UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended January 31, 2011
OR
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 001-32224
salesforce.com, inc.
(Exact name of registrant as specified in its charter)
Delaware | 94-3320693 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
The Landmark @ One Market, Suite 300
San Francisco, California 94105
(Address of principal executive offices)
Telephone Number (415) 901-7000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $0.001 per share | New York Stock Exchange, Inc. |
Securities registered pursuant to section 12(g) of the Act:
Not applicable
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of Act. Yes ¨ No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Based on the closing price of the Registrants common stock on the last business day of the Registrants most recently completed second fiscal quarter, which was July 31, 2010, the aggregate market value of its shares (based on a closing price of $98.95 per share) held by non-affiliates was approximately $11.7 billion. Shares of the Registrants common stock held by each executive officer and director and by each entity or person that owned 5 percent or more of the Registrants outstanding common stock were excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of January 31, 2011, there were approximately 132.9 million shares of the Registrants Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement for its 2011 Annual Meeting of Stockholders (the Proxy Statement), to be filed within 120 days of the Registrants fiscal year ended January 31, 2011, are incorporated by reference in Part III of this Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.
salesforce.com, inc.
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FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K, including the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in Item 7, contains 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. Forward-looking statements consist of, among other things, trend analyses, statements regarding future events, future financial performance, our business strategy and our plan to build our business, including our strategy to be the leading provider of CRM application services and the leading platform on which customers and partners build enterprise cloud computing applications, our service performance and security, the expenses associated with our data center capacity, our operating results, our anticipated growth, trends in our business, new application service features, our strategy of acquiring or making investments in complementary companies, services and technologies, the effect of general economic and market conditions including sudden declines in the fair value of our investments in cash equivalents and marketable securities, our ability to protect our intellectual property rights, our ability to develop our brands, the effect of evolving government regulations, the effect of foreign currency exchange rate and interest rate fluctuations on our financial results, the potential availability of additional tax assets in the future and related matters, the impact of expensing stock options, the sufficiency of our capital resources, potential litigation involving us, our plan to build our new global headquarters in San Francisco, and our strategy to be the leading provider of CRM application services and the leading platform on which customers and partners build enterprise cloud computing applications, of which are based on current expectations, estimates, and forecasts, and the beliefs and assumptions of our management. Words such as expects, anticipates, aims, projects, intends, plans, believes, estimates, seeks, variations of such words, and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified below, under Risk Factors in Item 1A and elsewhere in this report, for factors that may cause actual results to be different than those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
PART I
ITEM 1. | BUSINESS |
Overview
We are a leading provider of enterprise cloud computing applications. We provide a comprehensive customer and collaboration relationship management, or CRM, service to businesses of all sizes and industries worldwide and we provide a technology platform for customers and developers to build and run business applications.
We were incorporated in Delaware in February 1999, and founded on the simple concept of delivering enterprise business applications via the Internet or cloud. Cloud computing refers to the use of Internet-based computing, storage and connectivity technology for a variety of different services. We introduced our first service in February 2000. Since then, we have augmented our CRM service with new editions and enhanced features. We introduced our Force.com platform to customers and developers so they can build complementary applications to extend beyond CRM. In 2010 we introduced our AppExchange directory of enterprise cloud computing applications that are integrated with our CRM service and in most cases have been developed on our platform by third parties. We also introduced Chatter, a collaboration application for the enterprise to connect and share information securely and in real-time.
Our principal executive offices are located in San Francisco, California and our principal website address is www.salesforce.com. Our office address is The Landmark @ One Market, Suite 300, San Francisco, California 94105.
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We designed and developed our applications to be easy-to-use and intuitive solutions that can be deployed rapidly, customized easily and integrated with other software applications. We deliver our service through any of the market-leading Web browsers. Customers who use our CRM and collaboration services and platform are able to avoid much of the expense and complexity of traditional enterprise software development and implementations. As a result, our customers incur less risk and lower upfront costs and benefit from increased productivity.
We market our service to businesses on a subscription basis, primarily through our direct sales efforts and indirectly through partners. Through our Force.com platform and developer tools and our AppExchange, we also encourage third parties to develop additional functionality and applications that run on our platform, but which are sold separately from, or in conjunction with, our CRM service.
Cloud Computing
Cloud computing fundamentally changes the way enterprise business software applications are developed and deployed. Application developers no longer need to create and manage their own infrastructure of servers, storage, network devices, operating system software and development tools in order to create a business application. Instead, the entire infrastructure is managed by third parties who specialize in infrastructure management, and developers simply use an Internet browser to access the development environment. Application users can gain access to a variety of business applications via an Internet browser or mobile device, and are able to take advantage of a robust, secure, scalable and highly available application, without the cost and complexity of managing the hardware or software infrastructure.
Our vision of enterprise cloud computing is based on a multi-tenant technology architecture and a subscription service business model. With multi-tenancy, multiple customers share application, platform and infrastructure services provided by the vendor.
Today, we believe that the next phase of cloud computing is transforming enterprise software again. Driven by the consumerization of information technology (IT), our next phase of cloud computing will have three key characteristics it will be social, mobile and open. With the popularity of social networking websites, new ways to communicate and collaborate based on feeds and status updates have emerged. In the enterprise market, that means enabling employees to easily find, share and collaborate on information. In addition, with the wide adoption of mobile phones and tablets, our customers now expect cloud computing technologies to be built for business to work on these devices, regardless of the carrier or operating system. We are working to provide these new kinds of cloud computing technologies to enterprise customers around the world.
Cloud Applications
Cloud applications enable businesses to subscribe to a wide variety of application services that are developed specifically for, and delivered over, the Internet on an as-needed basis with few or no implementation services required and without the need to install and manage third-party software or hardware in-house.
Historically, only large businesses could afford to make investments in enterprise resource planning, CRM and collaboration applications to gain an enterprise-wide view of business information and automate and improve basic processes. However, cloud applications are available to businesses of all sizes and across all industries. Multi-tenant architectures enables cloud vendors like us to leverage a common infrastructure and software code base across all of our customers who benefit from access to the most current release of the application, periodic upgrades, more rapid innovation and the economies of a shared infrastructure.
We believe the shift to cloud applications provides significant benefits even beyond those associated with multi-tenant infrastructure. Businesses are able to realize many of the benefits offered by traditional enterprise
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software vendors, such as a comprehensive set of features and functionality and the ability to customize and integrate with other applications, while at the same time reducing the risks and lowering the total costs associated with owning enterprise software. As a result, we believe the continued emergence of cloud applications is bringing about a fundamental transformation in the enterprise software industry as businesses are offered the choice of replacing their purchased software with subscriptions to a wide range of application services.
Cloud Platforms
We believe that cloud applications and their related success in the market are the most widely understood segment of enterprise cloud computing. However, enterprise cloud computing also includes building applications on a cloud-based application development platform, also referred to as cloud platforms.
Application developers use cloud platform technology to build both custom applications for individual businesses or vertical industries, and horizontal applications to address standard business processes that can be sold to a broad range of potential customers. Application developers include corporate IT departments that typically develop applications for a companys internal-use and independent software vendors (ISVs) that develop applications to sell to customers. Traditionally, these developers have needed to purchase, install, test and maintain complex software and hardware infrastructure to develop and deliver their applications. This requirement resulted in more time and resources being spent maintaining infrastructure and less time and resources being available to actually develop applications, with a resulting reduction in innovation and productivity levels.
Cloud platforms enable corporate IT developers and ISVs to leverage the benefits of a multi-tenant platform for developing new applications. Cloud platforms allow developers to build applications using only a browser and an Internet connection, just as cloud applications allow users to use applications through a browser. In addition, developers typically pay no upfront costs when building cloud applications, with costs only to be incurred at the point of application deployment.
Our cloud platforms provide application developers access to new capabilities that can be built into their business applications. These platforms include features popularized by social networking companies, such as profiles, status updates and feeds; and also the capability to extend applications for use on mobile devices.
Our cloud platforms allow both IT departments and ISV developers to use several programming languages to build their applications. While there are many benefits to a language natively associated with a cloud platform, developers are able to use the most popular programming languages on our cloud platforms, such as Java and Ruby, to build their applications. Our cloud platforms support multiple languages to provide developers openness and choice.
Our Solution
Our CRM applications help companies better record, track, manage, analyze and share information regarding sales, customer service and support, and marketing operations. In 2010 we introduced Salesforce Chatter, a private social network for businesses. Our Force.com cloud computing platform, which was introduced in 2007, allows customers and partners to more extensively customize and integrate our applications or build entirely new cloud applications beyond CRM without having to invest in new software, hardware and related infrastructure. These newly developed applications, which run on our infrastructure, can then be used for internal operations or sold to third parties.
We also offer the AppExchange, an online directory for cloud applications, where customers can browse, test-drive and deploy applications from salesforce.com and our partners.
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The majority of our subscription and support revenue comes from subscriptions to our core CRM application and Force.com application development platform. In order for customers to install and run custom applications, whether built by themselves or by our partners, they must be a subscriber to our service.
By subscribing to our service, our customers do not have to make large and potentially risky upfront investments in software, hardware, implementation services and IT staff as they would with traditional software solutions. We believe that our service enables businesses to rapidly achieve the benefits of higher productivity, and lower their total cost of ownership for their business application.
Key advantages of our solution include:
| Secure, scalable and reliable delivery platform. The delivery platform for our service has been designed to provide our customers with high levels of performance, reliability, and security. We have built, and continue to invest in, a comprehensive security infrastructure, including firewalls, intrusion detection systems, and encryption for transmissions over the Internet, which we monitor and test on a regular basis. We built and maintain a multi-tenant application architecture that has been designed to enable our service to scale securely, reliably, and cost-effectively. Our multi-tenant application architecture maintains the integrity and separation of customer data while still permitting all customers to use the same application functionality simultaneously. |
| Rapid deployment. Our service can be deployed rapidly since our customers do not have to spend time procuring, installing or maintaining the servers, storage, networking equipment, security products, or other infrastructure hardware and software necessary to ensure a scalable and reliable service. |
| Ease of integration. Our platform is designed to enable IT professionals to integrate our service with existing applications quickly and seamlessly. Our Force.com platform provides a set of application programming interfaces, or APIs, that enable customers and independent developers to both integrate our service with existing third-party, custom, and legacy applications and write their own application services that integrate with our service. For example, many of our customers use the Force.com API to move customer-related data from custom-developed and legacy applications into our service on a periodic basis to provide greater visibility into their activities. Other customers and partners have, for example, developed their own talent management solutions and procurement solutions on the Force.com platform. |
| Rapid development of applications using the Force.com platform. Our customers and third party developers can develop applications rapidly because of the ease of use and the benefits of a multi-tenant platform. We provide the capability for business users to easily customize our applications to suit their specific needs, and also powerful programming language support so developers can code complex applications spanning multiple business processes. |
| Increasing innovation. By providing infrastructure and development environments on demand, we provide developers the opportunity to create new and innovative applications without having to invest in hardware and distribution. A developer with an idea for a new application can log onto our platform, develop, test and support their system on Force.com and make the application accessible for a fee to our customers. |
| Lower total cost of ownership. We enable customers to achieve significant upfront savings relative to the traditional enterprise software model. Customers benefit from the predictability of their future costs since they pay for the service on a per subscriber basis for the term of the subscription contract. All upgrades are included in our service, so customers are not burdened or disrupted by the periodic need to perform system upgrades. Because we implement all upgrades on our servers, new features and functionality automatically become part of our service on the release date and therefore benefit all of our customers immediately. |
| High levels of user adoption. We have designed our service to be intuitive and easy to use. Since our service contains many tools and features recognizable to users of popular websites such as those of Amazon, Facebook, Google and Twitter, it has a more familiar user interface than typical enterprise CRM applications. As a result, our users do not require substantial training on how to use and benefit from our service. |
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Our Strategy
Our objective is to be the leading provider of CRM application services. We also want to be the leading cloud computing platform on which our customers and partners build applications.
Key elements of our strategy include:
| Strengthening our existing CRM applications and extending into new functional areas within CRM. We designed our service to easily accommodate new features and functions. We intend to continue to add CRM features and functionality to our core service that we will make available to customers at no additional charge. We offer advanced editions for an additional subscription fee to customers that require enhanced CRM capabilities. We have a growing portfolio of applications that serve different customer segments and markets. During fiscal 2011 we acquired several companies in complementary businesses, joint ventures, services and technologies in an effort to strengthen and extend our service CRM offerings. We expect to continue to make such investments and acquisitions in the future. |
| Pursuing new customers and new territories aggressively. We believe that our cloud application and platform offerings provide significant value for businesses of any size. As a result, we will continue to aggressively target businesses of all sizes, primarily through our direct sales force. We have steadily increased and plan to continue to increase the number of direct sales professionals we employ, and we intend to develop additional distribution channels for our service. We have created several editions of our service to address the distinct requirements of businesses of different sizes. We also believe that there is a substantial market opportunity for our service outside of North America. We plan to continue to aggressively market to customers outside of North America by recruiting local sales and support professionals and by building partnerships that help us add customers in these regions. |
| Deepening relationships with our existing customer base. We believe there is significant opportunity to leverage our relationships with existing customers. As the customer realizes the benefits of our service, we aim to either upgrade our customers to higher priced editions or sell more subscriptions by targeting additional functional areas and business units within the customer organization and ultimately pursuing enterprise-wide deployments. We aim to have our customers renew their subscriptions at the end of their contractual terms and we run customer success and other programs in an effort to secure renewals of existing customers. |
| Continuing to lead the industry transformation to the next phase of cloud computing. We believe that the market transformation to cloud applications and platforms is a growing trend in the information technology industry. With the popularity of social networking websites, new ways to communicate and collaborate based on feeds and status updates have emerged in the enterprise. We believe we have established a leadership position in the enterprise cloud computing industry as a successful vendor of CRM application services, an enabler for third parties to create their own cloud applications through our platform and a developer of cloud computing technologies with social, mobile and open characteristics to provide to enterprise customers around the world. |
| Encouraging the development of third-party applications on our Force.com cloud computing platform. Our Force.com cloud computing platform enables existing customers, ISVs and third-party developers to develop and deliver cloud applications they have built in our multi-tenant environment. It is a platform on which applications can be created, tested, published, and run. In addition, these applications can be listed on the AppExchange, our online marketplace of cloud applications, or sold by ISVs. We believe the ecosystem of cloud developers and ISVs will address the business requirements of both current and potential customers. |
The Salesforce CRM Service
Our comprehensive array of services enable customers and subscribers to systematically record, store, analyze, share, and act upon business data and to help businesses manage customer accounts, track sales leads, evaluate marketing campaigns, and provide post-sales service. We also enable companies to generate reports and
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summaries of this data and share them with authorized individuals across functional areas. Most of the features of our service can be accessed through a variety of devices, including laptop computers, tablets and mobile devices. Additionally, our service is highly configurable in a short amount of time, enabling our customers to tailor its appearance, policy settings, language, workflow, reports, and other characteristics without the use of significant IT resources or consultants.
Our CRM services are primarily marketed under two brands, the Sales Cloud and the Service Cloud:
| Sales Cloud. The sales force automation features of our application services are marketed under our Sales Cloud brand. Through the Sales Cloud, users are able to be more productive through the automation of manual and repetitive tasks and access to better and more organized data about their current customers and prospects. Our customers are also able to establish a system and process for recording, tracking, and sharing information about sales opportunities, sales leads, sales forecasts, the sales process, and closed business, as well as managing sales territories. Our customers are also better able to manage unstructured information such as sales collateral, presentations, price lists, and video assets. In addition, the Sales Cloud encompasses partner relationship management functionality (including channel management and partner portals) and marketing automation (including campaigns, ROI tracking, and Google AdWords integration). |
| Service Cloud. Our customer service and support automation features are marketed under our Service Cloud brand. Through the Service Cloud, companies are able to maintain better relationships with their existing customers and more efficiently address a variety of service and support needs, such as advice about products and services, requests for repairs, complaints about faulty goods, and the need for additional goods and services. Using the Service Cloud, customers can leverage our complete cloud-computing platform to deliver a comprehensive solution for their customer service interactions across every service channel: call centers with phone, email, and chat; Web portals for self-service and customer collaboration; and community interactions within social networks. |
As of January 31, 2011, we offered five principal service editions: Contact Manager Edition, Group Edition, Professional Edition, Enterprise Edition, and Unlimited Edition. Chatter is included in each Edition. We derived over 90 percent of our revenues from subscriptions to, and support for, our service in fiscal 2011.
| Contact Manager Edition. Contact Manager Edition, which is limited to five subscribers, is targeted primarily at individuals and small businesses that seek basic contact and customer management. Users can track customer contacts and manage tasks and activities. |
| Group Edition. Group Edition, which is also limited to five subscribers, is targeted primarily at small businesses and workgroups that seek a basic sales force automation solution. Users can share important customer data and manage their customer relationsfrom the start of the sales cycle to closing the deal to providing basic customer service. In addition to everything available in Contact Manager Edition, Group Edition offers access to opportunities, accounts, contacts, tasks and basic reports. Using the Force.com platform, customers can further extend and customize Group Edition by adding additional custom tabs and/or a custom application. |
| Professional Edition. Professional Edition is targeted primarily at medium-sized and large businesses that need a robust and complete CRM solution but do not need some of the more advanced administrative features and integration capabilities. Professional Edition offers companies a comprehensive CRM suite that business users can use to manage every aspect of the customer lifecycle. In addition to everything available in Group Edition, it provides users more advanced CRM functionality such as: forecasts, lead management, contract management, solutions, and online case capture. Professional Edition also comes with standard, easy-to-use customization, security and sharing, integration, and administration tools to facilitate any small to mid-sized deployment. Using the Force.com platform, Professional Edition customers have more flexibility than Group Edition customers to further extend and customize their service by adding more custom applications, custom tabs, and/or custom objects. |
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| Enterprise Edition. Enterprise Edition is designed to meet the complex business needs of large organizations with many divisions or departments. In addition to all of the functionality available in Professional Edition, Enterprise Edition offers customers: |
| advanced CRM functionality, such as territory management that uses a rule-based territory assignment engine to categorize accounts and users into territories, products, and schedules that track revenue and quantity by opportunities; |
| multi-divisional sharing and permissions such as profile-based departmental security and sharing; |
| workflow and business process control such as workflow automation tasks; and |
| enterprise customization and integration tools that can support large-scale deployments, such as APIs for back-office integration that enable companies to readily integrate Salesforce CRM with ERP applications and other data sources. Customers also have greater flexibility and control to fully extend and customize our service by adding more custom applications, custom tabs, and/or custom objects. |
| Unlimited Edition. Unlimited Edition is our most fully featured edition, with exclusive features available only in Unlimited Edition and bundled add-on features included at a significant cost saving over the total price of the individual features. In addition to all of the functionality available in Enterprise Edition, Unlimited Edition includes unlimited installations from the AppExchange, increased customization and extension possibilities that customers can implement on their own, Premier Support with Administration and additional storage. In addition to Chatter Unlimited Edition includes all the features of Chatter Plus. |
Each of the editions described above entitles customers to our standard customer support services. For advanced customers with more complex business needs, we provide additional levels of fee-based customer support.
In addition to the five editions, we continue to innovate and develop additional products and services as optional add-on subscriptions to better meet different customers needs.
Collaboration Cloud
We offer various collaboration cloud products such as Chatter, Chatter Plus, Chatter Mobile, Chatter Free and Chatter.com. Each of these products provides a private and secure corporate social network for companies of all sizes. Chatter is a core attribute of our Force.com platform and its social capabilities are an integral part of each of our service offerings.
Force.com Platform
The Force.com cloud computing platform, which is marketed under our Custom Cloud brand, enhances the attractiveness of our service, particularly to enterprise customers. The Force.com platform provides a feature set and technology environment for building business applications, including data models and objects to manage data, a workflow engine for managing collaboration of data between users, a user interface model to handle forms and other interactions, and a Web services API for programmatic access and integration. The Force.com platform provides the tools and infrastructure required to:
| deploy our application service for CRM; |
| customize and integrate existing enterprise software applications; |
| create and deploy new business applications that are pre-integrated with our service and leverage the same user interface or customize the user interface specific to customer requirements; and |
| sample and deploy applications built by third parties from the AppExchange. |
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The AppExchange
We offer the AppExchange, an online directory that provides customers a way to browse, test-drive, share, and install applications developed on our Force.com platform. Partners and developers can offer their applications on the AppExchange directory. This directory gives our users a way to find and install applications to expand their use of the Force.com platform to areas that are complementary to or extend beyond CRM.
When installing an enterprise cloud computing application built by a third-party partner or developer, customers authorize the third-party provider access to their data. Because they are built, managed and provisioned by third parties, we do not warrant the functionality, security and integrity of the data transmission or processing.
Professional Services
We offer consulting, implementation and training services to our customers to facilitate the adoption of our enterprise cloud computing CRM application and platform services. Consulting services consist of services such as business process mapping, project management services and guidance on best practices in using our service. Implementation services include systems integration, technical architecture and development, configuration and data conversion as well as developing and delivering customized education programs for our customers. Most of our consulting and implementation engagements are billed on a time and materials basis. We offer a number of traditional classroom and online educational classes that address topics such as implementing, using, administering and developing on our service. We also offer classes for our partners who implement our service on behalf of our customers. We bill the traditional classroom and some of the online educational classes on a per person, per class basis. There is a selection of online educational classes available at no charge to customers who subscribe to our service.
As the reach of our enterprise cloud computing application services has grown, partners and other third party consulting and professional service providers play an integral part in providing these services to our customers.
Technology, Development and Operations
Technology and Development
We do not provide software that must be written to different hardware, operating system and database platforms, or that depends upon a customers unique systems environment. Rather, we have optimized our service to run on a specific database and operating system using the tools and platforms best suited to serve our customers. Performance, functional depth and the usability of our service drive our technology decisions and product direction.
We built our service as a highly scalable, multi-tenant application. We use commercially available hardware and a combination of proprietary and commercially available software to provide our service. The application server is custom-built and runs on a lightweight Java Servlet and Java Server Pages engine. We have custom-built core services such as database connection pooling and user session management tuned to our specific architecture and environment, allowing us to continue to scale our service. We have combined a stateless environment, in which a user is not bound to a single server but can be routed in the most optimal way to any number of servers, with an advanced data caching layer. Our customers can access the service through any Web browser.
Our service treats all customers as logically separate tenants in central applications and databases. As a result, we are able to spread the cost of delivering our service across our user base. In addition, because we do not have to manage thousands of distinct applications with their own business logic and database schemas, we believe that we can scale our business faster than traditional software vendors. Moreover, we can focus our resources on building new functionality to deliver to our customer base as a whole rather than on maintaining an infrastructure to support each of their distinct applications.
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Our research and development efforts are focused on improving and enhancing the features, functionality and security of our existing service offerings as well as developing new proprietary services such as Force.com and Salesforce Chatter. In addition, from time to time we supplement our internal research and development activities with outside development resources and acquired technology. Because of our multi-tenant architecture, we are able to provide all of our customers with a service based on a single version of our application. We are able to upgrade all of our customers at the same time with each release. As a result, we do not have to maintain multiple versions of our application.
Operations
We currently serve our customers from third-party data center hosting facilities located in the United States and in Singapore. All of our hosting facilities are currently leased from Equinix, Dupont Fabros and NTT, except for offerings added through acquisitions, which are typically served through alternate facilities.
The Equinix, Dupont Fabros and NTT facilities are built to the same critical systems building codes as hospitals and other vital infrastructure. The facilities are secured by around-the-clock guards; biometric access screening and escort controlled access, and are supported by on-site backup generators in the event of a power failure. As part of our current disaster recovery arrangements, all of our customers data is currently replicated in near real-time. This strategy is designed to both protect our customers data and ensure service continuity in the event of a major disaster. Even with the disaster recovery arrangements, our service could be interrupted.
Our agreements with Equinix, Dupont Fabros and NTT are for them to supply space in its secure facilities as well as power or connection points for power and Internet connectivity. Bandwidth to the Internet is provided by multiple independent companies for all our facilities. We continuously monitor the performance of our service. The monitoring features we have built or licensed include centralized performance consoles, automated load distribution tools and various self-diagnostic tools and program.
Customers
We sell to businesses of all sizes. The number of paying subscriptions at each of our customers ranges from one to tens of thousands. None of our customers accounted for more than 5 percent of our revenues in fiscal 2011, 2010, or 2009.
Sources of Revenue
We generally recognize revenue ratably over the contract terms beginning on the commencement date of each contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. The deferred revenue balance on our consolidated balance sheet does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. Unbilled deferred revenue was over $1.5 billion as of January 31, 2011 and over $1.0 billion as of January 31, 2010. Unbilled deferred revenue represents future billings under our non-cancelable subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred revenue. We expect that the amount of unbilled deferred revenue will change from year-to-year for several reasons, including the specific timing and duration of large customer subscription agreements, varying billing cycles of subscription agreements, the specific timing of customer renewals, foreign currency fluctuations, the timing of when unbilled deferred revenue is to be recognized as revenue, and changes in customer financial circumstances. For multi-year subscription agreements billed annually, the associated unbilled deferred revenue is typically high at the beginning of the contract period, zero just prior to renewal, and increases if the agreement is renewed. Low unbilled deferred revenue attributable to a particular subscription agreement is often associated with an impending renewal and may not be an indicator of the likelihood of renewal or future revenue from such customer. Accordingly, we expect that the amount of aggregate unbilled deferred revenue will change from year-to-year depending in part upon the number and dollar amount of subscription agreements at particular stages in their renewal cycle. Such fluctuations are not a reliable indicator of future revenues.
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Sales, Marketing and Customer Support
We organize our sales and marketing programs by geographic regions, including North America, Europe, and Asia Pacific which includes Japan. Over 30 percent of our revenue comes from customers outside of North America.
Direct Sales
We sell subscriptions to our service primarily through our direct sales force comprised of inside sales, which consists of personnel that sell to customers primarily by phone, and field sales personnel, that are primarily based in geographic territories comprising customers and prospects. Both our inside sales and field sales personnel are supported by telesales representatives who are primarily responsible for generating qualifying leads. Our small business, general business and enterprise account executives and account managers focus their efforts on small, medium-size and large enterprises, respectively.
Referral and Indirect Sales
We have a network of partners who refer customer prospects to us and assist us in selling to these prospects.
The network includes consulting firms, other technology vendors, systems integrators and partners in markets where we do not have a large direct sales presence. In return, we typically pay these partners a fee based on the first-year subscription revenue generated by the customers they refer. We expense these fees at the time the customer signs the subscription service contract.
We also continue to develop distribution channels for our subscription service.
Marketing
Our marketing strategy is to continually elevate our brand and generate significant demand for our offerings. We use a variety of marketing programs to target our prospective and current customers, partners, and developers.
Our primary marketing activities include:
| press and industry analyst relations to garner third-party validation and generate positive coverage for our company and product strategy; |
| user conferences and launch events, as well as participation in trade shows and industry events, to create customer awareness and prospect enthusiasm; |
| search engine marketing and advertising to drive traffic to our Web properties; |
| Web site development to engage and educate prospects and generate interest through product information and demonstrations, free trials, case studies, white papers, and marketing collateral; |
| use of social network solutions such as YouTube; |
| email, direct mail, and phone campaigns to capture leads that can be funneled into our sales organization; |
| use of customer testimonials; and |
| sales tools and field marketing events to enable our sales organization to more effectively convert pipeline into completed transactions. |
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Customer Service and Support
Our global customer support group responds to both business and technical inquires from our customers relating to how to use our products and is available to customers by the web, telephone and email.
Basic customer support during business hours is available at no charge to customers who purchase any of our paying editions. Premier customer support includes extended availability and additional services, such as an assigned support representative and/or administrator. Premier customer support is available for a separate fee, or is included in our Unlimited Edition. Additional support services include developer support and partner support.
Seasonality
Our fourth quarter has historically been our strongest quarter for new business. For a more detailed discussion, see the Seasonal Nature of Deferred Revenue and Accounts Receivable discussion in Managements Discussion and Analysis.
Competition
The market for enterprise CRM business applications and development platforms is highly competitive, rapidly evolving and fragmented, and subject to changing technology, shifting customer needs and frequent introductions of new products and services. Many prospective customers have invested substantial personnel and financial resources to implement and integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to migrate to an enterprise cloud computing application service. Additionally, third party developers may be reluctant to build application services on our platform since they have invested significantly in other competing technology products.
We compete primarily with vendors of packaged CRM software and companies offering on-demand CRM applications. We also compete with internally developed applications and face, or expect to face, competition from enterprise software vendors and online service providers who may develop toolsets and products that allow customers to build new applications that run on the customers current infrastructure or as hosted services. Our current principal competitors include:
| enterprise software application vendors; |
| on-demand CRM application service providers; |
| enterprise software application service providers; |
| traditional platform development environment companies; and |
| cloud computing development platform companies. |
We believe that as enterprise software application and platform vendors shift more of their focus to cloud computing, they will be a greater competitive threat.
We believe the principal competitive factors in our market include the following:
| proven track record of customer success; |
| speed and ease of implementation; |
| product functionality; |
| financial stability and viability of the vendor; |
| product adoption; |
| ease of use and rates of user adoption; |
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| low total cost of ownership and demonstrable cost-effective benefits for customers; |
| performance, security, scalability, flexibility and reliability of the service; |
| ease of integration with existing applications; |
| quality of customer support; |
| availability and quality of implementation, consulting and training services; and |
| vendor reputation and brand awareness. |
Intellectual Property
We rely on a combination of trademark, copyright, trade secret and patent laws in the United States and other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand. We also enter into confidentiality and proprietary rights agreements with our employees, consultants and other third parties and control access to software, documentation and other proprietary information.
As of January 31, 2011, we have a number of issued U.S. patents and hundreds of pending U.S. and international patent applications. We have received in the past, and may receive in the future, communications from third parties claiming that we have infringed the intellectual property rights of others. The cost to defend or settle these claims could be material to the net income or cash flows or both of a particular quarter. The outcome of any litigation is inherently uncertain. Any intellectual property claims, with or without merit, could be time-consuming and expensive to resolve, could divert management attention from executing our business plan and could require us to change our technology, change our business practices and/or pay monetary damages or enter into short- or long-term royalty or licensing agreements which may not be available in the future at the same terms or at all. In addition, many of our subscription agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim. Any adverse determination related to intellectual property claims or litigation could prevent us from offering our service to others, or could otherwise adversely affect our operating results or cash flows or both in a particular quarter.
Employees
As of January 31, 2011, we had 5,306 employees. None of our employees is represented by a labor union.
Available Information
You can obtain copies of our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the SEC, and all amendments to these filings, free of charge from our Web site at http://www.salesforce.com/company/investor/sec-filings/ as soon as reasonably practicable following our filing of any of these reports with the SEC. You can also obtain copies free of charge by contacting our Investor Relations department at our office address listed above.
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ITEM 1A. | RISK FACTORS |
The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations, cash flows and financial condition.
Risks Related to Our Business and Industry
Defects or disruptions in our service could diminish demand for our service and subject us to substantial liability.
Because our service is complex and we have incorporated a variety of new computer hardware and software which is developed in-house and acquired from third party vendors, our service may have errors or defects that users identify after they begin using it that could result in unanticipated downtime for our subscribers and harm our reputation and our business. Internet-based services frequently contain undetected errors when first introduced or when new versions or enhancements are released. We have from time to time found defects in our service and new errors in our existing service may be detected in the future. In addition, our customers may use our service in unanticipated ways that may cause a disruption in service for other customers attempting to access their data. Since our customers use our service for important aspects of their business, any errors, defects, disruptions in service or other performance problems with our service could hurt our reputation and may damage our customers businesses. If that occurs, customers could elect not to renew, or delay or withhold payment to us, we could lose future sales or customers may make warranty or other claims against us, which could result in an increase in our provision for doubtful accounts, an increase in collection cycles for accounts receivable or the expense and risk of litigation.
Interruptions or delays in service from our third-party data center hosting facilities could impair the delivery of our service and harm our business.
We currently serve our customers from third-party data center hosting facilities located in the United States and Singapore. Any damage to, or failure of, our systems generally could result in interruptions in our service. As we continue to add data centers and add capacity in our existing data centers, we may move or transfer our data and our customers data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our service. Further, any damage to, or failure of, our systems generally could result in interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new customers. Our business will also be harmed if our customers and potential customers believe our service is unreliable.
As part of our current disaster recovery arrangements, our production environment and all of our customers data is currently replicated in near real-time in a facility located on the east coast of the United States. Companies and products added through acquisition may be temporarily served through alternate facilities. We do not control the operation of any of these facilities, and they are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. Despite precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in our service. Even with the disaster recovery arrangements, our service could be interrupted.
If our security measures are breached and unauthorized access is obtained to a customers data or our data or our information technology systems, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.
Our service involves the storage and transmission of customers proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. These security
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measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise, during transfer of data to additional data centers or at any time, and result in someone obtaining unauthorized access to our customers data or our data, including our intellectual property and other confidential business information, or our information technology systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third party technology providers, whose applications are available through our AppExchange directory, to access their customer data. Because we do not control the transmissions between our customers and third-party AppExchange technology providers, or the processing of such data by third-party AppExchange technology providers, we cannot ensure the complete integrity or security of such transmissions or processing. Any security breach could result in a loss of confidence in the security of our service, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.
Because we recognize revenue from subscriptions for our service over the term of the subscription, downturns or upturns in sales may not be immediately reflected in our operating results.
We generally recognize revenue from customers ratably over the terms of their subscription agreements, which are typically 12 to 24 months, although terms can range from one to 60 months. As a result, most of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be immediately reflected in our revenue results for that quarter. Such a decline, however, will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our service, and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term. In addition, we may be unable to adjust our cost structure to reflect the changes in revenues.
We cannot accurately predict subscription renewal or upgrade rates and the impact these rates may have on our future revenue and operating results.
Our customers have no obligation to renew their subscriptions for our service after the expiration of their initial subscription period, which is typically 12 to 24 months, and in fact, some customers have elected not to renew. In addition, our customers may renew for fewer subscriptions, renew for shorter contract lengths, or renew for lower cost editions of our service. We cannot accurately predict renewal rates, particularly for our enterprise customers who purchase a large number of subscriptions under multiyear contracts and for our small and medium size business customers. Our renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our service, customers ability to continue their operations and spending levels, decreases in the number of users at our customers and deteriorating general economic conditions. If our customers do not renew their subscriptions for our service or reduce the number of paying subscriptions at the time of renewal, our revenue will decline and our business will suffer.
Our future success also depends in part on our ability to sell additional features and services, more subscriptions or enhanced editions of our service to our current customers. This may also require increasingly sophisticated and costly sales efforts that are targeted at senior management. Similarly, the rate at which our customers purchase new or enhanced services depends on a number of factors, including general economic conditions. If our efforts to upsell to our customers are not successful, our business may suffer.
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If we experience significant fluctuations in our rate of anticipated growth and fail to balance our expenses with our revenue forecasts, our results could be harmed.
Due to our evolving business model and the unpredictability of future general economic and financial market conditions, we may not be able to accurately forecast our rate of growth. We plan our expense levels and investment on estimates of future revenue and future anticipated rate of growth. We may not be able to adjust our spending quickly enough if the addition of new subscriptions or the renewal rate for existing subscriptions falls short of our expectations.
As a result, we expect that our revenues, operating results and cash flows may fluctuate significantly on a quarterly basis. Our recent revenue growth rates may not be sustainable and may decline in the future. We believe that period-to-period comparisons of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an indication of future performance.
We have been and may in the future be sued by third parties for alleged infringement of their proprietary rights.
The software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have received in the past and may receive in the future communications from third parties claiming that we have infringed the intellectual property rights of others. In addition we have been, and may in the future be, sued by third parties for alleged infringement of their proprietary rights. Our technologies may be subject to injunction if they are held to infringe the rights of a third party or we may be required to pay damages or both.
The outcome of any litigation, regardless of its merits, is inherently uncertain. Any intellectual property claims and lawsuits could be time-consuming and expensive to resolve, divert management attention from executing our business plan and require us to change our technology, change our business practices and/or pay monetary damages or enter into short- or long-term royalty or licensing agreements.
Many of our subscription agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim. Any adverse determination related to intellectual property claims or litigation could prevent us from offering our service to others, could be material to our net income or cash flows (or both) or could otherwise adversely affect our operating results.
Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we have a lower level of visibility into the development process with respect to such technology or the care taken to safeguard against infringement risks. In addition, third parties may make infringement and similar or related claims after we have acquired technology that had not been asserted prior to our acquisition.
Our quarterly results can fluctuate and our stock price and the value of your investment could decline substantially.
Our quarterly operating results are likely to fluctuate. For example, our fourth quarter has historically been our strongest quarter for new business and renewals. The year-over-year compounding effect of this seasonality in billing patterns and overall new business and renewal activity causes the value of invoices that we generate in the fourth quarter to continually increase in proportion to our billings in the other three quarters of our fiscal year.
Additionally, some of the important factors that may cause our revenues, operating results and cash flows to fluctuate from quarter to quarter include:
| our ability to retain and increase sales to existing customers, attract new customers and satisfy our customers requirements; |
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| the renewal rates for our service; |
| the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business; |
| the number of new employees added; |
| changes in our pricing policies whether initiated by us or as a result of intense competition; |
| the cost, timing and management effort for the introduction of new features to our service; |
| the rate of expansion and productivity of our sales force; |
| the length of the sales cycle for our service; |
| new product and service introductions by our competitors; |
| our success in selling our service to large enterprises; |
| variations in the revenue mix of editions of our service; |
| technical difficulties or interruptions in our service; |
| expenses related to developing our new global headquarters and increasing our data center capacity and expanding our data centers domestically and internationally; |
| changes in foreign currency exchange rates; |
| changes in interest rates and our mix of investments, which would impact our return on our investments in cash and marketable securities; |
| conditions, particularly sudden changes, in the financial markets have and may continue to impact the value of and access to our investment portfolio; |
| changes in the effective tax rates; |
| general economic conditions that may adversely affect either our customers ability or willingness to purchase additional subscriptions or upgrade their service, or delay a prospective customers purchasing decision, or reduce the value of new subscription contracts, or affect renewal rates; |
| timing of additional investments in our enterprise cloud computing application and platform services and in our consulting service; |
| changes in deferred revenue balances due to the seasonal nature of our customer invoicing, changes in the average duration of our invoices, rate of renewals and the rate of new business growth; |
| regulatory compliance costs; |
| the timing of customer payments and payment defaults by customers; |
| costs associated with acquisitions of companies and technologies; |
| extraordinary expenses such as litigation or other dispute-related settlement payments; |
| the impact of new accounting pronouncements; and |
| the timing of stock awards to employees and the related adverse financial statement impact of having to expense those stock awards ratably over their vesting schedules. |
Many of these factors are outside of our control, and the occurrence of one or more of them might cause our operating results to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an indication of future performance.
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Additionally, we may fail to meet or exceed the expectations of securities analysts and investors, and the market price of our common stock could decline. If one or more of the securities analysts who cover us change their recommendation regarding our stock adversely, the market price of our common stock could decline. Moreover, our stock price may be based on expectations, estimates or forecasts of our future performance that may be unrealistic or that may not be met. Further, our stock price may be affected by financial media, including television, radio and press reports and blogs.
Weakened global economic conditions may adversely affect our industry, business and results of operations.
Our overall performance depends in part on worldwide economic conditions. The United States and other key international economies have experienced in the past a downturn in which economic activity was impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy. These conditions affect the rate of information technology spending and could adversely affect our customers ability or willingness to purchase our enterprise cloud computing services, delay prospective customers purchasing decisions, reduce the value or duration of their subscription contracts, or affect renewal rates, all of which could adversely affect our operating results.
As we acquire companies or technologies, they could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results and the value of your investment.
As part of our business strategy, we periodically make investments in, or acquisitions of, complementary businesses, joint ventures, services and technologies, and we expect that we will continue to make such investments and acquisitions in the future. Acquisitions and investments involve numerous risks, including:
| the potential failure to achieve the expected benefits of the combination or acquisition; |
| difficulties in and the cost of integrating operations, technologies, services and personnel; |
| diversion of financial and managerial resources from existing operations; |
| risk of entering new markets in which we have little or no experience or where competitors may have stronger market positions; |
| potential write-offs of acquired assets or investments; |
| potential loss of key employees; |
| inability to generate sufficient revenue to offset acquisition or investment costs; |
| the inability to maintain relationships with customers and partners of the acquired business; |
| the difficulty of incorporating acquired technology and rights into our products and services and of maintaining quality standards consistent with our brand; |
| potential unknown liabilities associated with the acquired businesses; |
| unanticipated expenses related to acquired technology and its integration into existing technology; |
| negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue; |
| delays in customer purchases due to uncertainty related to any acquisition; |
| the need to implement controls, procedures and policies appropriate for a public company at companies that prior to the acquisition lacked such controls, procedures and policies; and |
| challenges caused by distance, language and cultural differences. |
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In addition, if we finance acquisitions by issuing equity or convertible debt securities, our existing stockholders may be diluted which could affect the market price of our common stock. Further, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed and the value of your investment may decline.
We rely on third-party computer hardware and software that may be difficult to replace or which could cause errors or failures of our service.
We rely on computer hardware purchased or leased and software licensed from third parties in order to offer our service, including database software from Oracle Corporation. This hardware and software may not continue to be available at reasonable prices or on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could significantly increase our expenses and otherwise result in delays in the provisioning of our service until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated. Any errors or defects in third-party hardware or software could result in errors or a failure of our service which could harm our business.
If the market for our technology delivery model and enterprise cloud computing services develops more slowly than we expect, our business could be harmed.
The market for enterprise cloud computing application services is not as mature as the market for packaged enterprise software, and it is uncertain whether these services will achieve and sustain high levels of demand and market acceptance. Our success will depend to a substantial extent on the willingness of enterprises, large and small, to increase their use of enterprise cloud computing application services in general, and for CRM in particular. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to migrate to an enterprise cloud computing application service. Furthermore, some enterprises may be reluctant or unwilling to use enterprise cloud computing application services because they have concerns regarding the risks associated with security capabilities, among other things, of the technology delivery model associated with these services. If enterprises do not perceive the benefits of enterprise cloud computing application services, then the market for these services may not develop at all, or it may develop more slowly than we expect, either of which would significantly adversely affect our operating results. In addition, we may make errors in predicting and reacting to relevant business trends, which could harm our business. Our success also depends on the willingness of third-party developers to build applications that are complementary to our service. Without the development of these applications, both current and potential customers may not find our service sufficiently attractive. In addition, for those customers who authorize third-party technology partner access to their data, we do not warrant the functionality, security and integrity of the data transmission or processing. Despite contract provisions to protect us, customers may look to us to support and warrant the third-party applications, which may expose us to potential claims, liabilities and obligations for applications we did not develop or sell.
The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.
The market for enterprise CRM business applications and development platforms is highly competitive, rapidly evolving and fragmented, and subject to changing technology, shifting customer needs and frequent introductions of new products and services. We compete primarily with vendors of packaged CRM software and companies offering on-demand CRM applications. We also compete with internally developed applications and face, or expect to face, competition from enterprise software vendors and online service providers who may develop toolsets and products that allow customers to build new applications that run on the customers current infrastructure or as hosted services. Our current competitors include:
| enterprise software application vendors; |
| on-demand CRM application service providers; |
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| enterprise software application service providers; |
| traditional platform development environment companies; and |
| cloud computing development platform companies. |
Many of our current and potential competitors enjoy substantial competitive advantages, such as greater name recognition, longer operating histories and larger marketing budgets, as well as substantially greater financial, technical and other resources. In addition, many of our current and potential competitors have established marketing relationships and access to larger customer bases, and have major distribution agreements with consultants, system integrators and resellers.
As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. Furthermore, because of these advantages, even if our service is more effective than the products that our competitors offer, potential customers might accept competitive products and services in lieu of purchasing our service. For all of these reasons, we may not be able to compete successfully against our current and future competitors.
Our efforts to expand our service beyond the CRM market and to develop our existing service in order to keep pace with technological developments may not succeed and may reduce our revenue growth rate and/or harm our business.
We derive substantially all of our revenue from subscriptions to our CRM enterprise cloud computing application service, and we expect this will continue for the foreseeable future. The market for our Force.com cloud computing platform is relatively new and it is uncertain whether our efforts will ever result in significant revenue for us. Further, the introduction of new services beyond the CRM market may not be successful, and early stage interest and adoption of such new services may not result in long term success or significant revenue for us. Our efforts to expand our service beyond the CRM market may not succeed and may reduce our revenue growth rate.
Additionally, if we are unable to develop enhancements to and new features for our existing service or new services that keep pace with rapid technological developments, our business will be harmed. The success of enhancements, new features and services depends on several factors, including the timely completion, introduction and market acceptance of the feature or edition. Failure in this regard may significantly impair our revenue growth. In addition, because our service is designed to operate on a variety of network hardware and software platforms using a standard browser, we will need to continuously modify and enhance our service to keep pace with changes in Internet-related hardware, software, communication, browser and database technologies. We may not be successful in either developing these modifications and enhancements or in timely bringing them to market. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development or service delivery expenses. Any failure of our service to operate effectively with future network platforms and technologies could reduce the demand for our service, result in customer dissatisfaction and harm our business.
Supporting our existing and growing customer base could strain our personnel resources and infrastructure, and if we are unable to scale our operations and increase productivity, we may not be able to successfully implement our business plan.
We continue to experience significant growth in our customer base, which has placed a strain on our management, administrative, operational and financial infrastructure. We anticipate that additional investments in our infrastructure and research and development spending will be required to scale our operations and increase productivity, to address the needs of our customers, to further develop and enhance our service, and to expand into new geographic areas.
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Our success will depend in part upon the ability of our senior management to manage our projected growth effectively. To do so, we must continue to increase the productivity of our existing employees and to hire, train and manage new employees as needed. To manage the expected domestic and international growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. The additional investments we are making will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. If we fail to successfully scale our operations and increase productivity, we will be unable to execute our business plan.
As more of our sales efforts are targeted at larger enterprise customers, our sales cycle may become more time-consuming and expensive, we may encounter pricing pressure and implementation and customization challenges, and we may have to delay revenue recognition for some complex transactions, all of which could harm our business and operating results.
As we target more of our sales efforts at larger enterprise customers, we will face greater costs, longer sales cycles and less predictability in completing some of our sales. In this market segment, the customers decision to use our service may be an enterprise-wide decision and, if so, these types of sales would require us to provide greater levels of education regarding the use and benefits of our service, as well as education regarding privacy and data protection laws and regulations to prospective customers with international operations. In addition, larger customers may demand more customization, integration services and features. As a result of these factors, these sales opportunities may require us to devote greater sales support and professional services resources to individual customers, driving up costs and time required to complete sales and diverting our own sales and professional services resources to a smaller number of larger transactions, while potentially requiring us to delay revenue recognition on some of these transactions until the technical or implementation requirements have been met.
Professional services may also be performed by a third party or a combination of our own staff and a third party. Our strategy is to work with third parties to increase the breadth of capability and depth of capacity for delivery of these services to our customers. If a customer is not satisfied with the quality of work performed by us or a third party or with the type of services or solutions delivered, then we could incur additional costs to address the situation, the profitability of that work might be impaired, and the customers dissatisfaction with our services could damage our ability to obtain additional work from that customer. In addition, negative publicity related to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.
Periodic changes of our sales organization can be disruptive and may negatively impact our revenues.
We periodically change and make adjustments to our sales organization in response to market opportunities, competitive threats, management changes, product introductions or enhancements, acquisitions, sales performance, increases in sales headcount, cost levels, and other internal and external considerations. In the past, these changes sometimes resulted in a temporary lack of focus and reduced productivity; these effects could recur in connection with any future sales changes we might undertake and our rate of revenue growth could be negatively affected. In addition, any significant change to the way we structure our compensation of our sales organization may be disruptive and may affect our revenue growth.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology, and our business might be harmed. In addition, defending our intellectual property rights might entail significant expense. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. While we have some U.S. patents and many
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U.S. and international patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, our existing patents and any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our service is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.
We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel.
If we fail to develop our brands, our business may suffer.
We believe that developing and maintaining awareness of the salesforce.com brand and our other brands is critical to achieving widespread acceptance of our existing and future services and is an important element in attracting new customers. In the past, our efforts to build our brands have involved significant expense. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brands. If we fail to successfully promote and maintain our brands, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.
We may not realize the anticipated benefits in connection with our purchase of undeveloped land in San Francisco where we plan to develop our global headquarters. If we do not realize these benefits, our financial performance will be negatively impacted.
In November 2010, we purchased approximately 14 acres of undeveloped real estate in San Francisco, California, including entitlements and improvements associated with the land, which we plan to develop into our global headquarters. We may not realize the anticipated benefits with respect to the purchase and future development of such real estate. We have devoted significant capital resources to the purchase, and we will be required to devote substantial additional resources in the future to building our global headquarters on such land, which may impact our liquidity and financial flexibility. We may not be able to obtain financing for development projects on favorable terms, or at all, or complete construction on schedule or within budget. Any delay or lack of available financing could result in increased constructions costs and debt costs to fund such construction and development. In addition, our development efforts will otherwise be subject to various operational risks. We may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations. The construction costs and total investment amounts may exceed any estimates that we formulate, and projects may not be completed, or delivered as planned. Finally, real estate assets are not as liquid as certain other types of assets. In the event that we have a future need to sell this property, we may not be able to do so on favorable terms or at all.
Sales to customers outside the United States expose us to risks inherent in international sales.
Because we sell our service throughout the world, we are subject to risks and challenges that we would otherwise not face if we conducted our business only in the United States. For example, sales in Europe and Asia Pacific together represented approximately 30 percent of our total revenues for the year ended January 31, 2011, and we intend to continue to expand our international sales efforts. The risks and challenges associated with sales to customers outside the United States include:
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| localization of our service, including translation into foreign languages and associated expenses; |
| laws and business practices favoring local competitors; |
| compliance with multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection laws and regulations; |
| treatment of revenue from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding income or other taxes in foreign jurisdictions; |
| regional data privacy laws that apply to the transmission of our customers data across international borders; |
| foreign currency fluctuations and controls; |
| different pricing environments; |
| difficulties in staffing and managing foreign operations; |
| different or lesser protection of our intellectual property; |
| longer accounts receivable payment cycles and other collection difficulties; |
| regional economic conditions; and |
| regional political conditions. |
Any of these factors could negatively impact our business and results of operations.
Additionally, our international subscription fees are paid either in U.S. dollars or local currency. As a result, fluctuations in the value of the U.S. dollar and foreign currencies may make our service more expensive for international customers, which could harm our business.
From time to time, we may become defendants in legal proceedings about which we are unable to assess our exposure and which could become significant liabilities upon judgment.
We may become defendants in legal proceedings from time to time. Companies in our industry have been subject to claims related to patent infringement and product liability, as well as contract and employment-related claims. We may not be able to accurately assess the risk related to these suits, and we may be unable to accurately assess our level of exposure.
Privacy concerns and laws, evolving regulation of the Internet and other domestic or foreign regulations may reduce the effectiveness of our solution and adversely affect our business.
As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. For example, we believe increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information could affect our customers ability to use and share data, potentially reducing demand for CRM solutions and restricting our ability to store, process and share data with our customers.
Our customers can use our service to store contact and other personal or identifying information regarding their customers and contacts. Federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from consumers and individuals. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our customers may limit the use and adoption of our service and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. Furthermore, privacy concerns may cause our customers customers to resist providing the personal data necessary to allow our customers to use our service effectively. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our service in certain industries.
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For example, in the United States regulations such as the Gramm-Leach-Bliley Act, which protects and restricts the use of consumer credit and financial information, and the Health Insurance Portability and Accountability Act of 1996, which regulates the use and disclosure of personal health information, impose significant requirements and obligations on businesses that may affect the use and adoption of our service. The European Union has also adopted a data privacy directive that requires member states to impose restrictions on the collection and use of personal data that, in some respects, are more stringent, and impose more significant burdens on subject businesses, than current privacy standards in the United States.
All of these domestic and international legislative and regulatory initiatives may adversely affect our customers ability to collect and/or use demographic and personal information from their customers, which could reduce demand for our service. Many other jurisdictions have similar stringent privacy laws and regulations.
In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. If the gathering of personal information were to be curtailed in this manner, CRM solutions would be less effective, which may reduce demand for our service and harm our business.
We may lose key members of our management team and development and operations personnel, or may be unable to attract and retain employees we need to support our operations and growth.
Our success depends substantially upon the continued services of our executive officers and other key members of management, particularly our Chief Executive Officer. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives. Such changes in our executive management team may be disruptive to our business. We are also substantially dependent on the continued service of our existing development and operations personnel because of the complexity of our service and technologies. We do not have employment agreements with any of our executive officers, key management, development or operations personnel and, therefore, they could terminate their employment with us at any time. The loss of one or more of our key employees or groups could seriously harm our business.
In the technology industry, there is substantial and continuous competition for engineers with high levels of experience in designing, developing and managing software and Internet-related services, as well as competition for sales executives and operations personnel. We may not be successful in attracting and retaining qualified personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.
Unanticipated changes in our effective tax rate could adversely affect our future results.
We are subject to income taxes in the United States and various foreign jurisdictions, and our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions.
Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the valuation of deferred tax assets and liabilities and changes in federal, state or international tax laws and accounting principles. Increases in our effective tax rate could materially affect our net results.
In addition, we are subject to income tax audits by many tax jurisdictions throughout the world. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.
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Natural disasters and other events beyond our control could materially adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, and could decrease demand for our services. The majority of our research and development activities, corporate headquarters, information technology systems, and other critical business operations, are located near major seismic faults in the San Francisco Bay Area. Because we do not carry earthquake insurance for direct quake-related losses, and significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely affected in the event of a major earthquake or catastrophic event.
Risks Relating to Ownership of Our Common Stock and our Convertible Senior Notes due 2015
The market price of our common stock is likely to be volatile and could subject us to litigation.
The trading prices of the securities of technology companies have been highly volatile. Accordingly, the market price of our common stock has been and is likely to continue to be subject to wide fluctuations. Factors affecting the market price of our common stock include:
| variations in our operating results, earnings per share, cash flows from operating activities, deferred revenue, and other financial metrics and non-financial metrics, and how those results compare to analyst expectations; |
| forward looking guidance to industry and financial analysts related to future revenue and earnings per share; |
| the net increases in the number of customers, either independently or as compared with published expectations of industry, financial or other analysts that cover our company; |
| changes in the estimates of our operating results or changes in recommendations by securities analysts that elect to follow our common stock; |
| announcements of technological innovations, new services or service enhancements, strategic alliances or significant agreements by us or by our competitors; |
| announcements by us or by our competitors of mergers or other strategic acquisitions, or rumors of such transactions involving us or our competitors; |
| announcements of customer additions and customer cancellations or delays in customer purchases; |
| recruitment or departure of key personnel; |
| disruptions in our service due to computer hardware, software or network problems; |
| the economy as a whole, market conditions in our industry, and the industries of our customers; |
| trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock; |
| the issuance of shares of common stock by us, whether in connection with an acquisition, a capital raising transaction or upon conversion of some or all of our outstanding $575.0 million of 0.75% convertible senior notes due January 15, 2015 (the Notes); and |
| any other factors discussed herein. |
In addition, if the market for technology stocks or the stock market in general experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating
24
results or financial condition. The market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us. Some companies that have experienced volatility in the trading price of their stock have been the subject of securities class action litigation. If we are the subject of such litigation, it could result in substantial costs and a diversion of managements attention and resources.
Provisions in our amended and restated certificate of incorporation and bylaws, Delaware law and our outstanding Notes might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the market price of our common stock.
Our amended and restated certificate of incorporation and bylaws contain provisions that could depress the market price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions among other things:
| establish a classified board of directors so that not all members of our board are elected at one time; |
| permit the board of directors to establish the number of directors; |
| provide that directors may only be removed for cause and only with the approval of 66 2/3 percent of our stockholders; |
| require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and bylaws; |
| authorize the issuance of blank check preferred stock that our board could use to implement a stockholder rights plan (also known as a poison pill); |
| eliminate the ability of our stockholders to call special meetings of stockholders; |
| prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; |
| provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and |
| establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. |
In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15 percent or more of our common stock.
In addition, the fundamental change purchase rights applicable to our convertible notes, which will allow note holders to require us to purchase all or a portion of their Notes upon the occurrence of a fundamental change, and the provisions requiring an increase to the conversion rate for conversions in connection with a make-whole fundamental change may in certain circumstances delay or prevent a takeover of us and the removal of incumbent management that might otherwise be beneficial to investors.
Our debt service obligations may adversely affect our financial condition and cash flows from operations.
As a result of our sale of the Notes in January 2010, we have a higher level of debt compared to historical periods. Our maintenance of this indebtedness could have important consequences because:
| it may impair our ability to obtain additional financing in the future; |
| an increased portion of our cash flows from operations may have to be dedicated towards repaying the principal in 2015 or earlier if necessary; and |
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| 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 Companys 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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ITEM 2. | PROPERTIES |
Our executive offices and principal office for domestic marketing, sales, professional services and development occupy over 625,000 square feet in the San Francisco Bay Area under leases that expire at various times through July 2020. We also lease space in various locations throughout the United States for local sales and professional services personnel. Our foreign subsidiaries lease office space for their operations including local sales and professional services personnel. In November 2010, we purchased approximately 14 acres of undeveloped land in San Francisco, California including entitlements and improvements associated with the land, and perpetual parking rights in an existing garage. We plan to use the land to build a facility that will become our new global headquarters.
We believe that our existing facilities and offices are adequate to meet our current requirements. See Note 8, Commitments, in the Notes to the Consolidated Financial Statements for more information about our lease commitments. If we require additional space, we believe that we will be able to obtain such space on acceptable, commercially reasonable terms.
ITEM 3. | LEGAL PROCEEDINGS |
We are involved in various legal proceedings arising from the normal course of business activities, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment and other matters. We make a provision for a liability relating to legal proceedings when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. In managements opinion, resolution of these matters is not expected to have a material adverse impact on our consolidated results of operations, cash flows or financial position. However, depending on the nature and timing of any such dispute, an unfavorable resolution of a matter could materially affect our future results of operations or cash flows or both.
Many of our subscription agreements require us to indemnify our customers for third-party intellectual property infringement claims, which could increase the cost to us of an adverse ruling on such a claim. Any adverse determination related to intellectual property claims or litigation could prevent us from offering our service to others, could be material to our net income or cash flows or both or could otherwise adversely affect our operating results.
ITEM 4. | RESERVED |
ITEM 4A. | EXECUTIVE OFFICERS OF THE REGISTRANT |
The following sets forth certain information regarding our current executive officers (in alphabetical order):
Name |
Age |
Position | ||||
Marc Benioff |
46 | Chairman of the Board of Directors and Chief Executive Officer | ||||
Parker Harris |
44 | Executive Vice President, Technology | ||||
George Hu |
36 | Executive Vice President, Platform and Marketing | ||||
David Schellhase |
47 | Executive Vice President, Legal | ||||
Graham Smith |
51 | Executive Vice President and Chief Financial Officer | ||||
Frank van Veenendaal |
51 | President, Worldwide Sales and Services |
Marc Benioff co-founded salesforce.com in February 1999 and has served as Chairman of the Board of Directors since inception. He has served as Chief Executive Officer since November 2001. From 1986 to 1999, Mr. Benioff was employed at Oracle Corporation where he held a number of positions in sales, marketing and product development, lastly as a Senior Vice President. Mr. Benioff also serves as Chairman of the Board of
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Directors of the salesforce.com/foundation. Mr. Benioff received a Bachelor of Science in Business Administration (B. S. B. A.) from the University of Southern California, where he recently joined the Board of Trustees.
Parker Harris co-founded salesforce.com in February 1999 and served in senior technical positions since inception. Since December 2004, Mr. Harris has served as our Executive Vice President, Technology. From October 1996 to February 1999, Mr. Harris was a Vice President at Left Coast Software, a Java consulting firm he co-founded. Mr. Harris received a B.A. from Middlebury College.
George Hu has served as our Executive Vice President, Platform and Marketing, since August 2010. Previously, Mr. Hu served as our Executive Vice President, Marketing and Alliances from February 2009 to August 2010, our Executive Vice President, Marketing, Applications and Education from December 2007 to February 2009, our Chief Marketing Officer from October 2006 through December 2007, our Senior Vice President and General Manager, Applications from January to October 2006 and our Vice President, Product Marketing from October 2004 to January 2006. Mr. Hu has also served in various management positions in marketing since joining salesforce.com in March 2002. Mr. Hu received an A.B. from Harvard College and an M.B.A. from Stanford University.
David Schellhase has served as our Executive Vice President, Legal since March 2010. Previously, Mr. Schellhase served as our Senior Vice President and General Counsel from December 2004 to March 2010 and as our Vice President and General Counsel from July 2002 to December 2004. From December 2000 to June 2002, Mr. Schellhase was an independent legal consultant and authored a treatise entitled Corporate Law Department Handbook. Previously, he served as General Counsel at Linuxcare, Inc., The Vantive Corporation and Premenos Technology Corp. Mr. Schellhase received a B.A. from Columbia University and a J.D. from Cornell University.
Graham Smith has served as our Executive Vice President and Chief Financial Officer since March 2008. Prior to that, Mr. Smith served as our Executive Vice President and Chief Financial Officer Designate from December 2007 to March 2008. Prior to salesforce.com, Mr. Smith was at Advent Software Inc. and served as its Chief Financial Officer from January 2003 to December 2007. In addition to Advent Software, he served as Chief Financial Officer of Vitria Technology and Nuance Communications, and also served at Oracle Corporation in various senior finance roles, lastly as Vice President of Finance for worldwide operations. Mr. Smith holds a B.Sc. from Bristol University in England and qualified as a member of the Institute of chartered accountants in England and Wales.
Frank van Veenendaal has served as our President, Worldwide Sales and Services since October 2009. Prior to this position, he was our Chief Sales Officer and President, Worldwide Sales from September 2008 to October 2009, our President, Global Corporate Sales and North American Operations from December 2007 to September 2008 and our President, Worldwide Corporate Sales and Services from February 2007 to December 2007. Since joining us in 2001, Mr. van Veenendaal has also served in various sales management positions, including Senior Vice President, North America Sales. From 1995 to 2001, Mr. van Veenendaal was Senior Vice President of Sales of Actuate Corporation, a software company. Mr. van Veenendaal received a B.S. from Rensselaer Polytechnic Institute.
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PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information for Common Stock
Our common stock has been quoted on the New York Stock Exchange under the symbol CRM.
The following table sets forth for the indicated periods the high and low closing sales prices of our common stock as reported by the New York Stock Exchange.
High | Low | |||||||
Fiscal year ending January 31, 2011 |
||||||||
First quarter |
$ | 88.70 | $ | 62.08 | ||||
Second quarter |
$ | 100.07 | $ | 77.52 | ||||
Third quarter |
$ | 123.14 | $ | 96.41 | ||||
Fourth quarter |
$ | 150.58 | $ | 110.15 | ||||
Fiscal year ending January 31, 2010 |
||||||||
First quarter |
$ | 42.81 | $ | 25.77 | ||||
Second quarter |
$ | 45.13 | $ | 35.57 | ||||
Third quarter |
$ | 63.49 | $ | 44.30 | ||||
Fourth quarter |
$ | 74.82 | $ | 57.81 |
Dividend Policy
We have never paid any cash dividends on our common stock. Our board of directors currently intends to retain any future earnings to support operations and to finance the growth and development of our business and does not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board.
Stockholders
As of January 31, 2011 there were 123 registered stockholders of record of our common stock, including The Depository Trust Company, which holds shares of salesforce.com common stock on behalf of an indeterminate number of beneficial owners.
Securities Authorized for Issuance under Equity Compensation Plans
The information concerning our equity compensation plans is incorporated by reference herein to the section of the Proxy Statement entitled Equity Compensation Plan Information.
Issued Warrants
During fiscal 2010 we issued 6.7 million warrants to purchase our common stock, as described in Note 2 Balance Sheet Accounts of the consolidated financial statements.
Stock Performance Graph
The following shall not be deemed incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, except to the extent we specifically incorporate it by reference into such filing.
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The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the Standard & Poors 500 Index and the Nasdaq Computer & Data Processing Index for the period beginning on June 23, 2004 (the date our common stock commenced trading on the New York Stock Exchange) through January 31, 2011, assuming an initial investment of $100. Data for the Standard & Poors 500 Index and the Nasdaq Computer & Data Processing Index assume reinvestment of dividends.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
Comparison of Cumulative Total Return of salesforce.com, inc.
6 /23/2004 | 1/31/2005 | 1/31/2006 | 1/31/2007 | 1/31/2008 | 1/31/2009 | 1/31/2010 | 1/31/2011 | |||||||||||||||||||||||||
salesforce.com |
100.00 | 124.55 | 373.18 | 398.45 | 471.91 | 241.91 | 577.73 | 1,174.00 | ||||||||||||||||||||||||
S&P 500 Index |
100.00 | 103.25 | 111.89 | 125.71 | 120.50 | 72.19 | 93.86 | 112.42 | ||||||||||||||||||||||||
Nasdaq Computer & Data Processing Index |
100.00 | 100.45 | 111.93 | 116.62 | 117.84 | 71.02 | 116.00 | 153.34 |
Recent Sales of Unregistered Securities
None
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ITEM 6. | SELECTED FINANCIAL DATA |
The following selected consolidated financial data should be read in conjunction with our audited consolidated financial statements and related notes thereto and with Managements Discussion and Analysis of Financial Condition and Results of Operation, which are included elsewhere in this Form 10-K. The consolidated statement of operations data for fiscal 2011, 2010, and 2009, and the selected consolidated balance sheet data as of January 31, 2011 and 2010 are derived from, and are qualified by reference to, the audited consolidated financial statements and are included in this Form 10-K. The consolidated statement of operations data for fiscal 2008 and 2007 and the consolidated balance sheet data as of January 31, 2009, 2008 and 2007 are derived from audited consolidated financial statements which are not included in this Form 10-K.
(in thousands, except per share data) | Fiscal Year Ended January 31, | |||||||||||||||||||
2011 | 2010 | 2009(3) | 2008(3) | 2007(3) | ||||||||||||||||
Consolidated Statement of Operations: |
||||||||||||||||||||
Revenues: |
||||||||||||||||||||
Subscription and support |
$ | 1,551,145 | $ | 1,209,472 | $ | 984,574 | $ | 680,581 | $ | 451,660 | ||||||||||
Professional services and other |
105,994 | 96,111 | 92,195 | 68,119 | 45,438 | |||||||||||||||
Total revenues |
1,657,139 | 1,305,583 | 1,076,769 | 748,700 | 497,098 | |||||||||||||||
Cost of revenues (1): |
||||||||||||||||||||
Subscription and support |
208,243 | 159,172 | 127,082 | 91,268 | 61,457 | |||||||||||||||
Professional services and other |
115,570 | 98,753 | 93,389 | 80,323 | 57,433 | |||||||||||||||
Total cost of revenues |
323,813 | 257,925 | 220,471 | 171,591 | 118,890 | |||||||||||||||
Gross profit |
1,333,326 | 1,047,658 | 856,298 | 577,109 | 378,208 | |||||||||||||||
Operating expenses (1): |
||||||||||||||||||||
Research and development |
187,887 | 131,897 | 99,530 | 63,812 | 44,614 | |||||||||||||||
Marketing and sales |
792,029 | 605,199 | 534,413 | 376,480 | 252,935 | |||||||||||||||
General and administrative |
255,913 | 195,290 | 158,613 | 116,508 | 84,257 | |||||||||||||||
Total operating expenses |
1,235,829 | 932,386 | 792,556 | 556,800 | 381,806 | |||||||||||||||
Income (loss) from operations |
97,497 | 115,272 | 63,742 | 20,309 | (3,598 | ) | ||||||||||||||
Investment income |
37,735 | 30,408 | 22,774 | 24,539 | 14,975 | |||||||||||||||
Interest expense |
(24,909 | ) | (2,000 | ) | (107 | ) | (46 | ) | (191 | ) | ||||||||||
Gain on sale of investment |
0 | 0 | 0 | 1,272 | 0 | |||||||||||||||
Other income (expense) |
(6,025 | ) | (1,299 | ) | (817 | ) | 139 | 1,310 | ||||||||||||
Income before provision for income taxes and noncontrolling interest |
104,298 | 142,381 | 85,592 | 46,213 | 12,496 | |||||||||||||||
Provision for income taxes |
(34,601 | ) | (57,689 | ) | (37,557 | ) | (23,385 | ) | (9,795 | ) | ||||||||||
Consolidated net income |
69,697 | 84,692 | 48,035 | 22,828 | 2,701 | |||||||||||||||
Less: net income attributable to noncontrolling interest |
(5,223 | ) | (3,973 | ) | (4,607 | ) | (4,472 | ) | (2,220 | ) | ||||||||||
Net income attributable to salesforce.com |
$ | 64,474 | $ | 80,719 | $ | 43,428 | $ | 18,356 | $ | 481 | ||||||||||
Net earnings per sharebasic and diluted: |
||||||||||||||||||||
Basic net income per share attributable to salesforce.com common shareholders |
$ | 0.50 | $ | 0.65 | $ | 0.36 | $ | 0.16 | $ | 0.00 | ||||||||||
Diluted net income per share attributable to salesforce.com common shareholders |
$ | 0.47 | $ | 0.63 | $ | 0.35 | $ | 0.15 | $ | 0.00 | ||||||||||
Shares used in computing basic net income per share |
130,222 | 124,462 | 121,183 | 116,840 | 112,386 | |||||||||||||||
Shares used in computing diluted net income per share |
136,598 | 128,114 | 125,228 | 122,422 | 120,154 |
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(1) | Cost of revenues and operating expenses include stock-based expenses, consisting of: |
Fiscal Year Ended January 31, | ||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
Cost of revenues |
$ | 12,158 | $ | 12,570 | $ | 11,051 | $ | 7,926 | $ | 5,522 | ||||||||||
Research and development |
18,897 | 13,129 | 9,852 | 6,336 | 4,523 | |||||||||||||||
Marketing and sales |
56,451 | 39,722 | 36,028 | 25,423 | 18,392 | |||||||||||||||
General and administrative |
32,923 | 23,471 | 20,435 | 15,522 | 10,768 |
As of January 31, | ||||||||||||||||||||
2011 | 2010 | 2009(3) | 2008(3) | 2007(3) | ||||||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||||||||||
Cash, cash equivalents and marketable securities |
$ | 1,407,557 | $ | 1,727,048 | $ | 882,565 | $ | 669,800 | $ | 412,512 | ||||||||||
(Negative) working capital |
(201,542 | ) | 798,029 | 301,591 | 134,894 | 45,905 | ||||||||||||||
Total assets |
3,091,165 | 2,460,201 | 1,479,822 | 1,089,593 | 664,832 | |||||||||||||||
Long-term obligations excluding deferred revenue and noncontrolling interest (2) |
516,506 | 481,234 | 20,106 | 10,601 | 1,408 | |||||||||||||||
Retained earnings (deficit) |
171,035 | 106,561 | 25,842 | (17,586 | ) | (35,633 | ) | |||||||||||||
Total stockholders equity controlling interest |
1,276,491 | 1,043,802 | 671,784 | 452,059 | 281,791 |
(2) | Long-term obligations excluding deferred revenue and noncontrolling interest includes the 0.75% convertible senior notes issued in January 2010. |
(3) | Includes the effects of the retrospective adoption of the accounting guidance involving the presentation of noncontrolling interest. We adopted the accounting guidance in the first quarter of fiscal 2010. |
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ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion contains forward-looking statements, including, without limitation, our expectations and statements regarding our outlook and future revenues, expenses, results of operations, liquidity, plans, strategies and objectives of management and any assumptions underlying any of the foregoing. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in the section titled of this Annual Report on Form 10-K Risk Factors. Except as required by law, we assume no obligation to update the forward-looking statements or our risk factors for any reason.
Overview
We are a leading provider of enterprise cloud computing applications. We provide a comprehensive customer and collaboration relationship management, or CRM, service to businesses of all sizes and industries worldwide and we provide a technology platform for customers and developers to build and run business applications.
We were founded in February 1999 and began offering our enterprise CRM application service in February 2000. Since then, we have augmented our CRM service with new editions and enhanced features. We introduced our Force.com platform to customers and developers so they can build complementary applications to extend beyond CRM. In 2010 we introduced our AppExchange directory of enterprise cloud computing applications that are integrated with our CRM service and in most cases have been developed on our platform by third parties. We also introduced Chatter, a collaboration application for the enterprise to connect and share information securely and in real-time.
Our objective is to be the leading provider of CRM application services and to be the leading platform on which our customers and partners build cloud computing applications. Key elements of our strategy include:
| Strengthening our existing CRM applications and extending into new functional areas within CRM; |
| Pursuing new customers and new territories aggressively; |
| Deepening relationships with our existing customer base; |
| Continuing to lead the industry transformation to the next phase of cloud computing; and |
| Encouraging the development of third-party applications on our Force.com cloud computing platform. |
We believe the factors that will influence our ability to achieve our objectives include our prospective customers willingness to migrate to an enterprise cloud computing application service; the performance and security of our service; our ability to continue to release, and gain customer acceptance of, new and improved features; our ability to successfully integrate acquired businesses and technologies; successful customer adoption and utilization of our service; acceptance of our service in markets where we have few customers; the emergence of additional competitors in our market and improved product offerings by existing and new competitors; the location of new data centers; third-party developers willingness to develop applications on our platform; and general economic conditions which could affect our customers ability and willingness to purchase our application service, delay the customers purchasing decision or affect renewal rates.
To address these factors, we will need to, among other things, continue to add substantial numbers of paying subscriptions, upgrade our customers to fully featured versions such as our Unlimited Edition, provide high quality technical support to our customers and encourage the development of third-party applications on our Force.com platform. We plan to invest for future growth by expanding our data center capacity. We also plan to hire additional personnel, particularly in direct sales, other customer-related areas and research and development. As part of our growth plans, we intend to continue focus on retaining customers at the time of renewal.
33
Additionally, we plan to: expand our domestic and international selling and marketing activities; continue to develop our brands; add additional distribution channels; increase our research and development activities to upgrade and extend our service offerings; develop new services and technologies and integrate acquired technologies; and add to our global infrastructure to support our growth. We also regularly evaluate acquisitions or investment opportunities in complementary businesses, joint ventures, services and technologies in an effort to expand our service offerings. We expect to continue to make such investments and acquisitions in the future. As such, we plan to reinvest a significant portion of our incremental revenue in fiscal 2012 to grow our business and continue our leadership role in the cloud computing industry. We expect diluted earnings per share for fiscal 2012 to be significantly lower than diluted earnings per share for fiscal 2011.
In November 2010, we paid $278.0 million in cash for approximately 14 acres of undeveloped real estate in San Francisco, California, including entitlements and improvements associated with the land, and perpetual parking rights in an existing garage, which we plan to develop into our global headquarters.
During fiscal 2011 we acquired several companies to strengthen and extend our service offerings. We spent approximately $403.3 million, net of cash acquired, for these companies.
In December 2000, we established a Japanese joint venture, Kabushiki Kaisha salesforce.com (Salesforce Japan), with SunBridge, Inc., a Japanese corporation, to assist with our sales efforts in Japan. During fiscal 2011, we acquired SunBridges and other shareholders interest in, and increased our ownership from 72 percent to 100 percent of, Salesforce Japan for cash payments totaling $172.0 million.
In fiscal 2010, we issued at par $575.0 million 0.75% convertible senior notes (notes) due on January 15, 2015. For 20 trading days during the 30 consecutive trading days ended January 31, 2011, our common stock traded at a price exceeding 130% of the conversion price of $85.36 per share applicable to the Notes. Accordingly, based on the terms of the Notes, the Notes are convertible at the holders option for the quarter ending April 30, 2011. Upon conversion of any Notes, we will deliver cash up to the principal amount of the Notes and, with respect to any excess conversion value greater than the principal amount of the Notes, shares of our common stock, cash, or a combination of both. Therefore, for the quarter ending April 30, 2011, the Notes will be reclassified to a current liability on our consolidated balance sheet.
We expect marketing and sales costs, which were 48 percent of our total revenues for fiscal 2011 and 46 percent for the same period a year ago, to continue to represent a substantial portion of total revenues in the future as we seek to add and manage more paying subscribers, and build greater brand awareness.
Fiscal Year
Our fiscal year ends on January 31. References to fiscal 2011, for example, refer to the fiscal year ended January 31, 2011.
Sources of Revenues
We derive our revenues from two sources: (1) subscription revenues, which are comprised of subscription fees from customers accessing our enterprise cloud computing application service, and from customers purchasing additional support beyond the standard support that is included in the basic subscription fee; and (2) related professional services and other revenues consisting primarily of training fees. Subscription and support revenues accounted for approximately 94 percent of our total revenues during fiscal 2011. Subscription revenues are driven primarily by the number of paying subscribers of our service, varying service types of offering and the subscription price of our service. We define a customer as a separate and distinct buying entity (e.g., a company, a distinct business unit of a large corporation, a partnership, etc.) that has entered into a contract to access our enterprise cloud computing service. We define a subscription as a unique user account purchased by a customer for use by its employees or other customer-authorized users, and each such user is who we call a subscriber. The number of paying subscriptions at each of our customers ranges from one to tens of thousands. None of our customers accounted for more than 5 percent of our revenues during fiscal 2011, 2010, or 2009.
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Subscription and support revenues are recognized ratably over the contract terms beginning on the commencement dates of each contract. The typical subscription and support term is 12 to 24 months, although terms range from one to 60 months. Our subscription and support contracts are non-cancelable, though customers typically have the right to terminate their contracts for cause if we materially fail to perform. We generally invoice our customers in advance, in annual or quarterly installments, and typical payment terms provide that our customers pay us within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue, or in revenue depending on whether the revenue recognition criteria have been met. In general, we collect our billings in advance of the subscription service period.
Professional services and other revenues consist of fees associated with consulting and implementation services and training. Our consulting and implementation engagements are typically billed on a time and materials basis. We also offer a number of classes on implementing, using and administering our service that are billed on a per person, per class basis. Our typical payment terms provide that our customers pay us within 30 days of invoice.
We generally recognize revenue ratably over the contract terms beginning on the commencement date of each contract. In determining whether professional services can be accounted for separately from subscription and support revenues, we consider a number of factors, which are described in Critical Accounting Policies and EstimatesRevenue Recognition below. As we introduce new service offerings, we may not be able to establish objective and reliable evidence of fair value for these elements of our sales arrangements. As a result, when the professional services are sold together with subscription services that do not have objective and reliable evidence of fair value, the professional services fees cannot be accounted for separately, and the entire arrangement is accounted for as a single unit of accounting. In such situations, we recognize the entire arrangement fee ratably over the term of the subscription contract. Approximately 6 percent of our total deferred revenue as of January 31, 2011 and 2010 respectively, related to deferred professional services revenue. At the start of fiscal 2012 we will be adopting the provisions of ASU 2009-13. Adopting this provision will change our accounting for multiple-element arrangements, see Recent Accounting Pronouncement.
Seasonal Nature of Deferred Revenue and Accounts Receivable
Deferred revenue primarily consists of billings to customers for our subscription service. Over 90 percent of the value of our billings to customers is for our subscription and support service. We generally invoice our customers in either quarterly or annual cycles, with a disproportionate weighting towards annual billings in the fourth quarter, primarily as a result of large enterprise account buying patterns. Additionally, our fourth quarter has historically been our strongest quarter for new business. The year on year compounding effect of this seasonality in both billing patterns and overall new business is causing the value of invoices that we generate in the fourth quarter for both new and existing customers to increase as a proportion of our total annual billings.
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Accordingly, the sequential quarterly changes in accounts receivable and the related deferred revenue during the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in the fourth quarter.
(in thousands) |
April 30, 2010 |
July 31, 2010 |
October 31, 2010 |
January 31, 2011 |
||||||||||||
Fiscal 2011 |
||||||||||||||||
Accounts receivable, net |
$ | 183,612 | $ | 228,550 | $ | 258,764 | $ | 426,943 | ||||||||
Deferred revenue, current and noncurrent |
664,529 | 683,019 | 694,557 | 934,941 | ||||||||||||
April 30, 2009 |
July 31, 2009 |
October 31, 2009 |
January 31, 2010 |
|||||||||||||
Fiscal 2010 |
||||||||||||||||
Accounts receivable, net |
$ | 145,869 | $ | 168,842 | $ | 191,297 | $ | 320,956 | ||||||||
Deferred revenue, current and noncurrent |
549,373 | 549,010 | 545,435 | 704,348 | ||||||||||||
April 30, 2008 |
July 31, 2008 |
October 31, 2008 |
January 31, 2009 |
|||||||||||||
Fiscal 2009 |
||||||||||||||||
Accounts receivable, net |
$ | 143,909 | $ | 146,982 | $ | 157,680 | $ | 266,555 | ||||||||
Deferred revenue, current and noncurrent |
470,297 | 479,546 | 469,534 | 594,026 |
Cost of Revenues and Operating Expenses
Cost of Revenues. Cost of subscription and support revenues primarily consists of expenses related to hosting our service and providing support, the costs of data center capacity, depreciation or operating lease expense associated with computer equipment, allocated overhead and amortization expense associated with capitalized software related to our application service and acquired technology. We allocate overhead such as rent and occupancy charges based on headcount. Employee benefit costs and taxes are allocated based upon a percentage of total compensation expense. As such, general overhead expenses are reflected in each cost of revenue and operating expense category. Cost of professional services and other revenues consists primarily of employee-related costs associated with these services, including stock-based expenses, the cost of subcontractors and allocated overhead. The cost of providing professional services is significantly higher as a percentage of revenue than for our enterprise cloud computing subscription service due to the direct labor costs and costs of subcontractors.
We intend to continue to invest additional resources in our enterprise cloud computing application service. For example, we plan to open additional data centers in the future. Additionally, as we acquire new businesses and technologies, the amortization expense associated with this activity will be included in cost of revenues. The timing of these additional expenses will affect our cost of revenues, both in terms of absolute dollars and as a percentage of revenues, in the affected periods.
Research and Development. Research and development expenses consist primarily of salaries and related expenses, including stock-based expenses, the costs of our development and test data center and allocated overhead. We continue to focus our research and development efforts on adding new features and services, integrating acquired technologies, increasing the functionality and enhancing the ease of use of our enterprise cloud computing application service. Our proprietary, scalable and secure multi-tenant architecture enables us to provide all of our customers with a service based on a single version of our application. As a result, we do not have to maintain multiple versions, which enables us to have relatively lower research and development expenses as compared to traditional enterprise software companies. We expect that in the future, research and development expenses will increase in absolute dollars as we upgrade and extend our service offerings, develop new technologies and integrate acquired businesses and technologies.
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Marketing and Sales. Marketing and sales expenses are our largest cost and consist primarily of salaries and related expenses, including stock-based expenses, for our sales and marketing staff, including commissions, payments to partners, marketing programs and allocated overhead. Marketing programs consist of advertising, events, corporate communications and brand building and product marketing activities.
We plan to continue to invest in marketing and sales by expanding our domestic and international selling and marketing activities, building brand awareness and sponsoring additional marketing events. We expect that in the future, marketing and sales expenses will increase in absolute dollars and continue to be our largest cost.
General and Administrative. General and administrative expenses consist of salaries and related expenses, including stock-based expenses, for finance and accounting, human resources and management information systems personnel, legal costs, professional fees, other corporate expenses and allocated overhead. We expect that in the future, general and administrative expenses will increase in absolute dollars as we invest in our infrastructure and we incur additional employee related costs, professional fees and insurance costs related to the growth of our business and international expansion. We expect general and administrative costs as a percentage of total revenues to remain flat for the next several quarters.
Stock-Based Expenses. Our cost of revenues and operating expenses include stock-based expenses related to option and stock awards to employees and non-employee directors. We recognize our share-based payments as an expense in the statement of operations based on their fair values and vesting periods. If our grant activity remains consistent and our stock price increases in the future, stock-based expenses will rise. These charges have been significant in the past and we expect that they will increase as we hire more employees and seek to retain existing employees.
