Overstock.com 2015 Annual Report Download - page 67

In June 2015, as part of the fintech and crypto software that Medici has developed, we issued a $500,000 privately-placed digital "cryptobond" to
our Chief Executive Officer, Dr. Patrick Byrne, in exchange for cash. During July 2015 we issued an additional privately-placed digital cryptobond to an
unaffiliated purchaser for $5.0 million in cash and concurrently made a $5.0 million loan to the purchaser. At December 31, 2015, we have repaid the $5.5
million in digital cryptobond debt and offset that repayment with the proceeds of our $5.0 million loan. These transactions are described in further detail in
the section below.
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As of December 31, 2015 and December 31, 2014, tax contingencies were $821,000 and $709,000, respectively. We expect the total amount of tax
contingencies to increase in the future. In addition, changes in state, federal, and foreign tax laws may increase our tax contingencies. The timing of the
resolution of income tax contingencies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities
may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax
authorities. These assessments may or may not result in changes to our contingencies related to positions on prior years’ tax filings.
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In October 2014, we entered into a syndicated senior secured credit facility (the “Facility”) with U.S. Bank National Association ("U.S. Bank" or the
"Administrative Bank") and certain other banks in connection with the construction of our new corporate headquarters (the "Project"). The Facility is
governed by a Loan Agreement dated as of October 24, 2014 which provides for an aggregate credit amount of $55.8 million, consisting of (i) a senior
secured real estate loan of $45.8 million (the “Real Estate Loan”) to be used to finance a portion of the Project and (ii) a three-year $10.0 million senior
secured revolving credit facility (the “Revolving Loan”) for working capital and capital expenditures, but not for the Project. We have satisfied the
conditions necessary to borrow under the Facility, including making the required cash contributions toward the Project. In the future, we may be required to
make additional cash contributions if necessary to maintain a loan to value ratio of 80% or less. The Real Estate Loan and the Revolving Loan are both
secured by the Project, our inventory and accounts receivable, substantially all of our deposit accounts and related assets. We began borrowing under the
facility in October 2015.
On or about January 1, 2017, upon completion of the Project, the Real Estate Loan is designed to convert into an approximately 6.75-year term loan
due October 1, 2023 (the “Term Loan”). The conditions to conversion of the Real Estate Loan to the Term Loan include, among others, requirements that the
Project must have been completed in accordance with the applicable plans, paid for in full, and generally free of liens; completion must have been certified
by the project architect and the inspecting architect; certificates of occupancy must have been issued; we must have paid all amounts then due to the lending
banks and must be in compliance with the covenants under the Loan Agreement; the Real Estate Loan must be brought “in balance” as defined in the Loan
Agreement, which may require us to contribute additional cash to the Project; we must have paid the final amount of our cash contribution as required by the
Loan Agreement; and if required by the Administrative Bank, an updated appraisal must show that the Project is in compliance with an 80% loan to value
ratio requirement. If the conditions to conversion are not satisfied in early 2017, all amounts outstanding under the Facility will become immediately due and
payable.
Amounts outstanding under the Real Estate Loan and the Term Loan carry an interest rate based on one-month LIBOR plus 2.00% or an Alternate
Base Rate plus 1.00%. However, we have entered into interest rate swap agreements designed to fix our interest rate on the Real Estate Loan and the Term
Loan at approximately 4.6% annually (see  in Note 2. Accounting Policies). Monthly payments of interest only will be due
and payable on the Real Estate Loan prior to conversion. Following conversion, we are required to make monthly payments of principal estimated to be $1.1
million annually plus interest, with a balloon payment of all unpaid principal (estimated to be $38.0 million) and interest on October 1, 2023. Amounts
outstanding under the Revolving Loan will carry an interest rate based on LIBOR plus 2.00% or an Alternate Base Rate plus 1.00%.
We are required to maintain compliance as of the end of each calendar quarter beginning with the quarter ending December 31, 2014 with the
following financial covenants:
• a fixed charge coverage ratio on a trailing 12-month basis of no less than 1.15 to 1.00;
• a cash flow leverage ratio on a trailing 12-month basis not greater than 3.00 to 1.00 during the Construction Phase (as defined in the Loan
Agreement);
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