Item 1.01 Entry into a Material Definitive Agreement.
Separation and Distribution Agreement Overview
On April 14, 2021, Dell Technologies Inc. ("Dell" or the "Company") entered into
a Separation and Distribution Agreement (the "Separation and Distribution
Agreement") with VMware, Inc., a Delaware corporation, in which the Company owns
a majority equity stake ("VMware").
Subject to the terms and conditions set forth in the Separation and Distribution
Agreement, the businesses of VMware will be separated from the remaining
businesses of the Company through a series of transactions that will result in
the pre-transaction stockholders of the Company owning shares in two, separate
public companies-(1) VMware, which will own the businesses of VMware and VMware
subsidiaries and (2) the Company, which will own the Company's other businesses
and subsidiaries.
Subject to the terms and conditions set forth in the Separation and Distribution
Agreement, each of VMW Holdco LLC, EMC Corporation and EMC Equity Assets LLC,
each a wholly-owned subsidiary of the Company (collectively, the "EMC
Entities"), shall distribute its outstanding shares of VMware Class A Common
Stock and VMware Class B Common Stock (collectively, the "VMware Common Stock")
to Dell Inc., a wholly-owned subsidiary of the Company ("Dell Sub" and such
distribution, the "Internal Distribution"). Following such Internal
Distribution, and subject to the satisfaction of the conditions to payment
described below, VMware will pay a cash dividend, pro rata, to each of the
holders of VMware Common Stock in an aggregate amount equal to an amount to be
mutually agreed by the Company and VMware between $11.5 billion and $12 billion
(the "VMware Special Dividend"). Immediately following the payment of the VMware
Special Dividend, the separation of VMware from the Company will occur,
including through the termination or settlement of certain intercompany accounts
and intercompany contracts and the other transactions further described in the
Separation and Distribution Agreement and the ancillary agreements contemplated
therein (the "Ancillary Agreements" and such transactions contemplated by the
Separation and Distribution Agreement and the Ancillary Agreements, the
"Separation"). Immediately following the receipt by Dell Sub of its pro rata
portion of the VMware Special Dividend and concurrently with the consummation of
the Separation, (1) Dell Sub shall distribute all of the shares of VMware Common
Stock to Denali Intermediate Inc., a wholly-owned subsidiary of the Company, (2)
Denali
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Intermediate Inc. shall distribute all of the shares of VMware Common Stock to
the Company, and (3) the Company shall consummate the distribution by
distributing all of the issued and outstanding shares of VMware Common Stock
then owned by the Company to the holders of record of shares of the Company as
of the record date determined pursuant to the Separation and Distribution
Agreement (the "Distribution Record Date") on a pro rata basis (the
"Distribution"). Immediately following, and automatically as a result of, the
Distribution, and prior to receipt thereof by the Company's stockholders, each
share of VMware Class B Common Stock shall automatically convert into one fully
paid and non-assessable share of VMware Class A Common Stock in accordance with
clause (vi)(k) of Section C of Article IV of the Certificate of Amendment of the
Amended and Restated Certificate of Incorporation of VMware attached as Exhibit
A to the Separation and Distribution Agreement (the "Conversion" and together
with the Distribution, the Separation, the Internal Distribution, the payment of
the VMware Special Dividend and the other transactions contemplated by the
Separation and Distribution Agreement, the "Transactions"). As a result of the
Transactions, each holder of record of shares of the Company as of the
Distribution Record Date shall hold a pro rata portion of the VMware Class A
Common Stock distributed in the Distribution. Following the Transactions, the
VMware Class A Common Stock will be the sole class of outstanding VMware Common
Stock.
