One of the original members of Microsoft's board of directors, William Gary Reed, Jr., will not seek reelection at the company's 2004 shareholders' meeting on Nov. 9. Reed is the former chairman of Simpson Timber and a board member of several other companies based in Washington state (where Microsoft’s Redmond headquarters is located), including Washington Mutual, Paccar, and Safeco. He joined the board in 1987, shortly after Microsoft went public, and is credited with helping to smooth differences between Steve Ballmer and Bill Gates in 2000, after Ballmer took over from Gates as CEO. At this time, the board has no intention of replacing Reed.

Reed currently serves on two board committees: the audit committee, which oversees accounting practices, and the compensation committee, which ensures that executive compensation is in line with industry standards. Charles Noski, vice president and chief financial officer of Northrop Grumman and former vice chairman of AT&T, will replace Reed as the chairman of the board's audit committee, and Ann McLaughlin Korologos, head of the Aspen institute and former U.S. Secretary of Labor, will join the audit committee. Microsoft has not yet announced a replacement for Reed on the compensation committee.

Other board members include Gates (who serves as chairman); Ballmer; former Harvard Business School professor James Cash, Jr.; Merck CEO Raymond Gilmartin (whom Microsoft has named as its lead independent, or non-insider, director); venture capitalist David Marquardt; BMW chairman Helmut Panke; and former Microsoft Chief Operating Officer Jon Shirley. All board members but Reed are seeking reelection and are likely to attain it.

Dividend, Stock Compensation on Shareholder Agenda

In addition to electing board members at the 2004 meeting, shareholders will be asked to consider changes to Microsoft's employee stock compensation plans in preparation for a special one-time dividend of US$3 per share, payable on Dec. 2 to shareholders of record as of Nov. 17. The payout is expected to lower Microsoft's share price by US$3, so Microsoft wants to increase the number of shares granted to employees under stock grants, and increase the number of shares and lower the strike price of outstanding options, so that the total worth of employees' stock-based compensation remains the same after the dividend payment.

Lastly, the board of directors has declared a previously announced quarterly dividend payment of US$0.08 per share (separate from the one-time payout). The first quarterly payment will be payable on Dec. 2 to shareholders of record as of Nov. 17.

Microsoft's 2004 proxy statements, which contain details of the proposed changes to stock-based compensation, are available at www.microsoft.com/msft/aspx/secfilings.aspx.