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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PAPER WAREHOUSE, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Preliminary Copy
PAPER WAREHOUSE, INC.
SOLICITATION OF CONSENTS
FROM THE HOLDERS OF 9% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2005
Paper Warehouse, Inc., subject to the terms and conditions set forth in
this consent solicitation statement, is seeking your consent in writing to the
following proposals:
(1) your approval of the First Supplemental Indenture to the Indenture
dated July 20, 1999 between Paper Warehouse, Inc. and Norwest Bank Minnesota,
N.A., as trustee, which will amend the indenture to:
* replace the definition of "consolidated tangible net worth" in
the covenants relating to that definition with the definition
of "consolidated net worth"; and
* increase the interest rate from 9.0% to x.xx% per year; and
(2) your waiver of any and all defaults, whether known or unknown,
including any events of default as defined in the indenture, that currently
exist under the indenture, and their consequences.
This consent solicitation statement explains in more detail below the
reasons for, and the effects of, your consent to these proposals. Please read
this statement and related materials carefully and in their entirety.
We are trying to induce you to approve these proposals by including in
the proposed amendments an interest rate increase. We will also pay to each
holder of debentures from whom we receive a duly executed consent that is not
revoked a cash payment of $xx.xx for each $1,000 principal amount of the
holder's debentures. This payment will be made as soon as practicable after the
execution and delivery of a supplemental indenture. THE INTEREST RATE WILL NOT
BE INCREASED AND NO CASH PAYMENTS WILL BE MADE UNLESS BOTH PROPOSALS ARE
APPROVED. HOLDERS WHO DO NOT TIMELY CONSENT TO THE PROPOSALS WILL NOT BE
ELIGIBLE TO RECEIVE THIS PAYMENT EVEN THOUGH THE AMENDMENTS TO THE INDENTURE
(INCLUDING THE INTEREST RATE INCREASE) AND WAIVER OF DEFAULTS, IF APPROVED
THROUGH THE RECEIPT OF THE REQUISITE CONSENTS, WILL BE BINDING ON THEM.
THE BOARD OF DIRECTORS HAS APPROVED BOTH OF THE PROPOSALS DESCRIBED IN
THE CONSENT SOLICITATION STATEMENT AND RECOMMENDS THAT YOU CONSENT TO BOTH OF
THEM AS WELL. Neither proposal will be approved unless BOTH are approved. The
consent of the holders of more than 50% of the aggregate principal amount of the
debentures outstanding as of the record date (which are not revoked) is
necessary to approve each of the proposals. Only debenture holders, as
registered on the trustee's list of debenture holders as of April 30, 2000, are
entitled to give or withhold their consent to the above proposals.
A form of consent is enclosed for the purpose of giving or withholding
your consent to the proposals. Your consent to these proposals is important.
PLEASE COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED CONSENT FORM AS SOON AS
POSSIBLE IN THE ENCLOSED, POSTAGE PREPAID ENVELOPE. WE REQUEST THAT ALL CONSENTS
BE RETURNED AS PROMPTLY AS POSSIBLE AND, IN ANY EVENT, PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON JUNE 7, 2000. Your prompt attention to this matter will be
greatly appreciated.
Regardless of whether the proposals are approved, the debentures will
continue to be outstanding in accordance with all other terms of the debentures
and the indenture. The changes sought to be effected by the amendments will not
alter our obligation to pay the principal of and interest on the debentures, the
convertibility of the debentures or alter the redemption terms or maturity date
thereof.
The date of this consent solicitation statement is May ___, 2000.
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THE COMPANY
Paper Warehouse is a growing chain of retail stores specializing in
party supplies and paper goods. As of January 28, 2000, we had 149 stores,
including 102 company-owned stores and 47 franchise stores. These stores are
conveniently located in major retail trade areas to provide customers with easy
access. We operate these stores under the names PAPER WAREHOUSE and PARTY
UNIVERSE and operate a web site under the name PARTYSMART.COM.
Through our 8,500 square foot superstore prototype, we offer a
comprehensive selection of over 19,000 different products, offering customers
the convenience of one-stop shopping for all of their party supplies and paper
goods needs. Our merchandise is organized by party themes. The prominent
signage, wide aisles, knowledgeable staff and depth of product offerings allow
customers to coordinate various merchandise offerings for all party occasions.
We believe that our extensive product selection and high in-stock positions
stimulate customers to purchase additional products.
Our principal executive offices are located at 7630 Excelsior
Boulevard, Minneapolis, Minnesota 55426. Our telephone number is (952) 936-1000.
For additional information about our company, our business, our
financial condition and information about our executive officers and directors,
we urge you to read our 1999 Annual Report on Form 10-K, which is attached to
this consent solicitation statement as APPENDIX C.
BACKGROUND OF CONSENT SOLICITATION
On July 20, 1999, we sold $4.0 million in principal amount of our 9%
convertible subordinated debentures due 2005, at $1,000 per debenture. The
debentures mature and their principal is payable on September 15, 2005. They
bear interest at a rate of 9% per year. Interest payments are made under the
debentures on the 15th day of each December, March, June and September. Since
issuing the debentures, we have made all required interest payments.
The debentures are convertible into shares of our common stock
initially at the price of $3.00 per share, or an aggregate of 1,333,333 shares.
They are unsecured obligations, and your right to payment is subordinated in
right of payment to all of our senior indebtedness. We have the right to redeem
the debentures after July 20, 2002. You may require us to repurchase the
debentures if we experience a change of control. Since issuing the debentures,
we have not experienced a change of control. The debentures are not listed on
any securities exchange or quoted on the Nasdaq Stock Market or any
over-the-counter market. Although the debentures were registered under Section
12(g) of the Exchange Act of 1934, we filed a Form 15 terminating this
registration in March 2000 (which will become effective in June 2000). The
debentures were initially registered under the Exchange Act because of an
expectation that there would be over 500 registered holders of the
debentures. Since the debentures are currently held by fewer than 300
registered holders, they are not required to be registered under the Exchange
Act. The deregistration of the debentures under Exchange Act will not
adversely affect your ability to freely trade the debentures.
The debentures are governed by the terms of an indenture between us and
the trustee. The indenture provides, among other things, that we must comply
with certain financial covenants. One financial covenant is set forth in section
1010 of the indenture and provides that we must at all times keep and maintain a
consolidated tangible net worth at an amount not less than $7.0 million plus 50%
of positive consolidated net income earned after January 29, 1999. Another
covenant is set forth in section 1007 of the indenture and states in part that
we can incur additional indebtedness only if, among other things, the incurrence
of the indebtedness does not cause the ratio of our total liabilities to our
consolidated tangible net worth to exceed 5:1. The indenture defines
"consolidated tangible net worth" as our consolidated stockholders' equity, less
any portion of stockholders' equity attributable to intangible assets and
prepaid expenses.
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Our calculation of these financial covenants based on our balance sheet
for our fiscal year ended January 28, 2000, indicates that we were in breach of
these covenants as of that date. The primary reason we are in breach of these
covenants is a pre-tax repositioning charge of approximately $4.0 million we
took in the fourth quarter of our 1999 fiscal year. This charge includes
reserves related to the net remaining lease obligations on four stores to be
closed and one store to be re-located, and reserves associated with the change
in the estimate for the net remaining lease obligations on four previously
closed stores. The charge also reflects a write-down of assets related to these
stores and an impairment loss on assets related to our e-commerce business.
These charges are explained in greater detail in note 4 to our financial
statements on pages F-10 to F-11 of our 1999 Annual Report on Form 10-K, which
is attached as Appendix C to this consent solicitation statement.
Our stockholders' equity as of January 28, 2000 was approximately $9.6
million. We had as of this date a deferred tax asset of $3.4 million and prepaid
expenses and other intangible assets (including debt issuance costs, goodwill,
security deposits and trademarks) of $2.4 million. As a result, our consolidated
tangible net worth as of January 28, 2000 was $3.8 million. Our ratio of total
liabilities to consolidated tangible net worth as of January 28, 2000 was 7.4:1.
