Jerry Yang prepares troops for proxy battle

With Carl Icahn launching a proxy fight Thursday to unseat Yahoo's board of directors, Yahoo CEO Jerry Yang issued a letter to employees, as the Internet pioneer gears up for battle. This letter is likely to be the first in a string, as the proxy fight heats up at a rapid pace. Yahoo's shareholder meeting is less than two months away.

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To: All Worldwide Employees
From: Jerry
Subject: today's news

Yahoos,

Today, Carl Icahn announced his intent to nominate a slate of 10 directors to take control of our board of directors at this year's annual meeting. We sent him a letter in response, which we made public in a press release. I'm attaching a copy of that press release, including the full text of our letter, and you should read it carefully.

We always want to hear the views of our stockholders, but you should know that Mr. Icahn's letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal.

We believe our board has the independence, knowledge, experience, and commitment to maximize value for all of our stockholders. Yahoo is a great company with a truly unique set of highly valuable assets that is growing, profitable, and executing well on its strategic plan to enhance our leadership position in online advertising. Our solid results for the first quarter of 2008 are a testament to this.

Today's events will undoubtedly draw a lot of media attention, and there will be lots of speculation about what happens next for Yahoo. I ask all of you to put aside the rumors and speculation, and stay focused on the business at hand and what we do best--transforming the online experiences of our users, advertisers, publishers, and developers.

I know you all have a lot of questions, and so I've also attached some FAQs that will address some of your questions. As we've said before, we'll do our best to continue to update you as new information becomes available. Thank you again for your continued hard work, as we work together to make Yahoo a stronger leader in the online marketplace and an even better company.

Jerry

FAQs:
Can stockholders nominate directors to the board?

Stockholders, as equity owners of the company, have the ability to nominate one or more directors for election to a board at the company's annual meeting, as long as they comply with the requirements contained in our bylaws. Under our bylaws, today was the last day that a stockholder could nominate a candidate for director.

How long will all this take?
We can't speculate on how events will develop at this time, but we plan to hold our annual meeting in a couple of months.

I ask all of you to stay focused on the business at hand and what we do best--transforming the experiences of our users, advertisers, publishers and developers, all while enhancing our leadership position in the online marketplace.

What's our next step?
We will file preliminary proxy materials with the SEC that will describe the matters to be voted on, including the company's nominees for election to the board, and the board's recommendation. Once those materials are cleared by the SEC, we will mail them to our stockholders.

In the meantime, we should remain focused on doing what we do best--transforming the experiences of our users, advertisers, publishers and developers, all while enhancing our leadership position in the online marketplace. We will continue to update you as information becomes available, but please remember that we are subject to various legal restrictions on what we can say and when we can say it.

What can employees do
We ask you to continue to put aside all rumors and speculation you may be hearing. None of us should allow external reports to shift our focus away from doing what we do best--transforming the experiences of our users, advertisers, publishers and developers, all while enhancing our leadership position in the online marketplace.

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And here's what Yang wrote to all Yahoo senior vice presidents and executives of higher ranking, outlining not only what the company has done to respond to Icahn but also highlighting "talking points" for employees.

Yahoos looking to get a jump on what your manager may be saying to you on all of this, take note.

To: All SVPs and Above
From: Jerry
Subject: our response to carl icahn

Leaders,

As you know, Carl Icahn today announced his intention to nominate 10 directors to take control of our board of directors at our 2008 annual meeting.

This afternoon, we issued our response to Mr. Icahn and are sending an e-mail to all employees, updating them on these recent developments. A copy of our response, including the letter to Mr. Icahn, is attached. I urge you to read it.

As we outline in our letter, we believe our independent board has more than demonstrated the fact that it has the knowledge, experience, and commitment to maximize value for all Yahoo stockholders.

I will be scheduling a call with you soon. In the meantime, please find below some talking points for you to use with your teams.

Jerry

Talking Points:

* Carl Icahn today announced his intention to nominate 10 directors to take control of our board of directors at our 2008 annual meeting.

* We believe much of what Mr. Icahn said today reflects a significant misunderstanding of the facts about how hard our independent board has worked--and continues to work--to maximize stockholder value. We believe our independent board has the knowledge, experience, and commitment to maximize value for all Yahoo stockholders.

* Soon, we will file preliminary proxy materials with the SEC that will describe the matters to be voted on at the annual meeting, including the company's nominees for election to our board of directors, and the board's recommendation. Once those materials are cleared by the SEC, we will mail them to our stockholders.

* Stockholders, as equity owners of the company, have the ability to nominate one or more directors for election to the board at the company's annual meeting, as long as they comply with the notice requirements contained in our bylaws. Under our bylaws, today was the last day that a stockholder could nominate a candidate for director.

All Yahoo stockholders of record, as of the closed of business on June 3, 2008, the record date for the annual meeting, are entitled to vote on the election of directors at the annual meeting of stockholders.

* There will be lots of media attention and speculation about what happens next for Yahoo. We ask that you put the rumors and speculation aside and stay focused on the business at hand. We are at a very important time in our company's history.

* Yahoo is strategically positioned for accelerating growth and profitability because of our powerful combination of assets: our global brand and scale, unmatched audiences, global leadership in online advertising, strategic positions in Asia, leadership in mobile and emerging markets, and world-class people and technology.

* The company continues to execute well against its strategic and financial plan.

* Our board has explored, and continues to explore, a variety of strategic alternatives and remains committed to considering any alternative intended to maximize stockholder value.

* We'll do our best to continue to update you as new information becomes available, but please remember we are subject to various legal restrictions on what we can say, and when we can say it, as we work through this situation.

• Thank you again for your continued hard work.

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