UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
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PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.)
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[ ] Definitive Proxy Statement
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EL PASO CORPORATION
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PRELIMINARY COPY;
SUBJECT TO COMPLETION
Dated April 9, 2003
(EL PASO LOGO)
Dear El Paso Stockholder:
We cordially invite you to attend our 2003 Annual Meeting of Stockholders.
The Annual Meeting will be held on June [ ], 2003, beginning at [ ]
(local/Central time) at [ ], Houston, Texas[ ]. We have attached a
notice of the Annual Meeting and a Proxy Statement that describes the business
to be transacted at the Annual Meeting.
At this year's Annual Meeting, you will be asked to vote on the election of
directors, ratification of PricewaterhouseCoopers LLP's appointment as
independent accountants, two amendments to our Restated Certificate of
Incorporation, and three stockholder proposals.
Selim K. Zilkha, who is working closely with Oscar S. Wyatt, Jr., has
announced that he intends to ask you to vote on a series of proposals that would
allow him to take over our Board of Directors by replacing all of our highly
qualified and experienced directors with the Zilkha/Wyatt slate of nine
designees, including himself.
Our directors are committed to executing our operational and financial
plan. Together with management, our Board is working to ensure that we continue
the progress we have been making to strengthen and simplify our balance sheet,
to maximize our liquidity, to reduce our expenses, and to sell non-core assets,
while focusing on preserving and enhancing the value of our strong core
businesses.
We have engaged in a process designed to assure continuity while effecting
measured change in the composition of our Board of Directors by adding four new
independent directors with substantial management expertise in the oil and gas
exploration and production industry. At the same time, three of our current
directors are not standing for re-election at the Annual Meeting. In addition,
the Board is conducting a careful process to select the best candidate for the
position of Chief Executive Officer of El Paso Corporation.
Despite the progress we have made, there is still much more to do. We
believe the combined expertise of our nominees in the energy industry, finance,
academia and the law, and the mix of new directors and directors with detailed
knowledge of El Paso, will create a Board of Directors that is particularly well
equipped to oversee the execution of our operational and financial plan, and to
help us achieve our long-term goals. We believe that during this critical period
the wholesale change in El Paso's Board of Directors proposed by Zilkha/Wyatt
and the inevitable change in senior management that would result is not in the
best interests of stockholders.
We urge you to vote for your Board's nominees, to reject the Zilkha/Wyatt
proposals, and to NOT sign any blue proxy card they may send you. Please be
assured that your Board will continue to act in the best interests of all of our
stockholders.
Your vote is important. Please vote in favor of your Board's nominees by
signing and returning the enclosed WHITE proxy card as soon as possible, whether
or not you plan to attend the Annual Meeting.
Sincerely,
/s/ RONALD L. KUEHN, JR.
Ronald L. Kuehn, Jr.
Chairman of the Board,
and Chief Executive Officer
Houston, Texas
[ ], 2003
EL PASO CORPORATION
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
JUNE [ ], 2003
On June [ ], 2003, El Paso Corporation will hold its 2003 Annual Meeting
of Stockholders at [ ], Houston, Texas [ ]. The Annual Meeting will
begin at [ ] (local/Central time).
Only El Paso stockholders who owned shares of common stock at the close of
business on May 2, 2003, the record date, are entitled to notice of and entitled
to vote at the Annual Meeting or any adjournments that may take place. At the
Annual Meeting you will be asked to take action and consider proposals:
1. To elect twelve directors, each to hold office for a term of one
year;
2. To ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants to audit El Paso's financial
statements for the fiscal year ending December 31, 2003;
3. To amend our Restated Certificate of Incorporation to eliminate
Article 12, containing a "fair price" provision; and
4. To amend our Restated Certificate of Incorporation to eliminate our
Series A Junior Participating Preferred Stock.
We will also attend to any other business properly presented at the Annual
Meeting. In that connection, we have received notice from Selim K. Zilkha that
he intends to nominate nine designees, including himself, for election to our
Board of Directors and to bring before the Annual Meeting the following
additional proposals:
5. To amend our By-laws to fix the number of directors at nine;
6. To amend our By-laws to delete the advance notice provisions
applicable to nominations of persons for election as directors;
7. To amend our By-laws to repeal any changes made to our By-laws after
November 7, 2002; and
8. To set out a sequence for the presentation of proposals at the Annual
Meeting.
Additional information regarding these proposals is contained in the
attached Proxy Statement.
You may also vote on three proposals submitted by stockholders if they are
presented at the Annual Meeting. These proposals are described in the attached
Proxy Statement.
By Order of the Board of Directors
/s/ David L. Siddall
David L. Siddall
Corporate Secretary
Houston Texas
[ ], 2003
THIS ANNUAL MEETING IS OF PARTICULAR IMPORTANCE TO ALL EL PASO STOCKHOLDERS IN
LIGHT OF THE ATTEMPT BY SELIM K. ZILKHA TO TAKE OVER YOUR BOARD OF DIRECTORS BY
REPLACING ALL OF YOUR DIRECTORS WITH THE ZILKHA/WYATT SLATE OF NINE DESIGNEES.
YOUR VOTE IS VERY IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING AND REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK YOU OWN, WE URGE
YOU TO VOTE IN FAVOR OF THE NOMINEES OF YOUR BOARD OF DIRECTORS BY PROMPTLY
SIGNING AND RETURNING THE ENCLOSED WHITE PROXY CARD.
WE STRONGLY URGE YOU NOT TO SIGN ANY BLUE PROXY CARD THAT MAY BE SENT TO YOU BY
ZILKHA/WYATT. IF YOU HAVE PREVIOUSLY RETURNED A BLUE PROXY CARD, YOU CAN REVOKE
IT BY SIGNING AND RETURNING, IN THE ACCOMPANYING ENVELOPE, THE ENCLOSED WHITE
PROXY CARD. SEE OUR QUESTION AND ANSWER SECTION FOR INFORMATION ON HOW TO VOTE
BY PROXY CARD, HOW TO REVOKE A PROXY, AND HOW TO VOTE SHARES IN PERSON AT THE
ANNUAL MEETING.
IF YOU HAVE ANY QUESTIONS ABOUT THE VOTING OF YOUR SHARES, PLEASE CONTACT
MACKENZIE PARTNERS, INC. TOLL FREE AT (800) 322-2885 OR BY E-MAIL AT
PROXY@MACKENZIEPARTNERS.COM.
IMPORTANT NOTICE
IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON AND ARE A STOCKHOLDER OF
RECORD, BRING WITH YOU A FORM OF GOVERNMENT-ISSUED PERSONAL IDENTIFICATION TO
THE ANNUAL MEETING. IF YOU OWN STOCK THROUGH A BANK, BROKER OR OTHER NOMINEE,
YOU WILL NEED PROOF OF OWNERSHIP AS OF THE RECORD DATE TO ATTEND THE ANNUAL
MEETING. PLEASE SEE PAGE 12 FOR MORE INFORMATION ON WHAT DOCUMENTS YOU WILL NEED
FOR ADMISSION TO THE ANNUAL MEETING. NO CAMERAS, RECORDING EQUIPMENT OR OTHER
ELECTRONIC DEVICES WILL BE ALLOWED IN THE MEETING ROOM. IF YOU DO NOT PROVIDE
PHOTO IDENTIFICATION OR COMPLY WITH THE OTHER PROCEDURES OUTLINED ABOVE UPON
REQUEST, YOU MAY NOT BE ADMITTED TO THE ANNUAL MEETING.
EL PASO CORPORATION
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
PROXY STATEMENT
2003 ANNUAL MEETING OF STOCKHOLDERS JUNE [ ], 2003
Our Board of Directors is furnishing you with this Proxy Statement to
solicit proxies on its behalf to be voted at the 2003 Annual Meeting of
Stockholders of El Paso Corporation. The Annual Meeting will be held at
[ ], Houston, Texas [ ], on June [ ], 2003 at [ ]
(local/Central time). The proxies also may be voted at any adjournments or
postponements of the Annual Meeting.
This Proxy Statement, the notice of Annual Meeting and the enclosed WHITE
proxy card are being mailed to stockholders beginning on or about [ ],
2003. All properly executed written proxies that are delivered pursuant to this
solicitation will be voted at the Annual Meeting. Each person who is an El Paso
stockholder of record at the close of business on May 2, 2003, the record date,
is entitled to vote at the Annual Meeting, or at adjournments or postponements
of the Annual Meeting.
BACKGROUND
On February 18, 2003, Selim K. Zilkha, who is working closely with Oscar S.
Wyatt, Jr., delivered a letter to El Paso notifying us of his intention to
nominate nine of his designees for election to our Board of Directors at our
Annual Meeting and to bring before the Annual Meeting four additional proposals.
That day, Mr. Zilkha also publicly announced his intention to solicit proxies
from El Paso's stockholders to replace El Paso's entire Board of Directors with
a slate of nine nominees, including Mr. Zilkha.
On March 11, 2003, Mr. Zilkha filed a preliminary proxy statement with the
Securities and Exchange Commission in connection with his solicitation. In his
proxy statement, Mr. Zilkha states that he does not have the information to
develop a detailed business plan or strategy. El Paso and its Board of Directors
and management do have a detailed plan, which is based upon facts and in-depth
knowledge of El Paso. Since December 2001, we have been repositioning El Paso to
address the challenges facing our company and our industry. We have developed
and are implementing a disciplined operational and financial plan for 2003.
OUR OPERATIONAL AND FINANCIAL PLAN
THE FIVE KEY PRINCIPLES OF OUR PLAN
Our operational and financial plan is a continuation of the repositioning
we commenced in December 2001 and provides for the decisive actions that will
continue to increase our financial flexibility and allows us to meet the
challenges facing our business and our industry. The five key principles on
which our plan is based are:
- Preserving and enhancing the value of our core pipeline, production,
midstream and non-merchant power businesses;
- Divesting non-core businesses (including the energy trading business)
quickly, but prudently;
- Strengthening and simplifying our balance sheet while maximizing
liquidity;
- Aggressively pursuing additional cost reductions; and
- Working diligently to resolve litigation and regulatory matters.
EL PASO'S SIGNIFICANT PROGRESS IN IMPLEMENTING ITS PLAN
We have made considerable progress in executing each of the five key areas
of our operational and financial plan through the date of this Proxy Statement:
1. PRESERVING AND ENHANCING THE VALUE OF OUR CORE BUSINESSES
We continue to invest in our core businesses to maintain our leadership
positions in these businesses. We have assembled America's leading natural gas
franchise and the largest natural gas pipeline network in the United States. We
are rich in assets and fully integrated across the natural gas value chain. Our
capital expenditure plan reflects our commitment to our core businesses, with
87% of our 2003 capital expenditures devoted to our pipeline and production
businesses.
We have substantially reduced our anticipated capital expenditures to $2.6
billion for 2003, which represents a decrease of 35% from 2002 and a 54%
decrease from 2001.
At the same time, we continue to review all proposed capital expenditures
to ensure that the objective of enhancing and preserving the value of our core
businesses is balanced with near- and intermediate-term capital needs.
2. DIVESTING NON-CORE BUSINESSES QUICKLY, BUT PRUDENTLY
We are on schedule with our stated plan to divest non-core assets. We have
increased our 2003 non-core asset sale program to $3.4 billion from the $2.9
billion we originally planned. As of the date of this Proxy Statement, we have
signed agreements for or closed more than 50%, or approximately $1.7 billion, of
the $3.4 billion of asset sales we expect in 2003. The proceeds from these sales
will allow us to maximize our liquidity, improve our financial flexibility, and
focus on preserving and enhancing the value of our core businesses. We have
already completed the following transactions:
- In January 2003, we closed $333 million of asset sales, including the
sale of our 50% interest in CE Generation L.L.C., our remaining coal
operations and our natural gas gathering systems in Wyoming.
- In late February 2003, we completed the sale of our Corpus Christi
refinery, our South Texas refined petroleum product pipeline and our
Florida petroleum terminals and tug and barge operations, for a total of
approximately $444 million.
- We have continued the process of exiting the energy trading business in
an orderly manner by selling our European natural gas trading book. We
have received proceeds of over $82 million, including the recovery of
cash collateral, in connection with this transaction.
- In March, we sold our Mid-Continent natural gas and oil reserves to
Chesapeake Energy Corporation for $500 million. We also sold oil and gas
properties in the San Juan Basin for $138 million, our remaining
ownership interest in the Alliance Pipeline for $24.4 million, and our
Alberta area oil and natural gas assets, production facilities and gas
plants for $36.1 million. We also sold various other assets, including
our interest in the ECK Generating project in Prague, Czech Republic, for
a total of $73.4 million.
The following sales are currently under contract:
- We have signed agreements for the sales of additional non-core assets for
more than $178 million including our asphalt business, our interest in
Enerplus Global Energy Management Company, and additional Canadian
exploration and production properties.
We are continuing to move forward with additional non-core asset sales
transactions to achieve our objective of $3.4 billion in non-core asset sales
for 2003. These proposed sales will involve principally assets from our
petroleum and power businesses, with some additional assets from our midstream
and production businesses.
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3. STRENGTHENING AND SIMPLIFYING OUR BALANCE SHEET WHILE MAXIMIZING LIQUIDITY
We are aggressively moving to improve our balance sheet and our liquidity
to increase our financial flexibility.
- In early March 2003, two of our pipeline subsidiaries, Southern Natural
Gas (SNG) and ANR Pipeline, completed offerings of seven-year notes
totaling $700 million: $400 million by SNG at a fixed rate of 8 7/8% and
$300 million by ANR Pipeline at a fixed rate of 8 7/8%.
- On March 13, 2003, we closed a $1.2 billion two-year secured loan that
was used in part to retire our Trinity River financing. This allowed us
full access to the cash flow from the assets that formerly secured this
facility.
- On March 17, 2003, we retired $1 billion of notes issued in connection
with our Electron power financing.
- We are actively engaged in a process to extend the maturity of our
principal credit facilities: our $3 billion, 364-day revolving credit
facility, which matures in May 2003 but which El Paso has the option to
convert into a one-year term-loan maturing in May 2004; and our $1
billion revolving credit facility, which matures in August 2003.
- We are working to recover, as promptly as practicable, substantial
amounts of the cash collateral currently committed to our trading,
petroleum and other businesses.
4. AGGRESSIVELY PURSUING ADDITIONAL COST REDUCTIONS
We have an ongoing program to reduce operating expenses through headcount
reductions and other cost-saving measures.
- In 2002, we reduced annual expenses by approximately $300 million.
- We are on target for achieving at least an additional $150 million in
cost reductions in 2003.
- We are undertaking a top-to-bottom analysis of El Paso to achieve
substantial further cost reductions. We are committed to reducing
expenses and designing the most cost-efficient structure possible for our
businesses.
5. WORKING DILIGENTLY TO RESOLVE LITIGATION AND REGULATORY MATTERS
- On March 20, 2003, we reached an agreement in principle to resolve the
principal litigation and claims against us relating to the sale or
delivery of natural gas and/or electricity to or in several western
states from September 1996 to the date of the agreement in principle. The
settlement is subject to the negotiation of definitive settlement
documents and review and approval of the settlement by the courts and the
Federal Energy Regulatory Commission (FERC).
- This settlement will help resolve the uncertainties that have surrounded
us in the market over the past few years relating to these issues. With
these issues behind us, we will be able to devote our full energies to
executing the remaining elements of our operational and financial plan.
- The settlement was crafted to minimize current demands on our liquidity,
and resulted in an after-tax charge of $644 million (approximately $900
million pre-tax) in the fourth quarter of 2002.
Our operational and financial plan is a continuation of the repositioning
we commenced in December 2001, when we responded aggressively to the tumultuous
changes in our industry. These changes have negatively affected not only El Paso
but also many others in the energy business.
In the period from December 2001 through the end of 2002, we:
- Closed $3.9 billion of non-core asset sales;
- Secured a new $3 billion revolving credit facility with a term-out option
to May 2004; and
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- Issued approximately $2.5 billion of equity and equity-linked securities.
We also initiated an orderly exit from our energy trading business and
removed ratings triggers on $4 billion in debt securities.
Although we have accomplished a significant amount since December 2001, our
Board of Directors recognizes that there is still much more to be achieved. As
we move forward with our operational and financial plan, we will continue to be
responsive to the industry environment. We will remain flexible and will seek to
optimize the execution of our plan to deliver the value inherent in El Paso.
CORPORATE GOVERNANCE
As we have continued to execute our operational and financial plan, we have
also taken steps to strengthen our corporate governance.
OUR NOMINEES
- We have engaged in a process designed to assure continuity, while
effecting measured change, in the composition of our Board of Directors,
adding four new independent directors this year with substantial
management expertise in the oil and gas exploration and production
industry. Our four new independent directors are:
- James L. Dunlap, former Vice Chairman, President and Chief Operating
Officer of Ocean Energy/United Meridian Corporation responsible for
exploration and production and the development of the international
exploration business, who is also serving on our Compensation and
Governance Committees;
- Robert W. Goldman, former Senior Vice President, Finance and Chief
Financial Officer of Conoco Inc., who is also serving on our Audit and
Finance Committees;
- J. Michael Talbert, Chairman and former Chief Executive Officer of
Transocean Inc., and former President and Chief Executive Officer of
Lone Star Gas Company, who is also serving on our Compensation and
Finance Committees; and
- John Whitmire, Chairman of CONSOL Energy, Inc., former Executive Vice
President of Phillips Petroleum Company responsible for worldwide
exploration and production and former Chairman and Chief Executive
Officer of Union Texas Petroleum Holdings, Inc., who is also serving
on our Compensation Committee.
- With respect to our nominees for election at the Annual Meeting:
- All but one of our twelve nominees are independent;
- Eleven have substantial experience serving on public company boards;
- Five have extensive management and operating experience in the energy
industry;
- Four hold or have held positions as Chairman, President or Chief
Executive Officer of a New York Stock Exchange (NYSE)-listed company;
- Our nominees have operating experience at more than a dozen energy
industry companies, including Conoco, CONSOL Energy, Lone Star Gas,
Ocean Energy/United Meridian, Phillips, Shell Oil Company, Sonat Inc.
("Sonat"), Texaco, Inc., Transocean, and Union Texas Petroleum; and
- Four of our twelve nominees joined our Board this year, four are prior
members of the board of directors of The Coastal Corporation
("Coastal") (which was acquired by us in 2001) and two are prior
members of the board of directors of Sonat (which we acquired in
1999).
- We believe that the combined expertise of our nominees in the energy
industry, finance, academia and the law, and the mix of new directors and
directors with detailed knowledge of El Paso, will create a
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Board that is particularly well equipped to help us achieve our long-term
goals. Our nominees are leaders in their respective fields. Their
complementary knowledge and skills will add tremendous value to El Paso.
Under their objective and independent leadership, we will be well
positioned to execute our operational and financial plan while
substantially enhancing the value of our core businesses.
- Three of our current directors, Byron Allumbaugh, James F. Gibbons and
William A. Wise, will not be standing for re-election at the Annual
Meeting.
LEAD DIRECTOR
- In September 2002, we designated Ronald L. Kuehn, Jr., a highly
experienced pipeline and exploration and production executive and the
former Chairman and Chief Executive Officer of Sonat, as Lead Director.
Upon Mr. Kuehn's appointment as our Chairman and Chief Executive Officer
in March 2003, John M. Bissell, an independent director and former member
of the board of Coastal, was designated to succeed Mr. Kuehn as Lead
Director.
CEO TRANSITION
- In March 2003, we announced the departure of William A. Wise as our
Chairman and Chief Executive Officer and his replacement in those
capacities by Mr. Kuehn.
- The Board is conducting a careful process to select the best candidate
for the position of Chief Executive Officer of El Paso. The Board has
established an internal CEO search committee consisting of Mr. Kuehn and
three independent directors, John M. Bissell (Chairman), Juan Carlos
Braniff and Joe B. Wyatt and has engaged Spencer Stuart, a leading
executive search firm, to facilitate this process.
OUR CORPORATE GOVERNANCE POLICIES
- We have adopted corporate governance policies that meet or exceed all of
the requirements of the Sarbanes-Oxley Act of 2002, the rules and
regulations of the Securities and Exchange Commission, and the proposed
amendments to NYSE regulations. Our Corporate Governance Guidelines,
attached as Exhibit E, have been developed taking into account not only
legal and regulatory requirements but also current corporate governance
best practices.
- Eleven of our twelve director nominees meet the independence standards
of the NYSE and applicable law. We require that a minimum of 75% of
our directors be non-management directors.
- Since September 2002, we have had a Lead Director to lead sessions of
the Board of Directors without management. The Board regularly meets
without management directors.
- Our directors cannot serve on the boards of more than four other
public companies and directors are required to attend a full-day
program of continuing board education at least once every two years.
- Our Audit Committee consists solely of directors who meet the
heightened independence requirements for audit committee members and
the NYSE's financial literacy standards. The Committee includes an
"audit committee financial expert" within the meaning of the
Sarbanes-Oxley Act and applicable SEC rules. Members of the Audit
Committee cannot serve on more than two other audit committees.
- Our Compensation and Governance Committees consist solely of
independent directors.
- Our corporate governance guidelines and the charters of each of our
standing committees, copies of which are attached to this Proxy
Statement, are publicly available and each committee is authorized to
engage its own advisors and counsel.
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- We have a mandatory age limit that precludes directors standing for
re-election in the year following their 73rd birthday (a limit which
two of the Zilkha/Wyatt nominees, including Mr. Zilkha, as well as Mr.
Wyatt, exceed).
- We have adopted minimum stock ownership requirements for directors and
executive officers.
- We have no staggered board and no rights plan or "poison pill," and we
propose to eliminate the "fair price" supermajority provision in our
Restated Certificate of Incorporation at the Annual Meeting.
- We believe these policies place us in the vanguard of corporate
governance best practices.
THE ZILKHA/WYATT PROXY CONTEST
Selim K. Zilkha, who is working closely with Oscar S. Wyatt, Jr., is
proposing to replace our entire Board with a slate of nine designees, including
himself. Mr. Zilkha served as a director of El Paso from November 1999 to
February 2001 and as an advisory director of El Paso from February 2001 to June
2002. In documents filed with the SEC, Mr. Zilkha has proposed a slate of
nominees, but as of the date of this Proxy Statement Messrs. Zilkha and Wyatt
have neither offered a business plan upon which to elect the Zilkha/Wyatt
nominees, nor provided specific objections to El Paso's Board and management's
detailed operational and financial plan. As described above, we believe we have
made impressive progress implementing this plan. Mr. Zilkha has stated, in the
preliminary proxy statement he filed with the SEC, that he will not be in a
position to propose a business plan until after his nominees are elected and
have had the opportunity to familiarize themselves with El Paso. Until the new
Board has selected a new Chief Executive Officer, Zilkha/ Wyatt propose that El
Paso be run by a committee of four of the Zilkha/Wyatt director nominees.
We believe the Zilkha/Wyatt proxy campaign is not in the best interests of
the stockholders of El Paso. This is a critical period for El Paso, during which
we are continuing to move forward with the negotiation and execution of numerous
financing, asset sale and other transactions that are necessary to meet the key
objectives of our operational and financial plan. We believe that continuity of
knowledge and direction is critical and that a wholesale change in our Board of
Directors would adversely affect the execution of our plan and would threaten
the achievement of these objectives. Accordingly, the Board of Directors
strongly recommends that you reject the Zilkha/Wyatt attempt to take over your
Board.
Over the past few months, we have tried to avoid this counterproductive
proxy contest. We have sought to engage Mr. Zilkha in a number of dialogues to
address his concerns and have held a number of meetings with Mr. Zilkha and his
advisors. After Mr. Zilkha voluntarily relinquished his role as an advisory
director of El Paso in June 2002 in order to be free from limitations on his
personal sales of shares of El Paso's common stock, our Board of Directors
offered Mr. Zilkha the opportunity to rejoin our Board of Directors. Mr. Zilkha
rejected that opportunity. We also offered Mr. Zilkha an opportunity to
participate in our process of identifying individuals to be added to our Board
of Directors. Mr. Zilkha rejected that opportunity as well. In recent months, in
addition to his repeated demands for the removal of William A. Wise, El Paso's
recently departed CEO, Mr. Zilkha made a series of escalating demands for
representation on El Paso's Board, at one time suggesting the replacement of two
or three directors with his nominees, on other occasions proposing the
replacement of five directors, and finally insisting that the only way to avoid
a proxy contest would be for El Paso's directors to appoint all of his nominees
and then immediately resign.
Mr. Zilkha has criticized a number of transactions and investments
previously undertaken by El Paso. Mr. Zilkha served as a director of El Paso
from October 1999 until January 2001 and as an advisory director of El Paso from
January 2001 until June 2002, but Mr. Zilkha would have stockholders believe
that he had no involvement in the review and approval of many of the
transactions that have been objects of Mr. Zilkha's recent criticisms. In
reality, however, Mr. Zilkha, like many others in the energy industry, including
El Paso's leadership, was in favor of and supported El Paso's strategic
decisions. Mr. Zilkha's support is evidenced by the fact that, during the period
of Mr. Zilkha's director and advisory director roles, he did not vote against,
or dissent from a single decision made by our Board. While Mr. Zilkha was a
director or advisory director, our Board approved a variety of financing
transactions (including our Electron, Clydesdale and Trinity River
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financings) and acquisitions (including the Coastal merger), investments in the
energy trading and merchant energy business, power restructuring transactions,
liquid natural gas operations, telecommunications and international projects in
furtherance of El Paso's then-existing strategy in those areas.
Notwithstanding the significant progress we have made implementing our
operational and financial plan, the departure of Mr. Wise, our commitment to
complete a careful process to select the best-qualified CEO candidate, and our
repeated efforts to reach out to Mr. Zilkha, Messrs. Zilkha and Wyatt have
chosen to move forward with their campaign to replace all of our directors with
their slate of nine designees, including Mr. Zilkha. During this critical period
in the execution of our operational and financial plan, we believe that
continuity, stability, and the experience and detailed knowledge of El Paso and
our business relationships that our Board and management possess are especially
vital. We believe that our stockholders would not be well served by replacing El
Paso's Board nominees, and its existing management, with individuals who lack a
detailed knowledge of and experience with El Paso.
ZILKHA/WYATT'S PROPOSALS OFFER NO BUSINESS PLAN OR STRATEGY AND NO CLEAR
MANAGEMENT PLAN
According to the preliminary proxy statement that Mr. Zilkha has filed with
the SEC in connection with his proposals:
- Zilkha/Wyatt have no detailed business plan or business strategy for El
Paso and have stated that it would be "inappropriate" for them to adopt a
plan or strategy unless their nominees are elected.
- Zilkha/Wyatt do not have adequate information about El Paso to adopt a
detailed business plan or strategy.
- The Zilkha/Wyatt nominees need an unspecified amount of time if elected
to obtain information about El Paso's business and financial affairs.
- The Zilkha/Wyatt nominees will not develop and implement a business
strategy until their process for obtaining information is completed and a
new Chief Executive Officer is selected.
- During this education process, and until a Chief Executive Officer is
hired, a committee of four Zilkha/Wyatt nominees will collectively have
responsibility for El Paso's day-to-day operations.
Mr. Zilkha has stated that the Zilkha/Wyatt nominees do not have the
information to develop a detailed business plan or strategy. Any business
strategies, plans or projections Zilkha/Wyatt may offer will, by their own
admission, be based upon incomplete information and subject to the results of
the new Board and four-person management committee's education process.
ZILKHA/WYATT'S PROPOSALS INVOLVE MAJOR RISKS AND UNCERTAINTIES FOR EL PASO
We believe that the Zilkha/Wyatt proposals create major risks and
uncertainties for El Paso, including the following:
EL PASO'S BUSINESS AND THE IMPLEMENTATION OF ITS TURN-AROUND STRATEGY COULD BE
MATERIALLY AND ADVERSELY AFFECTED.
El Paso's business and the implementation of its turn-around strategy could
be materially and adversely affected by the election of directors who will have
to take an unspecified period of time to engage in an education process about El
Paso.
THE CONTENTS AND EFFECTS OF ZILKHA/WYATT'S BUSINESS PLAN ARE HIGHLY UNCERTAIN.
Zilkha/Wyatt's business strategy for El Paso is unknown. Accordingly, the
effects of their plan, if adopted, are highly uncertain.
7
THE REMOVAL OF, OR INABILITY TO RETAIN, EXISTING MANAGEMENT MAY DISRUPT EL
PASO'S OPERATIONS AND INTERFERE WITH THE EXECUTION OF EL PASO'S OPERATIONAL
AND FINANCIAL PLAN.
As a result of the election of the Zilkha/Wyatt nominees, there may be
substantial changes in our management. Mr. Zilkha has expressed the view that "a
turnaround can never happen" under current management. El Paso is making
substantial progress on its operational and financial plan and the removal of
current management could seriously disrupt El Paso's operations and interfere
with the successful execution of the numerous transactions in which it is, or
will be, engaged that are critical to its plan. El Paso may have difficulty in
retaining other key personnel and it may be difficult to recruit new personnel.
THE UNCONVENTIONAL ZILKHA/WYATT FOUR-PERSON MANAGEMENT COMMITTEE MAY NOT BE
EFFECTIVE.
Messrs. Zilkha and Wyatt have proposed that, until a new Chief Executive
Officer is selected, a committee comprised of four of the Zilkha/Wyatt nominees
will be responsible for day-to-day management of El Paso. At the same time, Mr.
Zilkha has admitted that the Zilkha/Wyatt nominees lack knowledge of El Paso's
businesses and finances. Under these circumstances, there are significant risks
that this unconventional four-person management committee will be unable to
provide effective leadership or decision making.
