Microsoft Settles Product Pricing Class Action Lawsuits:
Does It Endanger Our Children?

Company Will Provide More Than $1 Billion in Cash and Software to Schools Serving America's Most Economically Disadvantaged Children

REDMOND, Wash. -- Nov. 20, 2001 -- Microsoft Corp. today announced that it has reached a nationwide settlement of more than 100 class action lawsuits that alleged Microsoft products were overpriced. Under the proposed settlement, Microsoft will provide more than $1 billion in cash, training, support and software to help make computer technology more accessible to public schools serving nearly 7 million of America's most economically disadvantaged children.

Details of the five-year education program are outlined in a Settlement Agreement signed by the parties on Monday, which will be filed with the Federal District Court of Maryland later today. The program, if accepted by the Court, will provide cash, computer hardware, software, technical assistance and training to over 12,500 schools and more than 400,000 teachers who work in those schools. A public hearing on the agreement is scheduled for Tuesday, November 27th.

"We are pleased to reach a solution that will benefit millions of America's most economically disadvantaged children and thousands of public schools with the greatest needs, and also will enable everyone to move beyond costly and unnecessary litigation," said Microsoft CEO Steve Ballmer. "Just like the recent settlement of the federal antitrust case with the U.S. Department of Justice and nine state Attorneys General, we believe this is a fair and reasonable solution that will benefit consumers, the high-tech industry, and the overall U.S. economy. We remain hopeful that the remaining state Attorneys General will join these settlement efforts."

"This is an innovative and visionary settlement that resolves these complex lawsuits by providing great benefits to public schools," said Michael Hausfeld of Cohen, Milstein, Hausfeld & Toll, one of the attorneys for the nationwide settlement class.

"I've been fighting the digital divide for the last ten years. It has always been two steps forward and two steps back. The digital divide has just collapsed. This new program is a phenomenal gift to all economically challenged children and families in America. It gives us a quantum leap forward in achieving technological equity," said Anthony Amato, Superintendent of Public Schools in Hartford, Connecticut.

"Speaking as a state superintendent of education, I can tell you that this program will bring extraordinary positive educational benefits to thousands of disadvantaged students in our state alone, and to millions of students across the nation," said Dr. Terry Bergeson, Superintendent of Public Instruction for Washington State.

"Microsoft has always delivered great software at very competitive prices. While we believe we would have prevailed in these lawsuits, we are pleased to put them behind us and greatly improve public education at the same time," said Tom Burt, Microsoft deputy general counsel. "This settlement allows Microsoft to focus on the future, on innovation and building great technology."

The class action lawsuits were originally filed at both the state and federal level. All of the federal cases were consolidated in the Federal District Court of Maryland. Many state court cases and many of the claims in the federal litigation were dismissed based on a controlling U.S. Supreme Court precedent. Today's settlement agreement, if approved by the Court, could lead to the nationwide settlement of all of the more than 100 class action cases against Microsoft.

If the proposed settlement is approved by the Court, Microsoft will recognize a pre-tax charge of approximately $550 million in the current fiscal quarter ending December 31, 2001. Microsoft will provide additional detail on the financial impact of the proposal later this week.

Under the proposed settlement, Microsoft's new educational programs would be in addition to the company's long-standing corporate philanthropy efforts. Last year, Microsoft gave more than $215 million in cash and software to nearly 5,000 nonprofit organizations to improve technology access in underserved communities, and expand and diversify the technology workforce.

Key Aspects of the Settlement

The settlement agreement provides for a five-year program during which Microsoft will make computer technology resources available to all K-12 public schools in the United States and its territories at which 70% or more of the students are eligible for federal meal assistance. Recent statistics indicate that approximately 14 percent of U.S. schools meet this criterion.

"Through funding programs such as the E-Rate, many of these schools have built networks and Internet connections to match any school's, but they haven't had the resources to upgrade the technology their students and teachers use every day," said Mark East, worldwide general manager of Microsoft's Education Solutions Group. "This settlement will put world-class technology tools and training where it's most needed and help ensure that all children -- today and in the future -- have the opportunity to achieve their highest potential."

Key elements of the program include the following:

• Education Foundation : Microsoft will establish a national foundation to make grants to local foundations and community organizations for purchasing computers and software. The goal of the foundation is to provide sustainable, long-term funding for information technology in underserved schools. Among other activities, the national foundation will encourage local foundations to establish sustaining programs to further support schools' technology needs. Local school officials will have the flexibility to choose Microsoft or non-Microsoft technology. Microsoft will seed the national foundation with a $150 million grant and will make an additional $100 million available to match donations from other sources.
• Technical Support : Microsoft will pay a total of $160 million into a separate fund overseen by the foundation, to be used for technology support programs to assist the participating schools. The foundation will use these funds, in part, to establish technical support programs at community colleges and to enhance and expand an existing program that successfully teaches students how to support the technology systems at their schools. Microsoft also will make available to all eligible schools that request it a standard subscription to Microsoft's TechNet technical support program. This subscription includes Microsoft resource kits, service packs, technical information, training materials and technical training CDs.
• Training: Microsoft will contribute up to $90 million over the five-year period for training teachers, school administrators and support personnel in integrating technology into the school curriculum and using the technology provided by the program.
• Computer Refurbishment Program : Microsoft will establish a program in which non-profit computer refurbishing organizations will be provided licenses and/or software for Microsoft operating systems to be installed on refurbished personal computers. Microsoft will ensure that at least 200,000 Pentium-class PCs and Macintosh computers will be available to eligible schools each year during the five-year settlement period. Eligible schools will have the ability to apply for grants from the new education foundation that would make refurbished machines available at a net cost to them of $50 per unit.
• Software Donation : During the settlement period, Microsoft will make a wide range of educational and productivity software available upon request to eligible schools for all PCs, laptops or Macintoshes already owned by the schools or acquired during the settlement period. Specific software and amounts are outlined in the agreement. The value of the software will depend on how much is requested by the schools, but the amount may well exceed $500 million, based on Microsoft's academic prices.
• Today's agreement is an extension of Microsoft's long-standing commitment to help schools make the best use of technology to improve learning.

Founded in 1975, Microsoft (Nasdaq "MSFT") is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software -- any time, any place and on any device.

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