Amendment No. 3 to Form 10

As filed with the Securities and Exchange Commission on June 2, 2015

Registration No. 001-36859

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 3 to

FORM 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

 

 

PayPal Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   47-2989869

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

2211 North First Street

San Jose, California

  95131
(Address of Principal Executive Offices)   (Zip Code)

(408) 967-1000

(Registrant’s telephone number, including area code)

 

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

to be so registered

 

Name of each exchange on which

each class is to be registered

Common Stock  

The Nasdaq Global Select Market

Securities to be registered pursuant to Section 12(g) of the Act:

None

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

 


PayPal Holdings, Inc.

INFORMATION REQUIRED IN REGISTRATION STATEMENT

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT

AND ITEMS OF FORM 10

Certain information required to be included herein is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.

 

Item 1. Business.

The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Risk Factors,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Certain Relationships and Related Party Transactions,” and “Where You Can Find More Information.” Those sections are incorporated herein by reference.

 

Item 1A. Risk Factors.

The information required by this item is contained under the section of the information statement entitled “Risk Factors.” That section is incorporated herein by reference.

 

Item 2. Financial Information.

The information required by this item is contained under the sections of the information statement entitled “Unaudited Pro Forma Condensed Combined Financial Statements,” “Selected Historical Combined Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Those sections are incorporated herein by reference.

 

Item 3. Properties.

The information required by this item is contained under the section of the information statement entitled “Business.” That section is incorporated herein by reference.

 

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The information required by this item is contained under the section of the information statement entitled “Security Ownership of Certain Beneficial Owners and Management.” That section is incorporated herein by reference.

 

Item 5. Directors and Executive Officers.

The information required by this item is contained under the sections of the information statement entitled “Directors” and “Management.” Those sections are incorporated herein by reference.

 

Item 6. Executive Compensation.

The information required by this item is contained under the sections of the information statement entitled “Compensation Discussion and Analysis” and “Executive Compensation.” Those sections are incorporated herein by reference.

 

2


Item 7. Certain Relationships and Related Transactions.

The information required by this item is contained under the sections of the information statement entitled “Management” and “Certain Relationships and Related Party Transactions.” Those sections are incorporated herein by reference.

 

Item 8. Legal Proceedings.

The information required by this item is contained under the section of the information statement entitled “Business—Legal and Regulatory Proceedings.” That section is incorporated herein by reference.

 

Item 9. Market Price of, and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters.

The information required by this item is contained under the sections of the information statement entitled “Dividend Policy,” “Capitalization,” “The Separation and Distribution,” and “Description of PayPal’s Capital Stock.” Those sections are incorporated herein by reference.

 

Item 10. Recent Sales of Unregistered Securities.

The information required by this item is contained under the sections of the information statement entitled “Description of Material Indebtedness” and “Description of PayPal’s Capital Stock—Sale of Unregistered Securities.” Those sections are incorporated herein by reference.

 

Item 11. Description of Registrant’s Securities to be Registered.

The information required by this item is contained under the sections of the information statement entitled “Dividend Policy,” “The Separation and Distribution,” and “Description of PayPal’s Capital Stock.” Those sections are incorporated herein by reference.

 

Item 12. Indemnification of Directors and Officers.

The information required by this item is contained under the section of the information statement entitled “Description of PayPal’s Capital Stock—Limitations on Liability, Indemnification of Officers and Directors and Insurance.” That section is incorporated herein by reference.

 

Item 13. Financial Statements and Supplementary Data.

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein. That section is incorporated herein by reference.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

 

Item 15. Financial Statements and Exhibits.

 

(a) Financial Statements

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein. That section is incorporated herein by reference.

 

3


(b) Exhibits

The following documents are filed as exhibits hereto:

 

Exhibit
Number

  

Exhibit Description

  2.1    Form of Separation and Distribution Agreement by and between eBay Inc. and PayPal Holdings, Inc.†
  3.1    Form of Amended and Restated Certificate of Incorporation of PayPal Holdings, Inc.†
  3.2    Form of Amended and Restated Bylaws of PayPal Holdings, Inc.†
10.1    Form of Operating Agreement by and between eBay Inc. and PayPal Holdings, Inc.†
10.2    Form of Transition Services Agreement by and between eBay Inc. and PayPal Holdings, Inc.†
10.3    Form of Tax Matters Agreement by and between eBay Inc. and PayPal Holdings, Inc.**
10.4    Form of Employee Matters Agreement by and between eBay Inc. and PayPal Holdings, Inc.**
10.5    Form of Intellectual Property Matters Agreement between eBay Inc. and PayPal Holdings, Inc.†
10.6    Form of Colocation Services Agreement between eBay Inc. and PayPal Holdings, Inc.†
10.7    Form of Indemnity Agreement between PayPal Holdings, Inc. and individual directors and officers†
10.8    Form of PayPal Employee Incentive Plan†
10.9    Form of PayPal Holdings, Inc. 2015 Equity Incentive Award Plan†
10.10    Form of Global Restricted Stock Unit Agreement (and Performance-Based Restricted Stock Unit Agreement) under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan†
10.11    Form of Global Stock Option Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan†
10.12    Form of Director Annual Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan†
10.13    Form of Electing Director Quarterly Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan†
10.14    Form of PayPal Holdings, Inc. Employee Stock Purchase Plan†
10.15    Form of PayPal Holdings, Inc. Deferred Compensation Plan†
10.16    Offer Letter dated September 29, 2014 between eBay Inc. and Daniel Schulman†
10.17    Amendment dated December 31, 2014 to Offer Letter between eBay Inc. and Daniel Schulman†
10.18    Letter dated May 19, 2015 from eBay Inc. to William Ready**
10.19    Letter dated May 22, 2015 from eBay Inc. to James Barrese**
10.20    Letter dated December 31, 2014 from eBay Inc. to Patrick Dupuis**
10.21    Form of Braintree, Inc. Restricted Stock Unit Agreement between Braintree, Inc. and William J. Ready dated September 25, 2013**
21.1    List of subsidiaries**
99.1    Information Statement of PayPal Holdings, Inc., preliminary and subject to completion, dated June 2, 2015**

 

** Filed herewith.
Previously filed.

 

4


SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

PayPal Holdings, Inc.
By:    

/s/ Daniel H. Schulman

Name: Daniel H. Schulman

Title:   President and CEO-Designee

Date: June 2, 2015

 

5

EX-10.3

Exhibit 10.3

TAX MATTERS AGREEMENT

DATED AS OF [], 2015

BY AND BETWEEN

EBAY INC.

AND

PAYPAL HOLDINGS, INC.


TABLE OF CONTENTS

 

          Page  

Section 1.    Definition of Terms

     1   

Section 2.    Allocation of Tax Liabilities

     12   

Section 2.01

  

General Rule

     12   

Section 2.02

  

Allocation of United States Federal Taxes

     12   

Section 2.03

  

Allocation of State Taxes

     13   

Section 2.04

  

Allocation of Foreign Taxes

     13   

Section 2.05

  

Certain Transaction and Other Taxes

     14   

Section 3.    Proration of Taxes for Straddle Periods

     16   

Section 4.    Preparation and Filing of Tax Returns

     16   

Section 4.01

  

General

     16   

Section 4.02

  

Tax Accounting Practices

     16   

Section 4.03

  

Consolidated or Combined Tax Returns

     17   

Section 4.04

  

Right to Review Tax Returns

     17   

Section 4.05

  

SpinCo Carryback Items and Claims for Refund

     18   

Section 4.06

  

Apportionment of Earnings and Profits and Tax Attributes

     18   

Section 5.    Tax Payments

     19   

Section 5.01

  

Payment of Taxes

     19   

Section 5.02

  

Indemnification Payments

     20   

Section 6.    Tax Benefits

     21   

Section 6.01

  

Tax Benefits

     21   

Section 6.02

  

eBay and SpinCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation

     22   

 

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Section 7.    Tax-Free Status    

  23   

Section 7.01

Representations

  23   

Section 7.02

Restrictions on SpinCo

  23   

Section 7.03

Restrictions on eBay

  25   

Section 7.04

Procedures Regarding Opinions and Rulings

  25   

Section 7.05

Liability for Tax-Related Losses

  27   

Section 7.06

Section 336(e) Election

  28   

Section 8.    Assistance and Cooperation

  29   

Section 8.01

Assistance and Cooperation

  29   

Section 8.02

Income Tax Return Information

  29   

Section 8.03

Reliance by eBay

  30   

Section 8.04

Reliance by SpinCo

  30   

Section 9.    Tax Records

  30   

Section 9.01

Retention of Tax Records

  30   

Section 9.02

Access to Tax Records

  31   

Section 10.    Tax Contests

  31   

Section 10.01

Notice

  31   

Section 10.02

Control of Tax Contests

  31   

Section 11.    Effective Date; Termination of Prior Intercompany Tax Allocation Agreements

  33   

Section 12.    Survival of Obligations

  34   

Section 13.    Treatment of Payments; Tax Gross Up

  34   

Section 13.01

Treatment of Tax Indemnity and Tax Benefit Payments

  34   

Section 13.02

Tax Gross Up

  34   

Section 13.03

Interest

  34   

Section 14.    Disagreements

  34   

Section 15.    Late Payments    

  35   

 

ii


Section 16.    Expenses

  35   

Section 17.    General Provisions

  36   

Section 17.01

Addresses and Notices

  36   

Section 17.02

Assignability

  36   

Section 17.03

Waiver

  36   

Section 17.04

Severability

  37   

Section 17.05

Authority

  37   

Section 17.06

Further Action

  37   

Section 17.07

Integration

  37   

Section 17.08

Construction

  37   

Section 17.09

No Double Recovery

  37   

Section 17.10

Counterparts

  38   

Section 17.11

Governing Law

  38   

Section 17.12

Jurisdiction

  38   

Section 17.13

Amendment

  38   

Section 17.14

SpinCo Subsidiaries

  38   

Section 17.15

Successors

  38   

Section 17.16

Injunctions

  39   

 

iii


TAX MATTERS AGREEMENT

This TAX MATTERS AGREEMENT (this “Agreement”) is entered into as of [●], 2015, by and between eBay Inc., a Delaware corporation (“eBay”), and PayPal Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of eBay (“SpinCo”) (collectively, the “Companies” and each a “Company”).

RECITALS

WHEREAS, eBay and SpinCo have entered into a Separation and Distribution Agreement, dated as of [●] 2015 (the “Separation and Distribution Agreement”), providing for the separation of the eBay Group from the SpinCo Group;

WHEREAS, pursuant to the terms of the Separation and Distribution Agreement, eBay will, among other things, (i) contribute the PayPal Assets to SpinCo and its Subsidiaries, (ii) cause SpinCo and its Subsidiaries to assume the PayPal Liabilities, and (iii) effect the Distribution;

WHEREAS, eBay and its Subsidiaries have engaged in the Internal Contribution and Internal Distribution to facilitate the Distribution;

WHEREAS, for U.S. Federal Income Tax purposes, it is intended that each of the Internal Distribution and the Distribution shall qualify as transactions that are generally tax free pursuant to Sections 355(a) and 368(a)(1)(D) of the Code;

WHEREAS, as of the date hereof, eBay is the common parent of an affiliated group of corporations, including SpinCo and PayPal, which has elected to file consolidated U.S. federal income Tax Returns;

WHEREAS, as a result of the Distribution, SpinCo and its subsidiaries will cease to be members of the affiliated group (as that term is defined in Section 1504 of the Code) of which eBay is the common parent (the “Deconsolidation”);

WHEREAS, the parties desire to provide for and agree upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the Distribution, and to provide for and agree upon other matters relating to Taxes;

NOW THEREFORE, in consideration of the mutual agreements contained herein, the parties hereby agree as follows:

Section 1. Definition of Terms. For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement:

“3P Holdings” means PayPal Payment Holdings Pte. Ltd., a Singapore limited company and a wholly owned subsidiary of eBay AG prior to the Internal Distribution.

“3P Holdings Active Trade or Business” means the active conduct (as defined in Section 355(b)(2) of the Code and the regulations thereunder) by 3P Holdings and its “separate affiliated


group” (as defined in Section 355(b)(3)(B) of the Code) of the PayPal Payments Business and PayPal Credit Business as conducted by China 93, China 94, China 98, and China 311 and the Swedish marketplace business as conducted by AB immediately prior to the Internal Distribution.

AB” means Tradera Sweden AB, a limited liability company organized under the laws of Sweden.

“Accounting Cutoff Date” means, with respect to SpinCo, any date as of the end of which there is a closing of the financial accounting records for such entity.

“Adjustment Request” means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (a) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, (b) any claim for equitable recoupment or other offset, and (c) any claim for refund or credit of Taxes previously paid.

“Affiliate” means any entity that is directly or indirectly “controlled” by either the person in question or an Affiliate of such person. “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise. The term Affiliate shall refer to Affiliates of a person as determined immediately after the Distribution.

“Agreement” shall mean this Tax Matters Agreement.

“Business Day” has the meaning set forth in the Separation and Distribution Agreement.

“CFC” means a controlled foreign corporation as defined in Section 957(a) of the Code.

“CFO Certificate” shall have the meaning set forth in Section 7.02(e) of this Agreement.

“China 93” means eBay Engineering & Research Center (Shanghai) Co. Ltd., a limited liability company organized under the laws of China and a wholly owned subsidiary of eBay AG.

“China 94” means eBay Commerce Technology Operations (Shanghai) Co. Ltd., a limited liability company organized under the laws of China and a wholly owned subsidiary of eBay AG.

“China 98” means eBay Management (Shanghai) Co. Ltd., a limited liability company organized under the laws of China and a wholly owned subsidiary of eBay AG.

“China 311” means Shanghai eBay Network Info. Service Co., Ltd., a limited liability company organized under the laws of China and a subsidiary of eBay AG.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Companies” and “Company” shall have the meaning provided in the first sentence of this Agreement.

 

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“Compensatory Equity Interests” shall have the meaning set forth in Section 6.02(a) of this Agreement.

“Contribution” means the contribution of assets, including all of the shares of capital stock of PayPal, by eBay to SpinCo pursuant to the Separation and Distribution Agreement.

“Deconsolidation” shall have the meaning provided in the Recitals.

“Deconsolidation Date” means the last date on which SpinCo qualifies as a member of the affiliated group (as defined in Section 1504 of the Code) of which eBay is the common parent.

“DGCL” means the Delaware General Corporation Law.

“Distribution” shall mean the distribution by eBay of all the common stock of SpinCo pro rata to holders of eBay common stock.

“Distribution Date” has the meaning set forth in the Separation and Distribution Agreement.

Distribution-Related Tax Contest” shall mean any Tax Contest in which the IRS, another Tax Authority or any other party asserts a position that could reasonably be expected to adversely affect the Tax-Free Status of the Contribution and Distribution or the Internal Contribution and the Internal Distribution.

“eBay” shall have the meaning provided in the first sentence of this Agreement.

“eBay Adjustment” means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent eBay would be exclusively liable for any resulting Tax under this Agreement or exclusively entitled to receive any resulting Tax Benefit under this Agreement.

“eBay Affiliated Group” shall have the meaning provided in the definition of “eBay Federal Consolidated Income Tax Return.”

“eBay AG” means eBay International AG, a limited liability company organized under the laws of Switzerland and a wholly owned subsidiary of eBay.

“eBay Federal Consolidated Income Tax Return” means any U.S. federal income Tax Return for the affiliated group (as that term is defined in Section 1504 of the Code and the regulations thereunder) of which eBay is the common parent (the “eBay Affiliated Group”).

“eBay Foreign Combined Income Tax Return” means a consolidated, combined or unitary or other similar Foreign Income Tax Return or any Foreign Income Tax Return with respect to any profit and/or loss sharing group (e.g., UK group relief), group payment or similar group or fiscal unity that actually includes, by election or otherwise, one or more members of the eBay Group together with one or more members of the SpinCo Group.

“eBay Group” means eBay and its Affiliates, excluding any entity that is a member of the SpinCo Group.

 

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“eBay Group Employees” shall have the meaning provided in the Employee Matters Agreement.

“eBay Separate Return” means any Separate Return of eBay or any member of the eBay Group.

“eBay State Combined Income Tax Return” means a consolidated, combined or unitary or other similar State Income Tax Return that actually includes, by election or otherwise, one or more members of the eBay Group together with one or more members of the SpinCo Group.

“eBay Subpart F Income Taxes” has the meaning set forth in Section 2.02(c).

“Employee Matters Agreement means the Employee Matters Agreement, dated as of [●], 2015, by and between eBay and SpinCo.

“Escalation Committee has the meaning set forth in the Separation and Distribution Agreement.

“Federal Income Tax” means any Tax imposed by Subtitle A of the Code, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

“Federal Income Tax Return” means any Tax Return of (i) any member of the SpinCo Group (including any consolidated, combined or unitary return), or (ii) any member of the eBay Group (including any consolidated, combined or unitary return), in each case, with respect to Federal Income Taxes, including any eBay Federal Consolidated Income Tax Return and any SpinCo Federal Consolidated Income Tax Return.

“Federal Other Tax” means any Tax imposed by the federal government of the United States of America other than any Federal Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

“Federal Tax” means any Federal Income Tax or Federal Other Tax.

“Federal Tax Return” means any Tax Return of (i) any member of the SpinCo Group (including any consolidated, combined or unitary return), or (ii) any member of the eBay Group (including any consolidated, combined or unitary return), in each case, with respect to Federal Taxes.

“Fifty-Percent or Greater Interest” shall have the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code.

Filing Date” shall have the meaning set forth in Section 7.05(d) of this Agreement.

“Final Determination” means the final resolution of liability for any Tax, which resolution may be for a specific issue or adjustment or for a Tax Period, (a) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the laws of a State, local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or

 

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adjustment or for such Tax Period (as the case may be); (b) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or a comparable agreement under the laws of a State, local, or foreign taxing jurisdiction; (d) by any allowance of a refund or credit in respect of an overpayment of Income Tax or Other Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Income Tax or Other Tax; or (e) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.

“Foreign Income Tax” means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, which is an income tax as defined in Treasury Regulations Section 1.901-2, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

“Foreign Other Tax” means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, other than any Foreign Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

“Foreign Tax” means any Foreign Income Taxes or Foreign Other Taxes.

“Foreign Tax Return” means any Tax Return of (i) any member of the SpinCo Group (including any consolidated, combined or unitary return), or (ii) any member of the eBay Group (including any consolidated, combined or unitary return), in each case, with respect to Foreign Taxes.

“Former eBay Group Employee” shall have the meaning provided in the Employee Matters Agreement.

“Former PayPal Group Employee” shall have the meaning provided in the Employee Matters Agreement.

“Group” means the eBay Group or the SpinCo Group, or both, as the context requires.

“High-Level Dispute” means any dispute or disagreement (a) relating to liability under Section 7.05 of this Agreement or (b) in which the amount of liability in dispute exceeds $25 million.

“Income Tax” means any Federal Income Tax, State Income Tax or Foreign Income Tax.

“Indemnitee” shall have the meaning set forth in Section 13.03 of this Agreement.

“Indemnitor” shall have the meaning set forth in Section 13.03 of this Agreement.

“Internal Contribution” means the contribution of specified assets, including (i) the stock of AB, (ii) approximately $10,080,000 in cash, (iii) the stock of PayPal International Treasury Centre Sarl, (iv) the stock of PayPal Network Information Services (Shanghai) Co., Ltd., and (v) certain assets utilized in various customer service, research and development, and administrative functions performed by certain individuals employed by China 93, China 94, China 98, and China 311 for the PayPal Payments Business in China, by eBay AG to 3P Holdings pursuant to the Separation and Distribution Agreement.

 

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“Internal Distribution” shall mean the distribution by eBay AG of all the common stock of 3P Holdings to eBay in a transaction intended to qualify as a distribution that is generally tax free pursuant to Sections 355(a) and 368(a)(1)(D) of the Code.

IRS means the United States Internal Revenue Service.

“Joint Return” shall mean any Return of a member of the eBay Group or the SpinCo Group that is not a Separate Return.

“Notified Action” shall have the meaning set forth in Section 7.04(a) of this Agreement.

“Other Tax” means any Federal Other Tax, State Other Tax, or Foreign Other Tax.

“Past Practices” shall have the meaning set forth in Section 4.02(a) of this Agreement.

“Payment Date” means (i) with respect to any eBay Federal Consolidated Income Tax Return, the due date for any required installment of estimated taxes determined under Section 6655 of the Code, the due date (determined without regard to extensions) for filing the return determined under Section 6072 of the Code, and the date the return is filed, and (ii) with respect to any other Tax Return, the corresponding dates determined under the applicable Tax Law.

“Payor” shall have the meaning set forth in Section 5.02(a) of this Agreement.

“PayPal” means PayPal, Inc., a Delaware corporation, and a direct wholly owned subsidiary of eBay prior to the Contribution.

“PayPal Credit Business” means PayPal’s domestic consumer and merchant credit business, known as PayPal Credit, which is part of the PayPal Payments Business.

“PayPal Group Employees” shall have the meaning provided in the Employee Matters Agreement.

“PayPal Payments Business” means PayPal’s business of providing a technology platform that enables digital and mobile payments on behalf of consumers and merchants.

“Person” means any individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or a governmental entity or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for U.S. Federal Income Tax purposes.

“Post-Deconsolidation Period” means any Tax Period beginning after the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Deconsolidation Date.

 

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“Pre-Deconsolidation Period” means any Tax Period ending on or before the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Deconsolidation Date.

“Prime Rate” has the meaning set forth in the Separation and Distribution Agreement.

“Privilege” means any privilege that may be asserted under applicable law, including, any privilege arising under or relating to the attorney-client relationship (including the attorney-client and work product privileges), the accountant-client privilege and any privilege relating to internal evaluation processes.

“Proposed Acquisition Transaction” means a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulations Section 1.355-7, or any other regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by SpinCo management or shareholders, is a hostile acquisition, or otherwise, as a result of which SpinCo would merge or consolidate with any other Person or as a result of which any Person or Persons would (directly or indirectly) acquire, or have the right to acquire, from SpinCo and/or one or more holders of outstanding shares of SpinCo Capital Stock, a number of shares of SpinCo Capital Stock that would, when combined with any other changes in ownership of SpinCo Capital Stock pertinent for purposes of Section 355(e) of the Code, comprise 40% or more of (A) the value of all outstanding shares of stock of SpinCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (B) the total combined voting power of all outstanding shares of voting stock of SpinCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (A) the adoption by SpinCo of a shareholder rights plan or (B) issuances by SpinCo that satisfy Safe Harbor VIII (relating to acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d). For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated into this definition and its interpretation.

“PTI” means any earnings and profits of a foreign corporation that would be excluded from gross income pursuant to Section 959 of the Code.

“Recipient” means, with respect to the transfers occurring pursuant to the Transactions, the Party receiving assets and/or liabilities.

“Representation Letters” means the representation letters and any other materials delivered by, or on behalf of, eBay, SpinCo or others to a Tax Advisor in connection with the issuance by such Tax Advisor of a Tax Opinion.

“Required Party” shall have the meaning set forth in Section 5.02(a) of this Agreement.

 

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“Reserve” shall mean a financial statement reserve, in accordance with generally accepted accounting principles, pursuant to FASB Interpretation No. 48, excluding, for the avoidance of doubt, any reserve related to Taxes imposed with respect to the Transactions.

“Responsible Company” means, with respect to any Tax Return, the Company having responsibility for preparing and filing such Tax Return under this Agreement.

“Restriction Period” shall mean the period beginning on the date hereof and ending on (and including) the two-year anniversary of the Distribution Date.

“Retention Date” shall have the meaning set forth in Section 9.01 of this Agreement.

“Section 336(e) Election” has the meaning set forth in Section 7.06.

“Section 7.02(e) Acquisition Transaction” means any transaction or series of transactions that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 30% instead of 40%.

“Separate Return” means (a) in the case of any Tax Return of any member of the SpinCo Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the eBay Group and (b) in the case of any Tax Return of any member of the eBay Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the SpinCo Group.

“Separation and Distribution Agreement” shall have the meaning set forth in the recitals of this Agreement.

“SpinCo” shall have the meaning provided in the first sentence of this Agreement, and references herein to SpinCo shall include any entity treated as a successor to SpinCo.

“SpinCo Active Trade or Business” means the active conduct (as defined in Section 355(b)(2) of the Code and the regulations thereunder) by SpinCo and its “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code) of the PayPal Payments Business and PayPal Credit Business as conducted by PayPal, PayPal (Europe) S.a.r.l. et Cie, S.C.A., and PayPal Pte. Ltd. immediately prior to the Distribution.

“SpinCo Capital Stock” means all classes or series of capital stock of SpinCo, including (i) the SpinCo Common Stock, (ii) all options, warrants and other rights to acquire such capital stock and (iii) all instruments properly treated as stock in SpinCo for U.S. federal income tax purposes.

“SpinCo Carryback Item” means any net operating loss, net capital loss, excess tax credit, or other similar Tax item of any member of the SpinCo Group which may or must be carried from one Tax Period to another prior Tax Period under the Code or other applicable Tax Law.

“SpinCo Common Stock” has the meaning ascribed to the term “PayPal Shares” in the Separation and Distribution Agreement.

 

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“SpinCo Federal Consolidated Income Tax Return” shall mean any U.S. federal income Tax Return for the affiliated group (as that term is defined in Section 1504 of the Code) of which SpinCo is the common parent.

“SpinCo Group” means SpinCo and its Affiliates, as determined immediately after the Distribution.

“SpinCo Retained Other Taxes” means Other Taxes incurred in the ordinary course of business that have been accrued on the financial statements of any member of the SpinCo Group as of the Distribution Date, excluding, for the avoidance of doubt, Other Taxes imposed with respect to the Transactions.

“SpinCo Separate Return” means any Separate Return of SpinCo or any member of the SpinCo Group.

“SpinCo Subpart F Income Taxes” has the meaning set forth in Section 2.02(c).

“State Income Tax” means any Tax imposed by any State of the United States or by any political subdivision of any such State or the District of Columbia, which is imposed on or measured by net income, including state and local franchise or similar Taxes measured by net income, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

“State Other Tax” means any Tax imposed by any State of the United States or by any political subdivision of any such State or the District of Columbia, other than any State Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

“State Tax” means any State Income Taxes or State Other Taxes.

“State Tax Return” means any Tax Return of (i) any member of the SpinCo Group (including any consolidated, combined or unitary return), or (ii) any member of the eBay Group (including any consolidated, combined or unitary return), in each case, with respect to State Taxes.

“Straddle Period” means any Tax Period that begins on or before and ends after the Deconsolidation Date.

“Subpart F Income” means, collectively, (i) “subpart F income,” as defined in Section 952 of the Code and (ii) any investment in “United States property,” as defined in Section 956 of the Code.

“Tax” or “Taxes” means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, property, ad valorem, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

“Tax Advisor” means a United States tax counsel or accountant of recognized national standing.

“Tax Advisor Dispute” shall have the meaning set forth in Section 14 of this Agreement.

 

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“Tax Allocation Agreement” means the Tax Allocation Agreement, by and among eBay and certain of its Subsidiaries, dated as of January 1, 2003.

“Tax Attribute” or “Attribute” shall mean a net operating loss, net capital loss, unused investment credit, unused foreign tax credit, excess charitable contribution, general business credit or any other Tax Item that could reduce a Tax.

“Tax Authority” means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.

“Tax Benefit” means any loss, deduction, refund, credit, or other item reducing Taxes otherwise payable (including, for the avoidance of doubt, the receipt of any distribution from a CFC, to the extent such distribution is treated as being made out of PTI).

“Tax Contest” means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes (including any administrative or judicial review of any claim for refund).

“Tax-Free Status” means, with respect to each of (i) the Contribution and Distribution, taken together, and (ii) the Internal Contribution and the Internal Distribution, taken together, the qualification thereof (a) as a transaction described in Sections 355 and 368(a)(1)(D) of the Code, (b) as a transaction in which the stock distributed thereby is “qualified property” for purposes of Sections 355(c)(2) and 361(c)(2) of the Code and (c) as a transaction in which eBay, SpinCo and the members of their respective Groups recognize no income or gain for U.S. federal income tax purposes pursuant to Sections 355, 361 and 1032 of the Code, other than (x) income or gain recognized pursuant to Sections 367(a), 367(b) and/or 1248 and the Treasury Regulations promulgated under such provisions with respect to the Internal Contribution and the Internal Distribution or (y) intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated pursuant to Section 1502 of the Code.

“Tax Item” means, with respect to any Income Tax, any item of income, gain, loss, deduction, or credit.

“Tax Law” means the law of any governmental entity or political subdivision thereof relating to any Tax.

“Tax Opinion” means each opinion of a Tax Advisor delivered to eBay in connection with and regarding the Federal Income Tax treatment of, (i) the Contribution and the Distribution or (ii) the Internal Contribution and the Internal Distribution.

“Tax Period” means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.

“Tax Records” means any Tax Returns, Tax Return workpapers, documentation relating to any Tax Contests, and any other books of account or records (whether or not in written, electronic or other tangible or intangible forms and whether or not stored on electronic or any other medium) required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority.

 

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“Tax-Related Losses” means (i) all federal, state, local and foreign Taxes (including interest and penalties thereon) imposed pursuant to any settlement, Final Determination, judgment or otherwise; (ii) all reasonable accounting, legal and other professional fees, and court costs incurred in connection with such Taxes; and (iii) all reasonable costs and expenses and any damages associated with stockholder litigation or controversies and any amount required to be paid by eBay (or any eBay Affiliate) or SpinCo (or any SpinCo Affiliate) in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Tax Authority, in each case, resulting from the failure of the Contribution and the Distribution or the Internal Contribution and the Internal Distribution to have Tax-Free Status; provided, that amounts shall be treated as having been required to be paid for purposes of clause (iii) of this definition to the extent they are paid in a good faith compromise of an asserted claim.

“Tax Return” or “Return” means any report of Taxes due, any claim for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document filed or required to be filed under the Code or other Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.

“Transaction Taxes” has the meaning set forth in Section 2.05(a).

“Transactions” means the Contribution, the Distribution and the other transactions contemplated by the Separation and Distribution Agreement (including the Internal Contribution and the Internal Distribution).

“Transferor” means, with respect to the transfers occurring pursuant to the Transactions, the Party transferring assets and/or liabilities.

“Treasury Regulations” means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.

“Unqualified Tax Opinion” means an unqualified opinion of a Tax Advisor on which eBay may rely to the effect that (i) a transaction will not affect the Tax-Free Status of the Contribution and the Distribution or the Internal Contribution and the Internal Distribution, and (ii) will not adversely affect any of the conclusions set forth in any Tax Opinion regarding the Tax-Free Status of the Contribution and the Distribution or the Internal Contribution and the Internal Distribution; provided, that any tax opinion obtained in connection with a proposed acquisition of SpinCo Capital Stock entered into during the Restriction Period shall not qualify as an Unqualified Tax Opinion unless such tax opinion concludes that such proposed acquisition will not be treated as “part of a plan (or series of related transactions),” within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, that includes the Distribution or the Internal Distribution. Any such opinion must assume that the Contribution and Distribution and the Internal Contribution and the Internal Distribution would have qualified for Tax-Free Status if the transaction in question did not occur.

 

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Section 2. Allocation of Tax Liabilities.

Section 2.01 General Rule.

(a) eBay Liability. eBay shall be liable for, and shall indemnify and hold harmless the SpinCo Group from and against any liability for, Taxes which are allocated to eBay under this Section 2.

(b) SpinCo Liability. SpinCo shall be liable for, and shall indemnify and hold harmless the eBay Group from and against any liability for, Taxes which are allocated to SpinCo under this Section 2.

Section 2.02 Allocation of United States Federal Taxes. Except as otherwise provided in Section 2.05(b) or (c), Federal Taxes shall be allocated as follows:

(a) Allocation of Tax Relating to Federal Tax Returns. eBay shall be responsible for any and all Federal Taxes due with respect to or required to be reported on any Federal Tax Return required to be filed by a member of the eBay Group with respect to any Tax Period (or portion thereof) ending on or prior to the Distribution Date (including any eBay Federal Consolidated Income Tax Return) (including any increase in such Tax as a result of a Final Determination); provided, however, that SpinCo shall be responsible for any such Tax (including any increase in such Tax as a result of a Final Determination) to the extent such Tax is imposed with respect to any matter for which any member of the SpinCo Group reflected a Reserve in its financial statements on the Distribution Date; provided, further, that SpinCo shall be responsible for any Federal Other Taxes that are SpinCo Retained Other Taxes (including any increase in such Tax as a result of a Final Determination). For the avoidance of doubt, the amount of any such Reserve (or, in the case of SpinCo Retained Other Taxes, the amount of any such accrual) shall not be treated as a minimum amount of, or a limitation on, SpinCo’s responsibility pursuant to Sections 2.02(a), 2.03(a), or 2.04(a).

(b) Certain Post-Distribution Matters. Subject to SpinCo’s compliance with Section 4.02(c), eBay shall be responsible for any and all Federal Income Taxes imposed on the SpinCo Group with respect to any Tax Period (or portion thereof) ending on or prior to December 31, 2016 arising solely from the purchase of certain credit receivables prior to the Distribution Date or the SpinCo Group continuing to purchase such credit receivables until the date that is one day before the one-year anniversary of the Distribution Date. eBay shall not be responsible for any Taxes imposed on the SpinCo Group arising from the purchase, ownership or disposition of credit receivables on or after the one-year anniversary of the Distribution Date.

(c) Allocation of Certain Subpart F Income Taxes. Except to the extent otherwise provided in Section 2.02(b), and notwithstanding anything to the contrary in the Tax Allocation Agreement, Federal Income Taxes due with respect to any Subpart F Income required to be included in income by the SpinCo Group under Section 951(a)(1) of the Code with respect to any Straddle Period of any CFC that is a member of the SpinCo Group and was transferred to SpinCo pursuant to the Contribution shall be allocated as follows: (i) eBay shall be responsible for any such Taxes imposed with respect to Subpart F Income allocable to the portion of such Straddle Period that is a Pre-Deconsolidation Period (including any increase in such Tax as a result of a Final Determination) (“eBay Subpart F Income Taxes”), and (ii) SpinCo shall be responsible for any such Taxes imposed with respect to Subpart F Income allocable to the portion of such Straddle Period that is a Post-Deconsolidation Period (including any increase in such

 

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Tax as a result of a Final Determination) (“SpinCo Subpart F Income Taxes”). For this purpose, Subpart F Income shall be allocated between the Pre-Deconsolidation Period and the Post-Deconsolidation Period based on a hypothetical “closing of the books” at the end of the Distribution Date.

Section 2.03 Allocation of State Taxes. Except as otherwise provided in Section 2.05(b) or (c), State Taxes shall be allocated as follows:

(a) Allocation of Tax Relating to State Tax Returns. eBay shall be responsible for any and all State Taxes due with respect to or required to be reported on any State Tax Return with respect to any Tax Period (or portion thereof) ending on or prior to the Distribution Date (including any increase in such Tax as a result of a Final Determination) and, for the avoidance of doubt, eBay shall be responsible for any and all State Other Taxes imposed with respect to the Transactions except to the extent SpinCo is otherwise liable for such State Other Taxes pursuant to Section 7.05; provided, however, that SpinCo shall be responsible for any such Tax (including any increase in such Tax as a result of a Final Determination) to the extent such Tax is imposed with respect to any matter for which any member of the SpinCo Group reflected a Reserve in its financial statements on the Distribution Date; provided, further, that SpinCo shall be responsible for any State Other Taxes that are SpinCo Retained Other Taxes (including any increase in such Tax as a result of a Final Determination).

(b) Certain Post-Distribution Matters. Subject to SpinCo’s compliance with Section 4.02(c), eBay shall be responsible for any and all State Income Taxes imposed on the SpinCo Group with respect to any Tax Period (or portion thereof) ending on or prior to December 31, 2016 arising solely from the purchase of certain credit receivables prior to the Distribution Date or the SpinCo Group continuing to purchase such credit receivables until the date that is one day before the one-year anniversary of the Distribution Date. eBay shall not be responsible for any Taxes imposed on the SpinCo Group arising from the purchase, ownership or disposition of credit receivables on or after the one-year anniversary of the Distribution Date.

Section 2.04 Allocation of Foreign Taxes. Except as otherwise provided in Section 2.05(b) or (c), Foreign Taxes shall be allocated as follows:

(a) Allocation of Tax Relating to Foreign Tax Returns. eBay shall be responsible for any and all Foreign Taxes due with respect to or required to be reported on any Foreign Tax Return with respect to any Tax Period (or portion thereof) ending on or prior to the Distribution Date (including any increase in such Tax as a result of a Final Determination) and, for the avoidance of doubt, eBay shall be responsible for any and all Foreign Other Taxes imposed with respect to the Transactions except to the extent SpinCo is otherwise liable for such Foreign Other Taxes pursuant to Section 7.05; provided, however that SpinCo shall be responsible for any such Tax (including any increase in such Tax as a result of a Final Determination) to the extent such Tax is imposed with respect to any matter for which any member of the SpinCo Group reflected a Reserve in its financial statements on the Distribution Date; provided, further, that SpinCo shall be responsible for any Foreign Other Taxes that are SpinCo Retained Other Taxes (including any increase in such Tax as a result of a Final Determination).

(b) Certain Post-Distribution Matters. Subject to SpinCo’s compliance with Section 4.02(c), eBay shall be responsible for any and all Foreign Income Taxes imposed on the SpinCo

 

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Group with respect to any Tax Period (or portion thereof) ending on or prior to December 31, 2016 arising solely from the purchase of certain credit receivables prior to the Distribution Date or the SpinCo Group continuing to purchase such credit receivables until the date that is one day before the one-year anniversary of the Distribution Date. eBay shall not be responsible for any Taxes imposed on the SpinCo Group arising from the purchase, ownership or disposition of credit receivables on or after the one-year anniversary of the Distribution Date.

Section 2.05 Certain Transaction and Other Taxes.

(a) Transaction Taxes.

(i) All charges for goods or services in respect of the transfers occurring pursuant to the Transactions shall be exclusive of any value added, goods and services, sales, use, consumption, excise, service, transfer, stamp, documentary, filing, recordation taxes or similar taxes (“Transaction Taxes”). Without limiting any provision of this Agreement, the Recipient shall be responsible for all Transaction Taxes imposed on or assessed with respect to the provision of goods or services by the Transferor. The Transferor shall issue proper invoices usable by the Recipient to recover (by way of credit or refund) Transaction Taxes in jurisdictions where they are recoverable. The Transferor and the Recipient shall cooperate to minimize any Transaction Taxes and in obtaining any refund, return, or rebate, or applying an exemption or zero-rating for goods or services giving rise to any Transaction Taxes, including by filing any exemption or other similar forms or providing valid tax identification numbers or other relevant registration numbers, certificates, or other documents. The Recipient and the Transferor shall cooperate regarding any requests for information, audits, or similar requests by any Tax Authority concerning Transaction Taxes payable with respect to the transfers occurring pursuant to the Transactions. If, within twelve (12) months following the date any Transaction Taxes are paid pursuant to this Section 2.05(a)(i) by SpinCo or a member of the SpinCo Group to eBay or a member of the eBay Group in respect of the transfers occurring pursuant to the Transactions, the SpinCo Group is unable, using commercially reasonable efforts, to fully recover (by way of credit or refund) any such Transaction Taxes, SpinCo may seek reimbursement of such unrecoverable Transaction Taxes from eBay. SpinCo’s request for reimbursement of such nonrecoverable Transaction Taxes from eBay shall include documentation of the nonrecoverable Transaction Taxes and substantiation that a refund or credit is not permitted. eBay shall pay any amounts under this Section 2.05(a)(i) to SpinCo within ninety (90) days following the receipt of a substantiated request for reimbursement from SpinCo. To the extent that, after receiving reimbursement of any such nonrecoverable Transaction Taxes from eBay pursuant to this Section 2.05(a)(i), a member of the SpinCo Group recovers (by way of credit or refund) all or a portion of such Transaction Taxes, SpinCo shall repay such recovered Transaction Taxes to eBay.

(ii) The Recipient shall be entitled to deduct and withhold Tax required by applicable law to be withheld on payments made to the Transferor pursuant to the Transactions. To the extent any amounts are so withheld, the Recipient shall timely remit such deducted and withheld amounts to the relevant Tax Authority and promptly provide the Transferor with evidence of such payment. The Transferor agrees to complete and provide to the Recipient or, if required, to the relevant Tax Authority, at least ten (10) days prior to the payment due date, such forms, certifications, or other documents as may be

 

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reasonably requested by the Recipient, in order to reduce or exempt the withholding of any Tax with respect to payments made to the Transferor when and where applicable by Law. The Recipient and the Transferor shall cooperate regarding any requests for information, audits, or similar requests by any Tax Authority concerning the withholding of any Tax payable with respect to the Transactions. If, within twelve (12) months following the date any Taxes are withheld by eBay or a member of the eBay Group in respect of payments or other transfers to SpinCo or a member of the SpinCo Group occurring pursuant to the Transactions, the SpinCo Group is not able to apply or credit any such withheld Taxes against Taxes otherwise payable by the SpinCo Group, SpinCo may seek reimbursement of the amount of such withheld Taxes that cannot be so applied or credited from eBay. SpinCo’s request for such reimbursement of such withheld Taxes from eBay shall include documentation of the Taxes withheld and substantiation that a credit or other relief is not permitted. eBay shall pay any amounts under this Section 2.05(a)(ii) to SpinCo within ninety (90) days following the receipt of a substantiated request for reimbursement from SpinCo. To the extent that, after receiving reimbursement of any such withheld Taxes from eBay pursuant to this Section 2.05(a)(ii), the SpinCo Group obtains a credit or other relief with respect to all or a portion of such withheld Taxes, SpinCo shall repay such credited Taxes (or, to the extent any such other relief is obtained, an amount equal to the corresponding reduction in Taxes otherwise payable by the SpinCo Group) to eBay.

(iii) Any penalties or interest imposed on any Transaction Taxes described in Section 2.05(a)(i) or Tax described in Section 2.05(a)(ii) shall be the responsibility of the Recipient unless such penalties or interest are the result of an action or failure to act by the Transferor. The amounts for which the Recipient or Transferor is liable pursuant to this Section 2.05(a) shall include all reasonable accounting, legal and other professional fees, and court costs incurred in connection with the relevant Taxes.

(b) SpinCo Liability. SpinCo shall be liable for, and shall indemnify and hold harmless the eBay Group from and against any liability for:

(i) any Tax resulting from a breach by SpinCo of any representation or covenant in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement; and

(ii) any Tax-Related Losses for which SpinCo is responsible pursuant to Section 7.05 of this Agreement.

The amounts for which SpinCo is liable pursuant to Section 2.05(b)(i) shall include all accounting, legal and other professional fees, and court costs incurred in connection with the relevant Taxes.

(c) eBay Liability. eBay shall be liable for, and shall indemnify and hold harmless the SpinCo Group from and against any liability for:

(i) any Tax resulting from a breach by eBay of any representation or covenant in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement; and

(ii) any Tax-Related Losses for which eBay is responsible pursuant to Section 7.05 of this Agreement.

 

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The amounts for which eBay is liable pursuant to Section 2.05(c)(i) shall include all accounting, legal and other professional fees, and court costs incurred in connection with the relevant Taxes.

Section 3. Proration of Taxes for Straddle Periods.

(a) General Method of Proration. In the case of any Straddle Period, Tax Items shall be apportioned between Pre-Deconsolidation Periods and Post-Deconsolidation Periods in accordance with the principles of Treasury Regulations Section 1.1502-76(b) as reasonably interpreted and applied by the Companies. With respect to the eBay Federal Consolidated Income Tax Return for the taxable year that includes the Distribution, no election shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii). If the Deconsolidation Date is not an Accounting Cutoff Date, the provisions of Treasury Regulation Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate the items (other than extraordinary items) for the month which includes the Deconsolidation Date.

(b) Transactions Treated as Extraordinary Item. In determining the apportionment of Tax Items between Pre-Deconsolidation Periods and Post-Deconsolidation Periods, any Tax Items relating to the Transactions shall be treated as extraordinary items described in Treasury Regulation Section 1.1502-76(b)(2)(ii)(C) and shall (to the extent occurring on or prior to the Deconsolidation Date) be allocated to Pre-Deconsolidation Periods, and any Taxes related to such items shall be treated under Treasury Regulations Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall (to the extent occurring on or prior to the Deconsolidation Date) be allocated to Pre-Deconsolidation Periods.

Section 4. Preparation and Filing of Tax Returns.

Section 4.01 General. Except as otherwise provided in this Section 4, Tax Returns shall be prepared and filed when due (taking into account extensions) by the Person obligated to file such Tax Returns under the Code or applicable Tax Law. The Companies shall provide, and shall cause their Affiliates to provide, assistance and cooperation to one another in accordance with Section 8 with respect to the preparation and filing of Tax Returns, including by providing information required to be provided pursuant to Section 8.

Section 4.02 Tax Accounting Practices.

(a) General Rule. Except as otherwise provided in Section 4.02(b) and (c), with respect to any Tax Return that SpinCo has the obligation and right to prepare and file, or cause to be prepared and filed, for any Straddle Period (or any Tax Period beginning after the Deconsolidation Date to the extent items reported on such Tax Return could reasonably be expected to affect items reported on any Tax Return that eBay has the obligation or right to prepare and file for any Pre-Deconsolidation Period or any Straddle Period), such Tax Return shall be prepared in accordance with past practices, accounting methods, elections or conventions (“Past Practices”) used with respect to the Tax Returns in question except to the extent otherwise required by

 

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applicable law. Except as otherwise provided in Section 4.02(b), eBay shall prepare any Tax Return which it has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 4.01, in accordance with reasonable Tax accounting practices selected by eBay.

(b) Reporting of Transactions. Except to the extent otherwise required by applicable law or as a result of a Final Determination, (A) neither eBay nor SpinCo shall, and shall not permit or cause any member of its respective Group to, take any position that is either inconsistent with the treatment of each of (i) the Contribution and Distribution, taken together, or (ii) the Internal Contribution and the Internal Distribution, taken together, in each case, as having Tax-Free Status (or analogous status under state or local law) and, (B) SpinCo shall not, and shall not permit or cause any member of the SpinCo Group to, take any position with respect to an item of income, deduction, gain, loss, or credit on a Tax Return, or otherwise treat such item in a manner which is inconsistent with the manner such item is reported on a Tax Return required to be prepared or filed by eBay pursuant to Section 4.01 hereof (including, without limitation, the claiming of a deduction previously claimed on any such Tax Return).

(c) Reporting of Credit Receivables Purchases. Except to the extent otherwise required by (i) a change in applicable law on or before the one-year anniversary of the Distribution Date, (ii) applicable law after the one-year anniversary of the Distribution Date, or (iii) as a result of a Final Determination, neither SpinCo nor eBay shall, and neither shall permit or cause any member of its respective Group to, take any position with respect to the purchase, ownership, or disposition of credit receivables that is inconsistent with the Past Practices of eBay and its subsidiaries with respect to the Tax reporting thereof referred to in Sections 2.02(b), 2.03(b), and 2.04(b). In the event SpinCo determines that it is required to take such an inconsistent position, it shall promptly notify eBay in writing, and the parties shall cooperate to minimize the amount of Taxes for which eBay may be liable pursuant to Sections 2.02(b), 2.03(b), and 2.04(b).

Section 4.03 Consolidated or Combined Tax Returns. SpinCo will elect and join, and will cause its respective Affiliates to elect and join, in filing any eBay State Combined Income Tax Returns, eBay Foreign Combined Income Tax Returns and any other Joint Returns that eBay reasonably determines are required to be filed (or that eBay chooses to file) by the Companies or any of their Affiliates for Tax Periods ending on, before or after the Deconsolidation Date. With respect to any SpinCo Separate Returns relating to any Tax Period (or portion thereof) ending on or prior to the Distribution Date, SpinCo will elect and join, and will cause its respective Affiliates to elect and join, in filing consolidated, unitary, combined, or other similar joint Tax Returns, to the extent each entity is eligible to join in such Tax Returns, if eBay reasonably determines that the filing of such Tax Returns is consistent with past reporting practices, or, in the absence of applicable past practices, will result in the minimization of the net present value of the aggregate Tax to the entities eligible to join in such Tax Returns.

