NetFlix 2004 Annual Report Download - page 82

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NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share, per share and percentages)
addition, the Company’s 2002 Stock Plan provides for annual increases in the number of shares available for
issuance on the first day of each year, beginning with 2003, equal to the lesser of:
• 5 percent of the outstanding shares of common stock on the first day of the applicable year;
• 2,000,000 shares; and
• such other amount as the Company’s Board of Directors may determine.
As of December 31, 2004, 3,646,003 shares were reserved for future issuance under the 2002 Stock Plan.
Options generally expire in 10 years, however, they may be limited to five years if the optionee owns stock
representing more than 10 percent of the Company. Generally, the Company’s Board of Directors grants options
at an exercise price of not less than the fair value of the Company’s common stock at the date of grant. Prior to
the third quarter of 2003, the vesting periods generally provided for options to vest over three to four years.
During the third quarter of 2003, the Company began granting fully vested options on a monthly basis.
In 2001, the Company offered its employees the right to exchange certain employee stock options. The
exchange resulted in the cancellation of employee stock options to purchase 1.8 million shares of common stock
with varying exercise prices in exchange for options to purchase 1.8 million shares of common stock with an
exercise price of $1.50 per share.
A summary of the activities related to the Company’s options is as follows:
Options Outstanding
Shares
Available
for Grant
Number of
Shares
Weighted-
Average
Exercise
Price
Balances as of December 31, 2001 ............. 3,569,434 5,998,946 $ 1.49
Authorized ............................ 1,333,334 — —
Granted ............................... (3,540,286) 3,540,286 $ 2.05
Exercised ............................. — (882,166) $ 1.48
Canceled .............................. 456,006 (456,006) $ 1.82
Repurchased ........................... 3,458 — —
Balances as of December 31, 2002 ............. 1,821,946 8,201,060 $ 1.71
Authorized ............................ 2,000,000 — —
Granted ............................... (705,030) 705,030 $16.78
Exercised ............................. — (2,657,934) $ 1.86
Canceled .............................. 351,572 (351,572) $ 2.24
Balances as of December 31, 2003 ............. 3,468,488 5,896,584 $ 3.42
Authorized ............................ 2,000,000 — —
Granted ............................... (1,447,940) 1,447,940 $22.04
Exercised ............................. — (1,298,308) $ 2.87
Canceled .............................. 230,464 (230,464) $10.20
Balances as of December 31, 2004 ............. 4,251,012 5,815,752 $ 7.91
Options exercisable as of December 31:
2002 ................................. 2,577,066 $ 1.49
2003 ................................. 3,367,308 $ 4.21
2004 ................................. 4,845,243 $ 8.97
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