EXHIBIT 10.46
MEMORANDUM
OF
AGREEMENT
THIS MEMORANDUM OF AGREEMENT (the "Agreement") entered into this 28th day
of December, 2000 by and among Marketing Specialists Sales Company, a Texas
corporation ("Marketing Specialists"), Xxxxxxx X. Xxx on behalf of the former
stockholders of The Sales Force Companies, Inc. ("Sales Force") other than the
Employee Stock Ownership Trust ("ESOT") established by Sales Force (Xxxxxxx X.
Xxx being referred to herein as the "Non-ESOT Stockholders Representative" and
the stockholders other than the ESOT being referred to herein as the "Non-ESOT
Stockholders") and the ESOT. This Agreement amends that certain Stock Purchase
Agreement, dated March 2, 2000, by and among Marketing Specialists, Sales Force,
and all the stockholders of Sales Force, including the ESOT (the "Purchase
Agreement"), which agreement is otherwise unchanged except as modified herein.
RECITALS. Pursuant to Section 1.2(b) of the Purchase Agreement, the
Purchase Price (as defined in the Purchase Agreement) was to be adjusted. Any
upward Purchase Price adjustment was to be paid as provided in Section 1.2(b).
Computations as to the adjusted Purchase Price were submitted to Marketing
Specialists. Marketing Specialists retained PricewaterhouseCoopers ("PwC") to
review the computations and submit its unaudited version of the adjusted
Purchase Price. After further negotiations, PwC submitted a letter and final
version of its reports, schedules and calculations dated November 29, 2000,
copies of which are attached as Exhibit A.
The parties are still in disagreement as to various components of the
Purchase Price adjustment as well as to the amount of the adjustment. Also,
since any adjustment paid to the ESOT is to be paid in cash, Marketing
Specialists has negotiated separately with the ESOT over the amount of cash to
be paid. In order to resolve all disagreements and disputes relating to the
matters covered by the Purchase Price adjustment, and in order to provide for
the special handling of the income tax component of the adjustment, the parties
have made and entered into the agreement set forth below.
1. PURCHASE PRICE ADJUSTMENT; PAYMENT.
(a) The ESOT shall receive an adjustment to the Purchase Price of One
Million Nine Hundred Thousand Dollars ($1,900,000.00), payable in cash
by wire transfer to a designated account of the ESOT on or before
December 29, 2000.
(b) The Non-ESOT Stockholders shall receive an adjustment to the Purchase
Price of Two Million Three Hundred Sixty-four Thousand Two Hundred
Thirty-six Dollars ($2,364,236.00), payable by delivery of replacement
Notes in exchange for the Notes then held by such Non-ESOT
Stockholders pursuant to the terms of Section 1.2(b). Such replacement
Notes will be delivered to the Non-ESOT Stockholders on or before
January 31, 2001. Notwithstanding the foregoing, the amount set forth
in this subparagraph (b) shall be deemed a debt and obligation of
Marketing Specialists as of the date hereof, whether or not the
replacement Notes are issued and the April 1, 2001 payment and all
subsequent
payments due to the Non-ESOT Stockholders shall include such increased
amounts.
2. ADJUSTMENT FOR TAXES/PAYMENT. In addition to the payment set forth above,
if there is a difference between the estimated tax liability assumed by
Marketing Specialists in the amount of $2,607,697 as shown in Exhibit A and
the actual aggregate tax liability associated with Sales Force for the
portion of the tax period prior to April 15, 2000, as reflected in the
federal and state income tax returns as and when filed (the "Tax
Adjustment"), then Marketing Specialists shall pay an additional amount to
the ESOT and the Non-ESOT Stockholders equal to such difference. The Tax
Adjustment, if any, will be allocated 51.1% to the ESOT and 48.9% to the
Non-ESOT Stockholders. The ESOT's portion of the Tax Adjustment, if any,
will be paid in cash to the ESOT within thirty (30) days after the filing
of the applicable returns or within thirty (30) days after a tax refund is
received, whichever is later. The balance of the Tax Adjustment will be
paid to the Non-ESOT Stockholders in additional replacement notes dated
within thirty (30) days after the filing of the applicable returns. In the
event that due to audit adjustments by any tax jurisdiction or otherwise,
the amount of aggregate tax liability is changed from the amount indicated
on the final tax returns, the Tax Adjustment will be recalculated, but the
ESOT will not receive any additional amounts from the audit adjustment nor
will it be liable to repay amounts previously received. If the amount of
the Tax Adjustment increases as a result of any tax audit, forty-eight and
nine-tenths percent (48.9%) of any additional amounts will be paid by
Marketing Specialists to the Non-ESOT Stockholders in the same manner as
the Tax Adjustment is to be paid as
provided above. In the event the Tax Adjustment is reduced as a result of
any tax audit, Marketing Specialists shall be entitled to deduct (without
further action or consent from the Non-ESOT Stockholders) 48.9% of the
reduced amount from the replacement Notes issued to the Non-ESOT
Stockholders.