Our ratio of total liabilities to our proposed definition of consolidated net
worth as of January 28, 2000 was 2.9:1.
Under section 501(3) of the indenture, these breaches will be
considered "events of default" if they continue until June 11, 2000. If these
breaches were to become "events of default," the indenture trustee or holders
owning at least 25% in principal amount of the outstanding debentures would be
able to declare all of $4.0 million of outstanding debentures to be immediately
due and payable.
THE PROPOSALS
Set forth below is a summary description of the proposed amendments to
the indenture contained in the supplemental indenture and the waiver we are
requesting of all prior defaults under the indenture. Because it is a summary,
it does not include all of the information that is included in the supplemental
indenture and the applicable provisions of the indenture. The text of the
supplemental indenture, which is attached as APPENDIX A to this consent
solicitation statement, is incorporated into this section by reference. The text
of the relevant provisions from the indenture, which is attached as APPENDIX B
to this consent solicitation statement, is also incorporated into this section
by reference. We encourage you to read the supplemental indenture and relevant
indenture provisions carefully and in their entirety.
PROPOSED AMENDMENT TO REPLACE THE DEFINITION OF CONSOLIDATED TANGIBLE NET WORTH
The indenture allows the trustee and us, with the consent of the
holders of more than 50% of the aggregate principal amount of our outstanding
debentures, to modify the indenture in the form of a supplemental indenture. We
are asking you to approve the first supplemental indenture in substantially the
form attached as Appendix A to this consent solicitation statement pursuant to
which we have replaced the definition of "consolidated tangible net worth" in
the covenants relating to that definition with the definition of "consolidated
net worth."
Currently, consolidated tangible net worth is defined in section 101 of
the indenture as follows:
"Consolidated Tangible Net Worth" means, with respect to any Person at
any date of determination, the Consolidated stockholders' equity
represented by the shares of such Person's capitalized stock (other
than Disqualified Stock) outstanding as such date, as determined on a
Consolidated basis in accordance with GAAP less any portion of such
stockholders' equity attributable to intangible assets as determined in
accordance with GAAP and prepaid expenses.
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The supplemental indenture will replace the definition of "consolidated
tangible net worth" with the following definition of "consolidated net worth":
"Consolidated Net Worth" means, with respect to any Person at any date
of determination, the Consolidated stockholders' equity represented by
the shares of such Person's capitalized stock (other than Disqualified
Stock) outstanding as such date, as determined on a Consolidated basis
in accordance with GAAP.
PROPOSED AMENDMENT TO INCREASE INTEREST RATE
In order to induce you to approve the supplemental indenture
revising the definition of consolidated tangible net worth, we are also
proposing to amend the indenture to increase the interest rate on the
debentures from 9.0% per year to x.xx% per year, effective as of September
15, 2000. Under the current terms of the indenture and your debentures, your
debentures accrue interest at an annual rate of 9.0%. We pay the interest
quarterly on the 15th day of December, March, June and September. We also pay
all accrued interest upon the conversion, redemption or repurchase of your
debentures.
Because we have chosen to propose an increase in the interest rate
to x.xx%, the modifications included in the supplemental indenture are
anticipated, under the regulations of the Internal Revenue Service, to result
in a constructive exchange of a "new" debenture for your outstanding debenture,
with potential income tax consequences. We refer you to the discussion under
the heading "Certain Federal Income Tax Consequences," beginning on page 10.
If our debenture holders approve BOTH the amendments to the indenture
and the waiver of defaults (explained below), the interest rate on your
debentures will increase from 9.0% per year to x.xx% per year for the remaining
term of your debenture. For example, if you hold debentures in the principal
amount of $100,000, we would pay you on a quarterly basis interest of $xxxxx per
year rather than $9,000 per year.
WAIVER OF DEFAULTS
Because we have continued to be in default of the financial covenants
relating to our consolidated tangible net worth and additional indebtedness
since January 28, 2000, our fiscal year end, we are also asking you to waive any
and all defaults, whether known or unknown, including any events of default as
defined in the indenture, that currently exist under the indenture, and their
consequences. The indenture permits the holders of more than 50% of the
aggregate principal amount of our outstanding debentures to waive any past
default under the indenture and its consequences. Upon any such waiver, the
default so waived will cease to exist and any event of default arising from the
default will be deemed to have been cured for every purpose of the indenture.
This waiver, however, will not extend to any subsequent default or impair any
right consequent thereon.
Pursuant to section 501(3) of the indenture, defaults under sections
1007 and 1010 of the indenture will be considered to be "events of default"
under the indenture if they are not waived by our debenture holders before June
11, 2000.
If an "event of default" has occurred under the indenture and is
continuing, the trustee or the holders of not less than 25% of the aggregate
principal amount of the outstanding debentures may, and the trustee upon request
of the debenture holders of not less than 25% in principal amount of the
outstanding debentures must, declare all amounts outstanding on the debentures
to be immediately due and payable. In addition, the trustee and debenture
holders may pursue all other remedies available under the indenture and
applicable law, such as the commencement of collection actions or judicial
proceedings.
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ANTICIPATED EFFECT OF THE PROPOSED AMENDMENTS AND WAIVER AND POTENTIAL BENEFITS
TO DEBENTURE HOLDERS
AMENDMENT TO REPLACE DEFINITION OF CONSOLIDATED TANGIBLE NET WORTH. The
primary effect of amending the indenture to replace the definition of
"consolidated tangible net worth" in the covenants relating to that definition
with the definition of "consolidated net worth" is to cause our company not to
be in breach of certain financial covenants in the indenture. However, if we
continue to generate losses, we could in the future breach these or other
financial covenants included in the indenture.
AMENDMENT TO INCREASE INTEREST RATE. The proposed amendment to the
indenture increasing the interest rate on your debentures from 9.0% to x.xx% per
year will result in your receipt of higher quarterly interest payments on the
15th day of December, March, June and September, as well as a higher accrued
interest payment upon the conversion, redemption or repurchase of your
debentures. Interest paid on your debentures will be included in your income as
ordinary income at the time it is received or accrued, in accordance with your
regular method of tax accounting. The proposed increase in the interest rate
will result in a higher interest expense for us. We refer you to the discussion
under the heading "Certain Federal Income Tax Consequences," beginning on page
10.
WAIVER OF PAST DEFAULTS. Your consent to the waiver of any and all
defaults, whether known or unknown, including any events of default as defined
in the indenture, that currently exist under the indenture will cause them to
cease to exist and will forever eliminate your right to accelerate the
indebtedness under the debentures as a result of these waived defaults. Your
consent, however, will not extend to any subsequent defaults under the indenture
or impair any consequent rights arising from any subsequent defaults.
By waiving any and all defaults, whether known or unknown, including
any events of default as defined in the indenture, that currently exist under
the indenture, and their consequences, you are taking the risk that our company
will have sufficient assets to repay the debentures upon maturity or upon a
subsequent event of default. Although we do not currently have readily available
financial resources to repay the debentures at this time, it nevertheless is
possible that if our financial condition worsens we would have fewer available
financial resources to repay the debentures at a later date when they mature or
become due and payable upon another default under the indenture.
EFFECTIVE DATE OF SUPPLEMENTAL INDENTURE
If the proposed amendments and waiver in the form of the supplemental
indenture are approved, the effective date of these amendments and waiver will
be the day that we and the trustee execute the supplemental indenture.
CONSENT REQUIRED
Approval of the proposed amendments and the waiver of defaults requires
the consent of the holders of more than 50% of the aggregate principal amount of
the debentures outstanding as of the record date. If we obtain the necessary
consent, we, along with the trustee, will be authorized to execute the
supplemental indenture.
