-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D7rDh6HsA6bq3fTDCciAWoS+RQ4UxuXaL///T0yooXnIU+1dgKr1CdN1qpU2DpbF eeGKTujnjLKZqIxsJxO0zw== 0000868780-03-000008.txt : 20031107 0000868780-03-000008.hdr.sgml : 20031107 20031107130826 ACCESSION NUMBER: 0000868780-03-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030927 FILED AS OF DATE: 20031107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R & B INC CENTRAL INDEX KEY: 0000868780 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 232078856 STATE OF INCORPORATION: PA FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18914 FILM NUMBER: 03984395 BUSINESS ADDRESS: STREET 1: 3400 E WALNUT ST CITY: COLMAR STATE: PA ZIP: 18915 BUSINESS PHONE: 2159971800 MAIL ADDRESS: STREET 1: 3400 E WALNUT ST CITY: COLMAR STATE: PA ZIP: 18915 10-Q 1 sec10q903.txt SEC FORM 10-Q 9-27-03 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q ------------------- |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 27, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------- Commission file number 0-18914 R&B, INC. Incorporated pursuant to the Laws of the Commonwealth of Pennsylvania ------------------- IRS - Employer Identification No. 23-2078856 3400 East Walnut Street, Colmar, Pennsylvania 18915 (215) 997-1800 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No|_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes |_| No|X| As of November 5, 2003 the Registrant had 8,758,919 common shares, $.01 par value, outstanding. - -------------------------------------------------------------------------------- Page 1 of 15 R & B, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q September 27, 2003 Page Part I -- FINANCIAL INFORMATION Item 1.Consolidated Financial Statements (unaudited) Statements of Operations: Thirteen Weeks Ended September 27, 2003 and September 28, 2002 ........................ 3 Thirty-nine Weeks Ended September 27, 2003 and September 28, 2002......................... 4 Balance Sheets............................... 5 Statements of Cash Flows............................. 6 Notes to Consolidated Financial Statements........... 7 Item 2.Management's Discussion and Analysis of Results of Operations and Financial Condition......................... 10 Item 3.Quantitative and Qualitative Disclosure about Market Risk ................................ 13 Item 4.Controls and Procedures............................... 13 Part II -- OTHER INFORMATION Item 1.Legal Proceedings.................................... 14 Item 6.Exhibits and Reports on Form 8-K..................... 14 Signatures . . . . . . . ................................... 15 Page 2 of 15 PART I . FINANCIAL INFORMATION R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Thirteen Weeks Ended ------------------------------ September 27September 28, (in thousands, except per share data) 2003 2002 - -------------------------------------------------------------------------------------------- Net Sales $ 58,183 $ 53,889 Cost of goods sold 37,357 34,718 - -------------------------------------------------------------------------------------------- Gross profit 20,826 19,171 Selling, general and administrative expenses 14,216 14,209 - -------------------------------------------------------------------------------------------- Income from operations 6,610 4,962 Interest expense, net of interest income of $35 and $120 846 942 - -------------------------------------------------------------------------------------------- Income before taxes 5,764 4,020 Provision for taxes 2,047 1,412 - -------------------------------------------------------------------------------------------- Net Income $ 3,717 $ 2,608 ============================================================================================ Earnings Per Share: Basic $0.43 $0.31 Diluted 0.41 0.29 ============================================================================================ Average Shares Outstanding: Basic 8,717 8,493 Diluted 9,098 8,965
See accompanying notes to consolidated financial statements. Page 3 of 15 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Thirty-nine Weeks Ended ------------------------------ September 27September 28, (in thousands, except per share data) 2003 2002 - -------------------------------------------------------------------------------------------- Net Sales $ 166,523 $ 160,424 Cost of goods sold 105,916 102,498 - -------------------------------------------------------------------------------------------- Gross profit 60,607 57,926 Selling, general and administrative expenses 43,287 43,243 Gain on sale of specialty fastener business (Note 7) - (2,143) - -------------------------------------------------------------------------------------------- Income from operations 17,320 16,826 Interest expense, net of interest income of $150 and $337 2,621 3,078 - -------------------------------------------------------------------------------------------- Income before taxes 14,699 13,748 Provision for taxes 5,232 4,878 - -------------------------------------------------------------------------------------------- Net Income $ 9,467 $ 8,870 ============================================================================================ Earnings Per Share: Basic $1.10 $1.05 Diluted 1.05 0.99 ============================================================================================ Average Shares Outstanding: Basic 8,610 8,484 Diluted 9,026 8,944
See accompanying notes to consolidated financial statements. Page 4 of 15 R&B, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 27, December 28, (in thousands, except share data) 2003 2002 - -------------------------------------------------------- --------------- -------------- Assets (unaudited) Current Assets: Cash and cash equivalents $ 8,791 $ 5,169 Short-term investments 7,518 14,002 Accounts receivable, less allowance for doubtful accounts and customer credits of $19,389 and $17,854 51,358 48,769 Inventories 50,199 47,217 Deferred income taxes 7,856 7,621 Prepaids and other current assets 2,242 1,425 - -------------------------------------------------------- --------------- -------------- Total current assets 127,964 124,203 233.3 - -------------------------------------------------------- --------------- -------------- Property, Plant and Equipment, net 16,598 16,591 Goodwill 28,931 28,607 Other Assets 746 727 - -------------------------------------------------------- --------------- -------------- Total $174,239 $170,128 ======================================================== =============== ============== Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 9,055 $ 9,291 Accounts payable 11,884 11,813 Accrued compensation 6,088 7,304 Other accrued liabilities 6,462 4,455 - -------------------------------------------------------- --------------- -------------- Total current liabilities 33,489 32,863 Long-Term Debt 35,213 44,218 Deferred Income Taxes 4,151 3,475 Commitments and Contingencies Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued and outstanding 8,747,097 and 8,501,070 shares 87 85 Additional paid-in capital 34,058 32,937 Cumulative translation adjustments 1,279 55 Retained earnings 65,962 56,495 Total shareholders' equity 101,386 89,572 - -------------------------------------------------------- --------------- -------------- Total $174,239 $170,128 ======================================================== =============== ==============
