UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 14, 2004
Rag Shops, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-19194 51-0333503
(State or other jurisdiction (Commission File (IRS Employer
of incorporation or organization) Number) Identification No.)
111 Wagaraw Road
Hawthorne, New Jersey 07506
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 423-1303
(Former name or former address, if changed since last report)
Item 5. Other Events and Required FD Disclosure.
In its efforts to comply with The Sarbanes-Oxley Act of 2002, Rag
Shops, Inc. (the "Company") has adopted a Code of Business Conduct and Ethics
(the "Code") that applies to all of the Company's employees and contains
particular ethics obligations for employees with financial reporting
obligations. A copy of the Code is hereby filed with the Securities and Exchange
Commission as Exhibit 14.1. The Code and any amendments to or waivers from any
provisions of the Code that apply to the Company's principal executive officer,
principal financial officer, principal accounting officer or controller or
persons performing similar functions will be posted on the Company's Internet
website at www.ragshop.com .
In addition, two of the Company's directors, Steven Barnett and Judith
Lombardo, who are also members of management, Executive Vice President and
Senior Vice President, respectively, have resigned from the Board in order to
establish early compliance with the marketplace rules of The Nasdaq Stock Market
relating to majority independence of the Board of Directors. The Board as
currently constituted consists of Stanley Berenzweig, Chairman and Chief
Executive Officer of the Company, Mario Ciampi, Fred Damiano, Jeffrey Gerstel,
President and Chief Operating Officer of the Company, and Alan Mintz. The
Company has no current intentions to fill the vacancies created by the
resignations of Mr. Barnett and Ms. Lombardo.
The Company has also established a Corporate Governance/Nominating
Committee whose members are Mario Ciampi, Fred Damiano and Alan Mintz. The
Committee's charter will be posted on the Company's Internet website shortly.
The Company has also amended the Charters of its Audit Committee and
Compensation Committee; both of which will also be posted on the Company's
Internet website shortly.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
14.1 Code of Business Conduct and Ethics
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 hereunto duly authorized.
Dated: as of June 14, 2004
RAG SHOPS, INC.
By: /s/Stanley Berenzweig
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Stanley Berenzweig
Chairman
EXHIBIT 14.1
CODE OF BUSINESS CONDUCT AND ETHICS
The reputation of RAG SHOPS, INC. (the "Company") is a priceless asset
that each employee is responsible for maintaining. The Company has adopted this
Code of Business Conduct and Ethics (this "Code") as a guide for the personal
business ethics of all of its directors, officers and employees to help in the
recognition and management of ethical issues as well as to provide mechanisms to
report unethical conduct and to foster a culture of honesty and accountability.
Adherence to the standards contained in this Code will help to ensure decisions
that reflect care for all of the Company's shareholders. The Code should also be
provided to and followed by the Company's agents and representatives including
consultants.
The fundamental principle that underlies the way we do business at the
Company is good judgment and an understanding of the legal and ethical
parameters enhances that judgment. This Code is intended as an overview of the
Company's guiding parameters and not as a restatement of the Company's policies
and procedures. It cannot and is not intended to cover every applicable law or
to provide answers to all questions that might arise; for that the Company
ultimately must rely on each director's and employee's good sense of what is
right, including a sense of when it is proper to seek guidance from others on
the appropriate course of conduct. Because the Company's business depends upon
its reputation and on the integrity and principled business conduct of its
directors, officers and employees, in many instances this Code goes beyond the
requirements of the law. The Code embodies such rules regarding individual and
peer responsibilities as well as responsibilities to employees, customers,
suppliers, shareholders, the public and other stakeholders and includes:
o prohibiting conflicts of interest (including protecting corporate
opportunities);
o protecting the Company's confidential and proprietary information;
o treating the Company's employees, customers, suppliers and competitors
fairly;
o protection and proper use of Company assets;
o compliance with laws, rules and regulations (including insider trading
laws);
o encouraging the reporting of any unlawful or unethical behavior.