BOARD RECOMMENDATION
The board of directors recommends that you consent to the approval of
the proposed amendments and the waiver. Unless a contrary choice is specified,
signed consent forms solicited by the board and
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received by the trustee will be counted as consents FOR the approval of the
proposed amendments and the waiver.
RISK FACTORS
Before deciding whether to consent to the two proposals described in
this consent solicitation statement, you should consider the risk factors set
forth in Item 1A of our 1999 Annual Report on Form 10-K.
INFORMATION CONCERNING CONSENT SOLICITATION
This consent solicitation statement and related materials are being
mailed to our debenture holders beginning on or about May ___, 2000. Your
consent is important. A form of consent is enclosed for your use.
YOU ARE SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS TO MARK, SIGN,
DATE AND RETURN THE ENCLOSED FORM OF CONSENT IN THE ACCOMPANYING ENVELOPE. No
postage is required if mailed within the United States. You may also deliver the
enclosed consent form, or a facsimile thereof, to the trustee via hand delivery,
overnight courier or facsimile transmission (provided a confirming copy is sent
by mail). We request that the enclosed consent form be received by the trustee
not later than 5:00 p.m., New York City time, on Wednesday, June 7, 2000. We
reserve the right, however, in our sole discretion to extend this date as
discussed in more detail below under the heading "Information Concerning Consent
Solicitation--Procedures For Giving or Withholding Consents."
Pursuant to sections 513 and 902 of the indenture, approval of each of
the proposals requires the consent of the holders of more than 50% of the
aggregate principal amount of the debentures outstanding as of the record date.
We refer you to "Failure to Obtain Requisite Consents" for a description of our
intentions if the proposals are not approved by our debenture holders.
CONSENT FEE
Registered debenture holders whose properly executed consents are
received by the trustee before the end of the consent solicitation period
described below and not revoked will be eligible to receive a cash payment of
$xx.xx for each $1,000 principal amount of the holder's debentures. This payment
will be made as soon as practicable after the execution and delivery of a
supplemental indenture. DEBENTURE HOLDERS WHO DO NOT TIMELY CONSENT TO THE
PROPOSALS WILL NOT BE ELIGIBLE TO RECEIVE THIS PAYMENT EVEN THOUGH APPROVAL OF
THE SUPPLEMENTAL INDENTURE AND THE WAIVER OF ALL PRIOR DEFAULTS, IF APPROVED
THROUGH THE RECEIPT OF THE REQUISITE CONSENTS, WILL BE BINDING ON THEM.
RECORD DATE
Debenture holders of record on the record date are entitled to give or
withhold their consent to the proposals described in this consent solicitation
statement and to bind all successors and assigns of all or a portion of their
debentures. We have fixed the close of business on April 30, 2000 as the record
date for the determination of debenture holders entitled to notice of, and to
give or withhold their consent to the proposals described in this consent
solicitation statement. At the close of business on April 30, 2000, there was
$4.0 million in principal amount of debentures outstanding held by approximately
___ holders of record. We refer you to "Beneficial Ownership of Debentures by
Management and Principal Shareholders" for more information on our principal
debenture holders and the ownership of debentures by members of our management.
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CONSENT SOLICITATION PERIOD
The giving or withholding of a consent will not be effective unless the
consent form accompanying this consent solicitation statement is completed,
dated and signed in accordance with the instructions set forth therein and
received by the trustee no later than 5:00 p.m., New York City time, on June 7,
2000, unless the consent solicitation period is extended.
We reserve the right to extend at any time and from time to time in our
sole discretion the date (including on a daily basis) and time by which all
consent forms must be submitted. We also reserve the right to terminate at any
time and from time to time in our sole discretion the consent solicitation,
whether or not the requisite consents have been obtained. We will notify you and
the trustee in writing of any extension or termination.
PROCEDURES FOR GIVING OR WITHHOLDING CONSENTS
COMPLETE CONSENT FORMS. A form of written consent is enclosed with this
consent solicitation statement. If you return your consent form within the
consent solicitation period and indicate on your consent form that you "Approve"
a proposal, it will be counted as a consent in favor of the proposal. If you
indicate on your consent form that you "Disapprove" a proposal or you "Abstain"
on a proposal, it will not be counted as a consent in favor of the proposal. All
consent forms that are properly completed, signed and delivered to the trustee
before the end of the consent solicitation period and not properly revoked
before the end of the consent solicitation period will be given effect in
accordance with the specified instructions therein.
Consent forms that are not returned to the trustee and broker
"non-votes" will not be counted as a consents in favor of the proposals. A
broker "non-vote" occurs when a broker, bank or other nominee holding debentures
for a beneficial owner does not give or withhold its consent to a particular
proposal because the nominee does not have discretionary power to give or
withhold its consent to that proposal and has not received instructions from the
beneficial owner.
SIGNED CONSENT FORMS THAT DO NOT INDICATE THAT YOU "APPROVE,"
"DISAPPROVE" OR "ABSTAIN" FROM THE PROPOSALS WILL BE COUNTED AS CONSENTS IN
FAVOR OF BOTH OF THE PROPOSALS DESCRIBED IN THIS CONSENT SOLICITATION STATEMENT.
REGISTERED HOLDERS. Only those persons in whose name debentures were
registered in the register maintained by the trustee as of the record date, or
any other person who has obtained a proxy (in substantially the form included
with the consent form) authorizing such person (or any other person claiming
title by or through such person) to complete and deliver a consent form and vote
the related debentures on behalf of a registered holder, will be eligible to
deliver a consent form and vote with respect to the proposals described in this
consent solicitation statement.
DEBENTURES HELD IN NOMINEE'S NAME. With respect to debentures
registered in the name of CEDE & Co., which is the nominee of The Depository
Trust Company (commonly referred to as "DTC"), the DTC participants, who are the
brokers, banks and other financial institutions that are participants in DTC,
rather than DTC, must execute and deliver the consent form. Participants in
other depositories should inquire of those institutions the procedure for
executing consent forms in respect of the debentures registered in the name of
their respective nominees. Beneficial holders whose debentures are registered in
the name of DTC or other depository, must instruct their brokers or other
nominees in whose name the debentures are registered to consent or withhold
their consent for them.
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VALIDITY OF CONSENTS. All questions as to the validity, form,
eligibility (including time and receipt) and the acceptance of consent forms and
revocations of elections made on consent forms with respect to the debentures
will be resolved in the first instance by us. Our determination will be binding,
subject only to final review as may be prescribed by the trustee in accordance
with the indenture concerning proof of execution and ownership. We reserve the
absolute right to reject any or all consent forms and revocations that are not
in proper form or the acceptance of which could, in the judgment of our counsel,
be unlawful. We also reserve the right, subject to final review as the trustee
may prescribe in accordance with the provisions of the Indenture for proof of
execution and ownership, to waive any irregularities or conditions of delivery
as to particular consent forms or revocations of consents. Unless waived, any
irregularities in connection with the deliveries must be cured within such time
as we determine. Neither we, the trustee, nor any other person will be under any
duty to provide notification of any such irregularities or waiver, nor shall we,
the trustee or any other person incur any liability for failure to give
notification. Deliveries of such consent forms or notices of revocation will not
be deemed to have been made until such irregularities have been cured or waived.
Our interpretation of the terms and conditions of the consent solicitation will
be final and binding.
