UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
EL PASO CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
[EL PASO LOGO]
Dear El Paso Stockholder:
We cordially invite you to our 2002 Annual Meeting of Stockholders. The
Annual Meeting will be held on Monday, May 20, 2002, beginning at 11:00 a.m.
(daylight savings time) at The Adolphus Hotel, 1321 Commerce Street, Dallas,
Texas 75202.
At this year's Annual Meeting, you will vote on the election of eleven
Directors, an amendment and restatement of El Paso's Employee Stock Purchase
Plan, an amendment to El Paso's Restated Certificate of Incorporation,
ratification of PricewaterhouseCoopers' appointment as independent auditors and
two stockholder proposals.
We have attached a notice of the Annual Meeting and a proxy statement that
contains more information about these items and the Annual Meeting, including:
- who can vote; and
- the different methods you can use to vote, including the telephone,
Internet and traditional paper proxy card.
Whether or not you plan to attend the Annual Meeting, please vote by one of
these outlined methods to ensure that your shares are represented and voted in
accordance with your wishes. This will help us avoid the expense of sending
follow-up letters to ensure that a quorum is represented at the Annual Meeting.
Sincerely,
/s/ WILLIAM A WISE
WILLIAM A. WISE
Chairman of the Board,
President and Chief Executive Officer
Houston, Texas
April 8, 2002
EL PASO CORPORATION
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2002
On Monday, May 20, 2002, El Paso Corporation will hold its 2002 Annual
Meeting of Stockholders at The Adolphus Hotel, 1321 Commerce Street, Dallas,
Texas 75202. The Annual Meeting will begin at 11:00 a.m. (daylight savings
time).
Only El Paso stockholders who owned shares of common stock at the close of
business on March 25, 2002, are entitled to notice of and can vote at this
Annual Meeting or any adjournments that may take place. At the Annual Meeting
you will vote to:
1. Elect eleven Directors, each to hold office for a term of one year;
2. Amend and restate the El Paso Corporation Employee Stock Purchase
Plan to increase the number of shares authorized for issuance;
3. Amend the El Paso Corporation Restated Certificate of Incorporation
to increase the number of shares authorized;
4. 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, 2002; and
5. Attend to any other business properly presented at the Annual
Meeting. You will also vote on two proposals submitted by
stockholders which may be presented at the Annual Meeting, which
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
April 8, 2002
YOUR VOTE IS VERY IMPORTANT TO US. WE URGE EACH OF YOU TO PROMPTLY SIGN AND
RETURN THE ENCLOSED PAPER PROXY CARD OR TO USE TELEPHONE OR INTERNET VOTING. SEE
OUR QUESTION AND ANSWER SECTION FOR INFORMATION ON HOW TO VOTE BY PAPER,
TELEPHONE OR INTERNET, HOW TO REVOKE A PROXY AND HOW TO VOTE SHARES IN PERSON.
EL PASO CORPORATION
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
PROXY STATEMENT
2002 ANNUAL MEETING OF STOCKHOLDERS -- MAY 20, 2002
Our Board of Directors is furnishing you with this proxy statement to
solicit proxies on its behalf to be voted at the 2002 Annual Meeting of
Stockholders of El Paso Corporation. The Annual Meeting will be held at The
Adolphus Hotel, 1321 Commerce Street, Dallas, Texas 75202, on Monday, May 20,
2002, at 11:00 a.m., daylight savings 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 proxy card are being
mailed to stockholders beginning on or about April 8, 2002. All properly
executed written proxies and all properly completed proxies submitted by
telephone or by the Internet that are delivered pursuant to this solicitation
will be voted at the Annual Meeting. Each person who is an El Paso stockholder
on March 25, 2002, the record date, is entitled to vote at the Annual Meeting,
or at adjournments or postponements of the Annual Meeting.
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, March 25,
2002, 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 for 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 March 25, 2002. The record date
is established by the Board of Directors as required by our By-laws and Delaware
law. Owners of El Paso's common stock at the close of business on the record
date are entitled:
(a) to receive notice of the Annual Meeting;
(b) to vote at the Annual Meeting, and any adjournments or
postponements of the Annual Meeting; and
(c) to one vote for each share of common stock for each proposal
presented at the Annual Meeting.
3. HOW MANY SHARES OF EL PASO COMMON STOCK WERE OUTSTANDING ON THE RECORD DATE?
There were [ ] shares of common stock outstanding and entitled to vote
at the Annual Meeting on the record date. Common stock is the only class of
stock entitled to vote.
4. HOW DO I VOTE?
You may vote by any one of three different methods:
(a) In Writing: You can vote by signing and dating the enclosed proxy
card and returning it in the enclosed envelope.
(b) By Telephone or the Internet: You can vote your proxies by
touchtone telephone from the U.S., using the toll-free telephone
number on the proxy card, or by the Internet using the procedures
and instructions described on the proxy card. Stockholders who own
their common stock through a broker, also known as "street name"
holders, may vote by telephone or the Internet if their bank or
broker makes those methods available, in which case the bank or
broker will enclose the instructions with the proxy statement. The
telephone and Internet voting procedures, including the use of
control numbers found on the proxy card, are designed to
authenticate stockholders identities, to allow stockholders to
vote their shares of common stock and to confirm that their
instructions have been properly recorded. Stockholders voting via
the Internet should understand that there may be costs associated
with electronic access, such as usage charges from Internet access
providers and telephone companies, which must be paid by the
stockholder.
(c) In Person: You may vote in person at the Annual Meeting. Street
name holders must have a legal proxy from the registered holder of
the El Paso common stock in order to vote in person at the Annual
Meeting.
5. CAN I REVOKE OR CHANGE MY VOTE AFTER I RETURN MY PROXY CARD OR AFTER I VOTE
BY TELEPHONE OR INTERNET?
Yes. At any time before the persons named on the proxy card vote your
shares of common stock as you have instructed, you can change or revoke your
vote either by sending a written notice to Mr. David L. Siddall, El Paso's
Corporate Secretary, at El Paso Corporation, 1001 Louisiana Street, Houston,
Texas 77002, or by signing, dating and returning to us a subsequently dated
proxy card. 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, or by following the
appropriate revocation procedures by telephone or by the Internet.
6. WHAT 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, proxies which are signed and returned (either physically
or electronically) will be voted FOR the election of all Director nominees, FOR
the amendment and restatement of the El Paso Corporation Employee Stock Purchase
Plan, FOR the amendment to the El Paso Corporation Restated Certificate of
Incorporation, FOR the proposal to ratify the appointment of
PricewaterhouseCoopers and AGAINST each stockholder proposal.
7. WHAT IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The matters described in this proxy statement are the only matters we know
of which will be voted on at the Annual Meeting. If other matters are properly
presented at the Annual Meeting, the proxy holders, William A. Wise and Peggy A.
Heeg, 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, that party is required to give you instructions for voting
your shares.
9. WHO WILL COUNT THE VOTE?
A representative of EquiServe Trust Company, N.A., an independent tabulator
appointed by the Board of Directors, will count the votes and act as the
inspector of election. The inspector of election will have the authority to
receive, inspect, electronically tally and determine the validity of the proxies
received.
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 represented 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.
2
11. HOW MANY VOTES MUST EACH PROPOSAL RECEIVE TO BE ADOPTED?
- For Proposal No. 1 regarding the election of eleven directors to be
approved, the eleven directors who receive the highest number of votes,
represented at the Annual Meeting and entitled to vote, will be elected.
- Proposal No. 2, the approval of the amendment and restatement of the El
Paso Employee Stock Purchase Plan, must receive the affirmative vote of
more than 50% of the shares of the common stock represented by person or
by proxy at the Annual Meeting and entitled to vote.
- Proposal No. 3, the approval of an amendment to the El Paso Restated
Certificate of Incorporation, must receive the affirmative vote of more
than 50% of the shares of common stock outstanding and entitled to vote.
- All other proposals must receive the affirmative vote of more than 50% of
the shares of common stock represented by person or proxy at the Annual
Meeting and entitled to vote.
12. HOW ARE VOTES COUNTED?
Votes are counted in accordance with El Paso's By-laws. An abstention by a
stockholder is not counted in the tally of votes "FOR" or "AGAINST" each
proposal other than proposal 3. A non-vote by a stockholder is counted as a vote
"FOR" each proposal other than proposal 3 and is included in determining a
quorum. An abstention or a non-vote by a stockholder will have the effect of a
vote "AGAINST" proposal 3. A non-vote by a broker is not counted. However, a
broker's non-vote and abstention are counted towards a quorum.
13. DO I HAVE TO VOTE?
No. If you do vote, you may vote for all, some or none of the director
nominees. You may abstain from voting or vote "FOR" or "AGAINST" the other
proposals.
14. HOW CAN I VIEW THE STOCKHOLDER LIST?
A complete list of stockholders entitled to vote at the Annual Meeting will
be available at The Adolphus Hotel, 1321 Commerce Street, Dallas, Texas 75202.
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.
15. WHO PAYS FOR THE PROXY SOLICITATION RELATED TO THE ANNUAL MEETING?
We do. In addition to sending you these materials, some of our employees
may contact you by telephone, by mail, or in person. None of these employees
will receive any extra compensation for doing this. We have retained Georgeson
Shareholder Communications Inc. to assist us in soliciting your proxy for an
estimated fee of $15,000 plus reasonable out-of-pocket expenses. Georgeson
Shareholder Communications Inc. will ask brokerage houses and other custodians
and nominees whether other persons are 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.
16. IF I WANT TO SUBMIT A STOCKHOLDER PROPOSAL FOR THE 2003 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 December 9, 2002. El Paso will consider only proposals meeting the
requirements of applicable Securities and Exchange Commission 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 2003
Proxy Statement must send written notice to the foregoing
3
address not less than 90 days nor more than 120 days prior to the scheduled date
of such Annual Meeting. Under these criteria, stockholders must provide us with
notice of a matter to be brought before the 2003 Annual Meeting between January
20, 2003 and February 19, 2003.
17. 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/epg and following the instructions. Those of you that hold
shares with a broker under a street name can give consent by going to
www.ICSDelivery.com/epg.
18. HOW TO OBTAIN A COPY OF THE ANNUAL REPORT AND PROXY STATEMENT?
A copy of El Paso's 2001 Annual Report to Stockholders is being mailed with
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, El Paso
Corporation, 1001 Louisiana Street, Houston, Texas 77002, telephone (713)
420-6195 and facsimile (713) 420-4099.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held ten meetings during fiscal year 2001. Each
director who served on the El Paso Board of Directors during 2001 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 five principal standing committees,
which are described below.
AUDIT COMMITTEE
The Audit Committee held five meetings during the 2001 fiscal year. The
Audit Committee currently consists of Malcolm Wallop (chairman), Juan Carlos
Braniff, Ronald Kuehn, Jr. and J. Carleton MacNeil, Jr., each a non-employee
director. The Audit Committee makes a recommendation to the Board of Directors
for a firm of independent certified public accountants to audit El Paso's annual
financial statements. In addition, the Audit Committee reviews with management
and El Paso's certified public accountants the financial statements, the
adequacy of El Paso's accounting controls, the adequacy of internal accounting
controls, the basic accounting and financial policies and practices and El
Paso's risk management policies. The policies, mission and actions of the Audit
Committee are set forth in the "Audit Committee Report" which begins on page 21
of this proxy statement.
COMPENSATION COMMITTEE
The Compensation Committee held four meetings during the 2001 fiscal year.
The Compensation Committee currently consists of Byron Allumbaugh (chairman),
John M. Bissell, James F. Gibbons and Joe B. Wyatt, each a non-employee
director. The Compensation Committee currently administers El Paso's executive
stock option plan, long-term incentive compensation plan, annual incentive
compensation plan and other executive compensation plans. 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 17 of this proxy statement.
GOVERNANCE COMMITTEE
The Governance Committee met once during the 2001 fiscal year. The
Governance Committee currently consists of Ronald L. Kuehn, Jr. (chairman),
Anthony W. Hall, Jr. and Thomas R. McDade. The Governance Committee reviews the
qualifications of candidates for Board membership, screens and interviews
possible candidates for Board membership and communicates with members of the
Board regarding Board
4
meeting format and procedures. Further, the Governance Committee considers any
nominations submitted by the stockholders to the Corporate Secretary in
accordance with the By-laws.
NOMINATING COMMITTEES
The El Paso Board of Directors has two nominating committees, which were
created in connection with the combination with The Coastal Corporation in
January 2001, and are required to remain in place through December 31, 2002. The
Coastal Nominating Committee met once during the 2001 fiscal year. While the El
Paso Nominating Committee did not meet during the 2001 fiscal year, it did take
action by written consent.
El Paso Nominating Committee. The El Paso Nominating Committee currently
consists of William A. Wise (chairman, but nonvoting member), Byron Allumbaugh,
Juan Carlos Braniff, James F. Gibbons, Ronald L. Kuehn, Jr., Malcolm Wallop and
Joe B. Wyatt. The primary function of the El Paso Nominating Committee is to
recommend up to seven designees to stand for election as directors at each
annual meeting during the existence of this committee. According to the terms of
the merger agreement with Coastal, William A. Wise must be included as a
designee to the Board of Directors by the El Paso Nominating Committee.
Coastal Nominating Committee. The Coastal Nominating Committee currently
consists of John M. Bissell (chairman), Anthony W. Hall, Jr., J. Carleton
MacNeil, Jr., and Thomas R. McDade. The primary function of the Coastal
Nominating Committee is to recommend up to five designees to stand for election
as directors at each annual meeting during the existence of this committee.
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 (including a conversion premium) and the remaining $60,000 paid at
the election of the director in cash, deferred cash or deferred shares of common
stock (including a conversion premium) or any combination of cash, deferred cash
or deferred shares of common stock. In addition, each non-employee director who
chairs a committee of the Board of Directors (other than the Nominating
Committees) receives an additional retainer fee of $15,000, which may be paid in
the same manner as the annual retainer. 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 their 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. Directors with balances in their deferred
account of at least $200,000 are eligible to participate in the Estate
Enhancement Program described on page 23 of this proxy statement.
As part of El Paso's overall support to charitable organizations, the
Director Charitable Award Plan provides 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, only Messrs. Allumbaugh, Braniff, Gibbons, Kuehn, Wallop, Wise and
Wyatt are eligible to participate in the plan.
PROPOSALS
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board. The entire Board of Directors, consisting of eleven members,
will be elected at the Annual Meeting. All directors are elected annually, and
serve a one-year term and until his successor has been duly elected and shall
qualify.
