http://www.microsoft.com/msft/html/proxy.htm (PC Press Internet CD, 03/1996)
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of Microsoft Corporation which will be held at the Hyatt Regency Bellevue, 900 Bellevue Way N.E., Bellevue, Washington, on October 27, 1995, 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,
Robert J. Herbold
Executive Vice President and Chief Operating Officer
To The Shareholders:
The annual meeting of the shareholders of Microsoft Corporation will be held at the Hyatt Regency Bellevue, 900 Bellevue Way N.E., Bellevue, Washington, on October 27, 1995, at 8:00 a.m. for the following purposes:
1. To elect directors.
2. To ratify the selection of Deloitte & Touche LLP as the independent public auditors of the Company for the current fiscal year.
3. To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on September 8, 1995 are entitled to notice of, and to vote at, this meeting.
BY ORDER OF THE BOARD OF DIRECTORS
William H. Neukom, Secretary
Redmond, Washington
September 25, 1995
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held October 27, 1995
This Proxy Statement, which was first mailed to shareholders on September 25, 1995, 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 October 27, 1995, at the Hyatt Regency Bellevue, 900 Bellevue Way N.E., 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 8, 1995 will be entitled to vote at the meeting on the basis of one vote for each share held. On September 8, 1995, there were 589,952,132 shares of common stock outstanding, held of record by 35,643 shareholders.
Seven 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.
William H. Gates, 39, co-founded Microsoft in 1975 and has been its Chief Executive Officer and Chairman of the Board since the original partnership was incorporated in 1981.
Paul G. Allen, 42, 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 wholly-owned companies include Asymetrix Corporation, Starwave Corporation, Vulcan Ventures Inc., and the Paul Allen Group of Bellevue, Washington, Interval Research Corp. of Palo Alto, California, and Ticketmaster Corporation of Los Angeles, California. 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 25 technology companies. He also serves on the Board of Directors of Egghead Inc.
Richard A. Hackborn, 58, 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, 46, has served as a director of the Company since 1981. Mr. Marquardt 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. and various privately held companies.
Robert D. O'Brien, 81, 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., 56, has been a director of the Company since 1987. From 1971 to 1986, Mr. Reed was Chairman of the Board of Simpson Timber Company, a forest products company. Since 1986, Mr. Reed has served as Chairman of the Board 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 Savings Bank, and The Seattle Times Company.
Jon A. Shirley, 57, 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.
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 has granted stock options to officers 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 met three times during fiscal 1995. The Compensation Committee met four times. The Finance Committee met once. The entire Board of Directors met six times during the last fiscal year. 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. Messrs. Hackborn, Marquardt, O'Brien, Reed, and Shirley are each paid $8,000 per year plus $1,000 for each Board meeting and $500 for each committee meeting they attend. During fiscal 1995, Messrs. Allen, Marquardt, O'Brien, Reed, and Shirley each received options to purchase 5,000 shares of the Company's common stock. Mr. Hackborn received an option to purchase 15,000 shares of the Company's common stock when he was appointed to the Board in August 1994. The exercise price of the foregoing options was the market price of the underlying common stock on the date of grant.
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, and the directors and executive officers as a group.
Amount and Nature of
Beneficial Ownership
of Common Shares as
Names of 9/8/95(1) Percent of Class
----------------------------------------- -------------------- ----------------
William H. Gates......................... 141,159,990(2)(3) 23.9%
Paul G. Allen............................ 55,893,020(4) 9.5
Richard A. Hackborn...................... 5,000(5) *
David F. Marquardt....................... 336,244(6) *
Robert D. O'Brien........................ 155,517(7) *
William G. Reed, Jr. .................... 100,000(8) *
Jon A. Shirley........................... 1,776,638(9) *
Steven A. Ballmer........................ 29,952,764(2) 5.1
Robert J. Herbold........................ 175 *
Michael J. Maples........................ 50,209 *
Bernard R. Vergnes....................... 465,250(10) *
Executive Officers and Directors
as a group (22 persons)................ 234,167,557(11) 39.4
(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 8, 1995, 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) Includes 1,210 shares currently owned by and 51,680 shares which may be purchased within 60 days of September 8, 1995, pursuant to outstanding stock options ("Vested Options") by Mr. Gates' wife, as to which he disclaims beneficial ownership.
(4) Includes 145,000 Vested Options. Mr. Allen's business address is: The Paul Allen Group, 110 -- 110th Avenue N.E., Suite 530, Bellevue, Washington 98004.
(5) Includes 5,000 Vested Options.
(6) Includes 100,000 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 70,000 Vested Options.
(8) Includes 100,000 Vested Options.
(9) Includes 10,680 shares held by Mr. Shirley as trustee under trusts for two grandsons and 100,000 Vested Options.
(10) Includes 18,750 Vested Options.
(11) Includes 3,698,265 Vested Options.
The following table discloses compensation received for the three fiscal years ended June 30, 1995, by the Company's Chief Executive Officer and the four most highly paid executive officers ("Named Executive Officers").