Joint Venture
In December 2000, we established a Japanese joint venture, Kabushiki Kaisha salesforce.com (Salesforce Japan), with SunBridge, Inc., a Japanese corporation, to assist us with our sales efforts in Japan. During fiscal 2011, we acquired SunBridges and other shareholders interest in, and increased our ownership from 72 percent to 100 percent of, Salesforce Japan. As a result of our purchase of the shares held by SunBridge, the joint venture agreement terminated according to its terms. As we did not obtain 100 percent ownership until the fourth quarter of fiscal 2011, we recorded a noncontrolling interest in our consolidated statement of operations for fiscal 2011, which reflects the interest that we did not control in Salesforce Japans results in fiscal 2011 and all prior years presented.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in note 1 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
Revenue Recognition. We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the collection of our fees is reasonably assured; and (4) the amount of fees to be paid by the customer is fixed or determinable.
Our arrangements do not contain general rights of return.
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We recognize subscription revenues ratably over the contract terms beginning on the commencement dates of each contract. Support revenues from customers who purchase our premium support offerings are recognized similarly over the term of the support contract. As part of their subscription agreements, customers generally benefit from new features and functionality with each release at no additional cost. In situations where we have contractually committed to an individual customer specific technology, we defer all of the revenue for that customer until the technology is delivered and accepted. Once delivery occurs, we then recognize the revenue over the remaining contract term.
Consulting services and training revenues are accounted for separately from subscription and support revenues when these services have value to the customer on a standalone basis and there is objective and reliable evidence of fair value of each deliverable. When accounted for separately, revenues are recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts. The majority of our consulting service contracts are on a time and material basis. Training revenues are recognized after the services are performed. For revenue arrangements with multiple deliverables, such as an arrangement that includes subscription, premium support, consulting or training services, we allocate the total amount the customer will pay to the separate units of accounting based on their relative fair values, as determined by the price of the undelivered items when sold separately.
In determining whether the consulting services can be accounted for separately from subscription and support revenues, we consider the following factors for each consulting agreement: availability of the consulting services from other vendors, whether objective and reliable evidence of fair value exists for the undelivered elements, the nature of the consulting services, the timing of when the consulting contract was signed in comparison to the subscription service start date, and the contractual dependence of the subscription service on the customers satisfaction with the consulting work. If a consulting arrangement does not qualify for separate accounting, we recognize the consulting revenue ratably over the remaining term of the subscription contract. Additionally, in these situations we defer the direct costs of the consulting arrangement and amortize those costs over the same time period as the consulting revenue is recognized. The deferred cost on our consolidated balance sheet totaled $28.1 million at January 31, 2011 and $19.1 million at January 31, 2010. Such amounts are included in prepaid expenses and other current assets and other assets, net.
Accounting for Deferred Commissions. We defer commission payments to our direct sales force. The commissions are deferred and amortized to sales expense over the non-cancelable terms of the related subscription contracts with our customers, which are typically 12 to 24 months. The commission payments, which are paid in full the month after the customers service commences, are a direct and incremental cost of the revenue arrangements. The deferred commission amounts are recoverable through the future revenue streams under the non-cancelable customer contracts. We believe this is the preferable method of accounting as the commission charges are so closely related to the revenue from the non-cancelable customer contracts that they should be recorded as an asset and charged to expense over the same period that the subscription revenue is recognized.
During fiscal 2011, we deferred $121.2 million of commission expenditures and we amortized $80.2 million to sales expense. During the same period a year ago, we deferred $82.3 million of commission expenditures and we amortized $63.9 million to sales expense. Deferred commissions on our consolidated balance sheet totaled $116.6 million at January 31, 2011 and $75.5 million at January 31, 2010.
Business Combinations. We recognize separately from goodwill the fair value of assets acquired and the liabilities assumed. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. We use the best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date. Our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to
38
goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly and record any adjustments to the preliminary estimates to goodwill provided that we are within the measurement period and we continue to collect information in order to determine their estimated fair values as of the date of acquisition. Subsequent to the measurement period or our final determination of the tax allowances or contingencys estimated value, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in the consolidated statement of operations.
Accounting for Stock-Based Awards. We recognize the fair value of our stock awards on a straight-line basis over the requisite service period of the award which is the vesting term of four years.
We recognized stock-based expense of $120.4 million, or 7 percent of revenue, during fiscal 2011. The requirement to expense stock-based awards will continue to materially reduce our reported results of operations. As of January 31, 2011, we had an aggregate of $559.8 million of stock compensation remaining to be amortized to expense over the remaining requisite service period of the underlying awards. We currently expect this stock compensation balance to be amortized as follows: $195.1 million during fiscal 2012; $157.9 million during fiscal 2013; $129.6 million during fiscal 2014; $76.8 million during fiscal 2015 and $0.4 million during fiscal 2016. These amounts reflect only outstanding stock awards as of January 31, 2011 and assume no forfeiture activity. We expect to continue to issue share-based awards to our employees in future periods, which will increase the stock compensation amortization in such future periods.
We recognize as an operating expense the payroll and social tax costs, as applicable by jurisdiction, when stock options are exercised. The impact of stock-based expense in the future is dependent upon, among other things, the timing of when we hire additional employees, the effect of long-term incentive strategies involving stock awards in order to continue to attract and retain employees, the total number of stock awards granted, the fair value of the stock awards at the time of grant, changes in estimated forfeiture assumption rates and the tax benefit that we may or may not receive from stock-based expenses. Additionally, we are required to use an option-pricing model to determine the fair value of stock option awards. This determination of fair value is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards.
As of January 31, 2011, there were 3.2 million restricted stock awards and units outstanding. We plan to continue awarding restricted stock to our employees in the future. The restricted stock, which upon vesting entitles the holder to one share of common stock for each restricted stock, has an exercise price of $0.001 per share, which is equal to the par value of our common stock, and vest over 4 years. The fair value of the restricted stock is based on our closing stock price on the date of grant, and compensation expense, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period.
Accounting for Income Taxes. We account for income taxes using the liability method, which requires the recognition of deferred tax assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of our assets and liabilities and for net operating loss and tax credit carryforwards. The tax expense or benefit for unusual items, or certain adjustments to the valuation allowance are treated as discrete items in the interim period in which the events occur.
Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the calculation of deferred tax assets and liabilities, and changes in tax laws and accounting principles.
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Results of Operations
The following tables set forth selected data for each of the periods indicated (in thousands).
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 (1) | ||||||||||
Revenues: |
||||||||||||
Subscription and support |
$ | 1,551,145 | $ | 1,209,472 | $ | 984,574 | ||||||
Professional services and other |
105,994 | 96,111 | 92,195 | |||||||||
Total revenues |
1,657,139 | 1,305,583 | 1,076,769 | |||||||||
Cost of revenues: |
||||||||||||
Subscription and support |
208,243 | 159,172 | 127,082 | |||||||||
Professional services and other |
115,570 | 98,753 | 93,389 | |||||||||
Total cost of revenues |
323,813 | 257,925 | 220,471 | |||||||||
Gross profit |
1,333,326 | 1,047,658 | 856,298 | |||||||||
Operating expenses: |
||||||||||||
Research and development |
187,887 | 131,897 | 99,530 | |||||||||
Marketing and sales |
792,029 | 605,199 | 534,413 | |||||||||
General and administrative |
255,913 | 195,290 | 158,613 | |||||||||
Total operating expenses |
1,235,829 | 932,386 | 792,556 | |||||||||
Income from operations |
97,497 | 115,272 | 63,742 | |||||||||
Investment income |
37,735 | 30,408 | 22,774 | |||||||||
Interest expense |
(24,909 | ) | (2,000 | ) | (107 | ) | ||||||
Other expense |
(6,025 | ) | (1,299 | ) | (817 | ) | ||||||
Income before provision for income taxes and noncontrolling interest |
104,298 | 142,381 | 85,592 | |||||||||
Provision for income taxes |
(34,601 | ) | (57,689 | ) | (37,557 | ) | ||||||
Consolidated net income |
69,697 | 84,692 | 48,035 | |||||||||
Less: Net income attributable to noncontrolling interest |
(5,223 | ) | (3,973 | ) | (4,607 | ) | ||||||
Net income attributable to salesforce.com |
$ | 64,474 | $ | 80,719 | $ | 43,428 | ||||||
As of January 31, | ||||||||
2011 | 2010 | |||||||
Balance Sheet Data: |
||||||||
Cash, cash equivalents and marketable securities |
$ | 1,407,557 | $ | 1,727,048 | ||||
Deferred revenue, current and noncurrent |
934,941 | 704,348 |
(1) | Includes the effects of the retrospective adoption of the accounting guidance involving the presentation guidance of noncontrolling interest. We adopted the accounting guidance in the first quarter of fiscal 2010. |
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenues by geography: |
||||||||||||
Americas |
$ | 1,135,019 | $ | 923,823 | $ | 776,495 | ||||||
Europe |
291,784 | 232,367 | 190,685 | |||||||||
Asia Pacific |
230,336 | 149,393 | 109,589 | |||||||||
$ | 1,657,139 | $ | 1,305,583 | $ | 1,076,769 | |||||||
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Cost of revenues and operating expenses include the following amounts related to stock-based awards.
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Stock-based expenses: |
||||||||||||
Cost of revenues |
$ | 12,158 | $ | 12,570 | $ | 11,051 | ||||||
Research and development |
18,897 | 13,129 | 9,852 | |||||||||
Marketing and sales |
56,451 | 39,722 | 36,028 | |||||||||
General and administrative |
32,923 | 23,471 | 20,435 |
Cost of revenues and marketing and sales expenses include the following amounts related to amortization of purchased intangibles.
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Amortization of purchased intangibles: |
||||||||||||
Cost of revenues |
$ | 15,459 | $ | 8,010 | $ | 6,980 | ||||||
Marketing and sales |
4,209 | 3,241 | 1,895 |
The following tables set forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenues.
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenues: |
||||||||||||
Subscription and support |
94 | % | 93 | % | 91 | % | ||||||
Professional services and other |
6 | 7 | 9 | |||||||||
Total revenues |
100 | 100 | 100 | |||||||||
Cost of revenues: |
||||||||||||
Subscription and support |
13 | 12 | 12 | |||||||||
Professional services and other |
7 | 8 | 8 | |||||||||
Total cost of revenues |
20 | 20 | 20 | |||||||||
Gross profit |
80 | 80 | 80 | |||||||||
Operating expenses: |
||||||||||||
Research and development |
11 | 10 | 9 | |||||||||
Marketing and sales |
48 | 46 | 50 | |||||||||
General and administrative |
15 | 15 | 15 | |||||||||
Total operating expenses |
74 | 71 | 74 | |||||||||
Income from operations |
6 | 9 | 6 | |||||||||
Investment income |
2 | 2 | 2 | |||||||||
Interest expense |
(2 | ) | 0 | 0 | ||||||||
Other expense |
0 | 0 | 0 | |||||||||
Income before provision for income taxes and noncontrolling interest |
6 | 11 | 8 | |||||||||
Provision for income taxes |
(2 | ) | (5 | ) | (4 | ) | ||||||
Consolidated net income |
4 | 6 | 4 | |||||||||
Less: Net income attributable to noncontrolling interest |
0 | 0 | 0 | |||||||||
Net income attributable to salesforce.com |
4 | % | 6 | % | 4 | % | ||||||
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Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenues by geography: |
||||||||||||
Americas |
68 | % | 71 | % | 72 | % | ||||||
Europe |
18 | 18 | 18 | |||||||||
Asia Pacific |
14 | 11 | 10 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Stock-based expenses: |
||||||||||||
Cost of revenues |
1 | % | 1 | % | 1 | % | ||||||
Research and development |
1 | 1 | 1 | |||||||||
Marketing and sales |
3 | 3 | 3 | |||||||||
General and administrative |
2 | 2 | 2 |
Fiscal Years Ended January 31, 2011 and 2010
Revenues.
Fiscal Year Ended January 31, | Variance | |||||||||||||||
(In thousands) |
2011 | 2010 | Dollars | Percent | ||||||||||||
Subscription and support |
$ | 1,551,145 | $ | 1,209,472 | $ | 341,673 | 28 | % | ||||||||
Professional services and other |
105,994 | 96,111 | 9,883 | 10 | % | |||||||||||
Total revenues |
$ | 1,657,139 | $ | 1,305,583 | $ | 351,556 | 27 | % | ||||||||
Total revenues were $1.7 billion for fiscal 2011, compared to $1.3 billion during the same period a year ago, an increase of $351.6 million, or 27 percent. Subscription and support revenues were $1.6 billion, or 94 percent of total revenues, for fiscal 2011, compared to $1.2 billion, or 93 percent of total revenues, during the same period a year ago. The increase in subscription and support revenues was due primarily to new customers, upgrades and additional subscriptions from existing customers and improved renewal rates as compared to a year ago. The price per user per month for our three primary offerings, Professional Edition, Enterprise Edition and Unlimited Edition, in fiscal 2011 has remained substantially consistent relative to fiscal 2010. Professional services and other revenues were $106.0 million, or 6 percent of total revenues, for fiscal 2011, compared to $96.1 million, or 7 percent of total revenues, for the same period a year ago. The increase in professional services and other revenues was due primarily to the higher demand for services from an increased number of customers.
Revenues in Europe and Asia Pacific accounted for $522.1 million, or 32 percent of total revenues, for fiscal 2011, compared to $381.8 million, or 29 percent of total revenues, during the same period a year ago, an increase of $140.3 million, or 37 percent. The increase in revenues outside of the Americas was the result of the increasing acceptance of our service, and our focus on marketing our service internationally. Additionally, the value of the U.S. dollar relative to foreign currencies contributed to a slight decrease in U.S. dollar revenues outside of the Americas for fiscal 2011 as compared to the same period a year ago. The foreign currency impact had the effect of reducing our aggregate revenues by $7.6 million compared to the same period a year ago. As part of our overall growth, we expect the percentage of our revenue generated outside of the Americas to continue to increase as a percentage of our total revenues world wide.
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Cost of Revenues.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
Subscription and support |
$ | 208,243 | $ | 159,172 | $ | 49,071 | ||||||
Professional services and other |
115,570 | 98,753 | 16,817 | |||||||||
Total cost of revenues |
$ | 323,813 | $ | 257,925 | $ | 65,888 | ||||||
Percent of total revenues |
20 | % | 20 | % |
Cost of revenues was $323.8 million, or 20 percent of total revenues, during fiscal 2011, compared to $257.9 million, or 20 percent of total revenues, during the same period a year ago, an increase of $65.9 million. The increase in absolute dollars was primarily due to an increase of $22.6 million in employee-related costs, an increase of $9.2 million in service delivery costs, primarily due to our efforts in increasing data center capacity, an increase of $16.6 million in depreciation and amortization expenses, an increase of $13.2 million in outside subcontractor and other service costs, and an increase of $3.6 million in allocated overhead, offset by a decrease of $0.4 million in stock based expenses. The cost of professional services and other revenues exceeded the related revenue during fiscal 2011 by $9.6 million as compared to $2.6 million during fiscal 2010, primarily due to an increase in the cost related to professional services headcount.
We intend to continue to invest additional resources in our enterprise cloud computing application service. The timing of these additional expenses, will affect our cost of revenues, both in terms of absolute dollars and as a percentage of revenues in future periods.
We expect the cost of professional services to continue to exceed revenue from professional services during fiscal 2012. We believe that this investment in professional services facilitates the adoption of our application service.
Research and Development.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
Research and development |
$ | 187,887 | $ | 131,897 | $ | 55,990 | ||||||
Percent of total revenues |
11 | % | 10 | % |
Research and development expenses were $187.9 million, or 11 percent of total revenues, during fiscal 2011, compared to $131.9 million, or 10 percent of total revenues, during the same period a year ago, an increase of $56.0 million. The increase in absolute dollars was due to an increase of $42.0 million in employee-related costs, an increase of $5.8 million in stock-based expenses, and an increase of $5.6 million in allocated overhead. We increased our research and development headcount by 47 percent since January 31, 2010 in order to upgrade and extend our service offerings and develop new technologies. Some of the increase in headcount was due to acquired businesses.
Marketing and Sales.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
Marketing and sales |
$ | 792,029 | $ | 605,199 | $ | 186,830 | ||||||
Percent of total revenues |
48 | % | 46 | % |
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Marketing and sales expenses were $792.0 million, or 48 percent of total revenues, during fiscal 2011, compared to $605.2 million, or 46 percent of total revenues, during the same period a year ago, an increase of $186.8 million. The increase in absolute dollars was primarily due to increases of $143.1 million in employee-related costs, $16.7 million in stock-based expenses, $12.1 million in advertising costs and marketing and event costs, $1.0 million in depreciation and amortization, and $12.6 million in allocated overhead. Our marketing and sales headcount increased by 34 percent since January 31, 2010 as we hired additional sales personnel to focus on adding new customers and increasing penetration within our existing customer base. Some of the increase in headcount was due to acquired businesses.
General and Administrative.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
General and administrative |
$ | 255,913 | $ | 195,290 | $ | 60,623 | ||||||
Percent of total revenues |
15 | % | 15 | % |
General and administrative expenses were $255.9 million, or 15 percent of total revenues, during fiscal 2011, compared to $195.3 million, or 15 percent of total revenues, during the same period a year ago, an increase of $60.6 million. The increase was primarily due to increases of $46.8 million in employee-related costs, $9.5 million in stock-based expenses, and increases in depreciation and amortization, service delivery costs, and professional and outside service costs. Our general and administrative headcount increased by 30 percent since January 31, 2010 as we added personnel to support our growth.
Income from operations.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
Income from operations |
$ | 97,497 | $ | 115,272 | $ | (17,775 | ) | |||||
Percent of total revenues |
6 | % | 9 | % |
Income from operations during fiscal 2011 was $97.5 million and included $120.4 million of stock-based expenses and $19.7 million of amortization of purchased intangibles. During the same period a year ago, operating income was $115.3 million and included $88.9 million of stock-based expenses and $11.3 million of amortization of purchased intangibles.
Investment income.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
Investment income |
$ | 37,735 | $ | 30,408 | $ | 7,327 | ||||||
Percent of total revenues |
2 | % | 2 | % |
Investment income consists of income on cash and marketable securities balances. Investment income was $37.7 million during fiscal 2011 and was $30.4 million during the same period a year ago. The increase was primarily due to increased realized gains from sales of marketable securities and the increase in marketable securities balances resulting from cash generated by operating activities and the proceeds from stock option exercises and the convertible senior notes.
Interest expense.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
Interest expense |
$ | (24,909 | ) | $ | (2,000 | ) | $ | (22,909 | ) | |||
Percent of total revenues |
2 | % | 0 | % |
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Interest expense consists primarily of interest on our convertible senior notes and capital leases. Interest expense was $24.9 million, net of interest costs capitalized, during fiscal 2011 and was $2.0 million during the same period a year ago. The increase was primarily due to interest expense associated with the January 2010 issuance of $575.0 million of convertible senior notes and capital leases associated with equipment acquired to expand our data center capacity. During fiscal 2011, we capitalized $4.0 million of interest costs related to major construction projects, specifically our campus project and our capitalized internal-use software development costs. We will continue to capitalize interest on these projects until these assets are ready for service.
Other expense.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
Other expense |
$ | (6,025 | ) | $ | (1,299 | ) | $ | (4,726 | ) |
Other expense primarily consists of foreign currency transaction gains and losses. Other expense increased due to realized and unrealized gains on foreign currency transactions for fiscal 2011 compared to the same period a year ago.
Provision for Income Taxes.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2011 | 2010 | ||||||||||
Provision for income taxes |
$ | (34,601 | ) | $ | (57,689 | ) | $ | 23,088 | ||||
Effective tax rate |
33 | % | 41 | % |
The provision for income taxes was $34.6 million during fiscal 2011, compared to $57.7 million during the same period a year ago.
Our effective tax rate decreased to 33 percent for fiscal 2011 compared to 41 percent for the same period a year ago. The decrease was due to a higher proportion of income being generated in countries with lower income tax rates than the U.S statutory tax rate, as well as increased tax credits. The extension of the federal research credit provision was enacted in the Tax Relief Act of 2010. The total income tax benefit recognized in the accompanying consolidated statements of operations related to stock-based compensation was $44.1 million for the current fiscal year. See Note 7 Income Taxes to the Notes to the Consolidated Financial Statements for our reconciliation of income taxes at the statutory federal rate to the provision for income taxes.
In addition, in February 2009, the State of California enacted several income tax law changes which included an election to apply a single sales factor apportionment formula and adoption of a market sourcing approach for service income that will impact us beginning in fiscal 2012. As a result, we re-valued the anticipated future tax effects of our California temporary differences including stock-based compensation and purchased intangibles. Accordingly, we recorded an income tax expense of $2.2 million and $2.7 million related to this tax law change during 2011 and 2010 respectively.
Fiscal Years Ended January 31, 2010 and 2009
Revenues.
(In thousands) |
Fiscal Year Ended January 31, | Variance | ||||||||||||||
2010 | 2009 | Dollars | Percent | |||||||||||||
Subscription and support |
$ | 1,209,472 | $ | 984,574 | $ | 224,898 | 23 | % | ||||||||
Professional services and other |
96,111 | 92,195 | 3,916 | 4 | % | |||||||||||
Total revenues |
$ | 1,305,583 | $ | 1,076,769 | $ | 228,814 | 21 | % | ||||||||
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Total revenues were $1.3 billion for fiscal 2010, compared to $1.1 billion for fiscal 2009, an increase of $228.8 million, or 21 percent. Subscription and support revenues were $1.2 billion, or 93 percent of total revenues, for fiscal 2010, compared to $1.0 billion, or 91 percent of total revenues, during fiscal 2009. Professional services and other revenues were $96.1 million, or 7 percent of total revenues, for fiscal 2010, compared to $92.2 million, or 9 percent of total revenues, for fiscal 2009. The increase in professional services and other revenues was due primarily to the higher demand for services from an increased number of paying customers.
Revenues in Europe and Asia Pacific accounted for $381.8 million, or 29 percent of total revenues, for fiscal 2010, compared to $300.3 million, or 28 percent of total revenues, during fiscal 2009, an increase of $81.5 million, or 27 percent. The increase in revenues outside of the Americas was the result of our efforts to expand internationally. As part of our overall growth, we expect the percentage of our revenue generated in Europe and Asia Pacific to continue to increase as a percentage of our total revenues world wide.
Cost of Revenues.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2010 | 2009 | ||||||||||
Subscription and support |
$ | 159,172 | $ | 127,082 | $ | 32,090 | ||||||
Professional services and other |
98,753 | 93,389 | 5,364 | |||||||||
Total cost of revenues |
$ | 257,925 | $ | 220,471 | $ | 37,454 | ||||||
Percent of total revenues |
20 | % | 20 | % |
Cost of revenues was $257.9 million, or 20 percent of total revenues, during fiscal 2010, compared to $220.5 million, or 20 percent of total revenues, during fiscal 2009, an increase of $37.4 million. The increase in absolute dollars was primarily due to an increase of $8.4 million in employee-related costs, an increase of $1.5 million in stock-based expenses, an increase of $7.2 million in service delivery costs, primarily due to our investments in increasing data center capacity, an increase of $9.8 million in depreciation and amortization expenses, an increase of $6.7 million in outside subcontractor and other service costs and an increase of $1.6 million in allocated overhead. The cost of the professional services headcount resulted in the cost of professional services and other revenues to be in excess of the related revenue during fiscal 2010 by $2.6 million as compared to $1.2 million during fiscal 2009.
Research and Development.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2010 | 2009 | ||||||||||
Research and development |
$ | 131,897 | $ | 99,530 | $ | 32,367 | ||||||
Percent of total revenues |
10 | % | 9 | % |
Research and development expenses were $131.9 million, or 10 percent of total revenues, during fiscal 2010, compared to $99.5 million, or 9 percent of total revenues, during fiscal 2009, an increase of $32.4 million. The increase in absolute dollars was due to an increase of $25.2 million in employee-related costs, an increase of $3.3 million in stock-based expenses, and an increase of $3.5 million in allocated overhead. We increased our research and development headcount by 24 percent between January 31, 2009 and January 31, 2010 in order to upgrade and extend our service offerings and develop new technologies.
Marketing and Sales.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2010 | 2009 | ||||||||||
Marketing and sales |
$ | 605,199 | $ | 534,413 | $ | 70,786 | ||||||
Percent of total revenues |
46 | % | 50 | % |
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Marketing and sales expenses were $605.2 million, or 46 percent of total revenues, during fiscal 2010, compared to $534.4 million, or 50 percent of total revenues, during fiscal 2009, an increase of $70.8 million. The increase in absolute dollars was primarily due to increases of $42.0 million in employee-related costs, $3.7 million in stock-based expenses, $17.1 million in advertising costs and marketing and event costs and $6.7 million in allocated overhead. Our marketing and sales headcount increased by 9 percent between January 31, 2009 and January 31, 2010 as we hired additional sales personnel to focus on adding new customers and increasing penetration within our existing customer base.
General and Administrative.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2010 | 2009 | ||||||||||
General and administrative |
$ | 195,290 | $ | 158,613 | $ | 36,677 | ||||||
Percent of total revenues |
15 | % | 15 | % |
General and administrative expenses were $195.3 million, or 15 percent of total revenues, during fiscal 2010, compared to $158.6 million, or 15 percent of total revenues, during fiscal 2009, an increase of $36.7 million. The increase was primarily due to increases of $15.7 million in employee-related costs, $3.0 million in stock-based expenses, $4.7 million in infrastructure-related costs, and $10.1 million in professional and outside service costs. Our general and administrative headcount increased by 12 percent between January 31, 2009 and January 31, 2010 as we added personnel to support our growth.
Income from operations.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2010 | 2009 | ||||||||||
Income from operations |
$ | 115,272 | $ | 63,742 | $ | 51,530 | ||||||
Percent of total revenues |
9 | % | 6 | % |
Income from operations during fiscal 2010 was $115.3 million and included $88.9 million of stock-based expenses. During the fiscal 2009, operating income was $63.7 million and included $77.4 million of stock-based expenses.
Investment income.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2010 | 2009 | ||||||||||
Investment income |
$ | 30,408 | $ | 22,774 | $ | 7,634 | ||||||
Percent of total revenues |
2 | % | 2 | % |
Investment income consists of income on cash and marketable securities balances. Investment income was $30.4 million during fiscal 2010 and was $22.8 million during fiscal 2009. The increase was primarily due to increased realized gains and the increase in marketable securities balances resulting from cash generated by operating activities and the proceeds from stock option exercises.
Interest expense.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2010 | 2009 | ||||||||||
Interest expense |
$ | (2,000 | ) | $ | (107 | ) | $ | (1,893 | ) |
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Interest expense consists primarily of interest on our capital leases. Interest expense was $2.0 million during fiscal 2010 and was $0.1 million during fiscal 2009. The increase was primarily due to capital leases associated with equipment in expanding our data center capacity.
Other expense.
Fiscal Year Ended January 31, | Variance Dollars |
|||||||||||
(In thousands) |
2010 | 2009 | ||||||||||
Other expense |
$ | (1,299 | ) | $ | (817 | ) | $ | (482 | ) |
Other expense primarily consists of foreign currency translation gains and losses. Other expense increased due to realized and unrealized gains on foreign currency translations for fiscal 2010 compared to fiscal 2009.
Provision for Income Taxes.
Fiscal Year Ended January 31, | ||||||||||||
(In thousands) |
2010 | 2009 | Dollars | |||||||||
Provision for income taxes |
$ | (57,689 | ) | $ | (37,557 | ) | $ | (20,132 | ) | |||
Effective tax rate |
41 | % | 44 | % |
The provision for income taxes was $57.7 million during fiscal 2010, compared to $37.6 million during fiscal 2009.
Our effective tax rate decreased to 41 percent for fiscal 2010 compared to 44 percent for fiscal 2009. The decrease was due to a higher proportion of income being generated in countries with lower income tax rates than the U.S. statutory tax rate as well as increased tax credits. The total income tax benefit recognized in the accompanying consolidated statements of operations related to stock-based compensation was $32.1 million for fiscal 2010.
Liquidity and Capital Resources
At January 31, 2011, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $1.4 billion and accounts receivable of $426.9 million.
Net cash provided by operating activities was $459.1 million during fiscal 2011 and $270.9 million during the same period a year ago. The improvement in cash flow was due primarily to the growth in our customer base, increases in the contract values of our subscription service contracts, improving renewal rates and the associated increase in billings and collections. Cash provided by operating activities has historically been affected by: the amount of net income; sales of subscriptions, support and professional services; changes in working capital accounts, particularly increases and seasonality in accounts receivable and deferred revenue as described above, the timing of commission and bonus payments, and the timing of collections from large enterprise customers; add-backs of non-cash expense items such as depreciation and amortization, amortization of debt discount and the expense associated with stock-based awards.
Net cash used in investing activities was $1.1 billion during fiscal 2011 and $378.6 million during the same period a year ago. The net cash used in investing activities during fiscal 2011 primarily related to the purchase of Jigsaw, Heroku, DimDim, the purchase of undeveloped land in San Francisco, California, investment of cash balances, and capital expenditures and strategic investments in public and private companies. During the fourth quarter of fiscal 2011, we purchased approximately 14 acres of undeveloped land in San Francisco, California, including entitlements and improvements associated with the land, and perpetual parking rights in an existing garage for approximately $278.0 million in cash. We plan to use the land to build our new global headquarters and therefore will devote additional financial resources in the future to build our new headquarters.
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Net cash provided by financing activities was $14.1 million during fiscal 2011 and $637.2 million during the same period a year ago. Net cash provided by financing activities during fiscal 2011 consisted primarily of $160.4 million of proceeds from the exercise of employee stock options and $36.0 million of excess tax benefits from employee stock plans, offset by the $172.0 million in purchases of Salesforce Japan shares held by others and $10.4 million of principal payments on capital leases.
In January 2010, we issued $575.0 million of 0.75% convertible senior notes due January 15, 2015 (the Notes) and concurrently entered into convertible notes hedges (the Note Hedges) and separate warrant transactions (the Warrants). The Notes will mature on January 15, 2015, unless earlier converted. As of January 31, 2011, the Notes have not been repurchased or converted. We also have not received any shares under the Note Hedges or delivered cash or shares under the Warrants.
For 20 trading days during the 30 consecutive trading days ended January 31, 2011, our common stock traded at a price exceeding 130% of the conversion price of $85.36 per share applicable to the Notes. Accordingly, the Notes are convertible at the holders option for the quarter ending April 30, 2011. Upon conversion of any Notes, we will deliver cash up to the principal amount of the Notes and, with respect to any excess conversion value greater than the principal amount of the Notes, shares of our common stock, cash, or a combination of both. Therefore, for the quarter ending April 30, 2011, the Notes will be reclassified to a current liability on our consolidated balance sheet so long as the Notes are convertible.
Our cash, cash equivalents and marketable securities are comprised primarily of corporate notes and obligations, U.S. agency obligations, U.S. treasury securities, mortgage backed securities, collateralized mortgage obligations, time deposits, money market mutual funds, government obligations and municipal securities.
As of January 31, 2011, we have a total of $8.9 million in letters of credit outstanding in favor of certain landlords for office space. To date, no amounts have been drawn against the letters of credit, which renew annually and mature at various dates through September 2021.
We do not have any special purpose entities, and other than operating leases for office space and computer equipment, we do not engage in off-balance sheet financing arrangements. Additionally, we currently do not have a bank line of credit.
Our principal commitments consist of obligations under leases for office space and co-location facilities for data center capacity and our development and test data center, and computer equipment and furniture and fixtures. At January 31, 2011, the future non-cancelable minimum payments under these commitments were as follows:
(In thousands) Contractual Obligations |
Payments Due by Period | |||||||||||||||||||
Total | Less than 1 Year |
1-3 Years |
3-5 Years | More than 5 Years |
||||||||||||||||
Capital lease obligations |
$ | 18,637 | $ | 10,830 | $ | 7,807 | $ | 0 | $ | 0 | ||||||||||
Operating lease obligations: |
||||||||||||||||||||
Facilities space |
436,944 | 75,166 | 150,438 | 91,549 | 119,791 | |||||||||||||||
Computer equipment and furniture and fixtures |
62,340 | 32,177 | 30,163 | 0 | 0 | |||||||||||||||
Convertible Senior Notes, including interest |
592,251 | 4,313 | 8,625 | 579,313 | 0 | |||||||||||||||
Contractual commitments |
1,603 | 3 | 1,600 | 0 | 0 |
As of February 1, 2011 the Notes are convertible at the option of the noteholder. For 20 trading days during the 30 consecutive trading days ended January 31, 2011, our common stock traded at a price exceeding 130% of the conversion price of $85.36 per share applicable to the Notes. Accordingly, the Notes are convertible at the holders option for the quarter ending April 30, 2011. Upon conversion of any Notes, we will deliver cash up to
49
the principal amount of the Notes and, with respect to any excess conversion value greater than the principal amount of the Notes, shares of our common stock, cash, or a combination of both. This potential repayment of the Notes is not reflected in the timing of the payments due by period above.
We have a contractual obligation to begin construction on the undeveloped land by September 2014. If we do not commence construction by this date we will be subject to certain penalties due to a third party. These potential penalties are not reflected in the timing of the payments due by period above. We do not believe we will be subject to these penalties.
Our lease agreements provide us with the option to renew. Our future operating lease obligations would change if we exercised these options and if we entered into additional operating lease agreements as we expand our operations.
Purchase orders are not included in the table above. Our purchase orders represent authorizations to purchase rather than binding agreements. The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum services to be used; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
The timing of tax settlements are not included in the table above. We are unable to make a reasonable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax settlements. For further information, see Note 7 to the notes to consolidated financial statements. We recorded liabilities related to uncertain tax positions.
We believe our existing cash, cash equivalents and short-term marketable securities and cash provided by operating activities will be sufficient to meet our working capital and capital expenditure needs over the next 12 months.
During fiscal 2012, we may enter into arrangements to acquire or invest in complementary businesses or joint ventures, services or technologies. While we believe we have sufficient financial resources to do so, we may be required to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.
Recent Accounting Pronouncement
In September 2009, the Financial Accounting Standards Board, or FASB, issued Update No. 2009-13, Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangementsa consensus of the FASB Emerging Issues Task Force (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) requires the use of the relative selling price method to allocate the entire arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for us at the start of fiscal 2012. We believe the future impact of this new accounting pronouncement will not be material to our consolidated net income.
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Foreign currency exchange risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British Pound Sterling, Canadian dollar, Swiss franc, Singapore dollar, Japanese Yen and Australian dollar. We seek to minimize the impact of certain foreign currency fluctuations by hedging certain balance sheet exposures with foreign currency forward contracts. Any gain or loss from settling these contracts is offset by the loss or gain derived from the underlying balance sheet exposures. In accordance with our policy, the hedging contracts we enter into have maturities of less than three months. Additionally, by policy, we do not enter into any hedging contracts for trading or speculative purposes.
Interest rate sensitivity
We had cash, cash equivalents and marketable securities totaling $1.4 billion at January 31, 2011. This amount was invested primarily in money market funds, time deposits, corporate notes and bonds, government securities and other debt securities with credit ratings of at least single A or better. The cash, cash equivalents and short-term marketable securities are held for working capital purposes. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.
Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However because we classify our debt securities as available for sale, no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary. Our fixed-income portfolio is subject to interest rate risk.
An immediate increase or decrease in interest rates of 100-basis points at January 31, 2011 could result in a $27.7 million market value reduction or increase of the same amount. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities.
At January 31, 2010, we had cash, cash equivalents and marketable securities totaling $1.7 billion. The fixed-income portfolio was also subject to interest rate risk. Changes in interest rates of 100-basis points would have resulted in market value changes of $13.1 million.
Market Risk and Market Interest Risk
In January 2010, we issued at par value $575.0 million of 0.75% convertible senior notes due 2015 (the Notes). Holders may convert their Notes prior to maturity upon the occurrence of certain circumstances. Upon conversion, we would pay the holder an amount of cash equal to the principal amount of the Notes. Amounts in excess of the principal amount, if any, may be paid in cash or stock at our option. Concurrent with the issuance of the Notes, we entered into separate note hedging transactions and the sale of warrants. These separate transactions were completed to reduce the potential economic dilution from the conversion of the Notes.
As of February 1, 2011 the Notes are convertible at the option of the noteholder. For 20 trading days during the 30 consecutive trading days ended January 31, 2011, our common stock traded at a price exceeding 130% of the conversion price of $85.36 per share applicable to the Notes. Accordingly, the Notes are convertible at the holders option for the quarter ending April 30, 2011. Upon conversion of any Notes, we will deliver cash up to the principal amount of the Notes and, with respect to any excess conversion value greater than the principal
51
amount of the Notes, shares of our common stock, cash, or a combination of both. Therefore, as of February 1, 2011, the Notes will be reclassified to a current liability on our consolidated balance sheet so long as the Notes are convertible.
The Notes have a fixed annual interest rate of 0.75% and therefore, we do not have economic interest rate exposure on the Notes. However, the value of the Notes are exposed to interest rate risk. Generally, the fair market value of our fixed interest rate Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of our Notes is affected by our stock price. The carrying value of our Notes was $472.5 million as of January 31, 2011. This represents the liability component of the $575.0 million principal balance as of January 31, 2011. The total estimated fair value of our Notes at January 31, 2011 was $946.1 million and the fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the fourth quarter of fiscal 2011, which was $164.55.
We have an investment portfolio that includes strategic investments in public and privately-held companies, many of which are in the development stage. When our ownership interests are less than 20 percent and we do not have the ability to exert significant influence, we account for the minority equity investments using the cost method of accounting. Otherwise, we account for the investments using the equity method of accounting. At January 31, 2011, the fair value of these investments was $27.1 million.
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ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements are filed as part of this Annual Report on Form 10-K:
Page No. | ||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
salesforce.com, inc.
We have audited the accompanying consolidated balance sheets of salesforce.com, inc. as of January 31, 2011 and 2010, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the period ended January 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(c). These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of salesforce.com, inc. at January 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 31, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), salesforce.com, inc.s internal control over financial reporting as of January 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 23, 2011 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
March 23, 2011
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
salesforce.com, inc.
We have audited salesforce.com, inc.s internal control over financial reporting as of January 31, 2011, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). salesforce.com, inc.s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, salesforce.com, inc. maintained, in all material respects, effective internal control over financial reporting as of January 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of salesforce.com, inc. as of January 31, 2011 and 2010, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the period ended January 31, 2011 of salesforce.com, inc. and our report dated March 23, 2011 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
March 23, 2011
55
Consolidated Balance Sheets
(in thousands, except share and per share data)
January 31, 2011 |
January 31, 2010 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 424,292 | $ | 1,011,306 | ||||
Short-term marketable securities |
72,678 | 230,659 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $1,711 and $1,050 at January 31, 2011 and 2010, respectively |
426,943 | 320,956 | ||||||
Deferred commissions |
67,774 | 47,388 | ||||||
Deferred income taxes |
27,516 | 40,116 | ||||||
Prepaid expenses and other current assets |
55,721 | 55,734 | ||||||
Total current assets |
1,074,924 | 1,706,159 | ||||||
Marketable securities, noncurrent |
910,587 | 485,083 | ||||||
Property and equipment, net |
387,174 | 89,711 | ||||||
Deferred commissions, noncurrent |
48,842 | 28,140 | ||||||
Deferred income taxes, noncurrent |
41,199 | 27,579 | ||||||
Capitalized software, net |
127,987 | 34,809 | ||||||
Goodwill |
396,081 | 48,955 | ||||||
Other assets, net |
104,371 | 39,765 | ||||||
Total assets |
$ | 3,091,165 | $ | 2,460,201 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 18,106 | $ | 14,791 | ||||
Accrued expenses and other current liabilities |
345,121 | 203,162 | ||||||
Deferred revenue |
913,239 | 690,177 | ||||||
Total current liabilities |
1,276,466 | 908,130 | ||||||
0.75% convertible senior notes due 2015, net |
472,538 | 450,198 | ||||||
Income taxes payable, noncurrent |
18,481 | 17,551 | ||||||
Long-term lease liabilities and other |
25,487 | 13,485 | ||||||
Deferred revenue, noncurrent |
21,702 | 14,171 | ||||||
Total liabilities |
1,814,674 | 1,403,535 | ||||||
Commitments and contingencies (Notes 8 and 9) |
||||||||
Salesforce.com stockholders equity: |
||||||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized and none issued and outstanding |
0 | 0 | ||||||
Common stock, $0.001 par value; 400,000,000 shares authorized, 132,921,147 and 127,152,449 issued and outstanding at January 31, 2011 and 2010, respectively |
133 | 127 | ||||||
Additional paid-in capital |
1,098,604 | 938,544 | ||||||
Accumulated other comprehensive income (loss) |
6,719 | (1,430 | ) | |||||
Retained earnings |
171,035 | 106,561 | ||||||
Total stockholders equity controlling interest |
1,276,491 | 1,043,802 | ||||||
Total stockholders equity noncontrolling interest |
0 | 12,864 | ||||||
Total stockholders equity |
1,276,491 | 1,056,666 | ||||||
Total liabilities and stockholders equity |
$ | 3,091,165 | $ | 2,460,201 | ||||
See accompanying Notes.
56
Consolidated Statements of Operations
(in thousands, except per share data)
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenues: |
||||||||||||
Subscription and support |
$ | 1,551,145 | $ | 1,209,472 | $ | 984,574 | ||||||
Professional services and other |
105,994 | 96,111 | 92,195 | |||||||||
Total revenues |
1,657,139 | 1,305,583 | 1,076,769 | |||||||||
Cost of revenues (1): |
||||||||||||
Subscription and support |
208,243 | 159,172 | 127,082 | |||||||||
Professional services and other |
115,570 | 98,753 | 93,389 | |||||||||
Total cost of revenues |
323,813 | 257,925 | 220,471 | |||||||||
Gross profit |
1,333,326 | 1,047,658 | 856,298 | |||||||||
Operating expenses (1): |
||||||||||||
Research and development |
187,887 | 131,897 | 99,530 | |||||||||
Marketing and sales |
792,029 | 605,199 | 534,413 | |||||||||
General and administrative |
255,913 | 195,290 | 158,613 | |||||||||
Total operating expenses |
1,235,829 | 932,386 | 792,556 | |||||||||
Income from operations |
97,497 | 115,272 | 63,742 | |||||||||
Investment income |
37,735 | 30,408 | 22,774 | |||||||||
Interest expense |
(24,909 | ) | (2,000 | ) | (107 | ) | ||||||
Other expense |
(6,025 | ) | (1,299 | ) | (817 | ) | ||||||
Income before provision for income taxes and noncontrolling interest |
104,298 | 142,381 | 85,592 | |||||||||
Provision for income taxes |
(34,601 | ) | (57,689 | ) | (37,557 | ) | ||||||
Consolidated net income |
69,697 | 84,692 | 48,035 | |||||||||
Less: Net income attributable to noncontrolling interest |
(5,223 | ) | (3,973 | ) | (4,607 | ) | ||||||
Net income attributable to salesforce.com |
$ | 64,474 | $ | 80,719 | $ | 43,428 | ||||||
Earnings per sharebasic and diluted: |
||||||||||||
Basic net income per share attributable to salesforce.com common shareholders |
$ | 0.50 | $ | 0.65 | $ | 0.36 | ||||||
Diluted net income per share attributable to salesforce.com common shareholders |
0.47 | 0.63 | 0.35 | |||||||||
Shares used in computing basic net income per share |
130,222 | 124,462 | 121,183 | |||||||||
Shares used in computing diluted net income per share |
136,598 | 128,114 | 125,228 |
(1) | Amounts include stock-based expenses, as follows (see Note 1): |
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Cost of revenues |
$ | 12,158 | $ | 12,570 | $ | 11,051 | ||||||
Research and development |
18,897 | 13,129 | 9,852 | |||||||||
Marketing and sales |
56,451 | 39,722 | 36,028 | |||||||||
General and administrative |
32,923 | 23,471 | 20,435 |
See accompanying Notes.
57
Consolidated Statements of Stockholders Equity
(in thousands, except share data)
Common Stock | Additional Paid-in Capital |
Accumulated Other Comprehensive Income/(Loss) |
Retained Earnings (Deficit) |
Total Stockholders Equity Controlling Interest |
Total Stockholders Equity Noncontrolling Interest |
Total Stockholders Equity |
||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||
Balances at January 31, 2008 |
119,305,013 | $ | 119 | $ | 471,802 | $ | (2,276 | ) | $ | (17,586 | ) | $ | 452,059 | $ | 8,943 | $ | 461,002 | |||||||||||||||
Exercise of stock options, warrants and stock grants to board members for board services |
3,009,276 | 4 | 45,903 | 0 | 0 | 45,907 | 0 | 45,907 | ||||||||||||||||||||||||
Vested restricted stock units converted to shares |
535,773 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Tax benefits from employee stock plans |
0 | 0 | 55,421 | 0 | 0 | 55,421 | 0 | 55,421 | ||||||||||||||||||||||||
Stock-based expenses |
0 | 0 | 75,598 | 0 | 0 | 75,598 | 0 | 75,598 | ||||||||||||||||||||||||
Noncontrolling interest |
0 | 0 | 0 | 0 | 0 | 0 | 1,760 | 1,760 | ||||||||||||||||||||||||
Components of comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
0 | 0 | 0 | 260 | 0 | 260 | 0 | 260 | ||||||||||||||||||||||||
Unrealized loss on marketable securities and cash equivalents |
0 | 0 | 0 | (889 | ) | 0 | (889 | ) | 0 | (889 | ) | |||||||||||||||||||||
Net income attributable to salesforce.com |
0 | 0 | 0 | 0 | 43,428 | 43,428 | 0 | 43,428 | ||||||||||||||||||||||||
Total comprehensive income, year ended January 31, 2009 |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 42,799 | ||||||||||||||||||||||||
Balances at January 31, 2009 |
122,850,062 | 123 | 648,724 | (2,905 | ) | 25,842 | 671,784 | 10,703 | 682,487 | |||||||||||||||||||||||
Exercise of stock options and stock grants to board members for board services |
3,472,826 | 4 | 96,153 | 0 | 0 | 96,157 | 0 | 96,157 | ||||||||||||||||||||||||
Vested restricted stock units converted to shares |
829,561 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Tax benefits from employee stock plans |
0 | 0 | 49,478 | 0 | 0 | 49,478 | 0 | 49,478 | ||||||||||||||||||||||||
Stock-based expenses |
0 | 0 | 86,570 | 0 | 0 | 86,570 | 0 | 86,570 | ||||||||||||||||||||||||
Equity component of the convertible notes issuance, net. |
0 | 0 | 124,836 | 0 | 0 | 124,836 | 0 | 124,836 | ||||||||||||||||||||||||
Purchase of convertible note hedges |
0 | 0 | (126,500 | ) | 0 | 0 | (126,500 | ) | 0 | (126,500 | ) | |||||||||||||||||||||
Sale of warrants |
0 | 0 | 59,283 | 0 | 0 | 59,283 | 0 | 59,283 | ||||||||||||||||||||||||
Noncontrolling interest |
0 | 0 | 0 | 0 | 0 | 0 | 2,161 | 2,161 | ||||||||||||||||||||||||
Components of comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustment and other |
0 | 0 | 0 | (2,820 | ) | 0 | (2,820 | ) | 0 | (2,820 | ) | |||||||||||||||||||||
Unrealized gain on marketable securities and cash equivalents |
0 | 0 | 0 | 4,295 | 0 | 4,295 | 0 | 4,295 | ||||||||||||||||||||||||
Net income attributable to salesforce.com |
0 | 0 | 0 | 0 | 80,719 | 80,719 | 0 | 80,719 | ||||||||||||||||||||||||
Total comprehensive income, year ended January 31, 2010 |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 82,194 | ||||||||||||||||||||||||
Balances at January 31, 2010 |
127,152,449 | 127 | 938,544 | (1,430 | ) | 106,561 | 1,043,802 | 12,864 | 1,056,666 | |||||||||||||||||||||||
Exercise of stock options and stock grants to board members for board services |
4,697,518 | 5 | 165,494 | 0 | 0 | 165,499 | 0 | 165,499 | ||||||||||||||||||||||||
Vested restricted stock units converted to shares |
1,071,180 | 1 | 0 | 0 | 0 | 1 | 0 | 1 | ||||||||||||||||||||||||
Tax benefits from employee stock plans |
0 | 0 | 36,069 | 0 | 0 | 36,069 | 0 | 36,069 | ||||||||||||||||||||||||
Stock-based expenses |
0 | 0 | 115,139 | 0 | 0 | 115,139 | 0 | 115,139 | ||||||||||||||||||||||||
Purchase of subsidiary stock, net |
0 | 0 | (156,187 | ) | 0 | 0 | (156,187 | ) | 0 | (156,187 | ) | |||||||||||||||||||||
Other |
0 | 0 | (455 | ) | 0 | 0 | (455 | ) | 0 | (455 | ) | |||||||||||||||||||||
Noncontrolling interest |
0 | 0 | 0 | 0 | 0 | 0 | (12,864 | ) | (12,864 | ) | ||||||||||||||||||||||
Components of comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustment and other |
0 | 0 | 0 | 5,709 | 0 | 5,709 | 0 | 5,709 | ||||||||||||||||||||||||
Unrealized gain on marketable securities and cash equivalents and publicly traded strategic investments |
0 | 0 | 0 | 2,440 | 0 | 2,440 | 0 | 2,440 | ||||||||||||||||||||||||
Net income attributable to salesforce.com |
0 | 0 | 0 | 0 | 64,474 | 64,474 | 0 | 64,474 | ||||||||||||||||||||||||
Total comprehensive income, year ended January 31, 2011 |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 72,623 | ||||||||||||||||||||||||
Balances at January 31, 2011 |
132,921,147 | $ | 133 | $ | 1,098,604 | $ | 6,719 | $ | 171,035 | $ | 1,276,491 | $ | 0 | $ | 1,276,491 | |||||||||||||||||
See accompanying Notes.
58
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Operating activities: |
||||||||||||
Consolidated net income |
$ | 69,697 | $ | 84,692 | $ | 48,035 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
75,746 | 53,177 | 35,971 | |||||||||
Amortization of debt discount and transaction costs |
19,621 | 728 | 0 | |||||||||
Amortization of deferred commissions |
80,159 | 63,891 | 58,732 | |||||||||
Expenses related to stock-based awards |
120,429 | 88,892 | 77,366 | |||||||||
Excess tax benefits from employee stock plans |
(35,991 | ) | (51,539 | ) | (54,597 | ) | ||||||
Loss on securities |
0 | 0 | 1,783 | |||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable, net |
(102,507 | ) | (54,522 | ) | (44,798 | ) | ||||||
Deferred commissions |
(121,247 | ) | (82,336 | ) | (63,701 | ) | ||||||
Prepaid expenses and other current assets |
2,001 | (3,899 | ) | (4,746 | ) | |||||||
Other assets |
(9,770 | ) | (1,405 | ) | (1,292 | ) | ||||||
Accounts payable |
1,246 | (1,588 | ) | 8,512 | ||||||||
Accrued expenses and other current liabilities |
132,004 | 64,498 | 55,440 | |||||||||
Deferred revenue |
227,693 | 110,322 | 112,852 | |||||||||
Net cash provided by operating activities |
459,081 | 270,911 | 229,557 | |||||||||
Investing activities: |
||||||||||||
Business combinations, net of cash acquired |
(403,331 | ) | (11,999 | ) | (27,907 | ) | ||||||
Land activity and building improvements |
(277,944 | ) | 0 | 0 | ||||||||
Strategic investments |
(20,105 | ) | (4,400 | ) | 0 | |||||||
Purchases of marketable securities |
(1,682,549 | ) | (1,317,952 | ) | (449,035 | ) | ||||||
Sales of marketable securities |
1,197,492 | 874,573 | 154,287 | |||||||||
Maturities of marketable securities |
214,770 | 130,663 | 284,339 | |||||||||
Capital expenditures |
(90,887 | ) | (49,501 | ) | (61,059 | ) | ||||||
Net cash used in investing activities |
(1,062,554 | ) | (378,616 | ) | (99,375 | ) | ||||||
Financing activities: |
||||||||||||
Proceeds from borrowings on convertible debt |
0 | 567,094 | 0 | |||||||||
Proceeds from issuance of warrants |
0 | 59,283 | 0 | |||||||||
Purchase of convertible note hedge |
0 | (126,500 | ) | 0 | ||||||||
Purchase of subsidiary stock |
(171,964 | ) | 0 | (21,622 | ) | |||||||
Proceeds from the exercise of stock options |
160,402 | 93,856 | 43,311 | |||||||||
Excess tax benefits from employee stock plans |
35,991 | 51,539 | 54,597 | |||||||||
Principal payments on capital lease obligations |
(10,355 | ) | (8,119 | ) | (997 | ) | ||||||
Net cash provided by financing activities |
14,074 | 637,153 | 75,289 | |||||||||
Effect of exchange rate changes |
2,385 | (1,976 | ) | (732 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
(587,014 | ) | 527,472 | 204,739 | ||||||||
Cash and cash equivalents, beginning of period |
1,011,306 | 483,834 | 279,095 | |||||||||
Cash and cash equivalents, end of period |
$ | 424,292 | $ | 1,011,306 | $ | 483,834 | ||||||
Supplemental cash flow disclosure: |
||||||||||||
Cash paid during the period for: |
||||||||||||
Interest, net |
$ | 1,250 | $ | 1,069 | $ | 107 | ||||||
Income taxes, net of tax refunds |
$ | 90 | $ | 28,479 | $ | 9,600 | ||||||
Non-cash financing and investing activities |
||||||||||||
Fixed assets acquired under capital leases |
$ | 13,224 | $ | 17,000 | $ | 6,406 |
See accompanying Notes.
59
Notes to Consolidated Financial Statements
1. Summary of Business and Significant Accounting Policies
Description of Business
salesforce.com, inc. (the Company) is a leading provider of enterprise cloud computing applications. The Company provides a comprehensive customer and collaboration relationship management (CRM) service to businesses of all sizes and industries worldwide and provides a technology platform for customers and developers to build and run applications. The Company offers its services on a subscription basis.
Fiscal Year
The Companys fiscal year ends on January 31. References to fiscal 2011, for example, refer to the fiscal year ending January 31, 2011.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the Companys consolidated financial statements and notes thereto.
Significant estimates and assumptions made by management include the determination of the provision for income taxes, the fair value of stock awards issued, and the determination of the fair value of assets acquired and liabilities assumed for business acquisitions. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
In December 2000, the Company established a Japanese joint venture, Kabushiki Kaisha salesforce.com (Salesforce Japan), with SunBridge, Inc., a Japanese corporation, to assist the Company with its sales efforts in Japan. During fiscal 2011, the Company acquired SunBridges and other shareholders interest in Salesforce Japan, and increased the Companys ownership from 72 percent to 100 percent.
As the Company did not obtain 100 percent ownership until the fourth quarter of fiscal 2011, the Company recorded a noncontrolling interest in the consolidated statement of operations for the noncontrolling investors interests in the net assets and operations of the Salesforce Japan. Noncontrolling interest of $0 and $12.9 million as of January 31, 2011 and 2010 is reflected in stockholders equity, respectively.
Segments
The Company operates in one segment.
Foreign Currency Translation
The functional currency of the Companys major foreign subsidiaries is generally the local currency. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as part of a separate component of stockholders equity. Foreign currency transaction gains and losses are included in net income for the period. All assets and liabilities denominated in a foreign currency are
60
translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Equity transactions are translated using historical exchange rates.
Concentrations of Credit Risk and Significant Customers
The Companys financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities and trade accounts receivable. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable. The Company maintains an allowance for doubtful accounts receivable balances. The allowance is based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with delinquent accounts.
No customer accounted for more than 5 percent of accounts receivable at January 31, 2011 and 2010. No single customer accounted for 5 percent or more of total revenue during fiscal 2011, 2010, and 2009.
As of January 31, 2011 and 2010, assets located outside the Americas were 16 percent and 12 percent of total assets, respectively. Revenues by geographical region are as follows (in thousands):
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenues by geography: |
||||||||||||
Americas |
$ | 1,135,019 | $ | 923,823 | $ | 776,495 | ||||||
Europe |
291,784 | 232,367 | 190,685 | |||||||||
Asia Pacific |
230,336 | 149,393 | 109,589 | |||||||||
$ | 1,657,139 | $ | 1,305,583 | $ | 1,076,769 | |||||||
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value.
Marketable Securities
Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities are classified as available for sale and are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders equity. Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves. Declines in fair value judged to be other-than-temporary on securities available for sale are included as a component of investment income. In order to determine whether a decline in value is other-than-temporary, we evaluate, among other factors: the duration and extent to which the fair value has been less than the carrying value and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair market value. The cost of securities sold is based on the specific-identification method. Interest on securities classified as available for sale is also included as a component of investment income.
Fair Value Measurement
The Company reports its financial and non-financial assets and liabilities that are re-measured and reported at fair value at each reporting period.
61
The Company measures its cash equivalents, marketable securities, foreign currency derivative contracts and contingent considerations related to acquisitions at fair value. All of the Companys cash equivalents, marketable securities and foreign currency derivative contracts are classified within Level 1 or Level 2, which are described below. This is because the Companys cash equivalents, marketable securities and foreign currency derivative contracts are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The Company established a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1. |
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
Level 2. |
Include other inputs that are directly or indirectly observable in the marketplace. | |
Level 3. |
Unobservable inputs which are supported by little or no market activity. |
The following table presents information about the Companys assets and liabilities that are measured at fair value as of January 31, 2011 and indicates the fair value hierarchy of the valuation (in thousands):
Description |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balances as of January 31, 2011 |
||||||||||||
Cash equivalents (1): |
||||||||||||||||
Time deposits |
$ | 26,565 | $ | 0 | $ | 0 | $ | 26,565 | ||||||||
Money market mutual funds |
122,516 | 0 | 0 | 122,516 | ||||||||||||
Marketable securities: |
||||||||||||||||
Corporate notes and obligations |
0 | 707,613 | 0 | 707,613 | ||||||||||||
U.S. agency obligations |
0 | 79,408 | 0 | 79,408 | ||||||||||||
U.S. treasury securities |
22,706 | 0 | 0 | 22,706 | ||||||||||||
Government obligations |
6,532 | 0 | 0 | 6,532 | ||||||||||||
Mortgage backed securities |
0 | 38,886 | 0 | 38,886 | ||||||||||||
Collateralized mortgage obligations |
0 | 105,039 | 0 | 105,039 | ||||||||||||
Municipal securities |
0 | 23,081 | 0 | 23,081 | ||||||||||||
Foreign currency derivative contracts (2) |
0 | 1,539 | 0 | 1,539 | ||||||||||||
Total Assets |
$ | 178,319 | $ | 955,566 | $ | 0 | $ | 1,133,885 | ||||||||
Liabilities |
||||||||||||||||
Foreign currency derivative contracts (3) |
$ | 0 | $ | 2,863 | $ | 0 | $ | 2,863 | ||||||||
Contingent considerations (related to acquisitions, see Note 6) (3) |
0 | 0 | 17,138 | 17,138 | ||||||||||||
Total Liabilities |
$ | 0 | $ | 2,863 | $ | 17,138 | $ | 20,001 | ||||||||
(1) | Included in cash and cash equivalents in the accompanying Consolidated Balance Sheet as of January 31, 2011, in addition to $275.2 million of cash. |
(2) | Included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheet as of January 31, 2011. |
(3) | Included in accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheet as of January 31, 2011. |
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The following table presents the Companys liabilities measured at fair value using significant unobservable inputs (Level 3) at January 31, 2011. These liabilities consist of the Companys contingent considerations related to acquisitions. During fiscal 2011, the Company recorded the fair value of the Companys contingent considerations using a discounted cash flow model (in thousands):
Balance at February 1, 2010 |
$ | 0 | ||
Additions |
17,138 | |||
Balance at January 31, 2011 |
$ | 17,138 | ||
The following table presents information about the Companys assets and liabilities that are measured at fair value on a recurring basis as of January 31, 2010 and indicates the fair value hierarchy of the valuation (in thousands):
Description |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balances as of January 31, 2010 |
||||||||||||
Cash equivalents (1): |
||||||||||||||||
Time deposits |
$ | 11,410 | $ | 0 | $ | 0 | $ | 11,410 | ||||||||
Money market mutual funds |
123,868 | 0 | 0 | 123,868 | ||||||||||||
U.S. treasury securities |
399,140 | 0 | 0 | 399,140 | ||||||||||||
U.S. agency obligations |
0 | 364,197 | 0 | 364,197 | ||||||||||||
Marketable securities: |
||||||||||||||||
Corporate notes and obligations |
0 | 337,574 | 0 | 337,574 | ||||||||||||
U.S. agency obligations |
0 | 163,455 | 0 | 163,455 | ||||||||||||
U.S. treasury securities |
136,660 | 0 | 0 | 136,660 | ||||||||||||
Mortgage backed securities |
0 | 40,865 | 0 | 40,865 | ||||||||||||
Collateralized mortgage obligations |
0 | 37,188 | 0 | 37,188 | ||||||||||||
Foreign currency derivative contracts (2) |
0 | 1,593 | 0 | 1,593 | ||||||||||||
Total Assets |
$ | 671,078 | $ | 944,872 | $ | 0 | $ | 1,615,950 | ||||||||
Liabilities |
||||||||||||||||
Foreign currency derivative contracts (3) |
$ | 0 | $ | 402 | $ | 0 | $ | 402 | ||||||||
Total Liabilities |
$ | 0 | $ | 402 | $ | 0 | $ | 402 | ||||||||
(1) | Included in cash and cash equivalents in the accompanying Consolidated Balance Sheet as of January 31, 2010, in addition to $112.7 million of cash. |
(2) | Included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheet as of January 31, 2010. |
(3) | Included in accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheet as of January 31, 2010. |
Strategic Investments
The Company has one investment in a marketable security and certain interests in non-marketable securities that the Company considers strategic investments. The costs of the non-marketable securities included in strategic investments approximates their fair value. The total fair value of the Companys strategic investments was $27.1 million and $6.3 million as of January 31, 2011 and 2010, respectively. The fair value of the Companys marketable security of $6.0 million includes an unrealized gain of $5.2 million as of January 31, 2011. Strategic investments are recorded in Other Assets, net on the consolidated balance sheet.
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Derivative Financial Instruments
The Company enters into foreign currency derivative contracts with financial institutions to reduce the risk that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company uses forward currency derivative contracts to minimize the Companys exposure of balances denominated in Euros, Swiss francs, Australian dollars, Singapore dollars, Japanese yen and British pounds. The Companys foreign currency derivative contracts which are not designated as hedging instruments are used to reduce the exchange rate risk associated primarily with intercompany receivables and payables. The Companys program is not designated for trading or speculative purposes. As of January 31, 2011 and 2010 the foreign currency derivative contracts that were not settled are recorded at fair value on the consolidated balance sheet.
Foreign currency derivative contracts are marked-to-market at the end of each reporting period with gains and losses recognized as other income (expense) to offset the gains or losses resulting from the settlement or remeasurement of the underlying foreign currency denominated receivables and payables. While the contract or notional amount is often used to express the volume of foreign currency derivative contracts, the amounts potentially subject to credit risk are generally limited to the amounts, if any, by which the counterparties obligations under the agreements exceed the obligations of the Company to the counterparties.
Details on outstanding foreign currency derivative contracts related primarily to intercompany receivables and payables are presented below (in thousands):
January 31, 2011 |
January 31, 2010 |
|||||||
Notional amount of foreign currency derivative contracts |
$ | 202,491 | $ | 74,705 | ||||
Fair value of foreign currency derivative contracts |
$ | (1,324 | ) | $ | 1,191 |
The Companys fair value of our outstanding derivative instruments are summarized below (in thousands):
Fair Value of Derivative Instruments | ||||||||||||
Balance Sheet Location | As of January 31, 2011 |
As of January 31, 2010 |
||||||||||
Derivative Assets |
||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||
Foreign currency derivative contracts |
|
Prepaid expenses and other current assets |
|
$ | 1,539 | $ | 1,593 | |||||
Derivative Liabilities |
||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||
Foreign currency derivative contracts |
|
Accrued expenses and other current liabilities |
|
$ | 2,863 | $ | 402 | |||||
The effect of the derivative instruments not designated as hedging instruments on the Consolidated Statements of Operations for the year ended January 31, 2011, 2010 and 2009, respectively are summarized below (in thousands):
Derivatives Not Designated as Hedging Instruments |
Gains (Losses) Recognized in Income on Derivative Instruments | |||||||||||||||
Year ended January 31, | ||||||||||||||||
Location | 2011 | 2010 | 2009 | |||||||||||||
Foreign currency derivative contracts |
Other expense | $ | (1,324 | ) | $ | 1,191 | $ | (1,004 | ) | |||||||
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Investment Income
Investment income consists of interest income, realized gains, and realized losses on the Companys cash, cash equivalents and marketable securities. The components of investment income are presented below (in thousands):
Fiscal Year Ended January 31, | ||||||||||||
(In thousands) |
2011 | 2010 | 2009 | |||||||||
Interest income |
$ | 28,273 | $ | 21,219 | $ | 24,295 | ||||||
Realized gains |
12,460 | 13,391 | 1,048 | |||||||||
Realized losses |
(2,998 | ) | (4,202 | ) | (2,569 | ) | ||||||
Total investment income |
$ | 37,735 | $ | 30,408 | $ | 22,774 | ||||||
Interest Expense
Interest expense consists of interest on the Companys capital lease commitments and 0.75% convertible senior notes (the Notes). As described in Note 2, in accounting for the Notes at the time of issuance in January 2010, the carrying amount of the liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature. The excess of the principal amount of the liability component over its carrying amount (debt discount) is amortized, using an effective interest rate of 5.86%, to interest expense over the term of the Notes.
Property and Equipment
Fixed assets are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of those assets as follows:
Computers, equipment, and software | 3 to 5 years | |
Furniture and fixtures | 5 years | |
Leasehold improvements | Shorter of the estimated useful life or the lease term | |
Buildings and improvements | Amortized over the estimated useful lives of the respective assets when they are ready for their intended use. |
When assets are retired, the cost and accumulated depreciation and amortization are removed from their respective accounts and any loss on such retirement is reflected in operating expenses. When assets are otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from their respective accounts and any gain or loss on such sale or disposal is reflected in other income.
Capitalized Interest Cost
Interest costs related to major construction projects, specifically the Companys campus project and capitalized internal-use software development costs, are capitalized until the underlying asset is placed into service. Capitalized interest is calculated by multiplying the effective interest rate of the Notes by the qualifying costs. As the qualifying asset is placed into service, the qualifying asset and the related capitalized interest are amortized over the useful life of the related asset. Interest costs of $3.7 million related to the buildings and improvements and $0.3 million related to the Companys capitalized internal-use software development efforts were capitalized in fiscal 2011. No interest costs were capitalized in fiscal 2010.
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Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value.
There was no impairment of long-lived assets during fiscal 2011, 2010, and 2009.
The Company evaluates and tests the recoverability of the goodwill for impairment annually in the fourth quarter or more often if and when circumstances indicate that goodwill may not be recoverable. There was no impairment of goodwill during fiscal 2011, 2010, and 2009.
Capitalized Software Costs
For its website development costs and the development costs related to its enterprise cloud computing services, the company capitalizes costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities were expensed as incurred. Internal-use software is amortized on a straight line basis over its estimated useful life, generally three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
The Company capitalized $19.6 million, $15.1 million, and $10.2 million of costs during fiscal 2011, 2010, and 2009, respectively. Amortization expense totaled $13.1 million, $9.9 million, and $6.6 million during fiscal 2011, 2010 and 2009, respectively.
Comprehensive Income (loss)
Comprehensive income (loss) consists of net income and accumulated other comprehensive income (loss), which includes certain changes in equity that are excluded from net income. Specifically, cumulative foreign currency translation adjustments and unrealized gains and losses on marketable securities, net of taxes of $5.0 million in fiscal 2011 and $3.9 million in fiscal 2010, are included in accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss) has been reflected in stockholders equity.
The components of accumulated other comprehensive income (loss) were as follows (in thousands):
As of January 31, | ||||||||
2011 | 2010 | |||||||
Foreign currency translation and other adjustments |
$ | (1,357 | ) | $ | (7,066 | ) | ||
Net unrealized gain on marketable securities |
8,076 | 5,636 | ||||||
$ | 6,719 | $ | (1,430 | ) | ||||
Net Income Per Share
Basic net income per share attributable to salesforce.com is computed by dividing net income attributable to salesforce.com by the weighted-average number of common shares outstanding for the fiscal period. Diluted net income per share attributable to salesforce.com is computed giving effect to all potential weighted average dilutive common stock, including options, restricted stock units, warrants and the convertible senior notes. The dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method.
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A reconciliation of the denominator used in the calculation of basic and diluted net income per share attributable to salesforce.com is as follows (in thousands):
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Numerator: |
||||||||||||
Net income attributable to salesforce.com |
$ | 64,474 | $ | 80,719 | $ | 43,428 | ||||||
Denominator: |
||||||||||||
Weighted-average shares outstanding for basic earnings per share |
130,222 | 124,462 | 121,183 | |||||||||
Effect of dilutive securities: |
||||||||||||
0.75% convertible senior notes |
1,561 | 0 | 0 | |||||||||
Employee stock awards |
4,815 | 3,652 | 4,045 | |||||||||
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share |
136,598 | 128,114 | 125,228 | |||||||||
The following were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. The dilutive securities are excluded when, for example, their exercise prices, unrecognized compensation and tax benefits are greater than the average fair values of the Companys common stock (in thousands). These securities could be included in the future if the average market value of the Companys common shares increases and is greater than the exercise price.
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Stock awards |
1,061 | 4,455 | 3,797 | |||||||||
Warrants |
6,736 | 6,736 | 0 |
Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in its tax provision.
The total income tax benefit recognized in the accompanying consolidated statements of operations related to stock-based awards was $44.1 million, $32.1 million and $26.3 million for fiscal 2011, 2010 and 2009, respectively.
Revenue Recognition
The Company derives its revenues from two sources: (1) subscription revenues, which are comprised of subscription fees from customers accessing its enterprise cloud computing application service, and from customers purchasing additional support beyond the standard support that is included in the basic subscription fee; and (2) related professional services and other revenue. Other revenue consists primarily of training fees. The Company recognizes revenue when all of the following conditions are met:
| There is persuasive evidence of an arrangement; |
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| The service has been provided to the customer; |
| The collection of the fees is reasonably assured; and |
| The amount of fees to be paid by the customer is fixed or determinable. |
The Companys arrangements do not contain general rights of return.
Subscription and support revenues are recognized ratably over the contract terms beginning on the commencement date of each contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
Professional services and other revenues, when sold with subscription and support offerings, are accounted for separately when these services have value to the customer on a standalone basis and there is objective and reliable evidence of fair value of each deliverable. When accounted for separately, revenues are recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts. The majority of the Companys consulting contracts are on a time and materials basis. Training revenues are recognized after the services are performed. For revenue arrangements with multiple deliverables, such as an arrangement that includes subscription, premium support and consulting or training services, the Company allocates the total amount the customer will pay to the separate units of accounting based on their relative fair values, as determined by the price of the undelivered items when sold separately.
In determining whether the consulting services can be accounted for separately from subscription and support revenues, the Company considers the following factors for each consulting agreement: availability of the consulting services from other vendors, whether objective and reliable evidence for fair value exists for the undelivered elements, the nature of the consulting services, the timing of when the consulting contract was signed in comparison to the subscription service start date, and the contractual dependence of the subscription service on the customers satisfaction with the consulting work. If a consulting arrangement does not qualify for separate accounting, the Company recognizes the consulting revenue ratably over the remaining term of the subscription contract. Additionally, in these situations, the Company defers only the direct costs of the consulting arrangement and amortizes those costs over the same time period as the consulting revenue is recognized. As of January 31, 2011 and 2010, the deferred cost on the accompanying consolidated balance sheet totaled $28.1 million and $19.1 million, respectively. These deferred costs are included in prepaid expenses and other current assets and other assets.
Deferred Revenue
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the Companys subscription service described above and is recognized as the revenue recognition criteria are met. The Company generally invoices its customers in annual or quarterly installments. Accordingly, the deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. Deferred revenue also includes certain deferred professional services fees which are recognized as revenue ratably over the subscription contract term. The Company defers the professional service fees in situations where the professional services and subscription contracts are accounted for as a single unit of accounting. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent. Approximately 6 percent of total deferred revenue as of both January 31, 2011 and 2010, related to deferred professional services revenue.
Deferred Commissions
Deferred commissions are the incremental costs that are directly associated with non-cancelable subscription contracts with customers and consist of sales commissions paid to the Companys direct sales force.
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The commissions are deferred and amortized over the non-cancelable terms of the related customer contracts, which are typically 12 to 24 months. The commission payments are paid in full the month after the customers service commences. The deferred commission amounts are recoverable through the future revenue streams under the non-cancelable customer contracts. The Company believes this is the preferable method of accounting as the commission charges are so closely related to the revenue from the non-cancelable customer contracts that they should be recorded as an asset and charged to expense over the same period that the subscription revenue is recognized. Amortization of deferred commissions is included in marketing and sales expense in the accompanying consolidated statements of operations.
Business Combinations
The Company recognizes separately from goodwill the fair value of assets acquired and the liabilities assumed. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Companys estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Companys consolidated statements of operations.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reevaluates these items quarterly and records any adjustments to the Companys preliminary estimates to goodwill provided that the Company is within the measurement period and the Company continues to collect information in order to determine their estimated fair values as of the date of acquisition. Subsequent to the measurement period or the Companys final determination of the tax allowances or contingencys estimated value, changes to these uncertain tax positions and tax related valuation allowances will affect the Companys provision for income taxes in the Companys consolidated statement of operations.
Accounting for Stock-Based Compensation
The Company recognizes share-based expenses on a straight-line over the requisite service period of the awards, which is the vesting term of four years. Stock-based expenses are recognized net of estimated forfeiture activity.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions and fair value per share:
2011 | 2010 | 2009 | ||||
Volatility |
45 - 50% | 50 - 60% | 47 - 60% | |||
Estimated life |
3.7 - 3.8 years | 3.8 - 4 years | 4 years | |||
Weighted-average risk-free interest rate |
0.98 - 2.1% | 1.78 - 2.39% | 1.47 - 3.08% | |||
Dividend yield |
0 | 0 | 0 | |||
Weighted-average fair value per share of grants |
$48.83 | $24.73 | $15.39 |
Since November 2009, the weighted-average estimated life was based on an actual analysis of expected life. Prior to November 2009, the weighted-average estimated life assumption of 4 years was based on the average of the vesting term and the 5 year contractual lives of options awarded. The weighted average risk free interest rate is based on the rate for a 4 year U.S. government security at the time of the option grant.
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The Company estimated its future stock price volatility considering both its observed option-implied volatilities and its historical volatility calculations. Management believes this is the best estimate of the expected volatility over the weighted-average expected life of its option grants.
During fiscal 2011 and 2010, the Company capitalized $2.6 million and $2.4 million, respectively, of stock based expenses related to capitalized internal-use software development and deferred professional services costs.
During fiscal 2011, the Company recognized stock-based expense of $120.4 million. As of January 31, 2011, the aggregate stock compensation remaining to be amortized to costs and expenses was $559.8 million. The Company expects this stock compensation balance to be amortized as follows: $195.1 million during fiscal 2012; $157.9 million during fiscal 2013; $129.6 million during fiscal 2014; $76.8 million during fiscal 2015 and $0.4 million during fiscal 2016. The expected amortization reflects only outstanding stock awards as of January 31, 2011 and assumes no forfeiture activity. The Company expects to continue to issue share-based awards to its employees in future periods.
Warranties and Indemnification
The Companys enterprise cloud computing application service is typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and materially in accordance with the Companys online help documentation under normal use and circumstances.
The Companys arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-partys intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the persons service as a director or officer, including any action by the Company, arising out of that persons services as the Companys director or officer or that persons services provided to any other company or enterprise at the Companys request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
Advertising Expenses
Advertising is expensed as incurred. Advertising expense was $61.4 million, $50.8 million and $43.7 million for fiscal 2011, 2010 and 2009, respectively.
Subsequent Events
The Company evaluated subsequent events through the date this Annual Report on Form 10-K was filed with the SEC.
In February 2011, the Company acquired a privately-held company for approximately $11.3 million in cash.
As of February 1, 2011 the Notes due 2015 are convertible at the option of the noteholder. For 20 trading days during the 30 consecutive trading days ended January 31, 2011, the Companys common stock traded at a price exceeding 130% of the conversion price of $85.36 per share applicable to the Notes. Accordingly, the
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Notes are convertible at the holders option for the quarter ending April 30, 2011. Upon conversion of any Notes, the Company will deliver cash up to the principal amount of the Notes and, with respect to any excess conversion value greater than the principal amount of the Notes, shares of the Companys common stock, cash, or a combination of both. Therefore, for the quarter ending April 30, 2011, the Notes will be reclassified to a current liability on the Companys consolidated balance sheet. In addition to the Notes being reclassified to a current liability as described above, a portion of the equity component of the Notes, as described in Note 2 of the consolidated financial statements, will be reclassified from additional paid-in capital to temporary salesforce.com stockholders equity on the consolidated balance sheet.
New Accounting Pronouncement
In September 2009, the FASB issued Update No. 2009-13, Multiple-Deliverable Revenue Arrangementsa consensus of the FASB Emerging Issues Task Force (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) requires the use of the relative selling price method to allocate the entire arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the Company at the start of fiscal 2012. The Company believes the future impact of this new accounting pronouncement will not be material to consolidated net income.
Reclassifications
Certain reclassifications to the fiscal 2010 and 2009 balances were made to conform to the current period presentation. These reclassifications include deferred income taxes, strategic investments and income taxes payable.
2. Balance Sheet Accounts
Marketable Securities
At January 31, 2011, marketable securities consisted of the following (in thousands):
Investments classified as Marketable Securities |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value | ||||||||||||
Corporate notes and obligations |
$ | 701,047 | $ | 7,356 | $ | (790 | ) | $ | 707,613 | |||||||
U.S. treasury securities |
22,631 | 85 | (10 | ) | 22,706 | |||||||||||
Mortgage backed securities |
38,348 | 656 | (118 | ) | 38,886 | |||||||||||
Government obligations |
6,414 | 118 | 0 | 6,532 | ||||||||||||
Municipal securities |
23,121 | 79 | (119 | ) | 23,081 | |||||||||||
Collateralized mortgage obligations |
104,285 | 1,098 | (344 | ) | 105,039 | |||||||||||
U.S. agency obligations |
79,242 | 190 | (24 | ) | 79,408 | |||||||||||
Total marketable securities |
$ | 975,088 | $ | 9,582 | $ | (1,405 | ) | $ | 983,265 | |||||||
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At January 31, 2010, marketable securities consisted of the following (in thousands):
Investments classified as Marketable Securities |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value | ||||||||||||
Corporate notes and obligations |
$ | 329,750 | $ | 7,889 | $ | (65 | ) | $ | 337,574 | |||||||
U.S. treasury securities |
136,606 | 170 | (116 | ) | 136,660 | |||||||||||
Mortgage backed securities |
40,187 | 719 | (41 | ) | 40,865 | |||||||||||
Collateralized mortgage obligations |
36,785 | 436 | (33 | ) | 37,188 | |||||||||||
U.S. agency obligations |
162,896 | 571 | (12 | ) | 163,455 | |||||||||||
Total marketable securities |
$ | 706,224 | $ | 9,785 | $ | (267 | ) | $ | 715,742 | |||||||
The duration of the investments classified as marketable securities is as follows (in thousands):
As of January 31, | ||||||||
2011 | 2010 | |||||||
Recorded as follows (in thousands): |
||||||||
Short-term (due in one year or less) |
$ | 72,678 | $ | 230,659 | ||||
Long-term (due between one and 3 years) |
910,587 | 485,083 | ||||||
$ | 983,265 | $ | 715,742 | |||||
As of January 31, 2011, the following marketable securities were in an unrealized loss position (in thousands):
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
|||||||||||||||||||
Corporate notes and obligations |
$ | 126,053 | $ | (787 | ) | $ | 149 | $ | (3 | ) | $ | 126,202 | $ | (790 | ) | |||||||||
U.S. treasury securities |
2,031 | (10 | ) | 0 | 0 | 2,031 | (10 | ) | ||||||||||||||||
Mortgage backed securities |
13,258 | (115 | ) | 154 | (3 | ) | 13,412 | (118 | ) | |||||||||||||||
Municipal securities |
13,021 | (119 | ) | 0 | 0 | 13,021 | (119 | ) | ||||||||||||||||
Collateralized mortgage obligations |
38,577 | (344 | ) | 0 | 0 | 38,577 | (344 | ) | ||||||||||||||||
U.S. agency obligations |
17,254 | (24 | ) | 0 | 0 | 17,254 | (24 | ) | ||||||||||||||||
$ | 210,194 | $ | (1,399 | ) | $ | 303 | $ | (6 | ) | $ | 210,497 | $ | (1,405 | ) | ||||||||||
The unrealized loss for each of these fixed rate marketable securities ranged from less than $1,000 to $116,000. The Company does not believe any of the unrealized losses represent an other-than-temporary impairment based on its evaluation of available evidence as of January 31, 2011. The Company expects to receive the full principal and interest on all of these marketable securities.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
As of January 31, | ||||||||
2011 | 2010 | |||||||
Deferred professional services costs |
$ | 17,908 | $ | 13,420 | ||||
Prepaid expenses and other current assets |
37,813 | 42,314 | ||||||
$ | 55,721 | $ | 55,734 | |||||
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Property and Equipment
Property and equipment consisted of the following (in thousands):
As of January 31, | ||||||||
2011 | 2010 | |||||||
Land |
$ | 248,263 | $ | 0 | ||||
Buildings and improvements |
10,115 | 0 | ||||||
Computers, equipment and software |
115,736 | 87,608 | ||||||
Furniture and fixtures |
20,462 | 17,325 | ||||||
Leasehold improvements |
100,380 | 71,882 | ||||||
494,956 | 176,815 | |||||||
Less accumulated depreciation and amortization |
(107,782 | ) | (87,104 | ) | ||||
$ | 387,174 | $ | 89,711 | |||||
Depreciation and amortization expense totaled $41.4 million, $31.9 million and $21.0 million during fiscal 2011, 2010, and 2009, respectively.
Property and equipment at January 31, 2011 and January 31, 2010 included a total of $38.8 million and $27.1 million acquired under capital lease agreements, respectively. Accumulated amortization relating to equipment and software under capital leases totaled $18.5 million and $11.0 million, respectively, at January 31, 2011 and January 31, 2010. Amortization of assets under capital leases is included in depreciation and amortization expense.
Land and buildings and improvements
During the fourth quarter of fiscal 2011, the Company purchased approximately 14 acres of undeveloped land in San Francisco, California, including entitlements and improvements associated with the land, and perpetual parking rights in an existing garage for approximately $278.0 million in cash. The Company plans to use the land to build a new global headquarters. During fiscal 2011, the Company recorded $248.3 million to the undeveloped land and $6.4 million to buildings and improvements. The Company recorded $23.3 million for the perpetual parking rights as a purchased intangible asset in Other Assets on the consolidated balance sheet.
Capitalized Software
Capitalized software consisted of the following (in thousands):
As of January 31, | ||||||||
2011 | 2010 | |||||||
Capitalized internal-use software development costs, net of accumulated amortization of $34,513 and $21,392, respectively |
$ | 29,154 | $ | 22,675 | ||||
Acquired developed technology, net of accumulated amortization of $37,818 and $20,932, respectively |
98,833 | 12,134 | ||||||
$ | 127,987 | $ | 34,809 | |||||
Capitalized internal-use software amortization expense totaled $13.1 million and $9.9 million for the years ended January 31, 2011 and 2010, respectively. Acquired developed technology amortization expense totaled $16.9 million and $8.0 million for the years ended January 31, 2011 and 2010, respectively.
