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Argent Classic Convertible Arbitrage Fund LP, Et Al. V. Amazon.Com, Inc

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Case 2:01-cv-00640-RSL Document 52 Filed 04/08/2002 Page 1 of 127 THE HON RABLE ROBERT S LAI 1 4f 1 1. 2 3 -^_ D - ENTERED __ 4 LODGED---^RECEIVED 5 APR 0 8 2002 MR 6 il11l 1111 IN w ^D157UA TSD^D"STRICT`^ RILT OF WASHINGTON CV 01- 00640 900000052 7 DEPUTY 8 UNITED STATES DISTRICT COURT 9 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 10 11 ARGENT CLASSIC CONVERTIBLE ARBITRAGE FUND, L.P., on behalf of itself 12 all others similarly situated, No C01-0640L 13 Plaintiff, COMPLAINT-CLASS ACTION 14 V. LEAD PLAINTIFF ARGENT 15 CLASSIC CONVERTIBLE 16 AMAZON.COM INC., JEFFREY P. BEZOS, ARBITRAGE FUND, L P.'S FIRST JILL COVEY, TOM A. ALBERG, SCOTT D. AMENDED CLASS ACTION 17 COOK, L JOHN DOERR, AND PATRICIA Q COMPLAINT FOR VIOLATIONS STONESIFER, OF THE SECURITIES ACT OF 1933 18 19 Defendants. JURY DEMAND 20 Lead Plaintiff Argent Classic Convertible Arbitrage Fund, L P. ("Lead Plaintiff' or 21 22 "Plaintiff'), individually and on behalf of all other persons similarly situated, by its undersigned 23 attorneys, for its first amended complaint, alleges as follows upon personal knowledge as to itself 24 and its own acts, and upon information and belief as to all other matters, based upon the 25 investigation made by and through its attorneys, which investigation included, inter alia, a review of 26 the public documents and press releases of Amazon.com, ("Amazon" or the "Company") and 27 Inc. 28 other defendants and the pleadings filed in this Court in other securities actions filed against McKay Chadwell, C LEAD PLAINTIFF' S FIRST AMENDED COMPLAINT - CLASS ACT ML I , ii Avenue, Suite -1 01 (COI-0640L) - 1 U le, Washington 981 G \CLIENTSk01337\001\PLEADll{GS\FISTAMENDEDCOMPLAINT .2 PLD DOC ) 800 Fax (206) 23 -2809 Case 2:01-cv-00640-RSL Document 52 Filed 04/08/2002 Page 2 of 127 defendants Lead Plaintiff believes that further substantial evidentiary support will exist for the 2 allegations set forth below after a reasonable opportunity for discovery NATURE OF ACTION 4 1. Plaintiff brings this action as a class action pursuant to the Securities Act of 1933 as (the "1933 Act") to remedy defendants' negligent conduct. None of the pleadings contained 6 herein should be read to claim, invoke or assert any element of fraud against any defendant. 7 8 Plaintiff does not claim, invoke or assert any such element. Plaintiff brings this action on 9 behalf of itself and all other persons, except defendants and certain related parties, who 10 purchased the 6.875% Premium Adjustable Convertible Securities due 2010 ("PEACS") of 11 Amazon at any time from their initial offering (which was announced on February 7, 2000 12 and which closed on or about February 2000) through including October 24, 2000 13 16, and 14 (the "Class Period"), to recover damages caused by defendants' violation of the 1933 Act. 15 2 The PEACS were publicly offered pursuant to an offering that was announced on or about 16 February 7, 2000 (along with the filing of the Preliminary Prospectus) and that closed on or 17 about February 16, 2000 (the "Offering") This action arises from untrue statements and 18 19 omissions of material facts contained in the Offering Documents.1 These untrue statements 20 and omissions concern the nature and amount of revenues to be received by Amazon under 21 agreements reached between Amazon and its partners in what Amazon termed the "Amazon 22 I 23 The PEACS were issued pursuant to a registration statement on Form S-3 filed with the Securities Exchange Commission (the "SEC") on May 19, 1999, as amended on Form S-3/A filed with the SEC on June 8, 24 1999 (collectively, the "Universal Shelf Registration Statement"), providing for the issuance of up to $2 billion in various classes of equity, debt, warrants and other securities which incorporated other documents (the 25 "Offering Documents") filed with the Securities Exchange Commission, including (i) an indenture between Amazon and the Bank ofNew York, dated February 16, 2000, and 26 included as an exhibit to Amazon's Form 8-K filed with the SEC on February 16, 2000, (n) a Preliminary Prospectus Supplement on Form 424B5 filed with the SEC on February 7, 2000 27 (the "Preliminary Prospectus"), and (in) a Final Prospectus Supplement on Form 424B5 filed with the SEC on or about February 14, 28 2000 (the "Prospectus") McKay Chadwell , PLLC LEAD PLAINTIFF'S FIRST AMENDED COMPLAINT - CLASS ACTION 701 Fifth Avenue, suite 7201 (C01-0640L) - 2 Seattle, Washington 98104 Cr\CLIENTS\O1337\0011PL EADINGSIFISTAI ENDEDCOMJ'LAINr 2 PIA DOC (206) 233-2800 Fax (206) 233-2809 Case 2:01-cv-00640-RSL Document 52 Filed 04/08/2002 Page 3 of 127 S Commerce