters of 2019. 

174. As a direct and proximate result of the Individual Defendants’ conduct, RTI has 

also suffered and will continue to suffer a loss of reputation and goodwill, and a “liar’s discount” 

that will plague the Company’s stock in the future due to the Company’s and their 

misrepresentations and the Individual Defendants’ breaches of fiduciary duties and unjust 

enrichment. 

DERIVATIVE ALLEGATIONS 

175. Plaintiff brings this action derivatively and for the benefit of RTI to redress 

injuries suffered, and to be suffered, as a result of the Individual Defendants’ breaches of their 

fiduciary duties as directors and/or officers of RTI, waste of corporate assets, unjust enrichment, 

and violations of the Exchange Act, as well as the aiding and abetting thereof. 

176. RTI is named solely as a nominal party in this action. This is not a collusive 

action to confer jurisdiction on this Court that it would not otherwise have. 

177. Plaintiff is, and has continuously been at all relevant times, a shareholder of RTI. 

Plaintiff will adequately and fairly represent the interests of RTI in enforcing and prosecuting its 

rights, and, to that end, has retained competent counsel, experienced in derivative litigation, to 

enforce and prosecute this action. 

DEMAND FUTILITY ALLEGATIONS 

178. Plaintiff incorporates by reference and re-alleges each and every allegation stated 

above as if fully set forth herein. 

179. A pre-suit demand on the Board of RTI is futile and, therefore, excused. At the 

time of filing of this action, the Board consists of the following ten individuals: Defendants 

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Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis (the “DirectorDefendants”), along with non-parties Jeffrey C. Lightcap and Stuart F. Simpson (together, the 

“Directors”). Plaintiff needs only to allege demand futility as to five of these ten Directors. 

180. Demand is excused as to all of the Director-Defendants because each one of them 

faces, individually and collectively, a substantial likelihood of liability as a result of the schemes 

they engaged in knowingly or recklessly to make and/or cause the Company to make false and 

misleading statements and omissions of material fact while one of them engaged in insider sales 

based on material non-public information, and, at the same time, to cause the Company to 

overpay by over $2.1 million for repurchases of its own stock, all of which renders the DirectorDefendants unable to impartially investigate the charges and decide whether to pursue action 

against themselves and the other perpetrators of the scheme. 

181. In complete abdication of their fiduciary duties, the Director-Defendants either 

knowingly or recklessly participated in making and/or causing the Company to make the 

materially false and misleading statements alleged herein. The fraudulent scheme was, inter alia, 

intended to make the Company appear more profitable and attractive to investors. As a result of 

the foregoing, the Director-Defendants breached their fiduciary duties, face a substantial 

likelihood of liability, are not disinterested, and demand upon them is futile, and thus excused.

182. Additional reasons that demand on Defendant Farhat is futile follow. Defendant 

Farhat has served as RTI’s President, CEO, and as a Company director since March 2017. Thus, 

as the Company admits, he is a non-independent director. The Company provides Defendant 

Farhat with his principal occupation, and he receives handsome compensation as described 

above, including $1,219,629 during the fiscal year ended December 31, 2018. Defendant Farhat 

was ultimately responsible for the false and misleading statements and omissions made during 

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his tenure, including those contained in the 2017 and 2018 10-Ks, which he signed and signed 

SOX certifications for. As the Company’s highest officer and as a trusted director, Defendant 

Farhat conducted little, if any, oversight of the scheme to make false and misleading statements, 

consciously disregarded his duties to monitor such controls over reporting and engagement in the 

scheme, and consciously disregarded his duties to protect corporate assets. Moreover, Defendant 

Farhat is a defendant in the Securities Class Action. Thus, for these reasons, too, Defendant 

Farhat breached his fiduciary duties, faces a substantial likelihood of liability, is not independent 

or disinterested, and thus demand upon him is futile and, therefore, excused.

