<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-78797
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 11, 1999)
E690,000,000
[AMAZON.COM LOGO]
6 7/8% PEACS(TM) NOTES DUE 2010
(PrEmium Adjustable Convertible Securities(TM)
------------------------
Interest payable on February 16
------------------------
PEACS(TM) ARE SUBORDINATED CONVERTIBLE NOTES OF AMAZON.COM. HOLDERS MAY CONVERT
THE NOTES INTO COMMON STOCK OF AMAZON.COM AT ANY TIME PRIOR TO THEIR MATURITY AT
A CONVERSION PRICE OF E104.947 PER SHARE OF OUR COMMON STOCK, SUBJECT TO
ADJUSTMENTS AND SUBJECT TO OUR RIGHT TO WITHDRAW CONVERSION RIGHTS IN CERTAIN
EVENTS. THE CONVERSION PRICE WILL BE RESET ON FEBRUARY 16, 2001 AND FEBRUARY 16,
2002 TO THE LESSER OF (1) THE CONVERSION PRICE THEN IN EFFECT AND (2) THE EURO
EQUIVALENT AVERAGE OF THE DAILY CLOSING PRICES OF OUR COMMON STOCK FOR THE 20
CONSECUTIVE TRADING DAYS IMMEDIATELY PRECEDING SUCH DATE. HOWEVER, IN NO EVENT
WILL THE CONVERSION PRICE BE RESET TO LOWER THAN E84.883 PER SHARE.
------------------------
ON OR AFTER FEBRUARY 20, 2003, AMAZON.COM MAY REDEEM ANY OF THE NOTES AT ITS
PRINCIPAL AMOUNT, PLUS ACCRUED INTEREST.
------------------------
FOR A MORE DETAILED DESCRIPTION OF THE NOTES, SEE "DESCRIPTION OF NOTES"
BEGINNING ON PAGE S-46.
------------------------
OUR COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"AMZN." ON FEBRUARY 10, 2000, THE REPORTED LAST BID PRICE OF OUR COMMON STOCK
WAS $76 1/8 PER SHARE. WE HAVE MADE AN APPLICATION TO LIST THE NOTES ON THE
LUXEMBOURG STOCK EXCHANGE.
------------------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
S-12.
------------------------
PRICE 100% AND ACCRUED INTEREST, IF ANY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
------------ ------------- -----------
<S> <C> <C> <C>
Per Note................................. 100% 2.5% 97.5%
Total.................................... E690,000,000 E17,250,000 E672,750,000
</TABLE>
The Securities and Exchange Commission and state securities commissions have not
approved or disapproved these securities or determined if this prospectus
supplement or the accompanying prospectus are truthful or complete. Any
representation to the contrary is a criminal offense.
Morgan Stanley & Co. International Limited expects to deliver the notes to
purchasers on February 16, 2000.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
February 11, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PROSPECTUS SUPPLEMENT ----
<S> <C>
About this Prospectus Supplement...... S-3
Forward-Looking Statements............ S-4
Summary............................... S-5
Risk Factors.......................... S-12
Use of Proceeds....................... S-24
Price Range of Common Stock........... S-24
Capitalization........................ S-25
Selected Financial Data............... S-26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-27
The Company........................... S-38
Management............................ S-44
Description of Notes.................. S-46
United States Federal Income Tax
Consequences........................ S-57
Certain Indebtedness.................. S-64
Description of Capital Stock.......... S-66
Underwriting.......................... S-68
Legal Matters......................... S-69
Independent Auditors.................. S-69
Available Information................. S-69
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
<TABLE>
<CAPTION>
PAGE
PROSPECTUS ----
<S> <C>
Summary............................... 1
Forward-Looking Information........... 3
How to Obtain More Information........ 3
Amazon.com............................ 4
Ratio of Earnings to Fixed Charges.... 5
Use of Proceeds....................... 5
General Description of Securities..... 5
Description of the Common Stock....... 5
Description of the Preferred Stock.... 6
Description of the Depositary
Shares.............................. 7
Description of the Debt Securities.... 9
Description of the Warrants to
Purchase Common or Preferred
Stock............................... 16
Description of the Stock Purchase
Units and Stock Purchase
Contracts........................... 17
Description of the Third-Party
Warrants............................ 18
Description of the Warrants to
Purchase Debt Securities............ 19
Description of the Foreign Currency
Exchange Warrants................... 20
Description of the Stock Index
Warrants............................ 23
Description of the Other Warrants..... 26
Plan of Distribution.................. 28
ERISA Considerations.................. 29
Legal Matters......................... 30
Experts............................... 30
</TABLE>
------------------------
ABOUT THIS PROSPECTUS SUPPLEMENT
You should read this prospectus supplement along with the accompanying
prospectus. These documents contain information you should consider when making
your investment decision. You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. Neither we nor the underwriters have authorized anyone else to
provide you with different or additional information.
This prospectus supplement and the accompanying prospectus do not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the notes. This prospectus supplement and the accompanying prospectus
do not constitute an offer to sell or a solicitation of an offer to buy the
notes in any circumstances in which an offer or solicitation is unlawful.
Information in this prospectus supplement and the accompanying prospectus
may change after the date on the front of the applicable document. You should
not interpret the delivery of this prospectus supplement or the accompanying
prospectus or the sale of the notes as an indication that there has been no
change in our affairs since that date.
S-3
<PAGE> 3
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus contain
forward-looking statements, including statements regarding expectations of
future profitability of our US books business, sales growth, gross margin and
improvement in operating loss, all of which are inherently difficult to predict.
These forward-looking statements are not guarantees of future performance and
are subject to many risks and uncertainties that are difficult to predict.
Actual results could differ materially for a variety of reasons, including the
Internet and online commerce growing at a slower rate than we anticipate, the
amount that Amazon.com invests in new business opportunities and the timing of
those investments, customer spending patterns, the mix of products sold to
customers, the mix of revenues derived from product sales as compared to
services, risks of inventory management, and risks of distribution and
fulfillment throughput and productivity. Other risks and uncertainties include
Amazon.com's limited operating history, anticipated losses, potential
fluctuations in quarterly operating results, seasonality, consumer trends,
competition, risks associated with the distribution center expansion, adverse
consequences arising from system interruptions, risks associated with management
of potential growth, risks related to auction and zShops services, risks related
to fraud and Amazon.com Payments, and risks of new business areas, international
expansion, business combinations and strategic alliances. Other potential risks
and uncertainties are set forth herein under "Risk Factors," as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Except as required by law, we
undertake no obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise. You should, however,
carefully review the factors set forth in other reports or documents that we
file from time to time with the Securities and Exchange Commission.
------------------------
Amazon.com, Amazon.co.uk, Amazon.de, Amazon.com Auctions, zShops,
Amazon.com Anywhere and 1-Click are either registered trademarks or trademarks
of Amazon.com, Inc. or one of its affiliates. All other names mentioned herein
may be trademarks of their respective owners.
Information contained on our Web sites is not a part of this prospectus
supplement. As used herein, "titles" offered on Amazon.com means the number of
items offered on our Web site.
Unless we state otherwise, when converting euros to US dollars in this
prospectus supplement, we use the noon buying rate in New York City for cable
transfers on February 10, 2000, which was .9865 US dollars per euro.
Amazon.com, Inc. was incorporated in Washington in 1994 and reincorporated
in Delaware in 1996. Our principal address is 1200 12th Avenue South, Suite
1200, Seattle, Washington 98144.
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<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included or
incorporated by reference in this prospectus supplement. All information herein
is adjusted to reflect the 2-for-1 split of our common stock effected on June 1,
1998, the 3-for-1 split of our common stock effected on January 4, 1999 and the
2-for-1 split of our common stock effected on September 1, 1999, except that the
September 1, 1999 2-for-1 split is not reflected in the December 31, 1998
audited consolidated financial statements. References in this prospectus
supplement to "Amazon.com," "we," "us," or "our" mean Amazon.com, Inc. and its
subsidiaries unless the context indicates another meaning.
Amazon.com seeks to be the world's most customer-centric company where
customers can find and discover anything they may want to buy online. We believe
we have the leading platform for retailing on the Internet. This platform
consists of strong brand recognition, a large and growing group of customers,
innovative technology, extensive and sophisticated distribution capabilities,
and significant e-commerce expertise.
Amazon.com is the world's leading online retailer. Amazon.com directly
offers for sale millions of distinct items in categories such as books, music,
toys, electronics, videos, DVDs, home improvement products, software and video
games. Through our marketplace services such as Amazon.com Auctions, zShops and
sothebys.amazon.com, we have created Web-based marketplaces where buyers and
sellers can enter into transactions with respect to a wide range of products.
Amazon.com has also invested in and developed strategic commercial relationships
with a number of selected e-commerce companies. Amazon.com offers its customers
a superior shopping experience by providing high value through selection,
convenience, ease of use, product information and an intense focus on customer
service. Amazon.com is a proven technology leader, having developed electronic
commerce innovations such as 1-Click technology, personalized shopping services,
easy-to-use search and browse features, secure payment protections and wireless
access to the Amazon.com site. In 1999, Amazon.com significantly expanded its
distribution capabilities worldwide with the addition of eight new distribution
centers comprising approximately four million square feet of warehouse and
distribution space. These new facilities increase our control over the
distribution process and facilitate our ability to deliver merchandise to
customers on a reliable and timely basis.
Amazon.com has served over 17 million customer accounts in over 150
countries. In addition to our US Web site, we currently have two internationally
focused Web sites located at www.amazon.co.uk and www.amazon.de. Each of
Amazon.co.uk and Amazon.de was ranked the number one e-commerce site and the
number 10 most visited site overall in the UK and Germany, respectively,
according to the Media Metrix ratings for Europe released in January 2000. Both
of these sites were launched in October 1998, and currently have product and
service offerings consisting of books, music, auctions and zShops. These
international sites have the same look, feel and functionality as the US Web
site, including 1-Click technology, personalized recommendations and product
reviews, but offer content, products and services tailored to the local market.
The Amazon.de Web site is presented in the German language. In the fourth
quarter of 1999, combined sales from these sites totaled $71 million, a 360%
increase from the fourth quarter of 1998. We currently have distribution centers
and customer service centers in the UK and Germany.
Amazon.com intends to continue to expand internationally by increasing the
product and service offerings on Amazon.co.uk and Amazon.de, establishing new
Web sites focused on particular international markets, entering into strategic
relationships that enhance our international operations and continuing to sell
products from the US to international customers. We believe that there are
significant e-commerce opportunities outside of the US and that Amazon.com is
extremely well-positioned to be a global e-commerce leader given the platform we
have created in the US and our experience in international markets to date.
RECENT DEVELOPMENTS
On January 21, 2000, we announced that we had agreed to acquire 5% of the
outstanding shares of Greenlight.com, an online car buying service, and warrants
to increase our stake up to 30%. In connection with
S-5
<PAGE> 5
this investment, we also announced that we had entered into a promotional
agreement with Greenlight.com. This agreement provides for the payment of a
minimum of $82.5 million to us over a five-year period.
On January 24, 2000, we announced that we had agreed to make an additional
$30 million investment in drugstore.com, an online retail and information source
for health, beauty, wellness, personal care and pharmacy. This investment brings
our total stake in drugstore.com to approximately 28% of the outstanding
drugstore.com common stock. We also agreed to create a health and beauty store
on the Amazon.com Web site. Under the commercial agreement for this transaction,
Amazon.com will receive $105 million over a three-year period.
On January 31, 2000, we announced that we had agreed to acquire 5% of
Audible, Inc., a leader in Internet-delivered spoken audio for PC-based
listening or playback on AudibleReady (TM) portable digital audio devices. In
connection with this investment, we also announced that we had entered into an
agreement to feature on the Amazon.com Web site content and services from
Audible, Inc. in exchange for payments of $30 million to us over a three-year
period.
On February 1, 2000, we announced that we had agreed to acquire an 18%
stake in living.com, an online retailer of products and services for the home,
with warrants for another 9%. In connection with this investment, we also
announced that we had entered into an agreement to create a home living store on
the Amazon.com Web site. Under the commercial agreement for this transaction,
Amazon.com will receive $145 million from living.com over a five-year period.
RECENT OPERATING RESULTS
Net sales for the quarter ended December 31, 1999 were $676 million, an
increase of 167% over net sales of $253 million for the fourth quarter of 1998.
Pro forma operating loss for the fourth quarter of 1999 was $175 million,
compared to a pro forma operating loss of $18 million in the fourth quarter of
1998. Fourth-quarter pro forma net loss was $185 million, or $.55 per share,
compared with a pro forma net loss of $22 million, or $.07 per share, in the
fourth quarter of 1998. Pro forma information excludes amortization of goodwill
and other intangibles, equity in losses of equity method investees, stock-based
compensation costs, and merger, acquisition and investment-related costs.
Net sales for all of 1999 were $1.64 billion, a 169% increase over net
sales of $610 million reported for all of 1998. Pro forma net loss for 1999 was
$390 million, or $1.19 per share, compared with a pro forma net loss in 1998 of
$74 million, or $.25 per share.
Cumulative customer accounts increased by 3.8 million during the fourth
quarter to more than 16.9 million at December 31, 1999, an increase of more than
170% from our 6.2 million customer accounts at December 31, 1998. Cumulative
customer accounts now stand at over 17 million. Repeat customer orders
represented more than 73% of orders in the fourth quarter, up from 72% in the
previous quarter.
S-6
<PAGE> 6
The following table sets forth selected financial information covering the
three months and the years ended December 31, 1998 and 1999. Certain amounts in
the statements of operations data have been reclassified compared to the audited
consolidated financial statements included in this prospectus supplement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ------------------------
1998 1999 1998 1999
-------- --------- --------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $252,829 $ 676,042 $ 609,819 $1,639,839
Cost of sales............................... 199,476 588,196 476,155 1,349,194
-------- --------- --------- ----------
Gross profit................................ 53,353 87,846 133,664 290,645
Operating expenses:
Marketing and sales....................... 48,378 179,424 132,654 413,150
Product development....................... 17,194 57,720 46,424 159,722
General and administrative................ 5,413 26,051 15,618 70,144
Stock-based compensation.................. 299 14,049 1,889 30,618
Amortization of goodwill and other
intangibles............................ 20,452 82,301 42,599 214,694
Merger, acquisition and investment-related
costs.................................. 1,281 2,085 3,535 8,072
-------- --------- --------- ----------
Total operating expenses............... 93,017 361,630 242,719 896,400
-------- --------- --------- ----------
Loss from operations........................ (39,664) (273,784) (109,055) (605,755)
Interest income............................. 4,264 8,972 14,053 45,451
Interest expense............................ (8,622) (18,142) (26,639) (84,566)
Other income (expense)...................... -- (366) -- 1,671
-------- --------- --------- ----------
Net interest expense and other............ (4,358) (9,536) (12,586) (37,444)
-------- --------- --------- ----------
Loss before equity in losses of
equity-method investees................... (44,022) (283,320) (121,641) (643,199)
Equity in losses of equity-method
investees................................. (2,405) (39,893) (2,905) (76,769)
-------- --------- --------- ----------
Net loss.................................... $(46,427) $(323,213) $(124,546) $ (719,968)
======== ========= ========= ==========
Basic and diluted loss per share............ $ (.15) $ (.96) $ (.42) $ (2.20)
======== ========= ========= ==========
Shares used in computation of basic and
diluted loss per share.................... 308,778 338,389 296,344 326,753
======== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 116,962
Marketable securities....................................... 589,226
Working capital............................................. 273,243
Total assets................................................ 2,471,551
Total long-term debt........................................ 1,466,338
Stockholders' equity........................................ 266,278
</TABLE>
S-7
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
------- -------- --------- -------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net sales.......................... $15,746 $147,787 $ 609,819 $356,992 $ 963,797
Cost of sales...................... 12,287 118,969 476,155 276,680 760,998
------- -------- --------- -------- ---------
Gross profit....................... 3,459 28,818 133,664 80,312 202,799
Operating expenses:
Marketing and sales.............. 6,081 40,077 132,654 84,325 233,222
Product development.............. 2,377 13,384 46,424 29,168 102,298
General and administrative....... 1,408 6,741 15,618 10,220 44,301
Stock-based compensation......... 36 1,211 1,889 1,591 16,570
Amortization of goodwill and
other intangibles............. -- -- 42,599 22,258 132,394
Merger, acquisition and
investment-related costs...... -- -- 3,535 2,143 5,985
------- -------- --------- -------- ---------
Total operating expenses...... 9,902 61,413 242,719 149,705 534,770
------- -------- --------- -------- ---------
Loss from operations............... (6,443) (32,595) (109,055) (69,393) (331,971)
Interest income.................... 202 1,901 14,053 9,790 36,479
Interest expense................... (5) (326) (26,639) (18,017) (66,424)
Other income....................... -- -- -- -- 2,037
------- -------- --------- -------- ---------
Net interest income (expense) and
other......................... 197 1,575 (12,586) (8,227) (27,908)
------- -------- --------- -------- ---------
Loss before equity in losses of
equity-method investees.......... (6,246) (31,020) (121,641) (77,620) (359,879)
Equity in losses of equity-method
investees........................ -- -- (2,905) (500) (36,876)
------- -------- --------- -------- ---------
Net loss........................... $(6,246) $(31,020) $(124,546) $(78,120) $(396,755)
======= ======== ========= ======== =========
OTHER OPERATING DATA:
Net cash provided by (used in)
operating activities............. $(2,010) $ 687 $ 31,035 $ (7,663) $(122,381)
Capital expenditures(2)............ 1,335 12,066 28,333 18,779 213,317
EBITDA(3).......................... (5,945) (25,898) (41,669) (29,769) (152,447)
Deficiency of earnings available to
cover fixed charges(4)........... (6,246) (31,020) (121,641) (77,620) (359,879)
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------
ACTUAL AS ADJUSTED(5)
---------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 43,149 $ 43,149
Marketable securities....................................... 862,536 1,526,204
Working capital............................................. 722,397 1,386,065
Total assets................................................ 2,239,799 2,920,484
Total long-term debt........................................ 1,462,203 2,142,888
Stockholders' equity........................................ 419,925 419,925
</TABLE>
- ------------
(1) Certain amounts in the statement of operations data have been reclassified
compared to the audited consolidated financial statements included in this
prospectus supplement.
(2) Capital expenditures include assets acquired under capital leases.
(3) Earnings before interest expense, taxes, depreciation and amortization, or
EBITDA, is provided because it is a commonly accepted financial indicator
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance. EBITDA is presented to enhance the
understanding of our operating results and is not intended to represent cash
flows or results of operations in accordance with generally accepted
accounting principles, or GAAP, for the periods indicated. EBITDA is not a
measurement under GAAP and is not necessarily comparable with similarly
titled measures of other companies. Net cash flows from operating activities
as determined using GAAP are also presented in Other Operating Data.
(4) Earnings consist of income (loss) before provision for income taxes plus
fixed charges. Fixed charges consist of interest charges and amortization of
debt expense and discount or premium related to indebtedness, whether
expensed or capitalized, and that portion of rental expense we believe to be
representative of interest.
(5) As adjusted for the offering and application of the net proceeds as if the
offering had occurred on September 30, 1999. Euros were converted to dollars
using the noon buying rate in New York City for cable transfers on February
10, 2000. See "Use of Proceeds" and "Capitalization."
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<PAGE> 9
THE OFFERING
Securities Offered......... E690,000,000 principal amount of 6 7/8% PEACS due
2010.
Interest................... 6.875% per annum on the principal amount, payable
annually in arrears in cash on February 16 of each
year, beginning February 16, 2001.
Conversion................. You may convert each note into our common stock at
any time on or before February 16, 2010, subject to
our right to redeem the notes or withdraw such
conversion rights, at an initial conversion price
of E104.947 per share of common stock, subject to
certain adjustments.
The conversion price will be reset on February 16,
2001 and February 16, 2002 to the lesser of (1) the
conversion price then in effect and (2) the euro
equivalent average of the daily closing prices of
our common stock for the 20 consecutive trading
days immediately preceding such date. However, in
no event will the conversion price be reset to less
than E84.883 (subject to any antidilution
adjustments). As a result of this limitation on
resetting the conversion price, no more than 11.781
shares of our common stock would be issuable upon
conversion of E1,000 principal amount of notes
(subject to any anti-dilution adjustments).
In addition, the conversion price will be subject
to adjustment if certain events affecting our
common stock occur. Please see the discussion in
"Description of Notes -- Conversion of Notes."
Subordination.............. The notes will be subordinated to all of our
existing and future senior indebtedness and to all
debt and other liabilities of our subsidiaries. The
notes will rank equally with our 4 3/4% Convertible
Subordinated Notes due 2009. As of December 31,
1999, we had approximately $900.7 million of
indebtedness that constituted senior indebtedness.
Neither we nor any of our subsidiaries is
prohibited from incurring debt, including senior
indebtedness, under the indenture.
Withdrawal of Conversion
Rights..................... If at any time and each time prior to February 20,
2003 the euro equivalent of the closing price of
our common stock exceeds 160% of the initial
conversion price (E167.915) for at least 20 trading
days in any consecutive 30-trading day period, we
may withdraw your conversion rights. We must give
you notice of the occurrence of the event described
above at least 30 days, and no more than 60 days,
prior to withdrawing your conversion rights, and
such notice shall be given no later than five
business days after the last day on which such
event had occurred or was continuing. If we
withdraw your conversion rights in the time frame
discussed above, we will pay you an additional
amount in cash with respect to each of your notes
equal to E206.25 per E1,000 note, less the amount
of any interest actually paid on such note prior to
the date in which we give you notice as described
above. We refer to this additional payment as a
"make-whole payment". We will make this make-whole
payment to all note holders, including to note
holders who convert their notes into our common
stock during the period between the date we give
notice of our intention to withdraw the conversion
rights and the date on which the conversion rights
are actually withdrawn.
Optional Redemption........ We may redeem any of the notes on or after February
20, 2003 by giving you at least 30 days' notice. We
may redeem the notes either in whole or in part at
principal amount, together with accrued but unpaid
interest.
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<PAGE> 10
Sinking Fund............... None.
Fundamental Change......... If a fundamental change of Amazon.com as described
under "Description of Notes -- Redemption at Option
of the Holder" occurs on or before February 16,
2010, you may require us to purchase all of your
notes at a redemption price equal to 100% of the
principal amount of such notes, plus accrued and
unpaid interest to but excluding the date of
redemption.
Use of Proceeds............ We anticipate using the net proceeds from the
offering for general corporate purposes, including,
without limitation, working capital to fund
anticipated operating losses, the expansion of our
core business, investments in new markets,
expansion of our European operations and capital
expenditures.
Listing.................... We have made an application to list the notes on
the Luxembourg Stock Exchange.
Nasdaq Symbol.............. AMZN
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<PAGE> 11
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. Our business, financial condition or results of operations
could be materially and adversely affected by any of these risks. The risks
described below are not the only ones facing our company. Additional risks not
presently known to us or that we currently deem immaterial may also impair our
business, financial condition or results of operations.
RISKS RELATED TO AMAZON.COM
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR
BUSINESS AND PROSPECTS
We incorporated in July 1994 and began offering products for sale on our
Web site in July 1995. Accordingly, we have a relatively short operating history
upon which you can evaluate our business and prospects. You should consider our
prospects in light of the risks, expenses and difficulties frequently
encountered by online commerce companies. As an online commerce company, we have
a rapidly evolving and unpredictable business model, we face intense
competition, we must effectively manage our growth, and we must respond quickly
to rapid changes in customer demands and industry standards. We may not succeed
in addressing these challenges and risks.
WE HAVE AN ACCUMULATED DEFICIT AND ANTICIPATE FURTHER LOSSES
We have incurred significant losses since we began doing business. As of
December 31, 1999, we had an accumulated deficit of $882 million. We believe
that we will continue to incur substantial operating losses for several years
and may continue to incur such losses for the foreseeable future. These losses
may be significantly higher than our current losses. To succeed, we must invest
heavily in marketing and promotion and in developing our product, technology and
operating infrastructure. In addition, the expenses associated with our recent
and future acquisitions and investments and interest expense related to our
outstanding notes will adversely affect our operating results. Our aggressive
pricing programs have resulted in relatively low product gross margins, so we
need to generate and sustain substantially higher revenues in order to become
profitable. Although our revenues have grown, we cannot sustain our current rate
of growth. Our percentage growth rate will decrease in the future.
OUR SIGNIFICANT AMOUNT OF INDEBTEDNESS COULD AFFECT OUR BUSINESS
We have significant indebtedness. As of December 31, 1999, we had
indebtedness under senior discount notes, convertible subordinated notes,
capitalized lease obligations and other asset financing totaling approximately
$1.48 billion. Upon completion of this offering, we will have total indebtedness
of $2.16 billion. We may incur substantial additional debt in the future. Our
indebtedness could:
- make it difficult to make principal and interest payments on our
convertible subordinated notes, our senior discount notes and the notes
sold in this offering,
- make it difficult to obtain necessary additional financing for working
capital, capital expenditures, debt service requirements or other
purposes in the future,
- limit our flexibility in planning for, or reacting to, changes in our
business and competition, and
- make it more difficult for us to react in the event of an economic
downturn.
We may not be able to meet our debt service obligations. If our cash flow
is inadequate to meet our obligations, we may face substantial liquidity
problems. If we are unable to generate sufficient cash flow or obtain funds for
required payments, or if we fail to comply with other covenants in our
indebtedness, we will be in default. This would permit our creditors to
accelerate the maturity of our indebtedness.
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WE CANNOT ACCURATELY FORECAST REVENUES OF OUR BUSINESS. WE MAY EXPERIENCE
SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS. OUR BUSINESS IS
SUBJECT TO SEASONAL FLUCTUATION. FUTURE FLUCTUATIONS IN OPERATING RESULTS OR
REVENUE SHORTFALLS COULD ADVERSELY AFFECT THE VALUE OF YOUR INVESTMENT.
Due to our limited operating history and the unpredictability of our
industry, we cannot accurately forecast our revenues. We base our current and
future expense levels on our investment plans and estimates of future revenues.
Our expenses are to a large extent fixed. We may not be able to adjust our
spending quickly if our revenues fall short of our expectations. Further, we may
make pricing, purchasing, service, marketing, acquisition, investment or
financing decisions that could adversely affect our business results.
Our quarterly operating results will fluctuate for many reasons, including:
- our ability to retain existing customers, attract new customers and
satisfy our customers' demands,
- our ability to acquire merchandise, manage our inventory and fulfill
orders,
- changes in gross margins of our current and future products, services and
markets,
- introductions of popular books, music selections, DVDs, videos, toys,
electronics products, home improvement products, software and other
products or services, and our ability to properly anticipate demand,
- purchases of large quantities of toys, electronics products, home
improvement products, software and other products, particularly in
advance of the holidays, for which demand may not materialize,
- introduction of our new Web sites, services and products or those of
competitors,
- termination of Web sites, services and/or products that we determine are
not viable,
- changes in usage of the Internet and online services and consumer
acceptance of the Internet and online commerce,
- timing of upgrades and developments in our systems and infrastructure,
- the level of traffic on our Web sites,
- the effects of acquisitions and other business combinations, and related
integration,
- technical difficulties, system downtime or Internet brownouts,
- the mix of books, music products, DVDs, videos, toys, electronics
products, home improvement products, software and other products we sell,
- the mix of revenues derived from products as compared to services,
- our inability to prevent fraud perpetrated by third parties through
credit card transactions, Amazon.com Payments transactions, and auction
and zShops transactions,
- our level of merchandise and vendor returns, and
- disruptions in service by common shipping carriers due to strikes or
otherwise.
Both seasonal fluctuations in Internet usage and traditional retail
seasonality may affect our business. Internet usage generally declines during
the summer. Sales in the traditional retail book, music, toy, electronics and
home improvement industries usually increase significantly in the fourth
calendar quarter of each year. The fourth quarter seasonal impact may be even
more pronounced in our toys and electronics businesses.
For these reasons, you should not rely on period-to-period comparisons of
our financial results to forecast our future performance. Our future operating
results may fall below the expectations of securities analysts or investors,
which would likely cause the trading price of our common stock to decline.
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WE COULD LOSE MARKET SHARE IF WE DO NOT KEEP UP WITH THE INTENSE
COMPETITION IN THE ONLINE COMMERCE MARKET
The online commerce market is new, rapidly evolving and intensely
competitive. In addition, the retail book, music, video, toy, electronics, home
improvement and software industries are intensely competitive. Our current or
potential competitors include:
- online vendors of books, music, DVDs, videos, toys, electronics, home
improvement products and software,
- a number of indirect competitors, including Web portals and Web search
engines, that are involved in online commerce, either directly or in
collaboration with other retailers,
- online auction services,
- publishers, distributors and store-based retailers of books, music, DVDs,
videos and other products, many of which possess significant brand
awareness, sales volume and customer bases,
- major store-based retailers of toys, electronics, home improvement
products, software and other products, and
- traditional retailers and manufacturers who currently sell, or who may
sell, products or services through the Internet, mail order or direct
marketing.
We believe that the principal competitive factors in our market include
brand recognition, selection, personalized services, convenience, price,
accessibility, customer service, quality of search tools, quality of editorial
and other Web site content, reliability and speed of fulfillment.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we have. They may be able
to secure merchandise from vendors on more favorable terms and may be able to
adopt more aggressive pricing or inventory policies. They also can devote more
resources to technology development and marketing than we can. We also expect to
experience increased competition from online commerce sites that provide goods
and services at or near cost, relying on advertising revenues to achieve
profitability.
As the online commerce market continues to grow, other companies may enter
into business combinations or alliances that strengthen their competitive
positions. Competition in the Internet and online commerce markets probably will
intensify. As various Internet market segments obtain large, loyal customer
bases, participants in those segments may use their market power to expand into
the markets in which we operate. In addition, new and expanded Web technologies
may increase the competitive pressures on online retailers. The nature of the
Internet as an electronic marketplace may facilitate competitive entry and
comparison shopping and render it inherently more competitive than conventional
retailing formats. For example, "shopping agent" technologies, including our own
"shopping agent" technology, permit customers to quickly compare our prices with
those of our competitors. This increased competition may reduce our operating
margins, diminish our market share or impair the value of our brand.
WE MAY EXPERIENCE SYSTEM INTERRUPTIONS, WHICH AFFECT THE VOLUME OF ORDERS
WE FULFILL AND THEREFORE OUR REVENUES
Customer access to our Web sites directly affects the volume of orders we
fulfill and thus affects our revenues. We experience occasional system
interruptions that make our Web sites unavailable or prevent us from efficiently
fulfilling orders, which may reduce the volume of goods we sell and the
attractiveness of our products and services. These interruptions will continue.
We need to add additional software and hardware and upgrade our systems and
network infrastructure to accommodate both increased traffic on our Web sites
and increased sales volume and to fully integrate our systems. Without these
upgrades, we may face additional system interruptions, slower response times,
diminished customer service, impaired quality and speed of order fulfillment and
delays in our financial reporting. We cannot accurately project the rate or
timing of any increases in traffic or sales volume on our Web sites and,
therefore, the integration and timing of these
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upgrades are uncertain. In addition, our inventory management systems are not
fully integrated with our financial reporting systems, and a significant amount
of manual effort may be necessary to reconcile our inventory and other financial
accounts.
We maintain substantially all of our computer and communications hardware
at a single leased facility in Seattle, Washington. Our systems and operations
could be damaged or interrupted by fire, flood, power loss, telecommunications
failure, break-ins, earthquake and similar events. We do not have backup systems
or a formal disaster recovery plan and we may not have sufficient business
interruption insurance to compensate us for losses from a major interruption.
Computer viruses, physical or electronic break-ins and similar disruptions could
cause system interruptions, delays and loss of critical data and could prevent
us from providing services and accepting and fulfilling customer orders.
OUR PLANNED GROWTH WILL CONTINUE TO PLACE A SIGNIFICANT STRAIN ON OUR
MANAGEMENT, OPERATIONAL AND FINANCIAL RESOURCES
We have rapidly and significantly expanded our operations and will further
expand our operations to address potential growth of our product and service
offerings and customer base. This expansion will continue to place a significant
strain on our management, operational and financial resources. We will expand
our product and service offerings and our international operations and will
pursue other market opportunities. We need to successfully execute our expansion
of our distribution centers and customer service centers and continue to improve
our transaction-processing and operational and financial systems, procedures and
controls. We also need to expand, train and manage our employee base. Our
current and planned personnel, systems, procedures and controls may not be
adequate to support and effectively manage our future operations. We may not be
able to hire, train, retain, motivate and manage required personnel or to
successfully identify, manage and exploit market opportunities, which may limit
our growth.
WE FACE SIGNIFICANT INVENTORY RISKS BECAUSE OUR INVENTORY MANAGEMENT
SYSTEMS ARE NOT WELL INTEGRATED AND BECAUSE CERTAIN OF OUR OPERATIONAL PROCESSES
ARE MANUAL; WE FACE ADDITIONAL INVENTORY RISK ARISING OUT OF CHANGES IN CONSUMER
DEMAND AND PRODUCT CYCLES
We are exposed to significant inventory risks because our inventory
forecasting, purchasing, receiving, reconciliation, accounting and payment
systems are not well integrated. This lack of systems integration makes it a
difficult and manual process to receive inventory, reconcile inventory invoices
to purchase orders, account for inventory efficiently, request refunds from
suppliers and pay supplier invoices. In addition, certain manual operational
processes further complicate our ability to manage inventory efficiently.
We are also exposed to significant inventory risks as a result of
seasonality, new product launches, rapid changes in product cycles and changes
in consumer tastes with respect to our products. In order to be successful, we
must accurately predict these trends and avoid overstocking or understocking
products. Demand for products, however, can change significantly between the
time inventory is ordered and the date of sale. In addition, when we begin
selling a new product, it is particularly difficult to forecast product demand
accurately.
We may also be exposed to inventory risk if we are unable to negotiate
satisfactory terms and conditions with our manufacturers, distributors and other
suppliers. The acquisition of certain types of inventory, or inventory from
certain sources, may require a significant lead-time and pre-payment, and such
inventory may not be returnable.
We carry a broad selection and significant inventory levels of products,
and we may be unable to sell products in sufficient quantities or during the
relevant selling seasons.
Any one of the factors set forth above may require us to mark-down or
write-off inventory. Substantial inventory mark-downs or write-offs will
decrease gross margins. In the fourth quarter of 1999, we incurred
inventory-related charges which significantly decreased our gross margins.
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ENTERING NEW BUSINESS AREAS WILL REQUIRE SIGNIFICANT EXPENSE AND COULD
STRAIN MANAGEMENT, FINANCIAL AND OPERATIONAL RESOURCES
We intend to expand our operations by promoting new or complementary
products, services or sales formats and by expanding our product or service
offerings. This will require significant additional expense and could strain our
management, financial and operational resources. We cannot expect to benefit in
these new markets from the first-to-market advantage that we experienced in the
online book market. Our gross margins in these new business areas may be lower
than our existing business activities. In addition, we may have limited or no
experience in these new business areas. We may not be able to expand our
operations in a cost-effective or timely manner. Any new business that our
customers do not receive favorably could damage our reputation and the
Amazon.com brand.
IF WE DO NOT SUCCESSFULLY EXPAND AND OPERATE OUR DISTRIBUTION CENTERS, OUR
BUSINESS COULD BE HARMED
If we do not successfully expand our distribution operations to accommodate
peak volumes, or if our distribution centers fail to operate properly, it could
significantly limit our ability to meet customer demand. During the fiscal year
ended December 31, 1999, we added distribution centers in Nevada, Georgia,
Kentucky, Kansas, North Dakota, Germany and the UK. Most of these distribution
centers are or will be highly automated, and we have had limited experience with
automated distribution centers. The two distribution centers we operated prior
to 1999, in Washington and Delaware, are manually operated. Our distribution
center expansion may cause disruptions in our business. We are not experienced
in coordinating and managing distribution operations in geographically distant
locations. Because it is difficult to predict sales increases and lead times for
developing distribution centers are long, we may over-expand our facilities,
which may result in excess inventory, warehousing, fulfillment and distribution
capacity. We also need to retain flexibility within our distribution and
logistics network, including the ability to manage the operational challenges of
shipping non-uniform and sometimes heavy products as part of the fulfillment of
toy, electronics, home improvement orders and other products.
THE DISPROPORTIONATE AMOUNT OF OUR NET SALES THAT WE EXPECT TO REALIZE
DURING THE FOURTH QUARTER OF OUR FISCAL YEAR PLACES SIGNIFICANT STRAIN ON OUR
BUSINESS
Because we expect a disproportionate amount of our net sales to be realized
during the holiday season in the fourth quarter of our fiscal year, we face
significant risks in the fourth quarter. We may fail to accurately predict the
optimal inventory levels at our distribution centers for the fourth quarter. If
we do not stock popular products in sufficient amounts during the fourth quarter
and fail to meet customer demand, it could significantly impact our revenue. If
we overstock products, we may be required to take significant inventory
mark-downs or write-offs, which could reduce gross margins. In the fourth
quarter of 1999, we incurred inventory-related charges, which significantly
decreased our gross margins. A failure to optimize inventory at our distribution
centers will harm our shipping margins by requiring us to make partial shipments
from one or more locations. In addition, we may experience a decline on our
shipping margins due to complimentary upgrades and split-shipments necessary to
ensure timely delivery for the holiday season. If too many customers access our
Web sites within a short period of time due to increased holiday demand, we may
experience system interruptions that make our Web sites unavailable or prevent
us from efficiently fulfilling orders, which may reduce the volume of goods we
sell and the attractiveness of our products and services. In addition, we may be
unable to adequately staff our distribution and customer service centers during
these peak periods. Finally, our new automated distribution centers may fail to
operate properly, which will interfere with our ability to meet customer demand.
WE MAY NOT BE SUCCESSFUL IN OUR EFFORTS TO EXPAND INTO INTERNATIONAL
MARKETS
We plan to expand our presence in international markets. We have relatively
little experience in purchasing, marketing and distributing products or services
for these markets and may not benefit from any first-to-market advantages. It
will be costly to establish international facilities and operations, promote our
brand internationally, and develop localized Web sites and stores and other
systems. We may not succeed in our efforts in these countries. If revenues from
international activities do not offset the expense of establishing
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and maintaining foreign operations, our business, prospects, financial condition
and operating results will suffer.
Our international sales and operations are subject to a number of risks
inherent in selling and operating abroad, including, but not limited to, risks
with respect to:
- currency exchange rate fluctuations,
- local economic and political conditions,
- disruptions of capital and trading markets,
- restrictive governmental actions (such as restrictions on transfer of
funds and trade protection measures, including export duties and quotas
and custom duties and tariffs),
- changes in legal or regulatory requirements,
- import or export licensing requirements,
- limitations on the repatriation of funds,
- difficulty in obtaining distribution and support,
- nationalization,
- laws and policies of the US affecting trade, foreign investment and
loans, and
- tax laws.
As the international online commerce market continues to grow, competition
in this market will likely intensify. We may have to compete with local
companies who understand the local markets better than we do and who have better
brand name recognition locally than we do. In addition, governments in foreign
jurisdictions may regulate Internet or other online services in such areas as
content, privacy, network security, encryption or distribution. This may affect
our ability to conduct business internationally. We may not be able to hire,
train, retain, motivate and manage required personnel, which may limit our
growth in international markets.
OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN MAKING AND INTEGRATING
BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES
We plan to continue to expand our operations and market presence by
entering into business combinations, investments, joint ventures or other
strategic alliances with other companies. These transactions create risks such
as:
- difficulty assimilating the operations, technology and personnel of the
combined companies,
- disruption of our ongoing business, including loss of management focus on
existing businesses and other market developments,
- problems retaining key technical and managerial personnel,
- expenses associated with amortization of goodwill and other purchased
intangible assets,
- additional operating losses and expenses of acquired businesses,
- impairment of relationships with existing employees, customers and
business partners, and
- additional losses from our equity investments.
We may not succeed in addressing these risks. As part of our business
strategy, we intend to increase the number of our strategic investments and
alliances with online commerce businesses and other companies pursuant to which
they pay us licensing or other fees, such as fees to establish co-branded stores
on our Web sites or to participate in our auction or zShops services. We believe
these arrangements will have a positive impact on our results of operations,
particularly our gross margins. We may not be able to make business
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combinations and strategic investments on terms that are acceptable to us. If
not, our gross margins may not improve and may even deteriorate. In addition,
the businesses we have acquired, and in the future may acquire, may incur
operating losses.
WE MAY NOT BE ABLE TO ADAPT QUICKLY ENOUGH TO CHANGING CUSTOMER
REQUIREMENTS AND INDUSTRY STANDARDS
Technology in the online commerce industry changes rapidly. We may not be
able to adapt quickly enough to changing customer requirements and preferences
and industry standards. Competitors often introduce new products and services
with new technologies. These changes and the emergence of new industry standards
and practices could render our existing Web sites and proprietary technology
obsolete. To succeed, we must enhance our Web site responsiveness, functionality
and features, acquire and license leading technologies, enhance our existing
services, develop new services and technology and respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis.
THE LOSS OF OUR SENIOR MANAGEMENT COULD NEGATIVELY AFFECT OUR BUSINESS.
We depend on the continued services and performance of our senior
management and other key personnel, particularly Jeffrey P. Bezos, our chief
executive officer and chairman of the board. We do not have "key person" life
insurance policies. The loss of any of our executive officers or other key
employees could harm our business.
WE RELY ON A SMALL NUMBER OF SUPPLIERS; OUR BUSINESS WOULD BE HARMED IF OUR
CURRENT SUPPLIERS STOP SELLING MERCHANDISE TO US ON ACCEPTABLE TERMS
Although we increased our direct purchasing from manufacturers during 1999,
we purchase a majority of our book, music, DVD and video titles from three major
vendors, Ingram Book Group, Baker & Taylor, Inc. and Valley Media, Inc. We do
not have long-term contracts or arrangements with most of our vendors to
guarantee the availability of merchandise, particular payment terms or the
extension of credit limits. Our current vendors may stop selling merchandise to
us on acceptable terms. We may not be able to acquire merchandise from other
suppliers in a timely and efficient manner and on acceptable terms.
WE MAY NOT BE ABLE TO ACQUIRE OR MAINTAIN APPROPRIATE DOMAIN NAMES
We hold rights to various Web domain names, including "Amazon.com,"
"Amazon.co.uk," "Amazon.de," "zShops.com" and "Amazon.com Auctions."
Governmental agencies typically regulate domain names. These regulations are
subject to change. We may not be able to acquire or maintain appropriate domain
names in all countries in which we do business. Furthermore, regulations
governing domain names may not protect our trademarks and similar proprietary
rights. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or diminish the value of our trademarks and
other proprietary rights.
THE LONG TERM VIABILITY OF THE INTERNET AS A MEDIUM FOR COMMERCE IS NOT
CERTAIN
Consumer use of the Internet as a medium for commerce is a recent
phenomenon and is subject to a high level of uncertainty. While the number of
Internet users has been rising, the Internet infrastructure may not expand fast
enough to meet the increased levels of demand. The increased use of the Internet
as a medium for commerce raises concerns regarding Internet security,
reliability, pricing, accessibility and quality of service. If use of the
Internet does not continue to grow, or grows at a slower rate than we
anticipated, or if the necessary Internet infrastructure or complementary
services are not developed to support effectively growth that may occur, our
business, financial condition and growth prospects would be harmed.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF PEOPLE OR PROPERTY ARE
HARMED BY THE PRODUCTS WE SELL
As we enter new lines of business, we may increasingly sell products, such
as toys and home improvement products, that may increase our exposure to product
liability claims relating to personal injury, death or property damage caused by
such products, and that may require us to take actions such as product recalls.
We
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maintain liability insurance, but we cannot be certain that our coverage will be
adequate for liabilities actually incurred or that insurance will continue to be
available to us on economically reasonable terms, if at all. In addition, some
of our vendor agreements with our suppliers do not indemnify us from product
liability.
GOVERNMENT REGULATION OF INTERNET COMMERCE IS EVOLVING AND UNFAVORABLE
CHANGES COULD HARM OUR BUSINESS
We are subject to general business regulations and laws or regulations
regarding taxation and access to online commerce. These laws or regulations may
impede the growth of the Internet or other online services. Regulatory
authorities may adopt specific laws and regulations governing the Internet or
online commerce. These regulations may cover taxation, user privacy, pricing,
content, copyrights, distribution, electronic contracts and characteristics and
quality of products and services. Changes in consumer protection laws also may
impose additional burdens on companies conducting business online, both in the
US and internationally. It is not clear how existing laws governing issues such
as property ownership, sales and other taxes, libel and personal privacy apply
to the Internet and online commerce. Unfavorable resolution of these issues may
harm our business.
In addition, many states currently regulate "auctions" and "auctioneers" in
conducting auctions and may regulate online auction services. States may also
regulate consumer-to-consumer fixed price online markets, like zShops. This
could, in turn, diminish the demand for our products and services and increase
our cost of doing business.
WE COULD BE REQUIRED TO COLLECT TAXES ON THE PRODUCTS WE SELL
In accordance with current industry practice, we do not currently collect
sales taxes or other taxes with respect to shipments of goods into states other
than Washington. In addition, we collect Value Added Tax, or VAT, for products
that are ordered on www.amazon.co.uk and www.amazon.de and shipped into European
Union member countries. Our new distribution center and customer service center
networks, and any future expansion of those networks, along with other aspects
of our evolving business, may result in additional sales and other tax
obligations. One or more states or foreign countries may seek to impose sales or
other tax collection obligations on out-of-jurisdiction companies which engage
in electronic commerce as we do. A successful assertion by one or more states or
foreign countries that we should collect sales or other taxes on the sale of
merchandise could have a material adverse effect on our business, revenues or
prospects.
Recent federal legislation limits the imposition of US state and local
taxes on Internet-related sales. In 1998, Congress passed the Internet Tax
Freedom Act, which places a three year moratorium on state and local taxes on
Internet access, unless such tax was already imposed prior to October 1, 1998,
and on discriminatory taxes on electronic commerce. There is a possibility that
Congress may not renew this legislation in 2001. If Congress chooses not to
renew this legislation, US state and local governments would be free to impose
new taxes on electronically purchased goods. The imposition of taxes on goods
sold over the Internet by US state and local governments would create
administrative burdens for us and could reduce one competitive advantage that
the purchase of goods over the Internet now possesses.
The European Commission is currently evaluating its VAT position on
electronic commerce transactions. It is possible that future VAT legislation in
the European Union or changes to our business model may result in additional VAT
collection obligations and administrative burdens.
WE MAY BE SUBJECT TO LIABILITY OR MAY BE COMPELLED TO CHANGE CERTAIN
BUSINESS PRACTICES IF WE ARE FOUND TO HAVE IMPROPERLY COLLECTED OR USED
INFORMATION THROUGH OUR ALEXA INTERNET SUBSIDIARY
Our wholly-owned subsidiary, Alexa Internet, develops and distributes
software that facilitates Web navigation. This software is the subject of two
pending lawsuits and an informal information review by the US Federal Trade
Commission.
We and Alexa Internet have been named as defendants in two lawsuits
alleging that Alexa Internet secretly intercepted electronic communications and
other personal data with its computer software program and transmitted that
information to third parties, including us. The lawsuits allege that we and
Alexa Internet
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invaded the privacy of the users of the software and violated provisions of the
US Electronic Communications Privacy Act, the US Computer Fraud and Abuse Act,
and the California Business and Professions Code. Both lawsuits seek to proceed
as class actions. We have filed or plan to file answers denying the allegations
of wrongdoing and asserting applicable defenses. If the plaintiff's were to
prevail, we may be required to pay statutory, compensatory and punitive damages,
as well as to disgorge gains and pay restitution of any money received as a
result of conduct found to have been unlawful. We may also be made subject to
court orders preventing us from engaging in certain business practices or
requiring that we take certain corrective measures. Although we have denied the
allegations of wrongdoing in the complaints, if either plaintiff were to prevail
on some, or all of their claims, it could have a material adverse effect on us.
We have also been advised that the Federal Trade Commission is conducting
an informal inquiry into certain information practices by Alexa Internet. In
order to determine whether Alexa Internet has engaged in unfair or deceptive
acts, the FTC requested that Alexa Internet provide information about its
practices and submit various materials and documents.
WE COULD BE LIABLE FOR UNLAWFUL OR FRAUDULENT ACTIVITIES BY USERS OF OUR
AUCTION AND ZSHOPS SERVICES
We may be unable to prevent users of our auction and zShops services from
selling unlawful goods, or from selling goods in an unlawful manner. We may face
civil or criminal liability for unlawful and fraudulent activities by our
auction and zShops users. Any costs we incur as a result of liability relating
to the sale of unlawful goods, the unlawful sale of goods, the fraudulent
receipt of goods or the fraudulent collection of payments could harm our
business.
In running our auction and zShops services, we rely on sellers of goods to
make accurate representations and provide reliable delivery and on buyers to pay
the agreed purchase price. For our auction and zShops services, we do not take
responsibility for delivery of payment or goods to any users of our services.
While we can suspend or terminate the accounts of users of auctions or zShops
who fail to fulfill their delivery obligations to other users, we cannot require
users to make payments or deliver goods. We do not compensate users who believe
they have been defrauded by other users except through our guarantee program.
Under the guarantee program, fraudulent activities by our auction and zShops
users, such as the fraudulent receipt of goods and the fraudulent collection of
payments, may create liability for us. In addition, we are aware that
governmental agencies are currently investigating the conduct of online
auctions.
WE COULD BE LIABLE FOR BREACHES OF SECURITY ON OUR WEB SITE AND FRAUDULENT
ACTIVITIES OF USERS OF OUR AMAZON.COM PAYMENTS PROGRAM
A fundamental requirement for electronic commerce is the secure
transmission of confidential information over public networks. Although we have
developed systems and processes to prevent fraudulent credit card transactions
and other security breaches, failure to mitigate such fraud or breaches may
impact our financial results.
The law relating to the liability of providers of online payment services
is currently unsettled. We guarantee payments made through Amazon.com Payments
up to certain limits for both buyers and sellers, and we may be unable to
prevent users of Amazon.com Payments from fraudulently receiving goods when
payment may not be made to a seller or fraudulently collecting payments when
goods may not be shipped to a buyer. Our liability risk will increase as we
encourage or require sellers to use Amazon.com Payments. Any costs we incur as a
result of liability because of our guarantee of payments made through Amazon.com
Payments or otherwise could harm our business. In addition, the functionality of
Amazon.com Payments depends on certain third-party vendors delivering services.
If these vendors are unable or unwilling to provide services, Amazon.com
Payments will not be viable (and our businesses that use Amazon.com Payments may
not be viable).
WE COULD BE SUBJECT TO RISKS ASSOCIATED WITH INFORMATION POSTED ON OUR WEB
SITE BY THIRD PARTIES
Our Web site features customer reviews of the products we sell and customer
ratings of sellers on our auctions site. Although these reviews and ratings are
generated by customers and not by us, it is possible that a
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claim could be made against us for reviews and ratings posted on our Web site.
If we become liable for information posted on our Web site by customers, we
could be harmed and may be forced to discontinue certain services.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
OR MAY BE ACCUSED OF INFRINGING INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES
We regard our patents, copyrights, service marks, trademarks, trade dress,
trade secrets, proprietary technology and similar intellectual property as
critical to our success, and we rely on trademark, copyright and patent law,
trade secret protection and confidentiality and/or license agreements with our
employees, customers, partners and others to protect our proprietary rights. We
have applied for the registration of some of our trademarks and service marks in
the US and internationally. In addition, we have filed US and international
patent applications covering certain of our proprietary technology. Effective
trademark, service mark, copyright, patent and trade secret protection may not
be available in every country in which our products and services are made
available online. The protection of our intellectual property may require the
expenditure of significant financial and managerial resources.
Third parties that license our proprietary rights, such as trademarks,
patented technology or copyrighted material, may take actions that diminish the
value of our proprietary rights or reputation. In addition, the steps we take to
protect our proprietary rights may not be adequate and third parties may
infringe or misappropriate our copyrights, trademarks, trade dress, patents and
similar proprietary rights. Other parties may claim that we infringed their
proprietary rights. We have been subject to claims, and expect to continue to be
subject to legal proceedings and claims, regarding alleged infringement by our
licensees and us of the trademarks and other intellectual property rights of
third parties. Such claims, whether or not meritorious, may result in the
expenditure of significant financial and managerial resources, injunctions
against us or the imposition of damages that we must pay. We may need to obtain
a license from third parties who allege that we have infringed their rights, but
such license may not be available on terms acceptable to us, or at all.
WE MAY BE REQUIRED BY THE US SECURITIES AND EXCHANGE COMMISSION TO
RECLASSIFY OUR REPORTING OF FULFILLMENT COSTS
The US Securities and Exchange Commission is reviewing the financial
statement classification of fulfillment costs and other items by a number of
e-commerce companies, including Amazon.com. Amazon.com defines fulfillment costs
as costs directly attributable to the operation of its distribution centers and
customer service centers, and classifies these costs in marketing and sales
expense. We estimate that fulfillment costs represented approximately 60% of
marketing and sales expenses for the fourth quarter of 1999. The activities of
our distribution centers consist of receiving, inspecting and warehousing
inventories of product purchased from outside suppliers and picking, packaging
and preparing customers' orders for shipment. The SEC has advised us that it may
decide to require that certain distribution center costs be classified as costs
of sales. In that event, we will reclassify any fulfillment costs as required
and our gross margin would be correspondingly reduced. Any such reclassification
would not materially impact our sales, operating profit or loss, net profit or
loss, or cash flow.
WE CANNOT BE SURE THAT THE YEAR 2000 PROBLEM WILL NOT AFFECT OUR BUSINESS
Thus far, we have had no significant problems related to year 2000 issues
associated with the computer systems, software, other property and equipment we
use. However, we cannot guarantee that the year 2000 problem will not adversely
affect our business, operating results or financial condition at some point in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Implications."
S-21
<PAGE> 21
RISKS RELATED TO THIS OFFERING
THE NOTES ARE SUBORDINATED
The notes will be unsecured and subordinated in right of payment to all of
our existing and future senior indebtedness. In the event of our bankruptcy,
liquidation or reorganization or upon acceleration of the notes due to an event
of default under the indenture and in certain other events, our assets will be
available to pay obligations on the notes only after all senior indebtedness has
been paid. As a result, there may not be sufficient assets remaining to pay
amounts due on any or all of the outstanding notes. The notes also will be
effectively subordinated to the liabilities, including trade payables, of our
subsidiaries. Neither we nor our subsidiaries are prohibited from incurring
debt, including senior indebtedness, under the indenture. If we or our
subsidiaries were to incur additional debt or liabilities, our ability to pay
our obligations on the notes could be adversely affected. As of December 31,
1999, we had approximately $900.7 million of indebtedness that constituted
senior indebtedness, including trade payables and other liabilities and
excluding intercompany liabilities, as to which the notes are effectively
subordinated. We may from time to time incur additional debt, including senior
indebtedness. See "Description of Notes -- Subordination of Notes."
WE MAY BE UNABLE TO REDEEM THE NOTES UPON A FUNDAMENTAL CHANGE
Upon a fundamental change of Amazon.com, you may require us to redeem all
or a portion of your notes. If a fundamental change were to occur, we may not
have enough funds to pay the purchase price for all tendered notes. Any future
credit agreements or other agreements relating to our indebtedness may contain
provisions that prohibit the repurchase of the notes upon a fundamental change
or may provide that a fundamental change constitutes an event of default under
that agreement. If a fundamental change occurs at a time when we are prohibited
from purchasing the notes, we could seek the consent of our lenders to purchase
the notes or could attempt to refinance this debt. If we do not obtain a
consent, we could not purchase the notes. Our failure to purchase tendered notes
would constitute an event of default under the indenture, which might constitute
a default under the terms of our other debt. In such circumstances, or if a
fundamental change would constitute an event of default under our senior
indebtedness, the subordination provisions of the indenture would restrict
payments to you. The term "fundamental change" is limited to transactions in
which all or substantially all of our outstanding common stock is converted into
consideration other than a common stock listed on a US national securities
exchange or approved for quotation on the Nasdaq National Market and does not
include other events that might harm our financial condition or business
operations. Our obligation to offer to purchase the notes upon a fundamental
change would not necessarily afford you protection in the event of a highly
leveraged transaction, reorganization, merger or similar transaction involving
us.
A PUBLIC MARKET MAY NOT DEVELOP FOR THE NOTES
Prior to the offering there has been no trading market for the notes. The
underwriters have advised us that they currently intend to make a market in the
notes. However, the underwriters are not obligated to make a market and may
discontinue this market making activity at any time without notice. In addition,
market-making activity by the underwriters will be subject to the limits imposed
by the Securities Act and the Exchange Act. As a result, we cannot assure you
that any market for the notes will develop or, if one does develop, that it will
be maintained. If an active market for the notes fails to develop or be
sustained, the trading price of the notes could decline significantly.
We have applied to the Luxembourg Stock Exchange for listing of the notes.
We cannot assure you, however, when the notes will be listed on the Luxembourg
Stock Exchange, or whether they will be listed at all. The delivery of the notes
is not contingent on their admission to listing on any exchange. Therefore, we
cannot give you any assurance as to the existence or liquidity of any trading
market for the notes.
S-22
<PAGE> 22
THE NOTES MAY NOT BE RATED OR MAY RECEIVE A LOWER RATING THAN ANTICIPATED
We believe it is likely that one or more rating agencies may rate the
notes. If one or more rating agencies assign the notes a rating lower than
expected by investors, the market price of the notes and our common stock would
be harmed.
THE PRICE OF OUR NOTES AND OUR COMMON STOCK MAY BE VOLATILE, WHICH COULD
CAUSE THE VALUE OF YOUR INVESTMENT TO DECLINE SIGNIFICANTLY
The trading price of our common stock fluctuates significantly. These
fluctuations may harm the market price of the notes and the common stock into
which the notes are convertible. For example, during the 52-week period ended
February 10, 2000 (as adjusted for the 3-for-1 split of our common stock on
January 4, 1999 and the 2-for-1 split of our common stock on September 1, 1999),
the reported sale price of our common stock on the Nasdaq National Market was as
high as $113 and as low as $42.13 per share. Trading prices of our 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, services and strategic developments by us or our
competitors, or business combinations and investments by us or our
competitors,
- changes in our operating expense levels or losses,
- changes in financial estimates and recommendations by securities
analysts,
- performance by other online commerce companies, and
- news reports relating to trends in the Internet, book, music, video, DVD,
toys, electronics, home improvement products, software, auctions,
consumer-to-consumer fixed price online markets, or other product or
service industries.
Any of these events may cause our stock price to fall, which may adversely
affect our business and financing opportunities. In addition, the stock market
in general and the market prices for Internet-related companies in particular
have experienced significant volatility that often has been unrelated to such
companies' operating performance. These broad market and industry fluctuations
may adversely affect the trading price of our common stock regardless of our
operating performance.
WE MAY BE ADVERSELY AFFECTED BY CHANGES IN THE VALUE OF THE EURO RELATIVE
TO THE US DOLLAR, AND YOUR INVESTMENT IN THE NOTES MAY ALSO BE ADVERSELY
AFFECTED BY CHANGES IN THAT RELATIVE VALUE
Following the offering of the notes, a significant portion of our
indebtedness will be denominated in euros. The majority of our revenues and
expenses are denominated in US dollars, and the shares issuable upon conversion
of the notes are US dollar-denominated securities. As a result, we are exposed
to currency exchange risks with respect to both principal and interest payable
on the notes. In addition, if the euro strengthens against the US dollar, the
value of your conversion right may diminish, thereby adversely affecting the
market value of your notes.
WE WILL HAVE BROAD DISCRETION OVER THE ALLOCATION OF PROCEEDS FROM THE
OFFERING
We will raise approximately E672,750,000 ($663,667,875) after deducting the
fee paid to the underwriters. We currently have no specific plans for a
significant amount of our net proceeds from this offering. Consequently, we will
have the discretion to allocate the net proceeds to uses that investors may not
deem desirable. We may be unable to yield a significant return on any
investments of the proceeds. We will invest substantially all of our proceeds
from the offering in short-term, interest bearing investment-grade securities.
S-23
<PAGE> 23
USE OF PROCEEDS
The net proceeds from the offering will be approximately E672,750,000
($663,667,875) after deducting the fee paid to the underwriters. We expect to
use the net proceeds for general corporate purposes, including, without
limitation, working capital to fund anticipated operating losses, the expansion
of our core business, investments in new markets, expansion of our European
operations and capital expenditures.
Pending the foregoing uses, we will invest the net proceeds from the
offering in short-term, interest bearing investment-grade securities.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"AMZN." The following table sets forth the high and low sale prices for our
common stock for the periods indicated, as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Year ended December 31, 1997
Second Quarter (from May 15).............................. $ 1.98 $ 1.31
Third Quarter............................................. 4.81 1.51
Fourth Quarter............................................ 5.50 3.52
Year ended December 31, 1998
First Quarter............................................. 7.35 4.15
Second Quarter............................................ 17.46 6.43
Third Quarter............................................. 24.50 10.83
Fourth Quarter............................................ 60.31 13.33
Year ended December 31, 1999
First Quarter............................................. 99.56 42.13
Second Quarter............................................ 110.63 44.88
Third Quarter............................................. 85.00 41.00
Fourth Quarter............................................ 113.00 61.00
Year ended December 31, 2000
First Quarter (through February 10)....................... 89.56 58.44
</TABLE>
The prices in this table have been adjusted to reflect the 2-for-1 stock
split effected on June 1, 1998, the 3-for-1 stock split effected on January 4,
1999, and the 2-for-1 stock split effected September 1, 1999.
On February 10, 2000, the last reported bid price for our common stock as
reported by the Nasdaq National Market was $76 1/8, and the last reported last
sale price for our common stock as reported by the Nasdaq National Market was
$76 3/16. On December 31, 1999, there were approximately 3,812 holders of record
of our common stock.
We have never paid cash dividends on our common stock. We currently intend
to retain earnings, if any, for use in the operation and expansion of our
business and therefore do not anticipate paying any cash dividends in the
foreseeable future.
S-24
<PAGE> 24
CAPITALIZATION
The following table sets forth our (1) actual cash and marketable
securities and capitalization as of September 30, 1999 and (2) cash and
marketable securities and capitalization as adjusted for the offering and
application of the net proceeds therefrom and using the noon buying rate in New
York City for cable transfers on February 10, 2000 to convert euros into
dollars. The information in this table has been derived from and should be read
in conjunction with our unaudited interim consolidated financial statements and
the notes thereto included elsewhere in this prospectus supplement.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------
AS
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Cash........................................................ $ 43,149 $ 43,149
========== ==========
Marketable securities....................................... $ 862,536 $1,526,204
========== ==========
Long-term debt:
Senior Discount Notes due 2008............................ $ 186,131 $ 186,131
Convertible Subordinated Notes due 2009................... 1,250,000 1,250,000
Convertible Notes due 2010................................ -- 680,685
Other..................................................... 26,072 26,072
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 150,000,000
Issued and outstanding -- none.............................. -- --
Common stock, $.01 par value:
Authorized shares -- 1,500,000,000
Issued and outstanding shares -- 339,234,525(1)........ 3,393 3,393
Additional paid-in capital................................ 1,027,655 1,027,655
Note receivable for common stock.......................... (1,171) (1,171)
Stock-based compensation.................................. (32,180) (32,180)
Accumulated other comprehensive loss...................... (18,957) (18,957)
Accumulated deficit....................................... (558,815) (558,815)
---------- ----------
Total stockholders' equity........................ 419,925 419,925
---------- ----------
Total capitalization........................................ $1,882,128 $2,562,813
========== ==========
</TABLE>
- ------------
(1) Excludes 85.5 million shares of common stock issuable upon exercise of stock
options outstanding as of September 30, 1999 at a weighted average exercise
price of $25.40 per share, and 44.5 million additional shares of common
stock reserved at such date for grant of future options under our stock
option plans.
S-25
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The statement of operations data for each of the
three years in the period ended December 31, 1998, with the exception of the
other operating data, are derived from our audited consolidated financial
statements and are included elsewhere in this prospectus supplement. Certain
amounts in the statement of operations data have been reclassified compared to
the audited consolidated financial statements included in this prospectus
supplement. The statement of operations data for the period from July 5, 1994
(inception) to December 31, 1994 and for the year ended December 31, 1995, with
the exception of the other operating data, are derived from our audited
financial statements, which are not included herein. The selected financial data
for the nine-months ended September 30, 1998 and 1999, with the exception of the
other operating data, are derived from our unaudited interim consolidated
financial statements and are included elsewhere in this prospectus supplement,
and include all adjustments that our management considers necessary for a fair
presentation of the financial position at such date and the operations for the
respective periods then ended. The historical results are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 5,
1994 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, -------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------------- ----- ------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ -- $ 511 $15,746 $147,787 $ 609,819 $356,992 $ 963,797
Cost of sales................................. -- 409 12,287 118,969 476,155 276,680 760,998
---- ----- ------- -------- --------- -------- ---------
Gross profit.................................. -- 102 3,459 28,818 133,664 80,312 202,799
Operating expenses:
Marketing and sales......................... -- 200 6,081 40,077 132,654 84,325 233,222
Product development......................... 38 171 2,377 13,384 46,424 29,168 102,298
General and administrative.................. 14 35 1,408 6,741 15,618 10,220 44,301
Stock-based compensation.................... -- -- 36 1,211 1,889 1,591 16,570
Amortization of goodwill and intangibles.... -- -- -- -- 42,599 22,258 132,394
Merger and acquisition-related costs........ -- -- -- -- 3,535 2,143 5,985
---- ----- ------- -------- --------- -------- ---------
Total operating expenses.............. 52 406 9,902 61,413 242,719 149,705 534,770
---- ----- ------- -------- --------- -------- ---------
Loss from operations.......................... (52) (304) (6,443) (32,595) (109,055) (69,393) (331,971)
Interest income............................... -- 1 202 1,901 14,053 9,790 36,479
Interest expense.............................. -- -- (5) (326) (26,639) (18,017) (66,424)
Other income.................................. -- -- -- -- -- -- 2,037
---- ----- ------- -------- --------- -------- ---------
Net interest income (expense) and other..... -- 1 197 1,575 (12,586) (8,227) (27,908)
---- ----- ------- -------- --------- -------- ---------
Loss before equity in losses of equity-method
investees................................... (52) (303) (6,246) (31,020) (121,641) (77,620) (359,879)
Equity in losses of equity-method investees... -- -- -- -- (2,905) (500) (36,876)
---- ----- ------- -------- --------- -------- ---------
Net loss...................................... $(52) $(303) $(6,246) $(31,020) $(124,546) $(78,120) $(396,755)
==== ===== ======= ======== ========= ======== =========
OTHER OPERATING DATA:
Net cash provided by (used in) operating
activities.................................. $(24) $(232) $(2,010) $ 687 $ 31,035 $ (7,663) $(122,381)
Capital expenditures(1)....................... 28 52 1,335 12,066 28,333 18,779 213,317
EBITDA(2)..................................... (47) (284) (5,945) (25,898) (41,669) (29,769) (152,447)
Deficiency of earnings available to cover
fixed charges(3)............................ (52) (303) (6,246) (31,020) (121,641) (77,620) (359,879)
</TABLE>
- ------------
(1) Capital expenditures include assets acquired under capital leases.
(2) EBITDA is provided because it is a commonly accepted financial indicator
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance. EBITDA is presented to enhance the
understanding of our operating results and is not intended to represent cash
flows or results of operations in accordance with GAAP for the periods
indicated. EBITDA is not a measurement under GAAP and is not necessarily
comparable with similarly titled measures of other companies. Net cash flows
from operating activities as determined using GAAP are also presented in
Other Operating Data.
(3) Earnings consist of income (loss) before provision for income taxes plus
fixed charges. Fixed charges consist of interest charges and amortization of
debt expense and discount or premium related to indebtedness, whether
expensed or capitalized, and that portion of rental expense we believe to be
representative of interest.
S-26
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Amazon.com seeks to be the world's most customer-centric company where
customers can find and discover anything they may want to buy online. We intend
to leverage our Internet platform to expand the range of products and services
offered to our customers through internal development, business combinations and
relationships with strategic partners. We also intend to continue to expand
internationally through additional product and service offerings on our
Amazon.co.uk and Amazon.de Web sites, the establishment of new Web sites focused
on particular international markets, the entry into strategic relationships that
enhance our international operations, and the continued sale of products from
the US to international customers.
To succeed in our strategy, we must invest heavily in marketing and
promotion and in developing our product, technology and operating
infrastructure, whether internally or through acquisitions or strategic
investments. In addition, we pursue aggressive pricing programs that result in
relatively low product gross margins. As a result, we believe we will continue
to incur substantial operating losses. Although we expect our US books business
to be profitable in the year 2000, we cannot predict, when, if ever, our newer
businesses will be profitable. Gross margins attributable to new business areas
may be lower than those associated with our existing business activities. In
addition, we may be unable to accurately forecast inventory needs in new and
existing product lines, resulting in additional inventory reserves that will
negatively impact gross margin. In particular, we anticipate that the
introduction of toys, electronics, home improvement products and software will
result in continued lower overall gross margins in upcoming quarters.
Net sales include the selling price of books, music, videos, DVDs, toys,
electronics and other products we sold, net of returns and gift certificate
discounts, and also include outbound shipping and handling charges. Net sales
also include commissions from auctions and zShops transactions, which include
placement fees, sales commissions, fees from payment service transactions, and
advertising revenues under commercial agreements with our strategic partners.
Gross profit is calculated as net sales less the cost of sales, which
consists principally of the cost of merchandise sold to customers and inbound
and outbound shipping costs.
Marketing and sales expenses consist primarily of fulfillment costs,
advertising, public relations and promotional expenditures, and all payroll and
related expenses for personnel engaged in marketing, selling and fulfillment
activities. Fulfillment costs include the cost of operating and staffing
distribution and customer service centers. We estimate that fulfillment costs
represented approximately 60% of marketing and sales expenses for the fourth
quarter of 1999. The Securities and Exchange Commission is reviewing the
financial statement classification of fulfillment costs and other items by a
number of e-commerce companies, including Amazon.com. Amazon.com defines
fulfillment costs as costs directly attributable to the operation of its
distribution centers and customer service centers, and classifies these costs in
marketing and sales expense. The activities of our distribution centers consist
of receiving, inspecting and warehousing inventories of product purchased from
outside suppliers and picking, packaging and preparing customers' orders for
shipment. The SEC has advised us that it may decide to require that certain
distribution center costs be classified as costs of sales. In that case, we will
reclassify any fulfillment costs as required and our gross margin would be
correspondingly affected. Any such reclassification would not materially impact
our sales, operating profit or loss, net profit or loss, or cash flow.
Product development expenses consist principally of payroll and related
expenses for development, editorial, systems and telecommunications operations
personnel and consultants, systems and telecommunications infrastructure and
costs of acquired content.
General and administrative expenses consist of payroll and related expenses
for executive, finance and administrative personnel, recruiting, professional
fees and other general corporate expenses.
S-27
<PAGE> 27
Amortization of goodwill and other purchased intangibles represents
amortization charges associated with goodwill recorded in acquisitions we made,
as well as amortization of other intangible assets identified in these
acquisitions.
Equity in losses of equity-method investees includes our share of the
losses of other companies in which we have investments that give us significant
influence over the investee.
Certain items included in this prospectus supplement, including
amortization of goodwill and other intangibles, as well as equity in losses of
equity-method investees and stock-based compensation, have been reclassified
compared to the audited consolidated financial statements for December 31, 1998
and the three years then ended and compared to the unaudited interim
consolidated financial statements for September 30, 1999 and the three months
and nine months then ended, which are incorporated by reference in the
accompanying prospectus.
RECENT OPERATING RESULTS
Net sales for the quarter ended December 31, 1999 were $676 million, an
increase of 90% over the quarter ended September 30, 1999 and 167% over net
sales for the fourth quarter of 1998, which totaled $253 million.
Fourth quarter 1999 net sales highlights included:
- US-based book sales totaled $317 million in the fourth quarter, a 66%
increase over the fourth quarter of 1998.
- US-based music sales totaled $78 million, a 136% increase over the fourth
quarter of 1998. Fourth quarter 1999 US-based DVD/Video sales totaled $64
million, a more than 500% increase over the fourth quarter of 1998. DVD
sales accounted for more than half of this total.
- Combined sales from our Web sites targeted at the UK and German markets
totaled $71 million, a 360% increase from the fourth quarter of 1998.
Growth in net sales reflects a significant increase in units sold due to
the growth of our customer base, repeat purchases from our existing customers
and the launch of additional product lines, including toys, electronics, home
improvement products and software. The increase is also attributable to the
expansion of our international operations and the fact that the fourth quarter
includes the holiday season, during which sales are generally higher than at
other times of the year.
Gross profit increased in absolute dollars, from $70 million in the quarter
ended September 30, 1999 to $88 million in the quarter ended December 31, 1999,
reflecting our increased sales volume. However, the gross margin percentage in
the fourth quarter decreased as compared to the third quarter from 19.8% to
13.0%. This decrease was largely due to inventory-related charges, higher
shipping costs and increased redemption of promotional gift certificates, which
are netted against revenue.
Operating expenses, excluding amortization of goodwill and intangibles and
merger and acquisition related costs, increased from $161.5 million for the
quarter ended September 30, 1999 to $277.2 million for the quarter ended
December 31, 1999. This increase reflects our increased sales volume, as well as
increased sales and marketing expenditures related primarily to higher
fulfillment costs, particularly those associated with newer product lines.
The loss from operations and the net loss for the quarter ended December
31, 1999 were $273.8 million and $323.2 million, respectively. The pro forma
loss from operations for the quarter ended December 31, 1999, which excludes
amortization of goodwill and other intangibles, stock-based compensation and
merger, acquisition and investment-related costs, was $175.3 million. The pro
forma net loss for the quarter ended December 31, 1999, which excludes the above
items as well as equity in losses of equity-method investees, was $184.9
million. The shares used in the computation of basic and diluted loss per share
were 338.4 million, resulting in a basic and diluted loss per share of $0.96 and
a pro forma basic and diluted loss per share of $0.55 for the quarter ended
December 31, 1999.
S-28
<PAGE> 28
At December 31, 1999, our cash balance was $117 million. Marketable
securities, which include highly liquid investments with maturities of three
months or less, were $589.2 million.
Net cash provided by operating activities of $31.5 million for the quarter
ended December 31, 1999 was primarily attributable to increases in accounts
payable, other liabilities and accrued expenses and noncash expenses, offset by
the net loss and increases in inventories and prepaid expenses and other. During
the quarter ended December 31, 1999, we used $105.2 million in cash for capital
expenditures primarily in connection with the continued expansion of our
distribution center network, and an additional $146.8 million for investments in
other companies.
RESULTS OF OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
Net Sales
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............ $355,777 $153,648 132% $963,797 $356,992 170%
</TABLE>
Growth in net sales reflects a significant increase in units sold due to
the growth of our customer base, repeat purchases from existing customers, and
new product offerings including music and video product offerings in the second
half of 1998 and toys and electronics in July 1999.
At September 30, 1999, our cumulative customer accounts, inclusive of
accounts with Amazon.com Auctions, reached 13.1 million, compared with 10.7
million at June 30, 1999, and 6.2 million and 4.5 million at December 31, and
September 30, 1998, respectively.
Net foreign sales, including domestic export and foreign-domicile sales,
represented 24.5% and 20.1% of net sales for the quarters ended September 30,
1999 and 1998, and 23.7% and 20.6% of net sales for the nine-month periods ended
September 30, 1999 and 1998, respectively. We launched Amazon.co.uk and
Amazon.de, sites that target the UK and German markets, respectively, in the
fourth quarter of 1998.
Gross Profit
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
------- ------- -------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross profit............... $70,477 $34,825 102% $202,799 $80,312 153%
Gross margin............... 19.8% 22.7% 21.0% 22.5%
</TABLE>
For the three and nine-month periods ended September 30, 1999, gross profit
increased in absolute dollars over the same periods in 1998, primarily
reflecting our increased sales volume. Gross margin percentages declined over
the same periods due primarily to the introduction of newer product lines such
as music, video, toys and electronics, as well as inventory reserves taken in
the third quarter of 1999 due to large inventory purchases in advance of holiday
sales. Gross profit was also impacted by our 50% discount on every book on the
New York Times bestseller list. Offsetting these declines in gross margin was
the effect of improved product sourcing.
We believe that offering our customers attractive prices is an essential
component of our business strategy. Accordingly, in addition to the 50% discount
on every book on the New York Times bestseller list, we continue to offer up to
40% off on hundreds of thousands of other titles. We may in the future expand or
increase the discounts we offer to our customers and may otherwise alter our
pricing structure and policies.
S-29
<PAGE> 29
Marketing and Sales
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
------- ------- -------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Marketing and sales........ $86,555 $37,454 131% $233,222 $84,325 177%
Percentage of sales........ 24.3% 24.4% 24.2% 23.6%
</TABLE>
Marketing and sales expenses increased during the quarter and nine-month
periods ended September 30, 1999 due to several factors including the opening of
new distribution and customer service centers, increases in our advertising and
promotional expenditures, increases in payroll and related costs associated with
fulfilling customer demand, costs associated with new product offerings, and
increases in credit card merchant fees resulting from higher sales.
Product Development
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
------- ------- -------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Product development........ $44,608 $13,227 237% $102,298 $29,168 251%
Percentage of sales........ 12.5% 8.6% 10.6% 8.2%
</TABLE>
The increase in product development expenses was primarily attributable to
increased staffing and associated costs related to enhancing the features,
content and functionality of our Web sites and transaction-processing systems,
as well as increased investment in systems and telecommunications infrastructure
and new product offerings. Product development costs are generally expensed as
incurred, except for certain costs relating to the development of internal-use
software that are capitalized and depreciated over estimated useful lives. We
believe that continued investment in product development is critical to
attaining our strategic objectives. In addition to ongoing investments in our
Web stores and infrastructure, we intend to increase investments in product,
service and international expansion. As a result, we expect product development
expenses to increase significantly.
General and Administrative
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
------- ------ -------- ------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
General and
administrative........... $18,512 $4,951 274% $44,301 $10,220 333%
Percentage of sales........ 5.2% 3.2% 4.6% 2.9%
</TABLE>
Increases in general and administrative costs are largely attributable to
increased payroll-related and infrastructure costs associated with our expansion
efforts, legal and other professional fees, and recruiting costs. We expect
general and administrative costs to continue to increase commensurate with our
expansion plans.