Section 4.04 Right to Review Tax Returns.

(a) General. The Responsible Company with respect to any material Tax Return shall make such Tax Return (or the relevant portions thereof), related workpapers and other supporting documents available for review by the other Company, to the extent (i) such Tax Return relates to Taxes for which such other Company is or would reasonably be expected to be liable, (ii) such Tax Return relates to Taxes and such other Company is or would reasonably be expected to be liable in whole or in part for any additional Taxes owing as a result of adjustments to the

 

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amount of such Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for which the other party would reasonably be expected to have a claim for Tax Benefits under this Agreement, or (iv) reasonably necessary for the other party to confirm compliance with the terms of this Agreement. The Responsible Company shall use reasonable efforts to make such Tax Return, workpapers and other supporting documents available for review as required under this paragraph promptly once such Tax Return is materially complete, but in any event no later than three (3) weeks in advance of the due date for filing of such Tax Return, such that the other party has a meaningful opportunity to review and comment on such Tax Return, and shall use reasonable efforts to have such Tax Return modified before filing, taking into account the person responsible for payment of the Tax (if any) reported on such Tax Return. The Companies shall attempt in good faith to resolve any disagreement arising out of the review of such Tax Return and, failing such resolution, any disagreement shall be resolved in accordance with the disagreement resolution provisions of Section 14 as promptly as practicable.

(b) Execution of Returns Prepared by Other Party. In the case of any Tax Return which is required to be prepared and filed by one Company under this Agreement and which is required by law to be signed by the other Company (or by its authorized representative), the Company which is legally required to sign such Tax Return shall not be required to sign such Tax Return under this Agreement unless there is at least a greater than 50% likelihood of prevailing on the merits for the Tax treatment of each material item reported on the Tax Return.

Section 4.05 SpinCo Carrybacks Items and Claims for Refund. SpinCo hereby agrees that, unless eBay consents in writing (which consent shall not be unreasonably withheld), (i) no Adjustment Request with respect to any Tax Return with respect to which eBay is the Responsible Party (including any Joint Return) or any other Tax Return reflecting Taxes for which eBay is responsible under Section 2 shall be filed, and (ii) any available elections to waive the right to claim in any Pre-Deconsolidation Period with respect to any Tax Return with respect to which eBay is the Responsible Party (including any Joint Return) or any Tax Return reflecting both Taxes for which eBay is responsible under Section 2 and Taxes for which SpinCo is responsible under Section 2 any SpinCo Carryback Item arising in a Post-Deconsolidation Period shall be made, and no affirmative election shall be made to claim any such SpinCo Carryback Item; provided, however, that the parties agree that any such Adjustment Request shall be made with respect to any SpinCo Carryback Item related to U.S. federal or State Income Taxes, upon the reasonable request of SpinCo, if such SpinCo Carryback Item is necessary to prevent the loss of the federal and/or State Income Tax Benefit of such SpinCo Carryback Item (including, but not limited to, an Adjustment Request with respect to a SpinCo Carryback Item of a federal or State capital loss arising in a Post-Deconsolidation Period to a Pre-Deconsolidation Period) and such Adjustment Request, based on eBay’s sole, reasonable determination, will cause no Tax detriment to eBay, the eBay Group or any member of the eBay Group. Any Adjustment Request which eBay consents to make under this Section 4.05 shall be prepared and filed by the Responsible Company for the Tax Return to be adjusted; provided, however, that, prior to the filing of any such Adjustment Request, the other Party shall have the right to review such Adjustment Request together with any related workpapers and other supporting documentation.

Section 4.06 Apportionment of Earnings and Profits and Tax Attributes.

(a) If the eBay Affiliated Group has a Tax Attribute, the portion, if any, of such Tax Attribute apportioned to SpinCo or the members of the SpinCo Group and treated as a carryover

 

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to the first Post-Deconsolidation Period of SpinCo (or such member) shall be determined by eBay in accordance with Treasury Regulations Sections 1.1502-21, 1.1502-21T, 1.1502-22, 1.1502-79 and, if applicable, 1.1502-79A.

(b) No Tax Attribute with respect to consolidated Federal Income Tax of the eBay Affiliated Group, other than those described in Section 4.06(a), and no Tax Attribute with respect to consolidated, combined or unitary state, local, or foreign Income Tax, in each case, arising in respect of a Joint Return shall be apportioned to SpinCo or any member of the SpinCo Group, except as eBay (or such member of the eBay Group as eBay shall designate) determines is otherwise required under applicable law.

(c) eBay (or its designee) shall determine the portion, if any, of any Tax Attribute which must (absent a Final Determination to the contrary) be apportioned to SpinCo or any member of the SpinCo Group in accordance with this Section 4.06 and applicable law and the amount of tax basis, earnings and profits (including, for the avoidance of doubt, PTI), and “tax pools” to be apportioned to SpinCo or any member of the SpinCo Group in accordance with this Section 4.06 and applicable law, and shall provide written supporting documentation of the calculation thereof to SpinCo as soon as reasonably practicable after the information necessary to make such calculation becomes available to eBay. For the absence of doubt, eBay shall not be liable to SpinCo or any member of the SpinCo Group for any failure of any determination under this Section 4.06 to be accurate under applicable law. The parties intend that, to the extent such PTI is subject to allocation under Treasury Regulations Section 1.312-10 and related rules and to the extent permitted by applicable law, any PTI attributable to income inclusions with respect to which eBay is responsible for Federal Income Taxes pursuant to Section 2.02(b) or (c) shall be allocated to eBay or a member of the eBay Group.

(d) The written documentation delivered by eBay pursuant to Section 4.06(c) shall be binding on SpinCo and each member of the SpinCo Group and shall not be subject to dispute resolution. Except to the extent otherwise required by applicable law or pursuant to a Final Determination, SpinCo shall not take any position (whether on a Tax Return or otherwise) that is inconsistent with the information contained in such written documentation.

Section 5. Tax Payments.

Section 5.01 Payment of Taxes. In the case of any Tax Return reflecting both Taxes for which eBay is responsible under Section 2 and Taxes for which SpinCo is responsible under Section 2:

(a) Computation and Payment of Tax Due. With respect to any such Tax Return, the Responsible Company shall pay any Tax required to be paid to the applicable Tax Authority on or before the relevant Payment Date (and provide notice and proof of payment to the other Company).

(b) Computation and Payment of Liability with Respect to Tax Due. Within 90 days following the earlier of (i) the due date (taking into account extensions) for filing any such Tax Return (excluding any Tax Return with respect to payment of estimated Taxes or Taxes due with a request for extension of time to file) or (ii) the date on which such Tax Return is filed, if eBay is the Responsible Company, then SpinCo shall pay to eBay the amount, if any, allocable to the

 

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SpinCo Group under the provisions of Section 2, and if SpinCo is the Responsible Company, then eBay shall pay to SpinCo the amount allocable to the eBay Group under the provisions of Section 2, in each case, plus interest computed at the Prime Rate on the amount of the payment based on the number of days from the earlier of (i) the due date of the Tax Return (including extensions) or (ii) the date on which such Tax Return is filed, to the date of payment.

(c) Adjustments Resulting in Underpayments. In the case of any adjustment pursuant to a Final Determination with respect to any such Tax Return, the Responsible Company shall pay to the applicable Tax Authority when due any additional Tax due with respect to such Return required to be paid as a result of such adjustment pursuant to a Final Determination. The Responsible Company shall compute the amount attributable to the SpinCo Group in accordance with Section 2 and SpinCo shall pay to eBay any amount due eBay (or eBay shall pay SpinCo any amount due SpinCo) under Section 2 within 90 days from the later of (i) the date the additional Tax was paid by the Responsible Company or (ii) the date of receipt of a written notice and demand from the Responsible Company for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. Any payments required under this Section 5.02(c) shall include interest computed at the Prime Rate based on the number of days from the date the additional Tax was paid by the Responsible Company to the date of the payment under this Section 5.01(c).

(d) Notwithstanding anything to the contrary herein, if the amount to be paid pursuant to Section 5.01(b) or (c) (in each case, excluding interest) is in excess of $25 million, then, no later than the later of (i) five Business Days after the date of receipt of a written notice and demand from the Responsible Company for payment of the amount due, sent by Federal Express or the equivalent with tracking receipt, accompanied by a statement detailing the Taxes required to be paid and (ii) three Business Days prior to the due date for the payment of such Tax, SpinCo shall pay to eBay any amount due eBay (or eBay shall pay SpinCo any amount due SpinCo) under Section 2.

Section 5.02 Indemnification Payments.

(a) If any Company (the “Payor”) is required under applicable Tax Law to pay to a Tax Authority a Tax that another Company (the “Required Party”) is liable for under this Agreement, the Required Party shall reimburse the Payor within 90 days of delivery by the Payor to the Required Party of an invoice for the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. The reimbursement shall include interest on the Tax payment computed at the Prime Rate based on the number of days from the date of the payment to the Tax Authority to the date of reimbursement under this Section 5.02. Notwithstanding anything to the contrary herein, if the amount to be paid pursuant to this Section 5.02 excluding interest is in excess of $25 million, then, no later than the later of (i) five Business Days after delivery by the Payor to the Required Party of an invoice for the amount due, sent by Federal Express or the equivalent with tracking receipt, accompanied by a statement detailing the Taxes required to be paid and describing in reasonable detail the particulars relating thereto, and (ii) three Business Days prior to the due date for the payment of such Tax, the Required Party shall pay the Payor.

 

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(b) All indemnification payments under this Agreement shall be made by eBay directly to SpinCo and by SpinCo directly to eBay; provided, however, that if the Companies mutually agree with respect to any such indemnification payment, any member of the eBay Group, on the one hand, may make such indemnification payment to any member of the SpinCo Group, on the other hand, and vice versa.

Section 6. Tax Benefits.

Section 6.01 Tax Benefits.

(a) Except as set forth below, eBay shall be entitled to any refund (and any interest thereon received from the applicable Tax Authority) of Income Taxes and Other Taxes for which eBay is liable hereunder, SpinCo shall be entitled to any refund (and any interest thereon received from the applicable Tax Authority) of Income Taxes and Other Taxes for which SpinCo is liable hereunder and a Company receiving a refund to which another Company is entitled hereunder in whole or in part shall pay over such refund (or portion thereof) to such other Company within 90 days after such refund is received (together with interest computed at the Prime Rate based on the number of days from the date the refund was received to the date the refund was paid over).

(b) If (i) a member of the SpinCo Group actually realizes in cash any Tax Benefit as a result of (A) an adjustment pursuant to a Final Determination or reporting required by Section 4.02(b) or (c) that increases Taxes for which a member of the eBay Group is liable hereunder (or reduces any Tax Attribute of a member of the eBay Group), or (B) any income inclusion by the SpinCo Group with respect to which eBay is responsible for Federal Income Taxes pursuant to Section 2.02(b) or (c), and, in each case, such Tax Benefit would not have arisen but for such adjustment, reporting or income inclusion (determined on a “with and without” basis), or (ii) if a member of the eBay Group actually realizes in cash any Tax Benefit as a result of an adjustment pursuant to a Final Determination or reporting required by Section 4.02(b) or (c) that increases Taxes for which a member of the SpinCo Group is liable hereunder (or reduces any Tax Attribute of a member of the SpinCo Group) and such Tax Benefit would not have arisen but for such adjustment or reporting (determined on a “with and without” basis), SpinCo or eBay, as the case may be, shall make a payment to either eBay or SpinCo, as appropriate, within 90 days following such actual realization of the Tax Benefit, in an amount equal to such Tax Benefit actually realized in cash (including any Tax Benefit actually realized as a result of the payment), plus interest on such amount computed at the Prime Rate based on the number of days from the date of such actual realization of the Tax Benefit to the date of payment of such amount under this Section 6.01(b).

(c) No later than 90 days after a Tax Benefit described in Section 6.01(b) is actually realized in cash by a member of the eBay Group or a member of the SpinCo Group, eBay (if a member of the eBay Group actually realizes such Tax Benefit) or SpinCo (if a member of the SpinCo Group actually realizes such Tax Benefit) shall provide the other Company with a written calculation of the amount payable to such other Company by eBay or SpinCo pursuant to this Section 6. In the event that eBay or SpinCo disagrees with any such calculation described in this Section 6.01(c), eBay or SpinCo shall so notify the other Company in writing within 90 days of receiving the written calculation set forth above in this Section 6.01(c). eBay and SpinCo shall endeavor in good faith to resolve such disagreement, and, failing that, the amount payable under this Section 6 shall be determined in accordance with the disagreement resolution provisions of Section 14 as promptly as practicable.

 

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(d) SpinCo shall be entitled to any refund that is attributable to, and would not have arisen but for, a SpinCo Carryback Item pursuant to the proviso set forth in Section 4.05; provided, however, SpinCo shall indemnify and hold the members of the eBay Group harmless from and against any and all collateral Tax consequences resulting from or caused by any such Carryback, including (but not limited to) the loss or postponement of any benefit from the use of Tax Attributes generated by a member of the eBay Group or an Affiliate thereof if (x) such Tax Attributes expire unutilized, but would have been utilized but for such Carryback, or (y) the use of such Tax Attributes is postponed to a later Tax Period than the Tax Period in which such Tax Attributes would have been utilized but for such Carryback. Any such payment of such refund made by eBay to SpinCo pursuant to this Section 6.01(d) shall be recalculated in light of any Final Determination (or any other facts that may arise or come to light after such payment is made, such as a carryback of an eBay Group Tax Attribute to a Tax Period in respect of which such refund is received) that would affect the amount to which SpinCo is entitled, and an appropriate adjusting payment shall be made by SpinCo to eBay such that the aggregate amount paid pursuant to this Section 6.01(d) equals such recalculated amount (with interest computed at the Prime Rate).

Section 6.02 eBay and SpinCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation.

(a) Allocation of Deductions.

(i) Except as provided in Section 6.02(a)(ii), to the extent permitted by applicable law, Income Tax deductions arising by reason of exercises of options to acquire eBay or SpinCo stock, vesting of “restricted” eBay stock or SpinCo stock, or settlement of restricted stock units, performance-based restricted stock units, performance share units, or deferred stock units, in each case, following the Distribution, with respect to eBay stock or SpinCo stock (such options, restricted stock, restricted stock units, performance share units, and deferred stock units, collectively, “Compensatory Equity Interests”) held by any Person shall be claimed (i) in the case of an eBay Group Employee or Former eBay Group Employee, solely by the eBay Group, and (ii) in the case of a PayPal Group Employee or Former PayPal Group Employee, solely by the SpinCo Group. To the extent permitted by applicable law, Income Tax deductions with respect to shares issued under the eBay Inc. Employee Stock Purchase Plan or the PayPal Employee Stock Purchase Plan (each as defined in the Employee Matters Agreement) shall be claimed (i) in the case of eBay shares issued (or SpinCo shares received in respect of eBay shares issued) under the eBay ESPP (as defined in the Employee Matters Agreement), solely by the eBay Group, and (ii) in the case of SpinCo shares issued under the PayPal ESPP (as defined in the Employee Matters Agreement), solely by the SpinCo Group.

(ii) To the extent permitted by applicable law, Income Tax deductions arising by reason of exercises of stock options to acquire eBay or SpinCo stock, following the Distribution, held by any Transitioning eBay Group Employee (as defined in the Employee Matters Agreement) shall be claimed by the issuing corporation. To the extent permitted by applicable law, Income Tax deductions arising by reason of vesting of “restricted”

 

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eBay stock or SpinCo stock, or settlement of restricted stock units, performance-based restricted stock units, performance share units, or deferred stock units, in each case, following the Distribution, with respect to eBay stock or SpinCo stock held by any Transitioning eBay Group Employee shall be claimed solely by the eBay Group.

(b) Withholding and Reporting. Tax reporting and withholding with respect to Compensatory Equity Interests shall be governed by Section 4.02(i) of the Employee Matters Agreement. The party that is entitled to claim the Tax deductions described (i) in Section 6.02(a)(i) with respect to shares issued under the eBay ESPP or PayPal ESPP or (ii) in Section 6.02(a)(ii) with respect to Transitioning eBay Group Employees, in each case, shall be responsible for all applicable Taxes (including, but not limited to, withholding and excise taxes) and shall satisfy, or shall cause to be satisfied, all applicable Tax reporting obligations with respect thereto.

Section 7. Tax-Free Status.

Section 7.01 Representations.

(a) Each of eBay and SpinCo hereby represents and warrants that (A) it has reviewed the Representation Letters and (B) subject to any qualifications therein, all information, representations and covenants contained in such Representation Letters that relate to such Company or any member of its Group are true, correct and complete.

(b) SpinCo hereby represents and warrants that it has no plan or intention of taking any action, or failing to take any action (or causing or permitting any member of its Group to take or fail to take any action), in each case, from and after the Distribution Date that could reasonably be expected to cause any representation or factual statement made in this Agreement, the Separation and Distribution Agreement, the Representation Letters or any of the Ancillary Agreements to be untrue.

(c) SpinCo hereby represents and warrants that, during the two-year period ending on the Distribution Date, there was no “agreement, understanding, arrangement, substantial negotiations or discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the SpinCo Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding an acquisition of all or a significant portion of the SpinCo Capital Stock (or any predecessor); provided, however, that no representation is made regarding any such “agreement, understanding, arrangement, substantial negotiations or discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers, directors, or controlling shareholders of any member of the eBay Group (or another person with the implicit or explicit permission of one or more of such persons).

Section 7.02 Restrictions on SpinCo.

(a) SpinCo agrees that it will not take or fail to take, or cause or permit any SpinCo Affiliate to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material information, covenant or representation in this Agreement, the Separation and Distribution Agreement, any of the Ancillary Agreements or

 

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any Representation Letter. SpinCo agrees that it will not take or fail to take, or permit any SpinCo Affiliate to take or fail to take, any action which prevents or could reasonably be expected to prevent Tax-Free Status.

(b) Reserved.

(c) SpinCo agrees that, from the date hereof until the first day after the Restriction Period, it will (i) maintain its status as a company engaged in the SpinCo Active Trade or Business for purposes of Section 355(b)(2) of the Code and (ii) not engage in any transaction that would result in it ceasing to be a company engaged in the SpinCo Active Trade or Business for purposes of Section 355(b)(2) of the Code. SpinCo further agrees that, from the date hereof until the first day after the Restriction Period, it will cause 3P Holdings to (i) maintain its status as a company engaged in the 3P Holdings Active Trade or Business for purposes of Section 355(b)(2) of the Code and (ii) not engage in any transaction that would result in it ceasing to be a company engaged in the 3P Holdings Active Trade or Business for purposes of Section 355(b)(2) of the Code.

(d) SpinCo agrees that, from the date hereof until the first day after the Restriction Period, it will not (i) enter into any Proposed Acquisition Transaction or, to the extent SpinCo has the right to prohibit any Proposed Acquisition Transaction, permit any Proposed Acquisition Transaction to occur (whether by (a) redeeming rights under a shareholder rights plan, (b) finding a tender offer to be a “permitted offer” under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition Transaction, or (c) approving any Proposed Acquisition Transaction, whether for purposes of Section 203 of the DGCL or any similar corporate statute, any “fair price” or other provision of SpinCo’s charter or bylaws or otherwise), (ii) merge or consolidate with any other Person or liquidate or partially liquidate, (iii) in a single transaction or series of transactions sell or transfer (other than sales or transfers of inventory in the ordinary course of business) all or substantially all of the assets that were transferred to SpinCo pursuant to the Contribution or sell or transfer 50% or more of the gross assets of the SpinCo Active Trade or Business or 30% or more of the consolidated gross assets of SpinCo and its Affiliates (such percentages to be measured based on fair market value as of the Distribution Date), (iv) redeem or otherwise repurchase (directly or through a SpinCo Affiliate) any SpinCo stock, or rights to acquire stock, except to the extent such repurchases satisfy Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment by Revenue Procedure 2003-48), (v) amend its certificate of incorporation (or other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of SpinCo Capital Stock (including, without limitation, through the conversion of one class of SpinCo Capital Stock into another class of SpinCo Capital Stock), (vi) take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation or covenant made in the Representation Letters) which in the aggregate (and taking into account any other transactions described in this subparagraph (d)) would be reasonably likely to have the effect of causing or permitting one or more persons to acquire, directly or indirectly, stock representing a Fifty-Percent or Greater Interest in SpinCo or otherwise jeopardize the Tax-Free Status of the Distribution or Internal Distribution, or (vii) cause or permit 3P Holdings to take any action or enter into any transaction described in the preceding clauses (ii) through (vi) (substituting references to “SpinCo,” the “Contribution,” the “SpinCo Active Trade or Business” and “SpinCo

 

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Capital Stock” with references to 3P Holdings, the Internal Contribution, 3P Holdings Active Trade or Business, and 3P Holdings stock) unless, in each case, prior to taking any such action set forth in the foregoing clauses (i) through (vii), (A) SpinCo shall have requested that eBay obtain a private letter ruling (or, if applicable, a supplemental private letter ruling) from the IRS and/or any other applicable Tax Authority in accordance with Section 7.04(b) and (d) of this Agreement to the effect that such transaction will not affect the Tax-Free Status and eBay shall have received such a private letter ruling in form and substance satisfactory to eBay in its reasonable discretion (and in determining whether a private letter ruling is satisfactory, eBay may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations made in connection with such private letter ruling), or (B) SpinCo shall provide eBay with an Unqualified Tax Opinion in form and substance reasonably satisfactory to eBay (and in determining whether an opinion is satisfactory, eBay may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations if used as a basis for the opinion and eBay may determine that no opinion would be acceptable to eBay) or (C) eBay shall have waived the requirement to obtain such private letter ruling or Unqualified Tax Opinion.

(e) Certain Issuances of SpinCo Capital Stock. If SpinCo proposes to enter into any Section 7.02(e) Acquisition Transaction or, to the extent SpinCo has the right to prohibit any Section 7.02(e) Acquisition Transaction, proposes to permit any Section 7.02(e) Acquisition Transaction to occur, in each case, during the period from the date hereof until the first day after the Restriction Period, SpinCo shall provide eBay, no later than ten days following the signing of any written agreement with respect to the Section 7.02(e) Acquisition Transaction, with a written description of such transaction (including the type and amount of SpinCo Capital Stock to be issued in such transaction) and a certificate of the Chief Financial Officer of SpinCo to the effect that the Section 7.02(e) Acquisition Transaction is not a Proposed Acquisition Transaction or any other transaction to which the requirements of Section 7.02(d) apply (a “CFO Certificate”).

Section 7.03 Restrictions on eBay. eBay agrees that it will not take or fail to take, or cause or permit any member of the eBay Group to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material information, covenant or representation in this Agreement, the Separation and Distribution Agreement, any of the Ancillary Agreements or any Representation Letters. eBay agrees that it will not take or fail to take, or cause or permit any member of the eBay Group to take or fail to take, any action which prevents or could reasonably be expected to prevent Tax-Free Status.

Section 7.04 Procedures Regarding Opinions and Rulings.

(a) If SpinCo notifies eBay that it desires to take one of the actions described in clauses (i) through (vi) of Section 7.02(d) (a “Notified Action”), eBay and SpinCo shall reasonably cooperate to attempt to obtain the private letter ruling or Unqualified Tax Opinion referred to in Section 7.02(d), unless eBay shall have waived the requirement to obtain such private letter ruling or Unqualified Tax Opinion.

(b) Rulings or Unqualified Tax Opinions at SpinCo’s Request. At the reasonable request of SpinCo pursuant to Section 7.02(d), eBay shall cooperate with SpinCo and use its reasonable best efforts to seek to obtain, as expeditiously as possible, a private letter ruling from the IRS

 

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(and/or any other applicable Tax Authority, or, if applicable, a supplemental private letter ruling) or an Unqualified Tax Opinion for the purpose of permitting SpinCo to take the Notified Action. Further, in no event shall eBay be required to file any request for a private letter ruling under this Section 7.04(b), unless SpinCo represents that (A) it has reviewed the request for such private letter ruling, and (B) all information and representations, if any, relating to any member of the SpinCo Group, contained in the related private letter ruling documents are (subject to any qualifications therein) true, correct and complete. SpinCo shall reimburse eBay for all reasonable costs and expenses incurred by the eBay Group in obtaining a private letter ruling or Unqualified Tax Opinion requested by SpinCo within ten Business Days after receiving an invoice from eBay therefor.

(c) Rulings or Unqualified Tax Opinions at eBay’s Request. eBay shall have the right to obtain a private letter ruling (or, if applicable, a supplemental private letter ruling) from the IRS and/or any other applicable Tax Authority) or an Unqualified Tax Opinion at any time in its sole and absolute discretion. If eBay determines to obtain a private letter ruling or an Unqualified Tax Opinion, SpinCo shall (and shall cause each Affiliate of SpinCo to) cooperate with eBay and take any and all actions reasonably requested by eBay in connection with obtaining the private letter ruling or Unqualified Tax Opinion (including, without limitation, by making any representation or covenant or providing any materials or information requested by the IRS, or other applicable Tax Authority, or Tax Advisor; provided that SpinCo shall not be required to make (or cause any Affiliate of SpinCo to make) any representation or covenant that is inconsistent with historical facts or as to future matters or events over which it has no control). eBay and SpinCo shall each bear its own costs and expenses in obtaining a private letter ruling or an Unqualified Tax Opinion requested by eBay.

(d) SpinCo hereby agrees that eBay shall have sole and exclusive control over the process of obtaining any private letter ruling pursuant to Section 7.04(b) or (c), and that only eBay shall apply for such a private letter ruling. In connection with obtaining a private letter ruling pursuant to Section 7.04(b), (A) eBay shall keep SpinCo informed in a timely manner of all material actions taken or proposed to be taken by eBay in connection therewith; (B) eBay shall (1) reasonably in advance of the submission of any related private letter ruling documents provide SpinCo with a draft copy thereof, (2) reasonably consider SpinCo’s comments on such draft copy, and (3) provide SpinCo with a final copy; and (C) eBay shall provide SpinCo with notice reasonably in advance of, and SpinCo shall have the right to attend, any meetings with the IRS or other applicable Tax Authority (subject to the approval of the IRS or other applicable Tax Authority) that relate to such private letter ruling. Neither SpinCo nor any SpinCo Affiliate directly or indirectly controlled by SpinCo shall seek any guidance from the IRS or any other Tax Authority (whether written, verbal or otherwise) at any time concerning the Contribution or the Distribution or the Internal Contribution and the Internal Distribution (including the impact of any transaction on the Contribution, Distribution, Internal Contribution, or Internal Distribution, as applicable). In addition, SpinCo’s applicable officers, employees, and/or representative shall also be listed on the power of attorney (IRS Form 2848 or comparable form) provided to the IRS or other applicable Tax Authority in connection with any such private letter ruling request.

 

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Section 7.05 Liability for Tax-Related Losses.

(a) Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.05(c), SpinCo shall be responsible for, and shall indemnify and hold harmless eBay and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of any Tax-Related Losses that are attributable to or result from any one or more of the following: (A) the acquisition (other than pursuant to the Contribution or the Distribution) of all or a portion of SpinCo’s Capital Stock and/or its or its subsidiaries’ assets (including any capital stock of 3P Holdings) by any means whatsoever by any Person, (B) any action or failure to act by SpinCo after the Distribution (including, without limitation, any amendment to SpinCo’s certificate of incorporation (or other organizational documents), whether through a stockholder vote or otherwise) affecting the voting rights of SpinCo stock (including, without limitation, through the conversion of one class of SpinCo Capital Stock into another class of SpinCo Capital Stock), (C) any act or failure to act by SpinCo or any SpinCo Affiliate described in Section 7.02 (regardless whether such act or failure to act is covered by a private letter ruling, Unqualified Tax Opinion or waiver described in clause (A), (B) or (C) of Section 7.02(d), or a CFO Certificate described in Section 7.02(e)) or (D) any breach by SpinCo of its agreement and representations set forth in Section 7.01.

(b) Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.05(c), eBay shall be responsible for, and shall indemnify and hold harmless SpinCo and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of any Tax-Related Losses that are attributable to, or result from any one or more of the following: (A) the acquisition (other than pursuant to the Contribution or the Distribution) of all or a portion of eBay’s stock and/or its or its subsidiaries’ assets (including any capital stock of eBay AG) by any means whatsoever by any Person, (B) any act or failure to act by eBay or a member of the eBay Group described in Section 7.03 or (C) any breach by eBay of its agreements and representations set forth in Section 7.01(a).

(c) Miscellaneous.

(i) To the extent that any Tax-Related Loss is subject to indemnity under both Sections 7.05(a) and (b), responsibility for such Tax-Related Loss shall be shared by eBay and SpinCo according to relative fault.

(ii) Notwithstanding anything in Section 7.05(b) or (c)(i) or any other provision of this Agreement or the Separation and Distribution Agreement to the contrary:

(A) with respect to (I) any Tax-Related Loss resulting from the application of Section 355(e) or Section 355(f) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in eBay or eBay AG) and (II) any other Tax-Related Loss resulting, in whole or in part, from an acquisition after the Distribution of any stock or assets of SpinCo (or any SpinCo Affiliate) by any means whatsoever by any Person or any action or failure to act by SpinCo affecting the voting rights of SpinCo or 3P Holdings stock, SpinCo shall be responsible for, and shall indemnify and hold harmless eBay and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of such Tax-Related Loss; and

(B) for purposes of calculating the amount and timing of any Tax-Related Loss for which SpinCo is responsible under this Section 7.05, Tax-Related Losses shall be calculated by assuming that eBay, the eBay Affiliated Group and each member of the eBay Group (I) pay Tax at the highest marginal corporate Tax rates in effect in each relevant taxable year and (II) have no Tax Attributes in any relevant taxable year.

 

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(iii) Notwithstanding anything in Section 7.05(a) or (c)(i) or any other provision of this Agreement or the Separation and Distribution Agreement to the contrary:

(A) with respect to (I) any Tax-Related Loss resulting from the application of Section 355(e) or Section 355(f) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in SpinCo or 3P Holdings) and (II) any other Tax-Related Loss resulting, in whole or in part, from an acquisition after the Distribution of any stock or assets of eBay (or any eBay Affiliate) by any means whatsoever by any Person, eBay shall be responsible for, and shall indemnify and hold harmless SpinCo and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of such Tax-Related Loss; and

(B) for purposes of calculating the amount and timing of any Tax-Related Loss for which Bay is responsible under this Section 7.05, Tax-Related Losses shall be calculated by assuming that SpinCo, the SpinCo Group and each member of the SpinCo Group (I) pay Tax at the highest marginal corporate Tax rates in effect in each relevant taxable year and (II) have no Tax Attributes in any relevant taxable year.

(d) SpinCo shall pay eBay the amount of any Tax-Related Losses for which SpinCo is responsible under this Section 7.05: (A) in the case of Tax-Related Losses described in clause (i) of the definition of Tax-Related Losses no later than two Business Days prior to the date eBay files, or causes to be filed, the applicable Tax Return for the year of the Contribution or Distribution, as applicable (the “Filing Date”) (provided that if such Tax-Related Losses arise pursuant to a Final Determination described in clause (a), (b) or (c) of the definition of “Final Determination,” then SpinCo shall pay eBay no later than two Business Days prior to the due date for making payment with respect to such Final Determination) and (B) in the case of Tax-Related Losses described in clause (ii) or (iii) of the definition of Tax-Related Losses, no later than two Business Days after the date eBay pays such Tax-Related Losses. eBay shall pay SpinCo the amount of any Tax-Related Losses (described in clause (ii) or (iii) of the definition of Tax-Related Loss) for which eBay is responsible under this Section 7.05 no later than two Business Days after the date SpinCo pays such Tax-Related Losses. Each Party shall have the right to review the calculation of any Tax-Related Losses prepared by the other Party, including any related workpapers and other supporting documentation.

Section 7.06 Section 336(e) Election. If eBay determines, in its sole discretion, that a protective election under Section 336(e) of the Code (a “Section 336(e) Election”) shall be

 

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made with respect to the Distribution, SpinCo shall (and shall cause the relevant member of the SpinCo Group to) join with eBay or the relevant member of the eBay Group in the making of such election and shall take any action reasonably requested by eBay or that is otherwise necessary to give effect to such election (including making any other related election). If a Section 336(e) Election is made with respect to the Distribution, then this Agreement shall be amended in such a manner as is determined by eBay in good faith to take into account such Section 336(e) Election (including by requiring that, in the event the Contribution and Distribution fail to have Tax-Free Status and eBay is not entitled to indemnification for the Tax-Related Losses arising from such failure, SpinCo shall pay over to eBay any Tax Benefits actually realized in cash by the SpinCo Group or any member of the SpinCo Group arising from the step-up in Tax basis resulting from the Section 336(e) Election); provided, such amounts payable shall be reduced by all reasonable costs incurred by SpinCo to amend any Tax Returns or other governmental filings related to such Section 336(e) Election.

Section 8. Assistance and Cooperation.

Section 8.01 Assistance and Cooperation.

(a) Each of the Companies shall provide (and cause its Affiliates to provide) the other and its agents, including accounting firms and legal counsel, with such cooperation or information as such other Company reasonably requests in connection with (i) preparing and filing Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the right to and amount of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making available, upon reasonable notice, all information and documents in their possession relating to the other Company and its Affiliates as provided in Section 9. Each of the Companies shall also make available to the other, as reasonably requested and available, personnel (including employees and agents of the Companies or their respective Affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes.

(b) Any information or documents provided under this Section 8 or Section 9 shall be kept confidential by the Company receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. In no event shall either of the Companies or any of its respective Affiliates be required to provide the other Company or any of its respective Affiliates or any other Person access to or copies of any information if such action could reasonably be expected to result in the waiver of any Privilege. In addition, in the event that either Company determines that the provision of any information to the other Company or its Affiliates could be commercially detrimental, violate any law or agreement or waive any Privilege, the parties shall use reasonable best efforts to permit compliance with its obligations under this Section 8 or Section 9 in a manner that avoids any such harm or consequence.

Section 8.02 Income Tax Return Information. SpinCo and eBay acknowledge that time is of the essence in relation to any request for information, assistance or cooperation made by eBay or SpinCo pursuant to Section 8.01 or this Section 8.02. SpinCo and eBay acknowledge that failure to conform to the deadlines set forth herein or reasonable deadlines otherwise set by eBay or SpinCo could cause irreparable harm. Each Company shall provide to the other

 

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Company information and documents relating to its Group required by the other Company to prepare Tax Returns. Any information or documents the Responsible Company requires to prepare such Tax Returns shall be provided in such form as the Responsible Company reasonably requests and in sufficient time for the Responsible Company to file such Tax Returns on a timely basis.

Section 8.03 Reliance by eBay. If any member of the SpinCo Group supplies information to a member of the eBay Group in connection with a Tax liability and an officer of a member of the eBay Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the eBay Group identifying the information being so relied upon, the chief financial officer of SpinCo (or any officer of SpinCo as designated by the chief financial officer of SpinCo) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. SpinCo agrees to indemnify and hold harmless each member of the eBay Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the SpinCo Group having supplied, pursuant to this Section 8, a member of the eBay Group with inaccurate or incomplete information in connection with a Tax liability.

Section 8.04 Reliance by SpinCo. If any member of the eBay Group supplies information to a member of the SpinCo Group in connection with a Tax liability and an officer of a member of the SpinCo Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the SpinCo Group identifying the information being so relied upon, the chief financial officer of eBay (or any officer of eBay as designated by the chief financial officer of eBay) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. eBay agrees to indemnify and hold harmless each member of the SpinCo Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the eBay Group having supplied, pursuant to this Section 8, a member of the SpinCo Group with inaccurate or incomplete information in connection with a Tax liability.

Section 9. Tax Records.

Section 9.01 Retention of Tax Records. Each Company shall preserve and keep all Tax Records (including emails and other digitally stored materials) exclusively relating to the assets and activities of its Group for Pre-Deconsolidation Periods and shall preserve and keep all other Tax Records relating to Taxes of the Groups for Pre-Deconsolidation Tax Periods, for so long as the contents thereof may become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until the later of (i) the expiration of any applicable statutes of limitations, or (ii) seven years after the Deconsolidation Date (such later date, the “Retention Date”). After the Retention Date, each Company may dispose of such Tax Records upon 90 days’ prior written notice to the other Company. If, prior to the Retention Date, a Company reasonably determines that any Tax Records which it would otherwise be required to preserve and keep under this Section 9 are no longer material in the administration of any matter under the Code or other applicable Tax Law and the other Company agrees, then such first Company may dispose of such Tax Records upon 90 days’ prior notice to the other Company. Any notice of an intent to dispose given pursuant to this Section 9.01 shall include a list of the

 

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Tax Records to be disposed of describing in reasonable detail each file, book, or other record accumulation being disposed. The notified Company shall have the opportunity, at its cost and expense, to copy or remove, within such 90-day period, all or any part of such Tax Records, and the other Party will then dispose of the same Tax Records.

Section 9.02 Access to Tax Records. The Companies and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records to the extent reasonably required by the other Company in connection with the preparation of financial accounting statements, audits, litigation, the preparation of Tax Returns, or the resolution of items under this Agreement.

Section 10. Tax Contests.

Section 10.01 Notice. Each of the Companies shall provide prompt notice, within five business days, by Federal Express or the equivalent with tracking receipt, to the other of any communication from a Tax Authority regarding any pending or threatened Tax audit, assessment or proceeding or other Tax Contest for which it may be entitled to indemnification by the other Company hereunder. Such notice shall include copies of the pertinent portion of any written communication from a Tax Authority and contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail. The failure of one Company to notify the other of such communication in accordance with the immediately preceding sentences shall not relieve such other Company of any liability or obligation to pay such Tax or make indemnification payments under this Agreement, except to the extent that the failure timely to provide such notification actually prejudices the ability of such other Company to contest such Tax liability or increases the amount of such Tax liability.

Section 10.02 Control of Tax Contests.

(a) Separate Company Tax Returns.

(i) Pre-Deconsolidation Date and Straddle Period Separate Returns. In the case of any Tax Contest with respect to any Separate Return (including any Separate Return with respect to Other Taxes) for any Tax Period ending on or prior to the Distribution Date or any Straddle Period, eBay (in the case of any such Separate Return filed with respect to any Person that, following the Distribution, is a member of the eBay Group) or SpinCo (in the case of any such Separate Return filed with respect to any Person that, following the Distribution, is a member of the SpinCo group), as applicable, shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Sections 10.02(d), 10.02(e), and 10.02(f)(ii) below.

(ii) Post-Deconsolidation Date Separate Returns. In the case of any Tax Contest with respect to any Separate Return (including any Separate Return with respect to Other Taxes) for any Tax Period beginning after the Distribution Date, the Responsible Party shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 10.02(e) below.

 

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(b) eBay Federal Consolidated Income Tax Returns. In the case of any Tax Contest with respect to any eBay Federal Consolidated Income Tax Return, eBay shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Sections 10.02(d) and 10.02(f)(i) below.

(c) eBay State Combined Income Tax Returns, eBay Foreign Combined Income Tax Returns, and Other Joint Returns. In the case of any Tax Contest with respect to any eBay State Combined Income Tax Return, any eBay Foreign Combined Income Tax Return or any Tax Return with respect to Other Taxes that is not described in Section 10.02(a), eBay shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 10.02(d) below.

(d) SpinCo Rights. In the case of any Tax Contest with respect to any Tax Return described in Section 10.02(a), (b), or (c) (other than any Separate Return described in Section 10.02(a)(ii)), if (x) as a result of such Tax Contest, SpinCo could reasonably be expected to become liable for an amount of Tax in excess of $1 million and (y) eBay has control of such Tax Contest pursuant to Section 10.02(a), (b), or (c), as applicable, then (i) eBay shall consult with SpinCo reasonably in advance of taking any significant action in connection with such Tax Contest, (ii) eBay shall consult with SpinCo and offer SpinCo a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (C) eBay shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, (D) SpinCo shall be entitled to participate in such Tax Contest and receive copies of any written materials relating to such Tax Contest received from the relevant Tax Authority, and (E) eBay shall not settle, compromise or abandon any such Tax Contest without obtaining the prior written consent of SpinCo, which consent shall not be unreasonably withheld.

(e) eBay Rights. In the case of any Tax Contest with respect to any Tax Return described in Section 10.02(a), if (x) as a result of such Tax Contest, eBay could reasonably be expected to become liable for an amount of Tax in excess of $1 million and (y) SpinCo has the right to control such Tax Contest pursuant to Section 10.02(a), then (i) SpinCo shall consult with eBay reasonably in advance of taking any significant action in connection with such Tax Contest, (ii) SpinCo shall consult with eBay and offer eBay a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (iii) SpinCo shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, (iv) eBay shall be entitled to participate in such Tax Contest and receive copies of any written materials relating to such Tax Contest received from the relevant Tax Authority, and (v) SpinCo shall not settle, compromise or abandon any such Tax Contest without obtaining the prior written consent of eBay, which consent shall not be unreasonably withheld. For the avoidance of doubt, this Section 10.02(e) shall apply to any Tax Contest with respect to a SpinCo Federal Consolidated Income Tax Return if, as a result of such Tax Contest, eBay could reasonably be expected to become liable for Taxes pursuant to Section 2.02(b) or (c).

(f) Distribution-Related Tax Contests.

(i) In the event of any Distribution-Related Tax Contest as a result of which SpinCo could reasonably be expected to become liable for any Tax or Tax-Related Losses and

 

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which eBay has the right to administer and control pursuant to Section 10.02(b) above, (A) eBay shall consult with SpinCo reasonably in advance of taking any significant action in connection with such Tax Contest, (B) eBay shall offer SpinCo a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (C) eBay shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, and (D) eBay shall provide SpinCo copies of any written materials relating to such Tax Contest received from the relevant Tax Authority. Notwithstanding anything in the preceding sentence to the contrary, the final determination of the positions taken, including with respect to settlement or other disposition, in any Distribution-Related Tax Contest shall be made in the sole discretion of eBay and shall be final and not subject to the dispute resolution provisions of Article VII of the Separation and Distribution Agreement.

(ii) In the event of any Distribution-Related Tax Contest with respect to any SpinCo Separate Return, (A) SpinCo shall consult with eBay reasonably in advance of taking any significant action in connection with such Tax Contest, (B) SpinCo shall consult with eBay and offer eBay a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (C) SpinCo shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, (D) eBay shall be entitled to participate in such Tax Contest and receive copies of any written materials relating to such Tax Contest received from the relevant Tax Authority, and (E) SpinCo shall not settle, compromise or abandon any such Tax Contest without obtaining the prior written consent of eBay, which consent shall not be unreasonably withheld.

(g) Power of Attorney.

(i) Each member of the SpinCo Group shall execute and deliver to eBay (or such member of the eBay Group as eBay shall designate) any power of attorney or other similar document reasonably requested by eBay (or such designee) in connection with any Tax Contest (as to which eBay is the Controlling Party) described in this Section 10.

(ii) Each member of the eBay Group shall execute and deliver to SpinCo (or such member of the SpinCo Group as SpinCo shall designate) any power of attorney or other similar document reasonably requested by SpinCo (or such designee) in connection with any Tax Contest (as to which SpinCo is the Controlling Party) described in this Section 10.

Section 11. Effective Date; Termination of Prior Intercompany Tax Allocation Agreements. This Agreement shall be effective as of the Effective Time. As of the Effective Time, (i) all prior intercompany Tax allocation agreements or arrangements solely between or among eBay and/or any of its Subsidiaries, on the one hand, and SpinCo and/or any of its Subsidiaries, on the other hand (including, for the avoidance of doubt, the Tax Allocation Agreement, by and among eBay and certain of its Subsidiaries, dated as of January 1, 2003), shall be terminated, and (ii) amounts due under such agreements as of the date on which the Effective Time occurs shall be settled. Upon such termination and settlement, no further payments by or to eBay or any of its Subsidiaries or by or to SpinCo

 

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or any of its Subsidiaries, with respect to such agreements shall be made, and all other rights and obligations resulting from such agreements between the Companies and their Affiliates shall cease at such time. Any payments pursuant to such agreements shall be disregarded for purposes of computing amounts due under this Agreement; provided that to the extent appropriate, payments made pursuant to such agreements shall be credited to SpinCo or eBay, respectively, in computing their respective obligations pursuant to this Agreement, in the event that such payments relate to a Tax liability that is the subject matter of this Agreement for a Tax Period that is the subject matter of this Agreement.

Section 12. Survival of Obligations. The representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time.

Section 13. Treatment of Payments; Tax Gross Up.

Section 13.01 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of any change in Tax treatment under the Code or other applicable Tax Law, for all Income Tax purposes, the Companies agree to treat, and to cause their respective Affiliates to treat, (i) any indemnity payment required by this Agreement or by the Separation and Distribution Agreement as either a contribution by eBay to SpinCo or a distribution by SpinCo to eBay, as the case may be, occurring immediately prior to the Distribution; and (ii) any payment of interest or State Income Taxes by or to a Tax Authority, as taxable or deductible, as the case may be, to the Company entitled under this Agreement to retain such payment or required under this Agreement to make such payment.

Section 13.02 Tax Gross Up. If notwithstanding the manner in which payments described in Section 13.01(i) were reported, there is an adjustment to the Tax liability of a Company as a result of its receipt of a payment pursuant to this Agreement or the Separation and Distribution Agreement, such payment shall be appropriately adjusted so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment which the Company receiving such payment would otherwise be entitled to receive.

Section 13.03 Interest. Anything herein to the contrary notwithstanding, to the extent one Company (“Indemnitor”) makes a payment of interest to another Company (“Indemnitee”) under this Agreement with respect to the period from the date that the Indemnitee made a payment of Tax to a Tax Authority to the date that the Indemnitor reimbursed the Indemnitee for such Tax payment, the interest payment shall be treated as interest expense to the Indemnitor (deductible to the extent provided by law) and as interest income by the Indemnitee (includible in income to the extent provided by law). The amount of the payment shall not be adjusted to take into account any associated Tax Benefit to the Indemnitor or increase in Tax to the Indemnitee.

Section 14. Disagreements. The Companies desire that collaboration will continue between them. Accordingly, they will try, and they will cause their respective Group members to try, to resolve in good faith all disagreements regarding their respective rights and obligations under this Agreement, including any amendments hereto. In furtherance thereof, in

 

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the event of any dispute or disagreement (other than a High-Level Dispute) (a “Tax Advisor Dispute”) between any member of the eBay Group and any member of the SpinCo Group as to the interpretation of any provision of this Agreement or the performance of obligations hereunder, the Tax departments of the Companies shall negotiate in good faith to resolve the Tax Advisor Dispute. If such good faith negotiations do not resolve the Tax Advisor Dispute, then the matter, upon written request of either Company, will be referred for resolution to the Escalation Committee, which will make a good faith effort to resolve the Tax Advisor Dispute pursuant to the procedures set forth in Article VII of the Separation and Distribution Agreement. If the Escalation Committee does not agree to a resolution of a Tax Advisor Dispute within thirty (30) days after the reference of the Tax Advisor Dispute to it, then the matter will be referred to a Tax Advisor acceptable to each of the Companies. The Tax Advisor may, in its discretion, obtain the services of any third-party appraiser, accounting firm or consultant that the Tax Advisor deems necessary to assist it in resolving such disagreement. The Tax Advisor shall furnish written notice to the Companies of its resolution of any such Tax Advisor Dispute as soon as practical, but in any event no later than 45 days after its acceptance of the matter for resolution. Any such resolution by the Tax Advisor will be conclusive and binding on the Companies. Following receipt of the Tax Advisor’s written notice to the Companies of its resolution of the Tax Advisor Dispute, the Companies shall each take or cause to be taken any action necessary to implement such resolution of the Tax Advisor. In accordance with Section 16, each Company shall pay its own fees and expenses (including the fees and expenses of its representatives) incurred in connection with the referral of the matter to the Tax Advisor. All fees and expenses of the Tax Advisor in connection with such referral shall be shared equally by the Companies. Any High-Level Dispute shall be resolved pursuant to the procedures set forth in Article VII of the Separation and Distribution Agreement. Nothing in this Section 14 will prevent either Company from seeking injunctive relief if any delay resulting from the efforts to resolve the Tax Advisor Dispute through the Escalation Committee and the Tax Advisor (or any delay resulting from the efforts to resolve any High-Level Dispute through the procedures set forth in Article VII of the Separation and Distribution Agreement) could result in serious and irreparable injury to either Company. Notwithstanding anything to the contrary in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, eBay and SpinCo are the only members of their respective Group entitled to commence a dispute resolution procedure under this Agreement, and each of eBay and SpinCo will cause its respective Group members not to commence any dispute resolution procedure other than through such party as provided in this Section 14.