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Other Assets, net
Other assets consisted of the following (in thousands):
As of January 31, | ||||||||
2011 | 2010 | |||||||
Deferred professional services costs, noncurrent portion |
$ | 10,201 | $ | 5,639 | ||||
Long-term deposits |
12,114 | 11,084 | ||||||
Purchased intangible assets, net of accumulated amortization of $9,868 and $5,694, respectively |
31,660 | 6,613 | ||||||
Aquired intellectual property, net of accumulated amortization of $746 and $121, respectively. |
5,874 | 133 | ||||||
Strategic investments |
27,065 | 6,288 | ||||||
Other |
17,457 | 10,008 | ||||||
$ | 104,371 | $ | 39,765 | |||||
During the fourth quarter of fiscal 2011, the Company purchased approximately 14 acres of undeveloped land in San Francisco, California, including entitlements and improvements associated with the land, and perpetual parking rights in an existing garage for approximately $278.0 million in cash. Of the purchase price, the Company recorded $23.3 million to the perpetual parking rights and classified such rights as a purchased intangible asset as it represents an intangible right to use the existing garage.
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at least annually during the fourth quarter. There was no impairment of goodwill during fiscal 2011 and 2010.
Goodwill consisted of the following (in thousands):
Total | ||||
Balance as of January 31, 2009 |
$ | 44,872 | ||
Other acquisitions |
4,083 | |||
Balance as of January 31, 2010 |
48,955 | |||
Jigsaw Data Corporation |
133,254 | |||
Heroku, Inc. |
181,304 | |||
DimDim, Inc. |
23,373 | |||
Finalization of fiscal 2010 purchase price allocation |
(1,150 | ) | ||
Other Acquisitions |
10,345 | |||
Balance as of January 31, 2011 |
$ | 396,081 | ||
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
As of January 31, | ||||||||
2 0 11 | 2 0 10 | |||||||
Accrued compensation |
$ | 148,275 | $ | 90,223 | ||||
Accrued other liabilities |
112,840 | 46,188 | ||||||
Accrued other taxes payable |
41,355 | 27,757 | ||||||
Accrued professional costs |
12,548 | 10,740 | ||||||
Accrued rent |
22,323 | 19,830 | ||||||
Income taxes payable |
7,780 | 8,424 | ||||||
$ | 345,121 | $ | 203,162 | |||||
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0.75% Convertible Senior Notes
In January 2010, the Company issued at par value $575.0 million of 0.75% convertible senior notes due January 15, 2015 (the Notes). Interest is payable semi-annually in arrears on January 15 and July 15 of each year, commencing July 15, 2010.
The Notes are governed by an Indenture dated as of January 19, 2010, between the Company, as issuer, and U.S. Bank National Association, as trustee. The Notes do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by the Company. The Notes are unsecured and rank senior in right of payment to the Companys future indebtedness that is expressly subordinated in right of payment to the Notes and rank equal in right of payment to the Companys existing and future unsecured indebtedness that is not so subordinated and are effectively subordinated in right of payment to any of the Companys cash equal to the principal amount of the Notes, and secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all existing and future indebtedness and liabilities incurred by our subsidiaries, including trade payables.
If converted, holders will receive cash equal to the principal amount of the Notes, and at the Companys election, cash and/or shares of the Companys common stock for any amounts in excess of the principal amounts.
The initial conversion rate is 11.7147 shares of common stock per $1,000 principal amount of Notes, subject to anti-dilution adjustments. The initial conversion price is $85.36 per share of common stock. Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than cancelled, extinguished or forfeited. Holders may convert their Notes under the following circumstances:
| during any fiscal quarter, if, for at least 20 trading days during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the last reported sales price of the Companys common stock for such trading day is greater than or equal to 130% of the applicable conversion price on such trading day share of common stock on such last trading day; |
| in certain situations, when the trading price of the Notes is less than 98% of the product of the sale price of the Companys common stock and the conversion rate; |
| upon the occurrence of specified corporate transactions described under the Notes Indenture, such as a consolidation, merger or binding share exchange; or |
| at any time on or after October 15, 2014. |
As of January 31, 2011, the Notes are not yet convertible up to 6.7 million shares of the Companys common stock.
For at least 20 trading days during the 30 consecutive trading days ended January 31, 2011, the Companys common stock price exceeded the conversion price of $85.36 per share. Accordingly, the Notes are convertible at the holders option for the quarter ending April 30, 2011. Upon conversion of any Notes, the Company will deliver cash up to the principal amount of the Notes and with respect to any excess conversion value greater than the principal amount of the Notes, shares of the Companys common stock, cash, or a combination of both at the Companys election.
Holders of the Notes have the right to require the Company to purchase with cash all or a portion of the Notes upon the occurrence of a fundamental change, such as a change of control at a purchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest. Following certain corporate transactions that constitute a change of control, the Company will increase the conversion rate for a holder who elects to convert the Notes in connection with such change of control in certain circumstances.
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In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole. The excess of the principal amount of the liability component over its carrying amount (debt discount) is amortized to interest expense over the term of the Note. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the transaction costs related to the Note issuance, the Company allocated the total amount incurred to the liability and equity components. Transaction costs attributable to the liability component are being amortized to expense over the term of the Notes, and transaction costs attributable to the equity component were netted with the equity component in additional paid-in capital. Additionally, the Company recorded a deferred tax liability of $51.1 million in connection with the Notes. The Notes consisted of the following (in thousands):
As of January 31, | ||||||||
2011 | 2010 | |||||||
Equity component (1) |
$ | 125,530 | $ | 125,530 | ||||
Liability component : |
||||||||
Principal |
$ | 575,000 | $ | 575,000 | ||||
Less: debt discount, net (2) |
(102,462 | ) | (124,802 | ) | ||||
Net carrying amount |
$ | 472,538 | $ | 450,198 | ||||
(1) | Included in the consolidated balance sheets within additional paid-in capital, net of the $1.8 million in equity issuance costs. |
(2) | Included in the consolidated balance sheets within 0.75% convertible senior notes and is amortized over the remaining life of the Notes using the effective interest rate method. |
As of January 31, 2011, the remaining life of the Notes is approximately 4 years.
The following table sets forth total interest expense recognized related to the Notes prior to capitalization of interest (in thousands):
Fiscal Year Ended January 31, |
||||||||
2011 | 2010 | |||||||
Contractual interest expense |
$ | 4,313 | $ | 144 | ||||
Amortization of debt issuance costs |
1,324 | 59 | ||||||
Amortization of debt discount |
22,396 | 728 | ||||||
$ | 28,033 | $ | 931 | |||||
Effective interest rate of the liability component |
5.86 | % | 5.86 | % |
Note Hedges
To minimize the impact of potential economic dilution upon conversion of the Notes, the Company entered into convertible note hedge transactions with respect to its common stock (the Note Hedges). The Company paid, in January 2010, an aggregate amount of $126.5 million for the Note Hedges. The Note Hedges cover, approximately 6.7 million shares of the Companys common stock at a strike price that corresponds to the initial conversion price of the Notes, also subject to adjustment, and are exercisable upon conversion of the Notes. The Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential economic dilution upon conversion of the Notes in the event that the market value per share of the Companys common stock, as measured under the Notes, at the time of exercise is greater than the conversion price of the
76
Notes. The Note Hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Note Hedges. The Company in January 2010 recorded a deferred tax asset of $51.4 million in connection with these Note Hedges.
Warrants
Separately, the Company in January 2010 also entered into warrant transactions (the Warrants), whereby the Company sold warrants to acquire, subject to anti-dilution adjustments, up to 6.7 million shares of the Companys common stock at a strike price of $119.51 per share. The Company received aggregate proceeds of $59.2 million from the sale of the Warrants. If the average market value per share of the Companys common stock for the reporting period, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on the Companys earnings per share. The Warrants are separate transactions, entered into by the Company and are not part of the terms of the Notes or Note Hedges. Holders of the Notes and Note Hedges will not have any rights with respect to the Warrants.
3. Stockholders Equity
Stock Options Issued to Employees
The Company maintains three stock plans; the 2004 Equity Incentive Plan, 2004 Employee Stock Purchase Plan and the 2004 Outside Directors Stock Plan. These plans, other than the 2004 Outside Directors Stock Plan, provide for annual automatic increases on February 1 to the shares reserved for issuance based on the lesser of (i) a specific percentage of the total number of shares outstanding at year end; (ii) a fixed number of shares; or (iii) a lesser number of shares set by the Companys Board of Directors, all as specified in the respective plans. The expiration of the 1999 Stock Option Plan in fiscal 2010 did not affect awards outstanding, which continue to be governed by the terms and conditions of the 1999 Plan.
On February 1, 2011, 3.5 million additional shares were reserved under the 2004 Equity Incentive Plan pursuant to the automatic increase. The 2004 Employee Stock Purchase Plan will not be implemented unless and until the Companys Board of Directors authorizes the commencement of one or more offerings under the plan. No offering periods have been authorized to date.
In April 2006, the Companys Board of Directors approved the 2006 Inducement Equity Incentive Plan (the Inducement Plan) that allows for stock option and other equity incentive grants to employees in connection with merger or acquisition activity. In fiscal 2011, the Board of Directors amended the Inducement Plan to increase the share reserve by 300,000 shares to 1,000,000 shares in total. As of January 31, 2011, there were 362,102 shares of common stock available for grant under the Inducement Plan.
Prior to February 1, 2006, options issued under the Companys stock option plans were generally for periods which had a term of 10 years. After February 1, 2006, options issued have a term of 5 years.
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Stock activity is as follows:
Shares Available for Grant |
Options Outstanding | |||||||||||||||
Outstanding Stock Options |
Weighted- Average Exercise Price |
Aggregate Intrinsic Value (in thousands) |
||||||||||||||
Balance as of January 31, 2010 |
4,607,929 | 14,036,371 | $ | 40.36 | ||||||||||||
Increase in shares authorized: |
||||||||||||||||
2004 Equity Incentive Plan |
3,500,000 | 0 | 0 | |||||||||||||
Inducement Plan |
300,000 | 0 | 0 | |||||||||||||
Options granted under all plans |
(3,113,276 | ) | 3,113,276 | 128.33 | ||||||||||||
Restricted stock activity |
(1,775,505 | ) | 0 | 0 | ||||||||||||
Stock grants to board and advisory board members |
(50,200 | ) | 0 | 0 | ||||||||||||
Exercised |
0 | (4,646,977 | ) | 34.52 | ||||||||||||
1999 Plan shares expired |
(92,999 | ) | 0 | 0 | ||||||||||||
Cancelled |
719,511 | (719,511 | ) | 49.38 | ||||||||||||
Balance as of January 31, 2011 |
4,095,460 | 11,783,159 | $ | 65.35 | $ | 782,437 | ||||||||||
Vested or expected to vest |
11,358,774 | $ | 64.42 | $ | 763,923 | |||||||||||
Exercisable as of January 31, 2011 |
4,340,782 | $ | 36.32 | $ | 402,892 | |||||||||||
The total intrinsic value of the options exercised during the fiscal 2011, 2010, and 2009 were $322.5 million, $105.2 million, and $117.3 million, respectively. The intrinsic value is the difference of the current market value of the stock and the exercise price of the stock option.
The weighted-average remaining contractual life of vested and expected to vest options is approximately 3.3 years.
As of January 31, 2011, options to purchase 4,340,782 shares were vested at a weighted average exercise price of $36.32 per share and a remaining weighted-average remaining contractual life of approximately 2.6 years. The total intrinsic value of these vested options as of January 31, 2011 was $402.9 million.
The following table summarizes information about stock options outstanding as of January 31, 2011:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise |
Number Outstanding |
Weighted- Average Remaining Contractual Life (Years) |
Weighted- Average Exercise Price |
Number of Shares |
Weighted- Average Exercise Price |
|||||||||||||||
$0.75 to $25.19 | 1,054,480 | 3.2 | $ | 10.29 | 1,054,480 | $ | 10.29 | |||||||||||||
$25.97 | 2,195,260 | 2.8 | 25.97 | 848,361 | 25.97 | |||||||||||||||
$27.20 to $52.48 | 2,309,582 | 2.0 | 45.79 | 1,528,138 | 44.65 | |||||||||||||||
$52.76 to $65.41 | 669,778 | 2.5 | 56.09 | 321,878 | 55.38 | |||||||||||||||
$65.44 | 2,301,557 | 3.8 | 65.44 | 489,953 | 65.44 | |||||||||||||||
$65.68 to $133.32 | 957,126 | 4.0 | 84.78 | 97,972 | 68.15 | |||||||||||||||
$142.50 to $148.49 | 2,295,376 | 4.8 | 142.52 | 0 | 0 | |||||||||||||||
11,783,159 | 3.3 | $ | 65.35 | 4,340,782 | $ | 36.32 | ||||||||||||||
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Restricted stock activity is as follows:
Restricted Stock Outstanding | ||||||||||||
Outstanding | Weighted- Average Exercise Price |
Aggregate Intrinsic Value (in thousands) |
||||||||||
Balance as of January 31, 2009 |
2,499,151 | $ | 0.001 | |||||||||
Granted |
859,636 | 0.001 | ||||||||||
Cancelled |
(212,774 | ) | 0.001 | |||||||||
Vested and converted to shares |
(829,561 | ) | 0.001 | |||||||||
Balance as of January 31, 2010 |
2,316,452 | 0.001 | ||||||||||
Granted |
2,048,925 | 0.001 | ||||||||||
Cancelled |
(223,220 | ) | 0.001 | |||||||||
Vested and converted to shares |
(926,054 | ) | 0.001 | |||||||||
Balance as of January 31, 2011 |
3,216,103 | $ | 0.001 | $ | 415,328 | |||||||
Expected to vest |
2,979,791 | $ | 384,810 | |||||||||
The restricted stock, which upon vesting entitles the holder to one share of common stock for each share of restricted stock, has an exercise price of $0.001 per share, which is equal to the par value of the Companys common stock, and vest over 4 years.
The weighed-average fair value of the restricted stock issued in fiscal 2011 and 2010 was $108.03 and $47.59, respectively.
The Company reduced its income taxes payable by the tax benefit realized from the exercise, sale or vesting of the stock options or similar instruments during fiscal 2011 in the amount of $76.1 million. Cash provided by financing activities due to excess tax benefits from employee stock plans was a result of a portion of such cash tax benefit and the tax benefit arising from the utilization of net operating losses generated primarily from the settlement of stock awards in prior years.
Common Stock
The following number of shares of common stock were reserved and available for future issuance at January 31, 2011:
Options outstanding |
11,783,159 | |||
Restricted stock awards and units outstanding |
3,216,103 | |||
Stock available for future grant: |
||||
2004 Equity Incentive Plan |
3,122,358 | |||
2006 Inducement Equity Incentive Plan |
362,102 | |||
2004 Employee Stock Purchase Plan |
1,000,000 | |||
2004 Outside Directors Stock Plan |
611,000 | |||
0.75% Convertible senior notes |
6,735,953 | |||
Warrants |
6,735,953 | |||
33,566,628 | ||||
During fiscal year 2011 and 2010, certain board members received stock grants totaling 48,000 shares of common stock, respectively for board services pursuant to the terms described in the 2004 Outside Directors Stock Plan. The expense related to these awards, which was expensed immediately at the time of the issuance, totaled $4.9 million and $2.2 million, in fiscal 2011 and 2010 respectively.
79
4. Preferred Stock
The Companys board of directors has the authority, without further action by stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series. The Companys board of directors may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms, and number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the Companys common stock, diluting the voting power of its common stock, impairing the liquidation rights of its common stock, or delaying or preventing a change in control. The ability to issue preferred stock could delay or impede a change in control. At January 31, 2011 and 2010, no shares of preferred stock were outstanding.
5. Joint Venture
In December 2000, the Company established a Japanese joint venture, Kabushiki Kaisha salesforce.com, (Salesforce Japan), with SunBridge, Inc., a Japanese corporation, to assist the Company with its sales efforts in Japan. During fiscal 2011, the Company paid $172.0 million to acquire SunBridges and other shareholders interest in Salesforce Japan. The Company now owns 100 percent of Salesforce Japan. As a result of the Companys purchase of the shares held by SunBridge, the joint venture agreement terminated according to its terms. The purchase transaction, including transaction-related fees totaling $1.1 million, were accounted for as a reduction to additional paid-in capital and noncontrolling interest.
6. Acquisitions in fiscal year 2011
Jigsaw Data Corporation
In May 2010 the Company acquired for cash the stock of Jigsaw Data Corporation (Jigsaw), a cloud provider of crowd-sourced data services in the cloud. The Company acquired Jigsaw to combine the Companys CRM applications and enterprise cloud platform with Jigsaws cloud-based model for the automation of acquiring, completing and cleansing business contact data. The Company has included the financial results of Jigsaw in the consolidated financial statements from the date of acquisition. The total cash consideration for Jigsaw was approximately $148.5 million. In addition, the Company will potentially make additional payments (contingent consideration) totaling up to $14.4 million in cash, based on the achievement of certain billings targets related to Jigsaws services for the one-year period from May 8, 2010 through May 7, 2011. The estimated fair value using a discounted cash flow model of the contingent consideration at May 7, 2010 was $13.4 million and is included in the total purchase price. The Company has recorded and will record the fair value of the contingent consideration each reporting period based on Jigsaws achievement of meeting its billing targets as it relates to the contingent consideration. The Companys estimated fair value of the contingent consideration at January 31, 2011 was $14.1 million. The change in fair value of contingent consideration is recorded in general and administrative expenses.
The total preliminary purchase price and the fair value of the contingent consideration was allocated to the net tangible and intangible assets based upon their fair values as of May 7, 2010 as set forth below. The excess of the preliminary purchase price over the net tangible and intangible assets was recorded as goodwill. The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to both current and noncurrent deferred tax liabilities which are subject to change, pending the finalization of certain tax returns.
(in thousands) |
||||
Net tangible assets |
$ | 4,347 | ||
Intangible assets |
28,140 | |||
Deferred tax liability |
(3,864 | ) | ||
Goodwill |
133,254 | |||
Total purchase price |
$ | 161,877 | ||
80
The following table sets forth the components of intangible assets acquired in connection with the Jigsaw acquisition:
(in thousands) |
Fair value | Useful Life | ||||||
Developed service technology and database |
$ | 23,560 | 3 years | |||||
Customer relationships |
2,440 | 5 years | ||||||
Trade name and trademark |
2,140 | 3 years | ||||||
Total intangible assets subject to amortization |
$ | 28,140 | ||||||
Customer relationships represent the fair values of the underlying relationships and agreements with Jigsaws customers. Developed service technology and database represents the fair values of the Jigsaw technology and database that contains the business contact data. Trade name and trademark represents the fair values of brand and name recognition associated with the marketing of Jigsaws services. The goodwill balance is not deductible for tax purposes. The goodwill balance is primarily attributable to Jigsaws assembled workforce and the expected synergies and revenue opportunities when combining the business contact data within the Jigsaw solution with the Companys CRM cloud applications.
The fair value of intangible assets was based on the income approach. The acquisition costs which were expensed were not material.
Heroku, Inc.
In January 2011 the Company acquired for cash the stock of Heroku, Inc. (Heroku), a platform-as-a-service cloud vendor, built to work in an open environment and take advantage of the Ruby language. Ruby has become one of the leading development languages used for applications that are social, collaborative and deliver real-time access to information across mobile devices. The Company has included the financial results of Heroku in the consolidated financial statements from the date of acquisition. The total cash consideration for Heroku was approximately $216.7 million.
The total preliminary purchase price was allocated to the net tangible and intangible assets and liabilities based upon their fair values as of January 3, 2011 as set forth below. The excess of the preliminary purchase price over the net tangible and intangible assets was recorded as goodwill. The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to both current and noncurrent deferred tax liabilities which are subject to change, pending the finalization of certain tax returns.
(in thousands) |
||||
Net tangible assets |
$ | 5,411 | ||
Intangible assets |
40,060 | |||
Deferred tax liability |
(10,060 | ) | ||
Goodwill |
181,304 | |||
Total purchase price |
$ | 216,715 | ||
The following table sets forth the components of intangible assets acquired in connection with the Heroku acquisition:
(in thousands) |
Fair value | Useful life | ||||||
Developed technology |
$ | 39,280 | 3 years | |||||
Trade name and trademark |
780 | 3 years | ||||||
Total intangible assets subject to amortization |
$ | 40,060 | ||||||
81
Developed product technology represents the fair value of the Heroku platform technology. Trade name and trademark represents the fair values of brand and name recognition associated with the marketing of Herokus services. The goodwill balance is not deductible for tax purposes. The goodwill balance is primarily attributable to Herokus assembled workforce and the Companys ability to now access a large community of developers and independent software vendors (ISVs) who are building applications in the cloud using the Ruby language. Additionally, the goodwill balance also reflects the value of expanded market share opportunities that are expected to occur when combining the Companys cloud platform with Herokus platform and enhancing the joint platform to allow developers and ISVs the freedom to choose among a variety of programming languages.
The fair value of intangible assets was based on the cost approach using a replacement cost method to value the developed technology. The replacement cost method estimates the fair value based upon an estimate of the costs that would be incurred to replace the developed technology. The acquisition costs which were expensed were not material.
DimDim, Inc.
In January 2011 the Company acquired for cash the stock of DimDim, Inc. (DimDim), a provider of online meeting solutions for business collaboration. The Company has included the financial results of DimDim in the consolidated financial statements from the date of acquisition. The total cash consideration for DimDim was approximately $37.1 million.
The total preliminary purchase price was allocated to the net tangible and intangible assets based upon their fair values as of January 6, 2011 as set forth below. The excess of the preliminary purchase price over the net tangible and intangible assets was recorded as goodwill. The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to both current and noncurrent deferred tax liabilities which are subject to change, pending the finalization of certain tax returns.
(in thousands) |
||||
Net tangible assets |
$ | 1,951 | ||
Developed technology |
14,450 | |||
Deferred tax liability |
(2,648 | ) | ||
Goodwill |
23,373 | |||
Total purchase price |
$ | 37,126 | ||
The developed technology acquired in connection with the DimDim acquisition represents the fair value of the developed technology. The goodwill balance is not deductible for tax purposes. The goodwill balance is primarily attributable to DimDims assembled workforce and the expected synergies and expanded market leadership opportunities when integrating DimDims on-line meeting solution technology with the Companys collaboration cloud offering.
The fair value of intangible assets was based on the income approach. The acquisition costs which were expensed were not material.
Other Acquisitions
During fiscal 2011, the Company acquired three privately-held companies for $18.1 million in aggregate cash and $2.8 million in contingent consideration. The Company accounted for these transactions as business combinations. Of the $20.9 million, the Company allocated $10.0 million to acquired intangible assets with useful lives of 3 to 5 years and $10.3 million to goodwill. The goodwill balances are not deductible for tax purposes. These transactions were not material, individually or in aggregate.
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Intangible assets acquired resulting from the acquisitions described above as of January 31, 2011 are as follows (in thousands):
Gross Fair Value |
Accumulated Amortization |
Net Book Value |
Weighted Average Remaining Useful Life |
|||||||||||||
Acquired developed technology |
$ | 86,710 | $ | (9,324 | ) | $ | 77,386 | 2.7 years | ||||||||
Customer relationships |
2,990 | (412 | ) | 2,578 | 4.3 years | |||||||||||
Trade name and trademark |
2,920 | (557 | ) | 2,363 | 2.4 years | |||||||||||
$ | 92,620 | $ | (10,293 | ) | $ | 82,327 | ||||||||||
The expected future amortization expense for these intangible assets for each of the fiscal years ended thereafter is as follows (in thousands):
Fiscal Period: |
||||
Fiscal 2012 |
$ | 30,475 | ||
Fiscal 2013 |
30,475 | |||
Fiscal 2014 |
20,598 | |||
Fiscal 2015 |
598 | |||
Fiscal 2016 |
181 | |||
Total amortization expense |
$ | 82,327 | ||
Pro forma results of operations have not been presented because the effect of the acquisitions individually or in the aggregate were not significant.
7. Income Taxes
The domestic and foreign components of income before provision for income taxes and noncontrolling interest consisted of the following (in thousands):
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Domestic |
$ | 75,515 | $ | 125,095 | $ | 83,590 | ||||||
Foreign |
28,783 | 17,286 | 2,002 | |||||||||
$ | 104,298 | $ | 142,381 | $ | 85,592 | |||||||
The provision for income taxes consisted of the following (in thousands):
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 29,992 | $ | 43,313 | $ | 55,228 | ||||||
State |
6,276 | 8,788 | 7,701 | |||||||||
Foreign |
13,239 | 12,179 | 7,699 | |||||||||
Total |
49,507 | 64,280 | 70,628 | |||||||||
Deferred: |
||||||||||||
Federal |
(8,687 | ) | (4,506 | ) | (26,979 | ) | ||||||
State |
(4,745 | ) | (979 | ) | (5,372 | ) | ||||||
Foreign |
(1,474 | ) | (1,106 | ) | (720 | ) | ||||||
Total |
(14,906 | ) | (6,591 | ) | (33,071 | ) | ||||||
Provision for income taxes |
$ | 34,601 | $ | 57,689 | $ | 37,557 | ||||||
83
A reconciliation of income taxes at the statutory federal income tax rate to the provision for income taxes included in the accompanying consolidated statements of operations is as follows (in thousands):
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
U.S. federal taxes at statutory rate |
$ | 36,504 | $ | 49,833 | $ | 29,957 | ||||||
State, net of the federal benefit |
6,069 | 8,645 | 4,685 | |||||||||
Foreign losses providing no benefit |
0 | 0 | 3,091 | |||||||||
Foreign taxes in excess of the U.S. statutory rate |
3,412 | 6,748 | 3,537 | |||||||||
Tax credits |
(13,625 | ) | (9,845 | ) | (5,222 | ) | ||||||
Non-deductible expenses |
2,621 | 755 | 901 | |||||||||
Impact of California tax law change |
2,199 | 2,747 | 0 | |||||||||
Taxnoncontrolling interest |
(1,825 | ) | (1,390 | ) | 0 | |||||||
Other, net |
(754 | ) | 196 | 608 | ||||||||
$ | 34,601 | $ | 57,689 | $ | 37,557 | |||||||
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets and liabilities were as follows (in thousands):
As of January 31, | ||||||||
2011 | 2010 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carryforwards |
$ | 21,929 | $ | 5,284 | ||||
Deferred stock compensation |
31,872 | 30,451 | ||||||
Tax credits |
39,065 | 20,836 | ||||||
Deferred rent expense |
8,371 | 7,360 | ||||||
Accrued liabilities |
29,549 | 22,006 | ||||||
Deferred revenue |
9,727 | 10,802 | ||||||
Other |
4,508 | 4,798 | ||||||
Total deferred tax assets |
145,021 | 101,537 | ||||||
Less valuation allowance |
(1,142 | ) | (1,540 | ) | ||||
Net deferred tax assets |
143,879 | 99,997 | ||||||
Deferred tax liabilities: |
||||||||
Deferred commissions |
(27,739 | ) | (22,613 | ) | ||||
Purchased intangibles |
(24,856 | ) | (3,280 | ) | ||||
Unrealized gains on investments |
(5,005 | ) | (3,873 | ) | ||||
Depreciation and amortization |
(13,500 | ) | (229 | ) | ||||
Other |
(4,064 | ) | (2,307 | ) | ||||
Total deferred tax liabilities |
(75,164 | ) | (32,302 | ) | ||||
Net deferred tax assets |
$ | 68,715 | $ | 67,695 | ||||
Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. Accordingly, the deferred tax assets have been partially offset by a valuation allowance. The valuation allowance relates to net deferred tax assets from operating losses of certain foreign subsidiaries. The excess tax benefits associated with stock option exercises are recorded directly to stockholders equity controlling interest only when realized. As a result, the excess tax benefits included in net operating loss carryforwards but not reflected in deferred tax assets for fiscal year 2011 and 2010 are $80.6 million and $8.5 million, respectively.
84
At January 31, 2011, the Company had net operating loss carryforwards for federal income tax purposes of approximately $257.6 million, which expire in 2024 through 2031, federal research and development tax credits of approximately $25.8 million, which expire in 2020 through 2031, foreign tax credits of $3.6 million, which expires in 2019, and minimum tax credits of $0.7 million, which have no expiration date.
The Company also has state net operating loss carryforwards of approximately $308.5 million which expire beginning in 2013 and state research and development tax credits of approximately $21.8 million and $4.0 million of state enterprise zone tax credits, which do not expire.
Utilization of the Companys net operating loss carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before utilization.
The Company had gross unrecognized tax benefits of $27.5 million and $22.1 million as of January 31, 2011 and January 31, 2010 respectively.
A reconciliation of the beginning and ending balance of total unrecognized tax benefits for fiscal years 2011, 2010, and 2009 is as follows (in thousands):
Fiscal Year Ended January 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Balance as of February 1, |
$ | 22,053 | $ | 16,472 | $ | 11,771 | ||||||
Tax positions taken in prior period: |
||||||||||||
Gross increases |
41 | 457 | 17 | |||||||||
Gross decreases |
(811 | ) | (707 | ) | (148 | ) | ||||||
Tax positions taken in current period: |
||||||||||||
Gross increases |
8,047 | 5,401 | 5,955 | |||||||||
Settlements |
(39 | ) | (212 | ) | (149 | ) | ||||||
Lapse of statute of limitations |
(1,741 | ) | 0 | 0 | ||||||||
Currency translation effect |
(88 | ) | 642 | (974 | ) | |||||||
Balance as of January 31, |
$ | 27,462 | $ | 22,053 | $ | 16,472 | ||||||
For fiscal year 2011, 2010, and 2009 total unrecognized tax benefits in an amount of $20.4 million, $16.5 million and $11.8 million respectively, if recognized, would reduce income tax expense and the Companys effective tax rate.
The Company recognizes interest accrued and penalties related to unrecognized tax benefits in the income tax provision. The Company accrued no penalties and an immaterial amount of interest in income tax expense for fiscal 2011, 2010 and 2009.
Tax positions for the Company and its subsidiaries are subject to income tax audits by many tax jurisdictions throughout the world. The Companys U.S. federal and state tax returns for all tax years since February 1999, which was the inception of the Company, remain open to examination. With few exceptions, all tax years in most major jurisdictions, including Canada, United Kingdom and Australia, remain open for examinations, while Japan is open for examinations only for years after 2004. During the fiscal year ended January 31, 2011, the National Tax Agency of Japan completed the examination of the Companys fiscal 2010 tax return for Japan. No material adjustment was made as a result of the examination. Management does not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next twelve months. However, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.
85
8. Commitments
Letters of Credit
As of January 31, 2011, the Company had a total of $8.9 million in letters of credit outstanding substantially in favor of certain landlords for office space. These letters of credit renew annually and mature at various dates through September 2021.
Leases
The Company leases office space and equipment under non-cancelable operating and capital leases with various expiration dates.
As of January 31, 2011, the future minimum lease payments under non-cancelable operating and capital leases are as follows (in thousands):
Capital Leases |
Operating Leases |
|||||||
Fiscal Period: |
||||||||
Fiscal 2012 |
$ | 11,503 | $ | 107,343 | ||||
Fiscal 2013 |
5,818 | 101,527 | ||||||
Fiscal 2014 |
2,292 | 79,074 | ||||||
Fiscal 2015 |
0 | 47,126 | ||||||
Fiscal 2016 |
0 | 44,423 | ||||||
Thereafter |
0 | 119,791 | ||||||
Total minimum lease payments |
19,613 | $ | 499,284 | |||||
Less: amount representing interest |
(976 | ) | ||||||
Present value of capital lease obligation |
$ | 18,637 | ||||||
The terms of the lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on the straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Of the total operating lease commitment balance of $499.3 million, $436.9 million is related to facilities space. The remaining $62.3 million commitment is related to computer equipment and other leases.
The Companys agreements for the facilities and certain services provide the Company with the option to renew. The Companys future contractual obligations would change if the Company exercised these options.
Rent expense for fiscal 2011, 2010 and 2009 was $52.8 million, $47.3 million and $36.0 million, respectively.
9. Legal Proceedings
The Company is involved in various legal proceedings arising from the normal course of business activities, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment and other matters. The Company makes a provision for a liability related to legal proceedings when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. In managements opinion, resolution of these matters is not expected to have a material adverse impact on the Companys consolidated results of operations, cash flows or financial position. However, depending on the nature and timing of any such dispute, an unfavorable resolution of a matter could materially affect the Companys future results of operations or cash flows or both.
86
Many of the Companys subscription agreements require the Company to indemnify its customers for third-party intellectual property infringement claims, which could increase the cost to the Company of an adverse ruling on such a claim. Any adverse determination related to intellectual property claims or litigation could prevent the Company from offering its service to others, could be material to the Companys net income or cash flows or both or could otherwise adversely affect the Companys operating results.
10. Employee Benefit Plan
The Company has a 401(k) plan covering all eligible employees in the United States. Since January 1, 2006, the Company has been contributing to the plan. Total Company contributions during fiscal 2011, 2010 and 2009, were $11.0 million, $8.5 million and $6.7 million, respectively.
11. Related-Party Transactions
In January 1999, the salesforce.com/foundation, also referred to as the Foundation, a non-profit public charity, was chartered to build philanthropic programs that are focused on youth and technology. The Companys chairman is the chairman of the Foundation. He, one of the Companys employees and one of the Companys board members hold three of the Foundations seven board seats. The Company is not the primary beneficiary of the Foundations activities, and accordingly, the Company does not consolidate the Foundations statement of activities with its financial results.
Since the Foundations inception, the Company has provided at no charge certain resources to Foundation employees such as office space. The value of these items were in excess of $90,000 per quarter during fiscal year 2011.
In addition to the resource sharing with the Foundation, the Company issued the Foundation warrants in August 2002 to purchase shares of the Companys common stock. All of the warrants were exercised in prior years. As of January 31, 2011, the Foundation held 121,000 shares of salesforce.com common stock. Additionally, the Company has donated subscriptions to the Companys service to other qualified non-profit organizations. The Company also allows an affiliate of the Foundation to resell the Companys service to large non-profit organizations. The Company does not charge the affiliate for the subscriptions. The fair value of these and the subscriptions were in excess of $3.6 million per month during fiscal 2011. The Company currently plans to continue these programs.
87
12. Selected Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information for fiscal 2011 and 2010 is as follows:
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
Fiscal Year |
||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||
Fiscal 2011 |
||||||||||||||||||||
Revenues |
$ | 376,813 | $ | 394,372 | $ | 429,087 | $ | 456,867 | $ | 1,657,139 | ||||||||||
Gross profit |
305,232 | 316,582 | 346,956 | 364,556 | 1,333,326 | |||||||||||||||
Income (loss) from operations |
33,050 | 29,682 | 35,156 | (391 | ) | 97,497 | ||||||||||||||
Net income attributable to salesforce.com |
17,745 | 14,744 | 21,072 | 10,913 | 64,474 | |||||||||||||||
Basic net income per share attributable to salesforce.com common shareholders |
$ | 0.14 | $ | 0.11 | $ | 0.16 | $ | 0.08 | $ | 0.50 | ||||||||||
Diluted net income per share attributable to salesforce.com common shareholders |
$ | 0.13 | $ | 0.11 | $ | 0.15 | $ | 0.08 | $ | 0.47 | ||||||||||
Fiscal 2010 |
||||||||||||||||||||
Revenues |
$ | 304,924 | $ | 316,061 | $ | 330,549 | $ | 354,049 | $ | 1,305,583 | ||||||||||
Gross profit |
243,124 | 253,565 | 264,979 | 285,990 | 1,047,658 | |||||||||||||||
Income from operations |
30,123 | 29,489 | 30,141 | 25,519 | 115,272 | |||||||||||||||
Net income attributable to salesforce.com |
18,436 | 21,198 | 20,691 | 20,394 | 80,719 | |||||||||||||||
Basic net income per share attributable to salesforce.com common shareholders |
$ | 0.15 | $ | 0.17 | $ | 0.17 | $ | 0.16 | $ | 0.65 | ||||||||||
Diluted net income per share attributable to salesforce.com common shareholders |
$ | 0.15 | $ | 0.17 | $ | 0.16 | $ | 0.16 | $ | 0.63 |
88
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report (the Evaluation Date).
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on managements evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.
(b) Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31, 2011 based on the guidelines established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of January 31, 2011. We reviewed the results of managements assessment with our Audit Committee.
The effectiveness of our internal control over financial reporting as of January 31, 2011 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in Item 8 of this Annual Report on Form 10-K.
(c) Changes in internal control over financial reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended January 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
89
(d) Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. | OTHER INFORMATION |
Not applicable.
90
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE MATTERS |
The information concerning our directors, compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, our audit committee and any changes to the process by which stockholders may recommend nominees to the Board required by this Item are incorporated herein by reference to information contained in the Proxy Statement, including Directors and Corporate Governance and Section 16(a) Beneficial Ownership Reporting Compliance.
The information concerning our executive officers required by this Item is incorporated by reference herein to the section of this Report in Part I, entitled Executive Officers of the Registrant.
We have adopted a code of ethics, our Code of Conduct, that applies to all employees, including our principal executive officer, Marc Benioff, principal financial and accounting officer, Graham Smith, and all other executive officers. The Code of Conduct is available on our Web site at http://www.salesforce.com/company/investor/governance/. A copy may also be obtained without charge by contacting Investor Relations, salesforce.com, inc., The Landmark @ One Market, Suite 300, San Francisco, California 94105 or by calling (415) 901-7000.
We plan to post on our Web site at the address described above any future amendments or waivers of our Code of Conduct.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Item is incorporated herein by reference to information contained in the Proxy Statement, including Compensation Discussion and Analysis, Committee Reports, Directors and Corporate Governance and Executive Compensation and Other Matters.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this Item is incorporated herein by reference to information contained in the Proxy Statement, including Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and Equity Compensation Plan Information.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by this Item is incorporated herein by reference to information contained in the Proxy Statement, including Directors and Corporate Governance and Employment Contracts and Certain Transactions.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this Item is incorporated herein by reference to information contained in the Proxy Statement, including Ratification of Appointment of Independent Auditors.
91
PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as a part of this Report:
1. Financial Statements: The information concerning our financial statements, and Report of Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to the section of this Report in Item 8, entitled Consolidated Financial Statements and Supplementary Data.
2. Financial Statement Schedules: Schedule II Valuation and Qualifying Accounts is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements and Notes thereto.
The Financial Statement Schedules not listed have been omitted because they are not applicable or are not required or the information required to be set forth herein is included in the Consolidated Financial Statements or Notes thereto.
3. Exhibits: See Index to Exhibits.
(b) Exhibits. The exhibits listed below in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.
(c) Financial Statement Schedules.
salesforce.com, inc.
Schedule II Valuation and Qualifying Accounts
Description |
Balance at Beginning of Year |
Additions | Deductions Write-offs |
Balance at End of Year |
||||||||||||
Fiscal year ended January 31, 2011 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 1,050,000 | $ | 3,995,000 | $ | 3,334,000 | $ | 1,711,000 | ||||||||
Fiscal year ended January 31, 2010 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 1,527,000 | $ | 2,787,000 | $ | 3,264,000 | $ | 1,050,000 | ||||||||
Fiscal year ended January 31, 2009 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 906,000 | $ | 4,390,000 | $ | 3,769,000 | $ | 1,527,000 |
92
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: March 23, 2011
salesforce.com, inc. |
/s/ GRAHAM SMITH |
Graham Smith |
Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) |
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Marc Benioff, Graham Smith and David Schellhase, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this annual report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
Title |
Date | ||
/S/ MARC BENIOFF Marc Benioff |
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) |
March 23, 2011 | ||
/S/ GRAHAM SMITH Graham Smith |
Chief Financial Officer (Principal Financial & Accounting Officer) |
March 23, 2011 | ||
/S/ CRAIG CONWAY Craig Conway |
Director | March 23, 2011 | ||
/S/ ALAN HASSENFELD Alan Hassenfeld |
Director | March 23, 2011 | ||
/S/ CRAIG RAMSEY Craig Ramsey |
Director | March 23, 2011 | ||
/S/ SANFORD R. ROBERTSON Sanford R. Robertson |
Director | March 23, 2011 | ||
/S/ STRATTON SCLAVOS Stratton Sclavos |
Director | March 23, 2011 | ||
/S/ LAWRENCE TOMLINSON Lawrence Tomlinson |
Director | March 23, 2011 | ||
/S/ MAYNARD WEBB Maynard Webb |
Director | March 23, 2011 | ||
/S/ SHIRLEY YOUNG Shirley Young |
Director | March 23, 2011 |
93
Exhibit 2.1(1) |
Agreement and Plan of Merger dated as of December 7, 2010, by and among salesforce.com, inc., Hiiaka Acquisition Corporation, Heroku, Inc. and with respect to Articles VII, VIII and IX thereof only, John Connors as Stockholder Representative and U.S. Bank National Association as Escrow Agent | |
Exhibit 3.1(2) |
Restated Certificate of Incorporation of salesforce.com, inc. | |
Exhibit 3.2(3) |
Amended and Restated Bylaws of salesforce.com, inc. | |
Exhibit 4.1(2) |
Specimen Common Stock Certificate | |
Exhibit 4.2(4) |
Indenture between salesforce.com, inc. and U.S. Bank National Association, dated as of January 19, 2010 including the form of 0.75% Convertible Senior Notes due 2015 therein | |
Exhibit 10.1*(2) |
Form of Indemnification Agreement between salesforce.com, inc. and its officers and directors | |
Exhibit 10.2*(5) |
1999 Stock Option Plan, as amended | |
Exhibit 10.3*(6) |
2004 Equity Incentive Plan, as amended | |
Exhibit 10.4*(2) |
2004 Employee Stock Purchase Plan | |
Exhibit 10.5* |
2004 Outside Directors Stock Plan, as amended | |
Exhibit 10.6*(3) |
2006 Inducement Equity Incentive Plan | |
Exhibit 10.7*(7) |
Mahalo Bonus Plan | |
Exhibit 10.8**(5) |
Master Service Agreement dated May 17, 2005 between salesforce.com, inc. and Equinix, Inc. | |
Exhibit 10.9(8) |
Resource Sharing Agreement dated as of January 29, 2009 between salesforce.com, inc., salesforce.com foundation, and salesforce.org | |
Exhibit 10.10 |
Reseller Agreement dated as of January 30, 2009 between salesforce.com, inc and salesforce.org | |
Exhibit 10.11* |
Form of Offer Letter and schedule of omitted details thereto | |
Exhibit 10.12*(8) |
Form of Change of Control and Retention Agreement as entered into with Marc Benioff | |
Exhibit 10.13*(8) |
Form of Change of Control and Retention Agreement as entered into with Parker Harris, George Hu, Graham Smith, Jim Steele, Polly Sumner and Frank van Veenendaal | |
Exhibit 10.14*(8) |
Form of Change of Control and Retention Agreement as entered into with David Schellhase | |
Exhibit 10.15(4) |
Purchase Agreement dated January 12, 2010 between salesforce.com, inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers named in Schedule A thereto | |
Exhibit 10.16(4) |
Form of Convertible Bond Hedge Confirmation | |
Exhibit 10.17(4) |
Form of Warrant Confirmation | |
Exhibit 10.18** |
Agreement of Purchase and Sale and Joint Escrow Instructions dated as of October 21, 2010 by and between ARE-San Francisco No. 22, LLC and Bay Jacaranda No. 3334, LLC | |
Exhibit 10.19** |
Agreement of Purchase and Sale and Joint Escrow Instructions dated as of October 21, 2010 by and between ARE-San Francisco No. 16, LLC and Bay Jacaranda No. 2932, LLC |
Exhibit 10.20** |
Agreement of Purchase and Sale and Joint Escrow Instructions dated as of October 21, 2010 by and between ARE-San Francisco No. 19, LLC and Bay Jacaranda No. 2627, LLC | |
Exhibit 21.1 |
List of Subsidiaries | |
Exhibit 23.1 |
Consent of Independent Registered Public Accounting Firm | |
Exhibit 24.1 |
Power of Attorney. (See page 93) | |
Exhibit 31.1 |
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 31.2 |
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 32.1 |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 101.INS(9) |
XBRL Instance Document | |
Exhibit 101.SCH(9) |
XBRL Taxonomy Extension Schema Document | |
Exhibit 101.CAL(9) |
XBRL Taxonomy Extension Calculation Linkbase Document | |
Exhibit 101.DEF(9) |
XBRL Extension Definition | |
Exhibit 101.LAB(9) |
XBRL Taxonomy Extension Label Linkbase Document | |
Exhibit 101.PRE(9) |
XBRL Taxonomy Extension Presentation Linkbase Document |
* | Denotes a management contract or compensatory plan or arrangement. |
** | Confidential treatment has been requested for a portion of this exhibit. |
(1) | Incorporated by reference from the companys Form 8-K as filed with the Securities and Exchange Commission on December 8, 2010. |
(2) | Incorporated by reference from the Companys registration statement on Form S-1 (No. 333-111289), Amendment No. 3, as filed with the Securities and Exchange Commission on April 20, 2004. |
(3) | Incorporated by reference from the Companys Form 8-K as filed with the Securities and Exchange Commission on January 14, 2011. |
(4) | Incorporated by reference from the companys Form 8-K as filed with the Securities and Exchange Commission on January 19, 2010. |
(5) | Incorporated by reference from the Companys Form 10-K for the annual period ended January 31, 2006 as filed with the Securities and Exchange Commission on March 15, 2006. |
(6) | Incorporated by reference from the Companys Form 10-Q for the quarterly period ended July 31, 2006 as filed with the Securities and Exchange Commission on August 18, 2006. |
(7) | Incorporated by reference from the Companys Form 10-Q for the quarterly period ended July 31, 2009 as filed with the Securities and Exchange Commission on August 25, 2009. |
(8) | Incorporated by reference from the Companys Form 10-K for the annual period ended January 31, 2010 as filed with the Securities and Exchange Commission on March 11, 2010. |
(9) | The financial information contained in these XBRL documents is unaudited and these are not the official publicly filed financial statements of salesforce.com, inc. The purpose of submitting these XBRL documents is to test the related format and technology, and, as a result, investors should continue to rely on the official filed version of the furnished documents and not rely on this information in making investment decisions. In accordance with Rule 402 of Regulation S-T, the information in these exhibits shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
Exhibit 10.5
salesforce.com, inc.
2004 Outside Directors Stock Plan
(As Amended and Restated March 8, 2011)
1. | ESTABLISHMENT, PURPOSE AND TERM OF PLAN. |
1.1 Establishment. The salesforce.com, inc. 2004 Outside Directors Stock Plan (the Plan) was established effective as of March 1, 2004, the date of its approval by the stockholders of the Company (the Effective Date).
1.2 Purpose. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services as Outside Directors of the Company and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Restricted Stock, and Restricted Stock Units.
1.3 Term of Plan. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Awards granted under the Plan have lapsed. However, all Awards shall be granted, if at all, within ten (10) years from the Effective Date.
2. | DEFINITIONS AND CONSTRUCTION. |
2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) Award means any Option, Restricted Stock or Restricted Stock Unit granted under the Plan.
(b) Award Agreement means a written agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Award granted to the Participant. An Award Agreement may be an Option Agreement, a Restricted Stock Agreement or a Restricted Stock Units Agreement.
(c) Board means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, Board also means such Committee(s).
(d) Code means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
(e) Committee means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law.
(f) Company means salesforce.com, inc., a Delaware corporation, or any successor corporation thereto.
(g) Consultant means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to a Participating Company.
(h) Director means a member of the Board or of the board of directors of any other Participating Company.
(i) Disability means the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code.
(j) Dividend Equivalent means a credit, made at the discretion of the Board or as otherwise provided by the Plan, to the account of a Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant.
(k) Employee means any person treated as an employee (including an officer of the Company or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a directors fee shall be sufficient to constitute employment for purposes of the Plan.
(l) Exchange Act means the Securities Exchange Act of 1934, as amended.
(m) Fair Market Value means, as of any date, the value of a share of Stock or other property as determined by the Board, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
(i) If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the New York Stock Exchange or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its discretion.
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(ii) If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Board in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse.
(n) Inside Director means a director who is an Employee.
(o) Officer means any person designated by the Board as an officer of the Company.
(p) Option means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. Each Option shall be a nonstatutory stock option, that is an option not intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code.
(q) Outside Director means a Director of the Company who is not an Employee or a Consultant.
(r) Outside Director Stock Award means Stock granted to a Participant pursuant to Section 6 of the Plan.
(s) Parent Corporation means any present or future parent corporation of the Company, as defined in Section 424(e) of the Code.
(t) Participant means any eligible person who has been granted one or more Awards.
(u) Participating Company means the Company or any Parent Corporation or Subsidiary Corporation.
(v) Participating Company Group means, at any point in time, all corporations collectively which are then Participating Companies.
(w) Restriction Period means the period established in accordance with Section 8.2 of the Plan during which shares subject to a Restricted Stock Award are subject to Vesting Conditions.
(x) Restricted Stock means Stock granted to a Participant pursuant to Section 6 or Section 8 of the Plan.
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(y) Restricted Stock Unit means a bookkeeping entry representing a right granted to a Participant pursuant to Section 9 of the Plan to receive a share of Stock on a date determined in accordance with the provisions of Section 9 and the Participants Award Agreement.
(z) Rule 16b-3 means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
(aa) Securities Act means the Securities Act of 1933, as amended.
(bb) Service means a Participants employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director, or a Consultant. A Participants Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders Service to the Participating Company Group or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participants Service. Furthermore, a Participants Service shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under a Participants Award Agreement. A Participants Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether a Participants Service has terminated and the effective date of such termination.
(cc) Stock means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2.
(dd) Subsidiary Corporation means any present or future subsidiary corporation of the Company, as defined in Section 424(f) of the Code.
(ee) Vesting Conditions mean those conditions established in accordance with Section 8.2 or Section 9.2 of the Plan prior to the satisfaction of which shares of Restricted Stock or Restricted Stock Units remain subject to forfeiture to the Company upon the Participants termination of Service.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term or is not intended to be exclusive, unless the context clearly requires otherwise.
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3. | ADMINISTRATION. |
3.1 Administration by the Board. The Plan shall be administered by the Board, including any duly appointed Committee of the Board. At any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3. All questions of interpretation of the Plan or of any Award shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Award.
3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
3.3 Powers of the Board. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock or units to be subject to each Award;
(b) to determine the type of Award granted;
(c) to determine the Fair Market Value of shares of Stock or other property;
(d) to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares purchased pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the time of the expiration of any Award, (vi) the effect of the Participants termination of Service on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Award Agreement;
(f) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto;
(g) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participants termination of Service;
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(h) to prescribe, amend or rescind rules, guidelines and policies relating to the plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws or regulations of or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards; and
(i) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Board may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.
3.4 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
4. | SHARES SUBJECT TO PLAN. |
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be one million (1,000,000) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company at the Participants purchase price, the shares of Stock allocable to the terminated portion of such Award or such forfeiture or repurchased shares of Stock shall again be available for issuance under the Plan. Shares of Stock shall not be deemed to have been issued pursuant to the Plan to the extent such shares are withheld in satisfaction of tax withholding obligations pursuant to Section 13.2. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, the number of shares available for issuance under the Plan shall be reduced by the net number of shares for which the Option is exercised.
4.2 Adjustments for Changes in Capital Structure. Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization,
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reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Awards, and in the exercise per share under any outstanding Award in order to prevent dilution or enlargement of Participants rights under the Plan. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as effected without receipt of consideration by the Company. Any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise or purchase price under any Award be decreased to an amount less than the par value, if any, of the stock subject to such Award. The adjustments determined by the Committee pursuant to this Section 4.2 shall be final, binding and conclusive.
5. | ELIGIBILITY FOR PARTICIPATION. |
Only those persons who, at the time of grant, are serving as Outside Directors shall be eligible to become Participants and to be granted an Award.
6. | TERMS AND CONDITIONS OF OUTSIDE DIRECTOR STOCK AWARDS. |
Outside Director Stock Awards shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions and those terms and conditions set forth in Section 8 which are not inconsistent with the following:
6.1 Automatic Grant of Outside Director Stock Awards. On the fourth Tuesday of the first month of each fiscal quarter of the Company during which the Outside Director serves on the Board and provided he or she served on the Board during any portion of the immediately preceding fiscal quarter, the Outside Director shall be granted automatically and without further action of the Board an Outside Director Stock Award consisting of 800 shares of Stock in consideration for the Participants service as a Director during the preceding fiscal quarter, provided that his or her Service has not terminated prior to such date (provided further, that, with respect to the Outside Director Stock Awards granted on or after September 14, 2010 but prior to May 25, 2011, such stock awards will be in the amount of 1,500 shares ). Notwithstanding the foregoing, a Participant may elect not to receive an Outside Director Stock Award by delivering written notice of such election to the Board no later than the day prior to the date such Outside Director Stock Award would otherwise be granted. A Participant so declining an Outside Director Stock Award shall receive no payment or other consideration in lieu of such declined Award. A Participant who has declined an Outside Director Stock Award may revoke such election by delivering written notice of such revocation to the Board no later than the day prior to the date such Award would be granted pursuant this Section. The Board in its discretion may change and
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otherwise revise the terms of Outside Director Stock Awards granted under this Section 6.1, including, without limitation, the number of units subject thereto, for Outside Director Stock Awards granted on or after the date the Board determines to make any such change or revision.
6.2 Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall be required as a condition of receiving an Outside Director Stock Award, the consideration for which shall be services actually rendered to the Company or for its benefit during the preceding fiscal quarter of the Company;
6.3 Vesting. The shares of Stock granted pursuant to an Outside Director Stock Award shall be fully vested on the date of grant.
7. | TERMS AND CONDITIONS OF OPTIONS. |
Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Award Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
7.1 Exercise Price. The exercise price for each Option shall be the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner that would qualify under the provisions of Section 424(a) of the Code.
7.2 Exercisability and Term of Options. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Board and set forth in the Award Agreement evidencing such Option; provided, however, that no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option. Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option granted hereunder shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.
7.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant having a Fair Market Value not less than the exercise price, (iii) by delivery of a properly executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of
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Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a Cashless Exercise), (iv) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (v) by any combination thereof. The Board may at any time or from time to time, by approval of or by amendment to the standard forms of Award Agreement described in Section 10, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.
(b) Limitations on Forms of Consideration.
(i) Tender of Stock. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Companys stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for more than six (6) months (and not used for another Option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
(ii) Cashless Exercise. The Company reserves, at any and all times, the right, in the Companys sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise, including with respect to one or more Participants specified by the Company notwithstanding that such program or procedures may be available to other Participants.
7.4 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Board in the grant of an Option and set forth in the Award Agreement, an Option shall be exercisable after a Participants termination of Service only during the applicable time period determined in accordance with this Section 7.4 and thereafter shall terminate:
(i) Disability. If the Participants Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participants Service terminated, may be exercised by the Participant (or the Participants guardian or legal representative) at any time prior to the expiration of one (1) year (or such longer period of time as determined by the Board, in its discretion) after the date on which the Participants Service terminated, but in any event no later than the date of expiration of the Options term as set forth in the Award Agreement evidencing such Option (the Option Expiration Date).
(ii) Death. If the Participants Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participants Service terminated, may be exercised by the Participants legal representative or other person who acquired the right to exercise the Option by reason of the Participants death at any
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time prior to the expiration of one (1) year (or such longer period of time as determined by the Board, in its discretion) after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date. The Participants Service shall be deemed to have terminated on account of death if the Participant dies within ninety (90) days (or such longer period of time as determined by the Board, in its discretion) after the Participants termination of Service.
(iii) Termination After Change in Control. If the Participants Service terminates for any reason except Disability or death upon or within one (1) year following a Change in Control (a Termination After Change in Control), then the Option (unless terminated pursuant to Section 11.2), to the extent unexercised and exercisable on the date on which the Participants Service terminated, may be exercised by the Participant (or the Participants guardian or legal representative) at any time prior to the expiration of one hundred eighty (180) days (or such longer period of time as determined by the Board, in its discretion) after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date.
(iv) Other Termination of Service. If the Participants Service terminates for any reason, except Disability, death or Termination After Change in Control, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participants Service terminated, may be exercised by the Participant at any time prior to the expiration of ninety (90) days (or such longer period of time as determined by the Board, in its discretion) after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth in Section 7.4(a) is prevented by the provisions of Section 12 below, the Option shall remain exercisable until ninety (90) days (or such longer period of time as determined by the Board, in its discretion) after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.
(c) Extension if Participant Subject to Section 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.4(a) of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participants termination of Service, or (iii) the Option Expiration Date.
7.5 Transferability of Options. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participants guardian or legal representative. Prior to the issuance of shares of Stock upon the exercise of an Option, the Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the
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extent permitted by the Board, in its discretion, and set forth in the Award Agreement evidencing such Option, an Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 Registration Statement under the Securities Act.
7.6 Automatic Grant of Options. Each Outside Director who first becomes an Outside Director prior to September 14, 2010 shall be granted automatically and without further action of the Board an Option to purchase 15,000 shares of Stock on the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive such Option. The Option shall become exercisable as to twenty-five percent of the shares of Stock subject to the Option on the one (1) year anniversary of its grant date and as to one forty-eighth (1/48) of the shares of Stock subject to the Option each month thereafter, so as to be 100% vested on the four year anniversary of the grant date, provided that the Optionee continues to serve as an Outside Director on such dates. The Board in its discretion may change and otherwise revise the terms of Options granted under this Section 7.6, including, without limitation, the number of shares of Stock and exercise prices thereof, for Options granted on or after the date the Board determines to make any such change or revision.
8. | TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. |
Restricted Stock Awards shall be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award, in such form as the Board shall from time to time establish. No Restricted Stock Award or purported Restricted Stock Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Award Agreements evidencing Restricted Stock may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
8.1 Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall be required as a condition of receiving shares of Restricted Stock, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Restricted Stock subject to such Award.
8.2 Vesting and Restrictions on Transfer. Shares issued pursuant to any Restricted Stock Award may or may not be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria as shall be established by the Board and set forth in the Award Agreement evidencing such Award. During any Restriction Period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an Ownership Change Event, as defined in Section 11.1, or as provided in Section 8.5. Upon request by the Company, each Participant shall
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execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Restricted Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Restricted Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
8.3 Voting Rights; Dividends and Distributions. Except as provided in this Section, Section 8.2 and any Award Agreement, during the Restriction Period applicable to shares subject to a Restricted Stock Award, the Participant shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. However, in the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, then any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant is entitled by reason of the Participants Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.
8.4 Effect of Termination of Service. Unless otherwise provided by the Board in the grant of a Restricted Stock Award and set forth in the Award Agreement, if a Participants Service terminates for any reason, whether voluntary or involuntary (including the Participants death or disability), then the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to a Restricted Stock Award which remain subject to Vesting Conditions as of the date of the Participants termination of Service.
8.5 Nontransferability of Restricted Stock Award Rights. Prior to the issuance of shares of Stock pursuant to a Restricted Stock Award, rights to acquire such shares shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or the laws of descent and distribution. All rights with respect to a Restricted Stock Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participants guardian or legal representative.
9. | TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARDS. |
Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the Award, in such form as the Board shall from time to time establish. No Restricted Stock Unit Award or purported Restricted Stock Unit Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Award Agreements evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
9.1 Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which shall be services actually rendered to a Participating Company or for its benefit.
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9.2 Vesting. Restricted Stock Units may or may not be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, as shall be established by the Board and set forth in the Award Agreement evidencing such Award.
9.3 Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Board, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Stock having a record date prior to date on which Restricted Stock Units held by such Participant are settled. Such Dividend Equivalents, if any, shall be paid by crediting the Participant with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock. The number of additional Restricted Stock Units (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. Such additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time (or as soon thereafter as practicable) as the Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, appropriate adjustments shall be made in the Participants Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions as are applicable to the Award.
9.4 Effect of Termination of Service. Unless otherwise provided by the Board in the grant of a Restricted Stock Unit Award and set forth in the Award Agreement, if a Participants Service terminates for any reason, whether voluntary or involuntary (including the Participants death or disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant to the Award which remain subject to Vesting Conditions as of the date of the Participants termination of Service.
9.5 Settlement of Restricted Stock Unit Awards. The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participants Restricted Stock Unit Award vest or on such other settlement date determined by the Board, in its discretion, and set forth in the Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 9.3) for each Restricted
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Stock Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes, if any. Notwithstanding the foregoing, if permitted by the Board and set forth in the Award Agreement, the Participant may elect in accordance with terms specified in the Award Agreement to defer receipt of all or any portion of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section.
9.6 Nontransferability of Restricted Stock Unit Awards. Prior to the issuance of shares of Stock in settlement of a Restricted Stock Unit Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Restricted Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participants guardian or legal representative.
9.7 Automatic Grant of Restricted Stock Unit Awards. Each Outside Director who first becomes an Outside Director prior to September 14, 2010 shall be granted automatically and without further action of the Board a Restricted Stock Unit Award covering 5,000 units on the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive such a Restricted Stock Unit Award. The Restricted Stock Unit Award shall vest as to twenty-five percent of the units subject to the Restricted Stock Unit Award on the one (1) year anniversary of its grant date and as to one-sixteenth (1/16) of the units originally subject to the Restricted Stock Unit Award each quarter thereafter, so as to be 100% vested on the four year anniversary of the grant date, provided that the Optionee continues to serve as an Outside Director on such dates. The Board in its discretion may change and otherwise revise the terms of Restricted Stock Unit Awards granted under this Section 9.7, including, without limitation, the number of units subject thereto, for Restricted Stock Unit Awards granted on or after the date the Board determines to make any such change or revision.
10. | STANDARD FORMS OF AWARD AGREEMENT. |
10.1 Award Agreement. Each Award shall comply with and be subject to the terms and conditions set forth in the appropriate form of Award Agreement approved by the Board and as amended from time to time. Any Award Agreement may consist of an appropriate form of Notice of Grant and a form of Agreement incorporated therein by reference, or such other form or forms as the Board may approve from time to time.
10.2 Authority to Vary Terms. The Board shall have the authority from time to time to vary the terms of any standard form of Award Agreement either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Award Agreement are not inconsistent with the terms of the Plan.
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11. | CHANGE IN CONTROL. |
11.1 Definitions.
(a) An Ownership Change Event shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.
(b) A Change in Control shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a Transaction) wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Companys voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction described in Section 11.1(a)(iii), the corporation or other business entity to which the assets of the Company were transferred (the Transferee), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.
11.2 Effect of Change in Control on Options.
(a) Accelerated Vesting. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control, each Option held by a Participant whose Service has not terminated prior to the date of such Change in Control shall become immediately exercisable and vested in full as of such date, subject to the consummation of the Change in Control.
(b) Assumption or Substitution. In the event of a Change in Control, the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be (the Acquiror), may, without the consent of any Participant, either assume the Companys rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquirors stock. Any Options which are not assumed by the Acquiror in connection with the Change in Control nor exercised as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.
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(c) Cash-Out of Options. The Board may, in its sole discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Option outstanding immediately prior to the Change in Control shall be canceled in exchange for a payment with respect to each vested share of Stock subject to such canceled Option in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the excess of the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control over the exercise price per share under such Option (the Spread). In the event such determination is made by the Board, the Spread (reduced by applicable withholding taxes, if any) shall be paid to Participants in respect of their canceled Options as soon as practicable following the date of the Change in Control.
11.3 Effect of Change in Control on Restricted Stock Awards. The Board may, in its discretion, provide in any Award Agreement evidencing a Restricted Stock Award that, in the event of a Change in Control, the lapsing of the Restriction Period applicable to the shares subject to the Restricted Stock Award held by a Participant whose Service has not terminated prior to such date shall be accelerated effective immediately prior to the consummation of the Change in Control to such extent as specified in such Award Agreement. Any acceleration of the lapsing of the Restriction Period that was permissible solely by reason of this Section 11.3 and the provisions of such Award Agreement shall be conditioned upon the consummation of the Change in Control.
11.4 Restricted Stock Unit Award Acceleration. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control, each Restricted Stock Unit Award held by a Participant whose Service has not terminated prior to the date of such Change in Control shall become immediately vested in full as of such date, subject to the consummation of the Change in Control.
12. | COMPLIANCE WITH SECURITIES LAW. |
The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award unless (i) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award or (ii) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Companys legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
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13. | TAX WITHHOLDING. |
13.1 Tax Withholding in General. The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise of an Option, to make adequate provision for, the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to an Award or the shares acquired pursuant thereto. The Company shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Groups tax withholding obligations have been satisfied by the Participant.
13.2 Withholding in Shares. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of the Participating Company Group. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates.
14. | AMENDMENT OR TERMINATION OF PLAN. |
The Board may amend, suspend or terminate the Plan at any time. However, without the approval of the Companys stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2) and (b) no other amendment of the Plan that would require approval of the Companys stockholders under any applicable law, regulation or rule. No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Board. In any event, no amendment, suspension or termination of the Plan may adversely affect any then outstanding Award without the consent of the Participant unless necessary to comply with any applicable law, regulation or rule.
15. | MISCELLANEOUS PROVISIONS. |
15.1 Repurchase Rights. Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Board in its discretion at the time the Award is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
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15.2 Provision of Information. Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Companys common stockholders.
15.3 Rights as Outside Director. No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Outside Director, or interfere with or limit in any way any right of a Participating Company to terminate the Participants Service at any time.
15.4 Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.2 or another provision of the Plan.
15.5 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.
15.6 Severability. If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.
15.7 Beneficiary Designation. Subject to local laws and procedures, each Participant may file with the Company a written designation of a beneficiary who is to receive any benefit under the Plan to which the Participant is entitled in the event of such Participants death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participants lifetime. If a married Participant designates a beneficiary other than the Participants spouse, the effectiveness of such designation may be subject to the consent of the Participants spouse. If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participants death, the Company will pay any remaining unpaid benefits to the Participants legal representative.
15.8 Unfunded Obligation. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment
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obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Board or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participants creditors in any assets of any Participating Company. The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.
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Exhibit 10.10
RESELLER AGREEMENT
This Reseller Agreement (the Agreement) is entered into as of January 30, 2009 (the Effective Date) by and between salesforce.org, a California nonprofit public benefit corporation with its principal place of business at The Landmark @ One Market, Suite 300, San Francisco, California 94105 (Reseller), and salesforce.com, inc., a company incorporated in Delaware with its principal place of business at the Landmark @ One Market, Suite 300, San Francisco, California 94105 (SFDC) .
1. |
Definitions |
(a) |
AppExchange means the online directory of on-demand applications that integrate with the Service, located at http://www.salesforce.com/appexchange/ or at any successor websites. |
(b) |
Basic Support means the customer support service to be offered by SFDC as part of the Service to Customers to facilitate a Customers use of the Service, as set forth in Section 8. |
(c) |
Customer means |
(i) |
any organization that has received a determination letter from the U.S. Internal Revenue Service verifying that it qualifies for 501(c)(3) status; |
(ii) |
any charitable organization located outside the United States that has received a determination in its home jurisdiction substantially equivalent to that described in subpart (i) above; |
(iii) |
any for-profit corporation that meets comprehensive and transparent social and/or environmental standards as agreed in writing by Reseller and SFDC from time to time, including, for example, B Corporations and microfinance institutions; |
(iv) |
non-profit or public institutions whose primary purpose is educational, including, for example, colleges and universities; and |
(v) |
any division or business unit of a for-profit corporation, which division or business unit would qualify under subpart (iii) above or the primary mission of which is charitable or philanthropic. |
Customers do not include accounts that Reseller determines that it cannot accommodate due to the size and complexity of the potential business relationship.
(d) |
Order Form means the ordering documents representing the initial purchase of the Service as well as any subsequent purchases agreed to between SFDC and Reseller in writing from time to time, in the form of Exhibit C hereto, that are executed hereunder and deemed incorporated herein from time to time and that specify, among other things, the number of subscriptions ordered, the subscription term and the applicable fees. |
(e) |
Service means the editions specified in Exhibit A hereto of the online, Web-based application provided by SFDC via http://www.salesforce.com and/or other designated websites, including associated offline components but excluding AppExchange |
applications, as described by the User Guide. The parties may agree to amend Exhibit A from time to time in accordance with Section 17(h).
(f) |
Support means the customer support service packages offered by SFDC from time to time to facilitate a Customers use of the Service, and described at http://www.salesforce.com or other designated websites as provided by SFDC. |
(g) |
Territory means North America, Latin America and the Caribbean. |
(h) |
User Guide means the online user guide for the Service, accessible via http://www.salesforce.com, as updated from time to time. |
(i) |
Users means a Customers employees, representatives, consultants, contractors or agents who are authorized to use the Service and have been supplied user identifications and passwords by Customer (or by SFDC or Reseller at Customers request). |
2. |
Resale Rights and Obligations. |
(a) |
Authorization to Resell. SFDC hereby grants to Reseller the nonexclusive, nontransferable, nonsublicensable right to resell the Service to Customers in the Territory. |
(b) |
No Sub-Distributors. Reseller shall not authorize any other company or entity to resell the Service (for example, as a sub-distributor) without SFDCs prior written consent. |
(c) |
Customer Agreements. Reseller must ensure that each Customer has entered into a written agreement with Reseller containing the end user subscription terms set forth in Exhibit B, before an order for that Customer is submitted to SFDC. |
(d) |
One Edition per Customer Contract. Reseller shall not permit any Customer to subscribe to more than one edition of the Service (for example, Professional Edition, Team Edition or Enterprise Edition) under a single contract or in a single org. |
(e) |
Internal Use Subscription. During the term of this Agreement, Reseller shall purchase and maintain subscriptions for the Enterprise Edition of the Service for Resellers own internal use in a quantity at least equal to the total number of Resellers SFDC-dedicated employees targeted for that year. Pricing for such internal use licenses shall be mutually agreed upon in writing in an applicable Order Form. This Agreement does not otherwise grant Reseller any internal use subscription for the Service or Support. |
3. |
Marketing Rights and Obligations. |
(a) |
Authorization to Demonstrate and Market. SFDC hereby grants to Reseller the nonexclusive, nontransferable, nonsublicensable right to demonstrate and market the Service and Basic Support to Customers in the Territory during the term of this Agreement. |
(b) |
Press Releases. Each party may issue a press release announcing the relationship contemplated under this Agreement, provided each such press release shall be subject to the other partys prior written approval, not to be unreasonably withheld or delayed. |
(c) |
Promotion of Service. Reseller shall propose a SFDC-based solution to all of its Customers that lack an existing CRM solution. |
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(d) |
Compliance with Laws and Ethical and Brand Representation Standards. Reseller shall comply with all applicable laws and regulations in its marketing activities hereunder and shall not engage in any deceptive, misleading, illegal or unethical marketing activities that may be detrimental to SFDC or the Service. Additionally, Reseller shall present SFDC and the Service to Customers and the public and perform its obligations hereunder in a manner that in SFDCs judgment reflects well upon SFDC and its brands. Reseller shall comply in all respects with the U.S. Foreign Corrupt Practices Act (the Act) in its activities under this Agreement and shall promptly inform SFDC in writing upon becoming aware of any violations of the Act in connection with this Agreement. Without limiting the foregoing, Reseller warrants that it has not offered or paid, and will not offer or pay, any money or anything else of value, to any person for the purpose of securing any improper advantage in violation of the Act or other applicable law. |
(e) |
Representations to Customers. Reseller shall not make any representations, warranties or guarantees to Customer concerning the Service or Support that are inconsistent with or in addition to those made in this Agreement, in the User Guide, or in SFDCs published marketing materials. |
(f) |
Trademark Usage Guidelines. Reseller shall comply at all times with SFDCs Trademark usage guidelines as published by SFDC from time to time. |
(g) |
Branding Elements; Co-Branding. Reseller shall not alter any SFDC branding elements in the Service or any marketing materials. Reseller shall not co-brand the Service or Support without SFDCs prior written consent, provided, however, Reseller may co-brand Reseller-developed customizations to the Service. All such Reseller-developed customizations shall be subject to SFDCs approval before they are made available to customers or prospects. Reseller shall not distribute any marketing or other materials containing SFDC branding elements, other than materials produced by SFDC, without SFDCs prior written approval of such materials. |
4. |
Activation of the Service. Upon receipt of an order for the Service and/or Support from a Customer, Reseller shall submit to SFDC (i) a completed Order Form, in the form attached as Exhibit C or in another form as agreed by SFDC and Reseller, signed by Reseller, (ii) a Reseller purchase order, and (iii) a copy of the related ordering document, signed by the Customer. SFDC will use commercially reasonable efforts to activate all SFDC approved orders received by 5:00 p.m. San Francisco time on an SFDC business day, by 5:00 p.m. San Francisco time on the second SFDC business day thereafter. |
5. |
User Subscription Duration and Renewal. User subscriptions sold by Reseller under new contracts with Customers must be for a minimum of one year. Add-on User subscriptions sold by Reseller under an existing contract with a Customer shall co-terminate with the existing User subscriptions under that contract. All Customer contracts shall provide for continuing automatic renewal of User subscriptions for a period of at least one year, except as otherwise approved in writing by SFDC in each instance. Reseller will clearly indicate on each Order Form submitted to SFDC pursuant to Section 4 above, via check box or other explicit manner, whether the order is subject to automatic renewal. SFDC will use commercially reasonable efforts to send notices of pending contract expirations to Reseller no less than 60 days in advance of the respective contract expiration dates. If a Customer wishes to cancel automatic renewal of a User subscription, Reseller shall notify so SFDC no later than 30 days before the end date of the User subscription. |
6. |
Fees. |
(a) |
No SFDC Fees to Reseller. SFDC shall not charge any fees to Reseller for subscriptions ordered and Service provided pursuant to this Agreement. |
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(b) |
Resellers Fees to Customer. Reseller is free to charge Customer whatever fees it deems appropriate for the Service. Resellers subscription fees for the Service shall include Basic Support. Reseller shall not unbundle Basic Support from the Service or otherwise charge Customers for Basic Support. |
(c) |
Suggested List Price. SFDC may, in its discretion, publish a Suggested List Price, or similar price description, which lists the prices that it suggests are appropriate for sale of the Service and/or Support to end users. Reseller is under no obligation to charge the Suggested List Prices to a Customer. |
(d) |
Taxes. Reseller is responsible for paying all direct or indirect local, state, federal or foreign taxes, levies, duties or similar governmental assessments of any nature, including value-added, or use taxes associated with its orders or sales pursuant to this Agreement, excluding taxes based on SFDCs net income or property |
7. |
Invoicing and Payment. |
(a) |
Reseller Responsible for Invoicing Customer. Reseller is solely responsible for collecting all fees due from Customers for the Service, and for Support as applicable, and shall invoice Customer directly for such fees. |
(b) |
Suspension of Service/Assumption of Customer Account. If a Customers account is 30 days or more overdue or if a Customer breaches the End User Subscription Terms in Exhibit B, in addition to any of its other rights or remedies, SFDC may suspend the Service and Support or Reseller may request that SFDC suspend the Service and Support provided to the applicable Customer, without liability assumed by SFDC, until such amounts are paid in full or the Customer has resumed full compliance with the End User Subscription Terms. |
8. |
Support. If Reseller is contacted by a User seeking support assistance for the Service, Reseller shall immediately refer such User to SFDC at support@salesforce.com. Reseller acknowledges that its immediate referral of Customer support cases to SFDC is critical to SFDCs ability to timely provide Support to Users. |
(a) |
Basic Support. SFDC shall provide all Basic Support to Customers and their Users as set forth at http://www.salesforce.com/services-training/customer-support/basic/. |
(b) |
Upgraded Support Packages. Reseller may refer Customers to SFDC for SFDCs upgraded (i.e., other than Basic Support) Support offerings. Reseller shall not offer any such upgraded SFDC Support packages to Customers without SFDCs prior written consent. |
9. |
Professional Services. |
(a) |
General. Reseller may provide implementation, customization, consulting or other professional services relating to the Service, subject to the following. Alternatively, Reseller and its Customers may contract with SFDC for provision of professional services. |
(b) |
Quality. If Reseller provides implementation, customization, consulting or other professional services relating to the Service, Reseller shall provide such services in a timely and professional manner and in accordance with the highest professional standards. Reseller agrees that only Resellers consultants who are SFDC Authorized (as defined below) will deliver Reseller professional services relating to the Service. |
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Reseller will ensure that such consultants have the experience, skills and knowledge necessary to successfully perform the work.
(c) |
SFDC Authorization. SFDC Authorized is a designation granted to individual Reseller consultants who have successfully completed an SFDC consultant training workshop and passed related tests and who meet certification maintenance requirements. The SFDC certification process currently includes: (i) completion of training workshop prerequisites, such as participation in SFDCs online user and administrator training classes; (ii) attendance at and completion of an SFDC consultant training workshop (lasting typically 5 days); and (iii) successful completion of a certification test and case study. Certification maintenance requirements include ongoing adherence to the consulting delivery quality standards set by SFDC for engagements and successful completion of certification maintenance classes and tests. SFDC may, from time to time, modify or add certification prerequisites or requirements in its sole discretion. Any certifications granted to individual Reseller consultants are valid only during the term of this Agreement. |
10. |
Records |
(a) |
Recordkeeping. Reseller shall maintain adequate books and records in connection with its activities hereunder. Such records shall include invoicing, payment and other financial records associated with each transaction. In addition, Customer shall maintain records supporting Customers qualifications as a Customer. SFDC may audit the relevant books and records of Reseller to ensure compliance with the terms of this Agreement upon reasonable notice to Reseller. Any such audit shall be conducted during regular business hours at Resellers offices and shall not unreasonably interfere with Resellers business activities. Audits shall be performed no more than twice during any twelve (12) month period. |
(b) |
Notice of Any Claim. Reseller will notify SFDC promptly in writing of any claim or proceeding involving the Service or Support that is brought to Resellers attention. |
11. |
Term and Termination |
(a) |
Term. This Agreement shall begin on the Effective Date and continue for five years, after which point it shall renew automatically for additional one year terms, unless either Party gives notice within thirty (30) days of the renewal date of an intention not to renew. |
(b) |
Termination without Cause. Either party may terminate this Agreement without cause at any time, effective upon six months written notice to the other party. |
(c) |
Termination for Cause. Either party may terminate this Agreement and/or any Order Form hereunder (i) upon 30 days written notice of a material breach by the other party, unless the other party has cured such breach within the 30-day period, or (ii) immediately upon written notice to the other if the other party (or, in the case of an Order Form, if the Customer) ceases to conduct its business in the ordinary course or becomes the subject of a bankruptcy, insolvency or similar proceeding that is not dismissed within 30 days of filing. |
(d) |
Effects of Expiration or Termination. Expiration or termination of this Agreement shall not relieve the parties of any rights or obligations accruing prior to such expiration or termination. Upon any expiration or termination (i) all of Resellers rights to resell and market the Service shall cease; (ii) Reseller shall immediately cease all representations that it is an SFDC Reseller, and (iii) each party shall return to the other all Confidential Information of the other party in its possession or control. Following any termination or |
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expiration, each Order Form (including all User subscriptions, SFDC obligations to provide the Service and/or Support, and any Reseller obligations thereunder) outstanding at the time of such termination or expiration shall remain in effect for the duration of its term and shall continue to be governed by this Agreement as if it had not been terminated (Legacy Orders), except to the extent of any material breach by the applicable Customer of its payment obligations for the Service or the End User Subscription Terms in Exhibit B, at SFDCs sole option it may immediately terminate such Customer or Legacy Order. Additionally, SFDC shall have the option of assuming the Customer relationship and at its option renewing any expiring Legacy Orders directly with a Customer without payment to Reseller.
(e) |
Survival. The obligations of the parties set forth in Sections 1, 10, 11 and 13 - 17 shall survive any expiration or termination of this Agreement. |
12. |
Warranties |
(a) |
SFDC. SFDC warrants solely for the benefit of Reseller that the Service will materially conform to the User Guide. This warranty does not apply to any damage resulting from unauthorized use or negligence on the part of Reseller. THIS SECTION SETS FORTH SFDCS SOLE OBLIGATION, AND RESELLERS SOLE AND EXCLUSIVE REMEDY, FOR A BREACH OF THE WARRANTY IN THIS SECTION. |
(b) |
No Other Warranties. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THE SERVICE IS PROVIDED ON AN AS IS BASIS WITHOUT WARRANTY OF ANY KIND. SFDC EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, REGARDING THE SERVICE, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT, AND IMPLIED WARRANTIES ARISING FROM A COURSE OF DEALING OR COURSE OF PERFORMANCE. SFDC DOES NOT WARRANT THAT THE SERVICE WILL OPERATE UNINTERRUPTED OR BE ERROR-FREE, OR THAT ALL DEFECTS WILL BE CORRECTED. |
13. |
Indemnification |
(a) |
Indemnification by SFDC. SFDC shall, at its own expense, defend Reseller and its affiliates, directors, officers and employees (Reseller Indemnified Parties) against any claim, demand, suit or action (a Claim), and shall indemnify and hold harmless the Reseller Indemnified Parties from and against any damages, costs (including but not limited to reasonable attorney fees and costs) or amounts agreed to in a monetary settlement, arising out of or in connection with such Claim, to the extent the Claim is made or brought by or on behalf of a third party alleging that the Service infringes any copyright or patent, or misappropriates any trade secret, of such third party. SFDC has no obligation under this section or otherwise to the extent any claims are based on (i) any use of the Service not contemplated hereunder or in the User Guide, (ii) any use of the Service in combination with other products not contemplated hereunder or in the User Guide, if the infringement is caused by such combination, (iii) use or modification of the Service by any person other than as permitted hereunder, or (iv) any marketing claims or other actions by Reseller not in compliance with the terms of this Agreement. |
THIS SUBSECTION (A) STATES SFDCS ENTIRE LIABILITY AND RESELLERS SOLE AND EXCLUSIVE REMEDY FOR INFRINGEMENT CLAIMS AND ACTIONS.
