Cogeco 2008 Annual Report Download - page 69

68 COGECO CABLE INC. 2008 Notes to the Consolidated Financial Statements
books of its subsidiary Cabovisão, the Corporation may be required to pay the amounts following final judgements, up to a
maximum aggregate amount of €3.7 million ($5.7 million), should Cabovisão fail to pay such required amounts.
Taxes for municipal rights of way
During the second quarter of fiscal 2007, the Corporation has guaranteed the payment by Cabovisão of certain taxes for municipal
rights of way assessed by the Municipality of Seixal in Portugal for the years 2004 and 2005 totalling €5.7 million (the “Tax
Amounts”), which are currently being contested by Cabovisão. Trustworthy financial guarantees were required under applicable
Portuguese law in order for Cabovisão to challenge the Tax Amounts and withhold payment thereof until a final judgement no longer
subject to appeal is rendered by the Portuguese courts having jurisdiction in this matter. As a result, the Corporation may be
required to pay, upon written demand by the Municipality of Seixal, the required amounts following final judgement up to a maximum
aggregate amount of €5.7 million ($8.9 million), should Cabovisão fail to pay such required amounts.
Business acquisitions and asset disposals
In connection with the acquisition or sale of a business 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 seller or the purchaser
against claims related to events that occurred prior to the date of acquisition or 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. The Corporation has purchased directors’ and officers’ liability
insurance with a deductible per loss. As at August 31, 2008 and 2007, no liability has been recorded associated with these
indemnifications.
Long-term debt
Under the terms of the Term Facility and the Senior Secured Notes, the Corporation has agreed to indemnify the other parties
against changes in regulations relative to withholding taxes and costs incurred by the lenders due to changes in laws. 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, 2008 and 2007, no liability has been recorded associated with these indemnifications.
19. RELATED PARTY TRANSACTIONS
Cogeco Cable Inc. is a subsidiary of COGECO Inc., which holds 32.3% of the Corporation’s equity shares, representing 82.7% of
the Corporation’s voting 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 22,683 stock options (319,647 in 2007) to COGECO Inc.’s employees during fiscal year 2008. Of
the options granted in 2007, 262,400 stock options were conditional to the achievement of certain yearly financial objectives by the
Portuguese subsidiary, Cabovisão. During fiscal 2008, the Corporation charged COGECO Inc. an amount of $380,000 ($315,000 in
2007) with regards to the Corporation’s options granted to COGECO Inc.’s employees.
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 2008, the limit and the amount paid to COGECO Inc. in management fees was
$8,714,000 ($8,568,000 in 2007). In addition, the Corporation reimburses COGECO Inc.’s out-of-pocket expenses incurred with
respect to services provided to the Corporation under the Management Agreement.
20. NON-MONETARY TRANSACTIONS
During fiscal year 2008 and 2007, the Corporation has entered into non-monetary transactions for amounts of $4,206,000. Related
revenue and operating costs of an equivalent amount were recorded.
21. GOVERNMENTAL ASSISTANCE
In 2007, the Corporation received tax credits related to research and development costs in the amount of $1,706,000. These credits
were accounted for as reductions of the related expenses.