WARRANT CONVERSION AGREEMENT
This Warrant Conversion Agreement (the "Agreement") is made and entered
into as of the date indicated on the signature page attached hereto by and
between Paper Warehouse, Inc., a Minnesota corporation (the "Company") and each
warrant holder ("Warrant Holder") who is a holder of notes ("Notes") and a
signatary to this Agreement.
A. The Warrant Holder is the record holder of a Warrant to purchase 106.3
shares, subject to adjustment, of Common Stock of the Company, par value $.01
per share (the "Warrant Shares"), at an exercise price of $47.04 per share,
subject to adjustment (the "Exercise Price").
B. The Warrant Holder and the Company are parties to a Warrant Agreement
dated as of December 7, 1994 (the "Warrant Agreement"), and Registration Rights
Agreement dated as of December 7, 1994 (the "Registration Rights Agreement").
C. The Registration Rights Agreement provides that the Warrant Holder is
entitled to notice of a proposed registration of the Company's securities and
has the right to request registration of the Warrant Shares.
D. The Company proposes to undertake an initial public offering of the
Company's securities pursuant to a registered public offering (the "IPO"), and
the underwriters of the IPO have informed the Company that they do not intend to
include in the IPO any shares held by shareholders, including Warrant Shares,
and have further informed the Company that it would be in the best interests of
the Company to have the Warrants converted into shares of Common Stock in
connection with the IPO.
E. The Warrant Agreement provides that the Exercise Price be paid in cash
and does not provide for a cashless exercise or conversion provision.
F. The Warrant Holder and the Company desire to amend the Warrant
Agreement to provide for such a conversion provision.
G. The Warrant Holder desires to convert their Warrants into Warrant
Shares pursuant to a cashless exercise contingent with the Company's IPO being
completed prior to June 30, 1997.
Accordingly, and in consideration of the above recitals, the parties hereto
agree as follows:
1. CONVERSION OF WARRANT AGREEMENT. Article 5 of the Warrant Agreement
is hereby amended, effective upon the closing date of the IPO, to include the
following provision:
In addition to and without limiting the rights of the Warrant Holder
under the terms of this Warrant, the Warrant Holder shall have the
right (the "Conversion Right") to convert this Warrant into shares of
Common Stock as provided in this paragraph at any time or from time to
time prior to its expiration. Upon exercise of the Conversion Right
with respect to a particular number of shares of Warrant Stock (the
"Converted Warrant Shares"), the Company shall deliver to the Warrant
Holder, without payment by the Warrant Holder of any exercise price or
any cash or other consideration, that number of shares of Common Stock
equal to the quotient obtained by dividing the Net Value (as
hereinafter defined) of the Converted Warrant Shares by the fair
market value of a single share of Common Stock, determined in each
case as of the close of business on the Conversion Date (as
hereinafter defined) (but which shall be, as of the closing date of a
public offering of the Common Stock, the public offering price for
such offering). The "Net Value" of the Converted Warrant Shares shall
be determined by subtracting the aggregate Warrant Exercise Price of
the Converted Warrant Shares from the aggregate fair market value of
the Converted Warrant Shares.
2. EXERCISE OF WARRANT CONVERSION RIGHT. The Warrant Holder hereby
agrees to irrevocably exercise, and the Company agrees to accept such
irrevocable exercise, the Warrant Holder's Conversion Right with respect to all
of the Warrant Shares underlying the Warrants on the closing date of the IPO.
The Warrant Holder agrees to transmit to the Company the Form of Election to
Exercise Conversion Right attached to this Warrant Conversion Agreement, along
with the Warrant, no later than January 31, 1997, unless such date is extended
in the sole discretion of the Company.
3. TERMINATION OF WARRANT CONVERSION RIGHT AND EXERCISE. The Company
will return the Warrant and Form of Election to Exercise Conversion Right to the
Warrant Holder and the amendment of Article 5 of the Warrant Agreement provided
for by Section 1 above and the exercise of the Warrant Conversion Right provided
for by Section 2 above, shall not be effective in the event that:
a. LSG Corporation, or any assignee thereof, does not exercise,
prior to the IPO, its option pursuant to that Restated Option Agreement
dated October 6, 1994 between the Company and LSG Corporation.
b. The Registration Statement relating to the IPO is not declared
effective prior to 5:00 p.m. Minneapolis time on June 30, 1997.
4. REPRESENTATIONS OF WARRANT HOLDER. The Warrant Holder represents and
warrants to the Company that it:
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a. Has received the Letter of the Company dated January 13, 1997
relating to the cashless exercise.
b. Understands that the Warrant Shares issued upon exercise of the
Warrant are "Restricted Securities" as such term is defined in the
Securities Act of 1933, as amended, and may only be resold pursuant to
registration thereunder or pursuant to an exemption thereunder,
including Rule 144.
4. MISCELLANEOUS.
a. This Agreement shall be construed and enforced in accordance with
the laws of the State of Minnesota.
b. This Agreement may not be altered or amended except in writing
signed by each party.
The parties hereto have signed Agreement as the date last written below in
duplicate original.
PAPER WAREHOUSE, INC.
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Dated By: Yale ▇. ▇▇▇▇▇▇▇▇
WARRANT HOLDER
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Dated
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FORM OF
ELECTION TO EXERCISE CONVERSION RIGHTS
(To be executed if holder desires to convert the Warrant Certificate.)
TO PAPER WAREHOUSE, INC.:
The undersigned, subject to the terms of that certain Warrant Conversion
Agreement, hereby irrevocably elects to exercise the Conversion Rights with
respect to all Warrant Shares represented by the Warrant effective on the
closing date of the IPO to acquire the shares of Common Stock issuable upon the
exercise of such conversion right and requests that certificates for such shares
be issued in the name of:
Please insert social security or other identifying number
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(Please print name and address)
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Signature
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate)
Signature Guaranteed:
EXTENSION OF WARRANT CONVERSION AGREEMENT
This Extension of Warrant Conversion Agreement is made and entered into as
of the date indicated below to the left of the signatures.
WHEREAS, the undersigned previously executed a Warrant Conversion Agreement
(the "Conversion Agreement") whereby the undersigned agreed to convert their
Warrants into Warrant Shares (as defined therein) if Paper Warehouse, Inc. (the
"Company") effects a public offering prior to June 30, 1997.
WHEREAS, the Conversion Agreement also amended certain provisions to the
Warrant Agreement as defined therein.
WHEREAS, the effect of the Conversion Agreement terminates if the Company
does not affect an IPO prior to June 30, 1997 (the "Termination Date").
WHEREAS, the undersigned desires to extend the Termination Date until
December 31, 1997.
NOW, THEREFORE, the undersigned does hereby extend the Termination Date, as
set forth in paragraph 3 of the Conversion Agreement from June 30, 1997 until
January 31, 1998. This Certificate shall have the effect of amending the
Conversion Agreement.
WARRANT HOLDER
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Date
PAPER WAREHOUSE, INC.
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Date Yale ▇. ▇▇▇▇▇▇▇▇
President and CEO
