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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2011
OR
[]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-24821
eBay Inc.
(Exact name of registrant as specified in its charter)
Delaware
77-0430924
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
2145 Hamilton Avenue
San Jose, California
95125
(Address of principal executive offices)
(Zip Code)
(408) 376-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]
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.
Large accelerated filer
[x]
Accelerated filer
[]
Non-accelerated filer
[ ] (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
[]
No [x]
As of July 18, 2011 , there were 1,288,759,170 shares of the registrant's common stock, $0.001 par value, outstanding, which is the only
class of common or voting stock of the registrant issued.
PART I: FINANCIAL INFORMATION
Item 1:
Financial Statements
eBay Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
June 30,
December 31,
2011
2010
(In thousands, except par value amounts)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Loans and interest receivable, net
Funds receivable and customer accounts
Other current assets
Total current assets
Long-term investments
Property and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets
$
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt
Accounts payable
Funds payable and amounts due to customers
Accrued expenses and other current liabilities
Deferred revenue
Income taxes payable
Total current liabilities
Deferred and other tax liabilities, net
Long-term debt
Other liabilities
Total liabilities
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $0.001 par value; 3,580,000 shares authorized; 1,288,414 and
1,297,710 shares outstanding
Additional paid-in capital
Treasury stock at cost, 239,687 and 215,082 shares
Retained earnings
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
3,265,826
1,131,100
568,860
1,039,887
3,362,209
493,210
9,861,092
3,078,398
1,727,081
8,263,705
1,443,832
459,846
24,833,954
$
1,015,484
246,472
3,362,209
1,366,636
105,387
47,084
6,143,272
894,797
1,530,211
55,792
8,624,072
$
1,528
10,870,718
(6,872,815 )
10,919,350
1,291,101
16,209,882
24,833,954
$
$
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
5,577,411
1,045,403
454,366
956,189
2,550,731
481,238
11,065,338
2,492,012
1,523,333
6,193,163
540,711
189,205
22,003,762
300,000
184,963
2,550,731
1,343,888
96,464
40,468
4,516,514
645,457
1,494,227
45,385
6,701,583
1,513
10,480,709
(6,091,435 )
10,160,078
751,314
15,302,179
22,003,762
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Three Months Ended June 30,
Six Months Ended June 30,
2011
2010
2011
2010
(In thousands, except per share amounts)
(Unaudited)
Net revenues
$
Cost of net revenues
Gross profit
Operating expenses:
Sales and marketing
Product development
General and administrative
Provision for transaction and loan losses
Amortization of acquired intangible assets
Restructuring
Total operating expenses
Income from operations
Loss on divested business
Interest and other income (expense), net
Income before income taxes
Provision for income taxes
Net income
$
Net income per share:
Basic
Diluted
Weighted average shares:
Basic
Diluted
2,760,274
773,462
1,986,812
607,954
297,035
391,251
118,497
53,276
(100)
1,467,913
518,899
(256,501)
28,576
290,974
(7,567)
283,407
$
$
2,215,379
615,371
1,600,008
478,236
225,317
262,100
92,032
48,895
8,863
1,115,443
484,565
—
14,821
499,386
(87,194 )
412,192
$
$
5,305,883
1,502,440
3,803,443
1,140,633
571,817
684,729
225,588
97,372
(249 )
2,719,890
1,083,553
(256,501 )
32,268
859,320
(100,048 )
759,272
$
$
4,411,436
1,221,926
3,189,510
924,397
435,456
538,843
198,061
102,147
17,432
2,216,336
973,174
—
20,867
994,041
(184,196 )
809,845
$
0.22
$
0.31
$
0.59
$
0.62
$
0.22
$
0.31
$
0.58
$
0.61
1,296,537
1,310,042
1,296,792
1,305,595
1,314,718
1,329,618
1,317,318
1,327,770
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended June 30,
2011
Net income
Other comprehensive income (loss):
Foreign currency translation
Unrealized gains (losses) on investments, net
Unrealized gains (losses) on hedging activities
Tax benefit (provision) on above items
Net change in accumulated other comprehensive income (loss)
Comprehensive income (loss)
$
283,407
$
163,390
(18,808)
1,283
6,666
152,531
435,938
Six Months Ended June 30,
2010
(In thousands)
(Unaudited)
$
412,192
$
(536,686 )
30,019
7,746
(14,436 )
(513,357 )
(101,165 )
2011
$
759,272
$
517,411
103,066
(42,254 )
(38,436 )
539,787
1,299,059
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
2010
$
809,845
$
(691,411 )
2,132
35,869
(3,561 )
(656,971 )
152,874
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30,
2011
2010
(In thousands)
(Unaudited)
Cash flows from operating activities:
Net income
Adjustments:
Provision for transaction and loan losses
Depreciation and amortization
Stock-based compensation
Loss on divested business
Gain on acquisition of a business
Changes in assets and liabilities, net of acquisition effects
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment, net
Changes in principal loans receivable, net
Purchases of investments
Maturities and sales of investments
Acquisitions, net of cash acquired
Repayment of Skype note receivable
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Repurchases of common stock
Excess tax benefits from stock-based compensation
Tax withholdings related to net share settlements of restricted stock awards and units
Net borrowings under commercial paper program
Repayment of acquired debt
Funds receivable and customer accounts
Funds payable and amounts due to customers
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
759,272
809,845
225,588
400,684
237,710
256,501
(17,055 )
(380,354 )
1,482,346
198,061
375,839
194,052
—
—
(433,156)
1,144,641
(388,351 )
(98,650 )
(1,229,345 )
860,498
(2,846,886 )
—
(102,901 )
(3,805,635 )
(359,457)
(48,110)
(1,294,201)
752,906
(7,000)
125,000
(4,773)
(835,635)
156,459
(781,380 )
58,608
(113,794 )
700,000
(186,233 )
(763,153 )
763,153
(166,340 )
178,044
(2,311,585 )
5,577,411
3,265,826
$
99,639
—
24,457
(73,733)
—
—
(99,040)
99,040
50,363
(321,745)
37,624
3,999,818
4,037,442
$
$
—
448,264
$
$
—
—
Supplemental cash flow disclosures:
Cash paid for interest
$
13,685
Cash paid for income taxes
$
135,564
Non-cash investing and financing activities:
Common stock options assumed pursuant to acquisition
$
24,762
Note receivable from divested business
$
286,800
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
$
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — The Company and Summary of Significant Accounting Policies
The Company
eBay Inc. (“eBay”) was incorporated in California in May 1996, and reincorporated in Delaware in April 1998. eBay's purpose is to
pioneer new communities around the world, built on commerce, sustained by trust and inspired by opportunity. eBay brings together millions
of buyers and sellers every day on a local, national and international basis through an array of websites. eBay provides online marketplaces for
the sale of goods and services as well as other online commerce, or ecommerce, platforms and online payment services to a diverse community
of individuals and businesses.
We currently have three business segments: Marketplaces, Payments, and GSI. Our Marketplaces segment provides the infrastructure
to enable global online commerce on a variety of platforms, including the eBay.com platform and its localized counterparts and our other
online platforms, such as our online classifieds businesses (including our apartment listing service platform, Rent.com), our secondary tickets
marketplace (StubHub), our online shopping comparison website (Shopping.com), and our fixed price media marketplace (Half.com). Our
Payments segment is comprised of our online payment solutions PayPal and Bill Me Later. Our GSI segment, which consists of our recently
acquired GSI Commerce (GSI) business, offers a comprehensive suite of ecommerce services that enable companies to operate ecommerce
businesses, integrate their ecommerce businesses with their multi-channel offerings and exploit digital marketing channels. We added the GSI
segment upon the completion of our acquisition of GSI on June 17, 2011, and the results of our new GSI segment have been included in our
consolidated results of operations from the acquisition date.
When we refer to “we,” “our,” “us” or “eBay” in this document, we mean the current Delaware corporation (eBay Inc.) and its
California predecessor, as well as all of our consolidated subsidiaries.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and loan losses, bad
debts, legal contingencies, income taxes, revenue recognition, stock-based compensation and the recoverability of goodwill and intangible
assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ from those estimates.
Principles of consolidation and basis of presentation
The accompanying condensed financial statements are consolidated and include the financial statements of eBay Inc. and our
majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
We have evaluated all subsequent events through the date the financial statements were issued.
The condensed consolidated financial statements include 100% of the assets and liabilities of our majority-owned subsidiaries and the
ownership interests of minority investors are recorded as a noncontrolling interest. Investments in private entities where we hold 20% or more
but less than a 50% ownership interest and exercise significant influence are accounted for using the equity method of accounting, and our
share of the investees' results of operations is included in interest and other income (expense), net. Investments in private entities where we
hold less than a 20% ownership interest and we do not have the ability to significantly influence the operations of the investee are accounted for
using the cost method of accounting, and our share of the investees' results of operations is not included in our condensed consolidated
statement of income, except to the extent of earnings distributions actually received from the investee. Our investment balance in private
entities is included in long-term investments.
6
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Recent Accounting Pronouncements
In 2011, the Financial Accounting Standards Board ("FASB") issued new accounting guidance that amends some fair value
measurement principles and disclosure requirements. The new guidance states that the concepts of highest and best use and valuation premise
are only relevant when measuring the fair value of nonfinancial assets and prohibits the grouping of financial instruments for purposes of
determining their fair values when the unit of account is specified in other guidance. We will adopt this accounting standard upon its effective
date for periods ending on or after December 15, 2011, and do not anticipate that this adoption will have a significant impact on our financial
position or results of operations.
In 2011, the FASB issued new disclosure guidance related to the presentation of the Statement of Comprehensive Income. This
guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. We will
adopt this accounting standard upon its effective date for periods ending on or after December 15, 2011, and do not anticipate that this adoption
will have any impact on our financial position or results of operations.
Note 2 — Net Income Per Share
Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number
of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and
restricted stock is reflected in diluted earnings per share by application of the treasury stock method. The calculation of diluted net income per
share excludes all anti-dilutive shares. The following table sets forth the computation of basic and diluted net income per share for the periods
indicated:
Three Months Ended June 30,
2011
2010
Six Months Ended June 30,
2011
2010
(In thousands, except per share amounts)
Numerator:
Net income
$
Denominator:
Weighted average common shares - basic
Dilutive effect of equity incentive plans
Weighted average common shares - diluted
Net income per share:
Basic
Diluted
Common stock equivalents excluded from income per
diluted share because their effect would have been
anti-dilutive
283,407
$
1,296,537
18,181
1,314,718
412,192
$
1,310,042
19,576
1,329,618
759,272
$
1,296,792
20,526
1,317,318
809,845
1,305,595
22,175
1,327,770
$
0.22
$
0.31
$
0.59
$
0.62
$
0.22
$
0.31
$
0.58
$
0.61
17,762
7
34,693
15,946
32,587
Note 3 - Business Combinations:
During the six months ended June 30, 2011 , we completed seven acquisitions, including the acquisitions of GSI Commerce, Inc.,
brands4friends and GittiGidiyor. Allocation of the purchase consideration for the business combinations completed in the first six months of
2011 is summarized as follows (in thousands):
GSI Commerce, Inc.
brands4friends
GittiGidiyor
Other
Total
Purchase
Consideration
$
2,377,257 $
193,236
235,278
142,731
$
2,948,502 $
Net Tangible Assets
Acquired/(Liabilities
Assumed)
74,498
(33,146)
(8,787)
(4,832)
27,733
Purchased
Intangible Assets
$
819,100 $
76,143
52,700
44,820
$
992,763 $
Goodwill
1,483,659
150,239
191,365
102,743
1,928,006
The purchase consideration for each acquisition was allocated to the tangible assets and intangible assets acquired and liabilities assumed
based on their estimated fair values on the acquisition date, with the remaining unallocated purchase consideration recorded as goodwill. The
fair value assigned to identifiable intangible assets acquired has been determined primarily by using valuation methods that discount expected
future cash flows to present value using estimates and assumptions determined by management. Purchased identifiable intangible assets are
amortized on a straight-line basis over the respective useful lives. We generally do not expect goodwill to be deductible for income tax
purposes. The estimation of fair values for tangible assets and intangible assets acquired and liabilities assumed was subject to estimates,
assumptions and other uncertainties, and it is possible that the allocation of the purchase consideration reflected in the foregoing table may
change.
GSI Commerce, Inc. (GSI)
Acquisition
We completed the acquisition of GSI on June 17, 2011 . GSI is a leading provider of ecommerce and interactive marketing services. We
acquired GSI to utilize its comprehensive integrated suite of online commerce and interactive marketing services to strengthen our ability to
connect buyers and sellers worldwide. We paid $29.25 per share, and assumed restricted stock-based awards with a fair value of approximately
$24.8 million resulting in total consideration of approximately $2.4 billion . In addition, we paid an amount equal to $0.33 per share or
approximately $24.3 million , which was separate and distinct from the per share merger consideration, to certain GSI security holders in
connection with the settlement of litigation related to the acquisition of GSI and recorded in general and administrative expense. GSI is
reported as a separate segment.
Divestiture
In conjunction with the acquisition of GSI, we immediately divested 100 percent of GSI's licensed sports merchandise business and 70
percent of GSI's ShopRunner and RueLaLa businesses (together, the "divested businesses"). The divested businesses were sold to a newly
formed holding company, NRG Commerce, LLC (which we refer to as NRG), led by GSI's former Chairman, President and Chief Executive
Officer, Mr. Michael Rubin, for a note receivable with a face value of $467.0 million . The note receivable bears interest at an annual rate equal
to 3-month LIBOR plus 1.10% , matures in December 2018, and is secured by certain assets of the divested businesses. The fair value of the
note receivable was determined to be $286.8 million based on comparable market interest rates and is recorded in other assets. The difference
between the fair value of the note receivable and the carrying value of the divested businesses resulted in a loss of approximately $256.5
million . The loss was recorded in loss on divested business in our condensed consolidated statement of income.
The carrying value of our retained 30 percent stake in the ShopRunner and RueLaLa businesses was $75.2 million and recorded in
long-term investments. We will account for our retained interest in the ShopRunner and RueLaLa businesses under the equity method of
accounting and record our proportionate share of net income (loss) on a one-quarter lag as a component of interest and other income (expense),
net in our condensed consolidated statement of income. Our exposure to loss resulting from our financing arrangement with NRG and equity
investment in RueLaLa and ShopRunner is limited to the carrying value of the note receivable and equity investment. We have also entered
into a transitional services agreement, pursuant to which GSI will provide to the divested businesses certain transitional
8
services for a limited period, as well as certain other commercial agreements with the newly formed holding company and its affiliates.
Intangible Assets
The following table sets forth the components of intangible assets acquired in connection with the GSI acquisition (excluding intangible
assets sold in connection with the divested businesses) (in thousands):
Description
Trademarks
User base
Developed technology
Total
$
$
Fair Value
8,400
667,900
142,800
819,100
Useful Life (Years)
2
5
5
The allocation of the purchase price for the acquisition has been prepared on a preliminary basis and changes to that allocation may occur
as additional information becomes available. We have included the financial results of GSI in our condensed consolidated financial statements
from the date of acquisition.
Pro forma financial information
The unaudited pro forma financial information in the table below summarizes the combined results of our operations and those of GSI for
the periods shown as though the acquisition of GSI and the sale of the divested businesses had occurred as of the beginning of fiscal 2010. The
pro forma financial information for the periods presented includes the business combination accounting effects of the acquisition, including
amortization charges from acquired intangible assets. The pro forma financial information as presented below is for informational purposes
only, is subject to a number of estimates, assumptions and other uncertainties, and is not indicative of the results of operations that would have
been achieved if the acquisition and divestiture had taken place at January 1, 2010. The unaudited pro forma financial information is as follows
(in thousands, except per share amounts):
Total revenues
Net income
Basic earnings per share
Diluted earnings per share
Six Months Ended June 30,
2011
2010
5,692,106
$
4,764,472
699,540
727,532
0.54
$
0.56
0.53
$
0.55
$
$
$
brands4friends
Brands4friends, an online shopping club for fashion and lifestyle in Germany, was acquired during the first quarter of 2011 for total cash
consideration of approximately $193.2 million . This company is included in our Marketplaces segment. The allocation of the purchase price
for this acquisition has been prepared on a preliminary basis and changes to that allocation may occur as additional information becomes
available. Our consolidated financial statements include the operating results of brands4friends from the date of acquisition. Pro forma results
of operations have not been presented because the effect of the acquisition was not material to our condensed consolidated results of operations.
GittiGidiyor
In the second quarter of 2011, we acquired additional shares of GittiGidiyor, an online marketplace in Turkey. We previously held a
noncontrolling interest in GittiGidiyor, and following the completion of the acquisition of these additional shares, we own approximately 93%
of the outstanding shares of GittiGidiyor. The following table summarizes the purchase consideration (in thousands):
Cash paid
Fair value of non-controlling interest
Fair value of previously held equity interest
Total purchase consideration
$
$
9
182,068
31,495
21,715
235,278
This company is included in our Marketplaces segment. As a result of obtaining control over GittiGidiyor, our previously held 10%
interest was remeasured to fair value resulting in a gain of $17.1 million . The gain has been recognized in interest and other income (expense),
net in our condensed consolidated statement of income. We recorded the remaining non-controlling interest in additional paid in capital in our
condensed consolidated balance sheet as the amount is not significant. The allocation of the purchase price for this acquisition has been
prepared on a preliminary basis and changes to that allocation may occur as additional information becomes available. Our consolidated
financial statements include the operating results of GittiGidiyor from the date of acquisition. Pro forma results of operations have not been
presented because the effect of the acquisition was not material to our condensed consolidated results of operations.
Other
Other acquisition activity during the six months ended June 30, 2011 consisted of four acquisitions. One acquisition is included in our
Marketplaces segment and three acquisitions are included in our Payments segment. The purchase consideration for these acquisitions
consisted of cash. The allocations of the purchase price for these acquisition has been prepared on a preliminary basis and changes to those
allocations may occur as additional information becomes available. Our consolidated financial statements include the operating results of all of
these acquisitions from the respective dates of acquisition. Pro forma results of operations have not been presented because the effect of these
acquisitions was not material to our condensed consolidated results of operations.
Recent Acquisition Announcements
On June 6, 2011 , we announced our agreement to acquire Magento Inc., which operates an open source ecommerce platform. We
currently hold 49.9% of the outstanding shares of Magento, and following the completion of the acquisition, we will own 100 percent of the
outstanding shares of Magento. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to
close in the third quarter of 2011.
On July 7, 2011 , we announced our agreement to acquire Zong, a provider of payments through mobile carrier billing, for total
consideration of approximately $240 million , payable in cash. The transaction is subject to customary closing conditions, including regulatory
approvals, and is expected to close in the third quarter of 2011.
Note 4 — Goodwill and Intangible Assets
Goodwill
The following table presents goodwill balances and adjustments to those balances for each of our reportable segments during the six
months ended June 30, 2011 :
December 31,
2010
Reportable segments:
Marketplaces
Payments
GSI
$
$
4,071,772
2,148,752
—
6,220,524
Goodwill
Acquired
Adjustments
(In thousands)
$
$
492,104
128,744
1,307,158
1,928,006
$
$
143,194
(661 )
—
142,533
June 30,
2011
$
$
4,707,070
2,276,835
1,307,158
8,291,063
Investments accounted for under the equity method of accounting are classified on our balance sheet as long-term investments. Such
investment balances include any related goodwill. As of June 30, 2011 and December 31, 2010 , the goodwill related to our equity investments,
included above, was approximately $27.4 million .
A portion of the $1.5 billion of goodwill acquired as part of the GSI acquisition was allocated to the marketplaces and payments
segments based on synergies expected to be realized. The adjustments to goodwill during the six months ended June 30, 2011 were due
primarily to foreign currency translation.
10
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Intangible Assets
The components of identifiable intangible assets are as follows:
June 30, 2011
Gross Carrying
Amount
Intangible assets:
Customer lists and
user base
$
Trademarks and
trade names
Developed
technologies
All other
1,574,625
Accumulated
Amortization
$
(686,130 )
$
888,495
5
$
831,806
Net
Carrying
Amount
Weighted
Average
Useful Life
(Years)
(625,126 )
$ 206,680
6
Accumulated
Amortization
$
753,237
(439,914 )
313,323
5
632,899
(381,456 )
251,443
5
412,511
(214,689 )
197,822
4
231,312
(192,421 )
38,891
3
44,192
4
(112,609 )
43,697
4
(1,311,612 )
$ 540,711
167,148
$
December 31, 2010
Weighted
Average
Net Carrying
Useful Life
Gross Carrying
Amount
Amount
(Years)
(In thousands, except years)
2,907,521
(122,956 )
$
(1,463,689 )
$
1,443,832
156,306
$
1,852,323
$
Amortization expense for intangible assets was $65.9 million and $64.7 million for the three months ended June 30, 2011 and 2010 ,
respectively. Amortization expense for intangible assets was $123.2 million and $136.2 million for the six months ended June 30, 2011 and
2010 , respectively.
Expected future intangible asset amortization as of June 30, 2011 is as follows (in thousands):
Fiscal Years:
2011 (remaining six months)
2012
2013
2014
2015
Thereafter
$
$
11
206,118
381,872
346,373
235,424
173,262
100,783
1,443,832
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 5 — Segments
Operating segments are based upon our internal organization structure, the manner in which our operations are managed and the
availability of separate financial information. We have three operating segments: Marketplaces, Payments and GSI.
The following tables summarize the financial performance of our operating segments (in the case of our GSI segment, the following
information reflects its operating results from June 17, 2011, the date we acquired GSI):
Three Months Ended June 30, 2011
Marketplaces
Payments
GSI
Consolidated
(In thousands)
Net transaction revenues
$
Marketing services and other revenues
Net revenues from external customers
Direct costs
Direct contribution
$
Operating expenses and indirect costs of net revenues
Income from operations
Loss on divested business
Interest and other income (expense), net
Income before income taxes
1,349,640
313,799
1,663,439
1,018,675
644,764
$
$
991,118
81,878
1,072,996
837,898
235,098
$
$
16,060
7,779
23,839
24,042
(203 )
$
$
2,356,818
403,456
2,760,274
1,880,615
879,659
360,760
518,899
(256,501)
28,576
290,974
Three Months Ended June 30, 2010
Marketplaces
Payments
Consolidated
(In thousands)
Net transaction revenues
Marketing services and other revenues
Net revenues from external customers
Direct costs
Direct contribution
Operating expenses and indirect costs of net revenues
Income from operations
Interest and other income (expense), net
Income before income taxes
$
$
1,182,513
215,821
1,398,334
834,780
563,554
$
$
770,755
46,290
817,045
654,519
162,526
$
$
12
1,953,268
262,111
2,215,379
1,489,299
726,080
241,515
484,565
14,821
499,386
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Six Months Ended June 30, 2011
Marketplaces
Payments
GSI
Consolidated
(In thousands)
Net transaction revenues
$
Marketing services and other revenues
Net revenues from external customers
Direct costs
Direct contribution
$
Operating expenses and indirect costs of net revenues
Income from operations
Loss on divested business
Interest and other income (expense), net
Income before income taxes
2,634,395
582,306
3,216,701
1,942,466
1,274,235
$
$
1,933,827
131,516
2,065,343
1,609,200
456,143
$
$
16,060
7,779
23,839
24,042
(203 )
$
$
4,584,282
721,601
5,305,883
3,575,708
1,730,175
646,622
1,083,553
(256,501)
32,268
859,320
Six Months Ended June 30, 2010
Marketplaces
Payments
Consolidated
(In thousands)
Net transaction revenues
Marketing services and other revenues
Net revenues from external customers
Direct costs
Direct contribution
Operating expenses and indirect costs of net revenues
Income from operations
Interest and other income (expense), net
Income before income taxes
$
$
2,355,452
429,677
2,785,129
1,638,744
1,146,385
$
$
1,537,327
88,980
1,626,307
1,281,204
345,103
$
$
3,892,779
518,657
4,411,436
2,919,948
1,491,488
518,314
973,174
20,867
994,041
Direct contribution consists of net revenues from external customers less direct costs. Direct costs include specific costs of net revenues,
sales and marketing expenses, and general and administrative expenses, such as advertising and marketing programs, customer support
expenses, bank charges, internal interest charges related to Bill Me Later, site operations expenses, product development expenses, billing
operations, certain technology and facilities expenses, transaction expenses and provision for transaction and loan losses. Expenses such as our
corporate center costs (consisting of certain costs such as corporate management, human resources, finance and legal), amortization of
intangible assets, restructuring charges and stock-based compensation expense are excluded from direct costs as they are not included in the
measurement of segment performance.
13
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 6 — Fair Value Measurement of Assets and Liabilities
The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and
December 31, 2010 :
Balance as of
June 30, 2011
Description
Assets:
Cash and cash equivalents
Short-term investments:
Restricted cash
Corporate debt securities
Government and agency securities
Time deposits
Equity instruments
Total short-term investments
Derivatives
Long-term investments:
Restricted cash
Corporate debt securities
Government and agency securities
Time deposits and other
Total long-term investments
Total financial assets
Liabilities:
Derivatives
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
(In thousands)
$
3,265,826
$
3,265,826
Significant Other
Observable Inputs
(Level 2)
$
—
23,949
317,861
56,673
87,895
644,722
1,131,100
17,739
23,949
—
—
—
644,722
668,671
—
—
317,861
56,673
87,895
—
462,429
17,739
$
1,390
2,171,405
89,434
5,574
2,267,803
6,682,468
$
1,390
—
—
—
1,390
3,935,887
$
—
2,171,405
89,434
5,574
2,266,413
2,746,581
$
30,748
$
—
$
30,748
14
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Balance as of
December 31, 2010
Description
Assets:
Cash and cash equivalents
Short-term investments:
Restricted cash
Corporate debt securities
Government and agency securities
Time deposits
Equity instruments
Total short-term investments
Derivatives
Long-term investments:
Restricted cash
Corporate debt securities
Government and agency securities
Time deposits and other
Total long-term investments
Total financial assets
Liabilities:
Derivatives
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
(In thousands)
$
5,577,411
$
5,577,411
Significant Other
Observable Inputs
(Level 2)
—
$
20,351
372,225
66,534
44,772
541,521
1,045,403
37,196
20,351
—
—
—
541,521
561,872
—
—
372,225
66,534
44,772
—
483,531
37,196
$
1,332
1,605,770
150,966
4,541
1,762,609
8,422,619
$
1,332
—
—
—
1,332
6,140,615
$
—
1,605,770
150,966
4,541
1,761,277
2,282,004
$
4,963
$
—
$
4,963
Our financial assets and liabilities are valued using market prices on both active markets (level 1) and less active markets (level 2).
Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2
instrument valuations are obtained from readily available pricing sources for comparable instruments. Our derivative instruments are valued
using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as equity prices, interest rate
yield curves, option volatility and currency rates. Our derivative instruments are short-term in nature, typically one month to one year in
duration. Cash and cash equivalents are short-term, highly liquid investments with original or remaining maturities of three months or less
when purchased and are mainly comprised of bank deposits and money market funds.
In addition to the long-term investments noted above, we had approximately $810.6 million and $729.4 million of cost and equity method
investments included in long-term investments on our condensed consolidated balance sheet at June 30, 2011 and December 31, 2010 ,
respectively. Our long-term equity investments primarily pertain to our retained 30% interest in Skype. On May 10, 2011 , Microsoft Corp.
announced that it had entered into a definitive agreement to acquire Skype for $8.5 billion , including debt, which is subject to regulatory
approvals and other customary closing conditions and is expected to close in the latter half of 2011.
In Europe, we have two cash pooling arrangements with a financial institution for cash management purposes. These arrangements allow
for cash withdrawals from this financial institution based upon our aggregate operating cash balances held in Europe within the same financial
institution (“Aggregate Cash Deposits”). These arrangements also allow us to withdraw amounts exceeding the Aggregate Cash Deposits up to
an agreed-upon limit. The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for
calculating our net interest expense or income. As of June 30, 2011 , we had a total of $3.4 billion in cash withdrawals offsetting our $3.4
billion in Aggregate Cash Deposits held within the same financial institution under these cash pooling arrangements.
Other financial instruments, including accounts receivable, loans and interest receivable, funds receivable, customer accounts,
commercial paper, accounts payable, funds payable and amounts due to customers are carried at cost, which
15
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
approximates their fair value because of the short-term nature of these instruments. Funds receivable include receivables from promotional
credit products offered to certain customers that settle within 12 months ( $189.0 million as of June 30, 2011 ).
Note 7 — Derivative Instruments
Fair Value of Derivative Contracts
The fair value of our outstanding derivative instruments was as follows:
Derivative Assets Reported in Other
Derivative Liabilities Reported in
Current Assets
Other Current Liabilities
June 30,
December 31,
June 30,
December 31,
2011
2010
2011
2010
(In thousands)
Foreign exchange contracts designated as cash flow
hedges
$
Foreign exchange contracts not designated as hedging
instruments
Other contracts not designated as hedging instruments
Total fair value of derivative instruments
$
235
$
35,853
8,964
8,540
17,739
$
1,343
—
$
37,196
21,300
$
4,162
9,448
—
$
30,748
801
—
$
4,963
Effect of Derivative Contracts on Accumulated Other Comprehensive Income
The following table summarizes the activity of derivative contracts that qualify for hedge accounting as of June 30, 2011 and
December 31, 2010 , and the impact of designated derivative contracts on accumulated other comprehensive income for the six months ended
June 30, 2011 :
Amount of gain (loss)
reclassified from
accumulated other
Amount of gain (loss)
comprehensive income
recognized in other
to net revenue and operating
comprehensive income
expense
(effective portion)
(effective portion)
(In thousands)
December 31, 2010
Foreign exchange
contracts designated as
cash flow hedges
$
13,560
$
(40,537 )
16
$
1,717
June 30, 2011
$
(28,694 )
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Effect of Derivative Contracts on Condensed Consolidated Statement of Income
The following table provides the location in our financial statements of the recognized gains or losses related to our derivative
instruments:
Three Months Ended June 30,
Six Months Ended June 30,
2011
2010
2011
2010
(In thousands)
Foreign exchange contracts designated as cash flow hedges
recognized in net revenues
Foreign exchange contracts designated as cash flow hedges
recognized in operating expenses
Foreign exchange contracts not designated as hedging instruments
recognized in interest and other income (expense), net
Total gain (loss) recognized from derivative contracts in the
condensed consolidated statement of income
$
$
(10,461 )
$
10,437
$
(16,942 )
$
7,863
(4,791)
—
(4,791)
—
(204)
9,634
(6,941)
10,739
(15,456 )
$
20,071
$
(28,674 )
$
18,602
Note 8 - Debt:
The following table summarizes the carrying value of our outstanding debt (in thousands, except percentages):
Coupon
Rate
Long-Term Debt
Senior notes due 2013
Senior notes due 2015
Senior notes due 2020
Total senior notes
Note payable
Capital lease obligations
Total long-term debt
Short-Term Debt
Commercial paper
Note payable
Capital lease obligations
Total short-term debt
Total Debt
0.875%
1.625%
3.250%
June 30, 2011
$
$
$
$
399,360
598,081
497,296
1,494,737
15,802
19,672
1,530,211
1,000,000
1,886
13,598
1,015,484
2,545,695
Effective Interest
Rate
0.946%
1.703%
3.319%
December 31, 2010
$
$
$
$
399,220
597,857
497,150
1,494,227
—
—
1,494,227
Effective Interest
Rate
0.946%
1.703%
3.319%
300,000
—
—
300,000
1,794,227
Senior Notes
The effective rates for the fixed-rate debt include the interest on the notes and the accretion of the discount. Interest on these notes is
payable semiannually on April 15 and October 15. Interest expense associated with these notes including amortization of debt issuance costs
during the three and six months ended June 30, 2011 was approximately $8.0 million and $16.0 million , respectively. At June 30, 2011 , the
estimated fair value of all notes included in long-term debt was approximately $1.4 billion based on market prices on active markets (Level 1).
Note Payable
Note payable is largely comprised of a mortgage note assumed as part of our acquisition of GSI. The mortgage note bears interest at
6.3% per annum and has a maturity date of July 2014.
Capital Lease Obligations
We acquired certain warehouse equipment and computer hardware and software under capital leases as part of our acquisition of GSI.
The capital leases have maturity dates from August 2011 to February 2016 and bear interest at rates
17
ranging from 2% to 9% per annum. The present value of future minimum lease payments was as follows (in thousands):
Gross capital lease obligations
Imputed interest
Total present value of future minimum lease payments
$
$
June 30, 2011
35,538
(2,268)
33,270
Commercial Paper
We implemented a $1.0 billion commercial paper program pursuant to which we may issue commercial paper notes with maturities of
up to 397 days from the date of issue. As of June 30, 2011 , the weighted average interest rate on our outstanding commercial paper notes was
0.18% , and the weighted average remaining term of our commercial paper notes was 26 days.
Credit Agreement
As of June 30, 2011 , no borrowings or letters of credit were outstanding under our $1.8 billion credit agreement. As described above,
we have a $1.0 billion commercial paper program and maintain $1.0 billion of available borrowing capacity under our credit agreement in
order to repay commercial paper borrowings in the event we are unable to repay those borrowings from other sources when they become
due. As a result, at June 30, 2011 , $0.8 billion of borrowing capacity was available for other purposes permitted by the credit agreement.
As of June 30, 2011 , we were in compliance with all covenants related to our debt.
Note 9 — Commitments and Contingencies
Commitments
As of June 30, 2011 , approximately $8.3 billion of unused credit was available to Bill Me Later accountholders. The individual lines of
credit that make up this unused credit are subject to periodic review and termination by the chartered financial institution that is the issuer of
Bill Me Later credit products based on, among other things, account usage and customer creditworthiness. Currently, when a consumer makes a
purchase using a Bill Me Later credit product issued by a chartered financial institution, the 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 the receivables
related to the consumer loans extended by the chartered financial institution and, as a result of the purchase, bear the risk of loss in the event of
loan defaults. Although the chartered financial institution continues to own each customer account, we own the related receivable, and Bill Me
Later is responsible for all servicing functions related to the account.
Litigation and Other Legal Matters
Overview
We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be
reasonably estimated, we accrue the estimated liability in our financial statements. If only a range of estimated losses can be determined, we
accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better
estimate than any other amount, we accrue the low end of the range. Amounts accrued for legal proceedings for which we believe a loss is
probable were not material for the three and six months ended June 30, 2011. Except as otherwise noted, we have concluded that reasonably
possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our
accruals are also not material. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, we have
disclosed an estimate of the reasonably possible loss or range of losses or we have concluded that an estimate of the reasonably possible loss or
range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material. If we
cannot estimate the probable or reasonably possible loss or range of losses arising from a legal proceeding, we have disclosed that fact.
18
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as
the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices
in a manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 9, we are unable to
estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.
Specific Matters
In August 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of Commerce against eBay Inc.
and eBay International AG. Among other things, the complaint alleged that we violated French tort law by negligently broadcasting listings
posted by third parties offering counterfeit items bearing plaintiffs' trademarks and by purchasing certain advertising keywords. Around
September 2006, Parfums Christian Dior, Kenzo Parfums, Parfums Givenchy, and Guerlain Société also filed a lawsuit in the Paris Court of
Commerce against eBay Inc. and eBay International AG. The complaint alleged that we had interfered with the selective distribution network
the plaintiffs established in France and the European Union by allowing third parties to post listings offering genuine perfumes and cosmetics
for sale on our websites. In June 2008, the Paris Court of Commerce ruled that eBay and eBay International AG were liable for failing to
prevent the sale of counterfeit items on its websites that traded on plaintiffs' brand names and for interfering with the plaintiffs' selective
distribution network. The court awarded plaintiffs approximately EUR 38.6 million in damages and issued an injunction (enforceable by daily
fines of up to EUR 100,000 ) prohibiting all sales of perfumes and cosmetics bearing the Dior, Guerlain, Givenchy and Kenzo brands over all
worldwide eBay sites to the extent that they are accessible from France. We appealed this decision, and in September 2010, the Paris Court of
Appeal reduced the damages award to EUR 5.7 million and modified the injunction. We have further appealed this decision to the French
Supreme Court. In 2009, plaintiffs filed an action regarding our compliance with the original injunction, and in November 2009, the court
awarded the plaintiffs EUR 1.7 million (the equivalent of EUR 2,500 per day) and indicated that as a large Internet company we could do a
better job of enforcing the injunction. Parfums Christian Dior has filed another motion relating to our compliance with the injunction. We have
taken measures to comply with the injunction and have appealed these rulings, noting, among other things, the modification of the initial
injunction. However, these and similar suits may force us to modify our business practices, which could lower our revenue, increase our costs,
or make our websites less convenient to our customers. Any such results could materially harm our business. Other brand owners have also
filed suit against us or have threatened to do so in numerous different jurisdictions, seeking to hold us liable for, among other things, alleged
counterfeit items listed on our websites by third parties, “tester” and other not for resale consumer products listed on our websites by third
parties, alleged misuse of trademarks in listings, alleged violations of selective distribution channel laws, alleged violations of parallel import
laws, alleged non-compliance with consumer protection laws and in connection with paid search advertisements. We have prevailed in some of
these suits, lost in others, and many are in various stages of appeal. We continue to believe that we have meritorious defenses to these suits and
intend to defend ourselves vigorously.
In May 2009, the U.K. High Court of Justice ruled in the case filed by L'Oréal SA, Lancôme Parfums et Beauté & Cie, Laboratoire
Garnier & Cie and L'Oréal (UK) Ltd against eBay International AG, other eBay companies, and several eBay sellers (No. HC07CO1978) that
eBay was not jointly liable with the seller co-defendants as a joint tortfeasor, and indicated that it would certify to the European Court of
Justice ("ECJ") questions of liability for the use of L'Oréal trademarks, hosting liability, and the scope of a possible injunction against
intermediaries. On July 12, 2011 the ECJ ruled on the questions certified by the U.K. High Court of Justice. It held that (a) brand names could
be used by marketplaces as keywords for paid search advertising without violating a trademark owner's rights if it were clear to consumers that
the goods reached via the key word link were not being offered by the trademark owner or its designees but instead by third parties, (b) that
marketplaces could invoke the limitation from liability provided by Article 14 of the ecommerce directive if they did not take such an active
role with respect to the listings in question that the limitation would not be available, but that even where the limitation was available, the
marketplace could be liable if it had awareness (through notice or its own investigation) of the illegality of the listings, (c) that a marketplace
would be liable in a specific jurisdiction only if the offers on the site at issue were targeting that jurisdiction, a question of fact, (d) that
injunctions may be issued to a marketplace in connection with infringing third party content, but that such injunctions must be proportionate
and not block legitimate trade and (e) that trademark rights can only be evoked by a rights owner as a result of a seller's commercial activity as
opposed to private activity. The matter will now return to the U.K. High Court of Justice for further action in light of the ECJ opinion. The case
was originally filed in July 2007. L'Oréal's complaint alleged that we were jointly liable for trademark infringement for the actions of the sellers
who allegedly sold counterfeit goods, parallel imports and testers (not for resale products). Additionally, L'Oréal claimed that eBay's use of
L'Oréal brands on its website, in its search engine and in sponsored links, and purchase of L'Oréal trademarks as keywords, constitute
trademark infringement. The suit sought an injunction preventing future infringement, full disclosure of the identity of all past and present
sellers of infringing L'Oréal goods, and a declaration that our Verified Rights Owner (VeRO) program as then operated was insufficient to
prevent such infringement. Other damages claimed are to be specified after the liability stage
19
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
of the proceedings.
20
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
In March 2007, a plaintiff filed a purported antitrust class action lawsuit against eBay in the Western District of Texas alleging that eBay
and its wholly owned subsidiary PayPal “monopolized” markets through various anticompetitive acts and tying arrangements. The plaintiff
alleged claims under sections 1 and 2 of the Sherman Act, as well as related state law claims. In April 2007, the plaintiff re-filed the complaint
in the U.S. District Court for the Northern District of California (No. 07-CV-01882-RS), and dismissed the Texas action. The complaint seeks
treble damages and an injunction. In 2007, the case was consolidated with other similar lawsuits (No. 07-CV-01882JF). In June 2007, we filed
a motion to dismiss the complaint. In March 2008, the court granted the motion to dismiss the tying claims with leave to amend and denied the
motion with respect to the monopolization claims. Plaintiffs subsequently decided not to refile the tying claims. The plaintiffs' motion on class
certification and our motion for summary judgment were heard by the court in December 2009. In March 2010, the District Court granted our
motion for summary judgment, denied plaintiffs' motion for class certification as moot, and entered judgment in our favor. Plaintiffs have
appealed the District Court's decision, the matter is fully briefed and oral argument was presented in April 2011 before the Ninth Circuit Court
of Appeals. In May 2011, the U.S. Ninth Circuit Court of Appeals upheld the District Court's ruling.
eBay's Korean subsidiary, IAC, has notified its approximately 20 million users of a January 2008 data breach involving personally
identifiable information including name, address, resident registration number and some transaction and refund data (but not including credit
card information or real time banking information). Approximately 147,000 users have sued IAC over this breach in several lawsuits in Korean
courts and more may do so in the future. Trial for a group of four representative suits began in August 2009 in the Seoul District Court, and
trial for a group of 23 other suits began in September 2009 in the Seoul District Court. There is some precedent in Korea for a court to grant
“consolation money” for data breaches without a specific finding of harm from the breach. Such precedents have involved payments of up to
approximately $200 per user. In January 2010, the Seoul District Court ruled that IAC had met its obligations with respect to defending the site
from intrusion and, accordingly, had no liability for the breach. This ruling has been appealed by approximately 34,000 plaintiffs to the Seoul
High Court, where it is currently being heard de novo. A decision is expected in September 2011.
General Matters
Other third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property
rights. We are subject to additional patent disputes, and expect that we will increasingly be subject to patent infringement claims as our services
expand in scope and complexity. In particular, we expect that we may face additional patent infringement claims involving various aspects of
our Marketplaces and Payments businesses, and increased exposure to such claims as a result of our recent acquisitions, directly and through
indemnification of intellectual property claims against their customers. We have in the past been forced to litigate such claims. We may also
become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act, the Lanham Act and the Communications
Decency Act are interpreted by the courts, and as we become subject to laws in jurisdictions where the underlying laws with respect to the
potential liability of online intermediaries like ourselves are either unclear or less favorable. We believe that additional lawsuits alleging that
we have violated patent, copyright or trademark laws will be filed against us. Intellectual property claims, whether meritorious or not, are time
consuming and costly to resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly
royalty or licensing agreements.
From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business including suits
by our users (individually or as class actions) alleging, among other things, improper disclosure of our prices, rules or policies, that such prices,
rules or policies violate applicable law, or that we have not acted in conformity with such prices, rules or policies. The number and significance
of these disputes and inquiries are increasing. Any claims or regulatory actions against us, whether meritorious or not, could be time
consuming, result in costly litigation, damage awards (including statutory damages for certain causes of action in certain jurisdictions),
injunctive relief or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in
expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm
our business.
Indemnification Provisions
In the ordinary course of business, we have included limited indemnification provisions in certain of our agreements with parties with
which we have commercial relations, including our standard marketing, promotions and application-programming-interface license agreements.
Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by
the indemnified party in connection with claims by a third party with respect to our domain names, trademarks, logos and other branding
elements to the extent that such marks are applicable to our performance under the subject agreement. GSI in many of its major online
commerce agreements has provided an indemnity for other types of third-party claims, which are indemnities mainly related to various
intellectual property rights, and we have
21
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
provided similar indemnities in a limited number of agreements for our other businesses. In our PayPal business, we have provided an
indemnity to our payment processors in the event of certain third-party claims or card association fines against the processor arising out of
conduct by PayPal or PayPal customers. In connection with the sale of Skype, we made certain customary warranties to the buyer in the
purchase agreement. Our liability to the buyer for inaccuracies in these warranties is generally subject to certain limitations. With respect to
certain specified litigation matters involving Skype that were pending as of the closing of the transaction, we also agreed, among other things,
to bear 50% of the cost of any monetary judgment that is rendered in respect of those matters. It is not possible to determine the maximum
potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and
circumstances involved in each particular provision. To date, no significant costs have been incurred, either individually or collectively, in
connection with our indemnification provisions.
Off-Balance Sheet Arrangements
Based on differences in regulatory requirements and commercial law in the jurisdictions where PayPal operates, PayPal holds customer
balances either as direct claims against PayPal or as an agent or custodian on behalf of PayPal's customers. Customer funds held by PayPal as
an agent or custodian on behalf of our customers are not reflected in our condensed consolidated balance sheet. These funds include funds held
on behalf of U.S. customers that are deposited in bank accounts insured by the Federal Deposit Insurance Corporation (subject to applicable
limits) and funds that U.S. customers choose to invest in The PayPal Money Market Fund, which totaled approximately $2.7 billion as of
June 30, 2011 and December 31, 2010 . The PayPal Money Market Fund is invested in a portfolio managed by BlackRock Fund Advisors. The
Board of Trustees for the PayPal Money Market Fund has approved the closing and liquidation of the Fund, which is scheduled to occur at the
close of business on July 29, 2011.
22
Note 10 — Stock Repurchase Programs
In September 2010, our Board authorized a stock repurchase program that provides for the repurchase of up to $2.0 billion of our
common stock, with no expiration from the date of authorization, for the purpose of offsetting the impact of dilution from our equity
compensation programs. The stock repurchase activity under this stock repurchase program during the first six months of 2011 is summarized
as follows (in thousands, except per share amounts):
Balance at January 1, 2011
Repurchase of common stock
Balance at June 30, 2011
Shares
Repurchased
1,880
24,600
26,480
Average Price
per Share
$
29.94
31.74
$
31.61
Value of Shares
Repurchased
$
56,293
780,759
$
837,052
Remaining
Amount
Authorized
$
1,943,707
(780,759)
$
1,162,948
These repurchased shares were recorded as treasury stock and were accounted for under the cost method. No repurchased shares have
been retired.
23
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 11 — Stock-Based Plans
Stock Option Activity
The following table summarizes stock option activity for the six -month period ended June 30, 2011 :
Options
(In thousands)
Outstanding at January 1, 2011
Granted
Exercised
Forfeited/expired/cancelled
Outstanding at June 30, 2011
43,907
6,702
(5,683)
(1,981)
42,945
The weighted average exercise price of stock options granted during the period was $30.92 per share and the related weighted average
grant date fair value was $9.83 per share.
Restricted Stock Unit Activity
The following table summarizes restricted stock unit ("RSU") activity for the six -month period ended June 30, 2011 :
Units
(In thousands)
Outstanding at January 1, 2011
Awarded and assumed
Vested
Forfeited
Outstanding at June 30, 2011
38,348
16,487
(11,231)
(2,733)
40,871
The weighted average grant date fair value for RSUs awarded during the period was $30.24 per share.
Stock-based Compensation Expense
The impact on our results of operations of recording stock-based compensation expense for the three and six months ended June 30, 2011
and 2010 was as follows:
Three Months Ended June 30,
Six Months Ended June 30,
2011
2010
2011
2010
(In thousands)
Cost of net revenues
Sales and marketing
Product development
General and administrative
Total stock-based compensation expense
$
$
$
14,333
33,489
33,628
37,403
118,853
Capitalized in product development
$
4,456
24
$
$
11,249
25,189
23,991
31,554
91,983
$
$
28,427
68,111
65,113
76,059
237,710
$
24,283
53,680
51,155
64,934
194,052
$
2,709
$
7,870
$
5,079
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Valuation Assumptions
We calculated the fair value of each stock option award on the date of grant using the Black-Scholes option pricing model. The following
weighted average assumptions were used for the three and six months ended June 30, 2011 and 2010 :
Three Months Ended June 30,
2011
2010
Risk-free interest rate
Expected life (in years)
Dividend yield
Expected volatility
1.2%
3.7
—%
38%
Six Months Ended June 30,
2011
2010
1.4%
3.4
—%
37%
1.2%
3.8
—%
38%
1.5%
3.4
—%
36%
Our computation of expected volatility is based on a combination of historical and market-based implied volatility from traded options on
our common stock. Our computation of expected life is based on historical experience of similar awards, giving consideration to the contractual
terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The interest rate for periods within the
contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.
Note 12 — Restructuring
2009 Customer Service Consolidation
In 2009, we began the consolidation of certain customer service facilities in North America and Europe to streamline our operations and
deliver better and more efficient customer support to our users. The consolidation impacted approximately 1,000 employees. We have
completed this consolidation and have incurred aggregate costs of approximately $47.2 million , primarily related to employee severance and
benefits.
The following table summarizes by segment the restructuring costs recognized during the three months ended June 30, 2011 and 2010 :
Three Months Ended June 30, 2011
Employee
Severance and
Benefits
Facilities
Marketplaces
Payments
$
$
(118 )
—
(118 )
$
$
18
—
18
Total
(In thousands)
$
$
(100 )
—
(100 )
$
$
Three Months Ended June 30, 2010
Employee
Severance and
Benefits
Facilities
5,719
9
5,728
$
$
3,135
—
3,135
$
$
Total
8,854
9
8,863
The following table summarizes by segment the restructuring costs recognized during the six months ended June 30, 2011 and 2010 :
Six Months Ended June 30, 2011
Employee
Severance and
Benefits
Facilities
Marketplaces
Payments
$
$
205
—
205
$
$
(454 )
—
(454 )
Total
(In thousands)
$
(249 )
—
(249 )
$
25
$
$
Six Months Ended June 30, 2010
Employee
Severance and
Benefits
Facilities
14,250
9
14,259
$
$
3,173
—
3,173
Total
$
$
17,423
9
17,432
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table summarizes the restructuring reserve activity during the six months ended June 30, 2011 :
Employee Severance
and Benefits
Accrued liability as of January 1, 2011
Charges (benefit)
Payments
Adjustments
Accrued liability as of June 30, 2011
$
$
2,425
205
(2,488 )
336
478
Facilities
(In thousands)
$
$
Total
3,559
(454)
(775)
516
2,846
$
$
5,984
(249)
(3,263)
852
3,324
In the table above, adjustments primarily reflect the impact of foreign currency translation.