S-30
<PAGE> 30
Stock-Based Compensation
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1999 1998 1999 1998
------- ------ ------- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Stock-based compensation.............................. $11,789 $1,214 $16,570 $1,591
</TABLE>
Stock-based compensation is comprised of the portion of acquisition-related
consideration conditioned on the continued tenure of key employees, which must
be classified as compensation expense rather than as a component of purchase
price under generally accepted accounting principles. Stock-based compensation
also includes stock-based charges such as option-related deferred compensation
recorded at our initial public offering, as well as certain other compensation
and severance arrangements. The increase in stock-based compensation results
primarily from 1999 acquisition activity. Stock-based compensation for the
three-month and nine-month periods ended September 30, 1998 relates primarily to
option-related deferred compensation recorded at the time of our initial public
offering.
Amortization of Goodwill and Other Intangibles
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
------- ------- -------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Amortization of goodwill and other intangibles..... $74,343 $17,043 $132,394 $22,258
</TABLE>
Increases in amortization charges primarily resulted from the amortization
of goodwill and other intangibles recorded at the time of our acquisitions of
Exchange.com, Alexa Internet and Accept.com. It is likely that we will continue
to expand our business through acquisitions which would cause amortization of
goodwill and other intangibles to increase.
Interest Income and Expense
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- ------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income........ $ 12,699 $ 4,755 167% $ 36,479 $ 9,790 273%
Interest expense....... (21,470) (8,419) 155% (66,424) (18,017) 269%
</TABLE>
Interest income on cash and marketable securities increased due to higher
balances resulting from our financing activities, principally the February 1999
issuance of $1.25 billion aggregate principal amount of 4 3/4% Convertible
Subordinated Notes due 2009, or the Convertible Notes. Interest expense for the
quarter and nine-month period ended September 30, 1999 consisted primarily of
interest on the Convertible Notes and the 10% Senior Discount Notes due 2003, or
the Senior Discount Notes, the amortization of deferred charges and interest on
asset acquisitions financed through loans and capital leases.
Other Income, net
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1999 1998 1999 1998
------ ---- ------ ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Other income, net.......................................... $2,159 $-- $2,037 $--
</TABLE>
S-31
<PAGE> 31
Other income is comprised of net gains and losses on sales of marketable
securities, fixed assets and other miscellaneous items. For the three and
nine-month periods ended September 30, 1999 other income, net was primarily
related to the disposition of an investment security. No comparable activity was
recorded in the respective periods of the prior year.
Equity in Losses of Equity-Method Investees
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1999 1998 1999 1998
------- ---- ------- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Equity in losses of equity-method investees.............. $23,359 $500 $36,876 $500
</TABLE>
Equity in losses of equity-method investees increased from 1998 to 1999 due
to additional equity-method investments we made, as well as a higher level of
losses reported by the companies in which we have equity-method investments. We
have made substantial investments in companies that are accounted for under the
equity method and anticipate making additional such investments in the future.
Many of these companies are in the early stage of their operations and are
incurring net losses. Therefore, we expect to continue to record losses on our
equity-method investments.
Income Taxes
We have not generated any taxable income to date and therefore have not
paid any federal income taxes since inception. Utilization of our 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.
Due to uncertainties regarding realizability of the deferred tax assets, we have
provided a valuation allowance on the deferred tax asset in an amount necessary
to reduce the net deferred tax asset to zero.
Pro Forma Results of Operations
Pro forma information regarding our results, excluding amortization of
goodwill and other intangibles, stock-based compensation and merger, acquisition
and investment-related costs discussed above are presented for informational
purposes and are not presented in accordance with generally accepted accounting
principles.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Pro forma loss from operations, excluding
amortization of goodwill and other
intangibles, stock-based compensation costs
and merger, acquisition and
investment-related costs..................... $(79,198) $(20,807) $(177,022) $(43,401)
======== ======== ========= ========
Pro forma net loss, excluding amortization of
goodwill and other intangibles, equity in
losses of equity-method investees,
stock-based compensation costs and merger,
acquisition and investment-related costs..... $(85,810) $(24,471) $(204,930) $(51,628)
======== ======== ========= ========
Pro forma basic and diluted loss per share,
excluding amortization of goodwill and other
intangibles, equity in losses of
equity-method investees, stock-based
compensation costs and merger, acquisition
and investment-related costs................. $ (.26) $ (.08) $ (.63) $ (.18)
======== ======== ========= ========
Shares used in computation of pro forma basic
and diluted loss per share................... 332,488 301,405 323,064 292,206
======== ======== ========= ========
</TABLE>
S-32
<PAGE> 32
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Net Sales
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
------------ -------- ------------ -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............ $ 609,819 313% $ 147,787 839% $ 15,746
</TABLE>
Growth in net sales in 1998 and 1997 reflects a significant increase in
units sold due to the growth of our customer base and repeat purchases from our
existing customers. We had approximately 6.2 million and 1.5 million cumulative
customer accounts as of December 31, 1998 and 1997, respectively. Repeat
customer orders accounted for over 60% of orders placed on the Amazon.com Web
site during the fiscal year ended December 31, 1998. Additionally, the increase
in net sales in 1998 was partially due to the opening of the music store in June
1998, the launch of the Web sites that target customers in the UK and German
markets in October 1998 and the opening of the video store in November 1998.
International sales, including export sales from the US, represented
approximately 20%, 25% and 33% of net sales for the years ended December 31,
1998, 1997 and 1996, respectively.
Gross Profit
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
------------ -------- ------------ -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross profit......... $ 133,664 364% $ 28,818 733% $ 3,459
Gross margin......... 21.9% 19.5% 22.0%
</TABLE>
Gross profit increased in 1998 and 1997 in absolute dollars, reflecting our
increased sales volume. Gross margin increased in 1998 as a result of
improvements in product costs through improved supply chain management,
including increased direct purchasing from publishers, which together more than
offset the impact of aggressive product pricing and lower music and video
margins. Gross margin decreased in 1997 due to a combination of lower prices and
lower overall shipping margins, partially offset by improvements in product
cost.
During this period, we offered everyday discounts of up to 40% on hundreds
of thousands of titles and certain "special value" editions discounted up to
85%.
Gross margins attributable to new business areas may be lower than those
associated with our existing business activities. In particular, in June 1998,
we launched our new music store and in November 1998 launched a video store.
Music and video gross margins are lower than book gross margins. To the extent
music and video become a larger portion of our product mix, we expect those
categories to have a proportionate impact on overall product gross margin.
Marketing and Sales
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
------------ -------- ------------ -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Marketing and sales.......... $132,654 231% $40,077 559% $6,081
Percentage of net sales...... 21.8% 27.1% 38.6%
</TABLE>
Marketing and sales expenses increased in 1998 and 1997 primarily due to
increases in our advertising and promotional expenditures, increased payroll and
related costs associated with fulfilling customer demand and increased credit
card fees resulting from higher sales. The increase in 1998 was also
attributable to the entry into music and video sales and the launch of Web sites
that target customers in the UK and German
S-33
<PAGE> 33
markets. Marketing and sales expenses decreased as a percentage of net sales due
to the significant increase in net sales.
Product Development
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
------------ -------- ------------ -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product development.......... $46,424 247% $13,384 463% $2,377
Percentage of net sales...... 7.6% 9.1% 15.1%
</TABLE>
The increases in product development expenses in 1998 and 1997 were
primarily attributable to increased staffing and associated costs related to
continual feature content and functionality enhancements to our Web sites and
transaction-processing systems, as well as increased investment in systems and
telecommunications infrastructure. Such increases in 1998 included investments
associated with the entry into music and video sales, the launch of an enhanced
holiday gift store, new Web sites that target customers in the UK and German
markets and operating expenses associated with the acquired entities. Product
development expenses decreased as a percentage of net sales due to the
significant increase in net sales. To date, product development costs have been
expensed as incurred.
General and Administrative
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
------------ -------- ------------ -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
General and administrative... $15,618 132% $6,741 379% $1,408
Percentage of net sales...... 2.6% 4.6% 8.9%
</TABLE>
The 1998 and 1997 increases in general and administrative expenses were
primarily a result of increased salaries and related expenses associated with
the hiring of additional personnel and legal and other professional fees related
to our growth. In 1998, we incurred additional expenses associated with the
acquired entities and the related international expansion and expanded
activities. Beginning in 1997, general and administrative costs have included
costs attributable to being a public company. General and administrative
expenses decreased as a percentage of net sales due to the significant increase
in net sales.
Amortization of Goodwill and Other Intangibles
Amortization of goodwill and other intangibles was approximately $42.6
million or 7.0% of net sales in 1998. Such amortization relates to goodwill and
other intangibles recorded in connection with our April 1998 acquisitions of
three Internet companies and our August 1998 acquisition of Junglee. These
acquisitions were accounted for under the purchase method of accounting. We
anticipate that future amortization of goodwill and other intangibles associated
with our 1998 acquisitions will continue to be amortized on a straight line
basis over lives of up to approximately three years, and will amount to
approximately $22 million per quarter until March 2000 and approximately $15
million per quarter thereafter until the related goodwill and other intangibles
are fully amortized. It is likely that we will continue to expand our business
through acquisitions and internal development. Any additional acquisitions or
impairment of goodwill and other purchased intangibles could result in
additional goodwill, other intangibles and merger and acquisition related costs.
Interest Income and Expense
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
------------ -------- ------------ -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.............. $ 14,053 639% $ 1,901 841% $202
Interest expense............. (26,639) N/M (326) N/M (5)
</TABLE>
S-34
<PAGE> 34
Interest income on cash and marketable securities increased in 1998 due to
higher investment balances resulting from the proceeds from the Senior Discount
Notes issued in May 1998, and in 1997 due to higher investment balances
resulting from the proceeds of our initial public offering in May 1997. Interest
expense in 1998 includes interest and amortization of deferred charges related
to the Senior Discount Notes.
Interest expense in 1998 and 1997 consists of interest and amortization of
deferred charges related to our $75 million three-year senior secured term loan,
or the Senior Loan, entered into in December 1997, as well as asset acquisitions
financed through loans and capital leases. In 1998, interest expense also
includes the write-off of $2.0 million of unamortized loan fees following
prepayment of the Senior Loan in May 1998.
We expect interest expense to increase in the future as a result of the
Senior Discount Notes, the Convertible Notes and potentially increased financing
of asset acquisitions through loans and capital leases. We also expect interest
income to increase because of higher cash balances resulting from the net
proceeds of the Convertible Notes.
Income Taxes
We did not provide any current or deferred US federal, state or foreign
income tax provision or benefit for any of the periods presented because we have
experienced operating losses since inception. Utilization of our 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.
We have provided a full valuation allowance on the deferred tax asset,
consisting primarily of net operating loss carryforwards, because of uncertainty
regarding its realizability.
Pro Forma Information
In April 1998, we acquired all of the outstanding capital stock of three
Internet companies. 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 common stock and cash. We
issued an aggregate of approximately 3.2 million shares of common stock to
affect the transactions. We are amortizing the goodwill resulting from the
acquisitions on a straight-line basis over approximately two years.
In August 1998, we acquired all of the outstanding capital stock of
Junglee. We issued approximately 4.7 million shares of common stock and assumed
all outstanding options and warrants in connection with the acquisition of
Junglee. The Junglee acquisition was accounted for under the purchase method of
accounting, with substantially all of the approximately $180 million purchase
price allocated to goodwill and other purchased intangibles. The goodwill and
substantially all other purchased intangible assets are being amortized on a
straight-line basis over lives averaging approximately three years.
In August 1998, we exchanged common stock and options for all of the
outstanding capital stock of PlanetAll. We issued approximately 2.4 million
shares of common stock and assumed all outstanding options in connection with
the merger. The PlanetAll merger was accounted for as a pooling of interests
and, as a result, our consolidated financial statements have been restated for
all periods presented.
Pro forma information regarding our results, excluding approximately $50.9
million of amortization of goodwill and other intangibles, equity in losses of
equity method investees, stock-based compensation and merger, acquisition and
investment-related costs, was as follows for the year ended December 31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
Pro forma loss from operations.............................. $(61,032)
Pro forma net loss.......................................... (73,618)
Pro forma basic and diluted loss per share.................. (.25)
Shares used in computation of basic and diluted loss per
share..................................................... 296,344
</TABLE>
S-35
<PAGE> 35
The pro forma results for the year ended December 31, 1998 are presented
for informational purposes only and are not prepared in accordance with
generally accepted accounting principles.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, our principal sources of liquidity consisted of
$43.1 million of cash and $862.5 million of marketable securities compared to
$25.6 million of cash and $347.9 million of marketable securities at December
31, 1998.
Net cash used in operating activities was $122.4 million and $7.7 million
for the nine-month periods ended September 30, 1999 and 1998, respectively. Net
operating cash flows were primarily attributable to quarterly net losses and
increases in inventories and prepaid expenses and other, partially offset by
non-cash charges for depreciation and amortization and merger and
acquisition-related costs, as well as increases in accounts payable, accrued
advertising and interest payable. Net cash provided by operating activities of
$31.0 million and $687,000 for the years ended December 31, 1998 and 1997,
respectively, was primarily attributable to increases in accounts payable, other
liabilities and accrued expenses, accrued advertising and non-cash expenses,
largely offset by the net loss and increases in inventories and prepaid expenses
and other.
Net cash used in investing activities was $938 million and $231.1 million
for the nine-month periods ended September 30, 1999 and 1998, respectively, and
consisted of net purchases of marketable securities, purchases of fixed assets
primarily for distribution center expansion, and cash paid for acquisitions and
equity investments. Cash available for investment purposes increased
substantially in 1999 as a result of the issuance of the Convertible Notes. Net
cash used in investing activities was $261.8 million for the year ended December
31, 1998 and consisted of net purchases of marketable securities, purchases of
fixed assets, and acquisitions, dispositions and investments in businesses. For
the year ended December 31, 1997, net cash used in investing activities was
$125.7 million and consisted of net purchases of marketable securities and
purchases of fixed assets.
Net cash provided by financing activities of $1.1 billion for the
nine-month period ended September 30, 1999 resulted from proceeds relating to
the issuance of the Convertible Notes, net of financing costs, and proceeds from
issuance of capital stock and exercises of stock options, offset by cash
payments of $184.7 million on long-term debt including $180.9 million for
repurchases of the Senior Discount Notes. Net cash provided by financing
activities of $254.5 million for the year ended December 31, 1998 resulted from
net proceeds of approximately $318.2 million from the Senior Discount Notes
offering, net proceeds of approximately $8.4 million from PlanetAll's issuance
of capital stock, and proceeds from the exercise of stock options of $6 million,
partially offset by the repayment of a senior loan. Net cash provided by
financing activities of $126 million for the year ended December 31, 1997
resulted primarily from net proceeds from a senior loan, our initial public
offering and PlanetAll's issuance of capital stock.
As of September 30, 1999, our principal commitments consisted of
obligations outstanding under our Convertible Notes, including interest
payments, and Senior Discount Notes, obligations in connection with the
acquisition of fixed assets and leases, and commitments for advertising and
promotional arrangements. Expansion of our distribution center network has and
will require us to continue to commit to lease obligations, stock inventories,
and purchase fixed assets and install leasehold improvements. Failure to achieve
favorable financing for asset acquisitions could negatively impact our cash
flows. In addition, our plans are to continue to increase our merchandise
inventory in order to provide broader product offerings and better availability
to customers and to support the recently introduced toys, electronics, home
improvement and software product lines. Geographic expansion and continued
acquisitions and investments will also require future capital expenditures.
We believe that the proceeds of this offering, together with current cash
and marketable securities balances, will be sufficient to meet our anticipated
operating cash needs for at least the next 12 months. However, any projections
of future cash needs and cash flows are subject to substantial uncertainty. If
current cash, marketable securities and cash that may be generated from
operations are insufficient to satisfy our liquidity requirements, we may seek
to sell additional equity or debt securities or to obtain a line of credit. Upon
completion of this offering, our universal shelf registration statement will
permit us, from time to time, to offer and sell various types of securities, up
to a total value of approximately $1.32 billion. The sale of
S-36
<PAGE> 36
additional equity or convertible debt securities could result in additional
dilution to our stockholders. In addition, we will periodically consider the
acquisition of or investment in complementary businesses, products, services and
technologies, and the repurchase and retirement of debt, which might impact our
liquidity requirements or cause us to issue additional equity or debt
securities. We cannot be sure that financing will be available in amounts or on
terms acceptable to us, if at all.
YEAR 2000 IMPLICATIONS
Many currently installed computer systems, software programs, and embedded
data chips are programmed using a 2-digit date field and are therefore unable to
distinguish dates beyond the 20th century. A failure to identify and correct any
mission-critical internal or third party year 2000 processing problem could have
a material adverse operational or financial consequence to us.
We established a Year 2000 Project Team that, together with external
consultants, developed a process for addressing the year 2000 issue including
performing an inventory, an assessment, remediation procedures (to the extent
necessary) and testing procedures of all mission-critical information systems
and equipment and machinery that contain embedded technology, as well as
obtaining assurances from all mission-critical third parties as to their own
year 2000 preparedness. As of the date of this prospectus supplement, all of our
mission-critical systems have been successfully tested for year 2000 compliance
and we have not experienced any significant year 2000 problems with our own
mission-critical systems or any mission-critical third parties. Although we have
not experienced any significant year 2000 problems to date, we plan to continue
to monitor the situation closely.
We cannot be sure that we will be completely successful in our efforts to
address the year 2000 issue or that problems arising from the year 2000 issue
will not cause a material adverse effect on our operating results or financial
condition. We believe, however, that our most reasonably likely worst-case
scenario would relate to problems with the systems of third parties rather than
with our internal systems. We are limited in our efforts to address the year
2000 issue as it relates to third parties and rely solely on the assurances of
these third parties as to their year 2000 preparedness.
As part of our broader contingency planning, we also developed business
continuity plans to address each critical process and activity that we believe
would cause a significant disruption to operations if not functional for 24
hours. Despite these efforts, we cannot guarantee that the contingency plan will
adequately address all circumstances that may disrupt operations or that such
planning will prevent circumstances that may cause a material adverse effect on
our operating results or financial condition.
S-37
<PAGE> 37
THE COMPANY
GENERAL
Amazon.com is the world's leading online retailer. Amazon.com directly
offers for sale millions of distinct items in categories such as books, music,
toys, electronics, videos, DVDs, home improvement products, software and video
games. Through our marketplace services such as Amazon.com Auctions, zShops and
sothebys.amazon.com, we have created Web-based marketplaces where buyers and
sellers can enter into transactions with respect to a wide range of products.
Amazon.com has also invested in and developed strategic commercial relationships
with a number of selected e-commerce companies. Amazon.com offers its customers
a superior shopping experience by providing high value through selection,
convenience, ease of use, product information and an intense focus on customer
service. Amazon.com is a proven technology leader, having developed electronic
commerce innovations such as 1-Click technology, personalized shopping services,
easy-to-use search and browse features, secure payment protections and wireless
access to the Amazon.com Web site. In 1999, Amazon.com significantly expanded
its distribution capabilities worldwide with the addition of eight new
distribution centers comprising approximately four million square feet of
warehouse and distribution space. These new facilities increase our control over
the distribution process and facilitate our ability to deliver merchandise to
customers on a reliable and timely basis.
Amazon.com has served over 17 million customer accounts in over 150
countries. In addition to our US Web site, we currently have two internationally
focused Web sites located at www.amazon.co.uk and www.amazon.de. Each of
Amazon.co.uk and Amazon.de was ranked the number one e-commerce site and the
number 10 most visited site overall in the UK and Germany, respectively,
according to the Media Metrix ratings for Europe released in January 2000. Both
of these Web sites were launched in October 1998, and currently have product and
service offerings consisting of books, music, auctions and zShops. These
international Web sites have the same look, feel and functionality as the US Web
site, including 1-Click technology, personalized recommendations and product
reviews, but offer content, products and services tailored to the local market.
The Amazon.de Web site is presented in the German language. In the fourth
quarter of 1999, combined sales from these Web sites totaled $71 million, a 360%
increase from the fourth quarter of 1998. We currently have distribution centers
and customer service centers in the UK and Germany.
BUSINESS STRATEGY
Amazon.com seeks to be the world's most customer-centric company where
customers can find and discover anything they may want to buy online. We intend
to leverage our Internet platform to expand the range of products and services
offered to our customers. This platform consists of strong brand recognition, a
large and growing group of customers, innovative technology, extensive and
sophisticated distribution capabilities and significant e-commerce expertise.
Amazon.com believes that this platform allows us to launch new e-commerce
businesses quickly, with a high quality of customer experience, economical
incremental cost and good prospects for success. We also believe that this
platform allows us to expand the range of products and services offered to our
customers through relationships with strategic partners on terms that are
attractive to our customers, our strategic partners and us.
We intend to continue expanding internationally by increasing the product
and service offerings on Amazon.co.uk and Amazon.de, establishing new Web sites
focused on particular international markets, entering into strategic
relationships that enhance our international operations and continuing the sale
of products from the US to international customers. We believe that there are
significant e-commerce opportunities outside of the US and that Amazon.com is
well-positioned to be a global e-commerce leader given the platform we have
created in the US and our experience in international markets to date.
S-38
<PAGE> 38
PRODUCTS AND SERVICES
Since our inception in July 1995, we have rapidly expanded our product and
service offerings and intend to continue to do so. Some of our product and
service offerings and their related launch dates are set forth below:
<TABLE>
<CAPTION>
US PRODUCTS AND INTERNATIONAL PRODUCTS
MARKETPLACE SERVICES LAUNCH DATE AND MARKETPLACE SERVICES LAUNCH DATE
- -------------------- ------------- ------------------------ -------------
<S> <C> <C> <C>
Books July 1995 UK and German Books October 1998
Music June 1998 UK and German Music October 1999
DVD/Video November 1998 UK and German Auctions November 1999
Auctions March 1999 UK and German zShops November 1999
Electronics July 1999
Toys July 1999
zShops October 1999
Home Improvement November 1999
Software November 1999
Video Games November 1999
sothebys.amazon.com November 1999
</TABLE>
In the past, we have offered our products and services primarily through
two means: Amazon.com's online retail stores and Amazon.com's marketplace
services (including Amazon.com Auctions, sothebys.amazon.com and zShops). We
have recently entered into agreements to expand the product and services we
offer by allowing selected strategic partners to sell products and services
under co-branded sections on the Amazon.com Web site. We refer to these new
arrangements as the Amazon.com Commerce Network.
Our US online retail stores currently consist of books, music, DVD/Video,
electronics and software, toys and video games and home improvement. With the
exception of books, which we launched in 1995, and music and video, which we
launched in 1998, we launched all of the remaining stores in 1999. We anticipate
new store additions in 2000 and beyond.
US Books, Music and DVD/Video. We are the Internet's number one books,
number one music and number one DVD/Video retailer based upon our 1999 revenues
and industry rankings. We currently offer an aggregate of over 13 million titles
in books, music and DVD/Video.
During 1999, we continued to enhance our Book Store by expanding selection
and improving the customer experience. We created new specialty stores such as
our professional and technical store, expanded our editorial content through
partnerships with experts in certain fields and increased selection with the
addition of millions of used and out-of-print titles.
During 1999, our Music Store launched an improved classical musical store,
enhanced its product recommendation services and added new features to promote
independent artists via Amazon.com Advantage. Amazon.com became the first major
online music retailer to dedicate an area of its store to free, full-length song
downloads from established artists and major-label performers, and continues to
offer the largest selection of free promotional song downloads from major label
artists of any major online music retailer.
Our DVD/Video Store, which opened in November 1998, enjoyed strong revenue
growth in 1999. In addition, our DVD/Video Store continued its integration with
our Internet Movie Database, a leading online information source for movie
enthusiasts, created and hosted the official Web site for "American Beauty,"
winner of three Golden Globe(TM) awards, and began streaming exclusive outtake
footage from motion pictures such as "The Blair Witch Project" and "Austin
Powers: The Spy Who Shagged Me."
International Sales. We have two internationally focused Web sites located
at www.amazon.co.uk and www.amazon.de. Both of these Web sites were launched in
October 1998, and currently have product and service offerings consisting of
books, music, auctions and zShops which are tailored to their individual
markets. We intend to expand the product and service offerings of these Web
sites in the future.
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Other US Retail. Amazon.com's other online retail stores consist of
electronics and software, toys and video games and home improvement. Our Toy and
Video Games Store and Electronics and Software Store have each been ranked the
number one online stores in their respective categories based upon 1999 industry
rankings.
Marketplace Services. We facilitate the sale of products through our
marketplace services which currently consist of Amazon.com Auctions, zShops and
sothebys.amazon.com. Amazon.com Auctions allows buyers and sellers to conduct
transactions with respect to a wide variety of products in an easy to use
auction format. Amazon.com zShops allows individuals and businesses to offer
popular as well as hard-to-find items to Amazon.com's customers.
sothebys.amazon.com is an online auction site devoted to antiques and
collectibles.
During the fourth quarter of 1999, these marketplace services surpassed a
combined 1 million registered users and 1.5 million active listings. Since its
launch in November, 1999, sothebys.amazon.com has achieved average close rates,
which are rates of actual purchases by customers visiting the site, in excess of
50% and average auction closing prices of over $500.
The participants of our marketplace services can use our Amazon.com
Payments service, which allows individuals and small businesses to accept credit
card payments through Amazon.com's 1-Click payment feature, thus eliminating the
problems associated with checks and money orders.
Amazon.com Commerce Network. We have recently entered into agreements to
allow selected strategic partners to sell products under co-branded sections on
our Web site. We believe that these arrangements will be attractive to
Amazon.com customers as a result of the increase in product and service
selection available on our site, attractive to the strategic partners as a
result of the potential growth of their customer base and brand awareness, and
financially attractive to us. See "Summary -- Recent Developments."
AMAZON.COM WEB SITES
We believe that the sale of products and services over the Web offers
attractive benefits to customers, including greater selection, convenience,
ease-of-use, competitive pricing and personalization. The key features of
Amazon.com's Web sites include browsing, searching, useful product information,
reviews, recommendations and personalization, broad selection, low prices,
1-Click technology, secure payment systems and availability and fulfillment. Our
Web sites promote brand loyalty and repeat purchases by providing an inviting
and satisfying experience that encourages customers to return frequently and to
interact with other customers.
Browsing. The Amazon.com sites offer visitors a variety of highlighted
subject areas, styles and special features arranged in a simple, easy-to-use
fashion intended to enhance product search and selection. In addition, the Web
sites present a variety of products and services and topical information. To
enhance the customers' shopping experience and increase sales, we feature a
variety of products and services on a rotating basis throughout the stores.
Searching. A primary feature of Amazon.com Web sites is their interactive,
searchable catalogs of millions of books, music products, videos, DVDs, toys and
video games, electronics and software and home improvement products. We provide
a variety of search tools to find desired products based on numerous search
criteria. We license some of our catalog and other information from third
parties.
Reviews and Content. The Amazon.com online stores offer numerous forms of
content to enhance the customer's shopping experience and encourage purchases.
Various types of content are available for particular titles, including cover
art, synopses, annotations, reviews by editorial staff and other customers, and
interviews by authors and artists.
Recommendations and Personalization. Amazon.com personalizes its product
and service offerings. These features include greeting customers by name,
instant and personalized recommendations, personal notification services,
purchase pattern filtering and a number of other related features. Amazon.com's
Wish List feature allows users to create an online wish list of desired products
and services that others can reference for gift-giving purposes. We believe that
personalization of a customer's shopping experience at our Web sites
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is an important element of the value proposition we offer to customers, and we
intend to continue to enhance our personalized services.
Other Web Site Services. The Amazon.com Web site provides other services to
make online shopping more enjoyable for our customers. In our Gift Ideas
section, we feature a seasonally appropriate selection of gift ideas and
services. In our Community section, we provide a gathering place where customers
can share product information and recommendations. Through our E-Cards section,
customers can send free animated electronic greeting cards to friends and
family.
1-Click Technology. Amazon.com provides customers with a streamlined
ordering process using 1-Click technology. If a customer has previously
activated 1-Click functionality, that customer can place an order by clicking
one button without having to fill out an order form. The customer's shipping and
billing information is automatically referenced on our secure server.
Secure Credit Card Payment. Amazon.com uses secure server software for
secure commerce transactions. It encrypts all of the customer's personal
information, including credit card number, name and address, so that it cannot
be read as the information travels over the Internet.
Availability and Fulfillment. Many of our products are available for
shipment within 24 hours, although some products take longer and some may not be
available at all. Customers can select from a variety of delivery options,
including overnight and various international shipping options, as well as
gift-wrapping services. We use e-mail to notify customers of order status under
various conditions and provide links to shipping carriers so that the customers
can track their shipments. We seek to provide rapid and reliable fulfillment of
customer orders and to continue to improve our speed of availability and
fulfillment.
Remote Access. In October 1999, we launched Amazon.com Anywhere which
allows Amazon.com customers to access the Amazon.com site from hand-held
wireless devices, such as cellular phones and the Palm VII Connected Organizer,
and to utilize features such as 1-Click purchasing and product-searching
capabilities on their wireless devices.
Return Policy. For the 30 days following receipt of a customer order,
Amazon.com provides a full refund for any book in its original condition, any
Amazon.com recommended book in any condition, any unopened music CD, DVD, VHS
tape or software, and any other merchandise item in new condition, with its
original packaging and accessories.
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STRATEGIC RELATIONSHIPS
We have entered into a number of strategic relationships with selected
e-commerce companies. These relationships generally consist of our making, or
having the future right to make, a minority investment in the companies,
generally ranging from 5% to 49%, and the entry into commercial agreements which
vary in scope from customer promotional activities and links to recently
announced deals involving the sale of products and services on co-branded
sections of the Amazon.com Web site. Certain of our strategic relationships are
listed below:
<TABLE>
<CAPTION>
COMPANY NATURE OF BUSINESS
------- ------------------
<S> <C>
Ashford.com Online retailer of luxury and premium products
Audible Internet delivered spoken audio for PC-based listening or
playback devices
Della.com Online service for gift registry, gift advice and
personalized gift suggestions
drugstore.com Online retail and information source for health, beauty,
wellness, personal care and pharmacy
Gear.com Online source for brand-name sporting goods at discount
prices
Greenlight.com Online auto purchasing in partnership with local dealerships
HomeGrocer.com Online grocery-shopping and home-delivery service
living.com Online retailer of home products and services
Nextcard, Inc. Online issuer of consumer credit cards on the Internet
Pets.com Online source for pet products, information and services
Sothebys Auction house with whom we partnered to create an online
auction site devoted to antiques and collectibles
</TABLE>
We believe that these investments and commercial arrangements are
attractive to us for a variety of reasons. First, our customers are given access
to a wider range of products and services. Second, we are able to generate
revenue from the strategic partners for allowing them access to the Amazon.com
customer base. Third, we have the opportunity to participate in the future
success of our strategic partners as a result of our ownership interest in such
companies. We believe that our strategic partners are also well served as a
result of the opportunity to quickly grow their customer base and build brand
recognition.
MARKETING AND PROMOTION
Amazon.com's marketing strategy is designed to strengthen the Amazon brand
name, increase customer traffic to the Amazon.com Web sites, build customer
loyalty, encourage repeat purchases and develop incremental product and service
revenue opportunities.
Amazon.com creatively applies technology to deliver personalized programs
and services, as well as flexible merchandising. We employ a variety of media,
business development and promotional methods to achieve these goals. We also
benefit from public relations activities as well as online and traditional
advertising, including radio, television and print media.
We extend our market presence through our Associates Program, which enables
associated Web sites to make products available to their audiences with order
fulfillment by Amazon.com. Approximately 350,000 Web sites have enrolled in the
Associates Program.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers and to encourage repeat visits and purchases
depends, in part, on the strength of our customer service operations. We seek to
achieve frequent communication with and feedback from our customers to
continually improve the Amazon.com experience. Users can contact customer
service representatives via telephone and e-mail 24 hours a day, 7 days a week.
We have automated certain tools used by our customer support and service staff
and have plans for further enhancements. As of December 31, 1999, we had
customer service personnel working in five customer service centers located in
Seattle and Tacoma, Washington; Slough, England;
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Regensburg, Germany; and Grand Forks, North Dakota. We plan to open an
additional customer service center in Huntington, West Virginia in 2000.
WAREHOUSING, FULFILLMENT AND DISTRIBUTION
We significantly expanded our US distribution infrastructure in 1999 with
the addition of new distribution facilities in Fernley, Nevada; Coffeyville,
Kansas; Campbellsville, Kentucky; Lexington, Kentucky; McDonough, Georgia; and
Grand Forks, North Dakota. We also opened new distribution centers in the UK and
Germany. On an aggregate basis, we added eight new distribution centers in 1999
comprising approximately four million square feet of warehouse space. The
geographic coverage of these distribution centers and their capacity has
dramatically improved our fulfillment capabilities and will allow us to continue
to increase our volume. The new distribution centers also give us more control
over the distribution process and facilitate our ability to deliver merchandise
to customers on a reliable and timely basis. We now have a total of 10
distribution centers, including our facilities in Seattle, Washington, and
Newcastle, Delaware. We anticipate that our current distribution center capacity
will be sufficient for our needs in the US for at least the next 12 months.
We purchase products from a network of manufacturers, distributors,
publishers and labels. For orders that cannot be filled from our inventory, our
proprietary software selects the orders that can be filled via electronic
interfaces with vendors and, in some cases, forwards the remaining orders to our
special orders group. This special orders group has developed customized
information systems and consists of trained ordering personnel who specialize in
hard-to-find products. Under our arrangements with certain distributors,
electronically ordered products often are shipped to us by the distributor
within hours of a receipt of an order from Amazon.com. We ship all products
through our own distribution centers to ensure a high quality customer
experience.
TECHNOLOGY
We have implemented numerous Web site management, search, customer
interaction, recommendation, transaction-processing and fulfillment services and
systems using a combination of our own proprietary technologies and commercially
available, licensed technologies. Our current strategy is to focus our
development efforts on creating and enhancing the specialized, proprietary
software that is unique to our business and to license or acquire commercially
developed technology for other applications where available and appropriate.
We use a set of applications for accepting and validating customer orders,
placing and tracking orders with suppliers, managing and assigning inventory to
customer orders and ensuring proper shipment of products to customers based on
various ordering criteria. Our transaction-processing systems handle millions of
items, a number of different status inquiries, gift-wrapping requests and
multiple shipment methods and allow the customer to choose whether to receive
single or several shipments based on availability. These applications also
manage the process of accepting, authorizing and charging customer credit cards.
Amazon.com Web sites also incorporate a variety of search and database tools.
Systems administrators and network managers monitor and operate our Web
sites, network operations and transaction-processing systems. The continued
uninterrupted operation of our Web sites and transaction-processing systems is
essential to our business and it is the job of the Web site operations staff to
ensure their reliability. We use the services of five Internet service providers
to obtain connectivity to the Internet, both domestically and internationally,
over multiple dedicated lines.
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MANAGEMENT
The following table sets forth certain information regarding the executive
officers and directors of Amazon.com:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Jeffrey P. Bezos..................... Founder, Chief Executive Officer and Chairman of the Board
Joseph Galli......................... President and Chief Operating Officer
Warren C. Jenson..................... Chief Financial Officer, Senior Vice President of Finance
and Administration, and Secretary
John D. Risher....................... Senior Vice President of U.S. Retail Group
Richard L. Dalzell................... Vice President and Chief Information Officer
Mark Britto.......................... Vice President of Strategic Alliances
Jeffrey Wilke........................ Vice President and General Manager, Operations
Tom A. Alberg........................ Director
Scott D. Cook........................ Director
L. John Doerr........................ Director
Patricia Q. Stonesifer............... Director
</TABLE>
Jeffrey P. Bezos. Mr. Bezos has been Chairman of the Board of Amazon.com
since founding it in 1994 and Chief Executive Officer since May 1996. Mr. Bezos
served as President from founding until June 1999, and Treasurer and Secretary
from May 1996 to March 1997. From December 1990 to June 1994, Mr. Bezos was
employed by D.E. Shaw & Co., a Wall Street investment firm, becoming Senior Vice
President in 1992. From April 1988 to December 1990, Mr. Bezos was employed by
Bankers Trust Company, becoming Vice President in February 1990. Mr. Bezos
received his B.S. in Electrical Engineering and Computer Science from Princeton
University.
Joseph Galli, Jr. Mr. Galli joined Amazon.com in June 1999 as President and
Chief Operating Officer. Mr. Galli came to Amazon.com after a 19-year career
with Black and Decker, culminating as president of Black and Decker's Worldwide
Power Tools and Accessories. As President he supervised the marketing, sales,
manufacturing, engineering, finance, MIS, purchasing and product service
departments. Mr. Galli received a B.S. in Business Administration from the
University of North Carolina and an M.B.A. from Loyola College.
Warren C. Jenson. Mr. Jenson joined Amazon.com in September 1999 as Senior
Vice President and Chief Financial Officer and Chief Accounting Officer. Before
joining Amazon.com, Mr. Jenson was the Chief Financial Officer and Executive
Vice President for Delta Air Lines. Before moving to Delta, Mr. Jenson served as
Chief Financial Officer and Senior Vice President for the National Broadcasting
Company (NBC) and participated in efforts to develop MSNBC, the cable-Internet
joint news venture between NBC and Microsoft. Mr. Jenson earned his Masters of
Accountancy-Business Taxation, and BS in Accounting from Brigham Young
University in Provo, Utah.
John D. Risher. Mr. Risher has served Amazon.com as Senior Vice President,
US Retail Group since January 2000. Mr. Risher joined Amazon.com in February
1997 as Vice President of Product Development. Mr. Risher served as Senior Vice
President of Product Development from November 1997 to January 2000. From July
1991 to February 1997, Mr. Risher held a variety of marketing and project
management positions at Microsoft Corporation, including Team Manager for
Microsoft Access and Founder and Product Unit Manager for MS Investor,
Microsoft's Web site for personal investment. Mr. Risher received his B.A. in
Comparative Literature from Princeton University and his M.B.A. from Harvard
Business School.
Richard L. Dalzell. Mr. Dalzell joined Amazon.com in August 1997 as Vice
President and Chief Information Officer. From February 1990 to August 1997, Mr.
Dalzell held several management positions within the Information Systems
Division at Wal-Mart Stores, Inc., including Vice President of Information
Systems from January 1994 to August 1997. From 1987 to 1990, Mr. Dalzell acted
as the Business Development Manager for E-Systems, Inc. Prior to joining
E-Systems, Inc. he served seven years in the
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United States Army as a teleprocessing officer. Mr. Dalzell received a B.S. in
Engineering from the United States Military Academy, West Point, in 1979.
Mark Britto. Mr. Britto has served as Vice President of Strategic Alliances
since August 1999. From June 1999 to August 1999, Mr. Britto served as Director
of Business Development. Mr. Britto joined Amazon.com in June 1999 as part of
the acquisition of Accept.com, the company he co-founded in October 1998. From
October 1994 through October 1998, Mr. Britto was Executive Vice President of
Credit Policy at FirstUsa Bank, where he was responsible for their credit risk
management practice. Prior to that, he served as Senior Vice President of Risk
Management at Nations Bank. Mr. Britto received an MS in Operations Research and
a BS in Industrial Engineering and Operations Research from the University of
California at Berkeley.
