Could some financial expert please explain these two notes attached to the unaudited Dec 31/2013 Ceres Global financial statements Thanks
12. MANAGEMENT FEES AND OTHER EXPENSES
(a) Management fees
The following table presents information concerning management fee expense charged to the accounts of the
Corporation for the three-month and nine-month periods ended December 31, 2013 and 2012:
Management fees and related expenses
2013 2012 2013 2012
Management fees (adjustments) and related HST $ (30,828) $ 817,554 $ 1 ,512,421 $ 2,404,161
Provision for management transition payment and related HST - - 5,650,000 -
Provision for additional payments to the Manager and related HST - - 1,582,000 -
$ (30,828) $ 817,554 $ 8 ,744,421 $ 2,404,161
3 months 9 months
CERES GLOBAL AG CORP.
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013
(Unaudited)
18
12. MANAGEMENT FEES AND OTHER EXPENSES (continued)
(a) Management fees (continued)
On August 23, 2013, Ceres announced it had entered into a Management Transition Agreement (the ¡§Transition
Agreement¡¨) with Front Street Capital (the ¡§Manager¡¨), which provides, among other things and subject to
shareholder approval, for the early termination of the Management Agreement. The Transition Agreement was
approved by the shareholders at the annual and special meeting held on September 27, 2013. The Transition
Agreement provides for the following:
„h The Management Agreement shall be terminated effective November 30, 2013;
„h Monthly management fee payments to the Manager will end September 30, 2013;
„h On October 1, 2013, Ceres will pay the Manager $5 million plus HST of $650,000;
„h The Manager will be paid an additional $1 million if the five-day volume-weighted average price of
Ceres¡¦ common shares (the ¡§5-day VWAP¡¨) reaches $10 within five years, and a further $1 million if
the 5-day VWAP reaches $11 during that 5-year period;
„h The additional payments will become payable immediately if, prior to the fifth anniversary of the date
of the Transition Agreement, there occurs either a change in control or a going private transaction for
a price in excess of $7.85 per share;
„h Ceres will deposit into an escrow fund five per cent of any gross sale proceeds in excess of net book
value and direct transaction costs from the sale of any of Ceres¡¦ assets, to a maximum amount of $1
million, and such escrow fund shall be paid to the Manager if the 5-day VWAP does not reach $10
within five years;
„h Until November 30, 2013, or such earlier date as Ceres may determine, the Manager will continue to
provide existing services and support to the Corporation, including the services of the Chief Financial
Officer and the Chief Transaction Officer with no additional management fee payable to the Manager
after September 30, 2013; and
„h Ceres will continue to be responsible for all other third-party costs and out-of-pocket costs consistent
with past practice.
Management has determined that, as at December 31, 2013, the fair value of the additional payments provided for
under the Transition Agreement is $1.40 million plus HST of $182,000. The fair value of each of the additional
payments was determined using the binomial options pricing model, with a remaining term to September 30, 2018,
using volatility of 50 per cent and a risk-free interest rate of 1.95 per cent. For the three-month and the nine-month
periods ended December 31, 2013, the accounts of the Corporation include a provision for the management
transition payment and the additional payments plus related HST.
As at December 31, 2013 and March 31, 2013, the current liability for management fees payable includes the
following:
December 31, March 31,
2013 2013
Management fees payable and related HST $ - $ 250,763
Provision for additional payments and related HST 1 ,582,000 -
$ 1,582,000 $ 250,763
CERES GLOBAL AG CORP.
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013
(Unaudited)
19
12. MANAGEMENT FEES AND OTHER EXPENSES (continued)
(a) Management fees (continued)
The Corporation has negotiated an agreement with the Manager, whereby the Manager will continue to provide the
management services of the Chief Financial Officer (the ¡§CFO¡¨) for the period from December 1, 2013 to March
31, 2014 (the ¡§Term¡¨). The monthly fee for this arrangement shall be $25,000 plus HST. If, in its sole discretion,
Ceres determines it no longer requires the management services of the CFO at any time during the Term, the CFO
will immediately cease performing his duties and the monthly fee will be reduced by 50% for the remainder of the
Term.
(b) Other expenses
The Corporation is responsible for paying fees and expenses incurred in its operations and administration, except
fees and expenses to be borne by the Manager as set out in the Management Agreement. In addition to the
Management Fees payable to the Manager, Ceres shall reimburse the Manager for all expenses it incurs related to its
duties (including payments to third parties in that regard) to the extent such expenses were incurred for and on
behalf of Ceres. As at December 31, 2013, the amount due to the Manager was $nil (March 31, 2013: $268,565).
13. RELATED PARTY TRANSACTIONS
(a) Management fees
The amounts charged to operations related to management fees have been reported in Note 12(a) (Management fees
and other expenses ¡V management fees).