Nominations. At the Annual Meeting, we will nominate the persons named in
this proxy statement as directors. Although we have no reason to believe that
any of the nominees will be unable or unwilling to serve, the Board of Directors
will propose a substitute nominee if any nominee is not available for election.
In such
5
event, unless you instruct otherwise, any votes represented by a proxy will be
voted "FOR" the substitute nominee. Holders of common stock may not cumulate
their votes for the election of directors.
WE RECOMMEND THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED
BELOW.
General Information about the Nominees for Election, as of April 8,
2002. 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
--------------------------------
BYRON ALLUMBAUGH DIRECTOR SINCE 1992
Business Consultant.
Age -- 70
Chairman -- Compensation Committee
Member -- El Paso Nominating Committee
Since February 1, 1997, Mr. Allumbaugh's principal occupation has been as a
business consultant. From February 1996 to his retirement in February 1997, Mr.
Allumbaugh was Chairman of the Board of Ralphs Grocery Company. He served as Chief
Executive Officer of Ralphs Grocery Company from June 1995 until February 1996.
From 1976 to 1995, Mr. Allumbaugh served as Chairman of the Board and Chief
Executive Officer of Ralphs Grocery Company. Mr. Allumbaugh is a member of the
Board of Directors of CKE Restaurants, Inc., Galyan's Trading Company, Inc. and
Penn Traffic Co.
JOHN M. BISSELL DIRECTOR SINCE 2001
Chairman of the Board,
BISSELL Inc.,
Grand Rapids, Michigan -- Floor Care
Appliance and Detergent Manufacturer.
Age -- 71
Member -- Compensation Committee
Chairman -- Coastal Nominating Committee
Mr. Bissell served as a director of Coastal 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.
JUAN CARLOS BRANIFF DIRECTOR SINCE 1997
Vice Chairman,
Grupo Financiero BBVA Bancomer,
Mexico City, Mexico -- Commercial Banking Institution.
Age -- 44
Member -- Audit Committee
Member -- El Paso Nominating 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.
6
NAME, PRINCIPAL OCCUPATION
AND OTHER SELECTED INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
JAMES F. GIBBONS, PH.D. DIRECTOR SINCE 1994
Professor, Electrical Engineering,
Stanford University,
Stanford, California -- Higher Education.
Age -- 70
Member -- Compensation Committee
Member -- El Paso Nominating Committee
Dr. Gibbons has been on the faculty of Stanford University since 1957 and was Dean
of the School of Engineering from September 1984 until June 1996. Currently, he is
Professor of Electrical Engineering. He is a member of the Board of Directors of
Cisco Systems, Inc. and Lockheed Martin Corporation.
ANTHONY W. HALL, JR. DIRECTOR SINCE 2001
City Attorney,
City of Houston, Texas.
Age -- 57
Member -- Governance Committee
Member -- Coastal Nominating Committee
Mr. Hall served as a director of Coastal 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
Business Consultant.
Age -- 67
Chairman -- Governance Committee
Member -- Audit Committee
Member -- El Paso Nominating Committee
Mr. Kuehn has been a business consultant since January 2001. He 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 director of
AmSouth Bancorporation, Praxair, Inc., The Dunn & Bradstreet Corporation and
Transocean Sedco FOREX Inc.
J. CARLETON MACNEIL, JR. DIRECTOR SINCE 2001
Securities Consultant.
Age -- 67
Member -- Audit Committee
Member -- Coastal Nominating Committee
Mr. MacNeil served as a director of Coastal from 1997 until January 2001. During
the past twenty-five years, Mr. MacNeil's occupation has been securities brokerage
and investments.
7
NAME, PRINCIPAL OCCUPATION
AND OTHER SELECTED INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
THOMAS R. MCDADE DIRECTOR SINCE 2001
Senior Partner,
McDade Fogler Maines, L.L.P.
Houston, Texas -- Law Firm.
Age -- 69
Member -- Governance Committee
Member -- Coastal Nominating Committee
Mr. McDade served as a director of Coastal 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 various
entities, including El Paso (the fees paid to McDade Fogler Maines, L.L.P. by El
Paso in 2001 are set forth under "Certain Relationships and Related Transactions"
on page 17 of this proxy statement).
MALCOLM WALLOP DIRECTOR SINCE 1995
Chairman,
Western Strategy Group,
Arlington, Virginia -- Political Foundation.
President,
Frontiers of Freedom Foundation,
Arlington, Virginia -- Political Foundation.
Age -- 69
Chairman -- Audit Committee
Member -- El Paso Nominating 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., Sheridan State Bank and El Paso
Energy Partners Company, the general partner of El Paso Energy Partners, L.P.
WILLIAM A. WISE DIRECTOR SINCE 1984
Chairman of the Board,
President and Chief Executive Officer,
El Paso Corporation,
Houston, Texas -- Diversified Energy Company.
Age -- 56
Chairman (Non-voting) -- El Paso Nominating Committee
Mr. Wise has been Chief Executive Officer of El Paso since January 1990. Mr. Wise
has been President of El Paso from January 1990 to April 1996 and from July 1998 to
present. He has been Chairman of the Board of El Paso from January 2001 to present
and also served in this position from January 1994 to October 1999. Mr. Wise served
as President and Chief Operating Officer of El Paso from April 1989 to December
1989. From March 1987 to April 1989, Mr. Wise was an Executive Vice President of El
Paso. From January 1984 to February 1987, he was a Senior Vice President of El
Paso. He is a member of the Board of Directors of Praxair Inc., Chairman of the
Board of El Paso Tennessee Pipeline Co. and Chairman of the Board of El Paso Energy
Partners Company, the general partner of El Paso Energy Partners, L.P.
8
NAME, PRINCIPAL OCCUPATION
AND OTHER SELECTED INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
JOE B. WYATT DIRECTOR SINCE 1999
Chancellor Emeritus,
Vanderbilt University,
Nashville, Tennessee -- Higher Education.
Age -- 66
Member -- Compensation Committee
Member -- El Paso Nominating Committee
Mr. Wyatt has been Chancellor Emeritus of Vanderbilt University since August 2000.
For more than five years prior to that date, he served as Chancellor, Chief
Executive Officer and Trustee of Vanderbilt University. From 1994 until October
1999, Mr. Wyatt was a director of Sonat Inc. He is a director of Ingram Micro, Inc.
and Hercules, Inc.
9
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of February 28, 2002,
regarding beneficial ownership of common stock by each director, our Chief
Executive Officer, the other four most highly compensated executive officers in
the last fiscal year, and our directors and executive officers as a group. We do
not know of any entity which beneficially owns more than 5% of the outstanding
shares of common stock of El Paso. 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(7) TOTAL OF CLASS
-------------- ------------------------ ----------- ---------- ---------- --------
Common Stock B. Allumbaugh................... 48,890 13,000 61,890 *
Common Stock J.M. Bissell.................... 8,996 6,000 14,996 *
Common Stock J.C. Braniff.................... 10,168(2) 15,000 25,168 *
Common Stock J.F. Gibbons.................... 26,367 23,000 49,367 *
Common Stock A.W. Hall, Jr. ................. 5,401 6,000 11,401 *
Common Stock R.L. Kuehn, Jr. ................ 251,072(3) 687,900 938,972 *
Common Stock J.C. MacNeil, Jr. .............. 10,457 6,000 16,457 *
Common Stock T.R. McDade..................... 23,498 6,000 29,498 *
Common Stock M. Wallop....................... 17,387 9,000 26,387 *
Common Stock W.A. Wise....................... 2,538,959(4) 1,622,917(5) 4,161,876 *
Common Stock J.B. Wyatt...................... 10,580 8,000 18,580 *
Common Stock R. Eads......................... 189,618 324,667 514,285 *
Common Stock H.B. Austin..................... 331,695 327,050 658,745 *
Common Stock J.W. Somerhalder II............. 418,719 297,050 715,769 *
Common Stock B. White Jr. ................... 384,314(6) 245,667 629,981 *
Common Stock.. Directors and executive officers
as a group (26 persons total,
including those individuals
listed above)................... 6,278,825 5,407,820 11,686,645 2.153%
---------------
* 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 each of Messrs. Allumbaugh, Gibbons, Wise, and Austin shares with one
or more other individuals voting and investment power with respect to
16,830, 2,000, 11,694 and 93,575 shares of common stock, respectively. This
column also includes shares of common stock held in the El Paso Benefits
Protection Trust (as of December 31, 2001) 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.
(2) 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.
(3) Mr. Kuehn's beneficial ownership excludes 20,500 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.
(4) 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.
(5) Includes 98,000 stock options held in the William & Marie Wise Family Ltd.
Partnership.
(6) As of December 31, 2001.
10
(7) The directors and executive officers have the right to acquire the shares of
common stock reflected in this column within 60 days of February 28, 2002,
through the exercise of stock options.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table and narrative text discusses the compensation paid in
2001, 2000 and 1999 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 2001.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ----------------------------------------
AWARDS PAYOUTS
----------------------- --------------
RESTRICTED SECURITIES LONG-TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE PLAN ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(2) ($)(3) ($)(4) (#) ($)(5) ($)(6)
------------------ ---- ---------- ---------- ------------ ---------- ---------- -------------- ------------
William A. Wise 2001 $1,305,425 $3,432,000 $210,481 $1,715,997 768,250 -- $3,771,994
Chairman 2000 $1,108,338 $2,730,000 $191,142 $2,729,940 -- -- $7,215,408
President & CEO 1999 $ 275,001(1) $3,800,000 $139,006 $2,199,966 500,000 $29,254,410 $ 148,368
Ralph Eads 2001 $ 580,213 $1,400,000 $ 59,050 $ 699,980 248,000 -- $ 977,384
Executive Vice 2000 $ 503,129 $ 920,000 $ 2,762 $ 919,907 -- -- $3,972,036
President 1999 $ 250,000(7) $ 375,000 $ 1,108 $3,449,980 650,000 -- $1,500,005
H. Brent Austin 2001 $ 552,091 $1,140,000 -- $ 569,992 223,000 -- $ 950,530
Executive Vice 2000 $ 454,167 $ 880,000 -- $ 879,887 -- -- $1,808,331
President & Chief 1999 $ 386,253 $1,113,000 -- $ 674,994 125,000 $ 5,531,256 $ 42,628
Financial Officer
John W. Somerhalder II 2001 $ 552,091 $1,140,000 -- $ 569,992 223,000 -- $ 946,591
Executive Vice 2000 $ 454,167 $ 880,000 $ 455 $ 879,887 -- -- $1,805,260
President 1999 $ 360,000 $1,071,000 $ 643 $ 674,994 125,000 $ 5,495,006 $ 36,985
Britton White Jr.(8) 2001 $ 502,088 $ 935,000 -- -- 183,750 -- $ 963,640
Executive Vice 2000 $ 404,175 $ 750,000 -- $ 749,992 -- -- $1,817,614
President & General 1999 $ 347,502 $ 956,000 -- $ 559,999 125,000 $ 5,458,756 $ 53,202
Counsel
---------------
(1) The Compensation Committee determined that Mr. Wise's base salary, which was
eliminated in 1996, be reinstated in 1999 in connection with El Paso's
merger with Sonat Inc. The amount reflected is for a partial year.
(2) Under El Paso's current incentive compensation plans, executives are
required to receive a substantial part of their annual bonus in restricted
El Paso common stock. The amounts reflected in this column 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.
Dividends are paid directly to the holders of the restricted common stock
during the four-year vesting schedule.
(3) The amount reflected for Mr. Wise in fiscal year 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. Wise in fiscal year 1999 includes,
among other things, $90,000 for a perquisite and benefit allowance. The
amount reflected 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 2001, 2000 and 1999 are not
included in this column since they were below the Securities and Exchange
Commission's reporting threshold.
11
(4) El Paso's incentive compensation plans provide for and encourage
participants to elect to take the cash portion of their annual bonus award
in shares of restricted common stock. The amounts reflected in this column
include the market value of restricted common stock on 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, 2001, is as follows: Mr.
Wise 550,732 and $24,320,325; Mr. Eads 155,750 and $6,877,920; Mr. Austin
127,852 and $5,645,944; Mr. Somerhalder 127,852 and $5,645,944; and Mr.
White 112,740 and $4,978,598. Most of these shares of El Paso's restricted
common stock are subject to a time-vesting schedule of four years from the
date (including the shares awarded as part of the annual bonus) of grant 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 only if the executives named in this
proxy statement remain employees of El Paso for the four years and, with
respect to performance vesting, the performance goals regarding stockholder
value are reached.
(5) No long-term incentive payments were made in fiscal years 2001 and 2000. The
amounts in this column for fiscal year 1999 represent the market value of
common stock and/or cash payout of performance units for the four-year cycle
ended on December 31, 1998, and the automatic cash payment of 25% of the
performance units outstanding as a result of the change in control
transaction with Sonat Inc.
(6) The compensation reflected in this column for fiscal year 2001 includes El
Paso's contributions to the El Paso Retirement Savings Plan and Supplemental
Benefits Plan along with the above-market interest earned on deferred
compensation. Specifically, these amounts for fiscal year 2001 were $7,650,
$173,944 and $90,400 for Mr. Wise; $0, $0, and $102,384 for Mr. Eads;
$7,650, $56,794 and $11,086 for Mr. Austin; $7,650, $56,794 and $7,147 for
Mr. Somerhalder; and $7,650, $48,694 and $32,296 for Mr. White,
respectively. In addition, the amounts include the remaining one-half of the
special retention payment earned by each executive awarded in connection
with the completion of the Coastal transaction and successful integration of
the organizations. Specifically, the retention payments were $3,500,000 for
Mr. Wise; $875,000 for Mr. Eads; $875,000 for Mr. Austin; $875,000 for Mr.
Somerhalder; and $875,000 for Mr. White.
(7) Mr. Eads joined El Paso during 1999, so the amount reflected is for a
partial year.
(8) Mr. White retired from El Paso on December 31, 2001. The amount reflected in
the bonus column for him includes $60,000 for El Paso mandated reductions to
fund certain charitable organizations.
