Exhibit 10.7
1998 MICROSOFT
CORPORATION
STOCK OPTION GAIN AND BONUS
DEFERRAL PROGRAM
1. Purpose.
The purpose of this 1998 Microsoft
Corporation Stock Option Gain and Bonus Deferral Program is to
further the long-term growth of Microsoft Corporation by allowing
selected Microsoft Corporation executives to defer the payment of
cash bonuses and the issuance of stock equal to the gain realized
upon the exercise of stock options in order to keep their financial
interests aligned with Microsoft and provide them with a long-term
incentive to continue employment with Microsoft.
2. Effective Date.
This Program is established
effective November 18, 1998.
3. Definitions.
3.1 Account or Accounts means
the account(s) established for a Participant pursuant to Section 8,
consisting of a Deferred Bonus Account and/or a Deferred Stock
Option Gain Account. Accounts shall be maintained solely as
bookkeeping entries by the Company to evidence unfunded, unsecured
obligations of the Company.
3.2 Board means the Board of
Directors of Microsoft Corporation.
3.3 Bonus means the amount
payable by the Company to an Eligible Executive as an individual
performance bonus, executive bonus or any other bonus/incentive
award that is approved by the Program Administrator for deferral
under the Program.
3.4 Claimant means a
Participant (or in the case of the Participant’s death, the
personal representative of his estate) who makes a written
application to the Program
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Administrator for benefits that he believes are
due under the Program. For purposes of determining the proper death
beneficiary under this Program, this Program shall not be
interpreted as preempting applicable state law regarding the
ownership rights of Accounts upon the Participant’s death.
For example, although this Program states that upon a
Participant’s death, Account balances will be paid to his
estate, the personal representative will be obligated to pay any
benefits owed to a spouse or otherwise as a result of any
applicable community property laws.
3.5 Code means the Internal
Revenue Code of 1986, as amended.
3.6 Company means Microsoft
Corporation.
3.7 Deferral Election means
an election to defer (i) issuance of the shares of Stock equal to
the Stock Option Gain realized upon the exercise of an Option or
(ii) receipt of part or all of a Bonus.
3.8 Deferral Period means
with respect to a specific deferral of a Bonus or Stock Option
Gain, the period of five (5), seven (7), or ten (10) years from the
date on which the corresponding Bonus would otherwise have been
paid or the date the Option was scheduled to expire had it not been
exercised; provided that in the event of the Participant’s
Termination of Employment the Deferral Period shall end on the date
of Termination of Employment.
3.9 Deferred Bonus Account
means a bookkeeping account established pursuant to Section 8.1 for
Bonuses that are subject to a Participant’s Deferral
Election.
3.10 Deferred Stock Option Gain
Account means a bookkeeping account established pursuant to
Section 8.2 for Stock Option Gains deferred under this
Program.
3.11 Disability means any
long-term disability as defined under the Company’s long-term
disability plan. The Program Administrator, in its complete and
sole discretion, shall
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determine a Participant’s Disability. The
Program Administrator may require that the Participant submit to an
examination on an annual basis, at the expense of the Company, by a
competent physician or medical clinic selected by the Program
Administrator to assist in the determination of Disability. On the
basis of such medical evidence, the determination of the Program
Administrator as to whether or not a condition of Disability exists
or continues shall be conclusive.
3.12 Election Form means the
form specified by the Program Administrator on which a Participant
makes a Deferral Election.
3.13 Eligible Executive means
a full-time employee of the Company who is (i) an elected officer
of the Company, (ii) at the level of Vice President or above, (iii)
at Level 80 or above on the Company’s salary range, and (iv)
working within the United States of America. In addition, the
Compensation Committee of the Board may, in its discretion, extend
coverage to persons who are selected by the Committee and who
either (x) meet all of the foregoing requirements except that they
are working outside of the United States of America, (y) meet all
of the foregoing requirements except that they are full-time
employees of a subsidiary of the Company, or (z) are officers of a
subsidiary of the Company.