183. Additional reasons that demand on Defendant McEachin is futile follow. 

Defendant McEachin has served as a Company director since December 2015. He also serves as 

the chair and of the Audit Committee. Defendant McEachin has received and continues to 

receive compensation for his role as a director as described herein. As a trusted Company 

director, he conducted little, if any, oversight of the scheme to make false and misleading 

statements, consciously disregarded his duties to monitor such controls over reporting and 

engagement in the scheme, and consciously disregarded his duties to protect corporate assets. 

Furthermore, Defendant McEachin signed, and thus personally made the false and misleading 

statements in the 2015, 2016, 2017, and 2018 10-Ks. For these reasons, too, Defendant 

McEachin breached his fiduciary duties, faces a substantial likelihood of liability, is not 

independent or disinterested, and thus demand upon him is futile and, therefore, excused.

184. Additional reasons that demand on Defendant Selquist is futile follow. Defendant 

Selquist has served as a Company director since June 2013 and as Chairman of the Board since 

February 2016. He also serves as a member of the Nominating & Governance Committee. 

Defendant Selquist has received and continues to receive compensation for his role as a director 

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as described herein. As a trusted Company director, he conducted little, if any, oversight of the 

scheme to make false and misleading statements, consciously disregarded his duties to monitor 

such controls over reporting and engagement in the scheme, and consciously disregarded his 

duties to protect corporate assets. Furthermore, Defendant Selquist signed, and thus personally 

made the false and misleading statements in the 2015, 2016, 2017, and 2018 10-Ks. For these 

reasons, too, Defendant Selquist breached his fiduciary duties, faces a substantial likelihood of 

liability, is not independent or disinterested, and thus demand upon him is futile and, therefore, 

excused.

185. Additional reasons that demand on Defendant Stolper is futile follow. Defendant 

Stolper has served as a Company director since March 2017. He also serves as a member of the 

Audit Committee and Compensation Committee. Defendant Stolper has received and continues 

to receive compensation for his role as a director as described herein. As a trusted Company 

director, he conducted little, if any, oversight of the scheme to make false and misleading 

statements, consciously disregarded his duties to monitor such controls over reporting and 

engagement in the scheme, and consciously disregarded his duties to protect corporate assets. 

Furthermore, Defendant Stolper signed, and thus personally made the false and misleading 

statements in the 2017 and 2018 10-Ks. For these reasons, too, Defendant Stolper breached his 

fiduciary duties, faces a substantial likelihood of liability, is not independent or disinterested, and 

thus demand upon him is futile and, therefore, excused.

186. Additional reasons that demand on Defendant Sweeney is futile follow. 

Defendant Sweeney has served as a Company director since October 2015. As a trusted 

Company director, he conducted little, if any, oversight of the scheme to make false and 

misleading statements, consciously disregarded his duties to monitor such controls over reporting 

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and engagement in the scheme, and consciously disregarded his duties to protect corporate 

assets. Furthermore, Defendant Sweeney signed, and thus personally made the false and 

misleading statements in the 2015, 2016, 2017, and 2018 10-Ks. For these reasons, too, 

Defendant Sweeney breached his fiduciary duties, faces a substantial likelihood of liability, is 

not independent or disinterested, and thus demand upon him is futile and, therefore, excused.

187. Additional reasons that demand on Defendant Thomas is futile follow. Defendant 

Thomas has served as a Company director since June 2016. He also serves as a member of the 

Compensation Committee and Nominating & Governance Committee. Defendant Thomas has 

received and continues to receive compensation for his role as a director as described herein. As 

a trusted Company director, he conducted little, if any, oversight of the scheme to make false and 

misleading statements, consciously disregarded his duties to monitor such controls over reporting 

and engagement in the scheme, and consciously disregarded his duties to protect corporate 

assets. Furthermore, Defendant Thomas signed, and thus personally made the false and 

misleading statements in the 2016, 2017, and 2018 10-Ks. For these reasons, too, Defendant 

Thomas breached his fiduciary duties, faces a substantial likelihood of liability, is not 

independent or disinterested, and thus demand upon him is futile and, therefore, excused.

