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OVERSTOCK.COM, INC (OSTK)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/16/2005
Filed Period 12/31/2004

Table of contents

  • Page 1
    OVERSTOCK.COM, INC (OSTK) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/16/2005 Filed Period 12/31/2004

  • Page 2
    ... 100 Salt Lake City, Utah 84121 (Address of principal executive offices including zip code) (801) 947-3100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock...

  • Page 3
    Certain information required by Part III of Form 10-K is incorporated by reference to the Registrant's proxy statement for the 2005 Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission.

  • Page 4
    ... III. Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management Certain Relationships and Related Transactions Principal Accounting Fees and Services Part IV. Exhibits, Financial Statement Schedules Item 15. Signatures...

  • Page 5
    ...devote substantial resources to our sales and marketing teams; the possibility of future acquisitions of businesses, products or technologies; our belief that we can attract customers in a cost-efficient manner; our strategy to develop strategic business relationships with additional wholesalers and...

  • Page 6
    ... computers and electronics, sporting goods and apparel and designer accessories. We also sell books, magazines, CDs, DVDs, videocassettes and video games ("BMV"). Our company, based in Salt Lake City, Utah, was founded in 1997, and we launched our first Website through which customers could purchase...

  • Page 7
    ...of our current travel offerings, on our Websites. In addition, in September 2004, we launched an online auction site-an online marketplace for the buying and selling of goods-as part of our Website, with multiple product categories. Our auction site is strictly a consumer-to-consumer site; we do not...

  • Page 8
    ... service. Therefore, for these sales we are not considered to be the primary obligor, and record only our commission as revenue. During the year ended December 31, 2004, we fulfilled approximately 40% of all orders through our leased Salt Lake City, Utah warehouse or our outsourced warehouse located...

  • Page 9
    ... 500,000 BMV products (books, magazines, CDs, DVDs, video cassettes and video games) in eight major departments. Convenient access on a secure site. Our customers are able to access and purchase our products 24 hours a day from the convenience of their computer. We do not sell any personal...

  • Page 10
    ... O pay an annual fee of $29.95 and receive a 5% discount on all non-travel and non-BMV products and $1 shipping per order, along with access to a special customer service hotline. Additionally, in August 2004, we merged our B2B site (www.overstockb2b.com) into our B2C site, and opened a "Club O Gold...

  • Page 11
    ...that generate significant revenues in various departments. AOL Time Warner Mai Random House Bissell Meyer Corporation RCA Blue Ridge Home Fashions Movado Samsonite Cuisinart Nicole Miller Seiko Fuji Novica Simon & Schuster Hewlett-Packard Linon Home Decor Sony Kelty Panasonic Swiss Army Kenneth Cole...

  • Page 12
    ... that more specifically define the products offered within that department. For example, the following product categories are currently within the "Electronics & Computers" department: Audio & Video Home Office Equipment Cameras & Optics Computers & Printers Telephones Each category has several...

  • Page 13
    ...) before we ship products to consumers or business purchasers. From time to time we grant credit to our business purchasers with normal credit terms. Fulfillment for Direct Business. During 2004, we fulfilled approximately 40% of all orders through our leased Salt Lake City, Utah warehouse or our...

  • Page 14
    ... primary computer infrastructure to a co-location facility in Salt Lake City. We now use the computer facilities located in the data center located at our corporate offices primarily for backups, redundancy, development, and testing. Competition The online liquidation services market is new, rapidly...

  • Page 15
    ... not be sought by us in every country in which our products and services are made available online, including the United States. From time to time, we may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the trademarks and...

  • Page 16
    ...31, 2004, we had 426 full-time employees, including 48 in customer service and fraud prevention, 131 in order fulfillment, 49 in information technology and Website production, 36 in marketing, 113 in merchandising and auctions, 29 in accounting and finance, and 20 in our executive and administrative...

  • Page 17
    ... our product offerings, including our auctions site, our travel site and our custom design jewelry site; rent additional warehouse and office space; increase our general and administrative functions to support our operations; and maintain or increase our sales, branding and marketing activities...

  • Page 18
    ... parties to conduct a number of other traditional retail operations with respect to their respective products that we offer for sale on our Websites, including maintaining inventory, preparing merchandise for shipment to individual customers and timely distribution of purchased merchandise. We have...

  • Page 19
    ...and package tracking; delays in order processing and product delivery; increased cost of delivery, resulting in reduced gross margins; and reduced shipment quality, which may result in damaged products and customer dissatisfaction. A significant number of merchandise returns could harm our business...

