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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended JUNE 30, 1998 Commission File No. 000-22513
AMAZON.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1646860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1516 Second Avenue, Seattle, Washington 98101
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (206) 622-2335
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
49,865,617 shares of $0.01 par value common stock outstanding as of
July 31, 1998
Page 1 of 22
Exhibit Index on Page 22
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AMAZON.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash............................................................ $ 2,523 $ 1,567
Marketable securities........................................... 337,396 123,499
Inventories..................................................... 17,035 8,971
Prepaid expenses and other...................................... 12,487 3,298
------------ ------------
Total current assets.................................... 369,441 137,335
Fixed assets, net................................................. 14,014 9,265
Deposits and other................................................ 284 166
Goodwill and other purchased intangibles, net..................... 52,398 --
Deferred charges.................................................. 7,622 2,240
------------ ------------
Total assets............................................ $ 443,759 $ 149,006
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 47,556 $ 32,697
Accrued advertising............................................. 9,971 3,454
Other liabilities and accrued expenses.......................... 13,713 6,167
Current portion of long-term debt............................... 684 1,500
------------ ------------
Total current liabilities............................... 71,924 43,818
Long-term portion of debt......................................... 332,225 76,521
Long-term portion of capital lease obligation..................... 181 181
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- none........................ -- --
Common stock, $0.01 par value:
Authorized shares -- 300,000,000
Issued and outstanding shares -- 49,669,601 and 47,874,338
shares, respectively........................................ 497 479
Additional paid-in capital...................................... 104,368 63,552
Deferred compensation........................................... (1,301) (1,930)
Other gains (losses)............................................ (35) --
Accumulated deficit............................................. (64,100) (33,615)
------------ ------------
Total stockholders' equity.............................. 39,429 28,486
------------ ------------
Total liabilities and stockholders' equity.............. $ 443,759 $ 149,006
============ ============
</TABLE>
See accompanying notes.
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AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ......................................... $ 115,977 $ 27,855 $ 203,352 $ 3,860
Cost of sales ..................................... 89,786 22,633 157,840 35,117
---------- ---------- ---------- ----------
Gross profit ...................................... 26,191 5,222 45,512 8,743
Operating expenses:
Marketing and sales ............................ 26,452 7,773 45,955 11,679
Product development ............................ 8,060 2,808 14,789 4,383
General and administrative ..................... 3,262 1,708 5,225 2,850
Amortization of goodwill and other purchased
intangibles .................................. 5,413 -- 5,413 --
---------- ---------- ---------- ----------
Total operating expenses ................... 43,187 12,289 71,382 18,912
Loss from operations .............................. (16,996) (7,067) (25,870) (10,169)
Interest income ................................... 3,334 366 4,974 430
Interest expense .................................. (7,564) (4) (9,589) (4)
---------- ---------- ---------- ----------
Net interest income (expense) .............. (4,230) 362 (4,615) 426
Net loss .......................................... $ (21,226) $ (6,705) $ (30,485) $ (9,743)
========== ========== ========== ==========
Basic and diluted loss per share .................. $ (0.44) $ (0.16) $ (0.64) $ (0.24)
========== ========== ========== ==========
Shares used in computation of basic and diluted
loss per share ................................. 47,977 42,634 47,299 40,719
========== ========== ========== ==========
</TABLE>
See accompanying notes.
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AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................................................ $ (30,485) $ (9,743)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization ................................ 8,773 1,022
Amortization of unearned compensation related to stock options 629 625
Noncash interest expense ..................................... 7,085 --
Changes in operating assets and liabilities:
Inventories ............................................... (8,047) (1,081)
Prepaid expenses and other ................................ (8,029) (841)
Deposits and other ........................................ (93) (182)
Accounts payable .......................................... 13,639 7,475
Accrued advertising ....................................... 6,517 2,574
Other liabilities and accrued expenses .................... 5,591 2,757
---------- ----------
Net cash provided by (used in) operating activities ..... (4,420) 2,606
INVESTING ACTIVITIES:
Maturities of marketable securities ............................. 55,136 969
Purchases of marketable securities .............................. (269,068) (45,875)
Purchases of fixed assets ....................................... (7,714) (2,239)
Acquisition of businesses ....................................... (14,993) --
---------- ----------
Net cash used in investing activities ................... (236,639) (47,145)
FINANCING ACTIVITIES:
Proceeds from initial public offering ........................... -- 49,103
Proceeds from exercise of stock options ......................... 1,022 474
Proceeds from sale of preferred stock ........................... -- 200
Proceeds from debt .............................................. 325,987 --
Repayment of debt ............................................... (77,209) --
Financing costs related to debt issuance ........................ (7,750) --
---------- ----------
Net cash provided by financing activities ............... 242,050 49,777
Effect of exchange rate changes ..................................... (35) --
---------- ----------
Net increase in cash ................................................ 956 5,238
Cash at beginning of period ......................................... 1,567 823
---------- ----------
Cash at end of period ............................................... $ 2,523 $ 6,061
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Common stock issued for fixed assets and accrued product development $ -- $ 1,500
Fixed assets acquired under capital lease ........................... $ -- $ 362
Common stock issued in connection with acquisitions ................. $ 39,812 $ --
</TABLE>
See accompanying notes.
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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ACCOUNTING POLICIES
Description of Business
Amazon.com, Inc. ("Amazon.com" or the "Company") was incorporated on July 5,
1994. The Company is the leading online retailer of books and music and offers a
catalog of approximately three million titles, easy-to-use search and browse
features, email services, personalized shopping services, secure Web-based
credit card payment and direct shipping to customers.
Unaudited Interim Financial Information
The consolidated financial statements as of June 30, 1998 and 1997 have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). These statements are unaudited and, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments and accruals) necessary to present fairly the results for the
periods presented. The balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. Operating results for the quarter
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. These consolidated financial
statements should be read in conjunction with the audited financial statements
and the accompanying notes included in the Company's annual report on Form 10-K
for the year ended December 31, 1997. Certain prior period balances have been
reclassified to conform to the current period presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Marketable Securities
The Company's marketable securities consist primarily of high-quality short to
intermediate term fixed income securities and money market mutual funds and are
classified as available-for-sale and are reported at fair value. Unrealized
gains and losses are reported, net of taxes, as a component of stockholders'
equity within other gains (losses). Unrealized losses are charged against income
when a decline in fair value is determined to be other than temporary. Realized
and unrealized gains and losses were immaterial for all periods presented. The
specific identification method is used to determine the cost of securities sold.
The Company classifies all investments of cash as marketable securities,
including highly liquid investments with maturities of three months or less, and
reflects the related cash flows as investing cash flows. As a result of the
classification of highly liquid investments within marketable securities, a
significant portion of the Company's gross marketable securities purchases and
maturities disclosed as investing cash flows is related to highly liquid
investments.
Deferred Charges
On May 8, 1998, the Company issued approximately $326 million gross proceeds of
10% Senior Discount Notes due 2008 (the "Senior Discount Notes"). At June 30,
1998, deferred charges consisted of fees associated with the issuance of the
Senior Discount Notes. The fees are being amortized into interest expense over
the life of the Senior Discount Notes.
Goodwill and Other Purchased Intangibles
Goodwill and other purchased intangibles is stated net of total accumulated
amortization of $5.4 million at June 30, 1998. Goodwill is being amortized over
a two-year period.
Foreign Currency
Exchange gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved are included in other
gains (losses). To date the Company has entered into no foreign currency
exchange contracts or other such derivative instruments.
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New Accounting Pronouncements
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income, which establishes
standards for the reporting and display of comprehensive income and its
components, and SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. The adoption of these Statements had no material impact on
the Company's net loss or stockholders' equity.
NOTE 2 - BUSINESS ACQUISITIONS
In April 1998, the Company acquired three Internet companies: Bookpages Limited
("Bookpages"), Telebook, Inc. ("Telebook") and Internet Movie Database Limited
("IMDB"). Bookpages and Telebook are online booksellers. Bookpages has
operations in the United Kingdom, and Telebook has operations primarily in
Germany through its ABC Bucherdienst subsidiary. IMDB operates a comprehensive
repository for movie information on the Internet. Each of the acquisitions was
accounted for under the purchase method of accounting. The aggregate purchase
price of the three acquisitions, plus related charges, was approximately $55
million. The consideration for the acquisitions was comprised of cash and common
stock. The Company issued an aggregate of approximately 1.1 million shares of
common stock to effect the transactions. The excess of the purchase price over
the fair value of net assets acquired is included in goodwill and other
purchased intangibles in the accompanying consolidated balance sheets and is
being amortized over two years. The results of operations of the acquired
companies are included in the Company's consolidated financial results beginning
on the date of acquisition.
The following table presents unaudited consolidated pro forma financial
information for the six months ended June 30, 1998 and 1997, as though the
acquisitions made in 1998 had occurred on January 1 of each year:
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
-------------- -------------
<S> <C> <C>
Net sales $ 206,800 $ 47,016
Net loss (40,726) (24,261)
Basic and diluted loss per share (0.85) (0.58)
</TABLE>
Net loss in the above table includes amortization of goodwill and other
purchased intangibles of $14.7 million and $14.3 million for the six months
ended June 30, 1998 and 1997, respectively. The unaudited pro forma financial
information is presented for information purposes only and is not necessarily
indicative of the operating results that would have occurred had the
acquisitions taken place on the basis assumed above. In addition, the pro forma
results are not intended to be a projection of future results and do not reflect
any synergies that might have been achieved from the combined operations.
NOTE 3 - DEBT
On May 8, 1998, the Company completed the offering of approximately $326 million
gross proceeds of the Senior Discount Notes due May 1, 2008. The Senior Discount
Notes were sold at a substantial discount from their principal amount at
maturity of $530 million. Prior to November 1, 2003, no cash interest payments
are required; instead, interest will accrete during this period to the $530
million aggregate principal amount at maturity. From and after May 1, 2003, the
Senior Discount Notes will bear interest at a rate of 10% per annum payable in
cash on each May 1 and November 1.
The Senior Discount Notes are redeemable, at the option of the Company, in whole
or in part, at any time on or after May 1, 2003, at the redemption prices set
forth in the Indenture for the Senior Discount Notes (the "Indenture"), plus
accrued interest, if any, to the date of redemption. At any time prior to May 1,
2001, the Company also may redeem up to 35% of the aggregate principal amount at
maturity of the Senior Discount Notes with the proceeds of one or more sales of
Capital Stock (as defined in the Indenture) (other than Disqualified Stock (as
defined in the Indenture)), at 110 % of their Accreted Value (as defined in the
Indenture) on the redemption date, plus accrued interest, if any, to the date of
redemption; provided that after any such redemption at least 65% of the
aggregate principal amount at maturity of Senior Discount Notes originally
issued remains outstanding. In addition, at any time prior to May 1, 2003, the
Company may redeem all, but not less than all, of the Senior Discount Notes at a
redemption price equal to the sum of (i) the Accreted Value (as defined in the
Indenture) on the redemption date, plus (ii) accrued interest, if any, to the
redemption date, plus (iii) the Applicable Premium (as defined in the
Indenture).
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Upon a Change of Control (as defined in the Indenture), the Company would be
required to make an offer to purchase the Senior Discount Notes at a purchase
price equal to 101% of their Accreted Value on the date of purchase, plus
accrued interest, if any. There can be no assurance that the Company would have
sufficient funds available at the time of any Change of Control to make any
required debt repayment (including repurchases of the Senior Discount Notes).
The Senior Discount Notes are senior unsecured indebtedness of the Company
ranking pari passu with the Company's existing and future unsubordinated,
unsecured indebtedness and senior in right of payment to all subordinated
indebtedness of the Company. The Senior Discount Notes are effectively
subordinated to all secured indebtedness and to all existing and future
liabilities of the Company's subsidiaries.
The Indenture contains certain covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries (as defined in the
Indenture) to incur indebtedness, pay dividends, prepay subordinated
indebtedness, repurchase capital stock, make investments, create liens, engage
in transactions with stockholders and affiliates, sell assets and engage in
mergers and consolidations. However, these limitations are subject to a number
of important qualifications and exceptions.
A portion of the net proceeds from the offering of the Senior Discount Notes has
been used to retire approximately $75 million of existing indebtedness. The
Company expects to use the remaining net proceeds for general corporate
purposes, including working capital to fund anticipated operating losses, the
expansion of the Company's core business, investments in new business segments
and markets, including the Company's sale of music products and international
expansion, and capital expenditures. The Company expects, if the opportunity
arises, to use an unspecified portion of the net proceeds to acquire or invest
in complementary businesses, products and technologies.
NOTE 4 - STOCKHOLDERS' EQUITY
On June 1, 1998, the Company effected a two-for-one stock split in the form of a
stock dividend to stockholders of record on May 20, 1998. Accordingly, the
accompanying consolidated financial statements have been restated to reflect the
split.
On June 3, 1998, the Company increased the number of authorized shares of common
stock, par value $0.01 per share, from 100 million shares to 300 million shares.
NOTE 5 - SUBSEQUENT EVENTS
On August 4, 1998, the Company announced that it had entered into definitive
agreements to acquire 100% of the outstanding shares and assume all outstanding
options of Junglee Corporation ("Junglee") and Sage Enterprises, Inc.
("PlanetAll") in exchange for equity having an aggregate value of approximately
$280 million. The Junglee acquisition closed on August 12, 1998. Junglee
develops Web-based virtual database technologies to help consumers find products
on the Internet. PlanetAll provides contact management services via the
Internet, including Web-based address, calendar and reminder features. The
Company has issued approximately 1.6 million shares of common stock and assumed
all (approximately 300,000) outstanding options in connection with the
acquisition of Junglee and will account for this transaction under the purchase
method of accounting. The Company will issue approximately 800,000 shares of
common stock and assume all (approximately 100,000) outstanding options in
connection with the acquisition of PlanetAll and anticipates accounting for this
transaction as a pooling of interests. The PlanetAll transaction is expected to
close during the quarter ending September 30, 1998, subject to customary closing
conditions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements based on current
expectations, estimates and projections about the Company's industry,
management's beliefs and certain assumptions made by management. All statements,
trends, analyses and other information contained in this report relative to
trends in net sales, gross margin, anticipated expense levels, liquidity and
capital resources, as well as other statements, including, but not limited to,
words such as "anticipate," "believe," "plan," "estimate," "expect," "seek" and
"intend," and other similar expressions, constitute forward-looking statements.
These forward-looking statements involve risks and uncertainties, and actual
results may differ materially from those anticipated or expressed in such
statements. Potential risks and uncertainties include, among others, those set
forth under "Overview," "Liquidity and Capital Resources," and "Additional
Factors That May Affect Future Results" included in this "Management's
Discussion and
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Analysis of Financial Condition and Results of Operations" and in the "Risk
Factors" section of the Company's annual report on Form 10-K for the year ended
December 31, 1997, as filed with the SEC. Particular attention should be paid to
the cautionary statements involving the Company's limited operating history, the
unpredictability of its future revenues, the unpredictable and evolving nature
of its business model, the intensely competitive online commerce and retail book
and music industries, the risks associated with management and integration of
business combinations, and the risks associated with capacity constraints,
systems development, management of growth, any new products and international or
domestic business expansion. Except as required by law, the Company undertakes
no obligation to update any forward-looking statement, whether as a result of
new information, future events or otherwise. Readers, however, should carefully
review the factors set forth in other reports or documents that the Company
files from time to time with the SEC.
