EXECUTION COPY BRIDGE TERM LOAN CREDIT AGREEMENT

 

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                                                                    EXHIBIT 10.1

 

                                                                  EXECUTION COPY

 

                                BRIDGE TERM LOAN

                                CREDIT AGREEMENT

 

                           DATED AS OF OCTOBER 3, 2005

 

                                  by and among

 

                           WHITEHALL JEWELLERS, INC.,

 

                                   THE LENDERS

                                  PARTY HERETO,

 

                                       and

 

                                 PWJ LENDING LLC

                  as Administrative Agent and Collateral Agent,

                         for the Agent, and the Lenders

 

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                                TABLE OF CONTENTS

 

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1.      DEFINITIONS AND RULES OF INTERPRETATION..............................................................       1

 

2.      TERM CREDIT LOANS.....................................................................................     13

 

3.      INTENTIONALLY OMITTED.................................................................................     15

 

4.      INTENTIONALLY OMITTED.................................................................................     15

 

5.      CERTAIN GENERAL PROVISIONS............................................................................     15

 

6.      COLLATERAL SECURITY...................................................................................     20

 

7.      REPRESENTATIONS AND WARRANTIES........................................................................     20

 

8.      AFFIRMATIVE COVENANTS OF THE BORROWER.................................................................     26

 

9.      CERTAIN NEGATIVE COVENANTS OF THE BORROWER............................................................     34

 

10.     FINANCIAL COVENANTS OF THE BORROWER...................................................................     41

 

11.     CLOSING CONDITIONS....................................................................................     41

 

12.     INTENTIONALLY DELETED.................................................................................     45

 

13.     EVENTS OF DEFAULT; ACCELERATION; ETC..................................................................     45

 

14.     SETOFF................................................................................................     48

 

15.     THE AGENTS............................................................................................     48

 

16.     EXPENSES..............................................................................................     55

 

17.     INDEMNIFICATION.......................................................................................     56

 

18.     SURVIVAL OF COVENANTS, ETC............................................................................     57

 

19.     ASSIGNMENT AND PARTICIPATION..........................................................................     57

 

20.     NOTICES, ETC..........................................................................................     60

 

21.     GOVERNING LAW.........................................................................................     61

 

22.     HEADINGS..............................................................................................     61

 

23.     COUNTERPARTS..........................................................................................     61

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                               TABLE OF CONTENTS

                                  (continued)

 

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24.     ENTIRE AGREEMENT, ETC.................................................................................     62

 

25.     WAIVER OF JURY TRIAL..................................................................................     62

 

26.     INTENTIONALLY OMITTED.................................................................................     62

 

27.     SEVERABILITY..........................................................................................     62

 

28.     INTERCREDITOR AGREEMENT...............................................................................     62

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                                BRIDGE TERM LOAN

                                 CREDIT AGREEMENT

 

      This BRIDGE TERM LOAN CREDIT AGREEMENT is made as of October 3, 2005, by

and among (a) WHITEHALL JEWELLERS, INC. (the "Borrower"), a Delaware corporation

having its principal place of business at 155 North Wacker Drive, Suite 500,

Chicago, Illinois 60606; (b) the lending institutions from time to time party

hereto (collectively, the "Lenders"); and (c) PWJ LENDING LLC ("Prentice"), a

Delaware limited liability company, as administrative agent (in such capacity,

the "Administrative Agent") and the collateral agent (in such capacity, the

"Collateral Agent") for the Agents (as hereinafter defined) and the Lenders.

 

      WHEREAS, the Borrower has requested that the Lenders make a loan available

to the Borrower for, among other things, general corporate and working capital

purposes; and

 

      WHEREAS, the Lenders are willing to provide such financing on the terms

and conditions set forth herein.

 

      NOW, THEREFORE, in consideration of the mutual covenants and agreements

contained herein and benefits to be derived herefrom, the Borrower, the Lenders

and the Agents agree as follows:

 

1. DEFINITIONS AND RULES OF INTERPRETATION.

 

      1.1 Definitions. The following terms shall have the meanings set forth in

this Section 1 or elsewhere in the provisions of this Credit Agreement referred

to below:

 

      Administrative Agent. Prentice, in its capacity as administrative agent

for the benefit of Lenders and the Agents and with respect to the Security

Documents.

 

      Administrative Agent's Head Office. The Administrative Agent's head office

located at 623 Fifth Avenue, 32nd Floor, New York, New York 10022.

 

      Administrative Agent's Special Counsel. Schulte Roth & Zabel LLP, or such

other counsel as may be approved by the Administrative Agent.

 

      Affiliate. Any Person (other than Prentice, its Affiliates, associates and

Related Funds) that would be considered to be an affiliate of the Borrower under

Rule 144(a) of the Rules and Regulations of the Securities and Exchange

Commission, as in effect on the date hereof, if the Borrower were issuing

securities.

 

      Agents. Collectively, the Administrative Agent and the Collateral Agent.

 

      Asset Disposition Prepayment. See Section 5.4.3.

 

      Assignment and Acceptance. See Section 19.1.

 

      Balance Sheet Date. October 3, 2005.

 

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      Blocked Account Agreement. Each Blocked Account Agreement entered into by

the Borrower, the Senior Administrative Agent and a depository institution

satisfactory to the Senior Administrative Agent, which shall be in form and

substance acceptable to the Administrative Agent.

 

      Borrower. As defined in the preamble hereto.

 

      Borrowing Base Report. A Borrowing Base Report, as defined in and as

attached to the Senior Credit Agreement as Exhibit A.

 

      Business Day. Any day, other than a Saturday or Sunday, on which banking

institutions in Chicago, Illinois and New York, New York are open for the

transaction of banking business.

 

      Capital Assets. Fixed and/or capital assets, both tangible (such as land,

buildings, fixtures, samples, tools and die, software, software development,

machinery and equipment) and intangible (such as software, patents, copyrights,

trademarks, franchises and goodwill); provided that Capital Assets shall not

include any item customarily charged directly to expense or depreciated over a

useful life of twelve (12) months or less in accordance with Generally Accepted

Accounting Principles.

 

      Capital Expenditures. Amounts paid or indebtedness incurred by the

Borrower or any of its Subsidiaries in connection with the purchase or lease by

the Borrower or any of its Subsidiaries of Capital Assets that would be required

to be capitalized and shown on the balance sheet of such Person in accordance

with Generally Accepted Accounting Principles.

 

      Capitalized Leases. Leases under which the Borrower or any of its

Subsidiaries is the lessee or obligor, the discounted future rental payment

obligations under which are required to be capitalized on the balance sheet of

the lessee or obligor in accordance with Generally Accepted Accounting

Principles.

 

      CERCLA. See Section 7.18.

 

      Closing Date. The first date on which the conditions set forth in Section

11 have been satisfied or waived and the Term Loan is made.

 

      Closing Fee. The Closing Fee is two percent (2.00%) of the Total

Commitment.

 

      Code. The Internal Revenue Code of 1986, as amended.

 

      Collateral. All of the property, rights and interests of the Borrower that

are or are intended to be subject to the security interests created by the

Security Documents.

 

      Collateral Agent. Prentice, in its capacity as collateral agent for the

benefit of Lenders and the Agents under and with respect to the Security

Documents.

 

      Collateral Trustee. The collateral trustee appointed to act on behalf of

the Suppliers, as set forth in the Trade Vendor Extension Agreement.

 

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      Commitment. With respect to each Lender, the amount set forth on Schedule

1 hereto as the amount of such Lender's commitment to make a Term Loan to the

Borrower.

 

      Commitment Percentage. With respect to each Lender, the percentage set

forth on Schedule 1 hereto as such Lender's percentage of the aggregate

Commitments of all of the Lenders.

 

      Consolidated or consolidated. With reference to any term defined herein,

shall mean that term as applied to the accounts of the Borrower and its

Subsidiaries, consolidated in accordance with Generally Accepted Accounting

Principles.

 

      Consolidated EBITDA. With respect to the Borrower and its Subsidiaries and

any particular fiscal period, the consolidated earnings (or loss) from

operations of the Borrower and its Subsidiaries for such period, after

eliminating therefrom all non-cash extraordinary nonrecurring items of income

(including gains on the sale of assets and earnings from the sale of

discontinued business lines), and after all expenses and other proper charges,

but before payment or provision for (a) any income taxes or interest expenses

for such period, (b) depreciation for such period, (c) amortization for such

period, and (d) all other non-cash charges for such period, all determined in

accordance with Generally Accepted Accounting Principles.

 

      Credit Agreement. This Bridge Term Loan Credit Agreement, including the

Schedules and Exhibits hereto, as may be amended, modified or restated from time

to time.

 

      Default. See Section 13.1.

 

      Delinquent Lender. Means any Lender that fails (i) to make available to

the Administrative Agent its pro rata share of the Term Loan or (ii) to comply

with the provisions of Section 15 with respect to making dispositions and

arrangements with the other Lenders, where such Lender's share of any payment

received, whether by setoff or otherwise, is in excess of its pro rata share of

such payments due and payable to all of the Lenders, in each case as, when and

to the full extent required by the provisions of this Credit Agreement. A

"Delinquent Lender" shall be deemed a Delinquent Lender until such time as such

delinquency is satisfied.

