SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
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 Under Rule 14a-12
WHITEHALL JEWELLERS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
NEWCASTLE PARTNERS, L.P.
NEWCASTLE CAPITAL MANAGEMENT, L.P.
NEWCASTLE CAPITAL GROUP, L.L.C.
JWL ACQUISITION CORP.
MARK E. SCHWARZ
STEVEN J. PULLY
JOHN P. MURRAY
MARK A. FORMAN
MARK J. MORRISON
CLINTON J. COLEMAN
- --------------------------------------------------------------------------------
(Name of Persons(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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / 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:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
-2-
PRELIMINARY COPY SUBJECT TO COMPLETION
DATED DECEMBER 13, 2005
NEWCASTLE PARTNERS, L.P.
December __, 2005
Fellow Stockholders:
The attached proxy statement and the enclosed GREEN proxy card are
being furnished to you, the stockholders of Whitehall Jewellers, Inc.
("Whitehall" or the "Company"), in connection with the solicitation of proxies
by Newcastle Partners, L.P. ("Newcastle Partners") for use at the special
meeting of stockholders of Whitehall, and at any adjournments or postponements
thereof (the "Special Meeting"), relating to a series of financing transactions
between Whitehall and investment funds managed by Prentice Capital Management,
L.P. and Holtzman Opportunity Fund, L.P. (the "Prentice Financing"). As a
condition to the closing of the Prentice Financing, Whitehall is required to
solicit and obtain stockholder approval for certain matters described in more
detail in the attached proxy statement, including the election of six director
nominees. Newcastle Partners has commenced a tender offer to acquire, through a
wholly-owned acquisition entity, all the outstanding shares of common stock, par
value $.001 per share, of Whitehall that it does not already own for $1.20 per
share in cash, subject to certain conditions (the "Newcastle Tender Offer"). We
believe the Newcastle Tender Offer is superior to the Prentice Financing as it
will provide the equivalent level of liquidity to the Company as the Prentice
Financing while allowing stockholders to monetize their investment in the
Company at a substantial premium to market. We are therefore soliciting proxies,
pursuant to the attached proxy statement, from the stockholders of Whitehall to
vote AGAINST certain of Whitehall's proposals in connection with the Prentice
Financing and FOR the election of our alternative slate of director nominees.
The Special Meeting will be held on Thursday, January 19, 2006 at ____
(local time) at ________, Chicago, Illinois _________.
We urge you to carefully consider the information contained in the
attached proxy statement and then support our efforts by signing, dating and
returning the enclosed GREEN proxy card today. The attached proxy statement and
the enclosed GREEN proxy card are first being furnished to the stockholders on
or about December __, 2005.
If you have already voted for management's proposals relating to the
Prentice Financing, you have every right to change your vote by signing, dating
and returning a later dated proxy card. If you have any questions or require any
assistance with your vote, please contact MacKenzie Partners, Inc., which is
assisting us, at their address and toll-free numbers listed on the following
page.
Thank you for your support,
Mark E. Schwarz
Newcastle Partners, L.P.
- --------------------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS, REQUIRE ASSISTANCE IN VOTING YOUR GREEN PROXY CARD,
OR NEED ADDITIONAL COPIES OF NEWCASTLE PARTNERS' PROXY MATERIALS, PLEASE CALL
MACKENZIE PARTNERS AT THE PHONE NUMBERS LISTED BELOW.
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, NY 10016
proxy@mackenziepartners.com
(212) 929-5500 (Call Collect)
or
TOLL-FREE (800) 322-2885
- --------------------------------------------------------------------------------
-2-
SPECIAL MEETING OF STOCKHOLDERS
OF
WHITEHALL JEWELLERS, INC.
-------------------------
PROXY STATEMENT
OF
NEWCASTLE PARTNERS, L.P.
-------------------------
PLEASE SIGN, DATE AND MAIL THE ENCLOSED GREEN PROXY CARD TODAY
Newcastle Partners, L.P. ("Newcastle Partners" or "we") is the second
largest stockholder of Whitehall Jewellers, Inc., a Delaware corporation
("Whitehall" or the "Company"). Newcastle Partners is writing to you in
connection with the series of financing transactions (the "Prentice Financing")
between Whitehall and investment funds managed by Prentice Capital Management,
L.P. ("Prentice") and Holtzman Opportunity Fund, L.P. ("Holtzman"). The Board of
Directors of Whitehall (the "Whitehall Board") has scheduled a special meeting
of stockholders (the "Special Meeting") for the purpose of approving certain
proposals necessary to effectuate the Prentice Financing, including a proposal
to elect one (1) Class I director, three (3) Class II directors and two (2)
Class III directors comprised of representatives of Prentice and Holtzman. The
Special Meeting is scheduled to be held on Thursday, January 19, 2006 at ____
(local time) at ________, Chicago, Illinois _________.
Newcastle Partners has commenced a tender offer to acquire, through a
wholly-owned acquisition entity, all the outstanding shares of common stock, par
value $.001 per share (the "Common Stock"), of Whitehall that it does not
already own for $1.20 per share in cash, subject to certain conditions (the
"Newcastle Tender Offer"). We believe the Newcastle Tender Offer is superior to
the Prentice Financing as it will provide the equivalent level of liquidity to
the Company as the Prentice Financing while allowing stockholders to monetize
their investment in the Company at a substantial premium to market. Newcastle
Partners is therefore soliciting proxies from the stockholders of Whitehall:
1. AGAINST the Company's proposal to approve the issuance of
shares of its Common Stock pursuant to the terms of its
secured convertible notes in connection with the Prentice
Financing;
2. AGAINST the Company's proposal to approve an amendment to its
certificate of incorporation to effect a 1-for-2 reverse stock
split of its capital stock in connection with the Prentice
Financing; and
3. FOR Newcastle Partners' proposal to elect one (1) Class I
director, three (3) Class II directors and two (2) Class III
directors nominated by Newcastle Partners in opposition to the
Company's slate of director nominees.
Newcastle Partners, Newcastle Capital Management, L.P. ("Newcastle
Management"), Newcastle Capital Group, L.L.C. ("Newcastle Group"), JWL
Acquisition Corp. ("JWL"), Mark E. Schwarz, John P. Murray, Steven J. Pully,
Mark A. Forman, Mark J. Morrison and Clinton J. Coleman are members of a group
(the "Group") formed in connection with this proxy solicitation and are deemed
participants in this proxy solicitation. See "Other Participant Information."
This Proxy Statement and the GREEN proxy card are first being furnished to
Whitehall's stockholders on or about December __, 2005.
Whitehall has set the record date for determining stockholders entitled
to notice of and to vote at the Special Meeting as December 9, 2005 (the "Record
Date"). Only stockholders of record as of the close of business on the Record
Date are entitled to vote the shares of Common Stock and Class B common stock,
par value $1.00 per share (the "Class B Stock" and together with the Common
Stock, the "Capital Stock"), at the Special Meeting. Each holder of outstanding
shares of Common Stock is entitled to one vote for each share of Common Stock
held in that holder's name with respect to all matters on which holders of
Common Stock are entitled to vote at the Special Meeting. Each holder of
outstanding shares of Class B Stock is entitled to 35.4208 votes for each share
of Class B Stock held in that holder's name with respect to all matters on which
holders of Class B Stock are entitled to vote at the Special Meeting. Except as
otherwise required by law, the holders of shares of Common Stock and Class B
Stock shall vote together and not as separate classes. As of the Record Date,
there were _________ shares of Common Stock and 142 shares of Class B Stock
outstanding and entitled to vote. The principal executive offices of Whitehall
are located at 155 North Wacker Drive, Suite 500, Chicago, Illinois 60606.
THIS SOLICITATION IS BEING MADE BY NEWCASTLE PARTNERS AND NOT ON BEHALF OF THE
BOARD OF DIRECTORS OR MANAGEMENT OF WHITEHALL. NEWCASTLE PARTNERS IS NOT AWARE
OF ANY OTHER MATTERS TO BE BROUGHT BEFORE THE SPECIAL MEETING. SHOULD OTHER
MATTERS, WHICH NEWCASTLE PARTNERS IS NOT AWARE OF A REASONABLE TIME BEFORE THIS
SOLICITATION, BE BROUGHT BEFORE THE SPECIAL MEETING, THE PERSONS NAMED AS
PROXIES IN THE ENCLOSED GREEN PROXY CARD WILL VOTE ON SUCH MATTERS IN THEIR
DISCRETION.
NEWCASTLE PARTNERS URGES YOU TO SIGN, DATE AND RETURN THE GREEN PROXY CARD
AGAINST THE PRENTICE FINANCING PROPOSALS DESCRIBED HEREIN AND FOR THE ELECTION
OF NEWCASTLE PARTNERS' SLATE OF DIRECTOR NOMINEES.
IF YOU HAVE ALREADY RETURNED A PROXY CARD FURNISHED BY WHITEHALL MANAGEMENT, YOU
MAY REVOKE THAT PROXY AND VOTE AGAINST THE PRENTICE FINANCING PROPOSALS
DESCRIBED HEREIN AND FOR THE ELECTION OF NEWCASTLE PARTNERS' SLATE OF DIRECTOR
NOMINEES BY SIGNING, DATING AND RETURNING THE ENCLOSED GREEN PROXY CARD. THE
LATEST DATED PROXY IS THE ONLY ONE THAT COUNTS. ANY PROXY MAY BE REVOKED AT ANY
TIME PRIOR TO THE SPECIAL MEETING BY DELIVERING A WRITTEN NOTICE OF REVOCATION
OR A LATER DATED PROXY FOR THE SPECIAL MEETING TO NEWCASTLE PARTNERS, C/O
MACKENZIE PARTNERS, INC. WHICH IS ASSISTING IN THIS SOLICITATION, OR TO THE
SECRETARY OF WHITEHALL, OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-2-
IMPORTANT
YOUR VOTE IS IMPORTANT, NO MATTER HOW FEW SHARES YOU OWN. NEWCASTLE
PARTNERS URGES YOU TO SIGN, DATE, AND RETURN THE ENCLOSED GREEN PROXY CARD TODAY
TO VOTE AGAINST THE PRENTICE FINANCING PROPOSALS DESCRIBED HEREIN AND FOR THE
ELECTION OF NEWCASTLE PARTNERS' SLATE OF DIRECTOR NOMINEES.
Newcastle Partners does not believe that the Prentice Financing
proposals are in the best interest of the Company's stockholders and believes
that the Newcastle Tender Offer is a superior alternative. A vote AGAINST the
Prentice Financing proposals described herein and FOR the election of Newcastle
Partners' slate of director nominees will enable you - as the owners of
Whitehall - to send a message to the Whitehall Board that you are committed to
maximizing the value of your shares.
o If your shares are registered in your own name, please sign and date
the enclosed GREEN proxy card and return it to Newcastle Partners, c/o
MacKenzie Partners, Inc., in the enclosed envelope today.
o If any of your shares are held in the name of a brokerage firm, bank,
bank nominee or other institution on the Record Date, only it can vote
such shares and only upon receipt of your specific instructions.
Accordingly, please contact the person responsible for your account and
instruct that person to execute on your behalf the GREEN proxy card.
Newcastle Partners urges you to confirm your instructions in writing to
the person responsible for your account and to provide a copy of such
instructions to Newcastle Partners, c/o MacKenzie Partners, Inc., who
is assisting in this solicitation, at the address and telephone numbers
set forth below, and on the back cover of this Proxy Statement, so that
we may be aware of all instructions and can attempt to ensure that such
instructions are followed.