See accompanying notes to consolidated financial statements. Page 5 of 15 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Thirty-nine Weeks Ended ----------------------------------- September 27, September 28, (in thousands) 2003 2002 - ---------------------------------------------------------------- ----------------- ----------------- Cash Flows from Operating Activities: Net income $ 9,467 $ 8,870 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 3,352 4,362 Provision for doubtful accounts 440 459 Provision for deferred income tax 441 238 Provision for non-cash stock compensation 21 136 Gain on sale of specialty fastener business - (1,329) Changes in assets and liabilities: Accounts receivable (2,581) (13,460) Inventories (2,190) (525) Prepaids and other (912) 8 Accounts payable (123) 2,464 Other accrued liabilities 1,405 (1,648) - ---------------------------------------------------------------- ----------------- ----------------- Cash provided by (used in) operating activities 9,320 (425) - ---------------------------------------------------------------- ----------------- ----------------- Cash Flows from Investing Activities: Property, plant and equipment additions (3,343) (2,511) Purchases of short-term investments (8,114) (17,217) Proceeds from maturities of short-term investments 14,598 5,787 Proceeds from litigation settlement and sale of specialty fastener business, net - 7,374 - ---------------------------------------------------------------- ----------------- ----------------- Cash provided by (used in) investing activities 3,141 (6,567) - ---------------------------------------------------------------- ----------------- ----------------- Cash Flows from Financing Activities: Repayment of term loans and capitalized lease obligations (9,241) ( 10,570) Proceeds from common stock issuances 402 60 - ---------------------------------------------------------------- ----------------- ----------------- Cash used in financing activities (8,839) (10,510) - ---------------------------------------------------------------- ----------------- ----------------- Net Increase (Decrease) in Cash and Cash Equivalents 3,622 (17,502) Cash and Cash Equivalents, Beginning of Period 5,169 21,689 - ---------------------------------------------------------------- ----------------- ----------------- Cash and Cash Equivalents, End of Period $ 8,791 $ 4,187 ================================================================ ================= ================= Supplemental Cash Flow Information Cash paid for interest expense $ 2,822 $ 3,380 Cash paid for income taxes $ 2,538 $ 4,756 See accompanying notes to consolidated financial statements.
Page 6 of 15 R&B, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002 (UNAUDITED) 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. However, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the thirty-nine week period ended September 27, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending December 27, 2003. For further information, refer to the financial statements and footnotes thereto included in R&B, Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December 28, 2002. 2. Inventories Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of the Company's products. Inventories were as follows: September 27, December 28, (in thousands) 2003 2002 - ------------------- --------------- --------------- Bulk product $21,806 $19,923 Finished product 25,699 24,462 Packaging materials 2,694 2,832 - ------------------- --------------- --------------- Total $50,199 $47,217 =================== =============== =============== 3. Earnings Per Share The following table sets forth the computation of basic earnings per share and diluted earnings per share for the thirteen week and thirty-nine week periods ended September 27, 2003 and September 28, 2002.
Thirteen Weeks Ended Thirty-nine Weeks Ended --------------------------------------------------------------- September 27, September 28, September 27, September 28, (in thousands, except per share data) 2003 2002 2003 2002 - ------------------------------------- -------------- --------------- -------------- --------------- Numerator: Net income .................... $ 3,717 $2,608 $9,467 $ 8,870 Denominator: Weighted average shares outstanding 8,717 8,493 8,610 8,484 Effect of dilutive stock options 381 472 416 460 -------------- --------------- -------------- --------------- Adjusted weighted average shares outstanding for diluted earnings per share................... 9,098 8,965 9,026 8,944 ============== =============== ============== =============== Basic earnings per share............ $ 0.43 $ 0.31 $ 1.10 $ 1.05 ============== =============== ============== =============== Diluted earnings per share.......... $ 0.41 $ 0.29 $ 1.05 $ 0.99 ============== =============== ============== ===============
Options to purchase 5,000 shares were outstanding at September 28, 2002, but were not included in the computation of diluted earnings per share, as their effect would have been antidilutive. Page 7 of 15 4. Stock-Based Compensation Effective May 18, 2000 the Company amended and restated its Incentive Stock Option Plan (the "Plan"). Under the terms of the Plan, the Board of Directors of the Company may grant incentive stock options and non-qualified stock options or combinations thereof to purchase up to 1,172,500 shares of common stock to officers, directors and employees. Grants under the Plan must be made within 10 years of the plan amendment date and are exercisable at the discretion of the Board of Directors but in no event more than 10 years from the date of grant. At September 27, 2003, options to acquire 258,831 shares were available for grant under the Plan. The Company accounts for the Plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees", and related interpretations. Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant between the fair value of the stock and the exercise price of the option. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards, ("SFAS") No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.