6
(b) |
Indemnification by Reseller. Reseller agrees to enforce the terms of its resale agreements with Customer as required by this Agreement and to notify SFDC of any known breach of such terms. Reseller shall, at its own expense, defend SFDC and its affiliates, directors, officers and employees (SFDC Indemnified Parties) against any Claim, and shall indemnify and hold harmless the SFDC Indemnified Parties from and against any damages, costs (including but not limited to reasonable attorney fees and costs) or amounts agreed to in a monetary settlement, arising out of or in connection with such Claim, to the extent the Claim is made or brought by or on behalf of (i) a Customer in connection with services resold by Reseller hereunder, or (ii) a third party other than a Customer and is based upon the negligence or willful misconduct of Reseller or any breach by Reseller of this Agreement. |
(c) |
Mutual Obligations for Indemnification. Each partys obligations in this section are conditioned on the other party providing the following: (i) prompt notice of any claim for which indemnification is sought, (ii) sole control of the defense and settlement of such claims, and (iii) reasonable assistance and cooperation at the expense of the indemnifying party; provided, however, that the indemnifying party may not enter into any settlement imposing any liability or obligation on the indemnified party without the indemnified partys consent. |
(d) |
Equitable Relief. Reseller acknowledges that any breach of its obligations with respect to the proprietary rights of SFDC may cause SFDC irreparable injury for which there are no adequate remedies at law, in which case SFDC shall be entitled to equitable relief in addition to all other remedies available to it. |
14. |
Limitation of Liability |
(a) |
Consequential and Incidental Damages. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY HEREUNDER FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING ANY DAMAGES FOR LOSS OF USE, LOSS OF BUSINESS, OR LOSS OF PROFITS OR REVENUE, UNDER ANY THEORY OF LAW AND WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OR SUCH DAMAGE. |
(b) |
Overall Limitation. EXCEPT FOR BREACHES OF INTELLECTUAL PROPERTY RIGHTS AND INDEMNIFICATION OBLIGATIONS, NEITHER PARTYS TOTAL LIABILITY TO THE OTHER PARTY HEREUNDER SHALL EXCEED A SUM OF ONE MILLION DOLLARS ($1,000,000). |
15. |
Confidentiality |
(a) |
Confidential Information. Confidential Information means any confidential or proprietary information of a party hereto (the Disclosing Party) that is disclosed to the other party hereto (the Receiving Party), whether orally or in writing or through any media, including financial, business and technical information, ideas, trade secrets, procedures, methods, systems and concepts; provided, however, that Confidential Information shall not include information that Receiving Party can show was: (i) in the public domain or otherwise publicly available when disclosed to Receiving Party; (ii) communicated to Receiving Party by a third party without any obligation of confidentiality and without any breach of confidentiality by such third party; (iii) in Receiving Partys possession free of any obligation of confidentiality when disclosed to Receiving Party; or (iv) independently developed by Receiving Party without use of the Confidential Information and without breach of any obligation of confidentiality. |
7
(b) |
Obligation of Confidentiality. Receiving Party acknowledges that Confidential Information may contain valuable trade secrets and other proprietary information of Disclosing Party and remains the sole and exclusive property of Disclosing Party. Receiving Party shall (i) use Confidential Information only for the purpose for which it is provided, (ii) restrict disclosure of Confidential Information to its employees who have a need to know, (iii) not disclose Confidential Information to any third party without Disclosing Partys consent, and (iv) protect Confidential Information in the same way it protects its own Confidential Information of a similar nature, but in no event exercising less than reasonable care. |
(c) |
Compelled Disclosure. Notwithstanding the foregoing, Receiving Party shall not be in violation of this section if it discloses Confidential Information in response to a valid order by a court or other governmental entity, provided that Receiving Party provides Disclosing Party as prompt notice as practicable of such impending disclosure and reasonable assistance (at Disclosing Partys expense) to permit Disclosing Party to contest the order or seek confidential treatment. |
16. |
Intellectual Property |
(a) |
Ownership. SFDC retains all right, title and interest in and to the Service, any modifications thereto and all material provided by SFDC to Reseller, Customer and Users. SFDC reserves all rights not expressly granted to Reseller by this Agreement. |
(b) |
Trademark Cross-License |
(i) |
License Grant. Either party may use the name, logo, trademarks and service marks (Trademarks) of the other party subject to the other partys usage policies or prior approval, solely for purposes related to the performance of this Agreement. Notwithstanding the foregoing, each party reserves the right to require prior written approval for each advertisement, brochure, piece of marketing collateral, or other item contains any Trademark of the other party. |
(ii) |
Restrictions. In no event shall either party use a Trademark of the other party with any disparaging, unlawful or derogatory material. Neither party shall use any Trademark in a manner that may diminish or otherwise damage the other partys goodwill in that Trademark. Each party shall promptly terminate any Trademark use upon notice by the other party, or upon termination or expiration of this Agreement. Nothing contained in this Agreement shall be deemed to grant any party any right, goodwill, title or interest in the Trademarks of the other party. Neither party shall register any Trademark (or any trademarks confusingly similar to any Trademark) of the other party and shall not challenge, directly or indirectly, the same. |
(iii) |
Assistance. Each party shall, upon reasonable request by the other party, provide any necessary assistance to perfect or enforce intellectual property protection for the Trademarks of the other party. Any expenses associated with such a request shall be paid by the party requesting assistance. |
(c) |
Suggestions. Reseller agrees that SFDC shall have a royalty-free, worldwide, perpetual license to use or incorporate into the Service any suggestions, ideas, enhancement requests, feedback, recommendations or other information provided by Reseller relating to the Service. |
8
17. |
General |
(a) |
Assignment. Neither party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement, whether by operation of law or otherwise, to any third party without the other partys prior written consent. This Agreement will bind and inure to the benefit of the parties successors and permitted assignees. |
(b) |
Force Majeure. If the performance of this Agreement or any obligation (other than payment obligations), is prevented or restricted by any condition beyond the reasonable control of the affected party, the party so affected, upon giving prompt notice to the other party, will be excused from such performance to the extent of such condition. |
(c) |
Governing Law; Venue. This Agreement shall be governed exclusively by the internal laws of the State of California, without regard to its conflicts of laws rules. The state and federal courts located in San Francisco County, California shall have exclusive jurisdiction to adjudicate any dispute arising out of or relating to this Agreement. Each party hereby consents to the exclusive jurisdiction of such courts. Each party also hereby waives any right to jury trial in connection with any action or litigation in any way arising out of or related to this Agreement. |
(d) |
Independent Contractors. The parties are independent contractors, and no agency, partnership, joint venture or employee-employer relationship is created by this Agreement. |
(e) |
Notices. All required or permitted notices and consents must be in writing and sent to the addressee at the address set forth above, or such address as the parties may specify in writing from time to time, and must be delivered by personal delivery, facsimile or recognized overnight courier. Notices shall be deemed given upon delivery. |
(f) |
Severability. If any provision of this Agreement is adjudged invalid or unenforceable, the remaining provisions will continue in full force and effect, and the parties agree to replace the affected provision with a valid provision that most closely approximates its intent and economic effect. |
(g) |
No Waiver. No failure or delay by either party in exercising any right under this Agreement shall constitute a waiver of that right. Other than as expressly stated herein, the remedies provided herein are in addition to, and not exclusive of, any other remedies of a party at law or in equity. |
(h) |
Amendment. This Agreement may not be modified or amended except in a writing signed by both parties. |
(i) |
Complete Agreement. This Agreement reflects the complete and final agreement between the parties, and supersedes, integrates and replaces all prior and contemporaneous communications, negotiations and understandings, with respect to the subject matter hereof. |
(j) |
Conflicts. In the event of any conflict between the terms of this Agreement and the attached Exhibits, the terms of the Exhibits shall control. |
9
(k) |
Counterparts. This Agreement may be signed in counterparts, which together shall constitute one agreement. |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
SALESFORCE.ORG |
SALESFORCE.COM, INC | |||||||
Signature: |
/s/ Suzanne Dibianca |
Signature: |
/s/ David Schellhase |
Print Name: |
Suzanne Dibianca |
Print Name: |
David Schellhase |
Title: |
President |
Title: |
SVP & General Counsel | |||||
Date: |
January 30, 2009 |
Date: |
January 30, 2009 |
10
FORM OF OFFER LETTER | Exhibit 10.11 |
SALESFORCE.COM
[DATE]
[NAME]
[ADDRESS]
Dear [NAME]:
I am pleased to offer you a position with Salesforce.com, Inc. (the Company) as its [ ] commencing on [ ]. If you decide to join us, you will receive an annual salary of [ ], less applicable withholding, which will be paid semi-monthly in accordance with the Companys normal payroll procedures. As a Company employee, you are also eligible to receive certain employee benefits including Company stock options. Subject to Board approval you will be granted an option to acquire [ ] shares of Common stock, vesting 1/4 at the end of one year, and 1/48 monthly thereafter so long as your employment with the Company continues. The exercise price will be equal to the fair market value of the common stock as determined by the Board.
If you choose to accept this offer, your employment with the Company will be voluntarily entered into and will be for no specified period. As a result, you will be free to resign at any time, for any reason or for no reason, as you deem appropriate. The Company will have a similar right and may conclude its employment relationship with you at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within seven (7) business days of your date of hire, or our employment relationship with you may be terminated.
In the event of any dispute or claim relating to or arising out of our employment relationship, this agreement, or the termination of our employment relationship (including, but not limited to, any claims of wrongful termination or age, sex, disability, rate or other discrimination), you and the Company agree that all such disputes shall be fully, finally and exclusively resolved by binding arbitration conducted by the American Arbitration Association in San Francisco, California, and we waive our rights to have such disputes tried by a court or jury. However, we agree that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the misuse or misappropriation of the Companys trade secrets or proprietary information.
To indicate your acceptance of the Companys offer, please sign and date this letter in the space provided below and return it to me. A duplicate original is enclosed for your records. You will be required to sign an Employee Inventions and Proprietary Rights Assignment Agreement as a condition of your employment. This letter, along with any agreements relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you.
We look forward to working with you at Salesforce.com. Welcome aboard!
Sincerely, |
/S/MARC BENIOFF |
Marc Benioff Chairman of the Board |
AGREED TO AND ACCEPTED
[NAME]
SCHEDULE TO EXHIBIT 10.11
Current Annual Salary |
Current Annual Bonus |
Other Key Terms | ||||
Marc Benioff | Current annual salary of $1,000,000. |
Mr. Benioff is eligible to receive an annual discretionary bonus of 150% of his annual base salary, based on individual and Company performance. | N/A | |||
Graham Smith | Current annual salary of $480,000. | Mr. Smith is eligible to receive an annual discretionary target bonus of 75% of his annual base salary, based on individual and Company performance. | If Mr. Smith is terminated without cause during the first 12 months of employment with salesforce.com, he will receive the greater of (i) 12 months of his base salary and accelerated vesting of 12 months of his initial equity grants or (ii) 18 months of his base salary. If Mr. Smith is terminated without cause after his first 12 months of employment with salesforce.com, he will receive 18 months of his base salary. | |||
Parker Harris | Current annual salary of $450,000. | Mr. Harris is eligible to receive an annual discretionary target bonus of 75% of his annual base salary, based on individual and Company performance. | N/A | |||
George Hu | Current annual salary of $450,000. | Mr. Hu is eligible to receive an annual discretionary target bonus of 75% of his annual base salary, based on individual and Company performance. | N/A | |||
Frank van Veenendaal | Current annual salary of $420,000. | Mr. van Veenendaal is eligible to receive an annual discretionary target bonus of 100% of his annual base salary, based on individual and Company performance. | N/A |
This schedule sets forth the material terms of the offer letters and compensation packages with certain executive officers of salesforce.com, inc. The form is filed herewith.
EXHIBIT 10.18
REDACTED COPY
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
[ Mission Bay Blocks 33 and 34 ]
This AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS (Agreement) is made and entered into as of this 21st day of October, 2010, by and between ARE-SAN FRANCISCO NO. 22, LLC, a Delaware limited liability company (Seller), and BAY JACARANDA NO. 3334, LLC, a Delaware limited liability company (Buyer), with respect to the following (initially capitalized terms not otherwise defined when first used shall have the meanings given to such terms in Paragraph 1 below):
R E C I T A L S:
A. Seller is the owner of certain real property located in the City and County of San Francisco (City), State of California commonly referred to as Mission Bay South Development Blocks 33 and 34 and more particularly described on Exhibit A attached hereto (the Land). The Block references are for convenience only; the Blocks are not legal lots and do not constitute separate parcels.
B. The Land is a portion of the area generally known as the Mission Bay Development Area (as defined below), and is located within the South Project Area (as defined below), and is subject to the existing Development Entitlements (as defined below).
C. Seller desires to sell the Property (as defined below) to Buyer, and Buyer desires to purchase the Property from Seller, upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer (each, a Party and collectively, the Parties) hereby agree that the terms and conditions of this Agreement and the instructions to Escrow Holder (as defined below) with regard to the Escrow (as defined below) are as follows:
A G R E E M E N T:
1. Certain Basic Definitions. For purposes of this Agreement, the following terms shall have the following definitions:
1.1 Acquired Parking Rights means the right to develop 1.0 parking spaces for each one thousand (1,000) square feet of gross floor area.
-1-
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.2 Acquired Rights means the (i) the Acquired Square Footage, (ii) the Acquired Tower Rights, (iii) the Acquired Parking Rights, and (iv) the Infrastructure Rights.
1.3 Acquired Square Footage means the right to develop up to an aggregate of five hundred thousand (500,000) square feet of gross (commercial) floor area.
1.4 Acquired Tower Rights means the right to develop up to one (1) Tower.
1.5 Affiliate means (a) an entity that directly or indirectly controls, is controlled by, or is under common control with the person or entity in question, or (b) an entity at least a majority of whose economic interest is owned by the person or entity in question; and the term control means the power to direct the management of such entity through voting rights, ownership, or contractual obligations.
1.6 Agreement Regarding Construction Obligations has the meaning set forth in Paragraph 28.2 below.
1.7 Agreement Regarding Successor Project Labor Agreement means the Agreement Regarding Successor Project Labor Agreement in substantially the form attached hereto as Exhibit J (subject to such modifications as may be reasonably negotiated by the Parties).
1.8 Alexandria means Alexandria Real Estate Equities, Inc., a Maryland corporation and Sellers ultimate parent.
1.9 ALTA Policy means an American Land Title Association extended coverage owners policy of title insurance (6-17-06).
1.10 Applicable Laws means all laws, ordinances, rules, regulations, and requirements of all Governmental Authorities that are applicable to the Property, including without limitation, the Federal Occupational Health and Safety Act, the Americans with Disabilities Act of 1990, Title 24 of the California Code of Regulations, and all Environmental Laws, as amended from time to time.
1.11 ARE Owners means Seller, ARE-San Francisco No. 15, LLC, a Delaware limited liability company (ARE-SF 15), ARE-San Francisco No. 16, LLC, a Delaware limited liability company (ARE-SF 16), ARE-San Francisco No. 19, LLC, a Delaware limited liability company (ARE-SF 19), ARE-San Francisco No. 26, LLC, a Delaware limited liability company, and ARE-San Francisco No. 36, LLC, a Delaware limited liability company.
1.12 ARE Properties means the Land, Blocks 26-27, Blocks 29-32, and Blocks 41-43.
-2-
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.13 As an example only is intended solely to introduce descriptive illustrations for purposes of clarifying the possible applications of specific provisions of this Agreement, and shall not be deemed, construed, or interpreted as providing all-inclusive, comprehensive, or exhaustive lists of every possible situation or circumstance to which the provision in question may apply (including, but not limited to, including, without limitation, and similar phrases are used with the same sole intention).
1.14 Assignment of Infrastructure Rights means that certain Limited Assignment and Assumption of Agreement of Purchase and Sale in substantially the form attached hereto as Exhibit E (subject to such modifications as may be reasonably negotiated by the Parties).
1.15 Assignment of South OPA means the Assignment, Assumption and Release Agreement in substantially the form attached hereto as Exhibit D (subject to such modifications as may be reasonably requested by the Redevelopment Agency and/or reasonably negotiated by the Parties).
1.16 Blocked Persons List means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or any other similar list maintained by OFAC or any other Governmental Authority pursuant to any authorizing statute, regulation, or executive order.
1.17 Blocks 26-27 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 26 and 27.
1.18 Blocks 29-32 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 29, 30, 31, and 32.
1.19 Blocks 41-43 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 41, 42, and 43, excluding the Gladstone Property.
1.20 Brokers means, collectively, Buyers Broker and Sellers Broker.
1.21 Buyer Parties means Buyer and Buyers Affiliates (and each of their Affiliates), including, but not limited to, SFDC, and Buyers or such Affiliates shareholders, members, constituent partners, directors, officers, and employees.
-3-
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.22 Buyers Address means:
Bay Jacaranda No. 3334, LLC
c/o salesforce.com, inc.
The Landmark @ One Market, Suite 300
San Francisco, California 94105
Attention: General Counsel
Re: Mission Bay (Blocks 33-34), SF, CA
Telephone No.: 415-536-6970
Facsimile No.: 415-536-4616
With a copy to:
Bay Jacaranda No. 3334, LLC
c/o salesforce.com, inc.
The Landmark @ One Market, Suite 300
San Francisco, California 94105
Attention: Mr. Tim Alonso
Telephone No.: 415-536-7225
Facsimile No.: 415-901-4616
1.23 Buyers Agents means Buyers agents, counsel, consultants, sub-consultants, contractors, sub-contractors, and prospective lenders.
1.24 Buyers Broker means Cushman & Wakefield.
1.25 Buyers Closing Conditions has the meaning set forth in Paragraph 10.1 below.
1.26 Buyers Counsels Address means:
Sheppard Mullin Richter & Hampton LLP
Four Embarcadero Center, 17th Floor
San Francisco, California 94111
Attention: Robert A. Thompson, Esq.
Telephone No.: 415-774-3213
Facsimile No.: 415-434-3947
1.27 California Affidavit means a California Form 593-C, in substantially the form attached hereto as Exhibit F-1.
1.28 Cancellation Charges has the meaning set forth in Paragraph 5.3 below.
-4-
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.29 CFD Assessments means the special taxes (i) to be levied on the Land (and other property in the Mission Bay Development Area) in accordance with the terms and conditions of the Rate and Method of Apportionment of Special Tax applicable to the Maintenance CFD, (ii) to be levied on the Land (and other property in the Mission Bay Development Area) in accordance with the terms and conditions of the Rate and Method of Apportionment of Special Tax applicable to the Infrastructure CFD, and (iii) to be levied on the Land and other property in the City in accordance with the terms and conditions applicable to the Public School CFD.
1.30 CFDs means, collectively, the Maintenance CFD, the Infrastructure CFD, and the Public School CFD. The Maintenance CFD and the Infrastructure CFD were established under the South Financing Plan.
1.31 City has the meaning set forth in Recital A above.
1.32 Claims has the meaning set forth in Paragraph 2(b) of the Inspection Agreement.
1.33 Close of Escrow means the time of recording of the Grant Deed in the Official Records.
1.34 Closing Date means the date on which the Close of Escrow occurs.
1.35 CLTA Policy means a California Land Title Association standard coverage owners policy of title insurance, in the current form used by the Title Company.
1.36 CNDA means that certain Mutual Confidential Information and Non-Disclosure Agreement dated as of May 6, 2010, between Alexandria and SFDC.
1.37 Complete Release Date means the date that is eighteen (18) months after the Closing Date.
1.38 Confidential Information has the meaning set forth in Paragraph 1 of the CNDA or set forth in Paragraph 2(c) of the Inspection Agreement, as applicable.
1.39 Convey or Conveyed means to convey, sell, assign, alienate, or otherwise transfer.
1.40 Covered Property means the real property covered by the Project Labor Agreement.
1.41 Covered Successor means any successor in interest and/or assignee, buyer, ground lessee, or donee of any Covered Property.
-5-
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.42 Covered Work has the meaning set forth in the Project Labor Agreement.
1.43 Current Tax Period means the fiscal year of the applicable taxing authority during which the Close of Escrow occurs.
1.44 Deposit means the sum of Two Million Dollars ($2,000,000.00).
1.45 Development Entitlements means those documents and materials governing development of the Property listed on Exhibit B attached hereto.
1.46 Discretionary Approvals has the meaning set forth in Paragraph 7.1.4(a) below.
1.47 Diversity Program has the meaning set forth in Paragraph 29.2 below.
1.48 Effective Date means the date this Agreement is executed and delivered by both Seller and Buyer.
1.49 Environmental Covenant has the meaning set forth in Paragraph 2(d) of the Inspection Agreement.
1.50 Environmental Laws means any and all federal, state, or local environmental health and/or safety laws, regulations, standards, decisions of courts, ordinances, rules, codes, orders, decrees, directives, guidelines, plans, risk management plans, recorded property covenants, and/or restrictions, permits, or permit conditions currently existing relating to the environment or to any Hazardous Materials (including, without limitation, the Risk Management Plan and the Environmental Covenant) that are applicable to the Land.
1.51 Environmental Reports means all environmental reports in Sellers possession or control regarding the Land and all no further action or similar letters issued by any applicable Governmental Authority in connection with Hazardous Materials in, on, or under the Land, all as listed on Exhibit G attached hereto.
1.52 Escrow means an escrow to be opened with Escrow Holder to facilitate the transactions contemplated in this Agreement.
1.53 Escrow Holder means First American Title Insurance Company.
-6-
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.54 Escrow Holders Address means:
First American Title Insurance Company
901 Mariners Island Blvd., Suite 380
San Mateo, California 94404
Attention: Ms. Karen Matsunaga
Escrow No.: NCS-453587-SM
Telephone No.: 650-356-1729
Facsimile No.: 650-638-9116
1.55 Exchange means a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code.
1.56 Existing Construction Agreement means that certain Construction Commencement Agreement [Mission Bay South - Blocks 33 and 34] recorded in the Official Records on November 15, 2005, as Document No. 2005-I072098.
1.57 FIRPTA Certificate means a certificate of non-foreign status, in the form attached hereto as Exhibit F-2.
1.58 FOCIL means FOCIL-MB, LLC, a Delaware limited liability company. As of the Effective Date, FOCIL is the Master Developer and the Infrastructure Developer.
1.59 Gladstone Property means that certain real property located in the City commonly referred to 1650 Owens Street.
1.60 Governmental Authority has the meaning set forth in Paragraph 2(h) of the Inspection Agreement.
1.61 Government Representative has the meaning set forth in Paragraph 3(c) of the Inspection Agreement.
1.62 Grant Deed means a grant deed, in substantially the form attached hereto as Exhibit H.
1.63 Hazardous Materials means any substance, material or waste that, because of its quantity, concentration, or physical or chemical characteristics poses a present or potential hazard to human health and safety or to the environment, including, but not limited to, petroleum, petroleum-based products, natural gas, or any substance, material, or waste (including, without limitation, biohazardous waste and medical waste) that is, or shall be, listed, regulated, or defined by federal, state, or local statute, regulation, rule, ordinance, or other governmental requirement to be hazardous, acutely hazardous, extremely hazardous, toxic, radioactive, biohazardous, infectious, or otherwise dangerous.
-7-
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.64 Immediately Available Funds means cash, bank cashiers check, or a confirmed wire transfer of funds.
1.65 Independent Consideration means the sum of One Thousand Dollars ($1,000.00).
1.66 Infrastructure means the infrastructure or other improvements to be constructed in accordance with the South Infrastructure Plan or the South Scope of Development.
1.67 Infrastructure CFD means Redevelopment Agency of the City and County of San Francisco Community Facilities District No. 6 (Mission Bay South Public Improvements).
1.68 Infrastructure CFD Bonds means, collectively, the following bonds issued by the Redevelopment Agency pursuant to the Mello-Roos Community Facilities District Act of 1982 (as amended):
(a) Special Tax Bonds, Series 2001-South;
(b) Special Tax Bonds, Series 2002 Parity-South; and
(c) Special Tax Bonds, Series 2005A Parity-South (Current Interest Bonds), and Special Tax Bonds, Series 2005B Parity-South (Capital Appreciation Bonds) (collectively, the 2005 Infrastructure CFD Bonds).
1.69 Infrastructure CFD Bond Disclosure Assumption Agreement has the meaning set forth in Paragraph 28.11 below.
1.70 Infrastructure CFD Bond Disclosure Certificates means, collectively, the following Continuing Disclosure Certificates delivered by various ARE Parties in connection with the issuance of the 2005 Infrastructure CFD Bonds:
(a) that certain Continuing Disclosure Certificate-Landowner dated July 26, 2005, executed by ARE-SF 15;
(b) that certain Continuing Disclosure Certificate-Landowner dated July 26, 2005, executed by ARE-SF 16; and
(c) that certain Continuing Disclosure Certificate-Landowner dated July 26, 2005, executed by ARE-SF 19.
1.71 Infrastructure Developer means FOCIL or FOCILs successor as Owner under (and as defined in) the South OPA with respect to the obligation to construct
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Infrastructure, provided that such successor has been approved by the Redevelopment Agency if, and to the extent, required under the South OPA.
1.72 Infrastructure Rights has the meaning set forth in Paragraph 8 below.
1.73 Inspection Agreement means that certain Access, Inspection, and Indemnity Agreement effective as of September 6, 2010, by and between Seller and SFDC, a copy of which is attached hereto as Exhibit K.
1.74 Inspection Period has the meaning set forth in Paragraph 1 of the Inspection Agreement.
1.75 Inspection Work has the meaning set forth in Paragraph 3(a) of the Inspection Agreement.
1.76 Land has the meaning set forth in Recital A above.
1.77 Legal Costs has the meaning set forth in Paragraph 25 below.
1.78 Life Science Uses means life sciences, biotechnology, biomedical, or similar research facility uses.
1.79 Maintenance CFD means Redevelopment Agency of the City and County of San Francisco Community Facilities District No. 5 (Mission Bay Maintenance District).
1.80 Master Commercial Declaration means the Master Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on January 16, 2001, as Document No. 2001-G889923-00 at Reel H804, Image 0058, as amended by the First Amendment To Master Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on August 17, 2004, as Document No. 2004-H787770-00 at Reel I703, Image 0226, and by the Second Amendment To Master Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on October 20, 2004, as Document No. 2004-H834740-00 at Reel I747, Image 0186, as the same may hereafter be amended.
1.81 Master Developer means FOCIL or FOCILs successor as Owner under (and as defined in) the South OPA, provided that such successor has been approved by the Redevelopment Agency if, and to the extent, required under the South OPA.
1.82 Master Developer Covenant means that certain Second Amended and Restated Declaration of Covenants [FOCIL Property] recorded in the Official Records on November 15, 2005, as Document No. 2005-I072097.
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1.83 Mission Bay Development Area means that certain real property located in the City and County of San Francisco and generally bounded by Townsend Street, Third Streets, relocated Terry Francois Boulevard, Mariposa Street and Seventh Street.
1.84 Natural Hazards Statement means the Natural Hazards Disclosure Report relating to the Land, a copy of which is attached hereto as Exhibit I-2.
1.85 Notices has the meaning set forth in Paragraph 23 below.
1.86 OFAC means the Office of Foreign Assets Control of the U.S. Department of Treasury.
1.87 OFAC Rules means, collectively, the regulations promulgated and/or issued by OFAC and any statute, regulation, or executive order relating thereto.
1.88 Office Authorization(s) means the authorization(s) to develop office space under the Office Program.
1.89 Office Program means the annual office limitation program set forth in Sections 321 and 322 of the Citys Planning Code.
1.90 Official Records means the Official Records of the Recorder of the City and County of San Francisco, California.
1.91 Oppose or Opposing means oppose, contest, challenge, object to, and/or otherwise interfere with.
1.92 Original Project Labor Agreement means that certain Mission Bay Project Agreement dated October 8, 1990.
1.93 Other SFDC Owner means any Affiliate of Buyer who owns any property in the South Project Area other than the Land.
1.94 Other SFDC Property means any property in the South Project Area other than the Land that is owned by Buyer or any Other SFDC Owner.
1.95 Other SFDC Square Footage means the square footage of gross (commercial) floor area that Buyer or any Other SFDC Owner has the right to develop on any Other SFDC Property.
1.96 Other SFDC Tower Rights means the Towers that Buyer or any Other SFDC Owner has the right to develop on any Other SFDC Property.
1.97 Permitted Encumbrances means all matters affecting title to the Land described in Exhibit C-1 attached hereto.
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1.98 PILOT Agreement has the meaning set forth in Paragraph 28.8.1 below.
1.99 Pro Forma Policy has the meaning set forth in Section 3 in Exhibit C-1 attached hereto.
1.100 Project means the development to be constructed by Buyer on the Land in accordance with the Development Entitlements and the terms and conditions of this Agreement.
1.101 Project Labor Agreement means, collectively, the Original Project Labor Agreement and the Project Labor Agreement Addendum, as the same may be amended from time to time.
1.102 Project Labor Agreement Addendum means that certain Addendum To Agreement entered into in 2003.
1.103 Property means the Real Property plus the Acquired Rights.
1.104 Property Owner means Buyer or any permitted successor or assign with respect to the Property.
1.105 Proposition N means the ordinance (denominated Proposition N) being submitted to the voters of the City at the general election being held on November 2, 2010, which submittal was approved by the Citys Board of Supervisors on July 27, 2010, pursuant to Motion No. M10-118. If approved by the voters, such ordinance would amend Section 1102 of Article 12-C of the San Francisco Business and Tax Regulations Code to increase the real property transfer tax on certain properties.
1.106 Public School CFD means San Francisco Unified School District of the City and County of San Francisco Community Facilities District No. 90-1 (Public School Facilities).
1.107 Purchase Price means the sum of Sixty-Three Million Seven Hundred Fifty-One Thousand Three Hundred Eighty-One Dollars ($63,751,381.00).
1.108 Purchase Price Balance means the balance of the Purchase Price over and above the Deposit (including all interest accrued thereon).
1.109 Real Property means the Land, together with all appurtenances thereto and improvements thereon (if any).
1.110 Redevelopment Agency means the Redevelopment Agency of the City and County of San Francisco.
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1.111 Release Exception Claims has the meaning set forth in Paragraph 18.3 below.
1.112 Risk Management Plan and RMP mean the Risk Management Plan dated May 11, 1999, for the Mission Bay Area, San Francisco, California, as the same may be amended from time to time (approved on May 12, 1999, by the State of California Regional Water Quality Control Board for the San Francisco Bay Region).
1.113 RMC Lease means that certain Industrial Lease dated November 10, 1977, originally between Southern Pacific Transportation Company, as lessor, and Diamond Building Materials, Inc., as lessee, as amended, assigned, and extended to date.
1.114 RMC Lease Assignment has the meaning set forth in Section 13 in Attachment 1.
1.115 Seek or Sought means seek, apply for, process, obtain, act on, or otherwise pursue.
1.116 Seller Parties means Seller and Sellers Affiliates (and each of their Affiliates), including, but not limited to, Alexandria and the other ARE Owners, and Sellers or such Affiliates shareholders, members, constituent partners, directors, officers, and employees.
1.117 Seller Party Owner means any Seller Party that owns any property in the South Project Area as of the Close of Escrow.
1.118 Seller Party Property means any property in the South Project Area that is owned by any Seller Party as of the Close of Escrow.
1.119 Sellers Address means:
ARE-San Francisco No. 22, LLC
c/o Alexandria Real Estate Equities, Inc.
385 E. Colorado Blvd., Suite 299
Pasadena, California 91101
Attention: Corporate Secretary
Re: Mission Bay (Blocks 33-34), SF, CA
Telephone No.: 626-578-0777
Facsimile No.: 626-578-0770
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With a copy to:
ARE-San Francisco No. 22, LLC
c/o Alexandria Real Estate Equities, Inc.
1700 Owens Street, Suite 590
San Francisco, California 94158
Attention: Mr. Stephen A. Richardson
Telephone No.: 415-554-8844
Facsimile No.: 415-554-0142
1.120 Sellers Broker means GVAKM and Cornish & Carey.
1.121 Sellers Closing Conditions has the meaning set forth in Paragraph 10.2 below.
1.122 Sellers Counsels Address means:
David S. Meyer, Attorney-At-Law
4535 Don Pio Drive
Woodland Hills, CA 91364-5308
Telephone No.: 818-346-4176
Facsimile No.: 818-346-4196
1.123 SFDC means salesforce.com, inc., a Delaware corporation and Buyers ultimate parent.
1.124 South Design for Development means the Design for Development for the Mission Bay South Project Area adopted on September 17, 1998, by the Redevelopment Agency Commission by Resolution No. 191-98, as the same may be amended from time to time.
1.125 South DRDAP means the Mission Bay South Design Review and Document Approval Procedure attached to the South OPA as Attachment G, as the same may be amended from time to time.
1.126 South Financing Plan means the Mission Bay South Financing Plan attached to the South OPA as Attachment E, as the same may be amended from time to time.
1.127 South Infrastructure Plan means the Mission Bay South Infrastructure Plan attached to the South OPA as Attachment D, as the same may be amended from time to time.
1.128 South OPA means the Mission Bay South Owner Participation Agreement listed on Exhibit B attached hereto.
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1.129 South Project Area means the area located in the City and County of San Francisco that is the subject of the South OPA.
1.130 South Redevelopment Plan mean the Mission Bay South Redevelopment Plan adopted on November 2, 1998, by the San Francisco Board of Supervisors by Ordinance No. 335-98, as the same may be amended from time to time.
1.131 South Scope of Development means the Mission Bay South Scope of Development attached to the South OPA as Attachment B, as the same may be amended from time to time.
1.132 Surviving Obligations means obligations expressly stated in this Agreement to survive the termination hereof.
1.133 Tax Exempt Entity has the meaning set forth in Paragraph 28.8.1 below.
1.134 Tax Payment Agreement means that certain Tax Payment Agreement between FOCIL and Seller recorded in the Official Records on September 22, 2010, as Document No. 2010-J053675.
1.135 Termination Deadline means 5:00 p.m. on October 22, 2010.
1.136 Termination Notice has the meaning set forth in Paragraph 5.3 below.
1.137 Title Company means First American Title Insurance Company.
1.138 Title Policy has the meaning set forth in Paragraph 13 below.
1.139 TMA means the Transportation Management Association that was formed to implement and administer the Transportation System Management Plan for the Mission Bay Development Area.
1.140 Tower has the meaning given to such term in the South Design for Development.
1.141 Transfer means to sell, assign, convey, lease, sublease, Mortgage (as defined below), hypothecate, or otherwise alienate, excluding therefrom any grant of occupancy rights for permanent improvements such as space leases. Solely for purposes of this definition, the term Mortgage means any mortgage, deed of trust, financing lease, indenture, trust agreement, reimbursement agreement, certificate of participation, collateral assignment, or other agreement or instrument (including without limitation any derivative agreement, swap, hedge, forward purchase, or other instrument relating to any of the foregoing) creating or evidencing a security interest in, encumbrance upon, securitization of, or lien against (a) any portion of or interest in the Property, (b) any interest in this Agreement, (c) any ownership interest in or
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security of Buyer, or (d) any income, rentals, revenue, profits, or other proceeds derived from Buyers ownership, operation, leasing, or sale of any portion of or interest in the Property, whether as security for the repayment of a loan or the performance of an obligation or as the creation of fractional undivided interests that are sold or pledged, directly or indirectly, or that are negatively pledged, in order to finance or refinance, directly or indirectly, any costs of Buyer incurred in connection with Buyers obligations under this Agreement.
1.142 Transferee means any natural person, corporation, firm, partnership, association, joint venture, governmental or political subdivision or agency or any similar entity to whom a Transfer is made.
1.143 Unavoidable Delay means a delay that is caused by strikes or other labor disputes, acts of god, weather (to the extent different from seasonal norms for the San Francisco Bay area), inability to obtain labor or materials despite commercially reasonable efforts (financial condition excepted), lawsuits brought by plaintiffs who are not Affiliates of the person claiming the benefit of the Unavoidable Delay (except to the extent caused by the negligence of the person claiming the benefit of the Unavoidable Delay), but only to the extent that an injunction or restraining order has been issued by a court of competent jurisdiction preventing performance, atypical restrictions imposed or mandated by Governmental Authorities in issuing requisite approvals or consents, enemy action, terrorism, civil commotion, fire, flood, earthquake, or other natural disaster or casualty, or any other unforeseeable event beyond the reasonable control of the person claiming the benefit of the Unavoidable Delay.
1.144 Vesting Covenant means that certain Declaration of Covenants recorded in the Official Records on November 15, 2005, as Document No. 2005-I072096, pursuant to which Seller has the right (among other rights) to develop on the Land not more than an aggregate of 500,000 square feet of gross (commercial) floor area.
1.145 Vesting Deed means that certain Grant Deed recorded in the Official Records on November 15, 2005, as Document No. 2005-I072095, pursuant to which Seller acquired title to the Land.
1.146 Vesting PSA means that certain Agreement of Purchase and Sale and Joint Escrow Instructions dated as of October 14, 2005, between FOCIL, as seller, and Seller, as buyer, pursuant to which Seller acquired the Land and certain entitlements.
2. Purchase and Sale. Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller, for the Purchase Price and upon the terms and conditions set forth in this Agreement. Simultaneously with the delivery of the Deposit pursuant to Paragraph 3.1 below, Buyer shall deliver the Independent Consideration or cause the Independent Consideration to be delivered to Escrow Holder, in Immediately Available Funds. Escrow Holder shall automatically and immediately deliver the Independent Consideration to Seller (in accordance with wiring instructions separately provided by Seller), without the need for any further instructions from Buyer. Seller and Buyer agree that the Independent
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Consideration, plus Buyers agreement to pay the Cancellation Charges pursuant to Paragraph 5.3 below if Buyer exercises its termination right under Paragraph 5.3 below, have been bargained for as consideration for Sellers execution and delivery of this Agreement and for Buyers right to conduct the Inspection Work and to review Sellers files regarding the Property, and is independent of any other consideration or payment provided for in this Agreement. The Independent Consideration shall be non-refundable, and shall not be applied to the Purchase Price upon the Close of Escrow.
3. Payment of Purchase Price. The Purchase Price shall be paid by Buyer as follows:
3.1 Deposit. Within one (1) business day after the Effective Date, Buyer shall deliver the Deposit or cause the Deposit to be delivered to Escrow Holder, in Immediately Available Funds. Escrow Holder shall deposit the Deposit in a non-commingled trust account and shall invest the Deposit in federally insured interest bearing money market accounts or certificates of deposit or in United States Treasury Bills or such other instruments as Buyer may instruct from time to time.
3.2 Delivery, Application, and Disposition of Deposit.
3.2.1 Buyers failure to deliver the Deposit as required by Paragraph 3.1 above shall constitute a default by Buyer under this Agreement and shall entitle Seller, by written notice to Buyer and Escrow Holder, to terminate this Agreement as of the date of Buyers receipt of such termination notice, in which event the provisions of Paragraph 19.1 below will apply.
3.2.2 The Deposit (including all interest accrued thereon) shall be applied to the Purchase Price upon the Close of Escrow. If Buyer terminates this Agreement and the Escrow on or prior to the dates designated within, and in accordance with the provisions of, Paragraph 5.3, Paragraph 10.3.1, or Paragraph 21 below, the Deposit (including all interest accrued thereon) shall be refunded to Buyer. The Deposit shall be paid to Seller pursuant to Paragraph 19.1 below if (a) Seller fully performs its obligations under this Agreement, (b) Buyer does not elect to terminate this Agreement in accordance with Paragraph 5.3, Paragraph 10.3.1, or Paragraph 21, and (c) the transaction contemplated in this Agreement does not close as a result of a breach by Buyer of Buyers obligations under this Agreement. If this Agreement is terminated for any reason before the Close of Escrow (whether the Deposit is refunded to Buyer or paid to Seller pursuant to this Agreement), both Seller and Buyer shall be relieved of all further obligations and liabilities under this Agreement, except for the Surviving Obligations and except as may be expressly provided otherwise in this Agreement.
3.3 Closing Funds. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Buyer shall deliver the Purchase Price Balance or cause the Purchase Price Balance to be delivered to Escrow Holder, in Immediately Available Funds, plus a sum equal to Escrow Holders estimate
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of Buyers share of closing costs, prorations, and charges payable pursuant to this Agreement, also in Immediately Available Funds.
4. Escrow.
4.1 Opening of Escrow. Each Party shall cause the Escrow to be opened with Escrow Holder by delivering to Escrow Holder, no later than one (1) business day after the date of this Agreement, three (3) duplicate originals of this Agreement executed by such Party. Each Party agrees to execute, deliver, and be bound by any reasonable or customary supplemental escrow instructions of Escrow Holder or other instruments as may reasonably be required by Escrow Holder in order to consummate the transaction contemplated by this Agreement. Any such supplemental instructions shall not conflict with, amend, or supersede any portions of this Agreement unless expressly consented or agreed to in writing by each Party.
4.2 Close of Escrow. The Escrow shall close on or before November 1, 2010, provided that Buyer and Seller may close, but shall not be obligated to close, the Escrow upon such other earlier or later date as Buyer and Seller may mutually agree in writing.
5. Condition of Property.
5.1 Inspection and Studies; Review of Sellers Files. Before the Effective Date, and continuing hereafter during the Inspection Period, Buyer has had, and shall continue to have, the right, at Buyers sole cost and expense, but subject in all events to Buyers compliance with Applicable Laws and the provisions of the Inspection Agreement, to conduct the Inspection Work and to review Sellers files regarding the Property.
5.2 Buyers Entry on Land; Insurance; Indemnification. Buyers entry on the Property shall be subject in all events to Buyers compliance with Applicable Laws and the provisions of the Inspection Agreement. Without limiting the generality of the foregoing, (i) the insurance to be maintained by Buyer in connection with any entry on the Property by Buyer shall be as set forth in Paragraph 8 of the Inspection Agreement, and (ii) Buyers indemnification of Seller in connection with any entry on the Property by Buyer shall be as set forth in Paragraph 9 of the Inspection Agreement.
5.3 Buyers Termination Right. Buyer shall have the right at any time before the Termination Deadline to terminate this Agreement if, during the course of Buyers investigation of the Property, Buyer determines, in its sole discretion, that the Property is not acceptable to Buyer. Buyer may exercise such termination right by delivering written notice of termination to Seller and Escrow Holder (a Termination Notice) before the Termination Deadline. Upon the timely delivery of a Termination Notice, (i) Escrow Holder, without the need for any further instructions from either Seller or Buyer, shall automatically and immediately return to Buyer the Deposit (including all interest accrued thereon), (ii) Buyer shall bear all Escrow cancellation charges and similar fees (Cancellation Charges), and (iii) this Agreement shall automatically terminate and be of no further force or effect and neither Party shall have any
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further rights or obligations under this Agreement, except for the Surviving Obligations. If, for any reason whatsoever, Buyer does not exercise such termination right by delivery of the Termination Notice before the Termination Deadline, Buyer shall be deemed to have elected not to terminate this Agreement.
5.4 Limitation on Sellers Liability. Without limiting any other disclaimer or release of Seller liability under this Agreement, Buyer agrees that Seller shall not have any liability, obligation, or responsibility of any kind with respect to any of the matters described in Paragraph 10 of the Inspection Agreement.
6. Title.
6.1 Title Materials. Seller has delivered to Buyer (or caused to be made available to Buyer) a current standard preliminary title report for the Land issued by the Title Company, together with copies of the underlying documents relating to the Schedule B exceptions set forth in such report. Buyer, in its sole discretion and at its sole cost and expense, also may order (i) a current as-built ALTA survey of the Land, in form reasonably satisfactory to Buyer and Title Company, prepared by a surveyor licensed in the State of California and certified to Buyer, Title Company, and such other persons or entities as Buyer, in its sole discretion, may request (using a surveyors certificate reasonably satisfactory to Buyer and Title Company); and (ii) a UCC search with regard to the Land and/or Seller, its affiliated entities, and its predecessors-in-interest.
6.2 Removal of Certain Title Matters. As a condition to the Close of Escrow, Seller shall take all action necessary to remove from title to the Land (i) all matters created by Seller on or after the effective date of the Pro Forma Policy without the prior written consent of Buyer (which consent may be withheld in Buyers sole discretion exercised in good faith), and (ii) all liens and encumbrances affecting the Land that secure an obligation to pay money, other than the lien that secures payment of installments, not yet delinquent, of general and special real and personal property taxes and other charges collected with general and special real and personal property taxes (such as assessments (including the CFD Assessments) levied by any Mello-Roos District affecting the Land (including the CFDs)) (provided, however, that Seller may satisfy Sellers obligation to remove any such lien or encumbrance if, before the Close of Escrow, (x) Seller deposits funds into the Escrow that are sufficient to pay, in full, the obligation secured by such lien or encumbrance, and (y) Seller gives Escrow Holder irrevocable written instructions to disburse such funds to the person or persons legally entitled thereto in exchange for a written release or termination of such lien or encumbrance).
6.3 Title Policy. The Title Companys issuance of an ALTA Policy in the amount of the Purchase Price showing title to the Land vested in Buyer, subject only to the Permitted Encumbrances, shall be conclusive evidence that Seller has complied with any covenant or obligation, express or implied, to convey to Buyer good and marketable title to the Land.
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7. Entitlement Covenants.
7.1 Development Covenants.
7.1.1 Buyers Covenant. Buyer hereby covenants (which covenant shall bind Buyers successors and assigns with respect to the Land) not to develop on the Land, and not to Seek to develop on the Land, any improvements of any kind that will fail to conform to the Acquired Rights, except as may be expressly provided otherwise in this Agreement. Notwithstanding the foregoing, Buyer may Seek additional parking rights with respect to the Land, so long as the Acquired Parking Rights plus all additional parking rights secured by Buyer with respect to the Land do not result in Buyer having the right to develop more than an aggregate of 1.4 parking spaces for each one thousand (1,000) square feet of gross floor area. Buyer hereby expressly acknowledges that (i) the South Design for Development establishes a minimum and maximum of 1.0 parking spaces for each one thousand (1,000) square feet of gross floor area for all Commercial Industrial uses other than Life Science Uses, and (ii) Seller is making no representation or warranty, express or implied, as to the right, power, or authority of any Governmental Authority to approve or grant, or the right or ability of any person or entity to obtain, more than an aggregate of 1.0 parking spaces for each one thousand (1,000) square feet of gross floor area for any Commercial Industrial use other than Life Science Uses. In addition, nothing in this Agreement shall be deemed, construed, or interpreted to prevent Buyer from applying to the Acquired Square Footage any definition regarding floor area set forth in the South Design for Development. In the event Buyer (or any successor or assign with respect to the Land) breaches or violates the covenant contained in this Paragraph 7.1.1, Seller may pursue all remedies available to Seller, at law or in equity, including, but not limited to, an action in equity or otherwise for specific performance of the foregoing covenant or an injunction against any breach or violation of such covenant. Buyer hereby agrees that the covenant contained in this Paragraph 7.1.1 is unique to Buyer and that any breach thereof could cause irreparable harm to Seller. Accordingly, Buyer agrees that an injunction is a proper and fair remedy for such a breach.
7.1.2 Excess Development. Seller hereby expressly acknowledges and agrees that it shall not be a breach or violation of the covenant set forth in Paragraph 7.1.1 above (i) if the total square footage developed on the Land exceeds the Acquired Square Footage, so long as any Other SFDC Square Footage necessary to cover such excess has been Conveyed to the Property Owner in accordance with the Master Developer Covenant and the Vesting Covenant (as the same may be amended, restated, replaced, or supplemented as of the Close of Escrow), and (ii) if the number of Towers developed on the Land exceeds the Acquired Tower Rights, so long as any Other SFDC Tower Rights necessary to cover such excess has been Conveyed to the Property Owner in accordance with the Master Developer Covenant and the Vesting Covenant (as the same may be amended, restated, replaced, or supplemented as of the Close of Escrow). The Conveyance of any square footage or Towers to the Property Owner, and the development of any such square footage or Towers on the Land, shall be subject to (x) compliance with all applicable requirements and/or procedures set forth in the Development
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Entitlements (including any placement and/or separation restrictions applicable to Towers contained in the South Design for Development), and (y) the receipt of any requisite approvals or consents from Governmental Authorities, including, without limitation, the Redevelopment Agency.
7.1.3 Sellers Covenant Regarding Acquired Rights. Seller hereby covenants (which covenant shall bind Sellers successors and assigns) to take all actions, both before and after the Close of Escrow, reasonably required to vest the Acquired Rights in Buyer, including the execution and delivery of any further agreements that may be reasonably required to fulfill such covenant. If Seller (or any successor or assign) breaches or violates the foregoing covenant, Buyer (or any other Property Owner) may pursue all remedies available to Buyer (or such Property Owner), at law or in equity, including, but not limited to, an action in equity or otherwise for specific performance of the foregoing covenant or an injunction against any breach or violation of such covenant. Seller hereby agrees that the covenant contained in this Paragraph 7.1.3 is unique to Seller and that any breach thereof could cause irreparable harm to Buyer (or any other Property Owner). Accordingly, Seller agrees that an injunction is a proper and fair remedy for such a breach.
7.1.4 Covenants Regarding Post-Closing Assistance.
(a) Seller hereby covenants (which covenant [***]) that, upon Buyers written request, delivered within [***], Seller shall [***] in connection with [***] (i) to secure [***], (ii) to obtain [***] in connection with [***], and/or (iii) to apply [***]. Such [***] is not intended to rise to the level of [***], but is intended to include [***] as providing [***] regarding the [***] and [***] and otherwise [***] in support of [***]. Notwithstanding any of the foregoing, under no circumstances shall Seller be required to [***] (x) to modify [***], to change or attempt to change [***] or to obtain or attempt to obtain [***], or (y) that Seller determines, in Sellers reasonable discretion, would [***]. Buyer shall [***] by Seller in providing [***] (including, but not limited to, [***] in connection with [***]) within [***] after Buyers receipt of [***], together with reasonably acceptable [***] thereof. If Seller [***], Buyer (or any other Property Owner) may [***], including, but not limited to, [***].
(b) Buyer hereby covenants (which covenant [***]) that, upon any Seller Party Owners written request, delivered within [***], Buyer shall [***] in connection with [***] (i) to secure [***], and/or (ii) to obtain [***] in connection with [***]. Such [***] is not intended to rise to the level of [***], but is intended to include [***] as providing [***] regarding the [***] and [***] and otherwise [***] in support of [***]. Notwithstanding any of the foregoing, under no circumstances shall Buyer be required to [***] (x) to modify [***], to change or attempt to change [***], or to obtain or attempt to obtain [***], or (y) that Buyer determines, in Buyers reasonable discretion, would [***]. The affected Seller Party Owner [***] by Buyer in providing [***] (including, but not limited to, [***] in connection with [***]) within [***] after such Seller Party Owners receipt of [***], together with reasonably acceptable [***] thereof. If Buyer [***], the affected Seller Party Owner may [***], including, but not limited to, [***].
7.1.5 Covenants Regarding Post-Closing Non-Interference.
(a) Seller hereby covenants (which covenant [***]), during the period commencing [***] and ending [***], not to [***] (i) to secure [***], (ii) to obtain [***] in connection with [***], (iii) to secure [***], so long as all additional [***] do not result in [***] more than an [***] for each [***], and/or (iv) to apply [***]. The foregoing covenant shall not prevent Seller [***] from [***] that Seller determines, in Sellers reasonable discretion, would [***]. Further, the foregoing covenant shall not prevent Seller [***] from [***] (x) to secure [***], and/or (y) to obtain [***], and it shall not be deemed, construed, or interpreted as [***] solely because [***] at or about the same time that [***]. If Seller [***], Buyer (or any other Property Owner) may [***], including, but not limited to, [***]. Seller hereby agrees that the covenant contained in this Paragraph 7.1.5(a) is [***] and that any breach thereof could [***]. Accordingly, Seller agrees that [***].
(b) Buyer hereby covenants (which covenant [***]), during the period commencing [***] and ending [***], not to [***] (i) to secure [***], and/or (ii) to obtain [***] in connection with [***]. The foregoing covenant shall not prevent Buyer [***] from [***] that Buyer determines, in Buyers reasonable discretion, would [***]. Further, the foregoing covenant shall not prevent Buyer [***] from [***] (x) to secure [***], and/or (y) to obtain [***], and it shall not be deemed, construed, or interpreted as [***] solely because [***] at or about the same time that [***]. If Buyer [***], the affected Seller Party Owner may [***], including, but not limited to, [***]. Buyer hereby agrees that the covenant contained in this Paragraph 7.1.5(b) is [***] and that any breach thereof could [***]. Accordingly, Buyer agrees that [***].
7.2 Entitlement Implementation - Before Close of Escrow. Before the Close of Escrow, Buyer shall have the right, subject to the limitations set forth below, to begin any process necessary to implement or to take advantage of the benefits of any of the Development Entitlements; provided, however, that, without Sellers consent (which consent may be granted or withheld in Sellers sole discretion exercised in good faith), Buyer shall not file any application or document with any Governmental Authority, or take any other action with respect to the development of the Land, if the same would be binding upon Seller and/or the Land before the Close of Escrow.
7.3 Survival. Buyers and Sellers respective obligations under this Paragraph 7 shall survive the Closing Date and shall not be merged with the Grant Deed.
8. Buyers Common Area Improvements; Infrastructure. Buyer shall be solely responsible for developing all improvements within the Land, including, without limitation, private streets, pedestrian walkways, private infrastructure, and landscaping and hardscaping in the open space and common areas within the Land. Pursuant to Paragraph 8 of the Vesting PSA, FOCIL (as Infrastructure Developer) agreed to cause to be constructed public Infrastructure up to and adjacent to, but not within, the Land (provided that Infrastructure Developer would only be
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responsible for the costs of constructing such Infrastructure to the extent such costs do not exceed the costs that would have been incurred in constructing the public Infrastructure as contemplated in the South Infrastructure Plan and the South Scope of Development). A schedule of the required Infrastructure improvements and the timing of their delivery was set forth in Exhibit K attached to the Vesting PSA. Seller shall assign to Buyer all of Sellers rights pursuant to Paragraph 8 and Exhibit K of the Vesting PSA (the Infrastructure Rights) by executing and delivering the Assignment of Infrastructure Rights. Notwithstanding the foregoing, Buyer, in its sole discretion, may elect to attempt to obtain a separate agreement from FOCIL (as Infrastructure Developer) regarding the construction of the public Infrastructure that will serve the Land, provided that the execution and delivery of such a separate agreement shall not constitute a condition to Buyers obligation to purchase the Property. Seller hereby covenants (which covenant shall bind Sellers successors and assigns) that Seller shall provide reasonable assistance to Buyer in connection with Buyers attempt to obtain such a separate agreement.
9. Planning and Mapping. From the Effective Date through the Termination Deadline, and thereafter until the Closing Date, Seller shall not further develop, negotiate, or process any Major Phase submittal(s) (referred to in the South OPA as Concept Plans) for the Land and/or any tentative or final parcel map(s) for the Land without Buyers written consent (which may be withheld or conditioned in Buyers sole discretion exercised in good faith); provided, however, that the foregoing restriction shall no longer apply upon the termination of this Agreement in accordance with its terms. Buyer shall be solely responsible after the Closing Date for obtaining any further entitlements for the Land (e.g., the preparation, submission, processing, and/or approval of any Major Phase submittal(s) and any tentative and final parcel maps). Pursuant to Paragraph 9 of the Vesting PSA, FOCIL (as Infrastructure Developer) and Seller agreed (i) to cooperate and consult with each other in all material aspects of the preparation, submission, processing, and/or approval of any of the foregoing to the extent they affect or relate to the costs of performing Infrastructure Developers obligation to construct Infrastructure (including, but not limited to, any change in the location or size of any component of the Infrastructure that would affect the costs thereof), and (ii) that any such aspects would be subject to Infrastructure Developers approval, which approval would not be unreasonably withheld, conditioned, or delayed. Buyer shall assume all of Sellers obligations under Paragraph 9 of the Vesting PSA by executing and delivering the Assignment of Infrastructure Rights. Notwithstanding the foregoing, Buyer, in its sole discretion, may elect to attempt to obtain a separate agreement from FOCIL (as Infrastructure Developer) regarding the limitations on Buyers efforts to obtain any further entitlements for the Land, provided that the execution and delivery of such a separate agreement shall not constitute a condition to Buyers obligation to purchase the Property. Seller hereby covenants (which covenant shall bind Sellers successors and assigns) that Seller shall provide reasonable assistance to Buyer in connection with Buyers attempt to obtain such a separate agreement.
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10. Conditions To Close of Escrow.
10.1 Conditions To Buyers Obligations. Buyers obligation to purchase the Property is subject to the satisfaction (or Buyers written waiver) of the conditions set forth in Attachment 1 attached hereto (Buyers Closing Conditions). Buyer may waive any of Buyers Closing Conditions, provided that any such waiver shall not affect Buyers ability to pursue any remedy Buyer may have with respect to any breach under this Agreement by Seller (except that Buyers remedy for any such breach may be limited as set forth in Paragraph 18.3 below).
10.2 Conditions To Sellers Obligations. Sellers obligation to sell the Property is subject to the satisfaction (or Sellers written waiver) of the conditions set forth in Attachment 2 attached hereto (Sellers Closing Conditions). Seller may waive any of Sellers Closing Conditions.
10.3 Failure of Conditions.
10.3.1 Failure of Buyers Conditions. If any of Buyers Closing Conditions is not either fully satisfied or waived in writing before the Close of Escrow, then Buyer may elect, by written notice to Seller and Escrow Holder, to terminate this Agreement, in which event the Deposit shall be returned to Buyer, Seller shall bear all Cancellation Charges (except as may be expressly provided otherwise in this Agreement), and the Parties shall have no further rights or obligations under this Agreement, except for the Surviving Obligations. Nothing in this Paragraph shall be construed to limit any of Buyers rights or remedies under Paragraph 20 below in the event of a default by Seller under this Agreement (except that Buyers remedy for any such breach may be limited as set forth in Paragraph 18.3 below).
10.3.2 Failure of Sellers Conditions. If any of Sellers Closing Conditions is not either fully satisfied or waived in writing before the Close of Escrow, then Seller may elect, by written notice to Buyer and Escrow Holder, to terminate this Agreement, in which event Buyer shall bear all Cancellation Charges (except as may be expressly provided otherwise in this Agreement) and the Parties shall have no further rights or obligations under this Agreement, except for the Surviving Obligations. Nothing in this Paragraph shall be construed to limit any of Sellers rights or remedies under Paragraph 19 below in the event of a default by Buyer under this Agreement.
11. Deposits By Seller. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Seller shall deposit or cause to be deposited with Escrow Holder the following documents and instruments:
11.1 Grant Deed. One (1) original counterpart of the Grant Deed, duly executed by Seller and acknowledged.
11.2 Assignment of South OPA. Three (3) original counterparts of the Assignment of South OPA, duly executed by Seller and acknowledged.
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11.3 Assignment of Infrastructure Rights. Three (3) original counterparts of the Assignment of Infrastructure Rights, duly executed by Seller (and, if appropriate, acknowledged).
11.4 Agreement Regarding Construction Obligations. Two (2) original counterparts of the Agreement Regarding Construction Obligations, duly executed by Seller (and, if appropriate, acknowledged), and one (1) original counterpart of a memorandum of the Agreement Regarding Construction Obligations, duly executed by Seller and acknowledged.
11.5 California Affidavit. An original California Affidavit, duly executed by Seller (and, if appropriate, acknowledged).
11.6 FIRPTA Certificate. An original FIRPTA Certificate, duly executed by Seller (and, if appropriate, acknowledged).
11.7 Infrastructure CFD Bond Disclosure Assumption Agreement. Three (3) original counterparts of the Infrastructure CFD Bond Disclosure Assumption Agreement, duly executed by Seller (and, if appropriate, acknowledged).
11.8 RMC Lease Assignment. Two (2) original counterparts of the RMC Lease Assignment, duly executed by Seller (and, if appropriate, acknowledged).
11.9 Other Instruments. Such other instruments and documents as may be required by the terms of this Agreement (including, but not limited to, Buyers Closing Conditions and/or Sellers Closing Conditions).
12. Deposits By Buyer. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Buyer shall deposit or cause to be deposited with Escrow Holder the following:
12.1 Funds. The Purchase Price Balance, plus Escrow Holders estimate of Buyers share of closing costs, prorations, and charges payable pursuant to this Agreement, all in Immediately Available Funds.
12.2 Grant Deed. One (1) original counterpart of the Grant Deed, with the Acceptance By Grantee duly executed by Buyer and acknowledged.
12.3 Assignment of South OPA. Three (3) original counterparts of the Assignment of South OPA, duly executed by Buyer and acknowledged.
12.4 Assignment of Infrastructure Rights. Three (3) original counterparts of the Assignment of Infrastructure Rights, duly executed by Buyer (and, if appropriate, acknowledged).
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12.5 Agreement Regarding Construction Obligations. Two (2) original counterparts of the Agreement Regarding Construction Obligations, duly executed by Buyer (and, if appropriate, acknowledged), and one (1) original counterpart of a memorandum of the Agreement Regarding Construction Obligations, duly executed by Buyer and acknowledged.
12.6 Infrastructure CFD Bond Disclosure Assumption Agreement. Three (3) original counterparts of the Infrastructure CFD Bond Disclosure Assumption Agreement, duly executed by Buyer (and, if appropriate, acknowledged).
12.7 RMC Lease Assignment. Two (2) original counterparts of the RMC Lease Assignment, duly executed by Buyer (and, if appropriate, acknowledged).
12.8 Other Instruments. Such other instruments and documents as are required by the terms of this Agreement (including, but not limited to, Buyers Closing Conditions and/or Sellers Closing Conditions).
13. Costs and Expenses. At the Close of Escrow, Seller shall pay: (a) one-half of Escrow Holders fees and charges, (b) the portion of the premiums for any title insurance policy obtained by Buyer (generally, Title Policy) that would be charged if such Title Policy were a CLTA Policy, (c) the cost of any endorsements to the Title Policy that may be necessary to insure over any Permitted Encumbrance specific to the Land that, in Buyers sole discretion exercised in good faith, materially and adversely affects title to, or the development or use of, the Land, and (d) all transfer taxes and/or deed stamps payable as a result of the conveyance of title to the Land to Buyer. At the Close of Escrow, Buyer will pay: (i) one-half of Escrow Holders fees and charges, (ii) the portion of the premiums for the Title Policy that exceeds the premium that would be charged for a CLTA Policy, (ii) the cost of any endorsements to the Title Policy other than the endorsements described in clause (c) above, plus the cost of any joint protection policy reasonably requested by Buyer, (iii) the premiums for any separate title insurance policy insuring the lien of any mortgage, deed of trust, or other security instrument recorded against any portion of the Land at the Close of Escrow, plus the cost of any endorsements to any such title insurance policy, and (iv) all recording fees. Notwithstanding the foregoing, nothing in this Agreement shall be deemed, construed, or interpreted to require either Party to pay any of the additional transfer taxes and/or deed stamps that will be payable as a result of the conveyance of title to the Land to Buyer if the Close of Escrow is extended to a date after November 1, 2010, and Proposition N is approved and takes effect before the Close of Escrow occurs. Before the Close of Escrow is extended to a date after November 1, 2010, the Parties shall agree, in good faith, as to each Partys obligation with respect to the additional transfer taxes and/or deed stamps that will be payable as a result of the conveyance of title to the Land to Buyer if Proposition N is approved and takes effect before the Close of Escrow occurs. Except as may be expressly provided otherwise in this Agreement, (x) each Party shall be responsible for its own expenses in connection with the negotiation and performance of this Agreement, and (y) if, as a result of no fault of Buyer or Seller, Escrow fails to close, all of Escrow Holders fees and charges shall be shared equally by Seller and Buyer.
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14. Prorations. The following prorations shall be made between Seller and Buyer on the Close of Escrow, computed as of the Close of Escrow:
14.1 Taxes and Assessments. General and special real and personal property taxes and other charges collected with general and special real and personal property taxes (such as assessments (including the CFD Assessments) levied by any Mello-Roos District affecting the Land (including the CFDs)) shall be prorated on the basis that Seller shall be responsible for (a) all such taxes and charges for the fiscal year of the applicable taxing authorities occurring before the Current Tax Period, and (b) that portion of such taxes and charges for the Current Tax Period determined on the basis of the number of days that have elapsed from the first day of the Current Tax Period to, but not including, the Closing Date, whether or not the same shall be payable before the Close of Escrow. If, as of the Close of Escrow, the actual tax bills for the year or years in question are not available and the amount of taxes and charges to be prorated cannot be ascertained, then rates and assessed valuation of the previous year, with known changes, shall be used, and when the actual amount of taxes and charges for the year or years in question shall be determinable, then such taxes and charges shall be re-prorated between the Parties to reflect the actual amount of such taxes and charges.
14.2 Revenues. Rentals, revenues, and other income (if any) from the Land shall be prorated as of the Closing Date to the extent actually collected (with all rentals due on or after the Closing Date being the sole property of Buyer). Delinquent rentals as of the Closing Date shall not be prorated, but when paid shall be the sole property of Buyer. To that end, Seller hereby irrevocably assigns to Buyer, as of the Closing Date, Sellers entire right, title, and interest in and to such delinquent rentals (including the right to collect the same). With respect to any amounts due under the RMC Lease that are subject to an annual or other periodic reconciliation (including payment of real estate taxes due from the lessee), Seller and Buyer shall cooperate to complete a reconciliation as of the Closing Date. On the Closing Date, Buyer shall receive a credit for the full amount of any security deposits required under the RMC Lease, any prepaid rentals already received by Seller from the lessee under the RMC Lease, any impounds already received by Seller from such lessee attributable to periods after the Closing Date, and any other sums owed by Seller to such lessee for work or disputes that occurred prior to the Closing Date or for work to be performed or allowances to be granted to any such lessee on or after the Closing Date.
14.3 Expenses. The Parties agree that the lessee under the RMC Lease pay all service contracts and utility costs directly, so such sums shall not be prorated at the Close of Escrow.
14.4 Escrow Statement. At least one (1) day before the Close of Escrow, the Parties shall agree upon all of the prorations to be made and submit a statement to Escrow Holder (or sign a statement prepared by Escrow Holder) setting forth such prorations. In the event that any prorations, apportionments, or computations made under this Paragraph 14 shall require final adjustment, then the Parties shall make the appropriate adjustments promptly when
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accurate information becomes available and either Party shall be entitled to an adjustment to correct the same. Any corrected adjustment or proration will be paid in cash to the Party entitled thereto.
15. Disbursements and Other Actions By Escrow Holder. Upon the Close of Escrow, Escrow Holder shall promptly undertake all of the following in the manner indicated:
15.1 Prorations. Prorate all matters referenced in Paragraph 14 based upon the statement delivered into Escrow signed by the Parties.
15.2 Recording. Cause the Grant Deed, the Assignment of South OPA, the memorandum of the Agreement Regarding Construction Obligations, and any other documents that the Parties may mutually direct, to be recorded in the Official Records and conformed copies thereof, showing all recording information, to be delivered to Buyer and Seller.
15.3 Funds. Disburse from funds deposited with Escrow Holder by Buyer towards payment of all items chargeable to the account of Buyer pursuant hereto in payment of such costs (including, without limitation, the payment to Seller of the Purchase Price), and disburse the balance of such funds, if any, to Buyer.
15.4 Title Policy. Issue the Title Policy to Buyer.
15.5 Documents To Seller. Deliver to Seller one (1) original of the Assignment of Infrastructure Rights, one (1) original of the Agreement Regarding Construction Obligations, one (1) original of the Infrastructure CFD Bond Disclosure Assumption Agreement, and one (1) original of the RMC Lease Assignment, together with any other documents to be delivered to Seller hereunder.
15.6 Documents To Buyer. Deliver to Buyer one (1) original of the Assignment of Infrastructure Rights, one (1) original of the Agreement Regarding Construction Obligations, one (1) original of the Infrastructure CFD Bond Disclosure Assumption Agreement, the original FIRPTA Certificate, the original California Affidavit, and one (1) original of the RMC Lease Assignment, together with any other documents to be delivered to Buyer hereunder.
16. Sellers Representations and Warranties. In consideration of Buyers execution and delivery of this Agreement, Seller hereby makes the following representations and warranties to Buyer. Where used in this Paragraph 16, the term Sellers knowledge, or similar phrases, shall refer to the then current, actual knowledge of [***], without any duty of separate investigation or inquiry. Seller represents and warrants that [***] (i) are the individuals affiliated with Seller and/or Alexandria who have the primary responsibility for overseeing the ownership, management, and operation of the Land, (ii) have had such primary responsibility for overseeing the ownership, management, and operation of the Land for at least one (1) year, and (iii) are the individuals affiliated with Seller and/or Alexandria who are most knowledgeable regarding the ownership, management, and operation of the Land. Seller further represents and
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warrants that (x) a general inquiry was sent to each other individual affiliated with Seller and/or Alexandria whose current responsibilities include any material aspect of the ownership, management, or operation of the Land, and (y) no such individual reported having any current, actual knowledge of any fact that would make any representation or warranty expressly set forth in this Paragraph 16 incorrect in any material respect. Buyer hereby agrees that none of the foregoing individuals shall have or incur any personal liability for the breach of any representation or warranty in this Agreement, and that Buyers sole remedy for any such breach shall be an action against Seller (but only to the extent otherwise permitted under the terms and conditions of this Agreement).
16.1 Organization. Seller is a limited liability company, duly organized and existing in good standing under the laws of the State of Delaware and qualified to do business in the State of California, with its principal place of business in the State of California.
16.2 Authority. Seller has the legal right, power, and authority to enter into this Agreement and to consummate the transactions contemplated in this Agreement. The execution, delivery, and performance of this Agreement by Seller have been duly authorized and, except as may be expressly set forth otherwise in this Agreement, no other action is required to the valid and binding execution, delivery, and performance of this Agreement by Seller.
16.3 No Conflicts. Sellers execution and delivery of this Agreement, Sellers consummation of the transactions contemplated in this Agreement, and Sellers compliance with the terms of this Agreement will not conflict with, or, with or without notice or the passage of time or both, result in a breach of any of the terms or provisions of, or constitute a default under, (a) Sellers formation documents, (b) any agreement (oral or written) to which Seller is a party or by which Seller is bound, (c) any applicable regulation of any Governmental Authority, or (d) any judgment, order, or decree of any court having jurisdiction over Seller.
16.4 No Preferential Rights. Except pursuant to instruments duly recorded in the Official Records, Seller has not granted any options or rights of first refusal or rights of first offer to third parties to purchase or otherwise acquire an interest in the Property that will survive the Close of Escrow.
16.5 No Material Violations. Seller has not received any written notice that the Land is in material violation or breach of, or material default under, the Master Commercial Declaration, the Environmental Covenant, the Risk Management Plan, or any Applicable Laws, and no claim based on any such violation, breach, or default is currently being asserted or pursued or, to Sellers knowledge, currently being threatened.
16.6 Files and Documents. To Sellers knowledge, Seller has delivered or made available to Buyer all files and documents relating to the Property in Sellers possession or control that could have a material effect on a reasonably prudent buyers decision whether to buy the Property.
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16.7 No Actions. Seller has not been served with a summons or other written notice of any legal action or proceeding against or affecting any part of the Property, and no such legal action or proceeding is currently pending or, to Sellers knowledge, currently threatened.
16.8 Leases. There are no lease or occupancy agreements affecting any portion of the Land other than the RMC Lease, and there are no third parties other than the current lessee under the RMC Lease who have any right to occupy any portion of the Land. The RMC Lease is in full force and effect, and neither Seller nor the current lessee under the RMC Lease is in material default under the RMC Lease.
16.9 Hazardous Materials. Except as may be disclosed in the Environmental Reports, Seller has not received any written notice of any violations or claims arising from Hazardous Materials with regard to the Land, and no action or proceeding based on any such violation or claim is currently being asserted or pursued or, to Sellers knowledge, currently being threatened.
16.10 OFAC. Seller and all beneficial owners and agents of Seller (provided that this representation and warranty shall not apply to the shareholders of any of the foregoing that is a publicly traded company) currently are (a) in compliance with (and shall at all times during the term of this Agreement remain in compliance with) the OFAC Rules, (b) not listed on (and shall not during the term of this Agreement be listed on) the Blocked Persons List, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.
17. Buyers Representations and Warranties. In consideration of Sellers execution and delivery of this Agreement, Buyer hereby makes the following representations and warranties to Seller.
17.1 Organization. Buyer is a limited liability company, duly organized and existing in good standing under the laws of the State of Delaware and qualified to do business in the State of California, with its principal place of business in the State of California.
17.2 Authority. Buyer has the legal right, power, and authority to enter into this Agreement and to consummate the transactions contemplated in this Agreement. The execution, delivery, and performance of this Agreement by Buyer have been duly authorized and, except as may be expressly set forth otherwise in this Agreement, no other action is required to the valid and binding execution, delivery, and performance of this Agreement by Buyer.
17.3 No Conflicts. Buyers execution and delivery of this Agreement, Buyers consummation of the transactions contemplated in this Agreement, and Buyers compliance with the terms of this Agreement will not conflict with, or, with or without notice or the passage of time or both, result in a breach of any of the terms or provisions of, or constitute a default under, (a) Buyers formation documents, (b) any indenture, deed of trust, mortgage, loan agreement, or other instrument or agreement (oral or written) to which Buyer is a party or by which Buyer is
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bound, (c) any applicable regulation of any Governmental Authority, or (d) any judgment, order, or decree of any court having jurisdiction over Buyer.
17.4 OFAC. Buyer and all beneficial owners and agents of Buyer (provided that this representation and warranty shall not apply to the shareholders of any of the foregoing that is a publicly traded company) currently are (a) in compliance with (and shall at all times during the term of this Agreement remain in compliance with) the OFAC Rules, (b) not listed on (and shall not during the term of this Agreement be listed on) the Blocked Persons List, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.
18. Limitation on Sellers Liability For Condition of Property.
18.1 AS IS, WHERE IS. Buyer acknowledges and agrees that Buyer is purchasing the Property in an AS IS, WHERE IS condition, without relying upon any representations or warranties, express or implied, of any kind, except as expressly set forth in Paragraph 16 above. Without limiting the above, Buyer acknowledges that neither Seller, except as expressly set forth in Paragraph 16 above, nor any other party has made any representations or warranties, express or implied, on which Buyer is relying as to any matters, directly or indirectly, concerning the Property, including, but not limited to, the dimensions of the Land, the improvements and infrastructure (if any), development rights and exactions, expenses, taxes, assessments, bonds, permissible uses, title exceptions, water or water rights, topography, utilities, zoning, soil, subsoil, drainage, environmental or building laws, rules, or regulations, Hazardous Materials, or any other matters affecting or relating to the Property.
18.2 Reliance On Buyers Own Investigation. Buyer acknowledges and agrees that Buyer is purchasing the Property based solely upon Buyers own inspection of the Land and Buyers own due diligence review and investigation of the Property, or the opportunity to perform such inspection, review, and investigation. Buyer further acknowledges and agrees that Sellers cooperation with Buyer in connection with such inspection, review, and investigation shall not be construed as any warranty or representation, express or implied, of any kind with respect to the Property, or with respect to the accuracy, completeness, or relevancy of any such documents, except as expressly set forth in Paragraph 16 above.
18.3 Release; Release Exceptions. Without limiting the generality of the foregoing or any other provision of this Agreement, but subject to Sellers express representations and warranties set forth in Paragraph 16 above, Buyer, for itself and, to the maximum extent permitted by Applicable Laws, on behalf of its Transferees with respect to any part of or interest in the Property (which, for purposes of this Paragraph 18.3, shall include any grant of occupancy rights for permanent improvements such as space leases), hereby expressly waives, releases, and relinquishes any and all Claims that Buyer or such Transferees may now or hereafter have against any Seller Party, and their respective successors and assigns, whether known or unknown, with respect to any past, present, or future presence or existence of
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Hazardous Materials at, on, about, under, or within any part of the Land or with respect to any past, present, or future violations of any Applicable Laws, now or hereafter enacted, regulating or governing the use, handling, storage, release, or disposal of Hazardous Materials at, on, about, under, or within any part of the Land, including, without limitation, (a) any and all rights Buyer or such Transferees may now or hereafter have to seek contribution from Seller under Section 113(f)(i) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C.A. §9613), as the same may be further amended or replaced by any similar law, rule, or regulation, (b) any and all rights Buyer or such Transferees may now or hereafter have against Seller under the Carpenter-Presley-Tanner Hazardous Substances Account Act (California Health and Safety Code, Section 25300 et seq.), as the same may be further amended or replaced by any similar law, rule, or regulation, (c) any and all Claims, whether known or unknown, now or hereafter existing, under Section 107 of CERCLA (42 U.S.C.A. §9607), with respect to any part of the Land, and (d) any and all Claims regarding Hazardous Materials at, on, about, under, or within any part of the Land, whether known or unknown, based on nuisance, trespass, or any other common law or statutory provisions (provided, however, that the foregoing waiver and release shall not apply to any Claims that may arise as a result of any acts or omissions of any Seller Party after the Closing Date). Notwithstanding the generality of the foregoing waiver and release, until the Complete Release Date such waiver and release shall not apply to or cover any Claims arising from any of the following (Release Exception Claims): (i) any fraud committed by any Seller Party in connection with the transactions contemplated in this Agreement; (ii) any intentional, reckless, or grossly negligent failure or refusal by any Seller Party to deliver or make available to Buyer any files or documents relating to the Property in Sellers possession or control that could have a material effect on a reasonably prudent buyers decision whether to buy the Property; (iii) any intentional, reckless, or grossly negligent violation of any Applicable Laws committed by any Seller Party with respect to the Property and/or the transactions contemplated in this Agreement; (iv) any intentional, reckless, or grossly negligent act committed by any Seller Party that results in material physical waste to the Land; or (v) any breach of a representation or warranty contained in Paragraph 16 above. If, however, Buyer has actual knowledge as of the Closing Date of the existence of any specific Release Exception Claim and Buyer nonetheless closes the transactions contemplated in this Agreement and acquires the Property, then Seller shall have no liability or obligation with respect to such specific Release Exception Claim, which shall be deemed released by Buyer upon the Close of Escrow. Buyer will not have any right to bring an action against Seller as a result of a Release Exception Claim unless and until the aggregate amount of all liability and losses arising out of such Release Exception Claim exceeds Twenty-Five Thousand Dollars ($25,000.00); provided, however, in no event will Sellers liability for all Release Exception Claims exceed, in the aggregate, Three Million One Hundred Eighty-Five Thousand Dollars ($3,185,000.00). After the Complete Release Date, Buyer may not maintain any action based on a Release Exception Claim unless Buyer has given Seller written notice of such Release Exception Claim prior to the Complete Release Date.
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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
BUYER HEREBY ACKNOWLEDGES THAT IT HAS READ AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542 (SECTION 1542), WHICH IS SET FORTH BELOW:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
BY INITIALING BELOW, BUYER HEREBY WAIVES THE PROVISIONS OF SECTION 1542 SOLELY IN CONNECTION WITH THE MATTERS THAT ARE THE SUBJECT OF THE WAIVERS AND RELEASES CONTAINED IN THIS PARAGRAPH 18.3.
Buyers Initials
The waivers and releases by Buyer contained in this Agreement shall survive the Close of Escrow and the recordation of the Grant Deed and will not be deemed merged into the Grant Deed upon its recordation.
19. Buyers Default.
19.1 LIQUIDATED DAMAGES. BUYER AND SELLER AGREE THAT, BASED ON THE CIRCUMSTANCES NOW EXISTING, KNOWN AND UNKNOWN, IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO ESTABLISH SELLERS DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES RELATING TO LOST ECONOMIC OPPORTUNITIES AND ATTORNEYS AND CONSULTANTS FEES AND EXPENSES) IF (A) SELLER FULLY PERFORMS ITS OBLIGATIONS UNDER THIS AGREEMENT, (B) BUYER DOES NOT ELECT TO TERMINATE THIS AGREEMENT IN ACCORDANCE WITH PARAGRAPH 5.3, PARAGRAPH 10.3.1, OR PARAGRAPH 21, AND (C) THE TRANSACTION CONTEMPLATED IN THIS AGREEMENT DOES NOT CLOSE AS A RESULT OF A BREACH BY BUYER OF BUYERS OBLIGATIONS UNDER THIS AGREEMENT. ACCORDINGLY, BUYER AND SELLER AGREE THAT, IN SUCH CIRCUMSTANCES, IT WOULD BE REASONABLE TO AWARD SELLER, AS SELLERS SOLE AND EXCLUSIVE REMEDY AT LAW OR IN EQUITY (EXCEPT AS OTHERWISE PROVIDED BELOW), LIQUIDATED DAMAGES EQUAL TO THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON). THEREFORE, IF (X) SELLER FULLY PERFORMS ITS OBLIGATIONS UNDER THIS AGREEMENT, (Y) BUYER DOES NOT ELECT TO TERMINATE THIS AGREEMENT IN ACCORDANCE WITH PARAGRAPH 5.3, PARAGRAPH 10.3.1, OR PARAGRAPH 21, AND (Z) THE TRANSACTION CONTEMPLATED IN THIS AGREEMENT DOES NOT CLOSE AS A RESULT OF A BREACH BY BUYER OF BUYERS OBLIGATIONS UNDER THIS
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AGREEMENT, THEN SELLER MAY INSTRUCT ESCROW HOLDER TO CANCEL THE ESCROW, WHEREUPON ESCROW HOLDER SHALL IMMEDIATELY PAY SELLER THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON) AND IMMEDIATELY THEREAFTER SHALL CANCEL THE ESCROW, AND SELLER SHALL BE RELIEVED FROM ALL OBLIGATIONS AND LIABILITIES UNDER THIS AGREEMENT, EXCEPT FOR ANY SURVIVING OBLIGATIONS. THE PAYMENT OF THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON) AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676, AND 1677.
19.2 SELLERS OTHER REMEDIES.
19.2.1 NOTHING CONTAINED IN THIS PARAGRAPH 19 SHALL SERVE TO WAIVE OR OTHERWISE LIMIT (A) SELLERS REMEDIES OR DAMAGES FOR CLAIMS AGAINST BUYER WITH RESPECT TO ANY OBLIGATIONS OF BUYER THAT, BY THE TERMS OF THIS AGREEMENT, SURVIVE THE CLOSE OF ESCROW OR ANY TERMINATION OF THIS AGREEMENT BEFORE THE CLOSE OF ESCROW, INCLUDING, WITHOUT LIMITATION, BUYERS INDEMNIFICATION OBLIGATIONS UNDER PARAGRAPH 9 OF THE INSPECTION AGREEMENT, OR (B) SELLERS RIGHTS TO OBTAIN FROM BUYER ALL COSTS AND EXPENSES OF ENFORCING THE LIQUIDATED DAMAGE PROVISION CONTAINED IN PARAGRAPH 19.1 ABOVE, INCLUDING LEGAL COSTS PURSUANT TO PARAGRAPH 25 BELOW.
19.2.2 THE PARTIES AGREE THAT SELLER WOULD SUFFER MATERIAL INJURY OR DAMAGE NOT COMPENSABLE BY THE PAYMENT OF MONEY IF BUYER WERE TO BREACH OR VIOLATE THE CONFIDENTIALITY OBLIGATIONS UNDER THE CNDA, PARAGRAPH 11 OF THE INSPECTION AGREEMENT, OR PARAGRAPH 27 BELOW. ACCORDINGLY, NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 19.1 ABOVE, IN ADDITION TO ALL OTHER REMEDIES THAT SELLER MAY HAVE, SELLER MAY BRING AN ACTION IN EQUITY OR OTHERWISE FOR SPECIFIC PERFORMANCE TO ENFORCE COMPLIANCE WITH THE CNDA, PARAGRAPH 11 OF THE INSPECTION AGREEMENT, OR PARAGRAPH 27 BELOW, OR AN INJUNCTION TO ENJOIN THE CONTINUANCE OF ANY SUCH BREACH OR VIOLATION THEREOF.
19.3 ACKNOWLEDGMENT. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS PARAGRAPH 19 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
Sellers Initials | Buyers Initials |
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20. BUYERS REMEDIES. IF SELLER FAILS TO CONVEY THE PROPERTY TO BUYER IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND SUCH FAILURE CONSTITUTES A DEFAULT BY SELLER UNDER THIS AGREEMENT, THEN BUYER SHALL BE ENTITLED TO SEEK ALL REMEDIES AVAILABLE TO BUYER, AT LAW OR IN EQUITY, INCLUDING AN ACTION FOR EQUITABLE RELIEF. SELLER HEREBY AGREES THAT THE PROPERTY IS UNIQUE AND THAT IF SELLER FAILS TO CONVEY THE PROPERTY TO BUYER IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND SUCH FAILURE CONSTITUTES A DEFAULT BY SELLER UNDER THIS AGREEMENT, SUCH FAILURE COULD CAUSE IRREPARABLE HARM TO BUYER. ACCORDINGLY, SELLER AGREES THAT EQUITABLE RELIEF IS A PROPER AND FAIR REMEDY FOR SUCH FAILURE. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS PARAGRAPH 20 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
Sellers Initials | Buyers Initials |
21. Casualty or Condemnation Before Close of Escrow. Seller shall notify Buyer of any casualty to the Land that occurs before the Close of Escrow or any condemnation proceeding that is commenced before the Close of Escrow promptly after Sellers receipt of written notice of such casualty or condemnation proceeding. If any such casualty or condemnation proceeding relates to or may result in the loss of more than ten percent (10%) of the Land, Buyer may elect, at its option, either to: (a) terminate this Agreement, in which event all funds deposited into Escrow by Buyer shall be returned to Buyer and neither Party shall have any further rights or obligations hereunder, or (b) continue this Agreement in effect, in which event Buyer shall be entitled, upon the Close of Escrow, to any compensation, awards, or other payments or relief resulting from such casualty or condemnation proceeding and there shall be no adjustment to the Purchase Price.
22. Buyers Insurance Requirements. Prior to the Close of Escrow, Buyer shall maintain at all times the insurance coverages required to be carried pursuant to the Inspection Agreement. Buyers compliance with such insurance requirements shall in no way relieve or decrease the liability of Buyer under its indemnity obligations contained in this Agreement or the Inspection Agreement.
