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                                                                    EXHIBIT 10.5

                             Microsoft Corporation

                       1997 Employee Stock Purchase Plan




                     As approved by the Board of Directors
                          on August 10, 1996 and the
                       Shareholders on November 12, 1996
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                             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
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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.

     2.   Definitions.
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          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
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of its subsidiaries who is in the employ of the Company or subsidiary on an
offering commencement date is eligible to participate in that offering, except
(a) employees whose customary employment is for not more than five months in any
calendar year, and (b) employees of a subsidiary that offers its employees the
opportunity to participate in an employee stock purchase plan covering such
subsidiary's common stock.

     4.   Offerings. There will be twelve separate consecutive six-month
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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
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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
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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
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be offered under the Plan is 80,000,000 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 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

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authorizations therefor shall be reduced accordingly and the Company shall give
written notice of such reduction to each employee affected thereby.

     8.   Participation.
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          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.

          8.3  Payroll deduction shall be the sole means of accumulating funds
in a participant's account, except in foreign countries where payroll deductions
are not allowed, in which case the Company may authorize alternative payment
methods.


     9.   Payroll Deductions.
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          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 any non-fractional
percentage rate between 1% and 15%.

          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
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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 8,000 shares of stock during any single offering.

     11.  Exercise of Option. Each employee who continues to be a participant in
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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
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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.
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          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

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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.
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          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
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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
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accounts of participating employees.

     17.  Rights Not Transferable. No employee shall be permitted to sell,
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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
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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
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right at any time and without notice to amend, modify or terminate the Plan, and
to authorize by resolution changes to the application of eligibility criteria in
Section 3 to employees of the Company's subsidiaries outside the United States
when the Board deems such changes to be necessary and appropriate according to
laws applicable to such non-U.S. subsidiaries; 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

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such amendment of the Plan shall, except as provided in Section 20, increase
above 80,000,000 shares the total number of shares to be offered unless
shareholder approval is obtained therefor.

     20.  Changes in Capitalization. In the event of reorganization,
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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
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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 424(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
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may delegate any or all of its authority hereunder to such committee of the
Board or officer of the Company as it may designate. The administrator 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 administrator 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.

     23.  Notices. All notices or other communications by a participant to the
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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
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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
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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 state securities laws. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET
FLUCTUATIONS IN THE PRICE OF THE STOCK.

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     26.  Governmental Regulation. The Company's obligation to sell and deliver
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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.

[The number of shares in Sections 7, 10, and 19 have been increased to reflect
the 2-for-1 stock splits in December 1996, February 1998, and March 1999.]

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