Since no code or policy can anticipate every situation that may arise,
employees are encouraged to bring questions about particular circumstances that
may implicate one or more of the provisions of this Code to the attention of
Alan Mintz, Chairman of the Corporate Governance/Nominating Committee, who may
consult with legal counsel as appropriate.
This Code is a statement of goals and expectations for individual and
business conduct and is not intended to and does not in any way constitute an
employment contract or assurance of continued employment and does not create any
rights in any employee, shareholder or other person or entity.
It is the obligation of each and every director, officer and employee
of the Company to become familiar with the goals and policies of the Company and
to integrate them into every aspect of the business. The Company's standard has
been and will continue to be that of the highest ethical conduct. Each director,
officer and employee must comply with the letter and spirit of this Code. Those
who violate the standards in this Code will be subject to disciplinary action.
I. Maintain Fiduciary Duties.
--------------------------
Directors and officers must be loyal to the Company and must act at all
times in the best interest of the Company and its shareholders and subordinate
self-interests to the corporate and shareholder good. Directors and officers
should never use their position to make a personal profit. Directors and
officers must perform their duties in good faith, with sound business judgment
and with the care of a prudent person.
II. Conflicts of Interest.
----------------------
All directors, officers and employees owe a duty of loyalty to the
Company and must avoid any business, financial or other direct or indirect
interests or relationships which conflict with or which divide his or her
loyalty to the Company. A "conflict of interest" occurs when the private
interest of a director, officer or employee interferes in any way, or appears to
interfere, with the interests of the Company as a whole. Conflicts of interest
also arise when a director, officer or employee, or a member of his or her
family(1), receives improper personal benefits as a result of his or her
position with the Company. Any activity which even appears to present such a
conflict must be avoided or terminated unless, after disclosure to the Chairman
of the Corporate Governance/Nominating Committee and the Chairman of the Board,
it is determined that the activity is not harmful to the Company or otherwise
improper.
Conflicts of interest may not always be obvious and clear-cut. This
Code does not attempt to describe all possible conflicts of interest which could
develop and, as such, those suspecting a conflict of interest should bring it to
the attention of a supervisor, manager or other appropriate personnel. Some of
the more common conflicts are set out below.
o Interest in other businesses. Employees and members of their
families must avoid direct or indirect financial relationships
with other businesses that could cause divided loyalties. This
does not mean that family members are precluded from being
employed by one of the Company's customers, competitors or
suppliers but that employees must avoid conducting Company
business with members of their families or others with whom
- --------
(1) Nasdaq rules define "family member" to include any person who is a relative
by blood, marriage or adoption or who has the same residence.
they have a significant personal relationship unless they have
prior authorization from the Company.
o Relationship of Company with third-parties. Directors, officers
and employees may not engage in any conduct or activities that are
inconsistent with the Company's best interests or that disrupt or
impair the Company's relationship with any person or entity with
which the Company has or proposes to enter into a business or
contractual relationship. Ownership of or an interest in a
competitor or in a business with which the Company has or is
contemplating a relationship may be a conflict of interest.
o Investments in public companies. Passive investments of not more
than one percent of the total outstanding shares of companies
listed on a national securities exchange or quoted on the NASDAQ
or other board are permitted without the Company's approval
provided that the investment is not so large financially either in
absolute dollars or percentage of the individual's total
investment portfolio that it creates the appearance of a conflict
of interest. Any such investment must not involve the use of
confidential "inside" or proprietary information. Investments in
diversified publicly traded mutual funds are not deemed subject to
these conflict of interest guidelines.
o Compensation from non-Company sources. Directors, officers and
employees may not accept compensation, in any form, for services
performed for the Company from any source other than the Company.
o Gifts or entertainment. Directors, officers, employees and members
of their families may not offer, give or receive gifts or
entertainment from persons or entities who deal with the Company
in those cases where any such gift or entertainment is being made
in order to influence the actions of a director as member of the
Board or the actions of an officer or employee in his or her
position with the Company, or where acceptance of the gifts or
entertainment would create the appearance of a conflict of
interest. Social amenities customarily associated with legitimate
business relationships are permissible including lunches, dinners
and gifts of modest value.
o Inside information. Directors, officers and employees may not use
inside information and must be equally careful not to make such
information available to others who might profit from it. The law
and the Company forbid employees from using or disclosing
material, non-public information that they acquire during the
course of their employment with the Company. Employees are
directed to review the Company's Insider Trading Policy.