Section 15. Late Payments. Any amount owed by one party to another party under this Agreement which is not paid when due shall bear interest at the Prime Rate plus two percent, compounded semiannually, from the due date of the payment to the date paid. To the extent interest required to be paid under this Section 15 duplicates interest required to be paid under any other provision of this Agreement, interest shall be computed at the higher of the interest rate provided under this Section 15 or the interest rate provided under such other provision.

Section 16. Expenses. Except as otherwise provided in this Agreement, each party and its Affiliates shall bear their own expenses incurred in connection with preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement.

 

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Section 17. General Provisions.

Section 17.01 Addresses and Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing, together with a copy by electronic mail (which shall not constitute notice), and shall be given or made (and shall be deemed to have been duly given or made upon acknowledgment of receipt) by delivery in person, by overnight courier service, or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 17.01):

 

If to eBay:

 

eBay Inc.

2065 Hamilton Avenue

San Jose, California 95125

Attention: Vice-President, Taxes

Email: [●]

with a copy to:

 

eBay Inc.

2065 Hamilton Avenue

San Jose, California 95125

Attention: Chief Financial Officer

Email: [●]

If to SpinCo:

 

PayPal Holdings, Inc.

2211 North First Street

San Jose, California 95131

Attention: Vice-President, Taxes

Email: [●]

with a copy to:

 

PayPal Holdings, Inc.

2211 North First Street

San Jose, California 95131

Attention: Chief Financial Officer

Email: [●]

A Party may, by notice to the other Party, change the address to which such notices are to be given.

Section 17.02 Assignability. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns; provided, that neither Party nor any such party thereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party hereto. Notwithstanding the foregoing, no such consent shall be required for the assignment of a party’s rights and obligations under this Agreement and the Ancillary Agreements (except as may be otherwise provided in any such Ancillary Agreement) in whole (i.e., the assignment of a party’s rights and obligations under this Agreement and all Ancillary Agreements all at the same time) in connection with a change of control of a Party so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party.

Section 17.03 Waiver. Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

 

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Section 17.04 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.

Section 17.05 Authority. eBay represents on behalf of itself and each other member of the eBay Group, and SpinCo represents on behalf of itself and each other member of the SpinCo Group, as follows: (i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and (ii) this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof.

Section 17.06 Further Action. The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other parties and their Affiliates and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other parties in accordance with Section 10.

Section 17.07 Integration. This Agreement, the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein. In the event of any inconsistency between this Agreement, the Separation and Distribution Agreement, any other agreements relating to the transactions contemplated by the Separation and Distribution Agreement, or the Tax Allocation Agreement, with respect to matters addressed herein, the provisions of this Agreement shall control.

Section 17.08 Construction. The language in all parts of this Agreement shall in all cases be construed according to its fair meaning and shall not be strictly construed for or against any party. The captions, titles and headings included in this Agreement are for convenience only, and do not affect this Agreement’s construction or interpretation. Unless otherwise indicated, all “Section” references in this Agreement are to sections of this Agreement.

Section 17.09 No Double Recovery. No provision of this Agreement shall be construed to provide an indemnity or other recovery for any costs, damages, or other amounts for which the damaged party has been fully compensated under any other provision of this Agreement or under any other agreement or action at law or equity. Unless expressly required in this Agreement, a party shall not be required to exhaust all remedies available under other agreements or at law or equity before recovering under the remedies provided in this Agreement.

 

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Section 17.10 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. Each Party acknowledges that it and each other Party is executing certain of the Ancillary Agreements by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by email in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by email in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.

Section 17.11 Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware including all matters of validity, construction, effect, enforceability, performance and remedies.

Section 17.12 Jurisdiction. If any dispute arises out of or in connection with this Agreement, except as expressly contemplated by another provision of this Agreement, the parties irrevocably (and the parties will cause each other member of their respective Group to irrevocably) (a) consent and submit to the exclusive jurisdiction of federal and state courts located in Delaware, (b) waive any objection to that choice of forum based on venue or to the effect that the forum is not convenient, and (c) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO TRIAL OR ADJUDICATION BY JURY.

Section 17.13 Amendment. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

Section 17.14 SpinCo Subsidiaries. If, at any time, SpinCo acquires or creates one or more subsidiaries that are includable in the SpinCo Group, they shall be subject to this Agreement and all references to the SpinCo Group herein shall thereafter include a reference to such subsidiaries.

Section 17.15 Successors. This Agreement shall be binding on and inure to the benefit of any successor by merger, acquisition of assets, or otherwise, to any of the parties hereto (including but not limited to any successor of eBay, SpinCo or PayPal succeeding to the Tax attributes of either under Section 381 of the Code), to the same extent as if such successor had been an original party to this Agreement.

 

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Section 17.16 Injunctions. The parties acknowledge that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. The parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which they may be entitled at law or in equity.

 

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IN WITNESS WHEREOF, each party has caused this Agreement to be executed on its behalf by a duly authorized officer on the date first set forth above.

 

EBAY INC.
By:

 

Name:

 

Title:

 

PAYPAL HOLDINGS, INC.
By:

 

Name:

 

Title:

 

 

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EX-10.4

Exhibit 10.4

EMPLOYEE MATTERS AGREEMENT

BY AND BETWEEN

EBAY INC.

AND

PAYPAL HOLDINGS, INC.

DATED AS OF [●], 2015


TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS

  1  

Section 1.01.

Definitions

  1  

Section 1.02.

Interpretation

  8  

ARTICLE II GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES

  8  

Section 2.01.

General Principles

  8  

Section 2.02.

Service Credit

  10  

Section 2.03.

Benefit Plans

  10  

Section 2.04.

Individual Agreements

  11  

Section 2.05.

Collective Bargaining

  12  

Section 2.06.

Non-U.S. Regulatory Compliance

  13  

ARTICLE III ASSIGNMENT OF EMPLOYEES

  14  

Section 3.01.

Employees

  14  

ARTICLE IV EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION

  15  

Section 4.01.

Generally; Definitions

  15  

Section 4.02.

Equity Incentive Awards

  18  

Section 4.03.

Employee Stock Purchase Plans

  28  

Section 4.04.

Non-Equity Incentive Plans

  29  

Section 4.05.

Director Compensation

  30  

ARTICLE V RETIREMENT PLANS

  31  

Section 5.01.

PayPal 401(k) Plan

  31  

Section 5.02.

Non-U.S. Retirement Plans

  32  

ARTICLE VI NONQUALIFIED DEFERRED COMPENSATION PLAN

  33  

Section 6.01.

PayPal Deferred Compensation Plan

  33  

Section 6.02.

Participation; Distributions

  33  

ARTICLE VII WELFARE BENEFIT PLANS

  33  

Section 7.01.

Welfare Plans

  33  

Section 7.02.

COBRA

  36  

Section 7.03.

Paid Time Off, Holidays and Leaves of Absence

  36  

Section 7.04.

Severance and Unemployment Compensation

  37  

Section 7.05.

Sabbatical Plans and Sabbatical Trusts

  37  

Section 7.06.

Workers’ Compensation

  37  

Section 7.07.

Insurance Contracts

  38  

Section 7.08.

Third-Party Vendors

  38  

 

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Section 7.09.

Fringe Benefits

  38  

ARTICLE VIII NON-U.S. EMPLOYEES

  38  

ARTICLE IX MISCELLANEOUS

  39  

Section 9.01.

Employee Records

  39  

Section 9.02.

Preservation of Rights to Amend

  40  

Section 9.03.

Fiduciary Matters

  40  

Section 9.04.

Further Assurances

  41  

Section 9.05.

Counterparts; Entire Agreement; Corporate Power

  41  

Section 9.06.

Governing Law

  42  

Section 9.07.

Assignability

  42  

Section 9.08.

Third-Party Beneficiaries

  42  

Section 9.09.

Notices

  42  

Section 9.10.

Severability

  43  

Section 9.11.

Force Majeure

  43  

Section 9.12.

Headings

  43  

Section 9.13.

Survival of Covenants

  43  

Section 9.14.

Waivers of Default

  44  

Section 9.15.

Dispute Resolution

  44  

Section 9.16.

Specific Performance

  44  

Section 9.17.

Amendments

  44  

Section 9.18.

Interpretation

  44  

Section 9.19.

Limitations of Liability

  45  

Section 9.20.

Mutual Drafting

  45  

Schedule 1.01(a)

eBay Fringe Benefit Plans

Schedule 1.01(b)

eBay Welfare Plans

Schedule 2.03(a)

eBay Benefit Plans to Be Replicated by PayPal (subject to the terms of the Agreement)

  

Schedule 2.03(b)

eBay Benefit Plans Not Required to Be Replicated by PayPal

 

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EMPLOYEE MATTERS AGREEMENT

This EMPLOYEE MATTERS AGREEMENT, dated as of [●], 2015 (this “Agreement”), is by and between eBay Inc., a Delaware corporation (“eBay”), and PayPal Holdings, Inc., a Delaware corporation (“PayPal”).

R E C I T A L S:

WHEREAS, the board of directors of eBay (the “eBay Board”) has determined that it is in the best interests of eBay and its shareholders to create a new publicly traded company that shall operate the PayPal Business (as defined below);

WHEREAS, in furtherance of the foregoing, the eBay Board has determined that it is appropriate and desirable to separate the PayPal Business from the eBay Business (the “Separation”) and, following the Separation, make a distribution, on a pro rata basis, to holders of eBay Shares on the Record Date of all the outstanding PayPal Shares owned by eBay (the “Distribution”);

WHEREAS, in order to effectuate the Separation and Distribution, eBay and PayPal have entered into a Separation and Distribution Agreement, dated as of [●], 2015 (the “Separation and Distribution Agreement”); and

WHEREAS, in addition to the matters addressed by the Separation and Distribution Agreement, the Parties desire to enter into this Agreement to set forth the terms and conditions of certain employment, compensation and benefit matters that have been agreed by the Parties in connection with the Separation.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to them in the Separation and Distribution Agreement.

Action” shall have the meaning set forth in the Separation and Distribution Agreement.

Affiliate” shall have the meaning set forth in the Separation and Distribution Agreement.

Agreement” shall have the meaning set forth in the preamble to this Agreement and shall include all Schedules hereto and all amendments, modifications, and changes hereto entered into pursuant to Section 9.17.


Ancillary Agreement” shall have the meaning set forth in the Separation and Distribution Agreement.

Assets” shall have the meaning set forth in the Separation and Distribution Agreement.

Benefit Plan” shall mean any contract, agreement, policy, practice, program, plan, trust, commitment or arrangement providing for benefits, perquisites, fringe benefits or compensation of any nature from an employer to any Employee, or to any family member, dependent, or beneficiary of any such Employee, including cash or deferred arrangement plans, profit sharing plans, pension plans, thrift plans, supplemental pension plans and health and welfare plans, stock option, stock purchase, restricted stock, restricted stock units, deferred stock award and other equity and/or equity-based compensation plans and contracts, commitments and arrangements providing for terms of employment, severance benefits, change of control protections or benefits, travel and accident, life, accidental death and dismemberment, disability and accident insurance, tuition reimbursement, travel reimbursement, paid time off, sick, personal or bereavement days, leaves of absences and holidays and sabbatical leave; provided, however, the term “Benefit Plan” does not include any government-sponsored benefits, such as workers’ compensation, government-sponsored retirement plans, unemployment or any similar plans, programs or policies or Individual Agreements.

COBRA” shall mean the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as codified at Section 601 et seq. of ERISA and at Section 4980B of the Code.

Code” shall have the meaning set forth in the Separation and Distribution Agreement.

Continuing eBay Director” shall mean each member of the eBay Board, as of the Effective Time, who continues to serve on the eBay Board immediately after the Effective Time.

Distribution” shall have the meaning set forth in the recitals to this Agreement.

Distribution Date” shall have the meaning set forth in the Separation and Distribution Agreement.

eBay” shall have the meaning set forth in the preamble to this Agreement.

eBay 401(k) Plan” shall mean the eBay Inc. 401(k) Savings Plan, as amended and restated effective January 1, 2015.

eBay 401(k) Trust” shall have the meaning set forth in Section 5.01(b).

eBay Benefit Plan” shall mean any Benefit Plan established, sponsored or maintained by eBay or any of its Subsidiaries immediately prior to the Effective Time, excluding any PayPal Benefit Plan.

eBay Board” shall have the meaning set forth in the recitals to this Agreement.

 

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eBay Business” shall have the meaning set forth in the Separation and Distribution Agreement.

eBay Change of Control” shall have the meaning set forth in Section 4.02(g).

eBay Compensation Committee” shall mean the Compensation Committee of the eBay Board.

eBay Deferred Compensation Plan” shall mean the eBay Inc. Deferred Compensation Plan, effective January 1, 2008.

eBay Equity Plan” shall mean any equity compensation plan sponsored or maintained by eBay immediately prior to the Effective Time, including the eBay Inc. 2008 Equity Incentive Award Plan, eBay Inc. 2003 Deferred Stock Unit Plan, eBay Inc. 2001 Equity Incentive Plan eBay Inc. 1999 Global Equity Incentive Plan eBay Inc. 1998 Directors Stock Option Plan, eBay Inc. 1998 Equity Incentive Plan, Braintree, Inc. 2011 Equity Incentive Plan, Bill Me Later 2000 Stock Incentive Plan, NPX Technologies LTD Amended and Restated 2005 Share Option Plan, CyberActive Security LTD. 2014 Israeli Employee Share Option Plan, Paydiant, Inc. 2011 Stock Option and Grant Plan, Paydiant Inc. Stock Restriction Agreements, GSI Commerce, Inc. 2005 Equity Incentive Plan, GSI Commerce, Inc. 2010 Equity Incentive Plan, Hunch Inc. 2007 Stock Plan, Magento, Inc. 2010 Equity Incentive Plan, SHUTL Limited Enterprise Management Incentive Scheme, StubHub, Inc. 2000 Stock Plan, Venmo Inc. 2010 Equity Compensation Plan, uLocate Communications, Inc. 2003 Stock Option and Incentive Plan, and Zong S.A. Equity Incentive Plan.

eBay Fringe Benefit Plans” shall mean the eBay fringe benefit plans as in effect immediately prior to the Effective Time and listed on Schedule 1.01(a).

eBay Group” shall have the meaning set forth in the Separation and Distribution Agreement.

eBay Group Employees” shall have the meaning set forth in Section 3.01(a).

eBay HSA” shall have the meaning set forth in Section 7.01(c).

eBay Incentive Plans” shall mean the eBay Incentive Plan and any other non-equity based incentive plan maintained by eBay as in effect immediately prior to the Effective Time and listed on Schedule 1.01(a).

eBay IP” shall have the meaning set forth in the Separation and Distribution Agreement.

eBay Liability” shall have the meaning set forth in the Separation and Distribution Agreement.

eBay Non-U.S. Retirement Plan” means an eBay Benefit Plan, the primary purpose of which is to provide retirement benefits to eBay Group Employees and/or Former eBay Group Employees who are or were employed by a non-U.S. Subsidiary of eBay.

 

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eBay Sabbatical Plans” shall mean the eBay Inc. Sabbatical Plan, as amended and restated effective December 1, 2014, and any other sabbatical policies or programs maintained by eBay outside of the United States, as applicable, as in effect immediately prior to the Effective Time and listed on Schedule 1.01(b).

eBay Sabbatical Trusts” shall mean the eBay Inc. Sabbatical Plan Trust Agreement effective June 1, 2005, and any other trusts or other funding arrangements maintained for the benefit of any eBay Sabbatical Plans outside of the United States, as applicable, as in effect immediately prior to the Effective Time and listed on Schedule 1.01(b).

eBay Welfare Plan” shall mean any Welfare Plan established, sponsored, maintained or contributed to by eBay or any of its Subsidiaries for the benefit of Employees or Former Employees, including each Welfare Plan listed on Schedule 1.01(b) but excluding any PayPal Welfare Plan.

Effective Time” shall have the meaning set forth in the Separation and Distribution Agreement.

Employee” shall mean any eBay Group Employee or PayPal Group Employee.

Employment Taxes” shall have the meaning set forth in Section 2.01(e).

ERISA” shall mean the U.S. Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

Exchange Act” shall have the meaning set forth in the Separation and Distribution Agreement.

Force Majeure” shall have the meaning set forth in the Separation and Distribution Agreement.

Former eBay Group Employee” shall mean any individual who is a former employee of the eBay Group as of the Effective Time and who is not a Former PayPal Group Employee.

Former Employees” shall mean Former eBay Group Employees and Former PayPal Group Employees.

Former PayPal Group Employee” shall mean (i) any individual identified as a Former PayPal Group Employee on the list previously prepared by eBay, and (ii) any individual who is a former employee of eBay or any of its Subsidiaries or former Subsidiaries as of the Effective Time, in each case, whose most recent employment with eBay was with a member of the PayPal Group or the PayPal Business.

Governmental Authority” shall have the meaning set forth in the Separation and Distribution Agreement.

 

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HIPAA” shall mean the U.S. Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations promulgated thereunder.

Individual Agreement” shall mean any individual (i) offer letter or employment contract, (ii) retention, severance or change of control agreement, (iii) expatriate (including any international assignee) contract or agreement (including agreements and obligations regarding repatriation, relocation, equalization of taxes and living standards in the host country), (iv) proprietary information and/or inventions agreement or (v) any agreement containing restrictive covenants (including confidentiality, intellectual property assignment, license, waiver and disclosure provisions, non-competition and non-solicitation provisions) between a member of the eBay Group or PayPal Group and a PayPal Group Employee or any Former PayPal Group Employee, or between a member of the eBay Group or PayPal Group and an eBay Group Employee or any Former eBay Group Employee, as applicable, as in effect immediately prior to the Effective Time.

Intellectual Property Matters Agreement” shall have the meaning set forth in the Separation and Distribution Agreement.

Intellectual Property Rights” shall have the meaning set forth in the Separation and Distribution Agreement.

IRS” shall mean the United States Internal Revenue Service.

Law” shall have the meaning set forth in the Separation and Distribution Agreement.

Liabilities” shall have the meaning set forth in the Separation and Distribution Agreement.

NASDAQ” shall have the meaning set forth in the Separation and Distribution Agreement.

Non-U.S. eBay Benefit Plan” shall mean an eBay Benefit Plan established, maintained, or contributed to by a member of the eBay Group that is primarily for the benefit of eBay Group Employees who are or were employed by a non-U.S. Subsidiary of eBay.

Non-U.S. PayPal Benefit Plan” shall mean a PayPal Benefit Plan established, maintained, or contributed to by a member of the PayPal Group that is primarily for the benefit of PayPal Group Employees who are or were employed by a non-U.S. Subsidiary of PayPal or eBay.

Offering Period” shall have the meaning set forth in the eBay ESPP or PayPal ESPP, as the context requires.

Party” shall mean a party to this Agreement.

PayPal” shall have the meaning set forth in the preamble to this Agreement.

 

-5-


PayPal 401(k) Plan” shall mean the PayPal 401(k) Savings Plan, to be adopted by PayPal prior to or on the Distribution as described in Section 5.01.

PayPal 401(k) Trust” shall have the meaning set forth in Section 5.01(a).

PayPal Benefit Plan” shall mean any Benefit Plan established, sponsored, maintained or contributed to by a member of the PayPal Group as of or after the Effective Time.

PayPal Board” shall mean the Board of Directors of PayPal.

PayPal Business” shall have the meaning set forth in the Separation and Distribution Agreement.

PayPal Change of Control” shall have the meaning set forth in Section 4.02(g).

PayPal Compensation Committee” shall mean the Compensation Committee of the PayPal Board.

PayPal Deferred Compensation Plan” shall mean a PayPal Deferred Compensation Plan established pursuant to Section 6.01.

PayPal Designees” shall have the meaning set forth in the Separation and Distribution Agreement.

PayPal Fringe Benefit Plans” shall mean the PayPal fringe benefit plans to be established by PayPal pursuant to Section 7.9.

PayPal Group” shall have the meaning set forth in the Separation and Distribution Agreement.

PayPal Group Employees” shall have the meaning set forth in Section 3.01(a).

PayPal HSA” shall have the meaning set forth in Section 7.01(c).

PayPal Incentive Plans” shall mean the PayPal Incentive Plans established pursuant to Section 4.04(a).

PayPal IP” shall have the meaning set forth in the Separation and Distribution Agreement.

PayPal Liabilities” shall have the meaning set forth in the Separation and Distribution Agreement.

PayPal Non-U.S. Retirement Plan” means a PayPal Benefit Plan, the primary purpose of which is to provide retirement benefits to PayPal Group Employees and/or Former PayPal Group Employees who are or were employed by a non-U.S. Subsidiary of PayPal or eBay.

PayPal Sabbatical Plans” shall mean the PayPal Sabbatical Plans established by PayPal pursuant to Section 7.05.

 

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PayPal Sabbatical Trusts” shall mean the Sabbatical Trusts established by PayPal pursuant to Section 7.05.

PayPal Welfare Plans” shall mean the Welfare Plans established, sponsored, maintained or contributed to by any member of the PayPal Group for the benefit of PayPal Group Employees and Former PayPal Group Employees.

Person” shall have the meaning set forth in the Separation and Distribution Agreement.

QDRO” shall mean a qualified domestic relations order within the meaning of Section 206(d) of ERISA and Section 414(p) of the Code.

Qualification Requirements” shall mean, in the aggregate, the tax qualification requirements of Section 401(a) of the Code, the tax exemption requirements of Section 501(a) of the Code, and the requirements described in Sections 401(k) and 401(m) of the Code in respect of a plan intended to meet such requirements.

Record Date” shall have the meaning set forth in the Separation and Distribution Agreement.

Securities Act” shall mean the U.S. Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

Separation” shall have the meaning set forth in the recitals to this Agreement.

Separation and Distribution Agreement” shall have the meaning set forth in the recitals to this Agreement.

Subsidiary” shall have the meaning set forth in the Separation and Distribution Agreement.

Third Party” shall have the meaning set forth in the Separation and Distribution Agreement.

Tax” shall have the meaning set forth in Section 2.01(e).

Tax Matters Agreement” shall have the meaning set forth in the Separation and Distribution Agreement.

Transferred Account Balances” shall have the meaning set forth in Section 7.01(d).

Transferring Director” shall mean each member of the PayPal Board, as of the Effective Time, who served on the eBay Board immediately prior to the Effective Time.

Transitioning eBay Group Employee” shall mean an eBay Group Employee covered under the Transition Success and Retention Program, whose last date of employment with the eBay Group is the Distribution Date, and who is not becoming a PayPal Group Employee upon the Separation.

 

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Transition Services Agreement” shall have the meaning set forth in the Separation and Distribution Agreement.

Transition Success and Retention Program” shall mean the Transition Success and Retention Program adopted by the eBay Board on December 15, 2014.

U.S.” shall mean the United States of America.

Welfare Plan” shall mean any “welfare plan” (as defined in Section 3(1) of ERISA) or a “cafeteria plan” under Section 125 of the Code, and any benefits offered thereunder, and any other plan offering health benefits (including medical, prescription drug, dental, vision, mental health and substance abuse), disability benefits, or life, accidental death and dismemberment, and business travel insurance, pre-tax premium conversion benefits, dependent care assistance programs, employee assistance programs, paid time-off programs, contribution funding toward a health savings account, flexible spending accounts or severance.

Section 1.02. Interpretation. Section 10.16 of the Separation and Distribution Agreement is hereby incorporated by reference.

ARTICLE II

GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES

Section 2.01. General Principles.

(a) Acceptance and Assumption of PayPal Liabilities. On or prior to the Effective Time, but in any case prior to the Distribution, and except as expressly set forth in this Agreement, PayPal and the applicable PayPal Designees shall accept, assume and agree to faithfully perform, discharge and fulfill all of the following Liabilities in accordance with their respective terms (each of which shall be considered a PayPal Liability), regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Time, regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by eBay’s or PayPal’s respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates against any member of the eBay Group or the PayPal Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the eBay Group or the PayPal Group, or any of their respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates:

(i) any and all wages, salaries, incentive compensation (as the same may be modified by this Agreement), equity compensation (as the same may be modified by this Agreement), commissions, bonuses and any other employee compensation or benefits payable, provided or made available to or on behalf of any PayPal Group Employees and Former PayPal Group Employees after the Effective Time, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;

 

-8-


(ii) any and all Liabilities whatsoever with respect to claims made by or with respect to any PayPal Group Employees or Former PayPal Group Employees in connection with any Benefit Plan obligations not retained or assumed by any member of the eBay Group pursuant to this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement or as otherwise provided in section 7.01(e); and

(iii) any and all Liabilities expressly assumed or retained by any member of the PayPal Group pursuant to this Agreement.

(b) Acceptance and Assumption of eBay Liabilities. On or prior to the Effective Time, but in any case prior to the Distribution and except as set forth in this Agreement, eBay and certain members of the eBay Group designated by eBay shall accept, assume and agree to faithfully perform, discharge and fulfill all of the following Liabilities held by PayPal or any PayPal Designee and eBay and the applicable members of the eBay Group shall be responsible for such Liabilities in accordance with their respective terms (each of which shall be considered an eBay Liability), regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Time, regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by eBay’s or PayPal’s respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates against any member of the eBay Group or the PayPal Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the eBay Group or the PayPal Group, or any of their respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates:

(i) any and all wages, salaries, incentive compensation (as the same may be modified by this Agreement), equity compensation (as the same may be modified by this Agreement), commissions, bonuses and any other employee compensation or benefits payable, provided or made available to or on behalf of any eBay Group Employees and Former eBay Group Employees after the Effective Time, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;

(ii) any and all Liabilities whatsoever with respect to claims made by or with respect to any eBay Group Employees or Former eBay Group Employees in connection with any Benefit Plan obligations not retained or assumed by any member of the PayPal Group pursuant to this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement; and

(iii) any and all Liabilities expressly assumed or retained by any member of the eBay Group pursuant to this Agreement.

(c) Unaddressed Liabilities. To the extent that this Agreement does not address particular Liabilities under any Benefit Plan or with respect to any Employees and the

 

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Parties later determine that they should be allocated in connection with the Distribution, the Parties shall agree in good faith on the allocation, taking into account the handling of comparable Liabilities under this Agreement.

(d) Fiduciary Liability Insurance. Treatment of claims covered by fiduciary liability insurance shall be governed by Section 5.1 of the Separation and Distribution Agreement.

(e) Employment Tax Liabilities and Responsibilities for Audit.

(i) The eBay Group shall be liable for, and shall indemnify and hold harmless the PayPal Group from and against any Liability for, any payroll, social security, workers compensation, unemployment, disability or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing (collectively, “Employment Taxes”) that relate to any eBay Group Employee, Former eBay Group Employee or Transitioning eBay Group Employee, whether any such Liability has arisen, or may arise, in respect of any taxable period (or portion thereof) that ends on or prior to the Distribution Date.

(ii) The PayPal Group shall be liable for, and shall indemnify and hold harmless the eBay Group from and against any Liability for, any Employment Taxes that relate to any PayPal Group Employee or Former PayPal Group Employee, whether any such Liability has arisen, or may arise, in respect of any taxable period (or portion thereof) that ends on or prior to the Distribution Date.

(iii) The Party that has Liability for the relevant Employment Taxes as provided in Section 2.01(e)(i) or (ii) above, as applicable, shall also be responsible for, and have exclusive control (including for purposes of settlement of Liability) over, any ongoing or future audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining such relevant Employment Taxes (including any administrative or judicial review of any claim for refund) or which may otherwise be in respect of such relevant Employment Taxes.

Section 2.02. Service Credit. The PayPal Benefit Plans shall, and PayPal shall cause each member of the PayPal Group to, recognize each PayPal Group Employee’s and each Former PayPal Group Employee’s full service with eBay or any of its Subsidiaries or predecessor entities at or before the Effective Time, to the same extent that such service was recognized by eBay for similar purposes prior to the Effective Time as if such full service had been performed for a member of the PayPal Group, for purposes of eligibility, vesting and determination of level of benefits under any such PayPal Benefit Plan but only with respect to those PayPal Benefit Plans in existence immediately following the Effective Time.

Section 2.03. Benefit Plans.

(a) Establishment of Benefit Plans. Except as otherwise specified herein, before the Effective Time, PayPal shall, or shall cause an applicable member of the PayPal Group to, adopt Benefit Plans (and related trusts and other funding instruments, if applicable), which

 

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through December 31, 2015 shall have substantially the same terms as of immediately prior to the Effective Time (or such other standard as is specified in this Agreement with respect to any particular Benefit Plan) to those of the corresponding eBay Benefit Plans, including in particular those listed on Schedule 2.03(a); provided, however, that PayPal may limit participation in any such PayPal Benefit Plan to PayPal Group Employees and Former PayPal Group Employees who participated in the corresponding eBay Benefit Plan immediately prior to the Effective Time. Notwithstanding the foregoing, PayPal may make such changes, modifications or amendments to the PayPal Benefit Plans as may be required by applicable Law or as are necessary and appropriate to reflect the Separation or vendor limitations.

(b) Benefit Plans Not Required to Be Adopted. Notwithstanding Section 2.03(a) above, PayPal shall not be required to adopt any Benefit Plan (or related trust, if applicable) (i) to the extent that such adoption would not be permitted under applicable Law, regulation, practice, or vendor limitations, (ii) if the parties agree that such Benefit Plan should not be so adopted by PayPal, or (iii) if such Benefit Plan is listed on Schedule 2.03(b). With respect to any eBay Benefit Plan not listed on Schedule 2.03(a) and Schedule 2.03(b), the parties shall agree in good faith on the treatment of such plan taking into account the handling of any comparable plan under this Agreement.

(c) Information and Operation. eBay shall, subject to and in compliance with applicable Law, provide PayPal with information describing each eBay Benefit Plan election made by a PayPal Group Employee, Former PayPal Group Employee and (with respect to any fees payable after the Effective Time), any Continuing eBay Director or Transferring Director, that may have application to PayPal Benefit Plans from and after the Effective Time, and PayPal shall use its commercially reasonable efforts to administer the PayPal Benefit Plans using those elections; and, further, to the extent necessary in order for eBay to administer any eBay Benefit Plan, PayPal shall provide eBay with such same information. Each Party shall, upon reasonable request, provide the other Party and the other Party’s respective Affiliates, agents, and vendors all information reasonably necessary to the other Party’s operation or administration of its Benefit Plans.

Section 2.04.

(a) No Duplication or Acceleration of Benefits. Notwithstanding anything to the contrary in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, (i) no participant in any PayPal Benefit Plan shall receive service credit or benefits to the extent that receipt of such service credit or benefits would result in duplication of benefits provided to such participant by the corresponding eBay Benefit Plan or any other plan, program or arrangement sponsored or maintained by a member of the eBay Group and (ii) no participant in any eBay Benefit Plan shall receive service credit or benefits to the extent receipt of such service credit or benefits would result in duplication of benefits provided to such participant in the corresponding PayPal Benefit Plan or any other plan, program or agreement sponsored or maintained by a member of the PayPal Group. Furthermore, unless expressly provided for in this Agreement, the Separation and Distribution Agreement or in any Ancillary Agreement or required by applicable Law, no provision in this Agreement shall be construed to create any right to accelerate vesting or entitlements under any Benefit Plan sponsored or maintained by a member of the eBay Group or member of the PayPal Group on the part of any Employee or Former Employee, including in connection with the termination of employment.

 

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(b) No Expansion of Participation. Unless otherwise expressly provided in this Agreement, as otherwise determined or agreed to by eBay and PayPal, as required by applicable Law, or as explicitly set forth in a PayPal Benefit Plan, a PayPal Group Employee or Former PayPal Group Employee shall be entitled to participate in the PayPal Benefit Plans at the Effective Time only to the extent that such PayPal Group Employee or Former PayPal Group Employee was entitled to participate in the corresponding eBay Benefit Plan as in effect immediately prior to the Effective Time (to the extent that such PayPal Group Employee or Former PayPal Group Employee does not participate in the respective PayPal Benefit Plan immediately prior to the Effective Time), it being understood that this Agreement does not expand (i) the number of PayPal Group Employees or Former PayPal Group Employees entitled to participate in any PayPal Benefit Plan or (ii) the participation rights of PayPal Group Employees or Former PayPal Group Employees in any PayPal Benefit Plans beyond the rights of such PayPal Group Employees or Former PayPal Group Employees under the corresponding eBay Benefit Plans, in each case, after the Effective Time. Unless otherwise expressly provided by this Agreement or otherwise agreed by the Parties, as of the Effective Time, a PayPal Group Employee or Former PayPal Group Employee shall not be a participant in an eBay Benefit Plan.

(c) Transition Services. The Parties acknowledge that eBay Group and PayPal Group may (i) agree that eBay Group may provide certain PayPal Benefit Plan administration for a period of time after the Distribution Date and (ii) share certain tools and programs relating to human resource functions as specified under the Transition Services Agreement and, if required by HIPAA or other applicable privacy laws, shall enter into any applicable business associate agreement with respect to such arrangement.

(d) Beneficiaries. References to eBay Group Employees, Former eBay Group Employees, PayPal Group Employees, Former PayPal Group Employees, and non-employee directors of either eBay or PayPal (including Transferring Directors), shall be deemed to include reference to their beneficiaries, dependents, survivors and alternate payees, as applicable.

(e) Non-U.S. Benefit Plan. Prior to the Distribution Date, the PayPal Group shall, subject to and in compliance with applicable Law, except as otherwise mutually agreed upon by the parties or as otherwise provided in Section 2.03(b), adopt the Non-U.S. PayPal Benefit Plans, with terms comparable to those of the corresponding Non-U.S. eBay Benefit Plans through December 31, 2015 or undertake negotiations to this extent within the mandatory time periods provided by applicable Law, as applicable; provided, however, that PayPal may limit participation in any Non-U.S. PayPal Benefit Plan to PayPal Group Employees who participated in the corresponding Non-U.S. eBay Benefit Plan immediately prior to the Distribution Date except where such differentiation is prohibited by applicable Law.

Section 2.05. Individual Agreements.

(a) Assignment by eBay. To the extent necessary, eBay shall assign, or cause an applicable member of the eBay Group to assign, to PayPal or another member of the PayPal Group, as designated by PayPal, all Individual Agreements between such member of the eBay

 

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Group and any PayPal Group Employee or Former PayPal Group Employee, with such assignment to be effective as of the Effective Time; provided, however, that to the extent that assignment of any such Individual Agreement is not permitted by the terms of such agreement or by applicable Law, effective as of the Effective Time, each member of the PayPal Group shall be considered to be a successor to each member of the eBay Group for purposes of, and a third-party beneficiary with respect to, such Individual Agreement, such that each member of the PayPal Group shall enjoy all of the rights and benefits under such agreement (including rights and benefits as a third-party beneficiary and the right to enforce any such agreement), with respect to the business operations of the PayPal Group; provided, further, that in no event shall eBay be permitted to enforce any Individual Agreement (including any agreement containing non-competition or non-solicitation covenants) against a PayPal Group Employee or Former PayPal Group Employee for action taken in such individual’s capacity as a PayPal Group Employee or Former PayPal Group Employee unless the Parties mutually agree that such action is commercially reasonable under the circumstances as they exist at such time.

(b) Assumption by PayPal. Effective as of the Effective Time, PayPal will assume and honor, or will cause a member of the PayPal Group to assume and honor, any Individual Agreement to which any PayPal Group Employee or Former PayPal Group Employee is a party with any member of the eBay Group, and all obligations and responsibilities of the applicable member of the eBay Group thereunder.

(c) Residual Intellectual Property Rights under any Individual Agreement. Effective as of the Effective Time, notwithstanding the fact that any Individual Agreement that contains covenants regarding Intellectual Property Rights with respect to both eBay IP and PayPal IP may be retained or assumed by either a member of the eBay Group or the PayPal Group, as applicable, the party that is not retaining or assuming any such Individual Agreement shall nevertheless retain all rights and benefits under such agreement with respect to its Intellectual Property Rights, including the right to enforce any such covenants.

Section 2.06. Collective Bargaining. Effective no later than immediately prior to the Effective Time, to the extent necessary under and permitted by applicable Law, PayPal shall, in compliance with applicable Law, cause the appropriate member of the PayPal Group to (a) assume all collective bargaining agreements (including any national, sector or local collective bargaining agreement), works council and other similar labor relations agreements and arrangements that cover PayPal Group Employees and/or Former PayPal Group Employees, and all Liabilities arising under any such collective bargaining, works council and other similar labor relations agreements and arrangements, and (b) join any industrial, employer or similar association or federation if membership is required for such relevant collective bargaining, works council and other similar labor relations agreement or arrangement to continue to apply and cover the relevant PayPal Group Employees and Former PayPal Group Employees, as applicable.

Section 2.07. Non-U.S. Regulatory Compliance. The Parties shall have the authority to adjust the treatment described in this Agreement, including the treatment under any Benefit Plan, with respect to PayPal Group Employees and/or Former PayPal Group Employees who are located outside of the United States in order to ensure compliance with the applicable Laws of countries outside of the United States or to preserve the Tax benefits provided under local Tax Law before the Distribution or as are necessary and appropriate to reflect the Separation or vendor limitations.

 

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ARTICLE III

ASSIGNMENT OF EMPLOYEES

Section 3.01. Employees.

(a) Assignment and Transfer of Employees. Effective no later than immediately prior to the Effective Time and except as otherwise agreed by the Parties, (i) the applicable member of the Parties shall have taken such actions as are necessary to ensure to the extent possible that each individual who is intended to be an employee of the PayPal Group as of immediately after the Effective Time (including any such individual who is not actively working as of the Effective Time as a result of an illness, injury or leave of absence (including due to a short-term or long-term disability) approved by the eBay Human Resources department or otherwise taken in accordance with applicable Law) (collectively, the “PayPal Group Employees”) is employed by a member of the PayPal Group as of immediately after the Effective Time, on terms and conditions of employment which are substantially comparable to the terms of employment governing such individuals prior to their assignment and (ii) the Parties shall have taken such actions as are necessary to ensure to the extent possible that each individual who is intended to be an employee of the eBay Group as of immediately after the Effective Time (including any such individual who is not actively working as of the Effective Time as a result of an illness, injury or leave of absence (including due to a short-term or long-term disability) approved by the eBay Human Resources department or otherwise taken in accordance with applicable Law) and any other individual employed by the eBay Group as of the Effective Time who is not a PayPal Group Employee (collectively, the “eBay Group Employees”) is employed by a member of the eBay Group as of immediately after the Effective Time, on terms and conditions of employment which are substantially comparable to the terms of employment governing such individuals prior to their assignment. Each of the Parties agrees to execute, and to seek to have the applicable Employees execute, such documentation, if any, as may be necessary to reflect such assignment and/or to comply with applicable Law in relation to the automatic transfer of the employment of applicable Employees including, but not limited to, any transfer pursuant to any regulation or other legislation that has implemented the Acquired Rights Directive 2001. To the extent applicable, independent contractors shall also be allocated between the PayPal Group and the eBay Group by the Parties taking such actions as are necessary to ensure that each individual who is intended to be an independent contractor of either Party or both Parties immediately after the Effective Time is an independent contractor of either Party or both Parties as applicable.

(b) At-Will Status. Nothing in this Agreement shall create any obligation to any Employee on the part of any member of the eBay Group or any member of the PayPal Group to (i) continue the employment of any Employee or permit the return from a leave of absence for any period after the date of this Agreement (except as required by applicable Law) or (ii) change the employment status of any Employee from “at-will,” to the extent that such Employee is an “at-will” employee under applicable Law.

(c) Severance. Except as required by applicable Law the Parties acknowledge and agree that the Distribution and the assignment, transfer or continuation of the employment of Employees as contemplated by this Section 3.01 shall not be deemed an involuntary termination of employment entitling any PayPal Group Employee or eBay Group Employee to severance payments or benefits, provided that any severance payments or benefits that become payable notwithstanding the intent of the Parties shall be subject to Section 7.04.

 

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(d) Not a Change of Control/Change in Control. The Parties acknowledge and agree that neither the consummation of the Separation, Distribution nor any transaction contemplated by this Agreement, the Separation and Distribution Agreement or any other Ancillary Agreement shall be deemed a “change of control,” “change in control,” or term of similar import for purposes of any Benefit Plan sponsored or maintained by any member of the eBay Group or member of the PayPal Group.

(e) Payroll and Related Taxes. Except as otherwise agreed by the Parties, for purposes of United States payroll taxes with respect to PayPal Group Employees or group of PayPal Group Employees, the Parties and their respective Affiliates agree to implement this treatment by utilizing solely Section 4 of Revenue Procedure 2004-53, STANDARD PROCEDURE FOR PREDECESSORS AND SUCCESSORS.

(f) Information and Consultation. The Parties shall comply, or shall cause their respective Affiliates to comply, with any obligations to inform, consult with, negotiate and/or obtain the consent of, or formal rendering of advice from, all applicable labor or trade unions, works councils and any other employee representative bodies and shall make any notifications necessary as a result of the Separation, Distribution or any of the transactions contemplated by this Agreement, as required by applicable Law or any written agreement.

ARTICLE IV

EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION

Section 4.01. Generally; Definitions.

(a) Generally. Each eBay Equity Award that is outstanding as of immediately prior to the Effective Time shall be adjusted as described below; provided, however, that, effective immediately prior to the Effective Time, the eBay Compensation Committee may provide for different adjustments with respect to some or all eBay Equity Awards to the extent that the eBay Compensation Committee deems such adjustments necessary and appropriate and in accordance with the terms of the applicable eBay Equity Plan. Any adjustments made by the eBay Compensation Committee pursuant to the foregoing sentence shall be deemed incorporated by reference herein as if fully set forth below and shall be binding on the Parties and their respective Affiliates. Before the Effective Time, the PayPal Equity Plan shall be established, with such terms as are necessary to permit the implementation of the provisions of Section 4.02.

(b) Definitions. For ease of reference, the following additional terms as used in this Agreement (and specifically this Article IV) shall have the meanings set forth below.

Distributed PayPal Stock Value” shall mean the product obtained by multiplying (x) the Post-Spin PayPal Stock Value by (y) the Distribution Ratio.

Distribution Ratio” shall have the meaning set forth in the Separation and Distribution Agreement.

 

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eBay Equity Awards” shall mean, collectively, eBay Options, eBay RSU Awards, eBay Restricted Stock Awards, eBay PSU Awards, eBay DSU Awards, eBay PBRSU Awards and GSI LTIP Awards.

eBay DSU Award” shall mean a deferred stock unit award, granted pursuant to the eBay Equity Plan, that is outstanding immediately prior to the Effective Time.

eBay ESPP” shall mean the eBay Inc. Employee Stock Purchase Plan, effective November 1, 2012 and any sub-plan maintained outside of the U.S.

eBay ESPP Option” shall mean an option granted pursuant to the eBay ESPP, that is outstanding prior to the Effective Time.

eBay Option” shall mean an option to purchase eBay Shares granted pursuant to an eBay Equity Plan that is outstanding as of immediately prior to the Effective Time.

eBay Option Exercise Price Ratio” shall mean, with respect to an eBay Option or eBay ESPP Option, as applicable, the quotient obtained by dividing (x) the per share exercise price of such eBay Option or eBay ESPP Option, as applicable, immediately prior to the Effective Time, by (y) the Pre-Spin eBay Stock Value.

eBay PBRSU Award” shall mean a performance-based restricted stock unit award, which, for accounting purposes, has been deemed granted and outstanding as of immediately prior to the Effective Time.

eBay PSU Award” shall mean a performance stock unit award, granted pursuant to an eBay Equity Plan, that is outstanding immediately prior to the Effective Time.

eBay Restricted Stock Award” shall mean a restricted stock award, granted pursuant to an eBay Equity Plan, that is outstanding as of immediately prior to the Effective Time, which does not otherwise become vested solely by virtue of the Distribution.

eBay Retained Award Conversion Ratio” shall mean the quotient obtained by dividing (x) the Pre-Spin eBay Stock Value, by (y) the Post-Spin eBay Stock Value.

eBay RSU Award” shall mean a restricted stock unit award, granted pursuant to an eBay Equity Plan, that is outstanding as of immediately prior to the Effective Time, which is not otherwise accelerated solely by virtue of the Distribution.

eBay Shares” shall have the meaning set forth in the Separation and Distribution Agreement.

eBay Stock Value Ratio” shall mean the quotient obtained by dividing (x) the Pre-Spin eBay Stock Value by (y) the sum of (1) the Distributed PayPal Stock Value and (2) the Post-Spin eBay Stock Value.

GSI LTIP Award” shall mean a performance-based long-term incentive award, payable in shares or cash, under the applicable eBay Equity Plan.

 

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PayPal DSU Award” shall mean a deferred stock unit award issued under the PayPal Equity Plan, in respect of a corresponding eBay DSU Award that has been assumed by PayPal in accordance with Section 4.02(e).

PayPal Equity Award Conversion Ratio” shall mean the quotient obtained by dividing (x) the Pre-Spin eBay Stock Value, by (y) the Post-Spin PayPal Stock Value.

PayPal Equity Awards” shall mean, collectively, PayPal Options, PayPal RSU Awards, PayPal PBRSU Awards, PayPal PSU Awards, PayPal Restricted Stock Awards, PayPal DSU Awards and PayPal-GSI LTIP Awards.

PayPal Equity Plan” shall mean the PayPal 2015 Equity Incentive Plan, to be adopted by PayPal prior to the Distribution Date as described in Section 4.01.

PayPal ESPP” shall mean the PayPal Employee Stock Purchase Plan, to be adopted by PayPal prior to the Distribution Date as described in Section 4.03.

PayPal ESPP Option” shall mean an option to purchase PayPal Shares issued under the PayPal ESPP in respect of a corresponding eBay ESPP Option that has been assumed by PayPal in accordance with Section 4.03.

PayPal GSI LTIP Award” shall mean an award issued under the PayPal Equity Plan in respect of the corresponding GSI LTIP Award that has been assumed by PayPal in accordance with Section 4.02(f).

PayPal Option” shall mean an option to purchase PayPal Shares issued under the PayPal Equity Plan in respect of a corresponding eBay Option that has been assumed by PayPal in accordance with Section 4.02(a).

PayPal PBRSU Award” shall mean a performance base restricted stock unit award issued under the PayPal Equity Plan, in respect of a corresponding eBay PBRSU Award that has been assumed by PayPal in accordance with Section 4.02(c).

PayPal PSU Award” shall mean a performance stock unit award issued under the PayPal Equity Plan in respect of a corresponding eBay PSU Award that has been assumed by PayPal in accordance with Section 4.02(c).

PayPal Restricted Stock Award” shall mean a restricted stock award issued under the PayPal Equity Plan in respect of a corresponding eBay Restricted Stock Award that has been assumed by PayPal in accordance with Section 4.02(d).

PayPal RSU Award” shall mean a restricted stock unit award issued under the PayPal Equity Plan in respect of a corresponding eBay RSU Award that has been assumed by PayPal in accordance with Section 4.02(b).

PayPal Shares” shall have the meaning set forth in the Separation and Distribution Agreement.

 

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PayPal Stock Value Ratio” shall mean the quotient obtained by dividing (x) the Pre-Spin eBay Stock Value by (y) the sum of (1) the Post-Spin PayPal Stock Value and (2) the quotient obtained by dividing (A) the Post-Spin eBay Stock Value by (B) the Distribution Ratio.

Post-Spin eBay DSU Award” shall mean an eBay DSU Award, as adjusted as of the Effective Time in accordance with Section 4.02(e).

