SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
MICROSOFT CORPORATION
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MICROSOFT CORPORATION
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
[LOGO OF MICROSOFT CORPORATION APPEARS HERE]
September 27, 1996
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Microsoft Corporation which will be held at the Meydenbauer Center, 11100 N.E.
6th Street, Bellevue, Washington, on November 12, 1996, at 8:00 a.m. I look
forward to greeting as many of our shareholders as possible.
Details of the business to be conducted at the annual meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
Whether or not you attend the annual meeting it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to sign,
date, and promptly return the enclosed proxy in the enclosed postage-paid
envelope. If you decide to attend the annual meeting and vote in person, you
will of course have that opportunity.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company.
Sincerely,
/s/ Robert J. Herbold
Robert J. Herbold
Executive Vice President and Chief
Operating Officer
MICROSOFT CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 12, 1996
To The Shareholders:
The annual meeting of the shareholders of Microsoft Corporation will be held
at the Meydenbauer Center, 11100 N.E. 6th Street, Bellevue, Washington, on
November 12, 1996, at 8:00 a.m. for the following purposes:
1. To elect directors.
2. To approve an amendment to the Company's 1991 Stock Option Plan to
reserve an additional 100,000,000 shares of common stock for
issuance thereunder.
3. To approve the adoption of the 1997 Employee Stock Purchase Plan,
including the reservation of 10,000,000 shares of common stock
thereunder.
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on September 9, 1996
are entitled to notice of, and to vote at, this meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William H. Neukom
William H. Neukom, Secretary
Redmond, Washington
September 27, 1996
IMPORTANT
Whether or not you expect to attend in person, we urge you to sign, date, and
return the enclosed Proxy at your earliest convenience. This will ensure the
presence of a quorum at the meeting. PROMPTLY SIGNING, DATING, AND RETURNING
THE PROXY WILL SAVE THE COMPANY THE EXPENSES AND EXTRA WORK OF ADDITIONAL
SOLICITATION. An addressed envelope for which no postage is required if mailed
in the United States is enclosed for that purpose. Sending in your Proxy will
not prevent you from voting your stock at the meeting if you desire to do so,
as your Proxy is revocable at your option.
MICROSOFT CORPORATION
ONE MICROSOFT WAY
REDMOND, WASHINGTON 98052
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD NOVEMBER 12, 1996
This Proxy Statement, which was first mailed to shareholders on September
27, 1996, is furnished in connection with the solicitation of proxies by the
Board of Directors of Microsoft Corporation (the "Company"), to be voted at
the annual meeting of the shareholders of the Company, which will be held at
8:00 a.m. on November 12, 1996, at the Meydenbauer Center, 11100 N.E. 6th
Street, Bellevue, Washington, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. Shareholders who execute proxies
retain the right to revoke them at any time prior to the exercise of the
powers conferred thereby, by delivering a signed statement to the Secretary of
the Company at or prior to the annual meeting or by executing another proxy
dated as of a later date. The cost of solicitation of proxies is to be borne
by the Company.
Shareholders of record at the close of business on September 9, 1996 will be
entitled to vote at the meeting on the basis of one vote for each share held.
On September 9, 1996, there were 596,226,947 shares of common stock
outstanding, held of record by 38,044 shareholders.
1. ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
Eight directors are to be elected at the annual meeting, to hold office
until the next annual meeting of shareholders and until their successors are
elected and qualified. It is intended that the accompanying proxy will be
voted in favor of the following persons to serve as directors unless the
shareholder indicates to the contrary on the proxy. Management expects that
each of the nominees will be available for election, but if any of them is not
a candidate at the time the election occurs, it is intended that such proxy
will be voted for the election of another nominee to be designated by the
Board of Directors to fill any such vacancy.
NOMINEES
William H. Gates, 40, was a founder of the Company and has been its Chief
Executive Officer and Chairman of the Board since the Company's predecessor
partnership was incorporated in 1981. From 1975 to 1981, Mr. Gates was a
partner with Paul Allen, Microsoft's other founder, in the predecessor
partnership.
Paul G. Allen, 43, has been a director of the Company since 1990, and also
served on the Board from 1981 to 1984. Mr. Allen was a founder of the Company
and worked at Microsoft from 1975 to 1984. Mr. Allen owns and invests in a
suite of companies exploring the potential of multimedia digital
communications. His majority-owned companies include Asymetrix Corporation,
Starwave Corporation, Vulcan Ventures Inc., and Ticketmaster Corporation. He
is also the owner of the Portland Trail Blazers basketball team, a partner in
the entertainment studio DreamWorks SKG, and holds investments in more than 35
technology companies.
Jill E. Barad, 45, was appointed as a director of the Company in February
1996. Ms. Barad has been president and chief operating officer of Mattel Inc.
since 1992, and has been designated to become chief executive officer of
Mattel effective January 1, 1997. Starting as a product manager at Mattel in
1981, she was named executive vice president of marketing and worldwide
product development in 1986 and, in 1989, president of the girls and activity
toys division. In 1990 she was named president of Mattel USA. Ms. Barad is
also a director of Mattel, Bank of America National Trust & Savings
Association, and BankAmerica Corporation.
Richard A. Hackborn, 59, has been a director of the Company since 1994. Mr.
Hackborn retired in 1993 from Hewlett-Packard Company, which designs,
manufactures, and services electronic products and systems for measurement,
computation, and communications, and currently serves on that company's Board
of Directors.
From 1990 to 1993, he was Hewlett-Packard's Executive Vice President, Computer
Products Organization, and from 1984 through 1990, he was its Vice President
and General Manager, Peripherals Group.
David F. Marquardt, 47, has served as a director of the Company since 1981.
Mr. Marquardt is a founding general partner of August Capital, formed in 1995,
and has been a general partner of various Technology Venture Investors
entities, which are private venture capital limited partnerships, since August
1980. He is a director of Auspex Systems, Inc., Farallon Communications, Inc.,
Visioneer, Inc., and various privately held companies.
Robert D. O'Brien, 82, has been a director of the Company since 1986. He was
Chairman of the Board of PACCAR, Inc. between 1965 and 1978. Between 1974 and
1983, Mr. O'Brien was Chairman of the Board of Univar Corporation and he
served on that Board between 1966 and 1985.
William G. Reed, Jr., 57, has been a director of the Company since 1987.
From 1971 to 1986, Mr. Reed was Chairman of Simpson Timber Company, a forest
products company. From 1986 to 1996, Mr. Reed was Chairman of Simpson
Investment Company, a forest products holding company which is the parent of
Simpson Timber Company. He is also a director of Safeco Corporation,
Washington Mutual, Inc., and the Seattle Times Company.
Jon A. Shirley, 58, served as President and Chief Operating Officer of
Microsoft from 1983 to 1990. He has been a director of the Company since 1983.
Mr. Shirley also serves as Chairman of the Board of Directors of Mentor
Graphics Corporation.
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
The Company's Board of Directors has an Audit Committee, a Compensation
Committee, and a Finance Committee. There is no standing nominating committee.
Messrs. O'Brien, Reed, and Shirley serve on the Audit Committee, which meets
with financial management, the internal auditors, and the independent auditors
to review internal accounting controls and accounting, auditing, and financial
reporting matters. Messrs. Hackborn, Marquardt, O'Brien, and Reed serve on the
Compensation Committee, which reviews the compensation of the Chief Executive
Officer and other officers of the Company, reviews executive bonus plan
allocations, and grants stock options to officers and employees of the Company
under its stock option plan. Messrs. Hackborn, Marquardt, and Shirley serve on
the Finance Committee, which reviews and provides guidance to the Board of
Directors and management with respect to major financial policies of the
Company.
The Audit Committee and Compensation Committee each met four times during
fiscal 1996. The Finance Committee met three times. The entire Board of
Directors met four times. All directors attended 75% or more of the aggregate
number of Board meetings and committee meetings.