  • Page 20
    ... to generate significant traffic for our former B2B site, in the third quarter of 2004, we merged the B2B site into our main website, and opened our "Club O Gold" bulk purchase program. Our failure to succeed in this market or other markets or other product or service offerings may harm our business...

  • Page 21
    ... of operations and fluctuating exchange rates could cause reduced gross revenues and/or gross margins from non-dollar-denominated international sales. In order to obtain future revenue growth and achieve and sustain profitability we will have to attract customers on cost-effective terms. Our success...

  • Page 22
    ... aspects of transaction processing, including customer profiling and order verifications. We have experienced periodic systems interruptions due to server failure, which we believe will continue to occur from time to time. If the volume of traffic on our Websites or the number of purchases made by...

  • Page 23
    ... fulfill orders and provide high-quality customer service, largely depends on the efficient and uninterrupted operation of our computer and communications systems. Substantially all of our computer and communications hardware is located at a single co-location facility in Salt Lake City, Utah, with...

  • Page 24
    ... sale of goods could harm our revenues, business, prospects, financial condition and results of operations. Resolving litigation or claims regarding patents or other intellectual property, whether meritorious or not, could be costly, time-consuming, cause service delays, divert our management...

  • Page 25
    ...third parties to provide the security and authentication necessary to effect secure transmission of confidential information such as customer credit card numbers. We cannot assure you that advances in computer capabilities, new discoveries in the field of cryptography or other events or developments...

  • Page 26
    ... companies operating online auction sites or on the users of those sites. In addition, certain states have laws or regulations that do expressly apply to online auction site services. Although we do not expect these laws to have a significant effect on our auction site business, we will incur costs...

  • Page 27
    ... auction sites. We may receive similar complaints. We do not have the ability to require users of our services to fulfill their obligations to make payments or to deliver items. We are aware that other companies periodically receive complaints from buyers about the quality of the items they purchase...

  • Page 28
    ... businesses have a short track record. If consumers are unwilling to use the Internet to conduct business, our business may not develop profitably. The security risks or perception of risks of e-commerce may discourage customers from purchasing goods from us. In order for the e-commerce market...

  • Page 29
    ... or other taxes on the sale of our merchandise or the merchandise of third parties that we offer for sale on our Websites, our business could be harmed. We do not currently collect sales or other similar taxes for physical shipments of goods into states other than Utah or Indiana. One or more local...

  • Page 30
    ... customers or encourage repeat purchases; the extent to which our existing and future marketing agreements are successful; price competition that results in lower profit margins or losses; the amount and timing of operating costs and capital expenditures relating to the expansion of our business...

  • Page 31
    ... to manage distribution operations or provide adequate levels of customer service; our ability to successfully integrate operations and technologies from acquisitions or other business combinations; entering into new lines of products; our ability to attract users to our new auctions site; and...

  • Page 32
    ... Annual Report on Form 10-K. ITEM 2. PROPERTIES We lease approximately 43,000 square feet of office space for our corporate headquarters and customer service operations in Salt Lake City, Utah, and we lease an approximately 354,000 square foot warehouse and distribution facility also in Salt Lake...

  • Page 33
    ... a letter from BTG International Inc. claiming that certain of our business practices and online marketing information technology systems infringe patents owned by BTG. On September 14, 2004, without engaging in any meaningful discussion or negotiation with us, BTG filed a complaint in the United...

  • Page 34
    ... II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq National Market under the symbol "OSTK." Prior to May 30, 2002, there was no public market for our common stock. The following table...

  • Page 35
    ... Form 10-K. Year ended December 31, 2000 2001 2002 2003 2004 (in thousands, except per share data) Consolidated Statement of Operations Data: Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit (loss...

  • Page 36
    ... revenue includes sales made to individual consumers and businesses, which are fulfilled from our warehouse in Salt Lake City, Utah or our outsourced warehouse located in Plainfield, Indiana, and sales from our warehouse store which we closed in January 2004. Customers place orders through our main...

  • Page 37
    ...Electronics and Computers department. Cost of goods sold consists of the cost of the product, as well as inbound and outbound freight and fulfillment costs. Fulfillment costs include warehouse handling labor costs, fixed warehouse costs, credit card fees and customer service costs. Fulfillment costs...

