Overstock.com 2007 Annual Report Download - page 29

the allegations against the defendants. The use of management's time and attention in connection with the litigation and related matters may reduce the time
management is able to spend on other aspects of our business, which may have adverse effects on other aspects of our business. To the extent that any such
adverse effects exceed any benefits we may realize from pursuing the litigation, our business, prospects, financial condition and results of operation may
suffer.
We may be liable if third parties misappropriate our customers' personal information.
If third parties are able to penetrate our network security or otherwise misappropriate our customers' personal information or credit card information, or if
we give third parties improper access to our customers' personal information or credit card information, we could be subject to liability. This liability could
include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims or damages for alleged violations of state
or federal laws governing security protocols for the safekeeping of customers' personal or credit card information. This liability could also include claims for
other misuses of personal information, including unauthorized marketing purposes. These claims could result in litigation. Liability for misappropriation of
this information could adversely affect our business. In addition, the Federal Trade Commission and state agencies have been investigating various Internet
companies regarding their use of personal information. We could incur additional expenses if new regulations regarding the use of personal information are
introduced or if government agencies investigate our privacy practices.
We rely on encryption and authentication technology licensed from 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 will not result in a compromise or breach of the algorithms that we use to protect customer
transaction data. If any such compromise of our security were to occur, it could harm our reputation, business, prospects, financial condition and results of
operations. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We
may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches.
We cannot assure you that our security measures will prevent security breaches or that failure to prevent such security breaches will not harm our business,
prospects, financial condition and results of operations.
We may be subject to product liability claims that could be costly and time consuming.
We sell products manufactured for us by third parties, some of which may be defective. If any product that we sell were to cause physical injury or injury
to property, the injured party or parties could bring claims against us as the manufacturer and/or retailer of the product. Our insurance coverage may not be
adequate to cover every claim that could be asserted. If a successful claim were brought against us in excess of our insurance coverage, it could adversely
affect our business. Even unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our
business.
The promissory notes we hold in connection with the sale of our travel business are risky.
As part of the sale of our travel business, we now hold senior and junior promissory notes issued by the purchaser. Both of these notes are in the principal
amount of $3,000,000. The security on the senior note is the stock of the travel company we sold. There is no security on the junior note, which note also may
be subordinated to all other debt of the travel company, and, according to the junior note terms, is not in default so long as the senior debt is outstanding. In
the event of default on one or both of these notes, it is possible that stock held as security on the note will have lost some or all of its
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