Messrs. Gates and Allen receive no cash compensation for serving on the
Board except for reimbursement of reasonable expenses incurred in attending
meetings. Pursuant to agreements with the Company, the other six directors are
each paid $8,000 per year plus $1,000 for each Board meeting and $500 for each
committee meeting they attend. During fiscal 1996, Messrs. Allen, Marquardt,
O'Brien, Reed, and Shirley each received an annual option to purchase 5,000
shares of the Company's common stock, and Ms. Barad received a 15,000-share
stock option in connection with her appointment to the Board. The exercise
price of each option was the market price of Microsoft common stock on the
date of grant.
2
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS,
DIRECTORS, AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's common shares by the nominees for directors, the
Company's Chief Executive Officer and the four other highest paid executive
officers ("Named Executive Officers"), and the directors and executive
officers as a group.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
OF COMMON SHARES AS
NAMES OF 9/9/96(1) PERCENT OF CLASS
----- -------------------- ----------------
William H. Gates................... 141,108,235(2)(3) 23.7%
Paul G. Allen...................... 53,898,474(4) 9.0
Jill E. Barad...................... 0 0
Richard A. Hackborn................ 10,000(5) *
David F. Marquardt................. 339,745(6) *
Robert D. O'Brien.................. 138,987(7) *
William G. Reed, Jr................ 228,200(8) *
Jon A. Shirley..................... 1,775,915(9) *
Steven A. Ballmer.................. 29,952,991(2) 5.0
Robert J. Herbold.................. 25,464(10) *
Paul A. Maritz..................... 509,029(11) *
Bernard R. Vergnes................. 430,250(12) *
Executive Officers and Directors
as a group (22 persons)........... 232,179,493(13) 38.7
- --------
* Less than 1.0%
(1) Beneficial ownership represents sole voting and investment power. To the
Company's knowledge, the only shareholders who beneficially owned more
than 5% of the outstanding common shares as of September 9, 1996, were
Messrs. Gates, Allen, and Ballmer.
(2) The business address for Messrs. Gates and Ballmer is: Microsoft
Corporation, One Microsoft Way, Redmond, Washington 98052.
(3) Does not include 27,280 shares owned by Mr. Gates' wife, as to which he
disclaims beneficial ownership.
(4) Includes 150,000 shares which may be purchased within 60 days of
September 9, 1996, pursuant to outstanding stock options ("Vested
Options"). Mr. Allen's business address is: The Paul Allen Group, 110-
110th Avenue N.E., Suite 530, Bellevue, Washington 98004.
(5) Includes 10,000 Vested Options.
(6) Includes 105,000 Vested Options.
(7) Includes 56,264 shares held by RDOB Limited Partnership, a family
limited partnership, of which Mr. O'Brien is one of three general
partners, and 60,000 Vested Options.
(8) Includes 105,000 Vested Options.
(9) Includes 10,680 shares held by Mr. Shirley as trustee under trusts for
two grandsons and 105,000 Vested Options.
(10) Includes 25,000 Vested Options.
(11) Includes 504,750 Vested Options.
(12) Includes 48,750 Vested Options.
(13) Includes 3,813,907 Vested Options.
3
INFORMATION REGARDING EXECUTIVE OFFICER COMPENSATION
CASH COMPENSATION
The following table discloses compensation received for the three fiscal
years ended June 30, 1996, by the Company's Chief Executive Officer and the
four other Named Executive Officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
----------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(1) OPTIONS(#) COMPENSATION(2)
------------------ ---- -------- -------- ------------ ---------------
William H. Gates........ 1996 $340,618 $221,970 0 $ 0
Chairman of the Board;
Chief 1995 275,000 140,580 0 0
Executive Officer;
Director 1994 275,000 182,545 0 0
Steven A. Ballmer....... 1996 271,869 212,905 0 4,875
Executive Vice
President, 1995 249,174 162,800 0 4,770
Sales and Support 1994 238,750 188,112 0 4,722
Robert J. Herbold....... 1996 471,672 608,245 0 12,633
Executive Vice
President; Chief 1995 286,442 453,691 325,000 99,241
Operating Officer
Paul A. Maritz.......... 1996 244,382 222,300 24,000 5,175
Group Vice President,
Platforms 1995 203,750 138,794 150,000 4,722
1994 188,750 160,278 50,000 4,722
Bernard P. Vergnes...... 1996 398,001 226,191 0 0
Senior Vice President,
Microsoft; 1995 356,660 169,785 150,000 0
President of Microsoft
Europe 1994 300,481 196,885 40,000 0
- --------
(1) The amounts disclosed in the Bonus column were all awarded under the
Company's Executive Bonus Plan, except that the amounts disclosed for Mr.
Herbold include payments of $250,000 each year pursuant to a signing
bonus. See the description of Mr. Herbold's employment agreement on page
6.
(2) The amounts disclosed in this column only include Company contributions
under the Company's 401(k) plan, except that the 1995 number for Mr.
Herbold also includes $93,358 related to the Company's purchase and
subsequent sale of his former home in Ohio and $4,758 for life insurance
premiums, and the 1996 number also includes $4,758 for life insurance
premiums.
4
COMPENSATION PURSUANT TO STOCK OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information on option grants in
fiscal 1996 to the Named Executive Officers.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------------
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
---- ------------- -------------- --------- ---------- ----- -------- ----------
William H. Gates........ 0 0.00% $ 0 N/A $ 0 $ 0 $ 0
Steven A. Ballmer....... 0 0.00 0 N/A 0 0 0
Robert J. Herbold....... 0 0.00 0 N/A 0 0 0
Paul A. Maritz.......... 24,000 0.08 96.40 July 2002 0 941,868 2,194,952
Bernard P. Vergnes...... 0 0.00 0 N/A 0 0 0
- --------
(1) All options listed were granted pursuant to the 1991 Stock Option Plan.
Option exercise prices were generally at the market price when granted.
The options have a term of 7 years and vest over 4 1/2 years. The exercise
price and federal tax withholding may be paid in cash or with shares of
Microsoft stock already owned.
(2) Potential realizable values are based on assumed annual rates of return
specified by the Securities and Exchange Commission. By way of comparison,
using the same assumed annual rates of stock price appreciation over the
seven-year term of the stock options granted in July 1995 above, all
Microsoft shareholders would realize the following increases in the market
value of their stock: $0 (0% appreciation); $23.1 billion (5% annual
appreciation); and $53.8 billion (10% annual appreciation). Microsoft
management has consistently cautioned shareholders and option holders that
such increases in values are based on speculative assumptions and should
not inflate expectations of the future value of their holdings.
5
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal 1996
by the Named Executive Officers and the value of such officers' unexercised
options at June 30, 1996.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
William H. Gates........ 0 $ 0 0 0 $ 0 $ 0
Steven A. Ballmer....... 0 0 0 0 0 0
Robert J. Herbold....... 0 0 25,000 300,000 1,446,875 17,362,500
Paul A. Maritz.......... 0 0 489,250 211,500 52,591,656 14,580,338
Bernard P. Vergnes...... 0 0 37,500 182,500 3,400,938 13,595,312
ROBERT J. HERBOLD EMPLOYMENT AGREEMENT
Mr. Herbold joined Microsoft in November 1994. Microsoft offered him an
attractive compensation package in order to convince him to leave Procter &
Gamble after over 25 years at that company. His base salary in fiscal 1996 was
$475,000, and he was guaranteed a minimum bonus of $200,000 in each of his
first two years. He also received $250,000 upon hiring, and will receive
$250,000 per year for three years, payable at each of the first three
anniversaries of his hire date. He received stock options for 325,000 shares
when he joined the Company. He will not be eligible for additional stock
options until 1999. He receives enhanced health and disability benefits during
and after his employment. Microsoft agreed to purchase a $650,000 whole life
policy and a $1.35 million term life policy to replace policies he had at P&G.
In the event Mr. Herbold's employment is terminated prior to the fourth
anniversary of his hire date, for any reason other than "Misconduct" or
voluntary resignation, Microsoft will provide him the following severance
benefits: (i) an immediate lump sum payment equal to the greater of (a) all
compensation that would have been paid to him if he had continued in
Microsoft's employ for four years following his hire date, or (b) the sum of
his annual base salary at the time of termination plus the Executive and Merit
Bonuses awarded to him for the most recently completed fiscal year, multiplied
by two; and (ii) immediate vesting of all unvested options under his 100,000-
share option (4 1/2-year vesting schedule) and immediate vesting of that
portion of his 225,000-share option (7 1/2-year vesting schedule) which would
have vested during the four years following his hire date. If Mr. Herbold's
employment is terminated after the fourth anniversary of his hire date, for
any reason other than Misconduct or voluntary resignation, the parties will
negotiate in good faith a reasonable severance package with a minimum of 18
months' base salary. For severance purposes, Misconduct is limited to the
commission of a felony or any other intentional misconduct that has a material
adverse effect upon the business or reputation of Microsoft.