188. Additional reasons that demand on Defendant Valeriani is futile follow. 

Defendant Valeriani has served as a Company director since June 2016. He also serves as a 

member of the Compensation Committee and Nominating & Governance Committee. Defendant 

Valeriani has received and continues to receive compensation for his role as a director as 

described herein. As a trusted Company director, he conducted little, if any, oversight of the 

scheme to make false and misleading statements, consciously disregarded his duties to monitor 

such controls over reporting and engagement in the scheme, and consciously disregarded his 

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duties to protect corporate assets. Furthermore, Defendant Valeriani signed, and thus personally 

made the false and misleading statements in the 2016, 2017, and 2018 10-Ks. For these reasons, 

too, Defendant Valeriani breached his fiduciary duties, faces a substantial likelihood of liability, 

is not independent or disinterested, and thus demand upon him is futile and, therefore, excused.

189. Additional reasons that demand on Defendant Weis is futile follow. Defendant 

Weis has served as a Company director since October 2014. She also serves as a member of the 

Compensation Committee and Nominating & Governance Committee and served as a member of 

the Audit Committee during the Relevant Period. Defendant Weis has received and continues to 

receive compensation for her role as a director as described herein. As a trusted Company 

director, she conducted little, if any, oversight of the scheme to make false and misleading 

statements, consciously disregarded her duties to monitor such controls over reporting and 

engagement in the scheme, and consciously disregarded her duties to protect corporate assets. 

Furthermore, Defendant Weis signed, and thus personally made the false and misleading 

statements in the 2016, 2015, 2016, 2017, and 2018 10-Ks. For these reasons, too, Defendant 

Weis breached her fiduciary duties, faces a substantial likelihood of liability, is not independent 

or disinterested, and thus demand upon her is futile and, therefore, excused.

190. Additional reasons that demand on the Board is futile follow. 

191. Each of the Director-Defendants, individually and collectively, face a substantial 

likelihood of liability as a result of their intentional or reckless approval of unnecessary and 

harmful repurchases that caused the Company to overpay by millions of dollars for its own 

common stock during the Relevant Period. The Director-Defendants, as alleged herein, were 

aware or should have been aware of the misinformation being spread by the Company and yet 

approved the repurchases. Thus, the Director-Defendants breached their fiduciary duties, face a 

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substantial likelihood of liability, are not disinterested, and demand upon them is futile, and thus 

excused. 

192. Defendants McEachin, Stolper, and Weis (the “Audit Committee Defendants”) 

served as members of the Audit Committee during the Relevant Period. Pursuant to the 

Company’s Audit Committee Charter, the Audit Committee Defendants are responsible for 

overseeing, among other things, the Company’s accounting and financial reporting processes, the 

Company’s significant risk exposures, the adequacy and effectiveness of RTI’s internal controls, 

and the Company’s compliance with legal and regulatory requirements. The Audit Committee 

Defendants failed to ensure the integrity of the Company’s accounting and financial reporting 

processes, as they are charged to do under the Audit Committee Charter, allowing the Company 

to issue false and misleading financial statements for nearly five years. Thus, the Audit 

Committee Defendants breached their fiduciary duties, are not disinterested, and demand is 

excused as to them. 

193. The Director-Defendants have longstanding business and personal relationships 

with each other and the Individual Defendants that preclude them from acting independently and 

in the best interests of the Company and the shareholders. For instance, Defendants Selquist and 

Sweeney both joined the Board pursuant to an Investment Agreement between RTI and WSHP 

Biologics Holdings, LLC (“WSHP”). WSHP is the record owner of approximately 15,152,761 

shares of RTI common stock, which represented 17.1% of the Company’s outstanding shares of 

common stock as of March 14, 2019. The managing member of WSHP is the Water Street Fund, 

which is owned and/or controlled by Water Street Healthcare Partners (“Water Street”). The 

Company recognizes Water Street as its largest stockholder. Selquist is the Operating Partner at 

Water Street, and Sweeney is a partner and founding member of Water Street. These conflicts of 

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interest precluded the Director-Defendants from adequately monitoring the Company’s 

operations and internal controls and calling into question the Individual Defendants’ conduct. 