Note 13 — Income Taxes
The following table reflects changes in unrecognized tax benefits for the six -month period ended June 30, 2011 :
(In thousands)
Gross amounts of unrecognized tax benefits as of January 1, 2011
Increases related to prior period tax positions
Decreases related to prior period tax positions
Increases related to current period tax positions
Settlements
Gross amounts of unrecognized tax benefits as of June 30, 2011
$
$
428,344
8,962
(129,765)
10,657
(76,425)
241,773
As of June 30, 2011 and December 31, 2010, our liabilities for unrecognized tax benefits were included in deferred and other tax
liabilities, net. In the second quarter of 2011, we settled multiple uncertain tax positions resulting in an overall decrease in our unrecognized tax
benefits. The total liabilities for unrecognized tax benefits and the increases in 2011 relate primarily to the allocation of costs among our global
operations.
We recognize interest and/or penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties
accrued as of June 30, 2011 and December 31, 2010 was approximately $91.7 million and $92.3 million , respectively.
We are subject to both direct and indirect taxation in the U.S. and various states and foreign jurisdictions. We are under examination by
certain tax authorities for the 2003 to 2008 tax years. We believe that adequate amounts have been reserved for any adjustments that may
ultimately result from these examinations. The material jurisdictions where we are subject to potential examination by tax authorities for tax
years after 2002 include, among others, the U.S. (Federal and California), France, Germany, Italy, Korea, Israel, Switzerland, Singapore and
Canada.
Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross
unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining subject to
examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross
unrecognized tax benefits.
During the three and six months ended June 30, 2011, we provided for U.S. income and foreign withholding taxes on approximately 15%
of our non-U.S. subsidiaries' undistributed earnings. The remaining portion of our non-U.S. subsidiaries undistributed earnings is intended to be
indefinitely reinvested in our international operations. Upon distribution of those earnings in the form of dividends or otherwise, we would be
subject to U.S. income taxes (subject to adjustments for foreign tax credits). It is not practicable to determine the income tax liability that might
be incurred if the indefinitely reinvested earnings were to be distributed. On a regular basis, we develop cash forecasts to estimate our cash
needs internationally and domestically. We consider projected cash needs for, among other things, investments in our existing businesses,
potential acquisitions and capital transactions, including repurchases of our common stock and debt repayments. We estimate the amount of
cash available or needed in the jurisdictions where these investments are expected, as well as our ability to generate
26
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
cash in those jurisdictions and our access to capital markets. Such an analysis enables us to conclude whether or not we will indefinitely
reinvest the current period's foreign earnings.
Our effective tax rate was 3% and 12% for the second quarter and first six months of 2011 , compared to 17% and 19% for the same
periods in the prior year. The decrease in our effective tax rate during the second quarter and first six months of 2011 compared to the same
periods of the prior year was due primarily to a tax benefit associated with the loss on the divestiture of certain GSI businesses being realized at
a higher tax rate than our annualized effective tax rate. The tax benefit resulted in a 12 percentage point and 4 percentage point impact to the
effective tax rate in the second quarter and first six months of 2011, compared to the same periods of the prior year, respectively.
Note 14 - Loans and Interest Receivable, Net
Loans and interest receivable represent purchased consumer receivables arising from loans made by a partner chartered financial
institution to individual consumers in the U.S. to purchase goods and services through our Bill Me Later merchant network. Loans and interest
receivable are reported at their outstanding principal balances, including unamortized deferred origination costs and net of allowance, and
include the estimated collectible interest and fees. We use a consumer's FICO score, among other measures, in evaluating the credit quality of
our consumer receivables. A FICO score is a type of credit score that lenders use to assess an applicant's credit risk and whether to extend
credit. Individual FICO scores are obtained each quarter the consumer has a loan receivable owned by Bill Me Later outstanding. The weighted
average consumer FICO score related to our loans and interest receivable balance outstanding at June 30, 2011 was 698 . As of June 30, 2011
and December 31, 2010 , approximately 60.9% and 63.6% , respectively, of our loans and interest receivable balance was due from consumers
with FICO scores greater than 680 , which is generally considered "prime" by the consumer credit industry.
The following table summarizes the activity in the allowance for loans and interest receivable for the six months ended June 30, 2011:
(In thousands)
Balance as of January 1, 2011
Charge-offs
Recoveries
Provision
Balance as of June 30, 2011
$
$
42,340
(36,346 )
3,566
34,377
43,937
The allowance for loans and interest receivable represents management's estimate of probable losses inherent in our Bill Me Later
portfolio of receivables from loans. Management's evaluation of probable losses is subject to numerous estimates and judgment; primarily
forecasted principal balance delinquency rates ("roll rates"). Roll rates are the percentage of balances that we estimate will migrate from one
stage of delinquency to the next based on our historical experience, as well as external factors such as estimated bankruptcies and levels of
unemployment. The roll rates are applied to principal balances for each stage of delinquency, from current to 180 days past due, in order to
estimate the principal loans that are probable to be charged off by the end of 180 days.
We charge off loans and interest receivable in the month in which the customer balance becomes 180 days past due. Bankrupt accounts
are charged off within 60 days of receiving notification of customer bankruptcy from the courts. Past due loans receivable continue to accrue
interest until such time as they are charged-off, though portions of the interest are reserved. As of June 30, 2011 , approximately 91% of our
loans and interest receivable portfolio were current.
27
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those
relating to future business or financial results, new features or services, or management strategies). You can identify these forward-looking
statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan”
and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ
materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those
discussed in “Part II — Item 1A: Risk Factors” of this Quarterly Report on Form 10-Q as well as in our condensed consolidated financial
statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and
Exchange Commission, or the SEC. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the
date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to
place undue reliance on such forward-looking statements.
You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction
with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report.
Overview
We have three business segments: Marketplaces, Payments and GSI. Our Marketplaces segment provides the infrastructure to enable
global online commerce on a variety of platforms, including the eBay.com platform and its localized counterparts and our other online
platforms, such as our online classifieds businesses (including our apartment listing service platform, Rent.com), our secondary tickets
marketplace (StubHub), our online shopping comparison website (Shopping.com), and our fixed price media marketplace (Half.com). Our
Payments segment is comprised of our online payment solutions PayPal and Bill Me Later (BML). Our GSI segment, which consists of our
recently acquired GSI Commerce (GSI) business, offers a comprehensive suite of ecommerce services that enables companies to operate
ecommerce businesses, integrate their ecommerce businesses with their multi-channel offerings and exploit digital marketing channels. We
added the GSI segment upon the completion of our acquisition of GSI on June 17, 2011, and the results of our new GSI segment have been
included in our consolidated results of operations from the acquisition date.
Net revenues for the three months ended June 30, 2011 increased 25% to $2.8 billion , compared to the same period of the prior year,
driven primarily by a 34% increase in PayPal net total payment volume (TPV) and a 17% increase in Marketplaces gross merchandise volume
(GMV) excluding vehicles. For the three months ended June 30, 2011 , our operating margin decreased to 19% from 22% , compared to the
same period of the prior year, driven primarily by the impact of acquisitions. Our Payments segment operating margin for the three months
ended June 30, 2011 increased 2 percentage points compared with the same period of the prior year, due to stable transaction margins, solid
operating leverage and continued improvement in Bill Me Later performance. Our Marketplaces segment operating margin for the three
months ended June 30, 2011 decreased 1.5 percentage points compared to the same period of the prior year driven primarily by the impact of
recently completed acquisitions. For the three months ended June 30, 2011 , our diluted earnings per share decreased to $0.22 , a $0.09
decrease compared to the same period of the prior year, driven primarily by a loss from the divestiture of certain GSI businesses and other
transaction-related expenses, partially offset by an increase in operating income. For the three months ended June 30, 2011 , we generated cash
flow from operations of approximately $782.7 million , compared to $726.4 million for the same period of the prior year.
Some key operating metrics that members of our senior management regularly review to evaluate our financial results include net
promoter score (NPS), market share, GMV, GMV excluding vehicles, number of sold items, net TPV, net number of payments, GSI
ecommerce services (GeC) merchandise sales (GMS), free cash flow (which we define as net cash provided by operating activities less
purchases of property and equipment, net), and revenue excluding acquisitions and foreign currency impact.
28
Outlook
We expect operating results in the third quarter of 2011 to be led by continued strength in our Payments business, driven by growth in
net TPV as we execute against our long-term growth strategies and priorities. We expect continued strength in our Marketplaces business,
particularly in the U.S. We also expect the acquisition of GSI to significantly contribute to our revenue growth. We will continue to invest in
growth, focus on accelerating innovation, and make strategic acquisitions.
Results of Operations
Summary of Net Revenues
We generate two types of net revenues: net transaction revenues and marketing services and other revenues. Our net transaction revenues
are derived principally from listing fees and final value fees (which are fees payable on transactions completed on our Marketplaces trading
platforms), fees paid by merchants for payment processing services, and ecommerce service fees. Our marketing services revenues are derived
principally from the sale of advertisements, revenue sharing arrangements, classifieds fees, marketing service fees and lead referral fees. Other
revenues are derived principally from interest earned on certain PayPal customer account balances, interest and fees earned on the Bill Me
Later portfolio of receivables from loans and from contractual arrangements with third parties that provide services to our users.
Because we generated the majority of our net revenue internationally in recent periods, including the three and six months ended June 30,
2011 and 2010, we are subject to the risks of doing business in foreign countries as discussed under "Item 1A - Risk Factors." In that regard,
fluctuations in foreign currency exchange rates impact our results of operations. We have a foreign exchange risk management program that is
designed to reduce our exposure to fluctuations in foreign currencies; however, the effectiveness of this program in mitigating the impact of
foreign currency fluctuations on our results of operations varies from period to period, and in any given period, our operating results are usually
affected, sometimes significantly, by changes in currency exchange rates. Fluctuations in exchange rates also directly affect our cross-border
revenue. We calculate the year-over-year impact of foreign currency movements on our business using prior period foreign currency rates
applied to current year transactional currency amounts.
For the three months ended June 30, 2011 , foreign currency movements relative to the U.S. dollar positively impacted net revenues by
approximately $116.7 million (net of a $10.5 million negative impact from hedging activities relating to PayPal's net revenue) compared to the
same period of the prior year. On a business segment basis for the three months ended June 30, 2011 , foreign currency movements relative to
the U.S. dollar positively impacted Marketplaces, Payments and GSI net revenues by approximately $93.5 million , $23.1 million and $0.1
million , respectively, compared to the same period of the prior year (net of the impact of hedging activities, noted above).
For the six months ended June 30, 2011 , foreign currency movements relative to the U.S. dollar positively impacted net revenues by
approximately $129.2 million (net of a $16.9 million negative impact from hedging activities relating to PayPal's net revenue) compared to the
same period of the prior year. On a business segment basis for the six months ended June 30, 2011 , foreign currency movements relative to the
U.S. dollar positively impacted Marketplaces, Payments and GSI net revenues by approximately $106.7 million , $22.4 million and $0.1
million , respectively, compared to the same period of the prior year (net of the impact of hedging activities, noted above).
29
The following table sets forth the breakdown of net revenues by type, segment and geography for the periods presented. In addition, we
have provided a table of certain key operating metrics that we believe are significant factors affecting our net revenues.
Three Months Ended June 30,
2011
2010
Percent
Six Months Ended June 30,
Change
2011
(In thousands, except percentage changes)
Percent
2010
Change
Net Revenues by Type:
Net transaction revenues
Marketplaces
$
Payments
1,349,640
$
991,118
GSI
Total net transaction revenues
1,182,513
14%
770,755
29%
$
2,634,395
$
1,933,827
2,355,452
12%
1,537,327
26%
16,060
—
16,060
—
2,356,818
1,953,268
21%
4,584,282
3,892,779
18%
313,799
215,821
45%
582,306
429,677
36%
81,878
46,290
77%
131,516
88,980
7,779
—
7,779
—
403,456
262,111
54%
721,601
518,657
39%
N/A
N/A
Marketing services and other revenues
Marketplaces
Payments
GSI
Total marketing services and other
revenues
Total net revenues
N/A
48%
N/A
$
2,760,274
$
2,215,379
25%
$
5,305,883
$
4,411,436
20%
$
1,663,439
$
1,398,334
19%
$
3,216,701
$
2,785,129
15%
Net Revenues by Segment:
Marketplaces
Payments
1,072,996
GSI
Total net revenues
817,045
$
23,839
$
—
$
2,760,274
$
2,215,379
$
1,249,303
$
31%
2,065,343
1,626,307
27%
$
23,839
$
—
25%
$
5,305,883
$
4,411,436
20%
1,032,104
21%
$
2,390,354
$
2,036,315
17%
1,183,275
28%
2,375,121
23%
2,215,379
25%
4,411,436
20%
N/A
N/A
Net Revenues by Geography:
U.S.
International
1,510,971
Total net revenues
$
2,760,274
$
2,915,529
$
5,305,883
$
Revenues are attributed to U.S. and international geographies based primarily upon the country in which the seller, payment recipient,
customer, website that displays advertising, or other service provider, as the case may be, is located.
Three Months Ended June 30,
2011
2010
Percent
Six Months Ended June 30,
Change
2011
(In millions, except percentage changes)
2010
Percent
Change
Supplemental Operating Data:
Marketplaces Segment: (1)
GMV excluding vehicles
GMV vehicles only
Total GMV (4)
Payments Segment:
Net TPV
(1)
(2)
(3)
(4)
(5)
(5)
(2)
$
14,680
$
2,238
(3)
12,531
17%
2,189
2%
$
29,176
$
4,288
25,902
13%
4,210
2%
$
16,918
$
14,720
15%
$
33,464
$
30,112
11%
$
28,742
$
21,382
34%
$
56,104
$
42,724
31%
eBay's classifieds websites (including Rent.com) and Shopping.com are not included in these metrics.
Total value of all successfully closed items between users on eBay Marketplaces trading platforms during the period, regardless of
whether the buyer and seller actually consummated the transaction, excluding vehicles GMV.
Total value of all successfully closed vehicle transactions between users on eBay Marketplaces trading platforms during the period,
regardless of whether the buyer and seller actually consummated the transaction.
Total value of all successfully closed items between users on eBay Marketplaces trading platforms during the period, regardless of
whether the buyer and seller actually consummated the transaction.
Total dollar volume of payments, net of payment reversals, successfully completed through our Payments network and on Bill Me
Later accounts during the period, excluding PayPal's payment gateway business.
30
Seasonality
The following table sets forth, for the periods presented, our total net revenues and the sequential quarterly movements of these net
revenues:
Quarter Ended
March 31
June 30
September 30
(In thousands, except percentage changes)
December 31
2009*
Net revenues
Percent change from prior quarter
$
2,020,586
(1)%
$
2,097,992
4%
$
2,196,057
(7)%
$
2,215,379
1%
$
2,237,852
7%
2,370,932
6%
2,249,488
2%
2,495,350
11%
2010*
Net revenues
Percent change from prior quarter
2011*
2,545,609
2,760,274
—
—
2%
8%
—
—
Percent change from prior quarter
* On November 19, 2009, we completed the sale of Skype to an investor group. Accordingly, Skype's revenue is not consolidated in our 2010
and 2011 results. However, Skype's results of operations are consolidated in our 2009 results through the date of that sale.
Net revenues
We expect transaction activity patterns on our websites to mirror general consumer buying patterns.
Marketplaces Net Transaction Revenues
Marketplaces net transaction revenues increased $167.1 million , or 14% , while GMV excluding vehicles increased 17% during the
second quarter of 2011 compared to the same period in the prior year. The increase in net transaction revenue was due primarily to growth in
the number of sold items, foreign currency movements against the U.S. dollar and continued growth at StubHub. GMV excluding vehicles
increased during the second quarter of 2011 compared to the same period in the prior year due to strong growth in the U.S. and stable growth in
Europe.
Marketplaces net transaction revenues increased $278.9 million , or 12% , while GMV excluding vehicles increased 13% during the first
six months of 2011 compared to the same period in the prior year. The increase in net transaction revenue and GMV excluding vehicles were
due to the same factors as noted above.
Marketplaces net transaction revenues earned internationally totaled $758.8 million and $1.5 billion during the second quarter and first
six months of 2011 , respectively, representing 56% of total Marketplaces net transaction revenues during both periods. Marketplaces net
transaction revenues earned internationally totaled $658.4 million and $1.3 billion during the second quarter and first six months of 2010,
respectively, representing 56% and 57% of total Marketplaces net transaction revenues during those respective periods. The increase in
international net transaction revenues in dollars was due primarily to growth in our existing international markets and foreign currency
movements against the U.S. dollar.
Payments Net Transaction Revenues
Payments net transaction revenues increased $220.4 million , or 29% , during the second quarter of 2011 compared to the same period of
the prior year, due primarily to net TPV growth of 34% , partially offset by lower take rates due primarily to a shift to larger merchants in our
Merchant Services business. The increase in net TPV was due primarily to growth in consumer and merchant adoption of PayPal. Our
Merchant Services net TPV increased 42% during the second quarter of 2011 , compared to the same period of the prior year, and represented
66% of PayPal's net TPV in the second quarter of 2011, compared with 62% in the second quarter of 2010. The increase in our Merchant
Services net TPV was due primarily to an increase in the number of online merchants offering PayPal as a payment option, as well as an
increase in the share of checkout of PayPal's existing customer base of merchants.
Payments net transaction revenues increased $396.5 million , or 26% , during the first six months of 2011 compared to the same period of
the prior year, due primarily to net TPV growth of 31% partially offset by lower take rates due primarily to a shift to larger merchants in our
Merchant Services business. Our Merchant Services net TPV increased 40% during the first six
31
months of 2011 compared to the same period of the prior year, and represented 65% of PayPal's net TPV in the first six months of 2011
compared with 61% in the first six months of 2010. The increase in net TPV and our Merchant Services net TPV was due to the same factors
driving the second quarter year-over-year increase described above.
Payments net transaction revenues earned internationally totaled $515.6 million and $991.4 million during the second quarter and first six
months of 2011 , respectively, representing 52% and 51% of total Payments net transaction revenues during those respective periods. Payments
net transaction revenues earned internationally totaled $371.0 million and $730.9 million during the second quarter and first six months of
2010, respectively, representing 48% of total Payments net transaction revenues during both periods. The increase in international net
transaction revenues was due primarily to the growth of our Merchant Services business and increased penetration on eBay Marketplaces
platforms internationally.
GSI Net Transaction Revenues
GSI net transaction revenues were $16.1 million in the second quarter of 2011 , which represented the revenue generated from
ecommerce services from our recently acquired GSI business for the period from June 17, 2011 (the date the acquisition of GSI was completed)
through June 30, 2011.
Marketing Services and Other Revenues
Marketing services and other revenues increased $141.3 million and $202.9 million , or 54% and 39%, respectively, during the second
quarter and first six months of 2011 , compared to the same periods of the prior year, and represented 15% and 14% of total net revenues
during the second quarter and first six months of 2011, respectively. The increase in marketing services and other revenues during the second
quarter and first six months of 2011 was due primarily to the acquisition of brands4friends and an increase in revenues attributable to our
classifieds business and advertising business, as well as interest earned on our Bill Me Later (BML) portfolio of receivables from loans.
Summary of Cost of Net Revenues
The following table summarizes changes in cost of net revenues for the periods presented:
Change from
2010 to 2011
Three Months Ended June 30,
2011
2010
in Dollars
Change from
2010 to 2011
Six Months Ended June 30,
in %
2011
2010
in Dollars
in %
(In thousands, except percentages)
Cost of net revenues:
Marketplaces
As a percentage of total
Marketplaces net revenues
$
18%
99,732
28%
$
615,371
27.8%
$
N/A
158,091
26%
—
12,447
$
1,502,440
28.3%
80,847
16%
187,220
27%
43.2 %
$
12,447
$
280,514
N/A
—
52.2%
$
$
703,063
43.1%
12,447
518,863
18.6 %
890,283
—
$
599,710
18.6%
—
52.2 %
28.0 %
45,912
43.7%
12,447
773,462
$
357,395
42.6 %
$
257,976
18.4%
457,127
GSI
As a percentage of total GSI net
revenues
As a percentage of net revenues
$
18.3 %
Payments
As a percentage of total Payments
net revenues
Total cost of net revenues
303,888
$
1,221,926
23%
27.7 %
Cost of Net Revenues
Cost of net revenues consists primarily of costs associated with payment processing, customer support, site operations and inventory.
Significant components of these costs include bank transaction fees, credit card interchange and assessment fees, interest expense on
indebtedness incurred to finance the purchase of consumer loans receivable by Bill Me Later, employee compensation, contractor costs,
facilities costs, depreciation of equipment and amortization expense.
Marketplaces
Marketplaces cost of net revenues increased $45.9 million and $80.8 million , or 18% and 16% , during the second quarter and first six
months of 2011 , respectively, compared to the same period of the prior year. The increase was due primarily to the
32
impact of acquiring brands4friends during the first quarter of 2011 and increased customer support costs associated with our volume growth.
Marketplaces cost of net revenues as a percentage of Marketplaces net revenues decreased slightly during the second quarter of 2011 ,
compared to the same period of the prior year due primarily to increased operating leverage in our site operation infrastructure, partially offset
by the impact of acquisitions.
Payments
Payments cost of net revenues increased $99.7 million and $187.2 million , or 28% and 27% , during the second quarter and first six
months of 2011 , respectively, compared to the same period of the prior year. The increase in Payments cost of net revenues was due primarily
to the impact of growth in net TPV.
Payments cost of net revenues as a percentage of Payments net revenues decreased during the second quarter and the first six months of
2011 , respectively, compared to the same periods of the prior year due primarily to a lower transaction expense rate partially offset by a lower
take rate. The improvement in our transaction expense rate was driven primarily by the impact of certain new payment processing
arrangements, a favorable mix shift to lower cost international markets and a small improvement in funding mix.
GSI
GSI cost of net revenues were $12.4 million during the second quarter of 2011 , which represents the cost of net revenues from our
recent acquisition of GSI for the period from June 17, 2011 (the date the acquisition was completed) through June 30, 2011.
Summary of Operating Expenses, Non-Operating Items and Provision for Income Taxes
The following table summarizes changes in operating expenses, non-operating items and provision for income taxes for the periods
presented:
Three Months Ended June 30,
2011
Sales and marketing
2010
Change from
2010 to 2011
Change from
2010 to 2011
Six Months Ended June 30,
in Dollars
in %
2011
(In thousands, except percentage changes)
in Dollars
in %
$ 607,954
$ 478,236
$ 129,718
27 %
1,140,633
$ 924,397
$ 216,236
23 %
297,035
225,317
71,718
32 %
571,817
435,456
136,361
31 %
391,251
262,100
129,151
49 %
684,729
538,843
145,886
27 %
118,497
92,032
26,465
29 %
225,588
198,061
27,527
14 %
53,276
48,895
4,381
9%
97,372
102,147
(4,775 )
(5)%
(100)
8,863
(8,963 )
(249)
17,432
(17,681 )
(101)%
(256,501)
—
(256,501 )
(256,501)
—
(256,501 )
Product development
General and
administrative
Provision for
transaction and loan
losses
Amortization of
acquired intangible
assets
Restructuring
Loss on divested
business
Interest and other
income (expense), net
Provision for income
taxes
(101)%
N/A
$
2010
N/A
28,576
14,821
13,755
93 %
32,268
20,867
11,401
55 %
(7,567)
(87,194)
79,627
(91)%
(100,048)
(184,196 )
84,148
(46)%
Sales and Marketing
Sales and marketing expenses consist primarily of advertising costs and marketing programs (both online and offline), employee
compensation, contractor costs, facilities costs and depreciation on equipment. Online marketing expenses represent traffic acquisition costs in
various channels such as paid search, affiliates marketing and display advertising. Offline advertising includes brand campaigns, buyer/seller
communications and general public relations expenses.
33
Sales and marketing expenses increased $129.7 million and $216.2 million , or 27% and 23% , during the second quarter and first six
months of 2011 , respectively, compared to the same periods of the prior year. The increase in sales and marketing expense was due primarily
to higher marketing program costs, employee-related expenses (including consultant costs, facility costs and equipment-related costs) and the
impact from acquisitions. A significant portion of our sales and marketing expense is attributable to our online marketing programs, primarily
paid search, which include keyword advertising and third party lead generation costs, in order to drive traffic to our Marketplaces and
Payments websites.
Product Development
Product development expenses consist primarily of employee compensation, contractor costs, facilities costs and depreciation on
equipment. Product development expenses are net of required capitalization of major site and other product development efforts, including the
development of our next generation platform architecture, migration of certain platforms, seller tools and Payments services projects.
Capitalized site and product development costs were $44.1 million and $81.0 million in the second quarter and first six months of 2011 ,
respectively, compared to $33.0 million and $60.1 million in the second quarter and first six months of 2010, respectively, and are primarily
reflected as a cost of net revenues when amortized in future periods.
Product development expenses, net of capitalized amounts, increased $71.7 million and $136.4 million , or 32% and 31% , during the
second quarter and first six months of 2011 , respectively, compared to the same periods of the prior year. The increase was due primarily to
higher employee-related costs (including consultant costs, facility costs and equipment-related costs) driven by increased investment in our top
technology priorities (search, catalog, mobile, platform, and user experience) and the impact from acquisitions.
General and Administrative
General and administrative expenses consist primarily of employee compensation, contractor costs, facilities costs, depreciation of
equipment, employer payroll taxes on employee stock-based compensation, legal expenses, insurance premiums and professional fees. Our
legal expenses, including those related to various ongoing legal proceedings, may fluctuate substantially from period to period.
General and administrative expenses increased $129.2 million and $145.9 million , or 49% and 27% , during the second quarter and first
six months of 2011 , respectively, compared to the same periods of the prior year. The increase was due primarily to acquisition related
transaction costs of $57.3 million, an increase in payroll and related expenses, professional service fees and other impacts of acquisitions.
Provision for Transaction and Loan Losses
Provision for transaction and loan losses consists primarily of transaction loss expense associated with our customer protection programs,
fraud, chargebacks, and merchant credit losses; bad debt expense associated with our accounts receivable balance; and loan reserves associated
with our principal loan receivable balance.
Provision for transaction and loan losses increased $26.5 million and $27.5 million , or 29% and 14% , during the second quarter and first
six months of 2011 , respectively, compared to the same periods of the prior year. This increase was due primarily to higher transaction
volume, partially offset by improvements in BML loan loss rates, bad debt rates and transaction loss rates. BML loan loss rates declined due to
a lower charge-off rate and improved delinquency rates. Our bad debt rates declined due to continued improvement in charge-off rates.
Transaction loss rates declined due to improvements in fraud loss detection and recoveries. We continue to expect our provision for transaction
and loan loss expense to fluctuate depending on many factors, including macroeconomic conditions, our customer protection programs and the
impact of regulatory changes.
Amortization of Acquired Intangible Assets
From time to time we have purchased, and we expect to continue to purchase, assets and businesses. These purchase transactions
generally result in the creation of acquired intangible assets with finite lives and lead to a corresponding increase in our amortization expense in
periods subsequent to acquisition. We amortize intangible assets over the period of estimated benefit, using the straight-line method and
estimated useful lives ranging from one to eight years. Amortization of acquired intangible assets is also impacted by our sales of assets and
businesses and timing of acquired intangible assets becoming fully amortized.
Amortization of acquired intangible assets increased by $4.4 million , or 9% , during the second quarter of 2011, compared
34
to the same period of the prior year due primarily to the impact of acquisitions. Amortization of acquired intangible assets decreased by $4.8
million , or 5% , during the first six months of 2011 , compared to the same period of the prior year. The decrease in amortization of acquired
intangible assets was due primarily to the timing of certain acquired intangible assets becoming fully amortized, partially offset by amortization
of newly acquired intangible assets.
Restructuring
In 2009, we began the consolidation of certain customer service facilities in North America and Europe to streamline our operations and
deliver better and more efficient customer support to our users. We completed these activities during the first quarter of 2011. The
consolidation impacted approximately 1,000 employees. In connection with the consolidation, we incurred aggregate restructuring costs of
approximately $47.2 million . See “Note 12— Restructuring” to the condensed consolidated financial statements included in this report.
Restructuring expenses decreased $9.0 million and $17.7 million , during the second quarter and first six months of 2011 , respectively,
compared to the same periods of the prior year due to the completion of these activities during the period.
Loss on Divested Business
We incurred a loss on the divestiture of certain GSI businesses of $256.5 million during the three and six months of 2011. We sold these
businesses as they are not core to our long-term strategy and conflict with our community of sellers. See “Note 3 — Business Combinations” to
the condensed consolidated financial statements included in this report.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, consists of interest earned on cash, cash equivalents and investments, as well as foreign
exchange transaction gains and losses, our portion of operating results from investments accounted for under the equity method of accounting,
and interest expense consisting of interest charges on the amount drawn under our credit agreement and on our outstanding commercial paper
and debt securities. Interest and other income, net excludes interest expense related to Bill Me Later, which is included in cost of net revenues.
Interest and other income (expense), net increased $13.8 million and $11.4 million during the second quarter and first six months of 2011
, respectively, compared to the same periods of the prior year. The increase in interest and other income (expense), net was due primarily to an
investment gain associated with an acquisition partially offset by higher interest expense.
Provision for Income Taxes
Our effective tax rate was 3% and 12% for the second quarter and first six months of 2011 , compared to 17% and 19% for the same
periods in the prior year. The decrease in our effective tax rate during the second quarter and first six months of 2011 compared to the same
periods of the prior year was due primarily to a tax benefit associated with the loss on the divestiture of certain GSI businesses being realized at
a higher tax rate than our annualized effective tax rate. The tax benefit resulted in a 12 percentage point and 4 percentage point impact to the
effective tax rate in the second quarter and first six months of 2011, compared to the same periods of the prior year, respectively. Excluding the
impact from the loss, our tax rate decreased in the second quarter and first six months of 2011 compared to the same periods of the prior year
due to the favorable impact of discrete tax items primarily related to the settlement of uncertain tax positions.
From time to time, we engage in certain intercompany transactions and legal entity restructurings. We consider many factors when
evaluating these transactions, including the alignment of our corporate structure with our organizational objectives and the operational and tax
efficiency of our corporate structure, as well as the long-term cash flows and cash needs of our different businesses. These transactions may
impact our overall tax rate and/or result in additional cash tax payments. The impact in any period may be significant. These transactions may
be complex and the impact of such transactions on future periods may be difficult to estimate.
We are regularly under examination by tax authorities both domestically and internationally. We believe that adequate amounts have
been reserved for any adjustments that may ultimately result from these examinations, although we cannot assure you that this will be the case
given the inherent uncertainties in these examinations. Due to the ongoing tax examinations, we believe it is impractical to determine the
amount and timing of these adjustments.
35
Liquidity and Capital Resources
Cash Flows
Six Months Ended June 30,
2011
2010
(In thousands)
Net cash provided by (used in):
Operating activities
Investing activities
$
Financing activities
1,482,346
(3,805,635)
$
(166,340)
Effect of exchange rates on cash and cash equivalents
50,363
178,044
Net increase/(decrease) in cash and cash equivalents
$
(2,311,585 )
1,144,641
(835,635 )
(321,745 )
$
37,624
Operating Activities
We generated cash from operating activities in amounts greater than net income in the six months ended June 30, 2011 and June 30,
2010, due primarily to non-cash charges to earnings and changes in working capital. Non-cash charges to earnings included depreciation and
amortization on our long-term assets, stock-based compensation and the provision for transaction and loan losses. The increase in cash
provided by operating activities during the six months ended June 30, 2011 compared to the same period of the prior year was due primarily to
cash paid in the first six months of 2010 for taxes of $448.3 million primarily related to a legal entity restructuring completed in the fourth
quarter of 2009, compared to $135.6 million paid for taxes in the first six months of 2011.
Investing Activities
The net cash used in investing activities of $3,805.6 million in the six months ended June 30, 2011 was due primarily to cash paid for the
purchases of investments of $1,229.3 million , acquisition of businesses of $2,846.9 million and purchases of property and equipment of $388.4
million , partially offset by proceeds of $860.5 million from the maturities and sale of investments.
The net cash used in investing activities of $835.6 million in the six months ended June 30, 2010 was due primarily to net cash paid for
the purchase of investments of $1,294.2 million and purchases of property and equipment of $359.5 million , partially offset by proceeds of
$752.9 million from the maturities and sale of investments and $125.0 million from the repayment of a Skype note receivable.
Financing Activities
The net cash used in financing activities of $166.3 million in the six months ended June 30, 2011 was due primarily to cash outflows of
$781.4 million to repurchase common stock and $186.2 million to repay acquired debt, as well as cash paid for tax withholdings in the amount
of $113.8 million related to net share settlements of restricted stock awards and units. These cash outflows were partially offset by proceeds of
$700.0 million from additional borrowings under our commercial paper program, $156.5 million from the issuance of common stock in
connection with the exercise of stock options and $58.6 million of excess tax benefits from stock-based compensation.
The net cash provided by financing activities of $50.4 million in the six months ended June 30, 2010 was due primarily to $73.7 million
in cash paid for tax withholdings related to net share settlements of restricted stock units and nonvested share awards, partially offset by
proceeds of $99.6 million from the issuance of common stock in connection with the exercise of stock options and $24.5 million in excess tax
benefits from stock-based compensation.
The positive effect of exchange rate movements on cash and cash equivalents during the six months ended June 30, 2011 was due to the
weakening of the U.S. dollar against other currencies, primarily the Euro. The negative effect of exchange rate movements on cash and cash
equivalents during the six months ended June 30, 2010 was due to the strengthening of the U.S. dollar against other currencies, primarily the
Euro.
Stock Repurchases
In September 2010, our Board authorized a stock repurchase program that provides for the repurchase of up to $2.0
36
billion of our common stock, with no expiration from the date of authorization, for the purpose of offsetting the impact of dilution from our
equity compensation programs. During the six months ended June 30, 2011 , we repurchased approximately $780.8 million of our common
stock under this stock repurchase program. As of June 30, 2011 , approximately $1.2 billion remained for further repurchases of our common
stock under this stock repurchase program.
Shelf Registration Statement and Long-Term Debt
At June 30, 2011 , we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us
to issue various types of debt securities, such as fixed or floating rate notes, U.S. dollar or foreign currency denominated notes, redeemable
notes, global notes, and dual currency or other indexed notes. Issuances under the shelf registration will require the filing of a prospectus
supplement identifying the amount and terms of the securities to be issued. The registration statement does not limit the amount of debt
securities that may be issued thereunder. Our ability to issue debt securities is subject to market conditions and other factors impacting our
borrowing capacity, including compliance with the covenants in our credit agreement.
In October 2010, we issued $1.5 billion aggregate principal amount of our senior unsecured debt securities under the shelf registration
statement in an underwritten public offering. These debt securities remain outstanding and consist of $400 million aggregate principal amount
of 0.875% notes due 2013, $600 million aggregate principal amount of 1.625% notes due 2015 and $500 million aggregate principal amount of
3.250% notes due 2020.
Commercial Paper
We have a $1.0 billion commercial paper program pursuant to which we may issue commercial paper notes with maturities of up to
397 days from the date of issue in an aggregate principal amount of up to $1.0 billion at any time outstanding. As of June 30, 2011 , $1.0
billion aggregate principal amount of commercial paper was outstanding, the weighted average interest rate on those notes was 0.18% per
annum and the weighted average remaining term on our commercial paper notes was 26 days.
Credit Agreement
As of June 30, 2011 , no borrowings or letters of credit were outstanding under our $1.8 billion credit agreement. However, as
described above, we have a $1.0 billion commercial paper program and we maintain $1.0 billion of available borrowing capacity under our
credit agreement in order to repay commercial paper borrowings in the event we are unable to repay those borrowings from other sources when
they become due. As a result, at June 30, 2011 , $0.8 billion of borrowing capacity was available for other purposes permitted by the credit
agreement.
Commitments
As of June 30, 2011 , approximately $8.3 billion of unused credit was available to Bill Me Later accountholders. The individual lines of
credit that make up this unused credit are subject to periodic review and termination by the chartered financial institution that is the issuer of
Bill Me Later credit products based on, among other things, account usage and customer creditworthiness. Currently, when a consumer makes
a purchase using a Bill Me Later credit product issued by a chartered financial institution, the 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 the receivables
related to the consumer loans extended by the chartered financial institution and, as a result of the purchase, bear the risk of loss in the event of
loan defaults. Although the chartered financial institution continues to own each customer account, we own the related receivable, and Bill Me
Later is responsible for all servicing functions related to the account.
Liquidity and Capital Resource Requirements
At June 30, 2011 , we had assets classified as cash and cash equivalents, as well as time deposits and fixed income securities classified as
short-term investments, in an aggregate amount of $6.0 billion, compared to $7.8 billion at December 31, 2010 . At June 30, 2011 , we held
assets of these types outside the U.S. in certain of our foreign operations totaling approximately $4.9 billion. If these cash and cash equivalents
were distributed to the U.S., we may be subject to additional U.S. taxes in certain circumstances. We actively monitor the third-party
depository institutions and money market funds that hold these assets, primarily focusing on the safety of principal and secondarily maximizing
yield on these assets. We diversify our cash and cash equivalents and investments among various financial institutions and money market funds
in order to reduce our exposure should any one of these financial institutions or money market funds fail or encounter difficulties. To date, we
have not experienced any material loss or lack of access to our invested cash, cash equivalents or short-term investments; however, we can
provide no assurances that access to our invested cash, cash equivalents or short-term investments will not be impacted by adverse conditions
in the financial markets.
37
As our Bill Me Later products become more widely available through improved and more comprehensive product integrations with eBay,
PayPal and other channels, and as we further promote Bill Me Later products, we expect customer adoption and usage of the product to expand.
Any resulting growth in the portfolio from these initiatives would increase our liquidity needs and any failure to meet those liquidity needs
could adversely affect the Bill Me Later business. We currently fund the expansion of the Bill Me Later portfolio of receivables from loans
using both domestic and international cash resources.
We believe that our existing cash, cash equivalents and short-term investments, together with cash expected to be generated from
operations, borrowings available under our credit agreement and commercial paper program, and our access to capital markets will be
sufficient to fund our operating activities, anticipated capital expenditures, Bill Me Later portfolio of receivables from loans and stock
repurchases for the foreseeable future.
Off-Balance Sheet Arrangements
As of June 30, 2011 , we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources. In Europe, we have two
cash pooling arrangements with a financial institution for cash management purposes. These arrangements allow for cash withdrawals from this
financial institution based upon our aggregate operating cash balances held in Europe within the same financial institution (“Aggregate Cash
Deposits”). These arrangements also allow us to withdraw amounts exceeding the Aggregate Cash Deposits up to an agreed-upon limit. The net
balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for calculating our net interest
expense or income. As of June 30, 2011 , we had a total of $3.4 billion in cash withdrawals offsetting our $3.4 billion in Aggregate Cash
Deposits held within the same financial institution under these cash pooling arrangements.
Based on differences in regulatory requirements and commercial law in the jurisdictions where PayPal operates, PayPal holds customer
balances either as direct claims against PayPal or as an agent or custodian on behalf of PayPal's customers. Customer funds held by PayPal as
an agent or custodian on behalf of our customers are not reflected in our condensed consolidated balance sheet. These funds include funds held
on behalf of U.S. customers that are deposited in bank accounts insured by the Federal Deposit Insurance Corporation (subject to applicable
limits) and funds that U.S. customers choose to invest in The PayPal Money Market Fund, which totaled approximately $2.7 billion as of
June 30, 2011 and December 31, 2010 . The PayPal Money Market Fund is invested in a portfolio managed by BlackRock Fund Advisors. The
Board of Trustees for the PayPal Money Market Fund has approved the closing and liquidation of the Fund, which is scheduled to occur at the
close of business on July 29, 2011.
Indemnification Provisions
In the ordinary course of business, we have included limited indemnification provisions in certain of our agreements with parties with
which we have commercial relations, including our standard marketing, promotions and application-programming-interface license agreements.
Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by
the indemnified party in connection with claims by a third party with respect to our domain names, trademarks, logos and other branding
elements to the extent that such marks are applicable to our performance under the subject agreement. GSI in many of its major online
commerce agreements has provided an indemnity for other types of third-party claims, which are indemnities mainly related to various
intellectual property rights, and we have provided similar indemnities in a limited number of agreements for our other businesses. In our PayPal
business, we have provided an indemnity to our payment processors in the event of certain third-party claims or card association fines against
the processor arising out of conduct by PayPal or PayPal customers. In connection with the sale of Skype, we made certain customary
warranties to the buyer in the purchase agreement. Our liability to the buyer for inaccuracies in these warranties is generally subject to certain
limitations. With respect to certain specified litigation matters involving Skype that were pending as of the closing of the transaction, we also
agreed, among other things, to bear 50% of the cost of any monetary judgment that is rendered in respect of those matters. It is not possible to
determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the
unique facts and circumstances involved in each particular provision. To date, no significant costs have been incurred, either individually or
collectively, in connection with our indemnification provisions.
38
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
The information in this section should be read in connection with the information on financial market risk related to changes in interest
rates and non-U.S. currency exchange rates in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual
Report on Form 10-K for the year ended December 31, 2010 . Our market risk profile has not changed significantly during the first six months
of 2011 .
Interest Rate Risk
The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term and long-term investments in a variety
of available for sale securities, including government and corporate securities and money market funds. As of June 30, 2011 , approximately
44% of our total cash and investment portfolio was held in bank deposits and money market funds. As such, changes in interest rates will
impact interest income. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates, and we may
suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. Additionally, changes in
interest rates will impact our interest rate sensitive credit agreement and accordingly, impact interest expense or cost of net revenues. As of
June 30, 2011 , we held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or
mortgage-backed securities.
Investment Risk
As of June 30, 2011 , our cost and equity method investments totaled $810.6 million , which represented approximately 13% of our total
cash and investment portfolio and was primarily related to our retained equity interest in Skype. These investments relate primarily to
equity-method investments in private companies. We review our investments for impairment when events and circumstances indicate a decline
in fair value of such assets below carrying value is other-than-temporary. Our analysis includes review of recent operating results and trends,
recent sales/acquisitions of the investee securities, and other publicly available data.
On May 10, 2011, Microsoft Corp. announced that it had entered into a definitive agreement to acquire Skype for $8.5 billion , including
debt. Upon completion of the sale, which is subject to regulatory approvals and other customary closing conditions, our remaining equity
method investments will not have a material impact on our total cash and investment portfolio.
Equity Price Risk
We are exposed to equity price risk on marketable equity instruments due to market volatility. At June 30, 2011 , the total fair value of
our marketable equity instruments was $644.7 million, which represented approximately 9% of our total cash and investment portfolio and was
primarily related to our equity holdings in MercadoLibre.
Foreign Currency Risk
We have significant operations internationally that are denominated in foreign currencies, primarily the Euro, British pound, Korean won
and Australian dollar, subjecting us to foreign currency risk which may adversely impact our financial results. We transact business in various
foreign currencies and have significant international revenues as well as costs. In addition, we charge our international subsidiaries for their use
of intellectual property and technology and for certain corporate services provided by eBay and by PayPal. Our cash flow, results of operations
and certain of our intercompany balances that are exposed to foreign exchange rate fluctuations may differ materially from expectations and we
may record significant gains or losses due to foreign currency fluctuations and related hedging activities.
We have a foreign exchange exposure management program whose objective is to identify material foreign currency exposures, to
manage these exposures, and to minimize the potential effects of currency fluctuations on our reported consolidated cash flow and results of
operations through the purchase of foreign currency exchange contracts. These foreign currency exchange contracts are accounted for as
derivative instruments, for additional details related to our derivative instruments, please see “Note 7 – Derivative Instruments” to the
condensed consolidated financial statements included in this report.
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Item 4:
Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief
Executive Officer and our Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls
and procedures were effective.
(b) Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the period
covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1:
Legal Proceedings
The information set forth under “Note 9 — Commitments and Contingencies — Litigation and Other Legal Matters” to the condensed
consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.
Item 1A:
Risk Factors
Risk Factors That May Affect Results of Operations and Financial Condition
Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial
condition, results of operations, cash flows, as well as the trading price of our common stock.
Our operating results have varied on a quarterly basis during our operating history. Our operating results may fluctuate significantly as a
result of a variety of factors, many of which are outside our control. Factors that may affect our operating results include the following:
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general economic conditions, including the possibility of a prolonged period of limited economic growth in the U.S. and Europe;
disruptions to the credit and financial markets in the U.S., Europe and elsewhere; adverse effects of the ongoing sovereign debt
crisis in Europe; the impact of a failure to increase the debt ceiling in the U.S.; contractions or limited growth in consumer spending
or consumer credit; and adverse economic conditions that may be specific to the Internet, ecommerce and payments industries;
our ability to retain an active user base, attract new users, and encourage existing users to list items for sale, purchase items through
our websites, or use our payment services, especially when consumer spending is weak;
the primary and secondary effects of previously announced and possible future changes to our pricing, products and policies,
including, among other changes, restrictions or holds on payments made to sellers or in connection with certain categories of
higher-risk transactions; changes to performance standards and/or rewards for sellers, including taking into account cases filed
through the eBay and PayPal buyer protection programs in evaluating individual seller performance ratings; changes to our dispute
resolution process; upgrades to eBay checkout services, including the introduction of a new eBay shopping cart that enables buyers
to add items from multiple sellers and pay in a single checkout and, effective July 2011, the discontinuation of support for third
party checkout services; and recent changes to our fee structure, including the calculation of final value fees based on the total
amount of the transaction (including shipping);
consumer confidence in the safety and security of transactions using our websites or technology and the effect of any changes in our
practices and policies designed to foster improved confidence;
our ability to meet existing and new regulatory requirements as we expand the range and geographical scope of our services and as
we grow larger, especially for our Payments business;
our ability to manage the costs of and effectively implement our user protection programs;
the volume, velocity, size, timing, monetization, and completion rates of transactions using our websites or technology;
regulatory and legal actions imposing obligations on our businesses or our users, including the injunction related to certain cosmetic
and perfume brands (see “Item 1 - Legal Proceedings” above);
our ability to improve the quality of the user experience on our websites and through mobile devices (including our customer
support in the event of a problem) in light of the improved quality generally of the user experience offered by competitive Internet
merchants;
our ability to reduce the loss of active buyers and sellers and increase activity of the users of our Marketplaces business, especially
with respect to our top buyers and sellers;
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changes to our use of advertising on our sites, including changes in ad placement;
the impact on PayPal or Bill Me Later of regulations enacted pursuant to new laws regulating financial institutions, including the
Dodd-Frank Wall Street Reform and Consumer Protection Act in the U.S.;
other new laws or regulations, or interpretations of existing laws or regulations, that impose liability on us for actions of our users
or otherwise harm our business models or restrict the Internet, ecommerce, online payments or online advertising;
the actions of our competitors, including the introduction of new sites, services, products and functionality;
the costs and results of litigation that involves us;
our ability to develop product enhancements, programs, and features on different platforms (e.g., mobile devices and availability of
PayPal at the retail point of sale) at a reasonable cost and in a timely manner;
our ability to upgrade and develop our systems, infrastructure, and customer service capabilities to accommodate growth and to
improve our websites at a reasonable cost while maintaining 24/7 operations;
technical difficulties or service interruptions involving our websites or services provided to us or our users by third parties;
our ability to manage the transaction loss rate in our Marketplaces and Payments business;
our ability to manage funding costs, credit risk and interest-rate risk associated with our Bill Me Later business;
our ability to successfully and cost-effectively integrate and manage businesses that we acquire, including GSI, and the merger of
our marketplaces in Korea following our recent receipt of regulatory approval to combine IAC and Gmarket;
the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our businesses,
operations, and infrastructure;
our ability to comply with the requirements of entities whose services are required for our operations, such as payment card
networks and banks;
the cost and availability of online and traditional advertising, and the success of our brand building and marketing campaigns;
our ability to attract new personnel in a timely and effective manner and to retain key employees;
the continued healthy operation of our technology suppliers and other parties with which we have commercial relations;
continued consumer acceptance of the Internet as a medium for ecommerce and payments in the face of increasing publicity about
fraud, spoofing, phishing, viruses, spyware, malware and other dangers of the Internet; and
macroeconomic and geopolitical events affecting commerce generally.
It is difficult for us to forecast the level or source of our revenues or earnings accurately. In view of the rapidly evolving nature of our
business, we believe that 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 from transactions
involving sales or payments during that quarter. Due to the inherent difficulty in forecasting revenues, it is also difficult to forecast income
statement expenses as a percentage of net revenues. Quarterly and annual income statement expenses as a percentage of net revenues 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. In that event, the trading price of our common stock would almost certainly decline.
We invest heavily in technology, marketing and promotion, customer support, protection programs and further development of the
operating infrastructure for our core and non-core operations. Some of this investment entails long-term contractual commitments. As a result,
we may be unable to adjust our spending rapidly enough to compensate for any unexpected revenue shortfall, which may harm our
profitability.
