Sample Business Contracts


Incentive Stock Option Letter Agreement - Amazon.com Inc. and Joy D. Covey


                                AMAZON.COM, INC.

                     INCENTIVE STOCK OPTION LETTER AGREEMENT


TO:      Joy D. Covey

         We are pleased to inform you that you have been selected by the Board
of Directors of Amazon.com, Inc., a Delaware corporation (the "Company"), to
receive a stock option (the "Option") for the purchase of 160,000 shares (the
"Option Shares") of the Company's Common Stock at an exercise price of $1.50 per
share.

         The terms of the Option are as set forth in this Agreement and in the
Company's Amended and Restated 1994 Stock Option Plan (the "Plan"), a copy of
which is attached. This Agreement is limited by and subject to the express terms
and provisions of the Plan. Unless otherwise provided in this Agreement, defined
terms will have the meaning given to such terms in the Plan.

         1. DATE OF GRANT: The Option is granted effective as of December 20,
1996.

         2. STATUS OF OPTION: The Option is intended to be an incentive stock
option as described in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), but the Company does not represent or warrant that the
Option qualifies as such.

         3. TERM: The term of the Option is ten years from the date of grant,
unless sooner terminated as a result of termination of your employment or
services with the Company or upon a Terminating Event, as described in the Plan
and Section 12 of this Agreement.

         4. VESTING: The Option shall vest according to the following schedule:

<TABLE>
<CAPTION>
            DATE ON AND AFTER WHICH OPTION IS                          PORTION OF TOTAL OPTION WHICH IS
                         VESTED                                                     VESTED
                         ------                                                     ------
<S>           <C>                                                              <C>
                    DECEMBER 9, 1997                                                  20%
                    DECEMBER 9, 1998                                                  40%
              Every three months thereafter                                    An additional 5%
</TABLE>

Any Option Shares that have not yet vested according to the schedule set forth
above shall be considered "Unvested Shares." Upon cessation of your employment
or services on behalf of the Company for any reason, no further vesting of the
Option will occur and any unvested portion of the Option will terminate.
<PAGE>   2
         4.1 ACCELERATION OF VESTING: In the event of a "Transfer of Control"
the vesting schedule set forth above shall accelerate automatically by one year
for each remaining unvested installment of the Option. Such acceleration shall
not be contingent upon any change in employment status, role, or responsibility
level occurring in connection with such an event. For this purpose, a Transfer
of Control shall be deemed to have occurred in the event of any of the following
events with respect to the Company: (i) the direct or indirect sale or exchange
by the stockholders of the Company of all or substantially all of the stock of
the Company where the stockholders of the Company before such sale or exchange
do not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such sale or exchange; (ii) a
merger in which the Company is not the surviving corporation; (iii) a merger in
which the Company is the surviving corporation where the stockholders of the
Company before such merger do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the Company after
such merger; (iv) the sale, exchange, or transfer of all or substantially all of
the Company's assets; or (v) a liquidation or dissolution of the Company.

         5. RIGHT TO EXERCISE: The Option shall be immediately exercisable for
any or all of the Option Shares, subject to your agreement that any unvested
shares of stock purchased upon exercise are subject to the Company's repurchase
rights set forth in paragraph 6 below. Notwithstanding the foregoing, except as
provided in paragraph 15 below, the aggregate fair market value of the stock
with respect to which you may exercise the Option for the first time during any
calendar year, together with any other incentive stock options which are
exercisable by you for the first time under any Company plan during any such
year, as determined in accordance with Section 422 of the Code, shall not exceed
$100,000 (the "$100,000 Exercise Limitation"). To the extent the exercisability
of the Option is deferred by reason of the $100,000 Exercise Limitation, the
deferred portion of the Option will first become exercisable in the first
calendar year or years thereafter in which the $100,000 Exercise Limitation
would not be contravened.

         6. COMPANY REPURCHASE RIGHT:

                  (a) By accepting the Option, you hereby grant to the Company
an option (the "Repurchase Option") to repurchase any Option Shares that remain
Unvested Shares on the earlier of (i) the date you cease to be employed by or
provide services to the Company (including a parent or subsidiary of the
Company) for any reason whatsoever, including, without limitation, termination
with or without cause, death or permanent disability and (ii) the date you or
your legal representative attempts to sell, exchange, transfer, pledge or
otherwise dispose of any Unvested Shares (other than pursuant to a Terminating
Event, as that term is defined in Section 10.2 of the Plan).

                  (b) The Company may exercise the Repurchase Option by giving
you written notice within 60 days after (i) such termination of employment or
services (or

                                      -2-
<PAGE>   3
exercise of the Option, if later) or (ii) the Company has received notice of the
attempted disposition. If the Company fails to give notice within such 60-day
period, the Repurchase Option shall terminate, unless you and the Company have
extended the time for the exercise of the Repurchase Option. The Repurchase
Option must be exercised, if at all, for all the Unvested Shares, except as you
and the Company otherwise agree.