3.14 ERISA means the Employee
Retirement Income Security Act of 1974, as amended.
3.15 Exercise means an
election to exercise an Option.
3.16 Mature Shares means
shares of the Company’s Stock delivered by a Participant in
payment of the Exercise price of an Option; provided that Mature
Shares shall not include any shares of the Company’s Stock
that may be received upon exercise of such Option, nor Stock that
the Participant purchased pursuant to a prior stock option exercise
which occurred less than six months prior to the exercise of such
Option.
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3.17 Fair Market Value of the
Stock as of a particular date means the closing price of the Stock
as reported on NASDAQ on such date.
3.18 Option shall mean one or
more non-qualified stock options, issued to a Participant under any
stock option plan of the Company, with respect to which the
Participant has elected to defer the Stock Option Gain. Option
shall not include any rights under the Company’s Employee
Stock Purchase Plan
3.19 Participant means an
Eligible Executive who has elected to participate in the Program
and has made a Deferral Election.
3.20 Program means this 1998
Microsoft Corporation Stock Option Gain and Bonus Deferral Program,
as amended from time to time.
3.21 Program Administrator
means the Compensation Committee of the Board, or its delegate or
delegates appointed to administer the Program.
3.22 Program Year means the
12-month period from January 1 to December 31, provided that the
initial Program Year shall be a short Program Year that begins on
the Effective Date and ends on December 31, 1998.
3.23 Stock means Microsoft
Corporation common stock.
3.24 Stock Option Gain means
the number of shares underlying an Option minus the number of
Mature Shares required to pay the Exercise price for those shares.
For example, if a Participant elects to defer the gain on 100
shares and is required to deliver 10 shares of Stock as payment for
the Exercise price on the 100 shares, the Stock Option Gain will be
90 shares.
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3.25 Termination of
Employment means the termination of the Participant’s
employment relationship with the Company for any reason including,
without limitation, involuntary termination with or without cause,
voluntary termination, disability, death, or retirement.
4. Participation.
Each Eligible Executive becomes an
active Participant on the date he first submits an Election Form
pursuant to Section 5 or 6. An individual’s eligibility to
make additional deferrals under Section 5 or 6 shall cease upon the
date he ceases to be an Eligible Executive. In the event an
Eligible Executive ceases to be an Eligible Executive (but does not
incur a Termination of Employment) between the date a Deferral
Election is made and the date (i) a Bonus is scheduled to be paid
(absent the deferral) or (ii) an Option is exercised, the Bonus
will be deferred and the Option will be exercisable and the gain
deferred pursuant to the Participant’s prior Deferral
Election. An individual who has been an active Participant under
the Program will cease to be a Participant on the date his Accounts
are fully paid out.
5. Bonus Deferral
Election.
5.1 Manner. Each Eligible Executive
may make an election to defer under the Program any percentage (in
10% increments up to 100%) of his Bonus by submitting a valid
Election Form to the Program Administrator. To be effective, an
Eligible Executive’s Election Form for a Bonus deferral must
set forth the percentage of his Bonus to be deferred (in 10%
increments), the investment choice under Section 8.1 (in 1%
increments ), the Deferral Period, and any other information that
may be requested by the Program Administrator from time to time. A
Participant is not required to defer all Bonuses expected to be
paid in any given year.
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5.2 Timing. Subject to the next two
sentences, an Eligible Executive must make a Deferral Election with
respect to his Bonus in the calendar year prior, and at least six
(6) months prior, to the date on which the Bonus would otherwise be
paid. A new hire who is an Eligible Executive may make a Deferral
Election with respect to his Bonus to be paid during the current
calendar year so long as the Deferral Election is made either
before his date of hire or within thirty (30) days after his date
of hire, and is made before the Bonus is earned. The Program
Administrator may establish limited Deferral Election periods
during which Eligible Executives must make Deferral
Elections.