STOCK OPTION GRANTS
The following table sets forth the number of stock options granted at fair
market value to each of the executives named in this proxy statement during the
fiscal year 2001. In satisfaction of applicable SEC regulations, the table
further sets forth the potential realizable value of such stock options in the
year 2011 (the expiration date of the stock options) at arbitrarily assumed
annualized rates of stock price appreciation of 5% and 10% over the full
ten-year term of the stock options. As the table indicates, the annualized stock
price appreciation of 5% and 10% will result in stock prices in the year 2011 of
approximately $102.58 and $163.34, respectively, for the first (January 29,
2001) grant, and approximately $75.38 and $120.03, respectively, for the second
(August 13, 2001) grant. The amounts shown in the table as potential realizable
values for all stockholders' stock (approximately $21.2 billion and $53.8
billion for the first grant, and approximately $15.6 billion and $39.5 billion
for the second grant), represent the corresponding increases in the market value
of 536,267,944 shares of the common stock outstanding as of December 31, 2001.
No gain to the executives named in this proxy statement is possible without an
increase in stock price, which would benefit all stockholders proportionately.
Actual gains, if any, on stock option exercises and common stock holdings are
dependent on the future performance of the common stock and overall stock market
conditions. There can be no assurances that the potential realizable values
shown in this table will be achieved.
12
OPTION GRANTS IN 2001
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM
------------------------------------------------ -------------------------------------
% OF TOTAL IF STOCK PRICE AT IF STOCK PRICE AT
NUMBER OF OPTIONS $102.57964 $163.34093
SECURITIES GRANTED $75.37710 $120.02543
UNDERLYING TO ALL EXERCISE IN 2011 IN 2011
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------- -----------------
NAME GRANTED(#) IN 2001 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ----------------- -----------------
ALL STOCKHOLDERS' STOCK
APPRECIATION
JANUARY 29, 2001 GRANT....... N/A N/A N/A N/A $21,238,698,395 $53,823,031,693
AUGUST 13, 2001 GRANT........ N/A N/A N/A N/A $15,606,522,719 $39,549,992,721
William A. Wise................ 618,250 2.34% $62.975 1/29/2011 $ 24,485,568 $ 62,051,237
150,000 0.57% $46.275 8/13/2011 $ 4,365,315 $ 11,062,565
Ralph Eads..................... 148,000 0.56% $62.975 1/29/2011 $ 5,861,487 $ 14,854,158
100,000 0.38% $46.275 8/13/2011 $ 2,910,210 $ 7,375,043
H. Brent Austin................ 148,000 0.56% $62.975 1/29/2011 $ 5,861,487 $ 14,854,158
75,000 0.28% $46.275 8/13/2011 $ 2,182,657 $ 5,531,282
John W. Somerhalder II......... 148,000 0.56% $62.975 1/29/2011 $ 5,861,487 $ 14,854,158
75,000 0.28% $46.275 8/13/2011 $ 2,182,657 $ 5,531,282
Britton White Jr. ............. 118,750 0.45% $62.975 1/29/2011 $ 4,703,051 $ 11,918,454
65,000 0.25% $46.275 8/13/2011 $ 1,891,636 $ 4,793,778
---------------
(1) The stock options granted in 2001 by El Paso to the executives named in this
proxy statement vest as follows: the first grant vests one-third on each of
the first three anniversaries of the grant date and the second grant vests
one-half on each of the two anniversaries of the grant date. There were no
stock appreciation rights granted in 2001. Any unvested stock options become
fully exercisable in the event of a "change in control" (see page 24 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
The following 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 2001
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED FISCAL YEAR-END (#) FISCAL YEAR-END ($)(2)
ON EXERCISE VALUE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
William A. Wise........... 300,000 $11,053,500(3) 1,371,333(4) 934,917 $29,013,903 $ 495,834
Ralph Eads................ 0 $ 0 260,000 638,000 $ 773,500 $1,160,250
H. Brent Austin........... 11,210 $ 392,238 262,383 264,667 $ 4,902,657 $ 123,959
John W. Somerhalder II.... 15,000 $ 547,202 232,383 264,667 $ 4,011,844 $ 123,959
Britton White Jr. ........ 6,000 $ 294,788(5) 256,383 225,417 $ 4,721,869 $ 123,959
13
---------------
(1) The figures presented in this column have been calculated based upon the
difference between the fair market value of the securities underlying each
stock option on the date of exercise and its exercise price.
(2) The figures presented in these columns have been calculated based upon the
difference between $45.10, the fair market value of the common stock on
December 31, 2001, 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 SARs that
were outstanding on December 31, 2001.
(3) Mr. Wise realized this value by executing a regular exercise of stock
options that were about to expire and he currently holds the shares acquired
upon exercise.
(4) Includes 98,000 stock options held by the William & Marie Wise Family Ltd.
Partnership.
(5) Mr. White realized this value by executing a regular exercise of incentive
stock options and holding the shares of common stock.
LONG-TERM INCENTIVE AWARDS
RESTRICTED STOCK
The following table provides information concerning incentive awards of
restricted common stock made under El Paso's 1999 Omnibus Incentive Compensation
Plan. The number of shares of restricted common stock will vest if, and only if,
the executives named in this proxy statement remain in the employ of El Paso for
the specified time period and the required increase in total stockholder return
is achieved during such time period.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2001
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 (#) (#) (#) (#)
---- --------- ------------ --------- --------- ------- -------
William A. Wise................. 200,000 4 years 0 60,000 120,000 200,000
Ralph Eads...................... 35,000 4 years 0 10,500 21,000 35,000
H. Brent Austin................. 35,000 4 years 0 10,500 21,000 35,000
John W. Somerhalder II.......... 35,000 4 years 0 10,500 21,000 35,000
Britton White Jr. .............. 30,000 4 years 0 9,000 18,000 30,000
---------------
(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 time.
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 ("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 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
14
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 $170,000 cannot be taken into account and
the maximum payable benefit in 2001 was $140,000. 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) continue
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 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 maximum annual
bonuses and cash balances are credited with interest at a rate of 4% per annum):
ESTIMATED
NAMED EXECUTIVE ANNUAL BENEFITS(1)
--------------- ------------------
William A. Wise..................................... $842,452
Ralph Eads.......................................... $495,070
H. Brent Austin..................................... $282,125
John W. Somerhalder II.............................. $464,416
Britton White Jr. .................................. $ 36,004
---------------
(1) For Messrs. Wise, Austin and White, the amounts reflected have been
reduced as a result of their participation in the Estate Enhancement
Program, as described on page 23 of this proxy statement.
15
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 graphs reflect the changes in the value of $100 invested
since December 31, 1996 and March 12, 1992 (this is the date on which El Paso's
common stock was initially offered to the public) as invested in El Paso's
common stock, the Standard & Poor's 500 Stock Index and the Standard & Poor's
Natural Gas Index.
COMPARISON OF ANNUAL CUMULATIVE TOTAL VALUES FROM 1996-2001 FOR
EL PASO, THE S&P 500 STOCK INDEX AND THE S&P NATURAL GAS INDEX
[PERFORMANCE CHART]
--------------------------------------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
--------------------------------------------------------------------------------------
El Paso $100.00 $134.90 $144.40 $164.50 $308.50 $ 195.30
S&P 500 Stock Index $100.00 $133.40 $171.50 $207.60 $188.70 $ 166.30
S&P Natural Gas Index $100.00 $118.00 $129.50 $154.10 $270.50 $ 117.30
16
COMPARISON OF ANNUAL CUMULATIVE TOTAL VALUES FROM 1992-2001 FOR EL PASO,
THE S&P 500 STOCK INDEX AND THE S&P NATURAL GAS INDEX
[PERFORMANCE CHART]
--------------------------------------------------------------------------------------------------------------------------------
3/12/92 12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99
--------------------------------------------------------------------------------------------------------------------------------
El Paso $100.00 $ 167.6 $ 200.4 $ 176.1 $ 173.9 $ 315.6 $ 425.9 $ 455.7 $ 519.3
S&P 500 Stock Index $100.00 $ 108.3 $ 119.2 $ 120.7 $ 166.1 $ 204.3 $ 272.4 $ 350.3 $ 424.0
S&P Natural Gas Index $100.00 $ 122.6 $ 145.6 $ 138.9 $ 196.4 $ 261.0 $ 308.0 $ 337.9 $ 402.3
-------------------- ---------------------
12/00 12/01
-------------------- ---------------------
El Paso $ 973.8 $ 616.5
S&P 500 Stock Index $ 385.4 $ 339.6
S&P Natural Gas Index $ 706.0 $ 306.2
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of McDade Fogler Maines, L.L.P. provided legal services to El
Paso in fiscal year 2001. Thomas R. McDade, a director of El Paso, is a senior
partner of that law firm. In fiscal year 2001, El Paso paid McDade Fogler
Maines, L.L.P. approximately $230,000 for legal services rendered by that law
firm to El Paso.
See "Employment Contracts, Termination of Employment and Change in Control
Arrangements" starting on page 22 of this proxy statement for information
related to loans to certain executive officers named in this proxy statement.
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. Allumbaugh, Bissell, Gibbons and Wyatt. Mr. Bissell became a
member of the Compensation Committee on January 29, 2001, when the Coastal
transaction closed. The Compensation Committee has neither interlocks nor
insider participation.
17
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, implementing capital improvements, expanding markets, 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 Natural Gas Index (reflected in
the Performance Graphs found on page 16 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.
During 2001, the Compensation Committee requested an independent
compensation consulting firm to conduct an analysis of El Paso's executive
compensation and benefit plans, including a survey and comparative analysis of
compensation plans of other companies of similar size, and engaged in similar
businesses, taking into account the Coastal Corporation transaction. The
Compensation Committee believed such an analysis and reevaluation were timely
and necessary in light of the substantial increase in the size of the
organization and substantially broader business scope and focus of El Paso
following the combination with Coastal. After the study was completed, the
Compensation Committee met with the compensation consulting firm to review its
conclusions and consider its recommendations for appropriate changes. In a
session with the consultant, the Compensation Committee reviewed not only the
compensation levels and components of the total compensation package for the CEO
and other named executives vis-a-vis similar positions in comparable companies,
but also reevaluated the compensation philosophy and plans described herein to
confirm that they remain consistent with, and continue to contribute to the
accomplishment of, the overall business objectives of El Paso.
A primary mission of the Compensation Committee is to ensure that each
executive officer's compensation is directly related to the performance of El
Paso and its common stock, and the performance of the individual executive
officer. 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 in 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 (payable in cash and/or common stock with
the value ranging from $0 to $150 per performance unit depending upon El Paso's
relative total shareholder return to its peers). With respect to cash
compensation, the base salary of executive officers is targeted at or near the
50th 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. Total cash and long-term
incentives may reach the 90th percentile of the peer group in a year of
exceptional performance. In addition, the Compensation Committee, in
consultation with the independent consulting firm, determined that a retention
program was necessary to ensure that the CEO and other named executives remained
with El Paso during the critical integration and merger process with The Coastal
Corporation organization.
18
As a result of the analysis and reevaluation process described above, the
Compensation Committee determined that potential year-end bonuses should range,
depending upon El Paso and individual performance, from 0% to 240% of base
salary for the CEO, from 0% to 200% for Mr. Eads, 0% to 190% for Messrs. Austin
and Somerhalder, and from 0% to 170% for Mr. White. 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.
While Mr. Wise does have an employment agreement with El Paso, as described
on page 22 of this proxy statement, his compensation and benefits are determined
under El Paso plans and programs in effect from time to time in accordance with
the policies described above. Except for Mr. Eads, whose employment arrangement
is described on page 23 of this proxy statement, none of the other named
executives received compensation governed or affected by employment agreements.
Section 162(m) of the IRC ("Section 162(m)") 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 2001 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 and
operating and maintenance cost objectives. El Paso's 2001 non-financial goals
consisted of completing the implementation of the Coastal post-merger
reengineering plan and achieving certain specific goals for each business unit.
For the regulated pipeline business segment, these goals consisted of optimizing
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 merger
integration, integrating facility operations, implementing certain risk
management systems, developing strategic international projects and reducing the
company's risk profile. For El Paso's Field Services business, these goals
included infrastructure growth for the mid-stream business through El Paso
Energy Partners; completion of the Field Services' integration and reengineering
plan; and continuing to reduce risk profile. For the exploration and production
business segment, these non-financial 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 the company's performance, this Committee
hereby certifies that El Paso has attained the necessary performance goals for
the 2001 performance period to make incentive awards under El Paso's 2001
Omnibus Incentive Compensation Plan and/or 1999 Omnibus Incentive Compensation
Plan, as applicable. 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.
19
The Compensation Committee, consistent with its policies and mission,
applied the information and performance factors for 2001 to determine the
appropriate compensation for Mr. Wise and other executive officers. In analyzing
these performance factors, the Compensation Committee recognized the unique
businesses and political challenges that the executive management team faced in
2001. These challenges included extremely volatile commodity prices, difficult
financial markets; and a challenging legal, political and regulatory environment
as a result of the California energy crisis and the collapse of a major
competitor. Despite these challenges, the management team responded quickly and
decisively to preserve and to enhance El Paso's position with respect to its
customers, suppliers, creditors, employees and communities. Management, led by
Mr. Wise, was proactive in anticipating and leading significant efforts to
strengthen El Paso's balance sheet to, among other things, (1) reassure credit
rating agencies, (2) position El Paso competitively for the future, and (3)
preserve shareholder value. Management was successful in the completion of the
post-Coastal and GTT merger reengineering, the creation of a liquefied natural
gas strategy; the development of several strategic international projects; the
deployment of state of the art merchant energy technology risk management tools;
and in delivering record earnings and cash flow. In 2001, Mr. Wise displayed
exceptional foresight and responsiveness to the rapidly changing industry-wide,
political and general economic conditions facing El Paso. Throughout this
volatile period, Mr. Wise managed the strategic direction of the company and
continued to leverage El Paso's expertise and assets through a carefully planned
strategic growth program, which is demonstrated by the financial performance of
El Paso. Having reviewed the contribution that the CEO made to El Paso's
performance in 2001, the Compensation Committee believes that he continues to
demonstrate the motivational, planning and leadership qualities that the
executive compensation program was designed to foster and reward. Further, the
Compensation Committee commends Mr. Wise, and the management team, for El Paso's
exceptional financial performance during a year filled with unprecedented
challenges.
In recognition of Mr. Wise's overall performance and his responsibility for
El Paso's successes during 2001, the Compensation Committee determined that he
should receive the highest rating, and awarded him the maximum incentive bonus
available under the incentive award opportunity discussed above (240% of base
salary). In support of the Compensation Committee's long-term compensation
mission to provide competitive compensation incentives to retain and motivate
executive officers, Mr. Wise was granted 768,250 stock options and 200,000
shares of performance-based restricted common stock during 2001. The specific
amounts of these equity grants for Mr. Wise and the other named executives was
determined in accordance with the targets and formulas recommended by El Paso's
independent consulting firm, as described in more detail above. The Compensation
Committee, in consultation with the independent consulting firm, adjusted Mr.
