(EL PASO LOGO)
Dear El Paso Stockholder:
We cordially invite you to attend our 2004 Annual Meeting of Stockholders.
The Annual Meeting will be held on November 18, 2004, beginning at 8:30 a.m.
(local/Central time) at the Four Seasons Hotel Houston, 1300 Lamar Street,
Houston, Texas 77010.
At this year's Annual Meeting, you will be asked to vote on the election of
directors, the ratification of PricewaterhouseCoopers' appointment as
independent auditors and two stockholder proposals.
With regard to the election of directors, you should know that your company
is well-governed. By any of the multitude of contemporary measures of good
corporate governance, we are a leader. Ten of our 12 nominee directors are
independent. We have a separate Chairman and CEO. We do not have a staggered
board, so each of our directors stands for election every year, and we do not
have a poison pill. But as important as any of this, we have an active and
engaged Board with the right mix of leadership, industry, finance, academic and
legal experience to help guide this company, and we recently added two
outstanding nominees.
I urge you to vote for your Board's nominees. Your vote is important. I
hope you will be able to attend the meeting, but if you cannot, please vote your
proxy as soon as you can.
Sincerely,
-s- Douglas L. Foshee
DOUGLAS L. FOSHEE
President and Chief Executive Officer
Houston, Texas
October 7, 2004
EL PASO CORPORATION
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
NOTICE OF 2004 ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 18, 2004
On November 18, 2004, El Paso Corporation will hold its 2004 Annual Meeting
of Stockholders at the Four Seasons Hotel Houston, 1300 Lamar Street, Houston,
Texas 77010. The Annual Meeting will begin at 8:30 a.m. (local/Central time).
Only El Paso stockholders who owned shares of common stock at the close of
business on September 20, 2004, are entitled to notice of, and can vote at, this
Annual Meeting or any adjournments or postponements that may take place. At the
Annual Meeting you will be asked to take action and consider proposals:
1. To elect 12 directors, each to hold office for a term of one year;
and
2. To ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants to audit El Paso's financial
statements for the fiscal year ending December 31, 2004.
We will also attend to any other business properly presented at the Annual
Meeting. In that regard, you may also vote on two proposals submitted by
stockholders if they are presented at the Annual Meeting. These proposals are
described in the attached proxy statement.
By Order of the Board of
Directors
/s/ David L. Siddall
David L. Siddall
Corporate Secretary
Houston Texas
October 7, 2004
ATTENDING THE MEETING
IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON AND ARE A STOCKHOLDER OF
RECORD, BRING WITH YOU A FORM OF GOVERNMENT-ISSUED PERSONAL IDENTIFICATION TO
THE ANNUAL MEETING. IF YOU OWN STOCK THROUGH A BANK, BROKER OR OTHER NOMINEE,
YOU WILL NEED PROOF OF OWNERSHIP AS OF THE RECORD DATE TO ATTEND THE ANNUAL
MEETING. IF YOU ARE AN AUTHORIZED PROXY HOLDER, YOU MUST PRESENT THE PROPER
DOCUMENTATION. PLEASE SEE PAGES 2 AND 3 FOR MORE INFORMATION ON WHAT DOCUMENTS
YOU WILL NEED FOR ADMISSION TO THE ANNUAL MEETING. REGISTRATION WILL BEGIN AT
7:00 A.M. (LOCAL/CENTRAL TIME), AND SEATING WILL BE ON A "FIRST COME FIRST
SERVED" BASIS. NO CAMERAS, RECORDING EQUIPMENT OR OTHER ELECTRONIC DEVICES WILL
BE ALLOWED IN THE MEETING ROOM. IF YOU DO NOT PROVIDE PHOTO IDENTIFICATION OR
COMPLY WITH THE OTHER PROCEDURES OUTLINED ABOVE UPON REQUEST, YOU MAY NOT BE
ADMITTED TO THE ANNUAL MEETING.
TABLE OF CONTENTS
PAGE
PROXY STATEMENT NUMBER
--------------- ------
General Information about the Annual Meeting and Voting..... 2
Corporate Governance........................................ 6
Information about the Board of Directors and Committees..... 8
Proposal No. 1 -- Election of Directors..................... 14
Security Ownership of Certain Beneficial Owners and
Management................................................ 19
Executive Compensation...................................... 21
Summary Compensation Table............................. 21
Option Grants in 2003.................................. 23
Aggregated Option Exercises in 2003 and Fiscal Year-End
Option Values......................................... 23
Long-Term Incentive Plans -- Awards in 2003 Restricted
Stock................................................. 24
Long-Term Incentive Plans -- Awards in 2003 Performance
Units................................................. 24
Pension Plan........................................... 25
Performance Graph........................................... 27
Certain Transactions and Relationships...................... 28
Compensation Committee Report on Executive Compensation..... 28
Audit Committee Report...................................... 32
Employment Contracts, Termination of Employment, Change in
Control Arrangements and Director Indemnification
Agreements................................................ 33
Employment Agreements.................................. 33
Benefit Plans.......................................... 35
Director Indemnification Agreements.................... 38
Equity Compensation Plan Information Table.................. 39
Proposal No. 2 -- Ratification of Appointment of
PricewaterhouseCoopers LLP as Independent Certified Public
Accountants............................................... 40
Other Proposals............................................. 42
Proposal No. 3 -- Stockholder Proposal: Stock Option
Expensing Proposal.................................... 42
Proposal No. 4 -- Stockholder Proposal: Commonsense
Executive Compensation Proposal....................... 43
Section 16(a) Beneficial Ownership Reporting Compliance..... 46
Exhibit A: Audit Committee Charter.......................... A-1
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EL PASO CORPORATION
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
PROXY STATEMENT
2004 ANNUAL MEETING OF STOCKHOLDERS -- NOVEMBER 18, 2004
Our Board of Directors is furnishing you with this proxy statement to
solicit proxies on its behalf to be voted at the 2004 Annual Meeting of
Stockholders of El Paso Corporation. The Annual Meeting will be held at the Four
Seasons Hotel Houston, 1300 Lamar Street, Houston, Texas 77010, on Thursday,
November 18, 2004 at 8:30 a.m. (local/Central time). The proxies also may be
voted at any adjournments or postponements of the Annual Meeting.
This proxy statement, the notice of Annual Meeting and the enclosed proxy
card are being mailed to stockholders beginning on or about October 7, 2004. All
properly executed written proxies that are delivered pursuant to this
solicitation will be voted at the Annual Meeting. Each person who is an El Paso
stockholder of record at the close of business on September 20, 2004, 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's common stock, par value $3.00 per
share, as of the close of business on the record date, September 20, 2004,
represented by a properly executed proxy are entitled to vote at the Annual
Meeting, or any adjournments or postponements of the Annual Meeting. You have
one vote for each share of common stock held as of the record date, which may be
voted on each proposal presented at the Annual Meeting.
2. WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN?
The record date for the Annual Meeting is September 20, 2004. The record
date was established by the Board of Directors as required by our By-laws and
Delaware law. Owners of record of El Paso's common stock at the close of
business on the record date are entitled to:
A. receive notice of the Annual Meeting; and
B. vote at the Annual Meeting, and any adjournments or postponements
of the Annual Meeting.
3. HOW MANY SHARES OF EL PASO COMMON STOCK WERE OUTSTANDING ON THE RECORD DATE?
There were 645,135,955 shares of common stock outstanding and entitled to
vote at the Annual Meeting at the close of business on the record date. Common
stock is the only class of stock entitled to vote.
4. HOW DO I VOTE?
You can vote in person at the Annual Meeting or by proxy. For shares that
you hold directly as a registered shareholder, you have three ways to vote by
proxy:
A. Connect to the Internet at http://www.eproxyvote.com/ep;
B. Call 1-877-PRX-VOTE (1-877-779-8683); or
C. Complete the proxy card and mail it back to us.
Complete instructions for voting your shares can be found on your proxy
card.
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If you change your mind on any issue, you may revoke your proxy at any time
before the close of voting at the Annual Meeting. There are four ways to revoke
your proxy:
A. Connect to the Internet at http://www.eproxyvote.com/ep;
B. Call 1-877-PRX-VOTE (1-877-779-8683);
C. Write our Corporate Secretary, David L. Siddall, El Paso
Corporation, P.O. Box 2511, Houston, Texas 77252-5211; or
D. Give notice of revocation to the Inspector of Election at the
Annual Meeting.
5. HOW DO I VOTE IF MY SHARES ARE HELD IN STREET NAME?
If your shares of common stock are held in the name of your broker, a bank,
or other nominee, only your broker, bank or other nominee may execute a proxy
and vote your shares. Please sign, date and promptly return the instruction card
you received from your broker, bank or other nominee, in accordance with the
instructions on the card. You may vote by the Internet or telephone if your bank
or broker makes those methods available, in which case you can follow the
instructions on the card. If you wish to vote your "street name" shares
directly, you will need to obtain a document known as a "legal proxy" from your
broker, bank or other nominee. Please contact your bank, broker or other nominee
if you wish to do so.
6. WHAT HAPPENS IF I DO NOT SPECIFY A CHOICE FOR A PROPOSAL WHEN RETURNING A
PROXY?
You should specify your choice for each proposal on the proxy card. If no
instructions are given, proxy cards that are signed and returned will be voted
FOR the election of all El Paso director nominees, FOR the proposal to ratify
the appointment of PricewaterhouseCoopers, and AGAINST any stockholder proposal.
7. WHAT HAPPENS IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The matters described in the notice of Annual Meeting are the only matters
we know of which will be voted on at the Annual Meeting. If other matters are
properly presented at the Annual Meeting, the proxy holders, Douglas L. Foshee,
El Paso's President and Chief Executive Officer, and Robert W. Baker, El Paso's
Executive Vice President and General Counsel, will vote your shares at their
discretion.
8. WHO WILL COUNT THE VOTES?
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 shall have the authority to
receive, inspect, electronically tally and determine the validity of the proxies
received.
9. WHAT IS A "QUORUM"?
A "quorum" is a majority of the outstanding shares of common stock and is
required to hold the Annual Meeting. A quorum is determined by counting shares
of common stock present in person at the Annual Meeting or represented by proxy.
If you submit a properly executed proxy, you will be considered part of the
quorum even if you abstain from voting.
10. WHO CAN ATTEND THE ANNUAL MEETING?
Admission to the Annual Meeting is limited to stockholders of El Paso,
persons holding validly executed proxies from stockholders who held El Paso
common stock on September 20, 2004, and invited guests of El Paso.
If you are a stockholder of El Paso, you must bring certain documents with
you in order to be admitted to the Annual Meeting. The purpose of this
requirement is to help us verify that you are actually a stockholder of El Paso.
Please read the following rules carefully because they specify the documents
that you must bring with
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you to the Annual Meeting in order to be admitted. The items that you must bring
with you differ depending upon whether you are a record holder or hold your
stock in "street name".
Proof of ownership of El Paso stock must be shown at the door. Failure to
provide adequate proof that you were a stockholder on the record date may
prevent you from being admitted to the Annual Meeting.
IF YOU WERE A RECORD HOLDER OF EL PASO COMMON STOCK ON SEPTEMBER 20, 2004,
then you must bring a valid government-issued personal identification (such as a
driver's license or passport).
IF A BROKER, BANK OR OTHER NOMINEE WAS THE RECORD HOLDER OF YOUR SHARES OF
EL PASO COMMON STOCK ON SEPTEMBER 20, 2004, then you must bring:
- Valid government-issued personal identification (such as a driver's
license or passport), and
- Proof that you owned shares of El Paso common stock on September 20,
2004.
Examples of proof of ownership include the following: (1) a letter from
your bank or broker stating that you owned El Paso common stock on September 20,
2004; (2) a brokerage account statement indicating that you owned El Paso common
stock on September 20, 2004; or (3) the voting instruction card provided by your
broker indicating that you owned El Paso common stock on September 20, 2004.
IF YOU ARE A PROXY HOLDER FOR A STOCKHOLDER OF EL PASO, then you must
bring:
- The validly executed proxy naming you as the proxy holder, signed by a
stockholder of El Paso who owned shares of El Paso common stock on
September 20, 2004, and
- Valid government-issued personal identification (such as a driver's
license or passport), and
- If the stockholder whose proxy you hold was not a record holder of El
Paso common stock on September 20, 2004, proof of the stockholder's
ownership of shares of El Paso common stock on September 20, 2004, in the
form of a letter or statement from a bank, broker or other nominee
indicating that the stockholder owned El Paso common stock on September
20, 2004.
You may not use cameras, recording equipment or other electronic devices
during the Annual Meeting.
