Overstock.com 2007 Annual Report Download - page 75

Capital and Operating Leases
In June 2005 and 2006, we entered into non-cancelable operating leases for certain computer equipment expiring in April 2008 and June 2008,
respectively. It is expected that such leases will be renewed by exercising purchase options or replaced by leases of other computer equipment. The lease
obligations also include our obligations for corporate office space, logistics and warehouse space, co-location data center agreement and other operating
leases.
Corporate office space
Through July 2005, we leased 43,000 square feet of office space at Old Mill Corporate Center I for our principal executive offices under an operating
lease which was originally scheduled to expire in January 2007. Beginning July 2005, this lease was terminated and replaced with a lease for approximately
154,000 rentable square feet in the Old Mill Corporate Center III in Salt Lake City, Utah for a term of ten years. The total lease obligation over the ten-year
term of the new lease is $42.4 million, of which approximately $7.6 million is payable in the next twelve months.
We entered into a Tenant Improvement Agreement (the "OMIII Agreement") with Old Mill Corporate Center III, LLC (the "Lessor") relating to the
office building in February 2005. The OMIII Agreement sets forth the terms on which we paid the costs of certain improvements to the leased office space.
The amount of the costs was approximately $2.0 million. The OMIII Agreement also required us to provide a letter of credit in the amount of $500,000 to the
Lessor to provide funds for the removal of certain improvements upon the termination of the lease.
In 2006, we commenced implementation of a facilities consolidation and restructuring program. Under the program, we recorded $638,000 of accelerated
amortization of leasehold improvements related to our current office facilities that we are attempting to sublease, and $450,000 of costs incurred to return our
office facilities to their original condition as required by the lease agreement.
During fiscal year 2007, we recorded an additional $6.2 million of restructuring costs related to our marketing for sub-lease office and data center space
in our current corporate office facilities. We also recorded an additional $2.2 million of restructuring charges related to accelerated amortization of leasehold
improvements located in the abandoned office and co-location data center space and $200,000 of other miscellaneous restructuring charges. (see Item 15 of
Part IV, "Financial Statements"—Note 3—"Restructuring Expense").
Logistics and warehouse space
In July 2004, we entered into a logistics service agreement (the "Logistics Agreement") wherein the handling, storage and distribution of some of our
prepackaged products were performed by a third party. The Logistics Agreement and subsequent amendment set forth terms on which we paid various fixed
fees based on square feet of storage and various variable costs based on product handling costs for a term of five years.
In December 2005, we entered into a warehouse facilities lease agreement (the "License Agreement") to license approximately 400,000 square feet of
warehouse space in Indiana. The License Agreement was subsequently amended, reducing the amount of lease space to approximately 300,000 and extending
the term to 2011.
In the first quarter of 2007, we terminated the Logistics Agreement and gave notice of intent to sublease the Indiana warehouse facilities under the
License Agreement. During the second quarter of 2007, we reached an agreement to terminate the Indiana warehouse facilities lease effective August 15,
2007. As a result of the termination of the License agreement and warehouse lease, we incurred $3.7 million of related restructuring charges in 2007. (see
Item 15 of Part IV, "Financial Statements"—Note 3—"Restructuring Expense").
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