23. Notices. All notices, requests, approvals, demands, directions, or other communications required or permitted under this Agreement (generally, Notices) shall be in writing, and shall be personally delivered, sent by a reputable overnight courier service, sent by registered or certified mail (postage prepaid, return receipt requested), or sent by telecopy or facsimile and shall be deemed received upon the earlier of (a) if personally delivered or sent by
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overnight courier, the date of delivery to the address of the Party to receive such Notice, (b) if mailed, the date of delivery as shown on the senders registry or certification receipt, or (c) if sent by telecopy or facsimile, the date and time transmission and receipt are confirmed if such time is prior to 6:00 p.m., and the next business day if such time is after 6:00 p.m. (using the time in effect at the address of the Party to receive such Notice). A copy of any Notice sent by telecopy or facsimile also must be personally delivered or sent by reputable overnight courier service (in accordance with this Paragraph) within forty-eight (48) hours of the transmission of such Notice by telecopy or facsimile, provided that failure to deliver such copy within forty-eight (48) hours will not invalidate any Notice actually received by the Party to whom the telecopy or facsimile was addressed. All notices to Seller shall be sent to Sellers Address with a copy to Sellers Counsels Address. All notices to Buyer shall be sent to Buyers Address with a copy to Buyers Counsels Address. All notices to Escrow Holder shall be sent to Escrow Holders Address. All copies of Notices (i.e., those provided to any person or entity other than the intended addressee) shall be given as a courtesy only, and the failure or inability to deliver any courtesy copy of any Notice will not invalidate the Notice given to the intended addressee. Notice of change of address shall be given by written notice in the manner detailed in this Paragraph. Rejection, refusal to accept (including, but not limited to, intentionally disconnecting ones telecopy or facsimile machine or otherwise preventing the receipt of a Notice sent by telecopy or facsimile), or the inability to deliver because of a changed address of which no Notice was given shall be deemed to constitute receipt of the Notice sent.
24. Brokers. Seller shall cause to be paid to Sellers Broker and Buyers Broker a commission in an amount agreed upon by Seller and Brokers pursuant to a separate agreement. Buyer represents to Seller that Buyer has not dealt with any broker, finder, or intermediary in connection with this transaction other than Buyers Broker, and Seller represents to Buyer that Seller has not dealt with any broker, finder, or intermediary in connection with this transaction other than Sellers Broker. Buyer agrees to indemnify and hold harmless Seller from any Claims in connection with an assertion by any person for a real estate brokers commission, finders fee, or other compensation based upon any statement, representation, or agreement of Buyer, and Seller agrees to indemnify and hold Buyer harmless from any such Claims based upon any statement, representation, or agreement of Seller. Each Partys obligations set forth in this Paragraph shall survive the termination of this Agreement and Escrow before the Close of Escrow.
25. Legal Costs. Should either Party institute any action or proceeding against the other Party, by reason of or alleging the failure of the other Party to comply with any or all of its obligations under this Agreement, whether for declaratory or other relief, then the Party that prevails in such action or proceeding shall be entitled, in addition to any other recovery or relief, to its reasonable attorneys fees and expenses and consultant and expert fees and expenses related thereto (whether at the administrative, trial, or appellate levels) (Legal Costs). Any judgment, order, or award entered in such action or proceeding shall contain a specific provision providing for the recovery of attorneys fees and costs and consultant and expert fees and expenses incurred in enforcing, perfecting, and executing such judgment. A Party shall be deemed to have
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prevailed in any such action or proceeding (without limiting the generality of the foregoing) if such action or proceeding is dismissed upon the payment by the other Party of the sums allegedly due or the performance of obligations allegedly not complied with, or if such Party obtains substantially the relief sought by it in the action or proceeding, irrespective of whether such action or proceeding is prosecuted to judgment. As used in this Agreement, the term Legal Costs shall include, without limitation, attorneys and experts fees, costs, and expenses incurred in the following: (a) post judgment motions and appeals; (b) contempt proceedings; (c) garnishment, levy, and debtor and third party examinations; (d) discovery; and (e) bankruptcy litigation. For purposes of this Agreement, reasonable fees of any in-house counsel for Seller or Buyer shall be based on the fees regularly charged by outside counsel for Seller or Buyer, as applicable, with an equivalent number of years of professional experience in the subject matter area of the law for which Sellers or Buyers in-house counsel services were rendered. This Paragraph shall survive any termination of this Agreement before the Close of Escrow and shall also survive the recordation of the Grant Deed and the Close of Escrow and shall not be deemed merged into the Grant Deed upon its recordation.
26. Transfers.
26.1 Prohibition On Buyers Right To Transfer. Prior to the Close of Escrow, Buyer shall not Transfer its rights and/or obligations under this Agreement without the written consent of Seller, which consent Seller may withhold in Sellers reasonable discretion. Notwithstanding the foregoing, Buyer shall have the right to Transfer all (but not part) of Buyers rights and obligations under this Agreement to any Affiliate of Buyer. At least ten (10) days before the closing date of the proposed Transfer, Buyer shall deliver to Seller an originally executed assumption agreement from the Transferee in form and substance reasonably acceptable to Seller under which the Transferee assumes all of the obligations of Buyer under this Agreement. Except as specifically set forth above, any attempt by Buyer to Transfer its rights and/or obligations under this Agreement without the written consent of Seller shall be voidable at Sellers option. No permitted Transfer shall relieve, alter, or release the assigning party from its primary liability under this Agreement without the written consent of Seller, which consent Seller may withhold in Sellers reasonable discretion.
26.2 Transfers By Seller. Seller shall not Transfer its rights and/or obligations under this Agreement without the written consent of Buyer, which consent Buyer may withhold in Buyers reasonable discretion.
27. Confidentiality.
27.1 Generally. The Parties acknowledge that all correspondence and communications between Seller and Buyer concerning information that is or becomes part of this Agreement is confidential and shall be subject to the terms and conditions of the CNDA; provided, however, notwithstanding the terms and conditions of the CNDA, either Party may disclose such information (i) to their respective attorneys, accountants, lenders, prospective
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lenders, partners, prospective partners, contractors, sub-contractors, consultants, sub-consultants, architects, (ii) to the extent required by law (including any filing or disclosure requirements of any Governmental Authority), and (iii) upon written approval of the other Party (not to be unreasonably withheld). In addition, after the Close of Escrow, Buyer may disclose such information to any prospective purchaser of any portion of the Property, provided such prospective purchaser has entered into (x) a written letter of intent, memorandum of understanding, or other agreement or understanding for the purchase of such portion of the Property, and (b) a written non-disclosure agreement that contains confidentiality and non-disclosure provisions substantially similar to the confidentiality and non-disclosure provisions in the CNDA.
27.2 Confidential Information. In addition to the confidentiality obligations set forth in Paragraph 27.1 above, Buyer shall handle all Confidential Information in compliance with the CNDA and Paragraph 11 of the Inspection Agreement, as applicable.
27.3 Survival. The terms, covenants, and conditions contained in this Paragraph 27 shall survive any termination of this Agreement and Escrow before the Close of Escrow.
28. Additional Covenants and Agreements.
28.1 CFDs.
28.1.1 Formation of CFDs; CFD Assessments. On January 11, 2000, the Redevelopment Agency approved the formation of the Maintenance CFD and the Infrastructure CFD. Buyer acknowledges that, pursuant to the CFDs, a lien of special tax has been established with respect to the Land. Nothing herein shall be deemed to require Seller to reimburse Buyer for any CFD Assessments or any other taxes or public or private assessments that may be owing with respect to the Property after the Close of Escrow, all of which shall be the sole responsibility of Buyer.
28.1.2 Section 53341.5 Acknowledgment. Prior to Buyers execution and delivery of this Agreement, Buyer delivered to Seller acknowledgments (the Notices of Special Tax) confirming that Buyer has been advised of the terms and conditions of the CFDs, including that the Land is subject to the CFD Assessments. Copies of the executed Notices of Special Tax are attached hereto as Exhibit L.
28.2 Construction Obligations. Buyer acknowledges that the Land is part of the South Project Area, and acknowledges that if construction of the Project is not commenced and completed with reasonable diligence, or if there is a material delay in its commencement and completion, such an event or delay may have a material adverse effect on the timely development of other portions of the South Project Area. In order to allocate the burdens of such a material adverse effect, Master Developer and Seller executed, delivered, and recorded the Existing Construction Agreement, which covers and encumbers the Land. Prior to the Close of
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Escrow, the Parties shall reasonably negotiate between themselves as to the terms and conditions of an agreement (the Agreement Regarding Construction Obligations) that will specify each Partys responsibility for any obligations that may arise or accrue under the Existing Construction Agreement after the Close of Escrow. The terms and conditions of the Agreement Regarding Construction Obligations shall be reasonably acceptable to each Party, and a memorandum of the Agreement Regarding Construction Obligations shall be recorded in the Official Records as of the Close of Escrow.
28.3 Environmental Inquiry. Buyer acknowledges that Seller has made available to Buyer, for Buyers inspection, a copy of all of the Environmental Reports.
28.4 Environmental Covenant Disclosure. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, a copy of the Environmental Covenant. Buyer acknowledges that the Land is subject to the Environmental Covenant, and Buyer hereby covenants to comply with such Environmental Covenant from and after the Close of Escrow. Without limiting the generality of the foregoing, the Environmental Covenant requires all Owners and Occupants (as therein defined) to include the following statement in all purchase agreements or leases relating to the Property:
(i) The land described herein may contain hazardous materials in soils and in the ground water under the property, and is subject to the following deed restrictions (collectively, the Covenant and Restriction): (A) Covenant and Environmental Restriction on Property dated as of February 23, 2000, and recorded in the Official Records on March 21, 2000, as Document No. 2000-G748552-00, Reel H598, Image 172 (affects Parcel One of the Land), and (B) Covenant and Environmental Restriction on Property dated as of February 3, 2000, and recorded in the Official Records on March 21, 2000, as Document No. 2000-G748551-00, Reel H598, Image 171 (affects Parcel Two of the Land). The Covenant and Restriction imposes certain covenants, conditions, `and restrictions on usage of the property described herein. This statement is not a declaration that a hazard exists.
(ii) In all future leases, licenses, permits, or other agreements between, on the one hand, an Owner or Occupant, and, on the other hand, another entity, which authorizes such entity to undertake or to engage in activities that are subject to one or more requirements set forth in the Risk Management Plan (RMP), the contracting Owner or Occupant will provide a copy of the RMP or its relevant provisions prior to execution of such agreements and ensure that such agreements contain covenants that (a) such entity will comply with the RMP (to the extent the RMP applies to the
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entitys activities); (b) such entity will obligate other entities with which it contracts for construction, property maintenance or other activities which may disturb soil or groundwater to comply with the applicable provisions of the RMP; and (c) such entity (and the entities with which it so contracts) will refrain from interfering with Owners or Occupants compliance with the RMP.
(iii) In all agreements between an Owner and another entity providing for access to the Property for the purpose of environmental mitigation, monitoring or remediation (Environmental Responses) by such entity, the Owner will provide that entity with a copy of the RMP prior to execution of such agreement and ensure that such agreements contain covenants by the entity that the entity will (a) comply with the RMP (to the extent the RMP applies to the entitys activities); and (b) obligate any person or company with which it contracts for Environmental Response that may disturb soil or groundwater to comply with the applicable provisions of the RMP.
(iv) The Owner will provide a copy of the RMP to any of its Transferees of a fee interest in all or any portion of the Property. The Owner will provide notice of the transfer and a map of the Mission Bay Development Area that delineates the parcel transferred to both the Board and the San Francisco Department of Public Health within 30 days after the transfer.
28.5 San Francisco Soils Analysis Disclosure. Buyer acknowledges and understands that the Land is located in an area of the City subject to the requirements of Article 20 of the San Francisco Public Works Code and Article 22A of the San Francisco Health Code, and in accordance with the requirements of Section 1233 of the San Francisco Health Code, Buyer hereby acknowledges receipt of a summary of such Articles, a copy of which is attached hereto as Exhibit I-1.
28.6 Natural Hazards Disclosure. Buyer acknowledges that Seller has made available to Buyer, for Buyers inspection, a copy of the Natural Hazards Statement.
28.7 Project Labor Agreement. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, a copy of the Project Labor Agreement. Buyer also acknowledges that: (a) the Land is Covered Property; and (b) the parties to the Project Labor Agreement agreed, to the fullest extent possible, to award all construction contracts for Covered Work to unionized construction firms, and further agreed to require, as a condition of any sale, conveyance, ground lease, or donation of any Covered Property, that any Covered Successor shall require any contractors to which the Covered Successor contracts Covered Work to sign
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and become a party to the Project Labor Agreement through the execution and delivery of a Successor Project Labor Agreement. Accordingly, at the Close of Escrow, Buyer shall execute and deliver to Seller an Agreement Regarding Successor Project Labor Agreement, pursuant to which Buyer (on behalf of all Covered Successors with respect to the Land) shall agree to require any contractors to which Covered Work is contracted to sign and become a party to the Project Labor Agreement through the execution and delivery of a Successor Project Labor Agreement.
28.8 Transactions With Tax Exempt Entities. Seller is obligated, pursuant to the terms and conditions of the Vesting PSA and a covenant contained in the Vesting Deed, to include in all agreements for the Transfer of all or any portion of the Land a contractually binding provision substantially in the form of Paragraphs 28.8.1 through 28.8.6 below (or such other provision as may be reasonably approved by the Redevelopment Agency and the City).
28.8.1 Transfers To Tax Exempt Entities. Buyer, on behalf of itself and its successors in title to all or any portion of the Land, agrees that during the term of the South OPA Buyer will not Transfer all or any portion of the Land to any entity for any use that is or could be exempt from property taxation (Tax Exempt Entity) without first obtaining: (a) from the Tax Exempt Entity a binding contractual commitment (a PILOT Agreement), in form and substance reasonably satisfactory to the Infrastructure Developer, the Redevelopment Agency, and the City, obligating such Tax Exempt Entity to make a payment in lieu of taxes equal to the full amount of the property taxes that would have been assessed against the applicable portion of the Land notwithstanding such ownership by a Tax Exempt Entity, or (b) the written consent of the Infrastructure Developer, the Redevelopment Agency, and the City, in their respective sole discretion.
28.8.2 Grants of Occupancy Rights To Tax Exempt Entities. Buyer, on behalf of itself and its successors in title to all or any portion of the Land, agrees that during the term of the South OPA Buyer will not grant a Tax Exempt Entity any occupancy rights for any new or existing permanent improvements (such as space leases) where, as the result of the occupancy, all or any portion of the improvements will be or could be exempt from property taxation unless: (a) the Tax Exempt Entity enters into a binding PILOT Agreement, in form and substance reasonably satisfactory to the Infrastructure Developer, the Redevelopment Agency, and the City, obligating such Tax Exempt Entity to make a payment in lieu of taxes equal to the amount by which the property taxes assessed against the Land may be reduced as a result of such occupancy by a Tax Exempt Entity, (b) the occupancy agreement expressly states that (i) Buyer shall be responsible for the payment of all property taxes allocable to the portion of the improvements occupied by the Tax Exempt Entity, (ii) no part of the property taxes assessed against the Property shall be payable or reimbursable by the Tax Exempt Entity, and (iii) the Tax Exempt Entity irrevocably waives any right to claim any exemption from property taxation with respect to the Property, (iii) Buyer enters into a binding PILOT Agreement, in form and substance reasonably satisfactory to the Infrastructure Developer, the Redevelopment Agency, and the City, obligating Buyer to continue paying the full amount of the property taxes assessed against the Land or to make a payment in lieu of taxes equal to the amount by which the property
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taxes assessed against the Land may be reduced as a result of such occupancy by a Tax Exempt Entity, or (iv) Buyer obtains the written consent of the Infrastructure Developer, the Redevelopment Agency, and the City, in their respective sole discretion.
28.8.3 Exceptions. The foregoing restriction shall not apply to (i) any Transfer of common areas to a non-profit owners association or similar entity or association formed to manage, own, operate, and/or maintain such common areas, or (ii) any Transfer to a natural person eligible for a partial exemption from property taxes solely on the basis of such persons entitlement to a homeowners exemption or disabled veterans exemption.
28.8.4 No Adjustments To Base Year Value. Buyer and Seller each hereby agrees not to request an adjustment to the Base Year Value for the South Project Area as a result of any Transfer permitted under this Agreement to any entity for a Tax Exempt Use. For purposes hereof, the term Base Year Value means the aggregate assessed value of property within the South Project Area on the assessment roll last equalized prior to the effective date of the ordinance adopting the Redevelopment Plan, and the term last equalized has the meaning set forth in Section 2052 of the California Revenue and Taxation Code.
28.8.5 Inclusion In Future Agreements. Buyer shall include in all agreements for the Transfer of all or any portion of the Land a contractually binding provision substantially in the form of this Paragraph 28.8 (or such other provision as may be reasonably approved by the Redevelopment Agency and the City).
28.8.6 Survival. Buyers obligations under this Paragraph 28.8 shall survive the recordation of the Grant Deed and the Close of Escrow and shall not be deemed merged into the Grant Deed upon its recordation.
28.8.7 Recorded PILOT. In order to impose against the Land the covenants and agreements set forth in the preceding Paragraphs 28.8.1 through 28.8.4, Seller and FOCIL, with the consent and agreement of the Redevelopment Agency, have entered into the Tax Payment Agreement. Buyer expressly acknowledges that Buyer has received and, before the Termination Deadline, Buyer will have reviewed, such Tax Payment Agreement.
28.9 Excavation Costs. Buyer acknowledges and agrees that Buyer has the sole responsibility and liability, at Buyers sole cost, for developing and constructing the Project in accordance with all Applicable Laws. Without limiting the foregoing, if Buyers development of the Project generates excess soil that cannot be re-used on the Property, either because such re-use would be inconsistent with the provisions of the RMP or for geotechnical reasons, Buyer shall be responsible, at Buyers sole cost, for transporting and disposing of such excess soil off-site.
28.10 Master Association and TMA. Without limiting the generality of the foregoing provisions of this Paragraph 28, Buyer acknowledges that the Land is included within the property covered by the Master Commercial Declaration and that the owner of the Land is
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obligated to participate in the TMA. Buyer further acknowledges that the Land will be subject to the covenants, conditions, and restrictions contained in the Master Commercial Declaration and to participation in the Master Association and the TMA, and that Buyer will be responsible for all assessments that may be owing with respect to the Land following the Close of Escrow with respect to the Master Association and the TMA.
28.11 Infrastructure CFD Bond Disclosure Certificates. Buyer acknowledges that the Infrastructure CFD Bond Disclosure Certificates require various ARE Parties to provide semiannual and annual reports and notices of significant events to the Redevelopment Agency of the character described in Section 3 and Section 4 of the Infrastructure CFD Bond Disclosure Certificates. Buyer shall assume all continuing disclosure obligations under the Infrastructure CFD Bond Disclosure Certificates that apply to the Land by executing and delivering an assumption agreement (the Infrastructure CFD Bond Disclosure Assumption Agreement), that contains terms substantially similar to those in the Infrastructure CFD Bond Disclosure Certificates and that otherwise qualifies as an Assumption Agreement (as defined in the Infrastructure CFD Bond Disclosure Certificates).
29. Compliance With Development Entitlements.
29.1 Generally. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, copies of the Development Entitlements (including, without limitation, the RMP and the Environmental Covenant). Buyer also acknowledges that Buyer will be responsible following the Close of Escrow for all fees and costs related to the development of the Project in accordance with the Development Entitlements and all Applicable Laws.
29.2 Diversity Program. Without limiting the generality of Paragraph 29.1 above, Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, copies of the Program in Diversity/Economic Development Program, which is set forth in Attachment H to the South OPA (the Diversity Program). Buyer also acknowledges that (i) the Diversity Program provides for the arbitration of certain disputes under the circumstances set forth in the Diversity Program, and (ii) Schedule 4, Section I.C of the Diversity Program references the City-wide First Source Hiring Program (FSHP) adopted by the City and County of San Francisco August 3, 1998, and codified at San Francisco Administrative Code Sections 83.1-83.1(8). The FSHP is designed to identify entry-level positions associated with employees engaged in construction work for certain commercial development projects and to provide first interview opportunity to graduates of city-sponsored training programs. Buyer further acknowledges that Buyers activities with respect to the Property are or may be subject to the FSHP, and that the FSHP and the Diversity Program may impose obligations on Buyer, including good faith efforts to meet requirements and goals regarding interviewing, recruiting, hiring, and retention of certain individuals.
29.3 Non-Discrimination. Without limiting the generality of Paragraph 29.1 above, Buyer acknowledges that the South OPA expressly provides that there shall be no
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discrimination against or segregation of persons or groups of persons or any employee or applicant for employment on account of race, color, creed, religion, national origin, ancestry, sex, marital or domestic partner status, familial status, lawful source of income (as defined in Section 3304 of the San Francisco Police Code), gender identity, sexual orientation, age, or disability (including, without limitation, HIV/AIDS status) in the sale, lease, sublease, transfer, use, occupancy, tenure, or enjoyment of the Property. All deeds, leases, or contracts for the sale, lease, sublease, or other transfer of all or any portion of the Property are required to contain the foregoing nondiscrimination and nonsegregation provision.
29.4 Mitigation Measures. Without limiting the generality of Paragraph 29.1 above, Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, the applicable mitigation measures of the South OPA, which are set forth in Attachment L to the South OPA. Buyer also acknowledges that Buyer will be responsible following the Close of Escrow for complying with and doing all things necessary to perform the obligations of Owner (as therein defined) pertaining to the Land.
30. 1031 Exchange. At its option, either Seller or Buyer may structure this transaction as an Exchange. If either Party shall elect to undertake an Exchange, the following terms shall apply, as may be applicable:
(a) The exchanging Party (Exchanging Party) shall give written notice to the other Party and Escrow Holder not later than seven (7) business days prior to the Closing Date of its intention to structure this transaction as an Exchange;
(b) The Exchanging Party may assign (in part or in whole) its right in this Agreement, as well as the transfer of its interest in the Property, to an exchange accommodator or an exchange accommodation titleholder (either, an Accommodator) selected by the Exchanging Party, and may add the Accommodator as an additional party to the Escrow, provided that (i) such assignment shall not release the Exchanging Party of sole responsibility for its representations, warranties, undertakings, covenants, indemnities, and obligations hereunder, (ii) the non-Exchanging Party shall not be required to take an assignment of the purchase agreement for any other property or be required to acquire or hold title to any other property for purposes of consummating any such Exchange, and (iii) all conveyance documents to be delivered at the Close of Escrow shall be directly between Buyer and Seller;
(c) Buyer and Seller agree to reasonably cooperate with one another in connection with any Exchange, including the execution of documents for such Exchange (including, but not limited to, escrow instructions and amendments to escrow instructions);
(d) The non-Exchanging Party shall in no way be obligated to pay any escrow costs, brokerage commissions, title charges, survey costs, recording costs or other charges incurred with respect to any other property in connection with any Exchange;
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(e) The Close of Escrow shall not be contingent upon or otherwise subject to the consummation of any Exchange;
(f) Escrow shall timely close in accordance with the terms of this Agreement notwithstanding any failure, for any reason, of the Exchanging Party to consummate any such Exchange; provided, however, that the Exchanging Party shall have a one-time right to extend the Closing Date for up to thirty (30) days in order to complete such Exchange by delivering written notice to Escrow Holder and the non-Exchanging Party at least seven (7) business days prior to the Closing Date;
(g) The non-Exchanging Party shall have no responsibility or liability to any third party involved in any Exchange, and the Exchanging Party shall indemnify and defend the non-Exchanging Party and hold the non-Exchanging Party harmless against any and all claims, damages, liabilities, losses, costs and expenses, including, without limitation, attorneys fees and costs, arising out of or in any way connected with any Exchange that the non-Exchanging Party would not have incurred but for such Exchange, including, but not limited to, any liabilities, losses, costs, or expenses incurred or sustained by the non-Exchanging Party in the event the non-Exchanging Party is audited or questioned in connection with such Exchange;
(h) The non-Exchanging Party shall not be required to make any representations or warranties, to assume any obligations, or to spend any out-of-pocket sum in connection with any Exchange; and
(i) All representations, warranties, undertakings, covenants, indemnities, and obligations of the Parties to each other, whether set forth in this Agreement or otherwise existing at law or at equity, shall inure to the benefit of the Parties, notwithstanding any Exchange.
31. Miscellaneous.
31.1 Survival of Covenants. In addition to the provisions otherwise expressly set forth in this Agreement, (a) the representations and warranties of Buyer and Seller set forth in this Agreement, and (b) all covenants made by Buyer and Seller in this Agreement pursuant to which Buyer and Seller, by the terms of such covenants, will have continuing rights or obligations under this Agreement following the Close of Escrow shall survive the recordation of the Grant Deed and the Close of Escrow and shall not be deemed merged into the Grant Deed upon its recordation; provided, however, that the representations and warranties of Seller set forth in this Agreement shall remain operative and shall survive the Close of Escrow and the recordation of the Grant Deed only until the Complete Release Date, and no action or claim based thereon shall be commenced after the Complete Release Date (unless, prior to the Complete Release Date, Buyer has given Seller written notice of a Release Exception Claim based on a breach of a representation or warranty of Seller set forth in this Agreement).
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31.2 No Other Offers. From the Effective Date through the Termination Deadline, and thereafter until the Closing Date, Seller shall not solicit or accept any offers, whether or not binding, regarding the Property; provided, however, that the foregoing restriction shall no longer apply upon the termination of this Agreement in accordance with its terms.
31.3 Required Actions of Buyer and Seller. Buyer and Seller agree to execute such instruments and documents and to undertake such actions as may be required in order to consummate the purchase and sale of the Property and shall use good faith efforts to accomplish the Close of Escrow in accordance with the provisions hereof.
31.4 Time of Essence. Time is of the essence of each and every term, condition, obligation, and provision hereof. All references herein to a particular time of day shall be deemed to refer to the time in effect in San Francisco, California.
31.5 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute a single agreement with the same effect as if all Parties had signed the same signature page. Any signature page from any counterpart of this Agreement , signed only by one Party, may be detached from such counterpart and re-attached to any other counterpart of this Agreement that has a signature page signed only by another Party, without impairing the legal effect of any of the signatures.
31.6 Captions. Any captions to, or headings of, the Paragraphs or subparagraphs of this Agreement are solely for the convenience of the Parties, are not a part of this Agreement, and shall not be used for the interpretation or determination of the validity of this Agreement or of any provision of this Agreement.
31.7 No Obligations To Third Parties. Except as may be expressly provided otherwise in this Agreement, the execution and delivery of this Agreement shall not be deemed to confer any rights upon, nor obligate any of the Parties, to any person or entity other than the Parties.
31.8 Exhibits. The Attachments and Exhibits attached to this Agreement are hereby incorporated herein by this reference for all purposes.
31.9 Amendment To Agreement. The terms of this Agreement may not be modified or amended except by an instrument in writing executed by each of the Parties.
31.10 Waiver. The waiver or failure to enforce any provision of this Agreement shall not operate as a waiver of any future breach of any such provision or of any other provision of this Agreement.
31.11 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California.
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31.12 Fees and Other Expenses. Except as may be expressly provided otherwise in this Agreement, each Party shall pay its own fees and expenses in connection with this Agreement.
31.13 Partial Invalidity. If any portion of this Agreement as applied to either Party or to any circumstances shall be adjudged by a court to be void or unenforceable, such portion shall be deemed severed from this Agreement and shall in no way effect the validity or enforceability of any remaining portion of this Agreement.
31.14 Successors and Assigns. Subject to the provisions of Paragraph 26 above, this Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties.
31.15 Independent Counsel. Buyer and Seller each acknowledge that: (a) they have been represented by independent counsel in connection with this Agreement; (b) they have executed this Agreement with the advice of such counsel; and (c) this Agreement is the result of negotiations between the Parties and the advice and assistance of their respective counsel. The fact that this Agreement was prepared by Sellers counsel as a matter of convenience shall have no import or significance. Any uncertainty or ambiguity in this Agreement shall not be construed against Seller because Sellers counsel prepared this Agreement in its final form.
31.16 Deadlines. If the last day of any period to give notice, reply to a notice, or undertake any other action under this Agreement occurs on a Saturday, Sunday, or state holiday, then the last day for such action shall be the next succeeding day that is not a Saturday, Sunday, or state holiday.
31.17 Extension of Time. A delay in the completion of any obligation under this Agreement as a result of an Unavoidable Delay shall extend the deadline for completion of such obligation for the period of the Unavoidable Delay, provided that (a) if the Party seeking to rely upon such provisions shall fail to give notice to the other Party of such Unavoidable Delay and the cause or causes thereof, to the extent known, within three (3) business days after obtaining knowledge of the beginning of the delay, the period of any Unavoidable Delay shall be reduced for the period of time prior to the delivery of such notice, (b) the period of any Unavoidable Delay shall also be reduced by any portion of such delay resulting from the failure of the Party claiming the Unavoidable Delay to act diligently and in good faith to avoid foreseeable delays in performance, and to remove the cause of the delay or to develop a reasonable alternative means of performance, and (c) the total extension for all Unavoidable Delays shall not exceed sixty (60) days.
31.18 Entire Agreement. This Agreement, the Inspection Agreement, and the CNDA supersede any prior agreements, negotiations, and communications, oral or written, including the Letter of Intent dated August 13, 2010, and any other letter of intent or memorandum of understanding previously executed by the Parties to this Agreement (if any), and contains the entire agreement between Buyer and Seller as to the subject matter of this
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Agreement, the Inspection Agreement, and the CNDA. No subsequent agreement, representation, or promise made by either Party, or by or to an employee, officer, agent, or representative of either Party, shall be of any effect unless it is in writing and executed by the Party to be bound thereby.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first written above.
Seller |
ARE-SAN FRANCISCO NO. 22, LLC, a Delaware limited liability company | |||||||||
By: |
ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, Managing Member | |||||||||
By: |
ARE-QRS CORP., a Maryland corporation, General Partner | |||||||||
By: /s/ Eric S. Johnson | ||||||||||
Print Name: Eric S. Johnson | ||||||||||
Print Title: Vice President Real Estate Legal Affairs | ||||||||||
Buyer |
BAY JACARANDA NO. 3334, LLC, a Delaware limited liability company | |||||||||
By: |
Bay Jacaranda Holdings, LLC, a Delaware limited liability company, Its Sole Member | |||||||||
By: |
salesforce.com, inc., a Delaware corporation, Its Sole Member | |||||||||
/s/ David Schellhase | ||||||||||
By: David Schellhase | ||||||||||
Title: Executive Vice President, Legal |
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Acceptance By Escrow Holder:
The undersigned hereby acknowledges that they have received originally executed counterparts or a fully executed original of the foregoing Agreement of Purchase and Sale and Joint Escrow Instructions (the Agreement) and agrees to act as Escrow Holder thereunder and to be bound by and perform the terms thereof as such terms apply to Escrow Holder.
The undersigned hereby agrees to use commercially reasonable efforts to keep confidential the existence and contents of, and the parties to, the Agreement, and shall not disclose any such information to any third party, except to the extent a disclosure is reasonably necessary (i) for Escrow Holder to enforce its rights or defend itself in connection with the Agreement; (ii) for submissions to any local, state, or federal regulatory body; or (iii) for compliance with a valid order of a court or other governmental body having jurisdiction, or any law, statute, or regulation, provided that, in the event of a disclosure under clause (iii) above, Escrow Holder use commercially reasonable efforts to give the parties to the Agreement reasonable prior written notice of such required disclosure in order to permit such parties to seek confidential treatment of, or a protective order preventing or limiting the disclosure or use of, the information to be disclosed.
Dated: October , 2010 |
FIRST AMERICAN TITLE INSURANCE COMPANY | |||
By: |
|
Print Name: |
| |||
Its: Authorized Agent |
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ATTACHMENT 1
BUYERS CLOSING CONDITIONS
All initially capitalized terms not expressly defined when used in this Attachment 1 shall have the meanings given to such terms in the Agreement.
1. Condition of Land. Subject to the provisions of Paragraph 21 of the Agreement, the condition of the Land shall be substantially the same as of the Close of Escrow as on the Effective Date, except for reasonable wear and tear and any damages due to any act of any Buyer Party or any of Buyers Agents.
2. Condition of Title. The Title Company shall be committed to issue at the Close of Escrow, upon payment of its regularly scheduled premium, an ALTA Policy, in the amount of the Purchase Price showing title to the Land vested in Buyer, subject only to the Permitted Encumbrances.
3. Sellers Obligations. Seller shall have performed all of the covenants, undertakings, and obligations to be performed by Seller pursuant to this Agreement at or before the Close of Escrow. In addition, each Seller Party shall have performed all of the covenants, undertakings, and obligations to be performed by such Seller Party pursuant to any other contract or agreement with any Buyer Party, and all of the conditions to the obligation of such Buyer Party to perform fully under such other contract or agreement shall have been satisfied or waived.
4. Sellers Representations and Warranties. Sellers representations and warranties in Paragraph 16 of the Agreement shall be true and correct as of the Close of Escrow.
5. South Redevelopment Plan / South OPA. Any conditions set forth in the South Redevelopment Plan and/or the South OPA to the transfer of the Property from Seller to Buyer shall have been satisfied, and the Redevelopment Agency shall have delivered the Assignment of South OPA to Buyer or Escrow Holder, duly executed by the Redevelopment Agency and acknowledged. In addition, Seller shall have provided to the Redevelopment Agency any other agreements that the Redevelopment Agency may reasonably require in connection with the transfer of the Property from Seller to Buyer.
6. Acquired Square Footage / Tower Rights / Parking Rights. Seller shall have provided to Buyer and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to comply with the Master Developer Covenant and/or the Vesting Covenant, or to amend, restate, replace, or supplement the Master Developer Covenant and/or the Vesting Covenant as they apply to the Land, and shall have executed any other documents that Buyer may reasonable require, in order (i) to transfer the Acquired Square Footage, the Acquired Tower Rights, and the Acquired Parking Rights from Seller to Buyer,
ATTACHMENT 1
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(ii) to give Property Owner the right to Convey to any Other SFDC Owner any part of the Acquired Square Footage (or any part of the Other SFDC Square Footage previously Conveyed to Property Owner), (iii) to give any Other SFDC Owner the right to Convey to Property Owner any part of the Other SFDC Square Footage (or any part of the Acquired Square Footage previously Conveyed to such Other SFDC Owner), (iv) to give Property Owner the right to Convey to any Other SFDC Owner any part of the Acquired Tower Rights (or any part of the Other SFDC Tower Rights previously Conveyed to Property Owner), and (v) to give any Other SFDC Owner the right to Convey to Property Owner any part of the Other SFDC Tower Rights (or any part of the Acquired Tower Rights previously Conveyed to such Other SFDC Owner). Seller also shall have caused any other ARE Owners that will own property after the Close of Escrow within Height Zone 5 (as defined in the South Design for Development) to provide to Buyer and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to ensure that Buyer may exercise the Acquired Tower Rights upon the Close of Escrow.
7. Sellers Covenant. Seller shall have caused the other ARE Owners to provide to Buyer written covenants that are substantively identical to the covenants contained in Paragraphs 7.1.3, 7.1.4(a), and 7.1.5(a) of the Agreement.
8. Infrastructure Rights. Seller shall have provided to Buyer and/or the Infrastructure Developer any information, agreements, and/or undertakings that may be reasonably necessary to cause the Infrastructure Developer to consent to the Assignment of Infrastructure Rights (which consent shall include an agreement from the Infrastructure Developer that, after the Close of Escrow, Infrastructure Developers obligations with respect to the Infrastructure Rights shall be direct obligations to Buyer).
9. Construction Obligations. Seller and Buyer shall have agreed to the terms and conditions of the Agreement Regarding Construction Obligations.
10. RMC Lease. Seller shall have obtained and delivered to Buyer an original estoppel certificate executed on behalf of the current lessee under the RMC Lease, which estoppel certificate shall be in form and substance reasonably satisfactory to Buyer. In addition, Seller shall have deposited into the Escrow a written assignment of the RMC Lease to Buyer (the RMC Lease Assignment).
11. No Moratoria. No moratorium, statute, regulation, ordinance, or federal, state, or local legislation, and no order, judgment, ruling, or decree of any Governmental Authority, shall have been enacted, adopted, issued, entered, or pending that would materially and adversely affect Buyers intended use of the Property.
12. No Bankruptcy. No action or proceeding shall have been commenced by or against Seller under the federal bankruptcy code or any state law for the relief of debtors or for
ATTACHMENT 1
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the enforcement of the rights of creditors, and no attachment, execution, lien, or levy shall have attached to or been issued with respect to any portion of the Property.
ATTACHMENT 1
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ATTACHMENT 2
SELLERS CLOSING CONDITIONS
All initially capitalized terms not expressly defined when used in this Attachment 2 shall have the meanings given to such terms in the Agreement.
1. Buyers Obligations. Buyer shall have performed all of the covenants, undertakings, and obligations to be performed by Buyer pursuant to this Agreement at or before the Close of Escrow (including, but not limited to, the obligation to deposit with Escrow Holder all funds required under this Agreement). In addition, each Buyer Party shall have performed all of the covenants, undertakings, and obligations to be performed by such Buyer Party pursuant to any other contract or agreement with any Seller Party, and all of the conditions to the obligation of such Seller Party to perform fully under such other contract or agreement shall have been satisfied or waived.
2. Buyers Representations and Warranties. Buyers representations and warranties in Paragraph 17 of the Agreement shall be true and correct as of the Close of Escrow.
3. South Redevelopment Plan / South OPA. Any conditions set forth in the South Redevelopment Plan and/or the South OPA (i) to the transfer of the Property from Seller to Buyer, and (ii) to the release of Seller from any obligations under the South Redevelopment Plan and/or the South OPA applicable to the Property, shall have been satisfied, and the Redevelopment Agency shall have delivered the Assignment of South OPA to Seller or Escrow Holder, duly executed by the Redevelopment Agency and acknowledged. In addition, Buyer shall have provided to the Redevelopment Agency any other information, agreements, and/or undertakings that the Redevelopment Agency may reasonably require in connection with the transfer of the Property from Seller to Buyer and/or the release of Seller from any obligations under the South Redevelopment Plan and/or the South OPA applicable to the Property.
4. Acquired Square Footage / Tower Rights / Parking Rights. Buyer shall have provided to Seller and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to comply with the Master Developer Covenant and/or the Vesting Covenant, or to amend, restate, or replace the Master Developer Covenant and/or the Vesting Covenant as they apply to the Land, in order to transfer the Acquired Square Footage, the Acquired Tower Rights, and the Acquired Parking Rights from Seller to Buyer.
5. Infrastructure Rights. Buyer shall have provided to Seller and/or the Infrastructure Developer any information, agreements, and/or undertakings that may be reasonably necessary to cause the Infrastructure Developer to consent to the Assignment of Infrastructure Rights (which consent shall include an agreement from the Infrastructure Developer that, after the Close of Escrow, Infrastructure Developers obligations with respect to the Infrastructure Rights shall be direct obligations to Buyer).
ATTACHMENT 2
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6. Construction Obligations. Seller and Buyer shall have agreed to the terms and conditions of the Agreement Regarding Construction Obligations.
7. Infrastructure CFD Bond Disclosure Certificates. Buyer shall have provided to Seller and/or the Redevelopment Agency any information, agreements, and/or undertakings that may be reasonably necessary to cause the Redevelopment Agency to release Seller from any obligations under the Infrastructure CFD Bond Disclosure Certificates.
8. No Bankruptcy. No action or proceeding shall have been commenced by or against Buyer under the federal bankruptcy code or any state law for the relief of debtors or for the enforcement of the rights of creditors, and no attachment, execution, lien, or levy shall have attached to or been issued with respect to any portion of any funds deposited with Escrow Holder under this Agreement.
ATTACHMENT 2
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EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
Real property in the City of San Francisco, County of San Francisco, State of California, described as follows:
PARCEL ONE:
LOT 1, BLOCK 8725, AS SHOWN ON THAT CERTAIN MAP ENTITLED MAP OF MISSION BAY RECORDED JULY 19, 1999, IN BOOK Z OF MAPS, PAGES 97-119, IN THE OFFICE OF THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA, AS CORRECTED BY THAT CERTAIN CERTIFICATE OF CORRECTION RECORDED SEPTEMBER 16, 2002, IN REEL I223, IMAGE 596, AS INSTRUMENT NUMBER 2002-H244619-00, IN THE OFFICE OF SUCH RECORDER.
EXCEPTING THEREFROM, THE FOLLOWING:
AS EXCEPTED AND RESERVED FOREVER BY THE STATE OF CALIFORNIA IN THAT CERTAIN PATENT DATED JUNE 14, 1999, TO THE CITY AND COUNTY OF SAN FRANCISCO, A CHARTER CITY AND COUNTY, IN TRUST, RECORDED JULY 19, 1999, IN REEL H429, IMAGE 507, SERIES NO. 99-G622155-00, OFFICIAL RECORDS OF THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA, FROM THAT PORTION OF THE ABOVE DESCRIBED REAL PROPERTY LYING WITHIN THE BOUNDARIES OF MINERAL RIGHTS PARCEL 11 DESCRIBED IN SUCH PATENT, THE FOLLOWING:
ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED IN THE ABOVE REFERRED TO MINERAL RIGHTS PARCEL 11, INCLUDING, BUT NOT LIMITED TO, OIL AND GAS AND RIGHTS THERETO, TOGETHER WITH THE SOLE, EXCLUSIVE, AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE, AND DISPOSE OF THOSE MINERALS BY ANY MEANS OR METHODS SUITABLE TO THE STATE OF CALIFORNIA OR TO ITS SUCCESSORS AND ASSIGNS, BUT WITHOUT ENTERING UPON OR USING THE SURFACE OF THE ABOVE REFERRED TO MINERAL RIGHTS PARCEL 11, AND IN SUCH MANNER AS NOT TO DAMAGE THE SURFACE THEREOF OR TO INTERFERE WITH THE USE THEREOF BY THE CITY AND COUNTY OF SAN FRANCISCO, ITS SUCCESSORS AND ASSIGNEES; PROVIDED, HOWEVER, THAT THE STATE OF CALIFORNIA, ITS SUCCESSORS AND ASSIGNS, WITHOUT THE PRIOR WRITTEN PERMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO, ITS SUCCESSORS AND ASSIGNEES, SHALL NOT CONDUCT ANY MINING ACTIVITIES OF ANY NATURE WHATSOEVER ABOVE A PLANE LOCATED FIVE HUNDRED FEET
EXHIBIT A
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(500) BELOW THE SURFACE OF THE ABOVE REFERRED TO MINERAL RIGHTS PARCEL 11.
FURTHER EXCEPTING THEREFROM THAT PORTION THEREOF DESCRIBED IN THAT CERTAIN GRANT DEED DATED OCTOBER 25, 2002, EXECUTED BY CATELLUS DEVELOPMENT CORPORATION, A DELAWARE CORPORATION, TO THE CITY AND COUNTY OF SAN FRANCISCO, A CHARTER CITY AND COUNTY, RECORDED DECEMBER 11, 2002, IN REEL I281, IMAGE 340, DOCUMENT NO. 2002-H309022-00 IN THE OFFICE OF SUCH RECORDER.
ASSESSORS PARCEL NUMBER: LOT 001, BLOCK 8725 (A PORTION)
PARCEL TWO:
THAT CERTAIN REAL PROPERTY DESCRIBED IN THAT CERTAIN QUITCLAIM DEED DATED NOVEMBER 5, 2002, EXECUTED BY THE CITY AND COUNTY OF SAN FRANCISCO, A CHARTER CITY AND COUNTY, TO CATELLUS DEVELOPMENT CORPORATION, A DELAWARE CORPORATION, RECORDED DECEMBER 11, 2002 IN REEL I281, IMAGE 341, DOCUMENT NO. 2002-H309023-00, IN THE OFFICE OF THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
THE LOT AND BLOCK HEREAFTER MENTIONED ARE IN ACCORDANCE WITH THAT CERTAIN MAP ENTITLED MAP OF MISSION BAY, RECORDED JULY 19, 1999 IN BOOK Z OF MAPS, AT PAGES 97-119, IN THE OFFICE OF THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA.
COMMENCING AT THE MOST NORTHWESTERLY CORNER OF PARCEL 29, AS SAID PARCEL IS DESCRIBED IN THE QUITCLAIM DEED TO THE CITY AND COUNTY OF SAN FRANCISCO, RECORDED JULY 19, 1999 IN REEL H429, PAGE 512 (DOCUMENT NUMBER 99-G622160), OFFICIAL RECORDS OF THE CITY AND COUNTY OF SAN FRANCISCO, SAID POINT OF COMMENCEMENT ALSO BEING THE MOST NORTHWESTERLY CORNER OF BLOCK 8725, LOT 2 AS SHOWN ON SAID MAP (Z MAPS 97);
THENCE, EASTERLY ALONG THE NORTHERLY BOUNDARY LINE OF SAID PARCEL 29, SAID LINE ALSO BEING THE NORTHERLY LINE OF SAID LOT 2, NORTH 86 DEG. 49 04 EAST 15.00 FEET TO THE POINT OF BEGINNING.
THENCE, ALONG THE EXTERIOR BOUNDARY OF SAID PARCEL 29, SAID LINES ALSO BEING THE EXTERIOR BOUNDARY OF SAID LOT 2, THE FOLLOWING TWO (2) COURSES:
EXHIBIT A
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1) NORTH 86 DEG. 49 04 EAST, 42.21 FEET, TO THE MOST NORTHEASTERLY CORNER OF SAID PARCEL 29 AND SAID LOT 2, SAID CORNER ALSO BEING A POINT OF CUSP ON THE ARC OF A TANGENT CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 44.21 FEET, TO WHICH POINT A RADIAL LINE BEARS NORTH 03 DEG. 10 56 WEST,
2) WESTERLY, SOUTHWESTERLY AND SOUTHERLY ALONG SAID CURVE, THROUGH A CENTRAL ANGLE OF 72 DEG. 42 00, AN ARC DISTANCE OF 56.10 FEET, TO A POINT THAT BEARS SOUTH 03 DEG. 10 56 EAST, FROM SAID POINT OF BEGINNING.
THENCE, LEAVING SAID EXTERIOR BOUNDARY LINE OF PARCEL 29 AND SAID LOT 2, ALONG A LINE PARALLEL WITH AND DISTANT 15.00 FEET EASTERLY, MEASURED AT A RIGHT ANGLE, FROM THE WESTERLY BOUNDARY LINE OF SAID PARCEL 29 AND SAID LOT 2, NORTH 03 DEG. 10 56 WEST, 31.06 FEET, TO THE POINT OF BEGINNING.
ASSESSORS PARCEL NUMBER: LOT 004, BLOCK 8725
EXHIBIT A
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EXHIBIT B
DEVELOPMENT ENTITLEMENTS
The following constitute the Development Entitlements:
1. The Final Mission Bay Subsequent Environmental Impact Report certified on September 17, 1998, by the Planning Commission of the City and County of San Francisco, California (the City) by Motion No. 14696.
2. The Mission Bay South Design for Development adopted on September 17, 1998, by the Commission of the Redevelopment Agency of the City and County of San Francisco (the Redevelopment Agency) by Resolution No. 191-98, as the same may be amended from time to time.
3. The Mission Bay Subdivision Ordinance adopted on October 26, 1998, by the Citys Board of Supervisors by Ordinance No. 329-98, as the same may be amended from time to time.
4. The Mission Bay South Redevelopment Plan adopted on November 2, 1998, by the Citys Board of Supervisors by Ordinance No. 335-98, as the same may be amended from time to time.
5. The Mission Bay South Owner Participation Agreement dated November 16, 1998, between the Redevelopment Agency and Catellus Development Corporation (CDC), including all Attachments thereto, as the same may be amended from time to time (authorized on September 17, 1998, by the Redevelopment Agency Commission by Resolution No. 193-98).
6. The Mission Bay Subdivision Regulations adopted on November 18, 1998, by the Citys Department of Public Works, as the same may be amended from time to time.
7. Transportation Management Association Strategic Plan and Organizational Structure dated May 5, 1999, as the same may be amended from time to time.
8. The Risk Management Plan dated May 11, 1999, for the Mission Bay Area, San Francisco, California, as the same may be amended from time to time (approved on May 12, 1999, by the State of California Regional Water Quality Control Board for the San Francisco Bay Region (the Regional Board)).
9. Mission Bay South Plan Area Streetscape Master Plan dated December 15, 1999, as the same may be amended from time to time (approved by the Redevelopment Agency Commission by Resolution No. 06-2000).
EXHIBIT B
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10. The Covenant and Environmental Restriction on Property made for the benefit of the Regional Board by the City and by the City, acting by and through the San Francisco Port Commission, dated as of February 3, 2000, and recorded in the Official Records of San Francisco County, California (the Official Records) on March 21, 2000, as Document No. 2000-G748551.
11. The Covenant and Environmental Restriction on Property made for the benefit of the Regional Board by CDC dated as of February 23, 2000, and recorded in the Official Records on March 21, 2000, as Document No. 2000-G748552.
12. Signage Master Plan Application dated June 27, 2000, as the same may be amended from time to time (approved by the Redevelopment Agency Commission by Resolution No. 101-2000).
13. Permit No. 5-00 issued on December 12, 2000, by the San Francisco Bay Conservation and Development Commission, as the same may be amended from time to time (BCDC Permit). A copy of the BCDC Permit, as amended through November 16, 2001 (Amendment No. Two), was recorded in the Official Records on December 10, 2001, as Document No. 2001-H066919.
EXHIBIT B
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LIST OF ATTACHMENTS
ATTACHMENT 1 BUYERS CLOSING CONDITIONS
ATTACHMENT 2 SELLERS CLOSING CONDITIONS
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LIST OF EXHIBITS
EXHIBIT A |
LEGAL DESCRIPTION OF PROPERTY | |
EXHIBIT B |
DEVELOPMENT ENTITLEMENTS | |
EXHIBIT C-1 |
PERMITTED ENCUMBRANCES | |
EXHIBIT C-2 |
PRO FORMA POLICY | |
EXHIBIT D |
FORM OF ASSIGNMENT OF SOUTH OPA | |
EXHIBIT E |
FORM OF ASSIGNMENT OF INFRASTRUCTURE RIGHTS | |
EXHIBIT F-1 |
FORM OF CALIFORNIA AFFIDAVIT | |
EXHIBIT F-2 |
FORM OF FIRPTA CERTIFICATE | |
EXHIBIT G |
IDENTIFICATION OF ENVIRONMENTAL REPORT(S) | |
EXHIBIT H |
FORM OF GRANT DEED | |
EXHIBIT I-1 |
SUMMARY OF ARTICLE 22A OF SAN FRANCISCO HEALTH CODE | |
EXHIBIT I-2 |
NATURAL HAZARDS STATEMENT | |
EXHIBIT J |
FORM OF AGREEMENT REGARDING SUCCESSOR PROJECT LABOR AGREEMENT | |
EXHIBIT K |
INSPECTION AGREEMENT | |
EXHIBIT L |
NOTICES OF SPECIAL TAX |
EXHIBIT 10.19
REDACTED COPY
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AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
[ Mission Bay Blocks 29, 30, 31, and 32 ]
This AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS (Agreement) is made and entered into as of this 21st day of October, 2010, by and between ARE-SAN FRANCISCO NO. 16, LLC, a Delaware limited liability company (Seller), and BAY JACARANDA NO. 2932, LLC, a Delaware limited liability company (Buyer), with respect to the following (initially capitalized terms not otherwise defined when first used shall have the meanings given to such terms in Paragraph 1 below):
R E C I T A L S:
A. Seller is the owner of certain real property located in the City and County of San Francisco (City), State of California commonly referred to as Mission Bay South Development Blocks 29, 30, 31, and 32 and more particularly described on Exhibit A attached hereto (the Land). The Block references are for convenience only; the Blocks are not legal lots and do not constitute separate parcels.
B. The Land is a portion of the area generally known as the Mission Bay Development Area (as defined below), and is located within the South Project Area (as defined below), and is subject to the existing Development Entitlements (as defined below).
C. Seller desires to sell the Property (as defined below) to Buyer, and Buyer desires to purchase the Property from Seller, upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer (each, a Party and collectively, the Parties) hereby agree that the terms and conditions of this Agreement and the instructions to Escrow Holder (as defined below) with regard to the Escrow (as defined below) are as follows:
A G R E E M E N T:
1. Certain Basic Definitions. For purposes of this Agreement, the following terms shall have the following definitions:
1.1 Acquired Office Authorizations means six hundred seventy-seven thousand twenty (677,020) square feet of floor area of Office Authorizations, to be allocated to the Land from the ARE Office Authorizations.
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1.2 Acquired Parking Rights means the right to develop 1.0 parking spaces for each one thousand (1,000) square feet of gross floor area.
1.3 Acquired Rights means the (i) the Acquired Square Footage, (ii) the Acquired Office Authorizations, (iii) the Acquired Tower Rights, (iv) the Acquired Parking Rights, and (v) the Infrastructure Rights.
1.4 Acquired Square Footage means the right to develop up to an aggregate of one million (1,000,000) square feet of gross (commercial) floor area.
1.5 Acquired Tower Rights means the right to develop up to one (1) Tower.
1.6 Affiliate means (a) an entity that directly or indirectly controls, is controlled by, or is under common control with the person or entity in question, or (b) an entity at least a majority of whose economic interest is owned by the person or entity in question; and the term control means the power to direct the management of such entity through voting rights, ownership, or contractual obligations.
1.7 Agreement Regarding Construction Obligations has the meaning set forth in Paragraph 28.2 below.
1.8 Agreement Regarding Successor Project Labor Agreement means the Agreement Regarding Successor Project Labor Agreement in substantially the form attached hereto as Exhibit J (subject to such modifications as may be reasonably negotiated by the Parties).
1.9 Alexandria means Alexandria Real Estate Equities, Inc., a Maryland corporation and Sellers ultimate parent.
1.10 ALTA Policy means an American Land Title Association extended coverage owners policy of title insurance
(6-17-06).
1.11 Applicable Laws means all laws, ordinances, rules, regulations, and requirements of all Governmental Authorities that are applicable to the Property, including without limitation, the Federal Occupational Health and Safety Act, the Americans with Disabilities Act of 1990, Title 24 of the California Code of Regulations, and all Environmental Laws, as amended from time to time.
1.12 ARE Office Authorizations means the Office Authorizations allocated to the ARE Properties under the ARE Office Space District.
1.13 ARE Office Space District means the Alexandria Mission Bay Life Sciences and Technology Development District created by Motion 17709 of the Planning Commission of the Citys Planning Department for purposes of allocating Office Authorizations to the ARE Properties.
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1.14 ARE Owners means Seller, ARE-San Francisco No. 15, LLC, a Delaware limited liability company (ARE-SF 15), ARE-San Francisco No. 19, LLC, a Delaware limited liability company (ARE-SF 19), ARE-San Francisco No. 22, LLC, a Delaware limited liability company, ARE-San Francisco No. 26, LLC, a Delaware limited liability company (ARE-SF 26), and ARE-San Francisco No. 36, LLC, a Delaware limited liability company (ARE-SF 36).
1.15 ARE Properties means the Land, Blocks 26-27, Blocks 33-34, and Blocks 41-43.
1.16 ARE Retained Office Authorizations means the ARE Office Authorizations less the Acquired Office Authorizations.
1.17 As an example only is intended solely to introduce descriptive illustrations for purposes of clarifying the possible applications of specific provisions of this Agreement, and shall not be deemed, construed, or interpreted as providing all-inclusive, comprehensive, or exhaustive lists of every possible situation or circumstance to which the provision in question may apply (including, but not limited to, including, without limitation, and similar phrases are used with the same sole intention).
1.18 Assignment of Infrastructure Rights means that certain Limited Assignment and Assumption of Agreement of Purchase and Sale in substantially the form attached hereto as Exhibit E (subject to such modifications as may be reasonably negotiated by the Parties).
1.19 Assignment of South OPA means the Assignment, Assumption and Release Agreement in substantially the form attached hereto as Exhibit D (subject to such modifications as may be reasonably requested by the Redevelopment Agency and/or reasonably negotiated by the Parties).
1.20 Blocked Persons List means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or any other similar list maintained by OFAC or any other Governmental Authority pursuant to any authorizing statute, regulation, or executive order.
1.21 Blocks 26-27 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 26 and 27.
1.22 Blocks 26-27 Covenant means that certain Declaration of Covenants made by ARE-SF 19 in favor of FOCIL and recorded in the Official Records on March 1, 2005, as Document No. 2005-H911983, as the same may be amended from time to time (including as the same may have been amended to conform to the Master Developer Covenant).
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1.23 Blocks 26-27 Owner means ARE-SF 19 or any permitted successor or assign with respect to any portion of Blocks 26-27.
1.24 Blocks 26-27 Square Footage means up to an aggregate of 705,000 square feet of gross (commercial) floor area that may be developed on Blocks 26-27, subject to the terms and conditions of the Blocks 26-27 Covenant.
1.25 Blocks 33-34 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 33 and 34.
1.26 Blocks 41-43 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 41, 42, and 43, excluding the Gladstone Property.
1.27 Blocks 41-43 Covenant means that certain Declaration of Covenants made by ARE-SF 15 in favor of CLDC and recorded in the Official Records on September 1, 2004, as Document No. 2004-H802115, as amended by that certain First Amendment To Declaration of Covenants made by ARE-SF 15, acknowledged by CLDC, and consented to by FOCIL, recorded in the Official Records on November 15, 2005, as Document No. 2005-I072103, as any of the foregoing may be amended from time to time (including as any of the foregoing may have been amended to conform to the Master Developer Covenant).
1.28 Blocks 41-43 Owner means, collectively, ARE-SF 15, ARE-SF 26, and ARE-SF 36 or any permitted successor or assign with respect to any portion of Blocks 41-43.
1.29 Blocks 41-43 Square Footage means up to an aggregate of 558,000 square feet of gross (commercial) floor area that may be developed on Blocks 41-43, subject to the terms and conditions of the Blocks 41-43 Covenant.
1.30 Brokers means, collectively, Buyers Broker and Sellers Broker.
1.31 Buyer Parties means Buyer and Buyers Affiliates (and each of their Affiliates), including, but not limited to, SFDC, and Buyers or such Affiliates shareholders, members, constituent partners, directors, officers, and employees.
1.32 Buyers Address means:
Bay Jacaranda No. 2932, LLC
c/o salesforce.com, inc.
The Landmark @ One Market, Suite 300
San Francisco, California 94105
Attention: General Counsel
Re: Mission Bay (Blocks 29-32), SF, CA
Telephone No.: 415-536-6970
Facsimile No.: 415-536-4616
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With a copy to:
Bay Jacaranda No. 2932, LLC
c/o salesforce.com, inc.
The Landmark @ One Market, Suite 300
San Francisco, California 94105
Attention: Mr. Tim Alonso
Telephone No.: 415-536-7225
Facsimile No.: 415-901-4616
1.33 Buyers Agents means Buyers agents, counsel, consultants, sub-consultants, contractors, sub-contractors, and prospective lenders.
1.34 Buyers Broker means Cushman & Wakefield.
1.35 Buyers Closing Conditions has the meaning set forth in Paragraph 10.1 below.
1.36 Buyers Counsels Address means:
Sheppard Mullin Richter & Hampton LLP
Four Embarcadero Center, 17th Floor
San Francisco, California 94111
Attention: Robert A. Thompson, Esq.
Telephone No.: 415-774-3213
Facsimile No.: 415-434-3947
1.37 California Affidavit means a California Form 593-C, in substantially the form attached hereto as Exhibit F-1.
1.38 Cancellation Charges has the meaning set forth in Paragraph 5.3 below.
1.39 CDC means Catellus Development Corporation, a Delaware corporation.
1.40 CFD Assessments means the special taxes (i) to be levied on the Land (and other property in the Mission Bay Development Area) in accordance with the terms and conditions of the Rate and Method of Apportionment of Special Tax applicable to the Maintenance CFD, (ii) to be levied on the Land (and other property in the Mission Bay Development Area) in accordance with the terms and conditions of the Rate and Method of Apportionment of Special Tax applicable to the Infrastructure CFD, and (iii) to be levied on the Land and other property in the City in accordance with the terms and conditions applicable to the Public School CFD.
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1.41 CFDs means, collectively, the Maintenance CFD, the Infrastructure CFD, and the Public School CFD. The Maintenance CFD and the Infrastructure CFD were established under the South Financing Plan.
1.42 City has the meaning set forth in Recital A above.
1.43 Claims has the meaning set forth in Paragraph 2(b) of the Inspection Agreement.
1.44 CLDC means Catellus Land and Development Corporation, a Delaware corporation.
1.45 Close of Escrow means the time of recording of the Grant Deed in the Official Records.
1.46 Closing Date means the date on which the Close of Escrow occurs.
1.47 CLTA Policy means a California Land Title Association standard coverage owners policy of title insurance, in the current form used by the Title Company.
1.48 CNDA means that certain Mutual Confidential Information and Non-Disclosure Agreement dated as of May 6, 2010, between Alexandria and SFDC.
1.49 COLP means Catellus Operating Limited Partnership, Delaware limited partnership (of which CDC is the general partner).
1.50 Complete Release Date means the date that is eighteen (18) months after the Closing Date.
1.51 Confidential Information has the meaning set forth in Paragraph 1 of the CNDA or set forth in Paragraph 2(c) of the Inspection Agreement, as applicable.
1.52 Convey or Conveyed means to convey, sell, assign, alienate, or otherwise transfer.
1.53 Covered Property means the real property covered by the Project Labor Agreement.
1.54 Covered Successor means any successor in interest and/or assignee, buyer, ground lessee, or donee of any Covered Property.
1.55 Covered Work has the meaning set forth in the Project Labor Agreement.
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1.56 Current Tax Period means the fiscal year of the applicable taxing authority during which the Close of Escrow occurs.
1.57 Deposit means the sum of Four Million Dollars ($4,000,000.00).
1.58 Development Entitlements means those documents and materials governing development of the Property listed on Exhibit B attached hereto.
1.59 Discretionary Approvals has the meaning set forth in Paragraph 7.1.4(a) below.
1.60 Diversity Program has the meaning set forth in Paragraph 29.2 below.
1.61 Effective Date means the date this Agreement is executed and delivered by both Seller and Buyer.
1.62 Environmental Covenant has the meaning set forth in Paragraph 2(d) of the Inspection Agreement.
1.63 Environmental Laws means any and all federal, state, or local environmental health and/or safety laws, regulations, standards, decisions of courts, ordinances, rules, codes, orders, decrees, directives, guidelines, plans, risk management plans, recorded property covenants, and/or restrictions, permits, or permit conditions currently existing relating to the environment or to any Hazardous Materials (including, without limitation, the Risk Management Plan and the Environmental Covenant) that are applicable to the Land.
1.64 Environmental Reports means all environmental reports in Sellers possession or control regarding the Land and all no further action or similar letters issued by any applicable Governmental Authority in connection with Hazardous Materials in, on, or under the Land, all as listed on Exhibit G attached hereto.
1.65 Escrow means an escrow to be opened with Escrow Holder to facilitate the transactions contemplated in this Agreement.
1.66 Escrow Holder means First American Title Insurance Company.
1.67 Escrow Holders Address means:
First American Title Insurance Company
901 Mariners Island Blvd., Suite 380
San Mateo, California 94404
Attention: Ms. Karen Matsunaga
Escrow No.: NCS-453588-SM
Telephone No.: 650-356-1729
Facsimile No.: 650-638-9116
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1.68 Exchange means a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code.
1.69 Existing Construction Agreement means that certain Construction Commencement Agreement [Mission Bay - Blocks 26-27, Blocks 29-32, and Blocks 41-43] recorded in the Official Records on November 15, 2005, as Document No. 2005-I072104.
1.70 FIRPTA Certificate means a certificate of non-foreign status, in the form attached hereto as Exhibit F-2.
1.71 FOCIL means FOCIL-MB, LLC, a Delaware limited liability company. As of the Effective Date, FOCIL is the Master Developer and the Infrastructure Developer.
1.72 Gladstone Property means that certain real property located in the City commonly referred to 1650 Owens Street.
1.73 Governmental Authority has the meaning set forth in Paragraph 2(h) of the Inspection Agreement.
1.74 Government Representative has the meaning set forth in Paragraph 3(c) of the Inspection Agreement.
1.75 Grant Deed means a grant deed, in substantially the form attached hereto as Exhibit H.
1.76 Hazardous Materials means any substance, material or waste that, because of its quantity, concentration, or physical or chemical characteristics poses a present or potential hazard to human health and safety or to the environment, including, but not limited to, petroleum, petroleum-based products, natural gas, or any substance, material, or waste (including, without limitation, biohazardous waste and medical waste) that is, or shall be, listed, regulated, or defined by federal, state, or local statute, regulation, rule, ordinance, or other governmental requirement to be hazardous, acutely hazardous, extremely hazardous, toxic, radioactive, biohazardous, infectious, or otherwise dangerous.
1.77 Immediately Available Funds means cash, bank cashiers check, or a confirmed wire transfer of funds.
1.78 Independent Consideration means the sum of One Thousand Dollars ($1,000.00).
1.79 Infrastructure means the infrastructure or other improvements to be constructed in accordance with the South Infrastructure Plan or the South Scope of Development.
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1.80 Infrastructure CFD means Redevelopment Agency of the City and County of San Francisco Community Facilities District No. 6 (Mission Bay South Public Improvements).
1.81 Infrastructure CFD Bonds means, collectively, the following bonds issued by the Redevelopment Agency pursuant to the Mello-Roos Community Facilities District Act of 1982 (as amended):
(a) Special Tax Bonds, Series 2001-South;
(b) Special Tax Bonds, Series 2002 Parity-South; and
(c) Special Tax Bonds, Series 2005A Parity-South (Current Interest Bonds), and Special Tax Bonds, Series 2005B Parity-South (Capital Appreciation Bonds) (collectively, the 2005 Infrastructure CFD Bonds).
1.82 Infrastructure CFD Bond Disclosure Assumption Agreement has the meaning set forth in Paragraph 28.11 below.
1.83 Infrastructure CFD Bond Disclosure Certificate means that certain Continuing Disclosure Certificate dated July 26, 2005, executed by Seller in connection with the issuance of the 2005 Infrastructure CFD Bonds.
1.84 Infrastructure Developer means FOCIL or FOCILs successor as Owner under (and as defined in) the South OPA with respect to the obligation to construct Infrastructure, provided that such successor has been approved by the Redevelopment Agency if, and to the extent, required under the South OPA.
1.85 Infrastructure Rights has the meaning set forth in Paragraph 8 below.
1.86 Inspection Agreement means that certain Access, Inspection, and Indemnity Agreement effective as of September 6, 2010, by and between Seller and SFDC, a copy of which is attached hereto as Exhibit K.
1.87 Inspection Period has the meaning set forth in Paragraph 1 of the Inspection Agreement.
1.88 Inspection Work has the meaning set forth in Paragraph 3(a) of the Inspection Agreement.
1.89 Land has the meaning set forth in Recital A above.
1.90 Legal Costs has the meaning set forth in Paragraph 25 below.
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1.91 Life Science Uses means life sciences, biotechnology, biomedical, or similar research facility uses.
1.92 Maintenance CFD means Redevelopment Agency of the City and County of San Francisco Community Facilities District No. 5 (Mission Bay Maintenance District).
1.93 Master Commercial Declaration means the Master Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on January 16, 2001, as Document No. 2001-G889923-00 at Reel H804, Image 0058, as amended by the First Amendment To Master Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on August 17, 2004, as Document No. 2004-H787770-00 at Reel I703, Image 0226, and by the Second Amendment To Master Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on October 20, 2004, as Document No. 2004-H834740-00 at Reel I747, Image 0186, as the same may hereafter be amended.
1.94 Master Developer means FOCIL or FOCILs successor as Owner under (and as defined in) the South OPA, provided that such successor has been approved by the Redevelopment Agency if, and to the extent, required under the South OPA.
1.95 Master Developer Covenant means that certain Second Amended and Restated Declaration of Covenants [FOCIL Property] recorded in the Official Records on November 15, 2005, as Document No. 2005-I072097.
1.96 Mission Bay Development Area means that certain real property located in the City and County of San Francisco and generally bounded by Townsend Street, Third Streets, relocated Terry Francois Boulevard, Mariposa Street and Seventh Street.
1.97 Natural Hazards Statement means the Natural Hazards Disclosure Report relating to the Land, a copy of which is attached hereto as Exhibit I-2.
1.98 Notices has the meaning set forth in Paragraph 23 below.
1.99 OFAC means the Office of Foreign Assets Control of the U.S. Department of Treasury.
1.100 OFAC Rules means, collectively, the regulations promulgated and/or issued by OFAC and any statute, regulation, or executive order relating thereto.
1.101 Office Authorization(s) means the authorization(s) to develop office space under the Office Program.
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1.102 Office Program means the annual office limitation program set forth in Sections 321 and 322 of the Citys Planning Code.
1.103 Official Records means the Official Records of the Recorder of the City and County of San Francisco, California.
1.104 Oil Companies means Texaco (for itself and its parent, predecessor and affiliated companies, including, without limitation, ChevronTexaco Corporation), (B) Chevron U.S.A. Inc. (for itself and its parent, predecessor and affiliated companies), (C) ConocoPhillips Company (for itself and its parent, predecessor and affiliated companies), (D) Atlantic Richfield Company (for itself and its parent, predecessor and affiliated companies), and (E) Union Oil Company of California (for itself and its parent, predecessor and affiliated companies).
1.105 Oil Company Access Agreement means that certain Environmental Access Agreement dated November 22, 2004, between Seller and Texaco, as the same may have been amended.
1.106 Oil Company Agreements means the Oil Company Settlement Agreement, the Oil Company Access Agreement, and the Oil Company Release Agreement.
1.107 Oil Company Release Agreement means that certain Mutual Release and Limited Indemnity Agreement dated November 22, 2004, among (i) on the one hand, (A) CLDC (for itself and its parent, predecessor and affiliated companies, including, without limitation, COLP and CDC), and (B) Seller (for itself and its parent, predecessor and affiliated companies, including, without limitation, Alexandria), and (ii) on the other hand, the Oil Companies, as the same may have been amended.
1.108 Oil Company Settlement Agreement means that certain Settlement Agreement dated November 22, 2004, among (i) on the one hand, Texaco, and (ii) on the other hand, (A) CLDC and COLP, and (B) Alexandria and Seller.
1.109 Oppose or Opposing means oppose, contest, challenge, object to, and/or otherwise interfere with.
1.110 Original Project Labor Agreement means that certain Mission Bay Project Agreement dated October 8, 1990.
1.111 Other SFDC Owner means any Affiliate of Buyer who owns any property in the South Project Area other than the Land.
1.112 Other SFDC Property means any property in the South Project Area other than the Land that is owned by Buyer or any Other SFDC Owner.
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1.113 Other SFDC Square Footage means the square footage of gross (commercial) floor area that Buyer or any Other SFDC Owner has the right to develop on any Other SFDC Property.
1.114 Other SFDC Tower Rights means the Towers that Buyer or any Other SFDC Owner has the right to develop on any Other SFDC Property.
1.115 Permitted Encumbrances means all matters affecting title to the Land described in Exhibit C-1 attached hereto.
1.116 Pro Forma Policy has the meaning set forth in Section 3 in Exhibit C-1 attached hereto.
1.117 Project means the development to be constructed by Buyer on the Land in accordance with the Development Entitlements and the terms and conditions of this Agreement.
1.118 Project Labor Agreement means, collectively, the Original Project Labor Agreement and the Project Labor Agreement Addendum, as the same may be amended from time to time.
1.119 Project Labor Agreement Addendum means that certain Addendum To Agreement entered into in 2003.
1.120 Property means the Real Property plus the Acquired Rights.
1.121 Property Owner means Buyer or any permitted successor or assign with respect to the Property.
1.122 Proposition N means the ordinance (denominated Proposition N) being submitted to the voters of the City at the general election being held on November 2, 2010, which submittal was approved by the Citys Board of Supervisors on July 27, 2010, pursuant to Motion No. M10-118. If approved by the voters, such ordinance would amend Section 1102 of Article 12-C of the San Francisco Business and Tax Regulations Code to increase the real property transfer tax on certain properties.
1.123 Public School CFD means San Francisco Unified School District of the City and County of San Francisco Community Facilities District No. 90-1 (Public School Facilities).
1.124 Purchase Price means the sum of One Hundred Thirty-Seven Million Five Hundred Thousand Dollars ($137,500,000.00).
1.125 Purchase Price Balance means the balance of the Purchase Price over and above the Deposit (including all interest accrued thereon).
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1.126 Real Property means the Land, together with all appurtenances thereto and improvements thereon (if any).
1.127 Redevelopment Agency means the Redevelopment Agency of the City and County of San Francisco.
1.128 Release Exception Claims has the meaning set forth in Paragraph 18.3 below.
1.129 Risk Management Plan and RMP mean the Risk Management Plan dated May 11, 1999, for the Mission Bay Area, San Francisco, California, as the same may be amended from time to time (approved on May 12, 1999, by the State of California Regional Water Quality Control Board for the San Francisco Bay Region).
1.130 Seek or Sought means seek, apply for, process, obtain, act on, or otherwise pursue.
1.131 Seller Parties means Seller and Sellers Affiliates (and each of their Affiliates), including, but not limited to, Alexandria and the other ARE Owners, and Sellers or such Affiliates shareholders, members, constituent partners, directors, officers, and employees.
1.132 Seller Party Owner means any Seller Party that owns any property in the South Project Area as of the Close of Escrow.
1.133 Seller Party Property means any property in the South Project Area that is owned by any Seller Party as of the Close of Escrow.
1.134 Sellers Address means:
ARE-San Francisco No. 16, LLC
c/o Alexandria Real Estate Equities, Inc.
385 E. Colorado Blvd., Suite 299
Pasadena, California 91101
Attention: Corporate Secretary
Re: Mission Bay (Blocks 29-32), SF, CA
Telephone No.: 626-578-0777
Facsimile No.: 626-578-0770
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With a copy to:
ARE-San Francisco No. 16, LLC
c/o Alexandria Real Estate Equities, Inc.
1700 Owens Street, Suite 590
San Francisco, California 94158
Attention: Mr. Stephen A. Richardson
Telephone No.: 415-554-8844
Facsimile No.: 415-554-0142
1.135 Sellers Broker means GVAKM and Cornish & Carey.
1.136 Sellers Closing Conditions has the meaning set forth in Paragraph 10.2 below.
1.137 Sellers Counsels Address means:
David S. Meyer, Attorney-At-Law
4535 Don Pio Drive
Woodland Hills, CA 91364-5308
Telephone No.: 818-346-4176
Facsimile No.: 818-346-4196
1.138 SFDC means salesforce.com, inc., a Delaware corporation and Buyers ultimate parent.
1.139 South Design for Development means the Design for Development for the Mission Bay South Project Area adopted on September 17, 1998, by the Redevelopment Agency Commission by Resolution No. 191-98, as the same may be amended from time to time.
1.140 South DRDAP means the Mission Bay South Design Review and Document Approval Procedure attached to the South OPA as Attachment G, as the same may be amended from time to time.
1.141 South Financing Plan means the Mission Bay South Financing Plan attached to the South OPA as Attachment E, as the same may be amended from time to time.
1.142 South Infrastructure Plan means the Mission Bay South Infrastructure Plan attached to the South OPA as Attachment D, as the same may be amended from time to time.
1.143 South OPA means the Mission Bay South Owner Participation Agreement listed on Exhibit B attached hereto.
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1.144 South Project Area means the area located in the City and County of San Francisco that is the subject of the South OPA.
1.145 South Redevelopment Plan mean the Mission Bay South Redevelopment Plan adopted on November 2, 1998, by the San Francisco Board of Supervisors by Ordinance No. 335-98, as the same may be amended from time to time.
1.146 South Scope of Development means the Mission Bay South Scope of Development attached to the South OPA as Attachment B, as the same may be amended from time to time.
1.147 Surviving Obligations means obligations expressly stated in this Agreement to survive the termination hereof.
1.148 Tax Payment Agreement means that certain Amended and Restated Tax Payment Agreement between FOCIL and Seller recorded in the Official Records on September 22, 2010, as Document No. 2010-J053674.
1.149 Termination Deadline means 5:00 p.m. on October 22, 2010.
1.150 Termination Notice has the meaning set forth in Paragraph 5.3 below.
1.151 Texaco means Texaco Inc., a Delaware corporation.
1.152 Title Company means First American Title Insurance Company.
1.153 Title Policy has the meaning set forth in Paragraph 13 below.
1.154 TMA means the Transportation Management Association that was formed to implement and administer the Transportation System Management Plan for the Mission Bay Development Area.
1.155 Tower has the meaning given to such term in the South Design for Development.
1.156 Transfer means to sell, assign, convey, lease, sublease, Mortgage (as defined below), hypothecate, or otherwise alienate, excluding therefrom any grant of occupancy rights for permanent improvements such as space leases. Solely for purposes of this definition, the term Mortgage means any mortgage, deed of trust, financing lease, indenture, trust agreement, reimbursement agreement, certificate of participation, collateral assignment, or other agreement or instrument (including without limitation any derivative agreement, swap, hedge, forward purchase, or other instrument relating to any of the foregoing) creating or evidencing a security interest in, encumbrance upon, securitization of, or lien against (a) any portion of or interest in the Property, (b) any interest in this Agreement, (c) any ownership interest in or security of Buyer, or (d) any income, rentals, revenue, profits, or other proceeds derived from
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Buyers ownership, operation, leasing, or sale of any portion of or interest in the Property, whether as security for the repayment of a loan or the performance of an obligation or as the creation of fractional undivided interests that are sold or pledged, directly or indirectly, or that are negatively pledged, in order to finance or refinance, directly or indirectly, any costs of Buyer incurred in connection with Buyers obligations under this Agreement.
1.157 Transferee means any natural person, corporation, firm, partnership, association, joint venture, governmental or political subdivision or agency or any similar entity to whom a Transfer is made.
1.158 Unavoidable Delay means a delay that is caused by strikes or other labor disputes, acts of god, weather (to the extent different from seasonal norms for the San Francisco Bay area), inability to obtain labor or materials despite commercially reasonable efforts (financial condition excepted), lawsuits brought by plaintiffs who are not Affiliates of the person claiming the benefit of the Unavoidable Delay (except to the extent caused by the negligence of the person claiming the benefit of the Unavoidable Delay), but only to the extent that an injunction or restraining order has been issued by a court of competent jurisdiction preventing performance, atypical restrictions imposed or mandated by Governmental Authorities in issuing requisite approvals or consents, enemy action, terrorism, civil commotion, fire, flood, earthquake, or other natural disaster or casualty, or any other unforeseeable event beyond the reasonable control of the person claiming the benefit of the Unavoidable Delay.
1.159 Vested Square Footage means the right to develop up to an aggregate of 935,000 square feet of gross (commercial) floor area.
1.160 Vesting Covenant means that certain Declaration of Covenants made by Seller in favor of CLDC and recorded in the Official Records on October 29, 2004, as Document No. 2004-H841652 (as the same may be amended from time to time (including as the same may have been amended to conform to the Master Developer Covenant)), pursuant to which Seller has the right (among other rights) to develop on the Land not more than the Vested Square Footage in up to five (5) buildings.
1.161 Vesting PSA means that certain Agreement of Purchase and Sale and Joint Escrow Instructions dated as of October 1, 2004, between CLDC, as seller, and Seller, as buyer (as the same may be amended from time to time), pursuant to which Seller acquired the Land and certain entitlements. CLDCs rights and obligations under the Vesting PSA were assigned to FOCIL pursuant to that certain Assignment and Assumption of Sale Agreements (Alexandria) effective as of November 22, 2004, between CLDC, as assignor, and FOCIL, as assignee.
2. Purchase and Sale. Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller, for the Purchase Price and upon the terms and conditions set forth in this Agreement. Simultaneously with the delivery of the Deposit pursuant to Paragraph 3.1 below, Buyer shall deliver the Independent Consideration or cause the
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Independent Consideration to be delivered to Escrow Holder, in Immediately Available Funds. Escrow Holder shall automatically and immediately deliver the Independent Consideration to Seller (in accordance with wiring instructions separately provided by Seller), without the need for any further instructions from Buyer. Seller and Buyer agree that the Independent Consideration, plus Buyers agreement to pay the Cancellation Charges pursuant to Paragraph 5.3 below if Buyer exercises its termination right under Paragraph 5.3 below, have been bargained for as consideration for Sellers execution and delivery of this Agreement and for Buyers right to conduct the Inspection Work and to review Sellers files regarding the Property, and is independent of any other consideration or payment provided for in this Agreement. The Independent Consideration shall be non-refundable, and shall not be applied to the Purchase Price upon the Close of Escrow.
3. Payment of Purchase Price. The Purchase Price shall be paid by Buyer as follows:
3.1 Deposit. Within one (1) business day after the Effective Date, Buyer shall deliver the Deposit or cause the Deposit to be delivered to Escrow Holder, in Immediately Available Funds. Escrow Holder shall deposit the Deposit in a non-commingled trust account and shall invest the Deposit in federally insured interest bearing money market accounts or certificates of deposit or in United States Treasury Bills or such other instruments as Buyer may instruct from time to time.
3.2 Delivery, Application, and Disposition of Deposit.
3.2.1 Buyers failure to deliver the Deposit as required by Paragraph 3.1 above shall constitute a default by Buyer under this Agreement and shall entitle Seller, by written notice to Buyer and Escrow Holder, to terminate this Agreement as of the date of Buyers receipt of such termination notice, in which event the provisions of Paragraph 19.1 below will apply.
3.2.2 The Deposit (including all interest accrued thereon) shall be applied to the Purchase Price upon the Close of Escrow. If Buyer terminates this Agreement and the Escrow on or prior to the dates designated within, and in accordance with the provisions of, Paragraph 5.3, Paragraph 10.3.1, or Paragraph 21 below, the Deposit (including all interest accrued thereon) shall be refunded to Buyer. The Deposit shall be paid to Seller pursuant to Paragraph 19.1 below if (a) Seller fully performs its obligations under this Agreement, (b) Buyer does not elect to terminate this Agreement in accordance with Paragraph 5.3, Paragraph 10.3.1, or Paragraph 21, and (c) the transaction contemplated in this Agreement does not close as a result of a breach by Buyer of Buyers obligations under this Agreement. If this Agreement is terminated for any reason before the Close of Escrow (whether the Deposit is refunded to Buyer or paid to Seller pursuant to this Agreement), both Seller and Buyer shall be relieved of all further obligations and liabilities under this Agreement, except for the Surviving Obligations and except as may be expressly provided otherwise in this Agreement.
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3.3 Closing Funds. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Buyer shall deliver the Purchase Price Balance or cause the Purchase Price Balance to be delivered to Escrow Holder, in Immediately Available Funds, plus a sum equal to Escrow Holders estimate of Buyers share of closing costs, prorations, and charges payable pursuant to this Agreement, also in Immediately Available Funds.
4. Escrow.
4.1 Opening of Escrow. Each Party shall cause the Escrow to be opened with Escrow Holder by delivering to Escrow Holder, no later than one (1) business day after the date of this Agreement, three (3) duplicate originals of this Agreement executed by such Party. Each Party agrees to execute, deliver, and be bound by any reasonable or customary supplemental escrow instructions of Escrow Holder or other instruments as may reasonably be required by Escrow Holder in order to consummate the transaction contemplated by this Agreement. Any such supplemental instructions shall not conflict with, amend, or supersede any portions of this Agreement unless expressly consented or agreed to in writing by each Party.
4.2 Close of Escrow. The Escrow shall close on or before November 1, 2010, provided that Buyer and Seller may close, but shall not be obligated to close, the Escrow upon such other earlier or later date as Buyer and Seller may mutually agree in writing.
5. Condition of Property.
5.1 Inspection and Studies; Review of Sellers Files. Before the Effective Date, and continuing hereafter during the Inspection Period, Buyer has had, and shall continue to have, the right, at Buyers sole cost and expense, but subject in all events to Buyers compliance with Applicable Laws and the provisions of the Inspection Agreement, to conduct the Inspection Work and to review Sellers files regarding the Property.
5.2 Buyers Entry on Land; Insurance; Indemnification. Buyers entry on the Property shall be subject in all events to Buyers compliance with Applicable Laws and the provisions of the Inspection Agreement. Without limiting the generality of the foregoing, (i) the insurance to be maintained by Buyer in connection with any entry on the Property by Buyer shall be as set forth in Paragraph 8 of the Inspection Agreement, and (ii) Buyers indemnification of Seller in connection with any entry on the Property by Buyer shall be as set forth in Paragraph 9 of the Inspection Agreement.