6
REPORT OF THE MICROSOFT CORPORATION
BOARD OF DIRECTORS COMPENSATION COMMITTEE
Microsoft's employee compensation policy is to offer a package including a
competitive salary, an incentive bonus based upon individual performance
goals, competitive benefits, and an efficient workplace environment. The
Company also encourages broad-based employee ownership of Microsoft stock
through a stock option program in which all employees are eligible to
participate.
The Company's compensation policy for officers is similar to that for other
employees, and is designed to promote continued performance and attainment of
corporate and personal goals.
The Compensation Committee of the Board of Directors (comprised entirely of
non-employee directors) reviews and approves individual officer salaries,
bonus plan financial performance goals, bonus plan allocations, and stock
option grants. The Committee also reviews guidelines for compensation, bonus,
and stock option grants for non-officer employees.
Officers of the Company are paid salaries in line with their
responsibilities. These salaries are structured to be within the median range
of salaries paid by competitors in the computer and other relevant industries.
Competitors selected for salary comparison purposes differ from the companies
included in the Nasdaq Computer and Data Processing Stocks which is used in
the Performance Graph that follows this report. Officers also participate in
the Executive Bonus Plan. Each officer is eligible to receive a discretionary
bonus of up to 15% of base salary based upon individually established
performance goals. Officers are also eligible for financial performance
bonuses of up to 90% of base salary, with amounts based on a graduated formula
which takes into account predetermined corporate revenue and profit goals and,
in the case of officers with profit and loss responsibility, group revenue and
profit goals. The maximum total bonus under the Executive Bonus Plan is 105%
of base salary. The Compensation Committee establishes aggressive revenue and
profit goals as an incentive for superior individual, group, and corporate
performance. Likewise, stock option grants to officers (and other employees)
promote success by aligning employee financial interests with long-term
shareholder value. Stock option grants are based on various subjective factors
primarily relating to the responsibilities of the individual officers, and
also to their expected future contributions and prior option grants.
As noted above, the Company's compensation policy is primarily based upon
the practice of pay-for-performance. Section 162(m) of the Internal Revenue
Code imposes a limitation on the deductibility of nonperformance-based
compensation in excess of $1 million paid to Named Executive Officers. The
Committee currently believes that the Company should be able to continue to
manage its executive compensation program for Named Executive Offers so as to
preserve the related federal income tax deductions.
The Compensation Committee annually reviews and approves the compensation of
William H. Gates, the Chief Executive Officer. Mr. Gates also participates in
the Executive Bonus Plan, with his bonus tied to corporate revenue and profit
goals, but does not participate in the individual performance portion of the
Executive Bonus Plan. His maximum possible bonus is 90% of his base salary.
The Committee believes Mr. Gates is paid a reasonable salary, and his bonus is
based on the same corporate financial goals as the other officers of the
Company. In addition, Mr. Gates is a significant shareholder in the Company,
and to the extent his performance as CEO translates into an increase in the
value of the Company's stock, all shareholders, including him, share the
benefits.
COMPENSATION COMMITTEE
Richard A. Hackborn
David F. Marquardt
Robert D. O'Brien
William G. Reed, Jr.
7
PERFORMANCE GRAPH
Note: Microsoft management consistently cautions that the stock price
performance shown in the graph below should not be considered indicative of
potential future stock price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG MICROSOFT CORPORATION, S&P 500 INDEX, AND NASDAQ COMPUTER & DATA
PROCESSING SERVICES (C&DPS) INDEX
[PERFORMANCE GRAPH APPEARS HERE]
Measurement Period MICROSOFT S&P NASDAQ
(Fiscal Year Covered) CORPORATION 500 INDEX C&DPS INDEX
- ------------------- ----------- --------- -----------
Measurement Pt- 6/30/91 $100 $100 $100
FYE 6/30/92 $154 $110 $138
FYE 6/30/93 $194 $121 $175
FYE 6/30/94 $227 $120 $176
FYE 6/30/95 $398 $147 $287
FYE 6/30/96 $529 $181 $381
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Rolf Skoglund and Michel Lacombe each filed a late Form 5 reporting the
receipt of a single stock option grant in fiscal 1995. Steven A. Ballmer,
William H. Gates, Michael J. Maples, David F. Marquardt, William H. Neukom,
and Jon A. Shirley each filed a late Form 4 reporting a single transaction.
The February 1996 Form 4 reports for Mr. Marquardt and Paul G. Allen were
filed on time, but were later amended to include information regarding a
single transaction.
2. PROPOSAL FOR AMENDMENT OF 1991 STOCK OPTION PLAN
In October 1991, the shareholders approved the 1991 Stock Option Plan (the
"Option Plan"). The Company is presently authorized to issue 160 million
shares of common stock upon the exercise of options granted under the Option
Plan.
The shareholders will be requested at the meeting to approve an amendment to
the Option Plan which increases by 100 million the number of shares that may
be issued under the Option Plan. The purpose of the Option Plan is to promote
Company success by aligning employee financial interests with long-term
shareholder value. The Board believes that the number of shares remaining
available for issuance will be insufficient to achieve the purpose of the
Option Plan over the term of the plan unless the additional shares are
authorized. Other non-material changes have been made to the Option Plan by
the Board to reflect changes in the Beneficial Ownership Rules of Section 16
of the Securities Exchange Act of 1934. These changes are reflected in the
following description. A copy of the Option Plan as proposed to be amended may
be obtained upon written request to the Company's Investor Relations
Department at the address listed on page 14.
8
DESCRIPTION OF THE PLAN
The Option Plan was initially approved by the shareholders in October 1991.
As initially approved, the Option Plan reserved 60 million shares (adjusted
for stock splits since October 1991) of the Company's common stock for
issuance pursuant to stock options to be granted under the Option Plan. In
October 1993, the shareholders approved an increase in the number of shares
reserved for issuance under the Option Plan by 100 million shares (as adjusted
for the May 1994 stock split). The proposed amendment, if approved, would
increase the number of shares reserved for issuance under the Option Plan by
100 million shares.
The Compensation Committee of the Board of Directors (comprised entirely of
non-employee directors) has been delegated the authority to grant options
under the Option Plan to employees and officers of the Company and to
generally exercise all authority of the Board under the Option Plan.
Incentive stock options and/or nonqualified stock options may be granted to
full-time employees of the Company and its subsidiaries during the term of the
Option Plan, which expires on August 16, 2001. All employees of the Company or
any subsidiary of the Company are eligible to receive options under the Option
Plan. No employee may receive options for more than one million shares in any
one year.
Because the officers and employees of the Company who may participate and
the amount of their options are determined by the Compensation Committee in
its discretion, it is not possible to state the names or positions of, or the
number of options that may be granted to, the Company's officers and
employees.
The Compensation Committee will establish the time or times at which options
may be exercised and whether all of the options may be exercisable at one time
or in increments over time. The option price or procedure for setting the
option price shall be established by the Compensation Committee at the time of
the granting of an option. For incentive stock options, the option price may
not be less than the fair market value of the Company's stock on the date of
grant. For nonqualified stock options, the option price may be less than,
equal to, or greater than the fair market value of the Company's stock on the
date of grant. The Committee has the authority to reset the price of any stock
option after the original grant and before exercise. In the event of stock
dividends, splits, and similar capital changes, the Option Plan provides for
appropriate adjustments in the number of shares available for options and the
number and option prices of shares subject to outstanding options.
