As filed with the Securities and Exchange Commission Via EDGAR
Registration No. _______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1993
RAG SHOPS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0333503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Wagaraw Road, Hawthorne, New Jersey 07506-2711 (973) 423-1303
(Address including zip code and telephone number, including area code
of Registrant's Principal Executive Offices)
RAG SHOPS, INC.
1999 INCENTIVE STOCK AWARD PLAN
(Full title of the plan)
Stanley U. North III, Esq.
Sills Cummis Radin Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
(973) 643-7000
(Name, address including zip code and telephone number, including
area code, of agent for service)
Calculation Of Registration Fee
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Title of securities to be Amount to be Proposed maximum Proposed maximum Amount of registration
registered registered offering price per unit(1) aggregate offering price fee
Common Stock, $.01 300,000 $2.36 $708,000 $278
par value
(1) Estimated, pursuant to Rule 457(h), solely for the purpose of calculating the registration fee.
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement has been prepared in accordance with the
requirements of Form S-8 and Form S-3. The Form S-8 portion of this Registration
Statement will be used for offers of Common Stock of the Registrant pursuant to
the Registrant's 1999 Incentive Stock Award Plan (the "1999 Plan"). The
Prospectus filed as part of this Registration Statement has been prepared in
accordance with the requirements of Part I of Form S-3 and will be used for
reofferings or resales of Common Stock to be acquired by the class of persons
named therein pursuant to the 1999 Plan. A cross reference sheet is provided for
such prospectus.
<PAGE>
RAG SHOPS, INC.
_________________
Cross-Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Form S-3 Item and Heading Location in Prospectus
I. Forepart of Registration Statement and Front Cover Page
Outside Front Cover Page of Prospectus
II. Inside Front and Outside Back Cover Pages Inside Front Cover Page
of Prospectus
III. Summary Information, Risk Factors and The Company
Ratio of Earnings to Fixed Charges
IV. Use of Proceeds Not applicable
V. Determination of Offering Price Not applicable
VI. Dilution Not applicable
VII. Selling Security Holders Selling Stockholders
VIII. Plan of Distribution Plan of Distribution
IX. Description of Securities to be Registered Not applicable
X. Interests of Named Experts and Counsel Legal Matters; Experts
XI. Material Changes Not applicable
XII. Incorporation of Certain Information by Incorporation of Certain
Reference Documents by Reference
XIII. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act
Liabilities
<PAGE>
PROSPECTUS
RAG SHOPS, INC.
300,000 Shares of Common Stock
(par value $.01 per share)
This Prospectus relates to the offer and sale of shares of Common Stock of
RAG SHOPS, INC. (the "Company"), par value $.01 per share (the "Common Stock"),
which may be offered hereby from time to time by any and/or all of the selling
stockholders as described herein (the "Selling Stockholders") for their own
benefit. The Company will receive no part of the proceeds of sales made
hereunder. All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the Selling Stockholders will be borne by such Selling Stockholders.
None of the shares offered pursuant to this Prospectus have been registered
prior to the filing of the Registration Statement of which this Prospectus is a
part.
All or a portion of the shares of Common Stock offered hereby may be
offered for sale, from time to time, on the National Association of Securities
Dealers Automated Quotation (NASDAQ) national market system, or otherwise, at
prices and terms then obtainable. All brokers' commissions, concessions or
discounts will be paid by the Selling Stockholders.
The Selling Stockholders and any broker executing selling orders on behalf
of the Selling Stockholders may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
which event commissions received by such broker may be deemed to be underwriting
commissions under the Securities Act.
The Common Stock of the Company is listed on the NASDAQ National Market
System under the symbol RAGS. On July 28, 1999 the last reported closing price
of the Company's Common Stock on the NASDAQ National Market System was $2.31.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, and, if given or
made, such information or representation should not be relied upon as having
been authorized by the Company. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security in any jurisdiction in
which, or to any person to whom such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any distribution of the securities
made under this Prospectus shall under any circumstances create any implication
that there has been no change in the affairs of the Company or in any other
information contained herein since the date of the Prospectus.
The date of this Prospectus is August 20, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
Available Information..........................................................3
Incorporation of Certain Documents By Reference................................3
The Company....................................................................4
Selling Stockholders...........................................................4
Plan of Distribution...........................................................6
Legal Matters..................................................................6
Experts........................................................................6
Indemnification................................................................7
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy statements
and other such information filed by the Company with the SEC can be inspected
and copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC,
located at 75 Park Place, 14th Floor, New York, New York 10007. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, or from the
SEC's website at http://www.sec.gov.
In addition, the Company's Common Stock is listed on the NASDAQ National
Market System and similar information concerning the Company can be inspected
and copied at the National Association of Securities Dealers offices at its
Corporate Financing Department, Executive Office, 1735 K Street, N.W.,
Washington, D.C.
This Prospectus does not contain all of the information set forth in the
Registration Statement of which this Prospectus is a part and which the Company
has filed with the SEC. For further information with respect to the Company and
the securities offered hereby, reference is made to the Registration Statement,
including the exhibits filed as a part thereof, copies of which may be inspected
at or obtained at prescribed rates from the Public Reference Section of the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
hereby by reference:
A. The Company's Annual Report on Form 10-K for the fiscal year ended
August 29, 1998, filed pursuant to Section 13(a) of the Exchange Act.
B. The Company's Quarterly Report on Form 10-Q for the quarter ended
November 28, 1998, filed pursuant to Section 13(a) of the Exchange
Act.
C. The Company's Quarterly Report on Form 10-Q for the quarter ended
February 27, 1999, filed pursuant to Section 13(a) of the Exchange
Act.
D. The Company's Quarterly Report on Form 10-Q for the quarter ended May
29, 1999, filed pursuant to Section 13(a) of the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the filing of a post-effective amendment which indicates that all such
securities offered hereby have been sold or which deregisters all securities
then remaining to be sold shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
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<PAGE>
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request of
such person, a copy of any and all of the information that has been incorporated
by reference (other than the exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Steven B. Barnett, Senior Vice President and Chief Financial
Officer, Rag Shops, Inc., 111 Wagaraw Road, Hawthorne, New Jersey 07506-2711.
THE COMPANY
The Corporation was incorporated in the state of Delaware in 1991 as a
holding company successor to a New Jersey corporation organized in 1984. The
executive offices of Rag Shops, Inc. are at 111 Wagaraw Road, Hawthorne, New
Jersey 07506-2711 and its telephone number is (973) 423-1303.
