Joint Ventures and Strategic Alliances: Key Considerations for Negotiation, Structuring & Drafting Terri Krivosha Maslon LLP

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1 Joint Ventures and Strategic Alliances: Key Considerations for Negotiation, Structuring & Drafting Terri Krivosha Maslon LLP 1. What is a Joint Venture or Strategic Alliance? a. A relationship between businesses that is generally long and has an indeterminate life. b. A Joint Venture is often thought of as a separate entity, and a strategic alliance is thought of as a contractual venture between two parties. This outline refers to both structures as a "Joint Venture" for simplicity. 2. Why are Joint Ventures Created? a. To provide access to new distribution channels or new technology or new products. b. Share complementary skills. c. Create favorable supplier/customer relationships. d. Increase credibility, ability to compete, and access to capital. 3. What makes a Joint Venture so Unique? a. No such thing as a "joint venture expert." b. Need an interdisciplinary approach, including good skills as a negotiator, drafting skills with partnership/llc agreements, understanding of acquisition agreements, basic terms and conditions of private equity investments, securities and finance matters, tax, antitrust, benefits, intellectual property, finance, and accounting. c. Must be able to dissect venture into core parts and identify issues that need to be addressed. d. Good project for outside and inside counsel to work on together because inside counsel has the contacts with the business people in the transaction and outside counsel can provide skill in drafting, negotiating, and subject matter expertise as necessary. 4. Different Types of Joint Ventures a. Contractual, partnership, corporation, or limited liability company. b. Factors that affect the choice of entity: Tax Do the parties want venture to be taxed as a C corp with double taxation or as a pass through?; even a contractual joint venture can be considered a separate entity for tax purposes if it carries on a trade, business, or financial operation and divides the profits. Fact intensive analysis is needed. Limited liability partnerships don't always have this attribute; be careful of corporate veil piercing and make sure to establish separate entity. Regulatory filings may depend on the structure. (e.g., HSR filing depending on size of transaction; environmental permits; FCC filings).

2 Page 2 Third party consents depending on whether contracts will be assigned as part of the assets in a joint venture. Consider statutory differences among the various types of entities including withdrawal rights, dissolution rights, and duration of existence. 5. Purpose Clause a. The purpose clause typically defines the business of the Joint Venture. As a result, this clause is often linked to other provisions in the agreement such as noncompetes (which use the purpose clause to define the business); use of licensed technology will be limited by the purpose clause; agreements could require that there be a subject matter expert on the board that has expertise in the "business" of the Joint Venture. b. Because the definition of the business of a Joint Venture is so critical, it may also have a higher standard to amend that particular provision. c. See examples of purposes clauses below: Example 1: (Partnership Venture) Section Business of the Partnership. The Partnership is organized for the purpose of acquiring, investing in, operating, selling and otherwise dealing in and making investments in [a certain type of business] and for the purpose of engaging in all activities and transactions that are necessary or advisable in furtherance of that purpose (the "Business"). Notwithstanding anything to the contrary herein, without the unanimous approval of the Partnership's Managing Board, the Partnership shall not engage in any business other than the Business. Example 2: 6. Power Clause (Limited Liability Company Venture) Section Purposes. The purposes of the LLC shall be (i) to engage in the business of acquiring, owning and operating [description of business], and (ii) to enter into any lawful transaction and engage in any lawful activities in furtherance of the foregoing purposes and as may be necessary, incidental or convenient to carry out the business of the LLC as contemplated by this Agreement. This Section 1.01 may only be amended with the prior written approval of Members holding at least ninety percent (90%) of the outstanding voting units of membership interest of the LLC. a. Powers of the Joint Venture are stated either broadly (see Example 1 below) or more narrowly (see Example 2). b. There is little advantage to including a broad list of powers unless the statute in the applicable jurisdiction requires it. For example, in Delaware the limited liability company statute states specifically that such an entity has the power to make guaranty and suretyship contracts, enter into currency, hedge, interest rate, basis, and other swap agreements, enter into put, call, option, exchange, and collar agreement and derivative agreements. If you don't want your Joint Venture to have the ability to do these things, you need to limit them in the power clause.