If you have any questions regarding your proxy,
or need assistance in voting your shares, please call:
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
proxy@mackenziepartners.com
or
CALL TOLL FREE (800) 322-2885
-3-
BACKGROUND TO SOLICITATION
We refer you to the preliminary proxy statement filed by Whitehall with
the Securities and Exchange Commission on November 14, 2005 (the "Management
Proxy Statement") for a detailed background description of the Prentice
Financing. Below is a background description of Newcastle Partners' involvement
with Whitehall, including its initial investment in the Common Stock and its
representation on the Whitehall Board, and the Prentice Financing. All
information regarding the Prentice Financing and the deliberations of the
Whitehall Board and management have been excerpted from the Management Proxy
Statement. We make no representations as to the accuracy or completeness of such
information other than the information relating to Newcastle Partners'
involvement with the Company. Assuming the accuracy and completeness of the
information excerpted from the Management Proxy Statement, we believe that the
background description below concisely and accurately state the facts necessary
for a stockholder to fairly evaluate the Prentice Financing proposals in light
of the Newcastle Tender Offer.
o On April 19, 2005, Newcastle Partners and its affiliates filed a
Schedule 13D with the Securities and Exchange Commission indicating it
owned 2,018,400 shares of Common Stock as of April 15, 2005,
representing 14.5% of the Company's outstanding shares. In this filing,
Newcastle Partners stated, among other things, that it intended to
enter into discussions with management on the performance of the
Company and to seek representation on the Whitehall Board.
o On June 23, 2005, Whitehall announced the election of Steven J. Pully,
the President of Newcastle Management, as a director of the Company. On
or around July 5, 2005, Mr. Pully was elected as nonexecutive Chairman
of the Board. He served as Chairman of the Board until November 10,
2005.
o On July 12, 2005, the Whitehall Board formed a special committee of the
Board of Directors consisting of Daniel H. Levy (Chairman), Richard K.
Berkowitz and Sanford Shkolnik (the "Special Committee") to consider
potential financing proposals in light of Newcastle Partners' interest
in being a potential source of financing and Mr. Pully's status as
Chairman of the Board. Mr. Pully did not participate in the
consideration of the formation of the Special Committee and
subsequently questioned the role ultimately assigned to the Special
Committee. Mr. Pully felt that the role of the Special Committee should
have been to limited to determining the fairness of any financing
proposals but not the body that determines whether the Company needs to
complete a financing, which party to complete a financing with and when
a financing should be completed.
o During July 2005 and thereafter, the Whitehall Board continued to
review various issues confronting the Company, including the
possibility of raising additional funds and the advisability of selling
or closing underperforming stores. During this period, the Company
discussed with the agents for its credit facility its plans to seek
additional equity or quasi-equity financing (i.e., convertible debt)
and the consideration of potential store closings in light of the
Company's weak results throughout 2005. During this period, Newcastle
Partners and Reed Conner & Birdwell LLC, another substantial
-4-
stockholder ("RCB"), indicated that they were interested in providing
additional financing to the Company but did not present specific
proposals.
o During the period from August 10, 2005 through September 5, 2005,
Company management estimated that approximately $40-50 million of
financing needed to be raised for the Company to meet its liquidity
needs.
o During this period, discussions were held with Newcastle Partners and
RCB about potential equity financings, such as the sale by the Company
of equity to them in a private transaction or a rights offering of
Common Stock in which all stockholders would be offered the opportunity
to subscribe for shares of Common Stock at a 20% discount to the
average market price of the stock over a period of time prior to the
commencement of the rights offering. It was contemplated that Newcastle
Partners and RCB would provide back-up commitments to buy shares not
otherwise purchased.
o On September 7, 2005, Mark E. Schwarz, a principal of Newcastle
Partners, sent to the Special Committee a nonbinding financing proposal
dated September 6, 2005. This proposal contemplated the issuance of $45
million in convertible notes, bearing interest at 20%, payable
quarterly partly in kind (i.e., through the issuance of more notes) and
partly in cash. These notes would be convertible into Common Stock at a
rate equal to the average price of the Common Stock for the ten
business days preceding the first interest payment date (or, in the
case of notes issued as payment-in-kind for interest, the ten business
days preceding the relevant interest payment date). These notes would
be secured by a security interest in the Company's assets junior to
that held by the banks. The proposal contemplated that the Company
would issue to Newcastle Partners warrants to acquire 20% of the
Company's fully-diluted shares in connection with the note financing
with an exercise price of $0.01 per share. The proposal also
contemplated that the interest rate on the notes being increased to 25%
per annum if stockholder approval of the share issuances upon
conversion of the notes was not procured.
o Over the next few weeks, the Company engaged in discussions with
Prentice regarding a proposed bridge loan financing to the Company that
would be refinanced with a larger convertible note transaction. At the
same time, Prentice, along with representatives of the Company, engaged
in discussions with the Company's senior lenders and key trade
creditors with the goal of reaching a comprehensive agreement regarding
financing for the Company and the resumption of key shipments of
merchandise by the Company's key suppliers.
o On September 12, 2005, Newcastle Partners submitted to the Special
Committee a nonbinding proposal for an issuance of $35 million of
convertible notes. These notes would have a maturity of three years,
bear interest at 15% (5% payable in cash and 10% payable-in-kind
through the issuance of additional notes) and be secured by a security
interest in the Company's assets junior to that securing the Company's
credit facility. Under the proposal, Newcastle Partners would be issued
10-year warrants for 19.9% of the outstanding Common Stock, exercisable
at $0.01 per share, and $10 million of the notes would be convertible
into 90% of the fully diluted Common Stock (after dilution from the
warrants). The proposal also provided that the interest rate on the
notes would increase to 24% per annum (5% per annum in cash and 19%
-5-
paid in kind through the issuance of new notes) if stockholder approval
of the equity issuance was not received within 120 days of closing.
This proposal expired on September 15, 2005.
o On September 14, 2005, the Company's bank lenders alleged that the
Company was in default under its credit facility and, as a result, the
banks were not obligated to make further advances. Therefore, the banks
took the position that any further advances were discretionary. The
banks also reserved their rights and remedies with respect to the
alleged defaults, including the right to accelerate the obligations of
the Company under the credit facility and to foreclose on the assets of
the Company. On September 14, 2005, representatives of the banks also
indicated that the lenders would not provide any further advances
unless the Company had entered into a letter of intent with a financing
source. The banks also indicated in several discussions that they were
not interested in providing debtor-in-possession financing to the
Company if it should file for bankruptcy protection. Based in part upon
consideration of the banks' position that they were not interested in
providing debtor-in-possession financing and considering the security
interest held by the banks in substantially all of the Company's
assets, the Company concluded that there was a significant possibility
that a bankruptcy filing by the Company could result in a liquidation,
rather than a reorganization, of the Company.
o The banks provided some additional funding but continued to express
substantial concern that the Company needed to accept a financing
proposal. They indicated that, from the banks' perspective, in light of
the Company's financial position, that unless the Company had entered
into a term sheet for additional financing, not later than September
21, 2005, the banks would be unwilling to advance any additional funds.
o On September 18, 2005, Newcastle Partners submitted to the Special
Committee another nonbinding proposal for an issuance of $35 million of
convertible notes. The terms of this proposal were almost identical to
the terms of the September 12, 2005 proposal, except that this proposal
added a 1.5% fee to Newcastle Partners ($525,000) upon the funding of
the convertible notes and a non-refundable payment of $150,000 to
Newcastle Partners for reimbursement of its fees and expenses, plus
agreement to pay any additional fees and expenses. This proposal
expired on September 19, 2005.
o Over the course of September 20 and 21, 2005, Newcastle Partners made
further written and oral modifications to its proposal. The final
September 21, 2005 proposal from Newcastle Partners contemplated the
issuance of up to $45 million of convertible notes and a $30 million
bridge loan facility. These notes would have a maturity of three years,
bear interest at 15% (5% payable in cash and 10% payable-in-kind
through the issuance of additional notes) and be secured by a security
interest in the Company's assets junior to that securing the Company's
credit facility. The first $35 million of the notes were to be issued
in connection with the refinancing of the bridge loan and an additional
$10 million were issuable at the Company's option. In conjunction with
these $10 million in notes, upon the issuance thereof, the Company was
to issue to Newcastle Partners 10-year warrants exercisable at $1.50
per share for 10 million shares of Common Stock. In conjunction with
the bridge loan, Newcastle Partners would also be issued 10-year
warrants for 19.9% of the outstanding Common Stock, exercisable at
$0.01 per share. Newcastle Partners was to receive a 2.00% fee for the
-6-
bridge loan and a 1.00% fee upon funding of the convertible notes. The
bridge loan was to mature at the earlier of (i) 120 days from funding
or (ii) stockholder approval of the convertible notes. This proposal
expired on September 21, 2005.
o During the period between September 15, 2005 and September 21, 2005,
Prentice made a series of written proposals and oral modifications
thereto addressing issues of concern raised by the Whitehall Board and
the Special Committee. The final September 21, 2005 proposal from
Prentice contemplated a term sheet with Prentice (the "Prentice Term
Sheet"), which the Company signed on September 21, 2005 providing that
Prentice and other participating investors would agree to provide a
bridge loan to the Company in the aggregate amount of $30 million and,
in connection therewith, would receive warrants to purchase
approximately 20% of the Common Stock and purchase $50 million in
convertible secured notes subject to a number of conditions. The notes
were to have a 3-year term, bear interest at 15% per annum, payable
quarterly, payable in cash or additional shares of Common Stock at the
Company's option. The Prentice Term Sheet contemplated that the notes
would be convertible into Common Stock and that Prentice and the other
investors would receive 7-year warrants for Common Stock (the "Series B
Warrants") with an exercise price equal to 110% of the conversion price
of the notes. The Prentice Term Sheet provided that Prentice would have
the right through the conversion of the notes, shares issued as
interest on the notes and through the exercise of the warrants, to
acquire 87% of the Common Stock. The Prentice Term Sheet contemplated
that the bridge loan be made and the warrants for 19.9% of the Common
Stock be issued. Both the bridge loan and the convertible notes were to
be secured by a security interest in the Company's assets junior to
that held by the banks. The Prentice Term Sheet was nonbinding, except
that the Company was required to deal exclusively with Prentice through
September 24, 2005 (which was subsequently extended), give Prentice
access to certain information and bear Prentice's expenses.
o On September 21, 2005, the Whitehall Board convened to discuss the
financing proposals submitted by Prentice and Newcastle Partners and
voted to authorize and direct management to execute the Prentice Term
Sheet, at the recommendation of the Special Committee, with Mr. Pully
abstaining.
o During negotiations between the Company and its representatives and
Prentice and its representatives from September 24, 2005 through
October 3, 2005, a number of significant changes were agreed upon by
Prentice and the Company to the contemplated transaction and related
documents. These changes included, among others, the following:
o The Company was given the right to make two one-year
extensions to the maturity of the notes if no event of default
or event which, with notice or lapse of time or both would
constitute an event of default, exists.
o The interest rate on the notes was reduced from 15% to 12%,
with interest now being paid entirely in Common Stock during
the first three years and in cash thereafter and with all of
the shares payable as interest to be issued if the notes were
to be converted prior to the third anniversary of issuance.
-7-
o The concept of Series B Warrants was eliminated, and the
exercise price of the warrants issued in connection with the
bridge loan and the conversion price of the notes both were
set at $0.75 per share.
o The representations and warranties were limited somewhat and
the material adverse effect condition was modified, so that
only an "Extremely Detrimental Effect" would be required for
this closing condition to apply.
o A provision was added providing that proceeds, if any, from
proceedings concerning the Company's former Chief Executive
Officer (net of expenses and the costs of any counterclaims)
relating to her employment agreement would be paid 20% to the
Company and 80% to a trust or other vehicle for the benefit of
the Company's stockholders immediately prior to the closing
date of the purchase of the notes and, potentially, certain
creditors of the Company.
o Provisions were added requiring the Company to maintain its
indemnification arrangements with directors and officers and
to maintain directors' and officers' insurance and committing
Prentice to advance funds to the Company to purchase this
insurance if necessary.
o The exclusivity provisions were modified to allow the Company
to consider potential superior proposals, if any.