THE COMBINATION OF DISCONTINUITY IN EL PASO, THE ELECTION OF NOMINEES WHO LACK
KNOWLEDGE OF EL PASO, AND THE LOSS OF KNOWLEDGEABLE BOARD MEMBERS AND
MANAGEMENT COULD HAVE A MATERIAL ADVERSE EFFECT ON EL PASO.
The combination of discontinuity in El Paso, the nominees' lack of
knowledge of El Paso, the loss of institutional Board knowledge and experience,
and the likely loss of personnel that would result from a complete Board
turnover could have a material adverse effect on El Paso, as well as on the
implementation of El Paso's operational and financial plan.
ELECTION OF THE ZILKHA/WYATT NOMINEES MAY INVOLVE SUBSTANTIAL COSTS TO EL
PASO.
Election of the Zilkha/Wyatt nominees may involve substantial costs to El
Paso. The election of the Zilkha/Wyatt slate would constitute a "Change in
Control" under El Paso's employee benefit plans and agreements. In the event of
certain terminations of employment of individuals covered by these plans and
agreements, these individuals would be entitled to severance benefits as
described in those plans. In the event of such terminations of the executive
officers covered by El Paso's Key Executive Severance Protection Plan (including
the named executives identified in the Summary Compensation Table, other than
Messrs. Wise and Eads, who are no longer entitled to these severance benefits),
these payments (for base salary and bonus) are estimated to exceed $75 million.
See "Employment Contracts, Termination of Employment and Change In Control
Arrangements and Director Indemnification Agreements -- Effect of Election of
the Zilkha/Wyatt Nominees on Change in Control Arrangements" in this Proxy
Statement.
OUR RESPONSE
El Paso has developed and has been implementing a disciplined operational
and financial plan for 2003 and has been engaged for more than 15 months in a
process of repositioning itself to address the challenges facing us and the
energy industry as a whole. El Paso has effected dozens of significant
transactions during this period, including financings, asset sales,
restructurings, and divestitures. El Paso has also continued to focus on cost
reductions and optimization of capital expenditures. We are continuing to work
on numerous financing, asset sale and other transactions that are critical to
the achievement of the key objectives of our plan.
We believe that the Zilkha/Wyatt program offers no clear benefits to our
stockholders, entails major risks and has many obvious detriments, as discussed
above. We believe now is not the time to stop the significant progress we have
been making and install a slate of directors who have no plan for El Paso, who
lack detailed knowledge of and experience with El Paso, and whose election may
have material adverse effects on El Paso.
8
ZILKHA'S PARTNERSHIP WITH OSCAR WYATT
We believe that Mr. Zilkha's disclosures concerning his proxy campaign
materially understate the role of Oscar Wyatt, age 78, an individual whose
interests we believe conflict with the interests of El Paso and its
stockholders. In his filings, Mr. Zilkha discloses that Mr. Wyatt is a
participant in, and a supporter of, Mr. Zilkha's solicitation, and is financing
an unspecified portion of the costs of the solicitation. Based on information
provided personally by Mr. Wyatt to El Paso and the fact that, over a number of
months prior to the commencement of this proxy contest, Mr. Wyatt was copied on
Mr. Zilkha's numerous communications with El Paso's personnel regarding a
possible proxy contest, El Paso believes that Mr. Wyatt has played a
considerably more prominent role in the recruiting of Mr. Zilkha's nominees and
in the planning and execution of this proxy contest than has been disclosed by
Mr. Zilkha.
The following are among the conflicts, or potential conflicts, of interest
that we believe exist between Mr. Wyatt and El Paso:
- Mr. Wyatt is currently acting as the lead plaintiff in a shareholder
lawsuit against El Paso.
- Mr. Wyatt has defaulted on payment of a guarantee he made when he was a
director of Coastal (a company acquired by El Paso in 2001) to repay
approximately $2.5 million plus interest owed to Coastal by two entities
in which Mr. Wyatt held a significant ownership interest.
- Last year, Mr. Wyatt engaged in a negative public letter-writing campaign
against El Paso.
- Mr. Wyatt, the former chairman and chief executive of Coastal, has
established an energy venture named "NuCoastal." Industry trade
publications, including The Oil Daily, have reported that NuCoastal has
been seeking to acquire energy assets that compete with El Paso,
including Enron's Transwestern natural gas pipeline system, which runs
from West Texas to California, and competes with El Paso's core
interstate pipeline serving the Western United States energy markets. In
addition, Mr. Wyatt has been a bidder for certain El Paso assets.
In light of the conflicts of interest that exist between El Paso and Mr.
Wyatt, as well as Mr. Wyatt's status as a potential bidder on, or buyer of, our
assets, it is important that the El Paso directors possess the independence
necessary to impartially oversee any transactions that may involve Mr. Wyatt. El
Paso's nominees possess the requisite independence to discharge this role.
Mr. Wyatt's record at Coastal included:
- A criminal guilty plea by Mr. Wyatt and another Coastal officer of
knowingly and willfully violating federal crude oil pricing regulations
in connection with 1975 sales of domestic and foreign crude oil by
Coastal subsidiaries, according to Coastal's 1985 proxy statement.
- A 1979 permanent injunction that prohibits Mr. Wyatt from ever owning any
interests in certain former Coastal subsidiaries, which El Paso acquired
in 2000, in connection with the settlement of a lawsuit relating to
Coastal's failure to provide winter gas supplies under contracts with San
Antonio, Austin and various other Texas municipalities in the 1970s.
- A series of greenmail transactions by Coastal in connection with
unsolicited bids for publicly traded companies, including Texas Gas
Resources, Pioneer Corp., Houston Natural Gas, and Sonat in the 1980s.
9
- A governance record of actions adverse to stockholder interests. Coastal
maintained a staggered board structure for many years until its
acquisition by El Paso in 2001 and, under Mr. Wyatt's leadership, issued
a dividend of "super-voting" stock that had the effect of increasing Mr.
Wyatt's control over Coastal.
- According to Coastal's 1984 proxy statement, Coastal issued super-voting
stock representing approximately 9% of its outstanding equity securities,
but which had 100 times the voting power of Coastal's ordinary common
stock and represented approximately 90% of Coastal's voting power.
Because the super-voting stock converted automatically to ordinary common
stock upon transfer and received lower dividends than the ordinary common
stock, the distribution had the effect of concentrating voting power in
the hands of shareholders who did not sell their super-voting stock.
Within two years of the distribution, Mr. Wyatt, other Coastal insiders,
and Coastal's employee benefit plans controlled almost 50% of Coastal's
voting power, despite representing only approximately 25% of Coastal's
outstanding ordinary shares.
In light of these conflicts and potential conflicts as well as Mr. Wyatt's
record at Coastal, we believe it is not in the interests of El Paso stockholders
to support proposals that could increase Mr. Wyatt's influence over El Paso.
Mr. Wyatt's role in Mr. Zilkha's proxy campaign underscores our belief that
the election of the Zilkha/Wyatt nominees is not in the interests of El Paso
stockholders.
FOR THESE REASONS, THE BOARD OF DIRECTORS STRONGLY RECOMMENDS THAT YOU
REJECT THE ZILKHA/WYATT PROPOSED SLATE OF NOMINEES AND ANY OTHER PROPOSALS THAT
THEY MAY BRING BEFORE OUR ANNUAL MEETING. THE BOARD OF DIRECTORS STRONGLY URGES
YOU TO VOTE FOR EL PASO'S NOMINEES. PLEASE VOTE FOR EL PASO'S NOMINEES BY
SIGNING, DATING AND RETURNING THE ENCLOSED WHITE PROXY CARD IN THE ACCOMPANYING
ENVELOPE AND DO NOT SIGN OR RETURN ANY BLUE PROXY CARD SENT TO YOU BY
ZILKHA/WYATT. IF YOU HAVE PREVIOUSLY RETURNED A BLUE PROXY CARD SENT TO YOU BY
ZILKHA/WYATT, YOU CAN REVOKE IT BY SIGNING AND RETURNING, IN THE ACCOMPANYING
ENVELOPE, THE ENCLOSED WHITE PROXY CARD.
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
1. WHO CAN VOTE?
Stockholders holding shares of El Paso Corporation's common stock, par
value $3.00 per share, as of the close of business on the record date, May 2,
2003, represented by a properly executed proxy, are entitled to vote at the
Annual Meeting, or any adjournments or postponements of the Annual Meeting. You
have one vote for each share of common stock held as of the record date, which
may be voted on each proposal presented at the Annual Meeting.
2. WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN?
The record date for the Annual Meeting is May 2, 2003. The record date was
established by the Board of Directors as required by our By-laws and Delaware
law. Owners of record of El Paso's common stock at the close of business on the
record date are entitled to:
- Receive notice of the Annual Meeting; and
- Vote at the Annual Meeting, and any adjournments or postponements of
the Annual Meeting.
3. HOW MANY SHARES OF EL PASO COMMON STOCK ARE OUTSTANDING?
There were [ ] shares of common stock outstanding and entitled to
vote at the Annual Meeting at the close of business on [ ], 2003.
Common stock is the only class of stock entitled to vote.
10
4. HOW DO I VOTE?
You can vote by signing, dating and returning a proxy card. To vote FOR El
Paso's nominees, sign, date and return the enclosed WHITE proxy card in the
accompanying envelope and do not sign or return any blue proxy card sent to you
by Zilkha/Wyatt. Withholding authority to vote for the Zilkha/Wyatt nominees on
a blue proxy card he sends you is not the same as voting FOR the El Paso
nominees.
5. CAN I REVOKE OR CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. At any time before the persons named on the proxy card vote your
shares of common stock at the Annual Meeting as you have instructed, you can
change or revoke your vote if El Paso receives a written notice from you to Mr.
David L. Siddall, Corporate Secretary, at El Paso Corporation, 1001 Louisiana
Street, Houston, Texas 77002, telephone (713) 420-6195 and facsimile (713)
420-4099, or a subsequently signed and dated proxy card. If you have previously
returned a blue proxy card sent to you by Zilkha/Wyatt, you can revoke it by
signing and returning, in the accompanying envelope, the enclosed WHITE proxy
card. We strongly urge you to revoke any blue proxy card you may have returned
to Zilkha/Wyatt. We will honor the properly executed proxy card with the latest
date. You may also revoke your vote by attending the Annual Meeting in person
and giving notice of revocation to the inspector of election.
6. WHAT HAPPENS IF I DO NOT SPECIFY A CHOICE FOR A PROPOSAL WHEN RETURNING A
PROXY?
You should specify your choice for each proposal on the proxy card. If no
instructions are given, WHITE proxy cards that are signed and returned will be
voted "FOR" the election of all El Paso director nominees, "FOR" the proposal to
ratify the appointment of PricewaterhouseCoopers LLP, "FOR" the proposal to
amend our Restated Certificate of Incorporation to eliminate the "fair price"
provision, "FOR" the proposal to amend our Restated Certificate of Incorporation
to eliminate our Series A Junior Participating Preferred Stock, "AGAINST" each
stockholder proposal and "AGAINST" any proposals presented at the Annual Meeting
by Zilkha/Wyatt.
7. WHAT HAPPENS IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The matters described in the notice of Annual Meeting are the only matters
we know of that will be voted on at the Annual Meeting. If other matters are
properly presented at the Annual Meeting, the proxy holders, Ronald L. Kuehn,
Jr., El Paso's Chairman and Chief Executive Officer, and Peggy A. Heeg, El
Paso's Executive Vice President and General Counsel, will vote your shares at
their discretion.
8. WHAT DO I DO IF MY SHARES ARE HELD IN "STREET NAME"?
If your shares of common stock are held in the name of your broker, a bank,
or other nominee, only your broker, bank or other nominee may execute a proxy
and vote your shares. If your vote is solicited by both us and Zilkha/Wyatt,
your broker, bank or other nominee will be unable to vote your shares at the
Annual Meeting unless they receive your specific voting instructions. In any
event, your broker, bank or other nominee will be unable to vote your shares in
respect of our proposal to amend our Restated Certificate of Incorporation to
eliminate the "fair price" provision unless they receive specific voting
instructions. Please sign, date and promptly return the instruction card you
received from your broker, bank or other nominee, in accordance with the
instructions on the card. If you wish to vote your "street name" shares
directly, you will need to obtain a document known as a "legal proxy" from your
broker, bank or other nominee. Please contact your bank, broker or other nominee
if you wish to do so.
9. WHO WILL COUNT THE VOTES?
Representatives of IVS Associates, Inc., an independent tabulator appointed
by the Board of Directors, will count the votes and act as the inspectors of
election. The inspectors of election shall have the authority to receive,
inspect, electronically tally and determine the validity of the proxies
received.
11
10. WHAT IS A "QUORUM"?
A "quorum" is a majority of the outstanding shares of common stock and is
required to hold the Annual Meeting. A quorum is determined by counting shares
of common stock present in person at the Annual Meeting or represented by proxy.
If you submit a properly executed proxy, you will be considered part of the
quorum even if you abstain from voting.
11. WHO CAN ATTEND THE ANNUAL MEETING?
Admission to the Annual Meeting is limited to stockholders of El Paso,
persons holding validly executed proxies from stockholders who held El Paso
common stock at the close of business on May 2, 2003, and invited guests of El
Paso.
If you are a stockholder of El Paso, you must bring certain documents with
you in order to be admitted to the Annual Meeting. The purpose of this
requirement is to help us verify that you are actually a stockholder of El Paso.
Please read the following rules carefully because they specify the documents
that you must bring with you to the Annual Meeting in order to be admitted. The
items that you must bring with you differ depending upon whether you are a
record holder or hold your stock in "street name".
Proof of ownership of El Paso common stock must be shown at the door.
Failure to provide adequate proof that you were a stockholder on the record date
may prevent you from being admitted to the Annual Meeting.
IF YOU WERE A RECORD HOLDER OF EL PASO COMMON STOCK ON MAY 2, 2003,
then you must bring a valid government-issued personal identification (such
as a driver's license or passport).
IF A BROKER, BANK OR OTHER NOMINEE WAS THE RECORD HOLDER OF YOUR
SHARES OF EL PASO COMMON STOCK ON MAY 2, 2003, then you must bring:
- Valid government-issued personal identification (such as a driver's
license or passport), and
- Proof that you owned shares of El Paso common stock at the close of
business on May 2, 2003.
Examples of proof of ownership include the following: (1) a letter from
your bank or broker stating that you owned El Paso common stock on May 2, 2003;
(2) a brokerage account statement indicating that you owned El Paso common stock
on May 2, 2003; or (3) the voting instruction card provided by your broker
indicating that you owned El Paso common stock on May 2, 2003.
IF YOU ARE A PROXY HOLDER FOR A STOCKHOLDER OF EL PASO, then you must
bring:
- The validly executed proxy naming you as the proxy holder, signed by a
stockholder of El Paso who owned shares of El Paso common stock on May
2, 2003,
- Valid personal identification (such as a driver's license or
passport), and
- If the stockholder whose proxy you hold was not a record holder of El
Paso common stock on May 2, 2003, proof of the stockholder's ownership
of shares of El Paso common stock on May 2, 2003, in the form of a
letter or statement from a bank, broker, or other nominee or the
voting instruction card provided by the broker, in each case
indicating that the stockholder owned El Paso common stock on May 2,
2003.
You may not use cameras, recording equipment or other electronic devices
during the Annual Meeting.
12. HOW MANY VOTES MUST EACH PROPOSAL RECEIVE TO BE ADOPTED?
- With respect to the election of directors, the twelve nominees who
receive the highest number of votes at the Annual Meeting will be
elected.
12
- Proposal No. 3, with respect to the amendment of our Restated Certificate
of Incorporation to eliminate the "fair price" provision, must receive
the affirmative vote of holders of at least 51% of our outstanding shares
of common stock, excluding common stock beneficially owned by any
stockholder who is the beneficial owner of 10% or more of our common
stock.
- Proposal No. 4, with respect to the amendment of our Restated Certificate
of Incorporation to eliminate our Series A Junior Participating Preferred
Stock, must receive an affirmative vote of holders of at least a majority
of our outstanding common stock.
- Proposals Nos. 5, 6 and 7, with respect to amendments to our By-laws,
must receive the affirmative vote of more than 50% of the votes cast on,
and abstentions with respect to, the proposal.
- All other proposals must receive the affirmative vote of more than 50% of
the votes cast on the proposal.
13. HOW ARE VOTES COUNTED?
Votes are counted in accordance with El Paso's By-laws and Delaware law. An
abstention by a stockholder with respect to a proposal to amend the Restated
Certificate of Incorporation or our By-laws would have the effect of a vote
"AGAINST" that proposal. An abstention by a stockholder with respect to a
proposal, other than a proposal to amend our Restated Certificate of
Incorporation or our By-laws, is not counted in the tally of votes "FOR" or
"AGAINST" that proposal, and therefore does not affect the outcome of the
proposal. A broker non-vote with respect to the election of directors or any
proposal (other than a proposal to amend our Restated Certificate of
Incorporation) will not be counted in determining the election of directors or
whether the proposal is approved. A broker non-vote with respect to a proposal
to amend our Restated Certificate of Incorporation would have the effect of a
vote "AGAINST" the proposal. A broker's non-vote or abstention will be counted
towards a quorum. If a stockholder returns an executed WHITE proxy card but does
not indicate how his or her shares are to be voted, the shares covered by such
proxy card will be included in determining if there is a quorum and will also be
counted as votes "FOR" the election of El Paso's nominees, "FOR" the proposal to
ratify the appointment of PricewaterhouseCoopers LLP, "FOR" the proposal to
amend our Restated Certificate of Incorporation to eliminate the "fair price"
provision, "FOR" the proposal to amend our Restated Certificate of Incorporation
to eliminate the Series A Junior Participating Preferred Stock, "AGAINST" each
stockholder proposal and "AGAINST" any proposals presented at the Annual Meeting
by Zilkha/Wyatt.
14. DO I HAVE TO VOTE?
No. However, we strongly urge you to vote. You may vote for all, some or
none of El Paso's director nominees. You will have the same options with respect
to the Zilkha/Wyatt nominees. You may abstain with respect to or vote "FOR" or
"AGAINST" the other proposals.
15. HOW CAN I VIEW THE STOCKHOLDER LIST?
A complete list of stockholders entitled to vote at the Annual Meeting will
be available to view during the Annual Meeting. You may access this list at El
Paso's offices at 1001 Louisiana Street, Houston, Texas 77002, during ordinary
business hours for a period of ten days before the Annual Meeting.
16. WHO PAYS FOR THE PROXY SOLICITATION RELATED TO THE ANNUAL MEETING?
We do. In addition to sending you these materials, some of our officers and
employees may contact you by telephone, mail, e-mail or in person. You may also
be solicited by means of press releases issued by El Paso, postings on our
website, www.elpaso.com, and advertisements in periodicals. None of our officers
or employees will receive any extra compensation for soliciting you. We have
retained MacKenzie Partners, Inc. to assist us in soliciting your proxy for an
estimated fee of $[ ] plus reasonable out-of-pocket expenses. MacKenzie
Partners expects that approximately [ ] of its employees will assist in the
solicitation. Mackenzie Partners will ask brokerage houses and other custodians
and nominees whether other persons are
13
beneficial owners of El Paso common stock. If so, we will supply them with
additional copies of the proxy materials for distribution to the beneficial
owners. We will also reimburse banks, nominees, fiduciaries, brokers and other
custodians for their costs of sending the proxy materials to the beneficial
owners of El Paso common stock. Our expenses related to the solicitation in
excess of those normally spent for an annual meeting as a result of the proxy
contest and excluding salaries and wages of our regular employees and officers
are expected to be approximately [ ] of which approximately [ ] has been
spent to date. Exhibit F sets forth information relating to El Paso's directors,
director nominees, officers and employees who may be considered "participants"
in our solicitation under the rules of the Securities and Exchange Commission by
reason of their position as directors or director nominees or because they may
be soliciting proxies on our behalf.
17. IF I WANT TO SUBMIT A STOCKHOLDER PROPOSAL FOR THE 2004 ANNUAL MEETING,
WHEN IS IT DUE?
If you want to submit a proposal for possible inclusion in next year's
proxy statement, you must submit it in writing to the Corporate Secretary, El
Paso Corporation, 1001 Louisiana Street, Houston, Texas 77002, telephone (713)
420-6195 and facsimile (713) 420-4099. El Paso must receive your proposal on or
before [ ]. El Paso will consider only proposals meeting the
requirements of applicable SEC rules.
Additionally, under El Paso's By-law provisions, a stockholder who desires
to bring any matter before the Annual Meeting that is not included in the 2004
Proxy Statement must send written notice to the foregoing address not less than
90 days nor more than 120 days prior to the first anniversary of the 2003 Annual
Meeting. Under these criteria, stockholders must provide us with notice of a
matter to be brought before the 2004 Annual Meeting between February [ ], 2004
and March [ ], 2004.
If the 2004 Annual Meeting is to be held more than 30 days before or 60
days after June [ ], 2004, for a stockholder to bring any matter before the
2004 Annual Meeting, the stockholder's written notice must be received not less
than 90 days nor more than 120 days before the date of the 2004 Annual Meeting
or by the tenth day after we publicly announce the date of the 2004 Annual
Meeting, if that would result in a later deadline.
18. HOW CAN I RECEIVE THE PROXY MATERIALS ELECTRONICALLY?
If you want to stop receiving paper copies of the proxy materials, you must
consent to electronic delivery. You can give consent by going to
www.econsent.com/ep and following the instructions. Those of you who hold shares
with a broker in a street name can give consent by going to
www.ICSDelivery.com/ep and following the instructions.
19. HOW CAN I OBTAIN A COPY OF THE ANNUAL REPORT?
A copy of El Paso's 2002 Annual Report to Stockholders is being mailed
separately from this Proxy Statement to each stockholder entitled to vote at the
Annual Meeting. If you do not receive a copy of the Annual Report, you may
obtain one free of charge by writing or calling Mr. David L. Siddall, Corporate
Secretary, at El Paso Corporation, 1001 Louisiana Street, Houston, Texas 77002,
telephone (713) 420-6195 and facsimile (713) 420-4099, or MacKenzie Partners,
Inc., telephone (800) 322-2885 (toll free) or e-mail,
proxy@mackenziepartners.com.
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CORPORATE GOVERNANCE
El Paso is committed to maintaining the highest standards of corporate
governance. We believe that strong corporate governance is critical to achieving
our performance goals, and to maintaining the trust and confidence of investors,
employees, suppliers, business partners and other stakeholders. The following is
a brief discussion of our existing practices and recent developments undertaken
by El Paso to maintain its strong corporate governance principles.
Independence of Board Members. A key element of strong corporate
governance is the independence of members of the Board of Directors. El Paso is
committed to having a majority of its Board of Directors be independent
directors and our Corporate Governance Guidelines require that at least 75% of
our directors be non-management directors. Pursuant to proposed amendments to
the NYSE listing standards, a director will be considered independent if the
Board determines that he or she does not have a material relationship with El
Paso (either directly or as a partner, stockholder or officer of an organization
that has a material relationship with El Paso). Based on these criteria, the
Board has affirmatively determined that John M. Bissell, Juan Carlos Braniff,
James L. Dunlap, Robert W. Goldman, Anthony W. Hall, Jr., J. Carleton MacNeil,
Jr., Thomas R. McDade, J. Michael Talbert, Malcolm Wallop, John Whitmire, and
Joe B. Wyatt are "independent" under the proposed amendments to the NYSE listing
standards. Thus, eleven of the twelve members of the El Paso Board (92%) are
independent directors.
Heightened Independence for Audit Committee Members. As required by the
Sarbanes-Oxley Act of 2002, the SEC recently adopted rules that direct national
securities exchanges and associations to amend listing standards to prohibit the
listing of securities of a public company if members of its audit committee do
not satisfy a heightened independence standard. In order to meet this standard,
a member of an audit committee may not directly or indirectly receive any
consulting fee, advisory fee or other compensatory fee from the public company,
other than fees for service as a director or committee member, and may not be
considered an affiliate of the public company. The Board has chosen to comply
with the SEC's new rules earlier than required. In that regard, the Board has
affirmatively determined that all members of the El Paso Audit Committee satisfy
the heightened independence standard of the new SEC rules.
Audit Committee Financial Expert. The Audit Committee plays an important
role in promoting effective corporate governance, and it is imperative that
members of the Audit Committee have requisite financial literacy and expertise.
All members of El Paso's Audit Committee meet the financial literacy standard
required by the NYSE listing standards, and at least one member qualifies as
having accounting or related financial management expertise under the NYSE
listing standards. In addition, as required by the Sarbanes-Oxley Act of 2002,
the SEC has adopted rules requiring that public companies disclose whether or
not its audit committee has an "audit committee financial expert" as a member.
An "audit committee financial expert" is defined as a person who, based on his
or her experience, satisfies all of the following attributes:
- An understanding of generally accepted accounting principles and
financial statements;
- An ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
- Experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting
issues that are generally comparable to the breadth and level of
complexity of issues that can reasonably be expected to be raised by El
Paso's financial statements, or experience actively supervising one or
more persons engaged in such activities;
- An understanding of internal controls and procedures for financial
reporting; and
- An understanding of audit committee functions.
The Board of Directors has affirmatively determined that Robert W. Goldman
satisfies the definition of "audit committee financial expert."
15
Executive Sessions of Board and Lead Director. El Paso holds regular
executive sessions in which non-management Board members meet without any
members of management present. During 2002, non-management directors met in
executive session four times. The purpose of these executive sessions is to
promote open and candid discussion among the non-management directors. In
addition, the Board of Directors in September 2002 created the position of Lead
Director. Ronald L. Kuehn, Jr. initially served as Lead Director and, in March
2003, the Board named John M. Bissell as Lead Director. The Lead Director is
responsible for presiding over all executive sessions of non-management
directors, and for consulting with management as a representative of the
non-management directors. Interested parties may communicate directly with Mr.
Bissell by writing to John M. Bissell, Lead Director, c/o Corporate Secretary,
El Paso Corporation, 1001 Louisiana Street, Houston, Texas 77002, facsimile
(713) 420-4099.
Committees of Board of Directors. The Board of Directors has adopted
amended charters for the Audit Committee, Compensation Committee and Governance
Committee to comply with the rules adopted by the SEC pursuant to the
Sarbanes-Oxley Act of 2002 and the proposed amendments to the NYSE listing
standards. The Audit Committee, Compensation Committee and Governance Committee
charters are attached to this Proxy Statement as Exhibits A, B and C,
respectively.
Corporate Governance Guidelines. Corporate governance guidelines, together
with committee charters, provide the framework for the effective governance of
El Paso. The Board of Directors has adopted the El Paso Corporate Governance
Guidelines addressing governance matters, including qualifications for
directors, responsibilities of directors, mandatory retirement for directors,
limitations on the directors' service on the boards and committees of other
publicly traded companies, the composition and responsibility of committees, the
conduct and minimum frequency of Board and committee meetings, management
succession, Board and committee access to management, the Board's ability to
hire its own outside advisors, director compensation, minimum stock ownership
for directors and management, director orientation, continuing education, and
the annual self-evaluation of the Board. The Board of Directors recognizes that
effective corporate governance is an ongoing process, and the Board, either
directly or through the Governance Committee, will review the El Paso Corporate
Governance Guidelines annually or more often as deemed necessary. Our Corporate
Governance Guidelines are attached to this Proxy Statement as Exhibit E.
Web Access. El Paso provides access through its website to current
information relating to corporate governance, including a copy of each of the
Board's standing committee charters, our Code of Business Conduct, Corporate
Governance Guidelines, Restated Certificate of Incorporation and By-laws, and
other matters impacting our corporate governance principles. El Paso also
provides access through its website to all filings submitted by El Paso to the
SEC. El Paso's website is www.elpaso.com, and access to this information is free
of any charge to the user (except for any internet provider or telephone
charges). El Paso will post on its internet website all waivers to the El Paso
Code of Business Conduct, which are required to be disclosed by applicable law
and the proposed amendments to the NYSE listing standards. Information contained
on our website is not part of this Proxy Statement.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held 15 meetings during fiscal year 2002. Each
director who served on the El Paso Board of Directors during 2002 attended at
least 75% of the meetings of the Board of Directors and of each committee on
which he served. The Board of Directors has four principal standing committees,
which are described below.
AUDIT COMMITTEE
The Audit Committee held thirteen meetings during the 2002 fiscal year. The
Audit Committee currently consists of Juan Carlos Braniff (Chairman), John M.
Bissell, Robert W. Goldman, J. Carleton MacNeil, Jr. and Malcolm Wallop, each a
non-employee director, and each of whom is "independent" (as such term is
defined in Section 10A of the Securities Exchange Act of 1934 and the proposed
amendments to the NYSE listing standards). The Audit Committee's primary
function is to assist the Board in fulfilling its oversight responsibilities to
ensure the integrity of El Paso's financial statements, El Paso's compliance
with
16
legal and regulatory requirements, the independent accountant's appointment,
compensation, qualifications, independence and performance, and the performance
of El Paso's internal audit functions. The Audit Committee is directly
responsible for the appointment, compensation, retention and oversight of any
accounting firm engaged for the purpose of preparing or issuing an audit report
or related work or performing other audit, review or attestation services for El
Paso, and for the resolution of any disagreement between management and El
Paso's auditor regarding financial reporting. El Paso's independent accountant
reports directly to the Audit Committee. In addition, the Audit Committee
provides an open avenue of communication between the internal auditors, the
independent accountants and the Board. The policies, mission and actions of the
Audit Committee are set forth in the "Audit Committee Report," which begins on
page 33 of this Proxy Statement.
The Audit Committee Charter is attached to this Proxy Statement as Exhibit
A.
COMPENSATION COMMITTEE
The Compensation Committee held five meetings during the 2002 fiscal year.