Jeffrey Wilke. Mr. Wilke has served as Vice President and General Manager
of Operations since September 1999. Mr. Wilke was formerly Vice President and
General Manager of AlliedSignal's Pharmaceutical Fine Chemicals unit and prior
to AlliedSignal, he was an Information Technology consultant with Andersen
Consulting's Financial Systems group. He is a 1989 graduate of Princeton
University with a B.S.E. in chemical engineering and has an M.B.A. and Master of
Science in chemical engineering from the Massachusetts Institute of Technology.
Tom A. Alberg. Mr. Alberg has been a Director of Amazon.com since June
1996. Mr. Alberg has been a managing director of Madrona Venture Group, a
venture capital firm, since September 1999 and a principal in Madrona Investment
Group, L.L.C., a private investment firm, since January 1996. From April 1991 to
October 1995, he was President and a director of LIN Broadcasting Corporation,
and from July 1990 to October 1995, he was Executive Vice President of McCaw
Cellular Communication, Inc.; both companies were providers of cellular
telephone services and are now part of AT&T Corp. Prior to 1990, Mr. Alberg was
a partner of the law firm Perkins Coie, where he also served as Chairman of the
firm's Executive Committee. Mr. Alberg is also a director of Active Voice
Corporation, Advanced Digital Information Corporation and Teledesic Corporation.
Mr. Alberg received his B.A. from Harvard University and his J.D. from Columbia
University.
Scott D. Cook. Mr. Cook has been a Director of Amazon.com since January
1997. Mr. Cook co-founded Intuit, Inc., a leading personal finance, tax and
accounting Internet and software company, in 1983, served as President and
Chairman of the Board of Intuit since that time until April 1994 and served as
its Chairman of the Board until 1998. He has served as Chairman of the Executive
Committee since September 1998. Prior to co-founding Intuit, Mr. Cook was a
consultant for Bain & Company, a strategy consulting firm, and a brand manager
for Proctor & Gamble. Mr. Cook is also a director of eBay, Inc. and Intuit. Mr.
Cook received his B.A. in Mathematics and Economics from the University of
Southern California and his M.B.A. from Harvard Business School.
L. John Doerr. Mr. Doerr has been a Director of Amazon.com since June 1996.
Mr. Doerr has been a general partner of Kleiner Perkins Caufield & Byers, a
venture capital firm, since September 1980. Prior to joining Kleiner Perkins
Caufield & Byers, Mr. Doerr was employed by Intel Corporation for five years.
Mr. Doerr is also a director of Intuit, Epicor Software Corporation and Sun
Microsystems, as well as several private companies. Mr. Doerr received his
M.E.E. and B.S.E.E. from Rice University and his M.B.A. from Harvard Business
School.
Patricia Q. Stonesifer. Ms. Stonesifer has been a Director of Amazon.com
since February 1997. Ms. Stonesifer is Co-Chair of the Bill and Melinda Gates
Foundation. Prior to joining the Bill and Melinda Gates Foundation, Ms.
Stonesifer ran her own management consulting firm whose clients included
DreamWorks SKG. From 1988 to 1997, Ms. Stonesifer worked in many roles at
Microsoft, most recently as Senior Vice President of the Interactive Media
Division. In that role, she managed Microsoft's investment in new online content
and service products, notably MSNBC on the Internet. Ms. Stonesifer is a
director of Alaska Airlines, Inc., CBS Corporation and Kinko's, Inc. Ms.
Stonesifer received her B.A. in General Studies from Indiana University.
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DESCRIPTION OF NOTES
The notes are to be issued under an indenture to be dated as of February
16, 2000, between Amazon.com and The Bank of New York, as trustee. You may
request a copy of the indenture from the trustee.
The following description is a summary of the material provisions of the
notes and the indenture. It does not purport to be complete. This summary is
subject to and is qualified by reference to all the provisions of the indenture,
including the definitions of certain terms used in the indenture. Wherever
particular provisions or defined terms of the indenture or form of note are
referred to, these provisions or defined terms are incorporated in this
prospectus supplement by reference.
As used in this "Description of Notes" section, references to "Amazon.com,"
"we", "our" or "us" refer solely to Amazon.com, Inc. and not Amazon.com together
with its subsidiaries.
GENERAL
The notes will be general unsecured obligations of Amazon.com. Our payment
obligations under the notes will be subordinated to our senior indebtedness as
described under "-- Subordination of Notes." The notes are convertible into our
common stock as described under "-- Conversion of Notes." The notes will be
limited to E690,000,000 aggregate principal amount. The notes will be issued
only in denominations of E1,000 and multiples of E1,000. The notes will mature
on February 16, 2010 unless earlier converted, redeemed at our option, or
redeemed at your option upon a fundamental change of Amazon.com. The notes will
be issued at an initial conversion price of E104.947. The conversion price will
be reset on February 16, 2001 and February 16, 2002 as provided in
"-- Conversion of Notes."
We are not subject to any financial covenants under the indenture. In
addition, we are not restricted under the indenture from paying dividends,
incurring debt, including senior indebtedness, or issuing or repurchasing our
outstanding securities.
You are not afforded protection in the event of a highly leveraged
transaction or a change in control of Amazon.com under the indenture except to
the extent described below under "-- Redemption at Option of the Holder."
The notes will bear interest of 6.875% from February 16, 2000, or from the
most recent interest payment date in which interest has been paid or duly
provided for. We will pay interest on February 16 of each year, beginning
February 16, 2001, to record holders at the close of business on the preceding
February 1, as the case may be, except that:
- interest payable upon redemption will be paid to the person to whom
principal is payable, unless the redemption date is an interest payment
date; and
- as set forth in the next sentence and the paragraph thereafter.
In case you convert any of your notes into common stock during the period
after any record date but prior to the next interest payment date either:
- we will not be required to pay interest on the interest payment date if
the note has been called for redemption on a redemption date that occurs
during this period; or
- we will not be required to pay interest on the interest payment date if
the note is to be redeemed in connection with a fundamental change on a
repurchase date that occurs during this period; or
- if otherwise, except in the situation in which we give you notice of
withdrawal of your conversion rights, any note not called for redemption
that is submitted for conversion during this period must also be
accompanied by an amount equal to the interest due on the interest
payment date on the converted principal amount, unless at the time of
conversion there is a default in the payment of interest on the notes.
See "-- Conversion of Notes."
In addition, if we withdraw your conversion rights as described below under
"-- Withdrawal of Conversion Rights," we will be required to pay you an
additional amount in cash which we refer to as a
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"make-whole payment." If we make such a make-whole payment, we will continue to
pay interest on your notes so long as they remain outstanding, except that if
the record date for any interest payment date occurs prior to the date our
withdrawal of conversion rights is effective, we will not be required to pay
interest on that interest payment date.
We will maintain an office in the Borough of Manhattan, the City of New
York, for the payment of interest, which shall initially be an office or agency
of the trustee.
We may pay interest either:
- by check mailed to your address as it appears in the note register,
provided that if you are a holder with an aggregate principal amount in
excess of E10.0 million, you shall be paid, at your written election, by
wire transfer in immediately available funds; or
- by transfer to an account maintained by you in the United States.
However, payments to The Depository Trust Company, New York, New York,
which we refer to as DTC, will be made by wire transfer of immediately available
funds to the account of DTC or its nominee. Interest will be computed on the
basis of a 365-day year and the actual number of days elapsed.
FORM, DENOMINATION AND REGISTRATION
The notes will be issued:
- in fully registered form,
- without interest coupon, and
- in denominations of E1,000 principal amount and integral multiples of
E1,000.
GLOBAL NOTES, BOOK-ENTRY FORM
The notes will be issued in the form of one or more global notes. We will
deposit the global note or notes with DTC and register the global note or notes
in the name of Cede & Co. as DTC's nominee. Except as set forth below, a global
note may be transferred, in whole or in part, only to another nominee of DTC or
to a successor of DTC or its nominee.
Holders of the notes may hold their interest in a global note directly
through DTC if such holder is a participant in DTC, or indirectly through
organizations which are direct or indirect participants in DTC (called
"participants"). Holders may hold beneficial interests in the global notes
directly through DTC, the Euroclear System ("Euroclear") and Clearstream Banking
S.A. ("Clearstream", formerly Cedelbank), if they are participants in these
systems, or indirectly through organizations that are participants in these
sytems.
Euroclear and Clearstream hold securities on behalf of their participants
through customers' securities accounts in their respective names on the books of
their respective depositaries, which in turn hold such securities in customers'
securities accounts in the depositaries' names on the books of DTC. Chase
Manhattan Bank initially will act as depositary of Euroclear, and Citibank, N.A.
initially will act as depositary for Clearstream.
Holders of the notes who are not participants may beneficially own
interests in a global note held by DTC only through direct or indirect
participants in DTC (including Euroclear and Clearstream), or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly (called "indirect participants"). So long as Cede & Co., as nominee
of DTC, is the registered owner of a global note, Cede & Co. for all purposes
will be considered the sole holder of such global note.
Except as provided below, owners of a beneficial interest in a global note
will:
- not be entitled to have certificates registered in their names,
- not receive physical delivery of certificates in definitive registered
form, and
- not be considered direct holders of the global note.
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Accordingly, any person owning a beneficial interest in the global notes
must rely on the procedures of DTC and, to the extent relevant, Euroclear and
Cedelbank, and, if such person is not a direct participant, on the procedures of
the participants through which such person owns its interests, to exercise any
rights of a noteholder.
Notes represented by a global note may be exchanged for definitive notes in
registered form only if:
- DTC notifies us that it is unwilling or unable to continue as depositary
for that global note and we do not appoint a successor depositary within
90 days after receiving that notice;
- at any time DTC ceases to be a clearing agency registered under the US
Securities Exchange Act of 1934, or the Exchange Act, and we do not
appoint a successor depositary within 90 days after becoming aware that
DTC has ceased to be registered as a clearing agency;
- we in our sole discretion determine that the global note will be
exchangeable for definitive notes in registered form and notify the
trustee of our decision; or
- an event of default with respect to the notes represented by that global
note has occurred and is continuing.
A global note that may be exchanged as described in the preceding sentence
will be exchanged for definitive notes issued in denominations of E1,000 and
integrated multiples of E1,000 in registered form for the same aggregate amount.
The definitive notes will be registered in the names of the owners of the
beneficial interests in the global note as directed by DTC.
We will pay interest on and the redemption price of a global note to Cede &
Co., as the registered owner of the global note, by wire transfer of immediately
available funds on each interest payment date or the redemption or repurchase
date, as the case may be. Neither we, the trustee nor any paying agent will be
responsible or liable:
- for the records relating to, or payments made on account of, beneficial
ownership interests in a global note, or
- for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
We have been informed that DTC's practice is to credit participants'
accounts on that payment date with payment in amounts proportionate to their
respective beneficial interests in the principal amount represented by a global
note as shown in the records of DTC, unless DTC has reason to believe that it
will not receive payment on that payment date. Payments by participants to
owners of a beneficial interest in the principal amount represented by a global
note will be the responsibility of the participants, as is now the case with
securities held for the accounts of customers registered in "street name".
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge such
interest to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing its interest.
Neither Amazon.com, the trustee, the registrar, the paying agents nor the
conversion agent will have any responsibility for the performance by DTC or any
of its participants (including Euroclear and Clearstream) or indirect
participants of their respective obligations under the rules and procedures
governing their operations. DTC has advised us that it will take any action
permitted to be taken by a holder of notes, including the representation of
notes for exchange, only at the direction of one or more participants to whose
account with DTC interests in the global note are credited, and only in respect
of the principal amount of the notes represented by the global note as to which
the participant or participants has or have given such direction.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System,
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- a "clearing corporation" within the meaning of the Uniform Commercial
Code, and
- a "clearing agency" registered pursuant to the provisions of Section 17
of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants.
Participants include Euroclear, Clearstream, securities brokers, dealers, banks,
trust companies and clearing corporations and other organizations. Some of the
participants and their representatives, together with other entities, own DTC.
Indirect access to the DTC system is available to banks, brokers, dealers, trust
companies and others that clear through or maintain a custodial relationship
with a participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate the transfer of
interests in a global note among participants. However, DTC is under no
obligation to perform or continue to perform these procedures, and may
discontinue these procedures at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will issue notes in certificated form in exchange for
global notes.
CONVERSION OF NOTES
You may convert your note, in whole or in part, into common stock from the
issue date, February 16, 2000, through the final maturity date of the notes,
February 16, 2010, subject to prior redemption or repurchase of the notes and
subject to our right, in certain circumstances described below, to withdraw your
right to convert the notes. The number of shares of common stock you will
receive upon conversion of your notes will be determined by dividing the
principal amount of notes you convert by the conversion price on the date of
conversion. The initial conversion price is E104.947. The initial conversion
price is subject to adjustments, as described below, including a reset on each
of February 16, 2001 and February 16, 2002. Please read the section below
entitled "-- Reset of Conversion Price" for a more complete description of the
reset to the conversion price. Conversion of notes may result in income for US
federal income tax purposes. See "United States Federal Income Tax
Consequences -- US Holders -- Conversion of the Notes".
GENERAL
If we call notes for redemption, you may convert the notes only until the
close of business on the business day prior to the redemption date unless we
fail to pay the redemption price. You may convert your notes in part so long as
this part is E1,000 principal amount or an integral multiple of E1,000. If any
notes not called for redemption are converted after a record date for any
interest payment date and prior to the next interest payment date, holders must
include with the notes an amount equal to the interest payable on the interest
payment date on the converted principal amount unless a default exists at the
time of conversion.
In the case of notes called for redemption, conversion rights will expire
at the close of business on the business day preceding the day fixed for
redemption unless we default in the payment of the redemption price. A note in
respect of which a holder is exercising its option to require redemption upon a
fundamental change of Amazon.com may be converted only if such holder withdraws
its election to exercise its option in accordance with the terms of the
indenture.
To convert your note into common stock you must:
- complete and manually sign the conversion notice on the back of the note
or facsimile of the conversion notice and deliver this notice to the
conversion agent;
- surrender the note to the conversion agent;
- if required, furnish appropriate endorsements and transfer documents;
- if required, pay all transfer or similar taxes; and
- if required, pay funds equal to interest payable on the next interest
payment date.
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The date you comply with these requirements is the conversion date under
the indenture. When you convert your notes you may do so directly through the
trustee or through another agent, including through Banque Internationale a
Luxembourg, our Luxembourg paying and conversion agent. Conversion of notes may
result in income for U.S. federal income tax purposes. See "United States
Federal Income Tax Consequences -- U.S. Holders -- Conversion of the Notes".
Upon conversion of an interest in a note, the trustee will make a notation
on the global note to indicate the reduction in principal amount, and once the
requirements set forth above have been satisfied, as promptly as practicable we
will issue to the holder of such converted interest a certificate or
certificates for the number of full shares of our common stock issuable upon
such conversion. We will not issue any fractional shares and will instead
deliver a check or cash in respect of any fractional interest in a share of our
common stock arising upon such conversion. All such deliveries, and payments, if
any, will be made through our paying agents, which include the trustee and
Banque Internationale a Luxembourg, our Luxembourg paying and conversion agent.
ADJUSTMENT OF CONVERSION PRICE
Except as described below, you will not receive any accrued interest or
dividends upon conversion.
We will adjust the conversion price if any of the following events occurs:
(1) we issue common stock as a dividend or distribution on our common
stock;
(2) we issue to all holders of common stock certain rights or warrants
to purchase our common stock;
(3) we subdivide or combine our common stock;
(4) we distribute to all holders of common stock our capital stock,
evidences of indebtedness or assets, including securities but excluding:
- rights or warrants listed in (2) above;
- dividends or distributions listed in (1) above; and
- cash distributions listed in (5) below;
(5) we distribute cash, excluding any quarterly cash dividend on our
common stock to the extent that the aggregate cash dividend per share of
common stock in any quarter does not exceed the greater of:
a. the amount per share of common stock of the next preceding
quarterly cash dividend on the common stock to the extent that such
preceding quarterly dividend did not require an adjustment of the
conversion price pursuant to this clause (5), as adjusted to reflect
subdivisions or combinations of the common stock, and
b. 3.75% of the average of the last reported sales price of the
common stock during the ten trading days immediately prior to the
declaration date of the dividend, and excluding any dividend or
distribution in connection with the liquidation, dissolution or winding
up of Amazon.com.
If an adjustment is required to be made under this clause (5) as a result
of a distribution that is a quarterly divided, the adjustment would be
based upon the amount by which the distribution exceeds the amount of the
quarterly cash dividend permitted to be excluded pursuant to this clause
(5). If an adjustment is required to be made under this clause (5) as a
result of a distribution that is not a quarterly dividend, the adjustment
would be based upon the full amount of the distribution;
(6) we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the extent that the
cash and value of any other consideration included in the payment per share
of common stock exceeds the price per share of common stock on the trading
day next succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer; and
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(7) someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of the closing
date of the offer, our board of directors is not recommending rejection of
the offer. The adjustment referred to in this clause (7) will only be made
if:
- the tender offer or exchange offer is for an amount that increases the
offeror's ownership of common stock to more than 25% of the total
shares of common stock outstanding, and
- the cash and value of any other consideration included in the payment
per share of common stock exceeds the current market price per share
of common stock on the business day next succeeding the last date on
which tenders or exchanges may be made pursuant to the tender or
exchange offer.
However, the adjustment referred to in this clause (7) will generally not
be made if, as of the closing of the offer, the offering documents disclose a
plan or an intention to cause us to engage in a consolidation or merger of
Amazon.com or a sale of all or substantially all of our assets. In certain
circumstances, an adjustment to the conversion price could give rise to a deemed
stock distribution to US Holders and Non-US Holders. We have undertaken to
publish a notice of any such adjustment in Luxembourg within 10 days after the
occurrence of any of the above. See also "-- Notices". See "United States
Federal Income Tax Consequences -- US Holders -- Constructive Dividends on
Notes."
RESET OF CONVERSION PRICE
The initial conversion price will be reset on February 16, 2001 and
February 16, 2002 to the lesser of (1) the conversion price then in effect and
(2) the euro equivalent average of the daily closing prices of our common stock
for the 20 consecutive trading days immediately preceding such date, provided
that the conversion price shall not be reset to lower than E84.883 (subject to
any anti-dilution adjustments). As a result of this limitation on resetting the
conversion price, no more than 11.781 shares of our common stock would be
issuable upon conversion of E1,000 principal amount of notes (subject to any
anti-dilution adjustments). The euro equivalent average will be calculated by
converting the applicable dollar price of the common stock into euros based on
the noon buying rate in New York City for cable transfers on each of the 20
consecutive trading days mentioned above and then taking the average of such
converted prices. In certain circumstances, an adjustment to the conversion
price could give rise to a deemed stock distribution to US Holders and Non-US
Holders. We have undertaken to publish a notice of each reset in Luxembourg
within 10 days after the occurrence of such reset. See also "-- Notices". See
"United States Federal Income Tax Consequences -- US Holders -- Constructive
Dividends on Notes."
OTHER FACTORS AFFECTING CONVERSION
In the event of:
- any reclassification of our common stock, or
- a consolidation, merger or combination involving Amazon.com, or
- a sale or conveyance to another person or entity of all or substantially
all the property and assets of Amazon.com as an entirety,
in which holders of our common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, you will
generally be entitled thereafter to convert your notes into the same type of
consideration which you would have been entitled to receive if you had converted
the notes into our common stock immediately prior to any of these events.
You may in certain situations be deemed to have received a distribution
subject to US federal income tax as a dividend in the event of any taxable
distribution to holders of common stock or in certain other situations requiring
a conversion price adjustment. See "US Federal Income Tax Consequences."
We may from time to time reduce the conversion price for a period of at
least 20 days if our board of directors has made a determination that this
reduction would be in our best interests. Any such determination
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by our board will be conclusive and binding on holders. We would give holders at
least 15 days' notice of any reduction in the conversion price. In addition, we
may reduce the conversion price if our board of directors deems it advisable to
avoid or diminish any income tax liability of holders of common stock resulting
from any stock or rights distribution. See "US Federal Income Tax Consequences."
We will not be required to make an adjustment in the conversion price
unless the adjustment would require a change of at least 1% in the conversion
price. However, we will carry forward any adjustments that are less than 1% of
the conversion price. Except as described above in this section, we will not
adjust the conversion price for any issuance of our common stock or securities
convertible into or exchangeable for our common stock or any rights to purchase
our common stock or securities convertible into or exchangeable for our common
stock.
We are not required to issue fractional shares of common stock upon
conversion of notes and, in lieu thereof, will pay a cash adjustment based upon
the market price of the common stock on the last business day prior to the date
of conversion. This cash payment will be made in euros and will be calculated by
multiplying the US dollar value of the cash adjustment by the noon buying rate
in New York City for cable transfers in euros on the date on which such
conversion is made.
WITHDRAWAL OF CONVERSION RIGHTS
If at any time and each time prior to February 20, 2003 the euro equivalent
of the closing price of our common stock shall have exceeded 160% of the initial
conversion price (E167.915) for at least 20 trading days in any consecutive
30-trading day period, we may withdraw your conversion rights. We must give you
notice at least 30 days, and no more than 60 days, prior to the date on which
your conversion rights are withdrawn, and such notice shall be given no later
than five business days after the last day on which such event had occurred or
was continuing.
If we withdraw your conversion rights in the time frame discussed above, we
will pay you an additional amount in cash with respect to each of your notes
equal to E206.25 per E1,000 notes, less the amount of any interest actually paid
on such note prior to the date in which we give you notice as described above.
We refer to this additional payment as a "make-whole payment". We will make this
make-whole payment to you on the date on which the withdrawal of your conversion
right is effective. WE WILL MAKE THIS MAKE-WHOLE PAYMENT TO ALL NOTE HOLDERS,
INCLUDING TO NOTE HOLDERS WHO CONVERT THEIR NOTES INTO OUR COMMON STOCK DURING
THE PERIOD BETWEEN THE DATE WE GIVE NOTICE OF OUR INTENTION TO WITHDRAW THE
CONVERSION RIGHTS AND THE DATE ON WHICH THE CONVERSION RIGHTS ARE ACTUALLY
WITHDRAWN.
OPTIONAL REDEMPTION BY AMAZON.COM
The notes are not entitled to any sinking fund. At any time on or after
February 20, 2003, we may redeem the notes in whole or in part at par. In such
case, we will pay you interest on the principal amount of your redeemed notes,
but excluding, the redemption date. If the redemption date is an interest
payment date, interest shall be paid to the record holder on the relevant record
date. We are required to give notice of redemption by mail to holders not less
than 30 days, and no more than 60 days, prior to the redemption date.
If less than all of the outstanding notes are to be redeemed, the trustee
shall select the notes to be redeemed in principal amounts of E1,000 or integral
multiples of E1,000 by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of your notes is selected for partial
redemption and you convert a portion of your notes, the converted portion shall
be deemed to be of the portion selected for redemption.
We may not redeem the notes if we have failed to pay any interest on the
notes and such failure is continuing. We have undertaken to publish a notice of
any such redemption in Luxembourg and also to provide the Luxembourg Stock
Exchange with the amounts redeemed and the amounts outstanding on a regular
basis.
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REDEMPTION AT OPTION OF THE HOLDER
If a fundamental change of Amazon.com occurs prior to February 16, 2010,
you may require us to redeem your notes, in whole but not in part, on a
repurchase date that is 30 days after the date of our notice of the fundamental
change. The notes will be redeemable in integral multiples of E1,000 principal
amount.
We shall redeem the notes at a price equal to 100% of the principal amount
to be redeemed, plus accrued interest to, but excluding, the repurchase date. If
the repurchase date is an interest payment date, we will pay interest to the
record holder on the relevant record date.
We will mail to all record holders a notice of a fundamental change of
Amazon.com within 10 days after it has occurred. We are also required to deliver
to the trustee a copy of the fundamental change notice. If you elect to redeem
your notes, you must deliver to us or our designated agent, on or before the
30th day after the date of our fundamental change notice, your redemption notice
and any notes to be redeemed, duly endorsed for transfer. We will promptly pay
the redemption price for notes surrendered for redemption following the
repurchase date.
A "fundamental change" of Amazon.com is any transaction or event (whether
by means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) in connection with
which all or substantially all of our common stock is exchanged for, converted
into, acquired for or constitute solely the right to receive, consideration
which is not all or substantially all common stock that:
- is listed on, or immediately after the transaction or event will be
listed on, a United States national securities exchange, or
- is approved, or immediately after the transaction or event will be
approved, for quotation on the Nasdaq National Market or any similar
United States system of automated dissemination of quotations of
securities prices.
We will comply with any applicable provisions of Rule 13e-4 and any other
tender offer rules under the United States Securities Exchange Act of 1934 in
the event of a fundamental change.
These fundamental change redemption rights could discourage a potential
acquiror of Amazon.com. However, this fundamental change redemption feature is
not the result of management's knowledge of any specific effort to obtain
control of Amazon.com by means of a merger, tender offer or solicitation, or
part of a plan by management to adopt a series of anti-takeover provisions. The
term "fundamental change" is limited to certain specified transactions and may
not include other events that might adversely affect our financial condition or
business operations. Our obligation to offer to redeem the notes upon a
fundamental change would not necessarily afford you protection in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving Amazon.com.
We may be unable to redeem the notes in the event of a fundamental change
of Amazon.com. If a fundamental change were to occur, we may not have enough
funds to pay the redemption price for all tendered notes. In addition, our
senior discount notes indenture also generally prohibits redemptions of the
notes while the senior discount notes are outstanding. Any future credit
agreements or other agreements relating to our indebtedness may contain similar
provisions, or expressly prohibit our repurchase of the notes upon a fundamental
change or may provide that a fundamental change constitutes an event of default
under that agreement. If a fundamental change occurs at a time when we are
prohibited from purchasing or redeeming notes, we could seek the consent of our
lenders to redeem the notes or could attempt to refinance this debt. If we do
not obtain a consent, we would not be permitted to purchase or redeem the notes.
Our failure to redeem tendered notes would constitute an event of default under
indenture, which might constitute a default under the terms of our other
indebtedness. In these circumstances, or if a fundamental change would
constitute an event of default under our senior indebtedness, the subordination
provisions of the indenture would restrict payments to the holders of notes. We
have undertaken to publish notice of a fundamental change in Luxembourg as
promptly as practicable following the occurrence of the event. You may effect
your redemption through our agents, including the trustee and Banque
Internationale a Luxembourg.
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SUBORDINATION OF NOTES
Payment on the notes will, to the extent provided in the indenture, be
subordinated in right of payment to the prior payment in full of all our senior
indebtedness. The notes also are effectively subordinated to all debt and other
liabilities, including trade payables and lease obligations, if any, of our
subsidiaries. The notes will rank equally with our outstanding Convertible
Notes. The aggregate principal amount of such notes is $1.25 billion.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of and interest on
the notes will be subordinated in right of payment to the prior payment in full
in cash or other payment satisfactory to the holders of senior indebtedness of
all senior indebtedness. In the event of any acceleration of the notes because
of an event of default, the holders of any senior indebtedness would be entitled
to payment in full in cash or other payment satisfactory to such holders of all
senior indebtedness obligations before the holders of the notes are entitled to
receive any payment or distribution. The indenture requires us or the trustee to
promptly notify holders of designated senior indebtedness if payment of the
notes is accelerated because of an event of default.
We may not make any payment on the notes, including upon redemption at the
option of the holder of any note or at our option, if:
- a default in the payment of the principal, premium, if any, interest,
rent or other obligations in respect of designated senior indebtedness
occurs and is continuing beyond any applicable period of grace (called a
"payment default"); or
- a default other than a payment default on any designated senior
indebtedness occurs and is continuing that permits holders of designated
senior indebtedness to accelerate its maturity, and the trustee receives
a notice of such default (called a "payment blockage notice") from us or
any other person permitted to give such notice under the indenture
(called a "non-payment default").
We may resume payments and distributions on the notes:
- in the case of a payment default, upon the date on which such default is
cured or waived or ceases to exist; and
- in the case of a non-payment default, the earlier of the date on which
such nonpayment default is cured or waived or ceases to exist and 179
days after the date on which the payment blockage notice is received by
the trustee, if the maturity of the designated senior indebtedness has
not been accelerated.
No new period of payment blockage may be commenced pursuant to a payment
blockage notice unless 365 days have elapsed since the initial effectiveness of
the immediately prior payment blockage notice and all scheduled payments of
principal, premium and interest, including any liquidated damages, on the notes
that have come due have been paid in full in cash. No non-payment default that
existed or was continuing on the date of delivery of any payment blockage notice
shall be the basis for any later payment blockage notice unless the non-payment
default is based upon facts or events arising after the date of delivery of such
payment blockage notice.
If the trustee or any holder of the notes receives any payment or
distribution of our assets in contravention of the subordination provisions on
the notes before all senior indebtedness is paid in full in cash, property or
securities, including by way of set-off, or other payment satisfactory to
holders of senior indebtedness, then such payment or distribution will be held
in trust for the benefit of holders of senior indebtedness or their
representatives to the extent necessary to make payment in full in cash or
payment satisfactory to the holders of senior indebtedness of all unpaid senior
indebtedness.
In the event of our bankruptcy, dissolution or reorganization, holders of
senior indebtedness may receive more, ratably, and holders of the notes may
receive less, ratably, than our other creditors (including our trade creditors).
This subordination will not prevent the occurrence of any event of default under
the indenture.
We have significant indebtedness. As of December 31, 1999, we had
approximately $900.7 million of indebtedness that constituted senior
indebtedness. We may incur substantial additional debt in the future.
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We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the notes. The
trustee's claims for these payments will generally be senior to those of
noteholders in respect of all funds collected or held by the trustee.
CERTAIN DEFINITIONS
"designated senior indebtedness" shall mean any of our outstanding senior
indebtedness that expressly provides that such senior indebtedness shall be
"designated senior indebtedness" for purposes of the indenture, provided, that
the instrument or agreement creating or evidencing such senior indebtedness may
place limitations and conditions on the right of senior indebtedness to exercise
the rights of designated senior indebtedness.
"senior indebtedness" means the principal, premium, if any, interest,
including any interest accruing after bankruptcy, and rent or termination
payment on or other amounts due on our current or future indebtedness, whether
created, incurred, assumed, guaranteed or in effect guaranteed by us, including
any deferrals, renewals, extensions, refundings, amendments, modifications or
supplements to the above. However, senior indebtedness does not include:
- indebtedness that expressly provides that it shall not be senior in right
of payment to the notes or expressly provides that it is on the same
basis or junior to the notes;
- our indebtedness to any of our majority-owned subsidiaries; and
- the notes.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following will be events of default under the indenture:
- we fail to pay principal or premium, if any, upon redemption or otherwise
on the notes, whether or not the payment is prohibited by subordination
provisions;
- we fail to pay any interest on the notes, whether or not the payment is
prohibited by subordination provisions of the indenture, for 30 days;
- we fail to perform or observe any of the covenants in the indenture for
60 days after notice; or
- certain events involving bankruptcy, insolvency or reorganization of
Amazon.com.
The trustee may withhold notice to the holders of the notes of any default,
except defaults in payment of principal or interest on the notes. However, the
trustee must consider it to be in the interest of the holders of the notes to
withhold this notice.
If an event of default occurs and continues, the trustee or the holders of
at least 25% in principal amount of the outstanding notes may declare the
principal, premium, and accrued interest and liquidated damages, if any, on the
outstanding notes to be immediately due and payable. In case of certain events
of bankruptcy or insolvency involving Amazon.com, the principal, premium and
accrued interest and liquidated damages, if any, on the notes will automatically
become due and payable. However, if we cure all defaults, except the nonpayment
of principal or interest that became due as a result of the acceleration, and
meet certain other conditions, with certain exceptions, this declaration may be
cancelled and the holders of a majority of the principal amount of outstanding
notes may waive these past defaults. Payment of principal, premium, or interest
on the notes that are not made when due will accrue interest at the annual rate
set forth on the cover page of this prospectus supplement from the required
payment date.
The holders of a majority of outstanding notes will have the right to
direct the time, method and place of any proceedings for any remedy available to
the trustee, subject to limitations specified in the indenture.
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No holder of the notes may pursue any remedy under the indenture, except in
the case of a default in the payment of principal, premium or interest on the
notes, unless:
- the holder has given the trustee written notice of an event of default;
- the holders of at least 25% in principal amount of outstanding notes make
a written request, and offer reasonable indemnity, to the trustee to
pursue the remedy;
- the trustee does not receive an inconsistent direction from the holders
of a majority in principal amount of the notes; and
- the trustee fails to comply with the request within 60 days after
receipt.
NOTICES
We will send all notices to holders by mail to the registered holder. We
will also publish all such notices in a daily newspaper of general circulation
in Luxembourg so long as our notes are listed on the Luxembourg Stock Exchange.
We expect that publication will be made in Luxembourg in the Luxemburger Wort.
We will deem any notice to have been made on the date such notice was first
published. We have undertaken to publish any change in the Luxembourg paying
agent in Luxembourg in the manner stipulated above so long as our notes are
listed on the Luxembourg Stock Exchange.
MODIFICATION OF THE INDENTURE
The consent of the holders of a majority in principal amount of the
outstanding notes is required to modify or amend the indenture. However, a
modification or amendment requires the consent of the holder of each outstanding
note if it would:
- extend the fixed maturity of any note;
- reduce the rate or extend the time for payment on interest of any note;
- reduce the principal amount of any note;
- reduce any amount payable upon redemption of any note;
- adversely change our obligation to redeem any note upon a fundamental
change;
- impair the right of a holder to institute suit for payment on any note;
- change the currency in which any note is payable;
- impair the right of a holder to convert any note;
- adversely modify the subordination provisions of the indenture; or
- reduce the percentage of notes required for consent to any modification
of the indenture.
We are permitted to modify certain provisions of the indenture without your
consent.
INFORMATION CONCERNING THE TRUSTEE AND LUXEMBOURG PAYING AGENT
We have appointed The Bank of New York, the trustee under the indenture, as
paying agent, conversion agent, note registrar and custodian for the notes. The
Bank of New York also acts as trustee for our senior discount notes. We have
appointed Banque Internationale a Luxembourg, 69, route d'Esch, L-2953,
Luxembourg, as our Luxembourg paying and conversion agent.
RATING OF NOTES
We believe it is likely that one or more rating agencies may rate the
notes. However, we cannot assure you whether any such agency or agencies will
rate the notes or, if they do, what rating or ratings they will assign to the
notes. If one or more rating agencies assign the notes a rating lower than that
expected by investors, it could have a material adverse effect on the market
price of the notes and our common stock.
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UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material US federal income tax
consequences relating to the purchase, ownership, and disposition of the notes
and of common stock into which notes may be converted, but does not purport to
be a complete analysis of all the potential tax consequences that may be
material to an investor based on his or her particular tax situation. This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended, or the Code, the applicable Treasury Regulations promulgated or
proposed thereunder, or Treasury Regulations, judicial authority and current
administrative rulings and practice, all of which are subject to change,
possibly on a retroactive basis. This summary deals only with the beneficial
owner of a note or common stock that will hold notes and common stock into which
notes may be converted as "capital assets", within the meaning of Section 1221
of the Code, and does not address tax consequences applicable to US Holders that
may be subject to special tax rules, such as banks, tax-exempt organizations,
pension funds, insurance companies, dealers in securities or foreign currencies,
persons that will hold notes as a position in a hedging transaction, "straddle"
or "conversion transaction" for tax purposes, or persons that have a "functional
currency" other than the US dollar (except as disclosed below under "Non-US
Holders"). This summary discusses the tax consequences applicable to the holders
who purchase the notes at their "issue price" as defined in Section 1273 of the
Code (i.e., the first price at which a substantial portion of the notes is sold
to the public) and generally does not discuss the tax consequences applicable to
subsequent purchasers of the notes. Amazon.com has not sought any ruling from
the Internal Revenue Service, or IRS, with respect to the statements made and
the conclusions reached in the following summary, and there can be no assurance
that the IRS will agree with such statements and conclusions. Due to the unique
characteristics of the notes, the tax consequences of the purchase, ownership or
disposition of the notes is uncertain. INVESTORS CONSIDERING THE PURCHASE OF
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF
THE US FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL
AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
As used herein, the term "US Holder" means a holder of a note or common
stock that is (i) for US federal income tax purposes, a citizen or resident of
the US, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the US or any political subdivision thereof, (iii) an
estate, the income of which is subject to US federal income taxation regardless
of its source, or (iv) (a) a trust, the administration of which is subject to
the primary supervision of a court within the US and which has one or more US
persons with authority to control all substantial decisions, or (b) a trust in
existence on August 20, 1996 and has elected to continue to be treated as a US
trust. As used herein, the term "Non-US Holder" means a holder of a note or
common stock that is not a US Holder.
US HOLDERS
The following is a summary of the principal US federal income tax
consequences resulting from the ownership and disposition of the notes and
common stock by US Holders.
PAYMENT OF INTEREST
Interest on a note generally will be includable in the income of a US
Holder as ordinary income at the time such interest is received or accrued, in
accordance with such US Holder's method of accounting for US federal income tax
purposes. We may be obligated to make a make-whole payment to holders of the
notes in circumstances described under "Description of the Notes -- Withdrawal
of Conversion Rights." According to Treasury Regulations, the possibility of an
additional payment on the notes will not affect the amount or timing of interest
income recognized by a holder if the likelihood of the additional payment, as of
the date the notes are issued, is remote. We believe that the likelihood of
payment of the make-whole payment is remote, and do not intend to treat the
possibility of such payment as affecting the yield to maturity of any note.
However, such belief is not binding on the IRS. Notwithstanding the above, if a
make-whole payment is made, the payment may be treated as income to the holder.
See "Conversion of the Notes."
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A cash basis US Holder receiving an interest payment in euros will be
required to include in income the US dollar value of such payment (determined
using the spot rate in effect on the date such payment is received) regardless
of whether such payment is subsequently converted into US dollars (the
consequences of which are discussed below). No "exchange gain or loss" will be
recognized by a cash basis US Holder with respect to the receipt of such
payment; however, "exchange gain or loss" may be recognized by such US Holder
upon conversion of the euros if the euros are not converted to US dollars on the
date received (the consequences of conversion of euros to US dollars are
discussed below).
An accrual basis US Holder will be required to include in income the US
dollar value of the amount of euro interest income that has accrued on a note in
a taxable year, determined by translating such income at the average rate of
exchange for the relevant interest accrual period or, with respect to an
interest accrual period that spans two taxable years, at the average rate for
the portion of such interest accrual period within the taxable year. The average
rate of exchange for an interest accrual period (or portion thereof) is the
simple average of the spot exchange rates for each business day of such period
(or such other average exchange rate that is reasonably derived and consistently
applied by the holder). An accrual basis US Holder may elect to translate
interest income on a note using the spot rate in effect on the last day of an
interest accrual period (or the last day of the taxable year for the portion of
such period within the taxable year). In addition, a US Holder may elect to use
the spot rate in effect on the date of receipt (or payment) for such purpose if
such date is within five business days of the last date of an interest accrual
period. The election must be made in a statement filed with the taxpayer's
return, and is applicable to all debt instruments for such year and thereafter
unless changed with the consent of the IRS.