                  (c) Payment to you by the Company shall be made in cash within
30 days after the date of the mailing of the written notice of exercise of the
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness you owe to the Company shall be treated as payment to you in cash
to the extent of the unpaid principal and any accrued interest canceled. The
purchase price per share being repurchased by the Company shall be an amount
equal to your original cost per share, as adjusted as provided in the Plan. You
shall deliver the shares of stock being repurchased to the Company at the same
time as the Company delivers the purchase price to you.

                  (d) You hereby authorize and direct the Company's Chief
Financial Officer or transfer agent to transfer to the Company any Unvested
Shares as to which the Repurchase Option is exercised.

                  (e) The Company shall have the right to assign the Repurchase
Option at any time, whether or not the Repurchase Option is then exercisable, to
one or more persons as may be selected by the Company.

                  (f) The Repurchase Option shall remain in full force and
effect in the event of a Terminating Event, provided that if the Administrative
Committee determines that an assumption or substitution of options outstanding
under the Plan will not be made in connection with the Terminating Event and the
vesting of such options is therefore accelerated pursuant to Section 10.2 of the
Plan, the Repurchase Option shall terminate and all Unvested Shares shall
immediately vest in full.

                  (g) Nothing in this Agreement shall affect in any manner
whatsoever the right or power of the Company, or a parent or subsidiary of the
Company, to terminate your employment or services on behalf of the Company, for
any reason, with or without cause.

                  (h) Subject to the terms and conditions of this Agreement, the
Unvested Shares may not be sold, transferred, pledged, encumbered or disposed of
under any circumstances, whether voluntarily, by operation of law, by gift or by
the applicable laws of descent and distribution. Any attempted transfer of any
Unvested Shares in conflict with this Agreement shall be null and void.

         7. MARKET STANDOFF: By accepting the Option, you hereby agree that, in
connection with any underwritten public offering by the Company of its equity
securities pursuant to an effective registration statement filed under the
federal Securities Act of

                                      -3-
<PAGE>   4
1933, as amended (the "Securities Act"), including the Company's initial public
offering, you shall not sell or make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose of or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Option Shares without the prior written
consent of the Company or its underwriters. Such limitations (the "Market
Standoff") shall be in effect only if and to the extent and for such period of
time as may be requested by the Company or such underwriters and agreed to by
the Company's officers and directors; provided, however, that in no event shall
the weighted average number of days in such period exceed 180 days. The Market
Standoff shall in all events terminate two years after the effective date of the
Company's initial public offering. In order to enforce the Market Standoff, the
Company may impose stop-transfer instructions with respect to the Option Shares
until the end of the applicable standoff period.

         8. SHAREHOLDERS AGREEMENT: By accepting the Option you hereby agree to
execute, on the date you exercise the Option, a shareholders agreement (the
"Shareholders Agreement") in the form in use at such time (unless at such time
the Company's Common Stock is publicly traded or the Shareholders Agreement has
otherwise terminated), whereby under certain circumstances you grant the Company
and certain of its other shareholders a right of first offer to purchase the
Option Shares and agree not to dispose of the Option Shares until after December
31, 1999 without the Company's prior consent.

         9. CAPITAL ADJUSTMENTS: In the event of any stock dividend, stock split
or consolidation of shares or any like capital adjustment of any of the
outstanding securities of the Company, any and all new, substituted or
additional securities or other property to which you are entitled by reason of
ownership of the Option Shares shall be immediately subject to this Agreement
and shall be included in the definition of the Option Shares for all purposes
and shall be subject to the Repurchase Option, the Shareholders Agreement, the
Market Standoff and other terms of this Agreement. While the aggregate
repurchase price for Unvested Shares shall remain the same after each such
event, the repurchase price per Unvested Share upon execution of the Repurchase
Option shall be appropriately adjusted.

         10. METHOD OF EXERCISE: The Option may be exercised by written notice
to the Company, in form and substance satisfactory to the Company, which must
state the election to exercise the Option, the number of shares of stock for
which the Option is being exercised and such other representations and
agreements as to your investment intent with respect to such shares as may be
required pursuant to the provisions of this Agreement and the Plan. The written
notice must be accompanied by full payment of the exercise price for the number
of shares of stock being purchased.

                                      -4-
<PAGE>   5
         11. FORM OF PAYMENT: The Option exercise price may be paid, in whole or
in part, (i) in cash, by check, or by cash equivalent, or (ii) by any other form
of payment permitted by the Plan Administrator.