The Compensation Committee currently consists of Joe B. Wyatt (Chairman), John
M. Bissell, James L. Dunlap, J. Michael Talbert and John Whitmire, each a
non-employee director, and each of whom is "independent" (as such term is
defined in the proposed amendments to the NYSE listing standards). The
Compensation Committee's primary function is to review El Paso's executive
compensation program to ensure that it is adequate to attract, motivate and
retain competent executive personnel and is directly and materially related to
the short-term and long-term objectives and operating performance of El Paso.
The Compensation Committee ensures that El Paso's executive stock option plan,
long-term incentive compensation plan, annual incentive compensation plan and
other executive compensation plans are administered in accordance with El Paso's
stated compensation objectives. In addition, the Compensation Committee
considers proposals with respect to the creation of, and changes to, executive
compensation plans and reviews appropriate criteria for establishing performance
targets and determining annual corporate and executive performance ratings. The
policies, mission and actions of the Compensation Committee are set forth in the
"Compensation Committee Report on Executive Compensation," which begins on page
31 of this Proxy Statement.
The Compensation Committee Charter is attached to this Proxy Statement as
Exhibit B.
GOVERNANCE COMMITTEE
The Governance Committee met four times during the 2002 fiscal year. The
Governance Committee currently consists of Malcolm Wallop (Chairman), James L.
Dunlap, Anthony W. Hall, Jr., J. Carleton MacNeil, Jr. and Joe B. Wyatt, each a
non-employee director, and each of whom is "independent" (as such term is
defined in the proposed amendments to the NYSE listing standards). The Board has
delegated to the Governance Committee its oversight responsibilities relating to
corporate governance and the establishment of criteria for Board selection. The
Governance Committee develops and recommends to the Board corporate governance
principles, reviews the qualifications of candidates for Board membership,
screens possible candidates for Board membership and communicates with members
of the Board regarding Board meeting format and procedures. The Governance
Committee also has responsibility for annual performance evaluations for the
Board and each Committee. Further, the Governance Committee acts as a Nominating
Committee and considers any nominations properly submitted by the stockholders
to the Corporate Secretary in accordance with the By-laws. Stockholders seeking
to nominate persons for election as directors at the 2004 Annual Meeting must
submit in writing a timely notice complying with the By-laws to the Corporate
Secretary, El Paso Corporation, 1001 Louisiana Street, Houston, Texas 77002,
telephone (713) 420-6195 and facsimile (713) 420-4099. To be timely, a
stockholder's notice must be received by the Corporate Secretary at the
principal executive offices of El Paso not less than 90 days nor more than 120
days prior to the first anniversary of the 2003 Annual Meeting. Under these
criteria, stockholders must provide us with notice of nominations sought to be
made at the 2004 Annual Meeting between February [ ], 2004 and March [ ],
2004.
17
If the 2004 Annual Meeting is held more than 30 days before or 60 days
after June [ ], 2004, for a stockholder seeking to bring any matter before the
2004 Annual Meeting, the stockholder's written notice must be received not less
than 90 days nor more than 120 days before the date of the 2004 Annual Meeting
or by the tenth day after we publicly announce the date of the 2004 Annual
Meeting, if that would result in a later deadline.
The Governance Committee Charter is attached to this Proxy Statement as
Exhibit C.
FINANCE COMMITTEE
The Finance Committee was created in June 2002 and met four times during
the 2002 fiscal year. The Finance Committee currently consists of Robert W.
Goldman (Chairman), Juan Carlos Braniff, Anthony W. Hall, Jr., Thomas R. McDade
and J. Michael Talbert. The Finance Committee assists the Board in fulfilling
its oversight responsibilities by monitoring, reviewing, appraising and
recommending appropriate action with respect to El Paso's capital structure,
source of funds, liquidity and financial position.
The Finance Committee Charter is attached to this Proxy Statement as
Exhibit D.
DIRECTORS' COMPENSATION
Employee directors do not receive any additional compensation for serving
on the Board of Directors. Pursuant to El Paso's 1995 Compensation Plan for
Non-Employee Directors, non-employee directors receive an annual retainer of
$80,000, $20,000 of which is required to be paid in deferred shares of El Paso
common stock (plus a conversion premium equal to 25% of the retainer deferred in
common stock) and the remaining $60,000 paid at the election of the director in
any combination of cash, deferred cash or deferred shares of common stock (plus
a conversion premium as described above). In the event there are not enough
shares of stock available under the plan, then the deferred common stock will be
in the form of deferred stock units. Each non-employee director who chairs a
Committee of the Board of Directors receives an additional retainer fee of
$15,000, which may be paid in the same manner as the annual retainer. In
addition, effective in March 2003, if any Committee of the Board of Directors
holds a meeting other than in connection with a regularly scheduled board
meeting, then each non-management Committee member (other than the Lead
Director) who attends in person will receive a meeting fee of $2,500 payable in
cash. Each non-employee director also receives a retirement benefit credit in
the form of deferred shares of El Paso common stock (without the conversion
premium) equal to the amount of his annual retainer. Pursuant to El Paso's 2001
Stock Option Plan for Non-Employee Directors, non-employee directors receive a
grant of 5,000 stock options upon initial election to the Board of Directors,
and 3,000 stock options upon each annual reelection by the stockholders.
In addition to the compensation described above, when Mr. Kuehn was
appointed Lead Director, he received a retainer fee of $12,500 per month and, on
November 7, 2002, he received a one-time grant of 100,000 non-qualified stock
options which were to vest 50% per year over the next two years. When Mr. Kuehn
was appointed Chairman and CEO in March 2003, he forfeited his stock option
grant and he no longer receives any non-employee director compensation.
In March 2003, the Board appointed Mr. Bissell as Lead Director to, among
other things, preside over non-management director executive sessions of the
Board. As Lead Director, Mr. Bissell will receive an additional $25,000 per
quarter in the form of deferred common stock.
As part of El Paso's overall support to charitable organizations, the
Director Charitable Award Plan was adopted in January 1992 to provide for each
eligible director to designate up to four charitable organizations to receive a
maximum of $1,000,000 in the aggregate upon the death of each director
participant. A director can participate after two consecutive years of service
on the Board of Directors. Currently, all of the directors are eligible to
participate in the plan except for Messrs. Dunlap, Goldman, Talbert and
Whitmire.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board. You will have the opportunity to elect our entire Board of
Directors, currently consisting of fifteen members, at the Annual Meeting. Our
Board of Directors has reduced its size from fifteen to twelve
18
effective immediately on the Annual Meeting date. Each of our directors is
elected annually and serves a one-year term and until his successor has been
duly elected and qualifies.
Nominations. At the Annual Meeting, we will nominate the twelve persons
named in this Proxy Statement as directors. We have received a notice from Selim
K. Zilkha that he intends to nominate for election to the Board of Directors at
the Annual Meeting nine of his designees, including himself. Holders of common
stock may not cumulate their votes for the election of directors.
The twelve nominees who receive the highest number of votes at the Annual
Meeting will be elected. Broker non-votes, if any, will not be counted in
determining the election of directors.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF
THE NOMINEES NAMED BELOW.
General Information about the Nominees for Election, as of April 7,
2003. Each of the following nominees is currently a director of El Paso. Each
has agreed to be named in this Proxy Statement and to serve as a director if
elected.
NAME, PRINCIPAL OCCUPATION
AND OTHER SELECTED INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
JOHN M. BISSELL Director since 2001
Chairman of the Board,
BISSELL Inc.,
Grand Rapids, Michigan -- Floor Care
Appliance and Detergent Manufacturer
Age -- 72
Lead Director
Member -- Audit Committee
Member -- Compensation Committee
Mr. Bissell served as a director of The Coastal Corporation from 1985 to January
2001. During the past five years, Mr. Bissell has been the Chairman of the Board of
BISSELL Inc. He has served in various executive capacities at BISSELL Inc. since
1966. Mr. Bissell served as a director of American Natural Resources Company,
parent holding company of ANR Pipeline Company, from May 1983 to June 1996, at
which time there was a reduction in the number of directors, and he did not stand
for re-election.
JUAN CARLOS BRANIFF Director since 1997
Vice Chairman,
Grupo Financiero BBVA Bancomer,
Mexico City, Mexico -- Commercial Banking Institution
Age -- 45
Chairman -- Audit Committee
Member -- Finance Committee
Mr. Braniff has served as Vice Chairman of Grupo Financiero BBVA Bancomer since
October 1999. He served as Deputy Chief Executive Officer of Retail Banking from
September 1994 to October 1999. He served as Executive Vice President of Capital
Investments and Mortgage Banking from December 1991 to September 1994. Mr. Braniff
is currently a member of the board of directors of Fomento Economico Mexicano, S.A.
de C.V. and Coca Cola FEMSA, S.A. de C.V.
19
NAME, PRINCIPAL OCCUPATION
AND OTHER SELECTED INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
JAMES L. DUNLAP Director since 2003
Business Consultant
Age -- 65
Member -- Compensation Committee
Member -- Governance Committee
Mr. Dunlap's primary occupation has been as a business consultant since 1999. He
served as Vice Chairman, President and Chief Operating Officer of Ocean
Energy/United Meridian Corporation from 1996 to 1999. He was responsible for
exploration and production and the development of the international exploration
business. For 33 years prior to that date, Mr. Dunlap served Texaco, Inc. in
various positions, including Senior Vice President, President of Texaco USA,
President and Chief Executive Officer of Texaco Canada Inc. and Vice Chairman of
Texaco Ltd., London. Mr. Dunlap is currently a member of the board of directors of
Massachusetts Mutual Life Insurance Company and a member of the corporation of
Woods Hole Oceanographic Institution.
ROBERT W. GOLDMAN Director since 2003
Business Consultant
Age -- 60
Chairman -- Finance Committee
Member -- Audit Committee
Mr. Goldman's primary occupation has been as a business consultant since October
2002. He served as Senior Vice President, Finance and Chief Financial Officer of
Conoco Inc. from 1998 to 2002 and Vice President, Finance from 1991 to 1998. For
more than five years prior to that date he held various executive positions with
Conoco Inc. and E.I. Du Pont de Nemours & Co., Inc. Mr. Goldman was also formerly
Vice President and Controller of Conoco Inc. and Chairman of the Accounting
Committee of the American Petroleum Institute.
ANTHONY W. HALL, JR. Director since 2001
City Attorney,
City of Houston, Texas
Age -- 58
Member -- Governance Committee
Member -- Finance Committee
Mr. Hall served as a director of The Coastal Corporation from August 1999 until
January 2001. Mr. Hall has been City Attorney of the City of Houston since March
1998 and prior to that was a partner in the Houston law firm of Jackson Walker,
LLP.
RONALD L. KUEHN, JR. Director since 1999
Chairman of the Board
and Chief Executive Officer,
El Paso Corporation,
Houston, Texas -- Diversified Energy Company
Age -- 68
Mr. Kuehn has been Chairman of the Board and Chief Executive Officer since March
2003. From September 2002 to March 2003, Mr. Kuehn was the Lead Director of El
Paso. From January 2001 to March 2003, he was a business consultant. Mr. Kuehn
served as non-executive Chairman of the Board of El Paso from October 25, 1999 to
December 31, 2000. Mr. Kuehn served as President and Chief Executive Officer of
Sonat Inc. from June 1984 until his retirement on October 25, 1999. He was Chairman
of the Board of Sonat Inc. from April 1986 until his retirement. He is a member of
the board of directors of AmSouth Bancorporation, Praxair, Inc. and The Dun &
Bradstreet Corporation.
20
NAME, PRINCIPAL OCCUPATION
AND OTHER SELECTED INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
J. CARLETON MACNEIL, JR. Director since 2001
Financial Consultant
Age -- 68
Member -- Audit Committee
Member -- Governance Committee
Mr. MacNeil served as a director of The Coastal Corporation from 1997 until January
2001. During the past five years, Mr. MacNeil's occupation has been securities
brokerage and investments. Mr. MacNeil served as a director of American Natural
Resources Company, parent holding company of ANR Pipeline Company from August 1993
until June 1996, at which time there was a reduction in the number of directors,
and he did not stand for re-election.
THOMAS R. MCDADE Director since 2001
Senior Partner,
McDade Fogler Maines, L.L.P.
Houston, Texas -- Law Firm
Age -- 70
Member -- Finance Committee
Mr. McDade served as a director of The Coastal Corporation from 1993 until January
2001. During the past five years, Mr. McDade has been the Senior Partner at the law
firm of McDade Fogler Maines, L.L.P., Houston, Texas, which provides legal services
to El Paso (the fees paid to McDade Fogler Maines, L.L.P. by El Paso in 2002 are
set forth under "Certain Relationships and Related Transactions" on page 31 of this
Proxy Statement). He was with the Fulbright & Jaworski law firm for 30 years and
became a partner in 1971 and Senior Partner and a member of the Senior Advisory
Committee of that firm in 1989. Mr. McDade was a member of the board of directors
of Equity Corporation International, and served on its compensation committee until
its merger into Service Corporation International in January 1999.
J. MICHAEL TALBERT Director since 2003
Chairman of the Board,
Transocean Inc.
Houston, Texas -- Offshore Drilling Company
Age -- 56
Member -- Compensation Committee
Member -- Finance Committee
Mr. Talbert has been Chairman of the Board of Transocean Inc. since October 2002.
He served as Chief Executive Officer of Transocean Inc. and its predecessor
companies from 1994 until October 2002, and has been a member of its board of
directors since 1994. He served as President and Chief Executive Officer of Lone
Star Gas Company from 1990 to 1994. He served as President of Texas Oil & Gas
Company from 1987 to 1990, and served in various positions at Shell Oil Company
from 1970 to 1982. Mr. Talbert is a past Chairman of the National Ocean Industries
Association and a member of the University of Akron's College of Engineering
Advancement Council.
21
NAME, PRINCIPAL OCCUPATION
AND OTHER SELECTED INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
MALCOLM WALLOP Director since 1995
Chairman,
Western Strategy Group,
Arlington, Virginia -- Consulting Group,
President,
Frontiers of Freedom Foundation,
Arlington, Virginia -- Political Foundation,
Age -- 70
Chairman -- Governance Committee
Member -- Audit Committee
Mr. Wallop became Chairman of Western Strategy Group in January 1999, and has been
President of Frontiers of Freedom Foundation since January 1996. For eighteen years
prior to that date, Mr. Wallop was a member of the United States Senate. He is a
member of the board of directors of Hubbell Inc. and Sheridan State Bank.
JOHN WHITMIRE Director since 2003
Chairman of the Board,
CONSOL Energy, Inc.,
Pittsburgh, Pennsylvania -- Multifuel Energy Provider and
Energy Service Provider
Age -- 62
Member -- Compensation Committee
Mr. Whitmire has been Chairman of CONSOL Energy, Inc. since March 1999. He has
served as Chairman and CEO of Union Texas Petroleum Holdings, Inc. from 1996 to
1998, and spent over 30 years serving Phillips Petroleum Company in various
positions including Executive Vice President of Worldwide Exploration and
Production from 1992 to 1996 and Vice President of North American Exploration and
Production from 1988 to 1992. He also served as a member of the board of directors
of Phillips Petroleum Company from 1994 to 1996. He is a member of the board of
directors of GlobalSantaFe.
JOE B. WYATT Director since 1999
Chancellor Emeritus,
Vanderbilt University,
Nashville, Tennessee -- Higher Education
Age -- 67
Chairman -- Compensation Committee
Member -- Governance Committee
Mr. Wyatt has been Chancellor Emeritus of Vanderbilt University since August 2000.
For more than eighteen years prior to that date, he served as Chancellor, Chief
Executive Officer and Trustee of Vanderbilt University. From 1984 until October
1999, Mr. Wyatt was a director of Sonat Inc. He is a member of the board of
directors of Ingram Micro, Inc. and Hercules, Inc. and is a Principal of the
Washington Advisory Group, LLC of Washington, D.C. Mr. Wyatt is also Chairman of
the Board for the University Research Association, Inc. and New American Schools,
Inc. both of Washington, D.C.
22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 1, 2003 (unless
otherwise noted) regarding beneficial ownership of common stock by each
director, our Chief Executive Officer and the other four most highly compensated
executive officers in the last fiscal year, our directors and executive officers
as a group and each person or entity known by El Paso to own beneficially more
than 5% of its outstanding shares of common stock. No family relationship exists
between any of the directors or executive officers of El Paso.
BENEFICIAL
OWNERSHIP
(EXCLUDING STOCK PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OPTIONS)(1) OPTIONS(2) TOTAL OF CLASS
-------------- ------------------------ ----------- ---------- ---------- --------
Common Stock Pacific Financial Research
Inc.(3)
9601 Wilshire Boulevard,
Suite 800
Beverly Hills, CA 90210......... 65,450,000(3) --(3) 65,450,000(3) 10.9%
Common Stock Capital Research and Management
Company(3)
333 South Hope Street
Los Angeles, CA 90071........... 55,473,020(3) --(3) 55,473,020(3) 9.3%
Common Stock Brandes Investment Partners,
L.L.C.(3)
11988 El Camino Real
Suite 500
San Diego, CA 92130............. 32,719,428(3) --(3) 32,719,428(3) 5.5%
Common Stock B. Allumbaugh................... 42,910 16,000 58,910 *
Common Stock J.M. Bissell.................... 33,005 9,000 42,005 *
Common Stock J.C. Braniff.................... 36,639(4) 18,000 54,639 *
Common Stock J.L. Dunlap(5).................. -- 5,000 5,000 *
Common Stock J.F. Gibbons.................... 51,749 26,000 77,749 *
Common Stock R.W. Goldman.................... 5,912 5,000 10,912 *
Common Stock A.W. Hall, Jr. ................. 25,856 9,000 34,856 *
Common Stock R.L. Kuehn, Jr. ................ 329,982(6) 599,300 929,282 *
Common Stock J.C. MacNeil, Jr. .............. 33,607 9,000 42,607 *
Common Stock T.R. McDade..................... 77,081 9,000 86,081 *
Common Stock J.M. Talbert.................... 5,000 5,000 10,000 *
Common Stock M. Wallop....................... 38,099 8,000 46,099 *
Common Stock W.A. Wise....................... 2,076,139(7) 1,887,917(8) 3,964,056 *
Common Stock J.L. Whitmire................... 4,356 5,000 9,356 *
Common Stock J.B. Wyatt...................... 29,863 11,000 40,863 *
Common Stock R. Eads......................... 199,679(9) 504,667 704,346 *
Common Stock H.B. Austin..................... 321,429 417,883 739,312 *
Common Stock J.W. Somerhalder II............. 330,651 417,883 748,534 *
Common Stock R.G. Phillips................... 606,802 278,917 885,719 *
Common Stock Directors and executive officers
as a group (25) persons total
(including those individuals
listed above)................... 4,787,792 5,018,856 9,806,648 1.622%
---------------
* Less than 1%
(1) The individuals named in the table have sole voting and investment power
with respect to shares of El Paso common stock beneficially owned, except
that Messrs. Allumbaugh, Gibbons, Talbert, Wise, and Austin share with one
or more other individuals voting and investment power with respect to
18,224,
23
2,000, 5,000, 11,694 and 140,042 shares of common stock, respectively. This
column also includes shares of common stock held in the El Paso Benefits
Protection Trust as a result of deferral elections made in accordance with
El Paso benefit plans. These individuals share voting power with the trustee
under that plan and receive dividends on such shares, but do not have the
power to dispose of, or direct the disposition of, such shares until such
shares are distributed. In addition, some shares of common stock reflected
in this column for certain individuals are subject to restrictions.
According to a Schedule 13G filed on February 14, 2003, as of December 31,
2002, Pacific Financial Research Inc. had shared voting power over
65,450,000 shares of common stock and shared dispositive power over
3,225,500 shares of common stock. According to a Schedule 13G filed on
February 14, 2003, as of December 31, 2002, Capital Research and Management
Company had sole dispositive power over 55,473,020 shares of common stock.
According to a Schedule 13G filed on February 14, 2003, as of December 31,
2002, Brandes Investment Partners, L.L.C. had shared voting power over
25,798,409 shares of common stock and dispositive power over 32,719,428
shares of common stock.
(2) The directors and executive officers have the right to acquire the shares of
common stock reflected in this column within 60 days of April 1, 2003,
through the exercise of stock options.
(3) Stock ownership as of December 31, 2002, for Pacific Financial Research
Inc., Capital Research and Management Company, and Brandes Investment
Partners, L.L.C. were reported on separate Schedules 13G filed on February
14, 2003.
(4) Mr. Braniff's beneficial ownership excludes 3,500 shares of El Paso common
stock owned by his wife, of which Mr. Braniff disclaims any beneficial
ownership.
(5) Mr. Dunlap's holdings are as of April 7, 2003, the effective date of his
election to the Board of Directors.
(6) Mr. Kuehn's beneficial ownership excludes 22,500 shares of El Paso common
stock owned by his wife, 20 shares owned by his children, and 4,200 shares
held in trust for his children, of which Mr. Kuehn disclaims any beneficial
ownership.
(7) Mr. Wise's beneficial ownership excludes 400 shares of El Paso common stock
owned by his children under the Uniform Gifts to Minors Act, of which Mr.
Wise disclaims any beneficial ownership.
(8) Includes 98,000 stock options held in the William & Marie Wise Family Ltd.
Partnership.
(9) As of December 31, 2002.
24
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table and narrative text discuss the compensation earned by
or paid in 2002, 2001 and 2000 to our Chief Executive Officer and our four other
most highly compensated executive officers. They were compensated for their
services provided in all capacities to El Paso and its subsidiaries. The table
also identifies the principal capacity in which each of the executives named in
this Proxy Statement served El Paso at the end of fiscal year 2002.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ----------------------------------------
AWARDS PAYOUTS
----------------------- --------------
RESTRICTED SECURITIES LONG-TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE PLAN
NAME AND PRINCIPAL BONUS COMPENSATION AWARDS OPTIONS PAYOUTS
POSITION YEAR SALARY ($) ($)(1) ($)(2) ($)(3) (#) ($)(4)
------------------ ---- ---------- ---------- ------------ ---------- ---------- --------------
William A. Wise(6) 2002 $1,430,004 $ 0 $229,728 $ 0 -- --
Former Chairman & CEO 2001 $1,305,425 $3,432,000 $210,481 $1,715,997 768,250 --
2000 $1,108,338 $2,730,000 $191,142 $2,729,940 -- --
Ralph Eads(7) 2002 $ 700,008 $ 0 $ 3,185 $ 0 -- --
Former Executive 2001 $ 580,213 $1,400,000 $ 59,050 $ 699,980 248,000 --
Vice President 2000 $ 503,129 $ 920,000 $ 2,762 $ 919,907 -- --
H. Brent Austin 2002 $ 637,500 $ 0 $ 0 $ 0 15,151 --
President and Chief 2001 $ 552,091 $1,140,000 $ 0 $ 569,992 223,000 --
Operating Officer 2000 $ 454,167 $ 880,000 $ 0 $ 879,887 -- --
John W. Somerhalder II 2002 $ 600,000 $ 0 $ 0 $ 0 -- --
Executive Vice 2001 $ 552,091 $1,140,000 $ 0 $ 569,992 223,000 --
President 2000 $ 454,167 $ 880,000 $ 455 $ 879,887 -- --
Robert G. Phillips 2002 $ 400,008 $ 0 $ 43,773 $ 0 -- --
President, El Paso Field 2001 $ 376,042 $ 560,000 $ 0 $ 279,958 151,250 --
Services 2000 $ 327,091 $ 525,000 $ 58 $ 524,950 -- --
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($)(5)
------------------ ------------
William A. Wise(6) $ 255,632
Former Chairman & CEO $ 3,771,994
$ 7,215,408
Ralph Eads(7) $ 94,663
Former Executive $ 977,384
Vice President $ 3,972,036
H. Brent Austin $ 85,087
President and Chief $ 950,530
Operating Officer $ 1,808,331
John W. Somerhalder II $ 81,926
Executive Vice $ 946,591
President $ 1,805,260
Robert G. Phillips $ 37,921
President, El Paso Field $ 912,039
Services $ 1,780,148
---------------
(1) For years 2000 and 2001, El Paso's incentive compensation plans required
executives to receive a substantial part of their annual bonus in shares of
restricted El Paso common stock. The amounts reflected in this column for
years 2000 and 2001 represent a combination of the market value of the
restricted common stock and cash at the time awarded under the applicable El
Paso incentive compensation plan. Specifically for fiscal year 2001, Messrs.
Wise, Eads, Austin, Somerhalder and Phillips received the following number
of shares of restricted common stock and cash for their bonus: 40,258 shares
and $1,716,023 cash; 16,422 shares and $700,020 cash; 13,372 shares and
$570,025 cash; 13,372 shares and $570,025 cash; and 6,568 shares and
$280,042 cash, respectively. For fiscal year 2000, Messrs. Wise, Eads,
Austin, Somerhalder and Phillips received the following number of shares of
restricted common stock and cash for their bonus: 40,735 shares and $32
cash; 13,727 shares and $47 cash; 13,130 shares and $57 cash; 13,130 shares
and $57 cash; and 7,833 shares and $50 cash, respectively. The value of the
shares of restricted stock issued has declined significantly since the date
of grant. Dividends are paid directly to the holders of the restricted
common stock during the four-year vesting schedule.
(2) The amount reflected for Mr. Wise in fiscal year 2002 includes, among other
things, $90,000 for a perquisite and benefit allowance and $65,509 in value
attributed to use of El Paso's aircraft. The amount reflected for Mr. Wise
in 2001 includes, among other things, $90,000 for a perquisite and benefit
allowance and $62,692 in value attributed to use of El Paso's aircraft. The
amount reflected for Mr. Wise in fiscal year 2000 includes, among other
things, $90,000 for a perquisite and benefit allowance and $56,734 in value
attributed to use of El Paso's aircraft. The amount reflected for Mr.
Phillips in fiscal year 2002 includes, among other things, $42,000 for a
perquisite and benefit allowance. The amount reflected
25
for Mr. Eads in fiscal year 2001 includes, among other things, $42,000 for a
perquisite and benefit allowance and $10,136 in value attributed to use of
El Paso's aircraft. Except as noted, the total value of the perquisites and
other personal benefits received by the other executives named in this Proxy
Statement in fiscal years 2002, 2001 and 2000 are not included in this
column since they were below the Securities and Exchange Commission's
reporting threshold.
(3) For years 2000 and 2001, El Paso's incentive compensation plans provided for
and encouraged participants to elect to take all or some of their cash
portion of their annual bonus award in shares of restricted common stock.
The amounts reflected in this column for years 2000 and 2001 include the
market value of restricted common stock on the date of grant. Specifically
for fiscal year 2001, Messrs. Wise, Eads, Austin, Somerhalder and Phillips
received the following number of shares of restricted common stock in lieu
of a cash bonus: 40,258; 16,422; 13,372; 13,372; and 6,568, respectively.
For fiscal year 2000, Messrs. Wise, Eads, Austin, Somerhalder and Phillips
received the following number of shares of restricted common stock in lieu
of a cash bonus: 40,735; 13,727; 13,130; 13,130; and 7,833, respectively.
The value of the shares of restricted stock issued has declined
significantly since the date of grant.
The total number of shares and value of restricted common stock (including
the amount in this column) held on December 31, 2002, is as follows: Mr.
Wise 631,248 and $4,393,486; Mr. Eads 188,594 and $1,312,614; Mr. Austin
177,896 and $1,238,156; Mr. Somerhalder 154,596 and $1,075,988; and Mr.
Phillips 111,706 and $777,474. Most of these shares of El Paso's restricted
common stock are subject to a time-vesting schedule of four years from the
date of grant (including the shares awarded as part of the annual bonus in
years 2000 and 2001 described above) and other shares of restricted stock
which are subject to both time-vesting and performance-vesting. With
respect to performance vesting, if the required El Paso performance targets
are not met within a four-year time period, all unvested shares are
forfeited. Any dividends awarded on the restricted common stock are paid
directly to the holder of the El Paso common stock. These total values can
be realized if, and only if, the restricted common stock granted to the
executives named in this Proxy Statement vests with respect to both time
and performance.
(4) No long-term incentive payouts were made in fiscal years 2002, 2001 and
2000.
(5) The compensation reflected in this column for fiscal year 2002 includes El
Paso's contributions to the El Paso Retirement Savings Plan, a supplemental
company match for the Retirement Savings Plan under the Supplemental
Benefits Plan, and the above-market interest earned on deferred
compensation. Specifically, these amounts for fiscal year 2002 were $9,000,
$209,789 and $36,843 for Mr. Wise; $9,000, $51,393 and $34,270 for Mr. Eads;
$9,000, $70,987 and $5,100 for Mr. Austin; $9,000, $69,299 and $3,627 for
Mr. Somerhalder; and $7,500, $28,499 and $1,922 for Mr. Phillips,
respectively.
(6) Mr. Wise ceased to be Chairman and CEO on March 12, 2003.
(7) Mr. Eads ceased to be an employee on December 31, 2002.
STOCK OPTION GRANTS
This table sets forth the number of stock options granted at fair market
value to the executive named in this Proxy Statement during the fiscal year
2002. In satisfaction of applicable SEC regulations, the table further sets
forth the potential realizable value of such stock options in the year 2012 (the
expiration date of the stock options) at an assumed annualized rate of stock
price appreciation of 5% and 10% over the full ten-year term of the stock
options. As the table indicates, annualized stock price appreciation of 5% and
10% would result in stock prices in the year 2012 of approximately $14.83 and
$23.62, respectively. The amounts shown in the table as potential realizable
values for all stockholders' stock (approximately $3.4 billion and $8.7
billion), represent the corresponding increases in the market value of
601,307,688 shares of the common stock outstanding as of December 31, 2002. No
gain to the executive named in this Proxy Statement is possible without an
increase in stock price, which would benefit all stockholders. Actual gains, if
any, on stock option exercises and common stock holdings are dependent on the
future performance of the common stock
26
and overall stock market conditions. There can be no assurances that the
potential realizable values shown in this table will be achieved.