Thus, the Director-Defendants face a substantial likelihood of liability and demand is futile as to 

them. 

194. In violation of the Code of Conduct and/or Code of Ethics, the DirectorDefendants conducted little, if any, oversight of the Company’s internal controls over public 

reporting, and of the Company’s engagement in the Individual Defendants’ scheme to issue 

materially false and misleading statements to the public and facilitate and disguise the Individual 

Defendants’ violations of law, including breaches of fiduciary duty, unjust enrichment, and 

violations of the Exchange Act. In violation of the Code of Conduct and/or Code of Ethics, the 

Director-Defendants failed to comply with the law. Thus, the Director-Defendants face a 

substantial likelihood of liability and demand is futile as to them. 

195. RTI has been and will continue to be exposed to significant losses due to the 

wrongdoing complained of herein, yet the Director-Defendants have not filed any lawsuits 

against themselves or others who were responsible for that wrongful conduct to attempt to 

recover for RTI any part of the damages RTI suffered and will continue to suffer thereby. Thus, 

any demand upon the Director-Defendants would be futile. 

196. The Individual Defendants’ conduct described herein and summarized above 

could not have been the product of legitimate business judgment as it was based on bad faith and 

intentional, reckless, or disloyal misconduct. Thus, none of the Director-Defendants can claim 

exculpation from their violations of duty pursuant to the Company’s charter (to the extent such a 

provision exists). As a majority of the Directors face a substantial likelihood of liability, they are 

self-interested in the transactions challenged herein and cannot be presumed to be capable of 

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exercising independent and disinterested judgment about whether to pursue this action on behalf 

of the shareholders of the Company. Accordingly, demand is excused as being futile. 

197. The acts complained of herein constitute violations of fiduciary duties owed by 

RTI officers and directors, and these acts are incapable of ratification. 

198. The Director-Defendants may also be protected against personal liability for their 

acts of mismanagement and breaches of fiduciary duty alleged herein by directors’ and officers’ 

liability insurance if they caused the Company to purchase it for their protection with corporate 

funds, i.e., monies belonging to the stockholders of RTI. If there is a directors’ and officers’ 

liability insurance policy covering the Directors, it may contain provisions that eliminate 

coverage for any action brought directly by the Company against the Directors, known as, inter 

alia, the “insured-versus-insured exclusion.” As a result, if the Director-Defendants were to sue 

themselves or certain of the officers of RTI, there would be no directors’ and officers’ insurance 

protection. Accordingly, the Director-Defendants cannot be expected to bring such a suit. On the 

other hand, if the suit is brought derivatively, as this action is brought, such insurance coverage, 

if such an insurance policy exists, will provide a basis for the Company to effectuate a recovery. 

Thus, demand on the Director-Defendants is futile and, therefore, excused. 

199. If there is no directors’ and officers’ liability insurance, then the DirectorDefendants will not cause RTI to sue the Individual Defendants named herein, since, if they did, 

they would face a large uninsured individual liability. Accordingly, demand is futile in that 

event, as well. 

200. Thus, for all of the reasons set forth above, all of the Director-Defendants, and, if 

not all of them, at least five of the Directors, cannot consider a demand with disinterestedness 

and independence. Consequently, a demand upon the Board is excused as futile. 

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FIRST CLAIM FOR RELIEF 

Against Individual Defendants for Violations of 

Section 14(a) of the Exchange Act 

201. Plaintiff incorporates by reference and re-alleges each and every allegation set 

forth above, as though fully set forth herein. 