         12. EARLY TERMINATION: The Option will terminate in its entirety three
months after cessation of employment or services on behalf of the Company or its
affiliated companies, unless cessation is due to (i) disability, in which case
the Option shall terminate one year after cessation of employment or services on
behalf of the Company, or (ii) death, in which case the Option will terminate
one year after death.

         13. LIMITED TRANSFERABILITY: The Option is not transferable except by
will or by the applicable laws of descent and distribution. During your lifetime
only you can exercise the Option. The Plan provides for exercise of the Option
by the personal representative of your estate or the beneficiary thereof
following your death.

         14. NOTICE OF DISQUALIFYING DISPOSITION: To obtain certain tax benefits
afforded to incentive stock options under Section 422 of the Code, an optionee
must hold the shares issued upon the exercise of an incentive stock option for
two years after the date of grant of the option and one year from the date of
exercise. An optionee may be subject to the alternative minimum tax at the time
of exercise. Tax advice should be obtained when exercising any option and prior
to the disposition of the shares issued upon the exercise of any option. By
accepting the Option, you hereby agree to promptly notify the Company's Chief
Financial Officer if you dispose of any of the Option Shares within one year
from the date you exercise all or part of the Option or within two years of the
date of grant of the Option.

         15. EXCEPTION TO $100,000 EXERCISE LIMITATION: Notwithstanding any
other provision of this Agreement, if compliance with the $100,000 Exercise
Limitation as set forth in paragraph 5 above will result in the exercisability
of any vested shares being delayed more than 30 days beyond the vesting date for
such shares, the Option shall be deemed to be two options. The first Option
shall be for the maximum number of shares subject to the Option that can comply
with the $100,000 Exercise Limitation without causing the Option to be
unexercisable as to vested shares. The second Option, which shall not be treated
as an incentive stock option, shall be for the balance of the shares subject to
the Option and shall be exercisable on the same terms and at the same time as
set forth in this Agreement; provided, however, that (i) the second sentence of
paragraph 4 above shall not apply to the second option and (ii) such shares
shall become vested shares on the same date or dates as set forth in this
Agreement without regard to this paragraph. Unless you specifically elect to the
contrary in your written notice of exercise, the first option shall be deemed to
be exercised first to the maximum possible extent and then the second option
shall be deemed to be exercised.

                                      -5-
<PAGE>   6
         16. REGISTRATION: YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 13
OF THE PLAN, WHICH DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL
AND STATE SECURITIES LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE
EXERCISED AND BEFORE THE COMPANY CAN ISSUE ANY SHARES TO YOU. By accepting the
Option, you hereby acknowledge that you have read Section 13 of the Plan and
that you are hereby making the representations and acknowledgments to the
Company, and entering into the indemnity and other obligations to the Company,
therein specified.

         17. BINDING EFFECT: This Agreement shall inure to the benefit of the
successors and assigns of the Company and be binding upon you and your heirs,
executors, administrators, successors and assigns.

         Please execute the following Acceptance and Acknowledgment and return
it to the undersigned.

                                     Very truly yours,

                                     AMAZON.COM, INC.


                                     By     Jeff P. Bezos
                                        ---------------------------------------
                                        Its
                                           ------------------------------------

                                      -6-
<PAGE>   7
                                            

                          ACCEPTANCE AND ACKNOWLEDGMENT


         I, a resident of the State of Washington, accept the incentive stock
option described in this Agreement and in Amazon.com, Inc.'s Amended and
Restated 1994 Stock Option Plan, and acknowledge receipt of a copy of this
Agreement and a copy of the Plan. I have read and understand the Plan, including
the provisions of Section 13, and I hereby make the representations, warranties
and acknowledgments, and undertake the indemnity and other obligations, therein
specified. As a condition to my exercise of this stock option, I agree to
execute the Company's Shareholders Agreement and Stock Purchase Agreement in
effect at such time.

Dated as of:  Dec 23, 1996
            ----------------

        -  -                                            Joy Covey
-----------------------------                  --------------------------------
Taxpayer I.D. Number                                  ------------------

                                            Address 2432 E. Calhoun
                                                   ----------------------------
                                                  Seattle, WA  98112
                                            -----------------------------------

                                            -----------------------------------


         By his or her signature below, the spouse of the Optionee, if such
Optionee is legally married as of the date of his or her execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of this Agreement and the Plan.

         Dated:
                ------------------


                                            -----------------------------------
                                            Spouse's Signature

                                            -----------------------------------
                                            Printed Name

         By his or her signature below, the Optionee represents that he or she
is not legally married as of the date of execution of this Agreement.

         Dated:    Jan 5, 1997
                ------------------

                                              Joy Covey
                                       ----------------------------------------
                                       Optionee's Signature

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