OPTION GRANTS IN 2002
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS(1) APPRECIATION FOR OPTION TERM
------------------------------------------------ -------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED IF STOCK PRICE AT IF STOCK PRICE AT
UNDERLYING TO ALL EXERCISE $14.83109 IN 2012 $23.61603 IN 2012
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------- -----------------
NAME GRANTED(#) IN 2002 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ----------------- -----------------
ALL STOCKHOLDERS'
STOCK APPRECIATION
NOVEMBER 6, 2002......... N/A N/A N/A N/A $3,443,139,280 $8,725,590,953
H. Brent Austin............ 15,151 0.59% $9.1050 11/6/12 $ 86,756 $ 219,857
---------------
(1) The stock options granted in 2002 by El Paso to the executive named above
vest one-half on each of the first two anniversaries of the grant. No stock
options were granted to any other of the named executives. There were no
stock appreciation rights granted in 2002. Any unvested stock options become
fully exercisable in the event of a "change in control" (see page 39 of this
Proxy Statement for a description of El Paso's 2001 Omnibus Incentive
Compensation Plan and the definition of the term "change in control.") Under
the terms of El Paso's 2001 Omnibus Incentive Compensation Plan, the
Compensation Committee may, in its sole discretion and at any time, change
the vesting of the stock options. Certain non-qualified stock options may be
transferred to immediate family members, directly or indirectly or by means
of a trust, corporate entity or partnership. Further, stock options are
subject to forfeiture and/or time limitations in the event of a termination
of employment.
OPTION EXERCISES AND YEAR-END VALUE TABLE
This table sets forth information concerning stock option exercises and the
fiscal year-end values of the unexercised stock options, provided on an
aggregate basis, for each of the executives named in this Proxy Statement.
AGGREGATED OPTION EXERCISES IN 2002
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE YEAR-END(#) FISCAL YEAR-END($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
William A. Wise............. 0 $ 0 1,864,584(2) 441,666 $ 0 $ 0
Ralph Eads.................. 0 $ 0 504,667 393,333(3) $ 0 $ 0
H. Brent Austin............. 0 $ 0 406,217 135,984 $ 0 $ 0
John W. Somerhalder II...... 0 $ 0 376,217 120,833 $ 0 $ 0
Robert G. Phillips.......... 0 $ 0 245,584 82,916 $ 0 $ 0
---------------
(1) The figures presented in these columns have been calculated based upon the
difference between $7.00, the fair market value of the common stock on
December 31, 2002, for each in-the-money stock option, and its exercise
price. No cash is realized until the shares received upon exercise of an
option are sold. No executives named in this Proxy Statement had stock
appreciation rights that were outstanding on December 31, 2002.
27
(2) Includes 98,000 stock options held by the William & Marie Wise Family Ltd.
Partnership.
(3) These stock options were forfeited when Mr. Eads ceased to be an employee on
December 31, 2002.
LONG-TERM INCENTIVE AWARDS
RESTRICTED STOCK
This table provides information concerning incentive awards of restricted
common stock made under El Paso's 2001 Omnibus Incentive Compensation Plan. The
number of shares of restricted common stock will vest if, and only if, the
executive named below remains an employee of El Paso for the specified time
period and the required increase in total stockholder return is achieved during
such time period. No other named executive received an incentive award during
2002.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2002
RESTRICTED STOCK
ESTIMATED NUMBER OF SHARES TO BE VESTED UNDER
RESTRICTED STOCK GRANTS(1)
PERFORMANCE ------------------------------------------------
OR OTHER BELOW
NUMBER PERIOD UNTIL THRESHOLD THRESHOLD TARGET MAXIMUM
NAME OF SHARES MATURATION (#) (#) (#) (#)
---- --------- ------------ ----------- ----------- -------- ---------
H. Brent Austin.................. 23,300 3 years 0 6,990 13,980 23,300
---------------
(1) The indicated number of shares of restricted common stock vest at the
Threshold, Target and Maximum levels only if total stockholder return equals
or exceeds 40%, 65% and 90%, respectively within the indicated performance
period. Total stockholder return equals stock price
appreciation/depreciation, plus any dividends and distributions declared on
El Paso's common stock during the relevant period.
PERFORMANCE UNITS
This table provides information concerning long-term incentive awards of
performance units under El Paso's 2001 Omnibus Incentive Compensation Plan. The
grant reflected vests over the indicated maturation performance period, at the
end of which El Paso's total stockholder return is compared to that of its peer
group. With respect to the grant, if El Paso's total stockholder return ranks in
the first, second, third or fourth quartiles of its peer group, the value of
each unit is $150, $100, $50 and $0, respectively. The payout, if any, will be
made in cash. All the amounts shown are potential assumed amounts. There can be
no assurance that El Paso will achieve the results that would lead to final
payments under the plan. No other named executive received any performance units
during 2002.
LONG-TERM INCENTIVE PLAN -- AWARDS IN 2002
PERFORMANCE UNITS
ESTIMATED PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
------------------------------------------
NUMBER PERIOD UNTIL BELOW
OF UNITS MATURATION THRESHOLD THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($) ($) ($) ($)
---- -------- ------------ --------- --------- ------- --------
H. Brent Austin.................. 931 1 year $ 0 $46,500 $93,100 $139,650
PENSION PLAN
Effective January 1, 1997, El Paso amended its pension plan to provide
pension benefits under a cash balance plan formula that defines participant
benefits in terms of a hypothetical account balance. Prior to adopting a cash
balance plan, El Paso provided pension benefits under a plan (the "Prior Plan")
that defined monthly benefits based on final average earnings and years of
service. Under the cash balance plan, an initial account balance was established
for each El Paso employee who was a participant in the Prior Plan on
28
December 31, 1996. The initial account balance was equal to the present value of
Prior Plan benefits as of December 31, 1996. At the end of each calendar
quarter, participant account balances are increased by an interest credit based
on 5-Year Treasury bond yields, subject to a minimum interest credit of 4% per
year, plus a pay credit equal to a percentage of salary and bonus. The pay
credit percentage is based on the sum of age plus service at the end of the
prior calendar year according to the following schedule:
PAY CREDIT
AGE PLUS SERVICE PERCENTAGE
---------------- ----------
Less than 35............................................... 4%
35 to 49................................................... 5%
50 to 64................................................... 6%
65 and over................................................ 7%
Under El Paso's pension plan and applicable Internal Revenue Code
provisions, compensation in excess of $200,000 cannot be taken into account and
the maximum payable benefit in 2002 was $160,000. Any excess benefits otherwise
accruing under El Paso's pension plan are payable under El Paso's Supplemental
Benefits Plan.
Participants with an initial account balance on January 1, 1997 (including
each of the executives named in this Proxy Statement, except Mr. Eads) continued
to accrue pension benefits under the Prior Plan formula through the end of 2001.
Upon retirement, the pension benefit equals the greater of the cash balance
formula benefit or the Prior Plan benefit accrued as of the end of 2001.
Estimated annual benefits payable from the pension plan and Supplemental
Benefits Plan upon retirement at the normal retirement age (age 65) for each
executive named in this Proxy Statement is reflected below (based on assumptions
that each executive named in this Proxy Statement receives base salary shown in
the Summary Compensation Table with no pay increases, receives 75% of maximum
annual bonuses beginning with bonuses earned for fiscal year 2003, and cash
balances are credited with interest at a rate of 4% per annum):
NAMED EXECUTIVE ESTIMATED ANNUAL BENEFITS(1)
--------------- ----------------------------
William A. Wise............................................. $842,452
Ralph Eads(2)............................................... $ 0
H. Brent Austin............................................. $270,415
John W. Somerhalder II...................................... $398,400
Robert G. Phillips.......................................... $180,870
---------------
(1) For Messrs. Wise and Austin, the amounts reflected have been reduced as a
result of their participation in the Alternative Benefits Program, as
described on page 38 of this Proxy Statement.
(2) Mr. Eads was not vested in his pension benefits upon his termination of
employment with El Paso on December 31, 2002.
29
PERFORMANCE GRAPHS
El Paso has made previous filings and may make future filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, that incorporate future filings, including this Proxy Statement, in
whole or in part. The following graphs, the Audit Committee Report and the
Compensation Committee Report on Executive Compensation do not constitute
soliciting materials and are not considered filed or incorporated by reference
into any other El Paso filing or filing of its subsidiaries or affiliates under
the Securities Act of 1933 or the Securities Exchange Act of 1934, unless we
state otherwise.
The following graph reflects the changes in the value of $100 invested
since December 31, 1997 as invested in El Paso's common stock, the Standard &
Poor's 500 Stock Index and the Standard & Poor's Multi-Utilities & Unregulated
Power.
COMPARISON OF ANNUAL CUMULATIVE TOTAL VALUES
FROM 1997-2002 FOR EL PASO, THE S&P 500 STOCK INDEX AND THE
S&P MULTI-UTILITIES & UNREGULATED POWER
(PERFORMANCE CHART)
-------------------------------------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
-------------------------------------------------------------------------------------
El Paso $100.00 $107.00 $121.93 $228.65 $144.76 $ 24.29
S&P 500 Stock Index $100.00 $128.58 $155.63 $141.46 $124.65 $ 97.10
S&P 500
Multi-Utilities &
Unregulated Power $100.00 $110.63 $121.93 $210.54 $ 46.69 $ 14.75
The annual values of each investment are based on the share price
appreciation and assume cash dividend reinvestment. The calculations exclude any
applicable brokerage commissions and taxes. Cumulative total stockholder return
from each investment can be calculated from the annual values given above.
30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of McDade Fogler Maines, L.L.P. provided legal services to El
Paso in fiscal year 2002. Thomas R. McDade, a director of El Paso, is a senior
partner of that law firm. In fiscal year 2002, El Paso paid McDade Fogler
Maines, L.L.P. approximately $156,757 for legal services rendered by that law
firm to El Paso. The Board has determined that the engagement of Mr. McDade's
firm to represent El Paso and its subsidiaries will be limited to existing legal
matters only and his firm will not receive additional work from El Paso or its
subsidiaries.
Mr. Wise's two sons-in-law and a sister-in-law were employed by El Paso or
its subsidiaries during fiscal year 2002 and earned and/or received compensation
in the amount of $74,174, $170,531 and $62,779, respectively.
Mr. Phillips's brother was employed by El Paso or its subsidiaries during
fiscal year 2002 and earned and/or received compensation in the amount of
$147,504.
See "Employment Contracts, Termination of Employment and Change in Control
Arrangements and Director Indemnification Agreements" starting on page 34 of
this Proxy Statement for information related to loans to certain executives
officers named in this Proxy Statement. El Paso does not have any continuing
lines of credit for loans to its executive officers.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
El Paso's executive officer compensation program is administered and
reviewed by the Compensation Committee. The Compensation Committee currently
consists of Messrs. Bissell, Dunlap, Talbert, Whitmire and Wyatt. Messrs.
Dunlap, Talbert and Whitmire became members of the Compensation Committee in
2003 and did not participate in the actions described in this report. The
Compensation Committee has neither interlocks nor insider participation.
POLICIES AND MISSION
The Compensation Committee has determined that the compensation program of
executive officers should not only be adequate to attract, motivate and retain
competent executive personnel, but should also be directly and materially
related to the short-term and long-term objectives and operating performance of
El Paso. To achieve these ends, executive compensation (including base salary,
year-end bonus, restricted stock awards, stock option grants and other long-term
incentive awards) is, to a significant extent, dependent upon El Paso's
financial performance and the return on its common stock. However, to ensure
that El Paso is strategically and competitively positioned for the future, the
Compensation Committee also has the discretion to attribute significant weight
to other factors in determining executive compensation, such as maintaining
competitiveness, increasing liquidity, accessing capital markets, reducing
leverage, strengthening and simplifying the balance sheet, pursuing growth
opportunities and achieving other long-range business and operating objectives.
In order to determine appropriate levels of executive compensation, the
Compensation Committee periodically conducts a thorough competitive evaluation,
reviews proprietary and proxy information, and consults with and receives advice
from an independent compensation consulting firm. The Compensation Committee
also considers relevant industry and market changes when evaluating El Paso's
performance as well as each individual executive's performance. The independent
consulting firm provides data and information that compares El Paso with a peer
group of companies for evaluation purposes. The peer group consists of a
majority of the companies included in the S&P Multi-Utilities & Unregulated
Power Index (reflected in the Performance Graphs found on page 30 of this Proxy
Statement) along with certain additional companies which the consulting firm and
the Compensation Committee believe represent El Paso's most direct competition
for executive talent.
A primary mission of the Compensation Committee is to ensure that each
executive officer's compensation is directly related both to individual
performance and the performance of El Paso and its common stock.
31
To reach these objectives, the Compensation Committee has established an
executive compensation program with a strong performance-based orientation. In
particular, the Compensation Committee has determined, in consultation with the
independent consulting firm, that if El Paso and the individuals have performed
at an exceptional level, the value of long-term incentive awards for executive
officers, including the CEO, should be targeted at approximately the top
quartile of the peer group. These long-term incentive awards should tie directly
to the performance of the common stock and consist of approximately 50% in stock
options and 50% in performance units. The Compensation Committee, in
consultation with the independent executive compensation consulting firm, has
determined that with respect to cash compensation, the base salary of executive
officers should be targeted at or near the 60th percentile of the peer group
(described above). Total cash compensation under El Paso's current plans can
reach approximately the 75th percentile of such peer group with the year-end
incentive bonuses, and somewhat higher in the case of truly exceptional
performance. Target annual bonuses, depending upon El Paso and individual
performance, could range from 0% to 120% of base salary for Mr. Wise, from 0% to
95% for Messrs. Austin and Somerhalder, and from 0% to 70% for Mr. Phillips. In
the case of truly exceptional individual and El Paso performance, the actual
annual bonuses could be higher than the target bonus by as much as two times.
Based on objectives established each year, the Compensation Committee determines
the specific percentage bonus to be awarded to each recipient based upon both El
Paso's and the individual executive's performance. For the reasons discussed
below, the Compensation Committee determined that no annual incentive award
would be granted for fiscal year 2002 for executive officers.
While Mr. Wise had a pre-existing employment agreement with El Paso, as
described on page 34 of this Proxy Statement, his compensation and benefits were
determined under El Paso plans and programs in effect from time to time in
accordance with the policies described above.
Section 162(m) of the IRC was enacted in 1993 and generally affects El
Paso's federal income tax deduction for compensation paid to El Paso's CEO and
four other highest paid executive officers. To the extent compensation is
"performance-based" within the meaning of Section 162(m), the Section's
limitations will not apply. Since 1993, the Board of Directors has adopted, and
the stockholders have approved, certain El Paso compensation plans, which have
been structured to qualify as performance-based compensation under Section
162(m). In addition to requiring and encouraging stock ownership by El Paso
executives, these plans are designed to allow the Compensation Committee to
provide appropriate compensation when certain performance goals have been
achieved. While the Compensation Committee strives to make awards under El Paso
plans that are intended to qualify as performance-based compensation under
Section 162(m), it is possible under certain circumstances that some portion of
the compensation paid to El Paso's CEO and other executive officers will not
meet the standards of deductibility under Section 162(m). The Compensation
Committee reserves the right to award compensation which does not qualify as
performance-based under Section 162(m) if it determines that such awards are
necessary to provide a competitive compensation package to attract and retain
qualified executive talent.
EL PASO PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee reviewed El Paso's 2002 financial goals and
non-financial goals. The financial goals consisted of earnings before interest
and taxes, earnings per share, after-tax return on common equity, cash flow,
operating and maintenance cost objectives, and debt to total capitalization
ratio. El Paso's 2002 non-financial goals consisted of implementing a balance
sheet enhancement plan to rationalize assets and reduce indebtedness, addressing
California issues at the Federal Energy Regulatory Commission and elsewhere, and
achieving certain specific goals for each business unit. For the regulated
pipeline business segment, these goals consisted of maximizing the productivity
of assets, recontracting capacity that had been turned back to the pipeline and
capitalizing on growth opportunities in the pipeline industry. For the Merchant
Energy group, these goals included gaining efficiencies through completion of
certain asset divestitures, implementing reorganization plans to streamline
business and reduce costs, implementing certain risk management and control
systems and procedures, and pursuing development of global LNG strategies. For
El Paso's Field Services business, these goals included utilizing El Paso Energy
Partners for infrastructure growth for the mid-stream business, implementing
asset performance teams and enhancing customer service,
32
and realizing synergies with other business units. For the exploration and
production business segment, these goals included maximizing production and
adding additional low-cost reserves. In addition, each business unit had
specific operational goals, primarily continued enhancement of safety programs.
After analyzing these goals and El Paso's performance, the Compensation
Committee hereby certifies that El Paso has attained the necessary performance
goals for the 2002 performance period to make incentive awards under El Paso's
2001 Omnibus Incentive Compensation Plan; however, the Compensation Committee
determined that the incentive bonuses for the 2002 performance period be paid at
a level substantially below that which was implemented in the previous year.
Although the attainment of all performance targets is not required, all such
performance targets are evaluated to determine the maximum incentive award
opportunity in a given year and what incentive awards are actually made. The
Compensation Committee does not assign relative weights to each of the factors
and criteria used in determining executive compensation. Moreover, any
publication of sensitive and proprietary quantifiable targets and other specific
goals for both El Paso and the CEO which are established and applied each year
could adversely affect El Paso.
The Compensation Committee, consistent with its policies and mission,
reviewed internal and external factors to determine the appropriate compensation
for Mr. Wise and other executive officers of El Paso for 2002. The Committee
considered business, legal and political challenges surrounding the energy
industry in general, and El Paso in particular during 2002, and reviewed the
CEO's and senior management's responses to those challenges. In light of El
Paso's disappointing overall business performance, the Committee concluded that
the CEO should not receive an annual incentive award for the year.
COMPENSATION OF OTHER EXECUTIVE OFFICERS
The Compensation Committee, in consultation with an independent consulting
firm, applied the information and performance factors outlined above in
reviewing and approving the compensation of El Paso's other executive officers.
For the reasons described above, the Compensation Committee had previously
determined to eliminate the 2002 incentive compensation awards for certain
executive officers, and to reduce the incentive compensation awards for all
other officers and employees. With the exception of Mr. Austin, no stock
options, shares of restricted common stock, or performance units were granted in
2002 to executive officers. In connection with the significant increase in
responsibilities to the position of President and Chief Operating Officer, the
Compensation Committee increased Mr. Austin's base salary and granted a number
of options, performance-based restricted common stock and performance units in
accordance with the targets and formulas recommended by El Paso's independent
executive compensation consulting firm. The Compensation Committee, in
consultation with the independent consulting firm, determined that the current
base salaries and annual incentive award eligibility for the other named
executive officers continued to be appropriate and should remain unchanged.
THE 2002 COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Byron Allumbaugh John M. Bissell James F. Gibbons Joe B. Wyatt
(Chairman) (Member) (Member) (Member)
AUDIT COMMITTEE REPORT
All members of the Audit Committee are independent, as that term is defined
under Section 10A of the Securities Exchange Act of 1934, and the rules recently
adopted by the Securities and Exchange Commission and amendments to the NYSE
listing standards. Each member of the Audit Committee is also financially
literate, as that qualification is interpreted by El Paso's Board of Directors
in its business judgment. Further, Mr. Goldman qualifies and is designated as
the "audit committee financial expert," serving on the Audit Committee as such
term is defined in rules adopted by the Securities and Exchange Commission and
interpreted by El Paso's Board. The Audit Committee currently consists of
Messrs. Braniff, Bissell, Goldman,
33
MacNeil and Wallop. Mr. Bissell became a member of the Audit Committee on
January 1, 2003 and Mr. Goldman became a member of the Audit Committee on
February 1, 2003.
POLICIES AND MISSION
The Audit Committee's primary function is to assist the Board of Directors
in fulfilling its oversight responsibilities to ensure the integrity of El
Paso's financial statements, El Paso's compliance with legal and regulatory
requirements, and the independent accountant's appointment, compensation,
qualifications, independence and performance. The Audit Committee also reviews
risk management and internal audit procedures with the head of El Paso's
internal audit, and engages in any necessary private sessions with El Paso's
internal audit and independent accountants. The Audit Committee is directly
responsible for the appointment, termination, compensation and oversight of the
work of the independent accounting firm engaged by El Paso (including resolution
of potential disputes between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or related
work, and the independent accountant reports directly to the Audit Committee.
All auditing services and permitted non-audit services provided to El Paso by
the independent accountant will be pre-approved by the Audit Committee in
accordance with applicable law. These responsibilities do not preclude the Audit
Committee from obtaining the input of management, but these responsibilities may
not be delegated to management.
AUDIT COMMITTEE STATEMENT
The Audit Committee, consistent with its policies and mission, has adopted
a charter, which is included as Exhibit A to this Proxy Statement. The Audit
Committee has reviewed and discussed the audited financial statements with El
Paso management; discussed with the independent accountants the matters required
to be discussed by Statements of Accounting Standards 61 (Codification of
Statements on Auditing Standards), as modified or supplemented; received a
written disclosure letter from El Paso's independent certified public
accountants as required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees), as modified and supplemented, and has discussed with the
independent certified public accountants the independent accountant's
independence; and based on the preceding review and discussions contained in
this paragraph, recommended to the Board of Directors that the audited financial
statements be included in El Paso's Annual Report on Form 10-K for the 2002
fiscal year for filing with the Securities and Exchange Commission.
El Paso's management is responsible for El Paso's financial reporting
process, internal audit process, and the preparation of El Paso's financial
statements. El Paso's independent accountants are responsible for auditing those
financial statements. The Audit Committee monitors and reviews these processes
and does not conduct auditing or accounting reviews or procedures. The Audit
Committee meets with management and the independent accountant to discuss the
financial statements, and relies on El Paso's management's representation that
the financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America, and on the
representations of El Paso's independent accountants included in their report on
El Paso's financial statements.
CURRENT MEMBERS OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Juan Carlos Braniff John M. Bissell Robert W. Goldman J. Carleton MacNeil, Jr. Malcolm Wallop
(Chairman) (Member) (Member) (Member) (Member)
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE
IN CONTROL ARRANGEMENTS AND DIRECTOR INDEMNIFICATION AGREEMENTS
EMPLOYMENT AGREEMENTS
El Paso terminated the employment of William A. Wise as Chief Executive
Officer and Chairman of the Board of Directors effective as of March 12, 2003,
and appointed Ronald L. Kuehn, Jr. as his successor
34
pending selection of a permanent Chief Executive Officer. Under the terms of his
pre-existing employment agreement, Mr. Wise will receive severance benefits for
the remaining three-year term of his agreement, consisting of his salary, half
of his maximum annual bonus, pension benefits, and certain other benefits in
effect on the date of his termination. Mr. Wise will not be entitled to receive
benefits under this agreement that otherwise would arise in connection with any
future change in control of El Paso. Any salary, bonus, or benefits received by
Mr. Wise in connection with any full-time employment during the remaining
three-year term will reduce the salary, bonus, or benefits payable to Mr. Wise
under the terms of his agreement. In connection with his termination, El Paso
will transfer ownership of Mr. Wise's company-owned automobile to Mr. Wise and
purchase his Houston residence, if requested to do so within two years of his
termination, at the greater of its appraised value or the amount of Mr. Wise's
investment. In 1997, El Paso loaned Mr. Wise $1,564,000 with interest at 6.8%
for the purchase of his Houston residence. On March 19, 2003, Mr. Wise repaid
this loan in full with accrued interest, consisting of $1,564,000 in principal
and $617,436 in interest. In 2001, El Paso loaned Mr. Wise $7,332,195 with
interest at 4.99% to fund Mr. Wise's exercise of options to purchase El Paso
common stock. This outstanding loan obligation became payable by Mr. Wise in
full upon his termination.
As part of the merger with Sonat Inc., El Paso entered into a termination
and consulting agreement with Ronald L. Kuehn, Jr., dated October 25, 1999.
Under this Agreement, Mr. Kuehn served as the non-executive Chairman of El
Paso's Board of Directors through December 31, 2000, and received a fee of
$20,833 per month from October 25, 1999 through December 31, 2000. In addition,
Mr. Kuehn received the perquisites that were available to him prior to the
merger with Sonat Inc. pursuant to this Agreement, as well as non-cash
compensation available to other non-employee directors. Starting on October 25,
1999, and for the remainder of his life, Mr. Kuehn will receive certain
ancillary benefits made available to him prior to the merger with Sonat Inc.,
including the provision of office space and related services, and payment of
life insurance premiums sufficient to provide a death benefit equal to four
times his base pay as in effect immediately prior to October 25, 1999. Mr. Kuehn
and his eligible dependents will also receive retiree medical coverage. El Paso
maintained a collateral assignment split-dollar life insurance policy to provide
for the death benefit for Mr. Kuehn to satisfy its obligation to provide the
life insurance referenced above. In January 2003, El Paso released the
collateral assignment on the policy. El Paso recovered $1,116,303 from the
policy's cash surrender value for premiums paid by El Paso and its predecessors
for Mr. Kuehn under the policy and gave up the right to recoup $881,588, which
was left in the policy to provide coverage under the policy until age 95. The
release of the collateral assignment and the right to recoup $881,588 was
treated as a transfer of property to Mr. Kuehn subject to ordinary income tax.
El Paso paid Mr. Kuehn $619,723 to satisfy the tax liabilities related to the
transfer of the policy. In March 2003, El Paso entered into an employment
agreement with Mr. Kuehn effective upon his appointment as Chief Executive
Officer of El Paso. Mr. Kuehn also serves as Chairman of the Board of El Paso.
Compensation and benefits for Mr. Kuehn are determined under El Paso's benefit
plans and programs in effect from time to time, with exceptions as specified in
the employment agreement. Mr. Kuehn will receive a monthly salary of $100,000
and he is eligible to earn a target bonus amount equal to 100% of his annual
salary based on El Paso's and his performance as determined by the Compensation
Committee. Mr. Kuehn's bonus, if any, will be paid on the earlier of (i) the
first anniversary of the agreement, (ii) the date El Paso pays its annual bonus
to the named executive officers or (iii) the date a permanent Chief Executive
Officer's appointment with El Paso begins, in which latter case Mr. Kuehn will
receive a pro-rated portion of his bonus based on the number of months he served
as the interim Chief Executive Officer. Mr. Kuehn's employment agreement also
provides for an award of 125,000 nonqualified stock options to purchase shares
of common stock and 50,000 shares of restricted stock of El Paso under the 2001
Omnibus Incentive Compensation Plan. These awards vest on the earlier of (i) the
first anniversary of the agreement, or (ii) the date a permanent Chief Executive
Officer's appointment with El Paso begins; otherwise, all other terms of the
awards are governed under the plan from which the awards were granted. Mr. Kuehn
is not eligible to participate in the Key Executive Severance Protection Plan
under his employment agreement. Mr. Kuehn's employment agreement also provides
that El Paso will maintain a corporate apartment for him in Houston, Texas on a
tax-neutral basis. If Mr. Kuehn's employment is terminated involuntarily without
"cause," or is voluntarily terminated by Mr. Kuehn for "good reason," Mr. Kuehn
will receive one month's salary in addition to any earned but unpaid salary and
benefits. If such
35
termination occurs prior to the appointment of a permanent Chief Executive
Officer, Mr. Kuehn will receive a pro rated portion of his bonus assuming all
performance objectives were fully met, his stock options will vest and any
restrictions on his restricted stock will lapse. If Mr. Kuehn's employment is
terminated because of death, disability, involuntarily termination for "cause"
or is voluntarily terminated by Mr. Kuehn for other than "good reason," Mr.
Kuehn's right to receive his salary shall cease on the date of termination of
his employment and his right to receive benefits will be determined according to
the terms of El Paso's applicable plans.
Mr. Eads left El Paso pursuant to an agreement entered into with El Paso
effective December 31, 2002. Mr. Eads received a severance payment in the amount
of $700,008 under the agreement. In addition, Mr. Eads may be entitled to
receive under the agreement a maximum of three payments of $233,333 if certain
performance targets are achieved in connection with El Paso's success in exiting
its energy trading business during 2003. All other compensation and benefits
paid to Mr. Eads under the agreement as a result of his termination of
employment with El Paso were determined under El Paso's benefit plans and
programs.
BENEFIT PLANS
Severance Pay Plan. The Severance Pay Plan is a broad-based employee plan
providing severance benefits following a "qualifying termination" for all
salaried employees of El Paso and certain of its subsidiaries. The plan also
includes an executive supplement, which provides enhanced severance benefits for
certain executive officers of El Paso and certain of its subsidiaries, including
Messrs. Austin, Phillips and Somerhalder. The enhanced severance benefits
available under the supplement include an amount equal to two times the sum of
the officer's annual salary, including annual target bonus amounts as specified
in the plan. A qualifying termination includes an involuntary termination of the
officer as a result of the elimination of the officer's position or a reduction
in force and a termination for "good reason" (as defined under the plan). In the
event the Severance Pay Plan is terminated, the executive supplement will
continue as a separate plan unless the action terminating the Severance Pay Plan
explicitly terminates the supplement. The executive supplement of the Severance
Pay Plan terminates on January 1, 2005, unless extended. In the event of a
"change in control" (as defined in the Key Executive Severance Protection Plan),
participants whose termination of employment entitles them to severance pay
under the executive supplement and the Key Executive Severance Protection Plan
will receive severance pay under the Key Executive Severance Protection Plan,
rather than under the executive supplement.