WHERE TO SEND CONSENT FORM. We request that if you are a registered
debenture holder, you consent to both proposals described in this consent
solicitation statement by completing, signing, dating and sending via first
class mail, hand delivery, overnight courier, or facsimile transmission
(provided a confirming copy is sent by mail) the enclosed form of consent, or a
facsimile thereof, to the trustee. The trustee's address is:
<TABLE>
<CAPTION>
VIA FIRST CLASS MAIL OR
OVERNIGHT COURIER VIA REGISTERED OR CERTIFIED MAIL IN PERSON BY HAND
<S> <C> <C>
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Corporate Trust Operations Corporate Trust Operations Corporate Trust Services
MAC N9303-121 MAC N9303-121 Northstar East Building
6th and Marquette Avenue P.O. Box 1517 608 Second Avenue South
Minneapolis, Minnesota 55479 Minneapolis, Minnesota 55480 12th Floor
Minneapolis, Minnesota
</TABLE>
VIA FACSIMILE
(CONFIRMING COPY REQUIRED)
(612) 667-4927
If your debenture is held in the name of a broker, bank or other
nominee, we request that you consent to both proposals described in this consent
solicitation statement by completing, signing, dating and mailing the enclosed
form of consent, or a facsimile thereof, to your broker or other nominee. Your
broker or nominee will, in turn, complete, sign, date and send a form of consent
to the trustee at the above address.
WE WILL NOT BE DEEMED TO HAVE ACCEPTED ANY CONSENT UNLESS AND UNTIL THE
SUPPLEMENTAL INDENTURE IS EXECUTED AND DELIVERED BY US AND THE TRUSTEE. IF WE
AND THE TRUSTEE EXECUTE AND DELIVER THE SUPPLEMENTAL INDENTURE, THE PROPOSED
AMENDMENTS AND WAIVER WILL BE BINDING UPON ALL HOLDERS OF OUR OUTSTANDING
DEBENTURES, WHETHER OR NOT THE HOLDERS HAVE DELIVERED CONSENTS.
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REVOCATION OF CONSENTS
We encourage you to consider your decision whether to consent to the
two proposals described in this consent solicitation statement carefully. Once
your written consent has been received by the trustee, you may revoke it at any
time until the later of:
* 5:00 p.m., New York City time, on June 7, 2000, as extended,
or
* the time that the trustee receives from us an officer's
certificate in accordance with the provisions of the indenture
certifying receipt of the requisite consents.
You may revoke your consent by:
* giving written notice of your revocation to the trustee; or
* filing a revoking instrument or a duly executed consent form
bearing a later date with the trustee.
The revocation (or, if the person furnishing the revocation is not the
registered holder, the accompanying irrevocable proxy), to be effective, must be
executed by the registered holder of the debentures in the same manner as the
name of the registered holder appears on the debentures to which the revocation
relates. If a revocation is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation, or other person acting in
a fiduciary or representative capacity, this person must so indicate when
signing and must submit with the revocation appropriate evidence of authority to
execute the revocation. A beneficial owner of debentures who is not the
registered holder must arrange with the registered holder to execute and deliver
on his, her or its behalf a revocation of any consent already given with respect
to such debentures, or obtain an irrevocable proxy (in substantially the form
included with the consent form) from the registered holder authorizing the
beneficial holder to revoke his, her or its consent in accordance with the
procedures described in this consent solicitation statement.
A revocation of a consent previously furnished may only be rescinded by
the execution and delivery of a properly completed and timely consent form. A
person who has delivered a revocation may thereafter deliver a new consent by
following one of the described procedures therefor (see "Information Concerning
Consent Solicitation--Procedures for Giving or Withholding Consents") at any
time on or prior to the end of the consent solicitation period.
Prior to the execution and delivery of the supplemental indenture, we
intend to consult with the trustee to determine whether it has received any
revocations of consents. We reserve the right to contest the validity of any
revocations. All questions as to the validity, form, eligibility (including time
of receipt) and acceptance of revocations of consents will be determined by the
trustee in its sole discretion, which determination will be conclusive and
binding on all interested parties, subject, however, to the obligation of the
trustee to first consult with us prior to rejecting any revocation of a consent.
TRANSFERS OF DEBENTURES AFTER RECORD DATE
Any consent form signed and dated by a registered debenture holder will
bind all beneficial owners and all transferees of either registered or
beneficial owners. The transfer of debentures after the record date will not
have the effect of revoking the election made in any consent form previously
validly given, and each consent will be counted despite the transfer of the
debentures to which the consent relates, unless the procedure for revoking
consents described above has been complied with.
8
<PAGE>
NO DISSENTERS' RIGHTS
Under Minnesota law, you are not entitled to any dissenters' rights
with respect to the proposals.
CONSENTS EXPECTED
We have received informal, unsolicited indications that a sufficient
number of debenture holders intend to consent in order to approve both
proposals.
FAILURE TO OBTAIN REQUISITE CONSENTS
In the event the consents necessary for the approval of both proposals
are not obtained prior to the end of the consent solicitation period, the
supplemental indenture will not become effective and the previous defaults by us
under the indenture will remain outstanding. Pursuant to section 501(3) of the
indenture, these defaults will be deemed "events of default" under the indenture
if they continue for a period of 30 days after the due date for filing our
annual certificate regarding our audited annual financial statements with the
trustee. This certificate must be filed by May 12, 2000. Therefore, an event of
default will occur under the indenture as a result of our breach of sections
1007 and 1010 on June 11, 2000.
If an event of default has occurred under the indenture and is
continuing, the trustee or the holders of not less than 25% of the aggregate
principal amount of the outstanding debentures may, and the trustee upon request
of the debenture holders of not less than 25% in principal amount of the
outstanding debentures must, declare all amounts outstanding on the debentures
to be immediately due and payable. In addition, the trustee and debenture
holders may pursue all other remedies available under the indenture and
applicable law, such as the commencement of collection actions or judicial
proceedings.
OUR DISCRETION AND RESERVATION OF RIGHTS
We reserve the right in our sole discretion:
* to terminate the consent solicitation at any time (including
after the end of the consent solicitation period) prior to the
execution and delivery of the supplemental indenture by us and
the trustee (whether or not the requisite consents have been
received) by giving oral or written notice of such termination
to the trustee;
* not to extend the consent solicitation period; and
* to amend, at any time or from time to time, the terms of the
consent solicitation.
Subject to the foregoing, if the requisite consents are received (and
not properly revoked) as of the end of the consent solicitation period, we
presently intend to deliver to the trustee an officer's certificate in
accordance with the provisions of the indenture certifying such receipt and
promptly thereafter to execute and deliver the supplemental indenture.
Any extension, termination or amendment of the solicitation will be
followed as promptly as practicable either by notice delivered to registered
holders or by public announcement. Without limiting the generality of the
foregoing, we, in the case of any public announcement, will have no obligation
to publish, advertise or otherwise disseminate any information in respect of the
solicitation other than by means of issuing a release through the Dow Jones News
Service.
9
<PAGE>
OTHER TERMS AND CONDITIONS OF THE INDENTURE
Except as expressly provided in the proposed amendments contained in
the supplemental indenture, all other terms and conditions of the indenture will
remain in full force and effect.
CONSENT SOLICITATION COSTS
The cost of soliciting consents, including the preparation, assembly
and mailing of this consent solicitation statement, the form of consent and
other materials, as well as the cost of forwarding these materials to the
beneficial owners of our debentures will be borne by us. Our directors, officers
and regular employees may, without compensation other than their regular
compensation, solicit consents by telephone, facsimile or personal conversation.
We may reimburse brokerage firms and others for expenses in forwarding these
consent materials to the beneficial owners of our debentures.
ROLE OF TRUSTEE
The trustee, acting as registrar of the debentures, will collect and
tabulate the consents. The trustee also will provide required and optional
notices to registered debenture holders in addition to its continuing to provide
customary services as trustee. The trustee will not advise you concerning our
request for your consent contained in this consent solicitation statement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
consequences of the adoption of the amendments to the indenture and the receipt
of the consent fee by the debenture holders. This summary is based on the
federal income tax law now in effect, which is subject to change, possibly
retroactively. This discussion does not discuss all aspects of federal income
taxation that may be relevant to particular debenture holders in light of their
personal circumstances or to certain types of debenture holders subject to
special treatment under the federal income tax laws (for example, financial
institutions, insurance companies, regulated investment companies, real estate
investment trusts, foreign persons and entities, tax-exempt organizations,
broker dealers, taxpayers subject to the alternative minimum tax and persons
holding the debentures as part of a straddle, hedge or conversion transaction)
and does not discuss any aspect of state, local or foreign taxation.
