Exhibit 10

THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS THIRD AMENDMENT AGREEMENT dated as of August 30, 2002 (this “Amendment”) is
between and among Wells Fargo Retail Finance LLC (hereinafter, “WFRF” or
“Lender”), a Delaware limited liability company with its principal executive
offices at One Boston Place, 18th Floor, Boston, Massachusetts 02108, Paper
Warehouse, Inc. a Minnesota corporation with its principal executive offices at
7630 Excelsior Boulevard, Minneapolis, Minnesota, 55426-4504 (hereinafter “Paper
Warehouse”), jointly and severally with Paper Warehouse Franchising, Inc., a
Minnesota corporation with its principal executive offices at 7630 Excelsior
Boulevard, Minneapolis, Minnesota, 55426-4504 (hereinafter “PWFI”), and
PartySmart.com, Inc., a Minnesota corporation with its principal executive
offices at 7630 Excelsior Boulevard, Minneapolis, Minnesota, 55426-4504
(“PartySmart”) (hereinafter Paper Warehouse, PWFI and PartySmart may be
collectively referred to as collectively “Borrowers” and any one of them
individually as “Borrower”).

 

Recitals

 

WHEREAS,

 

A.            The Borrowers and the Lender have entered into a Loan and Security
Agreement dated as of September 7, 2001, as amended through the date hereof (the
“Loan Agreement”) and all Liabilities of the Borrowers to the Lender is secured
pursuant to the terms of the Loan Agreement, this Amendment and all other Loan
Documents as defined therein (collectively, the “Loan Documents”) by
substantially all assets of the Borrowers (the “Collateral”); and

 

B.            The Borrowers have requested that the Lender make available, in
addition to amounts presently available under the Borrowing Base, inclusive of
the Standard Line, the Special Sub-Line and the Credit Card Receivables Line
(collectively the “Standard Lines”), the amount of One Million Four Hundred
Twenty-Five Thousand ($1,425,000) Dollars; and

 

C.            The Lender is willing to consent and agree to the Borrowers’
request as set forth above, but only upon the terms and conditions set forth
herein;

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, it is agreed as follows:

 

1.               Terms used in this Amendment, which are defined in the Loan
Agreement, shall have the same meanings as defined therein, unless otherwise
defined herein.

 

2.               Notwithstanding anything to the contrary in the Loan Agreement,
commencing on the next Banking Day after the later of the date of execution
hereof and the delivery of all documents required hereunder (the “Amendment
Closing Date”) and ending on the earlier of the (x) Termination Date whether on
account of a Sale, an Event of Default or otherwise; or (y) December 2, 2002
(the “Over Line Termination Date”), the Lender agrees to make available for
borrowing, amounts, in addition to those amounts available under the Standard
Lines, One Million Four Hundred Twenty Five Thousand ($1,425,000) Dollars (the
“Over Line”), but in no

 

 

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event shall the aggregate amounts outstanding inclusive of the amounts
outstanding under the Standard Lines (inclusive of the Standard Line, the
Special Sub-Line and the Credit Card Receivables Line), the Over Line, and the
Stated Amount of all L/C’s, less Reserves other then Inventory Reserves, exceed
the Credit Limit.  All amounts advanced under the Over Line including all
principal, interest, fees and Costs of Collection relating thereto or incurred
in connection therewith are included in the Liabilities.

 

3.       Advances under the Over Line shall remain outstanding until the Over
Line Termination Date, and shall not revolve, and Borrowers shall pay all
amounts advanced under the Over Line, including all principal, interest, fees
and Costs of Collection relating thereto or incurred in connection therewith, in
full on the earlier of the Termination Date or the Over Line Termination Date,
provided, however, such advances may be repaid earlier as follows:

 

(a)  Borrower may make a “Sale Repayment” if the Borrower closes any sale of
substantially all of its assets or stock (a “Sale”) and the Proceeds of any Sale
are received by Lender on or before the Over Line Termination Date and such
Proceeds shall be applied first to pay the balance due under the Standard Lines
and other Liabilities (other than the Over Line) and last to the Over Line,
provided, however, nothing herein shall require the Lender to consent to any
Sale unless all of the Liabilities (including, without limitation, escrows or
other arrangements satisfactory to Lender for outstanding LC’s and Costs of
Collection) are paid in full.

 

(b)  Borrower may make: (i) a “Financing Repayment” if: (x) the Borrowers close
and fund subordinate financing, on terms reasonably satisfactory to Lender (a
“Financing”), including, without limitation, the delivery to Lender of a
satisfactory subordination and inter-creditor agreement executed by the provider
of such financing; and (y) the proceeds of the Financing, in an amount
sufficient to pay the outstanding balance of the Over Line (the “Over Line
Payoff Amount”), are received by Lender on or before the Over Line Termination
Date, unless such date is expressly extended by Lender in writing; or (ii)  a
Voluntary  Repayment” if: (x) Borrower shall give Lender prior written notice to
be received by Lender at least three (3) Banking Days in advance of payment
other than from a Sale or Financing (“Notice of Termination”) which Notice of
Termination shall be irrevocable and no further advances shall be thereafter
available under the Over Line; and (y) the Lender receives the Over Line Payoff
Amount on or before the Over Line Termination Date, unless such date is
expressly extended by Lender;

