One of the questions I raised in my previous blog item entitled, "Why did Overstock.com President and COO Jason C. Lindsey really resign?," was if Jason C. Lindsey's resignation letter was backdated. A careful examination of certain Overstock.com disclosures and documents raises serious questions about the actual timing and circumstances surrounding the surprise resignation of Jason C. Lindsey. Former Overstock.com co-founder, President, and Chief Operating Officer, Jason C. Lindsey obviously surprised co-founder and long time friend CEO Patrick Byrne when he made a quick run to the exit doors and purportedly resigned from Overstock.com on December 31, 2007. Later disclosures by Overstock.com about its recently amended credit agreement raise serious questions as the timing and accuracy of certain disclosures by the company.
Let's examine the time sequence very carefully
According to Jason C. Lindsey's resignation letter purportedly signed on December 31, 2007 and later disclosed in a Securities and Exchange Commission 8-K filing on January 2, 2008, he discussed his resignation with Patrick Byrne on the afternoon of December 31:
December 31, 2007
Dr. Patrick M. Byrne Chairman of the Board Overstock.com, Inc. 6350 South 3000 East Salt Lake City, Utah 84121
Dear Patrick:
As we discussed this afternoon, it has been two years since I came out of retirement to return to Overstock. Much to my satisfaction, Overstock has accomplished a lot during those two years and I am pleased that I was able to participate in the company's turn around. However, as we discussed, we both believe that it is no longer necessary that I be as intimately involved in the day to day operations of the company. I would like to reduce my participation in the company so that I can spend more time with my family and be more involved with some outside business ventures. Thus, effectively immediately, I hereby resign as a director and as the president and chief operating officer of Overstock.com, Inc. As we discussed, I will remain a part-time employee of the company and work on special projects under your direction.
Sincerely,
Jason C. Lindsey [Emphasis added.]
Later on the evening of December 31, 2007 at 8:41 PM local time, Patrick Byrne, using his Hannibal alias, posted a message on InvestorVillage claiming that his "calender (sic) is clearing up a bit." Despite the co-founder, President, and Chief Operating Officer of Overstock.com resigning and despite the fact that according to Overstock.com's disclosure in its 8-K report to the SEC that, "Mr. Lindsey's principal duties will revert to the Company's Chief Executive Officer, Patrick M. Byrne," Patrick Byrne had claimed that his "calender (sic) is clearing up a bit."
Since Jason C. Lindsey claimed in his resignation letter to have discussed his resignation with Patrick Byrne earlier in the day ("this afternoon"), Byrne's comment on the InvestorVillage message board makes no logical sense. It appears that Patrick Byrne either was unaware of Jason C. Lindsey's resignation or was lying when he claimed that his calendar "is clearing up a bit."
A careful examination of two credit agreement documents below, released by Overstock.com after Jason C. Lindsey resigned, raises serious questions about the actual timing of Lindsey's resignation. As a minimum, these documents clearly show that Jason C. Lindsey's resignation surprised Patrick Byrne as he resigned in a hurry. There are new questions as to the accuracy of Overstock.com's recent 8-K disclosure about its amended credit agreement as detailed below, too.
Other documents released by Overstock.com raise questions if Jason C. Lindsey's resignation
backdated
On January 3, 2008, a day after Overstock.com disclosed in an 8-K report Jason C. Lindsey's resignation which purportedly occurred on Monday, December 31, 2007, the company filed another 8-K report disclosing an amended credit agreement with Wells Fargo Bank:
On December 31, 2007 Overstock.com, Inc. (the "Company") entered into an Amendment (the "Amendment") to the Credit Agreement dated February 13, 2004 (the "Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"). The Amendment extended the expiration date of the Credit Agreement from December 31, 2007 to January 1, 2010, and decreased the interest rate on fixed rate advances under the credit facility from 1.35% above LIBOR to 1.0% above LIBOR in effect on the first day of each fixed rate term under the credit facility. In connection with the Amendment, the Company also executed a revised Revolving Line of Credit Note note dated January 1, 2008. The Amendment is filed as Exhibit 10.1 hereto and the Revolving Line of Credit note is filed as Exhibit 10.2 hereto, and reference is hereby made to the text of such documents. Certain of our officers and directors have banking relationships with Wells Fargo Bank. [Emphasis added.]
However, contrary to Overstock.com's disclosure above, which claimed that the Amendment to the Credit Agreement was "entered into" on "December 31, 2007," an examination of that agreement clearly indicates that it was entered into and executed by David K. Chidester, Senior Vice President - Finance, a day later on January 1, 2008 or a day after Jason C. Lindsey's purported resignation on December 31, 2007.