Wise's base salary to $1,430,000 to remain competitive for executive talent. As
a result of the implementation of the retention programs discussed above, the
Compensation Committee awarded the remaining one-half of the retention payment
related to the Coastal transaction, which is reflected on the Summary
Compensation Table.
COMPENSATION OF OTHER EXECUTIVE OFFICERS
The Compensation Committee, in consultation with the independent consulting
firm, applied the information and performance factors outlined above in
reviewing and approving the compensation of El Paso's other executive officers.
This process resulted in a determination that, based upon individual performance
and their significant individual contributions to overall El Paso performance
during the fiscal year 2001, each of the other four named executive officers
should be awarded the maximum incentive bonus available under the incentive
award opportunity discussed above (170%, 190% or 200% of base salary, as
applicable). Stock options and shares of performance-based restricted common
stock were granted in 2001 to executive officers to provide continuing
incentives for future performance. The number of options and performance-based
restricted common stock granted to such executives was determined in accordance
with the targets and formulas recommended by El Paso's independent consulting
firm in light of the Coastal transaction, as described in more detail above. The
remaining one-half of the retention payments granted to the other named
executives for being essential to the successful integration of the Coastal
organization were paid in 2001 and are reflected on the Summary Compensation
Table. Base salaries were adjusted for the other named executive
20
officers, determined in consultation with the independent consulting firm, to
remain competitive for executive talent, and in consideration of the increased
job responsibilities associated with the Coastal transaction.
THE 2001 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
in the New York Stock Exchange rules. 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. The Audit Committee currently consists of
Messrs. Wallop, Braniff, Kuehn and MacNeil. Messrs. Kuehn and MacNeil became
members of the Audit Committee on January 29, 2001, when the Coastal transaction
closed.
POLICIES AND MISSION
The Audit Committee recommends the independent certified public accountants
for Board of Director approval, engages in a discussion with the independent
accountants regarding the objectivity and independence of the accountants,
reviews the adequacy of the Audit Committee Charter, reviews El Paso's
Securities and Exchange Commission filings, reviews significant financial
reporting issues with the El Paso controller, 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.
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 auditors the matters required to
be discussed by SAS 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 2001 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 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
Malcolm Wallop Juan Carlos Braniff Ronald L. Kuehn, Jr. J. Carleton MacNeil, Jr.
(Chairman) (Member) (Member) (Member)
21
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS
El Paso entered into an employment agreement with Mr. Wise effective July
31, 1992. The Agreement was for a term of three years. It is automatically
renewed at the end of every month which re-establishes a three-year term on the
first of each month unless either party notifies the other that the agreement
will not be renewed. Compensation and benefits for Mr. Wise are determined under
El Paso's benefit plans and programs in effect from time to time. If Mr. Wise's
employment is terminated involuntarily, without cause, or is voluntarily
terminated by Mr. Wise for "good reason" (as defined in the Severance Plan,
which is discussed below), Mr. Wise will receive his salary, a bonus equal to
50% percent of the maximum bonus, but not less than 50% of his annual salary
opportunity in effect at the time of termination, and benefits through the end
of the current term of the employment agreement. If Mr. Wise's employment is
terminated for any reason other than a "change in control" which is defined in
the Severance Plan, his salary, bonus or benefits (with the exception of the
defined benefit pension plan payments) will be reduced by comparable
compensation received by new employment. If Mr. Wise's employment is terminated
because of death, involuntary termination for cause or is voluntarily terminated
by Mr. Wise other than for "good reason," Mr. Wise'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. In March 1999, subject to certain conditions, Mr. Wise waived
his right to terminate his employment for "good reason" by reason of no longer
serving as the Chairman of the Board of El Paso following the merger with Sonat.
Mr. Wise's employment agreement also provides that Mr. Wise is entitled to
pension benefits under the terms of El Paso's Supplemental Benefits Plan,
however, such pension benefits will be based on one additional year of "age" and
"service" credit for each year of the term. Upon termination of his employment,
this benefit will be funded through a trust. If Mr. Wise's employment is
terminated prior to the end of the term, other than as a result of either a
"change in control" of El Paso or his voluntary termination of the agreement for
"good reason" pursuant to six months prior written notice to El Paso of such
termination, Mr. Wise will be subject to a noncompetition provision through the
end of the term. Any compensation and benefits received by Mr. Wise under the
Severance Plan will offset obligations of a similar nature under Mr. Wise's
employment agreement. In 1999, the Compensation Committee decided to reinstate
Mr. Wise's base salary (which had been eliminated in 1996) in connection with El
Paso's merger with Sonat. During 2000, the Compensation Committee determined
that Mr. Wise's employment agreement should be amended and restated (dated
February 1, 2001) to reflect previous amendments and to provide for an incentive
to retain Mr. Wise as Chairman of El Paso until he reaches age 60 by granting
him a one-fourth fractional interest in a mid-size corporate jet for a period of
five years (and extended to ten years if certain El Paso stock price thresholds
are achieved) after his retirement as Chairman, subject to certain initial
($3,000,000 -- $6,000,000) and annual (not to exceed $2,000,000) monetary
limitations, as adjusted for the corporate jet fractional share market prices.
El Paso will reimburse Mr. Wise for any taxes he may incur as a result of this
arrangement. Any residual value of the aircraft at the end of the term shall
belong to El Paso. During 1997, El Paso loaned Mr. Wise $1,564,000 for the
purchase of his residence in Houston in connection with El Paso's relocation to
Houston from El Paso, Texas. The loan and interest (at 6.8%) thereon is payable
at the end of ten years, or at the time of Mr. Wise's retirement from El Paso,
whichever is earlier. The loan is secured by Mr. Wise's Houston residence. In
the event of a "change in control" (as defined in the Severance Plan) and if Mr.
Wise meets all the requirements for a severance benefit under the Severance
Plan, he will not be required to repay the loan and accrued interest and he may
be entitled to a payment to cover any adverse tax consequences (as provided in
the Severance Plan). On January 15, 2002, 300,000 of Mr. Wise's stock options
were due to expire. During 2001, El Paso agreed to loan Mr. Wise the funds (in
an aggregate amount up to $7,332,195) to exercise these options and purchase
shares of El Paso common stock. The loan and interest, at 4.99% thereon, are
payable at the end of ten years, or at the time of Mr. Wise's retirement from El
Paso, whichever is earlier. The loan is recourse to Mr. Wise and is secured by
Mr. Wise's interest in the 300,000 shares (including all in-kind distributions,
dividends, or otherwise), and any cash, instruments and other property received
in respect of or in exchange for the shares. In the event of a "change in
control" (as defined in the Severance Plan) and if Mr. Wise meets all the
22
requirements for a severance benefit under the Severance Plan, he will not be
required to repay the loan and accrued interest and he may be entitled to a
payment to cover any adverse tax consequences (as provided in the Severance
Plan).
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., 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 entered into a letter agreement with Mr. Eads dated June 16, 1999.
As part of this agreement, Mr. Eads is entitled to an annual base salary and a
one-time cash sign-on bonus for 1999 and a one-time credit to the Deferred
Compensation Plan for 2000, which are reflected on the Summary Compensation
Table. In addition, Mr. Eads is entitled to a bonus, performance units, stock
options and restricted common stock in amounts established by the Compensation
Committee. Mr. Eads is also entitled to the normal and customary perquisite
allowance and other benefits and privileges accorded to him in his status as a
senior executive of El Paso. Mr. Eads' employment may be terminated at any time
and at will by either him or El Paso.
El Paso entered into a letter agreement with Mr. White dated February 22,
1991. As part of this agreement, Mr. White is entitled to additional years of
credited service with respect to pension benefits which are payable under El
Paso's Supplemental Benefits Plan if he remains employed with El Paso until the
specified age set forth in the letter agreement. Mr. White retired from El Paso
on December 31, 2001, and his letter agreement terminated. As part of his
retirement, Mr. White entered into a consulting agreement whereby he has agreed
to provide professional consulting services to El Paso through December 31,
2002. During 2002, El Paso will pay Mr. White $45,833 per month for his
consulting services. As part of his retirement, he will receive his accrued
retirement benefits, deferred account balances, vested stock options, certain
restricted stock as provided under applicable plans and performance units
(including an additional six months of vesting). Through December 31, 2003, Mr.
White is entitled to have El Paso purchase the home he acquired in connection
with his transfer to Houston pursuant to the Domestic Relocation Policy, as
described on page 25 of this proxy statement, and pay the costs incurred in
connection with the relocation of his household goods, including a tax gross up
for taxes attributed to such relocation benefits.
BENEFIT PLANS
Estate Enhancement Program (EEP). In 2001, Messrs. Wise, Austin and White
each reduced the balance of certain compensation payable to them under the
Supplemental Benefits Plan in exchange for the right to participate in the EEP.
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 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 addition to certain executive officers, non-employee
directors are eligible to participate in this program if they have at least
$200,000 in deferred benefits under the 1995 Compensation Plan for Non-Employee
Directors, as described on page 5 of this proxy statement.
Key Executive Severance Protection Plan. This plan provides severance
benefits following a "change in control" of El Paso for certain officers of El
Paso and its subsidiaries. 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) supplemental pension calculated by
adding three years of additional credited pension service; (4) certain
23
additional payments to the terminated employee if the payments made under the
plan are subject to a specified adverse excise tax; and (5) payment of legal
fees and expenses incurred by the employee to enforce any rights or benefits
under the plan. Benefits are also payable for any termination of employment for
a participant in the plan within two years of the date of a change of 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 has occurred 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.
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. 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.
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 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 of 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. Although this plan has been terminated with
respect to new grants, certain shares of restricted common stock remain
outstanding under it. If a "change of 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. Although this plan has been terminated with respect to any
new grants, certain stock options remain outstanding under it. If a "change of
control" of El Paso under this plan occurs, all outstanding stock options become
fully exercisable. For purposes of this plan, the term "change of 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. 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.
24
Strategic Stock Plan. This plan provides for the grant of stock options,
stock appreciation rights, limited stock appreciation rights and shares of
restricted common stock to officers and key employees of El Paso and its
subsidiaries primarily in connection with El Paso's strategic acquisitions. 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.
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 allows 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 designates the executives and key management employees
who may participate. Amounts deferred are payable upon termination of employment
in a lump-sum payment or in periodic installments, except that the management
committee may, in its discretion, accelerate payments. Any amounts deferred
shall be credited with interest, gains/losses based on investments or other
indices specified by the management committee.
Senior Executive Survivor Benefits Plan. This plan provides certain senior
executives of El Paso and its subsidiaries, who are designated by the management
committee of this plan 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
management committee may, in its discretion, accelerate payments.
Domestic Relocation Plan. El Paso had a Domestic Relocation Plan, under
which El Paso is obligated, upon the termination of employment of the executives
named in this proxy statement (as a result of death, retirement, or permanent
disability) 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.
Non-Telecommunications Executive Investment Program. In February 2001,
sixteen El Paso executives, including Messrs. Wise, Eads, Austin and
Somerhalder, purchased shares (the "Subject Shares") representing approximately
3.35% of El Paso's consolidated telecommunications subsidiary, El Paso Global
Networks Company ("Global Networks"). Messrs. Wise, Eads, Austin and Somerhalder
invested $5,000,000, $1,500,000, $500,000, and $1,000,000, respectively. Of such
amount, El Paso loaned (at a 5.07% interest rate and 40% recourse to the
executive) Messrs. Wise, Eads, Austin, and Somerhalder $4,000,000, $1,200,000,
$400,000, and $800,000 respectively, to enable the executive to purchase the
Subject Shares. In October 2001, El Paso refocused its telecommunications
strategy and, to give itself greater flexibility in the operations of Global
Networks, sought to reacquire all outstanding common stock and stock options of
Global Networks. Following approval of El Paso's Compensation Committee of the
Board of Directors, El Paso exercised its
25
right to repurchase the Subject Shares for fair value from Messrs. Wise, Eads,
Austin and Somerhalder for $5,400,000, $1,620,000, $540,000 and $1,080,000,
respectively. The sale proceeds, net of the loan amounts, were remitted to the
executives. In addition, the executives paid to El Paso an amount equal to the
full accrued, but unpaid, interest on the loans. Specifically, Messrs. Wise,
Eads, Austin and Somerhalder paid interest to El Paso in the amounts of
$142,238, $42,671, $14,224 and $28,448, respectively.
PROPOSAL NO. 2 -- APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE EMPLOYEE STOCK
PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES AUTHORIZED FOR
ISSUANCE
Since its adoption by El Paso on January 20, 1999, the Employee Stock
Purchase Plan (the "Plan") has assisted El Paso in attracting and retaining
highly talented employees and has provided eligible employees an opportunity to
invest in the future of El Paso and share in El Paso's growth through any
increases in stock value and through any dividends. Our stockholders approved
the Plan on April 22, 1999.
A total of 2,000,000 shares of El Paso's common stock are reserved for
purchase under the Plan. Shares reserved under the Plan are issued from El
Paso's treasury or from authorized but unissued shares. As of December 31, 2001,
employees have purchased a total of 799,318 shares of common stock under the
Plan. On January 29, 2002, the Board of Directors approved an amendment and
restatement of the Plan, thereby providing for an increase in the number of
shares authorized for issuance under the Plan (subject to stockholder approval)
and the inclusion of previous plan amendments. In order to provide adequate
shares for sale to the employees, the Board of Directors now seeks your approval
to amend and restate the Plan to increase the number of shares authorized under
the Plan by 3,000,000 shares for a total of 5,000,000 shares of common stock.
Neither the number nor the value of future option awards to particular
participants or groups of participants is presently determinable. On March ,
2002, the per share market value of our common stock was $ .
The Plan is a broad-based plan that provides employees with an opportunity
to purchase shares of common stock of El Paso at a 15% discount through
convenient payroll deductions. These amounts are applied to the purchase of El
Paso common stock on designated investment dates. The Plan is entitled to
qualify as an "Employee Stock Purchase Plan" within the meaning of Section 423
of the Internal Revenue Code (the "Code") and employees will be afforded
favorable tax treatment under Section 421 and 423 of the Code, if the
participant holds the stock for the required holding period (two years from the
beginning of the offering period and one year from the purchase date).
