August 13, 2004

Management at Google is standing behind a controversial interview of its co-founders in Playboy magazine.

Google acknowledges that the article could put the company in violation of federal rules regarding initial stock offerings.

The search engine company on Friday amended its earlier IPO filing with the Securities and Exchange Commission to take the Playboy article into account. The interview with Sergey Brin and Larry Page, which is hitting the Web and newsstands just days before Google's highly anticipated market debut, could throw a monkey wrench into the proceedings.

The SEC could impose a "cooling off" period that would delay the IPO, currently expected to happen next week, or it could impose a much more expensive requirement that Google buy back shares. The company has said it expects the shares to have an initial price of between $108 and $135 apiece, which could value the company as high as $36 billion.

Despite the last-minute flap, an auction meant to determine the company's initial stock price began as expected Friday morning. The SEC declined to comment on the Playboy article.

In its amended filing, Google said it would "vigorously" contest any claim that it violated federal regulations. It acknowledged, however, the potential for penalties if it were found guilty of such a charge.

"We do not believe that our involvement in the Playboy Magazine article constitutes a violation of Section 5 of the Securities Act of 1933. However, if our involvement were held by a court to be in violation of the Securities Act of 1933, 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," Google stated in its SEC filing.

Companies going public must go through a "quiet period" before their stock offering, meaning that they can say nothing that would materially influence the way investors perceive the stock. Earlier this year, regulators imposed a delay on the IPO of software company Salesforce.com after The New York Times published a profile of the company's chief executive.

Google's filing said that the Playboy article presented information "in isolation" and "did not disclose many of the related risks and uncertainties" connected with the stock offering, and the company urged potential investors to read its prospectus before making any investment decisions.

The company also clarified and updated some of the statements made in the Playboy interview, which was conducted in April--a week before Google filed its IPO registration statement with the SEC.

For instance, Google said that it now has more than 2,000 employees, not the 1,000 cited in the article, and that its Gmail service no longer has the significant advantage in storage space that it had over rival free e-mail services earlier this year.

More significantly, the company noted that its domestic traffic of 65 million people reflects a monthly figure, not a daily one, and is compiled by third-party research firms.

Below is a copy of the Google's response to the Playboy interview, as taken from the company's SEC filing:

If our involvement in a September 2004 magazine article about Google were held to be in violation of the Securities Act of 1933, we could be required to repurchase securities sold in this offering. You should rely only on statements made in this prospectus in determining whether to purchase our shares.

Information about Google has been published in an article appearing in the September 2004 issue of Playboy Magazine and entitled "Playboy Interview: Google Guys."

The text of the article, which is included in this prospectus as Appendix B, contains information derived from an interview of Larry and Sergey conducted in April 2004, prior to the filing of our registration statement of which this prospectus is a part.

The article presented certain statements about our company in isolation and did not disclose many of the related risks and uncertainties described in this prospectus. As a result, the article should not be considered in isolation and you should make your investment decision only after reading this entire prospectus carefully.

You should carefully evaluate all the information in this prospectus, including the risks described in this section and throughout the prospectus.

We have in the past received, and may continue to receive, a high degree of media coverage, including coverage that is not directly attributable to statements made by our officers and employees. You should rely only on the information contained in this prospectus in making your investment decision.

We do not believe that our involvement in the Playboy Magazine article constitutes a violation of Section 5 of the Securities Act of 1933.

However, if our involvement were held by a court to be in violation of the Securities Act of 1933, 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.

Investors should be aware of the following modifications and updates to the article's content:

• The article states that our Gmail service, with one gigabyte of storage, has 200 times more storage than our primary competitors. While at the time of its introduction, Gmail had such a substantial storage capacity advantage over competitive offerings, competitors have substantially narrowed the gap.

• The article indicates that we had about 1,000 employees. Currently, we have approximately 2,292 employees.

• The article states that more than 65 million people use our search engine each day. We believe that this number represents monthly, not daily, domestic visitors data as compiled by a third party research organization.

Source: C-Net News

        

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