The term of each option shall be no more than ten years from the date of
grant. Options expire three months following termination of employment (but in
no event later than the date of expiration of the term of the option as set
forth in the option agreement), except in the case of permanent disability or
death. In the case of termination due to permanent disability, the option
terminates eighteen months (or such shorter period as specified in the option
agreement) from the date the employee ceases to work as a result of the
disability (but in no event later than the date of expiration of the term of
such option as set forth in the option agreement). In the case of termination
due to death, the option terminates six months (or such shorter period as
specified in the option agreement) from the date of death (but in no event
later than the date of expiration of the term of such option as set forth in
the option agreement). The Compensation Committee has the authority to extend
the foregoing expiration dates of any outstanding option in circumstances it
deems appropriate, provided that it may not extend an option beyond the
original term of such option (e.g. ten years from the date of grant).
The purchase price of the options is typically paid in cash. For
nonqualified options, the option holder must also pay the Company, at the time
of purchase, the amount of federal, state, and local withholding taxes
required to be withheld by the Company. These taxes are also typically paid in
cash. Under certain limited circumstances, shares of the Company's common
stock may be used by officers for payment of the option price or satisfaction
of withholding tax obligations. The Option Plan also permits other forms of
payment if authorized by the Board.
In the event of a proposed sale of all or substantially all of the assets of
the Company, or a merger of the Company with and into another corporation,
outstanding options shall be assumed or equivalent options shall be
substituted by such successor corporation. If the successor corporation
refuses to assume options or substitute equivalent options, the Board shall
provide all option holders with the right to immediately exercise all of their
options, whether vested or unvested.
9
In the event of a proposed dissolution or liquidation of the Company,
outstanding options will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. In such a
situation, the Board is authorized to give option holders the right to
immediately exercise all of their options, whether vested or unvested.
The Compensation Committee has the right to substitute or assume options in
connection with mergers, reorganizations, separations, or other transactions
to which Section 424(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), applies; provided such substitutions and assumptions are permitted by
Section 424 of the Code and the regulations promulgated thereunder. The number
of shares reserved for issuance under the Option Plan may be increased by the
corresponding number of options assumed and, in the case of a substitution, by
the net increase in the number of shares subject to options before and after
the substitution.
The Option Plan may be modified, amended, or terminated by the Board except
with respect to incentive stock options granted prior to such action. The
Board shall have the authority to adopt such modifications, procedures, and
subplans as may be necessary or desirable to comply with provisions of the
laws of foreign countries in which the Company or its subsidiaries may operate
to assure the viability of the benefits from options granted to employees
employed in such countries and to meet the objectives of the Option Plan.
Notwithstanding the foregoing, shareholder approval is required for any
amendment which increases the number of shares subject to the Option Plan
(other than in connection with automatic adjustments due to changes in
capitalization or the assumption or substitution of options in connection with
mergers or acquisitions). Shareholder approval may also be required if there
are "material changes" to the Option Plan for purposes of Section 162(m) of
the Code or to comply with new legislation.
The issuance of shares of common stock upon the exercise of options is
subject to registration with the Securities and Exchange Commission of the
shares reserved by the Company under the Option Plan.
The closing price of the Company's common stock as reported on the Nasdaq
Stock Market on September 9, 1996 was $124.875.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE OPTION PLAN
The federal income tax consequences of an employee's participation in the
Option Plan are complex and subject to change. The following discussion, which
has been prepared by the law firm of Preston Gates & Ellis, counsel to the
Company, is only a summary of the general rules applicable to the Option Plan.
Employees should consult their own tax advisors since a taxpayer's particular
situation may be such that some variation of the rules described below will
apply.
INCENTIVE STOCK OPTIONS
If an option granted under the Option Plan is treated as an incentive stock
option, the optionee will not recognize any income upon either the grant or
the exercise of the option, and the Company will not be allowed a deduction
for federal tax purposes. Upon a sale of the shares, the tax treatment to the
optionee and the Company will depend primarily upon whether the optionee has
met certain holding period requirements at the time he or she sells the
shares. In addition, as discussed below, the exercise of an incentive stock
option may subject the optionee to alternative minimum tax liability.
If an optionee exercises an incentive stock option and does not dispose of
the shares received within two years after the date of such option or within
one year after the transfer of the shares to him or her, any gain realized
upon the disposition will be characterized as long-term capital gain and, in
such case, the Company will not be entitled to a federal tax deduction.
If the optionee disposes of the shares either within two years after the
date the option is granted or within one year after the transfer of the shares
to him or her, such disposition will be treated as a disqualifying
10
disposition and an amount equal to the lesser of (1) the fair market value of
the shares on the date of exercise minus the purchase price, or (2) the amount
realized on the disposition minus the purchase price, will be taxed as
ordinary income to the optionee in the taxable year in which the disposition
occurs. (However, in the case of gifts, sales to related parties, and certain
other transactions, the full difference between the fair market value of the
stock and the purchase price will be treated as compensation income). The
excess, if any, of the amount realized upon disposition over the fair market
value at the time of the exercise of the option will be treated as long-term
capital gain if the shares have been held for more than one year following the
exercise of the option. In the event of a disqualifying disposition, the
Company may withhold income taxes from the optionee's compensation with
respect to the ordinary income realized by the optionee as a result of the
disqualifying disposition.
The exercise of an incentive stock option may subject an optionee to
alternative minimum tax liability because the excess of the fair market value
of the shares at the time an incentive stock option is exercised over the
purchase price of the shares is included in income for purposes of the
alternative minimum tax even though it is not included in taxable income for
purposes of determining the regular tax liability of an employee.
Consequently, an optionee may be obligated to pay alternative minimum tax in
the year he or she exercises an incentive stock option.
In general, there will be no federal income tax deductions allowed to the
Company upon the grant, exercise, or termination of an incentive stock option.
However, in the event an optionee sells or disposes of stock received on the
exercise of an incentive stock option in a disqualifying disposition, the
Company will be entitled to a deduction for federal income tax purposes in an
amount equal to the ordinary income, if any, recognized by the optionee upon
disposition of the shares, provided that the deduction is not otherwise
disallowed under the Code.
NONQUALIFIED STOCK OPTIONS
Nonqualified stock options granted under the Option Plan do not qualify as
"incentive stock options" and will not qualify for any special tax benefits to
the optionee. An optionee generally will not recognize any taxable income at
the time he or she is granted a nonqualified option. However, upon its
exercise, the optionee will recognize ordinary income for federal tax purposes
measured by the excess of the then fair market value of the shares over the
exercise price. The income realized by the optionee will be subject to income
and other employee withholding taxes.
The optionee's basis for determination of gain or loss upon the subsequent
disposition of shares acquired upon the exercise of a nonqualified stock
option will be the amount paid for such shares plus any ordinary income
recognized as a result of the exercise of such option. Upon disposition of any
shares acquired pursuant to the exercise of a nonqualified stock option, the
difference between the sale price and the optionee's basis in the shares will
be treated as a capital gain or loss and generally will be characterized as
long-term capital gain or loss if the shares have been held for more than one
year at their disposition.
In general, there will be no federal income tax deduction allowed to the
Company upon the grant or termination of a nonqualified stock option or a sale
or disposition of the shares acquired upon the exercise of a nonqualified
stock option. However, upon the exercise of a nonqualified stock option, the
Company will be entitled to a deduction for federal income tax purposes equal
to the amount of ordinary income that an optionee is required to recognize as
a result of the exercise, provided that the deduction is not otherwise
disallowed under the Code.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of holders of a majority of the shares of common stock
represented at the meeting is required to approve the amendment to the Option
Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
11
3. PROPOSAL FOR APPROVAL OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN
At the meeting, the shareholders will be requested to approve the 1997
Employee Stock Purchase Plan (the "Purchase Plan"). The Company's 1991
Employee Stock Purchase Plan expires on December 31, 1996, and the Board
recommends approval of the new Purchase Plan in order to allow the Company to
continue to offer its employees the ability to invest in the Company's common
stock at an attractive price. A copy of the Purchase Plan may be obtained upon
written request to the Company's Investor Relations Department at the address
listed on page 14.
