RULE 424(B)(3)
RAG SHOPS, INC.
SUPPLEMENT NO. 1 TO PROSPECTUS
This is Supplement No. 1 to the Prospectus of Rag Shops, Inc. (the
"Original Prospectus") included in its Registration Statement on Form S-8.
The date of the Original Prospectus is November 25, 1991. The section of
the Original Prospectus captioned "Selling Stockholders" is amended and
restated as set forth below. In addition, the section of the Original
Prospectus captioned "Risk Factors" is hereby deleted in its entirety.
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 pursuant to the exercise of options granted or
to be granted under the Plan. The Selling Stockholders named below may
resell all, a portion, or none of the shares that they acquire or may
acquire pursuant to the exercise of options under the Plan. Pursuant to
General Instruction C to Form S-8 promulgated by the Securities and
Exchange Commission, the number of shares of the Company's Common Stock
proposed to be reoffered or resold by each such Selling Stockholder
pursuant to this Prospectus is limited to that amount permitted by Rule
144(e) of the Securities Act of 1933, as amended.
Key employees deemed to be "affiliates" of the Company who acquire
registered Common Stock under the Plan may be added to the Selling
Stockholders listed below from time to time, either by means of a post-
effective amendment hereto or by use of a prospectus filed pursuant to Rule
424(c) under the Securities Act. An "affiliate" is defined in Rule 405
under the Securities Act as a "person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with," the Company.
The following table shows the name of the Selling Stockholder, his or
her position with the Company and the number of shares of the Company
Common Stock known by the Company to be beneficially owned by him as of
December 1, 1996, the number of shares covered by this Prospectus and the
amount and (if one percent or more) the percentage of the class to be owned
by the Selling Stockholder if such Selling Stockholder were to sell all of
the shares of Common Stock covered by this Prospectus:
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Amount to be held After Offering (1)
Beneficially Covered by this
Position with the COMPANY OWNED PROSPECTUS
SELLING STOCKHOLDER
<S> <C> <C> <C> <C> <C>
NUMBER OF SHARES PERCENTAGE (2)
Michael Aaronson President, Chief 50,000(3)(7) 50,000 -0- -0-
Operating Officer and
Director
Evan Berenzweig Senior Vice President and 238,500(4) 15,000 223,500 4.9
Director
Judith Lombardo Senior Vice President and 187,500(4) 15,000 172,500 3.8
Director
Steven B. Barnett Senior Vice President, 187,500(4) 15,000 172,500 3.8
Treasurer, Chief
Financial Officer and
Director
Alan C. Mintz Director 17,000(4) 15,000 2,000 *
Terry Smith Vice President 10,000(5)(7) 10,000 -0- -0-
Leonard M. Settanni Vice President 10,000(6)(7) 10,000 -0- -0-
</TABLE>
* Less than one percent.
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(1) Assumes that no additional shares are purchased and sold by any
Selling Shareholder.
(2) Based upon 4,514,400 shares of Common Stock outstanding as of December
16, 1996, plus, in the case of each Selling Shareholder, assuming that all
shares of Common Stock covered by this Prospectus are sold and that no
additional shares are purchased or sold by any Selling Shareholder.
(3) Represents shares subject to presently exercisable stock options at
$2.375 per share.
(4) Includes 15,000 shares subject to presently exercisable stock options
at $6.25 per share.
(5) Represents shares subject to presently exercisable stock options at
$6.00 per share and $8.125 per share.
(6) Represents shares subject to presently exercisable stock options at
$3.188 per share.
(7) Includes shares subject to options which are not exercisable within 60
days of the date hereof. Accordingly, such shares are not "beneficially
owned" within the meaning of Section 13(d) of the Securities and Exchange
Act of 1934 and the rules promulgated thereunder.
<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 but may
receive funds upon the exercise of the options pursuant to which the
Selling Stockholders will acquire the shares covered by this Prospectus,
which funds, if any, will be used for working capital. Mr. Aaronson has
advised the Company of plans to distribute his shares of Common Stock
covered by this Prospectus. No other Selling Stockholders have advised the
Company of any specific plans for the distribution of the shares of Common
Stock covered by this Prospectus, but, if and when such other 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 of 1933, 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 such Act. Shares of Common Stock covered
by this Prospectus also may be sold pursuant to Rule 144 under the
Securities Act of 1933 rather than pursuant to this Prospectus.
