There are stories, articles and biographies about it all from over the years but here is one mention of it:

"In December 1982, when Allen was sick with cancer, he overheard Gates and Ballmer discussing his lack of contributions and how to dilute his equity by offering stock options to other employees and shareholders. Allen confronted them and quit a little bit later. " [1]

[1] https://www.businessinsider.com/what-paul-allen-really-think...

There is a detailed account in Allen's book "Idea Man":

https://www.amazon.com/Idea-Man-Memoir-Cofounder-Microsoft/d...

What I found: https://www.forbes.com/sites/frederickallen/2011/03/30/bill-...