Termination Payments Here's the most ridiculous part of this transaction (even worse than selling for half of NAV IMO).
George Faught is entitled to 3 years of salary ($750,000) + a payment equal to his bonuses for the last 3 years ($2.27 million; totalling $3 million dollars) if he is terminated within one year of a change of control. My reading of the management information circular indicates that he can terminate himself and still get this payment (actual text pasted below).
If you could get $3 million for quitting your job, would you stay?
David Stein gets a similar payment: 2 years of salary ($480,000) + 2 years worth of bonuses ($2.175 mm; total $2.655 mm), if he is terminated (or if he terminates himself) within 1 year of the change of control .
My reading of the contract implies that these 2 guys can get $5.65 million from a $32 million market cap company (17%) if they quit in the next year. At least they ended Stan Bharti's similar contract in September 2011 for some reason, or there would be another $3 million.
For reference, the actual text from the management information circular (dated May 18, 2012 and posted on SEDAR) is pasted below. I really hope I'm reading this wrong and they can't just quit to get these payments, but it seems pretty clear.
George Faught
The Corporation entered into a contract with George Faught effective from November 1, 2005
(and subsequently amended on March 1, 2006 and February 1, 2008) pursuant to which Mr.
Faught agreed to provide management services to the Corporation commencing on that day. Mr.
Faught is entitled to compensation for the provision of such services in the amount of $20,833.33
per month, effective February 1, 2008. In the event of termination, Mr. Faught is entitled to the
equivalent of 12 months in base fees. Additionally, in the event that there is a change of control of
the Corporation (as hereinafter defined), either the Corporation or Mr. Faught may terminate this
agreement within one year from the date of such Change in Control upon making a lump sum
termination payment to Mr. Faught equivalent to 36 months in base fees plus an amount that is
equivalent to all cash bonuses paid to Mr. Faught in the 36 months prior to the Change in Control.
David Stein
The Corporation entered into a consulting agreement with David Stein on September 1, 2009
pursuant to which Mr. Stein agreed to provide management services to the Corporation in the
capacity of President and Chief Operating Officer. Mr. Stein is entitled to compensation for the
provision of such services in the amount of $20,000 per month. In the event of termination, Mr.
Stein is entitled to the equivalent of 12 months base fees. Additionally, in the event of Change of
Control, either the Corporation or Mr. Stein may terminate this agreement within one year from
the date of such Change of Control upon making a lump sum termination payment to Mr. Stein
that is equivalent to 24 months base fees plus an amount that is equivalent to all cash bonuses
paid to Mr. Stein in the 24 months prior to the Change of Control.