VMware 2015 Annual Report Download - page 83

TableofContents
VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Inadditiontotheamountsabove,$1,500millionofnotespayabletoEMCwasoutstandingasofDecember31,2015.RefertoNoteNforfurtherinformation
regardingnotespayabletoEMC.
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
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