OVERVIEW
Amazon.com is the leading online retailer of books and music. The Company also
sells videotapes, audiotapes and other products. All of these products are sold
through the Company's Web site. The Company was incorporated in July 1994 and
commenced offering products for sale on its Web site in July 1995. Accordingly,
the Company has a limited operating history on which to base an evaluation of
its business and prospects. The Company's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets such as online commerce. Such risks for the Company include,
but are not limited to, an evolving and unpredictable business model and the
management of growth. To address these risks, the Company must, among other
things, maintain and increase its customer base, implement and successfully
execute its business and marketing strategy and its expansion into new product
or geographic markets, effectively manage and integrate acquisitions and other
business combinations, continue to develop and upgrade its technology and
transaction-processing systems, improve its Web site, provide superior customer
service and order fulfillment, respond to competitive developments, and attract,
retain and motivate qualified personnel. There can be no assurance that the
Company will be successful in addressing such risks, and the failure to do so
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Since inception, the Company has incurred significant losses and as of June 30,
1998, had an accumulated deficit of $64.1 million. The Company believes that its
success will depend in large part on its ability to (i) extend its brand
position, (ii) provide its customers with outstanding value and a superior
shopping experience, and (iii) achieve sufficient sales volume to realize
economies of scale. Accordingly, the Company intends to continue to invest
heavily in marketing and promotion, product development and technology, and
operating infrastructure development. The Company also offers attractive pricing
programs, which have resulted in relatively low product gross margins. As a
result, achieving profitability given planned investment levels depends on the
Company's ability to generate and sustain substantially increased revenue
levels. In addition, amounts associated with the Company's recent acquisitions,
including amortization of goodwill and other purchased intangibles and ongoing
operating expenses of those companies, as well as interest expense related to
the Senior Discount Notes (as defined below) will further affect the Company's
operating results. As a result of the foregoing factors, the Company believes
that it will continue to incur substantial operating losses for the foreseeable
future and that the rate at which such losses will be incurred will increase
significantly from current levels. Although the Company has experienced
significant revenue growth in recent periods, such growth rates are not
sustainable and will decrease in the future. In view of the rapidly evolving
nature of the Company's business and its limited operating history, the Company
believes that period-to-period comparisons of its operating results, including
the Company's gross profit and operating expenses as a percentage of net sales,
are not necessarily meaningful and should not be relied upon as an indication of
future performance.
As a result of the Company's limited operating history and the emerging nature
of the markets in which it competes, the Company is unable to accurately
forecast its revenues. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenues and are to a
large extent fixed. Sales and operating results generally depend on the volume
of, timing of and ability to fulfill orders received, which are difficult to
forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to the Company's planned expenditures would
have an immediate adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to changes
in the competitive environment, the Company may from time to time make certain
pricing, service, marketing or acquisition decisions that could have a material
adverse effect on its business, prospects, financial condition and results of
operations. For example, the Company has recently announced acquisitions that
will result in the Company's incurring significant charges, including
amortization of goodwill and other purchased intangibles and ongoing operating
expenses of the acquired companies.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating
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results include, among others, (i) the Company's ability to retain existing
customers, attract new customers at a steady rate and maintain customer
satisfaction, (ii) the Company's ability to acquire product, to maintain
appropriate inventory levels and to manage fulfillment operations, (iii) the
Company's ability to maintain gross margins in its existing business and in
future product lines and markets, (iv) the development, announcement or
introduction of new sites, services and products by the Company and its
competitors, (v) price competition or higher wholesale prices in the industry,
(vi) the level of use of the Internet and online services and increasing
consumer acceptance of the Internet and other online services for the purchase
of products such as those offered by the Company, (vii) the Company's ability to
upgrade and develop its systems and infrastructure, (viii) the Company's ability
to attract new personnel in a timely and effective manner, (ix) the level of
traffic on the Company's Web site, (x) the Company's ability to manage
effectively its development of new business segments and markets, (xi) the
Company's ability to successfully manage the integration of operations and
technology of acquisitions and other business combinations, (xii) technical
difficulties, system downtime or Internet brownouts, (xiii) the amount and
timing of operating costs and capital expenditures relating to expansion of the
Company's business, operations and infrastructure, (xiv) the number of popular
books, music selections and other products introduced during the period, (xv)
the level of merchandise returns experienced by the Company, (xvi) governmental
regulation and taxation policies, (xvii) disruptions in service by common
carriers due to strikes or otherwise, and (xviii) general economic conditions
and economic conditions specific to the Internet, online commerce and the book
and music industries.
The Company expects that it will experience seasonality in its business,
reflecting a combination of seasonal fluctuations in Internet usage and
traditional retail seasonality patterns. Internet usage and the rate of Internet
growth may be expected to decline during the summer. Further, sales in the
traditional retail book and music industries are generally significantly higher
in the fourth calendar quarter of each year.
Due to the foregoing factors, in one or more future quarters the Company's
operating results may fall below the expectations of securities analysts or
investors. In such event, the trading price of the common stock would likely be
materially adversely affected.
RECENT EVENTS
In April 1998, the Company acquired three Internet companies: Bookpages Limited
("Bookpages"), Telebook, Inc. ("Telebook") and Internet Movie Database Limited
("IMDB"). Bookpages and Telebook are online booksellers. Bookpages has
operations in the United Kingdom, and Telebook has operations primarily in
Germany through its ABC Bucherdienst subsidiary. IMDB operates a comprehensive
repository for movie information on the Internet. Each of the acquisitions was
accounted for under the purchase method of accounting. The aggregate purchase
price of the three acquisitions, plus related charges, was approximately $55
million. The consideration for the acquisitions was comprised of cash and common
stock. The Company issued an aggregate of approximately 1.1 million shares of
common stock to effect the transactions. The Company will amortize the
intangibles resulting from the acquisitions over two years.
On August 4, 1998, the Company announced that it had entered into definitive
agreements to acquire 100% of the outstanding shares and assume all outstanding
options of Junglee Corporation ("Junglee") and Sage Enterprises, Inc.
("PlanetAll") in exchange for equity having an aggregate value of approximately
$280 million. The Junglee acquisition closed on August 12, 1998. Junglee
develops Web-based virtual database technologies to help consumers find products
on the Internet. PlanetAll provides contact management services via the
Internet, including Web-based address, calendar and reminder features. The
Company has issued approximately 1.6 million shares of common stock and assumed
all (approximately 300,000) outstanding options in connection with the
acquisition of Junglee and will account for this transaction under the purchase
method of accounting. The Company will issue approximately 800,000 shares of
common stock and assume all (approximately 100,000) outstanding options in
connection with the acquisition of PlanetAll and anticipates accounting for this
transaction as a pooling of interests. The PlanetAll transaction is expected to
close during the quarter ending September 30, 1998, subject to customary closing
conditions.
The Company anticipates that the application of purchase accounting guidelines
to the Junglee purchase will result in substantial additional charges to its
operating results. Under the purchase method of accounting, the purchase price
is allocated to the assets acquired and liabilities assumed based on their
estimated fair values. Management anticipates allocating the purchase price to
the fair values of the tangible assets, intangible assets and technology, some
of which has not reached technological feasibility and therefore has no
alternative future use. In addition, the Company anticipates recording costs
related to the Junglee and PlanetAll acquisitions in the quarter ending
September 30, 1998. In addition, both entities are currently incurring operating
losses. The Company intends to continue investing in product development,
marketing and sales, and general and administrative activities for the acquired
companies, and expects that such expenses, combined with amortization of
goodwill and other purchased intangibles, will significantly exceed revenues
generated by the companies for the foreseeable future.
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RESULTS OF OPERATIONS
Net Sales
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------------------- -----------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 % Change 1998 1997 % Change
---------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) (in thousands)
Net sales................. $115,977 $27,855 316% $203,352 $43,860 364%
</TABLE>
Net sales are composed of the selling price of books, music and other
merchandise sold by the Company, net of returns, as well as outbound shipping
and handling charges. Growth in net sales reflects a significant increase in
units sold due to the growth of the Company's customer base and repeat purchases
from the Company's existing customers and, to a smaller extent, increased sales
of music following the opening of the Company's music store in June 1998 and the
inclusion of sales from the companies acquired in April 1998. This increase was
partially offset by a decrease in prices effected in June 1997. International
sales represented 22% and 28% of net sales for the quarters ended June 30, 1998
and 1997, respectively, and 21% and 28% of net sales for the six months ended
June 30, 1998 and 1997, respectively.
Gross Profit
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------------------- ----------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 % Change 1998 1997 % Change
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) (in thousands)
Gross profit..................... $26,191 $ 5,222 401% $45,512 $ 8,743 421%
Gross margin..................... 22.6% 18.7% 22.4% 19.9%
</TABLE>
Gross profit is sales less the cost of sales, which consists of the cost of
merchandise sold to customers, and outbound and inbound shipping costs. Gross
profit increased in absolute dollars, reflecting the Company's increased sales
volume. Gross margin increased as a result of improvements in product costs
through improved supply chain management, as well as higher overall shipping
margins, which together more than offset the impact of lower prices.
The Company believes that offering its customers attractive prices is an
essential component of its business strategy. Accordingly, the Company offers
everyday discounts of up to 30% on more than 400,000 titles, with featured book
and music titles discounted at 40% and certain "special value" editions
discounted up to 89%. The Company may in the future expand or increase the
discounts it offers to its customers and may otherwise alter its pricing
structure and policies.
The Company over time intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product or service offerings. Gross margins attributable to new business
areas may be lower than those associated with the Company's existing business
activities. In particular, the Company has launched its new music store and
music gross margin is lower than book gross margin. To the extent music becomes
a larger portion of the Company's product mix, it is expected to have a
proportionate impact on overall product gross margin.
Marketing and Sales
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
----------------------------------------- ----------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 % Change 1998 1997 % Change
----------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) (in thousands)
Marketing and sales.............. $26,452 $ 7,773 240% $45,955 $11,679 293%
Percentage of net sales.......... 22.8% 27.9% 22.6% 26.6%
</TABLE>
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Marketing and sales expenses consist primarily of advertising, public relations
and promotional expenditures, as well as payroll and related expenses for
personnel engaged in marketing, selling and fulfillment activities. All
fulfillment costs not included in cost of sales, including the cost of operating
and staffing distribution centers and customer service, are included in
marketing and sales. Marketing and sales expenses increased primarily due to
increases in the Company's advertising and promotional expenditures, increased
payroll and related costs associated with fulfilling customer demand and
increased credit card fees resulting from higher sales. Such expenses decreased
as a percentage of net sales due to the significant increase in net sales. The
Company intends to continue to pursue its aggressive branding and marketing
campaign and expects its costs of fulfillment to increase based on anticipated
sales growth. In addition, the Company intends to invest in marketing, promotion
and fulfillment activities related to its product and international expansion,
as well as in marketing and sales activities of Junglee and PlanetAll. As a
result of the foregoing, the Company expects marketing and sales expenses to
increase significantly in absolute dollars.
Product Development
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------------------- ----------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 % Change 1998 1997 % Change
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) (in thousands)
Product development.............. $8,060 $ 2,808 187% $14,789 $ 4,383 237%
Percentage of net sales.......... 6.9% 10.1% 7.3% 10.0%
</TABLE>
Product development expenses consist principally of payroll and related expenses
for development, editorial, systems and telecommunications operations personnel
and consultants, as well as systems and telecommunications infrastructure, and
costs of acquired content partially attributable to the recent entry into music
sales. The increases in product development expenses were primarily attributable
to increased staffing and associated costs related to enhancing the features,
content and functionality of the Company's Web site and transaction-processing
systems, as well as increased investment in systems and telecommunications
infrastructure, including investments associated with entry into music sales and
operating expenses associated with the acquisitions of Telebook, Bookpages and
IMDB. Product development expenses decreased as a percentage of net sales due to
the significant increase in net sales. To date, all product development costs
have been expensed as incurred. The Company believes that continued investment
in product development is critical to attaining its strategic objectives. In
addition to ongoing investments in its Web store and infrastructure, the Company
intends to increase investments in product and international expansion and to
continue investments by Junglee and PlanetAll. As a result, the Company expects
product development expenses to increase significantly in absolute dollars.
General and Administrative
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------------------- ----------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 % Change 1998 1997 % Change
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) (in thousands)
General and administrative....... $ 3,262 $ 1,708 91% $ 5,225 $ 2,850 83%
Percentage of net sales.......... 2.8% 6.1% 2.6% 6.5%
</TABLE>
General and administrative expenses consist of payroll and related expenses for
executive, accounting and administrative personnel, recruiting, professional
fees and other general corporate expenses. The increase in general and
administrative expenses was primarily a result of increased salaries and related
expenses associated with the hiring of additional personnel, expenses associated
with newly acquired subsidiaries, and legal and other professional fees related
to the Company's growth and expanded activities. Such expenses decreased as a
percentage of net sales due to the significant increase in net sales. The
Company expects general and administrative expenses to increase in absolute
dollars as the Company expands its staff and incurs additional costs related to
the growth of its business, including investments associated with product and
international expansion and the operations of Junglee and PlanetAll.
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<PAGE> 13
Amortization of Goodwill and Other Purchased Intangibles
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------------------- ----------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 % Change 1998 1997 % Change
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) (in thousands)
Amortization of goodwill and
other purchased intangibles...... $ 5,413 - N/A $ 5,413 - N/A
Percentage of net sales.......... 4.7% 2.7% -
</TABLE>
Amortization of goodwill and other purchased intangibles consists of
amortization of goodwill and other purchased intangibles incurred in connection
with the Company's April 1998 acquisitions of three Internet companies:
Bookpages, Telebook and IMDB. See " - Recent Events." Each of the acquisitions
was accounted for under the purchase method of accounting. The Company
anticipates that future amortization associated with these three acquisitions
will increase net loss by approximately $7.1 million per quarter until related
goodwill and other purchased intangibles are fully amortized. As a result of the
recently completed acquisition of Junglee, the Company expects that operating
expenses will increase to reflect the amortization of associated goodwill and
other intangibles. Any additional acquisitions could result in additional
amortization charges.
Interest Income and Expense
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
---------------------------------------- ----------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 % Change 1998 1997 % Change
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) (in thousands)
Interest income.................. $ 3,334 $ 366 811% $ 4,974 $ 430 1,057%
Interest expense................. (7,564) (4) N/A (9,589) (4) N/A
</TABLE>
Interest income on cash and marketable securities increased due to higher
balances resulting from the Company's financing activities. Interest expense for
the quarter ended June 30, 1998 includes interest and amortization of deferred
charges related to the Company's Senior Discount Notes (as defined below) and
the write-off of $2.0 million of unamortized loan fees following prepayment of
the Company's three-year senior secured term loan (the "Senior Loan"). Interest
expense for the quarter and six months ended June 30, 1998 also includes
interest on the Senior Loan and asset acquisitions financed through loans and
capital leases. The Company expects interest expense to increase in the future
as a result of the Senior Discount Notes (as defined below).
Income Taxes
The Company has not generated any taxable income to date and therefore has not
paid any federal income taxes since inception. Utilization of the Company's net
operating loss carryforwards, which begin to expire in 2011, may be subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986, as
amended. The Company has provided a full valuation allowance on the deferred tax
asset, consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its realizability.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's cash was $2.5 million, compared to $1.6 million
at December 31, 1997. Marketable securities balances, which include highly
liquid investments with maturities of three months or less, were $337.4 million
and $123.5 million at June 30, 1998 and December 31, 1997, respectively.
Net cash used in operating activities of $4.4 million for the six months ended
June 30, 1998 was primarily attributable to the net loss and increases in
inventories and prepaid expenses and other, partially offset by noncash expenses
and increases in
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accounts payable, accrued advertising and other liabilities and accrued
expenses. For the six months ended June 30, 1997, cash provided by operating
activities was $2.6 million and resulted from increases in accounts payable,
other liabilities and accrued expenses and accrued advertising, as well as
depreciation and amortization, partially offset by the net loss and increases in
inventories.
