VMware 2009 Annual Report Download - page 33

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Table of Contents
EMC competes with certain of our significant channel, technology and other marketing partners, including IBM and Hewlett-Packard.
Pursuant to our certificate of incorporation and other agreements that we have with EMC, EMC may have the ability to impact our relationship
with those of our partners that compete with EMC, which could have a material adverse effect on our results of operations or our ability to
pursue opportunities which may otherwise be available to us.
Our historical financial information as a business segment of EMC may not be representative of our results as an independent public
company.
The historical financial information covering the periods prior to our initial public offering (“IPO”) in August 2007 included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009 does not necessarily reflect what our financial position, results of operations
or cash flows would have been had we been an independent entity during those historical periods. The historical costs and expenses reflected in
our consolidated financial statements prior to 2008 include an allocation for certain corporate functions historically provided by EMC, including
tax, accounting, treasury, legal and human resources services. Although we have transitioned most of these corporate functions to VMware
personnel, in certain geographic regions where we do not have an established legal entity, we contract with EMC subsidiaries for support
services and EMC employees who are managed by VMware personnel. The costs incurred by EMC on VMware’s behalf related to these
employees include a mark-up intended to approximate costs that would have been charged had such arrangements been with an unrelated third
party. These costs have been charged by EMC and are included as expenses in our consolidated statements of income. Our historical financial
information is not necessarily indicative of what our financial position, results of operations or cash flows will be in the future if and when we
contract at arm’s-length with independent third parties for the services we have received and currently receive from EMC. For additional
information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated
financial statements and notes thereto.
In order to preserve the ability for EMC to distribute its shares of our Class B common stock on a tax
-free basis, we may be prevented from
pursuing opportunities to raise capital, to effectuate acquisitions or to provide equity incentives to our employees, which could hurt our
ability to grow.
Beneficial ownership of at least 80% of the total voting power and 80% of each class of nonvoting capital stock is required in order for
EMC to effect a tax-free spin-off of VMware or certain other tax-free transactions. We have agreed that for so long as EMC or its successor-in-
interest 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 EMC’s or its successor-in-interest’s ability to undertake a tax-free spin-off. Additionally,
under our certificate of incorporation and the master transaction agreement we entered into with EMC, we must obtain the consent of EMC or its
successor-in-interest, as the holder of our Class B common stock, to issue stock or other VMware securities, excluding 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), which could cause us to forgo capital raising or acquisition opportunities that would otherwise be available to us. As a result, we may be
precluded from pursuing certain growth initiatives.
Third parties may seek to hold us responsible for liabilities of EMC, which could result in a decrease in our income.
Third parties may seek to hold us responsible for EMC’s liabilities. Under our master transaction agreement with EMC, EMC will
indemnify us for claims and losses relating to liabilities related to EMC’s business and not related to our business. However, if those liabilities
are significant and we are ultimately held liable for them, we cannot be certain that we will be able to recover the full amount of our losses from
EMC.
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