AN AFFIRMATIVE VOTE OF A MAJORITY OF SHARES OF COMMON STOCK REPRESENTED AT
THE ANNUAL MEETING IN PERSON OR BY PROXY AND ENTITLED TO VOTE ON THE PROPOSAL
WILL CONSTITUTE APPROVAL.
The following description of the material provisions of the Plan is
qualified by reference to the full provisions of the amended and restated Plan
(taking into account the amendment for which approval is sought in this
proposal), a copy of which is set forth on Exhibit B to this proxy statement.
Capitalized terms not defined herein shall have the same meanings ascribed to
such terms in the plan document.
Purpose. The purpose of the Plan is to permit employees to purchase El
Paso common stock over a period of time at a discount from market prices and to
increase employee stock ownership in order to continue to attract and retain
dedicated and reliable employees. The Board of Directors believes that the Plan
aligns employees' interest with those of stockholders and provides an attractive
incentive to the employees and promotes a greater interest of such employees in
the future growth and success of El Paso.
Administration. The Plan is administered by the "Committee," meaning the
management committee and, with respect to officers subject to Section 16 of the
Securities Exchange Act, the Compensation Committee of the Board of Directors.
The Committee has full and exclusive discretionary authority to construe,
administer and interpret the Plan, including the authority to determine who is
eligible to participate and to make any rules and other determinations necessary
to administer the Plan. The Committee has designated EquiServe Trust as the
record keeper/custodian of the Plan. El Paso pays for all expenses incurred in
connection with the administration of the Plan except for the costs associated
with the sale of shares, which is borne by the participants.
Eligible Employees. Active, full-time employees and certain part-time
employees of designated El Paso affiliates are eligible to participate in the
Plan. However, no employee is eligible to participate who would own,
26
after purchasing common stock under the Plan, shares of capital stock equaling
5% or more of the total combined voting stock of El Paso. Enrollment is
voluntary and employees elect to enroll in the Plan during the annual open
enrollment period. For 2002, 12,006 employees are eligible to participate and
4,137 employees are participating in the Plan.
Purchase of Shares. Participants in the Plan are granted options to
purchase common stock of El Paso on the first trading (business) day of the Plan
year (the "Grant Date"). A participant's options to purchase shares of common
stock are automatically exercised on the last trading day of each calendar
quarter (the "Exercise Date") to the extent of the participant's contributions
by payroll deductions. The purchase is made in whole and fractional shares at
85% of the lower of two prices (i) the average of the high and low trading share
prices on the Grant Date, or (ii) the average of the high and low trading share
prices on the Exercise Date. The common stock purchased is then recorded in an
account in the participant's name and held until the participant elects to
receive it in the form of a stock certificate or sells the shares and receives
the proceeds.
The maximum annual payroll deduction for the purchase of shares is $21,250
per participant. Participants may elect to change the amount of their payroll
deduction during each annual open enrollment period. The change will become
effective the next calendar year. Participants may cancel their participation in
the Plan at any time during the year. However, if a participant elects to cancel
his or her participation in the Plan, the participant cannot resume
participation in the Plan until the next annual enrollment. Interest is not paid
on the cash accumulated during the quarter.
Termination of Employment. Termination of a participant's employment with
El Paso or a designated company for any reason, including retirement, disability
or death, or the failure of a participant to remain an employee eligible to
participate in the Plan, will terminate the participant's participation in the
Plan. Any funds deposited by the employee prior to such termination will be used
to purchase common stock on the next Exercise Date or refunded, without interest
to such employee, as required by the Plan.
Non-Transferability. A participant's rights under the Plan are not
transferable, except by will or the laws of descent and distribution, and are
exercisable only by the participant during the participant's lifetime. No rights
or payroll deductions of a participant will be subject to execution, attachment,
levy, garnishment or similar process.
Amendment or Termination of Plan. The Plan will continue until December
31, 2009, or until terminated by the Board of Directors, or until all shares
authorized for issuance under the Plan have been used up, whichever occurs
first. The Board may amend or terminate the Plan at any time except that any
such amendment or termination may not adversely affect the purchase rights
previously granted under the Plan. An amendment authorizing the issuance of more
than 5,000,000 shares under the Plan (other than due to a recapitalization,
stock split, stock dividend, exchange of shares, merger, reorganization, change
in corporate structure or shares of El Paso or similar event) must be approved
by the stockholders of El Paso within 12 months of the adoption of such
amendment.
Federal Income Tax Consequences. The following discussion of certain
federal income tax consequences of the Plan is based on the Code provisions in
effect on the date of this proxy statement, current regulations thereunder, and
existing administrative rulings of the Internal Revenue Service. The discussion
is limited to the United States tax consequences and the tax consequences may
vary depending on the personal circumstances of individual employees.
A participant does not recognize taxable income as a result of commencing
participation in the Plan or purchasing shares of El Paso's common stock under
the terms of the Plan. However, amounts deducted from a participant's paycheck
in order to purchase shares under the Plan are taxable as part of the
participant's compensation and deductible to El Paso.
If a participant disposes of shares purchased under the Plan within two
years of the Grant Date or within one year of the Exercise Date ("Disqualifying
Disposition"), the participant will recognize ordinary income in the year of
such disposition equal to the amount by which the fair market value of the
shares on the date the shares were purchased exceeds the purchase price. The
amount of the ordinary income will be added to the participant's basis in the
shares, and any additional gain or resulting loss recognized on the disposition
of the
27
shares will be a capital gain or loss. A capital gain or loss will be long-term
if the participant holds the shares for more than 12 months. El Paso is entitled
to a deduction in the year of a Disqualifying Disposition equal to the amount of
ordinary income recognized by the participant as a result of the disposition.
If a participant disposes of shares purchased under the Plan at least two
years after the Grant Date or at least one year after the Exercise Date, the
Participant will realize ordinary income in the year of disposition equal to the
lesser of (i) the excess of the fair market value of the shares on the date of
disposition over the purchase price, or (ii) 15% of the fair market value of the
shares on the Grant Date. The amount of any ordinary income will be added to the
participant's basis in the shares, and any additional gain recognized upon the
disposition will be a long-term capital gain. If the fair market value of the
shares on the date of disposition is less than the purchase price, there will be
no ordinary income and any loss recognized will be a long-term capital loss.
WE RECOMMEND THAT YOU VOTE "FOR" APPROVAL OF THE AMENDMENT AND RESTATEMENT OF
THE EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK AVAILABLE FOR EMPLOYEES UNDER THE PLAN.
PROPOSAL NO. 3 -- APPROVAL OF AN AMENDMENT TO THE EL PASO RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF SHARES AUTHORIZED
The Board of Directors proposes to amend ARTICLE 4 of El Paso's Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 750,000,000 shares of common stock to 1,500,000,000 shares of
common stock. Neither the par value of the common stock nor any rights presently
accruing to holders of common stock will be affected by this increase. As of
March 25, 2002, El Paso had [ ] shares of common stock issued and
outstanding, and approximately [ ] shares reserved for issuance for El
Paso's various benefit plans as well as other outstanding obligations. The
proposed increase ensures that a sufficient number of shares of common stock
will be available for future transactions, including acquisitions, stock splits,
stock dividends, employee benefit plans, stock bonus and award plans,
satisfaction of debt, and other general corporate purposes. The proposed
amendment would give the Board of Directors the authority to issue additional
shares of common stock without requiring future stockholder approval of such
issuances, except as may otherwise be required by applicable law.
AN AFFIRMATIVE VOTE OF A MAJORITY OF SHARES OF COMMON STOCK OUTSTANDING AND
ENTITLED TO VOTE ON THE PROPOSAL WILL CONSTITUTE RATIFICATION.
The first paragraph of ARTICLE 4 of El Paso's Restated Certificate of
Incorporation, as amended, would read as follows:
"4.1 The total number of authorized shares of all classes of
stock of this corporation consists of 1,500,000,000 shares of common
stock having a par value of $3.00 per share (the "Common Stock") and
50,000,000 shares of preferred stock having a par value of $0.01 per
share ("Preferred Stock"). Authority is hereby expressly granted to
the Board of Directors to fix by resolution or resolutions any of the
designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions which are permitted by the
General Corporation Law of the State of Delaware in respect of any
class or classes of stock or any series of any class of stock of the
corporation."
If the amendment to the Restated Certificate is approved, it will become
effective upon filing with the Secretary of State of the State of Delaware.
WE RECOMMEND THAT YOU VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO EL PASO'S
RESTATED CERTIFICATE OF INCORPORATION.
28
PROPOSAL NO. 4 -- 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 2002. PricewaterhouseCoopers LLP has served continuously as
El Paso's independent certified public accountants since 1983.
AN AFFIRMATIVE VOTE OF A MAJORITY OF SHARES OF COMMON STOCK REPRESENTED AT
THE ANNUAL MEETING IN PERSON OR BY PROXY AND ENTITLED TO VOTE ON THE PROPOSAL
WILL CONSTITUTE APPROVAL.
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 2002 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 2001. During fiscal year 2001, PricewaterhouseCoopers
LLP billed El Paso in the amounts listed below for services rendered in the
following categories:
CATEGORY AMOUNT
-------- -----------
Audit Fees............................................................. $ 4,300,000
Financial Information Systems Design and Implementation................ $ 1,500,000
Other Fees:
Statutory audits....................................... $2,750,000
Reviews of SEC filings................................. $1,000,000
Risk management reviews................................ $ 400,000
Due diligence and transaction structuring.............. $ 750,000
Tax compliance and consulting.......................... $1,100,000
Other.................................................. $ 500,000
Total other fees..................................................... $ 6,500,000
-----------
Total........................................................ $12,300,000
===========
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 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 2002.
PROPOSAL NO. 5 -- STOCKHOLDER PROPOSAL: CANCELLATION OF RESTRICTED STOCK GRANT
PROGRAM
Ms. Stephanie Carpenter, 9839 Cash Mountain Rd., Helotes, Texas 78023, the
owner of 2,350 shares of common stock, has indicated that she will present a
proposal for action at the 2002 Annual Meeting as follows:
"I propose that El Paso Energy cancel the restricted stock grant
program that is currently in place for executives. The executive
compensation program includes both restricted stock grants and stock
option grants. The corporation has awarded 2.8 million shares of
restricted stock to executives over the past three years. Restricted
stock is given away to executives for free, and the market value of
restricted stock is charged against earnings as a compensation
expense. This depresses current
29
earnings per share, and the increased number of shares outstanding
will also lower future earnings per share, which will have a negative
effect on the stock price. I feel that executives should have to pay
for company stock, just like investors. I also feel that this
restricted stock grant program is excessive, and an unnecessary
dilution of shareholders equity. Furthermore, there are a total of
12,994,454 shares of stock in the employee stock option plan, with an
average exercise price of $26.71 per share. With the current stock
price of about $52 per share, this amounts to an unrealized gain of
$328,680,321.70. Therefore, I believe that the employee stock option
plan is already generous enough to motivate executives, and I do not
see the need to dilute shareholders equity even more, by giving shares
of restricted stock to executives at no cost."
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 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:
Qualified and capable executive officers and key employees are essential to
the success of El Paso and to building value for our stockholders. In order to
attract and retain such qualified employees, El Paso must provide a competitive
level of total compensation. A generally accepted principle of contemporary
executive compensation practice is that a substantial portion of an executive
officer's compensation should be related to the long-term objectives and
operating performance of a company. The proposal to eliminate restricted stock
grants is completely at odds with this principle and therefore should be
rejected.
El Paso's Compensation Committee is comprised of four independent
directors. As more fully described in the Compensation Committee Report On
Executive Compensation on page 17 of this proxy statement, the Compensation
Committee has determined that the compensation of El Paso's executive officers
should be directly and materially related to the short-term and long-term
objectives and operating performance of El Paso. The Compensation Committee
consults with an independent executive consulting firm when deciding what
executive compensation, including the grant of restricted stock, is necessary
and appropriate to attract, retain and remain competitive for executive talent.
One of the objectives of El Paso's long-term incentive program is to align
the interests of executive officers with the interests of stockholders in the
form of shares of common stock. In this regard, shares of restricted stock
granted to executive officers are often subject to performance vesting, in
addition to time vesting. If the required performance targets are not achieved
within the required time period, all unvested shares will be forfeited.
Accordingly, the executive officers are compensated only if our stockholders
realize significant increases in stock price appreciation.
Given the necessity of providing competitive levels of total compensation
for executive officers, limiting the type of long-term incentive compensation
available would not result in a decrease in total compensation, but merely a
decrease in the portion linked to long-term performance. The proposal would
frustrate El Paso's objectives by decreasing the amount of an officer's
compensation and net worth that is dependent upon the long-term performance of
El Paso and the value of our common stock. It is difficult to see how this would
be in the best interests of El Paso's stockholders.
Finally, if El Paso were to implement the proposal, it would have to
develop alternative compensation programs to remain competitive with other
corporations in its industry and major U.S. corporations generally. Any
alternative program would require a higher level of current cash compensation to
replace the current levels of restricted stock grants. Again, it is difficult to
see how this would be in the best interests of El Paso's stockholders.
30
To summarize, Ms. Carpenter's proposal is contrary to sound executive
compensation principles and practices and is opposed to the best interests of
our stockholders. WE URGE STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
WE RECOMMEND THAT YOU VOTE "AGAINST" THIS STOCKHOLDER PROPOSAL FOR THE
CANCELLATION OF EL PASO'S RESTRICTED STOCK GRANT PROGRAM.
PROPOSAL NO. 6 -- 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 2002 Annual Meeting as follows:
"Shareholders request that our Board of Directors seek shareholder
approval prior to adopting any poison pill and also redeem or
terminate any pill now in effect unless it has been approved by a
shareholder vote at the next shareholder meeting.
The poison pill is an important issue for shareholder vote even if our
company does not now have a poison pill or plan to adopt a poison pill
in the future. Currently our board can adopt a poison pill and/or
redeem a current poison pill and adopt a new poison pill:
1) At any time
2) In a short period of time
3) Without shareholder approval
NEGATIVE EFFECTS OF POISON PILLS ON SHAREHOLDER VALUE
A study by the Securities and Exchange Commission found evidence that
the negative effect of poison pills to deter profitable takeover bids
outweigh benefits.
Source: Office of the Chief Economist, Securities and Exchange
Commission, The Effect of Poison Pills on the Wealth of Target
Shareholders, October 23, 1986.