3 Page 3 Example 1: (Corporate Joint Venture; Charter Provision; No Enumeration) Article 1: Power. The Corporation may exercise any and all powers in furtherance of its purposes that a corporation may lawfully exercise under the laws of the State of [state of incorporation]. Example 2: (Partnership Venture; Enumerated Powers) Section Powers. The Venture shall have such powers as are necessary or appropriate to carry out the purposes of the Venture, including, without limitation, the following powers, directly or through subsidiaries: (a) (b) to form, own, manage and dissolve one or more subsidiaries; to borrow money and to guarantee the obligations of any subsidiary and any other Affiliate of the Venture for any business, object or purpose of the Venture from time to time, without limit as to amount; to issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and any other kinds of negotiable and nonnegotiable instruments and evidences of indebtedness, whether or not in connection with borrowing money, and to secure the payment thereof (and the interest thereon) by the creation of any interest in the property or rights of the Venture or in any property owned by others when the Venture has the right to do so, whether owned by or subject to such right of the Venture at the time such indebtedness is incurred or thereafter 7. Assets to be Conveyed a. Each party should prepare a list of its contributions to the Joint Venture that includes tangible assets as well as intangible assets. b. As part of due diligence, determine who holds title to the assets to be conveyed and make sure no liens etc. c. If there are liens they should be removed or you have to assess what the risks are if the assets are conveyed subject to liens. d. Consider suitability of assets for Joint Venture and timing regarding when each asset should be contributed. e. Figure out how to convey the assets. For example, real estate might be leased or conveyed in fee simple; patents and other technology might be assigned or licensed pursuant to an exclusive or nonexclusive license. If licensed, must agree about whether royalties will be paid to the licensor. f. Decide if transfer will be part of capital contribution and constitute the partners equity in the Joint Venture or conveyed in some other manner such as a lease or license. g. Need representations from each party about assets conveyed that are similar to representations in an asset purchase agreement. For example, representations on title or if Joint Venture requires transfer of a third-party contract then obtain representation regarding ability to transfer contract and enforceability, suitability of intended use of transferred assets, receipt of all assets needed to operate Joint Venture, and no infringement on intellectual property.

4 Page 4 h. If a contributing party uses the assets itself and needs to continue to use them, one party should receive a license and the other receives title to the assets. 8. Governance and Management a. Economics and Control Determine relative ownership percentages of each party. If you use a partnership or limited liability company, the economics can be separated from control. For example, losses and profits can be allocated one way and governance another way. If one party contributes more money or property or has incurred expenses, it can have the profits until losses are paid back and then allocate equally. b. Joint Ventures typically have some sort of governing board. Determine a small number that will represent each party and determine whether each party will be allowed to choose, remove, and replace its own representatives on the board. c. Corporate statutes will provide governance guidance. However, in other entities, you will need to create the structure. In addition, in a contractual Joint Venture you still might want some sort of governing committee that has members from each of the parties. d. Written actions with less than a majority required can be problematic for minority, so depending on your relative position may want to require that written actions can only be executed on a unanimous basis. e. You also might provide that certain actions require unanimity. Here is an example of such a list: Approval of actions required by unanimous vote of board: a. Change, alter, amend or repeal any of the rights of the stockholders of the Company b. Create and/or issue any new class of stock c. Accept contributions from any other person or entity to hold stock in the Company (excluding stock pool [of between 8-10%]) d. Salary decisions for high level employees as well as hires with compensation in excess of $ e. Amend or waive any provision of the Company's bylaws or shareholder's agreement or articles of incorporation f. Voluntarily dissolve or liquidate the Company or file a bankruptcy g. Change the business of the Company h. Sell the business i. Offer stock to a vendor in exchange for services j. Borrow money k. Make capital expenditure in excess of $ l. Make any expenditure in excess of $