 

      Distribution. The declaration or payment of any dividend on or in respect

of any shares of any class of capital stock of the Borrower, other than

dividends payable solely in shares of common stock of the Borrower; the

purchase, redemption, or other retirement of any shares of any class of capital

stock of the Borrower, directly or indirectly through a Subsidiary of the

Borrower or otherwise; the return of capital by the Borrower to its shareholders

as such; or any other distribution on or in respect of any shares of any class

of capital stock of the Borrower.

 

      Dollars or $. Dollars in lawful currency of the United States of America.

 

      Eligible Assignee. Any of (i) a commercial bank or finance company

organized under the laws of the United States, or any State thereof or the

District of Columbia, and having total assets in excess of $1,000,000,000; (ii)

any Affiliate or Related Fund of an Agent or Lender; (iii) a savings and loan

association or savings bank organized under the laws of the United States, or

any State thereof or the District of Columbia, and having a net worth of at

least $100,000,000, calculated in accordance with Generally Accepted Accounting

Principles; (iv) a

 

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commercial bank organized under the laws of any other country which is a member

of the Organization for Economic Cooperation and Development (the "OECD"), or a

political subdivision of any such country, and having total assets in excess of

$1,000,000,000, provided that such bank is acting through a branch or agency

located in the country in which it is organized or another country which is also

a member of the OECD; (v) the central bank of any country which is a member of

the OECD; and (vi) if, but only if, any Event of Default has occurred and is

continuing, any other bank, insurance company, commercial finance company or

other financial institution or other Person approved by the Administrative

Agent, such approval not to be unreasonably withheld.

 

      Employee Benefit Plan. Any employee benefit plan within the meaning of

Section 3(3) of ERISA maintained of contributed to by the Borrower or any ERISA

Affiliate, other than a Multiemployer Plan.

 

      Environmental Laws. See Section 7.18(a).

 

      ERISA. The Employee Retirement Income Security Act of 1974.

 

      ERISA Affiliate. Any Person which is treated as a single employer with the

Borrower under Section 414 of the Code.

 

      ERISA Reportable Event. A reportable event with respect to a Guaranteed

Pension Plan within the meaning of Section 4043 of ERISA and the regulations

promulgated thereunder as to which the requirement of notice has not been

waived.

 

      Event of Default. See Section 13.1.

 

       Exit Fee. The exit fee is four percent (4.00%) of the Total Commitment.

 

      Foreign Subsidiary. See Section 8.19.

 

      Fourth Amendment to the Senior Credit Agreement. That certain Waiver,

Consent, and Fourth Amendment to Second Amended and Restated Revolving Credit

and Gold Consignment Agreement, among the Borrower and the Senior Agents, dated

as of the date hereof.

 

      Generally Accepted Accounting Principles or GAAP. (i) When used in Section

10, whether directly or indirectly through reference to a capitalized term used

therein, means (A) principles that are consistent with the principles

promulgated or adopted by the Financial Accounting Standards Board and its

predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and

(B) to the extent consistent with such principles, the accounting practice of

the Borrower reflected in its financial statements for the year ended on the

Balance Sheet Date; provided, however, that if any change in such principles

promulgated by the Financial Accounting Standards Board and its predecessors

following the Balance Sheet Date would affect (or would result in a change in

the method of calculation of) any of the covenants set forth in Section 10 or

any definition related thereto, then the Borrower, the Agents and the Lenders

will negotiate in good faith to amend all such covenants and definitions as

would be affected by such changes in such principles to the extent necessary to

maintain the economic terms of such covenants as in effect under this Credit

Agreement immediately prior to giving effect to such

 

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changes in such principles; provided further that until the amendment of such

covenants and definitions shall have been agreed upon by the Borrower, the

Agents and the Required Lenders, the covenants and definitions in effect

immediately prior to such amendment shall remain in effect and any determination

of compliance with any covenant set forth in Section 10 shall be construed in

accordance with Generally Accepted Accounting Principles as in effect

immediately prior to such amendment and consistently applied, and (ii) when used

in general, other than as provided above, means principles that are (A)

consistent with the principles promulgated or adopted by the Financial

Accounting Standards Board and its predecessors, as in effect from time to time,

and (B) consistently applied with past financial statements of the Borrower

adopting the same principles, provided that in each case referred to in this

definition of "Generally Accepted Accounting Principles" a certified public

accountant would, insofar as the use of such accounting principles is pertinent,

be in a position to deliver an unqualified opinion (other than a qualification

regarding changes in Generally Accepted Accounting Principles) as to financial

statements in which such principles have been properly applied.

 

      Guaranteed Pension Plan. Any employee pension benefit plan within the

meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower or

any ERISA Affiliate the benefits of which are guaranteed on termination in full

or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer

Plan.

 

      Guarantors. WH Inc. of Illinois, an Illinois corporation, and any other

Person who becomes a direct or indirect Subsidiary of the Borrower after the

Closing Date.

 

      Guaranty. Each Guaranty Agreement executed by each Guarantor in favor of

the Collateral Agent, substantially in the form of Exhibit C, as each may be

amended, modified or restated from time to time.

 

      Hazardous Substances. See Section 7.18(b).

 

      Headquarters Landlord Consent. The Landlord Consent and Waiver, to be

given by the lessor with respect to the Borrower's leased real property located

in Chicago, Illinois at which the Borrower maintains its headquarters and

central warehouse, such Headquarters Landlord Consent being in form and

substance satisfactory to the Lenders and the Agents.

 

      Indebtedness. As to any Person and whether recourse is secured by or is

otherwise available against all or only a portion of the assets of such Person

and whether or not contingent, but without duplication:

 

            (i) every obligation of such Person for money borrowed,

 

            (ii) every obligation of such Person evidenced by bonds, debentures,

notes or other similar instruments, including obligations incurred in connection

with the acquisition of property, assets or businesses,

 

            (iii) every reimbursement obligation of such Person with respect to

letters of credit, bankers' acceptances or similar facilities issued for the

account of such Person,

 

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            (iv) every obligation of such Person issued or assumed as the

deferred purchase price of property or services (including securities repurchase

agreements but excluding trade accounts payable or accrued liabilities arising

in the ordinary course of business which are not overdue or which are being

contested in good faith),

 

            (v) every obligation of such Person under any Capitalized Lease,

 

            (vi) every obligation of such Person under any lease (generally

referred to as being a "synthetic lease") treated as an operating lease under

Generally Accepted Accounting Principles and as a loan or financing for United

States income tax purposes and pursuant to which the lessee retains economic

risk with respect to the value of the residual interest in the leased property,

 

            (vii) all sales by such Person of (A) accounts or general

intangibles for money due or to become due, (B) chattel paper, instruments or

documents creating or evidencing a right to payment of money or (C) other

receivables (collectively "receivables"), whether pursuant to a purchase

facility or otherwise, other than in connection with the disposition of the

business operations of such Person relating thereto or a disposition of

defaulted receivables for collection and not as a financing arrangement, and

together with any obligation of such Person to pay any discount, interest, fees,

indemnities, penalties, recourse, expenses or other amounts in connection

therewith,

 

            (viii) every obligation of such Person (an "equity related purchase

obligation") to purchase, redeem, retire or otherwise acquire for value any

shares of capital stock of any class issued by such Person, any warrants,

options or other rights to acquire any such shares, or any rights measured by

the value of such shares, warrants, options or other rights,

 

             (ix) every obligation of such Person under any forward contract,

futures contract, swap, option or other financing agreement or arrangement

(including, without limitation, caps, floors, collars and similar agreements),

the value of which is dependent upon interest rates, currency exchange rates,

commodities or other indices,

 

            (x) every obligation in respect of Indebtedness of any other entity

(including any partnership in which such Person is a general partner) to the

extent that such Person is liable therefor as a result of such Person's

ownership interest in or other relationship with such entity, except to the

extent that the terms of such Indebtedness provide that such Person is not

liable therefor and such terms are enforceable under applicable law,

 

            (xi) every obligation, contingent or otherwise, of such Person

guaranteeing, or having the economic effect of guarantying or otherwise acting

as surety for, any obligation of a type described in any of clauses (i) through

(x) (the "primary obligation") of another Person (the "primary obligor"), in any

manner, whether directly or indirectly, and including, without limitation, any

obligation of such Person (A) to purchase or pay (or advance or supply funds for

the purchase of) any security for the payment of such primary obligation, (B) to

purchase property, securities or services for the purpose of assuring the

payment of such primary obligation, or (C) to maintain working capital, equity

capital or other financial statement

 

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condition or liquidity of the primary obligor so as to enable the primary

obligor to pay such primary obligation.