Thirteen Weeks Ended Thirty-nine Weeks Ended - ------------------------------------------------ ------------------------------ ------------------------------ September 27, September 28, September 27, September 28, (in thousands, except per share data) 2003 2002 2003 2002 - ------------------------------------------------ --------------- -------------- -------------- --------------- Net income: Net income, as reported $ 3,717 $ 2,608 $ 9,467 $ 8,870 Add: Stock-based employee compensation expense expense, net of related tax effects, included in the determination of net income, as reported - 9 13 88 Less: Stock-based employee compensation expense, net of related tax effects, determined under fair value based method for all awards (25) (157) (52) (472) Net income, pro forma $ 3,692 $ 2,460 $ 9,428 $ 8,486 - ------------------------------------------------ --------------- -------------- -------------- --------------- Earnings per share: Basic - as reported $ 0.43 $ 0.31 $ 1.10 $ 1.05 Basic - pro forma $ 0.42 $ 0.29 $ 1.10 $ 1.00 Diluted - as reported $ 0.41 $ 0.29 $ 1.05 $ 0.99 Diluted - pro forma $ 0.41 $ 0.27 $ 1.04 $ 0.95 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: 2003 2002 ---- ---- Expected dividend yield 0% 0% Expected stock price volatility 53% 46% Risk-free interest rate 3.4% 5.3% Expected life of option 7.5 years 7.5 years
5. Related-Party Transaction The Company has entered into leases for two operating facilities with partnerships of which the Company's Chief Executive Officer and Executive Vice President are partners. On March 14, 2003, the Company entered into an agreement with one of the partnerships related to the Company to terminate the lease for one of these facilities. On April 15, 2003, in connection with the closing of the sale of the building by the partnership to an unrelated entity, the Company paid $200,000, which was previously accrued, to terminate this lease. Page 8 of 15 6. New Accounting Pronouncements In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal of Activities." The statement will be applied prospectively to exit or disposal activities initiated after December 28, 2002. The initial adoption of this pronouncement will not have a material effect on the consolidated statement of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS 123." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the estimate of the market value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company will adopt the annual disclosure provisions of SFAS No. 148 in its financial reports for the fiscal year ended December 27, 2003 and has adopted the interim disclosure provisions for its financial reports beginning with the quarter ended March 29, 2003. As the adoption of this standard involves disclosures only, the Company does not expect a material impact on its results of operations, financial position or liquidity. In January 2003, the FASB issued Interpretation Number 46, "Consolidation of Variable Interest Entities" (FIN 46). This interpretation addresses consolidation by business enterprises of variable interest entities. This interpretation is not expected to have a material effect on the Company's consolidated financial statements. 7. Gain on Sale of Specialty Fastener Business and Litigation Settlement On May 1, 2002, the Company entered into agreements to sell its specialty fastener business and to settle litigation initiated by the Company in 1996 related to its purchase of its Dorman business. Total proceeds from the sale and settlement, net of transaction costs and estimated purchase price adjustments were approximately $7.4 million. The transactions resulted in an after-tax gain on the sale of the fastener business of $1.3 million, and a reduction in goodwill totaling $2.2 million. Page 9 of 15 R&B, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION General Over the periods presented, the Company has focused its efforts on providing an expanding array of new product offerings and strengthening its relationships with its customers. To that end, the Company has made significant investments to increase market penetration, primarily in the form of product development, customer service, customer credits and allowances. The Company recognizes revenue for sales to its customers at the time of shipment from the Company's warehouses. Net sales are calculated by subtracting allowances for customer credits from gross revenues. Allowances for customer credits include costs for product returns, discounts and promotional rebates given to customers who purchase new products for inclusion in their stores, and the cost of competitors' products that are purchased from the customer in order to induce a customer to purchase new product lines from the Company. The Company provides for customer credits and potential returns at the time of sale. The Company may experience significant fluctuations from quarter to quarter in its results of operations due to the timing of orders placed by the Company's customers. Generally, the second and third quarters have the highest level of shipments, but the introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter. The Company operates on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year. Sale of Specialty Fastener Business and Litigation Settlement On May 1, 2002, the Company entered into agreements to sell its specialty fastener business and to settle litigation initiated by the Company in 1996 related to its purchase of the Dorman business. Total proceeds from the sale and settlement, net of transaction costs and purchase price adjustments were approximately $7.4 million. The transactions resulted in an after-tax gain on the sale of the fastener business of $1.3 million, and a reduction in goodwill totaling $2.2 million. Results of Operations The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Company's Consolidated Statements of Operations:
Percentage of Net Sales -------------------------------------------------------------- For the Thirteen Weeks Ended For theThirty-nine Weeks Ended -------------------------------------------------------------- September 27, September 28, September 27, September 28, 2003 2002 2003 2002 - ---------------------------------------- --------------- -------------- --------------- --------------- Net Sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 64.2% 64.4% 63.6% 63.9% - ---------------------------------------- --------------- -------------- --------------- --------------- Gross profit 35.8% 35.6% 36.4% 36.1% Selling, general and administrative expenses 24.4% 26.4% 26.0% 26.9% Gain on sale of Specialty Fastener business - - - (1.3)% - ---------------------------------------- --------------- -------------- --------------- --------------- Income from operations 11.4% 9.2% 10.4% 10.5% Interest expense, net 1.5% 1.7% 1.6% 1.9% - ---------------------------------------- --------------- -------------- --------------- --------------- Income before taxes 9.9% 7.5% 8.8% 8.6% Provision for taxes 3.5% 2.7% 3.1% 3.1% - ---------------------------------------- --------------- -------------- --------------- --------------- Net Income 6.4% 4.8% 5.7% 5.5% ======================================== =============== ============== =============== ===============
