A miscue by Google burdens its employees

NEW YORK - In charting its own trailblazing course through its $1.9 billion initial public offering, Google Inc. made a lot of attention-grabbing moves.

But one key misstep is still reverberating through Silicon Valley: Hundreds of Google employees seeking to sell their stock - including some workers with as few as five shares - have been forced to disclose personal financial information in individual filings with the Securities and Exchange Commission.

The unusual flood of filings, sometimes from relatively low-level employees, appears to have been caused by blunders that Google made in setting up its compensation plans, securities lawyers say.

In structuring its 1998 and 2003 equity-compensation plans, Google, the Internet-search giant, didn't take advantage of a share-registration escape hatch - a routine securities law exemption commonly taken by companies going public. The exception saves employees, other than top executives, from having to declare their intent to sell stock received under such plans.


Lawyers say it's rare for a company to blow the exemption, provided by Rule 701 of the Securities Act of 1933. But sometimes private companies end up being out of compliance because they don't always have top-notch legal advice until they decide to tap the equity markets. Companies can't use the 701 exemption if the size of their plan exceeds one of three limits, including if the share value is more than 15 percent of shares outstanding.

"Rule 701 is supposed to be idiot-proof," said Anne G. Plimpton, a Boston lawyer and expert on the rule. "The point is, if you pay attention to it before the grants have gone too far, you can fit a huge equity compensation plan within the parameters of 701."

Employees or others who received shares in the 1998 and 2003 stock-compensation plans have made more than 1,100 filings, registering to sell about 6 million shares since late September, according to The Washington Service, a research service for institutional investors.

Google founders and other top executives filed to sell a sizable number of those shares, and would have been required to file under other rules.

But at least 500 people who typically would have been exempt have filed, including several filing to sell as few as five or 10 shares.

'It's a burden'

"They have to file these forms, and they have to now disclose what they are doing. ... If they could have relied on 701, there would be no public filing," said Mark Borges, a former SEC attorney who is a principal at Mercer Human Resource Consulting.

"It's a burden on two fronts: One, they have to go through the headache of the paperwork. And, two, people are talking about it when ordinarily no one would have known what was going on."

In the IPO, Google's stock was priced at $85 a share, much lower than the company's initial estimate of $108 to $135. But the stock has soared since: On Jan. 3 it reached a high of $203.64, for a 140 percent gain. It closed yesterday at $193.54.

Employees are no doubt among the biggest beneficiaries of the stock's impressive rise, and a little disclosure of the payouts might be a price willingly paid for their good fortune. Several employees who have made recent SEC filings for potential stock sales either declined to comment or didn't return calls.

A Google spokesman declined to comment on the filing situation yesterday.

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