As cheers rained down on his entrance at Tuesday's big

El Paso


meeting, Oscar Wyatt was keeping a secret.

The investor knew he had just suffered a narrow loss in one of corporate America's most significant proxy fights ever. But for now he hid his disappointment from the enthusiastic crowd. So, as his fellow El Paso shareholders poured into Houston's downtown convention center, bolts of hope -- of exquisite possibility -- electrified the air.

In a few moments, the charged atmosphere would dissipate as it became clear that victory had gone to the management slate. "It is time to put this proxy fight behind us," interim CEO Ronald Kuehn announced. "Starting today, we move forward together with one voice and one goal to make the company stronger."

Indeed, El Paso's incumbents had emerged with a narrow victory, maintaining their hold on the big energy merchant. But even as the dissident faction led by Wyatt and Selim Zilkha noted their apparent failure, attention was turning to the company's future. And the comments of shareholders who supported the upstarts in this long, ugly proxy brawl indicate that more battles await El Paso management on that front.

To many, management's familiar pledge to restore El Paso's former might -- by shedding assets, cutting debt and exercising new discipline -- felt almost stale.

"These changes," Zilkha said Tuesday of El Paso's revitalization plan, "are not enough to try to save a company that -- despite having world-class assets -- has been brought to its knees."

Later, Wyatt privately agreed. He predicted that El Paso management would "destroy the company promptly" or sell it off in pieces. In fact, he gave it only one shot at survival.

"If they hire a real good CEO -- who will run the board off -- they've got a chance," he said. El Paso stock, mostly holding its ground since Tuesday's drama, fell 14 cents Thursday to $8.80.

Stealing the Spotlight

For a few short months leading up to El Paso's annual meeting this week, the world appeared very different to a small but devoted group.Everyday investors, long overshadowed by giant institutions, showed up that day by the hundreds to capture their rare moment in the sun. And briefly, they actually seemed to matter.

But many of those ordinary shareholders -- peoplewho had clutched their proxies with such urgency onthe escalator ride up to the showdown -- would soonfeel otherwise. At 2:50 p.m. CDT Tuesday, less than anhour into the biggest shareholder meeting of thedecade, Kuehn stepped up to the microphone and shattered the insurgent mood.

"Based on the information I have been provided,"Kuehn announced, "it appears that El Paso's nominees,in a close vote, have been elected."

To be fair, many in the audience -- particularlyEl Paso employees attending their first-ever annualmeeting -- clapped with obvious relief. But thatapplause, one of only two rounds afforded to theincumbents all day, felt almost polite in comparisonto earlier bursts for the dissidents. The fire in manyeyes flickered out. And a huge tide of emotion drainedfrom the air.

Later, across the street at the Four Seasonslounge, Wyatt did not look like a man who'd justscored the biggest standing ovation of the day.

The legendary oilman, now free to share hisemotions, admitted he was disappointed. He did not,however, concede defeat.

"Never in my life have I seen

an incumbent boardseated with such a small majority of the vote," Wyattsaid. "They didn't look like a victorious army to me."

Indeed, the incumbents ended the meeting with onlyone shaky triumph. By scraping together an unofficialtally of 52% of the votes -- some at the very lastminute -- they had managed to cling to their boardseats for at least another year. But incumbentsnormally win by landslides. And they generally takefew, if any, bullets from shareholders with suchdeadly aim.

Target Practice

Kuehn wasn't decked out for combat.

The embattled executive, looking refined as ever,showed up at Tuesday's meeting in a traditional darksuit. He wore a wristwatch -- probably every bit asfine as his clothing -- that could help track whethershareholders spoke longer than they should.Occasionally, he drummed his elegant white fingersagainst the side of the podium when things seemed torun uncomfortably long.

Even two minutes, when controlled by an irateshareholder, could feel like an eternity. At leastonce the company cut the microphone off, during acomplaint about executive pay.

"I don't understand how many cars a man can driveat one time," one shareholder said before the soundwent dead, "or how much food he can eat."

The AFL-CIO also lashed out against El Paso'sexecutive paychecks. The labor giant claimed thatformer CEO William Wise had collected "$1 million ofpay for each $1 billion of value shareholders lost"between 2001 and 2003. Ultimately, the agency withheldits support for the incumbents because of theirreluctance to promise change.

"I don't understand why the board and you refuseto commit to some very basic reforms," the AFL-CIOrepresentative told Kuehn. "This company has aterrible track record on executive compensation -- andyou're about to compensate a new CEO."

"And in our opinion," Kuehn replied, "we have tohave the flexibility to be competitive."