SELLING STOCKHOLDERS
The shares of Common Stock covered by this Prospectus are being registered
for reoffers and resales by Selling Stockholders of the Company who may acquire
such shares granted pursuant to the terms of the Company's 1999 Incentive Stock
Award Plan (the "1999 Plan"). The Selling Stockholders include Business Segment
Supervisors; District Managers; Buyers; Framing Supervisors; Store Managers;
Department Supervisors; Assistant Store Managers; Assistant Buyers; and
Administrative Assistants. These persons will be named by a post-effective
amendment hereto or by a prospectus supplement filed pursuant to Rule 424(c)
under the Securities Act.
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<PAGE>
PLAN OF DISTRIBUTION
Any shares of Common Stock sold pursuant to this Prospectus will be sold by
the Selling Stockholders for their own accounts and they will receive all
proceeds from any such sales. The Company will receive none of the proceeds from
the sale of shares which may be offered hereby. The Selling Stockholders have
not advised the Company of any specific plans for the distribution of the shares
of Common Stock covered by this Prospectus, but, if and when shares are sold, it
is anticipated that the shares will be sold from time to time primarily in
transactions on the NASDAQ National Market System at the market price then
prevailing, although sales may also be made in negotiated transactions or
otherwise, at prices related to such prevailing market price or otherwise. If
shares of Common Stock are sold through brokers, the Selling Stockholders may
pay customary brokerage commissions and charges. The Selling Stockholders may
effect such transactions by selling shares to or through broker-dealers, and
such broker- dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of shares for whom such broker-dealers may act as agent or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). The Selling Stockholders and any
broker-dealers that act in connection with the sale of the shares hereunder
might be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of shares as principal might be deemed to be underwriting discounts and
commissions under the Securities Act.
There can be no assurances that the Selling Stockholders will sell any or
all of the shares of Common Stock offered hereunder.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Sills Cummis Radin Tischman Epstein & Gross, P.A.,
Newark, New Jersey.
EXPERTS
The financial statements incorporated in this prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended August 29, 1998 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
by reference in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
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<PAGE>
INDEMNIFICATION
The Company's Certificate of Incorporation and Bylaws provide that the
Company shall, to the fullest extent permitted by the Delaware General Corporate
Law, as it is now or hereafter may be in effect, indemnify a director, officer
or other agent of the Company against his liabilities in connection with any
proceeding by or in the right of the Company to procure a judgment in its favor
which involves such person by reason of his being or having been such officer,
director or other agent; provided, however, that no indemnification shall be
made to or on behalf of the Company if a judgment or other final adjudication
adverse to such person establishes that his acts or omissions (a) were in breach
of his loyalty to the Company or its shareholders, (b) were not in good faith or
involved a knowing violation of law or (c) resulted in receipt by such person of
an improper personal benefit.
The Company currently maintains policies of insurance under which the
directors and officers of the Company are insured, within the limits and subject
to the limitations of the policies, against certain expenses in connection with
the defense of actions, suits or proceedings, and certain liabilities which
might be imposed as a result of such actions, suits or proceedings, to which
they are parties by reason of being or having been such directors and/or
officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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<PAGE>
PART II. INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Documents Incorporated By Reference
Rag Shops, Inc. (the "Company") hereby incorporates by reference into this
Registration Statement the following documents which have been filed by the
Company with the Securities and Exchange Commission (the "SEC"):
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
August 29, 1998, filed pursuant to Section 13(a) of the of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
November 28, 1998, filed pursuant to Section 13(a) of the Exchange Act.
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
February 27, 1999, filed pursuant to Section 13(a) of the Exchange Act.
(d) The Company's Quarterly Report on Form 10-Q for the quarter ended
May 29, 1999, filed pursuant to Section 13(a) of the Exchange Act.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment which indicates that all securities offered have been sold or which
deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Registration Statement and to be a part hereof
from the date of filing of such documents.
Item 4. Description of Securities
Not applicable.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
Item 6. Indemnification of Directors and Officers
The Company's Certificate of Incorporation and Bylaws provide
that the Company shall, to the fullest extent permitted by the Delaware General
Corporation Law, as it is now or hereafter may be in effect, indemnify a
director, officer or other agent of the Company against his liabilities in
connection with any proceeding by or in the right of the Company to procure a
judgment in its favor which involves such person by reason of his being or
having been such officer, director or other agent; provided, however, that no
indemnification shall be made to or on behalf of the Company if a judgment or
other final adjudication adverse to such person establishes that his acts or
omissions (a) were in breach of his loyalty to the Company or its shareholders,
(b) were not in good faith or involved a knowing violation of law or (c)
resulted in receipt by such person of an improper personal benefit.
II-1
<PAGE>
The Company currently maintains policies of insurance under which the
directors and officers of the Company are insured, within the limits and subject
to the limitations of the policies, against certain expenses in connection with
the defense of actions, suits or proceedings, and certain liabilities which
might be imposed as a result of such actions, suits or proceedings, to which
they are parties by reason of being or having been such directors and/or
officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Item 7. Exemption from Registration Claimed.
Not Applicable.
Item 8. Exhibits
Exhibit Number Exhibit
4.1 Rag Shops, Inc. 1999 Incentive Stock Award Plan
4.2 Form of 1999 Stock Award Agreement
5.1 Opinion of Sills Cummis Radin Tischman Epstein &
Gross, P.A. as to Legality
23.1 Consent of Sills Cummis Radin Tischman Epstein &
Gross, P.A. (included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24 Powers of Attorney (included in the signature pages
of this Registration Statement)
Item 9. Undertakings
The undersigned Registrant hereby undertakes to file, during any period in
which offers or sales are being made, post-effective amendments to this
Registration Statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1993, as amended (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-effective
amendment hereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration Statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement; provided,
however, that (i) and (ii) above shall not apply if the information required to
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<PAGE>
be included in a post-effective amendment is contained in periodic reports filed
by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in this Registration Statement.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment, and each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to remove from registration by
means of a post- effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Hawthorne, New Jersey, on the 20th day of August, 1999.
RAG SHOPS, INC.