Key Executive Severance Protection Plan. This plan, initially adopted in
1992, provides severance benefits following a "change in control" of El Paso for
certain officers of El Paso and certain of its subsidiaries, including each of
the named executives in this Proxy Statement (except for Messrs. Wise and Eads
who are no longer employees). The benefits of the plan include: (1) an amount
equal to three times the participant's annual salary, including maximum bonus
amounts as specified in the plan; (2) continuation of life and health insurance
for an 18-month period following termination; (3) a supplemental pension payment
calculated by adding three years of additional credited pension service; (4)
certain additional payments to the terminated employee if the payments made
under the plan are subject to excise taxes on golden parachute payments; and (5)
payment of legal fees and expenses incurred by the employee to enforce any
rights or benefits under the plan. Benefits are payable for any termination of
employment for a participant in the plan within two years of the date of a
change in control, except where termination is by reason of death, disability,
for cause or instituted by the employee for other than "good reason" (as defined
in the plan). A change in control occurs if: (i) any person or entity becomes
the beneficial owner of 20% or more of El Paso's common stock; (ii) any person
or entity (other than El Paso) purchases the common stock by way of a tender or
exchange offer; (iii) El Paso stockholders approve a merger or consolidation,
sale or disposition or a plan of liquidation or dissolution of all or
substantially all of El Paso's assets; or (iv) if over a two-year period a
majority of the members of the Board of Directors at the beginning of the period
cease to be directors. A change in control has not occurred if El Paso is
involved in a merger, consolidation or sale of assets in which the same
stockholders of El Paso before the transaction own 80% of the outstanding common
stock after the transaction is complete. This plan generally may be amended or
terminated at any time, provided that no amendment or termination may impair
participants' rights under the plan or be made following the occurrence of a
change in
36
control. This plan has been closed to new participants, unless the Board
determines otherwise. Approximately 40 current El Paso officers participate in
this plan.
Employee Severance Protection Plan. This plan, initially adopted in 1992,
provides severance benefits following a "change in control" (as defined in the
Key Executive Severance Protection Plan) of El Paso for certain salaried,
non-executive employees of El Paso and certain of its subsidiaries. The benefits
of the plan include: (1) severance pay based on the formula described below, up
to a maximum of two times the participant's annual salary, including maximum
bonus amounts as specified in the plan; (2) continuation of life and health
insurance for an 18-month period following termination (plus an additional
payment, if necessary, equal to any additional income tax imposed on the
participant by reason of his or her continued health and life insurance
coverage); and (3) payment of legal fees and expenses incurred by the employee
to enforce any rights or benefits under the plan. The formula by which severance
pay is calculated under the plan consists of the sum of: (i) one-twelfth of a
participant's annual salary and maximum bonus for every $7,000 of his or her
annual salary and maximum bonus, but no less than five-twelfths nor more than
the entire salary and bonus amount, and (ii) one-twelfth of a participant's
annual salary and maximum bonus for every year of service performed immediately
prior to a change in control. Benefits are payable for any termination of
employment for a participant in the plan within two years of the date of a
change in control, except where termination is by reason of death, disability,
for cause or instituted by the employee for other than "good reason" (as defined
in the plan). This plan generally may be amended or terminated at any time,
provided that no amendment or termination may impair participants' rights under
the plan or be made following the occurrence of a change in control. This plan
has been closed to new participants, unless the Board determines otherwise.
Approximately 1,000 current El Paso employees participate in this plan.
Supplemental Benefits Plan. This plan provides for certain benefits to
officers and key management employees of El Paso and its subsidiaries. The
benefits include: (1) a credit equal to the amount that a participant did not
receive under El Paso's Pension Plan because the Pension Plan does not consider
deferred compensation (whether in deferred cash or deferred restricted common
stock) for purposes of calculating benefits and eligible compensation is subject
to certain Internal Revenue Code limitations; and (2) a credit equal to the
amount of El Paso's matching contribution to El Paso's Retirement Savings Plan
that cannot be made because of a participant's deferred compensation and
Internal Revenue Code limitations. The plan may not be terminated so long as the
Pension Plan and/or Retirement Savings Plan remain in effect. The management
committee of this plan designates who may participate and also administers the
plan. Benefits under El Paso's Supplemental Benefits Plan are paid upon
termination of employment in a lump-sum payment, in annuity or in periodic
installments. In the event of a change in control (as defined under the Key
Executive Severance Protection Plan), the supplemental pension benefits become
fully vested and nonforfeitable.
Deferred Compensation Plan. This plan allowed eligible executives and key
management employees of El Paso and its subsidiaries to defer all or a portion
of their base salaries and any other deferrals (including certain equity awards)
made in accordance with certain of El Paso's compensation plans. The management
committee of this plan designated the executives and key management employees
who participated. Amounts deferred were payable upon termination of employment
in a lump-sum payment or in periodic installments, except that the management
committee could, in its discretion, accelerate payments. Any amounts deferred
were credited with interest, gains/losses based on investments or other indices
specified by the management committee. This plan was terminated effective as of
November 15, 2002, and all deferred amounts (net of applicable withholdings)
were distributed to the participants.
Senior Executive Survivor Benefits Plan. This plan provides certain senior
executives (including each of the named executives in this Proxy Statement,
except for Messrs. Wise and Eads) of El Paso and its subsidiaries who are
designated by the plan administrator with survivor benefit coverage in lieu of
the coverage provided generally for employees under El Paso's group life
insurance plan. The amount of benefits provided, on an after-tax basis, is two
and one-half times the executive's annual salary. Benefits are payable in
installments over 30 months beginning within 31 days after the executive's
death, except that the plan administrator may, in its discretion, accelerate
payments.
37
Domestic Relocation Plan. El Paso had a Domestic Relocation Plan, under
which El Paso was obligated, upon the termination of employment of the
executives (except Messrs. Eads and Phillips) named in this Proxy Statement (as
a result of death, retirement, permanent disability or as otherwise determined
by the senior functional officer of Human Resources and Administration) or in
the event of a "change in control," as defined earlier under the Key Executive
Severance Protection Plan, to purchase their residences in Houston which they
acquired during El Paso's relocation from El Paso to Houston in 1997.
Alternative Benefits Program (ABP). In 2001, Messrs. Wise and Austin each
reduced the balance of certain compensation payable to them under the Deferred
Compensation Plan and/or Supplemental Benefits Plan in exchange for the right to
participate in the ABP. In 2002, Mr. Allumbaugh reduced the balance of certain
compensation payable to him under the 1995 Compensation Plan for Non-Employee
Directors in exchange for the right to participate in the ABP. The program
provides for a loan to purchase a life insurance policy under a family trust.
The trust is the named beneficiary under the life insurance policy, and the loan
with accrued interest will be repaid, on an after-tax basis, with proceeds of
the policy after the participant's, or his spouse's death, whichever is later.
The compensation that was reduced had been awarded in prior years and was
disclosed as required in earlier proxy statements of El Paso. The cost of this
program will not exceed the cost El Paso would have paid as compensation with
respect to the reduced amounts. In 2002, the annual value of the policy to Mr.
Allumbaugh of $2,874 was imputed as income. The amounts computed as income in
2002 for Messrs. Wise and Austin are included in the Summary Compensation Table.
This program is now closed to new participants.
DIRECTOR INDEMNIFICATION AGREEMENTS
El Paso has entered into indemnification agreements with each member of the
Board of Directors as part of El Paso's indemnification program and in order to
enable El Paso to attract and retain qualified directors. The indemnification
agreements provide for payment of reasonable expenses (including attorneys'
fees) incurred by each of the directors in defending a proceeding related to
their service as a director in advance of its final disposition. El Paso may
maintain insurance, enter into contracts, create a trust fund or use other means
available to ensure payment of any indemnity payments and expense advances. In
the event of a change in control, El Paso is obligated to pay the costs of
independent legal counsel who will be selected to provide legal advice with
respect to all matters concerning the rights of each director to indemnity
payments and expense advances after any such change in control.
BENEFITS PROTECTION TRUST AGREEMENT
El Paso maintains a trust for the purpose of funding certain of its
employee benefit plans (including the Key Executive Severance Protection Plan).
The trust consists of a trustee expense account, which is used to pay the fees
and expenses of the trustee, and a benefit account, which is used to make
payments to participants and beneficiaries in the participating plans. The trust
is revocable by El Paso at any time before a "threatened change in control"
(which is generally defined to include the commencement of actions that would
lead to a "change in control" (as defined under the Key Executive Severance
Protection Plan)) as to assets held in the trustee expense account, but is not
revocable as to assets held in the benefit account at any time. The trust
generally becomes fully irrevocable upon a threatened change in control. The
trust is a grantor trust for federal tax purposes, and assets of the trust are
subject to claims by El Paso's general creditors in preference to the claims of
plan participants and beneficiaries. Upon a threatened change in control, El
Paso must deliver $1.5 million in cash to the trustee expense account and must
generally maintain the funding level of the trustee expense account at $2
million. In addition, if a change in control occurs, El Paso must deliver to the
benefit account assets sufficient to pay all benefits payable (whether currently
or on a deferred basis) under the plans participating in the trust. It is
presently estimated, based on certain assumptions and data available as of a
recent date, that if a change in control occurs on the date of the Annual
Meeting, the amount required to be delivered to the trust would be more than
$165 million. The trust generally may be amended or terminated at any time,
provided that no amendment or termination may have a material adverse effect on
the amount of benefits payable under the trust or result, directly or
indirectly, in the return of any assets of the benefit account to El Paso prior
to the satisfaction of all liabilities under the participating plans. In
addition, no
38
amendment may be made after the occurrence of a change in control which would
(i) permit El Paso to withdraw any assets from the trustee expense account, (ii)
directly or indirectly reduce or restrict the trustee's rights and duties under
the trust, or (iii) permit El Paso to remove the trustee following the date of
the change in control.
EQUITY COMPENSATION PLAN INFORMATION TABLE
The following table provides information concerning equity compensation
plans as of December 31, 2002, that have been approved by stockholders and
equity compensation plans that have not been approved by stockholders. The table
includes (a) the number of securities to be issued upon exercise of options,
warrants and rights outstanding under the equity compensation plans, (b) the
weighted-average exercise price of all outstanding options, warrants and rights,
and (c) additional shares available for future grants under all of El Paso's
equity compensation plans.
(A) (B) (C)
------------------- ----------------- --------------------
NUMBER OF
SECURITIES
NUMBER OF WEIGHTED- REMAINING AVAILABLE
SECURITIES TO BE AVERAGE EXERCISE FOR FUTURE ISSUANCE
ISSUED UPON PRICE OF UNDER EQUITY
EXERCISE OF OUTSTANDING COMPENSATION PLANS
OUTSTANDING OPTIONS, (EXCLUDING
OPTIONS, WARRANTS WARRANTS AND SECURITIES REFLECTED
PLAN CATEGORY AND RIGHTS(1) RIGHTS IN COLUMN (A))
------------- ------------------- ----------------- --------------------
Equity compensation plans approved
by stockholders................... 7,820,635 $40.904 7,087,410(2)
Equity compensation plans not
approved by stockholders.......... 32,107,007 $52.562 19,775,268(3)
---------- ----------
Total............................... 39,927,642 26,862,678
========== ==========
---------------
(1) Column (a) does not include 3,279,772 shares with a weighted-average
exercise price of $35.788 per share which were assumed by El Paso under the
Executive Award Plan of Sonat Inc. as a result of the merger with Sonat in
October 1999. The Executive Award Plan of Sonat Inc. has been terminated and
no future awards can be made under it.
(2) In column (c), equity compensation plans approved by stockholders include
2,831,050 shares available for future issuance under the Employee Stock
Purchase Plan.
(3) In column (c), equity compensation plans not approved by stockholders
include 69,250 shares available for future awards granted under the
Restricted Stock Award Plan for Management Employees.
STOCKHOLDER APPROVED PLANS
2001 Omnibus Incentive Compensation Plan. This plan provides for the grant
to officers and key employees of El Paso and its subsidiaries of stock options,
stock appreciation rights, limited stock appreciation rights, performance units
and restricted stock. A maximum of 6,000,000 shares in the aggregate may be
subject to awards under this plan. The plan administrator designates which
employees are eligible to participate, the amount of any grant and the terms and
conditions (not otherwise specified in the plan) of such grant. If a "change in
control" (as defined under the Key Executive Severance Protection Plan) occurs:
(1) all outstanding stock options become fully exercisable; (2) stock
appreciation rights and limited stock appreciation rights become immediately
exercisable; (3) designated amounts of performance units become fully vested;
(4) all restrictions placed on awards of restricted common stock automatically
lapse; and (5) the current year's maximum incentive award for each officer
participating in the plan becomes fully payable within 30 days. The plan
generally may be amended or terminated at any time. Any amendment following a
change in control that impairs participants' rights requires participant
consent.
1999 Omnibus Incentive Compensation Plan. This plan provided for the grant
to officers and key employees of El Paso and its subsidiaries of stock options,
stock appreciation rights, limited stock appreciation
39
rights, performance units and restricted stock. This plan was replaced by the
2001 Omnibus Incentive Compensation Plan. Although this plan has been terminated
with respect to new grants, certain shares of restricted common stock remain
outstanding under it. If a "change in control" of El Paso occurs, all
restrictions placed on restricted common stock lapse. For purposes of the plan,
the term "change in control" has the same meaning given such term in the Key
Executive Severance Protection Plan.
1995 Incentive Compensation Plan. This plan provided that awards of cash
and/or shares of restricted common stock could be granted to eligible officers
of El Paso and its subsidiaries. This plan was replaced by the 1999 Omnibus
Incentive Compensation Plan. Although this plan has been terminated with respect
to new grants, certain shares of restricted common stock remain outstanding
under it. If a "change in control" of El Paso occurs, all restrictions placed on
restricted common stock lapse. For purposes of the plan, the term "change in
control" has the same meaning given such term in the Key Executive Severance
Protection Plan.
1995 Omnibus Compensation Plan. This plan provided that stock options,
stock appreciation rights, limited stock appreciation rights, performance units
and restricted stock could be granted to officers and key employees of El Paso
and its subsidiaries. This plan was replaced by the 1999 Omnibus Incentive
Compensation Plan. Although this plan has been terminated with respect to any
new grants, certain stock options remain outstanding under it. If a "change in
control" of El Paso under this plan occurs, all outstanding stock options become
fully exercisable. For purposes of this plan, the term "change in control" is
defined in the Key Executive Severance Protection Plan.
Omnibus Compensation Plan. This plan provided for the grant of stock
options, stock appreciation rights, limited stock appreciation rights,
performance share units and restricted common stock to officers and key
employees of El Paso and its subsidiaries. This plan was replaced by the 1995
Omnibus Compensation Plan. Although this plan has been terminated with respect
to any new grants, certain stock options remain outstanding under it. Pursuant
to the terms of the plan, if a "change in control" of El Paso occurs, all
outstanding stock options become fully exercisable. For purposes of the plan,
the term "change in control" has the same meaning given such term in the Key
Executive Severance Protection Plan, except that the definition does not contain
the exclusion dealing with mergers, consolidations or sales of assets of El Paso
in connection with a corporate restructuring of El Paso.
NON-STOCKHOLDER APPROVED PLANS
Strategic Stock Plan. This plan is an equity compensation plan that has
not been approved by the stockholders. This plan provides for the grant of stock
options, stock appreciation rights, limited stock appreciation rights and shares
of restricted common stock to non-employee members of the Board of Directors,
officers and key employees of El Paso and its subsidiaries primarily in
connection with El Paso's strategic acquisitions. A maximum of 4,000,000 shares
in the aggregate may be subject to awards under this plan. The plan
administrator determines which employees are eligible to participate, the amount
of any grant and the terms and conditions (not otherwise specified in the plan)
of such grant. If a change in control, as defined earlier under the Key
Executive Severance Protection Plan, occurs: (1) all outstanding stock options
become fully exercisable; (2) stock appreciation rights and limited stock
appreciation rights become immediately exercisable; and (3) all restrictions
placed on awards of restricted common stock automatically lapse. The plan
generally may be amended or terminated at any time. Any amendment following a
change in control that impairs participants' rights requires participant
consent.
Restricted Stock Award Plan for Management Employees. This plan is an
equity compensation plan that has not been approved by the stockholders. The
plan provides for the granting of restricted shares of El Paso's common stock to
management employees (other than executive officers and directors) of El Paso
and its subsidiaries for specific accomplishments beyond that which are normally
expected and which will have a significant and measurable impact on the
long-term profitability of El Paso. A maximum of 100,000 shares in the aggregate
may be subject to awards under this plan. The plan administrator designates
which employees are eligible to participate, the amount of any grant and the
terms and conditions (not otherwise specified in the plan) of such grant. The
plan generally may be amended or terminated at any time. Any amendment following
a change in control that impairs participants' rights requires participant
consent.
40
Omnibus Plan for Management Employees. This plan is an equity compensation
plan that has not been approved by the stockholders. This plan provides for the
grant of stock options, stock appreciation rights, limited stock appreciation
rights and shares of restricted common stock to salaried employees (other than
employees covered by a collective bargaining agreement) of El Paso and its
subsidiaries. A maximum of 58,000,000 shares in the aggregate may be subject to
awards under this plan. If a change in control, as defined earlier under the Key
Executive Severance Protection Plan, occurs: (1) all outstanding stock options
become fully exercisable; (2) stock appreciation rights and limited stock
appreciation rights become immediately exercisable; and (3) all restrictions
placed on awards of restricted common stock automatically lapse. The plan
generally may be amended or terminated at any time. Any amendment following a
change in control that impairs participants' rights requires participant
consent.
EFFECT OF ELECTION OF THE ZILKHA/WYATT NOMINEES ON CHANGE IN CONTROL
ARRANGEMENTS
The election of the Zilkha/Wyatt slate of nine nominees to the Board of
Directors would constitute a "change in control" for purposes of each of the
agreements and plans described above that include change in control
arrangements. It is presently estimated, based on certain assumptions and data
available as of a recent date, that if a change in control occurs on the date of
the Annual Meeting and the employment of each of El Paso's named executive
officers (other than Messrs. Wise and Eads, who are no longer entitled to these
severance benefits) who are participants in the Key Executive Severance
Protection Plan is terminated on or after that date under circumstances
entitling them to severance benefits, they would be entitled to severance
payments (for base salary and bonus) of $14,625,058 in the aggregate. It is also
presently estimated that the severance payments (for base salary and bonus) to
all other executive officers who participate in the Key Executive Severance
Protection Plan upon a like termination of employment would be $61,851,866 in
the aggregate. The Benefits Protection Trust also must be funded in connection
with a change in control. See page 38 of this Proxy Statement for a description
of the Benefits Protection Trust. In addition as of April 1, 2003, the vesting
of 12,151,988 stock options, 4,253,163 shares of restricted stock, and 335,775
performance units granted under El Paso's equity compensation plans would
accelerate and a cash incentive award bonus would become payable upon a change
in control under El Paso's 2001 Omnibus Incentive Compensation Plan.
PROPOSAL NO. 2 -- RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors is seeking stockholder ratification of the
resolution appointing PricewaterhouseCoopers LLP, 1201 Louisiana Street, Suite
2900, Houston, Texas 77002, as independent certified public accountants for El
Paso for fiscal year 2003. PricewaterhouseCoopers LLP has served continuously as
El Paso's independent certified public accountants since 1983.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST ON THE PROPOSAL IS
REQUIRED FOR APPROVAL OF THIS PROPOSAL. ABSTENTIONS AND BROKER NON-VOTES, IF
ANY, ARE NOT COUNTED AS VOTES CAST, AND THEREFORE DO NOT AFFECT THE OUTCOME OF
THE PROPOSAL.
If the appointment is not ratified by a majority of the votes cast, the
adverse vote will be considered as an indication to the Board of Directors that
it should consider selecting other independent certified public accountants for
the following fiscal year. Given the difficulty and expense of making any
substitution of accountants after the beginning of the current fiscal year, it
is contemplated that the appointment for the fiscal year 2003 will be permitted
to stand unless the Board of Directors finds other good reason for making a
change.
PricewaterhouseCoopers LLP examined El Paso's and its affiliates' financial
statements for fiscal year 2002. During fiscal years 2002 and 2001,
PricewaterhouseCoopers LLP billed El Paso in the amounts listed below for
professional services rendered for the years ended December 31, 2002 and 2001.
41
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees for professional services rendered for El Paso by
PricewaterhouseCoopers LLP as of and for the years ended December 31, 2002 and
2001, were:
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
AUDIT...................................................... $10,840,000 $ 8,050,000
AUDIT RELATED.............................................. 670,000 1,094,000
TAX........................................................ 770,000 1,100,000
ALL OTHER.................................................. 430,000 2,056,000
----------- -----------
TOTAL............................................ $12,710,000 $12,300,000
=========== ===========
The Audit fees for the years ended December 31, 2002 and 2001,
respectively, were for professional services rendered for the audits of the
consolidated financial statements of El Paso, statutory subsidiary and equity
investee audits, the review of documents filed with the Securities and Exchange
Commission, consents, and the issuance of comfort letters.
The Audit Related fees for the years ended December 31, 2002 and 2001,
respectively, were for assistance with internal audit projects, due diligence
related to acquisitions, accounting consultations pertaining to divestitures,
and other attest services.
Tax fees for the years ended December 31, 2002 and 2001, respectively, were
for services related to tax compliance, and tax planning and advice.
All Other fees for the year ended December 31, 2002 were for services
rendered for risk management advisory services and environmental advisory
services. Fees for the year ended December 31, 2001 were for services rendered
for financial information system design and implementation, risk management
services and environmental advisory services.
El Paso's Audit Committee has not yet enacted pre-approval policies and
procedures for audit and non-audit services. Therefore, the proxy disclosure
does not include pre-approval policies and procedures and related information.
El Paso is adopting components of the proxy fee disclosure requirements early;
the requirement does not become effective until periodic annual filings for the
first fiscal year ending after December 15, 2003.
The Audit Committee has considered whether the provision of non-audit
services by PricewaterhouseCoopers LLP is compatible with maintaining auditor
independence and has determined that auditor independence has not been
compromised. A representative of PricewaterhouseCoopers LLP will be at the
Annual Meeting and will have the opportunity to make a statement if he or she
desires to do so and is expected to be available to answer appropriate
questions.
WE RECOMMEND THAT YOU VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR EL
PASO FOR THE FISCAL YEAR 2003.
PROPOSAL NO. 3 -- AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION TO
ELIMINATE "FAIR PRICE" PROVISION
The Board of Directors is proposing an amendment to eliminate the "fair
price" provision currently contained in Article 12 of our Restated Certificate
of Incorporation. As described below, the fair price provision could operate to
prevent a transaction that is in the best interests of the stockholders.
UNDER OUR RESTATED CERTIFICATE OF INCORPORATION, THE ADOPTION OF THIS
AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS OF AT LEAST 51% OF THE
OUTSTANDING SHARES OF OUR COMMON STOCK, EXCLUDING SHARES OF COMMON STOCK
BENEFICIALLY OWNED BY ANY STOCKHOLDER WHO IS THE BENEFICIAL OWNER OF 10% OR MORE
OF OUR COMMON STOCK. ABSTENTIONS AND BROKER NON-VOTES, IF ANY, WOULD HAVE THE
EFFECT OF A VOTE AGAINST THE
42
ADOPTION OF THIS AMENDMENT. Based on a Schedule 13G filed on February 14, 2003,
as of December 31, 2002, Pacific Financial Research, Inc. was the beneficial
owner of 10.9% of our outstanding common stock. We are aware of no other
stockholder that beneficially owns 10% or more of our common stock.
The fair price provision in our Restated Certificate of Incorporation
requires that any merger or other business combination with an "interested
stockholder" (defined as any 10% stockholder or any affiliate of El Paso who
either was a 10% stockholder during the prior two years or would become a 10%
stockholder on completion of the transaction) be approved by holders of at least
51% of our voting stock excluding stock held by the interested stockholder (in
addition to any other required vote of stockholders), unless disinterested
directors determine that:
- the interested stockholder owns at least 80% of our voting stock; or
- in the business combination, stockholders will receive consideration that
is at least equal to the per share amount paid by the interested
stockholder in the prior transaction in which the interested stockholder
acquired the largest number of shares and the interested stockholder
receives no financial assistance from El Paso in connection with the
business combination.
The fair price provision is intended to protect stockholders from an
acquiror who purchases a substantial or controlling equity interest in El Paso
and then seeks to effect a business combination that is not in the best interest
of El Paso and its stockholders such as a back-end merger that results in the
purchaser acquiring the remaining shares of El Paso at a price that is lower
than the price the acquiror initially paid to acquire control. The fair price
provision protects stockholders by prohibiting El Paso from engaging in a
business combination with an acquiror who owns more than 10% but less than 80%
of our outstanding shares, unless the other stockholders approve the transaction
or will receive consideration at least equal to or greater than the amount paid
per share by the acquiror in the previous transaction in which the acquiror
purchased the greatest number of shares.
Although the fair price provision can provide protection for stockholders,
the existence of the provision also may discourage a potential acquiror or
strategic investor from seeking to acquire shares of El Paso in a partial tender
offer or in open-market acquisitions because of the approval and price
requirements that would be applicable to any subsequent business combination.
Because tender offers are often made at a premium to prevailing market prices
and a party's acquisition transactions could have the effect of increasing the
market price of our stock, by discouraging these transactions the fair price
provision may operate to the disadvantage of our stockholders.
In addition, by their terms, the approval and price requirements of the
fair price provision would apply to a business combination with an acquiror even
if the tender offer or other transaction in which the acquiror becomes an
interested stockholder and the business combination with the acquiror is
approved by independent directors. As such, the fair price provision could have
the effect of discouraging or preventing a transaction (or the use of a
transaction structure) that El Paso's Board of Directors believes is fair to and
in the best interests of stockholders.
Moreover, Section 203 of the Delaware General Corporation Law, which
applies to El Paso, provides stockholders with protections from the type of
transactions against which the fair price provision is designed to protect,
while at certain times providing the Board of Directors with greater flexibility
by allowing the Board to exempt acquirors from Section 203's three-year
prohibition on business combination. Under Section 203, for the three years
after a person first acquires 15% or more of El Paso's voting stock, El Paso may
not engage in a business combination with the acquiror unless the acquiror owns
at least 85% or more of our voting stock immediately after the transaction in
which the acquiror crossed the 15% ownership threshold or the business
combination is approved by a vote of holders of at least two-thirds of El Paso's
voting stock not owned by the acquiror. However, Section 203 permits the Board
to exempt an acquiror from these requirements before the 15% ownership threshold
is crossed by either approving a business combination with the acquiror or the
transaction in which the acquiror crosses the ownership threshold. In contrast,
the fair price provision does not give the Board the flexibility to exempt an
acquiror from its approval and price requirements.
43
Because the fair price provision could operate to discourage or prevent
transactions that are in the best interests of the stockholders and does not
provide the Board with the same exemptive flexibility afforded to the Board
under Section 203, the Board of Directors is proposing to stockholders an
amendment to El Paso's Restated Certificate of Incorporation that would
eliminate Article 12, which contains the fair price provision.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE PROPOSED AMENDMENT
ELIMINATING THE FAIR PRICE PROVISION OF OUR RESTATED CERTIFICATE OF
INCORPORATION IS ADVISABLE AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDMENT.
PROPOSAL NO. 4 -- AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION TO
ELIMINATE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
The Board of Directors is proposing an amendment to eliminate the series of
our preferred stock currently designated as Series A Junior Participating
Preferred Stock in Article 4.2 of our Restated Certificate of Incorporation.
THE ADOPTION OF THIS AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS OF
AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF OUR COMMON STOCK. ABSTENTIONS
AND BROKER NON-VOTES, IF ANY, WOULD HAVE THE EFFECT OF A VOTE AGAINST THE
ADOPTION OF THIS AMENDMENT.
The Board of Directors previously designated as Series A Junior
Participating Preferred Stock 7,500,000 of the 50,000,000 shares of preferred
stock authorized by our Restated Certificate of Incorporation. This series of
shares was designated to be available for issuance under our now-expired
Shareholder Rights Plan. No shares of Series A Junior Participating Preferred
Stock were ever issued. After our stockholders voted at our 2002 Annual Meeting
to recommend that our Board of Directors redeem our rights plan, our Board
decided not to renew the plan, allowing it to expire in July 2002. Accordingly,
we no longer require Series A Junior Participating Preferred Stock and are
seeking its elimination.
Our Restated Certificate of Incorporation currently authorizes El Paso to
issue a total of 50,000,000 shares of preferred stock in one or more series,
each of which has those powers, preferences and rights, and the qualifications,
limitations or restrictions, determined by our Board of Directors. 7,500,000 of
these shares are currently designated as Series A Junior Participating Preferred
Stock. The elimination of the Series A Junior Participating Preferred Stock will
increase the flexibility of our Board of Directors by making those 7,500,000
shares available to be included in one or more new series of preferred stock.
Although at present we have no plan to designate or issue shares of any new
series of preferred stock, our preferred stock could be issued with terms that
could delay, deter or prevent a takeover of El Paso.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE PROPOSED AMENDMENT
ELIMINATING THE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF OUR RESTATED
CERTIFICATE OF INCORPORATION IS ADVISABLE AND RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ADOPTION OF THE AMENDMENT.
ZILKHA/WYATT PROPOSALS
In a letter dated February 18, 2003, Selim K. Zilkha notified us that he
intends to nominate nine of his designees, including himself, for election to
our Board of Directors and to bring the following additional proposals numbered
5 through 8 below before the Annual Meeting:
Proposal No. 5 -- To amend our By-laws to fix the number of directors
constituting the entire Board of Directors at nine, including by appropriate
amendments to Article III, Section 1 of our By-laws.