3. MATTERS RESOLVED BY PURCHASE PRICE ADJUSTMENT. The matters resolved by the
Purchase Price adjustment and this Agreement are set forth in Exhibit A
prepared by PwC and reviewed by all parties hereto. Neither party shall
have any further claim against the other for any matter covered by the
adjustments proposed by PwC, except that Marketing Specialists shall retain
all of the indemnification protections available to it under the Purchase
Agreement, including, without limitation, the indemnification for
understated taxes as provided in the Purchase Agreement, subject to the
limitation on claims against the ESOT.
[SIGNATURE PAGE FOLLOWS]
MARKETING SPECIALISTS SALES COMPANY,
a Texas corporation
By: ___________________________________
Xxxxx Xxxxxxxxx
Secretary and General Counsel
________________________________________
Xxxxxxx X. Xxx the Non-ESOT Stockholders
Representative for and on behalf of the
Stockholders other than the ESOT
ESOT
By: FIRST BANKERS TRUST COMPANY, N.A.,
not in its corporate capacity but
solely as Trustee of the ESOT
By: ___________________________________
Name:___________________________________
Title:__________________________________
ADJUSTED PURCHASE PRICE AND PAYMENT SCHEDULE 1.2.b 4/13/2001
Increase (Decrease)
to Consideration
-------------------
UNRESTRICTED CASH
Unrestricted 1,708,485
Required Minimum 2,400,000
Additional Consideration (691,515) (691,515)
WORKING CAPITAL
Current Assets 5,621,720
Current Liabilities (7,427,781)
----------
Calculated Working Capital (1,806,061)
Required Minimum 1,500,000
----------
Additional Consideration (3,306,061) (3,306,061)
==========
LONG TERM DEBT AND DISCOUNTED OFF BALANCE SHEET LIABILITIES
Required Maximum 12,800,000
Long Term Debt (3,003,941)
Off Balance Sheet - Adjustment Addition (176,370)
Off Balance Sheet - Liabilities Discounted at 8% (1,688,717)
==========
Additional Consideration 7,930, 972 7,930, 972
==========
Pending Adjustment (225,000)
----------
Total Additional Consideration due 90 days after close 3,708,397
==========
Total Additional Cash Consideration due 90 days after close 51% 1,894,991
Total Additional Notes Consideration due 90 days after close 48.9% 1,813,406
----------
3,708,397
==========
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
ADJUSTMENTS TO SCHEDULE 1.2(B) OF THE PURCHASE PRICE AGREEMENT DATED 4/14/2000
---------------- ----------------- --------------------
4/7/2000 ADJUSTED
BALANCE ADJUSTMENT BALANCE
---------------- ----------------- --------------------
UNRESTRICTED CASH
Unrestricted Cash 5,455,808 (3,747,323) 1,708,485
Required Minimum 2,400,000 -- 2,400,000
--------------- ---------------- -------------------
Additional Consideration (691,515)
===================
WORKING CAPITAL
Current Assets 8,920,285 (3,298,565) 5,621,720
Current Liabilities (7,368,987) (58,794) (7,427,781)
--------------- ---------------- -------------------
Calculated Working Capital 1,551,298 (3,357,359) (1,806,061)
Required Minimum 1,500,000 -- 1,500,000
--------------- ---------------- -------------------
Additional Consideration 51,298 (3,357,359) (3,306,061)
=============== ================ ===================
LONG TERM DEBT AND DISCOUNTED OFF BALANCE SHEET LIABILITIES
Required Maximum 12,800,000 -- 12,800,000
Long Term Debt (3,090,661) 86,720 (3,003,941)
Off Balance Sheet Liabilities Discounted at 8% (1,688,717) (176,370) (1,865,087)
--------------- ---------------- -------------------
Additional Consideration 8,020,622 (89,650) 7,930,972
=============== ================ ===================
Pending Adjustment (225,000)
===================
TOTAL ADDITIONAL CONSIDERATION
Total Additional Consideration due 90 days after close 8,071,920 (4,138,524) 3,708,397
=============== ================ ===================
Total Additional Cash Consideration due 90 days after close 51.1% 4,124,751 (2,114,786) 1,894,991
=============== ================ ===================
Total Additional Notes Consideration due 90 days after close 48.9% 3,947,169 (2,023,738) 1,813,406
=============== ================ ===================
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
ORIGINAL 4/7/00 BALANCE SHEET DETAIL
--------------------------------------------------------------------
Stub Effect of Sale Adjusted for
3/31/2000 Adjustments 4/7/2000 of Prism Prism 4/7/2000
---------------------------------------------------------------------