III. Corporate Opportunities.
------------------------
A more specific form of conflict of interest is usurpation of a
corporate opportunity. Directors, officers and employees owe a duty to the
Company to advance the Company's legitimate interests when the opportunity to do
so arises. Directors, officers and employees are prohibited from: (a) taking for
themselves personally opportunities that are discovered through the use of
corporate property, information or their positions with the Company; (b) using
the Company's property, information, or position for personal gain; or (c)
competing with the Company, directly or indirectly, for business opportunities,
provided, however, that if the Company's disinterested directors determine that
the Company will not pursue an opportunity that relates to the Company's
business, a director, executive officer or employee may do so.
IV. Confidentiality.
----------------
Directors, officers and employees must maintain the confidentiality of
information entrusted to them by the Company or its customers, and any other
confidential information about the Company that comes to them, from whatever
source, in their capacity as director, officer or employee, except when
disclosure is authorized or required by laws or regulations. Confidential
information includes all non-public information including the nature of the
Company's business operations, information regarding inventions, trade secrets,
etc that might be of use to competitors, or harmful to the Company or its
customers, if disclosed. Such information should be protected and not disclosed
to outsiders and every practicable step to preserve the Company's confidential
information should be taken. This should include care in conducting confidential
conversations in public areas or on telephones with the potential for
eavesdropping, discarding confidential documents where they can be retrieved by
others, leaving confidential documents in unattended areas and engaging in other
unsecured means of communication.
V. Protection and Proper Use of Company Assets.
--------------------------------------------
All Company assets should be used for legitimate business purposes.
Directors, officers and employees must protect the Company's assets and ensure
their efficient use. Theft, loss, misuse, carelessness and waste of assets have
a direct impact on the Company's profitability. Directors, officers and
employees must not use Company time, employees, supplies, equipment, tools,
buildings or other assets for personal benefit without prior authorization from
the Chairman of the Corporate Governance/Nominating Committee or as part of a
compensation or expense reimbursement program available to all directors or
executive officers.
The obligations of employees to protect the Company's assets includes
its proprietary information which includes intellectual property such as trade
secrets, patents, trademarks, copyrights, as well as business, marketing and
service plans, databases, records, salary information and any unpublished
financial data and reports. Unauthorized use or distribution of this information
would violate Company policy and could also be illegal and result in civil or
criminal penalties.
VI. Competition and Fair Dealing.
-----------------------------
The Company seeks to outperform its competition fairly and honestly.
The Company seeks competitive advantages through superior performance, never
through unethical or illegal business practices. Directors, officers and
employees shall deal fairly and oversee fair dealing by employees and officers
with the Company's directors, officers, employees, customers, suppliers and
competitors. None should take unfair advantage of anyone through manipulation,
concealment, abuse of privileged information, misrepresentation of material
facts or any other unfair dealing practices.
VII. Compliance with Laws, Rules and Regulations.
--------------------------------------------
Obeying the law, both in letter and in spirit, is the foundation on
which this Company's ethical standards are built. Directors, officers and
employees shall comply, and oversee compliance by others, with all laws, rules
and regulations applicable to the Company. Although not all employees are
expected to know the details of these laws, it is important to know enough to
determine when to seek advice from supervisors, managers or other appropriate
personnel. The Company holds information and training sessions to promote
compliance with laws.
A Equal Employment Opportunity.
In particular, the Company places a high value on diversity and strongly
believes that all people are unique and should be respected for their individual
abilities and, as such, recognizes its responsibility to provide equal
employment opportunities to all qualified individuals. In support of this, the
Company has established a corporate policy regarding discrimination or
harassment on the basis of race, gender, age, color, religion, disability
status, veteran status, sexual orientation, marital status or ethnic, national
or other characteristic protected by law. The policy applies to all personnel
relationships including, but not limited to, promotions, transfers, training,
job assignments, hours of work, rates of pay, terminations and all terms and
conditions of employment.