Growth rates of our Marketplaces businesses in some of our most established markets have been slower than that for ecommerce
generally and have declined in certain periods. The growth of Internet users is slowing in many countries where we have a significant presence,
and is accelerating in some countries where we do not (e.g., China, where we do not have a domestic business). Despite our efforts to stem our
loss of market share in these and other markets, we may not be successful. As our growth rates in established markets slow, we will
increasingly need to focus on keeping existing users, especially our top buyers and sellers, active and increasing their activity level on our
websites in order to continue to grow our business. In addition, our Marketplaces business is facing increased competitive pressure. In
particular, the competitive norm for, and the expected level of service from, Internet ecommerce websites has significantly increased, due to,
for example, improved user experience, greater ease of buying goods, lower (or no) shipping costs, faster shipping times and more favorable
return policies. If we are unable to change our services in ways that reflect the changing demands of the ecommerce marketplace, particularly
the higher growth of sales of fixed-price items and higher service levels (some of which depend on services provided by sellers on our
platforms), our business will suffer.
We have announced changes to our Marketplaces business intended to drive more sales and improve seller efficiency. For
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example, in the U.S. and the U.K., we have begun testing the efficacy of improving seller performance and increasing buyer satisfaction by
requesting that PayPal place temporary holds on seller funds in certain instances (e.g., for sellers with a limited selling history or
below-standard performance ratings), and we may expand the scope of such programs in the future and introduce other programs with similar
aims in these and other countries. Some of the changes that we have announced to date have been controversial with, and led to dissatisfaction
among, our sellers, and additional changes that we announce in the future may also be negatively received by some of our sellers. This may not
only impact the supply of items listed on our websites, but because many sellers also buy from our sites, it may adversely impact demand as
well. Given the number of recent changes that we have made to our policies and pricing, it may take our sellers some time to fully assess and
adjust to these changes, and sellers may elect to reduce volume while making such assessments and adjustments or in response to these
changes. If any of these changes cause sellers to move their business (in whole or in part) away from our websites or otherwise fail to improve
gross merchandise volume or the number of successful listings, our operating results and profitability will be harmed. We believe that the mix
of sales under our traditional auction-style listing format and fixed-price listing format will continue to shift towards our fixed-price format.
Accordingly, we have eliminated some of the features related to our traditional auction-style format and expect others will become less
meaningful to, and used less frequently by, our sellers, which would result in a corresponding decrease in revenues from such features. In
addition, we expect that the costs associated with our seller discount programs will increase as more sellers become eligible for such discounts.
In addition, because a large percentage of PayPal transactions originate on the eBay platform, declines in growth rates in major
Marketplaces markets also adversely affect PayPal's growth. The expected future growth of our PayPal, StubHub, and our other lower margin
businesses may also cause downward pressure on our profit margins because those businesses have lower gross margins than our Marketplaces
platforms.
The sluggish economy could harm our business.
Our Marketplaces and Payments businesses are dependent on consumer purchases, and our GSI business is tied to the online growth in
the U.S. of our clients and impacted by the offline businesses of our clients. The economic downturn resulted in reduced buyer demand and
reduced selling prices and the slow recovery may reduce the volume of purchases on our Marketplaces platforms and the volume of
transactions paid for using our Payment services, and the online and offline businesses of our GSI clients, all of which would adversely affect
our business. In the event of the bankruptcy of a merchant that sells goods or services in advance of the date of their delivery or use (such as
airline, cruise or concert tickets), PayPal could be liable to the buyers of such goods or services either through its buyer protection program or
through chargebacks on payment cards used by customers to fund their payment through PayPal.
We are exposed to fluctuations in currency exchange rates and interest rates.
Because we conduct the majority of our business outside the United States but report our financial results in U.S. dollars, we face
exposure to adverse movements in currency exchange rates. In connection with its multi-currency service, PayPal fixes exchange rates twice
per day, and may face financial exposure if it incorrectly fixes the exchange rate or if exposure reports are delayed. PayPal also holds some
corporate and customer funds in non-U.S. currencies, and thus its financial results are affected by the translation of these non-U.S. currencies
into U.S. dollars. In addition, the results of operations of many of our internationally focused websites are exposed to foreign exchange rate
fluctuations as the financial results of the applicable subsidiaries are translated from the local currency into U.S. dollars upon consolidation. If
the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions will result in increased
net revenues, operating expenses and net income. Similarly, our translation of foreign currency denominated transactions will result in lower
net revenues, operating expenses and net income if the U.S. dollar strengthens against foreign currencies, as happened in the first half of 2010.
Net revenues in the six months ended June 30, 2011 were positively impacted by foreign currency translation of $129.2 million compared to
the same period of the prior fiscal year. As exchange rates vary, net revenues and other operating results, when translated, may differ materially
from expectations. In particular, to the extent the U.S. dollar strengthens against the Euro, British pound, Korean won, or Australian dollar, our
foreign revenues and profits will be reduced as a result of these translation adjustments. While from time to time we enter into transactions to
hedge portions of our foreign currency translation exposure, it is impossible to perfectly predict or completely eliminate the effects of this
exposure. In addition, to the extent the U.S. dollar strengthens against the Euro, the British pound, the Australian dollar or other currencies,
cross-border trade related to purchases of dollar-denominated goods by non-U.S. purchasers will likely decrease, and that decrease will likely
not be offset by a corresponding increase in cross-border trade involving purchases by U.S. buyers of goods denominated in other currencies,
adversely affecting our business.
In addition, we face exposure to fluctuations in interest rates. For example, relatively low interest rates have continued to limit our
investment income, including income we earn on PayPal customer balances, which in turn has lowered our net interest income and net
revenues.
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Bill Me Later's operations depend on lending services provided by an unaffiliated lender.
We acquired Bill Me Later, a company that facilitates credit services offered by an unaffiliated bank, in November 2008. Bill Me Later is
neither a chartered financial institution nor is it licensed to make loans in any state. Accordingly, Bill Me Later must rely on a bank or licensed
lender to issue the Bill Me Later credit products and extend credit to customers in order to offer the Bill Me Later service. Currently, when a
consumer makes a purchase using a Bill Me Later credit product issued by a chartered financial institution, the 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
the receivables related to the extensions of credit made by the chartered financial institution and, as a result of the purchase, bear the risk of loss
in the event of loan defaults. Although the chartered financial institution continues to own each customer account, we own the related
receivable, and Bill Me Later is responsible for all servicing functions related to the account.
In September 2010, WebBank became the issuer of the Bill Me Later credit products. WebBank is an industrial bank chartered by the
State of Utah. Any termination or interruption of WebBank's ability to lend could result in our being unable to originate any new transactions
for the Bill Me Later service. Under those circumstances, we would be required to either reach a similar arrangement with another chartered
financial institution, which may not be available on favorable terms, if at all, 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.
A lawsuit has been filed against Bill Me Later, PayPal and eBay and is pending in the U.S. District Court for the Central District of
California, alleging that in its relationship with the chartered financial institution, Bill Me Later is acting as the true lender to customers in
violation of various California laws, including the state's usury law. The court dismissed the usury claims in December 2010, but breach of
contract and other claims remain, and the plaintiffs are seeking to revive the usury claim. We believe that these allegations are without merit
and intend to defend ourselves vigorously. However, this area of law is uncertain and if the lawsuit is successful, Bill Me Later may be required
to change its methods of operations, pay substantial damages and reduce some of its charges and fees, which would likely adversely affect our
business.
If our Payments business is found to be subject to or in violation of any laws or regulations, including those governing money
transmission, electronic funds transfers, money laundering, counter-terrorist financing, banking and lending, it could be subject to liability,
licensure and regulatory approval and may be forced to change its business practices.
While PayPal currently allows its customers with credit cards to send payments from 190 markets, PayPal only allows customers in 104
of those markets (including the U.S.) to receive payments, in some cases with significant restrictions on the manner in which customers can
withdraw funds. These limitations may affect PayPal's ability to grow in these markets.
Of the 190 markets whose residents can use the PayPal service, 31 (27 countries plus four French overseas departments) are members of
the European Union , or EU. Since 2007, PayPal has provided localized versions of its service to customers in the EU through PayPal (Europe)
S.A.R.L. et Cie, SCA, a wholly-owned subsidiary of PayPal 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 or other requirements imposed on Luxembourg banks. PayPal has limited experience
in operating as a bank, and any fines or other enforcement actions imposed by the Luxembourg regulator could adversely affect PayPal's
business. PayPal (Europe) implements its localized services in EU countries through a “passport” notification process through the Luxembourg
regulator to regulators in other EU member states pursuant to EU Directives, and has completed the “passport” notice process in all EU
member countries. The regulators in these countries could notify PayPal (Europe) of local consumer protection laws that will 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, PayPal's plans for expanding its business in EU countries. In addition, the EU Payments Service Directive, which established
a new regulatory regime for payment services providers, formally took effect in November 2009. The interpretation of regulations
implementing the EU Payments Service Directive remains uncertain.
In Australia, PayPal serves its customers through PayPal Australia Pty. Ltd., which is licensed by the Australian Prudential Regulatory
Authority as a purchased payment facility provider, which is a type of authorized depository institution. Accordingly, PayPal Australia is
subject to significant fines or other enforcement action if it violates the disclosure, reporting, anti-money laundering, capitalization, corporate
governance or other requirements imposed on Australian depository institutions. In China, PayPal is affiliated with Shanghai Wangfuyi
Information Technology Ltd., which is licensed as an Internet Content Provider and operates a payments service only for Chinese customers
and only for transactions denominated in Chinese currency. The People's Bank of China (PBOC) has recently enacted regulations to establish a
new type of license, called a Payment Settlement Organization (PSO) license, which will be required for non-bank payment services. The
PBOC
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regulations leave unclear whether a foreign-owned company such as PayPal can control or invest in a Payment Settlement Organization, and
whether Wangfuyi would be eligible to obtain a PSO license.
To date, PayPal has obtained licenses to operate as a money transmitter in 42 U.S. states, the District of Columbia and Puerto Rico, and
has obtained interpretations in five other states that licensing is not required under their existing statutes. PayPal is also licensed as an escrow
agent in one U.S. state. The remaining U.S. states do not currently regulate money transmitters. As a licensed money transmitter, PayPal is
subject to restrictions on its investment of customer funds, reporting requirements, bonding requirements, and inspection by state regulatory
agencies. If PayPal were found to be in violation of money services laws or regulations, PayPal could be subject to liability, forced to cease
doing business with residents of certain states, forced to change its business practices, or required to obtain additional licenses or regulatory
approvals that could impose a substantial cost on PayPal. Any change to PayPal's business practices that makes the service less attractive to
customers or prohibits its use by residents of a particular jurisdiction could decrease the velocity of trade on eBay, which would further harm
our business.
In markets other than the U.S., the EU, Australia and the China domestic business, PayPal serves its customers through PayPal Private
Ltd., a wholly-owned subsidiary of PayPal that is based in Singapore. PayPal Private Ltd. is regulated in Singapore as a stored value issuer. In
many of these markets, it is not clear whether PayPal's Singapore-based service is subject only to Singaporean law or, if it were subject to local
laws, whether such local law would require a payment processor like PayPal to be licensed as a bank or financial institution or otherwise. In
such markets, the business may rely on partnerships with local banks to process payments and conduct foreign exchange in local currency.
Local regulators who do not have direct jurisdiction over Singapore-based PayPal Private Ltd. may use their local regulatory power to slow or
halt payments to local merchants conducted through the local banking partner. Such regulatory actions impacting local banking partner
arrangements could impose substantial costs and involve considerable delay to the provision or development of PayPal services in that market,
or could prevent PayPal from providing any services in a given market. The Reserve Bank of India has asserted that PayPal's offering of
payment services to customers outside of India to send personal, non-commercial payments to recipients in India requires a license from the
Reserve Bank. For a period of time in 2010, the Reserve Bank directed the Indian affiliate of PayPal's processing bank to suspend withdrawals
to the Indian bank accounts of PayPal customers for both personal and business customers. PayPal has ended personal non-commercial
payments to and from Indian accounts and the ability of Indian sellers to spend payments they receive, and has also stopped offering certain
commercial payments between Indian buyers and Indian sellers. In November 2010, the Reserve Bank of India issued guidelines to Indian
banks on the requirements for processing export-related transactions for online payment gateway service providers such as PayPal, including a
limitation on the amount of individual transactions to no more than $500. The Reserve Bank may again impose a suspension if it is not satisfied
with PayPal's and its partner bank's actions to comply with these guidelines. In the event of any non-compliance, PayPal could be subject to
fines from the Reserve Bank, and PayPal's prospects for future business in India, both cross-border and domestic, could be materially and
adversely affected.
Even if PayPal is not currently required to be licensed in some jurisdictions, future localization or targeted marketing of PayPal's service
in those countries, or expansion of the financial products offered by PayPal (either alone, through a commercial alliance or through an
acquisition), could subject PayPal to additional licensure requirements, laws and regulations and increased regulatory scrutiny, any of which
may harm PayPal's business. For example, PayPal expects it will require licenses in Japan and Russia to expand its services in those countries.
There can be no assurance that PayPal will be able to obtain such licenses. Even if PayPal were able to obtain such licenses, there will be
substantial costs involved in maintenance of such licenses, and PayPal will 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 costs and involve considerable delay to the provision or development of PayPal's products. Delay or failure to receive such a
license or regulatory approval could require PayPal to change its business practices or features in ways that would adversely affect PayPal's
expansion plans, and could require PayPal to suspend providing products and services to customers in one or more countries.
PayPal is also subject to various anti-money laundering and counter-terrorist financing laws and regulations around the world that
prohibit, among other things, its involvement in transferring the proceeds of criminal activities. Although PayPal has implemented a program to
comply with these laws and regulations, any errors or failure to comply with federal, state or foreign money laundering and counter-terrorist
financing laws could result in significant criminal and civil lawsuits, penalties, and forfeiture of significant assets. In the United States, PayPal
is subject to regulations that require it to report suspicious activities involving transactions of $2,000 or more, and may be required to obtain
and keep more detailed records on the senders and recipients in certain transfers of $3,000 or more. The interpretation of suspicious activities in
this context is uncertain. Pending regulations may require PayPal to revise the procedures it uses to verify the identity of its customers and to
monitor international transactions more closely.
Several countries in which PayPal is regulated, including Australia, Luxembourg and Singapore, have implemented new
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anti-money laundering and counter-terrorist financing laws and regulations, and PayPal has had to make changes to its procedures in response.
In November 2009, the Australian anti-money laundering and counter-terrorist financing regulator (AUSTRAC) accepted an enforceable
undertaking from PayPal Australia pursuant to which PayPal Australia agreed, among other things, to appoint an independent auditor to assess
PayPal Australia's anti-money laundering compliance policies and procedures and issue a report identifying any unremediated deficiencies
accompanied by a plan by PayPal to remedy any such deficiencies. In the enforceable undertaking, AUSTRAC expressed concern that PayPal
Australia did not have systems and controls in place to manage adequately its money laundering and terrorist financing risk. In September
2010, the independent auditor completed its review and issued its report, and PayPal Australia submitted a remediation plan. PayPal Australia
is in the process of investing in improvements to its anti-money laundering and counter-terrorist financing systems, policies and operations as
part of its remediation plan. In addition, PayPal Australia will be required to obtain additional information from customers, verify that
information, and monitor its customers' activities more closely. As PayPal continues to localize its services in additional jurisdictions, it could
be required to meet standards similar to those in Australia. These requirements could impose significant costs on PayPal, cause delay to other
planned product improvements, make it more difficult for new customers to join its network and reduce the attractiveness of its products.
Although there have been no definitive interpretations to date, PayPal has taken actions as though its service is subject to the Electronic
Fund Transfer Act and Regulation E of the U.S. Federal Reserve Board. Under such regulations, among other things, PayPal is required to
provide advance disclosure of changes to its service, to follow specified error resolution procedures and to reimburse consumers for losses from
certain transactions not authorized by the consumer. PayPal seeks to pass most of these losses on to the relevant merchants, but PayPal incurs
losses if the merchant does not have sufficient funds in its PayPal account. 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. eBay Inc.
and PayPal, Inc.; and Moises Zepeda v. PayPal, Inc.) were filed in the U.S. District Court in 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 PayPal improperly held users' funds or otherwise improperly limited user's accounts.
These lawsuits seek damages as well as changes to PayPal's practices among other remedies. A determination that there have been violations of
the Electronic Fund Transfer Act, Regulation E or violations of other laws relating to PayPal's practices could expose PayPal to significant
liability. Changes to PayPal's practices that may result from these lawsuits could require PayPal to incur significant costs and to expend product
resources, which could cause delay to other planned product improvements, which would further harm our business.
Our Bill Me Later service is similarly subject to a variety of laws and regulations. Although we do not originate loans under the Bill Me
Later service, we do purchase receivables related to the consumer loans extended by the bank which originates them, and one or more
jurisdictions may conclude that the eBay company which purchases those receivables is a lender or money transmitter or loan broker, which
could subject us to liability or regulation in one or more jurisdictions. As described under the caption “Bill Me Later's operations depend on
lending services provided by an unaffiliated lender” above, a lawsuit has been filed against Bill Me Later in the U.S. District Court for the
Northern District of California alleging that in its relationship with the former issuer of the Bill Me Later credit products, Bill Me Later was
acting as the true lender to customers in violation of various California laws, including the state's usury law.
Additionally, federal regulators could mandate changes to the relationship between us and the issuing bank of the Bill Me Later credit
products. Any termination or interruption of the issuing bank's lending services to consumers could result in an interruption of Bill Me Later
services, as described under the caption “Bill Me Later's operations depend on lending services provided by an unaffiliated lender” above.
The listing or sale by our users of pirated or counterfeit items may harm our business.
We have received in the past, and we anticipate receiving in the future, communications alleging that certain items listed or sold through
our service by our users infringe third-party copyrights, trademarks and trade names, or other intellectual property rights. See “Item 1 - Legal
Proceedings” above. Although we have sought to work actively with the owners of intellectual property rights to eliminate listings offering
infringing items on our websites, some rights owners have expressed the view that our efforts are insufficient. Content owners and other
intellectual property rights owners have been active in asserting their purported rights against online companies, including eBay. Allegations of
infringement of intellectual property rights have resulted in threats of litigation and actual litigation against us from time to time by rights
owners, including litigation brought by luxury brand owners such as Tiffany & Co. in the U.S., Rolex S.A. and Coty Prestige Lancaster Group
GmbH in Germany, Louis Vuitton Malletier and Christian Dior Couture in France and L'Oréal SA, Lancôme Parfums et Beauté & Cie and
Laboratoire Garnier & Cie in several European countries. The plaintiffs in these cases seek to hold eBay liable for alleged counterfeit items
listed on our sites by third parties; for “tester” and other consumer products labeled in a
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manner to prevent resale and for unboxed and other allegedly nonconforming products listed on our sites by third parties; for the alleged misuse
of trademarks or copyrights in listings or otherwise on our sites, and in connection with paid search advertisements; for alleged violations of
selective distribution channel laws or parallel import laws for listings of authentic items; and for alleged non-compliance with consumer
protection laws. Such plaintiffs seek, among other things, injunctive relief and damages. In the aggregate, these suits could result in significant
damage awards and injunctions that could adversely affect our business. There are approximately 30,000 rights owners in our verified rights
owner (VeRO) program, and each rights owner has anywhere from one to several hundred brands. Statutory damages for copyright or
trademark violations could range up to $30,000 per copyright violation and $100,000 per trademark violation in the U.S., and even higher in
other jurisdictions. These and similar suits may force us to modify our business practices, which could lower our revenue, increase our costs or
make our websites less convenient to our customers. Any such results could materially harm our business. In addition, rights owners have
aggressively sought to reduce the applicability of limitations to intellectual property rights such as copyright exhaustion and the first sales
doctrine in cases such as Vernor v. Autodesk Inc. (Ninth Circuit Court of Appeals) and Costco Wholesale Corp. v. Omega S.A. (Sup. Ct.). To
the extent such doctrines are limited, the supply of goods available for resale on eBay may be adversely affected.
In addition to litigation from rights owners, we may be subject to regulatory, civil or criminal proceedings and penalties if governmental
authorities believe we have aided in the sale of counterfeit goods. While we have had some early success in defending against such litigation,
more recent cases have been based, at least in part, on different legal theories than those of earlier cases, and there is no guarantee that we will
continue to be successful in defending against such litigation. Plaintiffs in recent cases have argued that we are not entitled to safe harbors
under the Digital Millennium Copyright Act in the U.S. or as a hosting provider in the European Union under the Electronic Commerce
Directive because of the alleged active nature of our involvement with our sellers, and that, whether or not such safe harbors are available, we
should be found liable because we supposedly have not adequately removed listings that are counterfeit or are authentic but allegedly violate
trademark or copyright law or effectively suspended users who have created such listings. We are continuously seeking to improve and modify
our efforts to eliminate counterfeit and pirated items. These improvements are in response to ongoing business initiatives designed to reduce
bad buyer experiences and improve customer satisfaction as well as in response to new patterns we are seeing among counterfeiters and others
committing fraud on our users. Notwithstanding these efforts, we believe that the legal climate, especially in Europe, is becoming more adverse
to our positions, which may require us to take actions which could lower our revenues, increase our costs, or make our websites less convenient
to our customers, which may materially harm our business. In addition, a public perception that counterfeit or pirated items are commonplace
on our sites, even if factually incorrect, could damage our reputation and our business.
Content owners and other intellectual property rights owners may also seek to bring legal action against entities that are peripherally
involved in the sale of infringing items, such as payment companies. To the extent that intellectual property rights owners bring legal action
against PayPal based upon the use of PayPal's payment services in a transaction involving the sale of infringing items, including on our
websites, our business could be harmed.
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 suits and we have
been notified of several other potential patent disputes, and expect that we will increasingly be subject to patent infringement claims involving
various aspects of our Marketplaces, Payments and GSI segments as our services continue to expand in scope and complexity, including
through acquisitions, and the universe of patent owners who may claim that we infringe their patents correspondingly increases. These claims,
whether meritorious or not, are time consuming and costly to resolve, and could require expensive changes in our methods of doing business,
could require us to enter into costly royalty or licensing agreements, or could require us to cease conducting certain operations.
Use of our services for illegal purposes could harm our business.
We may be unable to prevent our users from selling unlawful or stolen goods or unlawful services, or selling goods or services in an
unlawful manner, and we may be subject to allegations of civil or criminal liability for unlawful activities carried out by users through our
services. We have been subject to several lawsuits based upon such allegations. In December 2004, an executive of Baazee.com, our Indian
subsidiary, was arrested in connection with a user's listing of a pornographic video clip on that website. We continue to contest the charges
related to this arrest. Similarly, one of our Korean subsidiaries (IAC) and one of its employees were found criminally liable for listings (which
occurred prior to our acquisition of IAC) on IAC's website. The German Federal Supreme Court has ruled that we may have a duty to take
reasonable measures to prevent prohibited DVDs from being sold on our site to minors and that competitors may be able to enforce this duty.
In a number of circumstances, third parties, including government regulators and law enforcement officials, have alleged that our services aid
and abet certain violations of certain laws, including antiscalping laws with respect to the resale of tickets, laws regarding the
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sale of counterfeit items, the fencing of stolen goods, selective distribution channel laws, distance selling laws and the sale of items outside of
the U.S. that are regulated by U.S. export controls.
Although we have prohibited the listing of illegal and stolen goods and certain high-risk items and implemented other protective
measures, we may be required to spend substantial resources to take additional protective measures or discontinue certain service offerings, any
of which could harm our business. Any costs incurred as a result of potential liability relating to the alleged or actual sale of unlawful goods or
the unlawful sale of goods could harm our business. Certain manufacturers and large retailers have sought new U.S. federal and state legislation
regarding stolen goods that could limit our ability to allow sellers to use our sites without confirming the source of, and their legal rights to sell,
the underlying goods. In addition, from time to time we have received significant media attention relating to the listing or sale of illegal goods
and stolen goods using our services. This negative publicity could damage our reputation, diminish the value of our brand names and make
users reluctant to use our services.
PayPal's payment system is also susceptible to potentially illegal or improper uses. These may include illegal online gambling, fraudulent
sales of goods or services, illicit sales of prescription medications or controlled substances, piracy of software and other copyrighted or
trademarked goods, money laundering, terrorist financing, bank fraud, child pornography trafficking, prohibited sales of alcoholic beverages or
tobacco products, online securities fraud and encouraging, promoting, facilitating or instructing others to engage in illegal activities. There has
been an increased focus by rights owners and U.S. government officials on the role that payments systems play in the sale of, and payment for,
pirated digital goods on the Internet. Recent 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 policymakers. Despite
measures PayPal has taken to detect and lessen the risk of this kind of conduct, illegal activities could still be funded using PayPal. Any
resulting claims or liabilities could harm our business.
If our GSI business is unable to enhance its platform and migrate clients to its new platform in a timely and cost-effective manner, it
would be substantially harmed.
Our GSI business is in the process of enhancing and unbundling the components of its ecommerce and payments platform and migrating
its existing customers to its new platform. This project, which is not expected to be completed until 2013, is very expensive and time
consuming and involves significant technical risk. If client migrations to the enhanced platform are delayed, or the enhanced platform is not
accepted by the market, or GSI fails to meet client commitments and services level agreements, GSI could be subject to substantial penalties
under its agreements with its clients, its relationships with its clients and their respective businesses could be substantially harmed, and our GSI
business would be harmed. Even if accomplished successfully, this development and migration project may cost more than expected or take
longer than currently planned, which could harm our GSI business.
We are subject to risks associated with information disseminated through our service.
As discussed above with respect to certain specific issues, the law relating to the liability of online services companies for information
carried on or disseminated through their services is often unsettled. Claims could be made against online services companies under both U.S.
and foreign law for defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated through their services. Several private lawsuits seeking to impose liability under a number of
these theories have been brought against us, as well as other online service companies. In addition, domestic and foreign legislation has been
proposed that would prohibit or impose liability for the transmission over the Internet of certain types of information. Our service features a
Feedback Forum, which includes information from users regarding other users. Although all such feedback is generated by users and not by us,
claims of defamation or other injury have been made in the past and could be made in the future against us for not removing content posted in
the Feedback Forum.
Furthermore, several court decisions arguably have narrowed the scope of the immunity provided to Internet service providers like us
under the Communications Decency Act. For example, the Ninth Circuit has held that certain immunity provisions under the Communications
Decency Act might not apply to the extent that a website owner materially contributes to the development of unlawful content on its website.
As our websites evolve, challenges to the applicability of these immunities can be expected to continue. In addition, the Paris Court of Appeal
has ruled in the Louis Vuitton Malletier and Christian Dior Couture cases that applicable laws protecting passive internet “hosts” from liability
are inapplicable to eBay given that eBay actively promotes bidding on its sellers' listings and receives a commission on successful transactions,
and is therefore a broker. the ECJ decision in the L'oreal case (see “Item 1 - Legal Proceedings” above) gave broad discretion to national courts
in Europe to determine if Internet hosting immunity applies to eBay. This trend, if continued, may increase our potential liability to third parties
for the user-provided content on our sites, particularly in jurisdictions outside the U.S. where laws governing Internet transactions are unsettled.
If we become liable for information provided by our users and carried on our service in any
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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 would negatively affect our financial
results. In addition, the increased attention focused upon liability issues as a result of these lawsuits and legislative proposals could require us to
incur additional costs and harm our reputation and our business.
Government inquiries may lead to charges or penalties.
A large number of transactions occur on our websites on a daily basis. Government regulators have received a significant number of
consumer complaints about both eBay and PayPal, which, while small as a percentage of our total transactions, are large in aggregate numbers.
As a result, from time to time we have been contacted by various foreign and domestic governmental regulatory agencies that have questions
about our operations and the steps we take to protect our users from fraud. PayPal has received inquiries regarding its restriction and disclosure
practices from the Federal Trade Commission and regarding these and other business practices from the attorneys general of a number of states.
In September 2006, PayPal entered into a settlement agreement with the attorneys general of a number of states under which it agreed to pay
$1.7 million to the attorneys general, shorten and streamline its user agreement, increase educational messaging to users about funding choices,
and communicate more information regarding protection programs to users. From time to time, we face inquiries from government regulators
in various jurisdictions related to actions that we have taken that are designed to improve the security of transactions and the quality of the user
experience on our websites and we may face similar inquiries from other government regulators in the future. For example, both the Australian
Competition and Consumer Commission and the Reserve Bank of Australia recently reviewed our policies requiring sellers to offer PayPal as a
payment alternative on most transactions on our localized Australian website and precluding sellers from imposing a surcharge or any other fee
for accepting PayPal or other payment methods. Other regulators have requested information concerning PayPal's limitations of customer
accounts. Similarly, Bill Me Later has from time to time received customer complaints that could result in investigations into Bill Me Later's
business practices by state or federal regulators. As a result of the recent credit crisis, new laws have been passed, and we expect additional
new laws and regulations to be adopted that impose, among other requirements, additional obligations and restrictions on the provision of
credit. We are likely to receive additional inquiries from regulatory agencies in the future, including under existing or new credit laws or
regulations, which may lead to action against us. We have responded to all inquiries from regulatory agencies by describing our current and
planned antifraud efforts, customer support procedures, operating procedures and disclosures. If one or more of these agencies is not satisfied
with our response to current or future inquiries, we could be subject to enforcement actions, fines or other penalties, or forced to change our
operating practices in ways that could harm our business.
We are subject to general litigation and regulatory disputes.
From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business. The number and
significance of these disputes and inquiries have increased as our company has grown larger and the scope of our businesses has expanded. We
have in the past been forced to litigate such claims. We may also become more vulnerable to third-party claims as laws such as the Digital
Millennium Copyright Act, the Lanham Act and the Communications Decency Act are interpreted by the courts as our services to users
continues to expand and as we expand geographically into jurisdictions where the underlying laws with respect to the potential liability of
online intermediaries such as ourselves are either unclear or less favorable. We are also subject to federal, state, local and foreign laws of
general applicability, including laws regulating working conditions (e.g., the Fair Labor Standards Act). Any claims or regulatory actions
against us, whether meritorious or not, could be time consuming, result in costly litigation, damage awards (including statutory damages for
certain causes of action in certain jurisdictions), injunctive relief, or increased costs of doing business through adverse judgment or settlement,
require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of
significant operational resources, or otherwise harm our business.
Changes to our dispute resolution process could increase our costs and loss rate.
In 2009, 2010 and 2011, we have transitioned buyers in the U.S., U.K. and Germany to a dispute resolution process provided by eBay
customer support, which now serves as the primary entry point for buyers who are unable to resolve their disputes with eBay sellers. Among
other things, the resolutions process provides that eBay will generally reimburse the buyer for the full amount of an item's purchase price
(including original shipping costs), in cases where the item was not received or the item they received was different from that described in the
listing, and the seller does not provide adequate resolution to the buyer. eBay then attempts to recoup amounts paid to the buyer from the
seller's PayPal accounts or other collection methods. Our costs associated with resolutions have increased as a result of these changes to our
resolutions policies and process. These changes, together with any further changes that we may make to our resolutions process in the future,
may be negatively received by, and lead to dissatisfaction on the part of, some of our sellers. These changes may also result in an increase in
buyer fraud and associated transaction losses. In addition, eBay may not have the same level of rights of recoupment against sellers as PayPal,
which may result in higher costs to operate the program.
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Failure to deal effectively with bad transactions and customer disputes would increase our loss rate and harm our business.
Over the last several years, we have enhanced the buyer and seller protections offered by PayPal in certain eBay marketplaces, and in
certain countries for transactions outside of eBay marketplaces. These changes to PayPal's buyer and seller protection program could result in
future changes and fluctuations in our Payments transaction loss rate. For the the six months ended June 30, 2011 and the fiscal year ended
December 31, 2010, our Payments transaction losses (including both direct losses and buyer protection payouts) totaled $104.1 million and
$153.1 million, representing 0.20% and 0.17% of our net total payment volume, respectively. Beginning in 2009, we have also changed the
dispute resolution process for transactions on eBay.com, eBay.co.uk and eBay.de, as described in greater detail above under the caption
“Changes to our dispute resolution process could increase our costs and loss rate,” which could result in an increase in our combined eBay and
PayPal transaction losses.
PayPal's highly automated and liquid payment service makes PayPal an attractive target for fraud. In configuring its service, PayPal
continually strives to maintain the right balance of appropriate measures to promote both convenience and security for customers. Identity
thieves and those committing fraud using stolen credit card or bank account numbers can potentially steal large amounts of money from
businesses such as PayPal. We believe that several of PayPal's current and former competitors in the electronic payments business have gone
out of business or significantly restricted their businesses largely due to losses from this type of fraud. While PayPal uses advanced anti-fraud
technologies, we expect that technically knowledgeable criminals will continue to attempt to circumvent PayPal's anti-fraud systems using
increasingly sophisticated methods. In addition, PayPal's service could be subject to employee fraud or other internal security breaches, and
PayPal may be required to reimburse customers for any funds stolen as a result of such breaches. Merchants could also request reimbursement,
or stop using PayPal, if they are affected by buyer fraud or other types of fraud.
PayPal incurs substantial losses due to claims from buyers that merchants have not performed or that their goods or services do not match
the merchant's description, whether those claims arise from merchant fraud or from an unintentional failure to perform by the merchant. PayPal
seeks 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. PayPal also
incurs losses from claims that the customer did not authorize the purchase, from buyer fraud, from erroneous transmissions, and from
customers who have closed bank accounts or have insufficient funds in them to satisfy payments. In addition to the direct costs of such losses,
if they are related to payment card transactions and become excessive, they could potentially result in PayPal losing the right to accept payment
cards for payment, which would materially and adversely affect our business. In addition, if PayPal were unable to accept payment cards, the
velocity of trade on eBay could decrease and result in corresponding decreases in our net total payment volume, in which case our business
would further suffer. The Bill Me Later service is similarly subject to the risk of fraudulent activity associated with merchants, users of the Bill
Me Later service and third parties handling its user information, which could increase our exposure to transaction losses and adversely affect
this business. Our Payments business has 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 will suffer.
eBay faces similar risks with respect to fraudulent activities on its websites. eBay periodically receives complaints from users who may
not have received the goods that they had purchased. In some cases individuals have been arrested and convicted for fraudulent activities using
our websites. eBay also receives complaints from sellers who have not received payment for the goods that a buyer had contracted to purchase.
Non-payment may occur because of miscommunication, because a buyer has changed his or her mind and decided not to honor the contract to
purchase the item, or because the buyer bid on the item maliciously in order to harm either the seller or eBay. In some European and Asian
jurisdictions, buyers may also have the right to withdraw from a sale made by a professional seller within a specified time period. While eBay
can, in some cases, suspend the accounts of users who fail to fulfill their payment or delivery obligations to other users, eBay does not have the
ability to require users to make payment or deliver goods, or otherwise make users whole other than through our buyer protection programs.
The impact of changes to our dispute resolutions program implemented beginning in 2009 is discussed in more detail above under the caption
“Changes to our dispute resolution process could increase our costs and loss rate.”
Our limited eBay and PayPal buyer protection programs represent the means by which we compensate users who believe that they have
been defrauded, have not received the item that they purchased, or have received an item different than what was described. However, users
who pay through PayPal may have reimbursement rights from their credit card company or bank, which in turn will seek reimbursement from
PayPal. eBay also periodically receives complaints from buyers as to the quality of the goods purchased. We expect to continue to receive
communications from users requesting reimbursement or threatening or commencing legal action against us if no reimbursement is made. Our
liability for these sort of claims is only beginning to be clarified in some jurisdictions and may be higher in some non-U.S. jurisdictions than it
is in the U.S. Litigation involving
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liability for third-party actions could be costly and time consuming for us, divert management attention, result in increased costs of doing
business, lead to adverse judgments, or otherwise harm our business. In addition, affected users will likely complain to regulatory agencies that
could take action against us, including imposing fines or seeking injunctions.
Negative publicity and user sentiment generated as a result of fraudulent or deceptive conduct by users of our Marketplaces and
Payments services could damage our reputation, reduce our ability to attract new users or retain our current users, and diminish the value of our
brand names. We believe that negative user experiences are one of the primary reasons users stop using our services.
Governmental regulators worldwide are also looking at approaches intended to reduce online fraud. Some of the current proposals (e.g.,
two-factor authentication in France to verify a user's identity) could increase our costs and require us to change our business practices in ways
that would harm our business.
From time to time, we have considered more active mechanisms designed to combat bad transactions and increase buyer satisfaction,
including evaluating sellers on the basis of their transaction history and restricting or suspending their activity as a result. For example, in the
U.S. and the U.K., we have begun testing the efficacy of improving seller performance and increasing buyer satisfaction by requesting that
PayPal hold seller funds in certain instances (e.g., for sellers with a limited selling history or below-standard performance ratings), and we may
expand the scope of such programs in the future and introduce other programs with similar aims in these and other countries. Our increased
usage of these or other mechanisms to attempt to improve buyer satisfaction could result in dissatisfaction on the part of sellers, loss of share to
competing marketplaces, reduced selection of inventory on our sites and other adverse effects.
Any factors that reduce cross-border trade could harm our business.
Cross-border trade has become an increasingly important source of both revenue and profits for us. Cross-border transactions using our
websites generally provide higher revenues and gross margins than similar transactions that take place within a single country or market. We
generally earn higher transaction fees for cross-border transactions involving PayPal, and our Marketplaces business continues to represent a
relatively easy way for buyers and sellers to engage in cross-border trade compared with other alternatives. Any factors that result in a net
reduction in cross-border trade, including, among other factors, fluctuations in currency exchange rates, the interpretation and application of
specific national or regional laws, such as selective distribution channel laws and parallel import laws, to users in other countries (e.g., the
interpretation and application of such laws to the sale of “gray market” goods), the potential interpretation and application of laws of multiple
jurisdictions (e.g., the jurisdiction of the buyer, the seller, and/or the location of the item being sold), or any other factors that impose
restrictions on, or increase the costs of, purchasing, selling or shipping goods across national borders (including customs enforcement and
tariffs) would harm our business.
Our business is subject to online security risks, including security breaches.
Our businesses involve the storage and transmission of users' proprietary information, and security breaches could expose us to a risk of
loss or misuse of this information, litigation, and potential liability. An increasing number of websites, including several other large internet
companies, have recently disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on
portions of their sites. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change
frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement
adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our
security measures could be harmed and we could lose users. A party that is able to circumvent our security measures could misappropriate our
or our users' proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage
our reputation and business. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal
and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business.
Currently, a significant number of our users authorize us to bill their payment card accounts directly for all transaction fees charged by
us. PayPal's users routinely provide credit card and other financial information, and GSI customers routinely provide credit card information
which we maintain to facilitate the ease of future transactions. We rely on encryption and authentication technology licensed from third parties
to provide the security and authentication to effectively secure transmission of confidential information, including customer payment card
numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology
used by us to protect transaction data being breached or compromised. Non-technical means, for example, actions by a suborned employee, can
also result in a data breach.
Under payment card rules and our contracts with our card processors, if there is a breach of payment card information
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that we store, or that is stored by PayPal's 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. In addition, if we fail to follow payment card industry security standards, even if there is
no compromise of customer information, we could incur significant fines or lose our ability to give customers the option of using payment
cards to fund their payments or pay their fees. If we were unable to accept payment cards, our business would be seriously damaged.
Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, and we have experienced
“denial-of-service” type attacks on our system that have, in certain instances, made all or portions of our websites unavailable for periods of
time. For example, in December 2010, PayPal was subject to a series of distributed “denial of service” attacks following PayPal's decision to
permanently restrict the account used by WikiLeaks due to a violation of PayPal's Acceptable Use Policy. We may need to expend significant
resources to protect against security breaches or to address problems caused by breaches. These issues are likely to become more difficult as we
expand the number of places where we operate. Security breaches, including any breach by us or by parties with which we have commercial
relationships that result in the unauthorized release of our users' personal information, could damage our reputation and expose us to a risk of
loss or litigation and possible liability. Our insurance policies carry low coverage limits, which may not be adequate to reimburse us for losses
caused by security breaches.
Our users, as well as those of other prominent Internet companies, have been and will continue to be targeted by parties using fraudulent
“spoof” and “phishing” emails to misappropriate passwords, credit card numbers, or other personal information or to introduce viruses or other
malware through “trojan horse” programs to our users' computers. These emails appear to be legitimate emails sent by eBay, PayPal, a GSI
client, or one of our other businesses (e.g., StubHub), or by a user of one of our businesses, but direct recipients to fake websites operated by
the sender of the email or request that the recipient send a password or other confidential information via email or download a program. Despite
our efforts to mitigate “spoof” and “phishing” emails through product improvements and user education, “spoof” and “phishing” remain a
serious problem that may damage our brands, discourage use of our websites, and increase our costs.
Changes in regulations or user concerns regarding privacy and protection of user data could adversely affect our business.
We are subject to laws relating to the collection, use, retention, security and transfer of personally identifiable information about our
users, especially for financial information and for users located outside of the U.S. In addition, as an entity licensed and subject to regulation as
a bank in Luxembourg, PayPal (Europe) S.A.R.L. et Cie, SCA is subject to banking secrecy laws. In many cases, these laws apply not only to
third-party transactions but also to transfers of information between ourselves and our subsidiaries, and between ourselves, our subsidiaries and
other parties with which we have commercial relations. New laws in this area have been passed by several jurisdictions, and other jurisdictions
are considering imposing additional restrictions. The interpretation and application of user data protection laws are in a state of flux. These
laws may be interpreted and applied inconsistently from country to country and our current data protection policies and practices may not be
consistent with those interpretations and applications. Complying with these varying international requirements could cause us to incur
substantial costs or require us to change our business practices in a manner adverse to our business. In addition, we have and post on our
websites our own 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, subject us
to significant penalties and negative publicity and adversely affect us. In addition, as noted above, we are subject to the possibility of security
breaches, which themselves may result in a violation of these laws.
In addition, our GSI business utilizes “behavioral marketing” (generally, the tracking of a user's online activities) to deliver relevant
content to Internet users. The Federal Trade Commission, or FTC, has released a Staff Report with principles to address consumer privacy
issues that may arise from behavioral marketing and to encourage industry self-regulation. The FTC also has issued a Staff Report in December
2010 on consumer privacy policy, proposing a set of self-regulatory best practices and several policy recommendations for consideration by
Congress, including institution of "do not track" mechanisms. In the future, regulations or legislation could, if enacted, prohibit the use of
certain technologies that track individuals' activities on the Internet. Such laws and regulations could restrict our ability to collect and use page
viewing data and personal information, which may reduce demand for GSI's ecommerce services and interactive marketing services businesses.
If our interactive marketing products are perceived to cause or are otherwise unfavorably associated with invasions of privacy, whether or not
illegal, we or our clients may be subject to public criticism. Existing and potential future privacy laws and increasing public concerns regarding
data collection, privacy and security may cause some Internet users to be less likely to visit our clients' websites or otherwise interact with
them. If enough consumers choose not to visit our customers' websites or otherwise interact with them, our customers could stop using our
interactive marketing products, and the growth of these businesses could be
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harmed or it may not be possible to continue the current business models for these products.
Our revenue from advertising is subject to factors beyond our control.
We derive significant revenue from advertising on our websites. Revenues from online advertising are sensitive to events and trends that
affect advertising expenditures, such as general changes in the economy and changes in consumer spending, as well as the effectiveness of
online advertising versus offline advertising media and the value our websites provide to advertisers relative to other websites. Recent
economic conditions have adversely impacted our advertising revenue. In addition, major search engine operators have the ability to change
from time to time, at their sole discretion, the rules and search algorithms governing the pricing, availability, and placement of online
advertising. Any changes in these rules or search algorithms could materially reduce the value that we derive from online advertising on our
websites, either directly or indirectly. For example, retailers pay a fee to Shopping.com for online shoppers directed to their websites by
Shopping.com. Rule changes made by search engines in 2008 disrupted traffic to our Shopping.com website, which in turn adversely affected
click-through traffic to retailers from our Shopping.com website and associated fee revenue. Furthermore, we recently changed the placement
of ads on our sites, which may reduce the amount we are paid. Finally, legislators and regulators in various jurisdictions, including the U.S. and
the European Union, are reviewing Internet advertising models and the use of user-related data, and are considering proposals that could restrict
or otherwise impact this business model. If we experience a reduction in our advertising revenues due to economic, competitive, regulatory,
technological or other factors, including the worldwide economic slowdown, or due to the renegotiation of the terms of our contracts with
major advertising companies or due to a reduction in our ability to effectively place advertisements on our sites or otherwise provide value to
our advertisers, our business and financial results would suffer.
Our growth will depend on our ability to develop our brands, and these efforts may be costly.
We believe that continuing to strengthen our brands will be critical to achieving widespread acceptance of our services, and will require a
continued focus on active marketing efforts across all of our brands. We will need to continue to spend substantial amounts of money on, and
devote substantial resources to, advertising, marketing, and other efforts to create and maintain brand loyalty among users. Since 2005, we have
significantly increased the number of brands we are supporting, adding Shopping.com, our classified websites (e.g., eBay Classifieds, Kijiji,
Marktplaats and Den Blå Avis), StubHub, Bill Me Later and Gmarket, among others. Each of these brands requires its own resources,
increasing the costs of our branding efforts. Brand promotion activities may not yield increased revenues, and even if they do, any increased
revenues may not offset the expenses incurred in building our brands. Also, major search engine operators that we use to advertise our brands
have frequently-changing rules that govern their pricing, availability and placement of online advertisement (e.g., paid search, keywords), and
changes to these rules could negatively affect our use of online advertising to promote our brands. If we fail to promote and maintain our
brands, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, our business would be harmed.
New and existing regulations could harm our business.
We are subject to the same foreign and domestic laws as other companies conducting business on and off the Internet. It is not always
clear how existing laws governing issues such as property ownership, copyrights, trademarks and other intellectual property issues, parallel
imports and distribution controls, taxation, libel and defamation, obscenity, and personal privacy apply to online businesses such as ours. The
majority of these laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address
the unique issues of the Internet and related technologies. Those laws that do reference the Internet, such as the U.S. Digital Millennium
Copyright Act, the U.S. “CAN-SPAM” Act and the European Union's Directives on Distance Selling and Electronic Commerce, are being
interpreted by the courts, but their applicability and scope remain uncertain. Furthermore, as our activities and the types of goods and services
listed on our websites expand, including through acquisitions such as Bill Me Later and StubHub, regulatory agencies or courts may claim or
hold that we or our users are subject to licensure or prohibited from conducting our business in their jurisdiction, either generally or with
respect to certain actions (e.g., the sale of real estate, event tickets, cultural goods, boats and automobiles). Recent financial and political events
may increase the level of regulatory scrutiny on large companies in general and financial services companies in particular.
Our success and increased visibility has driven some existing businesses that perceive our business model to be a threat to their business
to raise concerns about our business models to policymakers and regulators. These established 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
businesses and the ability of users to use our products and services. In particular, these established businesses have raised concerns relating to
pricing, parallel imports, professional seller obligations,
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selective distribution networks, stolen goods, copyrights, trademarks and other intellectual property rights, and the liability of the provider of an
Internet marketplace for the conduct of its users related to those and other issues. In addition, regulatory agencies may view matters or interpret
laws and regulations differently than they have in the past. Changing the legal or regulatory regimes in a manner that would increase our
liability for third-party listings could negatively impact our business.
Over the last few years some large retailers and their trade associations have sought legislation in a number of states and the U.S.
Congress that would make eBay liable for the sale of stolen property or would ban certain categories of goods from sale on our platform,
including gift cards and health and beauty products. No such legislation has passed. Nonetheless, the proponents continue to seek passage of
such legislation, and if any of these laws are adopted they could harm our business.
Numerous states and foreign jurisdictions, including the State of California, where our headquarters are located, have regulations
regarding “auctions” and the handling of property by “secondhand dealers” or “pawnbrokers.” Several states and some foreign jurisdictions,
including France, have attempted, and may attempt in the future, to impose such regulations upon us or our users. Attempted enforcement of
these laws against some of our users appears to be increasing and such attempted enforcements could harm our business. In France, we have
been sued by Conseil des Ventes, the French auction regulatory authority. The authority alleges that sales on our French website constitute
illegal auctions that cannot be performed without its consent. Although we have won this lawsuit in the lower court, this decision is being
appealed. A lawsuit alleging similar claims has been brought against us by two associations of French antique dealers, and is now pending on
appeal after we won this lawsuit in the first instance. We intend to vigorously defend against these lawsuits. However, these and other
regulatory and licensure claims could result in costly litigation and, if successful, could require us to change the way we or our users do
business in ways that increase costs or reduce revenues (for example, by forcing us to prohibit listings of certain items for some locations). We
could also be subject to fines or other penalties, and any of these outcomes could harm our business.
A number of the lawsuits against us relating to trademark issues seek to have our websites subject to unfavorable local laws. For
example, “trademark exhaustion” principles provide trademark owners with certain rights to control the sale of a branded authentic product
until it has been placed on the market by the trademark holder or with the holder's consent. The application of “trademark exhaustion”
principles is largely unsettled in the context of the Internet, and if trademark owners are able to force us to prohibit listings of certain items in
one or more locations, our business could be harmed.
As we expand and localize our international activities, we become 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 to users worldwide, one or more
jurisdictions may claim that we or our users are required to comply with their laws based on the location of our servers or one or more of our
users, or the location of the product or service being sold or provided in an ecommerce transaction. For example, we were found liable in
France, under French law in the Louis Vuitton Malletier litigation for transactions on some of our websites worldwide that did not involve
French buyers or sellers (see “Item 1 - Legal Proceedings” above). Laws regulating Internet and ecommerce companies outside of the U.S. may
be less favorable than those in the U.S., giving greater rights to consumers, content owners, competitors, users and other third parties.
Compliance may be more costly or may require us to change our business practices or restrict our service offerings, and the imposition of any
regulations on our users may harm our business. In addition, we may be subject to overlapping legal or regulatory regimes that impose
conflicting requirements on us. 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.
In light of the global financial crisis, U.S. federal lawmakers enacted legislation in 2010 overhauling the federal government's oversight
of consumer financial products and systemic risk in the U.S. financial system. Although the full effect of the new legislation will be dependent
on regulations to be adopted by a number of different agencies, we expect the general effect of the new law will be to require PayPal and Bill
Me Later to make additional disclosures to their users and to impose new restrictions on certain of their activities. These new obligations will
increase our costs and may result in increased litigation, the need to make expensive product changes and other adverse impacts on our
business. In addition, we also expect that the continued implementation of the financial reform law enacted in 2010 will adversely impact some
significant traditional revenue streams for banks, such as overdraft fees and debit card interchange fees. As a result, banks may need to revise
their business models to remain profitable, which may lead them to charge more for services which were previously provided for free or at
lower cost. Any resulting increases in service fees required for PayPal to process transactions (e.g., service fees for automated clearing house
transactions) would increase our costs and adversely affect our business.
Changes to payment card networks or bank fees, rules, or practices could harm PayPal's business.
PayPal does not directly access payment card networks, such as Visa and MasterCard, which enable PayPal's acceptance of credit cards
and debit cards (including some types of prepaid cards). As a result, PayPal must rely on banks or other payment processors to process
transactions, and must pay fees for this service. From time to time, payment card networks have
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increased, and may increase in the future, the interchange fees and assessments that they charge for each transaction using one of their cards.
PayPal's payment card processors have the right to pass any increases in interchange fees and assessments on to PayPal as well as increase their
own fees for processing. Changes in interchange fees and assessments could increase PayPal's operating costs and reduce its profit margins. In
addition, in some markets, governments have required Visa and MasterCard to reduce interchange fees, or have opened investigations as to
whether Visa or MasterCard's interchange fees and practices violate antitrust law. In the United States, the financial reform law enacted in 2010
authorizes the Federal Reserve Board to regulate debit card interchange rates and debit card network exclusivity provisions, and in June 2011,
the Federal Reserve Board voted to cap debit card interchange fees at significantly lower rates than Visa or MasterCard previously charged.
Any material reduction in credit or debit card interchange rates in the United States or other markets could jeopardize PayPal's competitive
position against traditional credit and debit card processors (although it could also reduce PayPal's costs). While the regulations adopted by the
Federal Reserve Board in June 2011 do not treat PayPal as a “payment card network,” future changes to PayPal's business could potentially
cause PayPal to be so treated, which could reduce PayPal's revenue and adversely affect PayPal's business.
PayPal is required by its processors to comply with payment card network operating rules, and PayPal has agreed to reimburse its
processors for any fines they are assessed by payment card networks as a result of any rule violations by PayPal or PayPal's customers. The
payment card networks set and interpret the card rules. Payment card networks could adopt new operating rules or re-interpret existing rules
that PayPal or its processors might find difficult or even impossible to follow, or expensive to implement. As a result, PayPal could lose its
ability to give customers the option of using payment cards to fund their payments, or could lose its ability to give customers the choice of
currency in which they would like their card to be charged, which would reduce PayPal's revenues from cross-border trade. If PayPal were
unable to accept payment cards, its business would be seriously damaged. In addition, the velocity of trade on eBay could decrease and our
business would further suffer.
PayPal is required to comply with payment card networks' special operating rules for Internet payment services. PayPal and its payment
card processors have implemented specific business processes for merchant customers in order to comply with these rules, but any failure to
comply could result in fines, the amount of which would be within the payment card networks' discretion. PayPal also could be subject to fines
from payment card networks if it fails 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, PayPal must either prevent such merchants from using PayPal
or register such merchants with payment card networks and conduct additional monitoring with respect to such merchants. PayPal has incurred
fines from its payment card processors relating to PayPal's failure to detect the use of its service by “high risk” merchants. The amount of these
fines has not been material, but any additional fines in the future would likely be for larger amounts, could become material, and could result in
a termination of PayPal's ability to accept payment cards or changes in PayPal's process for registering new customers, which would seriously
damage PayPal's business.
Similarly, consumers typically pay for purchases through GSI's ecommerce services platforms by payment card or similar payment
method. Accordingly, GSI faces risks similar to the risks described above for PayPal.
Bill Me Later's operations expose us to additional risks.
Risks associated with our reliance on an unaffiliated lender in providing the Bill Me Later service are discussed in detail under the
caption “Bill Me Later's operations depend on lending services provided by an unaffiliated lender” above.
The Bill Me Later service relies on third-party merchant processors and payment gateways to process transactions. For the six months
ended June 30, 2011 and the fiscal year ended December 31, 2010, approximately 74% and 67%, respectively, of all transaction volume by
dollar amount through the Bill Me Later service was settled through the facilities of a single vendor. Any disruption to these third party
payment processing and gateway services would adversely affect the Bill Me Later service.
The Bill Me Later service is offered to a wide range of consumers, and the financial success of this business depends on the ability of the
issuing bank of the Bill Me Later credit products to manage credit risk related to those products. The lender extends credit using Bill Me Later's
proprietary segmentation and credit scoring algorithms and other analytical techniques designed to analyze the credit risk of specific customers
based on their past purchasing and payment history as well as their credit scores. Based on these performance criteria, the lender may extend or
increase lines of credit to consumers at the point of sale. These algorithms and techniques may not accurately predict the creditworthiness of a
consumer due to, among other factors, inaccurate assumptions about a particular consumer or the economic environment. The accuracy of the
predictions and the ability of the lender and us to manage credit risk related to the Bill Me Later service may also be affected by legal or
regulatory changes (such as bankruptcy laws and minimum payment regulations), competitors' actions, changes in consumer behavior and other
factors. The lender may also incorrectly interpret the data produced by these algorithms in setting its credit
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policies, which may impact the financial performance of the Bill Me Later service. In addition, economic and financial conditions in the U.S.
may affect consumer confidence levels and reduce consumers' ability or willingness to use credit, including the credit extended by the lender to
consumers who use the Bill Me Later service, which could impair the growth and profitability of this business.
We anticipate that the volume of credit extended by WebBank (the financial institution issuing the Bill Me Later credit products) will
increase as we begin to enable qualified buyers with a PayPal account to use Bill Me Later as a payment funding option for transactions on
eBay.com and on certain merchant websites that accept PayPal. We purchase the receivables relating to these consumer loans extended by the
issuing bank, and therefore bear the risk of loss. Like other businesses with significant exposure to losses from consumer credit, the Bill Me
Later service faces the risk that certain 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 4.60% and 7.71%, respectively, for the six months ended June 30, 2011 and the fiscal year ended December 31, 2010. The
nonpayment rate among Bill Me Later users may increase due to, among other things, worsening economic conditions, such as the current
recession in the U.S., and higher unemployment rates. Consumers who miss payments on their obligations often fail to repay them, and
consumers who file for protection under the bankruptcy laws generally do not repay their credit. The age and rate of growth of the receivables
related to a consumer credit portfolio also affects the rate of missed payments and accounts charged off as uncollectible.
We currently fund the purchase of receivables related to Bill Me Later accounts through the sale of commercial paper, our cash balances
and free cash flow generated from our portfolio of businesses. Effective September 1, 2010, we fund the purchase of receivables generated
through new Bill Me Later accounts using funds from our international subsidiaries; this funding is facilitated through our Luxembourg-based
bank. A downgrade in our credit ratings, particularly our short-term credit ratings, would likely reduce the amount of commercial paper we
could issue (or, in certain circumstances, could prevent us from making commercial paper borrowings), increase our commercial paper
borrowing costs, or both. If we are unable to fund our purchase of receivables related to the Bill Me Later business adequately or in a
cost-effective manner, the growth and profitability of this business could be significantly and adversely affected.
Additionally, in providing the Bill Me Later service, we face other risks similar to those faced by PayPal, including the risk of system
failures, security breaches or other loss of customer data, fraud, intellectual property claims, compliance failures, and changes to regulations
relating to credit offerings (including those stemming from the continued implementation of the financial reform law enacted in 2010), as
described elsewhere in these Risk Factors, including under the captions “Government inquiries may lead to charges or penalties” and “If our
Payments business is found to be subject to or in violation of any laws or regulations, including those governing money transmission, electronic
funds transfer, money laundering, counter-terrorist financing, banking and lending, it could be subject to liability, licensure and regulatory
approval and may be forced to change its business practices.”
Changes in PayPal's funding mix could adversely affect PayPal's results.
PayPal pays significant transaction fees when customers fund payment transactions using credit cards, lower payments when customers
fund payments with debit cards, nominal fees when customers fund payment transactions by electronic transfer of funds from bank accounts,
and no fees when customers fund payment transactions from an existing PayPal account balance or use buyer credit issued by GE Money Bank.
As of October 2009, eligible U.S. customers may also fund payment transactions through a loan originated by an unaffiliated lender as part of
the Bill Me Later service, and PayPal will incur no fees for such transactions. Customers fund a significant portion of PayPal's payment volume
using credit cards, and PayPal's financial success will remain highly sensitive to changes in the rate at which its senders fund payments using
credit cards. Senders may prefer funding using credit cards rather than bank account transfers for a number of reasons, including the ability to
dispute and reverse charges directly with their credit card provider if merchandise is not delivered or is not as described, the ability to earn
frequent flier miles, cash rebates, or other incentives offered by credit card issuers, the ability to defer payment, or a reluctance to provide bank
account information to PayPal. In addition, some of PayPal's offerings, including the ability for buyers to make a limited number of payments
without opening an account, have a higher rate of credit card funding than PayPal's basic product offering.
PayPal's failure to manage customer funds properly would harm its business.
PayPal's ability to manage and account accurately for customer funds requires a high level of internal controls. In some of the markets
that PayPal serves and currencies that PayPal offers, PayPal has a limited operating history and limited management experience in managing
these internal controls. As PayPal's business continues to grow, it must strengthen its internal controls accordingly. PayPal's success requires
significant public confidence in its ability to handle large and growing transaction volumes and amounts of customer funds. Any failure to
maintain necessary controls or to manage customer funds accurately could severely diminish customer use of PayPal's products.
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System failures could harm our business.
We have experienced system failures from time to time, and any interruption in the availability of our websites will reduce our current
revenues and profits, could harm our future revenues and profits, and could subject us to regulatory scrutiny. Our eBay.com website has been
interrupted for periods of up to 22 hours. In November 2009, technical systems issues resulted in eBay.com users being unable to search for
listed items for a period of several hours. Our PayPal website has suffered intermittent unavailability for periods as long as five days, most
recently for approximately three hours primarily on our ebay.co.uk site in May 2011. Other of our websites (e.g., StubHub) have experienced
intermittent unavailability from time to time. Any unscheduled interruption in our services results in an immediate, and possibly substantial,
loss of revenues. Frequent or persistent interruptions in our services could cause current or potential users 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. Reliability is
particularly critical for PayPal, especially as it seeks to expand its Merchant Services business. Because PayPal is a regulated financial
institution, frequent or persistent site interruptions could lead to fines, penalties, or mandatory changes to PayPal's business practices, and
ultimately could cause PayPal to lose existing licenses it needs to operate or prevent it from obtaining additional licenses that it needs to
expand. Finally, because our customers may use our products for critical transactions, any system failures could result in damage to our
customers' businesses. These customers could seek significant compensation from us for their losses. Even if unsuccessful, this type of claim
likely would be time-consuming and costly for us to address.
Although our systems have been designed around industry-standard architectures to reduce downtime in the event of outages or
catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication
failures, terrorist attacks, cyber attacks, computer viruses, computer denial-of-service attacks, human error, hardware or software defects or
malfunctions, and similar events or disruptions. Some of our systems, including our Shopping.com website and the systems related to the Bill
Me Later business, are not fully redundant, and our disaster recovery planning is not sufficient for all eventualities. Our systems are also
subject to break-ins, sabotage, and intentional acts of vandalism. Despite any precautions we may take, the occurrence of a natural disaster, a
decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons, or other
unanticipated problems at our hosting facilities could cause system interruptions, delays, and loss of critical data, and result in 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 system failures.
If we are unable to cost-effectively upgrade and expand our websites and platforms, our business would suffer.
We must constantly add new hardware, update software and add new engineering personnel to accommodate the increased use of our
websites and platforms, and the new products and features we regularly introduce. As our PayPal business continues to grow, we are focused
on updating our PayPal platform to provide increased scale, improved performance and additional built-in functionality addressing regulatory
compliance matters (e.g., anti-money laundering). This upgrade process is expensive, and the increased complexity of our websites and the
need to support multiple platforms as our portfolio of brands grows increases the cost of additional enhancements. Failure to upgrade our
technology, features, transaction processing systems, security infrastructure, or network infrastructure in a cost-effective manner to
accommodate increased traffic or transaction volume or changes to our site functionality could harm our business. Adverse consequences could
include unanticipated system disruptions, slower response times, degradation in levels of customer support, impaired quality of users'
experiences of our services, impaired quality of services for third-party application developers using our externally accessible application
programming interfaces and delays in reporting accurate financial information, and could result in customer dissatisfaction and the loss of
existing users on our websites. We may be unable to effectively upgrade and expand our systems in a timely manner or smoothly integrate any
newly developed or purchased technologies or businesses with our existing systems, and any failure to do so could result in problems on our
sites. Further, steps to increase the reliability and redundancy of our systems are expensive, reduce our margins, and may not be successful in
reducing the frequency or duration of unscheduled downtime.
There are many risks associated with our international operations.
Our international expansion has been rapid and our international business, especially in Germany, Korea and the U.K., has also become
critical to our revenues and profits. Net revenues outside the U.S. accounted for approximately 55% and 54% of our net revenues, respectively,
in the six months ended June 30, 2011 and the fiscal year ended December 31, 2010.
Expansion into international markets, such as our entry into Turkey in May 2011 upon the completion of our acquisition of additional
shares in GittiGidiyor and PayPal's entry into emerging markets, requires management attention and resources and requires us to localize our
services to conform to local cultures, standards and policies. The commercial, financial, Internet, and
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transportation infrastructure in lesser-developed countries may make it more difficult for us to replicate our business models. In many
countries, we compete with local companies that understand the local market better than we do, and we may not benefit from first-to-market
advantages. We may not be successful in expanding into particular international markets or in generating revenues from foreign operations. For
example, in 2002 we withdrew our eBay marketplace offering from the Japanese market, and in 2007 we contributed our business in China to a
joint venture with a local Chinese company. Even if we are successful in developing new markets, we often expect the costs of operating new
sites to exceed our net revenues from those sites for at least 12 months in most countries.
As we continue to expand internationally, including through the expansion of our businesses, we are increasingly subject to risks of doing
business internationally, including the following:
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strong local competitors;
regulatory requirements, including regulation of Internet services, auctioneering, professional selling, distance selling, privacy and
data protection, banking, and money transmitting, that may limit or prevent the offering of our services in some jurisdictions,
prevent enforceable agreements between sellers and buyers, prohibit the listing of certain categories of goods, require product
changes, require special licensure, subject us to various taxes, penalties or audits, or limit the transfer of information between us
and our affiliates;
greater liability or legal uncertainty regarding our liability for the listings and other content provided by our users, including
uncertainty as a result of legal systems that are less developed with respect to the Internet, unique local laws, conflicting court
decisions and lack of clear precedent or applicable law;
cultural ambivalence towards, or non-acceptance of, online trading or online payments;
laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses;
difficulties in integrating with local payment providers, including banks, credit and debit card networks, and electronic fund transfer
systems;
differing levels of retail distribution, shipping, and Internet infrastructures;
different employee/employer relationships and labor laws, and the existence of workers' councils and labor unions;
difficulties in staffing and managing foreign operations;
challenges associated with joint venture relationships and minority investments, including dependence on our joint venture partners;
difficulties in implementing and maintaining adequate internal controls;
longer payment cycles, different accounting practices, and greater problems in collecting accounts receivable;
potentially adverse tax consequences, including local taxation of our fees or of transactions on our websites;
higher Internet service provider costs;
different and more stringent user protection, data protection, privacy and other laws;
seasonal reductions in business activity;
expenses associated with localizing our products, including offering customers the ability to transact business in the local currency;
foreign exchange rate fluctuations;
our ability to repatriate funds from abroad without adverse tax consequences;
the possibility that foreign governments may impose currency controls or other restrictions on the repatriation of funds;
volatility in a specific country's or region's political, economic or military conditions (e.g., in South Korea relating to its disputes
with North Korea);
challenges associated with maintaining relationships with local law enforcement and related agencies;
potentially higher incidence of fraud and corruption and higher credit loss risks; and
differing intellectual property laws.
Some of these factors may cause our international costs of doing business to exceed our comparable domestic costs. As we expand our
international operations and have additional portions of our international revenues denominated in foreign currencies, we also could become
subject to increased difficulties in collecting accounts receivable and repatriating money without adverse tax consequences, and increased risks
relating to foreign currency exchange rate fluctuations. The impact of currency exchange rate fluctuations is discussed in more detail under the
caption “We are exposed to fluctuations in currency exchange rates and interest rates” above.
In addition, we conduct certain functions, including product development, customer support and other operations, in regions outside the
U.S., particularly in India and China. We are subject to both U.S. and local laws and regulations applicable to our offshore activities, and any
factors which reduce the anticipated benefits, including cost efficiencies and productivity improvements, associated with providing these
functions outside of the U.S. could adversely affect our business.
We maintain a portion of Shopping.com's research and development facilities and personnel in Israel, and in 2008 we
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acquired Fraud Sciences Ltd., an Israeli company. Political, economic and military conditions in Israel affect those operations. The future of
peace efforts between Israel and its neighboring countries remains uncertain. Increased hostilities or terrorism within Israel or armed hostilities
between Israel and neighboring countries or other entities could make it more difficult for us to continue our operations in Israel, which could
increase our costs. In addition, many of our employees in Israel could be required to serve in the military for extended periods of time under
emergency circumstances. Our Israeli operations could be disrupted by the absence of employees due to military service, which could
adversely affect our business.
Acquisitions, joint ventures and strategic investments could result in operating difficulties, dilution, and other harmful consequences.
On June 17, 2011, we completed our acquisition of GSI Commerce, Inc., which provides ecommerce and interactive marketing services.
For a discussion of new risks associated with our GSI business, please see the caption “Our acquisition of GSI Commerce, Inc. exposes us to
new risks,” below. In May 2011, we completed our acquisition of additional shares of GittiGidiyor, a Turkish online marketplace, increasing
our ownership stake in GittiGidiyor to approximately 93%. For a discussion of risks associated with our expansion into Turkey, which
represents a new international market for us, please see the risk factor caption "There are many risks associated with our international
operations," above. We also recently announced that we have agreed to acquire Magento, an open source ecommerce platform provider, and
Zong, which provides for payments through mobile carrier billing .
We expect to continue to evaluate and consider a wide array of potential strategic transactions, including business combinations,
acquisitions and dispositions of businesses, technologies, services, products and other assets, as well as strategic investments and joint ventures.
At any given time we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any of these
transactions could be material to our financial condition and results of operations.
The process of integrating any acquired business may create unforeseen operating difficulties and expenditures and is itself risky. The
areas where we may face difficulties include:
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diversion of management time, as well as a shift of focus from operating the businesses to issues related to integration and
administration, particularly given the number, size and varying scope of our recent acquisitions;
declining employee morale and retention issues resulting from changes in, or acceleration of, compensation, or changes in
management, reporting relationships, future prospects, or the direction of the business;
the need to integrate each company's accounting, management, information, human resource and other administrative systems to
permit effective management, and the lack of control if such integration is delayed or not implemented;
the need to implement controls, procedures and policies appropriate for a larger public company at companies that prior to acquisition
had lacked such controls, procedures and policies;
in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the
particular economic, currency, political, and regulatory risks associated with specific countries;
in some cases, the need to transition operations, users, and customers onto our existing or new platforms; and
liability for activities of the acquired company before the acquisition, including violations of laws, rules and regulations, commercial
disputes, tax liabilities and other known and unknown liabilities.
Moreover, we may not realize the anticipated benefits of any or all of our acquisitions, or may not realize them in the time frame expected.
Future acquisitions or mergers may require us to issue additional equity securities, spend our cash, or incur debt, liabilities, 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 have made certain investments, including through joint ventures, in which we have a minority equity interest and lack
management and operational control. 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 joint venture partner or the joint
venture company may result in harm to our reputation or adversely affect the value of our investment in the joint venture. Our strategic
investments may expose us to other risks. For example, GSI's minority interest in Intershop Communications AG is governed by German law,
which could subject us to liability for certain disadvantages to Intershop if we were deemed to be in control of Intershop under German law.
Our acquisition of GSI Commerce, Inc. exposes us to new risks.
Our GSI business faces certain risks and challenges not shared by our other businesses, including those described under the risk factor
captions "If our GSI business is unable to enhance its platform and migrate clients to that new platform in
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a timely and cost-effective manner, it would be substantially harmed" and "Changes in regulations or user concerns regarding privacy
and protection of user data could adversely affect our business" and the following:
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Importance of Enterprise Client Relationships. Key elements of the growth strategies of our GSI business include adding new
clients and extending the term of existing client agreements. Competition for clients is intense, and our GSI business may not be
able to add new clients or keep existing clients on favorable terms, or at all. For example, a change in the management of a GSI
client could adversely affect our relationship with that client. In addition, many of our client contracts contain service level
commitments. If our GSI business is unable to meet these commitments, its relationships with its clients could be damaged, and
client rights to terminate their contracts with GSI and financial penalty provisions payable by GSI may be triggered. If any existing
GSI clients were to exit the business we provide services to, be acquired, declare bankruptcy, suffer other financial difficulties, fail
to pay amounts owed to GSI, and/or terminate or modify their relationships with GSI, our GSI business could be adversely affected.
If agreements with existing clients expire or are terminated, GSI may be unable to renew or replace these agreements on
comparable terms, or at all.
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GSI's ecommerce services revenues are tied to the growth of the online businesses of its clients, which may be impacted by the
offline businesses of those clients. A portion of GSI's ecommerce services revenue is derived from the value of ecommerce
transactions that flow through GSI's ecommerce services business. Accordingly, growth in GSI's ecommerce services revenue
depends upon the continued growth of the online businesses of its clients. GSI's ecommerce services business may be substantially
impacted by any adverse conditions in the offline businesses of GSI's clients that negatively impact a client's online businesses, and
the impairment of the offline business of GSI clients, whether due to financial difficulties, impairment of client brands, reduction in
marketing efforts, reduction in the number of client retail stores or otherwise, could adversely affect GSI's ecommerce services
business. If any of these were to occur, consumer traffic and sales through GSI's clients' websites could be negatively affected,
which would result in decreasing revenues generated by the GSI business. GSI's business also relies on its clients' ability to
accurately forecast product demand and select and buy the inventory for their corresponding online businesses. Under such
arrangements, the client establishes product prices and pays GSI service fees based either on a fixed or variable percentage of
revenues, or on the activity performed. As a result, if GSI's clients fail to accurately forecast product demand or optimize or
maintain access to inventory, the client's ecommerce business (and, in turn, GSI's service fees) could be adversely affected.
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Marketing and Promotional Arrangements. Our GSI business has relationships with search engines, comparison shopping sites,
affiliate marketers, online advertising networks, and other websites to provide content, advertising banners and other links to its
clients' ecommerce businesses. Our GSI business relies on these relationships as significant sources of traffic to clients' ecommerce
businesses. If we are unable to maintain these relationships or enter into new relationships on acceptable terms, our ability to attract
new customers could be harmed.
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Shipping Vendors. Our GSI business relies upon multiple third parties to ship the products sold in its clients' web stores. As a result,
we are subject to the risks associated with the ability of these vendors and other third parties to successfully and timely fulfill and
ship customer orders, as well as any price increases instituted by these vendors (e.g., fuel surcharges). The failure of these vendors
to provide these services, or the termination or interruption of these services, could adversely affect the satisfaction of consumers,
which in turn could result in reduced sales by GSI's clients' web stores.
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Storage of Customer Inventory. Our GSI business holds inventory on behalf of its ecommerce services customers, and GSI
generally bears the risk of loss for such inventory. If GSI is unable to effectively manage and handle this inventory, this may result
in unexpected costs that could adversely affect our GSI business. Any theft of such inventory, or damage or interruption to such
inventory, including as a result of earthquakes, floods, fire, power loss, labor disputes, terrorist attacks, and similar events and
disruptions, could result in losses related to such inventory and disruptions to GSI's customers' businesses, which could in turn
adversely affect our GSI business.
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Reliance on email. GSI's interactive marketing solutions business relies on email marketing to drive consumer traffic to the web
stores in GSI's ecommerce services business. Email could become a less effective means of communicating with and marketing to
consumers for a variety of reasons, including the following: problems with technology that make GSI's email communications more
difficult to deliver and for consumers to read (e.g., the inability of smart phones or similar communication devices to adequately
display email); consumers may disregard marketing emails due to the large volume of such emails they receive; the inability of
filters to effectively screen for unwanted emails, resulting in increased levels of junk mail, or “SPAM,” which may overwhelm
consumer's email
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accounts; increased use of social networking sites, which may result in decreased use of email as a primary means of
communication; continued security concerns regarding Internet usage in general from viruses, worms or similar problems; and
increased governmental regulation or restrictive policies adopted by Internet service providers that make it more difficult or costly
to utilize email for marketing communications. If any of our GSI entities were to end up on SPAM lists or lists of entities that have
been involved in sending unwanted, unsolicited emails, their ability to contact customers through email could be significantly
restricted. If any of the foregoing were to occur, the traffic to GSI's clients' ecommerce businesses and the demand for GSI's email
marketing solutions could decrease and our GSI business could be harmed.
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Risks associated with our relationship with NRG Commerce, LLC. Immediately following our acquisition of GSI, eBay sold 100%
of GSI's sports merchandise business and 70% of its RueLaLa and ShopRunner businesses (which we refer to collectively as the
divested entities), to NRG Commerce, LLC, which we refer to as NRG. NRG is wholly-owned by GSI's former Chairman,
President and Chief Executive Officer, Mr. Michael Rubin. Each of the divested entities was a direct or indirect wholly-owned
subsidiary of GSI Commerce. In connection with (and as a result of) the divestiture to NRG, our GSI business maintains certain
commercial and financial relationships with the divested entities which expose it to certain risks of the businesses of NRG and the
divested entities.
Our GSI business and the divested entities are parties to certain services agreements pursuant to which our GSI business will
provide certain services to NRG. If GSI and NRG were to become engaged in disputes about these agreements and the parties'
respective obligations under these agreements, management of GSI could be distracted from other clients and the business of GSI
could be disrupted and substantially harmed.
Our GSI business is also party to certain acquisition agreements relating to entities purchased by GSI prior to our acquisition, and
which relate to businesses owned by the divested entities. NRG has agreed to indemnify GSI for certain liabilities incurred by GSI
under these acquisition agreements. If such liabilities were realized and NRG was not able or willing to meet its indemnification
obligations, GSI would be liable for them and its business could be harmed.
As part of the NRG divestiture, we loaned NRG and the divested entities $467 million, which is secured by certain assets of the
divested entities. NRG and the divested entities' ability to repay this obligation is dependent on the financial performance of NRG
and the divested entities. If NRG is unable to repay this obligation, our results of operations and financial condition could be
harmed.
Our business and users may be subject to sales tax and other taxes.
The application of indirect taxes (such as sales and use tax, value-added tax (VAT), goods and services tax, business tax, and gross
receipt tax) to ecommerce businesses such as eBay and to our users is a complex and evolving issue. Many of the fundamental statutes and
regulations that impose these taxes were established before the adoption and growth of the Internet and ecommerce. In many cases, it is not
clear how existing statutes apply to the Internet or ecommerce. In addition, some jurisdictions have implemented or may implement laws
specifically addressing the Internet or some aspect of ecommerce. For example, the State of New York has passed legislation that requires any
out-of-state seller of tangible personal property to collect and remit New York use tax if the seller engages affiliates above certain financial
thresholds in New York to perform certain business promotion activities. Several ecommerce companies are challenging this new law. Also, in
June 2011 California enacted legislation (ABx1 28) that requires certain out-of-state retailers to collect and remit California use tax on taxable
sales to California purchasers when the retailer has a relationship with a person in the State that refers customers to the retailer. The new
California law is similar to the law passed in New York, but provides exclusions for certain forms of Internet marketing and is limited to
retailers who exceed prescribed sales volume thresholds. However, if our sellers who are not already required to collect California state or use
tax believe that their use of our websites requires them to collect California use tax, they may elect to limit their use of our websites rather than
collect the tax, which would harm our business. North Carolina, Rhode Island, Illinois, Arkansas and South Dakota have also enacted similar
laws related to affiliates, and a number of other states appear to be considering similar legislation. The adoption of such legislation by states
where eBay has significant operations that perform certain business promotion activities could result in a use tax collection responsibility for
certain of our sellers. This collection responsibility and the additional costs associated with complex use tax collection, remittance and audit
requirements would make selling on our websites less attractive for small business retailers, and would harm our business.
The State of Colorado has enacted legislation that takes a different approach by imposing a set of use tax collection notice and reporting
requirements (but not the actual tax collection responsibility) on certain retailers with no physical presence in Colorado. The law is designed to
aid Colorado in collecting use tax from Colorado residents who purchase taxable items from
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out-of-state retailers. The regulation promulgated by the Colorado Department of Revenue excludes from these reporting obligations businesses
that sell $100,000 or less into the state in a calendar year, thus limiting the impact on our sellers. The law has been challenged in Federal Court
by a number of out-of-state retailers and a Federal District Court has issued an injunction blocking enforcement of the regulations pending a
resolution of the case. Oklahoma has enacted a similar law. While the recent laws in New York, North Carolina, Rhode Island, Illinois,
Arkansas, South Dakota, Oklahoma and Colorado do not specifically apply to our business, the proliferation of such state legislation, to expand
sales and use tax collection on Internet sales, could adversely affect some of our sellers and indirectly harm our business.
In conjunction with the Streamlined Sales Tax Project — an ongoing, multi-year effort by U.S. state, and local governments to require
collection and remittance of remote sales tax by out-of-state sellers — H.R. 5660, the Main Street Fairness Act, was most recently introduced
in the 111 th Session of the U.S. Congress. The Act, which was not enacted prior to the adjournment of the Congress, would allow states that
meet certain simplification and other standards to require out-of-state sellers to collect and remit sales taxes on goods purchased by in-state
residents. Sellers meeting an as yet undefined small seller exception would be excluded from the requirements of the Act. This legislation,
which may be reintroduced in the 112 th Congress as a way to enable states to increase sales tax revenues and help address significant state
budgetary shortfalls caused by the economic downturn. The adoption of this Act or similar legislation that lacks a robust small business
exemption would result in the imposition of sales taxes and additional costs associated with complex sales tax collection, remittance and audit
compliance requirements on our sellers. This would make selling on our websites less attractive for small retailers, and would harm our
business.
From time to time, some taxing authorities have notified us that they believe we owe them certain taxes. In May 2008, the City of
Chicago notified both eBay and StubHub that they are liable for a city amusement tax on tickets to events in Chicago, irrespective of the
location of the buyer or seller, and filed suit to enforce collection of taxes it claims are due. In March 2009, the court ruled that StubHub is not
required to collect and remit the city amusement tax. The City of Chicago requested reconsideration of this ruling and StubHub sought
clarification of the ruling relative to the remaining counts as well. In August 2009, the court entered a final order dismissing the case against
StubHub. In December 2009, the court also dismissed the case against eBay. The City of Chicago appealed both matters to the Seventh Circuit
Court of Appeals. The Seventh Circuit recently issued an opinion in the StubHub matter rejecting the federal arguments advanced by StubHub
and certifying the state law arguments to the Illinois State Supreme Court. The Seventh Circuit is holding its ruling on the eBay matter in
abeyance pending a resolution of the StubHub proceedings. The application of similar existing or future laws could adversely affect our
business.
Several proposals have been made at the U.S. state and local level that would impose additional taxes on the sale of goods and services
over the Internet. These proposals, if adopted, could substantially impair the growth of ecommerce and our brands, and could diminish our
opportunity to derive financial benefit from our activities. The U.S. federal government's moratorium on state and local taxation of Internet
access or multiple or discriminatory taxes on ecommerce has been extended through November 2014. This moratorium does not prohibit
federal, state, or local authorities from collecting taxes on our income or from collecting certain taxes that were in effect prior to the enactment
of the moratorium and/or one of its extensions.
Similar issues exist outside of the U.S., where the application of VAT or other indirect taxes on ecommerce providers such as eBay is
uncertain and evolving. While we attempt to comply in those jurisdictions where it is clear that a tax is due, certain of our subsidiaries have,
from time to time, received claims relating to the applicability of indirect taxes to our fees. Should such taxes become applicable, our business
could be harmed. We collect and remit indirect taxes in certain jurisdictions. However, tax authorities may raise questions about our obligation
to collect and remit such taxes, as well as the proper calculation of such taxes. For example, a Korean tax authority is currently asserting that
certain coupons and incentives available on our sites should not be deducted when computing taxes on our fees. Should any new taxes become
applicable to our fees or if the taxes we pay are found to be deficient, our business could be harmed.
We do not collect taxes on the goods or services sold by users of our services. One or more states or the federal government or foreign
countries may seek to impose a tax collection, reporting or record-keeping obligation 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 discussed in the
U.S. Congress, several states, and a number of foreign jurisdictions) or if an eBay company was ever deemed to be the legal agent of the users
of our services by a jurisdiction in which eBay operates. In July 2008, the Housing and Economic Recovery Act of 2008 (H.R. 3221) was
signed into law. This law contains provisions that require companies that provide payments over electronic means to users to report to the
Internal Revenue Service (IRS) information on payments received by certain customers. . The legislation, effective for payments received after
December 31, 2010, requires PayPal and other electronic payments providers, as well as potentially StubHub and similar companies, to report
to the IRS on customers subject to U.S. income tax who receive more than $20,000 in payments and more than 200 payments in a year, to
request tax ID numbers from U.S. taxpayers and track payments by tax ID number, and to withhold a proportion of
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payments and forward such withholding to the IRS if customers who receive more than 200 payments do not provide correct and complete
information. We have had to modify our software to meet these requirements and expect increased operational costs in connection with
complying with these reporting obligations. The IRS regulations may also require us to collect a certification of non-U.S. taxpayer status from
international merchants. These requirements may decrease seller activity on our sites and harm our business. Any failure by us to meet these
new requirements could result in substantial monetary penalties and other sanctions and could harm our business.
One or more other jurisdictions may also seek to impose tax-collection or reporting obligations based on the location of the product or
service being sold or provided in an ecommerce transaction, regardless of where the respective users are located. Imposition of a discriminatory
record keeping or tax collecting requirement could decrease seller activity on our sites and would harm our business. Foreign authorities may
also require eBay to help ensure compliance by our users with local laws regulating professional sellers, including tax requirements. In
addition, we have periodically received requests from tax authorities in many jurisdictions for information regarding the transactions of large
classes of sellers on our sites, and in some cases we have been legally obligated to provide this data. The imposition of any requirements on us
to disclose transaction records for all or a class of sellers to tax or other regulatory authorities or to file tax forms on behalf of any sellers,
especially requirements that are imposed on us but not on alternative means of ecommerce, and any use of those records to investigate, collect
taxes from, or prosecute sellers, could decrease seller activity on our sites and harm our business.
We pay input VAT on applicable taxable purchases within the various countries in which we operate. In most cases, we are entitled to
reclaim this input VAT from the various countries. However, because of our unique business model, the application of the laws and rules that
allow such reclamation is sometimes uncertain. A successful assertion by one or more countries that we are not entitled to reclaim VAT could
harm our business.
We continue to work with the relevant tax authorities and legislators to clarify eBay's obligations under new and emerging laws and
regulations. Passage of new legislation and the imposition of additional tax or tax-related reporting requirements could harm our users and our
business. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax
requirements in the numerous markets in which eBay conducts or will conduct business.
Our tickets business is subject to regulatory, competitive, and other risks that could harm this business.
Our tickets business, which includes our StubHub business, is subject to numerous risks. Many jurisdictions have laws and regulations
covering the resale of event tickets. Some jurisdictions prohibit the resale of event tickets at prices above the face value of the tickets or at all,
or highly regulate the resale of tickets, and new laws and regulations or changes to existing laws and regulations imposing these or other
restrictions may be adopted that could limit or inhibit our ability to operate, or our users' ability to continue to use, our tickets business.
Regulatory agencies or courts may claim or hold that we are responsible for ensuring that our users comply with these laws and regulations or
that we or our users are either subject to licensure or prohibited from reselling event tickets in their jurisdictions. In October 2007, two
plaintiffs filed a purported class action lawsuit in North Carolina Superior Court alleging that StubHub sold (and facilitated and participated in
the sale) of concert tickets to plaintiffs with the knowledge that the tickets were resold in violation of North Carolina's maximum ticket resale
price law (which has been subsequently amended). In February 2011, the trial court granted plaintiffs' motion for summary judgment,
concluding that immunity under the Communications Decency Act did not apply. The trial court further held that StubHub violated the North
Carolina unfair and deceptive trade practices statute as it pertains to the two named plaintiffs, and certified its decision for immediate appeal to
the North Carolina Court of Appeals. StubHub has appealed this decision.
Some event organizers and professional sports teams have expressed concern about the resale of their event tickets on our sites. Suits
alleging a variety of causes of actions have in the past, and may in the future, be filed against StubHub and eBay by venue owners, competitors,
ticket buyers and unsuccessful ticket buyers. Such litigation could result in damage awards, could require us to change our business practices in
ways that may be harmful to our business, or could otherwise negatively affect our tickets business.
Our tickets business is subject to seasonal fluctuations and the general economic and business conditions that impact the sporting events
and live entertainment industries. The recent economic downturn has resulted in a decrease in ticket prices sold on our sites and has negatively
impacted revenue and profits. In addition, a work stoppage, strike or lockout by a professional sports league (for example, the current lockouts
by each of the National Football League and the National Basketball Association) could result in the cancellation of all or a portion of the
games in a league's season, which would harm our tickets business. In addition, a portion of StubHub's tickets inventory is held in digital form.
Systems failures or other disruptions that result in the loss of such tickets inventory could materially harm our tickets business.
Our tickets business also faces significant competition from a number of sources, including ticketing service companies
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(such as Live Nation Entertainment (formerly Ticketmaster), AEG, Comcast-Spectacor and Tickets.com), event organizers (such as
professional sports teams and leagues), ticket brokers, and other online and offline ticket resellers, such as TicketsNow (which is owned by
Live Nation Entertainment) and RazorGator. In addition, some ticketing service companies and event organizers have begun to issue event
tickets through various forms of electronic ticketing systems that are designed to restrict or prohibit the transferability of such event tickets.
Ticketing service companies have also begun to use market-based pricing strategies or dynamic pricing to charge much higher prices that they
historically have for premium tickets. Besides charging higher prices, these ticketing service companies have also imposed additional
restrictions on transferability for these types of tickets, such as requiring customers to pick up these tickets at will-call with the purchasing
credit card. To the extent that event tickets issued in this manner cannot be resold on our websites, or to the extent that we are otherwise unable
to compete with these competitors, our tickets business would be harmed.
We depend on key personnel.
Our future performance depends substantially on the continued services of our senior management and other key personnel and our
ability to retain and motivate them. We do not have long-term employment agreements with any of our key personnel, we do not maintain any
“key person” life insurance policies, and some members of our senior management team have fully vested the vast majority of their
in-the-money equity incentives. The loss of the services of any of our executive officers or other key employees could harm our business. We
currently have a number of vacancies on our senior management team (including President, eBay Marketplaces) that we are seeking to fill.
Our businesses all depend on attracting and retaining key personnel. Our future success also will depend on our ability to attract, train,
retain and motivate highly skilled technical, managerial, marketing, and customer support personnel. Competition for these personnel is
intense, and we may be unable to successfully attract, integrate, or retain sufficiently qualified 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. Fluctuations in our stock price may make it more difficult to retain and motivate employees whose stock
option strike prices are substantially above current market prices. Similarly, decreases in the number of unvested in-the-money stock options
held by existing employees, whether because our stock price has declined, options have vested, or because the size of follow-on option grants
has declined, may make it more difficult to retain and motivate employees.
Problems with or price increases by third parties who provide services to us or to our users could harm our business.
A number of parties provide services to us or to our users that benefit us. Such services include seller tools that automate and manage
listings, merchant tools that manage listings and interface with inventory management software, storefronts that help our users list items,
caching services that make our sites load faster, and shipping providers that deliver goods sold on our platform, among others. In some cases
we have contractual agreements with these companies that give us a direct financial interest in their success, while in other cases we have none.
PayPal is dependent on the processing companies and banks that link PayPal to the payment card and bank clearing networks. Similarly, Bill
Me Later relies on an unaffiliated lender in providing the Bill Me Later service and also relies heavily on third parties to operate its services,
including merchant processors and payment gateways to process transactions. Financial or regulatory issues, labor issues (e.g., strikes or work
stoppages) or other problems that prevent these companies from providing services to us or our users could reduce the number of listings on
our websites or make completing transactions or payments on our websites more difficult, thereby harming our business. In addition, price
increases by companies that provide services to our users (such as postal and delivery services) could also reduce the number of listings on our
websites or make it more difficult for our users to complete transactions, thereby harming our business. Any security breach at a company
providing services to our users could also adversely affect our customers and harm our business.
In addition, we have outsourced certain functions to third-party providers, including 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 user dissatisfaction and adversely affect our business, reputation and operating results.
Although we generally have been able to renew or extend the terms of contractual arrangements with, or if necessary replace, third
parties who provide services to us on acceptable terms, there can be no assurance that we will continue to be able to do so in the future. If any
third parties were to stop providing services to us on acceptable terms, including as a result of bankruptcy due to poor economic conditions, we
may be unable to procure alternatives from other third parties in a timely and efficient manner and on acceptable terms, or at all. In addition,
there can be no assurance that third parties who provide services directly to our users will continue to do so on acceptable terms, or at all.
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Customer complaints or negative publicity about our customer support or anti-fraud measures could diminish use of our services.
Customer complaints or negative publicity about our customer support could severely diminish consumer confidence in and use of our
services. Measures that we sometimes take to combat risks of fraud and breaches of privacy and security have the potential to damage relations
with our customers or decrease activity on our sites by making our sites more difficult to use or restricting the activities of certain users. These
measures heighten the need for prompt and accurate customer support to resolve irregularities and disputes. Effective customer support requires
significant personnel expense, and this expense, if not managed properly, could significantly impact our profitability. Failure to manage or train
our own or outsourced customer support representatives properly could compromise our ability to handle customer complaints effectively. If
we do not handle customer complaints effectively, our reputation may suffer and we may lose our customers' confidence.
Because it is providing a financial service and operating in a more regulated environment, PayPal must provide telephone as well as
email customer support and must resolve certain customer contacts within shorter time frames. As part of PayPal's program to reduce fraud
losses and prevent money laundering, it may temporarily restrict the ability of customers to withdraw their funds if those funds or the
customer's account activity are identified by PayPal's risk models as suspicious. PayPal has in the past received negative publicity with respect
to its customer support and account restrictions, and has been the subject of purported class action lawsuits and state attorney general inquiries
alleging, among other things, failure to resolve account restrictions promptly. In the second quarter of 2010, two putative class-action lawsuits
(Devinda Fernando and Vadim Tsigel v. eBay Inc. and PayPal, Inc.; and Moises Zepeda v. PayPal, Inc.) were filed in the U.S. District Court in
the Northern District of California. These lawsuits contain allegations that PayPal improperly held user's funds or otherwise improperly limited
user's accounts. These lawsuits seek damages as well as changes to PayPal's practices among other remedies. A determination that there have
been violations of laws relating to PayPal's practices can expose PayPal to significant liability. Changes to PayPal's practices that may result
from these lawsuits could require PayPal to incur significant costs and to expend product resources, which could cause delay to other planned
product improvements, which would further harm our business. If PayPal is unable to provide quality customer support operations in a
cost-effective manner, PayPal's users may have negative experiences, PayPal may receive additional negative publicity, its ability to attract new
customers may be damaged, and it could become subject to additional litigation. As a result, current and future revenues could suffer, losses
could be incurred, and its operating margins may decrease.
In addition, negative publicity about, or negative experiences with, customer support for any of our businesses could cause our reputation
to suffer or affect consumer confidence in our brands individually or as a whole.
Our industries are intensely competitive.
Marketplaces
Our Marketplaces businesses currently or potentially compete with a large number of companies providing particular categories of goods
and/or broader ranges of goods. The Internet provides new, rapidly evolving and intensely competitive channels for the sale of all types of
goods. We expect competition to intensify in the future. The barriers to entry into these channels can be relatively low and current offline and
new competitors, including small businesses who want to create and promote their own stores, can easily launch online sites at nominal cost
using commercially available software or partnering with any one of a number of successful ecommerce companies. Moreover, online and
offline business increasingly are competing with each other. Consumers who purchase or sell goods and services through our Marketplaces
businesses have more and more alternatives.
Our competitors include the vast majority of traditional department, warehouse, discount, and general merchandise stores (as well as the
online operations of these traditional retailers), emerging online retailers, online classified services, and other shopping channels such as offline
and online home shopping networks. In the U.S., these include Wal-Mart, Target, Sears, Macy's, JC Penney, Costco, Office Depot, Staples,
OfficeMax, Sam's Club, Amazon.com, Buy.com (owned by Rakuten), AOL.com, Yahoo! Shopping, MSN, QVC, and Home Shopping
Network, among others.
A number of companies offer a variety of services that provide channels for buyers to find and buy items from sellers of all sizes,
including online aggregation and classifieds websites such as craigslist (in which we own a minority equity stake), Google Merchant Center,
Oodle.com and a number of international websites operated by Schibsted ASA. In certain markets, our fixed-price listing and traditional
auction-style listing formats are increasingly being challenged by other formats, such as classifieds. Our classifieds websites, including eBay
Classifieds, Kijiji, Marktplaats, mobile.de, Gumtree, Den Blå Avis, BilBasen and Rent.com, offer classifieds listings in the U.S. and a variety
of local international markets. In many markets in which they operate, including in the U.S., our classified platforms compete against more
established online and offline classifieds platforms.
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Our online shopping comparison site, Shopping.com, competes with sites such as Buy.com, Google's Product Search, Nextag.com,
Pricegrabber.com, Shopzilla, and Yahoo! Product Search, which offer shopping search engines that allow consumers to search the Internet for
specified products. Recent legal developments may affect the utility of shopping comparison sites if manufacturers limit variation in product
pricing. In addition, sellers are increasingly utilizing multiple sales channels, including the acquisition of new customers by paying for
search-related advertisements on search engine sites such as Google, Bing and Yahoo!. We use product search engines and paid search
advertising to help users find our sites, but these services also have the potential to divert users to other online shopping destinations.
We also compete with many local, regional, and national specialty retailers and exchanges in each of the major categories of products
offered on our site. For example, category-specific competitors to offerings in our “Home and Garden” category include, among others, Ashley
Furniture, Bed, Bath & Beyond, Brylane, Crate & Barrel, CSN Stores, Frontgate, Haverty's, IKEA, Hayneedle, Home Depot, Kohl's, Lamps
Plus, Lowe's, Lumber Liquidators, Menards, OSH, Pier One, Pottery Barn, Rooms to Go, Williams-Sonoma and World Market, antique and
collectible dealers, antique and collectible fairs, auction houses, estate sales, flea markets and swap meets, independent coin and stamp dealers,
and specialty retailers.
Our international Marketplaces websites compete with similar online and offline channels in each of their vertical categories in most
countries. In addition, they compete with general online ecommerce sites, such as: Quelle and Otto in Germany; Leboncoin.fr and
PriceMinister (owned by Rakuten) in France; Taobao in China; Tradus (owned by Naspers) in Poland; Yahoo-Kimo in Taiwan; Lotte, Naver
and 11th Street in South Korea; Trading Post, OZtion and Aussie Bidder in Australia; and Amazon and Play.com in the United Kingdom and
other countries. In some of these countries, there are online sites that have much larger customer bases and greater brand recognition than we
do, and in certain of these jurisdictions there are competitors that may have a better understanding of local culture and commerce than we do.
As our businesses in less-developed countries grow, we increasingly may compete with domestic competitors which have advantages we do not
possess, such as a greater ability to operate under local regulatory authorities.
The principal competitive factors for Marketplaces include the following:
• ability to attract and retain buyers and sellers;
• volume of transactions and price and selection of goods;
• trust in the seller and the transaction;
• customer service; and
• brand recognition.
With respect to our online competition, additional competitive factors include:
• community cohesion, interaction and size;
• website ease-of-use and accessibility;
• system reliability;
• reliability of delivery and payment;
• level of service fees; and
• quality of search tools.
