Overstock.com 2008 Annual Report Download - page 102

Table of Contents
covenants that limit the Company's ability to (a) incur or guarantee debt, (b) create liens, (c) enter into any merger, recapitalization or
similar transaction or purchase all or substantially all of the assets or stock of another person, (d) sell assets, (e) change its name or the
name of any of its subsidiaries, (f) make certain changes to its business, (g) optionally prepay, acquire or refinance indebtedness,
(h) consign inventory, (i) pay dividends on, or purchase, acquire or redeem shares of, its capital stock, (j) change its method of
accounting, (k) make investments, (l) enter into transactions with affiliates, or (m) store any of its inventory or equipment with third
parties.
At December 31, 2008, no amounts were outstanding under the Agreement or under the Company's prior loan agreement with
WFRF.
Wells Fargo Commercial Purchasing Card Agreement
The Company has a commercial purchasing card agreement (the "Purchasing Card") with Wells Fargo Bank, National
Association ("Wells Fargo"). The Company uses the Purchasing Card for business purpose purchasing and must pay it in full each
month. Outstanding amounts under the Purchasing Card are collateralized by cash balances held at Wells Fargo Bank, N.A, and
therefore the facility does not provide additional liquidity to the Company. At December 31, 2008, $436,000 was outstanding and
$564,000 was available under the Purchasing Card.
Capital leases
The Company leases certain software and computer equipment under three non-cancelable capital leases that expire at various
dates through 2008.
Software and equipment relating to the capital leases totaled $19.8 million at December 31, 2007 and 2008, with accumulated
amortization of $15.4 million and $19.3 million at those respective dates. Depreciation of assets recorded under capital leases was
$5.5 million and $3.9 million at December 31, 2007 and 2008, respectively. As of December 31, 2008, the Company had no remaining
capital leases.
3.75% Convertible Senior Notes
In November 2004, the Company completed an offering of $120.0 million of 3.75% Convertible Senior Notes (the "Senior
Notes"). Proceeds to the Company were $116.2 million, net of $3.8 million of initial purchaser's discount and debt issuance costs. The
discount and debt issuance costs are being amortized using the straight-line method which approximates the interest method. The
Company recorded amortization of discount and debt issuance costs related to this offering totaling $620,000, $417,000 and $344,000
during the years ended December 31, 2006, 2007 and 2008, respectively. Interest on the Senior Notes is payable semi-annually on
June 1 and December 1 of each year. The Senior Notes mature on December 1, 2011 and are unsecured and rank equally in right of
payment with all existing and future unsecured, unsubordinated debt and senior in right of payment to any existing and future
subordinated indebtedness.
The Senior Notes are convertible at any time prior to maturity into the Company's common stock at the option of the note holders
at a conversion price of $76.23 per share or, approximately 885,478 shares in aggregate (subject to adjustment in certain events,
including stock splits, dividends and other distributions and certain repurchases of the Company's stock, as well as certain
fundamental changes in the ownership of the Company). Beginning December 1, 2009, the Company has the right to redeem the
Senior Notes, in whole or in part, for cash at 100% of the principal amount plus accrued and unpaid interest. Upon the occurrence of a
fundamental change (including the acquisition of a majority interest in the Company, certain changes in the Company's board of
directors or the termination of trading of the Company's stock) meeting certain conditions, holders of the Senior Notes may require the
Company to repurchase for cash all or part of their notes at 100% of the principal amount plus accrued and unpaid interest.
The indenture governing the Senior Notes requires the Company to comply with certain affirmative covenants, including making
principal and interest payments when due, maintaining the Company's corporate existence and properties, and paying taxes and other
claims in a timely manner.
Under the repurchase program, the Company retired $9.5 million of the Senior Notes during the third quarter of 2008 for $6.6
million in cash, resulting in a gain of $2.8 million on early extinguishment of debt, net of $142,000 of associated unamortized
discount. As of December 31, 2008, $67.5 million of the Senior Notes remained outstanding.
On February 17, 2009 the Board of Directors of Overstock.com, Inc. approved a debt repurchase program that authorizes the
Company to utilize up to $20.0 million to repurchase a portion of its 3.75% Senior Notes. Under this repurchase program, the
Company retired $4.9 million of the Senior Notes for $3.0 million in cash. As a result of the Senior Notes retirements, the Company
expects to recognize a future gain of $1.9 million, net of the associated unamortized discount of $63,000 for this transaction (see Note
17 — "Stock and Debt Repurchase Program").
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