By: /s/ Steven B. Barnett
Steven B. Barnett
Senior Vice President, Chief Financial Officer
and Treasurer
POWERS OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
Steven B. Barnett his true and lawful attorney-in-fact, to sign and file on his
behalf individually and in each such capacity stated below any and all
amendments (including post-effective amendments) to this Registration Statement,
as fully as such person could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated:
\s\Stanley Berenzweig Chairman of the Board August 20, 1999
Stanley Berenzweig Chief Executive Officer
\s\Michael Aaronson President, Chief Operating Officer, August 20, 1999
Michael Aaronson Director
\s\Steven B. Barnett Senior Vice President, Chief Financial August 20, 1999
Steven B. Barnett Officer, Treasurer, Director
\s\Evan Berenzweig Senior Vice President, August 20, 1999
Evan Berenzweig Director
\s\Judith Lombardo Senior Vice President August 20, 1999
Judith Lombardo Director
\s\Fred J. Damiano Director August 20, 1999
Fred J. Damiano
\s\Alan C. Mintz Director August 20, 1999
Alan C. Mintz
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EXHIBIT INDEX
EXHIBIT
NO. CAPTION
4.1 Rag Shops, Inc. 1999 Incentive Stock Award Plan
4.2 Form of 1999 Stock Award Agreement
5.1 Opinion of Sills Cummis Radin Tischman
Epstein & Gross, P.A. as to Legality
23.1 Consent of Sills Cummis Radin Tischman
Epstein & Gross, P.A.
(included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24 Powers of Attorney (included in the signature pages
of this Registration Statement)
<PAGE>
EXHIBIT 4.1
Rag Shops, Inc.
1999 Incentive Stock Award Plan
AS ADOPTED BY THE STOCK OPTION COMMITTEE AND THE BOARD OF DIRECTORS
AS OF JULY 20, 1999
RAG SHOPS, INC.
1999 INCENTIVE STOCK AWARD PLAN
Article I
PURPOSE AND EFFECTIVENESS
1.14 Purpose. The purpose of the Rags Shops 1999 Incentive Stock Award Plan (the
"Plan") is to promote the success of Rag Shops, Inc. (the "Company") by
providing a method whereby (i) eligible employees the Company and its
Subsidiaries and (ii) independent contractors and consultants providing
services to the Company or its Subsidiaries may be awarded additional
remuneration for services rendered and encouraged to invest in capital
stock of the Company, thereby increasing proprietary interest in the
Company's businesses, encouraging them to remain in the employ of the
Company or its Subsidiaries, and increasing their personal interest in the
continued success and progress of the Company or its Subsidiaries. The Plan
is also intended to aid (i) in attracting persons of exceptional capability
to become key employees of the Company and its Subsidiaries and (ii)
inducing contractors to agree to provide services to the Company.
1.2 Effective Date. The Plan shall be subject to, and become effective upon,
the approval by the affirmative vote of the Board of Directors of the
Company.
Article II
DEFINITIONS
2.1 Certain Defined Terms. Capitalized terms not defined elsewhere in the Plan
shall have the following meanings (whether used in the singular or plural):
"Affiliate" of the Company means any corporation, partnership, or other
business association that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with
the Company.
"Agreement" means either a restricted shares agreement or restricted shares
grant, or an agreement evidencing more than one type of Award, specified in
Section 7.5, as any such Agreement or grant may be supplemented or amended
from time to time.
"Approved Transaction" means any transaction in which the Board (or, if
approval of the board is not required as a matter of law, the stockholders
of the Company) shall approve (i) any consolidation or merger of the
Company, or binding share exchange, pursuant to which shares of Common
Stock would be changed or converted into or exchanged for cash, securities
1
<PAGE>
or other property, other than any such transaction in which the common
stockholders of the Company immediately prior to such transaction have the
same proportionate ownership of the common stock of, and voting power with
respect to, the surviving corporation immediately after such transaction,
(ii) any merger, consolidation or binding share exchange to which the
Company is a party as a result of which the persons who are common
stockholders of the Company immediately prior thereto have less than a
majority of the combined voting power of the outstanding capital stock of
the Company ordinarily (and apart from the rights accruing under special
circumstances) having the right to vote in the election of directors
immediately following such merger, consolidation or binding share exchange,
(iii) the adoption of any plan or proposal for the liquidation or
dissolution of the Company, or (iv) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company.
"Award" means a grant of Restricted Shares under this Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statue or statues thereto. Reference to any specific
Code section shall include any successor section.
"Committee" means the option committee of the Board appointed pursuant to
Section 3.1 to administer the Plan.
"Common Stock" means the Common Stock, $.01 par value per share, of the
Company.
"Company" means Rag Shops, Inc., a Delaware corporation.
"Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months.
"Dividend Equivalents" means, with respect to Restricted Shares to be
issued at the end of the Restriction Period, to the extent specified by the
Committee only, an amount equal to all dividends and other distributions
(or the economic, equivalent thereof) which are payable to stockholders of
record during the Restriction Period on a like number of shares of Common
Stock.
"Domestic Relations Order" means a domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder.
"Effective Date" means the date on which the Plan becomes effective
pursuant to Section 1.2. "Equity Security" shall have the meaning ascribed
to such term in Section 3 (a) (11) of the Exchange Act, and an equity
security of an issuer shall have the meaning ascribed thereto in Rule 16a-1
promulgated under the Exchange Act, or any successor Rule.
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<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute or statutes thereto. Reference to
any specific Exchange Act section shall include any successor section.
"Fair Market Value" of a share of the Common Stock on any day means the
last sale price (or, if no last sale price is reported, the average of the
closing high bid and low asked prices) for a share of Common Stock on such
day (or, if such day is not a trading day, on the next preceding trading
day) as reported on NASDAQ or, if not reported on NASDAQ, as quoted by the
National Quotation Bureau Incorporated, or if the Common Stock is listed on
an exchange, on the principal exchange on which the Common Stock is listed.
If for any day the Fair Market Value of a share of Common Stock, is not
determinable by any of the foregoing means, then the Fair Market Value for
such day shall be determined in good faith by the Committee on the basis of
such quotations and other considerations as the Committee deems
appropriate.
"Holder" means an employee of the Company or a Subsidiary or an independent
contractor or consultant who has received an Award under Plan.
"NASDAQ" means the Nasdaq Stock Market.
"Plan" has the meaning ascribed thereto in Section 1.1.
"Restricted Shares" means shares of Common Stock or the right to receive
shares of Common Stock, as the case may be, awarded pursuant to Article VI.
"Restriction Period" means a period of time beginning on the date of each
award of Restricted Shares and ending on the Vesting Date with respect to
such award.
"Retained Distribution" has the meaning ascribed thereto in Section 6.3.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor Rule, References to paragraphs of Rule 16b-3 shall include the
comparable provisions of any successor Rule.