Post-Spin eBay Equity Awards” shall mean, collectively, Post-Spin eBay Options, Post-Spin eBay RSU Awards, Post-Spin eBay PBRSU Awards, Post-Spin eBay PSU Awards and Post-Spin eBay DSU Awards.

Post-Spin eBay ESPP Option” shall mean an eBay ESPP Option, as adjusted as of the Effective Time in accordance with Section 4.03.

Post-Spin eBay Option” shall mean an eBay Option, as adjusted as of the Effective Time in accordance with Section 4.02(a).

Post-Spin eBay PBRSU Award” shall mean an eBay PBRSU Award, as adjusted or granted, as applicable, in accordance with Section 4.02(c).

Post-Spin eBay PSU Award” shall mean an eBay PSU Award, as adjusted as of the Effective Time in accordance with Section 4.02(d).

Post-Spin eBay RSU Award” shall mean an eBay RSU Award, as adjusted as of the Effective Time in accordance with Section 4.02(b).

Post-Spin eBay Stock Value” shall mean the opening per-share price of eBay Shares on the NASDAQ on the first regular trading session (9:30 am to 4:00 pm EST) after the Distribution Date.

Post-Spin PayPal Stock Value” shall mean the opening per-share price of PayPal Shares on the NASDAQ on the first regular trading session (9:30 am to 4:00 pm EST) after the Distribution Date.

Pre-Spin eBay Stock Value” shall mean the closing per-share price of eBay Shares trading “regular way with due bills” on the NASDAQ on the last regular trading session (9:30 am to 4:00 pm EST) on the Distribution Date.

Section 4.02. Equity Incentive Awards.

(a) Stock Options. Each eBay Option that is outstanding immediately prior to the Effective Time shall be converted as of the Effective Time into either a Post-Spin eBay Option or a PayPal Option, as described below:

(i) eBay Group Employees who are not Transitioning eBay Group Employees. Each vested and unvested eBay Option held by an eBay Group Employee (and not otherwise adjusted as provided in subsection (iii) hereof) and each vested and exercisable eBay Option held by a Former eBay Group Employee (if any) shall (1) be

 

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converted, as of the Effective Time, into a Post-Spin eBay Option through an adjustment thereto as provided in this Section 4.02(a)(i), and (2) otherwise be subject to the same terms and conditions (including with respect to vesting and expiration of exercise period, as applicable) after the Effective Time as applicable to such corresponding eBay Option immediately prior to the Effective Time, in accordance with the following:

(A) the number of eBay Shares subject to such Post-Spin eBay Option (rounded down to the nearest whole share) shall be equal to the product obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay Option immediately prior to the Effective Time, by (y) the eBay Retained Award Conversion Ratio; and

(B) the per share exercise price of such Post-Spin eBay Option (rounded up to the nearest cent) shall be equal to the product obtained by multiplying (x) the Post-Spin eBay Stock Value, by (y) the eBay Option Exercise Price Ratio.

(ii) PayPal Group Employees. Each vested and unvested eBay Option held by a PayPal Group Employee and each vested and exercisable eBay Option held by a Former PayPal Group Employee (if any) shall (1) be converted, as of the Effective Time, into a PayPal Option outstanding under the PayPal Equity Plan through an adjustment thereto as provided in this Section 4.02(a)(ii), and (2) otherwise be subject to the same terms and conditions (including with respect to vesting and expiration of exercise period, as applicable) after the Effective Time as applicable to such eBay Option immediately prior to the Effective Time, in accordance with the following:

(A) the number of PayPal Shares subject to such PayPal Option (rounded down to the nearest whole share) shall be equal to the product obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay Option immediately prior to the Effective Time, by (y) the PayPal Equity Award Exchange Ratio; and

(B) the per share exercise price of such PayPal Option (rounded up to the nearest cent) shall be equal to the product obtained by multiplying (x) the Post-Spin PayPal Stock Value, by (y) the eBay Option Exercise Price Ratio of the corresponding eBay Option.

(iii) Transitioning eBay Group Employees. Each vested eBay Option that is outstanding as of immediately prior to the Effective Time and held by a Transitioning eBay Group Employee shall (1) be converted, as of the Effective Time, through an adjustment thereto as provided in this Section 4.02(a)(iii), into both a Post-Spin eBay Option outstanding under the eBay Equity Plan and a PayPal Option outstanding under the PayPal Equity Plan and (2) otherwise be subject to the same terms and conditions (including with respect to vesting and expiration of exercise period, as applicable) after the Effective Time as were applicable to such eBay Option immediately prior to the Effective Time (as such terms and conditions may be modified by the Transition Success and Retention Program) in accordance with the following:

(A) the number of eBay Shares subject to such Post-Spin eBay Option shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay Option immediately prior to the Effective Time, by (y) the eBay Stock Value Ratio; and

 

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(B) the per share exercise price of such Post-Spin eBay Option shall be equal to the quotient (rounded up to the nearest cent) obtained by dividing (x) the per share exercise price of the corresponding eBay Option immediately prior to the Effective Time, by (y) the eBay Retained Award Conversion Ratio; and

(C) the number of PayPal Shares subject to such PayPal Option shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay Option immediately prior to the Effective Time, by (y) the PayPal Stock Value Ratio; and

(D) the per share exercise price of such PayPal Option shall be equal to the quotient (rounded up to the nearest cent) obtained by dividing (x) the per share exercise price of the corresponding eBay Option immediately prior to the Effective Time, by (y) the PayPal Equity Award Conversion Ratio.

(iv) Directors. Each vested and unvested eBay Option that is outstanding and held by an eBay non-employee director as of immediately prior to the Effective Time shall (1) be converted, as of the Effective Time, through an adjustment thereto as provided in this Section 4.02(a)(iv), into both a Post-Spin eBay Option outstanding under the eBay Equity Plan and a PayPal Option outstanding under the PayPal Equity Plan and (2) otherwise be subject to the same terms and conditions (including with respect to vesting and expiration, as applicable) after the Effective Time as were applicable to such eBay Option immediately prior to the Effective Time, in accordance with the following:

(A) the number of eBay Shares subject to such Post-Spin eBay Option shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay Option immediately prior to the Effective Time, by (y) the eBay Stock Value Ratio;

(B) the per share exercise price of such Post-Spin eBay Option shall be equal to the quotient (rounded up to the nearest cent) obtained by dividing (x) the per share exercise price of the corresponding eBay Option immediately prior to the Effective Time, by (y) the eBay Retained Award Conversion Ratio; and

(C) the number of PayPal Shares subject to such PayPal Option shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay Option immediately prior to the Effective Time, by (y) the PayPal Stock Value Ratio;

 

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(D) the per share exercise price of such PayPal Option shall be equal to the quotient (rounded up to the nearest cent) obtained by dividing (x) the per share exercise price of the corresponding eBay Option immediately prior to the Effective Time, by (y) the PayPal Equity Award Conversion Ratio.

Notwithstanding anything to the contrary in this Section 4.02(a), the exercise price, the number of eBay Shares and PayPal Shares subject to each Post-Spin eBay Option and PayPal Option, as applicable, and the terms and conditions of exercise of such options, shall be determined in a manner consistent with the requirements of Section 409A of the Code; provided, further, that, in the case of any eBay Option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code as of immediately prior to the Effective Time, the exercise price, the number of eBay Shares and PayPal Shares subject to such option, and the terms and conditions of exercise of such option shall be determined in a manner consistent with the requirements of Section 424(a) of the Code.

(b) RSU Awards. Each eBay RSU Award that is outstanding immediately prior to the Effective Time shall be converted as of the Effective Time into either a Post-Spin eBay RSU Award or a PayPal RSU Award, as described below:

(i) eBay Group Employees who are not Transitioning eBay Group Employees. Each eBay RSU Award held by an eBay Group Employee who is not a Transitioning eBay Group Employee shall (1) be converted as of the Effective Time, into a Post-Spin eBay RSU Award through an adjustment thereto as provided in this Section 4.02(b)(i), and (2) otherwise be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as applicable to such eBay RSU Award immediately prior to the Effective Time, in accordance with the following: the number of eBay Shares subject to each Post-Spin eBay RSU Award (rounded down to the nearest whole share) shall be equal to the product obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay RSU Award immediately prior to the Effective Time, by (y) the eBay Retained Award Conversion Ratio.

(ii) Transitioning eBay Group Employees. Each eBay RSU Award that is outstanding as of immediately prior to the Effective Time and held by a Transitioning eBay Group Employee shall (1) be converted as of the Effective Time, through an adjustment thereto as provided in this Section 4.02(b)(ii), into a Post-Spin eBay RSU Award outstanding under the eBay Equity Plan and a PayPal RSU Award outstanding under the PayPal Equity Plan and (2) otherwise be subject to the same terms and conditions after the Effective Time as were applicable to such eBay RSU Award prior to the Effective Time as such terms and conditions may be modified by the Transition Success and Retention Program, in accordance with the following:

(A) the number of shares subject to the Post-Spin eBay RSU Award shall remain the same number of eBay Shares subject to the eBay RSU Award immediately prior to the Effective Time; and

 

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(B) the number of shares subject to the PayPal RSU Award shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the eBay RSU Award immediately prior to the Effective Time, by (y) the Distribution Ratio.

(iii) PayPal Group Employees. Each eBay RSU Award held by a PayPal Group Employee shall (1) be converted as of the Effective Time into a PayPal RSU Award outstanding under the PayPal Equity Plan through an adjustment thereto as provided in this Section 4.02(b)(iii) and (2) otherwise be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as applicable to such eBay RSU Award immediately prior to the Effective Time, in accordance with the following: the number of PayPal Shares subject to such PayPal RSU Award (rounded down to the nearest share) shall be equal to the product obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay RSU Award immediately prior to the Effective Time, by (y) the PayPal Equity Award Conversion Ratio.

(c) PBRSU Awards and PSU Awards.

(i) Adjustment of Performance Targets of PBRSU Awards for eBay Group Employees who are not Transitioning eBay Group Employees, and PayPal Group Employees. As of the Effective Time, each target eBay PBRSU Award with a fiscal year 2014-2015 performance period or a fiscal year 2015-2016 performance period that has been granted under the applicable eBay Equity Plan and is outstanding immediately prior to the Effective Time (an “Outstanding eBay PBRSU Award”), if any, shall be converted as of the Effective Time into either a target Post-Spin eBay PBRSU Award or a target PayPal PBRSU Award, in either such case with the performance criteria for the 2014-2015 eBay PBRSU Awards being adjusted such that the performance goal for 2015 shall be based on the performance of the relevant business unit, rather than eBay Inc., in accordance with the following:

(A) Target PBRSU Awards for eBay Group Employees who are not Transitioning eBay Group Employees. Any Outstanding eBay PBRSU Award held by an eBay Group Employee (and not described in subsection (iii) hereof) shall (1) be converted as of the Effective Time, through an adjustment thereto as provided in this Section 4.02(c)(i)(A), into a target Post-Spin eBay PBRSU Award and (2) otherwise be subject to the same terms and conditions (including with respect to vesting and performance conditions) after the Effective Time as applicable to such Outstanding eBay PBRSU Award immediately prior to the Effective Time, in accordance with the following: the target number of eBay Shares subject to such target Post-Spin eBay PBRSU Award shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the corresponding Outstanding eBay PBRSU Award immediately prior to the Effective Time, by (y) the eBay Retained Award Conversion Ratio.

(B) Target PBRSU Award for PayPal Group Employees. Any Outstanding eBay PBRSU Award held by a PayPal Group Employee shall (1) be converted as of the Effective Time, into a target Post-Spin PayPal PBRSU Award through an adjustment thereto as provided in this Section 4.02(c)(i)(B), and (2) otherwise be subject to

 

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the same terms and conditions (including with respect to vesting and performance conditions) after the Effective Time as applicable to such Outstanding eBay PBRSU Award immediately prior to the Effective Time, in accordance with the following: the target number of PayPal Shares subject to such target PayPal PBRSU Award (rounded down to the nearest whole share) shall be equal to the product obtained by multiplying (x) the number of eBay Shares subject to the corresponding Outstanding eBay PBRSU Award immediately prior to the Effective Time, by (y) the PayPal Equity Award Conversion Ratio.

(ii) PBRSU Awards to be Granted to eBay Group Employees who are not Transitioning eBay Group Employees, and PayPal Employees. With respect to any target eBay PBRSU Award with a fiscal year 2014-2015 performance period or a fiscal year 2015-2016 performance period (collectively, “Future PBRSU Awards”) which has not yet been granted pursuant to the applicable eBay Equity Plan, the following provisions shall apply:

(A) any eBay Group Employee who would, in accordance with the normal practices of eBay, be granted Future PBRSU Awards pursuant to the applicable eBay Equity Plan, shall be granted, subject to the eBay Group’s actual achievement of applicable performance goals and such eBay Group Employee’s continuous service with any member of the eBay Group through the date of grant, a number of RSUs subject to the Future PBRSU Awards pursuant to the applicable eBay Equity Plan, determined using the formula provided in Section 4.02(c)(i)(A) above, as if such Future PBRSU Awards had been Outstanding eBay PBRSU Awards as of immediately prior to the Effective Time and otherwise determined under the normal grant practices of eBay; and

(B) any PayPal Group Employee who would, if he or she had remained an eBay Group Employee through the date Future PBRSU Awards would, in accordance with the normal practices of eBay, have been granted, shall be granted, subject to the PayPal Group’s actual achievement of applicable performance goals and such PayPal Group Employee’s continuous service with any member of the PayPal Group from the Distribution Date through the date of grant, a number of RSUs subject to the PayPal PBRSU Awards pursuant to the PayPal Equity Plan, determined using the formula provided in Section 4.02(c)(i)(B) above, as if the Future PBRSU Awards to which such PayPal PBRSU Awards correspond had been Outstanding eBay PBRSU Awards as of immediately prior to the Effective Time, and otherwise determined under the applicable grant practices of PayPal.

(iii) PBRSU Awards and PSU Awards for Transitioning eBay Group Employees. Each Outstanding eBay PBRSU Award and eBay PSU Award that is outstanding as of immediately prior to the Effective Time and held by a Transitioning eBay Group Employee shall (1) be converted, as of the Effective Time, into a Post-Spin eBay PBRSU Award and Post-Spin eBay PSU Award, respectively, outstanding under the eBay Equity Plan and a PayPal PBRSU Award and a PayPal PSU Award, respectively, outstanding under the PayPal Equity Plan through an adjustment thereto as provided in this Section 4.02(iii), and (2) otherwise be subject to the same terms and conditions after the Effective Time as were applicable to such Outstanding eBay PBRSU Award and eBay PSU Award, respectively, prior to the Effective Time (as such terms and

 

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conditions may be modified by the Transition Success and Retention Program) in accordance with the following:

(A) the number of shares subject to the Post-Spin eBay PBRSU Award and Post-Spin eBay PSU Award, respectively, shall be equal to the same number of eBay Shares subject to the Outstanding eBay PBRSU Award and eBay PSU Award, respectively, immediately prior to the Effective Time; and

(B) the number of shares subject to the PayPal PBRSU Award and PayPal PSU Award, respectively, shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the Outstanding eBay PBRSU Award and eBay PSU Award, respectively, immediately prior to the Effective Time, by (y) the Distribution Ratio.

(d) Restricted Stock Awards. Each eBay Restricted Stock Award that is outstanding as of immediately prior to the Effective Time and held by a PayPal Group Employee shall (1) be converted, as of the Effective Time, into a PayPal Restricted Stock Award outstanding under the PayPal Equity Plan as provided in this Section 4.02(d) and (2) otherwise be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as were applicable to such eBay Restricted Stock Award prior to the Effective Time, in accordance with the following: the number of PayPal Shares subject to such PayPal Restricted Stock Award shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the corresponding eBay Restricted Stock Award immediately prior to the Effective Time, by (y) the PayPal Equity Award Conversion Ratio.

(e) DSU Awards. Each eBay DSU Award that is outstanding and held by a non-employee director of eBay as of immediately prior to the Effective Time shall (1) be converted, as of the Effective Time, into a Post-Spin eBay DSU Award outstanding under the eBay Equity Plan and a PayPal DSU Award outstanding under the PayPal Equity Plan as provided in this Section 4.02(e) and (2) otherwise be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as were applicable to such eBay DSU Award prior to the Effective Time, in accordance with the following:

(i) the number of shares subject to the Post-Spin eBay DSU Award shall be equal to the same number of eBay Shares subject to the eBay DSU Award immediately prior to the Effective Time; and

(ii) the number of shares subject to the PayPal DSU Award shall be equal to the product (rounded down to the nearest whole share) obtained by multiplying (x) the number of eBay Shares subject to the eBay DSU Award immediately prior to the Effective Time by (y) the Distribution Ratio.

(f) GSI LTIP Awards. Each GSI LTIP Award that is outstanding prior to the Effective Time and held by a PayPal Group Employee shall (1) be converted, as of the Effective Time, into a PayPal-GSI LTIP Award outstanding under the PayPal Equity Plan as provided in this Section 4.02(f) and (2) otherwise be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as were applicable to such GSI LTIP Award prior to the Effective Time, provided that such award may be settled in PayPal Shares and shall not be settled in eBay Shares.

 

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(g) Miscellaneous Terms.

(i) With respect to Post-Spin eBay Equity Awards and PayPal Equity Awards: (A) employment or service with the eBay Group or the PayPal Group, as applicable, prior to the Effective Time shall be treated as employment with or service to eBay with respect to Post-Spin eBay Equity Awards held by any person who is employed by or provides services to any member of the eBay Group immediately following the Effective Time (including any Continuing eBay Director); and (B) employment with or service to the eBay Group or the PayPal Group, as applicable, prior to the Effective Time shall be treated as employment with or service to PayPal with respect to PayPal Equity Awards held by any person who is employed by or provides services to any member of the PayPal Group immediately following the Effective Time (including any Transferring Director). In addition, (I) none of the Separation, the Distribution or any employment transfer described in Section 3.01(a), nor the fact that upon Separation certain nonemployee members of the eBay Board will serve as Continuing eBay Directors but (relative to any PayPal Equity Award) cease to provide services to the PayPal Group and other nonemployee members of the eBay Board will serve as Transferring Directors but (relative to Post-Spin eBay Equity Awards) cease to provide services to the eBay Group, shall constitute a termination of employment or service for any Employee or any such nonemployee member of the eBay Board for purposes of any Post-Spin eBay Equity Award or any PayPal Equity Award, as applicable, and (II) after the Effective Time, for any equity award adjusted under this Section 4.02, any reference to a “change of control,” “change in control” or similar definition in an award agreement, offer letter, employment agreement, equity side letter or eBay Equity Plan applicable to such award (x) with respect to Post-Spin eBay Equity Awards, shall be deemed to refer to a “change of control,” “change in control” or similar definition as set forth in the applicable award agreement, offer letter, employment agreement, equity side letter or eBay Equity Plan (an “eBay Change of Control”), and (y) with respect to PayPal Equity Awards, shall be deemed to refer to a “change in control” as defined in the PayPal Equity Plan (a “PayPal Change of Control”).

(ii) Any determination in respect of any Post-Spin eBay Equity Award held by a nonemployee of eBay shall be made by the Compensation Committee of the eBay Board or its designee, and any determination in respect of any Post-Spin PayPal Equity Award held by a nonemployee of PayPal shall be made by the Compensation Committee of the PayPal Board or its designee.

(iii) The PayPal Equity Plan shall assume and honor the terms of all QDROs and any other domestic relations orders in effect under the eBay Equity Plan (and any award agreements granted thereunder) in respect of PayPal Group Employees and Former PayPal Group Employees immediately prior to the Distribution Date (for PayPal Group Employees and Former PayPal Group Employees, as applicable).

(h) Settlement and Forfeiture of Equity Awards.

(i) Allocation of Responsibility for Settlement of Equity Awards. Except as otherwise provided in this Section 4.02(h) and Section 4.02(i), after the Effective Time,

 

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Post-Spin eBay Equity Awards, regardless of whether held by Employees or Former Employees, shall be settled by eBay, and PayPal Equity Awards, regardless of whether held by Employees or Former Employees, shall be settled by PayPal. eBay and PayPal shall cooperate, in accordance with the terms of Section 2.03(c), to coordinate the prompt settlement of any such awards that become vested on the Distribution Date and any such awards that are exercised on or after the Distribution Date, as applicable, in accordance with the terms of Section 4.02(j).

(ii) Forfeiture of Equity Awards. Following the Effective Time, if any Post-Spin eBay Equity Award held by a PayPal Group Employee, Former PayPal Group Employee or Transferring Director shall fail to become vested, such Post-Spin eBay Equity Award shall be forfeited to eBay, and if any PayPal Equity Award held by an eBay Group Employee, Former eBay Group Employee or non-employee director of eBay shall fail to become vested, such PayPal Equity Award shall be forfeited to PayPal.

(i) Equity Award Tax Reporting, Withholding and Deductions.

(i) Tax Withholding for PayPal Equity Awards. Upon the vesting, payment or settlement, as applicable, of PayPal Equity Awards, the PayPal Group shall be solely responsible for ensuring (A) the satisfaction of all applicable tax withholding requirements on behalf of each PayPal Group Employee or Former PayPal Group Employee and (B) the collection and remittance of applicable withholding taxes to the eBay Group with respect to each Transitioning eBay Group Employee (with eBay Group being responsible for remittance of such taxes to the applicable Governmental Authority).

(ii) Tax Withholding for Post-Spin eBay Equity Awards. Upon the vesting, payment or settlement, as applicable, of Post-Spin eBay Equity Awards, the eBay Group shall be solely responsible for ensuring (A) the satisfaction of all applicable tax withholding requirements on behalf of each eBay Group Employee or Former eBay Group Employee and (B) the collection and remittance of applicable withholding taxes to the PayPal Group with respect to each Transitioning eBay Group Employee (with PayPal Group being responsible for remittance of such taxes to the applicable Governmental Authority).

(iii) Applicable Withholding Rates. The applicable tax withholding requirements, for an Employee subject to tax in the United States shall be based on the minimum statutory rates and except as otherwise required by applicable Law, for Employees subject to tax outside the United States shall be based on the maximum statutory requirements.

(iv) Tax Reporting. Following the Effective Time: (A) the eBay Group shall be responsible for all income and social tax reporting in respect of Post-Spin eBay Equity Awards held by eBay Group Employees, and any Post-Spin eBay Equity Awards and PayPal Equity Awards held by Former eBay Group Employees and individuals who are or were eBay non-employee directors (excluding Transferring Directors), as applicable; and (B) the PayPal Group shall be responsible for all income and social tax reporting in respect of Post-Spin eBay Equity Awards held by Transferring Directors, and PayPal Equity Awards held by PayPal Group Employees, Former PayPal Group Employees and Transferring Directors, as applicable.

 

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(v) Tax Deductions. Following the Effective Time, the party entitled to claim the Tax (as defined in the Tax Matters Agreement) deductions in respect of an eBay Equity Award or PayPal Equity Award, as applicable, shall be governed by Section 6.02 of the Tax Matters Agreement.

(j) Cooperation. Each of the Parties shall establish an appropriate administration system in order to administer, in an orderly manner, (i) exercises of vested Post-Spin eBay Options and PayPal Options, (ii) the vesting and forfeiture of unvested Post-Spin eBay Equity Awards and PayPal Equity Awards, and (iii) the withholding and reporting requirements with respect to all equity awards. Each of the Parties shall use their reasonable best efforts together to unify and consolidate all indicative data and payroll and employment information on regular timetables and make certain that each applicable Person’s data and records in respect of such awards are correct and updated on a timely basis. The foregoing shall include employment status (e.g., disability or termination of employment) and other information that may be required for vesting and forfeiture of awards and tax withholding/remittance, and any proceedings referenced in Section 2.01(e), compliance with trading windows and compliance with the requirements of the Exchange Act and other applicable Laws.

(k) Establishment of PayPal Equity Plan. Effective as of or prior to the Effective Time, the PayPal Board shall (i) adopt the PayPal Equity Plan under which the PayPal Options, PayPal RSU Awards, PayPal PBRSU Awards, PayPal Restricted Stock Awards, PayPal PSU Awards and PayPal DSU Awards, as applicable, shall be granted and (ii) cause PayPal to assume the obligations under the eBay Equity Awards that are, pursuant to this Agreement, being replaced with the applicable PayPal Options, PayPal RSU Awards, PayPal PBRSU Awards, PayPal Restricted Stock Awards, PayPal PSU Awards and PayPal DSU Awards. To the extent necessary for any such awards to qualify for transitional relief under Treasury Regulation Section 1.162-27(f)(4)(iii), eBay shall take the necessary action to grant or approve the PayPal Equity Awards. The PayPal Equity Plan shall have substantially comparable terms, as of immediately prior to the Effective Time, as the eBay Equity Plan under which the corresponding eBay Equity Awards were governed prior to the Distribution with such changes as are necessary and appropriate to reflect the Separation and such other changes, modifications or amendments to the PayPal Equity Plans as may be required by applicable Law. PayPal shall also assume and honor the terms of all QDROs and any other domestic relations orders in effect under the eBay Equity Plan in respect of PayPal Group Employees immediately prior to the Distribution Date (for PayPal Group Employees) for all purposes of PayPal Equity Awards under the PayPal Equity Plan.

(l) Registration and Other Regulatory Requirements. PayPal agrees to file Forms S-1, S-3 and/or S-8 registration statements with respect to, and to cause to be registered pursuant to the Securities Act, the PayPal Shares authorized for issuance under the PayPal Equity Plan, as required pursuant to the Securities Act, no later than the Effective Time and in any event before the date of issuance of any PayPal Shares pursuant to the PayPal Equity Plan. The parties shall take such additional actions as are deemed necessary or advisable to effectuate the foregoing provisions of Article IV, including compliance with securities Laws and other legal requirements associated with equity compensation awards in affected non-U.S. jurisdictions.

 

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Section 4.03. Employee Stock Purchase Plans.

(a) eBay ESPP. Each eBay ESPP Option that is outstanding immediately prior to the Effective Time shall be converted as of the Effective Time into either a Post-Spin eBay ESPP Option or a PayPal ESPP Option as described below:

(i) Each eBay ESPP Option held by an eBay Group Employee shall (1) be converted as of the Effective Time into a Post-Spin eBay ESPP Option through an adjustment thereto as provided in this Section 4.03, and (2) otherwise be subject to the same terms and conditions (including with respect to expiration) after the Effective Time as applicable to such eBay ESPP Option immediately prior to the Effective Time, in accordance with the following:

(A) The maximum number of eBay Shares subject to such Post-Spin eBay ESPP Option for the purchase period in effect on the Distribution Date (rounded down to the nearest whole share) shall be equal to the product obtained by multiplying (x) the maximum number of shares subject to the eBay ESPP Option, by (y) the eBay Retained Award Conversion Ratio; and

(B) the per share offering date purchase price for each Offering Period in effect on the Distribution Date of such Post-Spin eBay ESPP Option (rounded up to the nearest cent) shall be equal to the product obtained by multiplying (x) the Post-Spin eBay Stock Value, by (y) the eBay Option Exercise Price Ratio of the corresponding eBay ESPP Option.

(ii) Each eBay ESPP Option held by a PayPal Group Employee shall be converted as of the Effective Time into a PayPal ESPP Option outstanding under the PayPal ESPP Plan and shall, except as otherwise provided in this Section 4.03, be subject to the same terms and conditions (including with respect to expiration) after the Effective Time as applicable to such eBay ESPP Option immediately prior to the Effective Time in accordance with the following:

(A) The maximum number of PayPal Shares subject to such PayPal ESPP Option for the purchase period in effect on the Distribution Date (rounded down to the nearest whole share), shall be equal to the product obtained by multiplying (1) the maximum number of share subject to an eBay Option, by (2) the PayPal Equity Award Conversion Ratio; and

(B) the per share offering date purchase price for the Offering Period in effect on the Distribution Date of such PayPal ESPP Option (rounded up to the nearest cent), shall be equal to the product obtained by multiplying (1) the Post-Spin PayPal Stock Value, by (2) the eBay Option Exercise Price Ratio of the corresponding eBay ESPP Option.

Notwithstanding anything to the contrary in this Section 4.03, in the case of any eBay ESPP Option to which Section 421 of the Code applies by reason of its qualification under Section 423 of the Code as of immediately prior to the Effective Time, the exercise price, the number of eBay Shares and PayPal Shares subject to such option, and the terms and conditions of exercise of such option shall be determined in a manner consistent with the requirements of Section 424(a) of the Code.

 

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(b) Establishment of PayPal ESPP. Prior to the Effective Time, PayPal shall (i) adopt the PayPal ESPP under which the PayPal ESPP Options shall be granted and (ii) assume the obligations under the eBay ESPP Options that are, pursuant to this Agreement, being replaced with the PayPal ESPP Options. The PayPal ESPP may have terms that are comparable to those in effect, as of immediately prior to the Effective Time, under which the corresponding eBay ESPP Options were governed prior to the Distribution, including with such changes as are necessary and appropriate to reflect the Separation and such other changes, modifications or amendments to the PayPal Equity Plans as may be required by applicable Law. The PayPal ESPP will include authority to grant options which do not meet the requirements of Section 423(b) of the Code (as well as options which meet such requirements).

(c) Elections under the ESPP. PayPal and eBay shall use their reasonable best efforts to cooperate to facilitate: (i) the carryover of current elections made by each PayPal Group Employee in effect under the eBay ESPP to the PayPal ESPP and (ii) the transfer of contributions associated with such elections from the eBay ESPP to the PayPal ESPP.

Section 4.04. Non-Equity Incentive Plans.

(a) Corporate Bonus Plans.

(i) No later than the Effective Time, PayPal shall establish the PayPal Incentive Plans, which, through December 31, 2015, shall have substantially comparable terms as of immediately prior to the Effective Time as the corresponding eBay Incentive Plans in which the PayPal Group Employee participated as of immediately prior to the Effective Time, with such changes to the applicable performance goals as may be necessary in order to reflect the PayPal Business following the Separation, and such other changes, modifications or amendments to the PayPal Incentive Plans as may be required by applicable Law. PayPal Group Employees shall be eligible to participate in the PayPal Incentive Plans as of the Effective Time to the extent that they were eligible to participate in the eBay Incentive Plans as of immediately prior to the Effective Time.

(ii) The applicable determining body, person or group of persons of the PayPal Group shall be responsible for determining all bonus awards that would otherwise be payable under the PayPal Incentive Plans to PayPal Group Employees or Former PayPal Group Employees for any performance periods that are open when the Effective Time occurs. The PayPal Group shall also determine for PayPal Group Employees or Former PayPal Group Employees (A) the extent to which established performance criteria (as interpreted by the applicable determining body, person or group of persons of the PayPal Group, in its sole discretion) have been met, and (B) the payment level for each PayPal Group Employee or Former PayPal Group Employee. The PayPal Group shall assume all Liabilities with respect to any such bonus awards payable to PayPal Group Employees or Former PayPal Group Employees for any performance periods that are open when the Effective Time occurs and thereafter, and any other Liabilities relating to PayPal Group Employees or Former PayPal Group Employees under the eBay Incentive Plans and no member of the eBay Group shall have any obligations with respect thereto.

 

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(iii) The applicable determining body, person or group of persons of eBay Group shall be responsible for determining all bonus awards that would otherwise be payable under the eBay Incentive Plans to eBay Group Employees or Former eBay Group Employees for any performance periods that are open when the Effective Time occurs. The eBay Group shall also determine for eBay Group Employees or Former eBay Group Employees (A) the extent to which established performance criteria (as interpreted by the applicable determining body, person or group of persons of the eBay Group, in its sole discretion) have been met, and (B) the payment level for each eBay Group Employee or Former eBay Group Employee. The eBay Group shall retain (or assume as necessary) all Liabilities with respect to any such bonus awards payable to eBay Group Employees or Former eBay Group Employees for any performance periods that are open when the Effective Time occurs and thereafter, and no member of the PayPal Group shall have any obligations with respect thereto.

(b) eBay Retained Bonus Plans. No later than the Effective Time, the eBay Group shall continue to retain (or assume as necessary) any incentive compensation plan (including any sales incentive or other incentive plans applicable at the individual business unit level) for the exclusive benefit of eBay Group Employees and Former eBay Group Employees, whether or not sponsored by the eBay Group, and, from and after the Effective Time, shall be solely responsible for all Liabilities thereunder.

(c) PayPal Retained Bonus Plans. No later than the Effective Time, the PayPal Group shall continue to retain (or assume as necessary) any incentive plan (including any sales incentive or other incentive plans applicable at the individual business unit level) for the exclusive benefit of PayPal Group Employees and Former PayPal Group Employees, whether or not sponsored by the PayPal Group, and, from and after the Effective Time, shall be solely responsible for all Liabilities thereunder.

Section 4.05. Director Compensation.

(a) Director Compensation Allocable to Service. eBay shall be responsible for the payment of any fees for service on the eBay Board that are earned at, before, or after the Effective Time, and PayPal shall not have any responsibility for any such payments. With respect to any PayPal non-employee director, PayPal shall be responsible for the payment of any fees for service on the PayPal Board that are earned at any time after the Effective Time and eBay shall not have any responsibility for any such payments. Notwithstanding the foregoing, PayPal shall commence paying quarterly cash retainers to PayPal non-employee directors in respect of the quarter in which the calendar date immediately following the Distribution Date occurs; provided that eBay will pay PayPal an amount equal to the portion of such payment that is attributable to Transferring Directors’ service to eBay on and prior to the Effective Time (including, for the avoidance of doubt, the grant date fair value of any PayPal deferred stock units that may be issued in respect of any partial quarterly service on the eBay Board during the quarter on which the Distribution Date occurs, if applicable). For the avoidance of doubt, eBay Equity Awards held by non-employee directors as of immediately prior to the Effective Time shall be treated as described in Section 4.02.

 

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(b) Impact of Change of Control on Director Equity Awards. With respect to provisions related to vesting of eBay Equity Awards and, to the extent applicable, following the Effective Time, PayPal Equity Awards, an eBay Change of Control shall be treated as a PayPal Change of Control for purposes of PayPal Equity Awards held, after the Effective Time, by Continuing eBay Directors, and a PayPal Change of Control shall be treated as an eBay Change of Control for purposes of Post-Spin eBay Equity Awards held by Transferring Directors.

ARTICLE V

RETIREMENT PLANS

Section 5.01. PayPal 401(k) Plan.

(a) Establishment of Plan. Effective on or before the Distribution Date, the PayPal Board shall adopt and establish the PayPal 401(k) Plan and a related trust (the “PayPal 401(k) Trust”) which shall be intended to meet the Qualification Requirements (including under Sections 401(k) and (m) of the Code) and which through December 31, 2015 shall have substantially the same terms as of immediately prior to the Distribution Date as the eBay 401(k) Plan. Notwithstanding the foregoing, PayPal may make such changes, modifications or amendments to the PayPal 401(k) Plan as may be required by applicable Law or as are necessary and appropriate to reflect the Separation or which result from vendor limitations. Before the Distribution Date, PayPal shall provide eBay with (i) a copy of the PayPal 401(k) Plan, PayPal 401(k) Trust and volume submitter approval letter and (ii) a copy of certified resolutions of the PayPal Board (or its authorized committee or other delegate) evidencing adoption of the PayPal 401(k) Plan and PayPal 401(k) Trust and the assumption by the PayPal 401(k) Plan of the Liabilities described in Section 5.01(b).

(b) Transfer of Account Balances. No later than 30 days following the Effective Time (or such other times as mutually agreed to by the parties), eBay shall cause the trustee of the eBay 401(k) Plan to transfer from the trust which forms a part of the eBay 401(k) Plan (the “eBay 401(k) Trust”) to the PayPal 401(k) Trust, the account balances of PayPal Group Employees under the eBay 401(k) Plan, determined as of the date of the transfer. Unless otherwise agreed by the parties, such transfers shall be made in kind, including promissory notes evidencing the transfer of outstanding loans. Any Asset and Liability transfers pursuant to this Section 5.01 shall comply in all respects with Sections 414(l) and 411(d)(6) of the Code and if required, shall be made not less than thirty (30) days after eBay shall have filed the notice under Section 6058(b) of the Code. The parties agree that to the extent that any assets are not transferred in kind, the assets transferred will be mapped into an appropriate investment vehicle.

(c) PayPal 401(k) Plan Provisions. The PayPal 401(k) Plan shall provide that:

(i) PayPal Group Employees shall be eligible to participate in the PayPal 401(k) Plan as of the Effective Time to the extent that they were eligible to participate in the eBay 401(k) Plan as of immediately prior to the Effective Time;

(ii) the account balance of each PayPal Group Employee under the eBay 401(k) Plan as of the date of the transfer of Assets from the eBay 401(k) Plan (including any outstanding promissory notes relating to outstanding loans) shall be credited to such individual’s account under the PayPal 401(k) Plan; and

 

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(iii) the PayPal 401(k) Plan shall assume and honor the terms of all QDROs in effect under the eBay 401(k) Plan in respect of PayPal Group Employees immediately prior to the Effective Time (for PayPal Group Employees).

(d) Plan Fiduciaries. For all periods at and after the Effective Time, the parties agree that the applicable fiduciaries of each of the eBay 401(k) Plan and the PayPal 401(k) Plan, respectively, shall have the authority with respect to the eBay 401(k) Plan and the PayPal 401(k) Plan, respectively, to determine the investment alternatives, the terms and conditions with respect to those investment alternatives and such other matters as are within the scope of their duties under ERISA and the terms of the applicable plan documents.

(e) No Distributions. No PayPal Group Employee shall be entitled to a right to a distribution of his or her benefit under the eBay 401(k) Plan as a result of his or her transfer of employment from the eBay Group to the PayPal Group nor as a result of the completion of the Separation.

Section 5.02. Non-U.S. Retirement Plans.

(a) Establishment of PayPal Non-U.S. Retirement Plans. Before the Effective Time, subject to and in compliance with applicable Law or as otherwise provided in Section 2.03(b), the applicable determining body, person or group of persons of the PayPal Group shall adopt and establish PayPal Non-U.S. Retirement Plans for PayPal Group Employees and Former PayPal Group Employees which through December 31, 2015 shall have terms comparable to those terms as of immediately prior to the Distribution Date as the eBay Non-U.S. Retirement Plans. Notwithstanding the foregoing, the applicable determining body, person or group of persons of the PayPal Group may make such changes, modifications, or amendments to the PayPal Non-U.S. Retirement Plans as may be required by applicable Law or as are necessary to reflect the Separation.

(b) Transfer of Assets and Assumption of Liabilities. As soon as practicable following the Effective Time, subject to and in compliance with applicable Law, account balances (including statutory contributions and funds), or contracts of the PayPal Group Employees and, if applicable, Former PayPal Group Employees, shall be transferred from a member of the eBay Group or the eBay Non-U.S. Retirement Plan to a member of the PayPal Group or the PayPal Non-U.S. Retirement Plan, as applicable. In the event any Non-U.S. Retirement Plan is a defined benefit plan, then if permissible under applicable Law, the Parties shall cooperate to transfer the Assets and Liabilities, with respect to the benefits of PayPal Group Employees and Former PayPal Group Employees, in a manner reasonably acceptable to the Parties in consultation with the applicable actuary for, or other relevant third-party administrator or other service provider of, any such plan. As of the Effective Time and subject to the transfer described herein, eBay and the eBay Non-U.S. Retirement Plans shall be relieved of all Liabilities for those benefits transferred and PayPal shall, and shall cause the PayPal Non-U.S. Retirement Plan, to assume all Liabilities under the eBay Non-U.S. Retirement Plans for the benefits of PayPal Group Employees and, if applicable, Former PayPal Group Employees determined immediately prior to the Effective Time.

 

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For the avoidance of doubt, in any non-U.S. jurisdiction where account balances, contracts or assets relating to benefits are not permitted to be transferred, eBay shall remain liable to the extent it is otherwise liable under applicable Law with respect to such benefits relating to account balances, contracts or assets not transferred.

ARTICLE VI

NONQUALIFIED DEFERRED COMPENSATION PLAN

Section 6.01. PayPal Deferred Compensation Plan.

(a) Establishment of the Deferred Compensation Plan. Before the Effective Time, PayPal shall establish the PayPal Deferred Compensation Plan, which through December 31, 2015, shall have substantially the same terms as of immediately prior to the Effective Time as the eBay Deferred Compensation Plan. Notwithstanding the foregoing, PayPal may make such changes, modifications or amendments to the PayPal Deferred Compensation Plan as may be required by applicable Law or as are necessary and appropriate to reflect the Separation. The PayPal Deferred Compensation Plan shall assume and honor the terms of all QDROs and any other domestic relations orders in effect under the eBay Deferred Compensation Plan in respect of PayPal Group Employees immediately prior to the Effective Time.

(b) Assumption of Liabilities from eBay. As of the Effective Time, PayPal shall, and shall cause the PayPal Deferred Compensation Plan to, assume all Liabilities under the eBay Deferred Compensation Plan for the benefits of PayPal Group Employees determined as of immediately prior to the Effective Time, and the eBay Deferred Compensation Plan shall be relieved of all Liabilities for those benefits. eBay shall retain all Liabilities under the eBay Deferred Compensation Plan for the benefits for eBay Group Employees, Former eBay Group Employees and Former PayPal Group Employees. From and after the Effective Time, PayPal Group Employees shall cease to be participants in the eBay Deferred Compensation Plan.

Section 6.02. Participation; Distributions. The Parties acknowledge that none of the transactions contemplated by this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement will trigger a payment or distribution of compensation under any of the eBay Deferred Compensation Plans or the PayPal Deferred Compensation Plans for any participant and, consequently, that the payment or distribution of any compensation to which such participant is entitled under any of the eBay Deferred Compensation Plans or the PayPal Deferred Compensation Plans will occur upon such participant’s separation from service from the PayPal Group or at such other time as provided in the applicable PayPal Nonqualified Plan or participant’s deferral election.

ARTICLE VII

WELFARE BENEFIT PLANS

Section 7.01. Welfare Plans.

(a) Establishment of PayPal Welfare Plans. Before the Effective Time and except as otherwise set forth in this Article VII, PayPal shall, or shall cause the applicable member of the PayPal Group to, or shall engage in negotiations to, establish the PayPal Welfare Plans

 

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(including statutorily required plans such as provident funds, gratuity and insurance to the extent applicable), which through December 31, 2015 shall have terms substantially similar in the aggregate as of immediately prior to the Effective Time as to those of the corresponding eBay Welfare Plans. Notwithstanding the foregoing, PayPal may make such changes, modifications or amendments to the PayPal Welfare Plans as may be required by applicable Law or as are necessary and appropriate to reflect the Separation or which result from vendor limitations.

(b) Waiver of Conditions; Benefit Maximums. PayPal shall use commercially reasonable efforts to cause the PayPal Welfare Plans to:

(i) with respect to initial enrollment as of the Effective Time, waive (A) all limitations as to preexisting conditions, exclusions, and service conditions with respect to participation and coverage requirements applicable to any PayPal Group Employee or Former PayPal Group Employee, other than limitations that were in effect with respect to the PayPal Group Employee or Former PayPal Group Employee under the applicable eBay Welfare Plan as of immediately prior to the Effective Time, and (B) any waiting period limitation or evidence of insurability requirement applicable to a PayPal Group Employee or Former PayPal Group Employee other than limitations or requirements that were in effect with respect to such PayPal Group Employee or Former PayPal Group Employee under the applicable eBay Welfare Plans as of immediately prior to the Effective Time; and

(ii) take into account (A) with respect to aggregate annual, lifetime, or similar maximum benefits available under the PayPal Welfare Plans, a PayPal Group Employee’s or Former PayPal Group Employee’s prior claim experience under the eBay Welfare Plans and any eBay Benefit Plan that provides leave benefits; and (B) any eligible expenses incurred by a PayPal Group Employee or Former PayPal Group Employee during the portion of the plan year of the applicable eBay Welfare Plan ending as of the Effective Time to be taken into account under such PayPal Welfare Plan for purposes of satisfying all deductible, coinsurance, and maximum out-of-pocket requirements applicable to such PayPal Group Employee or Former PayPal Group Employee for the applicable plan year to the same extent as such expenses were taken into account by eBay for similar purposes prior to the Effective Time as if such amounts had been paid in accordance with such PayPal Welfare Plan.

(c) Health Savings Accounts. Before the Effective Time, PayPal shall, or shall cause a member of the PayPal Group to, establish a PayPal Welfare Plan that will provide health savings account benefits to PayPal Group Employees on and after the Effective Time (a “PayPal HSA”). It is the intention of the Parties that all activity under a PayPal Group Employee’s health savings account under an eBay Welfare Plan (a “eBay HSA”) for the year in which the Effective Time occurs be treated instead as activity under the corresponding account under the PayPal HSA, such that (i) any period of participation by a PayPal Group Employee in an eBay HSA during the year in which the Effective Time occurs will be deemed a period when such PayPal Group Employee participated in the corresponding PayPal HSA; (ii) all expenses incurred during such period will be deemed incurred while such PayPal Group Employee’s coverage was in effect under the corresponding PayPal HSA; (iii) all elections and reimbursements made with respect to such period under the eBay HSA will be deemed to have been made with respect to the corresponding

 

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PayPal HSA; and (iv) for purposes of determining the total annual employer contribution made on behalf of a PayPal Group Employee, employer contributions made with respect to such period under the eBay HSA will be deemed to have been made with respect to the corresponding PayPal HSA.

(d) Flexible Spending Accounts. The Parties shall use commercially reasonable efforts to ensure that as of the Effective Time any health or dependent care flexible spending accounts of PayPal Group Employees (whether positive or negative) (the “Transferred Account Balances”) under eBay Welfare Plans that are health or dependent care flexible spending account plans are transferred, as soon as practicable after the Effective Time, from the eBay Welfare Plans to the corresponding PayPal Welfare Plans. Such PayPal Welfare Plans shall assume responsibility as of the Effective Time for all outstanding health or dependent care claims under the corresponding eBay Welfare Plans of each PayPal Group Employee for the year in which the Effective Time occurs and shall assume and agree to perform the obligations of the corresponding eBay Welfare Plans from and after the Effective Time. As soon as practicable after the Effective Time, and in any event within 30 days after the amount of the Transferred Account Balances is determined or such later date as mutually agreed upon by the Parties, PayPal shall pay eBay the net aggregate amount of the Transferred Account Balances, if such amount is positive, and eBay shall pay PayPal the net aggregate amount of the Transferred Account Balances, if such amount is negative.

(e) Allocation of Welfare Liabilities. Except as otherwise set forth in Article VII:

(i) The eBay Group and the eBay Welfare Plans shall remain responsible for all Liabilities to, or in respect of, PayPal Group Employees and Former PayPal Group Employees relating to or arising in connection with any claims relating to medical, dental, hospitalization, vision, prescription drug or other health arrangement, long-term disability, life, accidental death and dismemberment and business travel accident insurance, which claims are incurred before the Effective Time and the PayPal Group and the PayPal Group Welfare Plans shall be responsible for all Liabilities to, or in respect of, PayPal Group Employees and Former PayPal Group Employees relating to or arising in connection with any claims for medical, dental, hospitalization, vision, prescription drug or other health arrangement, long-term disability, life, accidental death and dismemberment and business travel accident insurance, which claims are incurred at or after the Effective Time;

(ii) With respect to claims for short-term disability (a) the PayPal Group shall be responsible for (i) claims incurred in respect of PayPal Group Employees and Former PayPal Group Employees, occurring at or after the Effective Time and (ii) amounts owed with respect to the period commencing on the Effective Time with respect to a claim incurred prior to the Effective Time (for the avoidance of doubt, if a PayPal Group Employee is on short-term disability on the Effective Time for a claim incurred prior to the Effective Time, the PayPal Group shall be responsible for short-term disability payments with respect to the period commencing at the Effective Time and if such claim as incurred prior to the Effective Time becomes a long-term disability claim, such claim shall be subject to the provision of subsection (i) hereof);

 

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(iii) The PayPal Group shall assume Liability relating to, arising out of or resulting from all other welfare coverage or claims incurred by or on behalf of any PayPal Group Employee or Former PayPal Group Employee under any eBay Welfare Plan or PayPal Welfare Plan before, at or after the Effective Time;

(iv) For these purposes, a claim or Liability is deemed to be incurred: (a) with respect to medical, dental, vision and/or prescription drug benefits, upon the rendering of health services giving rise to such claim or Liability; (b) with respect to life insurance, accidental death and dismemberment and business travel accident insurance, upon the occurrence of the event giving rise to such claim or Liability; and (c) with respect to disability benefits, upon the date of an Employee’s disability, as determined by the disability benefit insurance carrier or claim administrator, giving rise to such claim or Liability;

(v) The eBay Group and the eBay Welfare Plans shall remain liable for any Liabilities relating to audit or compliance of the eBay Welfare Plans; and

(vi) At and after the Effective Time, no eBay Welfare Plan shall provide coverage to any PayPal Group Employee or Former PayPal Group Employee.