DESCRIPTION OF THE PLAN
The Purchase Plan, if approved by the shareholders, will allow all employees
working more than 20 hours a week and more than five months a year to
authorize payroll deductions at a rate of 2, 4, 6, 8, or 10% of base pay
(including overtime or bonuses) to be applied toward the purchase of the
Company's common stock. There will be 10 million shares of common stock
reserved for issuance under the Purchase Plan. As of September 9, 1996, there
were approximately 20,282 employees eligible to participate in the Purchase
Plan. The Purchase Plan, which is to be administered by the Board, will
terminate on December 31, 2002, or earlier at the discretion of the Board or
in the event all shares reserved under the plan have been purchased.
Separate six-month offerings commence on January 1 and July 1 of each year.
No employee may purchase more than 1,000 shares of stock during any single
offering.
An employee must authorize a payroll deduction before the start of an
offering in order to participate in that offering. On the last business day of
the offering, the employee will be deemed to have exercised the option to
purchase as many shares as the employee's payroll deduction will allow, at the
option price. The option price is 85% of the lesser of (i) the fair market
value of the stock on the first business day of the offering, or (ii) the fair
market value of the stock on the last business day of the offering. The
closing price of the Company's common stock as reported on the Nasdaq Stock
Market on September 9, 1996 was $124.875.
An employee may withdraw from an offering at any time. Upon withdrawal, the
amount in the employee's account will be refunded. An employee who has
withdrawn from an offering may not again participate in the Purchase Plan
until the next offering commences.
No employee shall be permitted to purchase any shares under the Purchase
Plan if such employee, immediately after such purchase, owns shares possessing
five percent or more of the total combined voting power or value of all
classes of stock of the Company or its parent or subsidiary corporations. The
fair market value of all shares purchased by an employee under the Purchase
Plan during any calendar year may not exceed $25,000.
Because the purchase of shares under the Purchase Plan is discretionary with
all eligible employees, it would not be meaningful to include information as
to the amount of shares which would have been distributable during fiscal 1996
to all employees, or to groups of employees, or to any particular employee of
the Company had the Purchase Plan been in effect during the year.
The Board of Directors may at any time amend or terminate the Purchase Plan,
provided that no employee's existing rights under any offering already
commenced may be adversely affected thereby. No amendment may be made to the
Purchase Plan without prior approval of the shareholders of the Company if
such amendment would increase the number of shares reserved thereunder,
materially modify the eligibility requirements, or materially increase the
benefits that may accrue to participants.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE PURCHASE PLAN
The federal income tax consequences of an employee's purchases under the
Purchase Plan will vary. The following discussion, which has been prepared by
the law firm of Preston Gates & Ellis, counsel to the Company, is only a
summary of the general federal income tax rules applicable to the Purchase
Plan. Employees should consult their own tax advisors since a taxpayer's
particular situation may be such that some variation of the rules described
below will apply.
12
The Purchase Plan and the right of participants to make purchases thereunder
are intended to qualify under the provisions of Section 421 and 423 of the
Code. Under those provisions, no income will be taxable to a participant at
the time of grant of the option or purchase of shares. However, a participant
may become liable for tax upon dispositions of shares acquired under the
Purchase Plan (or if he or she dies holding such shares), and the tax
consequences will depend on how long a participant has held the shares prior
to disposition.
If the shares are disposed of (a) at least two years after the date of the
beginning of the offering period and (b) at least one year after the stock is
purchased in accordance with the Purchase Plan (or if the employee dies while
holding the shares), the following tax consequences will apply.
In this event, the lesser of (a) the excess of fair market value of the
shares at the time of such disposition over the purchase price of the shares
(the "option price"), or (b) the excess of the fair market value of the shares
at the time the option was granted over the option price (which option price
will be computed as of the offering date) will be treated as ordinary income
to the participant. Any further gain upon disposition generally will be taxed
at long-term capital gain rates. If the shares are sold and the sales price is
less than the option price, there is no ordinary income and the participant
has a long-term capital loss equal to the difference. If an employee holds the
shares for this period, no deduction in respect of the disposition of such
shares will be allowed to the Company.
If the shares are sold or disposed of (including by way of gift) before the
expiration of either the two year or the one year holding periods described
above, the following tax consequences will apply.
In this event, the amount by which the fair market value of the shares on
the date the option is exercised (which is the last business day of the
offering period and which is hereafter referred to as the "termination date")
exceeds the option price will be treated as ordinary income to the
participant. This excess will constitute ordinary income in the year of sale
or other disposition even if no gain is realized on the sale or a gratuitous
transfer of the shares is made. The balance of any gain will be treated as
capital gain and will qualify for long-term capital gain treatment if the
shares have been held for more than one year following the exercise of the
option. Even if the shares are sold for less than their fair market value on
the termination date, the same amount of ordinary income is attributed to a
participant and a capital loss is allowed equal to the difference between the
sales price and the value of such shares on such termination date. The
Company, in the event of an early disposition, will be allowed a deduction for
federal income tax purposes equal to the ordinary income realized by the
disposing employee.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of holders of a majority of the shares of common stock
represented at the meeting is required to approve the Purchase Plan. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 1997 Annual
Meeting of Shareholders must be received by the Company no later than May 30,
1997 to be included in the Company's Proxy Statement and form of proxy related
to that meeting.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of the Company. Proxies may be solicited by officers, directors, and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services. Also, W.F. Doring &
Co. may solicit proxies at an approximate cost of $12,500 plus reasonable
expenses. Such solicitations may be made personally, or by mail, facsimile,
telephone, telegraph, or messenger. The Company will pay persons holding
shares of common stock in their names or in the names of nominees, but not
owning such shares beneficially, such as
13
brokerage houses, banks, and other fiduciaries, for the expense of forwarding
solicitation materials to their principals. All of the costs of solicitation
of proxies will be paid by the Company.
VOTING TABULATION
Vote Required: Under the Washington Business Corporation Act, the election
of the Company's Directors requires a plurality of the votes represented in
person or by proxy at the meeting, and the other proposals described in the
accompanying Notice to Shareholders, including the approval of the amendment
to the 1991 Stock Option Plan and approval of the 1997 Employee Stock Purchase
Plan, require that the votes in favor exceed the votes against the proposal.
Votes cast by proxy or in person at the meeting will be tabulated by
ChaseMellon Shareholder Services.
Effect of an Abstention and Broker Non-Votes: A shareholder who abstains
from voting on any or all proposals will be included in the number of
shareholders present at the meeting for the purpose of determining the
presence of a quorum. Abstentions will not be counted either in favor of or
against the election of the nominees or other proposals. Under the rules of
the National Association of Securities Dealers, brokers holding stock for the
accounts of their clients who have not been given specific voting instructions
as to a matter by their clients may vote their clients' proxies in their own
discretion except as to Proposal 2 relating to the amendment to the 1991 Stock
Option Plan.
AUDITORS
Representatives of Deloitte & Touche LLP, independent public auditors for
the Company for fiscal 1996 and the current fiscal year, will be present at
the Annual Meeting, will have an opportunity to make a statement, and will be
available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors does not intend to bring any other business before
the meeting, and so far as is known to the Board, no matters are to be brought
before the meeting except as specified in the notice of the meeting. However,
as to any other business which may properly come before the meeting, it is
intended that proxies, in the form enclosed, will be voted in respect thereof
in accordance with the judgment of the persons voting such proxies.
DATED: Redmond, Washington, September 27, 1996.
A COPY OF THE COMPANY'S FORM 10-K REPORT FOR FISCAL YEAR 1996, CONTAINING
INFORMATION ON OPERATIONS, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
IS AVAILABLE UPON REQUEST. PLEASE WRITE TO:
INVESTOR RELATIONS DEPARTMENT
MICROSOFT CORPORATION
ONE MICROSOFT WAY
REDMOND, WASHINGTON 98052
14
MICROSOFT CORPORATION
1991 STOCK OPTION PLAN, AS AMENDED
1. Purpose of the Plan. The purposes of this Stock Option Plan are to
-------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to such individuals, and to
promote the success of the Company's business by aligning employee financial
interests with long-term shareholder value.
Options granted hereunder may be either Incentive Stock Options or
Nonqualified Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Committee, if such Committee has been
-----
appointed, or the Board of Directors of the Company, if such Committee has not
been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed; provided, however, if the Board of Directors appoints more than one
Committee pursuant to Section 4, then "Committee" shall refer to the appropriate
Committee, as indicated by the context of the reference.