202. The Section 14(a) Exchange Act claims alleged herein are based solely on 

negligence. They are not based on any allegation of reckless or knowing conduct by or on behalf 

of the Individual Defendants. The Section 14(a) claims alleged herein do not allege and do not 

sound in fraud. Plaintiff specifically disclaims any allegations of, reliance upon any allegation of, 

or reference to any allegation of fraud, scienter, or recklessness with regard to these nonfraud 

claims. 

203. Section 14(a) of the Exchange Act, 15 U.S.C. § 78n(a)(1), provides that “[i]t shall 

be unlawful for any person, by use of the mails or by any means or instrumentality of interstate 

commerce or of any facility of a national securities exchange or otherwise, in contravention of 

such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public 

interest or for the protection of investors, to solicit or to permit the use of his name to solicit any 

proxy or consent or authorization in respect of any security (other than an exempted security) 

registered pursuant to section 12 of this title [15 U.S.C. § 78l].” 

204. Rule 14a-9, promulgated pursuant to § 14(a) of the Exchange Act, provides that 

no proxy statement shall contain “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.” 17 C.F.R. §240.14a-9. 

205. Under the direction and watch of the Directors, the 2018 and 2019 Proxy 

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Statements (the “Proxy Statements”) failed to disclose, inter alia, that: (1) the Company 

improperly recognized and accounted for revenues for certain contractual arrangements, 

primarily involving OEM customers due, in part, to early deliveries made outside of agreed-to 

delivery windows; (2) the Company’s internal controls over financial reporting were ineffective; 

(3) consequently, the Company would be subject to SEC scrutiny, be forced to delay the filing of 

its annual report and ultimately need to restate several years of its previously reported financial 

statements; and (4) the Company failed to maintain internal controls. As a result of the 

foregoing, the Company’s public statements were materially false and misleading at all relevant 

times. 

206. The Individual Defendants also caused the Proxy Statements to be false and 

misleading with regard to executive compensation in that they purported to employ “pay-forperformance” elements including linking incentive award opportunities “to challenging 

performance goals that reinforce key business objectives and long-term shareholder value 

creation[,]”while failing to disclose that the Company’s share price was being artificially inflated 

by the false and misleading statements made by the Individual Defendants as alleged herein, and 

therefore any compensation based on the Company’s financial performance was artificially 

inflated. 

207. Moreover, the Proxy Statements were false and misleading when they discussed 

the Company’s adherence to specific governance policies and procedures, including the Code of 

Conduct and the Code of Ethics, due to the Individual Defendants’ failures to abide by them, 

their insider trading, and their engagement in the scheme to issue false and misleading statements 

and omissions of material fact. 

208. In the exercise of reasonable care, the Individual Defendants should have known 

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that by misrepresenting or failing to disclose the foregoing material facts, the statements 

contained in the Proxy Statements were materially false and misleading. The misrepresentations 

and omissions were material to Plaintiff in voting on the matters set forth for shareholder 

determination in the Proxy Statements, including election of directors, advisory approval of 

executive compensation, and, for the 2018 Proxy Statement, the adoption and approval of the 

2018 Incentive Compensation Plan, which provided for, among other things, the reservation of 5 

million, plus 738,142 shares for delivery as incentive awards. As officers and directors, the 

Individual Defendants at the Company during and following the 2018 Proxy Statement, were 

eligible to (and did) receive such incentive awards. 

209. The false and misleading elements of the Proxy Statements led to the re-election 

of Defendants Farhat, Gearen, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and 

Weis during the Relevant Period, which allowed them to continue breaching their fiduciary 

duties to RTI. 

210. The Company was damaged as a result of the Individual Defendants’ material 

misrepresentations and omissions in the Proxy Statements. 

211. Plaintiff on behalf of RTI has no adequate remedy at law. 

SECOND CLAIM FOR RELIEF 

Against the Individual Defendants for Violations of Section 10(b) and Rule 10b-5 of the 

Exchange Act 

212. Plaintiff incorporates by reference and re-alleges each and every allegation set 

forth above, as though fully set forth herein. 

