VMware 2015 Annual Report Download - page 24

TableofContents
OurstockpricehasdeclinedsignificantlyfollowingtheannouncementoftheDellAcquisitionandfollowingsubsequentannouncementsofourfinancial
resultsandourguidanceforfutureoperatingresults.TheperiodsincetheannouncementoftheDellAcquisitionhasalsocoincidedwithageneraldownturnin
sharepricesoftechnologycompanies.AnumberoffactorsrelatingtotheDellAcquisitioncouldadverselyaffectourbusinessorourstockpriceduringthe
pendencyorfollowingtheclosingoftheDellAcquisition,including:
• IftheDellAcquisitioniscompleted,Denaliwillbeabletocontrolmattersrequiringourstockholders’approval,includingtheelectionofamajorityof
ourdirectorsandtheothermattersoverwhichEMCcurrentlyhascontrol,asdescribedintheriskfactorsbelow.
• Followingtheclosingoftheacquisition,Denalicouldimplementchangestoourbusiness,includingchangingourcommercialrelationshipwithEMCor
takingothercorporateactionsthatourotherstockholdersmaynotviewasbeneficial.
• WehavearrangementswithanumberofcompaniesthatcompetewithDell,andthependencyorcompletionoftheDellAcquisitioncouldadversely
affectourrelationshipwiththesecompaniesorothercustomers,suppliersandpartners.
• DuringthependencyoftheDellAcquisition,DenalihasarightofconsenttomattersrequiringEMC’sapprovalunderourcertificateofincorporation,
includingacquisitionsorinvestmentsinexcessof$100million,andDenalimaychoosenottoconsenttomattersthatourboardofdirectorsandEMC
believeareinthebestinterestsofVMware.
• WeanticipatecertainsynergiesandbenefitsfromtheDellAcquisitionthatmaynotberealized.
• TheClassVcommonstocktobeissuedbyDenali,whilenotaVMwareissuedsecurity,wouldincreasethesupplyofpubliclytradedsecuritiesthattrack
VMware'seconomicperformanceandcouldcreatetheperceptionthattheClassVcommonstockdilutestheholdingsofourpublicstockholders,bothof
whichcouldputdownwardpressureonourstockprice.
• FollowingtheclosingoftheDellAcquisition,Denaliwillbehighlyleveragedandmayberequiredtocommitasubstantialportionofitscashflowsto
servicingitsindebtedness.WhileDenalihaspubliclystatedthatitplanstoleaveVMwarefreetouseitscashtoinvestintheVMwarebusiness,Denali’s
significantdebtcouldcreatetheperceptionthatDenalimayexerciseitscontroloverustolimitourgrowthinfavorofitsotherbusinessesorcauseusto
transfercashtoDenali.Inaddition,ifDenalidefaults,orappearsindangerofdefaulting,onitsindebtedness,thetradingpriceoftheClassVcommon
stockissuedbyDenaliwouldbeadverselyaffected,whichcouldnegativelyimpactthepriceofourClassAcommonstock,anduncertaintyastothe
impactofsuchadefaultonVMwarecoulddisruptourbusiness.
• SomeofourproductscompetedirectlywithproductssoldordistributedbyDell,whichcouldresultinreducedsalesduringthependencyorfollowingthe
closingoftheDellAcquisition.
• ThependencyoftheDellAcquisitioncreatesuncertaintyforouremployees,whichcouldmakeitdifficulttoattractandretainemployees.
• ThependencyoftheDellAcquisitioncoulddistractmanagement’sfocusfromexecutingonotherstrategicinitiatives.
• Withrespecttoourstockrepurchaseprogram,wearecurrentlysubjecttoanumberoflegalandregulatoryconstraintsresultingfromDell'sproposed
acquisitionofEMC,whichimpactsthetimingandabilitytoexecuterepurchasesofoursharesandmaycontinuetocurtailourabilitytorepurchaseour
sharesthroughoutthependencyoftheDellAcquisition.
• TheDellAcquisitioncreatespotentiallitigationrisk.VariouslawsuitshavebeenfiledagainstEMCandothersinconnectionwiththeDellAcquisition,
includingoneinwhichtheCompanyandourdirectorsarenamedasdefendants.ItispossiblethatweorourCompany'sdirectorsmaybenamedinother
lawsuits.
Holders of our Class A common stock have limited ability to influence matters requiring stockholder approval.
AsofDecember31,2015,EMCowned43,025,000sharesofourClassAcommonstockandall300,000,000sharesofourClassBcommonstock,
representing81.3%ofthetotaloutstandingsharesofcommonstockor97.5%ofthevotingpowerofoutstandingcommonstock.Throughitsownershipofthe
ClassBcommonstock,whichisgenerallyentitledto10votespershare,EMCcontrolsthevotetoelectallofourdirectorsandtoapproveordisapproveallother
matterssubmittedtoastockholdervote.
PriortoadistributionbyEMCtoitsstockholdersunderSection355oftheInternalRevenueCodeof1986,asamended(a“355Distribution”),sharesofClass
Bcommonstocktransferredtoanypartyotherthanasuccessor-in-interest(suchasDenali,iftheDellAcquisitioniscompleted)orasubsidiaryofEMC
automaticallyconvertintoClassAcommonstock.EMC’svoting
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