eBay 1999 Annual Report Download - page 70

Note 10—Commitments and Contingencies:
Leases
The Company leases property and equipment under non-cancelable operating leases that expire at various
dates. Future minimum rental payments under non-cancelable operating leases subsequent to December 31, 1999,
include those leases entered into subsequent to December 31, 1999 are as follows, (in thousands):
Year ending
December 31, Operating Leases
2000 ...................................................... $10,080
2001 ...................................................... 10,105
2002 ...................................................... 10,148
2003 ...................................................... 10,143
2004 ...................................................... 10,299
Thereafter .................................................. 8,273
Total minimum lease payments ............................... $59,048
Rent expense in the years ended December 31, 1997, 1998 and 1999 totaled $223,000, $672,000 and
$3.8 million, respectively.
Advertising
During 1998, the Company entered into a three-year marketing agreement with America Online, Inc.
(‘‘AOL’’). Under the terms of the agreement, the Company will be provided with a specific number of advertising
impressions featuring it as the preferred provider of personal trading services on AOL’s service. In consideration,
the Company committed to pay $12.0 million over the three-year term of the agreement. The Company is
recognizing these fees as sales and marketing expenses over the greater of the ratio of the number of impressions
delivered over the total number of contracted impressions, or a straight-line basis over the term of the contract.
At December 31, 1998, the Company had made a prepayment of $4.0 million to AOL, of which $1.7 million
was recognized as sales and marketing expense. In March 1999, the Company expanded the scope of its strategic
relationship with AOL. Under the amended agreement, eBay was given a prominent presence featuring it as the
preferred provider of personal trading services on AOL’s proprietary services (both domestic and international),
AOL.com, Digital Cities, ICQ, CompuServe (both domestic and international) and Netscape. In consideration
for this agreement, eBay will pay $75 million over the four-year term of the contract. In conjunction with the
agreement, eBay developed a co-branded version of its service for each AOL property which prominently
features each party’s brand. AOL will be entitled to all advertising revenue from the co-branded site.
In conjunction with the expanded strategic relationship, AOL terminated its original contract with the
Company in August 1999. As a result, the remaining $8.0 million commitment associated with the original
agreement was waived.
During 1999, the Company had made a prepayment of $18.8 million under the amended agreement, of
which $8.5 million was recorded as sales and marketing expense.
Minimum auction guarantees
From time to time the Company, through its B&B subsidiary, guarantees the minimum net proceeds with
respect to the sale of properties at future auctions. Such guaranteed proceeds are often advanced to the consignor
eBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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