(b) Key management personnel
The Corporation has defined key management personnel as senior executive officers, as well as the members of the
Board of Directors, as they collectively have the authority and responsibility for planning, directing and controlling
the activities of the Corporation and its subsidiaries. The following table summarizes total compensation expense
for key management personnel for the three-month and nine-month periods ended December 31, 2013 and 2012:
2013 2012 2013 2012
Salaries and other compensation, senior executive officers $ 301,212 $ 182,152 $ 821,766 $ 550,754
Personnel costs, senior executive officers 7,182 15,827 27,250 47,855
Directors' fees 129,083 14,662 317,051 84,380
$ 437,477 $ 212,641 $ 1,166,067 $ 682,989
12. MANAGEMENT FEES AND OTHER EXPENSES
(a) Management fees
The following table presents information concerning management fee expense charged to the accounts of the
Corporation for the three-month and nine-month periods ended December 31, 2013 and 2012:
Management fees and related expenses
2013 2012 2013 2012
Management fees (adjustments) and related HST $ (30,828) $ 817,554 $ 1 ,512,421 $ 2,404,161
Provision for management transition payment and related HST - - 5,650,000 -
Provision for additional payments to the Manager and related HST - - 1,582,000 -
$ (30,828) $ 817,554 $ 8 ,744,421 $ 2,404,161
3 months 9 months
CERES GLOBAL AG CORP.
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013
(Unaudited)
18
12. MANAGEMENT FEES AND OTHER EXPENSES (continued)
(a) Management fees (continued)
On August 23, 2013, Ceres announced it had entered into a Management Transition Agreement (the ¡§Transition
Agreement¡¨) with Front Street Capital (the ¡§Manager¡¨), which provides, among other things and subject to
shareholder approval, for the early termination of the Management Agreement. The Transition Agreement was
approved by the shareholders at the annual and special meeting held on September 27, 2013. The Transition
Agreement provides for the following:
„h The Management Agreement shall be terminated effective November 30, 2013;
„h Monthly management fee payments to the Manager will end September 30, 2013;
„h On October 1, 2013, Ceres will pay the Manager $5 million plus HST of $650,000;
„h The Manager will be paid an additional $1 million if the five-day volume-weighted average price of
Ceres¡¦ common shares (the ¡§5-day VWAP¡¨) reaches $10 within five years, and a further $1 million if
the 5-day VWAP reaches $11 during that 5-year period;
„h The additional payments will become payable immediately if, prior to the fifth anniversary of the date
of the Transition Agreement, there occurs either a change in control or a going private transaction for
a price in excess of $7.85 per share;
„h Ceres will deposit into an escrow fund five per cent of any gross sale proceeds in excess of net book
value and direct transaction costs from the sale of any of Ceres¡¦ assets, to a maximum amount of $1
million, and such escrow fund shall be paid to the Manager if the 5-day VWAP does not reach $10
within five years;
„h Until November 30, 2013, or such earlier date as Ceres may determine, the Manager will continue to
provide existing services and support to the Corporation, including the services of the Chief Financial
Officer and the Chief Transaction Officer with no additional management fee payable to the Manager
after September 30, 2013; and
„h Ceres will continue to be responsible for all other third-party costs and out-of-pocket costs consistent
with past practice.
Management has determined that, as at December 31, 2013, the fair value of the additional payments provided for
under the Transition Agreement is $1.40 million plus HST of $182,000. The fair value of each of the additional
payments was determined using the binomial options pricing model, with a remaining term to September 30, 2018,
using volatility of 50 per cent and a risk-free interest rate of 1.95 per cent. For the three-month and the nine-month
periods ended December 31, 2013, the accounts of the Corporation include a provision for the management
transition payment and the additional payments plus related HST.
As at December 31, 2013 and March 31, 2013, the current liability for management fees payable includes the
following:
December 31, March 31,
2013 2013
Management fees payable and related HST $ - $ 250,763
Provision for additional payments and related HST 1 ,582,000 -
$ 1,582,000 $ 250,763
CERES GLOBAL AG CORP.
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013
(Unaudited)
19
12. MANAGEMENT FEES AND OTHER EXPENSES (continued)
(a) Management fees (continued)
The Corporation has negotiated an agreement with the Manager, whereby the Manager will continue to provide the
management services of the Chief Financial Officer (the ¡§CFO¡¨) for the period from December 1, 2013 to March
31, 2014 (the ¡§Term¡¨). The monthly fee for this arrangement shall be $25,000 plus HST. If, in its sole discretion,
Ceres determines it no longer requires the management services of the CFO at any time during the Term, the CFO
will immediately cease performing his duties and the monthly fee will be reduced by 50% for the remainder of the
Term.
(b) Other expenses
The Corporation is responsible for paying fees and expenses incurred in its operations and administration, except
fees and expenses to be borne by the Manager as set out in the Management Agreement. In addition to the
Management Fees payable to the Manager, Ceres shall reimburse the Manager for all expenses it incurs related to its
duties (including payments to third parties in that regard) to the extent such expenses were incurred for and on
behalf of Ceres. As at December 31, 2013, the amount due to the Manager was $nil (March 31, 2013: $268,565).
13. RELATED PARTY TRANSACTIONS
(a) Management fees
The amounts charged to operations related to management fees have been reported in Note 12(a) (Management fees
and other expenses ¡V management fees).
(b) Key management personnel
The Corporation has defined key management personnel as senior executive officers, as well as the members of the
Board of Directors, as they collectively have the authority and responsibility for planning, directing and controlling
the activities of the Corporation and its subsidiaries. The following table summarizes total compensation expense
for key management personnel for the three-month and nine-month periods ended December 31, 2013 and 2012:
2013 2012 2013 2012
Salaries and other compensation, senior executive officers $ 301,212 $ 182,152 $ 821,766 $ 550,754
Personnel costs, senior executive officers 7,182 15,827 27,250 47,855
Directors' fees 129,083 14,662 317,051 84,380
$ 437,477 $ 212,641 $ 1,166,067 $ 682,989