Whitehall receives loans and other agreements in exchange for company control

Whitehall Jewellers, Inc. said Tuesday that it has received a $30 million secured bridge loan, and has made other financial agreements as well agreements with key trade vendors that will give the ailing company much-needed cash and inventory as it enters into the holiday season. In return for the financing, majority control of the company will likely end up changing hands.

The Chicago-based retailer, in a statement, said it has entered into agreements with investment funds managed by Prentice Capital Management, L.P. and another unnamed investor. The Chicago Tribune reports that the unnamed investor is believed to be Newcastle Partners, a Dallas investment firm that invests in underperforming companies and then seeks to turn them around. Newcastle is Whitehall’s biggest shareholder, owning 14.5 percent of the retailer.

In July, Whitehall named Steven J. Pully, president of a Newcastle investment firm, as chairman of the board.

The $30 million secured bridge loan is the initial phase of the financial strategy. The loan bears an annual interest rate of 18 percent and matures as early as Dec. 31, the company said. The investors are lending Whitehall the money in exchange for warrants to buy 19.9 percent of the company’s stock. The seven-year warrants have an exercise price of 75 cents a share.

“Both the bridge loan and the convertible notes are being secured by a lien on substantially all of the company’s assets ranking junior to the liens securing the company’s bank debt,” the retailer said.

It added that financial needs is subject to a number of conditions, including shareholder approval of a 1-for-2 reverse stock split, the share issuances contemplated under the notes, and the election of persons designated by Prentice to constitute a majority of the company’s board of directors.

Whitehall said that if all the terms are met, Prentice would own 87% of the company’s common stock.

In addition, Whitehall said that the company, its banks, and Prentice have entered into an agreement with key trade vendors that hold more than 90% of the company’s trade debt. This agreement will allow the retailer to purchase fresh inventory for the holiday season and provide for full payment of all amounts owed to those vendors over time. To do this, Whitehall secured a lien “on substantially all of the company’s assets ranking junior to the liens securing the company’s bank debt and debt to Prentice.”

Finally, Whitehall said it has reached agreement with its banks, LaSalle, Back Bay and Bank of America, to increase the maximum borrowings under its credit facility, depending on borrowing base calculations, by $15 million to $140 million and extending the term of the facility until 2008.

The company also said that it had commenced an arbitration proceeding relating to Beryl Raff’s employment with the company.

Whitehall Jewellers, is a national specialty retailer of fine jewelry, operating 387 stores in 38 states in shopping malls under the names Whitehall Co. Jewellers, Lundstrom Jewelers, and Marks Bros. Jewelers.

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