A representative from the Catholic Equity Fund,which also voted for the dissidents, rushed to make asimilar point. He complained that America's executivecompensation system is "badly broken," showeringcompany CEOs with paychecks that are 400 times largerthan those cut for low-ranking employees. And hedescribed El Paso as particularly offensive. In 2001,he said, Wise collected 1,560 times more than hislowest-paid worker.

"What could justify such a huge spread?" hedemanded. "This ... is astonishing, given thesituation at El Paso."

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Kuehn informed the gentleman he had only oneminute left. The fund representative quickly requestedthat shareholders demand a study of El Paso'scompensation plan. He got no support from Kuehn.

"The board of directors does not agree with theproposal," Kuehn said dryly, "and recommends votingagainst it."

The Massachusetts Pension Fund used its fiveminutes to plead for performance-based, rather thanautomatic, stock options for executives. Anothershareholder asked El Paso to follow the lead of manyother companies that had canceled poison pillprovisions.

Each request, generally supported by thedissidents, triggered the same response from Kuehn.

"The board of directors does not agree with theproposal," Kuehn kept repeating, "and recommendsvoting against it."

Crowd Pleaser

By then, Zilkha -- official leader of thedissident fight -- had already presented his case.

He got 15 minutes total. He gave five of themaway.

"I would like to recognize Oscar Wyatt," Zilkhasaid. "The incumbents have tried to make him out as anegative. They were wrong. ... My friend is OscarWyatt."

The room thundered with applause for the man who,together with Zilkha, had personally financed the $6million fight to topple El Paso's leadership. When thenoise died down, Kuehn curtly reminded Zilkha that histime was limited. Zilkha asked that Kuehn recognizeWyatt -- which Kuehn did reluctantly -- and thenturned the floor over to his outspoken partner.

In a brief impromptu speech, Wyatt asked Kuehn tolook out for ordinary El Paso employees with the samecare that the company had looked out for the well-paidexecutives who'd presided over the company'sdisastrous slide.

"I'm not sure you're capable or have the heart todo it," Wyatt said. "And I'm not sure your board hasthe courage."

Minutes later, El Paso shareholders turned intheir final proxies. But the election was alreadydecided. A crucial vote, issued that morning by afaraway California fund, had left the incumbents inpower.

"David doesn't win

against Goliath very often,"Wyatt spokeswoman Dorothy Beeler admitted after themeeting. "But these were pretty big Davids."

Critical Reviews

The little Davids, streaming outside in "VoteBlue" baseball caps and "Wise"-cracking T-shirts,looked pained.

Many were retirees of Coastal, a company foundedby Wyatt and acquired by El Paso, whose savings hadcollapsed with El Paso's share price. Charlie and PatAdams, an elderly couple trekking up to Houston fromthe southernmost tip of Texas, had watched their ElPaso nest egg dwindle from "a couple of million to acouple of hundred thousand." Initially, they simplydenied that their side had lost.

"Any teacher or mother can tell when somebody'slying," Pat Adams said emphatically. "And

Kuehn waslying" about the incumbents' win.

Some Wyatt followers, including current El Pasoemployees who took a stand against management, frettedabout their jobs. But a few dissidents simply seemedirritated.

A couple of retired women, looking as if they'djust lost a close bridge game at worst, shook theirheads.

"I've been to better shareholder meetings," onedeclared. "Everyone here was well-behaved -- and I wassort of disappointed that they were."

Karl Miller, a former El Paso executive who'spushing for massive industry reform, declared Tuesday"a sad day for corporate governance and corporateAmerica." And he expressed complete surprise that theincumbents had prevailed.

"You couldn't make a better case for a companythat needs to be cleaned up," said Miller, whoseinvestment firm buys distressed power assets. "Thiswas as solid a case of corporate wrongdoing as you'regoing to find."

Wyatt has already predicted that some backlashwill come. He believes that small shareholders,feeling betrayed by giant institutions, willultimately fight back.

"They can withdraw a lot of money" from thosefunds, he said. "This will have an effect. It won't bemassive, but it will be felt."

Wyatt doesn't necessarily endorse suchretaliation. But he won't stop fighting himself. SteveChesebro, the dissidents' would-be CEO, said he'sundeterred as well.

"I will continue to speak out and representshareholders' rights and corporate governance issuesworldwide," Chesebro said just hours after his defeat."That's what this was all about."

And for Wyatt -- well-known for his stubborn driveto win -- this particular fight isn't even over.

"Anytime you have a war, you have a skirmish.This," he declared, "was just a skirmish."