11. HOW MANY VOTES MUST EACH PROPOSAL RECEIVE TO BE ADOPTED?
- With respect to the election of directors, the twelve nominees who
receive the highest number of votes at the Annual Meeting will be
elected.
- All other proposals must receive the affirmative vote of more than 50% of
the votes cast on the proposal.
12. HOW ARE VOTES COUNTED?
Votes are counted in accordance with El Paso's By-laws and Delaware law. An
abstention by a stockholder with respect to a proposal, is not counted in the
tally of votes "FOR" or "AGAINST" that proposal, and therefore does not affect
the outcome of the proposal. A broker non-vote with respect to the election of
directors or any proposal will not be counted in determining the election of
directors or whether the proposal is approved. A broker's non-vote or abstention
will be counted towards a quorum. If a stockholder returns an executed proxy
card but does not indicate how his or her shares are to be voted, the shares
covered by such proxy card will be included in determining if there is a quorum
and will also be counted as votes "FOR" the election of El Paso's nominees,
"FOR" the proposal to ratify the appointment of PricewaterhouseCoopers LLP and
"AGAINST" each stockholder proposal. Our By-laws refer to such a returned and
executed proxy card as a "non-vote by a stockholder." Shares will not be voted
at the Annual Meeting if no properly executed proxy card covering those shares
has been returned and the holder does not cast votes in respect of those shares
in person at the Annual Meeting.
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13. DO I HAVE TO VOTE?
No. However, we strongly urge you to vote. You may vote for all, some or
none of El Paso's director nominees. You 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 to view during the Annual Meeting. You may access this list at El
Paso's offices at 1001 Louisiana Street, Houston, Texas 77002 during ordinary
business hours for a period of ten days before the Annual Meeting.
15. WHO PAYS FOR THE PROXY SOLICITATION RELATED TO THE ANNUAL MEETING?
We do. In addition to sending you these materials, some of our directors
and officers as well as management and non-management employees may contact you
by telephone, mail, e-mail or in person. You may also be solicited by means of
press releases issued by El Paso, postings on our website, www.elpaso.com, and
advertisements in periodicals. None of our officers or employees will receive
any extra compensation for soliciting you. We have retained 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 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 2005 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, P.O. Box 2511, Houston, Texas 77252-5211, telephone (713)
420-6195 and facsimile (713) 420-4099. El Paso will consider only proposals
meeting the requirements of applicable SEC rules.
Under El Paso's By-law provisions, for a stockholder to bring any matter
before the 2005 Annual Meeting, the stockholder's written notice must be
received not less than 90 days nor more than 120 days before the date of the
2005 Annual Meeting or by the tenth day after we publicly announce the date of
the 2005 Annual Meeting, if that would result in a later deadline. We anticipate
that our 2005 Annual Meeting will be held in late May 2005. We will provide our
stockholders with additional information regarding the timing of our 2005 Annual
Meeting at a future date.
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/ep 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/ep and following the instructions.
18. HOW CAN I OBTAIN A COPY OF THE ANNUAL REPORT?
A copy of El Paso's 2003 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, at El
Paso Corporation, P.O. Box 2511, Houston, Texas 77252-5211, telephone (713)
420-6195 and facsimile (713) 420-4099.
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CORPORATE GOVERNANCE
El Paso is committed to maintaining the highest standards of corporate
governance. We believe that strong corporate governance is critical to achieving
our performance goals, and to maintaining the trust and confidence of investors,
employees, suppliers, business partners and other stakeholders. A summary of El
Paso's Corporate Governance Guidelines is set forth below.
Independence of Board Members. A key element for strong corporate
governance is independent members of the Board of Directors. El Paso is
committed to having more than a majority of its Board of Directors be comprised
of independent directors. Pursuant to the New York Stock Exchange ("NYSE")
corporate governance rules, amongst other criteria, a director will be
considered independent if the Board determines that he or she does not have a
material relationship with El Paso (either directly or as a partner, shareholder
or officer of an organization that has a material relationship with El Paso).
Based on these criteria, the Board has affirmatively determined that John M.
Bissell, Juan Carlos Braniff, James L. Dunlap, Robert W. Goldman, Anthony W.
Hall, Jr., Thomas R. Hix, William H. Joyce, J. Michael Talbert, John Whitmire
and Joe B. Wyatt are "independent" under the NYSE listing standards. Although
the Board has a legal basis to conclude that Mr. Kuehn (our non-executive
Chairman of the Board) is "independent," after an analysis of the facts and
circumstances, the Board has refrained from making such an affirmative
determination at this time, and Mr. Kuehn does not currently serve on the Audit
Committee, Compensation Committee or the Governance Committee. Thus, 10 of the
12 nominees for the El Paso Board (83%) are independent. Further, our Audit,
Compensation, Governance, Finance and Health, Safety & Environmental committees
are composed entirely of independent directors.
Audit Committee Financial Expert. The Audit Committee plays an important
role in promoting effective corporate governance, and it is imperative that
members of the Audit Committee have requisite financial literacy and expertise.
All members of El Paso's Audit Committee meet the financial literacy standard
required by the NYSE rules and at least one member qualifies as having
accounting or related financial management expertise under the NYSE rules. In
addition, as required by the Sarbanes-Oxley Act of 2002, the SEC adopted rules
requiring that public companies disclose whether or not its audit committee has
an "audit committee financial expert" as a member. An "audit committee financial
expert" is defined as a person who, based on his or her experience, satisfies
all of the following attributes:
- An understanding of generally-accepted accounting principles and
financial statements.
- An ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves.
- Experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting
issues that are generally comparable to the breadth and level of
complexity of issues that can reasonably be expected to be raised by El
Paso's financial statements, or experience actively supervising one or
more persons engaged in such activities.
- An understanding of internal controls and procedures for financial
reporting.
- An understanding of audit committee functions.
The Board of Directors has affirmatively determined that Messrs. Hix and
Goldman satisfy the definition of "audit committee financial expert," and has
designated each of them as an "audit committee financial expert."
Non-Executive Chairman. Mr. Kuehn currently serves as the Chairman of El
Paso's Board of Directors in a non-executive capacity. As the Chairman of the
Board of Directors, Mr. Kuehn has a number of responsibilities, which include
setting board meeting agendas in collaboration with the CEO, presiding at board
meetings, executive sessions and the annual stockholders meeting, assigning
tasks to the appropriate committees, and ensuring that information flows openly
between management and the Board. Stockholders may communicate directly with Mr.
Kuehn by writing to, Chairman of the Board, c/o Corporate Secretary, El Paso
Corporation, P.O. Box 2511, Houston, Texas 77252-2511, facsimile (713) 420-4099.
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Executive Sessions of Board of Directors. El Paso holds regular executive
sessions in which non-management Board members meet without any members of
management present. During 2003, non-management directors met in executive
session six times. The purpose of these executive sessions is to promote open
and candid discussion among the non-management directors.
Committees of Board of Directors. The Board of Directors has adopted
charters for the Audit Committee, the Compensation Committee and the Governance
Committee that comply with the corporate governance rules adopted by the SEC
pursuant to the Sarbanes-Oxley Act of 2002 and the NYSE listing standards. The
Audit Committee, the Compensation Committee, the Governance Committee and the
Finance Committee charters may be found on our website at www.elpaso.com. The
Board of Directors added the Health, Safety & Environmental Committee in June
2004 and that charter will be available on our website in the future.
Board/Committee/Director Evaluations. During 2003, the Board of Directors,
each Board committee and each director participated in self-evaluation and
assessment processes (including a 360 degree self-evaluation) in order to
improve the efficiency and effectiveness of the Board, its committees and each
director.
Director Education. El Paso encourages and facilitates director
participation in seminars and conferences and other opportunities for continuing
director education. During 2003, directors attended a conference designed by a
nationally recognized board educational organization. Also, each of our
directors is a member of the National Association of Corporate Directors.
Mandatory Retirement. Our directors are subject to a mandatory retirement
age and cannot stand for reelection in the calendar year following their 73rd
birthday.
Stock Ownership Requirements. Our Board of Directors is committed to
director and senior management stock ownership. Directors are required to own
shares of El Paso common stock with a value of three times the annual cash
retainer paid to non-employee directors. The Board also requires that the CEO
own shares of El Paso common stock with a value of at least three times his
annual base salary, and that other executive officers own El Paso common stock
with a value of at least two times his or her base salary.
Corporate Governance Guidelines. Our corporate governance guidelines,
together with the Board committee charters, provide the framework for the
effective governance of El Paso. The Board of Directors has adopted the El Paso
Corporate Governance Guidelines to address matters including qualifications for
directors, responsibilities of directors, mandatory retirement for directors,
the composition and responsibility of committees, conduct and minimum frequency
of Board and Committee meetings, management succession, director access to
management and outside advisors, director compensation, stock ownership
requirements, director orientation and continuing education, and annual
self-evaluation of the Board, its committees and directors. The Board of
Directors recognizes that effective corporate governance is an on-going process,
and the Board, either directly or through the Governance Committee, will review
the El Paso Corporate Governance Guidelines annually, or more frequently if
deemed necessary. Our Corporate Governance Guidelines may be found on our
website at www.elpaso.com.
Code of Ethics. El Paso has adopted a code of ethics, the "Code of
Business Conduct," that applies to all of its directors and employees, including
its Chief Executive Officer, Chief Financial Officer and senior financial and
accounting officers. In addition to other matters, the Code of Business Conduct
establishes policies to deter wrongdoing and to promote honest and ethical
conduct, including ethical handling of actual or apparent conflicts of interest,
compliance with applicable laws, rules and regulations, full, fair, accurate,
timely and understandable disclosure in public communications and prompt
internal reporting violations of the Code of Business Conduct. El Paso also has
an Ethics & Compliance Office and Ethics & Compliance Committee, composed of
members of senior management, that administers El Paso's ethics and compliance
program. A copy of our Code of Business Conduct is available on our website at
www.elpaso.com. El Paso will post on its internet website all waivers to or
amendments of its Code of Business Conduct, which are required to be disclosed
by applicable law and rules of the NYSE listing standards.
Web Access. El Paso provides access through its website to current
information relating to corporate governance, including a copy of each of the
Board's standing committee charters, our Corporate Governance
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Guidelines, El Paso's Code of Business Conduct, El Paso's Restated Certificate
of Incorporation and By-laws, and other matters regarding our corporate
governance principles. El Paso also provides access through its website to all
filings submitted by El Paso to the SEC. El Paso's website is www.elpaso.com,
and access to this information is free of any charge to the user (except for any
internet provider or telephone charges). Information contained on our website is
not part of this proxy statement.
Process for Shareholder Communication with the Board. El Paso's Board has
established a process for interested parties to communicate with the Board. Such
communications should be in writing, addressed to the Board or an individual
director, c/o Mr. David L. Siddall, Corporate Secretary, El Paso Corporation,
P.O. Box 2511, Houston, Texas 77252. The Corporate Secretary will forward all
communications to the addressee.
Director Attendance at Annual Meeting. The Board encourages and expects
all director nominees standing for election to attend the Annual Meeting in
accordance with El Paso's Corporate Governance Guidelines. All incumbent
directors who were elected at El Paso's 2003 Annual Meeting attended El Paso's
2003 Annual Meeting of Stockholders, except for Mr. Talbert.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held 22 meetings during 2003. Each director who
served on the El Paso Board of Directors during 2003 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 established five standing committees to assist the
Board in carrying out its duties: The Audit Committee, the Compensation
Committee, the Governance Committee, the Finance Committee and the Health,
Safety & Environmental Committee. The current members of the five standing
committees are as follows:
HEALTH, SAFETY &
AUDIT COMPENSATION GOVERNANCE FINANCE ENVIRONMENTAL
----- ------------ ---------- ------- ----------------
Juan Carlos Braniff Anthony W. Hall,
Joe B. Wyatt Jr. Robert W. Goldman John Whitmire
(Chairman) (Chairman) (Co-Chairman) (Chairman) (Chairman)
John M. Bissell John M. Bissell Malcolm Wallop Juan Carlos Braniff William H. Joyce
Robert W. Goldman Anthony W. Hall,
James L. Dunlap (Co-Chairman) Jr. J. Michael Talbert
Thomas R. Hix Anthony W. Hall,
J. Michael Talbert James L. Dunlap Thomas R. Hix Jr.
J. Carleton MacNeil,
Jr. John Whitmire William H. Joyce J. Michael Talbert
Malcolm Wallop J. Carleton
MacNeil, Jr.
John Whitmire Joe B. Wyatt
---------------
You should note that Messrs. MacNeil and Wallop are not standing for reelection.
AUDIT COMMITTEE
The Audit Committee held 12 meetings during 2003. The Audit Committee
currently consists of seven non-employee directors, each of whom is
"independent" as such term is defined in Section 10A of the Securities Exchange
Act of 1934, the SEC rules thereunder, and the NYSE listing standards. The Board
of Directors has determined that each member of the Audit Committee possesses
the necessary level of financial literacy required to enable him to serve
effectively as an Audit Committee member. No Audit Committee member serves on
more than three audit committees of public companies, including El Paso's Audit
Committee. El Paso maintains an Internal Audit Department to provide management
and the Audit
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Committee with ongoing assessments of El Paso's risk management processes and
system of internal controls. The Audit Committee's primary duties include:
- The provision of assistance to the Board of Directors in fulfilling its
responsibilities with respect to the oversight of:
- The independent auditor's qualifications and independence.
- El Paso's compliance with legal and regulatory requirements.
- The performance of El Paso's internal audit function and its independent
auditor.
- El Paso's internal controls and risk assessment.
- The appointment, compensation, retention, oversight responsibility and
dismissal of El Paso's independent auditing firm or any other accounting
firm engaged for the purpose of preparing or issuing an audit report or
related work, or performing other audit, review or attestation services.
- The pre-approval of all auditing services and allowable non-audit
services provided to El Paso by its independent auditing firm.
- The quality and integrity of El Paso's financial statements. This has
included a review and investigation into material matter impacting El
Paso's financial statements. Specifically, the Audit Committee initiated
an independent investigation to determine the factors that contributed to
the reserve revision and hedge restatement matters.
- The resolution of any disagreement between management and El Paso's
auditor regarding financial reporting.
- The preparation of an Audit Committee Report to be included in El Paso's
proxy statement, as required by the SEC. See page 32 of this proxy
statement for the Audit Committee Report.
El Paso's independent accountant reports directly to the Audit Committee.
In addition, the Audit Committee provides an open avenue of communication
between the internal auditors, the independent accountants and the Board.
Interested parties may contact the Audit Committee members by following the
process outlined in the Corporate Governance section of this proxy statement.
The Audit Committee Charter can be found on our website at www.elpaso.com
and is attached to this proxy statement as Exhibit A.
Policy for Approval of Audit and Non-Audit Fees
During 2003, the Audit Committee approved all the types of audit and
non-audit services which PricewaterhouseCoopers LLP was to perform during the
year and the range of fees for each of these categories, as required under
applicable law. The Audit Committee's current practice is to consider for pre-
approval annually all categories of audit and non-audit services proposed to be
provided by our independent auditors for the fiscal year. The Audit Committee
will also consider for pre-approval annually the range of fees and the manner in
which the fees are determined for each type of pre-approved audit and non-audit
services proposed to be provided by our independent auditors for the fiscal
year. The Audit Committee must separately pre-approve any service that is not
included in the approved list of services or any proposed services exceeding
pre-approved cost levels. The Audit Committee has delegated pre-approval
authority to the Chairman of the Audit Committee for services that need to be
addressed between Audit Committee meetings. The Audit Committee is then informed
of these pre-approval decisions, if any, at the next meeting of the Audit
Committee. In selecting PricewaterhouseCoopers LLP as our independent auditor,
the Audit Committee believes the provision of the audit and non-audit services
rendered by PricewaterhouseCoopers LLP is compatible with maintaining that
firm's independence. See "Principal Accountant Fees and Services" on page 41 of
this proxy statement for the aggregate fees paid to PricewaterhouseCoopers LLP
for the fiscal years ended December 31, 2003 and 2002.
9
COMPENSATION COMMITTEE
The Compensation Committee held 12 meetings during 2003. The Compensation
Committee currently consists of five non-employee directors, each of whom is
"independent" as such term is defined in the NYSE listing standards. The
Compensation Committee's primary functions are to:
- Review El Paso's executive compensation program to ensure that it is
adequate to attract, motivate and retain competent executive personnel
and is directly and materially related to the short-term and long-term
objectives and operating performance of El Paso.
- Ensure that El Paso's executive stock option plan, long-term incentive
compensation plan, annual incentive compensation plan and other executive
compensation plans are administered in accordance with El Paso's stated
compensation objectives and make recommendations to the Board with
respect to such plans, as necessary.
- Consider proposals with respect to the creation of, and changes to,
executive compensation plans and review appropriate criteria for
establishing performance targets and determining annual corporate and
executive performance ratings.
- Review and approve corporate goals and objectives relevant to CEO
compensation, evaluate the CEO's performance in light of those goals and
objectives, and, either as a committee or together with the other
independent directors (as directed by the Board), determine and approve
the CEO's compensation level based on this evaluation.
- Review and approve goals and objectives relevant to director
compensation, including annual retainer and meeting fees, and terms and
awards of equity compensation and recommend changes to the full Board, if
appropriate.
- Select, evaluate, and, where appropriate, replace the independent
executive compensation consulting firm, and approve all related fees.
- Produce a Compensation Committee report on executive compensation to be
included in El Paso's proxy statement, as required by the SEC.
The policies, mission and actions of the Compensation Committee are set
forth in the Compensation Committee Report on Executive Compensation, which
begins on page 28 of this proxy statement.
The Compensation Committee Charter can be found on our website at
www.elpaso.com.
GOVERNANCE COMMITTEE
The Governance Committee met six times during 2003. The Governance
Committee currently consists of six non-employee directors, each of whom is
"independent" as such term is defined in the NYSE listing standards. The Board
has delegated to the Governance Committee its oversight responsibilities
relating to corporate governance and the establishment of criteria for Board
selection. The Governance Committee's primary responsibilities are to:
- Develop and recommend to the Board corporate governance principles.
- Identify and review the qualifications of candidates for Board
membership, screen possible candidates for Board membership and
communicate with members of the Board regarding Board meeting format and
procedures.
- Determine desired qualifications, expertise and characteristics and, to
the extent the Governance Committee deems necessary, conduct searches for
potential candidates for Board membership with such attributes. The
Governance Committee has the sole authority and responsibility to select,
evaluate, retain and, where appropriate, terminate any search firm to be
used to identify qualified director candidates, including the sole
authority to approve such search firm's fees and other retention terms.
10
- Ensure that El Paso has an appropriate policy on potential conflicts of
interest, including, but not limited to, the policies on (1)
related-party transactions (including any dealings with directors,
officers or employees), and (2) such other transactions that could have
the appearance of a potential conflict of interest.
- Monitor and report to the Board whether there is any current relationship
between any director and El Paso that may adversely affect the
independent judgment of the director.
- Oversee the process of annual performance evaluations for the Board, each
committee and directors.
- Act as a nominating committee and consider any nominations properly
submitted by the stockholders to the Corporate Secretary in accordance
with the Corporate Governance Guidelines, El Paso's By-laws and the
process set forth in this proxy statement.
- Review and make recommendations regarding the Corporate Governance
Guidelines.
- Provide recommendations regarding continuing director educational
programs.
The Governance Committee Charter can be found on our website at
www.elpaso.com.
NOMINATION PROCESS
The minimum qualifications that El Paso seeks for director nominees are set
forth in its Corporate Governance Guidelines, which can be found on our website
at www.elpaso.com. Among other matters, the Board considers education; business,
governmental and civic experience; diversity; communication, interpersonal and
other required skills; an international background in business; and other
matters relevant to the Board's objectives. El Paso has a comprehensive process
in place to identify and evaluate candidates to be nominated for director. The
Governance Committee identifies the needs of the Board by asking each director
to identify particular skills that will strengthen the Board, and that are in
conformity with the goals identified in the Corporate Governance Guidelines. A
third party search firm is then retained to help identify and screen specific
candidates. The Governance Committee reviews the qualifications of the
candidates presented and interviews the most qualified. The Governance Committee
then recommends potential nominees to the full Board, which interviews the
candidates and then nominates them for election at the Annual Meeting. Each
director nominee who appears on the ballot is recommended by the Governance
Committee to the full Board.
El Paso pays a third party search firm a fee to assist in identifying,
assessing qualifications and screening potential director nominees. The
Governance Committee will review any nominations from stockholders, other Board
members, third party search firms, executives and other such persons.
Stockholders seeking to nominate persons for election as directors at the
2005 Annual Meeting must submit in writing a timely notice complying with El
Paso's By-laws to Mr. David L. Siddall, Corporate Secretary, El Paso
Corporation, P.O. Box 2511, Houston, Texas 77252-2511, telephone (713) 420-6195
and facsimile (713) 420-4099. To be timely for a stockholder seeking to bring
any matter before the 2005 Annual Meeting, the stockholder's written notice must
be received not less than 90 days nor more than 120 days before the date of the
2005 Annual Meeting or by the tenth day after we publicly announce the date of
the 2005 Annual Meeting, if that would result in a later deadline. We anticipate
that our 2005 Annual Meeting will be held in late May 2005 and will provide our
stockholders with additional information regarding the timing of our 2005 Annual
Meeting at a future date.
FINANCE COMMITTEE
The Finance Committee met eight times during 2003. The Finance Committee
currently consists of five non-employee directors, each of whom is "independent"
as such term is defined in the NYSE listing standards. The Finance Committee
assists the Board in fulfilling its oversight responsibilities by monitoring,
reviewing, appraising and recommending appropriate action with respect to El
Paso's capital structure, source of funds, liquidity and financial position.
11
The Finance Committee's primary functions are to:
- Review and recommend to the Board the long-range financial plan of El
Paso.
- Recommend to the Board financial policies that maintain or improve the
financial strength of El Paso.
- Develop and recommend dividend policies and recommend to the Board
specific dividend payments.
- Review terms and conditions of financing plans, including the issuance of
securities, corporate borrowings, off-balance sheet structures,
investments and make recommendations to the Board of such financings.
The Finance Committee Charter can be found on our website at
www.elpaso.com.
HEALTH, SAFETY & ENVIRONMENTAL COMMITTEE
The Health, Safety & Environmental Committee was created in July 2004. The
Health, Safety & Environmental Committee currently consists of four non-employee
directors, each of whom is "independent" as such term is defined in the NYSE
listing standards. The Health, Safety & Environmental Committee assists the
Board in fulfilling its oversight responsibilities with respect to the Board's
and El Paso's continuing commitment to improving the environment and ensuring
that El Paso's businesses and facilities are operated and maintained in a safe
manner. The Health, Safety & Environmental Committee's primary function is to
review and provide oversight with regard to El Paso's policies, standards,
accountabilities and programs relative to health, safety and
environmental-related matters, including El Paso's pipeline integrity program.
In this regard, the Health, Safety & Environmental Committee will advise the
Board and make recommendations for the Board's consideration regarding health,
safety and environmental-related issues.
DIRECTORS' COMPENSATION
The Compensation Committee, in consultation with an independent third-party
consulting firm, periodically reviews non-employee director compensation and
benefits and recommends changes (if appropriate) to the full Board of Directors
based upon competitive market practices. As described in more detail below, the
Compensation Committee and full Board of Directors terminated the 2001 Stock
Option Plan for Non-Employee Directors and the Director Charitable Award Plan
during 2003.
ANNUAL RETAINER
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 and the remaining $60,000 of which is paid at the election of the
director in any combination of cash, deferred cash or deferred shares of common
stock. To the extent a director receives deferred shares rather than cash, he is
credited with deferred shares with a value representing a 25% premium to the
cash retainer he would otherwise have received. For example, an individual
director could receive $60,000 in cash and $25,000 ($20,000, plus $5,000
premium) in mandatory deferred common stock assuming he elects not to take
additional deferred common stock or could receive $100,000 in deferred common
stock assuming he elects to take his entire retainer in deferred common stock.
In the event there are not enough shares of common stock available under the
plan, then the deferred common stock will be in the form of deferred stock
units. Each non-employee director who chairs a Committee of the Board of
Directors receives an additional retainer fee of $15,000, which may be paid in
the same manner as the annual retainer (with a total up to $18,750 if he elects
to take his entire retainer in deferred common stock). Each non-employee
director also receives a long-term equity credit in the form of deferred shares
of El Paso common stock (excluding any premium) equal to the amount of the
annual retainer (currently $80,000).
12
SPECIAL COMMITTEE MEETING FEES
In addition, effective beginning in March 2003, if any Committee of the
Board of Directors holds a meeting other than in connection with a regularly
scheduled Board meeting, then each non-management Committee member who attends
in person (other than the Chairman of the Board and Lead Director, if one) will
receive a meeting fee of $2,500 per day payable in cash. During 2003, the total
amount paid in aggregate for special committee meeting fees totaled $85,000, for
nine separate meetings.
