Pegasus Chief Defends Request To Pay Bonuses Nennecker Calls Request For Payments ‘Absolutely Critical’ To Reorganizing Company

The president of Pegasus Gold Corp. is defending his request to bankruptcy court for $5 million in bonuses and severance packages for top Pegasus officials, despite mounting opposition from Montana.

Werner G. Nennecker said offering bonuses and severance packages to top employees is “absolutely critical” to retain executives capable of steering the company through reorganization and back to financial health.

The company lost two key people this year, and needs experienced personnel to finish a Chapter 11 reorganization plan, said John Pearson, vice president for investor and public relations.

Pegasus, based in Spokane, filed for Chapter 11 bankruptcy protection Jan. 16 and currently is trying to reorganize its finances to stay afloat. The filing followed a multimilliondollar write-off of an Australian gold mine, resulting in more than $300 million in losses. The company also operates two mines in Montana, and one in Nevada.

Pegasus will ask for an extension to its April deadline for submitting a reorganization plan, Pearson said Wednesday. The company hopes to complete a plan by late summer or fall.

Pegasus recently asked a U.S. Bankruptcy Court in Nevada to allow it to spend more than $2.3 million on bonuses to its four top executives and 22 key managers. The bonuses would not be paid until the reorganization plan is complete, or until March 31, 1999, as an incentive to retain people critical to drafting the plan, Pearson said.

However, Pegasus’ plan came under fire last week from Montana’s congressional delegation, governor and several industry groups, who said the company shouldn’t be awarding top managers financial perks when creditors, suppliers and taxes remain unpaid.

They argued the company should first focus on repaying its debts and making good on its property taxes and reclamation commitments.

The Montana Mining Association has also been critical. The group cannot “condone or support payments of bonuses … while there are legitimate creditors who have claims outstanding,” said Executive Director Jill Andrews in a letter.

But the association should apologize to Pegasus for criticizing the bonus and severance plan, said Lindsay Norman, Montana Tech’s departing chancellor and a Pegasus board member.

In a letter to Mining Association President David Rovig, Norman said the group’s opposition to the bonuses conflicts with its policy of neutrality on issues involving the internal operations of mining companies.

If that policy has changed, the association will “lose some key members soon and … will have a hard time recruiting new members in the future,” Norman said in the letter dated Monday.

The Mining Association does not plan to retract statements, Andrews said. “We did what we thought was right and are going to stand behind that,” she said.

Rovig said the mining group did not attack or criticize Pegasus, and tried to act in the best interest of all members.

An April 10 court hearing has been scheduled on the matter.

Pegasus cannot pay any of the invoices filed before the Chapter 11 filing until the reorganization plan is completed and approved by the courts, Pearson said.

However, the company is paying its current bills, he said, and it fully supports a plan to speed up Jefferson County’s receipt of $750,000 in tax money.

That plan still awaits approval from Montana’s Department of Revenue. It would work like this:

Pegasus would pay in June the 1998 taxes due in November. That would help Jefferson County’s cash flow, since Pegasus can’t pay the second half of its 1997 taxes (due in June) until the courts approve the reorganization plan.

Whether the reorganization plan will include a rescheduled full payment on the debts or some sort of partial payment of the debts is uncertain, Pearson said: “There are many possibilities on structuring the payments.”