ASSETS
Current Assets:
Cash 1,441,188 (18,750) 1,422,438 1,220,744 2,643,182
Marketable Securities 2,812,627 -- 2,812,627 -- 2,812,627
Less: Restricted Cash and Cash
Equivalents (See Note A) -- -- -- -- --
----------- ----------- -----------
Sub Total: Unrestricted Cash
and Cash Equivalents 4,253,814 (18,750) 4,235,064 1,220,744 5,455,808
Accounts Receivable:
Brokerage Commissions 3,277,566 -- 3,277,566 -- 3,277,566
Principal's (net of allowance
for doubtful receivables $50,000) (98,325) -- (98,325) -- (98,325)
Other 215,510 -- 215,510 -- 215,510
----------- ----------- -----------
Total 7,648,565 (18,750) 7,629,815 1,220,744 8,850,559
----------- ----------- -----------
Notes Receivables 9,988 -- 9,988 -- 9,988
Prepaid Income Taxes -- -- -- -- --
Deferred Income Taxes -- -- -- -- 338,640
Prepaid Expenses 59,738 -- 59,738 -- 59,738
----------- ----------- -----------
TOTAL CURRENT ASSETS 7,718,291 (18,750) 7,699,541 1,220,744 8,920,285
=========== =========== ===========
Notes Receivable Long Term 1,984 -- 1,984 -- 1,984
Property and Equipment -- -- -- -- --
Furniture & Equipment 2,324,229 -- 2,324,229 -- 2,324,229
Computer & Related Equipment 2,222,630 -- 2,222,630 -- 2,222,630
Leasehold Improvements 145,764 -- 145,764 -- 145,764
----------- ----------- -----------
Total Property and Equipment 4,692,623 -- 4,692,623 -- 4,692,623
Less: Accumulated Depreciation (3,106,075) -- (3,106,075) -- (3,106,075)
----------- ----------- -----------
Net Property and Equipment 1,586,548 -- 1,586,548 -- 1,586,548
Investment in Affiliate 2,515,887 -- 2,515,887 (2,515,887) --
Other Assets:
Intangibles (Net of Amortization) 909,194 -- 909,194 -- 909,194
Deferred Income Tax 225,307 -- 225,307 -- 225,307
CSV of Life Insurance
(Net of O/S Loans) 147,704 -- 147,704 -- 147,704
Other 4,138 -- 4,138 -- 4,138
----------- ----------- -----------
Total Other Assets 1,286,343 -- 1,286,343 1,286,343
----------- ----------- -----------
TOTAL ASSETS 13,109,053 (18,750) 13,090,303 (1,295,143) 11,795,160
=========== =========== ===========
NOTE A - Restricted cash and cash equivalents is comprised of Advances from
Principals (related to Marketing Development Funds), Employee Flexible Spending
and Accrued Income Taxes. The Accrued Income Taxes are considered restricted as
they were required to be paid by April 14, 2000 according to Section 2.9 on the
Purchase Agreement between Marketing Specialist Sales Company and The Sales
Force Companies, Inc.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
ADJUSTMENTS DIRECTED
XXXXX XXXXXXX ADJUSTMENTS DUE DILIGENCE ADJUSTMENTS IN PURCHASE AGREEMENT
---------------------------- --------------------------- -----------------------------
Due Due Diligence
Tax Reclas- Due Diligence Adjusted for
sification Adjusted for Diligence Adjusted Remove Prism Prism Tax
Adjustments Tax Reclasses Adjustments 4/7/2000 Tax Reserve 04/07/2000
---------------------------- ------------- -------------- -----------------------------
ASSETS
Current Assets:
Cash -- 2,643,182 (106,072) 2,537,109 (2,238,303) 298,807
Marketable Securities -- 2,812,627 27,379 2,840,006 -- 2,840,006
Less: Restricted Cash and Cash
Equivalents (See Note A) -- -- (3,668,630) (3,668,630) 2,238,303 (1,430,327)
----------- ----------- ----------
Sub Total: Unrestricted Cash
and Cash Equivalents 5,455,808 1,708,485 1,708,485
Accounts Receivable:
Brokerage Commissions -- 3,277,566 (1,221,597) 2,055,969 -- 2,055,969
Principal's (net of allowance
for doubtful receivables $50,000) -- (98,325) 3,714 (94,611) -- (94,611)
Other -- 215,510 (176,683) 38,827 -- 38,827
----------- ----------- ----------
Total -- 8,850,559 (1,473,259) 7,377,300 (2,238,303) 5,138,997
----------- ----------- ----------
Notes Receivables -- 9,988 -- 9,988 9,988
Prepaid Income Taxes -- -- -- --
Deferred Income Taxes 338,640 338,640 -- 338,640
Prepaid Expenses -- 59,738 74,356 134,094 -- 134,094
----------- ----------- ----------
TOTAL CURRENT ASSETS 338,640 9,258,925 (1,398,902) 7,860,023 (2,238,303) 5,621,720
========== =========== ==========
Notes Receivable Long Term -- 1,984 -- 1,984 -- 1,984
Property and Equipment -- -- -- -- -- --
Furniture & Equipment -- 2,324,229 -- 2,324,229 -- 2,324,229
Computer & Related Equipment -- 2,222,630 -- 2,222,630 -- 2,222,630
Leasehold Improvements -- 145,764 -- 145,764 -- 145,764
----------- ----------- ----------
