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El Paso Fires Back at Dissidents in Proxy

Existing management will have a nice payday coming if there's a change of control.

El Paso

(EP)

has thrown a few new punches -- and a little more mud -- in its fight against a brewing shareholder revolt.

In a preliminary proxy statement filed Wednesday, the Houston energy giant came out swinging against some tough opponents who hope to topple the company's board. El Paso warned that dissident shareholders, planning for a showdown at the annual meeting in June, have no real game plan for the company's recovery. It also made clear that a victory by the renegades would come at a price, triggering a $165 million payment to the company's benefits plan and another $75 million worth of severance packages for executives whose jobs might be threatened. Then it went on to knock the two big shareholders it blames for picking the fight.

While critical of Selim Zilkha -- the official leader of the proxy battle -- El Paso pounded hardest on its most outspoken critic. The company blamed Oscar Wyatt for stirring the fight and insisted that he has played dirty before.

"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 proxy states. "In light of ... conflicts and potential conflicts, as well as Mr. Wyatt's record at Coastal

a company acquired by El Paso, 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."

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In an effort to back up its argument, El Paso pointed out that Wyatt is the lead plaintiff in a shareholder lawsuit against the company, and that he also owns a competing energy firm that may be interested in El Paso's assets. In addition, El Paso rolled out the equivalent of a corporate rap sheet on Wyatt, listing an alleged criminal plea, a permanent injunction and a series of greenmail transactions in past business dealings dating back to 1975. The company also criticized the corporate governance policies once employed by Coastal, saying they gave Wyatt and other Coastal employees great power at the expense of outside shareholders.

The normally vocal Wyatt has ceased any public comments about El Paso since officially becoming the lead plaintiff in securities litigation against the company.

El Paso also took aim at Zilkha for criticizing business decisions -- including a disastrous foray into energy trading -- that he allegedly favored during a past stint on the company's board. It also insisted that Zilkha has snubbed the company's effort to compromise and avert the current battle.

"Over the past few months, we have tried to avoid this counterproductive proxy contest," the company said. But "Mr. Zilkha has expressed the view that 'a turnaround can never happen' under current management."

Zilkha, whose spokesman could not be reached late Wednesday, has already triggered a management change at the very top. With an official proxy battle on its hands, El Paso quickly sacrificed its embattled CEO, William Wise, last month.

Still, the longtime El Paso chief won't be leaving the company empty-handed. While taking a cut from his record pay in 2001, Wise has already picked up $1.65 million for leading El Paso through the disasters of last year. And Wednesday's proxy shows that he's due for even more -- severance pay equal to his full salary, half his maximum bonus and other benefits for the rest of his three-year contract -- although it gives no price tag for that package.

Neither Wise nor Ralph Eads, who resigned last year as the leader of El Paso's troubled merchant business, is in line for any change-of-control parachutes, however. The allotted $75 million would instead go to the El Paso executives who still remain, including every member of the company's embattled senior management team.

Only Ronald Kuehn, the current CEO, would miss out because of his interim status. But Kuehn is collecting a six-figure monthly paycheck in the meantime. According to the proxy, Kuehn earns a base salary of $100,000 a month. He can double that by hitting certain performance targets. And he can really score with 175,000 stock options and restricted shares if El Paso's stock -- which has tumbled 85% to $6.06 in a year -- once again takes off.