Net cash used in investing activities was $236.6 million for the six months
ended June 30, 1998 and consisted of purchases of marketable securities and
acquisitions of businesses and fixed assets, partially offset by maturities of
marketable securities. For the six months ended June 30, 1997, net cash used in
investing activities was $47.1 million and consisted of purchases of marketable
securities and fixed assets.
Net cash provided by financing activities of $242.1 million for the six months
ended June 30, 1998 resulted from net proceeds of $318.2 million from the Senior
Discount Notes (as defined below) offering partially offset by the repayment of
the Senior Loan. Net cash provided by financing activities of $49.8 million for
the six months ended June 30, 1997 resulted primarily from net proceeds from the
Company's initial public offering.
As of June 30, 1998, the Company's principal sources of liquidity consisted of
$2.5 million of cash and $337.4 million of marketable securities. As of that
date, the Company's principal commitments consisted of obligations outstanding
under its Senior Discount Notes (as defined below), obligations in connection
with the acquisition of fixed assets, operating leases and commitments for
advertising and promotional arrangements. Although the Company has no material
commitments for capital expenditures, it anticipates a substantial increase in
its capital expenditures and lease commitments consistent with anticipated
growth in operations, infrastructure and personnel including growth associated
with product and geographic expansion and integration of business combinations.
The Company recently entered into lease arrangements to increase its
distribution center capacity in the United Kingdom and expanded its Seattle
distribution center to 93,000 square feet. In addition, the Company is currently
pursuing a long-term headquarters lease and may enter into such a lease as soon
as the third quarter of 1998. The Company may establish one or more additional
distribution centers within the next 12 months, which would require it to commit
to lease obligations, stock inventories, purchase fixed assets and install
leasehold improvements. In addition, the Company has announced plans to continue
to increase its merchandise inventory in order to provide better availability to
customers and achieve purchasing efficiencies.
On May 8, 1998, the Company completed the offering of approximately $326 million
gross proceeds of the Senior Discount Notes ("Senior Discount Notes") due May 1,
2008. The Senior Discount Notes were sold at a substantial discount from their
principal amount at maturity of $530 million. Prior to November 1, 2003, no cash
interest payments are required; instead, interest will accrete during this
period to the $530 million aggregate principal amount at maturity. From and
after May 1, 2003, the Senior Discount Notes will bear interest at the rate of
10% per annum payable in cash on each May 1 and November 1.
The Senior Discount Notes are redeemable, at the option of the Company, in whole
or in part, at any time on or after May 1, 2003, at the redemption prices set
forth in the Indenture for the Senior Discount Notes (the "Indenture"), plus
accrued interest, if any, to the date of redemption. At any time prior to May 1,
2001, the Company also may redeem up to 35% of the aggregate principal amount at
maturity of the Senior Discount Notes with the proceeds of one or more sales of
Capital Stock (as defined in the Indenture) (other than Disqualified Stock (as
defined in the Indenture)), at 110 % of their Accreted Value (as defined in the
Indenture) on the redemption date, plus accrued interest, if any, to the date of
redemption; provided that after any such redemption at least 65% of the
aggregate principal amount at maturity of Senior Discount Notes originally
issued remains outstanding. In addition, at any time prior to May 1, 2003, the
Company may redeem all, but not less than all, of the Senior Discount Notes at a
redemption price equal to the sum of (i) the Accreted Value (as defined in the
Indenture) on the redemption date, plus (ii) accrued interest, if any, to the
redemption date, plus (iii) the Applicable Premium (as defined in the
Indenture).
Upon a Change of Control (as defined in the Indenture), the Company would be
required to make an offer to purchase the Senior Discount Notes at a purchase
price equal to 101% of their Accreted Value on the date of purchase, plus
accrued interest, if any. There can be no assurance that the Company would have
sufficient funds available at the time of any Change of Control to make any
required debt repayment (including repurchases of the Senior Discount Notes).
The Senior Discount Notes are senior unsecured indebtedness of the Company
ranking pari passu with the Company's existing and future unsubordinated,
unsecured indebtedness and senior in right of payment to all subordinated
indebtedness of the Company. The Senior Discount Notes are effectively
subordinated to all secured indebtedness and to all existing and future
liabilities of the Company's subsidiaries.
The Indenture contains certain covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries to incur indebtedness,
pay dividends, prepay subordinated indebtedness, repurchase capital stock, make
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investments, create liens, engage in transactions with stockholders and
affiliates, sell assets and engage in mergers and consolidations. However, these
limitations are subject to a number of important qualifications and exceptions.
A portion of the net proceeds from the offering of the Senior Discount Notes has
been used to retire approximately $75 million of existing indebtedness. The
Company expects to use the remaining net proceeds for general corporate
purposes, including working capital to fund anticipated operating losses, the
expansion of the Company's core business, investments in new business segments
and markets, including the Company's sales of music products and international
expansion, and capital expenditures. The Company expects, if the opportunity
arises, to use an unspecified portion of the net proceeds to acquire or invest
in complementary businesses, products and technologies.
The Company believes that current cash and marketable securities balances will
be sufficient to meet its anticipated cash needs for at least 12 months.
However, any projections of future cash needs and cash flows are subject to
substantial uncertainty. If current cash, marketable securities and cash which
may be generated from operations are insufficient to satisfy the Company's
liquidity requirements, the Company may seek to sell additional equity or debt
securities or to obtain a line of credit. The sale of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders. There can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at all. In addition, the
Company will, from time to time, consider the acquisition of or investment in
complementary businesses, products and technologies, which might increase the
Company's liquidity requirements or cause the Company to issue additional equity
or debt securities. For example, the Company recently announced the acquisitions
of Junglee and PlanetAll, which together will result in the issuance of
approximately 2.4 million shares of common stock and assumption of approximately
400,000 outstanding options.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the factors discussed in the "Overview" and "Liquidity and
Capital Resources" sections of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in the Company's annual
report on Form 10-K for the year ended December 31, 1997, as filed with the SEC,
the following additional factors may affect the Company's future results.
The online commerce market, particularly over the Web, is new, rapidly evolving
and intensely competitive. In addition, the retail book and music industries are
intensely competitive. The Company's current or potential competitors include
(i) various online booksellers and vendors of other products such as CDs and
videotapes, including entrants into narrow specialty niches, (ii) a number of
indirect competitors that specialize in online commerce or derive a substantial
portion of their revenues from online commerce, through which retailers other
than the Company may offer products, and (iii) publishers, distributors and
retail vendors of books, music and other products, including Barnes & Noble,
Inc., Bertelsmann AG and other large specialty booksellers and integrated media
corporations, many of which possess significant brand awareness, sales volume
and customer bases. The Company believes that the principal competitive factors
in its market are brand recognition, selection, personalized services,
convenience, price, accessibility, customer service, quality of search tools,
quality of editorial and other site content, and reliability and speed of
fulfillment. Many of the Company's competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than the Company. Certain of the
Company's competitors may be able to secure merchandise from vendors on more
favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and
devote substantially more resources to Web site and systems development than the
Company. Increased competition may result in reduced operating margins, loss of
market share and a diminished brand franchise. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors.
The Company expects that competition in the Internet and online commerce markets
will intensify in the future. For example, as various Internet market segments
obtain large, loyal customer bases, participants in those segments may seek to
leverage their market power to the detriment of participants in other market
segments. In addition, new technologies and the expansion of existing
technologies may increase the competitive pressures on online retailers,
including the Company. For example, "shopping agent" technologies will permit
customers to quickly compare the Company's prices with those of its competitors.
Competitive pressures created by any one of the Company's competitors, or by the
Company's competitors collectively, could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
The Company's revenues depend on the number of visitors who shop on its Web site
and the volume of orders it fulfills. Any system interruptions that result in
the unavailability of the Company's Web site or reduced order fulfillment
performance would reduce the volume of goods sold and the attractiveness of the
Company's product and service offerings. The Company has experienced periodic
system interruptions, which it believes will continue to occur from time to
time. The Company uses an internally developed system for its Web site, search
engine and substantially all aspects of transaction processing,
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including order management, cash and credit card processing, purchasing,
inventory management and shipping. The Company will be required to add
additional software and hardware and further develop and upgrade its existing
technology, transaction-processing systems and network infrastructure to
accommodate increased traffic on its Web site and increased sales volume through
its transaction-processing systems. Any inability to do so may cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality and speed of order fulfillment, or delays
in reporting accurate financial information. There can be no assurance that the
Company will be able to accurately project the rate or timing of increases, if
any, in the use of its Web site or in a timely manner to effectively upgrade and
expand its transaction-processing systems or to integrate smoothly any newly
developed or purchased modules with its existing systems. Any inability to do so
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Substantially all of the Company's computer and communications hardware is
located at a single leased facility in Seattle, Washington. The Company's
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and similar
events. The Company does not currently have redundant systems or a formal
disaster recovery plan and in the event of a major interruption may not have
sufficient business interruption insurance to compensate it for losses that may
occur. Despite the implementation of network security measures by the Company,
its servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of
critical data or the inability to accept and fulfill customer orders. The
occurrence of any of the foregoing events could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations.
The Company has rapidly and significantly expanded its operations and
anticipates that further expansion will be required to address potential growth
in its customer base, to expand its product and service offerings and its
international operations, and to pursue other market opportunities. The
expansion of the Company's operations and employee base has placed, and is
expected to continue to place, a significant strain on the Company's management,
operational and financial resources. To manage the expected growth of its
operations and personnel, the Company will be required to improve existing and
implement new transaction-processing, operational and financial systems,
procedures and controls, as well as to expand, train and manage its growing
employee base. There can be no assurance that the Company's current and planned
personnel, systems, procedures and controls will be adequate to support the
Company's future operations, that management will be able to hire, train,
retain, motivate and manage required personnel or that Company management will
be able to successfully identify, manage and exploit existing and potential
market opportunities. If the Company is unable to manage growth effectively,
such inability could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
The Company over time intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product or service offerings. For example, the Company introduced its
music store in June 1998. Expansion of the Company's operations in this manner
will require significant additional expenses and development, operations and
editorial resources and could strain the Company's management, financial and
operational resources. Furthermore, the Company may not benefit from the
first-mover advantage that it experienced in the online book market, and gross
margins attributable to new business areas may be lower than those associated
with the Company's existing business activities. There can be no assurance that
the Company will be able to expand its operations in a cost-effective or timely
manner. Furthermore, any new business launched by the Company that is not
favorably received by consumers could damage the Company's reputation or the
Amazon.com brand. The lack of market acceptance of such efforts or the Company's
inability to generate satisfactory revenues from such expanded services or
products to offset their cost could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
The Company expects to expand its presence in foreign markets and has recently
acquired two international online booksellers to accelerate this expansion. To
date, the Company has only limited experience in sourcing, marketing and
distributing products on an international basis and in developing localized
versions of its Web site and other systems. The Company expects to incur
significant costs in establishing international facilities and operations, in
promoting its brand internationally, in developing localized versions of its Web
site and other systems and in sourcing, marketing and distributing products in
foreign markets. There can be no assurance that the Company's international
efforts will be successful. If the revenues resulting from international
activities are inadequate to offset the expense of establishing and maintaining
foreign operations, such inadequacy could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations. In
addition, there are certain risks inherent in doing business on an international
level, such as unexpected changes in regulatory requirements, export and import
restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, political instability,
fluctuations in currency exchange rates, seasonal reductions in business
activity in other parts of the world and potentially adverse tax consequences,
any of which could adversely effect the success of the Company's international
operations. Furthermore, it is possible that governments in certain foreign
jurisdictions may have or enact legislation with respect to the Internet or
other online services
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in such areas as content, network security, encryption or distribution that may
affect the Company's ability to conduct business abroad. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, prospects, financial condition and results of
operations.
The Company may choose to expand its operations or market presence by entering
into business combinations, investments, joint ventures or other strategic
alliances with third parties, such as the Company's April acquisitions of three
international Internet companies, the August acquisition of Junglee and the
pending acquisition of PlanetAll. Any such transaction will be accompanied by
risks commonly encountered in such transactions, which include, among others,
the difficulty of assimilating the operations, technology and personnel of the
combined companies, the potential disruption of the Company's ongoing business,
the possible inability to retain key technical and managerial personnel, the
potential inability of management to maximize the financial and strategic
position of the Company through the successful integration of acquired
businesses, additional expenses associated with amortization of goodwill and
purchased intangible assets, additional operating losses and expenses associated
with the activities and expansion of acquired businesses, the maintenance of
uniform standards, controls and policies and the possible impairment of
relationships with existing employees and customers. There can be no assurance
that the Company will be successful in overcoming these risks or any other
problems encountered in connection with such business combinations, investments,
joint ventures or other strategic alliances, or that such transactions will not
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
The Company has significant indebtedness outstanding, principally the Senior
Discount Notes (see " - Liquidity and Capital Resources"), capitalized lease
obligations and other equipment financing. The Company may incur substantial
additional indebtedness in the future. The level of the Company's indebtedness,
among other things, could (i) make it difficult for the Company to make payments
on the Senior Discount Notes, (ii) make it difficult for the Company to obtain
any necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes, (iii) limit the Company's
flexibility in planning for, or reacting to changes in, its business, and (iv)
make it more vulnerable in the event of a downturn in its business. There can be
no assurance that the Company will be able to improve its earnings before fixed
charges or that the Company will be able to meet its debt service obligations,
including its obligations under the Senior Discount Notes. In the event the
Company's cash flow is inadequate to meet its obligations, the Company could
face substantial liquidity problems. If the Company is unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or if the Company otherwise fails to comply with the various covenants
in its indebtedness, it would be in default under the terms thereof, which would
permit the holders of such indebtedness to accelerate the maturity of such
indebtedness and could cause defaults under other indebtedness of the Company.
Any such default could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
The trading price of the Company's common stock is subject to wide fluctuations.
For example, during the quarter ended June 30, 1998, the reported closing price
of the common stock on the Nasdaq National Market was as high as $99.81 and as
low as $40.50 per share. Trading prices of the common stock may fluctuate in
response to a number of events and factors, such as quarterly variations in
operating results, announcements of innovations, new products, strategic
developments or business combinations by the Company or its competitors, changes
in the Company's expected operating expense levels or losses, changes in
financial estimates and recommendations by securities analysts, the operating
and stock price performance of other companies that investors may deem
comparable to the Company, news reports relating to trends in the Internet, book
or music industries and other events or factors, many of which are beyond the
Company's control. In addition, the stock market in general, and the market
prices for Internet-related companies in particular, have experienced extreme
volatility that often has been unrelated to the operating performance of such
companies. These broad market and industry fluctuations may adversely affect the
trading price of the Company's common stock, regardless of the Company's
operating performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 5, 1998, The Intimate Bookshop and Wallace Kuralt (the "Named
Plaintiffs") filed a lawsuit in the United States District Court for the
Southern District of New York against Amazon.com, Inc., Barnes & Noble, Inc.,
Borders Group, Inc. and others alleging antitrust, unfair competition and
related claims under the Robinson-Patman Act, the Clayton Act, the Donnelly Act
and other New York state statutes and common law (the "Lawsuit"). The Lawsuit
seeks class action
Page 17
<PAGE> 18
certification, for certain purposes, of a class comprised of independent retail
booksellers (the "Class") and requests the following relief: damages on behalf
of the Named Plaintiffs (approximately $11,250,000) and the Class, treble
damages on behalf of the Named Plaintiffs and the Class, disgorgement of
allegedly discriminatory discounts, rebates and deductions, injunctive relief,
punitive damages, prejudgment and post-judgment interest, attorney's fees and
costs.
The Company has not yet been served with the Complaint. The Company has not yet
had an opportunity to evaluate the merits of the Lawsuit and is not in a
position at this time to estimate possible outcomes. The Company intends to
defend against the Lawsuit vigorously.