Total Property and Equipment -- 4,692,623 -- 4,692,623 -- 4,692,623
Less: Accumulated Depreciation -- (3,106,075) -- (3,106,075) -- (3,106,075)
----------- ----------- ----------
Net Property and Equipment -- 1,586,548 -- 1,586,548 -- 1,586,548
Investment in Affiliate -- -- -- --
Other Assets:
Intangibles (Net of Amortization) -- 909,194 -- 909,194 -- 909,194
Deferred Income Tax -- 225,307 -- 225,307 -- 225,307
CSV of Life Insurance
(Net of O/S Loans) -- 147,704 -- 147,704 -- 147,704
Other -- 4,138 -- 4,138 -- 4,138
Total Other Assets -- 1,286,343 -- 1,286,343 -- 1,286,343
----------- ----------- ----------
TOTAL ASSETS 338,640 12,133,800 (1,398,902) 10,734,898 (2,238,303) 8,496,595
=========== =========== ==========
NOTE A - Restricted cash and cash equivalents is comprised of Advances from
Principals (related to Marketing Development Funds), Employee Flexible Spending
and Accrued Income Taxes. The Accrued Income Taxes are considered restricted as
they were required to be paid by April 14, 2000 according to Section 2.9 on the
Purchase Agreement between Marketing Specialist Sales Company and The Sales
Force Companies, Inc.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
ORIGINAL 4/7/00 BALANCE SHEET DETAIL
--------------------------------------------------------------------
Stub Effect of Sale Adjusted for
3/31/2000 Adjustments 4/7/2000 of Prism Prism 4/7/2000
---------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of Long
Term Obligations (1,444,841) -- (1,444,841) -- (1,444,841)
Notes Payable - LSNB (1,543,000) -- (1,543,000) -- (1,543,000
Accounts Payable (410,331) -- (410,331) -- (410,331)
Advances from Principals
(includes Food Shows) (1,279,068) -- (1,279,068) -- (1,279,068)
Accrued Liabilities:
Salaries & Wages (349,718) -- (349,718) -- (349,718)
Commissions (41,170) -- (41,170) -- (41,170)
ESOP Contribution --
Insurance (286,581) -- (286,581) -- (286,581)
Legal and Audit (177,692) -- (177,692) -- (177,692)
(668,000)
354,676
Income Taxes 232,406 -- 232,406 (1,220,744) (1,301,662)
Federal, State and Local Taxes
Withheld & Accrued (1,449) -- (1,449) -- (1,449)
Oklahoma City Contingent Liability (114,941) -- (114,941) -- (114,941)
Interest & Other (418,534) -- (418,534) -- (418,534)
----------- ----------- -----------
Total Accrued Liabilities (1,157,678) -- (1,157,678) (1,534,068) (2,691,746)
----------- ----------- -----------
Investment In Affiliates (100,000) -- (100,000) 100,000 (0)
-- -- -- 668,000 --
Deferred Income Tax (313,324) -- (313,324) (354,676) --
----------- ----------- -----------
TOTAL CURRENT LIABILITIES (6,248,243) -- (6,248,243) (1,120,744) (7,368,987)
=========== =========== ===========
Long Term Obligations (3,090,661) -- (3,090,661) -- (3,090,661)
Stockholders' Equity
Common Stock (121,570) -- (121,570) -- (121,570)
Additional Paid In Capital (4,304,242) -- (4,304,242) -- (4,304,242)
Retained Earnings (8,714,917) -- (8,714,917) (4,185,369) (12,900,286)
Unrealized Gain/(Loss) On
Marketable Securities 38,915 -- 38,915 -- 38,915
Unearned Compensation 13,263 -- 13,263 -- 13,263
----------- ----------- -----------
Total Stockholders' Equity (13,088,552) -- (13,088,552) (17,273,921)
Less Treasury Stock 9,992,700 -- 9,992,700 6,601,256 16,593,956
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY (3,095,852) -- (3,095,852) -- (679,965)
=========== =========== ===========
YTD Net (Income) / Loss (674,297) 18,750 (655,547) -- (655,547)
----------- ----------- -----------
TOTAL LIABILITIES, STOCKHOLDERS'
EQUITY AND YTD INCOME / (LOSS) (13,109,053) -- (13,090,303) 1,295,143 (11,795,160)
=========== =========== ===========
NOTE A - Restricted cash and cash equivalents is comprised of Advances from
Principals (related to Marketing Development Funds), Employee Flexible Spending
and Accrued Income Taxes. The Accrued Income Taxes are considered restricted as
they were required to be paid by April 14, 2000 according to Section 2.9 on the
Purchase Agreement between Marketing Specialist Sales Company and The Sales
Force Companies, Inc.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
ADJUSTMENTS DIRECTED
XXXXX XXXXXXX ADJUSTMENTS DUE DILIGENCE ADJUSTMENTS IN PURCHASE AGREEMENT
---------------------------- --------------------------- -----------------------------
Due Due Diligence
Tax Reclas- Due Diligence Adjusted for
sification Adjusted for Diligence Adjusted Remove Prism Prism Tax
