Vitesse cleans house, looks for cash

May 18, 2006 Camarillo, CA -- Vitesse Semiconductor Corp. is under new management, now that it has deleted "acting" from Christopher R. Gardner's "acting chief executive officer" title. The company made other changes in its corner offices after disclosure that its cash position has deteriorated to the point where it has hired an investment bank to help raise funds.

May 18, 2006 Camarillo, CA -- Vitesse Semiconductor Corp. is under new management, now that it has deleted "acting" from Christopher R. Gardner's "acting chief executive officer" title. The company made other changes in its corner offices after disclosure that its cash position has deteriorated to the point where it has hired an investment bank to help raise funds.

In addition to the new CEO, Vitesse also removed the "acting" status of Shawn C.A. Hassel to make him the company's full CFO.

Gardner's and Hassel's new positions opened when Vitesse formally dismissed CEO Louis R. Tomasetta, CFO Yatin Mody, and Executive Vice President Eugene F. Hovanec. The company had previously placed the three on administrative leave in the wake of irregularities that had come to light regarding Vitesse's stock option grant process.

Gardner joined Vitesse in 1986. He served as vice president and COO from November 2000 to June 2002. From June 2002 until he was appointed acting CEO on April 18, 2006, he served as vice president and general manager of the Network Products Division. Hassel, meanwhile, comes to Vitesse from Alvarez & Marsal, LLC. Since July 2001, Hassel has been and continues to be a managing director of Alvarez & Marsal, a company that specializes in "developing operational and financial solutions for companies in transition." Vitesse retained the company's services earlier this year when the stock grant problems, as well as other potential missteps, came to light.

The potential breadth of the problems Gardner and company face continues to grow. Vitesse's board of directors appointed a special committee of independent directors to conduct an internal investigation of past stock option grants, the timing of grants, and related accounting and documentation issues. However, the scope of the investigation was expanded to include credits issued to and requested by customers (for returned products or otherwise) and their related accounting treatment, as well as the application of payments received to the proper accounts. Now, the internal investigation has expanded even further, 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.

This new charter comes as Vitesse received notice from Silicon Valley Bank that the chip manufacturer may be in default of a credit facility between the bank and the company. The banks cites the fact that Vitesse failed to file its quarterly report on Form 10-Q for the quarter ended March 31, 2006, as 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 says that as of 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 unrestricted cash and unrestricted cash equivalents of approximately $13.2 million.

The company says it "is in active discussions with the bank" and has reached a "conceptual agreement" on the potential terms of a short-term forbearance that should allow Vitesse to continue its efforts to obtain additional financing. As part of the agreement, Vitesse would repay $5 million of the amount currently outstanding under the credit facility. Company management stressed that no agreement had been reached, however.

Vitesse has engaged an investment banking firm to assist in obtaining additional financing. The Company has received non-binding indications of interest and is currently evaluating these indications of interest. "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," the press release stated.

To add to the good news, the company also received notice that it was subject to delisting from NASDAQ.

Gardner maintained a brave front in the face of the current obstacles. "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," he said via the press release. "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."

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