The loan to Belluzzo--who recently became chief executive officer at data-storage firm Quantum--was made shortly after he joined the software giant in September 1999, according to the report filed Friday with the Securities and Exchange Commission.
Microsoft called the loan an advance payment against the "minimum benefit" value of 3.5 million stock options Belluzzo was given in 1999 and 2000. The company reported Belluzzo forfeited the options and received a $350,000 bonus.
Additionally, the loan will be taxed as ordinary income, and Belluzzo will refund all applicable taxes to Microsoft, the filing said.
Personal loans to company executives like the one granted to Belluzzo became illegal July 30 under the Sarbanes-Oxley Act, following several high-profile accounting and corporate governance scandals.
In one of the largest of many recent corporate bookkeeping scandals, WorldCom made a personal loan of $366 million to former CEO Bernie Ebbers. Several former WorldCom executives have pleaded not guilty to charges related to telecommunications giant's $7.68 billion in accounting misstatements.
E*Trade shareholders filed a lawsuit charging the company's board with gross mismanagement and breach of fiduciary duties after the company revealed that it had forgiven a $15 million loan to CEO Christos Cotsakos.
Belluzzo left Microsoft in April to join Milpitas, Calif.-based Quantum. At Microsoft, Belluzzo was crowded out as the No. 3 executive behind Chairman Bill Gates and CEO Steve Ballmer. His tenure was marked by the lackluster results of many of Microsoft's consumer projects, such as the plan to convince customers to pay for software on a subscription basis.