From time to time, the Company is subject to other legal proceedings and claims
in the ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company currently is not
aware of any such legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on its business,
prospects, financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Sale of Senior Discount Notes
On May 8, 1998, the Company completed the offering of approximately $326 million
gross proceeds of the Senior Discount Notes due May 1, 2008. The Senior Discount
Notes were sold at a substantial discount from their principal amount at
maturity of $530 million. Prior to November 1, 2003, no cash interest payments
are required; instead, interest will accrete during this period to the $530
million aggregate principal amount at maturity. From and after May 1, 2003, the
Senior Discount Notes will bear interest at the rate of 10% per annum payable in
cash on each May 1 and November 1.
The Senior Discount Notes are redeemable, at the option of the Company, in whole
or in part, at any time on or after May 1, 2003, at the redemption prices
(expressed in percentages of principal amount at maturity) set forth below, plus
accrued interest, if any, to the date of redemption, if redeemed during the
12-month period commencing May 1 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
<S> <C>
2003 105.000%
2004 103.333
2005 101.667
2006 and thereafter 100.000
</TABLE>
At any time prior to May 1, 2001, the Company also may redeem up to 35% of the
aggregate principal amount at maturity of the Senior Discount Notes with the
proceeds of one or more sales of Capital Stock (as defined in the Indenture)
(other than Disqualified Stock (as defined in the Indenture)), at 110% of their
Accreted Value on the redemption date, plus accrued interest, if any, to the
date of redemption; provided that after any such redemption at least 65% of the
aggregate principal amount at maturity of Senior Discount Notes originally
issued remains outstanding. In addition, at any time prior to May 1, 2003, the
Company may redeem all, but not less than all, of the Senior Discount Notes at a
redemption price equal to the sum of (i) the Accreted Value on the redemption
date, plus (ii) accrued interest, if any, to the redemption date, plus (iii) the
Applicable Premium (as defined in the Indenture).
Upon a Change of Control (as defined in the Indenture), the Company would be
required to make an offer to purchase the Senior Discount Notes at a purchase
price equal to 101% of their Accreted Value on the date of purchase, plus
accrued interest, if any.
The Senior Discount Notes are senior unsecured indebtedness of the Company
ranking pari passu with the Company's existing and future unsubordinated,
unsecured indebtedness and senior in right of payment to all subordinated
indebtedness of the Company. The Senior Discount Notes are effectively
subordinated to all secured indebtedness and to all existing and future
liabilities of the Company's subsidiaries.
The Senior Discount Notes were issued pursuant to an Indenture dated as of May
8, 1998 between the Company and the Bank of New York, as trustee. The Indenture
for the Senior Discount Notes contains certain covenants that, among other
things, limit the ability of the Company and its Restricted Subsidiaries (as
defined in the Indenture) to incur indebtedness, pay dividends, prepay
subordinated indebtedness, repurchase capital stock, make investments, create
liens, engage in transactions with stockholders and affiliates, sell assets and
engage in mergers and consolidations. These limitations are, however, subject to
a number of important qualifications and exceptions.
Page 18
<PAGE> 19
Recent Sales of Unregistered Equity Securities
The Company issued 1.1 million shares of its common stock in connection with the
acquisitions of the following companies: Bookpages on April 17, 1998; Telebook
on April 24, 1998; and IMDB on April 24, 1998. The form of the transactions for
Bookpages and IMDB was an exchange of the Company's common stock plus, in the
case of IMDB, cash for the entire issued share capital of the acquired
businesses. For Telebook, the form of the transaction was a merger, whereby
Telebook was merged into a wholly-owned subsidiary of the Company in exchange
for shares of the Company's common stock. No underwriters were used and the
recipients of the Company's common stock were the shareholders of the acquired
companies.
Twenty-one of the former shareholders of the acquired companies are non-U.S.
residents who collectively received 702,648 shares of the Company's common
stock. The shares were not registered under the Securities Act of 1933, as
amended (the "Securities Act") pursuant to the safe harbor contained in
Regulation S thereunder. The shares issued to non-U.S. residents were sold in
offshore transactions in accordance with the offering restrictions of Regulation
S and no directed selling efforts were made in the United States.
Five of the former shareholders of the acquired companies are U.S. residents who
collectively received 377,484 shares of the Company's common stock. The shares
were not registered under the Securities Act pursuant to the exemption set forth
in Section 4(2) thereof. All U.S. residents who received shares of the Company's
common stock made certain representations to the Company as to investment
intent, possessed a sufficient level of financial sophistication and received or
had access to information about the Company. The shares issued in the
transactions are subject to restrictions on transfer absent registration under
the Securities Act, and no offers to sell the securities were made by any form
of general solicitation or general advertisement.
Use of Proceeds
The Company's registration statement (No. 333-23795) under the Securities Act
for its initial public offering (the "Registration Statement") became effective
on May 14, 1997. Offering proceeds, net of aggregate expenses of approximately
$4.9 million, were $49.1 million. The Company has used approximately $15.3
million of the net offering proceeds for working capital paid directly or
indirectly to third parties, approximately $15.0 million for the acquisition of
businesses, approximately $14.9 million for the purchase or installation of
machinery and equipment and approximately $3.9 million for the purchase of
temporary investments consisting of cash and marketable securities. The Company
has not used any of the net offering proceeds for construction of a plant,
building or facilities, purchases of real estate, or repayment of indebtedness.
None of the net offering proceeds were paid directly or indirectly to directors,
officers or general partners of the Company or their associates, persons owning
10% or more of any class of the Company's securities, or affiliates of the
Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on May 28, 1998.
The following nominees were elected as directors, each to hold office until his
or her successor is elected and qualified, by the vote set forth below:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
<S> <C> <C>
Jeffrey P. Bezos 44,904,922 13,400
Tom A. Alberg 44,904,862 13,460
Scott D. Cook 44,904,722 13,600
L. John Doerr 44,904,862 13,460
Patricia Q. Stonesifer 44,902,496 15,826
</TABLE>
The proposal to approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of common stock from
100 million shares to 300 million shares was approved by the vote set forth
below:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NONVOTES
<S> <C> <C> <C>
43,565,608 1,241,268 111,446 0
</TABLE>
Page 19
<PAGE> 20
ITEM 5. OTHER INFORMATION
In accordance with the Company's Bylaws, a stockholder proposing to transact
business at the Company's annual meeting must provide written notice of such
proposal, in the manner provided by the Company's Bylaws, not fewer than 60 nor
more than 90 days prior to the date specified in the Bylaws for such annual
meeting (or, if less than 60 days' notice or prior public disclosure of the date
of the annual meeting is given or made to the stockholders, not later than the
tenth day following the day on which the notice of the meeting was mailed or
such public disclosure was made). In addition, for the Company's 1999 annual
meeting of stockholders, if the Company receives notice of a stockholder
proposal after March 6, 1999 and the proposal is otherwise eligible to be
considered at the meeting, the persons named as proxies in such proxy statement
and proxy will have discretionary authority to vote on such stockholder
proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of August 3, 1998, by and
among Amazon.com, Inc., AJ Acquisition, Inc. and Junglee
Corporation, (incorporated by reference to Exhibit 2.1 of the
Company's Report on Form 8-K filed August 7, 1998).
2.2 Agreement and Plan of Merger dated as of August 3, 1998, by and
among Amazon.com, Inc., Pacific Acquisition, Inc. and Sage
Enterprises, Inc. (incorporated by reference to Exhibit 2.2 of
the Company's Report on Form 8-K filed August 7, 1998).
10.1 Amendment to Lease Agreement, dated June 17, 1998, by and
between Amazon.com, Inc. and Pacific Northwest Group A.
10.2 Lease Agreement, dated July 21, 1998, by and between Bookpages
Limited with Amazon.com, Inc. and Slough Trading Estate Limited.
27 Financial Data Schedule.
99.1 Form of Investor Rights Agreement by and between Amazon.com,
Inc. and certain stockholders of Junglee Corporation named
therein (incorporated by reference to Exhibit 99.1 of the
Company's Report on Form 8-K filed August 7, 1998).
99.2 Form of Investor Rights Agreement by and between Amazon.com,
Inc. and the stockholders of Sage Enterprises, Inc.
(incorporated by reference to Exhibit 99.2 of the Company's
Report on Form 8-K filed August 7, 1998).
(b) Reports on Form 8-K
On April 27, 1998, the Company filed a Form 8-K under Item 5 of Form 8-K
in connection with the Senior Discount Notes.
On April 28, 1998, the Company filed a Form 8-K under Item 5 of Form 8-K
in connection with the Senior Discount Notes.
On May 1, 1998, the Company filed a Form 8-K under Item 9 of Form 8-K in
connection with the sale of unregistered securities pursuant to
Regulation S in connection with the acquisition of Telebook, Bookpages
and IMDB.
On May 6, 1998, the Company filed a Form 8-K under Item 5 of Form 8-K in
connection with the Senior Discount Notes.
Page 20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMAZON.COM, INC.
(REGISTRANT)
DATED: August 14, 1998
By: /S/ Joy D. Covey
Joy D. Covey
Chief Financial Officer,
Vice President of Finance and Administration
and Secretary
Page 21
<PAGE> 22
EXHIBIT INDEX
Exhibit Number Title
- -------------- -----
2.1 Agreement and Plan of Merger dated as of August 3, 1998, by and
among Amazon.com, Inc., AJ Acquisition, Inc. and Junglee
Corporation (incorporated by reference to Exhibit 2.1 of the
Company's Report on Form 8-K filed August 7, 1998).
2.2 Agreement and Plan of Merger dated as of August 3, 1998, by and
among Amazon.com, Inc., Pacific Acquisition, Inc. and Sage
Enterprises, Inc. (incorporated by reference to Exhibit 2.2 of
the Company's Report on Form 8-K filed August 7, 1998).
10.1 Amendment to Lease Agreement, dated June 17, 1998, by and
between Amazon.com, Inc. and Pacific Northwest Group A.
10.2 Lease Agreement, dated July 21, 1998, by and between Bookpages
Limited with Amazon.com, Inc. and Slough Trading Estate Limited.
27 Financial Data Schedule.
99.1 Form of Investor Rights Agreement by and between Amazon.com,
Inc. and certain stockholders of Junglee Corporation named
therein (incorporated by reference to Exhibit 99.1 of the
Company's Report on Form 8-K filed August 7, 1998).
99.2 Form of Investor Rights Agreement by and between Amazon.com,
Inc. and the stockholders of Sage Enterprises, Inc.
(incorporated by reference to Exhibit 99.2 of the Company's
Report on Form 8-K filed August 7, 1998).
<PAGE> 1
EXHIBIT 10.1
3RD AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE is made this 17th day of June, 1998 by and between
PACIFIC NORTHWEST GROUP A, a joint venture (the "Landlord"), and AMAZON.COM, a
Delaware corporation (the "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
September 30, 1996, as amended July 16, 1997 and September 11, 1997 (the
"Lease"), for certain premises located in Building U, Northwest Corporate Park,
Seattle, Washington (the "Premises"), as more fully described in the Lease; and
WHEREAS, the current term of the Lease expires October 31, 2000 and
Landlord and Tenant desire to expand the Premises, adjust the monthly rent, and
to modify the Lease accordingly;
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, the parties mutually agree as follows:
1. Effective July 1, 1998 the Premises shall be increased by
approximately 8,520 square feet for a total of 93,020 square feet as
outlined in red on Exhibit A-3 which shall replace and supersede
Exhibit A-2 to the 2nd Amendment to Lease, Exhibit A-1 to the 1st
Amendment to Lease and Exhibit A to the Lease dated September 30,
1996.
2. Effective July 1, 1998 the monthly base rent, as provided for in
Paragraph 2 of the lease shall be increased to Thirty Seven Thousand
Two Hundred Twenty One and no/100 Dollars ($37,221).
3. Effective November 1, 1998 the monthly base rent, as provided for in
Paragraph 2 of the Lease, shall be increased to Thirty Eight Thousand
Two Hundred Thirty One and no/100 Dollars ($38,231.00).
4. Tenant may make the following changes to the existing improvements.
A. Remove the office space at 550 S. Brandon Street (Johnson
Barrow space)
B. Make openings in the demising wall between 550 S. Brandon
Street (Johnson Barrow space) and 520 S. Brandon Street
C. Remove a portion of the office space at 500 S. Brandon
Street. The extent of removal to be agreed upon by Landlord
and Tenant.
Tenant will not be required to replace the demolished improvements except that
Tenant will restore changes to the demising wall upon expiration of the initial
Lease term.
5. Landlord hereby acknowledges receipt of the sum of Five Thousand
Seven Hundred Twenty Four and no/100 Dollars ($5,724.00) as an additional
security deposit.
6. This 3rd Amendment is conditioned upon and subject to Landlord's
approval and acceptance of a fully executed Agreement to Terminate Lease for
approximately 8,520 square feet of space in Building U, Northwest Corporate
Park, Seattle, Washington, effective June 30, 1998. In the event these
conditions are not met, this document shall be null and void.
7. In the event any payment due from Tenant to Landlord is made by a
party other than Tenant, such payment shall be deemed to have been made by and
for the account of Tenant, and the party making such payment shall have no
rights under this Lease.
8. Tenant warrants that all necessary corporate actions have been duly
taken to permit Tenant to enter into this Amendment to Lease and that each
undersigned officer has been duly authorized and instructed to execute this
Amendment to Lease.
9. Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and confirmed.
<PAGE> 2
<TABLE>
<S><C>
LANDLORD: TENANT:
PACIFIC NORTHWEST GROUP A, AMAZON.COM,
a joint venture a Delaware corporation
By: /s/ WILLIAM G. WILLIAMS III By: /s/ [SIG]
----------------------------------------- -------------------------
William G. Williams III Its: VP & CIO
Vice President, ERE Yarmouth, Inc. -------------------------
as Advisor to California State
Teachers' Retirement System, Venturer
By: /s/ GLEN R. SCOTT
-----------------------------------------
Glen R. Scott,
Authorized Representative, RREEF America, L.L.C.,
as Investment Manager of State of California Public
Employees' Retirement System, an agency of the
State of California, Venturer
</TABLE>
<PAGE> 3
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
BE IT REMEMBERED, that on this 6th day of July, 1998, before me, the
undersigned a Notary Public in and for said Country and State, duly
commissioned and sworn, personally appeared Richard Dalzell known to me as to
be the person who signed as VP & CIO of Amazon.com, Inc., the corporation that
executed the within and foregoing instrument, and acknowledged said instrument
to be the free and voluntary act and deed of said corporation for the uses and
purposes therein mentioned, and on oath stated that he/she was duly elected,
qualified and acting as an officer of the corporation, that he/she was
authorized to execute said instrument and that the seal affixed, if any is the
corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the
day and year first above written.
[SEAL] /s/ [KAREN AKIYAWA RESSMEYER]
----------------------------------------------
STATE OF WASHINGTON )
) ss. Notary Public for State of Washington
COUNTY OF KING ) Residing at Mercer Island
My Commission Expires 12/29/99
THIS IS TO CERTIFY that on this 14th day of July, 1998, before me, the
undersigned, a Notary Public in and for the State of Washington, personally
appeared William G. Williams III, known to me and to me known to be the VICE
PRESIDENT, ERE YARMOUTH, INC., as Advisor to CALIFORNIA STATE TEACHERS'
RETIREMENT SYSTEM, Venturer, that executed the within and foregoing instrument,
and acknowledged to me that he was authorized to sign the same on behalf of
such venturer as his free and voluntary act and deed for the uses and purposes
therein mentioned.
WITNESS MY HAND AND NOTARIAL SEAL the day and year first hereinabove
written.