 

      The "amount" or "principal amount" of any Indebtedness at any time of

determination represented by (w) any Indebtedness, issued at a price that is

less than the principal amount at maturity thereof, shall be the amount of the

liability in respect thereof determined in accordance with Generally Accepted

Accounting Principles, (x) any Capitalized Lease shall be the principal

component of the aggregate of the rentals obligation under such Capitalized

Lease payable over the term thereof that is not subject to termination by the

lessee, (y) any sale of receivables shall be the amount of unrecovered capital

or principal investment of the purchaser (other than the Borrower or any of its

wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or

interest earned on such investment, and (z) any equity related purchase

obligation shall be the maximum fixed redemption or purchase price thereof

inclusive of any accrued and unpaid dividends to be comprised in such redemption

or purchase price.

 

      Intercreditor Agreement. That certain Intercreditor Agreement entered into

by and between the Collateral Agent, on behalf of the Lenders, and the Senior

Collateral Agent, on behalf of the Senior Lenders, dated October 3, 2005.

 

      Interest Payment Date. See Section 2.3(b).

 

      Interest Rate. See Section 2.3(a).

 

      Investments. All expenditures made and all liabilities incurred

(contingently or otherwise) for the acquisition of stock or Indebtedness of, or

for loans, advances, capital contributions or transfers of property to, or in

respect of any guaranties (or other commitments as described under

Indebtedness), or obligations of, any Person. In determining the aggregate

amount of Investments outstanding at any particular time: (i) the amount of any

Investment represented by a guaranty shall be taken at not less than the

principal amount of the obligations guaranteed and still outstanding; (ii) there

shall be included as an Investment all interest accrued with respect to

Indebtedness constituting an Investment unless and until such interest is paid;

(iii) there shall be deducted in respect of each such Investment any amount

received as a return of capital (but only by repurchase, redemption, retirement,

repayment, liquidating dividend or liquidating distribution); (iv) there shall

not be deducted in respect of any Investment any amounts received as earnings on

such Investment, whether as dividends, interest or otherwise, except that

accrued interest included as provided in the foregoing clause (ii) may be

deducted when paid; and (v) there shall not be deducted from the aggregate

amount of Investments any decrease in the value thereof.

 

      Landlord Waiver. Collectively, each waiver from the lessor or sublessor of

property leased by the Borrower as lessee, in substantially the form of Exhibit

D.

 

      Lenders. Each of the lending institutions party hereto and any other

Person who becomes an assignee of any rights and obligations of a Lender

pursuant to Section 19.

 

      Loan Account. See Section 5.2.1.

 

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      Loan Documents. This Credit Agreement, the Notes, the Security Documents

and all other documents related thereto.

 

      Loans. The Term Loan.

 

      Majority Lenders. As of any date, the Lenders (other than Delinquent

Lenders) whose aggregate Commitments together constitute fifty-one percent (51%)

of the Total Commitment.

 

      Mandatory Prepayments. Each of the Senior Facility Termination Prepayment,

Asset Disposition Prepayment, and New Issuance Prepayment, in each case pursuant

to Section 5.4.

 

      Maturity Date. December 30, 2005; provided that if the Securities Purchase

Agreement has not been terminated on or prior to such date and the SEC reviews

the Borrower's preliminary proxy statement with respect to the special or annual

meeting seeking approval from the Borrower's stockholders as contemplated by

Section 4(n) of the Securities Purchase Agreement, then the Maturity Date shall

be January 31, 2006.

 

      Monthly Inventory Report. A Monthly Inventory Report signed by the

Controller, Senior Vice President of Finance or principal financial or

accounting officer of the Borrower in substantially the form of Exhibit E

hereto.

 

      Multiemployer Plan. Any multiemployer plan within the meaning of Section

3(37) of ERISA maintained or contributed to by the Borrower or any ERISA

Affiliate.

 

      Net Proceeds. With respect to any sale or other disposition of any asset

by any Person or any issuance of Indebtedness or equity securities of such

Person, the excess of (i) the gross cash proceeds received by such Person from

such sale or disposition or, as the case may be, such issuance, plus, as and

when received, all cash payments received subsequent to such sale or disposition

or such issuance representing (A) any deferred purchase price therefor or (B)

any cash proceeds from the sale or other disposition of any cash equivalents (or

any deferred purchase price obligations) received therefor over (ii) the sum of

(A) a reasonable reserve for any liabilities payable incident to such sale or

disposition or such issuance, (B) reasonable direct costs and expenses incurred

by such Person in connection with such sale or disposition or such issuance

(including, without limitation, reasonable brokerage, legal, investment banking,

accounting, consulting, survey, title and recording fees and commissions), (C)

all payments actually made on any Indebtedness (other than the Obligations) or

other obligations which are secured by any assets subject to such sale or

disposition which are required to be repaid out of the proceeds from such

transaction and (D) actual tax payments made or to be made in connection

therewith.

 

      New Issuance Prepayment. See Section 5.4.4.

 

      Notes. The Term Loan Notes.

 

      Obligations. All indebtedness, obligations and liabilities of any of the

Borrower and its Subsidiaries to any of the Lenders and the Agents, individually

or collectively, existing on the date of this Credit Agreement or arising

thereafter, direct or indirect, joint or several, absolute or contingent,

matured or unmatured, liquidated or unliquidated, secured or unsecured, arising

by

 

                                     - 8 -

 

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contract, operation of law or otherwise, arising or incurred under this Credit

Agreement or any of the other Loan Documents or in respect of the Term Loans or

cash management services provided or any of the Notes or other instruments or

documents at any time evidencing any thereof.

 

      Outstanding. With respect to the Loans, the aggregate unpaid principal

thereof as of any date of determination.

 

      PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of

ERISA and any successor entity or entities having similar responsibilities.

 

      Perfection Certificate. The Perfection Certificate dated as of October 3,

2005 executed by Borrower in favor of Administrative Agent.

 

      Permitted Inventory Locations. The retail stores and distribution centers

of the Borrower and its Subsidiaries located in the United States of America and

listed on Schedule 2 hereto, as such Schedule 2 may be supplemented from time to

time in accordance with the provisions of Section 8.4(j).

 

      Permitted Liens. Liens, security interests and other encumbrances

permitted by Section 9.2.

 

      Person. Any individual, corporation, partnership, limited liability

company, trust, unincorporated association, business, or other legal entity, and

any government or any governmental agency or political subdivision thereof.

 

      Pledge Agreement. Each Pledge Agreement executed by the Borrower in favor

of the Collateral Agent, substantially in the form of Exhibit F, as each may be

amended, modified or restated from time to time.

 

      Precious Metal. Gold measured in troy ounces having a fineness of not less

than .9995, without regard to whether such gold is alloyed or unalloyed, in

bullion form or contained in or processed into other materials which contain

elements other than gold.

 

      Prentice. See preamble hereto.

 

      Real Estate. All real property at any time owned or leased (as lessee or

sublessee) by the Borrower or any of its Subsidiaries.

 

      Record. The grid attached to a Note, or the continuation of such grid, or

any other similar record, including computer records, maintained by any Lender

with respect to any Loan referred to in such Note.

 

      Register. See Section 19.3.

 

      Registration Rights Agreement. The Registration Rights Agreement pursuant

to which the Borrower will provide certain registration rights with respect to

the Warrant Shares, as defined under the Securities Purchase Agreement, and, if

issued, the Conversion Shares and the

 

                                     - 9 -

 

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Interest Shares, as defined under the Securities Purchase Agreement, under the

1933 Act and the rules and regulations promulgated thereunder, and applicable

state securities laws.

 

      Related Fund. With respect to any Lender or Agent which is a fund that

invests in loans, any other such fund managed by the same investment advisor as

such Lender or Agent or by an Affiliate of such Lender or Agent or such advisor.

 

      Required Lenders. As of any date, the Lenders (other than Delinquent

Lenders) whose aggregate Commitments together constitute at least sixty-six and

two-thirds percent (66-2/3%) of the Total Commitment.

 

      Secured Convertible Notes. The secured convertible notes to be issued by

the Borrower for an aggregate principal amount of $50,000,000 pursuant to the

Securities Purchase Agreement.

 

      Secured Convertible Note Documents. Collectively, the documents entered

into in connection with the issuance of the Secured Convertible Notes pursuant

to the Securities Purchase Agreement, including without limitation the

Securities Purchase Agreement.

 

      Securities Purchase Agreement. The Securities Purchase Agreement, dated as

of October 3, 2005, by and among the Borrower and the investors listed on the

Schedule of Buyers attached thereto.

 

      Security Agreement. The Security Agreement of even date herewith, between

the Borrower and the Collateral Agent, as may be amended, modified or restated

from time to time, together with each other Security Agreement executed by each

Guarantor in favor of the Collateral Agent substantially in the form of Exhibit

G.

 

      Security Documents. The Security Agreement, the Headquarters Landlord

Consent, the Landlord Waivers, the Security Interest Grant in Patents, the

Security Interest Grant in Trademarks, each Guaranty, each Pledge Agreement, and

all Blocked Account Agreements, as each may be amended, modified or restated

from time to time.

 

      Senior Administrative Agent. LaSalle Bank National Association, in its

capacity as Administrative Agent for the Senior Lenders under the Senior Credit

Agreement.