"Subsidiary" of the Company means any present or future subsidiary (as
defined in Section 424(f) of the Code) of the Company or any business
entity in which the Company owns directly or indirectly, 50% or more of the
voting, capital or profits interests. An entity shall be deemed a
subsidiary of the Company for purposes of this definition only for such
periods as the requisite ownership or control relationship is maintained.
"Vesting Date" with respect to any Restricted Shares awarded hereunder
means the date on which such Restricted Shares cease to be subject to a
risk of forfeiture, as designated in or determined in accordance with the
Agreement with respect to such award of Restricted Shares pursuant to
Article VIII. If more than one Vesting Date is designated for an award of
Restricted Shares, references in the Plan to a Vesting Date in respect of
such Award shall be deemed to refer to each party of such Award and the
Vesting Date of such part.
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Article III
ADMINISTRATION
3.1 Committee. The Plan shall be administered by the Option Committee of the
Board unless a different committee is appointed by the Board. The Committee
shall be comprised of not less than two persons. The Committee shall select
one of its members as its chairman and shall hold its meetings at such
times and places as it shall deem advisable. A majority of its members
shall constitute a quorum and all determinations shall be made by a
majority of such quorum. Any determination reduced to writing and signed by
all of the members shall be fully as effective as if it had been made by a
majority vote at a meeting duly called and held.
3.2 Powers. The Committee shall have full power and authority to grant to
eligible persons Restricted Shares under Article VIII of the Plan, to
determine the terms and conditions (which need not be identical) of all
Awards so granted, to interpret the provisions of the Plan and any
Agreements relating to Awards granted under the Plan, and to supervise the
administration of the Plan. The Committee in making an Award may provide
for the granting or issuance of additional, replacement or alternative
Awards upon the occurrence of specified events, including the exercise of
the original Award. The Committee shall have sole authority in the
selection of persons to whom Awards may be granted under the Plan and in
the determination of the timing, pricing and amount of any such Award,
subject only to the express provisions of the Plan. In making
determinations hereunder, the Committee may take into account the nature of
the services rendered by the respective employees, independent contractors
and consultants, their present and potential contributions to the success
of the Company and its Subsidiaries and such other factors as the Committee
in its discretion deems relevant.
3.3 Interpretation. The Committee is authorized, subject to the provisions of
the Plan, to establish, amend and rescind such rules and regulations as it
deems necessary or advisable for the proper administration of the Plan and
to take such other action in connection with or in relation to the Plan as
it deems necessary or advisable. Each action and determination made or
taken pursuant to the Plan by the Committee, including any interpretation
or construction of the Plan, shall be final and conclusive for all purposes
and upon all persons. No member of the Committee shall be liable for any
action or determination made or take by him or the Committee in good faith
with respect to the Plan.
Article IV
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to the provisions of this Article IV, the maximum
number of shares of Common Stock with respect to which Awards may be
granted during the term of the Plan shall be 300,000 shares. Shares of
Common Stock will be made available from either the authorized but unissued
shares of the Company or issued treasury shares. The shares of Common Stock
subject to (i) any Award granted under the Plan that shall expire,
terminate or be annulled for any reason without having been exercised (or
considered to have been exercised as provided in Section 7) and (ii) any
Award of Restricted Shares that shall be forfeited prior to becoming vested
(provided that the Holder received no benefits of ownership of such
Restricted Shares other than
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voting rights and the accumulation of Retained Distributions and unpaid
Dividend Equivalents that are likewise forfeited), shall again be available
for purposes of the Plan.
4.2 Adjustments. If the Company subdivides its outstanding shares of Common
Stock into a greater number of shares of Common Stock (by stock dividend,
stock split, reclassification or otherwise) or combines its outstanding
shares of Common Stock into a similar number of shares of Common Stock (by
reverse stock split, reclassification or otherwise), or if the Committee
determines that any stock dividend, extraordinary cash dividend,
reclassification, recapitalization, reorganization, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase
Common Stock, or other similar corporate event (including mergers or
consolidations other than those which constitute Approval Transactions)
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available
under this Plan, then the Committee shall, in its sole discretion and in
such manner as the Committee may deem equitable and appropriate, make such
adjustments to any or all of (i) the number and kind of shares which
thereafter may be awarded, optioned, or otherwise made subject to the
benefits contemplated by the Plan; (ii) the number and kind of shares
subject to outstanding Awards, and (iii) the purchase or exercise price
with respect to any of the foregoing, provided, however, that the number of
shares subject to any Award shall always be a whole number. The Committee
may, if deemed appropriate, provide for a cash payment to any Holder of an
Award in connection with any adjustment made pursuant to this Section 4.2.
Article V
ELIGIBILITY
5.1 General. The persons who shall be eligible to participate in the Plan and
to receive Awards under the Plan shall be such employees (including non
executive officers) of the Company and its Subsidiaries or independent
contractors or consultants as the Committee shall select. Awards may be
made to employees, independent contractors or consultants who hold or have
held Awards under this Plan or any similar or other awards under any other
plan of the Company or any of its Affiliates.
Article VI
RESTRICTED SHARES
6.1 Grant. Subject to the limitations of the Plan, the Committee shall
designate those eligible persons to be granted awards of Restricted Shares,
shall determine the time when each such Award shall be granted, whether
shares of Common Stock covered by awards of Restricted Shares will be
issued at the beginning or the end of the Restriction Period and whether
Dividend Equivalents will be paid during the Restriction Period in the
event shares of the Common Stock are to be issued at the end of the
Restriction Period, and shall designate (or set forth the basis for
determining) the Vesting Date or Vesting Dates for each award of Restricted
Shares and may prescribe other restrictions, terms and conditions
applicable to the vesting of such Restricted Shares in addition to those
provided in the Plan. The Committee shall determine the price, if any, to
be paid by the Holder for the Restricted Shares; provided, however, that
the issuance of Restricted Shares shall be made for at least the minimum
consideration necessary to permit such Restricted Shares to be
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deemed fully paid and non assessable. All determinations made by the
Committee pursuant to this Section 6.1 shall be specified in the Agreement.
