Overstock.com 2008 Annual Report Download - page 106

Table of Contents
use of a product known as Facebook Beacon, created and provided to the Company by Facebook, Inc. Facebook Beacon provided the
means for Facebook users to share purchasing data among their Facebook friends. Plaintiffs and Defendants, including the Company,
have stipulated to an extension in the time for answering the complaint, while the parties engage in a mediation of the dispute. The
Company has not responded to the Complaint. The Company has notified Facebook, Inc. of its indemnification obligations under the
contract by which the Company obtained and deployed Facebook Beacon. The Company intends to vigorously defend this action and
pursue with Facebook its indemnification rights under the Facebook Beacon agreement.
On November 14, 2008, the Company filed suit in Ohio state court against the Ohio Tax Commissioner, the Ohio Attorney
General and the Governor of Ohio, alleging the Ohio Commercial Activity Tax is unconstitutional. Enacted in 2005, Ohio's
Commercial Activity Tax is based on activities in Ohio that contribute to production or gross income for a company whether or not the
company has a physical presence in or nexus within the state. The Company asks in its complaint for a judgment declaring the tax
unconstitutional and for an injunction preventing any enforcement of the tax. The defendants have not answered the complaint, but
have moved to dismiss the case. These motions to dismiss are now pending. The suit is in its early stages.
On December 22, 2008, the Company, along with other thirty-seven other defendants was sued in a patent infringement law suit
filed by Guardian Media Technologies, LTD in the United States District Court, Central District of California. The Company is
alleged to have sold products infringing patents owned by the plaintiff involving certain processes designed to block content from
being viewed on televisions and DVD players. The Company has not yet answered the complaint and the suit is in its early stages and
the Company intends to vigorously defend this action.
On January 22, 2009, the Company, along with seven other defendants was sued in a patent infringement law suit by SBJ IP
Holdings 1, LLC, in the United States District Court, Eastern District of Texas. The Company is alleged to have infringed a patent
owned by the plaintiff involving certain processes by which online retail companies make product purchase recommendations to their
customers. The Company has not yet answered the complaint and the suit is in its early stages and the Company intends to vigorously
defend this action.
15. STOCKHOLDERS' EQUITY
Reincorporation
In May 2002, the Company reincorporated in Delaware. As a result of the reincorporation, the Company is authorized to issue
100.0 million shares of $0.0001 par value common stock and 5.0 million shares of $0.0001 par value preferred stock. The Board of
Directors may issue the undesignated preferred stock in one or more series and determine preferences, privileges and restrictions
thereof.
Common Stock
Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends
whenever funds are legally available and when declared by the Board of Directors, subject to prior rights of holders of all classes of
stock outstanding having priority rights as to dividends. No dividends have been declared or paid on the Company's common stock
through December 31, 2008.
Redeemable Common Stock
Redeemable common stock relates to warrants and securities that were subject to rescission. Sales of 858,000 shares of the
common stock and the issuance of 185,000 warrants to certain individuals may not have fully complied with certain requirements
under applicable State Blue Sky Laws. The offer and sale of these securities were not made pursuant to a registration statement and
the Securities Act of 1933, nor were the offer and sale registered or qualified under any state securities 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 the Company's common stock in some states may have had the right under federal
or state securities laws to rescind their purchases for an amount equal to the purchase price paid for the shares, plus interest from the
date of purchase until the rescission offer expired, at the annual rate mandated by the state in which such shares were purchased. These
interest rates ranged from 8% to 10% per annum. The rescission rights lapsed on various dates through September 2006.
At December 31, 2005, there were 446,000 shares of common stock and no warrants subject to rescission rights outstanding. The
Company had classified $3.2 million at December 31, 2005 related to the rescission rights outside of shareholders' equity, because the
redemption features were deemed not within the control of the Company. Interest attributable to these securities was recorded as a
deemed dividend and reflected as a deduction from net loss to arrive at net loss attributable to common shares in the Statements of
Operations.
No amount has been classified outside of shareholders' equity as of December 31, 2006 and 2007 as these rescission rights, if any,
fully expired prior to the end of 2006, leaving no outstanding redeemable common stock as of December 31, 2007 and 2008.
F-26