[SEAL] /s/ [MARY E. BRUNICK]
----------------------------------------------
STATE OF WASHINGTON )
) ss. NOTARY PUBLIC IN AND FOR WASHINGTON
COUNTY OF KING ) RESIDING AT SEATTLE
My Commission Expires 4-7-02
THIS IS TO CERTIFY that on this 23rd day of July, 1998, before me, the
undersigned, a Notary Public in and for the State of Washington, personally
appeared Glen R. Scott, known to be and to me known to be the AUTHORIZED
REPRESENTATIVE, RREEF AMERICA, L.L.C., as Investment Manager of STATE OF
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM, an agency of the State of
California, Venturer, that executed the within and foregoing instrument,
and acknowledged to me that he was authorized to sign the same on behalf of
such venturer as his free and voluntary act and deed for the uses and purposes
therein mentioned.
WITNESS MY HAND AND NOTARIAL SEAL the day and year first hereinabove
written.
/s/ [JANICE F. DAVIS]
----------------------------------------------
NOTARY PUBLIC IN AND FOR WASHINGTON
RESIDING AT SEATTLE
My Commission Expires 3/29/00
<PAGE> 4
[BLUEPRINT]
AMAZON.COM
(50,420)
TOTAL = 93,020
AMAZON.COM
(8,520)
AMAZON.COM
(1,7040)
AMAZON.COM
(17,040)
<PAGE> 1
EXHIBIT 10.2
[LOGO]
DATED 21st JULY 1998
SLOUGH TRADING ESTATE LIMITED
- to -
BOOKPAGES LIMITED
- with -
AMAZON.COM,INC.
- with -
TREMCO LIMITED
---------------------------------
L E A S E
Premises known as
Building 86/88 Bestobell Road
Trading Estate Slough Berkshire
---------------------------------
NABARRO NATHANSON
The Anchorage
34 Bridge Street
Reading RGI 2LU
Ref: JD/TNP/S2884/465
Tel: 0118 950 4700
Fax: 01753 512768
<PAGE> 2
PARTICULARS
================================================================================
DATE OF THIS DEED:
================================================================================
LANDLORD : SLOUGH TRADING ESTATE LIMITED
Registered office : 234 Bath Road Slough SL1 4EE
Company Registration No. : 1184323
================================================================================
TENANT : BOOKPAGES LIMITED
Registered office : Sterling House 20 Station Road Gerrards
Buckinghamshire SL9 8EL
Company Registration No. : 03223028
================================================================================
SURETY : AMAZON.COM,INC. a Company registered in the
state of Delaware Unites States of America
whose principal executive office is at 1516
Second Avenue Seattle Washington 98101 and
TREMCO LIMITED (Company Registration No.
251311) whose registered office is at 86/88
Bestobell Road Slough Berkshire SL1 4SZ
================================================================================
ESTATE : the area from time to time comprising the
Landlord's estate known as Trading Estate
Slough Berkshire of which the Premises form
part
================================================================================
PREMISES : the land and building description the First
Schedule and known as Building 86/88
Bestobell Road Trading Estate Slough shown
edged red on the Plan
================================================================================
COMMENCEMENT DATE : 21st July 1998
================================================================================
TERM : A term of years commencing on the
Commencement Date and expiring at midnight
on 20th November 2008.
================================================================================
<PAGE> 3
- -------------------------------------------------------------------------------
RENT COMMENCEMENT DATE : 21st July, 1998
- -------------------------------------------------------------------------------
RENT : pounds sterling 338,500 per annum subject to review
as provided in this Lease
- -------------------------------------------------------------------------------
REVIEW DATE : 20th November 2003
- -------------------------------------------------------------------------------
PERMITTED USE : use for the storage and distribution of books
together with ancillary offices and/or such other
purpose within Class B1 and/or B2 and/or B8 of the
Schedule to the Town and Country Planning (Use
Classes) Order 1987 (as amended or replaced from
time to time) as the Landlord may first approve in
writing (such approval not to be unreasonably
withheld or delayed)
- -------------------------------------------------------------------------------
<PAGE> 4
CONTENTS
<TABLE>
<CAPTION>
CLAUSE SUBJECT MATTER PAGE
<S> <C> <C>
1. DEFINITIONS ....................................................... 1
2. INTERPRETATION .................................................... 2
3. DEMISE ............................................................ 2
Rent .............................................................. 2
Additional Rent ................................................... 3
4. TENANT'S COVENANTS
Payment of rents .................................................. 3
Interest on late payments ......................................... 3
Payment of rates .................................................. 3
Exterior painting ................................................. 3
Interior painting ................................................. 4
Repair ............................................................ 4
Yielding Up ....................................................... 5
Reinstatement ..................................................... 5
Landlord's access ................................................. 5
Default remedies of the Landlord .................................. 5
Signs and aerials ................................................. 5
Use ............................................................... 6
Nuisance .......................................................... 6
Estate Regulations ................................................ 6
Estate costs ...................................................... 6
Acts prejudicial to insurance ..................................... 7
Safeguarding the Premises ......................................... 7
Planning Applications ............................................. 7
Alterations ....................................................... 7
Statutory obligations ............................................. 8
Alienation ........................................................ 8
Registration of dealings .......................................... 11
Reletting and sale boards ......................................... 11
Cost of licences and notices as to breach of covenant ............. 12
Indemnity ......................................................... 12
VAT ............................................................... 12
Defects ........................................................... 12
Prohibited uses ................................................... 13
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
5. LANDLORD'S COVENANTS .............................................. 13
Quiet enjoyment ................................................... 13
Insurance ......................................................... 13
6. CONDITIONS ........................................................ 14
Re-possession on Tenant's default ................................. 14
Benefit of insurance and abatement of rent ........................ 15
Notices ........................................................... 15
7. RENT REVIEW ....................................................... 15
8. SURETY ............................................................ 18
9. CERTIFICATE ....................................................... 19
FIRST SCHEDULE .............................................................. 19
SECOND SCHEDULE ............................................................. 19
PART 1 ............................................................ 19
PART 2 ............................................................ 20
THIRD SCHEDULE .............................................................. 20
FOURTH SCHEDULE ............................................................. 23
</TABLE>
<PAGE> 6
[PLAN SLOUGH ESTATES]
<PAGE> 7
"PLAN"
the plan annexed hereto
"PLANNING ACTS"
includes the Town and Country Planning Act 1990 the Planning (Listed
Buildings and Conversion Areas) Act 1990 the Planning (Hazardous
Substances) Act 1990 and the Planning (Consequential Provisions) Act 1990
"PRESCRIBED RATE"
three per centum above the Base Rate of National Westminster Bank PLC
from time to time (or such other clearing bank as the Landlord shall
nominate) or (if such rate shall cease to be published) such other
reasonable or comparable rate as the Landlord shall from time to time
designate
2. INTERPRETATION
2.1 The expressions "the Landlord" and "the Tenant" shall wherever the context
so admits include their successors in title and assigns
2.2 Where the Tenant or the Surety (if any) for the time being are two or more
persons the terms "the Tenant" or "the Surety" (if any) include the plural
number and obligations expressed or implied to be made by such party are
deemed to be made by such persons jointly and each of them severally
2.3 Words importing one gender include all other genders and words importing
the singular include the plural and vice versa
2.4 References in this Lease to any statute or legislation (whether specific
or general) include any other statute or legislation replacing amending or
supplementing the same and any orders regulations bye-laws notices
permissions approvals or consents thereunder
3. DEMISE
The Landlord demises to the Tenant the Premises together with the Rights
referred to in Part 1 of the Second Schedule but subject to the Exceptions
and Reservations referred to in Part 2 of the Second Schedule to hold to
the Tenant for the Term starting on the Commencement Date yielding and
paying therefor during the Term:
3.1 RENT
yearly the Rent and all increased arising from any review pursuant to the
provisions in this Lease for the review of rent to be paid without any
deduction or set off by equal quarterly payments in advance on the
Twenty-fifth day of March the Twenty-fourth day of June the Twenty-ninth
day of September and the Twenty-fifty day of December in every year the
first payment for the period from and including the Rent Commencement
2
<PAGE> 8
Date up to and including the day immediately preceding the quarter
day next after such date to be made on the Rent Commencement Date
3.2 Additional Rent
as additional rent first amounts (if any) as are referred to in
clause 4.15 to be paid as there stated and recoverable by distress
in the same way as rent in arrear and secondly a sum or sums of
money equal to the expense incurred by the Landlord in effecting or
maintaining insurance in accordance with clause 5.2 (including any
increased premium payable in resect of the Premises or any
neighbouring property owned by the Landlord by reason of any act or
omission by (or permitted by) the Tenant or undertenant) as the
Landlord shall from time to time effect such insurance for the
Landlord's benefit in the Full Reinstatement Value against the
Insured Risks and the Loss of Rent such sum or sums to be paid
within 7 days of demand
4. TENANT'S COVENANTS
The Tenant covenants with the Landlord as follows:
4.1 Payment of rents
To pay the respective rents and sums of money reserved and make
payable at the times and in the manner in which the same are set out
or referred to in clause 3 without any deduction or set off and to
make all such payments to the Landlord on the due date through the
Tenant's bankers by the direct debit system
4.2 Interest on late payments
If the Tenant shall fail to pay any rents or any other sum payable
under this Lease within 7 days when the same is due (whether
formally demanded or not) to pay to the Landlord as additional rent
(but without prejudice to any other rights of the Landlord including
those under clause 6) interest on all such rents or other sums from
the due date for payment until the date actually paid at the
Prescribed Rate current at such due date and any such interest shall
be recoverable by the Landlord as rent in arrear
4.3 Payment of rates
4.3.1 To pay and indemnify the Landlord against all existing and future
rates or other outgoings whatsoever imposed or charged upon the
Premises or upon the owner or occupier in respect of the Premises
4.3.2 To pay and be responsible for all electricity gas and other
services to the Premises
4.4 Exterior painting
In every third year and in the last year of the Term (but so that
the Tenant shall not be obliged by the afore-mentioned to decorate
and/or to carry out the following obligations more than once in
every two year period) to prepare and paint the outside of the
building erected on the Premises where usually or previously so
painted in a good and workmanlike manner and otherwise properly to
clean treat and decorate other parts of
3
<PAGE> 9
the outside of the said building as the same ought to be cleaned and
treated and decorated (such painting and decorating if different from
the then existing colour scheme to be carried out in colours and
patterns first approved in writing by the Landlord) and whenever
necessary to renew or replace all seals and mastics.
4.5 INTERIOR PAINTING
In every fifth year and in the last year of the Term to prepare and
paint all the interior of the said building where usually or previously
so painted in a good and workmanlike manner (all such painting in the
last year of the Term if different from the then colour scheme to be
carried out in colours and patterns first approved in writing by the
Landlord (such approval not to be unreasonably withheld or delayed))
4.6 REPAIR
4.6.1 Well and substantially to repair and maintain the Premises and the
walls fences roads and Conducting Media in on or under the Premises
(damage by any of the Insured Risks excepted unless the insurance
moneys are withheld in whole or in part or the policy avoided by reason
of any act or omission on the part of the Tenant or any undertenant or
any employee contractor or invitee of either of them) and at all times
to keep the same in good and substantial repair and condition and so
repaired cleaned painted and maintained and further to keep all parts
of the Premises clean and tidy and free from rubbish and waste materials
4.6.2 Within 12 months of the date of this Lease (time being of the essence)
to carry out to the reasonable satisfaction of the Landlord the making
good of all wants or repair to the Premises as marked with an asterisk
in the Schedule of Dilapidations annexed hereto and in the event that
the works are not completed within the aforesaid period or to the
reasonable satisfaction of the Landlord the Landlord shall have the
right to enter the Premises to carry out such of the works not
completed as aforesaid in accordance with the provisions of clause 4.10
of this Lease
4.6.3 Without prejudice to clause 4.6.1 to execute all necessary works no
later than the expiration of the Term to remedy all the wants of repair
and works relating to reinstatement specified in the said Schedule of
Dilapidation as are not marked with an asterisk
4.6.4 Subject to clause 4.6.5 to keep such part of the Premises (if any) as
is hatched green on the plan annexed hereto as well-maintained
landscaped areas and in accordance with any general scheme for the
Estate from time to time reasonably implemented by the Landlord
4.6.5 If the Landlord so requires at any time or from time to time not to do
the things referred to in clause 4.6.4 (or such of them as may be
notified to the Tenant) but instead to pay to the Landlord on demand
the proper and reasonable costs incurred by the Landlord in doing so
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4.7 YIELDING UP
At the expiration or sooner determination of the Term to yield up the
Premises consistent with due compliance by the Tenant with its
obligations under this Lease and to remove such tenant's trade fixtures
and fittings and any signs erected by or at the instance of the Tenant
making good any damage caused by such removal
4.8 REINSTATEMENT
4.8.1 Three months before the expiry or sooner determination of the Term
(unless and/or to the extent otherwise required in writing by the
Landlord) to carry out such works as shall be necessary in order to
ensure that the Premises or such part or parts of them as may be
required by the Landlord conform with the description in the First
Schedule
4.8.2 All such works shall be carried out to the reasonable satisfaction of
the Landlord and the Tenant shall apply for any necessary planning
permission or approval which may be required under the Planning Acts
or other legislation
4.9 LANDLORD'S ACCESS
On at least 48 hours prior written notice given to the Tenant (save
that no notice shall be required in an emergency) to permit the
Landlord or its agents at all times during the Term during reasonable
hours in the day (or at any time in the case of emergency) with or
without workmen and others to enter the Premises for the purpose of
ascertaining that the covenants and conditions of this Lease have been
performed and observed by the Tenant and examining the state of repair
and condition of the Premises or for the purpose of taking inventories
of the Landlord's fixtures or of carrying out works on the adjoining
property of and owned by the Landlord and of exercising any of the
Exceptions and Reservations referred to in Part 2 of the Second Schedule
4.10 DEFAULT REMEDIES OF THE LANDLORD
If within three months after service of a notice from the Landlord
requiring the Tenant to remedy any breach of covenant relating to the
state of repair or condition of the Premises or otherwise to the
carrying out of any works or actions (or earlier in case of emergency)
the Tenant shall not have completed such works or actions then to
permit the Landlord to enter upon the Premises and execute all or any
such works or actions and the Landlord's proper and reasonable costs
and expenses (including the Landlord's surveyors and other professional
fees in connection therewith) together with interest thereon at the
Prescribed Rate current at the date three months after service of such
notice for the period from that date to the date of payment shall be a
debt due from the Tenant to the Landlord and be forthwith recoverable
as rent in arrear
4.11 SIGNS AND AERIALS
Not to erect any pole mast or aerial or satellite dish or erect or
display any sign noticeboard or advertisement on any part of the
Premises except a sign approved by the Landlord indicating the name of
the Tenant in a position approved by the Landlord any such approval to
be in writing
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4.12 USE
4.12.1 Not to use the Premises or any part thereof otherwise than for the
Permitted Use and not at any time to store anything on any part of the
Premises outside the building erected thereon
4.12.2 To use only for the parking of vehicles those parts of the Premises
designated for such purpose
4.13 NUISANCE
Not to use the Premises or any part of them for any illegal purpose nor
to carry out or from the Premises any noisy noxious dangerous or
offensive act activity or business nor anything which may be or become
a nuisance damage annoyance or inconvenience to the Landlord or any of
its tenants or the occupiers of any premises in the neighbourhood and
in particular not to do or permit to be done anything which might cause
electronic or radio interference with any adjoining or neighbouring
premises
4.13.2 Not to do anything which would or might lead to any contamination of
the Premises or pollution of the environment or lead to the pollution
obstruction damaging or overloading of the Conducting Media and to
carry out (or at the Landlord's election to pay to the Landlord the
proper and reasonable costs and fees of carrying out) all works
necessary to remedy the contamination or pollution or to remove the
source of the contamination or pollution but so that the Tenant shall
not be liable hereunder and/or obliged to comply with the
aforementioned in respect of any such contamination and/or pollution
caused to and/or arising at the Premises on or before the date hereof
4.13.3 Where the Tenant has failed to observe any of the obligations in this
clause 4.13 to pay to the Landlord the proper and reasonable costs
incurred by it in obtaining such reports as the Landlord may reasonably
require to establish what damage or harm may have been caused to the
Premises or other property of the Landlord and the remedial cleaning or
other works necessary
4.13.4 Not to discharge or allow to enter into any underground or other waters
any poisonous noxious or harmful effluent liquid or substance
4.14 ESTATE REGULATIONS
To observe such reasonable regulations as may from time to time be made
by the Landlord in writing for the purposes of good estate management
and of which at least twenty eight days prior written notification has
been given to the Tenant by the Landlord
4.15 ESTATE COSTS
To pay to the Landlord from time to time upon demand a proper fair and
reasonable proportion (as certified conclusively (save in the case of
manifest error) by the Landlord's surveyor to be proper fair and
reasonable) of the costs (similarly certified) of the management of the
Estate including (without limitation to the generality of the
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aforesaid) the upkeep of any landscaped areas and roadways included
therein the reasonable and proper fees of the Landlord or the
Landlord's managing agents and including any costs properly and
reasonably anticipated by the Landlord to be incurred by the Landlord
in the future (but not in respect of a period exceeding one year in
advance) in respect of any of the matters referred to in this sub-clause
4.16 ACTS PREJUDICIAL TO INSURANCE
4.16.1 Not to do anything as a result of which any policy of insurance against
damage to the Premises or to any neighbouring premises may be
prejudiced or payment of the policy moneys may be withheld in whole or
in part or whereby the rate of premium in respect of any such insurance
may be increased and to give notice to the Landlord without delay upon
the happening of any event which might affect any insurance policy
relating to the Premises.