We may be unable to compete successfully against current and future competitors. Some current and potential competitors have longer
operating histories, larger customer bases and greater brand recognition in other business and Internet sectors than we do. Other online
ecommerce sites may be acquired by, receive investments from, or enter into other commercial relationships with well-established and
well-financed companies. As a result, some of our competitors with other revenue sources may be able to devote more resources to marketing
and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to website and systems
development than we can. Some of our competitors may offer or continue to offer free shipping or other transaction-related services which
improve the user experience on their sites and which could be impractical or inefficient for eBay sellers to match. New technologies may
increase the competitive pressures by enabling our competitors to offer more efficient or lower-cost services.
In addition, certain established retailers may encourage manufacturers to limit or cease distribution of their products to dealers who sell
through online channels such as eBay, or may attempt to use existing or future government regulation to prohibit or limit online commerce in
certain categories of goods or services. For example, manufacturers may attempt to enforce minimum resale price maintenance arrangements to
prevent distributors from selling on our websites or on the Internet generally, or at prices that would make our site attractive relative to other
alternatives. The adoption by manufacturers of policies, or the adoption of new laws or regulations or interpretations of existing laws or
regulations by government authorities, in each case discouraging the sales of goods or services over the Internet, could force eBay users to stop
selling certain
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products on our websites. Increased competition or anti-Internet distribution policies or regulations may result in reduced operating margins,
loss of market share and diminished value of our brands. In order to respond to changes in the competitive environment, we may, from time to
time, make pricing, service or marketing decisions or acquisitions that may be controversial with and lead to dissatisfaction among some of our
sellers, which could reduce activity on our websites and harm our profitability.
Although we have established Internet traffic arrangements with several large online services and search engine companies, these
arrangements may not be renewed on favorable terms or these companies may decide to promote competitive services. Even if these
arrangements are renewed, they may not result in increased usage of our sites. In addition, companies that control user access to transactions
through network access, Internet browsers, or search engines could promote our competitors, channel current or potential users to their
vertically integrated electronic commerce sites or their advertisers' sites, attempt to restrict access to our sites, or charge us substantial fees for
inclusion. Search engines are increasingly becoming a starting point for online shopping, and as the costs of operating an online store continue
to decline, online sellers may increasingly sell goods through multiple channels, which could reduce the number and value of transactions these
sellers conduct through our sites.
PayPal
The markets for PayPal's product are intensely competitive and are subject to rapid technological change, including but not limited to:
mobile payments, electronic funds transfer networks starting to allow Internet access, cross-border access to networks, creation of new
networks, expansion of prepaid cards, and bill pay networks. PayPal competes with existing online and offline payment methods, including,
among others:
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payment card merchant processors that offer their services to online merchants and multi-channel merchants, including American
Express, Chase Paymentech, First Data, Wells Fargo, WorldPay, Barclays Merchant Services, Global Payments, Inc. and Square;
and payment gateways, including CyberSource (which Visa has acquired) and Authorize.net (which has merged with
CyberSource);
money remitters such as MoneyGram, Western Union, Global Payments, Inc. and Euronet;
bill payment services, including CheckFree, a subsidiary of Fiserv;
processors that provide online merchants the ability to offer their customers the option of paying for purchases from their bank
account or paying on credit, including the newly-announced ClearXchange joint venture among Wells Fargo, Bank of America and
JP Morgan Chase, , Acculynk, Moneta, eBillMe, and TeleCheck, a subsidiary of First Data, and Sofortuberweisung in Germany;
providers of “digital wallet” services that offer customers the ability to pay online or on mobile devices through a variety of
payment methods, including a new service announced by Visa, American Express's newly-launched Serve, and Google Wallet;
providers of traditional payment methods, particularly credit cards, checks, money orders, and Automated Clearing House
transactions;
issuers of stored value targeted at online payments, including VisaBuxx, NetSpend, Green Dot, PayNearMe and UKash;
mobile payments, including Obopay, Amazon Payments, ISIS, Buyster, Mpass, O2 Money, Crandy, Payfone, LUUP and Payforit;
Amazon Payments, which offers online merchants the ability to accept credit card- and bank-funded payments from Amazon's base
of online customers on the merchant's own website;
Google Checkout, which enables the online payment of merchants using credit cards;
AliPay, which operates primarily in China but has announced plans to expand internationally;
Other providers of online account-based payments, such as Moneybookers and ClickandBuy (primarily in the EU), Paymate and
Visa PayClick in Australia,
payment services targeting users of social networks and online gaming, including Facebook and Hi5 credits, PlaySpan (which Visa
has acquired) and Boku;
payment services enabling banks to offer their online banking customers the ability to send and receive payments through their
bank account, including ZashPay from Fiserv and Popmoney from CashEdge, both of which have announced collaboration
agreements with Visa; and
online shopping services that provide special offers linked to a specific payment provider, such as Visa's RightCliq, MasterCard
MarketPlace, TrialPay and Tapjoy.
Some of these competitors have longer operating histories, significantly greater financial, technical, marketing, customer service and
other resources, greater name recognition, or a larger base of customers in affiliated businesses than PayPal. PayPal's competitors may respond
to new or emerging technologies and changes in customer requirements faster and more
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effectively than PayPal. Some of these competitors may also be subject to less burdensome licensing, anti-money laundering, and other
regulatory requirements than PayPal, which is subject to additional regulations based on, among other factors, its licensure as a bank in
Luxembourg. They may devote greater resources to the development, promotion, and sale of products and services than PayPal, and they may
offer lower prices. For example, Google Checkout has offered free payments processing on transactions in an amount proportionate to certain
advertising spending with Google. 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 than PayPal. 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 U.S., established banks and other financial institutions that do not currently offer online payments could quickly and easily develop such a
service.
The principal competitive factors for PayPal include the following:
•
•
•
•
•
•
•
•
ability to attract and retain both buyers and sellers with relatively low marketing expense;
ability to show that sellers will achieve incremental sales by offering PayPal;
security of transactions and the ability for buyers to use PayPal without sharing their financial information with the seller;
low fees and simplicity of fee structure;
ability to develop services across multiple commerce channels, including mobile payments and payments at the physical point of
sale;
trust in PayPal's dispute resolution and buyer and seller protection programs;
customer service; and
brand recognition.
With respect to our online competition, additional competitive factors include:
•
•
•
•
website ease-of-use and accessibility;
system reliability;
data security; and
quality of developer tools such as our Application Programming Interfaces and Software Development Kits.
Some of PayPal's competitors, such as Wells Fargo, First Data, American Express and Royal Bank of Scotland, also provide processing
or foreign exchange services to PayPal. If PayPal were to seek to expand the financial products that it offers, either alone or through a
commercial alliance or an acquisition, these processing and foreign exchange relationships could be negatively affected, or these competitors
and other processors could make it more difficult for PayPal to deliver its services.
GSI
Our GSI business segment has two main businesses: ecommerce services and interactive marketing services.
Ecommerce Services
The market for the development and operation of ecommerce services that enable companies to operate ecommerce businesses and
integrate their ecommerce businesses into their multichannel retail offerings is continuously evolving and intensely competitive. In our
ecommerce services business, we face competition from in-house ecommerce solutions, technology and service providers which supply one or
more components of an ecommerce solution and other providers of integrated ecommerce solutions. Many of our prospective ecommerce
services clients evaluate managing all or some aspects of an ecommerce operation with internal resources. As a result, we often compete with
in-house solutions promoted and supported by internal information technology staffs, merchandising groups and other internal corporate
constituencies as well as with technology and service providers that supply one or more components of an ecommerce solution that allow
prospective clients to develop and operate their ecommerce business in-house. This group of providers may include the prospective client itself
and companies that offer: Web platforms (e.g., Art Technology Group, IBM and Microsoft); customer care/call center services (e.g., West
Communications, Sykes Enterprises, and Convergys); fulfillment and logistics (e.g., PFS Web, Innotrac, DHL and UPS); and systems
integrators (e.g., Accenture, EDS, Sapient, Infosys and IBM).
Low barriers to entry into the ecommerce services solutions market could increase the number of competitors our ecommerce services
business may face. As we continue to expand internationally, our ecommerce services business will face increased competition from local
companies which may have a greater understanding of, and focus on, the local customer. Our
67
ecommerce services business has competitors with longer operating histories, larger customer bases, greater brand recognition and greater
financial, marketing and other resources. Those competitors may be able to secure merchandise on more favorable terms and devote more
resources to technology development and marketing than our ecommerce services business.
We believe that we compete with ecommerce services competitors primarily on the basis of the following:
•
•
•
•
•
offering the choice of a complete integrated solution or a component-based solution;
promoting the client's brand and business, rather than our own;
providing scale and operating leverage with an enterprise focus;
establishing a commitment to invest in and enhance our platform; and
aligning our financial interests with those of our clients.
Interactive Marketing Services
The market for interactive marketing services is continuously evolving and intensely competitive. In our interactive marketing services
business, we face competition from other providers of interactive marketing services, other providers of traditional marketing services and
in-house marketing departments, as our prospective interactive marketing services clients evaluate managing their marketing services with
internal resources as well as through interactive marketing agencies. As a result, we often compete with in-house solutions promoted and
supported by internal marketing departments as well as with service providers that supply one or more interactive marketing services. This
group of providers may include the prospective client itself and companies that offer: email management and data aggregation (e.g., Experian,
Harte-Hanks and Epsilon); online marketing and design services (digital marketing services agencies such as Omnicom Group, WPP Group,
Publicis and the Interpublic Group of Companies); and other interactive marketing services (e.g., Google, LinkShare (owned by Rakuten),
TradeDoubler, and ValueClick).
Low barriers to entry in the interactive marketing industry may increase the number of competitors our interactive marketing services
business may face. International expansion of our interactive marketing services business will increase our exposure to competition with local
companies who may have a competitive advantage because of their understanding of the needs of local businesses and consumers. Our
interactive marketing services business has competitors with longer operating histories, larger customer bases, greater brand recognition or
greater financial, marketing and other resources who are able to devote more resources to technology development and marketing.
We believe that we compete with interactive marketing services competitors primarily on the basis of the following:
•
•
offering digital marketing solutions that are integrated with our ecommerce services platform, which we believe provides a more
strategic, cohesive and optimized approach to growing ecommerce businesses; and
providing services that utilize proprietary technology to promote stronger customer engagements designed to increase clients' return
on investment.
We are subject to regulatory activity and antitrust litigation under competition laws.
We receive scrutiny from various government agencies under U.S. and foreign 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 U.S. or other countries, or otherwise
constitute unfair competition. Contractual agreements with buyers, sellers, or other companies could give rise to regulatory action or antitrust
litigation. Also, our unilateral business practices could give rise to regulatory action or antitrust litigation. Some regulators, particularly those
outside of the U.S., may perceive our business to have so much market power that otherwise uncontroversial business practices could be
deemed anticompetitive. For example, in the U.S., we have been sued by a plaintiff representing a putative class of sellers who alleges that we
have illegally monopolized a market for online auctions. See “Item 1 - Legal Proceedings” above. In Korea, the national competition authority
has investigated allegations that we have engaged in illegal exclusive conduct and rendered a decision against us in October 2010. The case is
on appeal through two administrative lawsuits, and a further investigation has now been concluded by the Seoul prosecutor's office, which has
chosen not to bring any charges . The competition authorities in Germany and Australia have conducted investigations (now completed) of
various actions taken by our businesses. Such claims and investigations, even if without foundation, typically are very expensive to defend,
involve negative publicity and substantial diversion of management time and effort, and could result in significant judgments against us.
In several jurisdictions, we have taken actions designed to improve the security of transactions and the quality of the user experience on
our websites. Beginning in June 2008, we have required users in the U.K. to offer PayPal as a payment
68
alternative on most transactions on our localized U.K. website, and since October 2008, we have required sellers on eBay.com to accept one or
more accepted payment methods (currently PayPal, credit or debit cards processed through Internet merchant accounts, ProPay, Moneybookers
and Paymate) and no longer allow any forms of paper payment, including checks and money orders, to be listed by sellers in the U.S. for most
categories of items. While these initiatives are intended to improve and make safer our users' buying experience and/or increase activity on our
sites, certain users may be negatively affected by or react negatively to these changes, and may allege that we have (and are abusing) market
power. We currently face inquiries from government regulators in various jurisdictions related to such actions. For example, both the
Australian Competition and Consumer Commission and the Reserve Bank of Australia recently reviewed our policies requiring sellers to offer
PayPal as a payment alternative on most transactions on our localized Australian website and precluding sellers from imposing a surcharge or
any other fee for accepting PayPal or other payment methods. We may face similar inquiries from other government regulators in the future.
Negative reactions to these changes by our users or government authorities could, among other things, force us to change our operating
practices in ways that could harm our business, operating results and profitability.
Our business may be adversely affected by factors that cause our users to spend less time on our websites, including seasonal factors,
national events and increased usage of other websites.
Anything that diverts our users from their customary level of usage of our websites could adversely affect our business. We would
therefore be adversely affected by geopolitical events such as war, the threat of war, or terrorist activity, and natural disasters, such as
hurricanes or earthquakes. Similarly, our results of operations historically have experienced seasonal fluctuations because many of our users
reduce their activities on our websites with the onset of good weather during the summer months, and on and around national holidays. In
particular, our GSI business is highly seasonal, with the fourth quarter holiday season accounting for a disproportionate amount of GSI's net
revenues due to consumers increasing their purchases and businesses increasing their advertising to consumers during that period, and any
factors that limit or dampen consumer spending during the fourth quarter holiday season could harm our GSI business. In addition, increased
usage of social networking or other entertainment websites may decrease the amount of time users spend on our websites, which could
adversely affect our financial results.
Our failure to cost-effectively manage certain aspects of our business could harm us.
We have expanded our headcount, facilities, and infrastructure in the U.S. and internationally, and anticipate that further expansion in
certain areas will be required for some of our businesses. This expansion has placed, and we expect it will continue to place, a significant strain
on our management, operational, and financial resources. The areas that are put under strain by our growth include the following:
•
•
Customer Account Billing . Our revenues depend on prompt and accurate billing processes. Our failure to grow our
transaction-processing capabilities to accommodate the increasing number of transactions that must be billed on our and our
subsidiaries' websites would harm our business and our ability to collect revenue.
Customer Service . We continue to focus on providing better and more efficient customer support to our users. We intend to provide
an increased level of support (including an increasing amount of telephone support) in a cost-effective manner. If we are unable to
provide customer support in a cost-effective manner, users of our websites may have negative experiences, current and future
revenues could suffer, our costs may increase and our operating margins may decrease.
We must continue to effectively hire, train, and manage new employees. If our new hires perform poorly, if we are unsuccessful in hiring,
training, managing, and integrating these new employees, or if we are unsuccessful in retaining our existing employees, our business may be
harmed. To manage the expected growth of our operations and personnel, we will need to improve our transaction processing, operational and
financial systems, procedures, and controls. This is a special challenge as we acquire new operations with different systems. Our current and
planned personnel, systems, procedures, and controls may not be adequate to support our future operations. Any capital investments that we
may make will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by expense reductions in
the short term.
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, including with respect to our tax
structure. Any adverse outcome of any such audit
69
or review could have a negative effect on our business, operating results and financial condition, 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 the event that any taxing authority is successful in asserting tax positions that are
contrary to our positions.
In addition, the economic downturn has reduced tax revenues for U.S. federal and state governments, and proposals to increase taxes
from corporate entities are being considered at various levels of government. Among the options have been a range of proposals included in the
tax and budget policies recommended to the U.S. Congress by the U.S. Department of the Treasury to modify the federal tax rules related to the
imposition of U.S. federal corporate income taxes for companies operating in multiple U.S. and foreign tax jurisdictions. If such proposals are
enacted into law, this could increase our effective tax rate. A number of U.S. states have likewise attempted to increase corporate tax revenues
by taking an expansive view of corporate presence in order to attempt to impose corporate income taxes and other direct business taxes on
companies that have no physical presence in their state. Many U.S. states are also altering their apportionment formulas in order to increase the
amount of taxable income/loss attributable to their state from certain out-of-state businesses. Companies that operate over the Internet, such as
eBay, are a target of some of these state efforts. If more states were successful in applying direct taxes to Internet companies that are not
present in the state, this could increase of our effective tax rate.
Our integrated open commerce platforms, which are open to third-party developers, subject us to additional risks.
In 2009, we launched the PayPal Developer Platform to enable third party developers to access a wide variety of PayPal product and
programming code specifications and to connect to select PayPal payment application programming interfaces (APIs). We also began
providing a software tool kit for building mobile payments applications, and enabling third party developers to access certain APIs with respect
to our Marketplaces platforms. In June 2011, we launched X.Commerce, our integrated open commerce platform initiative, which includes our
eBay Developer Program and PayPal Developer Network. Assuming that we complete our pending acquisition of Magento, which provides
open source ecommerce platforms, it will become part of X.Commerce. There can be no assurance that third-party developers will develop and
maintain applications and services on our open commerce 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,
which may be contravened by such third party applications. If this were to occur, we would be liable for the regulatory failure and our business
could be adversely affected.
There are risks associated with our indebtedness.
At June 30, 2011, we had $2.5 billion in unsecured indebtedness outstanding, as well as $0.8 billion of available borrowing capacity
under our existing unsecured revolving credit facility. We may incur additional indebtedness in the future, including under our revolving credit
facility or through public or private offerings of debt securities. Our outstanding indebtedness and any additional indebtedness we incur may
have important consequences, including, without limitation, the following:
•
•
•
•
we will be required to use cash to pay the principal of and interest on our indebtedness;
our indebtedness and leverage may increase our vulnerability to adverse changes in general economic and industry conditions, as
well as to competitive pressure;
our ability to obtain additional financing for working capital, capital expenditures and for general corporate and other purposes may
be limited; and
our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.
Our ability to make payments of principal of and interest on our indebtedness depends upon our future performance, which will be subject
to general economic conditions, industry cycles and financial, business and other factors affecting our consolidated operations, many of which
are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required
to, among other things:
•
•
•
•
•
seek additional financing in the debt or equity markets;
refinance or restructure all or a portion of our indebtedness;
sell selected assets;
reduce or delay planned capital expenditures; or
reduce or delay planned operating expenditures.
Such measures might not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or
70
sale of assets might not be available on economically favorable terms or at all.
We depend on the continued growth of online commerce.
The business of selling goods over the Internet, particularly through online trading, is dynamic and relatively new. Concerns about fraud,
privacy, and other problems may discourage additional consumers from adopting the Internet as a medium of commerce. In countries such as
the U.S., Germany, Korea and the U.K., where our services and online commerce generally have been available for some time and the level of
market penetration of our services is high, acquiring new users for our services may be more difficult and costly than it has been in the past.
Moreover, the growth rates of Internet users is slowing in many countries where we have a significant presence. In order to expand our user
base, we must appeal to and acquire consumers who historically have used traditional means of commerce to purchase goods and may prefer
Internet analogues to such traditional retail means to our offerings, such as the retailer's own website. If these consumers prove to be less active
than our earlier users due to lower levels of willingness to use the Internet for communications or commerce for any reason, including lack of
access to high-speed communications equipment, congestion of traffic on the Internet, Internet outages or delays, disruptions or other damage
to users' computers and we are unable to gain efficiencies in our operating costs, including our cost of acquiring new customers, our business
could be adversely impacted.
Our businesses depend on continued and unimpeded access to the Internet. Internet service providers may be able to block, degrade, or
charge us or our users additional fees for our offerings.
Our customers rely on access to the Internet to use our products and services. In many cases that access is provided by companies that
compete with at least some of our offerings, including incumbent telephone companies, cable companies, mobile communications companies,
and large Internet service providers. Some of these providers have stated that they may take measures that could degrade, disrupt, or increase
the cost of customers' use of our offerings by restricting or prohibiting the use of their infrastructure to support or facilitate our offerings, or by
charging increased fees to us or our users to provide our offerings. In addition, Internet service providers could attempt to charge us each time
our customers use our offerings. Worldwide, a number of companies have announced plans to take such actions or are selling products
designed to facilitate such actions. The United States Federal Communications Commission enacted rules on December 21, 2010 ( Preserving
the Open Internet Broadband Industry Practices [FCC-10-201] ) establishing baseline restrictions that would regulate the ability of Internet
access companies to interfere with Internet traffic transported over wired and wireless networks. These FCC rules are likely to be reviewed by
the Federal courts in 2011. Pending greater regulatory and judicial clarity, interference with our offerings or higher charges for access to our
offerings, whether paid by us or by our customers, could cause us to lose existing customers, impair our ability to attract new customers, and
harm our revenue and growth.
Our business depends on the development and maintenance of the Internet infrastructure.
The success of our services will depend largely on the development and maintenance of the Internet infrastructure. This includes
maintenance of a reliable network backbone with the necessary speed, data capacity, and security, as well as timely development of
complementary products, for providing reliable Internet access and services. The Internet has experienced, and is likely to continue to
experience, significant growth in the numbers of users and amount of traffic. The Internet infrastructure may be unable to support such
demands. In addition, increasing numbers of users, increasing bandwidth requirements, or problems caused by “viruses,” “worms,” malware
and similar programs may harm the performance of the Internet. The backbone computers of the Internet have been the targets of such
programs. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could
face outages and delays in the future. These outages and delays could reduce the level of Internet usage generally as well as the level of usage
of our services, which could adversely impact our business.
We may be unable to protect or enforce our own intellectual property rights adequately.
We regard the protection of our intellectual property, including our trademarks (particularly those covering the eBay and PayPal names),
patents, copyrights, domain names, trade dress, and trade secrets as critical to our success. We aggressively protect our intellectual property
rights by relying on federal, state and common law rights in the U.S. and internationally, as well as a variety of administrative procedures. We
also rely on contractual restrictions to protect our proprietary rights in products and services. We have entered into confidentiality and
invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct
business in order to limit access to and disclosure of our proprietary information. Effective intellectual property protection may not be available
in every country in which our products and services are made available, and contractual arrangements and the other steps we have taken to
protect our intellectual property may not prevent misappropriation of our technology or deter independent development of similar technologies
by others.
71
We pursue the registration of our domain names, trademarks, and service marks in the U.S. and internationally. Effective trademark,
copyright, patent, domain name, trade dress, and trade secret protection is very expensive to maintain 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 location. 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.
We are subject to the risks of owning real property.
We own real property, including land and buildings related to our operations. We have little experience in managing real property.
Ownership of this property subjects us to risks, including:
•
•
•
•
•
the possibility of environmental contamination and the costs associated with fixing any environmental problems;
disruptions to our operations resulting from possible natural disasters, interruptions in utilities and similar events;
adverse changes in the value of these properties, due to interest rate changes, changes in the commercial property markets, or other
factors;
the possible need for structural improvements in order to comply with zoning, seismic, disability law, or other requirements; and
possible disputes with tenants, neighboring owners, or others.
Some anti-takeover provisions may affect the price of our common stock.
Our Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine the preferences, rights and
privileges of those shares without any further vote or action by the stockholders. The rights of the holders of common stock may be harmed by
rights granted to the holders of any preferred stock that may be issued in the future. Some provisions of our certificate of incorporation and
bylaws could have the effect of making it more difficult for a potential acquirer to acquire a majority of our outstanding voting stock or take
control of our board of directors. These include provisions that provide for a classified board of directors, prohibit stockholders from taking
action by written consent and restrict the ability of stockholders to call special meetings. We are also subject to provisions of Delaware law that
prohibit us from engaging in any business combination with any interested stockholder (as defined by Delaware law) for a period of three years
from the date the person became an interested stockholder, unless certain conditions are met. This restriction could have the effect of delaying
or preventing a change of control.
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
Stock repurchase activity during the three months ended June 30, 2011 was as follows:
Total Number of
Shares
Purchased
Period
Average Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs
Maximum Dollar
Value that May Yet
be Purchased Under
the Programs (1)
May 1, 2011 - May 31, 2011
5,120,000
$
32.34
5,120,000
$
1,421,937
June 1, 2011 - June 30, 2011
8,480,000
$
30.54
8,480,000
$
1,162,948
13,600,000
(1)
13,600,000
In September 2010, our Board authorized a stock repurchase program that provides for the repurchase of up to $2.0 billion of our common
stock, with no expiration from the date of authorization, for the purpose of offsetting the impact of dilution from our equity compensation
programs. During the six months ended June 30, 2011 , we repurchased approximately $780.8 million of our common stock under this
stock repurchase program at an average price of $31.74 per share. As of June 30, 2011 , approximately $1.2 billion remained available for
further purchases of our common stock under this stock repurchase program.
Item 3:
Defaults Upon Senior Securities
72
Not applicable.
Item 5:
Other Information
Not applicable.
73
Item 6:
Exhibits
Exhibit 3.01
Exhibit 4.01
Exhibit 4.02
Exhibit 4.03
Exhibit 10.01+
Exhibit 10.02+
Exhibit 10.03+
Exhibit 10.04+
Exhibit 10.05+
Exhibit 10.06
Exhibit 12.01
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Amended and Restated Bylaws of eBay Inc. (filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K
filed with the Commission on June 28, 2011 and incorporated herein by reference).
Form of 2.50% Convertible Senior Note due 2027 (filed as Exhibit 4.1 to GSI Commerce, Inc.’s Current Report on
Form 8-K filed with the Commission on July 5, 2007 and incorporated herein by reference).
Indenture dated as of July 2, 2007 between GSI Commerce, Inc. and The Bank of New York, as trustee (filed as
Exhibit 4.2 to GSI Commerce, Inc.’s Current Report on Form 8-K filed with the Commission on July 5, 2007 and
incorporated herein by reference).
First Supplemental Indenture dated as of June 17, 2011 to the Indenture dated as of July 2, 2007 between GSI
Commerce, Inc. and The Bank of New York Mellon, as trustee (filed as Exhibit 10.1 to GSI Commerce, Inc.'s
Current Report on Form 8-K filed with the Commission on June 17, 2011 and incorporated herein by reference).
GSI Commerce, Inc. 2010 Equity Incentive Plan (filed as Appendix A to GSI Commerce, Inc.'s Definitive Proxy
Statement on Schedule 14A filed with the Commission on April 13, 2010 and incorporated herein by reference).
Amendment to GSI Commerce, Inc. 2010 Equity Incentive Plan (filed as Exhibit 99.4 to the Registrant's
Registration Statement on Form S-8 filed with the Commission on July 8, 2011 and incorporated herein by
reference).
Form of Restricted Stock Unit Agreement (and Performance-Based Restricted Stock Unit Agreement) under GSI
Commerce, Inc. 2010 Equity Incentive Plan, as amended.
Letter Agreement dated July 7, 2011 between Christopher Saridakis and Registrant.
Performance Award Agreement dated June 16, 2011, between Christopher Saridakis and GSI Commerce, Inc.
Credit Agreement, dated as of November 7, 2006, by and among Registrant, Bank of America, N.A., as
Administrative Agent, and the other lenders named from time to time therein.
Statement regarding computation of ratio of earnings to fixed charges.
Certification of Registrant's Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Registrant's Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Registrant's Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Registrant's Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
+ Indicates a management contract or compensatory plan or arrangement.
* XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the
Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus
to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other
document.
74
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
eBay Inc.
Principal Executive Officer:
By: /s/ John Donahoe
John Donahoe
President and Chief Executive
Officer
Date:
July 21, 2011
Principal Financial Officer:
By: /s/ Robert H. Swan
Robert H. Swan
Senior Vice President and Chief
Financial Officer
Date:
July 21, 2011
Principal Accounting Officer:
By: /s/ Phillip P. DePaul
Phillip P. DePaul
Vice President, Chief Accounting
Officer
Date:
July 21, 2011
75
INDEX TO EXHIBITS
Exhibit 3.01
Exhibit 4.01
Exhibit 4.02
Exhibit 4.03
Exhibit 10.01+
Exhibit 10.02+
Exhibit 10.03+
Exhibit 10.04+
Exhibit 10.05+
Exhibit 10.06
Exhibit 12.01
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Amended and Restated Bylaws of eBay Inc. (filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K
filed with the Commission on June 28, 2011 and incorporated herein by reference).
Form of 2.50% Convertible Senior Note due 2027 (filed as Exhibit 4.1 to GSI Commerce, Inc.’s Current Report
on Form 8-K filed with the Commission on July 5, 2007 and incorporated herein by reference).
Indenture dated as of July 2, 2007 between GSI Commerce, Inc. and The Bank of New York, as trustee (filed as
Exhibit 4.2 to GSI Commerce, Inc.’s Current Report on Form 8-K filed with the Commission on July 5, 2007 and
incorporated herein by reference).
First Supplemental Indenture dated as of June 17, 2011 to the Indenture dated as of July 2, 2007 between GSI
Commerce, Inc. and The Bank of New York Mellon, as trustee (filed as Exhibit 10.1 to GSI Commerce, Inc.'s
Current Report on Form 8-K filed with the Commission on June 17, 2011 and incorporated herein by reference).
GSI Commerce, Inc. 2010 Equity Incentive Plan (filed as Appendix A to GSI Commerce, Inc.'s Definitive Proxy
Statement on Schedule 14A filed with the Commission on April 13, 2010 and incorporated herein by reference).
Amendment to GSI Commerce, Inc. 2010 Equity Incentive Plan (filed as Exhibit 99.4 to the Registrant's Form
S-8 filed with the Commission on July 8, 2011 and incorporated herein by reference).
Form of Restricted Stock Unit Agreement (and Performance-Based Restricted Stock Unit Agreement) under GSI
Commerce, Inc. 2010 Equity Incentive Plan, as amended.
Letter Agreement dated July 7, 2011 between Christopher Saridakis and Registrant.
Performance Award Agreement dated June 16, 2011, between Christopher Saridakis and GSI Commerce, Inc.
Credit Agreement, dated as of November 7, 2006, by and among Registrant, Bank of America, N.A., as
Administrative Agent, and the other lenders named from time to time therein.
Statement regarding computation of ratio of earnings to fixed charges.
Certification of Registrant's Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Registrant's Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Registrant's Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of Registrant's Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of
2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
+ Indicates a management contract or compensatory plan or arrangement.
* XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the
Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus
to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other
document.
76
Exhibit 10.03
eBay Inc.
2145 Hamilton Ave.
San Jose, Ca 95125
Company Tax ID: 77-0430924
Notice of Grant of Award
and Award Agreement
[Name]
Award Number:
[Address]
Plan:
[City][State][Country]
Type:
[Zip Code]
Effective as of [Date] (the “Grant Date” ), eBay Inc., a Delaware corporation, (the “ Company ”), pursuant to the GSI Commerce, Inc. 2010
Equity Incentive Plan, as amended from time to time (the “ Plan ”), hereby grants to the individual listed above (“ Participant ”), a Restricted
Stock Unit (“ RSU ”) with respect to [Total Shares Granted], the number of shares of Common Stock (the “ Shares ”). This Restricted Stock Unit
Award (the “ Award ”) is subject to all of the terms and conditions set forth herein, in the Restricted Stock Unit Award Agreement attached hereto
(the “ Restricted Stock Unit Agreement” ) , and all of the terms and conditions set forth in the Plan . Any capitalized terms used in this Grant
Notice without definition shall have the meanings ascribed to such terms in the Plan. The Award will vest in increments on the date(s) shown.
The award will vest in increments on the date(s) shown.
Shares
Full Vest
All vesting is subject to Participant's Continuous Service with the Company or a Subsidiary through the applicable vesting date. With respect to
Participants who are subject to taxation in the U.S. under the Code, in no event shall any Restricted Stock Units vest following Participant's
separation from service (within the meaning of Section 409A(a)(2)(A)(i) of the Code).
By Participant's signature and the Company's signature below, Participant agrees to be bound by the terms and conditions of the Plan, the
Restricted Stock Unit Agreement and this Grant Notice. Participant has reviewed the Restricted Stock Unit Agreement, the Plan and this Grant
Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all
provisions of this Grant Notice, the Restricted Stock Unit Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Company upon any questions arising under the Plan, this Grant Notice or the Restricted Stock
Unit Agreement.
eBay Inc.
Date
[Name]
Date
EXHIBIT A
TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE
EBAY INC. RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Restricted Stock Unit Award Grant Notice (the “ Grant Notice ”) to which this Restricted Stock
Unit Award Agreement (the “ Agreement ”) is attached, eBay Inc., a Delaware corporation (the “ Company ”) has granted to
Participant the right to receive the number of Restricted Stock Units (“ RSUs ”) under the GSI Commerce, Inc. 2010 Equity
Incentive Plan, as amended from time to time (the “ Plan ”), as set forth in the Grant Notice.
GENERAL
1. Definitions . All capitalized terms used in this Agreement without definition shall have the meanings ascribed to
such terms in the Plan and the Grant Notice.
2. Incorporation of Terms of Plan . The Award is subject to the terms and conditions of the Plan which are incorporated
herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
AGREEMENT
1. Grant of the RSUs . As set forth in the Grant Notice, the Company hereby grants the Participant RSUs in exchange
for past and future services to the Company subject to all the terms and conditions in this Agreement, the Grant Notice and the
Plan. However, no shares of Common Stock (the “ Shares ”) shall be issued to the Participant until the time set forth in Section 2.
Prior to actual payment of any Shares, such RSUs will represent an unsecured obligation of the Company, payable only from the
general assets of the Company.
2. Issuance of Common Stock . Shares shall be issued to the Participant on or as soon as administratively practicable
following each vesting date as set forth in the Grant Notice (the “ Vesting Date ”) (and in no event later than 2-1/2 months
following each such Vesting Date), provided that the Participant has not experienced a termination of Continuous Service on or
prior to such Vesting Date. After each such Vesting Date, the Company shall promptly cause to be issued (either in book-entry
form or otherwise) to the Participant or the Participant's beneficiaries, as the case may be, Shares with respect to RSUs that
become vested on such Vesting Date. No fractional Shares shall be issued under this Agreement. In the event a Participant
experiences a termination of Continuous Service, the RSUs shall cease vesting immediately upon such termination of Continuous
Service and the unvested RSUs awarded by this Agreement shall be forfeited.
3. Corporate Transaction . In the event of a Corporate Transaction, the provisions of Section 9(c) of the Plan shall
apply to the Award, provided, that, the following provisions shall apply in lieu of the provisions found in Section 9(c)(ii) and (iii)
of the Plan:
(ii) Stock Awards Held by Current Participants . In the event of a Corporate Transaction in which the surviving
corporation or acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards
or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not
been assumed, continued or substituted and that are held by Participants whose Continuous Service has not terminated
prior to the effective time of the Corporate Transaction (referred to as the “Current Participants”), the vesting of such
Stock Awards (and, with respect to Options and Stock Appreciation Rights, the time when such Stock Awards may
be exercised) shall be accelerated in full to a date prior to the effective time of such Corporate Transaction (contingent
upon the effectiveness of the Corporate Transaction) as the Board shall determine (or, if the Board shall not determine
such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), and such Stock
Awards shall terminate if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction, and
any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall lapse (contingent
upon the effectiveness of the Corporate Transaction).
(iii) Stock Awards Held by Persons other than Current Participants. In the event of a Corporate Transaction in which the
surviving corporation or acquiring corporation (or its parent company) does not assume or continue such outstanding
Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards
that have not been assumed, continued or substituted and that are held by persons other than Current Participants, such
Stock Awards shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction;
provided , however , that any reacquisition or repurchase rights held by the Company with respect to such Stock Awards
shall not terminate and may continue to be exercised notwithstanding the Corporate Transaction.
4.
Taxes .
(a)
Notwithstanding anything to the contrary in this Agreement, the Company shall be entitled to require
payment to the Company or any of its Subsidiaries any sums required by federal, state or local tax law to be withheld with respect
to the grant of the RSUs, the issuance of Shares with respect thereto, or any other taxable event related to the RSUs. The Company
may permit the Participant to make such payment in one or more of the forms specified below:
(i)
by cash or check made payable to the Company;
(ii)
by the deduction of such amount from any compensation payable to Participant by the Company and/or a Subsidiary;
(iii)
in the sole discretion of the Company, by requesting that the Company withhold a net number of otherwise issuable vested
Shares having a then current Fair Market Value not exceeding the amount necessary to satisfy the withholding obligation
of the Company and its Subsidiaries based on the minimum applicable statutory withholding rates for federal, state and
local income tax and payroll tax purposes; or
(iv)
in any combination of the foregoing.
(b)
If, at any time during the life of the RSUs, a Participant provides services to the Company or a Subsidiary
in a country other than the United States and such services result in any income tax, social insurance, payroll tax, payment on
account or other tax-related items with respect to the RSUs in the non-US location (“ Tax-Related Items ”), Participant shall be
considered an “ Internationally Mobile Participant ” until such time as the RSUs are fully vested.
In addition to the withholding methods set forth in clause (a) above, at the time of a taxable event, the Internationally Mobile
Participant authorizes the Company to arrange for the Company-designated broker to sell on the market a portion of the otherwise
issuable Shares that have an aggregate market value sufficient to pay the Tax-Related Items (a “ Sell to Cover ”), on the
Internationally Mobile Participant's behalf and at the Internationally Mobile Participant's direction pursuant to this authorization.
Any Sell to Cover arrangement shall be pursuant to terms specified by the Company from time to time.
The Company reserves the right to require that an Internationally Mobile Participant assume liability for any tax- and/or social
insurance-related charges that may otherwise be due by the Company or a Subsidiary with respect to the RSUs, if the Company
determines in its sole discretion that such charges may legally be transferred to the Internationally Mobile Participant. To the
extent the liability for any such charges are transferred to an Internationally Mobile Participant, such charges will be considered
Tax-Related Items subject to the applicable withholding methods set forth in this Section 4. The Company also reserves the right
to impose other requirements on the RSUs granted to an Internationally Mobile Participant and the Shares issued thereunder, to
the extent required by the local laws of the country in which the Internationally Mobile Participant is providing services, and to
require an Internationally Mobile Participant to sign any additional agreements or undertakings that may be necessary to comply
with the provisions of such local laws.
(c)
No fractional Shares will be withheld or subject to a Sell to Cover arrangement to satisfy the federal, state
or local tax or any Tax-Related Items.
(d)
In the event a Participant (including an Internationally Mobile Participant) fails to provide timely payment
of all sums required by the Company pursuant to this Section 4, the Company shall have the right and option, but not the
obligation, to treat such failure as an election by the Participant to satisfy all or any portion of his or her obligation for federal,
state or local tax and any Tax-Related Items by means of requesting the Company to either withhold otherwise issuable vested
Shares in accordance with clause (a)(iii) above or arrange for a Sell to Cover, as applicable. However, the Company, in the
Company's sole discretion, may require that any withholding for federal, state or local tax or any Tax-Related Items be satisfied in
accordance with clause (a)(i) and/or (a)(ii) above.
The Company shall not be obligated to deliver any new certificate representing Shares issuable with respect to the RSUs to
Participant or Participant's legal representative unless and until Participant or Participant's legal representative shall have paid or
otherwise satisfied in full the amount of all federal, state and local tax and any Tax-Related Items resulting from the grant of the
RSUs, the issuance of the Shares with respect thereto, or any other taxable event related to the RSUs.
5. Rights as Stockholder . Neither the Participant nor any person claiming under or through the Participant will have
any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder, nor will the
Participant nor any person claiming under or through the Participant be entitled to dividends or dividend equivalents, unless and
until certificates representing such Shares (which may be in book entry form) will have been issued and recorded on the records of
the Company or its transfer agents or registrars, and delivered to the Participant (including through electronic delivery to a
brokerage account). After such issuance, recordation and delivery, the Participant will have all the rights of a stockholder of the
Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
6. Conditions to Issuance of Certificates . Notwithstanding any other provision of this Agreement, the Company shall
not be required to issue or deliver any certificate or certificates for any Shares prior to the fulfillment of all of the following
conditions: (a) the admission of the Shares to listing on all stock exchanges on which such Shares is then listed, (b) the completion
of any registration or other qualification of the Shares under any state, federal or foreign law or under rulings or regulations of the
U.S. Securities and Exchange Commission or other governmental regulatory body (including any applicable foreign governmental
body), which the Company shall, in its sole and absolute discretion, deem necessary and advisable, (c) the obtaining of any
approval or other clearance from any state, federal or foreign governmental agency (including any applicable foreign
governmental agency) that the Company shall, in its absolute discretion, determine to be necessary or advisable and (d) the lapse
of any such reasonable period of
time following the date the RSUs vest as the Company may from time to time establish for reasons of administrative convenience.
7. Plan Governs . This Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between
one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.
8. Award Not Transferable . This grant and the rights and privileges conferred hereby will not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any
right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and
the rights and privileges conferred hereby immediately will become null and void.
9. Not a Contract of Employment . Nothing in this Agreement or in the Plan shall confer upon the Participant any right
to continue to serve as an Employee or other service provider of the Company or any of its Subsidiaries.
10. Governing Law and Choice of Venue . The laws of the State of Delaware shall govern the interpretation, validity,
administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under
such state's conflict of laws principles. For purposes of litigating any dispute that arises directly or indirectly in respect of this
Award, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such litigation shall be
conducted in the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of
California, and no other courts, where this grant is made and/or to be performed.
11. Conformity to Securities Laws . The Participant acknowledges that the Plan and this Agreement are intended to
conform to the extent necessary with all provisions of the Securities Act and the Exchange Act, and any and all regulations and
rules promulgated thereunder by the U.S. Securities and Exchange Commission, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Awards are granted, only
in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this
Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
12. Amendment, Suspension and Termination . To the extent permitted by the Plan, this Agreement may be wholly or
partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee or the Board
, provided, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this
Agreement shall adversely effect the Award in any material way without the prior written consent of the Participant.
13. Notices . Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given
upon personal delivery or upon deposit in the United States mail (or its non-U.S. equivalent) by certified mail, with postage and
fees prepaid, addressed to the Participant at his or her address shown in the Company records, and to the Company at its principal
executive office.
14. Successors and Assigns . The Company may assign any of its rights under this Agreement to single or multiple
assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions
on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators,
successors and assigns.
15. Compliance in Form and Operation . This Agreement and the RSUs are intended to comply with Section 409A of
the Code and the Treasury Regulations thereunder (“ Section 409A ”) and shall be interpreted in a manner consistent with that
intention. Notwithstanding any other provisions of this Agreement or the Grant Notice, the Company reserves the right, to the
extent the Company deems necessary or advisable, and without any obligation to do so or to indemnify Participant for any failure
to do so, to unilaterally amend the Plan and/or this Agreement to ensure that all RSUs are awarded in a manner that qualifies for
exemption from or complies with Section 409A, provided, however, that the Company makes no representation that the RSUs will
comply with or be exempt from Section 409A and makes no undertaking to preclude Section 409A from applying to the RSUs.
*****
Exhibit 10.04
July 7, 2011
Mr. Christopher Saridakis
GSI Commerce, Inc.
935 First Avenue
King of Prussia, PA 19406
Dear Chris:
As you know, eBay Inc. (“eBay”) has acquired GSI Commerce, Inc. (“GSI”, and together with eBay the
“Company”). As intended by the completion of the transactions contemplated by the Agreement and Plan of Merger
among eBay, Gibraltar Acquisition Corp, a Delaware corporation and a wholly owned subsidiary of eBay (“Merger
Sub”), and GSI, dated as of March 27, 2011, Merger Sub has merged with and into GSI (the “Merger”), and GSI has
become a wholly-owned subsidiary of eBay. eBay is pleased to offer you the exempt position of Senior Vice President
of eBay and President of GSI at a bi-weekly salary of $23,076.93, which is equivalent to an annualized salary of
$600,000.18. If you accept this offer, and the contingencies of this offer are satisfied, your employment will be subject
to the terms set forth in this offer letter and the effective date of your employment shall be the consummation of the
Merger (the “Effective Date”).
In connection with the Merger, eBay will honor or cause GSI to honor the Performance Award Agreement
granted by the Compensation Committee of the Board of Directors of GSI on June 16, 2011, subject to the terms and
conditions set forth therein.
At a meeting held on June 22, 2011, the Compensation Committee of the Board of Directors of eBay (the
“Compensation Committee”) determined that the transaction bonus payable to you pursuant to the terms of the
Transition Incentive Agreement between you and GSI, dated March 29, 2011 (the “Transaction Bonus”) shall be paid
within 30 days of the Compensation Committee's June 22, 2011 meeting, subject to your acceptance of the repayment
obligations set forth in this paragraph. In the event that your employment ceases for reasons other than a termination by
the Company without Cause or your resignation for Good Reason, as defined below, you shall be required to repay the
Transaction Bonus to the Company; provided , however , that your repayment obligation will be reduced by 1/36 th for
every full month of active employment following the Effective Date. No repayment would be required for termination
after three years of employment with the Company following the Effective Date. By signing this offer letter below, you
indicate acceptance of your repayment obligations with respect to the Transaction Bonus.
The Compensation Committee also approved an award of 254,915 restricted stock units (“RSUs”) to be granted
on July 8, 2011 pursuant to eBay's standard grant practices (subject to your continued
1
employment on the date of grant). The RSUs will be granted under and subject to the terms and conditions of GSI's
2010 Equity Incentive Plan as well as the RSU agreement (which will be provided to you as soon as practicable but in
no event more than 4 weeks after the date of grant). The award of RSUs will vest and become non-forfeitable
(assuming your continued employment with an eBay company on each vesting date) over four years at the rate of 25%
a year on each anniversary of the date of grant, subject to necessary withholding for applicable taxes.
In connection with eBay's grant practices, beginning in March 2012 and each year thereafter, you will be
eligible for annual equity grants valued at $500,000 in the aggregate, which may be comprised of stock options, RSUs,
performance-based RSUs, or such other awards as permitted by the Plans. The types of awards and methodology for
determining the number of shares to be granted in any given year will be determined by the Compensation Committee
in its sole discretion in accordance with the guidelines that it applies for employees in positions comparable to yours.
Such equity awards will be granted under and subject to the terms and conditions of the Plans, as well as the terms and
conditions of the award agreements thereunder, as applicable (which will be provided to you as soon as practicable
after the date of grant). For the sake of clarity, you will not have a legally enforceable right to any equity awards
described herein until such awards are approved by the Compensation Committee.
Enclosed is an Insider Trading Agreement, which outlines the procedures and guidelines governing securities
trades by company personnel. Please review this agreement carefully, execute the certification and return it to me.
You will also be eligible to participate in the eBay Incentive Plan (“eIP”). Payouts are based on individual
achievement as well as Company performance. It will be recommended to the Compensation Committee that your
target bonus for the eIP be equal to 66.67% of your base salary. To be eligible to receive any eIP bonus, you must be
employed for a full calendar quarter and you must be actively employed on the date the bonus is paid. The payment of
any bonus is at the Compensation Committee's sole and absolute discretion and subject to the terms and conditions of
the eIP. eBay reserves the right to amend, change or cancel the eIP at its sole discretion.
You will be also entitled to the retirement and welfare benefits that the Company customarily makes available
to GSI employees in positions comparable to yours.
If your employment is involuntarily terminated by the Company for a reason other than Cause or you resign for
Good Reason, as defined below, in either case within two years after the Effective Date, then, subject to you executing
and not revoking a mutually agreeable release, based on the Company's standard form of release, within 28 days after
the date of your termination of employment:
(a) the Company shall provide you with a severance benefit in an amount equal to: (i) two times your base
salary if the termination occurs prior to the first anniversary of the Effective Date, payable in installments on the
Company's regularly scheduled pay dates over a period of 24 months beginning on the 35 th day after the date of your
separation from service; or (ii) one times your base salary if the termination occurs on or after the first anniversary but
prior to the second anniversary of the Effective Date, payable in installments on the Company's regularly scheduled pay
dates over a period of 12 months beginning on the 35 th day after the date of your separation from service, in either case
subject to necessary withholding for applicable taxes;
(b) the Company shall pay to you, at such time as bonuses are paid under the eIP, but in no event later than
March 15 of the year following your termination of employment (subject to the terms of any applicable deferred
compensation plan), a portion of your bonus under the eIP, if any, for the year in
2
which your termination occurs equal to the amount of that bonus that is determined by the Compensation Committee to
be earned for such year multiplied by a fraction, the numerator of which is the number of days you were employed by
the Company during that year and the denominator of which is 365;
(c) to the extent you elect to receive continued health or dental benefits under the Company's group health plan
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), over a period of
up to eighteen (18) months after the date of your termination and you pay the applicable premium for such COBRA
coverage, the Company shall make cash payments to you, payable in installments on the Company's regularly
scheduled pay dates over the period of your continued coverage, at a monthly rate equal to the monthly premium
charged by the Company at such time for such continuation coverage, less any employee contribution amount that you
would have otherwise paid if you were actually employed by the Company during that period and subject to necessary
withholding for applicable taxes; and
(d) consistent with the terms of the Employment Agreement between you and GSI, dated March 23, 2010,
notwithstanding any contrary provision contained in any of your outstanding restricted stock unit awards granted to you
by GSI prior to the Effective Date and converting to eBay restricted stock units in connection with the Merger (“GSI
Equity Awards”), all GSI Equity Awards held by you as of the date of your termination of employment shall become
fully vested, and all restrictions set forth in such GSI Equity Awards related to the passage of time and/or continued
employment shall immediately lapse. For the sake of clarity, this provision will not apply to any eBay equity awards
that are granted to you on or after the Effective Date.
For the sake of clarity, the Company will not be subject to any of the obligations described in clauses (a) through (d)
above upon a termination of your employment that occurs later than two years after the Effective Date.
For purposes of this offer letter:
(i) “Cause” shall exist if the Board of Directors of eBay (or an appropriate committee thereof) in good faith
determines that (A) you are grossly negligent or engaged in willful misconduct in the performance of your duties, (B)
you are convicted of, or enter a plea of guilty or nolo contendere to, a crime constituting a felony or any criminal
offense involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof other
than an automobile offense, or (C) you breach, in a material respect, any written material agreement between you and
the Company or violate, in a material respect, and the Company's Code of Business Conduct or any of the Company's
written material policy statements; and
(ii) “Good Reason” shall exist if, without your express written consent, the Company takes action to cause:
(1) a material diminution in your base salary;
(2) a material diminution in your authority, duties, or responsibilities, compared to your authority, duties and
responsibilities in effect immediately after the Effective Date;
(3) a change by more than 50 miles from the GSI facility in King of Prussia, Pennsylvania (or other mutually
agreeable successor facility) at which you are required to perform your principal employment services; or
(4) a material breach by the Company of its obligations under this letter (including, but not limited
3
to all agreements and obligations referenced herein);
provided , however , that the occurrence of any such condition shall not constitute Good Reason unless you
provide written notice to eBay of the existence of such condition not later than 90 days after the initial existence of
such condition, and the Company shall have failed to remedy such condition within 30 days after receipt of such notice.
Under federal immigration laws, the Company is required to verify each new employee's identity and legal
authority to work in the United States. Accordingly, please be prepared to furnish appropriate documents satisfying
those requirements; this offer of employment is conditioned on submission of satisfactory documentation. Enclosed is a
list of the required documents.
Your employment at the Company is “at-will” and either you or the Company may terminate your employment
at any time, with or without cause or advance notice. The at-will nature of the employment relationship can only be
changed by written agreement signed by eBay's SVP of Human Resources. Other terms, conditions, job
responsibilities, compensation and benefits may be adjusted by the Company from time to time in its sole discretion.
All of us at eBay are very excited about you joining our team and look forward to a beneficial and fruitful
relationship. However, should any dispute arise with respect to your employment or the termination of that
employment, we both agree that such dispute shall be conclusively resolved by final, binding and confidential
arbitration rather than by a jury court or administrative agency. The Company will bear those expenses unique to
arbitration. Please review the enclosed Mutual Arbitration Agreement carefully.
All payments and benefits described herein are intended to comply with, or be exempt from, the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and this letter shall be interpreted
consistently with such intent. The payments and benefits described herein are intended to be exempt from the
requirements of Section 409A of the Code to the maximum extent possible, and for this purpose each payment
hereunder shall constitute a “separately identified” amount. In the event the terms set forth herein would subject you to
taxes or penalties under Section 409A of the Code (“409A Penalties”), the Company and you shall cooperate diligently
to amend the terms of this letter to avoid such 409A Penalties, to the extent possible; provided that in no event shall the
Company be responsible for any 409A Penalties that arise in connection with any amounts payable under this letter. To
the extent any amounts are payable by reference to your termination of employment, such term shall be deemed to refer
to your “separation from service,” within the meaning of Section 409A of the Code. Notwithstanding any other
provision herein, if you are a “specified employee,” as defined in Section 409A of the Code, as of the date of your
separation from service, then to the extent any amount payable to you (i) constitutes the payment of nonqualified
deferred compensation, within the meaning of Section 409A of the Code, (ii) is payable upon your separation from
service and (iii) under the terms of this letter would be payable prior to the six-month anniversary of your separation
from service, such payment shall be delayed until the earlier to occur of (a) the first business day following the
six-month anniversary of the separation from service and (b) the date of your death.
This offer is contingent upon your execution of the following documents: this offer letter, the Mutual
Arbitration Agreement, the Employee Proprietary Information and Inventions Agreement, and the Insider Trading
Policy certification. In part, the Employee Proprietary Information and Inventions Agreement requires that a departing
employee refrain from unauthorized use or disclosure of the Company's confidential information (as defined in that
Agreement). This Agreement does not prevent a
4
former employee from using know-how and expertise in any new field or position. This letter, the Mutual Arbitration
Agreement, the Employee Proprietary Information and Inventions Agreement, contain the entire agreement with
respect to your employment. Should you have any questions with regard to any of the items indicated above, please call
me. Kindly indicate your consent to this agreement by signing copies of this letter, the Mutual Arbitration Agreement,
and the Employee Proprietary Information and Inventions Agreement, and returning them to me, along with the Insider
Trading Agreement certification.
Upon your signature below, this will become our binding agreement with respect to your employment and its
terms, merging and superseding in their entirety all other or prior offers, agreements and communications, whether
written or oral, by you and the Company as to the specific subjects of this letter.
We are excited about the prospect of what GSI will accomplish under your leadership and look forward to
having you on the team!
Very truly yours,
/s/ Beth Axelrod
Beth Axelrod
SVP, Human Resources
ACCEPTED:
/s/ Christopher Saridakis
Christopher Saridakis
Date: July 10, 2011
5
Exhibit 10.05
GSI Commerce, Inc.
2010 Equity Incentive Plan
Performance Award Agreement
PARTICIPANT:
GRANT DATE:
MAXIMUM PERFORMANCE AWARD:
Christopher Saridakis
June 16, 2011
$30 million
Four consecutive annual Performance Periods,
PERFORMANCE PERIODS:
beginning with the 2012 calendar year and ending with
the 2015 calendar year
THIS AGREEMENT, effective as of the Grant Date set forth above, is between GSI Commerce, Inc., a Delaware
corporation (the “Company”, “we”, “our” or “us”), and the Participant named above (“you” or “yours”), pursuant to the
provisions of the Company's 2010 Equity Incentive Plan (the “Plan”) with respect to the award (the “Award”) specified
above. Capitalized terms used and not defined in this Performance Award Agreement (this “Agreement”) shall have the
meanings given to them in the Plan.
By accepting this Agreement, you irrevocably agree, on your own behalf and on behalf of your heirs and any other
person claiming rights under this Agreement, to all of the terms and conditions of the Award as set forth in or pursuant to
this Agreement and the Plan (as such may be amended from time to time).
You and the Company agree that the Award is being granted in full satisfaction of the Company's obligations to you
pursuant to Section 3.5 of the Employment Agreement between you and the Company, dated March 23, 2010 (the
“Employment Agreement”); provided that the performance period and performance conditions are modified herein to
reflect the acquisition of the Company by eBay Inc., a Delaware corporation (“eBay”), pursuant to the merger of
Gibralter Acquisition Corp, a Delaware corporation and a wholly owned subsidiary of eBay (“Merger Sub”), with and
into the Company (the “Merger”), pursuant to the terms of the Agreement and Plan of Merger among eBay, Merger Sub
and the Company, dated as of March 27, 2011 (the “Merger Agreement”).
You and the Company agree as follows:
1.
Application of Plan; This Agreement and your rights under this Agreement are subject to all the terms and
conditions of the Plan, as it may be amended from time to time, as well as to such rules and
Administration
regulations as the Compensation Committee of the Board of Directors of the Company (the
“Board”) may adopt. It is expressly understood that the Compensation Committee of the
Board is authorized to administer, construe and make all determinations necessary or
appropriate to the administration of the Plan and this Agreement, all of which shall be
binding upon you to the extent permitted by the Plan.
2. Performance Goal The Award shall be earned over four separate annual Performance Periods (each a
and Award Amount “Performance Period”), beginning with the 2012 calendar year and ending with the 2015
calendar year. The amount of the Award (the “Award Amount”) payable to you hereunder
with respect to each Performance Period shall be equal to $7,500,000 multiplied by the total
number of EBITDA Thresholds, defined below, that are attained by the Business Unit,
defined below, during such Performance Period. An EBITDA Threshold is attained if the
EBITDA of the Business Unit during a Performance Period equals or exceeds any of the
following amounts (the “EBITDA Thresholds”):
$300,000,000;
$375,000,000;
$425,000,000; and
$475,000,000
For purposes of this Agreement:
“Business Unit” shall mean the business of the Company and its majority-owned subsidiaries
or, following the consummation of the Merger, the business unit of eBay that includes the
business conducted by the Company and its majority-owned subsidiaries as of the Grant
Date, excluding the businesses conducted by Fanatics, LLC, TeamStore, Inc., RueLaLa, Inc.,
and ShopRunner, Inc. or any of their subsidiaries.
“EBITDA” shall mean, following the consummation of the Merger, eBay's non-GAAP
Business Unit Operating Income, adjusted (i) to exclude expenses for interest, taxes,
depreciation, amortization and the deferred acquisition payments recorded as compensation
expense related to the acquisition of Fetchback, Inc., and (ii) to include reasonable estimates
of (A) annual expenses for stock-based compensation granted to you, (B) annual expenses
for long-term incentive compensation granted to you and other employees of the Business
Unit, to the extent not otherwise included, and (C) patent litigation expenses allocable to the
Performance Period (which shall be estimated by the Chief Financial Officer, in consultation
with the General Counsel, of the Company or, following the consummation of the Merger, of
eBay, in a manner consistent with the Company's past practice). If the Merger Agreement
shall terminate prior to the consummation of the Merger, “EBITDA” shall mean earnings
before interest, taxes, depreciation and amortization, as determined by the Company in its
reasonable discretion and in accordance with past practice.
Whether an EBITDA Threshold is attained during a Performance Period shall be determined
as of the last day of such Performance Period and shall be based on the EBITDA for such
Performance Period as certified by the Compensation Committee of the Board. More than
one EBITDA Threshold may be attained in any one Performance Period; provided that the
attainment of an EBITDA Threshold in any Performance Period shall not be considered to
have been attained again in any subsequent Performance Period for purposes of determining
the Award Amount in such subsequent Performance Period. If an EBITDA
2
Threshold is attained, then the corresponding portion of the Award Amount is considered
earned, regardless of the Business Unit's performance in a subsequent Performance Period,
subject to the vesting conditions described in Section 3 of this Agreement. The maximum
Award Amount under this Agreement with respect to all Performance Periods shall be
$30,000,000 ( i.e. , $7,500,000 multiplied by each of the four EBITDA Thresholds attained).
The Compensation Committee of the Board may take reasonable action to adjust either the
EBITDA Thresholds or the manner in which EBITDA is determined with respect to any
current or future Performance Period to reflect one or more of the following: (i) items related
to a change in accounting principles; (ii) items relating to financing activities; (iii) expenses
for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related
to acquisitions; (vi) items attributable to the business operations of any entity acquired by the
Company; (vii) items related to the disposal of a business or segment of a business;
(viii) items related to discontinued operations that do not qualify as a segment of a business
under GAAP; (ix) items attributable to any stock dividend, stock split, combination or
exchange of shares; (x) any other items of significant income or expense which are
determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary
corporate transactions, events or developments, (xii) items related to amortization of
acquired intangible assets; (xiii) items that are outside the scope of the Company's core,
on-going Business Unit activities; (xiv) items relating to any other unusual or nonrecurring
events or changes in applicable laws, accounting principles or business conditions; or (xv)
items relating to any change in the payment or allocation of general and administrative
expenses among the business units of the Company and its Affiliates. If such adjustment
occurs later than 90 days after the commencement of a Performance Period, such adjustment
shall apply to such Performance Period only to the extent that the adjustment is necessary to
reflect objectively determinable changes in the EBITDA of the Business Unit, as reflected in
the financial statements of the Company, and shall be made in compliance with
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
3.
Award Vesting
No Award Amount will be payable to you hereunder unless the Award is vested. The Award
will vest in the following circumstances:
(a) Employment Continues Through First Business Day After January 1, 2016 . The Award
will vest if you are continuously employed by the Company through the first business
day after January 1, 2016. All references in this Agreement to employment by the
Company shall include employment by any parent or subsidiary of the Company.
(b) Termination of Employment Due to Death . The Award will vest if your employment
terminates due to your death on or before the first business day after January 1, 2016.
Upon such a termination of your employment, the Award Amount will be based on the
EBITDA Thresholds attained through the last day of the Performance Period ending on
or prior to your termination of employment.
3
(c) Termination of Employment by the Company without Cause . The Award will vest if your
employment is terminated by the Company without Cause on or before the first business
day after January 1, 2016. “Cause” will exist if the Board (or an appropriate committee
thereof) in good faith determines that (i) you are grossly negligent or engaged in willful
misconduct in the performance of your duties, (ii) you are convicted of, or enter a plea of
guilty or nolo contendere to, a crime constituting a felony or any criminal offense
involving fraud, dishonesty or moral turpitude under the laws of the United States or any
state thereof other than an automobile offense, or (iii) you breach, in a material respect,
any written material agreement between you and the Company or violate, in a material
respect, the Company's Code of Business Conduct or any of the Company's material
policy statements. Notwithstanding the foregoing, Cause shall only exist after (a) the
Company delivers written notice to you of its intention to terminate for Cause within
thirty (30) days after the Company has actual knowledge of the facts and circumstances
upon which it seeks to rely as a basis for its right to terminate for Cause, (b) such notice
sets forth in reasonable detail such facts and circumstances and (c) in the case of clauses
(i) or (iii), you have failed to correct the acts, omissions or events set forth in the
Company's notice, if such acts, omissions or events are reasonably capable of being
corrected, within thirty (30) days following delivery of the Company's written notice of
its intention to terminate for Cause. Upon a termination of your employment by the
Company without Cause, the Award Amount will be based on the EBITDA Thresholds
attained through the last day of the Performance Period ending on or prior to your
termination of employment.
In the event that your employment with the Company terminates on or before the first
business day after January 1, 2016 for any reason other than your death or a termination by
the Company without Cause, the Award will not vest and no Award Amount will be payable
to you hereunder.
4.
Settlement of Vested The Award will be settled after the completion of the applicable Performance Periods and the
Performance Award satisfaction of the applicable vesting conditions set forth in Section 3 by the payment of the
Award Amount to you or, in the event of your death, to your designated beneficiary. If you
are continuously employed through the first business day after January 1, 2016, such
payment will be made in two equal installments. The first installment shall be paid prior to
March 15, 2016, and the second installment payment shall be paid on the first anniversary of
the first installment, but in all events prior to March 15, 2017. If your employment is
terminated on or prior to the first business day after January 1, 2016 due to your death or a
termination by the Company without Cause, such payment shall be made in one installment
prior to March 15 th of the year following your termination of employment or death.
The Award may be settled by the delivery of (i) cash, (ii) shares of Common Stock
(“Shares”) or (iii) any combination thereof as determined in the sole discretion of the
Compensation Committee of the Board. To the extent all or a portion of the Award is settled
in Shares, the number of Shares delivered to you shall be equal to the cash equivalent value
of the portion of the Award that is
4
payable in Shares, divided by the average closing price of a Share as reported on the
NASDAQ Global Select Market for the period of 30 consecutive trading days ending on (and
including) the last trading day prior to the date the Award becomes vested, and rounding
down to the nearest whole number of Shares.
Notwithstanding any other provision of this Agreement or the Plan to the contrary, the
parties acknowledge (x) that time is of the essence with respect to the issuance or delivery of
any cash or Shares pursuant to this Agreement and (y) that the Company will not be
obligated to issue or deliver any cash or Shares pursuant to this Agreement (i) until all
conditions to this Agreement have been satisfied or removed, (ii) if the outstanding Common
Stock is at the time listed on any stock exchange or included for quotation on an inter-dealer
system, until the Shares have been listed or included or authorized to be listed or included on
such exchange or system upon official notice of issuance, (iii) until the issuance or delivery
of the Shares would not cause the Company to issue or sell more shares of Common Stock
than the Company is then legally entitled to issue or sell, and (iv) until all other legal matters
in connection with the issuance and delivery of such Shares have been approved by internal
legal counsel to the Company.
You hereby authorize any brokerage service provider acceptable to the Company to open a
securities account for you to be used for the settlement of the Award settled in Shares. The
date on which Shares are issued may include a delay in order to provide the Company such
time as it determines appropriate to address tax withholding and other administrative matters.
5.
Rights as
Stockholder
Except as otherwise provided in this Agreement, you will not be entitled to any privileges of
ownership of the Shares underlying the Award, if any, including voting, receipt of dividends
or any other rights as a stockholder of the Company, unless and until Shares are actually
delivered to you under this Agreement.
6.
Transferability
Except as provided in Section 9(k) hereof, your right to receive payment under this
Agreement is not transferable, whether voluntarily or involuntarily, by operation of law or
otherwise, other than by will or the laws of descent and distribution. Any voluntary or
involuntary assignment, pledge, transfer, or other disposition of, or any attachment,
execution, garnishment, or lien issued against or placed upon your right to receive payments
under this Agreement, in violation of the terms of this Agreement shall be void.
Notwithstanding the foregoing, by delivering written notice to the Company, in a form
satisfactory to the Company, you may designate a third party who, in the event of your death,
will thereafter be entitled to receive any distribution of cash or Shares pursuant to this
Agreement.
7. Taxes
(a) General . You are ultimately liable and responsible for all taxes owed by you in
connection with the Award. The Company makes no representation or undertaking
regarding the treatment of any tax withholding in connection with the grant, issuance,
vesting or settlement of the Award, and the subsequent sale of any of the Shares
underlying the Award. The Company does not commit and is under no obligation to
structure this Agreement to reduce or eliminate your tax liability.
5
(b) Withholding . On or before the date upon which the Award is settled and any other date
upon which tax withholding obligations of the Company may arise, or at any time
thereafter as requested by the Company, you hereby authorize withholding from, at the
Company's election, Shares, payroll and any other amounts payable to you and you
otherwise agree to make adequate provision for, as determined by the Company, any
sums required to satisfy the Federal, state, local and foreign tax withholding obligations
of the Company or an Affiliate, if any, which arise in connection with any of the above
events or otherwise. Unless the tax withholding obligations of the Company or any
Affiliate are satisfied, the Company will have no obligation to make any payments under
this Agreement.
8.
Clawback
In the event that the Board (or an appropriate committee thereof) determines in good faith
that the earlier determination of the EBITDA of the Business Unit was based on materially
incorrect data, and that in fact such EBITDA had not been achieved or had been achieved to
a lesser extent than originally determined and any amount paid (or portion thereof) under this
Agreement would not have been paid, given the correct data, then in each such instance, you
shall, at the request of the Board (or appropriate committee thereof), return or forfeit, as
applicable, all or a portion (but no more than one-hundred percent (100%) of such payment
to you based on such incorrect data. The amount to be recovered from you shall be the
amount determined by the Board or appropriate committee thereof, by which the payment to
you exceeded the amount that would have been paid to you based on the correct data.
However, if you have disposed of Shares issued to you in connection with this Agreement,
the cash equivalent value of such Shares on the date the Company calculated the number
shares owed shall be paid by you to the Company upon notice from the Company as
provided by the Board (or appropriate committee thereof). The right of the Company and/or
Board with respect to this right of return and/or recapture from the Participant set out above
in this paragraph shall be limited to twelve (12) months from the payment of the Award
Amount.
In the event that the Board (or appropriate committee thereof) determines that you have,
prior to payment of the Award Amount, committed an act or omission that would have
constituted Cause, the Board (or appropriate committee thereof), whether or not you were
terminated because of such act or omission, may require you to return or forfeit, as
applicable, any amount paid to you under this Agreement. If you have disposed of Shares
issued to you in connection with this Agreement, the cash equivalent value of such Shares on
the date the Company calculated the number shares owed shall be paid by you to the
Company upon notice from the Company as provided by the Board (or appropriate
committee thereof). The right of the Company and/or Board with respect to this right of
return and/or recapture from the Participant set out above in this paragraph shall be limited to
twelve (12) months from the payment of the Award Amount.
9.
Miscellaneous
(a) YOU ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING
SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR
IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE,
DIRECTOR, OR CONSULTANT OF THE COMPANY FOR THE VESTING
PERIOD, FOR THE
6
PERFORMANCE PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH YOUR RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
YOUR RELATIONSHIP (I) AS AN EMPLOYEE AT ANY TIME, FOR ANY
REASON OR NO REASON, WITH OR WITHOUT CAUSE; (II) AS A
CONSULTANT PURSUANT TO THE TERMS OF THIS AGREEMENT WITH THE
COMPANY OR AN AFFILIATE; OR (III) AS A DIRECTOR PURSUANT TO THE
BYLAWS OF THE COMPANY AND ANY APPLICABLE PROVISIONS OF THE
CORPORATE LAW OF THE STATE OR OTHER JURISDICTION IN WHICH THE
COMPANY IS DOMICILED, AS THE CASE MAY BE.
(b) The Award is unfunded and as a holder of the Award you will be considered an
unsecured creditor of the Company with respect to the Company's obligation, if any, to
pay cash or issue Shares pursuant to this Agreement. Upon issuance of Shares, if
applicable, you will obtain full voting and other rights as a stockholder of the Company.
Nothing contained in this Agreement, and no action taken pursuant to its provisions, will
create or be construed to create a trust of any kind or a fiduciary relationship between
you and the Company or any other person.
(c) This Agreement will be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or stock exchanges as may be required. The
Company may impose such restrictions, conditions or limitations as it determines
appropriate as to the timing and manner of any resales by you or other subsequent
transfers by you of any Shares issued as a result of or under this Agreement, including
without limitation (i) restrictions under an insider trading policy, (ii) restrictions that may
be necessary in the absence of an effective registration statement under the Securities
Act of 1933, as amended, covering the Award and (iii) restrictions as to the use of a
specified brokerage firm or other agent for such resales or other transfers. Any sale of
Shares issued pursuant to this Agreement must also comply with other applicable laws
and regulations governing the sale of such Shares.
(d) The payments provided under this Agreement are intended to be exempt from Section
409A of the Code as short-term deferrals pursuant to Treasury regulation
§1.409A-1(b)(4), and for this purpose each payment shall be considered a separate
payment. In the event the terms of this Agreement would subject you to taxes or
penalties under Section 409A of the Code (“409A Penalties”), the Company and you
shall cooperate diligently to amend the terms of this Agreement to avoid such 409A
Penalties, to the extent possible; provided that in no event shall the Company be
responsible for any 409A Penalties that arise in connection with any amounts payable
under this Agreement. To the extent any amount under this Agreement is payable by
reference to your termination of employment, such term shall be deemed to refer to your
“separation from service,” within the meaning of Section 409A of the Code.
Notwithstanding any other provision in this Agreement, if you are a “specified
employee,” as defined in Section 409A of the Code, as of the date of your separation
from service, then to the extent the Company determines that, notwithstanding the intent
of the Company, an amount payable to you (i) constitutes the payment of nonqualified
deferred
7
compensation, within the meaning of Section 409A of the Code, (ii) is payable upon your
separation from service and (iii) under the terms of this Agreement would be payable
prior to the six-month anniversary of your separation from service, such payment shall
be delayed until the earlier to occur of (a) the six-month anniversary of the separation
from service and (b) the date of your death.
(e) The interpretation, performance and enforcement of this Agreement will be governed by
the law of the state of Delaware without regard to such state's conflicts of laws rules.
(f) Any question concerning the interpretation of this Agreement or the Plan, any
adjustments required to be made under the Plan and any controversy that may arise under
the Plan or this Agreement shall be determined by the Compensation Committee of the
Board (including any person(s) to whom the Board has delegated its authority) in its sole
and absolute discretion. Such decision by the Compensation Committee shall be final
and binding.
(g) This Agreement and the Plan represent the entire agreement between the parties with
respect to the Award, and supersede and preempt any prior understandings, agreements
or representations by or between the parties, written or oral, which may have related in
any manner to the subject matter of the Award, including without limitation Section 3.5
and Exhibit B of the Employment Agreement. In the event of a conflict between the
terms and conditions of the Plan and the terms and conditions of this Agreement, the
terms and conditions of the Plan shall prevail.
(h) If all or any part of this Agreement or the Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate
any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any
Section of this Agreement (or part of such a Section) so declared to be unlawful or
invalid will, if possible, be construed in a manner which will give effect to the terms of
such Section or part of such Section to the fullest extent possible while remaining lawful
and valid.
(i) Either party's failure to enforce any provision of this Agreement shall not in any way be
construed as a waiver of any such provision, nor prevent that party from thereafter
enforcing any other provision of this Agreement. The rights granted both parties
hereunder are cumulative and shall not constitute a waiver of either party's right to assert
any other legal remedy available to it.
(j) This Agreement may be amended only by a writing executed by you and the Company
which specifically states that it is amending this Agreement. Notwithstanding the
foregoing and subject to Section 13(e) of the Plan, this Agreement may be amended
solely by the Board (or an appropriate committee thereof) by a writing which specifically
states that it is amending this Agreement, so long as a copy of such amendment is
delivered to you. Without limiting the foregoing, the Board (or an appropriate committee
thereof) reserves the right to change, by written notice to you, the provisions
8
of this Agreement in any way it may deem necessary or advisable to carry out the
purpose of the grant as a result of any change in applicable laws or regulations or any
future law, regulation, ruling or judicial decision, provided that any such change will be
applicable only to rights relating to that portion of the Award which is then subject to
restrictions as provided herein.
(k) The rights and obligations of the Company under this Agreement will be transferable by
the Company to any one or more persons or entities, and all covenants and agreements
hereunder will inure to the benefit of, and be enforceable by the Company's successors
and assigns. Without limiting the foregoing, the Award and this Agreement shall be
assumed by eBay upon, and subject to, the consummation of the Merger, following
which all references herein to the Board and the Compensation Committee shall mean
the Board of Directors and Compensation Committee, respectively, of eBay, and all
references to Shares or Common Stock shall mean shares of common stock of eBay;
provided that EBITDA shall continue to be determined solely with respect to the
Business Unit. You may not assign, transfer or pledge the Award or any right or interest
therein or thereunder to anyone other than by will or the laws of descent and distribution
except with the prior written consent of the Company. Upon ten (10) days written notice
to you with the opportunity to cure, the Company may cancel your rights hereunder if
you attempt to assign or transfer them in a manner inconsistent with this Agreement.
(l) All notices with respect to this Agreement shall be in writing and shall be hand delivered
or sent by first class mail or reputable overnight delivery service, expenses prepaid.
Notice may also be given by electronic mail or facsimile and shall be effective on the
date transmitted if confirmed within 24 hours thereafter by a signed original sent in a
manner provided in the preceding sentence. Notices to the Company or the Board (or an
appropriate committee thereof) shall be delivered or sent (i) prior to the consummation
of the Merger to the Company's headquarters, 935 First Avenue, King of Prussia, PA
19406, to the attention of its Chief Financial Officer and its General Counsel and (ii)
after the consummation of the Merger to eBay's headquarters, 2065 Hamilton Ave., San
Jose, CA 95125, to the attention of its General Counsel. Notices to you shall be
sufficient if delivered or sent to your address as it appears in the regular records of the
Company or its transfer agent.
(m) The headings of the Sections in this Agreement are inserted for convenience only and
will not be deemed to constitute a part of this Agreement or to affect the meaning of this
Agreement.
(n) You agree upon request to execute any further documents or instruments necessary or
desirable in the reasonable determination of the Company to effect the terms of this
Agreement.
(o) You agree to reasonably assist and cooperate with the Company and its affiliates and/or
their agents, officers, directors and employees in connection with any disputes, litigation
or investigations of any nature brought by, against, or otherwise involving the Company
or its affiliates during the
9
period of your employment by the Company and thereafter. The Company agrees it will
reimburse expenses incurred by you and pay compensation to you for the two
aforementioned periods in the manner as follows: (x) the Company will reimburse you
for reasonable out of pocket expenses incurred in connection therewith, in accordance
with Company policy during the period in which you are employed by the Company and
(y) the Company also agrees it will reimburse you for reasonable out of pocket expenses
submitted to the Company and reasonable compensation, as mutually agreed between
you and the Company and such agreement by the Company shall not be unreasonably
withheld, delayed or conditioned, in connection with the required activities outlined
above in this section during the period after termination of your employment with the
Company. Notwithstanding anything to the contrary contained herein or in the Company
policy, as applicable, (i) any and all compensation payable to you in accordance with this
paragraph shall be paid by the Company to you by no later than March 15 following the
calendar year in which you rendered services giving rise to the compensation; and (ii)
any and all expense incurred by you that are eligible for reimbursement in accordance
with this paragraph shall be paid by the Company to you by no later than March 15
following the calendar year in which you incurred the expense, provided that you submit
proof to the Company of the expense incurred in accordance with the submittal
procedures contained in the Company's expense reimbursement policy.
Remainder of page intentionally left blank
10
The Company hereby grants this Award to you as of the Grant Date specified above, and by your signature below you
acknowledge your agreement to the terms of this Performance Award Agreement.
GSI COMMERCE, INC.
/s/ Paul Cataldo
By
Paul Cataldo
Name
General Counsel
Title
June 16, 2011
Date
Acknowledged and Accepted by:
/s/ Christopher Saridakis
Christopher Saridakis
June 16, 2011
Date
11
Exhibit 10.06
Execution Copy
[Published CUSIP Number: ________________]
$1,000,000,000
CREDIT AGREEMENT
Dated as of November 7, 2006
among
EBAY INC.
as the Borrower,
BANK OF AMERICA, N.A.,
as Administrative Agent,
The Other Lenders Party Hereto,
JPMORGAN CHASE BANK, N.A. and
WELLS FARGO BANK, N.A.,
as Syndication Agents
and
BANC OF AMERICA SECURITIES LLC,
J.P. MORGAN SECURITIES INC. and
WELLS FARGO BANK, N.A.,
As Joint Lead Arrangers and Joint Book Managers
TABLE OF CONTENTS
Section
Article I. DEFINITIONS AND ACCOUNTING TERMS
1.01
Defined Terms.
1.02
Other Interpretive Provisions.
1.03
Accounting Terms.
1.04
Rounding.
1.05
Times of Day.
Page
1
1
15
16
16
16
Article II. THE COMMITMENTS AND CREDIT EXTENSIONS
2.01
Committed Loans.
2.02
Borrowings, Conversions and Continuations of Committed Loans.
2.03
Prepayments.
2.04
Termination or Reduction of Commitments.
2.05
Repayment of Loans.
2.06
Interest.
2.07
Fees.
2.08
Computation of Interest and Fees.
2.09
Evidence of Debt.
2.10
Payments Generally; Administrative Agent's Clawback.
2.11
Sharing of Payments by Lenders.
2.12
Extension of Maturity Date.
2.13
Increase in Commitments.
17
17
17
18
19
19
19
20
20
21
21
23
23
24
Article III. TAXES, YIELD PROTECTION AND ILLEGALITY
3.01
Taxes.
3.02
Illegality.
3.03
Inability to Determine Rates.
3.04
Increased Costs; Reserves on Eurodollar Rate Loans.
3.05
Compensation for Losses.
3.06
Mitigation Obligations; Replacement of Lenders.
3.07
Survival.
26
26
27
28
28
29
30
30
Article IV. CONDITIONS PRECEDENT
4.01
Conditions of Closing.
4.02
Conditions to all Borrowings.
30
30
32
Article V. REPRESENTATIONS AND WARRANTIES
5.01
Existence, Qualification and Power.
5.02
Authorization; No Contravention.
5.03
Governmental Authorization; Other Consents.
5.04
Binding Effect.
5.05
Financial Statements; No Material Adverse Effect.
5.06
Litigation.
5.07
No Default.
5.08
Ownership of Property; Liens.
5.09
Environmental Compliance.
5.10
Insurance.
5.11
Taxes.
5.12
ERISA Compliance.
32
32
32
33
33
33
33
34
34
34
34
34
34
TABLE OF CONTENTS
(continued)
Section
5.13
5.14
5.15
5.16
5.17
Margin Regulations; Investment Company Act.
Disclosure.
Compliance with Laws.
Taxpayer Identification Number.
Intellectual Property; Licenses, Etc.
Page
35
35
35
36
36
Article VI. AFFIRMATIVE COVENANTS
6.01
Financial Statements.
6.02
Certificates; Other Information.
6.03
Notices.
6.04
Payment of Obligations.
6.05
Preservation of Existence, Etc.
6.06
Maintenance of Properties.
6.07
Maintenance of Insurance.
6.08
Compliance with Laws.
6.09
Books and Records.
6.1
Inspection Rights.
6.11
Use of Proceeds.
36
36
37
38
39
39
39
39
39
40
40
40
Article VII. NEGATIVE COVENANTS
7.01
Liens.
7.02
Priority Debt.
7.03
Fundamental Changes; Acquisitions.
7.04
Burdensome Agreements.
7.05
Use of Proceeds.
7.06
Financial Covenant.
40
40
42
43
43
45
45
Article VIII. EVENTS OF DEFAULT AND REMEDIES
8.01
Events of Default.
8.02
Remedies Upon Event of Default.
8.03
Application of Funds.
45
45
47
47
Article IX. ADMINISTRATIVE AGENT
9.01
Appointment and Authority.
9.02
Rights as a Lender.
9.03
Exculpatory Provisions.
9.04
Reliance by Administrative Agent.
9.05
Delegation of Duties.
9.06
Resignation of Administrative Agent.
9.07
Non-Reliance on Administrative Agent and Other Lenders.
9.08
No Other Duties, Etc.
48
48
48
48
49
49
49
50
50
Article X. MISCELLANEOUS
10.01
10.02
10.03
10.04
10.05
10.06
10.07
10.08
10.09
50
50
51
53
53
55
55
58
59
59
Amendments, Etc.
Notices; Effectiveness; Electronic Communication.
No Waiver; Cumulative Remedies.
Expenses; Indemnity; Damage Waiver.
Payments Set Aside.
Successors and Assigns.
Treatment of Certain Information; Confidentiality.
Right of Setoff.
Interest Rate Limitation.
TABLE OF CONTENTS
(continued)
Section
10.1
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
SIGNATURES
Counterparts; Integration; Effectiveness.
Survival of Representations and Warranties.
Severability.
Replacement of Lenders.
Governing Law; Jurisdiction; Etc.
Waiver of Jury Trial.
California Judicial Reference.
No Advisory or Fiduciary Responsibility.
USA PATRIOT Act Notice.
Page
60
60
60
60
61
62
62
62
63
SCHEDULES
2.01
10.02
Commitments and Applicable Percentages
Administrative Agent's Office; Certain Addresses for Notices
A
B
C
D
E
Form of
Committed Loan Notice
Note
Compliance Certificate
Assignment and Assumption
Opinion Matters
EXHIBITS
CREDIT AGREEMENT
This CREDIT AGREEMENT (“ Agreement ”) is entered into as of November 7, 2006, among EBAY INC., a
Delaware corporation (the “ Borrower ”), each lender from time to time party hereto (collectively, the “ Lenders ” and
individually, a “ Lender ”), and BANK OF AMERICA, N.A. , as Administrative Agent.
The Borrower has requested that the Lenders provide a revolving credit facility, and the Lenders are willing to
do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and
agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
1.01
Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth
below:
“ Acquisition ” means any transaction or series of related transactions for the purpose of or resulting, directly or
indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a
Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity
of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other
combination with another Person (other than a Person that is a Subsidiary of the Borrower).
“ Actual Knowledge ” means, with respect to any information or event, that a Responsible Officer of the
Company has actual knowledge of such information or event.
“ Administrative Agent ” means Bank of America in its capacity as administrative agent under any of the Loan
Documents, or any successor administrative agent.
“ Administrative Agent's Office ” means the Administrative Agent's address and, as appropriate, account as set
forth on Schedule 10.02 , or such other address or account as the Administrative Agent may from time to time notify to
the Borrower and the Lenders.
“ Administrative Questionnaire ” means an Administrative Questionnaire in a form supplied by the
Administrative Agent.
“ Affiliate ” means, with respect to any Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“ Aggregate Commitments ” means the Commitments of all the Lenders.
“ Agreement ” means this Credit Agreement.
“ Applicable Percentage ” means with respect to any Lender at any time, the percentage (carried out to the ninth
decimal place) of the Aggregate Commitments represented by such Lender's Commitment at such time. If the
commitment of each Lender to make Loans have
been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable
Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in
effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth
opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such
Lender becomes a party hereto, as applicable.
“ Applicable Rate ” means the following percentages per annum, based upon the Consolidated Leverage Ratio
as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b)
:
Pricing Level Consolidated Leverage Ratio
1
≤1.00:1.00
2
>1.00:1.00 but 1.50:1.00
3
>1.50:1.00
Applicable Rate
Commitment Fee
0.05%
0.07%
0.09%
Eurodollar Rate +
0.25%
0.35%
0.45%
Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Leverage Ratio
shall become effective as of the first Business Day immediately following the date a Compliance Certificate is
delivered pursuant to Section 6.02(a) ; provided , however , that if a Compliance Certificate is not delivered when due
in accordance with such Section, then Pricing Level 3 shall apply as of the first Business Day after the date on which
such Compliance Certificate was required to have been delivered, and shall continue to so apply through the date on
which such Compliance Certificate is so delivered (and thereafter the Pricing Level otherwise determined in
accordance with this definition shall apply). The Applicable Rate in effect from as of the Closing Date shall be
determined based upon Pricing Level I.
“ Approved Fund ” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a
Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“ Arrangers ” means BAS, JPMS and Wells Fargo.
“ Assignee Group ” means two or more Eligible Assignees that are Affiliates of one another or two or more
Approved Funds managed by the same investment advisor.
“ Assignment and Assumption ” means an assignment and assumption entered into by a Lender and an assignee
(with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative
Agent (and the Borrower, in the case that the Borrower's consent is required hereunder), in substantially the form of
Exhibit D or any other form approved by the Administrative Agent.
“ Attributable Indebtedness ” means, on any date, (a) in respect of any capital lease of any Person, the
capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance
with GAAP, (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments
under the relevant lease that
would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease
were accounted for as a capital lease and (c) in respect of any Securitization, an amount equal to (i) the outstanding
principal amount of Indebtedness incurred at such time by the Securitization Subsidiary, or (ii) if the Securitization
Subsidiary has incurred no such Indebtedness, the unrecovered purchase price of all accounts receivable (or interest
therein) or other assets sold or transferred by such Securitization Subsidiary to the conduit entity or other credit
provider relating to such Securitization.
“ Audited Financial Statements ” means the audited consolidated balance sheet of the Borrower and its
Subsidiaries for the fiscal year ended December 31, 2005, and the related consolidated statements of income or
operations, shareholders' equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the
notes thereto.
“ Availability Period ” means the period from and including the Closing Date to the earliest of (a) the Maturity
Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.04 , and (c) the date of
termination of the commitment of each Lender to make Loans pursuant to Section 8.02 .
“ Bank of America ” means Bank of America, N.A. and its successors.
“ BAS ” means Banc of America Securities LLC.
“ Base Rate ” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate
plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of
America as its “prime rate.” The “prime rate” is a rate set by Bank of America based upon various factors including
Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference
point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate
announced by Bank of America shall take effect at the opening of business on the day specified in the public
announcement of such change.
“ Base Rate Loan ” means a Loan that bears interest based on the Base Rate.
“ Borrower ” has the meaning specified in the introductory paragraph hereto.
“ Borrower Materials ” has the meaning specified in Section 6.02 .
“ Borrowing ” means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the
case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01
“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks are
authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent's Office is
currently located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar
deposits are conducted by and between banks in the London interbank eurodollar market.
“ Change in Law ” means the occurrence, after the date of this Agreement, of any of the following: (a) the
adoption or taking effect of any law, rule, regulation or treaty, (b) any change
in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental
Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law)
by any Governmental Authority.
“ Change of Control ” means an event or series of events by which: (a) any “person” or “group” (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of such person or
its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any
such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, directly or
indirectly, of 40% or more of the equity securities of the Borrower entitled to vote for members of the board of
directors or equivalent governing body of the Borrower on a fully-diluted basis; or (b) during any period of 12
consecutive months, a majority of the members of the board of directors or other equivalent governing body of the
Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the
first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by
individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of
that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent
governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing body.
“ Closing Date ” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in
accordance with Section 10.01 .
“ Code ” means the U.S. Internal Revenue Code of 1986.
“ Commitment ” means, as to each Lender, its obligation to make Committed Loans to the Borrower pursuant to
Section 2.01 , in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite
such Lender's name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a
party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
“ Commitment Fee ” has the meaning specified in Section 2.07(a) .
“ Committed Loan ” has the meaning specified in Section 2.01 .
“ Committed Loan Notice ” means a notice of (a) a Borrowing, (b) a conversion of Committed Loans from one
Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a) , which, if in writing,
shall be substantially in the form of Exhibit A .
“ Compliance Certificate ” means a certificate substantially in the form of Exhibit C .
“ Consolidated EBITDA ” means, for any period, for the Borrower and its Subsidiaries on a consolidated basis,
an amount equal to Consolidated Net Income for such period plus the following to the extent deducted in calculating
such Consolidated Net Income: (a) interest expense for such period, (b) depreciation and amortization expense
(including amortization of intangible amortization for Acquisitions), for such period, (c) income tax expense for such
period, (d) non-cash charges or expenses related to equity plans or stock option awards in such
period, and (e) payroll taxes on exercise of stock options in such period; provided , however , that solely for the
purpose of the computations of the Consolidated Leverage Ratio, if there has occurred an Acquisition during the
relevant period, Consolidated EBITDA shall be calculated, at the option of the Borrower, on a pro forma basis in
accordance with the SEC pro forma reporting rules under the Exchange Act, as if such Acquisition occurred on the first
day of the applicable period.
“ Consolidated Funded Indebtedness ” means, as of any date of determination, for the Borrower and its
Subsidiaries on a consolidated basis, the sum of (a) the outstanding principal amount of all obligations, whether current
or long-term, for borrowed money (including Obligations hereunder) and all obligations for borrowed money
evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money
Indebtedness, (c) all contractual, non-contingent obligations in respect of the deferred purchase price of property (other
than trade accounts payable in the ordinary course of business and other than any Excluded Earnout), (d) Attributable
Indebtedness in respect of capital leases, Synthetic Lease Obligations and Securitizations, (e) all Indebtedness of the
types specified in clauses (a) through (d) above secured by a Lien on property owned by the Borrower or any of its
Subsidiaries, whether or not such Indebtedness shall have been assumed by such Person or is limited in recourse, and
(f) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a)
through (d) above of Persons other than the Borrower or any Subsidiary. To the extent that the rights and remedies of
the obligee of any Consolidated Funded Indebtedness are limited to certain property and are otherwise non-recourse to
the Borrower or any Subsidiary, the amount of such Consolidated Funded Indebtedness shall be limited to the lesser of
(i) the fair market value of such Person's interest in such property and (ii) such Person's obligations in respect of such
Consolidated Funded Indebtedness.
“ Consolidated Leverage Ratio ” means, as of any date of determination, the ratio of (a) Consolidated Funded
Indebtedness as of such date to (b) Consolidated EBITDA for the period of four fiscal quarters most recently ended.
“ Consolidated Net Income ” means, for any period, for the Borrower and its Subsidiaries on a consolidated
basis, the net income of the Borrower and its Subsidiaries (excluding extraordinary gains and extraordinary losses) for
that period.
“ Consolidated Tangible Net Worth ” means, as of any date of determination, for the Borrower and its
Subsidiaries on a consolidated basis, Shareholders' Equity of the Borrower and its Subsidiaries on that date minus the
Intangible Assets of the Borrower and its Subsidiaries on that date.
“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “
Controlling ” and “ Controlled ” have meanings correlative thereto.
“ Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation,
conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership,
insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time
to time in effect and affecting the rights of creditors generally.
“ Default ” means any event or condition that constitutes an Event of Default or that, with the giving of any
notice, the passage of time, or both, would be an Event of Default.
“ Default Rate ” means, with respect to the Obligations, an interest rate equal to (i) the Base Rate plus (ii) the
Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided , however , that with respect
to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable
Rate) otherwise applicable to such Loan plus 2% per annum.
“ Defaulting Lender ” means any Lender that (a) has failed to fund any portion of the Committed Loans
required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder unless
such failure has been cured, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any
other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a
good faith dispute or unless such failure has been cured, or (c) has been deemed insolvent or become the subject of a
bankruptcy or insolvency proceeding.
“ Disclosure Letter ” means the letter dated the Closing Date delivered to the Administrative Agent and the
Lenders by the Borrower containing information with respect to the Borrower and its Subsidiaries.
“ Disposition ” or “ Dispose ” means the sale, transfer, license, lease or other disposition (including any sale and
leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or
without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
“ Dollar ” and “ $ ” mean lawful money of the United States.
“ Domestic Subsidiary ” means any Subsidiary that is organized under the laws of any political subdivision of
the United States.
“ Eligible Assignee ” means any Person that meets the requirements to be an assignee under
Section 10.06(b)(iii) , (v) and (vi) (subject to such consents, if any, as may be required under Section 10.06(b)(iii) ).
“ Environmental Laws ” means any and all Federal, state, local, and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the environment or the release of any materials into
the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or
public systems.
“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages,
costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any of its respective
Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment
or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
“ ERISA ” means the Employee Retirement Income Security Act of 1974.
“ ERISA Affiliate ” means any trade or business (whether or not incorporated) under common control with the
Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
“ ERISA Event ” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the
Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as
such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any
ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an
event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV
of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or
any ERISA Affiliate.
“ Eurodollar Rate ” means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum
equal to the British Bankers Association LIBOR Rate (“ BBA LIBOR ”), as published by Reuters (or other
commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from
time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such
Interest Period. If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest
Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars
for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate
Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would
be offered by Bank of America's London Branch to major banks in the London interbank eurodollar market at their
request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest
Period.
“ Eurodollar Rate Loan ” means a Committed Loan that bears interest at a rate based on the Eurodollar Rate.
“ Event of Default ” has the meaning specified in Section 8.01 .
“ Exchange Act ” means the Securities Exchange Act of 1934.
“ Excluded Earnout ” means any obligations of the Borrower or any Subsidiary to pay additional consideration
in connection with any Acquisition, if such additional consideration is
payable (i) in capital stock or other equity interests or (ii) in cash or in capital stock or other equity interests (at the
option of the Borrower or such Subsidiary).
“ Excluded Taxes ” means, with respect to the Administrative Agent, any Lender or any other recipient of any
payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured
by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the
jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any
branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the
Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 10.13 ), any withholding tax that is imposed on amounts payable to such Foreign Lender at the
time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such
Foreign Lender's failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e) , except
to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending
Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant
to Section 3.01(a) .
“ Federal Funds Rate ” means, for any day, the rate per annum equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers
on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day;
provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the
average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such
day on such transactions as determined by the Administrative Agent.
“ Fee Letter ” means the letter agreement, dated September 7, 2006, among the Borrower, the Administrative
Agent and BAS.
“ Foreign Lender ” means any Lender that is organized under the laws of a jurisdiction other than that in which
the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
“ FRB ” means the Board of Governors of the Federal Reserve System of the United States.
“ Fund ” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing,
holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its
business.
“ GAAP ” means generally accepted accounting principles in the United States set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board, that are applicable to the circumstances as of the date of determination, consistently applied.
“ Governmental Authority ” means the government of the United States or any other nation, or of any political
subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central
bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government (including any supra-national bodies such as the European Union or the European
Central Bank).
“ Guarantee ” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person
guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or
performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any
obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the
purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of
such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement
condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay
such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in
respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee
against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any
Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed
by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien);
provided that the term “Guarantee” shall not include endorsements for collection or deposit, in either case in the
ordinary course of business, or contingent or inchoate indemnity obligations in effect on the Closing Date or entered
into in connection with any Acquisition or Disposition (other than such obligations with respect to Indebtedness). The
amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related
primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.
The term “Guarantee” as a verb has a corresponding meaning.
“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic
substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any
nature regulated pursuant to any Environmental Law.
“ Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether
or not included as indebtedness or liabilities in accordance with GAAP: (a) all obligations of such Person for borrowed
money and all obligations of such Person for borrowed money evidenced by bonds, debentures, notes, loan agreements
or other similar instruments; (b) all direct or contingent obligations of such Person arising under letters of credit,
bankers' acceptances, bank guaranties, surety bonds and similar instruments; (c) net obligations of such Person under
any Swap Contract; (d) all obligations of such Person to pay the deferred purchase price of property or services (other
than trade accounts payable in the ordinary course
of business and other than any Excluded Earnout); (e) indebtedness secured by a Lien on property owned by such
Person, whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f) Attributable Indebtedness in respect of capital leases, Synthetic Lease Obligations and Securitizations; (g) all
Guarantees of such Person in respect of any of the foregoing. The amount of any net obligation under any Swap
Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.
“ Indemnified Taxes ” means Taxes other than Excluded Taxes.
“ Indemnitees ” has the meaning specified in Section 10.04(b) .
“ Information ” has the meaning specified in Section 10.07 .
“ Intangible Assets ” means assets that are considered to be intangible assets under GAAP, including customer
lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized
deferred charges, unamortized debt discount and capitalized research and development costs.
“ Interest Payment Date ” means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest
Period applicable to such Loan and the Maturity Date; provided , however , that if any Interest Period for a Eurodollar
Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest
Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of each March,
June, September and December and the Maturity Date.
“ Interest Period ” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar
Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or
six months thereafter, as selected by the Borrower in its Committed Loan Notice or such other period that is twelve
months or less requested by the Borrower and available from all Lenders; provided that: (a) any Interest Period that
would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless
such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding
Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period; and (c) no Interest Period shall extend beyond
the Maturity Date.
“ IP Rights ” has the meaning specified in Section 5.17 .
“ IRS ” means the United States Internal Revenue Service.
“ JPM ” means JPMorgan Chase Bank, N.A.
“ JPMS ” means J.P. Morgan Securities Inc.
“ Laws ” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules,
guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any
Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable
administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any
Governmental Authority, in each case whether or not having the force of law.
“ Lender ” has the meaning specified in the introductory paragraph hereto.
“ Lending Office ” means, as to any Lender, the office or offices of such Lender described as such in such
Lender's Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the
Borrower and the Administrative Agent.
