Cogeco 2004 Annual Report Download - page 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cogeco Cable Inc. 2004 49
14 COMMITMENTS AND CONTINGENCIES (continued)
Contingencies
The Corporation and its subsidiaries are involved in matters involving litigation arising out of the ordinary course and conduct of its business.
Although such matters cannot be predicted with certainty, management does not consider the Corporation’s exposure to litigation to be
material to these financial statements.
Disclosure of guarantees
In the normal course of business, the Corporation enters into agreements containing features that meet the criteria for a guarantee including
the following:
Businesses and assets disposal
In connection with the sale of businesses or assets, in addition to possible indemnification relating to failure to perform covenants and
breach of representations and warranties, the Corporation has agreed to indemnify the purchaser against claims related to events which
occurred prior to the sale. The term and amount of such indemnification will sometimes be limited by the agreement. The nature of these
indemnification agreements prevents the Corporation from estimating the maximum potential liability required to be paid to guaranteed
parties. In management’s opinion, the likelihood that a significant liability will be incurred under these obligations is low. As at August 31, 2004,
no liability has been recorded associated with these indemnifications.
Long-term debt
Under the terms of the Senior Secured Notes and the Second Secured Debentures Series A, the Corporation has agreed to indemnify the
other parties against changes in regulation relative to withholding taxes. These indemnifications extend for the term of the related financings
and do not provide any limit on the maximum potential liability. The nature of the indemnification agreement prevents the Corporation from
estimating the maximum potential liability it could be required to pay. As at August 31, 2004, no liability has been recorded associated with
these indemnifications.
15 RELATED PARTY TRANSACTIONS
Cogeco Cable Inc. is a subsidiary of COGECO Inc. which holds 39.3% of the Corporation’s equity shares. On September 1, 1992, Cogeco Cable Inc.
executed a management agreement with COGECO Inc. under which the parent company agreed to provide certain executive, administrative ,
legal, regulatory, strategic and financial planning services and additional services to the Corporation and its subsidiaries (the
“Management Agreement”). These services are provided by COGECO Inc.’s officers, including the President and Chief Executive Officer, the
Vice President, Finance and Chief Financial Officer and the Vice President, Corporate Affairs. No direct remuneration is payable to such
officers by the Corporation. However, the Corporation granted 48,037 stock options (35,519 in 2003) to COGECO Inc.’s officers during fiscal
year 2004.
Under the Management Agreement, the Corporation pays monthly fees equal to 2% of its total revenue to COGECO Inc. for the above mentioned
services. In 1997, the management fee was capped at $7,000,000 per year, subject to annual upward adjustment based on increases in the
Consumer Price Index in Canada. This limit can be increased under certain circumstances upon request to that effect by COGECO Inc. For
fiscal year 2004, the limit and the amount paid to COGECO Inc. in management fees was $8,026,000 ($7,869,000 in 2003). In addition,
the Corporation reimburses COGECO Inc.’s out-of-pocket expenses incurred in respect of services provided to the Corporation under the
Management Agreement.
16 COMPARATIVE FIGURES
Certain comparative figures have been reclassified in order to conform to the presentation adopted in 2004.