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Plenty of people cheered when Salesforce.com’s stock debuted Wednesday and rose more than 50 percent. Gray Cary Ware & Freidenrich lawyers had another reason to cheer: Their client’s SEC-imposed quiet period was finally nearing its end. The San Francisco-based software company had been scheduled to go public on May 13 but was forced to delay its offering after its CEO violated SEC regulations by cooperating with a New York Times profile of the company. The SEC does not often impose such cooling-off periods. Perhaps that’s because attorneys are always worried that it will. And lawyers recognize the challenge of persuading their IPO-bound clients to keep mum. “These are guys who have built their business through promotion, and they’re not used to being quiet,” said Kevin Kennedy, a Palo Alto, Calif.-based securities partner at Simpson Thacher & Bartlett. Jeffrey Saper, a corporate partner at Wilson Sonsini Goodrich & Rosati, said counsel is “constantly discussing with management what can be disclosed — the process and the content — and whether it complies [with Section 5].” Part of the challenge is interpreting � 5, a 1933 regulation that dictates that companies can only sell stock through an official registration statement. According to securities attorneys, the law is both vague and unevenly applied. “The exact same thing that is fine in one context is stepping over the line in another,” said Kennedy. If a one-product company puts out a press release touting its product, for instance, that could be seen as pumping the stock. Quiet periods typically last two to three months. During that time, attorneys must allow clients to run their businesses. However, they must also advise managers to avoid doing anything that may be seen as hyping their stock. “That’s the art of this particular field,” Kennedy added. Some attorneys allow clients to talk with reporters from trade magazines because they’re aimed at customers, not investors. Likewise, attorneys may advise clients to attend trade shows but not investor conferences. Still, there’s always the possibility that a business reporter from Barron’s, for instance, could attend a trade show, such as Comdex, and corner a pre-IPO executive. General and business publications are usually off-limits, Kennedy explained. Webvan learned that lesson the hard way in 1999 when its chief executive, George Shaheen, talked up his company in a Forbes magazine story with comments about “reinventing the grocery business.” Perhaps more significantly, a reporter managed to gain access to an invitation-only road show in which management shared information not provided in its prospectus. The now-defunct online grocer suffered the last high-profile SEC-mandated chill-out period. Local attorneys haven’t forgotten. “We try to scrub our roadshows,” said Saper, who guided Webvan through its IPO. Many lawyers counsel executives to refuse all press interviews during quiet periods. But such a blanket ban is fraught with challenges. “There’s a lot of pressure on companies with well-anticipated offerings to make some sort of comment to the press,” said J. Robert Suffoletta, a Wilson Sonsini partner who worked with Saper on the Webvan offering. “Some people perceive it as a big negative to say ‘no comment’ or to not return calls.” In the Times article, titled “It’s not Google, it’s that other big IPO,” Salesforce CEO Marc Benioff sidestepped questions directly related to the IPO. Still, the story, in conjunction with other media reports (including reprints of the Times story) concerned the SEC enough that it called for a cooling-off period. Salesforce also had to add an amendment to its prospectus that said the Times piece and other media reports “presented statements about our company in isolation and did not disclose many of the related risks and uncertainties.” More to the point, the amendment told investors the company could be open to suits as a result of the premature press coverage. If an investor successfully sued the company because that person bought the stock based on information in the Times report, the company would have to buy back the shares. The SEC grants such “recision rights” to investors more often than it mandates cooling-off periods, attorneys say. In 1999, for example, during Cyprus Communications Group’s quiet period, an employee created an unauthorized hyperlink to audio announcements pumping the stock. The link lasted 17 days and opened the company to possible lawsuits from investors seeking to rescind their stock purchase. The same year, Akamai Technologies (now part of Sun Microsystems Inc.) ran afoul of � 5. The company had hyped its products with a barrage of press releases during its quiet period but landed in trouble for a different violation: granting a marketing company the option to buy stock before Akamai had filed its registration statement with the SEC. These days, high-flying IPOs are few and far between, but the SEC’s 70-year-old rule is still in place. And it dictates that the quiet period lasts 25 days after the stock lists to give all investors time to get a prospectus. Not surprisingly, Salesforce.com lawyers at Gray Cary declined comment for this story.

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