Cogeco 2005 Annual Report Download - page 55

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 significant
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, 2005 and 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, 2005 and 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 39.2% 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 38,397 stock options (48,037 in 2004) to COGECO Inc.’s officers during fiscal year 2005.
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 2005, the limit and the amount paid to COGECO Inc. in management fees was $8,179,000 ($8,026,000 in 2004). 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.
Cogeco Cable Inc. 2005
53
Notes to Consolidated Financial Statements