Network." This action also arises from defendants' sale of the PEACS in 1 2 violation of Section 5 of the 1933 Act and Section 12 of the 1933 Act. 3 3. The Amazon Commerce Network ("ACN") was the name given to a business initiative 4 developed by Amazon in late 1999 and early 2000. During this time, Amazon entered into 5 agreements with a series of other internet retailers (Amazon' s partners in the Amazon 6 Commerce Network). The agreements purportedly involved two features: (i) a minority 7 8 equity investment by Amazon in its ACN partner, and (ii) the promotion of the partner's 9 products, or the integration of the partner's products or services, on Amazon's website, in 10 exchange for a cash fee payable to Amazon. 11 4 Between January 21, 2000 and February 1, 2000, Amazon issued in quick succession four 12 13 press releases announcing such agreements with four companies : Greenlight.com, 14 drugstore coin, Audible, Inc., and living.com. Each of these press releases, as described in 15 detail below, specified the equity stake that Amazon had taken in its partner and specified the 16 fees to be paid by the partner to Amazon in exchange for the services provided by Amazon 17 In the four press releases, Amazon announced that its partners would pay to Amazon a total 18 19 of $362.5 million -- $82.5 million from Greenlight corn; $105 million from drugstore coin; 20 $30 million from Audible, Inc.; and $145 million from living coin over the next three to five 21 years. 22 5. During late January 2000, Amazon senior management communicated the terms of these 23 ACN transactions to various securities analysts at Morgan Stanley & Co , Credit Suisse First 24 25 Boston, and Donaldson Luflcin & Jenrette ("DLY'), including without limitation Mary 26 Meeker of Morgan Stanley and Jamie Kiggen of Donaldson, Lufkin & Jenrette (now Credit 27 Suisse First Boston) who were, at least as early as late January, 2000, involved in 28 McKay Chadwell, PLLC LEAD PLAINTIFF' S FIRST AMENDED COMPLAINT - CLASS ACTION 701 Fifth Avenue, Suite 7201 (CO1-0640L) - 3 Seattle, Washington 98104 G LIENTS10 1 3 3 7100 11PLEADINGS\FISTAMENDEDCONIPLAINT 2 PLD.DOC (206) 233-2800 Fax(206)233-2809 Case 2:01-cv-00640-RSL Document 52 Filed 04/08/2002 Page 4 of 127 with Amazon to underwrite a large prospective offering of Eurobonds by Amazon 1 2 According to analyst reports from these investment banks, which were underwriting the 3 PEACS Offering, these agreements were highly material "watershed" events in Amazon's 4 history and highly material to Amazon's financial condition and to investors See Exhibits A 5 - G. Further, according to analyst reports issued during the period February 1, 2000 through 6 the PEACS Offering date by these investment banks underwriting the PEACS Offering, the 7 8 ACN cash fees payable to Amazon under such agreements (1) were, in toto, actually higher 9 than $362 5 million (according to Morgan Stanley, approximately $450 million; according to 10 DLJ, "over $500 million"); (ii) would "accelerate Amazon's path to profitability" because 11 the ACN fee revenue had virtually no costs associated with it -- i.e , because ACN cash fees 12 were nearly pure profit or, as stated by Kiggen and DLJ, "a 100% gross margin revenue 13 14 stream;" and (iii) would result in $120 million of additional income to Amazon in Fiscal Y 15 2000. See Exhibits B, C, F and G. 16 6. These Underwriters also stated in these reports that they expected more ACN deals and that 17 the ACN deals would increase Amazon' s gross margins. 18 19 7. On February 7, 2000, Amazon publicly announced its intention to conduct a convertible debt 20 offering, and filed with the SEC a Preliminary Prospectus Supplement for the Offering. On 21 February 14, 2000, Amazon filed a Prospectus Supplement in final form for an offering of 22 E600 million of PEACS Both Prospectus Supplements prominently featured a section titled 23 "Recent Developments" that described the four ACN agreements -- and the $362.5 million to 24 25 be received by Amazon under those agreements 26 8 On February 16, 2000, Amazon announced the successful completion of its PEACS 27 raising E690 million from investors (including over-allotments). 28 McKay Chadwell, PLLC LEAD PLAINTIFF'S FIRST AMENDED COMPLAINT - CLASS ACTION 701 Fifth Avenue, Suite 7201 (COI-0640L) - 4 Seattle, Washington 98104 G \CLIENTSID1337\0011PLEADINGSWISTAMENDEDCOMPLAINT 2 PLD DOC (206) 233-2800 Fax (206) 233-2809 Case 2:01-cv-00640-RSL Document 52 Filed 04/08/2002 Page 5 of 127 9 However, defendants omitted to disclose prior to the Offering -- in the Offering Documents 1 2 or elsewhere -- that nearly all of its ACN fees would be paid to Amazon not in cash but in 3 form of restricted equity of its ACN partners.
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