Last month, Troika Media Group (NASDAQ:TRKA) CEO Sadiq Toama disclosed that he intends to withdraw himself from the complaint against Troika without prejudice. The complaint was filed against Troika and its special purpose acquisition company (SPAC) sponsor, CD Acquisition Corp, by the sellers of Converge Direct. It alleges that Troika failed to pay the sellers $4.34 million as part of its acquisition of Converge.
Toama, Michael Carrano, Thomas Marianacci, and Maarten Terry (the Converge sellers) filed the complaint on July 17. The complaint followed Troika’s acquisition of Converge in March of 2022 for $100 million in cash and $25 million of TRKA stock. All four of the individuals named above joined Troika through long-term employee agreements following the acquisition of Converge.
InvestorPlace has now obtained the complaint filed to the court. Let’s get into the details.
TRKA Stock: Troika Faces Court Complaint Over Converge Deal
As part of the acquisition, Troika and Converge entered into a membership interest purchase agreement (MIPA). The MIPA included a zero balance reconciliation provision that stated that, upon closing, if Converge had accounts receivable in excess of zero working capital, such capital should be transferred back to the Converge sellers. The MIPA officially closed on March 22, 2022. Upon closing, Converge, except for 60% of Converge Marketing Services, became a wholly-owned subsidiary of Troika.
On July 25, 2022, Troika COO Chris Broderick emailed Marianacci, Toama, and CFO Erica Naidrich a document showing that the zero balance reconciliation was $4.44 million. Later in September, Troika General Counsel Mike Tenore and Marianacci engaged in communications regarding a $4.34 million balance in order to settle the zero balance reconciliation.
In a 10-K released June 30, 2022, Troika stated:
“At the time of the acquisition the company owed to Converge sellers… an approximate $4.3 million payment under the terms of the Membership Interest Purchase Agreement.”
Since then, the Converge sellers have formally asked for their owed money multiple times to no avail. As a result, the sellers allege that Troika has violated the MIPA, which has resulted in damages of at least $4.34 million. The sellers have asked the court to reward them with damages in an amount that will be determined at trial.
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On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