Conditions to the Transactions
The obligation of each of the Company and VMware to complete the Transactions is
subject to a number of conditions, including, among other things: receipt of
opinions from independent firms regarding surplus and solvency matters; receipt
of certain opinions by the Company concerning the federal income tax treatment
of the Transactions; receipt of a private letter ruling from the Internal
Revenue Service ("IRS") concerning the federal tax treatment of the
Transactions; absence of legal restraints that prohibit, enjoin or make illegal
the consummation of the Transactions; absence of pending litigation that would
reasonably be expected to prohibit, impair or materially delay the ability of
the Company or VMware to consummate the Transactions on the terms contemplated
by the Separation and Distribution Agreement or that seeks material damages or
another material remedy in connection with the Separation and Distribution
Agreement or the Transactions; satisfaction of the Additional Dividend
Conditions (as defined in the Separation and Distribution Agreement); NYSE
listing approval; and accuracy of representations and warranties and compliance
with covenants, subject to certain materiality standards. In addition, the
payment of the VMware Special Dividend is further conditioned upon (i) the
absence of a VMware Material Adverse Effect (as defined in the Separation and
Distribution Agreement) prior to declaration of the VMware Special Dividend and
(ii) VMware having an investment grade credit rating (as further described in
the Separation and Distribution Agreement).
Other Terms of the Separation and Distribution Agreement
Either the Company or VMware may terminate the Separation and Distribution
Agreement if:
• The Transactions are not completed on or before January 28, 2022;
• A court or other governmental entity issues a final and non-appealable
order permanently restraining, enjoining or otherwise prohibiting the
consummation of the Transaction; or
• The other party breaches certain of its representations, warranties,
covenants or other agreements in the Separation and Distribution
Agreement in a way that would entitle the party seeking to terminate the
agreement not to consummate the Transactions, subject to certain cure
rights.
In connection with the Transactions, the Amended and Restated Certificate of
Incorporation of VMware will be amended to provide that Dell will be able to
contingently convert its shares of VMware Class B Common Stock to VMware Class A
Common Stock, the Conversion becoming effective immediately following, and
automatically as a result of, the Distribution. The Company has caused to be
executed a written consent approving such amendment to the Amended and Restated
Certificate of Incorporation of VMware.
The foregoing description of the Separation and Distribution Agreement does not
purport to be complete and is qualified in its entirety by reference to the full
text of the Separation and Distribution Agreement, which is filed as Exhibit 2.1
hereto and is incorporated by reference herein.
Commercial Framework Agreement
In connection with and upon consummation of the Transactions, the Company and
VMware will enter into a Commercial Framework Agreement in the form attached as
Exhibit K to the Separation and Distribution Agreement (the "CFA"). The CFA
provides a framework under which the Company and
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VMware can continue their strategic commercial relationship post-transaction,
particularly with respect to projects mutually agreed by the parties as having
the potential to accelerate the growth of an industry, product, service, or
platform that may provide one or both parties with a strategic market
opportunity. The CFA will have an initial term of five years, with automatic
one-year renewals occurring annually thereafter. VMware may terminate various
obligations under the CFA and statements of work entered into with the Company
in the event that the Company fails to achieve certain bookings targets (as
further described in the CFA), and either of the parties may terminate the CFA
in the event of a material breach by the other party.
Item 7.01 Regulation FD.
On April 14, 2021, the Company issued a press release announcing its entry into
the Separation and Distribution Agreement. A copy of the press release is
furnished as Exhibit 99.1 to this report and incorporated herein by reference.
In accordance with General Instruction B.2 to Form 8-K, the information
contained in this Item 7.01, including Exhibit 99.1 to this report, is being
"furnished" to the Securities and Exchange Commission (the "SEC") and shall not
be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities under such section. Further, such
information shall not be deemed to be incorporated by reference in any filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, unless specifically identified as being incorporated therein
by reference.