5.3 Buyers Termination Right. Buyer shall have the right at any time before the Termination Deadline to terminate this Agreement if, during the course of Buyers investigation of the Property, Buyer determines, in its sole discretion, that the Property is not acceptable to Buyer. Buyer may exercise such termination right by delivering written notice of termination to Seller and Escrow Holder (a Termination Notice) before the Termination Deadline. Upon the timely delivery of a Termination Notice, (i) Escrow Holder, without the
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need for any further instructions from either Seller or Buyer, shall automatically and immediately return to Buyer the Deposit (including all interest accrued thereon), (ii) Buyer shall bear all Escrow cancellation charges and similar fees (Cancellation Charges), and (iii) this Agreement shall automatically terminate and be of no further force or effect and neither Party shall have any further rights or obligations under this Agreement, except for the Surviving Obligations. If, for any reason whatsoever, Buyer does not exercise such termination right by delivery of the Termination Notice before the Termination Deadline, Buyer shall be deemed to have elected not to terminate this Agreement.
5.4 Limitation on Sellers Liability. Without limiting any other disclaimer or release of Seller liability under this Agreement, Buyer agrees that Seller shall not have any liability, obligation, or responsibility of any kind with respect to any of the matters described in Paragraph 10 of the Inspection Agreement.
6. Title.
6.1 Title Materials. Seller has delivered to Buyer (or caused to be made available to Buyer) a current standard preliminary title report for the Land issued by the Title Company, together with copies of the underlying documents relating to the Schedule B exceptions set forth in such report. Buyer, in its sole discretion and at its sole cost and expense, also may order (i) a current as-built ALTA survey of the Land, in form reasonably satisfactory to Buyer and Title Company, prepared by a surveyor licensed in the State of California and certified to Buyer, Title Company, and such other persons or entities as Buyer, in its sole discretion, may request (using a surveyors certificate reasonably satisfactory to Buyer and Title Company); and (ii) a UCC search with regard to the Land and/or Seller, its affiliated entities, and its predecessors-in-interest.
6.2 Removal of Certain Title Matters. As a condition to the Close of Escrow, Seller shall take all action necessary to remove from title to the Land (i) all matters created by Seller on or after the effective date of the Pro Forma Policy without the prior written consent of Buyer (which consent may be withheld in Buyers sole discretion exercised in good faith), and (ii) all liens and encumbrances affecting the Land that secure an obligation to pay money, other than the lien that secures payment of installments, not yet delinquent, of general and special real and personal property taxes and other charges collected with general and special real and personal property taxes (such as assessments (including the CFD Assessments) levied by any Mello-Roos District affecting the Land (including the CFDs)) (provided, however, that Seller may satisfy Sellers obligation to remove any such lien or encumbrance if, before the Close of Escrow, (x) Seller deposits funds into the Escrow that are sufficient to pay, in full, the obligation secured by such lien or encumbrance, and (y) Seller gives Escrow Holder irrevocable written instructions to disburse such funds to the person or persons legally entitled thereto in exchange for a written release or termination of such lien or encumbrance).
6.3 Title Policy. The Title Companys issuance of an ALTA Policy in the amount of the Purchase Price showing title to the Land vested in Buyer, subject only to the
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Permitted Encumbrances, shall be conclusive evidence that Seller has complied with any covenant or obligation, express or implied, to convey to Buyer good and marketable title to the Land.
7. Entitlement Covenants.
7.1 Development Covenants.
7.1.1 Buyers Covenant. Buyer hereby covenants (which covenant shall bind Buyers successors and assigns with respect to the Land) not to develop on the Land, and not to Seek to develop on the Land, any improvements of any kind that will fail to conform to the Acquired Rights, except as may be expressly provided otherwise in this Agreement. Notwithstanding the foregoing, Buyer may Seek additional parking rights with respect to the Land, so long as the Acquired Parking Rights plus all additional parking rights secured by Buyer with respect to the Land do not result in Buyer having the right to develop more than an aggregate of 1.4 parking spaces for each one thousand (1,000) square feet of gross floor area. Buyer hereby expressly acknowledges that (i) the South Design for Development establishes a minimum and maximum of 1.0 parking spaces for each one thousand (1,000) square feet of gross floor area for all Commercial Industrial uses other than Life Science Uses, and (ii) Seller is making no representation or warranty, express or implied, as to the right, power, or authority of any Governmental Authority to approve or grant, or the right or ability of any person or entity to obtain, more than an aggregate of 1.0 parking spaces for each one thousand (1,000) square feet of gross floor area for any Commercial Industrial use other than Life Science Uses. In addition, nothing in this Agreement shall be deemed, construed, or interpreted to prevent Buyer from applying to the Acquired Square Footage any definition regarding floor area set forth in the South Design for Development. In the event Buyer (or any successor or assign with respect to the Land) breaches or violates the covenant contained in this Paragraph 7.1.1, Seller may pursue all remedies available to Seller, at law or in equity, including, but not limited to, an action in equity or otherwise for specific performance of the foregoing covenant or an injunction against any breach or violation of such covenant. Buyer hereby agrees that the covenant contained in this Paragraph 7.1.1 is unique to Buyer and that any breach thereof could cause irreparable harm to Seller. Accordingly, Buyer agrees that an injunction is a proper and fair remedy for such a breach.
7.1.2 Transfer(s) of Development Rights. Seller hereby acknowledges and agrees that the Acquired Square Footage exceeds the Vested Square Footage by 65,000 square feet of gross (commercial) floor area. As of the Close of Escrow, Seller shall cause the Blocks 26-27 Owner to Convey to Seller from the Blocks 26-27 Square Footage and/or shall cause the Blocks 41-43 Owner to Convey to Seller from the Blocks 41-43 Square Footage an aggregate of 65,000 square feet of gross (commercial) floor area, in the manner contemplated in, and in accordance with, the Blocks 26-27 Covenant, the Blocks 41-43 Covenant, and/or the Master Developer Covenant. At the Close of Escrow, Seller shall Convey to Buyer the Acquired Square Footage.
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7.1.3 Excess Development. Seller hereby expressly acknowledges and agrees that it shall not be a breach or violation of the covenant set forth in Paragraph 7.1.1 above (i) if the total square footage developed on the Land exceeds the Acquired Square Footage, so long as any Other SFDC Square Footage necessary to cover such excess has been Conveyed to the Property Owner in accordance with the Master Developer Covenant and the Vesting Covenant (as the same may be amended, restated, replaced, or supplemented as of the Close of Escrow), (ii) if the number of Towers developed on the Land exceeds the Acquired Tower Rights, so long as any Other SFDC Tower Rights necessary to cover such excess has been Conveyed to the Property Owner in accordance with the Master Developer Covenant and the Vesting Covenant (as the same may be amended, restated, replaced, or supplemented as of the Close of Escrow), and (iii) if the total square footage of office space developed on the Land exceeds the Acquired Office Authorizations, so long as the Property Owner secures any additional Office Authorizations necessary to cover such excess, either by re-allocating to the Land Office Authorizations allocated to any Other SFDC Property (subject to the approval of the Citys Planning Department and/or Zoning Administrator (as applicable) and to compliance with the Office Program) or by securing additional Office Authorizations through the Office Program. The Conveyance of any square footage or Towers to the Property Owner, and the development of any such square footage or Towers on the Land, shall be subject to (x) compliance with all applicable requirements and/or procedures set forth in the Development Entitlements (including any placement and/or separation restrictions applicable to Towers contained in the South Design for Development), and (y) the receipt of any requisite approvals or consents from Governmental Authorities, including, without limitation, the Redevelopment Agency.
7.1.4 Sellers Covenant Regarding Acquired Rights. Seller hereby covenants (which covenant shall bind Sellers successors and assigns) to take all actions, both before and after the Close of Escrow, reasonably required to vest the Acquired Rights in Buyer, including the execution and delivery of any further agreements that may be reasonably required to fulfill such covenant. If Seller (or any successor or assign) breaches or violates the foregoing covenant, Buyer (or any other Property Owner) may pursue all remedies available to Buyer (or such Property Owner), at law or in equity, including, but not limited to, an action in equity or otherwise for specific performance of the foregoing covenant or an injunction against any breach or violation of such covenant. Seller hereby agrees that the covenant contained in this Paragraph 7.1.4 is unique to Seller and that any breach thereof could cause irreparable harm to Buyer (or any other Property Owner). Accordingly, Seller agrees that an injunction is a proper and fair remedy for such a breach.
7.1.5 Covenants Regarding Post-Closing Assistance.
(a) Seller hereby covenants (which covenant [***]) that, upon Buyers written request, delivered within [***], Seller shall [***] in connection with [***] (i) to secure [***], (ii) to obtain [***] in connection with [***], and/or (iii) to apply [***]. Such [***] is not intended to rise to the level of [***], but is intended to include [***] as providing [***] regarding the [***] and [***] and otherwise [***] in support of [***]. Notwithstanding any of the foregoing, under no circumstances shall Seller be required to [***] (x) to modify [***], to change or attempt to change [***] or to obtain or attempt to obtain [***], or (y) that Seller determines, in Sellers reasonable discretion, would [***]. Buyer shall [***] by Seller in providing [***] (including, but not limited to, [***] in connection with [***]) within [***] after Buyers receipt of [***], together with reasonably acceptable [***] thereof. If Seller [***], Buyer (or any other Property Owner) may [***], including, but not limited to, [***].
(b) Buyer hereby covenants (which covenant [***]) that, upon any Seller Party Owners written request, delivered within [***], Buyer shall [***] in connection with [***] (i) to secure [***], and/or (ii) to obtain [***] in connection with [***]. Such [***] is not intended to rise to the level of [***], but is intended to include [***] as providing [***] regarding the [***] and [***] and otherwise [***] in support of [***]. Notwithstanding any of the foregoing, under no circumstances shall Buyer be required to [***] (x) to modify [***], to change or attempt to change [***], or to obtain or attempt to obtain [***], or (y) that Buyer determines, in Buyers reasonable discretion, would [***]. The affected Seller Party Owner [***] by Buyer in providing [***] (including, but not limited to, [***] in connection with [***]) within [***] after such Seller Party Owners receipt of [***], together with reasonably acceptable [***] thereof. If Buyer [***], the affected Seller Party Owner may [***], including, but not limited to, [***].
7.1.6 Covenants Regarding Post-Closing Non-Interference.
(a) Seller hereby covenants (which covenant [***]), during the period commencing [***] and ending [***], not to [***] (i) to secure [***], (ii) to obtain [***] in connection with [***], (iii) to secure [***], so long as all additional [***] do not result in [***] more than an [***] for each [***], and/or (iv) to apply [***]. The foregoing covenant shall not prevent Seller [***] from [***] that Seller determines, in Sellers reasonable discretion, would [***]. Further, the foregoing covenant shall not prevent Seller [***] from [***] (x) to secure [***], and/or (y) to obtain [***], and it shall not be deemed, construed, or interpreted as [***] solely because [***] at or about the same time that [***]. If Seller [***], Buyer (or any other Property Owner) may [***], including, but not limited to, [***]. Seller hereby agrees that the covenant contained in this Paragraph 7.1.6(a) is [***] and that any breach thereof could [***]. Accordingly, Seller agrees that [***].
(b) Buyer hereby covenants (which covenant [***]), during the period commencing [***] and ending [***], not to [***] (i) to secure [***], and/or (ii) to obtain [***] in connection with [***]. The foregoing covenant shall not prevent Buyer [***] from [***] that Buyer determines, in Buyers reasonable discretion, would [***]. Further, the foregoing covenant shall not prevent Buyer [***] from [***] (x) to secure [***], and/or (y) to obtain [***], and it shall not be deemed, construed, or interpreted as [***] solely because [***] at or about the same time that [***]. If Buyer [***], the affected Seller Party Owner may [***], including, but not limited to, [***]. Buyer hereby agrees that the covenant contained in this Paragraph 7.1.6(b) is [***] and that any breach thereof could [***]. Accordingly, Buyer agrees that [***].
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7.2 Entitlement Implementation - Before Close of Escrow. Before the Close of Escrow, Buyer shall have the right, subject to the limitations set forth below, to begin any process necessary to implement or to take advantage of the benefits of any of the Development Entitlements; provided, however, that, without Sellers consent (which consent may be granted or withheld in Sellers sole discretion exercised in good faith), Buyer shall not file any application or document with any Governmental Authority, or take any other action with respect to the development of the Land, if the same would be binding upon Seller and/or the Land before the Close of Escrow.
7.3 Survival. Buyers and Sellers respective obligations under this Paragraph 7 shall survive the Closing Date and shall not be merged with the Grant Deed.
8. Buyers Common Area Improvements; Infrastructure. Buyer shall be solely responsible for developing all improvements within the Land, including, without limitation, private streets, pedestrian walkways, private infrastructure, and landscaping and hardscaping in the open space and common areas within the Land. Pursuant to Paragraph 8 of the Vesting PSA, CLDC (as predecessor to FOCIL as Infrastructure Developer) agreed to cause to be constructed public Infrastructure within the public streets adjacent to (but not within) the Land on all four (4) sides (i.e., South Street to the north, Terry Francois Boulevard to the east, 16th Street to the south, and 3rd Street to the west). A schedule of the required Infrastructure improvements and the timing of their delivery was set forth in Exhibit K attached to the Vesting PSA. Seller shall assign to Buyer all of Sellers rights pursuant to Paragraph 8 and Exhibit K of the Vesting PSA (the Infrastructure Rights) by executing and delivering the Assignment of Infrastructure Rights.
9. Planning and Mapping. Buyer shall be solely responsible after the Closing Date for obtaining any further entitlements (e.g., the preparation, submission, processing, and/or approval of any amendment to any approved Major Phase submittal(s) and any tentative and final parcel maps for the Land).
10. Conditions To Close of Escrow.
10.1 Conditions To Buyers Obligations. Buyers obligation to purchase the Property is subject to the satisfaction (or Buyers written waiver) of the conditions set forth in Attachment 1 attached hereto (Buyers Closing Conditions). Buyer may waive any of Buyers Closing Conditions, provided that any such waiver shall not affect Buyers ability to pursue any remedy Buyer may have with respect to any breach under this Agreement by Seller (except that Buyers remedy for any such breach may be limited as set forth in Paragraph 18.3 below).
10.2 Conditions To Sellers Obligations. Sellers obligation to sell the Property is subject to the satisfaction (or Sellers written waiver) of the conditions set forth in Attachment 2 attached hereto (Sellers Closing Conditions). Seller may waive any of Sellers Closing Conditions.
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10.3 Failure of Conditions.
10.3.1 Failure of Buyers Conditions. If any of Buyers Closing Conditions is not either fully satisfied or waived in writing before the Close of Escrow, then Buyer may elect, by written notice to Seller and Escrow Holder, to terminate this Agreement, in which event the Deposit shall be returned to Buyer, Seller shall bear all Cancellation Charges (except as may be expressly provided otherwise in this Agreement), and the Parties shall have no further rights or obligations under this Agreement, except for the Surviving Obligations. Nothing in this Paragraph shall be construed to limit any of Buyers rights or remedies under Paragraph 20 below in the event of a default by Seller under this Agreement (except that Buyers remedy for any such breach may be limited as set forth in Paragraph 18.3 below).
10.3.2 Failure of Sellers Conditions. If any of Sellers Closing Conditions is not either fully satisfied or waived in writing before the Close of Escrow, then Seller may elect, by written notice to Buyer and Escrow Holder, to terminate this Agreement, in which event Buyer shall bear all Cancellation Charges (except as may be expressly provided otherwise in this Agreement) and the Parties shall have no further rights or obligations under this Agreement, except for the Surviving Obligations. Nothing in this Paragraph shall be construed to limit any of Sellers rights or remedies under Paragraph 19 below in the event of a default by Buyer under this Agreement.
11. Deposits By Seller. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Seller shall deposit or cause to be deposited with Escrow Holder the following documents and instruments:
11.1 Grant Deed. One (1) original counterpart of the Grant Deed, duly executed by Seller and acknowledged.
11.2 Assignment of South OPA. Three (3) original counterparts of the Assignment of South OPA, duly executed by Seller and acknowledged.
11.3 Assignment of Infrastructure Rights. Three (3) original counterparts of the Assignment of Infrastructure Rights, duly executed by Seller (and, if appropriate, acknowledged).
11.4 Agreement Regarding Construction Obligations. Two (2) original counterparts of the Agreement Regarding Construction Obligations, duly executed by Seller (and, if appropriate, acknowledged), and one (1) original counterpart of a memorandum of the Agreement Regarding Construction Obligations, duly executed by Seller and acknowledged.
11.5 California Affidavit. An original California Affidavit, duly executed by Seller (and, if appropriate, acknowledged).
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11.6 FIRPTA Certificate. An original FIRPTA Certificate, duly executed by Seller (and, if appropriate, acknowledged).
11.7 Infrastructure CFD Bond Disclosure Assumption Agreement. Three (3) original counterparts of the Infrastructure CFD Bond Disclosure Assumption Agreement, duly executed by Seller (and, if appropriate, acknowledged).
11.8 Other Instruments. Such other instruments and documents as may be required by the terms of this Agreement (including, but not limited to, Buyers Closing Conditions and/or Sellers Closing Conditions).
12. Deposits By Buyer. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Buyer shall deposit or cause to be deposited with Escrow Holder the following:
12.1 Funds. The Purchase Price Balance, plus Escrow Holders estimate of Buyers share of closing costs, prorations, and charges payable pursuant to this Agreement, all in Immediately Available Funds.
12.2 Grant Deed. One (1) original counterpart of the Grant Deed, with the Acceptance By Grantee duly executed by Buyer and acknowledged.
12.3 Assignment of South OPA. Three (3) original counterparts of the Assignment of South OPA, duly executed by Buyer and acknowledged.
12.4 Assignment of Infrastructure Rights. Three (3) original counterparts of the Assignment of Infrastructure Rights, duly executed by Buyer (and, if appropriate, acknowledged).
12.5 Agreement Regarding Construction Obligations. Two (2) original counterparts of the Agreement Regarding Construction Obligations, duly executed by Buyer (and, if appropriate, acknowledged), and one (1) original counterpart of a memorandum of the Agreement Regarding Construction Obligations, duly executed by Buyer and acknowledged.
12.6 Infrastructure CFD Bond Disclosure Assumption Agreement. Three (3) original counterparts of the Infrastructure CFD Bond Disclosure Assumption Agreement, duly executed by Buyer (and, if appropriate, acknowledged).
12.7 Other Instruments. Such other instruments and documents as are required by the terms of this Agreement (including, but not limited to, Buyers Closing Conditions and/or Sellers Closing Conditions).
13. Costs and Expenses. At the Close of Escrow, Seller shall pay: (a) one-half of Escrow Holders fees and charges, (b) the portion of the premiums for any title insurance policy obtained by Buyer (generally, Title Policy) that would be charged if such Title Policy were a
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CLTA Policy, (c) the cost of any endorsements to the Title Policy that may be necessary to insure over any Permitted Encumbrance specific to the Land that, in Buyers sole discretion exercised in good faith, materially and adversely affects title to, or the development or use of, the Land, and (d) all transfer taxes and/or deed stamps payable as a result of the conveyance of title to the Land to Buyer. At the Close of Escrow, Buyer will pay: (i) one-half of Escrow Holders fees and charges, (ii) the portion of the premiums for the Title Policy that exceeds the premium that would be charged for a CLTA Policy, (ii) the cost of any endorsements to the Title Policy other than the endorsements described in clause (c) above, plus the cost of any joint protection policy reasonably requested by Buyer, (iii) the premiums for any separate title insurance policy insuring the lien of any mortgage, deed of trust, or other security instrument recorded against any portion of the Land at the Close of Escrow, plus the cost of any endorsements to any such title insurance policy, and (iv) all recording fees. Notwithstanding the foregoing, nothing in this Agreement shall be deemed, construed, or interpreted to require either Party to pay any of the additional transfer taxes and/or deed stamps that will be payable as a result of the conveyance of title to the Land to Buyer if the Close of Escrow is extended to a date after November 1, 2010, and Proposition N is approved and takes effect before the Close of Escrow occurs. Before the Close of Escrow is extended to a date after November 1, 2010, the Parties shall agree, in good faith, as to each Partys obligation with respect to the additional transfer taxes and/or deed stamps that will be payable as a result of the conveyance of title to the Land to Buyer if Proposition N is approved and takes effect before the Close of Escrow occurs. Except as may be expressly provided otherwise in this Agreement, (x) each Party shall be responsible for its own expenses in connection with the negotiation and performance of this Agreement, and (y) if, as a result of no fault of Buyer or Seller, Escrow fails to close, all of Escrow Holders fees and charges shall be shared equally by Seller and Buyer.
14. Prorations. The following prorations shall be made between Seller and Buyer on the Close of Escrow, computed as of the Close of Escrow:
14.1 Taxes and Assessments. General and special real and personal property taxes and other charges collected with general and special real and personal property taxes (such as assessments (including the CFD Assessments) levied by any Mello-Roos District affecting the Land (including the CFDs)) shall be prorated on the basis that Seller shall be responsible for (a) all such taxes and charges for the fiscal year of the applicable taxing authorities occurring before the Current Tax Period, and (b) that portion of such taxes and charges for the Current Tax Period determined on the basis of the number of days that have elapsed from the first day of the Current Tax Period to, but not including, the Closing Date, whether or not the same shall be payable before the Close of Escrow. If, as of the Close of Escrow, the actual tax bills for the year or years in question are not available and the amount of taxes and charges to be prorated cannot be ascertained, then rates and assessed valuation of the previous year, with known changes, shall be used, and when the actual amount of taxes and charges for the year or years in question shall be determinable, then such taxes and charges shall be re-prorated between the Parties to reflect the actual amount of such taxes and charges.
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14.2 Revenues. Revenues and other income (if any) from the Land shall be prorated as of the Closing Date to the extent actually collected (with all revenues due on or after the Closing Date being the sole property of Buyer). Delinquent revenues as of the Closing Date shall not be prorated, but when paid shall be the sole property of Buyer. To that end, Seller hereby irrevocably assigns to Buyer, as of the Closing Date, Sellers entire right, title, and interest in and to such delinquent revenues (including the right to collect the same).
14.3 Expenses. The Parties agree that service contracts expenses and utility costs shall not be prorated at the Close of Escrow.
14.4 Escrow Statement. At least one (1) day before the Close of Escrow, the Parties shall agree upon all of the prorations to be made and submit a statement to Escrow Holder (or sign a statement prepared by Escrow Holder) setting forth such prorations. In the event that any prorations, apportionments, or computations made under this Paragraph 14 shall require final adjustment, then the Parties shall make the appropriate adjustments promptly when accurate information becomes available and either Party shall be entitled to an adjustment to correct the same. Any corrected adjustment or proration will be paid in cash to the Party entitled thereto.
15. Disbursements and Other Actions By Escrow Holder. Upon the Close of Escrow, Escrow Holder shall promptly undertake all of the following in the manner indicated:
15.1 Prorations. Prorate all matters referenced in Paragraph 14 based upon the statement delivered into Escrow signed by the Parties.
15.2 Recording. Cause the Grant Deed, the Assignment of South OPA, the memorandum of the Agreement Regarding Construction Obligations, and any other documents that the Parties may mutually direct, to be recorded in the Official Records and conformed copies thereof, showing all recording information, to be delivered to Buyer and Seller.
15.3 Funds. Disburse from funds deposited with Escrow Holder by Buyer towards payment of all items chargeable to the account of Buyer pursuant hereto in payment of such costs (including, without limitation, the payment to Seller of the Purchase Price), and disburse the balance of such funds, if any, to Buyer.
15.4 Title Policy. Issue the Title Policy to Buyer.
15.5 Documents To Seller. Deliver to Seller one (1) original of the Assignment of Infrastructure Rights and one (1) original of the Agreement Regarding Construction Obligations, one (1) original of the Infrastructure CFD Bond Disclosure Assumption Agreement, together with any other documents to be delivered to Seller hereunder.
15.6 Documents To Buyer. Deliver to Buyer one (1) original of the Assignment of Infrastructure Rights, one (1) original of the Agreement Regarding Construction
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Obligations, one (1) original of the Infrastructure CFD Bond Disclosure Assumption Agreement, the original FIRPTA Certificate, and the original California Affidavit, together with any other documents to be delivered to Buyer hereunder.
16. Sellers Representations and Warranties. In consideration of Buyers execution and delivery of this Agreement, Seller hereby makes the following representations and warranties to Buyer. Where used in this Paragraph 16, the term Sellers knowledge, or similar phrases, shall refer to the then current, actual knowledge of [***], without any duty of separate investigation or inquiry. Seller represents and warrants that [***] (i) are the individuals affiliated with Seller and/or Alexandria who have the primary responsibility for overseeing the ownership, management, and operation of the Land, (ii) have had such primary responsibility for overseeing the ownership, management, and operation of the Land for at least one (1) year, and (iii) are the individuals affiliated with Seller and/or Alexandria who are most knowledgeable regarding the ownership, management, and operation of the Land. Seller further represents and warrants that (x) a general inquiry was sent to each other individual affiliated with Seller and/or Alexandria whose current responsibilities include any material aspect of the ownership, management, or operation of the Land, and (y) no such individual reported having any current, actual knowledge of any fact that would make any representation or warranty expressly set forth in this Paragraph 16 incorrect in any material respect. Buyer hereby agrees that none of the foregoing individuals shall have or incur any personal liability for the breach of any representation or warranty in this Agreement, and that Buyers sole remedy for any such breach shall be an action against Seller (but only to the extent otherwise permitted under the terms and conditions of this Agreement).
16.1 Organization. Seller is a limited liability company, duly organized and existing in good standing under the laws of the State of Delaware and qualified to do business in the State of California, with its principal place of business in the State of California.
16.2 Authority. Seller has the legal right, power, and authority to enter into this Agreement and to consummate the transactions contemplated in this Agreement. The execution, delivery, and performance of this Agreement by Seller have been duly authorized and, except as may be expressly set forth otherwise in this Agreement, no other action is required to the valid and binding execution, delivery, and performance of this Agreement by Seller.
16.3 No Conflicts. Sellers execution and delivery of this Agreement, Sellers consummation of the transactions contemplated in this Agreement, and Sellers compliance with the terms of this Agreement will not conflict with, or, with or without notice or the passage of time or both, result in a breach of any of the terms or provisions of, or constitute a default under, (a) Sellers formation documents, (b) any agreement (oral or written) to which Seller is a party or by which Seller is bound, (c) any applicable regulation of any Governmental Authority, or (d) any judgment, order, or decree of any court having jurisdiction over Seller.
16.4 No Preferential Rights. Except pursuant to instruments duly recorded in the Official Records, Seller has not granted any options or rights of first refusal or rights of first
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offer to third parties to purchase or otherwise acquire an interest in the Property that will survive the Close of Escrow.
16.5 No Material Violations. Seller has not received any written notice that the Land is in material violation or breach of, or material default under, the Master Commercial Declaration, the Environmental Covenant, the Risk Management Plan, or any Applicable Laws, and no claim based on any such violation, breach, or default is currently being asserted or pursued or, to Sellers knowledge, currently being threatened.
16.6 Files and Documents. To Sellers knowledge, Seller has delivered or made available to Buyer all files and documents relating to the Property in Sellers possession or control that could have a material effect on a reasonably prudent buyers decision whether to buy the Property.
16.7 No Actions. Seller has not been served with a summons or other written notice of any legal action or proceeding against or affecting any part of the Property, and no such legal action or proceeding is currently pending or, to Sellers knowledge, currently threatened.
16.8 No Occupancy Rights. There are no lease or occupancy agreements affecting any portion of the Land, and there are no third parties who have any right to occupy any portion of the Land.
16.9 Hazardous Materials. Except as may be disclosed in the Environmental Reports, Seller has not received any written notice of any violations or claims arising from Hazardous Materials with regard to the Land, and no action or proceeding based on any such violation or claim is currently being asserted or pursued or, to Sellers knowledge, currently being threatened.
16.10 OFAC. Seller and all beneficial owners and agents of Seller (provided that this representation and warranty shall not apply to the shareholders of any of the foregoing that is a publicly traded company) currently are (a) in compliance with (and shall at all times during the term of this Agreement remain in compliance with) the OFAC Rules, (b) not listed on (and shall not during the term of this Agreement be listed on) the Blocked Persons List, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.
17. Buyers Representations and Warranties. In consideration of Sellers execution and delivery of this Agreement, Buyer hereby makes the following representations and warranties to Seller.
17.1 Organization. Buyer is a limited liability company, duly organized and existing in good standing under the laws of the State of Delaware and qualified to do business in the State of California, with its principal place of business in the State of California.
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17.2 Authority. Buyer has the legal right, power, and authority to enter into this Agreement and to consummate the transactions contemplated in this Agreement. The execution, delivery, and performance of this Agreement by Buyer have been duly authorized and, except as may be expressly set forth otherwise in this Agreement, no other action is required to the valid and binding execution, delivery, and performance of this Agreement by Buyer.
17.3 No Conflicts. Buyers execution and delivery of this Agreement, Buyers consummation of the transactions contemplated in this Agreement, and Buyers compliance with the terms of this Agreement will not conflict with, or, with or without notice or the passage of time or both, result in a breach of any of the terms or provisions of, or constitute a default under, (a) Buyers formation documents, (b) any indenture, deed of trust, mortgage, loan agreement, or other instrument or agreement (oral or written) to which Buyer is a party or by which Buyer is bound, (c) any applicable regulation of any Governmental Authority, or (d) any judgment, order, or decree of any court having jurisdiction over Buyer.
17.4 OFAC. Buyer and all beneficial owners and agents of Buyer (provided that this representation and warranty shall not apply to the shareholders of any of the foregoing that is a publicly traded company) currently are (a) in compliance with (and shall at all times during the term of this Agreement remain in compliance with) the OFAC Rules, (b) not listed on (and shall not during the term of this Agreement be listed on) the Blocked Persons List, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.
18. Limitation on Sellers Liability For Condition of Property.
18.1 AS IS, WHERE IS. Buyer acknowledges and agrees that Buyer is purchasing the Property in an AS IS, WHERE IS condition, without relying upon any representations or warranties, express or implied, of any kind, except as expressly set forth in Paragraph 16 above. Without limiting the above, Buyer acknowledges that neither Seller, except as expressly set forth in Paragraph 16 above, nor any other party has made any representations or warranties, express or implied, on which Buyer is relying as to any matters, directly or indirectly, concerning the Property, including, but not limited to, the dimensions of the Land, the improvements and infrastructure (if any), development rights and exactions, expenses, taxes, assessments, bonds, permissible uses, title exceptions, water or water rights, topography, utilities, zoning, soil, subsoil, drainage, environmental or building laws, rules, or regulations, Hazardous Materials, or any other matters affecting or relating to the Property.
18.2 Reliance On Buyers Own Investigation. Buyer acknowledges and agrees that Buyer is purchasing the Property based solely upon Buyers own inspection of the Land and Buyers own due diligence review and investigation of the Property, or the opportunity to perform such inspection, review, and investigation. Buyer further acknowledges and agrees that Sellers cooperation with Buyer in connection with such inspection, review, and investigation shall not be construed as any warranty or representation, express or implied, of any kind with
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respect to the Property, or with respect to the accuracy, completeness, or relevancy of any such documents, except as expressly set forth in Paragraph 16 above.
18.3 Release; Release Exceptions. Without limiting the generality of the foregoing or any other provision of this Agreement, but subject to Sellers express representations and warranties set forth in Paragraph 16 above, Buyer, for itself and, to the maximum extent permitted by Applicable Laws, on behalf of its Transferees with respect to any part of or interest in the Property (which, for purposes of this Paragraph 18.3, shall include any grant of occupancy rights for permanent improvements such as space leases), hereby expressly waives, releases, and relinquishes any and all Claims that Buyer or such Transferees may now or hereafter have against any Seller Party, and their respective successors and assigns, whether known or unknown, with respect to any past, present, or future presence or existence of Hazardous Materials at, on, about, under, or within any part of the Land or with respect to any past, present, or future violations of any Applicable Laws, now or hereafter enacted, regulating or governing the use, handling, storage, release, or disposal of Hazardous Materials at, on, about, under, or within any part of the Land, including, without limitation, (a) any and all rights Buyer or such Transferees may now or hereafter have to seek contribution from Seller under Section 113(f)(i) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C.A. §9613), as the same may be further amended or replaced by any similar law, rule, or regulation, (b) any and all rights Buyer or such Transferees may now or hereafter have against Seller under the Carpenter-Presley-Tanner Hazardous Substances Account Act (California Health and Safety Code, Section 25300 et seq.), as the same may be further amended or replaced by any similar law, rule, or regulation, (c) any and all Claims, whether known or unknown, now or hereafter existing, under Section 107 of CERCLA (42 U.S.C.A. §9607), with respect to any part of the Land, and (d) any and all Claims regarding Hazardous Materials at, on, about, under, or within any part of the Land, whether known or unknown, based on nuisance, trespass, or any other common law or statutory provisions (provided, however, that the foregoing waiver and release shall not apply to any Claims that may arise as a result of any acts or omissions of any Seller Party after the Closing Date). Notwithstanding the generality of the foregoing waiver and release, until the Complete Release Date such waiver and release shall not apply to or cover any Claims arising from any of the following (Release Exception Claims): (i) any fraud committed by any Seller Party in connection with the transactions contemplated in this Agreement; (ii) any intentional, reckless, or grossly negligent failure or refusal by any Seller Party to deliver or make available to Buyer any files or documents relating to the Property in Sellers possession or control that could have a material effect on a reasonably prudent buyers decision whether to buy the Property; (iii) any intentional, reckless, or grossly negligent violation of any Applicable Laws committed by any Seller Party with respect to the Property and/or the transactions contemplated in this Agreement; (iv) any intentional, reckless, or grossly negligent act committed by any Seller Party that results in material physical waste to the Land; or (v) any breach of a representation or warranty contained in Paragraph 16 above. If, however, Buyer has actual knowledge as of the Closing Date of the existence of any specific Release Exception Claim and Buyer nonetheless closes the transactions contemplated in this Agreement and
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acquires the Property, then Seller shall have no liability or obligation with respect to such specific Release Exception Claim, which shall be deemed released by Buyer upon the Close of Escrow. Buyer will not have any right to bring an action against Seller as a result of a Release Exception Claim unless and until the aggregate amount of all liability and losses arising out of such Release Exception Claim exceeds Twenty-Five Thousand Dollars ($25,000.00); provided, however, in no event will Sellers liability for all Release Exception Claims exceed, in the aggregate, Six Million Eight Hundred Seventy-Five Thousand Dollars ($6,875,000.00). After the Complete Release Date, Buyer may not maintain any action based on a Release Exception Claim unless Buyer has given Seller written notice of such Release Exception Claim prior to the Complete Release Date.
BUYER HEREBY ACKNOWLEDGES THAT IT HAS READ AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542 (SECTION 1542), WHICH IS SET FORTH BELOW:
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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
BY INITIALING BELOW, BUYER HEREBY WAIVES THE PROVISIONS OF SECTION 1542 SOLELY IN CONNECTION WITH THE MATTERS THAT ARE THE SUBJECT OF THE WAIVERS AND RELEASES CONTAINED IN THIS PARAGRAPH 18.3.
Buyers Initials
The waivers and releases by Buyer contained in this Agreement shall survive the Close of Escrow and the recordation of the Grant Deed and will not be deemed merged into the Grant Deed upon its recordation.
19. Buyers Default.
19.1 LIQUIDATED DAMAGES. BUYER AND SELLER AGREE THAT, BASED ON THE CIRCUMSTANCES NOW EXISTING, KNOWN AND UNKNOWN, IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO ESTABLISH SELLERS DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES RELATING TO LOST ECONOMIC OPPORTUNITIES AND ATTORNEYS AND CONSULTANTS FEES AND EXPENSES) IF (A) SELLER FULLY PERFORMS ITS OBLIGATIONS UNDER THIS AGREEMENT, (B) BUYER DOES NOT ELECT TO TERMINATE THIS AGREEMENT IN ACCORDANCE WITH PARAGRAPH 5.3, PARAGRAPH 10.3.1, OR PARAGRAPH 21, AND (C) THE TRANSACTION CONTEMPLATED IN THIS AGREEMENT DOES NOT CLOSE AS A RESULT OF A BREACH BY BUYER OF BUYERS OBLIGATIONS UNDER THIS AGREEMENT. ACCORDINGLY, BUYER AND SELLER AGREE THAT, IN SUCH CIRCUMSTANCES, IT WOULD BE REASONABLE TO AWARD SELLER, AS SELLERS SOLE AND EXCLUSIVE REMEDY AT LAW OR IN EQUITY (EXCEPT AS OTHERWISE PROVIDED BELOW), LIQUIDATED DAMAGES EQUAL TO THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON). THEREFORE, IF (X) SELLER FULLY PERFORMS ITS OBLIGATIONS UNDER THIS AGREEMENT, (Y) BUYER DOES NOT ELECT TO TERMINATE THIS AGREEMENT IN ACCORDANCE WITH PARAGRAPH 5.3, PARAGRAPH 10.3.1, OR PARAGRAPH 21, AND (Z) THE TRANSACTION CONTEMPLATED IN THIS AGREEMENT DOES NOT CLOSE AS A RESULT OF A BREACH BY BUYER OF BUYERS OBLIGATIONS UNDER THIS AGREEMENT, THEN SELLER MAY INSTRUCT ESCROW HOLDER TO CANCEL THE ESCROW, WHEREUPON ESCROW HOLDER SHALL IMMEDIATELY PAY SELLER THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON) AND
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IMMEDIATELY THEREAFTER SHALL CANCEL THE ESCROW, AND SELLER SHALL BE RELIEVED FROM ALL OBLIGATIONS AND LIABILITIES UNDER THIS AGREEMENT, EXCEPT FOR ANY SURVIVING OBLIGATIONS. THE PAYMENT OF THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON) AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676, AND 1677.
19.2 SELLERS OTHER REMEDIES.
19.2.1 NOTHING CONTAINED IN THIS PARAGRAPH 19 SHALL SERVE TO WAIVE OR OTHERWISE LIMIT (A) SELLERS REMEDIES OR DAMAGES FOR CLAIMS AGAINST BUYER WITH RESPECT TO ANY OBLIGATIONS OF BUYER THAT, BY THE TERMS OF THIS AGREEMENT, SURVIVE THE CLOSE OF ESCROW OR ANY TERMINATION OF THIS AGREEMENT BEFORE THE CLOSE OF ESCROW, INCLUDING, WITHOUT LIMITATION, BUYERS INDEMNIFICATION OBLIGATIONS UNDER PARAGRAPH 9 OF THE INSPECTION AGREEMENT, OR (B) SELLERS RIGHTS TO OBTAIN FROM BUYER ALL COSTS AND EXPENSES OF ENFORCING THE LIQUIDATED DAMAGE PROVISION CONTAINED IN PARAGRAPH 19.1 ABOVE, INCLUDING LEGAL COSTS PURSUANT TO PARAGRAPH 25 BELOW.
19.2.2 THE PARTIES AGREE THAT SELLER WOULD SUFFER MATERIAL INJURY OR DAMAGE NOT COMPENSABLE BY THE PAYMENT OF MONEY IF BUYER WERE TO BREACH OR VIOLATE THE CONFIDENTIALITY OBLIGATIONS UNDER THE CNDA, PARAGRAPH 11 OF THE INSPECTION AGREEMENT, OR PARAGRAPH 27 BELOW. ACCORDINGLY, NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 19.1 ABOVE, IN ADDITION TO ALL OTHER REMEDIES THAT SELLER MAY HAVE, SELLER MAY BRING AN ACTION IN EQUITY OR OTHERWISE FOR SPECIFIC PERFORMANCE TO ENFORCE COMPLIANCE WITH THE CNDA, PARAGRAPH 11 OF THE INSPECTION AGREEMENT, OR PARAGRAPH 27 BELOW, OR AN INJUNCTION TO ENJOIN THE CONTINUANCE OF ANY SUCH BREACH OR VIOLATION THEREOF.
19.3 ACKNOWLEDGMENT. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS PARAGRAPH 19 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
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20. BUYERS REMEDIES. IF SELLER FAILS TO CONVEY THE PROPERTY TO BUYER IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND
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SUCH FAILURE CONSTITUTES A DEFAULT BY SELLER UNDER THIS AGREEMENT, THEN BUYER SHALL BE ENTITLED TO SEEK ALL REMEDIES AVAILABLE TO BUYER, AT LAW OR IN EQUITY, INCLUDING AN ACTION FOR EQUITABLE RELIEF. SELLER HEREBY AGREES THAT THE PROPERTY IS UNIQUE AND THAT IF SELLER FAILS TO CONVEY THE PROPERTY TO BUYER IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND SUCH FAILURE CONSTITUTES A DEFAULT BY SELLER UNDER THIS AGREEMENT, SUCH FAILURE COULD CAUSE IRREPARABLE HARM TO BUYER. ACCORDINGLY, SELLER AGREES THAT EQUITABLE RELIEF IS A PROPER AND FAIR REMEDY FOR SUCH FAILURE. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS PARAGRAPH 20 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
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21. Casualty or Condemnation Before Close of Escrow. Seller shall notify Buyer of any casualty to the Land that occurs before the Close of Escrow or any condemnation proceeding that is commenced before the Close of Escrow promptly after Sellers receipt of written notice of such casualty or condemnation proceeding. If any such casualty or condemnation proceeding relates to or may result in the loss of more than ten percent (10%) of the Land, Buyer may elect, at its option, either to: (a) terminate this Agreement, in which event all funds deposited into Escrow by Buyer shall be returned to Buyer and neither Party shall have any further rights or obligations hereunder, or (b) continue this Agreement in effect, in which event Buyer shall be entitled, upon the Close of Escrow, to any compensation, awards, or other payments or relief resulting from such casualty or condemnation proceeding and there shall be no adjustment to the Purchase Price.
22. Buyers Insurance Requirements. Prior to the Close of Escrow, Buyer shall maintain at all times the insurance coverages required to be carried pursuant to the Inspection Agreement. Buyers compliance with such insurance requirements shall in no way relieve or decrease the liability of Buyer under its indemnity obligations contained in this Agreement or the Inspection Agreement.
23. Notices. All notices, requests, approvals, demands, directions, or other communications required or permitted under this Agreement (generally, Notices) shall be in writing, and shall be personally delivered, sent by a reputable overnight courier service, sent by registered or certified mail (postage prepaid, return receipt requested), or sent by telecopy or facsimile and shall be deemed received upon the earlier of (a) if personally delivered or sent by overnight courier, the date of delivery to the address of the Party to receive such Notice, (b) if mailed, the date of delivery as shown on the senders registry or certification receipt, or (c) if sent by telecopy or facsimile, the date and time transmission and receipt are confirmed if such time is prior to 6:00 p.m., and the next business day if such time is after 6:00 p.m. (using the time in effect at the address of the Party to receive such Notice). A copy of any Notice sent by telecopy
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or facsimile also must be personally delivered or sent by reputable overnight courier service (in accordance with this Paragraph) within forty-eight (48) hours of the transmission of such Notice by telecopy or facsimile, provided that failure to deliver such copy within forty-eight (48) hours will not invalidate any Notice actually received by the Party to whom the telecopy or facsimile was addressed. All notices to Seller shall be sent to Sellers Address with a copy to Sellers Counsels Address. All notices to Buyer shall be sent to Buyers Address with a copy to Buyers Counsels Address. All notices to Escrow Holder shall be sent to Escrow Holders Address. All copies of Notices (i.e., those provided to any person or entity other than the intended addressee) shall be given as a courtesy only, and the failure or inability to deliver any courtesy copy of any Notice will not invalidate the Notice given to the intended addressee. Notice of change of address shall be given by written notice in the manner detailed in this Paragraph. Rejection, refusal to accept (including, but not limited to, intentionally disconnecting ones telecopy or facsimile machine or otherwise preventing the receipt of a Notice sent by telecopy or facsimile), or the inability to deliver because of a changed address of which no Notice was given shall be deemed to constitute receipt of the Notice sent.
24. Brokers. Seller shall cause to be paid to Sellers Broker and Buyers Broker a commission in an amount agreed upon by Seller and Brokers pursuant to a separate agreement. Buyer represents to Seller that Buyer has not dealt with any broker, finder, or intermediary in connection with this transaction other than Buyers Broker, and Seller represents to Buyer that Seller has not dealt with any broker, finder, or intermediary in connection with this transaction other than Sellers Broker. Buyer agrees to indemnify and hold harmless Seller from any Claims in connection with an assertion by any person for a real estate brokers commission, finders fee, or other compensation based upon any statement, representation, or agreement of Buyer, and Seller agrees to indemnify and hold Buyer harmless from any such Claims based upon any statement, representation, or agreement of Seller. Each Partys obligations set forth in this Paragraph shall survive the termination of this Agreement and Escrow before the Close of Escrow.
25. Legal Costs. Should either Party institute any action or proceeding against the other Party, by reason of or alleging the failure of the other Party to comply with any or all of its obligations under this Agreement, whether for declaratory or other relief, then the Party that prevails in such action or proceeding shall be entitled, in addition to any other recovery or relief, to its reasonable attorneys fees and expenses and consultant and expert fees and expenses related thereto (whether at the administrative, trial, or appellate levels) (Legal Costs). Any judgment, order, or award entered in such action or proceeding shall contain a specific provision providing for the recovery of attorneys fees and costs and consultant and expert fees and expenses incurred in enforcing, perfecting, and executing such judgment. A Party shall be deemed to have prevailed in any such action or proceeding (without limiting the generality of the foregoing) if such action or proceeding is dismissed upon the payment by the other Party of the sums allegedly due or the performance of obligations allegedly not complied with, or if such Party obtains substantially the relief sought by it in the action or proceeding, irrespective of whether such action or proceeding is prosecuted to judgment. As used in this Agreement, the term Legal Costs shall include, without limitation, attorneys and experts fees, costs, and expenses incurred
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in the following: (a) post judgment motions and appeals; (b) contempt proceedings; (c) garnishment, levy, and debtor and third party examinations; (d) discovery; and (e) bankruptcy litigation. For purposes of this Agreement, reasonable fees of any in-house counsel for Seller or Buyer shall be based on the fees regularly charged by outside counsel for Seller or Buyer, as applicable, with an equivalent number of years of professional experience in the subject matter area of the law for which Sellers or Buyers in-house counsel services were rendered. This Paragraph shall survive any termination of this Agreement before the Close of Escrow and shall also survive the recordation of the Grant Deed and the Close of Escrow and shall not be deemed merged into the Grant Deed upon its recordation.
26. Transfers.
26.1 Prohibition On Buyers Right To Transfer. Prior to the Close of Escrow, Buyer shall not Transfer its rights and/or obligations under this Agreement without the written consent of Seller, which consent Seller may withhold in Sellers reasonable discretion. Notwithstanding the foregoing, Buyer shall have the right to Transfer all (but not part) of Buyers rights and obligations under this Agreement to any Affiliate of Buyer. At least ten (10) days before the closing date of the proposed Transfer, Buyer shall deliver to Seller an originally executed assumption agreement from the Transferee in form and substance reasonably acceptable to Seller under which the Transferee assumes all of the obligations of Buyer under this Agreement. Except as specifically set forth above, any attempt by Buyer to Transfer its rights and/or obligations under this Agreement without the written consent of Seller shall be voidable at Sellers option. No permitted Transfer shall relieve, alter, or release the assigning party from its primary liability under this Agreement without the written consent of Seller, which consent Seller may withhold in Sellers reasonable discretion.
26.2 Transfers By Seller. Seller shall not Transfer its rights and/or obligations under this Agreement without the written consent of Buyer, which consent Buyer may withhold in Buyers reasonable discretion.
27. Confidentiality.
27.1 Generally. The Parties acknowledge that all correspondence and communications between Seller and Buyer concerning information that is or becomes part of this Agreement is confidential and shall be subject to the terms and conditions of the CNDA; provided, however, notwithstanding the terms and conditions of the CNDA, either Party may disclose such information (i) to their respective attorneys, accountants, lenders, prospective lenders, partners, prospective partners, contractors, sub-contractors, consultants, sub-consultants, architects, (ii) to the extent required by law (including any filing or disclosure requirements of any Governmental Authority), and (iii) upon written approval of the other Party (not to be unreasonably withheld). In addition, after the Close of Escrow, Buyer may disclose such information to any prospective purchaser of any portion of the Property, provided such prospective purchaser has entered into (x) a written letter of intent, memorandum of understanding, or other agreement or understanding for the purchase of such portion of the
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Property, and (b) a written non-disclosure agreement that contains confidentiality and non-disclosure provisions substantially similar to the confidentiality and non-disclosure provisions in the CNDA.
27.2 Confidential Information. In addition to the confidentiality obligations set forth in Paragraph 27.1 above, Buyer shall handle all Confidential Information in compliance with the CNDA and Paragraph 11 of the Inspection Agreement, as applicable.
27.3 Survival. The terms, covenants, and conditions contained in this Paragraph 27 shall survive any termination of this Agreement and Escrow before the Close of Escrow.
28. Additional Covenants and Agreements.
28.1 CFDs.
28.1.1 Formation of CFDs; CFD Assessments. On January 11, 2000, the Redevelopment Agency approved the formation of the Maintenance CFD and the Infrastructure CFD. Buyer acknowledges that, pursuant to the CFDs, a lien of special tax has been established with respect to the Land. Nothing herein shall be deemed to require Seller to reimburse Buyer for any CFD Assessments or any other taxes or public or private assessments that may be owing with respect to the Property after the Close of Escrow, all of which shall be the sole responsibility of Buyer.
28.1.2 Section 53341.5 Acknowledgment. Prior to Buyers execution and delivery of this Agreement, Buyer delivered to Seller acknowledgments (the Notices of Special Tax) confirming that Buyer has been advised of the terms and conditions of the CFDs, including that the Land is subject to the CFD Assessments. Copies of the executed Notices of Special Tax are attached hereto as Exhibit L.
28.2 Construction Obligations. Buyer acknowledges that the Land is part of the South Project Area, and acknowledges that if construction of the Project is not commenced and completed with reasonable diligence, or if there is a material delay in its commencement and completion, such an event or delay may have a material adverse effect on the timely development of other portions of the South Project Area. In order to allocate the burdens of such a material adverse effect, Master Developer and Seller executed, delivered, and recorded the Existing Construction Agreement, which covers and encumbers the Land. Prior to the Close of Escrow, the Parties shall reasonably negotiate between themselves as to the terms and conditions of an agreement (the Agreement Regarding Construction Obligations) that will specify each Partys responsibility for any obligations that may arise or accrue under the Existing Construction Agreement after the Close of Escrow. The terms and conditions of the Agreement Regarding Construction Obligations shall be reasonably acceptable to each Party, and a memorandum of the Agreement Regarding Construction Obligations shall be recorded in the Official Records as of the Close of Escrow.
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28.3 Oil Company Agreements. Buyer acknowledges that the Land is subject to the Oil Company Agreements, which, among other things, provide for (a) the excavation and off-site disposal of soils within the Land found to be contaminated by separate phase hydrocarbons and for the settlement of all claims related to such contaminated soils, (b) the monitoring of groundwater under the Land (including, but not limited to, the installation or relocation of monitoring wells on the Land), and (c) the continued access to the Land as necessary to perform any work to be performed by the Oil Companies under the Oil Company Agreements. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, copies of the Oil Company Agreements.
28.4 Environmental Inquiry. Buyer acknowledges that Seller has made available to Buyer, for Buyers inspection, a copy of all of the Environmental Reports.
28.5 Environmental Covenant Disclosure. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, a copy of the Environmental Covenant. Buyer acknowledges that the Land is subject to the Environmental Covenant, and Buyer hereby covenants to comply with such Environmental Covenant from and after the Close of Escrow. Without limiting the generality of the foregoing, the Environmental Covenant requires all Owners and Occupants (as therein defined) to include the following statement in all purchase agreements or leases relating to the Property:
(i) The land described herein may contain hazardous materials in soils and in the ground water under the property, and is subject to the following deed restrictions (collectively, the Covenant and Restriction): (A) Covenant and Environmental Restriction on Property dated as of February 23, 2000, and recorded in the Official Records on March 21, 2000, as Document No. 2000-G748552-00, Reel H598, Image 172 (affects Parcel One of the Land), and (B) Covenant and Environmental Restriction on Property dated as of February 3, 2000, and recorded in the Official Records on March 21, 2000, as Document No. 2000-G748551-00, Reel H598, Image 171 (affects Parcel Two of the Land). The Covenant and Restriction imposes certain covenants, conditions, `and restrictions on usage of the property described herein. This statement is not a declaration that a hazard exists.
(ii) In all future leases, licenses, permits, or other agreements between, on the one hand, an Owner or Occupant, and, on the other hand, another entity, which authorizes such entity to undertake or to engage in activities that are subject to one or more requirements set forth in the Risk Management Plan (RMP), the contracting Owner or Occupant will provide a copy of the RMP or its relevant provisions prior to execution of such agreements and ensure that such agreements contain covenants that (a) such entity
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will comply with the RMP (to the extent the RMP applies to the entitys activities); (b) such entity will obligate other entities with which it contracts for construction, property maintenance or other activities which may disturb soil or groundwater to comply with the applicable provisions of the RMP; and (c) such entity (and the entities with which it so contracts) will refrain from interfering with Owners or Occupants compliance with the RMP.
(iii) In all agreements between an Owner and another entity providing for access to the Property for the purpose of environmental mitigation, monitoring or remediation (Environmental Responses) by such entity, the Owner will provide that entity with a copy of the RMP prior to execution of such agreement and ensure that such agreements contain covenants by the entity that the entity will (a) comply with the RMP (to the extent the RMP applies to the entitys activities); and (b) obligate any person or company with which it contracts for Environmental Response that may disturb soil or groundwater to comply with the applicable provisions of the RMP.
(iv) The Owner will provide a copy of the RMP to any of its Transferees of a fee interest in all or any portion of the Property. The Owner will provide notice of the transfer and a map of the Mission Bay Development Area that delineates the parcel transferred to both the Board and the San Francisco Department of Public Health within 30 days after the transfer.
28.6 San Francisco Soils Analysis Disclosure. Buyer acknowledges and understands that the Land is located in an area of the City subject to the requirements of Article 20 of the San Francisco Public Works Code and Article 22A of the San Francisco Health Code, and in accordance with the requirements of Section 1233 of the San Francisco Health Code, Buyer hereby acknowledges receipt of a summary of such Articles, a copy of which is attached hereto as Exhibit I-1.
28.7 Natural Hazards Disclosure. Buyer acknowledges that Seller has made available to Buyer, for Buyers inspection, a copy of the Natural Hazards Statement.
28.8 Project Labor Agreement. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, a copy of the Project Labor Agreement. Buyer also acknowledges that: (a) the Land is Covered Property; and (b) the parties to the Project Labor Agreement agreed, to the fullest extent possible, to award all construction contracts for Covered Work to unionized construction firms, and further agreed to require, as a condition of any sale, conveyance, ground lease, or donation of any Covered Property, that any Covered Successor shall require any contractors to which the Covered Successor contracts Covered Work to sign
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and become a party to the Project Labor Agreement through the execution and delivery of a Successor Project Labor Agreement. Accordingly, at the Close of Escrow, Buyer shall execute and deliver to Seller an Agreement Regarding Successor Project Labor Agreement, pursuant to which Buyer (on behalf of all Covered Successors with respect to the Land) shall agree to require any contractors to which Covered Work is contracted to sign and become a party to the Project Labor Agreement through the execution and delivery of a Successor Project Labor Agreement.
28.9 Transactions With Tax Exempt Entities. The Tax Payment Agreement contains certain covenants to make payments in lieu of taxes equal to the full amount of the property taxes and CFD Assessments that would have been assessed against the applicable portion of the Land notwithstanding its ownership or occupancy by an entity that is exempt from property taxation. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, a copy of the Tax Payment Agreement.
28.10 Excavation Costs. Buyer acknowledges and agrees that Buyer has the sole responsibility and liability, at Buyers sole cost, for developing and constructing the Project in accordance with all Applicable Laws. Without limiting the foregoing, if Buyers development of the Project generates excess soil that cannot be re-used on the Property, either because such re-use would be inconsistent with the provisions of the RMP or for geotechnical reasons, Buyer shall be responsible, at Buyers sole cost, for transporting and disposing of such excess soil off-site.
28.11 Master Association and TMA. Without limiting the generality of the foregoing provisions of this Paragraph 28, Buyer acknowledges that the Land is included within the property covered by the Master Commercial Declaration and that the owner of the Land is obligated to participate in the TMA. Buyer further acknowledges that the Land will be subject to the covenants, conditions, and restrictions contained in the Master Commercial Declaration and to participation in the Master Association and the TMA, and that Buyer will be responsible for all assessments that may be owing with respect to the Land following the Close of Escrow with respect to the Master Association and the TMA.
28.12 Infrastructure CFD Bond Disclosure Certificate. Buyer acknowledges that the Infrastructure CFD Bond Disclosure Certificate requires Seller to provide semiannual and annual reports and notices of significant events to the Redevelopment Agency of the character described in Section 3 and Section 4 of the Infrastructure CFD Bond Disclosure Certificate. Buyer shall assume all continuing disclosure obligations under the Infrastructure CFD Bond Disclosure Certificate by executing and delivering an assumption agreement (the Infrastructure CFD Bond Disclosure Assumption Agreement), that contains terms substantially similar to those in the Infrastructure CFD Bond Disclosure Certificate and that otherwise qualifies as an Assumption Agreement (as defined in the Infrastructure CFD Bond Disclosure Certificate).
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29. Compliance With Development Entitlements.
29.1 Generally. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, copies of the Development Entitlements (including, without limitation, the RMP and the Environmental Covenant). Buyer also acknowledges that Buyer will be responsible following the Close of Escrow for all fees and costs related to the development of the Project in accordance with the Development Entitlements and all Applicable Laws.
29.2 Diversity Program. Without limiting the generality of Paragraph 29.1 above, Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, copies of the Program in Diversity/Economic Development Program, which is set forth in Attachment H to the South OPA (the Diversity Program). Buyer also acknowledges that (i) the Diversity Program provides for the arbitration of certain disputes under the circumstances set forth in the Diversity Program, and (ii) Schedule 4, Section I.C of the Diversity Program references the City-wide First Source Hiring Program (FSHP) adopted by the City and County of San Francisco August 3, 1998, and codified at San Francisco Administrative Code Sections 83.1-83.1(8). The FSHP is designed to identify entry-level positions associated with employees engaged in construction work for certain commercial development projects and to provide first interview opportunity to graduates of city-sponsored training programs. Buyer further acknowledges that Buyers activities with respect to the Property are or may be subject to the FSHP, and that the FSHP and the Diversity Program may impose obligations on Buyer, including good faith efforts to meet requirements and goals regarding interviewing, recruiting, hiring, and retention of certain individuals.
29.3 Non-Discrimination. Without limiting the generality of Paragraph 29.1 above, Buyer acknowledges that the South OPA expressly provides that there shall be no discrimination against or segregation of persons or groups of persons or any employee or applicant for employment on account of race, color, creed, religion, national origin, ancestry, sex, marital or domestic partner status, familial status, lawful source of income (as defined in Section 3304 of the San Francisco Police Code), gender identity, sexual orientation, age, or disability (including, without limitation, HIV/AIDS status) in the sale, lease, sublease, transfer, use, occupancy, tenure, or enjoyment of the Property. All deeds, leases, or contracts for the sale, lease, sublease, or other transfer of all or any portion of the Property are required to contain the foregoing nondiscrimination and nonsegregation provision.
29.4 Mitigation Measures. Without limiting the generality of Paragraph 29.1 above, Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, the applicable mitigation measures of the South OPA, which are set forth in Attachment L to the South OPA. Buyer also acknowledges that Buyer will be responsible following the Close of Escrow for complying with and doing all things necessary to perform the obligations of Owner (as therein defined) pertaining to the Land.
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30. 1031 Exchange. At its option, either Seller or Buyer may structure this transaction as an Exchange. If either Party shall elect to undertake an Exchange, the following terms shall apply, as may be applicable:
(a) The exchanging Party (Exchanging Party) shall give written notice to the other Party and Escrow Holder not later than seven (7) business days prior to the Closing Date of its intention to structure this transaction as an Exchange;
(b) The Exchanging Party may assign (in part or in whole) its right in this Agreement, as well as the transfer of its interest in the Property, to an exchange accommodator or an exchange accommodation titleholder (either, an Accommodator) selected by the Exchanging Party, and may add the Accommodator as an additional party to the Escrow, provided that (i) such assignment shall not release the Exchanging Party of sole responsibility for its representations, warranties, undertakings, covenants, indemnities, and obligations hereunder, (ii) the non-Exchanging Party shall not be required to take an assignment of the purchase agreement for any other property or be required to acquire or hold title to any other property for purposes of consummating any such Exchange, and (iii) all conveyance documents to be delivered at the Close of Escrow shall be directly between Buyer and Seller;
(c) Buyer and Seller agree to reasonably cooperate with one another in connection with any Exchange, including the execution of documents for such Exchange (including, but not limited to, escrow instructions and amendments to escrow instructions);
(d) The non-Exchanging Party shall in no way be obligated to pay any escrow costs, brokerage commissions, title charges, survey costs, recording costs or other charges incurred with respect to any other property in connection with any Exchange;
(e) The Close of Escrow shall not be contingent upon or otherwise subject to the consummation of any Exchange;
(f) Escrow shall timely close in accordance with the terms of this Agreement notwithstanding any failure, for any reason, of the Exchanging Party to consummate any such Exchange; provided, however, that the Exchanging Party shall have a one-time right to extend the Closing Date for up to thirty (30) days in order to complete such Exchange by delivering written notice to Escrow Holder and the non-Exchanging Party at least seven (7) business days prior to the Closing Date;
(g) The non-Exchanging Party shall have no responsibility or liability to any third party involved in any Exchange, and the Exchanging Party shall indemnify and defend the non-Exchanging Party and hold the non-Exchanging Party harmless against any and all claims, damages, liabilities, losses, costs and expenses, including, without limitation, attorneys fees and costs, arising out of or in any way connected with any
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Exchange that the non-Exchanging Party would not have incurred but for such Exchange, including, but not limited to, any liabilities, losses, costs, or expenses incurred or sustained by the non-Exchanging Party in the event the non-Exchanging Party is audited or questioned in connection with such Exchange;
(h) The non-Exchanging Party shall not be required to make any representations or warranties, to assume any obligations, or to spend any out-of-pocket sum in connection with any Exchange; and
(i) All representations, warranties, undertakings, covenants, indemnities, and obligations of the Parties to each other, whether set forth in this Agreement or otherwise existing at law or at equity, shall inure to the benefit of the Parties, notwithstanding any Exchange.
31. Miscellaneous.
31.1 Survival of Covenants. In addition to the provisions otherwise expressly set forth in this Agreement, (a) the representations and warranties of Buyer and Seller set forth in this Agreement, and (b) all covenants made by Buyer and Seller in this Agreement pursuant to which Buyer and Seller, by the terms of such covenants, will have continuing rights or obligations under this Agreement following the Close of Escrow shall survive the recordation of the Grant Deed and the Close of Escrow and shall not be deemed merged into the Grant Deed upon its recordation; provided, however, that the representations and warranties of Seller set forth in this Agreement shall remain operative and shall survive the Close of Escrow and the recordation of the Grant Deed only until the Complete Release Date, and no action or claim based thereon shall be commenced after the Complete Release Date (unless, prior to the Complete Release Date, Buyer has given Seller written notice of a Release Exception Claim based on a breach of a representation or warranty of Seller set forth in this Agreement).
31.2 No Other Offers. From the Effective Date through the Termination Deadline, and thereafter until the Closing Date, Seller shall not solicit or accept any offers, whether or not binding, regarding the Property; provided, however, that the foregoing restriction shall no longer apply upon the termination of this Agreement in accordance with its terms.
31.3 Required Actions of Buyer and Seller. Buyer and Seller agree to execute such instruments and documents and to undertake such actions as may be required in order to consummate the purchase and sale of the Property and shall use good faith efforts to accomplish the Close of Escrow in accordance with the provisions hereof.
31.4 Time of Essence. Time is of the essence of each and every term, condition, obligation, and provision hereof. All references herein to a particular time of day shall be deemed to refer to the time in effect in San Francisco, California.
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31.5 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute a single agreement with the same effect as if all Parties had signed the same signature page. Any signature page from any counterpart of this Agreement , signed only by one Party, may be detached from such counterpart and re-attached to any other counterpart of this Agreement that has a signature page signed only by another Party, without impairing the legal effect of any of the signatures.
31.6 Captions. Any captions to, or headings of, the Paragraphs or subparagraphs of this Agreement are solely for the convenience of the Parties, are not a part of this Agreement, and shall not be used for the interpretation or determination of the validity of this Agreement or of any provision of this Agreement.
31.7 No Obligations To Third Parties. Except as may be expressly provided otherwise in this Agreement, the execution and delivery of this Agreement shall not be deemed to confer any rights upon, nor obligate any of the Parties, to any person or entity other than the Parties.
31.8 Exhibits. The Attachments and Exhibits attached to this Agreement are hereby incorporated herein by this reference for all purposes.
31.9 Amendment To Agreement. The terms of this Agreement may not be modified or amended except by an instrument in writing executed by each of the Parties.
31.10 Waiver. The waiver or failure to enforce any provision of this Agreement shall not operate as a waiver of any future breach of any such provision or of any other provision of this Agreement.
31.11 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California.
31.12 Fees and Other Expenses. Except as may be expressly provided otherwise in this Agreement, each Party shall pay its own fees and expenses in connection with this Agreement.
31.13 Partial Invalidity. If any portion of this Agreement as applied to either Party or to any circumstances shall be adjudged by a court to be void or unenforceable, such portion shall be deemed severed from this Agreement and shall in no way effect the validity or enforceability of any remaining portion of this Agreement.
31.14 Successors and Assigns. Subject to the provisions of Paragraph 26 above, this Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties.
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31.15 Independent Counsel. Buyer and Seller each acknowledge that: (a) they have been represented by independent counsel in connection with this Agreement; (b) they have executed this Agreement with the advice of such counsel; and (c) this Agreement is the result of negotiations between the Parties and the advice and assistance of their respective counsel. The fact that this Agreement was prepared by Sellers counsel as a matter of convenience shall have no import or significance. Any uncertainty or ambiguity in this Agreement shall not be construed against Seller because Sellers counsel prepared this Agreement in its final form.
31.16 Deadlines. If the last day of any period to give notice, reply to a notice, or undertake any other action under this Agreement occurs on a Saturday, Sunday, or state holiday, then the last day for such action shall be the next succeeding day that is not a Saturday, Sunday, or state holiday.
31.17 Extension of Time. A delay in the completion of any obligation under this Agreement as a result of an Unavoidable Delay shall extend the deadline for completion of such obligation for the period of the Unavoidable Delay, provided that (a) if the Party seeking to rely upon such provisions shall fail to give notice to the other Party of such Unavoidable Delay and the cause or causes thereof, to the extent known, within three (3) business days after obtaining knowledge of the beginning of the delay, the period of any Unavoidable Delay shall be reduced for the period of time prior to the delivery of such notice, (b) the period of any Unavoidable Delay shall also be reduced by any portion of such delay resulting from the failure of the Party claiming the Unavoidable Delay to act diligently and in good faith to avoid foreseeable delays in performance, and to remove the cause of the delay or to develop a reasonable alternative means of performance, and (c) the total extension for all Unavoidable Delays shall not exceed sixty (60) days.
31.18 Entire Agreement. This Agreement, the Inspection Agreement, and the CNDA supersede any prior agreements, negotiations, and communications, oral or written, including the Letter of Intent dated August 13, 2010, and any other letter of intent or memorandum of understanding previously executed by the Parties to this Agreement (if any), and contains the entire agreement between Buyer and Seller as to the subject matter of this Agreement, the Inspection Agreement, and the CNDA. No subsequent agreement, representation, or promise made by either Party, or by or to an employee, officer, agent, or representative of either Party, shall be of any effect unless it is in writing and executed by the Party to be bound thereby.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first written above.
Seller |
ARE-SAN FRANCISCO NO. 16, LLC, a Delaware limited liability company | |||||||||||
By: |
ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, Managing Member | |||||||||||
By: |
ARE-QRS CORP., a Maryland corporation, General Partner | |||||||||||
By: /s/ Eric S. Johnson | ||||||||||||
Print Name: Eric S. Johnson | ||||||||||||
Print Title: Vice President Real Estate Legal Affairs | ||||||||||||
Buyer |
BAY JACARANDA NO. 2932, LLC, a Delaware limited liability company | |||||||||||
By: |
Bay Jacaranda Holdings, LLC, a Delaware limited liability company, Its Sole Member | |||||||||||
By: |
salesforce.com, inc., a Delaware corporation, Its Sole Member | |||||||||||
/s/ David Schellhase | ||||||||||||
By: David Schellhase | ||||||||||||
Title: Executive Vice President, Legal |
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Acceptance By Escrow Holder:
The undersigned hereby acknowledges that they have received originally executed counterparts or a fully executed original of the foregoing Agreement of Purchase and Sale and Joint Escrow Instructions (the Agreement) and agrees to act as Escrow Holder thereunder and to be bound by and perform the terms thereof as such terms apply to Escrow Holder.
The undersigned hereby agrees to use commercially reasonable efforts to keep confidential the existence and contents of, and the parties to, the Agreement, and shall not disclose any such information to any third party, except to the extent a disclosure is reasonably necessary (i) for Escrow Holder to enforce its rights or defend itself in connection with the Agreement; (ii) for submissions to any local, state, or federal regulatory body; or (iii) for compliance with a valid order of a court or other governmental body having jurisdiction, or any law, statute, or regulation, provided that, in the event of a disclosure under clause (iii) above, Escrow Holder use commercially reasonable efforts to give the parties to the Agreement reasonable prior written notice of such required disclosure in order to permit such parties to seek confidential treatment of, or a protective order preventing or limiting the disclosure or use of, the information to be disclosed.
Dated: October , 2010 |
FIRST AMERICAN TITLE INSURANCE COMPANY | |||
By: |
|
Print Name: |
| |||
Its: Authorized Agent |
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ATTACHMENT 1
BUYERS CLOSING CONDITIONS
All initially capitalized terms not expressly defined when used in this Attachment 1 shall have the meanings given to such terms in the Agreement.
1. Condition of Land. Subject to the provisions of Paragraph 21 of the Agreement, the condition of the Land shall be substantially the same as of the Close of Escrow as on the Effective Date, except for reasonable wear and tear and any damages due to any act of any Buyer Party or any of Buyers Agents.
2. Condition of Title. The Title Company shall be committed to issue at the Close of Escrow, upon payment of its regularly scheduled premium, an ALTA Policy, in the amount of the Purchase Price showing title to the Land vested in Buyer, subject only to the Permitted Encumbrances.
3. Sellers Obligations. Seller shall have performed all of the covenants, undertakings, and obligations to be performed by Seller pursuant to this Agreement at or before the Close of Escrow. In addition, each Seller Party shall have performed all of the covenants, undertakings, and obligations to be performed by such Seller Party pursuant to any other contract or agreement with any Buyer Party, and all of the conditions to the obligation of such Buyer Party to perform fully under such other contract or agreement shall have been satisfied or waived.
4. Sellers Representations and Warranties. Sellers representations and warranties in Paragraph 16 of the Agreement shall be true and correct as of the Close of Escrow.
5. South Redevelopment Plan / South OPA. Any conditions set forth in the South Redevelopment Plan and/or the South OPA to the transfer of the Property from Seller to Buyer shall have been satisfied, and the Redevelopment Agency shall have delivered the Assignment of South OPA to Buyer or Escrow Holder, duly executed by the Redevelopment Agency and acknowledged. In addition, Seller shall have provided to the Redevelopment Agency any other agreements that the Redevelopment Agency may reasonably require in connection with the transfer of the Property from Seller to Buyer.
6. Acquired Square Footage / Tower Rights / Parking Rights. Seller shall have provided to Buyer and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to comply with the Master Developer Covenant and/or the Vesting Covenant, or to amend, restate, replace, or supplement the Master Developer Covenant and/or the Vesting Covenant as they apply to the Land, and shall have executed any other documents that Buyer may reasonable require, in order (i) to transfer the Acquired Square Footage, the Acquired Tower Rights, and the Acquired Parking Rights from Seller to Buyer, (ii) to give Property Owner the right to Convey to any Other SFDC Owner any part of the
ATTACHMENT 1
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Acquired Square Footage (or any part of the Other SFDC Square Footage previously Conveyed to Property Owner), (iii) to give any Other SFDC Owner the right to Convey to Property Owner any part of the Other SFDC Square Footage (or any part of the Acquired Square Footage previously Conveyed to such Other SFDC Owner), (iv) to give Property Owner the right to Convey to any Other SFDC Owner any part of the Acquired Tower Rights (or any part of the Other SFDC Tower Rights previously Conveyed to Property Owner), and (v) to give any Other SFDC Owner the right to Convey to Property Owner any part of the Other SFDC Tower Rights (or any part of the Acquired Tower Rights previously Conveyed to such Other SFDC Owner). Seller also shall have caused any other ARE Owners that will own property after the Close of Escrow within Height Zone 5 (as defined in the South Design for Development) to provide to Buyer and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to ensure that Buyer may exercise the Acquired Tower Rights upon the Close of Escrow.
7. Acquired Office Authorizations. Seller shall have provided to Buyer and/or the Citys Planning Department and/or Zoning Administrator, and shall have caused the other ARE Owners to provide to Buyer and/or the Citys Planning Department and/or Zoning Administrator, any information, agreements, and/or undertakings that may be reasonably necessary to allocate the Acquired Office Authorizations to the Land.
8. Transfer(s) of Development Rights. Seller shall have caused the Blocks 26-27 Owner and/or the Blocks 41-43 Owner to Convey to Seller an aggregate of 65,000 square feet of gross (commercial) floor area, in the manner contemplated in, and in accordance with, the Blocks 26-27 Covenant, the Blocks 41-43 Covenant, and the Master Developer Covenant.
9. Sellers Covenant. Seller shall have caused the other ARE Owners to provide to Buyer written covenants that are substantively identical to the covenants contained in Paragraphs 7.1.4, 7.1.5(a), and 7.1.6(a) of the Agreement.
10. Infrastructure Rights. Seller shall have provided to Buyer and/or the Infrastructure Developer any information, agreements, and/or undertakings that may be reasonably necessary to cause the Infrastructure Developer to consent to the Assignment of Infrastructure Rights (which consent shall include an agreement from the Infrastructure Developer that, after the Close of Escrow, Infrastructure Developers obligations with respect to the Infrastructure Rights shall be direct obligations to Buyer).
11. Construction Obligations. Seller and Buyer shall have agreed to the terms and conditions of the Agreement Regarding Construction Obligations.
12. Oil Company Agreements. Seller shall have provided to Buyer and/or the Oil Companies any information, agreements, and/or undertakings that may be reasonably necessary to satisfy any conditions set forth in the Oil Company Agreements (i) to assign the Oil Company Agreements from Seller to Buyer, and (ii) to the release of Seller from any further responsibility for any obligations under any of the Oil Company Agreements.
ATTACHMENT 1
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13. No Moratoria. No moratorium, statute, regulation, ordinance, or federal, state, or local legislation, and no order, judgment, ruling, or decree of any Governmental Authority, shall have been enacted, adopted, issued, entered, or pending that would materially and adversely affect Buyers intended use of the Property.
14. No Bankruptcy. No action or proceeding shall have been commenced by or against Seller under the federal bankruptcy code or any state law for the relief of debtors or for the enforcement of the rights of creditors, and no attachment, execution, lien, or levy shall have attached to or been issued with respect to any portion of the Property.
ATTACHMENT 1
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ATTACHMENT 2
SELLERS CLOSING CONDITIONS
All initially capitalized terms not expressly defined when used in this Attachment 2 shall have the meanings given to such terms in the Agreement.
1. Buyers Obligations. Buyer shall have performed all of the covenants, undertakings, and obligations to be performed by Buyer pursuant to this Agreement at or before the Close of Escrow (including, but not limited to, the obligation to deposit with Escrow Holder all funds required under this Agreement). In addition, each Buyer Party shall have performed all of the covenants, undertakings, and obligations to be performed by such Buyer Party pursuant to any other contract or agreement with any Seller Party, and all of the conditions to the obligation of such Seller Party to perform fully under such other contract or agreement shall have been satisfied or waived.
2. Buyers Representations and Warranties. Buyers representations and warranties in Paragraph 17 of the Agreement shall be true and correct as of the Close of Escrow.
3. South Redevelopment Plan / South OPA. Any conditions set forth in the South Redevelopment Plan and/or the South OPA (i) to the transfer of the Property from Seller to Buyer, and (ii) to the release of Seller from any obligations under the South Redevelopment Plan and/or the South OPA applicable to the Property, shall have been satisfied, and the Redevelopment Agency shall have delivered the Assignment of South OPA to Seller or Escrow Holder, duly executed by the Redevelopment Agency and acknowledged. In addition, Buyer shall have provided to the Redevelopment Agency any other information, agreements, and/or undertakings that the Redevelopment Agency may reasonably require in connection with the transfer of the Property from Seller to Buyer and/or the release of Seller from any obligations under the South Redevelopment Plan and/or the South OPA applicable to the Property.
4. Acquired Square Footage / Tower Rights / Parking Rights. Buyer shall have provided to Seller and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to comply with the Master Developer Covenant and/or the Vesting Covenant, or to amend, restate, or replace the Master Developer Covenant and/or the Vesting Covenant as they apply to the Land, in order to transfer the Acquired Square Footage, the Acquired Tower Rights, and the Acquired Parking Rights from Seller to Buyer.
5. ARE Retained Office Authorizations. Buyer shall have provided to Seller and/or the Citys Planning Department and/or Zoning Administrator, any information, agreements, and/or undertakings that may be reasonably necessary to allocate the Acquired Office Authorizations to the Land and to retain the ARE Retained Office Authorizations within the ARE Office Space District.
ATTACHMENT 2
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6. Infrastructure Rights. Buyer shall have provided to Seller and/or the Infrastructure Developer any information, agreements, and/or undertakings that may be reasonably necessary to cause the Infrastructure Developer to consent to the Assignment of Infrastructure Rights (which consent shall include an agreement from the Infrastructure Developer that, after the Close of Escrow, Infrastructure Developers obligations with respect to the Infrastructure Rights shall be direct obligations to Buyer).
7. Construction Obligations. Seller and Buyer shall have agreed to the terms and conditions of the Agreement Regarding Construction Obligations.
8. Oil Company Agreements. Buyer shall have provided to Seller and/or the Oil Companies any information, agreements, and/or undertakings that may be reasonably necessary to satisfy any conditions set forth in the Oil Company Agreements (i) to assign the Oil Company Agreements from Seller to Buyer, and (ii) to the release of Seller from any further responsibility for any obligations under any of the Oil Company Agreements.
9. Infrastructure CFD Bond Disclosure Certificate. Buyer shall have provided to Seller and/or the Redevelopment Agency any information, agreements, and/or undertakings that may be reasonably necessary to cause the Redevelopment Agency to release Seller from any obligations under the Infrastructure CFD Bond Disclosure Certificate.
10. No Bankruptcy. No action or proceeding shall have been commenced by or against Buyer under the federal bankruptcy code or any state law for the relief of debtors or for the enforcement of the rights of creditors, and no attachment, execution, lien, or levy shall have attached to or been issued with respect to any portion of any funds deposited with Escrow Holder under this Agreement.
ATTACHMENT 2
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EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
Real property in the City of San Francisco, County of San Francisco, State of California, described as follows:
PARCEL ONE:
LOT 1, BLOCK 8722, AS SHOWN ON THAT CERTAIN MAP ENTITLED MAP OF MISSION BAY, RECORDED JULY 19, 1999, IN BOOK Z OF MAPS, PAGES 97-119, IN THE OFFICE OF THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA, AS CORRECTED BY THAT CERTAIN CERTIFICATE OF CORRECTION RECORDED SEPTEMBER 16, 2002, IN REEL I223, IMAGE 596, AS INSTRUMENT NUMBER 2002-H244619 AND IN BOOK/REEL I926, PAGE/IMAGE 0376, AS INSTRUMENT NUMBER 2005-H985511, IN THE OFFICE OF SUCH RECORDER.
EXCEPTING THEREFROM, THE FOLLOWING:
AS EXCEPTED AND RESERVED BY THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, A DELAWARE CORPORATION (SANTA FE), IN THAT CERTAIN GRANT DEED DATED JANUARY 21, 1987, RECORDED MARCH 31, 1987, IN REEL E309, IMAGE 1138, SERIES NO. D966411, OFFICIAL RECORDS OF THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA, FROM THOSE PORTIONS OF THE ABOVE DESCRIBED REAL PROPERTY LYING WITHIN THE BOUNDARIES OF THE PARCELS DESCRIBED THEREIN, THE FOLLOWING:
ALL MINERALS, INCLUDING, WITHOUT LIMITING THE GENERALITY THEREOF, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, AS WELL AS METALLIC OR OTHER SOLID MINERALS, PROVIDED THAT SANTA FE SHALL NOT HAVE THE RIGHT TO GO UPON OR USE THE SURFACE OF SAID LAND, OR ANY PART THEREOF, FOR THE PURPOSE OF DRILLING FOR, MINING, OR OTHERWISE REMOVING, ANY OF SAID MINERALS. SANTA FE MAY, HOWEVER, AND RESERVES THE RIGHT TO, REMOVE ANY OF SAID MINERALS FROM SAID LAND BY MEANS OF WELLS, SHAFTS, TUNNELS, OR OTHER MEANS OF ACCESS TO SAID MINERALS WHICH MAY BE CONSTRUCTED, DRILLED OR DUG FROM OTHER LAND, PROVIDED THAT THE EXERCISE OF SUCH RIGHTS BY SANTA FE SHALL IN NO WAY INTERFERE WITH OR IMPAIR THE USE OF THE SURFACE OF THE ABOVE DESCRIBED REAL PROPERTY OR OF ANY IMPROVEMENTS THEREON.
AS EXCEPTED AND RESERVED FOREVER BY THE STATE OF CALIFORNIA IN THAT CERTAIN PATENT DATED JUNE 14, 1999, TO THE CITY AND COUNTY OF SAN FRANCISCO, A CHARTER CITY AND COUNTY, IN TRUST, RECORDED JULY 19, 1999, IN REEL H429, IMAGE 507, SERIES NO. 99-G622155-00, OFFICIAL RECORDS OF THE
EXHIBIT A
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CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA, FROM THAT PORTION OF THE ABOVE DESCRIBED REAL PROPERTY LYING WITHIN THE BOUNDARIES OF MINERAL RIGHTS PARCEL 11 DESCRIBED IN SUCH PATENT, THE FOLLOWING:
ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED IN THE ABOVE REFERRED TO MINERAL RIGHTS PARCEL 11, INCLUDING, BUT NOT LIMITED TO, OIL AND GAS AND RIGHTS THERETO, TOGETHER WITH THE SOLE, EXCLUSIVE, AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE, AND DISPOSE OF THOSE MINERALS BY ANY MEANS OR METHODS SUITABLE TO THE STATE OF CALIFORNIA OR TO ITS SUCCESSORS AND ASSIGNS, BUT WITHOUT ENTERING UPON OR USING THE SURFACE OF THE ABOVE REFERRED TO MINERAL RIGHTS PARCEL 11, AND IN SUCH MANNER AS NOT TO DAMAGE THE SURFACE THEREOF OR TO INTERFERE WITH THE USE THEREOF BY THE CITY AND COUNTY OF SAN FRANCISCO, ITS SUCCESSORS AND ASSIGNEES; PROVIDED, HOWEVER, THAT THE STATE OF CALIFORNIA, ITS SUCCESSORS AND ASSIGNS, WITHOUT THE PRIOR WRITTEN PERMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO, ITS SUCCESSORS AND ASSIGNEES, SHALL NOT CONDUCT ANY MINING ACTIVITIES OF ANY NATURE WHATSOEVER ABOVE A PLANE LOCATED FIVE HUNDRED FEET (500) BELOW THE SURFACE OF THE ABOVE REFERRED TO MINERAL RIGHTS PARCEL 11.
FURTHER EXCEPTING THEREFROM THAT PORTION THEREOF DESCRIBED IN THAT CERTAIN GRANT DEED DATED OCTOBER 25, 2002, EXECUTED BY CATELLUS DEVELOPMENT CORPORATION, A DELAWARE CORPORATION, TO THE CITY AND COUNTY OF SAN FRANCISCO, A CHARTER CITY AND COUNTY, RECORDED DECEMBER 11, 2002, IN BOOK I281, PAGE 340, INSTRUMENT NO. 2002-H309022, IN THE OFFICE OF SUCH RECORDER.
ASSESSORS PARCEL NUMBER: LOT 001, BLOCK 8722 (A PORTION)
PARCEL TWO:
THAT CERTAIN REAL PROPERTY DESCRIBED IN THAT CERTAIN QUITCLAIM DEED DATED NOVEMBER 5, 2002, EXECUTED BY THE CITY AND COUNTY OF SAN FRANCISCO, A CHARTER CITY AND COUNTY, TO CATELLUS DEVELOPMENT CORPORATION, A DELAWARE CORPORATION, RECORDED DECEMBER 11, 2002, IN BOOK I281, PAGE 341, INSTRUMENT NO. 2002-H309023-00, IN THE OFFICE OF THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
THE LOT AND BLOCK HEREINAFTER MENTIONED ARE IN ACCORDANCE WITH THAT CERTAIN MAP ENTITLED MAP OF MISSION BAY, RECORDED JULY 19, 1999,
EXHIBIT A
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IN BOOK Z OF MAPS, PAGES 97-119, IN THE OFFICE OF THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA.
COMMENCING AT THE MOST SOUTHWESTERLY CORNER OF PARCEL 28, AS SAID PARCEL IS DESCRIBED IN THE QUITCLAIM DEED TO THE CITY AND COUNTY OF SAN FRANCISCO, RECORDED JULY 19, 1999, IN BOOK H429, PAGE 512 (INSTRUMENT NO. 99-G622160) OFFICIAL RECORDS OF THE CITY AND COUNTY OF SAN FRANCISCO, SAID POINT OF COMMENCEMENT ALSO BEING THE MOST SOUTHWESTERLY CORNER OF BLOCK 8722, LOT 2 AS SHOWN ON SAID MAP (Z MAPS 97);
THENCE, EASTERLY ALONG THE SOUTHERLY LINE OF SAID PARCEL 28, SAID LINE ALSO BEING THE SOUTHERLY LINE OF SAID LOT 2, NORTH 86º 49 04 EAST 10.91 FEET TO THE POINT OF BEGINNING;
THENCE, ALONG THE EXTERIOR BOUNDARY OF SAID PARCEL 28, SAID LINES ALSO BEING THE EXTERIOR BOUNDARY OF SAID LOT 2, THE FOLLOWING THREE (3) COURSES:
1) NORTH 86º 49 04 EAST, 18.25 FEET,
2) NORTH 03º 10 56 WEST, 20.00 FEET, TO A POINT ON THE ARC OF A NON-TANGENT CURVE CONCAVE NORTHEASTERLY, HAVING A RADIUS OF 24.16 FEET, TO WHICH POINT A RADIAL LINE BEARS SOUTH 03º 10 56 EAST,
3) WESTERLY AND NORTHWESTERLY ALONG SAID CURVE, HAVING A RADIUS OF 24.16 FEET, THROUGH A CENTRAL ANGLE OF 53º 55 35, AN ARC DISTANCE OF 22.74 FEET, TO A POINT THAT BEARS NORTH 05º 37 34 WEST FROM SAID POINT OF BEGINNING;
THENCE, LEAVING SAID EXTERIOR BOUNDARY OF PARCEL 28 AND SAID LOT 2, SOUTH 05º 37 34 EAST, 29.96 FEET, TO THE POINT OF BEGINNING.
ASSESSORS PARCEL NUMBER: LOT 008, BLOCK 8722
EXHIBIT A
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EXHIBIT B
DEVELOPMENT ENTITLEMENTS
The following constitute the Development Entitlements:
1. The Final Mission Bay Subsequent Environmental Impact Report certified on September 17, 1998, by the Planning Commission of the City and County of San Francisco, California (the City) by Motion No. 14696.
2. The Mission Bay South Design for Development adopted on September 17, 1998, by the Commission of the Redevelopment Agency of the City and County of San Francisco (the Redevelopment Agency) by Resolution No. 191-98, as the same may be amended from time to time.
3. The Mission Bay Subdivision Ordinance adopted on October 26, 1998, by the Citys Board of Supervisors by Ordinance No. 329-98, as the same may be amended from time to time.
4. The Mission Bay South Redevelopment Plan adopted on November 2, 1998, by the Citys Board of Supervisors by Ordinance No. 335-98, as the same may be amended from time to time.
5. The Mission Bay South Owner Participation Agreement dated November 16, 1998, between the Redevelopment Agency and Catellus Development Corporation (CDC), including all Attachments thereto, as the same may be amended from time to time (authorized on September 17, 1998, by the Redevelopment Agency Commission by Resolution No. 193-98).
6. The Mission Bay Subdivision Regulations adopted on November 18, 1998, by the Citys Department of Public Works, as the same may be amended from time to time.
7. Transportation Management Association Strategic Plan and Organizational Structure dated May 5, 1999, as the same may be amended from time to time.
8. The Risk Management Plan dated May 11, 1999, for the Mission Bay Area, San Francisco, California, as the same may be amended from time to time (approved on May 12, 1999, by the State of California Regional Water Quality Control Board for the San Francisco Bay Region (the Regional Board)).
9. Mission Bay South Plan Area Streetscape Master Plan dated December 15, 1999, as the same may be amended from time to time (approved by the Redevelopment Agency Commission by Resolution No. 06-2000).
EXHIBIT B
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10. The Covenant and Environmental Restriction on Property made for the benefit of the Regional Board by the City and by the City, acting by and through the San Francisco Port Commission, dated as of February 3, 2000, and recorded in the Official Records of San Francisco County, California (the Official Records) on March 21, 2000, as Document No. 2000-G748551.
11. The Covenant and Environmental Restriction on Property made for the benefit of the Regional Board by CDC dated as of February 23, 2000, and recorded in the Official Records on March 21, 2000, as Document No. 2000-G748552.
12. Signage Master Plan Application dated June 27, 2000, as the same may be amended from time to time (approved by the Redevelopment Agency Commission by Resolution No. 101-2000).
13. Permit No. 5-00 issued on December 12, 2000, by the San Francisco Bay Conservation and Development Commission, as the same may be amended from time to time (BCDC Permit). A copy of the BCDC Permit, as amended through November 16, 2001 (Amendment No. Two), was recorded in the Official Records on December 10, 2001, as Document No. 2001-H066919.
14. Major Phase Submittal, Development Blocks 29, 30, 31 & 32, Mission Bay South, submitted to the Redevelopment Agency on May 25, 2006, and authorized by the Redevelopment Agency Commission on June 20, 2006, by Resolution No. 84-2006, as the same may be amended from time to time.
EXHIBIT B
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LIST OF ATTACHMENTS
ATTACHMENT 1 |
BUYERS CLOSING CONDITIONS | |
ATTACHMENT 2 |
SELLERS CLOSING CONDITIONS |
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LIST OF EXHIBITS
EXHIBIT A |
LEGAL DESCRIPTION OF PROPERTY | |
EXHIBIT B |
DEVELOPMENT ENTITLEMENTS | |
EXHIBIT C-1 |
PERMITTED ENCUMBRANCES | |
EXHIBIT C-2 |
PRO FORMA POLICY | |
EXHIBIT D |
FORM OF ASSIGNMENT OF SOUTH OPA | |
EXHIBIT E |
FORM OF ASSIGNMENT OF INFRASTRUCTURE RIGHTS | |
EXHIBIT F-1 |
FORM OF CALIFORNIA AFFIDAVIT | |
EXHIBIT F-2 |
FORM OF FIRPTA CERTIFICATE | |
EXHIBIT G |
IDENTIFICATION OF ENVIRONMENTAL REPORT(S) | |
EXHIBIT H |
FORM OF GRANT DEED | |
EXHIBIT I-1 |
SUMMARY OF ARTICLE 22A OF SAN FRANCISCO HEALTH CODE | |
EXHIBIT I-2 |
NATURAL HAZARDS STATEMENT | |
EXHIBIT J |
FORM OF AGREEMENT REGARDING SUCCESSOR PROJECT LABOR AGREEMENT | |
EXHIBIT K |
INSPECTION AGREEMENT | |
EXHIBIT L |
NOTICES OF SPECIAL TAX |
EXHIBIT 10.20
REDACTED COPY
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AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
[ 1455 Third Street and 1515 Third Street ]
This AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS (Agreement) is made and entered into as of this 21st day of October, 2010, by and between ARE-SAN FRANCISCO NO. 19, LLC, a Delaware limited liability company (Seller), and BAY JACARANDA NO. 2627, LLC, a Delaware limited liability company (Buyer), with respect to the following (initially capitalized terms not otherwise defined when first used shall have the meanings given to such terms in Paragraph 1 below):
R E C I T A L S:
A. Seller is the owner of certain real property located in the City and County of San Francisco (City), State of California, commonly referred to as 1455 Third Street (more particularly described on Exhibit A-1 attached hereto (the 1455 Parcel)) and as 1515 Third Street (more particularly described on Exhibit A-2 attached hereto (the 1515 Parcel)) (collectively, the Land). Seller also is the owner of certain real property located in the City commonly referred to as 450 South Street (more particularly described on Exhibit A-3 attached hereto (the Garage Site)), which includes a seven (7) level parking garage (the Garage) containing one thousand four hundred twenty-four (1,424) passenger vehicle parking spaces and seventy-five (75) bicycle spaces. The Land and the Garage Site (along with other property) are within Mission Bay South Development Blocks 26 and 27 (the Block references are for convenience only; the Blocks are not legal lots and do not constitute separate parcels).
B. The Land and the Garage Site are portions of the area generally known as the Mission Bay Development Area (as defined below), are located within the South Project Area (as defined below), and are subject to the existing Development Entitlements (as defined below).
C. Seller desires to sell the Property (as defined below) to Buyer, and Buyer desires to purchase the Property from Seller, upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer (each, a Party and collectively, the Parties) hereby agree that the terms and conditions of this Agreement and the instructions to Escrow Holder (as defined below) with regard to the Escrow (as defined below) are as follows:
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A G R E E M E N T:
1. Certain Basic Definitions. For purposes of this Agreement, the following terms shall have the following definitions:
1.1 455 MBBS Building means the office / laboratory building being constructed on the 455 MBBS Parcel.
1.2 455 MBBS Improvements means the 455 MBBS Building and related improvements being constructed on the 455 MBBS Parcel.
1.3 455 MBBS Parcel means that certain real property located in the City commonly referred to as 455 Mission Bay Boulevard South (more particularly described as Lot 2, as shown on Final Map 5156).
1.4 1455 Building means the office / laboratory building that Seller planned to develop on the 1455 Parcel.
1.5 1455 Construction Contracts means the contracts or other agreements (if any) for the construction of the 1455 Improvements, as described in Exhibit M-1 attached hereto.
1.6 1455 Contractors means the contractors (if any) who agreed to construct the 1455 Improvements for Seller pursuant to the 1455 Construction Agreements.
1.7 1455 Design Agreements means the contracts or other agreements (if any) for the preparation of the 1455 Design Documents, as described in Exhibit N-1 attached hereto.
1.8 1455 Design Documents means the basic concept design plans, schematic design plans, design development documents, final construction documents, or other design, engineering, or construction plans, specifications, or drawings (if any) for the 1455 Improvements, as described in Exhibit O-1 attached hereto.
1.9 1455 Design Professionals means the architects, designers, engineers, and other professionals (if any) who prepared the 1455 Design Documents for Seller pursuant to the 1455 Design Agreements.
1.10 1455 Development Costs means all costs, expenses, and other amounts incurred by Seller before the Closing Date in obtaining the 1455 Permits and in connection with the design and construction of the 1455 Improvements. As of the date of this Agreement, Seller estimates that such 1455 Development Costs exceed Three Million Five Hundred Thousand Dollars ($3,500,000.00).
1.11 1455 Improvements means the 1455 Building and related improvements that Seller planned to develop on the 1455 Parcel.
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1.12 1455 Parcel has the meaning set forth in Recital A above.
1.13 1455 Permits means the permits, licenses, or approvals (if any) issued by any agency or department of the City or by any other Governmental Authority for the 1455 Improvements, as described in Exhibit P-1 attached hereto.
1.14 1455 Project means the development to be constructed by Buyer on the 1455 Parcel in accordance with the Development Entitlements and the terms and conditions of this Agreement.
1.15 1515 Building means the office / laboratory building that Seller planned to develop on the 1515 Parcel.
1.16 1515 Construction Contracts means the contracts or other agreements (if any) for the construction of the 1515 Improvements, as described in Exhibit M-2 attached hereto.
1.17 1515 Contractors means the contractors (if any) who agreed to construct the 1455 Improvements for Seller pursuant to the 1515 Construction Agreements.
1.18 1515 Design Agreements means the contracts or other agreements (if any) for the preparation of the 1515 Design Documents, as described in Exhibit N-2 attached hereto.
1.19 1515 Design Documents means the basic concept design plans, schematic design plans, design development documents, final construction documents, or other design, engineering, or construction plans, specifications, or drawings (if any) for the 1515 Improvements, as described in Exhibit O-2 attached hereto.
1.20 1515 Design Professionals means the architects, designers, engineers, and other professionals (if any) who prepared the 1515 Design Documents for Seller pursuant to the 1455 Design Agreements.
1.21 1515 Development Costs means all costs, expenses, and other amounts actually incurred by Seller before the Closing Date in obtaining the 1515 Permits and in connection with the design and construction of the 1515 Improvements. As of the date of this Agreement, Seller estimates that such 1515 Development Costs exceed One Million Five Hundred Thousand Dollars ($1,500,000.00).
1.22 1515 Improvements means the 1515 Building and related improvements that Seller planned to develop on the 1515 Parcel.
1.23 1515 Parcel has the meaning set forth in Recital A above.
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1.24 1515 Permits means the permits, licenses, or approvals (if any) issued by any agency or department of the City or by any other Governmental Authority for the 1515 Improvements, as described in Exhibit P-2 attached hereto.
1.25 1515 Project means the development to be constructed by Buyer on the 1515 Parcel in accordance with the Development Entitlements and the terms and conditions of this Agreement.
1.26 Acquired Office Authorizations means four hundred twenty-two thousand nine hundred eighty (422,980) square feet of floor area of Office Authorizations, to be allocated to the Land from the ARE Office Authorizations.
1.27 Acquired Parking Rights means perpetual non-exclusive easements, appurtenant to the Land under and pursuant to the Easement Agreement, solely for the purposes of (i) parking passenger vehicles in five hundred fifty-five (555) of the marked spaces within the Garage, and (ii) parking bicycles in thirty (30) of the marked spaces within the Garage. Subject to the terms and conditions of the Easement Agreement, eighteen (18) of the passenger vehicle spaces described in clause (i) above shall be reserved for the exclusive use of the owner of the Land and any of its lessees, tenants, and subtenants and any directors, officers, employees, contractors, and invitees of such owner and its lessees, tenants, and subtenants.
1.28 Acquired Rights means the (i) the Acquired Square Footage, (ii) the Acquired Office Authorizations, (iii) the Acquired Tower Rights, (iv) the Acquired Parking Rights, and (v) the Infrastructure Rights.
1.29 Acquired Square Footage means the right to develop up to an aggregate of four hundred twenty-two thousand nine hundred eighty (422,980) square feet of gross (commercial) floor area.
1.30 Acquired Tower Rights means the right to develop up to one (1) Tower.
1.31 Affiliate means (a) an entity that directly or indirectly controls, is controlled by, or is under common control with the person or entity in question, or (b) an entity at least a majority of whose economic interest is owned by the person or entity in question; and the term control means the power to direct the management of such entity through voting rights, ownership, or contractual obligations.
1.32 Agreement Regarding Construction Obligations has the meaning set forth in Paragraph 29.2 below.
1.33 Agreement Regarding Successor Project Labor Agreement means the Agreement Regarding Successor Project Labor Agreement in substantially the form attached hereto as Exhibit J (subject to such modifications as may be reasonably negotiated by the Parties).
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1.34 Alexandria means Alexandria Real Estate Equities, Inc., a Maryland corporation and Sellers ultimate parent.
1.35 ALTA Policy means an American Land Title Association extended coverage owners policy of title insurance (6-17-06).
1.36 Applicable Laws means all laws, ordinances, rules, regulations, and requirements of all Governmental Authorities that are applicable to the Property, including without limitation, the Federal Occupational Health and Safety Act, the Americans with Disabilities Act of 1990, Title 24 of the California Code of Regulations, and all Environmental Laws, as amended from time to time.
1.37 ARE Office Authorizations means the Office Authorizations allocated to the ARE Properties under the ARE Office Space District.
1.38 ARE Office Space District means the Alexandria Mission Bay Life Sciences and Technology Development District created by Motion 17709 of the Planning Commission of the Citys Planning Department for purposes of allocating Office Authorizations to the ARE Properties.
1.39 ARE Owners means Seller, ARE-San Francisco No. 15, LLC, a Delaware limited liability company, ARE-San Francisco No. 16, LLC, a Delaware limited liability company, ARE-San Francisco No. 22, LLC, a Delaware limited liability company, ARE-San Francisco No. 26, LLC, a Delaware limited liability company, and ARE-San Francisco No. 36, LLC, a Delaware limited liability company.
1.40 ARE Properties means the Land, Blocks 26-27 (other than the Land), Blocks 29-32, Blocks 33-34, and Blocks 41-43.
1.41 ARE Retained Office Authorizations means the ARE Office Authorizations less the Acquired Office Authorizations.
1.42 ARE Retained Parking Rights means perpetual non-exclusive easements, appurtenant to the 455 MBBS Parcel under and pursuant to the Easement Agreement, solely for the purposes of (i) parking passenger vehicles in two hundred seventy-five (275) of the marked spaces within the Garage, and (ii) parking bicycles in fourteen (14) of the marked spaces within the Garage. Subject to the terms and conditions of the Easement Agreement, nine (9) of the passenger vehicle spaces described in clause (i) above shall be reserved for the exclusive use of the owner of the 455 MBBS Parcel and any of its lessees, tenants, and subtenants and any directors, officers, employees, contractors, and invitees of such owner and its lessees, tenants, and subtenants.
1.43 As an example only is intended solely to introduce descriptive illustrations for purposes of clarifying the possible applications of specific provisions of this
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Agreement, and shall not be deemed, construed, or interpreted as providing all-inclusive, comprehensive, or exhaustive lists of every possible situation or circumstance to which the provision in question may apply (including, but not limited to, including, without limitation, and similar phrases are used with the same sole intention).
1.44 Assignment of 1455 Construction Contracts has the meaning set forth in Paragraph 10.2 below.
1.45 Assignment of 1455 Design Agreements and Documents has the meaning set forth in Paragraph 10.1 below.
1.46 Assignment of 1455 Permits has the meaning set forth in Paragraph 10.3 below.
1.47 Assignment of 1515 Construction Contracts has the meaning set forth in Paragraph 10.5 below.
1.48 Assignment of 1515 Design Agreements and Documents has the meaning set forth in Paragraph 10.4 below.
1.49 Assignment of 1515 Permits has the meaning set forth in Paragraph 10.6 below.
1.50 Assignment of Infrastructure Rights means that certain Limited Assignment and Assumption of Agreement of Purchase and Sale in substantially the form attached hereto as Exhibit E (subject to such modifications as may be reasonably negotiated by the Parties).
1.51 Assignment of South OPA means the Assignment, Assumption and Release Agreement in substantially the form attached hereto as Exhibit D (subject to such modifications as may be reasonably requested by the Redevelopment Agency and/or reasonably negotiated by the Parties).
1.52 Block 26 Courtyard means the courtyard to be developed as part of the 455 MBBS Improvements and the 1455 Improvements. The northern portion of the Block 26 Courtyard will be located within the 455 MBBS Parcel and the southern portion of the Block 26 Courtyard will be located within the 1455 Parcel; the Block 26 Courtyard will be bounded on the west by Third Street, on the north by the 455 MBBS Building, on the east by the Block 26 Service Yard, and on the south by the 1455 Building.
1.53 Block 26 Service Yard means the service yard being developed as part of the 455 MBBS Improvements and the 1455 Improvements. The northern portions of the Block 26 Service Yard will be located within the 455 MBBS Parcel and the southern portions of the Block 26 Service Yard will be located within the 1455 Parcel; the Block 26 Service Yard will be bounded on the west by the Block 26 Courtyard, on the north by the 455 MBBS Building, and
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on the south by the 1455 Building, with a portion within the 1455 Parcel between the 1455 Building (on the west) and the Open Space Parcel (on the east) and a portion within the 455 MBBS Parcel between the 455 MBBS Building (on the north) and the Open Space Parcel (on the south).
1.54 Blocked Persons List means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or any other similar list maintained by OFAC or any other Governmental Authority pursuant to any authorizing statute, regulation, or executive order.
1.55 Blocks 26-27 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 26 and 27.
1.56 Blocks 26-27 Owner means Seller or any permitted successor or assign with respect to any portion of Blocks 26-27.
1.57 Blocks 33-34 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 33 and 34.
1.58 Blocks 41-43 means that certain real property located in the City commonly referred to as Mission Bay South Development Blocks 41, 42, and 43, excluding the Gladstone Property.
1.59 Brokers means, collectively, Buyers Broker and Sellers Broker.
1.60 Buyer Parties means Buyer and Buyers Affiliates (and each of their Affiliates), including, but not limited to, SFDC, and Buyers or such Affiliates shareholders, members, constituent partners, directors, officers, and employees.
1.61 Buyers Address means:
Bay Jacaranda No. 2627, LLC
c/o salesforce.com, inc.
The Landmark @ One Market, Suite 300
San Francisco, California 94105
Attention: General Counsel
Re: Mission Bay (Blocks 26-27), SF, CA
Telephone No.: 415-536-6970
Facsimile No.: 415-536-4616
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With a copy to:
Bay Jacaranda No. 2627, LLC
c/o salesforce.com, inc.
The Landmark @ One Market, Suite 300
San Francisco, California 94105
Attention: Mr. Tim Alonso
Telephone No.: 415-536-7225
Facsimile No.: 415-901-4616
1.62 Buyers Agents means Buyers agents, counsel, consultants, sub-consultants, contractors, sub-contractors, and prospective lenders.
1.63 Buyers Broker means Cushman & Wakefield.
1.64 Buyers Closing Conditions has the meaning set forth in Paragraph 11.1 below.
1.65 Buyers Counsels Address means:
Sheppard Mullin Richter & Hampton LLP
Four Embarcadero Center, 17th Floor
San Francisco, California 94111
Attention: Robert A. Thompson, Esq.
Telephone No.: 415-774-3213
Facsimile No.: 415-434-3947
1.66 California Affidavit means a California Form 593-C, in substantially the form attached hereto as Exhibit F-1.
1.67 Cancellation Charges has the meaning set forth in Paragraph 5.3 below.
1.68 Certificate of Completion has the meaning set forth in Section 3.6 of the South OPA.
1.69 CFD Assessments means the special taxes (i) to be levied on the Land (and other property in the Mission Bay Development Area) in accordance with the terms and conditions of the Rate and Method of Apportionment of Special Tax applicable to the Maintenance CFD, (ii) to be levied on the Land (and other property in the Mission Bay Development Area) in accordance with the terms and conditions of the Rate and Method of Apportionment of Special Tax applicable to the Infrastructure CFD, and (iii) to be levied on the Land and other property in the City in accordance with the terms and conditions applicable to the Public School CFD.
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1.70 CFDs means, collectively, the Maintenance CFD, the Infrastructure CFD, and the Public School CFD. The Maintenance CFD and the Infrastructure CFD were established under the South Financing Plan.
1.71 City has the meaning set forth in Recital A above.
1.72 Claims has the meaning set forth in Paragraph 2(b) of each applicable Inspection Agreement.
1.73 Close of Escrow means the time of recording of the Grant Deed in the Official Records.
1.74 Closing Date means the date on which the Close of Escrow occurs.
1.75 CLTA Policy means a California Land Title Association standard coverage owners policy of title insurance, in the current form used by the Title Company.
1.76 CNDA means that certain Mutual Confidential Information and Non-Disclosure Agreement dated as of May 6, 2010, between Alexandria and SFDC.
1.77 Complete Release Date means the date that is eighteen (18) months after the Closing Date.
1.78 Confidential Information has the meaning set forth in Paragraph 1 of the CNDA or set forth in Paragraph 2(c) of each applicable Inspection Agreement, as applicable.
1.79 Convey or Conveyed means to convey, sell, assign, alienate, or otherwise transfer.
1.80 Covered Property means the real property covered by the Project Labor Agreement.
1.81 Covered Successor means any successor in interest and/or assignee, buyer, ground lessee, or donee of any Covered Property.
1.82 Covered Work has the meaning set forth in the Project Labor Agreement.
1.83 Current Tax Period means the fiscal year of the applicable taxing authority during which the Close of Escrow occurs.
1.84 Deposit means the sum of Two Million Dollars ($2,000,000.00).
1.85 Development Costs means, collectively, the 1455 Development Costs and the 1515 Development Costs.
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1.86 Development Costs Reimbursement means a sum equal to Five Million Dollars ($5,000,000.00), which Seller shall accept as full reimbursement of the Development Costs.
1.87 Development Entitlements means those documents and materials governing development of the Property listed on Exhibit B attached hereto.
1.88 Discretionary Approvals has the meaning set forth in Paragraph 7.1.4(a) below.
1.89 Diversity Program has the meaning set forth in Paragraph 30.2 below.
1.90 Easement Agreement means that certain Easement Agreement (Permanent Access and Parking Easement) (Mission Bay South Blocks 26, 26a, 27, & 28) recorded in the Official Records on December 14, 2007, as Document No. 2007-I502747, as the same may be amended from time to time. Pursuant to the Easement Agreement, the Blocks 26-27 Owners have been granted perpetual non-exclusive easements solely for the purposes of (x) parking passenger vehicles in eight hundred thirty (830) of the marked spaces within the Garage, and (y) parking bicycles in forty-four (44) of the marked spaces within the Garage.
1.91 Effective Date means the date this Agreement is executed and delivered by both Seller and Buyer.
1.92 Environmental Covenant has the meaning set forth in Paragraph 2(d) of each applicable Inspection Agreement.
1.93 Environmental Laws means any and all federal, state, or local environmental health and/or safety laws, regulations, standards, decisions of courts, ordinances, rules, codes, orders, decrees, directives, guidelines, plans, risk management plans, recorded property covenants, and/or restrictions, permits, or permit conditions currently existing relating to the environment or to any Hazardous Materials (including, without limitation, the Risk Management Plan and the Environmental Covenant) that are applicable to the Land.
1.94 Environmental Reports means all environmental reports in Sellers possession or control regarding the Land and/or the Garage Site and all no further action or similar letters issued by any applicable Governmental Authority in connection with Hazardous Materials in, on, or under the Land and/or the Garage Site, all as listed on Exhibit G attached hereto.
1.95 Escrow means an escrow to be opened with Escrow Holder to facilitate the transactions contemplated in this Agreement.
1.96 Escrow Holder means First American Title Insurance Company.
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1.97 Escrow Holders Address means:
First American Title Insurance Company
901 Mariners Island Blvd., Suite 380
San Mateo, California 94404
Attention: Ms. Karen Matsunaga
Escrow No.: NCS-457142-SM
Telephone No.: 650-356-1729
Facsimile No.: 650-638-9116
1.98 Exchange means a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code.
1.99 Existing Construction Agreement means that certain Construction Commencement Agreement [Mission Bay - Blocks 26-27, Blocks 29-32, and Blocks 41-43] recorded in the Official Records on November 15, 2005, as Document No. 2005-I072104.
1.100 Final Map 4141 means Final Map 4141, filed October 16, 2007, in Book BB of Maps at Pages 179 through 183 in the Office of the Recorder of the City and County of San Francisco, State of California.
1.101 Final Map 5156 means Final Map 5156, filed November 25, 2009, in Book CC of Survey Maps at Pages 197 through 201 in the Office of the Recorder of the City and County of San Francisco, State of California.
1.102 FIRPTA Certificate means a certificate of non-foreign status, in the form attached hereto as Exhibit F-2.
1.103 FOCIL means FOCIL-MB, LLC, a Delaware limited liability company. As of the Effective Date, FOCIL is the Master Developer and the Infrastructure Developer.
1.104 Garage has the meaning set forth in Recital A above.
1.105 Garage Operating Responsibilities has the meaning given to the term Operating Responsibilities in the Easement Agreement.
1.106 Garage Operator has the meaning given to the term Operator in the Easement Agreement.
1.107 Garage Owner has the meaning given to such term in the Easement Agreement.
1.108 Garage Site has the meaning set forth in Recital A above.
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1.109 Garage Supervising Responsibilities has the meaning given to the term Supervising Responsibilities in the Easement Agreement.
1.110 Gladstone Property means that certain real property located in the City commonly referred to 1650 Owens Street.
1.111 Governmental Authority has the meaning set forth in Paragraph 2(h) of each applicable Inspection Agreement.
1.112 Government Representative has the meaning set forth in Paragraph 3(c) of each applicable Inspection Agreement.
1.113 Grant Deed means a grant deed, in substantially the form attached hereto as Exhibit H.
1.114 Hazardous Materials means any substance, material or waste that, because of its quantity, concentration, or physical or chemical characteristics poses a present or potential hazard to human health and safety or to the environment, including, but not limited to, petroleum, petroleum-based products, natural gas, or any substance, material, or waste (including, without limitation, biohazardous waste and medical waste) that is, or shall be, listed, regulated, or defined by federal, state, or local statute, regulation, rule, ordinance, or other governmental requirement to be hazardous, acutely hazardous, extremely hazardous, toxic, radioactive, biohazardous, infectious, or otherwise dangerous.
1.115 Immediately Available Funds means cash, bank cashiers check, or a confirmed wire transfer of funds.
1.116 Independent Consideration means the sum of One Thousand Dollars ($1,000.00).
1.117 Infrastructure means the infrastructure or other improvements to be constructed in accordance with the South Infrastructure Plan or the South Scope of Development.
1.118 Infrastructure CFD means Redevelopment Agency of the City and County of San Francisco Community Facilities District No. 6 (Mission Bay South Public Improvements).
1.119 Infrastructure CFD Bonds means, collectively, the following bonds issued by the Redevelopment Agency pursuant to the Mello-Roos Community Facilities District Act of 1982 (as amended):
(a) Special Tax Bonds, Series 2001-South;
(b) Special Tax Bonds, Series 2002 Parity-South; and
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(c) Special Tax Bonds, Series 2005A Parity-South (Current Interest Bonds), and Special Tax Bonds, Series 2005B Parity-South (Capital Appreciation Bonds) (collectively, the 2005 Infrastructure CFD Bonds).
1.120 Infrastructure CFD Bond Disclosure Assumption Agreement has the meaning set forth in Paragraph 29.11 below.
1.121 Infrastructure CFD Bond Disclosure Certificate means that certain Continuing Disclosure Certificate dated July 26, 2005, executed by Seller in connection with the 2005 Infrastructure CFD Bonds.
1.122 Infrastructure Developer means FOCIL or FOCILs successor as Owner under (and as defined in) the South OPA with respect to the obligation to construct Infrastructure, provided that such successor has been approved by the Redevelopment Agency if, and to the extent, required under the South OPA.
1.123 Infrastructure Rights has the meaning set forth in Paragraph 8 below.
1.124 Inspection Agreement means (as applicable) (i) as to the 1455 Parcel, that certain Access, Inspection, and Indemnity Agreement effective as of September 17, 2010, by and between Seller and SFDC, a copy of which is attached hereto as Exhibit K-1, (ii) as to the 1515 Parcel, that certain Access, Inspection, and Indemnity Agreement effective as of September 17, 2010, by and between Seller and SFDC, a copy of which is attached hereto as Exhibit K-2, and (iii) as to the Garage Site, that certain Access, Inspection, and Indemnity Agreement effective as of September 17, 2010, by and between Seller and SFDC, a copy of which is attached hereto as Exhibit K-3.
1.125 Inspection Period has the meaning set forth in Paragraph 1 of each applicable Inspection Agreement.
1.126 Inspection Work has the meaning set forth in Paragraph 3(a) of each applicable Inspection Agreement.
1.127 Land has the meaning set forth in Recital A above.
1.128 Legal Costs has the meaning set forth in Paragraph 26 below.
1.129 Maintenance CFD means Redevelopment Agency of the City and County of San Francisco Community Facilities District No. 5 (Mission Bay Maintenance District).
1.130 Master Commercial Declaration means the Master Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on January 16, 2001, as Document No. 2001-G889923-00 at Reel H804, Image 0058, as amended by the First Amendment To Master Declaration of
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Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on August 17, 2004, as Document No. 2004-H787770-00 at Reel I703, Image 0226, and by the Second Amendment To Master Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for Mission Bay Commercial recorded in the Official Records on October 20, 2004, as Document No. 2004-H834740-00 at Reel I747, Image 0186, as the same may hereafter be amended.
1.131 Master Developer means FOCIL or FOCILs successor as Owner under (and as defined in) the South OPA, provided that such successor has been approved by the Redevelopment Agency if, and to the extent, required under the South OPA.
1.132 Master Developer Covenant means that certain Second Amended and Restated Declaration of Covenants [FOCIL Property] recorded in the Official Records on November 15, 2005, as Document No. 2005-I072097.
1.133 Mission Bay Development Area means that certain real property located in the City and County of San Francisco and generally bounded by Townsend Street, Third Streets, relocated Terry Francois Boulevard, Mariposa Street and Seventh Street.
1.134 Natural Hazards Statements means the Natural Hazards Disclosure Reports relating to the Land and the Garage Site, copies of which are attached hereto as Exhibit I-2.
1.135 Notices has the meaning set forth in Paragraph 24 below.
1.136 OFAC means the Office of Foreign Assets Control of the U.S. Department of Treasury.
1.137 OFAC Rules means, collectively, the regulations promulgated and/or issued by OFAC and any statute, regulation, or executive order relating thereto.
1.138 Office Authorization(s) means the authorization(s) to develop office space under the Office Program.
1.139 Office Program means the annual office limitation program set forth in Sections 321 and 322 of the Citys Planning Code.
1.140 Official Records means the Official Records of the Recorder of the City and County of San Francisco, California.
1.141 Open Space Parcel means that certain real property located in the City more particularly described as Lot 4, as shown on Final Map 5156.
1.142 Oppose or Opposing means oppose, contest, challenge, object to, and/or otherwise interfere with.
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1.143 Original Project Labor Agreement means that certain Mission Bay Project Agreement dated October 8, 1990.
1.144 Other SFDC Owner means any Affiliate of Buyer who owns any property in the South Project Area other than the Land.
1.145 Other SFDC Property means any property in the South Project Area other than the Land that is owned by Buyer or any Other SFDC Owner.
1.146 Other SFDC Square Footage means the square footage of gross (commercial) floor area that Buyer or any Other SFDC Owner has the right to develop on any Other SFDC Property.
1.147 Other SFDC Tower Rights means the Towers that Buyer or any Other SFDC Owner has the right to develop on any Other SFDC Property.
1.148 Permitted Encumbrances means all matters affecting title to the Land described in Exhibit C-1 attached hereto.
1.149 Pierpoint Vara means the view corridor (or vara block) commonly known as Pierpoint Lane (also sometimes referred to as Nelson Rising Lane) (more particularly described as Lot 22, as shown on Final Map 4141). As of the date of this Agreement, Seller is the owner of the Pierpoint Vara.
1.150 Pro Forma Policy has the meaning set forth in Section 3 in Exhibit C-1 attached hereto.
1.151 Project means, collectively, the 1455 Project and the 1515 Project.
1.152 Project Labor Agreement means, collectively, the Original Project Labor Agreement and the Project Labor Agreement Addendum, as the same may be amended from time to time.
1.153 Project Labor Agreement Addendum means that certain Addendum To Agreement entered into in 2003.
1.154 Property means the Real Property plus the Acquired Rights.
1.155 Property Owner means Buyer or any permitted successor or assign with respect to the Property.
1.156 Proposition N means the ordinance (denominated Proposition N) being submitted to the voters of the City at the general election being held on November 2, 2010, which submittal was approved by the Citys Board of Supervisors on July 27, 2010, pursuant to Motion No. M10-118. If approved by the voters, such ordinance would amend Section 1102 of
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Article 12-C of the San Francisco Business and Tax Regulations Code to increase the real property transfer tax on certain properties.
1.157 Public School CFD means San Francisco Unified School District of the City and County of San Francisco Community Facilities District No. 90-1 (Public School Facilities).
1.158 Purchase Price means the sum of Seventy-One Million Nine Hundred Thirty-One Thousand One Hundred Nineteen Dollars ($71,931,119.00).
1.159 Purchase Price Balance means the balance of the Purchase Price over and above the Deposit (including all interest accrued thereon).
1.160 Real Property means the Land, together with all appurtenances thereto and improvements thereon (if any).
1.161 Redevelopment Agency means the Redevelopment Agency of the City and County of San Francisco.
1.162 Release Exception Claims has the meaning set forth in Paragraph 19.3 below.
1.163 Risk Management Plan and RMP mean the Risk Management Plan dated May 11, 1999, for the Mission Bay Area, San Francisco, California, as the same may be amended from time to time (approved on May 12, 1999, by the State of California Regional Water Quality Control Board for the San Francisco Bay Region).
1.164 Seek or Sought means seek, apply for, process, obtain, act on, or otherwise pursue.
1.165 Seller Parties means Seller and Sellers Affiliates (and each of their Affiliates), including, but not limited to, Alexandria and the other ARE Owners, and Sellers or such Affiliates shareholders, members, constituent partners, directors, officers, and employees.
1.166 Seller Party Owner means any Seller Party that owns any property in the South Project Area as of the Close of Escrow.
1.167 Seller Party Property means any property in the South Project Area that is owned by any Seller Party as of the Close of Escrow.
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1.168 Sellers Address means:
ARE-San Francisco No. 19, LLC
c/o Alexandria Real Estate Equities, Inc.
385 E. Colorado Blvd., Suite 299
Pasadena, California 91101
Attention: Corporate Secretary
Re: Mission Bay (Blocks 26-27), SF, CA
Telephone No.: 626-578-0777
Facsimile No.: 626-578-0770
With a copy to:
ARE-San Francisco No. 19, LLC
c/o Alexandria Real Estate Equities, Inc.
1700 Owens Street, Suite 590
San Francisco, California 94158
Attention: Mr. Stephen A. Richardson
Telephone No.: 415-554-8844
Facsimile No.: 415-554-0142
1.169 Sellers Broker means GVAKM and Cornish & Carey.
1.170 Sellers Closing Conditions has the meaning set forth in Paragraph 11.2 below.
1.171 Sellers Counsels Address means:
David S. Meyer, Attorney-At-Law
4535 Don Pio Drive
Woodland Hills, CA 91364-5308
Telephone No.: 818-346-4176
Facsimile No.: 818-346-4196
1.172 SFDC means salesforce.com, inc., a Delaware corporation and Buyers ultimate parent.
1.173 South Design for Development means the Design for Development for the Mission Bay South Project Area adopted on September 17, 1998, by the Redevelopment Agency Commission by Resolution No. 191-98, as the same may be amended from time to time.
1.174 South DRDAP means the Mission Bay South Design Review and Document Approval Procedure attached to the South OPA as Attachment G, as the same may be amended from time to time.
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1.175 South Financing Plan means the Mission Bay South Financing Plan attached to the South OPA as Attachment E, as the same may be amended from time to time.
1.176 South Infrastructure Plan means the Mission Bay South Infrastructure Plan attached to the South OPA as Attachment D, as the same may be amended from time to time.
1.177 South OPA means the Mission Bay South Owner Participation Agreement listed on Exhibit B attached hereto.
1.178 South Project Area means the area located in the City and County of San Francisco that is the subject of the South OPA.
1.179 South Redevelopment Plan mean the Mission Bay South Redevelopment Plan adopted on November 2, 1998, by the San Francisco Board of Supervisors by Ordinance No. 335-98, as the same may be amended from time to time.
1.180 South Scope of Development means the Mission Bay South Scope of Development attached to the South OPA as Attachment B, as the same may be amended from time to time.
1.181 Surviving Obligations means obligations expressly stated in this Agreement to survive the termination hereof.
1.182 Tax Payment Agreement means that certain Amended and Restated Tax Payment Agreement between FOCIL and Seller recorded in the Official Records on September 22, 2010, as Document No. 2010-J053673.
1.183 Termination Deadline means 5:00 p.m. on October 22, 2010.
1.184 Termination Notice has the meaning set forth in Paragraph 5.3 below.
1.185 Title Company means First American Title Insurance Company.
1.186 Title Policy has the meaning set forth in Paragraph 14 below.
1.187 TMA means the Transportation Management Association that was formed to implement and administer the Transportation System Management Plan for the Mission Bay Development Area.
1.188 Tower has the meaning given to such term in the South Design for Development.
1.189 Transfer means to sell, assign, convey, lease, sublease, Mortgage (as defined below), hypothecate, or otherwise alienate, excluding therefrom any grant of occupancy
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rights for permanent improvements such as space leases. Solely for purposes of this definition, the term Mortgage means any mortgage, deed of trust, financing lease, indenture, trust agreement, reimbursement agreement, certificate of participation, collateral assignment, or other agreement or instrument (including without limitation any derivative agreement, swap, hedge, forward purchase, or other instrument relating to any of the foregoing) creating or evidencing a security interest in, encumbrance upon, securitization of, or lien against (a) any portion of or interest in the Property, (b) any interest in this Agreement, (c) any ownership interest in or security of Buyer, or (d) any income, rentals, revenue, profits, or other proceeds derived from Buyers ownership, operation, leasing, or sale of any portion of or interest in the Property, whether as security for the repayment of a loan or the performance of an obligation or as the creation of fractional undivided interests that are sold or pledged, directly or indirectly, or that are negatively pledged, in order to finance or refinance, directly or indirectly, any costs of Buyer incurred in connection with Buyers obligations under this Agreement.
1.190 Transferee means any natural person, corporation, firm, partnership, association, joint venture, governmental or political subdivision or agency or any similar entity to whom a Transfer is made.
1.191 Unavoidable Delay means a delay that is caused by strikes or other labor disputes, acts of god, weather (to the extent different from seasonal norms for the San Francisco Bay area), inability to obtain labor or materials despite commercially reasonable efforts (financial condition excepted), lawsuits brought by plaintiffs who are not Affiliates of the person claiming the benefit of the Unavoidable Delay (except to the extent caused by the negligence of the person claiming the benefit of the Unavoidable Delay), but only to the extent that an injunction or restraining order has been issued by a court of competent jurisdiction preventing performance, atypical restrictions imposed or mandated by Governmental Authorities in issuing requisite approvals or consents, enemy action, terrorism, civil commotion, fire, flood, earthquake, or other natural disaster or casualty, or any other unforeseeable event beyond the reasonable control of the person claiming the benefit of the Unavoidable Delay.
1.192 Vested Square Footage means the right to develop up to an aggregate of 705,000 square feet of gross (commercial) floor area.
1.193 Vesting Covenant means that certain Declaration of Covenants made by Seller in favor of FOCIL and recorded in the Official Records on March 1, 2005, as Document No. 2005-H911983 (as the same may be amended from time to time (including as the same may have been amended to conform to the Master Developer Covenant)), pursuant to which Seller has the right (among other rights) to develop on the Land not more than the Vested Square Footage.
1.194 Vesting PSA means that certain Agreement of Purchase and Sale and Joint Escrow Instructions dated as of February 24, 2005, between FOCIL, as seller, and Seller, as buyer (as the same may be amended from time to time), pursuant to which Seller acquired Blocks 26-27 (including the Land) and certain entitlements.
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2. Purchase and Sale. Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller, for the Purchase Price and upon the terms and conditions set forth in this Agreement. Simultaneously with the delivery of the Deposit pursuant to Paragraph 3.1 below, Buyer shall deliver the Independent Consideration or cause the Independent Consideration to be delivered to Escrow Holder, in Immediately Available Funds. Escrow Holder shall automatically and immediately deliver the Independent Consideration to Seller (in accordance with wiring instructions separately provided by Seller), without the need for any further instructions from Buyer. Seller and Buyer agree that the Independent Consideration, plus Buyers agreement to pay the Cancellation Charges pursuant to Paragraph 5.3 below if Buyer exercises its termination right under Paragraph 5.3 below, have been bargained for as consideration for Sellers execution and delivery of this Agreement and for Buyers right to conduct the Inspection Work and to review Sellers files regarding the Property, and is independent of any other consideration or payment provided for in this Agreement. The Independent Consideration shall be non-refundable, and shall not be applied to the Purchase Price upon the Close of Escrow.
3. Payment of Purchase Price. The Purchase Price shall be paid by Buyer as follows:
3.1 Deposit. Within one (1) business day after the Effective Date, Buyer shall deliver the Deposit or cause the Deposit to be delivered to Escrow Holder, in Immediately Available Funds. Escrow Holder shall deposit the Deposit in a non-commingled trust account and shall invest the Deposit in federally insured interest bearing money market accounts or certificates of deposit or in United States Treasury Bills or such other instruments as Buyer may instruct from time to time.
3.2 Delivery, Application, and Disposition of Deposit.
3.2.1 Buyers failure to deliver the Deposit as required by Paragraph 3.1 above shall constitute a default by Buyer under this Agreement and shall entitle Seller, by written notice to Buyer and Escrow Holder, to terminate this Agreement as of the date of Buyers receipt of such termination notice, in which event the provisions of Paragraph 20.1 below will apply.
3.2.2 The Deposit (including all interest accrued thereon) shall be applied to the Purchase Price upon the Close of Escrow. If Buyer terminates this Agreement and the Escrow on or prior to the dates designated within, and in accordance with the provisions of, Paragraph 5.3, Paragraph 11.3.1, or Paragraph 22 below, the Deposit (including all interest accrued thereon) shall be refunded to Buyer. The Deposit shall be paid to Seller pursuant to Paragraph 20.1 below if (a) Seller fully performs its obligations under this Agreement, (b) Buyer does not elect to terminate this Agreement in accordance with Paragraph 5.3, Paragraph 11.3.1, or Paragraph 22, and (c) the transaction contemplated in this Agreement does not close as a result of a breach by Buyer of Buyers obligations under this Agreement. If this Agreement is terminated for any reason before the Close of Escrow (whether the Deposit is refunded to Buyer or paid to Seller pursuant to this Agreement), both Seller and Buyer shall be relieved of all
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further obligations and liabilities under this Agreement, except for the Surviving Obligations and except as may be expressly provided otherwise in this Agreement.
3.3 Closing Funds. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Buyer shall deliver the Purchase Price Balance or cause the Purchase Price Balance to be delivered to Escrow Holder, plus the Development Costs Reimbursement, plus a sum equal to Escrow Holders estimate of Buyers share of closing costs, prorations, and charges payable pursuant to this Agreement, all in Immediately Available Funds.
4. Escrow.
4.1 Opening of Escrow. Each Party shall cause the Escrow to be opened with Escrow Holder by delivering to Escrow Holder, no later than one (1) business day after the date of this Agreement, three (3) duplicate originals of this Agreement executed by such Party. Each Party agrees to execute, deliver, and be bound by any reasonable or customary supplemental escrow instructions of Escrow Holder or other instruments as may reasonably be required by Escrow Holder in order to consummate the transaction contemplated by this Agreement. Any such supplemental instructions shall not conflict with, amend, or supersede any portions of this Agreement unless expressly consented or agreed to in writing by each Party.
4.2 Close of Escrow. The Escrow shall close on or before November 1, 2010, provided that Buyer and Seller may close, but shall not be obligated to close, the Escrow upon such other earlier or later date as Buyer and Seller may mutually agree in writing.
5. Condition of Property.
5.1 Inspection and Studies; Review of Sellers Files. Before the Effective Date, and continuing hereafter during the Inspection Period, Buyer has had, and shall continue to have, the right, at Buyers sole cost and expense, but subject in all events to Buyers compliance with Applicable Laws and the provisions of the Inspection Agreement, to conduct the Inspection Work and to review Sellers files regarding the Property.
5.2 Buyers Entry on Land; Insurance; Indemnification. Buyers entry on the Land and the Garage Site shall be subject in all events to Buyers compliance with Applicable Laws and the provisions of each applicable Inspection Agreement. Without limiting the generality of the foregoing, (i) the insurance to be maintained by Buyer in connection with any entry on the Land or the Garage Site by Buyer shall be as set forth in Paragraph 8 of each applicable Inspection Agreement, and (ii) Buyers indemnification of Seller in connection with any entry on the Land or the Garage Site by Buyer shall be as set forth in Paragraph 9 of each applicable Inspection Agreement.
5.3 Buyers Termination Right. Buyer shall have the right at any time before the Termination Deadline to terminate this Agreement if, during the course of Buyers
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investigation of the Property, Buyer determines, in its sole discretion, that the Property is not acceptable to Buyer. Buyer may exercise such termination right by delivering written notice of termination to Seller and Escrow Holder (a Termination Notice) before the Termination Deadline. Upon the timely delivery of a Termination Notice, (i) Escrow Holder, without the need for any further instructions from either Seller or Buyer, shall automatically and immediately return to Buyer the Deposit (including all interest accrued thereon), (ii) Buyer shall bear all Escrow cancellation charges and similar fees (Cancellation Charges), and (iii) this Agreement shall automatically terminate and be of no further force or effect and neither Party shall have any further rights or obligations under this Agreement, except for the Surviving Obligations. If, for any reason whatsoever, Buyer does not exercise such termination right by delivery of the Termination Notice before the Termination Deadline, Buyer shall be deemed to have elected not to terminate this Agreement.
5.4 Limitation on Sellers Liability. Without limiting any other disclaimer or release of Seller liability under this Agreement, Buyer agrees that Seller shall not have any liability, obligation, or responsibility of any kind with respect to any of the matters described in Paragraph 10 of each applicable Inspection Agreement.
6. Title.
6.1 Title Materials. Seller has delivered to Buyer (or caused to be made available to Buyer) current standard preliminary title reports for the Land and for the Garage Site issued by the Title Company, together with copies of the underlying documents relating to the Schedule B exceptions set forth in such reports. Buyer, in its sole discretion and at its sole cost and expense, also may order (i) a current as-built ALTA survey of the Land and/or the Garage Site, in form reasonably satisfactory to Buyer and Title Company, prepared by a surveyor licensed in the State of California and certified to Buyer, Title Company, and such other persons or entities as Buyer, in its sole discretion, may request (using a surveyors certificate reasonably satisfactory to Buyer and Title Company); and (ii) a UCC search with regard to the Land, the Garage Site, and/or Seller, its affiliated entities, and its predecessors-in-interest.
6.2 Removal of Certain Title Matters. As a condition to the Close of Escrow, Seller shall take all action necessary to remove from title to the Land and/or the Garage Site (as applicable) (i) all matters affecting the Land created by Seller on or after the effective date of the Pro Forma Policy without the prior written consent of Buyer (which consent may be withheld in Buyers sole discretion exercised in good faith), and (ii) all liens and encumbrances affecting the Land and/or the Garage Site that secure an obligation to pay money, other than the lien that secures payment of installments, not yet delinquent, of general and special real and personal property taxes and other charges collected with general and special real and personal property taxes (such as assessments (including the CFD Assessments) levied by any Mello-Roos District affecting the Land and/or the Garage Site (including the CFDs)) (provided, however, that Seller may satisfy Sellers obligation to remove any such lien or encumbrance if, before the Close of Escrow, (x) Seller deposits funds into the Escrow that are sufficient to pay, in full, the obligation secured by such lien or encumbrance, and (y) Seller gives Escrow Holder irrevocable written
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instructions to disburse such funds to the person or persons legally entitled thereto in exchange for a written release or termination of such lien or encumbrance).
6.3 Title Policy. The Title Companys issuance of an ALTA Policy in the amount of the Purchase Price showing title to the Land and the Acquired Parking Rights vested in Buyer, subject only to the Permitted Encumbrances, shall be conclusive evidence that Seller has complied with any covenant or obligation, express or implied, to convey to Buyer good and marketable title to the Land and the Acquired Parking Rights.
7. Entitlement Covenants.
7.1 Development Covenants.
7.1.1 Buyers Covenant. Buyer hereby covenants (which covenant shall bind Buyers successors and assigns with respect to the Land) not to develop on the Land, and not to Seek to develop on the Land, any improvements of any kind that will fail to conform to the Acquired Rights, except as may be expressly provided otherwise in this Agreement. Nothing in this Agreement shall be deemed, construed, or interpreted to prevent Buyer from applying to the Acquired Square Footage any definition regarding floor area set forth in the South Design for Development. In the event Buyer (or any successor or assign with respect to the Land) breaches or violates the covenant contained in this Paragraph 7.1.1, Seller may pursue all remedies available to Seller, at law or in equity, including, but not limited to, an action in equity or otherwise for specific performance of the foregoing covenant or an injunction against any breach or violation of such covenant. Buyer hereby agrees that the covenant contained in this Paragraph 7.1.1 is unique to Buyer and that any breach thereof could cause irreparable harm to Seller. Accordingly, Buyer agrees that an injunction is a proper and fair remedy for such a breach.
7.1.2 Excess Development. Seller hereby expressly acknowledges and agrees that it shall not be a breach or violation of the covenant set forth in Paragraph 7.1.1 above (i) if the total square footage developed on the Land exceeds the Acquired Square Footage, so long as any Other SFDC Square Footage necessary to cover such excess has been Conveyed to the Property Owner in accordance with the Master Developer Covenant and the Vesting Covenant (as the same may be amended, restated, replaced, or supplemented as of the Close of Escrow), (ii) if the number of Towers developed on the Land exceeds the Acquired Tower Rights, so long as any Other SFDC Tower Rights necessary to cover such excess has been Conveyed to the Property Owner in accordance with the Master Developer Covenant and the Vesting Covenant (as the same may be amended, restated, replaced, or supplemented as of the Close of Escrow), and (iii) if the total square footage of office space developed on the Land exceeds the Acquired Office Authorizations, so long as the Property Owner secures any additional Office Authorizations necessary to cover such excess, either by re-allocating to the Land Office Authorizations allocated to any Other SFDC Property (subject to the approval of the Citys Planning Department and/or Zoning Administrator (as applicable) and to compliance with the Office Program) or by securing additional Office Authorizations through the Office Program.
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The Conveyance of any square footage or Towers to the Property Owner, and the development of any such square footage or Towers on the Land, shall be subject to (x) compliance with all applicable requirements and/or procedures set forth in the Development Entitlements (including any placement and/or separation restrictions applicable to Towers contained in the South Design for Development), and (y) the receipt of any requisite approvals or consents from Governmental Authorities, including, without limitation, the Redevelopment Agency.
7.1.3 Sellers Covenant Regarding Acquired Rights. Seller hereby covenants (which covenant shall bind Sellers successors and assigns) to take all actions, both before and after the Close of Escrow, reasonably required to vest the Acquired Rights in Buyer, including the execution and delivery of any further agreements that may be reasonably required to fulfill such covenant. If Seller (or any successor or assign) breaches or violates the foregoing covenant, Buyer (or any other Property Owner) may pursue all remedies available to Buyer (or such Property Owner), at law or in equity, including, but not limited to, an action in equity or otherwise for specific performance of the foregoing covenant or an injunction against any breach or violation of such covenant. Seller hereby agrees that the covenant contained in this Paragraph 7.1.3 is unique to Seller and that any breach thereof could cause irreparable harm to Buyer (or any other Property Owner). Accordingly, Seller agrees that an injunction is a proper and fair remedy for such a breach.
7.1.4 Covenants Regarding Post-Closing Assistance.
(a) Seller hereby covenants (which covenant [***]) that, upon Buyers written request, delivered within [***], Seller shall [***] in connection with [***] (i) to secure [***], (ii) to obtain [***] in connection with [***], and/or (iii) to apply [***]. Such [***] is not intended to rise to the level of [***], but is intended to include [***] as providing [***] regarding the [***] and [***] and otherwise [***] in support of [***]. Notwithstanding any of the foregoing, under no circumstances shall Seller be required to [***] (x) to modify [***], to change or attempt to change [***] or to obtain or attempt to obtain [***], or (y) that Seller determines, in Sellers reasonable discretion, would [***]. Buyer shall [***] by Seller in providing [***] (including, but not limited to, [***] in connection with [***]) within [***] after Buyers receipt of [***], together with reasonably acceptable [***] thereof. If Seller [***], Buyer (or any other Property Owner) may [***], including, but not limited to, [***].
(b) Buyer hereby covenants (which covenant [***]) that, upon any Seller Party Owners written request, delivered within [***], Buyer shall [***] in connection with [***] (i) to secure [***], and/or (ii) to obtain [***] in connection with [***]. Such [***] is not intended to rise to the level of [***], but is intended to include [***] as providing [***] regarding the [***] and [***] and otherwise [***] in support of [***]. Notwithstanding any of the foregoing, under no circumstances shall Buyer be required to [***] (x) to modify [***], to change or attempt to change [***], or to obtain or attempt to obtain [***], or (y) that Buyer determines, in Buyers reasonable discretion, would [***]. The affected Seller Party Owner [***] by Buyer in providing [***] (including, but not limited to, [***] in connection with [***]) within [***] after such Seller Party Owners receipt of [***], together with reasonably acceptable [***] thereof. If Buyer [***], the affected Seller Party Owner may [***], including, but not limited to, [***].
7.1.5 Covenants Regarding Post-Closing Non-Interference.
(a) Seller hereby covenants (which covenant [***]), during the period commencing [***] and ending [***], not to [***] (i) to secure [***], (ii) to obtain [***] in connection with [***], and/or (iii) to apply [***]. The foregoing covenant shall not prevent Seller [***] from [***] that Seller determines, in Sellers reasonable discretion, would [***]. Further, the foregoing covenant shall not prevent Seller [***] from [***] (x) to secure [***], and/or (y) to obtain [***], and it shall not be deemed, construed, or interpreted as [***] solely because [***] at or about the same time that [***]. If Seller [***], Buyer (or any other Property Owner) may [***], including, but not limited to, [***]. Seller hereby agrees that the covenant contained in this Paragraph 7.1.5(a) is [***] and that any breach thereof could [***]. Accordingly, Seller agrees that [***].
(b) Buyer hereby covenants (which covenant [***]), during the period commencing [***] and ending [***], not to [***] (i) to secure [***], and/or (ii) to obtain [***] in connection with [***]. The foregoing covenant shall not prevent Buyer [***] from [***] that Buyer determines, in Buyers reasonable discretion, would [***]. Further, the foregoing covenant shall not prevent Buyer [***] from [***] (x) to secure [***], and/or (y) to obtain [***], and it shall not be deemed, construed, or interpreted as [***] solely because [***] at or about the same time that [***]. If Buyer [***], the affected Seller Party Owner may [***], including, but not limited to, [***]. Buyer hereby agrees that the covenant contained in this Paragraph 7.1.5(b) is [***] and that any breach thereof could [***]. Accordingly, Buyer agrees that [***].
7.2 Entitlement Implementation - Before Close of Escrow. Before the Close of Escrow, Buyer shall have the right, subject to the limitations set forth below, to begin any process necessary to implement or to take advantage of the benefits of any of the Development Entitlements; provided, however, that, without Sellers consent (which consent may be granted or withheld in Sellers sole discretion exercised in good faith), Buyer shall not file any application or document with any Governmental Authority, or take any other action with respect to the development of the Land, if the same would be binding upon Seller and/or the Land before the Close of Escrow.
7.3 Survival. Buyers and Sellers respective obligations under this Paragraph 7 shall survive the Closing Date and shall not be merged with the Grant Deed.
8. Public Infrastructure; Buyers Improvements.
8.1 Public Infrastructure. FOCIL (as Infrastructure Developer) agreed to cause to be constructed public infrastructure up to and adjacent to, but not within, the Land. A
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schedule of the required infrastructure improvements and the timing of their delivery was set forth in Exhibit L attached to the Vesting PSA. Seller shall assign to Buyer all of Sellers rights pursuant to Paragraph 8 and Exhibit L of the Vesting PSA (the Infrastructure Rights) by executing and delivering the Assignment of Infrastructure Rights.
8.2 Improvements Within Land. Buyer shall be solely responsible after the Closing Date for developing all improvements within the Land, including, without limitation, pedestrian walkways, private infrastructure, and landscaping and hardscaping in any open space or common areas within the Land.
8.3 Pierpoint Vara, Block 26 Courtyard, and Block 26 Service Yard. Buyer shall be solely responsible after the Closing Date for completing the improvements within the Pierpoint Vara along the southern boundary of the 1455 Parcel and along the northern boundary of the 1515 Parcel, in accordance with the previously approved plans for such improvements and in conformity with the improvements previously developed within the Pierpoint Vara along the southern boundary of the Open Space Parcel and along the northern boundary of the Garage Site, provided that Buyer shall have a license, on terms and conditions reasonably acceptable to Buyer and Seller, to enter such portions of the Pierpoint Vara as may be reasonably necessary to complete such improvements. Buyer shall be solely responsible for completing the improvements within the Block 26 Courtyard, provided that Buyer shall have a license, on terms and conditions reasonably acceptable to Buyer and Seller, to enter such portions of the Block 26 Courtyard within the 455 MBBS Parcel as may be reasonably necessary to complete such improvements. Buyer and Seller shall enter into reciprocal easement agreements, on terms and conditions reasonably acceptable to Buyer and Seller, pursuant to which Seller (and Sellers successors and assigns with respect to the 455 MBBS Parcel) ) is given the right to use the portions of the Block 26 Courtyard within the 1455 Parcel and Buyer (and Buyers successors and assigns with respect to the 1455 Parcel) is given the right to use the portions of the Block 26 Courtyard within the 455 MBBS Parcel. Seller has previously completed all improvements within the Block 26 Service Yard that are not driven specifically by the 1455 Improvements. Buyer shall be solely responsible for completing all improvements within the Block 26 Service Yard that are driven specifically by the improvements Buyer develops on the 1455 Parcel. Seller shall have a license, on terms and conditions reasonably acceptable to Buyer and Seller, (i) to use portions of the Block 26 Service Yard within the 1455 Parcel for construction trailers and construction staging areas in connection with Sellers completion of the 455 MBBS Improvements, and (ii) to cross such portions of the 1455 Parcel and the 1515 Parcel as may be reasonably necessary to move the construction trailers off-site (eventually exiting the 1515 Parcel into South Street). Further, Buyer and Seller shall enter into reciprocal easement agreements, on terms and conditions reasonably acceptable to Buyer and Seller, pursuant to which Seller (and Sellers successors and assigns with respect to the 455 MBBS Parcel) ) is given the right to use the portions of the Block 26 Service Yard within the 1455 Parcel and Buyer (and Buyers successors and assigns with respect to the 1455 Parcel) is given the right to use the portions of the Block 26 Service Yard within the 455 MBBS Parcel.
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8.4 Survival. Buyers and Sellers respective obligations under this Paragraph 8 shall survive the Closing Date and shall not be merged with the Grant Deed.
9. Further Entitlements. Buyer shall be solely responsible after the Closing Date for obtaining any further entitlements with respect to the Land; provided, however, that Seller and Buyer shall cooperate and consult with each other in all material aspects of the preparation, submittal, processing, and/or approval of any further entitlements to the extent they may affect or relate to the 455 MBBS Improvements, the Open Space Parcel, the Pierpoint Vara, the Block 26 Courtyard, and/or the Block 26 Service Yard.
10. Design Agreements and Documents; Construction Contracts.
10.1 1455 Design Agreements and Documents. At the Close of Escrow, Seller and Buyer shall enter into an Assignment and Assumption of 1455 Design Agreements and Documents (the Assignment of 1455 Design Agreements and Documents), in such form as may be reasonably negotiated by the Parties, pursuant to which (i) Seller shall assign to Buyer all of Sellers right, title, and interest in and to the 1455 Design Agreements and the 1455 Design Documents, and (ii) Buyer shall assume all of Sellers obligations thereunder that arise or accrue following the effective date of such assignment; provided Seller shall be responsible for all of Sellers obligations thereunder that arise or accrue prior to the effective date of such assignment (including, but not limited to, any work requested or initiated by Seller prior to the effective date of such assignment that is performed after the effective date of such assignment). Buyer agrees, to the fullest extent permitted by law, to indemnify, protect, defend, and hold harmless Seller, the Seller Parties, and the 1455 Design Professionals and the respective employees, agents, and consultants of the foregoing from and against any Claims arising or resulting out of any of the following undertaken without the written authorization of Seller, the Seller Parties, and/or the 1455 Design Professionals (as applicable): (x) any modification of the 1455 Design Documents by Buyer or any of Buyers Affiliates, (y) use of the 1455 Design Documents by Buyer or any of Buyers Affiliates on any other project, or (z) use of the 1455 Design Documents for the completion of the 1455 Project by other architects, designers, engineers, and other professionals hired, employed, or operating at the direction of Buyer or any of Buyers Affiliates.
10.2 1455 Construction Contracts. At the Close of Escrow, Seller and Buyer shall enter into an Assignment and Assumption of 1455 Construction Contracts (the Assignment of 1455 Construction Contracts), in such form as may be reasonably negotiated by the Parties, pursuant to which (i) Seller shall assign to Buyer all of Sellers right, title, and interest in and to the 1455 Construction Contracts (including, but not limited to, any bonds or warranties), and (ii) Buyer shall assume all of Sellers obligations thereunder that arise or accrue following the effective date of such assignment; provided Seller shall be responsible for all of Sellers obligations thereunder that arise or accrue prior to the effective date of such assignment (including, but not limited to, any work requested or initiated by Seller prior to the effective date of such assignment that is performed after the effective date of such assignment).
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10.3 1455 Permits. At the Close of Escrow, Seller and Buyer shall enter into an Assignment and Assumption of 1455 Permits (the Assignment of 1455 Permits), in such form as may be reasonably negotiated by the Parties, pursuant to which (i) Seller shall assign to Buyer all of Sellers right, title, and interest in and to the 1455 Permits (including, but not limited to, any bonds), and (ii) Buyer shall assume all of Sellers obligations thereunder that arise or accrue following the effective date of such assignment; provided Seller shall be responsible for all of Sellers obligations thereunder that arise or accrue prior to the effective date of such assignment.
10.4 1515 Design Agreements and Documents. At the Close of Escrow, Seller and Buyer shall enter into an Assignment and Assumption of 1515 Design Agreements and Documents (the Assignment of 1515 Design Agreements and Documents), in such form as may be reasonably negotiated by the Parties, pursuant to which (i) Seller shall assign to Buyer all of Sellers right, title, and interest in and to the 1515 Design Agreements and the 1515 Design Documents, and (ii) Buyer shall assume all of Sellers obligations thereunder that arise or accrue following the effective date of such assignment; provided Seller shall be responsible for all of Sellers obligations thereunder that arise or accrue prior to the effective date of such assignment (including, but not limited to, any work requested or initiated by Seller prior to the effective date of such assignment that is performed after the effective date of such assignment). Buyer agrees, to the fullest extent permitted by law, to indemnify, protect, defend, and hold harmless Seller, the Seller Parties, and the 1515 Design Professionals and the respective employees, agents, and consultants of the foregoing from and against any Claims arising or resulting out of any of the following undertaken without the written authorization of Seller, the Seller Parties, and/or the 1515 Design Professionals (as applicable): (x) any modification of the 1515 Design Documents by Buyer or any of Buyers Affiliates, (y) use of the 1515 Design Documents by Buyer or any of Buyers Affiliates on any other project, or (z) use of the 1515 Design Documents for the completion of the 1515 Project by other architects, designers, engineers, and other professionals hired, employed, or operating at the direction of Buyer or any of Buyers Affiliates.
10.5 1515 Construction Contracts. At the Close of Escrow, Seller and Buyer shall enter into an Assignment and Assumption of 1551 Construction Contracts (the Assignment of 1515 Construction Contracts), in such form as may be reasonably negotiated by the Parties, pursuant to which (i) Seller shall assign to Buyer all of Sellers right, title, and interest in and to the 1515 Construction Contracts (including, but not limited to, any bonds or warranties), and (ii) Buyer shall assume all of Sellers obligations thereunder that arise or accrue following the effective date of such assignment; provided Seller shall be responsible for all of Sellers obligations thereunder that arise or accrue prior to the effective date of such assignment (including, but not limited to, any work requested or initiated by Seller prior to the effective date of such assignment that is performed after the effective date of such assignment).
10.6 1515 Permits. At the Close of Escrow, Seller and Buyer shall enter into an Assignment and Assumption of 1515 Permits (the Assignment of 1515 Permits), in such form as may be reasonably negotiated by the Parties, pursuant to which (i) Seller shall assign to Buyer all of Sellers right, title, and interest in and to the 1515 Permits (including, but not limited to, any bonds), and (ii) Buyer shall assume all of Sellers obligations thereunder that arise or accrue
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following the effective date of such assignment; provided Seller shall be responsible for all of Sellers obligations thereunder that arise or accrue prior to the effective date of such assignment.
10.7 Survival. Buyers and Sellers respective obligations under this Paragraph 10 shall survive the Closing Date and shall not be merged with the Grant Deed.
11. Conditions To Close of Escrow.
11.1 Conditions To Buyers Obligations. Buyers obligation to purchase the Property is subject to the satisfaction (or Buyers written waiver) of the conditions set forth in Attachment 1 attached hereto (Buyers Closing Conditions). Buyer may waive any of Buyers Closing Conditions, provided that any such waiver shall not affect Buyers ability to pursue any remedy Buyer may have with respect to any breach under this Agreement by Seller (except that Buyers remedy for any such breach may be limited as set forth in Paragraph 19.3 below).
11.2 Conditions To Sellers Obligations. Sellers obligation to sell the Property is subject to the satisfaction (or Sellers written waiver) of the conditions set forth in Attachment 2 attached hereto (Sellers Closing Conditions). Seller may waive any of Sellers Closing Conditions.
11.3 Failure of Conditions.
11.3.1 Failure of Buyers Conditions. If any of Buyers Closing Conditions is not either fully satisfied or waived in writing before the Close of Escrow, then Buyer may elect, by written notice to Seller and Escrow Holder, to terminate this Agreement, in which event the Deposit shall be returned to Buyer, Seller shall bear all Cancellation Charges (except as may be expressly provided otherwise in this Agreement), and the Parties shall have no further rights or obligations under this Agreement, except for the Surviving Obligations. Nothing in this Paragraph shall be construed to limit any of Buyers rights or remedies under Paragraph 20 below in the event of a default by Seller under this Agreement (except that Buyers remedy for any such default may be limited as set forth in Paragraph 19.3 below).
11.3.2 Failure of Sellers Conditions. If any of Sellers Closing Conditions is not either fully satisfied or waived in writing before the Close of Escrow, then Seller may elect, by written notice to Buyer and Escrow Holder, to terminate this Agreement, in which event Buyer shall bear all Cancellation Charges (except as may be expressly provided otherwise in this Agreement) and the Parties shall have no further rights or obligations under this Agreement, except for the Surviving Obligations. Nothing in this Paragraph shall be construed to limit any of Sellers rights or remedies under Paragraph 20 below in the event of a default by Buyer under this Agreement.
12. Deposits By Seller. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Seller shall deposit or cause to be deposited with Escrow Holder the following documents and instruments:
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12.1 Grant Deed. One (1) original counterpart of the Grant Deed, duly executed by Seller and acknowledged.
12.2 Assignment of South OPA. Three (3) original counterparts of the Assignment of South OPA, duly executed by Seller and acknowledged.
12.3 Assignment of Infrastructure Rights. Three (3) original counterparts of the Assignment of Infrastructure Rights, duly executed by Seller (and, if appropriate, acknowledged).
12.4 Agreement Regarding Construction Obligations. Two (2) original counterparts of the Agreement Regarding Construction Obligations, duly executed by Seller (and, if appropriate, acknowledged), and one (1) original counterpart of a memorandum of the Agreement Regarding Construction Obligations, duly executed by Seller and acknowledged.
12.5 Assignment of 1455 Design Agreements and Documents. Three (3) original counterparts of the Assignment of 1455 Design Agreements and Documents, duly executed by Seller (and, if appropriate, acknowledged).
12.6 Assignment of 1455 Construction Contracts. Three (3) original counterparts of the Assignment of 1455 Construction Contracts, duly executed by Seller (and, if appropriate, acknowledged).
12.7 Assignment of 1455 Permits. Three (3) original counterparts of the Assignment of 1455 Permits, duly executed by Seller (and, if appropriate, acknowledged).
12.8 Assignment of 1515 Design Agreements and Documents. Three (3) original counterparts of the Assignment of 1515 Design Agreements and Documents, duly executed by Seller (and, if appropriate, acknowledged).
12.9 Assignment of 1515 Construction Contracts. Three (3) original counterparts of the Assignment of 1515 Construction Contracts, duly executed by Seller (and, if appropriate, acknowledged).
12.10 Assignment of 1515 Permits. Three (3) original counterparts of the Assignment of 1515 Permits, duly executed by Seller (and, if appropriate, acknowledged).
12.11 California Affidavit. An original California Affidavit, duly executed by Seller (and, if appropriate, acknowledged).
12.12 FIRPTA Certificate. An original FIRPTA Certificate, duly executed by Seller (and, if appropriate, acknowledged).
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12.13 Infrastructure CFD Bond Disclosure Assumption Agreement. Three (3) original counterparts of the Infrastructure CFD Bond Disclosure Assumption Agreement, duly executed by Seller (and, if appropriate, acknowledged).
12.14 Other Instruments. Such other instruments and documents as may be required by the terms of this Agreement (including, but not limited to, Buyers Closing Conditions and/or Sellers Closing Conditions).
13. Deposits By Buyer. In time sufficient to permit the Close of Escrow on the scheduled date therefor (in no event later than one (1) business day in advance), Buyer shall deposit or cause to be deposited with Escrow Holder the following:
13.1 Funds. The Purchase Price Balance, plus the Development Costs Reimbursement, plus a sum equal to Escrow Holders estimate of Buyers share of closing costs, prorations, and charges payable pursuant to this Agreement, all in Immediately Available Funds.
13.2 Grant Deed. One (1) original counterpart of the Grant Deed, with the Acceptance By Grantee duly executed by Buyer and acknowledged.
13.3 Assignment of South OPA. Three (3) original counterparts of the Assignment of South OPA, duly executed by Buyer and acknowledged.
13.4 Assignment of Infrastructure Rights. Three (3) original counterparts of the Assignment of Infrastructure Rights, duly executed by Buyer (and, if appropriate, acknowledged).
13.5 Agreement Regarding Construction Obligations. Two (2) original counterparts of the Agreement Regarding Construction Obligations, duly executed by Buyer (and, if appropriate, acknowledged), and one (1) original counterpart of a memorandum of the Agreement Regarding Construction Obligations, duly executed by Buyer and acknowledged.
13.6 Assignment of 1455 Design Agreements and Documents. Three (3) original counterparts of the Assignment of 1455 Design Agreements and Documents, duly executed by Buyer (and, if appropriate, acknowledged).
13.7 Assignment of 1455 Construction Contracts. Three (3) original counterparts of the Assignment of 1455 Construction Contracts, duly executed by Buyer (and, if appropriate, acknowledged).
13.8 Assignment of 1455 Permits. Three (3) original counterparts of the Assignment of 1455 Permits, duly executed by Buyer (and, if appropriate, acknowledged).
13.9 Assignment of 1515 Design Agreements and Documents. Three (3) original counterparts of the Assignment of 1515 Design Agreements and Documents, duly executed by Buyer (and, if appropriate, acknowledged).
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13.10 Assignment of 1515 Construction Contracts. Three (3) original counterparts of the Assignment of 1515 Construction Contracts, duly executed by Buyer (and, if appropriate, acknowledged).
13.11 Assignment of 1515 Permits. Three (3) original counterparts of the Assignment of 1515 Permits, duly executed by Buyer (and, if appropriate, acknowledged).
13.12 Infrastructure CFD Bond Disclosure Assumption Agreement. Three (3) original counterparts of the Infrastructure CFD Bond Disclosure Assumption Agreement, duly executed by Buyer (and, if appropriate, acknowledged).
13.13 Other Instruments. Such other instruments and documents as are required by the terms of this Agreement (including, but not limited to, Buyers Closing Conditions and/or Sellers Closing Conditions).
14. Costs and Expenses. At the Close of Escrow, Seller shall pay: (a) one-half of Escrow Holders fees and charges, (b) the portion of the premiums for any title insurance policy obtained by Buyer (generally, Title Policy) that would be charged if such Title Policy were a CLTA Policy, (c) the cost of any endorsements to the Title Policy that may be necessary to insure over any Permitted Encumbrance specific to the Land that, in Buyers sole discretion exercised in good faith, materially and adversely affects title to, or the development or use of, the Land, and (d) all transfer taxes and/or deed stamps payable as a result of the conveyance of title to the Land to Buyer. At the Close of Escrow, Buyer will pay: (i) one-half of Escrow Holders fees and charges, (ii) the portion of the premiums for the Title Policy that exceeds the premium that would be charged for a CLTA Policy, (ii) the cost of any endorsements to the Title Policy other than the endorsements described in clause (c) above, plus the cost of any joint protection policy reasonably requested by Buyer, (iii) the premiums for any separate title insurance policy insuring the lien of any mortgage, deed of trust, or other security instrument recorded against any portion of the Land at the Close of Escrow, plus the cost of any endorsements to any such title insurance policy, and (iv) all recording fees. Notwithstanding the foregoing, nothing in this Agreement shall be deemed, construed, or interpreted to require either Party to pay any of the additional transfer taxes and/or deed stamps that will be payable as a result of the conveyance of title to the Land to Buyer if the Close of Escrow is extended to a date after November 1, 2010, and Proposition N is approved and takes effect before the Close of Escrow occurs. Before the Close of Escrow is extended to a date after November 1, 2010, the Parties shall agree, in good faith, as to each Partys obligation with respect to the additional transfer taxes and/or deed stamps that will be payable as a result of the conveyance of title to the Land to Buyer if Proposition N is approved and takes effect before the Close of Escrow occurs. Except as may be expressly provided otherwise in this Agreement, (x) each Party shall be responsible for its own expenses in connection with the negotiation and performance of this Agreement, and (y) if, as a result of no fault of Buyer or Seller, Escrow fails to close, all of Escrow Holders fees and charges shall be shared equally by Seller and Buyer.
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15. Prorations. The following prorations shall be made between Seller and Buyer on the Close of Escrow, computed as of the Close of Escrow:
15.1 Taxes and Assessments. General and special real and personal property taxes and other charges collected with general and special real and personal property taxes (such as assessments (including the CFD Assessments) levied by any Mello-Roos District affecting the Land (including the CFDs)) shall be prorated on the basis that Seller shall be responsible for (a) all such taxes and charges for the fiscal year of the applicable taxing authorities occurring before the Current Tax Period, and (b) that portion of such taxes and charges for the Current Tax Period determined on the basis of the number of days that have elapsed from the first day of the Current Tax Period to, but not including, the Closing Date, whether or not the same shall be payable before the Close of Escrow. If, as of the Close of Escrow, the actual tax bills for the year or years in question are not available and the amount of taxes and charges to be prorated cannot be ascertained, then rates and assessed valuation of the previous year, with known changes, shall be used, and when the actual amount of taxes and charges for the year or years in question shall be determinable, then such taxes and charges shall be re-prorated between the Parties to reflect the actual amount of such taxes and charges.
15.2 Revenues. Revenues and other income (if any) from the Land shall be prorated as of the Closing Date to the extent actually collected (with all revenues due on or after the Closing Date being the sole property of Buyer). Delinquent revenues as of the Closing Date shall not be prorated, but when paid shall be the sole property of Buyer. To that end, Seller hereby irrevocably assigns to Buyer, as of the Closing Date, Sellers entire right, title, and interest in and to such delinquent revenues (including the right to collect the same).
15.3 Expenses. The Parties agree that service contracts expenses and utility costs shall not be prorated at the Close of Escrow.
15.4 Escrow Statement. At least one (1) day before the Close of Escrow, the Parties shall agree upon all of the prorations to be made and submit a statement to Escrow Holder (or sign a statement prepared by Escrow Holder) setting forth such prorations. In the event that any prorations, apportionments, or computations made under this Paragraph 15 shall require final adjustment, then the Parties shall make the appropriate adjustments promptly when accurate information becomes available and either Party shall be entitled to an adjustment to correct the same. Any corrected adjustment or proration will be paid in cash to the Party entitled thereto.
16. Disbursements and Other Actions By Escrow Holder. Upon the Close of Escrow, Escrow Holder shall promptly undertake all of the following in the manner indicated:
16.1 Prorations. Prorate all matters referenced in Paragraph 15 based upon the statement delivered into Escrow signed by the Parties.
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16.2 Recording. Cause the Grant Deed, the Assignment of South OPA, the memorandum of the Agreement Regarding Construction Obligations, and any other documents that the Parties may mutually direct, to be recorded in the Official Records and conformed copies thereof, showing all recording information, to be delivered to Buyer and Seller.
16.3 Funds. Disburse from funds deposited with Escrow Holder by Buyer towards payment of all items chargeable to the account of Buyer pursuant hereto in payment of such costs (including, without limitation, the payment to Seller of the Purchase Price and the Development Costs Reimbursement), and disburse the balance of such funds, if any, to Buyer.
16.4 Title Policy. Issue the Title Policy to Buyer.
16.5 Documents To Seller. Deliver to Seller one (1) original of the Assignment of Infrastructure Rights, one (1) original of the Agreement Regarding Construction Obligations, one (1) original of the Assignment of 1455 Design Agreements and Documents, one (1) original of the Assignment of 1455 Construction Contracts, one (1) original of the Assignment of 1455 Permits, one (1) original of the Assignment of 1515 Design Agreements and Documents, one (1) original of the Assignment of 1515 Construction Contracts, one (1) original of the Assignment of 1515 Permits, and one (1) original of the Infrastructure CFD Bond Disclosure Assumption Agreement, together with any other documents to be delivered to Seller hereunder.
16.6 Documents To Buyer. Deliver to Buyer one (1) original of the Assignment of Infrastructure Rights, one (1) original of the Agreement Regarding Construction Obligations, one (1) original of the Assignment of 1455 Design Agreements and Documents, one (1) original of the Assignment of 1455 Construction Contracts, one (1) original of the Assignment of 1455 Permits, one (1) original of the Assignment of 1515 Design Agreements and Documents, one (1) original of the Assignment of 1515 Construction Contracts, one (1) original of the Assignment of 1515 Permits, one (1) original of the Infrastructure CFD Bond Disclosure Assumption Agreement, the original FIRPTA Certificate, and the original California Affidavit, together with any other documents to be delivered to Buyer hereunder.
17. Sellers Representations and Warranties. In consideration of Buyers execution and delivery of this Agreement, Seller hereby makes the following representations and warranties to Buyer. Where used in this Paragraph 17, the term Sellers knowledge, or similar phrases, shall refer to the then current, actual knowledge of [***], without any duty of separate investigation or inquiry. Seller represents and warrants that [***] (i) are the individuals affiliated with Seller and/or Alexandria who have the primary responsibility for overseeing the ownership, management, and operation of the Land and/or the Garage Site, (ii) have had such primary responsibility for overseeing the ownership, management, and operation of the Land and/or the Garage Site for at least one (1) year, and (iii) are the individuals affiliated with Seller and/or Alexandria who are most knowledgeable regarding the ownership, management, and operation of the Land and/or the Garage Site. Seller further represents and warrants that (x) a general inquiry was sent to each other individual affiliated with Seller and/or Alexandria whose current responsibilities include any material aspect of the ownership, management, or operation
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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
of the Land and/or the Garage Site, and (y) no such individual reported having any current, actual knowledge of any fact that would make any representation or warranty expressly set forth in this Paragraph 17 incorrect in any material respect. Buyer hereby agrees that none of the foregoing individuals shall have or incur any personal liability for the breach of any representation or warranty in this Agreement, and that Buyers sole remedy for any such breach shall be an action against Seller (but only to the extent otherwise permitted under the terms and conditions of this Agreement).