Adjustments Tax Reclasses Adjustments 4/7/2000 Tax Reserve 04/07/2000
---------------------------- ------------- -------------- -----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of Long
Term Obligations -- (1,444,841) (20,100) (1,464,940) (1,464,940)
Notes Payable - LSNB -- (1,543,000) (1,543,000) (1,543,000)
Accounts Payable -- (410,331) 170,638 (239,693) (239,693)
Advances from Principals
(includes Food Shows) -- (1,279,068) 41,861 (1,237,208) (1,237,208)
Accrued Liabilities:
Salaries & Wages -- (349,718) (1,049,715) (1,399,433) (1,399,433)
Commissions -- (41,170) (41,170) (41,170)
ESOP Contribution
Insurance -- (286,581) 98,193 (188,388) (188,388)
Legal and Audit -- (177,692) (486,629) (664,321) (664,321)
Income Taxes (354,676) (1,656,338) (727,259) (2,383,597) 2,238,303 (145,294)
Federal, State and Local Taxes
Withheld & Accrued -- (1,449) (1,449) (1,449)
Oklahoma City Contingent Liability -- (114,941) (114,941) (114,941)
Interest & Other -- (418,534) 30,589 (387,945) (387,945)
----------- ----------- -----------
Total Accrued Liabilities (354,676) (3,046,422) (2,134,821) (5,181,243) 2,238,303 (2,942,940)
----------- ----------- -----------
Investment In Affiliates (0) (0) (0)
--
Deferred Income Tax -- -- -- --
----------- ----------- -----------
TOTAL CURRENT LIABILITIES (354,676) (7,723,663) (1,942,421) (9,666,084) 2,238,303 (7,427,781)
=========== =========== ===========
Long Term Obligations (3,090,661) 86,720 (3,003,941) (3,003,941)
Stockholders' Equity
Common Stock -- (121,570) (121,570) (121,570)
Additional Paid In Capital -- (4,304,242) (4,304,242) (4,304,242)
Retained Earnings 68,214 (12,832,072) 3,713,682 (9,118,390) (9,118,390)
Unrealized Gain/(Loss) On
Marketable Securities (38,915) (0) (0) (0)
Unearned Compensation (13,263) (0) (0) (0)
----------- ----------- -----------
Total Stockholders' Equity 16,036 (17,257,885) (13,544,203) (13,544,203)
Less Treasury Stock -- 16,593,956 (459,079) 16,134,877 16,134,877
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY -- (663,929) 2,590,674 2,590,674
=========== =========== ===========
YTD Net (Income) / Loss -- (655,547) (655,547) (655,547)
----------- ----------- -----------
TOTAL LIABILITIES, STOCKHOLDERS'
EQUITY AND YTD INCOME / (LOSS) (709,352) (12,133,800) 1,398,902 (10,734,898) (8,496,595)
=========== =========== ===========
NOTE A - Restricted cash and cash equivalents is comprised of Advances from
Principals (related to Marketing Development Funds), Employee Flexible Spending
and Accrued Income Taxes. The Accrued Income Taxes are considered restricted as
they were required to be paid by April 14, 2000 according to Section 2.9 on the
Purchase Agreement between Marketing Specialist Sales Company and The Sales
Force Companies, Inc.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
ADJUSTMENTS TO 4/7/2000 BALANCE SHEET THAT SUPPORTS
SCHEDULE 1.2(B) OF THE PURCHASE AGREEMENT DATED 4/14/2000
ADJUSTMENT NUMBER WP REFERENCE ACCOUNT DESCRIPTION DEBIT CREDIT
---------------- ----------------- ------------------------------------------------------- ------------- ----------------
12 Retained Earnings 1,221,597
Brokerage Commissions 1,221,597
TO ADJUST BROKERAGE COMMISSIONS WHICH WERE NOT
UPDATED FROM FISCAL YEAR END
12 Accounts Receivable - Principals 3,714
Retained Earnings 3,714
TO ADJUST BEGINNING BALANCE FOR STUB PERIOD
ACTIVITY AND CUT OFF ENTRY.
16 Advances to Principals (MDF Funds) 41,861
Retained Earnings 41,861
TO ADJUST FOR ACTIVITY IN STUB PERIOD
17 Retained Earnings 452,024
Accrued Salaries and Wages 452,024
TO ACCRUE FOR SALARY AND WAGES IN THE STUB PERIOD
IN ADDITION TO THE VACATION ACCRUAL PREVIOUSLY BOOKED.
18-A(1) Retained Earnings 727,259
Income Taxes 727,259
INCREASE INCOME TAX ACCRUAL TO REFLECT ACTUAL PAYMENTS
MADE SUBSEQUENT TO APRIL 7, 2000.
9A Cash 363,650
Retained Earnings 95,429
Treasury Stock 459,079
TO ADJUST PRISM SALE TRANSACTION ON THE 4/7/00
BALANCE SHEET
18-A(1) Income Tax Liability 2,238,303
Cash 2,238,303
TO REMOVE PRISM TAX RESERVE FROM WORKING CAPITAL OR
UNRESTRICTED CASH AS DEFINED IN SECTION
1.2(B) OF THE PURCHASE AGREEMENT
13 Retained Earnings 5,165
Other Assets 5,165
TO ADJUST FOR A WRITE-OFF OF YEAR OLD CHECKS LOST
IN THE MAIL AND A SMALL CALCULATION ADJUSTMENT.
14 Retained Earnings 3,341
Prepaid Expenses 3,341
TO ADJUST AMORTIZATION AND REVERSE 2 MISCODED
JOURNAL ENTRIES.