Additionally, the parties agreed to eliminate a requirement
that the Company hold a stockholders meeting to consider the
transaction even if the Whitehall Board were to determine to
accept a superior proposal.
o The aggregate expense reimbursement to Prentice was capped at
$750,000.
o On September 27, 2005, Newcastle Partners submitted a revised proposal
with a stated expiration date of September 30, 2005. The revised
proposal increased the contemplated convertible note issuance from the
September 21, 2005 proposal to $50 million. Reflecting the increased
financing, the ultimate percentage ownership which the investors would
acquire by full exercise of conversion and warrant rights was increased
to approximately 87%. This nonbinding offer was not extended past its
stated expiration date.
o On October 3, 2005, the Prentice Financing and related matters were
approved by the Whitehall Board, at the recommendation of the Special
Committee, with all directors voting in favor, other than Mr. Pully who
voted against them. The Purchase Agreement, Bridge Loan Agreement,
Notes, Warrants, Registration Rights Agreement and Fourth Amendment
(each as defined below) were executed and delivered by the parties that
night.
o On October 13, 2005, Prentice advised the Company that Holtzman
Opportunity Fund, L.P. (together with Prentice, the "Investors") would
participate in the financing with Prentice, as permitted by the
transaction documents.
-8-
o To provide the Company with additional liquidity through the closing
date of the Prentice Financing, on October 3, 2005, the Company entered
into a Bridge Term Loan Credit Agreement (the "Bridge Loan Agreement")
with certain of the Investors (together with any other lenders under
such agreement from time to time, the "Bridge Loan Lenders"). Under the
Bridge Loan Agreement, the Bridge Loan Lenders provided a term loan
(the "Bridge Loan") to the Company in the aggregate principal amount of
$30 million, which bears interest at a fixed rate of 18% per annum,
payable monthly, and has a stated maturity date of December 30, 2005
or, if the Purchase Agreement (as defined below) has not been
terminated on or prior to such date and the Securities and Exchange
Commission reviews the proxy statement relating to the special meeting
of the Company's stockholders as contemplated by the Purchase
Agreement, January 31, 2006.
o In connection with the Bridge Loan Agreement, the Company issued
warrants (the "Warrants") to the Bridge Loan Lenders to purchase
2,792,462 shares of Common Stock at an exercise price of $0.75 per
share. The Warrants may be exercised for a period of seven years from
the date of issuance.
o Contemporaneously with the execution of the Bridge Loan Agreement, the
Company and the Investors entered into a Securities Purchase Agreement
(the "Purchase Agreement") pursuant to which, subject to certain terms
and conditions, the Company agreed to sell, and the Investors agreed to
purchase, $50 million of the Company's Secured Convertible Notes (the
"Notes"). Proceeds from the issuance of the Notes will be used to pay
off the Bridge Loan and to provide additional liquidity for the
Company's operations. The Notes will bear interest at a rate of 12% per
annum, payable quarterly. Interest that becomes payable during the
initial three year term of the Notes will be paid in shares of Common
Stock at the conversion price (initially $0.75 per share). Interest
that becomes payable after the initial three year term of the Notes
will be paid in cash. The interest rate on the Notes will increase to
18% per annum from and after the occurrence of an event of default
until such default is cured.
o Contemporaneously with the entry into the Bridge Loan Agreement and the
Purchase Agreement, the Company and the Investors entered into a
Registration Rights Agreement (the "Registration Rights Agreement")
pursuant to which the Company has agreed to provide certain
registration rights with respect to the shares of Common Stock that may
be issued (i) upon exercise of the Warrants, (ii) upon conversion of
the Notes and (iii) in payment of interest under the Notes.
o Contemporaneously with the execution of the Bridge Loan Agreement and
the Purchase Agreement, the Company entered into a Waiver, Consent and
Fourth Amendment (the "Fourth Amendment") to the Second Amended and
Restated Revolving Credit and Gold Consignment Agreement (the "Senior
Credit Agreement"), dated as of July 29, 2003, by and among the
Company, LaSalle Bank National Association, as administrative agent and
collateral agent for the banks party thereto (the "Banks"), the Banks,
Bank of America, N.A., as managing agent, and Back Bay Capital Funding
LLC, as accommodation facility agent. Under the Fourth Amendment, the
Banks have agreed to increase the maximum borrowings under the
Company's credit facility, subject to and depending on borrowing base
-9-
calculations, by $15 million to $140 million and extending the term of
the facility until 2008.
o ON OCTOBER 26, 2005, NEWCASTLE PARTNERS SUBMITTED A PROPOSAL TO
WHITEHALL TO ACQUIRE ALL THE OUTSTANDING SHARES OF COMMON STOCK IT DID
NOT ALREADY OWN FOR $1.10 PER SHARE IN CASH, BY MERGER OR OTHERWISE,
AND TO CASH OUT WARRANTS AND IN-THE-MONEY OPTIONS BASED ON THAT PRICE.
Under the proposal, Newcastle Partners also would pay off the bridge
loan entered into by the Company in connection with the Prentice
Financing. Newcastle Partners indicated that it expected to obtain a
commitment to either replace the Company's senior credit facility or
obtain consents from the Company's senior lenders.
o ON OCTOBER 27, 2005, THE SPECIAL COMMITTEE RESPONDED TO THE NEWCASTLE
PARTNERS PROPOSAL BY INDICATING THAT, ON THE ADVICE OF ITS FINANCIAL
ADVISORS AND COUNSEL, THE WHITEHALL BOARD HAD DETERMINED (WITH MR.
PULLY ABSTAINING) THAT IT COULD NOT CONCLUDE, FROM THE INFORMATION
PROVIDED ON THE NEWCASTLE PARTNERS PROPOSAL, THAT SUCH PROPOSAL IS
REASONABLY LIKELY TO RESULT IN A "SUPERIOR PROPOSAL" WITHIN THE MEANING
OF THE PURCHASE AGREEMENT EXECUTED BY THE COMPANY IN CONNECTION WITH
THE PRENTICE FINANCING.
-10-
THE NEWCASTLE TENDER OFFER
On December 5, 2005, Newcastle Partners commenced a tender offer to
purchase, through JWL, a wholly-owned acquisition entity, all the outstanding
shares of Common Stock that it does not already own (together with the
associated preferred stock purchase rights) for $1.20 per share in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
Letter of Transmittal and related documents filed with the Securities and
Exchange Commission (the "Tender Offer Documents").
The offer is conditioned upon, among other things, (i) a majority of
Whitehall's shares on a fully diluted basis being tendered and not withdrawn,
(ii) a termination of the Purchase Agreement, (iii) stockholder rejection of the
conditions to consummation of the Purchase Agreement, (iv) a refinancing,
acceptable to Newcastle Partners, of Whitehall's senior credit facility or a
consent to the offer to purchase and the potential merger thereafter by the
lenders under Whitehall's senior credit facility, (v) the Whitehall Board
redeeming the associated preferred stock purchase rights or Newcastle Partners
being satisfied that the rights have been invalidated or are otherwise
inapplicable to the offer and the potential merger thereafter, (vi) the
Whitehall Board approving replacement financing to be provided by Newcastle
Partners of the Company's existing bridge loan financing with financial terms no
less favorable to the Company than the existing financing, but with no warrants,
conversion rights or other equity related components, and (vii) Newcastle
Partners being satisfied that Section 203 of the Delaware General Corporation
Law is inapplicable to the tender offer and the potential merger thereafter. The
tender offer will not be subject to or conditioned upon any financing
arrangement other than as provided above.
The purpose of the tender offer is to acquire control of, and the
entire equity interest in, the Company. We currently intend, as soon as
practicable after consummation of the tender offer, to seek maximum
representation on the Whitehall Board and to seek to have the Company consummate
a merger or other business combination with us (or one of our subsidiaries).
Pursuant to such merger, the outstanding shares of Common Stock not owned by us
would be converted into the right to receive cash in an amount equal to the
price per share provided pursuant to the tender offer.
The information on the Newcastle Tender Offer set forth above is only a
summary and is qualified in its entirety by reference to the Tender Offer
Documents that Newcastle Partners filed with the Securities and Exchange
Commission on December 5, 2005. You are encouraged to read the Tender Offer
Documents for a complete description of the tender offer.
-11-
PROPOSAL NO. 1
ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO
THE SECURED CONVERTIBLE NOTES
You are being asked by Whitehall to approve the issuance of shares of
Common Stock pursuant to the Notes. Stockholder approval of this proposal is a
condition precedent to the obligation of the Investors to consummate the
Prentice Financing. In other words, the Prentice Financing cannot be consummated
without stockholder approval of such issuance. For the reasons discussed below,
we oppose the Prentice Financing. To that end, we are soliciting your proxy to
vote AGAINST Proposal No. 1.
REASONS TO VOTE AGAINST THE PRENTICE FINANCING
We believe the stockholders should vote against the Prentice Financing.
While the Prentice Financing will provide financing to Whitehall, the Prentice
Financing does not take into consideration the best interests of the
stockholders. In addition, we believe the Newcastle Tender Offer is a better
alternative for both Whitehall and its stockholders than the Prentice Financing
as it will immediately satisfy Whitehall's financing needs while giving the
stockholders an opportunity to monetize their investment in the Company at a
substantial premium to market rather than being a minority stockholder of the
Company.
IF THE PRENTICE FINANCING IS CONSUMMATED, THE INVESTORS WOULD EFFECTIVELY OBTAIN
CONTROL OF APPROXIMATELY 87% OF THE COMPANY AND THE OTHER STOCKHOLDERS WOULD BE
DILUTED TO OWNING JUST 13% OF THE COMPANY.
The Prentice Financing would have a devastating dilutive effect on the
interests of the Company's existing stockholders. As a result of the issuance of
shares of Common Stock underlying the Warrants, upon conversion of the Notes and
as payment of interest under the Notes, the Investors would receive Common Stock
equal to approximately 87% of the issued and outstanding shares of Common Stock.
We are hard pressed to understand how the Whitehall Board can justify such a
substantial dilution of the existing stockholders' interest in the Company.
IF THE PRENTICE FINANCING IS CONSUMMATED, THE INVESTORS WOULD EFFECTIVELY OBTAIN
CONTROL OF THE COMPANY WITHOUT PAYING A PREMIUM TO THE STOCKHOLDERS.
The Prentice Financing, pursuant to which the Investors will receive
Common Stock and Common Stock equivalents equal to approximately 87% of the
issued and outstanding shares of Common Stock, effectively transfers control of
the Company to the Investors. This effective transfer of control, however, does
not require the Investors to pay any control or other premium in connection with
the sale of control of the Company.
IF THE PRENTICE FINANCING IS CONSUMMATED, NO ASSURANCE CAN BE GIVEN THAT THE
COMPANY WILL EVER SUCCESSFULLY APPLY FOR LISTING OF THE COMMON STOCK ON A MAJOR
EXCHANGE.
The Common Stock was listed for trading on the New York Stock Exchange
(the "NYSE") until it was suspended from trading on the NYSE prior to the
opening of trading on Friday, October 28, 2005. The Common Stock was delisted
-12-
due to the Company's failure to comply with the NYSE continued listing standards
because its average market capitalization had been less than $25 million over a
consecutive 30 trading-day period. The Common Stock is now quoted on the Pink
Sheets, and according to the Management Proxy Statement, the Company expects
that the Common Stock will continue to be quoted on the Pink Sheets or the OTC
Bulletin Board. If the Prentice Financing is consummated and the Investors
effectively take control of the Company, we do not believe that the Company will
ever successfully apply for listing of the Common Stock on a major exchange. If
the Common Stock continues to languish on the Pink Sheets or the OTC Bulletin
Board, there will be little liquidity in the Common Stock and investors may find
it more difficult to acquire or dispose of the Common Stock in the secondary
market.