RECEIPT OF CONSENT FEE
We believe that the consent fee payable in cash in the amount of $xx.xx
per $1,000 principal amount of a holder's debentures (for those holders who
submit a timely and duly executed consent) may be treated as the payment of a
"fee" for federal income tax purposes, in consideration for consenting to the
proposals. Accordingly, under this treatment a debenture holder would be
required to include the consent fee in ordinary income, for federal income tax
purposes, in the taxable year in which the consent fee is accrued or received in
accordance with the holder's regular method of tax accounting. Alternatively, it
may be possible to treat the consent fee as (1) consideration received in the
deemed exchange described below, or (2) a non-taxable recovery of a portion of
the holder's tax basis in a debenture. Debenture holders are urged to consult
their tax advisors regarding the federal income tax consequences of their
receipt of the consent fee.
ADOPTION OF PROPOSALS
The Federal income tax consequences to consenting and non-consenting
debenture holders of adoption of the proposals will depend, in each case, on
whether a constructive exchange of debentures is
10
<PAGE>
deemed to have occurred. Under the Treasury Regulations governing such
constructive exchanges, the adoption of the proposals will constitute a
"modification" of the debentures. If that modification is "significant" within
the meaning of the regulations, it will result in a deemed exchange; if it is
not "significant," it will not result in an exchange. The regulations provide
that a modification that changes the yield on an instrument is a significant
modification if the annual yield on the modified instrument varies from that of
the original instrument by more than the greater of 25 basis points or 5% of the
annual yield of the unmodified instrument. For purposes of computing the
increase in yield, the issue price of the unmodified debt instrument is reduced
by the consent fee paid, where applicable. Because the proposed interest rate
increase of .xx%, by itself, or in conjunction with the consent fee payable to
certain holders, causes an increase in yield of more than 5% of the current
annual yield of the debentures and more than 25 basis points, we believe that
this increase will constitute a significant modification resulting in a deemed
exchange of new debt instruments (and the consent fee) for outstanding debt
instruments, referred to in the discussion below as "old debentures."
CONSENTING HOLDERS
We believe that the consent fee and increased interest rate will be
considered a significant modification of the terms of the outstanding
debentures, because the payments will have the effect of increasing the yield
to maturity of the outstanding debentures by more than the greater of 25
basis points or 5% of the annual yield of the unmodified debentures, and
therefore would result in the outstanding debentures held by consenting
holders being constructively exchanged for new debentures. The issue price of
the new debentures will depend upon whether the new debentures or the old
debentures are considered to be "traded on an established securities market"
or are otherwise "publicly traded" within the meaning of Treasury Regulation
Section 1.1273-2(f). If, as we anticipate, neither the new debentures nor the
old debentures are considered to be publicly traded, the issue price of the
new debentures will be their stated principal amount, unless the new
debentures are considered to be issued in a "potentially abusive situation,"
as defined in the regulations, in which case their issue price would be the
fair market value of the debentures. However, if, contrary to our
expectation, either the new debentures or the old debentures are considered
to be publicly traded either 30 days before or after the effective date of
the modification to the indenture, the issue price of the new debentures
would be (1) their trading price on the date of modification, if the new
debentures are publicly traded, or (2) the trading price of the old
debentures. If publicly traded status is determined, the issue price of the
new debentures could be less than their stated principal amount.
Where consenting holders are treated as constructively exchanging
old debentures for new debentures, the tax consequences to holders will
depend upon whether such deemed exchange is determined to constitute a
"recapitalization." Recapitalization treatment is unclear primarily because
it is unclear whether the old debentures and the new debentures would be
considered "securities" for federal income tax purposes under the rules
governing tax-free reorganizations and recapitalizations. We believe that the
new debentures are not likely to be treated as "securities" under such rules
so recapitalization treatment is not anticipated.
If the deemed exchange is determined not to be a recapitalization,
as is expected, consenting holders will recognize gain or loss equal to the
difference between (1) the sum of (a) the issue price of the new debentures
and (b) the consent fee received (if such amount is deemed additional
consideration for the debentures), and (2) the holder's adjusted tax basis in
the old debentures. Except to the extent treated as ordinary income under the
market discount rules, or to the extent the exchange represents the payment
of accrued interest to a holder, any such gain or loss will be short-term
capital gain or loss, since the old debentures will have been held for less
than one year. A holder's holding period for the new debentures will not
include the period during which the old debentures were held.
11
<PAGE>
In addition, if holders are regarded as exchanging old debentures for
new debentures in a taxable transaction, holders could be required to report
(over the term of the new debentures) original issue discount income, determined
as the excess of (1) the stated redemption price at maturity of the new
debentures over (2) their issue price. Special rules pertaining to acquisition
premium, bond premium and market discount may also apply. Further, if the new
debentures constitute "applicable high yield discount obligations," our interest
deduction with respect to original issue discount would be deferred and possibly
denied in part.
If such deemed exchange were determined to be a recapitalization,
which is not expected, the consent fee received by consenting holders would
likely be treated as additional consideration for the old debentures in such
recapitalization, and, in that event, consenting holders would recognize gain
(but not loss) to the extent of the lesser of (1) the amount of the consent
fee received and (2) the gain realized on the deemed exchange. The amount of
gain realized on the deemed exchange would equal the excess of (a) the sum of
the consent fee received and the issue price of the new debentures, over (b)
such holder's adjusted tax basis in the old debentures. Except to the extent
treated as ordinary income under certain rules pertaining to market discount,
or to the extent the exchange represents the payment of accrued interest to a
holder, any such gain would be short-term capital gain, since the old
debentures would have been held for less than one year. A holder's holding
period for the new debentures would include the period during which the old
debentures were held.
NON-CONSENTING HOLDERS
As stated above, the modification to the yield of the old debentures,
irrespective of the consent fee payment, as contemplated by the proposed
amendment to the indenture is expected to constitute a "significant"
modification of the old debentures, with the result that non-consenting holders
will also likely be deemed to have constructively exchanged their old debentures
for new debentures, with the issue price of the new debentures determined in the
manner described above. We refer you to the discussion under the heading
"--Adoption of Proposals--Consenting Holders."
In the event that non-consenting holders are treated as exchanging
old debentures for new debentures, the tax consequences to such holders will
depend on whether such deemed exchange is treated as a recapitalization, as
described above. If, as is expected, such deemed exchange is determined not
to be a recapitalization, non-consenting holders will recognize gain or loss
equal to the difference between (1) the issue price of the new debentures,
and (2) the holder's adjusted tax basis in the old debentures. Except to the
extent treated as ordinary income under the market discount rules, or to the
extent the exchange represents the payment of accrued interest to a holder,
any such gain or loss will be short-term capital gain or loss since the old
debentures were held for less than one year. A holder's holding period for
the new debentures will not include the period during which the old
debentures were held.
In addition, if non-consenting holders are regarded as exchanging old
debentures for new debentures in a taxable transaction, such holders could be
required to report original issue discount income (over the term of the new
debentures) determined in the manner set forth above.
If such deemed exchange were determined to be a recapitalization,
non-consenting holders would recognize no gain or loss and the holding period of
the new debentures would include the period during which the debentures were
held.
CANCELLATION OF INDEBTEDNESS INCOME
If holders are regarded as constructively exchanging old debentures for
new debentures, we will likely recognize cancellation of indebtedness income to
the extent of any excess of the adjusted issue
12
<PAGE>
price of the old debentures over the sum of (1) the issue price of the new
debentures and (2) possibly, the amount of any consent fee paid by us. We
anticipate having sufficient net operating loss carryovers to offset any such
cancellation of indebtedness income for regular income tax purposes.
