As reported by the Company’s FORM 10-Q for the quarterly period ended September 30, 2002, in September 2002, the matter was settled and final judgment was entered by the U.S. District Court for the Southern District of Florida dismissing the case with prejudice and otherwise confirming the settlement terms contained in the Memorandum of Understanding. The settlement releases the directors, management personnel, underwriters and securities firms named as defendants in the litigation from further liability relating to the IPO; however, stockholders of 119,000 shares of PRTS opted out of the settlement, and one such stockholder has filed a lawsuit in California State Court. The Company believe that the allegations contained in this lawsuit are without merit and intends to vigorously defend this action. The Company believes the resolution of this matter will not have a material impact upon the Company's consolidated financial statements, results of operations or cash flows.
Earlier, according to the same SEC filing, in April and May 2001, the Company received notice of, or had been served with, four purported class action lawsuits (Foderaro vs. PartsBase.com, Inc. et al, Case No.: 01-8319 CIV- FERGUSON; IKCYBERINVESTMENTS vs. PartsBase.com, Inc. et al, Case No.: 01-8368 CIV-SEITZ; and Webb vs. PartsBase, et.al. Case No.01-8376 CIV GRAHAM and Jesus Martin vs. PartsBase.com, Inc. et al, Case No. 01-8526-CIV-UNGARO-BENAGES). These cases were consolidated into one action entitled, In re: PartsBase.com, Inc. Securities Litigation, Case No. 01-8319-CIV-UNGARO-BENAGES/BROWN. The consolidated lawsuit named as defendants the Company, certain of its current and former officers and directors, and the underwriters of its initial public offering of securities. The consolidated lawsuit alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and alleged the Company's March 2000 registration statement misrepresented and failed to disclose matters related to the Company's business operations and membership sales. The complaint alleged damages of nearly $42 million. The Court certified a class consisting of purchasers of the Company's common stock in the offering during the period from March 22, 2000 through April 25, 2000. The Company maintained a director and officer's liability insurance policy that provides $3 million of coverage, with a retention of $200,000. As of September 30, 2002, the Company had incurred and previously charged the retention of $200,000 to expense. In May 2002, the Company reached an agreement in principle for the settlement of the consolidated class action. The plaintiffs in the case and the defendants, entered into a Memorandum of Understanding outlining the general terms of the proposed settlement. The Memorandum of Understanding provided for, among other things, a settlement amount of $1.5 million in cash, plus interest, payable to the class under an insurance policy and for the plaintiffs' dismissal of the class action with prejudice as well as a broad form of release in favor of PartsBase and the other defendants in the class action which, among other things, will have the effect of barring all claims by the plaintiffs and the members of the class other than those who opt out, arising out of the purchase and sale of the Company's common stock in the Company's initial public offering of securities.
The original complaint alleges that as a result of the misrepresentations and material omissions, investors suffered millions of dollars in damages. PartsBase stock closed at $1.05 on April 23, 2001, far below the offering price of $13 per share.