REASONS WHY WE BELIEVE THE NEWCASTLE TENDER OFFER IS A SUPERIOR
ALTERNATIVE TO THE PRENTICE FINANCING
We believe that Newcastle Partners' all-cash offer to purchase the
outstanding Common Stock it does not already own is clearly superior to the
Prentice Financing as it will satisfy Whitehall's immediate financing needs
while providing stockholders with immediate liquidity at a premium to market and
an immediate opportunity to maximize their investment in Whitehall. Rather than
being at the mercy of the Investors who will have the option of diluting the
existing stockholders' shares upon conversion of the Notes and exercise of the
Warrants, the Newcastle Tender Offer will allow stockholders to monetize their
investment in the Company at a substantial premium to market.
o On November 28, 2005, the business day prior to the announcement by
Newcastle Partners of its intention to commence the $1.20 tender offer,
the Common Stock closed at $.88 per share. Newcastle Partners' $1.20
per share all cash offer represents a 36% premium to the November 28,
2005 closing price.
o On December 2, 2005, the business day prior to the commencement of the
tender offer, the Common Stock closed at $1.05 per share. Newcastle
Partners' $1.20 per share all cash offer represents a 14% premium to
the December 2, 2005 closing price.
We are confident that Whitehall's lenders and trade creditors would be
supportive of this proposal. Since we believe the Newcastle Tender Offer will
satisfy the Company's financing needs just as quickly and efficiently as the
Prentice Financing, and this can be done without sacrificing the interests of
the existing stockholders, we believe the Newcastle Tender Offer is a superior
alternative than the Prentice Financing.
WE ALSO QUESTION WHETHER THE PRENTICE FINANCING HAS BEEN
STRUCTURED IN ORDER TO AVOID THE REQUIREMENT FOR
SUPERMAJORITY APPROVAL OF ONE OF ITS CONDITIONS
We take issue with the structure of the Prentice Financing. As
discussed in further detail in Proposal No. 2, the Company is obligated to
obtain approval from its stockholders of an amendment to the Company's Second
Restated Certificate of Incorporation to provide for a 1-for-2 reverse split of
the Company's Capital Stock in order to consummate the Prentice Financing. This
-13-
will allow the Company to reserve for issuance the number of shares of Common
Stock issuable upon the conversion of the Notes and the exercise of the Warrants
without increasing the number of the authorized shares of Capital Stock. In
order to make available additional shares for such issuances, we believe a
corporation would normally amend its charter to increase the number of
authorized shares. Such an amendment to Whitehall's charter would require
approval from the holders of 75% of the outstanding shares of Capital Stock.
Rather than seeking the approval from the holders of 75% of the outstanding
shares of Capital Stock, an extremely difficult voting threshold to achieve, we
believe the Prentice Financing was structured to require as a condition to
closing a reverse split of the outstanding Capital Stock, as this action only
requires approval from the holders of a majority of the outstanding shares of
the Capital Stock. We question whether the Prentice Financing was intentionally
structured to require a reverse stock split rather than amending the charter to
merely increase the number of authorized shares in order to cleverly avoid the
more difficult supermajority voting threshold.
NEWCASTLE PARTNERS URGES YOU TO VOTE AGAINST WHITEHALL'S PROPOSAL TO
APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO THE NOTES.
-14-
PROPOSAL NO. 2
AMENDMENT TO THE SECOND RESTATED CERTIFICATE OF INCORPORATION
TO EFFECT A 1-FOR-2 REVERSE STOCK SPLIT
As a condition to the closing of the Prentice Financing, the Company is
obligated to obtain approval from its stockholders of an amendment (the
"Amendment") to the Company's Second Restated Certificate of Incorporation (the
"Certificate of Incorporation") to provide for a 1-for-2 reverse split of the
Company's Capital Stock (the "Reverse Split"). The Amendment will allow the
Company to reserve for issuance the number of shares of Common Stock issuable
upon the conversion of the Notes and the exercise of the Warrants without
increasing the number of the authorized shares of Capital Stock.
In connection with the foregoing, the Whitehall Board has adopted a
resolution recommending that the stockholders approve the Amendment to the
Certificate of Incorporation that would effect a single reverse split of the
Capital Stock at a ratio of 1-for-2. If the Amendment is approved by the
stockholders and becomes effective, the number of issued and outstanding shares
of Capital Stock, as well as any Capital Stock held in treasury, will be reduced
at a ratio of 1-for-2. The Amendment will not reduce the number of authorized
shares of the Capital Stock.
For the reasons discussed above, we oppose the Prentice Financing. To
that end, we are soliciting your proxy to vote AGAINST Proposal No. 2. We also
believe that there are numerous risks associated with the Reverse Split which
are not necessary for the Company to take in view of the Newcastle Tender Offer.
RISKS ASSOCIATED WITH THE REVERSE SPLIT
As set forth in greater detail in the Management Proxy Statement, even
the Company acknowledges that there are certain risks associated with the
Reverse Split.
NO ASSURANCE CAN BE GIVEN THAT THE COMPANY'S TOTAL MARKET CAPITALIZATION AFTER
THE REVERSE SPLIT WILL BE EQUAL TO OR GREATER THAN THE TOTAL MARKET
CAPITALIZATION BEFORE THE REVERSE SPLIT OR THAT THE PER SHARE MARKET PRICE OF
THE COMMON STOCK FOLLOWING THE REVERSE SPLIT WILL EITHER EXCEED OR REMAIN HIGHER
THAN THE CURRENT PER SHARE MARKET PRICE OR THE PER SHARE MARKET PRICE
IMMEDIATELY BEFORE THE REVERSE SPLIT.
No assurance can be given that the market price per share of the Common
Stock after the Reverse Split will rise or remain constant in proportion to the
reduction in the number of shares of the Common Stock outstanding before the
Reverse Split. Accordingly, the Company's total market capitalization after the
Reverse Split may be lower than the Company's total market capitalization before
the Reverse Split. This has occurred in connection with reverse stock splits
that other companies have implemented. If this were to happen to the Company,
the total value of the Common Stock that you hold after the Reverse Split would
be lower than the value of your holdings immediately before the Reverse Split,
even if the price at which the stock trades is higher than it was before the
Reverse Split.
-15-
A DECLINE IN THE MARKET PRICE FOR THE COMMON STOCK AFTER THE REVERSE SPLIT MAY
RESULT IN A GREATER PERCENTAGE DECLINE THAN WOULD OCCUR IN THE ABSENCE OF THE
REVERSE SPLIT.
The market price of the Common Stock will also be based on the
Company's performance and other factors, some of which are unrelated to the
number of shares outstanding. If the Reverse Split is implemented and the market
price of the Common Stock declines, the percentage decline as an absolute number
and as a percentage of the Company's overall market capitalization may be
greater than would occur in the absence of the Reverse Split. In many cases,
both the total market capitalization of a company and the market price of a
share of that company's common stock following a reverse stock split are lower
than they were before the reverse stock split.
THE LIQUIDITY OF THE COMMON STOCK COULD BE ADVERSELY AFFECTED FOLLOWING THE
REVERSE SPLIT.
The liquidity of the Common Stock could be adversely affected by the
reduced number of shares that would be outstanding after the Reverse Split.
THE VOLATILITY OF THE COMMON STOCK COULD BE INCREASED FOLLOWING THE REVERSE
SPLIT.
The volatility of the Common Stock could be increased by the reduced
number of shares that would be outstanding after the Reverse Split.
NO ASSURANCE CAN BE GIVEN THAT THE REVERSE SPLIT WILL RESULT IN A PER SHARE
PRICE THAT WILL ATTRACT INVESTORS, BROKERS AND ANALYSTS.
No assurance can be given that the Reverse Split will result in a per
share price that will attract investors, brokers and analysts.
THE REVERSE SPLIT WOULD LIKELY INCREASE THE NUMBER OF "ODD LOT" HOLDERS.
The Reverse Split may leave certain stockholders with one or more "odd
lots" which are stock holdings in amounts of less than 100 shares. These odd
lots may be more difficult to sell than shares in even multiples of 100.
Additionally, any reduction in brokerage commissions resulting from any reverse
stock split may be offset by increased brokerage commissions required to be paid
by stockholders selling odd lots created by the reverse stock split.
NEWCASTLE PARTNERS URGES YOU TO VOTE AGAINST WHITEHALL'S PROPOSAL TO
AMEND THE CERTIFICATE OF INCORPORATION TO EFFECT THE REVERSE SPLIT.
-16-
PROPOSAL NO. 3
ELECTION OF DIRECTORS
As a condition to the closing of the Prentice Financing, designees of
the Investors must be elected to the Whitehall Board in accordance with the
terms of the Purchase Agreement. If these designees are elected, the Investors
will effectively control the Whitehall Board.
The Whitehall Board is presently composed of five directors, divided
into three classes, two of whom are Class I directors, one of whom is a Class II
director and two of whom are Class III directors.
Whitehall is asking you to elect one Class I director to serve until
the annual meeting in the year 2006, or until such person's successor is duly
elected and qualified, three Class II directors to serve until the annual
meeting in the year 2007, or until such persons' successors are duly elected and
qualified, and two Class III directors to serve until the annual meeting in the
year 2008, or until such persons' successors are duly elected and qualified.
REASONS WHY NEWCASTLE PARTNERS IS CHALLENGING WHITEHALL'S
SLATE OF DIRECTOR NOMINEES
For the reasons discussed above, we oppose the Prentice Financing and
the election of Whitehall's director nominees. To that end, we are soliciting
your proxy to vote FOR an alternative slate of director nominees who, if
elected, will take all action necessary to consummate the Newcastle Tender
Offer, including working to satisfy all of Newcastle Partners' conditions to
consummating the transaction, and evaluating any alternative offers the Company
may receive, all subject to their fiduciary duties.
THE NEWCASTLE PARTNERS NOMINEES
The following information sets forth the name, age, business address,
present principal occupation, and employment and material occupations,
positions, offices, or employments for the past five years of each of the
individuals nominated by Newcastle Partners for election to the Whitehall Board
(collectively, the "Nominees"). This information has been furnished to Newcastle
Partners by the Nominees. The Nominees are citizens of the United States of
America.
Name Age Class Sought
- --------------------------------- ----------------- --------------------------
Mark E. Schwarz 44 III
Steven J. Pully 45 III
John P. Murray 35 II
Mark A. Forman 36 II
Mark J. Morrison 45 II
Clinton J. Coleman 28 I
-17-
MARK E. SCHWARZ is the Chairman, Chief Executive Officer and Portfolio
Manager of Newcastle Management, a private investment management firm he founded
in 1993 that is the general partner of Newcastle Partners. Mr. Schwarz is
Chairman of the Board and Chief Executive Officer of Hallmark Financial
Services, Inc., a property and casualty insurance company, Chairman of the Board
of Bell Industries, Inc., a computer systems integrator, Pizza Inn, Inc., a
franchisor and food and supply distributor, and New Century Equity Holdings
Corp., an asset management company, and a director of Nashua Corporation, a
specialty paper, label and printing supplies manufacturer, SL Industries, Inc.,
a power and data quality products manufacturer, WebFinancial Corporation, a
specialty bank and finance company, and Vesta Insurance Group, Inc., a holding
company for a group of insurance companies. The principal business address of
Mr. Schwarz is c/o Newcastle Capital Management, L.P., 300 Crescent Court, Suite
1110, Dallas, Texas 75201. By virtue of his position with Newcastle Group, Mr.
Schwarz has the power to vote and dispose of the shares of Common Stock owned by
Newcastle Partners. Accordingly, Mr. Schwarz may be deemed to be the beneficial
owner of the shares of Common Stock owned by Newcastle Partners. For information
regarding purchases and sales during the past two years by Newcastle Partners of
securities of Whitehall that may be deemed to be beneficially owned by Mr.
Schwarz, see Schedule I.