CHAIRMAN OF THE BOARD AND LEAD DIRECTOR COMPENSATION
In addition to the compensation described above, from September 2002
through February 2003 when Mr. Kuehn served as Lead Director, he received a
retainer fee of $12,500 per month. From September 2003 through December 2003,
Mr. Kuehn (as non-executive Chairman of the Board) received $25,000 per month in
lieu of the annual retainer and long-term equity credit described above.
Effective January 1, 2004, Mr. Kuehn will receive the same compensation and
benefits as the other non-employee directors, plus a cash payment of $33,750 per
quarter to compensate him for the additional time spent on Board matters as
Chairman of the Board. See the Summary Compensation Table on page 21 of this
proxy statement for information regarding Mr. Kuehn's compensation as interim
Chief Executive Officer.
2001 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS -- TERMINATED
Pursuant to El Paso's 2001 Stock Option Plan for Non-Employee Directors,
during 2003 non-employee directors received 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. This plan was terminated effective
December 4, 2003, and no additional stock options will be awarded to
non-employee directors.
DIRECTOR CHARITABLE AWARD PLAN -- TERMINATED
The Director Charitable Award Plan was adopted in January 1992 to provide
for each eligible director to designate up to four charitable organizations to
receive a maximum of $1,000,000 in the aggregate upon the death of each director
participant. A director was eligible to participate after two consecutive years
of service on the Board of Directors. The Director Charitable Award Plan was
terminated on December 4, 2003, with respect to any new participants, including
current directors that have not served on the Board for at least two years.
Messrs. Bissell, Braniff, Hall, Kuehn, MacNeil, Wallop and Wyatt are eligible to
participate in this plan. Based on the current level of participation (including
nine former directors), the annual pre-funding amounts are estimated to be
approximately $142,000 per year plus administrative costs.
13
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board. You will have the opportunity to elect our entire Board of
Directors, currently consisting of 12 members, 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 12 persons named
in this proxy statement as directors.
THE 12 NOMINEES WHO RECEIVE THE HIGHEST NUMBER OF VOTES AT THE ANNUAL
MEETING WILL BE ELECTED. BROKER NON-VOTES, IF ANY, WILL NOT BE COUNTED IN
DETERMINING THE ELECTION OF DIRECTORS.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF
THE NOMINEES NAMED BELOW.
General Information about the Nominees for Election, as of September 16,
2004. Each of the following nominees has agreed to be named in this proxy
statement and to serve as a director if elected.
JOHN M. BISSELL DIRECTOR SINCE 2001
(BISSELL PHOTO) Chairman of the Board,
BISSELL Inc.,
Grand Rapids, Michigan -- Floor Care
Appliance and Detergent Manufacturer
Age -- 73
Member -- Audit Committee
Member -- Compensation Committee
Mr. Bissell served as Lead Director of El Paso from March 2003 to December 2003. Mr. Bissell served
as a director of The Coastal Corporation from 1985 to January 2001. During the past five years, Mr.
Bissell has been the Chairman of the Board of BISSELL Inc., and he has served in various executive
capacities at BISSELL Inc. since 1966. Mr. Bissell served as a director of American Natural
Resources Company, parent holding company of ANR Pipeline Company, from May 1983 to June 1996, at
which time there was a reduction in the number of directors and he did not stand for re-election.
JUAN CARLOS BRANIFF DIRECTOR SINCE 1997
(BRANIFF PHOTO) Business Consultant
Age -- 47
Chairman -- Audit Committee
Member -- Finance Committee
Mr. Braniff has been a business consultant since January 2004. He served as Vice Chairman of Grupo
Financiero BBVA Bancomer from October 1999 to January 2004, as Deputy Chief Executive Officer of
Retail Banking from September 1994 to October 1999 and as Executive Vice President of Capital
Investments and Mortgage Banking from December 1991 to September 1994.
14
JAMES L. DUNLAP DIRECTOR SINCE 2003
(DUNLAP PHOTO) Business Consultant
Age -- 67
Member -- Compensation Committee
Member -- Governance Committee
Mr. Dunlap's primary occupation has been as a business consultant since 1999. He served as Vice
Chairman, President and Chief Operating Officer of Ocean Energy/United Meridian Corporation from
1996 to 1999. He was responsible for exploration and production and the development of the
international exploration business. For 33 years prior to that date, Mr. Dunlap served Texaco, Inc.
in various positions, including Senior Vice President, President of Texaco USA, President and Chief
Executive Officer of Texaco Canada Inc. and Vice Chairman of Texaco Ltd., London. Mr. Dunlap is
currently a member of the board of directors of Massachusetts Mutual Life Insurance Company and a
member of Nantucket Conservation Foundation, the Culver Educational Foundation and the Corporation
of the Woods Hole Oceanographic Institution.
DOUGLAS L. FOSHEE DIRECTOR SINCE 2003
(FOSHEE PHOTO) President and Chief Executive Officer,
El Paso Corporation,
Houston, Texas -- Diversified Energy Company
Age -- 45
Mr. Foshee has been President, Chief Executive Officer and a director of El Paso since September
2003. He became Executive Vice President and Chief Operating Officer of Halliburton Company in
2003, having joined that company in 2001 as Executive Vice President and Chief Financial Officer.
In December 2003, several subsidiaries of Halliburton, including DII Industries and Kellogg Brown &
Root, filed for bankruptcy protection whereby the subsidiaries will jointly resolve their asbestos
claims. Prior to assuming his position at Halliburton, Mr. Foshee was President, Chief Executive
Officer, and Chairman of the Board of Nuevo Energy Company. From 1993 to 1997, Mr. Foshee served
Torch Energy Advisors Inc. in various capacities, including Chief Operating Officer and Chief
Executive Officer.
ROBERT W. GOLDMAN DIRECTOR SINCE 2003
(GOLDMAN PHOTO) Business Consultant
Age -- 62
Chairman -- Finance Committee
Member -- Audit Committee
Mr. Goldman's primary occupation has been as a business consultant since October 2002. He served as
Senior Vice President, Finance and Chief Financial Officer of Conoco Inc. from 1998 to 2002 and
Vice President, Finance from 1991 to 1998. For more than five years prior to that date, he held
various executive positions with Conoco Inc. and E.I. Du Pont de Nemours & Co., Inc. Mr. Goldman
was also formerly Vice President and Controller of Conoco Inc. and Chairman of the Accounting
Committee of the American Petroleum Institute. He is currently Vice President, Finance of the World
Petroleum Congress and a member of the board of directors of Tesoro Petroleum Corporation.
15
ANTHONY W. HALL, JR. DIRECTOR SINCE 2001
(HALL PHOTO) Chief Administrative Officer,
City of Houston, Texas
Age -- 60
Co-Chairman -- Governance Committee
Member -- Finance Committee
Member -- Health, Safety & Environmental Committee
Mr. Hall has been Chief Administrative Officer of the City of Houston since January 2004. He served
as the City Attorney for the City of Houston from March 1998 to January 2004. He served as a
director of The Coastal Corporation from August 1999 to January 2001. Prior to March 1998, Mr. Hall
was a partner in the Houston law firm of Jackson Walker, LLP.
THOMAS R. HIX DIRECTOR SINCE 2004
(HIX PHOTO) Business Consultant
Age -- 57
Member -- Audit Committee
Member -- Finance Committee
Mr. Hix has been a business consultant since January 2003. He served as Senior Vice President of
Finance and Chief Financial Officer of Cooper Cameron Corporation from January 1995 to January
2003. From September 1993 to April 1995, Mr. Hix served as Senior Vice President of Finance,
Treasurer and Chief Financial Officer of The Western Company of North America. Mr. Hix is a member
of the board of directors of The Offshore Drilling Company.
WILLIAM H. JOYCE DIRECTOR SINCE 2004
(JOYCE PHOTO) Chairman of the Board and Chief Executive Officer,
Nalco Company,
Naperville, Illinois -- Water Treatment,
Process Chemicals and Service Company
Age -- 68
Member -- Governance Committee
Member -- Health, Safety & Environmental Committee
Dr. Joyce has been Chairman of the Board and Chief Executive Officer of Nalco Company since
November 2003. From May 2001 to October 2003, he served as Chief Executive Officer of Hercules Inc.
In 2001, Dr. Joyce served as Vice Chairman of the Board of Dow Chemical Corporation following its
merger with Union Carbide Corporation. Dr. Joyce was named Chief Executive Officer of Union Carbide
Corporation in 1995 and Chairman of the Board in 1996. Prior to 1995, Dr. Joyce served in various
positions with Union Carbide. Dr. Joyce is a director of CVS Corporation.
16
RONALD L. KUEHN, JR. DIRECTOR SINCE 1999
(KUEHN PHOTO) Chairman of the Board,
El Paso Corporation,
Houston, Texas -- Diversified Energy Company
Age -- 69
Mr. Kuehn is currently the Chairman of the El Paso Board. Mr. Kuehn was Chairman of the Board and
Chief Executive Officer from March 2003 to September 2003. From September 2002 to March 2003, Mr.
Kuehn was the Lead Director of El Paso. From January 2001 to March 2003, he was a business
consultant. Mr. Kuehn served as non-executive Chairman of the Board of El Paso from October 25,
1999 to December 31, 2000. Mr. Kuehn served as President and Chief Executive Officer of Sonat Inc.
from June 1984 until his retirement on October 25, 1999. He was Chairman of the Board of Sonat Inc.
from April 1986 until his retirement. He is a director of AmSouth Bancorporation, Praxair, Inc. and
The Dun & Bradstreet Corporation. Mr. Kuehn resigned his position as a director and a member of the
compensation committee of Transocean Inc. in March 2003 when Mr. Talbert joined the El Paso Board.
J. MICHAEL TALBERT DIRECTOR SINCE 2003
(TALBERT PHOTO) Chairman of the Board,
Transocean Inc.
Houston, Texas -- Offshore Drilling Company
Age -- 57
Member -- Compensation Committee
Member -- Finance Committee
Member -- Health, Safety & Environmental Committee
Mr. Talbert has been Chairman of the Board of Transocean Inc. since October 2002. He served as
Chief Executive Officer of Transocean Inc. and its predecessor companies from 1994 until October
2002, and has been a member of its board of directors since 1994. Mr. Talbert is also the Chairman
of the Board of The Offshore Drilling Company. He served as President and Chief Executive Officer
of Lone Star Gas Company from 1990 to 1994. He served as President of Texas Oil & Gas Company from
1987 to 1990, and served in various positions at Shell Oil Company from 1970 to 1982. Mr. Talbert
is a past Chairman of the National Ocean Industries Association and a member of the University of
Akron's College of Engineering Advancement Council.
17
JOHN L. WHITMIRE DIRECTOR SINCE 2003
(WHITMIRE PHOTO) Chairman of the Board,
CONSOL Energy, Inc.,
Pittsburgh, Pennsylvania -- Multifuel Energy Provider
and Energy Service Provider
Age -- 63
Chairman -- Health, Safety & Environmental Committee
Member -- Audit Committee
Member -- Compensation Committee
Mr. Whitmire has been Chairman of CONSOL Energy, Inc. since 1999. He served as Chairman and CEO of
Union Texas Petroleum Holdings, Inc. from 1996 to 1998, and spent over 30 years serving Phillips
Petroleum Company in various positions including Executive Vice President of Worldwide Exploration
and Production from 1992 to 1996 and Vice President of North American Exploration and Production
from 1988 to 1992. He also served as a member of the Phillips Petroleum Company Board of Directors
from 1994 to 1996. He is a member of the board of directors of GlobalSantaFe Inc.
JOE B. WYATT DIRECTOR SINCE 1999
(WYATT PHOTO) Chancellor Emeritus,
Vanderbilt University,
Nashville, Tennessee -- Higher Education
Age -- 69
Chairman -- Compensation Committee
Member -- Governance 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 1984 until October 1999, Mr. Wyatt was a director of Sonat Inc. He is a
director of Ingram Micro, Inc. and Hercules, Inc.
18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of August 31, 2004 (unless
otherwise noted) 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, our directors and executive officers
as a group and each person or entity known by El Paso to own beneficially more
than 5% of its outstanding shares of common stock. No family relationship exists
between any of the directors or executive officers of El Paso.
