Monday, April 13, 1998 | 10:16 a.m.
Creditors told the judge Friday the only people who will benefit from those golden parachutes are the ones dangling from them.
"I don't think this is a proper exercise of the debtor's business judgment," Assistant U.S. Trustee Nicholas Strozza argued. "There may be other employees out there who would stay on without the retention program."
U.S. Bankruptcy Court Judge Gregg Zive told attorneys for Pegasus to provide more evidence to support the claim it needs the plan to retain key officials during its reorganization under Chapter 11 protection.
"People don't understand why anybody's going to be paid any kind of bonus by a company that's in bankruptcy," he said.
He continued the hearing until April 27 to give both sides time to prepare additional testimony and concluding arguments.
"We're going to finish it that day," the judge said.
Pegasus Gold Corp., headquartered in Spokane, Wash., is a subsidiary of Canada-based Pegasus Gold Inc. It operates or is closing five mines in Montana and runs Florida Canyon mine in northern Nevada's Pershing County.
The company filed for bankruptcy protection on Jan. 16 to keep creditors at bay while it tries to weather its financial storm. Zive said he hopes to see a reorganization plan filed by July 31.
Pegasus asked the court last month to approve financial incentives for four top executives and 22 key managers, saying the perquisites are needed to keep the officers from bailing out. One of the 22 already has departed, attorney Mark Thompson said.
Strozza contended that Pegasus had neither proved that the remaining officials plans to leave or that it would throw the company further into crisis if they did.
"If they all jump off board, so many people are rowing the boat it will keep on going straight," he said.
The company initially proposed spending at least $2.8 million in severance pay, $2.3 million in retention bonuses and $368,000 in performance bonuses to the 26 executives.
While total reductions in the amended plan still are being tallied, cuts in the severance payments to the four top executives would reduce that package alone by $609,500 and retention bonuses would be reduced across the board.
"These are performance-related bonuses. People are not going to be paid just for staying there," Thompson said. "We need to induce employees to continue working during difficult times."
Lindsey Norman of Butte, Mont., chancellor of Montana Tech and an 11-year member of Pegasus' board of directors, said the company could not afford to lose any members of its management team at this critical time.
"It is difficult just managing a gold mine when it is healthy and when gold prices are much higher than they are today," he said. "Finding good executives even in healthy mining concerns can be very challenging."
He added that any Pegasus official who leaves would not only be difficult to replace, but more expensive as well because anybody who joined a company that's in Chapter 11 would expect a signing bonus and other perquisites for taking a high-risk job.
Norman also said the company's executives are working longer hours under greater stress to compensate for earlier downsizing.
"Even those severance and retentions programs are protecting some people who might be working their way out of a job," he said.
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