STEVEN J. PULLY is the President of Newcastle Management, the general
partner of Newcastle Partners. Mr. Pully is also Chief Executive Officer and a
director of New Century Equity Holdings Corp., an asset management company, a
director of Pizza Inn, Inc., a franchisor and food and supply distributor and
was Chief Executive Officer of Pinnacle Frames and Accents, Inc., a private
company engaged in mass production of picture frame products, from January 2003
through June 2004. Mr. Pully was a director of the Company from June 23, 2005
until his resignation on November 29, 2005. He was nonexecutive Chairman of the
Board of the Company from July 5, 2005 through November 10, 2005. Prior to
joining Newcastle Management in late 2001, from May 2000 to December 2001, he
was a managing director in the mergers and acquisitions department of Banc of
America Securities, Inc. and from January 1997 to May 2000 he was a member of
the investment banking department of Bear Stearns where he became a senior
managing director in 1999. Prior to becoming an investment banker, Mr. Pully
practiced securities and corporate law at the law firm of Baker & Botts. Mr.
Pully is a CPA, a CFA and a member of the Texas Bar. The principal business
address of Mr. Pully is c/o Newcastle Capital Management, L.P., 300 Crescent
Court, Suite 1110, Dallas, Texas 75201. Mr. Pully does not beneficially own, and
has not purchased or sold during the past two years, any securities of the
Company and disclaims beneficial ownership of the shares of Common Stock owned
by Newcastle Partners.
JOHN P. MURRAY is the Chief Financial Officer of Newcastle Management,
the general partner of Newcastle Partners. Prior to joining Newcastle Management
in January 2002, Mr. Murray was a partner with Speer & Murray, Ltd., an
accounting firm specializing in tax planning and compliance, estate planning,
asset protection and investment management. Mr. Murray was also previously
employed by Ernst & Young, LLP as a member of the audit staff. The principal
business address of Mr. Murray is c/o Newcastle Capital Management, L.P., 300
Crescent Court, Suite 1110, Dallas, Texas 75201. Mr. Murray does not
beneficially own, and has not purchased or sold during the past two years, any
-18-
securities of the Company and disclaims beneficial ownership of the shares of
Common Stock owned by Newcastle Partners.
MARK A. FORMAN is a Vice President of Newcastle Management, the general
partner of Newcastle Partners. Prior to joining Newcastle Management in October
2004, he served as an analyst at RPM Metropolitan Partners, L.P., a private
investment partnership, from August 2002 to September 2004. From November 1998
through September 2001, he was an associate in the Investment Banking Division
of ING Furman Selz/ABN Amro. The principal business address of Mr. Forman is c/o
Newcastle Capital Management, L.P., 300 Crescent Court, Suite 1110, Dallas,
Texas 75201. Mr. Forman does not beneficially own, and has not purchased or sold
during the past two years, any securities of the Company and disclaims
beneficial ownership of the shares of Common Stock owned by Newcastle Partners.
MARK J. MORRISON has served as Executive Vice President and Chief
Financial Officer of Hallmark Financial Services, Inc., a property and casualty
insurance holding company, since March 2004. From January 2001 to March 2004, he
served as President of Associates Insurance Group, a subsidiary of St. Paul
Travelers, a national provider of property casualty insurance and asset
management services. From 1996 to 2000, he served as Senior Vice President and
Chief Financial Officer of Associates Insurance Group, the insurance division of
Associates First Capital Corporation, an international provider of finance and
insurance products. Mr. Morrison is currently a director of Vesta Insurance
Group, Inc., a holding company for a group of insurance companies. The principal
business address of Mr. Morrison is 777 Main Street, Suite 100, Fort Worth,
Texas 76102. Mr. Morrison does not beneficially own, and has not purchased or
sold during the past two years, any securities of the Company.
CLINTON J. COLEMAN is a Vice President of Newcastle Management, the
general partner of Newcastle Partners. Prior to joining Newcastle Management in
June 2005, Mr. Coleman was a portfolio analyst with Lockhart Capital Management,
L.P., an investment partnership, from October 2003 to June 2005. From March 2002
to October 2003, he was an associate with Hunt Investment Group, L.P., a private
investment group. From June 1999 to March 2002, he was an analyst and then an
associate with the Mergers & Acquisitions Group of UBS. The principal business
address of Mr. Coleman is c/o Newcastle Capital Management, L.P., 300 Crescent
Court, Suite 1110, Dallas, Texas 75201. Mr. Coleman does not beneficially own,
and has not purchased or sold during the past two years, any securities of the
Company and disclaims beneficial ownership of the shares of Common Stock owned
by Newcastle Partners.
The Nominees will not receive any compensation from Newcastle Partners
for their services as directors of Whitehall. Other than as stated herein, there
are no arrangements or understandings between Newcastle Partners and any of the
Nominees or any other person or persons pursuant to which the nomination
described herein is to be made, other than the consent by each of the Nominees
to be named in this Proxy Statement and to serve as a director of Whitehall if
elected as such at the Special Meeting. None of the Nominees is a party adverse
to Whitehall or any of its subsidiaries or has a material interest adverse to
Whitehall or any of its subsidiaries in any material pending legal proceedings.
Newcastle Partners does not expect that the Nominees will be unable to
stand for election, but, in the event that such persons are unable to serve or
for good cause will not serve, the shares represented by the enclosed GREEN
-19-
proxy card will be voted for substitute nominees. In addition, Newcastle
Partners reserves the right to nominate substitute persons if Whitehall makes or
announces any changes to its Bylaws or takes or announces any other action that
has, or if consummated would have, the effect of disqualifying the Nominees. In
any such case, shares represented by the enclosed GREEN proxy card will be voted
for such substitute nominees. Newcastle Partners reserves the right to nominate
additional persons if Whitehall increases the size of the Whitehall Board above
its existing size or increases the number of directors whose terms expire at the
Special Meeting. Additional nominations made pursuant to the preceding sentence
are without prejudice to the position of Newcastle Partners that any attempt to
increase the size of the current Whitehall Board or to reconstitute or
reconfigure the classes on which the current directors serve constitutes an
unlawful manipulation of Whitehall's corporate machinery.
NEWCASTLE PARTNERS URGES YOU TO VOTE FOR NEWCASTLE PARTNERS' PROPOSAL
TO ELECT THE DIRECTOR NOMINEES SET FORTH ABOVE.
-20-
VOTING AND PROXY PROCEDURES
Only stockholders of record on the Record Date will be entitled to
notice of and to vote at the Special Meeting. Each holder of outstanding shares
of Common Stock is entitled to one vote for each share of Common Stock held in
that holder's name with respect to all matters on which holders of Common Stock
are entitled to vote at the Special Meeting. Each holder of outstanding shares
of Class B Stock is entitled to 35.4208 votes for each share of Class B Stock
held in that holder's name with respect to all matters on which holders of Class
B Stock are entitled to vote at the Special Meeting. Stockholders who sell
shares of Capital Stock before the Record Date (or acquire them without voting
rights after the Record Date) may not vote such shares. Stockholders of record
on the Record Date will retain their voting rights in connection with the
Special Meeting even if they sell such shares after the Record Date. Based on
publicly available information, Newcastle Partners believes that the only
outstanding classes of securities of Whitehall entitled to vote at the Special
Meeting are the shares of Common Stock and Class B Stock.
Shares represented by properly executed GREEN proxy cards will be voted
at the Special Meeting as marked and, in the absence of specific instructions,
will be voted AGAINST the Company's proposal to approve the issuance of shares
of Common Stock pursuant to the terms of the Notes, AGAINST the Company's
proposal to approve an amendment to the Certificate of Incorporation to effect
the Reverse Split, FOR Newcastle Partners' proposal to elect the Nominees and,
in the discretion of the persons named as proxies, on all other matters as may
properly come before the Special Meeting.
The enclosed GREEN proxy card may be voted for our Nominees and does
not confer voting power with respect to Whitehall's nominees. You can only vote
for Whitehall's nominees by signing and returning a proxy card provided by
Whitehall. Stockholders should refer to the Management Proxy Statement for the
names, backgrounds, qualifications and other information concerning the
Company's nominees.
QUORUM
In order to conduct any business at the Special Meeting, a quorum must
be present in person or represented by valid proxies. If a majority of the
voting power with respect to the shares of Common Stock and Class B Stock
combined are represented in person or by proxy at the Special Meeting, a quorum
will be present. A quorum consists of a majority of the voting power with
respect to the shares of Common Stock and Class B Stock combined issued and
outstanding on the Record Date. All shares that are voted "FOR", "AGAINST" or
"ABSTAIN" on any matter will count for purposes of establishing a quorum and
will be treated as shares entitled to vote at the Special Meeting.
VOTES REQUIRED FOR APPROVAL
VOTE REQUIRED FOR PROPOSAL NO. 1. The approval of Whitehall's proposal
to issue shares of Common Stock pursuant to the terms of the Notes requires the
affirmative vote of a majority of votes cast by the holders present in person or
represented by proxy and entitled to vote on such matter at the Special Meeting.
Accordingly, if a quorum is present at the Special Meeting, an affirmative vote
-21-
of a majority of the shares represented at the meeting in person or by proxy and
entitled to vote on this proposal will approve the issuance of shares of Common
Stock pursuant to the terms of the Notes. The Company has stated that because
the vote to approve this proposal requires a majority, abstentions and non-votes
will have the same effect as votes against approval of this proposal.
VOTE REQUIRED FOR PROPOSAL NO. 2. The approval of Whitehall's proposal
to amend the Certificate of Incorporation to effect the Reverse Split requires
the affirmative vote of the holders of a majority of the outstanding shares of
the Capital Stock. The Company has stated that because the vote to approve this
proposal requires a majority, abstentions and non-votes will have the same
effect as votes against approval of this proposal.
VOTE REQUIRED FOR PROPOSAL NO. 3. The election of the directors
requires the affirmative vote of a plurality of votes cast by the holders
present in person or represented by proxy and entitled to vote on such matter at
the Special Meeting. Accordingly, if a quorum is present at the Special Meeting,
the persons receiving the greatest number of votes by the holders will be
elected to serve as the directors.
Stockholders may cast their votes by marking the ballot at the meeting
or by specific voting instructions sent with a signed proxy to either Newcastle
Partners in care of MacKenzie Partners, Inc. at the address set forth on the
back cover of this Proxy Statement or to Whitehall at 155 North Wacker Drive,
Suite 500, Chicago, Illinois 60606 or any other address provided by Whitehall.
REVOCATION OF PROXIES
Stockholders of Whitehall may revoke their proxies at any time prior to
exercise by attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not in and of itself constitute
revocation of a proxy) or by delivering a written notice of revocation. The
delivery of a subsequently dated proxy which is properly completed will
constitute a revocation of any earlier proxy. The revocation may be delivered
either to Newcastle Partners in care of MacKenzie Partners, Inc. at the address
set forth on the back cover of this Proxy Statement or to Whitehall at 155 North
Wacker Drive, Suite 500, Chicago, Illinois 60606 or any other address provided
by Whitehall. Although a revocation is effective if delivered to Whitehall,
Newcastle Partners requests that either the original or photostatic copies of
all revocations be mailed to Newcastle Partners in care of MacKenzie Partners,
Inc. at the address set forth on the back cover of this Proxy Statement so that
Newcastle Partners will be aware of all revocations and can more accurately
determine if and when proxies have been received from the holders of record on
the Record Date of a majority of the outstanding voting power. Additionally,
MacKenzie Partners, Inc. may use this information to contact stockholders who
have revoked their proxies in order to solicit later dated proxies against the
Company's proposals in connection with the Prentice Financing.
IF YOU WISH TO VOTE AGAINST THE COMPANY'S PROPOSALS IN CONNECTION WITH THE
PRENTICE FINANCING AND FOR THE ELECTION OF NEWCASTLE PARTNERS' NOMINEES, PLEASE
SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED GREEN PROXY CARD IN THE POSTAGE-PAID
ENVELOPE PROVIDED.