BENEFICIAL OWNERSHIP STOCK PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER (EXCLUDING OPTIONS)(1) OPTIONS(2) TOTAL OF CLASS
-------------- ------------------------ ---------------------- ---------- ---------- --------
Common Stock Pacific Financial Research Inc.(3)........... 77,966,989 0 77,966,989 12.12%
9601 Wilshire Boulevard,
Suite 800
Beverly Hills, CA 90210
Common Stock Brandes Investment Partners, L.L.C.(3)....... 66,560,505 0 66,560,505 10.34%
11988 El Camino Real
Suite 500
San Diego, CA 92130
Common Stock State Street Bank and Trust Company(3)....... 36,713,773 0 36,713,773 5.71%
P.O. Box 1389
Boston, MA 02104-1389
Common Stock J.M. Bissell................................. 58,107 12,000 70,107 *
Common Stock J.C. Braniff................................. 64,013(4) 21,000 85,013 *
Common Stock J.L. Dunlap.................................. 23,121(5) 8,000 31,121 *
Common Stock R.W. Goldman................................. 26,125 8,000 34,125 *
Common Stock A.W. Hall, Jr. .............................. 40,202 12,000 52,202 *
Common Stock T.R. Hix..................................... 0 0 0 *
Common Stock W.H. Joyce................................... 1,000 0 1,000 *
Common Stock R.L. Kuehn, Jr. ............................. 313,500(6) 614,300 927,800 *
Common Stock J.C. MacNeil................................. 48,296 12,000 60,296 *
Common Stock J.M. Talbert................................. 18,868 8,000 26,868 *
Common Stock M. Wallop.................................... 53,149 11,000 64,149 *
Common Stock J.L. Whitmire................................ 28,243 8,000 36,243 *
Common Stock J.B. Wyatt................................... 50,674 14,000 64,674 *
Common Stock D.L. Foshee.................................. 507,199 200,000 707,199 *
Common Stock J.W. Somerhalder II.......................... 392,318 439,250 831,568 *
Common Stock D.D. Scott................................... 169,070 140,247 309,317 *
Common Stock R.G. Phillips................................ 604,562 303,500 908,062 *
Common Stock R.W. Baker................................... 145,240 183,709 328,949 *
Common Stock W.A. Wise.................................... 1,796,658(7) 1,621,917(8) 3,418,575 *
Common Stock Directors and executive officers as a group
20 persons total, including those individuals
listed above................................. 4,491,270 3,616,923 8,108,193 1.25%
---------------
* 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 Mr. Talbert shares with one or more other individuals voting and
investment power with respect to 5,000 shares of common stock. This column
also includes shares of common stock held in the El Paso Benefits Protection
Trust (as of August 31, 2004) as a result of deferral elections made in
accordance with El Paso's benefit plans. These individuals share voting
power with the trustee under that plan and receive dividends on such shares,
but do not have the power to dispose of, or direct the disposition of, such
shares until such shares are distributed. In addition, some shares of common
stock reflected in this column for certain individuals are subject to
restrictions. According to a Schedule 13G filed on February 12, 2004, as of
December 31, 2003, Pacific Financial
19
Research Inc. had sole voting power over 73,052,989 shares of common stock,
no voting power over 4,914,000 shares of common stock and sole dispositive
power of 77,966,989 shares of common stock. According to a Schedule 13G/A
filed on March 10, 2004, as of December 31, 2003, Brandes Investment
Partners, L.L.C. had shared voting power of 50,154,789 shares of common
stock and shared dispositive power over 66,560,505 shares of common stock.
According to a Schedule 13G filed on March 26, 2004, as of December 31,
2003, State Street Bank and Trust Company had sole voting power over
16,334,497 shares of common stock, shared voting power over 19,108,114
shares of common stock, sole dispositive power over 17,571,967 shares of
common stock and shared dispositve power of 19,141,806 shares of common
stock.
(2) The directors and executive officers have the right to acquire the shares of
common stock reflected in this column within 60 days of August 31, 2004,
through the exercise of stock options.
(3) Stock ownership as of December 31, 2003, for Pacific Financial Research
Inc., Brandes Investment Partners, L.L.C. and State Street Bank and Trust
Company was reported on separate Schedules 13G filed on February 12, 2004,
March 10, 2004 and March 26, 2004, respectively.
(4) Mr. Braniff's beneficial ownership excludes 3,500 shares of El Paso common
stock owned by his wife, of which Mr. Braniff disclaims any beneficial
ownership.
(5) Mr. Dunlap's beneficial ownership excludes 900 shares held by his wife as
trustee. Mr. Dunlap disclaims any beneficial ownership in those shares.
(6) Mr. Kuehn's beneficial ownership excludes 27,720 shares of El Paso common
stock owned by his wife or children, of which Mr. Kuehn disclaims any
beneficial ownership.
(7) Mr. Wise's stock ownership is as of March 12, 2003, when he left the
company. Mr. Wise's beneficial ownership excludes 400 shares of El Paso
common stock owned by his children under the Uniform Gifts to Minors Act, of
which Mr. Wise disclaims any beneficial ownership.
(8) Includes 98,000 stock options held in the William & Marie Wise Family Ltd.
Partnership.
20
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
This table and narrative text discusses the compensation paid in 2003, 2002
and 2001 to our Chief Executive Officer and our four other most highly
compensated executive officers. In addition, as required by SEC rules, we have
provided the compensation information for Messrs. Kuehn and Wise who each served
as our CEO at some point during 2003. The compensation reflected for each
individual was for their services provided in all capacities to El Paso and its
subsidiaries. This 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 2003.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ----------------------- --------------
RESTRICTED SECURITIES LONG-TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE PLAN ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#) ($)(5) ($)(6)
--------------------------- ---- ---------- ---------- ------------ ---------- ---------- -------------- ------------
Douglas L. Foshee(7)....... 2003 $ 297,115 $ 600,000 -- 0 1,000,000 -- $ 1,758,913
President and Chief
Executive Officer
John W. Somerhalder II..... 2003 $ 617,500 $ 750,000 -- $ 0 0 $ 215,850 $ 14,250
Executive Vice 2002 $ 600,000 $ 0 -- $ 0 0 -- $ 81,926
President 2001 $ 552,091 $1,140,000 -- $ 569,992 223,000 -- $ 946,591
D. Dwight Scott............ 2003 $ 517,504 $ 750,000 -- $ 0 0 -- $ 511,775
Executive Vice 2002 $ 387,504 $ 0 -- $ 0 0 -- $ 71,108
President and Chief 2001 $ 252,091 $ 360,039 -- $ 179,961 137,000 -- $ 59,628
Financial Officer
Robert G. Phillips......... 2003 $ 459,178 $ 750,000 -- $ 0 0 $ 215,850 $ 2,813
President, El Paso 2002 $ 400,008 $ 0 $ 43,773 $ 0 0 -- $ 37,921
Field Services 2001 $ 376,042 $ 560,000 -- $ 279,958 151,250 -- $ 912,039
Robert W. Baker............ 2003 $ 360,837 $ 350,000 -- $ 0 0 -- $ 10,500
Executive Vice 2002 $ 250,008 $ 50,000 $ 36,000 $ 0 0 -- $ 21,857
President 2001 $ 230,838 $ 200,006 -- $ 99,994 101,375 -- $ 720,407
Ronald L. Kuehn, Jr.(8).... 2003 $ 568,462 $ 600,000 -- $ 247,500 125,000 -- $ 1,748,825
Former Chief Executive
Officer
William A. Wise(9)......... 2003 $ 297,918 $ 0 $ 37,434 $ 0 0 $2,166,750 $15,486,077
Former Chief 2002 $1,430,004 $ 0 $229,728 $ 0 0 -- $ 255,632
Executive Officer 2001 $1,305,425 $3,432,000 $210,481 $1,715,997 768,250 -- $ 3,771,994
---------------
(1) The amount reflected in the salary column for 2003 and 2002 for Messrs.
Somerhalder, Phillips, Baker and Wise includes an amount for El Paso
mandated reductions to fund certain charitable organizations.
(2) For fiscal year 2001, El Paso's incentive compensation plans required
executives to receive a substantial part of their annual bonus in shares
of restricted El Paso common stock. The amounts reflected in this column
for 2001 represent a combination of the market value of the restricted
stock and cash at the time awarded under the applicable El Paso
incentive compensation plan.
(3) The amount reflected for Mr. Phillips in fiscal year 2002 includes,
among other things, $42,000 for a perquisite and benefit allowance. The
amount reflected for Mr. Baker in fiscal year 2002 is a $36,000
perquisite and benefit allowance. The amount reflected for Mr. Wise in
fiscal year 2003 includes, among other things, $18,750 for a perquisite
and benefit allowance and $9,638 in value attributed to use of El Paso's
aircraft. The amount reflected for Mr. Wise in fiscal year 2002
includes, among other things, $90,000 for a perquisite and benefit
allowance and $65,509 in value attributed to use of El Paso's aircraft.
The amount reflected for Mr. Wise in 2001 includes, among other things,
$90,000 for a perquisite and benefit allowance and $62,692 in value
attributed to use of El Paso's aircraft. Except as noted, the total
value of the perquisites and other personal benefits received by the
other executives named in this proxy statement in fiscal years 2003,
2002 and 2001 are not included in this column since they were below the
Securities and Exchange Commission's reporting threshold.
(4) For fiscal year 2003, Mr. Kuehn received a grant of 50,000 shares of
restricted stock in connection with assumption of the interim CEO
position, the grant date value of which is reflected in this column. For
fiscal year 2001, El Paso's incentive compensation plans provided for
and encouraged participants to elect to take the cash portion of their
annual bonus award in shares of restricted stock. The amounts reflected
in this column for 2001 include the market value of restricted stock on
the date
21
of grant. The value of the shares of common stock issued has declined
significantly since the date of grant. The total number of shares and
value of restricted stock (including the amount in this column) held on
December 31, 2003, is as follows:
RESTRICTED STOCK AS OF DECEMBER 31, 2003
TOTAL NUMBER
OF RESTRICTED VALUE OF
STOCK RESTRICTED STOCK
NAME (#) ($)
---- ------------- ----------------
Douglas L. Foshee........................................... 200,000 $1,638,000
John W. Somerhalder II...................................... 124,596 $1,020,441
D. Dwight Scott............................................. 58,444 $ 478,656
Robert G. Phillips.......................................... 81,706 $ 669,172
Robert W. Baker............................................. 51,275 $ 419,942
Ronald L. Kuehn, Jr......................................... 0 $ 0
William A. Wise............................................. 0 $ 0
With the exception of Messrs. Foshee's and Kuehn's grants, most of these
shares of El Paso's restricted stock are subject to a time-vesting
schedule of four years from the date of grant (including the shares
awarded as part of the annual bonus in 2001 described above) and other
shares of restricted stock which are subject to both time-vesting and
performance-vesting. With respect to performance vesting, if the
required El Paso performance targets are not met within a four-year time
period, all unvested shares are forfeited. Any dividends awarded on the
restricted 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 required
period of years and, with respect to performance vesting, the
performance goals regarding stockholder value are reached.
(5) For fiscal year 2003, the amount reflected in this column is the value
of shares of restricted stock on the date they vested. These shares had
been reported in a long-term incentive table in El Paso's proxy
statement for the year in which those shares of restricted stock were
originally granted, along with the necessary performance measures for
their vesting. No long-term incentive payouts were made in fiscal years
2002 and 2001.
(6) The compensation reflected in this column for fiscal year 2003 includes
El Paso's contributions to the El Paso Retirement Savings Plan and
supplemental company match for the Retirement Savings Plan under the
Supplemental Benefits Plan, as follows:
EL PASO'S CONTRIBUTIONS TO THE RETIREMENT SAVINGS PLAN
AND SUPPLEMENTAL COMPANY MATCH UNDER THE
SUPPLEMENTAL BENEFITS PLAN FOR FISCAL YEAR 2003
RETIREMENT SUPPLEMENTAL
SAVINGS PLAN BENEFITS PLAN
NAME ($) ($)
---- ------------ -------------
Douglas L. Foshee........................................... $6,000 $2,913
John W. Somerhalder II...................................... $4,425 $9,825
D. Dwight Scott............................................. $3,750 $8,025
Robert G. Phillips.......................................... $2,438 $ 375
Robert W. Baker............................................. $4,650 $5,850
Ronald L. Kuehn, Jr......................................... $ 0 $ 0
William A. Wise............................................. $9,000 $2,850
In addition, for fiscal year 2003 for Mr. Foshee, the amount in this
column includes the value of a sign-on bonus in the amount of $875,000
in cash and $875,000 in common stock. In addition, for fiscal year 2003
for Mr. Scott, the amount in this column includes the value of a special
retention payment in the amount $500,000. In addition, for fiscal year
2003 for Mr. Kuehn, the amount in this column includes $881,588 for the
value of the split-dollar life insurance policy transferred to him in
January 2003, $619,723 for the tax gross-up associated with the transfer
of the split-dollar life insurance policy, $100,000 in severance
attributed to him ceasing as interim CEO of El Paso and non-employee
director fees received during 2003. In addition, for fiscal year 2003
for Mr. Wise, the amount in this column includes $15,474,227
($15,326,532 of which includes his supplemental pension benefit earned
during his employment) paid in connection with his termination.