The other credit agreement document, the Revolving Line of Credit Agreement Note, indicates that it was entered into and executed on January 1, 2008 as disclosed above by Overstock.com. However, the Credit Agreement Note included Jason C. Lindsey as a person authorized to make advance requests on behalf of Overstock.com despite Lindsey's claim that he resigned as President and Chief Operating Officer a day earlier. Since Jason C. Lindsey was no longer an officer of Overstock.com, how could he still be authorized to make advance requests, if he had already resigned? Note that there was no title under Jason C. Lindsey's name in his resignation letter. He did not use an Overstock.com letterhead, too.
Examine the two loan documents
The Ninth Amendment to Credit Agreement clearly indicates that the Amendment to the Credit Agreement was entered into and executed on January 1, 2008 and not on December 31, 2007 as disclosed by Overstock.com in its 8-K report. Did Overstock.com attempt to backdate the date of the credit agreement to match the date that Jason C. Lindsey claims he resigned? Otherwise why did Overstock.com claim that the Ninth Amendment to Credit Agreement document was entered into by the company on December 31, 2007 when the document clearly shows that it was entered into by David K. Chidester a day later? Read excerpts from the document below:
THIS AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of January 1, 2008, by and between OVERSTOCK.COM, INC., a Delaware corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”)....
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above.
OVERSTOCK.COM
By: /s/ David K. Chidester Title: Vice President, Finance [Emphasis added.]
The Revolving Line of Credit Note which indicates that it was entered into and executed on January 1, 2008 explicitly lists Jason C. Lindsey as a person authorized by Overstock.com to make requests for advances, despite his claim that he purportedly resigned a day earlier as the President and Chief Operating Officer of the company and therefore, was no longer a corporate officer of the company. Read excerpts from that document below:
REVOLVING LINE OF CREDIT NOTE
$30,000,000.00
Salt Lake City, Utah
January 1, 2008
FOR VALUE RECEIVED, the undersigned OVERSTOCK.COM, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at 299 South Main, 9th Floor, Salt Lake City, Utah, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Thirty Million Dollars ($30,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein....
Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) David Chidester or Lisiate (Rich) Paongo or Jason Lindsey, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of any Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower….
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.
OVERSTOCK.COM, INC.
By: /s/ David K. Chidester Title: Senior Vice President, Finance
When did Jason C. Lindsey really resign?
Why would Jason C. Lindsey's name be listed as a person authorized to make advances under the Revolving Line of Credit Note, entered into and executed on January 1, 2008, if he had already resigned on the previous day? As detailed above, an examination of the other loan document, the Ninth Amendment to Credit Agreement indicates that it was entered into and executed January 1, 2008 and not on December 31, 2007 as reported by Overstock.com. Did Overstock.com try to backdate its Ninth Amendment to Credit Agreement document to the same day that Jason C. Lindsey purportedly resigned to provide corroboration that Lindsey resigned on that date or was the Ninth Amendment to Credit Agreement document wrongfully post dated? If as Jason C. Lindsey claims that he actually resigned on December 31, 2007, did Patrick Byrne lie when he claimed on the InvestorVillage message board that, his "calender (sic) is clearing up a bit."? In any case, why do Overstock.com's credit agreement disclosures inaccurately reflect the timing of the Ninth Amendment to Credit Agreement document and why does the Revolving Line of Credit Note document fail to reflect the resignation of Jason C. Lindsey?
The key question is who lied: Jason C. Lindsey, Patrick Byrne, David K. Chidester, Overstock.com's disclosures, or the company's documents? For at least one of those persons, disclosures, or documents to be truthful, the others need to be lies.
The more likely scenario is that Jason C. Lindsey backdated his resignation to the afternoon of December 31, 2007. Apparently, Patrick Byrne did not know at 8:41 PM local time that day that either Jason C. Lindsey intended to resign or in fact had resigned since he claimed in his posted message on InvestorVillage that his "calender (sic) is clearing up a bit" unless he lied. As detailed above, in his resignation letter, Jason C. Lindsey claims that he discussed his resignation with Patrick Byrne, earlier in the afternoon of December 31, 2007. If Patrick Byrne was assuming Jason C. Lindsey's "principal duties" as disclosed by the company, how could he have more time? According to Overstock.com's press release that announced Jason C. Lindsey's resignation, Patrick Byrne is quoted as saying:
Jason co-founded the company and helped build it before retiring the first time. When I screwed it up a couple years ago he came out of retirement and has played a decisive role getting it back on track,....He’s done a superb job. [Emphasis added.]
By Patrick Byrne's own admission, Jason C. Lindsey played a "decisive role" in getting the company "back on track" when Byrne says that he "screwed it up." In the 24/7 Wall Street blog, Jon C. Ogg noted how Lisa Rapuano, portfolio manager and founder of Lane Five Capital Management, in effect called Jason C. Lindsey a babysitter for Patrick Byrne:
...she noted how controversial CEO Patrick Byrne was now being kept at bay by the fairly new President & COO Jason Lindsey being thought of as "adult supervision."