5 Page 5 9. Workforce a. Will the Joint Venture hire employees or will it use employees of the JV partners? If it will use employees of the Joint Venture partners only on a part time basis, there must be an employee leasing agreement that complies with applicable tax and ERISA laws. Typically the employees' hourly rate is determined on a fully "burdened" basis including the cost of compensation and benefits. b. Make sure the employees do not become considered as employees of the Joint Venture pursuant to ERISA laws and have an ERISA expert advice. The analysis as to whether the employee remains an employee of the Joint Venture partner is factual and includes issues related to training, duration of the relationship, assignment of additional work, and control over the relationship between the worker and the employer. c. Consider how administrative services will be provided including how the venture will obtain facilities management, plant services, administrative operations, bookkeeping, utilities, and other services. If one of the venture partners will provide these services then an Administrative Services Agreement should be drafted that includes scope of services, standard of care, term and termination, confidentiality, and payment. 10. Corporate Opportunity a. The corporate opportunity doctrine is based on the fiduciary duty of loyalty which prohibits a corporations' directors, officers, and controlling shareholders from diverting business opportunities from the corporation. There are similar doctrines in partnerships and limited liability companies. In a Joint Venture this becomes an important issue since often the joint venture partners have related businesses. The concern is whether the Joint Venture will hinder the ability of the venture partners to develop new businesses and how to manage that potential conflict. b. The analysis is very fact intensive. One way to avoid a usurpation of corporate opportunity issue is to disclose all the facts to the Joint Venture and obtain its consent that it does not want to pursue the opportunity. Alternatively the Joint Venture could be given a right of first refusal with respect to corporate opportunities. c. Another approach is to draft for the possibility at the beginning of the Joint Venture. The purpose clause will help with determining the scope of what might be a "corporate opportunity." In addition the Joint Venture can renounce certain opportunities in advance. d. In a corporate joint venture the provisions should be drafted as waivers. In LLC and partnership joint ventures the provisions can modify the fiduciary duties. e. Examples that provide a right of first refusal or a waiver approach are below: (Fifty-Fifty Corporate Joint Venture; Right of First Refusal with Respect to Competing Business Opportunities) Section Competing Business Opportunities. If either stockholder or affiliate thereof has the opportunity to engage in any other [competing] business or to purchase or invest in any other [competing] business interests (except for those businesses or investments already engaged in or made or contracted for as of the date hereof), it shall promptly offer a right of first refusal to the other stockholder to invest in or engage in any such business interest or investment on an equal

6 Page 6 basis and on equal terms. The other stockholder shall respond to such offer within thirty (30) days. (Limited Liability Company Venture; Waiver of Corporate Opportunity Rights; Waiver of Fiduciary Duties) Section Waiver of Fiduciary Duties; Corporate Opportunities. (a) This agreement is not intended to, and does not, create or impose any fiduciary duty on any of the Members hereto or their respective Affiliates [or designees on the Board of Managers]. Further, each Member hereby waives any and all fiduciary duties that, absent such waiver, may be implied by law, and in doing so, recognizes, acknowledges and agrees that the duties and obligations of the Members to one another and to the Company are only as expressly set forth in this Agreement. Additionally, each Member acknowledges that the other Members and the Affiliates of such Members own and/or manage other businesses, including businesses that may compete with the Company, the other Members and the Managers. 11. Noncompetition Provisions a. Issues relating to competition in joint ventures are often a big issue between venture parties. Yet another reason why the purpose clauses including definition of business are so important. b. Joint Venture partners may not want to be constrained so it's important to review these issues initially. c. Be wary of anti-trust issues as well depending on how the noncompete is structured. d. While the definition of business in the agreement can inform how the noncompete is drafted, the scope of the noncompete does not have to be as broad as the definition of business and can be made narrower. The scope can be limited to certain segments or markets, using particular techniques, etc. e. Restrictions should also use by either party of the trademarks and tradenames of the Joint Venture. f. The noncompete should have a term as well. Consider whether having the noncompete term run coterminous with the Joint Venture will be sufficient protection. (Limited Liability Company; Limited Covenant Not to Compete) Section Other Activities of Members or Affiliates; Additional Joint Investments. Any Member or any Affiliate thereof may have other business interests or may engage in other business ventures of any nature or description whatsoever, whether currently existing or hereafter created, and may compete, directly or indirectly, with the business of the LLC. No Member or Affiliate thereof shall incur any liability to the LLC as a result of such Member's or Affiliate's pursuit of such other business interests, ventures and competitive activity, and neither the LLC nor the other Members shall have any right to participate in such other business ventures or to receive or share in any income or profits derived therefrom. The foregoing is subject to the exception that [describes limits].