(f) Establishment of High Deductible Health Plan. Effective as of the Effective Time, PayPal shall or cause a member of the PayPal Group to establish a high deductible health plan option with related health savings account and limited purpose health care spending account benefits.

Section 7.02. COBRA. The eBay Group shall be responsible for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, and the corresponding provisions of the eBay Welfare Plans with respect to any Employees and any Former Employees (and their covered dependents) who incur a qualifying event or loss of coverage (within the meaning of COBRA) before the Effective Time. Effective as of the Effective Time, the PayPal Group shall be responsibility for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, and the corresponding provisions of the PayPal Welfare Plans with respect to any PayPal Group Employees or Former PayPal Group Employees (and their covered dependents) who incur a qualifying event or loss of coverage (within the meaning of COBRA) under the PayPal Welfare Plans at or after the Effective Time. The Parties agree that the consummation of the transactions contemplated by the Separation and Distribution Agreement shall not constitute a COBRA qualifying event for any purpose of COBRA for purposes of applying the principals set forth in this Section 7.02.

Section 7.03. Paid Time Off, Holidays and Leaves of Absence. Effective as of the Effective Time, the PayPal Group shall assume all Liabilities of the eBay Group with respect to paid time off, holiday, annual leave or other leave of absence, and required payments related thereto regardless of whether such liabilities originated prior to the Effective Time, for each PayPal Group Employee or Former PayPal Group Employee unless otherwise required by applicable Law. The eBay Group shall retain all Liabilities with respect to paid time off, holiday, annual leave or other leave of absence (including sabbatical leave), and required payments related thereto, for each eBay Group Employee and Former eBay Group Employee.

 

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Section 7.04. Severance and Unemployment Compensation. Effective as of the Effective Time, the PayPal Group shall assume any and all Liabilities to, or relating to, PayPal Group Employees and Former PayPal Group Employees in respect of severance and unemployment compensation, regardless of whether the event giving rise to the Liability occurred before, at or after the Effective Time. The eBay Group shall be responsible for any and all Liabilities to, or relating to, eBay Group Employees and Former eBay Group Employees in respect of severance and unemployment compensation, regardless of whether the event giving rise to the Liability occurred before, at or after the Effective Time.

Section 7.05. Sabbatical Plans and Sabbatical Trusts. Effective as of the Effective Time, the applicable determining body, person or group of persons of the PayPal Group shall establish the PayPal Sabbatical Plans, which through December 31, 2015 shall have substantially the same terms as of immediately prior to the Effective Time as the corresponding eBay Sabbatical Plans. Notwithstanding the foregoing, the applicable determining body, person or group of persons of the PayPal Group may make such changes, modifications or amendments to the PayPal Sabbatical Plans as may be required by applicable Law or as are necessary and appropriate to reflect the Separation. PayPal shall adopt the PayPal Sabbatical Trusts. From and after the Effective Time, the PayPal Group and the PayPal Sabbatical Plans and PayPal Sabbatical Trusts shall be responsible for and assume all Liabilities relating to PayPal Group Employees and Former PayPal Group Employees that would have been satisfied by the eBay Group and the eBay Sabbatical Trusts had the Distribution not occurred, and neither any member of the eBay Group nor the eBay Sabbatical Plans or eBay Sabbatical Trusts shall have any Liabilities with respect thereto. In connection with the establishment by the PayPal Group of the PayPal Sabbatical Plans, as of the Effective Time, the applicable determining body, person or group of persons of the eBay Group shall, or shall cause the eBay Sabbatical Trusts to, transfer Assets (whether in cash or in kind as determined by eBay) to the PayPal Sabbatical Trusts in an amount equal to the product of (i) the fair market value of the Assets of the eBay Sabbatical Trusts immediately prior to the Effective Time (or such other date or time as may be agreed by the Parties) and (ii) the percentage of Liabilities to be assumed by the PayPal Group under the eBay Sabbatical Plans as of April 1, 2015 (or such other date or time as may be agreed by the Parties) out of the total Liabilities of the eBay Sabbatical Plans as of April 1, 2015 (or such other date or time as may be agreed by the Parties) (for the avoidance of doubt and as an example, if PayPal Group’s portion of the liability of the eBay Sabbatical Plans is 41.24%, the PayPal Sabbatical Trusts will receive 41.24% of the Assets of the eBay Sabbatical Trusts, subject to any adjustments described below). For purposes of the preceding sentence, Liabilities under the eBay Sabbatical Plans shall be measured as of immediately prior to April 1, 2015 (or such other date or time as may be agreed by the Parties) on a target funding basis without regard to interest discounting and otherwise based on the assumptions set forth in the December 31, 2014 actuarial valuation for the eBay Sabbatical Plan prepared by Buck Consultants, LLC. The amount of assets to be transferred shall be adjusted for earnings and distributions, if any, through the actual date of transfer.

Section 7.06. Workers’ Compensation. With respect to claims for workers’ compensation in the United States, (a) the PayPal Group shall be responsible for claims in respect of PayPal Group Employees and Former PayPal Group Employees, occurring at or after the Effective Time, (b) the eBay Group shall be responsible for all claims in respect of eBay Group Employees and Former eBay Group Employees, whether occurring at or after the Effective Time and (c) the eBay Group should be responsible for all claims in respect of PayPal Group Employees

 

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and Former PayPal Group Employees occurring before the Effective Time. The treatment of workers’ compensation claims by PayPal with respect to eBay insurance policies shall be governed by Section 5.1 of the Separation and Distribution Agreement; provided, that for purposes of claims referenced in this Section 7.06, a claim shall be deemed incurred when the injury giving rise to any claim made under the applicable workers compensation policy occurs.

Section 7.07. Insurance Contracts. To the extent that any eBay Welfare Plan is funded through the purchase of an insurance contract or is subject to any stop loss contract, the Parties will cooperate and use their commercially reasonable efforts to replicate such insurance contracts for PayPal (except to the extent that changes are required under applicable state insurance Laws or filings by the respective insurers) and to maintain any pricing discounts or other preferential terms for both eBay and PayPal for a reasonable term. Neither Party shall be liable for failure to obtain such insurance contracts, pricing discounts, or other preferential terms for the other Party. Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.07.

Section 7.08. Third-Party Vendors. Except as provided below, to the extent that any eBay Welfare Plan is administered by a third-party vendor, the Parties will cooperate and use their commercially reasonable efforts to replicate any contract with such third-party vendor for PayPal and to maintain any pricing discounts or other preferential terms for both eBay and PayPal for a reasonable term. Neither Party shall be liable for failure to obtain such pricing discounts or other preferential terms for the other Party. Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.08.

Section 7.09. Fringe Benefits. Effective as of the Effective Time, PayPal shall or shall cause the applicable member of the PayPal Group to adopt the PayPal Fringe Benefit Plans, which through December 31, 2015 shall have terms that are substantially similar in the aggregate as of immediately prior to the Effective Time as those of the eBay Fringe Benefit Plans. Notwithstanding the foregoing, PayPal may make such changes, modifications or amendments to the PayPal Fringe Benefit Plans as may be required by applicable Law or as are necessary and appropriate to reflect the Separation or which result from vendor limitations. As of the Effective Time, PayPal shall, and shall cause the PayPal Fringe Benefit Plans to, assume all Liabilities under the eBay Fringe Benefit Plans for the benefits of PayPal Group Employees and Former PayPal Group Employees regardless of whether the event giving rise to the Liability occurred before, at or after the Effective Time, and the eBay Fringe Benefit Plans shall be relieved of all Liabilities for those benefits. eBay shall retain all Liabilities under the eBay Fringe Benefit Plans for the benefits for eBay Group Employees and Former eBay Group Employees and after the Effective Time, PayPal Group Employees and Former PayPal Group Employees shall cease to be participants in the eBay Fringe Benefit Plans.

ARTICLE VIII

NON-U.S. EMPLOYEES

PayPal Group Employees and Former PayPal Group Employees who are residents outside of the United States or otherwise are subject to non-U.S. Law and their related benefits and Liabilities shall be treated in the same manner as the PayPal Group Employees and Former PayPal Group Employees, respectively, who are residents of the United States and are not subject to

 

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non-U.S. Law. Notwithstanding anything in this Agreement to the contrary, all actions taken with respect to non-U.S. Employees or U.S. Employees working in non-U.S. jurisdictions, including any action under a Benefit Plan, shall be subject to and accomplished in accordance with applicable Law in the custom of the applicable jurisdictions and PayPal may make such changes, modifications or amendments to the PayPal Benefit Plans as may be required by applicable Law, vendor limitations or as are necessary to reflect the Separation.

ARTICLE IX

MISCELLANEOUS

Section 9.01. Employee Records.

(a) Sharing of Information. Subject to and in compliance with any limitations imposed by applicable Law, eBay and PayPal (acting directly or through members of the eBay Group or the PayPal Group, respectively) shall provide to the other and their respective authorized agents and vendors all information necessary (including information for purposes of determining benefit eligibility, participation, vesting and calculation of benefits) on a timely basis under the circumstances for the parties to perform their respective duties under this Agreement. To the extent that such information is maintained by a third party vendor, each party shall use its commercially reasonable best efforts to require the third party vendor to provide the necessary information and assist in resolving discrepancies or obtaining missing data.

(b) Transfer of Personnel Records and Authorization. Subject to and in compliance with any limitation imposed by applicable Law and to the extent that it has not done so before the Effective Time, eBay shall transfer to PayPal any and all employment records (including any Form I-9, Form W-2 or other IRS and relevant tax forms applicable in any non-U.S. jurisdiction) with respect to PayPal Group Employees and Former PayPal Group Employees and other records reasonably required by PayPal to enable PayPal properly to carry out its obligations under this Agreement. Subject to and in compliance with any limitation imposed by applicable Law and to the extent that it has not done so before the Effective Time, PayPal shall transfer to eBay any and all employment records (including any Form I-9, Form W-2 or other IRS and relevant Tax forms applicable in any non-U.S. jurisdiction) with respect to eBay Group Employees and Former eBay Group Employees and other records reasonably required by eBay to enable eBay properly to carry out its obligations under this Agreement. The transfer of records generally shall occur as soon as administratively practicable at or after the Effective Time. Each Party will permit the other Party reasonable access to Employee records, to the extent reasonably necessary for such accessing Party to carry out its obligations hereunder.

(c) Access to Records. To the extent not inconsistent with this Agreement, the Separation and Distribution Agreement or any applicable privacy protection Laws or regulations, reasonable access to Employee-related and benefit plan-related records after the Effective Time will be provided to members of the eBay Group and members of the PayPal Group pursuant to the terms and conditions of Article VI of the Separation and Distribution Agreement.

(d) Maintenance of Records. With respect to retaining, destroying, transferring, sharing, copying and permitting access to all Employee-related information, eBay and PayPal shall comply with all applicable Laws, regulations and internal policies, and shall

 

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indemnify and hold harmless each other from and against any and all Liability, claims, actions, and damages that arise from a failure (by the indemnifying Party or its Subsidiaries or their respective agents) to so comply with all applicable Laws, regulations and internal policies applicable to such information.

(e) Cooperation. Each Party shall use commercially reasonable efforts to cooperate and work together to unify, consolidate and share (to the extent permissible under applicable privacy/data protection laws) all relevant documents, resolutions, government filings, data, payroll, employment and benefit plan information on regular timetables and cooperate as needed with respect to (i) any claims or reasonable inquiry under or audit of or litigation with respect to any employee benefit plan, policy or arrangement contemplated by this Agreement, (ii) efforts to seek a determination letter, private letter ruling or advisory opinion from the IRS or U.S. Department of Labor, or other comparable non-U.S. letter, ruling or opinion from any other Governmental Authority as applicable, in any such case on behalf of any employee benefit plan, policy or arrangement contemplated by this Agreement, (iii) any filings that are required to be made or supplemented to the IRS, U.S. Pension Benefit Guaranty Corporation, U.S. Department of Labor or any other Governmental Authority and (iv) any audits by a Governmental Authority or corrective actions in either case, relating to any Benefit Plan, labor or payroll practices, including but not limited to with respect to any Employment Taxes, and (v) reconciliation and administration of post-closing compensation, benefit, employment, and payroll issues; provided, however, that requests for cooperation must be reasonable and not interfere with daily business operations.

(f) Confidentiality. Notwithstanding anything in this Agreement to the contrary, all confidential records and data relating to Employees to be shared or transferred pursuant to this Agreement shall be subject to Section 6.9 of the Separation and Distribution Agreement and the requirements of applicable Law.

(g) Interaction with Other Agreements. To the extent not inconsistent with this Agreement or any applicable privacy protection Laws or regulations, the foregoing rights and obligations of this Section 9.01 shall be in addition to any similar or related rights and obligations that may be provided or applicable to members of the eBay Group or members of the PayPal Group, as applicable, under the Separation and Distribution Agreement, Tax Matters Agreement and/or Intellectual Property Matters Agreement, if and as applicable.

Section 9.02. Preservation of Rights to Amend. The rights of each member of the eBay Group and each member of the PayPal Group to amend, waive, or terminate any plan, arrangement, agreement, program, or policy referred to herein shall not be limited in any way by this Agreement.

Section 9.03. Fiduciary Matters. eBay and PayPal each acknowledges that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good-faith determination (which determination may include, but shall not be required to be, based on advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard. Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.

 

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Section 9.04. Further Assurances. Each Party hereto shall take, or cause to be taken, any and all reasonable actions, including the execution, acknowledgment, filing and delivery of any and all documents and instruments that any other Party hereto may reasonably request in order to effect the intent and purpose of this Agreement and the transactions contemplated hereby.

Section 9.05. Counterparts; Entire Agreement; Corporate Power.

(a) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

(b) This Agreement, the Separation and Distribution Agreement and the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein. eBay represents on behalf of itself and, to the extent applicable, each other member of the eBay Group, and PayPal represents on behalf of itself and, to the extent applicable, each other member of the PayPal Group, as follows:

(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and

(ii) this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms hereof.

(c) Each Party acknowledges that it and each other Party is executing this Agreement by facsimile, stamp or mechanical signature and that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by email in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by email in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.

 

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Section 9.06. Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the laws of the State of Delaware, irrespective of the choice of Laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.

Section 9.07. Assignability. This Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, that neither Party may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party. Notwithstanding the foregoing, no such consent will be required for (i) the assignment of a Party’s rights and obligations under this Agreement in whole or in part to any of its Subsidiaries; provided, that no such assignment shall release such Party from any liability or obligation under this Agreement; or (ii) the assignment of a Party’s rights and obligations under this in whole (i.e., the assignment of a party’s rights and obligations under this Agreement, the Separation and Distribution Agreement and all Ancillary Agreements all at the same time) in connection with a change of control of a Party so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party. Nothing herein is intended to, or will be construed to, prohibit either Party or any member of its Group from being party to or undertaking a change of control.

Section 9.08. Third-Party Beneficiaries. The provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any other Person except the Parties any rights or remedies hereunder. There are no third-party beneficiaries of this Agreement and this Agreement shall not provide any other third person with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. Nothing in this Agreement is intended to amend any employee benefit plan or affect the applicable plan sponsor’s right to amend or terminate any employee benefit plan pursuant to the terms of such plan. The provisions of this Agreement are solely for the benefit of the Parties, and no current or former Employee, officer, director, independent contractor, consultant, alternative workforce (AWF) individual or any other individual associated therewith shall be regarded for any purpose as a third-party beneficiary of this Agreement.

Section 9.09. Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing, together with a copy by electronic mail (which shall not constitute notice) and shall be given or made (and shall be deemed to have been duly given or made upon acknowledgement of receipt) by delivery in person, by overnight courier service, by facsimile, or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 9.09):

 

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If to eBay, to:

eBay Inc.

2065 Hamilton Avenue

San Jose, California 95125

Attention: General Counsel

Facsimile: [●]

Email: [●]

If to PayPal, to:

PayPal Holdings, Inc.

2211 North First Street

San Jose, California 95131

Attention: General Counsel

Facsimile: [●]

Email: [●]

A Party may, by notice to the other Party, change the address to which such notices are to be given.

Section 9.10. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.

Section 9.11. Force Majeure. No Party shall be deemed in default of this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement for any delay or failure to fulfill any obligation (other than a payment obligation) hereunder or thereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. In the event of any such excused delay, the time for performance of such obligation (other than a payment obligation) shall be extended for a period equal to the time lost by reason of the delay. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to the other Party of the nature and extent of any such Force Majeure condition; and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement and the Ancillary Agreements, as applicable, as soon as reasonably practicable.

Section 9.12. Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 9.13. Survival of Covenants. Except as expressly set forth in this Agreement, the covenants, representations and warranties and other agreements contained in this Agreement, and Liability for the breach of any obligations contained herein, shall survive the Separation and the Distribution and shall remain in full force and effect in accordance with its terms.

 

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Section 9.14. Waivers of Default. Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

Section 9.15. Dispute Resolution. The dispute resolution procedures set forth in Article VII of the Separation and Distribution Agreement shall apply to any dispute, controversy or claim arising out of or relating to this Agreement.

Section 9.16. Specific Performance. Subject to Article VII of the Separation and Distribution Agreement, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief (on an interim or permanent basis) in respect of its rights or their rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at Law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that any defense in any Action for specific performance that a remedy at Law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are hereby waived by each of the Parties.

Section 9.17. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

Section 9.18. Interpretation. In this Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement; (c) Article, Section, Schedule, Exhibit, and Appendix references are to the Articles, Sections, Schedules, Exhibits, and Appendices to this Agreement unless otherwise specified; (d) unless otherwise stated, all references to any agreement shall be deemed to include the exhibits, schedules and annexes to such agreement; (e) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references to “business day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to close in the United States or San Jose, California; (i) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is

 

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executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (j) unless expressly stated to the contrary in this Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to [●], 2015.

Section 9.19. Limitations of Liability. Notwithstanding anything in this Agreement to the contrary, neither PayPal or any member of the PayPal Group, on the one hand, nor eBay or any member of the eBay Group, on the other hand, shall be liable under this Agreement to the other for any indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim).

Section 9.20. Mutual Drafting. This Agreement shall be deemed to be the joint work product of both Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable to this Agreement.

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have caused this Employee Matters Agreement to be executed by their duly authorized representatives.

 

EBAY INC.
By:

 

Name:
Title:
PAYPAL HOLDINGS, INC.
By:

 

Name:
Title:
EX-10.18

Exhibit 10.18

 

LOGO

May 19, 2015

William Ready

c/o eBay, Inc.

2065 Hamilton Avenue

San Jose, CA 95125

Dear Bill:

You play an important role at PayPal and your continued engagement is important to PayPal’s success. In recognition of the important role you play, you will be eligible to receive the following retention incentives. Except as otherwise described in this letter, all terms of your employment letter of September 25, 2013, including the “at will” nature of your employment, will remain in full force and effect.

Retention Arrangement

As part of your retention arrangement, the two grants of restricted stock units awarded to you on January 15, 2014, have been modified to provide that, following the vesting of 25 percent of the units subject to each grant on January 15, 2016, 1/48th of the shares subject to each grant will vest each month thereafter.

If you remain employed with PayPal through February 1, 2016, and, prior to the full vesting of the grants, you: (1) subsequently elect to resign from your employment and (2) do not qualify for the severance protection for a voluntary resignation for “Good Reason” described in the “Termination During a Change in Control Period” paragraphs below, then you will be eligible to receive a cash payment equal to the value of the equity subject to the two grants of restricted stock units awarded to you by eBay on January 15, 2014, that would otherwise have vested in the six months following the effective date of your termination (the “Retention Payment”), subject to you executing and not revoking the Company’s standard form of release within 60 days of your termination of employment (which shall also contain customary exceptions for your continued indemnification and coverage under D&O policies, exclusions for vested benefits under retirement and welfare benefit plans and equity incentive plans, and reasonable post-employment cooperation covenants (but for the avoidance of doubt no restrictive covenants or other covenants imposing limitations on your post-employment activities (the “Release”)). Subject to the Section 409A paragraph in the “Tax and Other Matters” section below in this letter, the Retention Payment shall be payable not later than 30 days after you execute a Release and any revocation period has expired, provided that if the 60-day time period following your termination of employment spans two calendar years, the Retention Payment shall be provided as of the later of the date the Release becomes irrevocable or the first calendar day of the calendar year following the year in which your employment terminates. For the avoidance of doubt, if you are eligible for a payment under the section labeled “Termination During a Change in Control Period,” you will be entitled to the severance protections described below and you will not be entitled to the Retention Payment described in this paragraph as an additional payment.


Severance Protections

Although your employment with the Company shall be “at-will” as set forth below, you will be entitled to severance protection in certain circumstances, as described below, subject in all instances to you executing and not revoking the Release within 60 days of your termination of employment, with such amounts or benefits to be paid and/or provided as of the dates described below, provided that if the 60-day time period following your termination of employment spans two calendar years, they shall be provided as of the later of the date the Release becomes irrevocable or the first calendar day of the calendar year following the year in which your employment terminates.

Subject to approval by the Compensation Committee of the eBay Board of Directors, you will be eligible for the following:

Termination Outside a Change in Control Period. If, outside a Change in Control Period (as defined below), your employment is terminated by the Company without Cause (as defined below), then the Company shall provide you with (a) the Accrued Benefits and (b) a lump sum severance payment, payable not later than 30 days after you execute a Release and any revocation period has expired, in an amount equal to the sum of:

(i) one times the sum of (a) your Annual Base Salary and (b) your Bonus Amount; and

(ii) notwithstanding any election you may have made to defer any portion of any RSUs or PBRSUs, a cash amount equal to the value of any other eBay equity awards that are outstanding and unvested as of the date of your termination of employment which, but for such termination, otherwise would have become vested pursuant to their respective vesting schedules within 12 months following the date of such termination (with such value calculated based on the Valuation Assumptions).

Termination During a Change in Control Period. If, during a Change in Control Period, your employment is terminated by the Company without Cause or if you voluntarily resign for Good Reason, then the Company shall provide you with (a) the Accrued Benefits and (b) a lump sum severance payment, payable not later than 30 days after you execute the Release and any revocation period has expired, in an amount equal to the sum of:

(i) two times the sum of (a) your Annual Base Salary and (b) your Bonus Amount; and

(ii) notwithstanding any election you may have made to defer any portion of any RSUs or PBRSUs, a cash amount equal to the value of all then unvested eBay equity awards that are outstanding and unvested as of the date of termination of employment (with such value calculated based on the Valuation Assumptions).

Special Treatment of Equity Awards on Death/Permanent Disability. In the event that your employment with eBay terminates due to your death or disability (within the meaning of eBay’s long-term disability plan), within thirty (30) days after the date of such termination of employment, you will receive a cash payment equal to the value of any eBay equity awards that were

 

2


outstanding and unvested as of the date of such termination which, but for such termination, otherwise would have become vested pursuant to their respective vesting schedules within 24 months following the date of such termination (with such value calculated based on the Valuation Assumptions).

Tax and Other Matters.

Section 409A. The Company may withhold from any amounts payable to you such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. It is intended that the payments and benefits provided under this Letter shall comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and the regulations relating thereto, or an exemption to Section 409A, and this Letter shall be interpreted accordingly. Any payments or benefits that qualify for the “short-term deferral” exception or another exception under Section 409A shall be paid under the applicable exception. Each payment under this Letter will be treated as a separate payment for purposes of Section 409A. Notwithstanding anything to the contrary herein, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Letter providing for the payment of amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Letter, references to a “resignation,” “termination,” “termination of employment” or like terms shall mean separation from service. If you become entitled to a payment of nonqualified deferred compensation as a result of your termination of employment and at such time you are a “specified employee” (within the meaning of Section 409A and as determined in accordance with the methodology established by the Company as in effect on your date of termination), such payment will be postponed to the extent necessary to satisfy Section 409A, and any amounts so postponed will be paid in a lump sum on the first business day that is six months and one day after your separation from service (or any earlier date of your death). If the compensation and benefits provided under this Letter would subject you to taxes or penalties under Section 409A, the Company and you will cooperate diligently to amend the terms of this Letter to avoid such taxes and penalties, to the extent possible under applicable law.

Change in Control Golden Parachute Excise Taxes. In the event of a Change in Control, where an accounting firm designated by the Company determines that the aggregate amount of the payments and benefits that (but for the application of this paragraph) would be payable to you under this Letter agreement or any other plan, policy or arrangement of the Company and any of their affiliates, exceeds the greatest amount of payments and benefits that could be paid or provided to you without giving rise to any liability for any excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then you may elect either to (1) pay the Excise Tax and receive all such payments and benefits as may be payable to you, or (2) only receive the aggregate amount of such payments and benefits payable or to be provided to you that would not exceed the amount that produces the greatest after-tax benefit to you after taking into account any Excise Tax and other taxes that would otherwise be payable by you (such reduced amount of payments and benefits, the “Reduced Benefit Amount”). In the event you elect to receive the Reduced Benefit Amount, however, the reduction in such payments or benefits pursuant to the immediately preceding sentence shall be made in the following order: (1) by reducing severance payments based on your Annual Base Salary and Bonus Amount, if any is then payable, and then (2) by reducing amounts in respect of any equity-based awards (first in the form of cash payments, if any are due hereunder, then in respect of any vesting of any such awards hereunder, and only thereafter in respect of any vesting of any such awards under any other plan or arrangement).

 

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Definitions.

“Accrued Benefits” means (a) prompt payment of any accrued but unpaid annual base salary through the last day of employment, (b) prompt payment of any unreimbursed expenses incurred through the last day of employment subject to your prompt delivery of all required documentation of such expenses pursuant to applicable employer policies, (c) all other vested payments, benefits or fringe benefits to which you are entitled under the terms of any applicable compensation arrangement or benefit, equity or fringe benefit plan or program or grant (excluding any other severance plan, policy or program) or this Letter in accordance with the terms of such plan, program or grant, including any unpaid bonus for any prior fiscal year when it otherwise would have been paid, and (d) a prorated portion of the eIP bonus, if any, that you otherwise would have earned and been paid in respect of the fiscal year in which your employment terminates based on the actual performance of the company for the full year, with such prorated portion calculated based on the period of time during such fiscal year that you were employed, relative to the full fiscal year and only based on the company performance element of the bonus (such prorated eIP bonus amount, if any, the “Prorated Bonus”). You will receive your Prorated Bonus on the date that all other participants in the eIP receive their eIP bonuses in respect of such fiscal year.

“Annual Base Salary” will mean an amount equal to $400,000 (or such greater amount as in effect immediately prior to your termination date).

“Bonus Amount” will mean an amount equal to 65% of your Annual Base Salary (or such greater amount as may be established as your target bonus payment immediately prior to your termination date).

“Cause” shall mean (a) your failure to attempt in good faith to substantially perform your assigned duties, other than failure resulting from your death or incapacity due to physical or mental illness or impairment, which is not remedied within 30 days after receipt of written notice from the Company specifying such failure; (b) your indictment for, conviction of or plea of nolo contendere to any felony (or any other crime involving fraud, dishonesty or moral turpitude); or (c) your commission of an act of fraud, embezzlement, misappropriation, willful misconduct, or breach of fiduciary duty against the Company, except good faith expense account disputes.

“Change in Control” shall mean, for purposes of this Letter, a “Change in Control” as such term is defined in the Company’s 2008 Equity Plan or, following the Spin-Off, as such term may be defined (if different) under any successor equity incentive plan.

“Change in Control Period” means the period that begins 90 days prior to, and ends 24 months following, a “Change in Control.”

“Good Reason” means, without your written consent, any of the following events, whereafter you resign your employment within the periods provided below:

(i) a material reduction in your annual base salary; (ii) a material reduction in your annual target bonus opportunity; (iii) on and after the Spin-Off, a material reduction in your authority,

 

4


duties or responsibilities; (iv) following a Change in Control, a requirement by the Company that you relocate your primary office to a location that is more than 35 miles from the location of your primary office immediately prior to the Change in Control; or (v) any other material breach by the Company of this Letter. You will be deemed to have given consent to the condition(s) described in any of clauses (i) through (v) of this paragraph if you do not provide written notice to the Company of such Good Reason event(s) within 60 days from the first occurrence of such Good Reason event(s), following which the Company shall have 30 days to cure such event, and to the extent the Company has not cured such Good Reason event(s) during the 30-day cure period, you must terminate your employment for Good Reason no later than 60 days following the occurrence of such Good Reason event(s) by providing the Company 30 days’ prior written notice of termination, which may run concurrently with the Company’s cure period.

“Valuation Assumptions” means, collectively, the following assumptions: (x) each share of eBay common stock underlying an award has a value equal to the average of the closing prices of eBay common stock as reported on the NASDAQ Global Select Market for the period of 10 consecutive trading days ending on (and including) the last trading day prior to the date of your termination of employment, (y) if the date of your termination of employment occurs during the performance period with respect to an award of PBRSUs whose target value has been established prior to the date of your termination of employment, but whose number of shares of eBay common stock that would be subject to such award based on achievement of applicable performance targets has not yet been granted, then any such award shall be deemed to have been earned and granted assuming achievement of target performance in respect of the applicable performance period immediately prior to such date of termination and (z) any Options that you hold that are outstanding immediately prior to the date of your termination of employment will be valued based on their spread (i.e., the positive difference, if any, of the value of each share of eBay) common stock underlying the Option, as determined pursuant to clause (x) above), less the per share exercise price of such Option).

Thank you for your continued service.

Very truly yours,

/s/ Beth Axelrod

Beth Axelrod

Senior Vice President, Human Resources

eBay Inc.

 

5

EX-10.19

Exhibit 10.19

 

LOGO

May 22, 2015

James Barrese

c/o eBay, Inc.

2065 Hamilton Avenue

San Jose, CA 95125

Dear James:

You play an important role at PayPal and your continued engagement is important to PayPal’s success. In recognition of the important role you play, you will be eligible to receive the following retention incentives. Except as otherwise described in this letter, all terms of your employment, including the “at will” nature of your employment, will remain in full force and effect.

Retention Arrangement

If you remain employed with PayPal through April 1, 2016, you will receive accelerated vesting of the equity that would have otherwise vested from April 2, 2016 through April 30, 2017. For the avoidance of doubt, except as provided above, there will be no change in the vesting dates or amounts of your outstanding equity grants (i.e., if you had an award of RSUs with a vesting date on April 1, 2018, the RSUs subject to that award will still vest on April 1, 2018, subject to your continued employment through the vesting date).

If you remain employed with PayPal through April 1, 2016, and you: (1) subsequently elect to resign from your employment and (2) do not qualify for the severance protection for a voluntary resignation for “Good Reason” described in the “Termination During a Change in Control Period” paragraphs below, then you will be eligible to receive (a) the Accrued Benefits (as defined below) and (b) a lump sum payment in an amount equal to the sum of one times the sum of (i) your Annual Base Salary (as defined below) and (ii) your Bonus Amount (as defined below) (the “Retention Payment”), subject to you executing and not revoking the Company’s standard form of release within 60 days of your termination of employment (which shall also contain customary exceptions for your continued indemnification and coverage under D&O policies, exclusions for vested benefits under retirement and welfare benefit plans and equity incentive plans, and reasonable post-employment cooperation covenants (but for the avoidance of doubt no restrictive covenants or other covenants imposing limitations on your post-employment activities (the “Release”)). Subject to the Section 409A paragraph in the “Tax and Other Matters” section below in this letter, the Retention Payment shall be payable not later than 30 days after you execute a Release and any revocation period has expired, provided that if the 60-day time period following your termination of employment spans two calendar years, the Retention Payment shall be provided as of the later of the date the Release becomes irrevocable or the first calendar day of the calendar year following the year in which your employment terminates. For the avoidance of doubt, if you are eligible for a payment under the section labeled “Termination During a Change in Control Period,” you will be entitled to the severance protections described below and you will not be entitled to the Retention Payment described in this paragraph as an additional payment.


Severance Protections

Although your employment with the Company will continue to be “at will” and either you or the Company may terminate your employment at any time, with or without cause or advance notice, you will be entitled to severance protection in certain circumstances, as described below, subject in all instances to you executing and not revoking the Release within 60 days of your termination of employment, with such amounts or benefits to be paid and/or provided as of the dates described below, provided that if the 60-day time period following your termination of employment spans two calendar years, they shall be provided as of the later of the date the Release becomes irrevocable or the first calendar day of the calendar year following the year in which your employment terminates.

Subject to approval by the Compensation Committee of the eBay Board of Directors, you will be eligible for the following:

Termination Outside a Change in Control Period. If, outside a Change in Control Period (as defined below), your employment is terminated by the Company without Cause (as defined below), then the Company shall provide you with (a) the Accrued Benefits and (b) a lump sum severance payment, payable not later than 30 days after you execute a Release and any revocation period has expired, in an amount equal to the sum of:

(i) one times the sum of (a) your Annual Base Salary and (b) your Bonus Amount; and

(ii) notwithstanding any election you may have made to defer any portion of any RSUs or PBRSUs, a cash amount equal to the value of any other eBay equity awards that are outstanding and unvested as of the date of your termination of employment which, but for such termination, otherwise would have become vested pursuant to their respective vesting schedules within 12 months following the date of such termination (with such value calculated based on the Valuation Assumptions).

Termination During a Change in Control Period. If, during a Change in Control Period, your employment is terminated by the Company without Cause or if you voluntarily resign for Good Reason, then the Company shall provide you with (a) the Accrued Benefits and (b) a lump sum severance payment, payable not later than 30 days after you execute the Release and any revocation period has expired, in an amount equal to the sum of:

(i) two times the sum of (a) your Annual Base Salary and (b) your Bonus Amount; and

(ii) notwithstanding any election you may have made to defer any portion of any RSUs or PBRSUs, a cash amount equal to the value of all then unvested eBay equity awards that are outstanding and unvested as of the date of termination of employment (with such value calculated based on the Valuation Assumptions).

Special Treatment of Equity Awards on Death/Permanent Disability. In the event that your employment with eBay terminates due to your death or disability (within the meaning of eBay’s

 

2


long-term disability plan), within thirty (30) days after the date of such termination of employment, you will receive a cash payment equal to the value of any eBay equity awards that were outstanding and unvested as of the date of such termination which, but for such termination, otherwise would have become vested pursuant to their respective vesting schedules within 24 months following the date of such termination (with such value calculated based on the Valuation Assumptions).

Tax and Other Matters.

Section 409A. The Company may withhold from any amounts payable to you such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. It is intended that the payments and benefits provided under this Letter shall comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and the regulations relating thereto, or an exemption to Section 409A, and this Letter shall be interpreted accordingly. Any payments or benefits that qualify for the “short-term deferral” exception or another exception under Section 409A shall be paid under the applicable exception. Each payment under this Letter will be treated as a separate payment for purposes of Section 409A. Notwithstanding anything to the contrary herein, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Letter providing for the payment of amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Letter, references to a “resignation,” “termination,” “termination of employment” or like terms shall mean separation from service. If you become entitled to a payment of nonqualified deferred compensation as a result of your termination of employment and at such time you are a “specified employee” (within the meaning of Section 409A and as determined in accordance with the methodology established by the Company as in effect on your date of termination), such payment will be postponed to the extent necessary to satisfy Section 409A, and any amounts so postponed will be paid in a lump sum on the first business day that is six months and one day after your separation from service (or any earlier date of your death). If the compensation and benefits provided under this Letter would subject you to taxes or penalties under Section 409A, the Company and you will cooperate diligently to amend the terms of this Letter to avoid such taxes and penalties, to the extent possible under applicable law.

Change in Control Golden Parachute Excise Taxes. In the event of a Change in Control, where an accounting firm designated by the Company determines that the aggregate amount of the payments and benefits that (but for the application of this paragraph) would be payable to you under this Letter agreement or any other plan, policy or arrangement of the Company and any of their affiliates, exceeds the greatest amount of payments and benefits that could be paid or provided to you without giving rise to any liability for any excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then you may elect either to (1) pay the Excise Tax and receive all such payments and benefits as may be payable to you, or (2) only receive the aggregate amount of such payments and benefits payable or to be provided to you that would not exceed the amount that produces the greatest after-tax benefit to you after taking into account any Excise Tax and other taxes that would otherwise be payable by you (such reduced amount of payments and benefits, the “Reduced Benefit Amount”). In the event you elect to receive the Reduced Benefit Amount, however, the reduction in such payments or benefits pursuant to the immediately preceding sentence shall be made in the following order: (1) by reducing severance payments based on your

 

3


Annual Base Salary and Bonus Amount, if any is then payable, and then (2) by reducing amounts in respect of any equity-based awards (first in the form of cash payments, if any are due hereunder, then in respect of any vesting of any such awards hereunder, and only thereafter in respect of any vesting of any such awards under any other plan or arrangement).

Definitions.

“Accrued Benefits” means (a) prompt payment of any accrued but unpaid annual base salary through the last day of employment, (b) prompt payment of any unreimbursed expenses incurred through the last day of employment subject to your prompt delivery of all required documentation of such expenses pursuant to applicable employer policies, (c) all other vested payments, benefits or fringe benefits to which you are entitled under the terms of any applicable compensation arrangement or benefit, equity or fringe benefit plan or program or grant (excluding any other severance plan, policy or program) or this Letter in accordance with the terms of such plan, program or grant, including any unpaid bonus for any prior fiscal year when it otherwise would have been paid, and (d) a prorated portion of the eIP bonus, if any, that you otherwise would have earned and been paid in respect of the fiscal year in which your employment terminates based on the actual performance of the company for the full year, with such prorated portion calculated based on the period of time during such fiscal year that you were employed, relative to the full fiscal year and only based on the company performance element of the bonus (such prorated eIP bonus amount, if any, the “Prorated Bonus”). You will receive your Prorated Bonus on the date that all other participants in the eIP receive their eIP bonuses in respect of such fiscal year.

“Annual Base Salary” will mean an amount equal to $575,000 (or such greater amount as in effect immediately prior to your termination date).

“Bonus Amount” will mean an amount equal to 65% of your Annual Base Salary (or such greater amount as may be established as your target bonus payment immediately prior to your termination date).

“Cause” shall mean (a) your failure to attempt in good faith to substantially perform your assigned duties, other than failure resulting from your death or incapacity due to physical or mental illness or impairment, which is not remedied within 30 days after receipt of written notice from the Company specifying such failure; (b) your indictment for, conviction of or plea of nolo contendere to any felony (or any other crime involving fraud, dishonesty or moral turpitude); or (c) your commission of an act of fraud, embezzlement, misappropriation, willful misconduct, or breach of fiduciary duty against the Company, except good faith expense account disputes.

“Change in Control” shall mean, for purposes of this Letter, a “Change in Control” as such term is defined in the Company’s 2008 Equity Plan or, following the Spin-Off, as such term may be defined (if different) under any successor equity incentive plan.

“Change in Control Period” means the period that begins 90 days prior to, and ends 24 months following, a “Change in Control.”

“Good Reason” means, without your written consent, any of the following events, whereafter you resign your employment within the periods provided below:

 

4


(i) a material reduction in your annual base salary; (ii) a material reduction in your annual target bonus opportunity; (iii) on and after the Spin-Off, a material reduction in your authority, duties or responsibilities; (iv) following a Change in Control, a requirement by the Company that you relocate your primary office to a location that is more than 35 miles from the location of your primary office immediately prior to the Change in Control; or (v) any other material breach by the Company of this Letter. You will be deemed to have given consent to the condition(s) described in any of clauses (i) through (v) of this paragraph if you do not provide written notice to the Company of such Good Reason event(s) within 60 days from the first occurrence of such Good Reason event(s), following which the Company shall have 30 days to cure such event, and to the extent the Company has not cured such Good Reason event(s) during the 30-day cure period, you must terminate your employment for Good Reason no later than 60 days following the occurrence of such Good Reason event(s) by providing the Company 30 days’ prior written notice of termination, which may run concurrently with the Company’s cure period.

“Valuation Assumptions” means, collectively, the following assumptions: (x) each share of eBay common stock underlying an award has a value equal to the average of the closing prices of eBay common stock as reported on the NASDAQ Global Select Market for the period of 10 consecutive trading days ending on (and including) the last trading day prior to the date of your termination of employment, (y) if the date of your termination of employment occurs during the performance period with respect to an award of PBRSUs whose target value has been established prior to the date of your termination of employment, but whose number of shares of eBay common stock that would be subject to such award based on achievement of applicable performance targets has not yet been granted, then any such award shall be deemed to have been earned and granted assuming achievement of target performance in respect of the applicable performance period immediately prior to such date of termination and (z) any Options that you hold that are outstanding immediately prior to the date of your termination of employment will be valued based on their spread (i.e., the positive difference, if any, of the value of each share of eBay) common stock underlying the Option, as determined pursuant to clause (x) above), less the per share exercise price of such Option).

Thank you for your continued service.

Very truly yours,

/s/ Beth Axelrod

Beth Axelrod

Senior Vice President, Human Resources

eBay Inc.

 

5

EX-10.20

Exhibit 10.20

 

LOGO

December 31, 2014

Dear Patrick,

You play an extremely important role in PayPal and we appreciate the professionalism you are demonstrating as Dan identifies his leadership team. This letter is to confirm the arrangements that you will receive in the event that you conduct an orderly transition with the newly hired CFO of PayPal and you do not take a different role in PayPal. We define an orderly transition as you continuing to fulfill your current responsibilities as PayPal’s CFO with your usual professionalism and diligence through an agreed upon separation date that will be no longer than 30 days after the start date of the new CFO. Upon your separation, you will receive:

 

    Prorated eIP bonus for 20151: $170,625
    1X Target Cash2: $866,250
    Value of the equity vesting through the later of the twelve months following your termination date or April 1, 20163: estimated at approx. $1.8 M @ $50.

For the sake of clarity

 

  You remain employed at will and subject to our arbitration agreement and proprietary and invention agreement
  Other than stated above, your existing terms of employment remain unchanged and will expire at termination, including existing compensation, benefits and annual supplemental bonus of $50,000. You will not receive a salary increase or equity award during the April 2015 focal.
  Your 2014 bonus will be provided assuming the company bonus pays out. The individual portion of your 2014 eIP will be calculated based on 100% payout. (This is before any adjustment that may be required based on company performance.) In the unlikely event that the new CFO is hired and your transition is completed before the bonus is paid, this serves as confirmation that you will still be entitled to your bonus. It will be paid at the time that the bonus is paid for all employees.

We appreciate your continued support as we work through the separation of our business.

Sincerely,

Beth Axelrod

1 Estimated at target for 6 months of 2015 based on current annual salary and a 65% bonus target. Payment to be made within two pay periods of your separation from company. Actual amount will be based on actual time worked in 2015. (Taxable).


2 Estimated based on current annual salary and target bonus of 65%. Payment to be made within two pay periods of your separation date and subject to signed standard waiver. (Taxable)

3 The estimated equity value provided is based on an assumed separation date of June 2015 and equity vesting in the next twelve months from this date.

The value of the restricted stock units that would have vested in the twelve months after your termination will be converted to a dollar value by multiplying the numbers of shares that would have vested times the average of the closing price of eBay common stock as reported in the NASDAQ Global Selected Market for the period of 10 consecutive trading days ending on (and including) the last trading day prior to your separation date. (Taxable)

The value of the options that would have vested in the twelve months after your termination will be converted to a dollar value by multiplying the number of shares what would have vested times the greater of the difference of the average of the closing price of eBay common stock as reported in the NASDAQ Global Selected Market for the period of 10 consecutive trading days ending on (and including) the last trading day prior to your separation date minus the exercise price and the option strike price or zero. (Taxable)

The value of the PBRSUs that have already been granted before your termination date and would have vested in the twelve months after your termination will be converted to a dollar value by multiplying the numbers of shares that would have vested times the average of the closing price of eBay common stock as reported in the NASDAQ Global Selected Market for the period of 10 consecutive trading days ending on (and including) the last trading day prior to your separation date. (Taxable)

EX-10.21

Exhibit 10.21

BRAINTREE, INC.

RESTRICTED STOCK UNIT AGREEMENT — INCORPORATED TERMS AND CONDITIONS

1. Grant Under Plan. This RSU is granted pursuant to and is governed by the Company’s 2011 Equity Incentive Plan as may be amended from time to time (the “Plan”) and, unless the context otherwise requires, terms used herein shall have the same meaning as in the Plan. To the extent that any provision of this Agreement conflicts with the express terms of the Plan, it is hereby acknowledged and agreed that the terms of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed to be amended so as to carry out the purpose and intent of the Plan. By the Participant’s acceptance of this Agreement, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.

2. Grant as RSU. The Participant is hereby granted an Award of RSUs, effective as of the award date set forth on the cover page attached hereto, subject to the terms and conditions set forth herein (collectively with the cover page, the “Agreement”). Each RSU represents the right to receive one share of the Company’s Common Stock upon the satisfaction of the terms and conditions set forth in this Agreement and the Plan.

3. Vesting of RSUs. If the Participant has continued to provide services in a Business Relationship through the dates listed on the vesting schedule set forth on the cover page hereof, the RSU will automatically vest as provided on the cover page hereto. Each date on which a portion of the Award vests shall be referred to herein as a “Vesting Date.” Notwithstanding the foregoing, the committee that succeeds to the authority of the Board (the “Committee”) may, in its discretion, after the consummation of the transactions contemplated by the Merger Agreement (the “Merger”), accelerate the date that any installment of this Award vests. Upon the termination of the Participant’s Business Relationship by the Company without Cause or resignation by the Participant for Good Reason, in either case after the consummation of the Merger, all RSUs held by the Participant which are not vested as of the date of such termination shall immediately become fully vested effective immediately prior to such termination.

4. Definitions. The following definitions shall apply:

Business Relationship” means service to the Company or a Related Company in the capacity of an employee, officer, director or consultant.

Cause” means (i) the Participant’s commission of (i) an act of fraud, theft, embezzlement, misappropriation or breach of fiduciary duty against or involving the Company or any of its affiliates or (B) any other crime having a material and adverse effect on the Company or any of its affiliates; (ii) material and unauthorized use or disclosure by the Participant of the proprietary information or trade secrets of the Company or its affiliates; (iii) the Participant’s willful failure or refusal to perform his material job duties and responsibilities (other than refusal or failure resulting from the Participant’s complete incapacity due to physical or mental illness or impairment); (iv) any material breach of any

 

A-1


written agreement between the Participant and the Company or any of its affiliates; (v) the Participant’s willful failure or refusal to comply with a material written policy or rule of the Company or any of its affiliates; (vi) the Participant’s willful failure or refusal to cooperate with a government or internal investigation of the Company or any of its affiliates, including its directors, officers or employees, if the Participant’s cooperation has been requested by the Company or any of its affiliates; or (vii) the Participant’s commission of, or plea of nolo contendere to, any felony under the laws of the United States or any equivalent state or any foreign laws, and which, in the case of clauses (iii), (iv), (v) and (vi), if curable, continues for a period of 30 days after written notification of the same from the Company. For purposes of this Agreement, Cause shall not include any act, or failure to act, by the Participant that is based upon (x) instructions of the Board of Directors of eBay Inc., the chief executive officer of eBay Inc., or a senior executive of eBay Inc. or Paypal, Inc. (other than the Participant) or (y) the advice of counsel for eBay Inc. or any of its affiliates. The determinations hereunder shall be made by the chief human resources officer or general counsel of eBay Inc. or the Committee, in each case, whose determination shall be conclusive and binding.