Upon receipt of an interest payment on a note, an accrual basis US Holder
will recognize ordinary gain or loss with respect to accrued interest income in
an amount equal to the difference between the US dollar value of the payment
received (determined using the spot rate in effect on the date such payment is
received) in respect of such interest accrual period and the US dollar value of
the interest income that has accrued during such interest accrual period (as
determined in the preceding paragraph). Any such gain or loss generally will not
be treated as interest income or expense, except to the extent provided by
administrative pronouncements of the IRS.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of a note, a US Holder generally will
realize and recognize gain or loss equal to the difference between the amount
realized (except to the extent attributable to accrued and unpaid interest,
which will be taxable as such) on the sale, exchange or redemption (or, if it is
realized in other than US dollars, the US dollar value of the amount using the
spot rate in effect on the date of such sale, exchange or redemption) and the US
Holder's tax basis in such note. For these purposes, the amount realized on the
sale, exchange or redemption of the notes does not include any amount
attributable to accrued but unpaid interest, which will be taxable as such
unless previously taken into account. A US Holder's tax basis in a note
generally will be the US dollar value of the purchase price of such note on the
date of purchase (determined by translating the purchase price into US dollars
at the spot rate in effect on the date of purchase). Except as described below
under "Conversion of the Notes," and except with respect to gains or losses
attributable to changes in exchange rates, as described in the next paragraph,
gain or loss so recognized will be capital gain or loss and will be long-term
capital gain or loss if, at the time of the sale, exchange or redemption, the
note was held for more than one year.
Gain or loss recognized by a US Holder on the sale, exchange or retirement
of a note that is attributable to changes in the rate of exchange between the US
dollar and the euro will be treated as ordinary income or loss and generally
will not be treated as interest income or expense except to the extent provided
by administrative pronouncements of the IRS. Such foreign currency gain or loss
is recognized on the sale or retirement of a note only to the extent of total
gain or loss recognized on the sale of retirement of such note.
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TRANSACTIONS IN EUROS
Euros received as interest on, or on the sale or retirement of, a note will
have a tax basis equal to their US dollar value at the time such interest is
received or at the time payment is received in consideration of such sale or
retirement. The amount of gain or loss recognized on a sale or other disposition
of such euros will be equal to the difference between (i) the amount of US
dollars, or the fair market value in US dollars of the other currency or
property received in such sale or other disposition, and (ii) the tax basis of
such euros.
A US Holder that purchases a note with previously owned euros would
recognize gain or loss in an amount equal to the difference, if any, between
such US Holder's tax basis in such euros and the US dollar fair market value of
such note on the date of purchase. Generally, any such gain or loss will be
ordinary income or loss and will not be treated as interest income or expense,
except to the extent provided by administrative pronouncements of the IRS.
CONSTRUCTIVE DIVIDENDS ON NOTES
If at any time (i) Amazon.com makes a distribution of cash or property to
its stockholders or purchases common stock and such distribution or purchase
would be taxable to such stockholders as a dividend for US federal income tax
purposes (e.g., distributions of evidences of indebtedness or assets of
Amazon.com, but generally not stock dividends or rights to subscribe for common
stock) and, pursuant to the anti-dilution provisions, the conversion price of
the notes is decreased, or (ii) the conversion price of the notes is decreased
at the discretion of Amazon.com, such decrease in conversion price may be deemed
to be a stock distribution to US Holders (pursuant to Section 305 of the Code).
In addition, although Amazon.com believes this should not be the case, it is
possible that the Market Price Adjustment may be treated as a deemed stock
distribution (see "Description of the Notes -- Conversion of Notes.") The value
of the deemed distribution only will be taxable as a dividend to the extent of
Amazon.com's current and accumulated earnings and profits as of the year of
distribution. Any dividend resulting from a deemed distribution could give rise
to a withholding obligation of Amazon.com. See "-- Non-US Holders -- Dividends,"
below.
CONVERSION OF THE NOTES
A US Holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock, except with respect to (i) gain or loss
recognized by a US Holder attributable to changes in the rate of exchange
between the US dollar and the euro (as discussed below), and (ii) cash received
in lieu of a fractional share of common stock. However, if upon conversion a US
Holder receives a make-whole payment, the make-whole payment may be taxable to
the holder as additional gain or as ordinary income (possibly as interest or
dividends), or if we have no current or accumulated earnings and profits,
perhaps as a return of capital. A US Holder's tax basis in the common stock
received on conversion of a note will be the same as such US Holder's adjusted
tax basis in the note at the time of conversion, increased by the amount of gain
recognized (or decreased by the amount of loss recognized) attributable to
changes in the rate of exchange between the US dollar and the euro, and reduced
by any basis allocable to a fractional share interest. The holding period for
the common stock received on conversion will generally include the holding
period of the note converted.
Upon a conversion of a note, a US holder will recognize gain or loss with
respect to the principal amount of the note so converted, determined by
subtracting the US dollar value of the purchase price of the note on the date
the note was purchased (determined by translating the purchase price of the note
into US dollars at the spot rate in effect on the date of purchase) from the US
dollar value of the purchase price of the note on the date the note is converted
into common stock (determined by translating the purchase price of the note into
US dollars at the spot rate in effect on the conversion date). Such foreign
currency gain or loss is recognized on the conversion of a note (despite the
fact that the conversion price will not change as a result of increases or
decreases in the value of euros against the US dollar) only to the extent of
total gain or loss realized on the conversion of the note. Any such gain or loss
will be treated as ordinary. Accrued but unpaid interest, if any, will be
treated as described above under "Payment of Interest."
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Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the US Holder's adjusted
tax basis in the fractional share).
DIVIDENDS ON COMMON STOCK
Generally, distributions will be treated as a dividend, subject to tax as
ordinary income, to the extent of Amazon.com's current or accumulated earnings
and profits as of the year of distribution, then as a tax-free return of capital
to the extent of the US Holder's tax basis in the common stock and thereafter as
gain from the sale of exchange of such stock.
In general, a dividend distribution to a corporate US Holder may qualify
for the 70% dividends received deduction if the US Holder owns less than 20% of
the voting power and value of our stock (other than any non-voting,
non-convertible, non-participating preferred stock). A corporate US Holder that
owns 20% or more of the voting power and value of our stock (other than any
nonvoting, non-convertible, non-participating preferred stock) generally will
qualify for an 80% dividends received deduction.
SALE OF COMMON STOCK
Upon the sale or exchange of common stock, a US Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (ii) such US Holder's adjusted tax basis in the common stock. Such
capital gain or loss will be long-term if the US Holder's holding period is more
than one year and will be short-term if the holding period is equal to or less
than one year. In the case of certain noncorporate taxpayers, including
individuals, long-term capital gains are taxed at a maximum rate of 20% and
short-term capital gains are taxed at a maximum rate of 39.6%. A US Holder's
basis and holding period in common stock received upon conversion of a note are
determined as discussed above under "Conversion of the Notes." Corporate
taxpayers are subject to a maximum regular tax rate of 35% on all capital gains
and ordinary income.
NON-US HOLDERS
The following discussion is a summary of the principal US federal income
and estate tax consequences resulting from the ownership of the notes or common
stock by Non-US Holders.
PAYMENT OF INTEREST
Subject to the discussion below of backup withholding, interest paid on the
notes to a Non-US Holder generally will not be subject to US federal income tax
if: (i) such interest is not effectively connected with the conduct of a trade
or business within the US by such Non-US Holder; (ii) the Non-US Holder does not
actually or constructively own 10% or more of the total voting power of all
classes of our stock and is not a controlled foreign corporation that is related
to us through stock ownership (for this purpose, the holder of notes would be
deemed to own constructively the common stock into which it could be converted);
(iii) the beneficial owner, under penalty of perjury, certifies that the owner
is not a US person and provides the owner's name and address; and (iv) the
interest is not considered a contingent interest. If certain requirements are
satisfied, the certification described in clause (iii) above may be provided by
a securities clearing organization, a bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business.
Under Treasury Regulations, which generally are effective for payments made
after December 31, 2000, subject to certain transition rules, the certification
described in clause (iii) above may also be provided by a qualified intermediary
on behalf of one or more beneficial owners (or other intermediaries), provided
that such intermediary has entered into a withholding agreement with the IRS and
certain other conditions are met. A holder that is not exempt from tax under
these rules will be subject to US federal income tax withholding at a rate of
30%, unless the interest is effectively connected with the conduct of a US trade
or business, in which case the interest will be subject to the US federal income
tax on net income that applies to US persons generally (and, with respect to
corporate holders and under certain circumstances, the branch
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profits tax), or unless a lower treaty rate a treaty applies. Non-US Holders
should consult applicable income tax treaties, which may provide different
rules.
CONVERSION OF THE NOTES
A Non-US Holder generally will not be subject to US federal income tax on
the conversion of a note into shares of common stock. To the extent a Non-US
Holder receives cash in lieu of a fractional share on conversion, such cash may
give rise to gain that would be subject to the rules described below with
respect to the sale or exchange of a note or common stock. In addition, if upon
conversion a Non-US Holder receives a make-whole payment, the make-whole payment
may be taxable to the holder as additional gain or as ordinary income (possibly
as interest or dividends subject to withholding), or if we have no current or
accumulated earnings and profits, perhaps as a return of capital.
DIVIDENDS
Subject to the discussion below of backup withholding, dividends, if any,
paid on the common stock to a Non-US Holder generally will be subject to a 30%
US federal withholding tax, subject to reduction for Non-US Holders eligible for
the benefits of certain income tax treaties. Dividends for this purpose may
include stock distributions treated as deemed dividends as discussed in "US
Holders -- Constructive Dividends on Notes" above. We do not believe that a
reset of the conversion price as described under "Description of Notes -- Reset
of Conversion Price" should be treated as a deemed stock distribution; however,
in the event such a reset were treated as a deemed stock distribution, we had
current or accumulated earnings and profits in the year of the reset and we did
not withhold taxes from Non-U.S. Holders, we would be liable for unpaid
withholding taxes, as well as interest, and possibly penalties. Currently, for
purposes of determining whether tax is to be withheld at the 30% rate or at a
reduced treaty rate, we will ordinarily presume that dividends paid to an
address in a foreign country are paid to a resident of such country absent
knowledge that such presumption is not warranted. Under Treasury Regulations
effective for payments after December 31, 2000, holders will be required to
satisfy certain certification requirements to claim treaty benefits. Except to
the extent otherwise provided under an applicable tax treaty, a Non-US Holder
generally will be taxed in the same manner as a US Holder on dividends paid (or
deemed paid) that are effectively connected with the conduct of a trade or
business in the US by the Non-US Holder. If such Non-US Holder is a foreign
corporation, it may also be subject to a US branch profits tax on such
effectively connected income at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
GAIN ON DISPOSITION OF THE NOTES AND COMMON STOCK
A Non-US Holder generally will not be subject to US federal income tax on
gain realized on the sale, exchange or redemption of a note, or the sale or
exchange of common stock, unless (i) in the case of an individual Non-US Holder,
such holder is present in the US for 183 days or more in the year of such sale,
exchange or redemption and certain other requirements are met, (ii) the Non-US
Holder is subject to tax pursuant to the provisions of US tax law applicable to
certain US expatriates, (iii) the gain is effectively connected with the conduct
of a US trade or business of the Non-US Holder, or (iv) in the case of the
disposition of common stock, Amazon.com is a US real property holding
corporation. Amazon.com does not believe that it is a US real property holding
corporation as of the date hereof, although it has not determined or established
whether it is now or will be a US real property holding corporation. If
Amazon.com is or becomes a US real property holding corporation, so long as the
common stock continues to be regularly traded on an established securities
market, only a Non-US Holder who actually or constructively owns or owned (at
any time during the shorter of the five year period preceding the date of
disposition or the Non-US Holder's holding period) more than five percent of the
common stock will be subject to US federal income tax on the disposition of the
common stock. Any Non-US Holder that may approach or exceed 5% ownership, either
alone or in conjunction with related persons, should consult its own tax advisor
concerning the US tax consequences that may result.
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US FEDERAL ESTATE TAX
A note held by an individual who at the time of death is not a citizen or
resident of the US (as specially defined for US federal estate tax purposes)
will not be subject to US federal estate tax if the individual did not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of Amazon.com and, at the time of the individual's death,
payments with respect to such note would not have been effectively connected
with the conduct by such individual of a trade or business in the US. Common
stock held by an individual who at the time of death is not a citizen or
resident of the US (as specially defined for US federal estate tax purposes)
will be included in such individual's estate for US federal estate tax purposes,
unless an applicable estate tax treaty otherwise applies.
BACKUP WITHHOLDING AND INFORMATION REPORTING
US HOLDERS
A US Holder of notes or common stock may be subject to "backup withholding"
at a rate of 31% with respect to certain "reportable payments," including
interest payments, dividend payments and, under certain circumstances, principal
payments on the notes. These backup withholding rules apply if the US Holder,
among other things, (i) fails to furnish a social security number or other
taxpayer identification number ("TIN") certified under penalties of perjury
within a reasonable time after the request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report properly interest or dividends or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such US Holder is
not subject to backup withholding. A US Holder who does not provide Amazon.com
with its correct TIN may also be subject to penalties imposed by the IRS. Any
amount withheld from a payment to a holder under the backup withholding rules is
creditable against the holder's federal income tax liability. Backup withholding
will not apply, however, with respect to payments made to certain US Holders,
including corporations and tax-exempt organizations, provided their exemption
from backup withholdings is properly established. We will report to US Holders
of notes and common stock and to the IRS the amount of any "reportable payments"
for each calendar year and the amount of tax withheld, if any, with respect to
such payments.
NON-US HOLDERS
Amazon.com must report annually to the IRS and to each Non-US Holder the
amount of any dividends paid to, and tax withheld with respect to, such holder,
regardless of whether any tax was actually withheld. Copies of these information
returns may also be made available under the provisions of a specific treaty or
agreement to the tax authorities of the country in which the Non-US Holder
resides.
Under current Treaty Regulations, backup withholding and information
reporting will not apply to payments of principal on the notes by us or our
agent to a Non-US Holder if the Non-US Holder certifies as to its Non-US Holder
status under penalties of perjury or otherwise establishes an exemption
(provided that neither we nor our agent has actual knowledge that the holder is
a US person or that the conditions of any other exemptions are not in fact
satisfied). The payment of the proceeds on the disposition of notes or shares of
common stock to or through the US office of a US or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-US Holder of notes or shares
of common stock to or through a foreign office of a broker generally will not be
subject to backup withholding or information reporting. However, if such broker
is a US person, a controlled foreign corporation for US tax purposes, or a
foreign person, 50% or more of whose gross income from all sources for certain
periods is from activities that are effectively connected with a US trade or
business, information reporting requirements, but not backup withholding, will
apply unless such broker has documentary evidence in its files of the holder's
Non-US status and has no actual knowledge to the contrary or unless the holder
otherwise establishes an exemption.
New Treasury Regulations, which we refer to as the New Regulations, would
modify the application of information reporting requirements and the backup
withholding tax requirements applicable to Non-US
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Holders for reportable payments made after December 31, 2000. In general, the
New Regulations do not significantly alter the current substantive withholding
and information reporting requirements but unify current certification
procedures and forms and clarify reliance standards. Under the New Regulations,
special rules apply which permit the shifting of primary responsibility for
withholding to certain financial intermediaries acting on behalf of beneficial
owners. A holder of a note or common stock that is received upon the conversion
of a note should consult with its tax advisor regarding the application of the
backup withholding rules to its particular situation, the availability of an
exemption therefrom, the procedure for obtaining such an exemption, if
available, and the impact of the New Regulations on payments made with respect
to the notes or shares of common stock received upon the conversion of the notes
after December 31, 2000.
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CERTAIN INDEBTEDNESS
THE SENIOR DISCOUNT NOTES
In May 1998, we issued $530 million of 10% Senior Discount Notes due 2008
pursuant to an indenture among Amazon.com and The Bank of New York, as trustee.
PRINCIPAL, MATURITY AND INTEREST
The Senior Discount Notes are our unsecured unsubordinated obligations, and
mature on May 1, 2008. Interest on the Senior Discount Notes accrues at the rate
of 10% per annum, payable semi-annually on May 1 and November 1 of each year,
commencing November 1, 2003. Until November 1, 2003, the Senior Discount Notes
will accrete in value. In 1999, Amazon.com repurchased 50.2% of outstanding
Senior Discount Notes. Net of repurchase, on November 1, 2003 the Senior
Discount Notes will have an accreted value of $264 million.
OPTIONAL REDEMPTION
The Senior Discount Notes will be redeemable at our option, in whole or in
part, at any time or from time to time, on or after May 1, 2003 at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest, if any, to the redemption date, 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>
In addition, at any time prior to May 1, 2001, we may redeem up to 35% of
the aggregate principal amount of the Senior Discount Notes with the net
proceeds of one or more sales of certain types of its stock at a redemption
price of 110%, plus accrued and unpaid interest, if any, to the redemption date;
provided that at least 65% of the Senior Discount Notes initially issued remain
outstanding.
CHANGE OF CONTROL
Upon a Change of Control (as defined in the Senior Notes Indenture), we
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 we 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).
RANKING
The indebtedness evidenced by the Senior Discount Notes ranks pari passu in
right of payment with all of our existing and future unsubordinated indebtedness
and senior in right of payment to all our existing and future subordinated
indebtedness.
COVENANTS
The Senior Notes Indenture restricts, among other things, our ability to
incur additional indebtedness, pay dividends or make certain other restricted
payments, incur certain liens to secure indebtedness, or engage in merger
transactions. There are significant "carve-outs" and exceptions to these
covenants.
CONVERTIBLE SUBORDINATED NOTES
In February 1999, we completed an offering of approximately $1.25 billion
of the 4 3/4% Convertible Notes due 2009.
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PRINCIPAL, MATURITY AND INTEREST
Interest payments on the Convertible Notes of 4 3/4% per annum are due and
payable semiannually in arrears in cash on February 1 and August 1 of each year,
commencing August 1, 1999.
RANKING
The Convertible Notes are unsecured and are subordinated to all existing
and future Senior Indebtedness, as defined in the indenture governing the
Convertible Notes.
CONVERSION
The Convertible Notes are generally convertible into our common stock,
unless redeemed or repaid prior to maturity, at a conversion price of $78.028
per share.
REDEMPTION
We may redeem Convertible Notes, in whole or in part, at any time prior to
February 6, 2002, at a redemption price equal to $1,000 per Convertible Note to
be redeemed plus accrued and unpaid interest, if any, to the date of redemption
if (1) the closing price of our common stock shall have exceeded 150% of the
conversion price then in effect for at least 20 trading days in any consecutive
30-trading day period and (2) the shelf registration statement covering resales
of the Convertible Notes and our common stock issuable upon conversion of the
Convertible Notes is effective and available for use and is expected to remain
effective and available for use for the 30 days following the date of
redemption. Upon any redemption, we will make an additional payment in cash with
respect to the Convertible Notes called for redemption in an amount equal to
$212.60 per $1,000 Convertible Note, less the amount of any interest actually
paid on such Convertible Note prior to the call for redemption. We must make
these payments on all of the Convertible Notes called for redemption, including
Convertible Notes called after the date of the call for redemption.
After February 6, 2002, the Convertible Notes will be redeemable on at
least 30 days' notice at our option, in whole or in part, at any time, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the redemption date, if redeemed during
the 12-month period commencing February 1 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003...................................................... 102.850%
2004...................................................... 102.375%
2005...................................................... 101.900%
2006...................................................... 101.425%
2007...................................................... 101.950%
2008...................................................... 100.475%
2009...................................................... 100.000%
</TABLE>
FUNDAMENTAL CHANGE
Upon occurrence of any Fundamental Change, as defined in the Convertible
Notes Indenture, prior to the maturity of the Convertible Notes, each holder of
the Convertible Notes has the right to require us to redeem all or any part of
the holder's Convertible Notes at a price equal to 100% of the principal amount,
plus any accrued interest, of the Convertible Notes being redeemed.
REGISTRATION
We have on file with the Securities and Exchange Commission an effective
registration statement covering resales of the Convertible Notes and our common
stock issuable upon conversion of the Convertible Notes.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 1,500,000,000 shares of common
stock, $0.01 par value per share, and 150,000,000 shares of preferred stock,
$0.01 par value per share. The following summary of certain provisions of our
common stock and preferred stock does not purport to be complete and is subject
to, and qualified in its entirety by, the provisions of our Restated Certificate
of Incorporation.
Common Stock. The holders of common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferences that may be applicable to any outstanding shares of preferred
stock, the holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. In the event of a liquidation,
dissolution or winding up of Amazon.com, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive rights or rights to convert their
common stock into any other securities. There are no redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common stock to be
issued upon conversion of the notes will be fully paid and nonassessable.
Preferred Stock. Pursuant to our Restated Certificate of Incorporation, the
Board of Directors has the authority, without further action by the
stockholders, to issue up to 150,000,000 shares of preferred stock in one or
more series and to fix the designations, powers, preferences, privileges and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of our common stock. The Board of
Directors, without stockholder approval, can issue Preferred stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of common stock. Preferred stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
Amazon.com or make removal of management more difficult. Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of our common stock, and may adversely affect the voting and other rights of the
holders of common stock. Amazon.com has no plans to issue any preferred stock.
Antitakeover Effects of Washington and Delaware Law. The laws of
Washington, where our principal executive offices are located, impose
restrictions on certain transactions between certain foreign corporations and
significant stockholders. Chapter 23B.19 of the Washington Business Corporation
Act, or WBCA, prohibits a "Target Corporation," with certain exceptions, from
engaging in certain "Significant Business Transactions" with a person or group
of persons which beneficially owns 10% or more of the voting securities of the
Target Corporation, referred to as an Acquiring Person, for a period of five
years after such acquisition, unless the transaction or acquisition of shares is
approved by a majority of the members of the Target Corporation's board of
directors prior to the time of acquisition. Prohibited transactions include,
among other things, a merger or consolidation with, disposition of assets to, or
issuance or redemption of stock to or from, the Acquiring Person, termination of
5% or more of the employees of the Target Corporation as a result of the
Acquiring Person's acquisition of 10% or more of the shares or allowing the
Acquiring Person to receive disproportionate benefit as a stockholder. After the
five year period a Significant Business Transaction may take place as long as it
complies with certain fair price provisions of the statute or is approved at an
annual or special meeting of stockholders. A Target Corporation includes a
foreign corporation if (i) the corporation has a class of voting stock
registered pursuant to Section 12 or 15 of the Securities Exchange Act of 1934,
as amended, (ii) the corporation's principal executive office is located in
Washington, (iii) any of (a) more than 10% of the corporation's stockholders of
record are Washington residents, (b) more than 10% of its shares of record are
owned by Washington residents or (c) 1,000 or more of its stockholders of record
are Washington residents, (iv) a majority of the corporation's employees are
Washington residents or more than 1,000 Washington residents are employees of
the corporation and (v) a majority of the corporation's tangible assets are
located in Washington or the corporation has more than $50 million of tangible
assets located in Washington. A corporation may not "opt out" of this statute.
If Amazon.com meets the definition of a Target Corporation, Chapter 23B.19 of
the WBCA may have the effect of delaying, deferring or preventing a change of
control of Amazon.com.
S-66
<PAGE> 66
Although Section 203 of the Delaware General Corporation Law, or the
"DGCL," generally prohibits Delaware corporations from engaging in certain
"Business Combinations" with "Interested Stockholders" for a period of three
years unless certain criteria are met, Amazon.com has expressly elected in its
Restated Certificate of Incorporation not to be governed by Section 203 of the
DGCL.
Registration Rights. Pursuant to an agreement among Amazon.com, Mr. Bezos,
who is the holder of 117,524,337 shares of common stock, and certain holders of
up to 4,816,512 shares of common stock converted from Series A preferred stock,
Mr. Bezos and these former holders of preferred stock are entitled to certain
rights with respect to the registration of their shares under the Securities
Act. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders, Mr. Bezos and these former holders of preferred stock are entitled to
notice of such registration and to include shares of common stock in such
registration at our expense. Additionally, these former holders of preferred
stock are entitled to demand registration rights pursuant to which they may
require Amazon.com to file a registration statement under the Securities Act at
our expense with respect to their shares of common stock, and Amazon.com is
required to use its commercially reasonable efforts to effect such registration.
Further, these former holders of preferred stock may require Amazon.com to file
additional registration statements on Form S-3 at the expense of these former
holders of preferred stock. All of these registration rights are subject to
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration.
Transfer Agent and Registrar. The transfer agent and registrar for our
common stock is ChaseMellon Shareholder Services, Ridgefield Park, New Jersey.
Nasdaq National Market Listing. Our common stock is listed on the Nasdaq
National Market under the symbol "AMZN."
S-67
<PAGE> 67
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated February 11, 2000, the underwriters named below have severally
agreed to purchase, and we have agreed to sell to them, severally, the
respective principal amount of notes set forth opposite the names of the
underwriters below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NAME OF NOTES
---- -------------
<S> <C>
Morgan Stanley & Co. International Limited.................. E414,000,000
Credit Suisse First Boston (Europe) Limited................. 138,000,000
Donaldson, Lufkin & Jenrette International.................. 138,000,000
-------------
Total............................................. E690,000,000
=============
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the notes are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the notes
offered hereby if any are taken.
The underwriters initially propose to offer part of the notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
1.5% of the principal amount of the notes.
In order to facilitate the offering of the notes, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the notes or the common stock. Specifically, to stabilize the price of the
notes, the underwriters may bid for, and purchase, the notes or shares of common
stock in the open market. In addition, the underwriters may reclaim selling
concessions allowed to a dealer for distributing the notes in the offering, if
the underwriters repurchase previously distributed notes in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the notes or the common stock above independent market levels.
The underwriters are not required to engage in these activities and may end any
of these activities at any time.
We have made an application to list the notes on the Luxembourg Stock
Exchange.
We and our executive officers and directors have agreed that we will not
(a) offer, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, or (b) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of the common stock, whether any such transaction described in clause
(a) or (b) above is to be settled by delivery of common stock or such other
securities, in cash or otherwise for a 90-day period after the date of this
prospectus supplement, without the prior written consent of Morgan Stanley & Co.
International Limited, except that (A) we may, without such consent, issue
common Stock (1) upon the exercise of outstanding stock options or warrants or
upon the conversion of any other security outstanding on the date of this
prospectus supplement and may grant options to employees, directors and
consultants of our company provided such options are not exercisable during such
90-day period or (2) in connection with acquisitions of businesses or portions
thereof, provided the parties receiving common stock in any such acquisition
agree to be bound by the foregoing restrictions, and (B) beginning February 21,
2000 certain executive officers and directors may sell or otherwise dispose of
an aggregate of 600,000 shares of common stock without such consent.
Each underwriter agrees that (1) it has not offered or sold the notes to
any person in the UK prior to admission of the notes to listing in accordance
with Part IV of the Financial Services Act 1986, except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which will not result in
S-68
<PAGE> 68
an offer to the public in the UK within the meaning of the Public Offers of
Securities Regulations 1995 or the Financial Services Act 1986; (2) it has
complied with and will comply with all applicable provisions of the Financial
Services Act 1986 in respect of anything done in relation to the notes in, from
or otherwise involving, the UK; and (3) it has only issued or passed on and will
only issue or pass on in the UK any document received by it in connection with
the issue of the notes, other than any document which consists of, or is a part
of, listing particulars, supplementary listing particulars or any other document
required or permitted to be published by listing rules under Part IV of the
Financial Securities Act, to a person who is a kind described in Article 11(3)
of the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996, or is a person to whom such document may otherwise lawfully be
issued or passed on.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the underwriters may be required to make in respect
thereof.
Certain of the underwriters have engaged in transactions with and performed
various investment banking and other services for our company in the past and
may do so from time to time in the future. The underwriters have agreed to
reimburse us for certain of our expenses in connection with this offering.
LEGAL MATTERS
Certain legal matters will be passed upon for Amazon.com by Gibson, Dunn &
Crutcher LLP, San Francisco, California. Certain legal matters will be passed
upon for the underwriters by Shearman & Sterling, Menlo Park, California.
INDEPENDENT AUDITORS
The consolidated financial statements of Amazon.com as of December 31, 1997
and December 31, 1998 and for each of the three years in the period ended
December 31, 1998 included in this prospectus supplement have been audited by
Ernst & Young LLP, independent auditors, as stated in their report appearing
herein.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission which may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W, Washington,
D.C. 20459. Such reports, proxy statements and other information filed by the
Company also are available for inspection and copying at the Commission's
Regional Offices located at: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511; and at Seven World Trade Center, 13th Floor,
New York, New York 10048-1102. Such material may also be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
Amazon's common stock is quoted on the Nasdaq National Market under the symbol
"AMZN." Reports, proxy statements and other information concerning Amazon can be
inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W, Washington, D.C. 20006.
We have made an application to list the notes on the Luxembourg Stock
Exchange. In connection with the listing application, our Restated Certificate
of Incorporation and bylaws, and a legal notice relating to the issuance of the
notes will be deposited prior to listing with Banque Internationale a
Luxembourg, where copies may be obtained upon request. Copies of the above
documents, together with this prospectus supplement, the accompanying
prospectus, the indenture, the form of underwriting agreement and the documents
incorporated herein by reference, so long as any notes are outstanding and
listed on the Luxembourg Stock Exchange, will be made available for inspection
at the main offices of Banque Internationale a Luxembourg. Banque Internationale
a Luxembourg will act as intermediary between the Luxembourg Stock Exchange, us
and the holders of the notes, as long as the notes are represented by global
notes. Copies of the reports referred to
S-69
<PAGE> 69
above may be obtained free of charge at Banque Internationale a Luxembourg's
office at 69, route d'Esch, L-2953, Luxembourg.
Other than as disclosed or contemplated herein or in the documents
incorporated herein by reference, there has been no material adverse change in
our financial position since February 2, 2000.
Our independent auditors are Ernst & Young LLP, Seattle, Washington.
Other than as disclosed or contemplated in the documents incorporated in
this prospectus supplement and the accompanying prospectus by reference, neither
we nor any of our subsidiaries is involved in litigation, arbitration or
administrative proceedings relating to claims or amounts that are material in
the context of the issue of the notes and we are not aware of any such
litigation, arbitration or administrative proceedings pending or threatened.
Resolutions relating to the issue and sale of the notes were adopted by our
Board of Directors on February 6, 2000.
The notes, the indenture and the underwriting agreement are governed by,
and shall be construed in accordance with, the laws of the State of New York,
United States of America, applicable to agreements made and to be performed
wholly within such jurisdiction.
The notes have been assigned Euroclear and Clearstream Common Code No.
010795141, International Security Identification Numbers (ISIN) US023135AG10 and
CUSIP No. 023135AG1.
S-70
<PAGE> 70
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
December 31, 1998
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
September 30, 1999 (Unaudited)
Interim Consolidated Balance Sheets (Unaudited)............. F-21
Interim Consolidated Statements of Operations (Unaudited)... F-22
Interim Consolidated Statements of Cash Flows (Unaudited)... F-23
Notes to Interim Consolidated Financial Statements
(Unaudited)............................................... F-24
</TABLE>
F-1
<PAGE> 71
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Amazon.com, Inc.
We have audited the accompanying consolidated balance sheets of Amazon.com,
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amazon.com,
Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
January 22, 1999, except for Note 11
as to which the date is February 10, 1999
F-2
<PAGE> 72
AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $ 25,561 $ 1,876
Marketable securities..................................... 347,884 123,499
Inventories............................................... 29,501 8,971
Prepaid expenses and other................................ 21,308 3,363
-------- --------
Total current assets.............................. 424,254 137,709
Fixed assets, net........................................... 29,791 9,726
Deposits and other.......................................... 626 169
Goodwill and other purchased intangibles, net............... 186,377 --
Deferred charges............................................ 7,412 2,240
-------- --------
Total assets...................................... $648,460 $149,844
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $113,273 $ 33,027
Accrued advertising....................................... 13,071 3,454
Other liabilities and accrued expenses.................... 34,547 6,570
Current portion of long-term debt......................... 684 1,500
-------- --------
Total current liabilities......................... 161,575 44,551
Long-term debt.............................................. 348,077 76,521
Long-term portion of capital lease obligation............... 63 181
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares -- 10,000
Issued and outstanding shares -- none..................... -- --
Common stock, $0.01 par value:
Authorized shares -- 300,000
Issued and outstanding shares -- 159,267 and 144,909
shares in 1998 and 1997, respectively.................. 1,593 1,449
Additional paid-in capital.................................. 300,130 66,586
Note receivable from officer for common stock............... (1,099) --
Deferred compensation....................................... (1,625) (1,930)
Accumulated other comprehensive income...................... 1,806 --
Accumulated deficit......................................... (162,060) (37,514)
-------- --------
Total stockholders' equity........................ 138,745 28,591
-------- --------
Total liabilities and stockholders' equity........ $648,460 $149,844
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 73
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net sales................................................. $ 609,996 $147,787 $ 15,746
Cost of sales............................................. 476,155 118,969 12,287
--------- -------- --------
Gross profit......................................... 133,841 28,818 3,459
Operating expenses:
Marketing and sales..................................... 133,023 40,486 6,090
Product development..................................... 46,807 13,916 2,401
General and administrative.............................. 15,799 7,011 1,411
Merger and acquisition related costs, including
amortization of goodwill and other purchased
intangibles.......................................... 50,172 -- --
--------- -------- --------
Total operating expenses........................ 245,801 61,413 9,902
--------- -------- --------
Loss from operations...................................... (111,960) (32,595) (6,443)
Interest income........................................... 14,053 1,901 202
Interest expense.......................................... (26,639) (326) (5)
--------- -------- --------
Net interest income (expense)........................ (12,586) 1,575 197
--------- -------- --------
Net loss.................................................. $(124,546) $(31,020) $ (6,246)
========= ======== ========
Basic and diluted loss per share.......................... $ (0.84) $ (0.24) $ (0.06)
========= ======== ========
Shares used in computation of basic and diluted loss per
share................................................... 148,172 130,341 111,271
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 74
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED ADVANCES NOTE RECEIVABLE
STOCK COMMON STOCK RECEIVED FOR ADDITIONAL FROM OFFICER
--------------- ---------------- COMMON PAID-IN FOR DEFERRED
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL COMMON STOCK COMPENSATION
------ ------ ------- ------ ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996.................... -- $-- 87,331 $1,075 $150 $ -- $ -- $ --
Net loss................ -- -- -- -- -- -- -- --
Reincorporation in
Delaware.............. -- -- -- (201) -- 201 -- --
Sale of preferred stock,
net of $30 issuance
costs................. 569 6 -- -- -- 7,964 -- --
Sale of common stock.... -- -- 5,043 50 (150) 136 -- --
Issuance of capital
stock................. -- -- 17 -- -- 11 -- --
Exercise of common stock
options............... -- -- 3,027 30 -- 165 -- --
Deferred compensation
related to stock
options............... -- -- -- -- -- 612 -- (612)
---- -- ------- ------ ---- -------- ------- -------
Balance at December 31,
1996.................... 569 6 95,418 954 -- 9,089 -- (612)
Net loss................ -- -- -- -- -- -- -- --
Sale of preferred
stock................. 5 -- -- -- -- 200 -- --
Public stock offering,
net of $4,897 issuance
costs................. -- -- 18,000 180 -- 48,923 -- --
Conversion of preferred
stock into common
stock................. (574) (6) 20,678 207 -- (201) -- --
Issuance of common stock
for fixed assets and
accrued product
development........... -- -- 1,350 13 -- 1,487 -- --
Issuance of capital
stock................. -- -- 1,270 13 -- 3,989 -- --
Exercise of common stock
options............... -- -- 8,193 82 -- 427 -- --
Deferred compensation
related to stock
options............... -- -- -- -- -- 2,741 -- (2,741)
Amortization of deferred
compensation related
to stock options...... -- -- -- -- -- (69) -- 1,423
---- -- ------- ------ ---- -------- ------- -------
Balance at December 31,
1997.................... -- -- 144,909 1,449 -- 66,586 -- (1,930)
Net loss................ -- -- -- -- -- -- -- --
Foreign currency
translation losses.... -- -- -- -- -- -- -- --
Unrealized gain on
marketable
securities............ -- -- -- -- -- -- -- --
Comprehensive loss.......
Issuance of capital
stock................. -- -- 9,025 90 -- 225,534 -- --
Exercise of common stock
options............... -- -- 5,333 54 -- 5,929 -- --
Note receivable from
officer for common
stock................. -- -- -- -- -- -- (1,099) --
Deferred compensation
related to stock
options............... -- -- -- -- -- 2,081 -- (2,081)
Amortization of deferred
compensation related
to stock options...... -- -- -- -- -- -- -- 2,386
---- -- ------- ------ ---- -------- ------- -------
Balance at December 31,
1998.................... -- $-- 159,267 $1,593 $ -- $300,130 $(1,099) $(1,625)
==== == ======= ====== ==== ======== ======= =======
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
INCOME DEFICIT EQUITY
------------- ----------- -------------
<S> <C> <C> <C>
Balance at January 1,
1996.................... $ -- $ (248) $ 977
Net loss................ -- (6,246) (6,246)
Reincorporation in
Delaware.............. -- -- --
Sale of preferred stock,
net of $30 issuance
costs................. -- -- 7,970
Sale of common stock.... -- -- 36
Issuance of capital
stock................. -- -- 11
Exercise of common stock
options............... -- -- 195
Deferred compensation
related to stock
options............... -- -- --
------ --------- ---------
Balance at December 31,
1996.................... -- (6,494) 2,943
Net loss................ -- (31,020) (31,020)
Sale of preferred
stock................. -- -- 200
Public stock offering,
net of $4,897 issuance
costs................. -- -- 49,103
Conversion of preferred
stock into common
stock................. -- -- --
Issuance of common stock
for fixed assets and
accrued product
development........... -- -- 1,500
Issuance of capital
stock................. -- -- 4,002
Exercise of common stock
options............... -- -- 509
Deferred compensation
related to stock
options............... -- -- --
Amortization of deferred
compensation related
to stock options...... -- -- 1,354
------ --------- ---------
Balance at December 31,
1997.................... -- (37,514) 28,591
---------
Net loss................ -- (124,546) (124,546)
Foreign currency
translation losses.... (35) -- (35)
Unrealized gain on
marketable
securities............ 1,841 -- 1,841
---------
Comprehensive loss....... (122,740)
---------
Issuance of capital
stock................. -- -- 225,624
Exercise of common stock
options............... -- -- 5,983
Note receivable from
officer for common
stock................. -- -- (1,099)
Deferred compensation
related to stock
options............... -- -- --
Amortization of deferred
compensation related
to stock options...... -- -- 2,386
------ --------- ---------
Balance at December 31,
1998.................... $1,806 $(162,060) $ 138,745
====== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 75
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(124,546) $ (31,020) $(6,246)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 9,692 3,442 296
Amortization of deferred compensation related to stock
options.............................................. 2,386 1,354 --
Non-cash merger and acquisition related costs, including
amortization of goodwill and other purchased
intangibles.......................................... 47,065 -- --
Non-cash interest expense............................... 23,970 64 --
Changes in operating assets and liabilities:
Inventories............................................. (20,513) (8,400) (554)
Prepaid expenses and other.............................. (16,465) (3,034) (315)
Deposits and other...................................... (293) (21) (148)
Accounts payable........................................ 78,674 30,172 2,756
Accrued advertising..................................... 9,617 2,856 598
Other liabilities and accrued expenses.................. 21,448 5,274 1,603
--------- --------- -------
Net cash provided by (used in) operating activities..... 31,035 687 (2,010)
INVESTING ACTIVITIES
Maturities of marketable securities....................... 332,084 4,311 --
Purchases of marketable securities........................ (546,509) (122,385) (5,233)
Purchases of fixed assets................................. (28,333) (7,603) (1,335)
Acquisitions, dispositions, and investments in
businesses.............................................. (19,019) -- --
--------- --------- -------
Net cash used in investing activities........... (261,777) (125,677) (6,568)
FINANCING ACTIVITIES
Net proceeds from initial public offering................. -- 49,103 --
Proceeds from exercise of stock options................... 5,983 509 195
Proceeds from issuance of capital stock................... 8,383 3,746 8,443
Proceeds from long-term debt.............................. 325,987 75,000 --
Repayment of long-term debt............................... (78,108) (47) --
Financing costs........................................... (7,783) (2,309) --
--------- --------- -------
Net cash provided by financing activities....... 254,462 126,002 8,638
Effect of exchange rate changes........................... (35) -- --
--------- --------- -------
Net increase in cash...................................... 23,685 1,012 60
Cash at beginning of period............................... 1,876 864 804
--------- --------- -------
Cash at end of period..................................... $ 25,561 $ 1,876 $ 864
========= ========= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Common stock issued in connection with acquisitions....... $ 217,241 $ -- $ --
Common stock issued for fixed assets and accrued product
development............................................. $ -- $ 1,500 $ --
Fixed assets acquired under capital lease................. $ -- $ 442 $ --
Fixed assets acquired under financing agreement........... $ -- $ 3,021 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 76
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
Description of Business
Amazon.com, Inc. ("Amazon.com" or the "Company"), an Internet retailer, was
incorporated in July 1994 and opened its virtual doors on the Web in July 1995.