(7) Mr. Foshee began his employment with El Paso on September 1, 2003.
(8) Mr. Kuehn served as interim CEO from March 13, 2003 to September 1,
2003.
(9) Mr. Wise ceased to be CEO on March 12, 2003. See page 34 of this proxy
statement for a description of Mr. Wise's employment agreement and the
severance benefits he received pursuant to his employment agreement.
22
STOCK OPTION GRANTS
This table sets forth the number of stock options granted at fair market
value to the executives named in this proxy statement during the fiscal year
2003. In satisfaction of applicable SEC regulations, the table further sets
forth the potential realizable value of such stock options in the year 2013 (the
expiration date of the stock options) at an assumed annualized rate of stock
price appreciation of 5% and 10% over the full ten-year term of the stock
options. As the table indicates for the grant made on September 2, 2003,
annualized stock price appreciation of 5% and 10% would result in stock prices
in the year 2013 of approximately $11.96 and $19.05, respectively. Further as
the table indicates for the grant made on March 21, 2003, annualized stock price
appreciation of 5% and 10% would result in stock prices in the year 2013 of
approximately $10.64 and $16.95, respectively. The amounts shown in the table as
potential realizable values for all stockholders' stock (approximately $2.9
billion and $7.4 billion for the September grant and approximately $2.6 billion
and $6.6 billion for the March grant) represent the corresponding increases in
the market value of 633,912,031 shares of the common stock outstanding as of
December 31, 2003. No gain to the executive named in this proxy statement is
possible without an increase in stock price, which would benefit all
stockholders. Actual gains, if any, on stock option exercises and common stock
holdings are dependent on the future performance of the common stock and overall
stock market conditions. There can be no assurances that the potential
realizable values shown in this table will be achieved.
OPTION GRANTS IN 2003
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS(1) PRICE APPRECIATION FOR OPTION TERM
------------------------------------------------- -------------------------------------
% OF TOTAL IF STOCK PRICE AT IF STOCK PRICE AT
NUMBER OF OPTIONS $11.96423 AND $19.05104 AND
SECURITIES GRANTED $10.64483 IN $16.95011 IN
UNDERLYING TO ALL EXERCISE 2013 2013
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------- -----------------
NAME GRANTED (#) IN 2003 ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- ---------- --------- ---------- ----------------- -----------------
POTENTIAL VALUE OF ALL COMMON STOCK
OUTSTANDING ON DECEMBER 31, 2003
SEPTEMBER 2, 2003 GRANT............. N/A N/A N/A N/A $2,928,186,126 $7,420,598,558
MARCH 21, 2003 GRANT................ N/A N/A N/A N/A $2,605,268,391 $6,602,261,617
Douglas L. Foshee..................... 1,000,000 88.82% $7.34500 9/2/2013 $ 4,619,231 $ 11,706,038
Ronald L. Kuehn, Jr. ................. 125,000 11.10% $6.53500 3/21/2003 $ 513,728 $ 1,301,888
---------------
(1) The stock options granted in 2003 to Mr. Foshee vest 20% per year over a
five-year period from the date of grant. The stock options granted in 2003
to Mr. Kuehn vested in September 2003 when he ceased to be El Paso's interim
CEO. No stock options were granted to any other of the named executives.
There were no stock appreciation rights granted in 2003. Any unvested stock
options become fully exercisable in the event of a "change in control." See
page 39 of this proxy statement for a description of El Paso's 2001 Omnibus
Incentive Compensation Plan and the definition of the term "change in
control." Under the terms of El Paso's 2001 Omnibus Incentive Compensation
Plan, the Compensation Committee may, in its sole discretion and at any
time, change the vesting of the stock options. Certain non-qualified stock
options may be transferred to immediate family members, directly or
indirectly or by means of a trust, corporate entity or partnership. Further,
stock options are subject to forfeiture and/or time limitations on exercise
in the event of termination of employment.
OPTION EXERCISES AND YEAR-END VALUE TABLE
This table sets forth information concerning stock option exercises and the
fiscal year-end values of the unexercised stock options, provided on an
aggregate basis, for each of the executives named in this proxy statement.
23
AGGREGATED OPTION EXERCISES IN 2003
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)(2)
ON EXERCISE REALIZED ------------------------------- ---------------------------
NAME (#)(1) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------ -------------- ----------- -------------
Douglas L. Foshee.......... 0 $ 0 0 1,000,000 $ 0 $860,000
John W. Somerhalder II..... 25,000 $179,875 430,383 41,667 $ 0 $ 0
D. Dwight Scott............ 0 $ 0 115,247 28,247 $ 0 $ 0
Robert G. Phillips......... 25,000 $179,875 270,167 33,333 $ 0 $ 0
Robert W. Baker............ 0 $ 0 176,709 18,333 $ 0 $ 0
Ronald L. Kuehn, Jr........ 0 $ 0 614,300 0 $208,750 $ 0
William A. Wise............ 100,000 $719,500 1,787,917(3) 0 $ 0 $ 0
---------------
(1) The amounts in these columns represent the number of shares and the value
realized upon conversion of stock options into shares of stock that occurred
during 2003 based upon the achievement of certain performance targets
established when they were originally granted in 1999.
(2) The figures presented in these columns have been calculated based upon the
difference between $8.205, the fair market value of the common stock on
December 31, 2003, for each in-the-money stock option, and its exercise
price. No cash is realized until the shares received upon exercise of an
option are sold. No executives named in this proxy statement had stock
appreciation rights that were outstanding on December 31, 2003.
(3) Includes 98,000 stock options held by the William & Marie Wise Family Ltd.
Partnership.
LONG-TERM INCENTIVE AWARDS
RESTRICTED STOCK
This table provides information concerning incentive awards of restricted
common stock made under El Paso's 2001 Omnibus Incentive Compensation Plan. The
number of shares of restricted stock will vest if, and only if, the executive
named below remains 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. No other named executive received a long-term incentive restricted stock
award during 2003.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2003
RESTRICTED STOCK
ESTIMATED NUMBER OF SHARES TO BE VESTED UNDER
RESTRICTED STOCK GRANTS
PERFORMANCE OR -----------------------------------------------
NUMBER OTHER PERIOD BELOW THRESHOLD THRESHOLD TARGET MAXIMUM
NAME OF SHARES UNTIL MATURATION (#) (#) (#) (#)
---- --------- ---------------- --------------- --------- ------- -------
Douglas L. Foshee....... 200,000 5 years 0(1) 100,000 200,000 300,000(2)
Robert W. Baker......... 4,983 2 years 0 1,495 2,990 4,983
---------------
(1) El Paso's Compensation Committee has sole discretion with respect to the
amount, if any, of shares that will vest.
(2) If El Paso's stock performance is in the second quartile (50th to 74th
percentile) relative to its peers, then the amount of shares that will vest
will be pro-rata based upon actual placement relative to the peers.
PERFORMANCE UNITS
This table provides information concerning long-term incentive awards of
performance units under El Paso's 2001 Omnibus Incentive Compensation Plan. The
grant reflected vested on June 30, 2003, at the
24
end of the indicated maturation performance period, at which time El Paso's
total stockholder return was compared to that of its peer group. With respect to
the grant, if El Paso's total stockholder return ranked in the first, second,
third or fourth quartiles of its peer group, the value of each unit would have
been $150, $100, $50 and $0 respectively. The same performance thresholds and
vesting date were applicable for all other outstanding awards of performance
units under El Paso's 2001 Omnibus Incentive Compensation Plan and 1999 Omnibus
Incentive Compensation Plan. The amounts reflected in the table are potential
assumed amounts, and would have been payable in cash. No other named executive
received any performance units during 2003. As described in the Compensation
Committee Report on Executive Compensation, all outstanding performance units
(including those identified in the table below) vested during 2003 at the "Below
Threshold" level and the Compensation Committee determined that no payments
would be made under the performance unit plan.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2003
PERFORMANCE UNITS
ESTIMATED PAYOUTS UNDER NON-STOCK
PRICE BASED PLANS
------------------------------------------
PERFORMANCE OR BELOW
NUMBER OTHER PERIOD THRESHOLD THRESHOLD TARGET MAXIMUM
NAME OF SHARES UNTIL MATURATION (#) ($) ($) ($)
---- --------- ---------------- --------- --------- ------- --------
Robert W. Baker...... 681 5 months $0 $34,050 $68,100 $102,150
PENSION PLAN
Effective January 1, 1997, El Paso amended its pension plan to provide
pension benefits under a cash balance plan formula that defines participant
benefits in terms of a hypothetical account balance. Prior to adopting a cash
balance plan, El Paso provided pension benefits under a plan (the "Prior Plan")
that defined monthly benefits based on final average earnings and years of
service. Under the cash balance plan, an initial account balance was established
for each El Paso employee who was a participant in the Prior Plan on December
31, 1996. The initial account balance was equal to the present value of Prior
Plan benefits as of December 31, 1996.
At the end of each calendar quarter, participant account balances are
increased by an interest credit based on 5-Year Treasury bond yields, subject to
a minimum interest credit of 4% per year, plus a pay credit equal to a
percentage of salary and bonus. The pay credit percentage is based on the sum of
age plus service at the end of the prior calendar year according to the
following schedule:
AGE PLUS SERVICE PAY CREDIT PERCENTAGE
---------------- ---------------------
Less than 35................................................ 4%
35 to 49.................................................... 5%
50 to 64.................................................... 6%
65 and over................................................. 7%
Under El Paso's pension plan and applicable Internal Revenue Code
provisions, compensation in excess of $200,000 cannot be taken into account and
the maximum payable benefit in 2003 was $160,000. Any excess benefits otherwise
accruing under El Paso's pension plan are payable under El Paso's Supplemental
Benefits Plan. Participants will receive benefits in the form of a lump sum
payment under the Supplemental Benefits Plan unless a valid irrevocable election
was made to receive payment in a form other than lump sum prior to June 1, 2004.
Participants with an initial account balance on January 1, 1997 are
provided minimum benefits equal to the Prior Plan benefit accrued as of the end
of 2001. Upon retirement, certain participants (which include Messrs.
Somerhalder, Phillips and Wise) are provided pension benefits that equal the
greater of the cash balance formula benefit or the Prior Plan benefit. For
Messrs. Somerhalder, Phillips and Wise, the Prior Plan benefit reflects accruals
through the end of 2001 and is computed as follows: for each year of credited
service
25
up to a total of 30 years, 1.1% of the first $26,800, plus 1.6% of the excess
over $26,800, of the participant's average annual earnings during his five years
of highest earnings.
Credited service as of December 31, 2001, for each of Messrs. Somerhalder,
Phillips and Wise is reflected in the table below. Amounts reported under Salary
and Bonus for each executive named in this proxy statement in the Summary
Compensation Table approximate earnings as defined under the pension plan.
Estimated annual benefits payable from the pension plan and Supplemental
Benefits Plan upon retirement at the normal retirement age (age 65) for each
executive named in this proxy statement is reflected below (based on assumptions
that each executive named in this proxy statement receives base salary shown in
the Summary Compensation Table with no pay increases, receives 50% of target
annual bonuses beginning with bonuses earned for fiscal year 2004, and cash
balances are credited with interest at a rate of 4% per annum):
ESTIMATED
PAY CREDIT PERCENTAGE ANNUAL
NAMED EXECUTIVE CREDITED SERVICE(1) DURING 2003 BENEFITS(2)
--------------- ------------------- --------------------- -----------
Doug Foshee............................ N/A 5% $250,683
John W. Somerhalder II................. 24 7% $398,400
Dwight Scott........................... N/A 5% $198,568
Robert G. Phillips..................... 6 6% $170,122
Robert Baker........................... N/A 7% $111,496
Ronald Kuehn(3)........................ N/A 7% $ 78,093
William A. Wise(4)..................... 30 7% $881,725
---------------
(1) For Messrs. Somerhalder, Phillips and Wise, credited service shown is as of
December 31, 2001.
(2) For Mr. Wise, the amount reflected has been reduced as a result of his
participation in the Alternative Benefits Program, as described on page 38
of this proxy statement. Prior Plan minimum benefits for Messrs. Somerhalder
and Wise are greater than their projected cash balance benefits at age 65.
(3) The amount reflected for Mr. Kuehn is his vested pension benefit amount
under both the Supplemental Benefits Plan and the tax-qualified pension plan
as of his termination date of September 2, 2003, payable commencing October
1, 2003 (at age 68). Mr. Kuehn has elected to receive his Supplemental
Benefits Plan benefit in a lump sum of $79,211, minus amounts withheld for
taxes. Mr. Kuehn has also elected to receive his benefit under the
tax-qualified pension plan in a lump sum of $15,834. Additionally, due to
Mr. Kuehn's previous employment with Sonat Inc., he is also receiving an
annual benefit (75% joint and survivor form of payment) under the
tax-qualified pension plan equal to $69,309.