 

      Senior Agents. LaSalle Bank National Association (or any successor) in its

capacity as administrative agent and collateral agent under the Senior Credit

Agreement, ABN Amro Bank N.V. in its capacity as syndication agent under the

Senior Credit Agreement and JPMorgan Chase Bank in its capacity as documentation

agent under the Senior Credit Agreement.

 

      Senior Collateral Agent. LaSalle Bank National Association, in its

capacity as Collateral Agent for the Senior Lenders under the Senior Credit

Agreement.

 

      Senior Credit Agreement. The Second Amended and Restated Revolving Credit

and Gold Consignment Agreement, dated as of July 29, 2003, among the Borrower,

LaSalle Bank National Association, as administrative agent for the banks from

time to time party thereto, LaSalle Bank National Association, as Collateral

Agent for the Senior Lenders and the other

 

                                      - 10 -

 

<PAGE>

 

agents and parties from time to time party thereto, as the same may be amended,

amended and restated, supplemented, refinanced or otherwise modified and in

effect from time to time.

 

      Senior Lenders. The financial institutions from time to time party to the

Senior Credit Agreement.

 

      Senior Loan Documents. In each case as the following terms are defined

under the Senior Credit Agreement: the Credit Agreement, the Notes, the Letter

of Credit Applications, the Letters of Credit, the Fee Letter and the Security

Documents.

 

      Specified Lease. A lease by the Borrower as lessee of Real Estate at which

Inventory is held and as to which at any time either (a) the Borrower and the

Agents have not received a Landlord Waiver or (b) the Administrative Agent has

not received evidence, in form and substance satisfactory to the Administrative

Agent, that, based upon then existing law (as determined by the Administrative

Agent in the exercise of its reasonable discretion and on the advice of

counsel), the landlord of such property would not have a lien on inventory

superior to the security interest granted under the Security Agreement, securing

rent obligations more than thirty (30) days past due or securing future rent

obligations accruing after the Closing Date.

 

      Store Accounts. Depository accounts in depository institutions for, or on

behalf of, the Borrower or any of its Subsidiaries and listed on Schedule 7.20

hereto (as such may be amended from time to time in accordance with the terms

hereof).

 

      Subsidiary. Any corporation, association, trust, or other business entity

of which the designated parent shall at any time own directly or indirectly

through a Subsidiary or Subsidiaries at least a majority (by number of votes) of

the outstanding Voting Stock.

 

      Supplier or Suppliers. Individually and collectively, one or more

suppliers of inventory to the Borrower and its Subsidiaries.

 

      Term Loan Note Record. A Record with respect to a Term Loan Note.

 

      Term Loan Notes. See Section 2.2.

 

      Term Loan. The term loan made by the Lenders to the Borrower pursuant to

Section 2.

 

      Termination Date. The earliest to occur of the (i) Maturity Date, or (ii)

the date on which the maturity of the Term Loan is accelerated in accordance

with Section 13.1 or (iii) the date of the occurrence of an Event of Default

pursuant to Sections 13.1(g) and (h).

 

      Total Commitment. The sum of the Commitments of the Lenders, such amount

being equal to $30,000,000 as of the Closing Date.

 

      Trade Vendor Extension Agreement. Collectively, that certain Trade Vendor

Extension Agreement to be entered into by and between the Borrower, Prentice

Capital Management LP or one of its Affiliates, and certain Suppliers, as

contemplated by the Trade Vendor Term Sheet, the Trade Vendor Term Sheet and any

notes or other documents and agreements entered into in connection therewith.

 

                                     - 11 -

 

<PAGE>

 

      Trade Vendor Intercreditor Agreement. That certain Intercreditor Agreement

to be entered into by and between the Collateral Agent, on behalf of the

Lenders, and the Collateral Trustee, on behalf of the Suppliers, in form and

substance acceptable to the Agents, in their sole discretion.

 

      Trade Vendor Term Sheet. That certain binding term sheet entitled Terms

for Treatment of Trade Indebtedness of Whitehall Jewellers, Inc., entered into

by and among the Borrower, Prentice Capital Management LP and certain Suppliers

in September 2005.

 

      Unanimous Lenders. As of any date, the Lenders (other than Delinquent

Lenders) whose aggregate Commitments together constitute One hundred percent

(100%) of the Total Commitment.

 

      Voting Stock. Stock or similar interests, of any class or classes (however

designated), the holders of which are at the time entitled, as such holders, to

vote for the election of a majority of the directors (or persons performing

similar functions) of the corporation, association, trust or other business

entity involved, whether or not the right so to vote exists by reason of the

happening of a contingency.

 

      Warrants. The Series A Warrants to be issued to the "Buyers," as defined

under the Securities Purchase Agreement, pursuant to the terms of the Securities

Purchase Agreement.

 

      1.2 Rules of Interpretation.

 

            (a) A reference to any document or agreement shall include such

document or agreement as amended, modified or supplemented from time to time in

accordance with its terms and the terms of this Credit Agreement.

 

            (b) The singular includes the plural and the plural includes the

singular.

 

            (c) A reference to any law includes any amendment or modification to

such law.

 

            (d) A reference to any Person includes its permitted successors and

permitted assigns.

 

            (e) Accounting terms not otherwise defined herein have the meanings

assigned to them by Generally Accepted Accounting Principles applied on a

consistent basis by the accounting entity to which they refer.

 

             (f) The words "include", "includes" and "including" are not

limiting.

 

            (g) All terms not specifically defined herein or by Generally

Accepted Accounting Principles, which terms are defined in the Uniform

Commercial Code as in effect in the State of New York, as in effect from time to

time, have the meanings assigned to them therein.

 

                                     - 12 -

 

<PAGE>

 

            (h) Reference to a particular "Section" refers to that section of

this Credit Agreement unless otherwise indicated.

 

            (i) The words "herein", "hereof", "hereunder" and words of like

import shall refer to this Credit Agreement as a whole and not to any particular

section or subdivision of this Credit Agreement.

 

2. TERM CREDIT LOANS.

 

       2.1 Term Loan.

 

            (a) Each Lender severally and not jointly with any other Lender,

agrees, upon the terms and subject to the conditions herein set forth, on the

Closing Date to make the Term Loan to the Borrower in a single drawing in an

aggregate principal amount not to exceed the amount of such Lender's Commitment;

provided that the aggregate principal amount of the Term Loan shall not exceed

$30,000,000. Any portion of the Term Loan that is repaid may not be reborrowed.

 

            (b) The Term Loan shall be made by the Lenders simultaneously and in

accordance with their respective Commitments. The failure of any Lender to make

its portion of the Term Loan shall neither relieve any other Lender of its

obligation to fund its portion of the Term Loan in accordance with the

provisions of this Agreement nor increase the obligation of any such other

Lender.

 

            (c) The Administrative Agent, without the request of the Borrower,

may advance any interest, fee, service charge, or other payment to which any

Agent or their Affiliates or any Lender is entitled from the Borrower pursuant

hereto or any other Loan Document and may charge the same to the Loan Account.

The Administrative Agent shall advise the Borrower of any such advance or charge

promptly after the making thereof. Any amount which is added to the principal

balance of the Loan Account as provided in this Section 2.1(c) shall bear

interest at the Interest Rate and shall be payable on the Maturity Date.

 

      2.2 Notes; Repayment of Term Loan.

 

            (a) The Term Loan shall be evidenced by this Agreement and/or one or

more Notes duly executed on behalf of the Borrower, dated the Closing Date, in

substantially the form attached hereto as Exhibit H, payable to the order of a

Lender in the aggregate principal amount equal to the principal amount of the

portion of the Term Loan advanced by such Lender plus the amount of interest

capitalized thereon in accordance with the terms of this Agreement. The

outstanding principal balance of all Obligations shall be payable on the

Termination Date (subject to earlier repayment as provided below). The Term Loan

(including, without limitation, any interest capitalized thereon and added to

the outstanding principal balance of the Term Loan in accordance with the terms

hereof) shall bear interest from the date hereof on the outstanding principal

balance thereof as set forth in this Section 2. Each Lender is hereby authorized

by the Borrower to endorse on a schedule attached to each Note delivered to such

Lender (or on a continuation of such schedule attached to such Note and made a

part thereof), or otherwise to record in such Lender's internal records, an

appropriate notation evidencing the date and amount of the Term Loan from such

Lender, each payment and prepayment of principal of such Term

 

                                     - 13 -

 

<PAGE>

 

Loan, each payment of interest on the Term Loan and the other information

provided for on such schedule; provided, however, that the failure of any Lender

to make such a notation or any error therein shall not affect the obligation of

the Borrower to repay the Term Loan made by such Lender in accordance with the

terms of this Agreement and the applicable Notes.

 

            (b) Upon receipt of indemnification reasonably satisfactory to the

Borrower, and an affidavit of a Lender as to the loss, theft, destruction or

mutilation of such Lender's Note and upon cancellation of such Note, the

Borrower will issue, in lieu thereof, a replacement Note in favor of such

Lender, in the same principal amount thereof and otherwise of like tenor.

