VMware 2009 Annual Report Download - page 97

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Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2008 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 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 the Company’
s Board of Directors were excluded from participating in the 2008 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 per share of $71.60. Options granted pursuant to the 2008 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 Exchange Offer resulted
in incremental stock-based compensation expense of $18.0 million to be recognized over the four-year vesting term.
EMC Exchange Offer
In August 2007, VMware and EMC completed an exchange offer (the “EMC 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. The formulaic exchange ratio applied to the
exchange was determined by dividing the two-day volume weighted-average price of EMC’s common stock for the last two full days of the
EMC Exchange Offer by the IPO price of VMware Class A common stock. The EMC Exchange Offer was structured to generally retain the
intrinsic value of the tendered EMC securities. The number of VMware options received in exchange for the EMC options was determined by
multiplying the number of tendered EMC options 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, continue to have their existing grants governed under EMC’s stock plans.
There were approximately 6.7 million options to purchase VMware Class A common stock issued in the exchange with a weighted-
average exercise price per share 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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