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Vitesse Dumps CEO, CFO, VP
Staff Reporter -- Electronic News, 5/17/2006
Amid its growing turmoil, Vitesse Semiconductor Corp. today announced that it has fired its CEO, CFO and an executive VP.
Former CEO Louis R. Tomasetta, CFO Yatin Mody and Eugene F. Hovanec, executive VP had been placed on administrative leave by Vitesse in April because of their involvement with issues related to the integrity of documents relating to Vitesse's stock option grant process.
"This has been a very challenging time for the company,” Vitesse Chairman John C. Lewis said in a statement today. “As a board, we have taken quick and decisive action that we believe is in the best interests of the company and its shareholders."
Christopher R. Gardner, the acting CEO of Vitesse, has been appointed CEO, while Shawn C.A. Hassel of Alvarez & Marsal, LLC, the acting CFO of Vitesse, has been appointed CFO.
The executive-level terminations are the latest in a chain of bad news for the company. Vitesse has already appointed a special committee of independent directors to conduct an internal investigation relating to past stock option grants, the timing of such grants and related accounting and documentation. The scope of the internal investigation was expanded to include issues relating to the company's practices in connection with credits issued to and requested by customers and the related accounting treatment, as well as the application of payments received to the proper accounts receivable. That was further expanded today to include a review of the company's general revenue recognition policies and practices and practices that may have affected the company's cash position at the end of certain reporting periods.
In addition, the company said today that it has received notice from Silicon Valley Bank that Events of Default have occurred under the credit facility between Silicon Valley Bank and Vitesse. “The notice states that the Events of Default include the company's failure to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, an apparent failure to meet the liquidity covenants under the credit facility, certain alleged misrepresentations under the credit facility and a material adverse change in the Company. The notice also states that the amount outstanding under the credit facility currently exceeds the permitted borrowing base under the facility,” Vitesse reported.
Vitesse noted that the bank states that it is entitled to exercise any and all remedies available under the credit facility and the related security documents, and that, until all Events of Default are cured, Vitesse is required to pay default interest under the credit facility and that no further advances will be made by the bank.
On May 15, approximately $10 million was drawn and outstanding under this credit facility, plus approximately $4.2 million in issued but undrawn standby letter of credits, and the company had un-restricted cash and un-restricted cash equivalents of approximately $13.2 million.
“The company presently is in active discussions with the bank and believes that it has reached a conceptual agreement on the potential terms of a short-term forbearance that should allow the company to continue its efforts to obtain additional financing. It is contemplated that as part of the agreement with the bank, the company would repay $5 million of the amount currently outstanding under the credit facility. No assurances can be given that the bank and the company will actually reach agreement on the forbearance,” Vitesse stated.
Meanwhile, as a result of the initial investigation, Vitesse has stated that reported financial statements for the three months ended December 31, 2005 and three years ended September 30, 2005 and possibly earlier periods should not be relied upon. With that, the Camarillo, Calif.-based communications chip company now faces a stockholder class action suit.
"In spite of the recent challenges we face with respect to our financial reporting and other issues, Vitesse remains focused on executing our strategic business plan to capitalize on the investments we've made,” Gardner said. “I'm pleased that we continue to see broad-based growth in customer demand across our three business units and I'm encouraged by the ongoing support shown by our employees, suppliers and customers."