Proposal No. 6 -- To amend our By-laws to delete any requirements for
advance notice to be provided by stockholders prior to nominating persons
for election to the Board of Directors, including by appropriate amendments
to Article III, Section 3 of our By-laws.
44
Proposal No. 7 -- To repeal each provision of, or amendment to, our By-laws
(other than the provisions and amendments added or effected pursuant to the
proposals listed above) adopted after the version of our By-laws, as amended
through November 7, 2002 filed by us with the Securities and Exchange
Commission as an Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 2002.
Proposal No. 8 -- To require that at the Annual Meeting action is to be
taken first on the first proposal listed above, then on the election of
directors, then on the remaining proposals in the sequence set forth above,
all before any other business is conducted.
Mr. Zilkha has included his February 18, 2003 letter to us in a filing with
the Securities and Exchange Commission made on that day under cover of a
Schedule 14A. His letter contains certain information regarding the proposed
Zilkha/Wyatt nominees. El Paso is not responsible for the accuracy or
completeness of any information provided by Messrs. Zilkha or Wyatt in any
letters to us or our Board of Directors or in any written or oral
communications, solicitations or proxy materials made or disseminated by Messrs.
Zilkha or Wyatt or filed by them with the Securities and Exchange Commission.
Article III, Section 1 of our By-laws authorizes our Board of Directors, by
vote of a majority of directors, to fix the specific number of directors
constituting the full Board. Our Board of Directors has reduced its size from
fifteen to twelve effective on the date of the Annual Meeting. Proposal No. 5
purports further to reduce our Board's size to nine, to equal the number of
designees Mr. Zilkha and Mr. Wyatt seek to nominate. The proposal also removes
the Board's authority to further adjust its size, even if it were to determine
that doing so was in the best interests of El Paso and its stockholders. The
proposal, by removing the Board's flexibility to adjust the size of its
membership, will, absent an amendment to the By-laws, preclude the Board of
Directors from adding additional qualified directors that the Board may
identify, or from reducing the size of the Board by reason of a vacancy or
otherwise. Therefore, our Board of Directors recommends that you vote AGAINST
Proposal No. 5.
Article II, Section 3 of our By-laws, generally requires a stockholder to
provide us with notice of director nominations the stockholder seeks to make at
an annual meeting not earlier than 120 days nor later than 90 days prior to the
first anniversary of the preceding year's annual meeting. The notice must
include information about the stockholder and the proposed nominees, including
information required to be disclosed under the SEC's proxy rules. Proposal No. 6
seeks to delete these requirements. We believe that these requirements are
important to ensure that our Board of Directors and all stockholders have
reasonable advance notice of director nominations that a stockholder intends to
make at an annual meeting, and to make certain, prior to the mailing of our
proxy statement relating to the annual meeting, that our Board has the
opportunity to consider the qualifications of the proposed nominees prior to
selecting El Paso nominees for director. Accordingly, our Board of Directors
recommends that you vote AGAINST Proposal No. 6.
With reference to Proposal No. 7, we note that the only amendment to our
By-laws made after November 7, 2002 was the deletion of Article XIV of our
By-laws, which by its terms was no longer in effect after December 31, 2002. Our
By-laws, as currently in effect, were filed with the Securities and Exchange
Commission as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 2002 and are available on our website at www.elpaso.com. The
proposal would, therefore, not result in a meaningful change to the provisions
of our By-laws currently in effect. Accordingly, our Board of Directors
recommends you vote AGAINST Proposal No. 7.
Article II, Section 1 of our By-laws grants to the Chairman of our Board of
Directors (or in his absence, other specified officers) the authority to act as
Chairman of each stockholder's meeting. The Chairman of our Annual Meeting has
the responsibility to ensure an orderly Annual Meeting. As in prior years, the
Chairman will determine the sequence in which proposals properly brought before
the Annual Meeting will be considered and voted on by stockholders ensuring that
the Annual Meeting proceeds in an orderly fashion. We do not believe that this
authority of the Chairman can be abrogated by a proposal presented at our Annual
Meeting. Moreover, the Zilkha/Wyatt proposals include a proposal to amend our
By-laws to fix the size of the Board at nine, which is inconsistent with our
Board of Directors decision to fix its size at twelve and El Paso's
45
proposal to elect twelve directors at the Annual Meeting. For these reasons, our
Board of Directors recommends that you vote AGAINST Proposal No. 8.
If properly presented by Mr. Zilkha, Proposals No. 5, 6, and 7 will require
the affirmative vote of a majority of votes cast on, and abstentions with
respect to, the proposal. Abstentions with respect to these proposals would have
the effect of a vote AGAINST the proposals. Proposal No. 8, if properly
presented by Mr. Zilkha, would require for its adoption the affirmative vote of
a majority of the votes cast on the proposal. Abstentions would not be counted
as votes cast with respect to this proposal and therefore would not affect the
outcome. In addition, with respect to each of the proposals, broker non-votes,
if any, would not be counted as votes cast or abstentions and therefore would
not affect the outcome.
FOR THE REASONS DESCRIBED ABOVE AND ON PAGES 6 THROUGH 10, OUR BOARD OF
DIRECTORS STRONGLY RECOMMENDS THAT YOU REJECT THE ZILKHA/WYATT PROPOSED SLATE OF
NOMINEES AND ANY OTHER PROPOSALS THAT ZILKHA/WYATT MAY BRING BEFORE OUR ANNUAL
MEETING. THE BOARD OF DIRECTORS STRONGLY URGES YOU TO VOTE FOR EL PASO'S
NOMINEES. PLEASE VOTE FOR EL PASO'S NOMINEES BY SIGNING, DATING AND RETURNING
THE ENCLOSED WHITE PROXY CARD IN THE ACCOMPANYING ENVELOPE AND DO NOT SIGN OR
RETURN ANY BLUE PROXY CARD SENT TO YOU BY MR. ZILKHA. IF YOU HAVE PREVIOUSLY
RETURNED A BLUE PROXY CARD SENT TO YOU BY MR. ZILKHA, YOU CAN REVOKE IT BY
SIGNING AND RETURNING THE ENCLOSED WHITE PROXY CARD IN THE ACCOMPANYING
ENVELOPE.
PROPOSAL NO. 9 -- STOCKHOLDER PROPOSAL: PAY DISPARITY REPORT
The Catholic Funds, 1100 West Wells Street, Milwaukee, WI 53233, the
beneficial owner of 745 shares of common stock, and Catholic Healthcare West,
1700 Montgomery Street, Suite 300, San Francisco, CA 94111, the owner of 87,633
shares of common stock, have indicated that they will present a proposal for
action at the 2003 Annual Meeting as follows:
"PAY DISPARITY
WHEREAS, the average chief executive officer's pay has increased from 42
times in 1982 to 411 times that of the average production worker in 2001
(Business Week Online 05/06/02).
Responding to that statistic, New York Fed President, William J.
McDonough acknowledged that a market economy requires that some people will
be rewarded more than others, but asked: "should there not be both economic
and moral limitations on the gap created by the market-driven reward
system?" He stated: "I can find nothing in economic theory that justifies
this development." He called such a jump in executive compensation
"terribly bad social policy and perhaps even bad morals." According to The
Wall Street Journal, McDonough cited "the biblical admonition to 'love thy
neighbor as thyself' as justification for voluntary CEO pay cuts" beginning
with the strongest companies. He said: "CEOs and their boards should simply
reach the conclusion that executive pay is excessive and adjust it to more
reasonable and justifiable levels" (09/12/02).
Affirming McDonough's comments, the Milwaukee Journal-Sentinel
editorialized that regulating executive compensation "is the business of
corporate boards, or should be. Unfortunately, too many corporate directors
on company compensation committees simply rubber-stamp decisions made by
top managers. That should stop" (09/13/02).
In "CEOs: Why They're So Unloved," Business Week editorialized: "CEO
pay is so huge that people don't believe executives deserve it . . . In
1980, CEO compensation was 42 times that of the average worker. In 2000, it
was 531 times. This is a winner-take-all philosophy that is unacceptable in
American society . . . The size of CEO compensation is simply out of hand"
(04/22/02).
The Conference Board issued a report acknowledging that executive
compensation has become excessive in many instances and bears no
relationship to a company's long-term performance and that changes must be
made (09/17/02). Commenting on this The New York Times called for
"Atonement in
46
the Boardroom" (09/21/02), while Warren Buffet said: "The ratcheting up of
compensation has been obscene."
United For a Fair Economy has shown an inverse correlation between
very high CEO pay and long-term stock performance.
(http://www.ufenet.org/press/2001/Bigger They Come.pdf)
RESOLVED: shareholders request the Board's Compensation Committee to
prepare and make available by January 1, 2004 a report (omitting
confidential information and prepared at reasonable cost) to requesting
shareholders comparing the total compensation of the company's top
executives and its lowest paid workers both in this country and abroad on
January 1, 1982, 1992 and 2002. We request the report include: statistics
related to any changes in the relative percentage size of the gap between
the two groups; the rationale justifying any such percentage change;
whether our top executives' compensation packages (including options,
benefits, perks, loans and retirement agreements) are "excessive" and
should be changed; as well as any recommendations to adjust the pay "to
more reasonable and justifiable levels".
SUPPORTING STATEMENT
Our Company fits William J. McDonough's "strong company" category. Our pay
scales should model justice and equity for all our workers. Supporting this
resolution would be one step in this direction."
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST ON THE PROPOSAL IS
REQUIRED FOR APPROVAL OF THIS PROPOSAL. ABSTENTIONS AND BROKER NON-VOTES, IF
ANY, ARE NOT COUNTED AS VOTES CAST, AND THEREFORE DO NOT AFFECT THE OUTCOME OF
THE PROPOSAL.
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION
TO THE STOCKHOLDER PROPOSAL
Your Board of Directors believes that the proposal is contrary to the
interests of El Paso and our stockholders and, accordingly, is recommending that
our stockholders vote AGAINST the proposal for the following reasons:
The Board of Directors believes that executive compensation should be
reviewed from time to time and does so through its Compensation Committee, which
regularly reviews the compensation packages of El Paso's executive officers. The
Compensation Committee consists of five non-employee directors who consider the
advice of independent compensation consultants in setting executive
compensation. The Compensation Committee considers proposals with respect to the
creation of, and changes to, executive compensation plans and reviews
appropriate criteria for establishing performance targets and determining annual
corporate and executive performance ratings.
The Compensation Committee believes that the compensation program of
executive officers should not only be adequate to attract, motivate and retain
competent executive personnel, but should also be directly and materially
related to the short-term and long-term objectives and operating performance of
El Paso. To achieve these ends, executive compensation is, to a significant
extent, dependent upon El Paso's financial performance and the return on its
common stock. The Board of Directors believes that such an arrangement is
necessary to make certain that the interests of El Paso's executives are aligned
with those of its stockholders. However, to ensure that El Paso is strategically
and competitively positioned for the future, the Compensation Committee also has
the discretion to attribute weight to other factors in determining executive
compensation.
The Board of Directors and the Compensation Committee are sensitive to
social concerns and believe the executive officers and El Paso are addressing
these concerns appropriately. In the judgment of the Board of Directors, the
Compensation Committee's Report on Executive Compensation, beginning on page 31
of this Proxy Statement, adequately sets forth the factors that are taken into
consideration in determining executive compensation. As a result, the Board of
Directors believes that conducting an additional special review as proposed by
the stockholder would be unnecessary, time consuming and needlessly costly.
To summarize, your Board of Directors believes that the proposal of The
Catholic Funds and Catholic Healthcare West is not in the best interests of El
Paso or its stockholders. WE URGE STOCKHOLDERS
47
TO VOTE AGAINST THIS PROPOSAL. Proxies solicited by the Board of Directors will
be so voted unless the stockholder otherwise specifies.
WE RECOMMEND THAT YOU VOTE "AGAINST" THIS STOCKHOLDER PROPOSAL FOR A REPORT ON
PAY DISPARITY.
PROPOSAL NO. 10 -- STOCKHOLDER PROPOSAL: INDEXED OPTIONS FOR SENIOR EXECUTIVES
The Massachusetts Laborers' Pension Fund, 14 New England Executive Park,
Suite 200, P.O. Box 4000, Burlington, MA 01803, owner of 3,576 shares of common
stock, has indicated that it will present a proposal for action at the 2003
Annual Meeting as follows:
"INDEXED OPTIONS PROPOSAL
Resolved, that the shareholders of El Paso Corporation (the "Company")
request that the Board of Directors adopt an executive compensation policy
that all future stock option grants to senior executives shall be
performance-based. For the purposes of this resolution, a stock option is
performance-based if the option exercise price is indexed or linked to an
industry peer group stock performance index so that the options have value
only to the extent that the Company's stock price performance exceeds the
peer group performance level.
STATEMENT OF SUPPORT: As long-term shareholders of the Company, we support
executive compensation policies and practices that provide challenging
performance objectives and serve to motivate executives to achieve
long-term corporate value maximization goals. While salaries and bonuses
compensate management for short-term results, the grant of stock and stock
options has become the primary vehicle for focusing management on achieving
long-term results. Unfortunately, stock option grants can and do often
provide levels of compensation well beyond those merited. It has become
abundantly clear that stock option grants without specific
performance-based targets often reward executives for stock price increases
due solely to a general stock market rise, rather than to extraordinary
company performance.
One type of indexed stock option is an option whose exercise price moves
with an appropriate peer group index composed of a company's primary
competitors. The resolution requests that the Company's Board ensure that
future senior executive stock option plans link the options exercise price
to an industry performance index associated with a peer group of companies
selected by the Board, such as those companies used in the Company's proxy
statement to compare 5 year stock price performance.
Implementing an indexed stock option plan would mean that our Company's
participating executives would receive payouts only if the Company's stock
price performance was better then that of the peer group average. By tying
the exercise price to a market index, indexed options reward participating
executives for outperforming the competition. Indexed options would have
value when our Company's stock price rises in excess of its peer group
average or declines less than its peer group average stock price decline.
By downwardly adjusting the exercise price of the option during a downturn
in the industry, indexed options remove pressure to reprice stock options.
In short, superior performance would be rewarded.
At present, stock options granted by the Company are not indexed to peer
group performance standards. As long-term owners, we feel strongly that our
Company would benefit from the implementation of a stock option program
that rewarded superior long-term corporate performance. In response to
strong negative public and shareholder reactions to the excessive financial
rewards provided executives by non-performance based option plans, a
growing number of shareholder organizations, executive compensation
experts, and companies are supporting the implementation of
performance-based stock option plans such as that advocated in this
resolution. We urge your support for this important governance reform."
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST ON THE PROPOSAL IS
REQUIRED FOR APPROVAL OF THIS PROPOSAL. ABSTENTIONS AND BROKER NON-VOTES, IF
ANY, ARE NOT COUNTED AS VOTES CAST, AND THEREFORE DO NOT AFFECT THE OUTCOME OF
THE PROPOSAL.
48
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION
TO THE STOCKHOLDER PROPOSAL
Your Board of Directors believes that the proposal is contrary to the
interests of El Paso and our stockholders and, accordingly, is recommending that
our stockholders vote AGAINST the proposal for the following reasons:
The Board of Directors believes that the 2001 Omnibus Incentive
Compensation Plan provides incentives to El Paso's executives that at the same
time are linked directly to the interests of our stockholders, competitive with
those of our peer group, and performance based. Stock options have value only if
the underlying stock price appreciates following the date of grant. Accordingly,
under the 2001 Omnibus Incentive Compensation Plan, executives' interests are
linked directly to those of stockholders. Alignment of the interests of
executives with those of stockholders is less clear under an indexed stock
option plan, particularly when the exercise price of the option decreases with a
decline in the index. In that instance, executives would benefit from a decline
in the index while stockholders would not. As a consequence of the poor
alignment of interests with stockholders generally, this option mechanism is not
used by El Paso.
The Board of Directors also believes that using such a mechanism would put
El Paso at a disadvantage against those with which it competes for executive
talent. Moreover, in determining compensation (including the number of options
granted to an executive), El Paso's Compensation Committee already considers a
comparative analysis of compensation plans of other companies in El Paso's peer
group. The peer group consists of a majority of the companies included in the
S&P Multi-Utilities & Unregulated Power along with certain additional companies
that the Compensation Committee believes represent El Paso's most direct
competition for executive talent.
Most important, the Board of Directors believes that, under its approach to
executive compensation decisions, executives receive performance-based
compensation. As noted above, the value the executives realize from stock
options they receive under our 2001 Omnibus Incentive Compensation Plan is based
upon their performance as reflected by increases in our stock price. Moreover,
the Compensation Committee's recommendations on compensation for an executive
officer are based on its overall analysis of the executive's performance and
competitive market practices. In addition, the Compensation Committee considers
advice provided by an independent executive compensation consultant on market
compensation and performance in making its recommendations. Thus, the Board of
Directors believes that it has already established a process that enables it to
fairly determine and properly make performance-based compensation decisions with
respect to El Paso's executive officers. The Board of Directors believes that it
should maintain the flexibility to make these decisions based on a review of all
relevant information, including specific financial and non-financial performance
results, without imposing a rigid, pre-set mathematical formula which may not
take into account the overall results achieved by El Paso during the course of
the year.
In addition, under El Paso's current financial reporting policies for stock
options, El Paso is not required to reflect a compensation expense in its net
earnings if the exercise price of the options granted equals or exceeds our
stock's fair market value on the date of grant. If the proposal were adopted,
additional compensation expense might have to be recognized in El Paso's income
statement. This could negatively impact El Paso's reported financial performance
as compared to other companies and add volatility to El Paso's earnings.
For the reasons described above, the Board of Directors believes that the
proposal of Massachusetts Laborers' Pension Fund is inconsistent with El Paso's
executive compensation principles and practices and not in the best interests of
our stockholders. WE URGE STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL. Proxies
solicited by the Board of Directors will be so voted unless the stockholder
otherwise specifies.
WE RECOMMEND THAT YOU VOTE "AGAINST" THIS STOCKHOLDER PROPOSAL FOR INDEXED
OPTIONS FOR SENIOR EXECUTIVES.
49
PROPOSAL NO. 11 -- STOCKHOLDER PROPOSAL: APPROVAL OF ANY ADOPTION OF POISON
PILLS
Mr. Chris Rossi, Custodian for Victor Rossi, P.O. Box 249, Boonville, CA
95415, the beneficial owner of 130 shares of common stock, has indicated that he
will present a proposal for action at the 2003 Annual Meeting as follows:
"SHAREHOLDER VOTE ON POISON PILLS
THIS TOPIC WON AN AVERAGE 60%-YES VOTE AT 50 COMPANIES IN 2002
This is to recommend that the Board of Directors redeem any poison pill
previously issued (if applicable) and not adopt or extend any poison pill
unless such adoption or extension has been submitted to a shareholder vote.
HARVARD REPORT
A 2001 Harvard Business School study found that good corporate governance
(which took into account whether a company has a poison pill) was
positively and significantly related to company value. This study,
conducted with the University of Pennsylvania's Wharton School, reviewed
the relationship between the corporate governance index for 1,500 companies
and company performance form 1990 to 1999.
Some believe that a company with good governance will perform better over
time, leading to a higher stock price. Others see good governance as a
means of reducing risk, as they believe it decreases the likelihood of bad
things happening to a company.
Since the 1980s Fidelity, a mutual fund giant with $800 billion invested,
has withheld votes for directors at companies that have approved poison
pills, Wall Street Journal, June 12, 2002.
COUNCIL OF INSTITUTIONAL INVESTORS RECOMMENDATION
The Council of Institutional Investors www.cii.org, an organization of 120
pension funds which invests $1.5 trillion, called for shareholder approval
of poison pills. In recent years, various companies have been willing to
redeem existing poison pills or seek shareholder approval for their poison
pill. This includes Columbia/HCA, McDermott International and Bausch &
Lomb. I believe that our company should follow suit and allow shareholder
participation.
SHAREHOLDER VOTE ON POISON PILLS
YES ON 11"
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST ON THE PROPOSAL IS
REQUIRED FOR APPROVAL OF THIS PROPOSAL. ABSTENTIONS AND BROKER NON-VOTES, IF
ANY, ARE NOT COUNTED AS VOTES CAST, AND THEREFORE DO NOT AFFECT THE OUTCOME OF
THE PROPOSAL.
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION
TO THE STOCKHOLDER PROPOSAL
Your Board of Directors believes that the proposal is contrary to the
interests of El Paso and our stockholders and, accordingly, is recommending that
our stockholders vote AGAINST the proposal for the following reasons:
Mr. Rossi's proposal makes several assertions about rights plans that, in
the judgment of the Board of Directors, are incorrect. The Board of Directors
also believes that the portion of Mr. Rossi's proposal "recommend[ing] that the
Board of Directors redeem any poison pills" has already been implemented and is
therefore moot. Accordingly, the Board of Directors recommends a vote against
the proposal for the reasons set forth below.
Mr. Rossi recommends that "the Board of Directors redeem any poison pill
previously issued." In July 2002 after stockholders voted at our 2002 Annual
Meeting to recommend that our Board of Directors redeem
50
the rights plan we then had in place, the Board of Directors declined to renew
El Paso's rights plan, thereby allowing it to expire. The Board of Directors
believes that its decision not to renew El Paso's expired rights plan
sufficiently addresses this portion of Mr. Rossi's proposal.
Mr. Rossi also recommends that the Board of Directors "not adopt or extend
any poison pill unless such adoption or extension has been submitted to a
shareholder vote." The Board of Directors believes that the adoption of a rights
plan is within the scope of responsibilities of the Board of Directors, acting
on behalf of all stockholders. Moreover, neither Delaware corporate law nor the
rules of the securities exchanges upon which El Paso's shares are listed require
stockholder approval for the adoption of a rights plan.
The Board of Directors' commitment has always been, and always will be, to
serve the best interest of El Paso's stockholders. The Board of Directors' legal
responsibilities and duties require it to act in the best interest of El Paso,
including protecting stockholder interests in the event of a takeover bid. As
stated above, El Paso does not currently have a rights plan in place. However, a
rights plan can protect stockholders' interests by encouraging potential
acquirors to negotiate directly with the Board of Directors, and thereby allow
the Board to evaluate the adequacy and fairness of any proposed offer, to
negotiate on behalf of stockholders and to act promptly without the delay
associated with a stockholder vote. Additionally, a rights plan affords the
Board of Directors the opportunity and additional time to consider an offer and
all possible alternatives. Requiring a prior stockholder vote on a plan would
prevent the Board from responding quickly to a hostile takeover bid, thus
limiting the Board's ability to negotiate effectively and protect stockholders'
interests.
In summary, the Board recommends voting against this proposal, in part,
because it is moot, and, in part, because it could limit the Board's future
ability to act in the stockholders' best interests. WE URGE THE STOCKHOLDERS TO
VOTE AGAINST THIS PROPOSAL. Proxies solicited by the Board of Directors will be
so voted unless the stockholder otherwise specifies.
WE RECOMMEND THAT YOU VOTE "AGAINST" THIS STOCKHOLDER PROPOSAL FOR THE APPROVAL
OF ANY ADOPTION OF POISON PILLS.
51
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires El Paso's
directors, certain officers and beneficial owners of more than 10% of a
registered class of El Paso's equity securities to file reports of ownership and
reports of changes in ownership with the SEC and the New York Stock Exchange.
Directors, officers and beneficial owners of more than 10% of El Paso's equity
securities are also required by SEC regulations to furnish El Paso with copies
of all such reports that they file. Based on El Paso's review of copies of such
forms and amendments provided to it, El Paso believes that all filing
requirements were complied with during the fiscal year ended December 31, 2002.
By Order of the Board of Directors
/s/ David L. Siddall
David L. Siddall
Corporate Secretary
Houston, Texas
[ ], 2003
Exhibits: A -- Audit Committee Charter
B -- Compensation Committee Charter
C -- Governance Committee Charter
D -- Finance Committee Charter
E -- Corporate Governance Guidelines
F -- Participant Information
52
EXHIBIT A
(EL PASO CORPORATION)
AUDIT COMMITTEE CHARTER
OBJECTIVES
The Audit Committee is a committee of the Board of Directors. Its primary
functions are to (A) assist the Board in fulfilling its oversight
responsibilities relating to the integrity of the Company's financial
statements, the Company's compliance with legal and regulatory requirements
(including disclosure controls and procedures), the engagement of independent
auditors and the evaluation of the independent auditor's qualifications,
independence and performance and the performance of the Company's internal audit
functions and (B) prepare any reports by the Audit Committee required for
inclusion in the Company's proxy statement. The Audit Committee provides an open
avenue of communication between the internal auditors, the independent
accountants, and the Board of Directors.
MEMBERSHIP AND POLICIES
- The Board of Directors, based upon a recommendation by the Governance
Committee of the Board of Directors, shall appoint the Chairperson and
members of the Committee annually. The Audit Committee shall be composed
of not less than three members of the Board, each of whom shall be
"independent" (as such term is defined pursuant to Section 10A of the
Securities Exchange Act of 1934, and the rules adopted by the New York
Stock Exchange). Members of the Committee may be removed from the
Committee by action of the full Board.
- Each member of the Audit Committee shall be financially literate, as such
qualification is interpreted by the Company's Board in its business
judgment.
- Subject to any phase-in period adopted by the Securities and Exchange
Commission ("SEC"), at least one member of the Audit Committee shall be a
"financial expert," as such term is defined in rules adopted by the SEC
and interpreted by the Company's Board in its business judgment;
provided, however, that if at least one member of the Audit Committee is
not determined by the Board to be a "financial expert," then the Company
shall disclose such determination as required by applicable SEC rules.
- If an Audit Committee member serves on the audit committee of more than
three public companies, the Board shall be required to determine that the
simultaneous service does not impair the Audit Committee member's ability
to effectively serve on this Company's Audit Committee and disclose such
determination in the Company's annual proxy statement.
- The Audit Committee shall have the authority to engage independent
counsel and other advisers, as it determines necessary to carry out its
duties. Such engagement shall not require approval of the Board. The
Company shall provide appropriate funding for independent counsel and
other advisers retained by the Audit Committee.
- The Audit Committee shall meet at least quarterly or more frequently as
circumstances require.
A-1
- In discharging its duties under this Charter, the Committee may
investigate any matter brought to its attention with full access to all
books, records, facilities and personnel of the Company, may conduct
meetings or interview with any officer or employee of the Company, the
Company's outside counsel, internal audit service providers, independent
auditors, or consultants to the Committee and may invite any such persons
to attend one or more meetings of the Committee.
- The Committee may designate one or more subcommittees consisting of at
least one member to address specific issues on behalf of the Committee.
- A Secretary, who need not be a member of the Committee, shall be
appointed by the Committee to keep minutes of all meetings of the
Committee and such other records as the Committee deems necessary and
appropriate.
- The Audit Committee shall make regular reports to the Board on its
activities.
FUNCTIONS
A. INDEPENDENT AUDITOR
- The Audit Committee shall be directly responsible for the appointment,
termination, compensation, retention and oversight of the work of the
independent auditing firm employed by the Company (including resolution
of disputes between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or
related work, and the independent auditor shall report directly to the
Audit Committee. The Committee's selection of the Company's independent
auditor may be subject to shareholder approval if required by law or by
the Company's Restated Certificate of Incorporation or By-laws. All
auditing services and permitted non-audit services provided to the
Company by the independent auditor shall be pre-approved by the Audit
Committee in accordance with applicable law and the Committee shall
consider whether the provision of any non-audit services is compatible
with the auditor's independence. These responsibilities do not preclude
the Committee from obtaining the input of management, but these
responsibilities may not be delegated to management. Similarly, while the
Committee retains ultimate oversight over the independent audit function,
management may consult with the independent auditor whenever necessary.
- The Audit Committee shall evaluate, at least annually, the auditor's
qualifications, performance and independence. In connection with each
such evaluation, the Audit Committee shall obtain and review a formal
written report by the independent auditors which (a) describes the audit
firm's internal quality control procedures, (b) describes any material
issues raised by the most recent internal quality control review or peer
review of the auditing firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, with respect to one or more independent audits carried out by the
auditing firm and steps taken to address the issues, and (c) delineates
all relationships between the independent auditors and the Company in
order to assess the auditor's independence. The Audit Committee shall
also review and evaluate the lead partner of the independent auditor. In
making its evaluations, the Audit Committee shall consult with and take
into consideration the opinions of management and the Company's internal
auditors. The Audit Committee shall present its conclusions with respect
to the independent auditor to the Board.
- In addition to assuring the regular rotation of audit partners as
required by law, the Audit Committee shall consider whether, in order to
ensure continuing auditor independence, there should be regular rotation
of the audit firm itself.
- The Audit Committee shall set clear hiring policies for employees or
former employees of the independent auditor in compliance with applicable
law. At a minimum, the Audit Committee will adopt hiring policies in
compliance with Section 10A(l) of the Securities Exchange Act of 1934.
A-2
B. OVERSIGHT OF FINANCIAL STATEMENTS AND INTERNAL CONTROLS AND PROCEDURES
- The Audit Committee shall meet with management and the independent
auditor to discuss the annual and quarterly financial statements
(including the Management Discussion and Analysis of Financial Condition
and Results of Operations), and to discuss such other filings with the
Securities and Exchange Commission as the Committee deems necessary. The
Audit Committee shall review and discuss the financial information to be
included in the Company's quarterly reports on Form 10-Q and annual
reports on Form 10-K and shall include a review and discussion of any
matters required to be communicated to the Committee by the independent
auditors under generally accepted accounting standards, applicable law or
regulation, or applicable listing standards. Following such a review and
discussion of the financial information to be included in the annual
report on Form 10-K, the Committee shall make a determination whether to
recommend to the Board that the audited financial statements be included
in the Company's annual report on Form 10-K.