Amazon.com offers book, music CD, video, DVD, computer game and other titles on
its Web sites.
Business Combinations and Investments
For business combinations which have been accounted for under the purchase
method of accounting, the Company includes the results of operations of the
acquired business from the date of acquisition. Net assets of the companies
acquired are recorded at their fair value at the date of acquisition. 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.
Other business combinations are accounted for under the pooling of
interests method of accounting. In such cases, the assets, liabilities and
stockholders' equity of the acquired entities are combined with the Company's
respective accounts at recorded values. The consolidated financial statements
reflect the restatement of all periods presented to include the accounts of
merged entities accounted for under the pooling of interests method of
accounting. The historical results of the pooled entities reflect each of their
actual operating cost structures and, as a result, do not necessarily reflect
the cost structure of the newly combined entity. The historical results do not
purport to be indicative of future results.
Investments in affiliated entities in which the Company has the ability to
exercise significant influence of an investee, generally a 20% or greater
ownership interest of the voting stock, are accounted for under the equity
method of accounting. Under the equity method of accounting, the Company's share
of the investee's earnings or loss is included in consolidated operating
results.
All other investments, for which the Company does not have the ability to
exercise significant influence, are accounted for under the cost method of
accounting. Dividends and other distributions of earnings from other investees,
if any, are included in income when declared. The Company periodically evaluates
the carrying value of its investments accounted for under the cost method of
accounting and as of December 31, 1998, such investments were recorded at the
lower of cost or estimated net realizable value.
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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Marketable Securities
The Company's marketable securities consist primarily of high-quality
short- to intermediate-term fixed income securities and money market mutual
funds, 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 accumulated other comprehensive income. Unrealized
losses are charged against income when a decline in
F-7
<PAGE> 77
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fair value is determined to be other than temporary. 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.
Inventories
Inventories are valued at the lower of cost or market. The Company
purchases a majority of its products from three major vendors, Ingram Book Group
("Ingram"), Baker & Taylor, Inc. and Valley Media Inc. In late 1998, Barnes &
Noble announced an agreement to purchase Ingram. Ingram is the Company's single
largest supplier and accounted for approximately 40% and approximately 60% of
the Company's inventory purchases in 1998 and 1997, respectively. The Company
does not have long-term contracts or arrangements with most of its vendors to
guarantee the availability of merchandise, particular payment terms or the
extension of credit limits. The Company's current vendors may stop selling
merchandise to the Company on acceptable terms. The Company may not be able to
acquire merchandise from other suppliers in a timely and efficient manner and on
acceptable terms.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and
amortization, which includes the amortization of assets recorded under capital
leases. Fixed assets are depreciated on a straight-line basis over the estimated
useful lives of the assets (generally one to ten years). Fixed assets purchased
under capital leases are amortized on a straight-line basis over the lesser of
the estimated useful life of the asset or the lease term.
Goodwill and Other Purchased Intangibles
Goodwill and other purchased intangibles represent the excess of the
purchase price over the fair value of assets acquired. Total goodwill of
approximately $215.7 million and other purchased intangibles of approximately
$13.3 million are stated net of total accumulated amortization of $42.6 million
at December 31, 1998 in the accompanying balance sheet. Goodwill and
substantially all other purchased intangibles are being amortized on a
straight-line basis over lives ranging from two to three years.
Long-Lived Assets
In accordance with Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standard ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the carrying
value of intangible assets and other long-lived assets is reviewed on a regular
basis for the existence of facts or circumstances, both internally and
externally, that may suggest impairment. To date, no such impairment has been
indicated. Should there be an impairment in the future, the Company will measure
the amount of the impairment based on undiscounted expected future cash flows
from the impaired assets. The cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary assumptions and
projections at the time.
Fair Value of Financial Instruments
The carrying amounts for the Company's cash, prepaid expenses and other,
deposits and other, accounts payable, accrued advertising, and other liabilities
and accrued expenses approximate fair value. The fair market value for long-term
debt and marketable securities is based on quoted market prices where available.
F-8
<PAGE> 78
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred Charges
In May 1998, the Company issued approximately $326 million gross proceeds
of 10% Senior Discount Notes due 2008 (the "Senior Discount Notes"). At December
31, 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.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered.
Revenue Recognition
The Company recognizes revenue from product sales, net of any discounts,
when the products are shipped to customers. Outbound shipping and handling
charges are included in net sales. Revenue from gift certificates is recognized
upon product shipment following redemption. The Company provides an allowance
for sales returns, which has been insignificant, based on historical experience.
Advertising Costs
The cost of advertising is expensed as incurred. For the years ended
December 31, 1998, 1997 and 1996, the Company incurred advertising expense of
$60.2 million, $21.2 million and $3.4 million, respectively.
Product Development
Product development expenses consist principally of payroll and related
expenses for development, editorial, systems and telecommunications operations
personnel and consultants, systems and telecommunications infrastructure and
costs of acquired content. To date, all product development costs have been
expensed as incurred.
Merger and Acquisition Related Costs
Merger and acquisition related costs consist primarily of amortization of
goodwill and other purchased intangibles of approximately $42.6 million, as well
as approximately $7.6 million, composed primarily of equity in loss of investee
and other merger and acquisition related costs.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by SFAS No. 123, Accounting for Stock-
Based Compensation. APB No. 25 provides that the compensation expense relative
to the Company's employee stock options is measured based on the intrinsic value
of the stock option. SFAS No. 123 requires companies that continue to follow APB
No. 25 to provide a pro forma disclosure of the impact of applying the fair
value method of SFAS No. 123.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency. Assets and liabilities of the foreign subsidiaries are translated into
U.S. dollars at year end exchange rates, and revenues and expenses are
translated at average rates prevailing during the year. Translation adjustments
are included in accumulated other comprehensive income, a separate component of
stockholders' equity. Transaction gains
F-9
<PAGE> 79
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and losses arising from transactions denominated in a currency other than the
functional currency of the entity involved, which have been insignificant, are
included in the consolidated statements of operations. To date, the Company has
entered into no foreign currency exchange contracts or other such derivative
instruments.
Segment and Geographic Information
The Company operates in one principal business segment across domestic and
international markets. International sales, including export sales from the
United States, represented approximately 20%, 25%, and 33% of net sales for the
years ended December 31, 1998, 1997 and 1996, respectively. No foreign country
or geographic area accounted for more than 10% of net sales in any of the
periods presented. There were no transfers between geographic areas during the
years ended December 31, 1998 and 1997. Substantially all of the domestic
operating results and identifiable assets are in the United States.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of its holdings of cash and
marketable securities. The Company's credit risk is managed by investing its
cash and marketable securities in high-quality money market instruments and
securities of the U.S. government and its agencies, foreign governments and
high-quality corporate issuers. At December 31, 1998, the Company has no
significant concentrations of credit risk.
Earnings (Loss) Per Share
Basic earnings per share excludes any dilutive effects of options, warrants
and convertible securities. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common and
common stock equivalent shares outstanding during the period. Common equivalent
shares are excluded from the computation if their effect is antidilutive.
As a result of the Company's initial public offering in May 1997, all
preferred stock automatically converted into common stock. Accordingly, the 1997
and 1996 net loss per share is a pro forma loss per share based on the weighted
average number of shares of common stock outstanding and preferred stock on an
"as if" converted basis outstanding during each period. The Company believes
that this is a more meaningful presentation of earnings per share for periods
prior to its initial public offering.
Comprehensive Income (Loss)
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for the reporting and display
of comprehensive income and its components in the financial statements. The only
items of comprehensive income (loss) that the Company currently reports are
unrealized gains (losses) on marketable securities and foreign currency
translation adjustments.
New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires all costs
related to the development of internal use software other than those incurred
during the application development stage to be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. SOP 98-1 is
effective for the Company's fiscal year ending December 31, 1999. Adoption is
not expected to have a material effect on the Company's consolidated financial
statements as the Company's policies are substantially in compliance with SOP
98-1.
F-10
<PAGE> 80
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 is
effective for the Company's fiscal year ending December 31, 1999. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. Adoption is not expected to have a material effect on the Company's
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. The Company does
not expect that the adoption of SFAS No. 133 will have a material impact on its
consolidated financial statements because the Company does not currently hold
any derivative instruments.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
NOTE 2 -- BUSINESS COMBINATIONS AND INVESTMENTS
In April 1998, the Company acquired all of the outstanding capital stock of
three international Internet companies. The aggregate purchase price of the
three acquisitions, plus related charges, was approximately $55 million. The
consideration for the acquisitions was comprised of common stock and cash. The
Company issued an aggregate of approximately 3.2 million shares of common stock
to effect the transactions. The goodwill and other purchased intangibles are
being amortized on a straight-line basis over two years.
In August 1998, the Company acquired all the outstanding capital stock of
Junglee Corp. ("Junglee"). Junglee is a leading provider of Web-based virtual
database technology which allows visitors to access a variety of products sold
by other merchants. The Company issued approximately 4.7 million shares of
common stock and assumed all outstanding options and warrants in connection with
the acquisition of Junglee. The Junglee acquisition was accounted for under the
purchase method of accounting, with substantially all of the approximately $180
million purchase price allocated to goodwill and other purchased intangibles.
The goodwill and substantially all other purchased intangible assets are being
amortized on a straight-line basis over lives averaging approximately three
years. In November 1998, the Company sold the employment business unit of
Junglee in exchange for cash and approximately 1.7 million shares of the
purchaser's common stock. There was no gain or loss recorded from this sale. The
investment is recorded at cost and is classified within marketable securities in
the accompanying consolidated balance sheet.
The pro forma combined consolidated financial information for the aggregate
of all the business combinations described above and accounted for under the
purchase method of accounting, as though the acquisitions had occurred on
January 1 of each year, would have resulted in net sales of $615.0 million and
$155.8 million; net loss of $171.6 million and $118.7 million; and basic and
diluted loss per share of $1.12 and $0.86 for the years ended December 31, 1998
and 1997, respectively. The pro forma net loss includes amortization of goodwill
and purchased intangibles of $83.0 million for the years ended December 31, 1998
and 1997. This unaudited pro forma combined consolidated financial information
is presented for illustrative purposes only and is not necessarily indicative of
the consolidated results of operations in future periods or the results that
actually would have been realized had Amazon.com, the international subsidiaries
and Junglee been a combined company during the specified periods.
In August 1998, the Company exchanged common stock and options for all of
the outstanding capital stock of Sage Enterprises, Inc. ("PlanetAll"). The
Company issued approximately 2.4 million shares of common stock and assumed all
outstanding options in connection with the merger. The PlanetAll merger was
accounted for as a pooling of interests and, as a result, the Company's
consolidated financial statements have been restated for all periods presented.
PlanetAll issued approximately 167,000 shares of capital stock for
F-11
<PAGE> 81
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
proceeds of approximately $1.0 million and approximately 896,000 shares of
capital stock for proceeds of approximately $7.4 million in January 1998 and
April 1998, respectively.
Net sales for PlanetAll were not significant and net loss was $4.1 million,
$3.4 million and $469,000 for the nine months ended September 30, 1998 and the
years ended December 31, 1997 and 1996, respectively, which represent separate
results of the combined entity through the periods preceding the merger. There
were no significant intercompany transactions between the two companies and no
significant conforming accounting adjustments.
As of December 31, 1998, the Company has an investment of approximately 46%
in drugstore.com, inc., an online drugstore, that is accounted for under the
equity method of accounting. The Company's basis in its equity investment is
classified within other purchased intangibles in the accompanying consolidated
balance sheet and the Company's share of the investee's loss is classified in
merger and acquisition related costs, including amortization of goodwill and
other purchased intangibles. To date, this investment has not materially
impacted the Company's results of operations or its financial position.
NOTE 3 -- MARKETABLE SECURITIES
The following tables summarize by major security type the Company's
marketable securities and their contractual maturities:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial paper and short-term
obligations........................... $114,158 $ 22 $ -- $114,180
Corporate notes and bonds............... 51,242 112 (3) 51,351
Asset-backed and agency securities...... 83,611 98 (140) 83,569
Treasury notes and bonds................ 88,952 230 (169) 89,013
Equity securities....................... 8,080 1,691 -- 9,771
-------- ------ ----- --------
$346,043 $2,153 $(312) $347,884
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due within one year.................................... $121,411 $121,454
Due after one year through five years.................. 132,941 133,090
Asset-backed and agency securities with various
maturities........................................... 83,611 83,569
Equity securities...................................... 8,080 9,771
-------- --------
$346,043 $347,884
======== ========
</TABLE>
The gross realized gains and losses on sales of available-for-sale
securities were not significant for the year ended December 31, 1998. The net
adjustment to unrealized holding gains on available-for-sale securities included
in accumulated other comprehensive income as a component of stockholders' equity
totaled approximately $1.8 million.
At December 31, 1997, marketable securities consist primarily of commercial
paper and short-term obligations and corporate notes and bonds and were carried
at cost, which approximates market. Unrealized holding gains and losses at
December 31, 1997 were not significant.
F-12
<PAGE> 82
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- FIXED ASSETS
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Computers and equipment..................................... $33,061 $ 7,562
Purchased software.......................................... 4,547 4,560
Leasehold improvements...................................... 5,535 926
Leased assets............................................... 442 442
------- -------
43,585 13,490
Less accumulated depreciation and amortization.............. 13,794 3,764
------- -------
Fixed assets, net......................................... $29,791 $ 9,726
======= =======
</TABLE>
NOTE 5 -- LONG-TERM DEBT
SENIOR DISCOUNT NOTES
In May 1998, the Company completed the offering of approximately $326
million gross proceeds of the Senior Discount Notes due May 1, 2008. Pursuant to
a registration statement on Form S-4 in September 1998, the Company completed an
exchange offer of 10% Senior Discount Notes due 2008 (the "Exchange Notes"),
which were registered under the Securities Act of 1933, as amended, for all
outstanding Senior Discount Notes. The Exchange Notes have identical terms in
all material respects to the terms of the original Senior Discount Notes, except
that the Exchange Notes generally are freely transferable (the Exchange Notes
are referred to throughout these notes to consolidated financial statements
interchangeably with the Senior Discount Notes). The Exchange Notes were issued
under the indenture governing the original Senior Discount Notes (the
"Indenture"). 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, plus accrued interest, if any, to the date of redemption.
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. The Company was in compliance with
all financial covenants at December 31, 1998.
A portion of the net proceeds from the offering of the Senior Discount
Notes was used to retire approximately $75 million of indebtedness outstanding
as of December 31, 1997. Future principal payments related to the Senior
Discount Notes do not commence until 2008. The carrying amount of the Senior
Discount Notes is approximately $347.2 million as of December 31, 1998, which
approximates fair value.
F-13
<PAGE> 83
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financing Agreement for Purchase of Fixed Assets
In November 1997, the Company purchased fixed assets through a financing
agreement with a vendor having an imputed interest rate of approximately 7.7%
and a term of three years. The debt is to be repaid in four equal payments.
Future debt payments related to this financing agreement are $684,000 and
$837,000 for the years ending December 31, 1999 and 2000, respectively, and none
thereafter.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Leases and Marketing Agreements
The Company currently leases office and distribution center facilities and
fixed assets under noncancelable operating and capital leases. Rental expense
under operating lease agreements for 1998, 1997 and 1996 was $8.5 million, $2.1
million and $270,000, respectively.
The Company has also entered into certain marketing agreements, which
include fixed fees through 2000. The costs associated with these agreements are
recognized on a systematic basis over the term of the related agreements as
services are received.
Future minimum commitments are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES AND
CAPITAL MARKETING
LEASES AGREEMENTS
------- ----------
(IN THOUSANDS)
<S> <C> <C>
YEAR ENDED DECEMBER 31,
1999.............................................. $145 $ 47,626
2000.............................................. 62 37,718
2001.............................................. -- 11,615
2002.............................................. -- 6,077
2003.............................................. -- 4,712
Thereafter........................................ -- 27,081
---- --------
Total minimum lease payments........................... $207 $134,829
========
Less imputed interest.................................. 20
----
Present value of net minimum lease payments............ 187
Less current portion.............................. 124
----
Long-term capital lease obligation..................... $ 63
====
</TABLE>
Legal Proceedings
In October 1998, Wal-Mart Stores, Inc. ("Wal-Mart") filed a lawsuit in
Bentonville, Arkansas against the Company and other defendants alleging actual
and threatened misappropriation of trade secrets and ancillary common-law
claims. Wal-Mart subsequently requested a temporary restraining order preventing
the defendants from misappropriating Wal-Mart's alleged trade secrets, from
placing employees in positions in which they would "inevitably disclose"
Wal-Mart's alleged trade secrets and from soliciting, inducing or recruiting
Wal-Mart employees. In January 1999, Wal-Mart filed an identical action in
Seattle, Washington, and the Arkansas court dismissed Wal-Mart's action on
jurisdictional grounds before deciding the temporary restraining order. The
dismissal is pending appeal. Wal-Mart has advised the Company that it will file
a preliminary injunction motion. In addition to injunctive relief, Wal-Mart has
requested compensatory damages, pre- and postjudgment interest and attorneys'
fees and costs. The Company believes that Wal-Mart's claims are without merit
and intends to vigorously defend against the plaintiffs' claims.
F-14
<PAGE> 84
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amazon.com has filed a counterclaim based in part on unfair competition and
intentional interference. Litigation is inherently uncertain, and there can be
no assurance that the Company will prevail in the lawsuit.
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 operating results.
NOTE 7 -- STOCKHOLDERS' EQUITY
Reincorporation and Authorized Capital
In May 1996, the Company reincorporated in the state of Delaware with
authorized capital of 5 million shares of $0.01 par value preferred stock and 25
million shares of $0.01 par value common stock. In April 1997, the Company
increased its authorized common stock to 100 million shares and increased its
authorized preferred stock to 10 million shares. In June 1998, the Company
increased the number of authorized shares of common stock, from 100 million
shares to 300 million shares. The accompanying consolidated financial statements
have been restated to reflect these recapitalizations.
Preferred Stock
In June 1996, the Company issued 569,396 shares of Series A convertible
preferred stock at a price of $14.05 per share. In January and February 1997,
the Company sold an additional 5,000 shares of Series A preferred stock at $40
per share. The preferred stock was convertible into common stock at the option
of the holder, at any time, at an effective rate of 36 shares of common stock
for one share of preferred stock. As of the closing of the Company's initial
public offering, all of the preferred stock outstanding was converted into an
aggregate of 20,678,256 shares of common stock.
Common Stock
On November 23, 1996, the Company effected a 4-for-1 common stock split. On
April 18, 1997, the Company effected a 3-for-2 common stock split. On May 15,
1997, the Company completed an initial public offering of 18 million shares of
its common stock. Net proceeds to the Company aggregated $49.1 million. On June
1, 1998, the Company effected a 2-for-1 stock split in the form of a stock
dividend to stockholders of record on May 20, 1998. On January 4, 1999, the
Company effected a 3-for-1 stock split in the form of a stock dividend to the
stockholders of record on December 18, 1998. Accordingly, the accompanying
consolidated financial statements have been restated to reflect these stock
splits.
Stock Option Plans
The Company's stock option plans consist of the 1997 Stock Option Plan and
the 1994 Stock Option Plan. Shares reserved under the plans consist of 36.0
million shares in the 1997 Stock Option Plan and 28.8 million shares in the 1994
Stock Option Plan. Any shares of common stock available for issuance under the
1994 Stock Option Plan that are not issued under that plan may be added to the
aggregate number of shares available for issuance under the 1997 Stock Option
Plan. In connection with the acquisition of Junglee and the merger with
PlanetAll in August 1998, the Company assumed outstanding options to purchase
common stock originally issued under these companies' stock option plans. The
Company's stock options plans as well as the assumed stock option plans are
hereby collectively referred to as the "Plans."
Generally, options are granted by the Company's Board of Directors at an
exercise price of not less than the fair market value of the Company's common
stock at the date of grant. Each outstanding option granted prior to December
20, 1996 has a term of five years from the date of vesting. Each outstanding
option granted
F-15
<PAGE> 85
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
on or subsequent to December 20, 1996 has a term of ten years from the date of
grant. Subject to Internal Revenue Service limitations, options granted under
the Plans generally become exercisable immediately. Options generally vest at
the rate of 20% after year one, 20% after year two and 5% at the end of each
quarter for years three through five. Shares issued upon exercise of options
that are unvested are restricted and subject to repurchase by the Company upon
termination of employment or services and such restrictions lapse over the
original vesting schedule. At December 31, 1998, approximately 3.9 million
shares of restricted common stock were subject to repurchase.
Stock Option Activity
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-
OF AVERAGE
SHARES EXERCISE PRICE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Balance January 1, 1996........................... 10,616 $ 0.024
Options granted and assumed..................... 15,600 0.102
Options canceled................................ (3,172) 0.046
Options exercised............................... (3,027) 0.065
------
Balance December 31, 1996......................... 20,017 0.075
Options granted and assumed..................... 18,060 2.295
Options canceled................................ (2,552) 0.539
Options exercised............................... (8,193) 0.063
------
Balance December 31, 1997......................... 27,332 1.502
Options granted and assumed..................... 19,774 25.468
Options canceled................................ (3,768) 8.098
Options exercised............................... (5,333) 1.108
------
Balance December 31, 1998......................... 38,005 $13.375
======
</TABLE>
At December 31, 1998, 12.8 million shares of common stock were available
for future grant under the Plans.
F-16
<PAGE> 86
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about options outstanding and
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE -------------------------------
REMAINING WEIGHTED- WEIGHTED-
RANGE OF OPTIONS CONTRACTUAL AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- -------------- ----------- -------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
$ 0.029 -- $ 0.111 5,744 5.1 years $ 0.082 5,204 $ 0.083
0.167 -- 0.778 6,397 8.0 years 0.432 5,499 0.426
1.232 -- 4.021 4,959 8.4 years 2.141 3,714 2.157
4.094 -- 12.271 5,502 9.0 years 8.128 3,850 7.902
12.563 -- 17.875 7,303 9.3 years 14.599 5,675 14.679
19.604 -- 25.771 781 9.6 years 23.874 443 23.729
26.094 -- 39.479 3,225 9.7 years 33.618 2,383 33.375
39.667 -- 65.729 3,235 9.7 years 43.625 2,112 43.804
67.427 -- 94.479 626 9.9 years 79.702 493 80.068
103.625 -- 114.479 233 9.9 years 107.483 189 107.413
------ ------
$ 0.029 -- $114.479 38,005 8.4 years $ 13.375 29,562 $ 12.410
====== ======
</TABLE>
Deferred Compensation
The Company recorded aggregate deferred compensation of $2.1 million, $2.7
million and $612,000 in 1998, 1997 and 1996, respectively. The amounts recorded
represent the difference between the grant price and the deemed fair value of
the Company's common stock for shares subject to options granted in 1998, 1997
and 1996. Options granted below fair market value and the associated weighted
average exercise price per share were 536,000 and $4.095, 8.3 million and
$0.473, and 9.3 million and $0.133 during the years ended December 31, 1998,
1997 and 1996, respectively. The amortization of deferred compensation is
charged to operations over the vesting period of the options, which is typically
five years. Total amortization recognized in 1998 and 1997 was $2.4 million and
$1.4 million, respectively. No amortization was recognized in 1996.
Pro Forma Disclosure
The Company follows the intrinsic value method in accounting for its stock
options. Had compensation cost been recognized based on the fair value at the
date of grant for options granted in 1998, 1997 and 1996, the pro forma amounts
of the Company's net loss and net loss per share for the years ended December
31, 1998, 1997 and 1996 would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
----------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss -- as reported............................ $(124,546) $(31,020) $(6,246)
Net loss -- pro forma.............................. (194,269) (35,983) (6,278)
Basic and diluted loss per share -- as reported.... $ (0.84) $ (0.24) $ (0.06)
Basic and diluted loss per share -- pro forma...... (1.31) (0.28) (0.06)
</TABLE>
F-17
<PAGE> 87
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value for each option granted was estimated at the date of grant
using a Black-Scholes option pricing model, assuming no expected dividends and
the following weighted-average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Average risk-free interest rates................... 4.7% 6.3% 6.4%
Average expected life (in years)................... 3.0 3.0 3.0
Volatility (1)..................................... 81.6% 50.0% 0.0%
</TABLE>
- ---------------
(1) Options granted prior to the Company's initial public offering and by
PlanetAll prior to its merger with the Company were valued using the minimum
value method and therefore volatility was not applicable.
The weighted-average fair value of options granted during the years 1998,
1997 and 1996 was $19.07, $2.07 and $0.01, respectively, for options granted at
fair market value. The weighted-average fair value of options granted at less
than fair market value during 1998, 1997 and 1996 was $4.61, $0.55 and $0.09,
respectively. Compensation expense recognized in providing pro forma disclosures
may not be representative of the effects on pro forma earnings for future years
because SFAS No. 123 does not apply to stock option grants made prior to 1995.
Common Stock Reserved for Future Issuance
In June 1998, pursuant to a registration statement on Form S-4, the Company
registered 15 million shares of its common stock, which may from time to time be
offered in connection with the acquisition of entities. Such shares may be
issued in exchange for the shares of capital stock (by merger or otherwise),
partnership interests or other assets representing an interest in other
companies or other entities, or in exchange for assets used in or related to the
business of such entities.
At December 31, 1998, common stock reserved for future issuance is as
follows (in thousands):
<TABLE>
<S> <C>
Stock options............................................... 50,853
Shelf registration.......................................... 15,000
------
Total.................................................. 65,853
======
</TABLE>
NOTE 8 -- EARNINGS (LOSS) PER SHARE
The following represents the calculations for net loss per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
----------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss -- as reported.................... $(124,546) $(31,020) $(6,246)
========= ======== =======
Weighted average shares outstanding........ 152,472 126,559 90,795
Pro forma adjustment for preferred stock... -- 9,478 20,498
Weighted average common shares issued
subject to repurchase agreements......... (4,300) (5,696) (22)
--------- -------- -------
Shares used in computation of basic and
diluted loss per share................... 148,172 130,341 111,271
========= ======== =======
Basic and diluted loss per share........... $ (0.84) $ (0.24) $ (0.06)
========= ======== =======
</TABLE>
All of the Company's stock options (see Note 7) are excluded from diluted
loss per share since their effect is antidilutive.
F-18
<PAGE> 88
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES
The Company did not provide any current or deferred United States federal,
state or foreign income tax provision or benefit for any of the periods
presented because it has experienced operating losses since inception. 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.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $207 million related to U.S. federal, foreign and state
jurisdictions. Utilization of net operating loss carryforwards may be subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986, as
amended. Substantially all of these carryforwards will begin to expire at
various times starting in 2011. To the extent that net operating loss
carryforwards, when realized, relate to stock option deductions of approximately
$103 million, the resulting benefits will be credited to stockholders' equity.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards......................... $73,100 $10,800
Depreciation and amortization............................ 7,400 --
Other.................................................... 5,400 2,400
------- -------
Total deferred tax assets......................... 85,900 13,200
Valuation allowance for deferred tax assets.............. (85,900) (13,200)
------- -------
Net deferred tax assets.................................. $ -- $ --
======= =======
</TABLE>
NOTE 10 -- EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute through payroll deductions. The
Company matches employees' contributions at the discretion of the Company's
Board of Directors. To date, the Company has not matched employee contributions
to the 401(k) savings plan.
NOTE 11 -- SUBSEQUENT EVENTS
Convertible Subordinated Notes
On February 3, 1999, the Company completed an offering of $1.25 billion of
4 3/4% Convertible Subordinated Notes due 2009 (the "Convertible Notes"). The
Convertible Notes are convertible into the Company's common stock at a
conversion price of $156.055 per share, subject to adjustment in certain events
and at the holders' option. Interest on the Convertible Notes is payable
semiannually in arrears on February 1 and August 1 of each year, commencing on
August 1, 1999. The Convertible Notes are unsecured and are subordinated to all
existing and future Senior Indebtedness (as defined in the Convertible Notes
indenture) of the Company. The Convertible Notes may be redeemed at the option
of the Company prior to February 6, 2002, in whole or in part, at the redemption
prices set forth in the Convertible Notes indenture. The Company is obligated to
file by May 4, 1999, a shelf registration statement covering resales of the
Convertible Notes and the common stock issuable upon conversion of the
Convertible Notes.
Upon occurrence of any Fundamental Change (as defined in the Convertible
Notes indenture) prior to the maturity of the Convertible Notes, each holder of
the Convertible Notes has the right to require the Company to redeem all or any
part of the holder's Convertible Notes at a price equal to 100% of the principal
amount, plus any accrued interest, of the Convertible Notes being redeemed.
F-19
<PAGE> 89
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has or may use the net proceeds from the offering of the
Convertible Notes 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, capital expenditures,
acquisitions or investments in complementary businesses, products and
technologies and repurchases and retirement of debt.
Authorized Shares
On February 10, 1999, the Board of Directors approved an increase in
authorized shares of common stock and preferred stock, par value $0.01 per
share, from 300 million shares to 1.5 billion shares and from 10 million shares
to 150 million shares, respectively. This increase in authorized shares is
subject to approval by the stockholders at the Company's Annual Meeting on May
20, 1999.
Stock Option Plan
On February 10, 1999, the Board of Directors approved the 1999 Nonofficer
Employee Stock Option Plan, which reserves 20.0 million shares of common stock
available for future issuance.
NOTE 12 -- QUARTERLY RESULTS (UNAUDITED)
The following tables contain selected unaudited Statement of Operations
information for each quarter of 1998 and 1997. The Company believes that the
following information reflects all normal recurring adjustments necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales....................................... $252,893 $153,698 $116,010 $ 87,395
Gross profit.................................... 53,417 34,875 26,216 19,333
Net loss........................................ (46,427) (45,171) (22,579) (10,369)
Basic and diluted loss per share(1)............. $ (0.30) $ (0.30) $ (0.15) $ (0.07)
Shares used in computation of basic and diluted
loss per share................................ 154,389 150,703 146,277 141,318
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales....................................... $ 66,040 $ 37,887 $ 27,855 $ 16,005
Gross profit.................................... 12,913 7,170 5,214 3,521
Net loss........................................ (10,808) (9,647) (7,345) (3,220)
Basic and diluted loss per share................ $ (0.08) $ (0.07) $ (0.06) $ (0.03)
Shares used in computation of basic and diluted
loss per share................................ 139,413 137,595 127,920 116,430
</TABLE>
- ---------------
(1) The sum of quarterly per share amounts may not equal per share amounts
reported for year-to-date periods. This is due to changes in the number of
weighted average shares outstanding and the effects of rounding for each
period.
NOTE 13 -- STOCK SPLIT (UNAUDITED)
A 2-for-1 stock split effected on September 1, 1999 has not been reflected
in the accompanying Consolidated Financial Statements.
F-20
<PAGE> 90
AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 43,149 $ 25,561
Marketable securities..................................... 862,536 347,884
Inventories............................................... 118,793 29,501
Prepaid expenses and other................................ 55,590 21,308
---------- ---------
Total current assets.............................. 1,080,068 424,254
Fixed assets, net........................................... 221,243 29,791
Goodwill, net............................................... 514,098 174,052
Other purchased intangibles, net............................ 189,369 4,586
Investments in equity-method investees...................... 156,157 7,740
Other investments........................................... 40,113 --
Deferred charges and other.................................. 38,751 8,037
---------- ---------
Total assets...................................... $2,239,799 $ 648,460
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 236,711 $ 113,273
Accrued expenses and other current liabilities............ 71,161 34,413
Accrued advertising....................................... 24,567 13,071
Deferred revenue.......................................... 2,411 --
Interest payable.......................................... 10,045 10
Current portion of long-term debt and other............... 12,776 808
---------- ---------
Total current liabilities......................... 357,671 161,575
Long-term debt and other.................................... 1,462,203 348,140
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares -- 150,000
Issued and outstanding shares -- none....................... -- --
Common stock, $0.01 par value:
Authorized shares -- 1,500,000
Issued and outstanding shares -- 339,235 and 318,534 shares
at September 30, 1999 and December 31, 1998,
respectively.............................................. 3,393 3,186
Additional paid-in capital................................ 1,027,655 298,537
Note receivable from officer for common stock............. (1,171) (1,099)
Stock-based compensation.................................. (32,180) (1,625)
Accumulated other comprehensive (loss) income............. (18,957) 1,806
Accumulated deficit....................................... (558,815) (162,060)
---------- ---------
Total stockholders' equity........................ 419,925 138,745
---------- ---------
Total liabilities and stockholders' equity........ $2,239,799 $ 648,460
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 91
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $ 355,777 $153,648 $ 963,797 $356,992
Cost of sales................................. 285,300 118,823 760,998 276,680
--------- -------- --------- --------
Gross profit.................................. 70,477 34,825 202,799 80,312
Operating expenses:
Marketing and sales......................... 86,555 37,454 233,222 84,325
Product development......................... 44,608 13,227 102,298 29,168
General and administrative.................. 18,512 4,951 44,301 10,220
Stock-based compensation.................... 11,789 1,214 16,570 1,591
Amortization of goodwill and other
intangibles.............................. 74,343 17,043 132,394 22,258
Merger and acquisition-related costs........ 1,779 1,943 5,985 2,143
--------- -------- --------- --------
Total operating expenses................. 237,586 75,832 534,770 149,705
--------- -------- --------- --------
Loss from operations.......................... (167,109) (41,007) (331,971) (69,393)
Interest income............................... 12,699 4,755 36,479 9,790
Interest expense.............................. (21,470) (8,419) (66,424) (18,017)
Other income, net............................. 2,159 -- 2,037 --
--------- -------- --------- --------
Net interest expense and other.............. (6,612) (3,664) (27,908) (8,227)
Loss before equity in losses of equity-method
investees................................... (173,721) (44,671) (359,879) (77,620)
Equity in losses of equity-method investees... (23,359) (500) (36,876) (500)
--------- -------- --------- --------
Net loss...................................... $(197,080) $(45,171) $(396,755) $(78,120)
========= ======== ========= ========
Basic and diluted loss per share.............. $ (0.59) $ (0.15) $ (1.23) $ (0.27)
========= ======== ========= ========
Shares used in computation of basic and
diluted loss per share...................... 332,488 301,405 323,064 292,206
========= ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 92
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $ (396,755) $ (78,120)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 22,935 6,182
Amortization of deferred compensation related to stock
options................................................ 16,570 570
Non-cash merger, acquisition, and investment related
costs, including amortization of intangibles and equity
in losses of affiliates................................ 175,255 24,082
Loss on sale of marketable securities................... 6,086 --
Non-cash interest expense............................... 26,116 15,455
----------- ---------
Net cash used in operating activities before changes
in operating assets and liabilities.................. (149,793) (31,831)
Changes in operating assets and liabilities, net of
effects from acquisitions:
Inventories............................................. (89,292) (10,784)
Prepaid expenses and other.............................. (32,685) (12,528)
Accounts payable........................................ 121,771 25,447
Accrued advertising..................................... 11,057 8,403
Interest payable........................................ 10,035 (61)
Other liabilities and accrued expenses.................. 6,526 13,691
----------- ---------
Net cash provided by changes in operating assets and
liabilities, net of effects from acquisitions........ 27,412 24,168
Net cash used in operating activities.............. (122,381) (7,663)
INVESTING ACTIVITIES:
Sales and maturities of marketable securities............. 3,460,139 117,669
Purchases of marketable securities........................ (3,993,422) (315,608)
Purchases of fixed assets................................. (181,859) (18,779)
Acquisitions and investments in businesses................ (222,853) (14,374)
----------- ---------
Net cash used in investing activities.............. (937,995) (231,092)
FINANCING ACTIVITIES:
Proceeds from issuance of capital stock and exercise of
stock options........................................... 36,930 11,325
Proceeds from long-term debt.............................. 1,260,639 325,987
Repayment of long-term debt............................... (184,710) (77,383)
Financing costs........................................... (35,151) (7,783)
----------- ---------
Net cash provided by financing activities.......... 1,077,708 252,146
Effect of exchange rate changes............................. 256 (411)
----------- ---------
Net increase in cash........................................ 17,588 12,980
Cash at beginning of period................................. 25,561 1,876
----------- ---------
Cash at end of period....................................... $ 43,149 $ 14,856
=========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Fixed assets acquired under capital leases.................. $ 25,850 $ --
Fixed assets acquired under financing agreements............ 5,608 --
Stock issued in connection with business acquisitions....... 635,343 217,241
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 93
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of September 30, 1999 have
been prepared by Amazon.com, Inc. ("Amazon.com" or the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC")
for interim financial reporting. These consolidated statements are unaudited
and, in the opinion of management, include all adjustments (consisting of normal
recurring adjustments and accruals) necessary to present fairly the consolidated
balance sheets, consolidated operating results, and consolidated cash flows for
the periods presented in accordance with generally accepted accounting
principles. The consolidated balance sheet at December 31, 1998 has been derived
from the audited consolidated financial statements at that date. Operating
results for the quarter and nine-month periods ended September 30, 1999 may not
be indicative of the results for the year ending December 31, 1999. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with the rules and regulations of the SEC. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements, and accompanying notes, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss, unrealized gains and losses on
marketable securities and foreign currency translation adjustments.
Comprehensive loss was $206.6 million and $44.6 million for the quarters ended
September 30, 1999 and 1998, and $417.5 million and $77.5 million for the
nine-month periods ended September 30, 1999 and 1998, respectively.
RECLASSIFICATIONS
Certain items, including amortization of goodwill and other intangibles,
equity in losses of equity-method investees and stock-based compensation, have
been reclassified compared to the financial statements incorporated by reference
in the accompanying prospectus.