4.16.2 In relation to the insurance effected by the Landlord in respect of the
Premises to pay to the Landlord any excess required by the insurers or
by the Landlord on demand by the Landlord following any damage or
destruction by any Insured Risks where such excess would be
applicable to any claim in respect of such damage or destruction
4.17 SAFEGUARDING THE PREMISES
4.17.1 With respect to fire precautions and safeguarding the Premises against
damage by any of the Insured Risks or otherwise to comply with all
requirements and written reasonable and proper recommendations of the
insurers of the Premises of which at least twenty eight prior written
notification has been given by the Landlord to the Tenant or the
relevant insurance brokers or of the fire brigade or local authority
4.17.2 Not to store or bring on to or allow to remain on the Premises any
article substance or liquid of a specially combustible inflammable or
explosive nature or which may be a source of contamination
4.17.3 To give written notice to the Landlord upon the Tenant becoming aware
of the occurrence of any contamination of the Premises and also upon
the Tenant becoming aware of the occurrence of any pollution of the
environment in breach of any legislative provision caused by any use of
or action or activity on the Premises
4.18 PLANNING APPLICATIONS
Not without the prior written consent of the Landlord to make any
application for any consent under the Planning Acts but if such
application is for consent to do anything which the Tenant is permitted
to do under this Lease (for which the approval of the Landlord is first
required) and the Landlord has approved that thing such consent shall
not be unreasonably withheld or delayed
4.19 ALTERATIONS
Not to erect or place any new building or structure whatsoever on the
Premises (including any temporary or moveable building or structure) or
make any alteration whether structural or otherwise or any addition to
the Premises or to the building erected thereon or to any buildings
which may be erected on the Premises Provided That
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the Tenant may make non structural alterations to the interior of the
building erected on the Premises subject to obtaining the prior written
consent of the Landlord such consent not to be unreasonably withheld or
delayed PROVIDED that the Tenant may without such afore-mentioned
consent from the landlord install erect place remove and/or dismantle
internal demountable non-structural partitioning in whole or in part or
parts to the office part of the Premises.
4.20 STATUTORY OBLIGATIONS
4.20.1 At the Tenant's expense to comply in all respects with the provisions
of all statutes and legislation (whether now or subsequently in force)
affecting or applicable to the direction or order made by any local or
competent authority
4.20.2 The Tenant shall maintain a health and safety file for any works
carried out to the Premises and shall comply with the Construction
(Design and Management) Regulations 1994 in respect thereof and
provide to the Landlord upon reasonable request a copy of such file
4.20.3 Upon any assignment or underlease permitted by this Lease to supply to
the assignee or sub-tenant any health and safety files and/or operating
manuals
4.21 ALIENATION
4.21.1 Not to assign underlet (save as provided in clause 4.21.3 hereof) share
or part with the possession or occupation of any part of the
Premises nor to permit any such dealing under a permitted underlease
4.21.2 Not to hold or occupy the Premises or any part as nominee trustee or
agent or otherwise for the benefit of any other person
4.21.3 Not to assign or underlet the whole of the Premises or to underlet the
whole of Unit 86 and/or the whole of Unit 87 and/or the whole of Unit
88 Bestobell Road and associated car parking spaces without the prior
consent in writing of the Landlord (such consent not to be unreasonably
withheld or delayed where the provisions hereinafter contained are
satisfied)
4.21.4 It is agreed that the Landlord will not be deemed to be unreasonable in
withholding and/or delaying consent to a proposed assignment of the
whole of the Premises if it is withheld on the ground (and it is the
case) that one or more of the circumstances mentioned below exist
(whether or not such withholding is solely on such ground or on that
ground together with other grounds):
(a) that in the reasonable and proper opinion of the Landlord the
effect of the proposed assignment upon the value of the Landlord's
reversionary interest in the Premises would be to diminish or
otherwise adversely affect such value
(b) that in the reasonable and proper opinion of the Landlord the
effect of the assignment would mean that there is a reduced
likelihood of the tenant's covenants and obligations in this
Lease being fulfilled
(c) that the proposed assignee is an associated company of the Tenant
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(d) that the Surety has not agreed on any assignment to enter
into a deed of guarantee in respect of the obligations on the
part of the Tenant contained in an Authorized Guarantee
Agreement entered into pursuant to clause 4.21.5 or the
assignee's performance of the Tenant Covenants (as defined in
Section 18 of the Act) in this Lease in such form of Deed as
the Landlord may reasonably require but to include
obligations on the part of the Surety similar to those on the
part of the Tenant set out in clause 4.21.5 (a)(i)-(iii)
4.21.5 On any assignment:-
(a) the Tenant will enter into an Authorized Guarantee Agreement
which will be in such form as permitted by and in accordance
with Section 16 of the Act and the prepared by or on behalf of
the Landlord and at the proper and reasonable cost of the
Tenant and under which the Tenant will agree (inter alia) with
the Landlord:
(i) that it is liable as sole or principal debtor in
respect of all obligations to be owed by the assignee
under the Tenant Covenants (as defined in section 28
of the Act) in this Lease and
(ii) to be liable as a guarantor in respect of the
assignee's performance of the Tenant Covenant (as
above defined) in this Lease (provided that such
liability shall be no more onerous than the liability
to which the assignor would be subject in the event of
it being liable as sole or principal debtor in respect
of the obligations owed by the assignee under the
Tenant Covenants)
(iii) in the event of this Lease being disclaimed by a
liquidator or trustee in bankruptcy of the assignee if
so requested in writing by the Landlord within six
calendar months of such disclaimer to enter into a new
lease of the Premises the term of which shall expire
simultaneously with the date upon which (but for any
disclaimer) this Lease would have expired by effluxion
of time (and not by any other means) and the Tenant's
Covenants shall be identical to (mutatis mutandis) but
in any event no more onerous than the Tenant Covenants
in this Lease
(b) If the Landlord reasonably so requires in the circumstances to
obtain up to two acceptable guarantors for any person to whom
this Lease is to be assigned who will covenant with the
Landlord on the terms (mutatis mutandis) set out in the Third
Schedule
(c) If the Landlord reasonably so requires in the circumstances
the proposed assignee will prior to the assignment enter into
such reasonable rent deposit arrangement and/or provide such
additional security for the performance by the proposed
assignee of its obligations under this Lease as the Landlord
may reasonably require
(d) the proposed assignee shall enter into a covenant with the
Landlord to pay the rents reserved by and perform and observe
the covenants on the part of the Tenant contained in this
Lease for the period that this Lease is vested in the
proposed assignee.
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4.21.6 Clauses 4.21.4 and 4.21.5 shall operate without prejudice to the
right of the Landlord to refuse such consent on any other ground or
grounds or to impose further conditions where such refusal or such
imposition would be reasonable in the circumstances
4.21.7 Not to underlet the whole of the Premises, or the parts thereof
referred in clause 4.21.3 without the prior consent in writing of
the Landlord (such consent not to be unreasonably withheld or
delayed) otherwise than at a rent which is not less than the open
market rental value of the Premises (being in any event not less
than the rent then payable under this Lease or a due and proper
proportion thereof in respect of an underletting of a part, or parts
of the Premises) without a fine or premium and with provision for
upwards only rent reviews coinciding with the reviews under this
Lease and in other respects with substantially materially the same
covenants and conditions as are contained in this Lease unless
otherwise agreed by the Landlord
4.21.8 Not to vary the terms of any underlease permitted under clause
4.21.7 without the Landlord's written consent (such consent not to
be unreasonably withheld or delayed provided such variation does not
constitute a variation to this Lease) and throughout the term of any
underlease to require the undertenant to perform and observe the
Tenant's covenants (except as to the payment of rent) and the
conditions contained in this Lease
4.21.9 The Landlord may as a condition for giving its consent for any
permitted underletting require the proposed underlessee to enter
into a direct covenant with the Landlord to perform and observe the
Tenant's covenants (except as to payment of rent) and the conditions
contained in this Lease during the period that the proposed
underlease is vested in the proposed underlessee
4.21.10 Upon the Landlord consenting to an underletting of the Premises
procure that the underlessee covenants with the Landlord:
(a) Not to assign (or agree to do so) any part of the Premises (as
distinct form the whole) and not to underlet or share or (save by
way of an assignment of the whole) part with possession of or permit
any person to occupy the whole or any part of the Premises and
(b) Not to assign (or agree to do) the whole of the Premises
without the prior consent in writing of the Landlord (such consent
not to be unreasonably withheld or delayed)
4.21.11 To notify the Landlord in writing with relevant details within
twenty eight days of any rent payable under an underlease being
reviewed
4.21.12 Not to grant any underlease of a part or parts of the Premises
without first obtaining an Order of the Court under the provisions
of Section 38(4) of the Landlord and Tenant Act 1954 (as amended)
and an agreement between the parties to the proposed underlease
pursuant to such Order that the provisions of Section 24-28 of that
Act be excluded in relation to such underlease
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4.21.13 In the event that any circumstances or conditions specified in
clauses 4.21.4 and 4.21.5 above are framed by reference to any matter
falling to be determined by the Landlord (or by any other person) if
the Tenant disputes such determination then either the Landlord or the
Tenant shall be entitled to require the matter or matters in question
to be referred to an independent expert who in the absence of
agreement between the parties shall be appointed on the application
of either party by the President of the Royal Institution of
Chartered Surveyors and the determination of such independent expert
shall be conclusive as to the matter or matters in question and shall
be final and binding on the parties and his costs shall be met by the
parties in such proportions as the independent expert shall determine.
4.21.14 The Tenant shall be entitled without obtaining any consent from the
Landlord to permit another company or companies (in this clause
4.21.14 called "a Company") to occupy as licensee part or parts of
the Premises if and so long as that Company is a member of the same
group of companies as the subsidiary or the holding company or a
company who has the same holding company as the Tenant (the terms
subsidiary and holding company as being defined in accordance with
Section 736 of the Companies Act 1985) and the conditions set out in
the remainder of this clause 4.21.14 continue to be fulfilled
(a) No relationship of landlord and tenant shall arise out of such
occupation
(b) Written notice shall be given to the Landlord no later than 14
days after such occupation commences:
(i) of the identity of such company
(ii) as to how clause 4.12.14 is satisfied and
(iii) of the part of the Premises concerned
(c) The Tenant shall provide such evidence as the Landlord may
reasonable require from time to time to satisfy itself that the
relationship of Landlord and Tenant does not arise or has not
arisen out of such occupation
4.21.15 The Tenant indemnifies the Landlord against all losses damages costs
and expenses suffered or incurred by the Landlord as a result of any
breach by the Tenant of the provisions of clause 4.21.14
4.22 REGISTRATION OF DEALINGS
Within one month after the execution of any assignment or underlease
permitted under this Lease or any assignment of such underlease or after
any devolution by will or otherwise of the Term or after any other dealing
with this Lease to supply a certified copy of the deed or instrument
effecting the same to the Landlord and to pay such reasonable fee as the
Landlord may require for registration
4.23 RELATING AND SALE BOARDS
To permit the Landlord or its agents to enter upon the Premises and to
affix upon any suitable part a notice board for reletting or selling the
same but not so as to interfere with the Tenant's use of and/or access to
the Premises and/or the business carried on there and not to remove or
obscure the same and to permit all persons authorised in
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writing by the Landlord or its agents to view the Premises during usual
business hours in the daytime on weekdays only
4.24 COSTS OF LICENSES AND NOTICES AS TO BREACH OF COVENANT
To pay on demand and indemnify the Landlord against all proper and
reasonable costs charges and expenses (including professional fees)
incurred by the Landlord arising out of or incidental to any
application made by the Tenant for any consent or approval of the
Landlord except where such consent has been unreasonably withheld or
delayed or any breach of the Tenant's covenants or the preparation and
service of a schedule or interim schedule of dilapidations or any
notice which the Landlord may serve on the Tenant whether served before
or after the determination of this Lease (including a notice under
Section 146 of the Law of Property Act 1925) requiring the Tenant to
remedy any breach of any of its covenants or arising out of or in
connection with any proceedings referred to in sections 146 or 147 of
that Act notwithstanding that forfeiture may be avoided otherwise than
be relief granted by the Court
4.25 INDEMNITY
To be responsible for and to indemnify the Landlord against:
4.25.1 all damage loss or injury occasioned to the Premises or any
adjoining premises or to any Conducting Media or to any person or
chattel (whether or not upon the Premises) caused by any act default
or negligence of the Tenant or any undertenant or the servants
agents licensees or invitees of either of them or by reason of any
defect in the Premises and
4.25.2 All proper and reasonable losses damages costs expenses claims and
proceedings properly and reasonably incurred by or made against the
Landlord arising out of any breach by the Tenant of any of its
obligations arising by virtue of this lease
4.26 VAT
To pay to the Landlord upon demand any value added tax chargeable upon
4.26.1 any supply made by the Landlord to the Tenant pursuant to this Lease
so that all consideration for any such supply is exclusive of value
added tax
4.26.2 any supply (whether made to the Landlord or to a third person) where
pursuant to this Lease the Tenant is required to pay to the Landlord
any sum in respect of any costs fees expenses or other expenditure
or liability (of whatever nature) in connection with that supply
except to the extent that any such value added tax may be
recoverable by the Landlord from H.M. Customs and Excise
4.27 DEFECTS
To inform the Landlord without delay in writing upon the Tenant
becoming aware of any defect in the Premises which might give rise to a
duty imposed by common law or statute on the Landlord and to indemnify
the Landlord against all actions costs claims and liabilities suffered
or incurred by or made against the Landlord in respect of the Premises
under the Defective Premises Act 1972
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4.28 PROHIBITED USES
Not to use or carry out from the Premises or any part thereof any
electroplating panel beating or spray painting
5. LANDLORD'S COVENANTS
The Landlord covenants with the Tenant and (in respect of clause 5.3 with
Tremco Limited) (but so that no liability shall attach to the Landlord in
respect of any breach by the Landlord of its obligations under this Lease
after the reversion immediately expectant on the determination of the
Term has ceased to be vested in the Landlord);
5.1 QUIET ENJOYMENT
That the Tenant performing and observing the covenants conditions and
agreements contained in this Lease shall and may peaceably and quietly
hold and enjoy the Premises during the Term without any lawful
interruption or disturbance by the Landlord or any person rightfully
claiming through or under it
5.2 INSURANCE
At all times during the Term to keep the Premises insured for the
Landlord's benefit in the Full Reinstatement Value against the insured
Risks and if the Premises are damaged or destroyed by any of the Insured
Risks the Landlord will subject to provisions of clause 5.2.2 hereof with
all convenient and practicable speed apply for and apply all insurance
proceeds (other than those relating to Loss of Rent) received in respect
thereof in the repair and/or reinstatement and/or rebuilding of the
Premises using such materials as are then appropriate subject to all
necessary consents and licences being obtained
PROVIDED THAT:
5.2.1 the Landlord's obligations under this covenant shall cease if the
insurance shall be rendered void or voidable or the policy moneys
withheld in whole or in part by reason of any act or default of the
Tenant or any undertenant or any of their respective employees
contractors licensees or invitees
5.2.2 if the Premises are destroyed or so seriously damaged by any Insured Risk
as to require (in the proper and reasonable opinion of the Landlord's
surveyor whose decision shall be final and binding upon the parties)
substantial reconstruction then the Landlord may at any time within six
months of the said damage or destruction give one months' notice in
writing to determine this Lease and immediately upon the expiry of that
notice this demise shall determine but without prejudice to the rights
and remedies of any party against any other in respect of any antecedent
claim or breach of covenant and all insurance money shall be the absolute
property of the Landlord
5.2.3 if the Premises following any destruction or damage shall not have been
repaired reinstated or replaced in accordance with the foregoing
covenants so as to render the
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Premises fit for occasion or use within a period of two years eleven
months from the date of destruction or damage the Tenant may
thereafter by giving one month's notice in writing determine this
Lease but without prejudice to the rights of either party in respect
of any antecedent claim or breach of covenant and all insurance
money shall be the absolute property of the Landlord.