BACKUP WITHHOLDING
Certain noncorporate holders may be subject to backup withholding at
the rate of 31% with respect to the consent fee. Generally, backup withholding
is applied only when:
* the taxpayer (1) fails to furnish or certify its correct
taxpayer identification number to the payer in the manner
required, or (2) under certain circumstances, fails to certify
that it has not been notified by the IRS that it is subject to
backup withholding for failure to report certain payments; or
* the IRS has notified the payor that the taxpayer
identification number furnished by the taxpayer is incorrect
or has otherwise notified the payor that backup withholding is
required.
Amounts withheld under the backup withholding rules will be allowed as a
credit against a holder's federal income tax liability, provided that such
holder furnishes the required information to the IRS, and amounts overwithheld
may be refunded if a timely return is filed.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS
Except as described below, our directors and executive officers have no
substantial interest, direct or indirect, by security holdings or otherwise, in
the approval or disapproval of the proposals described in this consent
solicitation statement, except as holders of our common stock generally. The
approval of the two proposals is anticipated to affect positively the interests
of our company generally and the interests of the holders of our common stock.
In connection with our credit agreement with Fleet Retail Finance, Yale
T. Dolginow, our Chairman of the Board, President and Chief Executive Officer,
obtained an irrevocable standby letter of credit from Norwest Bank Minnesota,
National Association in an amount of $1.2 million in March 2000 to guarantee the
payment of up to $1.2 million in excess of our borrowing base we borrow under
the credit agreement. So long as there is a default under our indenture, Mr.
Dolginow is unable to release himself from this obligation.
PRINCIPAL DEBENTURE HOLDERS
None of our directors or executive officers beneficially owned any
debentures as of April 1, 2000. To our knowledge, there are no debenture holders
that beneficially owned five percent or more of the aggregate principal amount
of debentures outstanding as of April 1, 2000. We rely on the fact that neither
a Schedule 13D nor a Schedule 13G has been filed with respect to the debentures
by any beneficial holder.
13
<PAGE>
BENEFICIAL OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 1, 2000 by each of: (1) the persons we
know own five percent or more of our common stock; (2) our directors; (3) our
executive officers who are required to be named in our Summary Compensation
Table in our proxy statement in connection with our annual meeting of
shareholders; and (4) all of our directors and executive officers as a group.
The address for all of our executive officers and directors is 7630 Excelsior
Boulevard, Minneapolis, Minnesota 55426.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
---------------------------------------
NAME AMOUNT PERCENT OF CLASS (2)
- ---- ----------------- ---------------------
<S> <C> <C>
Yale T. Dolginow.......................................................... 1,917,443 (3) 41.3%
Arthur H. Cobb............................................................ 11,417 (4) *
Diane C. Dolginow ........................................................ 0 (5) *
Marvin W. Goldstein....................................................... 20,417 (4) *
Jeffrey S. Halpern........................................................ 10,417 (4) *
Martin A. Mayer .......................................................... 53,740 (6) 1.2%
Brent D. Schlosser........................................................ 286,375 (7) 6.2%
Cheryl W. Newell.......................................................... 20,000 (8) *
Steven R. Anderson........................................................ 7,967 (9) *
Steven P. Durst........................................................... 11,200 (10) *
Wellington Management Company LLP
75 State Street
Boston, Massachusetts 02109............................................... 444,900 (11) 9.6%
All current directors and executive officers as a group (9 persons) ...... 2,059,599 (12) 44.2%
</TABLE>
- -----------------
* Less than 1% of the outstanding shares.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days are
treated as outstanding only when determining the amount and percent owned
by that person or group. Unless otherwise noted, individuals or entities
possessing sole voting and investment power with respect to shares of
common stock hold all of the shares shown.
(2) Calculated based on 4,639,475 shares of common stock outstanding as of
March 1, 2000 plus the amount the person may have the right to acquire
within 60 days.
(3) Includes 300,000 shares owned individually by Mr. Dolginow's three
daughters (100,000 shares each) for which Mr. Dolginow claims beneficial
ownership and includes 1,000 shares held in trust for one of
Mr. Dolginow's daughters.
(4) Includes options to purchase 10,417 shares of common stock exercisable
within 60 days.
(5) Does not include shares beneficially owned by Yale T. Dolginow, Ms.
Dolginow's husband.
14
<PAGE>
(6) Includes options to purchase 48,740 shares of common stock exercisable
within 60 days, of which 38,323 shares represent shares issuable upon
exercise of a stock option granted to Mr. Mayer by Mr. Dolginow.
(7) Mr. Schlosser resigned from our company in December 1999.
(8) Includes options to purchase 17,000 shares of common stock exercisable
within 60 days.
(9) Includes options to purchase 7,467 shares of common stock exercisable
within 60 days.
(10) Includes options to purchase 11,200 shares of common stock exercisable
within 60 days.
(11) Based solely on a Schedule 13G dated December 31, 1999, reporting
beneficial ownership of 444,900 shares of common stock held by Wellington
Management Company, LLP, as an investment adviser, which are all held of
record by clients of Wellington Management Company. Wellington Management
Company has shared voting power over 219,900 shares and shared
dispositive power over 444,900 shares.
(12) Includes options to purchase 115,656 shares of common stock exercisable
within 60 days.
WHERE YOU CAN GO FOR ADDITIONAL INFORMATION
Requests for information concerning this consent solicitation and the
procedures for giving or withholding your consent to the two proposals described
in this consent solicitation statement should be directed to us or to the
trustee.
For further information, please contact:
Ms. Cheryl W. Newell
Vice President and Chief Financial Officer
Paper Warehouse, Inc.
7630 Excelsior Boulevard
Minneapolis, Minnesota 55426
Telephone: (952) 936-1000
Facsimile: (952) 936-9800
For further information from the trustee, please contact:
Norwest Bank Minnesota, N.A.
Corporate Trust Services
MAC N903-120
Sixth and Marquette
Minneapolis, Minnesota 55479
Attn: Jane W. Schweiger
Telephone No.: (612) 667-2344
Facsimile No: (612) 667-9825
E-mail: [email protected]
-------------------------
The delivery of this consent solicitation statement will not under any
circumstances create any implication that the information contained in this
consent solicitation statement is correct as of any time subsequent to the date
hereof or that there has been no change in this information or in the affairs of
our company since the date hereof.
No person has been authorized to give any information or make any
representations in connection with the solicitation other than as expressly set
forth in this consent solicitation statement. Any
15
<PAGE>
information or representation not set forth in this consent solicitation
statement or in a supplement hereto is not authorized and should not be relied
upon.
-------------------------
YOUR CONSENT IS IMPORTANT. Please consent to the two proposals
described in this consent solicitation statement by marking, signing, dating and
promptly returning the enclosed consent form in the envelope provided. No
postage is required for mailing in the United States. You may also deliver the
enclosed consent form, or a facsimile thereof, to the trustee via hand delivery,
overnight courier or facsimile transmission (provided a confirming copy is sent
by mail).
We thank you in advance for your consideration of this request and your
prompt return of your consent form.
By Order of the Board of Directors
PAPER WAREHOUSE, INC.
Yale T. Dolginow
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
May ___, 2000
Minneapolis, Minnesota
16
<PAGE>
PAPER WAREHOUSE, INC.
DEBENTURE HOLDER CONSENT FORM
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, representing all of the 9% Convertible Subordinated
Debentures due September 15, 2005 held of record by the undersigned on April 30,
2000, indicates below whether the undersigned consents to the following
proposals.
1. TO APPROVE THE FIRST SUPPLEMENTAL INDENTURE TO THE INDENTURE
DATED JULY 20, 1999 BETWEEN PAPER WAREHOUSE, INC., AS ISSUER
AND NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, AS TRUSTEE.
/ / FOR / / AGAINST / / ABSTAIN
2. TO WAIVE ANY AND ALL DEFAULTS, WHETHER KNOWN OR UNKNOWN,
INCLUDING ANY EVENTS OF DEFAULT AS DEFINED IN THE INDENTURE,
THAT CURRENTLY EXIST UNDER THE INDENTURE AND THEIR
CONSEQUENCES.