17.1 Organization. Seller is a limited liability company, duly organized and existing in good standing under the laws of the State of Delaware and qualified to do business in the State of California, with its principal place of business in the State of California.
17.2 Authority. Seller has the legal right, power, and authority to enter into this Agreement and to consummate the transactions contemplated in this Agreement. The execution, delivery, and performance of this Agreement by Seller have been duly authorized and, except as may be expressly set forth otherwise in this Agreement, no other action is required to the valid and binding execution, delivery, and performance of this Agreement by Seller.
17.3 No Conflicts. Sellers execution and delivery of this Agreement, Sellers consummation of the transactions contemplated in this Agreement, and Sellers compliance with the terms of this Agreement will not conflict with, or, with or without notice or the passage of time or both, result in a breach of any of the terms or provisions of, or constitute a default under, (a) Sellers formation documents, (b) any agreement (oral or written) to which Seller is a party or by which Seller is bound, (c) any applicable regulation of any Governmental Authority, or (d) any judgment, order, or decree of any court having jurisdiction over Seller.
17.4 No Preferential Rights. Except pursuant to instruments duly recorded in the Official Records, Seller has not granted any options or rights of first refusal or rights of first offer to third parties to purchase or otherwise acquire an interest in the Property that will survive the Close of Escrow.
17.5 No Material Violations. Seller has not received any written notice that the Land, the Garage Site, or the Garage is in material violation or breach of, or material default under, the Master Commercial Declaration, the Environmental Covenant, the Risk Management Plan, or any Applicable Laws, and no claim based on any such violation, breach, or default is currently being asserted or pursued or, to Sellers knowledge, currently being threatened.
17.6 Status of Easement Agreement. There exist no defaults by or claims against the Garage Owner under the Easement Agreement, all obligations of the Garage Owner under the Easement Agreement that were required to have been performed or satisfied as of the date of this Agreement have been so performed or satisfied, and all payments by the Garage Owner under the Easement Agreement that were required to have been made as of the date of this Agreement have been so made. Further, there exist no defaults by or claims against the Blocks 26-27 Owner under the Easement Agreement, all obligations of the Blocks 26-27 Owner
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under the Easement Agreement that were required to have been performed or satisfied as of the date of this Agreement have been so performed or satisfied, and all payments by the Blocks 26-27 Owner under the Easement Agreement that were required to have been made as of the date of this Agreement have been so made.
17.7 Condition of Garage. On or about October 23, 2009, the Citys Department of Building Inspection issued a Certificate of Final Completion and Occupancy for the Garage. The Redevelopment Agency also has issued a Certificate of Completion for the Garage (which was recorded in the Official Records on December 17, 2009, as Document No. 2009-I891217). To Sellers knowledge, the Garage is free of any material physical or mechanical defects and all building systems in the Garage are in good working order and repair. Seller has advised Buyer that Seller did not construct the Garage, and thus there may have existed at one time, or may currently exist, in various locations, files and documents that may relate to the construction of the Garage in addition to those currently in Sellers possession or control. Seller also has advised Buyer that the Garage Owner is required under the Easement Agreement to hire a Garage Operator to perform all of the Garage Operating Responsibilities other than the Garage Supervising Responsibilities, and thus there may currently exist, in various locations, files and documents that may relate to the operation of the Garage in addition to those currently in Sellers possession or control. Accordingly, in making the representation set forth in this Paragraph 17.7, Seller is relying solely on the files and documents relating to the construction and/or operation of the Garage that are in Sellers possession or control, and no information relating to the construction and/or operation of the Garage that is not in the files and documents that are in Sellers possession or control shall be imputed to Seller.
17.8 Status of Matters Involving 1455 Parcel.
17.8.1 1455 Construction Contracts. The 1455 Construction Contracts constitute all of the currently effective material contracts or other agreements entered into by Seller for the construction of the 1455 Improvements, each 1455 Construction Contract is in full force and effect, no 1455 Contractor is in material default under its 1455 Construction Contract, and the assignment of Sellers rights under each 1455 Construction Contract does not require the consent of any third party except to the extent expressly set forth in such 1455 Construction Contract. Further, except as may be indicated otherwise in Exhibit M-1 attached hereto, all invoices submitted to Seller for services rendered under each 1455 Construction Contract have been fully paid in accordance with the terms and conditions of such 1455 Construction Contract. Finally, Seller has administered each 1455 Construction Contract in a manner that is substantially consistent with good business practices and, to Sellers knowledge, each 1455 Contractors performance under its 1455 Construction Contract has been in substantial compliance with all of the material terms and conditions thereunder.
17.8.2 1455 Design Agreements. The 1455 Design Agreements constitute all of the currently effective material contracts or other agreements entered into by Seller for the preparation of the 1455 Design Documents, each 1455 Design Agreement is in full force and effect, no 1455 Design Professional is in material default under its 1455 Design
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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Agreement, and the assignment of Sellers rights under each 1455 Design Agreement does not require the consent of any third party except to the extent expressly set forth in such 1455 Design Agreement. Further, except as may be indicated otherwise in Exhibit N-1 attached hereto, all invoices submitted to Seller for services rendered under each 1455 Design Agreement have been fully paid in accordance with the terms and conditions of such 1455 Design Agreement. Finally, Seller has administered each 1455 Design Agreement in a manner that is substantially consistent with good business practices and, to Sellers knowledge, each 1455 Design Professionals performance under its 1455 Design Agreement has been in substantial compliance with all of the material terms and conditions thereunder.
17.8.3 1455 Design Documents. The 1455 Design Documents constitute all of the basic concept design plans, schematic design plans, design development documents, final construction documents, or other material design, engineering, or construction plans, specifications, or drawings for the 1455 Improvements, and the assignment of Sellers rights to the 1455 Design Documents does not require the consent of any third party except to the extent expressly set forth in the 1455 Design Agreement pursuant to which the 1455 Design Documents were prepared.
17.8.4 1455 Permits. The 1455 Permits constitute all of the permits, licenses, or approvals issued by any agency or department of the City or by any other Governmental Authority for the 1455 Improvements, the assignment of Sellers rights to the 1455 Permits does not require the consent of any third party except to the extent expressly set forth in the 1455 Permits or as may be required by Applicable Laws, and all fees and charges for each 1455 Permit have been fully paid.
17.9 Status of Matters Involving 1515 Parcel.
17.9.1 1515 Construction Contracts. The 1515 Construction Contracts constitute all of the currently effective material contracts or other agreements entered into by Seller for the construction of the 1515 Improvements, each 1515 Construction Contract is in full force and effect, no 1515 Contractor is in material default under its 1515 Construction Contract, and the assignment of Sellers rights under each 1515 Construction Contract does not require the consent of any third party except to the extent expressly set forth in such 1515 Construction Contract. Further, except as may be indicated otherwise in Exhibit M-2 attached hereto, all invoices submitted to Seller for services rendered under each 1515 Construction Contract have been fully paid in accordance with the terms and conditions of such 1515 Construction Contract. Finally, Seller has administered each 1515 Construction Contract in a manner that is substantially consistent with good business practices and, to Sellers knowledge, each 1515 Contractors performance under its 1515 Construction Contract has been in substantial compliance with all of the material terms and conditions thereunder.
17.9.2 1515 Design Agreements. The 1515 Design Agreements constitute all of the currently effective material contracts or other agreements entered into by Seller for the preparation of the 1515 Design Documents, each 1515 Design Agreement is in full
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force and effect, no 1515 Design Professional is in material default under its 1515 Design Agreement, and the assignment of Sellers rights under each 1515 Design Agreement does not require the consent of any third party except to the extent expressly set forth in such 1515 Design Agreement. Further, except as may be indicated otherwise in Exhibit N-2 attached hereto, all invoices submitted to Seller for services rendered under each 1515 Design Agreement have been fully paid in accordance with the terms and conditions of such 1515 Design Agreement. Finally, Seller has administered each 1515 Design Agreement in a manner that is substantially consistent with good business practices and, to Sellers knowledge, each 1515 Design Professionals performance under its 1515 Design Agreement has been in substantial compliance with all of the material terms and conditions thereunder.
17.9.3 1515 Design Documents. The 1515 Design Documents constitute all of the basic concept design plans, schematic design plans, design development documents, final construction documents, or other material design, engineering, or construction plans, specifications, or drawings for the 1515 Improvements, and the assignment of Sellers rights to the 1515 Design Documents does not require the consent of any third party except to the extent expressly set forth in the 1515 Design Agreement pursuant to which the 1515 Design Documents were prepared.
17.9.4 1515 Permits. The 1515 Permits constitute all of the permits, licenses, or approvals issued by any agency or department of the City or by any other Governmental Authority for the 1515 Improvements, the assignment of Sellers rights to the 1515 Permits does not require the consent of any third party except to the extent expressly set forth in the 1515 Permits or as may be required by Applicable Laws, and all fees and charges for each 1515 Permit have been fully paid.
17.10 Files and Documents. To Sellers knowledge, Seller has delivered or made available to Buyer all files and documents relating to the Property in Sellers possession or control that could have a material effect on a reasonably prudent buyers decision whether to buy the Property.
17.11 No Actions. Seller has not been served with a summons or other written notice of any legal action or proceeding against or affecting any part of the Property, and no such legal action or proceeding is currently pending or, to Sellers knowledge, currently threatened.
17.12 No Occupancy Rights. There are no lease or occupancy agreements affecting any portion of the Land, and there are no third parties who have any right to occupy any portion of the Land.
17.13 Hazardous Materials. Except as may be disclosed in the Environmental Reports, Seller has not received any written notice of any violations or claims arising from Hazardous Materials with regard to the Land, the Garage Site, or the Garage, and no action or proceeding based on any such violation or claim is currently being asserted or pursued or, to Sellers knowledge, currently being threatened.
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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
17.14 OFAC. Seller and all beneficial owners and agents of Seller (provided that this representation and warranty shall not apply to the shareholders of any of the foregoing that is a publicly traded company) currently are (a) in compliance with (and shall at all times during the term of this Agreement remain in compliance with) the OFAC Rules, (b) not listed on (and shall not during the term of this Agreement be listed on) the Blocked Persons List, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.
18. Buyers Representations and Warranties. In consideration of Sellers execution and delivery of this Agreement, Buyer hereby makes the following representations and warranties to Seller.
18.1 Organization. Buyer is a limited liability company, duly organized and existing in good standing under the laws of the State of Delaware and qualified to do business in the State of California, with its principal place of business in the State of California.
18.2 Authority. Buyer has the legal right, power, and authority to enter into this Agreement and to consummate the transactions contemplated in this Agreement. The execution, delivery, and performance of this Agreement by Buyer have been duly authorized and, except as may be expressly set forth otherwise in this Agreement, no other action is required to the valid and binding execution, delivery, and performance of this Agreement by Buyer.
18.3 No Conflicts. Buyers execution and delivery of this Agreement, Buyers consummation of the transactions contemplated in this Agreement, and Buyers compliance with the terms of this Agreement will not conflict with, or, with or without notice or the passage of time or both, result in a breach of any of the terms or provisions of, or constitute a default under, (a) Buyers formation documents, (b) any indenture, deed of trust, mortgage, loan agreement, or other instrument or agreement (oral or written) to which Buyer is a party or by which Buyer is bound, (c) any applicable regulation of any Governmental Authority, or (d) any judgment, order, or decree of any court having jurisdiction over Buyer.
18.4 OFAC. Buyer and all beneficial owners and agents of Buyer (provided that this representation and warranty shall not apply to the shareholders of any of the foregoing that is a publicly traded company) currently are (a) in compliance with (and shall at all times during the term of this Agreement remain in compliance with) the OFAC Rules, (b) not listed on (and shall not during the term of this Agreement be listed on) the Blocked Persons List, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.
19. Limitation on Sellers Liability For Condition of Property.
19.1 AS IS, WHERE IS. Buyer acknowledges and agrees that Buyer is purchasing the Property in an AS IS, WHERE IS condition, without relying upon any representations or warranties, express or implied, of any kind, except as expressly set forth in
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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Paragraph 17 above. Without limiting the above, Buyer acknowledges that neither Seller, except as expressly set forth in Paragraph 17 above, nor any other party has made any representations or warranties, express or implied, on which Buyer is relying as to any matters, directly or indirectly, concerning the Property, including, but not limited to, the dimensions of the Land, the Garage Site, or the Garage, the improvements and infrastructure (if any), development rights and exactions, expenses, taxes, assessments, bonds, permissible uses, title exceptions, water or water rights, topography, utilities, zoning, soil, subsoil, drainage, environmental or building laws, rules, or regulations, Hazardous Materials, or any other matters affecting or relating to the Property.
19.2 Reliance On Buyers Own Investigation. Buyer acknowledges and agrees that Buyer is purchasing the Property based solely upon Buyers own inspection of the Land, the Garage Site, and the Garage and Buyers own due diligence review and investigation of the Property, or the opportunity to perform such inspection, review, and investigation. Buyer further acknowledges and agrees that Sellers cooperation with Buyer in connection with such inspection, review, and investigation shall not be construed as any warranty or representation, express or implied, of any kind with respect to the Property, or with respect to the accuracy, completeness, or relevancy of any such documents, except as expressly set forth in Paragraph 17 above.
19.3 Release; Release Exceptions. Without limiting the generality of the foregoing or any other provision of this Agreement, but subject to Sellers express representations and warranties set forth in Paragraph 17 above, Buyer, for itself and, to the maximum extent permitted by Applicable Laws, on behalf of its Transferees with respect to any part of or interest in the Property (which, for purposes of this Paragraph 19.3, shall include any grant of occupancy rights for permanent improvements such as space leases), hereby expressly waives, releases, and relinquishes any and all Claims that Buyer or such Transferees may now or hereafter have against any Seller Party, and their respective successors and assigns, whether known or unknown, with respect to any past, present, or future presence or existence of Hazardous Materials at, on, about, under, or within any part of the Land or the Garage Site or with respect to any past, present, or future violations of any Applicable Laws, now or hereafter enacted, regulating or governing the use, handling, storage, release, or disposal of Hazardous Materials at, on, about, under, or within any part of the Land or the Garage Site, including, without limitation, (a) any and all rights Buyer or such Transferees may now or hereafter have to seek contribution from Seller under Section 113(f)(i) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C.A. §9613), as the same may be further amended or replaced by any similar law, rule, or regulation, (b) any and all rights Buyer or such Transferees may now or hereafter have against Seller under the Carpenter-Presley-Tanner Hazardous Substances Account Act (California Health and Safety Code, Section 25300 et seq.), as the same may be further amended or replaced by any similar law, rule, or regulation, (c) any and all Claims, whether known or unknown, now or hereafter existing, under Section 107 of CERCLA (42 U.S.C.A. §9607), with respect to any part of the Land or the Garage Site, and (d) any and all Claims regarding Hazardous Materials at, on, about, under, or within any part of the Land or the Garage Site, whether known or unknown, based on nuisance, trespass, or any
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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
other common law or statutory provisions (provided, however, that the foregoing waiver and release shall not apply to any Claims that may arise as a result of any acts or omissions of any Seller Party after the Closing Date). Notwithstanding the generality of the foregoing waiver and release, until the Complete Release Date such waiver and release shall not apply to or cover any Claims arising from any of the following (Release Exception Claims): (i) any fraud committed by any Seller Party in connection with the transactions contemplated in this Agreement; (ii) any intentional, reckless, or grossly negligent failure or refusal by any Seller Party to deliver or make available to Buyer any files or documents relating to the Property in Sellers possession or control that could have a material effect on a reasonably prudent buyers decision whether to buy the Property; (iii) any intentional, reckless, or grossly negligent violation of any Applicable Laws committed by any Seller Party with respect to the Property and/or the transactions contemplated in this Agreement; (iv) any intentional, reckless, or grossly negligent act committed by any Seller Party that results in material physical waste to the Land or the Garage Site; or (v) any breach of a representation or warranty contained in Paragraph 17 above. If, however, Buyer has actual knowledge as of the Closing Date of the existence of any specific Release Exception Claim and Buyer nonetheless closes the transactions contemplated in this Agreement and acquires the Property, then Seller shall have no liability or obligation with respect to such specific Release Exception Claim, which shall be deemed released by Buyer upon the Close of Escrow. Buyer will not have any right to bring an action against Seller as a result of a Release Exception Claim unless and until the aggregate amount of all liability and losses arising out of such Release Exception Claim exceeds Twenty-Five Thousand Dollars ($25,000.00); provided, however, in no event will Sellers liability for all Release Exception Claims exceed, in the aggregate, Three Million Six Hundred Thousand Dollars ($3,600,000.00). After the Complete Release Date, Buyer may not maintain any action based on a Release Exception Claim unless Buyer has given Seller written notice of such Release Exception Claim prior to the Complete Release Date.
BUYER HEREBY ACKNOWLEDGES THAT IT HAS READ AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542 (SECTION 1542), WHICH IS SET FORTH BELOW:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
BY INITIALING BELOW, BUYER HEREBY WAIVES THE PROVISIONS OF SECTION 1542 SOLELY IN CONNECTION WITH THE MATTERS THAT ARE THE SUBJECT OF THE WAIVERS AND RELEASES CONTAINED IN THIS PARAGRAPH 19.3.
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The waivers and releases by Buyer contained in this Agreement shall survive the Close of Escrow and the recordation of the Grant Deed and will not be deemed merged into the Grant Deed upon its recordation.
20. Buyers Default.
20.1 LIQUIDATED DAMAGES. BUYER AND SELLER AGREE THAT, BASED ON THE CIRCUMSTANCES NOW EXISTING, KNOWN AND UNKNOWN, IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO ESTABLISH SELLERS DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES RELATING TO LOST ECONOMIC OPPORTUNITIES AND ATTORNEYS AND CONSULTANTS FEES AND EXPENSES) IF (A) SELLER FULLY PERFORMS ITS OBLIGATIONS UNDER THIS AGREEMENT, (B) BUYER DOES NOT ELECT TO TERMINATE THIS AGREEMENT IN ACCORDANCE WITH PARAGRAPH 5.3, PARAGRAPH 11.3.1, OR PARAGRAPH 22, AND (C) THE TRANSACTION CONTEMPLATED IN THIS AGREEMENT DOES NOT CLOSE AS A RESULT OF A BREACH BY BUYER OF BUYERS OBLIGATIONS UNDER THIS AGREEMENT. ACCORDINGLY, BUYER AND SELLER AGREE THAT, IN SUCH CIRCUMSTANCES, IT WOULD BE REASONABLE TO AWARD SELLER, AS SELLERS SOLE AND EXCLUSIVE REMEDY AT LAW OR IN EQUITY (EXCEPT AS OTHERWISE PROVIDED BELOW), LIQUIDATED DAMAGES EQUAL TO THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON). THEREFORE, IF (X) SELLER FULLY PERFORMS ITS OBLIGATIONS UNDER THIS AGREEMENT, (Y) BUYER DOES NOT ELECT TO TERMINATE THIS AGREEMENT IN ACCORDANCE WITH PARAGRAPH 5.3, PARAGRAPH 11.3.1, OR PARAGRAPH 22, AND (Z) THE TRANSACTION CONTEMPLATED IN THIS AGREEMENT DOES NOT CLOSE AS A RESULT OF A BREACH BY BUYER OF BUYERS OBLIGATIONS UNDER THIS AGREEMENT, THEN SELLER MAY INSTRUCT ESCROW HOLDER TO CANCEL THE ESCROW, WHEREUPON ESCROW HOLDER SHALL IMMEDIATELY PAY SELLER THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON) AND IMMEDIATELY THEREAFTER SHALL CANCEL THE ESCROW, AND SELLER SHALL BE RELIEVED FROM ALL OBLIGATIONS AND LIABILITIES UNDER THIS AGREEMENT, EXCEPT FOR ANY SURVIVING OBLIGATIONS. THE PAYMENT OF THE DEPOSIT (EXCLUSIVE OF ANY INTEREST ACCRUED THEREON) AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676, AND 1677.
20.2 SELLERS OTHER REMEDIES.
20.2.1 NOTHING CONTAINED IN THIS PARAGRAPH 20 SHALL SERVE TO WAIVE OR OTHERWISE LIMIT (A) SELLERS REMEDIES OR DAMAGES FOR CLAIMS AGAINST BUYER WITH RESPECT TO ANY OBLIGATIONS OF BUYER THAT, BY THE TERMS OF THIS AGREEMENT, SURVIVE THE CLOSE OF ESCROW OR
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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
ANY TERMINATION OF THIS AGREEMENT BEFORE THE CLOSE OF ESCROW, INCLUDING, WITHOUT LIMITATION, BUYERS INDEMNIFICATION OBLIGATIONS UNDER PARAGRAPH 9 OF EACH APPLICABLE INSPECTION AGREEMENT, OR (B) SELLERS RIGHTS TO OBTAIN FROM BUYER ALL COSTS AND EXPENSES OF ENFORCING THE LIQUIDATED DAMAGE PROVISION CONTAINED IN PARAGRAPH 20.1 ABOVE, INCLUDING LEGAL COSTS PURSUANT TO PARAGRAPH 26 BELOW.
20.2.2 THE PARTIES AGREE THAT SELLER WOULD SUFFER MATERIAL INJURY OR DAMAGE NOT COMPENSABLE BY THE PAYMENT OF MONEY IF BUYER WERE TO BREACH OR VIOLATE THE CONFIDENTIALITY OBLIGATIONS UNDER THE CNDA, PARAGRAPH 11 OF EACH APPLICABLE INSPECTION AGREEMENT, OR PARAGRAPH 27 BELOW. ACCORDINGLY, NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 20.1 ABOVE, IN ADDITION TO ALL OTHER REMEDIES THAT SELLER MAY HAVE, SELLER MAY BRING AN ACTION IN EQUITY OR OTHERWISE FOR SPECIFIC PERFORMANCE TO ENFORCE COMPLIANCE WITH THE CNDA, PARAGRAPH 11 OF ANY APPLICABLE INSPECTION AGREEMENT, OR PARAGRAPH 27 BELOW, OR AN INJUNCTION TO ENJOIN THE CONTINUANCE OF ANY SUCH BREACH OR VIOLATION THEREOF.
20.3 ACKNOWLEDGMENT. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS PARAGRAPH 20 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
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21. BUYERS REMEDIES. IF SELLER FAILS TO CONVEY THE PROPERTY TO BUYER IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND SUCH FAILURE CONSTITUTES A DEFAULT BY SELLER UNDER THIS AGREEMENT, THEN BUYER SHALL BE ENTITLED TO SEEK ALL REMEDIES AVAILABLE TO BUYER, AT LAW OR IN EQUITY, INCLUDING AN ACTION FOR EQUITABLE RELIEF. SELLER HEREBY AGREES THAT THE PROPERTY IS UNIQUE AND THAT IF SELLER FAILS TO CONVEY THE PROPERTY TO BUYER IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND SUCH FAILURE CONSTITUTES A DEFAULT BY SELLER UNDER THIS AGREEMENT, SUCH FAILURE COULD CAUSE IRREPARABLE HARM TO BUYER. ACCORDINGLY, SELLER AGREES THAT EQUITABLE RELIEF IS A PROPER AND FAIR REMEDY FOR SUCH FAILURE. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS PARAGRAPH 21 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
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22. Casualty or Condemnation Before Close of Escrow. Seller shall notify Buyer of any casualty to the Land, the Garage Site, or the Garage that occurs before the Close of Escrow or any condemnation proceeding involving the Land, the Garage Site, or the Garage that is commenced before the Close of Escrow promptly after Sellers receipt of written notice of such casualty or condemnation proceeding. If any such casualty or condemnation proceeding relates to or may result in the loss of more than ten percent (10%) of the Land, Buyer may elect, at its option, either to: (a) terminate this Agreement, in which event all funds deposited into Escrow by Buyer shall be returned to Buyer and neither Party shall have any further rights or obligations hereunder, or (b) continue this Agreement in effect, in which event Buyer shall be entitled, upon the Close of Escrow, to any compensation, awards, or other payments or relief resulting from such casualty or condemnation proceeding and there shall be no adjustment to the Purchase Price. No casualty affecting the Garage Site or the Garage and no condemnation proceedings involving the Garage Site or the Garage shall affect Buyers obligation to purchase the Property; any such casualty or condemnation proceedings shall be subject to the terms and conditions of the Easement Agreement.
23. Buyers Insurance Requirements. Prior to the Close of Escrow, Buyer shall maintain at all times the insurance coverages required to be carried pursuant to each applicable Inspection Agreement. Buyers compliance with such insurance requirements shall in no way relieve or decrease the liability of Buyer under its indemnity obligations contained in this Agreement or the Inspection Agreement.
24. Notices. All notices, requests, approvals, demands, directions, or other communications required or permitted under this Agreement (generally, Notices) shall be in writing, and shall be personally delivered, sent by a reputable overnight courier service, sent by registered or certified mail (postage prepaid, return receipt requested), or sent by telecopy or facsimile and shall be deemed received upon the earlier of (a) if personally delivered or sent by overnight courier, the date of delivery to the address of the Party to receive such Notice, (b) if mailed, the date of delivery as shown on the senders registry or certification receipt, or (c) if sent by telecopy or facsimile, the date and time transmission and receipt are confirmed if such time is prior to 6:00 p.m., and the next business day if such time is after 6:00 p.m. (using the time in effect at the address of the Party to receive such Notice). A copy of any Notice sent by telecopy or facsimile also must be personally delivered or sent by reputable overnight courier service (in accordance with this Paragraph) within forty-eight (48) hours of the transmission of such Notice by telecopy or facsimile, provided that failure to deliver such copy within forty-eight (48) hours will not invalidate any Notice actually received by the Party to whom the telecopy or facsimile was addressed. All notices to Seller shall be sent to Sellers Address with a copy to Sellers Counsels Address. All notices to Buyer shall be sent to Buyers Address with a copy to Buyers Counsels Address. All notices to Escrow Holder shall be sent to Escrow Holders Address. All copies of Notices (i.e., those provided to any person or entity other than the intended addressee) shall be given as a courtesy only, and the failure or inability to deliver any courtesy copy of any Notice will not invalidate the Notice given to the intended addressee. Notice of change of
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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
address shall be given by written notice in the manner detailed in this Paragraph. Rejection, refusal to accept (including, but not limited to, intentionally disconnecting ones telecopy or facsimile machine or otherwise preventing the receipt of a Notice sent by telecopy or facsimile), or the inability to deliver because of a changed address of which no Notice was given shall be deemed to constitute receipt of the Notice sent.
25. Brokers. Seller shall cause to be paid to Sellers Broker and Buyers Broker a commission in an amount agreed upon by Seller and Brokers pursuant to a separate agreement. Buyer represents to Seller that Buyer has not dealt with any broker, finder, or intermediary in connection with this transaction other than Buyers Broker, and Seller represents to Buyer that Seller has not dealt with any broker, finder, or intermediary in connection with this transaction other than Sellers Broker. Buyer agrees to indemnify and hold harmless Seller from any Claims in connection with an assertion by any person for a real estate brokers commission, finders fee, or other compensation based upon any statement, representation, or agreement of Buyer, and Seller agrees to indemnify and hold Buyer harmless from any such Claims based upon any statement, representation, or agreement of Seller. Each Partys obligations set forth in this Paragraph shall survive the termination of this Agreement and Escrow before the Close of Escrow.
26. Legal Costs. Should either Party institute any action or proceeding against the other Party, by reason of or alleging the failure of the other Party to comply with any or all of its obligations under this Agreement, whether for declaratory or other relief, then the Party that prevails in such action or proceeding shall be entitled, in addition to any other recovery or relief, to its reasonable attorneys fees and expenses and consultant and expert fees and expenses related thereto (whether at the administrative, trial, or appellate levels) (Legal Costs). Any judgment, order, or award entered in such action or proceeding shall contain a specific provision providing for the recovery of attorneys fees and costs and consultant and expert fees and expenses incurred in enforcing, perfecting, and executing such judgment. A Party shall be deemed to have prevailed in any such action or proceeding (without limiting the generality of the foregoing) if such action or proceeding is dismissed upon the payment by the other Party of the sums allegedly due or the performance of obligations allegedly not complied with, or if such Party obtains substantially the relief sought by it in the action or proceeding, irrespective of whether such action or proceeding is prosecuted to judgment. As used in this Agreement, the term Legal Costs shall include, without limitation, attorneys and experts fees, costs, and expenses incurred in the following: (a) post judgment motions and appeals; (b) contempt proceedings; (c) garnishment, levy, and debtor and third party examinations; (d) discovery; and (e) bankruptcy litigation. For purposes of this Agreement, reasonable fees of any in-house counsel for Seller or Buyer shall be based on the fees regularly charged by outside counsel for Seller or Buyer, as applicable, with an equivalent number of years of professional experience in the subject matter area of the law for which Sellers or Buyers in-house counsel services were rendered. This Paragraph shall survive any termination of this Agreement before the Close of Escrow and shall also survive the recordation of the Grant Deed and the Close of Escrow and shall not be deemed merged into the Grant Deed upon its recordation.
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27. Transfers.
27.1 Prohibition On Buyers Right To Transfer. Prior to the Close of Escrow, Buyer shall not Transfer its rights and/or obligations under this Agreement without the written consent of Seller, which consent Seller may withhold in Sellers reasonable discretion. Notwithstanding the foregoing, Buyer shall have the right to Transfer all (but not part) of Buyers rights and obligations under this Agreement to any Affiliate of Buyer. At least ten (10) days before the closing date of the proposed Transfer, Buyer shall deliver to Seller an originally executed assumption agreement from the Transferee in form and substance reasonably acceptable to Seller under which the Transferee assumes all of the obligations of Buyer under this Agreement. Except as specifically set forth above, any attempt by Buyer to Transfer its rights and/or obligations under this Agreement without the written consent of Seller shall be voidable at Sellers option. No permitted Transfer shall relieve, alter, or release the assigning party from its primary liability under this Agreement without the written consent of Seller, which consent Seller may withhold in Sellers reasonable discretion.
27.2 Transfers By Seller. Seller shall not Transfer its rights and/or obligations under this Agreement without the written consent of Buyer, which consent Buyer may withhold in Buyers reasonable discretion.
28. Confidentiality.
28.1 Generally. The Parties acknowledge that all correspondence and communications between Seller and Buyer concerning information that is or becomes part of this Agreement is confidential and shall be subject to the terms and conditions of the CNDA; provided, however, notwithstanding the terms and conditions of the CNDA, either Party may disclose such information (i) to their respective attorneys, accountants, lenders, prospective lenders, partners, prospective partners, contractors, sub-contractors, consultants, sub-consultants, architects, (ii) to the extent required by law (including any filing or disclosure requirements of any Governmental Authority), and (iii) upon written approval of the other Party (not to be unreasonably withheld). In addition, after the Close of Escrow, Buyer may disclose such information to any prospective purchaser of any portion of the Property, provided such prospective purchaser has entered into (x) a written letter of intent, memorandum of understanding, or other agreement or understanding for the purchase of such portion of the Property, and (b) a written non-disclosure agreement that contains confidentiality and non-disclosure provisions substantially similar to the confidentiality and non-disclosure provisions in the CNDA.
28.2 Confidential Information. In addition to the confidentiality obligations set forth in Paragraph 28.1 above, Buyer shall handle all Confidential Information in compliance with the CNDA and Paragraph 11 of the Inspection Agreement, as applicable.
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28.3 Survival. The terms, covenants, and conditions contained in this Paragraph 28 shall survive any termination of this Agreement and Escrow before the Close of Escrow.
29. Additional Covenants and Agreements.
29.1 CFDs.
29.1.1 Formation of CFDs; CFD Assessments. On January 11, 2000, the Redevelopment Agency approved the formation of the Maintenance CFD and the Infrastructure CFD. Buyer acknowledges that, pursuant to the CFDs, a lien of special tax has been established with respect to the Land and the Garage Site. Nothing herein shall be deemed to require Seller to reimburse Buyer for any CFD Assessments or any other taxes or public or private assessments that may be owing with respect to the Property after the Close of Escrow, all of which shall be the sole responsibility of Buyer.
29.1.2 Section 53341.5 Acknowledgment. Prior to Buyers execution and delivery of this Agreement, Buyer delivered to Seller acknowledgments (the Notices of Special Tax) confirming that Buyer has been advised of the terms and conditions of the CFDs, including that the Land is subject to the CFD Assessments. Copies of the executed Notices of Special Tax are attached hereto as Exhibit L.
29.2 Construction Obligations. Buyer acknowledges that the Land is part of the South Project Area, and acknowledges that if construction of the Project is not commenced and completed with reasonable diligence, or if there is a material delay in its commencement and completion, such an event or delay may have a material adverse effect on the timely development of other portions of the South Project Area. In order to allocate the burdens of such a material adverse effect, Master Developer and Seller executed, delivered, and recorded the Existing Construction Agreement, which covers and encumbers the Land. Prior to the Close of Escrow, the Parties shall reasonably negotiate between themselves as to the terms and conditions of an agreement (the Agreement Regarding Construction Obligations) that will specify each Partys responsibility for any obligations that may arise or accrue under the Existing Construction Agreement after the Close of Escrow. The terms and conditions of the Agreement Regarding Construction Obligations shall be reasonably acceptable to each Party, and a memorandum of the Agreement Regarding Construction Obligations shall be recorded in the Official Records as of the Close of Escrow.
29.3 [RESERVED].
29.4 Environmental Inquiry. Buyer acknowledges that Seller has made available to Buyer, for Buyers inspection, a copy of all of the Environmental Reports.
29.5 Environmental Covenant Disclosure. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, a copy of the Environmental Covenant.
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Buyer acknowledges that the Land, the Garage, and the Garage Site are subject to the Environmental Covenant, and Buyer hereby covenants to comply with such Environmental Covenant from and after the Close of Escrow. Without limiting the generality of the foregoing, the Environmental Covenant requires all Owners and Occupants (as therein defined) to include the following statement in all purchase agreements or leases relating to the Property:
(i) The land described herein may contain hazardous materials in soils and in the ground water under the property, and is subject to the Covenant and Environmental Restriction on Property dated as of February 23, 2000, and recorded in the Official Records on March 21, 2000, as Document No. 2000-G748552-00, Reel H598, Image 172 (the Covenant and Restriction). The Covenant and Restriction imposes certain covenants, conditions, `and restrictions on usage of the property described herein. This statement is not a declaration that a hazard exists.
(ii) In all future leases, licenses, permits, or other agreements between, on the one hand, an Owner or Occupant, and, on the other hand, another entity, which authorizes such entity to undertake or to engage in activities that are subject to one or more requirements set forth in the Risk Management Plan (RMP), the contracting Owner or Occupant will provide a copy of the RMP or its relevant provisions prior to execution of such agreements and ensure that such agreements contain covenants that (a) such entity will comply with the RMP (to the extent the RMP applies to the entitys activities); (b) such entity will obligate other entities with which it contracts for construction, property maintenance or other activities which may disturb soil or groundwater to comply with the applicable provisions of the RMP; and (c) such entity (and the entities with which it so contracts) will refrain from interfering with Owners or Occupants compliance with the RMP.
(iii) In all agreements between an Owner and another entity providing for access to the Property for the purpose of environmental mitigation, monitoring or remediation (Environmental Responses) by such entity, the Owner will provide that entity with a copy of the RMP prior to execution of such agreement and ensure that such agreements contain covenants by the entity that the entity will (a) comply with the RMP (to the extent the RMP applies to the entitys activities); and (b) obligate any person or company with which it contracts for Environmental Response that may disturb soil or groundwater to comply with the applicable provisions of the RMP.
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(iv) The Owner will provide a copy of the RMP to any of its Transferees of a fee interest in all or any portion of the Property. The Owner will provide notice of the transfer and a map of the Mission Bay Development Area that delineates the parcel transferred to both the Board and the San Francisco Department of Public Health within 30 days after the transfer.
29.6 San Francisco Soils Analysis Disclosure. Buyer acknowledges and understands that the Land is located in an area of the City subject to the requirements of Article 20 of the San Francisco Public Works Code and Article 22A of the San Francisco Health Code, and in accordance with the requirements of Section 1233 of the San Francisco Health Code, Buyer hereby acknowledges receipt of a summary of such Articles, a copy of which is attached hereto as Exhibit I-1.
29.7 Natural Hazards Disclosure. Buyer acknowledges that Seller has made available to Buyer, for Buyers inspection, copies of the Natural Hazards Statements.
29.8 Project Labor Agreement. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, a copy of the Project Labor Agreement. Buyer also acknowledges that: (a) the Land is Covered Property; and (b) the parties to the Project Labor Agreement agreed, to the fullest extent possible, to award all construction contracts for Covered Work to unionized construction firms, and further agreed to require, as a condition of any sale, conveyance, ground lease, or donation of any Covered Property, that any Covered Successor shall require any contractors to which the Covered Successor contracts Covered Work to sign and become a party to the Project Labor Agreement through the execution and delivery of a Successor Project Labor Agreement. Accordingly, at the Close of Escrow, Buyer shall execute and deliver to Seller an Agreement Regarding Successor Project Labor Agreement, pursuant to which Buyer (on behalf of all Covered Successors with respect to the Land) shall agree to require any contractors to which Covered Work is contracted to sign and become a party to the Project Labor Agreement through the execution and delivery of a Successor Project Labor Agreement.
29.9 Transactions With Tax Exempt Entities. The Tax Payment Agreement contains certain covenants to make payments in lieu of taxes equal to the full amount of the property taxes and CFD Assessments that would have been assessed against the applicable portion of the Land notwithstanding its ownership or occupancy by an entity that is exempt from property taxation. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, a copy of the Tax Payment Agreement.
29.10 Excavation Costs. Buyer acknowledges and agrees that Buyer has the sole responsibility and liability, at Buyers sole cost, for developing and constructing the Project in accordance with all Applicable Laws. Without limiting the foregoing, if Buyers development of the Project generates excess soil that cannot be re-used on the Land, either because such re-use would be inconsistent with the provisions of the RMP or for geotechnical reasons, Buyer shall be responsible, at Buyers sole cost, for transporting and disposing of such excess soil off-site.
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29.11 Master Association and TMA. Without limiting the generality of the foregoing provisions of this Paragraph 29, Buyer acknowledges that the Land is included within the property covered by the Master Commercial Declaration and that the owner of the Land is obligated to participate in the TMA. Buyer further acknowledges that the Land will be subject to the covenants, conditions, and restrictions contained in the Master Commercial Declaration and to participation in the Master Association and the TMA, and that Buyer will be responsible for all assessments that may be owing with respect to the Land following the Close of Escrow with respect to the Master Association and the TMA.
29.12 Infrastructure CFD Bond Disclosure Certificate. Buyer acknowledges that the Infrastructure CFD Bond Disclosure Certificate requires Seller to provide semiannual and annual reports and notices of significant events to the Redevelopment Agency of the character described in Section 3 and Section 4 of the Infrastructure CFD Bond Disclosure Certificate. Buyer shall assume all continuing disclosure obligations under the Infrastructure CFD Bond Disclosure Certificate by executing and delivering an assumption agreement (the Infrastructure CFD Bond Disclosure Assumption Agreement), that contains terms substantially similar to those in the Infrastructure CFD Bond Disclosure Certificate and that otherwise qualifies as an Assumption Agreement (as defined in the Infrastructure CFD Bond Disclosure Certificate).
30. Compliance With Development Entitlements.
30.1 Generally. Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, copies of the Development Entitlements (including, without limitation, the RMP and the Environmental Covenant). Buyer also acknowledges that Buyer will be responsible following the Close of Escrow for all fees and costs related to the development of the Project in accordance with the Development Entitlements and all Applicable Laws.
30.2 Diversity Program. Without limiting the generality of Paragraph 30.1 above, Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, copies of the Program in Diversity/Economic Development Program, which is set forth in Attachment H to the South OPA (the Diversity Program). Buyer also acknowledges that (i) the Diversity Program provides for the arbitration of certain disputes under the circumstances set forth in the Diversity Program, and (ii) Schedule 4, Section I.C of the Diversity Program references the City-wide First Source Hiring Program (FSHP) adopted by the City and County of San Francisco August 3, 1998, and codified at San Francisco Administrative Code Sections 83.1-83.1(8). The FSHP is designed to identify entry-level positions associated with employees engaged in construction work for certain commercial development projects and to provide first interview opportunity to graduates of city-sponsored training programs. Buyer further acknowledges that Buyers activities with respect to the Property are or may be subject to the FSHP, and that the FSHP and the Diversity Program may impose obligations on Buyer, including good faith efforts to meet requirements and goals regarding interviewing, recruiting, hiring, and retention of certain individuals.
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30.3 Non-Discrimination. Without limiting the generality of Paragraph 30.1 above, Buyer acknowledges that the South OPA expressly provides that there shall be no discrimination against or segregation of persons or groups of persons or any employee or applicant for employment on account of race, color, creed, religion, national origin, ancestry, sex, marital or domestic partner status, familial status, lawful source of income (as defined in Section 3304 of the San Francisco Police Code), gender identity, sexual orientation, age, or disability (including, without limitation, HIV/AIDS status) in the sale, lease, sublease, transfer, use, occupancy, tenure, or enjoyment of the Property. All deeds, leases, or contracts for the sale, lease, sublease, or other transfer of all or any portion of the Property are required to contain the foregoing nondiscrimination and nonsegregation provision.
30.4 Mitigation Measures. Without limiting the generality of Paragraph 30.1 above, Buyer acknowledges that Buyer received and reviewed, before the Termination Deadline, the applicable mitigation measures of the South OPA, which are set forth in Attachment L to the South OPA. Buyer also acknowledges that Buyer will be responsible following the Close of Escrow for complying with and doing all things necessary to perform the obligations of Owner (as therein defined) pertaining to the Land.
31. 1031 Exchange. At its option, either Seller or Buyer may structure this transaction as an Exchange. If either Party shall elect to undertake an Exchange, the following terms shall apply, as may be applicable:
(a) The exchanging Party (Exchanging Party) shall give written notice to the other Party and Escrow Holder not later than seven (7) business days prior to the Closing Date of its intention to structure this transaction as an Exchange;
(b) The Exchanging Party may assign (in part or in whole) its right in this Agreement, as well as the transfer of its interest in the Property, to an exchange accommodator or an exchange accommodation titleholder (either, an Accommodator) selected by the Exchanging Party, and may add the Accommodator as an additional party to the Escrow, provided that (i) such assignment shall not release the Exchanging Party of sole responsibility for its representations, warranties, undertakings, covenants, indemnities, and obligations hereunder, (ii) the non-Exchanging Party shall not be required to take an assignment of the purchase agreement for any other property or be required to acquire or hold title to any other property for purposes of consummating any such Exchange, and (iii) all conveyance documents to be delivered at the Close of Escrow shall be directly between Buyer and Seller;
(c) Buyer and Seller agree to reasonably cooperate with one another in connection with any Exchange, including the execution of documents for such Exchange (including, but not limited to, escrow instructions and amendments to escrow instructions);
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(d) The non-Exchanging Party shall in no way be obligated to pay any escrow costs, brokerage commissions, title charges, survey costs, recording costs or other charges incurred with respect to any other property in connection with any Exchange;
(e) The Close of Escrow shall not be contingent upon or otherwise subject to the consummation of any Exchange;
(f) Escrow shall timely close in accordance with the terms of this Agreement notwithstanding any failure, for any reason, of the Exchanging Party to consummate any such Exchange; provided, however, that the Exchanging Party shall have a one-time right to extend the Closing Date for up to thirty (30) days in order to complete such Exchange by delivering written notice to Escrow Holder and the non-Exchanging Party at least seven (7) business days prior to the Closing Date;
(g) The non-Exchanging Party shall have no responsibility or liability to any third party involved in any Exchange, and the Exchanging Party shall indemnify and defend the non-Exchanging Party and hold the non-Exchanging Party harmless against any and all claims, damages, liabilities, losses, costs and expenses, including, without limitation, attorneys fees and costs, arising out of or in any way connected with any Exchange that the non-Exchanging Party would not have incurred but for such Exchange, including, but not limited to, any liabilities, losses, costs, or expenses incurred or sustained by the non-Exchanging Party in the event the non-Exchanging Party is audited or questioned in connection with such Exchange;
(h) The non-Exchanging Party shall not be required to make any representations or warranties, to assume any obligations, or to spend any out-of-pocket sum in connection with any Exchange; and
(i) All representations, warranties, undertakings, covenants, indemnities, and obligations of the Parties to each other, whether set forth in this Agreement or otherwise existing at law or at equity, shall inure to the benefit of the Parties, notwithstanding any Exchange.
32. Miscellaneous.
32.1 Survival of Covenants. In addition to the provisions otherwise expressly set forth in this Agreement, (a) the representations and warranties of Buyer and Seller set forth in this Agreement, and (b) all covenants made by Buyer and Seller in this Agreement pursuant to which Buyer and Seller, by the terms of such covenants, will have continuing rights or obligations under this Agreement following the Close of Escrow shall survive the recordation of the Grant Deed and the Close of Escrow and shall not be deemed merged into the Grant Deed upon its recordation; provided, however, that the representations and warranties of Seller set forth in this Agreement shall remain operative and shall survive the Close of Escrow and the recordation of the Grant Deed only until the Complete Release Date, and no action or claim
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based thereon shall be commenced after the Complete Release Date (unless, prior to the Complete Release Date, Buyer has given Seller written notice of a Release Exception Claim based on a breach of a representation or warranty of Seller set forth in this Agreement).
32.2 No Other Offers. From the Effective Date through the Termination Deadline, and thereafter until the Closing Date, Seller shall not solicit or accept any offers, whether or not binding, regarding the Property; provided, however, that the foregoing restriction shall no longer apply upon the termination of this Agreement in accordance with its terms.
32.3 Required Actions of Buyer and Seller. Buyer and Seller agree to execute such instruments and documents and to undertake such actions as may be required in order to consummate the purchase and sale of the Property and shall use good faith efforts to accomplish the Close of Escrow in accordance with the provisions hereof.
32.4 Time of Essence. Time is of the essence of each and every term, condition, obligation, and provision hereof. All references herein to a particular time of day shall be deemed to refer to the time in effect in San Francisco, California.
32.5 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute a single agreement with the same effect as if all Parties had signed the same signature page. Any signature page from any counterpart of this Agreement, signed only by one Party, may be detached from such counterpart and re-attached to any other counterpart of this Agreement that has a signature page signed only by another Party, without impairing the legal effect of any of the signatures.
32.6 Captions. Any captions to, or headings of, the Paragraphs or subparagraphs of this Agreement are solely for the convenience of the Parties, are not a part of this Agreement, and shall not be used for the interpretation or determination of the validity of this Agreement or of any provision of this Agreement.
32.7 No Obligations To Third Parties. Except as may be expressly provided otherwise in this Agreement, the execution and delivery of this Agreement shall not be deemed to confer any rights upon, nor obligate any of the Parties, to any person or entity other than the Parties.
32.8 Exhibits. The Attachments and Exhibits attached to this Agreement are hereby incorporated herein by this reference for all purposes.
32.9 Amendment To Agreement. The terms of this Agreement may not be modified or amended except by an instrument in writing executed by each of the Parties.
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32.10 Waiver. The waiver or failure to enforce any provision of this Agreement shall not operate as a waiver of any future breach of any such provision or of any other provision of this Agreement.
32.11 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California.
32.12 Fees and Other Expenses. Except as may be expressly provided otherwise in this Agreement, each Party shall pay its own fees and expenses in connection with this Agreement.
32.13 Partial Invalidity. If any portion of this Agreement as applied to either Party or to any circumstances shall be adjudged by a court to be void or unenforceable, such portion shall be deemed severed from this Agreement and shall in no way effect the validity or enforceability of any remaining portion of this Agreement.
32.14 Successors and Assigns. Subject to the provisions of Paragraph 27 above, this Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties.
32.15 Independent Counsel. Buyer and Seller each acknowledge that: (a) they have been represented by independent counsel in connection with this Agreement; (b) they have executed this Agreement with the advice of such counsel; and (c) this Agreement is the result of negotiations between the Parties and the advice and assistance of their respective counsel. The fact that this Agreement was prepared by Sellers counsel as a matter of convenience shall have no import or significance. Any uncertainty or ambiguity in this Agreement shall not be construed against Seller because Sellers counsel prepared this Agreement in its final form.
32.16 Deadlines. If the last day of any period to give notice, reply to a notice, or undertake any other action under this Agreement occurs on a Saturday, Sunday, or state holiday, then the last day for such action shall be the next succeeding day that is not a Saturday, Sunday, or state holiday.
32.17 Extension of Time. A delay in the completion of any obligation under this Agreement as a result of an Unavoidable Delay shall extend the deadline for completion of such obligation for the period of the Unavoidable Delay, provided that (a) if the Party seeking to rely upon such provisions shall fail to give notice to the other Party of such Unavoidable Delay and the cause or causes thereof, to the extent known, within three (3) business days after obtaining knowledge of the beginning of the delay, the period of any Unavoidable Delay shall be reduced for the period of time prior to the delivery of such notice, (b) the period of any Unavoidable Delay shall also be reduced by any portion of such delay resulting from the failure of the Party claiming the Unavoidable Delay to act diligently and in good faith to avoid foreseeable delays in performance, and to remove the cause of the delay or to develop a reasonable alternative means
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of performance, and (c) the total extension for all Unavoidable Delays shall not exceed sixty (60) days.
32.18 Entire Agreement. This Agreement, the Inspection Agreement, and the CNDA supersede any prior agreements, negotiations, and communications, oral or written, including the Letter of Intent as of October 5, 2010, and any other letter of intent or memorandum of understanding previously executed by the Parties to this Agreement (if any), and contains the entire agreement between Buyer and Seller as to the subject matter of this Agreement, the Inspection Agreement, and the CNDA. No subsequent agreement, representation, or promise made by either Party, or by or to an employee, officer, agent, or representative of either Party, shall be of any effect unless it is in writing and executed by the Party to be bound thereby.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first written above.
Seller |
ARE-SAN FRANCISCO NO. 19, LLC, a Delaware limited liability company | |||||||||
By: |
ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, Managing Member | |||||||||
By: |
ARE-QRS CORP., a Maryland corporation, General Partner | |||||||||
By: /s/ Eric S. Johnson | ||||||||||
Print Name: Eric S. Johnson | ||||||||||
Print Title: Vice President Real Estate Legal Affairs | ||||||||||
Buyer |
BAY JACARANDA NO. 2627, LLC, a Delaware limited liability company | |||||||||
By: |
Bay Jacaranda Holdings, LLC, a Delaware limited liability company, Its Sole Member | |||||||||
By: |
salesforce.com, inc., a Delaware corporation, Its Sole Member | |||||||||
/s/ David Schellhase | ||||||||||
By: David Schellhase | ||||||||||
Title: Executive Vice President, Legal |
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Acceptance By Escrow Holder:
The undersigned hereby acknowledges that they have received originally executed counterparts or a fully executed original of the foregoing Agreement of Purchase and Sale and Joint Escrow Instructions (the Agreement) and agrees to act as Escrow Holder thereunder and to be bound by and perform the terms thereof as such terms apply to Escrow Holder.
The undersigned hereby agrees to use commercially reasonable efforts to keep confidential the existence and contents of, and the parties to, the Agreement, and shall not disclose any such information to any third party, except to the extent a disclosure is reasonably necessary (i) for Escrow Holder to enforce its rights or defend itself in connection with the Agreement; (ii) for submissions to any local, state, or federal regulatory body; or (iii) for compliance with a valid order of a court or other governmental body having jurisdiction, or any law, statute, or regulation, provided that, in the event of a disclosure under clause (iii) above, Escrow Holder use commercially reasonable efforts to give the parties to the Agreement reasonable prior written notice of such required disclosure in order to permit such parties to seek confidential treatment of, or a protective order preventing or limiting the disclosure or use of, the information to be disclosed.
Dated: October , 2010 |
FIRST AMERICAN TITLE INSURANCE COMPANY | |||
By: |
|
Print Name: |
| |||
Its: Authorized Agent |
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ATTACHMENT 1
BUYERS CLOSING CONDITIONS
All initially capitalized terms not expressly defined when used in this Attachment 1 shall have the meanings given to such terms in the Agreement.
1. Condition of Land. Subject to the provisions of Paragraph 22 of the Agreement, the condition of the Land shall be substantially the same as of the Close of Escrow as on the Effective Date, except for reasonable wear and tear and any damages due to any act of any Buyer Party or any of Buyers Agents.
2. Condition of Title. The Title Company shall be committed to issue at the Close of Escrow, upon payment of its regularly scheduled premium, an ALTA Policy in the amount of the Purchase Price showing title to the Land and the Acquired Parking Rights vested in Buyer, subject only to the Permitted Encumbrances.
3. Sellers Obligations. Seller shall have performed all of the covenants, undertakings, and obligations to be performed by Seller pursuant to this Agreement at or before the Close of Escrow. In addition, each Seller Party shall have performed all of the covenants, undertakings, and obligations to be performed by such Seller Party pursuant to any other contract or agreement with any Buyer Party, and all of the conditions to the obligation of such Buyer Party to perform fully under such other contract or agreement shall have been satisfied or waived.
4. Sellers Representations and Warranties. Sellers representations and warranties in Paragraph 17 of the Agreement shall be true and correct as of the Close of Escrow.
5. South Redevelopment Plan / South OPA. Any conditions set forth in the South Redevelopment Plan and/or the South OPA to the transfer of the Property from Seller to Buyer shall have been satisfied, and the Redevelopment Agency shall have delivered the Assignment of South OPA to Buyer or Escrow Holder, duly executed by the Redevelopment Agency and acknowledged. In addition, Seller shall have provided to the Redevelopment Agency any other agreements that the Redevelopment Agency may reasonably require in connection with the transfer of the Property from Seller to Buyer.
6. Acquired Square Footage / Tower Rights. Seller shall have provided to Buyer and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to comply with the Master Developer Covenant and/or the Vesting Covenant, or to amend, restate, replace, or supplement the Master Developer Covenant and/or the Vesting Covenant as they apply to the Land, and shall have executed any other documents that Buyer may reasonable require, in order (i) to transfer the Acquired Square Footage and the Acquired Tower Rights from Seller to Buyer, (ii) to give Property Owner the right to Convey to any Other SFDC Owner any part of the Acquired Square Footage (or any part of the Other SFDC
ATTACHMENT 1
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CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Square Footage previously Conveyed to Property Owner), (iii) to give any Other SFDC Owner the right to Convey to Property Owner any part of the Other SFDC Square Footage (or any part of the Acquired Square Footage previously Conveyed to such Other SFDC Owner), (iv) to give Property Owner the right to Convey to any Other SFDC Owner any part of the Acquired Tower Rights (or any part of the Other SFDC Tower Rights previously Conveyed to Property Owner), and (v) to give any Other SFDC Owner the right to Convey to Property Owner any part of the Other SFDC Tower Rights (or any part of the Acquired Tower Rights previously Conveyed to such Other SFDC Owner). Seller also shall have caused any other ARE Owners that will own property after the Close of Escrow within Height Zone 5 (as defined in the South Design for Development) to provide to Buyer and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to ensure that Buyer may exercise the Acquired Tower Rights upon the Close of Escrow.
7. Acquired Parking Rights. Seller shall have provided to Buyer and/or the Title Company any information, agreements, and/or undertakings, in form and substance reasonably satisfactory to Buyer and/or the Title Company, that may be reasonably necessary to allocate the Acquired Parking Rights to the Land and to transfer the Acquired Parking Rights from Seller to Buyer.
8. Acquired Office Authorizations. Seller shall have provided to Buyer and/or the Citys Planning Department and/or Zoning Administrator, and shall have caused the other ARE Owners to provide to Buyer and/or the Citys Planning Department and/or Zoning Administrator, any information, agreements, and/or undertakings that may be reasonably necessary to allocate the Acquired Office Authorizations to the Land.
9. Sellers Covenant. Seller shall have caused the other ARE Owners to provide to Buyer written covenants that are substantively identical to the covenants contained in Paragraphs 7.1.4, 7.1.5(a), and 7.1.6(a) of the Agreement.
10. Infrastructure Rights. Seller shall have provided to Buyer and/or the Infrastructure Developer any information, agreements, and/or undertakings that may be reasonably necessary to cause the Infrastructure Developer to consent to the Assignment of Infrastructure Rights (which consent shall include an agreement from the Infrastructure Developer that, after the Close of Escrow, Infrastructure Developers obligations with respect to the Infrastructure Rights shall be direct obligations to Buyer).
11. Construction Obligations. Seller and Buyer shall have agreed to the terms and conditions of the Agreement Regarding Construction Obligations.
12. No Moratoria. No moratorium, statute, regulation, ordinance, or federal, state, or local legislation, and no order, judgment, ruling, or decree of any Governmental Authority, shall have been enacted, adopted, issued, entered, or pending that would materially and adversely affect Buyers intended use of the Property.
ATTACHMENT 1
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CONFIDENTIAL TREATMENT REQUESTED
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13. No Bankruptcy. No action or proceeding shall have been commenced by or against Seller under the federal bankruptcy code or any state law for the relief of debtors or for the enforcement of the rights of creditors, and no attachment, execution, lien, or levy shall have attached to or been issued with respect to any portion of the Property.
ATTACHMENT 1
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CONFIDENTIAL TREATMENT REQUESTED
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ATTACHMENT 2
SELLERS CLOSING CONDITIONS
All initially capitalized terms not expressly defined when used in this Attachment 2 shall have the meanings given to such terms in the Agreement.
1. Buyers Obligations. Buyer shall have performed all of the covenants, undertakings, and obligations to be performed by Buyer pursuant to this Agreement at or before the Close of Escrow (including, but not limited to, the obligation to deposit with Escrow Holder all funds required under this Agreement). In addition, each Buyer Party shall have performed all of the covenants, undertakings, and obligations to be performed by such Buyer Party pursuant to any other contract or agreement with any Seller Party, and all of the conditions to the obligation of such Seller Party to perform fully under such other contract or agreement shall have been satisfied or waived.
2. Buyers Representations and Warranties. Buyers representations and warranties in Paragraph 18 of the Agreement shall be true and correct as of the Close of Escrow.
3. South Redevelopment Plan / South OPA. Any conditions set forth in the South Redevelopment Plan and/or the South OPA (i) to the transfer of the Property from Seller to Buyer, and (ii) to the release of Seller from any obligations under the South Redevelopment Plan and/or the South OPA applicable to the Property, shall have been satisfied, and the Redevelopment Agency shall have delivered the Assignment of South OPA to Seller or Escrow Holder, duly executed by the Redevelopment Agency and acknowledged. In addition, Buyer shall have provided to the Redevelopment Agency any other information, agreements, and/or undertakings that the Redevelopment Agency may reasonably require in connection with the transfer of the Property from Seller to Buyer and/or the release of Seller from any obligations under the South Redevelopment Plan and/or the South OPA applicable to the Property.
4. Acquired Square Footage / Tower Rights. Buyer shall have provided to Seller and/or the Master Developer any information, agreements, and/or undertakings that may be reasonably necessary to comply with the Master Developer Covenant and/or the Vesting Covenant, or to amend, restate, or replace the Master Developer Covenant and/or the Vesting Covenant as they apply to the Land, in order to transfer the Acquired Square Footage and the Acquired Tower Rights from Seller to Buyer.
5. ARE Retained Parking Rights. Buyer shall have provided to Seller and/or the Title Company any information, agreements, and/or undertakings, in form and substance reasonably satisfactory to Seller and the Title Company, that may be reasonably necessary to allocate the ARE Retained Parking Rights to the 455 MBBS Parcel.
6. ARE Retained Office Authorizations. Buyer shall have provided to Seller and/or the Citys Planning Department and/or Zoning Administrator, any information, agreements,
ATTACHMENT 2
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and/or undertakings that may be reasonably necessary to allocate the Acquired Office Authorizations to the Land and to retain the ARE Retained Office Authorizations within the ARE Office Space District.
7. Infrastructure Rights. Buyer shall have provided to Seller and/or the Infrastructure Developer any information, agreements, and/or undertakings that may be reasonably necessary to cause the Infrastructure Developer to consent to the Assignment of Infrastructure Rights (which consent shall include an agreement from the Infrastructure Developer that, after the Close of Escrow, Infrastructure Developers obligations with respect to the Infrastructure Rights shall be direct obligations to Buyer).
8. Construction Obligations. Seller and Buyer shall have agreed to the terms and conditions of the Agreement Regarding Construction Obligations.
9. Infrastructure CFD Bond Disclosure Certificate. Buyer shall have provided to Seller and/or the Redevelopment Agency any information, agreements, and/or undertakings that may be reasonably necessary to cause the Redevelopment Agency to release Seller from any obligations under the Infrastructure CFD Bond Disclosure Certificate.
10. No Bankruptcy. No action or proceeding shall have been commenced by or against Buyer under the federal bankruptcy code or any state law for the relief of debtors or for the enforcement of the rights of creditors, and no attachment, execution, lien, or levy shall have attached to or been issued with respect to any portion of any funds deposited with Escrow Holder under this Agreement.
ATTACHMENT 2
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EXHIBIT A-1
LEGAL DESCRIPTION OF 1455 PARCEL
All that real property situated in the City of San Francisco, County of San Francisco, State of California, described as follows:
Lot 3, as shown on Final Map 5156, filed November 25, 2009, in Book CC of Survey Maps at Pages 197 through 201 in the Office of the Recorder of the City and County of San Francisco, State of California.
[Assessors Block 8721, Lot 33]
EXCEPTING the following:
As excepted and reserved forever by the State of California in that certain Patent and Quitclaim Deed dated June 14, 1999, to the City and County of San Francisco, a charter city and county, recorded July 19, 1999, in Reel H429, Image 507, Series No. 99-G622155, Official Records of the City and County of San Francisco, State of California, from those portions of the above described real property (hereafter called the Former Burton Act Portions) within the boundaries of Mineral Rights Parcel 9, Mineral Rights Parcel 10 and Mineral Rights Parcel 11 described in Exhibit D thereto, the following:
All minerals and all mineral rights of every kind and character now known to exist or hereafter discovered in such Former Burton Act Portions, including, but not limited to, oil and gas and rights thereto, together with the sole, exclusive, and perpetual right to explore for, remove, and dispose of those minerals by any means or methods suitable to the State of California or to its successors and assigns, but without entering upon or using the surface of such Former Burton Act Portions, and in such manner as not to damage the surface of those portions of the above described real property within the boundaries of such Former Burton Act Portions or to interfere with the use thereof by the City and County of San Francisco, its successors and assignees; provided, however, that the State of California, its successors and assigns, without the prior written permission of the City and County of San Francisco, its successors and assignees, shall not conduct any mining activities of any nature whatsoever above a plane located five hundred feet (500) below the surface of that portion of the above described real property within the boundaries of such Former Burton Act Portions.
FURTHER, as excepted and reserved by the Atchison, Topeka and Santa Fe Railway Company, a Delaware corporation (Santa Fe), in that certain Grant Deed dated January 21, 1987, and recorded March 31, 1987, in Reel E309, Image 1138, Series No. D966411, Official Records of the City and County of San Francisco, State of California, from those portions of the above described real property lying within the boundaries of the parcels described therein, the following:
EXHIBIT A-1
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CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
All minerals, including, without limiting the generality thereof, oil, gas and other hydrocarbon substances, as well as metallic or other solid minerals, provided that Santa Fe shall not have the right to go upon or use the surface of said land, or any part thereof, for the purpose of drilling for, mining, or otherwise removing, any of said minerals. Santa Fe may, however, and reserves the right to, remove any of said minerals from said land by means of wells, shafts, tunnels, or other means of access to said minerals which may be constructed, drilled or dug from other land, provided that the exercise of such rights by Santa Fe shall in no way interfere with or impair the use of the surface of the above described real property or of any improvements thereon.
EXHIBIT A-1
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CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
EXHIBIT A-2
LEGAL DESCRIPTION OF 1515 PARCEL
All that real property situated in the City and County of San Francisco, State of California, described as follows:
Parcel One:
All block and lot lines hereinafter mentioned are in accordance with that certain map entitled Final Map 4141 Planned Development Mission Bay (26-28) in Book BB of Maps at Pages 179 through 183, inclusive, recorded on October 16, 2007, in the Office of the Recorder of the City and County of San Francisco, State of California, and being more particularly described as follows:
BEGINNING at the Northwest corner of Block 8721 Lot 23 as shown on said map; thence, North 86°4904 East, 157.50 feet along the North line of said Lot 23 and Block 8721 Lot 27 as shown on said map; thence, South 03°1056 East, 275.02 feet leaving said North line to a point on the South line of said Lots 23 and 27; thence, South 86°4904 West, 157.50 feet along said South line to the Southwest corner of said Lot 23; thence, North 03°1056 West, 275.02 feet along the West line of said Lot 23 to the POINT OF BEGINNING.
The above description is identical to the description of New Parcel Block 8721 Lot 29 set forth in Exhibit B attached to that certain Certificate of Compliance recorded in the Office of the Recorder of the City and County of San Francisco, State of California, on April 24, 2009, as Document No. 2009-I752211.
[Assessors Block 8721, Lot 29]
EXCEPTING the following:
As excepted and reserved by FOCIL-MB, LLC, a Delaware limited liability company, in that certain Grant Deed recorded March 1, 2005, in Reel I836, Image 496, Series No. 2005-H911981, Official Records of the City and County of San Francisco, State of California, from the above described real property, the following:
All right, title and interest in and to all water rights, coal, oil, gas and other hydrocarbons, geothermal resources, precious metals ores, base metals ores, industrial-grade silicates and carbonates, fissionable minerals of every kind and character, metallic or otherwise, whether or not presently known to science or industry, now known to exist or hereafter discovered underlying the surface of the above described real property regardless of the depth below the surface at which any such substance may be found; however, the holder of such right, title and interest or its successors and assigns shall not have the right for any purpose whatsoever to enter
EXHIBIT A-2
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CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
upon, into, or through the surface or the first 500 feet of the subsurface of the above described real property in connection therewith.
FURTHER, as excepted and reserved forever by the State of California in that certain Patent and Quitclaim Deed dated June 14, 1999, to the City and County of San Francisco, a charter city and county, recorded July 19, 1999, in Reel H429, Image 507, Series No. 99-G622155, Official Records of the City and County of San Francisco, State of California, from those portions of the above described real property (hereafter called the Former Burton Act Portions) within the boundaries of Mineral Rights Parcel 9, Mineral Rights Parcel 10 and Mineral Rights Parcel 11 described in Exhibit D thereto, the following:
All minerals and all mineral rights of every kind and character now known to exist or hereafter discovered in such Former Burton Act Portions, including, but not limited to, oil and gas and rights thereto, together with the sole, exclusive, and perpetual right to explore for, remove, and dispose of those minerals by any means or methods suitable to the State of California or to its successors and assigns, but without entering upon or using the surface of such Former Burton Act Portions, and in such manner as not to damage the surface of those portions of the above described real property within the boundaries of such Former Burton Act Portions or to interfere with the use thereof by the City and County of San Francisco, its successors and assignees; provided, however, that the State of California, its successors and assigns, without the prior written permission of the City and County of San Francisco, its successors and assignees, shall not conduct any mining activities of any nature whatsoever above a plane located five hundred feet (500) below the surface of that portion of the above described real property within the boundaries of such Former Burton Act Portions.
FURTHER, as excepted and reserved by the Atchison, Topeka and Santa Fe Railway Company, a Delaware corporation (Santa Fe), in that certain Grant Deed dated January 21, 1987, and recorded March 31, 1987, in Reel E309, Image 1138, Series No. D966411, Official Records of the City and County of San Francisco, State of California, from those portions of the above described real property lying within the boundaries of the parcels described therein, the following:
All minerals, including, without limiting the generality thereof, oil, gas and other hydrocarbon substances, as well as metallic or other solid minerals, provided that Santa Fe shall not have the right to go upon or use the surface of said land, or any part thereof, for the purpose of drilling for, mining, or otherwise removing, any of said minerals. Santa Fe may, however, and reserves the right to, remove any of said minerals from said land by means of wells, shafts, tunnels, or other means of access to said minerals which may be constructed, drilled or dug from other land, provided that the exercise of such rights by Santa Fe shall in no way interfere with or impair the use of the surface of the above described real property or of any improvements thereon.
Parcel Two:
EXHIBIT A-2
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CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
Nonexclusive easements, appurtenant to Parcel One hereinabove, as reserved by Catellus Development Corporation, a Delaware corporation, from Lots A, B, and C shown on the Parcel Map referred to in Parcel One hereinabove, for the purposes set forth and within the locations more particularly described in Sections 1, 2, 5, 6 and 7 of that certain Declaration of Restrictions dated October 31, 2000, recorded December 7, 2000, in Reel H779, Image 402, Instrument No. 2000-G873073-00, Official Records of City and County of San Francisco, State of California.
EXHIBIT A-2
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CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT A-3
LEGAL DESCRIPTION OF GARAGE SITE
All that real property situated in the City and County of San Francisco, State of California, described as follows:
Parcel One:
All block and lot lines hereinafter mentioned are in accordance with that certain map entitled Final Map 4141 Planned Development Mission Bay (26-28) in Book BB of Maps at Pages 179 through 183, inclusive, recorded on October 16, 2007, in the Office of the Recorder of the City and County of San Francisco, State of California, and being more particularly described as follows:
BEGINNING at the Northeast corner of Block 8721 Lot 28 as shown on said map; thence, South 03°1056 East, 275.02 feet along the East line of said Lot 28 to the Southeast corner of said Lot 28; thence, South 86°4904 West, 250.00 feet along the South line of said Lot 28 and Block 8721 Lot 27 as shown on said map; thence, North 03°1056 West, 275.02 feet leaving said South line to a point on the North line of said Lots 27 and 28; thence, North 86°4904 East, 250.00 feet along said North line to the POINT OF BEGINNING.
The above description is identical to the description of New Parcel Block 8721 Lot 30 set forth in Exhibit C attached to that certain Certificate of Compliance recorded in the Office of the Recorder of the City and County of San Francisco, State of California, on April 24, 2009, as Document No. 2009-I752211.
[Assessors Block 8721, Lot 30]
EXCEPTING the following:
As excepted and reserved by FOCIL-MB, LLC, a Delaware limited liability company, in that certain Grant Deed recorded March 1, 2005, in Reel I836, Image 496, Series No. 2005-H911981, Official Records of the City and County of San Francisco, State of California, from the above described real property, the following:
All right, title and interest in and to all water rights, coal, oil, gas and other hydrocarbons, geothermal resources, precious metals ores, base metals ores, industrial-grade silicates and carbonates, fissionable minerals of every kind and character, metallic or otherwise, whether or not presently known to science or industry, now known to exist or hereafter discovered underlying the surface of the above described real property regardless of the depth below the surface at which any such substance may be found; however, the holder of such right, title and interest or its successors and assigns shall not have the right for any purpose whatsoever to enter
EXHIBIT A-3
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CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
upon, into, or through the surface or the first 500 feet of the subsurface of the above described real property in connection therewith.
FURTHER, as excepted and reserved forever by the State of California in that certain Patent and Quitclaim Deed dated June 14, 1999, to the City and County of San Francisco, a charter city and county, recorded July 19, 1999, in Reel H429, Image 507, Series No. 99-G622155, Official Records of the City and County of San Francisco, State of California, from those portions of the above described real property (hereafter called the Former Burton Act Portions) within the boundaries of Mineral Rights Parcel 9, Mineral Rights Parcel 10 and Mineral Rights Parcel 11 described in Exhibit D thereto, the following:
All minerals and all mineral rights of every kind and character now known to exist or hereafter discovered in such Former Burton Act Portions, including, but not limited to, oil and gas and rights thereto, together with the sole, exclusive, and perpetual right to explore for, remove, and dispose of those minerals by any means or methods suitable to the State of California or to its successors and assigns, but without entering upon or using the surface of such Former Burton Act Portions, and in such manner as not to damage the surface of those portions of the above described real property within the boundaries of such Former Burton Act Portions or to interfere with the use thereof by the City and County of San Francisco, its successors and assignees; provided, however, that the State of California, its successors and assigns, without the prior written permission of the City and County of San Francisco, its successors and assignees, shall not conduct any mining activities of any nature whatsoever above a plane located five hundred feet (500) below the surface of that portion of the above described real property within the boundaries of such Former Burton Act Portions.
FURTHER, as excepted and reserved by the Atchison, Topeka and Santa Fe Railway Company, a Delaware corporation (Santa Fe), in that certain Grant Deed dated January 21, 1987, and recorded March 31, 1987, in Reel E309, Image 1138, Series No. D966411, Official Records of the City and County of San Francisco, State of California, from those portions of the above described real property lying within the boundaries of the parcels described therein, the following:
All minerals, including, without limiting the generality thereof, oil, gas and other hydrocarbon substances, as well as metallic or other solid minerals, provided that Santa Fe shall not have the right to go upon or use the surface of said land, or any part thereof, for the purpose of drilling for, mining, or otherwise removing, any of said minerals. Santa Fe may, however, and reserves the right to, remove any of said minerals from said land by means of wells, shafts, tunnels, or other means of access to said minerals which may be constructed, drilled or dug from other land, provided that the exercise of such rights by Santa Fe shall in no way interfere with or impair the use of the surface of the above described real property or of any improvements thereon.
Parcel Two:
EXHIBIT A-3
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CONFIDENTIAL TREATMENT REQUESTED
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Nonexclusive easements, appurtenant to Parcel One hereinabove, as reserved by Catellus Development Corporation, a Delaware corporation, from Lots A, B, and C shown on the Parcel Map referred to in Parcel One hereinabove, for the purposes set forth and within the locations more particularly described in Sections 1, 2, 5, 6 and 7 of that certain Declaration of Restrictions dated October 31, 2000, recorded December 7, 2000, in Reel H779, Image 402, Instrument No. 2000-G873073-00, Official Records of City and County of San Francisco, State of California.
EXHIBIT A-3
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CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT B
DEVELOPMENT ENTITLEMENTS
The following constitute the Development Entitlements:
1. The Final Mission Bay Subsequent Environmental Impact Report certified on September 17, 1998, by the Planning Commission of the City and County of San Francisco, California (the City) by Motion No. 14696.
2. The Mission Bay South Design for Development adopted on September 17, 1998, by the Commission of the Redevelopment Agency of the City and County of San Francisco (the Redevelopment Agency) by Resolution No. 191-98, as the same may be amended from time to time.
3. The Mission Bay Subdivision Ordinance adopted on October 26, 1998, by the Citys Board of Supervisors by Ordinance No. 329-98, as the same may be amended from time to time.
4. The Mission Bay South Redevelopment Plan adopted on November 2, 1998, by the Citys Board of Supervisors by Ordinance No. 335-98, as the same may be amended from time to time.
5. The Mission Bay South Owner Participation Agreement dated November 16, 1998, between the Redevelopment Agency and Catellus Development Corporation (CDC), including all Attachments thereto, as the same may be amended from time to time (authorized on September 17, 1998, by the Redevelopment Agency Commission by Resolution No. 193-98).
6. The Mission Bay Subdivision Regulations adopted on November 18, 1998, by the Citys Department of Public Works, as the same may be amended from time to time.
7. Transportation Management Association Strategic Plan and Organizational Structure dated May 5, 1999, as the same may be amended from time to time.
8. The Risk Management Plan dated May 11, 1999, for the Mission Bay Area, San Francisco, California, as the same may be amended from time to time (approved on May 12, 1999, by the State of California Regional Water Quality Control Board for the San Francisco Bay Region (the Regional Board)).
9. Mission Bay South Plan Area Streetscape Master Plan dated December 15, 1999, as the same may be amended from time to time (approved by the Redevelopment Agency Commission by Resolution No. 06-2000).
EXHIBIT B
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CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
10. The Covenant and Environmental Restriction on Property made for the benefit of the Regional Board by the City and by the City, acting by and through the San Francisco Port Commission, dated as of February 3, 2000, and recorded in the Official Records of San Francisco County, California (the Official Records) on March 21, 2000, as Document No. 2000-G748551.
11. The Covenant and Environmental Restriction on Property made for the benefit of the Regional Board by CDC dated as of February 23, 2000, and recorded in the Official Records on March 21, 2000, as Document No. 2000-G748552.
12. Signage Master Plan Application dated June 27, 2000, as the same may be amended from time to time (approved by the Redevelopment Agency Commission by Resolution No. 101-2000).
13. Permit No. 5-00 issued on December 12, 2000, by the San Francisco Bay Conservation and Development Commission, as the same may be amended from time to time (BCDC Permit). A copy of the BCDC Permit, as amended through November 16, 2001 (Amendment No. Two), was recorded in the Official Records on December 10, 2001, as Document No. 2001-H066919.
14. Block 26, 26a, 27 & 28 Major Phase Application authorized by the Redevelopment Agency Commission on March 21, 2000, by Resolution No. 41-2000, as the same may be amended from time to time.
EXHIBIT B
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CONFIDENTIAL TREATMENT REQUESTED
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LIST OF ATTACHMENTS
ATTACHMENT 1 |
BUYERS CLOSING CONDITIONS | |
ATTACHMENT 2 |
SELLERS CLOSING CONDITIONS |
CONFIDENTIAL TREATMENT REQUESTED
*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
LIST OF EXHIBITS
EXHIBIT A-1 |
LEGAL DESCRIPTION OF 1455 PARCEL | |
EXHIBIT A-2 |
LEGAL DESCRIPTION OF 1515 PARCEL | |
EXHIBIT A-3 |
LEGAL DESCRIPTION OF GARAGE SITE | |
EXHIBIT B |
DEVELOPMENT ENTITLEMENTS | |
EXHIBIT C-1 |
PERMITTED ENCUMBRANCES | |
EXHIBIT C-2 |
PRO FORMA POLICY | |
EXHIBIT D |
FORM OF ASSIGNMENT OF SOUTH OPA | |
EXHIBIT E |
FORM OF ASSIGNMENT OF INFRASTRUCTURE RIGHTS | |
EXHIBIT F-1 |
FORM OF CALIFORNIA AFFIDAVIT | |
EXHIBIT F-2 |
FORM OF FIRPTA CERTIFICATE | |
EXHIBIT G |
IDENTIFICATION OF ENVIRONMENTAL REPORT(S) | |
EXHIBIT H |
FORM OF GRANT DEED | |
EXHIBIT I-1 |
SUMMARY OF ARTICLE 22A OF SAN FRANCISCO HEALTH CODE | |
EXHIBIT I-2 |
NATURAL HAZARDS STATEMENTS | |
EXHIBIT J |
FORM OF AGREEMENT REGARDING SUCCESSOR PROJECT LABOR AGREEMENT | |
EXHIBIT K-1 |
INSPECTION AGREEMENT FOR 1455 PARCEL | |
EXHIBIT K-2 |
INSPECTION AGREEMENT FOR 1515 PARCEL | |
EXHIBIT K-3 |
INSPECTION AGREEMENT FOR GARAGE SITE | |
EXHIBIT L |
NOTICES OF SPECIAL TAX | |
EXHIBIT M-1 |
IDENTIFICATION OF 1455 CONSTRUCTION AGREEMENTS | |
EXHIBIT M-2 |
IDENTIFICATION OF 1515 CONSTRUCTION AGREEMENTS | |
EXHIBIT N-1 |
IDENTIFICATION OF 1455 DESIGN AGREEMENTS | |
EXHIBIT N-2 |
IDENTIFICATION OF 1515 DESIGN AGREEMENTS | |
EXHIBIT O-1 |
IDENTIFICATION OF 1455 DESIGN DOCUMENTS | |
EXHIBIT O-2 |
IDENTIFICATION OF 1515 DESIGN DOCUMENTS | |
EXHIBIT P-1 |
IDENTIFICATION OF 1455 PERMITS | |
EXHIBIT P-2 |
IDENTIFICATION OF 1515 PERMITS |
Exhibit 21.1
List of Subsidiaries
Name of Entity |
Jurisdiction | |
SFDC Australia Pty. Ltd. |
Australia | |
salesforce.com Canada Corporation |
Canada | |
salesforce.com Information Technology (Shanghai) Co., Ltd. |
China | |
salesforce.com France SAS |
France | |
salesforce.com Germany GmbH |
Germany | |
salesforce.com Hong Kong Ltd. |
Hong Kong | |
salesforce.com India Private Limited |
India | |
DimDim Software Private Limited |
India | |
SFDC (EMEA) Limited |
Ireland | |
SFDC International Limited |
Ireland | |
SFDC Ireland Limited |
Ireland | |
salesforce.com Italy S.r.l |
Italy | |
Kabushiki Kaisha salesforce.com |
Japan | |
Kabushiki Kaisha SFJH |
Japan | |
SforceSystems Korea Limited |
Korea | |
SFDC Luxembourg SARL |
Luxembourg | |
SFDC Mexico S. de R.L. de C.V. |
Mexico | |
SFDC Netherlands B.V. |
Netherlands | |
salesforce.com Singapore Pte. Ltd |
Singapore | |
salesforce Systems Spain, S.L. |
Spain | |
SFDC Sweden AB |
Sweden | |
salesforce.com sàrl |
Switzerland | |
salesforce.com Taiwan Limited |
Taiwan | |
SFDC UK Ltd. |
United Kingdom | |
Informavores Group Ltd. |
United Kingdom | |
Informavores Ltd. |
United Kingdom | |
Informavores Technologies Ltd. |
United Kingdom | |
salesforce.com, LLC |
United States of America | |
Bay Jacaranda Holdings LLC |
United States of America | |
Bay Jacaranda No. 3334 LLC |
United States of America | |
Bay Jacaranda No. 2627 LLC |
United States of America | |
Bay Jacaranda No. 2932 LLC |
United States of America | |
Jigsaw Data Corporation |
United States of America | |
Active Media Architects, Inc. |
United States of America | |
Activa Live, Inc. |
United States of America | |
DimDim, Inc. |
United States of America | |
Heroku, Inc. |
United States of America | |
eTacts, Inc. |
United States of America |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements of salesforce.com, inc.:
| Registration statement on Form S-8 (No. 333-117860) pertaining to the salesforce.com, inc. 1999 Stock Option Plan, 2004 Equity Incentive Plan, 2004 Outside Directors Stock Plan and the 2004 Employee Stock Purchase Plan; |
| Registration statement on Form S-8 (No.333-123656) pertaining to the salesforce.com, inc. 2004 Equity Incentive Plan; |
| Registration statement on Form S-8 (No.333-134467) pertaining to the salesforce.com, inc. 2004 Equity Incentive Plan and 2006 Inducement Equity Incentive Plan; |
| Registration statement on Form S-8 (No.333-143161) pertaining to the salesforce.com, inc. 2004 Equity Incentive Plan; |
| Registration statement on Form S-8 (No.333-151180) pertaining to the salesforce.com, inc. 2004 Equity Incentive Plan; |
| Registration statement on Form S-8 (No.333-159554) pertaining to the salesforce.com, inc. 2004 Equity Incentive Plan and 2006 Inducement Equity Incentive Plan; |
| Registration statement on Form S-8 (No.333-167190) pertaining to the salesforce.com, inc. 2004 Equity Incentive Plan; |
of our reports dated March 23, 2011, with respect to the consolidated financial statements and schedule of salesforce.com, inc., and the effectiveness of internal control over financial reporting of salesforce.com, inc., included in this Annual Report (Form 10-K) of salesforce.com, inc. for the year ended January 31, 2011.
/S/ ERNST & YOUNG LLP
San Jose, California
March 23, 2011
Exhibit 31.1
CERTIFICATION
I, Marc Benioff, certify that:
1. | I have reviewed this annual report on Form 10-K of salesforce.com, inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 23, 2011
/S/ MARC BENIOFF |
Marc Benioff Chairman of the Board of Directors and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Graham Smith, certify that:
1. | I have reviewed this annual report on Form 10-K of salesforce.com, inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 23, 2011
/S/ GRAHAM SMITH |
Graham Smith Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Based on my knowledge, I, Marc Benioff, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of salesforce.com, inc. on Form 10-K for the fiscal year ended January 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of salesforce.com, inc.
/S/ MARC BENIOFF |
Marc Benioff Chairman of the Board of Directors and Chief Executive Officer |
Based on my knowledge, I, Graham Smith, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of salesforce.com, inc. on Form 10-K for the fiscal year ended January 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of salesforce.com, inc.
/S/ GRAHAM SMITH |
Graham Smith Chief Financial Officer |
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