-22-
SOLICITATION OF PROXIES
The solicitation of proxies pursuant to this Proxy Statement is being
made by Newcastle Partners. Proxies may be solicited by mail, facsimile,
telephone, telegraph, in person and by advertisements. Newcastle Partners will
not solicit proxies via the Internet.
Newcastle Partners has entered into an oral agreement with MacKenzie
Partners, Inc. for solicitation and advisory services in connection with this
solicitation, for which MacKenzie Partners, Inc. will receive a fee not to
exceed $___,000.00, together with reimbursement for its reasonable out-of-pocket
expenses. MacKenzie Partners, Inc. will solicit proxies from individuals,
brokers, banks, bank nominees and other institutional holders. Newcastle
Partners has requested banks, brokerage houses and other custodians, nominees
and fiduciaries to forward all solicitation materials to the beneficial owners
of the shares of Capital Stock they hold of record. Newcastle Partners will
reimburse these record holders for their reasonable out-of-pocket expenses in so
doing. It is anticipated that MacKenzie Partners, Inc. will employ approximately
25 persons to solicit Whitehall's stockholders for the Special Meeting.
The entire expense of soliciting proxies is being borne by Newcastle
Partners. Costs of this solicitation of proxies are currently estimated to be
approximately $___,000.00. Newcastle Partners estimates that through the date
hereof, its expenses in connection with this solicitation are approximately
$___,000.00. Newcastle Partners intends to seek reimbursement from Whitehall of
all expenses it incurs in connection with this solicitation. Newcastle Partners
does not intend to submit the question of such reimbursement to a vote of
security holders of the Company.
-23-
OTHER PARTICIPANT INFORMATION
Each member of the Group is a participant in this solicitation. Mark E.
Schwarz is the managing member of Newcastle Group, a Texas limited liability
company, which is the general partner of Newcastle Management, a Texas limited
partnership, which in turn is the general partner of Newcastle Partners, a Texas
limited partnership. The principal occupation of Mr. Schwarz is serving as the
managing member of Newcastle Group. The principal business of Newcastle Group is
acting as the general partner of Newcastle Management. The principal business of
Newcastle Management is acting as the general partner of Newcastle Partners. The
principal business of Newcastle Partners is investing in securities. JWL is a
Delaware corporation formed by Newcastle Partners to serve as an acquisition
vehicle with no current operations other than those incident to the Newcastle
Tender Offer. Mr. Schwarz is Chairman of the Board of JWL and its sole director
and Mr. Murray is JWL's President and Secretary. JWL does not beneficially own,
and has not purchased or sold during the past two years, any securities of the
Company. The principal business address of Mr. Schwarz, Newcastle Partners,
Newcastle Management, Newcastle Group and JWL is 300 Crescent Court, Suite 1110,
Dallas, Texas 75201. As of the date hereof, Newcastle Partners is the beneficial
owner of 2,018,400 shares of Common Stock. Mark Schwarz, Newcastle Management
and Newcastle Group may be deemed to beneficially own the shares of Common Stock
held by Newcastle Partners by virtue of their affiliation with Newcastle
Partners and each disclaims beneficial ownership of such shares except to the
extent of their pecuniary interest therein. For information regarding purchases
and sales of securities of Whitehall during the past two years by Newcastle
Partners, see Schedule I.
On December 13, 2005, the members of the Group entered into a Joint
Filing and Solicitation Agreement in which, among other things, (i) the parties
agreed to the joint filing on behalf of each of them of statements on Schedule
13D with respect to the securities of Whitehall, (ii) the parties agreed to
solicit proxies or written consents against the Company's proposals contained in
the Management Proxy Statement relating to the Prentice Financing and for
Newcastle Partners' proposal to elect the Nominees, or any other person(s)
nominated by Newcastle Partners, to the Whitehall Board at the Special Meeting
(the "Solicitation"), and (iii) Newcastle Partners agreed to bear all expenses
incurred in connection with the Group's activities, including approved expenses
incurred by any of the parties in connection with the Solicitation, subject to
certain limitations.
Except as set forth in this Proxy Statement (including the Schedules
hereto), (i) during the past 10 years, no participant in this solicitation has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors); (ii) no participant in this solicitation directly or indirectly
beneficially owns any securities of Whitehall; (iii) no participant in this
solicitation owns any securities of Whitehall which are owned of record but not
beneficially; (iv) no participant in this solicitation has purchased or sold any
securities of Whitehall during the past two years; (v) no part of the purchase
price or market value of the securities of Whitehall owned by any participant in
this solicitation is represented by funds borrowed or otherwise obtained for the
purpose of acquiring or holding such securities; (vi) no participant in this
solicitation is, or within the past year was, a party to any contract,
arrangements or understandings with any person with respect to any securities of
Whitehall, including, but not limited to, joint ventures, loan or option
arrangements, puts or calls, guarantees against loss or guarantees of profit,
division of losses or profits, or the giving or withholding of proxies; (vii) no
associate of any participant in this solicitation owns beneficially, directly or
indirectly, any securities of Whitehall; (viii) no participant in this
-24-
solicitation owns beneficially, directly or indirectly, any securities of any
parent or subsidiary of Whitehall; (ix) no participant in this solicitation or
any of his/its associates was a party to any transaction, or series of similar
transactions, since the beginning of Whitehall's last fiscal year, or is a party
to any currently proposed transaction, or series of similar transactions, to
which Whitehall or any of its subsidiaries was or is to be a party, in which the
amount involved exceeds $60,000; (x) no participant in this solicitation or any
of his/its associates has any arrangement or understanding with any person with
respect to any future employment by Whitehall or its affiliates, or with respect
to any future transactions to which Whitehall or any of its affiliates will or
may be a party; and (xi) no person, including the participants in this
solicitation, who is a party to an arrangement or understanding pursuant to
which the Nominees are proposed to be elected has a substantial interest, direct
or indirect, by security holdings or otherwise in any matter to be acted on at
the Special Meeting.
-25-
OTHER MATTERS AND ADDITIONAL INFORMATION
Newcastle Partners is unaware of any other matters to be considered at
the Special Meeting. However, should other matters, which Newcastle Partners is
not aware of a reasonable time before this solicitation, be brought before the
Special Meeting, the persons named as proxies on the enclosed GREEN proxy card
will vote on such matters in their discretion.
NEWCASTLE PARTNERS HAS OMITTED FROM THIS PROXY STATEMENT CERTAIN
DISCLOSURE REQUIRED BY APPLICABLE LAW THAT IS ALREADY INCLUDED IN THE MANAGEMENT
PROXY STATEMENT. THIS DISCLOSURE INCLUDES, AMONG OTHER THINGS:
o DETAILED INFORMATION RELATING TO THE BACKGROUND, REASONS FOR,
TERMS AND CONSEQUENCES OF THE PRENTICE FINANCING, INCLUDING
RISK FACTORS, FINANCIAL AND PRO FORMA INFORMATION, TAX
CONSEQUENCES AND ACCOUNTING TREATMENT;
o INFORMATION ABOUT THE COMPANY AND THE INVESTORS;
o CURRENT BIOGRAPHICAL INFORMATION ON THE COMPANY'S DIRECTOR
NOMINEES, CURRENT DIRECTORS AND EXECUTIVE OFFICERS,
INFORMATION CONCERNING EXECUTIVE COMPENSATION, AND INFORMATION
ON CORPORATE GOVERNANCE MATTERS;
o TRADING INFORMATION ON THE COMMON STOCK AND AN ANALYSIS OF
CUMULATIVE TOTAL RETURNS ON AN INVESTMENT IN THE COMMON STOCK
DURING THE PAST FIVE YEARS;
o DEADLINES AND PROCEDURES FOR SUBMITTING PROPOSALS AT THE
COMPANY'S NEXT ANNUAL MEETING OF STOCKHOLDERS UNDER RULE 14A-8
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
OUTSIDE THE PROCESSES OF RULE 14A-8.
STOCKHOLDERS SHOULD REFER TO THE MANAGEMENT PROXY STATEMENT TO REVIEW
THIS DISCLOSURE.
Although we do not have any knowledge indicating that any statement
made by Newcastle Partners herein is untrue, we do not take any responsibility
for the accuracy or completeness of statements taken from public documents and
records that were not prepared by or on our behalf, or for any failure by
Whitehall to disclose events that may affect the significance or accuracy of
such information. See Schedule II for information regarding persons who
beneficially own more than 5% of the shares of the securities of the Company and
the ownership of the securities of the Company by the management of the Company.
The information concerning Whitehall contained in this Proxy Statement
and the Schedules attached hereto has been taken from, or is based upon,
publicly available information.
NEWCASTLE PARTNERS, L.P.
_________, 2005
-26-
SCHEDULE I
TRANSACTIONS IN THE SECURITIES OF WHITEHALL
BY NEWCASTLE PARTNERS, L.P. DURING THE PAST TWO YEARS
Class Quantity Price Per Date of
of Security Purchased Unit ($) Purchase
- ------------------------ ---------------------- ------------------ ----------
Newcastle Partners, L.P.
- --------------------------------------------------------------------------------
Common Stock 77,000 7.13 07/14/04
Common Stock 55,700 7.19 07/20/04
Common Stock 42,700 7.25 07/21/04
Common Stock 322,000 7.31 07/22/04
Common Stock 17,000 7.36 07/23/04
Common Stock 19,900 7.36 07/26/04
Common Stock 57,900 7.36 07/28/04
Common Stock 28,400 7.36 07/29/04
Common Stock 49,700 7.48 08/01/04
Common Stock 6,800 7.81 08/03/04
Common Stock 14,100 7.80 08/04/04
Common Stock 12,900 7.84 08/05/04
Common Stock 174,000 7.72 08/06/04
Common Stock 40,100 7.72 08/09/04
Common Stock 6,000 7.86 08/11/04
Common Stock 33,500 7.81 08/12/04
Common Stock 12,600 7.83 08/13/04
Common Stock 100 7.99 08/16/04
Common Stock 2,400 7.87 08/23/04
Common Stock 300 7.91 08/24/04
Common Stock 2,000 7.87 08/25/04
Common Stock 6,000 7.80 08/26/04
Common Stock 26,900 7.65 08/27/04
Common Stock 100 7.89 08/30/04
Common Stock 100,000 7.98 09/07/04
Common Stock 43,900 7.86 09/13/04
Common Stock 400 7.90 09/15/04
Common Stock 400 8.00 09/29/04
Common Stock 2,600 7.96 12/28/04
Common Stock 29,900 7.92 12/30/04
Common Stock 12,900 7.91 01/03/05
Common Stock 5,000 7.95 01/05/05
Common Stock 138,900 7.92 01/06/05
Common Stock 25,600 7.87 01/07/05
Common Stock 34,000 7.82 01/10/05
Common Stock 8,000 7.76 01/11/05
Common Stock 2,000 7.60 01/12/05
-27-
Class Quantity Price Per Date of
of Security Purchased Unit ($) Purchase
- ------------------------ ---------------------- ------------------ ----------
Common Stock 1,600 7.64 01/13/05
Common Stock 4,000 7.67 01/18/05
Common Stock 24,000 7.55 01/19/05
Common Stock 2,000 7.53 01/20/05
Common Stock 1,000 7.54 01/21/05
Common Stock 19,500 7.40 01/24/05
Common Stock 12,700 7.29 01/25/05
Common Stock 17,000 7.13 01/26/05
Common Stock 130,600 7.04 01/27/05
Common Stock 53,500 6.97 01/28/05
Common Stock 5,000 7.45 02/02/05
Common Stock 15,100 7.39 02/03/05
Common Stock 200 7.43 02/04/05
Common Stock 10,000 7.43 02/08/05
Common Stock 2,000 7.46 02/10/05
Common Stock 4,200 7.37 02/11/05
Common Stock 9,100 7.24 02/14/05
Common Stock 4,000 7.23 02/15/05
Common Stock 10,200 7.14 02/16/05
Common Stock 2,000 7.11 02/17/05
Common Stock 4,000 7.08 02/18/05
Common Stock 10,000 6.99 02/22/05
Common Stock 600 7.03 02/24/05
Common Stock 2,600 7.06 02/28/05
Common Stock 22,700 7.08 03/01/05
Common Stock 2,100 7.06 03/02/05
Common Stock 15,100 7.05 03/03/05
Common Stock 5,000 7.05 03/04/05
Common Stock 800 7.07 03/07/05
Common Stock 8,800 7.22 03/08/05
Common Stock 2,000 7.16 03/09/05
Common Stock 4,800 7.19 03/14/05
Common Stock 4,000 7.18 03/15/05
Common Stock 500 7.18 03/16/05
Common Stock 100 7.30 03/17/05
Common Stock 4,400 7.25 03/18/05
Common Stock 2,300 7.24 03/22/05
Common Stock 8,800 7.15 03/23/05
Common Stock 6,700 7.24 03/29/05
Common Stock 29,600 7.13 03/30/05
Common Stock 20,200 7.20 03/31/05
Common Stock 11,100 7.14 04/01/05
Common Stock 2,200 7.15 04/04/05
-28-
Class Quantity Price Per Date of
of Security Purchased Unit ($) Purchase
- ------------------------ ---------------------- ------------------ ----------
Common Stock 6,100 7.12 04/05/05
Common Stock 6,400 7.10 04/06/05
Common Stock 7,200 7.08 04/07/05
Common Stock 5,000 7.18 04/08/05
Common Stock 23,800 7.23 04/11/05
Common Stock 8,000 7.19 04/12/05
Common Stock 10,000 7.11 04/13/05
Common Stock 25,700 6.97 04/14/05
Common Stock 18,400 6.89 04/15/05
-29-
SCHEDULE II
THE FOLLOWING TABLE IS REPRINTED FROM THE MANAGEMENT PROXY STATEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Whitehall's Common Stock as of October 24, 2005, by (i) each person
who is known by Whitehall to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and director nominee of Whitehall,
(iii) each of the executive officers named in the Summary Compensation Table and
(iv) all directors and executive officers of Whitehall as a group.