Good Reason” means the occurrence of any of the following without the written consent of the Participant: (i) a reduction in the Participant’s rate of annual base salary; (ii) a material reduction in the Participant’s annual target bonus opportunity; or (iii) a change in the Participant’s principal location of work that is in excess of thirty-five (35) miles from the Participant’s principal location of work as of the date of this Agreement. Notwithstanding the foregoing, a termination of the Participant’s Business Relationship for Good Reason shall not have occurred unless (i) the Participant gives written notice to the Company of his intent to terminate the Business Relationship within ninety (90) days after the Participant first becomes aware of the occurrence of the circumstances constituting Good Reason, specifying in reasonable detail the circumstances constituting Good Reason, and the Company has failed within thirty (30) days after receipt of such notice to cure the circumstances constituting Good Reason.

5. Termination of Business Relationship.

(a) Termination Other Than Without Cause or for Good Reason. If the Participant’s Business Relationship with the Company or a Related Company ceases or is otherwise terminated for any reason other than (i) a termination by the Company or a Related Company without Cause or (ii) a resignation by the Participant for Good Reason, any portion of the Award that has not become vested on or prior to the date of such cessation shall thereupon be forfeited and terminated. If the Participant’s Business Relationship with the Company or a Related Company is suspended pending an investigation of whether the Participant shall be terminated for Cause, all of the Participant’s rights under any Award shall likewise be suspended during the period of investigation.

 

 

A-2


(b) Status of Business Relationship. Any determination under this Agreement as to the status of a Business Relationship or other matters referred to above shall be made in good faith by the Committee. For purposes hereof, with respect to employees of the Company or a Related Company, the extent to which employment shall be considered as having continued or terminated during any leave of absence shall be determined pursuant to the Company’s or its successor’s leave of absence policy. For purposes hereof, a termination of employment followed by another Business Relationship (for example, post-employment consulting service) shall be deemed a termination of the Business Relationship with all vesting to cease unless (i) the Company or a Related Company enters into a written agreement related to such other Business Relationship in which it is specifically stated that there is no termination of the Business Relationship under this Agreement or (ii) otherwise provided by the Committee. This Award shall not be affected by any change of employment within or among the Company and its Related Companies so long as the Participant continuously remains an employee of the Company or any Related Company.

6. Securities Laws Restrictions on Resale. Until registered under the Securities Act of 1933, as amended, or any successor statute (the “Securities Act”), Award Shares will be of an illiquid nature and will be deemed to be “restricted securities” for purposes of the Securities Act. Accordingly, such shares must be sold in compliance with the registration requirements of the Securities Act or an exemption therefrom and may need to be held indefinitely. Unless the Award Shares have been registered under the Securities Act, each certificate evidencing any of the Award Shares shall bear a restrictive legend specified by the Company.

7. Distribution of the Award. As soon as reasonably practicable following each Vesting Date (and in no event later than 2-1/2 months following each such Vesting Date), the Company will release the portion of the Award that has become vested as of such Vesting Date in the form of shares of the Company’s Common Stock. Prior to each Vesting Date, the Participant will pay or make adequate arrangements satisfactory to the Company to satisfy all income tax, social insurance, payroll tax, payment on account or other tax-related items related to the portion of the Award that vests as of such Vesting Date. If the Participant does not do so, Participant authorizes the Company, at the Company’s discretion and pursuant to such procedures as the Company may specify from time to time, to satisfy such tax obligations by one or a combination of the following:

(a) withholding a net number of otherwise issuable vested Award Shares having a then current Fair Market Value not exceeding the amount necessary to satisfy the withholding obligation of the Company based on the applicable minimum statutory withholding amounts or other applicable withholding rates; and/or

(b) withholding from Participant’s wages or other cash compensation paid to Participant by the Company; and/or

(c) requiring Participant to make a payment in cash (or cash equivalent) to the Company.

 

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No fractional Award Shares will be withheld to cover the tax obligations of the Participant. If the Participant’s tax obligations are satisfied by withholding Award Shares as described in (b) above, for tax purposes Participant will be deemed to have been issued the full number of Award Shares subject to the vested RSUs, notwithstanding that a number of Award Shares are held back for the purpose of satisfying the Participant’s tax obligations. The Company may refuse to issue or deliver the Award Shares if the Participant fails to comply with the Participant’s obligations in connection with the Participant’s tax obligations.

8. Award Not Transferable. The Award will not be assignable or transferable by the Participant, except by will or the laws of descent and distribution.

9. No Obligation to Continue Business Relationship. Neither the Plan, this Agreement, nor the grant of this Award imposes any obligation on the Company to continue the Participant in employment or other Business Relationship.

10. Arbitration. Any dispute, controversy, or claim arising out of, in connection with, or relating to the performance of this Agreement or its termination shall be settled by arbitration by a single arbitrator in the State of Illinois, pursuant to the rules then obtaining of the American Arbitration Association. Any award shall be final, binding and conclusive upon the parties and a judgment rendered thereon may be entered in any court having jurisdiction thereof.

11. Provision of Documentation to the Participant. By signing this Agreement the Participant acknowledges receipt of a copy of this Agreement and a copy of the Plan.

12. Miscellaneous.

(a) Notices. All notices hereunder shall be in writing and shall be deemed given when sent by mail, if to the Participant, to the address set forth below or at the address shown on the records of the Company, and if to the Company, to the Company’s principal executive offices, attention of the Corporate Secretary.

(b) Entire Agreement; Modification. Subject to Section 1 above, this Agreement constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties.

(c) Fractional Shares. If the shares under this Award become issuable for a fraction of a share because of the adjustment provisions contained in the Plan, such fraction shall be rounded down to the nearest whole share.

(d) Issuances of Securities; Changes in Capital Structure. Except as expressly provided herein or in the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to this Award. No adjustments need be made for dividends paid in cash or in property other than securities of the Company. If there shall be any change in the

 

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Common Stock of the Company through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, spin-off, split-up or other similar change in capitalization or event, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Participant in exchange for, or by virtue of his or her ownership of, Award Shares, except as otherwise determined by the Board or, after the consummation of the Merger, the Committee. Upon the consummation of the Merger, the RSUs shall be treated in the manner set forth in the Merger Agreement.

(e) Severability. The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

(f) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

(g) Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware, without giving effect to the principles of the conflicts of laws thereof.

(h) Section 409A of the Code. Notwithstanding any other provision of this Agreement, in the event that the provisions of this Agreement are subject to Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (“Section 409A”), the provisions of this Agreement shall comply with, and shall be interpreted in a manner consistent with, Section 409A. If any payment cannot be provided or made at the time specified herein without incurring sanctions under Section 409A, then such payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. All payments to be made upon a termination of the Participant’s Business Relationship under this Agreement may only be made upon a “separation from service” under Section 409A. For purposes of Section 409A, each payment made under this Agreement shall be treated as a separate payment. In no event shall the Participant, directly or indirectly, designate the calendar year of payment. Notwithstanding any provision to the contrary herein or in the Plan, if on the date of termination of the Participant’s Business Relationship the Participant is a “specified employee” (within the meaning of Section 409A) as determined by the Company, then all payments payable to the Participant under this Agreement that are deferred compensation subject to the requirements of Section 409A shall be postponed for a period of six (6) months following the Participant’s “separation from service” with the Company (or any successor thereto) (the “Postponed Amounts”). The Postponed Amounts shall be paid to the Participant in a lump sum within thirty (30) days after the date that is six (6) months following the Participant’s “separation from service” with the Company (or any successor thereto). If the Participant dies during the postponement period, the postponed amounts shall be paid to the personal representative of the Participant’s estate within sixty (60) days after the Participant’s death.

[Remainder of Page Left Blank]

 

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EX-21.1

Exhibit 21.1

List of Subsidiaries

The following is a list of subsidiaries of PayPal Holdings, Inc., omitting subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.

PayPal 2 S.à r.l.

PayPal (Europe) S.à r.l. et Cie. S.C.A.

PayPal Global Holdings, Inc.

PayPal, Inc.

PayPal International Treasury Centre S.à r.l.

PayPal Payment Holdings Pte. Ltd.

PayPal Pte. Ltd.

EX-99.1
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Exhibit 99.1

 

LOGO

[●], 2015

Dear eBay Inc. (“eBay”) Stockholder:

In September 2014, we announced plans to separate our Payments business and our Marketplaces business. The separation will occur by means of a distribution of a newly formed corporation named PayPal Holdings, Inc. (“PayPal”), which will contain the businesses that make up our Payments segment. eBay, the existing publicly traded corporation, will continue to operate our Marketplaces business. As two distinct publicly traded corporations, eBay and PayPal will be better positioned to capitalize on significant growth opportunities and focus their resources on their respective businesses and strategic priorities.

eBay and PayPal are two great businesses with leading global positions in commerce and payments, respectively. For more than a decade, eBay and PayPal have mutually benefited from being part of one company, creating substantial stockholder value. As part of its strategic planning process, the board of directors has assessed whether eBay and PayPal should remain together. Until September 2014, the combination of the two businesses and the synergies and benefits they offered to each other were so valuable that the board determined that separation was not appropriate. But the commerce and payments landscape is rapidly changing, and each business faces different competitive opportunities and challenges. Consequently, in September 2014 the board decided to separate the businesses. As independent companies, we expect eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets. eBay and PayPal also will benefit from additional flexibility and agility to pursue new market and partnership opportunities.

The new eBay will be a global commerce leader and, we believe, the most inspiring and engaging place to discover great value and unique selection anytime, anywhere. We have an incredibly strong position, with 155 million active buyers globally as of the end of 2014. In 2014, eBay Marketplaces handled approximately $83 billion of gross merchandise volume, growing 9% year over year. Additionally, eBay is one of the world’s top 30 global brands. Offering consumers worldwide extraordinary value and selection, eBay had more than 800 million live listings at the end of 2014, and approximately 80% of sold items are new. And the company is well-positioned as a leader in the growth areas of mobile and cross-border commerce. With over 250 million eBay app downloads since inception, eBay generated $28 billion in mobile volume in 2014. During the same time, cross-border commerce represented approximately 17% of eBay’s gross merchandise volume, and 60% of Marketplaces’ revenue was international. Looking ahead, eBay will continue to focus on enhancing its unique assets and capabilities and creating new commerce experiences to ensure long-term growth and on-going commerce leadership.

The separation will provide current eBay stockholders with equity ownership in both eBay and PayPal. We expect that the distribution of PayPal common stock will be tax-free, for U.S. federal income tax purposes, to eBay stockholders.

The separation will be effected by means of a pro rata distribution of 100% of the outstanding shares of PayPal common stock to holders of eBay common stock. Each eBay stockholder will receive one share of PayPal common stock for every [●] share of eBay common stock held as of the close of business on [●], 2015, the record date for the distribution. No vote of eBay stockholders is required for the distribution. You do not need to take any action to receive shares of PayPal common stock to which you are entitled as an eBay stockholder, and you do not need to pay any consideration or surrender or exchange your shares of eBay common stock.

We encourage you to read the attached information statement, which is being provided to all eBay stockholders who held shares of eBay common stock on the record date for the distribution. The information statement describes the separation in detail and contains important business and financial information about PayPal.

We believe the separation provides tremendous opportunities for our businesses and our stockholders, as we work to continue building long-term stockholder value. We appreciate your continuing support of eBay, and look forward to your future support of both companies.

Sincerely,

 

 

John J. Donahoe

President and Chief Executive Officer

Pierre M. Omidyar

Chairman of the Board


Table of Contents

LOGO

[●], 2015

Dear Future PayPal Stockholder:

It is my pleasure to welcome you as a future stockholder of our company, PayPal Holdings, Inc. Following the distribution of all of the outstanding shares of PayPal common stock by eBay Inc. to its stockholders, PayPal will be an independent, publicly traded company focused on making money work better for people and businesses around the world.

The access to and movement of money is an important market that affects the lives of almost everyone. Our mission is to increase our relevance for consumers, merchants, friends and family to access and move their money anywhere in the world, anytime, on any platform and through any device (e.g., mobile, tablets, personal computers or wearables).

We operate a proprietary global technology platform that connects merchants and consumers around the globe. In 2014, approximately 162 million active customer accounts processed payments on our platform. Total payment volume over the last 12 months increased by 26% to $235 billion, as more consumers and merchants trusted PayPal to pay and get paid. We have significant global reach, processing transactions in more than 200 markets, allowing our customers to receive payments in more than 100 currencies, withdraw funds to their bank accounts in 57 currencies and hold balances in their PayPal accounts in 26 currencies. We are a leader in mobile payments and processed nearly 1 billion mobile transactions in 2014 for our customers.

Our stockholder value proposition is simple. We strive to provide superior returns to PayPal stockholders by maintaining our leadership position in the payments industry and investing in the growth of our newly standalone company.

We invite you to learn more about PayPal, our business and our strategic initiatives by reading the enclosed information statement. We urge you to read the information statement carefully and in its entirety. We are excited by the tremendous opportunity we have in front of us and look forward to your support as a holder of our common stock.

Sincerely,

Daniel H. Schulman

President and CEO-Designee

PayPal Holdings, Inc.


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.

 

PRELIMINARY AND SUBJECT TO COMPLETION, DATED JUNE 2, 2015

INFORMATION STATEMENT

 

LOGO

PayPal Holdings, Inc.

 

 

This information statement is being furnished in connection with the distribution by eBay Inc. (“eBay”) to its stockholders of all of the outstanding shares of common stock of PayPal Holdings, Inc. (“PayPal”), a wholly owned subsidiary of eBay that will hold directly or indirectly the assets and liabilities associated with eBay’s Payments business. To implement the distribution, eBay will distribute all of the shares of PayPal common stock on a pro rata basis to eBay stockholders in a transaction that is intended to qualify as tax-free for U.S. federal income tax purposes. Please refer to the “Presentation of Information” below for how we refer to “eBay Inc.,” “eBay” and “PayPal” in this Information Statement.

You will receive one share of PayPal common stock for every [●] shares of eBay common stock held of record by you as of the close of business on [●], 2015, the record date for the distribution. You will receive cash in lieu of any fractional shares of PayPal common stock that you would have received after application of the above ratio. As discussed under “The Separation and Distribution—Trading Between the Record Date and Distribution Date,” if you sell your eBay common stock in the “regular-way” market after the record date and before the distribution, you also will be selling your right to receive shares of PayPal common stock in connection with the separation. PayPal expects the shares of PayPal common stock to be distributed by eBay to you at 11:59 p.m., Eastern Time, on [●], 2015. We refer to the date of the distribution of the shares of PayPal common stock as the “distribution date.”

No vote of eBay stockholders is required for the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send eBay a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of eBay common stock or take any other action to receive your shares of PayPal common stock.

There is no current trading market for PayPal common stock, although PayPal expects that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and PayPal expects “regular-way” trading of PayPal common stock to begin on the first trading day following the completion of the distribution. PayPal intends to apply to have its common stock authorized for listing on The NASDAQ Stock Market under the symbol “PYPL.” Following the spin-off, eBay common stock will continue to trade on The NASDAQ Stock Market under the symbol “EBAY.”

 

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 15.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is [], 2015.

This information statement was first mailed to eBay stockholders on or about [], 2015.


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TABLE OF CONTENTS

 

     Page  

Questions and Answers About the Separation and Distribution

     1   

Information Statement Summary

     7   

Risk Factors

     15   

Cautionary Statement Concerning Forward-Looking Statements

     43   

The Separation and Distribution

     44   

Dividend Policy

     50   

Capitalization

     51   

Selected Historical Combined Financial Data of PayPal

     52   

Unaudited Pro Forma Condensed Combined Financial Statements

     53   

Business

     59   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     71   

Management

     97   

Directors

     99   

Compensation Discussion and Analysis

     107   

Potential Payments Upon Termination or Change in Control

     141   

Certain Relationships and Related Party Transactions

     153   

Material U.S. Federal Income Tax Consequences

     166   

Description of Material Indebtedness

     170   

Security Ownership of Certain Beneficial Owners and Management

     171   

Description of PayPal’s Capital Stock

     173   

Where You Can Find More Information

     178   

Index to Financial Statements

     F-1   

Presentation of Information

On September 30, 2014, eBay Inc. (“eBay”) announced its intent to separate its payments business into an independent, publicly-traded company. To accomplish this separation, in January 2015, eBay incorporated PayPal Holdings, Inc. (“PayPal Holdings”), which will ultimately become the parent of PayPal, Inc. and will hold directly or indirectly all of the assets and liabilities associated with PayPal, Inc. References to “we,” “our,” “us,” “the Company” or “PayPal” refer to the combined entities of the payments business of eBay, including PayPal, Inc. and certain other assets and liabilities that have been historically held at the eBay corporate level, but are specifically identifiable and attributable to the payments business.

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about PayPal assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. References in this information statement to “eBay” refer to eBay Inc., a Delaware corporation, and its consolidated subsidiaries, which prior to the separation and distribution, but not after such date, includes the business and operations of PayPal.

Trademarks, Trade Names and Service Marks

PayPal owns or has rights to use the trademarks, service marks and trade names that it uses in conjunction with the operation of its business. Some of the more important trademarks that PayPal owns or has rights to use that appear in this information statement include: PayPal®, Braintree and Venmo, which may be registered or trademarked in the United States and other jurisdictions. PayPal’s rights to some of these trademarks may be limited to select markets. Each trademark, trade name or service mark of any other company appearing in this information statement is, to PayPal’s knowledge, owned by such other company.


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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

 

What is PayPal and why is eBay separating PayPal’s business and distributing PayPal stock?

PayPal Holdings, Inc., which is currently a wholly owned subsidiary of eBay, was formed to own and operate eBay’s Payments business. The separation of PayPal from eBay and the distribution of PayPal common stock are intended to provide you with equity ownership in two separate, publicly traded companies that will be able to focus exclusively on each of their respective businesses. eBay and PayPal expect that the separation will result in enhanced long-term performance of each business for the reasons discussed in the section entitled “The Separation and Distribution—Reasons for the Separation.”

 

Why am I receiving this document?

eBay is delivering this document to you because you are a holder of eBay common stock as of the close of business on [●], 2015, the record date of the distribution. Each holder of eBay common stock as of the record date will be entitled to receive one share of PayPal common stock for every [●] shares of eBay common stock held at the close of business on such date. This document will help you understand how the separation and distribution will affect your post-separation ownership in eBay and PayPal, respectively.

 

How will the separation of PayPal from eBay work?

To accomplish the separation, eBay will distribute all of the outstanding shares of PayPal common stock to eBay stockholders on a pro rata basis in a distribution intended to be tax-free for U.S. federal income tax purposes.

 

Why is the separation of PayPal structured as a distribution?

eBay believes that a tax-free distribution, for U.S. federal income tax purposes, of shares of PayPal stock to eBay stockholders is an efficient way to separate its Payments business in a manner that will create long-term value for eBay, PayPal and their respective stockholders.

 

What is the record date for the distribution?

The record date for the distribution will be [●], 2015.

 

 

When will the distribution occur?

It is expected that all of the shares of PayPal common stock will be distributed by eBay at 11:59 p.m., Eastern Time, on [●], 2015 to holders of record of shares of eBay common stock at the close of business on [●], 2015, the record date for the distribution.

 

What do stockholders need to do to participate
in the distribution?

Stockholders of eBay as of the record date for the distribution will not be required to take any action to receive PayPal common stock in the distribution, but you are urged to read this entire information statement carefully. No stockholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of eBay common stock or take any other action to receive your shares of PayPal common stock. Please do not send in your eBay stock certificates. The distribution will not affect the number of outstanding shares of eBay common stock or any of your rights as an eBay stockholder, although it will affect the market value of each outstanding share of eBay common stock.

 

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How will shares of PayPal common stock be issued?

You will receive shares of PayPal common stock through the same channels that you currently use to hold or trade shares of eBay common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of PayPal shares will be documented for you in the same manner that you typically receive shareholder updates, such as monthly broker statements and 401(k) statements.
  If you own shares of eBay common stock, including shares owned in certificate form, as of the close of business on [●], 2015, the record date for the distribution, eBay, with the assistance of Computershare Trust Company, N.A., or Computershare, the distribution agent, will electronically distribute shares of PayPal common stock to you or to your brokerage firm on your behalf in book-entry form. Computershare will mail you a book-entry account statement that reflects your shares of PayPal common stock, or your bank or brokerage firm will credit your account for the shares.

 

How many shares of PayPal common stock
will I receive in the distribution?

eBay will distribute to you one share of PayPal common stock for every [●] shares of eBay common stock held by you as of the close of business on the record date for the distribution. Based on approximately [●] billion shares of eBay common stock outstanding as of [●], 2015, a total of approximately [●] billion shares of PayPal common stock will be distributed. For additional information on the distribution, see “The Separation and Distribution.” PayPal shares are being issued on a pro rata basis, which means that every eBay stockholder will have the same ownership percentage in PayPal following the distribution as they held in eBay as of the record date.

 

Will PayPal issue fractional shares of its common stock in the distribution?

No. PayPal will not issue fractional shares of its common stock in the distribution. Fractional shares that eBay stockholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

 

What conditions must be satisfied to complete
the distribution?

The distribution is subject to the satisfaction (or waiver by eBay in its sole discretion) of the following conditions:

 

    the transfer of assets and liabilities from eBay to PayPal shall be completed in accordance with the separation and distribution agreement;

 

    eBay shall have received an opinion from eBay’s outside legal counsel regarding the qualification of the distribution, together with certain related transactions, as transactions that are generally tax free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code (the “Code”);

 

   

the U.S. Securities and Exchange Commission (the “SEC”) shall have declared effective the registration statement of which this

 

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information statement forms a part, and no stop order suspending the effectiveness of the registration statement shall be in effect and no proceedings for such purpose shall be pending before or threatened by the SEC;

 

    this information statement shall have been made available to the eBay stockholders;

 

    all actions or filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws shall have been taken and, where applicable, have become effective or been accepted by the applicable governmental entity;

 

    any approvals of any governmental entities required for the consummation of the separation and distribution have been obtained, including any required approvals of the Commission de Surveillance du Secteur Financier (the “CSSF”) and the Bank Centrale du Luxembourg (the “BCL”), as well as the assent of the European Central Bank to any such approvals of the CSSF;

 

    the transaction agreements relating to the separation shall have been duly executed and delivered by the parties;

 

    no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions shall be in effect;

 

    the shares of PayPal common stock to be distributed shall have been accepted for listing on The NASDAQ Stock Market, subject to official notice of distribution;

 

    eBay shall have transferred or caused the other members of the eBay Group to transfer an aggregate of $3.8 billion of cash to PayPal (including through one or more capital contributions); and

 

    no other event or development shall exist or have occurred that, in the judgment of eBay’s board of directors, in its sole discretion, would make it inadvisable to effect the separation or the distribution.

 

  eBay and PayPal cannot assure you that any or all of these conditions will be met and may also waive any of the conditions to the distribution. In addition, eBay can decline at any time to go forward with the separation. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution—Conditions to the Distribution.”

 

What is the expected date of completion of the separation?

The completion and timing of the separation are dependent upon a number of conditions. It is expected that the shares of PayPal common stock will be distributed by eBay at 11:59 p.m., Eastern Time, on [●], 2015 to the holders of record of shares of eBay common stock at the close of business on [●], 2015, the record date for the distribution. However, no assurance can be provided as to the timing of the separation or that all conditions to the distribution will be met.

 

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Can eBay decide to cancel the distribution of PayPal common stock even if of all the conditions have been met?

Yes. Until the distribution has occurred, eBay has the right to terminate the distribution, even if all of the conditions are satisfied.

 

 

 

What if I want to sell my shares of eBay
common stock or my PayPal common stock?

You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.

 

 

What is “regular-way” and “ex-distribution” trading of eBay common stock?

Beginning on or shortly before the record date for the distribution and continuing up to and through the distribution date, it is expected that there will be two markets in eBay common stock: a “regular-way” market and an “ex-distribution” market. Shares of eBay common stock that trade in the “regular-way” market will trade with an entitlement to shares of PayPal common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of PayPal common stock distributed pursuant to the distribution. If you hold shares of eBay common stock on the record date and then decide to sell any shares of eBay common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your shares of eBay common stock with or without your entitlement to PayPal common stock pursuant to the distribution.

 

Where will I be able to trade shares of PayPal common stock?

PayPal intends to apply to list its common stock on The NASDAQ Stock Market under the symbol “PYPL.” PayPal anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before [●], 2015, the record date for the distribution, and will continue up to and through the distribution date and that “regular-way” trading in PayPal common stock will begin on the first trading day following the completion of the separation. If trading begins on a “when-issued” basis, you may purchase or sell PayPal common stock up to and through the distribution date, but your transaction will not settle until after the distribution date. PayPal cannot predict the trading prices for its common stock before, on or after the distribution date.

 

What will happen to the listing of eBay
common stock?

eBay common stock will continue to trade on The NASDAQ Stock Market after the distribution under the symbol “EBAY.”

 

Will the number of shares of eBay common
stock that I own change as a result of the distribution?

No. The number of shares of eBay common stock that you own will not change as a result of the distribution.

 

 

Will the distribution affect the market price of
my eBay common stock?

Yes. As a result of the distribution, eBay expects the trading price of shares of eBay common stock immediately following the distribution to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the Payments business. There can be no assurance that the aggregate market value of the eBay common stock and the PayPal common stock following the separation will be higher or lower than the market value of eBay common stock if the separation and distribution did not occur. This means, for example,

 

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that the combined trading prices of [●] share of eBay common stock and one share of PayPal common stock after the distribution may be equal to, greater than or less than the trading price of [●] share of eBay common stock before the distribution.

 

What are the material U.S. federal income tax consequences of the distribution?

It is a condition to the completion of the distribution that eBay receive an opinion from eBay’s outside legal counsel regarding the qualification of the distribution, together with certain related transactions, as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code. Assuming that the distribution, together with certain related transactions, so qualifies, you will not recognize any gain or loss and no amount will be included in your income, upon your receipt of shares of PayPal common stock pursuant to the distribution for U.S. federal income tax purposes. You will, however, recognize gain or loss for U.S. federal income tax purposes with respect to cash received in lieu of a fractional share of PayPal common stock.

 

  You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as foreign tax laws. For more information regarding the material U.S. federal income tax consequences of the distribution, see the section entitled “Material U.S. Federal Income Tax Consequences.”

 

What will PayPal’s relationship be with eBay following the separation?

After the distribution, eBay and PayPal will be separate companies with separate management teams and separate boards of directors. PayPal will enter into a separation and distribution agreement with eBay to effect the separation and provide a framework for PayPal’s relationship with eBay after the separation and will enter into certain other agreements, such as an operating agreement, a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, colocation services agreements, a data sharing addendum and a product development agreement. These agreements will provide for the allocation between PayPal and eBay of eBay’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after PayPal’s separation from eBay and will govern the relationships between PayPal and eBay subsequent to the completion of the separation. For additional information regarding the separation and distribution agreement and other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation” and “Certain Relationships and Related Party Transactions.”

 

Who will manage PayPal after the separation?

PayPal will benefit from a management team with an extensive background in the payments industry. Led by Daniel H. Schulman, who will be PayPal’s Chief Executive Officer and President after the separation, PayPal’s management team will possess deep knowledge of, and extensive experience in, its industry. For more information regarding PayPal’s management, see “Management.”

 

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Are there risks associated with
owning PayPal common stock?

Yes. Ownership of PayPal common stock is subject to both general and specific risks relating to PayPal’s business, the industry in which it operates, its ongoing contractual relationships with eBay and its status as a separate, publicly traded company. Ownership of PayPal common stock is also subject to risks relating to the separation. These risks are described in the “Risk Factors” section of this information statement beginning on page 15. You are encouraged to read that section carefully.

 

Does PayPal plan to pay dividends?

PayPal does not currently expect that it will pay a regular cash dividend. The declaration and payment of any dividends in the future by PayPal will be subject to the sole discretion of its board of directors and will depend upon many factors. See “Dividend Policy.”

 

Will PayPal incur any indebtedness prior
to or at the time of the distribution?

[●] See “Description of Material Indebtedness” and “Risk Factors—Risks Related to PayPal’s Business.”

 

 

Who will be the distribution agent, transfer
agent and registrar for the PayPal common stock?

The distribution agent, transfer agent and registrar for the PayPal common stock will be Computershare. For questions relating to the transfer or mechanics of the stock distribution, you should contact Computershare toll free at [●] or non-toll free at [●].

 

Where can I find more information about
eBay and PayPal?

Before the distribution, if you have any questions relating to eBay’s business performance, you should contact:

 

  eBay Inc.

2065 Hamilton Avenue

San Jose, California 95125

Attention: Investor Relations

(408) 376-7493

 

  After the distribution, PayPal stockholders who have any questions relating to PayPal’s business performance should contact PayPal at:

 

  PayPal Holdings, Inc.

2211 North First Street

San Jose, California 95131

Attention: Investor Relations

investorrelations@paypalcorp.com

 

  The PayPal investor relations website will be accessible prior to the distribution at http://investor.paypal-corp.com.

 

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INFORMATION STATEMENT SUMMARY

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about PayPal assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “PayPal” refer to PayPal Holdings, Inc., a Delaware corporation, and its combined subsidiaries. References to PayPal’s historical business and operations refer to the business and operations of eBay’s Payments business that will be transferred to PayPal in connection with the separation and distribution. References in this information statement to “eBay” refer to eBay Inc., a Delaware corporation, and its consolidated subsidiaries, which prior to the distribution, but not after such date, includes the business and operations of PayPal.

PayPal

PayPal is a leading technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. We put our customers at the center of everything we do. We strive to increase our relevance for consumers, merchants, friends and family to access and move their money anywhere in the world, anytime, on any platform and through any device (e.g., mobile, tablets, personal computers or wearables). We provide safer and simpler ways for businesses of all sizes to accept payments from merchant websites, mobile devices and applications, and at offline retail locations through a wide range of payment solutions across our Payments Platform, including PayPal, PayPal Credit, Venmo and Braintree products.

We enable global commerce by providing payment solutions for our approximately 162 million active customer accounts in over 200 markets, while providing customers a choice of how they would like to pay or get paid. A market is a geographic area or political jurisdiction, such as a country, territory or protectorate, in which we offer our services. A country, territory or protectorate is identified by a distinct set of laws and regulations. An active customer account is a registered account that successfully sent or received at least one payment or payment reversal through our Payments Platform, excluding transactions processed through our gateway products, in the past 12 months. Our gateway products include our Payflow Payments and certain Braintree products. A payment gateway links a merchant’s website to that merchant’s processing network and merchant account.

 

 

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We offer our customers the flexibility to use their account to both purchase and be paid for goods, as well as transfer and withdraw funds. A consumer can typically fund a purchase using a bank account, a PayPal account balance, a PayPal Credit account, a credit or debit card, or other stored value products such as coupons and gift cards. Our PayPal and Venmo products also make it safer and simpler for friends and family to transfer funds to each other using several of these funding sources. We offer merchants an end-to-end payments solution that provides authorization and settlement capabilities, as well as instant access to funds. We help merchants connect with their customers and manage risk. We measure the relevance of our products in the lives of our customers, and therefore the success of our business, through both payment volume and payment transactions. Payment volume is the value of payments, net of payment reversals, successfully completed through our Payments Platform, excluding transactions processed through our gateway products (“Total Payment Volume” or “TPV”). During 2014, our TPV was approximately $235 billion, representing growth of 26% over 2013. “Payment transactions” is the total number of payments, net of payment reversals, successfully completed through our Payments Platform, excluding transactions processed through our gateway products. During 2014, payment transactions were approximately 4.0 billion, representing growth of 22% over 2013.

 

LOGO

Our Payments Platform is built to make the existing global financial infrastructure work for people in the digital age. PayPal allows people to make seamless transactions between different markets and networks. Our Payments Platform connects with financial institutions around the world, and allows consumers to make purchases using a broad range of payment methods, regardless of where a merchant is located. Consumers who use our Payments Platform can engage in cross-border shopping by sending payments to each other in over 200 markets across the globe and in more than 100 currencies. This enables merchants to increase sales volume by allowing them to sell across borders to a much larger base of consumers.

We generate revenues by charging fees for providing transaction processing and other payment-related services, primarily based on the volume of activity, or TPV, processed through our Payments Platform. We also

 

 

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earn revenue by providing value added services to consumers and merchants, such as PayPal Credit products. Our revenue growth is influenced by, among other things, consumer spending patterns, merchant adoption of payment methods other than traditional credit and debit cards and cash, the expansion of multi-channel retail, the growth of mobile devices and merchant applications on those devices, the growth of consumers with access to the internet globally, the pace of transition from paper-based forms of payment to digital forms of payment, our share of the digital payments market, and our ability to innovate new methods of payment that merchants and consumers find to be valuable. Our strategy is to drive revenue growth by:

 

    Growing our core businesses globally through expanding our base of active customer accounts, increasing our customers’ use of our products and services by better addressing our customers’ everyday needs in managing and moving money and expanding the adoption of our solutions by new merchants and consumers;

 

    Diversifying our existing business by seeking new areas of growth in markets around the world and focusing on innovation both in the digital and the physical world;

 

    Providing software application developers with tools to quickly and easily integrate PayPal’s smart payment solutions into merchant and next generation mobile applications; and

 

    Leveraging the data we accumulate through processing transactions to build strong risk capabilities that enable the identification of illegal, high-risk, or fraudulent transactions with the highest level of accuracy, without impacting legitimate transactions and while incurring minimal losses.

 

LOGO

PayPal is a popular form of payment for mobile commerce, and our business has grown with the increased adoption of mobile devices. In December 2013, we completed our acquisition of Braintree to strengthen our position in mobile payments and extend our coverage to a new class of retailers who offer their services primarily through mobile applications. As part of that acquisition, we also acquired Venmo, which offers a leading mobile application to move money between friends and family using their mobile device.

 

 

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We operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry. Some of the laws and regulations to which we are subject were enacted recently and many such laws and regulations, including those enacted prior to the advent of digital and mobile payments, are continuing to evolve through legislative and regulatory action and judicial interpretation. Changes in or non-compliance with laws and regulations, changes in the interpretation of laws and regulations, and the enactment of new laws and regulations applicable to us could have a material adverse impact on our business. Therefore, we monitor these areas closely to ensure compliant solutions for our customers who depend on us.

Summary of Risk Factors

An investment in our common stock is subject to a number of risks, including risks relating to PayPal’s business, results of operations and financial condition, risks related to the separation and risks related to our common stock. Set forth below are some, but not all, of these risks. Please read the information in the section captioned “Risk Factors” for a more thorough description of these and other risks.

Risks Related to PayPal’s Business, Results of Operations and Financial Condition

 

    Our operating and financial results come primarily from transactions involving payments made in a reporting period and are therefore subject to fluctuations that could adversely affect our business, financial condition, results of operations and cash flows, as well as the trading price of our common stock.

 

    Global and regional economic conditions could harm our business.

 

    Our success depends to a large degree on our ability to successfully address the rapidly evolving market for transactions on mobile devices.

 

    If we cannot keep pace with rapid technological developments to provide new and innovative programs, products and services, the use of our products and our revenues could decline.

 

    Changes in how consumers fund their PayPal transactions could harm our business.

 

    Our business is subject to online security risks, including security breaches.

 

    Systems failures and resulting interruptions in the availability of our websites, applications, products or services could harm our business.

 

    Changes to payment card networks or bank fees, rules, or practices could harm our business.

 

    Failure to deal effectively with fraud, fictitious transactions, bad transactions, and negative customer experiences would increase our loss rate and harm our business, and could severely diminish merchant and consumer confidence in and use of our services.

 

    Any factors that reduce cross-border trade or make such trade more difficult could harm our business.

 

    Our business is subject to extensive government regulation and oversight relating to the provision of financial services.

 

    We are subject to consumer protection laws and regulations.

 

    We are subject to anti-money laundering and counter-terrorist financing laws and regulations.

 

    Regulation in the areas of privacy and protection of user data could harm our business.

 

    PayPal is not a bank or licensed lender in the United States and relies upon third parties to make loans and provide the other products critical to our business.

 

    Our credit products expose us to additional risks.

 

    New and proposed laws and regulations could harm our business.

 

    Substantial and increasingly intense competition worldwide in the global payments industry may harm our business.

 

 

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Risks Related to the Separation

 

    The combined post-separation value of eBay and PayPal common stock may not equal or exceed the pre-separation value of eBay common stock.

 

    We may not achieve some or all of the expected benefits of the separation, and the separation could harm our business.

 

    If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code, or the “Code,” eBay, PayPal and eBay stockholders could be subject to significant tax liabilities and, in certain circumstances, we could be required to indemnify eBay for material taxes pursuant to indemnification obligations under the tax matters agreement.

 

    eBay will be a significant source of our revenues after the distribution.

Risks Related to our Common Stock

 

    We cannot be certain that an active trading market for our common stock will develop or be sustained after the separation, and following the separation, and the price of our common stock may fluctuate significantly.

 

    There may be substantial changes in our stockholder base.

The Separation and Distribution

On September 30, 2014, eBay announced its intent to separate its Payments business and its Marketplaces business into two independent, publicly traded companies—PayPal and eBay. The separation will occur by means of a pro rata distribution to the eBay stockholders of 100% of the shares of common stock of PayPal, which was formed to own and operate eBay’s Payments business.

On [●], 2015, the eBay board of directors approved the distribution of all of PayPal’s issued and outstanding shares of common stock on the basis of one share of PayPal common stock for every [●] shares of eBay common stock held as of the close of business on [●], 2015, the record date for the distribution.

PayPal’s Post-Separation Relationship with eBay

After the distribution, eBay and PayPal will be separate companies with separate management teams and separate boards of directors. PayPal will have entered into a separation and distribution agreement with eBay, which is referred to in this information statement as the “separation agreement” or the “separation and distribution agreement.” In connection with the separation, PayPal will also enter into various other agreements to effect the separation and provide a framework for its relationship with eBay after the separation, such as an operating agreement, a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, colocation services agreements, a data sharing addendum and a product development agreement. These agreements will provide for the allocation between PayPal and eBay of eBay’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after PayPal’s separation from eBay and will govern key relationships between PayPal and eBay after the separation. For additional information regarding the separation agreement and other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation” and “Certain Relationships and Related Party Transactions.”

Reasons for the Separation

In the past, the eBay Inc. board of directors has considered whether and when it would make sense to separate PayPal from eBay. Until September 2014, the combination of the two businesses and the synergies and benefits they offered to each other were so valuable that the board determined that separation was not appropriate. The eBay board of directors believes that the creation of two independent public companies, with the

 

 

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new PayPal operating eBay’s Payments business, and eBay operating the Marketplaces business is in the best interests of eBay and its stockholders for a number of reasons. The eBay board of directors believes that:

 

    The separation will allow each business to more effectively pursue its own distinct operating priorities, strategies and opportunities for long-term growth and profitability in the global commerce and payments landscape.

 

    The separation will speed up decision-making at each company and allow each to adapt more quickly to the rapidly changing market and customer dynamics in their respective markets.

 

    The separation will provide each company with increased flexibility to pursue new partnership and strategic opportunities that may have previously been unavailable for strategic or other reasons.

 

    The separation will permit each company to implement a capital structure appropriate to its strategy and business needs and to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business in a time and manner appropriate for its distinct strategy and business needs. This will facilitate a more efficient allocation of capital.

 

    The separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of each company’s business, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.

 

    The separation will provide each company with direct access to capital markets and facilitate the ability for each to capitalize on its unique growth opportunities and effect future acquisitions utilizing its common stock.

 

    The separation will allow investors to separately value eBay and PayPal based on their distinct investment identities, including the merits, performance, growth profile, and future prospects of their respective businesses. The separation will also provide investors with two distinct and targeted investment opportunities.

The eBay board of directors also considered a number of potentially negative factors in evaluating the creation of independent public companies, including, among others, risks relating to the loss of synergy benefits between eBay and PayPal, and increased operating costs and one-time separation costs relating to the creation of a new public company, but concluded that certain of the synergy benefits could be preserved, at least for some significant period of time, through the operating and other agreements and that the potential benefits from separation outweighed these factors. For more information, see the sections entitled “The Separation and Distribution—Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.

Corporate Information

PayPal Holdings, Inc. was incorporated in Delaware in January 2015 for the purpose of owning and operating eBay’s Payments business in connection with the separation and distribution described herein. Prior to the contribution of this business to PayPal, which will occur prior to the distribution, PayPal will have no operations. The address of PayPal’s principal executive offices is PayPal Holdings, Inc., 2211 North First Street, San Jose, California 95131. PayPal’s telephone number after the distribution will be (408) 967-1000. PayPal maintains an Internet site at www.paypal.com, and its investor relations site will be accessible prior to the distribution at http://investor.paypal-corp.com. PayPal’s websites and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to stockholders of eBay who will receive shares of PayPal common stock in the distribution. It is not and is not to be construed as an inducement or encouragement to buy or sell any of PayPal’s securities. The information contained in this information statement is believed by PayPal to be accurate as of the date set forth on the cover of this information statement. Changes may occur after that date and neither eBay nor PayPal will update the information except in the normal course of their respective disclosure obligations and practices, or as required by applicable law.

 

 

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Summary Historical and Unaudited Pro Forma Condensed Combined Financial Data

The following summary financial data reflects the combined operations of PayPal. PayPal derived the summary combined statement of income data for the years ended December 31, 2014, 2013 and 2012, and summary combined balance sheet data as of December 31, 2014 and 2013, as set forth below, from its audited combined financial statements, included elsewhere in this information statement. PayPal derived the summary combined statement of income data for the quarter ended March 31, 2015 and 2014 and summary combined balance sheet data as of March 31, 2015, as set forth below, from its unaudited combined financial statements, included elsewhere in this information statement. PayPal derived the summary combined balance sheet data as of March 31, 2014 and December 31, 2012 from PayPal’s underlying financial records, which were derived from the financial records of eBay. The historical results do not necessarily indicate the results expected for any future period. To ensure a full understanding of this summary financial data, you should read the summary combined financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and accompanying notes included elsewhere in this information statement.

The summary unaudited pro forma condensed combined balance sheet data as of March 31, 2015 has been prepared to reflect the separation as of March 31, 2015. The unaudited pro forma condensed combined statement of income data presented for the year ended December 31, 2014 and for the quarter ended March 31, 2015 assumes the spin-off occurred on January 1, 2014. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and PayPal believes such assumptions are reasonable under the circumstances.

The unaudited pro forma condensed combined financial statements may not be indicative of PayPal’s results of operations or financial condition had the distribution and its anticipated post-separation capital structure been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition that would have resulted had PayPal been operating as an independent, publicly traded company during such periods. In addition, they are not necessarily indicative of its future results of operations or financial condition.

Historical basic and diluted earnings per share are not presented because PayPal’s financial information has been prepared on a combined basis. These financial statements have not been prepared for a single legal entity that had share capital throughout the entire historical period and, accordingly, earnings per share for these periods has not been provided.

 

 

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You should read this summary financial data together with “Unaudited Pro Forma Condensed Combined Financial Statements,” “Capitalization,” “Selected Historical Combined Financial Data of PayPal,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and accompanying notes included in this information statement.

 

    3 Months Ended March 31,     Year Ended December 31,  
    Pro Forma
2015
    2015     2014     Pro Forma
2014
    2014     2013     2012  
    (In millions)     (In millions)  

Combined statement of income data

   

Net revenue

  $ 2,134      $ 2,137      $ 1,874      $ 8,012      $ 8,025      $ 6,727      $ 5,662   

Operating income

    314        322        318        1,237        1,268        1,091        880   

Net income

    248        255        (382     391        419        955        778   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma earnings per share

Basic

  $0.20      $0.31   

Diluted

  $0.20      $0.31   
    3 Months Ended March 31,           Year Ended December 31,  
    Pro Forma
2015
    2015     2014           2014     2013     2012  
    (In millions)           (In millions)  

Combined balance sheet data

             

Cash and cash equivalents

  $ 6,165      $ 2,365      $ 2,198        $ 2,201      $ 1,604      $ 1,414   

Current assets

    21,381        18,207        15,382          17,565        14,620        12,403   

Non-current assets

    4,563        4,372        4,451          4,352        4,540        3,780   

Total assets

    25,944        22,579        19,833          21,917        19,160        16,183   

Current liabilities

    12,797        13,549        12,252          13,283        11,261        9,574   

Long term liabilities

    618        390        461          386        509        428   

Total liabilities

    13,415        13,939        12,713          13,669        11,770        10,002   

Total equity

    12,529        8,640        7,120          8,248        7,390        6,181   

 

 

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RISK FACTORS

The following discussion is divided into three sections. The first section, which begins immediately following this paragraph, discusses some of the risks that may affect our business, results of operations and financial condition. The second section, captioned “Risk Related to the Separation,” discusses some of the risks relating to our plan to separate PayPal into an independent publicly traded company. The third section, captioned “Risks Related to Our Common Stock,” discusses some of the risks relating to an investment in PayPal’s Common Stock. You should carefully review all of these sections, as well as our combined financial statements and notes thereto and the other information appearing in this report, for important information regarding risks that affect us.

Risk Factors That May Affect Our Business, Results of Operations and Financial Condition

Our operating and financial results come primarily from transactions involving payments made in a reporting period and are therefore subject to fluctuations that could adversely affect our business, financial condition, results of operations and cash flows, as well as the trading price of our common stock.

Our operating and financial results have varied on a quarterly basis during our operating history and may continue to fluctuate significantly as a result of a variety of factors, including as a result of the risks set forth in this “Risk Factors” section. It is difficult for us to forecast the level or source of our revenues or earnings (loss) accurately. In view of the rapidly evolving nature of our business, period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of future performance. We do not have backlog, and substantially all of our net revenues each quarter come primarily from transactions involving payments during that quarter. Due to the inherent difficulty in forecasting revenues, it is also difficult to forecast expenses as a percentage of net revenues. Quarterly and annual expenses as a percentage of net revenues reflected in our combined financial statements may be significantly different from historical or projected rates. Our operating results in one or more future quarters may fall below the expectations of securities analysts and investors. The trading price of our common stock could decline, perhaps substantially, as a result of the factors described in this paragraph.

Global and regional economic conditions could harm our business.

Our operations and performance depend significantly on global and regional economic conditions. Adverse economic conditions and events (including volatility or distress in the equity and/or debt or credit markets and fluctuations in foreign currency exchange rates) have in the past negatively impacted regional and global financial markets and will likely continue to do so from time to time in the future. These events and conditions could have a negative and adverse impact on the companies and customers with which we do business. In addition, financial turmoil affecting the banking system or financial markets could cause additional consolidation of the financial services industry, or significant financial service institution failures, new or incremental tightening in the credit markets, low liquidity, and extreme volatility in fixed income, credit, currency, and equity markets. Adverse impacts to the companies and customers with which we do business, the banking system, or financial markets could have a material adverse effect on our business, including a reduction in the volume and prices of transactions on our payments platforms.

Our success depends to a large degree on our ability to successfully address the rapidly evolving market for transactions on mobile devices.

Mobile devices are increasingly used for ecommerce transactions and payments. A significant and growing portion of our customers access our platforms through mobile devices. We may lose customers if we are not able to continue to meet our customers’ mobile and multi-screen experience expectations. The variety of technical and other configurations across different mobile devices and platforms increases the challenges associated with this environment. In addition, a number of other companies with significant resources and a number of innovative startups have introduced products and services focusing on mobile markets.

 

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Our ability to successfully address the challenges posed by the rapidly evolving market for mobile transactions is crucial to our continued success, and any failure to continuously increase the volume of mobile transactions effected through our platforms could harm our business.

If we cannot keep pace with rapid technological developments to provide new and innovative programs, products and services, the use of our products and our revenues could decline.