17 Accrued Insurance 124,813
Retained Earnings 124,813
ESTIMATED REDUCTION IN ACCRUAL
00-X Xxxx Xxxx Xxxx 20,100
Current Portion Long Term Debt 20,100
TO ADJUST CURRENT PORTION OF LONG TERM DEBT TO REFLECT
BALANCE AS OF 4/7/00
20-C Long Term Debt 30,496
Retained Earnings 2,710
Cash 33,206
TO ADJUST LONG TERM DEBT FOR PAYMENTS MADE
DURING STUB PERIOD
10-A Prepaid Expenses 77,697
Accrued Legal & Audit 28,066
Long Term Debt 36,125
Retained Earnings 466,146
Cash 608,034
TO ADJUST CASH TO REFLECT ACTIVITY OF THE STUB
PERIOD AS OF 4/7/00
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
ADJUSTMENTS TO 4/7/2000 BALANCE SHEET THAT SUPPORTS
SCHEDULE 1.2(B) OF THE PURCHASE AGREEMENT DATED 4/14/2000
ADJUSTMENT NUMBER WP REFERENCE ACCOUNT DESCRIPTION DEBIT CREDIT
---------------- ----------------- ---------------------------------------------------- ------------- ----------------
17 Retained Earnings 597,691
Accrued Salaries & Wages 597,691
TO ADJUST ACCRUED VACATION BALANCE TO REFLECT
OUTSTANDING LIABILITY AS OF 4/7/00
19 Accrued Interest & Other 30,589
Retained Earnings 30,589
TO ADJUST ACCRUED INTEREST TO RECORD PAYMENTS AND
REFLECT BALANCE AS OF 4/7/00
15 Accounts Payable 170,638
Retained Earnings 170,638
TO ADJUST ACCOUNTS PAYABLE FOR STUB PERIOD ACTIVITY
17-H Retained Earnings 26,620
Accrued Insurance 26,620
TO ADJUST THE ACCRUED INSURANCE RELATED TO FLEX
SPENDING FOR STUB PERIOD
11 Marketable Securities 27,379
Retained Earnings 27,379
TO ADJUST THE MARKETABLE SECURITIES BALANCE AS
OF 4/7/00
17 Retained Earnings 80,000
Accrued Legal & Audit 80,000
TO ADJUST THE ACCRUAL FOR 10/31/99 AND STUB PERIOD
TAX RETURN PREPARATION FEES
17 Retained Earnings 434,695
Accrued Legal & Audit 434,695 *
TO ADJUST THE ACCRUAL FOR PENDING LITIGATION
AS OF 4/7/00
Cash 171,518
Other Assets 171,518
TO ADJUST FOR THE RECEIPT OF XXXXXXXX
CHECK BY MARKETING SPECIALISTS
ITEMS NOT ON BALANCE SHEET BUT RELATED TO PPA AND EXHIBIT 1.29(b) OF THE PURCHASE AGREEMENT
schd 1.2(b) Retained Earnings 123,532
Off Balance Sheet Liabilities 123,532
TO ADJUST OFF BALANCE SHEET LIABILITIES TO
INCLUDE LEAKER AND XXXXX
schd 1.2(b) Retained Earnings 52,838
Off Balance Sheet Liabilities 52,838
TO ADJUST OFF BALANCE SHEET LIABILITIES TO
INCLUDE XXXXXXXXX
* In accordance with Section 9.1 of the Purchase Price Agreement regarding
stockholder indemnification.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
DUE DILIGENCE PROJECT
A/R-BROKERAGE COMMISSIONS ANALYSIS
A/R-Brokerage Commissions Balance as of 4/7/00 3,277,566
ADJUSTMENTS
Adjustment to True-Up Balance to Actual Cash Receipts (1,221,597)(A)
----------
Adjusted A/R-Brokerage Commissions Balance as of 4/7/00 2,055,969
==========
(1) A/R-BROKERAGE COMMISSIONS ADJUSTMENT DETAIL:
75% of April Cash Receipts 1,495,774
25% of May Cash Receipts 560,195
----------
Total Cash Receipts 2,055,969 (1)
A/R-Brokerage Commissions Balance per SFCI 3,277,566
----------
Calculated Adjustment (1,221,597)
==========
(1) $171,518 removed from this balance as a result of that amount being recorded
as Other Assets: A/R from Marketing Specialists related to the Xxxxxxxx Account.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
DUE DILIGENCE PROJECT
CASH ADJUSTMENT ANALYSIS
Cash Balance as of 4/7/00 2,643,182
Marketable Securities Balance as of 4/7/00 2,812,627
----------
Total Cash & Cash Equivalents as of 4/7/00 5,455,808
ADJUSTMENTS
Increase in Cash Due to Prism 363,650 (1)
Decrease in Cash Due to Stub Period Activity (4/1/00 - 4/7/00) (641,240) (2)
Increase in Cash Due to Xxxxxxxx Check received by MSSC prior to 4/7/00 171,518 (3)
Increase Due In Marketable Securities due to Liquidation Value 27,379 (4)
----------
Adjusted Cash Balance as of 4/7/00 2,537,109
Adjusted Marketable Securities Balance as of 4/7/00 2,840,006
----------
Adjusted Cash & Cash Equivalents as of 4/7/00 5,377,115
==========
RESTRICTED CASH COMPONENTS
Advances from Principals - Marketing Development Funds (1,237,208) (5)
Employee Flexible Spending (47,826) (6)
Income Taxes (2,383,597) (7)
----------
Total Restricted Cash (3,668,630)
Total Unrestricted Cash & Cash Equivalents as of 4/7/00 1,708,485
==========
(1) On 4/7/00 Balance Sheet, the Company made an adjustment to include Prism
Cash and Taxes as opposed to removing the amounts as stated in the purchase
agreement. This entry reflects a true up to actual entries booked on 4/14/00.
