Case 2:15-cv-00102-RSM Document 146-22 Filed 10/12/16 Page 1 of 2

Microsoft Pre-Planning Meeting
March 31, 2005

Weaver, Welsh, Burt, George, Unger
Steve and Manal
Main points by Weaver: Options in the transfer of rights
l. Transfer vendor rights
2. I/C Agreements to TnsfRisks / BEN of vendor Rights. You can't move the
vendor contracts. Every vendor moves. Corp says 'CFC, you are going to do the
CD part of this, and we can't move them now but you are obligated to take all the
benefits and the risks, relative to the CDs. You have to pay for the CDs, you have
to bear the costs of insuring the CDs, when they aren't in the Vendors' posession'.
All intercompany agreement. Third parties would have no idea. Corp remains
primarily liable for products because they can't move the contracts. Getting in
under the new regs? Withholding tax problems?
3. C/S only what you make - mandates an immediate buy-in, but a multiple buy-in,
exploiting 70% of a given product. There will need to be three buy-ins, which
begin depreciating from Day 1. Technical issue of a deemed royalty? Like a
deferred payment? If the contingency is not met, then MS never gets the rights?
Better than nothing or worse than nothing to do No.3? Consensus is better than nothing,
even though you are under the new regs.
Fully loaded payment would be due at full capacity.
There hasn't been a property transfer, as the right has not matured?
Is there a deemed US to PR royalty risk? Either there are two transactions (and two buyins) or there is a royalty.
Benefit to protecting part of the buy-in, but (setting aside implementation hastles) a
partial buy-in would be preferable.
Can you transfer one term of a contract? No, you transfer the whole terms of the
contract.
New company won't even have a chart of accounts for probably 18 months. Shadow
books necessary.
Could you buy in to just part of the product lines? 70% of Windows, 30% ofMSN
If we write an opinion on this we would want to say that this is going to end at some
period of time. The interim period can't become the long-term reality. There has to be

Government
Exhibit
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KPMG_MS IRS 0015151

 Case 2:15-cv-00102-RSM Document 146-22 Filed 10/12/16 Page 2 of 2

something substantial behind the idea that PR actually sold the CDs and didn't just get a
royalty. What can we do with the third parties.
They are going to have to maintain the agreements with 3rd party vendors. But once they
ramped up, PR will have the agreements. So, then we'll have #1. (Welsh)
What can we do to make this thing real? Notify the third parties at a minimum. Go out
and do something substantial, so go out and use insurance. Point to a contract with a
third party insurance, so that bills of lathing, insurance, etc shows that something real is
being done. Could PR pay Corp for insurance? Does that give us the 3rd party link that
we want? Would we put a self-insurance agreement in place?
Renegotiation will add complexity to the system. You need something meaningful to a
third party, to add 'reality' to the change. ffwe are being asked to opine on the income
characterist, this is the hardest thing to have to do. The hardest legal thing we are being
asked to do.
For tomorrow: Power cables, 20 print-outs of final, brown paper,
3/31/2005 6:40:48 PM

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CONFIDENTIAL

KPMG_MS IRS 0015152