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Google May Have Illegally Issued Shares

The search engine says it neglected to register the common stock and options with regulators.

August 05, 2004|From Associated Press

Google Inc. may have illegally issued more than 23 million shares of its stock to hundreds of employees and consultants, injecting an unexpected legal risk into its highly anticipated initial public offering.

The online search engine leader disclosed the possible violations Wednesday in a prospectus offering to buy back the affected shares and outstanding stock options for a total of $25.9 million, including interest payments.

With $549 million in cash as of June 30, Google can easily afford to make amends.

But it's uncertain whether the gesture will satisfy everyone affected by potential bureaucratic blunders that occurred from September 2001 to June.

During that time, the Mountain View, Calif.-based company said, it neglected to register 23.2 million shares of common stock and 5.6 million outstanding stock options with securities regulators. The oversights might have broken federal and state laws, according to Wednesday's filing. The affected common stock is owned by 1,105 current and former employees, as well as by company consultants.

Google warned that its buyback, or "recision," offer might be rejected by some people who prefer to sue the company. Google believes it faces potential liabilities in 18 states and the District of Columbia, as well as under federal laws.

It's unclear whether Wednesday's twist will affect the timing of Google's initial public offering -- a deal expected to raise up to $3.3 billion, with about half of the money flowing into the company's bank accounts.

The rest of the money will be split among Google's top executives and early investors, who plan to sell stock in an IPO carrying a target price of $108 to $135 a share.

A successful IPO might make the recision offer a moot point. Wednesday's filing says stockholders who reject or don't respond to the recision offer will have their shares and options automatically registered under federal securities law after the IPO is completed. The shares then would become tradable after the recision offer expires.

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