As if the total compensation was not abusive enough, under the circumstances, the members of current management, assisted by the Compensation Committee and Board of Directors, has awarded themselves employment contracts with extremely generous termination and change of control benefits. These employment agreements with the four executive officers listed in the table above are each for a three year term (with an automatic three year renewal) and provide that they will each be paid an amount ranging from 3 to 5 times their then current annual base salary to a maximum amount (not publically disclosed) in certain events. These events apparently include termination of employment other than for "cause" or if the executive should resign for "good reason" (not defined but including a 25% reduction in base annual salary, relocation of the executive or a "change of control" in "certain other circumstances").
In our opinion, these employment agreements are material to the Company and should have been, but are not filed on SEDAR in accordance with applicable securities laws. According to the 2013 annual financial statements the Company may be obligated to pay up to $3.4 million in the event that the "golden parachutes" in these employment agreements are triggered. This would be in addition to the $4.4 million they have already been paid in the last four years.
Not only are the employment agreements extremely generous but the generosity has been ramping up considerably over the last four years as have the salaries and other compensation. The Compensation Committee and the Board of Directors have clearly not been doing their jobs properly.
In our view, the current Board of Directors and its Compensation Committee have exhibited a disturbing lack of concern for shareholder interests, reflecting the Board's lack of independence from management, its interest in entrenching itself and management, and its excessive compensation.
It is time to reorganize the Board of Directors:
It is time for new leadership at Formation Metals. Dundee's shares have lost over 95% of their value in the last two years and yours must have suffered correspondingly. This is simply unacceptable. With the poor leadership by the current Board of Directors, Formation Metals has:
-- Failed to make substantial progress on construction and development of the Idaho cobalt project;-- Failed to rationalize the operations of the valuable Sunshine Refinery and turn it into a profitable enterprise; in fact management now proposes to sell the Complex, including the Sunshine Refinery, at an imprudent price and without requisite shareholder approval;-- Failed to raise adequate and appropriate funding to carry out the completion of the Idaho mine, mill and refinery;-- Entered into an imprudent industrial development bond funding which has tied up $44 million of the Company's cash as collateral - even current management has finally realized how imprudent this was and has recently redeemed the bonds; this has cost the Company $2.6 million in net interest expense since the bond issue was undertaken;-- Failed to take adequate steps to develop the Company's position in the international cobalt metal market;-- Substantially, and imprudently, increased executive compensation and provided lucrative "golden parachutes" for senior management at a time when the Company is loss-making and has made no significant progress in developing a viable mining business;-- Demonstrated poor corporate governance; and-- Lost the confidence of the market.