ADDITIONAL SUPPORT FOR THIS PROPOSAL TOPIC
- Pills adversely affect shareholder value.
Power and Accountability
Nell Minow and Robert Monks
- The Council of Institutional Investors
www.cii.org
recommends shareholder approval of all poison pills.
INSTITUTIONAL INVESTOR SUPPORT FOR SHAREHOLDER VOTE
Many institutional investors believe poison pills should be submitted for a vote
by shareholders. Institutional investors include:
1) Teachers Insurance and Annuity Association College Retirement Equities
Fund (TIAA-CREF)
Source: TIAA-CREF Policy Statement on Corporate Governance
2) California Public Employees Retirement System (CalPERS)
Source: CalPERS U.S. Corporate Governance Principles. IV. Governance
Guidelines, D. Shareholder Rights
A poison pill can insulate management at the expense of shareholders
in our view. A poison pill is such a powerful tool that shareholders
should be able to vote on whether it is appropriate. We believe a
shareholder vote on poison pills will avoid an unbalanced
concentration of power in our directors who could focus on narrow
interests at the expense of the vast majority of shareholders.
31
68% VOTE AT A MAJOR COMPANY
This proposal topic won 68% of the yes-no vote at the Burlington
Northern Santa Fe (BNI) 2001 annual meeting. The text of the BNI
proposal, which has further information on poison pills, is available
at The Corporate Library website under Proposals.
PRECEDENT FOR THIS TOPIC SET BY OTHER COMPANIES
In recent years, various companies have been willing to redeem poison
pills or at least allow shareholders to have a meaningful vote on
whether a poison pill should remain in force. We believe that our
company should do so as well.
For instance the following companies have changed their policies on poison
pills in response to shareholder votes: Mattel, Navistar, and Boise Cascade.
Source: "Twenty-Two for 2002, Corporate Governance Advisor, Nov/Dec 2001.
In the interest of shareholder value vote yes:
SHAREHOLDER VOTE ON POISON PILLS
YES ON 6"
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 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:
While Mr. Rossi's proposal makes several assertions about rights plans
that, in the judgment of the Board of Directors, are incorrect, the Board
recommends a vote against the proposal for the broader policy reasons set forth
below.
The Board of Directors adopted El Paso's rights plan in order to protect El
Paso's stockholders against abusive takeover tactics and to ensure that each
stockholder is treated fairly in any transaction involving an acquisition of
control of El Paso. Plans similar to El Paso's plan have been adopted by many of
the corporations included in the Standard & Poor's 500 Index. The purpose of El
Paso's rights plan is to strengthen the Board of Directors' ability, in the
exercise of its fiduciary duties, to protect and maximize the value of
stockholders' investment in El Paso in the event of an attempt to acquire
control of El Paso. The plan is not intended to, and does not, preclude
unsolicited, non-abusive offers to acquire El Paso at a fair price. Nor is it
intended as a deterrent to a stockholder's initiation of a proxy contest. El
Paso's rights plan is designed, instead, to encourage potential acquirors to
negotiate directly with the Board of Directors, which El Paso believes is in the
best position 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, to protect stockholders against abusive
tactics during a takeover process, such as partial or two-tiered tender offers
that do not treat all stockholders fairly and equally or acquisitions in the
open market of shares constituting control without offering fair value to all
stockholders. Additionally, the rights plan affords the Board of Directors the
opportunity and additional time to determine if an offer reflects the full value
of El Paso, and if not, to reject the offer. In other words, El Paso's rights
plan does not affect any takeover proposal believed by the Board to be in the
best interests of El Paso's stockholders. Rather, the plan affords the Board of
Directors important bargaining power in negotiating a transaction with a
potential acquiror or pursuing potentially superior alternatives. The overriding
objective of the Board of Directors in adopting the rights plan was, and
continues to be, the preservation and maximization of El Paso's value for all
stockholders.
32
A study by Georgeson & Company Inc. analyzing takeover data between 1992
and 1996 revealed that premiums paid to acquire target companies with rights
plans were on average eight percentage points higher than premiums paid for
target companies that did not have rights plans. Georgeson estimated that rights
plans contributed an additional $13 billion in stockholder value during the time
period in question, and that stockholders of acquired companies without rights
plans gave up $14.5 billion in potential premiums. Finally, Georgeson concluded
that the presence of a rights plan did not increase the likelihood of the
withdrawal of a friendly takeover bid nor the defeat of a hostile one, and that
rights plans did not reduce the likelihood of a company becoming a takeover
target.
The Board of Directors believes that the adoption and maintenance of a
rights plan is within the scope of responsibilities of the Board of Directors,
acting on behalf of all stockholders. The adoption of such a plan accords with
the Board of Directors' responsibilities for the management of El Paso's affairs
and the issuance of securities and does not require stockholder approval under
Delaware corporate law or the rules of the New York Stock Exchange or the
Pacific Exchange.
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 interest and maximizing stockholder value in
the event of a takeover bid. To this end, the Board of Directors believes that
the rights plan it has adopted provides the Board of Directors with the ability
to respond promptly to a takeover bid in beneficial ways not available to
individual stockholders. Moreover, stockholder approval of Mr. Rossi's
non-binding proposal would not effectuate the changes it seeks. The adoption of
a rights plan in the future, including upon the expiration of El Paso's existing
rights plan in July 2002, would require only Board action. Similarly, redemption
of the existing rights plan could be effected only by Board action. 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act 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, 2001, except for one Form 4 for Mr.
Thomas R. McDade, which was filed late.
By Order of the Board of Directors
/s/ DAVID L. SIDDALL
DAVID L. SIDDALL
Corporate Secretary
Houston, Texas
April 8, 2002
Exhibits: A -- Audit Committee Charter
B -- Amendment and Restatement of the El Paso Corporation Employee
Stock Purchase Plan
33
EXHIBIT A
[EL PASO LOGO]
AUDIT COMMITTEE CHARTER
OBJECTIVES
The Audit Committee is a committee of the Board of Directors. Its primary
function is to assist the Board in fulfilling its oversight responsibilities by
reviewing the financial information which will be provided to the shareholders
and others, the systems of internal controls which management and the Board of
Directors have established, and the audit process. 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 Audit Committee shall be composed of not less than three Independent
(as such term is defined in paragraph 303.01, and qualified by paragraph
303.02, of the NYSE Listed Company Manual) members of the Board. The
Board shall elect the Audit Committee Chairman.
- Each member of the Audit Committee shall be financially literate, as such
qualification is interpreted by the Company's Board in its business
judgment, or must become financially literate within a reasonable period
of time after his or her appointment to the Audit Committee.
- At least one member of the Audit Committee must have accounting or
related financial management expertise, as the Board interprets such
qualification in its business judgment.
- The Audit Committee shall meet a minimum of two times per calendar year
or more frequently as circumstances require.
- The Audit Committee shall report periodically to the Board on its
activities.
FUNCTIONS
- The independent accountants for the Company are ultimately accountable to
the Board of Directors and Audit Committee.
- The Audit Committee and Board have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent accountants (or to nominate the independent accountants to be
proposed for shareholder approval or ratification in any proxy
statement).
- The Audit Committee is responsible for ensuring that the independent
accountants submit on a periodic basis to the Audit Committee a formal
written statement delineating all relationships between the independent
accountants and the Company.
- The Audit Committee is responsible for actively engaging in a dialogue
with the independent accountants with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the independent accountants and for recommending that the
Board take appropriate
A-1
action in response to the independent accountants' report to satisfy
itself of the independent accountants' independence.
- Review and reassess the adequacy of the Audit Committee charter annually.
- Review filings with the SEC and other published documents containing the
Company's financial statements.
- Review with the Corporate Controller:
- Changes in accounting policies as well as any other significant
financial reporting issues.
- Review with the independent accountant:
- Audit plans and scope for the annual audit.
- Results of the annual audit and resulting opinion.
- Adequacy of the Company's internal controls.
- Review with the head of internal audit:
- Audit plans and scope for internal audit activities.
- Results of audits performed.
- Adequacy of the Company's internal controls.
- Compliance with the Company's Code of Conduct and the Foreign Corrupt
Practices Act.
- The internal audit department charter.
- Review with the head of internal audit and the independent accountant the
coordination of audit effort to ensure completeness of coverage,
reduction of redundant efforts, and the effective use of audit resources.
- Meet with the head of internal audit and the independent accountant in
separate executive sessions to discuss any matters that the committee or
these groups believe should be discussed privately with the committee.
- The Audit Committee will perform such other functions as assigned by law,
the Company's charter or by-laws, or the Board.
A-2
EXHIBIT B
EL PASO CORPORATION
EMPLOYEE STOCK
PURCHASE PLAN
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 29, 2002
EL PASO CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 29, 2002
1. PURPOSES
This Employee Stock Purchase Plan (the "Plan") provides Eligible Employees
of El Paso Corporation, a Delaware corporation, and its Subsidiaries an
opportunity to (i) purchase shares of Common Stock of the Company at a discount
from market prices, and (ii) increase ownership of the Company's Common Stock,
on the terms and conditions set forth below. It is the intention of the Company
that options issued pursuant to the Plan shall constitute stock options issued
pursuant to an "employee stock purchase plan" within the meaning of Section 423
of the Code. The provisions of the Plan shall be construed so as to extend and
limit participation in the Plan in a manner consistent with the requirements of
that section of the Code.
2. DEFINITIONS
(a) Board of Directors -- means the Board of Directors of El Paso
Corporation.
(b) Company -- means El Paso Corporation, a Delaware corporation.
(c) Compensation -- means the total annual cash remuneration (before taxes)
which an Eligible Employee receives as salary or wages, including base pay,
payments for overtime, shift premium, bonuses, holiday pay, paid time off,
short-term disability and other similar remuneration (grossed-up to reflect
salary deferrals, if any, under Section 401(k) plans, Section 125 cafeteria
plans, Section 132 plans and other qualified and nonqualified elective
deferrals). Compensation shall not include other cash or non-cash remuneration
such as payments under this or any other form of equity or fringe benefit
program, expense reimbursements, allowances and payments attributable to foreign
assignments, long-term disability and workers' compensation payments, and
lump-sum payments due to death, termination of employment or layoff.
(d) Code -- means the Internal Revenue Code of 1986, as amended.
(e) Committee -- means the Compensation Committee of the Board of Directors
with respect to Participants who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended, if required, and the Management Committee
(consisting of the Chief Executive Officer and such other senior officers of the
Company as he or she may designate) with respect to all other Participants.
(f) Common Stock -- means the common stock, par value $3.00 per share, of
the Company.
(g) Eligible Employees -- means those employees of the Company and its
Subsidiaries who are eligible to participate in the Plan pursuant to Section 4.
(h) Exercise Date -- means the last Trading Day of each calendar quarter;
provided, however, that with respect to the first Offering Period, the first
Exercise Date shall be the last Trading Day of the calendar quarter in which the
Company and Sonat Inc. merger shall become effective (the "Merger Date").
(i) Exercise Price -- means, with respect to any Offering Period, the
lesser of (i) 85% of the Fair Market Value of a share of the Company's Common
Stock on the Grant Date, and (ii) 85% of the Fair Market Value of such share on
the Exercise Date.
(j) Fair Market Value -- means the average between the highest and lowest
quoted selling prices at which the Company Common Stock is sold for a particular
date as reported in the NYSE-Composite Transactions by The Wall Street Journal
(or such other source as the Committee deems reliable) for such date, or if no
Common Stock was traded on such date, on the next preceding day on which Common
Stock was so traded. In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Committee.
(k) Grant Date -- means the first Trading Day of the calendar year, or with
respect to the 1999 calendar year, the first Trading Day of the Plan's first
Offering Period.
B-1
(l) Offering Period -- means any twelve-month period beginning on the first
Trading Day of a particular calendar year and ending on the last Trading Day of
such calendar year, except that with respect to the 1999 calendar year, the
Offering Period shall begin on the Merger Date and end on the last Trading Day
of the calendar year in which the Merger Date occurs.
(m) Participating Employee -- means an Eligible Employee who elects to
participate in the Plan pursuant to Section 5 hereof.
(n) Plan Account -- means an account maintained by the Company or its
designated record keeper/custodian for each Eligible Employee participating in
the Plan to which payroll deductions are credited, against which funds used to
purchase shares of Common Stock are charged, and to which shares of Common Stock
purchased are credited.
(o) Subsidiary -- means a corporation (or other form of business
association that is treated as a corporation for tax purposes) that is
designated by the Committee from time to time from among a group consisting of
the Company and its subsidiary corporations, for the purposes of participation
in the Plan, of which shares (or other ownership interests) having more than
fifty percent (50%) of the voting power are owned or controlled, directly or
indirectly, by the Company so as to qualify such corporation as a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. The participating
Subsidiaries are set forth on Appendix A hereto, and are subject to change by
the Committee.
(p) Trading Day -- means any day on which the New York Stock Exchange (or
any other established stock exchange or national market system the Committee
deems appropriate) is open for trading.
3. COMMON STOCK SUBJECT TO THE PLAN
(a) Subject to Section 3(b), the Company shall make available five million
(5,000,000) shares of its Common Stock for purchase under the Plan from shares
held in the Company's treasury or out of authorized but unissued shares of the
Company, or partly out of each, as shall be determined by the Committee.
(b) In the event of a recapitalization, stock split, stock dividend,
exchange of shares, merger, reorganization, change in corporate structure or
shares of the Company or similar event, the Board of Directors, upon the
recommendation of the Committee, may make appropriate adjustments in the number
of shares authorized for the Plan and with respect to number of shares credited
to each Participating Employee's Plan Account.
4. ELIGIBLE EMPLOYEES
(a) An "Eligible Employee" is any individual who, as of the beginning of an
Offering Period, is a common law employee of the Company or a Subsidiary and
whose customary employment with the Company or such Subsidiary is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing while the individual is on a short-term leave, approved by the
Company or any Subsidiary, during which the employee receives no Compensation.
To the extent required under Section 423 of the Code, where the period of unpaid
leave exceeds 90 days and the individual's right to reemployment is not
guaranteed by statute or by contract, the employee relationship will be deemed
to have terminated on the 91st day of such leave.
(b) No Eligible Employee shall be granted an option to purchase shares of
Common Stock on any Grant Date if such employee, immediately after the option is
granted, owns stock possessing five percent (5%) or more of the Company's
outstanding Common Stock or five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any Subsidiary.
