Overstock.com 2006 Annual Report Download - page 112

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During the years 2004 through 2006, over 99% of sales were made to customers in the United States of America. At
December 31, 2005 and 2006, all of the Company's fixed assets were located in the United States of America.
25. INDEMNIFICATIONS AND GUARANTEES
During its normal course of business, the Company has made certain indemnities, commitments, and guarantees under which it
may be required to make payments in relation to certain transactions. These indemnities include, but are not limited to, indemnities to
various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to directors and
officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The duration of these indemnities,
commitments, and guarantees varies, and in certain cases, is indefinite. In addition, the majority of these indemnities, commitments,
and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make.
As such, the Company is unable to estimate with any reasonableness its potential exposure under these items. The Company has not
recorded any liability for these indemnities, commitments, and guarantees in the accompanying consolidated balance sheets. The
Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification
provisions, when future payment is both probable and reasonably estimable. The Company carries specific and general liability
insurance policies that the Company believes would, in most circumstances, provide some, if not total recourse to any claims arising
from these indemnifications.
26. DECONSOLIDATION OF VARIABLE INTEREST ENTITY
In April 2005, the Company entered into an agreement which allowed the Company to lend up to $10.0 million to an entity for
the purpose of buying diamonds and other jewelry, primarily to supply a new category within the jewelry store which allowed
customers purchasing diamond rings to select both a specific diamond and ring setting. Under the agreement, the Company was to
receive fifty percent (50%) of any profits of the entity. In addition, the Company had a ten year option to purchase ("Purchase
Option") 50% of the ownership and voting interest of the entity. The exercise price of the Purchase Option was the sum of (a) one
thousand dollars, and (b) $3.0 million, which may have been paid, at the Company's election, in cash or by the forgiveness of
$3.0 million of the entity's indebtedness to the Company.
The entity was evaluated in accordance with FASB Interpretation No. 46 Revised, Consolidation of Variable Interest Entities—
an Interpretation of ARB No. 51, and it was determined to be a variable interest entity for which the Company was determined to be
the primary beneficiary. As such, the financial statements of the entity were consolidated into the financial statements of the
Company.
In November 2004, the Company loaned the entity $8.4 million. The promissory note bore interest at 3.75% per annum. Interest
on the loan was due and payable quarterly on the fifteenth day of February, May, August and November, commencing on
November 15, 2004 until the due date of November 30, 2006, on which all principal and interest accrued and unpaid thereon, was due
and payable. The promissory note was collateralized by all of the assets of the entity.
In November 2006, an unrelated third party purchased the Company's interests in the variable interest entity by executing a
promissory note to the Company in exchange for termination of all agreements between the Company and the variable interest entity.
The promissory note is equal to the net assets of the entity or $6.7 million and bears no interest. The first payment on the note
receivable was due and paid on February 1, 2007 in the amount of $3.7 million with remainder of balance due in twelve equal monthly
payments of $251,000 beginning on March 1, 2007. As of March 1, 2007, the Company had received payments on the note totaling
$3.9 million.
F-34