/ / FOR / / AGAINST / / ABSTAIN
This consent form, when properly executed, will be given effect in
the manner directed herein by the undersigned debenture holder. If no
direction is made, this consent form will be counted as a consent in favor of
proposals 1 and 2 above. Neither proposal will be approved unless BOTH
proposals are approved.
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: , 2000
--------------
-----------------------------------
Signature
-----------------------------------
Print Name
-----------------------------------
Signature if held jointly
-----------------------------------
Print Name
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT FORM PROMPTLY USING
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. YOU MAY ALSO DELIVER THE ENCLOSED CONSENT FORM, OR A FACSIMILE
THEREOF, TO THE TRUSTEE VIA HAND DELIVERY, OVERNIGHT COURIER OR FACSIMILE
TRANSMISSION (PROVIDED A CONFIRMING COPY IS SENT BY MAIL).
CONSENT FORMS MUST BE RECEIVED BY THE TRUSTEE BY 5:00 P.M. NEW YORK
CITY TIME, ON OR BEFORE JUNE 7, 2000, UNLESS THE DEADLINE IS EXTENDED.
17
<PAGE>
REGISTERED DEBENTURE HOLDERS WHOSE PROPERLY EXECUTED CONSENTS ARE
RECEIVED BY THE TRUSTEE BEFORE THE END OF THE CONSENT SOLICITATION PERIOD
DESCRIBED IN THE CONSENT SOLICITATION STATEMENT AND NOT REVOKED WILL BE
ELIGIBLE TO RECEIVE A CASH PAYMENT OF $XX.XX FOR EACH $1,000 PRINCIPAL AMOUNT
OF THE HOLDER'S DEBENTURES. THIS PAYMENT WILL BE MADE AS SOON AS PRACTICABLE
AFTER THE EXECUTION AND DELIVERY OF A SUPPLEMENTAL INDENTURE. DEBENTURE
HOLDERS WHO DO NOT TIMELY CONSENT TO THE PROPOSALS WILL NOT BE ELIGIBLE TO
RECEIVE THIS PAYMENT EVEN THOUGH APPROVAL OF THE SUPPLEMENTAL INDENTURE AND
THE WAIVER OF ALL PRIOR DEFAULTS, IF APPROVED THROUGH THE RECEIPT OF THE
REQUISITE CONSENTS, WILL BE BINDING ON THEM.
THE CONSENT FEE DESCRIBED ABOVE WILL BE PAID BY THE TRUSTEE, ON OUR
BEHALF, BY DELIVERY OF A CHECK TO THE HOLDER AT ITS ADDRESS AS IT APPEARS ON
THE RECORDS OF THE TRUSTEE AS OF THE RECORD DATE. IF YOU DESIRE THE CONSENT
FEE TO BE SENT OTHERWISE, PLEASE SO INDICATE BELOW:
-------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
TO BE COMPLETED ONLY IF THE CHECK FOR THE
CONSENT FEE IS TO BE ISSUED IN THE NAME OF
SOMEONE OTHER THAN THE REGISTERED HOLDER OF THE
DEBENTURES.
ISSUE CHECKS TO:
NAME __________________________________________
__________________________________________
(PLEASE PRINT)
ADDRESS ________________________________________
________________________________________
(INCLUDE ZIP CODE)
________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
-------------------------------------------------------
-------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
TO BE COMPLETED ONLY IF THE CHECK FOR THE CONSENT
FEE IS TO BE SENT TO SOMEONE OTHER THAN THE REGISTERED
HOLDER OF THE DEBENTURES AT ANY ADDRESS OTHER THAN
THAT SHOWN ON THE RECORDS OF THE TRUSTEE AS OF THE
RECORD DATE.
MAIL CHECK TO:
NAME __________________________________________
__________________________________________
(PLEASE PRINT)
ADDRESS ________________________________________
________________________________________
(INCLUDE ZIP CODE)
________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
-------------------------------------------------------
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax laws, Paper Warehouse may be required to
withhold 31% of the amount of any payment made to our debenture holders pursuant
to the consent solicitation. In order to avoid such backup withholding, each
debenture holder must provide the correct taxpayer identification number ("TIN")
by completing the Substitute Form W-9 set forth below or, in the case of certain
foreign persons, a properly completed applicable Form W-8. If you are an
individual, the TIN is your social security number. If you are a business or
other entity, your TIN is your employer identification number. If we are not
provided with the correct TIN or properly completed Form W-9, you may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to you pursuant to the consent solicitation may be subject to
backup withholding. For foreign persons, an applicable Form W-8 can be obtained
from the trustee. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
If federal backup withholding applies, we are required to withhold 31%
of any payments made to you. Backup withholding is not an additional tax.
Rather, the federal income tax liability of persons subject to backup
withholding will be reduced by the amount of the tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding, you are required to notify us of your
correct TIN by completing the Substitute Form W-9 below certifying that the TIN
provided on such Substitute Form W-9 is correct and that (1) you are exempt from
backup withholding; or (2) you have not been notified by the Internal Revenue
Service that you are subject to backup withholding as a result of failure to
report all interest or dividends; or (3) the Internal Revenue Service has
notified you that you are no longer subject to backup withholding. Foreign
shareholders must submit a properly completed applicable Form W-8 (either Form
W-8BEN, W-8ECI or W-8IMY, as applicable) in order to avoid the applicable backup
withholding; provided, however, that backup withholding will not apply to
foreign shareholders subject to 30% (or lower treaty rate) withholding on gross
payments received pursuant to the offer. An applicable Form W-8 is available
upon request to the trustee.
WHAT NUMBER TO GIVE US
The shareholder is required to give us the social security number or
employer identification number of the registered owner of the debentures. If the
debentures are in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
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PAYER'S NAME: NORWEST BANK MINNESOTA, N.A.
<TABLE>
<S><C>
- ------------------------------------------------------------------------------- --------------------------------------
SUBSTITUTE PART 1-PLEASE PROVIDE YOUR TIN IN TIN ________________________________
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY Social Security Number or
SIGNING AND DATING BELOW. Employer Identification Number
DEPARTMENT OF THE TREASURY -----------------------------------------------------------------------------
INTERNAL REVENUE SERVICE NAME (Please Print)
-------------------------------------- PART 2
ADDRESS Awaiting
TIN
PAYOR'S REQUEST FOR -------------------------------------- / /
TAXPAYER IDENTIFICATION CITY STATE ZIP CODE
NUMBER (TIN) AND
CERTIFICATION -----------------------------------------------------------------------------
PART 3-CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number
(or a TIN has not been issued to me but I have mailed or delivered an
application to receive a TIN or intend to do so in the near future), (2) I am
not subject to backup withholding either because I am exempt from backup
withholding, I have not been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or the IRS has notified me that I am no
longer subject to backup withholding, and (3) all other information provided
on this form is true, correct and complete.
SIGNATURE____________________________________ DATE_________________________
You must cross out item (2) above if you have been notified by the IRS that
you are currently subject to backup withholding because of underreporting
interest or dividends on your tax return.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE CONSENT
SOLICITATION. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR
ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments of the purchase price made to me thereafter will be withheld
until I provide a number.
Signature_________________ Date:___________________, 2000
- --------------------------------------------------------------------------------
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<PAGE>
APPENDIX A
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE ("Supplemental Indenture") is made
and entered into as of ___________ ___, 2000 between Paper Warehouse, Inc., a
Minnesota corporation (the "Company"), and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee").
RECITALS
WHEREAS, the parties hereto have entered into that certain
Indenture dated as of July 20, 1999 (as amended, supplemented or modified from
time to time, the "Original Indenture") pursuant to which the Company issued its
9% Convertible Subordinated Debentures Due September 15, 2005 (the "Debentures")
in the original principal amount of $4,000,000.