7 Page Transfer of Interests a. Consider carefully whether transfers of interests will be permitted by a Joint Venture partner. b. Transfers could be permitted if approved by the non-party board members or a right of first refusal could be given before a transfer. (However my experience is that a right of first refusal is tantamount to prohibiting a transfer because of the chilling effect it has on the potential transferee who often will not bid knowing the offer must be given first to the other Joint Venture partner). c. Transfers to affiliates or subsidiaries can be allowed but you may want to prohibit such a transfer if the transferee is a competitor of the other Joint Venture partner. d. Consider what happens if one of the Joint Venture partners has a "change of control" transaction. As a result the Joint Venture could be required to take on a new partner. Consider providing that a transfer will not be considered a "Change of Control" unless the new Joint Venture partner is a competitor of either the Joint Venture or the other Joint Venture partner. 13. Tag Along a. A "Tag-Along" provision is a right that permits a Joint Venture party to participate in a sale of the interests of the other Joint Venture party. Typically, a tag-along provision allows the other Joint Venture partner to have a pro rata amount of its holdings in the venture purchased by the transferee. b. A "Drag Along" would require that under certain circumstances if a majority or some higher amount of the Joint Venture finds a party to acquire the company, then the other Joint Venture can be forced to transfer its rights as well. Typically provide that in order for the provision to be operative the party that is subject to the "drag" must receive the same consideration as the party who has initiated the sale opportunity. 14. Confidentiality a. Confidentiality provisions are important in a Joint Venture agreement and should contain common provisions including the obligation of each party to have its employees be subject to the confidentiality requirements also important provision to put into the agreement. Important to include employees as part of the parties obligations for confidentiality. b. The example below is from a situation where there might clearly be competitive work being done by the Joint Venture parties. The provision makes clear that similarities may exist in work product developed by parties but so long as the similar product is not derived from proprietary information of the Joint Venture it will not be considered confidential information of the Joint Venture. Client has been advised that Consultant receives numerous unsolicited ideas over time and has an internal creative staff charged with developing potential business ideas and possibilities. Accordingly, and notwithstanding anything herein to the contrary, Client acknowledges and agrees that Consultant shall be free to pursue any and all business ideas, possibilities and concepts, including without limitation,

8 Page Exit Triggers those that may be the same or substantially similar to Client Proprietary Information, without any liability or objection to Client whatsoever, provided that Client Proprietary Information shall not be used in breach of this Agreement. a. As important in the planning of the initial organization of the Joint Venture is the way the Joint Venture can be deconstructed. b. Consider what are the situations that will trigger an exit by a Joint Venture partner. c. Triggers could include any or some of the following: breach (typically only the nonbreaching party can take advantage of this sort of trigger); failure to achieve a milestone financial or otherwise; success in achieving milestones; passage of time; a liquidity event (change of control or otherwise); deadlock (after exhausting dispute resolution procedures first); frustration of purpose. 16. Exit Mechanisms a. After the occurrence of a "trigger event," a party could have the right to transfer its interests to a third party; however make sure that the agreement provides how a buyer for the third party interest will be found and the methodology to value the company. b. Another possibility after a "trigger event" could be a Put or Call giving one party the right to "put" shares to the other or the right to "call" shares from the other. c. Buy Sell Device is also a possibility particularly if there is deadlock. The initiating party proposes the sale price and the second party chooses whether to be the buyer or the seller. A tweak on this type of provision would require that if the receiving party chooses to be the buyer, it must pay 5% more to buy the interests of the initiating party; and if initiating offeror still wants to buy, it must go up a specified amount. 17. How to Make a Joint Venture a Success (Forbes Magazine, 11/26/2013) a. Identify strategic logic and drivers of each potential partner. Determine if they can complement each other. Evaluate what the core of the JV will be. A new product or service and how will it be offered in a way where the whole is greater than the sum of the parts. b. Construct effective operating structure. c. Define the new business model including the customer proposition, channels for distribution and relationship management, value chain, structure and roles, investments, income, costs and payments, success factors, and timetable for delivery. d. Create an economic system that will work for both parties. e. Ensure that all negotiations are win/win know your bottom lines and negotiate for both parties to "win." Neither partner must feel it is losing by engaging in the JV. Need to be nimble. Shake hands and lock arms must have a strong foundation and relationship for legal structure to succeed. Resource: Partnerships, Joint Ventures & Strategic Alliances, Stephen I. Glover and Craig M. Wasserman

Page 9 TERRI KRIVOSHA is a partner in Maslon's Business & Securities Group. She works with a vibrant network of entrepreneurial and dynamic businesses and those who fund them.

9 Page 9 TERRI KRIVOSHA is a partner in Maslon's Business & Securities Group. She works with a vibrant network of entrepreneurial and dynamic businesses and those who fund them. She uses her broad strategic skills together with extensive experience to help her clients achieve success in all phases of their development and growth. Her practice focuses on mergers and acquisitions, financing, contract negotiation, strategic partnerships, distribution agreements, joint ventures, governance issues, exit strategies, and sales and recapitalizations. terri.krivosha@maslon.com p

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VMWARE, INC.

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VMWARE, INC. VMWARE, INC., a corporation organized and existing under the laws of the State of Delaware (the Corporation ), DOES HEREBY CERTIFY AS FOLLOWS: