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[letterhead]
LUTIN & COMPANY
575 MADISON AVENUE, 10th FLOOR
NEW YORK, NEW YORK 10022
Telephone (212) 605-0335
Facsimile (212) 605-0325
March 8, 2001
By telecopier: 206/266-2901
Mr. Jeffrey P. Bezos
Amazon.com, Inc.
1200 12th Avenue South, Suite 1200
Seattle, Washington 98144-2734
Dear Mr. Bezos:
On behalf of the Amazon Forum being conducted by the New
York Society of Security Analysts' Committee for Corporate Governance, I am
addressing this letter to you in your capacity as chairman of Amazon's board
of directors.
We were informed the evening of February 26th that Amazon's
management had decided not to participate in the February 28th meeting of
the Forum. The purpose of the meeting, as stated in my February 20th letter
to you, was to hear Amazon's explanations of its cash flow projections and
its publicly stated disagreement with a recently published "going concern"
review based on traditional working capital analysis. In the absence of an
Amazon representative, the Forum relied on the views and expertise of other
invited participants, including authorities on relevant issues of trade
credit management and audit standards.
Based on the February 28th meeting, and in the context of
our previously expressed concerns about Amazon's responses to information
requests submitted by the Forum's "Workshop for Analysts," we ask Amazon's
board of directors to provide the following information to investors:
1. Procedures for review of strategic alternatives. It
was broadly accepted among Forum participants that Amazon's general business
operations should be profitably sustainable if competently managed. But
even the most optimistic advocates of current management agreed that
investors would be unlikely to provide additional funding of losses for an
unproved business model. Polling the Forum participants, nobody at the
meeting believed the risk of a disruptive financial crisis within a year was
less than 5%. At that level of risk, prudence requires contingency plans
for the protection of shareholder value. The board should therefore inform
investors of the steps taken to assure its identification and objective
review of strategic alternatives.
2. Assurance of funding availability. The AICPA's expert
on "going concern" issues explained to the Forum that, based on the AICPA's
Statement on Auditing Standards ("SAS") #59, an auditor observing a pattern
of substantial losses and deteriorating balance sheet conditions would be
required to ask management for evidence of commitments for the funds
required to continue operations. Since Amazon has publicly reported that
its auditors are issuing their opinion for the year 2000 financial
statements without a "going concern" statement, we assume that management
provided the required evidence of funding availability. Whatever was
provided to the auditors should be disclosed publicly to investors.
3. Responsibility for management representations. Forum
participants observed that questions about the reliability of management
representations would contribute to marketplace confusion, reflected in
extreme stock price instability. For example, no support could be found for
management's public assertions that suppliers would grant trade credit based
on Amazon's proposed "new economy" concept of borrowed cash balances,
ignoring the established standards of credit analysis based on working
capital. The resulting credibility crisis created an environment in which
obviously irrational rumors of a bankruptcy filing justified the publication
of Amazon's denials by major news media. The board or its audit committee
should state their specific responsibilities and procedures for defining,
monitoring, and enforcing the company's policies regarding representations
to investors.
4. Policies for investor communications. Responding to
reports of board efforts to suppress the publication of an analyst's views,
Forum participants expressed a general consensus that a company's management
has a duty to inform investors of its disagreement with statements which it
considers inaccurate or misleading, but that it is inappropriate to
interfere with investor access to legitimate information on either side of
an issue. The board is asked to state its position regarding the rights of
analysts to express their views, and regarding the rights of investors to
hear those views.
Please let me know if you or other board members have any
questions about these requests. Your advice regarding the expected timing
of the board's response will be appreciated.
Sincerely yours,
Gary Lutin
cc: Mr. Peter F. Brennan
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