Sample Business Contracts


Incentive Stock Option Letter Agreement - Amazon.com Inc. and Sheldon Kaphan


                                AMAZON.COM, INC.

                              AMENDED AND RESTATED
                    INCENTIVE STOCK OPTION LETTER AGREEMENT


TO:      Sheldon Kaphan

         This Amended and Restated Incentive Stock Option Letter Agreement
(this "Agreement") amends and supersedes paragraph 2(c) of the Employment
Agreement between you and the Company dated October 24, 1994, regarding the
grant to you of a stock option (the "Option") for the purchase of 709,568
shares (the "Option Shares") of the Common Stock of Amazon.com, Inc., a
Delaware corporation (the "Company") at an exercise price of $.001471 per
share (reflects stock split effected on November 23, 1996).

         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 October
                 24, 1994.

         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:  Your right to exercise each vesting installment of the
Option will expire five years after the vesting date for that installment,
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 schedule set
forth in Section 2(c)(i) of your Employment Agreement, a copy of which is
attached hereto as Exhibit A and incorporated herein by reference.  Any Option
Shares that have not yet vested according to the schedule set forth in Exhibit
A 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 SCHEDULE:  In the event (i) the
Company enters into a purchase and sale agreement whereby substantially all of
the Company's assets will be sold to an unrelated thirty party or (ii) more
than ninety-five percent (95%) of the total issued and outstanding shares of
the Company are to be sold pursuant to a stock transfer agreement to an
unrelated third party (herein an "Accelerating Event"), any installments of the
option not yet vested shall conditionally vest and the Employee will have the
right to exercise such installment(s) of the option subject to the following:

                 (a)      Exercise.  The terms and conditions of the Employee's
right to exercise any installment as set forth herein shall remain the same
except that the exercise must occur concurrent with the successful consummation
of the Accelerating Event.

                 (b)      Failure to Exercise or Consummate.  In the event the
Employee fails to exercise any installment of the option concurrent with the
consummation of the Accelerating Event, or, for whatever reason, the
Accelerating Event is not consummated, the Employee's right to exercise the
conditionally vested shares expire and the vesting schedule as set forth in
Exhibit A shall control the date of the Employee's right to exercise the next
installment of the option.

                 (c)      Accelerating Event.  Accelerating Event shall not
include (i) corporate reorganizations where shareholders of the successor
company(s) are substantially the same as the Company's shareholders and/or (ii)
the assignment of shares of stock in the Company among family members, whether
for estate planning or otherwise.

         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, 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 executing this Agreement, 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



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<PAGE>   3



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 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.





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<PAGE>   4



         7.      MARKET STANDOFF:  By executing this Agreement, 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 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.





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<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 executing this Agreement, 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.     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.

         16.     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.





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<PAGE>   6



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

                                        Very truly yours,



                                        AMAZON.COM, INC.



                                        By Joy Covey
                                          --------------------------------

                                        Its CFO
                                           -------------------------------




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<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:   January 14, 1997      



         -  -                                     Sheldon J. Kaphan
---------------------                 -------------------------------------
Taxpayer I.D. Number                              Sheldon J. Kaphan

                                      Address   7748 32nd Ave NE          
                                               ----------------------------
                                                Seattle, WA  98115        
                                      -------------------------------------

                                
         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:   January 14, 1997      
                 ------------------------

                                                 Sheldon J. Kaphan     
                                      -------------------------------------
                                                Optionee's Signature






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