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                                                                   EXHIBIT 10.16

                            THIRD AMENDMENT AGREEMENT

This THIRD AMENDMENT AGREEMENT entered into at Boston, Massachusetts, as of
December 6, 2000, between PAPER WAREHOUSE, INC. and PAPER WAREHOUSE FRANCHISING,
INC. (hereinafter, collectively, the "Borrower"), each a Minnesota corporation
with its principal executive offices at 7630 Excelsior Boulevard, Minneapolis,
Minnesota 55426, and FLEET RETAIL FINANCE INC., f/k/a BankBoston Retail Finance
Inc., with an address of 40 Broad Street, Boston, MA 02109 (the "Lender").

WHEREAS, Lender established a revolving line of credit (the "Revolving Credit")
pursuant to a Loan and Security Agreement dated as of June 7, 1999 (as amended
and modified from time to time, the "Loan Agreement") for the Borrower under
which the Lender agreed to make advances to, and other financial accommodations
for the benefit of, the Borrower until the Maturity Date subject to the terms
and conditions of the Loan Agreement. All initially capitalized terms shall have
the definitions ascribed to them in the Loan Agreement, unless otherwise defined
herein.

WHEREAS, the Borrower has requested that the Lender consent to an amendment to a
certain financial covenant.

WHEREAS, subject to the terms and conditions in this Agreement, the Lender is
willing to modify the terms of the Loan Agreement in order to accommodate the
Borrower's request.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Lender and the Borrower mutually agree as
follows:

      1.    EFFECTIVE DATE: The "Effective Date" of this Agreement shall be the
            date upon which the Lender receives this Third Amendment Agreement
            in form and substance satisfactory to the Lender and executed and
            delivered by all parties required by the Lender.

      2.    AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is hereby amended
            as follows:

            3.    (a)   Section 2.12 of the Loan Agreement is hereby amended, as
                  of the Effective Date of this Amendment, to replace the
                  percentage "fifteen tenths of one percent (0.15%) per annum"
                  with the percentage "three hundred seventy-five thousandths of
                  one percent (0.375%) per annum)"; and

            4.    (b)   Clause (b) (EBITDA) of Section 5.12.2 of the Loan
                  Agreement is hereby amended, effective as of the fiscal
                  quarter ending in the fiscal month October, 2000, to replace
                  the amount of "$1,700,000" therein with the amount "$850,000"
                  in lieu thereof.

      5.    ENFORCEABILITY, ETC. Except as otherwise expressly provided herein,
            the Loan Agreement and the other Loan Documents are, and shall
            continue to be, in full force and effect and are hereby ratified and
            confirmed in all respects, except that


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            on and after the Effective Date hereof (i) all references in the
            Loan Agreement to "this Agreement", "hereto", "hereof", "hereunder",
            or words of like import referring to the Loan Agreement shall mean
            the Loan Agreement as amended by this Agreement and (ii) all
            references in the other Loan Documents to the "Loan Agreement",
            "thereto", "thereof", "thereunder" or words of like import referring
            to the Loan Agreement shall mean the Loan Agreement as amended by
            this Agreement. Except as expressly provided herein, the execution,
            delivery and effectiveness of this Agreement shall not operate as an
            amendment of any right, power or remedy of the Lender under the Loan
            Agreement or any other Loan Document, nor constitute an amendment of
            any provision of the Loan Agreement or any other Loan Documents.

      6.    GENERAL PROVISIONS

            a)    INTEGRATION; AMENDMENT; WAIVERS. This Agreement and Loan
                  Documents set forth in full are 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
                  Agreement, 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 Agreement's
                  description of an agreement between the parties, rights and
                  remedies of Lender or obligations of the Borrower are
                  described which also exist under the terms of the other Loan
                  Documents, the fact that this Agreement 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.

            b)    PAYMENT OF EXPENSES. Without limiting the terms of the Loan
                  Documents, the Borrower shall pay all costs and expenses
                  (including reasonable attorneys' fees) arising under or in
                  connection with the Loan Documents, including without
                  limitation, in connection with the negotiation, preparation,
                  execution, delivery, and enforcement of this Agreement and any
                  and all consents, waivers or other documents or instruments
                  relating thereto.

            c)    NO THIRD PARTY BENEFICIARIES. Except as may be otherwise
                  expressly provided for herein, this Agreement does not create,
                  and shall not be construed as creating, any rights enforceable
                  by any person not a party to this Agreement.


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            d)    SEPARABILITY. If any provision of this Agreement is held by a
                  court of competent jurisdiction to be invalid, illegal or
                  unenforceable, the remaining provisions of this Agreement
                  shall nevertheless remain in full force and effect.

            e)    COUNTERPARTS. This Agreement may be executed in any number of
                  counterparts, which together shall constitute one and the same
                  agreement.

            f)    TIME OF ESSENCE. Time is of the essence in each of the
                  Liabilities of the Borrower and with respect to all conditions
                  to be satisfied by the Borrower.

            g)    CONSTRUCTION; VOLUNTARY AGREEMENT; REPRESENTATION BY COUNSEL.
                  This Agreement 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 Agreement. Each of the parties declares that such party
                  has carefully read this Agreement 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 Agreement 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.

            h)    GOVERNING LAW; FORUM SELECTION. This Agreement has been
                  entered into and shall be governed by the laws of the
                  Commonwealth of Massachusetts.

            i)    FURTHER ASSURANCES. The Borrower agrees to take all further
                  actions and execute all further documents as the Lender may
                  from time to time reasonably request to carry out the
                  transactions contemplated by this Agreement.

            j)    NOTICES. All notices, requests and demands to or upon the
                  respective parties hereto shall be given in accordance with
                  the Loan Agreement.

            k)    MUTUAL WAIVER OF RIGHT TO JURY TRIAL. THE LENDER AND BORROWER
                  EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
                  PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING
                  TO: (I) THIS AGREEMENT, OR ANY OF THE AGREEMENTS, INSTRUMENTS
                  OR DOCUMENTS REFERRED TO HEREIN; OR (II) ANY OTHER PRESENT OR
                  FUTURE INSTRUMENT OR AGREEMENT BETWEEN THEM; OR (III) ANY
                  CONDUCT, ACTS OR OMISSIONS OF THE LENDER OR OF THE BORROWER OR
                  ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS
                  OR ANY OTHER PERSONS AFFILIATED WITH THEM;


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                  IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
                  OR TORT OR OTHERWISE.

            l)    COPIES AND FACSIMILES. This Agreement and all documents which
                  have been or may be hereinafter furnished by the 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 original is in
                  existence and whether or not such reproduction was made in the
                  regular course of business).


     This Third Amendment Agreement is executed under seal as of the date
written above.

Witness                                 BORROWER:
                                        Paper Warehouse, Inc.


   /s/ Cheryl W. Newell                 By:   /s/ Yale T. Dolginow
----------------------------------         ------------------------
                                            Yale T. Dolginow, Chairman and
                                            Chief Executive Officer

Witness                                 BORROWER:
                                        Paper Warehouse Franchising, Inc.


   /s/ Cheryl W. Newell                 By:   /s/ Yale T. Dolginow
----------------------------------         ------------------------
                                            Yale T. Dolginow, Chairman and
                                            Chief Executive Officer

Witness                                 ACCEPTED:
                                        Fleet Retail Finance Inc.


   /s/ Matthew McQuail                  By:   /s/ James J. Ward
----------------------------------         ------------------------
                                        Name:  James J. Ward
                                        Title:  Director


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