(2) On the 4/7/00 Balance Sheet, the Cash Balance reflected the account activity
as of March 31, 200 as opposed to the balance as of 4/7/00. This entry reflects
the stub period cash activity occurring between 4/1/00 - 4/7/00.
(3) Marketing Specialists received checks from Xxxxxxxx amounting to $171,518
which related to Sales Force receivables. Based on the timing of these receipts
the amount is being reflected as cash received by Sales Force.
(4) On the 4/7/00 Balance Sheet, the Marketable Securities Balance did not
reflect the actual liquidation value of the securities. This entry reflects the
write-up to the liquidation amount which occurred on 4/11/00.
(5) This amount represents marketing development funds (MDF) considered
restricted on Marketing Specialists' 10K based upon their use being directed by
the principal that advanced the funds.
(6) This amounts represents cash deducted from employee paychecks for cafeteria
plan flexible spending accounts. This money is controlled and maintained by a
third party administrator and belongs to the employees.
(7) The total accrued income taxes are considered restricted as they were
required to be paid in full at the close of the acquisition according to Section
2.9 of the Purchase Agreement.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
DUE DILIGENCE PROJECT
INCOME TAXES ADJUSTMENT ANALYSIS
Income Taxes Payable Balance as of 4/7/00 1,301,662
ADJUSTMENTS
Xxxxx Xxxxxxx Tax Reclassification 354,676
Increase Income Tax Liability based on Actual Payments 727,259
---------
Adjusted Income Taxes Payable Balance as of 4/7/00 2,383,597 (1)
=========
(1) INCOME TAX ADJUSTMENT DETAIL:
2nd Quarter Estimated State Payments 350,700
2nd Quarter Estimated Federal Payments 1,669,000
1st Quarter Estimated State Payments 24,100
1st Quarter Estimated Federal Payments 200,000
---------
Total Estimated 1st & 2nd Quarter Payments @ 90% 2,243,800
=========
Total Estimated 1st & 2nd Quarter Payments @100% 2,493,111
Increase State Income Taxes from 6% to 8% 114,586
Less: 1st Quarter Estimated Payments (224,100)
---------
Total Calculated Income Tax Liability 2,383,597
Xxxxx Xxxxxxx Tax Reclassification 354,676
Income Tax Payable Balance as of 4/7/00 1,301,662
---------
Income Tax Liability Adjustment 727,259
=========
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
DUE DILIGENCE PROJECT
LEGAL & AUDIT ADJUSTMENT ANALYSIS
Accrued Legal & Audit Balance as of 4/7/00 177,692
ADJUSTMENTS
Adjustment to reflect stub period cash disbursements (28,066) (1)
Adjustment to accrue for tax return preparation fees 80,000 (2)
Adjustment to accrue for pending litigation 434,695 (3)
-------
Total Adjustments 486,629
Adjusted Accrued Legal & Audit Balance as of 4/7/00 664,321
=======
(1) Amount represents payment of legal fees to Xxxxxxxx & Xxxxxxx on April 4,
2000.
(2) Amount reflects estimated billing by Xxxxx Xxxxxxx for preparation of
10/31/99 and stub period tax returns.
(3) Amount reflects potential litagation settlement for breach of purchase
agreement complaint filed against Sales Force.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
DUE DILIGENCE PROJECT
OFF-BALANCE SHEET LIABILITIES ADJUSTMENT ANALYSIS
Off-Balance Sheet Liabilities Balance as of 4/7/00 1,688,717
ADJUSTMENTS
Off-Balance Sheet Liabilities True-Up 176,370 (1)
---------
Adjusted Off-Balance Sheet Liabilities Balance as of 4/7/00 1,865,087
=========
(1) OFF-BALANCE SHEET LIABILITIES ADJUSTMENT DETAIL:
Adjustment for Xxxxx & Xxxxxx Non-Compete Agreements 123,532
Adjustment for XxXxxxxxx Life Insurance 52,838
---------
Total Off-Balance Sheet Liabilities Adjustment 176,370
=========
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC.
