Overstock.com 2002 Annual Report Download - page 44

2006 530
2007 44
Thereafter —
$ 4,440
Rental expense for operating leases totaled $694, $1,180 and $1,639 for the years ended December 31, 2000, 2001 and 2002, respectively.
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In February 2002, Microsoft Corporation
filed a complaint against the Company alleging that the Company has distributed counterfeit and otherwise unauthorized Microsoft software in violation of
federal copyright and trademark law and related state laws. The complaint seeks damages in an unspecified amount and injunctive relief. Although the
Company believes it has defenses to the allegations and intends to pursue them vigorously, currently, management does not have sufficient information to
assess the validity of the claims or the amount of potential damages. Company management currently believes, however, that resolution of such legal matters
will not have a material adverse impact on the Company's financial position, results of operations or cash flows.
13. REDEEMABLE SECURITIES
In March 2002, the Company sold approximately 959 shares of mandatorily redeemable convertible preferred stock ("preferred stock") for approximately
$6,582, net of issuance costs. The preferred stock automatically converted to common stock on a 1:1 basis in connection with the initial public offering. As
the fair value of the common stock to be received upon conversion was greater than the conversion price of the preferred stock at the date the preferred stock
was issued, a beneficial conversion feature resulted in the amount of $6,607, which was calculated in accordance with Emerging Issues Task Force No. 98-5
Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. This beneficial conversion feature
was reflected as a deemed dividend in the statement of operations during the year ended December 31, 2002.
Redeemable common stock relates to warrants and securities that are subject to rescission. Sales of 858 shares of the common stock and the issuance of
185 warrants to certain individuals did not fully comply with certain requirements under applicable State Blue Sky Laws. The offer and sale of these securities
were not made pursuant to a registration statement and the Securities Act of 1933, nor were the offer and sale registered or qualified under any state security
laws. Although the Company believed at the time that such offers, sales and conversion were exempt from such registration or qualification, they may not
have been exempt in several states. As a result, purchasers of our common stock in some states have the right under federal or state securities laws to rescind
their purchases for an amount equal to the purchase price paid for the shares, plus interest from the date of purchase until the rescission offer expires, at the
annual rate mandated by the state in which such shares were purchased. These interest rates range from 8% to 10% per annum. The rescission rights lapse on
various dates through September 2006.
At December 31, 2001 and 2002, the Company has classified $5,284 and $4,363, respectively, related to the rescission rights outside of shareholders'
equity, because the redemption features are not within the control of the Company. However, management does not anticipate that holders of the redeemable
common stock will exercise their rescission rights. Interest attributable to these securities is recorded as a deemed dividend and reflected as a deduction from
net loss to arrive at net loss attributable to common shares in the Statements of Operations.
14. STOCKHOLDERS' EQUITY
Reverse stock split
On March 4, 2002, the Company's Board of Directors approved a proposal to amend the Company's certificate of incorporation to effect a reverse stock
split. On April 15, 2002, the Company's Board of Directors approved a 1-for-28.34 reverse split. The authorized common shares have decreased from 450,000
to 100,000, effective May 20, 2002. All share amounts and per share data reflected in these consolidated financial statements are shown after giving
retroactive effect to the 1-for-28.34 reverse stock split.
Reincorporation
In May 2002, the Company reincorporated in Delaware. As a result of the reincorporation, the Company is authorized to issue 100,000 shares of $0.0001
par value common stock and 5,000 shares of $0.0001 par value preferred stock. The Board of Directors may issue the undesignated preferred stock in one or
more series and determine preferences, privileges and restrictions thereof.
Common Stock
Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to prior rights of holders of all classes of stock outstanding having priority rights as to
dividends. No dividends have been declared or paid on the Company's common stock through December 31, 2002. In October 2001, the Company's Board of
Directors authorized the purchase of 35 treasury shares from a former employee for $100.
Warrants
In 2000, the Company issued warrants to certain shareholders in connection with the purchase of additional shares of common stock. At December 31,
2002, warrants to purchase 1,119 shares of common stock of the Company were outstanding, as follows:
Issuance Date
Exercise
Price
per Share
Warrants
Outstanding
Expiration
Date
May 1, 2000 $ 7.09 265 April 30, 2005
May 15, 2000 $ 7.09 261 May 14, 2005
June 22, 2000 $ 7.09 7 June 21, 2005
September 21, 2000 $ 4.26 586 September 20, 2005