Cogeco 2009 Annual Report Download - page 81

80 COGECO CABLE INC. 2009 Consolidated financial statements
authorities, which are currently being challenged by Cabovisão. Even though the principal amounts in dispute are fully recorded in
the 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 ($5.8 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, 2009 and 2008, 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, 2009 and 2008, no liability has been recorded associated with these indemnifications.
21. 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 Senior Vice President and Chief
Financial Officer, the Vice President, Corporate Affairs and the Chief Legal Officer and Secretary. No direct remuneration is payable
to such officers by the Corporation. However, the Corporation granted 29,711 stock options (22,683 in 2008) to COGECO Inc.’s
employees during fiscal year 2009. During fiscal 2009, the Corporation charged COGECO Inc. an amount of $363,000 ($380,000 in
2008) 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 2009, the limit and the amount paid to COGECO Inc. in management fees was
$9,019,000 ($8,714,000 in 2008). 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.
22. NON-MONETARY TRANSACTIONS
During fiscal year 2009 and 2008, 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.
23. SUBSEQUENT EVENTS
A) TAXES FOR MUNICIPAL RIGHTS OF WAY
The Corporation had 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, which were being challenged by Cabovisão.
Trustworthy financial guarantees were required under applicable Portuguese law in order for Cabovisão to challenge these 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. On September 29, 2009, Cabovisão and the Municipality of Seixal reached an out-of-court agreement and
a final payment in the matter has been made by Cabovisão. Accordingly, the Corporation has been released of its obligation under
the guarantee of payment.