Salesforce IPO may face another challenge

That disclosure is the latest twist to the company's highly anticipated IPO, which was indefinitely delayed last month. The delay, as well as this update of the potential risks investors may face, are related to recent publicity about the company during the "quiet time" leading up to its initial public offering, which had initially been planned for the third week of May.

Last month, Salesforce was featured in a lengthy profile in The New York Times titled "It's not Google. It's that other big IPO." That article, along with subsequent publicity, prompted the Securities and Exchange Commission to push the company to put a hold on its offering, according to the document filed Friday.

Shortly after the article appeared on May 9, Salesforce and the SEC agreed to indefinitely postpone the IPO to allow a "cooling off" period.

"In order to reduce the risk of investors' possible reliance on the New York Times article and other news reports and articles, we stopped our offering on May 13...We then allowed a 'cooling off' period to pass so that the effect of this article and other reports, articles and information would be dissipated," the filing states.

A new date for the IPO has not been scheduled, but the process appears to be moving along, according to sources familiar with the offer.

Salesforce, which provides a software service designed to help companies manage customer relations, noted that if a court later finds its involvement in the New York Times article, or other publications, to be in violation of the Securities Act of 1933, or "gun jumping," then the company could be required to repurchase the IPO shares sold to investors.

Under such a court order, Salesforce would have to repurchase the shares at the original IPO price for one year after the violation. Salesforce, which is contemplating offering shares at a price between $7.50 and $8.50 apiece, would be at risk if it were ordered to repurchase the shares and they traded substantially below the initial price.

Representatives for Salesforce and the SEC declined to comment.

Salesforce is not the only company to have faced a "cooling off" period during the IPO process.

In 1999, the SEC delayed Webvan's offering for a month, after speculation arose that Webvan executives may have told analysts information not included in its prospectus and that they participated in interviews with the media during the "quiet period."

Under the Securities Act of 1933, companies are limited in what they can say from the time they reach an agreement with their IPO underwriters to at least 25 days after the IPO registration. This stretch of time is known as the "quiet period."

Companies are supposed to only discuss information that is part of usual corporate communications, such as advertising programs or earnings releases.

In 1989, computer maker MIPS had to include in its prospectus copies of an interview its underwriter gave to the press. After each of the underwriter's published comments about market share and the company, the company issued a caution that some of the material was not contained in an earlier version of the prospectus and could be misleading to potential investors.

In the case of Salesforce, Chief Executive Marc Benioff allowed a reporter from The New York Times to spend most of a day with him. And in its SEC filing, the company notes: "As a result, it could have been expected that a lengthy article would be published."

"The New York Times article included quotes from Marc Benioff, our chairman...and chief executive officer, regarding the development of Salesforce.com and its business strategy," the filing states. "While some of the factual statements about Salesforce.com in the article are disclosed in this prospectus, the article presented statements about our company in isolation and did not disclose many of the related risks and uncertainties described in this prospectus."