(d) "Common Shares" shall mean the common shares of Microsoft Corporation.
-------------
(e) "Company" shall mean Microsoft Corporation, a Washington corporation
-------
and any successor thereto.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave,
maternity leave, infant care leave, medical emergency leave, military leave, or
any other leave of absence authorized in writing by a Vice President of the
Company prior to its commencement.
(g) "Employee" shall mean any person, including officers, employed by the
--------
Company or any Parent or Subsidiary of the Company.
A-1
(h) "Incentive Stock Option" shall mean any Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(i) "Maximum Annual Employee Grant" shall have the meaning set forth in
-------------------------------
Section 5(e).
(j) "Non-Employee Director" shall have the same meaning as defined or
interpreted for purposes of Rule 16b-3 (including amendments and successor
provisions) as promulgated by the Securities and Exchange Commission pursuant to
its authority under the Exchange Act ("Rule 16b-3").
(k) "Nonqualified Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(l) "Option" shall mean a stock option granted pursuant to the Plan.
------
(m) "Optioned Shares" shall mean the Common Shares subject to an Option.
---------------
(n) "Optionee" shall mean an Employee who receives an Option.
--------
(o) "Outside Director" shall have the same meaning as defined or
------------------
interpreted for purposes of Section 162(m) of the Code.
(p) "Parent" shall mean a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(q) "Plan" shall mean this 1991 Stock Option Plan, including any
----
amendments thereto.
(r) "Share" shall mean one Common Share, as adjusted in accordance with
-----
Section 11 of the Plan.
(s) "Subsidiary" shall mean (i) in the case of an Incentive Stock
----------
Option a "subsidiary corporation," whether now or hereafter existing, as defined
in Section 424(f) of the Code, and (ii) in the case of a Nonqualified Stock
Option, in addition to a subsidiary corporation as defined in (i), a limited
liability company, partnership or other entity in which the Company controls 50
percent or more of the voting power or equity interests.
3. Shares Subject to the Plan. Subject to the provisions of Section 11 of
--------------------------
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 260,000,000 Common Shares. The Shares may be authorized, but
unissued, or reacquired Common Shares.
A-2
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure. The Plan shall be administered by the Board of Directors of
---------
the Company.
(1) The Board of Directors may appoint one or more Committees each
consisting of not less than two members of the Board of Directors to administer
the Plan on behalf of the Board of Directors, subject to such terms and
conditions as the Board of Directors may prescribe. Once appointed, such
Committees shall continue to serve until otherwise directed by the Board of
Directors.
(2) Any grants of Options to officers who are subject to Section 16 of
the Securities Exchange Act of 1934 (the "Exchange Act") shall be made by (i) a
Committee of two or more directors, each of whom is a Non-Employee Director and
an Outside Director or (ii) as otherwise permitted by both Rule 16b-3, Section
162(m) of the Code and other applicable regulations.
(3) Subject to the foregoing subparagraphs (1) and (2), from time to
time the Board of Directors may increase the size of the Committee(s) and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, or fill vacancies however caused.
(b) Powers of the Board. Subject to the provisions of the Plan, the Board
-------------------
shall have the authority, in its discretion: (i) to grant Incentive Stock
Options or Nonqualified Stock Options; (ii) to determine, in accordance with
Section 8(b) of the Plan, the fair market value of the Shares; (iii) to
determine, in accordance with Section 8(a) of the Plan, the exercise price per
share of Options to be granted; (iv) to determine the Employees to whom, and the
time or times at which, Options shall be granted and the number of Shares to be
represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend,
and rescind rules and regulations relating to the Plan; (vii) to determine the
terms and provisions of each Option granted (which need not be identical) and,
with the consent of the holder thereof, modify or amend each Option; (viii) to
reduce the exercise price per share of outstanding and unexercised Options; (ix)
to accelerate or defer (with the consent of the Optionee) the exercise date of
any Option; (x) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board; and (xi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
A-3
(c) Effect of Board's Decision. All decisions, determinations, and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility.
-----------
(a) Options may be granted only to Employees. For avoidance of doubt,
directors are not eligible to participate in the Plan unless they are full-time
Employees.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonqualified Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair market
value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company) exceeds $100,000, such Options shall be
treated as Nonqualified Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into account in
the order in which they were granted, and the fair market value of the Shares
shall be determined as of the time the Option with respect to such Shares is
granted.
(d) Nothing in the Plan or any Option granted hereunder shall confer upon
any Optionee any right with respect to continuation of employment with the
Company, nor shall it interfere in any way with the Optionee's right or the
Company's right to terminate the employment relationship at any time, with or
without cause.
(e) The maximum number of Shares with respect to which an Option or
Options may be granted to any Employee in any one taxable year of the Company
shall not exceed 1,000,000 shares (the "Maximum Annual Employee Grant").
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect until August 16, 2001, unless sooner
terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be no more than ten (10)
--------------
years from the date of grant. However, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns Shares
representing more than ten percent (10%) of the voting power of all classes of
shares of the Company or any Parent or Subsidiary, the term of the Option shall
be no more than five (5) years from the date of grant.
8. Exercise Price and Consideration.
--------------------------------
A-4
(a) The per Share exercise price under each Option shall be such price as
is determined by the Board, subject to the following:
(1) In the case of an Incentive Stock Option
(i) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns shares representing more than ten percent (10%) of
the voting power of all classes of shares of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the fair
market value per Share on the date of grant.
(ii) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the fair market value per Share on the date of
grant.
(2) In the case of a Nonqualified Stock Option the per Share exercise
price may be less than, equal to, or greater than the fair market value per
Share on the date of grant.
(b) The fair market value per Share shall be the closing price per share
of the Common Share on the Nasdaq Stock Market ("Nasdaq") on the date of grant.
If the Shares cease to be listed on Nasdaq, the Board shall designate an
alternative method of determining the fair market value of the Shares.
(c) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the Board
at the time of grant and may consist of cash and/or check. Payment may also be
made by delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
proceeds necessary to pay the exercise price. If the Optionee is an officer of
the Company within the meaning of Section 16 of the Exchange Act, he may in
addition be allowed to pay all or part of the purchase price with Shares.
Shares used by officers to pay the exercise price shall be valued at their fair
market value on the exercise date.
(d) Prior to issuance of the Shares upon exercise of an Option, the
Optionee shall pay any federal, state, and local withholding obligations of the
Company, if applicable. If an Optionee is an officer of the Company within the
meaning of Section 16 of the Exchange Act, he may elect to pay such withholding
tax obligations by having the Company withhold Shares having a value equal to
the amount required to be withheld. The value of the Shares to be withheld
shall equal the fair market value of the Shares on the day the Option is
exercised. The right of an officer to dispose of Shares to the Company in
satisfaction of withholding tax obligations shall be deemed to be approved as
part of the initial grant of an option, unless thereafter rescinded, and shall
otherwise be made in compliance with Rule 16b-3 and other applicable
regulations.
A-5
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable at such times and under such conditions as
determined by the Board at the time of grant, and as shall be permissible under
the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the share
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such share certificate promptly upon exercise of the Option. In
the event that the exercise of an Option is treated in part as the exercise of
an Incentive Stock Option and in part as the exercise of a Nonqualified Stock
Option pursuant to Section 5(b), the Company shall issue a share certificate
evidencing the Shares treated as acquired upon the exercise of an Incentive
Stock Option and a separate share certificate evidencing the Shares treated as
acquired upon the exercise of a Nonqualified Stock Option, and shall identify
each such certificate accordingly in its share transfer records. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the share certificate is issued, except as provided in Section 11 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as Employee. In the event of termination of an
---------------------------------
Optionee's Continuous Status as an Employee, such Optionee may exercise stock
options to the extent exercisable on the date of termination. Such exercise
must occur within three (3) months (or such shorter time as may be specified in
the grant), after the date of such termination (but in no event later than the
date of expiration of the term of such Option as set forth in the Option
Agreement). To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or does not exercise such Option within
the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee as a result of total
A-6
and permanent disability (i.e., the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of twelve (12) months), the Optionee
may exercise the Option, but only to the extent of the right to exercise that
would have accrued had the Optionee remained in Continuous Status as an Employee
for a period of twelve (12) months after the date on which the Employee ceased
working as a result of the total and permanent disability. Such exercise must
occur within eighteen (18) months (or such shorter time as is specified in the
grant) from the date on which the Employee ceased working as a result of the
total and permanent disability (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement). To
the extent that the Optionee was not entitled to exercise such Option within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 9(b)
-----------------
above, in the event of the death of an Optionee:
(i) who is at the time of death an Employee of the Company, the Option
may be exercised, at any time within six (6) months following the date of death
(but in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee twelve (12)
months after the date of death; or
(ii) whose Option has not yet expired but whose Continuous Status as
an Employee terminated prior to the date of death, the Option may be exercised,
at any time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
(e) Notwithstanding subsections (b), (c), and (d) above, the Board shall
have the authority to extend the expiration date of any outstanding option in
circumstances in which it deems such action to be appropriate (provided that no
such extension shall extend the term of an option beyond the date on which the
option would have expired if no termination of the Employee's Continuous Status
as an Employee had occurred).
10. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee; provided that the Board may
permit further transferability, on a general or specific basis, and may impose
conditions and limitations on any permitted transferability.
A-7
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Option, the Maximum Annual Employee Grant and the number of
Shares which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per Share covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination, or reclassification of
the Shares, or any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding, and conclusive. Except as expressly provided herein, no issuance by
the Company of shares of any class, or securities convertible into shares of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise an Option as to all or any part of the Optioned Shares, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, each Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless such
successor corporation does not agree to assume the Option or to substitute an
equivalent option, in which case the Board shall, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all of the Optioned Shares, including Shares as to which the Option would
not otherwise be exercisable. If the Board makes an Option fully exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify the Optionee that the Option shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Company completes the corporate action
relating to the grant of an option and all conditions to the grant have been
satisfied, provided that conditions to the exercise of an option shall not defer
the date of grant. Notice of a grant shall be given to each Employee to whom an
Option is so granted within a reasonable time after the determination has been
made.
A-8
13. Substitutions and Assumptions. The Board shall have the right to
-----------------------------
substitute or assume Options in connection with mergers, reorganizations,
separations, or other transactions to which Section 424(a) of the Code applies,
provided such substitutions and assumptions are permitted by Section 424 of the
Code and the regulations promulgated thereunder. The number of Shares reserved
pursuant to Section 3 may be increased by the corresponding number of Options
assumed and, in the case of a substitution, by the net increase in the number of
Shares subject to Options before and after the substitution.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the Plan
-------------------------
from time to time in such respects as the Board may deem advisable (including,
but not limited to amendments which the Board deems appropriate to enhance the
Company's ability to claim deductions related to stock option exercises);
provided that any increase in the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the Plan, shall
require approval of or ratification by the shareholders of the Company.
(b) Employees in Foreign Countries. The Board shall have the authority to
------------------------------
adopt such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in which
the Company or its Subsidiaries may operate to assure the viability of the
benefits from Options granted to Employees employed in such countries and to
meet the objectives of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or termination
----------------------------------
of the Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
16. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
A-9
17. Shareholder Approval. The Plan, as amended, is subject to approval by
--------------------
the shareholders of the Company at the Annual Meeting of Shareholders to be held
on November 12, 1996. If the Plan, as herein amended, is not so approved by the
shareholders, the Plan, as previously approved, shall continue in effect.
[The number of shares in Sections 3 and 5(e) have been increased to reflect the
2-for-1 stock split in May 1994.]
A-10
MICROSOFT CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
Microsoft Corporation (the "Company") does hereby establish its 1997
Employee Stock Purchase Plan as follows:
1. Purpose of the Plan. The purpose of this Plan is to provide eligible
-------------------
employees who wish to become shareholders in the Company a convenient method of
doing so. It is believed that employee participation in the ownership of the
business will be to the mutual benefit of both the employees and the Company.
It is the intention of the Company to have the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code of 1986. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that Section
of the Code.
2. Definitions.
-----------
2.1 "Base pay" means regular straight time earnings, plus review
cycle bonuses and overtime payments, payments for incentive compensation, and
other special payments except to the extent that any such item is specifically
excluded by the Board of Directors of the Company (the "Board").
2.2 "Account" shall mean the funds accumulated with respect to an
individual employee as a result of deductions from his paycheck for the purpose
of purchasing stock under this Plan. The funds allocated to an employee's
account shall remain the property of the respective employee at all times but
may be commingled with the general funds of the Company.
3. Employees Eligible to Participate. Any employee of the Company or any
---------------------------------
of its subsidiaries who is in the employ of the Company on one or more offering
dates is eligible to participate in the Plan, except (a) employees whose
customary employment is less than 20 hours per week, and (b) employees whose
customary employment is for not more than five months in any calendar year.
4. Offerings. There will be twelve separate consecutive six-month
---------
offerings pursuant to the Plan. The first offering shall commence on January 1,
1997. Thereafter, offerings shall commence on each subsequent July 1 and January
1, and the final offering under this Plan shall commence on July 1, 2002 and
terminate on December 31, 2002. In order to become eligible to purchase shares,
an employee must sign an Enrollment Agreement, and any other necessary papers on
or before the commencement date (January 1 or July 1) of the particular offering
in which he wishes to participate. Participation in one offering under the Plan
shall neither limit, nor require, participation in any other offering.
5. Price. The purchase price per share shall be the lesser of (1) 85% of
-----
the fair market value of the stock on the offering date; or (2) 85% of the fair
market value of the stock on the last business day of the offering. Fair market
value shall mean the closing bid price as reported on the National Association
of Securities Dealers Automated Quotation System or, if the stock is traded on a
stock exchange, the closing price for the stock on the principal such exchange.
6. Offering Date. The "offering date" as used in this Plan shall be the
-------------
commencement date of the offering, if such date is a regular business day, or
the first regular business day following such commencement date. A different
date may be set by resolution of the Board.
7. Number of Shares to be Offered. The maximum number of shares that
------------------------------
will be offered under the Plan is 10,000,000 shares. The shares to be sold to
participants under the Plan will be common stock of the Company. If the total
number of shares for which options are to be granted on any date in accordance
with Section 10 exceeds the number of shares then available under the Plan
(after deduction
B-1
of all shares for which options have been exercised or are then outstanding),
the Company shall make a pro rata allocation of the shares remaining available
in as nearly a uniform manner as shall be practicable and as it shall determine
to be equitable. In such event, the payroll deductions to be made pursuant to
the authorizations therefor shall be reduced accordingly and the Company shall
give written notice of such reduction to each employee affected thereby.
8. Participation.
-------------
8.1 An eligible employee may become a participant by completing an
Enrollment Agreement provided by the Company and filing it with Shareholder
Services prior to the Commencement of the offering to which it relates.
8.2 Payroll deductions for a participant shall commence on the
offering date, and shall end on the termination date of such offering unless
earlier terminated by the employee as provided in Paragraph 14.
9. Payroll Deductions.
------------------
9.1 At the time a participant files his authorization for a payroll
deduction, he shall elect to have deductions made from his pay on each payday
during the time he is a participant in an offering at the rate of 2%, 4%, 6%,
8%, or 10% of his base pay.
9.2 All payroll deductions made for a participant shall be credited
to his account under the Plan. A participant may not make any separate cash
payment into such account nor may payment for shares be made other than by
payroll deduction.
9.3 A participant may discontinue his participation in the Plan as
provided in Section 14, but no other change can be made during an offering and,
specifically, a participant may not alter the rate of his payroll deductions for
that offering.
10. Granting of Option. On the offering date, this Plan shall be deemed
------------------
to have granted to the participant an option for as many full shares as he will
be able to purchase with the payroll deductions credited to his account during
his participation in that offering. Notwithstanding the foregoing, no
participant may purchase more than 1,000 shares of stock during any single
offering.
11. Exercise of Option. Each employee who continues to be a participant
------------------
in an offering on the last business day of that offering shall be deemed to have
exercised his option on such date and shall be deemed to have purchased from the
Company such number of full shares of common stock reserved for the purpose of
the Plan as his accumulated payroll deductions on such date will pay for at the
option price.