 

      2.3 Interest on Term Loan.

 

            (a) The Term Loan shall bear interest (computed on the basis of the

actual number of days elapsed over a year of 360 days) on the principal amount

thereof from time to time outstanding, from the date of the making of such Term

Loan until such principal amount is repaid in full, at a rate per annum equal to

18% (the "Interest Rate").

 

            (b) Accrued interest on the Term Loan shall be payable monthly in

arrears, on the first Business Day of each month (each an "Interest Payment

Date"), commencing on November 1, 2005, at maturity (whether by acceleration or

otherwise), and after such maturity on demand.

 

            (c) The Borrower shall repay the entire unpaid balance of the Term

Loan (including, without limitation, all capitalized interest thereon) and all

accrued and unpaid interest thereon on the Termination Date. If the Term Loan

shall be repaid from sources other than the proposed Secured Convertible Notes,

concurrently with such repayment, the Borrower shall pay the Exit Fee to the

Administrative Agent for the benefit of the Lenders.

 

      2.4 Termination of Commitments.

 

            The Total Commitment shall terminate at 5:00 p.m. (New York City

time) on the Closing Date.

 

      2.5 Maturity. The Borrower promises to pay on the Maturity Date, and there

shall become absolutely due and payable on the Maturity Date, (a) all of the

Term Loans outstanding on such date, together with any and all accrued and

unpaid interest thereon and (b) the Exit Fee, to the extent (x) the Term Loans

are not paid at maturity for any reason other than the occurrence of an Event of

Default under Sections 13.1(g) and (h) hereof or (y) any repayment is funded

from sources other than the proposed Secured Convertible Notes.

 

      2.6 Optional Repayments of Term Loans. The Borrower shall have the right,

at its election, to repay the outstanding Term Loans in accordance with the

provisions of Section 5.3 hereof.

 

                                     - 14 -

 

<PAGE>

 

3. INTENTIONALLY OMITTED.

 

4. INTENTIONALLY OMITTED.

 

5. CERTAIN GENERAL PROVISIONS.

 

      5.1 Default Interest. Effective upon the occurrence of any Event of

Default and at all times thereafter while such Event of Default is continuing,

at the option of the Administrative Agent or upon the direction of the Required

Lenders, interest shall accrue on the outstanding Term Loan (after as well as

before judgment, as and to the extent permitted by law) at a rate per annum

equal to the rate in effect from time to time plus 3% per annum, and such

interest shall be payable on demand.

 

      5.2 Maintenance of Loan Account; Statement of Account.

 

            5.2.1 The Administrative Agent shall maintain an account on its

books in the name of the Borrower (the "Loan Account") which will reflect the

Term Loan and any and all other Obligations that have become payable.

 

            5.2.2 The Loan Account will be credited with all amounts received by

the Administrative Agent from the Borrower or otherwise for the Borrowers'

account, and the amounts so credited shall be applied as set forth in Section

2.2(a). After the end of each month, the Administrative Agent shall send to the

Lead Borrower a statement accounting for the charges, loans, advances and other

transactions occurring among and between the Administrative Agent, the Lenders

and the Borrowers during that month. The monthly statements shall, absent

manifest error, be final, conclusive and binding on the Borrower.

 

      5.3 Optional Prepayment of Term Loan. The Borrower may upon at least five

(5) Business Days' prior written notice to the Administrative Agent, prepay,

without penalty or premium, all or any portion of the principal balance of the

Term Loan. Notwithstanding the preceding, if such prepayment is funded directly

or indirectly from sources other than the proposed Secured Convertible Notes,

the Borrower shall concurrently pay the Exit Fee to the Administration Agent for

the benefit of the Lenders. Each prepayment made pursuant to this Section 5.3

shall be accompanied by the payment of accrued interest to the date of such

payment on the amount prepaid.

 

      5.4 Mandatory Prepayments of Loans.

 

            5.4.1 Termination of Senior Loan Agreement. The Borrower shall

immediately prepay all Obligations (a "Senior Facility Termination Prepayment")

in the event that the Senior Credit Agreement is terminated for any reason and

either (i) the Senior Credit Agreement is not replaced with another credit

agreement and related transaction documentation, the terms and conditions of

which are no less favorable to the Borrower, the Agents and the Lenders than the

Senior Credit Agreement, including with respect to any intercreditor

arrangements (as determined by the Agents in their discretion) or (ii) the

lenders and agents party to such new credit agreement are not reasonably

acceptable to the Agents and the Required Lenders.

 

                                     - 15 -

 

<PAGE>

 

            5.4.2 Secured Convertible Notes. The Borrower shall immediately

prepay to the Administrative Agent, for the accounts of the Lenders, the

proceeds from the Secured Convertible Notes, in an amount equal to one hundred

percent (100%) of the Net Proceeds received by the Borrower in connection

therewith.

 

            5.4.3 Asset Disposition Prepayment. Subject to the terms of the

Intercreditor Agreement, the Borrower shall pay to the Administrative Agent, for

the accounts of the Lenders (each, an "Asset Disposition Prepayment"),

immediately upon the receipt by the Borrower of the proceeds of any asset

dispositions, an amount equal to one hundred percent (100%) of the Net Proceeds

received by the Borrower in connection with such asset disposition.

 

            5.4.4 New Issuance Prepayment. Subject to the terms of the

Intercreditor Agreement, the Borrower shall pay to the Agent, for the accounts

of the Lenders (each, a "New Issuance Prepayment"), immediately after the

completion by the Borrower of any issuance of (i) Indebtedness permitted

pursuant to Section 9.1(i) hereof or (ii) except as contemplated and/or required

by the Secured Convertible Note Documents, equity securities of the Borrower or

any of its Subsidiaries, including, without limitation, any issuance of

warrants, options or subscription rights (other than issuances of common stock

to employees of the Borrower), permitted pursuant to Section 9.13 hereof, an

amount equal to one hundred percent 100% of the Net Proceeds received by the

Borrower in connection with any such issuance.

 

            5.4.5 Applications of Mandatory Prepayments. Each Mandatory

Prepayments received by the Administrative Agent shall be applied to the

Obligations as follows:

 

                  (A) first, to pay all fees and expenses then due and payable

       under this Credit Agreement;

 

                  (B) second, to pay all accrued and unpaid interest on the Term

      Loans until paid in full;

 

                  (C) third, to prepay the Term Loans until paid in full, and

 

                  (D) fourth, to repay all other Obligations due and owing to

      the Agents and the Lenders;

 

      5.5 Repayments of Loans and Distribution of Collateral Proceeds After

Event of Default. In the event that following the occurrence and during the

continuance of an Event of Default, the Collateral Agent, any other Agent or any

Lender, as the case may be, receives any monies, whether pursuant to Section

8.14 (as applicable) or Section 13.3 or otherwise with respect to the

realization upon any of the Collateral, such monies shall be distributed for

application as follows (the Borrower hereby authorizing and consenting to such

application):

 

            (a) First, to the payment of, or (as the case may be) the

reimbursement of the Agents for or in respect of all reasonable costs, expenses,

disbursements and losses which shall have been incurred or sustained by the

Agents in connection with the collection of such monies by the Agents, for the

exercise, protection or enforcement by the Collateral Agent of all or any of the

rights, remedies, powers and privileges of the Collateral Agent, for the benefit

of the Agents and the Lenders, under this Credit Agreement or any of the other

Loan Documents or in respect

 

                                     - 16 -

 

<PAGE>

 

of the Collateral, including, without limitation, the fees and expenses of

counsel to the Agents or in support of any provision of adequate indemnity to

the Agents against any taxes or liens which by law shall have, or may have,

priority over the rights of the Agents to such monies;

 

            (b) Second, to pay all accrued and unpaid interest on the Term Loans

until paid in full;

 

            (c) Third, to repay the Term Loans until paid in full;

 

            (d) Fourth, to pay the Exit Fee, if any, until paid in full;

 

            (e) Fifth, to repay all other Obligations due and owing to the

Agents and the Lenders under the Loan Documents until paid in full;

 

            (f) Sixth, the excess, if any, shall be returned to the Borrower or

to such other Persons as are entitled thereto.

 

      All distributions in respect of (i) such Obligations shall be made pari

passu among Obligations with respect to the Agents' fees payable pursuant to

Section 5.6, and all other Obligations and (ii) Obligations owing to the Lenders

with respect to each type of Obligation under each of the categories specified

above such as interest, principal, fees and expenses, shall be made among the

Lenders entitled thereto pro rata, in accordance with their respective

Commitment Percentages; and provided, further, that the Agents may in their

discretion make proper allowance to take into account any Obligations not then

due and payable.

 

      5.6 Closing Fee. The Borrower shall pay to the Administrative Agent, for

the benefit of the Lenders, an upfront fee in the amount of the product of two

percent (2.00%) times the Total Commitment.

