VMware 2013 Annual Report Download - page 86

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
of directors and officers of VMware and VMware subsidiaries to the extent legally permissible, against all liabilities reasonably incurred in connection with
any action in which such individual may be involved by reason of such individual being or having been a director or executive officer. VMware also
indemnifies certain employees who provide service with respect to employee benefits plans, including the members of the Administrative Committee of the
VMware 401(k) Plan, and employees who serve as directors or officers of VMware's subsidiaries.
In connection with certain acquisitions, VMware has agreed to indemnify the former directors and officers of the acquired company in accordance with
the acquired company’s by-laws and charter in effect immediately prior to the acquisition or in accordance with indemnification or similar agreements
entered into by the acquired company and such persons. VMware typically purchases a “tail” directors’ and officers’ insurance policy, which should enable
VMware to recover a portion of any future indemnification obligations related to the former officers and directors of an acquired company.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with prior
indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under
these agreements have not had a material effect on the Company’s consolidated results of operations, financial position, or cash flows.
N. Stockholders’ Equity
VMware Class B Common Stock Conversion Rights
Each share of Class B common stock is convertible while held by EMC or its successor-in-interest at the option of EMC or its successor-in-interest into
one share of Class A common stock. If VMware’s Class B common stock is distributed to security holders of EMC in a transaction (including any
distribution in exchange for shares of EMC’s or its successor-in-interest’s common stock or other securities) intended to qualify as a distribution under
Section 355 of the Internal Revenue Code, or any corresponding provision of any successor statute, shares of VMware’s Class B common stock will no
longer be convertible into shares of Class A common stock. Prior to any such distribution, all shares of Class B common stock will automatically be
converted into shares of Class A common stock upon the transfer of such shares of Class B common stock by EMC other than to any of EMC’s successors or
any of its subsidiaries (excluding VMware). If such a distribution has not occurred, each share of Class B common stock will also automatically convert at
such time as the number of shares of common stock owned by EMC or its successor-in-interest falls below 20% of the outstanding shares of VMware’s
common stock. Following any such distribution, VMware may submit to its stockholders a proposal to convert all outstanding shares of Class B common
stock into shares of Class A common stock, provided that VMware has received a favorable private letter ruling from the Internal Revenue Service
satisfactory to EMC to the effect that the conversion will not affect the intended tax treatment of the distribution. In a meeting of VMware stockholders called
for this purpose, the holders of VMware Class A common stock and VMware Class B common stock will be entitled to one vote per share and, subject to
applicable law, will vote together as a single class, and neither class of common stock will be entitled to a separate class vote. All conversions will be effected
on a share-for-share basis.
VMware Equity Plan
In June 2007, VMware adopted its 2007 Equity and Incentive Plan (the “2007 Plan”). In May 2009, VMware amended its 2007 Plan to increase the
number of shares available for issuance by 20 million shares for total shares available for issuance of 100 million . In May 2013, VMware further amended
the 2007 Plan to increase the number of shares available for issuance by 13 million shares. The number of shares underlying outstanding equity awards that
VMware assumes in the course of business acquisitions are also added to the 2007 Plan reserve on an as-converted basis. VMware has assumed 2 million
shares, which accordingly have been added to the 2007 Plan reserve.
Awards under the 2007 Plan may be in the form of stock options or other stock-based awards, including awards of restricted stock units. 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 and expire between
six and seven years from the date of grant. Most restricted stock grants made under the 2007 Plan have a three -year to four -
year period over which they vest.
VMware’s Compensation and Corporate Governance Committee determines the vesting schedule for all equity awards. VMware utilizes both authorized and
unissued shares to satisfy all shares issued under the 2007 Plan. At December 31, 2013 , there were an aggregate of 11 million shares of common stock
available for issuance pursuant to future grants under the 2007 Plan.
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