10 Insights from the SEC Form 10 Filing

By: eBay Inc. Staff

Today PayPal Holdings, Inc., a wholly owned subsidiary of eBay, filed a Form 10 with the Securities and Exchange Commission (SEC). The Form 10 is an important step toward separating the eBay and PayPal businesses into two standalone, publicly-traded companies.

Below are 10 important questions that were answered as part of the Form 10 filing. For more information, view the full PayPal Form 10 on the SEC’s website.

1)  Why is PayPal separating from eBay?

eBay Inc.’s Board of Directors believes that the creation of two new independent public companies, with the new PayPal operating eBay’s Payments business and eBay operating the Marketplaces business, is in the best interests of eBay and its stockholders for a number of reasons, including that:

· The separation will allow each business to more effectively pursue its own distinct operating priorities, strategies and opportunities for long-term growth and profitability in the global commerce and payments landscape.

· The separation will speed up decision-making at each company and allow each to adapt more quickly to the rapidly changing market and customer dynamics in their respective markets.

· The separation will provide each company with increased flexibility to pursue new partnership and strategic opportunities that may have previously been unavailable for strategic or other reasons.

· The separation will permit each company to implement a capital structure appropriate to its strategy and business needs and to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business in a time and manner appropriate for its distinct strategy and business needs. This will facilitate a more efficient allocation of capital.

· The separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of each company’s business, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.

· The separation will provide each company with direct access to capital markets and facilitate the ability for each to capitalize on its unique growth opportunities and effect future acquisitions utilizing its common stock.

·  The separation will allow investors to separately value eBay and PayPal based on their distinct investment identities, including the merits, performance, growth profile, and future prospects of their respective businesses. The separation will also provide investors with two distinct and targeted investment opportunities.

2)  How will the separation of PayPal from eBay work?

To complete the separation, eBay will distribute all of the outstanding shares of PayPal common stock to eBay shareholders on a pro rata basis. The distribution is intended to be tax-free for U.S. federal income tax purposes, which eBay believes is an efficient way to separate its Payments business in a manner that will create long-term value for eBay, PayPal and their respective stockholders.

3)  How will shares of PayPal common stock be issued?

eBay shareholders as of the record date will receive shares of PayPal common stock through the same channels that such shareholders use to hold or trade shares of eBay common stock, and receipt of PayPal shares will be documented in the same manner in which such shareholders typically receive shareholder updates.

If shareholders own eBay common stock, including shares owned in certificate form, as of the close of business on the record date for the distribution, eBay, with the assistance of the distribution agent, will electronically distribute the shares of PayPal common stock to shareholders or their brokerage firm on their behalf in book-entry form.

4)  What do shareholders need to do to participate in the distribution?

eBay shareholders as of the record date for distribution will not be required to take any action to receive PayPal common stock in the distribution. Shareholder approval of the distribution is not required and shareholders are not being asked for their proxy. Shareholders do not need to pay any consideration, exchange or surrender of their existing shares of eBay common stock or take any other action to receive their shares of PayPal common stock.

5)  What will happen to the listing of eBay common stock and how will PayPal common stock be traded?

eBay common stock will continue to trade on the NASDAQ Stock Market after the distribution under the symbol “EBAY.” PayPal intends to apply to list its common stock.

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

Beginning on or shortly before the record date for the distribution and continuing up to and through the distribution date, eBay expects that there will be two markets in eBay common stock: a “regular-way” market and an “ex-distribution” market. Shares of eBay common stock that trade on the “regular-way” market will trade with an entitlement to PayPal common stock distributed pursuant to the separation. Shares of eBay common stock that trade on the “ex-distribution” market will trade without an entitlement to PayPal common stock.

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

PayPal anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before the record date for the distribution, and will continue up to and through the distribution date and that “regular-way” trading in PayPal common stock will begin on the first trading day following the completion of the separation. If trading begins on a “when-issued” basis, shareholders may purchase or sell PayPal common stock up to and through the distribution date, but the transaction will not settle until after the distribution date. PayPal cannot predict the trading prices for its common stock before, on or after the distribution date.

8)  Is it likely the distribution will affect the market price of eBay common stock?

Yes. Immediately following and as a result of the distribution, eBay expects the trading price of shares of eBay common stock to be lower than the “regular-way” trading price of such shares prior to the distribution. This is because the trading price will no longer reflect the value of the Payments business.

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

After the distribution, eBay and PayPal will be separate companies with separate management teams and separate boards of directors. PayPal will enter into a separation and distribution agreement with eBay, as well as certain other agreements, such as an operating agreement, a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property matters agreement. These agreements will provide for the allocation between PayPal and eBay of eBay’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after PayPal’s separation from eBay. These agreements will also govern the relationships between PayPal and eBay following the completion of the separation.

10)  Who will manage PayPal after the separation?

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