Vitesse Proposes Settlement

CAMARILLO, Calif. -- Vitesse announced yesterday after the market close that it has entered into a proposed settlement of all federal securities class action claims and all related federal and state shareholder derivative suits that were filed against the company relating to options backdating and accounting manipulations. If the proposed settlement is approved by the court, a huge segment of Vitesse's legal woes would come to an end, which would clearly be positive for the company.

Ending impending litigation will be important for Vitesse. Vitesse management has worked diligently to return the company to a positive cash flow position and a settlement would remove a big quarterly legal expense. A settlement also removes the risk of a negative legal verdict which could put the company back in a liquidity crunch. Last but definitely not least, the company would be in a far better position in pursuit of strategic alternatives (such as potentially selling the company), which would be unlikely with a litigation overhang.

The proposed settlement includes a cash payment to the settlement fund of $10.2 million. Vitesse's directors' and officers' liability insurers will pay $8.75 million of the settlement. Louis Tomasetta and Gene Hovanec, two of the former executives of Vitesse implicated in the options backdating/accounting scandal, will pay the remaining $1.45 million. Tomasetta and Hovanec will contribute all shares of Vitesse common stock that they own, totaling 1,272,669 shares. In addition, Vitesse will contribute 2,650,000 shares of Vitesse common stock and no cash to the class fund.

Vitesse Semiconductor Corp.