EMC 2008 Annual Report Download - page 101

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
three-year to four-year period over which they vest. VMware utilizes both authorized and unissued shares to satisfy all shares issued under the 2007 Plan.
2007 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.
2008 VMware Exchange Offer
In September 2008, VMware completed an offer to exchange certain employee stock options issued under VMware's 2007 Equity and Incentive Plan
("2008 VMware Exchange Offer"). Certain previously granted options were exchanged for new, lower-priced stock options granted on a one-for-one basis.
Executive officers and members of VMware's Board of Directors were excluded from participating in the 2008 VMware Exchange Offer. Options for an
aggregate of 4.1 million shares of VMware's Class A common stock were exchanged with a weighted-average exercise price of $71.60. Options granted
pursuant to the 2008 VMware Exchange Offer have an exercise price of $33.95 per share, vest pro rata over four years beginning September 10, 2008 with no
credit for past vesting and have a new six-year option term. The 2008 VMware Exchange Offer resulted in incremental stock-based compensation expense of
$18.0 million to be recognized over the four-year vesting term.
VMware Employee Stock Purchase Plan
In June 2007, VMware adopted its 2007 Employee Stock Purchase Plan (the "VMware ESPP") that is intended to be qualified under Section 423 of the
Code. A total of 6.4 million shares of VMware Class A common stock were reserved for future issuance. Under the VMware ESPP, eligible VMware
employees are granted options to purchase shares at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value
at the time of exercise. Options to purchase shares were first granted under the VMware ESPP on August 13, 2007, the date on which VMware's Form S-1
Registration Statement was declared effective by the SEC and became exercisable on December 31, 2007. Options to purchase shares are generally granted
twice yearly.
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