The Work

February 1, 2012 7:53 PM

It's All Good for Fenwick: Firm Takes Lead on Facebook IPO on Heels of 2011 Revenue Uptick

Posted by Brian Baxter

In what could eventually create one of the world's largest Internet companies, social networking leader Facebook filed for a $5 billion initial public offering Wednesday, with Fenwick & West and Simpson Thacher & Bartlett scoring lead legal roles on the proposed listing.

Founded in 2004 by Mark Zuckerberg and several Harvard classmates, Facebook is tentatively scheduled to begin trading its shares publicly in May. The offering marks the latest chapter in the saga of a  company that has grown exponentially over the past eight years, with the battles over who deserves credit for its creation spawning both long-running lawsuits and an Oscar-nominated feature film.

According to Facebook's S-1 filing on Wednesday, Fenwick chairman Gordon Davidson and securities group cochair Jeffrey Vetter are leading the team from the firm that has nabbed the lead counsel role to the Menlo Park, California–based company.

Fenwick, which shifted its headquarters from Palo Alto to nearby Mountain View a decade ago, is a longtime legal adviser to the tech start-ups and other emerging companies that call Silicon Valley home.

News of Facebook's IPO came as The American Lawyer's reporting determined that Fenwick saw its gross revenue increase 11.1 percent to $229.5 million in 2011. The firm's profits per equity partner increased 6.5 percent to nearly $1.1 million last year and its revenue per lawyer rose 8.2 percent to $855,000.

Speculation that Fenwick had scored the role of lead counsel to Facebook on the long-awaited IPO began to heat up last week after lawyers from the firm reportedly sought to cease trading of the company's shares on the secondary market.

Fenwick became Facebook's lead outside corporate counsel in 2007 after a beauty contest, according to a report at the time by sibling publication The Recorder. (Davidson spoke with The Recorder at length last year about the new boom in technology stocks.)

The Facebook IPO is expected to far surpass Google's $1.9 billion public listing in 2004 and Netscape's $2 billion offering a decade before that. The largest Internet-related IPO to occur since Google's came last December when social networking game developer Zynga raised $1 billion. Cooley and Ropes & Gray landed lead legal roles on that listing, according to our previous reports. (Click here for a list of the top ten IPO's in U.S. history.)

Also appearing on Facebook's S-1 filing are general counsel Theodore Ullyot, deputy general counsel David Kling, and associate general counsel Michael Johnson.

Facebook sifted through dozens of resumes before hiring Ullyot, an ex-Kirkland & Ellis partner and former chief of staff to U.S. attorney general Alberto Gonzales, in September 2008. At Facebook, Ullyot—who once served as AOL Time Warner Europe's general counsel—replaced Rudy Gadre, who moved to Seattle to spend more time with his family, according to The Recorder.

According to Facebook's S-1 filing, Ullyot’s base salary in 2011 was $275,000. He also received a $78,750 bonus in the first half of the year to reflect his "role in certain key litigation and regulatory matters," according to the S-1, as well as an additional grant of 239,808 restricted stock units that vest on July 15, 2014.

Facebook has also agreed to pay Ullyot a $400,000 "annual retention bonus" for each of his first five years of employment at the social media company. Ullyot will continue to receive that bonus until 2012, "pursuant to the terms of his amended and restated employment agreement," the S-1 states. That pushes the company's total cash payments to Ullyot in 2011 to $749,583.

Taking into account more than $6 million in stock awards to Ullyot last year, the general counsel's total compensation package for 2011 amounts to nearly $7 million. Facebook's S-1 further states that over the past three years, Ullyot received thousands of outstanding and restricted stock options. Last December, the SEC filing shows, Ullyot transferred options to purchase 400,000 shares of Facebook Class B common stock to a family trust for estate-planning purposes. (The Recorder has more on Ullyot's stock holdings.)

All of Ullyot's shares will vest immediately if the company ever terminates him without cause, a clause contained in his employment agreement, as well as those of Facebook's other highest-paid employees.

Venture capitalist and former Sullivan & Cromwell corporate associate Peter Thiel, who quit law firm life in 1996 to start his own hedge fund, serves as a member of Facebook's board of directors. Thiel owns 2.5 percent of the company, according to Facebook's S-1, and media reports suggest his stake could be worth up to $2.5 billion.

Simpson Thacher corporate partners William Hinman, Jr., and Daniel Webb in Palo Alto are advising underwriters on the Facebook IPO led by Morgan Stanley, Goldman Sachs, Bank of America/Merrill Lynch, Barclays Capital, and JPMorgan Chase. Hinman has previously advised underwriters on tech IPOs for such companies as Google, eBay, mobile data services provider Motricity, and computer game maker Shanda Games.

Legal fees and costs related to Facebook's IPO are not yet available, according to the company's S-1 filing. As Facebook begins life as a public company, it will find itself leaning more on outside lawyers to provide the regulatory counsel that comes with a move to the public arena. There are other legal risks as well.

Reuters reports that patent plaintiffs are already eyeing the social media site for potential suits, while the company's high-priced litigators from Gibson, Dunn & Crutcher already have one embattled plaintiff crying foul in a shaky breach of contract case in Buffalo, according to Bloomberg.

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