VMware 2011 Annual Report Download - page 34

Table of Contents
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 we
contracted for such services 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.
Risks Related to Owning Our Class A Common Stock
The price of our Class A common stock has fluctuated substantially in recent years and may fluctuate substantially in the future.
The trading price of our Class A common stock has fluctuated significantly since our IPO in August 2007. For example, between January 1,
2011 and January 31, 2012, the closing trading price of our Class A common stock was very volatile, ranging between $74.81 and $107.75 per
share. Our trading price could fluctuate substantially in the future due to the factors discussed in this Risk Factors section and elsewhere in this
Annual Report on Form 10-K.
Substantial amounts of Class A common stock are held by our employees, EMC and Cisco, and all of the shares of our Class B common
stock, which may be converted to Class A common stock upon request of the holder, are held by EMC. Shares of Class A common stock held by
EMC (including shares of Class A common stock that might be issued upon the conversion of Class B common stock) are eligible for sale
subject to the volume, manner of sale and other restrictions of Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), which
allows the holder to sell up to the greater of 1% of our outstanding Class A common stock or our four-week average weekly trading volume
during any three-
month period and following the expiration of their contractual restrictions. Additionally, EMC possesses registration rights with
respect to the shares of our common stock that it holds. If EMC chooses to exercise such rights, its sale of the shares that are registered would
not be subject to the Rule 144 limitations. If a significant amount of the shares that become eligible for resale enter the public trading markets in
a short period of time, the market price of our Class A common stock may decline.
Additionally, broad market and industry factors may decrease the market price of our Class A common stock, regardless of our actual
operating performance. The stock market in general and technology companies in particular, also have often experienced extreme price and
volume fluctuations. In addition, in the past, following periods of volatility in the overall market and the market price of a company's securities,
securities class action litigation has often been instituted, including against us, and, if not resolved swiftly, can result in substantial costs and a
diversion of management's attention and resources.
If securities or industry analysts change their recommendations regarding our stock adversely, our stock price and trading volume could
decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding
our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline.
Delaware law and our certificate of incorporation and bylaws contain anti
-takeover provisions that could delay or discourage takeover
attempts that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws will have the effect of delaying or preventing a change of control or changes in our
management. These provisions include the following:
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• the division of our board of directors into three classes, with each class serving for a staggered three-year term, which would prevent
stockholders from electing an entirely new board of directors at any annual meeting;
•
the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;
•
following a 355 distribution of Class B common stock by EMC to its stockholders, the restriction that a beneficial owner of 10% or more
of our Class B common stock may not vote in any election of directors unless such person or group also owns at least an equivalent
percentage of Class A common stock or obtains approval of our board of directors prior to acquiring beneficial ownership of at least 5%
of Class B common stock;
•
the prohibition of cumulative voting in the election of directors or any other matters, which would otherwise allow less than a majority of
stockholders to elect director candidates;