20. related party transactions
In 2001, the Company entered into an agreement with Verizon Communications Inc. (Verizon, including its subsidiaries), then a significant shareholder, with respect to acquiring certain rights to Verizon’s software, technology, services and other benefits, thereby replacing and amending a previous agreement between the Company and GTE Corporation.
On November 30, 2004, Verizon and the Company entered into an agreement pursuant to which the Company’s independent members of the Board of Directors agreed to facilitate the divestiture by Verizon of its 20.5% equity investment in the Company. Such agreement was necessary due to certain restrictive provisions in the Long Term Relationship Agreement, dated January 31, 1999, between Verizon and the Company. Such divestiture was effected by a public secondary offering of Verizon’s entire equity interest in the Company on December 14, 2004; post divestiture, Verizon and the Company are no longer related parties for purposes of generally accepted accounting principles and Verizon no longer has a pre-emptive right to buy shares from Treasury.
Pursuant to the agreement, and the amended agreement pursuant to which the Company acquires certain rights to Verizon’s software, technology, services and other benefits, Verizon paid the Company $148 million (U.S.$125 million). This related party transaction was not in the normal course of operations and did not result in a substantive change in ownership interests, so the transaction was measured at the respective parties’ carrying amounts.
The analysis of the payment is as follows:
In conjunction with the divestiture, a number of agreements between Verizon and the Company were terminated or altered, including the amended and restated software and related technology and services agreement (SRT) pursuant to which the Company acquired certain rights to Verizon’s software, technology, services and other benefits. The term of the SRT was extended to 2008. The Company will continue to have exclusive rights in Canada to specified Verizon trademarks, software and technology acquired prior to Verizon’s divestiture of its investment in the Company and Verizon is required to continue to provide upgrade and support on the software and technology licensed to the Company. The annual fees payable by the Company under the SRT for the years 2006 to 2008 have been reduced to three U.S. dollars; Verizon and the Company remain committed to use each other’s cross-border services where capabilities and customer requirements permit and the Company has been released from its obligation not to compete in the United States.
As of December 31, 2004, in aggregate, $312.1 million of specified software licences and a trademark licence had been acquired under the agreement and have been recorded as capital and other assets. These assets were valued at fair market value at the date of acquisition as determined by an arm’s-length party’s appraisal. The total commitment under the SRT is U.S.$275 million for the period 2001 to 2008 and the commitment remaining after December 31, 2005, was three U.S. dollars.
In the normal course of operations and on market terms and conditions, ongoing services and other benefits have been received and expensed. In connection with the 2001 disposition of TELUS’ directory business to Verizon, the Company bills customers, and collects, for directory listings on Verizon’s behalf.