(4) The amount reflected for Mr. Wise is his vested pension benefit amount under
both the Supplemental Benefits Plan and the tax-qualified pension plan as of
his termination date of March 12, 2003, payable commencing at age 65. Mr.
Wise has elected to receive his Supplemental Benefits Plan benefit in a lump
sum of $15,326,532, minus amounts withheld for taxes. Mr. Wise elected to
receive a single life annuity benefit under the tax-qualified pension plan
equal to $97,520 annually.
26
PERFORMANCE GRAPH
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.
This graph reflects the changes in the value of $100 invested since
December 31, 1998 as invested in El Paso's common stock, the Standard & Poor's
500 Stock Index and the Standard & Poor's Multi-Utilities & Unregulated Power.
COMPARISON OF ANNUAL CUMULATIVE TOTAL VALUES FROM 1998-2003
FOR EL PASO, THE S&P 500 STOCK INDEX
AND THE S&P MULTI-UTILITIES & UNREGULATED POWER INDEX
(PERFORMANCE CHART)
--------------------------------------------------------------------------------
12/98 12/99 12/00 12/01 12/02 12/03
--------------------------------------------------------------------------------
El Paso $100.00 $113.95 $213.69 $135.29 $22.70 $27.30
S&P 500 Stock Index $100.00 $121.04 $110.02 $96.95 $75.52 $97.18
S&P 500
Multi-Utilities &
Unregulated Power
Index $100.00 $110.22 $190.31 $42.20 $13.33 $18.69
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.
27
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Mr. Wise had two sons-in-law and a sister-in-law who were employed by El
Paso or its subsidiaries during fiscal year 2003 and earned and/or received
compensation (and in the case of one son-in-law and his sister-in-law, severance
payments in connection with their termination of employment) in the amount of
$85,829, $242,769, and $71,844, respectively. Mr. Phillips' brother was employed
by El Paso or its subsidiaries during fiscal year 2003 and earned and/or
received compensation and severance in connection with his termination of
employment in the amount of $168,574.
See "Employment Contracts, Termination of Employment, Change in Control
Arrangements and Director Indemnification Agreements" starting on page 33 of
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. Bissell, Dunlap, Talbert, Whitmire and Wyatt. Mr. Whitmire
became a member of the Compensation Committee in March 2003 and Messrs. Dunlap
and Talbert became members of the Compensation Committee in April 2003. Messrs.
Dunlap, Talbert and Whitmire did not participate in the actions that were taken
prior to their membership on the Committee.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee has neither interlocks nor insider participation.
PHILOSOPHY AND POLICIES
As our stockholders know, 2003 was a year full of challenges and
significant change for El Paso. We take our responsibility very seriously and
have made a number of significant changes in El Paso's compensation philosophy
and policies to reflect our (and the Board's) commitment to having a reasonable
and fair executive compensation strategy. During 2003, we reviewed all of El
Paso's executive compensation policies in detail and made significant changes in
El Paso's executive compensation programs, most of which became effective in
early 2004 and apply prospectively. We retained a new independent executive
consulting firm, Deloitte Consulting, to replace the consultant the Compensation
Committee had used in the past and to give us and management a new perspective.
Our primary mission is to ensure that El Paso's executive compensation
program is adequate to attract, motivate and retain competent executive
personnel and, at the same time, rewards performance that will help create
long-term investor value. We have taken a pay-for-performance approach to
executive compensation that includes base salary, an annual cash incentive
bonus, and long-term incentive awards in the form of restricted common stock and
stock options. Each component of our executive compensation program is, to a
significant extent, dependent upon both El Paso's performance (and, if
appropriate, the performance of El Paso's business units) and individual
executive performance. El Paso's performance goals include, among other
measures, its attainment of certain financial and non-financial goals that are
established at the beginning of each year, and its creation of investor value.
We are also committed to stock ownership and believe equity compensation remains
a strong long-term incentive for rewarding individual performance as well as
closely aligning management's interests with the interests of our stockholders.
We believe each component of our executive compensation strategy has a
specific purpose, as discussed in detail below.
Base Salary. Base salaries are paid for ongoing performance throughout the
year. We review base salaries annually to ensure they are competitive and
commensurate with each executive's job responsibilities and the executive's
performance.
Annual Cash Incentive Bonuses. Annual cash incentive bonuses are paid
after the end of a calendar year once we have determined El Paso's performance
(and, if applicable, the performance of El Paso's business units) and each
individual executive's performance relative to the performance goals that we
establish at the
28
beginning of each year. We establish the annual cash incentive bonus opportunity
for each executive officer at the beginning of the year at a target level. The
target level is reviewed annually to ensure that the target opportunities are
competitive and commensurate with each executive's job responsibilities. There
is upside potential for an executive's annual cash incentive bonus to exceed the
target level in the event of exceptional performance by either El Paso and/or
the individual executive.
Long-Term Incentive Awards. Long-term incentive awards are in the form of
restricted common stock and stock options. Restricted stock and stock options
tie directly to the performance of El Paso's common stock and provide the
executive an incentive to build stockholder value. The executive receives
financial gains only when the stock price rises for all stockholders. Restricted
stock and stock options also provide an effective means of executive retention
because the awards are focused long-term and vest over a period of years. Long-
term incentive awards will consist of approximately 50% in restricted stock and
50% in stock options.
In order to determine appropriate levels of executive compensation, we
conduct periodically a thorough competitive evaluation (including, among other
things, a review of proprietary and proxy information) and we consult with and
receive advice from Deloitte Consulting. We consider relevant industry and
market changes when evaluating El Paso's performance as well as each individual
executive's performance. Deloitte Consulting reviews and interprets certain data
and information that compares El Paso with a peer group of companies. The peer
group includes a majority of the companies included in the S&P Multi-Utilities &
Unregulated Power Index (reflected in the Performance Graph found on page 27 of
this proxy statement) along with certain additional companies in general
industry with revenues comparable to El Paso's that Deloitte Consulting and we
believe represent El Paso's appropriate comparators for executive pay purposes.
In order to attract, retain and motivate all of our employees, we strive to pay
market competitive compensation at all levels of employees and officers
throughout El Paso, and review compensation trend information to ensure that
changes in compensation (including executive compensation) are justified given
the market conditions at the time. In addition to considering the external
market, we will monitor the relationship between the compensation of our senior
executives and the compensation of our non-managerial employees. We will be
attentive to avoid any unjustified widening of that compensation differential.
We have established an executive compensation program with a strong
performance-based orientation. As stated above, our primary mission is to ensure
that each executive officer's compensation is directly related both to
individual performance and the performance of El Paso. In particular, after
consulting with Deloitte Consulting, we determined that with respect to cash
compensation, the base salary of executive officers will be targeted at or near
the 50th percentile of the peer group's base salaries. The total direct cash
compensation the executive can achieve (the executive's base salary plus annual
cash incentive bonus) is also targeted at approximately the 50th percentile of
the peer group, and can be lower than the 50th percentile if target level
performance is not achieved or higher in the case of performance above the
target levels. The value of long-term incentive awards for executive officers,
including the CEO, is also targeted at approximately the 50th percentile of the
peer group if El Paso's and the individual executive's performances are at
target levels. Long-term incentive awards can also be lower when target levels
of performance are not achieved or higher in the case of exceptional performance
above the target levels.
Section 162(m) of the IRC was enacted in 1993 and generally affects El
Paso's federal income tax deduction for compensation paid to El Paso's CEO and
four other highest paid executive officers. To the extent compensation is
"performance-based" within the meaning of Section 162(m), the Section's
limitations will not apply. Since 1993, we and the full Board have adopted, and
our stockholders have approved, certain El Paso compensation plans, which have
been structured to qualify as performance-based compensation under Section
162(m). Specifically, annual cash incentive awards and long-term incentive
awards are designed to meet the requirements of Section 162(m). In addition to
requiring and encouraging stock ownership by El Paso executives, these plans are
designed to allow us to provide appropriate compensation when certain
performance goals have been achieved. While we strive 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). We reserve the right
to award compensation which
29
does not qualify as performance-based under Section 162(m) if we determine that
such awards are necessary to provide a competitive compensation package to
attract and retain qualified executive talent.
SIGNIFICANT EXECUTIVE COMPENSATION ACTIONS TAKEN DURING 2003
The Board of Directors hired Mr. Foshee as El Paso's CEO in September 2003.
In order to attract Mr. Foshee, we, in consultation with our former independent
executive compensation consulting firm, offered Mr. Foshee a sign-on bonus of
$875,000 in cash and $875,000 of El Paso common stock (to compensate him in part
for the compensation forgone at his previous employer), a starting base salary
of $900,000, a target annual cash incentive bonus of 100% of his contracted base
salary (pro-rated for 2003) and participation in the El Paso plans that are
available to other executive officers described on page 35 of this proxy
statement. In addition, Mr. Foshee was granted 200,000 shares of performance
vested restricted common stock [see page 33 of this proxy statement for a
description of those performance measures] and 1,000,000 stock options. While
Mr. Foshee has a letter agreement with El Paso, as described on page 33 of this
proxy statement, his compensation and benefits are determined under El Paso's
plans in effect from time to time and in accordance with the policies described
above. We think that our stockholders should know that Mr. Foshee has
voluntarily agreed to reduce his base salary for 2004 by 30% to $630,000 in an
effort to reduce costs, and we commend him for this action. This reduction does
not affect his annual target bonus opportunity or any other of his benefits.
During 2003, Mr. Kuehn was appointed as interim CEO pending the search and
hire of a permanent CEO. We, based upon advice from our former independent
executive compensation consulting firm, set his compensation at $100,000 per
month, with a target annual cash incentive bonus of 100% pro-rated for his
service during 2003. When Mr. Foshee was hired as the permanent CEO, we awarded
Mr. Kuehn his target bonus, equal to $600,000 for his service as interim CEO and
pursuant to his interim CEO agreement. For a complete description of Mr. Kuehn's
compensation and benefits, see the Summary Compensation Table and the
description of his interim CEO employment agreement located on pages 21 and 34
of this proxy statement.
During 2003, Mr. Wise's employment was terminated. See page 34 of this
proxy statement for a description of Mr. Wise's employment agreement. Other than
his base salary he received during the time he was employed in 2003, he also
received compensation and benefits pursuant to his employment agreement, the El
Paso plans described on page 35 of this proxy statement, and other agreed upon
items.
In 2003, target annual cash incentive bonuses, depending upon both El
Paso's and the individual executive's performance, could range from 0% to 100%
of contracted base salary for Mr. Foshee, from 0% to 95% for Messrs. Phillips
and Somerhalder, from 0% to 75% for Mr. Scott, and from 0% to 60% for Mr. Baker.
In the case of exceptional El Paso and individual executive performance, the
actual target bonus eligibility could be adjusted upward to 200% of the target
bonus. Based on the performance goals established each year, we determine the
specific percentage cash bonus to be awarded to each recipient based upon both
El Paso's and the individual executive's performance. For the reasons discussed
below, we determined that annual cash incentive bonuses should be paid at
one-half of the target levels, plus an adjustment for exceptional individual
executive performance of the CEO and other named executive officers for 2003.
We also carefully reviewed El Paso's performance during the four-year
performance period that ended during 2003 and determined that any payments
pursuant to the long-term performance unit program would not be appropriate.
During 2003, we eliminated the perquisite and benefit allowance that El
Paso officers (including the CEO and the other named executive officers) had
received and determined to increase base salaries by the same amount.
EL PASO PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
We have reviewed El Paso's 2003 financial goals and non-financial goals. El
Paso's 2003 financial goals included earnings before interest and taxes,
earnings per share, revenues, operating cash flow, operating and maintenance
cost objectives, and capital expenditures. El Paso's 2003 non-financial goals
included protecting
30
and strengthening our liquidity position, attaining capital expenditure targets
for each operating business unit, making significant progress towards resolution
of the California-related litigation, maximizing operating cash flow, completing
targeted asset divestitures, reducing corporate and shared services costs,
continuing to enhance company-wide environmental and safety programs, and
achieving certain specific goals for each business unit. For the regulated
pipeline business segment, these goals included maximizing revenue potential of
existing systems through remarketing strategies and cost efficient operations,
achieving the capital expenditure target, recontracting capacity on certain
pipelines, implementing expansion projects, resolving capacity allocation
issues, and capitalizing on growth opportunities in the pipeline industry. For
the exploration and production business segment, these goals included completing
identified asset divestitures, developing leading-edge drilling and completion
technologies to maximize production, achieving reserve additions at unit costs
below certain industry averages, achieving the capital expenditure target, and
continuing to realize production synergies with other El Paso business units.