Page 10 of 15 Thirteen Weeks Ended September 27, 2003 Compared to Thirteen Weeks Ended September 28, 2002 Net sales increased 8.0% to $58.2 million for the thirteen weeks ended September 27, 2003 from $53.9 million for the same period in 2002. The favorable effects of foreign currency exchange resulted in a 2.0% year over year increase in sales. The remaining sales increase of 6% was primarily a result of several successful new product introductions and shipments to new customers for the Company's Allparts brake and Pik-A-Nut home hardware businesses. Cost of goods sold, as a percentage of sales, decreased to 64.2% for the thirteen weeks ended September 27, 2003 from 64.4% in the same period last year. Savings from cost reduction initiatives were essentially offset by higher sales credits granted to customers in connection with line updates and other returns in the normal course of business. Selling, general and administrative expenses for the thirteen weeks ended September 27, 2003 were essentially flat with the prior year, but declined as a percentage of sales from 26.4% to 24.4%. The decrease as a percentage of sales is the result of savings from cost reduction initiatives as well as the fact that certain of these expenses are fixed in nature and thus do not increase proportionally as sales increase. Also, results for 2002 include $0.2 million in facility relocation and shutdown costs. Interest expense, net, decreased $0.1 million in the thirteen weeks ended September 27, 2003 when compared to the prior year due to lower borrowing levels. In August 2003 the Company made the second of seven annual installment payments of $8.6 million due under the terms of its Senior Note Agreements. The Company's effective tax rate increased slightly to 35.5% for the thirteen weeks ended September 27, 2003 from 35.1% for the thirteen weeks ended September 28, 2002 due primarily to a lower mix of earnings generated from the Company's Swedish subsidiary where tax rates are lower than those in the United States. Thirty-nine Weeks Ended September 27, 2003 Compared to Thirty-nine Weeks Ended September 28, 2002 Net sales increased 3.8% to $166.5 million for the thirty-nine weeks ended September 27, 2003 from $160.4 million for the same period in 2002. Sales volume in 2003 increased as a result of several successful new product introductions and shipments to new customers for the Company's Allparts brake and Pik-A-Nut home hardware businesses. These sales increases were partially offset by a decline in sales volume in the Company's Swedish subsidiary due to the weak U.S. dollar. On a year to date basis, the favorable effects of foreign currency exchange resulted in a 2% year over year increase in sales. However, this benefit was largely offset by the elimination of $2.1 million in net sales from the specialty fastener business sold in May 2002 and sales volume declines in the Swedish business. Cost of goods sold, as a percentage of sales, decreased to 63.6% for the thirty-nine weeks ended September 27, 2003 from 63.9% in the same period last year. Savings from cost reduction initiatives were largely offset by higher sales credits granted to customers in connection with line updates and other returns in the normal course of business. Selling, general and administrative expenses for the thirteen weeks ended September 27, 2003 were essentially flat with the prior year, but declined as a percentage of sales from 26.9% to 26.0%. The decrease as a percentage of sales is the result of savings from cost reduction initiatives as well as the fact that certain of these expenses are fixed in nature and thus do not increase proportionally as sales increase. Also, results for 2002 include $1.0 million in facility relocation and shutdown costs. Interest expense, net, decreased to $2.6 million for the thirty-nine weeks ended September 27, 2003 from $3.1 million in the prior year due to lower borrowing levels. In August 2003 the Company made the second of seven annual installment payments of $8.6 million due under the terms of its Senior Note Agreements. The Company's effective tax rate increased slightly to 35.6% for the thirteen weeks ended September 27, 2003 from 35.5% for the thirteen weeks ended September 28, 2002. Liquidity and Capital Resources Historically, the Company has financed its growth through a combination of cash flow from operations and through the issuance of senior indebtedness through its bank credit facility and senior note agreements. At September 27, 2003, working capital was $94.5 million, total long-term debt (including the current portion) was $44.3 million and shareholders' equity was $101.4 million. Cash and short-term investments as of September 27, 2003 totaled $16.3 million. Page 11 of 15 Long-term debt consists primarily of $42.9 million in Senior Notes that were originally issued in August 1998, in a private placement on an unsecured basis ("Notes"). The Notes bear a 6.81% fixed interest rate, payable quarterly. Annual principal payments of $8.6 million are due each August through 2008. The Notes require, among other things, that the Company maintain certain financial covenants relating to debt to capital ratios and minimum net worth. In March 2001, the Company amended its Revolving Credit Facility. The amended agreement provides for a $10.0 million facility for a three-year term that expires in March 2004. Borrowings under the amended facility are on an unsecured basis with interest at rates ranging from LIBOR plus 150 to LIBOR plus 275 basis points. The loan agreement also contains covenants, the most restrictive of which pertain to net worth and the ratio of debt to EBITDA. In addition, the Company's Swedish subsidiary maintains a short-term $1.5 million credit facility. There were no borrowings under either facility as of September 27, 2003. In connection with a previous acquisition, the Company agreed to pay $3.2 million to the former owner in installments through 2005. The aggregate amount outstanding under this obligation was $1.4 million at September 27, 2003. The Company reported a net source of cash from its operating activities of $9.3 million in the thirty-nine weeks ended September 27, 2003. The primary uses of cash flow during the period were accounts receivable and inventory. Accounts receivable increases resulted in a $2.6 million use of cash during the period. This increase was primarily the result of higher sales levels in the current year. Inventory increases resulted in a $2.2 million use of cash during the period. Inventory grew as a result of the Company's higher sales levels in 2003, which required more inventory to support adequate fill rates on customer orders. These uses of cash were offset by cash flow generated primarily from net income and non- cash charges related to depreciation and amortization. Investing activities generated $3.1 million of cash in the thirty-nine weeks ended September 27, 2003. Net proceeds from short term-investments generated $6.5 million in cash flow while additions to property, plant and equipment used $3.3 million of cash during the period. Short-term investments consist of highly liquid corporate and government bonds with maturities from three months to one year. Financing activities required $8.8 million in cash in the thirty-nine weeks ended September 27, 2003. These uses were related primarily to scheduled repayments under capital lease and other debt obligations, including the second scheduled repayment of $8.6 million on the Company's Senior Notes made in August 2003. Over the past two years the Company has extended payment terms to certain customers as a result of customer requests and market demands. These extended terms have resulted in increased accounts receivable levels and significant uses of cash flow. The Company expects continued pressure to extend its payment terms for the foreseeable future. The Company believes that cash and short-term investments on hand and cash generated from operations together with its available sources of capital are sufficient to meet its ongoing cash needs for the foreseeable future. Foreign Currency Fluctuations. The Company purchases approximately half of its products from a variety of foreign countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, the Company does not have exposure to fluctuations in the relationship between the dollar and various foreign currencies between the time of execution of the purchase order and payment for the product. However, to the extent that the current weakness in the dollar continues, or if there are further declines in the value of the dollar relative to foreign currencies in the future, the price of the product in dollars for new purchase orders may increase. The Company attempts to lessen the impact of these currency fluctuations by resourcing its purchases to other countries. Impact of Inflation The Company has not generally been adversely affected by inflation. The Company believes that price increases resulting from inflation generally could be mitigated through the use of alternative suppliers and by resourcing its purchases to other countries. Cautionary Statement Regarding Forward Looking Statements Certain statements periodically made by or on behalf of the Company and certain statements contained herein including statements in Management's Discussion and Analysis of Financial Condition and Results of Operations, such as statements regarding litigation, and certain other statements contained herein regarding matters that are not historical fact are forward