VMware 2014 Annual Report Download - page 93

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Guarantees and Indemnification Obligations
VMware enters into agreements in the ordinary course of business with, among others, customers, distributors, resellers, system vendors and
systems integrators. Most of these agreements require VMware to indemnify the other party against third-party claims alleging that a VMware
product infringes or misappropriates a patent, copyright, trademark, trade secret, and/or other intellectual property right. Certain of these
agreements require VMware to indemnify the other party against certain claims relating to property damage, personal injury, or the acts or
omissions of VMware, its employees, agents, or representatives.
VMware has agreements with certain vendors, financial institutions, lessors and service providers pursuant to which VMware has agreed to
indemnify the other party for specified matters, such as acts and omissions of VMware, its employees, agents, or representatives.
VMware has procurement or license agreements with respect to technology that it has obtained the right to use in VMware’s products and
agreements. Under some of these agreements, VMware has agreed to indemnify the supplier for certain claims that may be brought against such
party with respect to VMware’s acts or omissions relating to the supplied products or technologies.
VMware has agreed to indemnify the directors and executive officers of VMware, to the extent legally permissible, against all liabilities
reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a
director or executive officer. VMware’s by-laws and charter also provide for indemnification of directors and officers of VMware and VMware
subsidiaries to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual
may be involved by reason of such individual being or having been a director or executive officer. VMware also indemnifies certain employees
who provide service with respect to employee benefits plans, including the members of the Administrative Committee of the VMware 401(k)
Plan, and employees who serve as directors or officers of VMware’s subsidiaries.
In connection with certain acquisitions, VMware has agreed to indemnify the former directors and officers of the acquired company in
accordance with the acquired company’s by-
laws and charter in effect immediately prior to the acquisition or in accordance with indemnification
or similar agreements entered into by the acquired company and such persons. VMware typically purchases a “tail” directors’ and officers’
insurance policy, which should enable VMware to recover a portion of any future indemnification obligations related to the former officers and
directors of an acquired company.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history
with prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by
the Company under these agreements have not had a material effect on the Company’s consolidated results of operations, financial position, or
cash flows.
M. Stockholders’ Equity
VMware Class B Common Stock Conversion Rights
Each share of Class B common stock is convertible while held by EMC or its successor-in-interest at the option of EMC or its successor-in-
interest into one share of Class A common stock. If VMware’s Class B common stock is distributed to security holders of EMC in a transaction
(including any distribution in exchange for shares of EMC’s or its successor-in-interest’s common stock or other securities) intended to qualify
as a distribution under Section 355 of the Internal Revenue Code, or any corresponding provision of any successor statute, shares of VMware’s
Class B common stock will no longer be convertible into shares of Class A common stock. Prior to any such distribution, all shares of Class B
common stock will automatically be converted into shares of Class A common stock upon the transfer of such shares of Class B common stock
by EMC other than to any of EMC’
s successors or any of its subsidiaries (excluding VMware). If such a distribution has not occurred, each share
of Class B common stock will also automatically convert at such time as the number of shares of common stock owned by EMC or its successor-
in-interest falls below 20% of the outstanding shares of VMware’s common stock. Following any such distribution, VMware may submit to its
stockholders a proposal to convert all outstanding shares of Class B common stock into shares of Class A common stock, provided that VMware
has received a favorable private letter ruling from the Internal Revenue Service satisfactory to EMC to the effect that the conversion will not
affect the intended tax treatment of the distribution. If a meeting of VMware stockholders is called for this purpose, the holders of VMware
Class A common stock and VMware Class B common stock will be entitled to one vote per share and, subject to applicable law, will vote
together as a single class, and neither class of common stock will be entitled to a separate class vote. All conversions will be effected on a share-
for-share basis. As of December 31, 2014 and 2013 , 300.0 million shares of Class A common stock were reserved for conversion.
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