6.2 Issuance of Restricted Shares at Beginning of the Restriction Period If
shares of Common Stock are issued at the beginning of the Restriction
Period, the stock certificate or certificates representing such Restricted
Shares shall be registered in the name of the Holder to whom such
Restricted Shares shall have been awarded. During the Restriction Period,
certificates representing the Restricted Shares and any securities
constituting Retained Distributions shall bear a restrictive legend to the
effect that ownership of the Restricted Shares (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are
subject to the restrictions, terms and conditions provided in the Plan and
the applicable Agreement. At the discretion of the Committee such
certificates shall either (i) remain in the custody of the Company and the
Holder shall deposit with the Company stock powers or other instruments of
assignment, each endorsed in blank, so as to permit retransfer to the
Company of all or any portion of the Restricted Shares and any securities
constituting Retained Distributions that shall be forfeited or otherwise
not become vested in accordance with the Plan and the applicable Agreement
or (ii) be delivered to the Holder bearing a restrictive legend either as
provided for in this Section or as may be designated by the Committee
obligating the Holder to return the Shares and any securities constituting
Retained Distributions that shall be forfeited or otherwise not becoome
vested in accordance with the Plan an the applicable Agreement.
6.3 Restrictions. Restricted Shares issued at the beginning of the Restriction
Period shall constitute issued and outstanding shares of Common Stock for
all corporate purposes. The Holder will have the right to vote such
Restricted Shares, to receive and retain such dividends and distributions,
as the Committee may in its sole discretion designate, paid or distributed
on such Restricted Shares and to exercise all other rights, powers and
privileges of a Holder of Common Stock with respect to such Restricted
Shares; except, that (a) the Holder will not be entitled to delivery of the
stock certificate or certificates representing such Restricted Shares until
the Restriction Period shall have expired and unless all other vesting
requirements with respect thereto shall have been fulfilled or waived; (b)
the Company will retain custody of the stock certificate or certificates
representing the Restricted Shares during the Restriction Period as
provided in Section 6.2; (c) other than such shares, dividends and
distributions as the Committee may in its sole discretion designate, the
Company will retain custody of all distributions ("Retained Distributions")
made or declared with respect to the Restricted Shares (and such Retained
Distributions will be subject to the same restrictions, terms and vesting
and other conditions as are applicable to the Restricted Shares) until such
time, if ever, as the Restricted Shares with respect to which such Retained
Distributions shall have been made, paid or declared shall have become
vested, and such Retained Distributions shall not bear interest or be
segregated in a separate account; (d) the Holder may not sell, assign,
transfer, pledge, exchange, encumber or dispose of the Restricted Shares or
any Retained Distributions or his interest in any of them during the
Restriction Period; and (e) a breach of any restrictions, terms or
conditions provided in the Plan or established by the Committee with
respect to any Restricted Shares or Retained Distributions will cause a
forfeiture of such Restricted Shares and any Retained Distributions with
respect thereto.
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6.4 Issuance of Stock at the End of the Restriction Period. Restricted Shares
issued at the end of the Restriction Period shall not constitute issued and
outstanding shares of Common Stock and the Holder shall not have any of the
rights of a stockholder with respect to the shares of Common Stock covered
by such an award of Restricted Shares, in each case until such shares shall
have been transferred to the Holder at the end of the Restriction Period.
If and to the extent that shares of Common Stock are to be issued at the
end of the Restriction Period, the Holder shall be entitled to receive
Dividend Equivalents with respect to the shares of Common Stock covered
thereby either (i) during the Restriction Period or (ii) in accordance with
the rules applicable to Retained Distributions, as the Committee may
specify in the Agreement.
6.5 Cash Awards. In connection with any award of Restricted Shares, an
Agreement may provide for the payment of a cash amount to the Holder of
such Restricted Shares at any time after such Restricted Shares shall have
become vested. Such cash awards shall be payable in accordance with such
additional restrictions, terms and conditions as shall be prescribed by the
Committee in the Agreement and shall be in addition to any other salary,
incentive, bonus or other compensation payments which such Holder shall be
otherwise entitled or eligible to receive from the Company.
6.6 Completion of Restriction Period. On the Vesting Date with respect to each
award of Restricted Shares, and the satisfaction of any other applicable
restrictions, terms and conditions (a) all or the applicable portion of
such Restricted Shares shall become vested, (b) any Retained Distributions
and any unpaid Dividend Equivalents with respect to such Restricted Shares
shall become vested to the extent that the Restricted Shares related
thereto shall have become vested and (c) any cash award to be received by
the Holder with respect to such Restricted Shares shall become payable, all
in accordance with the terms of the applicable Agreement. Any such
Restricted Shares, Retained Distributions and any unpaid Dividend
Equivalents that shall not become vested shall be forfeited to the Company
and the Holder shall not thereafter have any rights (including dividend and
voting rights) with respect to such Restricted Shares, Retained
Distributions and any unpaid Dividend Equivalents that shall have been so
forfeited. The Committee may, in its discretion, provide that the delivery
of any Restricted Shares, Retained Distributions and unpaid Dividend
Equivalents that shall have become vested, and payment of any cash awards
that shall have become payable, shall be deferred until such date or dates
as the recipient may elect. Any election of a recipient pursuant to the
preceding sentence shall be filed in writing with the Committee in
accordance with such rules and regulations, including any deadline for the
making of such an election, as the Committee may provide.
Article VII
GENERAL PROVISIONS
7.1 Acceleration of Restricted Shares.
(a) Death or Disability. If a Holder's employment shall terminate by reason
of death or Disability, notwithstanding any contrary waiting period,
installment period, vesting schedule or Restriction Period in any Agreement
or in the Plan, unless the applicable Agreement provides otherwise: in the
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case of Restricted Shares, the Restriction Period applicable to each such
award of Restricted Shares shall be deemed to have expired and all such
Restricted Shares, any related Retained Distributions and any unpaid
Dividend Equivalents shall become vested and any cash amounts payable
pursuant to the applicable Agreement shall be adjusted in such manner as
may be provided in the Agreement.
(b) Approved Transactions. In the event of any Approved Transaction,
notwithstanding any contrary waiting period, installment period, vesting
schedule or Restriction Period in any Agreement or in the Plan, unless the
applicable Agreement provides otherwise: in the case of Restricted Shares,
the Restriction Period applicable to each such award of Restricted Shares
shall be deemed to have expired and all such Restricted Shares, any related
Retained Distributions and any unpaid Dividend Equivalents shall become
vested and any cash amounts payable pursuant to the applicable Agreement
shall be adjusted in such manner as may be provided in the Agreement.