5.3 Upon receiving written request from Tremco Limited to inform in writing
Tremco Limited if the Tenant is in arrears of any payment of money due to
the Landlord under this Lease or if the Landlord in the reasonable opinion
of the Landlord considers the Tenant to be in breach of any of the other
covenants of this Lease and in both cases to provide such information
within a reasonable time of receiving such written request but such request
shall not imply upon the Landlord any obligation to inspect the Premises to
ascertain whether or not any breaches of covenant have occurred.
6. CONDITIONS
Provided always and it is hereby agreed and declared as follows:
6.1 RE-POSSESSION ON TENANT'S DEFAULT
If at any time during the Term:
6.1.1 the rents reserved by this Lease or any of them or any part of them
shall be in arrear for twenty eight days after the same shall have
become due (whether legally demanded or not) or
6.1.2 the Tenant shall at any time fail or neglect to perform or observe
any of the covenants conditions or agreements on its part to be
performed and observed contained in this Lease or in any license
approval or consent given by the Landlord to the Tenant in relation
to the Premises or in any other deed supplemental to this Lease or
by which this Lease may be varied.
6.1.3 the Tenant either shall (being a corporation) have an application
made for an administration order (whether or not at its instance) or
enter into liquidation whether compulsory or voluntary (not being a
voluntary liquidation for the purpose of reconstruction only) or
(being an individual) become bankrupt or
6.1.4 the Tenant shall may any arrangement or composition with creditors
or suffer any distress or execution to be levied on property of the
Tenant or have an encumbrancer take possession or a receiver
appointed in respect of the same
6.1.5 then and in any such case it shall be lawful for the Landlord (or
any person or persons duly authorised by it in that behalf) to
re-enter into or upon the Premises and thereupon the Term shall
absolutely cease and determine but without prejudice to the rights
and remedies of the Landlord in respect of any antecedent breach by
the Tenant of any of the covenants conditions or agreements
contained in this Lease
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6.2 BENEFIT OF INSURANCE AND ABATEMENT OF RENT
6.2.1 The benefit of all insurance effected by the Landlord under this
Lease or otherwise in respect of the Premises shall belong solely to
the Landlord but if the Premises or any part of them shall at any
time be destroyed and/or damaged by any of the Insured Risks so as
to be fit for occupation and/or use and/or rendered inaccessible
then and in every such case (unless the Landlord's policy of
insurance in relation to the Premises shall have been rendered void
or voidable or the policy moneys withheld in whole or in part by
reason of the act default or omission of the Tenant or any
undertenant or any of their respective employees contractors
licensees or invitees) the rents received by this Lease or a fair
and just proportion thereof according to the nature and extent of
the damage sustained shall be suspended and cease to be payable
until the Premises shall have been repaired or reinstated and made
fit for occupation and use and all access thereto restored in
accordance with clause 5.2 or until the expiration of three years
(or such longer period as may be provided for in the policy of
insurance for Loss of Rent) from the destruction or damage whichever
first occurs
6.2.2 No account shall be taken of damage in relation to any alteration or
improvement to the Premises carried out otherwise than by the
Landlord unless such alteration or improvement has in fact been
taken into account in effecting both the insurance of the Premises
and the insurance in respect of the Loss of Rent
6.2.3 Any dispute between the Landlord and the Tenant concerning the
proportion or duration of the suspension or cesser shall be
determined by an arbitrator appointed in default of agreement
between the Landlord and the Tenant on the application of either of
them by the President of the Royal Institution of Chartered
Surveyors and any such reference shall be submission to arbitration
within the Arbitration Act 1996
6.3 NOTICES
The provisions of Section 196 Law Property Act 1925 (as amended)
shall apply to the giving and service of all notices and documents
under or in connection with this Lease PROVIDED THAT no notice to
Tremco Limited under this Lease and no claims made against Tremco
Limited under this Lease shall be validly given or served upon
Tremco Limited unless given or served upon it at its registered
office for the time being or at any other address (within the United
Kingdom) notified from time to time by Tremco Limited to the
Landlord for that purpose
7. RENT REVIEW
7.1 In this clause:
"ASSUMPTIONS"
means the assumptions that:
1. the Premises are in good and substantial repair and condition
15
<PAGE> 21
2. the Landlord and the Tenant have complied with all their respective
covenants and obligations imposed by this Lease on each of them
3. all parts of the Premises are fit and ready for use for the Permitted
Use
4. that the rent at which the Premises could reasonably be expected to be
let is that which would be payable after the expiry of any rent free
period or after the receipt of such other rent concession or
inducement (in each case for fitting out purposes only) as may be
negotiated in the open market between a landlord and a tenant upon a
letting of the Premises
5. no work has been carried out on the Premises during the Term which has
diminished the rental value of the Premises and
6. any damage to or destruction of the Premises or any means of access to
them has been fully reinstated
"CURRENT RENT"
means the yearly rent reserved by this Lease (disregarding any
suspension of rent under any other provision of this Lease) as varied
from time to time pursuant to this clause
"MATTERS TO BE DISREGARDED"
means each of the following matters so far as they may affect rental
value:
1. the fact that the Tenant has previously been in occupation of the
Premises
2. any goodwill attaching to the Premises by reason of the carrying on of
the business of the Tenant at the Premises and
3. any improvement to the Premises carried out during the Term by the
Tenant or undertenant other than improvements effected at the expense
of the Landlord or pursuant to any obligation to the Landlord whether
under the provisions of this Lease or any other deed or document
"NEW RENT"
as at the Review Date means the higher of:
1. the Current Rent immediately before the Review Date and
2. the Rental Value as at the Review Date
"PRESIDENT"
means the President for the time being of the Royal Institution of
Chartered Surveyors or any other body reasonably specified by the
Landlord
16
<PAGE> 22
"RENTAL VALUE"
as at the Review Date means the open market rental value of the
premises at that Date:
1. as agreed by the Landlord and the Tenant or
2. as determined by a Valuer pursuant to the provisions of this clause
"VALUER"
means a chartered surveyor who has experience of practice in
property of the nature and type of the Premises and who is
acquainted with the market in the area in which the Premises are
located
7.2 The New Rent shall be payable from and including the Review Date
7.3 The Landlord may give to the Tenant not more than fifteen nor less than
six months' notice in writing (a "Rent Review Notice") expiring on or
after the Review Date requiring the Current Rent payable immediately
before the Review Date to be increased as from the Review Date to the
Rental Value and any proposal made by the Landlord as to such Rental Value
shall be in writing ("a Rent Proposal")
7.4 The Tenant acknowledges that time shall not be of the essence in relation
to the giving of any such Notice and the Landlord shall be entitled to
require a review of the Current Rent with effect from the Review Date even
if the Rent Review Notice expires after or is given after such Review Date
7.5 If the Landlord gives a Rent Proposal and the Tenant has not within twenty
eight days (time being of the essence) of it being given disputed the
amount proposed in the Rent Proposal by giving a written counter-notice to
that effect to the Landlord the amount in the Rent Proposal shall be taken
to be agreed by the Landlord and the Tenant and shall be substituted for
the Current Rent on the Review Date
7.6 If the Landlord gives a Rent Proposal and the amount specified in it is
not taken to be agreed under clause 7.5 but the Landlord and the Tenant do
not agree upon the amount of the Rental Value within three months of the
Tenant's counter-notice being given or (if earlier) by the date which is
three months before the Review Date either the Landlord or the Tenant may
require the Rental Value to be determined by a Valuer
7.7 The Landlord may require the Rental Value to be determined by a Valuer
even if no Rent Review Notice or Rent Proposal is given
7.8 Where the Rental Value is to be determined by a Valuer and the Landlord
and the Tenant do not agree as to his appointment within twenty one days
of either of them putting forward a nomination to the other such Valuer
shall be appointed at the request of either party by the President
7.9 The Valuer shall act as an expert and not as an arbitrator and his
decision (including any decision as to the costs of such determination)
shall be final and binding on the parties
17
<PAGE> 23
7.10 The Valuer shall upon appointed either by the parties or the President be
required upon his determination to provide a reasoned award to the
Landlord and the Tenant
7.11 Notwithstanding that the Valuer shall act as an expert the Landlord and
the Tenant shall each be entitled to make representations and
counter-representations to such value a copy of which shall be supplied by
the valuer to the other of them and in making an award as to costs the
Valuer shall have regard to the representations and counter-
representations made to him
7.12 The Valuer shall determine the Rental Value as the yearly open market rack
rental value at which the Premises might reasonably be expected to be let
with vacant possession in the open market by a willing lessor to a willing
lessee for a term of years equal in length to the balance unexpired of the
Term as at the Review Date and on the terms and conditions of a lease
which are otherwise the same as this Lease except as to the actual amount
of the Current Rent and the date on which the term commences and making
the Assumptions but taking no account of the Matters to be Disregarded
7.13 If by the Review Date the New Rent has not been ascertained (whether or
not negotiations have commenced) the Tenant shall continue to pay the
Current Rent on each day appointed by this Lease for payment of Rent until
the New Rent has been ascertained and upon such ascertainment of the New
Rent the Tenant will pay to the Landlord as arrears of rent an amount
equal to the difference between the New Rent and the Current Rent actually
paid for the period since the relevant Review Date together with interest
on the difference at 4% below the Prescribed Rate
7.14 In no event shall the yearly rent payable by the Tenant to the Landlord
after the relevant Review Date be less than the yearly rent payable by the
Tenant to the Landlord immediately before such relevant Review Date
7.15 A memorandum in the form set out in the Fourth Schedule of any increased
rent determined pursuant to this clause 7 shall as soon as may be after
such determination be prepared in duplicate and signed by or on behalf of
the Landlord and Tenant
8. SURETY
8.1 In consideration of this demise being made at the Surety's request the
Surety covenants with the Landlord in the terms set out in the Third
Schedule
8.2 Notwithstanding any other provision of this Lease or any other guarantee
given to the Landlord by Tremco Limited pursuant to the provisions of this
Lease or any Authorised Guarantee Agreement (as permitted by and in
accordance with Section 16 of the Act)
8.2.1 The liability of Tremco Limited under this Lease or under any other
guarantee given to the Landlord by Tremco Limited pursuant to or in
accordance with the provisions of this Lease shall absolutely cease and
determine on the expiry of the period of 4 (four) years from the date of
this Lease (in each case with the exception of any written claim made by
the Landlord against Tremco Limited before the expiry of the said our (4)
year period) but nothing in this sub-clause shall affect the liability of
18
<PAGE> 24
Amazon.Com, Inc. on its covenants contained in the Third Schedule as
Amazon.Com, Inc. hereby acknowledges
8.2.2 Notwithstanding the provisions of the Third Schedule no variation in
the terms and conditions of this Lease shall increase the liability of
Tremco Limited under its terms unless Tremco Limited shall first have
agreed to such variation in writing
8.2.3 Tremco Limited's liability under this Lease shall forthwith determine
absolutely upon forfeiture of the Lease by the Landlord or upon the
Landlord agreeing to accept a surrender of it
9. CERTIFICATE
It is certified that there is no agreement for lease to which this
Lease gives effect
IN WITNESS of which this Lease has been executed and is delivered as a deed on
the date appearing as the date of this Lease
FIRST SCHEDULE
Description of the Building and Fixtures
The schedule annexed to this Lease headed "The First Schedule"
SECOND SCHEDULE
PART I
The Rights
The right in common with the Landlord and all other persons now or at any time
after the date this Lease similarly entitled to pass at all times and for all
purposes connected with the proper use of the premises in accordance with this
Lease with or without vehicles over the land (if any) shown hatched brown on
the Plan
19
<PAGE> 25
PART 2
The Exceptions and Reservations
1. To the Landlord and all others authorised by it the free and
uninterrupted passage and running of water soil gas electricity and
telephone or any other service or supply from the other buildings and
land of the Landlord and its tenants adjoining or near the Premises and
from the land and premises of others so authorised as aforesaid through
the Conducting Media which are now or may hereafter be in through under
or over the Premises
2. To the Landlord and all others authorised by it the right at all times
to enter the Premises with all necessary equipment for the purposes of:
2.1 laying constructing installing replacing repairing maintaining or
altering any Conducting Media now or hereafter in through under or over
the Premises or any adjoining property or making connections to any
such Conducting Media
2.2 carrying out inspections of or tests to any such Conducting Media
2.3 exercising any of the rights of the Landlord contained in this Lease
3. To the Landlord full right and liberty at any time hereafter or from
time to time to execute works and erections upon or to alter or rebuild
any of the buildings erected on any neighbouring property of the
Landlord and to use such property and each part of it in such manner as
the Landlord may think fit notwithstanding that the access of light and
air to the Premises may thereby be interfered with
4. To the Landlord and all others authorised by it the right to pass with
or without vehicles at all times and for all purposes over the land (if
any) shown hatched yellow on the Plan
THIRD SCHEDULE
Obligations of the Surety
1. If at any time during the period that the Term is vested in the Tenant
it shall not pay any of the rents or other sums payable under this
Lease or perform and observe any of the covenants conditions or other
terms of the Lease the Surety shall pay such rents or other sums or
observe or perform such covenants conditions or other terms
2. By way of separate and additional liability and notwithstanding that
the guarantee in paragraph 1 may be unenforceable or invalid for any
reason the Surety indemnifies the Landlord against all proper and
reasonable losses damages costs and expenses suffered
20
<PAGE> 26
or incurred by the Landlord arising out of or in connection with any
failure by the Tenant to pay any of the rents and sums or to perform
and observe any of the covenants conditions or other terms referred to
in paragraph 1
3. If:
3.1 the Tenant shall be wound up or (being an individual) become bankrupt
and its liquidator or trustee in bankruptcy shall disclaim this Lease or
3.2 the Tenant shall cease to exist or shall die or
3.3 this Lease shall be forfeited