  • Page 38
    ... gross selling price of all transactions, including those for which we only record a commission, before returns, sales discounts, and before payments to fulfillment partners prior to July 1, 2003, and therefore differs from total revenue. We sustained year-over-year growth in gross bookings for 2004...

  • Page 39
    ...we have obtained decreases in both inbound and outbound shipping costs. We have also made improvements to the cost of processing returns, customer service costs and credit card fees. Commentary-Marketing efforts. For 2004, our sales and marketing expenses increased 101% from $20.2 million in 2003 to...

  • Page 40
    ... require payment by credit card at the point of sale. Amounts received prior to when we ship the goods or provide the services to customers are recorded as deferred revenue. In addition, amounts received in advance for Club O and Club O Gold membership fees are recorded as deferred revenue and...

  • Page 41
    ...damaged inventory. Our management must make estimates of potential future product returns related to current period revenue. Management analyzes historical returns, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns...

  • Page 42
    ... 0.0 (1.0)% Comparison of Years Ended December 31, 2003 and 2004 Revenue Beginning July 1, 2003, customer returns from sales shipped by our fulfillment partners are returned directly to us and processed through our Salt Lake City warehouse, rather than returned to our fulfillment partners, as they...

  • Page 43
    ... decreases in both inbound and outbound shipping costs. Additionally, we have also made improvements to the cost of processing returns, customer service costs and credit card fees. Gross profits for our direct operations increased from $13.8 million for the year ended December 31, 2003 to $27...

  • Page 44
    ... partner products offered on our Websites. The increase in gross margins for our fulfillment partner operations is largely due to improvements in buying, customer service costs and credit card fees, as well as a decrease in BMV sales from 38% of fulfillment partner revenue in 2003 to 22% in 2004...

  • Page 45
    ...1, 2003, customer returns from sales shipped by our fulfillment partners are returned directly to us and processed through our Salt Lake City warehouse, rather than returned to our fulfillment partners. As a result of this change in business practices, we now record sales transactions shipped by our...

  • Page 46
    ... policy change, and due to process inefficiencies that were identified and fixed during the third and fourth quarters. Cost of goods sold on sales transactions from our fulfillment partners now includes the cost of the product, warehousing and fulfillment costs, credit card fees and customer service...

  • Page 47
    ... 2003 2004 2004 2004 (in thousands, except per share data) Consolidated Statement of Operations Data: Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing expenses...

  • Page 48
    ..., as the gross bookings were not affected by the change in business practices. Number of orders represents the number of individual orders for merchandise through our Websites excluding B2B orders. Number of new B2C customers represents the number of valid new customer accounts. To establish a valid...

  • Page 49
    ...). Our margins improvement stems from our efforts in tightening our logistics costs and achieving better pricing on merchandise purchased to sell on our Websites. Total operating expenses as a percentage of gross bookings have generally decreased on a year-over-year basis each quarter during 2004 as...

  • Page 50
    ... year ended December 31, 2003 was $25.1 million, consisting primarily of net proceeds of $24.0 million received from the follow-on public offering which occurred in February 2003 and approximately $1.2 million received from the exercise of stock options and warrants, offset by $141,000 of payments...

  • Page 51
    .... We have an option to renew the Amended Credit Agreement annually. Included in the $30.0 million Amended Credit Agreement is a $10.0 million sub-limit for a revolving line of credit which we use to obtain letters of credit to support inventory purchases. At December 31, 2004 the issuing bank or an...

  • Page 52
    ... commercial commitments. In January 2005, the Company's Board of Directors authorized a stock repurchase program under which we may repurchase up to $50.0 million of our common stock through December 31, 2007. Under the program, shares may be purchased as determined by management, from time to time...

  • Page 53
    ..., shares may be purchased as determined by management, from time to time and within certain guidelines, in the open market or in privately negotiated transactions, including privately negotiated structured stock repurchase transactions and through transactions in the options markets. Depending 49

  • Page 54
    ...term is defined in Exchange Act Rule 13a-15(f). In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management conducted an assessment, based on the criteria in Internal Control-Integrated Framework, issued by the...

  • Page 55
    ... criteria in Internal Control-Integrated Framework issued by the COSO. Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as...

  • Page 56
    ... by this Item is incorporated by reference to the Company's definitive proxy statement for the 2005 annual meeting of stockholders. The Company has adopted a Code of Business Conduct and Ethics, which is applicable to all employees of the Company, including the chief executive officer and senior...

