Vitesse fires execs, expands investigation

Vitesse (Camarillo, Calif.) also named a new CEO, but the company has also expanded its investigation over its business practices and is now in apparent default at one of its lenders. Vitesse also received a notice under which the company is subject to be delisted from the Nasdaq stock exchange.

Three executives — Louis Tomasetta, chief executive; Yatin Mody, chief financial officer; and Eugene Hovanec, executive vice president — have been “terminated” as officers and employees of Vitesse. As previously reported, these officers had been placed on administrative leave by Vitesse “because of such individuals' involvement with issues related to the integrity of documents relating to Vitesse's stock option grant process,” according to the company.

Vitesse announced that Christopher Gardner, the acting CEO, has been appointed as the permanent CEO. Gardner joined Vitesse in 1986 and has held a number of executive positions.

Shawn Hassel of Alvarez & Marsal LLC, the acting chief financial officer of Vitesse, has been appointed chief financial officer.

"This has been a very challenging time for the company,” said Vitesse's Chairman John C. Lewis, in a statement. “As a board, we have taken quick and decisive action that we believe is in the best interests of the company and its shareholders. The new management team has done an excellent job in a very short period of time to address the pending challenges to Vitesse. Moreover, Chris Gardner has been instrumental in providing leadership during this transition period. The board has complete confidence in the new executive team."

As previously disclosed, the board has appointed a special committee of independent directors to conduct an internal investigation relating to past stock option grants, the timing of such grants and other related accounting and documentation issues.

The scope of the internal investigation was previously 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.

The internal investigation has now been further expanded to the following: general revenue recognition policies and practices that may have affected the company's cash position at the end of certain reporting periods.

What’s more, the company 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,” according to the company. “The notice also states that the amount outstanding under the credit facility currently exceeds the permitted borrowing base under the facility.”

On May 15, 2006, 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.

Vitesse said it is 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.

If additional financing is not obtained and or the bank takes further action under the credit facility, “it would have a material adverse effect on the company's operations, liquidity and financial condition,” according to the company.