Tuesday, April 28, 1998 | 9:59 a.m.
RENO, Nev. -- Top executives of Pegasus Gold Corp. will get to keep a multimillion dollar bonus and severance package to encourage their loyalty while the company weathers bankruptcy reorganization.
U.S. Bankruptcy Judge Gregg Zive approved the request on Monday over the objections of opponents including creditors, Montana's governor, the state's congressional delegation and the Montana Mining Association.
They claim the only people who will benefit from the $5 million safety net are the ones who tumble into it.
But Pegasus President and Chief Executive Officer Werner G. Nennecker testified that the incentives are needed to encourage the 25 people they cover to stay on during the company's reorganization.
"We need to go through a number of issues and I can't do it with any fewer people," he said. "We've taken a view of, 'Let's see what we can do without.' What we can do without and what we can squeeze by with, with what we have."
Zive must approve any plans by the company to spend money while it's in reorganization.
Pegasus Gold Corp., headquartered in Spokane, Wash., is a subsidiary of Canada-based Pegasus Gold Inc. It owns five mines in Montana and northern Nevada's Florida Canyon mine.
About 300 of Pegasus' 670 employees are in Montana, another 300 in Nevada and the rest in Spokane and Australia.
Three Montana properties are idle. Montana Tunnels and Diamond Hill in Montana and Florida Canyon are expected to pour approximately 300,000 ounces of gold this year at an average production cost of $250 an ounce.
The company reported a $512.8 million loss last year when it produced 469,952 ounces of gold at a cost of $308 an ounce before shutting down half its mines. Nennecker said Pegasus was about 7,000 ounces ahead of its projected production for the first quarter of this year.
The company filed for bankruptcy protection on Jan. 16 to keep creditors at bay while it tries to recover from more than $200 million in debt and hopes that gold prices will continue to struggle above $300 an ounce.
Nennecker said the company was holding its own and hoped to be able to present a reorganization plan by the end of July that would pay back its creditors nearly 100 percent.
Those include banks, suppliers, utility companies and government agencies. Montana's Jefferson County relies on Pegasus for half of its tax base.
"Our financial plan shows that people should get very high amounts of recovery," Nennecker said.
Assistant U.S. Trustee Nicholas Strozza, who is charged by Congress to supervise bankruptcy cases, argued in an April 10 hearing that Pegasus had neither proved that any of the officials plan to leave or that it would throw the company further into crisis if they did.
Since that time, Pegasus attorneys have filed documents from past and present officers whose arguments echoed those presented on Monday by Nennecker. He was the only witness called during the 90-minute hearing before Zive ruled from the bench.
Outside the courtroom, Nennecker said the compromise was in the best interests of all parties, despite its lower payout.
"The package will provide a safety net for people to stay through the process. I feel confident they can come up with a company that will survive."
Pegasus 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 an 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.
Nennecker said that since the company began trimming the incentive programs, he has seen his bonus package dwindle to 18 percent of what it was when he signed on five years ago.
At the same time, he said he has turned down job offers of $150,000-$250,000 more than his $350,000 salary out of loyalty to the company and its employees.
"Since I got into this, I ask myself why every day," he said.
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