Cogeco 2015 Annual Report Download - page 24

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MD&A COGECO CABLE INC. 2015 23
4. RELATED PARTY TRANSACTIONS
Cogeco Cable Inc. is a subsidiary of COGECO, which holds 31.9% of the Corporation’s equity shares, representing 82.4% of the Corporation’s
voting shares.
On July 14, 2015, the Management Services Agreement (the “Agreement”) pursuant to which COGECO provides executive, administrative,
financial and strategic planning services and other services (the “Management Services”) to the Corporation was amended and restated (the
"Amended and Restated Agreement"). Originally entered into in 1993 when the cable operations of COGECO were spun off into the Corporation,
COGECO initially provided the Management Services for an annual fee equal to 2% of Cogeco Cable's gross revenue, subject to an inflation-
adjusted maximum annual fee. In addition, the Corporation reimburses COGECO’s out-of-pocket expenses incurred with respect to services
provided to the Corporation under the Agreement. The maximum annual fee level was increased only once in 1997 as a result of the growth of
cable operations.
Consideration of the amendment began when a presentation related to the Management Services and fees was reviewed and discussed at a
special meeting of the Board of COGECO at the end of June 2015. The independent Directors of the Board resolved that the management fees
should be increased, for the fiscal year beginning on September 1, 2015, to an annual fee, payable monthly, equal to 0.85% of the consolidated
revenue of the Corporation, with no maximum level or inflation-based adjustment. Accordingly, COGECO submitted to the Corporation a request
for an adjustment of the fees and amendments to the Agreement.
As contemplated by the Agreement, this was referred to the Audit Committee of the Corporation for determination. The Committee acknowledged
that the size of operations of the Corporation has expanded significantly in recent years, both by virtue of internal growth and its several acquisitions
including Atlantic Broadband, Cogeco Data Services and Peer 1 Hosting. Consequently, the services, time and efforts of COGECO’s management
being supplied to the Corporation have also increased significantly. The Audit Committee ultimately determined that the management fees were
no longer aligned with the costs, time and resources committed by COGECO and should be increased to the requested level of 0.85% of the
consolidated revenue of the Corporation. The matter was then considered by the Corporation’s Board at its July 2015 meeting, and the increased
level of management fees and the Amended and Restated Management Services Agreement were ratified and approved by the independent
Directors of the Board. In the Amended and Restated Agreement, provision is made for future adjustment upon the request of either COGECO
or the Corporation should the level of management fees no longer align with the costs, time and resources committed by COGECO.
For fiscal year 2015, management fees have been set at a maximum of $9.9 million ($9.7 million in 2014), which were fully paid in the first quarter
(fully paid in the first half of the year in fiscal 2014). In fiscal 2016, under the Amended and Restated Agreement, management fees will no longer
be subject to a maximum amount and will be paid on a monthly basis. Accordingly, management fees will be recognized and paid throughout the
year resulting in more comparable operating margins from quarter to quarter. For fiscal year 2016, management fees should amount to
approximately $19 million.
No direct remuneration is payable to COGECO's executive officers by the Corporation. However, during fiscal 2015, the Corporation granted
61,300 (84,250 in 2014) stock options to these executive officers as executive officers of Cogeco Cable. During fiscal 2015, the Corporation
charged COGECO amounts of $502,000 ($293,000 in 2014) with regard to the Corporation’s stock options granted to these executive officers.
No Incentive Share Units (“ISUs”) of the Corporation were granted to executive officers of COGECO as executive officers of Cogeco Cable during
fiscal 2015 (12,550 in 2014). During fiscal 2015, the Corporation charged COGECO amounts of $303,000 ($681,000 in 2014) with regard to the
ISUs previously granted by the Corporation to these executive officers.
During the first quarter of fiscal 2015, the Corporation introduced a Performance Share Unit Plan ("PSU Plan"). For fiscal 2015, the Corporation
granted 11,050 Performance Share Units (“PSUs”) to executive officers of COGECO as executive officers of Cogeco Cable and charged COGECO
an amount of $188,000 for the year ended August 31, 2015 with regard to the Corporation’s PSUs granted to these executive officers. Details
regarding the new PSU Plan are provided in Note 17 of the consolidated financial statements.
There were no other material related party transactions during the periods covered.