NOTE 2 -- BUSINESS COMBINATIONS AND INVESTMENTS
The Company completed three significant acquisitions during the nine-month
period ended September 30, 1999: e-Niche Incorporated ("Exchange.com"),
Accept.com Financial Services Corporation ("Accept.com"), and Alexa Internet
("Alexa"). Each acquisition was recorded using the purchase method of accounting
under Accounting Principles Board ("APB") Opinion No. 16. The Company issued an
aggregate of approximately 8.0 million shares of common stock to effect the
transactions. The aggregate purchase price of the acquired companies, plus
related charges, was approximately $579.7 million, and was comprised of common
stock and cash. Results of operations for each acquired company have been
included in the financial results of the Company from the closing date of each
transaction forward.
F-24
<PAGE> 94
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In accordance with APB Opinion No. 16, all identifiable assets were
assigned a portion of the cost of the acquired companies (purchase price) on the
basis of their respective fair values. Identifiable intangible assets and
goodwill are included in "Intangibles and other, net" on the accompanying
consolidated balance sheets and are amortized over their estimated useful lives
which approximates 3 years. Intangible assets were identified and valued by
considering the Company's intended use of acquired assets and analysis of data
concerning products, technologies, markets, historical financial performance,
and underlying assumptions of future performance. The economic and competitive
environment in which the Company and the acquired companies operate was also
considered in the valuation analysis. The Company periodically evaluates its
intangible assets for impairment and as of September 30, 1999 no write-downs
have been recorded.
An immaterial portion of the purchase price of the Accept.com and Alexa
transactions attributable to in-process research and development efforts has
been expensed because, at the time of acquisition, technological feasibility had
not been established and no alternative future uses existed. Purchased
in-process research and development was identified and valued through
discussions with the acquired companies' management and the analysis of data
concerning developmental products, their respective stage of development, the
time and resources needed to complete them, their expected income generating
ability, target markets and associated risks.
On May 14, 1999, the Company completed its acquisition of Exchange.com, a
developer of Internet marketplaces and related online communities that bring
together buyers and sellers of rare and hard-to-find items. In connection with
the acquisition, the Company assumed all outstanding Exchange.com stock options
and issued 1,893,944 shares of Amazon.com common stock to acquire all of the
outstanding common shares of Exchange.com. Pursuant to the terms of the
agreement, the purchase price may increase by up to $27.5 million based on the
tenure of certain employees.
On June 9, 1999, the Company completed its acquisition of Accept.com, an
e-commerce company developing technology to simplify person-to-person and
business-to-consumer transactions on the Internet. In connection with the
acquisition, the Company assumed all outstanding Accept.com stock options and
issued 1,755,314 shares of Amazon.com common stock to acquire all of the
outstanding common shares of Accept.com.
On June 10, 1999, the Company completed its acquisition of Alexa, a
developer of a web navigation service that works with Internet browsers to
provide useful information about the sites being viewed and suggests related
sites. In connection with the acquisition, the Company assumed all outstanding
Alexa stock options and issued 4,369,884 shares of Amazon.com common stock to
acquire all of the outstanding common shares of Alexa.
The Company made additional immaterial acquisitions and other investments
during the nine-month period ended September 30, 1999 totaling $298.9 million.
Equity investments are reflected in "Investments in equity-method investees" in
the consolidated balance sheets and are accounted for under the equity method.
The Company's share of affiliates' losses has been included in net loss from the
closing date of the related transactions forward.
In connection with certain acquisitions, the Company has conditioned a
portion of the acquisition consideration on the continued tenure of key
employees. Under generally accepted accounting principles, a portion of this
amount is accounted for as compensation rather than as a component of purchase
price. Consequently, a maximum of $52.7 million in additional consideration
relating to the Company's acquisitions for the nine-month period ended September
30, 1999 may be recorded as compensation expense and classified between
stock-based compensation and merger, acquisition and investment related costs in
the results of operations. Amounts will be "earned" based on tenure of certain
employees and will be recognized as expense over a period of 12 - 36 months.
F-25
<PAGE> 95
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The pro forma consolidated financial information for the nine-month period
ended September 30, 1999 and 1998, determined as if all acquisitions had
occurred on January 1 of each period, would have resulted in net sales of $966.2
million and $358.1 million, net loss of $532.3 million and $296.6 million, and
basic and diluted loss per share of $1.60 and $0.98, respectively. This
unaudited pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the results of operations in future periods or
results that would have been achieved had Amazon.com and the acquired companies
been combined during the specified periods.
NOTE 3 -- MARKETABLE SECURITIES
Marketable securities available-for-sale, at fair value, consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Asset-backed and agency securities.................... $333,529 $ 83,569
Commercial paper and short-term obligations........... 128,139 114,180
Treasury notes and bonds.............................. 218,926 89,013
Corporate notes and bonds............................. 181,942 51,351
Equity securities..................................... -- 9,771
-------- --------
Total marketable securities................. $862,536 $347,884
======== ========
</TABLE>
The Company's marketable securities consist primarily of high quality
short- to intermediate-term fixed income securities and money market mutual
funds. The Company classifies all uninvested funds on deposit with investment
managers as marketable securities, as well as highly liquid investments with
maturities of three months or less. The Company reflects the related cash flows
as investing cash flows in the Consolidated Statements of 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.
At September 30, 1999 and December 31, 1998 the cost of the Company's
marketable securities approximated fair value.
NOTE 4 -- FIXED ASSETS
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Computers, equipment and software..................... $ 68,031 $35,848
Leasehold improvements................................ 29,316 5,535
Leased assets......................................... 50,858 442
Construction/installation in progress................. 108,669 1,760
-------- -------
256,874 43,585
Less accumulated depreciation and amortization........ (35,631) (13,794)
-------- -------
Fixed assets, net........................... $221,243 $29,791
======== =======
</TABLE>
F-26
<PAGE> 96
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 -- GOODWILL AND OTHER PURCHASED INTANGIBLES
Goodwill and other purchased intangibles, arising primarily from business
acquisitions, consists of $664.7 million in goodwill and $213.8 million in
purchased intangibles and other assets, net of accumulated amortization of
$175.0 million as of September 30, 1999. Total net goodwill and other purchased
intangibles were $178.6 million as of December 31, 1998 and were comprised
primarily of goodwill. The Company periodically evaluates its intangible assets
for impairment and as of September 30, 1999 no write-downs have been recorded.
NOTE 6 -- DEFERRED CHARGES
Deferred charges relate to fees and charges resulting from the issuance of
the Company's debt. The net increase in deferred charges relates to the February
1999 issuance of 4 3/4% Convertible Subordinated Notes due 2009, offset by
amortization charges and periodic repurchases of the 10% Senior Discount Notes
due 2003 (see Note 7). Net deferred charges are amortized into interest expense
over the life of the underlying debt.
NOTE 7 -- LONG-TERM DEBT
CONVERTIBLE SUBORDINATED NOTES
On February 3, 1999, the Company completed an offering of $1.25 billion of
4 3/4% Convertible Subordinated Notes due 2009 (the "Convertible Notes"). The
Convertible Notes are convertible into the Company's common stock at the
holders' option at a conversion price of $78.0275 per share, subject to
adjustment in certain events. Interest on the Convertible Notes is payable
semi-annually in arrears on February 1 and August 1 of each year, and commenced
August 1, 1999. The Convertible Notes are unsecured and are subordinated to the
prior payment in full of all of Amazon.com's senior debt and are also
effectively subordinated to all indebtedness and other liabilities of the
Company. Subject to certain conditions, the Convertible Notes may be redeemed at
the option of the Company prior to February 6, 2002, in whole or in part, at the
redemption price of $1,000 per note, plus accrued and unpaid interest, if the
closing price for the Company's common stock has exceeded 150% of the conversion
price for at least 20 trading days within a period of 30 consecutive trading
days ending on the trading day prior to the date of mailing of the notice of
redemption. Upon any redemption made prior to February 6, 2002, the Company will
also make an additional cash payment with respect to the Convertible Notes
called for redemption in an amount equal to $212.60 per $1,000 note redeemed,
less the amount of any interest actually paid on such Convertible Notes prior to
the call for redemption. At any time on and after February 6, 2002, the Company
may redeem the Notes, in whole or in part, at the redemption prices set forth in
the Convertible Notes indenture.
Upon the occurrence of a "fundamental change" (as defined in the
Convertible Notes indenture) prior to the maturity of the Convertible Notes,
each holder thereof shall have the right to require Amazon.com to redeem all or
any part of such holder's Convertible Notes at a price equal to 100% of the
principal amount of the notes being redeemed, together with accrued interest.
SENIOR DISCOUNT NOTES
In May 1998, the Company completed the offering of approximately $530
million aggregate principal amount of 10% Senior Discount Notes due 2003 (the
"Senior Discount Notes") for aggregate gross proceeds of approximately $326
million. 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 principal amount at maturity. From and after May 1, 2003, the
Senior Discount Notes will bear interest of a rate of 10% per annum payable in
cash on each May 1 and November 1.
F-27
<PAGE> 97
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During the nine-month period ended September 30, 1999 the Company
repurchased $266.0 million (face amount) of the Senior Discount Notes,
representing accreted value of $178.4 million. As of September 30, 1999, the
remaining face amount outstanding was $264.0 million.
NOTE 8 -- STOCKHOLDERS' EQUITY
On January 4, 1999, the Company effected a three-for-one stock split to
stockholders of record on December 18, 1998; and on September 1, 1999, the
Company effected a two-for-one stock split to stockholders of record on August
12, 1999. Each stock split was effected in the form of a stock dividend. The
accompanying consolidated financial statements have been restated to reflect the
splits.
The Convertible Notes (see Note 7) initially may be converted into an
aggregate of 16,019,992 shares of Amazon.com common stock.
NOTE 9 -- LOSS PER SHARE
The following represents the calculations for basic and diluted net loss
per share:
<TABLE>
<CAPTION>
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net loss -- as reported........................... $197,080 $ 45,171 $396,755 $ 78,120
======== ======== ======== ========
Weighted average shares outstanding............... 337,959 309,975 329,064 300,748
Less weighted average common shares issued subject
to repurchase agreements........................ (5,471) (8,570) (6,000) (8,542)
-------- -------- -------- --------
Shares used in computation of basic and diluted
loss per share.................................. 332,488 301,405 323,064 292,206
======== ======== ======== ========
Basic and diluted loss per share.................. $ (0.59) $ (0.15) $ (1.23) $ (0.27)
======== ======== ======== ========
</TABLE>
All of the Company's stock options are excluded from diluted loss per share
since their effect is antidilutive.
NOTE 10 -- STOCK-BASED COMPENSATION
Stock-based compensation is comprised of the portion of acquisition-related
consideration conditioned on the continued tenure of key employees, which must
be classified as compensation expense rather than as a component of purchase
price under generally accepted accounting principles. Stock-based compensation
also includes stock-based charges such as option-related deferred compensation
recorded at the Company's initial public offering, as well as certain other
compensation and severance arrangements.
F-28
<PAGE> 98
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table shows the amounts of stock-based compensation that
would have been recorded under the following income statement categories had
stock-based compensation not been separately stated in the Consolidated
Statements of Operations:
<TABLE>
<CAPTION>
NINE-MONTHS
QUARTER ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1999 1998 1999 1998
------- ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Marketing and sales................................. $ 2,595 $1,062 $ 2,772 $1,132
Product development................................. 8,689 86 13,151 297
General and administrative.......................... 505 66 647 162
------- ------ ------- ------
$11,789 $1,214 $16,570 $1,591
======= ====== ======= ======
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
On April 7, 1999, Amazon Bookstore Cooperative, Inc. filed a lawsuit in the
United States District Court for the District of Minnesota, Third Division,
against the Company alleging trademark infringement and unfair competition under
state and federal law. The parties settled the lawsuit on November 4, 1999.
From time to time, the Company is subject to other legal proceedings and
claims in the ordinary course of business. 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 or operating results.
F-29
<PAGE> 99
PROSPECTUS
$2,000,000,000
LOGO
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
DEBT SECURITIES
WARRANTS TO PURCHASE COMMON STOCK
WARRANTS TO PURCHASE PREFERRED STOCK
STOCK PURCHASE UNITS
STOCK PURCHASE CONTRACTS
THIRD-PARTY WARRANTS
WARRANTS TO PURCHASE DEBT SECURITIES
FOREIGN CURRENCY EXCHANGE WARRANTS
STOCK INDEX WARRANTS
OTHER WARRANTS
-------------------------
We will provide the specific terms for each of these securities in
supplements to this prospectus. You should read carefully this prospectus and
any supplement before you invest.
Our common stock is quoted on the Nasdaq National Market under the symbol
"AMZN."
-------------------------
THE SECURITIES WE MAY OFFER INVOLVE A HIGH DEGREE OF RISK. THE RISKS
ASSOCIATED WITH AN INVESTMENT IN OUR COMPANY AS WELL AS WITH THE PARTICULAR
TYPES OF SECURITIES WILL BE DESCRIBED IN THE PROSPECTUS SUPPLEMENT.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
The date of this prospectus is June 11, 1999.
<PAGE> 100
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary..................................................... 1
Forward-Looking Information................................. 3
How to Obtain More Information.............................. 3
Amazon.com.................................................. 4
Ratio of Earnings to Fixed Charges.......................... 5
Use of Proceeds............................................. 5
General Description of Securities........................... 5
Description of the Common Stock............................. 5
Description of the Preferred Stock.......................... 6
Description of the Depositary Shares........................ 7
Description of the Debt Securities.......................... 9
Description of the Warrants to Purchase Common or Preferred
Stock..................................................... 16
Description of the Stock Purchase Units and Stock Purchase
Contracts................................................. 17
Description of the Third-Party Warrants..................... 18
Description of the Warrants to Purchase Debt Securities..... 19
Description of the Foreign Currency Exchange Warrants....... 20
Description of the Stock Index Warrants..................... 23
Description of the Other Warrants........................... 26
Plan of Distribution........................................ 28
ERISA Considerations........................................ 29
Legal Matters............................................... 30
Experts..................................................... 30
</TABLE>
i
<PAGE> 101
SUMMARY
This summary highlights selected information from this prospectus and does
not contain all the information that is important to you. To understand the
terms of our securities, you should read carefully this prospectus with the
attached prospectus supplement. Together, these documents describe the specific
terms of the securities we are offering. You should also read the documents
listed below in "How to Obtain More Information" for information about our
company and our financial statements.
THE SECURITIES WE MAY OFFER
This prospectus is part of a registration statement (No. 333-78797) that we
filed with the Securities and Exchange Commission utilizing a "shelf"
registration process. Under this shelf process, we may offer from time to time
up to $2,000,000,000 of the following securities, either separately or in units:
- common stock;
- preferred stock;
- depositary shares;
- debt securities;
- warrants to purchase common stock;
- warrants to purchase preferred stock;
- stock purchase units;
- stock purchase contracts;
- third-party warrants;
- warrants to purchase debt securities;
- foreign currency exchange warrants;
- stock index warrants; and
- other warrants
This prospectus provides you with a general description of the securities
we may offer. Each time we offer securities, we will provide you with a
prospectus supplement that will describe the specific amounts, prices and terms
of the securities we offer. The prospectus supplement also may add, update or
change information contained in this prospectus.
We may sell the securities to or through underwriters, dealers or agents or
directly to purchasers. We and our agents reserve the sole right to accept and
to reject in whole or in part any proposed purchase of securities. The
prospectus supplement, which we will provide to you each time we offer
securities, will set forth the names of any underwriters, dealers or agents
involved in the sale of the securities, and any applicable fee, commission or
discount arrangements with them. See "Plan of Distribution."
COMMON STOCK
We may issue our common stock, $0.01 par value per share. Holders of common
stock are entitled to one vote per share on all matters submitted to a vote of
stockholders. Holders of common stock are entitled to receive dividends declared
by the board of directors, subject to the rights of preferred stockholders.
1
<PAGE> 102
PREFERRED STOCK AND DEPOSITARY SHARES
We may issue our preferred stock, $0.01 par value per share, in one or more
series. Our board of directors will determine the dividend, voting, conversion
and other rights of the series being offered and the terms and conditions of its
offering and sale. We may also issue fractional shares of preferred stock that
will be represented by depositary shares and depositary receipts.
DEBT SECURITIES
We may offer unsecured general obligations of our company, which may be
senior debt securities or subordinated debt securities. The senior debt
securities will have the same rank as all our other unsecured, unsubordinated
debt. The subordinated debt securities will be entitled to payment only if all
payments due under our senior indebtedness, including any outstanding senior
debt securities, have been made.
The debt securities will be issued under an indenture between us and the
trustee or trustees we name in the prospectus supplement. We have summarized
certain general features of the debt securities from the indentures, which are
or will be exhibits to the registration statement of which this prospectus is a
part. We encourage you to read the indentures and our recent periodic and
current reports that we file with the SEC. Directions on how to obtain copies of
these reports are provided under "How to Obtain More Information."
WARRANTS
We may issue warrants to purchase our common stock, preferred stock or debt
securities. In addition, we may offer warrants to purchase securities of other
companies. Also, we may issue warrants tied to and dependent upon movements of
currency exchange rates, the prices of stocks underlying one or more indexes, or
the prices of other underlying commodities. The applicable prospectus supplement
will describe the details of the warrants.
STOCK PURCHASE UNITS AND STOCK PURCHASE CONTRACTS
We may issue stock purchase units and stock purchase contracts, including
contracts obligating holders to purchase from us, and us to sell to the holders,
a specified number of shares of common stock or preferred stock at a future date
or dates. We may determine the price of shares of common stock or preferred
stock at the time we issue the stock purchase contracts or the price may be
determined by referring to a specific formula described in the stock purchase
contracts. We may issue the stock purchase contracts separately or as a part of
stock purchase units consisting of a stock purchase contract and debt
securities, preferred stock or debt obligations of third parties, including U.S.
Treasury securities, which secure the holders' obligations to purchase the
common stock or preferred stock under the stock purchase contracts. The stock
purchase contracts may require us to make periodic payments to the holders of
the stock purchase units or vice versa. These payments may be unsecured or
prefunded on some basis. The stock purchase contracts may require holders to
secure their obligations in a specified manner.
2
<PAGE> 103
FORWARD-LOOKING INFORMATION
This prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. This Act provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact we
make in this prospectus, prospectus supplement or in any document incorporated
by reference are forward-looking. In particular, the statements herein regarding
industry prospects and our future results of operations or financial position
are forward-looking statements. Forward-looking statements reflect our current
expectations and are inherently uncertain. Our actual results may differ
significantly from our expectations. The section entitled "Additional Factors
That May Affect Future Results" that appears in our Annual Report on Form 10-K
for the year ended December 31, 1998, as well as the section entitled "Risk
Factors" that appears in the prospectus supplement accompanying this prospectus
describe some, but not all, of the factors that could cause these differences.
HOW TO OBTAIN MORE INFORMATION
We file reports, proxy statements and other information with the SEC. You
may read any document we file at the SEC's public reference rooms in Washington,
D.C., Chicago, Illinois and New York, New York. Please call the SEC toll free at
1-800-SEC-0330 for information about its public reference rooms. You may also
read our filings at the SEC's Web site at http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933. This prospectus does not contain all of the information
in the registration statement. We have omitted certain parts of the registration
statement, as permitted by the rules and regulations of the SEC. You may inspect
and copy the registration statement, including exhibits, at the SEC's public
reference facilities or Web site. Our statements in this prospectus about the
contents of any contract or other document are not necessarily complete. You
should refer to the copy of each contract or other document we have filed as an
exhibit to the registration statement for complete information.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it. This means that we can disclose important
information to you by referring you to those documents. The information we
incorporate by reference is considered a part of this prospectus, and later
information we file with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until this offering is completed:
- Our Annual Report on Form 10-K for the year ended December 31, 1998;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- Our Current Reports on Form 8-K filed on August 27, 1998, October 26,
1998, January 5, 1999, January 27, 1999, January 28, 1999, January 29,
1999, February 4,
3
<PAGE> 104
1999, March 29, 1999, March 30, 1999, April 27, 1999, April 29, 1999, May
12, 1999, May 19, 1999, June 10, 1999 and June 11, 1999; and
- The description of the common stock in our Registration Statement on Form
8-A filed on May 2, 1997, under Section 12(g) of the Exchange Act.
You may obtain copies of these documents, other than exhibits, free of
charge by contacting our corporate secretary at our principal offices, which are
located at 1200 12th Avenue South, Suite 1200, Seattle, Washington 98144,
telephone number (206) 266-1000.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
after the date on the front of the document.
AMAZON.COM
Amazon.com is the Internet's number one book, music and video retailer.
Amazon.com, one of the most widely known, used and cited commerce sites on the
Web, offers more than 4.7 million book, music CD, video, DVD, computer game and
other titles and a free electronic greeting card service. Amazon.com also
provides a community of online shoppers an easy and safe way to purchase and
sell a large selection of products through Amazon.com Auctions. We are a proven
technology leader; we developed electronic commerce innovations such as 1-Click
ordering, personalized shopping services and easy-to-use search and browse
features.
We were incorporated in 1994 in the state of Washington and reincorporated
in 1996 in the state of Delaware. Our principal corporate offices are located in
Seattle, Washington. Our mailing address and telephone number are 1200 12th
Avenue South, Suite 1200, Seattle, Washington 98144, (206) 266-1000.
Information contained on our Web site is not a part of this prospectus.
We have adjusted all of the information in this prospectus to reflect a
2-for-1 split of the common stock on June 1, 1998 and a 3-for-1 split of the
common stock on January 4, 1999.
Amazon.com, Amazon.co.uk, Amazon.de, Internet Movie Database, Earth's
Biggest Bookstore and 1-Click are either registered trademarks or trademarks of
Amazon.com or its affiliates. All other names mentioned in this prospectus, the
documents incorporated by reference or any prospectus supplement may be
trademarks of their respective owners.
4
<PAGE> 105
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
PERIOD FROM JULY 5,
THREE MONTHS FOR THE YEAR ENDED DECEMBER 31, 1994 (INCEPTION) TO
ENDED MARCH 31, -------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995 1994
--------------- --------- -------- ------- ----- -------------------
<S> <C> <C> <C> <C> <C> <C>
Deficiency of earnings
available to cover
fixed charges(*)..... $(61,667) $(124,546) $(31,020) $(6,246) $(303) $(52)
</TABLE>
- -------------------------
(*) Earnings consist of net loss plus fixed charges. Fixed charges consist of
interest expense, including amortization of debt issuance costs and that
portion of rental expense we believe to be representative of interest.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities, after
transaction and hedging costs, if any, incurred in connection with currency
warrants or stock index warrants, for general corporate purposes.
GENERAL DESCRIPTION OF SECURITIES
We may offer shares of common stock, shares of preferred stock, depositary
shares, debt securities, common stock warrants, preferred stock warrants, stock
purchase units, stock purchase contracts, third-party warrants, debt warrants,
currency warrants, stock index warrants, other warrants or any combination of
the foregoing either individually or as units consisting of one or more
securities. We may offer up to $2,000,000,000 worth of securities under this
prospectus. If securities are offered as units, we will describe the terms of
the units in a prospectus supplement. The securities involve a high degree of
risk, which we will describe in the prospectus supplement.
DESCRIPTION OF THE COMMON STOCK
Under our current restated certificate of incorporation, we may issue up to
1,500,000,000 shares of our common stock. Holders of common stock are entitled
to one vote per share on all matters submitted to a vote of stockholders.
Subject to preferences that may apply to our preferred stock, the holders of
common stock receive ratably any dividends that may be declared by the board of
directors. In the event of a liquidation, dissolution or winding up of
Amazon.com, the holders of common stock will share equally and ratably in all
assets remaining after we pay liabilities and liquidation preferences to holders
of preferred stock. Holders of common stock have no preemptive rights or rights
to convert their common stock into any other securities. The common stock is
neither redeemable nor subject to call. No sinking fund provisions apply to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable.
Washington law imposes restrictions on some transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation
5
<PAGE> 106
Act prohibits a "target corporation," with some exceptions, from engaging in
certain significant business transactions with an "acquiring person," which is
defined as a person or group of persons that beneficially owns 10% or more of
the voting securities of the target corporation, for a period of five years
after such acquisition, unless the transaction or acquisition of shares is
approved by a majority of the members of the target corporation's board of
directors prior to the time of acquisition. Such prohibited transactions
include, among other things:
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the
shares; or
- allowing the acquiring person to receive any disproportionate benefit as
a shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of Amazon.com.
Section 203 of the Delaware General Corporation Law generally prohibits
Delaware corporations from engaging in certain "business combinations" with
certain "interested stockholders" for a period of three years unless certain
criteria are met. We have expressly elected in our restated certificate of
incorporation not to be governed by Section 203.
DESCRIPTION OF THE PREFERRED STOCK
Our current restated certificate of incorporation permits us to issue up to
150,000,000 shares of our preferred stock in one or more series and with rights
and preferences that may be fixed or designated by our board of directors
without any further action by our stockholders. The rights, preferences,
privileges and restrictions of the preferred stock of each series will be fixed
by the certificate of designation relating to each series. A prospectus
supplement relating to each series will specify the terms of the preferred
stock, including:
- The maximum number of shares in the series and the distinctive
designation;
- The terms on which dividends, if any, will be paid;
- The terms on which the shares may be redeemed, if at all;
- The liquidation preference, if any;
- The terms of any retirement or sinking fund for the purchase or
redemption of the shares of the series;
- The terms and conditions, if any, on which the shares of the series shall
be convertible into, or exchangeable for, shares of any other class or
classes of capital stock;
- The voting rights, if any, on the shares of the series; and
6
<PAGE> 107
- Any or all other preferences and relative, participating, operational or
other special rights or qualifications, limitations or restrictions of
the shares.
The issuance of preferred stock may delay, deter or prevent a change in
control of Amazon.com.
We will describe the specific terms of a particular series of preferred
stock in the prospectus supplement relating to that series. The description of
preferred stock above and the description of the terms of a particular series of
preferred stock in the related prospectus supplement are not complete. You
should refer to the certificate of designation for complete information. The
prospectus supplement will contain a description of certain U.S. federal income
tax consequences relating to the preferred stock.
DESCRIPTION OF THE DEPOSITARY SHARES
The description below and in the related prospectus supplement is not
complete. You should read the forms of deposit agreement and depositary receipts
filed with the SEC in connection with the offering of each series of the
preferred stock described below.
GENERAL
We may, at our option, elect to offer fractional interests in shares of
preferred stock, rather than shares of preferred stock. If we exercise that
option, we will provide for a depositary to issue receipts for depositary
shares, each of which will represent a fractional interest in a share of
preferred stock.
The shares of preferred stock underlying the depositary shares will be
deposited under a separate deposit agreement between us and a bank or trust
company depositary that has its principal office in the United States. The
prospectus supplement will set forth the name and address of the depositary.
Subject to the terms of the deposit agreement, each owner of a depositary share
will be entitled, in proportion to the applicable fractional interest in a share
of preferred stock, to all the rights and preferences of the underlying
preferred stock, including dividend, voting, redemption, conversion and
liquidation rights. Depositary receipts will be issued for depositary shares.
The depositary may issue temporary depositary receipts substantially
identical to, and entitling the holders to all the rights pertaining to, the
definitive depositary receipts. Definitive depositary receipts will then be
prepared thereafter and temporary depositary receipts may be exchanged for
definitive depositary receipts at our expense.
Upon surrender of depositary receipts and payment of the charges provided
in the deposit agreement, the depositary will deliver the whole shares of
preferred stock underlying the depositary shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions on the preferred stock, rounded to the nearest cent, to the record
holders of depositary shares in proportion to the numbers of such depositary
shares owned by them on the relevant record date. Fractions of one cent not so
distributed will be added to the next sum received by the depositary for
distribution to record holders of depositary shares.
7
<PAGE> 108
In the event of a non-cash distribution, the depositary will, if feasible,
distribute property received by it to the record holders of depositary shares
entitled to them. If the distribution is not feasible, the depositary may sell
the property and distribute the net proceeds to such holders.
REDEMPTION OF DEPOSITARY SHARES
If we redeem the preferred stock underlying the depositary shares, the
depositary will redeem the depositary shares from the proceeds of the redemption
of the preferred stock held by the depositary. The depositary will mail notice
of redemption not less than 30 or more than 60 days prior to the date fixed for
redemption to the record holders of the depositary shares. The redemption price
per depositary share will be equal to the applicable fraction of the redemption
price per share payable with respect to the preferred stock. Whenever we redeem
shares of preferred stock held by the depositary, the depositary will redeem the
corresponding depositary shares as of the same redemption date. If less than all
the depositary shares are to be redeemed, the depositary will select by lot or
pro rata which depositary shares will be redeemed.
After the redemption, the depositary shares called for redemption will no
longer be deemed to be outstanding. All rights of the holders of the depositary
shares will cease, except the right to receive the money or other property to
which the holders are entitled upon redemption and surrender of the depositary
receipts for their depositary shares.
VOTING THE PREFERRED STOCK
The depositary will mail to the holders of depositary shares the
information contained in any notice of meeting at which the holders of preferred
stock are entitled to vote. Each record holder of depositary shares on the
record date for the preferred stock may instruct the depositary to exercise its
voting rights with respect to the depositary shares. The depositary will attempt
to vote the number of shares of preferred stock underlying such depositary
shares in accordance with these instructions. We will agree to take any action
required to enable the depositary to vote the depositary shares. The depositary
will abstain from voting shares of preferred stock to the extent it does not
receive instructions from the holders of depositary shares relating to that
preferred stock.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
We and the depositary may amend the form of depositary receipt and any
provision of the deposit agreement at any time. However, neither of us can make
any amendment that would materially and adversely alter the rights of the
existing holders of depositary shares without approval by the record holders of
at least a majority of the outstanding depositary shares. We or the depositary
may terminate a deposit agreement only if (1) all outstanding depositary shares
relating thereto have been redeemed or (2) there has been a final distribution
to the holders of preferred stock in a liquidation, dissolution or winding up of
Amazon.com and to the holders of the related depositary shares.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the depositary arrangements. We will pay charges of the depositary
in connection with the initial deposit of the preferred stock and any redemption
of the preferred stock. Holders of
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depositary shares will pay transfer and other taxes and governmental charges and
any other charges listed in the deposit agreement as holders' charges.
MISCELLANEOUS
The depositary will forward to the holders of depositary shares all reports
and communications that we are required to furnish to the holders of the
preferred stock.
Neither the depositary nor Amazon.com will be liable if the law or any
circumstance beyond its control prevents it from performing its obligations
under the deposit agreement. Amazon.com and the depositary are required only to
perform their duties in good faith. They will not be obligated to prosecute or
defend any legal proceeding regarding any depositary shares or preferred stock
unless the holders of those securities provide them with satisfactory indemnity.
They may rely on written advice of counsel or accountants, or information
provided by persons presenting preferred stock for deposit, holders of
depositary shares or other persons believed to be competent and on documents
believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering notice to us, and we
may at any time remove the depositary. Any such resignation or removal will take
effect when a successor depositary is established.
DESCRIPTION OF THE DEBT SECURITIES
We also may offer any combination of senior debt securities or subordinated
debt securities. Debt securities are unsecured general obligations of
Amazon.com. Senior debt securities rank above all subordinated indebtedness and
equal to all other indebtedness outstanding on the date of the prospectus
supplement. Subordinated debt securities rank in right of payment below all
other indebtedness outstanding at or after the time issued, unless the other
indebtedness provides that it is not senior to the subordinated debt.
We may issue the senior debt securities and the subordinated debt
securities under separate indentures between us, as issuer, and the trustee or
trustees identified in the prospectus supplement. A copy of the form of each
type of indenture has been or will be filed as an exhibit to the registration
statement of which this prospectus is a part. A prospectus supplement will
describe the particular terms of any debt securities we may offer.
The following summaries of the debt securities and the indentures are not
complete. We strongly urge you to read the indentures and the description of the
debt securities included in the prospectus supplement.
GENERAL
We may issue an unlimited principal amount of debt securities in separate
series. We may specify a maximum aggregate principal amount for the debt
securities of any series. The debt securities will have terms that are
consistent with the indentures. Unless otherwise specified in the applicable
prospectus supplement, senior debt securities will be
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unsecured and unsubordinated obligations of Amazon.com and will rank equal with
all our other unsecured and unsubordinated debt. Subordinated debt securities
will be paid only if all payments due under our senior indebtedness, including
any outstanding senior debt securities, have been made.
The indentures might not limit the amount of other debt that we may incur
and might not contain financial or similar restrictive covenants. The indentures
might not contain any provision to protect holders of debt securities against a
sudden or dramatic decline in our ability to pay our debt.
The prospectus supplement will describe the debt securities and the price
or prices at which we will offer the debt securities. The description will
include:
- the title of the debt securities;
- any limit on the aggregate principal amount of such debt securities or
the series of which they are a part;
- the person to whom any interest on a debt security of the series will be
paid;
- the date or dates on which we must pay the principal;
- the rate or rates at which the debt securities will bear interest, if
any, the date or dates from which interest will accrue, and the dates on
which we must pay interest;
- the place or places where we must pay the principal and any premium or
interest on the debt securities;
- the terms and conditions on which we may redeem any debt security, if at
all;
- any obligation to redeem or purchase any debt securities, and the terms
and conditions on which we must do so;
- the denominations in which we may issue the debt securities;
- the manner in which we will determine the amount of principal of or any
premium or interest on the debt securities;
- the currency in which we will pay the principal of and any premium or
interest on the debt securities;
- the principal amount of the debt securities that we will pay upon
declaration of acceleration of their maturity;
- the amount that will be deemed to be the principal amount for any
purpose, including the principal amount that will be due and payable upon
any maturity or that will be deemed to be outstanding as of any date;
- if applicable, that the debt securities are defeasible;
- if applicable, the terms of any right to convert debt securities into, or
exchange debt securities for, shares of common stock or other securities
or property;
- whether we will issue the debt securities in the form of one or more
global securities and, if so, the respective depositaries for the global
securities and the terms of the global securities;
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- the subordination provisions that will apply to the subordinated debt
securities;
- any addition to or change in the events of default applicable to the debt
securities and any change in the right of the trustee or the holders to
declare the principal amount of any of such debt securities due and
payable; and
- any addition to or change in the covenants in the indentures.
We may sell the debt securities at a substantial discount below their
stated principal amount. We will describe certain special U.S. federal income
tax considerations, if any, applicable to debt securities sold at an original
issue discount in the prospectus supplement. An "original issue discount
security" is any debt security that provides for an amount less than the
principal amount to be due and payable upon the declaration of acceleration of
the maturity in accordance with the terms of the applicable indenture. The
prospectus supplement relating to any original issue discount securities will
describe the particular provisions relating to acceleration of the maturity upon
the occurrence of an event of default. In addition, we will describe certain
special U.S. federal income tax or other considerations applicable to any debt
securities that are denominated in a currency or unit other than U.S. dollars in
the applicable prospectus supplement.
CONVERSION AND EXCHANGE RIGHTS
The prospectus supplement will describe, if applicable, the terms on which
you may convert debt securities into or exchange them for common stock or other
securities or property. The conversion or exchange may be mandatory or may be at
your option. We will describe how the number of shares of common stock or other
securities or property to be received upon conversion or exchange would be
calculated.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless the prospectus supplement indicates otherwise, the following
provisions will apply to the subordinated debt securities. The indebtedness
underlying the subordinated debt securities will be payable only if all payments
due under senior indebtedness, including any outstanding senior debt securities,
have been made. If we distribute our assets to creditors upon any dissolution,
winding-up, liquidation or reorganization or in bankruptcy, insolvency,
receivership or similar proceedings, we must first pay all amounts due or to
become due on all senior indebtedness before we pay the principal of, or any
premium or interest on, the subordinated debt securities. In the event the
subordinated debt securities are accelerated because of an event of default, we
may not make any payment on the subordinated debt securities until we have paid
all senior indebtedness or the acceleration is rescinded. If the payment of
subordinated debt securities accelerates because of an event of default, we must
promptly notify holders of senior indebtedness of the acceleration.
We may not make any payment on the subordinated debt securities if a
default in the payment of the principal of, premium, if any, interest, rent or
other obligations, including a default under any repurchase or redemption
obligation, in respect of designated senior indebtedness occurs and continues
beyond any applicable grace period. We may not make any payment on the
subordinated debt securities if any other default occurs and continues with
respect to designated senior indebtedness that permits holders of the designated
senior indebtedness to accelerate its maturity and the trustee receives a notice
of such default from us, a holder of such designated senior indebtedness or
other person permitted to give
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such notice. We may not resume payments on the subordinated debt securities
until the defaults are cured or certain periods pass.
If we experience a bankruptcy, dissolution or reorganization, holders of
senior indebtedness may receive more, ratably, and holders of subordinated debt
securities may receive less, ratably, than our other creditors.
The term "designated senior indebtedness" means our obligations under any
particular senior indebtedness in which the debt instrument expressly provides
that the senior indebtedness will be designated senior indebtedness with respect
to the subordinated debt securities.
The indenture for subordinated debt securities may not limit our ability to
incur additional senior indebtedness.
FORM, EXCHANGE AND TRANSFER
We will issue debt securities only in fully registered form, without
coupons, and, unless otherwise specified in the prospectus supplement, only in
denominations of $1,000 and integral multiples thereof.
The holder of a debt security may elect, subject to the terms of the
indentures and the limitations applicable to global securities, to exchange them
for other debt securities of the same series of any authorized denomination and
of a like tenor and aggregate principal amount.
Holders of debt securities may present them for exchange as provided above
or for registration of transfer, duly endorsed or with the form of transfer
endorsed thereon duly executed, at the office of the transfer agent we designate
for that purpose. We will not impose a service charge for any registration of
transfer or exchange of debt securities, but we may require a payment sufficient
to cover any tax or other governmental charge payable in connection with the
transfer or exchange. We will name the transfer agent in the prospectus
supplement. We may designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through
which any transfer agent acts, but we must maintain a transfer agent in each
place in which we will pay on debt securities.
If we redeem the debt securities, we will not be required to issue,
register the transfer of or exchange any debt security during a specified period
prior to mailing a notice of redemption. We are not required to register the
transfer of or exchange any debt security selected for redemption, except the
unredeemed portion of the debt security being redeemed.
GLOBAL SECURITIES
The debt securities may be represented, in whole or in part, by one or more
global securities that will have an aggregate principal amount equal to that of
the debt securities. Each global security will be registered in the name of a
depositary identified in the prospectus supplement. We will deposit the global
security with the depositary or a custodian, and the global security will bear a
legend regarding the restrictions on exchanges and registration of transfer.
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No global security may be exchanged in whole or in part for debt securities
registered, and no transfer of a global security in whole or in part may be
registered, in the name of any person other than the depositary or any nominee
of the depositary unless (1) the depositary has notified us that it is unwilling
or unable to continue as depositary or (2) an event of default occurs and
continues with respect to the debt securities. The depositary will determine how
all securities issued in exchange for a global security will be registered.
As long as the depositary or its nominee is the registered holder of a
global security, the depositary or the nominee will be considered the sole owner
and holder of the global security and the underlying debt securities. Except as
stated above, owners of beneficial interests in a global security will not be
entitled to have the global security or any debt security registered in their
names, will not receive physical delivery of certificated debt securities and
will not be considered to be the owners or holders of the global security or
underlying debt securities. We will make all payments of principal, premium and
interest on a global security to the depositary or its nominee. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. These laws may prevent you from
transferring your beneficial interests in a global security.