- The Audit Committee shall discuss the types of information to be
disclosed, and the type of presentation to be made, with regard to
earnings press releases and financial information and earnings guidance
given to analysts and rating agencies with a special emphasis on
reviewing pro forma or adjusted non-GAAP data.
- The Audit Committee shall meet periodically with management to discuss
risk assessment, risk management guidelines and policies and the
Company's significant financial risk exposures, as well as the steps
management has taken to monitor and control these exposures. By such
review, the Audit Committee does not assume responsibility for risk
management.
- The Audit Committee may meet in executive session (without management or
independent auditors present), and shall meet, at least once a quarter,
with each of Company management, the head of internal audit and the lead
partner of the independent auditor in separate executive sessions.
- The Audit Committee shall review with the Corporate Controller and the
independent auditor any changes in accounting policies as well as any
other significant financial reporting issues.
- The Audit Committee shall review with the independent auditors (a) plans,
staffing and scope for each annual audit, (b) the results of the annual
audit and resulting opinion (including major issues regarding accounting
and auditing principles and practices), and (c) the adequacy of the
Company's internal controls including any annual report of management on
internal controls and any attestation of such report by the independent
auditors.
- The Audit Committee shall review with the independent auditors any audit
problems or difficulties and management's responses, including (a)
accounting adjustments that the auditors noted or proposed but were
"passed" (as immaterial or otherwise), (b) any significant disagreements
with management, (c) any restrictions on the scope of activities or
access to information, (d) communications between the audit team and its
national office with respect to issues presented by the engagement team,
and (e) any management or internal control letter issued or proposed to
be issued by the audit firm to the Company. This review shall also
include discussion of the responsibilities, budget and staffing of the
Company's internal audit functions.
- The Committee shall review with the Chief Executive Officer, the Chief
Financial Officer and the General Counsel the Company's disclosure
controls and procedures and shall review periodically, but in no event
less frequently than quarterly, management's conclusions about the
efficacy of such disclosure controls and procedures, including any
significant deficiencies in, or material non-compliance with, such
controls and procedures.
- The Audit Committee shall establish and maintain procedures for (a) the
receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters,
and (b) the confidential, anonymous submission by employees of the
Company of concerns regarding questionable accounting our auditing
matters.
A-3
- The Audit Committee shall review with management and the independent
auditor any correspondence with regulators or government agencies and any
employee complaints or published reports which raise issues regarding the
Company's financial statements or accounting policies.
- The Audit Committee shall meet periodically with the Company's general
counsel and other appropriate legal staff of the Company to review
material legal affairs of the Company, the Company's compliance policies
and any material reports or inquiries received from regulators or
governmental agencies.
- The Audit Committee shall prepare the report for inclusion in the
Company's annual proxy statement, in accordance with applicable rules and
regulations of the Securities and Exchange Commission and the New York
Stock Exchange, as applicable.
C. INTERNAL AUDIT
- The Audit Committee shall discuss with management and the internal
auditor and review the internal audit function established by the Company
as required by the New York Stock Exchange.
- The Audit Committee shall participate in the selection or removal of the
head of internal audit.
- The Audit Committee shall review annually with the head of internal
audit: (a) audit plans and scope for internal audit activities, (b)
results of audits performed, (c) adequacy of the Company's internal
controls, (d) a summary of compliance with the Company's Code of Business
Conduct, and (e) the internal audit department charter.
- The Audit Committee shall review with the head of internal audit and the
independent auditor the coordination of the audit effort to ensure
completeness of coverage, reduction of redundant efforts, and the
effective use of audit resources.
- The Audit Committee shall meet, on a quarterly basis, with the head of
internal audit, the independent auditor and management to discuss (a) all
significant deficiencies in the design or operation of internal controls
which could adversely affect the Company's ability to record, process,
summarize, and report financial data, and any material weakness in
internal controls, and (b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
Company's internal controls.
D. OTHER DUTIES AND FUNCTIONS
- The Audit Committee shall review and reassess the adequacy of this
charter at least annually and submit any proposed changes to the Board
for approval.
- The Audit Committee shall conduct an annual performance evaluation in
accordance with the rules adopted by the New York Stock Exchange, which
may be done in conjunction with the annual evaluations of the Board and
committees thereof conducted by the Governance Committee.
- The Audit Committee will perform such other functions as assigned by law,
the Company's restated certificate of incorporation or By-laws, or the
Board of Directors.
- While the Audit Committee has the responsibilities and powers set forth
in this Charter, members of the Audit Committee are not employees of the
Company and are entitled to rely on the integrity of the Company's
management and the independent auditors. The Audit Committee has neither
the duty nor the responsibility to (1) conduct audit, accounting or legal
reviews, or (2) ensure that the Company's financial statements are
complete, accurate and in accordance with GAAP. Rather, the Company's
management is responsible for the Company's financial reporting process,
internal audit process, and the preparation of the Company's financial
statements in accordance with GAAP. The Company's independent auditors
are responsible for auditing those financial statements.
Effective: February 14, 2003
A-4
EXHIBIT B
(EL PASO CORPORATION LOGO)
COMPENSATION COMMITTEE CHARTER
OBJECTIVES
The Compensation Committee is a committee of the Board of Directors. The
Board of Directors has delegated to the Compensation Committee its
responsibilities relating to compensation of the Company's executive officers
and other senior level management. The primary function of the Compensation
Committee is to review the executive compensation program of the Company to
ensure that it is adequate to attract, motivate and retain competent executive
personnel and that it is directly and materially related to the short-term and
long-term objectives of the Company and its stockholders as well as the
operating performance of the Company.
MEMBERSHIP AND POLICIES
- The Board of Directors, based upon a recommendation by the Governance
Committee of the Board of Directors, shall appoint the Chairperson and
members of the Committee annually. The Committee shall consist of a
minimum of two members of the Board. In accordance with rules adopted by
the New York Stock Exchange and subject to any applicable phase-in
periods, each member of the Committee shall be "independent" as that term
is defined under such rules. Members of the Committee may be removed from
the Committee by action of the full Board.
- The Compensation Committee shall meet a minimum of two times per calendar
year or more frequently as circumstances require.
- A Secretary, who need not be a member of the Committee, shall be
appointed by the Committee to keep minutes of all meetings of the
Committee and such other records as the Chairperson deems necessary or
appropriate.
- The Committee may designate a subcommittee consisting of at least one
member to address specific issues on behalf of the Committee.
- The Committee shall report periodically to the Board on its activities.
FUNCTIONS
- The Compensation Committee shall periodically review and approve the
Company's stated compensation strategy to ensure that management is
rewarded appropriately for its contributions to Company growth and
profitability and that the executive compensation strategy supports
organization objectives and stockholder interests.
- The Compensation Committee shall ensure the executive compensation
program of the Company is directly related to the Company's financial
performance and return on Company common stock, and the performance of
the individual executive officer.
B-1
- The Compensation Committee shall review appropriate criteria for
establishing performance targets and determining annual corporate and
executive performance ratings.
- The Compensation Committee shall determine appropriate levels of
executive compensation by periodically conducting a thorough competitive
evaluation, reviewing proprietary and proxy information, and consulting
with and receiving advice from an independent executive compensation
consulting firm.
- The Compensation Committee has the ultimate authority and responsibility
to select, evaluate and, where appropriate, replace the independent
executive compensation consulting firm, including the sole authority to
approve the firm's fees and other retention terms.
- The Compensation Committee shall ensure that the Company's executive
stock option plan, long-term incentive compensation plan, annual
incentive compensation plan and other executive compensation plans are
administered in accordance with stated compensation objectives, and shall
make recommendations to the Board of Directors with respect to such
plans.
- The Compensation Committee shall approve (or recommend to the full Board
of Directors for approval), subject, where appropriate, to submission to
stockholders, all new equity-based compensation programs.
- The Compensation Committee shall review the Company's employee benefit
and compensation programs and approves management recommendations
subject, where appropriate, to stockholder or Board of Director approval.
- The Compensation Committee shall consider proposals with respect to the
creation of and changes to the Company's executive compensation program.
- The Compensation Committee shall review annually and approve the
individual elements of total compensation for the Chief Executive Officer
and other executive officers of the Company and prepares a report on the
factors and criteria on which their compensation was based, including the
relationship of the Company's performance to their compensation.
- The Compensation Committee shall prepare and provide a report to
stockholders of the Company on executive compensation for inclusion in
the Company's annual proxy statement, in accordance with applicable rules
and regulations of the Securities and Exchange Commission.
- The Compensation Committee shall periodically review and make
recommendation to the full Board regarding annual retainer and meeting
fees for the Board of Directors and committees of the Board and shall
propose the terms and awards of equity compensation for members of the
Board, provided that any such recommendations and proposals shall be made
in consultation with the Governance Committee.
- The Compensation Committee shall review and assess the adequacy of the
Committee charter periodically.
- The Compensation Committee shall conduct an annual performance evaluation
of the Compensation Committee, which may be done in conjunction with the
annual evaluations of the Board and committees thereof conducted by the
Governance Committee.
- The Compensation Committee will perform such other functions as assigned
by law, the Company's restated certificate of incorporation or By-laws,
or the Board.
Effective: January 29, 2003
B-2
EXHIBIT C
(EL PASO CORPORATION LOGO)
GOVERNANCE COMMITTEE CHARTER
OBJECTIVES
The Governance Committee is a committee of the Board of Directors. The
Board of Directors has delegated to the Governance Committee its
responsibilities relating to corporate governance and criteria for Board
selection. The primary function of the Governance Committee is to develop and
recommend to the Board a set of corporate governance principles applicable to
the Company, review the qualifications of candidates for Board membership,
screen and interview possible candidates for Board membership and communicate
with members of the Board regarding Board meeting format and procedures.
Further, the Governance Committee shall consider any nominations submitted by
the stockholders to the Corporate Secretary in accordance with the Company
By-laws.
MEMBERSHIP AND POLICIES
- The Board of Directors, based upon a recommendation by the Chairman of
the Board, shall appoint the Chairperson and members of the Committee
annually. The Committee shall consist of a minimum of two members of the
Board. In accordance with the rules adopted by the New York Stock
Exchange and subject to any applicable phase-in period, each member shall
be "independent" as that term is defined under such rules. Members of the
Committee may be removed from the Committee by action of the full Board.
- The Committee shall meet at such times as the Chairperson shall
determine, preferably in conjunction with regular Board meetings.
Meetings may, at the discretion of the Committee, include members of
management, independent consultants and such other persons as the
Committee shall determine. The Committee, in discharging its
responsibilities, may meet privately for advice and counsel with
independent consultants, lawyers, or any other persons knowledgeable in
the matters under consideration. The Committee may also meet by telephone
conference call or any other means permitted by law or the Company's
By-laws.
- A Secretary, who need not be a member of the Committee, shall be
appointed by the Committee to keep minutes of all meetings of the
Committee and such other records as the Chairperson deems necessary or
appropriate.
- The Committee may designate a subcommittee consisting of at least one
member to address specific issues on behalf of the Committee.
- The Committee shall report periodically to the Board on its activities.
FUNCTIONS
- The Governance Committee shall develop and recommend to the Board a set
of corporate governance guidelines applicable to the Company, and, as
appropriate, recommend to the Board certain criteria (in addition to
those criterion required by applicable law) to determine a director's
independence.
C-1
- Subject to actions by the Board and stockholders, the Governance
Committee shall assure that the Board is composed of a majority of
independent directors in accordance with the rules adopted by the New
York Stock Exchange and subject to any applicable periods.
- The Governance Committee shall monitor the size and composition of the
Board.
- The Governance Committee shall review qualifications of candidates for
Board membership recommended by Directors, officers, employees,
stockholders and others in accordance with procedures established by the
Company's corporate governance guidelines, applicable laws and
regulations, and the Committee.
- The Governance Committee shall screen and interview possible qualified
candidates for Board membership and aid the Chairman of the Board in
attracting qualified candidates, as the Chairman may request.
- The Governance Committee shall provide a recommendation to the Board for
the director nominees for the next annual meeting of stockholders.
- The Governance Committee has the ultimate authority and responsibility to
select, evaluate and, where appropriate, replace any search firm to be
used to identify qualified director candidates, including the sole
authority to approve the search firm's fees and other retention terms.
- The Governance Committee shall develop and recommend to the Board a
policy on potential conflicts of interest, including, but not limited to,
the policies on (1) Company loans to officers and employees (if allowed
by law), (2) related-party transactions (including any dealings with
directors, officers or employees), and (3) such other transactions that
could have the appearance of a potential conflict of interest.
- The Governance Committee shall monitor and report to the Board whether
there is any current relationship between any non-management director and
the Company that may adversely affect the independent judgment of the
Director.
- The Governance Committee shall communicate, from time to time, with
members of the Board regarding Board meeting format and procedures.
- The Governance Committee shall review the need for any changes in the
number, charters, or titles of Board committees and provide a
recommendation to the Board for consideration.
- The Governance Committee shall review and assess the adequacy of the
Committee charter periodically.
- The Governance Committee will oversee the annual performance evaluation
of the Board.
- The Governance Committee shall conduct an annual performance evaluation
of the Governance Committee, the results of which shall be reported to
the full Board.
- The Governance Committee shall ensure that the chairperson of each other
Board committee conducts a performance evaluation of his or her
committee, the results of which shall be reported to the full Board.
- The Governance Committee will perform such other functions as assigned by
law, the Company's restated certificate of incorporation or By-laws, or
the Board.
- The Governance Committee shall take such other actions necessary or
appropriate to assure that other activities prescribed by the corporate
governance guidelines are carried out.
Effective: January 29, 2003
C-2
EXHIBIT D
(EL PASO CORPORATION LOGO)
FINANCE COMMITTEE CHARTER
OBJECTIVES
The Finance Committee is a committee of the Board of Directors. Its primary
function is to assist the Board in fulfilling its oversight responsibilities by
monitoring, reviewing, appraising and recommending to the Board of Directors
appropriate action with respect to the Company's capital structure, its source
of funds, its liquidity and its financial position.
MEMBERSHIP AND POLICIES
- The Board of Directors, based upon a recommendation by the Governance
Committee of the Board of Directors, shall appoint the Chairperson and
members of the Committee annually. The Committee shall consist of a
minimum of two members of the Board. Members of the Committee may be
removed from the Committee by action of the full Board.
- The Committee shall meet a minimum of one time per calendar year or more
frequently as circumstances require.
- A Secretary, who need not be a member of the Committee, shall be
appointed by the Committee to keep minutes of all meetings of the
Committee and such other records as the Chairperson deems necessary or
appropriate.
- The Committee may designate a subcommittee consisting of at least one
member to address specific issues on behalf of the Committee.
- The Committee shall report periodically to the Board on its activities.
POWERS
- To the extent the Board of Directors delegates the same to the Committee,
it may exercise the powers and authority of the Board with respect to
authorizing, arranging, effectuating, modifying, replacing or terminating
Company financings.
- To approve certain expenditures, as delegated by the Board of Directors.
- The Committee may request that any officer or employee of the Company
attend and participate in any meeting of the Committee.
- The Committee may meet with the Company's investment bankers and
financial advisors.
FUNCTIONS
- The Finance Committee shall review and recommend to the Board of
Directors the long-range financial plan of the Company as reflected in
the annual strategic plan and capital budget.
D-1
- The Finance Committee shall recommend to the Board of Directors financial
policies that maintain or improve the financial strength of the Company.
- The Finance Committee shall review terms and conditions of financing
plans, including the issuance of securities, corporate borrowings,
off-balance sheet structures, investments, and shall make recommendations
to the full Board of Directors on such financings.
- The Finance Committee shall review and recommend appropriate delegations
of authority to management on expenditures and other financial
commitments.
- The Finance Committee shall develop and recommend dividend policies and
recommend to the Board of Directors specific dividend payments.
- The Finance Committee shall review and make recommendations to the full
Board of Directors concerning the adoption, implementation and
continuation of a stock repurchase program.
- The Finance Committee shall review with management and report to the
Board, on an annual basis, the interest rate and foreign currency risk
management strategies and positions of the Company.
- The Finance Committee shall review with management and report to the
Board, on an annual basis, the investment performance and other similar
performance measures of the defined benefit and defined contribution
plans of the Company.
- The Finance Committee shall review and assess the adequacy of the
Committee charter periodically.
- The Finance Committee shall conduct an annual performance evaluation of
the Finance Committee, which may be done in conjunction with the annual
evaluations of the Board and committees thereof conducted by the
Governance Committee.
- The Finance Committee shall perform such other functions as assigned by
law, the Company's restated certificate of incorporation or By-laws, or
the Board of Directors.
While the Committee has the responsibilities set forth in the Committee
charter, it is not the duty of the Committee to (1) determine that the Company's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles; (2) ensure that the Company complies
with laws, regulations, financial covenants or other obligations; (3) address
issues related to the Company's welfare or benefit plans, including, without
limitation, any such plans subject to the Employee Retirement Income Security
Act of 1974, as amended from time to time; or (4) take any action or assume any
responsibility delegated to another committee of the Board.
Effective: January 28, 2003
D-2
EXHIBIT E
EL PASO CORPORATION
CORPORATE GOVERNANCE GUIDELINES
El Paso Corporation's Board of Directors believes that sound corporate
governance policies and practices provide an essential foundation to assist the
Board in fulfilling its responsibilities. These guidelines, which are to be
reviewed periodically by the Governance Committee of the Board, are set forth
below:
BOARD STRUCTURE
1. Number of Directors. The Board will normally consist of between 9 and
14 members, although the Board (pursuant to the Company's By-laws) may from time
to time change its size to accommodate the Company's needs. No more than
one-quarter of the Board members shall be from then current management. These
will include the Chairman of the Board (if an executive position), the
President, and the Chief Executive Officer and those additional persons
identified as the top management individuals within the Company.
2. Selection of Board Members and Director Qualification Standards. The
Governance Committee of the Board has the responsibility for making a
recommendation to the Board of a slate of directors to stand for election at the
annual meeting of the Company's stockholders. The Board's objective is to select
individuals with education, experience and skills necessary to assist management
in the operation of the Company's businesses. Because the experiences and advice
of those businesses facing similar issues is of particular value, current and
former senior officers of other major corporations are desirable nominees. In
selecting an individual to become a director, the Board will consider education;
business, governmental and civic experience; diversity; communication,
interpersonal, and other required skills; international background and other
matters which are relevant to this Board's objectives. Further, the Board will
consider these additional qualities in selecting individuals to serve as members
of the Board: independence; wisdom; integrity; an understanding and general
acceptance of our current corporate philosophy; a valid business or professional
knowledge and experience that can bear on our problems and deliberations; a
proven record of accomplishment with major corporations, educational or
governmental institutions; an inquiring mind; the willingness to speak one's
mind and ability to challenge and stimulate management; future orientation; and
the willingness to commit required time and energy.
3. Independence. A majority of the directors must be non-management
directors who meet the "independence" requirements of the New York Stock
Exchange listing requirements.
4. Director Responsibilities. Each director is expected to devote the
necessary time and attention to fulfill the obligations of a director, and is
expected to attend Board and committee meetings whenever possible. Directors are
expected to represent all of the stockholders effectively through the (a)
prudent exercise of judgment; (b) fair balance of interests of constituencies;
and (c) appropriate stewardship of Company resources. As a group, directors are
expected to set the appropriate policy for the Company, and to bring to the
Board broad experience in national and international business matters, a
diversity of experience, and an insight and awareness of the appropriate and
ever-changing role that large corporations should have in society.
5. Service on Other Boards. The Board believes that individuals should
limit the number of boards of publicly traded companies on which they serve in
order to give proper attention to their responsibility to each board. Therefore,
the Board has established the following limitations: (1) directors shall not
serve on the board of more than four other publicly traded companies and (2)
members of the Audit Committee shall not serve on the audit committee of more
than two other publicly traded companies. Exceptions to this policy will be
considered in appropriate circumstances by the Governance Committee or the
Board. Directors should notify the Chairman of the Governance Committee before
accepting a seat on the board of any other publicly traded company in order to
avoid conflicts of interests and to ensure that such service does not exceed the
limitations set forth above.
E-1
6. Board Leadership. The Board does not have a policy on whether the role
of the Chief Executive Officer and the Chairman of the Board should be separate,
or whether the Chairman of the Board should be a management or a non-management
director.
7. Lead Director Concept. When the Chairman of the Board is a management
director, the Board will also designate a non-management director as "Lead
Director." The Lead Director will chair executive sessions of the non-management
directors, and have such other duties as the Board may determine.
8. Committees of the Board. The Board shall have an Audit Committee,
Compensation Committee, Governance Committee, and such other committees as the
Board may determine from time to time. Members of the Audit Committee,
Compensation Committee and Governance Committee shall all meet the
"independence" requirements of the New York Stock Exchange listing requirements.
In addition, members of the Audit Committee shall meet any heightened
"independence" requirements established by applicable law, and at least one
member of the Audit Committee shall satisfy the definition of a "financial
expert" in accordance with rules adopted by the Securities and Exchange
Commission. The Board, in consultation with the Chief Executive Officer and in
compliance with applicable regulations, will determine the responsibilities and
membership of its committees. The committee chairperson, in consultation with
committee members, will determine the frequency and length of the meetings of
the committee, in accordance with applicable regulations and committee charters.
9. Retirement/Resignation. No director shall stand for reelection to the
office of director in the year following the year of his/her seventy-third
(73rd) birthday. Management directors are expected to submit a letter of
resignation at the time of retirement from active employment with the Company,
or when resigning from a top management position in the Company. At the
discretion of the Board, such former officer may be asked to continue as a Board
member until the normal retirement age. Non-management directors are expected to
submit a proposed letter of resignation under the following circumstances: (a)
when the director retires from his or her principal business organization or
other activity with which he or she was identified at the time of election to
the Board; (b) whenever the director's affiliation or position of principal
employment changes after election to the Board; (c) whenever the health or
physical condition of a director would prevent him or her from satisfactorily
fulfilling the responsibilities of the position; and (d) whenever the non-
management director's affiliation with another entity creates an interlocking
directorate or other potential conflict with this Company's business. In the
event that the proposed letter of resignation is not accepted, the director's
tenure will continue.
BOARD FUNCTIONS
1. Approval of Major Strategies and Financial Objectives. Each year the
Board will review and approve, as appropriate, the Company's business plan, as
well as its long-term strategic plan, and financial goals. The Board will
regularly monitor the Company's performance with respect to these plans and
goals.
2. Board Evaluation. The Board, in conjunction with the Governance
Committee, will annually evaluate the effectiveness of the Board and its
committees. Each director will complete a written assessment of the Board's
performance in specified categories, such as fiduciary oversight; Board
governance and process; strategic planning and business decisions; and financial
matters. In addition, each committee shall conduct an annual evaluation of its
effectiveness. The Board will meet in executive session to discuss these
assessments. The purpose of these evaluations is to increase the effectiveness
of the Board as a whole, each committee, and each individual Board member. The
Governance Committee shall be responsible for establishing the evaluation
criteria and implementing the process for such evaluations.
3. Chief Executive Officer Evaluation. The Compensation Committee will
evaluate the performance of the Chief Executive Officer at least annually and
report such valuation to the Board. The evaluation will be based on objective
criteria which shall include, among other factors, corporate and individual
performance, including the Company's financial performance and return on Company
common stock; the accomplishment of short-term and long-term strategic goals and
objectives; and any other factors established by the Compensation Committee.
E-2
4. Management Succession. The Board, based upon recommendations by the
Compensation Committee, shall periodically review with the Chief Executive
Officer the management succession and development plan. There should be
available, on a continual basis, the Chief Executive Officer's recommendation as
to his/her successor should he/she die or become disabled.
5. Executive Compensation. The Compensation Committee shall be responsible
for the design and administration with clear and strong linkages to the
Company's business strategy and long-term goals, particularly the creation of
shareholder value, to develop talented executives and motivate them to work for
the long-term advantage of the Company's primary stakeholders.
6. Director Compensation. The Board, based upon a recommendation from the
Compensation Committee, will periodically review director compensation
(including additional compensation to members and chairpersons of committees) to
ensure that it is reasonable and competitive with companies that are similarly
situated. Management directors shall receive no additional compensation for
Board service. To more closely align the interests of directors and the
Company's stockholders, a portion of the directors' fees will be paid in the
form of Company equity.
7. Stock Ownership. Directors are required to own shares of Company common
stock with a value equal to at least three (3) times the annual cash retainer,
within three (3) years of the later of his or her initial election to the Board
and the Board's adoption of this stock ownership policy. Because the Board is
committed to director and senior management stock ownership, the Board requires
that the Chief Executive Officer own at least three (3) times his or her annual
base salary in the form of Company common stock within five (5) years from his
or her election to that position, or the Board's adoption of this stock
ownership policy, whichever is later. Likewise, each other executive officer is
required to own at least two (2) times his or her annual base salary in the form
of Company common stock within five (5) years after the later of his or her
election to such position and the Board's adoption of this stock ownership
policy. For purposes of this guideline, (a) each share of common stock owned on
any date (a "measuring date") by a director or executive officer shall be deemed
to have a value equal to the greater of (1) the trading price of a share of the
Company's common stock as of the date the applicable share was acquired by the
director or executive officer or (2) the trading price of a share of the
Company's common stock as of that measuring date; (b) a director or executive
officer's performance units, phantom stock units, shares of restricted stock and
shares subject to deferred compensation, 401(k) or similar plans shall be
counted as shares of common stock owned by the director or officer (with the
value thereof determined in accordance with clause (a) above) and (c) on any
measurement date, a director or executive officer shall be deemed to own shares
of common stock with a value equal to the in-the-money value, if any, of each
vested or unvested stock option, stock appreciation right or similar
equity-linked grant then held by the director or executive officer (with the
in-the-money value determined based on the trading price of a share of the
Company's common stock on that measurement date).
8. Board Interaction with Institutional Investors, Stockholders, the Press,
Customers, etc. The Board believes that management speaks for the Company.
Individual Board members may, from time to time, meet or otherwise communicate
with various constituencies that are involved with the Company. However, it is
expected that Board members will speak for the Company only with the knowledge
of management and, in most instances, at the request of management. Stockholders
may contact non-management members of the Board by sending written
correspondence to the director to the following address:
, Director
c/o David L. Siddall
Corporate Secretary
P.O. Box 2511
Houston, TX 77252
The Corporate Secretary will forward such correspondence to the Board
members.
9. Director Orientation and Continuing Education. The Board will ensure
that newly elected Board members are provided with a director orientation
session in order to (a) become better acquainted with the way the Board
functions, (b) meet with members of management, and (c) gain useful information
regarding
E-3
the Company and its operations. The Board, in consultation with the Chief
Executive Officer, will provide for continuing education opportunities for Board
members to become more knowledgeable about specific areas of importance to the
Company's operations (including, but not limited to, accounting, finance,
internal controls, risk assessment and mitigation, regulatory compliance,
business strategies, and other strategic aspects of the Company). In addition,
each director shall be required to attend, at least once every two years, a
continuing education program, seminar or conference designed for board members
which is sponsored by a recognized board educational organization. The Company
will assist directors in fulfilling this requirement, including by identifying,
and to the extent requested by a director, making arrangements for the
director's attendance at, programs, seminars and conferences and reimbursing
directors for their costs and expenses in connection with attending such
programs, seminars and conferences.
BOARD OPERATIONS
1. Number of Board Meetings. The Board will meet as frequently as needed
for the directors to discharge properly their responsibilities. Regular meetings
of the Board are held six times per year and special meetings are held as
necessary.
2. Conduct of Meetings. Board and Committee meetings will be conducted in
a manner which ensures open communication, meaningful participation and timely
resolution of issues.
3. Agenda for Board and Committee Meetings. The Chairman of the Board and
Chief Executive Officer will propose an agenda for each Board meeting. Each
Board member is free to suggest the inclusion of items on the agenda. With
respect to committees of the Board, the chairperson of such committee, in
consultation with committee members and appropriate members of management, will
develop the Committee's agenda for applicable meetings.
4. Materials Distributed in Advance of Meetings. It is the sense of the
Board that information and data that are important to the Board's understanding
of a meeting should, when practical, be distributed in writing to members of the
Board in advance of the applicable meeting. Each director is expected to
thoroughly review such materials prior to a Board or committee meeting, provided
sufficient time is provided for such review.
5. Executive Sessions. The Board will hold executive sessions at least
twice a year without the Chief Executive Officer or any other management
directors. The Lead Director shall preside over all such executive sessions.
6. Director Interaction with Senior Management. Board members shall have
complete access to the Company's senior management. Board members should
exercise reasonable judgment when contacting management to avoid creating
unnecessary distractions from the Company's business operations, and ensure that
the Chief Executive Officer is informed of such contacts.
7. Access to Independent Advisors. The Board and each committee shall have
full access to independent legal, accounting, financial and other advisors, as
it deems necessary or appropriate to assist the Board or respective committee in
the conduct of its duties.
Effective: April 4, 2003
E-4
EXHIBIT F
PARTICIPANT INFORMATION
The following is information relating to our directors, director nominees,
officers and employees who, under the rules of the SEC, may be considered to be
"participants" in our solicitation of proxies in connection with the Annual
Meeting.
DIRECTORS AND DIRECTOR NOMINEES
The principal occupation of our director nominees are set forth under
"Proposal No. 1 -- Election of Directors" in this Proxy Statement. The names and
business addresses of our director nominees are as follows:
NAME ADDRESS
---- -------
Ronald L. Kuehn, Jr.(1).................. 1900 Fifth Avenue North
Chairman of the Board and Chief Executive Birmingham, AL 35203
Officer
John M. Bissell.......................... P.O. Box 1340,
1616 Treasure Lane
Boca Grande, FL 33921
Juan Carlos Braniff(1)................... Groupo Financiero Bancomer
Universidad 1200, 4th Fl.