 

(c)  In the case of any Financing Repayment, Voluntary Repayment, or payment on
the Over Line Termination Date, after giving effect to application of the Over
Line Payoff Amount and any Reinstatement Amount the Borrower shall have
Availability under the Standard Lines (inclusive of the Standard Line, the
Special Sub-Line and the Credit Card Receivables Line) of not less than Five
Hundred Thousand Dollars ($500,000) Dollars at all times during the period
commencing on the date of Lender’s receipt of the Over Line Payoff Amount and
ending on the earlier of thirty (30) days thereafter or December 23, 2002 (“Over
Line Repayment Availability”).  In the event and on any occasion that Borrower
shall have failed to so maintain Over Line Repayment

 

 

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Availability, the Over Line Payoff Amount received to the extent of the
difference between actual Availability on the date measured and Five Hundred
Thousand ($500,000) Dollars (the “Over Line Reinstatement Amount”), shall be
deemed credited to the Standard Line and the Over Line Reinstatement Amount
shall be immediately due and payable.  For purposes of determination of Over
Line Repayment Availability “Availability” means at any time of determination an
amount equal to the lesser of the Borrowing Base or the Credit Limit in either
case, minus: (i) the then unpaid principal balance of the Loan Account, minus
(ii) the then aggregate of such Reserves (other than Inventory Reserves) as may
have been established by Lender, minus (iii) one hundred (100%) percent of the
then outstanding Stated Amount of all L/C’s.

 

4.             The Borrowers may request advances under the Over Line, each in
increments of not less than One Hundred Thousand ($100,000) Dollars.  Each such
request shall be in such manner as may from time to time be acceptable to the
Lender and shall be subject to the procedures set forth in the Loan Agreement.

 

5.             The Borrowers deliver contemporaneously herewith a stand-by
letter of credit procured by a third party who is acceptable to Lender naming
Lender as beneficiary in form and substance and amount reasonably acceptable
Lender providing for the Lender’s right to draw (a) in the same amounts advanced
under the Over Line, including all principal, interest, fees and Costs of
Collection relating thereto or incurred in connection therewith if such amounts
are not paid in full on or before the Over Line Termination Date, and  (b) in
the amount of any Over Line Reinstatement Amounts whenever Borrower is required
to pay such Over Line Reinstatement Amounts hereunder (the “Over Line LC”).  Any
repayment obligations of Borrowers to such third party as a consequence of any
draw of the Over Line LC shall be on terms acceptable to Lender, including,
without limitation, the delivery to Lender of a subordination and inter-creditor
agreement in form and substance acceptable to Lender and such third party shall
consent to this condition.

 

6.             The Borrowers shall provide Lender with copies of all letters of
intent, terms sheets, commitment letters, purchase and sales agreements and
similar agreements, whether executed or proposed, which are delivered to
Borrower in connection with the Sale or any Financing.

 

7.             All advances under the Over Line shall bear interest at the rate
of Base plus the Special Sub-Line Margin, calculated in accordance with the Loan
Agreement and shall be subject to the default rate set forth at Section 1-8 (b)
of the Loan Agreement.

 

8.             Borrowers shall pay a fee of Twenty Five Thousand ($ 25,000)
Dollars (the “Over Line Fee”) which shall be payable on the Amendment Closing
Date; and Borrower hereby authorizes and directs the Lender to advance the Over
Line Fee when payable hereunder and to treat the same as a loan to the Borrowers
pursuant to the Loan Documents.

 

9.             Each of the Borrowers hereby, jointly and severally, represents
and warrants to the Lender as follows:

 

 

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(a)           It has all requisite power and authority to execute this Amendment
and to perform all of its obligations hereunder, and this Amendment has been
duly executed and delivered by such Borrower and constitutes the legal, valid
and binding obligation of the Borrower, enforceable in accordance with its
terms.

 

(b)           The execution, delivery and performance by the Borrower of this
Amendment has been duly authorized by all necessary corporate action and does
not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the articles of incorporation or by-laws of the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or loan
or loan agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.

 

(c)           All of the representations and warranties set forth in Article 5
of the Loan Agreement are correct on and as of the Amendment Closing Date as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.

 

(d)           The resolutions of the board of directors of the Borrower attached
to the Borrower’s General Certificate provided at closing, and delivered to the
Lender in connection with the original execution and delivery of the Loan
Agreement (the “Certificate”) are in full force and effect, (ii) the Certificate
of Incorporation and By Laws of the Borrower, which were certified and delivered
to the Lender pursuant to the Certificate, continue in full force and effect and
have not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) the officers and agents of the Borrower
who have been certified to the Lender pursuant to the Certificate as being
authorized.

 

10.           All amounts advanced under the Over Line shall constitute
Liabilities and are secured by the liens and security interests in the
Collateral and otherwise granted to Lender under the Loan Documents.