Notwithstanding the foregoing, unless otherwise provided in the applicable
Agreement, the Committee may, in its discretion, determine that any or all
outstanding Awards of any or all types granted pursuant to the Plan will
not vest or become exercisable on an accelerated basis in connection with
an Approved Transaction and/or will not terminate if not exercised prior to
consummation of the Approved Transaction, if the Board or the surviving or
acquiring corporation, as the case may be, shall have taken, or made
effective provision for the taking of, such action as in the opinion of the
Committee is equitable and appropriate to substitute a new Award for such
Award or to assume such Award and in order to make such new or assumed
Award, as nearly as may be practicable, equivalent to the old Award (before
giving effect to any acceleration of the vesting or exercisability
thereof), taking into account, to the extent applicable, the kind and
amount of securities, cash or other assets into or for which the Common
Stock may be changed, converted or exchanged in connection with the
Approved Transaction.
7.2 Termination of Employment.
(a) General. If a Holder's employment with the Company or a Subsidiary
shall be terminated during the Restriction Period with respect to any
Restricted Shares whether with or without cause or by reason of the
Holder's resignation whether with or without cause, then such Holder's
rights to all Restricted Shares, Retained Distributions, any unpaid
Dividend Equivalents and any cash awards shall be forfeited immediately.
(b) Miscellaneous. The Committee may determine whether any given leave of
absence constitutes a termination of employment; provided, however, that
for purposes of the Plan (i) a leave of absence, duly authorized in writing
by the Company for military service or sickness, or for any other purpose
approved by the Company if the period of such leave does not exceed 90
days, and (ii) a leave of absence in excess of 90 days, duly authorized in
writing by the Company, provided the employee's right to reemployment is
guaranteed either by statute or contract, shall not be deemed a termination
of employment. Awards made under the Plan shall not be affected by any
change of employment so long as the Holder continues to be an employee of
the Company or any Subsidiary.
7.3 Right of Company to Terminate Employment. Nothing contained in the Plan or
in any Award, and no action of the Company or the Committee with respect
thereto, shall confer or be construed to confer on any Holder any right to
continue in the employ of the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or a Subsidiary to
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terminate the employment of the Holder at any time, with or without cause;
subject, however, to the provisions of any employment agreement between the
Holder and the Company or any Subsidiary.
7.4 Nonalienation of Benefits. No right or benefit under the Plan shall be
subject to alienation, sale, assignment, hypothecation, pledge, exchange,
transfer, encumbrance or charge, and any attempt to alienate, sell, assign,
hypothecate, pledge, exchange, transfer, encumber or charge the same shall
be void. No right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the person
entitled to such benefits.
7.5 Written Agreement. Each award of Restricted Shares shall be evidenced by a
restricted shares agreement or grant, each in such form and containing such
terms and provisions not inconsistent with the provisions of the Plan as
the Committee from time to time shall approve; provided, however, that if
more than one type of Award is made to the same Holder, such Awards may be
evidenced by a single agreement or grant with such Holder. Each grantee of
Restricted Shares shall be notified promptly of such grant and a written
agreement shall be promptly executed and delivered by the Company and the
grantee, provided that, in the discretion of the Committee, such grant of
Restricted Shares shall terminate if such written agreement is not signed
by such grantee (or his attorney) and delivered to the Company within 60
days after the date the Committee approved such grant. Any such written
agreement or grant may contain (but shall not be required to contain) such
provisions as the Committee deems appropriate (i) to ensure that the
penalty provisions of Section 4999 of the Code will not apply to any stock
or cash received by the Holder from the Company or (ii) to provide cash
payments to the Holder to mitigate the impact of such penalty provisions
upon the Holder. Any such agreement or grant may be supplemented or amended
from time to time as approved by the Committee as contemplated by Section
7.8(b).
7.6 Designation of Beneficiaries. Each person who shall be granted an Award
under the Plan may designate a beneficiary or beneficiaries and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on a form to be prescribed
by it, provided that no such designation shall be effective unless so filed
prior to the death of such person.
7.7 Termination and Amendment
(a) General. Unless the Plan shall theretofore have been terminated as
hereinafter provided, no Awards may be made under the Plan on or after the
tenth anniversary of the Effective Date. The Board or the Committee may at
any time prior to the tenth anniversary of the Effective Date terminate the
Plan, and may, from time to time, suspend or discontinue the Plan or modify
or amend the Plan in such respects as it shall deem advisable; except that
no such modification or amendment shall be effective prior to approval by
the Company's stockholders to the extent such approval is then required
pursuant to Rule 16b-3 in order to preserve the applicability of any
exemption provided by such rule to any Award then outstanding (unless the
holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements.
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(b) Modification. No termination, modification or amendment of the Plan
may, without the consent of the person to whom any Award shall theretofore
have been granted, adversely affect the rights of such person with respect
to such Award. No modification, extension, renewal or other change in any
Award granted under the Plan shall be made after the grant of such Award,
unless the same is consistent with the provisions of the Plan. With the
consent of the Holder and subject to the terms and conditions of the Plan
(including Section 7.7(a)), the Committee may amend outstanding Agreements
with any Holder, including, without limitation, any amendment which would
(i) accelerate the time or times at which the Award may be exercised and/or
(ii) extend the scheduled expiration date of the Award. Without limiting
the generality of the foregoing, the Committee may, but solely with the
Holder's consent unless otherwise provided in the Agreement, agree to
cancel any Award under the Plan and issue a new Award in substitution
therefor, provided that the Award so substituted shall satisfy all of the
requirements of the Plan as of the date such new Award is made. Nothing
contained in the foregoing provisions of this Section 7.7(b) shall be
construed to prevent the Committee from providing in any Agreement that the
rights of the Holder with respect to the Award evidenced thereby shall be
subject to such rules and regulations as the Committee may, subject to the
express provisions of the Plan, adopt from time to time, or impair the
enforceability of any such provision.
7.8 Government and Other Regulations. The obligation of the Company with
respect to Awards shall be subject to all applicable laws, rules and
regulations and such approvals by any governmental agencies as may be
required, including, without limitation, the effectiveness of any
registration statement required under the Securities Act of 1933, and the
rules and regulations of any securities exchange or association on which
the Common Stock may be listed or quoted.
7.9 Withholding. The Company's obligation to deliver shares of Common Stock or
pay cash in respect of any Award under the Plan shall be subject to
applicable federal, state and local tax withholding requirements. Federal,
state and local withholding tax due at the time of an Award, upon the
exercise of any Option or upon the vesting of, or expiration of
restrictions with respect to, Restricted Shares, as appropriate, may, in
the discretion of the Committee, be paid in shares of Common Stock already
owned by the Holder or through the withholding of shares otherwise issuable
to such Holder, upon such terms and conditions (including, without
limitation, the conditions referenced in Section 6.5) as the Committee
shall determine. If the Holder shall fail to pay, or make arrangements
satisfactory to the Committee for the payment, to the Company of all such
federal, state and local taxes required to be withheld by the Company, then
the Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to such Holder an amount equal
to any federal, state or local taxes of any kind required to be withheld by
the Company with respect to such Award.