Rapid, significant technological changes continue to confront the industries in which we operate, including developments in smart cards, tokenization, ecommerce, mobile, and radio frequency and proximity payment devices, such as contactless payments. We cannot predict the effect of technological changes on our business. In addition to our own initiatives and innovations, we rely in part on third parties, including some of our competitors, for the development of and access to new technologies. We expect that new services and technologies applicable to the industries in which we operate will continue to emerge. These new services and technologies may be superior to, or render obsolete, the technologies we currently use in our products and services. Incorporating new technologies into our products and services may require substantial expenditures and take considerable time, and ultimately may not be successful. In addition, our ability to adopt new services and develop new technologies may be inhibited by industry-wide standards, payments networks, new laws and regulations, resistance to change from consumers or merchants, or third parties’ intellectual property rights. Our success will depend on our ability to develop new technologies and adapt to technological changes and evolving industry standards.

Changes in how consumers fund their PayPal transactions could harm our business.

We pay significant transaction fees when consumers fund payment transactions using credit cards, lower fees when consumers fund payments with debit cards, nominal fees when consumers fund payment transactions by electronic transfer of funds from bank accounts, and no fees when consumers fund payment transactions from an existing PayPal account balance or through the PayPal Credit products. Our financial success is highly sensitive to changes in the rate at which our consumers fund payments using credit and debit cards, which can significantly increase our costs. Some of our consumers may prefer to use credit and debit cards if these cards offer functionality and benefits not associated with the use of their bank accounts. Some of our offerings, including the ability of consumers to make a limited number of “guest” payments without opening a PayPal account, have a higher rate of payment card funding than our basic product offering. An increase in the portion of our payment volume using credit and debit cards would materially and adversely affect our financial performance. Some of our plans to lower our funding costs, including both the PayPal Credit products and the ability for consumers to defer payment for a short period of time on some transactions, may increase the risk to us of nonpayment by consumers. An increase in fees associated with our funding mix or in losses associated with nonpayment by consumers could harm our business.

Our business is subject to online security risks, including security breaches.

Our business involves the storage and transmission of customers’ personal financial information. In addition, a significant number of our customers authorize us to bill their payment card accounts directly for all transaction and other fees charged by us. We have built our reputation on the premise that our payments platform offers customers a secure way to make payments. An increasing number of websites, including those owned by several other large Internet and offline companies, have disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their websites or infrastructure. In May 2014, eBay Inc. publicly announced that criminals were able to penetrate and steal certain data, including user names, encrypted user passwords and other non-financial user data from certain of its Marketplaces business unit databases, which led to Marketplaces requiring a password reset and fewer transactions using our PayPal services. A breach of security at PayPal could have negative consequences to our reputation, which could result in our customers using our services less often, and have significant out-of-pocket financial impact.

 

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The techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems, change frequently, may be difficult to detect for a long time, and often are not recognized until launched against a target. Certain efforts may be state sponsored and supported by significant financial and technological resources and therefore may be even more difficult to detect. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. Unauthorized parties may also attempt to gain access to our systems or facilities through various means, including hacking into our systems or facilities, fraud, trickery or other means of deceiving our employees, contractors and temporary staff. A party that is able to circumvent our security measures could misappropriate our or our customers’ personal proprietary information, cause interruption in our operations and damage our computers or those of our customers. In addition, our customers have been and likely will continue to be targeted by parties using fraudulent “spoof” and “phishing” emails to misappropriate user names, passwords, payment card numbers, or other personal information or to introduce viruses or other malware through “trojan horse” programs to our customers’ computers. Also, our information technology and infrastructure may be vulnerable to cyberattacks or security incidents and third parties may be able to access our customers’ proprietary information and payment card data that are stored on or accessible through our systems. Any security breach at a company providing services to us or our customers could have similar effects. Because we promote to our customers that our payments platform offers a secure way to make payments, a security breach would have a significant impact on our reputation.

In addition, under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, or that is stored by our direct payment card processing customers, we could be liable to the payment card issuing banks for their cost of issuing new cards and related expenses. If we were unable to accept payment cards, our business would be harmed. Additionally, financial services regulators in various jurisdictions, including the United States and the European Union, have implemented or are considering proposals to impose new authentication requirements on banks and payment processors intended to reduce online fraud, which could impose significant costs, require us to change our business practices, make it more difficult for new customers to join PayPal, and reduce the ease of use of our products, which could harm our business.

We may also need to expend significant additional resources to protect against security breaches or to redress problems caused by breaches. These issues are likely to become more difficult and costly as we expand the number of markets where we operate. Additionally, our insurance policies carry low coverage limits, which may not be adequate to reimburse us for losses caused by security breaches and we may not be able to fully collect, if at all, under these insurance policies.

Systems failures and resulting interruptions in the availability of our websites, applications, products or services could harm our business.

Our systems may experience service interruptions or degradation because of hardware and software defects or malfunctions, computer denial-of-service and other cyberattacks, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, or other events. Our systems are also subject to break-ins, sabotage and intentional acts of vandalism. Some of our systems are not fully redundant and our disaster recovery planning is not sufficient for all eventualities. In addition, as a provider of payments solutions, we are subject to increased scrutiny by regulators that may require specific business continuity and disaster recovery plans and more rigorous testing of such plans. This increased scrutiny may be costly and time consuming and may divert our resources from other business priorities.

We have experienced and will likely continue to experience system failures, denial of service attacks and other events or conditions from time to time that interrupt the availability or reduce the speed or functionality of our websites and mobile applications. These events have resulted and likely will result in loss of revenue. A prolonged interruption in the availability or reduction in the speed or other functionality of our websites and mobile applications could materially harm our business. Frequent or persistent interruptions in our services could

 

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cause current or potential customers to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our sites, and could permanently harm our reputation and brands. Moreover, to the extent that any system failure or similar event results in damages to our customers or their businesses, these customers could seek significant compensation from us for their losses and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address.

Our website has suffered significant intermittent unavailability, including for example, transaction failures which affected some customers in the United Kingdom for over 24 hours in August 2014 and mobile login failures which affected some customers for several hours in April 2014. Reliability is particularly critical for us because the full-time availability of our PayPal services is critical to our goal of gaining widespread acceptance among consumers and merchants for digital and mobile payments. We have undertaken certain system upgrades and re-platforming efforts designed to improve our reliability and speed. These efforts are costly and time consuming, involve significant technical risk and may divert our resources from new features and products, and there can be no guarantee that these efforts will succeed. Because we are a regulated financial institution, frequent or persistent site interruptions could lead to regulatory scrutiny, significant fines and penalties, or mandatory and costly changes to our business practices, and ultimately could cause us to lose existing licenses we need to operate or prevent us from obtaining additional licenses that we need to expand.

We also rely on facilities, components and services supplied by third parties and our business may be materially adversely affected to the extent these components or services do not meet our expectations or these third parties cease to provide the services or facilities. In particular, a decision by any of our third party hosting providers to close a facility that we use could cause system interruptions and delays, result in loss of critical data and cause lengthy interruptions in our services. We do not carry business interruption insurance sufficient to compensate us for losses that may result from interruptions in our service as a result of systems failures and similar events.

Changes to payment card networks or bank fees, rules, or practices could harm our business.

We do not directly access the payment card networks, such as Visa and MasterCard, that enable our acceptance of credit cards and debit cards (including some types of prepaid cards). As a result, we must rely on banks or other payment processors to process transactions, and must pay fees for the services. From time to time, payment card networks have increased, and may increase in the future, the interchange fees and assessments that they charge for each transaction which accesses their networks. Our payment card processors have the right to pass any increases in interchange fees and assessments on to us as well as increase their own fees for processing. Any changes in interchange fees and assessments could increase our operating costs and reduce our operating income.

In addition, in some jurisdictions, governments have required Visa and MasterCard to reduce interchange fees, or have opened investigations as to whether Visa’s or MasterCard’s interchange fees and practices violate antitrust law. In the United States, the Federal Reserve Board issued a final rule capping debit card interchange fees at significantly lower rates than Visa or MasterCard previously charged. In the European Union, the Multilateral Interchange Fee (“MIF”) Regulation limits credit and debit interchange fees for payments to 0.3% and 0.2%, respectively. The MIF Regulation, which is expected to become effective in the second half of 2015, may significantly impact our pricing policy in the European Union. Any such material reduction in credit or debit card interchange rates in the United States or other markets could jeopardize our competitive position against traditional credit and debit card processors, although it would also lower our costs. Future changes to those regulations or to our business could potentially cause us to be treated as a payment card network, which could subject us to additional regulation and require us to change our business practices, which could reduce our revenue and adversely affect our business.

We are required by our processors to comply with payment card network operating rules, including special operating rules for payment service providers to merchants, and we have agreed to reimburse our processors for

 

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any fines they are assessed by payment card networks as a result of any rule violations by us or our merchants. The payment card networks set and interpret the card operating rules. Payment card networks have from time to time alleged that various aspects of our business model violate these operating rules. If such allegations are not resolved, they could result in material fines and penalties or require changes in our business that may be costly. The payment card networks could adopt new operating rules or interpret or re-interpret existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement. As a result, we could lose our ability to give consumers the option of using payment cards to fund their payments or the choice of currency in which they would like their card to be charged. If we were unable to accept payment cards or were meaningfully limited in our ability to do so, our business would be harmed.

We and our payment card processors have implemented specific business processes for merchants in order to comply with operating rules for providing services to merchants, but any failure to comply could result in fines. We also could be, and in the past have been, subject to fines from payment card networks if we fail to detect that merchants are engaging in activities that are illegal or that are considered “high risk,” primarily the sale of certain types of digital content. For “high risk” merchants, we must either prevent such merchants from using our PayPal services or register such merchants with the payment card networks and conduct additional monitoring with respect to such merchants. Although the amount of these fines has not been material to date, any additional fines in the future could become material and could result in a termination of our ability to accept payment cards or require changes in our process for registering new customers. This would significantly damage our business. Our retail point-of-sale solution and PayPal Here product are also subject to payment card network operating rules, which may increase the costs of those products or otherwise negatively impact their deployment.

Failure to deal effectively with fraud, fictitious transactions, bad transactions, and negative customer experiences would increase our loss rate and harm our business, and could severely diminish merchant and consumer confidence in and use of our services.

We incur substantial losses due to claims from consumers that merchants have not performed or that their goods or services do not match the merchant’s description. We seek to recover such losses from the merchant, but may not be able to recover in full if the merchant is unwilling or unable to pay. We also incur losses from claims that the consumer did not authorize the purchase, from consumer fraud, from erroneous transmissions and from customers who have closed bank accounts or have insufficient funds in them to satisfy payments. In addition, if losses incurred by us related to payment card transactions become excessive, they could potentially result in our losing the right to accept payment cards for payment. In the event that we were unable to accept payment cards, the number of transactions processed through our PayPal services would decrease substantially and our business could be harmed. We are similarly subject to the risk of fraudulent activity associated with merchants, consumers of PayPal Credit products and third parties handling our user information. We have taken measures to detect and reduce the risk of fraud, but these measures need to be continually improved and may not be effective against new and continually evolving forms of fraud or in connection with new product offerings. If these measures do not succeed, our business could be harmed.

Any factors that reduce cross-border trade or make such trade more difficult could harm our business.

Cross-border trade is an important source of both revenue and profits for us. For the year ended December 31, 2014, approximately 24% of total payment volume (“TPV”) involved cross-border trade (i.e., transactions where the merchant and consumer were in different countries). Cross-border transactions generally provide higher revenues and operating income than similar transactions that take place within a single country or market. Cross-border trade also represents our primary (or in some cases, only) presence in certain important markets, such as China.

Cross-border trade is subject to, and may be impacted by, foreign exchange rate fluctuations. In addition, the potential interpretation and application of laws of multiple jurisdictions (e.g., the jurisdiction of the merchant and the consumer) are often extremely complicated in the context of cross-border trade. The interpretation and/or

 

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application of such laws could impose restrictions on cross-border trade. Any factors that increase the costs of cross-border trade or restrict, delay, or make cross-border trade more difficult or impractical would lower our revenues and profits and could harm our business.

Our business is subject to extensive government regulation and oversight relating to the provision of financial services.

We are subject to various laws and regulations in the United States and other countries where we operate. Such laws and regulations include those governing banking, deposit taking, cross-border and domestic money transmission, foreign exchange, and payment services, such as payment processing and settlement services. The legal and regulatory requirements that apply to us vary in the markets where we operate and have increased over time as the geographical scope and complexity of our business and products have expanded. While we have a compliance program focused on compliance with applicable laws and regulations and have increased the resources allocated to that program in the last several years, we may still be subject to fines or other enforcement actions in one or more jurisdictions or be required to make changes to our business practices or compliance programs in the future. Non-compliance could also result in significant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions. Costs associated with fines, enforcement actions, as well as reputational harm, changes in compliance requirements or limits on our ability to expand our product offerings could harm our business.

PayPal has obtained licenses to operate as a money transmitter (or its equivalent) in the United States, in the states where it is required, and the District of Columbia, the U.S. Virgin Islands and Puerto Rico. Our subsidiary, Venmo, is also licensed as a money transmitter in certain U.S. states. As licensed money transmitters, PayPal and Venmo are subject to restrictions with respect to their investment of customer funds, reporting requirements, bonding requirements and inspection by state regulatory agencies. Accordingly, we could be subject to liability and/or additional restrictions, forced to cease doing business with residents of certain states, forced to change our business practices or be required to obtain additional licenses or regulatory approvals that could impose substantial cost if we violate these laws or regulations.

While we currently allow our consumers with credit cards to send payments from approximately 200 markets, we allow customers in only approximately half of those markets (including the United States) to also receive payments, in some cases with significant restrictions on the manner in which customers can withdraw funds. These limitations may affect our ability to grow in these markets. Of the markets whose residents can use our PayPal services, approximately 30 markets are in member states of the European Union. We provide localized versions of our service to customers in the European Union through PayPal (Europe) S.à r.l. et Cie, SCA (“PayPal (Europe)”), our wholly-owned subsidiary that is licensed and subject to regulation as a bank in Luxembourg. Accordingly, PayPal (Europe) is subject to significant fines or other enforcement action if it violates the disclosure, reporting, anti-money-laundering, capitalization, funds management, corporate governance, privacy, information security, bank secrecy, taxation, sanctions, or other requirements imposed on Luxembourg banks. Any fines or other enforcement actions could adversely affect our business. In addition, European Union laws and regulations are typically subject to different and potentially inconsistent interpretations by the countries that are members of the European Union, which can make compliance more costly and operationally difficult to manage.

In many markets, such as China, much of Southeast Asia and South America, we serve our customers through PayPal Pte. Ltd., our wholly-owned subsidiary that is based in Singapore. PayPal Pte. Ltd. is supervised by the Monetary Authority of Singapore as a holder of a stored value facility and does not hold a remittance license. As a result, PayPal Pte. Ltd. is not able to offer remittance payments (including donations to charities) in Singapore, and can only offer payments for the purchase of goods and services. In many of the markets (other than Singapore) served by PayPal Pte. Ltd., it is not clear whether our Singapore-based service is subject only to Singapore law or, if it is subject to local laws, whether such local laws would require a payment processor like us to be licensed as a bank or financial institution or otherwise.

 

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In Australia, we serve our customers through PayPal Australia Pty. Ltd., which is licensed by the Australian Securities and Investments Commission as a financial product and by the Australian Prudential Regulation Authority as a purchased payment facility provider, which is a type of authorized depository institution. Accordingly, PayPal Australia would be subject to significant fines or other enforcement action if it violates the disclosure, reporting, anti-money laundering, capitalization, privacy, corporate governance or other requirements imposed on Australian depository institutions.

We are also subject to regulation in other markets in which we do business and we have been and expect to continue to be required to apply for various licenses, certifications and regulatory approvals in a number of the countries where we have operations, such as Canada, Turkey, China, Mexico, Brazil and Hong Kong. There can be no assurance that PayPal will be able to obtain any such licenses. Even if PayPal were able to obtain such licenses, there are substantial costs and potential product changes involved in maintaining such licenses, and PayPal would be subject to fines or other enforcement action if it violates disclosure, reporting, anti-money laundering, capitalization, corporate governance or other requirements of such licenses. These factors could impose substantial additional costs and involve considerable delay to the development or provision of PayPal’s products in certain countries.

In many other countries it may not be clear whether we are required to be licensed as a bank, financial institution or otherwise. In such markets, we may rely on partnerships with local banks to process payments and conduct foreign exchange in local currency. Local regulators may use their power to slow or halt payments to local merchants conducted through our local banking partner. Such regulatory actions or the need to obtain licenses, certifications or other regulatory approvals could impose substantial costs and involve considerable delay to the provision or development of our PayPal services in a given market, or could require significant and costly operational changes or prevent us from providing any services in a given market.

We are subject to consumer protection laws and regulations.

We are subject to consumer protection laws and regulations in the United States and the other countries in which we operate. We are focused on compliance with these laws and regulations and have programs designed to comply with new and existing consumer protection requirements. However, any errors, failures, or delays in complying with such consumer protection laws and regulations could result in significant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions, as well as reputational harm. Any new consumer protection laws and regulations (or changes to, or expansion of, the interpretation or application of existing laws and regulations) applicable to us could subject us to additional restrictions on our operations, additional compliance and licensure requirements, and increased regulatory scrutiny, which could force us to change our business practices or limit our ability to grow our business. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations on our ability to grow our business, could have an adverse effect on our financial results and harm our business.

Although there have been no definitive interpretations to date, we have taken actions as though our services are subject to the Electronic Fund Transfer Act and Regulation E issued by the Consumer Financial Protection Bureau (“CFPB”). Under such regulations, among other things, we are required to provide advance disclosure of changes to our services, to follow specified error resolution procedures and to reimburse consumers for losses from certain transactions not authorized by the consumer. Additionally, even technical violations of these laws can result in penalties of up to $1,000 for each non-compliant transaction or up to $500,000 per violation in any class action, and we could also be liable for plaintiffs’ attorneys’ fees. In the second quarter of 2010, two putative class-action lawsuits (Devinda Fernando and Vadim Tsigel v. PayPal, Inc. and Moises Zepeda v. PayPal, Inc.) were filed in the U.S. District Court for the Northern District of California. These lawsuits contain allegations related to violations of aspects of the Electronic Fund Transfer Act and Regulation E and violations of a previous settlement agreement related to Regulation E, and/or allege that we improperly held consumer funds or otherwise improperly limited consumer accounts. These lawsuits seek damages as well as changes to our business practices, among other remedies. A determination that there have been violations of the Electronic Fund Transfer

 

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Act, Regulation E or violations of other laws relating to our business practices could expose us to significant liability. Any changes to our business practices resulting from these lawsuits could require us to incur significant costs and to expend substantial resources, which could delay other planned product launches or improvements and further harm our business.

The financial services sector has been increasingly subject to regulatory scrutiny. In January 2012, the CFPB finalized rules under Regulation E, mandated by the Dodd-Frank Act, which required us, beginning in October 2013, to provide additional disclosures, error resolution rights, and cancellation rights to U.S. consumers who make international remittance payments. In November 2014, the CFPB proposed a new prepaid account rule that would apply to prepaid cards and mobile wallets, including PayPal accounts. In December 2014, we became subject to CFPB supervision and examination pursuant to a new regulation that allows the CFPB to supervise all companies, including PayPal, that provide more than one million international money transfers per year. Under the regulation, CFPB examiners are now able to examine us for compliance with the remittance transfer rule and other laws and regulations. For other matters relating to regulation by the CFPB, please see the section of this information statement entitled “Business—Legal and Regulatory Proceedings.”

PayPal (Europe) implements its localized services in European Union countries through a “passport” notification process through the Luxembourg regulator to regulators in other European Union member states pursuant to European Union Directives, and has completed the “passport” notification process in all European Union member countries other than Croatia. The regulators in these countries could notify PayPal (Europe) of local consumer protection laws that apply to its business, in addition to Luxembourg consumer protection law, and could also seek to persuade the Luxembourg regulator to order PayPal (Europe) to conduct its activities in the local country through a branch office. These or similar actions by these regulators could increase the cost of, or delay, our plans for expanding our business in European Union countries. In addition, the countries that are members of the European Union may each have different and potentially inconsistent interpretations of regulations implementing the European Union Payment Services Directive, which could make compliance more costly and operationally difficult to manage. The European Commission has proposed revisions to the Payments Services and Anti-Money Laundering Directives, which could further make compliance more costly and operationally difficult to manage. Finally, if the assets of PayPal (Europe) exceed certain thresholds, PayPal (Europe) could become regulated by the European Central Bank rather than Luxembourg, which would likely increase its costs.

We are subject to anti-money laundering and counter-terrorist financing laws and regulations.

We are subject to various anti-money laundering and counter-terrorist financing laws and regulations around the world that prohibit, among other things, our involvement in transferring the proceeds of criminal activities. We have programs designed to comply with new and existing legal and regulatory requirements. However, any errors, failures, or delays in complying with federal, state or foreign anti-money laundering or counter-terrorist financing laws and regulations could result in significant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions, as well as reputational harm. For a discussion of our dealings with the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), please see the section of this information statement entitled “Business—Legal and Regulatory Proceedings.”

U.S. regulators have increased their scrutiny of compliance with these obligations, which may require us to further revise or expand our compliance program, including the procedures we use to verify the identity of our customers and to monitor international and domestic transactions. Several countries in which we are regulated have also implemented new anti-money laundering and counter-terrorist financing laws and regulations, and we have had to make changes to our compliance program in response. Regulators regularly re-examine the transaction volume thresholds at which we must obtain and keep applicable records or verify identities of customers and any change in such thresholds could result in greater costs for compliance. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations on our ability to grow our business could harm our business and any new requirements or changes to existing requirements could impose significant costs, result in delays to planned product improvements, make it more difficult for new customers to join our network and reduce the attractiveness of our products and services.

 

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Regulation in the areas of privacy and protection of user data could harm our business.

We are subject to laws relating to the collection, use, retention, security, and transfer of personally identifiable information about our customers around the world. Much of the personal information that we collect, especially financial information, is regulated by multiple laws. User data protection laws may be interpreted and applied inconsistently from country to country. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between or among ourselves, our subsidiaries, and other parties with which we have commercial relations. These laws continue to develop in ways we cannot predict and that may harm our business.

Regulatory scrutiny of privacy, user data protection, use of data and data collection is increasing on a global basis. We are subject to a number of privacy and similar laws and regulations in the countries in which we operate and these laws and regulations will likely continue to evolve over time, both through regulatory and legislative action and judicial decisions. Some of these laws impose requirements that are inconsistent with one another, yet regulators may claim that both apply. Complying with these varying national requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business and violations of privacy-related laws can result in significant penalties. In addition, compliance with these laws may restrict our ability to provide services to our customers that they may find to be valuable. A determination that there have been violations of laws relating to our practices under communications-based laws could expose us to significant damage awards, fines and other penalties that could, individually or in the aggregate, materially harm our business. In particular, because of the enormous number of texts, emails and other communications we send to our customers, communications laws that provide a specified monetary damage award or fine for each violation (such as those described below) could result in particularly large awards or fines.

For example, the Federal Communications Commission amended certain of its regulations under the Telephone Consumer Protection Act, or TCPA, in 2012 and 2013 in a manner that could increase our exposure to liability for certain types of telephonic communication with customers, including but not limited to text messages to mobile phones. Under the TCPA, plaintiffs may seek actual monetary loss or statutory damages of $500 per violation, whichever is greater, and courts may treble the damage award for willful or knowing violations. We are regularly subject to class-action lawsuits, as well as individual lawsuits, containing allegations that our business violated the TCPA. We recently settled Murray v. Bill Me Later (filed in the U.S. District Court for the Northern District of Illinois in June 2012), which alleged that Bill Me Later made calls featuring artificial or prerecorded voices without prior consent. These lawsuits, and other private lawsuits not currently alleged as class actions, seek damages (including statutory damages) and injunctive relief, among other remedies. Given the enormous number of communications we send to our customers, a determination that there have been violations of the TCPA or other communications-based statutes could expose us to significant damage awards that could, individually or in the aggregate, materially harm our business.

We post on our websites our privacy policies and practices concerning the collection, use and disclosure of user data. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory requirements or orders or other federal, state or international privacy or consumer protection-related laws and regulations could result in proceedings or actions against us by governmental entities or others (e.g., class action privacy litigation), subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and adversely affect our business. Data collection, privacy and security have become the subject of increasing public concern. If Internet and mobile customers were to reduce their use of our websites, mobile platforms, products, and services as a result of these concerns, our business could be harmed. As noted above, we are also subject to the possibility of security breaches, which themselves may result in a violation of these laws.

 

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PayPal is not a bank or licensed lender in the United States and relies upon third parties to make loans and provide the other products critical to our business.

As PayPal is neither a chartered financial institution nor licensed to make loans in any state, we must rely on a bank or licensed lender to offer the PayPal Credit products in the United States. Currently, when a U.S. consumer makes a purchase using a PayPal Credit product, a chartered financial institution extends credit to the consumer, funds the extension of credit at the point of sale, and advances funds to the merchant. We subsequently purchase and retain most of the receivables related to the consumer loans made by the chartered financial institution and, as a result, bear most of the risk of loss in the event of loan defaults. Although the chartered financial institution continues to own each of the consumer accounts, we own most of the related consumer loan receivables, and we are also responsible for servicing functions related to the consumer account.

Comenity Capital Bank and WebBank, which are both industrial banks chartered by the State of Utah, currently issue PayPal Credit products in the United States, with Comenity Capital Bank originating the majority of new loans. As part of this arrangement, WebBank has agreed to take ownership of (and originate loans with respect to) all consumer accounts in the event of a termination or interruption in Comenity Capital Bank’s ability to lend. Nevertheless, any termination or interruption of WebBank’s or Comenity Capital Bank’s ability to lend could result in the inability to originate any new PayPal Credit products, which would require us either to reach a similar arrangement with another chartered financial institution, which, if possible at all, may not be available on favorable terms, or to obtain our own bank charter, which would be a time-consuming and costly process and would subject us to a number of additional laws and regulations, compliance with which would be burdensome.

The PayPal Credit products also rely on third-party merchant processors and payment gateways to process transactions. For the year ended December 31, 2014, approximately 16% of all transaction volume by dollar amount through the PayPal Credit products was settled through the facilities of a single vendor. Any disruption to these third-party payment processing and gateway services would adversely affect the PayPal Credit products.

Our credit products expose us to additional risks.

Our PayPal Credit products are offered to a wide range of consumers, and the financial success of these products depends on our ability and the ability of the banks issuing the PayPal Credit products to manage the credit risk related to these products. The lenders extend credit at the point of sale using our proprietary segmentation and credit scoring algorithms and other analytical techniques designed to analyze the credit risk of specific consumers based on their past purchasing and payment history as well as their credit scores. These algorithms and techniques may not accurately predict the creditworthiness of a consumer due to inaccurate assumptions about a particular consumer or the economic environment, among other factors. The accuracy of the predictions and the ability of the lenders and our ability to manage credit risk related to the PayPal Credit products may also be affected by legal or regulatory changes (e.g., bankruptcy laws and minimum payment regulations), competitors’ actions, changes in consumer behavior, and other factors. A lender may incorrectly interpret the data produced by these algorithms in setting its credit policies, which may impact the financial performance of the PayPal Credit products. In addition, economic and financial conditions may affect consumer confidence levels and reduce consumers’ ability or willingness to use credit, including the credit extended by a lender to PayPal Credit account holders who use the PayPal Credit products, which could harm our business. As of December 31, 2014, approximately $20.2 billion of unused credit was available to PayPal Credit account holders. While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all of our PayPal Credit account holders will access their entire available credit at any given point in time. In addition, the individual lines of credit that make up this unused credit are subject to periodic review and termination by the chartered financial institutions that are the issuers of PayPal Credit products based on, among other things, account usage and consumer creditworthiness.

Over the past several years, the volume of credit extended by the financial institutions issuing the PayPal Credit products has increased. In the United States, we purchase the receivables relating to these consumer loans

 

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extended by the issuing banks, and therefore bear the risk of loss in the event of loan defaults. Like other businesses with significant exposure to losses from consumer credit, we face the risk that PayPal Credit account holders will default on their payment obligations, making the receivables uncollectible and creating the risk of potential charge-offs. The rate at which receivables were charged off as uncollectible, or the net charge-off rate, was approximately 5.67% for the year ended December 31, 2014. The non-payment rate among PayPal Credit account holders may increase due to, among other things, changes to underwriting standards by us and the financial institutions issuing the PayPal Credit products, worsening economic conditions, such as a recession or greater austerity in various countries, and high unemployment rates. Consumers who miss payments often fail to repay their loans, and consumers who file for protection under the bankruptcy laws generally do not repay their loans.

We have entered into an agreement with Synchrony (formerly GE Capital Retail Bank) pursuant to which we, one of our affiliates, or a third party partner of ours, will purchase, subject to certain conditions, a dual-branded retail credit card portfolio from Synchrony. We will ultimately own the related consumer loan receivables. This transaction is currently expected to close in the fourth quarter of 2016, although there can be no assurance that this transaction will close on terms currently contemplated, or at all. If this transaction is consummated, it will increase the risks relating to our ownership of consumer loan receivables.

In 2013, we began a program, working with WebBank, for WebBank to offer working capital financing to selected merchants in the United States, and for us to purchase the related receivables. Similar programs are also available in the United Kingdom and Australia. Loans to merchants present risks similar to those discussed above associated with the PayPal Credit products.

We purchase receivables related to PayPal Credit products and other credit accounts. If we are unable to fund our purchase of these receivables adequately or in a cost-effective manner, or if we are unable to efficiently manage the cash resources utilized to purchase these receivables, our business could be harmed.

New and proposed laws and regulations could harm our business.

We are subject to laws and regulations affecting our domestic and international operations in a number of other areas, including data privacy requirements, intellectual property ownership and infringement, tax, anti-competition, export requirements, anti-corruption, labor, advertising, billing, promotions, quality of services, environmental, and health and safety regulations. It is not always clear how these laws and regulations apply to our business. Many of these laws and regulations were adopted prior to the advent of the Internet, mobile, and related technologies and, as a result, do not contemplate or address the unique issues of the Internet, mobile and related technologies. Many of these laws, including some of those that do reference the Internet, mobile and related technologies are subject to interpretation by the courts on an ongoing basis and, as a result, their applicability and scope remain uncertain.

Compliance with these laws, regulations, and similar requirements may be onerous and expensive, and variances and inconsistencies from jurisdiction to jurisdiction may further increase the cost of compliance and doing business. For example, new or proposed laws in certain countries require us to maintain separate servers in those countries so that all personal data of citizens of that country are maintained locally. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make our products and services less attractive to our customers, delay the introduction of new products or services in one or more regions, or cause us to change or limit our business practices. We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations or our policies and procedures.

Financial and political events have increased the level of regulatory scrutiny on large companies, and regulatory agencies may view matters or interpret laws and regulations differently than they have in the past and

 

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in a manner adverse to our business. Our success and increased visibility have driven existing businesses that perceive us to be a threat to their businesses to raise concerns about our business models to policymakers and regulators. These businesses and their trade association groups employ significant resources in their efforts to shape the legal and regulatory regimes in countries where we have significant operations. They may employ these resources in an effort to change the legal and regulatory regimes in ways intended to reduce the effectiveness of our business and the ability of customers to use our products and services.

As we expand and localize our international activities, we are increasingly becoming obligated to comply with the laws of the countries or markets in which we operate. In addition, because our services are accessible worldwide and we facilitate sales of goods and provide services to customers worldwide, one or more jurisdictions may claim that we or our customers are required to comply with their laws. Laws regulating Internet, mobile and related technologies outside of the United States are generally less favorable to us than those in the United States. Compliance may be more costly or may require us to change our business practices or restrict our services, and the imposition of any regulations on us or our customers could harm our business. In addition, we may be subject to multiple overlapping legal or regulatory regimes that impose conflicting requirements on us (e.g., in cross-border trade). Our alleged failure to comply with foreign laws could subject us to penalties ranging from criminal prosecution to significant fines to bans on our services, in addition to the significant costs we may incur in defending against such actions.

Following the global financial crisis of 2008, U.S. federal lawmakers enacted the Dodd-Frank Act overhauling the federal government’s oversight of consumer financial products and systemic risk in the U.S. financial system. The general effect of the financial reform law has been, and we expect will continue to be, to require us to make additional disclosures to our consumers and to impose new restrictions and requirements on certain of our activities, resulting in new compliance requirements and obligations that could increase our costs, may result in increased litigation and the need to make expensive product changes, and could otherwise harm our business.

Substantial and increasingly intense competition worldwide in the global payments industry may harm our business.

The global payments industry is highly competitive. We compete against businesses in varied industries, many of whom are larger than we are, have a dominant and secure position in other industries, and offer other goods and services to consumers and merchants which we do not offer. As online and offline commerce increasingly converge, the pace of change, innovation and disruption is increasing. The global payments industry is rapidly changing, highly innovative and increasingly subject to regulatory scrutiny, which may negatively affect the competitive landscape. We compete against all forms of payments, including:

 

    paper-based transactions (principally cash and checks);

 

    providers of traditional payment methods, particularly credit and debit cards, money orders, and Automated Clearing House transactions (these providers are primarily well-established banks);

 

    providers of “digital wallets” which offer customers the ability to pay online and/or on mobile devices through a variety of payment methods, including with mobile applications, through contactless payments, and with a variety of payment methods;

 

    providers of mobile payments solutions that use tokenized card data approaches and Near Field Communication (“NFC”) functionality (including Host Based Card Emulation (“HCE”) functionality to eliminate the need for a physical NFC chip in the device);

 

    payment-card processors that offer their services to merchants;

 

    providers of “person-to-person” payments that facilitate individuals sending money with an email address or mobile phone number;

 

    providers of mobile payments; and

 

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    providers of card readers for mobile devices and of other new point of sale and multi-channel technologies.

We also face competition and potential competition from:

 

    money remitters;

 

    services that provide online merchants the ability to offer their customers the option of paying for purchases from their bank account or paying on credit in the United States and abroad;

 

    issuers of stored value targeted at online payments;

 

    other international online payment-services providers;

 

    other providers of online account-based payments;

 

    payment services targeting users of social networks and online gaming, often through billing to the consumer’s mobile phone account;

 

    mobile payment services between bank accounts;

 

    payment services enabling banks to offer their online banking customers the ability to send and receive payments through their bank account;

 

    online shopping services that provide special offers linked to a specific payment provider; and

 

    services that help merchants accept and manage virtual currencies.

Some of these payment providers have greater customer bases, volume, scale, and market share than we do, which may provide significant competitive advantages. Some of these competitors may also be subject to less burdensome licensing, anti-money laundering, counter-terrorist financing, and other regulatory requirements. They may devote greater resources to the development, promotion, and sale of products and services, and they may offer lower prices or more effectively introduce their own innovative programs and services that adversely impact our growth. We also expect new entrants to offer competitive products and services. In addition, some merchants provide such services to themselves. Competing services tied to established banks and other financial institutions may offer greater liquidity and engender greater consumer confidence in the safety and efficacy of their services. In addition, in certain countries, such as Germany, Netherlands and Australia, electronic funds transfer is a leading method of payment for both online and offline transactions. As in the United States, established banks and other financial institutions that do not currently offer online payments could quickly and easily develop such a service.

We compete primarily on the basis of the following:

 

    ability to attract, retain and engage both merchants and consumers with relatively low marketing expense;

 

    ability to show that merchants will achieve incremental sales by offering our PayPal services;

 

    security of transactions and the ability for consumers to use our PayPal services without sharing their financial information with the merchant;

 

    simplicity of our fee structure;

 

    ability to develop services across multiple commerce channels, including mobile payments and payments at the retail point of sale;

 

    trust in our dispute resolution and buyer and seller protection programs;

 

    customer service;

 

    brand recognition;

 

    website, mobile platform and application onboarding, ease-of-use and accessibility;

 

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    system reliability and data security;

 

    ease and quality of integration into third-party mobile applications; and

 

    quality of developer tools such as our application programming interfaces and software development kits.

If we are not able to differentiate our business from those of our competitors, drive value for our customers, and/or effectively align our resources with our goals and objectives, we may not be able to compete effectively against our competitors. Our failure to compete effectively against any of the foregoing competitive threats could materially and adversely harm our business.

We are exposed to fluctuations in foreign currency exchange rates.

We have significant operations internationally that are denominated in foreign currencies, primarily the Euro, British Pound, and Australian Dollar, subjecting us to foreign currency risk. The strengthening or weakening of the U.S. dollar versus the Euro, British Pound, and Australian Dollar impacts the translation of our net revenues generated in these foreign currencies into the U.S. dollar. In 2014, foreign currency movements relative to the U.S. dollar negatively impacted net revenues by approximately $25 million (inclusive of a $36 million negative impact from hedging activities). In 2013, foreign currency movements relative to the U.S. dollar negatively impacted net revenues by approximately $8 million (inclusive of a $4 million negative impact from hedging activities). Additionally, in connection with our services in multiple currencies, we set our foreign exchange rates twice per day, and may face financial exposure if we incorrectly set our foreign exchange rates or as a result of fluctuations in foreign exchange rates between the times that we set our foreign exchange rates. Given that we also hold some corporate and customer funds in non-U.S. currencies, our financial results are affected by the translation of these non-U.S. currencies into U.S. dollars. While we regularly enter into transactions to hedge portions of our foreign currency translation exposure, it is impossible to predict or eliminate the effects of this exposure. Fluctuations in foreign exchange rates could significantly impact our financial results.

We are exposed to fluctuations in interest rates.

We are exposed to interest rate risk from our investment portfolio and from interest-rate sensitive assets underlying the customer balances we hold on our combined balance sheet as customer accounts. As of December 31, 2014, approximately 97% of our total cash and investment portfolio was held in cash and cash equivalents. The assets underlying our customer balances we hold on our combined balance sheet as customer accounts are maintained in interest and non-interest bearing bank deposits, time deposits, and U.S. and foreign government and agency securities. We seek to preserve principal while holding eligible liquid assets, as defined by the regulatory requirements and commercial law in the jurisdictions in which we operate, equal to at least 100% of the aggregate amount of all customer balances. We do not pay interest on amounts due to customers. A 100 basis point adverse change in interest rates would not have a material impact on the Company’s financial assets or liabilities at December 31, 2014 and 2013.

Also, fluctuations in interest rates may adversely impact our customers’ spending levels and ability and willingness to pay outstanding amounts owed to us. Higher interest rates often lead to higher payment obligations by customers to us and other lenders under mortgage, credit card and other consumer loans, which may reduce our customers’ ability to remain current on their obligations to us and therefore lead to increased delinquencies, charge-offs and allowance for loan and interest receivable which could have an adverse effect on our net earnings.

In addition, we may enter into a new revolving credit facility that could bear interest at a floating rate. As a result, we will be exposed to fluctuations in interest rates to the extent of our borrowings under the revolving credit facility.

 

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Changes to our buyer and seller protection programs could increase our loss rate.

Our buyer and seller protection programs protect merchants and consumers from fraudulent transactions. In addition, consumers who pay through PayPal may have reimbursement rights from their payment card company or bank, which in turn will seek recovery from us. The risk of losses from our buyer and seller protection programs are specific to individual buyers, sellers and transactions, and may also be impacted by regional variations to these programs and modifications to these programs resulting from changes in regulatory requirements or changes that we decide to implement. For the periods presented in the combined financial statements, payments under these programs have ranged between 0.08% and 0.12% of TPV on an annual basis. Historical trends may not be an indication of future payments under these programs. Increases in our loss rate resulting from changes to our buyer and seller protection programs could harm our business.

Our international operations are subject to increased risks, which could harm our business.

Our international operations, especially in the United Kingdom, Germany (and the other countries of the European Union) and China, have generated a majority of our net revenues in recent years. In addition to uncertainty about our ability to generate revenues from our foreign operations and expand into international markets, there are risks inherent in doing business internationally, including:

 

    expenses associated with localizing our products and services and customer data, including offering customers the ability to transact business in the local currency and adapting our products and services to local preferences (e.g., payment methods) with which we may have limited or no experience;

 

    trade barriers and changes in trade regulations;

 

    difficulties in developing, staffing, and simultaneously managing a large number of varying foreign operations as a result of distance, language, and cultural differences;

 

    stringent local labor laws and regulations;

 

    credit risk and higher levels of payment fraud;

 

    profit repatriation restrictions, foreign currency exchange restrictions or extreme fluctuations in foreign currency exchange rates for a particular currency;

 

    political or social unrest, economic instability, repression, or human rights issues;

 

    geopolitical events, including natural disasters, public health issues, acts of war, and terrorism;

 

    import or export regulations;

 

    compliance with U.S. laws such as the Foreign Corrupt Practices Act, and foreign laws prohibiting corrupt payments to government officials, as well as U.S. and foreign laws designed to combat money laundering and the financing of terrorist activities;

 

    antitrust and competition regulations;

 

    potentially adverse tax developments and consequences;

 

    economic uncertainties relating to sovereign and other debt;

 

    different, uncertain, or more stringent user protection, data protection, privacy, and other laws;

 

    risks related to other government regulation or required compliance with local laws;

 

    national or regional differences in macroeconomic growth rates;

 

    local licensing and reporting obligations; and

 

    increased difficulties in collecting accounts receivable.

Violations of the complex foreign and U.S. laws and regulations that apply to our international operations may result in fines, criminal actions, or sanctions against us, our officers, or our employees; prohibitions on the

 

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conduct of our business; and damage to our reputation. Although we have implemented policies and procedures designed to promote compliance with these laws, there can be no assurance that our employees, contractors, or agents will not violate our policies. These risks are inherent in our international operations and expansion and may increase our costs of doing business internationally and could harm our business.

Use of our payments services for illegal purposes could harm our business.

Our payment system is susceptible to potentially illegal or improper uses, including terrorist financing, illegal online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or controlled substances, piracy of software, movies, music, and other copyrighted or trademarked goods, money laundering, bank fraud, child pornography trafficking, prohibited sales of alcoholic beverages or tobacco products, online securities fraud. There has been an increased focus by intellectual property rights owners and government officials on the role that payments systems play in the sale of, and payment for, pirated digital goods on the Internet, primarily through file sharing services. Changes in law have increased the penalties for intermediaries providing payment services for certain illegal activities and additional payments-related proposals are under active consideration by government authorities. Intellectual property rights owners may seek to bring legal action against providers of payments solutions, such as PayPal, and other entities that are peripherally involved in the sale of infringing items. Rights owners have also increasingly gone into U.S. courts and obtained injunctions requiring us to cease handling transactions for named websites and third parties (in most cases located outside the United States) and to hold the funds of such parties pending judicial resolution of the rights owners’ claims, which disrupts the relationship between such parties and us.

Any resulting claims could damage our reputation and any resulting liabilities, loss of transaction volume or increased costs could harm our business.

We are subject to risks associated with information disseminated through our services.

Online services companies may be subject to claims relating to information disseminated through their services, including claims alleging defamation, libel, breach of contract, invasion of privacy, negligence, copyright or trademark infringement, among other things. The laws relating to the liability of online services companies for information disseminated through their services are subject to frequent challenges both in the United States and foreign jurisdictions. Any liabilities incurred as a result of these matters could require us to incur additional costs and harm our reputation and our business.

Our potential liability to third parties for the customer-provided content on our sites, particularly in jurisdictions outside the United States where laws governing Internet transactions are unsettled, may increase. If we become liable for information provided by our customers and carried on our service in any jurisdiction in which we operate, we could be directly harmed and we may be forced to implement new measures to reduce our exposure to this liability, including expending substantial resources or discontinuing certain service offerings, which could harm our business.

Our failure to manage the assets underlying our customer funds properly could harm our business.

Our ability to manage and account accurately for the assets underlying our customer funds requires a high level of internal controls. As our business continues to grow and we expand our product offerings, we must continue to strengthen our internal controls accordingly. Our success requires significant public confidence in our ability to handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain the necessary controls or to manage the assets underlying our customer funds accurately could severely diminish customer use of our products and/or result in penalties and fines, which could harm our business.

 

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We are subject to regulatory activity and antitrust litigation under competition laws.

We are subject to scrutiny by various government agencies under U.S. and foreign laws and regulations, including competition laws. Some jurisdictions also provide private rights of action for competitors or consumers to assert claims of anti-competitive conduct. Other companies and government agencies have in the past and may in the future allege that our actions violate the antitrust or competition laws of the United States, individual states, the European Commission or other countries, or otherwise constitute unfair competition. An increasing number of governments are regulating competition law activities, including increased scrutiny in large markets such as China. Our business partnerships or agreements or arrangements with customers or other companies could give rise to regulatory action or antitrust litigation. Some regulators, particularly those outside of the United States, may perceive our business to be used so broadly that otherwise uncontroversial business practices could be deemed anticompetitive. Any claims or investigations, even if without foundation, may be very expensive to defend or respond to, involve negative publicity and substantial diversion of management time and effort and could result in significant judgments against us or require us to change our business practices.

We are subject to patent litigation.

We have repeatedly been sued for allegedly infringing other parties’ patents. We are a defendant in a number of patent lawsuits and have been notified of several other potential patent disputes. We expect that we will increasingly be subject to patent infringement claims because, among other reasons:

 

    our products and services continue to expand in scope and complexity;

 

    we continue to expand into new business areas, including through acquisitions; and

 

    the universe of patent owners who may claim that we, any of the companies that we have acquired, or our customers infringe their patents, and the aggregate number of patents controlled by such patent owners, continues to increase.

Such claims may be brought directly against us and/or against our customers whom we may indemnify either because we are contractually obligated to do so or we choose to do so as a business matter. We believe that an increasing number of these claims against us and other technology companies have been, and continue to be, initiated by third parties whose sole or primary business is to assert such claims. In addition, we have seen significant patent disputes between operating companies in some technology industries. Patent claims, whether meritorious or not, are time-consuming and costly to defend and resolve, and could require us to make expensive changes in our methods of doing business, enter into costly royalty or licensing agreements, make substantial payments to satisfy adverse judgments or settle claims or proceedings, or cease conducting certain operations, which would harm our business.

We may be unable to adequately protect or enforce our intellectual property rights, or third parties may allege that we are infringing their intellectual property rights.

We believe the protection of our intellectual property, including our trademarks, patents, copyrights, domain names, trade dress, and trade secrets, is critical to our success. We seek to protect our intellectual property rights by relying on applicable laws and regulations in the United States and internationally, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services, including confidentiality and invention assignment agreements entered into with our employees and contractors and confidentiality agreements with parties with whom we conduct business.

However, effective intellectual property protection may not be available in every country in which our products and services are made available, and contractual arrangements and other steps we have taken to protect our intellectual property may not prevent third parties from infringing or misappropriating our intellectual property or deter independent development of equivalent or superior intellectual property rights by others. Trademark, copyright, patent, domain name, trade dress and trade secret protection is very expensive to maintain

 

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and may require litigation. We must protect our intellectual property rights and other proprietary rights in an increasing number of jurisdictions, a process that is expensive and time consuming and may not be successful in every jurisdiction. Also, we may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to others. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation. Any failure to adequately protect or enforce our intellectual property rights, or significant costs incurred in doing so, could materially harm our business.

As the number of products in the software industry increases and the functionality of these products further overlap, and as we acquire technology through acquisitions or licenses, we may become increasingly subject to infringement claims, including patent, copyright, and trademark infringement claims. Litigation may be necessary to determine the validity and scope of the patent and other intellectual property rights of others. The ultimate outcome of any allegation is uncertain and, regardless of the outcome, any such claim, with or without merit, may be time-consuming, result in costly litigation, divert management’s time and attention from our business, require us to stop selling, delay shipping, or redesign our products, or require us to pay substantial amounts to satisfy judgments or settle claims or lawsuits or to pay substantial royalty or licensing fees, or to satisfy indemnification obligations that we have with some of our customers. Our failure to obtain necessary license or other rights, or litigation or claims arising out of intellectual property matters, may harm our business.

We are regularly subject to general litigation, regulatory disputes, and government inquiries.

We are regularly subject to claims, lawsuits (including class actions and individual lawsuits), government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, consumer protection, accessibility claims, securities, tax, labor and employment, commercial disputes, content generated by our customers, services and other matters. In particular, our business faces ongoing consumer protection and intellectual property litigation, as discussed above. The number and significance of these disputes and inquiries have increased as our company has grown larger, our business has expanded in scope and geographic reach, and our products and services have increased in complexity. In addition, some of the laws and regulations affecting Internet and mobile commerce and consumer credit are subject to ongoing interpretation by the courts and governmental authorities, and the resulting uncertainty in the scope and application of these laws and regulations increases the risk that we will be subject to private claims and governmental actions alleging violations of those laws and regulations.

