VMware 2011 Annual Report Download - page 30

Table of Contents
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including
changes to our previously-filed financial statements, which could cause our stock price to decline.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting
principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results
and retroactively affect previously reported results.
Risks Related to Our Relationship with EMC
As long as EMC controls us, other holders of our Class A common stock will have limited ability to influence matters requiring stockholder
approval.
As of December 31, 2011 , EMC owned 37,642,000 shares of our Class A common stock and all 300,000,000 shares of our Class B
common stock, representing 79.7% of the total outstanding shares of common stock or 97.2%
of the voting power of outstanding common stock.
The holders of our Class A common stock and our Class B common stock have identical rights, preferences and privileges except with respect to
voting and conversion rights, the election of directors, certain actions that require the consent of holders of Class B common stock and other
protective provisions as set forth in our certificate of incorporation. Holders of our Class B common stock are entitled to 10 votes per share of
Class B common stock on all matters except for the election of our Group II directors, in which case they are entitled to one vote per share, and
the holders of our Class A common stock are entitled to one vote per share of Class A common stock. The holders of Class B common stock,
voting separately as a class, are entitled to elect 80% of the total number of directors on our board of directors that we would have if there were
no vacancies on our board of directors at the time. These are our Group I directors. Subject to any rights of any series of preferred stock to elect
directors, the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, are entitled to elect
our remaining directors, which at no time will be less than one director-our Group II director(s). Accordingly, the holders of our Class B
common stock currently are entitled to elect 7 of our 8 directors.
If EMC transfers shares of our Class B common stock to any party other than a successor-in-interest or a subsidiary of EMC prior to a
distribution to its stockholders under Section 355 of the Internal Revenue Code of 1986, as amended (a “355 distribution”), those shares will
automatically convert into Class A common stock. Additionally, if, prior to a 355 distribution, EMC's ownership falls below 20% of the
outstanding shares of our common stock, all outstanding shares of Class B common stock will automatically convert to Class A common stock.
Following a 355 distribution, shares of Class B common stock may convert to Class A common stock if such conversion is approved by
VMware stockholders after the 355 distribution. For so long as EMC or its successor-in-interest beneficially owns shares of our common stock
representing at least a majority of the votes entitled to be cast by the holders of outstanding voting stock, EMC will be able to elect all of the
members of our board of directors.
In addition, until such time as EMC or its successor-in-interest beneficially owns shares of our common stock representing less than a
majority of the votes entitled to be cast by the holders of outstanding voting stock, EMC will have the ability to take stockholder action without
the vote of any other stockholder and without having to call a stockholder meeting, and holders of our Class A common stock will not be able to
affect the outcome of any stockholder vote during this period. As a result, EMC will have the ability to control all matters affecting us, including:
Our certificate of incorporation and the master transaction agreement entered into between us and EMC in connection with our initial public
offering (“IPO”) also contain provisions that require that as long as EMC beneficially owns at least 20% or
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• the composition of our board of directors and, through our board of directors, any determination with respect to our business plans and
policies;
•
any determinations with respect to mergers, acquisitions and other business combinations;
•
our acquisition or disposition of assets;
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our financing activities;
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certain changes to our certificate of incorporation;
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changes to the agreements we entered into in connection with our transition to becoming a public company;
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corporate opportunities that may be suitable for us and EMC;
• determinations with respect to enforcement of rights we may have against third parties, including with respect to intellectual property
rights;
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the payment of dividends on our common stock; and
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the number of shares available for issuance under our stock plans for our prospective and existing employees.