Amount of
Beneficial Percent of
Name of Beneficial Owner(1) Ownership Class(2)
- ---------------------------------------------------- ------------------- -----------------
5% STOCKHOLDERS
Prentice Capital Management, LP(3) 2,094,346 15.00%
623 Fifth Avenue, 32nd Floor
New York, NY 10020
Holtzman Opportunity Fund, L.P(4) 698,116 5.00%
Mr. Seymour Holtzman
c/o Jewelcor Companies
100 N. Wilkes Barre Blvd., 4th Floor
Wilkes Barre, Pennsylvania 18707
Newcastle Partners, L.P.(5) 2,018,400 14.46%
300 Crescent Court, Suite 1110
Dallas, TX 75201
FMR Corp.(6) 1,548,900 11.09%
82 Devonshire Street
Boston, MA 02109
Myron M. Kaplan(7) 1,386,600 9.93%
P.O. Box 385
Leonia, NJ 07605
Wasatch Advisors, Inc.(8) 1,331,952 9.54%
150 Social Hall Avenue
Salt Lake City, UT 84111
Dimensional Fund Advisors Inc.(9) 1,022,750 7.33%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
-30-
Amount of
Beneficial Percent of
Name of Beneficial Owner(1) Ownership Class(2)
- ---------------------------------------------------- ------------------- -----------------
DIRECTORS AND EXECUTIVE OFFICERS
Hugh M. Patinkin(10) -- --
Matthew M. Patinkin(11) 890,936 6.21%
John R. Desjardins(12) 670,664 4.67%
Manny A. Brown(13) 127,920 *
Norman J. Patinkin(14) 90,645 *
Daniel H. Levy(15) 64,385 *
Richard K. Berkowitz(16) 61,247 *
Sanford Shkolnik(17) 29,697 *
Debbie Nicodemus-Volker(18) 20,000 *
Steven J. Pully(4),(19) -- *
Lucinda M. Baier(20) -- *
DIRECTOR NOMINEES (21)
Jonathan Duskin [ ] [ ]
Seymour Holtzman(4) 698,116 5.99
Charles G. Phillips [ ] [ ]
All executive officer and directors as a group 1,955,494 14.01%
- ----------------------------------
* Less than 1%.
(1) Except as set forth in the footnotes to this table, the persons named
in the table above have sole voting and investment power with respect
to all shares shown as beneficially owned by them.
(2) Applicable percentage of ownership is based on 13,961,216 shares of
Common Stock outstanding on October 24, 2005. Where indicated in the
footnotes, this table also includes Common Stock issuable pursuant to
stock options exercisable within 60 days of the filing of this proxy
statement.
(3) Share information based solely on information contained on a Schedule
13D, dated October 3, 2005, filed with the SEC, and as amended on
October 28, 2005. The share numbers and percentages assume that the
Notes (described elsewhere in this proxy statement) have not yet been
issued. This Schedule 13 D indicates that PWJ Lending LLC ("PWJ
Lending") may be deemed to beneficially own 2,094,346 shares of Common
Stock issuable upon exercise of the Warrants (described elsewhere in
this proxy statement). The Schedule 13D further indicates that PWJ
Funding LLC ("PWJ Funding") may be deemed to beneficially own
68,020,815 shares of Common Stock issuable upon the conversion of the
Notes, including interest shares (described elsewhere in this proxy
statement) if interest will paid in Common Stock for the first three
years of the Note, at a conversion price of $0.75. The Schedule 13D
also indicates that each of Prentice Capital Management, LP and Michael
Zimmerman may be deemed to beneficially own 70,115,161 shares of Common
Stock, including the 2,094,346 shares issuable upon exercise of the
Warrants and 68,020,815 shares of Common Stock issuable upon conversion
of the Notes. The Schedule 13D indicates that Prentice Capital
Management, L.P. is the managing member of PWJ Funding and PWJ Lending.
-31-
The Schedule 13D also indicates that Michael Zimmerman is the Managing
Member of (a) Prentice Management GP, LLC, the general partner of
Prentice Capital Management, LP, and (b) Prentice Capital GP, LLC the
general part of certain investment funds. The Schedule 13D states that
as such, Mr. Zimmerman may be deemed to control Prentice Capital
Management, LP and certain of the investment funds and therefore may be
deemed to be the beneficial owner of the securities described above.
Each of Mr. Zimmerman and Prentice Capital Management, LP disclaimed
beneficial ownership of all of shares described above. The Schedule 13D
indicates that certain of the reporting persons to the Schedule 13D
share voting and dispositive powers over the shares beneficially owned
to the extent reported therein.
(4) Share information based solely on information contained on a Schedule
13D, dated October 28, 2005, filed with the SEC. The share numbers and
percentages assume that the Notes (described elsewhere in this proxy
statement) have not yet been issued. This Schedule 13D indicates that
Holtzman Opportunity Fund, L.P. ("Holtzman Opportunity") beneficially
owns 698,116 shares of common stock issuable upon exercise of the
Warrants (described elsewhere in this proxy statement). If the Notes
are issued, then Holtzman Opportunity at that time may be deemed to
beneficially own an aggregate of up to 22,666,667 shares of Common
Stock potentially issuable upon conversion of the Notes, including
interest shares (described elsewhere in this proxy statement); such
shares, together with shares issuable upon exercise of the Warrants,
would represent an aggregate of 23,364,783 shares of common stock,
constituting approximately 21.7% of the outstanding Common Stock as of
the date of this table. The Schedule 13D further indicates that each of
Holtzman Financial Advisors, LLC ("Holtzman Advisors"), as the general
partner of Holtzman Opportunity, and SH Independence, LLC
("Independence"), as Managing Member of Holtzman Opportunity, may each
also be deemed to beneficially own 698,116 shares of Common Stock owned
by Holtzman Opportunity issuable upon exercise of the Warrants. If the
Notes are issued, then each of Holtzman Advisors and Independence may
each also be deemed to beneficially own an aggregate of up to
22,666,667 shares of Common Stock owned by Holtzman Opportunity
potentially issuable upon conversion of the Notes, including interest
shares (described elsewhere in this proxy statement); such shares,
together with shares issuable upon exercise of the Warrants, would
represent an aggregate of 23,364,783 shares of Common Stock,
constituting approximately 21.7% of the outstanding common stock as of
the date of this proxy statement. Lastly, the Schedule 13D indicates
that Seymour Holtzman, as the sole member of Independence, may also be
deemed to beneficially own such shares. According to the Schedule 13D,
each of Holtzman Opportunity, Holtzman Advisors, Independence and
Seymour Holtzman may be deemed to have sole voting and dispositive
power with respect to the reported shares.
(5) Share information based solely on information contained on a Schedule
13D, dated October 26, 2005, filed with the SEC. This Schedule 13D
indicates that Newcastle Partners, L.P. beneficially owns 2,018,400
shares of Common Stock and has sole voting and investment power with
respect to the reported shares. Newcastle Capital Management, L.P., as
the general partner of Newcastle Partners, L.P., may also be deemed to
beneficially own the 2,018,400 shares of Common Stock beneficially
owned by Newcastle Partners, L.P. Newcastle Capital Group, L.L.C., as
the general partner of Newcastle Capital Management, L.P., which in
-32-
turn is the general partner of Newcastle Partners, L.P., may also be
deemed to beneficially own the 2,018,400 shares of Common Stock
beneficially owned by Newcastle Partners, L.P. Mark E. Schwarz, as the
managing member of Newcastle Capital Group, L.L.C., the general partner
of Newcastle Capital Management, L.P., which in turn is the general
partner of Newcastle Partners, L.P., may also be deemed to beneficially
own the 2,018,400 shares of Common Stock beneficially owned by
Newcastle Partners, L.P. Steven J. Pully, as President of Newcastle
Capital Management, L.P., which is the general partner of Newcastle
Partners, L.P., may also be deemed to beneficially own the 2,018,400
shares of Common Stock beneficially owned by Newcastle Partners, L.P.
Newcastle Capital Management, L.P., Newcastle Capital Group, L.L.C.,
Mr. Schwarz and Mr. Pully disclaim beneficial ownership of the shares
of Common Stock held by Newcastle Partners, L.P., except to the extent
of their pecuniary interest therein. By virtue of his position with
Newcastle Partners, L.P., Newcastle Capital Management, L.P. and
Newcastle Capital Group, L.L.C., Mark E. Schwarz has the sole power to
vote and dispose of the shares of Common Stock owned by Newcastle
Partners, L.P.
(6) Share information based solely on information contained on a Schedule
13G/ A, dated February 14, 2005, filed with the SEC. This Schedule
13G/A indicates that Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp. and an investment adviser
registered under section 203 of the Investment Advisers Act of 1940,
has sole investment power with respect to 1,131,900 of the reported
shares. The Schedule 13G/A further indicates that Edward C. Johnson 3d,
Chairman of FMR Corp., and FMR Corp., through their control of Fidelity
Management & Research Company, have sole power to dispose of the
1,131,900 shares. This Schedule 13G/A also indicates that Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR Corp. and a
bank as defined in Section 3(a)(6) of the Securities Exchange Act of
1934, is the beneficial owner of 417,000 of the reported shares as a
result of its serving as investment manager of the institutional
account(s). This Schedule 13G/ A further indicates that Edward C.
Johnson 3d and FMR Corp., through their control of Fidelity Management
Trust Company, each has sole dispositive power over 417,000 shares and
sole power to vote or to direct the voting of 417,000 shares of Common
Stock owned by the institutional account(s) as reported above. In
addition, the Schedule 13G/ A indicates that Fidelity Management &
Research Company carries out the voting of the shares under written
guidelines established by the Board of Directors of Trustees of the
Fidelity Funds, that members of the Edward C. Johnson 3d family own
approximately 49% of the voting power of FMR Corp., and that the
Johnson family group and all Class B stockholders of FMR Corp. have
entered into a stockholders' voting agreement under which all Class B
shares will be voted in accordance with the majority vote of Class B
shares. Furthermore, the Schedule 13G states that through their
ownership of voting Common Stock and the execution of the stockholders'
voting agreement, members of the Johnson family may be deemed, under
the Investment Company Act of 1940, to form a controlling group with
respect to FMR Corp.
