Amazon.com 2003 Annual Report Download - page 74

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Depending on the amount and the timing, an unfavorable resolution of some or all of these matters could
materially affect our business, future results of operations, financial position, or cash flows in a particular period.
Inventory Suppliers
During 2003, no vendor accounted for 10% or more of our inventory purchases. 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.
Note 8—STOCKHOLDERS’ DEFICIT
Preferred Stock
We have authorized 500,000,000 shares of $0.01 par value Preferred Stock. No preferred stock shares were
outstanding during 2003, 2002, or 2001.
Stock Award Plans
Our stock award plans consist of the 1999 Nonofficer Employee Stock Option Plan, the 1997 Stock
Incentive Plan, and the Amended and Restated 1994 Stock Option Plan. Shares reserved under these plans
consist of 40 million shares in the 1999 Nonofficer Employee Stock Option Plan, 124 million shares in the 1997
Stock Incentive Plan and 58 million shares in the 1994 Stock Option Plan, of which up to a maximum of
21,025,075 shares that are not issued under that plan may be added to the aggregate number of shares available
for issuance under the 1997 Stock Incentive Plan. In connection with certain acquisitions in 1998 and 1999, we
assumed outstanding options to purchase common stock originally granted under the acquired companies’ stock
option plans. Our stock award plans as well as the assumed stock award plans are hereby collectively referred to
as the “Plans.”
In 2002, we transitioned to using restricted stock units, awarded under the 1997 Stock Incentive Plan, as our
primary vehicle for employee equity compensation. Employees vest in restricted stock unit awards ratably over
the corresponding service term, generally three to six years. As it relates to stock option awards, our Board of
Directors generally sets an exercise price of not less than the fair market value of our common stock at the date
of grant. Generally, outstanding options granted on or subsequent to December 20, 1996 have a term of 10 years
from the date of grant. Subject to Internal Revenue Service limitations, options granted under our plans prior to
April 1999 and granted under certain assumed plans generally became exercisable immediately, but are subject to
a restriction on transfer that lapses over a period of time. Options granted under the Plans since April 1999
generally vest and become exercisable in accordance with the following vesting schedule: 20% after year one,
20% after year two and 5% at the end of each quarter for years three through five. Certain outstanding options
that were granted during 2000 and 2001 vest and become exercisable at the rate of 50% after year one and 50%
after year two. During the first quarter of 2001, we offered a limited non-compulsory exchange of employee
stock options to employees meeting certain eligibility criteria. Options granted pursuant to this stock option
exchange vested and became exercisable at the rate of 25% after 6 months from the date of grant and 4.166% per
month for the succeeding 18 months. Certain options granted in the third quarter of 2001 generally vest and
become exercisable as follows: (i) the option vests quarterly in equal installments over a 36, 48 or 60 month
period commencing on dates ranging from grant date to October 1, 2003, (ii) the option vests 5% to 12.5% on a
date approximately 12 to 16 months from date of grant with the balance vesting quarterly in equal installments
over a 48 to 60 month period, or (iii) the option vests 4% to 12.5% on dates approximately 6 months and 18
months from the date of grant with the balance vesting quarterly in equal installments over a 24 or 60 month
period. Shares issued upon exercise of options that are unvested are restricted and subject to repurchase by us at
the exercise price upon termination of employment or services and such restrictions lapse over the vesting
schedule. At December 31, 2003, approximately 800,000 shares of restricted common stock, which includes
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