 

11.           Each of the Borrowers, jointly and severally acknowledges, agrees
and reaffirms that, as provided in Section 13-3 of the Loan Agreement, in the
event of closing of a Sale or the Loan Agreement is terminated before the
Maturity date for any other reason, including, without limitation, (a)
termination upon the election of the Lender to terminate after the occurrence of
an Event of Default, (b) foreclosure and sale of Collateral, (c) sale of the
Collateral in any insolvency proceeding or otherwise by the Borrower, or (d)
restructure, reorganization or compromise of the Liabilities by the confirmation
of a plan of reorganization, or any other plan of compromise, restructure, or
arrangement in any insolvency proceeding, then, in view of the impracticability
and extreme difficulty of ascertaining the actual amount of damages to the
Lender or profits lost by the Lender as a result of such early termination, and
by mutual agreement of the parties as to a reasonable estimation and calculation
of the lost profits or damages of the Lender, Borrower shall pay the Early
Termination Premium to Lender.

 

 

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12.           By execution hereof, each of the Borrowers, jointly and severally,
represents and warrants that it has no defenses, setoffs or counterclaims to the
payment of its liabilities and obligations to Lender.  To the extent any such
defenses, setoffs, counterclaims ever existed, they are hereby expressly waived
and Lender is released, remised and forever discharged from any and all,
defenses causes of action, counterclaims or claims of any kind or nature, known
or unknown, existing or which have existed on or prior to the date hereof.

 

13.           All references in the Loan Agreement to “this Agreement” shall be
deemed to refer to the Loan Agreement as amended hereby.

 

14.           The Loan Documents set forth in full the terms of agreement
between the parties and are intended as the full, complete and exclusive
contract governing the relationship between the parties, superseding all other
discussions, promises, representations, warranties, agreements and the
understandings between the parties with respect thereto.  No term of the Loan
Documents may be modified or amended, nor may any rights thereunder be waived,
except in a writing signed by the party against whom enforcement of the
modification, amendment or waiver is sought. Any waiver of any condition in, or
breach of, any of the foregoing in a particular instance shall not operate as a
waiver of other or subsequent conditions or breaches of the same or a different
kind.  The Lender’s exercise or failure to exercise any rights under any of the
foregoing in a particular instance shall not operate as a waiver of its right to
exercise the same or different rights in subsequent instances.  Except as
expressly provided to the contrary in this Amendment, or in another written
agreement, all the terms, conditions, and provisions of the Loan Documents shall
continue in full force and effect.  If in this Amendment’s description of an
agreement between the parties, rights and remedies of Lender or obligations of
the Borrowers are described which also exist under the terms of the other Loan
Documents, the fact that this Amendment may omit or contain a briefer
description of any rights, remedies and obligations shall not be deemed to limit
any of such rights, remedies and obligations contained in the other Loan
Documents.

 

15.           This Amendment has been prepared through the joint efforts of all
the parties.  Neither its provisions nor any alleged ambiguity shall be
interpreted or resolved against any party on the ground that such party’s
counsel was the draftsman of this Amendment.  Each of the parties declares that
such party has carefully read this Amendment and the agreements, documents and
instruments being entered into in connection herewith and that such party knows
the contents thereof and sign the same freely and voluntarily. The parties
hereto acknowledge that they have been represented in negotiations for and
preparation of this Amendment and the agreements, documents and instrument being
entered into in connection herewith by legal counsel of their own choosing, and
that each of them has read the same and had their contents fully explained by
such counsel and is fully aware of their contents and legal effect.

 

16.           The Lender and the Borrowers, jointly and severally, further agree
that this Amendment and the Loan Agreement and all documents which have been or
may be hereinafter furnished by any Borrower to the Lender may be reproduced by
the Lender by any photographic, photostatic, microfilm, xerographic or similar
process, and any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the

 

 

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original is in existence and whether or not such reproduction was made in the
regular course of business).

 

17.           This Amendment may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.  Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of an original executed counterpart of this Amendment. 
Any party delivering an executed counterpart of this Amendment by telefacsimile
also shall deliver an original executed counterpart of this Amendment but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Amendment.  The foregoing
shall apply to each other Loan Document mutadis mutandis, except as otherwise
specifically provided therein or therefore.

 

 

                IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as a document under seal as of August 30, 2002.
(Signature pages to follow)

 

 

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Signature of Borrowers to Third Amendment to Loan and Security Agreement

 

 

PAPER WAREHOUSE, INC.

(BORROWER)

 

By:  /s/ Yale T. Dolginow

Print Name:

 

Title:

 

 

PAPER WAREHOUSE FRANCHISING, INC.

(BORROWER)

 

By:  /s/ Yale T. Dolginow

Print Name:

 

Title:

 

 

PARTYSMART.COM, INC.

(BORROWER)

 

By:  /s/ Yale T. Dolginow

Print Name:

 

Title:

 

 

 

Lender’s signature on following page

 

 

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Signature of Lender to Third Amendment to Loan and Security Agreement

 

 

WELLS FARGO RETAIL FINANCE LLC

(LENDER)

 

By:  /s/ Daniel O’Rourke

Print Name:  Daniel O’Rourke

Title:  Vice President — Account Executive

 

 

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