10-Q

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 September 30, 2009

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 October 14, 2009, there were 1,292,961,679 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

	December 31, 2008			September 30, 2009
	(In thousands, except par value amounts)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,188,928		$	2,557,859
Short-term investments		163,734			601,443
Accounts receivable, net		435,197			419,982
Loans receivable, net		570,071			511,809
Funds receivable and customer accounts		1,467,962			1,993,294
Other current assets		460,698			389,200
Total current assets		6,286,590			6,473,587
Long-term investments		106,178			479,285
Property and equipment, net		1,198,714			1,293,775
Goodwill (see Note 4)		7,025,398			8,016,465
Intangible assets, net		736,134			909,401
Other assets		239,425			183,859
Total assets	$	15,592,439		$	17,356,372
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	170,332		$	209,333
Funds payable and amounts due to customers		1,467,962			1,993,294
Accrued expenses and other current liabilities		784,774			961,966
Deferred revenue and customer advances		181,596			231,992
Income taxes payable		100,423			50,093
Borrowings from credit agreement		1,000,000			200,000
Total current liabilities		3,705,087			3,646,678
Deferred and other tax liabilities, net		753,965			907,342
Other liabilities		49,529			51,185
Total liabilities		4,508,581			4,605,205
Stockholders’ equity:
Common stock, $0.001 par value; 3,580,000 shares authorized; 1,282,025 and 1,292,774 shares outstanding		1,470			1,481
Additional paid-in capital		9,585,853			9,870,102
Treasury stock at cost, 188,200 and 188,251 shares		(5,376,970	)		(5,377,258	)
Retained earnings		5,970,020			7,004,211
Accumulated other comprehensive income		903,485			1,252,631
Total stockholders’ equity		11,083,858			12,751,167
Total liabilities and stockholders’ equity	$	15,592,439		$	17,356,372

The accompanying notes are an integral part of these condensed consolidated financial statements.

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eBay Inc.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2009			2008			2009
	(In thousands, except per share amounts)
	(Unaudited)
Net revenues	$	2,117,531		$	2,237,852		$	6,505,415		$	6,356,430
Cost of net revenues		560,963			643,908			1,648,478			1,809,067
Gross profit		1,556,568			1,593,944			4,856,937			4,547,363
Operating expenses:
Sales and marketing		451,753			491,461			1,463,190			1,359,277
Product development		190,842			205,207			554,393			605,126
General and administrative		248,909			272,177			793,791			797,966
Provision for transaction and loan losses		88,269			96,682			260,872			270,597
Amortization of acquired intangible assets		52,720			72,803			162,472			200,066
Restructuring		—			12,673			—			36,937
Total operating expenses		1,032,493			1,151,003			3,234,718			3,269,969
Income from operations		524,075			442,941			1,622,219			1,277,394
Interest and other income (expense), net		38,567			(4,606	)		88,077			8,957
Income before income taxes		562,642			438,335			1,710,296			1,286,351
Provision for income taxes		(70,423	)		(88,599	)		(298,014	)		(252,160	)
Net income	$	492,219		$	349,736		$	1,412,282		$	1,034,191
Net income per share:
Basic	$	0.38		$	0.27		$	1.08		$	0.80
Diluted	$	0.38		$	0.27		$	1.07		$	0.80
Weighted average shares:
Basic		1,288,937			1,293,511			1,311,501			1,288,150
Diluted		1,297,484			1,311,274			1,322,126			1,299,279

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

eBay Inc.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2009			2008			2009
	(In thousands)
	(Unaudited)
Net income	$	492,219		$	349,736		$	1,412,282		$	1,034,191
Other comprehensive income:
Foreign currency translation		(597,518	)		329,745			(367,276	)		284,759
Unrealized (losses) gains on investments, net		(114,953	)		94,724			(432,424	)		179,646
Unrealized gains (losses) on hedging activities		19,022			(359	)		11,046			(46,458	)
Tax benefit (provision) on above items		44,974			(36,534	)		168,487			(68,801	)
Net change in accumulated other comprehensive (loss) income		(648,475	)		387,576			(620,167	)		349,146
Comprehensive income	$	(156,256	)	$	737,312		$	792,115		$	1,383,337

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

eBay Inc.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

	Nine Months Ended September 30,
	2008			2009
	(In thousands)
	(Unaudited)
Cash flows from operating activities:
Net income	$	1,412,282		$	1,034,191
Adjustments:
Provision for transaction and loan losses		260,872			270,597
Depreciation and amortization		517,917			610,162
Stock-based compensation		269,481			302,769
Changes in assets and liabilities, net of acquisition effects		(262,500	)		(80,233	)
Net cash provided by operating activities		2,198,052			2,137,486
Cash flows from investing activities:
Purchases of property and equipment, net		(406,739	)		(394,156	)
Changes in principal loans receivable, net		—			7,517
Purchases of investments		(107,990	)		(468,371	)
Maturities and sales of investments		42,248			26,971
Acquisitions, net of cash acquired		(159,064	)		(1,209,433	)
Other		(51,369	)		5,889
Net cash used in investing activities		(682,914	)		(2,031,583	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net		115,615			51,796
Repurchases of common stock, net		(2,177,942	)		—
Excess tax benefits from stock-based compensation		4,670			585
Tax witholdings related to net share settlements of restricted stock awards and units		(18,498	)		(26,361	)
Net payments from borrowings under credit agreement		(200,000	)		(800,000	)
Other		—			(8,063	)
Net cash used in financing activities		(2,276,155	)		(782,043	)
Effect of exchange rate changes on cash and cash equivalents		(117,457	)		45,071
Net decrease in cash and cash equivalents		(878,474	)		(631,069	)
Cash and cash equivalents at beginning of period		4,221,191			3,188,928
Cash and cash equivalents at end of period	$	3,342,717		$	2,557,859
Supplemental cash flow disclosures:
Cash paid for interest	$	1,257		$	5,921
Cash paid for income taxes	$	329,160		$	278,117
Non-cash investing and financing activities:
Common stock options assumed pursuant to acquisition		4,398			5,361

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, online payment services and online communication offerings to a diverse community of individuals and businesses.

We operate three primary business segments: Marketplaces, Payments and Communications. Our Marketplaces segment provides the infrastructure to enable global online commerce on a variety of platforms, including the traditional eBay.com platform, our other online platforms, such as our online classifieds businesses, our secondary tickets marketplace (StubHub), our online shopping comparison website (Shopping.com), our apartment listing service platform (Rent.com), as well as our fixed price media marketplace (Half.com). Our Payments segment is comprised of our online payment solutions PayPal and Bill Me Later (which we acquired in November 2008). Our Communications segment, which consists of Skype, enables Internet communications between Skype users and provides low-cost connectivity to traditional fixed-line and mobile telephones. On September 1, 2009, we entered into a definitive agreement to sell the share capital of Skype Luxembourg Holdings S.a.r.l., Skype Inc., Camino Networks, Inc. and Sonorit Holdings, A.S. (collectively with their respective subsidiaries, the “Skype Companies”) to an entity organized and owned by an investment group led by Silver Lake and that includes the Canada Pension Plan Investment Board, Index Ventures and Andreessen Horowitz (the “Buyer”). Upon completion of the sale, we will hold an approximately 35 percent equity investment in the Buyer. For further details please see “Note 4 — Skype Assets Held for Sale.”

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, 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 financial statements are consolidated and include the financial statements of eBay 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 on October 27, 2009.

The condensed consolidated financial statements include 100% of the assets and liabilities of these 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 are accounted for using the equity method of accounting and the investment balance is included in long-term investments, while 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 where we do not have the ability to significantly influence the operations of the investee are accounted for using the cost method of accounting, where 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, and the cost basis of our investments is included in long-term investments.

Recent Accounting Pronouncements

On January 1, 2009, we adopted new accounting guidance for business combinations as issued by the Financial Accounting Standards Board (FASB). The new accounting guidance establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes from previous guidance resulting from this new guidance include the expansion of the definitions of a “business” and a “business combination.” For all business

6

eBay Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

combinations (whether partial, full or step acquisitions), the acquirer will record 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration will be recognized at its fair value on the acquisition date and; for certain arrangements, changes in fair value will be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition. The new accounting guidance also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

On January 1, 2009, we adopted new accounting guidance for noncontrolling interests in subsidiaries as issued by the FASB. The new accounting guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as a minority interest, is a third-party ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, the new guidance requires the consolidated statement of income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. The new guidance also requires disclosure on the face of the consolidated statement of income of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

On January 1, 2009, we adopted new accounting guidance as issued by the FASB which delayed the effective date of fair value accounting for all nonfinancial assets and nonfinancial liabilities by one year, except those recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements (see “Note 7 — Fair Value Measurement of Assets and Liabilities” for additional information).

On January 1, 2009, we adopted new disclosure requirements as issued by the FASB related to derivative instruments and hedging activities. The new disclosure requirements expand previous guidance and require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

On January 1, 2009, we adopted new accounting guidance for assets acquired and liabilities assumed in a business combination as issued by the FASB. The new guidance amends the provisions previously issued by the FASB related to the initial recognition and measurement, subsequent measurement and accounting and disclosures for assets and liabilities arising from contingencies in business combinations. The new guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

During the second quarter of 2009, we adopted three related sets of accounting guidance as issued by the FASB. The accounting guidance sets forth rules related to determining the fair value of financial assets and financial liabilities when the activity levels have significantly decreased in relation to the normal market, guidance related to the determination of other-than-temporary impairments to include the intent and ability of the holder as an indicator in the determination of whether an other-than-temporary impairment exists and interim disclosure requirements for the fair value of financial instruments. The adoption of the three sets of accounting guidance did not have a material impact on our consolidated financial statements.

During the second quarter of 2009, we adopted new accounting guidance for the determination of the useful life of intangible assets as issued by the FASB. The new guidance amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The new guidance also requires expanded disclosure regarding the determination of intangible asset useful lives. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

During the second quarter of 2009, we adopted new accounting guidance related to subsequent events as issued by the FASB. The new requirement establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were

7

eBay Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

issued or were available to be issued. See “Principles of consolidation and basis of presentation” included in “Note 1 — The Company and Summary of Significant Accounting Policies” for the related disclosure. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

During the third quarter of 2009, we adopted the new Accounting Standards Codification (ASC) as issued by the FASB. The ASC has become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The ASC is not intended to change or alter existing GAAP. The adoption of the ASC did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued new accounting guidance which amends the evaluation criteria to identify the primary beneficiary of a variable interest entity (VIE) and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the VIE. The new guidance significantly changes the consolidation rules for VIEs including the consolidation of common structures, such as joint ventures, equity method investments and collaboration arrangements. The guidance is applicable to all new and existing VIEs. The provisions of this new accounting guidance is effective for interim and annual reporting periods ending after November 15, 2009 and will become effective for us beginning in the first quarter of 2010. We are currently evaluating the impact of this accounting guidance on our consolidated financial statements.

In September 2009, the FASB issued new accounting guidance related to the revenue recognition of multiple element arrangements. The new guidance states that if vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. The accounting guidance will be applied prospectively and will become effective during the first quarter of 2011. Early adoption is allowed. We are currently evaluating the impact of this accounting guidance on our consolidated financial statements.

In September 2009, the FASB issued new accounting guidance related to certain revenue arrangements that include software elements. Previously, companies that sold tangible products with “more than incidental” software were required to apply software revenue recognition guidance. This guidance often delayed revenue recognition for the delivery of the tangible product. Under the new guidance, tangible products that have software components that are “essential to the functionality” of the tangible product will be excluded from the software revenue recognition guidance. The new guidance will include factors to help companies determine what is “essential to the functionality.” Software-enabled products will now be subject to other revenue guidance and will likely follow the guidance for multiple deliverable arrangements issued by the FASB in September 2009. The new guidance is to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. If a vendor elects earlier application and the first reporting period of adoption is not the first reporting period in the vendor’s fiscal year, the guidance must be applied through retrospective application from the beginning of the vendor’s fiscal year and the vendor must disclose the effect of the change to those previously reported periods. The adoption of this accounting guidance will not have an impact on our consolidated financial statements.

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eBay Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 2 — Net Income Per Share

Basic net income per share is computed by dividing the 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 the 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 (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2009		2008		2009
Numerator:
Net income	$	492,219	$	349,736	$	1,412,282	$	1,034,191
Denominator:
Weighted average common shares - basic		1,288,937		1,293,511		1,311,501		1,288,150
Dilutive effect of equity incentive plans		8,547		17,763		10,625		11,129
Weighted average common shares - diluted		1,297,484		1,311,274		1,322,126		1,299,279
Net income per share:
Basic	$	0.38	$	0.27	$	1.08	$	0.80
Diluted	$	0.38	$	0.27	$	1.07	$	0.80
Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive		102,322		81,225		94,978		105,255

Note 3 — Business Combinations

Acquisition of Gmarket Inc.

On June 15, 2009, we acquired 99.0% of the outstanding securities of Gmarket Inc. (“Gmarket”), a company organized under the laws of the Republic of Korea. We paid $24 per security, net to the holders in cash, through a cash tender offer resulting in a total cash purchase price of approximately $1.2 billion and assumed Gmarket outstanding stock options. Gmarket is a retail ecommerce marketplace in Korea, and is included in our Marketplaces segment. The rationale for acquiring Gmarket was to strengthen our ecommerce business in Korea and provide a platform for expansion throughout Asia.

The fair value of Gmarket’s stock options assumed was determined using the Black-Scholes model. The fair value of the non-controlling interest was determined based on the number of shares held by minority securityholders multiplied by the offer price of $24 per security. The following table summarizes the consideration paid for Gmarket (in thousands):

Cash	$	1,209,433
Assumed stock options		5,361
Fair value of total consideration		1,214,794
Fair value of non-controlling interest		12,174
Total	$	1,226,968

The purchase price 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 price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the income approach and variation of the income approach known as the profit allocation method, which discounts expected future cash flows to present value using estimates

9

eBay Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

and assumptions determined by management. Purchased identifiable intangible assets are amortized on a straight-line basis over their respective useful lives. Our preliminary allocation of the purchase price is summarized in the table below (in thousands):

Net tangible assets acquired	$	50,526
Goodwill		797,946
Trade name		264,604
User base		76,512
Developed technology		33,076
Other intangible assets		4,304
Total	$	1,226,968

Our estimated useful life of the identifiable intangible assets acquired is three years for developed technology, five years for the trade name and user base and one year for other intangibles. 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.

Gmarket’s financial results have been included in our condensed consolidated statement of income as of June 16, 2009. The amount of revenue and earnings included in the condensed consolidated income statement for the three and nine months ended September 30, 2009 were not material to the respective periods. The noncontrolling ownership interest in Gmarket is included in additional paid-in capital in our condensed consolidated balance sheet as it is not significant. Earnings attributable to noncontrolling interests for the three and nine months ended September 30, 2009 were not significant to the respective periods. The results of operations of Gmarket for periods prior to our acquisition of Gmarket were not material to our results of operations, and accordingly, pro forma results of operations have not been presented. Subsequent to the acquisition date, we acquired additional securities through a subsequent offering period that expired on July 20, 2009 and exchanged options to purchase shares of eBay common stock for outstanding Gmarket options.

Note 4 — Skype Assets Held for Sale

On September 1, 2009, we entered into a definitive agreement to sell the share capital of Skype Luxembourg Holdings S.a.r.l., Skype Inc., Camino Networks, Inc. and Sonorit Holdings, A.S. (collectively with their respective subsidiaries, the “Skype Companies”) to an entity organized and owned by an investment group led by Silver Lake and including the Canada Pension Plan Investment Board, Index Ventures and Andreessen Horowitz (the “Buyer”). The transaction values Skype at $2.75 billion. Upon completion of the sale, we will hold an approximately 35 percent equity investment in the Buyer, which will be recorded at fair value within long-term investments in our condensed consolidated balance sheet. Mr. Mark Andreessen, a member of our Board of Directors, is a general partner in Andreessen Horowitz, which will own less than five percent of the Buyer. The transaction is expected to close in the fourth quarter of 2009. The amortization of intangible assets held for sale has been suspended.

The major classes of assets and liabilities classified as held for sale are as follows (in thousands):

	September 30, 2009
Assets:
Current assets		109,929
Non-current assets		1,962,975
Total assets	$	2,072,904
Liabilities:
Current liabilities		246,686
Non-current liabilities		53
Total liabilities	$	246,739

Included in the table above within non-current assets is goodwill of approximately $1.9 billion. As part of the sale of Skype, we will recognize a portion of our accumulated foreign currency translation adjustment. We estimate the gain on the pending sale of Skype will be approximately $1.0 billion.

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eBay Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 5 — Goodwill and Intangible Assets

Goodwill

The following table presents goodwill balances and the movements for each of our reportable segments during the nine months ended September 30, 2009 (in thousands):

	December 31, 2008		Goodwill Acquired		Adjustments			September 30, 2009
Reportable segments:
Marketplaces	$	3,053,139	$	797,946	$	142,690		$	3,993,775
Payments		2,163,057		—		(9,124	)		2,153,933
Communications (see Note 4)		1,836,562		—		59,555			1,896,117
	$	7,052,758	$	797,946	$	193,121		$	8,043,825

Investments accounted for under the equity method of accounting are classified on our balance sheet as long-term investments. Such investments include identifiable intangible assets, deferred tax liabilities and goodwill. As of December 31, 2008 and September 30, 2009, the goodwill related to our equity investments, included above, was approximately $27.4 million.

The adjustments to goodwill during the nine months ended September 30, 2009 were due primarily to foreign currency translation.

Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. We conducted our annual impairment test as of August 31, 2009 and determined there was no impairment. There were no events or circumstances from that date through September 30, 2009 indicating that a further assessment was necessary.

Intangible Assets

The components of identifiable intangible assets are as follows (in thousands, except years):

	December 31, 2008								September 30, 2009
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life
								(years)								(years)
Intangible assets:
Customer lists and user base	$	756,829	$	(415,238	)	$	341,591	6	$	852,872	$	(517,530	)	$	335,342	6
Trademarks and trade names		638,930		(393,353	)		245,577	5		925,698		(506,042	)		419,656	5
Developed technologies		199,893		(111,973	)		87,920	3		230,856		(147,330	)		83,526	3
All other		126,381		(64,803	)		61,578	4		157,504		(86,627	)		70,877	4
	$	1,722,033	$	(985,367	)	$	736,666		$	2,166,930	$	(1,257,529	)	$	909,401

As of December 31, 2008, the net carrying amount of intangible assets related to our equity investments included above was approximately $532,500. All of our identifiable intangible assets, with the exception of intangible assets of Skype classified as held for sale, are subject to amortization. Aggregate amortization expense for intangible assets was $66.3 million and $92.2 million for the three months ended September 30, 2008 and 2009, respectively. Aggregate amortization expense for intangible assets was $195.2 million and $253.6 million for the nine months ended September 30, 2008 and 2009, respectively.

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(Unaudited)

Expected future intangible asset amortization from acquisitions completed as of September 30, 2009 is as follows (in thousands):

Fiscal Years:
2009 (three months ending December 31, 2009)	$	68,995
2010		227,171
2011		178,717
2012		143,378
2013		119,103
Thereafter		33,074
	$	770,438

Note 6 — Segments

Operating segments are based upon our internal organization structure, the manner in which our operations are managed, the criteria used by our Chief Operating Decision Maker to evaluate segment performance and the availability of separate financial information. We have three operating segments: Marketplaces, Payments and Communications. For details related to the pending sale of our Communications segment, please see “Note 4 — Skype Assets Held for Sale.”

The following tables summarize the financial performance of our operating segments (in thousands):

	Three Months Ended September 30, 2008
	Marketplaces		Payments		Communications		Consolidated
Net revenues from external customers	$	1,376,853	$	597,211	$	143,467	$	2,117,531
Direct costs		789,109		483,713		105,766		1,378,588
Direct contribution	$	587,744	$	113,498	$	37,701		738,943
Operating expenses and indirect costs of net revenues								214,868
Income from operations								524,075
Interest and other income, net								38,567
Income before income taxes							$	562,642
	Three Months Ended September 30, 2009
	Marketplaces		Payments		Communications		Consolidated
Net revenues from external customers	$	1,364,583	$	688,063	$	185,206	$	2,237,852
Direct costs		790,964		586,265		140,372		1,517,601
Direct contribution	$	573,619	$	101,798	$	44,834		720,251
Operating expenses and indirect costs of net revenues								277,310
Income from operations								442,941
Interest and other expense, net								(4,606	)
Income before income taxes							$	438,335
	Nine Months Ended September 30, 2008
	Marketplaces		Payments		Communications		Consolidated
Net revenues from external customers	$	4,319,201	$	1,780,585	$	405,629	$	6,505,415
Direct costs		2,440,797		1,417,231		322,880		4,180,908
Direct contribution	$	1,878,404	$	363,354	$	82,749		2,324,507
Operating expenses and indirect costs of net revenues								702,288
Income from operations								1,622,219
Interest and other income, net								88,077
Income before income taxes							$	1,710,296

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(Unaudited)

	Nine Months Ended September 30, 2009
	Marketplaces		Payments		Communications		Consolidated
Net revenues from external customers	$	3,847,731	$	2,000,322	$	508,377	$	6,356,430
Direct costs		2,186,923		1,678,788		387,152		4,252,863
Direct contribution	$	1,660,808	$	321,534	$	121,225		2,103,567
Operating expenses and indirect costs of net revenues								826,173
Income from operations								1,277,394
Interest and other income, net								8,957
Income before income taxes							$	1,286,351

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.

Note 7 — Fair Value Measurement of Assets and Liabilities

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2009 (in thousands):

Description	Balance as of September 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Cash and cash equivalents:
Bank deposits and money market funds	$	2,557,859	$	2,557,859	$	—
Total cash and cash equivalents		2,557,859		2,557,859		—
Short-term investments:
Restricted cash		29,745		29,745		—
Equity instruments		312,521		312,521		—
Corporate debt securities		13,782		—		13,782
Time deposits		245,395		—		245,395
Total short-term investments		601,443		342,266		259,177
Derivatives		10,243		—		10,243
Long-term restricted cash		1,162		1,162		—
Corporate debt securities		396,744		—		396,744
Long-term time deposits		5,132		—		5,132
Total financial assets	$	3,572,583	$	2,901,287	$	671,296
Liabilities:
Derivatives	$	12,030	$	—	$	12,030

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. As of

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(Unaudited)

September 30, 2009, we did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value (level 3). 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.

As of September 30, 2009, we held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or mortgage-backed securities.

In Europe, we have a cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows 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”). This arrangement also allows 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 September 30, 2009, we had a total of $1.3 billion in cash withdrawals offsetting our $1.3 billion in Aggregate Cash Deposits held within the same financial institution under this cash pooling arrangement.

Our financial instruments, including accounts receivable, loans and interest receivable, funds receivable, customer accounts, accounts payable, funds payable, amounts due to customers and borrowings under our credit agreement, are carried at cost, which approximates their fair value because of the short-term nature of these instruments.

Note 8 — Derivative Instruments

We have significant international revenues as well as costs denominated in foreign currencies, subjecting us to foreign currency risk. We purchase foreign currency exchange contracts that qualify as cash flow hedges, generally with maturities of 12 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue and intercompany transactions denominated in certain foreign currencies. All outstanding derivatives that qualify for hedge accounting are recognized on the balance sheet at fair value, and changes in their fair value are recorded in accumulated other comprehensive income (loss) until the underlying forecasted transaction occurs. The effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (loss), and is subsequently reclassified into the financial statement line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings. We also hedge our exposure to foreign currency denominated monetary assets and liabilities with foreign currency contracts. Since these derivatives hedge existing exposures that are denominated in foreign currencies, the contracts do not qualify for hedge accounting. Accordingly, these outstanding non-designated derivatives are recognized on the balance sheet at fair value and changes in fair value from these contracts are recorded in interest and other income (expense), net, in the condensed consolidated statement of income. Our derivatives program is not designed or operated for trading or speculative purposes.

Our derivative instruments expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the agreements. We seek to mitigate this risk by limiting our counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

Fair Value of Derivative Contracts: Derivative instruments are reported at fair value as follows (in thousands):

	Derivative Assets Reported in Other Current Assets		Derivative Liabilities Reported in Other Current Liabilities
	September 30,		September 30,
	2009		2009
Foreign exchange contracts designated as cash flow hedges	$	4,643	$	10,749
Foreign exchange contracts not designated as hedging instruments		5,600		1,281
Total fair value of derivative instruments	$	10,243	$	12,030

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(Unaudited)

Effect of Derivative Contracts on Accumulated Other Comprehensive Income (Loss): The following table represents the activity of derivative contracts which qualify for hedge accounting as of December 31, 2008 and September 30, 2009, and the impact of designated derivative contracts on accumulated other comprehensive income for the nine months ended September 30, 2009 (in thousands):

	December 31, 2008		Amount of gain (loss) recognized in other comprehensive income (effective portion)			Amount of gain (loss) reclassified from accumulated other comprehensive income to income (effective portion)		September 30, 2009
Foreign exchange contracts designated as cash flow hedges	$	40,352	$	(66,706	)	$	20,248	$	(6,106	)

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 (in thousands):

	Three Months Ended September 30, 2009			Nine Months Ended September 30, 2009
Foreign exchange contracts designated as cash flow hedges recognized in net revenues	$	(1,784	)	$	20,248
Foreign exchanges contracts not designated as hedging instruments recognized in interest and other income (expense), net		2,104			10,570
Total gain recognized from derivative contracts in the consolidated statement of income	$	320		$	30,818

Note 9 — Commitments and Contingencies

Credit Agreement

As of September 30, 2009, we had $200.0 million outstanding and approximately $1.6 billion available under our credit agreement. The interest rate at September 30, 2009 was 0.45%. As of September 30, 2009, we were in compliance with the financial covenants associated with the credit agreement. Lehman Brothers Commercial Bank was a participating lender in our $2.0 billion credit agreement. As a result of the bankruptcy of its parent company, the availability under our credit agreement was effectively reduced by Lehman’s commitment of $160.0 million.

Litigation and Other Legal 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 alleges 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. A hearing took place in September 2009 regarding our compliance with the injunction

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(Unaudited)

and a decision is expected in late 2009. We have taken measures to comply with the injunction and have appealed these rulings. 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 luxury brand owners have also filed suit against us or have threatened to do so, seeking to hold us liable for, among other things, alleged counterfeit items listed on our websites by third parties, for “tester” and other not for resale consumer products listed on our websites by third parties, for the alleged misuse of trademarks in listings, for alleged violations of selective distribution channel laws, for alleged violations of parallel import laws, for alleged non-compliance of consumer protection laws or in connection with paid search advertisements. 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 v. 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 questions of liability for the use of L’Oreal trademarks, hosting liability, and the scope of a possible injunction against intermediaries. The U.K. High Court of Justice has released its certification request to the European Court of Justice. 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 re-sale 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 currently operated was insufficient to prevent such infringement. Other damages claimed were to be specified after the liability stage of the proceedings.

In July 2009, the U.S. Second Circuit Court of Appeals heard arguments in the Tiffany v. eBay matter which is on appeal following a decision by the trial court in favor of eBay in July 2008. In June 2004, Tiffany (NJ) Inc. and Tiffany & Co. filed a lawsuit in the U.S. District Court for the Southern District of New York (No. 04 Civ. 4607 (NRB)) claiming that eBay was liable for contributory trademark infringement, false advertising, unfair competition and various related claims based on the listing of alleged counterfeit Tiffany silver jewelry on the eBay website by third parties. The suit sought an injunction, lost profits, punitive damages and attorneys’ fees. A bench trial took place in November 2007 and in a ruling in July 2008, the trial court rejected Tiffany’s claims, finding that the burden of enforcing trademarks is on the trademark owner and that eBay’s anti-counterfeiting efforts are sufficient under the law. In an appeal filed in August 2008, Tiffany argued that generalized knowledge of alleged counterfeiting should suffice to hold eBay liable for counterfeit Tiffany items sold by third parties on its website. The Second Circuit’s opinion is expected in late 2009.

In June 2006, Net2Phone, Inc. filed a lawsuit in the U.S. District Court for the District of New Jersey (No. 06-2469) alleging that eBay Inc., Skype Technologies S.A., and Skype Inc. infringed five patents owned by Net2Phone relating to point-to-point Internet protocol. The suit seeks an injunction against continuing infringement, unspecified damages, including treble damages for willful infringement, and interest, costs, and fees. We have filed an answer and counterclaims asserting that the patents are invalid, unenforceable, and were not infringed. The parties have completed claim construction briefing and attended a pre-trial conference hearing. The claim construction hearing date has been set for October 2009. The trial date is not yet set. The U.S. Patent and Trademark Office has accepted reexamination on all five Net2Phone patents that are the subject of the lawsuit. We believe that we have meritorious defenses and intend to defend ourselves vigorously.

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 class certification motion was heard by the court in October 2009. We believe that we have meritorious defenses and intend to defend ourselves vigorously.

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(Unaudited)

In October 2007, PartsRiver filed a lawsuit in the Eastern District of Texas (No. 2-07CV-440-DF) alleging that eBay, Microsoft, Yahoo!, Shopzilla, PriceGrabber and PriceRunner infringed its patent relating to search methods. The suit seeks an injunction against continuing infringement, unspecified damages, and interest, costs, and fees. The U.S. District Court for the Eastern District of Texas has granted defendants’ motion to transfer venue and moved the case to the U.S. District Court for the Northern District of California. In August 2009, the District Court granted our motion for summary judgment and ruled that the PartsRiver patent was invalid based on a finding that it was “on sale” more than a year before the filing date of the patent. PartsRiver is appealing the District Court’s decision. We intend to vigorously oppose PartsRiver’s appeal.

eBay’s Korean subsidiary, IAC, has notified a majority of 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 144,000 users have sued IAC over this breach in several lawsuits in Korean courts and we expect more to do so in the future. Trial for a group of four representative suits began in August 2009, and trial for a group of 23 other suits began in September 2009. These trials are expected to be completed in November 2009. 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. IAC intends to vigorously defend itself in these lawsuits. In December 2008, the Korea Consumer Agency (KCA) made a non-binding recommendation that IAC make payments of 50,000-100,000 Korean won (approximately $40-$80) to users who had complained to it as a result of such breach. IAC rejected this non-binding recommendation and did not make any payments, and this KCA process has ended even though the complainants may still file lawsuits in court.

Skype licenses peer-to-peer communication technology from Joltid Limited pursuant to a license agreement between the parties. The parties had been discussing a dispute over the license. In March 2009, Skype Technologies S.A. filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited. Following the filing of the claim, Joltid purported to terminate the license agreement between the parties. In particular, Joltid has alleged that Skype should not possess, use or modify certain software source code and that, by doing so, and by disclosing such code in certain U.S. patent cases pursuant to orders from U.S. courts, Skype has breached the license agreement. Joltid has brought a counterclaim alleging that Skype has repudiated the license agreement, infringed Joltid’s copyright and misused confidential information. On the basis of, among other things, the parties’ mutual dealings since the execution of the license agreement, Skype asked the English High Court for declaratory relief, including findings that Skype is not in breach of the license agreement, that Joltid’s notice of breach and subsequent notice of termination are invalid, and that Joltid has certain indemnity obligations in relation to the U.S. patent proceedings. Trial is currently scheduled for June 2010. Although Skype is confident of its legal position, as with any litigation, there is the possibility of an adverse result if the matter is not resolved through negotiation. Skype has begun to develop alternative software to that licensed through Joltid. However, such software development may not be successful and may result in loss of functionality or customers even if successful. If Skype were to lose the right to use the Joltid software as the result of the litigation, and if alternative software were not available, Skype would be severely and adversely affected and the continued operation of Skype’s business as currently conducted would likely not be possible.

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. 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 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. The number and significance of these disputes and inquiries are increasing as our business expands and our company grows larger. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, and result in the diversion of significant operational resources.

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(Unaudited)

Note 10 — Stock-Based Plans

Stock Option Exchange Program

On August 10, 2009, the Company launched a one-time stock option exchange program (the “Program”) pursuant to which eligible employees were able to exchange certain outstanding stock options with an exercise price greater than or equal to $27.01 per share, a grant date on or before August 10, 2008 and an expiration date after September 11, 2010, for a lesser amount of new restricted stock units (“RSUs”) or, under certain circumstances, for new stock options or a cash payment. Our named executive officers and members of our Board of Directors were not eligible to participate in the Program. The Program expired on September 11, 2009. As a result of the Program, 42.6 million shares of our common stock were accepted for exchange (representing approximately 75% of the total options eligible for exchange). All surrendered options were cancelled effective as of the expiration of the Program, and in exchange for those options, we issued a total of approximately 5.0 million new RSUs. The number of new stock options granted, and the amount of cash payments issued, in exchange for outstanding stock options were insignificant. In general, the new RSUs have a vesting period that is at least one year longer than the original vesting period for the corresponding exchanged option grant. The Program did not result in any significant incremental stock-based compensation expense.

Stock Options

The following table summarizes stock option activity for the nine-month period ended September 30, 2009 (in thousands):

	Shares
Outstanding at January 1, 2009	116,060
Granted and assumed	9,347
Exercised	(4,336	)
Options exchanged in connection with the stock option exchange program	(42,630	)
Forfeited/expired/cancelled	(19,801	)
Outstanding at September 30, 2009	58,640

Stock options granted under our equity incentive plans generally vest 25% one year from the date of grant (for new hires) and 12.5% six months from the date of grant (for existing employees) and the remainder generally vest at a rate of 2.08% per month thereafter, in either case based on the recipient’s continuing service to eBay, and generally expire seven to 10 years from the date of grant. The weighted average exercise price of stock options granted and assumed during the period was $12.64 per share and the related weighted average grant date fair value was $4.36 per share.

Restricted Stock Units

The following table summarizes RSU activity for the nine-month period ended September 30, 2009 (in thousands):

	Units
Outstanding at January 1, 2009	26,821
Awarded	22,916
Awarded in connection with the stock option exchange program	5,047
Vested	(6,387	)
Forfeited	(3,017	)
Outstanding at September 30, 2009	45,380

In general, RSUs vest over four years at the rate of 25% a year on each anniversary of the grant date, subject to the recipient’s continuing service to eBay. The cost of RSUs is determined using the fair value of our common stock on the date of grant. The weighted average grant date fair value for RSUs awarded during the period was $11.21 per share, excluding those RSUs awarded in connection with the one-time stock option exchange program.

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(Unaudited)

Stock-based Compensation Expense

The impact on our results of operations of recording stock-based compensation expense for the three and nine months ended September 30, 2008 and 2009 was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2009		2008		2009
Cost of net revenues	$	10,395	$	11,134	$	31,908	$	37,614
Sales and marketing		23,745		28,265		72,096		91,154
Product development		23,458		22,795		71,627		78,546
General and administrative		32,653		30,296		93,850		95,455
Total stock-based compensation expense	$	90,251	$	92,490	$	269,481	$	302,769

Total stock-based compensation expense included in capitalized development costs was $3.4 million and $2.6 million for the three months ended September 30, 2008 and 2009, respectively. Total stock-based compensation expense included in capitalized development costs was $8.2 million and $7.0 million for the nine months ended September 30, 2008 and 2009, respectively.

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 nine months ended September 30, 2008 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2009		2008		2009
Risk-free interest rates	2.9	%	2.0	%	2.3	%	1.6	%
Expected lives (in years)	3.9		3.7		3.8		3.8
Dividend yield	0	%	0	%	0	%	0	%
Expected volatility	40	%	43	%	34	%	47	%

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 was determined 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 11 — 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. As previously announced, the consolidation will potentially impact approximately 1,100 employees. We estimate that we will incur aggregate costs of $45.0 million to $55.0 million. During the third quarter and first nine months of 2009, we incurred restructuring charges of $11.1 million and $25.5 million, respectively, in connection with this consolidation. We expect to complete these activities by mid-2010.

2008 Restructuring Plan

In 2008, we implemented a strategic reduction of our existing global workforce by approximately 800 employees worldwide to simplify and streamline our organization and strengthen the overall competitiveness of our existing businesses. During the third quarter and first nine months of 2009, we incurred $1.6 million and $11.5 million, respectively, in restructuring charges related to this plan. Since the inception of the plan we have incurred $60.6 million in restructuring related charges. The restructuring activities in connection with this plan are substantially complete.

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(Unaudited)

Summary of All Restructuring Plans

The following table summarizes the restructuring and other related costs by segment recognized during the third quarter and first nine months of 2009 (in thousands):

	Three Months Ended September 30, 2009									Nine Months Ended September 30, 2009
	Employee Severance and Benefits			Facilities			Total			Employee Severance and Benefits		Facilities		Total
Marketplaces	$	6,617		$	6,062		$	12,679		$	28,901	$	7,836	$	36,737
Payments		(3	)		(3	)		(6	)		190		10		200
	$	6,614		$	6,059		$	12,673		$	29,091	$	7,846	$	36,937

The following table summarizes the restructuring activity during the nine months ended September 30, 2009 (in thousands):

	Employee Severance and Benefits			Facilities			Total
Accrued liability as of January 1, 2009	$	14,200		$	946		$	15,146
Charges		29,091			7,846			36,937
Payments		(32,370	)		(1,404	)		(33,774	)
Non-cash items		—			(3,696	)		(3,696	)
Adjustment		(63	)		(639	)		(702	)
Accrued liability as of September 30, 2009	$	10,858		$	3,053		$	13,911

In the table, above non-cash items pertain to the write-down of assets to their estimated fair value. Adjustments reflect the impact of foreign currency translation.

Note 12 — Income Taxes

The following table reflects changes in unrecognized tax benefits for the nine-month period ended September 30, 2009 (in thousands):

Gross amounts of unrecognized tax benefits as of January 1, 2009	$	701,374
Increases in unrecognized tax benefits for tax positions taken during the period		87,737
Increases in unrecognized tax benefits for prior period tax positions		38,524
Gross amounts of unrecognized tax benefits as of September 30, 2009	$	827,635

As of September 30, 2009, our liabilities for unrecognized tax benefits were included in deferred and other tax liabilities, net. The total liabilities for unrecognized tax benefits and the increase for the current period of these liabilities relate primarily to the allocations of revenue and costs among our global operations, the impact from acquisitions and the impact of tax rulings made during the period affecting our tax positions. Over the next 12 months, our existing tax positions will continue to generate an increase in liabilities for unrecognized tax benefits. We recognize interest and/or penalties related to uncertain tax positions in provision for income taxes. The amount of interest and penalties accrued at September 30, 2009 was approximately $79.7 million.

We are subject to 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. The material jurisdictions in which we are subject to potential examination by tax authorities for tax years after 2002 include, among others, the U.S., California, France, Germany, Italy, Korea, Switzerland and Singapore.

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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 our 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 operate three primary business segments: Marketplaces, Payments and Communications. Our Marketplaces segment provides the infrastructure to enable global online commerce on a variety of platforms, including the traditional eBay.com platform, and our other online platforms, such as our online classifieds businesses, our secondary tickets marketplace (StubHub), our online shopping comparison website (Shopping.com), our apartment listing service platform (Rent.com), as well as our fixed price media marketplace (Half.com). Our Payments segment is comprised of our online payment solutions — PayPal (which enables individuals and businesses to securely, easily and quickly send and receive payments online in approximately 190 markets worldwide) and Bill Me Later (which we acquired in November 2008 and which enables online U.S. merchants to offer, and U.S. consumers to obtain, transactional credit at the point of sale). Our Communications segment, which consists of Skype, enables Internet communications between Skype users and provides low-cost connectivity to traditional fixed-line and mobile telephones. On September 1, 2009 we entered into a definitive agreement to sell the share capital of Skype Luxembourg Holdings S.a.r.l., Skype Inc., Camino Networks, Inc. and Sonorit Holdings, A.S. (collectively with their respective subsidiaries, the “Skype Companies”) to an entity organized and owned by an investment group led by Silver Lake that includes the Canada Pension Plan Investment Board, Index Ventures and Andreessen Horowitz (the “Buyer”). Upon completion of the sale, we will hold an approximately 35 percent equity investment in the Buyer. For further details see “Note 4 — Skype Assets Held for Sale” to the condensed consolidated financial statements included in this report.

For the three months ended September 30, 2009, net revenues increased 6% to $2.2 billion compared to the same period in the prior year due primarily to the continued growth in PayPal, Skype and our classifieds business as well as growth in eBay’s fixed price format. Our operating margin decreased five percentage points to 19.8% compared to the same period of the prior year, due primarily to dilution from our recent acquisitions, including Bill Me Later, foreign currency movements against the U.S. dollar and a shift to faster growing, lower margin businesses. Our Marketplaces, Payments and Communications segment margins decreased one percentage point, four percentage points, and two percentage points, respectively, on a year over year basis. Our diluted earnings per share decreased $0.11, to $0.27, compared to the same period of the prior year, driven primarily by a lower operating margin, lower yield on cash balances and a higher effective tax rate. For the three months ended September 30, 2009, we generated cash flow from operations of approximately $738.2 million.

Some key operating metrics that members of our senior management regularly review to evaluate our financial results include gross merchandise volume (GMV), number of sold items, net total payment volume (TPV), net number of payments, SkypeOut Minutes, free cash flow, and revenue, excluding acquisitions and foreign currency impact.

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Outlook

We expect that net revenues in the fourth quarter of 2009 will be moderately stronger than our performance in the third quarter of 2009. Net revenues in the fourth quarter of 2009 are expected to benefit from GMV and TPV momentum and the holiday shopping season. Our net revenue expectations include Skype revenues through an assumed mid-quarter close of the pending sale transaction. We expect a significant increase in net income in the fourth quarter of 2009 due primarily to the estimated $1.0 billion gain on the pending sale of Skype as well as continued productivity gains realized from our operational excellence initiatives, partially offset by investments in improving our user experience.

Results of Operations

Summary of Net Revenues

Net transaction revenues from our Marketplaces segment are derived primarily from listing and final value fees paid by sellers. For our Payments segment, net transaction revenues are generated primarily by fees paid by merchants for payment processing services. Our Communications segment net transaction revenues are generated primarily from fees charged to users to connect Skype’s Internet communications products to traditional fixed-line and mobile telephones. These fees are charged on a per-minute basis or on a subscription basis, and we refer to these minutes as SkypeOut minutes.

Marketing services and other revenues are generated from all three of our business segments. Our marketing services are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees and lead referral fees. Our other revenues are derived principally from interest earned from banks on certain PayPal customer account balances, interest and fees earned on the Bill Me Later loan portfolio and from contractual arrangements with third parties that provide services to our users. Revenues are attributed to U.S. and international geographies primarily based upon the country in which the seller, payment recipient, customer, Skype user’s Internet protocol address, online property that generates advertising, or other service provider, as the case may be, is located.

We generate the majority of our revenue internationally and, accordingly, 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, this program will not fully offset the effect of those fluctuations on our revenues and earnings. For the three months ended September 30, 2009, foreign currency movements against the U.S. dollar negatively impacted net revenues by approximately $96.7 million compared to the same period of the prior year. On a business segment basis for the three months ended September 30, 2009, foreign currency movements against the U.S. dollar negatively impacted Marketplaces, Payments and Communications net revenues by approximately $66.2 million, $20.8 million and $9.7 million, respectively, compared to the same period of the prior year. For the three months ended September 30, 2009, Payments net revenues were negatively impacted by hedging activities. For the nine months ended September 30, 2009, foreign currency movements against the U.S. dollar negatively impacted net revenues by approximately $463.9 million compared to the same period of the prior year. On a business segment basis for the nine months ended September 30, 2009, foreign currency movements against the U.S. dollar negatively impacted Marketplaces, Payments and Communications net revenues by approximately $331.9 million, $76.2 million and $55.8 million, respectively, compared to the same period of the prior year. For the nine months ended September 30, 2009, Payments net revenues were positively impacted by hedging activities.

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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				Percent Change		Nine Months Ended				Percent Change
	September 30, 2008		September 30, 2009				September 30, 2008		September 30, 2009
	(In thousands, except percentages)
Net Revenues by Type:
Net transaction revenues
Marketplaces	$	1,163,890	$	1,151,361	(1	)%	$	3,664,830	$	3,242,105	(12	)%
Payments		576,302		649,159	13	%		1,716,309		1,884,154	10	%
Communications		137,201		172,957	26	%		387,143		471,856	22	%
Total net transaction revenues		1,877,393		1,973,477	5	%		5,768,282		5,598,115	(3	)%
Marketing services and other revenues
Marketplaces		212,963		213,222	0	%		654,371		605,626	(7	)%
Payments		20,909		38,904	86	%		64,276		116,168	81	%
Communications		6,266		12,249	95	%		18,486		36,521	98	%
Total marketing services and other revenues		240,138		264,375	10	%		737,133		758,315	3	%
Total net revenues	$	2,117,531	$	2,237,852	6	%	$	6,505,415	$	6,356,430	(2	)%
Net Revenues by Segment:
Marketplaces	$	1,376,853	$	1,364,583	(1	)%	$	4,319,201	$	3,847,731	(11	)%
Payments		597,211		688,063	15	%		1,780,585		2,000,322	12	%
Communications		143,467		185,206	29	%		405,629		508,377	25	%
Total net revenues	$	2,117,531	$	2,237,852	6	%	$	6,505,415	$	6,356,430	(2	)%
Net Revenues by Geography:
U.S.	$	1,001,637	$	1,013,477	1	%	$	3,028,098	$	2,941,758	(3	)%
International		1,115,894		1,224,375	10	%		3,477,317		3,414,672	(2	)%
Total net revenues	$	2,117,531	$	2,237,852	6	%	$	6,505,415	$	6,356,430	(2	)%

	Three Months Ended				Percent Change		Nine Months Ended				Percent Change
	September 30, 2008		September 30, 2009				September 30, 2008		September 30, 2009
	(In millions, except percentages)
Supplemental Operating Data:
Marketplaces Segment:
GMV excluding vehicles (1)	$	11,361	$	12,192	7	%	$	36,530	$	34,116	(7	)%
Vehicles GMV (2)		2,922		2,386	(18	)%		9,473		6,760	(29	)%
Total GMV (3)	$	14,283	$	14,578	2	%	$	46,003	$	40,876	(11	)%
Payments Segment:
Net total payment volume (4)	$	14,812	$	17,686	19	%	$	44,159	$	50,250	14	%
Communications Segment:
Registered users (5)		370.2		520.8	41	%		370.2		520.8	41	%
SkypeOut Minutes (6)		2,160.0		3,102.7	44	%		5,786.4		8,942.7	55	%

(1) Total value of all successfully closed items between users on eBay Marketplaces trading platforms during the quarter, regardless of whether the buyer and seller actually consummated the transaction, excluding vehicles gross merchandise volume.

(2) Total value of all successfully closed vehicle transactions between users on eBay Marketplaces trading platforms during the quarter, regardless of whether the buyer and seller actually consummated the transaction.

(3) Total value of all successfully closed items between users on eBay Marketplaces trading platforms during the quarter, regardless of whether the buyer and seller actually consummated the transaction.

(4) Total dollar volume of payments, net of payment reversals, successfully completed through our payments network or on Bill Me Later accounts during the period, excluding the payment gateway business.

(5) Cumulative number of unique user accounts, which includes, among other things, users who may have registered via non-Skype based websites and users that have more than one account.

(6) Cumulative number of minutes that Skype users were connected with Skype’s Internet communications products to traditional fixed-line and mobile telephones.

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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			December 31
	(In thousands, except percentages)
2007
Net revenues	$	1,768,074		$	1,834,429		$	1,889,220		$	2,180,606
Percent change from prior quarter		3	%		4	%		3	%		15	%
2008
Net revenues	$	2,192,223		$	2,195,661		$	2,117,531		$	2,035,846
Percent change from prior quarter		1	%		0	%		(4	)%		(4	)%
2009
Net revenues	$	2,020,586		$	2,097,992		$	2,237,852			N/A
Percent change from prior quarter		(1	)%		4	%		7	%

We expect transaction activity patterns on our websites to increasingly mirror general consumer buying patterns.

Marketplaces Net Transaction Revenues

Marketplaces net transaction revenues decreased $12.5 million, or 1%, during the third quarter of 2009 compared to the same period of the prior year due primarily to an increase in seller discounts and buyer loyalty programs (recorded as contra-revenue), partially offset by a 7% increase in our GMV (excluding vehicles) over the same period due to the acquisition of Gmarket (acquired June 2009). GMV generated by our largest category, vehicles, declined 18% during the third quarter of 2009, which was reflective of the decline in the automotive market generally as well as a shift in consumer preference toward online automotive classified listings. Growth rates for both revenue and GMV during the third quarter of 2009 were negatively impacted by foreign currency movements against the U.S. dollar.

Marketplaces net transaction revenues decreased $422.7 million or 12%, during the first nine months of 2009 compared to the same period of the prior year due to a 7% decrease in our GMV (excluding vehicles) over the same period, as well as an increase in seller discounts and buyer loyalty programs (recorded as contra-revenue). GMV generated by our largest category, vehicles, declined 28% during the first nine months of 2009, which was reflective of the decline in the automotive market generally as well as a shift in consumer preference toward online automotive classified listings. The decrease in both revenue and GMV was attributable to a stronger dollar and difficult macroeconomic conditions.

Marketplaces net transaction revenues earned internationally totaled $623.5 million and $1.7 billion during the third quarter and the first nine months of 2009, respectively, representing 54% and 53% of total Marketplaces net transaction revenues during those respective periods. Marketplaces net transaction revenues earned internationally totaled $601.1 million and $2.0 billion during the third quarter and the first nine months of 2008, respectively, and represented 52% and 54% of total Marketplaces net transaction revenues during those respective periods.

Payments Net Transaction Revenues

Payments net transaction revenues increased $72.9 million and $167.8 million, or 13% and 10%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increases are due primarily to growth in net TPV of 19% and 14% during the third quarter and first nine months of 2009, respectively, compared to the same period of the prior year, partially offset by lower take rates due primarily to a shift in business and geographic mix, including a faster growing Merchant Services component. The increase in net TPV during the third quarter and first nine months of 2009 was due to growth in consumer and merchant adoption of PayPal and the inclusion of Bill Me Later (acquired November 2008). Our Merchant Services net TPV experienced 31% and 28% growth during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year and represented 56% and 55% of PayPal’s net TPV during those respective periods. The increase in our Merchant Services business is due primarily to an increased number of online merchants offering PayPal as a payment option.

Payments net transaction revenues earned internationally totaled $300.6 million and $853.8 million during the third quarter and first nine months of 2009, respectively, representing 46% and 45% of total Payments net transaction revenues during those respective periods. Payments net transaction revenues earned internationally totaled $256.6 million and $753.8 million during the third quarter and first nine months of 2008, respectively, and represented 45% and 44% of total Payments net transaction revenues during those respective periods.

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Communications Net Transaction Revenues

Communications net transaction revenues increased $35.8 million and $84.7 million, or 26% and 22%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase in net transaction revenues was due primarily to a 44% and 55% increase in SkypeOut minutes during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase in SkypeOut minutes during the third quarter and first nine months of 2009 was due primarily to the growth in the cumulative number of Skype registered users to 520.8 million at September 30, 2009 from 370.2 million at September 30, 2008. We believe that the growth in Skype registered users was due primarily to its marketing activities, ongoing viral adoption (whereby users encourage others to become users), strategic partnership initiatives and the expansion of its product offerings.

Net transaction revenues from Communications earned internationally totaled $142.9 million and $388.2 million during the third quarter and first nine months of 2009, respectively, representing 83% and 82% of total Communications net transaction revenues in those respective periods. Communications net transaction revenues earned internationally totaled $113.0 million and $321.6 million in the third quarter and first nine months of 2008, respectively, and represented 82% and 83% of total Communications net transaction revenues in those respective periods. Communications net transaction revenues are primarily generated in Europe.

Marketing Services and Other Revenues

Marketing services and other revenues increased $24.2 million, or 10% during the third quarter of 2009, compared to the same period of the prior year, and represented 12% of total net revenues during the third quarter of 2009 compared to 11% of total net revenues during the same period of the prior year. The increase in marketing services and other revenues during the third quarter of 2009 was due primarily to income generated from our Bill Me Later loan portfolio (acquired November 2008) and an increase in our Classifieds business, primarily attributable to Den Blå Avis and BilBasen (acquired October 2008). These increases were partially offset by a decrease in Shopping.com revenue, a decline in interest income earned on certain PayPal customer account balances resulting primarily from decreased interest rates, and a general market decline in advertising.

Marketing services and other revenues increased $21.2 million, or 3%, during the first nine months of 2009 compared to the same period of the prior year, and represented 12% of total net revenues during the first nine months of 2009, compared to 11% of total net revenues during the same period of the prior year. The increase in marketing services and other revenues during the first nine months of 2009 was due primarily to income generated from our Bill Me Later loan portfolio (acquired November 2008) and an increase in our Classifieds business, primarily attributable to Den Blå Avis and BilBasen (acquired October 2008). These increases were partially offset by a decrease in Shopping.com revenue related to the impact of rule changes made in the third quarter of 2008 by third-party search engines that adversely affected click-though traffic to retailers from our Shopping.com website and reduced associated fees, as well as a decline in interest income earned on certain PayPal customer account balances resulting primarily from decreased interest rates.

Summary of Cost of Net Revenues

The following table summarizes changes in cost of net revenues:

	Three Months Ended										Nine Months Ended
	September 30,						Change from 2008 to 2009				September 30,						Change from 2008 to 2009
	2008			2009			in Dollars		in %		2008			2009			in Dollars		in %
	(In thousands, except percentages)
Cost of net revenues:
Marketplaces	$	238,810		$	255,083		$	16,273	7	%	$	681,662		$	692,515		$	10,853	2	%
As a percentage of total Marketplaces net revenues		17.3	%		18.7	%						15.8	%		18.0	%
Payments		253,785			302,971			49,186	19	%		759,045			873,113			114,068	15	%
As a percentage of total Payments net revenues		42.5	%		44.0	%						42.6	%		43.6	%
Communications		68,368			85,854			17,486	26	%		207,771			243,439			35,668	17	%
As a percentage of total Communications net revenues		47.7	%		46.4	%						51.2	%		47.9	%
Total cost of net revenues	$	560,963		$	643,908		$	82,945	15	%	$	1,648,478		$	1,809,067		$	160,589	10	%
As a percentage of net revenues		26.5	%		28.8	%						25.3	%		28.5	%

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Cost of net revenues consists primarily of costs associated with payment processing, customer support and site operations and Skype call termination costs. Significant components of these costs include bank transaction fees, credit card interchange fees, assessments, Bill Me Later related interest charges, employee compensation, contractor costs, facilities costs, depreciation of equipment and amortization expense.

Marketplaces cost of net revenues increased $16.3 million and $10.9 million, or 7% and 2%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase during the third quarter of 2009 was due primarily to costs attributable to Gmarket (acquired June 2009), partially offset by cost savings in connection with our restructuring activities. Marketplaces cost of net revenues during the first nine months of 2009 did not materially change from the same period in the prior year. Marketplaces cost of net revenues increased as a percentage of Marketplaces net revenues during the first nine months of 2009 due primarily to the impact of foreign currency movements on revenues, pricing discounts and the growth of lower margin Marketplaces businesses.

Payments cost of net revenues increased $49.2 million and $114.1 million, or 19% and 15%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase in cost of net revenues was primarily due to costs attributable to Bill Me Later (acquired November 2008) as well as the impact from our growth in net TPV. Cost of net revenues as a percentage of Payments net revenues increased during the third quarter and first nine months of 2009 compared to the same periods of the prior year due primarily to the impact of foreign currency movements on revenues and increased investment in our site operations, partially offset by a more favorable geographic and payment processor mix.

Communications cost of net revenues increased $17.5 million and $35.7 million, or 26% and 17%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase in cost of net revenues during both periods was due primarily to an increase in call termination costs, customer support and site operation costs to support the increase in SkypeOut minutes. Cost of net revenues decreased as a percentage of Communications net revenues due primarily to higher volume and revenue mix.

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:

	Three Months Ended										Nine Months Ended
	September 30,					Change from 2008 to 2009					September 30,				Change from 2008 to 2009
	2008		2009			in Dollars			in %		2008		2009		in Dollars			in %
	(In thousands, except percentages)
Sales and marketing	$	451,753	$	491,461		$	39,708		9	%	$	1,463,190	$	1,359,277	$	(103,913	)	(7	)%
Product development		190,842		205,207			14,365		8	%		554,393		605,126		50,733		9	%
General and administrative		248,909		272,177			23,268		9	%		793,791		797,966		4,175		1	%
Provision for transaction and loan losses		88,269		96,682			8,413		10	%		260,872		270,597		9,725		4	%
Amortization of acquired intangible assets		52,720		72,803			20,083		38	%		162,472		200,066		37,594		23	%
Restructuring		—		12,673			12,673		100	%		—		36,937		36,937		100	%
Interest and other income (expense), net		38,567		(4,606	)		(43,173	)	(112	)%		88,077		8,957		(79,120	)	(90	)%
Provision for income taxes		70,423		88,599			18,176		26	%		298,014		252,160		(45,854	)	(15	)%

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Sales and Marketing

	Three Months Ended						Percent Change		Nine Months Ended						Percent Change
	September 30, 2008			September 30, 2009					September 30, 2008			September 30, 2009
	(In thousands, except percentages)
Sales and marketing	$	451,753		$	491,461		9	%	$	1,463,190		$	1,359,277		(7	)%
As a percentage of net revenues		21.3	%		22.0	%				22.5	%		21.4	%

Sales and marketing expenses consist primarily of advertising costs, marketing programs and employee compensation for sales and marketing staff.

Sales and marketing expense increased in the third quarter of 2009 by $39.7 million, or 9% compared to the same period of the prior year, due primarily to an increase in costs attributable to Gmarket (acquired June 2009), Bill Me Later (acquired November 2008) and Den Blå Avis and BilBasen (acquired October 2008).

Sales and marketing expense decreased in the first nine months of 2009 by $103.9 million, or 7%, compared to the same period of the prior year due primarily to lower marketing program spend costs of $138.1 million due to a shift in focus from customer acquisition to customer retention (for which certain associated expenses are recorded as a reduction in revenue instead of sales and marketing expense), partially offset by increases in employee related costs of $28.2 million due primarily to the acquisitions noted above.

Sales and marketing expense as a percentage of net revenues during the third quarter of 2009 increased from the same period of the prior year due primarily to the impact from our acquisitions noted above. Sales and marketing expense as a percentage of net revenues during the first nine months of 2009 decreased from the same period of the prior year due to lower, more targeted spending within our Marketplaces segment as well as the growth of our Payments and Communications segments, each of which has lower relative sales and marketing expenses than our Marketplaces segment.

Product Development

	Three Months Ended						Percent Change		Nine Months Ended						Percent Change
	September 30, 2008			September 30, 2009					September 30, 2008			September 30, 2009
	(In thousands, except percentages)
Product development	$	190,842		$	205,207		8	%	$	554,393		$	605,126		9	%
As a percentage of net revenues		9.0	%		9.2	%				8.5	%		9.5	%

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 $29.0 million and $81.0 million in the third quarter and first nine months of 2009, respectively, compared to $32.9 million and $85.5 million in the third quarter and first nine months of 2008, respectively, and are primarily reflected as a cost of net revenues when amortized in future periods.

Product development expenses increased in the third quarter and first nine months of 2009 by $14.4 million and $50.7 million, or 8% and 9%, respectively, compared to the same periods of the prior year. Product development also increased as a percentage of revenue compared to the same period of the prior year. The increase in both dollars and as a percentage of revenue was due primarily to an increase in employee-related costs (including consultant costs, facility costs and equipment-related costs) driven by increased investment in our top technology priorities: search, catalog, platform, and user experience.

General and Administrative

	Three Months Ended						Percent Change		Nine Months Ended						Percent Change
	September 30, 2008			September 30, 2009					September 30, 2008			September 30, 2009
	(In thousands, except percentages)
General and administrative	$	248,909		$	272,177		9	%	$	793,791		$	797,966		1	%
As a percentage of net revenues		11.8	%		12.2	%				12.2	%		12.6	%

General and administrative expenses consist primarily of employee compensation, contractor costs, facilities costs, depreciation of equipment, employer payroll taxes on employee stock-based compensation, insurance and professional fees.

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General and administrative expenses increased in the third quarter and first nine months of 2009 by $23.3 million and $4.2 million, or 9% and 1%, respectively, compared to the same periods of the prior year. The increase during the third quarter of 2009 was due primarily to an increase in costs attributable to Gmarket (acquired June 2009), Bill Me Later (acquired November 2008) and Den Blå Avis and BilBasen (acquired October 2008) of $14.9 million, as well as an increase of $8.4 million in professional service fees primarily related to the pending sale of Skype. General and administrative expenses during the first nine months of 2009 increased $4.2 million due primarily to costs associated with our acquisition and divestiture activities, partially offset by lower employee related and contractor costs and certain international indirect taxes.

General and administrative expenses as a percentage of net revenue in the third quarter and first nine months of 2009 increased slightly due to a decline in net revenues year over year due primarily to the higher negative impact of foreign exchange against the U.S. dollar on revenues versus the general and administrative costs that are more weighted toward U.S.-dollar costs.

Provision for Transaction and Loan Losses

	Three Months Ended						Percent Change		Nine Months Ended						Percent Change
	September 30, 2008			September 30, 2009					September 30, 2008			September 30, 2009
	(In thousands, except percentages)
Provision for transaction and loan loss	$	88,269		$	96,682		10	%	$	260,872		$	270,597		4	%
As a percentage of net revenues		4.2	%		4.3	%				4.0	%		4.3	%

Provision for transaction and loan losses primarily consists of bad debt expense associated with our accounts receivable balance, loan reserves associated with our Bill Me Later loan receivable balance, and transaction loss expense (including losses resulting from our customer protection programs).

Provision for transaction and loan losses increased in the third quarter and first nine months of 2009 by $8.4 million and $9.7 million, or 10% and 4%, respectively, compared to the same periods of the prior year. The increase was due primarily to the addition of the provision for loan losses associated with our Bill Me Later business (acquired November 2008) and the introduction of our Buyer Resolution program, partially offset by decreases in bad debt expense. 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 historical experience.

Amortization of Acquired Intangible Assets

	Three Months Ended						Percent Change		Nine Months Ended						Percent Change
	September 30, 2008			September 30, 2009					September 30, 2008			September 30, 2009
	(In thousands, except percentages)
Amortization of acquired intangible assets	$	52,720		$	72,803		38	%	$	162,472		$	200,066		23	%
As a percentage of net revenues		2.5	%		3.3	%				2.5	%		3.1	%

From time to time we have purchased, and we expect to continue to purchase, assets or 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 future periods. 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. The increase in amortization of acquired amortizable intangibles during the third quarter and first nine months of 2009, compared to the same periods of the prior year, was due primarily to the business acquisitions of Bill Me Later and Gmarket. The pending sale of our Communications business segment, Skype, will reduce amortization of acquired intangibles over the course of the next year. See “Note 5 — Goodwill and Intangible Assets” to the condensed consolidated financial statements included in this report for information related to our future acquired intangible amortization.

Restructuring

During the third quarter and first nine months of 2009, total restructuring charges amounted to $12.7 million and $36.9 million, respectively. The restructuring charges incurred during the period related primarily to employee severance and benefits. See “Note 11 — Restructuring” to the condensed consolidated financial statements included in this report.

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Interest and Other Income (Expense), Net

	Three Months Ended						Percent Change		Nine Months Ended						Percent Change
	September 30, 2008			September 30, 2009					September 30, 2008			September 30, 2009
	(In thousands, except percentages)
Interest and other income (expense), net	$	38,567		$	(4,606	)	(112	)%	$	88,077		$	8,957		(90	)%
As a percentage of net revenues		1.8	%		(0.2	)%				1.4	%		0.1	%

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 unconsolidated joint venture and equity investment results, interest expense consisting of interest charges on the amount drawn under our credit agreement and certain accrued contingencies, and excludes interest related to Bill Me Later, which is included in cost of net revenues, and other miscellaneous transactions not related to our primary operations.

Interest and other income (expense), net, during the third quarter and first nine months of 2009 decreased $43.2 million and $79.1 million, respectively, as compared to the same periods of the prior year. The decrease in interest and other income (expense), net during the third quarter of 2009 was due primarily to a $24.4 million decrease in interest income due to lower interest rates that were earned on lower average cash, cash equivalents and investments balances, as well as the impact of foreign currency losses of $18.4 million. The decrease in interest and other income (expense), net, during the first nine months of 2009 was due primarily to a $77.2 million decrease in interest income due to lower interest rates that were earned on lower average cash, cash equivalents and investments balances.

Provision for Income Taxes

	Three Months Ended						Percent Change		Nine Months Ended						Percent Change
	September 30, 2008			September 30, 2009					September 30, 2008			September 30, 2009
	(In thousands, except percentages)
Provision for income taxes	$	70,423		$	88,599		26	%	$	298,014		$	252,160		(15	)%
Effective tax rate		13	%		20	%				17	%		20	%

The provision for income taxes differs from the amount computed by applying the statutory U.S. federal rate principally due to foreign income earned at lower tax rates and tax credits that lower the effective tax rate, offset by state taxes, subsidiary losses for which we have not provided a benefit and other factors that impact the effective tax rate.

The increase in our effective tax rate in both the third quarter and first nine months of 2009 as compared to the same periods of the prior year is due to a larger impact from a favorable change in our geographic mix of earnings in the prior year.

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, 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 in nature and the impact of such transactions on future periods may be difficult to estimate.

Liquidity and Capital Resources

Cash Flows

	Nine months ended September 30,
	2008			2009
	(In thousands)
Net cash provided by (used in):
Operating activities	$	2,198,052		$	2,137,486
Investing activities		(682,914	)		(2,031,583	)
Financing activities		(2,276,155	)		(782,043	)
Effect of exchange rates on cash and cash equivalents		(117,457	)		45,071
Net decrease in cash and cash equivalents	$	(878,474	)	$	(631,069	)

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Operating Activities

We generated cash from operating activities in amounts greater than net income in the nine months ended September 30, 2008 and 2009 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 decrease in cash provided by operating activities is due primarily to lower net income.

Investing Activities

The net cash used in investing activities of $2.0 billion in the first nine months of 2009 was due primarily to cash paid for the acquisition of Gmarket for $1.2 billion and purchases of investments of $468.4 million and property and equipment of $394.2 million. During the first nine months of 2008, net cash used in investing activities of $682.9 million was due primarily to purchases of property and equipment of $406.7 million and the acquisition of FraudSciences for $159.1 million, net of cash acquired.

Financing Activities

The net cash used in financing activities of $782.0 million in the first nine months of 2009 was due primarily to the repayment of borrowings under our credit agreement of $800.0 million. We did not repurchase any stock during the first nine months of 2009. Net cash used in financing activities of $2.3 billion during the first nine months of 2008 was due primarily to the repurchase of approximately 80.6 million shares of common stock for an aggregate purchase price of approximately $2.2 billion and the repayment of $200.0 million under our credit agreement, offset in part by net proceeds from the issuance of common stock of $115.6 million.

Reported cash and cash equivalents were positively affected by exchange rates during the first nine months of 2009 by $45.1 million due to the weakening of the U.S. dollar against other foreign currencies, primarily the Euro. The negative effect of exchange rates on cash and cash equivalents of $117.5 million during the first nine months of 2008 was due to the strengthening of the U.S. dollar during the period against other foreign currencies, primarily the Euro.

Stock Repurchases

In January 2008, our Board authorized, and we announced, a stock repurchase program of up to $2.0 billion of our common stock. During the nine months ended September 30, 2009, we did not repurchase any shares of our common stock. As of September 30, 2009, we have the ability to repurchase up to $656.5 million under our stock repurchase program.

Credit Agreement

As of September 30, 2009, $200.0 million was outstanding and approximately $1.6 billion was available under our credit agreement.

Liquidity and Capital Resource Requirements

At September 30, 2009, we had cash and cash equivalents of $2.6 billion, compared to $3.2 billion at December 31, 2008. The decrease in our cash and cash equivalents from December 31, 2008 is due primarily to our acquisition of Gmarket in June 2009 for $1.2 billion as well as net payments under our credit agreement of $800.0 million. The decrease was partially offset by cash flows from operations of $2.1 billion. Our primary liquidity and capital resources needs are to fund our operations, capital expenditures and acquisition activity.

At September 30, 2009, we held balances in cash and cash equivalents outside the U.S. in certain of our foreign operations totaling approximately $2.4 billion. If these cash and cash equivalents are distributed to the U.S., we may be subject to additional U.S. taxes in certain circumstances. Our available cash and cash equivalents are held in bank deposits and money market funds. We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal while secondarily maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any single entity. To date, we have experienced no material loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets. We expect to generate a significant amount of cash as the result of the pending sale of Skype.

At any point in time we have funds in our operating accounts and customer accounts that are with third party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. While we monitor the cash balances in our operating accounts, these cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.

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We believe that our existing cash and cash equivalents of approximately $2.6 billion at September 30, 2009, together with cash expected to be generated from operations and cash available through our credit agreement, will be sufficient to fund our operating activities, capital expenditures, acquisition activity, Bill Me Later loan portfolio, stock repurchases and other obligations for the foreseeable future.

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, 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.

Off-Balance Sheet Arrangements

As of September 30, 2009, 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 a cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows 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”). This arrangement also allows 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 September 30, 2009, we had a total of $1.3 billion in cash withdrawals offsetting our $1.3 billion in Aggregate Cash Deposits held within the same financial institution under this cash pooling arrangement.

Customer balances held as direct claims against us, primarily PayPal, are included on our consolidated balance sheet in “funds receivable and customer accounts” with an offsetting current liability in “funds payable and amounts due to customers,” and totaled approximately $1.4 billion as of September 30, 2009 and $1.1 billion as of December 31, 2008. Customer funds held by PayPal as an agent or custodian on behalf of our customers are not reflected in our consolidated balance sheet. These funds include funds that are deposited in bank accounts insured by the FDIC on behalf of U.S. customers and funds that U.S. customers choose to invest in The PayPal Money Market Fund, which totaled approximately $2.1 billion and $1.9 billion as of September 30, 2009 and December 31, 2008, respectively. The PayPal Money Market Fund is invested in a portfolio managed by Barclays Global Fund Advisors.

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. In a limited number of agreements, we have provided an indemnity for other types of third-party claims, which are indemnities mainly related to various intellectual property rights. In our PayPal business, we have provided an indemnity to our payment processors in the event of certain third-party claims or card network fines against the processor arising out of conduct by PayPal or PayPal customers. 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.

Recent Accounting Pronouncements

See “Note 1 — The Company and Summary of Significant Accounting Policies” to the condensed consolidated financial statements, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.

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, 2008. Our market risk profile has not changed significantly during the first nine months of 2009.

Interest Rate Risk

We actively monitor the third-party depository institutions that hold our cash and cash equivalents. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities. Our emphasis is primarily on safety of

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principal while secondarily maximizing yield on those funds. To achieve this objective, we maintain our portfolio of cash equivalents and short-term and long-term investments in a variety of securities, including government and corporate securities and money market funds. These investments are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income, net of estimated tax.

Investment Risk

As of September 30, 2009, the carrying value of our cash and cash equivalents approximated their fair value and represented approximately 70% of our total cash, cash equivalents and investment portfolio, which was held primarily in bank deposits and money market funds. As of September 30, 2009, we held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or mortgage-backed securities.

Foreign Currency Risk

Our foreign currency exposure continues to evolve as we grow internationally. Our exposure to foreign currency transaction gains and losses is the result of certain net receivables due from our foreign subsidiaries and customers being denominated in currencies other than the U.S. dollar, primarily the Euro, British pound, Korean won and Australian dollar, in which our revenues and profits are denominated. A portion of these risks is hedged, but fluctuations could impact our results of operations, financial position, and cash flows.

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” 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

The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations and financial condition.

Our operating results may decline.

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:

• general economic conditions, including the possibility of a protracted recession in the U.S. and a worldwide economic slowdown; disruptions to the credit and financial markets in the U.S. and worldwide; and those economic conditions 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 service or communication software and products, especially when consumer spending is contracting;

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• the primary and secondary effects of previously announced and possible future changes to our pricing, products and policies, including, among other changes: a reduced emphasis on upfront fees (e.g., insertion fees for listings) and corresponding increases in success-based fees (e.g., final value fees for sold items); the discontinuation of certain optional seller listing features and loss of associated revenues; new algorithms for determining which listings appear at the top of searches; tighter seller standards, which may restrict some sellers from selling on our websites even if they have been able to do so historically; new restrictions or holds on payments made to certain sellers or in connection with certain categories of higher-risk transactions; new incentives and rewards for top PowerSellers, including pricing discounts; increased protection for buyers; lower insertion fees for, and extended duration of, listings of fixed-price items; shipping and handling limits on certain categories of items (e.g., media); requiring sellers to accept at least one approved payment method (and restricting sellers from referencing non-permitted payment methods, including paper forms of payment such as checks and money orders), on eBay.com in the U.S. for most categories of items; and recently implemented changes intended to drive more sales and improve seller efficiency, including, among others, the expansion of buyer incentives and loyalty programs, requiring sellers to provide additional key information intended to set buyer expectations and help reduce seller costs, changes to performance standards and/or rewards for sellers (including the creation of a new top-rated seller status) and changes to the dispute resolution process (including directing eBay buyers to resolve disputes with sellers through eBay instead of through PayPal);

• our ability to improve the quality of the user experience on our websites 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, and especially in the U.S., Germany and the U.K.;

• changes to our use of advertising on our sites, including changes in ad placement;

• our ability to successfully integrate and manage businesses that we acquire, including new needs to manage credit risks and bad debts following our acquisition of Bill Me Later in November 2008 and to manage competing marketplaces in Korea following our acquisition of Gmarket in June 2009;

• our ability to timely close the announced sale of Skype;

• consumer confidence in the safety and security of transactions using our websites or technology;

• our ability to manage the costs of 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);

• 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, online advertising or online communications;

• our ability to meet regulatory requirements as we expand the range and geographical scope of our services;

• the actions of our competitors, including the introduction of new sites, services, and products;

• our ability to manage the transaction loss rate on eBay and in our Payments business;

• our ability to manage funding costs and losses associated with our Bill Me Later business;

• the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our businesses, operations, and infrastructure;

• the costs and results of litigation that involves us;

• our ability to develop product enhancements, programs, and features 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 comply with the requirements of entities whose services are required for our operations, such as credit card networks and banks;

• the cost and availability of online and traditional advertising, and the success of our brand building and marketing campaigns;

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• 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 commerce and communication 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 marketing and promotion, customer support, protection programs, technology 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 our most established markets, such as the U.S., Germany and the U.K., have been declining. Despite our efforts to stem these declines, growth rates in these and other markets may not improve. As our penetration in established markets grows, 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. 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, our business will suffer.

In April and July 2009, we announced changes to our Marketplaces business intended to drive more sales and improve seller efficiency. 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. 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 will 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 rate. The expected future growth of our PayPal, Skype, StubHub, and other lower margin businesses may also cause downward pressure on our profit margins because those businesses have lower gross margins than our Marketplaces platforms.

An economic recession could harm our business.

Our Marketplaces and Payments businesses are dependent on consumer purchases. The current economic downturn has resulted in reduced buyer demand and reduced selling prices and may reduce the volume of purchases on our Marketplaces platforms and the volume of transactions paid for using our PayPal payment service, all of which would adversely affect our business. In addition, an economic downturn will likely adversely affect our advertising revenues and continue to require us to increase our reserves for bad debt and transaction losses. Continuing poor economic conditions will likely continue these trends.

We are exposed to fluctuations in currency exchange rates and interest rates.

Because we conduct a significant and growing portion 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

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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 net revenues, operating expenses, and net income will be negatively impacted if the U.S. dollar strengthens against foreign currencies, as happened in the second half of 2008. Net revenues in the nine months ended September 30, 2009 were negatively impacted by foreign currency translation of $463.9 million, compared to the same period of the prior fiscal year. Operating income for the nine months ended September 30, 2009 was negatively impacted by foreign currency translation of $221.2 million, compared to the same period of the prior fiscal year. As exchange rates vary, net sales 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, Australian dollar, Korean won or Canadian 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, and the Canadian dollar, 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, recent reductions in interest rates have reduced our investment income, including income we earn on PayPal customer balances, which in turn has materially lowered our net interest income.

Bill Me Later’s operations depend on services provided by CIT Bank.

We acquired Bill Me Later, a company that provides transaction-based credit, 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 CIT Bank (or another chartered financial institution) to extend credit to customers in order to offer the Bill Me Later service. When a consumer makes a purchase using the Bill Me Later service, CIT Bank funds the consumer loan at the point of sale and advances funds to the merchant. Bill Me Later subsequently purchases the receivable related to the consumer loan extended by CIT Bank. Although CIT Bank continues to own each customer account, Bill Me Later owns the related receivable and is responsible for all servicing functions related to the account. Any termination or interruption of CIT Bank’s services to us could result in an interruption to the Bill Me Later service. In July 2009, CIT Group, the parent company of CIT Bank, launched a restructuring plan, which it has subsequently amended. If CIT Group is unable to complete the restructuring plan, or if CIT Group’s financial condition otherwise significantly impairs CIT Bank’s financial condition or operations or if CIT Bank’s financial condition or operations are adversely affected for any reason, CIT Bank could be placed under FDIC receivership. In the event of a receivership, the FDIC as receiver could potentially terminate or suspend our commercial relationship with CIT Bank. Bill Me Later has put in place a similar arrangement with another chartered financial institution, but if such a termination or suspension occurs with no or little advance notice from the FDIC, Bill Me Later would be unable to originate any new transactions until the new arrangement was implemented, which might materially and adversely affect Bill Me Later’s business.

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. (where Tiffany & Co. is currently appealing the trial court ruling in favor of eBay), Rolex S.A. and Coty Prestige Lancaster Group GmbH in Germany, Louis Vuitton Malletier and Christian Dior Couture in France, 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 not for resale consumer products 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, or in connection with paid search advertisements, or for alleged violations of selective distribution channel laws or parallel import laws for listings of authentic items. Such plaintiffs seek, among other things, injunctive relief and damages. In the aggregate, these suits could result in significant damage awards and could adversely affect our business. In

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June 2008, the Paris Court of Commerce ruled in the Louis Vuitton Malletier and Christian Dior Couture cases 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 the 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 they are accessible from France. We have taken measures to comply with the injunction and have appealed these rulings. 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.

In addition to litigation from rights owners, we may be subject to regulatory, civil or criminal proceedings and penalties if the 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. For example, the German Federal Supreme Court has ruled that we may owe duties, under certain circumstances, to content owners and competitors relating to taking reasonable steps to prevent the listing of illegal, counterfeit, and pirated items. 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 law or effectively suspended users who have created such listings. We are constantly 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 arguments, 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 site, 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. Some of these ongoing suits are described under the heading “Item 1 — Legal Proceedings” above. We are a defendant in other 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 and Payments segments as our services expand in scope and complexity. 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.

The law relating to the liability of providers of online services for the activities of their users on their service is often challenged in the U.S. and internationally. 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, our Korean subsidiary, IAC, and one of its employees were found criminally liable for listings on the Korean subsidiary’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 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 sale of counterfeit items, the fencing of stolen goods, selective distribution channel laws, and distance selling laws.

Although we have prohibited the listing of 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

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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 unlawful goods and stolen goods using our services. This negative publicity, even if factually incorrect, 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 intellectual property, money laundering, bank fraud, child pornography trafficking, prohibited sales of alcoholic beverages or tobacco products, and online securities fraud. Recent changes in law have increased the penalties for intermediaries providing payment services for certain illegal activities. 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 adversely affect our 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 Commerce 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 the content in question was provided by users under eBay’s control and authority. 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 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. We currently face inquiries from government regulators in various jurisdictions related to actions that we have taken that are designed to improve the safety of transactions on our websites, most notably by requiring PayPal to be offered and/or used for certain high-risk transactions or by certain sellers in certain jurisdictions, and we may face similar inquires from other government regulators in the future. For example, 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. 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 current credit crisis, we expect new laws and regulations to be adopted that impose, among other things, additional obligations and restrictions on providers of credit. We are likely to receive additional inquiries from regulatory agencies in the future,

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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 business has expanded and our company has grown larger. 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 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. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming result in costly litigation, damage awards, injunctive relief, or increased costs of 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.

Failure to deal effectively with fraudulent transactions and customer disputes would increase our loss rate and harm our business.

Beginning in October 2008, buyers who pay for transactions on eBay.com with PayPal are protected on eligible transactions for the full amount of an item’s purchase price if the buyer does not receive the goods they purchased or if the goods differ significantly from what was described by the seller. Furthermore, U.S. sellers on eBay.com have received improved seller protection for eligible transactions in which the seller is paid with PayPal, in that they are covered against payment reversals due to buyer claims of an unauthorized payment or an item that was not received, so long as the seller follows specified shipping and handling practices. We have also enhanced our buyer and seller protections in certain eBay international marketplaces. These changes to PayPal’s buyer and seller protection program could result in future increases and fluctuations in our Payments transaction loss rate. For the full year ended December 31, 2008 and the three months ended September 30, 2009, our Payments transaction losses (including both direct losses and buyer protection payouts) totaled $171.5 million and $44.5 million, representing 0.29% and 0.25% of our net Total Payment Volume in each period, respectively. We have recently announced plans to change the dispute resolution process for transactions on eBay.com and eBay.co.uk, which are described in greater detail below under the heading “Changes to our dispute resolution program could increase our costs and loss rate” and could result in an increase in our 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 from merchant fraud, including claims from customers that merchants have not performed or that their goods or services do not match the merchant’s description. 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 credit card transactions and become excessive, they could potentially result in PayPal losing the right to accept credit cards for payment. If PayPal were unable to accept credit 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. Bill Me Later 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 reduce the profitability of Bill Me Later’s 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

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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 sometimes eBay can 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 limited buyer protection programs. The impact of recently announced changes to our dispute resolutions program is discussed in more detail below under the caption “Changes to our dispute resolution process could increase our costs and loss rate.”

Other than through these programs, eBay does not compensate users who believe they have been defrauded by other users, although 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 liability for third-party actions could be costly 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, diminish the value of our brand names. We believe that negative user experiences are one of the primary reasons users stop using our services.

Changes to our dispute resolution process could increase our costs and loss rate.

In April 2009, we announced plans to change the dispute resolution process (which we refer to as “resolutions”) for transactions on eBay.com and eBay.co.uk in which buyers claim the item was not received or the item they received was different from that described in the listing. Previously, buyers with an issue on our eBay.com and eBay.co.uk platform were generally required to contact the seller directly, and, if they are unable to resolve the issue, to start the resolutions process online via PayPal’s resolution center. We are in the process of transitioning to a new, on-eBay resolutions process provided by eBay customer support, which will serve as the primary entry point for buyers on eBay.com and eBay.co.uk who are unable to resolve their disputes with eBay sellers. Among other things, the new resolutions process provides that eBay will generally reimburse the buyer 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. We expect that our costs associated with resolutions will increase as we make these changes to our resolutions 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, our sellers. In addition, the eBay customer support team that will handle resolutions does not have the same experience in fraud detection as the PayPal customer support team, and we may therefore be susceptible to an increase in fraud and associated transaction losses and an increase in customer support expense as a result of these changes.

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. To the extent that any factors result in a net reduction in cross-border trade, including, among other factors, fluctuations in exchange rates, the application of specific national or regional laws (e.g., selective distribution channel laws and parallel import laws) to users in other countries, or any other factors impose restrictions on, or increase the costs of, shipping goods across national borders (including customs enforcement and tariffs), our business would suffer. We believe that increases in the relative value of the U.S. dollar versus other currencies in the first half of 2009 have reduced cross-border trade between U.S. sellers and foreign buyers, without a corresponding increase in cross-border traffic in the other direction, adversely affecting our business.

Our business is subject to online security risks, including security breaches and identity theft.

To succeed, online commerce and communications must provide a secure transmission of confidential information over public networks. Our security measures may not detect or prevent security breaches that could harm our business. Currently, a significant number of our users authorize us to bill their credit card accounts directly for all transaction fees charged by us. PayPal’s users routinely provide credit card and other financial information. We rely on encryption and authentication technology licensed from third

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parties to provide the security and authentication to effectively secure transmission of confidential information, including customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the technology used by us to protect transaction data. In addition, any party who is able to illicitly obtain a user’s password could access the user’s transaction data. An increasing number of websites have reported breaches of their security. Any compromise of our security could harm our reputation and, therefore, our business, and could result in a violation of applicable privacy and other laws. In addition, a party that is able to circumvent our security measures could misappropriate proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business. Under credit card rules and our contracts with our card processors, if there is a breach of credit card information that we store, or that is stored by PayPal’s direct credit card processing customers, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses. In addition, if we fail to follow credit 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 credit cards to fund their payments or pay their fees. If we were unable to accept credit cards, our business would be seriously damaged.

eBay’s Korean subsidiary, IAC, has notified a majority of 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 144,000 users have sued IAC over this breach in several lawsuits in Korean courts and we expect more to do so in the future. Trial for a group of four representative suits began in August 2009, and trial for a group of 23 other suits began in September 2009. These trials are expected to be completed in November 2009. 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. IAC intends to vigorously defend itself in these lawsuits. In December 2008, the Korea Consumer Agency (KCA) made a non-binding recommendation that IAC make payments of 50,000-100,000 Korean won (approximately $40-$80) to users who had complained to it as a result of such breach. IAC rejected this non-binding recommendation and did not make any payments, and this KCA process has ended even though the complainants may still file lawsuits in court.

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 made all or portions of our websites unavailable for periods of time (most recently involving our Korean IAC website in July 2009). 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 through “trojan horse” programs to our users’ computers. These emails appear to be legitimate emails sent by eBay, PayPal, Skype, or a user of one of those 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 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.

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Our revenue from advertising is subject to factors beyond our control.

We derive an increasing portion of our revenues 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 have recently changed the placement of ads on our sites, which may reduce the amount we are paid. If we experience a reduction in our advertising revenues due to economic, competitive, technological or other factors, including the worldwide economic slowdown, a reduction in revenue due to the renegotiation of the terms of our contracts with major advertising companies such as Yahoo!, Google and Microsoft, changes in our ad placement, or if we are unable to 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., Kijiji, Marktplaats and Den Blå Avis), StubHub, Skype, 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 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 our acquisition of Bill Me Later, a transactional credit provider, in November 2008 and StubHub, an online ticket marketplace, in February 2007, 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).

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, particularly in the U.S. and Europe. 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, 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

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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. A lawsuit alleging similar claims has been brought against us by two associations of French antique dealers. We intend to vigorously defend against these lawsuits. However, this 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 recent Louis Vuitton Malletier litigation for transactions on 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 light of the global financial crisis, federal lawmakers in Washington, D.C., have discussed the possibility of overhauling the U.S. financial regulatory system and making significant changes to regulations governing financial services. In the event that such changes are adopted, they could potentially result in PayPal becoming subject to one or more federal financial services regulators and eBay Inc. being regulated as a financial services holding company. Even if we do not become subject to regulation in the manner described in the preceding sentence, we could be subject to additional licensure requirements, laws and regulations and increased regulatory scrutiny, which would impose substantial costs on us and could require us to change our business practices in ways that would harm 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, 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 65 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 (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 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 an expedited “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

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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. Any such responses from these regulators could increase the cost of, or delay, PayPal’s plans for expanding its business.

In addition, the EU Payments Service Directive, which establishes a new regulatory regime for payment services providers, is due to take effect in November 2009. The interpretation of regulations implementing the EU Payments Service Directive remains uncertain.

In markets other than the U.S., EU, Australia and China, PayPal serves its customers through PayPal Private Ltd., a wholly-owned subsidiary of PayPal that is based in Singapore. In many of these markets, it is not clear whether PayPal’s Singapore-based service is subject to Singaporean law or, if it is subject to local laws, whether such local law requires a payment processor like PayPal to be licensed as a bank or financial institution or otherwise. Even if PayPal is not currently required to obtain a license in some jurisdictions, future localization or targeted marketing of PayPal’s service in those countries, or expansion of the financial products offered by PayPal to new jurisdictions (either alone, through a commercial alliance or through an acquisition), could subject PayPal to additional licensure requirements, laws and regulations and increased regulatory scrutiny. These factors could impose substantial costs and involve considerable delay to the provision or development of its 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 international 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 adopted a program to comply with these laws and regulations, any errors or failure to implement the program properly could lead to lawsuits, administrative action, and prosecution by the government. In the United States, PayPal is also 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. Future regulations under the USA PATRIOT Act may require PayPal to revise the procedures it uses to verify the identity of its customers and to monitor international transactions more closely. PayPal has localized its service in a number of other countries and as a result is subject to additional verification and reporting requirements, which in some cases are more stringent. Several countries, including Australia, Luxembourg and Singapore, have recently implemented new anti-money laundering and counter-terrorist financing laws and regulations, and PayPal has had to make changes to its procedures accordingly. As PayPal continues to localize its services in additional jurisdictions, the impact of these varying laws and regulations on PayPal’s business is uncertain. PayPal could be required, among other things, to learn more about its customers before opening an account, to obtain additional verification of customers and to monitor its customers’ activities more closely. These requirements could impose significant costs on PayPal, make it more difficult for new customers to join its network and reduce the attractiveness of its product. 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.

To date, PayPal has obtained licenses to operate as a money transmitter in 42 U.S. states and territories and interpretations in seven states that licensing is not required under their existing statutes. The remaining U.S. states and territories 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.

        Although there have been no definitive interpretations to date, PayPal has assumed that its service is subject to the Electronic Fund Transfer Act and Regulation E of the Federal Reserve Board. As a result, among other things, PayPal must provide advance disclosure of changes to its service, follow specified error resolution procedures and reimburse consumers for losses above $50 from transactions not authorized by the consumer. PayPal currently voluntarily reimburses consumers for all financial losses from transactions not authorized by the consumer, not just losses above $50. 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. Our Bill Me Later service is similarly subject to a variety of laws and regulations. Although Bill Me Later does not originate loans, one or more jurisdictions may conclude that Bill Me Later is a lender or money transmitter or loan broker, which could subject us to liability or regulation in one or more jurisdictions. Additionally, federal regulators could mandate changes to the relationship between Bill Me Later and CIT Bank, the financial institution that Bill Me Later relies on to extend credit to customers with the Bill Me Later service. Any termination or interruption of CIT Bank’s services to us could result in an interruption of Bill Me Later service, as described in “Bill Me Later’s operations depend on CIT Bank” above.

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Changes to credit card networks or bank fees, rules, or practices could harm PayPal’s business.

PayPal does not belong to or directly access credit card networks, such as Visa and MasterCard. 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, credit card networks have 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 credit 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. These increased fees increase PayPal’s operating costs and reduce its profit margins. PayPal is also required by its processors to comply with credit card network operating rules, and PayPal has agreed to reimburse its processors for any fines they are assessed by credit card networks as a result of any rule violations by PayPal or PayPal’s customers. The credit card networks set and interpret the credit card rules. Credit 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. As a result, PayPal could lose its ability to give customers the option of using credit cards to fund their payments. If PayPal were unable to accept credit 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 credit card networks’ special operating rules for Internet payment services. PayPal and its credit 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 credit card networks’ discretion. PayPal also could be subject to fines from credit 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 credit card networks and conduct additional monitoring with respect to such merchants. PayPal has incurred fines from its credit card processor 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 credit cards or changes in PayPal’s process for registering new customers, which would seriously damage PayPal’s business.

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 CIT Bank in 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. The proportion of PayPal’s payment volume funded using credit cards has increased over time. In addition, some of PayPal’s offerings, including the ability 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. 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, and communicate more information regarding protection programs to users. At the same time, PayPal announced that it had reached a preliminary settlement agreement under which it agreed to pay approximately $3.5 million into a settlement fund for the benefit of a class represented by plaintiffs in a suit that alleged, among other things, that PayPal’s disclosure regarding the effects of users’ choice of funding mechanism was deceptive. This settlement has been approved by the court.

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 accurately customer funds could diminish customer use of PayPal’s product severely.

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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, and our PayPal website has suffered intermittent unavailability for periods as long as five days, most recently for approximately five hours in August 2009. In August 2007, Skype experienced an interruption during which the majority of Skype’s users were unable to use its products for approximately two days. 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 entity, 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, computer viruses, computer denial-of-service attacks, and similar events. Some of our systems, including our Shopping.com and Skype websites 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 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.

There are many risks associated with our international operations.

Our international expansion has been rapid and our international business, especially in Germany and the U.K., has also become critical to our revenues and profits. Net revenues outside the U.S. accounted for approximately 54% of our net revenues in both fiscal year 2008 and the first nine months of 2009. Expansion into international markets requires management attention and resources and requires us to localize our services to conform to local cultures, standards, and policies. The commercial, Internet, and transportation infrastructure in lesser-developed countries may make it more difficult for us to replicate our traditional Marketplace business model. 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 for at least 12 months in most countries.

As we continue to expand internationally, including through the expansion of PayPal, Shopping.com, and our classified businesses, we are increasingly subject to risks of doing business internationally, including the following:

• strong local competitors;

• regulatory requirements, including regulation of Internet services, communications, 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;

• laws and business practices that favor local competitors or prohibit foreign ownership of certain businesses;

• difficulties in integrating with local payment providers, including banks, credit and debit card networks, and electronic fund transfer systems or with the local telecommunications infrastructure;

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• differing levels of retail distribution, shipping, communications, and Internet infrastructures;

• different employee/employer relationships and the existence of workers’ councils and labor unions;

• difficulties in staffing and managing foreign operations;

• challenges associated with joint venture relationships, 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 telecommunications and 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;

• profit repatriation restrictions, foreign currency exchange restrictions, and exchange rate fluctuations;

• 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; 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, repatriating money without adverse tax consequences, and 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 are continuing to expand PayPal’s services internationally. In some countries, expansion of PayPal’s business may require a close commercial relationship with one or more local banks, a shared ownership interest with a local entity or registration as a bank under local law. Such requirements may reduce our profitability or limit the scope of our activities in particular countries. Any limitation on our ability to expand PayPal internationally could harm our business.

We maintain a portion of Shopping.com’s research and development facilities and personnel in Israel, and in January 2008 we acquired Fraud Sciences Ltd., an Israeli company. As a result, 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 and joint ventures could result in operating difficulties, dilution, and other harmful consequences.

We have acquired a number of businesses in the past, including, most recently, Gmarket in Korea, Bill Me Later in the United States and Den Blå Avis and BilBasen, classified businesses in Denmark. In September 2009, we signed an agreement to sell a majority of Skype and retain an equity stake of approximately 35%. 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. At any given time we may be engaged in discussions or negotiations with respect to one or more of these types of

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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:

• 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 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. For example, in connection with the Skype transaction, we recorded a goodwill impairment charge of approximately $1.4 billion in our financial statements during 2007. 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, any of which could reduce our profitability and harm our business.

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. These investments may involve risks. For example, 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.

Bill Me Later’s operations expose us to new risks.

Risks associated with Bill Me Later’s reliance on CIT Bank are discussed in detail under the caption “Bill Me Later’s operations depend on CIT Bank” above.

Bill Me Later relies on third-party merchant processors and payment gateways to process transactions using the Bill Me Later service. For the nine months ended September 30, 2009, approximately 82% 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.

We currently fund the purchase of receivables related to Bill Me Later accounts through free cash flow generated from our portfolio of businesses and from our existing credit agreement. Our existing credit agreement may be adversely affected by the impact of current financial conditions on our counterparties. Our ability to securitize receivables related to Bill Me Later accounts has been effectively eliminated by recent disruptions in the credit industry. If we are unable to fund receivables related to the Bill Me Later business adequately or in a cost-effective manner, the growth and profitability of the Bill Me Later business could be significantly and adversely affected.

The Bill Me Later service is offered to a wide range of consumers, and the profitability of this business depends on our ability to manage credit risk while attracting new consumers with profitable usage patterns. Bill Me Later approves loans using proprietary segmentation and credit scoring algorithms and other analytical techniques designed to analyze the credit risk of the specific transaction. 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. Bill Me Later may also incorrectly interpret the data produced by these algorithms in setting its credit policies. Bill Me Later’s ability to manage credit risk may also be adversely affected by economic conditions, legal or regulatory changes (such as bankruptcy laws and minimum payment regulations), competitors’ actions and consumer behavior and other factors. In addition, the credit crisis and current recession in the U.S. may affect consumer confidence levels and reduce consumers’ ability or willingness to use credit, including our transaction-based credit product, which could impair the growth of the Bill Me Later business.

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As of September 30, 2009, Bill Me Later had an aggregate consumer loan portfolio of approximately $511.8 million. Like other businesses with significant exposure to losses from consumer loans, the Bill Me Later service faces the risk that account holders will default on their payment obligations, resulting in accounts becoming uncollectible, and the risk of potential charge-offs related to the loan portfolio. The rate at which accounts are charged off as uncollectible, or the credit loss rate, was approximately 11.53% for the three months ended September 30, 2009. 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 loans often fail to repay them, and consumers who file for protection under the bankruptcy laws generally do not repay their loans. The age and rate of growth of a consumer loan portfolio also affects the rate of missed payments and loans charged off as uncollectible. Consumers are less likely to miss their payments within the first 12 to 18 months of a loan’s term. When a lender makes fewer loans than it has in the past, the proportion of new loans in its portfolio will decrease and the rate of missed payments and charge-offs in the portfolio will increase, which has been the case with Bill Me Later.

In addition, Bill Me Later faces 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 described 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, banking and lending, it could be subject to liability, licensure and regulatory approval and may be forced to change its business practices.”

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 growth of the Internet and ecommerce. In many cases, it is not clear how existing statutes apply to the Internet or ecommerce or communications conducted over the Internet. In addition, some jurisdictions have implemented or may implement laws specifically addressing the Internet or some aspect of electronic commerce or communications on the Internet. 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, which was recently upheld by a lower level New York court. Some states are considering similar legislation related to affiliate activities. While the new law in New York does not specifically apply to our businesses, the proliferation of such state legislation could adversely affect some of our sellers at some point in the future 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 distant sales tax by out-of-state sellers — bills have been introduced in the U.S. Congress to overturn the Supreme Court’s Quill decision, which limits the ability of state governments to require sellers outside of their own state to collect and remit sales taxes on goods purchased by in-state residents. Such legislation may be considered by the U.S. Congress as a way to enable states to increase sales tax revenues and help address significant state budget difficulties caused by the economic downturn. The adoption of any legislation overturning the Quill decision that lacks a robust small business exemption would result in the imposition of sales taxes, as well as costs associated with complex sales tax collection, remittance and audit compliance requirements on our sellers, 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 has filed suit to enforce collection of taxes they claim 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 has requested reconsideration of this ruling and StubHub has sought clarification of the ruling relative to the remaining counts as well. In August 2009, the court granted StubHub’s motion for reconsideration and entered a final order dismissing the case. In September 2009, the City of Chicago filed an appeal which is pending. The application of similar existing or future laws could have adverse effects on 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 or communications through 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 was 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.

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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 like PayPal to report to the IRS information on payments received by some of our customers. The legislation, effective for payments received after December 31, 2010, will require PayPal and similar companies to report to the IRS U.S.-based customers who receive more than $20,000 in payments and more than 200 payments in a year. This law will require PayPal to request tax ID numbers from U.S. users and track payments by tax ID number. This requirement may decrease seller activity and 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.

The recently announced transaction pursuant to which we will sell a majority of Skype (retaining an approximately 35% interest) is subject to closing conditions and may not close.

Our sale of Skype is subject to a number of closing conditions, including receipt of antitrust approvals. If these conditions are not satisfied or waived, the transaction could be delayed or not take place.

The current regulatory environment for Internet communications is uncertain, and Skype’s business could be harmed by new regulations or the application of existing regulations to its products.

The current regulatory environment for Internet communications is uncertain and rapidly changing. Skype believes that its Internet communications products are currently subject to few, if any, of the same regulations that apply to traditional telephony and Voice over Internet Protocol (VoIP)-based telephone replacement services. Internet communications companies are generally subject to different regulatory regimes in different countries, and in most cases are subject to lower, or no, regulatory fees and lesser, or no, specific regulatory requirements. However, the status of Internet communications providers is uncertain in many jurisdictions and Skype frequently must respond to inquiries about its regulatory status. Regulatory agencies may require Skype to conform to rules that are difficult or impossible for it to comply with due to the nature of its communications technologies, which could adversely affect its business. For example, while suitable alternatives may be developed in the future, Skype is currently unable to identify the exact geographic origin of the traffic traversing the Internet or to provide detailed calling information about computer-to-computer communications, either of which may make complying with future regulatory requirements, such as emergency calling services requirements, which require traditional and telephony and VoIP-based providers to be able to determine and provide the location of a person making an emergency call in many jurisdictions, difficult or impossible.

Some countries have prohibited Skype. In many countries in which Skype products are available, the laws that may relate to its offerings are unclear. We cannot be certain that Skype or its customers are currently in full compliance with regulatory or other legal requirements in all countries in which Skype is used. Skype’s failure or the failure of those with whom Skype transacts business to comply with these requirements could materially adversely affect our business, financial condition and results of operations. In addition, increased regulatory requirements on Internet communications would increase Skype’s costs, and, as a result, our business would suffer.

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New rules and regulations with respect to Internet communications are being considered in various countries around the world, and at least some of these rules and regulations are likely to be adopted and to be applicable to Skype. Such new rules and regulations are likely to increase our costs of doing business and could prevent us from delivering our products and offerings over the Internet, which could adversely affect Skype’s customer base, and thus its revenue.

Skype depends on key technology that is licensed from third parties.

Skype licenses technology underlying certain key components of its software from third parties it does not control, including the technology underlying its peer-to-peer architecture and firewall traversal technology and the video compression/decompression used to provide high video quality. Although Skype has contracts in place with its third-party technology providers, there can be no assurance that the licensed technology or other technology that we may seek to license in the future will continue to be available on commercially reasonable terms, or at all. The loss of, or inability to maintain, existing licenses could result in a decrease in service quality or loss of service until equivalent technology or suitable alternatives can be developed, identified, licensed and integrated. While we believe Skype generally has the ability to either extend these licenses on commercially reasonable terms or identify and obtain or develop suitable alternatives, the costs associated with licensing or developing such alternatives could be high and the technical challenge of assuring “backward compatibility” with older versions of Skype’s technology may be difficult to overcome. Any failure to maintain these licenses on commercially reasonable terms or to license or develop alternative technologies would harm Skype’s business.

In March 2009, Skype filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited, a licensor of certain peer-to-peer communication technology used in Skype’s business. Following the filing of the claim, Joltid purported to terminate the license agreement between the parties. See “Item 1 — Legal Proceedings” above.

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 lines for our offerings, by filtering, blocking, delaying, or degrading the packets containing the data associated with our products, or by charging increased fees to us or our users for use of their lines to provide our offerings. Some of these providers have contractually restricted their customers’ access to Internet communications offerings (which would include Skype) through their terms of service with their customers. These activities are technically feasible and may be permitted by applicable law. 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. 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 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, and some jurisdictions prohibit the resale of event tickets at prices above the face value of the tickets, and new laws and regulations imposing these or other restrictions may be adopted that would limit our or our users’ ability to continue 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.

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 also 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 site and has adversely affected revenue and profits. Our tickets business also faces significant competition from a number of sources, including ticketing service companies (such as TicketMaster, Live Nation 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 TicketMaster) and RazorGator. In addition, ticketing service companies and event organizers have recently begun to issue event

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tickets through paperless (electronic) ticketing systems that include restrictions on the transferability of such event tickets. 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. In 2008, we changed our Chief Executive Officer and the heads of all three of our business units. These changes may result in increased attrition of our personnel as new reporting relationships are established and as other companies may increasingly target our executives. 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. Our new 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.

In the fourth quarter of 2008, we undertook a plan to reduce our global workforce to simplify and streamline our organization, improve our cost structure and strengthen our overall businesses. These changes have resulted in the recording of related accounting charges and could harm employee morale and productivity and be disruptive to our business.

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 credit card and bank clearing networks. Similarly, Bill Me Later 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, and thereby harm 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 one of these companies could also adversely affect our customers and harm our business.

In October 2009, U.K. postal workers voted in favor of and commenced, a series of rolling nationwide strikes that are expected to significantly disrupt the operation of the Royal Mail (the U.K. postal service). Depending on their duration and the resulting disruption to the Royal Mail, these strikes (and related labor actions) could potentially have a significant and adverse effect on Marketplaces and Payments businesses in the U.K., due to the higher cost of alternative delivery services.

In addition, we have outsourced certain functions to third-party outside 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 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, and there can be no assurance that third parties who provide services directly to our users will continue to do so at reasonable rates or at all. In addition, the current recession in the U.S. and a worldwide economic slowdown may impact the ability of our outside service providers to fulfill their obligations to us or our users.

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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 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 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. 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, 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 as a whole.

Our industry is intensely competitive, and other companies or governmental agencies may allege that our behavior is anti-competitive.

Marketplaces

Marketplaces businesses currently or potentially compete with a number of companies providing both particular categories of goods and 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 are 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 a nominal cost using commercially available software or partnering with any one of a number of successful ecommerce companies.

Our broad-based 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. Among others, these include: Wal-Mart, Target, Sears, Macy’s, JC Penney, Costco, Office Depot, Staples, OfficeMax, Sam’s Club, Amazon.com, Buy.com, AOL.com, Yahoo! Shopping, MSN, QVC, and Home Shopping Network.

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 Base, Oodle.com and a number of International websites operated by Schibsted ASA. Our classifieds websites, including Kijiji, Marktplaats, mobile.de, Gumtree, Den Blå Avis and BilBasen 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.

In 2005, we acquired Shopping.com Ltd., an 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 begin requiring more uniformity 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 and Yahoo!. We use product search engines and paid search advertising to channel users to our sites, but these services also have the potential to divert users to other online shopping destinations.

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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 Computers, Consumer Electronics, and Cameras & Photo category include: Abt Electronics, Amazon.com, Apple, B&H Photo, Best Buy, Buy.com, CNET, CompUSA, Computer Discount Warehouse, Crutchfield, Dell, Electronics Boutique, Fry’s Electronics, Gamestop, Gateway, Hewlett Packard, J&R Music and Computer World, Lenovo, MicroWarehouse, Overstock.com, PC Connection, PCMall.com, Radio Shack, Ritz Camera, Sony, Tech Depot, Tiger Direct, Tweeter Home Entertainment, uBid, major wireless carriers, and a variety of online and offline computer, consumer electronics, and photography 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 Price Minister in France, Tradus (owned by Naspers) in Poland, Yahoo-Kimo in Taiwan, Lotte, Naver and 11^th Street in South Korea, Trading Post, OZtion and Aussie Bidder in Australia, and Amazon 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.

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.

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 trading services 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 have offered services for free and others may do this as well. We may be unable to compete successfully against current and future competitors. In addition, certain offline competitors 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. The adoption by manufacturers or government authorities of policies or regulations discouraging the sales of goods or services over the Internet could force eBay users to stop selling certain 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 brand. 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 a number of our sellers, and which could harm our profitability.

Conversely, 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. Such claims, even if without foundation, typically are very expensive to defend, involve negative publicity and 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 safety of transactions on our websites. Beginning in June 2008, we have required users in the UK to offer PayPal as a payment alternative on most transactions on our localized UK website, and since October 2008, we require 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

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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. We currently face inquiries from government regulators in various jurisdictions related to such actions. For example, 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 them 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. Any negative reaction 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. In addition, certain competitors may offer or continue to offer free shipping or other transaction related services, which could be impractical or inefficient for eBay sellers to match. New technologies may increase the competitive pressures by enabling our competitors to offer a lower cost service.

Although we have established Internet traffic arrangements with several large online services and search engine companies, these arrangements may not be renewed on commercially reasonable 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 services. 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 our access, 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 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:

• credit card merchant processors that offer their services to online merchants, including American Express, Chase Paymentech, First Data, and Wells Fargo; and payment gateways, including CyberSource and Authorize.net (which has merged with CyberSource);

• money remitters such as MoneyGram and Western Union;

• 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, including Acculynk, eBillMe, Revolution Money and TeleCheck, a subsidiary of First Data, or to pay on credit;

• 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 and GreenDot;

• mobile payments, including Obopay, Amazon Payments, Boku, Crandy, 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; and

• Payment services targeting users of social networks and online gaming, including Facebook and Hi5 credits, PlaySpan and Zong.

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 effectively than PayPal. Some of these competitors may also be subject to lesser licensing, anti-money laundering, and other regulatory requirements than PayPal, which is subject to additional regulations based on 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.

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Overseas, PayPal faces competition from similar channels and payment methods. In each country, numerous banks provide standard online credit card acquiring and processing services, and these banks typically have leading market share. In addition, PayPal faces competition from Visa’s Visa Direct, MasterCard’s MoneySend, Royal Bank of Scotland’s World Pay, ClickandBuy and UKash in the EU, NOCHEX and Moneybookers in the United Kingdom, Sofortüberweisung in Germany, CertaPay and HyperWallet in Canada, Paymate, BPay and POLI in Australia, Alipay, YeePay and 99 Bill in China and Inicis in South Korea. In addition, in certain countries, such as Germany 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.

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.

Skype

        The market for Skype’s products is also intensely competitive and characterized by rapid technological change. We expect Skype’s various communications competitors, including, for example, the providers of online communications products and telecommunications operators, to continue to improve the performance of their current products and introduce new products, software, services and technologies. Many telecommunications firms offer “bundled” services, where a group of services that may include cable or satellite television, internet services (e.g., cable modem or DSL), and telecommunications are offered for a single monthly price. If Skype’s competitors successfully introduce new products, offer “bundled” services or enhance their existing products, or reduce the pricing for their products this could reduce the market for Skype’s products, increase price competition, or make Skype’s products obsolete, which could lower Skype’s adoption rates, decrease its ability to attract new users or cause its current users to migrate to a competing company.

Additionally, several of Skype’s current and potential competitors have longer operating histories, are substantially larger, and have greater financial, marketing, technical, and other resources. Some also have greater name recognition and a larger installed base of customers than Skype has.

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 been seasonal 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 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:

• Website Usability. User activity rates on our websites depend in part on the quality of our users’ experiences on those sites. The rapid growth in the number and complexity of products and features on our sites has occasionally caused users to become confused or overwhelmed or has otherwise impaired users’ experiences on those sites. We are in the process of making numerous improvements to our eBay websites, including an attempt to improve the user experience on those websites. These attempts at improvement could fail, or could decrease activity among users who had grown used to or preferred the existing experience on our sites. Any impairment of customer satisfaction as a result of site usability issues could lead to a loss of customers or impair our ability to add customers, either of which would harm our business.

• Website Stability. We must constantly add new hardware, update software and add new engineering personnel to accommodate the increased use of our and our subsidiaries’ websites and the new products and features we regularly introduce. 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 to accommodate

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increased traffic or transaction volume 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 Interface, or API, and delays in reporting accurate financial information. 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.

• 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 any of our websites would harm our business and our ability to collect revenue.

• Customer Support. We seek to become more efficient in providing our customer support operations. 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 not successful 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 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 has been a proposal 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. 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.

We depend on the continued growth of online commerce and communications.

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 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. 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, and we are unable to gain efficiencies in our operating costs, including our cost of acquiring new customers, our business could be adversely impacted.

56

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.

We may be unable to protect or enforce our own intellectual property rights adequately.

        We regard the protection of our trademarks, copyrights, patents, 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, 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. These 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. 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 trademarks, patents, and domain names in an increasing number of jurisdictions, a process that is expensive and may not be successful in every location. For example, Skype is in the process of applying to register the Skype name as a trademark worldwide. In the EU, Skype’s application is being opposed. If these oppositions to Skype’s applications were to be successful, Skype’s ability to protect its brand against third-party infringers would be compromised. 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 act, 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. 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 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

None.

57

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Submission of Matters to a Vote of Security Holders

None

Item 5: Other Information

None.

Item 6: Exhibits

Exhibit 2.01*‡	Agreement for the Sale and Purchase of the Entire Share Capital of Skype Luxembourg Holdings S.A.R.L., Skype Inc. and Sonorit Holding, A.S., dated as of September 1, 2009 (as amended as of September 14, 2009, the “Purchase Agreement”), by and among eBay Inc., eBay International AG, Sonorit Holding, A.S. and Springboard Group S.A.R.L (formerly SLP III Cayman DS IV Holdings S.A.R.L.).
Exhibit 12.01	Statement regarding computation of ratio of earnings to fixed charges.
Exhibit 31.01	Certification of eBay’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.02	Certification of eBay’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.01	Certification of eBay’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.02	Certification of eBay’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

* Certain portions of this exhibit have been omitted and have been filed separately with the SEC pursuant to a request for confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934.

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities and Exchange Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

‡ The summary disclosure above and the Purchase Agreement are being furnished to provide information regarding the terms of the sale of the Skype Companies and the Purchase Agreement. No representation, warranty, covenant or agreement described in the summary disclosure or contained in the Purchase Agreement is, or should be construed as, a representation or warranty by eBay to any investor, or covenant or agreement of eBay with any investor. The representations, warranties, covenants and agreements contained in the Purchase Agreement are solely for the benefit of eBay and the Buyer, may represent an allocation of risk between the parties, may be subject to standards of materiality that differ from those that are applicable to investors and may be qualified by disclosures between the parties.

58

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: October 27, 2009
	Principal Financial Officer:
	By:	/s/ Robert H. Swan
		Robert H. Swan
		Senior Vice President and Chief Financial Officer
Date: October 27, 2009
	Principal Accounting Officer:
	By:	/s/ Phillip P. DePaul
		Phillip P. DePaul
		Vice President, Chief Accounting Officer
Date: October 27, 2009

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INDEX TO EXHIBITS

Exhibit 2.01*‡	Agreement for the Sale and Purchase of the Entire Share Capital of Skype Luxembourg Holdings S.A.R.L., Skype Inc. and Sonorit Holding, A.S., dated as of September 1, 2009 (as amended as of September 14, 2009, the “Purchase Agreement”), by and among eBay Inc., eBay International AG, Sonorit Holding, A.S. and Springboard Group S.A.R.L (formerly SLP III Cayman DS IV Holdings S.A.R.L.).
Exhibit 12.01	Statement regarding computation of ratio of earnings to fixed charges.
Exhibit 31.01	Certification of eBay’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.02	Certification of eBay’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.01	Certification of eBay’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.02	Certification of eBay’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

* Certain portions of this exhibit have been omitted and have been filed separately with the SEC pursuant to a request for confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934.

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities and Exchange Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

‡ The summary disclosure above and the Purchase Agreement are being furnished to provide information regarding the terms of the sale of the Skype Companies and the Purchase Agreement. No representation, warranty, covenant or agreement described in the summary disclosure or contained in the Purchase Agreement is, or should be construed as, a representation or warranty by eBay to any investor, or covenant or agreement of eBay with any investor. The representations, warranties, covenants and agreements contained in the Purchase Agreement are solely for the benefit of eBay and the Buyer, may represent an allocation of risk between the parties, may be subject to standards of materiality that differ from those that are applicable to investors and may be qualified by disclosures between the parties.

60

EX-2.01

Exhibit 2.01

Confidential Treatment

EBAY INC.

AND

EBAY INTERNATIONAL AG

AND

SONORIT HOLDING, A.S.

AND

SPRINGBOARD GROUP S.À.R.L.

(FORMERLY SLP III CAYMAN DS IV HOLDINGS S.À.R.L.)

AGREEMENT FOR THE SALE AND

PURCHASE OF THE ENTIRE SHARE CAPITAL OF

SKYPE LUXEMBOURG HOLDINGS S.À.R.L.,

SKYPE INC.,

CAMINO NETWORKS, INC.

AND

SONORIT HOLDING, AS

[redacted] = Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission.

TABLE OF CONTENTS

Clause		Page
1.	INTERPRETATION	1
2.	SALE AND PURCHASE	14
3.	CONDITIONS; COMPLETION; TERMINATION	14
4.	THE SELLERS’ WARRANTIES	18
5.	THE BUYER’S WARRANTIES; CERTAIN UNDERTAKINGS OF THE BUYER	18
6.	CERTAIN UNDERTAKINGS OF THE SELLERS	20
7.	FINANCING	23
8.	JOLTID LITIGATION	25
9.	OTHER SPECIFIED LEGAL PROCEEDINGS	26
10.	TAX	27
11.	EMPLOYEE ISSUES	29
12.	CONFIDENTIAL INFORMATION	30
13.	ANNOUNCEMENTS	33
14.	COSTS	34
15.	ENTIRE AGREEMENT	34
16.	GENERAL	35
17.	ASSIGNMENT	37
18.	NOTICES	37
19.	ACCESS TO BOOKS AND RECORDS	38
20.	GOVERNING LAW AND JURISDICTION	39
21.	SERVICE OF PROCESS	39
22.	COUNTERPARTS	40
SCHEDULE 1 INFORMATION ABOUT THE GROUP COMPANIES

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SCHEDULE 2	CONDITIONS TO COMPLETION	41
SCHEDULE 3	COMPLETION REQUIREMENTS	43
SCHEDULE 4	SELLERS’ WARRANTIES	46
SCHEDULE 5	LIMITATIONS ON THE SELLERS’ LIABILITY	62
SCHEDULE 6	BUYER’S WARRANTIES	68
SCHEDULE 7	ACTION PENDING COMPLETION	72
SCHEDULE 8	LEASEHOLD PROPERTIES
SCHEDULE 9	TAX COVENANT	75
SCHEDULE 10	BUYER’S PRE-COMPLETION SHAREHOLDERS
SCHEDULE 11	CERTAIN DEFINITIONS

ii

LIST OF ANNEXES

Annex A	-	Form of Seller Subordinated Note
Annex B	-	Shareholders Agreement Term Sheet
Annex C	-	Tax Cooperation Term Sheet
Annex D	-	Form of Transitional Services Agreement
Annex E	-	Knowledge
Annex F	-	Certain Specified Antitrust Jurisdictions
Annex G	-	PayPal Agreement Term Sheet
Annex H	-	Additional Disclosed Information
Annex I	-	Form of Office Transition Agreement
Annex J	-	Form of Cross-License Agreement

iii

THIS AGREEMENT is made on 1 September 2009, as amended on 14 September 2009

AMONG:

(1) EBAY INC., a company incorporated under the laws of Delaware, having its corporate headquarters at 2145 Hamilton Avenue, San Jose, California, 95125, United States (“Parent”); and

(2) EBAY INTERNATIONAL AG, a Swiss company, having its registered office at Helvetiastrasse 15/17, CH-3005, Bern, Switzerland (“International”); and

(3) SONORIT HOLDING, AS, a Norwegian company, having its registered office at P.O. Box 2374 Solli, O204 Oslo, Norway (“Sonorit Holding”); and

(4) SPRINGBOARD GROUP S.À.R.L. (FORMERLY SLP III CAYMAN DS IV HOLDINGS S.À.R.L.), a Luxembourg private limited liability company (société à responsabilité limitée), having its registered office at 65 Boulevard Grande-Duchesse Charlotte, L-1331 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B 141.496 (the “Buyer”).

THE PARTIES AGREE as follows:

1. INTERPRETATION

1.1 In this Agreement:

“Accounts” means the audited combined financial statements of the Group Companies (comprising a balance sheet, a profit and loss account and a statement of cash flows) for the financial periods ended on 31 December 2006, 31 December 2007 and 31 December 2008 together, in each case, with the notes thereto, as attached in Schedule B of the Disclosure Letter;

“Act” means the Companies Act 2006 or the Companies Act 1985 (as amended) as applicable;

“Affiliate” means, in relation to any person, a direct or indirect subsidiary undertaking of such person, a direct or indirect parent undertaking of such person or a direct or indirect subsidiary undertaking of such parent undertaking;

“Agreed Rate” means five per cent above the base rate from time to time of Barclays Bank PLC;

“Applicable Accounting Principles” has the meaning set out in clause 2.5.1;

“Business” means the businesses of the Group Companies as conducted at the date of this Agreement and at the Completion Date;

“Business Day” means a day other than: (a) a Saturday or Sunday; or (b) a public holiday in New York, England and Wales or in Luxembourg (and “Business Days” means more than one Business Day);

1

“Buyer’s Completion Certificate” has the meaning set out in paragraph 2.4 of Schedule 3;

“Buyer Confidential Information” has the meaning set out in clause 12.1;

“Buyer’s Group Undertakings” means:

(1) on the date of this Agreement and for the period up to, including and after the Completion Date: (i) the Buyer; (ii) an undertaking which is a direct or indirect subsidiary undertaking or a direct or indirect parent undertaking of the Buyer; or (iii) a direct or indirect subsidiary undertaking of a parent undertaking of the Buyer; and

(2) following the Completion Date, each of the persons identified in clause “(1)” above and each Group Company (and “Buyer’s Group Undertaking” means any one of the Buyer’s Group Undertakings);

“Buyer’s Pre-Completion Shareholders” means those persons listed in Schedule 10;

“Buyer’s Solicitors” means Sullivan & Cromwell LLP of 1 New Fetter Lane, London EC4A 1AN, United Kingdom;

“Buyer’s Warranties” means the statements contained in Schedule 6 and in the Buyer’s Completion Certificate (and “Buyer’s Warranty” means any one of the Buyer’s Warranties);

“Camino” means Camino Networks, Inc., a Delaware corporation and wholly owned subsidiary undertaking of Sonorit Holding;

“Camino Shares” means the 5,000,000 shares of common stock, par value $.001 each, in the share capital of Camino;

“Claim Notice” has the meaning set out in paragraph 6.1.1 of Schedule 5;

“Code” has the meaning set out in Schedule 9;

“Company” means Skype Technologies S.A., a Luxembourg public limited company (société anonyme), having its registered office at 22/24, boulevard Royal, L-2449 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg Trade and Companies Register under number B 96677;

“Completion” means the completion of the simultaneous sale and purchase of the Shares in accordance with this Agreement, including the issuance of the Rollover Shares by the Buyer to International;

“Completion Date” means the later of: (a) 20 Business Days after the date of execution of this Agreement; or (b) the second Business Day following the day on which the last of the conditions listed in Schedule 2 (other than those conditions that by their nature are to be satisfied at Completion, but subject to the satisfaction or waiver of those conditions) shall have been satisfied or waived in accordance with this Agreement, or such other date as may be agreed in writing between the Buyer and the Sellers;

2

“Confidential Information” has the meaning set out in clause 12.1;

“Confidentiality Agreements” means the confidentiality agreements entered into between Parent and the Buyer’s Pre-Completion Shareholders (or Affiliates thereof) in connection with the Transactions;

“Continuing Employees” has the meaning set out in clause 11.1;

“Continuing Parent Performance Guarantees” has the meaning set out in clause 5.2 (and “Continuing Parent Performance Guarantee” means any one of the Continuing Parent Performance Guarantees);

“Copyrights” means published and unpublished works of authorship, whether copyrightable or not (including databases and other compilations of information, mask works and semiconductor chip rights, computer and electronic data processing programs, operating programs and software, both source code and object code, flow charts, diagrams, descriptive texts and computer print-outs), copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof;

“Data Room Information” means the documents and information contained in the online data room established in relation to the Group Companies and/or the Transactions as of 11:59 p.m., Pacific Time, on August 29, 2009 and as contained on one or more CD-ROMs, or other digital media, identified as such and distributed to the parties;

“Debt Commitment Letters” has the meaning set out in paragraph 4.1 of Schedule 6;

“Debt Financing” has the meaning set out in paragraph 4.1 of Schedule 6;

“Definitive Financing Documents” means all agreements and other legally binding documents governing the terms of the Financing, other than the Debt Commitment Letters (or any other debt commitment letters with respect to Substitute Financing) and the Equity Funding Letters (or any other equity funding letters with respect to Substitute Financing) (and “Definitive Financing Document” means any one of the Definitive Financing Documents);

“Disclosing Party” has the meaning set out in clause 12.1;

“Disclosure Letter” means the letter from the Sellers to the Buyer in relation to the Sellers’ Warranties having the same date as this Agreement, the receipt of which has been acknowledged by the Buyer, together with all documents annexed thereto;

“Dispute” has the meaning set out in clause 20.2;

“Encumbrance” means a mortgage, charge, pledge, lien, right of first refusal, right of pre-emption, other encumbrance or security interest of any kind, or another type of preferential arrangement (including a title transfer or retention arrangement) having similar effect;

“Equity Financing” has the meaning set out in paragraph 4.1 of Schedule 6;

3

“Equity Funding Letters” has the meaning set out in paragraph 4.1 of Schedule 6;

“Equity Provider” has the meaning set out in paragraph 4.1 of Schedule 6;

“Equity Provider Group” has the meaning set out in paragraph 4.1 of Schedule 6;

“Event” means any event, change, claim, act, transaction, circumstance or omission, including a receipt or accrual of income or gains, distribution, failure to distribute, acquisition, disposal, transfer, payment, loan or advance (and “Events” means more than one Event);

“Finance LLC” means Springboard Finance Holdco LLC, a Delaware limited liability company and an indirect wholly owned subsidiary undertaking of the Buyer;

“Financing” has the meaning set out in paragraph 4.1 of Schedule 6;

“Financing Letters” has the meaning set out in paragraph 4.1 of Schedule 6;

“Governmental Entity” means any supranational, national, state, provincial, local or municipal governmental or regulatory authority, agency, department, commission, body, court or tribunal, or other legislative, executive or judicial governmental entity;

“Group Companies” means Luxembourg Sub, US Sub, Camino, Sonorit Holding, and the Subsidiary Undertakings (and “Group Company” means any one of the Group Companies);

“Indebtedness” means, without duplication: (a) any obligations of any Group Company for borrowed money (including all obligations for principal and interest, premiums and penalties); (b) any obligations of any Group Company evidenced by any note, bond, debenture or other debt security; (c) any obligations of any Group Company secured by a mortgage; (d) any obligations of any Group Company as lessee or lessees under leases that have been recorded in the accounts of the Group Companies as capital leases; (e) all obligations of any Group Company for the reimbursement of letters of credit, bankers’ acceptance or similar credit transactions; (f) any obligations of any Group Company under any currency or interest rate swap or hedge transactions; and (g) all obligations of the types described in clauses (a) through (f) above the payment of which is guaranteed, directly or indirectly, by any Group Company;

“Indemnified Tax” has the meaning set out in the Tax Covenant;

“Intellectual Property” means: (a) Trademarks; (b) inventions and discoveries (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, all patents (including utility and design patents, industrial designs and utility models), registrations, invention disclosures and applications therefor, including divisions, revisions, supplementary protection certificates, continuations, continuations-in-part and renewals, extensions, reissues and re-examinations thereof; (c) Copyrights; (d) Trade Secrets; (e) design rights; and (f) all other intellectual property, industrial or similar proprietary rights;

“Intellectual Property Contracts” means: (a) all agreements under which any Group Company is licensed or otherwise permitted by a third party to use any Intellectual

4

Property (other than “shrink wrap” or “click through” licenses) that is material to the Business, and (b) all agreements under which a third party is licensed or otherwise permitted to use any Owned Intellectual Property that is material to the Business, and includes, in cases of clauses “(a)” and “(b),” material non-assertion agreements, settlement agreements, trademark coexistence agreements and trademark consent agreements, but excluding in the case of clauses “(a)” and “(b)” all agreements entered into by any Group Company in the usual course of business where Intellectual Property is ancillary to, but not a primary subject of, the agreement;

“Inter-Company Trading Amounts” means all amounts owed, outstanding or accrued in the usual course of trading, including any VAT arising on such amounts, as between any Group Company and any Seller’s Group Undertaking (other than any Group Company), as at Completion in respect of inter-company trading activity between them and the provision of services, facilities and benefits;

“Interim Accounts” has the meaning set out in clause 6.4;

“Intra-Group Debt” means, in relation to each Group Company, any amounts (including accrued interest) owed at Completion by that Group Company to any Seller’s Group Undertaking (other than any Group Company), or any amounts (including any accrued but unpaid interest) owed by any Seller’s Group Undertaking (other than a Group Company) to such Group Company, that are neither Inter-Company Trading Amounts nor amounts in respect of Tax or group Relief;

“IT Assets” means the computers, computer software, databases, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines and all other tangible information technology equipment used exclusively in the business of any Group Company;

“Joltid Litigation” has the meaning set out in Schedule 11;

“Judgment” means: (a) any judgment, award or ruling by a court, arbitrator or arbitration panel that disposes of all or part of any Legal Proceeding that falls within the definition of Joltid Litigation or Specified Legal Proceeding, as the case may be; and (b) for purposes of clauses 8.5 and 9.4, any Settlement that is entered into by the Company with respect to any of the Legal Proceedings referred to in clause “(a)” of this sentence if (and only if) such Settlement is reached following the handing down by a court, arbitrator or arbitration panel of a judgment, award or ruling that disposes of all or part of any Legal Proceeding that falls within the definition of Joltid Litigation or Specified Legal Proceeding, as the case may be, in full or partial satisfaction of such judgment, award or ruling; provided, however, that if the remedy provided for in the judgment, award or ruling referred to in this clause “(b)” involves, directly or indirectly, any injunction or similar order or action, then such Settlement shall be considered to be a “Judgment” for purposes of the sharing mechanism in clauses 8.5 and 9.4 only in the amount of the original monetary damages ordered pursuant to such judgment, award or ruling (it being understood that a Settlement that is entered into following the handing down of a judgment, award or ruling that solely involves an injunction or similar order shall not be a Judgment);

“Last Accounting Date” means 31 December 2008;

5

“Last Balance Sheet” means the audited combined balance sheet of the Group Companies as of the Last Accounting Date;

“Leases” has the meaning set out in paragraph 10.3 of Schedule 4;

“Legal Proceeding” means any action, suit, litigation, arbitration, proceeding, hearing or inquiry commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Entity, arbitrator or arbitration panel;

“Losses” means all actual losses, expenses, damages and costs (including reasonable legal costs) (and “Loss” means any such loss or cost) (for the avoidance of doubt, any Loss incurred or suffered by a Group Company after Completion shall be treated as a Loss of the Buyer);

“Luxembourg Sub” means Skype Luxembourg Holdings S.À.R.L, a Luxembourg private limited liability company (société à responsabilité limitée), having its registered office at 7, Val Sainte Croix, L-1371 Luxembourg, Grand-Duchy of Luxembourg and registered with the Luxembourg Trade and Companies Register under number B 111886;

“Luxembourg Sub Shares” means the 1,034,277 shares, having a nominal value of Euro 25 (EUR 25) each, in the share capital of Luxembourg Sub;

“Material Adverse Change” means: (i) any material adverse change, event, circumstance or development in the business, operations, results of operations or financial condition of the Group Companies, taken as a whole; and/or (ii) any material adverse change, event, circumstance or development that would prevent any Seller or any Seller’s Group Undertaking from completing the sale of the Shares or otherwise performing in any material respect its obligations under this Agreement or the Shareholders Agreement; provided, however, that, for purposes of clause (i), no adverse change, event, circumstance or development (including any loss or threatened loss of employees, service providers or users, any cancellation of or delay in subscriptions, any decrease in revenue or any litigation) arising directly or indirectly from or otherwise relating directly or indirectly to any of the following shall be deemed either alone or in combination to constitute, and no such adverse change, event, circumstance or development shall be taken into account in determining whether there has been or would be, a Material Adverse Change:

(a) general economic, business, legal, political, regulatory, financial or market conditions, other than any adverse change, event, circumstance or development that has a materially disproportionate effect on the Group Companies as compared to other companies operating in the same industry or industries as the Group Companies;

(b) any facts, circumstances or conditions generally affecting any of the industries or industry sectors in which any Group Company operates, other than any adverse change, event, circumstance or development that has a materially disproportionate effect on the Group Companies as compared to other companies operating in the same industry or industries as the Group Companies;

(c) fluctuations in the value of any currency;

6

(d) any act of terrorism, war, calamity, natural disaster, pandemic, act of God or other similar event, occurrence or circumstance;

(e) the announcement or pendency of this Agreement or any of the Transactions;

(f) any failure of any of the Group Companies to meet internal or other forecasts or projections (it being understood that the exception in this clause (f) shall not prevent or otherwise affect a determination that any change, effect, circumstance, event or development underlying such failure has resulted in, or contributed to, a Material Adverse Change);

(g) any action or inaction by any Group Company taken or omitted to be taken at the Buyer’s express written request;

(h) compliance by the Sellers or any Group Company with the terms of, or the taking of any action required by, this Agreement, including the provisions of Schedule 7, other than the Seller’s obligation to conduct, or procure that the Group Companies conduct, the business of the Group Companies in the usual course of business as set out in clause 6.1.1;

(i) any change after the date of this Agreement in, or adoption after the date of this Agreement of: (A) any applicable law, rule, regulation or other legal requirement or legal process; or (B) the interpretation or application of any of the foregoing;

(j) any Joltid Litigation or Specified Legal Proceedings;

(k) any change in accounting principles applicable to any of the Group Companies or the interpretation or application thereof; or

(l) any matter identified in clauses 5.16(a), (b), and (f), 8.6, 8.7 and 15.3 of Schedule 1.2 of Schedule A to the Disclosure Letter;

“Notice” has the meaning set out in clause 18.1;

“Open Source Materials” means any software or firmware that is licensed under the GNU’s Public License (GPL) or Lesser/Library GPL, the Mozilla Public License, the Netscape Public License, the Sun Community Source License, the Sun Industry Standards License, the BSD License, a Microsoft Shared Source License, the Common Public License, the Apache License or any open source license that requires as a condition of its use, modification or distribution that it, or other software incorporated, distributed with, or derived from it, be disclosed or distributed in any Source Code form or made available at no charge;

“Order” has the meaning set out in paragraph 5 of Schedule 2;

“Other Tax Returns” has the meaning set out in Schedule 9;

“Owned Intellectual Property” means all Intellectual Property owned by any Group Company;

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“Parent Performance Guarantees” means those certain guarantees or other commitments by Parent or any other Seller’s Group Undertaking (other than a Group Company) of specified obligations of one or more Group Companies under select agreements to which one or more Group Companies are parties, including those more particularly described in Schedule 1.1 of the Disclosure Letter (and “Parent Performance Guarantee” means any one of the Parent Performance Guarantees);

“Payment” has the meaning set out in clause 10.4;

“Permits” has the meaning set out in paragraph 15.4 of Schedule 4 (and “Permit” means any one of the Permits);

“Permitted Encumbrances” shall mean the following Encumbrances relating to the Group Companies: (a) liens for Taxes of the Group Companies not yet due and payable or liens for Taxes of the Group Companies being contested in good faith by any appropriate proceedings; (b) mechanics’, materialmen’s and similar liens; (c) statutory Encumbrances existing as of the Completion Date and claimed or held by any Governmental Entity that are related to obligations that are not due or delinquent; (d) Encumbrances resulting from any of the contracts disclosed in the Disclosure Letter; (e) Encumbrances arising from transfer restrictions under the securities laws of any jurisdiction; (f) nonexclusive licenses of Owned Intellectual Property; and (g) other Encumbrances that do not materially interfere with the use or operation of the property subject thereto;

“Plan” has the meaning set out in paragraph 13.2 of Schedule 4;

“Policies” has the meaning set out in paragraph 9.1 of Schedule 4;

“Pre-Completion Directors and Auditors” has the meaning set out in clause 5.3;

“Pre-Completion Period” has the meaning set out in clause 6.1;

“Properties” means the properties details of which are set out in Schedule 8 (and “Property” means any one of the Properties);

“Purchase Price” has the meaning set out in clause 2.3;

“Purchase Price Allocation” has the meaning set out in clause 2.4;

“Pursuit” of any Joltid Litigation or any Specified Legal Proceeding, as the case may be, means all steps and actions relating to or taken in connection with the pursuit, prosecution or defence of any Joltid Litigation or Specified Legal Proceeding, as the case may be;

“Recipient” has the meaning set out in clause 12.1;

“Registered” means issued by, registered with, renewed by or the subject of a pending application before any Governmental Entity or Internet domain name registrar;

“Relevant Claims” means all claims by or on behalf of the Buyer against the Sellers under or pursuant to the provisions of this Agreement (including the Tax Covenant) (and “Relevant Claim” means any one of the Relevant Claims);

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“Relief” has the meaning set out in Schedule 9;

“Representation” has the meaning set out in clause 15;

“Representatives” of a person means such person’s direct or indirect subsidiary undertakings and other Affiliates and the officers, directors, employees, agents, attorneys, accountants, advisors, lenders and other actual and potential sources of financing and representatives of such person and of such person’s direct or indirect subsidiary undertakings and other Affiliates (and “Representative” means any one of the Representatives);

“Rollover Shares” has the meaning set out in clause 3.4.3;

“Sellers” means Parent, International and, solely until Completion, Sonorit Holding (and “Seller” means any one of the Sellers);

“Seller Confidential Information” has the meaning set out in clause 12.1;

“Seller Subordinated Note” means the subordinated note of Finance LLC in favour of International in form attached as Annex A to this Agreement;

“Seller’s Group Undertakings” means:

(a) in relation to each Seller: (i) that Seller; (ii) an undertaking which is a direct or indirect subsidiary undertaking or a direct or indirect parent undertaking of that Seller; and (iii) a direct or indirect subsidiary undertaking of a parent undertaking of that Seller, but in each case excluding any Group Company; and

(b) on the date of this Agreement and for the period up to and including the Completion Date, the persons identified in clause “(a)” above and any Group Company (and “Seller’s Group Undertaking” means any one of the Seller’s Group Undertakings);

“Sellers’ Completion Certificate” has the meaning set out in paragraph 1.1.10 of Schedule 3;

“Sellers’ Solicitors” means Sidley Austin LLP of 25 Basinghall Street, London EC2V5HA, United Kingdom, and Dewey & LeBoeuf LLP of 1950 University Avenue, Suite 500, East Palo Alto, CA 94303, United States;

“Sellers’ Warranties” means the statements contained in Schedule 4 and the Sellers’ Completion Certificate (and “Sellers’ Warranty” means any one of the Sellers’ Warranties);

“Senior Employees” means Dan Berg, Christopher Dean, Scott Durchslag, Anne Gillespie, Robert Miller, Brian O’Shaughnessy, Laura Shesgreen and Josh Silverman;

“Settlement” means any settlement, adjustment, compromise or consent to entry of a Judgment that is voluntarily entered into by the parties thereto and that disposes of all or part of any Legal Proceeding that falls within the definition of Joltid Litigation or

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Specified Legal Proceeding, as the case may be (except for any Settlement that is included in the definition of a “Judgment” set forth above);

“Shadow Counsel” of a person means separate counsel engaged by such person in connection with a Legal Proceeding (for the avoidance of doubt, Shadow Counsel is separate from the primary counsel in a Legal Proceeding);

“Shareholders Agreement” means the Shareholders Agreement to be entered into among Lux Holdco, the Buyer’s Pre-Completion Shareholders and Parent prior to Completion, the material terms of which are set out in Annex B to this Agreement;

“Shares” means: (a) the Luxembourg Sub Shares; (b) the US Sub Shares; (c) the Sonorit Shares; and (d) the Camino Shares;

“Source Code” means, collectively, any human readable software or firmware source code, RTL descriptions, specifications (including manufacturing, assembly, packaging and testing specifications, documentation, and instructions) or any material portion or aspect of any of the foregoing, or any material proprietary information or algorithm contained in or relating to any of the foregoing;

“Sonorit Shares” means the 1,900,000 shares, having a par value of 0.01 Norwegian krone (NOK 0.01) each, in the share capital of Sonorit Holding;

“Specified Legal Proceedings” has the meaning set out in Schedule 11;

“Subsidiary Undertakings” means the subsidiary undertakings of Luxembourg Sub listed in Part B of Schedule 1 (and “Subsidiary Undertaking” means any one of the Subsidiary Undertakings);

“Substitute Financing” has the meaning set out in clause 7.1;

“Sum Recovered” has the meaning set out in paragraph 8.2 of Schedule 5;

“Tax” and “Taxation” mean any form of taxation and any levy, duty, charge, withholding or impost of a similar nature (including any penalty or interest payable in connection with, or with any failure to pay or any delay in paying, any of the same);

“Tax Authority” and “Taxation Authority” means any Governmental Entity anywhere in the world that is a taxing authority, and that is competent to impose, collect or administer any Taxation;

“Tax Claim” means a claim in respect of any breach of the Tax Warranties or under the Tax Covenant;

“Tax Considerations” has the meaning set out in clause 10.4.2;

“Tax Cooperation Agreement” means the Tax Cooperation Agreement to be entered into between Parent and the Buyer prior to Completion, the material terms of which are set out in Annex C to this Agreement;

“Tax Covenant” means the covenant relating to Tax set out in Schedule 9;

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“Tax Legislation” has the meaning set out in Schedule 9;

“Tax Returns” means all returns and similar statements required to be filed with a Tax Authority with respect to any Indemnified Tax (including any attached schedules or computations), including any information return, claim for refund, amended return or declaration of estimated Indemnified Taxes (and “Tax Return” means any one of the Tax Returns);

“Tax Warranties” means the warranties relating to Tax in paragraph 5 (other than paragraph 5.16 thereof) of Schedule 4 (and “Tax Warranty” means any one of the Tax Warranties);

“Termination Fee” has the meaning set out in clause 3.7.1;

“Third Party Beneficiary” has the meaning set out in clause 16.9;

“Trademarks” means all trademarks, service marks, logos, product names and slogans, symbols, trade dress, assumed names, fictitious names, trade names, brand names, business names, and any and every other form of trade identity and other indicia of origin, all applications and registrations for the foregoing and any renewals of same, and all goodwill associated therewith and symbolized thereby;

“Trade Secrets” means all trade secrets, confidential business and technical information and any other confidential information (including ideas, research and development, know-how, formulae, drawings, prototypes, models, designs, technology, compositions, manufacturing, production and other processes and techniques, schematics, technical data, engineering, production and other designs, drawings, engineering notebooks, industrial models, software specifications, business methods, customer lists and supplier lists);

“Transaction Agreements” means this Agreement, the Transitional Services Agreement, the Shareholders Agreement, the Seller Subordinated Note and the other agreements entered into pursuant to this Agreement (and “Transaction Agreement” means any one of the Transaction Agreements);

“Transactions” means the transactions contemplated by the Transaction Agreements (and “Transaction” means any one of the Transactions);

“Transitional Services Agreement” means the Transitional Services Agreement in the form attached as Annex D to this Agreement;

“US Sub” means Skype Inc., a Delaware corporation and wholly owned subsidiary undertaking of Parent;

“US Sub Shares” means the 1,000 shares, having a par value of US$0.001 each, in the share capital of US Sub;

“Use” has the meaning set out in clause 12.1;

“VAT” means:

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(a) any tax imposed in compliance with the Council directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112) (including, in relation to the UK, value added tax imposed by VATA and legislation and regulations supplemental thereto); and

(b) any other tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to, such tax referred to in (a), or elsewhere; and

“VATA” means the Value Added Tax Act 1994 of the United Kingdom.

1.2 In this Agreement, a reference to:

1.2.1 a “subsidiary undertaking” or “parent undertaking” is to be construed in accordance with section 1162 (and Schedule 7) of the Companies Act 2006 and to a “subsidiary” or “holding company” is to be construed in accordance with section 736 of the Companies Act 1985;

1.2.2 a document in the “agreed form” is a reference to a document in a form approved and for the purposes of identification initialed by or on behalf of the Sellers and the Buyer;

1.2.3 the singular includes the plural and vice versa;

1.2.4 a statutory provision includes a reference to the statutory provision as amended or re-enacted or both from time to time before the date of this Agreement and any subordinate legislation made under the statutory provision (as so amended or re-enacted) before the date of this Agreement;

1.2.5 a “person” includes a reference to any individual, firm, company, corporation or other body corporate, government, state or agency of a state or any joint venture, association or partnership, works council or employee representative body (whether or not having separate legal personality);

1.2.6 a person includes a reference to that person’s successors and permitted assigns;

1.2.7 a “party” includes a reference to that party’s successors and permitted assigns;

1.2.8 a “regulation” includes any regulation, rule or official directive of any Governmental Entity or any regulatory or self-regulatory organization, in each case having the force of law;

1.2.9 “$” or “dollars” is a reference to U.S. dollars;

1.2.10 a clause, paragraph, schedule, attachment or annex, unless the context otherwise requires, is a reference to a clause or paragraph of, or schedule, attachment or annex to, this Agreement;

1.2.11 any matter “as set out in this Agreement,” “as set out herein” or any similar reference, unless the context otherwise requires, includes a reference to any such matter set out or contained in the schedules to this Agreement;

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1.2.12 (a) any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing shall in respect of any jurisdiction other than England be deemed to include what most nearly approximates in that jurisdiction to the English legal term and to any English statute shall be construed so as to include equivalent or analogous laws of any other jurisdiction; and (b) any non-English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing in the definition of ‘Intellectual Property” (and the other defined terms used therein) shall be deemed to include what most nearly approximates in England to such non-English legal term;

1.2.13 times of the day are to London time;

1.2.14 “writing” shall include any model of reproducing words in a legible and non-transitory form;

1.2.15 “books and records” and words of similar import means books, records or other information in any form, including paper, electronically stored data, magnetic media, film and microfilm;

1.2.16 “the date of this Agreement”, “the date hereof”, “the date of execution of this Agreement” or words of similar import mean 1 September 2009; and

1.2.17 the conversion of any payment or other amount denominated in Euros into U.S. Dollars for purposes of this Agreement shall be effected using the exchange rate quoted in the Financial Times on the date that is two Business Days immediately preceding the date on which such payment is to be made or such amount is to be converted into U.S. dollars.

1.3 The ejusdem generis principle of construction shall not apply to this Agreement. Accordingly, general words shall not be given a restrictive meaning by reason of their being preceded or followed by words indicating a particular class of acts, matters or things or by examples falling within the general words. Any phrase introduced by the terms “other”, “including”, “include” and “in particular” or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms.

1.4 The headings in this Agreement do not affect its interpretation.

1.5 A reference in this Agreement to “so far as the Sellers are aware” or “to the knowledge of the Sellers” means the actual knowledge of the individuals set forth in Section 1 of Annex E at the date of this Agreement. A reference to “to the best of the knowledge of the Sellers” means the actual knowledge of the individuals set forth in Section 1 of Annex E, at the date of this Agreement, after reasonable inquiry of the individuals set forth in Section 2 of Annex E.

1.6 A reference in this Agreement to “so far as the Buyer is aware” or “to the knowledge of the Buyer” means the actual knowledge of the individuals set forth in Section 3 of Annex E.

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1.7 The obligations of the Sellers under or in connection with this Agreement shall be joint and several.

2. SALE AND PURCHASE

2.1 Each Seller agrees to sell at Completion with full title guarantee the Shares held by it, and the Buyer agrees to buy at Completion the Shares and each right attaching to the Shares at or after Completion, free of any Encumbrance; provided, however, that the Buyer can designate one or more wholly owned subsidiary undertakings to acquire the Shares at Completion.

2.2 Each of the Sellers waives all rights of pre-emption and other restrictions on transfer over the Shares conferred on it and shall procure that all such rights conferred on any other person are waived no later than Completion so as to permit the sale and purchase of the Shares.

2.3 The total consideration payable by the Buyer to the Sellers for the Shares is an amount equal to $2,750,000,000 (the “Purchase Price”), to be satisfied as set out in clauses 3.4.1 through 3.4.4.

2.4 The Purchase Price will be apportioned between the Sellers and among the Shares in the manner to be mutually agreed to by the Buyer and the Sellers during the Pre-Completion Period (such apportionment, the “Purchase Price Allocation”), which apportionment shall take into account the fact that Sonorit Holding is both a Seller and a Group Company.

3. CONDITIONS; COMPLETION; TERMINATION

3.1 The sale and purchase of the Shares and the completion of the other Transactions are in all respects conditional upon those matters listed in Schedule 2, provided that: (a) the Buyer may in its absolute discretion waive any one or more of the conditions set out in paragraphs 2, 3, 4, 7, 8, 11 and 12 of Schedule 2 by written notice to the Sellers; (b) the Sellers may in their absolute discretion waive any one or more of the conditions set out in paragraphs 9, 10 and 13 of Schedule 2 by written notice to the Buyer; and (c) the Buyer and the Sellers may jointly waive the conditions set out in paragraphs 1, 5 and 6 of Schedule 2 by written agreement to that effect.

3.2 The Sellers shall use all reasonable endeavours to procure that the conditions set out in paragraphs 2, 3, 4, 7, 8, 11 and 12 of Schedule 2 be fulfilled as soon as possible after the date of this Agreement; the Buyer shall use all reasonable endeavours to procure that the conditions set out in paragraphs 9, 10 and 13 of Schedule 2 be fulfilled as soon as possible after the date of this Agreement; and the Buyer and the Sellers shall use all reasonable endeavours to procure that the conditions set out in paragraphs 1, 5 and 6 of Schedule 2 be fulfilled as soon as possible after the date of this Agreement. Without limiting the generality of the foregoing, with respect to the condition set out in paragraph 1 of Schedule 2, where required, the Sellers shall make any necessary filings required to be made by the Sellers with any Governmental Entity, and the Buyer shall procure that the Buyer’s Group Undertakings: (a) make all necessary registrations and filings with Governmental Entities as soon as practicable following the date of this Agreement and take all steps as may be necessary to obtain an approval or waiver from (including by requesting early termination of any applicable waiting period, if available), or to avoid an

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action or proceeding by, any Governmental Entity; (b) defend any Legal Proceedings, whether judicial or administrative, challenging this Agreement or the completion of any of the Transactions and seek to have any stay or temporary restraining order issued or entered by any Governmental Entity vacated or reversed; and (c) promptly, if required by any Governmental Entity in order to complete any of the Transactions, take all steps and make all undertakings to secure clearance under applicable antitrust laws (including steps to offer behavioural undertakings and, if such undertakings are considered insufficient by the relevant Governmental Entity, effect the sale or other disposition of particular properties of the Buyer, its Affiliates and/or the Group Companies and to hold separate such properties pending such sale or other disposition). In addition, the Sellers shall procure that the Seller’s Group Undertakings, and the Buyer shall procure that the Buyer’s Group Undertakings: (i) keep the Buyer or the Sellers, as the case may be, informed in all material respects of any material communication received by any Seller’s Group Undertaking (in the case of the Sellers’ obligations under this clause) or by any Buyer’s Group Undertaking (in the case of the Buyer’s obligations under this clause) from, or given by any Seller’s Group Undertaking (in the case of the Sellers’ obligations under this clause) or by any Buyer’s Group Undertaking (in the case of the Buyer’s obligations under this clause) to, any Governmental Entity, in each case regarding any of the Transactions; and (ii) permit the Buyer or the Sellers, as the case may be, to review any material communication delivered to, and consult with the Buyer or the Sellers, as the case may be, in advance of any meeting or conference with, any Governmental Entity relating to the Transactions, and give the Buyer or the Sellers, as the case may be, the opportunity to attend and participate in such meetings and conferences (to the extent permitted by such Governmental Entity).

3.3 Completion shall take place at the offices of Sellers’ solicitors (Luxembourg) on the Completion Date.

3.4 At Completion:

3.4.1 the Buyer shall pay $1,824,000,000 in cash to the Sellers or as the Sellers shall direct in writing by transfer of funds for same day value to such account(s) as shall have been notified by the Sellers to the Buyer;

3.4.2 Luxembourg Sub shall pay $86,000,000 in cash to International by way of redemption or purchase of convertible preferred equity certificates of Luxembourg Sub;

3.4.3 the Buyer shall deliver to International a certified copy of the share register of the Buyer evidencing the issuance to International of ordinary shares of the Buyer representing 35% of the issued ordinary share capital of the Buyer, measured as of immediately following Completion (the “Rollover Shares”);

3.4.4 the Buyer shall deliver to International the Seller Subordinated Note, duly executed by Finance LLC;

3.4.5 the Sellers shall otherwise each do or procure all those other things respectively required of them in clause 3 and Part 1 of Schedule 3;

3.4.6 the Buyer shall otherwise do or procure all those other things required of it in clause 3 and Part 2 of Schedule 3; and

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3.4.7 the Tax Covenant shall come into full force and effect.

3.5 This Agreement may be terminated at any time prior to Completion as follows:

3.5.1 by the mutual written consent of the Buyer and the Sellers;

3.5.2 by either the Buyer or the Sellers at any time after 5:00 p.m. on 31 January 2010 and before Completion if Completion shall not have occurred by 5:00 p.m. on 31 January 2010; provided, however, that a party shall not be permitted to terminate this Agreement pursuant to this clause 3.5.2 if the failure of Completion to have occurred by 5:00 p.m. on 31 January 2010 is attributable to a failure on the part of such party to perform any covenant or obligation in this Agreement required to be performed by such party at or prior to Completion;

3.5.3 by either the Buyer or the Sellers if: (a) a Governmental Entity shall have issued a final and nonappealable order, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Completion; or (b) there shall be any law, rule or regulation promulgated, issued or deemed applicable to the sale and purchase of any of the Shares after the date of this Agreement by any court of competent jurisdiction or other Governmental Entity that would make the Completion illegal;

3.5.4 by the Buyer if: (a) any Sellers’ Warranty shall have become untrue after the date of this Agreement, such that the condition set out in paragraph 2 of Schedule 2 to this Agreement would not be satisfied; or (b) the Sellers shall have breached any of their covenants or obligations set forth in this Agreement such that the condition set out in paragraph 3 of Schedule 2 would not be satisfied, and such inaccuracy or breach is not curable or, if curable, is not cured within 30 days after written notice thereof is given by the Buyer to the Sellers; provided, however, that, in the case of clauses “(a)” and “(b),” the Buyer shall not be permitted to terminate this Agreement pursuant to this clause 3.5.4 if the Buyer has breached any of its covenants or obligations set forth in this Agreement such that the condition set out in paragraph 10 of Schedule 2 would not be satisfied and such breach remains uncured;

3.5.5 by the Sellers if: (a) any Buyer’s Warranty shall have become untrue after the date of this Agreement, such that the condition set out in paragraph 9 of Schedule 2 to this Agreement would not be satisfied; (b) the Buyer shall have breached any of its covenants or obligations set forth in this Agreement such that the condition set out in paragraph 10 of Schedule 2 would not be satisfied; (c) the Buyer shall have breached any of its covenants in clause 5.9 or clause 5.10; or (d) subject to clause 5.10, the Buyer shall have breached its obligation to complete the Transactions on the Completion Date, and, in the case of clauses “(a)” and “(b)” only, such inaccuracy or breach is not curable or, if curable, is not cured within 30 days after written notice thereof is given by the Sellers to the Buyer; provided, however, that, in the case of clauses “(a)” and “(b),” the Sellers shall not be permitted to terminate this Agreement pursuant to this clause 3.5.5 if the Sellers have breached any of their covenants or obligations set forth in this Agreement such that the condition set out in paragraph 3 of Schedule 2 would not be satisfied and such breach remains uncured; or

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3.5.6 by the Buyer, prior to Completion, upon payment of the Termination Fee in the manner set out in clause 3.7 below (it being understood that the termination right contained in this clause 3.5.6 shall be available regardless of any breach by the Buyer of this Agreement).

3.6 In the event a party desires to terminate this Agreement as provided in clause 3.5, the party who so desires to terminate this Agreement shall provide written notice to the other party or parties, specifying the provision hereof pursuant to which such termination is made. Upon receipt of such notice by the other party or parties as described above, this Agreement shall forthwith become null and void (other than this clause 3.6, clauses 1 (Interpretation), 3.7, 3.8, the penultimate sentence of clause 7.6, 12 (Confidential Information), 13 (Announcements), 14 (Costs), 15 (Entire Agreement), 16 (General), 18 (Notices), 20 (Governing Law and Jurisdiction) and 21 (Service of Process) and the Confidentiality Agreements, all of which shall survive termination of this Agreement), and, except as provided in clause 3.8 with respect to the Termination Fee, there shall be no liability hereunder on the part of any Buyer’s Group Undertaking (or any of its Representatives) or any Seller’s Group Undertaking (or any of its Representatives); provided, however, that, in the event of a termination of this Agreement (other than a termination pursuant to clause 3.5.5 or clause 3.5.6 in connection with which the Buyer becomes obligated to pay the Termination Fee to the Sellers pursuant to clause 3.7), nothing in this Agreement shall relieve any party from liability for fraud, intentional breach of Warranties or material breach of covenants (including the covenant requiring the Buyer to purchase the Shares); and provided, further, that the Buyer’s aggregate liability following termination of this Agreement for breaches of the Transaction Agreements prior to such termination shall in no event exceed $300,000,000.

3.7 If this Agreement is terminated:

3.7.1 pursuant to clause 3.5.5, the Buyer shall pay to the Sellers, within two Business Days following such termination, by transfer of funds for same day value to such account(s) as shall have been notified by the Sellers to the Buyer, the sum of $300,000,000 (the “Termination Fee”);

3.7.2 pursuant to clause 3.5.6, the Buyer shall, on or prior to the date of such termination, pay the Termination Fee to the Sellers by wire transfer of funds for same day value to such account(s) as shall have been notified by the Sellers to the Buyer; and

3.7.3 the Termination Fee shall be apportioned between the Sellers in a manner consistent with the Purchase Price Allocation.

3.8 If: (a) the Sellers terminate this Agreement pursuant to clause 3.5.5 and the Buyer thereby becomes obligated to pay the Termination Fee to the Sellers pursuant to clause 3.7; or (b) the Buyer terminates this Agreement pursuant to clause 3.5.6 and thereby becomes obligated to pay the Termination Fee to the Sellers pursuant to clause 3.7, then, in each case: (i) the Sellers’ right to receive the Termination Fee (as liquidated damages) shall be the Sellers’ sole and exclusive remedy in respect of all matters arising under, or relating to, the Transactions and the Transaction Agreements; and (ii) none of the Sellers or any Sellers’ Group Undertaking shall have any liability or obligation of any kind arising out of or in any way relating to, any Transaction or any Transaction Agreement to the Buyer, any Buyer’s Group Undertaking or any other person and, for the avoidance of doubt,

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none of the Buyer, any Buyer’s Group Undertaking or any other person shall be entitled to pursue any other remedy at law or in equity (including those remedies referred to in clause 16.3), and including for tort damages of any kind, against the Sellers or any Seller’s Group Undertaking arising out of, or relating to, the Transactions or any of the Transaction Agreements. Upon payment of the Termination Fee to the Sellers, for the avoidance of doubt, none of the Buyer, any Buyer’s Pre-Completion Shareholder or any Buyer’s Group Undertaking shall have any liability or obligation of any kind arising out of or in any way relating to, any Transaction, any Transaction Agreement, the Financing Letters and/or any transactions contemplated thereby to the Sellers, any Seller’s Group Undertaking or any other person and, for the avoidance of doubt, none of the Sellers, any Seller’s Group Undertaking or any other person shall be entitled to pursue any other remedy at law (including recovery of damages for any Loss that they may have suffered in excess of the amount of the Termination Fee) or in equity (including those remedies referred to in clause 16.3), and including for tort damages of any kind, against the Buyer, any Buyer’s Pre-Completion Shareholder or any Buyer’s Group Undertaking arising out of, or relating to, the Transactions or any of the Transaction Agreements. For the avoidance of doubt, this clause 3.8 shall not apply to, and shall not have the effect of waiving or otherwise limiting a person’s liability or any remedy of the Sellers for, a breach following the termination of this Agreement of such person’s obligations under a Confidentiality Agreement or clause 12.

3.9 Save to the extent: (a) otherwise expressly provided in this Agreement; and/or (b) such right of rescission or termination arises as a result of the fraud of the other party, no party shall be entitled to rescind or terminate this Agreement or treat this Agreement as rescinded or terminated in any circumstances whatsoever and, accordingly, each party hereby waives all such other rights of rescission and/or termination that it might otherwise have in respect of this Agreement.

4. THE SELLERS’ WARRANTIES

4.1 The Sellers jointly and severally warrant to the Buyer in the terms set out in Schedule 4 as at the date of this Agreement and in the terms set out in the Sellers’ Completion Certificate as at the Completion Date.

4.2 The Sellers’ liability for the Sellers’ Warranties shall be limited, restricted or excluded, as the case may be, as set out in this Agreement (including Schedule 5 and Schedule 9).

5. THE BUYER’S WARRANTIES; CERTAIN UNDERTAKINGS OF THE BUYER

5.1 The Buyer warrants to the Sellers in the terms set out in Schedule 6 as at the date of this Agreement and in the terms set out in the Buyer’s Completion Certificate as at the Completion Date.

5.2 The Buyer shall provide all reasonable cooperation to the Sellers prior to Completion to procure that the Parent Performance Guarantees are terminated as of Completion, including if requested by the relevant beneficiary of such Parent Performance Guarantee following discussions between such beneficiary and the Buyer, by procuring one or more Group Companies to offer guarantees, support or other security arrangements reasonably acceptable to the relevant beneficiary of such Parent Performance Guarantee (including bank or other third-party guarantees, letters of credit or insurance) or taking such other actions as the Buyer and such beneficiary may mutually agree on. The Buyer shall

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procure that no Parent Performance Guarantees (and, so long as any Parent Performance Guarantee remains in effect, no obligations thereunder) are renewed, extended, expanded or amended after Completion. If any Parent Performance Guarantees are not terminated as of Completion (the “Continuing Parent Performance Guarantees”), the Buyer shall: (a) use its best endeavours (which shall not extend to the expenditure of money) to procure that the Continuing Parent Performance Guarantees be terminated as promptly as practicable after Completion; (b) defend, indemnify and hold harmless Parent against and from, and reimburse Parent for, any Losses incurred by Parent to the extent directly or indirectly relating to or arising under the Continuing Parent Performance Guarantees; and (c) procure that such documents, as are reasonably requested by the Sellers, be executed by the Buyer’s Group Undertakings in connection with the obligations set forth in clauses “(a)” and “(b)” of this sentence.

5.3 The Buyer covenants that the general shareholders’ meeting (or other appropriate corporate body) of each Group Company shall, no later than on the date of the next general shareholders’ meeting of the relevant Group Company (or, with respect to any Group Company organised under the laws of Luxembourg, no later than on the date of the next general shareholders’ meeting of such Group Company at which accounts are presented), grant proper and full discharge to the directors and statutory auditors in the Company and to the corresponding officers and statutory auditors in each Subsidiary Undertaking which are or have been in office at any time up to Completion (together “Pre-Completion Directors and Auditors”) for the fulfillment of their duties up to the termination of their appointment. The Buyer covenants that none of the Buyer’s Group Undertakings shall make any claim against, or seek any indemnification from, any Pre-Completion Director or Auditor with respect to the execution of their duties or with respect to this Agreement or any of the warranties given to the Buyer herein.

5.4 The Buyer undertakes to give the Sellers prompt written notice if it, after the date of this Agreement, becomes actually aware of any developments or other fact, event or circumstance causing a breach of any Buyer’s Warranties or of any covenants of the Buyer that would result in the condition set forth in paragraph 9 or paragraph 10 of Schedule 2 not being satisfied. Without limitation to clause 5 or any other provision of this Agreement, no such disclosure, however, will be deemed to amend, supplement, qualify or limit the Buyer’s Warranties, prevent or cure any misrepresentation, breach of warranty or breach of covenant or otherwise limit or affect in any manner any claim of the Sellers or the conditions to Completion.

5.5 The Buyer shall, and shall procure that the Buyer’s Pre-Completion Shareholders, negotiate in good faith with the Sellers to reach agreement prior to Completion on the terms of the Shareholders Agreement, which Shareholders Agreement shall reflect the terms set forth in Annex B.

5.6 From and after the Completion Date, the Buyer acknowledges and agrees that the Group Companies shall be solely responsible for (and no Seller’s Group Undertaking shall have any liability with respect to) all insurance coverage and related risk of loss based on claims pending as of the Completion Date and claims made after the Completion Date, without regard to when the event giving rise to any such claim occurred, with respect to the Group Companies and their business, assets and current or former employees.

5.7 The Buyer undertakes not to incur any liabilities, contingent or otherwise, prior to Completion, other than: (a) under the Transaction Agreements and the Definitive

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Financing Documents; and (b) in respect of any other matter necessary for the completion of the Transactions or the operations of the Business immediately following Completion.

5.8 Prior to the Completion Date, to the extent required under Luxembourg law, the Buyer shall convene a shareholders’ meeting of the Buyer in accordance with Luxembourg law for the purposes of issuing the Rollover Shares to International at Completion. The Buyer shall procure that: (a) its shareholders approve the issuance of the Rollover Shares; and (b) all actions are taken that are necessary, under Luxembourg law or otherwise, to effect the issuance of the Rollover Shares to International at Completion.

5.9 The Buyer may not draw down on any revolving credit facility include in the Debt Financing at or prior to Completion; provided, however, that if the Debt Financing includes an original issue discount of greater than four percentage points, then the Buyer may draw down on such revolving credit facility at or prior to Completion to pay the amount of such original issue discount in excess of four percentage points, up to a maximum amount of $7,500,000 in the aggregate.

5.10 If, at any time during the Pre-Completion Period, all of the conditions set out in paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 11 and 12 of Schedule 2 are satisfied (or waived by the Buyer), other than the conditions set out in paragraphs 1, 5 and 6 insofar as they relate to any filing or consent required under applicable antitrust or competition laws in the jurisdictions set out in Annex F hereto (the date on which such conditions are so satisfied or waived, the “Specified Date”), then the Buyer shall: (a) within one Business Day after the Specified Date, instruct each Equity Provider in writing to fund the full amount of such Equity Provider’s obligations under Equity Funding Letters; and (b) procure that, within 11 Business Days after the Specified Date, each Equity Provider deposits into escrow, with a third party escrow agent that is mutually acceptable to (and on terms to be mutually agreed between) the Buyer and the Sellers, the full amount of such Equity Provider’s obligations under Equity Funding Letters.

5.11 The Buyer shall negotiate in good faith with Parent to reach agreement prior to Completion on the terms of the Tax Cooperation Agreement, which shall reflect the terms set forth in Annex C.

5.12 In the event that the aggregate amount of the cash, cash equivalents and marketable securities of the Group Companies as of immediately prior to Completion is greater than €95,000,000, the Buyer shall pay to the Sellers the amount of such excess promptly following the Completion Date.

5.13 Subject to clause 5.9, if, immediately following Completion, the Buyer has incurred indebtedness under the Debt Financing in excess of $600,000,000, then the amount of cash, cash equivalents and marketable securities held by the Group Companies immediately following Completion shall equal the sum of: (a) the amount by which the indebtedness incurred by the Buyer under the Debt Financing exceeds $600,000,000; plus (b) €95,000,000; minus (c) $86,000,000.

6. CERTAIN UNDERTAKINGS OF THE SELLERS

6.1 During the period commencing upon the execution of this Agreement and ending on the Completion Date (the “Pre-Completion Period”):

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6.1.1 except as required by applicable law, rule or regulation or as expressly permitted or required pursuant to this Agreement, each of the Sellers undertakes to: (a) conduct, and procure that the Group Companies conduct, the business of the Group Companies in the usual course consistent with past practice and, to the extent consistent therewith, use, and procure that the Group Companies use, reasonable endeavors to preserve the Group Companies’ business organizations intact and maintain the Group Companies’ existing relations and goodwill with Governmental Entities, customers, suppliers, distributors, creditors, lessors, employees, individual independent contractors and business associates and to keep available the services of present employees of the Group Companies; and (b) comply, and procure compliance by each relevant Group Company with the provisions of Schedule 7;

6.1.2 except as required by applicable law, rule or regulation, each of the Sellers undertakes that it shall not, without the prior written approval of the Buyer, exercise any voting rights over the Shares held by it to approve any matter which would be in non-compliance with the provisions of clause 6.1.1 and/or Schedule 7;

6.1.3 the Sellers shall, and shall procure that the Seller’s Group Undertakings, give required notices to third parties (other than Governmental Entities) having contractual relations with the Seller’s Group Undertakings and use reasonable endeavors to obtain any required consents from such third parties;

6.1.4 each of the Sellers undertakes to give the Buyer prompt written notice if it, after the date of this Agreement, becomes actually aware of any developments or other fact, event or circumstance causing a breach of any Sellers’ Warranties or of any covenants of the Sellers that would result in the condition set forth in paragraph 2 or paragraph 3 of Schedule 2 not being satisfied (it being understood that, without limitation to clause 4 or any other provision of this Agreement, no such disclosure, however, will be deemed to amend, supplement, qualify or limit the Sellers’ Warranties and the Disclosure Letter, prevent or cure any misrepresentation, breach of warranty or breach of covenant or otherwise limit or affect in any manner any Relevant Claim or the conditions to Completion);

6.1.5 subject to any confidentiality restrictions in place as of the date of this Agreement, the Sellers shall: (a) consult with the Buyer on, and consider in good faith the views of the Buyer with respect to, the “clean room” procedures relating to the “clean room” established by the Sellers in connection with the Joltid Litigation; and (b) subject to any applicable restrictions under antitrust and competition laws and to any “clean room” procedures then in effect, provide representatives of the Buyer with reasonable access to such “clean room”;

6.1.6 the Sellers shall negotiate in good faith with the Buyer’s Pre-Completion Shareholders and the Buyer to reach agreement prior to Completion on the terms of the Shareholders Agreement, which Shareholders Agreement shall reflect the terms set forth in Annex B;

6.1.7 the Sellers shall procure that Skype Communications S.a.r.l. enter into an agreement with PayPal (Europe) S.a.r.l & Cie, SCA on substantially the terms set forth in the term sheet attached as Annex G (the “PayPal Agreement”);

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6.1.8 the Sellers shall keep the Buyer reasonably informed of all meetings and teleconferences between the Sellers or their appointed agent and the Luxembourg Tax Authority in relation to the Luxembourg tax ruling anticipated for the proposed reorganization involving the Company and Luxembourg Sub and the Luxembourg tax ruling issued to the Company dated 21 April 2005, and the Sellers shall take reasonable steps to cooperate with the Buyer and keep the Buyer informed of the status of such rulings, and at the request of the Buyer, the Sellers shall forward or cause to be forwarded to the Buyer copies of all relevant correspondence and other relevant information and documentation. The Buyer shall to the extent practicable be entitled to participate in any meetings and teleconferences between the Sellers and their appointed agent dealing with the Luxembourg Tax Authority in relation to such rulings; provided, however, that: (a) the Buyer and its appointed agent shall be provided the opportunity to (i) participate in the Sellers’ and their appointed agent’s preparations for any meetings or teleconferences with the Luxembourg Tax Authority in respect of which the Buyer or its appointed agent is not permitted to directly participate, and (ii) comment on any proposed written submissions to the Luxembourg Tax Authority in relation to such rulings (which comments shall be considered and taken into account in good faith so long as timely provided) and (b) the Sellers shall keep the Buyer informed of the outcome of any such meetings or teleconferences;

6.1.9 the Sellers shall procure that, until the Completion Date, all insurance policies held at the date of this Agreement by any Seller’s Group Undertaking for the benefit of a Group Company are maintained in force and effect for the benefit of each Group Company in respect of the period up to and including the Completion Date; and

6.1.10 Parent shall negotiate in good faith with the Buyer to reach agreement prior to Completion on the terms of the Tax Cooperation Agreement, which shall reflect the terms set forth in Annex C.

6.2 During the period commencing on the Completion Date and ending on the first anniversary of the Completion Date, neither the Sellers nor any Seller’s Group Undertaking will solicit the employment of any employee of any Group Company who has an annual base salary in excess of €100,000 (a “Restricted Employee”). Notwithstanding the foregoing, it shall not be a breach of this clause 6.2 for any Seller or Seller’s Group Undertaking to: (a) solicit Restricted Employees through general advertisements in newspapers and/or other media of general circulation (including advertisements posted on the Internet), job fairs or other similar general solicitations; (b) engage any recruiting firm or similar organization to identify or solicit persons for employment, or solicit the employment of any Restricted Employee who is identified by any such recruiting firm or organization, as long as such recruiting firm or organization is not instructed to target any Restricted Employee; (c) solicit any Restricted Employee who initiates discussions regarding employment with any Seller or any Seller’s Group Undertaking, provided that neither the Sellers nor any Seller’s Group Undertaking had solicited such Restricted Employee prior to such initiation of discussions in violation of this clause 6.2; or (d) solicit any Restricted Employee whose employment with any Group Company has terminated prior to the date of such solicitation, provided that neither the Sellers nor any Seller’s Group Undertaking had solicited such Restricted Employee prior to such termination in violation of this clause 6.2.

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6.3 The Sellers’ liability for Relevant Claims shall be limited, restricted or excluded, as the case may be, as set forth in this Agreement (including Schedule 5 and Schedule 9).

6.4 As soon as practicable following the date of this Agreement, and in any event prior to the Completion Date, the Sellers shall deliver to the Buyer unaudited combined financial statements of the Group Companies for each fiscal quarter ending at any time during the period between the Last Accounting Date and the date that is 45 days prior to the Completion Date (the financial statements delivered to the Buyer in accordance with this clause 6.4, the “Interim Accounts”).

7. FINANCING

7.1 The Buyer shall use its best endeavours to take all actions and to do all things necessary, proper and advisable to arrange and obtain the Financing on the terms and conditions described in the Financing Letters and, if applicable, the Definitive Financing Documents (or on terms no less favourable in all material respects and in the aggregate, to the Buyer, including with respect to conditionality) prior to the Completion Date, including by: (a) not taking any action in breach of the Financing Letters; (b) negotiating and entering into Definitive Financing Documents on the terms and conditions reflected in the applicable Financing Letters or on other terms no less favourable, in the aggregate, to the Buyer; (c) satisfying all conditions applicable to the Buyer in the Financing Letters and, if applicable, the Definitive Financing Documents that are within its control; and (d) completing the Financing on or prior to the Completion Date; provided that, notwithstanding the foregoing or any other provision of this Agreement, the Buyer shall be permitted to arrange such other replacement, amended or alternative financing in lieu of some or all of the Financing as it may determine in its sole discretion, including by syndicating all or a portion of the equity financing and amending, reducing or eliminating the debt financing (the “Substitute Financing”) so long as arranging for such Substitute Financing in lieu of all or a portion of the Financing would not have an adverse effect in any material respect on the Buyer’s ability to, or the speed at which the Buyer could otherwise, complete the Transactions.

7.2 Subject to the last proviso in clause 7.1, the Buyer shall use its best endeavors to procure that no amendment or modification is made to, and no waiver of any provision is made under or with respect to, the Financing Letters or any Definitive Financing Document, if such amendment, modification or waiver: (a) amends or expands (in a manner adverse to any Seller or the Buyer) the conditions to the Financing in any respect, including any such amendment or expansion that could make such conditions less likely to be satisfied by the Completion Date; (b) could reasonably be expected to prevent the Financing from being obtained or reduce the likelihood that the Financing would be obtained, or delay the date on which the Financing would be obtained; or (c) adversely impacts the ability of any Buyer’s Group Undertaking or any Seller to enforce its rights against other parties to the Financing Letters or any Definitive Financing Document. For purposes of this Agreement, references to “Financing” shall include the financing contemplated by the Financing Letters and, if applicable, Definitive Financing Documents, and the Substitute Financing, all as permitted to be amended or replaced by this clause 7.2 or clause 7.5 and references to “Financing Letters,” “Debt Commitment Letters” and “Equity Funding Letters” shall include such documents as are permitted to be amended or replaced by clause 7.1, this clause 7.2 or clause 7.5.

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7.3 The Buyer shall keep the Sellers up-to-date and informed in reasonable detail of the status of its endeavours to arrange the Financing and shall provide to the Sellers copies of all executed and substantially final draft Definitive Financing Documents (it being understood, however, that fee letters and engagement letters may be provided in customary redacted form). Without limiting the generality of the foregoing, the Buyer shall give the Sellers prompt notice: (a) of any breach or default (or any event or circumstance that, with or without notice, lapse of time or both, could reasonably be expected to give rise to any breach or default) by any party to any Financing Letter or any Definitive Financing Document of any provision of such Financing Letter or Definitive Financing Document; (b) of the receipt by any of the Buyer’s Group Undertakings of any notice or other communication from any person with respect to any: (i) actual or potential breach, default, termination or repudiation by any party to any Financing Letter or Definitive Financing Document of any provision of any Financing Letter or Definitive Financing Document; or (ii) potential dispute or disagreement between or among any parties to any Financing Letter or Definitive Financing Document with respect to the Financing; and (c) if for any reason any of the Buyer’s Group Undertakings believes in good faith that: (i) there is (or there is likely to be) a dispute or disagreement between or among any parties to any Financing Letter or Definitive Financing Document with respect to the Financing; or (ii) there is a material possibility that it will not be able to obtain all or any portion of the Financing on the terms, in the manner or from the sources contemplated by the Financing Letters or any Definitive Financing Document.

7.4 In the event that all conditions in the Financing Letters or, if applicable, the Definitive Financing Documents (other than, in connection with the Debt Financing, the availability of funding of any of the Equity Financing) have been satisfied or, upon funding will be satisfied, the Buyer shall use its best endeavours to procure that the lenders and the other persons providing such Debt Financing fund on Completion the Debt Financing required to complete the Transactions.

7.5 If any portion of the Financing becomes unavailable on the terms and conditions contemplated by the Financing Letters or, if applicable, the Definitive Financing Documents: (a) the Buyer shall promptly notify the Sellers; and (b) prior to the Completion Date, the Buyer shall use its best endeavours to arrange and obtain alternative financing (including debt, equity and other financing) from alternative sources (including equity, debt and other sources) in an amount sufficient to complete the Transactions with terms and conditions with respect to the Financing not materially less favourable, in the aggregate, to the Buyer’s Group Undertakings than the terms and conditions applicable to such Financing as set forth in the Financing Letters or, if applicable, the Definitive Financing Documents.

7.6 The Sellers shall provide (and shall procure the Group Companies to provide and use their best endeavours to procure their respective Representatives to provide) to the Buyer and any Buyer’s Group Undertaking, at the Buyer’s sole expense, cooperation reasonably requested by the Buyer and that is customary in connection with financing comparable to the Financing, including: (i) furnishing the Buyer and its financing sources as promptly as practicable with available financial and other pertinent available information regarding the Group Companies and other cooperation and assistance as may be reasonably requested in writing by the Buyer; (ii) participating, and using reasonable endeavours to procure that senior management and other Representatives of Parent and the Group Companies participate, in a reasonable number of meetings, presentations, road shows, due diligence sessions, drafting sessions and sessions with prospective lenders, investors

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and rating agencies in connection with the Financing; (iii) assisting, and using reasonable endeavours to procure that senior management and other Representatives of Parent and the Group Companies assist, with the preparation of materials for rating agency presentations, bank information memoranda and similar documents required in connection with the Financing (including requesting any consents of accountants for use of their reports in any materials relating to the Financing); (iv) facilitating the pledging of collateral in connection with the Financing and using best endeavors to obtain customary legal opinions, other certificates and documents required of the Group Companies and their counsel in connection with the Financing; (v) facilitating the taking of corporate action by the Group Companies (subject to occurrence of Completion) required to permit the completion of the Financing; and (vi) facilitating the execution and delivery (at the time of Completion) of Definitive Financing Documents by the Group Companies and all other customary documents in connection therewith, including pledge and security agreements, guarantees and certificates, as required in connection with the Financing; provided, however that: (a) nothing in this clause 7.6 shall require any cooperation to the extent that it would unreasonably interfere in any material respect with the business or operations of any Seller or any of the Group Companies; and (b) none of the Group Companies shall be required to pay any commitment or other similar fee or incur any other liability or obligation in connection with the Financing prior to Completion. The Buyer shall promptly, upon request by the Sellers, reimburse the Sellers and the Group Companies for all reasonable out of pocket costs and expenses (including reasonable attorneys’ fees approved by the Buyer) incurred by the Sellers or the Group Companies in connection with the cooperation contemplated by this clause 7.6 and shall defend, indemnify and hold harmless the Sellers, the Group Companies and their respective Representatives against and from any and all losses, damages, claims, costs or expenses suffered or incurred by any of them in connection with the arrangement of the Financing and any information used in connection therewith, except with respect to any information provided by the Sellers or any of the Group Companies. All information regarding the Sellers or the Group Companies obtained by the Buyer, any Buyer’s Group Undertaking or any Representative of any Buyer’s Group Undertaking pursuant to this clause 7.6 shall be subject to the terms of Section 12 and the Confidentiality Agreements.

7.7 The Buyer acknowledges and agrees that the obtaining of the Financing is not a condition to Completion. For the avoidance of doubt, if the Financing has not been obtained, the Buyer shall continue to be obligated to complete the Transactions on the terms contemplated by this Agreement and subject to the fulfillment or waiver of the conditions to Completion in the manner specified in, and subject to the terms of, this Agreement.

7.8 For the avoidance of doubt, each of the Buyer’s obligations under this clause 7 shall be subject to, and qualified by, the limitations on the Sellers’ rights under clauses 3.5.5, 3.5.6, 3.7 and 3.8.

8. JOLTID LITIGATION

8.1 Except as otherwise expressly set forth in paragraphs 7 and 8 of Schedule 2, no Joltid Litigation and no Judgment, Settlement or other development in, relating to or affecting any Joltid Litigation will: (a) constitute or give rise to a failure of any condition to the Buyer’s obligation to complete any of the Transactions; (b) constitute or give rise to a right on the part of the Buyer to terminate this Agreement; or (c) otherwise impair or have any effect on the Buyer’s obligation to complete any of the Transactions.

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8.2 Before Completion, the Sellers and the Company shall [redacted] on behalf of any Group Company, [redacted]: (a) chief litigation counsel to the Sellers and the Company in such Joltid Litigation will be Olswang LLP [redacted]; (b) the Company [redacted] any Settlement of any Joltid Litigation [redacted]; and (c) the Company will consult with (and consider in good faith the views of) [redacted] counsel for the Buyer with respect to material developments in all Joltid Litigation. Notwithstanding the foregoing, the Sellers and the Company shall not be required to consult [redacted] counsel [redacted] for the Buyer if such consultation could result in the waiver of the attorney-client, work product or any other applicable privilege.

8.3 The Sellers shall procure that the Company shall bear and pay all legal fees and related costs and expenses payable by the Group Companies before Completion in connection with the Pursuit of any Joltid Litigation by the Company. If there is any monetary Settlement or monetary Judgment in any Joltid Litigation that becomes payable before Completion, then the Sellers shall procure that the Company shall pay the amount of such monetary Settlement or monetary Judgment.

8.4 After Completion, the Company shall [redacted] on behalf of any Group Company, [redacted]: (a) chief litigation counsel to the Company in such Joltid Litigation will be the law firm that was chief litigation counsel to the Sellers and the Company in such Joltid Litigation immediately before Completion [redacted]; (b) the Company [redacted]; and (c) [redacted].

8.5 The Buyer shall procure that the Company shall bear and pay all legal fees and related costs and expenses payable by the Group Companies after Completion in connection with the Pursuit of any Joltid Litigation by the Company. If there is any monetary Settlement in the Joltid Litigation that becomes payable after Completion by the Company, then the Company shall pay the amount of such monetary Settlement. If there is any monetary Judgment in any Joltid Litigation that is handed down after Completion in respect of the Company, then the Buyer shall procure that the Company shall pay 50%, and the Sellers shall pay the remaining 50%, of the amount of such monetary Judgment when it actually becomes due and payable.

8.6 For the avoidance of doubt, for purposes of this clause 8, no injunction, award of specific performance, restraining order, equitable relief or similar order, award or action shall be deemed to be (or shall be treated as) a “monetary Judgment”; provided that if the relevant judgment award or ruling involves any of the foregoing, as well as the payment of monetary damages, then such judgment, award or ruling shall be a “monetary Judgment” to the extent (but not in excess) of such monetary amount.

8.7 Any person may engage Shadow Counsel in connection with any Joltid Litigation. The legal fees and related costs and expenses payable to a person’s Shadow Counsel shall be borne and paid exclusively by the person who engages such Shadow Counsel.

9. OTHER SPECIFIED LEGAL PROCEEDINGS

9.1 Except as otherwise expressly set forth in paragraph 8 of Schedule 2, no Specified Legal Proceeding and no Judgment, Settlement or other development in, relating to or affecting any Specified Legal Proceeding will: (a) constitute or give rise to a failure of any condition to the Buyer’s obligation to complete any of the Transactions; (b) constitute or

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give rise to a right on the part of the Buyer to terminate this Agreement; or (c) otherwise impair or have any effect on the Buyer’s obligation to complete any of the Transactions.

9.2 Before Completion, the Sellers and the Company shall [redacted] on behalf of any Group Company, [redacted]: (a) chief litigation counsel to the Sellers and the Company in each such Specified Legal Proceeding will be the Sellers’ and the Company’s existing counsel in such Specified Legal Proceeding [redacted]; (b) the Company [redacted] any Settlement of any Specified Legal Proceeding [redacted]; and (c) the Company will consult with (and consider in good faith the views of) [redacted] counsel for the Buyer with respect to material developments in all Specified Legal Proceedings. Notwithstanding the foregoing, the Company shall not be required to consult with [redacted] counsel [redacted] for the Buyer if such consultation could result in the waiver of the attorney-client, work product or any other applicable privilege.

9.3 After Completion, the Sellers shall have [redacted] of the Pursuit (including Settlement) of all Specified Legal Proceedings on behalf of any Group Company, [redacted]: (a) chief litigation counsel to the Company in each such Specified Legal Proceeding will be the law firm that was chief litigation counsel to the Sellers and the Company in such Specified Legal Proceeding immediately before Completion [redacted]; (b) the Sellers [redacted] Settlement of any Specified Legal Proceeding [redacted]; and (c) [redacted].

9.4 The Buyer shall procure that the Company shall bear and pay all legal fees and related costs and expenses payable by the Group Companies after Completion in connection with the Pursuit of any Specified Legal Proceedings by the Company. If there is any monetary Settlement in any Specified Legal Proceeding that becomes payable by the Company after Completion, then the Company shall pay the amount of such monetary Settlement. If there is any monetary Judgment in any Specified Legal Proceeding that is handed down after Completion in respect of the Company, then the Buyer shall procure that the Company shall pay 50%, and the Sellers shall pay the remaining 50%, of the amount of such monetary Judgment when it actually becomes due and payable.

9.5 For the avoidance of doubt, for purposes of this clause 9, no injunction, award of specific performance, restraining order, equitable relief or similar order, award or action shall be deemed to be (or shall be treated as) a “monetary Judgment”; provided that if the relevant judgment award or ruling involves any of the foregoing as well as the payment of monetary damages, then such judgment, award or ruling shall be a “monetary Judgment” to the extent of such monetary amount.

9.6 Any person may engage Shadow Counsel in connection with any Specified Legal Proceeding. The legal fees and related costs and expenses payable to a person’s Shadow Counsel shall be borne and paid exclusively by the person who engages such Shadow Counsel.

10. TAX

VAT

10.1 All sums set out in this Agreement or otherwise payable by any party to any other party pursuant to this Agreement shall be deemed to be exclusive of any VAT which is chargeable on the supply or supplies for which such sums (or any part thereof) are the whole or part of the consideration for VAT purposes.

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10.2 Where any party is required by the terms of this Agreement to reimburse or indemnify any other party for any cost or expense, such first party shall reimburse or indemnify such other party for the full amount of such cost or expense, including such part thereof as represents VAT, save to the extent that such other party is entitled to credit or repayment in respect of such VAT from a Tax Authority.

Tax Gross-Up

10.3 All sums payable under this Agreement shall be paid free and clear of all deductions and withholdings whatsoever save only as may be required by law.

10.4 Any payment by the Buyer to the Sellers or by the Sellers to the Buyer under this Agreement for a breach of any warranty or pursuant to any indemnity or the Tax Covenant (other than payment pursuant to paragraphs 4.4, 7, 8 or 9.9.2 of the Tax Covenant) or pursuant to clause 10.7 (for the purposes of this clause, the “Payment”) shall be determined (without duplication of amounts otherwise taken into account in computing the amount of such payment) net of any Tax Relief available to the recipient of such Payment as a result of sustaining the liability in respect of which such Payment is to be made (“After-Tax Basis”) and such payment shall be adjusted if necessary to ensure that, after taking into account:

10.4.1 the amount of any Tax required to be deducted or withheld (other than any deduction or withholding required pursuant to Section 1445 of the Code) from the Payment (including from any additional amount paid or payable as a result of an adjustment under this clause);

10.4.2 the amount of any Tax charged on the Payment (including on any additional amount paid or payable as a result of an adjustment under this clause) in the hands of the person receiving Payment (together with the amount referred to in clause 10.4.1, the “Tax Considerations”);

the person in receipt of such Payment will be in the same position (on an After-Tax Basis) as it would have been in if there had been no such Tax Considerations.

10.5 If any deduction or withholding is made from any Payment, the person making Payment will pay to the relevant Tax Authority the amount deducted or withheld in a timely manner, and will supply to the person receiving Payment within 30 days of such payments to such Tax Authority being made, an official receipt or other evidence of such payment.

10.6 The payment of an additional sum pursuant to clause 10.4 shall not be increased as a result of an assignment pursuant to clause 17 of the benefit of the rights of any party under this Agreement, other than: (a) an assignment by the Buyer to either of Springboard Acquisition Corp. or SLP III Cayman DS IV S.à.r.l (or any person that was previously named SLP III Cayman DS IV S.à.r.l); and (b) an assignment by the Buyer or any Buyer’s Group Undertaking resulting from any restructuring of the acquisition structure agreed by the parties prior to Completion.

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Transfer Taxes Etc.

10.7 The Buyer shall pay, or shall reimburse the Sellers for, any stamp, registration (including notarial fees), transfer or other similar Taxes (including interest and penalties thereon) payable in connection with any of the Transactions or the execution, performance and enforcement of any Transaction Agreement or any other document relating to the Transaction Agreements including, for the avoidance of doubt, any sales Taxes, use Taxes, transfer Taxes and other similar Taxes (for the avoidance of doubt excluding, for purposes of this clause 10.7, VAT) that may become payable in connection with the sale of the Shares by the Sellers to the Buyer or any of the other Transactions.

11. EMPLOYEE ISSUES

11.1 The Buyer agrees with the Sellers that the employees of the Group Companies, so long as they continue employment with the Group Companies following Completion at the relevant time (“Continuing Employees”), shall, for a period of one year following the Completion Date, be entitled to receive: (a) base pay and target cash bonus opportunities similar but no less favorable in the aggregate than the base pay and target cash bonus opportunities to which they were entitled immediately prior to the date of this Agreement; and (b) employee pension and welfare benefits that are reasonably comparable, but not less favorable in the aggregate, to those in place as of the date of this Agreement.

11.2 The Sellers will procure that, within a reasonable period prior to the Completion Date, the Company will offer Joshua Silverman and Daniel Berg (the “Parent Employees” and each a “Parent Employee”), employment with the Company to take effect on or before the Completion Date, on substantially similar (but no less favorable) terms and conditions as such Parent Employee enjoyed immediately prior to the date of this Agreement (including all change in control or similar arrangements currently in effect, but excluding any arrangements that would provide change of control benefits upon or following a change of control that is unrelated to the Transactions). Parent will use its reasonable endeavours to obtain the acceptance by the Parent Employee of the offer of employment by the Company. The Sellers shall provide the Buyer with a reasonable opportunity to review and comment on such offers in advance and shall consider in good faith any reasonable comments made by the Buyer with respect thereto.

11.3 Following the Completion Date, the Buyer shall procure that the Company complies with the terms of Parent’s Retention Bonus Plan for Skype Employees (the “Retention Plan”) and administer the payments to be made thereunder. The Retention Plan shall not be amended in a manner adverse to the Buyer without the Buyer’s prior written consent (which consent may not be unreasonably withheld or delayed). Parent shall promptly reimburse the Company for any payments made by the Company pursuant to and in compliance with the terms of the Retention Plan; provided, however, that Parent’s obligation to reimburse the Company shall be made on an After-Tax Basis. For this purpose, reimbursement on an After-Tax Basis shall mean that the reimbursement otherwise payable shall be (i) reduced by all reductions in Taxes payable by the Company or any Affiliate thereof as a result of the Company making payments pursuant to the terms of the Retention Plan, (ii) increased by all increases in Taxes payable by the Company or any Affiliate thereof as a result of the Company making payments pursuant to the terms of the Retention Plan, and (iii) increased by any increase in Taxes payable by the Company as a result of the reimbursement by Parent to the Company for payments made by the Company pursuant to this Section 11.3.

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11.4 The Sellers shall, and shall procure that each Seller’s Group Undertaking shall, defend, indemnify and hold harmless the Buyer’s Group Undertakings and their respective Representatives from and against any and all Losses suffered or incurred by any of them that result directly from the actions or inactions of the Seller’s Group Undertakings or their Representatives with respect to an employee benefit plan, policy, program or arrangement maintained by any Seller’s Group Undertaking, except to the extent such Losses were the result of actions or inactions of the Buyer’s Group Undertakings or their Representatives. For the avoidance of doubt, (i) this provision shall not apply to benefits or other obligations payable by the Group Companies as participating employers in any such plan, policy, program or arrangement and (ii) any Loss subject to this provision shall not be subject to the provisions of paragraph 1 of Schedule 5.

11.5 Nothing contained herein, express or implied: (a) shall be construed to establish, amend or modify any Plan (as defined in paragraph 13 of Schedule 4) or any benefit plan, program, agreement or arrangement of the Buyer’s Group Undertakings; (b) is intended to confer or shall confer upon any Continuing Employee any right to employment or continued employment for any period of time by reason of this Agreement, or any right to a particular term or condition of employment; (c) is intended to confer or shall confer upon any person (including directors, officers, employees or consultants (whether current, former or retired) or their dependents, spouses or beneficiaries) any right as a third party beneficiary of this Agreement; or (d) shall be deemed to confer upon any such person any rights under or with respect to any plan, program or arrangement described in or contemplated by this Agreement, and each such person shall be entitled to look only to the express terms of any such plans, programs or arrangements for his or her rights thereunder.

11.6 The Buyer shall procure that, following Completion, the Company makes all monetary payments required to be made to the Parent Employees and any employees of the Company in connection with the Transactions under the terms of the change of control agreements and arrangements in effect as of the date of this Agreement set out in clause 12.1.5 of Schedule 1.2 of Schedule A of the Disclosure Letter.

12. CONFIDENTIAL INFORMATION

12.1 For purposes of this clause 12:

12.1.1 “Buyer Confidential Information” means any Confidential Information of any Buyer’s Group Undertaking (including, solely following Completion, any Group Company);

12.1.2 “Confidential Information” of a particular person, means any information concerning such person or any subsidiary undertaking of such person that has been or is furnished (prior to or after the date of this Agreement) by or on behalf of such person, any subsidiary undertaking of such person or any of their respective Representatives to a Recipient or any of such Recipient’s Representatives in connection with the Transactions (or, with regard to Parent only, in connection with Parent’s role as a shareholder of the Buyer), including all notes, analyses, summaries, compilations, studies, derivations, interpretations or other documents (whether in oral or written form, electronically stored or otherwise), whether prepared by such person, such Recipient or any of their respective Representatives, which contain, reflect or are based upon, in whole or

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in part, the information furnished to such Recipient or its Representatives by or on behalf of such person or any of it Representatives; provided, however, that term “Confidential Information” of a person does not include information that:

(a) is or becomes (through no breach of this clause 12 by the Recipient and through no action or omission of any of the Recipient’s Representatives that would constitute a breach of this clause 12 if taken or omitted by the Recipient) generally available to the public;

(b) is or was disclosed to the Recipient or its Representatives by a third party without restriction, provided that such third party was not, to the Recipient’s knowledge after reasonable inquiry, bound by any legal, contractual or other obligation of confidentiality to such person, any subsidiary undertaking of such person or any other third party;

(c) was already in the Recipient’s possession or known to it (other than information furnished to the Recipient or its Representatives pursuant to a confidentiality agreement, or furnished by or on behalf of such person, any subsidiary undertaking of such person or any other person that was, to the Recipient’s knowledge, bound by any legal, contractual or other obligation of confidentiality to such person, any subsidiary undertaking of such person or any other third party with respect to such information); or

(d) has been developed by, on behalf of or for, the Recipient independently of (and without reference to) information disclosed to it by or on behalf of such person or any subsidiary undertaking of such person.

12.1.3 “Disclosing Party” means: (a) the Buyer, with respect to any Buyer Confidential Information; and (b) Parent, with respect to any Seller Confidential Information;

12.1.4 “Recipient” means: (a) the Buyer, to the extent the Buyer or any of its Representatives receive or have received Seller Confidential Information prior to or following Completion; and (b) Parent, to the extent Parent or any of its Representatives receive or have received Buyer Confidential Information prior to or following Completion;

12.1.5 “Seller Confidential Information” means any Confidential Information of any Seller’s Group Undertaking (other than, solely following Completion, the Group Companies); and

12.1.6 “Use” means, with respect to a particular Recipient: (a) prior to Completion, to use any Confidential Information of the Disclosing Party in any manner (including, with regard to any Buyer’s Group Undertaking only, in any competitive manner with respect to the Company’s business) other than to complete the Transactions; and (b) following Completion, to use any Confidential Information in any manner whatsoever.

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12.2 Each Recipient and its Representatives: (a) shall keep all Confidential Information of the Disclosing Party confidential ; (b) shall not (except as required, based on the advice of its legal advisers, by applicable law or the rules or procedures of any Governmental Entity having, or claiming to have, jurisdiction over Recipient, and only after compliance with clause 12.3), without the Disclosing Party’s prior written consent, disclose any Confidential Information of the Disclosing Party in any manner whatsoever; and (c) except as otherwise provided in this Agreement, shall not Use any Confidential Information of the Disclosing Party; provided, however, that a Recipient may reveal the Confidential Information of the Disclosing Party to Representatives of such Recipient who: (i) need to know such Confidential Information for the purpose of completing the Transactions, providing financing for the Transactions or assisting in such activities; and (ii) are informed by Recipient of the confidential nature of the Confidential Information and agree to comply with the obligations set forth in this clause 12 (it being understood that those Representatives of such Recipient that agreed to comply with the obligations set forth in a Confidentiality Agreement shall be deemed to have agreed to comply with the obligations set forth in this clause 12). Each Recipient shall be responsible for any action or omission by any of its Representatives that would constitute a breach of this clause 12 if taken or omitted by such Recipient. Each Recipient hereby agrees to take all reasonable action necessary to prevent the use of any Confidential Information of the Disclosing Party by such Recipient or any of its Representatives in a way that would violate this clause 12 or other applicable law.

12.3 In the event that a Recipient or any of its Representatives is required, based on the advice of its legal advisers, pursuant to applicable law (whether by oral questions, interrogatories, requests for information or documents, subpoena, civil or criminal investigative demand or other process) to disclose any Confidential Information of the Disclosing Party, such Recipient shall, to the extent legally permissible and practicable, notify the Disclosing Party promptly so that the Disclosing Party may seek a protective order or other appropriate remedy. In the event that no such protective order is obtained before such Confidential Information is required to be disclosed, such Recipient or its applicable Representative, as the case may be, shall furnish only that portion of such Confidential Information that it is advised by its legal advisers is required to be disclosed and shall exercise all reasonable endeavours, at the Disclosing Party’s expense, to obtain reliable assurance that confidential treatment shall be accorded such Confidential Information. In addition, to the extent legally permissible and practicable, such Recipient shall provide the Disclosing Party, in advance of any such disclosure, with copies of any such Confidential Information that such Recipient intends to disclose (and, if applicable, the text of any disclosure language, statement or announcement) and shall reasonably cooperate with the Disclosing Party, at the Disclosing Party’s expense, to the extent the Disclosing Party may seek to limit such disclosure. A disclosure made in compliance with this clause 12.3 shall not constitute a breach of this clause 12 but shall not relieve a Recipient or any Representative of a Recipient of any liability it may have for other disclosures not permitted by this clause 12.3.

12.4 Each Recipient acknowledges and agrees that to the extent that any Confidential Information of the Disclosing Party is covered or protected by privilege, then disclosing such Confidential Information to a Recipient or any of its Representatives should not constitute a waiver of privilege or any other rights which the Disclosing Party or any of its Representatives may have in respect of such Confidential Information. Each Recipient further acknowledges and agrees that such Recipient and its Representatives shall assert, at the expense and direction of the person wishing to assert privilege or rights, such

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privilege where appropriate in response to any attempt to compel disclosure of the Confidential Information.

12.5 This clause 12 shall terminate two years from the date of this Agreement; provided, however, that the termination of this clause 12: (a) shall not relieve a Recipient with respect to any breach of this clause 12 that occurred prior to such termination; and (b) shall not relieve a Recipient with respect to any action or omission taken or omitted by any Representative of such Recipient prior to such termination if such action or omission would constitute a breach of this clause 12 if taken or omitted by such Recipient.

13. ANNOUNCEMENTS

13.1 Subject to clauses 13.2 and 13.3: (a) the Buyer shall procure that none of the Buyer’s Group Undertakings and none of the Representatives of the Buyer’s Group Undertakings, before or after Completion, makes or issues a public announcement, communication or circular concerning the Transactions unless such person has first obtained the Sellers’ written consent, which may not be unreasonably withheld, delayed or conditioned; and (b) the Sellers shall procure that none of the Seller’s Group Undertakings and none of the Representatives of the Seller’s Group Undertakings, before or after Completion, makes or issues a public announcement, communication or circular concerning the Transactions unless such person has first obtained the Buyer’s written consent, which may not be unreasonably withheld, delayed or conditioned.

13.2 Clause 13.1 does not apply to a public announcement, communication or circular:

13.2.1 made or issued by the Buyer, any Buyer’s Group Undertaking or any Representative thereof after Completion to a customer, client or supplier of a Group Company informing it of the Transactions;

13.2.2 required by law, by a rule of a listing authority or stock exchange to which any of the Sellers, any Seller’s Group Undertaking, the Buyer or any Buyer’s Group Undertaking is subject or submits or by a Governmental Entity or other authority with relevant powers to which any party is subject or submits, whether or not the requirement has the force of law;

13.2.3 which the other party has given its prior written approval to, such approval not to be unreasonably withheld, delayed or conditioned; or

13.2.4 that contains information that, in whole or in part, is substantially similar to information disclosed in any other public announcement, communication or circular that was made or issued in compliance with the terms of clause 13.

13.3 Parent may disclose the existence and terms of this Agreement and any other agreements entered into in connection with the Transactions, and may file this Agreement and any such other agreements, on a Current Report on Form 8-K and in other filings made by Parent with the U.S. Securities and Exchange Commission after the date of this Agreement, provided that the Buyer and its Representatives are afforded a reasonable opportunity to review and comment on any such filings in advance and Parent considers any comments made by the Buyer and its Representatives in good faith.

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13.4 The restrictions contained in clause 13 shall continue to apply after the termination of this Agreement without limit in time.

14. COSTS

Except where this Agreement provides otherwise or as otherwise set forth in the Shareholders Agreement, each party shall pay its own costs relating to the negotiation, preparation, execution and performance by it of this Agreement and of each document referred to in this Agreement.

15. ENTIRE AGREEMENT

In this clause 15, the following applies:

“Representation” means an assurance, commitment, condition, covenant, guarantee, indemnity, representation, statement, undertaking or warranty of any sort whatsoever (whether contractual or otherwise, oral or in writing, or made negligently or otherwise) in each case relating to the Transactions; and

The Transaction Agreements constitute the entire agreement between the parties. They supersede any previous agreements relating to the subject matter hereof and thereof, and set out the complete legal relationship of the parties arising from or connected with that subject matter.

15.1 Accordingly, the Buyer:

15.1.1 represents and agrees that

(a) no Seller’s Group Undertaking or Representative of any Seller’s Group Undertaking has made any representation or warranty that the Buyer considers material, except those set out in the Transaction Agreements; and

(b) it has not entered into this Agreement or any of the other Transaction Agreements in reliance on any Representation, except those set out in the Transaction Agreements;

and will not contend to the contrary; and

15.1.2 for the avoidance of doubt agrees that:

(a) no Seller’s Group Undertaking (except the Sellers) or Representative of any Seller’s Group Undertaking has any liability to the Buyer for any Representation, except for Representations expressly set out in a Transaction Agreement to which such Seller’s Group Undertaking is a party, if any;

(b) no Seller’s Group Undertaking has any liability of any kind to the Buyer for any Representation except in respect of those set out in the Transaction Agreements; and

(c) its only rights and remedies in respect of any Representations are those rights and remedies set out in the Transaction Agreements.

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15.2 The Buyer acknowledges and agrees that none of the Seller’s Group Undertakings gives any warranty, representation or undertaking as to the truth, accuracy or completeness of any information and/or documentation, including: (a) the contents of the Disclosure Letter; (b) the Data Room Information; and/or (c) any forecasts, estimates, projections, statements of intent or statements of opinion provided to any of the Buyer’s Group Undertakings or any of their Representatives (howsoever provided), in each case other than as set out in the Transaction Agreements.

15.3 Only the parties that are signatories to the Transaction Agreements shall have any obligation or liability thereunder, or in connection therewith or in any way related thereto (except to the extent that any third-party beneficiary rights are expressly provided in the applicable Transaction Agreements), and, in any event, there shall be no recourse to any other person.

16. GENERAL

16.1 A variation of this Agreement is valid only if it is in writing and signed by or on behalf of each party.

16.2 Subject to clause 3.8, the failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not impair or constitute a waiver of the right or remedy or an impairment of or a waiver of other rights or remedies. Subject to clause 3.8, no single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or, save as referred to in clause 15, the exercise of another right or remedy.

16.3 Except as provided in clause 3.8, each party’s rights and remedies contained in this Agreement are cumulative and not exclusive of rights or remedies provided by law. Except as provided in clause 3.8, each party agrees that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that, subject to clause 3.8: (a) in addition to any other rights or remedies available to it under this Agreement or by law, each party shall be entitled to the remedies of injunction, specific performance and other equitable relief, or any combination of these remedies, for any threatened or actual breach of the terms of this Agreement by the other party, in any case regardless of whether its remedies at law are (or may be deemed to be) adequate; and (b) a party shall not assert any defences to any claim or action by the other party for an injunction, specific performance or other equitable relief (or any combination of such remedies) for any threatened or actual breach of the terms of this Agreement by the other party.

16.4 Except to the extent that they have been performed and except where this Agreement provides otherwise, the obligations contained in this Agreement shall remain in force after Completion.

16.5 If a party fails to pay a sum due from it under this Agreement on the due date of payment in accordance with the provisions of this Agreement, that party shall pay interest on the overdue sum from the due date of payment until the date on which its obligation to pay the sum is discharged at the Agreed Rate (accrued daily and compounded), together with all reasonable fees and costs (including reasonable attorneys’ fees and costs) incurred by the party seeking payment in connection with such party’s pursuit of such payment.

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16.6 Any payment (other than a payment of interest) between a Seller and the Buyer in consequence of a breach of any representation or warranty, or pursuant to any indemnity or covenant to pay, in this Agreement shall, to the extent possible, be treated by the Sellers and the Buyer as an adjustment to the Purchase Price.

16.7 Save as otherwise provided herein, any payment to be made by any party under this Agreement or otherwise shall be made in full without any set-off, restriction, condition or deduction for or on account of any counterclaim.

16.8 If at any time any provision of this Agreement, or the application of such provision to any person or any circumstance, is or becomes illegal, invalid or unenforceable under the laws of any jurisdiction, that shall not affect:

16.8.1 the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or

16.8.2 the legality, validity or enforceability under the laws of any other jurisdiction of that or another provision of this Agreement;

provided that, if any provision of this Agreement, or the application of such provision to any person or any circumstance, becomes illegal, invalid or unenforceable under the laws of any jurisdiction, a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision.

16.9 Other than in respect of any directors and statutory auditors referred to in clause 5.3, who shall be entitled to enforce their rights thereunder (each, a “Third Party Beneficiary”), a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act. This Agreement may be varied or amended without consent being required from a Third Party Beneficiary. For the avoidance of doubt, except as provided in clause 5.3, no employee of a Group Company shall be a Third Party Beneficiary.

16.10 Pursuant to the terms and conditions of the Transaction Agreements and the Financing Letters, each party shall agree to take such further actions (including making such public filings, executing agreements, delivering other documents and incurring reasonable costs and expenses) as are reasonably necessary to carry out or evidence any of the Transactions or the Financing.

16.11 If Completion occurs, Parent shall procure the assignment to the Buyer of the benefit of all confidentiality agreements and confidentiality undertakings given since October 14, 2005 in favour of any Seller’s Group Undertaking (other than any Group Company) by any other potential buyer of any Group Company or substantially all of its assets but only to the extent that:

16.11.1 such assignment is permitted by the terms of such agreements and undertakings without the consent of the other party thereto; and

16.11.2 such confidentiality provisions relate to the business of a Group Company.

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16.12 Where any liability or obligation of one Seller is discharged (in whole or in part), which shall include release, accord and satisfaction or otherwise, or is or becomes illegal, invalid or unenforceable in any respect, that shall not affect or impair any liability or obligation of any other Sellers.

17. ASSIGNMENT

No party to this Agreement shall assign, transfer, declare a trust for the benefit of or in any other way alienate any of its rights under this Agreement whether in whole or in part without the consent of the other parties, except that: (a) any Seller may, without the consent of the Buyer or any other person, assign, transfer, declare a trust for the benefit of or otherwise alienate its rights to receive any portion of the Purchase Price (including upon repayment of the Seller Subordinated Note) or the Termination Fee; and (b) the Buyer may, without the consent of the Sellers: (i) assign, pledge or otherwise transfer (by way of security or otherwise) its rights and benefits under this Agreement to its lenders in connection with any debt financing; or (ii) assign, pledge or otherwise transfer its rights, benefits and obligations under this Agreement to any direct or indirect wholly-owned subsidiary of the Buyer, provided that, in case of this clause (ii), the Buyer remain liable for such subsidiary’s due and punctual performance of its obligations hereunder.

18. NOTICES

18.1 A notice or other communication under or in connection with this Agreement (a “Notice”) shall be:

18.1.1 in writing;

18.1.2 in the English language; and

18.1.3 delivered personally or by Federal Express (or similar courier) or by fax to the party due to receive the Notice to: (a) the address set out in clause 18.3; or (b) an alternative address or fax number specified by that party by not less than seven days’ written notice to the other party received before the Notice was dispatched.

18.2 Unless there is evidence that it was received earlier, a Notice is deemed given if:

18.2.1 delivered personally, when left at the address referred to in clause 18.1.3;

18.2.2 sent by Federal Express (or similar courier), three Business Days after sending it; and

18.2.3 sent by fax, when confirmation of its transmission has been recorded by the sender’s fax machine.

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18.3 The address referred to in clause 18.1.3 is:

Name of party	Address	Fax No.	Marked for the attention of
The Sellers	eBay Inc. 2145 Hamilton Avenue San Jose, California 95125 United States	+1 408 376 7514	General Counsel
	eBay International AG Helvetiastrasse 15/17 CH-3005, Bern Switzerland	+41 31 359 0500	Chief Financial Officer
The Sellers’ agent for service of process	eBay (UK) Limited 5 New Street Square London EC4A 3TW United Kingdom	+44 20 8605 3001	Country Manager
with a copy (which shall not constitute notice) to:	Sidley Austin LLP Woolgate Exchange 25 Basinghall Street London EC2V 5HA United Kingdom	+44 20 7626 7937	Thomas Thesing
The Buyer	Springboard Group S.à.r.l. 65 Boulevard Grande-Duchesse Charlotte L-1311 Luxembourg	+352 2638 3507	Board of Managers
with a copy (which shall not constitute notice) to:	Silver Lake 2775 Sand Hill Road Suite 100 Menlo Park, CA 94025 United States	+1 650 233 8125	General Counsel
with a copy (which shall not constitute notice) to:	Sullivan & Cromwell LLP 1 New Fetter Lane London EC4A 1AN United Kingdom	+44 20 7959 8950	Richard C. Morrissey and Richard A. Pollack
The Buyer’s agent for service of process	Silver Lake Europe LLP Broadbent House 65 Grosvenor Street London W1K 3JH United Kingdom	+44 20 3205 8401	Counsel

19. ACCESS TO BOOKS AND RECORDS

After Completion, the Buyer shall give the Sellers and their Representatives reasonable access during normal business hours to (and shall allow the Sellers and their Representatives to make copies of) any books and records and financial data of any Group Company as may be necessary for: (a) preparation of Tax returns and financial statements; (b) management and handling of any Tax audits and Tax disputes; and (c)

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complying with any audit request, subpoena or other investigative demand by any Governmental Entity; and (d) for any other reasonable purpose. In addition, each party shall, and, following Completion, the Buyer shall procure that each Group Company shall, from time to time, it becomes aware of a claim against another party hereto, and, until the expiration of the relevant time limits relating to such claim set out in paragraph 2 of Schedule 5, preserve all documents, records, correspondence, accounts and other information whatsoever relevant to such claim.

20. GOVERNING LAW AND JURISDICTION

20.1 This Agreement (including any non-contractual obligations arising out of or in connection with it) is governed by English law.

20.2 The courts of England have exclusive jurisdiction to settle any dispute arising from or connected with this Agreement (a “Dispute”) including a dispute regarding the existence, validity or termination of this Agreement or the consequences of its nullity.

20.3 The parties agree that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that they will not argue to the contrary.

21. SERVICE OF PROCESS

21.1 Without prejudice to any other mode of service allowed under any relevant law, the Buyer:

21.1.1 irrevocably appoints Silver Lake Europe LLP, Broadbent House, 65 Grosvenor Street, London W1K 3JH, United Kingdom, (fax: + 44 20 3205 8401) as its agent on its behalf in England or Wales for service of process in relation to any proceedings before the English courts in connection with any Transaction Agreement; and

21.1.2 agrees that failure by a process agent to notify the Buyer of the process will not invalidate the proceedings concerned.

21.2 Without prejudice to any other mode of service allowed under any relevant law, each of the Sellers:

21.2.1 irrevocably appoint eBay (UK) Limited, 5 New Street Square, London, EC4A 3TW, United Kingdom (fax +44 20 8605 3001) as its agent on its behalf in England or Wales for service of process in relation to any proceedings before the English Courts in connection with any Transaction Agreement; and

21.2.2 agrees that failure by a process agent to notify the Sellers of the process will not invalidate the proceedings concerned.

21.3 If any person appointed as process agent is unable for any reason to act as agent for service of process, then the Buyer or the Sellers (as the case may be) must immediately (and in any event within three Business Days of such event taking place) appoint another agent on terms acceptable to the Buyer or the Sellers (as the case may be) and deliver to the other party(ies) the new agent’s name, address and fax number within England and Wales.

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22. COUNTERPARTS

This Agreement may be executed in any number of counterparts (including by way of electronic transmission in .PDF format or by fax), each of which when executed and delivered is an original and all of which together evidence the same agreement.

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SCHEDULE 2

CONDITIONS TO COMPLETION

1. All filings and consents required to be made or obtained under applicable antitrust or competition laws imposing a suspensory obligation in connection with the Transactions shall have been made or obtained and any waiting period under any such laws shall have expired or been terminated.

2. (a) The Sellers’ Warranties contained in paragraphs 1.1.1, 1.2 and 2.2 of Schedule 4 shall have been true and correct in all material respects as of the date of this Agreement and shall remain true and correct in all material respects as of Completion as if repeated immediately prior to Completion; and (b) except as provided in the preceding clause “(a),” the other Sellers’ Warranties shall have been true in all material respects as of the date of this Agreement and shall remain true and correct as of Completion as if repeated immediately prior to Completion (except to the extent that any such Sellers’ Warranty speaks as of another earlier date, in which case such Sellers’ Warranty shall be true and correct as of such other earlier date), save to the extent that the failure of such other Sellers’ Warranties to be true and correct or to remain true and correct as if so repeated, individually or in the aggregate, would not (and would not reasonably be expected to) result in a Material Adverse Change (it being understood that, for purposes of determining the accuracy of the Sellers’ Warranties referred to in this clause “(b),” all “Material Adverse Change” qualifiers contained in such Sellers’ Warranties shall be disregarded).

3. The covenants and undertakings that the Sellers are required to comply with or to perform under this Agreement at or prior to Completion shall have been complied with and performed in all material respects, and for the purposes of this condition to Completion such covenants and undertakings (other than the covenants and undertakings set forth in paragraphs 4, 11 and 12 of Schedule 7) shall be deemed to have been complied with and performed unless any failure to comply with or perform such covenants or undertakings would result in (or would be reasonably expected to result in) a Material Adverse Change or a material adverse effect on the Buyer’s ability to complete the purchase of the Shares.

4. No change, development or event, or combination of changes, developments or events, shall have occurred after the date of this Agreement that, individually or in the aggregate, has had, or would reasonably be expected to result in, a Material Adverse Change.

5. No temporary restraining order, preliminary or permanent injunction or other order preventing, enjoining, restraining or otherwise prohibiting Completion (an “Order”) has been issued by any court of competent jurisdiction and remains in effect, and no law is in force that makes Completion illegal.

6. There shall not be threatened in writing or pending any suit, action or proceeding in which a Governmental Entity of competent jurisdiction is seeking: (a) an Order; or (b) to prohibit the Buyer’s ownership of the Shares.

7. The Company shall not have entered into a final, binding and complete Settlement of the Pending Joltid Legal Proceeding without the consent of the Buyer; provided that this condition shall be deemed to have been fully satisfied if the Company shall have entered

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into such a Settlement and such Settlement imposes no material obligation on the Group Companies other than the obligation to make a lump-sum cash payment.

8. No injunction or series of injunctions shall have been issued by a court (or courts) of competent jurisdiction in any Joltid Litigation, or in any Specified Legal Proceedings, that remain in effect and that prevent the Group Companies from continuing to make the Company’s Internet communications product available on a long-term basis in jurisdictions in which the Group Companies generated in the aggregate more than 50% of their revenues or in which more than 75% of their active users are registered for the six months ended 30 June 2009.

9. (a) The Buyer’s Warranties contained in paragraphs 1, 4 and 5 of Schedule 6 shall have been true and correct in all material respects as of the date of this Agreement and shall remain true and correct in all material respects as of Completion as if repeated immediately prior to Completion; and (b) except as provided in the preceding clause “(a),” the other Buyer’s Warranties shall have been true and correct as of the date of this Agreement and shall remain true and correct as of Completion as if repeated immediately prior to Completion (except to the extent that any Buyer’s Warranty speaks as of another earlier date, in which case such Buyer’s Warranty shall be true and correct as of such other earlier date), save to the extent that the failure of the Buyer’s Warranties to be true and accurate or remain true and accurate as if so repeated, individually or in the aggregate, would not (and would not reasonably be expected to) have a material adverse effect on the ability of any Buyer to complete any of the Transactions or to perform any of its obligations hereunder

10. The covenants and undertakings that the Buyer is required to comply with or to perform under this Agreement at or prior to Completion shall have been complied with and performed in all material respects, and for the purposes of this condition such covenants and undertakings (other than the covenants and undertakings set out in clause 7 of the Agreement) shall be deemed to have been complied with and performed unless any failure to comply with or perform such covenants or undertakings has had (or would reasonably be expected to have) a material adverse effect on the ability of any Buyer to complete any of the Transactions or to perform any of its obligations hereunder.

11. No new laws, rules or regulations shall have been adopted (and no existing laws, rules or regulations shall have been amended or interpreted in such a way) that prevent the Group Companies from continuing to make the Company’s Internet communications product available on a long-term basis in jurisdictions in which the Group Companies generated in the aggregate more than 50% of their revenues or in which more than 75% of their active users are registered for the six months ended 30 June 2009.

12. Receipt by the Buyer of the items to be delivered to the Buyer pursuant to paragraphs 1.1.1, 1.1.2, 1.1.7 to 1.1.13 and 1.3 of Schedule 3.

13. Receipt by the Sellers of the items to be delivered to the Sellers pursuant to paragraphs 2.1, 2.3.1 to 2.3.3 and 2.4 of Schedule 3.

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SCHEDULE 3

COMPLETION REQUIREMENTS

1. SELLER’S OBLIGATIONS

1.1 At Completion each of the Sellers shall deliver to the Buyer:

1.1.1 the share certificate(s), if any, for the Shares held by such Seller (which share certificates for US Sub shall be duly endorsed for transfer to the Buyer) along with resolutions of the Sellers and all other documents in respect of the transfer of the Luxembourg Sub Shares to the Buyer as required under Luxembourg law;

1.1.2 as evidence of the authority of each person executing a document referred to in this Schedule 3 on behalf of any Seller’s Group Undertaking:

(a) with respect to such Seller’s Group Undertaking, a copy of the minutes of a duly held meeting of the directors of such Seller’s Group Undertaking (or a duly constituted committee thereof) authorising the execution by such Seller’s Group Undertaking of the document and, where such execution is authorised by a committee of the board of directors of such Seller’s Group Undertaking, a copy of the minutes of a duly held meeting of the directors constituting such committee or the relevant extract thereof; or

(b) if applicable, a copy of the power of attorney conferring the authority, in each case certified to be a true copy by a director or officer of the relevant Seller’s Group Undertaking;

1.1.3 the common seal (if any) for each Group Company;

1.1.4 share certificates, if any, for all issued shares in the capital of each Subsidiary Undertaking;

1.1.5 a copy of a letter to each Group Company from its auditors resigning such auditor’s office with effect from Completion;

1.1.6 resignations in the agreed form from each director and secretary, if any, of each Group Company expressed to take effect from the end of the meetings held pursuant to paragraph 1.2;

1.1.7 the Transitional Services Agreement duly executed by Parent and the Company;

1.1.8 the Shareholders Agreement duly executed by Parent;

1.1.9 a certificate (the “Sellers’ Completion Certificate”), duly executed on behalf of the Sellers by an executive officer of Parent, in which such executive officer certifies that the conditions set out in paragraphs 2 and 3 of Schedule 2 have been satisfied;

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1.1.10 with respect to US Sub, a certificate pursuant to U.S. Treasury Regulation Section 1.1145-2(b)(2)(iv) that Parent is not a foreign corporation, foreign partnership, foreign trust or foreign estate;

1.1.11 an Office Transition Agreement in the form attached as Annex I to the Agreement (the “Office Transition Agreement”), duly executed by Parent and the Company;

1.1.12 a Cross-License Agreement in the form attached as Annex J to the Agreement (the “Cross-License Agreement”), duly executed by Parent and the Company;

1.1.13 the PayPal Agreement duly executed by Skype Communications S.a.r.l. and PayPal (Europe) S.a.r.l. & Cie, SCA; and

1.1.14 the Tax Cooperation Agreement duly executed by Parent.

1.2 To the extent necessary under applicable law for the actions contemplated by paragraphs 1.2.1 or 1.2.2 of this Schedule 3 to be effective, at Completion a meeting of the board of directors of each Group Company is held at which the directors:

1.2.1 appoint persons nominated by the Buyer as directors, secretary and auditors of any Group Company with effect from the end of the meeting; and

1.2.2 accept the resignations of each director and secretary so as to take effect from the end of the meeting and give them valid discharge.

1.3 At Completion, Parent shall procure that any Intra-Group Debt that is owed as at the Completion Date by any Group Company to any Seller’s Group Undertaking (other than any Group Company), or by any Seller’s Group Undertaking (other than any Group Company) to any Group Company, is paid to the Seller’s Group Undertaking or Group Company, as applicable, to which such Intra-Group Debt is owed.

2. BUYER’S OBLIGATIONS

2.1 At Completion the Buyer shall deliver (or procure the delivery) to the Sellers as evidence of the authority of each person executing a Transaction Agreement on the Buyer’s behalf:

2.1.1 a copy of the minutes of a duly held meeting of the directors of the Buyer (or a duly constituted committee thereof) authorising the execution by the Buyer of the relevant document and, where such execution is authorised by a committee of the board of directors of the Buyer, a copy of the minutes of a duly held meeting of the directors of the Buyer constituting such committee or the relevant extract thereof; or

2.1.2 if applicable, a copy of the power of attorney conferring the authority, in each case, certified to be a true copy by a director or the secretary of such Buyer;

2.2 At Completion, the Buyer shall comply with its obligations under and in accordance with clauses 3.4.1, 3.4.2, 3.4.3 and 3.4.4 of this Agreement in full.

2.3 At Completion, the Buyer shall deliver to the Sellers:

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2.3.1 the Office Transition Agreement duly executed by the Buyer;

2.3.2 the Shareholders Agreement, duly executed by the Buyer and each of the Buyer’s Pre-Completion Shareholders; and

2.3.3 the Tax Cooperation Agreement duly executed by the Buyer.

2.4 At Completion, the Buyer shall deliver or procure to be delivered to the Sellers a certificate (the “Buyer’s Completion Certificate”), duly executed on behalf of the Buyer by an executive officer of the Buyer, in which such executive officers certify that the conditions set out in paragraphs 9 and 10 of Schedule 2 have been satisfied.

2.5 At Completion, the Buyer shall provide the Sellers with all of the information required for the Sellers to comply with paragraph 1.2.2 above and acceptance letters from the new directors, auditors and secretary.

3. REGISTRATION OF TRANSFER AT COMPLETION

3.1 On Completion or as soon as reasonably practicable thereafter, each of the Sellers and the Buyer shall register and execute the transfer of the Shares in the shareholders’ register of Luxembourg Sub, US Sub or Sonorit Holding, as the case may be, or shall duly authorise any member of the board of directors of Luxembourg Sub, US Sub or Sonorit Holding to register and execute such transfer.

3.2 On Completion, the Sellers and the Buyer agree to notify Luxembourg Sub of the transfer of the Luxembourg Sub Shares to the Buyer for the purposes of article 190 of the Luxembourg law on commercial companies of 10 August 1915, as amended, and of article 1690 of the Luxembourg Civil Code.

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SCHEDULE 4

SELLERS’ WARRANTIES

1.	Capacity and Authority
2.	Organisation; Shares and Subsidiary Undertakings
3.	Accounts; Completion Cash; Indebtedness
4.	Changes since the Last Accounting Date
5.	Tax
6.	Tangible Assets
7.	Proprietary Information and Inventions Agreements
8.	Intellectual Property
9.	Insurance
10.	Property
11.	Agreements/Action
12.	Employment
13.	Pensions and other Benefits
14.	Insolvency, Winding up etc.
15.	Litigation; Compliance with Law; Permits
16.	Related Party Transactions
17.	Absence of Undisclosed Liabilities
18.	Brokers and Finders

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1. CAPACITY AND AUTHORITY

1.1 Right, power, authority and action

1.1.1 Each of the Sellers has the right, power and authority, and has taken all corporate action necessary, to execute, deliver and exercise its rights, and perform its obligations, under this Agreement and each other Transaction Agreement to which it is (or is to become) a party.

1.1.2 The execution and delivery by each Seller of, and the performance by each Seller of its obligations under, this Agreement or each other Transaction Agreement to which a Seller is (or is to become) a party will not:

(a) result in a breach of any provision of the constitutional documents of such Seller or any Group Company;

(b) conflict with, result in a breach of, constitute a default under, or result in, or provide for, the termination, amendment, cancellation or acceleration (whether after the giving of notice or the lapse of time or both) of any rights, obligations or penalties under, or result in a loss of any benefit under any agreement or instrument to which such Seller or any Group Company is a party or by which such Seller or Group Company is bound, which breach or default is material to the Business or is material in the context of the Transactions;

(c) result in a violation of any permit, concession, franchise or licence of any Governmental Entity to which such Seller is a party or is subject or by which any Seller or Group Company is bound, which violation is material to the Business or is material in the context of the Transactions;

(d) result in a violation of any law, rule or regulation applicable to any Seller or any Group Company which violation is material to the Business, is material in the context of the Transactions or is material to the Buyer;

(e) result in a violation of any order, judgment, decree, arbitral award or decision of any Governmental Entity to which any Seller or any Group Company is a party or is subject or by which such Seller or Group Company is bound, which violation is material to the Business or is material in the context of the Transactions;

(f) result in the creation of any Encumbrance on the Shares or any Encumbrance (other than a Permitted Encumbrance) on any material Owned Intellectual Property;

(g) require any Seller or Group Company to obtain any consent, licence or approval of, or give any notice to or make any filing or registration with, any Governmental Entity which has not been obtained, given or made as at the date hereof, in each case the failure of which would be material to the Business or material in the context of the Transactions.

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1.2 Binding agreements

This Agreement and the other Transaction Agreements which are to be entered into by each of the Sellers have been or will be duly executed and delivered by each of the Sellers, and do or will, when executed, constitute legal, valid and binding obligations of each of the Sellers enforceable against each of the Sellers in accordance with their respective terms, subject to applicable bankruptcy and insolvency laws and general principles of equity.

2. ORGANISATION; SHARES AND SUBSIDIARY UNDERTAKINGS

2.1 Organisation; Good Standing; Capacity

2.1.1 Each Group Company is validly organised, in existence and duly registered and/or in good standing (as applicable) under the laws of its jurisdiction of organisation, has all requisite corporate power and authority to carry on its Business.

2.1.2 All material returns, particulars, resolutions and other documents required to be delivered by each Group Company to the relevant commercial registry in its jurisdiction of organisation have been properly prepared and delivered.

2.2 The Shares

2.2.1 The Sellers, together, are the sole legal and beneficial owners of and have good and valid title to all of the Shares.

2.2.2 The Shares comprise the whole of the allotted and issued and outstanding share capital of the Company, US Sub and Sonorit Holding, and are duly authorized, validly issued and fully paid or credited as fully paid and are not subject to further claims. There are not outstanding: (a) any options, warrants, rights, agreements or commitments that provide for the issue or purchase from or by any Group Company of, or that are otherwise convertible into, exchangeable for or exercisable to acquire, any shares in the capital, or any other securities, of such Group Company; or (b) any rights, agreements or commitments by any Group Company to purchase, redeem or otherwise acquire any shares in its capital, or any other securities.

2.2.3 There is no Encumbrance, and there is no agreement to which the Sellers or the Company is bound, or to which its assets are subject that would result in the creation of an Encumbrance, on any of the Shares or unissued shares in the capital of any Group Company.

2.2.4 Other than this Agreement, there is no agreement to which the Sellers or any Group Company is bound, or to which its assets are subject that would result in the creation, allotment, issue, transfer, redemption or repayment of, or the grant to a person of the right to require the allotment, issue, transfer, redemption or repayment of, a share in the capital of a Group Company (including an option or right of pre emption or conversion).

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2.2.5 There are no stockholder agreements, voting trusts, proxies or other agreements or understandings to which any of the Sellers or Group Company is bound relating to the holding, voting, purchase, redemption or other acquisition of the Shares, and no agreements, commitments, arrangements, understandings or other obligations to declare, make or pay any dividends or distributions, whether current or accumulated, or due or payable, on the Shares.

2.3 Subsidiaries

2.3.1 The information set out in Schedule 1 is true, correct and not misleading.

2.3.2 The Company does not have a subsidiary undertaking other than the Subsidiary Undertakings.

2.3.3 The Company has no interest of any kind in a corporate body or any other person other than the Subsidiary Undertakings, and the Company has not agreed to acquire an interest in or merge or consolidate with any other person.

2.3.4 Each allotted and issued share in the capital of each Subsidiary Undertaking is legally and beneficially owned by a Group Company alone and is duly authorized, validly issued and fully paid or credited as fully paid and is not subject to further claims.

2.3.5 The relevant Group Company is the sole legal and beneficial owner of each share in the capital of all Subsidiary Undertakings. There is no Encumbrance, and there is no agreement to create or give an Encumbrance, on any share or unissued share in the capital of a Subsidiary Undertaking.

3. ACCOUNTS; COMPLETION CASH; INDEBTEDNESS

3.1 The Accounts have been prepared in accordance with generally accepted accounting principles in the United States on a consistent basis during the periods involved. The Accounts fairly present the financial condition and results of operations of the Group Companies as at 31 December 2006, 31 December 2007 and 31 December 2008 and of the profits and losses and statements of cash flow of the Group Companies for the years ended 31 December 2006, 31 December 2007 and 31 December 2008, all in accordance with generally accepted accounting principles in the United States.

3.2 As of immediately prior to Completion, the Group Companies will have cash, cash equivalents and marketable securities of at least €95,000,000 in the aggregate. As of Completion, none of the Group Companies will have any outstanding Indebtedness, other than capital leases that do not involve consideration or expenditures in excess of €8,000,000 annually in any individual case or €11,000,000 annually in the aggregate.

3.3 The accounting books and records required to be maintained by each Group Company under the laws of the jurisdiction of its organisation in all material respects:

(a) are up to date;

(b) are maintained in accordance with applicable law;

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(c) contain records of all matters required to be dealt with in such books and records; and

(d) are in the possession (or under the control) of the relevant Group Company.

3.4 The Interim Accounts will be prepared in accordance with generally accepted accounting principles in the United States and will fairly present the financial condition of the Group Companies as at the date of such Interim Accounts, all in accordance with generally accepted accounting principles in the United States, subject to normal and recurring year end adjustments and the absence of footnotes.

4. CHANGES SINCE THE LAST ACCOUNTING DATE

Since the Last Accounting Date:

4.1 the business of the Group Companies has been operated in the usual course of business consistent with past practice;

4.2 there has been no change, development or event or combination of changes, development or events that, individually or in the aggregate, have had or would reasonably be expected to result in a Material Adverse Change;

4.3 none of the Group Companies has declared, paid or made a dividend or distribution (whether in cash, stock or in kind);

4.4 there has been no material change in any method of accounting or accounting practice or policies by any Group Company; and

4.5 the Company has not created, allotted, issued, acquired, repaid or redeemed share or loan capital or made an agreement to do any of those things.

5. TAX

5.1 All material Tax Returns that have been required to be filed with respect to any Group Company have been timely filed, and all such Tax Returns are or will be true and complete in all material respects.

5.2 All Indemnified Taxes shown on the Tax Returns referred to in paragraph 5.1 have been timely paid in full.

5.3 No material action, suit, proceeding or audit or any written notice of inquiry with respect to the Tax Returns referred to in clause 5.1 above is ongoing or pending, or with respect to such Tax Returns has been threatened in writing and is ongoing or pending, in each case against or with respect to a Group Company regarding Indemnified Taxes.

5.4 All amounts assessed by a Tax Authority in respect of any deficiencies asserted in writing with respect to Indemnified Taxes as a result of any action, suit, proceeding or audit with respect to the Tax Returns referred to in clause 5.1 above have, to the extent that such amount is due and payable, been paid.

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5.5 No written waivers of statutes of limitation have been given by or requested by a Taxing Authority with respect to any Indemnified Taxes of any Group Company that are currently in effect.

5.6 The Group Companies will not be required, as a result of (A) a change in accounting method for a Tax period beginning on or before Completion to include any adjustment under Section 481(c) of the Code (or comparable provision of U.S. state and local law) in taxable income for any Tax period beginning on or after Completion, or (B) any “closing agreement” as described in Section 7121 of the Code(or comparable provision of U.S. state and local law), to include any item of income in or exclude any item of deduction from any Tax period beginning on or after Completion.

5.7 Since 14 October 2005, no Group Company has ever been a member of an affiliated, combined, consolidated or unitary Tax group for purposes of filing any Tax Return, other than a group with which Parent filed Tax Returns as the common parent and neither Parent nor any Group Company has received notice of, or is otherwise aware, of any liability for any Indemnified Tax as a result of being a member of an affiliated, combined, consolidated or unitary Tax group prior to such date.

5.8 No closing agreements, private letter rulings, technical advice memoranda or similar agreement or rulings have been entered into or issued by any Tax Authority with respect to any Group Company which would affect the Liability for Indemnified Taxes of a Group Company after Completion.

5.9 No Group Company has for U.S. tax purposes participated in any “listed transactions” within the meaning of Treasury Regulations Section 1.6011-4 with respect to which disclosure to the U.S. Internal Revenue Service was required.

5.10 Each Group Company has withheld all material amounts of Taxes (and timely paid such Taxes to the appropriate Governmental Entity) required to be withheld from payments to employees, customers and other applicable payees in material compliance with all Tax withholding provisions of applicable Tax Legislation.

5.11 Since 14 October 2005, no Group Company has been a distributing corporation or a controlled corporation within the meaning of Section 355 of the Code in a transaction intended to be governed by Section 355 of the Code, and to the knowledge of the Sellers, no Group Company was a distributing corporation or controlled corporation in such a transaction prior to such date.

5.12 No tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transfers contemplated by this Agreement.

5.13 Each of Skype Limited (Ireland), Skype Communications S.a.r.l. (Luxembourg) and Skype Software S.a.r.l. (Luxembourg) are treated as entities disregarded from its parent, within the meaning of U.S. Treasury Regulations Section 301.7701-3.

5.14 Other than Skype Limited (Ireland), Skype Communications S.a.r.l. (Luxembourg) and Skype Software S.a.r.l. (Luxembourg), each of the Group Companies is treated as a corporation for U.S. federal income tax purposes.

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5.15 The Luxembourg tax ruling issued to the Company dated 21 April 2005 is in full force and effect, and has not been modified in any way (whether by written or oral agreement) since the date it was issued.

5.16 (a) All material Other Tax Returns that have been required to be filed with respect to any Group Company have been timely filed, and all such Other Tax Returns are or will be true and complete in all material respects; (b) all Taxes shown on the Other Tax Returns referred to in clause “(a)” have been timely paid in full; (c) no material action, suit, proceeding or audit or any written notice of inquiry with respect to the Other Tax Returns referred to in clause “(a)” is ongoing or pending, or with respect to such Other Tax Returns has been threatened in writing and is ongoing or pending, in each case against or with respect to a Group Company regarding Taxes; (d) all amounts assessed by a Tax Authority in respect of any deficiencies asserted in writing with respect to Taxes that are not Indemnified Taxes as a result of any action, suit, proceeding or audit with respect to the Other Tax Returns referred to in clause “(a)” have, to the extent that such amount is due and payable, been paid; (e) no closing agreements, private letter rulings, technical advice memoranda or similar agreement or rulings have been entered into or issued by any Tax Authority with respect to any Group Company which would materially affect the liability for Taxes that are not Indemnified Taxes of a Group Company after Completion; (f) no Group Company has received in writing any notice from any Tax Authority in any jurisdiction to the effect that it is subject to a material amount of Tax in such jurisdiction other than a Tax Authority in a jurisdiction in which the relevant Group Company is currently filing returns, reports or similar filings; (g) since 14 October 2005, no Group Company has ever been a member of an affiliated, combined, consolidated or unitary Tax group for purposes of filing any Other Tax Return, other than a group with which Parent filed Other Tax Returns as the common parent, and neither Parent nor any Group Company has received notice of, or is otherwise aware of, any liability for any Tax that is not an Indemnified Tax as a result of being a member of an affiliated, combined, consolidated or unitary Tax group prior to such date; and (h) no written waivers of statutes of limitation have been given by or requested by a Taxing Authority with respect to any Taxes that are not Indemnified Taxes of any Group Company that are currently in effect. For the avoidance of doubt, the Warranties in this paragraph 5.16 shall not constitute Tax Warranties and shall not survive Completion.

6. TANGIBLE ASSETS

Each tangible asset included in the Last Balance Sheet or acquired by the relevant Group Company since the Last Accounting Date (other than assets disposed of in the usual course of business or which are the subject matter of operating, or finance or capital leases) is: (a) legally and beneficially owned solely by the relevant Group Company free from any Encumbrance, except for Permitted Encumbrances; and (b) where capable of possession, in the possession or under the control of the relevant Group Company.

7. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS

Each employee of each Group Company since 14 October 2005 that has developed any Owned Intellectual Property has executed a proprietary information and inventions agreement on substantially the same terms as the Company’s current property information and inventions agreement, a copy of which is attached to the Disclosure Letter. So far as the Sellers are aware, no such person is in material violation thereof.

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8. INTELLECTUAL PROPERTY

8.1 Clause 8.1 of Schedule 1.2 of Schedule A of the Disclosure Letter sets forth a true and complete list of all Owned Intellectual Property that is Registered or subject to an application for Registration, indicating for each item the registration or application number, where known, and the applicable filing jurisdiction.

8.2 The Group Companies exclusively own all Owned Intellectual Property, free and clear of all Encumbrances (other than Permitted Encumbrances) and exclusive licenses with no right retained in the licensor (it being understood that this warranty shall not cover matters of infringement, which matters are covered exclusively by paragraph 8.6 of this Schedule 4). To the knowledge of the Sellers, the Owned Intellectual Property set forth in clause 8.1 of Schedule 1.2 of Schedule A of the Disclosure Letter is valid, subsisting and enforceable, and is not subject to any outstanding agreement, order, judgment, or decree materially and adversely affecting such Group Company’s use of, or its rights to, such Intellectual Property.

8.3 Clause 8.3 of Schedule 1.2 of Schedule A of the Disclosure Letter lists all Intellectual Property Contracts. To the knowledge of the Sellers, each Intellectual Property Contract is valid and enforceable against the other party, and is in full force and effect on the date of this Agreement, subject to applicable bankruptcy and insolvency laws and general principles of equity.

8.4 No Intellectual Property Contract is subject to any outstanding order, judgment or decree adversely affecting any Group Company’s use thereof or its rights thereto. As of the date of this Agreement, no claim is pending or has been threatened in writing to the Seller or any Group Company that any Group Company, or, to the best of the knowledge of the Sellers, another person, has breached any Intellectual Property Contract. To the best of the knowledge of the Sellers, there exists no event, condition or occurrence that, with the giving of notice or lapse of time, or both, would constitute a material breach or default by any Group Company, or to its knowledge another person, under any Intellectual Property Contract.

8.5 No party to any Intellectual Property Contract has given notice of its intention to cancel, terminate, change the scope of rights under, or fail to renew such contract. No Group Company, nor, to the knowledge of the Sellers, any other party to any Intellectual Property Contract, has repudiated in writing any material provision thereof.

8.6 To the best of the knowledge of the Sellers, as of the date of this Agreement, neither the conduct of the Business nor the use of third party Intellectual Property by the Group Companies infringes, misappropriates or violates any third party Intellectual Property rights.

8.7 Between 14 October 2005 and the date of this Agreement, no claim, nor, to the best of the knowledge of the Sellers, no claim styled as an invitation to license, has been made in writing to any Group Company by any third party which remains outstanding and which alleges or threatens that the conduct of the Business or any Owned Intellectual Property infringes, misappropriates or otherwise violates any third party Intellectual Property. As of the date of this Agreement, there is no litigation, opposition, cancellation, proceeding or objection, asserted in writing or, to the knowledge of the Sellers, pending or threatened in writing, against any Group Company concerning the ownership, validity,

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registerability, enforceability, infringement or use of, or licensed right to use, any Owned Intellectual Property.

8.8 To the knowledge of the Sellers, no third party is infringing any Owned Intellectual Property.

8.9 Each Group Company has taken reasonable steps to maintain the confidentiality of or otherwise protect and enforce its rights in all Owned Intellectual Property, and to protect and preserve through the use of customary non-disclosure agreements the confidentiality of all Trade Secrets that are owned, used or held by the Group Companies, and to the knowledge of the Sellers, such Trade Secrets have not been used, disclosed to or discovered by any person except pursuant to valid and appropriate non-disclosure agreements which have not been breached.

8.10 No Group Company is materially delinquent in the payment of any fees, royalties or other payment obligation to any other person in respect of material Intellectual Property which is licensed to any Group Company.

8.11 To the knowledge of the Sellers, none of the material software code used by any Group Company in the operation of its Businesses constitutes or is dependent on any computer code licensed under an open source-type public licence.

8.12 No Open Source Materials are incorporated into or combined with any material software code used by any Group Company in the operation of its Business in such a way that (a) requires the distribution or making available of Source Code for such software, (b) prohibits or limits any Group Company from charging a fee or receiving consideration in connection with licensing, sublicensing, or distributing any of its products or its Intellectual Property, (c) except as specifically permitted by applicable law, grants any right to any person or otherwise allows any such person to decompile, disassemble or otherwise reverse-engineer any such software, or (d) requires the licensing of such software for the purpose of making derivative works.

8.13 To the knowledge of the Sellers, the IT Assets owned, used or held for use by any Group Company operate and perform in all material respects in accordance with their documentation and functional specifications and otherwise as required by the Group Companies in connection with their businesses. To the knowledge of the Sellers, no person has gained unauthorized access to the IT Assets. The Group Companies have implemented reasonable backup and disaster recovery technology consistent with industry practices. Each Group Company takes reasonable measures, directly or indirectly, to ensure the confidentiality, privacy and security of customer, employee and other confidential information. To the knowledge of the Sellers, the Group Companies have each complied in all material respects with (a) all applicable laws, rules and regulations regarding data protection and the privacy and security of personal information, and (b) their respective privacy policies or commitments to customers and consumers.

9. INSURANCE

9.1 Clause 9.1 of Schedule 1.2 of Schedule A of the Disclosure Letter contains a complete and correct list of each insurance and indemnity policy in effect as of the date of this Agreement which provides coverage with respect to any Group Company or any of their

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respective assets, businesses, operations, or, to the extent maintained by Sellers or any Group Company, any employees, officers and directors (together the “Policies”).

9.2 Each Group Company maintains or is covered by insurance in respect of risks known to the Group Company to be required under applicable law to be covered by insurance.

9.3 Between 1 January 2007 and the date of this Agreement, none of the Group Companies has made any material claim under any Policy.

9.4 Since 14 October 2005, no Group Company has received written notice of cancellation, termination or non-renewal of any Policy or to the knowledge of Sellers, has been denied insurance coverage.

10. SUFFICIENCY; PROPERTY

Sufficiency of Assets

10.1 To the knowledge of the Sellers, the Group Companies have all of the Intellectual Property, IT Assets, rights, contracts and other assets reasonably necessary to enable the Group Companies to conduct the Business, immediately after giving effect to the Completion in substantially the same manner as the Business has been operated by the Sellers in the past, other than (i) assets that, individually and in the aggregate, are not material to such business, (ii) assets and properties being provided pursuant to the Transitional Services Agreement, (iii) Excluded Services as defined under the Transitional Services Agreement, (iv) rights to any office facilities identified in the Office Transition Agreement; and (v) rights under the Cross-License Agreement. Nothing in this clause 10.1 constitutes a representation or warranty with respect to non-infringement or title or the condition of any assets or properties (whether real or personal, tangible or intangible, owned, leased or held under license), any and all representations or warranties with respect to which are set forth in other clauses of this Schedule 4.

Properties

10.2 No Group Company owns any real property. The Properties comprise all of the property occupied by any Group Company as at the date of this Agreement and each Property is occupied solely by a Group Company.

10.3 The Sellers have made available as part of the Data Room Information complete and correct copies of all real property leases and subleases of the Group Companies and any and all material ancillary documents pertaining thereto to which the Group Companies are a party (the “Leases”).

10.4 Each of the buildings, structures, material equipment and other material tangible assets of the Group Companies on the Properties is in good and usable condition, subject to normal wear and tear and normal industry practice with respect to maintenance, and is adequate and suitable for the purposes for which it is presently being used.

Leasehold Properties

10.5 None of the Group Companies has assigned or sublet its interest under any Lease. None of the Group Companies has, with respect to any premises leased pursuant to a Lease,

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received notice of violation of any material zoning, subdivision or building law applicable thereto from any agency or regulatory body with jurisdiction over such matters.

10.6 Each Group Company has paid the rent and observed and performed in all material respects the covenants on the part of the tenant in the Leases under which the Properties are held by such Group Company.

10.7 There is no obligation to reinstate any Property by removing or dismantling an alteration made to it by any Group Company or a predecessor in title other than any obligation to reinstate any property that would cost the Group Companies less than €200,000 if such reinstatement were to occur.

10.8 Except in relation to the Properties, no Group Company has any outstanding liability arising out of conveyance, transfer or lease relating to land, premises or an interest in land or premises.

10.9 Each Lease under which any of the material Properties are held by each Group Company is in full force and effect and is legal, valid, binding and enforceable against the Group Company party thereto, subject to applicable bankruptcy and insolvency laws and general principles of equity. There exists no material default or material event of default (or any event that with notice or lapse of time or both would become a material default or material event of default) on the part of the Group Company under any such Lease.

11. AGREEMENTS/ACTION

11.1 There is no agreement, instrument, judgment, order, writ or decree to which any Group Company is a party or by which any Group Company is bound that, at the date of this Agreement: (a) involves obligations of, or payments to, any Group Company (whether as a single payment or in the aggregate) in excess of €300,000 annually; (b) involves the license of any existing or future Intellectual Property to or from any Group Company, other than (i) licenses for readily available commercial software programs having an acquisition price of less than €100,000; (ii) “shrink wrap” or “click through” licenses; and (iii) licenses granted in the usual course of business; (c) involves the license of any source code owned by any Group Company to any third party; (d) contains provisions restricting the development, manufacture or distribution of the products or services of any Group Company; or (e) provides for the establishment of a joint venture or entry into a legal partnership.

11.2 No party with whom any Group Company has entered into a material agreement which is currently in force has given written notice of its intention to terminate, or has sought in writing to repudiate or disclaim, such agreement.

11.3 No Group Company is in material breach of, material violation of or material default under any material agreement that is currently in full force and effect and, to the knowledge of the Sellers, no other party to any such material agreement is in material breach of, material violation of or material default under or require any consent under such agreement. To the knowledge of the Sellers, no event has occurred which would result in a material breach of, material violation of or material default under, or give rise to right of termination, cancellation or acceleration of any right or obligation of any Group Company or to a loss of any material benefit to which any Group Company is

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entitled under (in each case with or without notice or lapse of time or both), any material agreement to which such Group Company is a party.

11.4 Each material agreement that any Group Company has entered into is in full force and effect and is, to the knowledge of the Sellers, valid, binding and enforceable against the other parties thereto in accordance with their terms, subject to applicable bankruptcy and insolvency laws and general principles of equity.

12. EMPLOYMENT

12.1 Clause 12.1 of Schedule 1.2 of Schedule A of the Disclosure Letter contains an accurate and complete list as at the date of this Agreement of:

12.1.1 the total number of employees and individual independent contractors of each Group Company as at 27 August 2009 and the date employment or service began, work location, grade, salary, 2008 bonus and 2009 target bonus, whether on disability (long term or short term) or other approved leave of absence together with a summary description of each material benefit whether provided on a contractual or discretionary basis, for each grade of employee and individual independent contractors of each Group Company;

12.1.2 the employment contract of each Senior Employee, together with all amendments and supplements thereto;

12.1.3 the consultancy agreements, together with all amendments and supplements thereto, under which individual independent contractors services are provided to a Group Company and which have a monetary value in excess of €150,000 per annum;

12.1.4 the standard terms and conditions of employment applicable to each grade or category of employee of each Group Company in Luxembourg, the UK, Singapore, Sweden, Hong Kong, the Czech Republic, US and Estonia as at 30 June 2009;

12.1.5 all retention agreements and change of control provisions relating to or affecting any directors, officers, employees or individual independent contractors to which any Group Company is a party that may entitle any directors, officers, employees or individual independent contractors to payments, benefits or enhanced terms and conditions of employment;

12.1.6 each agreement with any body representing any of the employees of any Group Company and of any material dispute or, so far as the Sellers are aware, any threatened material dispute with any such employee representative body or any directors, officers, employees or individual independent contractors of any Group Company;

12.1.7 all work accidents and cases of occupational disability that have occurred to the employees of the Group Company since 1 January 2007 for which the Group Company has been found liable to pay continuous compensation; and

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12.1.8 all currently applicable termination policies (including, but not limited to, redundancy policies), other than those required by law.

12.2 The Sellers have made available as part of the Data Room Information accurate copies of any employee handbook or similar document issued by or on behalf of any Group Company and all material policies relating to the provision of benefits including private medical expense benefits, permanent health insurance or other income replacement scheme, long term sick benefits, life insurance and directors and officers’ liability insurance.

12.3 No Group Company has introduced (or has an obligation to introduce) a Plan (as defined below) that remains in effect for any director, officer or employee of any Group Company or any individual independent contractor to any Group Company and no director, officer, employee or consultant of any Group Company will be entitled to receive a beneficial payment, severance pay or any other payment as a consequence of the entry into this Agreement or the completion of any of the Transactions (whether alone or in connection with any subsequent events).

12.4 There are no works councils formed in the Group Companies and, so far as the Sellers are aware, there have been no threats to form works councils in the Group Companies within a 24-month period prior to the date of this Agreement. No notice is required to any works councils as a result of entering into this Agreement or the completion of any of the Transactions.

12.5 As of the date of this Agreement, there are no: (a) outstanding offers of employment or offers to engage consultants on terms that include a monetary value in excess of €100,000 per annum; or (b) offers that have been accepted where the date of commencement of employment or provision of service (including terms of above) is after the Completion Date.

12.6 So far as the Sellers are aware, each Group Company has complied in all material respects with its contractual obligations to its directors, officers, employees or individual independent contractors and with all applicable laws and orders relating to employment and employment practices.

13. PENSIONS AND OTHER BENEFITS

13.1 Other than the UK stakeholder pension scheme provided by Standard Life, no Group Company has: (a) any liabilities (contingent or otherwise) to make payments to any “occupational pension scheme” or “personal pension scheme” (both terms as defined in section 1 of the Pension Schemes Act 1993); or (b) announced any proposal to enter into or establish any other occupational pension scheme or to contribute to a personal pension scheme.

13.2 Clause 13.2 of Schedule 1.2 of Schedule A of the Disclosure Letter contains, at the date of this Agreement, a list of each share incentive, share option, profit sharing, redundancy, severance, bonus, incentive, savings, pension, retirement or other material employee benefit plan, policy, program or arrangement sponsored, maintained, contributed to or required to be contributed to by Sellers or any Group Company in which directors, officers, employees or individual independent contractors of any Group Company participate, other than those required by law (the “Plans”). The Plans sponsored by any

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Group Company (“Group Company Plans”) are separately identified on the Disclosure Letter. The Sellers have made available as part of the Data Room Information accurate copies of all Plans and any amendments thereto, or, in either case, summaries thereof.

13.3 Each Group Company Plan complies in all material respects in form and has been established, maintained, operated and funded in all material respects in accordance with its terms and the requirements of all applicable laws, orders, rules and regulations. Each Group Company Plan which is required to be registered or approved by any Governmental Entity or agency, has been so registered and approved and has been maintained in good standing with applicable Governmental Entities or agencies, and if intended to qualify for special tax treatment, meets all material requirements for such treatment.

13.4 Neither the entry into this Agreement nor the completion of any of the Transactions (whether alone or in connection with any subsequent events) will (1) accelerate the time of payment or vesting or result in any payment or funding of compensation or benefits by any Group Company under any Plan, or increase the amount of compensation payable by a Group Company to any director, officer, employee or individual independent contractor of any Group Company or (2) prevent any Group Company from amending or terminating any Group Company Plan.

13.5 Except as provided in any of the Transaction Agreements, the completion of any of the Transactions will not cause the Buyer’s Group Undertakings to assume or otherwise succeed to, by operation of law, contract or otherwise, any liabilities of Seller’s Group Undertakings under any employee benefit plan, policy, program or arrangement not sponsored or maintained by the Buyer’s Group Undertakings.

14. INSOLVENCY, WINDING UP ETC.

Winding up

14.1 No Group Company has received any written notice either: (a) that an order has been made; or (b) a petition has been presented or meeting convened, nor has any action been taken by a Group Company or a Seller, in any case to commence, the winding up of any Group Company (or equivalent proceeding(s) in any relevant jurisdiction) or for the appointment of any provisional liquidator (or equivalent in any relevant jurisdiction).

Administration and receivership

14.2 No Group Company has received any written notice concerning, or has taken any action to commence, the appointment of a receiver (including any administrative receiver or the equivalent to a receiver or administrative receiver in any relevant jurisdiction) in respect of the whole or any material part of the property, assets and/or undertaking of any Group Company.

Voluntary arrangement etc.

14.3 No Group Company or any of its direct or indirect holding companies has made any voluntary arrangement with or for the benefit of its creditors generally.

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15. LITIGATION; COMPLIANCE WITH LAW; PERMITS

15.1 No Group Company is a party to any civil, criminal, arbitration or administrative action, suit or Legal Proceeding or, to the knowledge of the Sellers, formal investigation by a Governmental Entity nor, to the Sellers’ knowledge, is any such action, suit, proceeding or formal investigation threatened, in each case which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Change.

15.2 There is no civil or arbitration action, suit or proceeding by any Group Company against any other person currently pending, which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Change.

15.3 No Group Company is (and, since 14 October 2005, no Group Company has been) in violation of any law, rule, ordinance, regulation, judgment, order, injunction, decree, declaration, arbitration award, agency requirement, governmental license or governmental permit applicable to the operation of its Business, including telecommunications, export controls, sanctions, anti-corruption and other regulations, in each case which would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. To the knowledge of the Sellers, no investigation or review by any Governmental Entity with respect to any Group Company is pending or, to the knowledge of the Sellers, threatened in writing, nor has any Governmental Entity indicated in writing an intention to conduct the same. No Group Company or any of its assets or properties is subject to any material governmental order.

15.4 Each Group Company is in compliance in all material respects with all franchises, permits, licenses, consents, approvals, certificates, variances, exemptions, exceptions, clearances and registrations issued to any Group Company by any Governmental Entity (the “Permits”). Each Permit is in full force and effect and, as of the date of this Agreement, none of the Group Companies has received any written notice, and there has been no action, suit or proceeding filed, commenced or, to the knowledge of the Sellers, threatened seeking to revoke, suspend, cancel, withdraw, modify or not renew any Permit or alleging any material breach of or default under any Permit. The Group Companies have filed all reports, notifications and filings with, and have paid all regulatory fees to, the applicable Governmental Entity necessary to maintain all of their material Permits in full force and effect.

16. RELATED PARTY TRANSACTIONS

Clause 16 of Schedule 1.2 of Schedule A of the Disclosure Letter sets forth a true and complete list of all material contracts between any Group Company, on the one hand, and any Seller’s Group Undertaking, on the other hand. Except as reflected on or disclosed in the Last Balance Sheet, or incurred since the Last Accounting Date in the usual course of business, save as referred to in any contract of employment, no employee, officer, director or shareholder of any Group Company has any liability to any Group Company, nor is any Group Company liable (or committed to make loans or extend guarantee credit or other Indebtedness) to any employee, officer, director or shareholder of any other Group Company, except for (a) inter-company debt or similar arrangements, which will be settled at Completion (other than for continuing commercial relationships as set forth in clauses 6.5 and 6.6) and (b) travel and other similar expense advances to employees, officers and directors in the usual course of business and consistent with past practice and polices of the Group Companies). Except as reflected on or disclosed in the Last Balance

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Sheet, or incurred since the Last Accounting Date in the usual course of business, no Group Company has any liability (or committed to make loans or extend guarantee creditor or other Indebtedness) to any Seller’s Group Undertaking (other than a Group Company) and no Seller’s Group Undertaking (other than a Group Company) has any liability (or committed to make loans or extend guarantee creditor or other Indebtedness) to any Group Company, except for inter-company debt or similar arrangements, which will be settled at Completion (other than for continuing commercial relationships).

17. ABSENCE OF UNDISCLOSED LIABILITIES

Except as adequately reflected or reserved against in the Last Balance Sheet, no Group Company has any liabilities of the type required to be disclosed in the liabilities column of a balance sheet prepared in accordance with generally accepted accounting principles in the United States, other than liabilities that were incurred since the Last Accounting Date in the usual course of business.

18. BROKERS AND FINDERS

Except for Goldman Sachs & Co., whose fees will be paid by the Sellers, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of any Seller’s Group Undertaking that is entitled to any fee or commission from any Group Company in connection with any of the Transactions.

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SCHEDULE 5

LIMITATIONS ON THE SELLERS’ LIABILITY

1. LIMITATION ON QUANTUM

1.1 Subject to paragraph 1.3 below, the Sellers are not liable in respect of a Relevant Claim:

1.1.1 unless the amount that would otherwise be recoverable from the Sellers (but for this paragraph 1.1.1) in respect of that Relevant Claim exceeds €100,000, in which case, subject to the other provisions of this Schedule 5, the claim may be made for the full amount in respect of such Relevant Claim; and

1.1.2 unless and until the amount that would otherwise be recoverable from the Sellers (but for this paragraph 1.1.2) in respect of that Relevant Claim, when aggregated with any other amount or amounts recoverable in respect of other Relevant Claims (excluding any amounts in respect of a Relevant Claim for which the Sellers have no liability because of paragraph 1.1.1), exceeds $13,750,000 and in the event that the aggregated amounts exceed $13,750,000, the Sellers shall only be liable for the excess.

1.2 Subject to clause 1.3, the Sellers’ total liability in respect of the aggregate of all Relevant Claims is limited to and shall not exceed: (a) $300,000,000; less (b) all amounts or liabilities actually paid by the Sellers after Completion pursuant to clauses 8 and 9 of the Agreement; plus (c) any amounts reimbursed to the Sellers pursuant to paragraph 7 of this Schedule 5.

1.3 Paragraphs 1.1 and 1.2 of this Schedule 5 shall not apply: (a) in respect of any Relevant Claim for a breach of any Sellers’ Warranty set out in paragraphs 1.1.1, 2.2, 2.3 or 3.2 of Schedule 4; and (b) in respect of any Relevant Claim for a breach of any covenant or undertaking (other than the Tax Covenant) contained in this Agreement, in respect of which the Sellers’ liability will be limited in the aggregate for all breaches of all such covenants or undertakings to the Purchase Price. For the avoidance of doubt, paragraph 1 of this Schedule 5 shall be without prejudice to the Buyer’s rights under clause 16.3 of this Agreement.

2. TIME LIMITS FOR BRINGING RELEVANT CLAIMS

The Sellers are not liable in respect of:

2.1 a Tax Claim unless the Buyer has notified the Sellers of the Tax Claim stating in reasonable detail the nature of the Tax Claim and, if reasonably practicable, the amount claimed on or before the 30^th day following the expiration of the applicable statute of limitations governing the Tax in respect of which the Tax Claim is being made;

2.2 a Relevant Claim for breach of the Sellers’ Warranty set out in paragraphs 1.1.1, 2.2 or 2.3 of Schedule 4 unless the Buyer has notified the Sellers of the Relevant Claim stating in reasonable detail the nature of the Relevant Claim and, if reasonably practicable, the amount claimed on or before the date on which such Relevant Claim would become time barred pursuant to the Limitation Act 1980;

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2.3 a Relevant Claim for breach of any Sellers’ Warranty set out in paragraphs 7, 8 and 10.1 (insofar as it relates to Intellectual Property) of Schedule 4 unless the Buyer has notified the Sellers of the Relevant Claim stating in reasonable detail the nature of the Relevant Claim and, if reasonably practicable, the amount claimed on or before the date which is two years from the Completion Date;

2.4 a Relevant Claim for a breach of any covenant or undertaking that the Sellers are required to comply with or perform under this Agreement prior to Completion (other than the Sellers’ Warranties) unless the Buyer has notified the Sellers of the claim stating in reasonable detail the amount of the claim (and, if reasonably practicable, the amount claimed) on or before the date which is one year from the Completion Date;

2.5 a Relevant Claim for a breach of any covenant or undertaking that the Sellers are required to comply with or perform under this Agreement at or after Completion (other than the Sellers’ Warranties) unless the Buyer has notified the Sellers of the Relevant Claim stating in reasonable detail the nature of the Relevant Claim and, if reasonably practicable, the amount claimed on or before the date on which such Relevant Claim would become time barred pursuant to the Limitation Act 1980;

2.6 any Relevant Claim other than a Tax Claim and the matters referred to in paragraphs 2.2, 2.3, 2.4 and 2.5 of this Schedule 5 unless the Buyer has notified the Sellers of the Relevant Claim stating in reasonable detail the nature of the Relevant Claim and, if reasonably practicable, the amount claimed on or before the date which is 15 months from the Completion Date; and

2.7 any Relevant Claim under paragraph 5.16 of Schedule 4 after Completion (and, for the avoidance of doubt, the Warranty in paragraph 5.16 of Schedule 4 shall not survive Completion and no Relevant Claim or other action may be made thereunder after Completion).

3. NOTICE OF CLAIMS

A Relevant Claim notified in accordance with paragraphs 2.1, 2.3, 2.4, 2.5 or 2.6 of this Schedule 5 is unenforceable against the Sellers on the expiry of the period of six months starting on the day of expiration of the applicable time limit for notifying such a Relevant Claim under paragraph 2 of this Schedule 5, unless court proceedings in respect of such Relevant Claim have been properly issued and validly served on the Sellers.

4. SPECIFIC LIMITATIONS

The Sellers are not liable in respect of a Relevant Claim (other than a Tax Claim to which the limitations in paragraph 3 of Schedule 9 apply):

4.1 with respect to the Sellers’ Warranties, to the extent that the Buyer is aware, and has an appreciation, at or prior to the date of this Agreement, of facts and circumstances that might serve as the basis of or give rise to the Relevant Claim (it being understood, however, that the Buyer does not need to be aware that such facts and circumstances constitute a breach of a Sellers’ Warranty);

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4.2 to the extent that facts and circumstances that might serve as the basis of the Relevant Claim would not have arisen but for, or any Loss related thereto was increased by (but only to the extent of such increase);

4.2.1 a voluntary act carried out after Completion (other than pursuant to the operation of the business of the Group Companies in the usual course) by a Buyer’s Group Undertaking or an employee of a Buyer’s Group Undertaking; or

4.2.2 the passing of, or a change in, a law, rule or regulation, the interpretation or application of a law, rule, regulation or administrative practice of a Governmental Entity after the date of this Agreement or an increase in the Tax rates or an imposition of Tax, in each case not in force (or in a manner different than) at the date of this Agreement;

4.3 to the extent that a Group Company has obtained a recovery against or from a person other than a Seller’s Group Undertaking in respect of the Loss claimed in the Relevant Claim, whether under a provision of any applicable law, rule or regulation, agreement, arrangement, undertaking, insurance policy or otherwise howsoever, but only to the extent of such recovery (it being understood that the Buyer shall use reasonable endeavours to pursue any such recoveries to which it may be entitled);

4.4 with respect to the Sellers’ Warranties, to the extent that the matter giving rise to the Relevant Claim was taken into account in computing the amount of an allowance, accrual, provision or reserve in the Accounts or was specifically referred to in the Accounts or in the notes to the Accounts, in each such case to the extent that the same was not reversed in accordance with generally accepted accounting principles; and

4.5 to the extent Tax of a Buyer’s Group Undertaking is actually reduced or eliminated by a Relief arising from the matter or any Event giving rise to the matter which gives rise to the Relevant Claim; provided, however, that, in determining whether an amount of Tax is actually reduced or eliminated, any Reliefs otherwise available to such Buyer’s Group Undertaking shall be deemed to be utilised prior to the utilisation of any such Relief arising from the matter or any Event giving rise to the matter which gives rise to the Relevant Claim.

5. RECOVERY ONLY ONCE

The Buyer is not entitled to recover more than once in respect of any Loss.

6. CONDUCT OF RELEVANT CLAIMS

6.1 If the Buyer becomes aware of any third party claim that may give rise to a Relevant Claim (other than an Assessment to which the provisions of paragraph 5 of Schedule 9 apply):

6.1.1 the Buyer shall promptly (and in any event within 15 Business Days after becoming actually aware thereof) give written notice to the Sellers of the matter (“Claim Notice”) and shall consult with the Sellers with respect to the matter (provided that the failure to so notify the Sellers shall not relieve the Sellers of any liability that they may have, except to the extent that the Sellers have been or are reasonably likely to be actually prejudiced thereby);

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6.1.2 subject to applicable law and confidentiality restrictions, the Buyer shall, and shall procure that each Group Company will, provide to the Sellers and their Representatives reasonable access to premises and personnel and to relevant assets, documents and records within the power or control of each Group Company for the purposes of investigating the matter and enabling the Sellers to take the action referred to in paragraph 6.1.4(a) of this Schedule 5;

6.1.3 subject to applicable law and confidentiality restrictions, each of the Sellers (at their cost) may take copies of the documents or records, and photograph the premises or assets, referred to in paragraph 6.1.2 of this Schedule 5;

6.1.4 the Buyer shall, and shall procure that each Group Company will:

(a) at the Sellers’ expense, give any reasonable information and assistance, as the Sellers may reasonably request in order for the Sellers to:

(i) dispute, resist, appeal, compromise, defend, remedy or mitigate the matter; or

(ii) enforce against a person (other than a Seller’s Group Undertaking) the rights of a Group Company in relation to the matter; and

(b) in connection with proceedings related to the matter (other than against a Seller’s Group Undertaking) use advisers nominated by the Sellers and reasonably acceptable to the Buyer and, if the Sellers request and pay the costs of defence, allow the Sellers the exclusive conduct of the proceedings; provided, however, that if the Buyer determines, acting reasonably and in good faith (i) that there is reasonable probability that the relevant matter may materially and adversely affect it or a Group Company other than as a result of monetary damages for which reimbursement would be available under this Agreement from the Sellers or (ii) that the actual or potential defendants in, or targets of, such relevant matter include both the Sellers and/or any Seller’s Group Undertaking and a Buyer’s Group Undertaking and there is a material conflict of interest between the Sellers or such a Seller’s Group Undertaking, on the one hand, and a Buyer’s Group Undertaking, on the other hand, the Buyer shall be entitled to exclusive control of the defence of such proceedings at the Buyer’s own expense and the Sellers shall have the right to retain separate counsel of its choice at is own expense;

6.1.5 the Buyer shall not, and shall procure that no Buyer’s Group Undertaking and no Representative of the Buyer or any other Buyer’s Group Undertaking will, admit liability in respect of, or adjust, compromise or settle, the matter without the express prior written consent of the Sellers, unless: (a) the Buyer agrees in writing that no such admission, adjustment, compromise or settlement shall be evidence of whether any Seller’s Group Undertaking shall have any liability or obligation with respect thereto or the potential amount of any such liability or obligation; and (b) there is no finding or admission with respect to any Seller’s Group Undertaking of any violation of any law or any violation of the rights of any person; and

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6.1.6 the Sellers shall not, and shall procure that no Seller’s Group Undertaking and no Representative of the Sellers or any other Seller’s Group Undertaking will, admit liability in respect of, or adjust, compromise or settle, the matter without the express prior written consent of the Buyer unless (a) there is no finding or admission of any violation of any law or any violation of the rights of any person; and (b) the sole relief provided is monetary damages that are reimbursed in full by the Sellers hereunder.

7. RECOVERY FROM ANOTHER PERSON

7.1 If the Sellers pay to the Buyer an amount in respect of a Relevant Claim and a Buyer’s Group Undertaking subsequently recovers from another person an amount in respect of the Loss claimed in such Relevant Claim, the Buyer shall promptly pay to the Sellers an amount equal to the amount, if any, by which the Sum Recovered exceeds the difference between the amount of such Loss and the amount paid by the Sellers in respect of the Relevant Claim.

7.2 For the purposes of paragraph 7.1 of this Schedule 5, “Sum Recovered” means an amount equal to the total of the amount recovered from the other person.

8. MITIGATION

Nothing in this Schedule 5 restricts or limits the Buyer’s general obligation at law to mitigate any Loss in respect of any Relevant Claim.

9. DISCLOSURE

The Sellers’ Warranties are qualified by, and the Sellers shall have no liability in respect of:

9.1 the facts and circumstances disclosed in the Disclosure Letter, the Data Room Information and Annex H to this Agreement to the extent that the nature and scope of the matters arising from such facts and circumstances is reasonably apparent from such disclosure (it being understood that: (a) if the Disclosure Letter refers to a named document, only those parts of such document that are contained in the Data Room Information or, in the case of documents listed in Annex H, were made available to the Buyer on or prior to the date of this Agreement (but not any parts of such document that are not contained in the Data Room Information or, in the case of documents listed in Annex H, were not made available to the Buyer on or prior to the date of this Agreement) shall be deemed disclosed; and (b) if there is an inconsistency between the facts set out in any of those documents and the facts stated in the Disclosure Letter, the provisions of the relevant document prevail);

9.2 all matters set out in this Agreement (including the schedules to this Agreement) and/or any of the other Transaction Agreements (including the schedules to such other Transaction Agreements); and

9.3 published information relating to any Group Company contained in any document filed or furnished by Parent with or to the U.S. Securities and Exchange Commission since 1 January 2009 and prior to the date of this Agreement (other than any risk factor or similar disclosure contained therein).

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10. DAMAGES ARE SOLE REMEDY; NO RESCISSION

Following Completion, the sole remedy against the Sellers for any breach of any of the Sellers’ Warranties or any other breach of this Agreement by the Sellers, or any other claim by the Buyer against the Sellers in respect of this Agreement, shall be an action for damages and the Buyer shall not be entitled to rescind this Agreement in any circumstances whatsoever, other than any such rights in respect of fraud; provided, however, that the Buyer shall be entitled to seek injunctive relief in connection with any breach by the Sellers of any post-Completion covenant of the Sellers.

11. NO LIABILITY FOR CONSEQUENTIAL DAMAGES

The Sellers shall not be liable under this Agreement or otherwise for any punitive or exemplary damages or any indirect or consequential damages, in each case whether due to a breach of contract, breach of warranty, the negligence of the Sellers or otherwise (it being understood, however, that nothing in this sentence shall absolve the Sellers from liability in respect of a claim by a third party against the Group Companies pursuant to which such third party actually collects from the Group Companies punitive or exemplary damages or indirect or consequential damages).

12. RINGFENCING

The Buyer agrees and acknowledges that the only Sellers’ Warranties given:

12.1 in respect of Tax are the Tax Warranties and none of the other Sellers’ Warranties shall be deemed to be given in relation to Tax;

12.2 in respect of Intellectual Property are those contained in paragraphs 7, 8, 10.1 and 11.1 of Schedule 4 and none of the other Sellers’ Warranties shall be deemed to be given in relation to Intellectual Property;

12.3 in respect of insurance matters are those contained in paragraph 9 of Schedule 4 and none of the other Sellers’ Warranties shall be deemed to be given in relation to insurance matters;

12.4 in respect of the Properties are those contained in paragraph 10 of Schedule 4 and none of the other Sellers’ Warranties shall be deemed to be given in relation to the Properties;

12.5 in respect of pensions matters are those contained in paragraph 13 of Schedule 4 and none of the other Sellers’ Warranties shall be deemed to be given in relation to pensions matters; and

12.6 in respect of employment matters are those contained in paragraph 12 of Schedule 4 and none of the other Sellers’ Warranties shall be deemed to be given in relation to employment matters.

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SCHEDULE 6

BUYER’S WARRANTIES

1. CAPACITY AND AUTHORITY

1.1 The Buyer has the right, power and authority, and has taken all corporate action necessary, to execute, deliver and exercise its rights and perform its obligations under this Agreement and each other Transaction Agreement to which it is (or is to become) a party. This Agreement and the other Transaction Agreements which are to be entered into by the Buyer has been or will be duly executed and delivered by the Buyer, and do or will, when executed, constitute legal, valid and binding obligations of the Buyer enforceable against the Buyer in accordance with their respective terms, subject to applicable bankruptcy and insolvency laws and general principles of equity.

1.2 The Buyer is validly organised, in existence and duly registered under the laws of its jurisdiction of organisation. The Buyer has not conducted any business other than in connection with the Transactions. The Buyer has no liabilities, and will not have any liabilities at the Completion Date, contingent or otherwise, other than the liabilities of the Buyer under this Agreement, the Debt Commitment Letters and the other Transaction Documents.

1.3 The information set out in Schedule 10 (Buyer’s Pre-Completion Shareholders) is true, correct and not misleading. The Buyer is the entity in which the Buyer’s Pre-Completion Shareholders will purchase equity at or prior to Completion in satisfaction of their obligations under the Equity Commitment Letters.

2. NO BREACH/VIOLATION

2.1 The execution and delivery of, and the performance by the Buyer of its obligations under, this Agreement and each of the other Transaction Agreements to which the Buyer is (or will become) a party will not:

2.1.1 result in a breach of any provision of the constitutional documents of the Buyer;

2.1.2 result in a breach of, or constitute a default under, any agreement or instrument to which the Buyer is a party or by which the Buyer is bound, which breach or default is material in the context of the Transactions;

2.1.3 result in a violation of any permit, concession, franchise or license of any Governmental Entity to which the Buyer is a party or is subject or by which the Buyer is bound, which violation is material in the context of the Transactions;

2.1.4 result in a violation of any law, rule or regulation applicable to the Buyer, which violation is material in the context of the Transactions;

2.1.5 result in a violation of any order, judgment, decree, arbitral award or decision of any Governmental Entity to which the Buyer is a party or is subject or by which the Buyer is bound, which violation is material in the context of the Transactions; or

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2.1.6 require the Buyer to obtain any consent, license or approval of, or give any notice to or make any registration with, any Governmental Entity which has not been obtained, given or made as at the date hereof, in each case the failure of which would be material in the context of the Transactions.

2.2 This Agreement and each other Transaction Agreement which is to be entered into by the Buyer do or will, when executed, constitute legal, valid and binding obligations of the Buyer.

3. INSOLVENCY, WINDING UP ETC.

Winding up

3.1 The Buyer has not received any written notice that an order has been made and no petition has been presented or meeting convened, and the Buyer has not taken any action to commence, the winding up of the Buyer (or equivalent proceeding(s) in any relevant jurisdiction) or for the appointment of any provisional liquidator (or equivalent in any relevant jurisdiction).

Administration and receivership

3.2 The Buyer has not received any written notice concerning, and has not taken any action to commence, the appointment of a receiver (including any administrative receiver or the equivalent to a receiver or administrative receiver in any relevant jurisdiction) in respect of the whole or any material part of the property, assets and/or undertaking of the Buyer.

Voluntary arrangement etc.

3.3 The Buyer has not made any voluntary arrangement with or for the benefit of its creditors generally.

4. FINANCING

4.1 The Buyer has delivered to the Sellers true, correct and complete copies, as of the date of this Agreement, of: (a) executed commitment letters (the “Equity Funding Letters”) from Silver Lake Partners III Cayman (AIV III), L.P., CPP Investment Board Private Holdings Inc., Index Ventures Growth I (Jersey), L.P, Index Ventures Growth I Parallel Entrepreneur Fund (Jersey), L.P., Yucca Partners LP Jersey Branch, and Andreessen Horowitz Fund I, L.P. (each, an “Equity Provider,” and collectively the “Equity Provider Group”) to provide, subject solely to the terms and conditions therein, equity financing in the aggregate amount set forth therein (being collectively referred to as the “Equity Financing”); and (b) executed commitment letters and redacted forms of fee letters, dated as of the date of this Agreement, from JPMorgan Chase Bank, N.A., Barclays Bank PLC and Royal Bank of Canada (the “Debt Commitment Letters” and, together with the Equity Funding Letters, the “Financing Letters”) to provide, subject solely to the terms and conditions therein, debt financing in an aggregate amount set forth therein (being collectively referred to as the “Debt Financing,” and together with the Equity Financing collectively referred to as the “Financing”). The Financing Letters contain all of the conditions precedent to the obligations of the parties thereunder to make Financing available to the Buyer on the terms therein, and there are no side letters or other agreements, arrangements or understandings, whether written or oral, with any

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person relating to the availability of the Financing at Completion, other than as expressly identified in the Financing Letters.

4.2 Assuming the Financing is funded, the net proceeds contemplated by the Financing Letters (or such other amounts as the Buyer may arrange in lieu of all or a portion of the Financing to the extent permitted by this Agreement) will be sufficient for the Buyer to pay the aggregate Purchase Price, any other amounts required to be paid in connection with the completion of the Transactions and all related fees and expenses.

4.3 As of the date of this Agreement: (a) none of the Financing Letters has been amended (and no waiver of any provision thereof has been granted); and (b) the respective commitments contained in such Financing Letters remain in full force and effect and have not been withdrawn or rescinded in any respect.

4.4 The Buyer has fully paid (or caused to be fully paid) all commitment fees or other fees due in connection with the Financing that are payable on or prior to the date hereof and the Financing Letters are the valid, binding and enforceable obligations of the Buyer, and to the knowledge of the Buyer, the other parties thereto. As of the date of this Agreement, no event has occurred and no circumstance exists which, with or without notice, lapse of time or both, would (or could reasonably be expected to): (a) constitute a default or breach on the part of the Buyer under any of the Financing Letters; or (b) constitute or result in a failure to satisfy any condition precedent set forth in any Financing Letter; provided that the Buyer is not making any warranty regarding the effect of any inaccuracy of the warranties in Schedule 4, the failure of any Seller’s Group Undertaking to perform its obligations hereunder or the failure of any of the conditions to the Buyer’s obligation to Completion set forth in this Agreement to be satisfied. As of the date of this Agreement, the Buyer has not received any written notice from any person with respect to the actual or potential breach or default by the Buyer’s Group Undertakings or any other party to any of the Financing Letters of any provision of any of the Financing Letters. As of the date of this Agreement, the Buyer has no reason to believe that any of the conditions to the Financing will not be satisfied or that the Financing will not be available to the Buyer as of Completion; provided that the Buyer is not making any warranty regarding the effect of any inaccuracy of the warranties in Schedule 4, the failure of any Seller’s Group Undertaking to perform its obligations hereunder or the failure of any of the conditions to the Buyer’s obligation to Completion set forth in this Agreement to be satisfied.

4.5 The Buyer is not entering into the Transactions with the intent to hinder, delay or defraud either present or future creditors. Immediately after giving effect to all of the Transactions, including the Financing, and the payment of the aggregate Purchase Price and any other repayment or refinancing of debt that may be contemplated in the Financing Letters, assuming: (a) satisfaction of the conditions to the Buyer’s obligation to complete the Transactions as set forth herein, or the waiver of such conditions; (b) the accuracy of the warranties of the Sellers set forth in Schedule 4; and (c) any estimates, projections or forecasts of the Group Companies have been prepared in good faith based upon reasonable assumptions, and payment of all related fees and expenses, the Company will be Solvent. For purposes of this paragraph 4.5, the term “Solvent” with respect to the Company means that, as of any date of determination: (i) the amount of the fair saleable value of the assets of the Group Companies, taken as a whole, exceeds, as of such date, the sum of: (A) the value of all liabilities of the Group Companies, taken as a whole, including contingent and other liabilities, as of such date, as such quoted terms are

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generally determined in accordance with the applicable federal laws governing determinations of the solvency of debtors; and (B) without duplication of liabilities in clause “(A)” of this sentence, the amount that will be required to pay the probable liabilities of the Group Companies, taken as a whole on its existing debts (including contingent liabilities) as such debts become absolute and matured; (ii) the Company will not have, as of such date, an unreasonably small amount of capital for the operation of the business in which it is engaged or proposed to be engaged by the Buyer following such date; and (iii) the Company will be able to pay its liabilities, including contingent and other liabilities, as they mature.

4.6 The Seller Subordinated Note will be duly executed and delivered by Finance LLC, and will, when executed, constitute the legal, valid and binding obligation of Finance LLC enforceable against Finance LLC in accordance with its terms. Finance LLC has all requisite power and authority to (i) carry on its business as now being conducted, (ii) execute, deliver and perform the Seller Subordinated Note, and (iii) take all action as may be necessary to complete the transactions contemplated by the Seller Subordinated Note.

5. ROLLOVER SHARES

5.1 After giving effect to the Transactions, as of the Completion Date, the Rollover Shares will comprise 35% of the whole of the allotted and issued share capital of the Buyer, and will be duly authorized, validly issued and fully paid or credited as fully paid and will not be subject to further claims. Immediately following the Completion Date, except as contemplated in the Shareholders Agreement, there will not be outstanding: (a) any options, warrants, rights, agreements or commitments that provide for the issue or purchase from or by the Buyer of, or that are otherwise convertible into, exchangeable for or exercisable to acquire, any shares in the capital, or any other equity securities, of the Buyer; or (b) any rights, agreements or commitments by the Buyer to purchase, redeem or otherwise acquire any shares in its capital, or any other equity securities, excluding, in each case, any equity securities reserved for issuance pursuant to an equity incentive plan.

5.2 As of the Completion Date, there will be no agreement to which the Buyer is bound or to which its material assets are subject that would result in the creation of an Encumbrance, in relation to any of the Rollover Shares or unissued shares in the capital of the Buyer.

5.3 Other than this Agreement, the Shareholders Agreement and an equity incentive plan, immediately following the Completion Date, there will be no agreement to which the Buyer is bound or to which its material assets are subject that would result in the creation, allotment, issue, transfer, redemption or repayment of, or the grant to a person of the right to require the allotment, issue, transfer, redemption or repayment of, a share in the capital of Buyer (including an option or right of pre emption or conversion).

5.4 Except for and as provided in the Shareholders Agreement, immediately following the Completion Date: (a) there will be no stockholder agreements, voting trusts, proxies or other agreements or understandings to which Buyer is bound relating to the holding, voting, purchase, redemption or other acquisition of the share capital of the Buyer, and (b) there will be no agreements, commitments, arrangements, understandings or other obligations to declare, make or pay any dividends or distributions.

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SCHEDULE 7

ACTION PENDING COMPLETION

During the Pre-Completion Period, except: (a) as expressly permitted or required pursuant to the Agreement; (b) as required by law, rule or regulation; (c) as expressly set forth in the corresponding section of the Disclosure Letter; or (d) with the prior written consent of the Buyer (which consent may not be unreasonably withheld or delayed, other than with respect to the matters referred to in paragraphs 2, 3, 4, 6, 9 and 11 of this Schedule 7), each of the Sellers shall procure that each Group Company shall:

1. co operate with the Buyer to allow the Buyer and its Representatives, upon reasonable advance notice, during normal business hours and without materially interfering with the business of any Group Company, reasonable access to the properties, premises, employees, documents, technologies, books, records (including Tax records) and other materials of each Group Company (it being understood that the Buyer shall bear all costs associated with any request for access made by it or its Representatives);

2. not create, allot or issue any share capital or acquire an interest in a corporate body or merge or consolidate with a corporate body or any other person, enter into any demerger transaction or participate in any other type of corporate reconstruction;

3. not acquire or dispose of any material assets except in the usual course of its business;

4. not make any capital expenditure exceeding €4,000,000;

5. not pass a shareholders’ resolution, except for usual course of business matters or in relation to this Agreement, or if required by law or a Group Company’s organisational documents;

6. not create a material Encumbrance (other than a Permitted Encumbrance) over any material asset or redeem an existing material Encumbrance (other than a Permitted Encumbrance) over any material asset;

7. not enter into a material agreement with a term of more than one year and involving consideration or expenditure in excess of €4,000,000 annually;

8. not materially amend or terminate an agreement to which it is a party which involves total annual consideration or expenditure of €4,000,000, other than in the usual course of its business;

9. not: (a) establish a new Plan for or in respect of any director, officer, employee or consultant employed or engaged by any Group Company; (b) amend, or exercise a discretion, which materially increases pension scheme liabilities or employer costs in relation to, or discontinue (wholly or partly), any pension scheme applying to any director, officer, employee or individual independent contractor employed or engaged by any Group Company; (c) approve, direct or authorize any material increase or decrease in the compensation, bonus, severance or fringe benefits of any director, officer, employee or individual independent contractor employed or engaged by any Group Company; (d) exercise any discretion to accelerate the vesting or payment of any compensation or benefit under any Plan payable to any director, officer, employee or individual

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independent contractor employed or engaged by any Group Company; (e) pay any bonus, or grant any severance or termination pay, to any director, officer, employee or individual independent contractor employed or engaged by any Group Company, except in each case under clauses “(a)” to “(e)” of this paragraph 9: (i) as required by plans or agreements in existence as of the date of this Agreement; (ii) to the extent applicable to Parent’s employees generally provided that the obligations or liabilities of Buyer’s Group Undertakings following the Completion Date under this Agreement are not expanded or increased; or (iii) in the usual course of business consistent with past practice;

10. not materially amend the terms of employment of a Senior Employee or materially amend the terms of employment of any other director, officer, employee or individual independent contractor employed or engaged by any Group Company, except: (a) as required by plans or agreements in existence as of the date of this Agreement; (b) to the extent applicable to Parent’s employees generally; or (c) except with respect to Senior Employees, in the usual course of business consistent with past practice;

11. not incur or permit to remain outstanding any Indebtedness, other than any such Indebtedness that (together with all Encumbrances (other than any Permitted Encumbrances) in respect thereof) will be discharged in full on or prior to Completion;

12. save other than in relation to any Disputes arising from a Transaction Agreement or, with respect to the Joltid Litigation or any Specified Legal Proceeding, except as provided in clauses 8 and 9 of this Agreement, not settle litigation where the amount of the settlement exceeds €4,000,000 in any individual case and €12,000,000 in the aggregate (other than debt collection proceedings in the usual course or its business);

13. not offer to employ a new employee at the level of vice president or higher, or dismiss an employee at the level of vice president or higher, except for dismissals for cause or dismissals as required by Plans or agreements in existence as of the date of this Agreement;

14. not change or make any Tax elections, settle any Tax audits or investigations for any material amount, amend any Tax Returns where such amendment requires such Group Company to pay any material amount of additional Tax, or take action which it knows would reasonably be expected to change the Tax residency or jurisdiction of such Group Company, or to cause such Group Company to become subject to Tax in a jurisdiction in which such Group Company was not previously subject to Tax or undertake any merger or reorganization for any Tax purposes;

15. with respect to Tax Returns and Other Tax Returns (collectively, “Returns”) filed by or on behalf of any Group Company, and with respect to Taxes payable by or on behalf of any Group Company, in each case during the period commencing upon (and including) the execution of this Agreement and ending on (and including) the Completion Date (the “Interim Period”), the Sellers jointly and severally covenant that they shall, and shall procure that the Seller’s Group Undertakings, save as required by law, prepare and file such Returns, and calculate and pay such Taxes, in accordance with past practice, including, without limitation, past practice as to: (a) positions taken, methods of accounting used, and principles of taxation followed, (b) elections made, (c) the processes and systems used in the preparation of Returns, and the timing and manner for filing Returns, (d) the accounting periods used, (e) the claiming of refunds of Tax, (f) the conduct of administrative or court proceeding relating to Taxes, (g) the carryback or other

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utilization of Relief, (h) the time of payment, and (i) all other material practices for the preparation and filing of Returns and the payment of Taxes. For the avoidance of doubt past practice shall not be taken to include late payment other than pursuant to an arrangement with the relevant Tax Authority. During the Interim Period, the Sellers shall not, and shall procure that the Seller’s Group Undertakings shall not, enter into any settlement or compromise of any material dispute in respect of a claim, audit, or assessment by any Tax Authority with respect to such Returns or such Taxes without the prior approval of the Buyer (such approval not to be unreasonably withheld or delayed); and

16. not agree to take any of the actions prohibited by paragraphs 3 through 15 above.

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SCHEDULE 9

TAX COVENANT

1. INTERPRETATION

1.1 In this Schedule, the following definitions shall have the following meanings:

“2008 Accounts” means the audited combined financial statements of the Group Companies (comprising a balance sheet, a profit and loss account and a statement of cash flows) for the financial period ended on 31 December 2008 together with the notes thereto;

“Assessment” means a claim, assessment, notice, demand, return, or other document issued or action taken or omission made by or on behalf of a Tax Authority from which it appears that, or as a result of which, (i) a claim for breach of a Tax Warranty may be made, (ii) a Group Company is or may be placed or sought to be placed under a Tax Liability and in respect of which an action may be brought under this Schedule, or (iii) there could be a reduction of any Relevant Amount as referred to in paragraph 7;

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

“Event” means any event or any event deemed for the purposes of any Tax, any deed, circumstance, act, transaction, payment, distribution, and the entry into this Agreement and/or Completion;

“Indemnified Taxes” means any Tax, including any penalty or interest payable in connection with, or with any failure to pay or any delay in paying, any of the same other than (i) any VAT, sales tax or use tax or similar Taxes or (ii) any Tax imposed on any of the Group Companies as a result of the products offered by the Group Companies being characterized as telecommunications services or products;

“Independent Accountant” means an independent chartered accountant or firm of chartered accountants appointed jointly by the Buyer and the Sellers or, if they fail to agree an appointee within 7 Business Days of either first proposing such a person by notice to the other, to be appointed on the application of either party by the President from time to time of the Institute of Chartered Accountants in England and Wales;

“Post Completion Relief” means a Relief arising to a Group Company to the extent that it arises in respect of any Event occurring or period commencing after Completion;

“Relief” means any relief, exemption, allowance, loss, deduction, credit or set-off in each case available in respect of any Tax or relevant to the computation of any liability to Tax and shall include without limitation a right to repayment of any Tax (including any repayment supplement or interest in respect of such repayment);

“Straddle Period” means an accounting or tax period of a Group Company beginning on or before and ending after the Completion Date;

“Straddle Period Return” means a Tax Return of a Group Company for any Straddle Period;

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“Tax Legislation” means any statute, statutory instrument, enactment, law, by-law, directive, decree, ordinance, regulation or legislative provision or generally applicable ruling (such as a revenue ruling issued by the U.S. Internal Revenue Service) enacted, issued or adopted providing for, imposing or relating to Tax; and

“Tax Liability” means:

(a) any liability imposed on a Group Company by a Tax Authority to or in respect of any Indemnified Tax whether or not it is directly or primarily the liability of such Group Company;

(b) the use or set off, against income, profits or gains earned, accrued or received by a Group Company on or before Completion relevant to the calculation of any Group Company’s liability to any Indemnified Tax or against any liability to an Indemnified Tax within (a) above, of any Post Completion Relief, in each case, in circumstances where but for such use or set off the relevant Group Company would have had an actual liability to such Indemnified Tax in respect of which the Sellers would have been liable under this Agreement,

and in the case of the use or set off of a Post Completion Relief the amount of the Tax Liability determined under clause (b) above shall be a sum equal to the amount of the actual liability to the Indemnified Tax which would have arisen but for such use or set off; provided that for these purposes it shall be assumed that a Relief other than a Post Completion Relief will, where possible, be used in priority to a Post Completion Relief;

(c) any liability of a Group Company (in this paragraph (c), the “Payer Group Company”) to make a payment of an amount in respect of an Indemnified Tax to a Seller’s Group Undertaking or any other person with whom the Payer Group Company has been grouped, connected or otherwise associated for the purposes of such Indemnified Tax at any time on or prior to Completion (other than a Group Company) which person by law or pursuant to an agreement with the relevant Tax Authority makes payment to such Tax Authority of Indemnified Tax on behalf of the Payer Group Company; or

(d) any liability for Tax of a Group Company as described in paragraph 2.2.

1.2 Subject to paragraph 1.1 words and expressions defined in this Agreement or defined for the purpose of the relevant Tax Legislation shall bear the same meanings in this Schedule.

1.3 In this Schedule, any reference to:

1.3.1 the provisions of any Tax Legislation shall be deemed to refer to the same, as in force, including any Tax Legislation announced as being in force as of a specific date and further including any amendment, re-enactment or consolidation, at the time, by reference to which the same falls to be interpreted and shall be deemed to include references to any orders, regulations, or to other subordinate legislation made under the relevant statute or statutory provisions;

1.3.2 any Event occurring or which existed at the time of or on or before or after a particular date or time shall include the case where such Event is deemed

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or treated for the purposes of any Tax as having occurred or as existing on or before or after that date or time;

1.3.3 anything being deemed or treated “for the purposes of any Tax” shall mean that for the purposes of any applicable Tax Legislation or decided case law in relation to any Tax or published practice of any Tax Authority in respect of such Tax that thing is deemed or treated in the way described;

1.3.4 paragraphs, sub-paragraphs and appendices is a reference to paragraphs, sub-paragraphs and appendices in or to this Schedule unless otherwise specified;

1.3.5 income, profits or gains earned, accrued or received includes any income, profits or gains deemed to be earned, accrued or received for the purposes of any Tax; and

1.3.6 income, profits or gains earned, accrued or received on or before a particular date or in respect of a particular period includes income, profits or gains which are deemed for the purposes of any Tax to have been earned, accrued or received on or before that date or in respect of that period.

1.4 The headings in this Schedule do not affect its interpretation.

1.5 The Sellers’ obligations contained in this Schedule are joint and several.

2. COVENANTS

Subject to the limitations and exclusions set out in this Agreement, the Sellers covenant with the Buyer to pay to the Buyer by way of adjustment of the Purchase Price an amount equal to:

2.1 the amount of a Group Company’s Tax Liability (other than any liability within paragraph (d) of the definition of Tax Liability) which arises:

(a) as a result of any Event which occurred on or before Completion; or

(b) in respect of any income, profits or gains which were earned, accrued or received on or before Completion or in respect of a period ending on or before the Completion Date, including the portion of any Straddle Period ending on the Completion Date;

2.2 any Tax or any amount on account of Tax directly or primarily chargeable on, or in respect of the income, profits, gains or Events of, but not paid by (i) a Seller’s Group Undertaking (other than a Group Company) or (ii) any other company (other than a Group Company) with which a Group Company (in this paragraph 2.2, a “Relevant Group Company”) has at any time on or before Completion been a member of the same group of companies for the purposes of the relevant Tax (in this paragraph 2.2, such Seller’s Group Undertaking and such other company being a “Relevant Seller’s Group Undertaking”) for which such Tax or any amount on account of such Tax the Relevant Group Company is made liable (or would have been made liable but for the use of any Post Completion Relief) as a result of such Relevant Group Company and such Relevant Seller’s Group Undertaking being or having been at any time on or before Completion members of the same group of companies for the purposes of the relevant Tax (including

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any such liability under Section 1.502-6 of the US Treasury Regulations (or any similar provision under U.S. state or local law)) PROVIDED THAT this paragraph 2.2 shall not extend to any Tax for which a Group Company is made so liable which arises in respect of any income, profits or gains earned, accrued or received by any Group Company or which arises as a result of any Event of or entered into by any Group Company; and

2.3 the amount of any reasonable out-of-pocket costs and expenses (including reasonable fees and disbursements of outside legal counsel and other external advisers but other than management costs and expenses) properly incurred by the Buyer and/or a Group Company in connection with any successful claim made against the Sellers under paragraph 2.1 or 2.2.

3. EXCLUSIONS

3.1 In addition to the limitations and exclusions otherwise set out in this Agreement (but in the event of any conflict or inconsistency between the exclusions set out in this paragraph 3 and any other provision of this Agreement, this paragraph 3 shall take precedence) the covenants contained in paragraph 2 shall not apply to a Tax Liability (and neither shall the Sellers have any liability under the Tax Warranties) to the extent that:

3.1.1 such Tax Liability is the subject of or was taken into account in computing the amount of an allowance, accrual, reserve or provision for Tax in the Last Balance Sheet or was specifically referred to in the 2008 Accounts or in the notes to the 2008 Accounts;

3.1.2 such Tax Liability was actually paid or discharged on or before Completion;

3.1.3 the matter or any Event giving rise to such Tax Liability arises, or such Tax Liability arises or is increased, as a result of a change on or after Completion in the accounting reference date of any Group Company or in any accounting policy or any Tax reporting practice of any Group Company other than a change (i) which is necessary in order to comply with applicable law or generally accepted accounting principles applicable to any Group Company as at Completion or (ii) pursuant to a legally binding agreement entered into by a Group Company on or before Completion and which is legally binding on the relevant Group Company;

3.1.4 the matter or any Event giving rise to such Tax Liability arises or such Tax Liability arises or is increased as a result of any default or delay by the Buyer or any Group Company after Completion, including:

(i) any delay in paying or satisfying any Tax Liability;

(ii) any delay or default in submitting any Tax Return required to be submitted by them;

(iii) submitting such Tax Return outside the appropriate time limits; or

(iv) submitting such Tax Return otherwise than on a proper basis,

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in each case after Completion (in each case other than as a result of the Sellers failing to comply with their obligations under paragraph 6 or (in relation to interest and penalties only) in the circumstances described in paragraph 5.2);

3.1.5 the matter or any Event giving rise to such Tax Liability arises or such Tax Liability arises in the ordinary course of business of a Group Company for the period commencing immediately after the Last Accounting Date and ending on the Completion Date;

3.1.6 the matter or any Event giving rise to such Tax Liability arises or such Tax Liability arises or is increased as a result of:

(a) a change in Tax rates or in Tax Legislation (or in its interpretation on the basis of case law) made after the date of this Agreement; or

(b) a change or withdrawal after the date of this Agreement of any previously published practice or extra-statutory concession of any Tax Authority,

(c) without limitation of paragraph 3.1.6(a), the imposition of a Tax not in force at the date of this Agreement;

in each case with or without retrospective effect;

3.1.7 the matter or any Event giving rise to such Tax Liability or such Tax Liability would not have arisen but for, or such Tax Liability is increased by any voluntary act or omission of any Buyer’s Group Undertaking or any employee of any Buyer’s Group Undertaking after Completion other than any such act or omission which (i) the relevant Buyer’s Group Undertaking or relevant employee of a Buyers’ Group Undertaking was obliged to or omit to carry out by applicable law, or pursuant to a binding agreement entered into by a Group Company on or before Completion and which is legally binding on such Buyer’s Group Undertaking or relevant employee of a Buyer’s Group Undertaking, or (ii) was in the ordinary course of the business of the relevant Group Company;

3.1.8 recovery of such Tax Liability:

(i) has been made under the Sellers’ Warranties or otherwise under any other provision of this Agreement or any other agreement with either Seller or under statute, or

(ii) has been made from any person other than a Seller’s Group Undertaking with respect to the Tax Liability, whether under applicable law, rule or regulation, agreement, arrangement, undertaking, insurance policy or otherwise howsoever;

3.1.9 the matter or any Event giving rise to such Tax Liability or such Tax Liability would not have arisen but for the winding up of, or the cessation of trade or business by, or a change in the nature or conduct of the trade or business of, a Group Company after Completion in each case other than pursuant to

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a legally binding agreement entered into by a Group Company on or before Completion and which is legally binding on the relevant Group Company;

3.1.10 the matter or any Event giving rise to such Tax Liability arises, or such Tax Liability arises or is increased, in consequence of any failure by the Buyer to comply with any of its obligations under this Schedule;

3.1.11 any Relief (other than a Post Completion Relief) or a Relief included as an asset in the Last Balance Sheet is available, or is for no consideration made available by the Sellers to the relevant Group Company to set against or otherwise mitigate such Tax Liability, and so that:

(a) any Relief that is so available in relation to more than one Tax Liability to which this Schedule applies shall be deemed, so far as possible, to be used in such a way as to reduce to the maximum extent possible the Sellers total liability under this Schedule or for breach of any of the Tax Warranties; and

(b) the amount of any Relief which has been taken into account for the purposes of this paragraph 3.1.11 to reduce the liability of the Sellers under this Schedule or for breach of any of the Tax Warranties shall not be taken into account a further time for the purposes of this paragraph 3.1.11;

(c) any Relief which has been taken into account in computing (and so eliminating or reducing) any provision for Taxation in the Last Balance Sheet (in this paragraph 3.1.11, a “Relevant Provision”) shall not be treated for the purposes of this paragraph 3.1.11 as available to set against or otherwise mitigate a Tax Liability (in this paragraph 3.1.11, a “Relevant Tax Liability”) unless:

(i) such Relief was so taken into account for the purposes of the provision in the Last Balance Sheet for the Relevant Tax Liability; or

(ii) (and to the extent that) such Relief could be so utilised to set against or otherwise mitigate the Relevant Tax Liability without resulting in the Relevant Provision (judged at the time of such utilisation) to become an underprovision in respect of the Tax Liability the subject of such Relevant Provision;

3.1.12 the matter or any Event giving rise to such Tax Liability, or such Tax Liability would not have arisen but for:

(a) the making of a claim, election, surrender or disclaimer, the giving of a notice or consent, or the doing of any other thing under the provisions of any Tax Legislation, in each case after Completion by any Buyer’s Group Undertaking or any Representative of a Buyer’s Group Undertaking, other than (i) at the Sellers’ written request in accordance with paragraph 6 or (ii) pursuant to a legally binding agreement entered into on or before Completion; or

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(b) the failure or omission on the part of any Group Company to make any such valid claim, election, surrender or disclaimer, or to give any such notice or consent or to do any other such thing, as the Sellers may require in respect of periods or matters for which the Sellers have conduct under paragraph 6 or where the making, giving or doing of which was taken into account in the calculation of any allowance, accrual, reserve or provision for Tax in the Last Balance Sheet or was otherwise taken into account in calculating creditors or deducted in calculating debtors in the Last Balance Sheet;

3.1.13 such Tax Liability is a liability to fines, interest or penalties in respect of an underpayment on or before Completion of an instalment payment of Tax insofar as such underpayment would not have been an underpayment but for an Event occurring or income, profits or gains earned, accrued or received after Completion PROVIDED THAT the amount of any such instalment payment in respect of which there has been such an underpayment was estimated by or on behalf of the relevant Group Company on a reasonable basis taking account of, without limitation, then available current projections or estimates (if any) for the relevant accounting or other Tax period; or

3.1.14 the matter or any Event giving rise to such Tax Liability or such Tax Liability arises or is increased as a result of exercise of share options by employees of a Group Company after Completion or the grant of share options after Completion or the assignment or release of a share option after Completion or the provision of a benefit in connection with a share option after Completion (in each case other than pursuant to a legally binding commitment in place at Completion).

3.2 For the avoidance of doubt, the Sellers shall have no liability under this Schedule in respect of any non-availability, inability to use, loss or restriction of any Relief (“Failure of Relief”) where such Failure of Relief does not give rise to a Tax Liability to which this Schedule applies.

3.3 The provisions of this paragraph 3 of this Schedule shall also operate to limit or reduce the liability of the Sellers in respect of claims under the Tax Warranties or under paragraph 12 (subject to paragraph 12.3) and in any case when the provisions of this paragraph 3 conflict with the other provisions of the Agreement which apply in respect of claims under this Schedule or under the Tax Warranties then the provisions of this paragraph 3 shall prevail. References in this paragraph 3 to a Tax Liability shall be read to include any liability for a claim under the Tax Warranties or under paragraph 12.

3.4 For the avoidance of doubt, the exclusions and limitations otherwise set out in this Agreement shall, to the extent applicable, exclude or limit the liability of the Sellers under this Schedule or under any of the Tax Warranties.

3.5 The covenant given by the Sellers to the Buyer in paragraph 2.2 shall not apply to Tax for which a Group Company is liable to the extent that any amount in respect of such Tax has been recovered by any Group Company or person connected for the purposes of the relevant Tax with any Group Company under any relevant statutory provision (and the Buyer shall procure that no such recovery is sought to the extent that a payment in respect of such Tax is made under this Schedule).

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4. APPEALS AND CONDUCT OF CLAIMS

4.1 Each of the Sellers shall be entitled, subject to the remaining provisions of this paragraph 4, to resist any Assessment for and on behalf and in the name of a Group Company which is or could relate to a Tax Liability for which the Sellers might be liable under this Schedule or for breach of any Tax Warranty or to resist any matter which could reduce a Relevant Amount as referred to in paragraph 7.

4.2 If a Group Company receives or the Buyer receives an Assessment which may give rise to a Tax Liability for which the Sellers might be liable under this Schedule or for breach of any Tax Warranty or which could result in a reduction of a Relevant Amount as referred to in paragraph 7:

4.2.1 the Buyer shall as soon as reasonably practicable give notice in writing of the Assessment (including, to the extent known, reasonably sufficient details of such Assessment, the due date for any payment, the time limits for any appeal and, so far as practicable, the amount of the claim under this Schedule or for breach of any Tax Warranty in respect thereof) to the Sellers and in any event within 15 Business Days of the Group Company or the Buyer becoming aware of such Assessment PROVIDED THAT if the time limit for appealing or otherwise disputing or resisting an Assessment is within 30 days from the date of such Assessment, the Buyer shall give such notice in writing of such Assessment to the Sellers within 10 Business Days of the Group Company or the Buyer becoming aware of such Assessment; and

4.2.2 subject to paragraphs 4.3 to 4.5 inclusive, the Buyer shall, and shall ensure that each Group Company shall, take any action the Sellers may reasonably request to avoid, dispute, resist or compromise the Assessment (an Assessment where action is so requested being hereafter referred to as a “Tax Dispute”).

4.3 The Sellers shall have the right (if they so wish) to control the conduct of a Tax Dispute, and the Sellers shall in any event be kept fully informed of any actual or proposed developments (including any meetings), and shall be provided with copies of all correspondence and documentation relating to such Tax Dispute and such other information, assistance and access to records and personnel as they reasonably request.

4.4 The Sellers shall reimburse to the Buyer its reasonable out-of-pocket costs and expenses (including reasonable fees and disbursements of outside legal counsel and other external advisers but other than management costs and expenses) properly incurred in connection with any action or proceedings taken at the request of the Sellers pursuant to paragraph 4.2.2 above.

4.5 Subject to paragraph 4.10, the Buyer shall procure that (i) to the extent that (a) the Sellers could be required to make a payment under this Schedule or any of the Tax Warranties in respect of any Tax Liability that is the subject of the Tax Dispute, or (b) a Relevant Amount as referred to in paragraph 7 could be reduced, the Tax Dispute is not settled or otherwise compromised without the prior written consent of the Sellers (such consent not to be unreasonably withheld or delayed) and (ii) each Group Company and any of its respective advisors shall, so far as it is reasonable to do so, not submit any document or give notice of any matter to a Tax Authority which could (a) give rise to or increase any claim under this Schedule or any of the Tax Warranties, or (b) reduce a Relevant Amount

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as referred to in paragraph 7 without first allowing the Sellers’ reasonable opportunity to review such document, and the Buyer shall, or will procure that the relevant Group Company shall, make such reasonable amendments to such document as the Sellers, on a timely basis, may request.

4.6 In the event that the Sellers elect to take control of the conduct of a Tax Dispute in accordance with paragraph 4.3 then:

4.6.1 the Sellers shall keep the Buyer reasonably informed of all relevant matters and shall promptly forward or procure to be forwarded to the Buyer copies of all relevant correspondence and other relevant information and documentation;

4.6.2 all communications written or otherwise relating to the Tax Dispute which are to be transmitted to a Tax Authority shall first be submitted to the Buyer to afford it a reasonable opportunity to comment thereon and the Sellers shall take account of the Buyer’s reasonable comments provided that such comments are provided by the Buyer to the Sellers on a timely basis; and

4.6.3 the Sellers shall make no settlement or compromise of the Tax Dispute which would result in a material increase in any future liability to Tax of the Buyer or any Buyer’s Group Undertaking without the prior approval of the Buyer, such approval not to be unreasonably withheld or delayed.

4.7 Neither the Buyer nor any Buyer’s Group Undertaking shall be obliged to take action, or cede control of the conduct of a Tax Dispute, pursuant to this paragraph 4 unless:

4.7.1 in a case where an Assessment relates to a Tax Liability for which the Sellers might be liable under this Schedule or for breach of any Tax Warranty , the Sellers shall provide written notice to the Buyer acknowledging that in the event that a Tax Liability or a liability for breach of any Tax Warranty were to arise as a result of such Assessment then, subject to the limitations set out in Schedule 5 to this Agreement, the Sellers would be liable for such Tax Liability or liability for breach of any of the Tax Warranties;

4.7.2 the Sellers are and will remain, in the reasonable determination of the Buyer, solvent and capable of fully satisfying their obligations under paragraph 4.7.1; and

4.7.3 the Sellers progress the conduct of the Tax Dispute within a reasonable time.

4.8 Neither the Buyer nor any Buyer’s Group Undertaking shall be obliged to take action pursuant to this paragraph 4 (i) which would be likely to be materially prejudicial to the relationship of the Buyer or the relevant Group Company with the relevant Tax Authority; or (ii) which involves contesting an Assessment beyond the first appellate body (excluding the Tax Authority which has made the Assessment) in the jurisdiction concerned unless leading counsel specialising in Tax (with at least 10 years’ call) or reasonable equivalent outside the United Kingdom appointed by the Sellers and the Buyer, or failing agreement on such appointment, appointed by the Chair (or equivalent) of the local Bar Association, opines that such a course of action having regard to the merits of the case, the size of the Tax Liability and any other relevant factors is reasonable PROVIDED THAT such course of action shall not for this purpose be

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reasonable unless such leading counsel opines that, on the merits, there is a reasonable basis for success.

4.9 In the event of a dispute between the Sellers and the Buyer as to whether any action pursuant to this paragraph 4 would be likely to be materially prejudicial to the relationship of the Buyer or the relevant Group Company with the relevant Tax Authority, such dispute shall be referred to leading counsel specialising in Tax (with at least 10 years’ call) or reasonable equivalent outside the United Kingdom appointed by the Sellers and the Buyer, or failing agreement on such appointment, appointed by the Chair (or equivalent) of the local Bar Association who shall determine whether such action would be likely to be so materially prejudicial.

4.10 If the Sellers do not request the Buyer to take any appropriate action under paragraph 4.2.2 within 30 days of notice being given to the Sellers under paragraph 4.2.1, the Buyer shall be free to settle the relevant Assessment but shall take reasonable steps to mitigate or minimise the amount of any Tax Liability arising in relation to such Assessment.

4.11 The Sellers’ rights under this paragraph 4 with respect to an Assessment and related Tax Claim shall terminate upon Buyer’s written acknowledgement to, and written agreement with, the Sellers that the Sellers shall have no liability with respect to such Assessment and Tax Claim, and that such Assessment shall not reduce any Relevant Amount under this Agreement.

5. DATE FOR PAYMENT

5.1 Subject to paragraphs 5.2 and 5.3, the due date for payment by the Sellers of any sum due under this Schedule shall be:

5.1.1 in the case of any Tax Liability which involves an actual payment of Tax, the later of (i) 3 Business Days before the amount of the Tax Liability is due and payable and (ii) 10 Business Days after a demand in writing is served on the Sellers by the Buyer; and

5.1.2 in the case of any Tax Liability which does not involve an actual payment of Tax, on the date which is 10 Business Days after a demand in writing is served on the Sellers by the Buyer, such demand to be accompanied by a copy of a certificate from the auditors of the relevant Group Company (obtained or procured to be obtained by and at the expense of the Buyer) to the effect that the Sellers have a liability of a stated amount in respect of such Tax Liability.

5.2 If the date on which the Tax can be recovered by the relevant Tax Authority is deferred following application to such Tax Authority, the date for payment by the Sellers shall be 3 Business Days before the later of (i) (a) such later date when the amount of Tax is finally and conclusively determined, or a decision of a court or tribunal is given or any binding agreement or determination is made from which either no appeal lies or in respect of which no appeal is made within the prescribed time limit and (b) if earlier, the date on which such Tax is lawfully recoverable by the relevant Tax Authority, and (ii) 10 Business Days after a demand in writing is served on the Sellers by the Buyer.

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5.3 If a payment or payments to the relevant Tax Authority prior to the date otherwise specified by this paragraph would avoid or minimise interest or penalties, the Sellers may at their option pay the whole or part of the amount due to the Buyer on an earlier date or dates, and, in such event, the Buyer shall procure that the Tax in question (or the appropriate part of it) is promptly paid to the relevant Tax Authority.

6. TAX RETURNS

6.1 Subject to the provisions of this paragraph 6, the Sellers, or their duly appointed agents shall prepare, file and submit all Tax Returns that are required to be filed by or with respect to each Group Company for accounting and tax periods ended on or before the Completion Date (the “Pre-Completion Returns”).

6.2 The Sellers, or their duly appointed agents shall (a) prepare and submit on behalf of each Group Company all claims, elections, surrenders, disclaimers, notices and consents for the purposes of any Indemnified Tax in respect of all accounting periods ending on or before the Completion Date (the “Pre-Completion Documents”); and (b) deal with all matters relating thereto and to the Pre-Completion Returns including the conduct of all negotiations and correspondence but excluding payment of any Tax provided that the Buyer or its appointed agent shall be entitled to participate in any meetings or teleconferences with any Tax Authority in relation thereto. The Sellers shall inform the Buyer prior to the entry into of any such negotiations in respect of any material issue, shall keep the Buyer informed on request about the status of any such negotiations and shall provide the Buyer with copies of any material correspondence received by them or their duly appointed agents related to the matters referred to in the previous sentence.

6.3 The Sellers shall procure that the Buyer receives for review and comment the Pre-Completion Returns and/or Pre-Completion Documents, and documents or correspondence relating thereto (the “Pre-Completion Relevant Information”) which are intended to be filed with the relevant Tax Authority before filing with such Tax Authority, and in the case of any Pre-Completion Return relating to a corporate income tax, no later than 20 Business Days before the applicable filing date, and in all other cases, on a timely basis (and with due regard to applicable filing deadlines), and the Sellers shall take account of the reasonable comments of the Buyer and shall not make any such filing that would materially increase the Tax Liability of the Buyer or any Buyer’s Group Undertaking for a post Completion period without the consent of the Buyer; provided that any such comments are provided by the Buyer to the Sellers on a timely basis and in the case of any Pre-Completion Return relating to a corporate income tax, in any event no later than 5 Business Days before the applicable filing date; provided, further, that the Sellers shall be under no obligation to procure that the Buyer receives any Tax Return filed on an affiliated, consolidated or combined basis or portion of any such Tax Return, or any documents or correspondence relating thereto which contains information relating to any person other than the relevant Group Company; provided, however, that the preceding proviso shall not apply to any such Tax Return, document or correspondence from which the Sellers are reasonably able to redact the portion thereof that contains information relating to any person other than the relevant Group Company.

6.4 Sellers, or their duly appointed agents, shall prepare, file and submit all returns and similar statements required to be filed with respect to any Tax (other than an Indemnified Tax) of each Group Company (“Other Tax Returns”) that are required to be filed on or

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prior to the Completion Date. Save as otherwise required by law, all such Other Tax Returns shall be prepared, filed and submitted in a manner consistent with past practice and, on such Other Tax Returns, save as otherwise required by law, no position shall be taken, election made or method adopted that is inconsistent with positions taken, elections made or methods used in preparing and filing similar Other Tax Returns in prior periods. Without limiting the foregoing, to the extent reasonably requested by the Buyer, the Sellers shall procure that the Buyer receives for review and comment such Other Tax Returns filed or to be filed after the date hereof and prior to Completion and, with respect to such Other Tax Returns to be filed (and with due regard to applicable filing deadlines) and provided that any such comments are provided by the Buyer to the Sellers on a timely basis, shall take account of the reasonable comments of the Buyer and, save as required by law, shall not take any position, make any election or adopt any method inconsistent with those in preparing and filing similar Other Tax Returns in prior periods without the prior consent of the Buyer (such consent not to be unreasonably withheld or delayed).

6.5 In respect of any Straddle Period and all accounting periods thereafter, and in respect of Other Tax Returns that are required to be filed after the Completion Date, the Buyer shall or will procure that the Group Companies shall prepare and file the Straddle Period Returns, such Other Tax Returns, and all other returns.

6.6 The Buyer shall or will procure that the relevant Group Companies or their duly appointed agents shall (a) prepare and submit on behalf of each Group Company all claims, elections, surrenders, disclaimers, notices and consents for the purposes of any Indemnified Tax in respect of the Straddle Period (the “Straddle Period Documents”); and (b) subject to the Sellers’ rights in relation to the conduct of a Tax Dispute in accordance with paragraph 4, deal with all matters relating thereto and to the Straddle Period Returns including the conduct of all negotiations and correspondence.

6.7 The Buyer shall procure that the Straddle Period Returns shall be prepared on a basis which is consistent with the manner in which Tax Returns filed prior to Completion for the relevant Group Company were prepared, save where otherwise required by Tax Legislation.

6.8 The Buyer shall deliver to the Sellers any Straddle Period Return, Straddle Period Documents and documents or correspondence relating thereto (the “Relevant Straddle Period Information”) which are intended to be filed with the relevant Tax Authority before filing with such Tax Authority, and in the case of any Straddle Period Return relating to a corporate income tax, no later than 20 Business Days before the applicable filing date, and in all other cases, on a timely basis (and with due regard to applicable filing deadlines), and the Sellers shall have the right to review any Relevant Straddle Period Information prior to the filing thereof and the Buyer shall make such reasonable changes to such portion of the Relevant Straddle Period Information as is material to the amount of Indemnified Tax payable by any Group Company in respect of that portion of the Straddle Period ending on and including the Completion Date or any other period ending on or before Completion prior to the applicable filing date as the Sellers may request provided that such changes are so requested by the Sellers on a timely basis, and in the case of any Straddle Period Return relating to a corporate income tax, in any event no later than 5 Business Days before the applicable filing date and the Buyer shall not submit any Straddle Period Document which is material to the amount of Indemnified Tax payable by any Group Company in respect of that portion of the Straddle Period

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ending on and including the Completion Date or any other period ending on or before Completion without the prior written consent of the Sellers (such consent not to be unreasonably withheld or delayed).

6.9 The Buyer undertakes that:

6.9.1 it shall, and it will procure that the Group Companies shall, promptly forward to the Sellers any material correspondence relating to Indemnified Taxes from any Tax Authority relating to a Group Company in respect of any accounting period ended on or prior to Completion;

6.9.2 it shall, and it will procure that the Group Companies shall, provide to the Sellers or other duly appointed agents of the Sellers or the relevant Group Company such information and assistance, including such access to its personnel, books and records, in relation to the preparation of the Pre-Completion Returns or the Pre-Completion Documents, or in relation to the Pre-Completion Relevant Information prior to the submission of such Pre-Completion Returns, Pre-Completion Documents or Pre-Completion Relevant Information as the Sellers shall reasonably request provided that any such access shall be granted only during normal office hours upon the Sellers giving reasonable notice to the Buyer;

6.9.3 the Group Companies, as soon as reasonably practicable, shall deliver to the Sellers copies of any material correspondence sent to, or received from, and a copy of the record of any material oral communication which it may have, with any Tax Authority or in relation to any Straddle Period Return or the Relevant Straddle Period Information and shall otherwise keep the Sellers fully informed of its actions under this paragraph 6;

6.9.4 it shall not make any election under Section 338 of the Code or under any applicable similar provision of state or foreign law with respect to any Group Company without the prior written consent of the Sellers; and

6.9.5 subject to paragraph 6.3, it shall procure that each of the Group Companies shall cause all Pre-Completion Returns and/or Pre-Completion Documents delivered to them by the Sellers for authorisation and signature by the relevant Group Company to be authorised and signed and returned to the Sellers without delay and without amendment; provided that no Group Company shall be under any obligation to authorise or sign any Pre-Completion Document or Pre-Completion Return which it considers in its reasonable opinion to be false or misleading in any respect.

6.10 In respect of any matter which gives rise or may give rise to an Assessment, the provisions of paragraph 4 with respect to conduct of Assessments shall apply instead of the provisions of this paragraph 6.

6.11 The Sellers shall provide such assistance as the Buyer shall reasonably request in the preparation of any Straddle Period Return.

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7. CORRESPONDING SAVINGS AND OVER-PROVISIONS

7.1 The Sellers shall, at any time on or before the 30th day following the expiration of the applicable statute of limitations governing the Tax in respect of which a Relevant Amount is to be determined, be entitled to give notice to the Buyer requiring (at the Sellers’ reasonable expense) that the auditors for the time being of a Group Company certify whether a Relevant Amount (as determined in paragraph 7.2) exists in relation to such Group Company for the purposes of this paragraph 7 and the quantum of such Relevant Amount. The Buyer shall provide or procure that the relevant Group Company provides, in each case at the Sellers’ reasonable expense, such information or assistance which the auditors may require in connection with such certification. The Buyer shall notify the Sellers promptly in writing if it considers that any Relevant Amount may exist.

7.2 A “Relevant Amount” shall be determined for the purposes of this paragraph as follows:

7.2.1 if the Sellers have made payment to the Buyer in respect of a Tax Liability to which this Schedule applies or for a breach of any of the Tax Warranties and if such Tax Liability or the matter giving rise to such breach of the Tax Warranties gives rise to a Relief (other than a Relief that has been taken into account in computing and so reducing the amount of such payment in accordance with paragraph 10) which reduces or eliminates an actual liability to Tax of any Buyer’s Group Undertaking whenever arising (other than in the case of a liability to a Tax which is a Tax Liability in respect of which a claim may be brought under this Schedule or for breach of any of the Tax Warranties), the amount of the actual liability to Tax which is eliminated or the amount by which it is reduced shall be a Relevant Amount provided, however, that in determining whether such a liability to Tax is reduced or eliminated, any Relief that is otherwise available to the relevant Buyer’s Group Undertaking shall be deemed to be utilised prior to any utilisation of the Relief specified in this paragraph 7.2.1;

7.2.2 if a Group Company actually receives any amount by way of repayment of any Indemnified Tax (whether by way of a refund or credit of such Indemnified Tax (including any interest thereon)) in respect of or attributable to any period (or part-period) falling on or before Completion (other than any repayment which has been taken into account ((i) as an asset in the Last Balance Sheet or (ii) in computing and so reducing or eliminating any allowance, accrual, reserve or provision for Tax in the Last Balance Sheet and save to the extent that the loss of the right to such repayment (judged at the time of the receipt of such repayment) would not cause such allowance, accrual, reserve or provision to become an underprovision in respect of the Tax Liability the subject of such allowance, accrual, reserve or provision) and such right to or repayment of such Indemnified Tax does not arise from the use of a Post Completion Relief, an amount equal to the amount by way of repayment which such Group Company receives (less any (i) Tax chargeable on such Group Company in respect of such repayment and (ii) reasonable out-of-pocket costs and expenses (including reasonable fees and disbursements of outside legal counsel and other external advisers but other than management costs and expenses) properly incurred by the Buyer or the relevant Group Company in recovering such repayment) shall be a Relevant Amount, provided, however, that to the extent that such Group Company is subsequently found not to be entitled to retain any amount of such repayment, the amount

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which such Group Company is found not to be entitled to retain shall not be a Relevant Amount.

7.3 If either the Sellers challenge or the Buyer challenges the certification of the relevant auditors made under paragraph 7.1 and the Sellers and the Buyer cannot reach agreement (acting reasonably) as to the existence or quantum of the Relevant Amount, the Sellers shall, with the consent of the Buyer as to the choice of such Independent Accountant (such consent not to be unreasonably withheld or delayed), instruct an Independent Accountant, in accordance with paragraph 7.4, to certify such Relevant Amount. The Independent Accountant shall act as an expert and not as an arbitrator and the decision of the Independent Accountant as to the quantum of the Relevant Amount shall be binding on the parties.

7.4 The Buyer and the Sellers hereby agree and undertake that if any disagreement or dispute as to the quantum of the Relevant Amount is referred to an Independent Accountant:

7.4.1 the parties will each use all reasonable endeavours to co-operate with the Independent Accountant in resolving such disagreement or dispute, and for that purpose will provide to him all such information within their possession or control and documentation as he may reasonably require;

7.4.2 the Independent Accountant shall have the right to seek such professional assistance and advice as he may reasonably require in fulfilling his duties;

7.4.3 the Independent Accountant shall have the power to allocate his fees (and any professional fees incurred by him) for payment in whole or in part by either the Buyer or the Sellers at his discretion, but if not otherwise allocated such fees shall be paid by the Buyer on the one hand and the Sellers on the other in equal shares; and

7.4.4 the Independent Accountant shall make his determination pursuant to paragraph 7.3 as soon as reasonably practicable.

7.5 Subject to paragraph 7.3, a Relevant Amount as referred to in paragraph 7.2.1 (and certified in accordance with this paragraph) shall first be set-off against any payment then due from the Sellers under this Agreement and to the extent that there is an excess, that excess shall be repaid to the Sellers.

7.6 Subject to paragraph 7.3, a Relevant Amount as referred to in paragraph 7.2.2 (and certified in accordance with this paragraph) shall:

7.6.1 be set-off against any payment then due from the Sellers under this Agreement;

7.6.2 to the extent that there is an excess, a refund shall be made to the Sellers of any previous payment or payments made in respect of a Relevant Claim under this Agreement and not previously refunded under this paragraph up to the amount of such excess; and

7.6.3 to the extent that the excess referred to in paragraph 7.6.2 above is not exhausted under that paragraph, the remainder of that excess shall be carried forward and

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set-off against any future payment or payments which become due from the Sellers under this Agreement.

8. RECOVERY FROM THIRD PARTIES

8.1 In the event that the Sellers shall have made a payment to the Buyer in respect of any claim by the Buyer against the Sellers under this Schedule in respect of a Tax Liability or in respect of a breach of any of the Tax Warranties and any Buyer’s Group Undertaking is or may be entitled to recover or obtain a payment in respect of that Tax Liability from any person (other than any Buyer’s Group Undertaking but including any Tax Authority) the Buyer shall procure that the relevant Group Company shall:

8.1.1 promptly notify the Sellers of all relevant details concerning such entitlement after such Group Company becomes aware of such entitlement;

8.1.2 subject to paragraph 8.2, take such reasonable action as the Sellers shall request (at the Sellers’ expense) to enforce recovery under such entitlement;

8.1.3 keep the Sellers fully informed of the progress of any such action for the purpose of making recovery in accordance with this paragraph 8; and

8.1.4 within 5 Business Days of making recovery, pay to the Sellers an amount equal to the lesser of (i) any sum referred to in paragraph 8.1 (including any interest or repayment supplement) which the Buyer actually recovers or any Buyer’s Group Undertaking actually recovers (whether or not pursuant to any action requested under paragraph 8.1.2) less any reasonable costs or expenses properly incurred by the Buyer or any Buyer’s Group Undertaking (other than management costs and expenses) in respect of the matter in question and (ii) the amount of any payment previously made by the Sellers as referred to in paragraph 8.1, provided that if the Buyer or any Buyer’s Group Undertaking is subsequently required to repay or otherwise found not to be entitled to retain any such recovery, the Sellers shall promptly repay to the Buyer any amount previously paid to the Sellers pursuant to this paragraph 8.1.4.

8.2 Neither the Buyer nor any Group Company shall be obliged to take action pursuant to paragraph 8.1.2 (i) in a case where such action is against a Tax Authority, which would be likely to be materially prejudicial to the relationship of the Buyer or the relevant Group Company with the relevant Tax Authority; or (ii) which involves conducting litigation beyond the first appellate body in the jurisdiction concerned unless leading counsel (with at least 10 years’ call) or reasonable equivalent outside the United Kingdom appointed by the Sellers and the Buyer, or failing agreement on such appointment, appointed by the Chair (or equivalent) of the local Bar Association, opines that such a course of action having regard to the merits of the case and any other relevant factors is reasonable PROVIDED THAT such course of action shall not for this purpose be reasonable unless such leading counsel opines that, on the merits, there is a reasonable basis for success.

8.3 Where the same right to repayment of a Tax gives rise to an entitlement of the Sellers under two or more of paragraph 3.1.8(ii) (as an exclusion to the liability of the Sellers under this Schedule or for breach of any of the Tax Warranties), paragraph 7.5 (by way of set-off or repayment of a Relevant Amount and this paragraph 8 (by way of third party

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recovery), the Sellers shall not be entitled to recovery of or credit for the same amount in respect of such right to repayment more than once.

9. BUYER’S UNDERTAKINGS

9.1 The Buyer hereby undertakes to pay to the Sellers an amount equal to any Tax or any amount on account of Tax for which the Sellers or any person (other than a Group Company or other Buyer’s Group Undertaking) which is grouped, connected or otherwise associated for the purposes of any Tax with the Sellers are liable as a result of the failure of a Group Company to pay Tax, other than any Indemnified Tax in respect of which the Buyer could bring a claim against the Sellers under this Schedule or any of the Tax Warranties, unless a payment has been made in respect of such Indemnified Tax by the Sellers and such Indemnified Tax was not paid over to the relevant Tax Authority by the relevant Group Company (in which case this undertaking of the Buyer will still apply).

9.2 The undertaking given by the Buyer in paragraph 9.1 shall extend to the reasonable out-of-pocket costs and expenses (including reasonable fees and disbursements of outside legal counsel and other external advisers but other than management costs and expenses) properly incurred by the Sellers in connection with any successful claim against the Buyer under this paragraph 9.

9.3 The undertaking given by the Buyer in paragraph 9.1 shall not apply to Tax to the extent it has been recovered by the Sellers or any person connected for the purposes of the relevant Tax with the Sellers under any relevant statutory provision (and the Sellers shall procure that no such recovery is sought to the extent that a payment in respect of such Tax is made hereunder).

9.4 The Buyer shall not be liable to the Sellers in respect of a claim by the Sellers under paragraph 9.1 unless the Sellers have notified the Buyer of such claim stating in reasonable detail the nature of such claim and, if reasonably practicable, the amount claimed on or before the 30th day following the expiration of the applicable statute of limitations governing the Tax in respect of which such claim is being made.

9.5 A claim by the Sellers under paragraph 9.1 notified in accordance with paragraph 9.4 is unenforceable against the Buyer on the expiry of the period of six months starting on the day of expiration of the applicable time limit for notifying such a claim under paragraph 9.4, unless court proceedings in respect of such claim have been properly issued and validly served on the Buyer.

9.6 The provisions of paragraph 5.1.1 of this Schedule shall apply to any payment to be made under paragraph 9.1 mutatis mutandis.

9.7 Paragraph 4 shall apply mutatis mutandis to the covenant in favour of the Sellers under this paragraph 9 as it applies to the covenants in favour of the Buyer under paragraph 2.

9.8 The Buyer shall procure that the Group Companies shall keep all documents, books and records (in their possession or control as at Completion) relevant to their respective Tax affairs for any period on or before Completion or to any matter arising before Completion for as long as may be required by law.

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9.9 The Buyer shall procure that any relevant Group Company shall, in respect of any period falling prior to the Completion Date and the portion of any Straddle Period ending on the Completion Date, make or accept any surrender, transfer or allocation of any Relief (and in connection therewith make, give or enter into all such claims, consents, notices or other acts as may be required for the purposes of any such surrender, transfer or allocation and to effect the saving of Tax described in paragraph 9.9.2 resulting from such surrender, transfer or allocation):

9.9.1 (other than in respect of (i) any Relief taken into account in computing (and so eliminating or reducing) any provision for Taxation in or included as an asset in the Last Balance Sheet or (ii) a Post Completion Relief) by any Group Company to any Seller’s Group Undertaking, without payment or other consideration;

9.9.2 by any Seller’s Group Undertaking to any Group Company, for consideration equal to the amount of Tax actually saved thereby by the relevant Group Company (provided that in respect of any Relief made available by the Sellers to the relevant Group Company to set against or otherwise mitigate a Tax Liability in respect of which a claim could otherwise be made under this Schedule, no such consideration will be given) and provided further that, in determining whether an amount of Tax is actually saved by the relevant Group Company, any Reliefs otherwise available to such Group Company shall be deemed to be utilised prior to the utilisation of any Relief surrendered, transferred or allocated pursuant to this paragraph 9.9; or

9.9.3 (other than in respect of (i) any Relief taken into account in computing (and so eliminating or reducing) any provision for Taxation in the Last Balance Sheet and save to the extent that the surrender, transfer or allocation of such Relief was taken into account for the purposes of such provision and further save to the extent that the loss of such Relief (judged at the time of such surrender, transfer or allocation) would not cause such provision to become an underprovision in respect of the Tax Liability the subject of such provision or (ii) any Relief included as an asset in the Last Balance Sheet or (iii) a Post Completion Relief) between any Group Companies;

as the Seller shall direct.

10. STRADDLE PERIOD DETERMINATIONS

10.1 Whenever it is necessary to determine the Tax Liability or Relief of a Group Company for any Straddle Period (including, but not limited to, any such determination required under paragraphs 2.1 and 9.1), the determination of the Tax Liability or Relief of such Group Company for the portion of the Straddle Period ending on and including, and the portion of the Straddle Period beginning after, the Completion Date shall be determined by assuming that the Straddle Period consisted of two accounting periods, one which ended at the close of the Completion Date and the other which began at the beginning of the day following the Completion Date and items of income, gain, deduction, loss or credit relevant to the determination of such Tax Liability or Relief for the Straddle Period shall be allocated between such two accounting periods on a “closing of the books basis” by assuming that the books were closed at the close of the Completion Date.

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10.2 Notwithstanding paragraph 10.1, (i) any items of income, gain, deduction loss or credit attributable to any Event occurring on the Completion Date that are properly allocable to the portion of the Completion Date after Completion shall be allocated to the accounting period that is deemed to begin at the beginning of the day following the Completion Date, and (ii) exemptions, allowances or deductions relevant to the determination of such Tax Liability or Relief that are calculated on an annual basis shall be apportioned between such two accounting periods on a daily basis.

11. TAX SHARING AGREEMENTS

11.1 Subject to paragraph 11.2, each of the Sellers covenants that it shall, and shall procure that each Group Company shall, terminate without the payment of any consideration any Tax sharing agreements or other arrangements to surrender, transfer, share or allocate any Reliefs or items of profit, gain, loss, deduction or credit to which a Group Company is a party other than any such agreement or arrangement in respect of which all of the parties are Group Companies.

11.2 Any termination of any such agreements or arrangements as described in paragraph 11.1 shall be on terms which do not limit or restrict the operation of paragraph 3.1.11 or 9.9 in relation to any period falling prior to the Completion Date and the portion of any Straddle Period ending on the Completion Date.

12. STAMP DUTY

12.1 The Sellers warrant to the Buyer (subject to the exclusions and limitations set out in this Agreement and subject to paragraph 12.3 below) that any document in the possession of a Group Company or to the production of which a Group Company is entitled which attracts United Kingdom, Irish or similar stamp duty and which document may be necessary for such Group Company in proving title of such Group Company to any asset or to produce in evidence for the purposes of any litigation (and for the purposes of so proving title or producing in evidence must be duly stamped) to which such Group Company is a party has been properly stamped.

12.2 The Sellers agree that in the event of a breach of the warranty contained in paragraph 12.1 above, they shall pay to the Buyer by way of liquidated damages an amount equal to any unpaid stamp duty together with any interest and penalties in respect thereof and any such amount shall be payable on the later of (i) 3 Business Days before the stamp duty is paid and (ii) 10 Business Days after a demand in writing is served on the Sellers by the Buyer.

12.3 For the purposes of paragraph 3 it shall not be a voluntary act to pay stamp duty where that is necessary to prove title or produce a document in evidence as anticipated by the warranty given in paragraph 12.1 above and it shall not be a delay or default to defer paying stamp duty until such time provided that (i) if a document which is outside the relevant territory is subsequently brought into the relevant territory, the Buyer will pay any stamp duty payable on such document promptly once such document has been brought into the relevant territory, and (ii) if a Buyer’s Group Undertaking discovers that a document to the production of which a Group Company is entitled and which may be necessary for such Group Company in proving title of such Group Company to any asset or to produce in evidence for the purposes of any litigation has not been properly stamped, then the Buyer shall promptly notify the Sellers and allow the Sellers the

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opportunity to pay any such stamp duty in order to mitigate any interest and penalties which might arise in relation thereto.

12.4 References in this Schedule (other than in paragraph 2 (if any)) to a Tax Liability for which the Sellers may be liable under this Schedule or to which this Schedule applies or in respect of which a claim may be brought or could otherwise be made under this Schedule shall be read to include any liability for a claim under this paragraph 12.

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EXECUTED by the parties:

Signed for and on behalf of
EBAY INC.
By:	/s/    John Donahoe
Name:	John Donahoe
Title:	President and CEO

Signature Page to Amended SPA

Signed for and on behalf of

EBAY INTERNATIONAL AG
By:	/s/    Nicholas Staheyeff
Name:	Nicholas Staheyeff
Title:	Vice President, CFO Europe
By:	/s/    Wendy Jones
Name:	Wendy Jones
Title:	Vice President International Operations

Signature Page to Amended SPA

Signed for and on behalf of

SONORIT HOLDINGS, AS
By:	/s/    Robert Miller
Name:	Robert Miller
Title:	Director

Signature Page to Amended SPA

Signed for and on behalf of

SPRINGBOARD GROUP S.À.R.L.
By:	/s/    Alan Austin
Name:	Alan Austin
Title:	A Manager

Signature Page to Amended SPA

EX-12.01

Exhibit 12.01

eBay Inc.

Computation of Ratio of Earnings to Fixed Charges

(In thousands, except ratio data)

	Nine months ended September 30,
	2008		2009
Income Before Income Taxes, Noncontrolling Interest and Income/Loss of Equity Investees	$	1,711,815	$	1,290,797
Add: Fixed Charges		22,237		36,354
Earnings (1)	$	1,734,052	$	1,327,151
Fixed Charges (2)	$	22,237	$	36,354
Ratio of Earnings to Fixed Charges		78.0		36.5

(1) Earnings consist of income before income taxes, minority interest and equity in gains and losses of equity-method investees plus Fixed Charges.

(2) 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.

EX-31.01

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: October 27, 2009

EX-31.02

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: October 27, 2009

EX-32.01

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 September 30, 2009 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: October 27, 2009

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.

EX-32.02

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 September 30, 2009 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: October 27, 2009

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.