6. Stock Deferral Election
.
6.1 Manner. Each Eligible Executive
may make an election to defer under the Program the Stock Option
Gain on 100% of the shares underlying an Option or on a portion of
the shares underlying the Option (in 10,000 share increments) that
would otherwise be recognized upon exercise of an Option, by
submitting a valid Election Form to the Program Administrator. To
be effective, an Eligible Executive’s Election Form for a
deferral of a Stock Option Gain must set forth the specific Option
and number of shares on which the gain will be deferred the
Deferral Period, and any other information that may be requested by
the Program Administrator from time to time.
6.2 Timing. An Eligible Executive
must make a Deferral Election with respect to an Option (i) at
least six (6) months prior to the date such Option will be
exercised, and (ii) prior to the calendar year in which such Option
will be exercised. The Program Administrator may establish limited
Deferral Election periods during which Eligible Executives must
make Deferral Elections. Deferred Options may only be exercised
within the last two months prior to the date the term of the Option
is scheduled to expire. Notwithstanding anything in this Program to
the
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contrary, in the event a Participant’s
Option is expected to expire prior to its stated term (e.g., due to
the termination of the Participant’s continuous status as an
employee), the Deferred Options must be exercised during the two
month period ending on the date the Option is expected to
expire.
7. General Provisions Relating to
Bonus and Stock Deferral Elections.
7.1 Separate Elections. A separate
Deferral Election must be made by an Eligible Executive for each
Bonus or Stock Option Gain deferral. If an Eligible Executive fails
to file a properly completed and executed Election Form with the
Program Administrator by the prescribed time, he will be deemed to
have elected not to defer any Bonus or Stock Option Gain for the
applicable Program Year.
7.2 Irrevocability of Elections. An
election is irrevocable once received and determined by the Program
Administrator to be properly completed. After the Program
Administrator makes such determination, the Participant shall not
be allowed to cancel the election nor increase or decrease the
amount or percentage a Participant elects to defer.
7.3 Deferral Period. An Eligible
Executive making a Deferral Election shall specify a Deferral
Period of five (5), seven (7) or ten (10) years on his Election
Form. On a one-time basis with respect to each deferral, a
Participant may elect in writing to extend the Deferral Period for
a Bonus or Stock Option Gain for an additional five (5), seven (7),
or ten (10) years, provided that such extension is elected in the
calendar year prior, and at least six (6) months prior, to the
expiration of the initial Deferral Period and the Participant is an
Eligible Executive at the time he makes the election to extend the
Deferral Period.
8. Accounts.
8.1 Deferred Bonus
Account.
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(a) Any amount of Bonus deferred by
an Eligible Executive for a Program Year will be deducted from the
amount of his Bonus under the applicable compensation program at
the time the Bonus would otherwise be paid and the amount deferred
will be credited to the Participant’s Deferred Bonus Account.
A Participant’s Deferred Bonus Account is a bookkeeping
device to track the value of his deferrals (and the Company’s
liability therefor). No assets shall be reserved or segregated in
connection with any Deferred Bonus Account, and no Deferred Bonus
Account shall be insured or otherwise secured. The
Participant’s share of FICA and FUTA taxes owed on the
deferred Bonus amount shall be deducted from the
Participant’s salary or other cash compensation received on
or about the date the deferred Bonus would otherwise have been
paid. To the extent the Participant is not owed salary or other
cash compensation sufficient to pay such taxes, the Participant
must submit to the Company, a cash payment (by way of check, wire
transfer, or otherwise) for the remaining amount of the
Participant’s share of FICA and FUTA taxes owed on the
deferred Bonus amount. In addition, a Participant may elect to pay
the Company for the full amount of the Participant’s share of
such employment taxes and avoid any reduction in his salary or
other cash compensation. The Participant’s Deferred Bonus
Account will not be credited with the deferred Bonus until the
Company has received, through payroll withholding or directly from
the Participant, the full
