VMware 2015 Annual Report Download - page 25

TableofContents
controloverVMwarewillcontinuesolongasthesharesofClassBcommonstockitownscontinuetorepresentatleast20%ofouroutstandingstock.IfEMC’s
ownershipfallsbelow20%oftheoutstandingsharesofourcommonstock,alloutstandingsharesofClassBcommonstockwillautomaticallyconverttoClassA
commonstock.IfEMCeffectsa355DistributionatatimewhenitholdssharesofClassBcommonstock,itsshareholderswillreceiveClassBcommonstock.
Theseshareswillremainentitledto10votespershare,holdersoftheseshareswillremainentitledtoelect80%ofthetotalnumberofdirectorsonourboardof
directorsandtheholdersofourClassAcommonstockwillcontinuetohavelimitedabilitytoinfluencemattersrequiringstockholderapprovalandhavelimited
abilitytoelectmembersofourboardofdirectors.Followinga355distribution,sharesofClassBcommonstockmayconverttoClassAcommonstockifsuch
conversionisapprovedbyVMwarestockholdersafterthe355distributionandwehaveobtainedaprivateletterrulingfromtheInternalRevenueService.In
January2014,theIRSannouncedinRevenueProcedure2014-3that,generally,itwouldnolongerissueprivateletterrulingson355distributions.
EMC has the ability to prevent us from taking actions that might be in our best interest.
UnderourcertificateofincorporationandthemastertransactionagreementweenteredintowithEMC,wemust(subjecttocertainexceptions)obtainthe
consentofEMCoritssuccessor-in-interest(includingDenali,iftheDellAcquisitioniscompleted),astheholderofourClassBcommonstock,priortotaking
specifiedactions,suchasacquiringothercompaniesforconsiderationinexcessof$100million,issuing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),
payingdividends,enteringintoanyexclusiveorexclusionaryarrangementwithathirdpartyinvolving,inwholeorinpart,productsorservicesthataresimilarto
EMC’soramendingcertainprovisionsofourcharterdocuments.Inaddition,wehaveagreedthatforsolongasEMCoritssuccessor-in-interest(includingDenali,
iftheDellAcquisitioniscompleted)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theabilityofEMCoritssuccessor-in-interest(includingDenali,iftheDellAcquisitionis
completed)toundertakeatax-freespin-off.Denali,iftheDellAcquisitioniscompleted,oranotheracquirerorsuccessor,iftheDellAcquisitionisnotcompleted
andEMCissubsequentlyacquiredorotherwiseundergoesachangeofcontrol,willbeentitledtoexercisethevotingcontrolandcontractualrightsofEMC,and
maydosoinamannerthatcouldvarysignificantlyfromEMC’shistoricpractice.IfEMCoritssuccessor-in-interest(includingDenali,iftheDellAcquisitionis
completed)doesnotprovideanyrequisiteconsentallowingustoconductsuchactivitieswhenrequested,wewillnotbeabletoconductsuchactivities.Asaresult,
wemayhavetoforgocapitalraisingoracquisitionopportunitiesthatwouldotherwisebeavailabletous,andwemaybeprecludedfrompursuingcertaingrowth
initiatives.
Bybecomingastockholderinourcompany,holdersofourClassAcommonstockaredeemedtohavenoticeofandhaveconsentedtotheprovisionsofour
certificateofincorporationandthemastertransactionagreementwithrespecttothelimitationsthataredescribedabove.
EMC has the ability to prevent a change in control transaction and may sell control of VMware without benefiting other stockholders.
EMC’svotingcontrolanditsadditionalrightsdescribedabovegivesEMC(orDenali,iftheDellAcquisitioniscompleted)theabilitytopreventtransactions
thatwouldresultinachangeofcontrolofVMware,includingtransactionsinwhichholdersofourClassAcommonstockmightotherwisereceiveapremiumfor
theirsharesoverthethen-currentmarketprice.Inaddition,EMC(orDenali,iftheDellAcquisitioniscompleted)isnotprohibitedfromsellingacontrolling
interestinustoathirdpartyandmaydosowithouttheapprovaloftheholdersofourClassAcommonstockandwithoutprovidingforapurchaseofanysharesof
ClassAcommonstockheldbypersonsotherthanEMC.Accordingly,sharesofClassAcommonstockmaybeworthlessthantheywouldbeifEMCdidnot
maintainvotingcontroloverusorifEMCdidnothavetheadditionalrightsdescribedabove.
If EMC’s level of ownership significantly increases, EMC (or Denali, if the Dell acquisition is completed) could unilaterally effect a merger of VMware
into EMC without a vote of VMware stockholders or the VMware board of directors at a price per share that might not reflect a premium to then-
current market prices.
AsofDecember31,2015,EMCheldapproximately81.3%ofVMware’soutstandingcommonstock,andEMC’spercentageownershipofVMwarecommon
stockcouldincreaseasaresultofrepurchasesbyVMwareofourClassAcommonstockorpurchasesbyEMC(orDenali,iftheDellAcquisitioniscompleted).
Section253oftheDelawareGeneralCorporationLawpermitsaparentcompany,whenitowns90%ormoreofeachclassofasubsidiary'sstockthatgenerally
wouldbeentitledtovoteonamergerofthatsubsidiarywiththeparent,tounilaterallyeffectamergerofthesubsidiaryintotheparentwithoutavoteofthe
subsidiary'sboardorstockholders.Accordingly,ifEMCorDenali(aftertheDellAcquisitioniscompleted)becomestheholderofatleast90%ofVMware’s
outstandingstock,neitherVMware'sboardofdirectorsnorVMware’sstockholderswouldbeentitledtovoteonamergerofVMwareintoDenali(the“short-form
merger”).Moreover,ashort-formmergerisnotsubjecttothestringent“entirefairness”standardandtheparentcompanyisnotrequiredtonegotiatewithaspecial
committeeofdisinteresteddirectorsthatwouldservetoapproximatearm'slengthnegotiationsdesignedtoensurethatafairpriceis
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