For purposes of this Section 4(b), the rules of Code Section 424(d) (relating to
attribution of stock ownership) shall apply in determining the stock ownership
of an Eligible Employee, and stock which the employee may purchase under
outstanding options (whether or not subject to the special tax treatment
provided by the Plan) shall be treated as stock owned by such employee.
B-2
(c) Notwithstanding any other provision of the Plan to the contrary, no
Eligible Employee shall be granted an option to purchase shares of Common Stock
under the Plan which permits such employee's rights to purchase stock under all
employee stock purchase plans that are intended to qualify under Code Section
423 and that are maintained by the Company and its Subsidiaries to accrue at a
rate which exceeds twenty-five thousand U.S. dollars ($25,000) (or the
equivalent thereof in other currencies) worth of stock determined at the Fair
Market Value of the shares on the Grant Date for each calendar year. This
paragraph shall be interpreted in accordance with applicable Code rules and
regulations.
5. PARTICIPATION IN THE PLAN
An Eligible Employee may participate in the Plan by completing and filing
with the Company, or its designated record keeper/custodian, an election form or
responding to enrollment procedures as set forth in a voice response system
which authorizes payroll deductions from the employee's Compensation. Such
deductions shall commence with the first pay period in the Offering Period
beginning after such form is filed and recorded with the Company or its
designated record keeper/custodian and shall continue until the employee ceases
participation in the Plan or the Plan is terminated. Notwithstanding the
foregoing, with respect to the first Offering Period, payroll deductions will
commence in the month immediately following stockholder approval of the Plan.
6. PAYROLL DEDUCTIONS
Payroll deductions shall be made from the Compensation paid to each
Participating Employee for each regular payroll period in such amounts as the
Participating Employee shall authorize in his or her election form. The minimum
payroll deduction shall be ten U.S. dollars ($10) per month up to a maximum of
twenty-one thousand two hundred fifty U.S. dollars ($21,250) per calendar year,
with such deductions to be made from only the regular base salary payroll
processing cycle (and not from bonus or other special payroll processing
events). All payroll deductions made for a Participating Employee shall be
credited to his or her Plan Account. Unless the Committee otherwise provides, if
a Participating Employee's Compensation is insufficient in any pay period to
allow the entire payroll deduction contemplated under the Plan, all such
available amounts shall be deducted and credited to the Participating Employee's
Plan Account for such pay period. Payroll deductions under the Plan shall be
made only after all other withholdings, deductions, garnishments and similar
deductions have been made. Notwithstanding any other provision to the contrary,
the Committee may allow, subject to such terms and conditions as the Committee
determines appropriate, Participating Employees to provide other sources of
funds to satisfy such Participating Employees elected contributions, but in no
event shall the total annual contribution by a Participating Employee exceed
such Participating Employee's Compensation.
7. CHANGES IN THE PAYROLL DEDUCTIONS
Subject to Section 8 below, a Participating Employee may change the amount
of his or her payroll deduction by filing a new election form with the Company
or its designated record keeper/custodian or responding to a voice response
enrollment system during an enrollment period, as specified by the Company. The
change shall become effective for the next Offering Period. Except as set forth
in Section 8, other changes shall not be allowed during an Offering Period.
8. TERMINATION OF PARTICIPATION IN THE PLAN
(a) Voluntary Cessation of Plan Participation. A Participating Employee,
at any time and for any reason, may voluntarily terminate participation in the
Plan by written notification, or appropriate procedures set forth in a voice
response system or otherwise as the Company may determine, of withdrawal
delivered to the appropriate payroll office or designated record
keeper/custodian sufficiently in advance, generally ten (10) Trading Days, to
process such changes before the next pay period. In such event, any payroll
deductions and other funds credited to such Participating Employee's Plan
Account shall be used to purchase shares of Common Stock on the next Exercise
Date unless such Participating Employee requests to receive such amounts, in a
manner determined by the Committee. An employee whose participation in the Plan
has
B-3
voluntarily terminated may not rejoin the Plan until the next Offering Period
following the date of such termination.
(b) Employment Termination and Death. Unless otherwise provided in this
Section 8, a Participating Employee's participation in the Plan shall be
terminated involuntarily upon (i) termination of his or her employment with the
Company or its Subsidiaries for any reason, or (ii) death of the Participating
Employee. In each event, payroll deductions shall cease as of such termination
and all payroll deductions and other funds (exclusive of dividends and other
distributions, if any) credited to the Participating Employee's Plan Account,
but not yet used to purchase shares of Common Stock, shall be refunded, without
interest, to the Participating Employee or his or her beneficiary or estate, as
applicable, as soon as practicable following such termination. However, if such
termination occurs without sufficient time, generally ten (10) Trading Days, to
process such termination prior to an Exercise Date, the Committee may allow all
payroll deductions, dividends and other distributions credited to such
Participating Employee's Plan Account to be used to purchase additional shares
of Common Stock on the next Exercise Date.
(c) Retirement and Permanent Disability. In the event the Participating
Employee retires or becomes permanently disabled, any payroll deductions and
other funds credited to such employee's Plan Account shall be used to purchase
shares of Common Stock on the next Exercise Date unless the employee requests to
receive such amounts, in a manner determined by the Committee and such notice is
received sufficiently in advance of the next Exercise Date, generally ten (10)
Trading Days, to process such request.
In the event a Participating Employee's participation in the Plan is
terminated pursuant to this Section 8, then such Participating Employee may
allow shares of Common Stock credited to the Participating Employee's (or former
employee's) Plan Account to remain therein (at such person's expense, if any),
or at any time, request withdrawal of all or a portion of such account in the
manner specified in the Plan or by the Committee.
9. PURCHASE OF SHARES
(a) On each Grant Date, each Participating Employee shall be deemed to have
been granted an option to purchase up to that number shares of Common Stock as
provided in this Section 9.
(b) Each option shall be for a number of shares up to the maximum number
acquirable through the payroll deductions allowed under Section 6 above, but no
more than two thousand (2,000) shares during any one Offering Period. Each
option shall be for a term of not more than one year and shall be exercised as
provided below.
(c) On each Exercise Date, each Participating Employee shall be deemed to
have exercised his or her option granted, pursuant to Section 9(a). On each
Exercise Date, the Company shall apply the funds (exclusive of dividends and
other distributions, if any) credited to each Participating Employee's Plan
Account, pursuant to Section 6 above, to the purchase (without commissions or
fees) that number of shares of Common Stock determined by dividing the Exercise
Price into the balance in the employee's Plan Account on the Exercise Date,
subject to the limitations in Sections 4(b) and 4(c).
(d) As soon as practicable after each Exercise Date, a statement shall be
delivered to each Participating Employee regarding his or her Plan Account,
which may include, among other things and to the extent necessary and
appropriate, (i) the name, address and federal identification number of the
Company and the Participating Employee; (ii) the amounts of payroll deductions
or other funds credited to the Plan Account; (iii) the Exercise Price; (iv) the
date of purchase or transfer; (v) the number of shares purchased or transferred;
(vi) a statement that the purchase of shares is pursuant to a Code Section 423
plan; and (vii) the balance in the Plan Account.
10. RIGHTS AS A STOCKHOLDER
(a) As promptly as practicable after each Exercise Date, a Participating
Employee shall be treated as the beneficial owner of his or her shares purchased
pursuant to the Plan, and such shares shall be credited to a book-entry account
maintained for the benefit of the Participating Employee by the record
keeper/custodian
B-4
selected by the Company. A Participating Employee may request that a stock
certificate for all or a portion of the shares credited to the Participating
Employee's Plan Account be issued, provided the shares have been held by the
Participating Employee more than two (2) years from the beginning of the
Offering Period during which they were purchased or one (1) year from the
Exercise Date, whichever is longer, and the Participating Employee pays any fees
associated with the issuance of such stock certificate. A Participating Employee
may request that a stock certificate for all or a portion of the shares credited
to the Participating Employee's Plan Account which have been held by the
Participating Employee less than two (2) years from the beginning of the
Offering Period during which they were purchased or one (1) year from the
Exercise Date, whichever is longer, be issued only in the event the Plan
Administrator determines the request is a result of a gratuitous disposition of
the shares. A cash payment (less any applicable fees to sell a fractional share)
shall be made for any fraction of a share of Common Stock in such account, if
necessary to close the account.
(b) A Participating Employee shall have all ownership rights with respect
to the whole number of shares credited to the Plan Account, including the right
to vote such shares of Common Stock and to receive dividends or other
distributions, if any. Any dividends or distributions which may be declared
thereon by the Board of Directors will be reinvested by the record
keeper/custodian in additional shares of Common Stock for the Participating
Employee within a reasonable time (as determined by the Committee) following
such dividend payment date or distribution date, and shall be invested based
upon the Fair Market Value on the date of such investment (without any
discount).
11. RIGHTS NOT TRANSFERABLE
Rights under the Plan are not transferable by a Participating Employee
other than by will or the laws of descent and distribution, and are exercisable
during the employee's lifetime only by the employee or by the employee's
guardian or legal representative. No rights or payroll deductions of a
Participating Employee under the Plan shall be subject to execution, attachment,
levy, garnishment or similar process.
12. SALE OF SHARES
Should a Participating Employee choose to sell shares purchased under the
Plan, such Participating Employee shall be responsible to pay any and all
applicable brokerage fees and associated costs related to such sale. Sales
requested by a Participating Employee shall occur as soon as administratively
feasible after the receipt of such request, but neither the Committee nor the
Company nor any Subsidiary shall be liable for any delay in the execution of
such request. Participating Employees bear the risk of stock price fluctuation
between the time they place the order to sell and the time the shares are
actually sold. Additionally, Participating Employees who have requested to sell
shares may receive the average of the prices of all shares sold under the Plan
for a particular day.
13. APPLICATION OF FUNDS
All funds of Participating Employees received or held by the Company under
the Plan before purchase of the shares of Common Stock may be held in bank
accounts of the Company or may be used by the Company for general corporate
purposes. The Company shall not be obligated to segregate payroll deductions. No
interest shall accrue on the payroll deductions which are received and held by
the Company under the Plan or credited to the Participating Employee's Plan
Account.
14. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall have full and
exclusive discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility and to adjudicate all disputed claims filed
under the Plan. Without limiting the full discretion of the Committee in the
administration of the Plan, the Committee may limit the percentage or dollar
amount of Compensation that may be contributed under the Plan, change the
frequency of payroll deductions, modify the frequency or number of changes in
the amount of payroll deductions to be made during an Offering Period, establish
the exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll
B-5
withholding in excess of the amount designated by a Participating Employee in
order to adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of shares of Common Stock for each Participating
Employee properly correspond with amounts withheld from the Participating
Employee's Compensation, establish, collect, amend or waive administrative or
other fees to be assessed Participating Employees incident to their
participation in the Plan (including those fees set forth in Section 12), and
establish such other limitations or procedures as the Committee determines in
its sole discretion are advisable and consistent with the Plan and with the
requirements (including any non-discrimination requirements) of the Code. The
Plan is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Code. Accordingly, the provisions of the Plan
shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that Section of the Code. Every finding,
decision and determination made by the Committee shall, to the fullest extent
permitted by law, be final and binding upon all parties.
15. AMENDMENTS TO THE PLAN
The Board of Directors may at any time and for any reason terminate or
amend the Plan, and/or delegate authority for any amendments to the Committee.
Except as provided in Section 16 hereof, no such termination or amendment shall
affect options previously granted or adversely affect the rights of any
Participating Employee with respect thereto. Without shareholder consent and
without regard to whether any Participating Employee rights may have been
considered to have been "adversely affected," the Plan may be amended to change
the Offering Periods, change the Exercise Dates, increase the Exercise Price or
change the amount of allowable payroll deductions. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval of any amendment to the Plan in such a manner and to
such a degree as required.
16. CHANGE IN CONTROL
In the event of a Change in Control of the Company, any Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "Change
of Control Exercise Date") and any Offering Period then in progress shall end on
the Change of Control Exercise Date. The Change of Control Exercise Date shall
be before the date of the Company's proposed sale or merger. The Committee shall
notify each Participating Employee in writing, at least ten (10) Trading Days
prior to the Change of Control Exercise Date, that the Exercise Date for the
Participating Employee's option has been changed to the Change of Control
Exercise Date and that the Participating Employee's option shall be exercised
automatically on the Change of Control Exercise Date, unless prior to such date
the Participating Employee has withdrawn from the Offering Period, as provided
for in Sections 5 and 8 hereof. For purposes of the Plan, a "Change in Control"
shall be deemed to occur: (a) if any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
of the Exchange Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities; (b) upon the first purchase of the Common
Stock pursuant to a tender or exchange offer (other than a tender or exchange
offer made by the Company); (c) upon the approval by the Company's stockholders
of a merger or consolidation, a sale, or disposition of all or substantially all
the Company's assets or a plan of liquidation or dissolution of the Company; or
(d) if, during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election or nomination for the election
by the Company's stockholders of each new director was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who were directors
at the beginning of the period. Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur if the Company either merges or
consolidates with or into another company or sells or disposes of all or
substantially all of its assets to another company, if such merger,
consolidation, sale or disposition is in connection with a corporate
restructuring wherein the stockholders of the Company immediately before such
merger, consolidation, sale or disposition own, directly or indirectly,
immediately following such merger, consolidation, sale or disposition at
B-6
least eighty percent (80%) of the combined voting power of all outstanding
classes of securities of the company resulting from such merger or
consolidation, or to which the Company sells or disposes of its assets, in
substantially the same proportion as their ownership in the Company immediately
before such merger, consolidation, sale or disposition.
17. EFFECTIVE DATE, SUSPENSION AND TERMINATION OF THE PLAN
(a) The Plan was originally adopted by the Board of Directors effective as
of January 20, 1999, and the stockholders approved the Plan on April 22, 1999.
The Board amended and restated the Plan effective as of January 29, 2002, to
increase the number of shares available for issuance under the Plan, provided
that the amended and restated Plan is approved within twelve months therefrom by
the stockholders of the Company.
(b) The Plan shall terminate upon the earliest of (i) the termination of
the Plan by the Board of Directors, as specified below, (ii) December 31, 2009,
or (iii) when no more shares remain to be purchased under the Plan. The Board of
Directors may terminate the Plan, but only as of the Trading Day immediately
following an Exercise Date. If on an Exercise Date, Participating Employees in
the aggregate have options to purchase more shares of Common Stock than are
available for purchase under the Plan, each Participating Employee shall be
eligible to purchase a reduced number of shares of Common Stock on a pro rata
basis and any excess payroll deductions or other monies contributed by such
employee shall be returned to such employees, all as provided by rules and
regulations adopted by the Committee.
