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Microsoft Sets the Record Straight

July 14, 2008

REDMOND, Wash., July 14 /PRNewswire-FirstCall/ — On the evening of July 12, Yahoo! Inc. released a statement relating to recent discussions involving Yahoo!, Microsoft Corp., and Carl Icahn. Microsoft believes the statement contains inaccuracies that need to be corrected. Among other things, the enhanced proposal for an alternate search transaction that we submitted late Friday was submitted at the request of Yahoo! Chairman Roy Bostock as a result of apparent attempts by Mr. Icahn to have Microsoft and Yahoo! engage on a search transaction on terms Mr. Icahn believed Microsoft would be willing to accept and which Microsoft understands Mr. Icahn had discussed with Yahoo!

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Specifically, on Thursday afternoon, July 10, Mr. Bostock called Steve Ballmer’s office to arrange a call. On that subsequent call, Mr. Bostock told Mr. Ballmer that “with substantial guarantees on the table and an increase in the TAC (traffic acquisition cost) rate, there are the pillars of a search only deal to be done.” Mr. Bostock encouraged Mr. Ballmer to submit a new proposal to Yahoo! for a search-only deal reflecting these terms.

After considering Yahoo!’s request and taking into account Yahoo!’s previous feedback about our prior search proposal, Microsoft determined late Friday to propose an enhanced search transaction. This proposal included significant revenue guarantees, higher TAC rates, an equity investment and an option for Yahoo! to extend the agreement over a 10-year period. Microsoft’s proposal did not include changes to Yahoo!’s governance.

At the time Microsoft submitted its enhanced proposal, Microsoft asked that Yahoo! confirm whether it would agree that the enhancements were sufficient to form the basis for the parties to engage in negotiations over the weekend on a letter of intent and more detailed term sheets. This discussion has been mischaracterized as a take it or leave it ultimatum, rather than a timetable in order to move forward to intensive negotiations. Yahoo! informed Microsoft on Saturday that it had rejected the proposal.

Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of a number of factors, including those set forth in Microsoft’s annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft Corp.’s Investor Relations department at (800) 285-7772 or at Microsoft Corp.’s Web site at http://www.microsoft.com/msft.

All information in this release is as of July 14 2008. Microsoft Corporation undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

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Microsoft Corp.

CONTACT: Press, Rapid Response Team, Waggener Edstrom Worldwide+1-503-443-7070, rrt@waggeneredstrom.com, for Microsoft; or Joele Frank, EricBrielmann, or Jamie Moser of Joele Frank, Wilkinson Brimmer Katcher,+1-212-355-4449; or Financial analysts and investors, Colleen Healy, GeneralManager, Investor Relations, of Microsoft, +1-425-706-3703

Web site: http://www.microsoft.com/




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