“ Lien ” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of
a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement,
any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially
the same economic effect as any of the foregoing).
“ Loan ” means an extension of credit by a Lender to the Borrower under Article II in the form of a Committed
Loan.
“ Loan Documents ” means this Agreement, each Note and the Fee Letter.
“ Material Adverse Effect ” means (a) a material adverse change in, or a material adverse effect upon, the
results of operations, business, properties, or financial condition of the Borrower and its Subsidiaries taken as a whole;
(b) a material impairment of the ability of the Borrower to perform its obligations under any Loan Document to which
it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the
Borrower of any Loan Document to which it is a party.
“ Material Contractual Obligation ” means, as to any Person, any contract, agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its property is bound that involves monetary
liability of such Person in an amount in excess of $50,000,000.
“ Maturity Date ” means the later of (a) November 7, 2011 and (b) if maturity is extended pursuant to
Section 2.12 , such extended maturity date as determined pursuant to such Section; provided , however , that, in each
case, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.
“ Multiemployer Plan ” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA,
to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five
plan years, has made or been obligated to make contributions.
“ Note ” means a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such
Lender, substantially in the form of Exhibit B .
“ Obligations ” means all advances to, and debts, liabilities, obligations, covenants and duties of, the Borrower
arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those
acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising.
“ Organization Documents ” means, (a) with respect to any corporation, the certificate or articles of
incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S.
jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization
and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity,
the partnership, joint venture or other applicable agreement of formation or organization and any agreement,
instrument, filing or notice with respect thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate
or articles of formation or organization of such entity.
“ Other Taxes ” means all present or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.
“ Outstanding Amount ” means, as of any date, the aggregate outstanding principal amount of Committed Loans
after giving effect to any borrowings and prepayments or repayments of Committed Loans occurring on such date.
“ Participant ” has the meaning specified in Section 10.06(d) .
“ PBGC ” means the Pension Benefit Guaranty Corporation.
“ PCAOB ” means the Public Company Accounting Oversight Board.
“ Pension Plan ” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of
ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the
Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to
contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made
contributions at any time during the immediately preceding five plan years.
“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association,
company, partnership, Governmental Authority or other entity.
“ Plan ” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by
the Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any
ERISA Affiliate.
“ Platform ” has the meaning specified in Section 6.02 .
“ Priority Debt ” means all Indebtedness of the Borrower and its Subsidiaries that is secured by a Lien on any
assets of the Borrower or any of its Subsidiaries.
“ Register ” has the meaning specified in Section 10.06(c) .
“ Registered Public Accounting Firm ” has the meaning specified in the Securities Laws and shall be
independent of the Borrower as prescribed by the Securities Laws.
“ Related Parties ” means, with respect to any Person, such Person's Affiliates and the partners, directors,
officers, employees, agents and advisors of such Person and of such Person's Affiliates.
“ Relevant Anniversary Date ” has the meaning specified in Section 2.12 (a) .
“ Reportable Event ” means any of the events set forth in Section 4043(c) of ERISA, other than events for
which the 30 day notice period has been waived.
“ Required Lenders ” means, as of any date of determination, Lenders having more than 50% of the Aggregate
Commitments or, if the commitment of each Lender to make Loans have been terminated pursuant to Section 8.02 ,
Lenders holding in the aggregate more than 50% of the Total Outstandings; provided that the Commitment of, and the
portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of
making a determination of Required Lenders.
“ Responsible Officer ” means the chief executive officer, chief financial officer, treasurer, chief accounting
officer or controller of the Borrower and, solely for purposes of notices given pursuant to Article II, any other officer or
employee of the Borrower so designated by any of the foregoing officers in the corporate banking resolutions delivered
as of the Closing Date pursuant to Section 4.01(a)(iii) to the Administrative Agent, and as modified from time to time
to specify other authorized officers or employees, provided that a certified copy of such modified resolutions is
promptly delivered to the Administrative Agent. Any document delivered hereunder that is signed by a Responsible
Officer of the Borrower shall be conclusively presumed to have been authorized by all necessary corporate, partnership
and/or other action on the part of the Borrower and such Responsible Officer shall be conclusively presumed to have
acted on behalf of the Borrower.
“ Sarbanes-Oxley ” means the Sarbanes-Oxley Act of 2002.
“ SEC ” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of
its principal functions.
“ SEC Reports ” means the annual, regular, periodic and special reports that the Borrower has filed with the
SEC under Section 13 or 15(d) of the Exchange Act prior to the Closing Date.
“ Securities Laws ” means the Securities Act, the Exchange Act, Sarbanes-Oxley and the applicable accounting
and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the
PCAOB.
“ Securitization ” means the securitization by the Borrower or any Subsidiary of accounts receivable or other
assets.
“ Securities Act ” means the Securities Act of 1933.
“ Securitization Subsidiary ” means a wholly-owned Subsidiary of the Borrower created solely for purposes of
effectuating a Securitization, the activities and assets of which are limited solely to such purpose and assets, and the
Organization Documents of which contain customary bankruptcy - remote provisions.
“ Shareholders' Equity ” means, as of any date of determination, consolidated shareholders' equity of the
Borrower and its Subsidiaries as of that date determined in accordance with GAAP.
“ Significant Subsidiary ” means any Subsidiary that satisfies the criteria for a “significant subsidiary” as
defined in Article 1, Rule 1‑02 of Regulation S‑X, promulgated pursuant to the Securities Act, as such Regulation is in
effect on the date hereof. Such determination shall be made in relationship to the Borrower and its Subsidiaries on a
consolidated basis as of the end of the most recently completed fiscal year on an annual basis at the time that the annual
financial statements for the Borrower and its Subsidiaries are delivered pursuant to Section 6.01(a) .
“ Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other
business entity of which a majority of the shares of securities or other interests having ordinary voting power for the
election of directors or other governing body (other than securities or interests having such power only by reason of the
happening of a contingency) are at the time beneficially owned, directly, or indirectly through one or more
intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to
“Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.
“ Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions,
forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index
swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward
bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor
transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options,
spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to
enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement,
and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and
conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives
Association, Inc., any International Foreign Exchange Master Agreement, or any similar master agreement (any such
master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or
liabilities under any Master Agreement.
“ Swap Termination Value ” means, in respect of any one or more Swap Contracts, after taking into account the
effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date
such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such
termination value(s), and (b) for any date prior to the date referenced in clause (a) , the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily
available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any
Affiliate of a Lender).
“ Syndication Agents ” means JPM and Wells Fargo.
“ Synthetic Lease Obligation ” means the monetary obligation of a Person under (a) a so-called synthetic,
off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of real property creating
obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of
such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
“ Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees
or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties
applicable thereto.
“ Threshold Amount ” means $100,000,000.
“ Total Outstandings ” means the aggregate Outstanding Amount of all Loans.
“ Type ” means, with respect to a Committed Loan, its character as a Base Rate Loan or a Eurodollar Rate
Loan.
“ Unfunded Pension Liability ” means the excess of a Pension Plan's benefit liabilities under
Section 4001(a)(16) of ERISA, over the current value of that Pension Plan's assets, determined in accordance with the
assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
“ United States ” and “ U.S. ” mean the United States of America.
“ Wells Fargo ” means Wells Fargo Bank, N.A.
1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document,
unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.
The words “ include ,” “ includes ” and “ including ” shall be deemed to be followed by the phrase “without
limitation.” The word “ will ” shall be construed to have the same meaning and effect as the word “ shall .” Unless the
context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including
any Organization Document) shall be construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments,
supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person
shall be construed to include such Person's successors and assigns, (iii) the words “ herein ,” “ hereof ” and “ hereunder
,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in
its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections,
Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan
Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory
provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall,
unless otherwise specified,
refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “ asset ”
and “ property ” shall be construed to have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word “ from ”
means “ from and including ;” the words “ to ” and “ until ” each mean “ to but excluding ;” and the word “ through ”
means “ to and including .”
(c) Section headings herein and in the other Loan Documents are included for convenience of reference only
and shall not affect the interpretation of this Agreement or any other Loan Document.
1.03 Accounting Terms. (a) Generally . All accounting terms not specifically or completely defined herein
shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations)
required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a
consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited
Financial Statements, except as otherwise specifically prescribed herein.
(b)
Changes in GAAP . If at any time any change in GAAP would affect the computation of any
financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders
shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend
such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the
approval of the Required Lenders); provided that , until so amended, (i) such ratio or requirement shall continue
to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to
the Administrative Agent and the Lenders financial statements and other documents required under this
Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio
or requirement made before and after giving effect to such change in GAAP.
(c)
Consolidation of Variable Interest Entities . All references herein to consolidated financial
statements of the Borrower and its Subsidiaries or to the determination of any amount for the Borrower and its
Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each
variable interest entity that the Borrower is required to consolidate pursuant to FASB Interpretation No. 46
(revised December 2003) Consolidation of Variable Interest Entities as if such variable interest entity were a
Subsidiary as defined herein.
1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement
shall be calculated by dividing the appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed herein and rounding the result up or down to the
nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to
Pacific time (daylight or standard, as applicable).
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01
Committed Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees
to make loans (each such loan, a “ Committed Loan ”) to the Borrower from time to time, on any Business Day during
the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender's
Commitment; provided , however , that after giving effect to any Borrowing, (i) the Total Outstandings shall not
exceed the Aggregate Commitments, and (ii) the aggregate Outstanding Amount of the Committed Loans of any
Lender, shall not exceed such Lender's Commitment. Within the limits of each Lender's Commitment, and subject to
the other terms and conditions hereof, the Borrower may borrow under this Section 2.01 , prepay under Section 2.03 ,
and reborrow under this Section 2.01 . Committed Loans may be Base Rate Loans or Eurodollar Rate Loans, as further
provided herein.
2.02
Borrowings, Conversions and Continuations of Committed Loans.
(a) Each Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation
of Eurodollar Rate Loans shall be made upon the Borrower's irrevocable notice to the Administrative Agent, which
may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m.
(i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar
Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) on the requested date of any
Borrowing of Base Rate Loans; provided , however , that if the Borrower wishes to request Eurodollar Rate Loans
having an Interest Period other than one, two, three or six months in duration as provided in the definition of “Interest
Period”, the applicable notice must be received by the Administrative Agent not later than 11:00 a.m. four Business
Days prior to the requested date of such Borrowing, conversion or continuation, whereupon the Administrative Agent
shall give prompt notice to the Lenders of such request and determine whether the requested Interest Period is available
to all of them. Not later than 11:00 a.m., three Business Days before the requested date of such Borrowing, conversion
or continuation, the Administrative Agent shall notify the Borrower (which notice may be by telephone) whether or not
the requested Interest Period has been consented to by all the Lenders. Each telephonic notice by the Borrower pursuant
to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed
Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of,
conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole
multiple of $1,000,000 in excess thereof, or if the remaining amount available under the Aggregate Commitments is
less than $5,000,000, in which case in multiples of $1,000,000. Each Borrowing of or conversion to Base Rate Loans
shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof or if the remaining
amount available under the Aggregate Commitments is less than $5,000,000, in which case in multiples of $1,000,000.
Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a
Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Eurodollar Rate Loans,
(ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business
Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of
Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the
duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of
Committed Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or
continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans. Any such
automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with
respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or
continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it
will be deemed to have specified an Interest Period of one month.
(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each
Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a
conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the
details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a
Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in
immediately available funds at the Administrative Agent's Office not later than 1:00 p.m. on the Business Day specified
in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and,
if such Borrowing is the initial Borrowing, Section 4.01 ), the Administrative Agent shall make all funds so received
available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the
Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each
case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the
Borrower.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the
last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loans may be
requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate
applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that
Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in
Bank of America's prime rate used in determining the Base Rate promptly following the public announcement of such
change.
(e) After giving effect to all Borrowings, all conversions of Committed Loans from one Type to the other, and
all continuations of Committed Loans as the same Type, there shall not be more than ten Interest Periods in effect with
respect to Committed Loans.
2.03
Prepayments.
(a) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily
prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be
received by the Administrative Agent not later than 12:00 p.m. (A) three Business Days prior to any date of
prepayment of Eurodollar Rate Loans and (B) on the date of prepayment of Base Rate Loans; (ii) any prepayment of
Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess
thereof; and (iii) any prepayment of Base Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple
of $1,000,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such
notice shall specify the date and amount of
such prepayment and the Type(s) of Committed Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid,
the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each
such notice, and of the amount of such Lender's Applicable Percentage of such prepayment. If such notice is given by
the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due
and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all
accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05 . Each
such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective
Applicable Percentages.
(b) If for any reason the Total Outstandings at any time exceed the Aggregate Commitments then in effect, the
Borrower shall immediately prepay Loans in an aggregate amount equal to such excess.
2.04 Termination or Reduction of Commitments. The Borrower may, upon notice to the Administrative
Agent, terminate the Aggregate Commitments, or from time to time permanently reduce the Aggregate Commitments;
provided that (i) any such notice shall be received by the Administrative Agent not later than 12:00 p.m. five Business
Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of
$5,000,000 or any whole multiple of $1,000,000 in excess thereof, and (iii) the Borrower shall not terminate or reduce
the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total
Outstandings would exceed the Aggregate Commitments. The Administrative Agent will promptly notify the Lenders
of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate
Commitments shall be applied to the Commitment of each Lender according to its Applicable Percentage. All fees
accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of
such termination.
2.05 Repayment of Loans. The Borrower shall repay to the Lenders on the Maturity Date the aggregate
principal amount of Committed Loans outstanding on such date.
2.06
Interest.
(a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the
outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such
Interest Period plus the Applicable Rate; and (ii) each Base Rate Loan shall bear interest on the outstanding principal
amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.
(b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace
periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a
fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable
Laws.
(ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is
not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or
otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating
interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iii) While any Event of Default exists, the Borrower shall pay interest on the principal amount of all
outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the
fullest extent permitted by applicable Laws
(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due
and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto
and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the
terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor
Relief Law.
2.07
Fees.
(a) Commitment Fee . The Borrower shall pay to the Administrative Agent for the account of each Lender in
accordance with its Applicable Percentage, a commitment fee (the “ Commitment Fee ”) equal to the Applicable Rate
times the actual daily amount by which the Aggregate Commitments exceed the sum of the Outstanding Amount of
Committed Loans. The Commitment Fee shall accrue at all times during the Availability Period, including at any time
during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears
on the last Business Day of each March, June, September and December, commencing with the first such date to occur
after the Closing Date, and on the last day of the Availability Period. The Commitment Fee shall be calculated
quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall
be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable
Rate was in effect.
(b)
Other Fees . (i) The Borrower shall pay to BAS and the Administrative Agent for their own respective
accounts fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and
shall not be refundable for any reason whatsoever.
(ii) The Borrower shall pay to the Lenders such fees as shall have been separately agreed upon in writing in
the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any
reason whatsoever.
2.08 Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base
Rate is determined by Bank of America's “prime rate” shall be made on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a
360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed
on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not
accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan
that is repaid on the same day on which it is made shall, subject to Section 2.10(a) , bear interest for one day. Each
determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all
purposes, absent manifest error.
2.09 Evidence of Debt. The Loans made by each Lender shall be evidenced by one or more accounts or
records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts
or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the
amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so
record or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In
the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of
the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control
in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower
shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such
Lender's Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse
thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
2.10
Payments Generally; Administrative Agent's Clawback.
(a) General . All payments to be made by the Borrower shall be made without condition or deduction for any
counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the
Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such
payment is owed, at the Administrative Agent's Office in Dollars and in immediately available funds not later than 2:00
p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable
Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to
such Lender's Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed
received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any
payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the
next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case
may be.
(b) (i) Funding by Lenders; Presumption by Administrative Agent . Unless the Administrative Agent shall
have received notice from a Lender prior to the proposed date of any Borrowing of Eurodollar Rate Loans (or, in the
case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will
not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may
assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of
a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time
required by Section 2.02 ) and may, in reliance upon such assumption, make available to the Borrower a corresponding
amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the
Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent
forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day
from and including the date such amount is made available to the Borrower to but excluding the date of payment to the
Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate
and a rate determined by the Administrative Agent in accordance with banking industry rules
on interbank compensation, plus any administrative, processing or similar fees customarily charged by the
Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower,
the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the
Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the
Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the
applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender's Committed
Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower
may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(ii) Payments by Borrower; Presumptions by Administrative Agent . Unless the Administrative Agent shall
have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for
the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may
assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such
payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the
amount so distributed to such Lender in immediately available funds with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at
the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation. Any payment by any Lender pursuant to this clause (ii) shall be without
prejudice to any claim such Lender or the Administrative Agent may have against the Borrower for having failed to
make such payment to the Administrative Agent.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under
this subsection (b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent . If any Lender makes available to the Administrative Agent
funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II , and such
funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable
Borrowings set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative
Agent shall return such funds (in like funds as received from such Lender) to such Lender within one Business Day,
without interest.
(d) Obligations of Lenders Several . The obligations of the Lenders hereunder to make Committed Loans and
to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any
Committed Loan or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any
other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of
any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under
Section 10.04(c) .
(e) Funding Source . Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan
in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the
funds for any Loan in any particular place or manner.
2.11
Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Committed Loans
made by it resulting in such Lender's receiving payment of a proportion of the aggregate amount of such Committed
Loans and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving
such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value)
participations in the Committed Loans, or make such other adjustments as shall be equitable, so that the benefit of all
such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Committed Loans and other amounts owing them, provided that: (i) if any such
participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered,
such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such
recovery, without interest; and (ii) the provisions of this Section shall not be construed to apply to (x) any payment
made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment
obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans to
any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this
Section shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under
applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against
the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct
creditor of the Borrower in the amount of such participation.
2.12
Extension of Maturity Date.
(a) Requests for Extension . The Borrower may, by notice to the Administrative Agent (who shall promptly
notify the Lenders) not earlier than 60 Business Days and not later than 35 Business Days prior to each of the first
anniversary of the Closing Date and the second anniversary of the Closing Date (each a “ Relevant Anniversary Date
”), request that each Lender extend such Lender's Maturity Date for an additional year from the Maturity Date then in
effect hereunder (the “ Existing Maturity Date ”).
(b) Lender Elections to Extend . Each Lender, acting in its sole and individual discretion, shall, by notice to
the Administrative Agent given not earlier than 30 Business Days prior to the Relevant Anniversary Date and not later
than the date (the “ Notice Date ”) that is 20 Business Days prior to the Relevant Anniversary Date, advise the
Administrative Agent whether or not such Lender agrees to such extension (and each Lender that determines not to so
extend its Maturity Date (a “ Non‑Extending Lender ”) shall notify the Administrative Agent of such fact promptly
after such determination (but in any event no later than the Notice Date) and any Lender that does not so advise the
Administrative Agent on or before the Notice Date shall be deemed to be a Non‑Extending Lender. The election of any
Lender to agree to such extension shall not obligate any other Lender to so agree.
(c) Notification by Administrative Agent . The Administrative Agent shall notify the Borrower of each
Lender's determination under this Section no later than the date 15 Business Days prior to the Relevant Anniversary
Date (or, if such date is not a Business Day, on the next preceding Business Day).
(d)
Additional Commitment Lenders . The Borrower shall have the right on or before the Relevant
Anniversary Date to replace each Non‑Extending Lender with, and add as “Lenders” under this Agreement in place
thereof, one or more Eligible Assignees (each, an “ Additional Commitment Lender ”) as provided in Section 10.13 ,
each of which Additional Commitment Lenders shall have entered into an Assignment and Assumption pursuant to
which such Additional Commitment Lender shall, effective as of the Relevant Anniversary Date, undertake a
Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in
addition to such Lender's Commitment hereunder on such date).
(e) Minimum Extension Requirement . If (and only if) the total of the Commitments of the Lenders that have
agreed so to extend their Maturity Date and the additional Commitments of the Additional Commitment Lenders shall
be more than 50% of the aggregate amount of the Commitments in effect immediately prior to the Relevant
Anniversary Date, then, effective as of the Relevant Anniversary Date, the Maturity Date of each Extending Lender and
of each Additional Commitment Lender shall be extended to the date falling 364 days after the Existing Maturity Date
(except that, if such date is not a Business Day, such Maturity Date as so extended shall be the next preceding Business
Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement.
(f) Conditions to Effectiveness of Extensions . Notwithstanding the foregoing, the extension of the Maturity
Date pursuant to this Section shall not be effective with respect to any Lender unless: (i) no Default shall have occurred
and be continuing on the date of such extension and after giving effect thereto; (ii) the representations and warranties
contained in this Agreement that are qualified by materiality shall be true and correct on and as of the date of such
extension and after giving effect thereto, and that are not qualified by materiality shall be true and correct in all material
respects on and as of the date of such extension and after giving effect thereto, in each case as though made on and as
of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of
such specific date and, for purposes of this Section 2.12 , the representations and warranties contained in
subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to
clauses (a) and (b) , respectively, of Section 6.01 ); and (iii) on the Relevant Anniversary Date of each Non-Extending
Lender that has not been replaced as provided in Section 2.12(d) , the Borrower shall prepay any Committed Loans
outstanding on such date (and pay any additional amounts required pursuant to Section 3.05 ) to the extent necessary to
keep outstanding Committed Loans ratable with any revised Applicable Percentages of the respective Lenders effective
as of such date.
(g)
contrary.
2.13
Conflicting Provisions . This Section shall supersede any provisions in Section 2.11 or 10.01 to the
Increase in Commitments.
(a) Request for Increase . Provided there exists no Default, upon notice to the Administrative Agent (which
shall promptly notify the Lenders), the Borrower may from time to time, request an increase in the Aggregate
Commitments by an amount (for all such requests) not exceeding $1,000,000,000; provided that (i) any such request for
an increase shall be in a minimum amount of $50,000,000, and (ii) the Borrower may make a maximum of five such
requests. At the time of sending such notice, the Borrower (in consultation with the Administrative Agent) shall specify
the time period within which each Lender is requested to
respond (which shall in no event be less than ten Business Days from the date of delivery of such notice to the
Lenders).
(b) Lender Elections to Increase . Each Lender shall notify the Administrative Agent within such time period
whether or not it agrees to increase its Commitment and, if so, whether by an amount equal to, greater than, or less than
its Applicable Percentage of such requested increase. Any Lender not responding within such time period shall be
deemed to have declined to increase its Commitment.
(c) Notification by Administrative Agent; Additional Lenders . The Administrative Agent shall notify the
Borrower and each Lender of the Lenders' responses to each request made hereunder. To achieve the full amount of a
requested increase and subject to the approval of the Administrative Agent (which approval shall not be unreasonably
withheld), the Borrower may also invite additional Eligible Assignees to become Lenders pursuant to a joinder
agreement in form and substance satisfactory to the Administrative Agent and its counsel.
(d) Effective Date and Allocations . If the Aggregate Commitments are increased in accordance with this
Section, the Administrative Agent and the Borrower shall determine the effective date (the “ Increase Effective Date ”)
and the final allocation of such increase. The Administrative Agent shall promptly notify the Borrower and the Lenders
of the final allocation of such increase and the Increase Effective Date.
(e) Conditions to Effectiveness of Increase . As a condition precedent to such increase, the Borrower shall
deliver to the Administrative Agent a certificate of the Borrower dated as of the Increase Effective Date (in sufficient
copies for each Lender) signed by a Responsible Officer (i) certifying and attaching the resolutions adopted by the
Borrower approving or consenting to such increase, and (ii) in the case of the Borrower, certifying that, before and after
giving effect to such increase, (A) the representations and warranties contained in Article V and the other Loan
Documents that are qualified by materiality shall be true and correct on and as of the Increase Effective Date, and that
are not qualified by materiality shall be true and correct in all material respects on and as of the Increase Effective Date,
except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are
true and correct as of such earlier date, and except that for purposes of this Section 2.13 , the representations and
warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements
furnished pursuant to clauses (a) and (b) , respectively, of Section 6.01 , and (B) no Default exists. The Borrower shall
prepay any Committed Loans outstanding on the Increase Effective Date (and pay any additional amounts required
pursuant to Section 3.05 ) to the extent necessary to keep the outstanding Committed Loans ratable with any revised
Applicable Percentages arising from any nonratable increase in the Commitments under this Section.
(f)
contrary.
Conflicting Provisions . This Section shall supersede any provisions in Section 2.11 or 10.01 to the
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01
Taxes.
(a) Payments Free of Taxes . Any and all payments by or on account of any obligation of the Borrower
hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for
any Indemnified Taxes or Other Taxes, provided that if the Borrower shall be required by applicable law to deduct any
Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or Lender, as the case may be, receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) Payment of Other Taxes by the Borrower . Without limiting the provisions of subsection (a) above, the
Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) Indemnification by the Borrower . The Borrower shall indemnify the Administrative Agent and each
Lender, within 30 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including
Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid
by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or
liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative
Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. The Borrower shall have
the rights specified in Section 10.13 in respect of any Lender for whose account the Borrower makes any payment
under this Section 3.01 .
(d) Evidence of Payments . As soon as practicable after any payment of Indemnified Taxes or Other Taxes
by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) Status of Lenders . Any Foreign Lender that is entitled to an exemption from or reduction of withholding
tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such
jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably
requested by the Borrower or the Administrative Agent, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of
withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such
other documentation prescribed by
applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the
Administrative Agent to determine whether or not such Lender is subject to backup withholding or information
reporting requirements. Without limiting the generality of the foregoing, in the event that the Borrower is resident for
tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in
such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender
becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the
Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is
applicable: (i) duly completed copies of Internal Revenue Service Form W‑8BEN claiming eligibility for benefits of an
income tax treaty to which the United States is a party, (ii) duly completed copies of Internal Revenue Service Form
W‑8ECI, (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section
881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of
section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section
881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and
(y) duly completed copies of Internal Revenue Service Form W‑8BEN, or (iv) any other form prescribed by applicable
law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed
together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to
determine the withholding or deduction required to be made.
(f) Treatment of Certain Refunds . If the Administrative Agent or any Lender has received a refund of any
Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has
paid additional amounts pursuant to this Section, it shall promptly pay to the Borrower an amount equal to such refund
(but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this
Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the
Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the
Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest
or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the
event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This
subsection shall not be construed to require the Administrative Agent or any Lender to make available its tax returns
(or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.
3.02
Illegality. If any Lender reasonably determines that any Law has made it unlawful, or that any
Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make,
maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any
Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take
deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through
the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base
Rate Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the
Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the
Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable,
convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period
therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if
such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or
conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted. The Borrower shall
have the rights in respect of any such Lender specified in Section 10.13 .
3.03 Inability to Determine Rates. If the Required Lenders reasonably determine that for any reason in
connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar
deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and
Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the
Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan , or (c) the
Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately
and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the
Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall
be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon
receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation
of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing
of Base Rate Loans in the amount specified therein.
3.04
Increased Costs; Reserves on Eurodollar Rate Loans.
(a) Increased Costs Generally . If any Change in Law shall: (i) impose, modify or deem applicable any
reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for
the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by
Section 3.04(e) ; (ii) subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any
Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except
for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any
Excluded Tax payable by such Lender); or (iii) impose on any Lender or the London interbank market any other
condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or participation
therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any
Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or to reduce the amount of any sum
received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request
of such Lender, the Borrower will pay to such Lender such additional amount or amounts as will compensate such
Lender for such additional costs incurred or reduction suffered. The Borrower shall have the rights specified in
Section 10.13 in respect of any Lender for whose account the Borrower makes any payment under this Section 3.04 .
(b) Capital Requirements . If any Lender determines that any Change in Law affecting such Lender or any
Lending Office of such Lender or such Lender's holding company, if any, regarding capital requirements has or would
have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding
company, if any, as a
consequence of this Agreement, the Commitments of such Lender or the Loans made by such Lender to a level below
that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking
into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender or such Lender's holding company for any such reduction suffered.
(c) Certificates for Reimbursement . A certificate of a Lender setting forth the amount or amounts necessary
to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this
Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender
the amount shown as due on any such certificate within 30 days after receipt thereof.
(d) Delay in Requests . Failure or delay on the part of any Lender to demand compensation pursuant to the
foregoing provisions of this Section shall not constitute a waiver of such Lender's right to demand such compensation,
provided that the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of this
Section for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender
notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's
intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of
retroactive effect thereof).
(e) Reserves on Eurodollar Rate Loans . The Borrower shall pay to each Lender, as long as such Lender shall
be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or
deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each
Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined
by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on
which interest is payable on such Loan, provided the Borrower shall have received at least 10 days' prior notice (with a
copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days
prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of
such notice.
3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent)
from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any
loss, cost or expense incurred by it as a result of: (a) any continuation, conversion, payment or prepayment of any Loan
other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary,
mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by the Borrower (for a reason other than
the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate
Loan on the date or in the amount notified by the Borrower; or (c) any assignment of a Eurodollar Rate Loan on a day
other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13 ;
including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds
obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were
obtained. The Borrower shall also pay any customary
administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts
payable by the Borrower to the Lenders under this Section 3.05 , each Lender shall be deemed to have funded each
Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the
London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such
Eurodollar Rate Loan was in fact so funded.
3.06
Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office . If any Lender requests compensation under Section 3.04 , or
the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 3.01 , or if any Lender gives a notice pursuant to Section 3.02 , then such Lender shall
use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign
its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender,
such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04 , as the
case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02 , as applicable, and (ii) in each
case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous
to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) Replacement of Lenders . If any Lender requests compensation under Section 3.04 , or if the Borrower is
required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 3.01 , the Borrower may replace such Lender in accordance with Section 10.13 .
3.07
Survival. All of the Borrower's obligations under this Article III shall survive termination of the
Aggregate Commitments and repayment of all other Obligations hereunder.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 Conditions of Closing. The obligation of each Lender to make its initial Loan hereunder shall not
become effective, and the Closing Date shall not occur, until the date on which each of the following conditions is
satisfied:
(a) The Administrative Agent's receipt of the following, each of which shall be originals or telecopies
(followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the
Borrower, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the
Closing Date) and each in form and substance reasonably satisfactory to the Administrative Agent and each of the
Lenders:
(i) executed counterparts of this Agreement, sufficient in number for distribution to the Administrative Agent,
each Lender and the Borrower;
(ii)
a Note executed by the Borrower in favor of each Lender requesting a Note;
(iii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of
Responsible Officers of the Borrower as the Administrative Agent may require evidencing the identity, authority and
capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this
Agreement and the other Loan Documents;
(iv) such documents and certifications as the Administrative Agent may reasonably require to evidence that
the Borrower is duly organized, and that the Borrower is validly existing, in good standing and qualified to engage in
business in the States of Delaware and California;
(v) a favorable opinion of Cooley Godward Kronish LLP, counsel to the Borrower, addressed to the
Administrative Agent and each Lender, as to the matters set forth in Exhibit E ;
(vi) a certificate of a Responsible Officer of the Borrower either (A) attaching copies of all consents, licenses
and approvals required in connection with the execution, delivery and performance by the Borrower and the validity
against the Borrower of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be
in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;
(vii) a certificate signed by a Responsible Officer of the Borrower (on behalf of the Borrower) certifying
(A) that the conditions specified in Sections 4.02(a) and (b) have been satisfied, (B) that there has been no event or
circumstance since the date of the Audited Financial Statements, subject to the SEC Reports, that has had or could be
reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect; and (C) a calculation of
the Consolidated Leverage Ratio as of the last day of the fiscal quarter of the Borrower most recently ended prior to the
Closing Date;
(viii) a duly completed Compliance Certificate as of the last day of the fiscal quarter of the Borrower ended on
September 30, 2006, signed by a Responsible Officer of the Borrower (on behalf of the Borrower); and
(ix) such other assurances, certificates, documents, consents or opinions as the Administrative Agent or the
Required Lenders reasonably may require.
(b) Any fees required to be paid on or before the Closing Date shall have been paid.
(c) Unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges and
disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative
Agent) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and
disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be
incurred by it through the closing proceedings ( provided that such estimate shall not thereafter preclude a final settling
of accounts between the Borrower and the Administrative Agent).
(d) The Closing Date shall have occurred on or before November 30, 2006.
Without limiting the generality of the provisions of Section 9.04 , for purposes of determining compliance with
the conditions specified in this Section 4.01 , each Lender that has signed this Agreement shall be deemed to have
consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or
satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the
proposed Closing Date specifying its objection thereto.
4.02 Conditions to all Borrowings. The obligation of each Lender to make a Loan on the occasion of any
Borrowing is subject to the following conditions precedent:
(a) The representations and warranties of the Borrower contained in Article V (other than the representations
and warranties contained in Sections 5.05(c) , 5.06(b) , 5.09 and 5.17 for all Borrowings other than the initial
Borrowing) or any other Loan Document that are qualified by materiality shall be true and correct on and as of the date
of such Borrowing, and that are not qualified by materiality shall be true and correct in all material respects on and as
of the date of such Borrowing, except to the extent that such representations and warranties specifically refer to an
earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this
Section 4.02 , the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to
refer to the most recent statements furnished pursuant to clauses (a) and (b) , respectively, of Section 6.01 .
(b) No Default shall exist, or would result from such proposed Borrowing or from the application of the
proceeds thereof.
(c) The Administrative Agent shall have received a Committed Loan Notice in accordance with the
requirements hereof.
Each Committed Loan Notice in respect of a Borrowing submitted by the Borrower shall be deemed to be a
representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the
date of the applicable Borrowing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and the Lenders that:
5.01 Existence, Qualification and Power. The Borrower (a) is duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation, (b) has all requisite power and authority and all
requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its
business and (ii) execute, deliver and perform its obligations under the Loan Documents, and (c) is duly qualified and is
licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or
operation of properties or the conduct of its business requires such qualification or license; except in each case referred
to in clause (b)(i) or (c) , to the extent that failure to do so could not reasonably be expected to have a Material Adverse
Effect.
5.02 Authorization; No Contravention. The execution, delivery and performance by the Borrower of each
Loan Document to which such Person is party, have been duly authorized by all necessary corporate action, and do not
and will not (a) contravene the terms of any of the Borrower's Organization Documents; (b) conflict with or result in
any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any
Material
Contractual Obligation or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award
to which the Borrower or any of its Subsidiaries or their respective properties is subject; or (c) violate any Law.
5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in
connection with the execution, delivery or performance by, or enforcement against, the Borrower of this Agreement or
any other Loan Document.
5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder,
will have been, duly executed and delivered by the Borrower. This Agreement constitutes, and each other Loan
Document when so delivered will constitute, a legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, arrangement,
moratorium and other similar laws affecting creditors' rights generally and to the application of general principles of
equity.
5.05
Financial Statements; No Material Adverse Effect.
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted therein; and (ii) fairly present in all material
respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations
for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby,
except as otherwise expressly noted therein.
(b) The unaudited consolidated balance sheet of the Borrower and its Subsidiaries dated September 30, 2006,
and the related consolidated statements of income or operations, shareholders' equity and cash flows for the fiscal
quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period
covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial
condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period
covered thereby, subject, in the case of clauses (i) and (ii) , to the absence of footnotes and to normal year-end audit
adjustments.
(c) Since the date of the Audited Financial Statements, subject to the SEC Reports, there has been no event or
circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material
Adverse Effect.
5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of
the Borrower, threatened, at law, in equity, in arbitration or before any Governmental Authority, by or against the
Borrower or any of its Subsidiaries or against any of their properties or revenues that (a) purport to enjoin or restrain
the execution or delivery of this Agreement or any other Loan Document, or any of the transactions contemplated
hereby, or (b) except as disclosed in the SEC Reports, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
5.07 No Default. Neither the Borrower nor any Subsidiary thereof is in default under or with respect to any
Material Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the
transactions contemplated by this Agreement or any other Loan Document.
5.08 Ownership of Property; Liens. Each of the Borrower and each Subsidiary has good record and
marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary
conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The property of the Borrower and its Subsidiaries is subject to no Liens,
other than Liens permitted by Section 7.01 .
5.09 Environmental Compliance. Except with respect to any matters that, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries
(i) has failed to comply with any applicable Environmental Law with respect to the facilities or properties owned,
leased or operated by Borrower or its Subsidiaries (the “ Subject Properties ”) or to obtain, maintain or comply with
any material permit, license or other approval required under any applicable Environmental Law, (ii) to the Borrower's
knowledge, has become subject to any Environmental Liability with respect to the Subject Properties, (iii) has received
notice of any claim with respect to any Environmental Liability with respect to the Subject Properties or (iv) knows of
any reasonable basis for any Environmental Liability with respect to the Subject Properties.
5.10 Insurance. The properties of the Borrower and its Subsidiaries are insured with financially sound and
reputable insurance companies, in such amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or
the applicable Subsidiary operates, and/or the Borrower has retained risk in respect of the Borrower and its Subsidiaries
through a self insurance mechanism or by agreement with an Affiliate or externally regulated vehicle for funding loss
normally provided through insurance coverage carried by companies engaged in the same or similar businesses and
owning similar properties.
5.11 Taxes. The Borrower and its Subsidiaries have filed all Federal, state and other tax returns and reports
that are material to the Borrower and its Subsidiaries, taken as a whole, and have paid all Federal, state and other taxes,
assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets
otherwise due and payable that collectively are material to the Borrower and its Subsidiaries, taken as a whole, except
those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate
reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or
any Subsidiary that could, if made, reasonably be expected to result in a Material Adverse Effect.
5.12
ERISA Compliance.
(a) Each Plan is in compliance with all material provisions of ERISA, the Code and other Federal or state
Laws, except where noncompliance would not result in or could not reasonably be expected to result in a Material
Adverse Effect. The Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to
Section 412 of the Code,
and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan; provided that any such contributions, applications for funding, waivers or
extensions that have been made could not result in or could not reasonably be expected to result in a Material Adverse
Effect.
(b) There are no pending or, to the knowledge of the Borrower, threatened claims, actions or lawsuits, or
action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material
Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect
to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any
Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not
delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA; provided that in each of the preceding instances, the individual event
described has resulted or could reasonably be expected to result in a Material Adverse Effect.
5.13
Margin Regulations; Investment Company Act.
(a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the
business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending
credit for the purpose of purchasing or carrying margin stock.
(b) The Borrower is not required to be registered as an “investment company” under the Investment Company
Act of 1940.
5.14 Disclosure. No report, financial statement, certificate or other written information furnished by or on
behalf of the Borrower to the Administrative Agent or any Lender in connection with the transactions contemplated
hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case,
as modified or supplemented by other information so furnished or by the SEC Reports) contains any material
misstatement of fact, and no such document, when considered collectively with all other such documents and the SEC
Reports, omits to state any material fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect to projected financial information, the
Borrower represents only that such information was prepared in good faith based upon assumptions believed to be
reasonable at the time.
5.15 Compliance with Laws. The Borrower and each Subsidiary thereof is in compliance in all material
respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its
properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being
contested in good faith
by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
5.16 Taxpayer Identification Number. The Borrower's true and correct U.S. taxpayer identification number
is set forth on Schedule 10.02 .
5.17 Intellectual Property; Licenses, Etc. The Borrower and its Subsidiaries own, or possess the right to
use, all of the material trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses
and other intellectual property rights (collectively, “ IP Rights ”) that are necessary for the operation of their respective
businesses, without conflict with the rights of any other Person, except as specified in the SEC Reports and except
where the failure to own or possess the right to use any such IP Rights would not reasonably be expected to have a
Material Adverse Effect. To the best knowledge of the Borrower, no slogan or other advertising device, product,
method, substance, part or other material now employed, or now contemplated to be employed by the Borrower or any
Subsidiary infringes upon any rights held by any other Person, except as specified in the SEC Reports and except where
such infringement would not reasonably be expected to have a Material Adverse Effect. Except as specified in the SEC
Reports, no claim or litigation regarding any of the foregoing is pending or, to the best knowledge of the Borrower,
threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
ARTICLE VI.
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation (other than
inchoate indemnity obligations) hereunder shall remain unpaid or unsatisfied:
6.01 Financial Statements. The Borrower shall deliver to the Administrative Agent and each Lender, in
form and detail reasonably satisfactory to the Administrative Agent and the Required Lenders:
(a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related
consolidated statements of income or operations, shareholders' equity and cash flows for such fiscal year, setting forth
in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in
accordance with GAAP, audited and accompanied by a report and opinion of Pricewaterhouse Coopers LLP or other
Registered Public Accounting Firm of nationally recognized standing, which report and opinion shall be prepared in
accordance with generally accepted auditing standards and applicable Securities Laws and shall not be subject to any
“going concern” or like qualification or exception or any qualification or exception as to the scope of such audit or with
respect to the absence of any material misstatement; and
(b) as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters
of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of
such fiscal quarter, and the related consolidated
statements of income or operations, shareholders' equity and cash flows for such fiscal quarter and for the portion of the
Borrower's fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding
fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable
detail, certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower as fairly
presenting in all material respects the financial condition, results of operations, shareholders' equity and cash flows of
the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the
absence of footnotes.
As to any information contained in materials furnished pursuant to Section 6.02(c) , the Borrower shall not be
separately required to furnish such information under clause (a) or (b) above, but the foregoing shall not be in
derogation of the obligation of the Borrower to furnish the information and materials described in clauses (a) and (b)
above at the times specified therein.
6.02 Certificates; Other Information. The Borrower shall deliver to the Administrative Agent and each
Lender, in form and detail reasonably satisfactory to the Administrative Agent and the Required Lenders:
(a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b) , a duly
completed Compliance Certificate signed by the chief executive officer, chief accounting officer, chief financial
officer, treasurer or controller of the Borrower;
(b) promptly after the same are available, copies of each annual report, proxy or financial statement or other
report or communication sent to the stockholders of the Borrower, and copies of all annual, regular, periodic and
special reports and registration statements which the Borrower may file or be required to file with the SEC under
Section 13 or 15(d) of the Exchange Act, and not otherwise required to be delivered to the Administrative Agent
pursuant hereto; and
(c) promptly, such additional information regarding the business, financial or corporate affairs of the
Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any
Lender may from time to time reasonably request in connection with this Agreement.
Notwithstanding the foregoing, documents required to be delivered pursuant to Section 6.01(a) or (b) or
Section 6.02(b) (to the extent any such documents are included in materials otherwise filed with the SEC) may be
delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the
Borrower posts such documents, or provides a link thereto on the Borrower's website on the Internet at the website
address listed on Schedule 10.02 ; or (ii) on which such documents are posted on the Borrower's behalf on an Internet
or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial,
third-party website or whether sponsored by the Administrative Agent). Notwithstanding anything contained herein, in
every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by
Section 6.02(b) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall
have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event
shall have no responsibility to monitor compliance by the Borrower with
any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its
copies of such documents.
The Borrower hereby acknowledges that (a) the Administrative Agent and/or BAS will make available to the
Lenders materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “ Borrower
Materials ”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “ Platform ”)
and (b) certain of the Lenders may be “public-side” Lenders ( i.e., Lenders that do not wish to receive material
non-public information with respect to the Borrower or its securities) (each, a “ Public Lender ”). The Borrower hereby
agrees that (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and
conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently
on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have
authorized the Administrative Agent, the Arrangers and the Lenders to treat such Borrower Materials as not containing
any material non-public information with respect to the Borrower or its securities for purposes of United States Federal
and state securities laws ( provided , however , that to the extent such Borrower Materials constitute Information, they
shall be treated as set forth in Section 10.07 ); (y) all Borrower Materials marked “PUBLIC” are permitted to be made
available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and BAS
shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a
portion of the Platform not designated “Public Investor.” Notwithstanding the foregoing, the Borrower shall be under
no obligation to mark any Borrower Materials “PUBLIC.”
6.03 Notices. Promptly after the Borrower's obtaining Actual Knowledge thereof, the Borrower shall notify
the Administrative Agent and each Lender:
(a) of the occurrence of any Default;
(b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect,
including any of the following to the extent that any of the following has resulted or could reasonably be expected to
result in a Material Adverse Effect: (i) breach or non-performance of, or any default under, a Material Contractual
Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension
between the Borrower or any Subsidiary and any Governmental Authority; and (iii) the commencement of, or any
material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to
any applicable Environmental Laws; and
(c) of the occurrence of any ERISA Event that has resulted in or could reasonably be expected to result in a
Material Adverse Effect.
Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a Responsible Officer of the
Borrower (on behalf of the Borrower) setting forth details of the occurrence referred to therein and stating what action
the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe
with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
6.04 Payment of Obligations. The Borrower shall, and shall cause each of its Subsidiaries to, pay and
discharge as the same shall become due and payable, all its material obligations and material liabilities, including (a) all
material tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the
same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in
accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all material lawful claims which,
if unpaid, would by law become a Lien (other than Liens permitted under Section 7.01 ) upon its property; and (c) all
Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or
agreement evidencing such Indebtedness, in all cases where the failure to pay or discharge could reasonably be
expected to have a Material Adverse Effect or result in an Event of Default hereunder.
6.05 Preservation of Existence, Etc. The Borrower shall, and shall cause each of its Significant Subsidiaries
to, (a) preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the
jurisdiction of its organization, except in a transaction permitted by Section 7.03 , and except that no Subsidiary shall
be required to preserve, renew and maintain its corporate existence and good standing, if the Borrower or such
Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the
Borrower and its Subsidiaries, taken as a whole, and that the loss thereof could not be reasonably expected to have a
Material Adverse Effect; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises
necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents,
trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a
Material Adverse Effect.
6.06
Maintenance of Properties. The Borrower shall, and shall cause each of its Subsidiaries to,
(a) maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business
in good working order and condition, ordinary wear and tear excepted, and (b) make all necessary repairs thereto and
renewals and replacements thereof, except in the case of clauses (a) and (b) where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
6.07
Maintenance of Insurance. The Borrower shall maintain with financially sound and reputable
insurance companies insurance with respect to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar businesses, of such types and in such amounts as
are customarily carried under similar circumstances by such other Persons, and/or Borrower shall retain risk through a
self insurance mechanism or by agreement with an Affiliate or externally regulated vehicle for funding loss normally
provided through insurance coverage carried by companies engaged in the same or similar businesses and owning
similar properties.
6.08 Compliance with Laws. The Borrower shall, and shall cause each of its Subsidiaries to, comply in all
material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to
its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or
decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply
therewith could not reasonably be expected to have a Material Adverse Effect.
6.09 Books and Records. The Borrower shall, and shall cause each of its Significant Subsidiaries to,
maintain proper books of record and account, in which full, true and correct entries in all material respects, in material
conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets
and business of the Borrower or such Significant Subsidiary, as the case may be.
6.10
Inspection Rights. The Borrower shall, and shall cause each of its Subsidiaries to, permit
representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its
properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom,
and to discuss its affairs, finances and accounts with its officers and independent public accountants (provided that the
Borrower's representatives may be present at or participate in any such discussion if it so chooses), all at such
reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance
notice to the Borrower; provided , however , that when an Event of Default exists, the Administrative Agent or any
Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the
reasonable expense of the Borrower at any time during normal business hours.
6.11 Use of Proceeds. The Borrower shall use the proceeds of the Borrowings for working capital, capital
expenditures, Acquisitions and other purposes not in contravention of any Law or of any Loan Document.
ARTICLE VII.
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation (other than
inchoate indemnity obligations) hereunder shall remain unpaid or unsatisfied:
7.01 Liens. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other
than the following:
(a)
Liens pursuant to any Loan Document;
(b) Liens existing on the date hereof and listed on Schedule 7.01 to the Disclosure Letter and any
replacements, renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the
amount secured or benefited thereby is not increased except as contemplated by Section 7.02(a) , (iii) the direct or any
contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or
benefited thereby is permitted by Section 7.02(a) ;
(c) Liens for taxes, fees, assessments or other governmental charges, levies or claims not yet due or which are
not delinquent beyond any period of grace or remain payable without penalty or which are being contested in good
faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on
the books of the applicable Person in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlord's, supplier's or other like Liens
arising in the ordinary course of business which are not overdue for a period of more than 30 days or which remain
payable without penalty or which are being contested in good faith and by appropriate proceedings diligently
conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person;
(e) pledges or deposits in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;
(f) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory
or regulatory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which do not
in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person;
(h) Liens securing Indebtedness permitted under Section 7.02(b) , provided that such Liens do not at any time
encumber any property other than the property financed by such Indebtedness;
(i) Liens existing on any real property or other specific tangible assets prior to the acquisition thereof by the
Borrower or existing on any such property or asset of any Person that becomes a Subsidiary, provided that (i) such Lien
is not created solely in contemplation of such acquisition or such Person becoming a Subsidiary, as the case may be;
(ii) such Lien shall not apply to any other property or assets of the Borrower or any other Subsidiary; and (iii) any such
Lien does not by its terms secure any Indebtedness other than Indebtedness existing immediately prior to the time of
such acquisition or such Person becoming a Subsidiary, as the case may be; and any replacements, renewals or
extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount secured or benefited
thereby is not increased except as contemplated by Section 7.02(c) , (iii) the direct or any contingent obligor with
respect thereto is not changed,
(j) Liens securing judgments for the payment of money not constituting an Event of Default under
Section 8.01(g) ;
(k) Liens arising by virtue of any contractual, statutory or common law provision relating to banker's liens,
rights of set-off or similar rights and remedies as to deposit accounts, other funds maintained with a creditor depository
institution, or investment or securities accounts; provided that (i) such account is not a dedicated cash collateral account
and is not subject to restrictions against access by the Borrower or the relevant Subsidiary in excess of those set forth
by the regulations promulgated by the FRB, and (ii) such account is not intended by the Borrower or any of its
Subsidiaries to provide collateral to the depository institution with respect to otherwise unrelated obligations of the
Borrower or any such Subsidiary to such depository institution;
(l) Liens arising under repurchase agreements, reverse repurchase agreements, securities lending and
borrowing agreements and similar transactions;
(m)
Liens arising from precautionary filings in respect of operating leases;
(n) Liens arising from leases, licenses, subleases or sublicenses granted to others in the ordinary course of
business which do not (A) interfere in any material respect with the business of the Borrower or any Subsidiary or
(B) secure any Indebtedness;
(o) any interest or title of a lessor in the property (and the proceeds, accession or products thereof) subject to
any operating lease, and Liens arising from UCC financing statements (or equivalent filings, registrations or
agreements in foreign jurisdictions) relating to true leases or leases permitted hereunder;
(p) Liens to secure intercompany Indebtedness among the Borrower and its Subsidiaries in the ordinary course
of business;
(q) Liens arising in connection with any Securitization, provided that such Liens do not encumber any assets
other than the receivables or other assets being financed, the property securing or otherwise relating to such receivables
or other assets, and the proceeds thereof;
(r) Liens solely on deposits, advances, contractual payments, including implementation allowances or escrows
to or with landlords, customers or clients or in connection with insurance arrangement in the ordinary course of
business;
(s) Liens encumbering property or assets under construction (and proceeds or products thereof) arising from
progress or partial payments by a customer of the Borrower or its Subsidiaries relating to such property or assets; and
(t) other Liens to secure Indebtedness or other obligations other than those described above in this
Section 7.01 , provided that the sum, without duplication, of (i) the aggregate amount of the Indebtedness and other
obligations secured by such Liens permitted by this subsection (t) and (ii) the aggregate amount of Priority Debt
permitted to be outstanding under Section 7.02(e) , shall not at any time exceed an amount equal to the greater of
(x) $500,000,000 and (y) 10% of Consolidated Tangible Net Worth of the Borrower.
7.02 Priority Debt. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur,
assume or suffer to exist any Priority Debt, except:
(a) Indebtedness outstanding on the date hereof secured by Liens listed on Schedule 7.01 to the Disclosure
Letter or any refinancings, refundings, renewals, amendments or extensions thereof; provided that the amount of such
Indebtedness is not increased at the time of such refinancing, refunding, renewal, amendment or extension except by an
amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in
connection with such refinancing;
(b) Indebtedness in respect of capital leases, Synthetic Lease Obligations, purchase money obligations and
other obligations, the proceeds of which are used to acquire or construct fixed or capital assets or improvements with
respect thereto (within the limitations set forth in Section 7.01(h) ) or any refinancings, refundings, renewals,
amendments or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such
refinancing, refunding, renewal, amendment or extension except by an amount equal to a reasonable premium
or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing;
(c) Indebtedness secured by Liens permitted by Section 7.01(i) (within the limitations set forth in such
Section) or any refinancings, refundings, renewals, amendments or extensions thereof, provided that the amount of
such Indebtedness is not increased at the time of such refinancing, refunding, renewal, amendment or extension except
by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably
incurred, in connection with such refinancing;
(d) Indebtedness secured by Liens permitted under Section 7.01(k) , Section 7.01(l) , Section 7.01(p) or
Section 7.01(q) ; or
(e) other Priority Debt not described above in this Section 7.02 , provided that the sum, without duplication, of
(i) the aggregate amount of Priority Debt permitted by this subsection (e) and (ii) the aggregate amount of Liens and
other obligations permitted to be secured under Section 7.01(t) , shall not at any time exceed an amount equal to the
greater of (x) $500,000,000 and (y) 10% of Consolidated Tangible Net Worth.
7.03
Fundamental Changes; Acquisitions. The Borrower shall not: (a) merge, dissolve, liquidate or
consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets, or all or substantially all of the assets of itself and its Subsidiaries (whether now owned or
hereafter acquired), to or in favor of any Person; provided, however, that, if at the time thereof and immediately after
giving effect thereto no Event of Default shall have occurred and be continuing, (i) any Person may merge with or into
or consolidate with the Borrower, if the Borrower is the surviving Person, and (ii) the Borrower may (A) merge into
any of its Subsidiaries for the purpose of effecting a change in its state of incorporation (if all Obligations shall have
been assumed by such Subsidiary by operation of Law or through assumption documents satisfactory to the
Administrative Agent), and (B) reincorporate in any other jurisdiction in the United States, but must in each case
promptly notify the Administrative Agent thereof; or
(b) make any Acquisition, unless at the time thereof and immediately after giving effect thereto no Default
shall have occurred and be continuing.
7.04 Burdensome Agreements. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter
into any Material Contractual Obligation (other than this Agreement or any other Loan Document) that limits in any
material respect the ability (i) of any Subsidiary to pay dividends or make other distributions with respect to any capital
stock or equity interests of such Subsidiary to the Borrower or to otherwise transfer property to the Borrower or any
other Subsidiary, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrower under this Agreement or (iii) of
the Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person for the
benefit of the Administrative Agent or the Lenders, provided that the foregoing clauses (i) , (ii) and (iii) shall not apply
to Material Contractual Obligations which:
(a) are binding on a Subsidiary at the time such Subsidiary first becomes a Subsidiary, so long as such
Material Contractual Obligations were not entered into solely in contemplation of such Person becoming a Subsidiary;
(b) represent or secure Indebtedness of a non-U.S. Subsidiary, provided that such Material Contractual
Obligations apply solely to such non-U.S. Subsidiary;
(c) are customary provisions in joint venture agreements and other similar agreements applicable to joint
ventures and applicable solely to such joint venture;
(d) are negative pledges and restrictions on Liens in favor of any holder of Indebtedness permitted under
Section 7.02 but solely to the extent any negative pledge or other restriction on Liens relates to the property financed by
or the subject of such Indebtedness;
(e) are customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary or
any assets pending such sale to the extent that such restrictions and conditions apply only to the Subsidiary or assets
that is or are to be sold;
(f) are restrictions existing on the date of this Agreement contained in agreements and arrangements set forth
on Schedule 7.04 to the Disclosure Letter, (including any amendments or replacements of such agreements or
arrangements) and restrictions in future agreements or arrangements substantially similar to such restrictions;
(g) are customary restrictions on leases, subleases, licenses or asset sale agreements otherwise permitted
hereby so long as such restrictions relate solely to the assets subject thereto;
(h) comprise restrictions imposed by any agreement relating to secured Indebtedness permitted pursuant to
Section 7.02 to the extent that such restrictions apply only to the property or assets securing such Indebtedness;
(i) are restrictions contained in arrangements or agreements with Governmental Authorities or adopted to
comply with any rule, directive or interpretation of any Governmental Authority, including restrictions imposed under a
license or authorization issued or granted by regulatory, statutory or governmental bodies relating to capital compliance
or net worth plus a reasonable margin above such minimum;
(j) are customary provisions restricting subletting or assignment of any lease governing a leasehold interest of
the Borrower or any Subsidiary;
(k) are restrictions imposed upon Subsidiaries serving as special purpose vehicles in connection with
Securitizations;
(l) are customary restrictions imposed on the transfer of copyrighted or patented materials or other intellectual
property and customary provisions in agreements that restrict the assignment of such agreements or any rights
thereunder; or
(m) are customary financial covenants and other agreements affecting maintenance or retention of assets or
capital by a Subsidiary.
7.05 Use of Proceeds. The Borrower shall not use the proceeds of any Borrowing, whether directly or
indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning
of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to
refund indebtedness originally incurred for such purpose, in each case in violation of, or for a purpose which violates,
or would be inconsistent with, Regulation T, U or X of the FRB.
7.06 Financial Covenant. The Borrower shall not permit its Consolidated Leverage Ratio, as determined as
of the end of any fiscal quarter of the Borrower, to be greater than 2:00 to 1:00.
ARTICLE VIII.
EVENTS OF DEFAULT AND REMEDIES
8.01
Events of Default. Any of the following shall constitute an Event of Default:
(a) Non-Payment . The Borrower fails to pay (i) when and as required to be paid herein, any amount of
principal of any Loan, or (ii) within three Business Days after the same becomes due, any interest on any Loan, or any
fee due hereunder, or any other amount payable hereunder or under any other Loan Document; or
(b)
Specific Covenants . The Borrower fails to perform or observe any term, covenant or agreement
contained in any of Section 6.03(a) or 6.05(a) (with respect to the Borrower's existence), or Article VII ; or
(c) Other Defaults . The Borrower fails to perform or observe any other covenant or agreement (not specified
in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such
failure continues for 30 days after the earlier of (i) the Company having Actual Knowledge thereof or (ii) the receipt by
the Company of notice from the Administrative Agent or any Lender thereof; or
(d) Representations and Warranties . Any representation, warranty, certification or statement of fact made or
deemed made by or on behalf of the Borrower herein, in any other Loan Document, or in any document delivered in
connection herewith or therewith (i) if not qualified by materiality, shall be incorrect or misleading in any material
respect when made or deemed made, or (ii) if qualified by materiality, shall be incorrect or misleading when made or
deemed made shall be incorrect or misleading; or
(e) Cross-Default . (i) The Borrower or any Subsidiary (A) fails to make any payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or
Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal
amount (including undrawn committed or available amounts and including amounts owing to all creditors under any
combined or syndicated credit arrangement) of more than the Threshold Amount (“ Specified Indebtedness ”), after
giving effect to any applicable grace period, if any, specified in the agreement or instrument relating to such
Indebtedness or Guarantee, or (B) fails to observe or perform any other agreement or condition relating to any
Specified Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, after
giving effect to any
applicable grace period, if any, specified in the agreement or instrument relating to such Specified Indebtedness, or any
other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such
Specified Indebtedness or the beneficiary or beneficiaries of any Specified Indebtedness constituting a Guarantee (or a
trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Specified Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or
redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Specified
Indebtedness to be made, prior to its stated maturity, or such Specified Indebtedness consisting of a Guarantee to
become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an
Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap
Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) and the
Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater than the Threshold
Amount, or (B) any Termination Event (as so defined) under such Swap Contract as to which the Borrower or any
Subsidiary is an Affected Party (as so defined) and (i) the Swap Termination Value owed by the Borrower or such
Subsidiary as a result thereof is greater than the Threshold Amount, and (ii) the Borrower or such Subsidiary shall fail
to make payment thereof within the later to occur of five Business Days after the due date thereof and the expiration of
any grace periods in such Swap Contract applicable to such payment obligation; or
(f) Inability to Pay Debts; Insolvency Proceedings, Etc. The Borrower or any Significant Subsidiary becomes
unable or admits in writing its inability or fails generally to pay its debts as they become due; or the Borrower or any of
its Significant Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or
makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or
any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the
application or consent of the Borrower or such Significant Subsidiary and the appointment continues undischarged or
unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to the Borrower or such
Significant Subsidiary or to all or any material part of its property is instituted without the consent of the Borrower or
such Significant Subsidiary and continues undismissed or unstayed for 60 calendar days, or an order for relief is
entered in any such proceeding; or
(g) Judgments . There is entered against the Borrower or any Subsidiary (i) one or more final judgments or
orders for the payment of money in an aggregate amount (as to all such judgments or orders) exceeding the Threshold
Amount (to the extent not covered by independent third-party insurance as to which the insurer does not dispute
coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are
commenced by any creditor upon such judgment or order, or (B) there is a period of 45 consecutive days during which
a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
(h) ERISA . (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has
resulted in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in
an aggregate amount in excess of the
Threshold Amount, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any
applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA
under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or
(i) Invalidity of Loan Documents . Any Loan Document, at any time after its execution and delivery and for
any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases
to be in full force and effect; or the Borrower or any other Person contests in any manner the validity or enforceability
of any Loan Document; or the Borrower denies that it has any or further liability or obligation under any Loan
Document, or purports to revoke, terminate or rescind any Loan Document; or
(j)
Change of Control . There occurs any Change of Control.
8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative
Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following
actions:
(a) declare the commitment of each Lender to make Loans to be terminated, whereupon such commitments
and obligation shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and
all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the
Borrower; or
(c) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under
the Loan Documents;
provided , however , that upon the occurrence of an actual or deemed entry of an order for relief with respect to the
Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans shall
automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as
aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Lender.
8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans
have automatically become immediately due and payable, any amounts received on account of the Obligations shall be
applied by the Administrative Agent in the following order:
First , to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts
(including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under
Article III ) payable to the Administrative Agent in its capacity as such;
Second , to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other
than principal and interest) payable to the Lenders (including fees, charges and disbursements of counsel to the
respective Lenders and amounts payable under Article III ), ratably among them in proportion to the respective
amounts described in this clause Second payable to them;
Third , to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and
other Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Third
payable to them;
Fourth , to payment of that portion of the Obligations constituting unpaid principal of the Loans, ratably among
the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and
Last , the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as
otherwise required by Law.
ARTICLE IX.
ADMINISTRATIVE AGENT
9.01 Appointment and Authority. Each of the Lenders hereby irrevocably appoints Bank of America to act on its
behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or
thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the
benefit of the Administrative Agent and the Lenders, and the Borrower shall not have rights as a third-party beneficiary of any of
such provisions.
9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the
Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the
context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity.
Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other
advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other
Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account
therefor to the Lenders.
9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except
those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the
Administrative Agent: (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default
has occurred and is continuing; (b) shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan
Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or
such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan
Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the
opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or
applicable law; and (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty
to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its
Affiliates that is communicated to or obtained
by the Person serving as the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent
shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe
in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02 ) or (ii) in the absence
of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower or a
Lender. The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with this Agreement or any other Loan Document,
(ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection
herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly
required to be delivered to the Administrative Agent.
9.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or
other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it
to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper
Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to
the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may
presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice
to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal
counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not
be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or
experts.
9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its
rights and powers hereunder or under any other Loan Document by or through any one or more sub‑agents appointed
by the Administrative Agent. The Administrative Agent and any such sub‑agent may perform any and all of its duties
and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this
Article shall apply to any such sub‑agent and to the Related Parties of the Administrative Agent and any such
sub‑agent, and shall apply to their respective activities in connection with the syndication of the credit facilities
provided for herein as well as activities as Administrative Agent.
9.06 Resignation of Administrative Agent. The Administrative Agent may at any time give notice of its
resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall
have the right, with the consent of the Company (not to be unreasonably withheld) unless an Event of Default shall
have occurred and be continuing, to appoint a successor, which shall be a bank with an office in the United States, or
an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor
Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify
the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall
nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of
any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents,
the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor
Administrative Agent is appointed) and (2) all payments, communications and determinations provided to be made by,
to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the
Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance
of a successor's appointment as Administrative Agent hereunder, such successor shall succeed to and become vested
with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring
Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan
Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower
to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the retiring Administrative Agent's resignation hereunder and under
the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of
such retiring Administrative Agent, its sub‑agents and their respective Related Parties in respect of any actions taken or
omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties
and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision
to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information
as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under
or based upon this Agreement or any other Loan Document.
9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Bookrunners,
Arrangers or Syndication Agents listed on the cover page hereof shall have any powers, duties or responsibilities under
this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent
or a Lender hereunder.
ARTICLE X.
MISCELLANEOUS
10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan
Document, and no consent to any departure by the Borrower therefrom, shall
be effective unless in writing signed by the Required Lenders and the Borrower, and acknowledged by the
Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided , however , that no such amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01(a) without the written consent of each Lender;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to
Section 8.02 ) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment of principal,
interest, fees or other amounts due to the Lenders (or any of them) or any scheduled or mandatory reduction of the
Aggregate Commitments hereunder or under any other Loan Document without the written consent of each Lender
directly affected thereby;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan, or (subject to clause (iii) of the
second proviso to this Section 10.01 ) any fees or other amounts payable hereunder or under any other Loan Document,
or change the manner of computation of any financial ratio (including any change in any applicable defined term) used
in determining the Applicable Rate that would result in a reduction of any interest rate on any Loan or any fee payable
hereunder, without the written consent of each Lender directly affected thereby; provided , however , that only the
consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any
obligation of the Borrower to pay interest at the Default Rate;
(e) change Section 2.11 or Section 8.03 in a manner that would alter the pro rata sharing of payments required
thereby without the written consent of each Lender; or
(f) change any provision of this Section or the definition of “Required Lenders” or any other provision hereof
specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or
make any determination or grant any consent hereunder without the written consent of each Lender;
and, provided further , that (i) no amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent
under this Agreement or any other Loan Document; and (ii) the Fee Letter may be amended, or rights or privileges
thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein,
no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder,
except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
10.02
Notices; Effectiveness; Electronic Communication.
(a) Notices Generally . Except in the case of notices and other communications expressly permitted to be
given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered
mail or sent by
telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone
shall be made to the applicable telephone number, as follows: (i) if to the Borrower or the Administrative Agent, to the
address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02 ;
and (ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified
in its Administrative Questionnaire. Notices sent by hand or overnight courier service, or mailed by certified or
registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have
been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the recipient). Notices delivered through electronic
communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b) .
(b) Electronic Communications . Notices and other communications to the Lenders hereunder may be
delivered or furnished by electronic communication (including e‑mail and Internet or intranet websites) pursuant to
procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender
pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices
under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion,
agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures
approved by it, provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail
address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as
by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that
if such notice or other communication is not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on the next business day for the recipient,
and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed
receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such
notice or communication is available and identifying the website address therefor.
(c) The Platform . THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT
PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE
BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM
LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF
ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY
RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN
CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative
Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to the Borrower, any Lender
or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or
otherwise) arising out of the Borrower's or the Administrative Agent's transmission of Borrower Materials through the
Internet, except to the
extent that such losses, claims, damages, liabilities or expenses result from the gross negligence or willful misconduct
of such Agent Party; provided , however , that in no event shall any Agent Party have any liability to the Borrower, any
Lender or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or
actual damages).
(d) Change of Address, Etc . Each of the Borrower, the Administrative Agent may change its address,
telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto.
Each other Lender may change its address, telecopier or telephone number for notices and other communications
hereunder by notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the
Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address,
contact name, telephone number, telecopier number and electronic mail address to which notices and other
communications may be sent and (ii) accurate wire instructions for such Lender.
(e) Reliance by Administrative Agent and Lenders . The Administrative Agent and the Lenders shall be
entitled to rely and act upon any notices (including telephonic Committed Loan Notices) purportedly given by or on
behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were
not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the
recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, each Lender
and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by
such Person on each notice purportedly given by or on behalf of the Borrower, provided that such indemnity shall not
be available as to any Indemnitee (as defined in Section 10.04(b) ) to the extent that such losses, costs, expenses and
liabilities result from the gross negligence or willful misconduct of such Indemnitee. All telephonic notices to and other
telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of
the parties hereto hereby consents to such recording.
10.03 No Waiver; Cumulative Remedies. No failure by any Lender or the Administrative Agent to
exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
10.04
Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses . The Borrower shall pay (i) all reasonable out‑of‑pocket expenses incurred by the
Administrative Agent and its Affiliates, the Arrangers and the Syndication Agents (including the reasonable fees,
charges and disbursements of counsel for the Administrative Agent, the Arrangers and the Syndication Agents), in
connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution,
delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all out‑of‑pocket expenses incurred by the Administrative Agent, any Arranger, any Syndication
Agent or any Lender (including the fees, charges and disbursements of any counsel for the Administrative
Agent or any Lender), and shall pay all fees and time charges for attorneys who may be employees of the
Administrative Agent, any Arranger, any Syndication Agent or any Lender, in connection with the enforcement or
protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under
this Section, or (B) in connection with the Loans made hereunder, including all such out‑of‑pocket expenses incurred
during any workout, restructuring or negotiations in respect of such Loans.
(b) Indemnification by the Borrower . The Borrower shall indemnify the Administrative Agent (and any
sub-agent thereof), the Arrangers, the Syndication Agents, each Lender and each Related Party of any of the foregoing
Persons (each such Person being called an “ Indemnitee ”) against, and hold each Indemnitee harmless from, any and
all losses, claims, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements
of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all reasonable fees
and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any
Indemnitee or asserted against any Indemnitee by any third party or by the Borrower arising out of, in connection with,
or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations
hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the
Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement
and the other Loan Documents, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or
prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract,
tort or any other theory, whether brought by a third party or by the Borrower, and regardless of whether any Indemnitee
is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses (x) result from the gross negligence or willful misconduct of
such Indemnitee or (y) result from a claim brought by the Borrower against an Indemnitee for a material breach of such
Indemnitee's obligations hereunder or under any other Loan Document, if the Borrower has obtained a judgment in its
favor on such claim as determined by a court of competent jurisdiction.
(c) Reimbursement by Lenders . To the extent that the Borrower for any reason fails to indefeasibly pay any
amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any
sub-agent thereof) or any Related Party of any of the foregoing, each Lender severally agrees to pay to the
Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender's Applicable
Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of
such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) in its
capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such
sub-agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the
provisions of Section 2.10(d) .
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as
opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other
Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby,
any Loan or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any
damages arising from the use by unintended recipients of any information or other materials distributed to such
unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission
systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or
thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such
Indemnitee.
(e)
therefor.
Payments . All amounts due under this Section shall be payable not later than 30 days after demand
(f) Survival . The agreements in this Section shall survive the resignation of the Administrative Agent, the
replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or
discharge of all the other Obligations.
10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the
Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such
payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or
such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding
under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not
been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent
upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the
Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per
annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under clause (b) of
the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
10.06
Successors and Assigns.
(a) Successors and Assigns Generally . The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower
may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the
Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations
hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of
participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment
of a security interest subject to the restrictions of subsection (f) of this Section 10.06 (and any other attempted
assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied,
shall be construed to confer upon any Person (other than the parties hereto, the Arrangers, the Syndication Agents, their
respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this
Section and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) Assignments by Lenders . Any Lender may at any time assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time
owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts . (A) in the case of an assignment of the entire remaining amount of the assigning
Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of
a Lender or an Approved Fund, no minimum amount need be assigned; and (B) in any case not described in
subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans
outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of
the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with
respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment
and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and,
so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not
to be unreasonably withheld or delayed); provided , however , that concurrent assignments to members of an Assignee
Group and concurrent assignments from members of an Assignee Group to a single assignee (or to an assignee and
members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such
minimum amount has been met.
(ii) Proportionate Amounts . Each partial assignment shall be made as an assignment of a proportionate part
of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans or the Commitment
assigned;
(iii) Required Consents . No consent shall be required for any assignment except to the extent required by
subsection (b)(i)(B) of this Section and, in addition: (A) the consent of the Borrower (such consent not to be
unreasonably withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the
time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be
required if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with
respect to such Lender.
(iv) Assignment and Assumption . The parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of
$3,500; provided , however , that the Administrative Agent may, in its sole discretion, elect to waive such processing
and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire.
(v) No Assignment to Borrower . No such assignment shall be made to the Borrower or any of the
Borrower's Affiliates or Subsidiaries.
(vi)
No Assignment to Natural Persons . No such assignment shall be made to a natural person.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section,
from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party
to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case
of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01 , 3.04 ,
3.05 , and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon
request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or
transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be
treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in
accordance with subsection (d) of this Section.
(c) Register . The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall
maintain at the Administrative Agent's Office a copy of each Assignment and Assumption delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the
Loans owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the
Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender,
at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations . Any Lender may at any time sell participations to any Person (other than a natural person
or the Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a “ Participant ”) in all or a portion of such
Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower,
the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement, and (iv) any such participation must be approved by
the Administrative Agent and, unless an Event of Default has occurred and is continuing, the Borrower, which approval
by the Borrower shall not be unreasonably withheld or delayed. Any agreement or instrument pursuant to which a
Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and
to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement
or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment,
waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to
subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01
, 3.04 and 3.05 to the same extent as if
it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender,
provided such Participant agrees to be subject to Section 2.11 as though it were a Lender.
(e) Limitations upon Participant Rights . A Participant shall not be entitled to receive any greater payment
under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 3.01(e) as though it were a Lender.
(f) Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any
pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall
release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as
a party hereto.
(g) Electronic Execution of Assignments . The words “execution,” “signed,” “signature,” and words of like
import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in
electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed
signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any
applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State
Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions
Act.
10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent and the
Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be
disclosed (a) to its Affiliates and to its and its Affiliates' respective partners, directors, officers, employees, agents,
advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent
requested by any regulatory authority purporting to have jurisdiction over it or any of its Affiliates (including any
self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in
connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding
relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder,
(f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of
or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement
or (ii) any actual or prospective counterparty (or its advisors) to any Securitization, swap or derivative transaction
relating to the Borrower and its obligations, or any Subsidiary and its obligations, (g) with the consent of the Borrower
or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or
(y) becomes
available to the Administrative Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a
source other than the Borrower.
For purposes of this Section, “ Information ” means all information received from the Borrower or any
Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such
information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure
by the Borrower or any Subsidiary, provided that, in the case of information received from the Borrower or any
Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential or should,
because of its nature, reasonably be understood to be confidential. Any Person required to maintain the confidentiality
of Information as provided in this Section shall be considered to have complied with its obligation to do so if such
Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
Each of the Administrative Agent and the Lenders acknowledges that (a) the Information may include material
non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance
procedures regarding the use of material non-public information and (c) it will handle such material non-public
information in accordance with applicable Law, including Federal and state securities Laws.
10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of
their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by
applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in
whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or
any such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the
Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and
although such obligations of the Borrower may be contingent or unmatured or are owed to a branch or office of such
Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each
Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other
rights of setoff) that such Lender or their respective Affiliates may have. Each Lender agrees to notify the Borrower
and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such
notice shall not affect the validity of such setoff and application.
10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document,
the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious
interest permitted by applicable Law (the “ Maximum Rate ”). If the Administrative Agent or any Lender shall receive
interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans
or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for,
charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the
extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium
rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and
spread in
equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations
hereunder.
10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by
different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken
together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract
among the parties relating to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01 , this
Agreement shall become effective when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of
the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
10.11 Survival of Representations and Warranties. All representations and warranties made hereunder
and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or
therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or
will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the
Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any
Lender may have had notice or knowledge of any Default at the time of any Borrowing, and shall continue in full force
and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.
10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal,
invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and
the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith
negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision
in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
10.13
Replacement of Lenders. If any Lender requests compensation under Section 3.04 , or if the
Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any
Lender pursuant to Section 3.01 or if any Lender determines pursuant to Section 3.02 that it is not permitted to make
Eurodollar Rate Loans, or if any Lender is a Defaulting Lender, or if any Lender declines to approve any waiver,
amendment or modification of this Agreement or any Loan Document that requires approval of all Lenders pursuant to
Section 10.01 or if any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a
party hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions
contained in, and consents required by, Section 10.06 ), all of its interests, rights and obligations under this Agreement
and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment), provided that: (a) the Borrower shall have paid to the Administrative
Agent the assignment fee specified in Section 10.06(b) ; (b) such Lender shall have received payment of an amount
equal to the
outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder
and under the other Loan Documents (including any amounts under Section 3.05 ) from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts); (c) in the
case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be
made pursuant to Section 3.01 , such assignment will result in a reduction in such compensation or payments thereafter;
and (d) such assignment does not conflict with applicable Laws. A Lender shall not be required to make any such
assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances
entitling the Borrower to require such assignment and delegation cease to apply.
10.14
Governing Law; Jurisdiction; Etc.
GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(a)
(b) SUBMISSION TO JURISDICTION . THE BORROWER IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES
DISTRICT COURT OF THE SOUTHERN DISTRICT, AND ANY APPELLATE COURT FROM ANY THEREOF,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH
OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH
FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT
THAT THE ADMINISTRATIVE AGENT, ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE
BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) WAIVER
OF VENUE . THE BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN
PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
SERVICE OF PROCESS . EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN
(d)
SECTION 10.02 . NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
10.15 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
10.16 California Judicial Reference. If any action or proceeding is filed in a court of the State of California
by or against any party hereto in connection with any of the transactions contemplated by this Agreement or any other
Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of
Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the
issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the
option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California
Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) without limiting the
generality of Section 10.04 , and subject to the limitations set forth in Section 10.04 , the Borrower shall be solely
responsible to pay all fees and expenses of any referee appointed in such action or proceeding.
10.17
No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction
contemplated hereby, the Borrower acknowledges and agrees that (except, with respect to clauses (ii) and (iii) below, as
expressly set forth in any other engagement agreement between the Borrower and/or any of its Affiliates, on the one
hand, and the Administrative Agent, any Syndication Agent or any Arranger, on the other hand): (i) the credit facility
provided for hereunder and any related arranging or other services in connection therewith (including in connection
with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm's-length
commercial transaction between the Borrower and its Affiliates, on the one hand, and the Administrative Agent and the
Arrangers, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts
the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including
any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such
transaction, the Administrative Agent, the Syndication Agents and the Arrangers each is and has been acting solely as a
principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its Affiliates, stockholders,
creditors or employees or any other Person; (iii) neither the Administrative Agent, any Syndication Agent nor any other
Arrangers have assumed or will assume an advisory, agency or
fiduciary responsibility in favor of the Borrower with respect to any of the transactions contemplated hereby or the
process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other
Loan Document (irrespective of whether the Administrative Agent, the Syndication Agents or the Arrangers have
advised or are currently advising the Borrower or any of its Affiliates on other matters) and neither the Administrative
Agent, any Syndication Agent nor any other Arranger has any obligation to the Borrower or any of its Affiliates with
respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other
Loan Documents; (iv) the Administrative Agent, the Syndication Agents and the Arrangers and their respective
Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower
and its Affiliates, and neither the Administrative Agent, any Syndication Agent nor any other Arranger has any
obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the
Administrative Agent, the Syndication Agents and the other Arrangers have not provided and will not provide any
legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any
amendment, waiver or other modification hereof or of any other Loan Document) and the Borrower has consulted its
own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby
waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative
Agent, the Syndication Agents and the other Arrangers with respect to any breach or alleged breach of agency or
fiduciary duty.
10.18 USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and the
Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the
requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Act ”),
it is required to obtain, verify and record information that identifies the Borrower, which information includes the name
and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as
applicable, to identify the Borrower in accordance with the Act.
(Remainder of Page Intentionally Left Blank)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first
above written.
eBay Inc.
By: /s/ Jennifer Ceran
Name: Jennifer Ceran
Title: Vice President, Treasury & Treasurer
BANK OF AMERICA, N.A., as
Administrative Agent
By: /s/ Dora A. Brown
Name: Dora A. Brown
Title: Vice President
BANK OF AMERICA, N.A., as a Lender
eBay Inc.
By: /s/ Ronald J. Drobny
Name: Ronald J. Drobny
Title: Senior Vice President
JPMORGAN CHASE BANK, N.A., as a Lender
By: /s/ William P. Rindfuss
Name: William P. Rindfuss
Title: Vice President
WELLS FARGO BANK, N.A., as a Lender
eBay Inc.
By: /s/ Matt Jurgens
Name: Matt Jurgens
Title: Vice President
WILLIAM STREET COMMITMENT CORPORATION (Recourse
only to assets of William Street Corporation) , as a Lender
By: /s/ Mark Walton
Name: Mark Walton
Title: Assistant Vice President
MORGAN STANLEY BANK, as a Lender
By: /s/ Daniel Twenge
Name: Daniel Twenge
Title: Authorized Signatory
Morgan Stanley Bank
HSBC BANK USA, NATIONAL ASSOCIATION,
as a Lender
By: /s/ David Wagstaff
Name: David Wagstaff
Title: Senior Vice President
CITIBANK N.A., as a Lender
By: /s/ K. Clinton Gerst
Name: K. Clinton Gerst
Title: Attorney-In-Fact
SCHEDULE 2.01
COMMITMENTS
AND APPLICABLE PERCENTAGES
Lender
Bank of America, N.A.
JPMorgan Chase Bank, N.A.
Wells Fargo Bank, N.A.
William Street Commitment Corporation
Morgan Stanley Bank
HSBC Bank USA, National Association
Citibank N.A.
Total
$
$
$
$
$
$
$
$
Commitment
225,000,000
225,000,000
150,000,000
100,000,000
100,000,000
100,000,000
100,000,000
1,000,000,000
Schedule 2.01
Applicable Percentage
22.5%
22.5%
15%
10%
10%
10%
10%
100%
SCHEDULE 7.01
EXISTING LIENS
eBay Inc.
As of September 20, 2006, the Company has liens on cash collateral in the aggregate amount of
$6,370,504.43 in support of certain letters of credit that are secured on a dollar-for-dollar basis
pursuant to the following:
$
Outstanding
Amount
353,776.25
Original Balance
276,247.41 Euro
Issue Date
6/30/2005
3,076,600
$
547,945.25
427,864.95 Euro
12/1/2005
SBLC
3,077,598
$
910,000.00
910,000.00 USD
11/2/2005
SBLC
3,078,719
$
962,160.00
962,160.00 USD
12/16/2005
SBLC
3,078,720
$
1,280,355.00
1,280,355.00 USD
SBLC
3,079,100
$
81,946.23
63,988.00 Euro
12/14/2005
SBLC
3,079,802
$
273,073.36
213,230.28 Euro
2/1/2006
SBLC
3,080,781
$
28,657.22
22,377.09 Euro
3/16/2006
SBLC
SBLC
SBLC
3,080,782
3,081,082
3,081,814
$
$
$
456,869.90
389,599.57
249,867.62
356,748.45 Euro
503,129.00 AUD
195,110.00 Euro
3/17/2006
3/24/2006
5/25/2006
SBLC
3,083,063
$
320,162.50
250,000.00 Euro
9/12/2006
SBLC
SBLC
TOTAL
3,083,576
R-Credit
$
$
$
161,344.53
354,747.00
6,370,504.43
125,986.44
9/1/2006
9/1/2008
Product
SBLC
Instrument #
3,075,749
SBLC
3/3/2006
PayPal, Inc.
PayPal, Inc. has a lien on cash collateral in the aggregate amount of $962,160 in support of a
letter of credit that is secured on a dollar-for-dollar basis pursuant to the letter of credit by
Comerica Bank dated as of March 14, 2002.
Schedule 7.01
Beneficiary Name
Bank of America - Madrid
Bank of America Frankfurt
National Union Fire
Insurance Co.
Harbor Investment
Partners
Bryant Street Associates,
LLC
Bank of America Antwerp
Bank of America Frankfurt
Bank of America Frankfurt
Bank of America Frankfurt
Bank of America - Sydney
Bank of America - Milan
Bank of America Amsterdam
Bank of America Frankfurt
Bank of America - Sydney
SCHEDULE 7.04
Burdensome Agreements
None
Schedule 7.04
SCHEDULE 10.02
ADMINISTRATIVE AGENT'S OFFICE;
CERTAIN ADDRESSES FOR NOTICES
BORROWER:
eBay Inc.
2145 Hamilton Avenue
San Jose, CA 95125-5905
Attention:
VP, Treasurer, eBay Inc.
Telephone:
(408) 376-7336
Telecopier:
(408) 376-5511
Electronic Mail: [email protected]
Website Address:
www.ebay.com
U.S. Taxpayer Identification Number: 77-0430924
With a copy to:
eBay Inc.
2145 Hamilton Avenue
San Jose, CA 95125-5905
Attention:
VP, Deputy General Counsel, Corporate, eBay Inc.
Telephone:
(408) 376-6345
Telecopier:
(408) 376-7514
Electronic Mail: [email protected]
With a copy to:
Cooley Godward Kronish LLP
Five Palo Alto Square 3000 El Camino Real
Palo Alto, CA 94306-2155
Attention:
John Hale
Telephone:
(650) 843-5420
Telecopier:
(650) 849-7400
Electronic Mail: [email protected]
1
Schedule 10.02
ADMINISTRATIVE AGENT:
Administrative Agent's Office
(for payments and Borrowings):
Bank of America, N.A.
2001 Clayton Road, Floor 2
Mail Code: CA4-702-02-25
Concord CA 94520
Attention:
Lorrie McLain
Telephone:
(925) 675-8365
Telecopier:
(888) 969-2432
Electronic Mail: [email protected]
Account Name: Corporate FTA
Account No.: 3750836479
Ref: eBay Inc.
Attention: Lorrie McLain
Bank of America, Dallas, TX
ABA#: 026009593
Other Notices as Administrative Agent :
Bank of America, N.A.
Agency Management
Fifth Avenue Plaza, Floor 32
800 5th Avenue
Mail Code: WA1-501-32-37
Seattle, WA 98104-3176
Attention:
Dora A. Brown, Vice President
Telephone:
(206) 358-0101
Telecopier:
(206) 358-0971
Electronic Mail:
[email protected]
2
Schedule 10.02
EXHIBIT A
FORM OF COMMITTED LOAN NOTICE
Date: ___________, _____
To:
Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of November 7, 2006 (as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, the “ Agreement ;” the terms defined
therein being used herein as therein defined), among eBay Inc., a Delaware corporation (the “ Borrower ”), the Lenders
from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
The undersigned hereby requests (select one):
 A Borrowing of Committed Loans

A conversion or continuation of Loans
1.
On _________________________________
2.
In the amount of $______________________.
3.
Comprised of _________________________.
(a Business Day).
[Type of Committed Loan requested]
4.
For Eurodollar Rate Loans: with an Interest Period of_____ months.
The Borrowing, if any, requested herein complies with the provisos to the first sentence of Section 2.01 of the
Agreement.
EBAY INC.
By: ________________________________
Name: ______________________________
Title: ________________________________
A-1
Form of Committed Loan Notice
EXHIBIT B
FORM OF NOTE
November 7, 2006
$[_______________]
FOR VALUE RECEIVED, the undersigned (the “ Borrower ”) hereby promises to pay to
[_____________________] or registered assigns (the “ Lender ”), in accordance with the provisions of the Agreement
(as hereinafter defined), the principal amount of each Loan from time to time made by the Lender to the Borrower
under that certain Credit Agreement, dated as of November 7, 2006 (as amended, restated, extended, supplemented or
otherwise modified in writing from time to time, the “ Agreement ;” the terms defined therein being used herein as
therein defined), among the Borrower, the Lenders from time to time party thereto, and Bank of America, N.A., as
Administrative Agent.
The Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan
until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All
payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in
immediately available funds at the Administrative Agent's Office. If any amount is not paid in full when due hereunder,
such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual
payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.
This Note is one of the Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid
in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one
or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable all as provided in the Agreement. Loans made by the
Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of
business. The Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its
Loans and payments with respect thereto.
The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand
and notice of protest, demand, dishonor and non-payment of this Note.
(Remainder of Page Intentionally Left Blank)
B-1
Form of Note
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
EBAY INC.
By: ___________________________________________
Name: _________________________________________
Title:
__________________________________________________
B-2
Form of Note
LOANSS AND PAYMENTS WITH RESPECT THERETO
Date
Type of Loan
Made
Amount of
Loan Made
End of Interest
Period
B-3
Form of Note
Amount of
Principal or
Interest Paid
This Date
Outstanding
Principal
Balance This
Date
Notation Made
By
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: ,
To:
Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of November 7, 2006 (as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, the “ Agreement ;” the terms defined
therein being used herein as therein defined), among eBay Inc., a Delaware corporation (the “ Borrower ”), the Lenders
from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is
the___________________________________ of the Borrower, and that, as such, he/she is authorized to execute and
deliver this Certificate to the Administrative Agent on the behalf of the Borrower, and that:
[Use following paragraph 1 for fiscal year-end financial statements]
1.
The Borrower has delivered the year-end audited financial statements required by Section 6.01(a) of the
Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an
independent certified public accountant required by such section.
[Use following paragraph 1 for fiscal quarter-end financial statements]
1.
The Borrower has delivered the unaudited financial statements required by Section 6.01(b) of the
Agreement for the fiscal quarter of the Borrower ended as of the above date. Such financial statements fairly present in
all material respects the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in
accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the
absence of footnotes.
2.
To the best knowledge of the undersigned:
[select one:]
[during such fiscal period, the Borrower performed and observed each covenant and condition of the
Loan Documents applicable to it, and no Default has occurred and is continuing.]
-or-
C-1
Form of Compliance Certificate
[during such fiscal period, the following covenants or conditions have not been performed or observed
and the following is a list of each such Default and its nature and status:]
3.
Except as described on an attachment hereto, the representations and warranties of the Borrower
contained in Article V of the Agreement (other than the representation and warranty contained in Section 5.05(c) ) and
any representations and warranties of the Borrower that are contained in any other Loan Document that are qualified by
materiality are true and correct on and as of the date hereof, and that are not qualified by materiality are true and correct
in all material respects on and as of the date hereof, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for
purposes of this Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of
Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a)
and (b) , respectively, of Section 6.01 of the Agreement, including the statements in connection with which this
Compliance Certificate is delivered.
4.
The financial covenant analyses and information set forth on Schedules 1 and 2 attached hereto are true
and accurate on and as of the date of this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of _____________________________,
.
EBAY INC.
By: ___________________________________
Name: _________________________________
Title: __________________________________
C-2
Form of Compliance Certificate
For the Quarter/Year ended ___________________(“ Statement Date ”)
SCHEDULE 1
to the Compliance Certificate
($ in 000's)
I.
Section 7.06 - Consolidated Leverage Ratio.
A.
Consolidated Funded Indebtedness at Statement Date:
B.
Consolidated EBITDA for four consecutive fiscal quarters ending on Statement Date
(“Subject Period”):
1
Consolidated Net Income for Subject Period:
$
2
Interest expense for Subject Period:
$
3
Depreciation and amortization expense (including amortization of intangible
amortization for Acquisitions for Subject Period:
$
4
Income tax expense for Subject Period:
$
5
Non-cash charges or expenses related to equity plans or stock option awards for Subject
Period:
$
6
Payroll taxes on exercise of stock options for Subject Period:
$
7
Consolidated EBITDA (Lines I.B.1 + 2 + 3 + 4 + 5 + 6):
$
C.
Consolidated Leverage Ratio as of Statement Date (Line I.A. Line I.B.7):
D.
Maximum permitted:
E.
Covenant Compliance?
2.00 to 1.00
YES/NO
C-3
Form of Compliance Certificate
For the Quarter/Year ended ___________________(“ Statement Date ”)
SCHEDULE 2
to the Compliance Certificate
($ in 000's)
Consolidated EBITDA
(in accordance with the definition of Consolidated EBITDA
as set forth in the Agreement)
Consolidated EBITDA
Consolidated
Quarter Ended
Quarter Ended
Quarter Ended
Net Income
+interest expense
+depreciation and amortization
expense
+income tax expense
+non-cash charges or expenses
relating to equity plans or stock
option awards
+payroll taxes on exercise of
stock options
=Consolidated EBITDA
C-4
Form of Compliance Certificate
Quarter Ended
Twelve Months
Ended
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this “ Assignment and Assumption ”) is dated as of the Effective Date set
forth below and is entered into by and between [the][each] 1 Assignor identified in item 1 below ([the][each, an] “
Assignor ”) and [the][each] 2 Assignee identified in item 2 below ([the][each, an] “ Assignee ”). [It is understood and
agreed that the rights and obligations of [the Assignors][the Assignees] 3 hereunder are several and not joint.] 4
Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified
below (the “ Credit Agreement ”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard
Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference
and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective
Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors],
subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted
by the Administrative Agent as contemplated below (i) all of [the Assignor's][the respective Assignors'] rights and obligations in
[its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or
instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such
outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below) and
(ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the
Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person,
whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments
delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing,
including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in
equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and
assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively
as [the][an] “ Assigned Interest ”). Each such sale and assignment is without recourse to [the][any]
____________________
1 For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first
bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
2 For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first
bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
3
Select as appropriate.
4
Include bracketed language if there are either multiple Assignors or multiple Assignees.
D-1
Form of Assignment and Assumption
Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by
[the][any] Assignor.
1.
Assignor[s] :
______________________________
______________________________
2.
Assignee[s] :
______________________________
______________________________
[for each Assignee, indicate [Affiliate][Approved Fund] of [ identify Lender ]]
3.
Borrower : eBay Inc.
4.
Administrative Agent : Bank of America, N.A., as the administrative agent under the Credit Agreement
5.
Credit Agreement :
Credit Agreement, dated as of November 7, 2006, among eBay Inc., the Lenders from time to time
party thereto, and Bank of America, N.A., as Administrative Agent.
6.
Assigned Interest[s] : 5
Assignor[s] 6
Assignee[s]
7
Facility Assigned
____________
____________
____________
Aggregate Amount of
Amount of
Percentage Assigned
Commitments/Loans for all Commitment/
of Commitment/ Loans
Lenders 8
Loans Assigned
CUSIP Number
9
$________________
$_________
____________%
$________________
$_________
____________%
$________________
$_________
____________%
[7. Trade Date :__________________] 10
____________________
5 The reference to “Loans” in the table should be used only if the Credit Agreement provides for Term Loans.
6 List each Assignor, as appropriate.
7 List each Assignee, as appropriate.
8 Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or
prepayments made between the Trade Date and the Effective Date.
9
Set forth, to at least 9 decimals, as a percentage of the Commitments/Loans of all Lenders thereunder.
10
To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.
D-2
Form of Assignment and Assumption
Effective Date: __________________, 20__ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE
THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]
By: _____________________________
Title:
ASSIGNEE
[NAME OF ASSIGNEE]
By: _____________________________
Title:
[Consented to and] 11 Accepted:
BANK OF AMERICA, N.A., as
Administrative Agent
By: _________________________________
Title:
[Consented to:] 12
EBAY INC.
By: _________________________________
Title:
____________________
11
To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
12
To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.
D-3
Form of Assignment and Assumption
ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
EBAY INC. CREDIT AGREEMENT
DATED AS OF NOVEMBER 7, 2006
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1.
Representations and Warranties .
1.1.
Assignor . [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial
owner of [the][[the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien,
encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and
(b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection
with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of
the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or
(iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of
their respective obligations under any Loan Document.
1.2.
Assignee . [The][Each] Assignee (a) represents and warrants that (i) it has full power and
authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all
the requirements to be an assignee under Section 10.06(b)(iii) , (v) and (vi) of the Credit Agreement (subject to such
consents, if any, as may be required under Section 10.06(b)(iii) of the Credit Agreement), (iii) from and after the
Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of
[the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with
respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person
exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets
of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity
to receive copies of the most recent financial statements delivered pursuant to Section 6.01 thereof, as applicable, and
such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into
this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to
purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender, attached hereto is any documentation
required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by
[the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent,
[the][any] Assignor or any other Lender, and based on such documents and information as it
D-4
Form of Assignment and Assumption
shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the
Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Lender.
2.
Payments . From and after the Effective Date, the Administrative Agent shall make all payments in
respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the
relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant]
Assignee for amounts which have accrued from and after the Effective Date.
3.
General Provisions . This Assignment and Assumption shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed
counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be
governed by, and construed in accordance with, the law of the State of New York.
D-5
Form of Assignment and Assumption
EXHIBIT E
OPINION MATTERS
The matters contained in the following Sections of the Credit Agreement should be covered by the legal
opinion:
•
Section 5.01(a) , (b) and (c)
•
Section 5.02
•
Section 5.03
•
Section 5.04
•
Section 5.06
•
Section 5.13(b)
E-1
Opinion Matters
Exhibit 12.01
eBay Inc.
Computation of Ratio of Earnings to Fixed Charges
(In thousands, except ratio data)
Six Months Ended June 30,
2011
2010
Income Before Income Taxes, Noncontrolling Interest and Income/Loss of Equity
Method Investees
$
Add: Fixed Charges (2)
Earnings (1)
$
Fixed Charges (2)
Ratio of Earnings to Fixed Charges
(1)
(2)
$
873,894
36,995
910,889
$
$
996,681
17,321
1,014,002
36,995
$
17,321
24.6 x
58.5 x
Earnings consist of income before income taxes, noncontrolling interest and equity in income or losses of equity-method investees plus
Fixed Charges.
Fixed Charges consist of interest expense and our estimate of an appropriate portion of rentals representative of the interest factor. The
estimate of interest within rental expense is estimated to be one-third of rental expense.
Exhibit 31.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, John Donahoe, certify that:
1. I have reviewed this report on Form 10-Q of eBay Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ John Donahoe
John Donahoe
President and Chief Executive Officer
(Principal Executive Officer)
Date: July 21, 2011
Exhibit 31.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER,
AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, Robert H. Swan, certify that:
1. I have reviewed this report on Form 10-Q of eBay Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Robert H.
Swan
Robert H.
Swan
Senior Vice
President and
Chief Financial
Officer
(Principal
Financial
Officer)
Date: July 21, 2011
Exhibit 32.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
I, John Donahoe, hereby certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(i) The accompanying quarterly report on Form 10-Q for the quarter ended June 30, 2011 fully complies with the requirements of
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of
eBay Inc.
/s/ John Donahoe
John Donahoe
President and Chief Executive Officer
(Principal Executive Officer)
Date: July 21, 2011
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this report.
Exhibit 32.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER,
AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
I, Robert H. Swan, hereby certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(i) The accompanying quarterly report on Form 10-Q for the quarter ended June 30, 2011 fully complies with the requirements of
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of
eBay Inc.
/s/ Robert H.
Swan
Robert H.
Swan
Senior Vice
President and
Chief Financial
Officer
(Principal
Financial
Officer)
Date: July 21, 2011
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this report.