Cautionary Statement Regarding Forward Looking Statements
This current report and the exhibits filed or furnished herewith contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words
"may," "will," "anticipate," "estimate," "expect," "intend," "plan," "aim,"
"seek," and similar expressions as they relate to Dell or its management are
intended to identify these forward-looking statements. All statements by Dell
regarding the expected timing, completion and effects of the proposed
transaction and similar matters are forward-looking statements. The expectations
expressed or implied in these forward-looking statements may not turn out to be
correct. All forward-looking statements speak only as of the date hereof and are
based on current expectations and involve a number of assumptions, risks and
uncertainties that could cause the actual results to differ materially from such
forward-looking statements. Dell may not be able to complete the proposed
transaction on the contemplated terms or other acceptable terms or at all
because of a number of factors, including the occurrence of any event, change or
other circumstances that could give rise to the termination of the definitive
agreement governing the proposed transaction, the failure to obtain adequate
financing sources for the VMware Special Dividend, the failure of VMware to
satisfy certain rating agency criteria, the effect of the announcement of the
transaction on Dell's ability to retain and hire key personnel and maintain
relationships with its customers, suppliers, operating results and business
generally, and other risks, uncertainties, and other factors that could affect
Dell's results in future periods, including, but not limited to, the following:
the effects of the COVID-19 pandemic; competitive pressures; Dell's reliance on
third-party suppliers for products and components, including reliance on
single-source or limited-source suppliers; Dell's ability to achieve favorable
pricing from its vendors; adverse global economic conditions and instability in
financial markets; Dell's execution of its growth, business, and acquisition
strategies; the success of Dell's cost efficiency measures; Dell's ability to
manage solutions and products and services transitions in an effective manner;
Dell's ability to deliver high-quality products, software, and services;
cyber-attacks or other data security incidents; Dell's foreign operations and
ability to generate substantial non-U.S. net revenue; Dell's product, services,
customer, and geographic sales mix, and seasonal sales trends; the performance
of Dell's sales channel partners; access to the capital markets by Dell's or its
customers; material impairment of the value of goodwill or intangible assets;
weak economic conditions and the effect of additional regulation on Dell's
financial services activities; counterparty default risks; the loss by Dell of
any contracts for ISG services and solutions and its ability to perform such
contracts at their estimated costs; loss by Dell of government contracts; Dell's
ability to develop and protect its proprietary intellectual property or obtain
licenses to intellectual property developed by others on commercially reasonable
and competitive terms; disruptions in Dell's infrastructure; Dell's ability to
hedge effectively its exposure to fluctuations in foreign currency exchange
rates and interest rates; expiration of tax holidays or favorable tax rate
structures, or unfavorable outcomes in tax audits and other tax compliance
matters; impairment of portfolio investments; unfavorable results of legal
proceedings; compliance requirements of changing environmental and safety laws
or other laws; the effect of armed hostilities, terrorism, natural disasters,
and public health issues; Dell's dependence on the services of Michael Dell and
key employees; Dell's level of indebtedness; and the impact of the financial
performance of VMware.
This list of risks, uncertainties, and other factors is not complete. Dell
discusses some of these matters more fully, as well as certain risk factors that
could affect Dell's business, financial condition, results of operations, and
prospects, in its reports filed with the SEC, including Dell's annual report on
Form 10-K for the fiscal year ended January 29, 2021, quarterly reports on Form
10-Q, and current reports on Form 8-K. Any or all forward-looking statements
Dell makes may turn out to be wrong and can be affected by inaccurate
assumptions Dell might make or by known or unknown risks, uncertainties, and
other factors, including those identified in this current report. Accordingly,
you should not place undue reliance on the forward-looking statements made in
this current report, which speak only as of its date. Dell does not undertake to
update, and expressly disclaims any duty to update, its forward-looking
statements, whether as a result of circumstances or events that arise after the
date they are made, new information, or otherwise.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
Exhibit
No. Exhibit Description
2.1* Separation and Distribution Agreement, dated as April 14, 2021 by
and between Dell Technologies Inc. and VMware, Inc.
99.1 Press Release, dated April 14, 2021.
104 Cover Page Interactive Data File - the cover page XBRL tags are
embedded within the Inline XBRL document.
* Certain schedules and exhibits to the Separation and Distribution Agreement
have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
hereby agrees to furnish supplementally a copy of any omitted schedule and/or
exhibit to the SEC upon request.
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