213. The Individual Defendants participated in a scheme to defraud with the purpose 

and effect of defrauding RTI. Not only is RTI now defending claims that it violated Section 

10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, but the Company itself is 

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also a victim of the unlawful scheme perpetrated upon RTI by the Individual Defendants. With 

the price of its common stock trading at artificially-inflated prices during the Relevant Period 

due to the Individual Defendants’ misconduct, the Individual Defendants caused the Company to 

repurchase thousands of its own shares at artificially-inflated prices, damaging RTI. 

214. During the Relevant Period, the Individual Defendants also individually and in 

concert, directly and indirectly, by the use and means of instrumentalities of interstate commerce 

and/or of the mails, engaged and participated in a continuous course of conduct designed to 

falsify the Company’s periodic reports filed with the SEC. 

215. The Individual Defendants employed devices, schemes and artifices to defraud 

while in possession of adverse, material, non-public information and engaged in acts, practices 

and a course of conduct that included the making of, or participation in the making of, untrue 

and/or misleading statements of material facts and/or omitting to state material facts necessary in 

order to make the statements made about RTI not misleading. 

216. The Individual Defendants, as top executives and directors of the Company, are 

liable as direct participants in the wrongs complained of herein. Through their positions of 

control and authority as directors and officers of the Company, the Individual Defendants were 

able to and did control the conduct complained of herein and the content of the public statements 

disseminated by RTI. The Individual Defendants acted with scienter during the Relevant Period, 

in that they either had actual knowledge of the schemes and the misrepresentations and/or 

omissions of material facts set forth herein, or acted with reckless disregard for the truth in that 

they failed to ascertain and to disclose the true facts, even though such facts were available to 

them. The Individual Defendants were the top executives of the Company, or received direct 

briefings from them, and were therefore directly responsible for the schemes set forth herein and 

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for the false and misleading statements and/or omissions disseminated to the public through 

filings with the SEC. 

217. In addition to each of the Individual Defendants approving the issuance of the 

Company’s false and misleading statements while they were serving as a senior executive and/or 

director of the Company, they made and/or signed the Company’s Form 10-Ks filed with the 

SEC during the Relevant Period. 

218. By virtue of the foregoing, the Individual Defendants have violated § 10(b) of the 

Exchange Act, and Rule 10b-5 promulgated thereunder. 

219. Plaintiff on behalf of RTI has no adequate remedy at law. 

THIRD CLAIM FOR RELIEF 

Against the Individual Defendants for Violations of Section 20(a) of the Exchange Act 

220. Plaintiff incorporates by reference and re-alleges each and every allegation set 

forth above, as though fully set forth herein. 

221. The Individual Defendants, by virtue of their positions with RTI and their specific 

acts, were, at the time of the wrongs alleged herein, controlling persons of RTI and each of its 

officers and directors who made the false and misleading statements alleged herein within the 

meaning of § 20(a) of the Exchange Act. The Individual Defendants had the power and influence 

and exercised the same to cause RTI and the other Individual Defendants to engage in the illegal 

conduct and practices complained of herein and violate § 10(b) of the Exchange Act. 

222. Plaintiff on behalf of RTI has no adequate remedy at law. 

FOURTH CLAIM FOR RELIEF 

Against Individual Defendants for Breach of Fiduciary Duties 

223. Plaintiff incorporates by reference and re-alleges each and every allegation set 

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forth above, as though fully set forth herein. 

224. Each Individual Defendant owed to the Company the duty to exercise candor, 

good faith, and loyalty in the management and administration of RTI’s business and affairs. 

225. Each of the Individual Defendants violated and breached his or her fiduciary 

duties of candor, good faith, loyalty, reasonable inquiry, oversight, and supervision. 

226. The Individual Defendants’ conduct set forth herein was due to their intentional or 

reckless breach of the fiduciary duties they owed to the Company, as alleged herein. The 

Individual Defendants intentionally or recklessly breached or disregarded their fiduciary duties 

to protect the rights and interests of RTI. 

