EMC 2007 Annual Report Download - page 97

EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The total fair values of restricted stock and restricted stock units that vested in 2007, 2006 and 2005 were $105.2 million, $57.5 million and
$19.6 million, respectively.
Our restricted stock awards are valued based on our stock price on the grant date. Our restricted stock awards have various vesting terms from the date of
grant, including pro rata vesting over three or four years, cliff vesting at the end of three or five years with acceleration for achieving specified performance
criteria, cliff vesting on various dates contingent on achieving specified performance criteria and vesting contingent solely on achieving specified performance
criteria. For awards with performance conditions, management evaluates the criteria in each grant to determine the probability that the performance condition
will be achieved.
As of December 31, 2007, 24.2 million shares of restricted stock and restricted stock units were outstanding and unvested, with an aggregate intrinsic
value of $447.8 million. These shares and units are scheduled to vest through 2011. Of the total shares of restricted stock and restricted stock units
outstanding, 16.9 million shares and units will vest upon fulfilling service conditions, of which vesting for 11.9 million shares and units will accelerate upon
achieving performance conditions. The remaining 7.3 million shares and units will vest only if certain performance conditions are achieved.
VMware Equity Plans
In June 2007, VMware adopted its 2007 Equity and Incentive Plan (the "2007 Plan"). Awards under the 2007 Plan may be in the form of stock options or
other stock-based awards, including awards of restricted stock. The maximum number of shares of the VMware Class A common stock reserved for the grant
or settlement of awards under the 2007 Plan is 80 million. The exercise price for a stock option awarded under the 2007 Plan shall not be less than 100% of
the fair market value of VMware Class A common stock on the date of grant. Most options granted under the 2007 Plan vest 25% after the first year and then
monthly thereafter over the following three years. All options granted in 2007 pursuant to the 2007 VMware Equity and Incentive Plan expire six years from
the date of grant. The exercise of stock options and the vesting of restricted stock grants of VMware will give rise to additional SAB 51 gains or losses and
will also increase the Minority Interest in VMware.
VMware Exchange Offer
In connection with the IPO, VMware and EMC conducted an exchange offer (the "Exchange Offer") enabling eligible VMware employees to exchange
their options to acquire EMC common stock for options to acquire VMware Class A common stock and to exchange restricted stock awards of EMC's
common stock for restricted stock awards of VMware's Class A common stock based on a formulaic exchange ratio which was determined by dividing the
two-day volume weighted average price of EMC's common stock for the last two full days of the Exchange Offer by the IPO price of VMware Class A
common stock. The Exchange Offer expired on August 13, 2007, the date of the pricing of the IPO. The Exchange Offer was structured to generally retain the
intrinsic value of the tendered EMC securities. The number of VMware options received in exchange for EMC options was determined by multiplying the
number of tendered EMC options by the exchange ratio. The exercise price of the VMware options received in exchange was the exercise price of the
tendered EMC options divided by the exchange ratio. The VMware options received in the exchange retained their original term of ten years from the date of
grant. The number of shares of VMware restricted stock received in exchange for EMC restricted stock was determined by multiplying the number of
tendered EMC restricted shares by the exchange ratio. VMware employees that did not elect to exchange their EMC options and EMC restricted stock for
options to purchase VMware Class A common stock and restricted stock awards of VMware Class A common stock, respectively, will continue to have their
existing grants governed under EMC's stock plans.
Approximately 11.0 million EMC stock options (approximately 89% of the eligible awards) and approximately 4.7 million EMC restricted stock awards
(approximately 81% of the eligible awards) were tendered for exchange in August 2007. At the initial public offering price of $29.00 per share and EMC's
two-day volume-weighted average trading price prior to the consummation of the initial public offering of Class A common stock for the two days ended
August 10, 2007 of $17.74 per share, the exchange ratio was 0.6116. There were approximately 6.7 million options to purchase VMware Class A common
stock issued in the exchange with a weighted average exercise price of $19.94 and approximately 2.9 million shares of VMware restricted stock issued in the
exchange. The total incremental stock-based compensation expense resulting from the exchange of equity instruments was not material.
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