looking statements (as such term is defined in the Securities Act of 1933), and because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking Page 12 of 15 statements. Factors that cause actual results to differ materially include but are not limited to those factors discussed in the Company's Annual Report on Form 10-K under "Business - Risk Factors." Item 3. Quantitative and Qualitative Disclosure about Market Risk The Company's market risk is the potential loss arising from adverse changes in interest rates. With the exception of the Company's revolving credit facility, long-term debt obligations are at fixed interest rates and denominated in U.S. dollars. Under the terms of the Company's revolving credit facility, a change in LIBOR market interest rates would affect the rate at which the Company could borrow funds thereafter. The Company believes that the effect of any such change would be minimal. The Company manages this interest rate risk by monitoring trends in interest rates as a basis for determining whether to enter into fixed rate or variable rate agreements. Short-term fixed income investments are subject to interest rate and credit risk. The Company believes that the negative effect of interest rate risk would be minimal as all investments have maturities of one year or less. The Company's investment portfolio consists solely of investment grade corporate and government securities to minimize credit risk. Occasionally, the Company uses derivative financial instruments, consisting of foreign currency forward purchase and sales contracts with terms of less than one year, to hedge its exposure to changes in foreign currency exchange. Its primary exposure to changes in foreign currency rates results from changes in exchange rates on certain third-party trade receivables and payables of the Company's Swedish subsidiary. There were no forward purchase or sales contracts outstanding as of September 27, 2003. Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. The Company's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within ninety days before the filing date of this quarterly report (the "Evaluation Date"). Based on that evaluation, the Chief Executive Officers and the Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis. (b) Changes in internal controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date. Page 13 of 15 PART II: OTHER INFORMATION Item 1. Legal Proceedings In addition to commitments and obligation which arise in the ordinary course of business, the Company is subject to various claims and legal actions from time to time involving contracts, competitive practices, trademark rights, product liability claims and other matters arising out of the conduct of the Company's business. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.2 Amended and Restated Shareholders' Agreement 31.1 Certification of Chief Executive Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002). 31.2 Certification of Chief Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002). 32 Certification of Chief Executive and Chief Financial Officer as required by Section 906 of the Sarbanes- Oxley Act of 2002). (b) Reports on Form 8-K The Company furnished a report on Form 8-K on November 6, 2003 that included the Company's press release dated October 27, 2003 reporting third quarter results of fiscal year 2003. Page 14 of 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R & B, INC. Date November 7, 2003 \s\ Richard Berman -------------------- ------------------------- Richard Berman President and Chief Executive Officer Date November 7, 2003 \s\ Mathias Barton ------------------ -------------------------- Mathias Barton Chief Financial Officer and Principal Accounting Officer Page 15 of 15 EX-31 2 exhibit31.txt CERTIFICATION UNDER 302 Exhibit 31.1 CERTIFICATION I, Richard Berman, President and Chief Executive Officer, certify that: 1. I have reviewed this Form 10-Q of R&B, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) for the registrant and have, a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [Intentionally Omitted]; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting, and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2003 \s\ Richard Berman Richard Berman President and Chief Executive Officer Exhibit 31.2 CERTIFICATION I, Mathias Barton, Chief Financial Officer and Principal Accounting Officer, certify that: 1. I have reviewed this Form 10-Q of R&B, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) for the registrant and have, a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [Intentionally Omitted]; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting, and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2003 \s\ Mathias Barton Mathias Barton Chief Financial Officer EX-32 5 exhibit32.txt CERTIFICATIONS UNDER 906 Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This Certification is intended to accompany the Quarterly Report of R&B, Inc. (the "Company") on Form 10-Q for the period ended September 27, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and is given solely for the purpose of satisfying the requirements of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. To the best of their knowledge, the undersigned, in their respective capacities as set forth below, hereby certify that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. /s/ Richard N. Berman Chief Executive Officer Date: November 7, 2003 ---------------------- /s/ Mathias J. Barton Chief Financial Officer Date: November 7, 2003 ----------------------- EX-4 6 exhibit4_2.txt AMENDED AND RESTATED SHAREHOLDERS AGREEMENT AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT THIS AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT, entered into as of November 3, 2003, amends and restates in its entirety the Shareholders' Agreement made as of the 18th day of November, 2002 ("Original Shareholders' Agreement"), by and among RICHARD BERMAN ("Richard"), STEVEN BERMAN ("Steven"), JORDAN BERMAN ("Jordan"), MARC BERMAN ("Marc") and FRED BERMAN ("Fred"), all of whom are shareholders of R & B, Inc., a Pennsylvania corporation (the "Company") and joins as a party to this Agreement Deanna Berman ("Deanna"), (Richard, Steven, Jordan, Marc, Fred and Deanna, so long as they are shareholders of the Company, are sometimes collectively called the "Shareholders" or individually called "Shareholder"). BACKGROUND A. As of the date of this Agreement, Richard, Steven, Jordan, Marc, Fred and Deanna own 1,136,064, 1,181,704, 610,076, 381,136, 381,136 and 200,000 shares, respectively, of the Company's Common Stock, par value $.01 per share (these shares now owned, together with any other shares of the Company's capital stock which hereafter may be issued to or acquired by the Shareholders, are collectively referred to in this Agreement as the "Shares"). B. The Shareholders desire for the Original Shareholders' Agreement to be terminated, and to be replaced in its entirety by this Amended and Restated Shareholders' Agreement. C. The Shareholders desire to make certain provisions relating to the rights of the Shareholders to dispose of their Shares. NOW, THEREFORE, incorporating the foregoing herein, in consideration of the premises and of the mutual covenants, conditions and agreements contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Restrictions on Transfer and Issuance. (a) Except as set forth in Section 1(b) herein, no Shareholder shall sell, assign, transfer, give, bequeath or donate (other than gifts, bequests or donations by a Shareholder which do not, in the aggregate, exceed 5% of the Shares owned by that Shareholder on the date of this Agreement) or otherwise dispose of, or pledge, deposit or otherwise encumber, in any way or manner whatsoever, whether voluntary or involuntary, any of the Shares now or hereafter owned (of record or beneficially) by him except in accordance with the terms and conditions of this Agreement. (b) Notwithstanding anything herein to the contrary, Jordan and Deanna may each transfer their respective Shares (the "Transfer Shares"), in whole or in part, and in all cases as they shall determine in their sole discretion, to (i) their lineal descendants (including, but not limited to, their children and their children's children (including but not limited to their children's adopted children); (ii) the spouses or partners of their lineal descendants; and/or (iii) a trust for the benefit of themselves, a lineal descendant and/or the spouse or partner of a lineal descendant. The Transfer Shares shall not be subject to the terms of this Agreement. 