227. In breach of their fiduciary duties owed to RTI, the Individual Defendants also 

willfully or recklessly made and/or caused the Company to make false and misleading statements 

and omissions of material fact that failed to disclose, inter alia, that: (1) the Company 

improperly recognized and accounted for revenues for certain contractual arrangements, 

primarily involving OEM customers due, in part, to early deliveries made outside of agreed-to 

delivery windows; (2) the Company’s internal controls over financial reporting were ineffective; 

(3) consequently, the Company would be subject to SEC scrutiny, be forced to delay the filing of 

its annual report and ultimately need to restate several years of its previously reported financial 

statements; and (4) the Company failed to maintain internal controls. As a result of the 

foregoing, the Company’s public statements were materially false and misleading at all relevant 

times. 

228. The Individual Defendants failed to correct and/or caused the Company to fail to 

rectify any of the wrongs described herein or correct the false and misleading statements and 

omissions of material fact referenced herein, rendering them personally liable to the Company 

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for breaching their fiduciary duties. 

229. In further breach of their fiduciary duties, the Individual Defendants failed to 

maintain an adequate system of oversight, disclosure controls and procedures, and internal 

controls. 

230. The Individual Defendants also breached their fiduciary duties by causing the 

Company to repurchase over 1 million shares of its own stock at prices that were artificially 

inflated due to the foregoing misrepresentations, while one of them engaged in improper insider 

sales, netting proceeds of approximately $44,444. 

231. The Individual Defendants had actual or constructive knowledge that the 

Company issued materially false and misleading statements, and they failed to correct the 

Company’s public statements. The Individual Defendants had actual knowledge of the 

misrepresentations and omissions of material facts set forth herein, or acted with reckless 

disregard for the truth, in that they failed to ascertain and to disclose such facts, even though 

such facts were available to them. Such material misrepresentations and omissions were 

committed knowingly or recklessly and for the purpose and effect of artificially inflating the 

price of the Company’s securities, and disguising insider sales. 

232. The Individual Defendants had actual or constructive knowledge that they had 

caused the Company to improperly engage in the fraudulent scheme set forth herein and to fail to 

maintain adequate internal controls. The Individual Defendants had actual knowledge that the 

Company was engaging in the fraudulent scheme set forth herein, and that internal controls were 

not adequately maintained, or acted with reckless disregard for the truth, in that they caused the 

Company to improperly engage in the fraudulent scheme and to fail to maintain adequate internal 

controls, even though such facts were available to them. Such improper conduct was committed 

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knowingly or recklessly and for the purpose and effect of artificially inflating the price of the 

Company’s securities, and engaging in insider sales. The Individual Defendants, in good faith, 

should have taken appropriate action to correct the schemes alleged herein and to prevent them 

from continuing to occur. 

233. These actions were not a good-faith exercise of prudent business judgment to 

protect and promote the Company’s corporate interests. 

234. As a direct and proximate result of the Individual Defendants’ breaches of their 

fiduciary obligations, RTI has sustained and continues to sustain significant damages. As a result 

of the misconduct alleged herein, the Individual Defendants are liable to the Company. 

235. Plaintiff on behalf of RTI has no adequate remedy at law. 

FIFTH CLAIM FOR RELIEF 

Against Individual Defendants for Unjust Enrichment

236. Plaintiff incorporates by reference and re-alleges each and every allegation set 

forth above, as though fully set forth herein. 

237. By their wrongful acts, violations of law, and false and misleading statements and 

omissions of material fact that they made and/or caused to be made, the Individual Defendants 

were unjustly enriched at the expense of, and to the detriment of, RTI. 

238. The Individual Defendants either benefited financially from the improper conduct 

or received unjustly lucrative bonuses tied to the false and misleading statements, or received 

bonuses, stock options, or similar compensation from RTI that was tied to the performance or 

artificially inflated valuation of RTI, or received compensation that was unjust in light of the 

Individual Defendants’ bad faith conduct. 