(the date on which such event occurs being called the "Relevant Date")
the Landlord may within three months after the Relevant Date by notice
in writing require the Surety to accept a lease of the Premises for a
term commencing on the Relevant Date and continuing for the residue
then remaining of the Term at the same rents and with the same
covenants and conditions as are reserved by and are contained in this
Lease and in such case the Surety shall take such lease accordingly and
execute a counterpart of it and pay all proper and reasonable costs and
duties in relation to it PROVIDED THAT in the event of Tremco Limited
(but not any other party being a Surety to this Lease) whether jointly
or otherwise being required to accept a lease its liabilities in
respect of such lease jointly or otherwise being required to accept a
lease its liabilities in respect of such lease shall be for the residue
of the period four years calculated from the date hereof so that such
liability shall cease on the expiry of the period of four years
calculated from the date of this Lease AND PROVIDED FURTHER that Tremco
Limited (but not any other party being a Surety to this Lease) shall
have the right within three months after the Relevant Date to require
the Landlord if lawfully permitted to do so grant to it a lease on the
terms aforesaid subject to the first proviso hereto
4. The Surety undertakes with the Landlord that:
4.1 its obligations to the Landlord are primary obligations and it is
jointly and severally liable with the Tenant (both before or after any
disclaimer by a liquidator or trustee in bankruptcy) for the
fulfillment of all the Tenant's covenants and obligations
4.2 the Surety shall not claim in any liquidation bankruptcy administration
receivership composition or arrangement of the Tenant in competition
with the Landlord and that the Surety shall remit to the Landlord the
proceeds of all judgments and all distributions which the Surety may
receive from any liquidator trustee in bankruptcy administrator
administrative receiver receiver or supervisor of the Tenant and shall
hold for the benefit of the Landlord all security and rights the Surety
may have over assets of the Tenant which any liabilities of the Tenant
or the Surety to the Landlord remain outstanding and
4.3 if the Landlord shall not require the Surety to take a new lease of the
Premises the Surety shall nevertheless upon demand pay to the Landlord
a sum equal to the rent first reserved under this Lease and all other
sums that would have been payable under this Lease in respect of the
period from and including the Relevant Date until the expiry of six
months after such Date or until the Landlord shall have granted a lease
of the Premises to a third party (whichever shall first occur) in
addition and without prejudice to the Surety's other obligations to the
Landlord PROVIDED THAT nothing in this sub-paragraph shall obliged
Tremco Limited (but not any other party being a Surety to this Lease)
to pay
21
<PAGE> 27
any sum where such sum would be referable to a period falling after the
expiry of the period of four (4) years calculated from the date of this
Lease
5. The Surety waives any right to require the Landlord to proceed against
the Tenant or to pursue any other remedy of any kind which may be
available to the Landlord before proceeding against the Surety
6. The liabilities of the Surety under this Schedule shall not be affected
by:
6.1 the granting of time or any other indulgence or concession to the
Tenant or any compromise or compounding the Landlord's rights
6.2 the Tenant being in liquidation or (as the case may be) declared
bankrupt
6.3 any variation in the terms and conditions of this Lease
6.4 any delay in exercising or failure to exercise or other exercise
(including re-entry under clause 6.1) of any of the Landlord's rights
against the Tenant
6.5 any refusal by the Landlord to accept rent tendered by or on behalf of
the Tenant following a breach by the Tenant of its obligations under
this Lease
6.6 any legal limitation or any immunity disability or incapacity of the
Tenant (whether or not known to the Landlord) or the fact that any
dealings with the Landlord by the Tenant (including the acceptance by
the Tenant of this Lease) may be outside or in excess of the powers of
the Tenant or
6.7 any other thing (including the expiration or sooner determination of
the Term or any such disclaimer or the death of the Surety (or any of
the persons comprising the Surety) or (in relation to one or more of
such persons) the discharge of the other person or person or persons)
whereby (but for this provision) the Surety or any of them would be
exonerated either wholly or in part from any of the Surety obligations
hereunder
22
<PAGE> 28
FOURTH SCHEDULE
Rent Review Memorandum
[Premises]
Lease dated [____________] between
[______________________]
Pursuant to the above Lease [______________________] as Landlord and
[____________] as Tenant record that the yearly rent has been increased to the
sum of Pounds [________] with effect from [relevant Review Date]
Dated: [____________]
Signed: ____________________________
Landlord/Tenant
23
<PAGE> 29
FIRST SCHEDULE
BUILDING 86/88
BESTOBELL ROAD
TRADING ESTATE
SLOUGH
A single storey, six bay warehouse measuring to Bay 86, 34.93m (114'7") x
30.33m (99'6") with two storey toilet/offices at east 6.93m (22'9") x 30.67m
(100'8") and to Bay 87, 34.96m (114'11") x 30m (98'5") with mezzanine floor at
each approximately 6.6m (21'8") x 30.18m (99') and to Bay 88, 28.06m (92'1") x
30.33m (99'6") with mezzanine floor at east approximately 6.6m (21'8") x 30.18m
(99') all by 6.10m (20') high to eaves. All providing gross external floor areas
of:
<TABLE>
<S> <C> <C>
Ground Floor Warehouse 2,966.50m(2) (31,931 sq.ft.)
Ground Floor Office 212.56m(2) ( 2,288 sq.ft.)
First Floor Warehouse 212.47m(2) ( 2,287 sq.ft.)
Mezzanine 401.62m(2) ( 4,323 sq.ft.)
-----------------------------------------------------------------
Total 3,793.15m(2) (40,829 sq.ft.)
</TABLE>
FOUNDATIONS
Concrete foundations to suit structure and ground conditions all to structural
engineers design and specification.
FRAME
Painted steel portal frames with external stanchions brick encased to form
piers.
ROOF
Roof of corrugated asbestos cement sheeting, fibreglass insulation and over
purling lining of plastic faced, foil backed, plasterboard in galvanised "T"
sections on galvanised steel purlins and incorporating approximately ten
percent translucent roof light sheets (not over offices) and sixteen roof
ventilators.
Roof drained via galvanised boundary wall and valley gutters and PV downpipes
connected to surface water drainage.
EXTERNAL WALLS
External walls generally of cavity brick construction with facing brick
external leaf, cavity foam insulation to 6.1 metres high, with profiled
galvanised, plastisol coated steel sheeting above on steel framework to 7.5m.
Cladding insulated with glass fibre and internal lining of plastic faced foil
backed plasterboard to gables at east and west. Internal face of cavity wall
construction finished fair faced and unpainted internally.
<PAGE> 30
The east (front elevation incorporates to each pair of bays (two bays per
building) a recessed entrance porch with concrete canopy incorporating acrylic
sign board for tenants name, one pair of bronze anodised aluminium fully glazed
doors and side screens, with bronzed spectra-float glass (toughened in doors)
to office entrance and painted timber via exit doors with panic bars to numbers
87 and 88, six tripled unit bronze anodised aluminium windows with bronzed
spectra-float glass and ground floor level and seven at first floor level of
each building.
One flush painted fire exit door with panic bar and statutory signage is
provided to each pair of bays at the rear (west) and one at the north of
building 88. One painted flushed timber door is provided to the switch room on
the north elevation of building 88. One pair of painted louvred timber doors
are provided to the sprinkler pump room on the north elevation of building 88.
One aluminium insulated up and over loading door approximately 4.5m x. 5.3m
high is provided to the rear of building 88, one to the rear of 87 and two to
the rear of building 86. Steel post and rail crash barrier protection is
provided below loading doors to building 86 only. Two acrylic sign boards for
tenants name signs are provided to the brick walls at the rear (west).
EXTERNAL AREAS
South - Grassed/tree planted area.
East - Concrete slabbed paths to building 86 and grassed/tree planted
area.
- Concrete slabbed path and grassed/tree planted area to building 87.
- Tarmac surfaced concrete kerbed area for parking of 10 no. cars to
building 87.
- Concrete slabbed path and grassed/tree planted areas to building
88.
- Tarmac surface to concrete kerbed area of parking or 7 no. cars to
building 88.
North - Grass-tree planted are to building 88.
- Concrete slabbed path to all doorways and footpath to building 88.
West - Matching facing brick wall with piers, to 2.1 metre height at
south of building 86.
- Reinforced concrete apron with ramp down forming a circulation
area for commercial vehicles and low level loading dock to
building 86.
- Brick bank and retaining wall covering level differences to
building 87.
- Tarmac/concrete surfaced access area and parking for 9 no. cars to
building 87.
- Concrete ramp to loading door of building 87.
- Grass/tree planted area to building 88.
- Concrete surfaced access area and parking for 5 no. cars to
building 88.
General - Soil and surface water drainage serving the property.
2
<PAGE> 31
INTERNAL
FLOORS
Concrete floor throughout with hardened and power float finish to warehouse
area and screed and PV tiles to toilets, carpet to entrance hall (with recessed
matwell and mat to office entrance), PV tiles to first floor and carpet to
staircase and landings.
First floor of offices comprising screeded, pre-cast concrete beams with PV
tiles.
Mezzanine floors to buildings 87 and 88 of concrete encased steel framework
with screeded concrete beam floors, protected by tubular railings 1.1 metre
high, each with two pairs of gates in matching construction and each unit with
one steel ladder. Steel connecting platform between each mezzanine floor.
WALLS
Brick compartment wall to two storey offices at east in building 86 with
further internal block of partitions forming one large office with lobby,
stairwell and male/female office toilets and male works toilet with shower room
and each utility/rest room with lobby all at ground floor. At first floor
forming stairwell and two large offices. All walls finished fairfaced and
unpainted to warehouse side and plastered and emulsion painted to office and
toilet side. White glazed tiles are provided to shower room walls.
Internal doors are flushed timber construction with "KOTO" ply face and
polyurethane lacquer finish, fire resisting and self closing where
appropriate and including vision panels to circulation spaces.
STAIRCASE
Staircase to each mezzanine floor of reinforced concrete with painted tubular
steel handrail, intermediate rail and balusters.
Staircase to office area of reinforced concrete, fully carpeted including edges
and soffit with stainless steel handrail and balusters with "abeche" timber
centre rail.
<TABLE>
<CAPTION>
Accommodation
<S> <C> <C>
Female Staff Toilets 2 no. Low level WC suites in melamine cubicles.
2 no. Wash hand basins.
Male Staff Toilets 1 no. Low level WC suite in melamine cubicle.
2 no. Bowl urinals and automatic flushing cistern.
2 no. Wash hand basins.
Male Works Toilets 2 no. Low level WC suites in melamine cubicles.
2 no. Urinal bowls with automatic flushing cistern.
2 no. Wash hand basins.
1 no. Shower tray with glazed cubicle and fittings.
Utility Area 1 no. Stainless steel single drainer, single bowl,
sink with timber cupboard under.
</TABLE>
3
<PAGE> 32
Glazed tile splashbacks are provided to basins, urinals and sinks. All sanitary
fittings are in white glazed vitreous china (commercial standard) connected to
hot and cold water services as appropriate and to soil drainage. One mirror is
provided to each toilet and each toilet area and the access lobby is ventilated
by a "Mechavent" powered and ducted ventilation system.
CEILINGS
Ceilings of warehouse areas as described under roofs.
Ceilings to office area of suspended fibre tiled ceilings in metal "T" grid to
both floors with shower room ceiling of plasterboard on softwood joist.
ELECTRICAL INSTALLATION
Lighting is provided throughout the unit as follows:
<TABLE>
<CAPTION>
Entrance Hall, Staircase, Factory, Toilet & Office Lobbies:
<S> <C> <C>
2 no. 100 Watt flameproof tungsten luminaires for
factory and male toilet lobbies and
8 no. 1.4m, 4 x 40 Watt flush fluorescent luminaires and
1 no. 600 mm square flushed fluorescent luminaire.
Ground Floor Office 14 no. 1.4m, 4 x 40 Watt flushed fluorescent luminaires.
Utility & Rest Room 6 no. 1.8m, 75 Watt twin fluorescent luminaires and
1.4m, 40 Watt twin fluorescent luminaire.
Male Works Toilet 1 no. 1.8m, 75 Watt twin fluorescent luminaire.
Shower 1 no. 100 Watt round tungsten luminaire.
Male Staff Toilet 1 no. 1.5m, 65 Watt twin fluorescent luminaire and
1 no. 100 Watt, round tungsten fitting.
Female Staff Toilet 1 no. 1.5m, 65 Watt twin fluorescent luminaire and
1 no. 100 Watt round tungsten fitting.
First Floor Office 28 no. 1.4m, 4 x 40 Watt flushed fluorescent luminaires.
Warehouse 100 mo. 1.8m, 75 Watt twin flameproof fluorescent
luminaires with reflectors.
Mezzanine Floors 14 no. 1.8m x 75 Watt twin flameproof fluorescent
luminaires with reflectors
Plant Room 3 no. 1.8m x 75 Watt twin fluorescent luminaries with
open reflectors.
Electrical Switch Room 1 no. 1.8m x 75 Watt twin fluorescent luminaire with open
reflector
External 3 no. 250 Watt HP sodium floodlights controlled by photo
electric cells and time switches.
</TABLE>
4
<PAGE> 33
Small power is provided as follows:
Entrance Hall 1 no. 13 amp flush twin switched socket outlet.
Ground Floor Office 8 no. 13 amp flush twin switched socket outlets.
Utility & Rest Room 4 no. 13 amp flush twin switched socket outlets.
Shower 1 no. 13 amp flush switched twin spur unit with
indicator light for 3 kW immersion heater in
HWS cylinder
First Floor Office 16 no. 13 amp flush twin switched socket outlets.
Control & Protection is provided by:
1 no. 300 amp TP & N fuse switch (main switch).
1 no. 300 amp TP & N busbar chamber.
2 no. 60 amp TP & N switch fuse.
2 no. 20 amp TP & N 3 way distribution board.
1 no. 13 amp TP & N switch fuse (sprinklers).
1 no. 100 amp TP & N switch fuse (office lighting
& small power).
6 no. 25 amp TP & N four pole factory lighting
contractor.
1 no. Bumper control panel switch.
1 no. 100 amp TP & N isolator (sub main switch
gear).
1 no. 30 amp TP N 6 way distribution board (sub
main switch gear).
1 no. 20 amp 7 day time switch for control of
immersion heater (sub main switch gear).
(The last three items are located in the
Utility Room).
The installation is wired in PVC cable of reputable manufacture encased in
welded steel screwed conduit and galvanised trunking, fully complying with
present day good practice and the regulations of the Institute of Electrical
Engineers.
The installation in the factory is flameproof and the wiring is carried out
utilising PVC, SWA, PVC cables and/or MICC cables as appropriate, fully
complying with present day good practices etc. as above and BS code of practice
1093; part I; 1964-division II.
FIRE FIGHTING EQUIPMENT
21 no. Nine litre, water fire extinguishers are
provided throughout the building.
5
<PAGE> 34
EXECUTED as a Deed by BOOKPAGES )
LIMITED acting by: )
Director [SIG]
Director/Secretary A. PATRICIA
Signed as a Deed on behalf of AMAZON. )
COM.INC. accompany incorporated in )
Delaware being a person who in accordance )
with the laws of that territory is or are acting )
under the authority of the company )
/s/ JOY D. COVEY
-------------------------
(Joy D. Covey)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AMAZON.COM, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,523
<SECURITIES> 337,396
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 17,035
<CURRENT-ASSETS> 369,441
<PP&E> 21,174
<DEPRECIATION> 7,160
<TOTAL-ASSETS> 443,759
<CURRENT-LIABILITIES> 71,924
<BONDS> 332,406
0
0
<COMMON> 497
<OTHER-SE> 38,932
<TOTAL-LIABILITY-AND-EQUITY> 443,759
<SALES> 203,352
<TOTAL-REVENUES> 203,352
<CGS> 157,840
<TOTAL-COSTS> 157,840
<OTHER-EXPENSES> 71,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,589
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