Salesforce.com 2011 Annual Report Download - page 34

• 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.
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