239. Plaintiff, as a shareholder and a representative of RTI, seeks restitution from the 

Individual Defendants and seeks an order from this Court disgorging all profits—including from 

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insider sales, benefits, and other compensation, including any performance-based or valuationbased compensation—obtained by the Individual Defendants due to their wrongful conduct and 

breach of their fiduciary duties. 

240. Plaintiff on behalf of RTI has no adequate remedy at law. 

SIXTH CLAIM FOR RELIEF 

Against Individual Defendants for Waste of Corporate Assets 

241. Plaintiff incorporates by reference and re-alleges each and every allegation set 

forth above, as though fully set forth herein. 

242. As a result of the foregoing, and by failing to properly consider the interests of the 

Company and its public shareholders, Defendants have caused RTI to waste valuable corporate 

assets, to incur many millions of dollars of legal liability and costs to defend unlawful actions, 

and to lose financing from investors and business from future customers who no longer trust the 

Company and its products. In addition, the Individual Defendants caused the Company to 

repurchase shares of its own common stock at artificially inflated prices, thereby wasting the 

Company’s assets. 

243. As a result of the waste of corporate assets, the Individual Defendants are each 

liable to the Company. 

244. Plaintiff on behalf of RTI has no adequate remedy at law. 

PRAYER FOR RELIEF 

245. FOR THESE REASONS, Plaintiff demands judgment in the Company’s favor 

against all Individual Defendants as follows: 

(a) Declaring that Plaintiff may maintain this action on behalf of RTI, and that 

Plaintiff is an adequate representative of the Company; 

(b) Declaring that the Individual Defendants have breached and/or aided and 

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abetted the breach of their fiduciary duties to RTI; 

(c) Determining and awarding to RTI the damages sustained by it as a result 

of the violations set forth above from each of the Individual Defendants, jointly and severally, 

together with pre-judgment and post-judgment interest thereon; 

(d) Directing RTI and the Individual Defendants to take all necessary actions 

to reform and improve its corporate governance and internal procedures to comply with 

applicable laws and to protect RTI and its shareholders from a repeat of the damaging events 

described herein, including, but not limited to, putting forward for shareholder vote the following 

resolutions for amendments to the Company’s Bylaws or Articles of Incorporation and the 

following actions as may be necessary to ensure proper corporate governance policies: 

1. a proposal to strengthen the Board’s supervision of operations and develop 

and implement procedures for greater shareholder input into the policies and 

guidelines of the Board; 

2. a provision to permit the shareholders of RTI to nominate at least five 

candidates for election to the Board; and 

3. a proposal to ensure the establishment of effective oversight of compliance 

with applicable laws, rules, and regulations. 

(e) Awarding RTI restitution from the Individual Defendants, and each of 

them; 

(f) Awarding Plaintiff the costs and disbursements of this action, including 

reasonable attorneys’ and experts’ fees, costs, and expenses; and 

(g) Granting such other and further relief as the Court may deem just and 

proper. 

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JURY DEMAND 

Plaintiff demands a trial by jury on all issues so triable. 

Dated: June 5, 2020 Respectfully submitted,

_/s/ Carl V. Malmstrom_ 

Carl V. Malmstrom 

WOLF HALDENSTEIN ADLER 

 FREEMAN & HERZ LLC 

111 W. Jackson St., Suite 1700 

Chicago, IL 60604 

Tel: (312) 984-0000 

Fax: (212) 686-0114 

malmstrom@whafh.com 

Liaison Counsel for Plaintiff 

THE ROSEN LAW FIRM, P.A. 

Phillip Kim 

275 Madison Avenue, 40th Floor 

New York, New York 10016 

Tel: (212) 686-1060 

Fax: (212) 202-3827 

pkim@rosenlegal.com 

THE BROWN LAW FIRM, P.C.

Timothy Brown 

240 Townsend Square 

Oyster Bay, New York 11771 

Tel: (516) 922-5427 

Fax: (516) 344-6204 

tbrown@thebrownlawfirm.net 

 

Counsel for Plaintiff

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