Hits Bump on Road to IPO

Kevin Newcomb

Updated · Jun 08, 2004

The long awaited Initial Public Offering (IPO) of may be held back a bit longer, according to a document filed with the Securities and Exchange Commission (SEC) on Friday.

In an amendment to its Form S-1 Registration Statement, the company said it had already decided to initiate a “cooling off” period to delay its IPO on May 13, citing excessive media coverage that “presented statements about our company in isolation and did not disclose many of the related risks and uncertainties described in this prospectus.”

Companies are required by Section 5 of the Securities Act of 1933 to hold themselves to a “quiet period” leading up to an IPO, so that all investors have access to the same information, which is found in the companies prospectus. The extent to which a company executive can speak to the media is not totally clear, so most companies choose to err on the side of caution and withhold all interviews during the quiet period.

The company may or may not have violated that provision when's notoriously talkative Chairman and CEO Marc Benioff spent a day with a reporter, which led to an article published in the New York Times on May 9, and included quotes from Benioff.

“While some of the factual statements about 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,” according to the SEC filing.

The company does not believe it violated the Securities Act, but allows that it is possible that the Times story and other promotional activities could constitute a violation. “If our involvement or such activities were held by a court to be in violation of the Securities Act, we could be required to repurchase the shares sold to purchasers in this offering at the original purchase price for a period of one year following the date of the violation. We would contest vigorously any claim that a violation of the Securities Act occurred,” according to the filing.

Another potential misstep by Benioff was a December 2003 sale of 2 million shares of stock in a private transaction to an unaffiliated institutional investor. The sale, which came right before the company filed for its IPO, was priced at $8 per share, which is the same price the company would seek in its offering of 10 million shares. While Benioff is allowed to sell his personal shares, he is required to report the transactions to the SEC. He is still the largest shareholder with 28.2 million shares, which could be worth more than $225 million if the IPO price reaches its target.

While a timetable was not mentioned in the filing, there is nothing to stop from setting a date as soon as it sees fit. The primary motivation behind the filing was most likely to “come clean” and ensure that all pertinent facts were disclosed. Now that they are included in the company's SEC filings, the road to an IPO has been cleared.

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