 

      5.7 Funds for Payments.

 

            5.7.1 Payments to Administrative Agent. All payments of principal,

interest, closing fees and any other amounts due hereunder or under any of the

other Loan Documents shall be made to the Administrative Agent, for the

respective accounts of the Lenders and the Administrative Agent, at the

Administrative Agent's Head Office or at such other location that the

Administrative Agent may from time to time designate, in each case in

immediately available funds in Dollars.

 

            5.7.2 No Offset, etc. All payments by the Borrower hereunder and

under any of the other Loan Documents shall be made without setoff or

counterclaim and free and clear of and without deduction for any taxes, levies,

imposts, duties, charges, fees, deductions, withholdings, compulsory loans,

restrictions or conditions of any nature now or hereafter imposed or levied by

any jurisdiction or any political subdivision thereof or taxing or other

authority therein unless the Borrower is compelled by law to make such deduction

or withholding. If any such obligation is imposed upon the Borrower with respect

to any amount payable by it hereunder or under any of the other Loan Documents,

the Borrower will pay to the Administrative Agent, for the account of the

Lenders or (as the case may be) the Agents, on the date on which such amount is

due and payable hereunder or under such other Loan Document,

 

                                      - 17 -

 

<PAGE>

 

such additional amount in Dollars as shall be necessary to enable the Lenders or

the Agents to receive the same net amount which the Lenders or the Agents would

have received on such due date had no such obligation been imposed upon the

Borrower. The Borrower will deliver promptly to the Agents certificates or other

valid vouchers for all taxes or other charges deducted from or paid with respect

to payments made by the Borrower hereunder or under such other Loan Document.

 

      5.8 Computations. All computations of interest on the Loans and of

commitment fees or other fees shall, unless otherwise expressly provided herein,

be based on 360-day year and paid for the actual number of days elapsed.

Whenever a payment hereunder or under any of the other Loan Documents becomes

due on a day that is not a Business Day, the due date for such payment shall be

extended to the next succeeding Business Day, and interest shall accrue during

such extension. The outstanding amount of the Loans as reflected on the Term

Loan Note Records and the other records maintained by the Agents and each Lender

from time to time shall be considered correct and binding on the Borrower unless

within five (5) Business Days after receipt of any notice by any of the Agents

or the Lenders of such outstanding amount, such Agent or such Lender shall

notify the Borrower to the contrary.

 

      5.9 Additional Costs, etc. If any present or future applicable law, which

expression, as used herein, includes statutes, rules and regulations thereunder

and interpretations thereof by any competent court or by any governmental or

other regulatory body or official charged with the administration or the

interpretation thereof and requests, directives, instructions and notices at any

time or from time to time hereafter made upon or otherwise issued to any Lender

or Agent by any central bank or other fiscal, monetary or other authority

(whether or not having the force of law), shall:

 

            (a) subject any Lender or Agent to any tax, levy, impost, duty,

charge, fee, deduction or withholding of any nature with respect to this Credit

Agreement, the other Loan Documents, such Lender's Commitment or the Loans

(other than taxes based upon or measured by the income or profits of such Lender

or Agent), or

 

            (b) materially change the basis of taxation (except for changes in

taxes on income or profits) of payments to any Lender of the principal of or the

interest on any Loans or any other amounts payable to any Lender or Agent under

this Credit Agreement or any of the other Loan Documents, or

 

            (c) impose or increase or render applicable (other than to the

extent specifically provided for elsewhere in this Credit Agreement) any special

deposit, reserve, assessment, liquidity, capital adequacy or other similar

requirements (whether or not having the force of law) against assets held by, or

deposits in or for the account of, or loans by, or commitments of an office of

any Lender, or

 

                                      - 18 -

 

<PAGE>

 

            (d) impose on any Lender or Agent any other conditions or

requirements with respect to this Credit Agreement, the other Loan Documents,

such Lender's Commitment, or any class of loans, or commitments of which any of

the Loans or such Lender's Commitment forms a part, and the result of any of the

foregoing is

 

                  (i) to increase the cost to any Lender of making, funding,

      issuing, renewing, extending or maintaining any of the Loans, or such

      Lender's Commitment, or

 

                  (ii) to reduce the amount of principal, interest, or other

      amount payable to such Lender or Agent hereunder on account of such

      Lender's Commitment, or any of the Loans, or

 

                  (iii) to require such Lender or Agent to make any payment or

      to forego any interest or other sum payable hereunder, the amount of which

      payment or foregone interest or other sum is calculated by reference to

      the gross amount of any sum receivable or deemed received by such Lender

      or Agent from the Borrower hereunder,

 

then, and in each such case, the Borrower will, upon demand made by such Lender

or (as the case may be) such Agent at any time and from time to time and as

often as the occasion therefor may arise, pay to such Lender or such Agent such

additional amounts as will be sufficient to compensate such Lender or such Agent

for such additional cost, reduction, payment or foregone interest or other sum.

 

      5.10 Capital Adequacy. If after the date hereof any Lender or the

Administrative Agent determines that (a) the adoption of or change in any law,

governmental rule, regulation, policy, guideline or directive (whether or not

having the force of law) regarding capital requirements for banks or bank

holding companies or any change in the interpretation or application thereof by

a court or governmental authority with appropriate jurisdiction, or (b)

compliance by such Lender or such Agent or any corporation controlling such

Lender or such Agent with any law, governmental rule, regulation, policy,

guideline or directive (whether or not having the force of law) of any such

entity regarding capital adequacy, has the effect of reducing the return on such

Lender's or such Agent's commitment with respect to any Loans to a level below

that which such Lender or such Agent could have achieved but for such adoption,

change or compliance (taking into consideration such Lender's or such Agent's

then existing policies with respect to capital adequacy and assuming full

utilization of such entity's capital) by any amount deemed by such Lender or (as

the case may be) such Agent to be material, then such Lender or such Agent may

notify the Borrower of such fact. To the extent that the amount of such

reduction in the return on capital is not reflected in the Interest Rate, as

applicable, the Borrower agrees to pay such Lender or (as the case may be) such

Agent for the amount of such reduction in the return on capital as and when such

reduction is determined upon presentation by such Lender or (as the case may be)

such Agent of a certificate in accordance with Section 5.11 hereof. Each Lender

shall allocate such cost increases among its customers in good faith and on an

equitable basis.

 

      5.11 Certificate. A certificate setting forth any additional amounts

payable pursuant to Sections 5.9 or 5.10 and a brief explanation of such amounts

which are due, submitted by any

 

                                     - 19 -

 

<PAGE>

 

Lender or Agent to the Borrower, shall be conclusive, absent manifest error,

that such amounts are due and owing.

 

      5.12 Indemnity. The Borrower agrees to indemnify each Lender and to hold

each Lender harmless from and against any loss, cost or expense (including loss

of anticipated profits) that such Lender may sustain or incur as a consequence

of default by the Borrower in payment of the principal amount of or any interest

on Loans as and when due and payable.

 

      5.13 Registration Rights. The Borrower will file to register the resale of

common stock issuable upon exercise of the Warrants referred to in Section 11.18

hereof on a registration statement on Form S-1 as soon as practicable but in no

event later than the Filing Deadline (as defined in the Registration Rights

Agreement) and be required to have the registration statement declared effective

by the Effectiveness Deadline (as defined in the Registration Rights Agreement),

subject to penalties for failure to file, have declared effective or maintain

effectiveness of the registration statement.

 

6. COLLATERAL SECURITY.

 

      The Obligations shall be secured by a perfected security interest (subject

only to liens in favor of the Senior Collateral Agent, for the benefit of the

Senior Lenders and the Senior Agents and Permitted Liens entitled to priority

under applicable law) in all of the assets of the Borrower, whether now owned or

hereafter acquired, pursuant to the terms of the Security Documents to which the

Borrower is a party.

 

7. REPRESENTATIONS AND WARRANTIES.

 

      The Borrower represents and warrants to the Lenders and the Agents as

follows:

 

      7.1 Corporate Authority.

 

            7.1.1 Incorporation; Good Standing. Each of the Borrower and its

Subsidiaries (i) is a corporation duly organized, validly existing and in good

standing under the laws of its state of incorporation, (ii) has all requisite

corporate power to own its property and conduct its business as now conducted

and as presently contemplated, and (iii) is in good standing as a foreign

corporation and is duly authorized to do business in each jurisdiction where

such qualification is necessary except where a failure to be so qualified would

not have a materially adverse effect on the business, assets or financial

condition of the Borrower or such Subsidiary.

 

            7.1.2 Authorization. The execution, delivery and performance of this

Credit Agreement and the other Loan Documents to which the Borrower or any of

its Subsidiaries is or is to become a party and the transactions contemplated

hereby and thereby (i) are within the corporate authority of such Person, (ii)

have been duly authorized by all necessary corporate proceedings, (iii) do not

conflict with or result in any breach or contravention of any provision of law,

statute, rule or regulation to which the Borrower or any of its Subsidiaries is

subject or any judgment, order, writ, injunction, license or permit applicable

to the Borrower or any of its Subsidiaries and (iv) do not conflict with any

provision of the corporate charter or bylaws of, or any agreement or other

instrument binding upon, the Borrower or any of its Subsidiaries.