B Harassment-Free Workplace.
It is the Company's policy to provide a work environment for its employees
that is free from harassment, including any verbal or physical harassment
regarding the racial, ethnic, religious, physical or sexual characteristics or
sexual orientation of another, and for all officers and employees to treat each
other, customers and all other persons encountered in the course of business
with respect. This policy extends to conduct that is made a condition of
employment, used as a basis for employment decisions and/or has the purpose or
effect of unreasonably interfering with an individual's work performance or
creating an intimidating, hostile or offensive working environment. Please see
the Company's Employee Handbook for further information on this policy.
C Drugs, Alcohol and Tobacco Usage.
The Company wants to establish and maintain a work environment that is free from
the effects of alcohol and drug abuse and that is congenial for all employees.
The Company maintains a strict policy regarding the use of drugs, alcohol and
tobacco. Please see the Company's Employee Handbook for further information on
this policy.
D Health and Safety Matters.
It is the Company's policy to provide each employee with a safe and healthful
work environment and each employee has the responsibility for maintaining a safe
and healthy workplace for all employees by following safety and health rules and
practices and reporting accidents, injuries and unsafe equipment, practices and
conditions.
E Antitrust Matters.
It is the Company's policy to compete fairly and legitimately and to comply with
all antitrust laws. At a minimum, these laws require that there be no agreements
or understandings between the Company and its competitors that affect prices,
terms or conditions of sale and that there be no other agreements unreasonably
restraining full and fair competition. There should be no discussions with
competitors regarding prices to be charged by the Company or others. Similarly,
agreements among competitors as to the territories or markets in which
competitive products will be sold are illegal. The antitrust
laws apply to many aspects of business behavior; it is therefore critical that
employees raise any issues relating to these matters with the Chief Executive
Officer so that legal counsel may be involved, if necessary.
F Insider Trading.
If an employee has material, non-public information relating to the Company, it
is the Company's policy and a requirement under law, that neither the employee,
nor any person related to the employee, may buy or sell securities of the
Company or engage in any other action to take advantage of that information.
This policy also applies to trading in the securities of any other company, such
as suppliers or competitors of the Company, if the employee has material,
non-public information about that company which the employee obtained in the
course of employment with the Company. Transactions that may be necessary or
justifiable for independent reasons including emergency expenditures and .
transactions planned before the employee learned the material information are
not exceptions. Violations of insider trading laws may be punishable by fines
and/or imprisonment. Employees are directed to review the Company's Insider
Trading Policy.
VIII. Dealings with the Press and Other Outside Entities.
---------------------------------------------------
Since corporations are subject to increasing public scrutiny, it is
important that any public statement that might be attributed to the Company be
carefully considered and that personal views be kept separate from Company
views. For these reasons, employees (other than designated employees) must
refrain from communication with the news media or securities analysts or
investors and not speak publicly for the Company unless specifically authorized
by senior management. The name and contact information of any party seeking
information or making other inquiries should be obtained and the Chairman of the
Board should be notified immediately.
IX. Use of the Internet and Communications Systems.
-----------------------------------------------
Access to the Internet and to all Company electronic communication
systems, such as electronic mail and voice mail, are made available to employees
solely for the purpose of carrying out legitimate business of the Company and
incidental use. These systems are the property of the Company and all
communications are subject to review by appropriate and authorized Company
personnel at any time. Users have no expectation of personal privacy in their
use of Company communications systems or in information sent to or from or
stored in Company communications systems. Access to the Internet via modem puts
both a user's computer and the entire Company-net at risk and, as such, users
must use approved mechanisms, tools and procedures for these activities. Use of
Company computer resources or communications systems for any of the following is
prohibited: abusive or otherwise objectionable language, information which is
illegal or obscene, messages which defame or libel others and use which
interferes with the work of the employee or others, including sexual or other
harassment violative of applicable Equal Employment Opportunity laws and Company
policies.
