Vitesse Settles Options Lawsuits

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Vitesse Semiconductor Corp. will pay $8.7 million to settle shareholder lawsuits over the backdating of employee stock options, the company announced Friday.


The Camarillo-based maker of chips for telecommunications networks said its insurers will cover the amount, and former Chief Executive Louis Tomasetta as well as former Executive Vice President Eugene Hovanec will personally pay $1.45 million into a settlement fund for shareholders.


“We are very pleased to reach a settlement with the plaintiffs in these actions. This litigation has been a distraction for Vitesse management and employees as well as its customers and shareholders,” said Chief Executive Christopher Gardner said in a statement. “This settlement, if approved by the Court, will resolve the uncertainty associated with these litigations and put an end to the significant legal expenses we would have incurred in the event we had to continue to litigate.”


The company, along with three others, was cited in a March 2006 Wall Street Journal article about its questionable stock option practices, which allowed executives to maximize their returns by choosing grant dates that coincided with low share prices. The investigative piece launched a Securities and Exchange Commission probe into backdating practices that unveiled widespread abuse by companies nationwide.


Tomasetta, Hovanec and former finance chief Yatin Mody were all fired in May 2006 when Vitesse launched its own internal probe. Vitesse said stock option grants were backdated for their financial benefit and documents altered to cover it up.


The settlement is subject to court approval and releases the company from previous agreements to pay the legal fees for the ousted executives. The settlement also resolves all federal securities class-action and related pending federal and state court lawsuits, the company said.


As part of the settlement, Vitesse said it would improve its corporate governance and contribute 7.5 million common shares to the settlement fund.


Shares in Vitesse gained 2 percent Friday, or 2 cents, to $1.06 in afternoon over-the-counter trading on the Pink Sheets.

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