18. COSTS
All costs and expenses incurred in administering the Plan shall be paid by
the Company, except that any brokerage fees or certificate costs incurred in the
sale of the shares of Common Stock by any Participating Employee shall be
handled in accordance with Sections 10 and 12 of the Plan, and any
administrative or other fees established by the Committee pursuant to Section 14
of the Plan shall be handled as specified by the Committee.
19. PURCHASE FOR INVESTMENT PURPOSES
The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any Participating Employee in the conduct of such employee's own affairs. A
Participating Employee may therefore sell shares of Common Stock purchased under
the Plan at any time the Participating Employee chooses, subject to compliance
with any applicable federal or state securities laws. Because of certain federal
tax requirements, each Participating Employee agrees, by enrolling in the Plan,
to notify the Company of any sale or other disposition of shares of Common Stock
held by the Participating Employee less than two (2) years from the beginning of
the Offering Period during which they were purchased or one (1) year from the
Exercise Date, whichever is longer, indicating the number of such shares of
Common Stock disposed of. The Company shall be entitled to presume that a
Participating Employee has disposed of any shares of Common Stock for which the
Participating Employee has requested a certificate. All certificates for shares
of Common Stock delivered under the Plan shall be subject to such stock transfer
orders and other restrictions as the Company may deem advisable under all
applicable laws, rules, and regulations, and the Company may cause a legend or
legends to be put on any such certificates to make appropriate references to
such restrictions.
20. GOVERNMENTAL REGULATIONS
Notwithstanding anything else in the Plan, options shall not be exercisable
or exercised and shares of Common Stock shall not be issued with respect to an
option to purchase unless the exercise of such option and the issuance and
delivery of shares of Common Stock pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares of Common Stock may
then be listed. As a condition to the exercise of an option, the Company may
require a Participating Employee to represent and
B-7
warrant at the time of any such exercise that the shares of Common Stock are
being purchased only for investment and without any present intention to sell or
distribute such shares of Common Stock if, in the opinion of counsel for the
Company, such a representation is required by any of the aforementioned
applicable provisions of law.
21. APPLICABLE LAW
The Plan shall be interpreted under the laws of the State of Texas, unless
preempted by federal law. The Plan is not to be subject to the Employee
Retirement Income Security Act of 1974, as amended, but is intended to comply
with Section 423 of the Code. Any provisions required to be set forth in the
Plan by such Code section are hereby included as fully as if set forth in the
Plan in full.
22. EFFECT ON EMPLOYMENT
The provisions of the Plan shall not affect the right of the Company or any
Subsidiary or any Participating Employee to terminate his or her employment with
the Company or Subsidiary. Any income Participating Employees may realize as a
result of participating in the Plan shall not be considered as part of a
Participating Employee's salary or used for the calculation of any other pay,
allowance, pension or other benefit unless otherwise permitted by other benefit
plans provided by the Company or its Subsidiaries, or required by law or by
contractual obligations of the Company or its Subsidiaries.
23. TAXES
At the time an option to purchase is exercised, in whole or in part, or at
the time all or a portion of the shares of Common Stock purchased under the Plan
are disposed of, the Participating Employee must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the shares of Common
Stock. At any time, the Company may, but shall not be obligated to, withhold
from the Participating Employee's Compensation or other wages or amounts payable
to the Participating Employee (whether or not such person at the time continues
to participate or to be eligible to participate in the Plan, and regardless of
whether or not such person at the time continues to be employed by the Company
or any Subsidiary) the amount necessary for the Company to meet applicable
withholding obligations, including any withholding required to make available to
the Company any tax deductions or benefits attributable to any sale or early
disposition of shares of Common Stock by the Participating Employee.
24. LOANS
Subject to applicable laws, the Committee may allow Participating Employees
to borrow money against the value of the Common Stock held in such Participating
Employee's Plan Account. In such event, the Participating Employee and his or
her Plan Account will be subject to certain terms, conditions and restrictions
as the Committee, its designated record keeper/custodian, or financial
institution may deem necessary or appropriate to secure the shares in the Plan
Account as collateral for such loan.
25. BENEFICIARIES
A Participating Employee may file with the Company or its designated record
keeper/custodian, a written designation of a beneficiary who is entitled to
receive any shares of Common Stock, accumulated payroll deductions, dividends or
other distributions, if any, held for the Participating Employee under the Plan,
in the event of the employee's death. If the Participating Employee is married
and the designated beneficiary is not the spouse, written spousal consent shall
be required for such designation to be effective. A Participating Employee may
change the designation of a beneficiary at any time by written notice, unless
the current designated beneficiary is a spouse, in which case, written spousal
consent shall be required. If no beneficiary is designated, the designation is
ineffective, or in the event the beneficiary dies before the balance of a
Participating Employee's Plan Account is paid, the balance shall be paid to the
Participating Employee's spouse or, if there is no surviving spouse, to his or
her lineal descendants, pro rata, or, if there is no surviving spouse or any
lineal descendant, to the employee's estate.
B-8
26. NOTICES
All notices or other communications by an Eligible Employee to the Company
or a Subsidiary under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
All notices and other communications to any Eligible Employee or Participating
Employee shall be made to the address maintained on the Company's payroll
records.
IN WITNESS WHEREOF, the Company has caused the Plan to be amended and
restated effective as of January 29, 2002.
EL PASO CORPORATION
BY /s/ JOEL RICHARDS III
--------------------------------------
Executive Vice President
Member of the Management Committee
ATTEST:
By /s/ DAVID L. SIDDALL
--------------------------------------
Corporate Secretary
B-9
SOLICITED BY THE BOARD OF DIRECTORS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2002
The undersigned hereby appoints William A. Wise and Peggy A Heeg, and
each or any of them, with power of substitution, 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 March
25, 2002 at the Annual Meeting of Stockholders to be held at The Adolphus
Hotel, 1321 Commerce Street, Dallas, Texas 75202 on May 20, 2002, 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 may properly come before the Annual Meeting, including
substitute nominees if any of the named nominees for Director should be
unavailable to serve for election, in accordance with and as described in the
Notice of Annual Meeting of Stockholders and Proxy Statement. THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS RETURNED WITHOUT DIRECTION BEING
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 AND AGAINST
PROPOSALS 5 AND 6.
- - - - - - - - - - - - - - - -
| SEE REVERSE | (IMPORTANT - TO BE SIGNED AND DATED ON | SEE REVERSE |
| SIDE | REVERSE SIDE) | SIDE |
- - - - - - - - - - - - - - - -
EL PASO CORPORATION
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
------------------- ------------------
VOTE BY TELEPHONE VOTE BY INTERNET
------------------- ------------------
Its fast, convenient, and immediate! Its fast, convenient, and your vote is immediately
Call Toll-Free on a Touch-Tone Phone confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683)
In addition, after your vote, you will have the opportunity
If outside the continental U.S. call collect on a to sign up and indicate your consent to receive future
Touch-Tone Phone (201-536-8073). shareholder communications via the Internet, if available.
---------------------------------------------------- ----------------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy Statement 1. Read the accompanying Proxy Statement
and Proxy Card. and Proxy Card.
2. Call the toll-free number. 2. Go to the Website.
1-877-PRX-VOTE (1-877-779-8683) http://www.eproxy.com/epg
3. Enter your 14-digit Control Number located 3. Enter your 14-digit Control Number on
on your Proxy Card above your name. your Proxy Card above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
---------------------------------------------------- ----------------------------------------------
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE (1-877-779-8683) anytime! Go to http://www.eproxy.com/epg anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
[1107 - EL PASO CORPORATION] [FILE NAME: ZEPE9AELX] [VERSION - (2)] [03/11/02] [ORIG. 03/06/02)
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. FOR AGAINST ABSTAIN
NOMINEES: (01) Byron Allumbaugh, (02) John M. Bissell, 2. Approval of an Amendment and Restatement of [ ] [ ] [ ]
(03) Juan Carlos Braniff, (04) James F. Gibbons, the El Paso Corporation Employee Stock
(05) Anthony W. Hall, Jr., (06) Ronald L. Kuehn, Jr., Purchase Plan to increase the number of
(07) J. Carloton MacNeil, Jr. (08) Thomas R. McDade, shares authorized for issuance.
(09) Malcolm Wellop, (10) William A. Wise,
(11) Joe B. Wyatt. 3. Approval of an Amendment to the El Paso [ ] [ ] [ ]
Corporation Restated Certificate of
FOR [ ] [ ] WITHHOLD MARK [ ] Incorporation to increase the number of
ALL NOMINEES AUTHORITY TO HERE shares authorized.
LISTED ABOVE VOTE FOR ALL FOR
NOMINEES COMMENTS 4. Ratification of the appointment of [ ] [ ] [ ]
LISTED ABOVE PricewaterhouseCoopers LLP as independent
certified public accountants for fiscal
[ ] MARK HERE [ ] year ending December 31, 2002.
-------------------------------------- FOR ADDRESS
For all nominees except as noted above CHANGE AND
NOTE AT LEFT
-----------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST
proposals 5 and 6.
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
5. Approval of Stockholder Proposal regarding [ ] [ ] [ ]
the Cancellation of the Restricted Stock
Grant Program.
6. Approval of Stockholder Proposal regarding [ ] [ ] [ ]
Shareholder Approval of Any Adoption of
Poison Pills.
-----------------------------------------------------------------------
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 official. 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 - May 20, 2002
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: BANKERS 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
March 25, 2002, the record date, at the Annual Meeting of Stockholders to be
held at The Adolphus Hotel, 1321 Commerce Street, Dallas, Texas 75202 on Monday,
May 20, 2002, 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, in accordance with and as described in the Notice of Annual Meeting of
Stockholders and Proxy Statement.
If this proxy is completed, dated, signed and returned in the
accompanying envelope to the Trustee by May 18, 2002, the shares of stock
represented by this proxy will be voted in the manner directed herein by the
undersigned. IF THIS PROXY IS RETURNED TO THE TRUSTEE WITHOUT DIRECTION BEING
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 AND AGAINST
PROPOSALS 5 AND 6.
TO BE COMPLETED, SIGNED AND DATED ON REVERSE SIDE.
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN
DARK INK AND SIGN AND DATE BELOW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
1. Election of Directors-Nominees:
Byron Allumbaugh, John M. Bissell, Juan Carlos Braniff, James F. For All Nominees Withhold Authority to
Gibbons, Anthony W. Hall, Jr., Ronald L. Kuehn, Jr., J. Carleton Vote for all nominees
MacNeil, Jr., Thomas R. McDade, Malcolm Wallop, William A. Wise, Joe
B. Wyatt [ ] [ ]
[ ]
--------------------------------
For all Nominees Except as Noted
2. Approval of an Amendment and Restatement of the El Paso Corporation For Against Abstain
Employee Stock Purchase Plan to increase the number of shares [ ] [ ] [ ]
authorized for issuance.
3. Approval of an Amendment to the El Paso Corporation Restated For Against Abstain
Certificate of Incorporation to increase the number of shares [ ] [ ] [ ]
authorized.
4. Ratification of the appointment of PricewaterhouseCoopers LLP as For Against Abstain
Independent Certified Public Accountants for fiscal year 2002. [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 5 AND 6.
5. Approval of Stockholder Proposal regarding the Cancellation of the For Against Abstain
Restricted Stock Grant Program. [ ] [ ] [ ]
6. Approval of Stockholder Proposal regarding Shareholder Approval of For Against Abstain
Any Adoption of Poison Pills. [ ] [ ] [ ]
If acting as attorney, executor, trustee or in other representative
capacity, sign name and title. If a corporation, please sign in full
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
IMPORTANT: Please mark, sign, date, and return this proxy card promptly
using the enclosed envelope.
Shares held as of
March 25, 2002
----------------------------------------------- --------------------
SIGNATURE DATE
IMPORTANT: PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - May 20, 2002
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: BANKERS 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
March 25, 2002, the record date, at the Annual Meeting of Stockholders to be
held at The Adolphus Hotel, 1321 Commerce Street, Dallas, Texas 75202 on Monday,
May 20, 2002, 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, including substitute nominees if any of the named nominees for Director
should be unavailable to serve, in accordance with and as described in the
Notice of Annual Meeting of Stockholders and Proxy Statement.
If this proxy is completed, dated, signed and returned in the
accompanying envelope to the Trustee by May 18, 2002, the shares of stock
represented by this proxy will be voted in the manner directed herein by the
undersigned. IF THIS PROXY IS RETURNED TO THE TRUSTEE WITHOUT DIRECTION BEING
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 AND AGAINST
PROPOSALS 5 AND 6.
TO BE COMPLETED, SIGNED AND DATED ON REVERSE SIDE.
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN
DARK INK AND SIGN AND DATE BELOW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
1. Election of Directors-Nominees:
Byron Allumbaugh, John M. Bissell, Juan Carlos Braniff, James F. For All Nominees Withhold Authority to
Gibbons, Anthony W. Hall, Jr., Ronald L. Kuehn, Jr., J. Carleton Vote for all nominees
MacNeil, Jr., Thomas R. McDade, Malcolm Wallop, William A. Wise, Joe [ ] [ ]
B. Wyatt
[ ]
---------------------------------
For all Nominees Except as Noted
2. Approval of an Amendment and Restatement of the El Paso Corporation For Against Abstain
Employee Stock Purchase Plan to increase the number of shares [ ] [ ] [ ]
authorized for issuance.
3. Approval of an Amendment to the El Paso Corporation Restated For Against Abstain
Certificate of Incorporation to increase the number of shares [ ] [ ] [ ]
authorized.
4. Ratification of the appointment of PricewaterhouseCoopers LLP as For Against Abstain
Independent Certified Public Accountants for fiscal year 2002. [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 5 AND 6.
5. Approval of Stockholder Proposal regarding the Cancellation of the For Against Abstain
Restricted Stock Grant Program. [ ] [ ] [ ]
6. Approval of Stockholder Proposal regarding Shareholder Approval of For Against Abstain
Any Adoption of Poison Pills. [ ] [ ] [ ]
If acting as attorney, executor, trustee or in other representative
capacity, sign name and title. If a corporation, please sign in full
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
IMPORTANT: Please mark, sign, date, and return this
proxy card promptly using the enclosed envelope.
Shares held as of
March 25, 2002
----------------------------------------------- ------------------------
SIGNATURE DATE
IMPORTANT: PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.