Salesforce.com 2010 Annual Report Download - page 29

Table of Contents
• it may make us more vulnerable to downturns in our business, our industry or the economy in general.
Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial, business, economic,
regulatory and other factors. We will not be able to control many of these factors, such as economic conditions and governmental regulations. Our operations
may not generate sufficient cash to enable us to service our debt. If we fail to make a payment on our debt, we could be in default on such debt.
The trading price of the Notes may be significantly affected by the market price of our common stock, which may be volatile, the general level of
interest rates and our credit quality.
Because the Notes are convertible into cash equal to the principal amount of the Notes, and at our election, cash and/or shares of the Company's
common stock for any amounts in excess of the principal amounts, the market price of our common stock may significantly affect the trading price of the
Notes. See "The market price of our common stock is likely to be volatile and could subject us to litigation" above.
In addition, the general level of interest rates and our credit quality may significantly affect the trading price of the Notes.
We also cannot predict whether interest rates will rise or fall. During the term of the Notes, interest rates will be influenced by a number of factors, most
of which are beyond our control. However, if interest rates increase, the option value of the Notes' convertibility feature will increase, but the yield of the
Notes will decrease, and if interest rates decrease, the option value of the Notes' convertibility feature will decrease, but the yield of the notes will increase.
In addition, our credit quality may vary substantially during the term of the Notes and will be influenced by a number of factors, including variations in
our cash flows and the amount of indebtedness we have outstanding. Any decrease in our credit quality could negatively impact the trading price of the Notes.
The convertible note hedge and warrant transactions may affect the trading price of the Notes and the market price of our common stock.
We entered into privately negotiated convertible note hedge transactions with the hedge counterparties concurrently with the issuance of the Notes. We
also entered into privately negotiated warrant transactions with the hedge counterparties. Taken together, the convertible note hedge transactions and the
warrant transactions are expected, but not guaranteed, to reduce the potential dilution with respect to our common stock upon conversion of the Notes.
As the hedge counterparties and their respective affiliates modify their hedge positions from time to time by entering into or unwinding various over-
the-counter derivative transactions with respect to our common stock, and/or by purchasing or selling shares of our common stock or the Notes in privately
negotiated transactions and/or open market transactions, their activities could adversely affect the market price of our common stock and the trading price of
the Notes.
In addition, the hedge counterparties are financial institutions or affiliates of financial institutions, and we will be subject to the risk that these hedge
counterparties may default under the convertible note hedge transactions.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
26