  • Page 57

  • Page 58
    ... stock certificate. 4.2(b) Investor Rights Agreement, dated March 4, 2002. 10.1(b) Form of Indemnification Agreement between Overstock.com, Inc. and each of its directors and officers. 10.2(b) Amended and Restated 1999 Stock Option Plan and form of agreements thereunder. 10.3(b) 2001 Stock Purchase...

  • Page 59
    ...2003). Old Mill Corporate Center First Amendment to the Lease Agreement by and between ...Credit Agreement dated February 13, 2004 between Overstock.com, Inc. and Wells Fargo Bank National Association (incorporated by reference to Exhibit 10.31 to our Annual Report on Form 10-K for the year ended...

  • Page 60
    ... Stock Option Plan, as amended (incorporated by reference to Exhibit 99.6 to our Report on Form 8-K filed May 7, 2004) 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 10.35 10.36 10.37 10.38(c) Summary of Compensation Arrangements Applicable to Named Executive Officers...

  • Page 61
    ...Independent Registered Public Accounting Firm Power of Attorney (see signature page) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer Section 1350 Certification of Chief Executive Officer Section 1350 Certification of...

  • Page 62
    ... in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and conforming all that said attorney-in-fact, or his or their...

  • Page 63
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statement of Stockholders' Equity and Comprehensive Income Consolidated Statements of Cash Flows Notes to Consolidated ...

  • Page 64
    ..., included in "Management's Report on Internal Control Over Financial Reporting," appearing in Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control- Integrated Framework issued by the...

  • Page 65
    ... future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Salt Lake City, Utah March 14, 2005 F-3

  • Page 66
    ... 31, 2003 2004 (in thousands) Assets Current assets: Cash and cash equivalents Marketable securities Cash, cash equivalents and marketable securities Accounts receivable, net Inventories, net Prepaid inventory Prepaid expenses Total current assets Restricted cash Property and equipment, net...

  • Page 67
    ... Statements of Operations Year ended December 31, 2002 2003 2004 (in thousands, except per share data) Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold (includes amortization of stock-based compensation of...

  • Page 68
    ... 31, 2003 Exercise of stock options and warrants Issuance of common stock in follow-on offerings Forfeitures of unearned stock-based compensation from options issued to employees Amortization of stock-based compensation Stock-based compensation to consultants in exchange for services Deemed dividend...

  • Page 69
    ... on line of credit Payments of deferred financing fees Proceeds from the issuance of convertible senior notes Issuance of redeemable preferred stock Issuance of common stock in offerings, net of issuance costs Payment of selling shareholder fees Issuance of common stock Exercise of stock options and...

  • Page 70
    ... dividend related to beneficial conversion feature of redeemable preferred stock Conversion of Series A preferred stock to common stock Unearned stock-based compensation (forfeitures) Lapse of rescission rights on redeemable common stock 6,607 6,582 3,481 1,327 - - (478) 1,647 - - (198) - The...

  • Page 71
    ... Internet. The Company's merchandise offerings include bed-and-bath goods, furniture, kitchenware, watches, jewelry, computers and electronics, sporting goods, apparel and designer accessories. The Company also sells books, magazines, CDs, DVDs, videocassettes and video games. The Company was formed...

  • Page 72
    ... receivable consist of trade amounts due from customers and from credit cards billed but not yet received at period end. Accounts receivable are recorded at invoiced amounts and do not bear interest. The Company evaluates its allowance for doubtful accounts monthly. Account balances are written...

  • Page 73
    ... is reasonably assured. The Company generally requires payment by credit card at the point of sale. Amounts received prior to shipment of products or service is recorded as deferred revenue. In addition, amounts received in advance for Club O and Club O Gold membership fees are recorded as deferred...

  • Page 74
    ...returned items. As a consequence, the Company now records revenue from sales transactions involving fulfillment partners on a gross basis, rather than on a net basis as was recorded prior to July 1, 2003. During September 2004, the Company added an online auction service to its Website. The Auctions...

  • Page 75
    ... restocking fee) on all items returned for non-defective reasons from the Electronics and Computers department. Cost of goods sold Cost of goods sold include product costs, warehousing costs, inbound and outbound shipping costs, handling and fulfillment costs, customer service costs and credit card...

  • Page 76
    ...Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. Earnings (loss) per share Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common shares by the weighted average number...

  • Page 77
    ...the computation of diluted earnings per share because to do so would have been antidilutive. The number of shares of stock options and warrants outstanding at each year-end was 2,535 shares, 2,849 shares and 2,399 shares for 2002, 2003 and 2004, respectively. As of December 31, 2004, the Company had...

  • Page 78
    ... for annual periods ending after June 15, 2004. The Company will evaluate the impact of EITF 03-1 once final guidance is issued. 3. PUBLIC OFFERINGS On June 4, 2002, the Company closed its initial public offering, pursuant to which it sold 2,155 shares of its common stock, and a selling shareholder...

  • Page 79
    ... issuance costs. In November 2004, the Company closed another follow-on public offering, pursuant to which it sold 1,380 shares of common stock, with proceeds to the Company of approximately $75,207, net of $215 of issuance costs. Concurrently in November 2004, the Company issued convertible senior...

  • Page 80
    ... 31, 2003 2004 Product inventory Less: allowance for obsolescence $31,064 (1,138) $29,926 $46,602 (1,323) $45,279 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following: December 31, 2003 2004 Computer hardware and software Furniture and equipment Leasehold improvements...

  • Page 81
    ... Accrued liabilities consist of the following: December 31, 2003 2004 Inventory received but not invoiced Reserve for returns Accrued payroll and other related costs Deferred revenue Accrued marketing expenses Merchant processing fee accrual Accrued freight Other accrued expenses $1,126 1,110 850...

  • Page 82
    ... an option to renew the Amended Credit Agreement annually. Included in the $30,000 Amended Credit Agreement is a $10,000 sublimit for a revolving line of credit which the Company uses to obtain letters of credit to support inventory purchases. At December 31, 2004 the issuing bank or an affiliate of...

  • Page 83
    ...a lease agreement the Company entered into in December 2004 for a new office building in the Old Mill Corporate Center III in Salt Lake City, Utah. Pursuant to this agreement, the Company will lease approximately 143 rentable square feet for a term of 10 years beginning when the Company occupies the...

  • Page 84
    The Company also leases 354 square feet for its warehouse facility in Salt Lake City, Utah under an operating lease which expires in August 2012. Minimum future payments under these leases are as follows: Year Ending December 31, 2005 2006 2007 2008 2009 Thereafter $ 4,099 5,264 4,958 4,945 5,078...

  • Page 85
    ... from BTG International Inc. claiming that certain of the Company's business practices and online marketing information technology systems infringe patents owned by BTG. On September 14, 2004, without engaging in any meaningful discussion or negotiation with the Company, BTG filed a complaint in the...

  • Page 86
    ... 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...

  • Page 87
    ... these Plans, the Board of Directors may issue incentive stock options to employees and directors of the Company and non-qualified stock options to consultants of the Company. Options granted under these Plans generally expire at the end of five years and vest in accordance with a vesting schedule...

  • Page 88
    ...with certain stock option grants to employees during the year ended December 31, 2002 the Company recognized approximately $3,481 of unearned stock-based compensation for the excess of deemed fair value of shares of common stock subject to such options over the exercise price of these options at the...

  • Page 89
    ... stock over the purchase price during 2002. 16. EMPLOYEE RETIREMENT PLAN The Company has a 401(k) defined contribution plan which permits participating employees to defer up to a maximum of 25% of their compensation, subject to limitations established by the Internal Revenue Code. Employees who...

  • Page 90
    ... shares purchased by family members of management. On occasion, Haverford-Valley, L.C. (an entity owned by the Company's president) and certain affiliated entities make travel arrangements for our executives and pay the travel related expenses incurred by our executives on Company business. In...

  • Page 91
    ...for the previous commission segment only included credit card fees and customer service costs. From July 1, 2003 forward, due to a change in the company's business practices, including the partner sales return process, these sales transactions are now recorded gross. As a result, this segment's name...

  • Page 92
    ...INTEREST ENTITY In August 2004, the Company entered into an agreement which allows the Company to lend up to $10,000 to an entity for the purpose of buying inventory, primarily to supply a new category within our jewelry store which allows customers purchasing diamond rings to select both a specific...

  • Page 93
    ... 2003 2004 2004 2004 (in thousands, except per share data) Consolidated Statement of Operations Data: Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing expenses...

  • Page 94
    ... Reserve for sales returns Allowance for inventory obsolescence Allowance for doubtful accounts Year ended December 31, 2003 Deferred tax valuation allowance Reserve for sales returns Allowance for inventory obsolescence Allowance for doubtful accounts Year ended December 31, 2004 Deferred tax...

  • Page 95

  • Page 96
    ... INC. As Representative of the Initial Purchasers c/o LEHMAN BROTHERS INC. 745 Seventh Avenue New York, NY 10019 Ladies and Gentlemen: Overstock.com, Inc., a Delaware corporation (the "Company"), proposes, upon the terms and conditions set forth herein, to issue and sell to Lehman Brothers Inc. and...

  • Page 97
    ...duly authorized by the Company; when the Notes are executed, authenticated and issued in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers pursuant to this Agreement on the respective Delivery Date, such Notes will constitute legally valid and binding...

  • Page 98
    ... considers adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries. (t) Except as set forth or contemplated in the Offering Memorandum, the Company and each of its...

  • Page 99
    ... by wire transfer of immediately available funds to an account with a bank in The City of New York, the account number and the ABA number for such bank to be provided by the Company to the Initial Purchasers at least two business days in advance of the First Delivery Date, or by such other manner of...

  • Page 100
    ... wire transfer of immediately available funds to an account with a bank in The City of New York, the account number and the ABA number for such bank to be provided by the Company to the Initial Purchasers at least two business days in advance of the Optional Delivery Date, or by such other manner of...

  • Page 101
    ... the offering of the Notes. (m) To execute and deliver the Registration Rights Agreement (in form and substance satisfactory to the Initial Purchasers). (n) To use its best efforts to assist the Initial Purchasers in arranging to cause the Notes to be accepted to trade in the PORTAL market ("PORTAL...

  • Page 102
    ... the execution of this Agreement (the "initial letters"), the Company shall have furnished to the Initial Purchasers a letter (the "bring-down letter") of such accountants, addressed to the Initial Purchasers and dated such Delivery Date (i) confirming that they are an independent registered public...

  • Page 103
    ..., liability, expense or damage. The foregoing indemnity agreement is in addition to any liability that the Company may otherwise have to any Initial Purchaser or to any director, officer, employee or controlling person of that Initial Purchaser. (b) Each Initial Purchasers shall, severally and not...

  • Page 104
    ..., it is advisable for the Initial Purchasers and those directors, officers, employees and controlling persons to be jointly represented by separate counsel, and in that event the fees and expenses of such separate counsel shall be paid by the Company. No indemnifying party shall: (i) without the...

  • Page 105
    ... 745 Seventh Avenue, New York, New York 10019, Attention: Syndicate Department (Fax: 1-212-526-0943); and (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to Overstock.com, Inc., 6322 South 3000 East, Suite 100, Salt Lake City, UT 84121, Attention: Jonathan...

  • Page 106
    ...are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. If the foregoing correctly sets forth the agreement between the Company and the Initial Purchasers, please indicate your acceptance in the space provided for that purpose below. Very truly yours, OVERSTOCK...

  • Page 107
    ...any written employment agreement with any of its named executive officers. Effective January 1, 2005, the Company pays each of its named executive officers (as defined in Item 402(a)(3) of Regulation S-K), other than its President and chief executive officer, base salaries at the annual rate of $100...

  • Page 108
    ... directors any other cash amounts. Beginning in the third quarter of 2004, the Company began paying its non-employee directors $20,000 annually at the rate of $5,000 per quarter. The Company maintains its 2002 Stock Option Plan, as amended, under which the Board of Directors has the power to grant...

  • Page 109
    QuickLinks -- Click here to rapidly navigate through this document Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Name Jurisdiction of Formation Trade Names Overstock Mexico, S. de R.L. de C.V. Mexico Overstock Mexico QuickLinks SUBSIDIARIES OF THE REGISTRANT

  • Page 110
    ... the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/PricewaterhouseCoopers LLP Salt Lake City, Utah March 14, 2005 QuickLinks CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  • Page 111
    ... fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) Date: March 15, 2005 /s/ PATRICK M. BYRNE Patrick M. Byrne President (principal executive officer) QuickLinks CERTIFICATION

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    ... not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) Date: March 15, 2005 /s/ DAVID K. CHIDESTER David K. Chidester Vice President, Finance (principal financial officer) QuickLinks CERTIFICATION

  • Page 113
    ... Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Overstock.com, Inc. on Form 10-K for the year ended December 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that information contained in such...

  • Page 114
    ...Annual Report of Overstock.com, Inc. on Form 10-K for the year ended December 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange..., Finance (principal financial officer) QuickLinks CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION...