Settlement News - 01/23/2009
On October 10, 2008, the judge entered a final order and judgment of dismissal with prejudice of the class action against U.S. Auto Parts Network. The case, filed on October 4, 2007, charged U.S. Auto Parts and some of its officers and directors with violations of the Securities Act of 1933. Specifically, plaintiffs alleged that U.S. Auto Parts, during their IPO in February 2007, issued a false and misleading registration statement, as the statement failed to disclose that U.S. Auto Parts was having problems with its acquisition of PartsBin which would adversely affect its financial results in the fourth quarter of 2006 and the first quarter of 2007. After several months of arguing, U.S. Auto Parts agreed to a $10 million settlement to settle the class action lawsuit. The court also held on October 10, 2008 that the 25% fee requested by the Lead Plaintiff’s counsel was fair and reasonable under the circumstances.
On July 1, 2008, notice was sent to all those who purchased the publicly traded of U.S. Auto Parts Network, Inc. (PRTS), that a hearing was scheduled for September 29, 2008 to determine whether to approve a $10 million settlement as fair, reasonable and adequate, and to determine whether the litigation should be dismissed after the hearing pursuant to the Stipulation of Settlement from May 1, 2008. This hearing affected people who purchased U.S. Auto Parts Network stock between February 9, 2007 and March 20, 2007.

<p align= justify >The complaint alleges that on February 8, 2007, U.S. Auto Parts accomplished its IPO of 10 million shares at $10.00 per share (including 8 million shares sold by U.S. Auto Parts and 2 million shares sold by stockholders, including certain of the defendants) for net proceeds of $100 million, pursuant to the false and misleading Registration Statement. The Registration Statement failed to disclose that U.S. Auto Parts was having difficulty with its acquisition of PartsBin – a company it acquired in May 2006 – which would adversely affect its fourth quarter 2006 and first quarter 2007 results. Due to defendants’ positive but false statements, by March 2007 the stock was trading around $11 per share.</p>
<p align= justify >Then on March 20, 2007, after the market closed, U.S. Auto Parts issued a press release announcing disappointing fourth quarter 2006 and year end results. On this news, U.S. Auto Parts’ stock price collapsed in one day from $11.07 per share on March 20, 2007 to close at $6.49 per share on March 21, 2007.</p>
<p align= justify >The true facts which were omitted from the Registration Statement were as follows: (a) the Company was having difficulty with the integration of PartsBin due in large part to the different distribution methods utilized by U.S. Auto Parts and PartsBin to fill customer orders; (b) PartsBin was suffering from certain internal control deficiencies which caused or led to at least the following problems for U.S. Auto Parts: (i) the Company was having trouble filling customer orders under its drop-ship distribution system and was required to issue credits to its customers for out-of-stock products that it had previously recorded as sales; and (ii) the products offered via the drop-ship distribution method generated lower product margins than the products offered under the stock-and-ship distribution method, which further eroded and would continue to erode U.S. Auto Parts’ already suffering margins; and (c) the Company had experienced a disastrous fourth quarter which would result in disappointing 2006 results.</p>