VMware 2013 Annual Report Download - page 34

Table of Contents
EMC competes with certain of our significant channel, technology and other marketing partners, including IBM and Hewlett-Packard. Pursuant to our
certificate of incorporation and other agreements that we have with EMC, EMC may have the ability to impact our relationship with those of our partners that
compete with EMC, which could have a material adverse effect on our results of operations or our ability to pursue opportunities which may otherwise be
available to us.
Our joint launch of Pivotal Software, Inc. ( “ Pivotal ” , previously known as “ GoPivotal, Inc. ” ) with EMC may not prove successful.
In April 2013, we contributed technology and transferred employees to Pivotal, a subsidiary of EMC, established to focus on Big Data and Cloud
Application Platforms. Pivotal is led by Paul Maritz, its Chief Executive Officer and our former Chief Executive Officer, and includes most employees and
resources formerly working within EMC’s Greenplum and Pivotal Labs organizations, and our former vFabric (including Spring and Gemfire), Cloud
Foundry and Cetas organizations, as well as related efforts. Pivotal’s ability to operate successfully will require, among other factors:
In the event that Pivotal is unable to operate successfully, we may be asked to contribute capital resources to Pivotal or accept dilution in our ownership
interest, and we may be unable to realize any value from the technology and resources that we contributed to Pivotal.
In order to preserve the ability for EMC to distribute its shares of our Class B common stock on a tax
-free basis, we may be prevented from pursuing
opportunities to raise capital, to effectuate acquisitions or to provide equity incentives to our employees, which could hurt our ability to grow.
Beneficial ownership of at least 80% of the total voting power is required in order for EMC to affect a tax-free spin-off of VMware or certain other tax-
free transactions. We have agreed that for so long as EMC or its successor-in-interest continues to own greater than 50% of the voting control of our
outstanding common stock, we will not knowingly take or fail to take any action that could reasonably be expected to preclude EMC’s or its successor-in-
interest’s ability to undertake a tax-free spin-off. Additionally, under our certificate of incorporation and the master transaction agreement we entered into
with EMC, we must obtain the consent of EMC or its successor-in-interest, as the holder of our Class B common stock, to issue stock or other VMware
securities, except pursuant to employee benefit plans (provided that we obtain Class B common stockholder approval of the aggregate annual number of
shares to be granted under such plans), which could cause us to forgo capital raising or acquisition opportunities that would otherwise be available to us. As a
result, we may be precluded from pursuing certain growth initiatives.
Third parties may seek to hold us responsible for liabilities of EMC, which could result in a decrease in our income.
Third parties may seek to hold us responsible for EMC’s liabilities. Under our master transaction agreement with EMC, EMC will indemnify us for
claims and losses relating to liabilities related to EMC’s business and not related to our business. However, if those liabilities are significant and we are
ultimately held liable for them, we cannot be certain that we will be able to recover the full amount of our losses from EMC.
Although we have entered into a tax sharing agreement with EMC under which our tax liabilities for most transactions will effectively be determined as if
we were not part of any consolidated, combined or unitary tax group of EMC Corporation or its subsidiaries, we nonetheless could be held liable for the
tax liabilities of other members of these groups.
We have historically been included in EMC’s consolidated group for U.S. federal income tax purposes, as well as in certain consolidated, combined or
unitary groups that include EMC Corporation or certain of its subsidiaries for state and local income tax purposes. Pursuant to our tax sharing agreement with
EMC, we and EMC generally will make payments to each other such that, with respect to tax returns for any taxable period in which we or any of our
subsidiaries are included in EMC’s consolidated group for U.S. federal income tax purposes or any other consolidated, combined or unitary group of EMC
Corporation or its subsidiaries, the amount of taxes to be paid by us will be determined, subject to certain adjustments, as if we and each of our subsidiaries
included in such consolidated, combined or unitary group filed our own consolidated, combined or unitary tax return.
We have been included in the EMC consolidated group for U.S. federal income tax purposes since our acquisition by EMC, and expect to continue to be
included in such consolidated group for periods in which EMC owns at least 80% of the total voting power and value of our outstanding stock. Each member
of a consolidated group during any part of a consolidated
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successfully integrating technology from both us and EMC;
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creating offerings for which there is suitable demand in the marketplace;
• developing an effective go-to-
market strategy;
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successfully competing and differentiating its offerings from those of its competitors; and
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having access to adequate financial resources to fund its operations.