2. Shareholder's Limited Right to Dispose of Shares During His Lifetime. (a) If any Shareholder during his lifetime proposes to sell all or any of his Shares, then that Shareholder (the "Selling Shareholder") shall first provide written notice (the "Notice") to the other Shareholders setting forth the number of Shares which the Selling Shareholder proposes to sell (the "Offered Shares"). (b) The Notice shall be deemed to be the Selling Shareholder's offer to sell any and all of his Offered Shares to the other Shareholders ("Offeree Shareholders") at the price set forth in subparagraph 4(a) of this Agreement and upon the terms set forth in subparagraph 4(b) of this Agreement. For a period of 30 days after the effective date of the Notice, the Offeree Shareholders shall have options, exercisable by written notice to the Selling Shareholder with a copy to each of the other Offeree Shareholders, to accept the Selling Shareholder's offer as to the Offered Shares. Each Offeree Shareholder who exercises this option agrees, by so doing, to purchase all or that portion of the Offered Shares which he specifies in his written notice of exercise. If the aggregate number of Offered Shares as to which the Offeree Shareholders exercise their options exceeds the total number of Offered Shares, then each Offeree Shareholder who exercised his option shall be entitled to purchase that proportionate part of the Offered Shares which the number of Shares owned by that Offeree Shareholder bears to the total number of Shares owned by all Offeree Shareholders exercising their options under this subparagraph 2(b) (or any other proportionate part as those Offeree Shareholders may agree among themselves). (c) Sale to Third Parties. If, at the end of the 30-day period described in subparagraph 2(b) of this Agreement, options have not been exercised by the Offeree Shareholders to purchase all of the Offered Shares, then the Selling Shareholder will be free for a period of 90 days thereafter to sell those of the Offered Shares which the Offeree Shareholders have not agreed to purchase to any prospective purchasers at any price and upon any terms and conditions. If all of the Offered Shares are not sold within this 90-day period, then the Selling Shareholder may not sell any of his Shares thereafter without again complying with this Paragraph 2. 3. Death of a Shareholder. (a) Options of Surviving Shareholders. Upon the death of a Shareholder, the surviving Shareholders shall have options, exercisable by written notice to the personal representatives of the deceased Shareholder (or, if no personal representative of the deceased Shareholder has been duly qualified at the time of exercise, then to the Company, which will provide the notice to the personal representative first appointed immediately after appointment) within 30 days after the date of the deceased Shareholder's death, to purchase from the personal representatives of the deceased Shareholder, and the personal representatives of the deceased Shareholder shall sell to each surviving Shareholder who exercises this option, all or that portion of the deceased Shareholder's Shares which that surviving Shareholder specifies in his written notice of exercise. If the aggregate number of the deceased Shareholder's Shares as to which the surviving Shareholders exercise their options exceeds the number of the deceased Shareholder's Shares, then each surviving Shareholder who exercised his option shall be entitled to purchase that proportionate part of the Shares of the deceased Shareholder which the number of Shares owned by that surviving Shareholder bears to the total number of Shares owned by all surviving Shareholders who have exercised their options under this subparagraph 3(a) (or any other proportionate part as those surviving Shareholders may agree among themselves). Purchases made under this Paragraph 3 shall be at the price set forth in subparagraph 4(a) of this Agreement and upon the terms set forth in subparagraph 4(c) of this Agreement. (b) Sale to Third Parties. If the surviving Shareholders purchase less than all of the remaining Shares of the deceased Shareholder pursuant to the exercise of the options granted in subparagraph 3(a) of this Agreement, then the personal representatives of the deceased Shareholder shall be free to see all of the deceased Shareholder's then remaining Shares to any or all of the surviving Shareholders or to third parties, provided that any sales to third parties may only be made (i) in unsoliciated broker's transactions from time to time on any exchange or in the over-the-counter market, if the Shares to be sold in any such transaction may be sold without registration pursuant to the Securities Act of 1933 (the "1933 Act"), or (ii) in an offering of Shares to be sold pursuant to a registration statement under the 1933 Act, in which Shares may only be sold in blocks of not more than 25,000 Shares. 4. Purchase Price; Terms; Settlement. (a) The purchase price ("Purchase Price") per share for any Share to be sold pursuant to the exercise of an option or options under this Agreement will be determined in the following manner: (i) If the total number of votes which may be cast in the election of the Company's Directors by holders of the Shares to be purchased pursuant to the exercise of options granted under this Agreement is greater than or equal to 5% of the number of votes which may be cast in the election of Directors by those holders of all of the issued and outstanding voting securities of the Company (including all votes which might be cast after conversion by the holders of securities convertible into voting securities) at the time those options first become exercisable who are not Shareholders, or if the class of securities to be sold is neither listed on a national securities exchange at the time of sale nor regularly traded in the over-the-counter market, then the Purchase Price per share shall be the value of the entire block of Shares to be so purchased (taking into account any possible impact of the sale of a block of Shares of that size upon the market for the Company's securities generally), as determined by a recognized investment banking firm (the expenses of which shall be borne per capita by the seller and the purchasers) selected by the Company, divided by the number of Shares to be so purchased; (ii) If the total number of votes which may be cast in the election of the Company's Directors by holders of the Shares to be purchased pursuant to the exercise of options granted under this Agreement is less than 5% of the number of votes which may be cast in the election of Directors by those holders of all of the issued and outstanding voting securities of the Company (including all votes which might be cast after conversion by the holders of securities convertible into voting securities) at the time those options first become exercisable who are not Shareholders, and if the class of securities to be sold is either listed on a national securities exchange at the time of sale or regularly traded in the over-the-counter market, then the Purchase Price per Share shall be 95% (in order to take into account the absence of transaction costs which would otherwise be incurred in open market transactions) of the average closing market price per share of the class of securities to be so purchased over the 30 days preceding the date on which the options first become exercisable, or over any shorter time within that 30-day period during which the securities have been listed on a national securities exchange or regularly traded in the over-the counter market. (b) Settlement for the purchase of Shares by a Shareholder pursuant to the options granted in Paragraph 2 of this Agreement shall be made within 30 days following the effective date of the applicable notice giving rise to the exercisability of the options. The Purchase Price per Share shall be payable in full at settlement in immediately available funds; provided, however, that if the total price to be paid by any purchaser of Shares exceeds $500,000, then payment for any purchase of those Shares by that Purchaser may be made with not less than $500,000 of the