Amazon.com 2002 Annual Report Download - page 76

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
the notes being redeemed, together with accrued interest. As deÑned in the indenture, a ""fundamental
change'' is the occurrence of certain types of transactions in which the stockholders do not receive
publicly-traded securities.
The indenture governing the 4.75% Convertible Subordinated Notes contains certain aÇrmative
covenants of the Company, including making principal and interest payments when due, maintaining its
corporate existence and properties, paying taxes and other claims in a timely manner and the provision of
information required under Rule 144A of the Securities Act of 1933 to enable holders to sell without
registration. The Company was in compliance with these covenants at December 31, 2002.
Based upon quoted market prices, the fair value of the 4.75% Convertible Subordinated Notes as of
December 31, 2002 and December 31, 2001 was $925 million and $625 million, respectively.
Senior Discount Notes
In 1998, the Company completed the oÅering of approximately $326 million of 10% Senior Discount
Notes due May 1, 2008 (""Original Senior Discount Notes''). Pursuant to a registration statement on
Form S-4 in September 1998, the Company completed an exchange oÅer of 10% Senior Discount Notes
due 2008 (""Exchange Notes'' or ""Senior Discount Notes''), which are registered under the Securities Act
of 1933, as amended, for all outstanding Original 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 Ñnancial statements interchangeably with the Original Senior Discount Notes). The
Exchange Notes were issued under the indenture governing the Original Senior Discount Notes
(""Indenture''). The Original Senior Discount Notes were sold at a substantial discount from their original
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 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.
During 1999, the Company repurchased $266 million (principal amount) of the Senior Discount
Notes, representing accreted value of $178 million, resulting in a remaining outstanding principal amount
of $264 million. The Company recorded an immaterial loss on extinguishment of this debt. No repurchases
of Senior Discount Notes occurred in 2002, 2001 or 2000.
The Senior Discount Notes are senior unsecured indebtedness of the Company ranking equally 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 eÅectively 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 deÑned in the Indenture) to incur indebtedness, pay dividends,
prepay subordinated indebtedness, repurchase capital stock, make investments, create liens, engage in
transactions with stockholders and aÇliates, sell assets and engage in mergers and consolidations. However,
these limitations are subject to a number of important qualiÑcations and exceptions. The Company was in
compliance with all covenants at December 31, 2002.
Based upon quoted market prices, the fair value of the outstanding Senior Discount Notes was
$263 million and $194 million as of December 31, 2002 and December 31, 2001, respectively.
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