WHEREAS, the Company requested that the holders of the Debentures
consent to the amendment of certain provisions of the Original Indenture.
WHEREAS, pursuant to Section 902 of the Original Indenture, the
holders of not less than a majority of the aggregate principal amount of the
outstanding Debentures have consented to the aforementioned amendments as more
fully set forth herein.
WHEREAS, the Company requested that the holders of the Debentures
waive any and all defaults, whether known or unknown, including any Events of
Default that currently exist under the Original Indenture, and their
consequences.
WHEREAS, pursuant to Section 513 of the Original Indenture, the
holders of not less than a majority of the aggregate principal amount of the
outstanding Debentures have waived any and all defaults, whether known or
unknown, including any Events of Default that currently exist under the Original
Indenture, and their consequences, as more fully set forth herein.
WHEREAS, in order to effectuate the aforementioned amendments and
formalize the aforementioned waiver, the parties hereto desire to amend the
Original Indenture as set forth below and enter into this Supplemental
Indenture.
NOW THEREFORE, the parties hereto, intending to be legally bound,
and in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, do hereby amend the
Indenture and further agree as set forth below:
Section 1. DEFINITIONS. All terms capitalized but not otherwise defined
in this First Supplemental Indenture shall have the meanings assigned to such
terms in the Original Indenture.
Section 2. EFFECT OF THIS FIRST SUPPLEMENTAL INDENTURE.
(A) Except as expressly supplemented or amended by this First
Supplemental Indenture, all of the terms and provisions of the Original
Indenture shall remain in full force and effect.
(B) To the extent of any inconsistency between the terms and provisions
of this First Supplemental Indenture and the terms and provisions of the
Original Indenture, this First Supplemental Indenture shall control.
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(C) This First Supplemental Indenture shall take effect as of the date
hereof.
(D) The rules of construction stated in Section 1.01 of the Original
Indenture shall apply to this First Supplemental Indenture.
Section 3. AMENDMENT TO REPLACE DEFINITION OF CONSOLIDATED TANGIBLE NET
WORTH. The definition of the term "Consolidated Tangible Net Worth" shall be
replaced in its entirety to read as follows:
"Consolidated Net Worth" means, with respect to any Person at any date
of determination, the Consolidated stockholders' equity represented by
the shares of such Person's capitalized stock (other than Disqualified
Stock) outstanding as such date, as determined on a Consolidated basis
in accordance with GAAP.
Section 4. AMENDMENT TO SECTION 1007(3). Section 1007(3) of the
Original Indenture shall be amended and restated in its entirety to read as
follows:
(3) Indebtedness (plus interest, premium, fees and other obligations
associated therewith) that, immediately after giving PRO FORMA effect
to the incurrence thereof, (i) does not cause the ratio of the sum of
the Long Term Debt portion of the Capitalized Lease Obligations plus
Long-Term Debt to Consolidated Net Worth to exceed 2.75:1 and (ii) does
not cause the ratio of Total Liabilities to Consolidated Net Worth to
exceed 5:1; or
Section 5. AMENDMENT TO SECTION 1010. Section 1010 of the Original
Indenture shall be amended and restated in its entirety to read as follows:
The Company will at all times during the term of the Debentures keep
and maintain Consolidated Net Worth at an amount not less than Seven
Million Dollars ($7,000,000) plus 50% of the positive Consolidated Net
Income earned after January 29, 1999.
Section 6. AMENDMENT TO SECTION 301. The first sentence of the first
paragraph of Section 301 of the Original Indenture shall be amended and restated
in its entirety to read as follows:
The Debentures shall be known and designated as the Convertible
Subordinated Debentures due September 15, 2005 of the Company.
Section 7. AMENDMENT TO SECTION 301. The last sentence of the first
paragraph of Section 301 of the Original Indenture shall be amended and restated
in its entirety to read as follows:
The Maturity of the Debentures shall be September 15, 2005, and each
Debenture shall bear interest at the rate of 9.00% per annum through
September 15, 2000 and x.xx% thereafter on the outstanding balance,
until the principal thereof is paid or made available for payment.
Section 8. AMENDMENT TO DEFINITION OF DEBENTURES. The definition of the
term "Debentures" shall be amended and restated in its entirety to read as
follows:
"Debentures" means the Convertible Subordinated Debentures due
September 15, 2005 issued pursuant to this Indenture.
Section 9. REFERENCES TO DEBENTURES AND INTEREST RATE. All references
in the Original Indenture and in the Debentures to the term "Debentures" shall
hereafter be deemed to refer to the
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Convertible Subordinated Debentures due September 15, 2005, and all references
in the Original Indenture and in the Debentures to the interest rate of the
Debentures shall be deemed to refer to an interest rate of 9% through
September 15, 2000 and x.xx% thereafter.
Section 10. AMENDMENT TO FORM OF DEBENTURE. All references in Section
202 of the Original Indenture regarding the Form of the Face of the Debentures
and in Section 203 of the Original Indenture regarding the Form of the Reverse
Side of Debentures to the term "Debentures" shall hereafter be deemed to refer
to the Convertible Subordinated Debentures due September 15, 2005 and all
references therein to the interest rate of the Debentures shall be deemed to
refer to an interest rate of 9% through September 15, 2000 and x.xx% thereafter.
Section 11. LIMITED WAIVER. Pursuant to Section 513 of the Original
Indenture, any and all defaults, whether known or unknown, including any Events
of Default, that currently exist under the Original Indenture, and their
consequences, are hereby waived, and shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of the Indenture. This waiver is limited to this request and shall not be deemed
or construed to be a consent to any future action or extend as a waiver to any
subsequent default or impair any right consequent thereon.
Section 12. REFERENCES TO INDENTURE. All references in the Original
Indenture to the Indenture and/or to the term "Indenture" shall hereafter be
deemed to refer to the Indenture as amended by this Supplemental Indenture and
as may be further amended, modified, restated or replaced from time to time.
Section 13. OTHER TERMS IN FULL FORCE AND EFFECT. Except as expressly
so amended, the Indenture shall remain unmodified and in full force and effect.
Section 14. COUNTERPARTS. This Supplemental Indenture may be executed
in any number of counterparts with the same effect as if all parties hereto had
signed the same document. All such counterparts shall be construed together and
shall constitute one instrument, but in making proof hereof it shall only be
necessary to produce one such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be executed as of the day and year first above
written.
COMPANY: PAPER WAREHOUSE, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
TRUSTEE: NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
22
<PAGE>
APPENDIX B
SECTION 513 AND 902 OF THE INDENTURE
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Debentures may on behalf of the Holders of all the Debentures
waive any past default hereunder and its consequences, provided that a default
in the payment of the principal of, premium, if any, or interest on any
Debenture, or in respect of certain other covenants or provisions hereof cannot
be modified or amended except as set forth in Section 902 hereof.
Upon any such waiver, such default shall cease to exist and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture, but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF
DEBENTUREHOLDERS.
With the consent of the Holders of not less than a majority aggregate
principal amount of the Outstanding Debentures, by Act of such Debentureholders
delivered to the Company and the Trustee, the Company, when authorized by a
Company Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Debentureholders under this Indenture,
provided that without the consent of the Holder of each Outstanding Debenture
affected thereby, no such supplemental indenture shall,
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Debenture, or any premium payable on the redemption thereof,
or reduce the principal amount thereof or the rate of interest thereon, or
change the place of payment where, or the coin or currency in which, any
Debenture or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Debentures, the consent of whose Debentureholders is required for any such
supplemental indenture, or the consent of whose Debentureholders is required for
any waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513, or
Section 1011, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Debenture affected thereby, or
(4) modify any of the provisions of this Indenture relating to the
subordination of the Debentures in a manner adverse to the Debentureholders, or
(5) modify any of the provisions of Article Eleven, Article Twelve or
Article Thirteen.
It shall not be necessary for any Act of Debentureholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
23
