Cogeco 2004 Annual Report Download - page 45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cogeco Cable Inc. 2004 43
9CAPITAL STOCK (continued)
The fair value of each option granted was estimated on the grant date for purposes of determining stock-based compensation expense and
pro forma disclosures using the Binomial option pricing model based on the following assumptions:
2004 2003
Expected dividend yield 1.27% 1.27%
Expected volatility 49% 39%
Risk-free interest rate 4.04% 4.18%
Expected life in years 3.9 3.8
The fair value of stock options granted for the year ended August 31, 2004 was $6.53 per option ($2.42 per option in 2003).
For purpose of compensation expense and pro forma disclosures, stock-based compensation is amortized to expense on a straight-line basis
over the vesting period, which is four years.
The Binomial option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option pricing models require the use of highly subjective assumptions including the expected stock
price volatility. Because the Corporation’s employee stock options have characteristics significantly different from those of traded options,
and because changes in the subjective assumptions can have a material effect on the fair value estimate, in management’s opinion, the
existing option pricing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Performance Unit Plan
The Corporation has also adopted a Performance Unit Plan for key employees. The value of a performance unit granted is equal to the closing
price of the subordinate voting shares of the Corporation on the Toronto Stock Exchange on the trading day preceding the date of grant of
the unit. The units credited to the participant’s account will become vested to the participant on the third anniversary of the date of grant of
the said performance units. The units credited before October 17, 2003, will be redeemed only at the termination of the participant’s
employment or in case of retirement or death. The units credited to the participant’s account on or after October 17, 2003, which are vested
to the participant may also be redeemed, at the request of the participant at the following conditions:
(i) Invest an amount equal to 20% of the net income after related tax resulting from any such realization in shares of the Corporation;
(ii) Hold such shares until the termination of his employment with the Corporation or his retirement.
Each unit credited gives the right to a Dividend Equivalent equal to the amount of dividend per share paid on the subordinate voting shares
of the Corporation. The Dividend Equivalent is converted into additional units. The units do not confer on the participant the right to acquire
shares or other securities of the Corporation under any circumstances and the participant shall not, by holding units or otherwise be consid-
ered a shareholder of the Corporation nor have any rights to become a shareholder as a result. In 2004, an expense amounting to $101,000
has been recorded related to this plan. In 2003, an amount of $128,000 was recorded as a reduction of expenses.