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CHICAGO-Following perpetual struggles since last year’s securities fraud investigations, cash-depleted Whitehall Jewellers Inc. is finally seeing a bit of good fortune. New York City-based Prentice Capital Management LP has come to the retailer’s aid with a $30-million bridge loan, allowing the company to pay off outstanding debt and purchase new inventory for the holiday season.

But there’s a catch. In return for the bridge loan, Whitehall has agreed to sell 2.8 million shares or about 20% of the company at an exercise price of 75 cents per share. The company also agreed to issue $50 million in notes that the investors can convert into common stock at the same per-share price. After converting the notes, receiving interest in shares and exercising the warrants, Whitehall says Prentice would own about 87% of its common stock.

The issuance of the convertible notes is subject to a number of conditions including shareholder approval of a 1-for-2 reverse stock split. Additionally, Prentice Capital plans to elect enough of its own to constitute a majority on the company’s board of directors.

Whitehall says it has also has reached agreement with its banks, LaSalle, Back Bay and Bank of America, to make payments over time with a maximum borrowing of $15 million to $140 million. Further, the lenders have agreed to extend financing until 2008.

The news of Whitehall’s financial liberation follows industry whispers of a possible takeover. Last week, Whitehall said it was contacted in question by the New York Stock Exchange regarding the matter, but the company “declined to comment, citing its policy of not commenting on market rumors.”

The company also announced that it had commenced an arbitration proceeding relating to Beryl Raff’s employment with the company. Raff, who was to assume the title of CEO in September, resigned her position before taking post.

Whitehall Jewellers Inc. is a national specialty retailer of fine jewelry, operating 388 stores in 38 states. The company operates stores in regional and super-regional shopping malls under the names Whitehall Co. Jewellers, Lundstrom Jewelers and Marks Bros. Jewelers.

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