12. Employee's Rights as a Shareholder. No participating employee shall
----------------------------------
have any right as a shareholder with respect to any shares until the shares have
been purchased in accordance with Section 11 above and the stock has been issued
by the Company.
13. Evidence of Stock Ownership.
---------------------------
13.1 Promptly following the end of each offering, the number of
shares of common stock purchased by each participant shall be deposited into an
account established in the participant's name at a stock brokerage or other
financial services firm designated by the Company (the "ESPP Broker").
13.2 The participant may direct, by written notice to the Company at
the time of his enrollment in the Plan, that his ESPP Broker account be
established in the names of the participant and
B-2
one other person designated by the participant, as joint tenants with right of
survivorship, tenants in common, or community property, to the extent and in the
manner permitted by applicable law.
13.3 A participant shall be free to undertake a disposition (as that
term is defined in Section 424(c) of the Code) of the shares in his account at
any time, whether by sale, exchange, gift, or other transfer of legal title, but
in the absence of such a disposition of the shares, the shares must remain in
the participant's account at the ESPP Broker until the holding period set forth
in Section 423(a) of the Code has been satisfied. With respect to shares for
which the Section 423(a) holding period has been satisfied, the participant may
move those shares to another brokerage account of participant's choosing or
request that a stock certificate be issued and delivered to him.
13.4 A participant who is not subject to payment of U.S. income taxes
may move his shares to another brokerage account of his choosing or request that
a stock certificate be issued and delivered to him at any time, without regard
to the satisfaction of the Section 423(a) holding period.
14. Withdrawal.
----------
14.1 An employee may withdraw from an offering, in whole but not in
part, at any time prior to the last business day of such offering by delivering
a Withdrawal Notice to the Company, in which event the Company will refund the
entire balance of his deductions as soon as practicable thereafter.
14.2 To re-enter the Plan, an employee who has previously withdrawn
must file a new Enrollment Agreement in accordance with Section 8.1. The
employee's re-entry into the Plan will not become effective before the beginning
of the next offering following his withdrawal, and if the withdrawing employee
is an officer of the Company within the meaning of Section 16 of the Securities
Exchange Act of 1934 he may not re-enter the Plan before the beginning of the
second offering following his withdrawal.
15. Carryover of Account. At the termination of each offering the Company
--------------------
shall automatically re-enroll the employee in the next offering, and the balance
in the employee's account shall be used for option exercises in the new
offering, unless the employee has advised the Company otherwise. Upon
termination of the Plan, the balance of each employee's account shall be
refunded to him.
16. Interest. No interest will be paid or allowed on any money in the
--------
accounts of participating employees.
17. Rights Not Transferable. No employee shall be permitted to sell,
-----------------------
assign, transfer, pledge, or otherwise dispose of or encumber either the payroll
deductions credited to his account or any rights with regard to the exercise of
an option or to receive shares under the Plan other than by will or the laws of
descent and distribution, and such right and interest shall not be liable for,
or subject to, the debts, contracts, or liabilities of the employee. If any
such action is taken by the employee, or any claim is asserted by any other
party in respect of such right and interest whether by garnishment, levy,
attachment or otherwise, such action or claim will be treated as an election to
withdraw funds in accordance with Section 14.
18. Termination of Employment. Upon termination of employment for any
-------------------------
reason whatsoever, including but not limited to death or retirement, the balance
in the account of a participating employee shall be paid to the employee or his
estate.
19. Amendment or Discontinuance of the Plan. The Board shall have the
---------------------------------------
right to amend, modify, or terminate the Plan at any time without notice,
provided that no employee's existing rights under any offering already made
under Section 4 hereof may be adversely affected thereby, and provided further
that no such amendment of the Plan shall, except as provided in Section 20,
increase above 10,000,000 shares the total number of shares to be offered unless
shareholder approval is obtained therefor.
B-3
20. Changes in Capitalization. In the event of reorganization,
-------------------------
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, offerings of rights, or any other change in the structure of the
common shares of the Company, the Board may make such adjustment, if any, as it
may deem appropriate in the number, kind, and the price of shares available for
purchase under the Plan, and in the number of shares which an employee is
entitled to purchase.
21. Share Ownership. Notwithstanding anything herein to the contrary, no
---------------
employee shall be permitted to subscribe for any shares under the Plan if such
employee, immediately after such subscription, owns shares (including all shares
which may be purchased under outstanding subscriptions under the Plan)
possessing 5% or more of the total combined voting power or value of all classes
of shares of the Company or of its parent or subsidiary corporations. For the
foregoing purposes the rules of Section 425(d) of the Internal Revenue Code of
1986 shall apply in determining share ownership. In addition, no employee shall
be allowed to subscribe for any shares under the Plan which permits his rights
to purchase shares under all "employee stock purchase plans" of the Company and
its subsidiary corporations to accrue at a rate which exceeds $25,000 of the
fair market value of such shares (determined at the time such right to subscribe
is granted) for each calendar year in which such right to subscribe is
outstanding at any time.
22. Administration. The Plan shall be administered by the Board. The
--------------
Board shall be vested with full authority to make, administer, and interpret
such rules and regulations as it deems necessary to administer the Plan, and any
determination, decision, or action of the Board in connection with the
construction, interpretation, administration, or application of the Plan shall
be final, conclusive, and binding upon all participants and any and all persons
claiming under or through any participant.
The Board may delegate any or all of its authority hereunder to such
committee as it may designate.
23. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received by Shareholder Services of the Company or when received in
the form specified by the Company at the location, or by the person, designated
by the Company for the receipt thereof.
24. Termination of the Plan. This Plan shall terminate at the earliest of
-----------------------
the following:
24.1 December 31, 2002;
24.2 The date of the filing of a Statement of Intent to Dissolve by
the Company or the effective date of a merger or consolidation wherein the
Company is not to be the surviving corporation, which merger or consolidation is
not between or among corporations related to the Company. Prior to the
occurrence of either of such events, on such date as the Company may determine,
the Company may permit a participating employee to exercise the option to
purchase shares for as many full shares as the balance of his account will allow
at the price set forth in accordance with Section 5. If the employee elects to
purchase shares, the remaining balance of his account will be refunded to him
after such purchase.
24.3 The date the Board acts to terminate the Plan in accordance with
Section 19 above.
24.3 The date when all shares reserved under the Plan have been
purchased.
25. Limitations on Sale of Stock Purchased Under the Plan. The Plan is
-----------------------------------------------------
intended to provide common stock for investment and not for resale. The Company
does not, however, intend to restrict or influence any employee in the conduct
of his own affairs. An employee, therefore, may sell stock purchased under the
Plan at any time he chooses, subject to compliance with any applicable Federal
or
B-4
state securities laws. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS
IN THE PRICE OF THE STOCK.
26. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Company's common stock under this Plan is subject to the approval
of any governmental authority required in connection with the authorization,
issuance, or sale of such shares.
B-5
- --------------------------------------------------------------------------------
Please mark
your votes as [X]
indicated in
this example
This proxy when properly signed will be voted in the manner directed herein by
the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, AND 3.
1. ELECTION OF DIRECTORS:
William H. Gates David F. Marquardt
Paul G. Allen Robert D. O'Brien
Jill E. Barad William G. Reed, Jr.
Richard A. Hackborn Jon A. Shirley
FOR [_] NOT FOR [_]
Except vote withheld from following nominee(s) listed in space provided below:
- --------------------------------------------------------------------------------
2. Proposal to amend the 1991 Stock Option Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Proposal to approve the 1997 Employee Stock Purchase Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Signature(s)_______________________________________________ Date_____________
IMPORTANT--PLEASE SIGN AND RETURN PROMPTLY. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
PROXY
FOR ANNUAL MEETING OF THE SHAREHOLDERS OF MICROSOFT CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints WILLIAM H. GATES and ROBERT J. HERBOLD, and
each of them, with full power of substitution, as proxies to vote the shares
which the undersigned is entitled to vote at the Annual Meeting of the Company
to be held at the Meydenbauer Center, 11100 N.E. 6th Street, Bellevue,
Washington on November 12, 1996 at 8:00 a.m. and at any adjournments thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE