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Business Organizations Keyed to Bauman
eBay Domestic Holdings, Inc. v. Newmark
Citation:
16 A.3d 1 (Del. Ch. 2010).Facts
Craig Newmark founded craigslist, Inc. in 1995. craigslist is an online forum allowing users to advertise goods and services. During its existence, the company never had more than three shareholders and, prior to 2004, those individuals were Newmark, Buckmaster, and Phillip Knowlton. Newmark and Buckmaster (the defendants) wanted to continue to operate craigslist as a community service, but Knowlton wanted to monetize its success. Due to this difference in opinion, Knowlton sold his shares to eBay for $16 million. Simultaneously, eBay paid Newmark and Buckmaster $8 million in exchange for rights received under a stock purchase agreement (SPA) and stockholders’ agreement (Shareholders’ Agreement). Thus, in August 2004 Newmark owned 42.6%, Buckmaster owned 29%, and eBay owned 28.4% and each stockholder was able to elect one member to the board of directors.
eBay’s intent was to eventually acquire all of craigslist or use its platform to enter the classified advertising business. In March 2005, eBay launched an international classified service and, in June 2007, launched an ad service in the United States triggering some loss of its rights under the Shareholders’ Agreement. Thereafter, defendants suggested they buy back eBay’s stock. eBay rebuffed the proposal and defendants began taking steps to limit eBay’s ability to purchase more stock in the company and keep them out of the boardroom. As such, a “Rights Plan” was adopted which effectively allowed defendants to dilute eBay’s ownership interest if eBay purchased more stock in craigslist, Inc.
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