The outcome and impact of such claims, lawsuits, government investigations, and proceedings cannot be predicted with certainty. Regardless of the outcome, such investigations and proceedings can have an adverse impact on us because of legal costs, diversion of management resources, and other factors. Determining reserves for our pending litigation is a complex, fact-intensive process that is subject to judgment calls. It is possible that a resolution of one or more such proceedings could require us to make substantial payments to satisfy judgments, fines or penalties or to settle claims or proceedings, any of which could materially adversely affect our business. These proceedings could also result in reputational harm, criminal sanctions, consent decrees, or orders preventing us from offering certain products, or services, or requiring a change in our business practices in costly ways, or requiring development of non-infringing or otherwise altered products or technologies. Any of these consequences could materially adversely affect our business.

We may have exposure to greater than anticipated tax liabilities.

The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign tax jurisdictions and have structured our operations to reduce our effective tax rate. Our determination of our tax liability is always subject to audit and review by applicable domestic and foreign tax authorities, and we are currently undergoing a number of investigations, audits and reviews by taxing authorities throughout the world,

 

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including with respect to our tax structure. Any adverse outcome of any such audit or review could have a negative effect on our business and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. While we have established reserves based on assumptions and estimates that we believe are reasonable to cover such eventualities, these reserves may prove to be insufficient.

In addition, our future income taxes could be adversely affected by earnings being lower than anticipated (or by the incurrence of losses) in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, as a result of gains on our foreign exchange risk management program, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.

In light of continuing fiscal challenges in certain U.S. states and in many countries in Europe, various levels of government are increasingly focused on tax reform and other legislative action to increase tax revenue, including corporate income taxes. For example, the economic downturn reduced tax revenues for United States federal and state governments, and a number of proposals to increase taxes from corporate entities have been implemented or are being considered at various levels of government. These include a number of proposals to modify the U.S. federal income tax laws applicable to companies, like ours, operating in multiple U.S. and foreign jurisdictions which, if enacted, could materially increase our effective tax rate. A number of U.S. states have attempted to increase corporate tax revenues by taking an expansive view of corporate presence to attempt to impose corporate income taxes and other direct business taxes on companies that have no physical presence in their state, and taxing authorities in foreign jurisdictions may take similar actions. Many U.S. states are also altering their apportionment formulas to increase the amount of taxable income or loss attributable to their state from certain out-of-state businesses. Similarly, in Europe, and elsewhere in the world, there are various tax reform efforts underway designed to ensure that corporate entities are taxed on a larger percentage of their earnings. If more taxing authorities are successful in applying direct taxes to Internet companies that do not have a physical presence in their respective jurisdictions, this could increase our effective tax rate.

We and our merchants may be subject to sales reporting and record-keeping obligations.

One or more states or the federal government or foreign countries may seek to impose reporting or record-keeping obligations on companies that engage in or facilitate ecommerce. Such an obligation could be imposed by legislation intended to improve tax compliance (and legislation to such effect has been contemplated by several states and a number of foreign jurisdictions) or if one of our companies was ever deemed to be the legal agent of our merchants by a jurisdiction in which it operates. We are required to report to the Internal Revenue Service, (“IRS”), on customers subject to U.S. income tax who receive more than $20,000 in payments and more than 200 payments in a calendar year. As a result, we are required to request tax identification numbers from certain payees, track payments by tax identification number and, under certain conditions, withhold a portion of payments and forward such withholding to the IRS. We have modified our software to meet these requirements and expect increased operational costs and changes to our customer experience in connection with complying with these reporting obligations. The IRS regulations also require us to collect a certification of non-U.S. taxpayer status from certain international merchants. The Foreign Account Tax Compliance Act, which took effect at the start of 2013, is likely to require an increase in the number of non-U.S. customers from whom we must obtain a similar certification, and to increase the compliance burdens on us. Any failure by us to meet these new requirements could result in substantial monetary penalties and other sanctions and could harm our business.

Acquisitions, joint ventures, and strategic investments could result in operating difficulties and could harm our business.

We have acquired a significant number of businesses of varying size and scope, technologies, services, and products. We also expect to continue to evaluate and consider a wide array of potential strategic transactions as part of our overall business strategy, including business combinations, acquisitions, and dispositions of businesses, technologies, services, products, and other assets, as well as strategic investments and joint ventures.

 

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These transactions may involve significant challenges and risks, including:

 

    the potential loss of key customers, vendors and other key business partners of the companies we acquire, or dispose of, following and continuing after announcement of our transaction plans;

 

    declining employee morale and retention issues affecting employees of companies that we acquire or dispose of, which may result from changes in compensation, or changes in management, reporting relationships, future prospects or the direction of the acquired or disposed business;

 

    difficulty making new and strategic hires of new employees;

 

    diversion of management time and a shift of focus from operating the business to the transaction, and in the case of an acquisition, integration and administration;

 

    the need to integrate the operations, systems (including accounting, management, information, human resource and other administrative systems), technologies, products and personnel of each acquired company, which is an inherently risky and potentially lengthy and costly process;

 

    the inefficiencies and lack of control that may result if such integration is delayed or not implemented, and unforeseen difficulties and expenditures that may arise as a result;

 

    the need to implement or improve controls, procedures and policies appropriate for a larger public company at companies that prior to acquisition may have lacked such controls, procedures and policies or whose controls, procedures and policies did not meet applicable legal and other standards;

 

    risks associated with our expansion into new international markets;

 

    derivative lawsuits resulting from the acquisition;

 

    liability for activities of the acquired company before the acquisition, including intellectual property and other litigation claims or disputes, violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities;

 

    the potential loss of key employees following the transaction;

 

    the acquisition of new customer and employee personal information, which in and of itself may require regulatory approval and or additional controls, policies and procedures and subject us to additional exposure; and

 

    our dependence on the acquired business’ accounting, financial reporting, operating metrics and similar systems, controls and processes and the risk that errors or irregularities in those systems, controls and processes will lead to errors in our combined financial statements or make it more difficult to manage the acquired business.

At any given time we may be engaged in discussions or negotiations with respect to one or more of these types of transactions and any of these transactions could be material to our financial condition and results of operations. In addition, it may take us longer than expected to fully realize the anticipated benefits of these transactions, and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could adversely affect our business and operating results. Any acquisitions or dispositions may also require us to issue additional equity securities, spend our cash, or incur debt (and increased interest expense), liabilities, and amortization expenses related to intangible assets or write-offs of goodwill, which could adversely affect our results of operations and dilute the economic and voting rights of our stockholders.

In addition, we may make certain investments, including through joint ventures, in which we have a minority equity interest and/or lack management and operational control. Under such circumstances, the controlling joint venture partner in a joint venture investment may have business interests, strategies or goals that are inconsistent with ours, and business decisions or other actions or omissions of the controlling investor, joint venture partner or joint venture company may result in harm to our reputation or adversely affect the value of our investment in the investment or joint venture.

 

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Problems with or price increases by third parties who provide services to us or to our customers could harm our business.

A number of third parties provide services to us or to our customers. We are dependent on caching services that make our sites load faster, the processing companies and banks that link us to the payment card, and bank clearing networks to process transactions, among others. We are subject to, among other things, increases in interchange fees and assessments that payment card networks such as Visa and MasterCard charge for each transaction using one of their cards (which our payment card processors have the right to pass on to us), as well as changes in payment card network operating rules, including special operating rules for Internet payment services providers, such as PayPal. Similarly, we rely on unaffiliated lenders to make the consumer and other loans originated through the PayPal Credit products and also rely heavily on third parties to operate our services, including merchant processors and payment gateways to process transactions and third parties that provide loan receivable tracking and customer statements processing. Financial or regulatory issues, labor issues (e.g., strikes, lockouts, or work stoppages), or other problems that prevent these companies from providing services to us or our customers could harm our business.

Price increases by, or service terminations, disruptions or interruptions at, companies that provide services to us and our customers and clients could also make it more difficult for our merchants to complete transactions, thereby harming our business. Some third parties who provide services to us may have or gain market power and be able to increase their prices to us without competitive constraint.

We have outsourced certain functions to third-party providers, including some customer support and product development functions, which are critical to our operations. If our service providers do not perform satisfactorily, our operations could be disrupted, which could result in customer dissatisfaction and could harm our business.

There can be no assurance that third parties who provide services directly to us or our customers will continue to do so on acceptable terms, or at all. If any third parties were to stop providing services to us or our merchants on acceptable terms, including as a result of bankruptcy, we may be unable to procure alternatives from other third parties in a timely and efficient manner and on acceptable terms, or at all.

Our developer platforms, which are open to merchants and third-party developers, subject us to additional risks.

We provide third-party developers with access to application programming interfaces, software development kits and other tools designed to allow them to produce applications for use, with a particular focus on mobile applications. There can be no assurance that merchants or third-party developers will develop and maintain applications and services on our open platforms on a timely basis or at all, and a number of factors could cause such third-party developers to curtail or stop development for our platforms. In addition, our business is subject to many regulatory restrictions. It is possible that merchants and third-party developers who utilize our development platforms or tools could violate these regulatory restrictions and we may be held responsible for such violations, which could harm our business.

Our retail point of sale solutions expose us to additional risks.

We have announced several retail point of sale solutions, which enable merchants to accept payments using a payments card reader attached to, or otherwise communicating with, a mobile device or to scan payment cards and codes using the mobile device’s embedded camera and which will enable consumers to use their mobile devices to pay hands-free. To the extent that we continue to expand our product and service offerings at the retail point of sale, we will face additional risks, including:

 

    increased expectations from offline retailers regarding the reliability and availability of our systems and services and correspondingly lower amounts of downtime, which we may not be able to meet;

 

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    significant competition at the retail point of sale, particularly from established payment card providers such as Visa, MasterCard and American Express, many of which have substantially greater resources than we do;

 

    increased targeting by fraudsters, and given that our fraud models are less developed in this area, we may experience increases in fraud and associated transaction losses as we adjust to fraudulent activity at the point of sale;

 

    exposure to product liability claims to the extent that hardware devices that we produce for use at the retail point of sale malfunction or are not in compliance with laws, which could result in substantial liability and require product recalls or other actions;

 

    exposure to new or additional laws and regulations;

 

    increased reliance on third parties involved with processing in-store payments, including independent software providers, electronic point of sale providers, hardware providers (such as cash register and pin-pad providers), payment processors and banks that enable in-store transactions; and

 

    lower operating income than our other payment solutions.

Unless we are able to successfully manage these risks, including driving adoption of, and significant volume through, our retail point of sale solutions over time, our business may be harmed.

Our success largely depends on key personnel. Because competition for our key employees is intense, we may not be able to attract, retain, and develop the highly skilled employees we need to support our business. The loss of senior management or other key personnel could harm our business.

Our future performance depends substantially on the continued services of our senior management and other key personnel, including key engineering and product development personnel, and our ability to attract, retain, and motivate key personnel. Competition for key personnel is intense, especially in the Silicon Valley where our corporate headquarters are located, and we may be unable to successfully attract, integrate, or retain sufficiently qualified key personnel. In making employment decisions, particularly in the Internet and high-technology industries, job candidates often consider the value of the equity awards they would receive in connection with their employment and fluctuations in our stock price may make it more difficult to attract, retain, and motivate employees. In addition, we do not have long-term employment agreements with any of our key personnel and do not maintain any “key person” life insurance policies. The loss of the services of any of our senior management or other key personnel, or our inability to attract highly qualified senior management and other key personnel, could harm our business.

Risks Related to the Separation

The combined post-separation value of eBay and PayPal common stock may not equal or exceed the pre-separation value of eBay common stock.

As a result of the distribution, eBay expects the trading price of eBay common stock immediately following the distribution to be lower than the “regular-way” trading price of such common stock immediately prior to the distribution because the trading price will no longer reflect the value of the Payments business held by PayPal. The aggregate market value of the eBay common stock and the PayPal common stock following the separation may be higher or lower than the market value of eBay common stock immediately prior to the separation.

We may not achieve some or all of the expected benefits of the separation, and the separation could harm our business.

We may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation and distribution is expected to

 

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provide the following benefits, among others: enhanced strategic and management focus; better ability to form strategic partnerships and relationships; faster decision-making; more efficient allocation of capital; alignment of incentives with performance objectives; direct access to the capital markets; and a distinct investment identity. For more information regarding the reasons for the separation, please refer to “The Separation and Distribution.”

We may not achieve these and other anticipated benefits for a variety of reasons, including, among others:

 

    the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business;

 

    following the separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of eBay;

 

    following the separation, our business will be less diversified than eBay’s business prior to the separation;

 

    following the separation, regulatory requirements may inhibit or prevent certain of the activities the parties intend to continue to preserve operating synergies; and

 

    the other actions required to separate the respective businesses could disrupt our operations.

If we fail to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, our business could be harmed.

If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code (the “Code”), eBay, PayPal and eBay stockholders could be subject to significant tax liabilities and, in certain circumstances, we could be required to indemnify eBay for material taxes pursuant to indemnification obligations under the tax matters agreement.

A condition to the distribution is the receipt by eBay of an opinion from eBay’s outside legal counsel regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code. The opinion will be based on and rely on, among other things, certain facts and assumptions, as well as certain representations, statements and undertakings of eBay and PayPal, including those relating to the past and future conduct of eBay and PayPal. If any of these representations, statements or undertakings are, or become, inaccurate or incomplete, or if eBay or PayPal breach any of their respective covenants in the separation documents, the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.

Notwithstanding the opinion of counsel, the IRS could determine that the distribution, together with certain related transactions, should be treated as a taxable transaction if the IRS determines that any of these representations, assumptions, or undertakings upon which such opinion was based are incorrect or have been violated or if the IRS disagrees with the conclusions in the opinion of counsel. An opinion of counsel is not binding on the IRS or any court and there can be no assurance that the IRS will not challenge the conclusions reached in the opinion. The IRS will not provide any opinion in advance of the separation that our proposed transaction will be tax-free.

If the distribution, together with certain related transactions, failed to qualify as a transaction that is generally tax-free under Sections 368(a)(1)(D) and 355 of the Code, in general, eBay would recognize taxable gain as if it had sold the PayPal common stock in a taxable sale for its fair market value, eBay stockholders who receive PayPal common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares and we could incur significant liabilities. For more information, please refer to “Material U.S. Federal Income Tax Consequences.”

 

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We may not be able to engage in desirable strategic or capital-raising transactions following the separation. In addition, we could be liable for adverse tax consequences resulting from engaging in significant strategic or capital-raising transactions.

To preserve the tax-free treatment to eBay of the separation and the distribution, under the tax matters agreement that we will enter into with eBay, for a period of time following the distribution, we generally will be prohibited from taking certain actions that prevent the distribution and related transactions from qualifying as a transaction that is generally tax-free, for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code.

These restrictions may limit our ability to pursue certain strategic transactions or other transactions that may maximize the value of our business. For more information, please refer to “Material U.S. Federal Income Tax Consequences” and “Certain Relationships and Related Person Transactions—The Tax Matters Agreement.”

We have no history of operating as an independent company in our current form, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

Our historical information provided in this information statement refers to our business as operated by and integrated with eBay. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of eBay. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations, or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:

 

    Prior to the separation, our business has been operated by eBay as part of its broader corporate organization, rather than as an independent company. eBay or one of its affiliates performed various corporate functions for us, such as legal, finance, treasury, accounting, tax, auditing, human resources, and public affairs. Our historical and pro forma financial results reflect allocations of corporate expenses from eBay for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company.

 

    Currently, our business is integrated with the other businesses of eBay. Historically, we have shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. Although we will enter into transition agreements and an operating agreement with eBay, these arrangements may not retain or fully capture the benefits that we have enjoyed as a result of being integrated with eBay and may result in our paying higher charges than in the past for these services. This could have an adverse effect on our results of operations and financial condition following the completion of the separation.

 

    We may lose certain synergies and benefits we enjoyed as a result of being a part of eBay. As a part of eBay, we benefited from, among other things, the acquisition of new customers from eBay, capital to fund acquisitions, investments, and credit, and data from eBay that helps us to manage risks and maintain a low loss rate. In addition, being a part of eBay enables us to leverage eBay’s technology capabilities, data, commerce platforms and relationships with retailers, brands and large merchants worldwide. The loss of these synergies and benefits could have an adverse impact on our results of operations and financial condition following the completion of the separation.

 

    Generally, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of eBay. Following the completion of the separation, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, or through strategic relationships or other arrangements, which may or may not be available and may be more costly.

 

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    After the completion of the separation, the cost of capital for our business may be higher than eBay’s cost of capital prior to the separation.

Other significant changes may occur in our cost structure, management, financing, and business operations as a result of operating as a company separate from eBay. For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the unaudited pro forma condensed combined financial statements of our business, see “Unaudited Pro Forma Condensed Combined Financial Statements,” “Selected Historical Combined Financial Data of PayPal,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this information statement.

eBay will be a significant source of our revenues after the distribution.

After the distribution, we will derive a significant amount of revenues from eBay. If the operating agreement expires or if eBay terminates the operating agreement prior to its expiration or there is a significant change in our relationship with eBay, including if eBay becomes a merchant of record, eliminates or modifies any of its risk management or customer protection programs, directs transactions to a different provider of payment services or offers eBay customers more payment options, our business could be harmed.

Until the separation occurs, eBay has sole discretion to change the terms of the separation in ways which may be unfavorable to us.

Until the separation occurs, we will be a wholly owned subsidiary of eBay. Accordingly, eBay will effectively have the sole and absolute discretion to determine and change the terms of the separation, including the terms of any agreements between eBay and us. These changes could be unfavorable to us. In addition, eBay may decide at any time not to proceed with the separation and distribution.

eBay may fail to perform under various transaction agreements that will be executed as part of the separation or it may fail to have necessary systems and services in place when certain of the transaction agreements expire.

In connection with the separation, we will enter into a separation and distribution agreement with eBay and will also enter into various other agreements, including an operating agreement, colocation services agreements, a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, a data sharing addendum, and a product development agreement. The separation agreement, the tax matters agreement, the employee matters agreement, and intellectual property matters agreement will determine the allocation of assets and liabilities (including by means of licensing) between the companies following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The operating agreement, colocation services agreements and data sharing addendum will establish certain commercial relationships between eBay and us related to payment processing, credit, information technology infrastructure and data sharing. The transition services agreement will provide for the performance of certain services by each company for the benefit of the other for a limited period of time after the separation. We will rely on eBay to satisfy its performance and payment obligations under these agreements. If eBay is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once these transaction agreements expire or terminate, we may not be able to operate our business effectively and our profitability may decline.

Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the distribution.

Our financial results previously were included within the consolidated results of eBay, and its reporting and control systems were appropriate for subsidiaries of a public company. Prior to the distribution, we were not

 

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directly subject to reporting and other requirements of the Securities Exchange Act of 1934, as amended, and Section 404 of the Sarbanes-Oxley Act of 2002. After the distribution, we expect to be subject to such reporting and other requirements in 2016, which will require, among other things, annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These and other obligations will place significant demands on our management, administrative, and operational resources, including accounting and information technology resources. To comply with these requirements, we anticipate that we will need to upgrade our systems, including duplicating computer hardware infrastructure, implement additional financial and management controls, reporting systems and procedures, and hire additional accounting, finance and information technology staff. If we are unable to do this in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired and our business could be harmed.

After the separation, certain of our directors may have actual or potential conflicts of interest because of their previous or continuing positions at eBay.

Because of their current or former positions with eBay, certain of our expected directors own eBay common stock and equity awards. Following the separation, even though our board of directors will consist of a majority of directors who are independent, some of our directors will continue to have a financial interest in eBay common stock and equity awards. In addition, it is expected that one of our directors will continue serving on the board of directors of eBay. Continuing ownership of eBay common stock and equity awards, or service as a director at both companies could create, or appear to create, potential conflicts of interest if PayPal and eBay have disagreements about the contracts between them that continue or face decisions that could have different implications for PayPal and eBay.

Risks Related to Our Common Stock

We cannot be certain that an active trading market for our common stock will develop or be sustained after the separation, and following the separation, and the price of our common stock may fluctuate significantly.

A public market for our common stock does not currently exist. We anticipate that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a “when-issued” basis which will continue through the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for our common stock after the separation. Nor can we predict the prices at which shares of our common stock may trade after the separation. Similarly, we cannot predict the effect of the separation on the price of our common stock or whether the combined market value of our common stock and the eBay common stock will be less than, equal to or greater than the market value of eBay common stock prior to the separation.

The price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

 

    actual or anticipated fluctuations in our operating results;

 

    changes in earnings estimated by securities analysts or our ability to meet those estimates;

 

    the change in our stockholder base due to the spin-off;

 

    the operating and stock price performance of comparable companies;

 

    changes to the regulatory and legal environment under which we operate; and

 

    market conditions in the payments industry, the industries of merchants and the domestic and worldwide economy as a whole.

There may be substantial changes in our stockholder base.

Many investors holding eBay common stock may hold that stock because of a decision to invest in a company with eBay’s profile. Following the distribution, the shares of our common stock held by those investors

 

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will represent an investment in a payments company with a different profile. This may not be aligned with a holder’s investment strategy and may cause the holder to sell the shares. As a result, our stock price may decline or experience volatility as our stockholder base changes.

PayPal’s amended and restated certificate of incorporation will designate the state courts of the State of Delaware, or, if no state court located in the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by PayPal’s stockholders, which could discourage lawsuits against PayPal and PayPal’s directors and officers.

PayPal’s amended and restated certificate of incorporation will provide that unless the corporation otherwise determines, the state courts of the State of Delaware, or, if no state court located in the state of Delaware has jurisdiction, the federal court for the District of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of PayPal, any action asserting a claim of breach of a fiduciary duty owed by any director or officer of PayPal to PayPal or PayPal’s stockholders, creditors or other constituents, any action asserting a claim against PayPal or any director or officer of PayPal arising pursuant to any provision of the Delaware General Corporation Law or PayPal’s amended and restated certificate of incorporation or bylaws, or any action asserting a claim against PayPal or any director or officer of PayPal governed by the internal affairs doctrine. This exclusive forum provision may limit the ability of PayPal’s stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with PayPal or PayPal’s directors or officers, which may discourage such lawsuits against PayPal and PayPal’s directors and officers. Alternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, PayPal may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect PayPal’s business, financial condition or results of operations.

Certain provisions in PayPal’s amended and restated certificate of incorporation and bylaws may prevent or delay an acquisition of PayPal, which could decrease the trading price of PayPal common stock.

PayPal’s amended and restated certificate of incorporation and amended and restated bylaws will contain certain provisions that may have the effect of deterring coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and by encouraging prospective acquirers to negotiate with PayPal’s board of directors rather than to attempt a hostile takeover. These provisions include, among others:

 

    rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

 

    the fact that directors may not be elected, removed or replaced at stockholder-requested special meetings unless a person, entity or group owns at least a majority of PayPal’s outstanding common stock;

 

    the right of PayPal’s board to issue preferred stock without stockholder approval; and

 

    the ability of PayPal’s directors, and not stockholders, to fill vacancies on PayPal’s board of directors in most circumstances.

PayPal has also elected not to be governed by Section 203 of the DGCL, which provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock. PayPal’s amended and restated certificate of incorporation will, however, contain a provision that generally mirrors Section 203 of the DGCL, except that there will be a 20% threshold instead of the 15% provided for by the DGCL. These provisions could delay or prevent a change of control that PayPal’s stockholders may favor.

 

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Certain of the above provisions were added pursuant to the agreement between eBay Inc. and certain entities under the control of Carl C. lcahn. These provisions are not intended to make PayPal immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that PayPal’s board of directors determines is not in the best interests of PayPal and PayPal’s stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

In addition, an acquisition or further issuance of PayPal’s stock could trigger the application of Section 355(e) of the Code. For a discussion of Section 355(e), see “Material U.S. Federal Income Tax Consequences.” Under the tax matters agreement, PayPal would be required to indemnify eBay for any resulting taxes, and this indemnity obligation might discourage, delay or prevent a change of control that PayPal’s stockholders may consider favorable. Please refer to “Certain Relationships and Related Person Transactions” and “Description of PayPal’s Capital Stock” for a more detailed description of these agreements and provisions.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This information statement and other materials eBay and PayPal have filed or will file with the SEC contain, or will contain, certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. The words “believe,” “expect,” “anticipate,” “project” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. In particular, information included under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “The Separation and Distribution” contain forward-looking statements. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of PayPal management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. Except as may be required by law, PayPal undertakes no obligation to modify or revise any forward-looking statements to reflect events or circumstances occurring after the date of this information statement. Factors that could cause actual results or events to differ materially from those anticipated include the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

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THE SEPARATION AND DISTRIBUTION

Overview

On September 30, 2014, eBay Inc. (“eBay”) announced its intent to separate its payments business into an independent, publicly-traded company. To accomplish this separation, in January 2015, eBay incorporated PayPal Holdings, Inc. (“PayPal Holdings”) which will ultimately become the parent of PayPal, Inc. and will hold directly or indirectly all of the assets and liabilities associated with PayPal, Inc. eBay intends to effect this separation through a pro rata distribution of the common stock of PayPal Holdings to its stockholders. References to “we,” “our,” “us,” “the Company” or “PayPal” refer to the combined entities of the payments business of eBay, including PayPal, Inc. and certain other assets and liabilities that have been historically held at the eBay corporate level, but are specifically identifiable and attributable to the payments business.

On [●], 2015, the eBay board of directors approved the distribution of the issued and outstanding shares of PayPal common stock on the basis of one share of PayPal common stock for every [●] share of eBay common stock held as of the close of business on the record date of [●], 2015.

At 11:59 p.m., Eastern Time, on [●], 2015, the distribution date, each eBay stockholder will receive one share of PayPal common stock for every [●] share of eBay common stock held at the close of business on the record date for the distribution, as described below. eBay stockholders will receive cash in lieu of any fractional shares of PayPal common stock that they would have received after application of this ratio. You will not be required to make any payment, surrender or exchange your eBay common stock or take any other action to receive your shares of PayPal’s common stock in the distribution. The distribution of PayPal’s common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “—Conditions to the Distribution.”

Reasons for the Separation

The eBay board of directors determined that the creation of two independent public companies, with PayPal operating the Payments business, and eBay operating the Marketplaces business is in the best interests of eBay and its stockholders and approved the plan of separation. A wide variety of factors were considered by the eBay board of directors in evaluating the creation of independent public companies. Among other things, the eBay board of directors considered the following expected benefits:

 

    Enhanced strategic and management focus. The separation will allow each of PayPal and eBay to more effectively pursue its distinct operating priorities and strategies and opportunities for long-term growth and profitability in the global commerce and payments landscape. PayPal’s management will be able to focus exclusively on its payments business, while eBay’s management will be dedicated solely to growing its marketplaces business.

 

    Faster decision-making. The separation will speed up decision-making at each company and allow each to adapt more quickly to the rapidly changing market and customer dynamics in their respective markets.

 

    Increased flexibility. The separation will provide each company with increased flexibility to pursue new partnership and strategic opportunities that may have previously been unavailable for strategic or other reasons.

 

    More efficient allocation of capital. The separation will permit each company to implement a capital structure appropriate to its strategy and business needs and to concentrate its financial resources solely on its own operations without having to compete with each other for investment capital. This will provide each company with greater flexibility to invest capital in its businesses in a time and manner appropriate for its distinct strategy and business needs and facilitate a more efficient allocation of capital.

 

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    Alignment of incentives with performance objectives. The separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s business, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives of the business they support.

 

    Direct access to capital markets. The separation will provide each company with direct access to the capital markets and will facilitate PayPal’s ability to effect future acquisitions utilizing PayPal’s common stock. As a result, each company will have more flexibility to capitalize on its unique growth opportunities.

 

    Distinct investment identity. The separation will allow investors to separately value eBay and PayPal based on their distinct investment identities. PayPal’s payments business differs from eBay’s marketplaces business in several respects, such as the nature of the business, growth profile, competitors, regulation and technology. The separation will enable investors to evaluate the merits, performance and future prospects of each company’s respective business and to invest in each company separately based on these distinct characteristics, and may attract new investors to each business, who may not have properly assessed the value of the Payments and Marketplaces businesses as stand-alone entities relative to the value they are currently accorded.

Neither PayPal nor eBay can assure you that, following the separation, any of the benefits described above or otherwise will be realized to the extent anticipated or at all.

The eBay board of directors also considered a number of potentially negative factors in evaluating the creation of independent public companies, including the loss of synergies and joint purchasing power and increased costs resulting from operating as a separate public entity, one-time costs of the separation, and the risk of not realizing the anticipated benefits of the separation. The eBay board of directors concluded that the potential benefits outweighed these factors.

Formation of PayPal Holdings

PayPal Holdings was formed in January 2015 for the purpose of owning and operating eBay’s payments business. As part of the plan to create two independent public companies, eBay plans to transfer the equity interests of certain entities that operate the payments business and the assets and liabilities of the payments business to PayPal Holdings prior to the distribution.

When and How You Will Receive the Distribution

With the assistance of Computershare Trust Company, N.A., or Computershare, eBay expects to distribute PayPal common stock at 11:59 p.m., Eastern Time, on [●], 2015, the distribution date, to all holders of outstanding eBay common stock as of the close of business on [●], 2015, the record date for the distribution. Computershare will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for PayPal common stock.

If you own shares of eBay common stock as of the close of business on the record date for the distribution, PayPal’s common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, Computershare will then mail you a direct registration account statement that reflects your shares of PayPal common stock. If you hold your shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares. Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to shareholders, as is the case in this distribution. If you sell eBay common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of PayPal common stock in the distribution.

 

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Commencing on or shortly after the distribution date, if you hold physical stock certificates that represent your shares of eBay common stock and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of PayPal’s common stock that have been registered in book-entry form in your name.

Most eBay stockholders hold their shares of common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your shares of eBay common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the PayPal common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.

Transferability of Shares You Receive

Shares of PayPal common stock distributed to holders in connection with the distribution will be transferable without registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), except for shares received by persons who may be deemed to be PayPal affiliates. Persons who may be deemed to be PayPal affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with PayPal, which may include certain PayPal executive officers, directors or principal stockholders. Securities held by PayPal affiliates will be subject to resale restrictions under the Securities Act. PayPal affiliates will be permitted to sell shares of PayPal common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.

Number of Shares of PayPal Common Stock You Will Receive

For every [●] shares of eBay common stock that you own at the close of business on [●], 2015, the record date for the distribution, you will receive one share of PayPal common stock on the distribution date. eBay will not distribute any fractional shares of PayPal common stock to its shareholders. Instead, if you are a registered holder, Computershare (the distribution agent) will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The distribution agent, in its sole discretion, without any influence by eBay or PayPal, will determine when, how, and through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by the distribution agent will not be an affiliate of either eBay or PayPal. Computershare is not an affiliate of either eBay or PayPal. Neither PayPal nor eBay will be able to guarantee any minimum sale price in connection with the sale of these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

The aggregate net cash proceeds of these sales of fractional shares will be taxable for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences” for an explanation of the material U.S. federal income tax consequences of the distribution. If you hold physical certificates for shares of eBay common stock and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the aggregate net cash proceeds of the sales. PayPal estimates that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds. If you hold your shares of eBay common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales and will electronically credit your account for your share of such proceeds.

 

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Treatment of Equity Based Compensation

Outstanding awards granted under eBay’s equity compensation programs will be adjusted in accordance with the terms of such programs to reflect the impact of the separation on such awards, with such adjusted awards to relate to shares of eBay and/or PayPal common stock, as applicable, and with appropriate adjustments to the exercise prices (for options) and number of shares subject to such awards. For a more detailed discussion of the treatment of outstanding equity awards, see “Certain Relationships and Related Person Transactions—Employee Matters Agreement.”

Results of the Distribution

After the distribution, PayPal will be an independent, publicly traded company. The actual number of shares to be distributed will be determined at the close of business on [●], 2015, the record date for the distribution, and will reflect any exercise of eBay options between the date the eBay board of directors declares the distribution and the record date for the distribution. The distribution will not affect the number of outstanding shares of eBay common stock or any rights of eBay shareholders. eBay will not distribute any fractional shares of PayPal common stock.

PayPal will enter into a separation agreement and other related agreements with eBay before the distribution to effect the separation and provide a framework for PayPal’s relationship with eBay after the separation. These agreements will provide for the allocation between eBay and PayPal of eBay’s assets, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to PayPal’s separation from eBay and will govern the relationship between eBay and PayPal after the separation. For a more detailed description of these agreements, see “Certain Relationships and Related Party Transactions.”

Market for PayPal’s Common Stock

There is currently no public trading market for PayPal’s common stock. PayPal intends to apply to have its common stock authorized for listing on The NASDAQ Stock Market under the symbol “PYPL.” PayPal has not and will not set the initial price of its common stock. The initial price will be established by the public markets.

PayPal cannot predict the price at which its common stock will trade after the distribution. The combined trading prices, after the separation, of the shares of PayPal common stock that each eBay shareholder will receive in the distribution and the shares of eBay common stock held at the record date for the distribution may not equal the “regular-way” trading price of a eBay share immediately prior to the separation. The price at which PayPal common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for PayPal common stock will be determined in the public markets and may be influenced by many factors. See “Risk Factors—Risks Related to PayPal’s Common Stock.”

Trading Between the Record Date and Distribution Date

Beginning on or shortly before the record date for the distribution and continuing up to and including through the distribution date, eBay expects that there will be two markets in eBay common stock: a “regular-way” market and an “ex-distribution” market. Shares of eBay common stock that trade on the “regular-way” market will trade with an entitlement to PayPal common stock distributed pursuant to the separation. Shares of eBay common stock that trade on the “ex-distribution” market will trade without an entitlement to PayPal common stock distributed pursuant to the distribution. Therefore, if you sell shares of eBay common stock in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive PayPal common stock in the distribution. If you own shares of eBay common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the distribution date, you will receive the shares of PayPal common stock that you are entitled to receive pursuant to your ownership as of the record date of the shares of eBay common stock.

 

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Furthermore, beginning on or shortly before the record date for the distribution and continuing up to and including the distribution date, PayPal expects that there will be a “when-issued” market in its common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for shares of PayPal common stock that will be distributed to holders of shares of eBay common stock on the distribution date. If you owned shares of eBay common stock at the close of business on the record date for the distribution, you would be entitled to shares of PayPal common stock distributed pursuant to the distribution. You may trade this entitlement to shares of PayPal common stock, without the shares of eBay common stock you own, on the “when-issued” market, but your transaction will not settle until after the distribution date. On the first trading day following the distribution date, “when-issued” trading with respect to PayPal common stock will end, and “regular-way” trading will begin.

Conditions to the Distribution

eBay has announced that the distribution will be effective at 11:59 p.m., Eastern Time, on [●], 2015, which is the distribution date; provided that the following conditions shall have been satisfied (or waived by eBay in its sole discretion):

 

    the transfer of assets and liabilities from eBay to PayPal shall be completed in accordance with the separation and distribution agreement;

 

    eBay shall have received an opinion from eBay’s outside legal counsel regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 368(a)(1)(D) and Section 355 of the Code;

 

    the SEC shall have declared effective the registration statement of which this information statement forms a part, and no stop order suspending the effectiveness of the registration statement shall be in effect and no proceedings for such purpose shall be pending before or threatened by the SEC;

 

    this information statement shall have been made available to the eBay stockholders;

 

    all actions or filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws shall have been taken and, where applicable, have become effective or been accepted by the applicable governmental entity;

 

    any approvals of any governmental entities required for the consummation of the separation and distribution have been obtained, including any required approvals of the Commission de Surveillance du Secteur Financier (“CSSF”) and the Bank Centrale du Luxembourg (“BCL”), as well as the assent of the European Central Bank to any such approvals of the CSSF;

 

    the transaction agreements relating to the separation shall have been duly executed and delivered by the parties;

 

    no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions shall be in effect;

 

    the shares of PayPal common stock to be distributed shall have been accepted for listing on The NASDAQ Stock Market, subject to official notice of distribution;

 

    eBay shall have transferred or caused its subsidiaries to transfer an aggregate of $3.8 billion of cash to PayPal (including through one or more capital contributions); and

 

    no other event or development shall exist or have occurred that, in the judgment of eBay’s board of directors, in its sole discretion, would make it inadvisable to effect the separation or the distribution.

eBay and PayPal cannot assure you that any or all of these conditions will be met and may also waive any of the conditions to the distribution. In addition, eBay will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed,

 

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to determine the record date for the distribution and the distribution date and the distribution ratio. eBay will also have sole discretion to waive any of the conditions to the distribution. eBay does not intend to notify its shareholders of any modifications to the terms of the separation that, in the judgment of its board of directors, are not material. For example, the eBay board of directors might consider material such matters as significant changes to the distribution ratio, the assets to be contributed or the liabilities to be assumed in the separation. To the extent that the eBay board of directors determines that any modifications by eBay materially change the material terms of the distribution, eBay will notify eBay shareholders in a manner reasonably calculated to inform them about such modifications as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K, or circulating a supplement to this information statement.

 

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DIVIDEND POLICY

PayPal does not expect to pay a regular cash dividend following the distribution. The timing, declaration, amount of and payment of any dividends following the separation by PayPal is within the discretion of its board of directors and will depend upon many factors, including PayPal’s financial condition, earnings, capital requirements of its operating subsidiaries, debt service obligations, covenants associated with certain of PayPal’s debt service obligations, legal requirements, regulatory constraints, industry practice, ability to gain access to capital markets, and other factors deemed relevant by its board of directors. Moreover, if PayPal determines to pay any dividend in the future, there can be no assurance that it will continue to pay such dividends or the amount of such dividends.

 

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CAPITALIZATION

The following table sets forth PayPal’s capitalization on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in PayPal’s unaudited pro forma financial information as if the separation and distribution took place on March 31, 2015. The information below is not necessarily indicative of what PayPal’s capitalization would have been had the separation, distribution and related financing transactions been completed as of March 31, 2015. In addition, it is not indicative of PayPal’s future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Condensed Combined Financial Statements,” “Selected Historical Combined Financial Data of PayPal,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and PayPal’s combined financial statements and notes included in the “Index to Financial Statements and Schedule” section of this information statement.

 

     As of March 31, 2015  
     Historical      Pro Forma  
     (In millions)  
     (Unaudited)  

Cash and equivalents(1)

   $ 2,365       $ 6,165   
  

 

 

    

 

 

 

Indebtedness:

Short-term debt

Notes and payable to affiliates(3)

  868      116   
  

 

 

    

 

 

 

Total Indebtedness

$ 868    $ 116   
  

 

 

    

 

 

 

Stockholders’ equity:

Common stock, par value $0.0001 per share on a pro forma basis(2)

         

Additional paid-in capital(1)

       12,387   

Net parent investment(1), (2)

  8,498        

Accumulated other comprehensive income (loss)

  142      142   
  

 

 

    

 

 

 

Total stockholders’ equity

$ 8,640    $ 12,529   
  

 

 

    

 

 

 

Total Capitalization

$ 9,508    $ 12,645   
  

 

 

    

 

 

 

 

(1) Reflects a $3.8 billion total cash contribution to PayPal from eBay.
(2) Represents the effect of the expected pro forma distribution of approximately 1.2 billion shares of our common stock at par value $0.0001 per share to holders of eBay common stock and the resulting elimination of eBay’s net parent investment.
(3) Represents the settlement of certain intercompany arrangements between PayPal and eBay in connection with the distribution.

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA OF PAYPAL

The following selected combined financial data reflects the combined operations of PayPal. PayPal derived the selected combined statement of income data for the years ended December 31, 2014, 2013 and 2012 and the selected combined balance sheet data as of December 31, 2014 and 2013, as set forth below, from its audited combined financial statements, which are included in the “Index to Financial Statements and Schedule” section of this information statement. PayPal derived the selected combined statement of income data for the years ended December 31, 2011 and 2010 and the selected combined balance sheet data as of December 31, 2012, 2011 and 2010 from PayPal’s underlying financial records, which were derived from the financial records of eBay. PayPal derived the selected combined statement of income data for the quarter ended March 31, 2015 and 2014 and selected combined balance sheet data as of March 31, 2015, as set forth below, from its unaudited combined financial statements, included elsewhere in this information statement. PayPal derived the selected combined balance sheet data as of March 31, 2014 from PayPal’s underlying financial records, which were derived from the financial records of eBay. The selected unaudited pro forma combined statement of income data for the quarter ended March 31, 2015 and the year ended December 31, 2014 and the selected pro forma balance sheet data as of March 31, 2015 are derived from the “Unaudited Pro Forma Condensed Combined Financial Statements” included elsewhere in this information statement. The selected unaudited pro forma combined statement of income data has been prepared to reflect certain pro forma transactions in the selected pro forma combined statement of income as if they had occurred or had become effective as of January 1, 2014. The selected unaudited pro forma condensed combined balance sheet has been prepared to give effect to certain pro forma transactions as though they had occurred on March 31, 2015. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and we believe such assumptions are reasonable.

The historical and unaudited pro forma combined results do not necessarily indicate the results expected for any future period. To ensure a full understanding, you should read the selected combined financial data presented below in conjunction with “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and accompanying notes included elsewhere in this information statement.

Historical basic and diluted earnings per share are not presented because PayPal’s financial information has been prepared on a combined basis. These financial statements have not been prepared for a single legal entity that had share capital throughout the entire historical period and, accordingly, EPS for these periods has not been provided.

 

    3 Months Ended March 31,     Year Ended December 31,  
    Pro Forma
2015
    2015     2014     Pro Forma
2014
    2014     2013     2012     2011     2010  
   

(Unaudited in millions)

          (In millions)  

Combined Statement of Income Data:

                 

Net revenue

  $ 2,134      $ 2,137      $ 1,874      $ 8,012      $ 8,025      $ 6,727      $ 5,662      $ 4,499      $ 3,508   

Operating income

    314        322        318        1,237        1,268        1,091        880        556        390   

Net income

    248        255        (382     391        419        955        778        460        350   

Earnings Per Share

                 

Basic

  $ 0.20        N/A        N/A      $ 0.31        N/A        N/A        N/A        N/A        N/A   

Diluted

  $ 0.20        N/A        N/A      $ 0.31        N/A        N/A        N/A        N/A        N/A   

Combined Balance Sheet Data:

                 

Total assets

  $ 25,944      $ 22,579      $ 19,833        $ 21,917      $ 19,160      $ 16,183      $ 11,140      $ 8,300   

Total long term liabilities

    618        390        461          386        509        428        306        188   

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The unaudited pro forma condensed combined financial statements presented below have been derived from PayPal’s historical combined financial statements for the year ended December 31, 2014 and as of and for the quarter ended March 31, 2015. The unaudited pro forma condensed combined financial statements should be read in conjunction with PayPal’s historical combined financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this information statement. The unaudited pro forma condensed combined statement of income has been prepared to give effect to the Pro Forma Transactions (as defined below) as if the Pro Forma Transactions had occurred or had become effective as of January 1, 2014. The unaudited pro forma condensed combined balance sheet has been prepared to give effect to the Pro Forma Transactions as though the Pro Forma Transactions had occurred on March 31, 2015.

Our unaudited pro forma condensed combined financial statements have been prepared based on available information, assumptions, and estimates that management believes are reasonable. The unaudited pro forma condensed combined financial statements are for illustrative and informational purposes only, and do not reflect what PayPal’s financial position and results of operations would have been had the separation occurred on the dates indicated and are not necessarily indicative of its future financial position and future results of operations.

Our unaudited pro forma condensed combined financial statements have been prepared to reflect adjustments to our audited historical combined financial statements that are: (i) factually supportable, (ii) directly attributable to the distribution, and, for purposes of the combined statements of income, (iii) expected to have continuing impact on our results of operations. The unaudited pro forma condensed combined financial statements have been adjusted to give effect to the following (the “Pro Forma Transactions”):

 

    The issuance of [●] shares of PayPal common stock;

 

    The tax free distribution, for U.S. federal income tax purposes, of PayPal common stock to eBay shareholders and the resulting elimination of eBay’s historical net parent investment in PayPal;

 

    Our anticipated post distribution capital structure, including an anticipated $3.8 billion cash contribution to PayPal from eBay;

 

    The transfers of certain assets and liabilities to PayPal from eBay; and

 

    The impact of, and transactions contemplated by the separation and distribution agreement, operating agreement, transition services agreement, tax matters agreement, employee matters agreement, intellectual property matters agreement, colocation services agreements, a data sharing addendum and product development agreement.

Our historical combined statement of income includes allocations of certain expenses relating to support functions historically provided by eBay. These functions include, but are not limited to: finance, legal, human resources, information technology, employee benefits administration, treasury, investor relations, corporate development, risk management, shared services and other general and administrative costs. To operate as an independent public company, we expect to incur costs to replace those services previously provided by eBay in addition to incremental standalone costs. We expect these incremental costs to be $100 million to $150 million on an annual pre-tax basis. Due to the scope and complexity of these activities, the amount and timing of these incremental costs could vary and, consequently, are not included in the Pro Forma Transactions.

The unaudited pro forma condensed combined financial statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” included elsewhere in this information statement.

 

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PayPal Holdings, Inc.

Unaudited Pro Forma Condensed Combined Statement of Income

Three Months Ended March 31, 2015

 

     As
Reported
    Pro Forma
Adjustments
    Pro
Forma
 
     (In millions, except per share
amounts)
 

Net revenues

   $ 2,137      $ (3 )(a)    $ 2,134   

Operating expenses:

      

Transaction expense

     575        —          575   

Transaction and loan losses

     178        10 (b)      188   

Customer support and operations

     275        3 (b) (c) (j)      278   

Sales and marketing

     236        (13 )(d)      223   

Product development

     224        —          224   

General and administrative

     138        1 (b)      139   

Depreciation and amortization

     141        4 (j)      145   

Restructuring

     48        —          48   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

  1,815      5      1,820   
  

 

 

   

 

 

   

 

 

 

Operating income

  322      (8   314   

Other income (expense), net

  (1   —        (1
  

 

 

   

 

 

   

 

 

 

Income before income taxes

  321      (8   313   
  

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

  66      (1 )(e)    65   
  

 

 

   

 

 

   

 

 

 

Net income attributable to PayPal

$ 255    $ (7 $ 248   
  

 

 

   

 

 

   

 

 

 

Net Income Attributable to PayPal Per Share of Common Stock (dollars)

Basic

     (f)  $ 0.20   

Diluted

     (f)  $ 0.20   

Average Common Shares Outstanding

Basic

     (f)    1,216   

Diluted

     (f)    1,229   

 

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PayPal Holdings, Inc.

Unaudited Pro Forma Condensed Combined Statement of Income

Year Ended December 31, 2014

 

    As Reported     Pro Forma
Adjustments
    Pro
Forma
 
    (In millions, except per share amounts)  

Net revenues

  $ 8,025      $ (13 )(a)    $ 8,012   

Operating expenses:

     

Transaction expense

    2,170        —          2,170   

Transaction and loan losses

    646        43 (b)      689   

Customer support and operations

    1,055        13 (b)(c)(j)      1,068   

Sales and marketing

    998        (60 )(d)      938   

Product development

    890        —          890   

General and administrative

    482        6 (b)      488   

Depreciation and amortization

    516        16 (j)      532   

Restructuring

    —          —          —     
 

 

 

   

 

 

   

 

 

 

Total operating expenses

  6,757      18      6,775   
 

 

 

   

 

 

   

 

 

 

Operating income

  1,268      (31   1,237   

Other income (expense), net

  (7   —        (7
 

 

 

   

 

 

   

 

 

 

Income before income taxes

  1,261      (31   1,230   
 

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

  842      (3 )(e)    839   
 

 

 

   

 

 

   

 

 

 

Net income attributable to PayPal

$ 419    $ (28 $ 391   
 

 

 

   

 

 

   

 

 

 

Net Income Attributable to PayPal Per Share of Common Stock (dollars)

Basic

  (f $ 0.31