DUE DILIGENCE PROJECT
PRISM TAX RESERVE ADJUSTMENT ANALYSIS
Gain on Sale of Prism 4,089,940
State Income Tax Rate 7.18%
----------
Projected State Income Taxes 293,658
==========
Gain on Sale of Prism 4,089,940
Less: Projected State Income Taxes (293,658)
----------
Subtotal 3,796,282
Federal Income Tax Rate 34.0%
----------
Projected Federal Income Taxes 1,290,736
==========
1999 Prism K-1 1,687,995
State Income Tax Rate 7.18%
----------
Projected State Income Taxes 121,198
==========
1999 Prism K-1 1,687,995
Less: Projected State Income Taxes (121,198)
----------
Subtotal 1,566,797
Federal Income Tax Rate 34.0%
----------
Project Federal Income Taxes 532,711
==========
PRISM TAX RESERVE SUMMARY
State Taxes Related to Gain on Sale 293,658
Federal Taxes Related to Gain on Sale 1,290,736
State Taxes Related to 1999 K-1 121,198
Federal Taxes Related to 1999 K-1 532,711
----------
Total Prism Tax Reserve 2,238,303
==========
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC. 4/13/2001
DUE DILIGENCE PROJECT
SALARIES & WAGES ADJUSTMENT ANALYSIS
Salaries & Wages Balance as of 4/7/00 349,718
ADJUSTMENTS
Salaries & Wages Accrual for Stub Period of 4/1/00-4/7/00 452,024 (A)
Vacation Accrual Adjustment True-Up 597,691 (B)
---------
Total Adjustments 1,049,715
Adjusted Accrued Salaries & Wages Balance as of 4/7/00 1,399,433
=========
(A) SALARIES & WAGES ADJUSTMENT DETAIL:
25 % Exempt Payroll for the month ending 4/30/00 292,209
75% Non-Exempt Payroll for the month ending 4/30/00 159,815
---------
Total Salaries & Wages Adjustment 452,024
=========
(B) VACATION ACCRUAL ADJUSTMENT DETAIL:
Net SFCI Vacation Balance per MSSC as of 6/30/00 947,409
Vacation Accrual Balance as of 4/7/00 349,718
---------
Vacation Accrual True-Up Adjustment 597,691
=========
(1) Expempt Employees were paid through 3/31/00 on 3/31/00. Therefore, the
accrual is calculated to represent the estimated salaries earned during the
first week of April which were to be paid on 4/15/00.
(2) Non-Exempt Employees were paid through 3/18/00 on 3/31/00. Therefore, the
accrual is calculated to represent the estimated salaries earned during the last
two weeks of March which were to be paid on 4/15/00 and the first week of April
which were to be paid on 4/30/00.
PRIVILEGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
THE SALES FORCE COMPANIES, INC. 4/13/2001
DETAIL OF ADJUSTMENTS TO SCHEDULE 1.2(B)
OF THE PURCHASE PRICE AGREEMENT DATED 4/14/2000
UNRESTRICTED CASH
CASH & CASH EQUIVALENTS BALANCE AS OF 4/7/00 5,455,808
ADJUSTMENTS
Decrease in Cash & Cash Equivalents (106,072)
Increase in Marketable Securities 27,379
Restricted Cash & Cash Equivalents (3,668,630)
----------
TOTAL ADJUSTMENTS (3,747,323)
----------
ADJUSTED CASH & CASH EQUIVALENTS BALANCE AS OF 4/7/00 1,708,485
==========
CURRENT ASSETS
CURRENT ASSETS BALANCE AS OF 4/7/00 8,920,285
ADJUSTMENTS
Xxxxx Xxxxxxx Tax Reclassification 338,640
Decrease in Cash & Cash Equivalents (277,590)
Increase in Marketable Securities 27,379
Decrease in A/R-Brokerage Commissions (1,221,597)
Increase in A/R-Principal's 3,714
Decrease in Other Assets (5,165)
Increase in Prepaid Expenses 74,356
Prism Tax Reserve Adjustment (2,238,303)*
----------
TOTAL ADJUSTMENTS (3,298,565)
----------
ADJUSTED CURRENT ASSETS BALANCE AS OF 4/7/00 5,621,720
==========
CURRENT LIABILITIES
CURRENT LIABILITIES BALANCE AS OF 4/7/00 (7,368,987)
ADJUSTMENTS
Xxxxx Xxxxxxx Tax Reclassification (354,676)
Increase in Current Maturities of Long Term Obligations (20,100)
Decrease in Accounts Payable 170,638
Decrease in Advances from Principals 41,861
Increase in Accrued Liabilities: Salaries and Wages (1,049,715)
Decrease in Accrued Liabilities: Insurance 98,193
Increase in Accrued Liabilities: Legal & Audit (486,629)
Increase in Income Taxes Payable (727,259)
Decrease in Accrued Interest & Other 30,589
Prism Tax Reserve Adjustment 2,238,303 *
----------
TOTAL ADJUSTMENTS (58,794)
----------
ADJUSTED CURRENT LIABILITIES BALANCE AS OF 4/7/00 (7,427,781)
==========
* The Prism Tax Reserve shall not be included in the calculation of Working
Capital or unrestricted cash in accordance with Section 1.2(b) of the Purchase
Agreement.
PRIVILEDGED & CONFIDENTIAL
ATTORNEY-CLIENT COMMUNICATION
