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Amazon: March 15, 2001 Letter to Amazon Board of Directors

 

The material copied below had been published on a web site maintained by the New York Society of Security Analysts ("NYSSA"), and was accessible from a link on a summary page for the Forum Program.

 

[letterhead]

LUTIN & COMPANY

575 MADISON AVENUE, 10th FLOOR

NEW YORK, NEW YORK 10022

Telephone (212) 605-0335

Facsimile (212) 605-0325

 

                                                                                                                March 15, 2001

 

 

By telecopier: 206/266-2901

 

Mr. Tom A. Alberg

Mr. Jeffrey P. Bezos

Mr. Scott D. Cook

Mr. John L. Doerr

Ms. Patricia Q. Stonesifer

c/o Amazon.com, Inc.

1200 12th Avenue South, Suite 1200

Seattle, Washington 98144-2734

 

 

To the members of the board of directors:

 

                Amazon's management has publicly stated that they have neglected to give you my March 8, 2001 letter, which asks for board responses to issues presented by the Amazon Forum being conducted by the New York Society of Security Analysts' Committee for Corporate Governance.  The accompanying duplicate of that letter is therefore provided for your reference.

 

                It has also been reported that an Amazon spokesperson stated incorrectly that the Forum was seeking information for "a select group of people."  You will see that the March 8th letter requests your provision of information to investors generally, clearly not just to "a select group," and you should know that all Amazon Forum meetings have been open to the public.

 

                These and other recent public statements by Amazon management would require the board's attention under any circumstances.  But considering the issues being addressed in the March 8th letter, these new management statements significantly increase the Forum's interest in your responses regarding responsibility for management representations and policies for investor communications.

 

 

                                                                                                                Sincerely yours,

 

 

 

 

                                                                                                                Gary Lutin

 

cc:           Mr. Peter F. Brennan

 

[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

 

 

Material dated between January 1999 and July 2001 was originally published on the web site of the New York Society of Security Analysts ("NYSSA"), and was provided by Gary Lutin as co-sponsor of a "Forum Program" conducted for public educational purposes with NYSSA's Committee for Corporate Governance and Shareholder Rights during that period. Material dated after July 2001 was not published by the NYSSA unless specifically indicated.

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