7.10 Separability. It is the intent of the Company that this Plan comply with
Rule 16b-3 with respect to persons subject to Section 16 of the Exchange
Act unless otherwise provided herein or in an Award Agreement or grant,
that any ambiguities or inconsistencies in the construction of this Plan be
interpreted to give effect to such intention, and that if any provision of
this Plan is found not to be in compliance with Rule 16b-3, such provision
shall be null and void to the extent required to permit this Plan to comply
with Rule 16b-3.
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7.11 Non-Exclusivity of the Plan. Neither the adoption of the Plan by the Board
nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the
awarding of stock and cash otherwise then under the Plan, and such
arrangements may be either generally applicable or applicable only in
specific cases.
7.12 Exclusion from Pension and Profit-Sharing Computation. By acceptance of an
Award, unless otherwise provided in the applicable Agreement or grant, each
Holder shall be deemed to have agreed that such Award is special incentive
compensation that will not be taken into account, in any manner, as salary,
compensation or bonus in determining the amount of any payment under any
pension, retirement or other employee benefit plan, program or policy of
the Company or any Subsidiary. In addition, each beneficiary of a deceased
Holder shall be deemed to have agreed that such Award will not affect the
amount of any life insurance coverage, if any, provided by the Company on
the life of the Holder which is payable to such beneficiary under any life
insurance plan covering employees of the Company or any Subsidiary.
7.13 Unfunded Plan. Neither the Company nor any Subsidiary shall be required to
segregate any cash or any shares of Common Stock which may at any time be
represented by authorized but unissued Awards and the Plan shall constitute
an "unfunded" plan of the Company. Except as provided in Article VI with
respect to awards of Restricted Shares and except as expressly set forth in
writing, no employee shall have voting or other rights with respect to
shares of Common Stock prior to the delivery of such shares. Neither the
Company nor any Subsidiary shall, by any provisions of the Plan, be deemed
to be a trustee of any Common Stock or any other property, and the
liabilities of the Company and any Subsidiary to any employee pursuant to
the Plan shall be those of a debtor pursuant to such contract obligations
as are created by or pursuant to the Plan, and the rights of any employee,
former employee or beneficiary under the Plan shall be limited to those of
a general creditor of the Company or the applicable Subsidiary, as the case
may be. In its sole discretion, the Board may authorize the creation of
trusts or other arrangements to meet the obligations of the Company under
the Plan, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
7.14 Governing Law. The Plan shall be governed by, and construed in accordance
with, the laws of the State of Delaware.
7.15 Accounts. The delivery of any shares of Common Stock and the payment of any
amount in respect of an Award shall be for the account of the Company or
the applicable Subsidiary, as the case maybe, and any such delivery or
payment shall not be made until the recipient shall have paid or made
satisfactory arrangements for the payment of any applicable withholding
taxes as provided in Section 7.9.
7.16 Legends. Each certificate evidencing Common Stock subject to an Award shall
bear such legends as the Committee deems necessary or appropriate to
reflect or refer to any terms, conditions or restrictions of the Award
applicable to such shares, including, without limitation, any to the effect
that the shares represented thereby may not be disposed of unless the
Company has received an opinion of counsel, acceptable to the Company, that
such disposition will not violate any federal or state securities laws.
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7.17 Company's Rights. The grant of Awards pursuant to the Plan shall not affect
in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure
or to merge, consolidate, liquidate, sell or otherwise dispose of all or
any part of its business or assets.
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EXHIBIT 4.2
Rag Shops, Inc.
Form of 1999 Stock Award Agreement
FORM OF INCENTIVE STOCK AWARD AGREEMENT OR GRANT
<PAGE>
INCENTIVE STOCK AWARD
INCENTIVE STOCK AWARD (the "Award") dated as July 20, 1999 by RAG SHOPS,
INC., a Delaware corporation (the "Company") to the individual employee named in
the Company Stock Certificate identified in Exhibit A hereto (the "Key
Employee").
WHEREAS, the Key Employee has been recognized as a key employee of the
Company; and
WHEREAS, for the benefit of the Company's stockholders that would be
derived from the additional Key Employee efforts arising from the incentive
provided by this Award, the Company has granted to the Key Employee an award of
those shares of the Common Stock of the Company identified in Exhibit A hereto
(the "Shares").
NOW THEREFORE, to evidence the Award and to set forth its terms and
conditions, the Company and the Key Employee hereby agree as follows:
1. Confirmation of Grant. By delivery of this Award and the original
Shares to the Key Employee, the Company hereby evidences and confirms its grant
of the Award to the Key Employee as of the date hereof. By accepting and holding
the original Shares, the parties agree that such Shares shall be governed by the
terms of this Award and the terms of the 1999 Rag Shop Incentive Stock Award
Plan, a copy of which is attached in the Exhibit B hereto (the "Incentive
Plan").
2. Restrictive Period. The Shares shall vest on July 31, 2000 (the
"Restrictive Period") and become subject to being owned by the Key Employee
without restriction in their entirety provided that Key Employee remains an
employee or active consultant of the Company from the date hereof through July
31, 2000.
3. Term and Exercise of the Surrender of Shares. The Shares still subject
to restriction shall be surrendered to the Company in the event Key Employee
ceases for any reason to be either employed or actively engaged as a consultant
by the Company, except where Key Employee's employment or engagement as a
consultant is terminated by reason of disability or death. To the extent any of
the Shares are no longer restricted under the terms of this Grant, the Company
shall cause them to have the restrictive legend removed therefrom.
4. Issuance of Shares of Common Stock. Certificates for the Shares shall
be issued to the Key Employee to evidence this Grant made as of the date hereof
and shall be validly issued, fully paid and non-assessable except as expressly
provided herein and shall constitute issued and outstanding shares of Common
Stock for all corporate purposes. The Key Employee will have the right to vote
such Shares, to receive and retain such dividends and distributions, as the
Company may in its sole discretion designate, pay or distribute on such Shares
and to exercise all other rights, powers and privileges of a holder of Common
Stock with respect to such Shares; except, that the Key Employee may not sell,
assign, transfer, pledge, exchange, encumber or dispose of the Shares or any
retained distributions or the Key Employee's interest in any of them during the
Restrictive Period. Any stock dividends made or declared with respect to the
Shares shall be
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subject to the same restrictions, terms and vesting and other conditions as are
applicable to the Shares until such time, if ever, as the Shares themselves
shall have become vested.
5. Rights in the Event of the Key Employee's Disability or Death. If a
Key Employee's employment shall terminate by reason of disability or death,
notwithstanding any contrary waiting period, installment period, vesting
schedule or Restrictive Period in this Grant or in the Incentive Plan, any
remaining Restrictive Period applicable to the Shares, if any, shall be deemed
to have expired and all such Shares and any related stock dividends shall become
vested and shall be delivered and paid over to the Key Employee.
6. Termination of Employment. If a Key Employee 's employment with the
Company or a subsidiary shall be terminated, whether with or without cause and
whether by the Company or by the Key Employee's resignation, during the
Restrictive Period then such Key Employee's rights to all Shares and stock
dividends shall be forfeited immediately and returned to the Company. The
Committee may determine, in accordance with the Incentive Plan provisions,
whether any given leave of absence constitutes a termination of employment for
the purposes of this Award. Awards made under the Incentive Plan shall not be
affected by any change of employment so long as the Key Employee continues to be
an employee or consultant engaged by the Company or any subsidiary thereof.
7. No Limitation on Rights of the Company. The grant of this Award shall
not in any way affect the right or power of the Company to make adjustments,
reclassifications or changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
8. Rights as a Stockholder. The Key Employee (or a transferee in the
event of the Key Employee's death) shall have all of the rights of a stockholder
with respect to any and all Shares except as set forth herein.
9. Compliance with Securities Laws. If at any time the Company
determines, in its discretion, that the listing, registration or qualification
of the Shares upon any securities exchange or under any state or federal law or
the consent or approval of any governmental regulatory body is necessary as a
condition of, or in connection with, the issuance of Shares hereunder, the
Shares may not be sold, pledged or transferred by the Key Employee unless such
listing, registration, qualification, consent or approval shall have been
effected. Without limiting the foregoing, the Shares may not be sold by the Key
Employee until a registration of the Shares has been effected under the
Securities Act of 1933, as amended, unless, in the opinion of counsel for the
Company, such registration is not required under such Act. Any stock
certificates representing the Shares or associated stock dividends may bear an
appropriate restrictive legend, if deemed necessary by the Company and during
the Restrictive Period , the Key Employee consents to the Shares bearing the
following restrictive legend .
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THE
INCENTIVE STOCK AWARD PLAN DATED JULY 20, 1999 AND THE TERMS OF GRANT MADE
AS OF JULY 20, 1999 BY THE RAG SHOPS, INC. STOCK
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<PAGE>
OPTION COMMITTEE INCLUDING THAT THE SHARES VEST IN THE REGISTERED OWNER NO
SOONER THAN THE CLOSE OF BUSINESS OF JULY 31, 2000, UNLESS EXPRESSLY
PROVIDED OTHERWISE BY THE PLAN OR TERMS OF GRANT."
10. Award Not a Contract of Employment. This Award is not a contract of
employment, and the terms of employment of the Key Employee shall not be
affected in any way by this Award except as specifically provided therein.
The grant and delivery of this Award shall not be construed as conferring
any legal rights upon the Key Employee for a continuation of employment,
nor shall it interfere with the right of the Company or any subsidiary to
discharge the Key Employee and to treat Key Employee without regard to the
effect which such treatment might have upon Key Employee in the capacity as
holder of this Award.
11. Notices. Notice to the Company or the Key Employee shall be deemed
given if in writing and either mailed by certified mail or sent by confirmed
telecopy to the Company at its principal executive offices, marked for the
attention of the Chief Financial Officer or the Key Employee at the latest
address shown on the Company's payroll or accounts payable ledger. Notice may be
given at such other address and number as the Company may notify the Key
Employee or the Key Employee may notify the Company; in each case with a copy to
the following:
Sills Cummis Radin Tischman
Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102-5400
Attn: Stanley U. North, III, Esq.
Tel: (973) 643-7000
Fax: (973) 643-6500
12. Entire Agreement. Except as set forth in the Incentive Plan, this
Award constitutes the complete understanding between the parties with respect to
the subject matter hereof and supersedes all prior understandings and
commitments.
13. Governing Law. Except to the extent preempted by applicable federal
law, this Award shall be construed and enforced in accordance with, and governed
by, the laws of Delaware without giving effect to the principles of conflicts of
law thereof.
IN WITNESS WHEREOF, the Company hereby confirms this Award as of the date
hereof.
RAG SHOPS, INC.
By:___________________________________________
Stanley Berenzweig, Chief Executive Officer
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<PAGE>
EXHIBIT 5.1
Opinion of Sills Cummis Radin Tischman Epstein & Gross, P.A. as to Legality
-2-
<PAGE>
August 16, 1999
Rag Shops, Inc.
111 Wagaraw Road
Hawthorne, New Jersey 07506
Gentlemen:
We serve as your general outside counsel and are familiar with the
Certificate of Incorporation, Bylaws and corporate proceedings generally of Rag
Shops, Inc. (the "Company"). We have reviewed the corporate records as to the
establishment of the Company's 1999 Incentive Stock Award Plan, which calls for
the issuance of up to 300,000 shares of Common Stock to optionees upon their
exercise of options that may be granted to them. Based upon such examination and
considerations, we are of the opinion:
1. That the Company is a duly organized and validly existing corporation
under the laws of the State of Delaware; and
2. That the Company has taken all necessary and required corporate
actions in connection with the proposed issuance of 300,000 shares of Common
Stock and that Common Stock, when issued and delivered, will be validly issued,
fully paid and non-assessable shares of Common Stock of the Company.
This letter is furnished by us solely for your benefit in connection with
the transactions referred to in the Registration Statement and may not be
circulated to, or relied upon by, any other person. We hereby consent to be
named in the Registration Statement and the Prospectus which constitutes a part
thereof as the attorneys who have passed upon legal matters in connection with
the issuance of the aforesaid Common Stock and to the filing of this opinion as
an exhibit to the Registration Statement.
Yours truly,
SILLS CUMMIS RADIN TISCHMAN
EPSTEIN & GROSS, P.A.
By:________________________
<PAGE>
EXHIBIT 23.2
Consent of Deloitte & Touche LLP
<PAGE>
Consent of Independent Accountants
We consent to the incorporation by reference in this Registration Statement
of Rag Shops, Inc. on Form S-8 of our report dated November 11, 1998, appearing
in the Annual Report on Form 10-K of Rag Shops, Inc. for the year ended August
29, 1998, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 12, 1999