X. Document Retention and Management.
----------------------------------
Accurate business records must be maintained, retained and stored in a
consistent and reliable manner in order to comply with the requirements of
various laws as well as to provide for effective operations. Officers and
employees are expected to become familiar with the Company's policies regarding
records management.
XI. Special Ethics Obligations for Employees with Financial Reporting
-----------------------------------------------------------------
Obligations.
------------
As a public company, it is of critical importance that the Company's
filings with the Securities and Exchange Commission be accurate and timely.
Depending upon an employee's position with the Company, employees may be called
upon to provide information to assure that the Company's public reports are
complete, fair and understandable. The Company expects that all of its personnel
will take this responsibility very seriously and will provide prompt and
accurate answers to inquiries related to the Company's public disclosure
requirements.
The Finance Department bears a special responsibility for promoting
integrity throughout the organization with responsibilities to stakeholders both
inside and outside of the Company. The Chief Executive Officer and Finance
Department personnel have a special role both to adhere to these principles
themselves and also to ensure that a culture exists throughout the Company as a
whole that ensures the fair and timely reporting of the Company's financial
results and condition.
Due to these special roles, the Chief Executive Officer and each of the
members of the Finance Department are bound by the following Financial Code of
Ethics and by accepting the Code of Business Conduct and Ethics, each agrees
that he or she will:
o act with honesty and integrity, avoiding actual or apparent
conflicts of interest in personal and professional relationships;
o provide information that is accurate, complete, objective,
relevant, timely and understandable to ensure full, fair,
accurate, timely and understandable disclosure in reports and
documents that the Company files with, or submits to, government
agencies and in other public communications;
o comply with rules and regulations of federal, state and local
governments and other appropriate private and public regulatory
agencies;
o act in good faith, responsibly, with due care, competence and
diligence, without misrepresenting material facts or allowing
one's independent judgment to be subordinated;
o respect the confidentiality of information acquired in the course
of one's work except when authorized or otherwise legally
obligated to disclose;
o share knowledge and maintain skills important and relevant to
stakeholders' needs;
o proactively promote and be an example of ethical behavior as a
responsible partner among peers;
o achieve responsible use of and control over all assets and resources
employed or entrusted;
o not unduly or fraudulently influence, coerce, manipulate or
mislead any authorized audit or interfere with any auditor engaged
in the performance of an internal or independent audit of the
Company's financial statements or accounting books and records;
o promptly report to the Chairman of the Audit Committee any conduct
that the individual believes to be a violation of law or business
ethics or of any provision of this Code including any transaction
or relationship that reasonably could be expected to give rise to
such a conflict.
Violations of this Financial Officer Code of Ethics, including failures to
report potential violations by others, will be viewed as a severe disciplinary
matter that may result in personnel action, including termination of employment.
Anyone believing that a violation of the Financial Officer Code of Ethics has
occurred should contact the Chairman of the Audit Committee at:
alanmintz@aol.com .
XII. Amendments to and/or Waivers of the Code of Business Conduct and
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Ethics.
-------
Any amendment to this Code may be made only by the Board and shall be
disclosed promptly to the shareholders of the Company. Any waiver of this Code
as to the actions of directors and officers may be made only by the Board and
shall be disclosed promptly to the shareholders of the Company.
XIII. Encouraging the Reporting of any Illegal or Unethical Behavior.
---------------------------------------------------------------
The Company encourages employees to talk to supervisors, managers and
other appropriate personnel when in doubt about the best course of action in a
particular situation and encourages directors, officers and employees to report
any suspected violations of laws, rules or regulations or of this code promptly
to appropriate personnel or directly to the Chairman of the Corporate
Governance/Nominating Committee. The Company will not permit retaliation for
reports made in good faith.
Violations will be investigated by the Committee or by the Board or by
a person or persons designated by the Board and appropriate action will be taken
in the event of any violations of this Code.
A failure by any director, officer or employee to comply with the laws
or regulations governing the Company's business, this Code or any other Company
policy or requirement may result in disciplinary action, and, if warranted,
legal proceedings.