Long-Term
Compensation
Awards
Annual ------------
Compensation Securities
--------------------- Underlying All Other
Name and Principal Position Year Salary Bonus(1) Options(#) Compensation(2)
-------------------------------- ---- -------- -------- ------------ ---------------
William H. Gates 1995 $275,000 $140,580 0 0
Chairman of the Board; 1994 275,000 182,545 0 0
Chief Executive 1993 266,660 151,580 0 0
Officer, Director
Steven A. Ballmer 1995 249,174 162,800 0 $ 4,770
Executive Vice 1994 238,750 188,112 0 4,722
President, Sales and 1993 220,916 146,520 0 5,099
Support
Robert J. Herbold 1995 286,442 453,691 325,000 99,241
Executive Vice President;
Chief Operating Officer
Michael J. Maples(3) 1995 249,174 197,675 0 4,650
Executive Vice 1994 238,750 253,112 0 4,722
President, Products 1993 223,333 211,520 200,000 4,664
Bernard P. Vergnes 1995 356,660 169,785 150,000 0
Senior Vice President, 1994 300,481 196,885 40,000 0
Microsoft; President 1993 322,433 91,523 50,000 0
of Microsoft Europe
(2) The amounts disclosed in this column consist only of Company contributions under the Company's 401(k) plan, except that Mr. Herbold's amount also includes $4,758 for term life insurance premiums and $93,358 related to the Company's purchase and subsequent sale of his former home in Ohio (which includes the loss on resale plus related transactional costs and service fees).
(3) Mr. Maples retired from the Company effective July 15, 1995.
Individual Grants Potential Realizable
------------------------------------------------------- Value at
Number of Percent of Assumed Annual Rates of Stock
Securities Total Options Price Appreciation for Option
Underlying Granted to Exercise Term(2)
Options Employees in Price Expiration --------------------------------
Name Granted(#)(1) Fiscal Year ($/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.... 100,000 0.46% $ 62.25 Nov. 2001 0 $2,534,200 $ 5,905,764
225,000 1.04% 62.25 Nov. 2004 0 8,808,455 22,322,355
Michael J. Maples.... 0 0.00% 0 N/A 0 0 0
Bernard P. Vergnes... 150,000 0.69% 47.75 Jul. 2004 0 4,504,458 11,415,180
(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 ten-year term of the July 1994 stock option set forth above, all Microsoft shareholders would realize the following increases in the market value of their stock: $0 (0% appreciation); $17.7 billion (5% annual appreciation); and $44.8 billion (10% annual appreciation). Microsoft management has consistently cautioned shareholders and option holders that such increases in values are based on speculative assumptions and should not inflate expectations of the future value of their holdings.
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired Value Fiscal Year-End(#) Fiscal Year-End($)
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 0 325,000 0 $ 9,140,625
Michael J. Maples.......... 130,000 $4,631,250 0 115,000 0 6,684,375
Bernard P. Vergnes......... 170,000 7,891,250 0 220,000 0 10,451,250
Microsoft offered Mr. Herbold an attractive compensation package in order to convince him to leave Procter & Gamble after over 25 years at that company. His base salary is $450,000, 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 the stock options set out in the table entitled "Option Grants in Last Fiscal Year." 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.
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 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 industry. In the performance graph which immediately follows this report, the Company's performance is compared to that for NASDAQ Computer & Data Processing Stocks (C&DPS). Competitors considered relevant for salary comparison purposes do not include some companies included in the C&DPS index and include some companies that are not in the index. 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 Company's stock option plan was amended in 1993 with the intent that all compensation attributable to stock option exercises should qualify as deductible performance-based compensation. The Committee currently believes that the Company should be able to continue to manage its executive compensation program to preserve 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. Mr. Gates is the only employee of the Company not eligible for stock options. Since Mr. Gates is a significant shareholder in the Company, his rewards as CEO reflect increases in value enjoyed by all other shareholders.
COMPENSATION COMMITTEE
Richard A. Hackborn
David F. Marquardt
Robert D. O'Brien
William G. Reed, Jr.
Craig J. Mundie, an officer of the Company, was loaned $250,000 when he accepted employment with the Company in February 1993, in order to assist him in relocating to Redmond. On June 9, 1995, the note was repaid in full, including $36,558 of accrued interest at 6.5% per annum.
John Neilson and Steven Schiro became officers of the Company in fiscal 1995, and their Form 3 filings were made two months late. August 1994 Form 5 filings for Richard Fade, Joachim Kempin, Michel Lancombe, Rolf Skoglund, and Charles Stevens were filed on time, but each report had to be later amended to include omitted information. Messrs. Fade and Kempin's reports failed to report their June 30, 1994 purchases under the Company's Employee Stock Purchase Plan. Messrs. Lancombe, Skoglund, and Stevens' reports each failed to report a single stock option grant they received in fiscal 1994. David Fulton, a former officer of the Company, filed a late Form 4 for August 1994, which reported seven sale transactions over a two-day period.
Representatives of Deloitte & Touche LLP will be present at the Annual Meeting, will have an opportunity to make a statement, and will be available to respond to appropriate questions.
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 ratification of the selection of auditors requires that the votes in favor exceed the votes against. Votes cast by proxy or in person at the meeting will be tabulated by First Interstate Bank of Washington, N.A.
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.
DATED: Redmond, Washington, September 25, 1995.
