VMware 2014 Annual Report Download - page 36

Table of Contents
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 investment in Pivotal Software, Inc. ( “ Pivotal, ” previously known as “ GoPivotal, Inc. ” ) 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 return year is jointly and severally liable for tax on
the consolidated return of such year and for any subsequently determined deficiency thereon. Similarly, in some jurisdictions, each member of a
consolidated, combined or unitary group for state, local or foreign income tax purposes is jointly and severally liable for the state, local or
foreign income tax liability of each other
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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.