 

                                     - 20 -

 

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            7.1.3 Enforceability. The execution and delivery of this Credit

Agreement and the other Loan Documents to which the Borrower or any of its

Subsidiaries is or is to become a party will result in valid and legally binding

obligations of such Person enforceable against it in accordance with the

respective terms and provisions hereof and thereof, except as enforceability is

limited by bankruptcy, insolvency, reorganization, moratorium or other laws

relating to or affecting generally the enforcement of creditors' rights and

except to the extent that availability of the remedy of specific performance or

injunctive relief is subject to the discretion of the court before which any

proceeding therefor may be brought.

 

      7.2 Governmental Approvals. The execution, delivery and performance by the

Borrower and any of its Subsidiaries of this Credit Agreement and the other Loan

Documents to which the Borrower or any of its Subsidiaries is or is to become a

party and the transactions contemplated hereby and thereby do not require the

approval or consent of, or filing with, any governmental agency or authority

other than those already obtained.

 

      7.3 Title to Properties; Leases. Except as indicated on Schedule 7.3

hereto, the Borrower and its Subsidiaries own all of the assets reflected in the

consolidated balance sheet of the Borrower and its Subsidiaries as at the

Balance Sheet Date or acquired since that date (except property and assets sold

or otherwise disposed of in the ordinary course of business since that date),

subject to no rights of others, including any mortgages, leases, conditional

sales agreements, title retention agreements, liens or other encumbrances except

Permitted Liens.

 

      7.4 Financial Statements and Projections.

 

            7.4.1 Financial Statements. There has been furnished to each of the

Lenders a consolidated balance sheet of the Borrower and its Subsidiaries as at

December 31, 2004, and a consolidated statement of income of the Borrower and

its Subsidiaries for the fiscal year then ended, certified by

PricewaterhouseCoopers LLP. Such balance sheets and statement of income have

been prepared in accordance with Generally Accepted Accounting Principles and

fairly present the financial condition of the Borrower as at the close of

business on the date thereof and the results of operations for the fiscal year

then ended. There are no contingent liabilities of the Borrower or any of its

Subsidiaries as of such date involving material amounts, known to the officers

of the Borrower, which were not disclosed in such balance sheets and the notes

related thereto.

 

            7.4.2 Projections. The projections of the operating budgets of the

Borrower and its Subsidiaries on a consolidated basis, balance sheets and cash

flow statements presented to the Agents as the Borrower's "Business Plan",

copies of which have been delivered to the Agents, are based on a variety of

assumptions with respect to general economic, financial and market conditions

used in formulating such projections which are believed by the Borrower to be

reasonable as of the date of the "Business Plan" but that are inherently subject

to significant economic and competitive uncertainties, all of which are

difficult to predict and many of which are beyond the control of the Borrower.

To the knowledge of the Borrower or any of its Subsidiaries, as of the Closing

Date no facts exist that (individually or in the aggregate) would result in any

material change in any of such projections. The "Business Plan" has been

prepared on the basis of the assumptions stated therein and reflect the current

estimates of the Borrower and its Subsidiaries of the results of operations and

other information projected therein.

 

                                     - 21 -

 

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      7.5 No Material Changes, etc.; Solvency.

 

            7.5.1 No Material Changes, etc. Since the Balance Sheet Date, there

has occurred no materially adverse change in the financial condition or business

of the Borrower and its Subsidiaries as shown on or reflected in the

consolidated balance sheet of the Borrower and its Subsidiaries as at the

Balance Sheet Date, or the consolidated statement of income for the fiscal year

then ended, other than changes in the ordinary course of business that have not

had any materially adverse effect either individually or in the aggregate on the

business or financial condition of the Borrower or any of its Subsidiaries.

Except as expressly permitted by Section 9.4, since the Balance Sheet Date, the

Borrower has not made any Distribution.

 

            7.5.2 Solvency. After the closing on, and consummation of the

transactions contemplated by the Secured Convertible Note Documents and

otherwise giving effect to the transactions contemplated by this Agreement, the

other Loan Documents and the Senior Credit Agreement, as amended by the Fourth

Amendment to the Senior Credit Agreement, the Borrower and its Subsidiaries on a

consolidated basis are Solvent. As used herein, "Solvent" shall mean that the

Borrower and its Subsidiaries (i) have assets having a fair value in excess of

their liabilities, (ii) have assets having a fair value in excess of the amount

required to pay their liabilities on existing debts as such debts become

absolute and matured, and (iii) have, and expect to continue to have, access to

adequate capital for the conduct of their business and the ability to pay their

debts from time to time incurred in connection with the operation of their

business as such debts mature.

 

      7.6 Franchises, Patents, Copyrights, etc. Each of the Borrower and its

Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade

names, licenses and permits, and rights in respect of the foregoing, adequate

for the conduct of its business substantially as now conducted without known

conflict with any rights of others.

 

      7.7 Litigation. Except as set forth in Schedule 7.7 hereto, there are no

actions, suits, proceedings or investigations of any kind pending or threatened

against the Borrower or any of its Subsidiaries before any court, tribunal or

administrative agency or board that, if adversely determined, might, either in

any case or in the aggregate, reasonably be expected to materially adversely

affect the properties, assets, financial condition or business of the Borrower

and its Subsidiaries or materially impair the right of the Borrower and its

Subsidiaries, considered as a whole, to carry on business substantially as now

conducted by them, or result in any substantial liability not adequately covered

by insurance, or for which adequate reserves are not maintained on the

consolidated balance sheet of the Borrower and its Subsidiaries, or which

question the validity of this Credit Agreement or any of the other Loan

Documents, or might impair or prevent any action taken or to be taken pursuant

hereto or thereto.

 

      7.8 No Materially Adverse Contracts, etc. Neither the Borrower nor any of

its Subsidiaries is subject to any charter, corporate or other legal

restriction, or any judgment, decree, order, rule or regulation that has or is

expected in the future to have a materially adverse effect on the business,

assets or financial condition of the Borrower or any of its Subsidiaries.

Neither the Borrower nor any of its Subsidiaries is a party to any contract or

agreement that has or is expected, in the judgment of the Borrower's officers,

to have any materially adverse effect on the business of the Borrower or any of

its Subsidiaries.

 

                                     - 22 -

 

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      7.9 Compliance with Other Instruments, Laws, etc. Neither the Borrower nor

any of its Subsidiaries is in violation of any provision of its charter

documents, bylaws, or any agreement or instrument to which it may be subject or

by which it or any of its properties may be bound or any decree, order,

judgment, statute, license, rule or regulation, in any of the foregoing cases in

a manner that could reasonably be expected to result in the imposition of

substantial penalties or materially and adversely affect the financial

condition, properties or business of the Borrower or any of its Subsidiaries.

 

      7.10 Tax Status. The Borrower and its Subsidiaries (a) have made or filed

all federal and state income and sales and all other material tax returns,

reports and declarations required by any jurisdiction to which any of them is

subject, (b) have paid all taxes and other governmental assessments and charges

shown or determined to be due on such returns, reports and declarations, except

those being contested in good faith and by appropriate proceedings and (c) have

set aside on their books provisions reasonably adequate for the payment of all

taxes for periods subsequent to the periods to which such returns, reports or

declarations apply. There are no unpaid taxes in any material amount claimed to

be due by the taxing authority of any jurisdiction, and the officers of the

Borrower know of no basis for any such claim.

 

      7.11 No Event of Default. No Default or Event of Default has occurred and

is continuing.

 

      7.12 Holding Company and Investment Company Acts. Neither the Borrower nor

any of its Subsidiaries is a "holding company", or a "subsidiary company" of a

"holding company", or an affiliate" of a "holding company", as such terms are

defined in the Public Utility Holding Company Act of 1935; nor is it an

"investment company", or an "affiliated company" or a "principal underwriter" of

an "investment company", as such terms are defined in the Investment Company Act

of 1940.

 

      7.13 Absence of Financing Statements, etc. Except with respect to

Permitted Liens, there is no financing statement, security agreement, chattel

mortgage, real estate mortgage or other document filed or recorded with any

filing records, registry or other public office, that purports to cover, affect

or give notice of any present or possible future lien on, or security interest

in, any assets or property of the Borrower or any of its Subsidiaries or any

rights relating thereto.

 

      7.14 Perfection of Security Interest. All filings, assignments, pledges

and deposits of documents or instruments have been made and all other actions

have been taken that are necessary or advisable, under applicable law, to

establish and perfect the Collateral Agent's security interest in the

Collateral. The Collateral and the Collateral Agent's rights with respect to the

Collateral are not subject to any setoff, claims, withholdings or other

defenses. The Borrower is the owner of the Collateral free from any lien,

security interest, encumbrance and any other claim or demand, except for

Permitted Liens.

 

      7.15 Certain Transactions. Except as set forth on Schedule 7.15 hereto and

except for arm's length transactions pursuant to which the Borrower or any of

its Subsidiaries makes payments in the ordinary course of business upon terms no

less favorable than the Borrower or such Subsidiary could obtain from third

parties, none of the officers, directors, or employees of

 

                                      - 23 -

 

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the Borrower or any of its Subsidiaries is presently a party to any transaction

with the Borrower or any of its Subsidiaries (other than for services as

employees, officers and directors), including any contract, agreement or other

arrangement providing for the furnishing of services to or by, providing for

rental of real or personal property to or from, or otherwise requiring payments

to or from any officer, director or such employee or, to the knowledge of the

Borrower, any corporation, partnership, trust or other entity in which any

officer, director, or any such employee has a substantial interest or is an

officer, director, trustee or partner.

 

      7.16 Employee Benefit Plans.

 

            7.16.1 In General. Each Employee Benefit Plan has been maintained

and operated in compliance in all material respects with the provisions of ERISA

and, to the extent applicable, the Code, including but not limited to the

provisions thereunder respecting prohibited transactions. The Borrower has

heretofore delivered to the Agents the most recently completed annual report,

Form 5500, with all required attachments, and actuarial statement required to be

submitted under Section 103(d) of ERISA, with respect to each Guaranteed Pension

Plan.

 

            7.16.2 Terminability of Welfare Plans. Under each Employee Benefit

Plan which is an employee welfare benefit plan within the meaning of Section

3(1) or Section 3(2)(B) of ERISA, no benefits are payable to employees (or their

dependents) after termination of employment (except as required by Title I, Part

6 of ERISA). The Borrower or an ERISA Affiliate, as appropriate, may terminate

each such Plan at any time (or at any time subsequent to the expiration of any

applicable bargaining agreement) in the discretion of the Borrower or such ERISA

Affiliate without liability to any Person.

 

            7.16.3 Guaranteed Pension Plans. Each contribution required to be

made to a Guaranteed Pension Plan, whether required to be made to avoid the

incurrence of an accumulated funding deficiency, the notice or lien provisions

of Section 302(f) of ERISA, or otherwise, has been timely made. No waiver of an

accumulated funding deficiency or extension of amortization periods has been

received with respect to any Guaranteed Pension Plan. No liability to the PBGC

(other than required insurance premiums, all of which have been paid) has been

incurred by the Borrower or any ERISA Affiliate with respect to any Guaranteed

Pension Plan and there has not been any ERISA Reportable Event, or any other

event or condition which presents a material risk of termination of any

Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each

Guaranteed Pension Plan (which in each case occurred within twelve months of the

date of this representation), and on the actuarial methods and assumptions

employed for that valuation, the aggregate benefit liabilities of all such

Guaranteed Pension Plans within the meaning of Section 4001 of ERISA did not

exceed the aggregate value of the assets of all such Guaranteed Pension Plans,

disregarding for this purpose the benefit liabilities and assets of any

Guaranteed Pension Plan with assets in excess of benefit liabilities, by more

than $500,000.00.

 

            7.16.4 Multiemployer Plans. Neither the Borrower nor any ERISA

Affiliate has incurred any material liability (including secondary liability) to

any Multiemployer Plan as a result of a complete or partial withdrawal from such

Multiemployer Plan under Section 4201 of ERISA or as a result of a sale of

assets described in Section 4204 of ERISA. Neither the Borrower nor any ERISA

Affiliate has been notified that any Multiemployer Plan is in

 

                                     - 24 -

 

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reorganization or insolvent under and within the meaning of Section 4241 or

Section 4245 of ERISA or is at risk of entering reorganization or becoming

insolvent, or that any Multiemployer Plan intends to terminate or has been

terminated under Section 4041A of ERISA.

 

      7.17 Regulations U and X. The proceeds of the Loans shall be used for

working capital and general corporate purposes. No portion of any Loan is to be

used for the purpose of purchasing or carrying any "margin security" or "margin

stock" as such terms are used in Regulations U and X of the Board of Governors

of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.

 

      7.18 Environmental Compliance. The Borrower has taken all necessary steps

to investigate the past and present condition and usage of the Real Estate and

the operations conducted thereon and, based upon such diligent investigation,

has determined that:

 

            (a) none of the Borrower, its Subsidiaries or any operator of the

Real Estate or any operations thereon is in violation, or alleged violation, of

any judgment, decree, order, law, license, rule or regulation pertaining to

environmental matters, including without limitation, those arising under the

Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental

Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the

Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean

Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any

state or local statute, regulation, ordinance, order or decree relating to

health, safety or the environment (hereinafter "Environmental Laws"), which

violation would reasonably be expected to have a material adverse effect on the

environment or the business, assets or financial condition of the Borrower or

any of its Subsidiaries;

 

            (b) neither the Borrower nor any of its Subsidiaries has received

notice from any third party including, without limitation, any federal, state or

local governmental authority, (i) that any one of them has been identified by

the United States Environmental Protection Agency ("EPA") as a potentially

responsible party under CERCLA with respect to a site listed on the National

Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste,

as defined by 42 U.S.C. Section 6903(5), any hazardous substances as defined by

42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C.

Section 9601(33) and any toxic substances, oil or hazardous materials or other

chemicals or substances regulated by any Environmental Laws ("Hazardous

Substances") which any one of them has generated, transported or disposed of has

been found at any site at which a federal, state or local agency or other third

party has conducted or has ordered that any Borrower or any of its Subsidiaries

conduct a remedial investigation, removal or other response action pursuant to

any Environmental Law; or (iii) that it is or shall be a named party to any

claim, action, cause of action, complaint, or legal or administrative proceeding

(in each case, contingent or otherwise) arising out of any third party's

incurrence of costs, expenses, losses or damages of any kind whatsoever in

connection with the release of Hazardous Substances;

 

            (c) except as set forth on Schedule 7.18 attached hereto: (i) no

portion of the Real Estate has been used for the handling, processing, storage

or disposal of Hazardous Substances except in accordance with applicable

Environmental Laws; and no underground tank or other underground storage

receptacle for Hazardous Substances is located on any portion of

 

                                     - 25 -

 

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the Real Estate; (ii) in the course of any activities conducted by the Borrower,

its Subsidiaries or operators of its properties, no Hazardous Substances have

been generated or are being used on the Real Estate except in accordance with

applicable Environmental Laws; (iii) there have been no releases (i.e. any past

or present releasing, spilling, leaking, pumping, pouring, emitting, emptying,

discharging, injecting, escaping, disposing or dumping) or threatened releases

of Hazardous Substances on, upon, into or from the properties of the Borrower or

its Subsidiaries, which releases would have a material adverse effect on the

value of any of the Real Estate or adjacent properties or the environment; (iv)

to the best of the Borrower's knowledge, there have been no releases on, upon,

from or into any real property in the vicinity of any of the Real Estate which,

through soil or groundwater contamination, may have come to be located on, and

which would have a material adverse effect on the value of, the Real Estate; and

(v) in addition, any Hazardous Substances that have been generated on any of the

Real Estate have been transported offsite only by carriers having an

identification number issued by the EPA, treated or disposed of only by

treatment or disposal facilities maintaining valid permits as required under

applicable Environmental Laws, which transporters and facilities have been and

are, to the best of the Borrower's knowledge, operating in compliance with such

permits and applicable Environmental Laws; and

 

            (d) None of the Borrower and its Subsidiaries or any of the Real

Estate is subject to any applicable environmental law requiring the performance

of Hazardous Substances site assessments, or the removal or remediation of

Hazardous Substances, or the giving of notice to any governmental agency or the

recording or delivery to other Persons of an environmental disclosure document

or statement by virtue of the transactions set forth herein and contemplated

hereby, or as a condition to the effectiveness of any other transactions

contemplated hereby.

 

      7.19 Subsidiaries, etc. Except as set forth on Schedule 7.19 hereto, the

Borrower has no Subsidiaries. Except as set forth on Schedule 7.19 hereto,

neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint

venture or partnership with any other Person.

 

      7.20 Bank Accounts. Schedule 7.20 (as such may be amended from time to

time in accordance with Section 9.9 hereof) sets forth the account numbers and

location of all bank accounts of the Borrower or any of its Subsidiaries.

 

8. AFFIRMATIVE COVENANTS OF THE BORROWER.

 

      The Borrower covenants and agrees that, so long as any Loan is outstanding

or any Lender has any obligation to make any Loans.

 

      8.1 Punctual Payment. The Borrower will duly and punctually pay or cause

to be paid the principal and interest on the Loans, and all other amounts

provided for in this Credit Agreement and the other Loan Documents to which the

Borrower or any of its Subsidiaries is a party, all in accordance with the terms

of this Credit Agreement and such other Loan Documents.

 

      8.2 Maintenance of Office. The Borrower will maintain its chief executive

office in Chicago, Illinois, or at such other place in the United States of

America as the Borrower shall designate upon written notice to the Agents, where

notices, presentations and demands to or

 

                                      - 26 -

 

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upon the Borrower in respect of the Loan Documents to which the Borrower is a

party may be given or made.

 

      8.3 Records and Accounts. The Borrower will (a) keep, and