(7) Share information based solely on information contained on a Form 4,
dated April 15, 2005, filed with the SEC. This Form 4 indicates that
Myron M. Kaplan has sole voting and investment power with respect to
the reported shares.
-33-
(8) Share information based solely on information contained on a Schedule
13G/ A, dated February 14, 2005, filed with the SEC. This Schedule 13G/
A indicates that Wasatch Advisors, Inc., an investment adviser
registered under section 203 of the Investment Advisers Act of 1940,
has sole voting and investment power with respect to the reported
shares.
(9) Share information based solely on information contained on a Schedule
13G, dated February 9, 2005, filed with the SEC. This Schedule 13G
indicates that Dimensional Fund Advisors Inc., an investment adviser
registered under section 203 of the Investment Advisers Act of 1940,
has sole voting and investment power with respect to the reported
shares.
(10) Mr. Hugh M. Patinkin passed away prior to the date as of which the
table speaks. Mr. Patinkin served as Chairman and Chief Executive
Officer of Whitehall until the time of his death.
(11) Includes 381,202 shares of Common Stock issuable pursuant to presently
exercisable stock options or stock options which will become
exercisable within 60 days of this proxy statement. Includes 185,208
shares solely owned by Robin J. Patinkin, as Trustee of the Robin
Patinkin UA2-2-92 Trust. Robin J. Patinkin, Matthew Patinkin's wife,
has sole investment power with respect to such shares. Includes 32,406
shares held by Matthew M. Patinkin and Robin J. Patinkin, as Trustees
of various trusts for the benefit of their children. Includes 13,281
shares held by Robin J. Patinkin, as Trustee of various trusts for the
benefit of the children of Matthew M. Patinkin and Robin J. Patinkin,
with respect to which shares Matthew M. Patinkin disclaims beneficial
ownership because Robin J. Patinkin has sole voting and investment
power with respect to such shares. The mailing address of Matthew M.
Patinkin is c/o Whitehall Jewellers, Inc., 155 North Wacker Drive,
Suite 500, Chicago, Illinois 60606.
(12) Includes 396,159 shares of Common Stock issuable pursuant to presently
exercisable stock options or stock options which will become
exercisable within 60 days of this proxy statement. Includes 35,748
shares beneficially owned by John R. Desjardins, which shares are held
by Cheryl Desjardins and Stephen Kendig, as Trustees of the John R.
Desjardins 1995 Family Trust U/ A/ D 12/28/95. Cheryl Desjardins and
Stephen Kendig have shared investment power with respect to such
shares. Shares beneficially owned by Mr. Desjardins include shares
allocated to his account in the ESOP (12,440 shares), as to which he
shares voting power with the ESOP. The ESOP has sole investment power
with respect to such shares. The mailing address of John R. Desjardins
is c/o Whitehall Jewellers, Inc., 155 North Wacker Drive, Suite 500,
Chicago, Illinois 60606.
(13) Includes 124,632 shares of Common Stock issuable pursuant to presently
exercisable stock options or stock options which will become
exercisable within 60 days of this proxy statement. Mr. M. Brown
tendered his resignation effective December 17, 2004. Pursuant to his
separation and release agreement, Mr. M. Brown's employment with
Whitehall was deemed to have been terminated for good reason and
therefore his options to purchase shares of Whitehall's Common Stock
vested in full and remain exercisable until December 17, 2006. Includes
-34-
750 shares owned by Marcy Brown, Mr. M. Brown's wife, in her self
directed IRA account, with respect to which shares Manny A. Brown
disclaims beneficial ownership. The mailing address of Manny A. Brown
is 184 Oak Knoll Terrace, Highland Park, IL 60035.
(14) Includes 47,366 shares of Common Stock issuable pursuant to presently
exercisable stock options or stock options which will become
exercisable within 60 days of this proxy statement. Includes 1,111
shares of restricted Common Stock granted on February 19, 2004, which
restrictions lapse in equal installments on February 19, 2006 and
February 19, 2007. Includes 1,667 shares of restricted Common Stock
granted on March 3, 2005, which restrictions lapse in equal
installments on March 3, 2006, March 3, 2007 and March 3, 2008.
Includes 1,402 shares of restricted Common Stock granted on April 13,
2005, which restrictions lapse on April 13, 2006. The mailing address
of Norman J. Patinkin is c/o United Marketing Group, L.L.C., 5724 North
Pulaski, Chicago, Illinois 60647.
(15) Includes 49,444 shares of Common Stock issuable pursuant to presently
exercisable stock options or stock options which will become
exercisable within 60 days of this proxy statement. Includes 1,111
shares of restricted Common Stock granted on February 19, 2004, which
restrictions lapse in equal installments on February 19, 2006 and
February 19, 2007. Includes 1,667 shares of restricted Common Stock
granted on March 3, 2005, which restrictions lapse in equal
installments on March 3, 2006, March 3, 2007 and March 3, 2008.
Includes 1,402 shares of restricted Common Stock granted on April 13,
2005, which restrictions lapse on April 13, 2006. The mailing address
for Daniel H. Levy is c/o Whitehall Jewellers, Inc., 155 North Wacker
Drive, Suite 500, Chicago, Illinois 60606.
(16) Includes 46,306 shares of Common Stock issuable pursuant to presently
exercisable stock options or stock options which will become
exercisable within 60 days of this proxy statement. Includes 1,111
shares of restricted Common Stock granted on February 19, 2004, which
restrictions lapse in equal installments on February 19, 2006 and
February 19, 2007. Includes 1,667 shares of restricted Common Stock
granted on March 3, 2005, which restrictions lapse in equal
installments on March 3, 2006, March 3, 2007 and March 3, 2008.
Includes 1,402 shares of restricted Common Stock granted on April 13,
2005, which restrictions lapse on April 13, 2006. The mailing address
for Richard K. Berkowitz is 3201 NE 183rd Street, Unit 1905, Aventure,
Florida 33160.
(17) Includes 6,141 shares of Common Stock issuable pursuant to presently
exercisable stock options. Includes 1,111 shares of restricted Common
Stock granted on February 19, 2004, which restrictions lapse in equal
installments on February 19, 2006 and February 19, 2007. Includes 1,667
shares of restricted Common Stock granted on March 3, 2005, which
restrictions lapse in equal installments on March 3, 2006, March 3,
2007 and March 3, 2008. Includes 1,402 shares of restricted Common
Stock granted on April 13, 2005, which restrictions lapse on April 13,
2006. The mailing address of Sanford Shkolnik is c/o Encore
Investments, LLC, 101 West Grand Avenue, Chicago, Illinois 60610.
-35-
(18) Includes 13,333 shares of restricted Common Stock granted on June 1,
2004, which restrictions lapse in equal installments on June 1, 2006
and June 1, 2007. The mailing address of Debbie Nicodemus-Volker is c/o
Whitehall Jewellers, Inc., 155 North Wacker Drive, Suite 500, Chicago,
Illinois 60606.
(19) Mr. Pully is the President of Newcastle Management, L.P., which is the
general partner of Newcastle Partners, L.P. See footnote 4 to this
table. Mr. Pully disclaims beneficial ownership of the 2,018,400 shares
owned by Newcastle Partners, L.P. The mailing address of Mr. Pully is
c/o Whitehall Jewellers, Inc., 155 North Wacker Drive, Suite 500,
Chicago, Illinois 60606.
(20) Ms. Baier tender her resignation on October 11, 2005. Pursuant to her
employment agreement, dated November 30, 2004 and as amended on August
11, 2005, Ms. Baier has forfeited all of her shares of restricted
Common Stock.
(21) One additional Class I director nominee and two additional Class II
director nominees will be named prior to the completion and
distribution of this proxy statement.
-36-
IMPORTANT
Tell your Board what you think! Your vote is important. No matter how
many shares you own, please give Newcastle Partners your proxy AGAINST the
Prentice Financing proposals described herein and FOR the election of Newcastle
Partners' Nominees by taking three steps:
o SIGNING the enclosed GREEN proxy card,
o DATING the enclosed GREEN proxy card, and
o MAILING the enclosed GREEN proxy card TODAY in the envelope
provided (no postage is required if mailed in the United
States).
If any of your shares are held in the name of a brokerage firm, bank,
bank nominee or other institution, only it can vote such shares and only upon
receipt of your specific instructions. Accordingly, please contact the person
responsible for your account and instruct that person to execute the GREEN proxy
card representing your shares. Newcastle Partners urges you to confirm in
writing your instructions to Newcastle Partners in care of MacKenzie Partners,
Inc. at the address provided below so that Newcastle Partners will be aware of
all instructions given and can attempt to ensure that such instructions are
followed.
If you have any questions or require any additional information
concerning this Proxy Statement, please contact MacKenzie Partners, Inc. at the
address set forth below.
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
proxy@mackenziepartners.com
or
CALL TOLL FREE (800) 322-2885
PRELIMINARY COPY SUBJECT TO COMPLETION
DATED DECEMBER 13, 2005
WHITEHALL JEWELLERS, INC.
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF
NEWCASTLE PARTNERS, L.P.
THE BOARD OF DIRECTORS OF WHITEHALL JEWELLERS, INC.
IS NOT SOLICITING THIS PROXY
P R O X Y
The undersigned appoints Mark E. Schwarz and Steven J. Pully, and each of them,
attorneys and agents with full power of substitution to vote all shares of
capital stock of Whitehall Jewellers, Inc. (the "Company") which the undersigned
would be entitled to vote if personally present at the Special Meeting of
Stockholders of the Company scheduled to be held on Thursday, January 19, 2006
at ____ (local time) at ________, Chicago, Illinois _________, and including at
any adjournments or postponements thereof and at any meeting called in lieu
thereof (the "Special Meeting").
The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to the shares of capital stock of the Company held by
the undersigned, and hereby ratifies and confirms all action the herein named
attorneys and proxies, their substitutes, or any of them may lawfully take by
virtue hereof. If properly executed, this Proxy will be voted as directed on the
reverse and in their discretion with respect to any other matters as may
properly come before the Special Meeting that are unknown to Newcastle Partners,
L.P. ("Newcastle Partners") a reasonable time before this solicitation.
IF NO DIRECTION IS INDICATED WITH RESPECT TO THE PROPOSALS ON THE REVERSE, THIS
PROXY WILL BE VOTED AGAINST PROPOSALS 1 AND 2 AND FOR PROPOSAL 3.
This Proxy will be valid until the sooner of one year from the date indicated on
the reverse side and the completion of the Special Meeting.
IMPORTANT: PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY!
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[X] PLEASE MARK VOTE AS IN THIS EXAMPLE
1. The Company's proposal to approve the issuance of shares of its common
stock pursuant to the terms of its secured convertible notes;
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. The Company's proposal to approve an amendment to its certificate of
incorporation to effect a 1-for-2 reverse stock split of its capital
stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Newcastle Partners' proposal to elect its slate of director nominees.
Nominee (1) -- Mark E. Schwarz
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominee (2) -- Steven J. Pully
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominee (3) -- John P. Murray
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominee (4) -- Mark A. Forman
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominee (5) -- Mark J. Morrison
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominee (6) -- Clinton J. Coleman
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
DATED:
-----------------------------
- ------------------------------------
(Signature)
- ------------------------------------
(Signature, if held jointly)
- ------------------------------------
(Title)
WHEN SHARES ARE HELD JOINTLY, JOINT OWNERS SHOULD EACH SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC., SHOULD INDICATE THE CAPACITY IN WHICH SIGNING.
PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS PROXY.