Col Xoco, Mexico D.F. 03339
James L. Dunlap.......................... 1659 North Boulevard
Houston, TX 77006
Robert W. Goldman........................ 13 DuPoint Circle
Sugar Land, TX 77479
Anthony W. Hall, Jr. .................... 3709 Rio Vista
Houston, TX 77021
J. Carleton MacNeil, Jr. ................ 3421 Spanish Trail, Apt. 227D
Delray Beach, FL 33483
Thomas R. McDade......................... Two Houston Center
909 Fannin, Ste. 1200
Houston, TX 77010
J. Michael Talbert....................... 4 Greenway Plaza
Houston, TX 77046
Malcolm Wallop........................... 12011 Lee Jackson Memorial Highway
Fairfax, VA 22203
John Whitmire............................ 10101 Southwest Freeway, Ste. 380
Houston, TX 77074
Joe B. Wyatt............................. 2525 West End Avenue
Nashville, TN 37203
The names, business addresses and principal occupation of our directors who
will not be standing for reelection at the Annual Meeting are as follows:
NAME ADDRESS
---- -------
Byron Allumbaugh......................... 33 Ridgeline Drive
Business Consultant Newport Beach, CA 92660
F-1
NAME ADDRESS
---- -------
James F. Gibbons......................... Stanford University
Professor, Electrical Engineering Paul G. Allen Center-Room 201
Stanford, CA 94305
William A. Wise(1)....................... 2121 Kirby Dr. #50
Business Consultant Houston, TX 77019
---------------
(1) Allison Kuehn, Mr. Kuehn's wife; Barbara Braniff, Mr. Braniff's wife; and
the William & Marie Wise Ltd. Partnership, an associate of Mr. Wise;
beneficially own shares of our common stock as described in this Proxy
Statement under the "Security Ownership of Certain Beneficial Owners and
Management" and have the same addresses as Mr. Kuehn, Mr. Braniff and Mr.
Wise, respectively.
OFFICERS AND EMPLOYEES
The principal occupations of our officers and employees who may be deemed
to be "participants" in our solicitation of proxies are set forth below. Unless
otherwise indicated, the principal business address of each such person is that
of El Paso Corporation, 1001 Louisiana Street, Houston, Texas 77002.
NAME TITLE ADDRESS
---- ----- -------
Ronald L. Kuehn, Jr. ... Chairman and Chief Executive Officer
H. Brent Austin......... President and Chief Operating Officer
John W. Somerhalder II.. Executive Vice President, Pipeline Group 9 Greenway Plaza,
Houston, TX 77046
Robert G. Phillips...... President, El Paso Field Services 4 Greenway Plaza
Houston, TX 77046
Robert W. Baker......... Executive Vice President
Alan Bishop............. Director, Shareholder Relations
Ina Calvano............. Senior Analyst, Shareholder Issues
Daniel F. Collins....... Senior Vice President and Deputy General Counsel 555 11th Street N.W.
Suite 750
Washington, D.C.
20004
Jeanette Compte......... Analyst, Shareholder Issues
Bruce Connery........... Vice President, Investor Relations
Carl A. Corrallo........ Senior Vice President and Deputy General Counsel
Norma Dunn.............. Senior Vice President -- Communications and Government
Affairs
Rodney D. Erskine....... President, El Paso Production Company 9 Greenway Plaza,
Houston, TX 77046
Peggy A. Heeg........... Executive Vice President and General Counsel
Stacy James............. Manager, Corporate Law
Greg G. Jenkins......... President, El Paso Petroleum and LNG
Chris Jones............. Manager, Investor Relations
Bridget McEvoy.......... Manager, Investor Relations
D. Dwight Scott......... Executive Vice President and Chief Financial Officer
Melbourne W. Scott...... Director, Media AV and Emergency Response
David L. Siddall........ Vice President, Associate General Counsel and Corporate
Secretary
Clark C. Smith.......... President, Merchant Energy
Kimberly M. Wallace..... Manager, Media Relations
Barbara C. Weber........ Vice President, Public Relations
David E. Zerhusen....... Executive Vice President, Administration
F-2
INFORMATION REGARDING OWNERSHIP OF OUR SECURITIES BY PARTICIPANTS
Information as of April 1, 2003 regarding the beneficial ownership of
common stock by our directors and director nominees, as well as by H. Brent
Austin, John W. Somerhalder II and Robert G. Phillips, is set forth under the
"Security Ownership of Certain Beneficial Owners and Management" section of this
Proxy Statement. The following table sets forth information as of April 1, 2003
regarding beneficial ownership of common stock by our other officers and
employees listed above under "Officers and Employees." None of the persons
listed under "Directors and Director Nominees" or "Officers and Employees,"
except as noted below, owns any of El Paso's common stock of record but does not
have a beneficial interest in such stock.
BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER (EXCLUDING OPTIONS) STOCK OPTIONS(1) TOTAL
------------------------ -------------------- ---------------- -------
Greg G. Jenkins............................ 164,387 267,917 432,304
Rodney D. Erskine.......................... 106,649 117,917 224,566
Norma Dunn................................. 103,270 130,042 233,312
Robert W. Baker............................ 67,104 151,153 218,257
Clark C. Smith............................. 106,225(2) 110,417 216,642
Peggy A. Heeg.............................. 70,040 130,996 201,036
D. Dwight Scott............................ 60,775 87,000 147,775
Bruce Connery.............................. 31,202 109,142 140,344
David L. Siddall........................... 36,964 101,442 138,406
Carl A. Corrallo........................... 118,995 -- 118,995
David E. Zerhusen.......................... 31,332 63,042 94,374
Daniel F. Collins.......................... 32,975 52,906 85,881
Barbara C. Weber........................... 16,530 33,784 50,314
Alan Bishop................................ 5,363 20,767 26,130
Bridget McEvoy............................. 819 10,933 11,752
Melbourne W. Scott......................... 2,333 5,133 7,466
Stacy James................................ 411 5,333 5,744
Chris Jones................................ 2,086 3,333 5,419
Kimberly M. Wallace........................ 752 -- 752
Jeanette Compte............................ 671(3) -- 671
Ina Calvano................................ 143 -- 143
---------------
(1) The officers and employees have the right to acquire the shares of common
stock reflected in this column within 60 days of April 1, 2003, through the
exercise of stock options.
(2) Includes 375 shares of which Mr. Smith is not the beneficial owner.
(3) Includes 10 shares of which Ms. Compte is not the beneficial owner.
F-3
The following table sets forth information as of April 1, 2003 regarding
beneficial ownership of securities of El Paso and its subsidiaries other than
shares of El Paso common stock owned by our directors and director nominees
listed under "Directors and Director Nominees" and by our officers and employees
listed under "Officers and Employees."
NAME OF BENEFICIAL OWNER ISSUER/CLASS OF SECURITIES BENEFICIAL OWNERSHIP
------------------------ -------------------------- --------------------
Robert G. Phillips........................... El Paso Energy Partners, L.P. Common 58,750(1)
Units
H. Brent Austin.............................. El Paso Energy Partners, L.P. Common 6,000
Units
David L. Siddall............................. El Paso Energy Partners, L.P. Common 2,000
Units
Bridget McEvoy............................... El Paso Energy Partners, L.P. Common 700
Units
Bruce Connery................................ El Paso Energy Partners, L.P. Common 500
Units
---------------
(1) Includes vested options to acquire 48,750 common units.
F-4
INFORMATION REGARDING TRANSACTIONS IN OUR SECURITIES BY PARTICIPANTS
The following table sets forth information regarding purchases and sales
during the past two years of shares of our common stock by the persons listed
above under "Directors and Director Nominees" and "Officers and Employees".
Except as set forth below or as otherwise disclosed in this Proxy Statement,
none of the purchase price or market value of those shares is represented by
funds borrowed or otherwise obtained for the purpose of acquiring or holding
such securities. To the extent that any part of the purchase price or market
value of any of those shares is represented by funds borrowed or otherwise
obtained for the purpose of acquiring or holding such securities, the amount of
the indebtedness as of the latest practicable date is set forth below. If those
funds were borrowed or obtained otherwise than pursuant to a margin account or
bank loan in the regular course of business of a bank, broker or dealer, a
description of the transaction and the parties is set forth below.
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED (OR SOLD)
---- ---- -------------------
DIRECTORS
Ronald L. Kuehn, Jr. ................................... 9/30/01 2,190 (1)
12/31/01 1,117 (1)
3/29/02 1,127 (1)
6/30/02 2,556 (1)
9/30/02 6,391 (1)
10/7/02 323 (1)
12/31/02 7,099 (1)
Byron Allumbaugh........................................ 9/30/01 73 (2)
9/30/01 2,385 (1)
12/31/01 23 (2)
12/31/01 1,252 (1)
1/30/02 12,000 (3)
3/27/02 1,224 (1)
3/27/02 (33,284)(4)
6/1/02 81 (2)
6/30/02 2,612 (1)
7/3/02 198 (2)
9/30/02 6,391 (1)
10/7/02 646 (2)
10/7/02 94 (1)
12/31/02 7,098 (1)
John M. Bissell......................................... 9/30/01 2,494 (1)
12/14/01 (9,943)(5)
12/31/01 1,004 (1)
3/29/02 1,015 (1)
6/30/02 2,293 (1)
9/30/02 5,788 (1)
10/7/02 274 (2)
10/7/02 245 (1)
12/31/02 6,428 (1)
F-5
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED (OR SOLD)
---- ---- -------------------
Juan Carlos Braniff..................................... 9/30/01 2,022 (1)
12/31/01 1,038 (1)
3/29/02 1,047 (1)
6/30/02 2,634 (1)
9/30/02 6,391 (1)
10/7/02 498 (1)
12/31/02 7,098 (1)
James F. Gibbons........................................ 9/30/01 2,126 (1)
12/31/01 1,111 (1)
3/29/02 1,113 (1)
6/30/02 2,636 (1)
9/30/02 5,788 (1)
10/7/02 1,010 (1)
12/31/02 6,429 (1)
Anthony W. Hall, Jr..................................... 9/30/01 1,430 (1)
12/31/01 586 (1)
3/29/02 592 (1)
6/30/02 1,337 (1)
9/25/02 3,000 (6)(7)
9/30/02 3,377 (1)
10/7/02 141 (1)
10/9/02 3,700 (6)(7)
12/31/02 3,750 (1)
J. Carleton MacNeil, Jr. ............................... 3/29/02 1,015 (1)
4/4/02 (433)(5)
6/30/02 2,293 (1)
9/30/02 5,788 (1)
10/7/02 245 (1)
12/31/02 6,428 (1)
Thomas McDade........................................... 5/30/01 10,000 (7)
9/30/01 1,974 (1)
12/31/01 1,004 (1)
3/31/02 1,015 (1)
5/31/02 5,000 (7)
6/30/02 2,293 (1)
9/25/02 10,000 (7)
9/30/02 5,788 (1)
10/7/02 245 (1)
12/9/02 15,000 (7)
12/31/02 6,428 (1)
F-6
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED (OR SOLD)
---- ---- -------------------
Malcolm Wallop.......................................... 9/30/01 1,618 (1)
12/31/01 844 (1)
2/21/02 6,000 (3)
2/21/02 (6,000)(5)
3/29/02 846 (1)
4/1/02 4,000 (3)
4/1/02 (4,000)(5)
6/30/02 2,137 (1)
9/30/02 4,793 (1)
10/7/02 731 (1)
12/31/02 5,324 (1)
William A. Wise......................................... 6/12/01 22,564 (8)
8/16/01 300,000 (3)
6/3/02 49,594 (8)
11/7/02 (524,056)(9)
Various 11,355 (10)
Joe B. Wyatt............................................ 9/30/01 1,581 (1)
12/31/01 809 (1)
3/29/02 815 (1)
6/30/02 1,859 (1)
9/30/02 4,582 (1)
10/7/02 289 (1)
12/31/02 5,089 (1)
OFFICERS/EMPLOYEES
H. Brent Austin......................................... 4/30/01 (33,114)(9)
5/8/01 (53,495)(5)
11/29/01 11,210 (3)
11/29/01 (4,781)(9)
4/30/02 (32,312)(9)
Various 987 (10)
John W. Somerhalder II.................................. 6/29/01 120 (11)
7/13/01 15,000 (3)
7/13/01 (15,000)(5)
9/28/01 137 (11)
12/31/01 3,858 (2)
7/3/02 5,359 (2)
10/7/02 9,286 (2)
11/7/02 (103,371)(9)
Various 200 (2)
Various 687 (10)
Robert G. Phillips...................................... 7/31/01 (31,969)(9)
11/6/02 (9,536)(9)
Various 573 (10)
F-7
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED (OR SOLD)
---- ---- -------------------
Robert W. Baker......................................... 6/29/01 33 (11)
9/28/01 43 (11)
12/31/01 39 (11)
1/31/02 (320)(9)
3/28/02 39 (11)
6/28/02 87 (11)
9/30/02 226 (11)
11/7/02 (639)(9)
12/31/02 205 (11)
Various 81 (10)
Alan Bishop............................................. 4/27/01 (450)(5)
4/27/01 450 (3)
6/29/01 120 (10)
9/28/01 137 (10)
2/26/02 (170)(5)
3/28/02 118 (11)
6/28/02 261 (11)
9/30/02 178 (11)
Various 62 (2)
Ina Calvano............................................. 6/29/01 1 (11)
9/28/01 1 (11)
12/31/01 1 (11)
3/28/02 1 (11)
6/28/02 3 (11)
7/23/02 40 (7)
9/26/02 47 (7)
9/30/02 9 (11)
10/01/02 13 (7)
12/31/02 10 (11)
Carl A. Corrallo........................................ 10/10/01 (10,000)(5)
12/19/01 (10,000)(5)
5/29/02 (10,000)(5)
5/30/02 (44,492)(5)
Norma F. Dunn........................................... 6/29/01 (3,970)(9)
6/28/02 (3,828)(9)
11/7/02 (10,943)(9)
Various 1,774 (10)
Rodney D. Erskine....................................... 3/28/02 139 (11)
4/10/02 (20,000)(5)
6/28/02 308 (11)
9/30/02 110 (11)
Various 35 (2)
Various 7,236 (10)
F-8
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED (OR SOLD)
---- ---- -------------------
Peggy A. Heeg........................................... 6/29/01 120 (11)
8/13/01 (16,667)(5)
8/13/01 16,667 (3)
9/28/01 137 (11)
1/31/02 (3,626)(9)
5/1/02 (300)(5)
5/1/02 300 (3)
5/1/02 (86)(9)
Various 123 (2)
Various 598 (10)
Stacy James............................................. 6/29/01 4 (11)
8/1/01 (100)(5)
9/28/01 5 (11)
12/31/01 4 (11)
3/28/02 4 (11)
4/4/02 (100)(5)
6/28/02 10 (11)
9/30/02 27 (11)
12/31/02 30 (11)
Various 3 (2)
Greg G. Jenkins......................................... 11/7/02 (32,744)(9)
Various 578 (10)
Chris Jones............................................. 6/29/01 13 (11)
9/28/01 17 (11)
12/31/01 15 (11)
3/28/02 139 (11)
4/4/02 (273)(5)
6/28/02 308 (11)
7/3/02 (309)(5)
9/30/02 110 (11)
Various 3 (2)
Bridget McEvoy.......................................... 6/29/01 13 (11)
9/28/01 17 (11)
12/31/01 15 (11)
3/28/02 15 (11)
6/28/02 34 (11)
9/30/02 90 (11)
12/31/02 100 (11)
Various 19 (2)
D. Dwight Scott......................................... Various 1,799 (10)
F-9
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED (OR SOLD)
---- ---- -------------------
Melbourne Scott......................................... 6/29/01 13 (11)
9/28/01 17 (11)
12/31/01 15 (11)
3/28/02 23 (11)
6/28/02 52 (11)
9/30/02 136 (11)
12/31/02 151 (11)
Various 16 (2)
David L. Siddall........................................ 6/29/01 120 (11)
9/28/01 137 (11)
3/28/02 139 (11)
6/28/02 308 (11)
9/30/02 110 (11)
11/7/02 (1,750)(9)
Various 96 (2)
Clark C. Smith.......................................... 6/29/01 120 (11)
9/28/01 137 (11)
3/28/02 139 (11)
6/28/02 308 (11)
9/30/02 110 (11)
Various 306 (10)
Various 44 (2)
Kimberly M. Wallace..................................... 6/29/01 6 (11)
9/28/01 8 (11)
12/31/01 7 (11)
3/28/02 7 (11)
6/28/02 17 (11)
9/30/02 45 (11)
12/31/02 50 (11)
Various 5 (2)
F-10
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED (OR SOLD)
---- ---- -------------------
Barbara C. Weber........................................ 6/29/01 23 (11)
9/28/01 30 (11)
12/31/01 27 (11)
3/28/02 39 (11)
6/28/02 87 (11)
9/30/02 226 (11)
11/7/02 (4,403)(9)
12/31/02 205 (11)
Various 50 (2)
David E. Zerhusen....................................... Various 25 (10)
---------------
(1) Allocations into Deferred Stock Account during period ending on specified
date.
(2) Shares purchased pursuant to dividend reinvestment. Where "various" is
indicated, number specified represents total number of shares purchase
pursuant to dividend reinvestment over two-year period ending March 31,
2003.
(3) Shares purchased through exercise of stock options.
(4) Disposition to Issuer.
(5) Open market sale.
(6) $5452.59-Margin Account with Morgan Stanley.
(7) Open market purchase.
(8) Fund balance transfers in 401k Plan from various investment accounts into
shares of Company common stock.
(9) Shares disposed of to satisfy tax obligations on share distribution.
(10) 401k Plan activity. Under the plan, balances are recalculated each day.
Number specified represents net amount of increase of shares in plan
account over two-year period ending March 31, 2003.
(11) Employee Stock Purchase Plan purchase.
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as described in this Exhibit F or otherwise disclosed in this Proxy
Statement, to the best of our knowledge, no associate of any person listed under
"Directors and Director Nominees" or "Officers and Employees" beneficially owns
any shares or other securities of El Paso. Furthermore, except as described in
this Exhibit F or otherwise disclosed in this Proxy Statement, to the best of
our knowledge, no such person or any of his or her associates is either a party
to any transactions or series of similar transactions since the beginning of our
last fiscal year, or any currently proposed transaction or series of similar
transactions, (i) in which we or any of our subsidiaries was or is to be a
party, (ii) in which the amount involved exceeds $60,000, or (iii) in which any
such person or any of his or her associates had or will have, a direct or
indirect material interest.
To the best of our knowledge, except as described in this Exhibit F or as
otherwise disclosed in this Proxy Statement, no person listed under "Directors
and Director Nominees" or "Officers and Employees" or any of his or her
associates has entered into any agreement or understanding with any person
respecting any future employment by us or our affiliates or any future
transactions to which we or any of our affiliates will or may be a party. Except
as described in this Exhibit F as otherwise disclosed in this Proxy Statement,
to the best of our knowledge, there are no contracts, arrangements or
understandings by any of the persons listed under
F-11
"Directors and Director Nominees" or "Officers and Employees" within the past
year with any person with respect to any securities, including, but not limited
to, joint ventures, loan or option arrangements, puts or calls, guarantees
against loss or guarantees of profit, division of losses or profits, or the
giving or withholding of proxies.
Except as described in this Exhibit F or as otherwise disclosed in this
Proxy Statement, to the best of our knowledge, no persons listed under
"Directors and Director Nominees" or "Officers and Employees" has any
substantial interest, direct or indirect, by security holdings or otherwise, in
any matter to be acted upon at the Annual Meeting.
F-12
SOLICITED BY THE BOARD OF DIRECTORS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
June [ ], 2003
The undersigned hereby appoints Ronald L. Kuehn, Jr. and Peggy A. Heeg, and each
or any of them, with power of substitution, as proxies for the undersigned and
authorizes them to represent and vote, as designated, all of the shares of
common stock of El Paso Corporation, held of record by the undersigned on May 2,
2003 at the Annual Meeting of Stockholders to be held at [ ] on June [ ]
2003, and at any adjournment(s) or postponement(s) of such meeting for the
purposes identified on the reverse side of this proxy and with discretionary
authority as to any other matters that it may properly come before the Annual
Meeting.
Signing and dating this proxy card will have the effect of revoking any blue
Zilkha/Wyatt proxy card you may have signed on an earlier date, and will
constitute a revocation of all previously granted authority to vote with respect
to proposals included on the Zilkha/Wyatt proxy card.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED
WITHOUT DIRECTION GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4
AND AGAINST PROPOSALS 5, 6, 7, 8, 9, 10 AND 11.
------------- -------------
SEE REVERSE (IMPORTANT-TO BE SIGNED AND DATED ON SEE REVERSE
SIDE THE REVERSE SIDE) SIDE
------------- -------------
EL PASO CORPORATION
C/O Equiserve
P.O. Box 43068
Providence, RI 02940
--------------------
DETACH HERE
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
--------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1, 2, 3 and 4.
--------------------------------------------------------------------------------
1. Election of Directors.
(01) John M. Bissell, (02) Juan Carlos Braniff,
(03) James L. Dunlap, (04) Robert W. Goldman,
(05) Anthony W. Hall, Jr., (06) Ronald L. Kuehn, Jr.,
(07) J. Carleton MacNeil, Jr.,
(08) Thomas R. McDade, (09) J. Michael Talbert,
(10) Malcolm Wallop, (11) John L. Whitmire,
(12) Joe B. Wyatt.
FOR ALL NOMINEES LISTED ABOVE [ ]
WITHHOLD AUTHORITY TO VOTE FOR ALL
NOMINEES LISTED ABOVE [ ]
-------------------------------------------
[ ] For all nominees except as noted above
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for fiscal year ending December
31, 2003.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to amend our Certificate of Incorporation to eliminate Article 12
containing a "fair price" provision.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to amend our Certificate of Incorporation to eliminate our Series
A Junior Participating Preferred Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
--------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST
proposals 5, 6, 7, 8, 9, 10 and 11.
--------------------------------------------------------------------------------
5. Zilkha proposal to amend By-laws to fix the number of directors at nine.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Zilkha proposal to amend By-laws to delete advance notice provisions
applicable to director nominations.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Zilkha proposal to amend By-laws to repeal changes made after
November 7, 2002.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Zilkha proposal for sequence for presentation of proposals.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Stockholder proposal regarding pay disparity report.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Stockholder proposal regarding indexed options for senior executives.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Stockholder proposal regarding stockholder approval of any adoption of a
poison pill.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as your name appears. If acting as attorney,
executor, trustee or in other representative capacity, sign name and title. If a
corporation, please sign in full corporation name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person. If held jointly, both parties must sign and date.
Signature: Date:
--------------- --------------
Signature: Date:
--------------- --------------
Address Change/Comments
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - June [ ], 2003
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: STATE STREET BANK AND TRUST COMPANY, TRUSTEE UNDER EL PASO
CORPORATION RETIREMENT SAVINGS PLAN
The undersigned hereby directs the Trustee to vote, in person or by
proxy, the full and fractional shares of common stock of El Paso Corporation
credited to my account under the referenced Plan at the close of business on May
2, 2003, the record date, at the Annual Meeting of Stockholders to be held at
[ ] on June, [ ], 2003 and at any adjournment(s) or
postponement(s) of such meeting for the purpose identified on the reverse side
of this proxy and with discretionary authority as to any other matters that may
properly come before the Annual Meeting.
Signing and dating this proxy card will have the effect of revoking
any Zilkha/Wyatt proxy card you may have signed on an earlier date, and will
constitute a revocation of all previously granted authority to vote with
respect to the proposals included on the Zilkha/Wyatt proxy card.
If this proxy is completed, dated, signed and returned in the
accompanying envelope to the Trustee by [ ], 2003, the shares of stock
represented by this proxy will be voted in the manner directed herein by the
undersigned. If this proxy is properly executed and returned without direction
given, the shares represented by this proxy will be voted FOR proposals 1, 2, 3
and 4 and against proposals 5, 6, 7, 8, 9, 10 and 11.
If no proxy is returned to the Trustee, the Trustee will vote the
shares of stock represented by this proxy in the same proportion as those shares
for which the Trustee did receive clear and timely instructions from other plan
participants.
TO BE COMPLETED, SIGNED AND DATED ON REVERSE SIDE.
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
--------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR
proposals 1, 2, 3 and 4.
--------------------------------------------------------------------------------
1. Election of Directors.
(01) John M. Bissell, (02) Juan Carlos Braniff,
(03) James L. Dunlap, (04) Robert W. Goldman,
(05) Anthony W. Hall, Jr., (06) Ronald L. Kuehn, Jr.,
(07) J. Carleton MacNeil, Jr.,
(08) Thomas R. McDade, (09) J. Michael Talbert,
(10) Malcolm Wallop, (11) John L. Whitmire,
(12) Joe B. Wyatt.
FOR ALL NOMINEES LISTED ABOVE [ ]
WITHHOLD AUTHORITY TO VOTE FOR ALL
NOMINEES LISTED ABOVE [ ]
-----------------------------------------
[ ] For all nominees except as noted above
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for fiscal year ending December
31, 2003.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to amend our Certificate of Incorporation to eliminate Article 12
containing a "fair price" provision.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to amend our Certificate of Incorporation to eliminate our Series
A Junior Participating Preferred Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
--------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST
proposals 5, 6, 7, 8, 9, 10 and 11.
--------------------------------------------------------------------------------
5. Zilkha proposal to amend By-laws to fix the number of directors at nine.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Zilkha proposal to amend By-laws to delete advance notice provisions
applicable to director nominations.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Zilkha proposal to amend By-laws to repeal changes made after
November 7, 2002.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Zilkha proposal for sequence for presentation of proposals.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Stockholder proposal regarding pay disparity report.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Stockholder proposal regarding indexed options for senior executives.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Stockholder proposal regarding stockholder approval of any adoption of a
poison pill.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as your name appears. If acting as attorney,
executor, trustee or in other representative capacity, sign name and title. If a
corporation, please sign in full corporation name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person. If held jointly, both parties must sign and date.
Signature: Date:
--------------- --------------
Signature: Date:
--------------- --------------
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - June [ ], 2003
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: STATE STREET BANK AND TRUST COMPANY, TRUSTEE UNDER EL PASO
CORPORATION BENEFITS PROTECTION TRUST
The undersigned hereby directs the Trustee to vote, in person or by
proxy, the full and fractional shares of common stock of El Paso Corporation,
credited to my account under the referenced Plan at the close of business on May
2, 2003, the record date, at the Annual Meeting of Stockholders to be held at
[ ], on June [ ], 2003, and at any adjournment(s) or
postponement(s) of such meeting for the purpose identified on the reverse side
of this proxy and with discretionary authority as to any other matters that may
properly come before the Annual Meeting.
Signing and dating this proxy card will have the effect of revoking
any Zilkha/Wyatt proxy card you may have signed on an earlier date and will
constitute a revocation of all previously granted authority to vote with
respect to the proposals included on the Zilkha/Wyatt proxy card.
If this proxy is completed, dated, signed and returned in the
accompanying envelope to the Trustee by May [ ], 2003, the shares of stock
represented by this proxy will be voted in the manner directed herein by the
undersigned. If this proxy is properly executed and returned without direction
given, the shares represented by this proxy will be voted FOR proposals 1, 2, 3
and 4 and against proposals 5, 6, 7, 8, 9, 10 and 11. You should note that the
Trustee has been granted discretionary authority under the terms of the Trust
Agreement to vote the shares as it deems appropriate, but will consider your
voting instructions.
If no proxy is returned to the Trustee, the Trustee will vote the
shares represented by this proxy in its discretion.
TO BE COMPLETED, SIGNED AND DATED ON REVERSE SIDE.
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
--------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR
proposals 1, 2, 3 and 4.
--------------------------------------------------------------------------------
1. Election of Directors.
(01) John M. Bissell, (02) Juan Carlos Braniff,
(03) James L. Dunlap, (04) Robert W. Goldman,
(05) Anthony W. Hall, Jr., (06) Ronald L. Kuehn, Jr.,
(07) J. Carleton MacNeil, Jr.,
(08) Thomas R. McDade, (09) J. Michael Talbert,
(10) Malcolm Wallop, (11) John L. Whitmire,
(12) Joe B. Wyatt.
FOR ALL NOMINEES LISTED ABOVE [ ]
WITHHOLD AUTHORITY TO VOTE FOR ALL
NOMINEES LISTED ABOVE [ ]
-----------------------------------------
[ ] For all nominees except as noted above
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for fiscal year ending December
31, 2003.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to amend our Certificate of Incorporation to eliminate Article 12
containing a "fair price" provision.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to amend our Certificate of Incorporation to eliminate our Series
A Junior Participating Preferred Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
--------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST
proposals 5, 6, 7, 8, 9, 10 and 11.
--------------------------------------------------------------------------------
5. Zilkha proposal to amend By-laws to fix the number of directors at nine.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Zilkha proposal to amend By-laws to delete advance notice provisions
applicable to director nominations.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Zilkha proposal to amend By-laws to repeal changes made after
November 7, 2002.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Zilkha proposal for sequence for presentation of proposals.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Stockholder proposal regarding pay disparity report.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Stockholder proposal regarding indexed options for senior executives.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Stockholder proposal regarding stockholder approval of any adoption of a
poison pill.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as your name appears. If acting as attorney,
executor, trustee or in other representative capacity, sign name and title. If a
corporation, please sign in full corporation name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person. If held jointly, both parties must sign and date.
Signature: Date:
--------------- --------------
Signature: Date:
--------------- --------------