Note: Bold print and italics added by me. Therefore, Jason C. Lindsey was in effect Patrick Byrne's right hand man and was deemed crucial to Overstock.com. So how could Patrick Byrne's calendar be "clearing up a bit" if Jason C. Lindsey had purportedly resigned earlier in the day?
The Revolving Line of Credit Note document indicates that it was entered into and executed a day after Jason C. Lindsey's resignation. Yet the document still lists Lindsey as a person authorized to make advances on behalf of Overstock.com, despite his claim that he resigned and was no longer an officer of the company. Apparently, David K. Chidester did not amend the Revolving Line of Credit Note to revoke Jason C. Lindsey's authority to make advances for Overstock.com.
Wouldn't David K. Chidester have known that his boss, Jason C. Lindsey had resigned? Wouldn't Jonathan E. Johnson III, Overstock.com's Senior Vice President - Corporate Affairs and Legal, have reviewed the loan documents, too? Wouldn't both David K. Chidester and Jonathan E. Johnson III want Overstock.com's credit agreement disclosures to accurately reflect the timing of such agreements and its loan documents to reflect the resignation of Jason C. Lindsey? By the time Overstock.com got around to its 8-K disclosure about the credit agreements on January 3, 2008, why wasn't the Revolving Line of Credit Note amended to exclude Jason C. Lindsey as a person authorized to make advances on behalf of the company, since Lindsey had purportedly resigned as a corporate officer?
Why did Jason C. Lindsey abruptly resign?
Since the Revolving Line of Credit Note was not amended by David K. Chidester to exclude Jason C. Lindsey as having authority to make advances on behalf of Overstock.com, it is apparent that Lindsey's resignation at the every least came as a surprise to Patrick Byrne.
Jason C. Lindsey could have made his resignation effective at some future date to give Patrick Byrne enough time to find a successor but instead chose to immediately resign as President, Chief Operating Officer, and a Board member. Investigative journalist and author Gary Weiss noted:
The first is that it is obviously an abrupt decision that took Byrne by surprise, because no successor was in the wings. It's always better to say "so-and-so appointed as president, succeeding Jason Lindsey," rather than detonating a humiliating stink bomb like this after the market close.
As detailed above, Jason C. Lindsey claimed in his resignation letter that, "it is no longer necessary that I be as intimately involved in the day to day operations of the company." In addition, Lindsey not only resigned as President and Chief Operating Officer of Overstock.com, but also resigned from the Board of Directors. Lindsey's resignation letter claims that he "...will remain a part-time employee of the company and work on special projects....."
Why would Jason C. Lindsey resign as a Director of Overstock.com, too? According to Overstock.com's previous Notice of Annual Meeting of Shareholders for 2007, the Board of Directors held only six meetings during fiscal year 2006. It is doubtful that the Board held significantly more meetings during 2007. Jason C. Lindsey was not serving on either Overstock.com's Audit Committee or Compensation Committee. Obviously, being a member of the Board of Directors of Overstock.com was not a drain of Lindsey's time. Forensic accountant and author Tracy Coenen noted:
Sell, and sell fast. We’ve been telling you all along that this is a sinking ship. The departure of Jason Lindsey, co-founder, president, COO, and member of the board of directors is a bad sign. They say he’s sticking around part-time, but that doesn’t hold water in light of his resignation from the board. How much more “part-time” can you be than to be on the board?
Overstock.com is the subject of a continuing investigation by the SEC, particularly into its accounting and disclosures. The other Overstock.com co-founder, CEO Patrick Byrne, a long time friend of Jason C. Lindsey, has admitted to being a target of the SEC probe. As discussed in my previous blog item, certain apparently false and misleading comments about Overstock.com's gross margins and inventories by Jason C. Lindsey during earnings conference calls are being carefully investigated by the SEC. Overstock.com has additional disclosure issues arising from its misuse of SEC Regulation G governing certain non-GAAP financial measures to hype its financial performance in its second and third quarter fiscal year 2007 10-Q, too. In addition, on November 9, 2007, Copper River Partners filed a countersuit against Overstock.com, naming Jason C. Lindsey, Patrick Byrne, and other present and former Overstock.com Directors as separate defendants alleging securities fraud. That's good enough reason for Jason C. Lindsey to start distancing himself as soon as possible from the "big fish," in the SEC investigation, Patrick Byrne. If Jason C. Lindsey had backdated his resignation, the reason as to why he did it begins with his association to the deceptions of his boss, Patrick Byrne.
Written by:
Sam E. Antar (former Crazy Eddie CFO and a convicted felon)
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