Salesforce.com 2004 Annual Report Download - page 78

Table of Contents
salesforce.com, inc.
Notes to Consolidated Financial Statements—(Continued)
nonprofit related party. The Company's chairman is the chairman of the Foundation. He, one of the Company's executive officers and one of the Company's
board members hold three of the Foundation's eight board seats. The warrants are exercisable for one-year terms beginning on the earlier of the initial public
offering of the Company or August 1 2003, August 1, 2004, August 1, 2005, and August 1, 2006, respectively. The warrants were issued as a charitable
contribution to the Foundation. The warrants were fully vested on the date of grant without any performance obligations by the Foundation.
The fair value of the warrants totaled $656,000 and was recorded as general and administrative expense in fiscal 2003. As of January 31, 2005, the
warrants to purchase an aggregate of 375,000 shares of common stock remain outstanding.
In fiscal year 2003, the Company issued two warrants to purchase 50,000 and 35,000 shares, respectively, of common stock at an exercise price of
$1.10 to an executive recruiting firm. The warrants were fully vested on the date of grant and were exercised in January 2005. The warrants were valued using
the Black-Scholes pricing model with the following assumptions: fair value of the underlying stock of $1.96 and $2.50 per share, respectively; risk-free
interest rate of 5 percent; contractual life of five years; no dividends during the term; and volatility of 100 percent. The fair value of the warrants totaled
$153,000 and was recorded as general and administrative expense.
Common Stock
The following shares of common stock are available for future issuance at January 31, 2005:
Options outstanding 17,365,589
Warrants outstanding 1,040,639
Stock available for future grant:
1999 Stock Option Plan 1,139,445
2004 Equity Incentive Plan 632,360
2004 Employee Stock Purchase Plan 1,000,000
2004 Outside Directors Stock Plan 987,500
22,165,533
In January 2004, the Board of Directors authorized the issuance of 10,000 shares of common stock to a board member and 22,500 shares to a former
board member for past board services. The expense associated with these share issuances was $260,000 and was recognized immediately.
During fiscal 2005, the Board of Directors authorized the issuance of 40,000 shares of common stock to two board members for board services. Of the
40,000 shares, 12,500 shares were distributed pursuant to the terms described in the 2004 Outside Directors Plan. The expense associated with these share
issuances was $646,000 and was expensed immediately at the time of the issuances.
8. Commitments and Contingencies
Letters of Credit
In fiscal year 2001, the Company established a $3,500,000 letter of credit in favor of its principal landlord. This letter of credit is collateralized by a
certificate of deposit maintained at the granting financial institution, both of which were reduced to $2,800,000 in June 2004. As of January 31, 2005, the
letter of credit was outstanding; however, no amounts had been drawn against it. The letter of credit renews annually through December 31, 2010.
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