The company had missed their commitments to their lenders and renegotiated the loans with backing by
Penny. (They almost had a secondary offering!) The deal was done as of June 29, so the deal was a last minute end-of-fhe-quarter arrangement. The kicker is that Penny backed the financing and got options at $1.95. I can see why he would like a stock buy back.
So they had no cash left when the deal was struck and they didn't have time to draw on the loans. (June 29 was a friday and July 2 was a monday)
I take this as a sign the company really believes they will survive. The big issue with Westell is to become profitable before the cash runs out. This issue comes back over and over and over again. They would not be using the cash to buy back stock if Penny's backing was in jeopardy. I can't believe the board would approve of this if they haven't turned the corner.
From the 10-Q (http://biz.yahoo.com/e/010814/wstl.html):
At June 30, 2001, the Company had $461,000 in cash. As of June 30, 2001, the Company had $26.1 million outstanding under its secured revolving promissory note facility and approximately $9.1 million available under its secured revolving promissory note facility.
The secured revolving credit facility required, among other things, the maintenance of a minimum interest coverage ratio, a minimum net worth, a maximum capital expenditures and target EBITDA. The Company's failure to meet these quarterly financial covenants would allow the lenders to demand repayment of all amounts outstanding under the credit facility. The Company was not in compliance with target EBITDA and the interest coverage ratio at March 31, 2001. The Company and its lenders have entered into an amendment and waiver under which the covenant violations discussed above were waived.
On June 29, 2001, the Company amended the revolving credit facility, resulting in an asset-based, revolving lending facility providing for total borrowing based upon 85% of eligible accounts receivable and 30% of eligible inventory not to exceed $9.0 million and 70% of the guarantee described below. The $9.0 million inventory limitation is reduced by $.1 million on August 1, 2001, and shall be reduced by an additional $.1 million on the first day of each month thereafter. The Company was eligible to borrow an additional $9.1 million under this facility as of June 30, 2001. Up to $10,000,000 of the facility is collateralized by substantially all assets of the Company and will remain available until June 30, 2002. The facility provides for maximum borrowings of up to $35.0 million. The facility is guaranteed by trusts for the benefit of Robert C. Penny III and7 other Penny family members and is supported by their brokerage account totaling approximately $10.0 million. In consideration of the guarantee, the Company has granted these stockholders warrants to purchase 512,820 shares of Class A Common Stock for a period of five years at an exercise price of $1.95 per share. Any future equity financing will also reduce dollar for dollar the amount of the guaranty. Borrowings under this facility provide for the interest to be paid by the Company at prime plus 1%. This amendment provides for covenants regarding EBITDA and tangible net worth.
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