Only institutions that have accounts with the depositary or its nominee and
persons that hold beneficial interests through the depositary or its nominee may
own beneficial interests in a global security. The depositary will credit, on
its book-entry registration and transfer system, the respective principal
amounts of debt securities represented by the global security to the accounts of
its participants. Ownership of beneficial interests in a global security will be
shown only on, and the transfer of those ownership interests will be effected
only through, records maintained by the depositary or any such participant.
The policies and procedures of the depositary may govern payments,
transfers, exchanges and others matters relating to beneficial interests in a
global security. We and the trustee assume no responsibility or liability for
any aspect of the depositary's or any participant's records relating to, or for
payments made on account of, beneficial interests in a global security.
PAYMENT AND PAYING AGENTS
Unless otherwise stated in the prospectus supplement, we will pay principal
and any premium or interest on a debt security to the person in whose name the
debt security is registered at the close of business on the regular record date
for such interest.
Unless otherwise stated in the prospectus supplement, we will pay principal
and any premium or interest on the debt securities at the office of our
designated paying agent, except we may pay interest by check mailed to the
address of the person entitled to the payment. Unless we state otherwise in the
prospectus supplement, the corporate trust office of the trustee will be the
paying agent for the debt securities.
Any other paying agents we designate for the debt securities of a
particular series will be named in the prospectus supplement. We may designate
additional paying agents, rescind the designation of any paying agent or approve
a change in the office through which any paying agent acts, but we must maintain
a paying agent in each place of payment for the debt securities.
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The paying agent will return to us all money we pay to it for the payment
of the principal, premium or interest on any debt security that remains
unclaimed for a specified period. The holder thereafter may look only to us for
payment.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Under the terms of the indentures, we may not consolidate with or merge
into any other person, in a transaction in which we are not the surviving
corporation, or convey, transfer or lease our properties and assets
substantially as an entirety to, any person, unless:
- the successor is a corporation, limited liability company, partnership,
trust or other entity organized and existing under the laws of the United
States, or any state, and assumes our obligations under the debt
securities and the indentures;
- immediately after the transaction, no event of default occurs and
continues; and
- we meet certain other conditions.
EVENTS OF DEFAULT
Each of the following will constitute an event of default under each
indenture:
- failure to pay the principal of or any premium on any debt security when
due;
- failure to pay any interest on any debt security when due, continued for
a specified number of days;
- failure to deposit any sinking fund payment when due;
- failure to perform any other covenant in the indenture that continues for
a specified number of days after written notice has been given by the
trustee or the holders of a specified percentage in aggregate principal
amount of the debt securities of that series;
- certain events in bankruptcy, insolvency or reorganization of Amazon.com;
and
- any other event of default specified in the prospectus supplement.
If an event of default, other than an event of default as a result of
certain events of bankruptcy, insolvency or reorganization, occurs and
continues, either the trustee or the holders of a specified percentage in
aggregate principal amount of the outstanding securities of that series may
declare the principal amount of the debt securities of that series to be
immediately due and payable. If an event of default occurs as a result of
certain events of bankruptcy, insolvency or reorganization, the principal amount
of all the debt securities of that series automatically will become immediately
due and payable. The holders of a majority in aggregate principal amount of the
outstanding securities of that series may, under certain circumstances, rescind
and annul the acceleration if all events of default, other than the nonpayment
of accelerated principal, have been cured or waived.
Except for certain duties in case of an event of default, the trustee will
not be obligated to exercise any of its rights or powers at the request or
direction of any of the holders, unless the holders have offered the trustee
reasonable indemnity. If they provide this indemnification, the holders of a
majority in aggregate principal amount of the outstanding securities of any
series may direct the time, method and place of conducting
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any proceeding for any remedy available to the trustee or exercising any trust
or power conferred on the trustee with respect to the debt securities of that
series.
No holder of a debt security of any series may institute any proceeding
with respect to the indentures, or for the appointment of a receiver or a
trustee, or for any other remedy, unless (1) the holder has previously given the
trustee written notice of a continuing event of default, (2) the holders of a
specified percentage in aggregate principal amount of the outstanding securities
of that series have made a written request, and the holders have offered
reasonable indemnity to the trustee to institute the proceeding, and (3) the
trustee has failed to institute the proceeding, and has not received a direction
inconsistent with the request within a specified number of days.
Each indenture will include a covenant requiring our officers to furnish to
the trustee annually a statement as to whether, to their knowledge, we are in
default under the indenture and, if so, specifying all such known defaults.
MODIFICATION AND WAIVER
We and the trustee may amend the indentures with the consent of the holders
of a majority in aggregate principal amount of the outstanding securities of
each series affected by the amendment. However, to the extent discussed in the
prospectus supplement, without the consent of each holder, we may not make any
amendment that would:
- change the stated maturity of the principal of, or any installment of
principal or interest on, any debt security;
- reduce the principal, premium or interest on any debt security;
- reduce the amount of principal of an original issue discount security or
any other debt security payable upon acceleration of the maturity;
- change the place or currency of payment of principal, premium or interest
on any debt security;
- impair the right to enforce any payment on any debt security;
- in the case of subordinated debt securities, modify the subordination
provisions in a manner materially adverse to their holders;
- in the case of debt securities that are convertible or exchangeable into
other securities of Amazon.com, adversely affect the right of holders to
convert or exchange any of the debt securities;
- reduce the percentage in principal amount of outstanding securities of
any series for which the holders' consent is required;
- reduce the percentage in principal amount of outstanding securities of
any series necessary for waiver of compliance with certain provisions of
the indentures or for waiver of certain defaults; or
- modify provisions with respect to modification and waiver.
The holders of a majority in aggregate principal amount of the outstanding
debt securities of any series may waive, on behalf of the holders of all debt
securities of that series, our compliance with certain restrictive provisions of
the indentures. The holders of a
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majority in principal amount of the outstanding debt securities of any series
may waive any past default under the indenture with respect to debt securities
of that series, except a default (1) in the payment of principal, premium or
interest on any debt security of that series or (2) in respect of a covenant or
provision of the indenture that cannot be amended without each holder's consent.
Except in certain limited circumstances, we may set any day as a record
date for the purpose of determining the holders of outstanding securities of any
series entitled to give or take any direction, notice, consent, waiver or other
action under the indentures. In certain limited circumstances, the trustee may
set a record date for action by holders. To be effective, the action must be
taken by holders of the requisite principal amount of such debt securities
within a specified period following the record date.
DEFEASANCE AND COVENANT DEFEASANCE
To the extent stated in the prospectus supplement, we may elect to apply
the provisions relating to defeasance and discharge of indebtedness, or to
defeasance of certain restrictive covenants in the indentures, to the debt
securities of any series.
NOTICES
We will mail notices to holders of debt securities at the addresses that
appear in the security register.
TITLE
We may treat the person in whose name a debt security is registered as the
absolute owner, whether or not such debt security may be overdue, for the
purpose of making payment and for all other purposes.
DESCRIPTION OF THE WARRANTS TO PURCHASE COMMON OR
PREFERRED STOCK
The following summarizes the terms of common stock warrants and preferred
stock warrants we may issue. This description is subject to the detailed
provisions of a stock warrant agreement that we will enter into between us and a
stock warrant agent we select at the time of issue.
GENERAL
We may issue stock warrants evidenced by stock warrant certificates under
the stock warrant agreement independently or together with any securities we
offer by any prospectus supplement. If we offer stock warrants, the prospectus
supplement will describe the terms of the stock warrants, including:
- the offering price, if any;
- if applicable, the designation and terms of the preferred stock
purchasable upon exercise of the preferred stock warrants;
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- the number of shares of common or preferred stock purchasable upon
exercise of one stock warrant and the initial price at which the shares
may be purchased upon exercise;
- the dates on which the right to exercise the stock warrants begins and
expires;
- U.S. federal income tax consequences;
- call provisions, if any;
- the currencies in which the offering price and exercise price are
payable; and
- if applicable, the antidilution provisions of the stock warrants.
The shares of common stock or preferred stock we issue upon exercise of the
stock warrants will, when issued in accordance with the stock warrant agreement,
be validly issued, fully paid and nonassessable.
EXERCISE OF STOCK WARRANTS
You may exercise stock warrants by surrendering to the stock warrant agent
the stock warrant certificate, which indicates your election to exercise all or
a portion of the stock warrants evidenced by the certificate. Surrendered stock
warrant certificates must be accompanied by payment of the exercise price in the
form of cash or a check. The stock warrant agent will deliver certificates
evidencing duly exercised stock warrants to the transfer agent. Upon receipt of
the certificates, the transfer agent will deliver a certificate representing the
number of shares of common stock or preferred stock purchased. If you exercise
fewer than all the stock warrants evidenced by any certificate, the stock
warrant agent will deliver a new stock warrant certificate representing the
unexercised stock warrants.
NO RIGHTS AS STOCKHOLDERS
Holders of stock warrants are not entitled to vote, to consent, to receive
dividends or to receive notice as stockholders with respect to any meeting of
stockholders, or to exercise any rights whatsoever as stockholders of
Amazon.com.
DESCRIPTION OF THE STOCK PURCHASE UNITS
AND STOCK PURCHASE CONTRACTS
The following summarizes the general terms of stock purchase units and
stock purchase contracts we may issue. The particular terms of any stock
purchase units or stock purchase contracts we offer will be described in the
prospectus supplement. This description is subject to the stock purchase
contracts, and any collateral arrangements and depositary arrangements, relating
to the stock purchase contracts or stock purchase units.
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and us to sell to the holders, a specified number
of shares of common stock or preferred stock at a future date or dates. We may
fix the consideration per share of common stock or preferred stock at the time
we issue the stock purchase contracts, or the consideration may be determined by
referring to a specific formula stated in the stock purchase contracts. We may
issue the stock purchase contracts separately or as a part of
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stock purchase units consisting of a stock purchase contract and debt
securities, preferred securities or debt obligations of third parties, including
U.S. Treasury securities, which secure the holders' obligations to purchase the
common stock or preferred stock under the stock purchase contracts. The stock
purchase contracts may require us to make periodic payments to the holders of
the stock purchase units or vice versa. These payments may be unsecured or
prefunded on some basis. The stock purchase contracts may require holders to
secure their obligations in a specified manner.
DESCRIPTION OF THE THIRD-PARTY WARRANTS
The following summarizes the terms of third-party warrants we may issue.
This description is subject to the detailed provisions of a third-party warrant
agreement that we will enter into with a third-party warrant agent we will
select at the time of issue.
GENERAL
We may issue third-party warrants evidenced by third-party warrant
certificates independently or together with any securities offered by any
prospectus supplement. If we offer third-party warrants, the prospectus
supplement will describe the terms of the warrants, including:
- the offering price, if any;
- the designation, aggregate principal amount and terms of the third-party
securities purchasable upon exercise of the warrants;
- if applicable, the designation and terms of the third-party securities
with which the third-party warrants are issued and the number of
third-party warrants issued with each such third-party security;
- if applicable, the date on and after which the third-party warrants and
the related third-party securities will be separately transferable;
- the number or principal amount of third-party securities purchasable upon
exercise of one third-party warrant and the price at which the principal
amount of third-party securities may be purchased upon exercise;
- the dates on which the right to exercise the third-party warrants begins
and expires;
- U.S. federal income tax consequences;
- whether the warrants represented by the third-party warrant certificates
will be issued in registered or bearer form;
- the currencies in which the offering price and exercise price are
payable; and
- if applicable, any antidilution provisions.
The prospectus supplement will identify the third-party securities, the
third-party issuer and all documents filed by the third-party issuer pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act since the end of the
third-party issuer's last completed fiscal year for which a Form 10-K annual
report has been filed. It will identify the document or documents filed under
the Exchange Act that contain a description of the third-party securities being
sold. If no such document or documents exist, the prospectus
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supplement will include a description of the third-party securities being sold.
We will offer third-party warrants only with respect to third-party securities
of third-party issuers that are eligible to use Form S-3, or any successor form,
for primary offerings under the rules and regulations of the SEC. To the extent
the Securities Act requires registration of the third-party securities by the
third-party issuer, we will cause the third-party issuer to file a third-party
registration statement under the Securities Act. If the exercise of third-party
warrants requires the third party to have an effective third-party registration
statement at the time of exercise, the exercise will be subject to the
effectiveness of such registration statement.
You may exchange third-party warrant certificates for new third-party
warrant certificates of different denominations and may, if in registered form,
present third-party warrant certificates for registration of transfer at the
corporate trust office of the third-party warrant agent, which will be listed in
the prospectus supplement. Warrantholders do not have any of the rights of
holders of third-party securities, except as may be otherwise set forth in the
prospectus supplement.
EXERCISE OF THIRD-PARTY WARRANTS
You may exercise third-party warrants by surrendering the third-party
warrant certificate at the corporate trust office of the third-party warrant
agent, with payment in full of the exercise price. Upon the exercise of
third-party warrants, the third-party warrant agent will, as soon as
practicable, deliver the third-party securities in authorized denominations in
accordance with your instructions and at your sole cost and risk. If less than
all the third-party warrants evidenced by the third-party warrant certificate
are exercised, the agent will issue a new third-party warrant certificate for
the remaining amount of third-party warrants.
DESCRIPTION OF THE WARRANTS TO PURCHASE DEBT SECURITIES
The following summarizes the terms of the debt warrants we may offer. The
debt warrants will be subject to the detailed provisions of a debt warrant
agreement that we will enter into with a debt warrant agent we select at the
time of issue.
GENERAL
We may issue debt warrants evidenced by debt warrant certificates
independently or together with any securities offered by any prospectus
supplement. If we offer debt warrants, the prospectus supplement will describe
the terms of the warrants, including:
- the offering price, if any;
- the designation, aggregate principal amount and terms of the debt
securities purchasable upon exercise of the warrants;
- if applicable, the designation and terms of the debt securities with
which the debt warrants are issued and the number of debt warrants issued
with each debt security;
- if applicable, the date on and after which the debt warrants and the
related securities will be separately transferable;
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- the principal amount of debt securities purchasable upon exercise of one
debt warrant and the price at which the principal amount of debt
securities may be purchased upon exercise;
- the dates on which the right to exercise the debt warrants begins and
expires;
- U.S. federal income tax consequences;
- whether the warrants represented by the debt warrant certificates will be
issued in registered or bearer form;
- the currencies in which the offering price and exercise price are
payable; and
- if applicable, any antidilution provisions.
You may exchange debt warrant certificates for new debt warrant
certificates of different denominations and may present debt warrant
certificates for registration of transfer at the corporate trust office of the
debt warrant agent, which will be listed in the prospectus supplement.
Warrantholders do not have any of the rights of holders of debt securities,
except to the extent that the consent of warrantholders may be required for
certain modifications of the terms of an indenture or form of the debt security,
as the case may be, and the series of debt securities issuable upon exercise of
the debt warrants. In addition, warrantholders are not entitled to payments of
principal of and interest, if any, on the debt securities.
EXERCISE OF DEBT WARRANTS
You may exercise debt warrants by surrendering the debt warrant certificate
at the corporate trust office of the debt warrant agent, with payment in full of
the exercise price. Upon the exercise of debt warrants, the debt warrant agent
will, as soon as practicable, deliver the debt securities in authorized
denominations in accordance with your instructions and at your sole cost and
risk. If less than all the debt warrants evidenced by the debt warrant
certificate are exercised, the agent will issue a new debt warrant certificate
for the remaining amount of debt warrants.
DESCRIPTION OF THE FOREIGN CURRENCY EXCHANGE WARRANTS
GENERAL
The following summarizes the general terms and provisions of the currency
warrants to which any prospectus supplement may relate. The particular terms of
any currency warrants we offer will be described in the prospectus supplement.
We will issue each of the currency warrants under a separate currency
warrant agreement between us and a bank or trust company, as currency warrant
agent. A single bank or trust company may act as currency warrant agent for more
than one issue of currency warrants. The currency warrant agent will act solely
as our agent under the applicable currency warrant agreement and will not assume
any obligation or relationship of agency or trust for or with any currency
warrantholders. The following summary of certain provisions of the currency
warrants and the form of currency warrant agreement are not complete. We
strongly urge you to read all the provisions of the currency warrants and the
currency warrant agreement.
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We will have the right to "reopen" any outstanding issue of currency
warrants by issuing additional currency warrants of such issue. We have not
determined the specific circumstances under which we may decide to reopen an
outstanding issue of currency warrants. Although we would do so only in a manner
we believe would not adversely affect the trading price of the outstanding
currency warrants of an issue, we cannot guarantee that the reopening of any
outstanding issue of currency warrants will not have a material adverse effect
on the trading price of outstanding currency warrants of such issue.
Each currency warrant will entitle the currency warrantholder to receive
from us the cash settlement value of the warrant, which will be a cash amount in
U.S. dollars. In the case of a currency put warrant, we will determine the
amount by referring to the amount, if any, by which a predetermined exchange
rate of a reference currency as compared to the U.S. dollar or a predetermined
level or range of levels of a currency index, as applicable (the "Strike Rate"),
exceeds the then-current spot exchange rate of the reference currency as
compared to the U.S. dollar or the then-current level or range of levels of such
currency index (the "Spot Rate") on a date following the exercise date. In the
case of a currency call warrant, we will determine the amount by referring to
the amount, if any, by which the Spot Rate on the date of exercise exceeds the
Strike Rate. The prospectus supplement for an issue of currency warrants will
state the formula pursuant to which we will determine the cash settlement value.
The Strike Rate may either be a fixed amount or an amount that varies during the
term of such currency warrants in accordance with a schedule or formula. Certain
currency warrants may entitle the currency warrantholder to receive from us,
upon automatic exercise at expiration and under any other circumstances
specified in the prospectus supplement, an amount equal to the greater of the
cash settlement value and a minimum expiration value. In addition, if stated in
the prospectus supplement, following an extraordinary event or exercise
limitation event, we may calculate the cash settlement value of a currency
warrant on a different basis.
We will settle a currency warrant only in U.S. dollars. Accordingly, a
currency warrant will not entitle a currency warrantholder to sell, deliver,
purchase or take delivery of any non-U.S. currency. We will have no obligation
to, nor will we, purchase or take delivery of or sell or deliver any non-U.S.
currency from or to currency warrantholders pursuant to the currency warrants.
Unless otherwise specified in the prospectus supplement, the currency
warrants will be automatically exercised upon expiration. The prospectus
supplement also may provide that the currency warrants will be automatically
exercised upon the occurrence of other events. If they are automatically
exercised, currency warrantholders will receive the cash settlement value, or if
the currency warrants have a minimum expiration value, the warrant holders will
receive the greater of the cash settlement value and the applicable minimum
expiration value. The minimum expiration value may be either a fixed amount or
an amount that varies during the term of the currency warrants in accordance
with a schedule or formula.
We may cancel the currency warrants upon the occurrence of an extraordinary
event described in the prospectus supplement. We may suspend any exercise of the
currency warrants and postpone the valuation of or payment for such warrants
upon the occurrence of an extraordinary event or certain other events described
in the prospectus supplement. Upon cancellation, suspension or postponement, the
affected warrantholders may be entitled to receive only the applicable
cancellation amount or alternative settlement amount specified in the prospectus
supplement. The cancellation amount or alternative settlement
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amount may be either a fixed amount or an amount that varies during the term of
the currency warrants in accordance with a specified schedule or formula.
The prospectus supplement will state the terms of any currency warrants we
offer, including, as applicable:
- the aggregate amount of such currency warrants;
- the offering price of such currency warrants;
- either (1) the reference currency, which may be a non-U.S. currency or
units of two or more non-U.S. currencies, or (2) the currency index,
which may be compiled and published by a third party or based on index
currencies we select;
- whether the currency warrants are currency put warrants or currency call
warrants;
- the dates on which the right to exercise the currency warrants begins and
expires;
- the manner in which currency warrants may be exercised;
- the minimum number, if any, of currency warrants exercisable at any one
time;
- the maximum number of currency warrants that may be exercised on any day;
- any provisions permitting a currency warrantholder to condition an
exercise notice on the absence of certain specified changes in the Spot
Rate after the exercise date, any provisions permitting us to suspend
exercise of or to redeem such currency warrants based on market
conditions or other circumstances and any other special provisions
relating to the exercise of such currency warrants;
- any provisions for the automatic exercise of such currency warrants;
- any provisions permitting us to suspend the exercise of, or postpone the
valuation of or payment for, the currency warrants;
- the method of determining the amount payable in connection with the
exercise or cancellation of currency warrants;
- the time or times at which we will make payments on currency warrants;
- the national securities exchange or quotation system on which the
currency warrants will be listed, if at all;
- whether we may issue currency warrants in certificated form;
- if currency warrants are not issued in book-entry form, the place or
places at which we will pay the cash settlement value, cancellation
amount, if any, alternative settlement amount, if any, or minimum
expiration value, if any, of the currency warrants;
- U.S. federal income tax consequences;
- procedures for book entry and settlement; and
- procedures for modification.
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ADDITIONAL ISSUANCES OF OTHER CURRENCY WARRANTS
We may issue additional currency warrants that are the same as or different
from any outstanding currency warrants without the consent of the currency
warrantholders.
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
Unless the prospectus supplement states otherwise, if we merge or
consolidate or sell substantially all our assets, the successor corporation will
assume all our obligations under the currency warrant agreement and currency
warrants. We will then have no further obligation under the currency warrant
agreement and currency warrants.
ENFORCEABILITY OF RIGHTS BY CURRENCY WARRANTHOLDERS
Any currency warrantholder may, without the consent of the currency warrant
agent, enforce on its own behalf its rights under its currency warrants.
DESCRIPTION OF THE STOCK INDEX WARRANTS
GENERAL
The following summarizes the general terms and provisions of the stock
index warrants to which any prospectus supplement may relate. The particular
terms of any stock index warrants we offer will be described in the prospectus
supplement.
We will issue each of the stock index warrants under a separate warrant
agreement between us and a bank or trust company, as stock index warrant agent.
A single bank or trust company may act as stock index warrant agent for more
than one issue of stock index warrants. The stock index warrant agent will act
solely as our agent under the applicable stock index warrant agreement and will
not assume any obligation or relationship of agency or trust for or with any
stock index warrantholders. The following summary of certain provisions of the
stock index warrants and the form of stock index warrant agreement are not
complete. We strongly urge you to read all the provisions of the stock index
warrants and the stock index warrant agreement.
We will have the right to "reopen" any outstanding issue of stock index
warrants by issuing additional stock index warrants of such issue. We have not
determined the specific circumstances under which we may decide to reopen an
outstanding issue of stock index warrants. Although we would do so only in a
manner we believe would not adversely affect the trading price of the
outstanding stock index warrants of such issue, we cannot guarantee that the
reopening of any outstanding issue of stock index warrants will not have a
material adverse effect on the trading price of outstanding stock index warrants
of such an issue.
Each stock index warrant will entitle the stock index warrantholder to
receive from us the cash settlement value of the warrant, which will be an
amount in cash. In the case of a stock index put warrant, we will determine the
amount by referring to the amount, if any, by which a predetermined level or
range of levels of the stock index (the "Strike Index") exceeds the level of the
stock index (the "Spot Index") on a date following the exercise date (the
"Valuation Date"). In the case of a stock index call warrant, we will determine
the amount by referring to the amount, if any, by which the Spot Index on the
Valuation
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Date exceeds the Strike Index. In the case of any other type of stock index
warrant, we will determine the amount in the manner described in the prospectus
supplement. The prospectus supplement for an issue of stock index warrants will
state the formula pursuant to which we will determine the cash settlement value
of the stock index warrants. The Strike Index may either be a fixed level of the
stock index or a level that varies during the term of the stock index warrants
in accordance with a schedule or formula. Certain stock index warrants may
entitle the stock index warrantholder to receive from us, upon automatic
exercise at expiration and under any other circumstances specified in the
prospectus supplement, an amount equal to the greater of the cash settlement
value and a minimum expiration value. In addition, if so stated in the
prospectus supplement, following an extraordinary event or exercise limitation
event, we may calculate the cash settlement value of a stock index warrant on a
different basis. Unless the prospectus supplement specifies otherwise, the stock
index will be an established, broadly based index related to a major domestic or
foreign equity trading market, and the cash settlement value, if any, and, if
applicable, the minimum expiration value, of the stock index warrants will be
payable in U.S. dollars.
Unless otherwise specified in the prospectus supplement, a stock index
warrant will be settled only in cash and, accordingly, will not require or
entitle a stock index warrantholder to sell, deliver, purchase or take delivery
of any securities, including the underlying stocks, and we will have no
obligation to, nor will we, purchase or take delivery of or sell or deliver any
securities, including the underlying stocks, from or to stock index
warrantholders pursuant to the stock index warrants.
Unless otherwise specified in the prospectus supplement, the stock index
warrants will be automatically exercised upon expiration. The prospectus
supplement may provide that the stock index warrants will be automatically
exercised upon the occurrence of other events. If the stock index warrants are
automatically exercised, stock index warrantholders will receive the cash
settlement value of the stock index warrants, or if the stock index warrants
have a minimum expiration value, the warrantholders will receive the greater of
the cash settlement value and the applicable minimum expiration value. The
minimum expiration value may be either a fixed amount or an amount that varies
during the term of the stock index warrants in accordance with a schedule or
formula.
We may cancel the stock index warrants upon the occurrence of an
extraordinary event described in the prospectus supplement. We may suspend any
exercise of the stock index warrants and postpone the valuation of or payment
for such warrants upon the occurrence of an exercise limitation event described
in the prospectus supplement. Upon cancellation, suspension or postponement, the
affected stock index warrantholders may be entitled to receive only the
applicable cancellation amount or alternative settlement amount specified in the
prospectus supplement. The cancellation amount or alternative settlement amount
may be either a fixed amount or an amount that varies during the term of the
stock index warrants in accordance with a specified schedule or formula.
The prospectus supplement will state the terms of any stock index warrants
we offer, including, as applicable:
- the aggregate amount of such stock index warrants;
- the offering price of such stock index warrants;
- the stock index for such stock index warrants, which may be based on U.S.
or foreign stocks or a combination thereof and may be a preexisting U.S.
or foreign
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stock index compiled and published by a third party or an index based on
a group of underlying stocks we select, and certain information regarding
the stock index and the underlying stocks;
- whether the stock index warrants are stock index put warrants, stock
index call warrants or another type of stock index warrants;
- the dates on which the right to exercise the stock index warrants begins
and expires;
- the manner in which the stock index warrants may be exercised;
- the minimum number, if any, of stock index warrants exercisable at any
one time;
- the maximum number of stock index warrants that may be exercised on any
day;
- any provisions permitting a stock index warrantholder to condition an
exercise notice on the absence of certain specified changes in the Spot
Index after the exercise date, any provisions permitting us to suspend
exercise of or to redeem such stock index warrants based on market
conditions or other circumstances and any other special provisions
relating to the exercise of such stock index warrants;
- any provisions for the automatic exercise of such stock index warrants;
- any provisions permitting us to suspend the exercise of, or postpone the
valuation of or payment for, stock index warrants;
- the method of determining the amount payable in connection with the
exercise or cancellation of stock index warrants;
- the method of providing for a substitute index or otherwise determining
the amount payable in connection with the exercise of stock index
warrants if the stock index changes or ceases to be made available by its
publisher;
- the time or times at which we will make payments on stock index warrants;
- the national securities exchange or quotation system on which the stock
index warrants will be listed, if at all;
- whether we may issue stock index warrants in certificated form;
- if stock index warrants are not issued in book-entry form, the place or
places at which we will pay the cash settlement value, cancellation
amount, if any, alternative settlement amount, if any, and minimum
expiration value, if any, of the stock index warrants;
- U.S. federal tax consequences;
- procedures for book entry and settlement; and
- procedures for modification.
ADDITIONAL ISSUANCES OF OTHER STOCK INDEX WARRANTS; MERGER, CONSOLIDATION, SALE
OR OTHER DISPOSITIONS; ENFORCEABILITY OF RIGHTS BY STOCK INDEX WARRANTHOLDERS
Unless otherwise indicated in the prospectus supplement, the information
provided under "Description of the Foreign Currency Exchange
Warrants -- Additional Issuances of Other Currency Warrants, -- Merger,
Consolidation, Sale or Other Dispositions" and
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"-- Enforceability of Rights by Currency Warrantholders" will apply to the stock
index warrants and the holders thereof.
DESCRIPTION OF THE OTHER WARRANTS
GENERAL
The following summarizes the general terms and provisions of the other
warrants to which any prospectus supplement may relate. The particular terms of
any other warrants we offer will be described in the prospectus supplement.
We will issue each of the other warrants under a separate warrant agreement
between us and a bank or trust company, as warrant agent. A single bank or trust
company may act as warrant agent for more than one issue of other warrants. The
warrant agent will act solely as our agent under the applicable warrant
agreement and will not assume any obligation or relationship of agency or trust
for or with any holders of such other warrants. The following summary of certain
provisions of the other warrants and the form of other warrant agreement are not
complete. We strongly urge you to read all the provisions of the other warrants
and the other warrant agreement.
We may have the right to "reopen" any outstanding issue of other warrants
by issuing additional other warrants of such issue. Although we would do so only
in a manner we believe would not adversely affect the trading price of the
outstanding other warrants of such issue, we cannot guarantee that the reopening
of any outstanding issue of other warrants will not have a material adverse
effect on the trading price of outstanding other warrants of such issue.
Each other warrant will entitle the warrantholder to receive from us the
cash settlement value of the warrant, which will be in U.S. dollars. In the case
of a put warrant, we will determine the amount by referring to the amount, if
any, by which a predetermined value of a commodity or a predetermined level or
range of levels of a commodity index, as applicable (the "Commodity Strike
Rate"), exceeds the then-current value of a commodity or the level of the
commodity index, as applicable (the "Commodity Spot Rate") on a date following
the exercise date. In the case of a call warrant, we will determine the amount
by referring to the amount, if any, by which the Commodity Spot Rate on the
valuation date exceeds the Commodity Strike Rate. The prospectus supplement for
an issue of other warrants will state the formula pursuant to which we will
determine the cash settlement value of the other warrants. The Commodity Strike
Rate may either be a fixed amount or an amount that varies during the term of
the other warrants in accordance with a schedule or formula.
We will settle the other warrants only in U.S. dollars and, accordingly,
they will not entitle a warrantholder to sell, deliver, purchase or take
delivery of any commodity or non-U.S. currency to or from us. We will have no
obligation to, nor will we, purchase or take delivery of or sell or deliver any
commodity or non-U.S. currency from or to the warrantholders pursuant to the
other warrants.
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The prospectus supplement will state the terms of any other warrants we
offer, including, as applicable:
- the aggregate amount of such other warrants;
- the offering price of such other warrants;
- either (1) the commodity or (2) the commodity index, which may be
compiled and published by a third party or based on commodity indexes we
select;
- whether such other warrants are put warrants or call warrants;
- the dates on which the right to exercise such other warrants begins and
expires;
- the manner in which such other warrants may be exercised;
- the minimum number, if any, of other warrants exercisable at any one
time;
- the maximum number of other warrants that may be exercised on any day;
- any provisions permitting a warrantholder to condition an exercise notice
on the absence of certain specified changes in the Commodity Spot Rate
after the exercise date, any provisions permitting us to suspend exercise
of or to redeem such other warrants based on market conditions or other
circumstances and any other special provisions relating to the exercise
of such other warrants;
- any provisions for the automatic exercise of such other warrants;
- any provisions permitting us to suspend the exercise of, or postpone the
valuation of or payment for, such other warrants;
- the method of determining the amount payable in connection with the
exercise or cancellation of such other warrants;
- the time or times at which we will make payments on such other warrants;
- the national securities exchange or quotation system on which such other
warrants will be listed, if at all;
- whether we may issue other warrants in certificated form;
- if other warrants are not issued in book-entry form, the place or places
at which we will pay the cash settlement value, cancellation amount, if
any, alternative settlement amount, if any, and minimum expiration value,
if any, of the other warrants;
- U.S. federal income tax consequences;
- procedures for book entry and settlement; and
- procedures for modification.
ADDITIONAL ISSUANCES OF OTHER WARRANTS; MERGER, CONSOLIDATION, SALE OR OTHER
DISPOSITIONS; ENFORCEABILITY OF RIGHTS BY OTHER WARRANTHOLDERS
Unless otherwise indicated in the prospectus supplement, the information
provided under "Description of the Foreign Currency Exchange
Warrants -- Additional Issuances of
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Other Currency Warrants, -- Merger, Consolidation, Sale or Other Dispositions"
and "-- Enforceability of Rights by Currency Warrantholders" will apply to the
other warrants and the holders thereof.
PLAN OF DISTRIBUTION
We may sell the securities (1) through underwriters or dealers, (2) through
agents, or (3) directly to one or more purchasers. The applicable prospectus
supplement will describe the terms of the offering of the securities, including:
- the name or names of any underwriters, if any;
- the purchase price of the securities and the proceeds we will receive
from the sale;
- any underwriting discounts and other items constituting underwriters'
compensation;
- any initial public offering price;
- any discounts or concessions allowed or reallowed or paid to dealers; and
- any securities exchange or market on which the securities may be listed.
Only underwriters named in the prospectus supplement are underwriters of
the securities offered by the prospectus supplement.
If underwriters are used in the sale, they will acquire the securities for
their own account and may resell them from time to time in one or more
transactions at a fixed public offering price or at varying prices determined at
the time of sale. We may offer the securities to the public through underwriting
syndicates represented by managing underwriters or by underwriters without a
syndicate. Subject to certain conditions, the underwriters will be obligated to
purchase all the securities of the series offered by the prospectus supplement.
Any public offering price and any discounts or concessions allowed or reallowed
or paid to dealers may change from time to time.
We may sell securities directly or through agents we designate from time to
time. We will name any agent involved in the offering and sale of securities and
we will describe any commissions we will pay the agent in the prospectus
supplement. Unless the prospectus supplement states otherwise, our agent will
act on a best-efforts basis for the period of its appointment.
We may authorize agents or underwriters to solicit offers by certain types
of institutional investors to purchase securities from us at the public offering
price set forth in the prospectus supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
We will describe the conditions to these contracts and the commissions we must
pay for solicitation of these contracts in the prospectus supplement.
We may provide agents and underwriters with indemnification against certain
civil liabilities, including liabilities under the Securities Act, or
contribution with respect to payments that the agents or underwriters may make
with respect to such liabilities. Agents and underwriters may engage in
transactions with, or perform services for, us in the ordinary course of
business.
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All securities we offer other than common stock will be new issues of
securities with no established trading market. Any underwriters may make a
market in these securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. We cannot guarantee
the liquidity of the trading markets for any securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain restrictions on employee benefit plans that are subject to ERISA, and on
those persons who are fiduciaries with respect to such plans. In accordance with
ERISA's general fiduciary requirements, a fiduciary with respect to any plan who
is considering the purchase of any of these securities on behalf of a plan
should determine whether such purchase is permitted under the governing plan
documents, is prudent and is appropriate for the plan in view of its overall
investment policy and the composition and diversification of its portfolio.
Other provisions of ERISA and section 4975 of the Internal Revenue Code of 1986,
as amended, prohibit certain transactions involving the assets of a plan and
persons who are "parties in interest" within the meaning of ERISA or
"disqualified persons" within the meaning of section 4975 of the Code. Thus, a
plan fiduciary considering the purchase of such securities should consider
whether such a purchase might constitute or result in a prohibited transaction
under ERISA or section 4975 of the Code. A prohibited transaction, in addition
to imposing potential personal liability on the fiduciaries of the plan, may
also result in the imposition of a civil penalty under ERISA or an excise tax
under the Code upon parties in interest or disqualified persons with respect to
the plan. In addition, if the plan involved in a prohibited transaction is an
individual retirement account or annuity, the IRA or annuity would lose its
tax-exempt status.
An underwriter involved in the sale of securities and its affiliates may be
considered a party in interest or a disqualified person with respect to a plan
purchasing securities because, among other reasons, such underwriter or its
affiliate provides services to the plan. We might also be a party in interest or
disqualified person with respect to such a plan. For a plan subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of section 4975 of the Code, including IRAs and other plans described
in section 4975(a)(1) of the Code, the purchase of securities from an
underwriter considered a party in interest or a disqualified person may
constitute or result in a nonexempt prohibited transaction under ERISA or
section 4975 of the Code, unless the securities are acquired pursuant to and in
accordance with an applicable exemption. Some possible exemptions include:
- Prohibited transaction class exemption (PTCE) 84-14, an exemption for
certain transactions determined by an independent qualified professional
asset manager;
- PTCE 91-38, an exemption for certain transactions involving bank
collective funds;
- PTCE 90-1, an exemption for certain transactions involving insurance
company pooled separate accounts;
- PTCE 95-60, an exemption for certain transactions involving life
insurance company general accounts;
- PTCE 96-23, an exemption for certain transactions involving in-house
asset managers; and
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- PTCE 75-1, Part II or Part III, exemptions for certain principal
transactions involving sales or purchases of securities between plans and
parties in interest.
Likewise, if we are a party in interest or disqualified person with respect
to a plan, the plan should assure itself that an exemption to the prohibited
transaction provisions of ERISA and section 4975 of the Code applies to its
acquisition and holding of any of these securities. Any pension or other
employee benefit plan considering the acquisition of any of these securities
should consult with its counsel prior to acquiring such securities.
LEGAL MATTERS
Perkins Coie LLP, Seattle, Washington, will provide Amazon.com with an
opinion as to the legality of the securities we are offering.
EXPERTS
The consolidated financial statements of Amazon.com appearing in
Amazon.com's Annual Report (Form 10-K) for the year ended December 31, 1998,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Junglee Corp., incorporated in this prospectus
by reference to Amazon.com's Current Report on Form 8-K filed August 27, 1998,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference and has been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of e-Niche Incorporated, incorporated
by reference to Amazon.com's Current Report on Form 8-K filed May 12, 1999, have
been audited by PricewaterhouseCoopers LLP, independent accountants, as stated
in their report, which is incorporated herein by reference and has been so
incorporated in reliance on the report of such firm as experts in auditing and
accounting.
The financial statements of Alexa Internet, incorporated by reference to
Amazon.com's Current Report on Form 8-K filed May 12, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report,
which is incorporated herein by reference and has been so incorporated in
reliance on the report of such firm as experts in auditing and accounting.
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PRINCIPAL OFFICE OF AMAZON.COM
1200 12th Avenue South, Suite 1200
Seattle, WA 98144
TRUSTEE
The Bank of New York
101 Barclay Street
New York, New York 10286
LUXEMBOURG PAYING, CONVERSION AND LISTING AGENT
Banque Internationale a Luxembourg S.A.
69, route d'Esch
L-2953, Luxembourg
LEGAL ADVISERS
<TABLE>
<S> <C>
To the Company To the Underwriters
as to United States Law as to United States Law
Gibson Dunn & Crutcher LLP Shearman & Sterling
One Montgomery Street 1550 El Camino Real
Telesis Tower Menlo Park, CA 94025-4100
San Francisco, CA 94104-4505
</TABLE>
AUDITORS TO THE COMPANY
Ernst & Young LLP
999 Third Avenue, Suite 3500
Seattle, WA 98104
<PAGE> 132
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