total Purchase Price paid in immediately available funds at settlement, and the balance by the execution and delivery by that purchaser of his promissory note in the form of Exhibit A in the amount of the balance. (c) Settlement for the purchase of Shares by Shareholder pursuant to the options granted in Paragraph 3 of this Agreement shall be made within 60 days following the date of the deceased Shareholder's death. The Purchase Price shall be payable in full at settlement in immediately available funds. (d) Unless otherwise agreed by all of the purchasers and sellers, all settlements for the purchase and sale of Shares will be held at the principal executive offices of the Company during regular business hours. The precise date and hour of settlement must be fixed by the purchaser or purchasers (within the time limits allowed by the provisions of this Agreement) by notice in writing to the seller given at least five days in advance of the settlement date specified. In the event that more than one purchaser is involved in a settlement and the purchasers cannot agree on a precise time of settlement, the precise time of settlement shall be 2:00 p.m. (local time at the principal executive offices of the Company) on the 30th day following the date of exercise of the last option exercised. (e) At settlement, the stock certificate or certificates representing the Shares being sold shall be delivered by the seller to the purchaser or purchasers, duly endorsed for transfer or with executed stock powers attached, with signatures guaranteed by a bank or member firm of the New York Stock Exchange, and with any necessary documentary and transfer tax stamps affixed by the seller. 5. Copy of Agreement to be Kept on File. The Company will keep on file at its principal executive offices, and will exhibit to any Shareholder or his duly authorized representative at any and all reasonable times, an executed copy of this Agreement and all amendments thereto and a copy of its most recent fiscal year end financial statements. 6. Stock Certificates to be Marked with Legend. All certificates representing Shares now outstanding or hereafter issued by the Company to the Shareholders will be marked with the following legend: "This certificate and the shares represented hereby are held subject to the terms, covenants and conditions of an agreement (the "Agreement") dated as of November 3, 2003, by and among certain of the Company's shareholders, as it may be amended from time to time, and may not be transferred or disposed of except in accordance with the terms and provisions of the Agreement. A copy of the Agreement and all amendments thereto is on file and may be inspected at the principal executive offices of the Company." The Company will issue replacement stock certificates without the foregoing legend to any Shareholder upon request following termination of this Agreement. 7. Effective Date; Term of Agreement. (a) This Agreement shall become effective immediately upon the Company becoming subject to the periodic reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, with respect to any class of its capital stock and, unless terminated sooner by unanimous agreement in writing of the then Shareholders, this Agreement will terminate on the earlier of (i): 10 business days after the Company first becomes subject to the periodic reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), by reason of the effectiveness of a registration statement ("Registration Statement") referred to in Section 15(d) of the 1934 Act, if the sale of the shares offered pursuant to the Registration Statement has not been consummated by that 10th business day; and (ii) the death of the second-to-last of the then Shareholders (but Paragraph 3 of this Agreement will apply to the death of that second-to-last Shareholder). (b) Notwithstanding anything to the contrary contained in this Agreement, if all of the Shareholders die within 30 days of each other, then the provisions of this Agreement will not pertain with respect to the deaths of those Shareholders and this Agreement will terminate in all respects effective as of the first of those deaths. Any and all transfers, payments or other actions made or taken with respect to a sale of Shares made during that 30-day period will be deemed rescinded by the parties or their respective personal representatives. 8. Rights, Obligations and Remedies. The rights and obligations under, and the remedies to enforce, this Agreement are joint and several as to the Shareholders with each being completely free to enforce any or all of the rights or obligations under this Agreement against any of the others with or without the concurrence or joinder of any of the others. The Shares are unique, and recognizing that the remedy at law for any breach or threatened breach by a party hereto of the covenants and agreements set forth in this Agreement would be inadequate and that any such breach or threatened breach would cause immediate and permanent damage which would be irreparable and the exact amount of which would be impossible to ascertain, the parties hereto agree that in the event of any breach or threatened breach of any covenant or agreement set forth in this Agreement, in addition to any and all other legal and equitable remedies which may be available, any party hereto may specifically enforce the terms of this Agreement and may obtain temporary and/or permanent injunctive relief without the necessity of proving actual damage by reason of any breach or threatened breach hereof and, to the extent permissible under the applicable statutes and rules of procedure, a temporary injunction may be granted immediately upon the commencement of any such suit and without notice. 9. Entire Agreement. This Agreement and the Exhibit hereto contain the entire understanding among the parties hereto with respect to the subject matter of this Agreement, and supersede all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, with respect to the subject matter of this Agreement, including but not limited to, the Original Shareholders' Agreement (which such prior agreement is expressly terminated as of the date hereof). 10. Amendment, Modification and Termination. This Agreement may be amended, modified or terminated at any time or times by the unanimous agreement in writing of the then Shareholders. Subject to the provisions of subparagraph 7(b) of this Agreement, no amendment, modification or termination, nor any termination pursuant to Paragraph 7 of this Agreement, shall affect the right of any person or entity to receive, or the obligation of any person or entity to pay, on the terms and conditions of this Agreement, the Purchase Price for Shares sold pursuant to this Agreement prior to that amendment, modification or termination, or the right or obligation of any person or entity to sell or purchase Shares on the terms and conditions of this Agreement, if the event giving rise to that right or obligation to sell or purchase Shares has in fact taken place prior to that amendment, modification or termination. 11. Miscellaneous. (a) Indulgences, Etc. Any failure or delay on the part of any party to exercise any right, remedy, power or privilege under this Agreement will not operate as a waiver thereof, nor will any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor will any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of that right, remedy, power or privilege with respect to any other occurrence. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, notwithstanding any conflict-of-laws doctrines of that Commonwealth or any other jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. (c) Notices. All notices, requests, demands and other communications required or permitted under this Agreement must be in writing and will be deemed to have been duly given, made and received only when delivered (personally, by facsimile transmission or by courier service such as Federal Express, or by other messenger) or when deposited in the United States mails, registered or certified mail, postage prepaid, return receipt requested, addressed to the Shareholders and the Company at their respective addresses set forth in the Company's records. In addition, notice by mail must be by airmail if posted outside of the continental United States. Any Shareholder may alter the address to which communications or copies are to be sent by giving notice of any change of address to the Company and to the other Shareholders in conformity with the provisions of this paragraph for the giving of notice. (d) Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their representative heirs, personal representatives, successors and assigns, except that no party may assign or transfer its rights or obligations under this Agreement, except for the right to receive payments pursuant to a settlement under Paragraph 4 of this Agreement, without the prior written consent of the other parties hereto. (e) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which will together constitute one and the same instrument. (f) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision will be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (g) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and will not affect its interpretation. (h) Gender, Etc. Words used herein, regardless of the number and gender specifically used, will be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. (i) Number of Days. In computing the number of days for purposes of this Agreement, all days will be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which Federal banks are or may elect to be closed, then the final day will be deemed to be the next day which is not a Saturday, Sunday or such holiday. (j) Exhibit. The Exhibit attached to this Agreement is hereby incorporated by reference into, and made a part of, this Agreement. * * * * * Intending to be legally bound, the parties hereto have hereby executed and delivered this Agreement as of the date first above written. \s\ Richard Berman Richard Berman \s\ Steven Berman Steven Berman \s\ Deanna Berman Deanna Berman \s\ Jordan Berman Jordan Berman \s\ Marc Berman Marc Berman \s\ Fred Berman Fred Berman FOR VALUE RECEIVED, and in order to induce the Shareholders to enter into the foregoing Agreement, the Company hereby covenants and agrees that, upon the death of any Shareholder, to the extent that any of that deceased Shareholder's Shares are not purchased by the surviving Shareholders and may not be sold without registration pursuant to the 1933 Act, the Company will use its best efforts to: (a) Prepare and file with the Securities and Exchange Commission (the "Commission"), within 60 days after the request of the personal representatives of the deceased Shareholder, a registration statement (the "Registration Statement") with respect to all of the deceased Shareholder's Shares (the "Registrable Shares"), and cause the Registration Statement to become effective; (b) Prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement (the "Prospectus") as may be necessary to keep the Registration Statement effective for a period for not less than 120 days; (c) Furnish to the personal representatives of the deceased Shareholder that number of copies of the Registration Statement and the Prospectus (including each preliminary Prospectus), each amendment and supplement thereto and any other documents as those personal representatives may reasonably request, in order to facilitate the disposition of the Registrable Shares; (d) Register or qualify the Registrable Shares under the securities or blue sky laws of any jurisdictions which the personal representatives of the deceased Shareholder reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable those personal representatives to consummate the disposition in those jurisdictions of the Registrable Shares (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not be required so to qualify but for this subparagraph (d), (ii) subject itself to taxation in any jurisdiction where it would not be so subject but for this subparagraph (d), or (iii) consent to general service of process in any jurisdiction where it would not be required so to consent but for this subparagraph (d)); (e) Notify the personal representatives of the deceased Shareholder, at any time when a Prospectus is required to be delivered under the 1933 Act within the period during which the Company is required to keep the Registration Statement effective, of the happening of any event as a result of which the Prospectus contains an untrue statement of a material fact or omits any fact necessary to make a statement not misleading, and if that event occurs within 120 days after the effective date of the Registration Statement, the Company will, at the request of the personal representatives of the deceased Shareholder, prepare a supplement or amendment to the Prospectus so that, as thereafter delivered to purchasers of the Registrable Shares, the Prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make a statement not misleading; (f) Cause the Registrable Shares to be listed on the securities exchanges on which securities of the same class and series issued by the Company are then listed; and (g) Provide a transfer agent and registrar for all of the Registrable Shares not later than the effective date of the Registration Statement. All of the expenses incident to the Company's registration of the Registrable Shares will be borne by the estate of the deceased Shareholder. R & B, Inc. By: \s\ Richard Berman ----------------------------------- Name: Richard Berman Title: President Attest: By: \s\ Barry Myers ----------------------------------- Name: Barry D. Myers Title: Assistant Secretary Exhibit A PROMISSORY NOTE $ , 20 ----------------- ------------------ ----- FOR VALUE RECEIVED, ("Maker") promises to pay to ("Payee") the principal sum of $ (the "Principal Sum"), together with interest from the date of this Note on the unpaid balance of the Principal Sum at the "prime rate" per annum as published from time to time in The Wall Street Journal, plus 1/4 % per annum, as follows: 1. Payment. The Principal Sum shall be payable in consecutive, equal monthly installments, without set-off or deduction, commencing on the first day of the first month after the date hereof and on the first day of each month thereafter until the entire Principal Sum has been paid. Each monthly installment o the Principal Sum shall be accompanied by accrued interest on the unpaid balance of the Principal Sum. 2. Place of Payment. The principal and interest shall be payable at , or at such other place as Payee, from time to time, may designate in writing. 3. Prepayment. Maker shall have the right to prepay, without notice and without prepayment penalty or premium, on the first day of any month, the entire unpaid balance of the Principal Sum or any part thereof. Each prepayment of the Principal Sum or any part thereof shall be accompanied by accrued interest on the amount prepaid to the date of prepayment. Prepayments applied to installments of principal shall be applied in inverse order of maturity. 4. Acceleration. If Maker should fail to pay any installment of the Principal Sum or interest on the date fixed for payment, Payee, at its option and without notice to Maker, may declare due and payable immediately the entire unpaid balance of the Principal Sum and all accrued interest. From and after the date of default, the applicable rate of interest shall be 18%, but not more than the highest rate allowable by law. 5. Costs and Expenses. In addition to all other sums payable under this Note, Maker also agrees to pay to Payee, on demand, all reasonable costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by Payee in the enforcement of Maker's obligations under this Note. 6. Severability. If any provision of this Note is held to be invalid or unenforceable by court of competent jurisdiction, the other provisions of this Note shall remain in full force and effect and shall be construed liberally in favor of Payee in order to effectuate the provisions of this Note. 7. Governing Law. This instrument shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania. 8. Successors and Assigns. The provisions of this Note shall be binding upon and inure to the benefit of Maker and Payee and their respective heirs, executors or administrators and assigns. 9. Shareholders' Agreement. This Note is the Note referred to in subparagraph 4(b) of that certain Amended and Restated Shareholders' Agreement dated as of November 3, 2003, by and among Maker, Payee and certain other shareholders of R & B, Inc., a Pennsylvania corporation. Witness: Maker - ---------------------------- ------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----