VMware 2013 Annual Report Download - page 36

Table of Contents
We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, are relying on exemptions from certain
corporate governance requirements that provide protection to stockholders of companies that are not “controlled companies.”
EMC owns more than 50% of the total voting power of our common stock and, as a result, we are a “controlled company” under the New York Stock
Exchange corporate governance standards. As a controlled company, we are exempt under the New York Stock Exchange standards from the obligation to
comply with certain New York Stock Exchange corporate governance requirements, including the requirements:
While we have voluntarily caused our Compensation and Corporate Governance Committee to currently be composed entirely of independent directors
in compliance with the requirements of the New York Stock Exchange, we are not required to maintain the independent composition of the committee. As a
result of our use of the “controlled company”
exemptions, holders of our Class A common stock will not have the same protection afforded to stockholders of
companies that are subject to all of the New York Stock Exchange corporate governance requirements.
Our historical financial information as a majority-owned subsidiary of EMC may not be representative of the results of a completely independent public
company.
The financial information covering the periods included in this Annual Report on Form 10-K does not necessarily reflect what our financial condition,
results of operations or cash flows would have been had we been a completely independent entity during those periods. In certain geographic regions where
we do not have an established legal entity, we contract with EMC subsidiaries for support services and EMC personnel who are managed by us. The costs
incurred by EMC on our behalf related to these employees are passed on to us and we are charged a mark-up intended to approximate costs that would have
been charged had we contracted for such services with an unrelated third party. These costs are included as expenses in our consolidated statements of
income. Additionally, we and EMC engage in intercompany transactions, including agreements regarding the use of EMC’s and our intellectual property and
real estate, agreements regarding the sale of goods and services to one another and to Pivotal, and an agreement for EMC to resell our products and services
to third party customers. Accordingly, our historical financial information is not necessarily indicative of what our financial condition, results of operations or
cash flows will be in the future if and when we contract at arm’s length with independent third parties for the services we have received and currently receive
from EMC. In the year ended December 31, 2013 , we recognized revenues of $245 million , and as of December 31, 2013 , $220 million of revenues were
included in unearned revenues from such transactions with EMC. For additional information, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated financial statements and notes thereto.
Risks Related to Owning Our Class A Common Stock
The price of our Class A common stock has fluctuated substantially in recent years and may fluctuate substantially in the future.
The trading price of our Class A common stock has fluctuated significantly since our IPO in August 2007. For example, between January 1, 2013 and
January 31, 2014, the closing trading price of our Class A common stock was volatile, ranging between $65.53 and $99.33 per share. Our trading price could
fluctuate substantially in the future due to the factors discussed in this Risk Factors section and elsewhere in this Annual Report on Form 10-K.
Substantial amounts of Class A common stock are held by our employees, EMC and Cisco, and all of the shares of our Class B common stock, which
may be converted to Class A common stock upon request of the holder, are held by EMC. Shares of Class A common stock held by EMC (including shares
of Class A common stock that might be issued upon the conversion of Class B common stock) are eligible for sale subject to the volume, manner of sale and
other restrictions of Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), which allows the holder to sell up to the greater of 1% of our
outstanding Class A common stock or our four-week average weekly trading volume during any three-month period and following the expiration of their
contractual restrictions. Additionally, EMC possesses registration rights with respect to the shares of our common stock that it holds. If EMC chooses to
exercise such rights, its sale of the shares that are registered would not be subject to the Rule 144 limitations. If a significant amount of the shares that
become eligible for resale enter the public trading markets in a short period of time, the market price of our Class A common stock may decline.
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that a majority of our board of directors consists of independent directors;
• that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing
the committee’s purpose and responsibilities;
• that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s
purpose and responsibilities; and
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for an annual performance evaluation of the nominating and governance committee and compensation committee.