For El Paso's Field Services business, these goals included increasing free cash
flow, increasing value of the investment in GulfTerra Energy Partners, executing
on deepwater Gulf of Mexico projects, achieving the capital expenditure target,
and developing strategic alternatives to maximize value of midstream business.
For the Merchant Energy group, these goals included maximizing cash flow from
trading book liquidation while minimizing use of working capital, completing
identified power and petroleum/LNG asset divestitures, achieving the capital
expenditure target, selling restructured power plant financing vehicles, and
completing successfully the Brazilian financings. In addition, each business
unit had specific operational goals, including primarily continued enhancement
of safety programs and operational reliability.
After analyzing these goals and El Paso's performance, we determined that
El Paso attained the necessary performance goals for the 2003 performance period
to award cash incentive bonuses under El Paso's 2001 Omnibus Incentive
Compensation Plan. The performance goals that were attained include cash flow
goals as well as substantially all of the non-financial goals. Although the
attainment of all performance goals is not required, all performance goals are
evaluated to determine the actual cash incentive bonus that may be awarded in a
given year. During 2003, we did not assign relative weights to each of the
measures used in determining executive compensation. Moreover, we do not publish
any of El Paso's or the CEO's quantifiable targets or other specific goals which
we determine to be sensitive and proprietary and could adversely affect El Paso.
Consistent with our philosophy and policies identified above, we reviewed
internal and external factors to determine the appropriate compensation for Mr.
Foshee and other executive officers of El Paso for 2003. We considered the
significant amount of work that Mr. Foshee has accomplished since assuming the
CEO position in September 2003. Specifically, we considered the El Paso stock
price appreciation since he became CEO through the end of 2003; reduction of
debt; actual earnings per share versus plan; execution on asset sales; roll-out
and implementation of the long-range plan; establishment of a streamlined,
qualified executive management team; the significant progress on the clean slate
initiative to restructure the organization to be more efficient; establishment
of a company culture living the core values (stewardship, integrity, safety,
accountability and excellence); and improvement of overall company performance.
Mr. Foshee displayed foresight and responsiveness to rapidly changing
industry-wide and general economic conditions by implementing a credible plan to
streamline El Paso's businesses, cut costs, and establish relationships with
credit rating agencies, major stockholders, debt holders, financial institutions
and business partners. These achievements are significant in light of the
circumstances of the volatile energy markets, difficult financial markets and a
challenging regulatory environment. Having reviewed the contribution that the
CEO made to El Paso's performance in 2003, we believe that he demonstrates the
integrity, intuition, planning and leadership qualities that the executive
compensation program was designed to foster and reward. In light of the
foregoing, we concluded that Mr. Foshee should receive an annual cash incentive
bonus for 2003 in the amount of $600,000.
COMPENSATION OF OTHER EXECUTIVE OFFICERS
We consulted with Deloitte Consulting and applied the information and
performance goals outlined above in reviewing and approving the compensation of
El Paso's other executive officers. In light of El Paso's overall business
performance during 2003, we awarded one-half of the target annual cash incentive
bonus for
31
each of the other named executive officers, plus an adjustment for exceptional
individual executive performance. Except as discussed below, no stock options,
shares of restricted stock or other long-term incentive awards were granted in
2003 to the other named executive officers. We also consulted with our former
independent executive compensation consulting firm and Deloitte Consulting with
respect to base salaries and target annual cash incentive bonuses for the other
named executive officers and made certain adjustments commensurate with an
increase in responsibilities. Specifically during 2003, (1) Mr. Phillips
received an increase in his (a) base salary of $100,000 and (b) target annual
cash incentive bonus potential of 25%, as a result of his increased
responsibilities for El Paso's significant operations in GulfTerra Energy
Partners; and (2) Mr. Baker received (w) an increase in his base salary of
$50,000, (x) an increase in his target annual cash incentive bonus potential of
20%, (y) a grant of 4,983 shares of performance-based vesting restricted stock,
and (z) a grant of 681 performance units, as a result of his increased
responsibilities when he assumed the position as president of Merchant Energy
and subsequent increase in responsibilities as El Paso's executive vice
president and general counsel. Except for Messrs. Phillips and Baker and the
additional increases in base salaries as a result of the elimination of the
perquisite and benefits allowance (discussed above), we determined that none of
the other named executive officers should receive an adjustment in their base
salary or target annual cash incentive bonus potential. Given the significant
financial challenges facing El Paso during 2003, we paid a special retention
bonus to Mr. Scott in the amount of $500,000 in order to ensure that he would
remain with El Paso during the critical financial restructurings that have since
been completed during 2003.
THE 2003 COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Joe B. Wyatt John M. Bissell James L. Dunlap J. Michael Talbert John Whitmire
(Chairman) (Member) (Member) (Member) (Member)
AUDIT COMMITTEE REPORT
All members of the Audit Committee are "independent", as that term is
defined under Section 10A of the Securities Exchange Act of 1934, the proposed
Securities and Exchange Commission rules and the NYSE listing standards. Each
member of the Audit Committee is also financially literate, as that
qualification is interpreted by El Paso's Board of Directors in its business
judgment. Further, each of Messrs. Goldman and Hix qualifies and is designated
as the "audit committee financial expert," serving on the Audit Committee as
such term is defined in rules adopted by the Securities and Exchange Commission
and interpreted by El Paso's Board. The Audit Committee currently consists of
Messrs. Braniff, Bissell, Goldman, Hix, MacNeil, Wallop and Whitmire. During
fiscal year 2003, the Audit Committee met 12 times and discussed the interim
financial information contained in each quarterly earnings announcement and the
Form 10-Q and Form 10-K with management, the internal auditors and independent
auditors prior to release.
POLICIES AND MISSION
Our primary function is to assist the Board of Directors in fulfilling its
oversight responsibilities to ensure the integrity of El Paso's financial
statements, El Paso's compliance with legal and regulatory requirements, the
independent auditor's appointment, compensation, qualifications, independence
and performance. We also review performance, risk management, internal controls
and internal audit procedures with the head of El Paso's internal audit, and
engage in any necessary private sessions with El Paso's internal audit and
independent accountants. We have prepared this audit committee report as
required by the SEC, and we engage in annual self evaluations. We are directly
responsible for the appointment, termination, compensation and oversight of the
work of the independent auditing firm engaged by El Paso (including resolution
of potential disputes between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or related
work, and the independent auditor reports directly to us. We obtain and review
annually a report by the independent auditor describing among other matters, the
independent auditors' internal quality control procedures and all relationships
between the independent auditor and El Paso. We discuss generally the types of
information to be disclosed, and the type of presentation to be
32
made, with regard to earnings press releases and financial information and
earnings guidance given to analysts and rating agencies with special emphasis on
reviewing pro forma or adjusted non-GAAP data. All auditing services and
permitted non-audit services provided to El Paso by the independent auditor are
pre-approved by us in accordance with our pre-approval policy and applicable
law. These responsibilities do not preclude us from obtaining the input of
management, but these responsibilities may not be delegated to management.
AUDIT COMMITTEE STATEMENT
Consistent with its policies and mission stated above, we have adopted a
charter, which is included as Exhibit A to this proxy statement. We have
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 have
discussed with the independent certified public accountants the independent
accountant's independence; and based on the 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 2003
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. We monitor and review these processes and do not conduct
auditing or accounting reviews or procedures. We meet with management and the
independent auditor to discuss the financial statements, and rely on El Paso's
management's representation that the financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, and on the representations of El Paso's independent accountants
included in their report on El Paso's financial statements.
CURRENT MEMBERS OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Juan Carlos Braniff John M. Bissell Robert W. Goldman Thomas R. Hix J. Carleton MacNeil, Jr. Malcolm Wallop John Whitmire
(Chairman) (Member) (Member) (Member) (Member) (Member) (Member)
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, CHANGE
IN CONTROL ARRANGEMENTS AND DIRECTOR INDEMNIFICATION AGREEMENTS
EMPLOYMENT AGREEMENTS
CURRENT EMPLOYEES
Douglas L. Foshee entered into a letter agreement with El Paso effective
September 1, 2003. Under this agreement, Mr. Foshee serves as President, Chief
Executive Officer and a director of El Paso and receives an annual salary of
$900,000 (which Mr. Foshee has voluntarily reduced for 2004 to $630,000). Mr.
Foshee is also eligible to earn a target bonus amount equal to 100% of his
annual salary (a maximum bonus of 200% of salary) based on El Paso's and his
performance as determined by the Compensation Committee. Mr. Foshee will receive
the additional employee benefits which are available to senior executive
officers. In addition, on the start date of his employment, Mr. Foshee was
granted 1,000,000 options to purchase El Paso common stock and 200,000 shares of
restricted stock. The options will time vest pro-rata over a five-year period.
The shares of restricted stock have both time and performance vesting
provisions. Depending on El Paso's performance relative to its peers during the
first year, the number of shares Mr. Foshee may actually receive is between zero
and 300,000 shares. The shares of restricted stock that vest based on
performance also time vest pro-rata over a five-year period. On his start date,
Mr. Foshee received common stock with a value of $875,000 and an additional cash
payment of $875,000. Mr. Foshee may not pledge or sell the common stock received
as part of the sign-on bonus for a period of two years from the grant date. If
Mr. Foshee's employment is
33
involuntarily terminated not for cause, Mr. Foshee will receive a lump sum
payment of two years base pay and target bonus. In the event he is terminated
within two years of a change in control (or terminates employment for good
reason), Mr. Foshee will receive a lump sum payment of three years annual salary
and target bonus (plus a pro-rated portion of his target bonus).
FORMER EMPLOYEES
As part of the merger with Sonat, 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 pursuant to this agreement, as well as non-cash compensation available to
other non-employee directors. Starting on October 25, 1999, and for the
remainder of his life, Mr. Kuehn will receive certain ancillary benefits made
available to him prior to the merger with Sonat, including the provision of
office space and related services, and payment of life insurance premiums
sufficient to provide a death benefit equal to four times his base pay as in
effect immediately prior to October 25, 1999. Mr. Kuehn and his eligible
dependents will also receive retiree medical coverage. El Paso maintained a
collateral assignment split-dollar life insurance policy to provide for the
death benefit for Mr. Kuehn to satisfy its obligation to provide the life
insurance referenced above. In January 2003, El Paso released the collateral
assignment on the policy. El Paso recovered $1,116,303 from the policy's cash
surrender value for premiums paid by El Paso and its predecessors for Mr. Kuehn
under the policy and gave up the right to recoup $881,588, which was left in the
policy to provide coverage under the policy until age 95. The release of the
collateral assignment and the right to recoup $881,588 was treated as a transfer
of property to Mr. Kuehn subject to ordinary income tax. El Paso paid Mr. Kuehn
$619,723 to satisfy the tax liabilities related to the transfer of the policy.
In March 2003, Mr. Kuehn, in an interim capacity, replaced Mr. Wise as Chief
Executive Officer of El Paso. At that time, El Paso entered into an employment
agreement with Mr. Kuehn effective upon his appointment as interim Chief
Executive Officer of El Paso. Mr. Kuehn has also served as Chairman of the Board
of El Paso since March 2003. Under his employment agreement, Mr. Kuehn received
a monthly salary of $100,000 and was eligible to earn a target bonus amount
equal to 100% of his annual salary based on El Paso's and his performance as
determined by the Compensation Committee. Pursuant to his employment agreement,
on the date Mr. Foshee began as the permanent Chief Executive Officer of El
Paso, Mr. Kuehn received a pro-rated portion of his target bonus based on the
number of months he served as the interim Chief Executive Officer in the amount
of $600,000 and a termination payment in the amount of $100,000 for the time he
served as interim Chief Executive Officer. Mr. Kuehn's employment agreement also
provided for an award of 125,000 nonqualified stock options to purchase shares
of common stock and 50,000 shares of restricted stock of El Paso under the 2001
Omnibus Incentive Compensation Plan. His stock options vested and all
restrictions on his restricted stock lapsed on the date Mr. Foshee began as the
permanent Chief Executive Officer.
Effective as of March 12, 2003, Mr. Kuehn replaced William A. Wise as Chief
Executive Officer and Chairman of the Board of Directors pending selection of a
permanent Chief Executive Officer. Mr. Wise received the severance benefits set
forth in his pre-existing employment agreement for the remaining three-year term
of his agreement consisting of his annual salary of $1,430,004, an annual bonus
in the amount of $1,716,004, service credit and age credit for pension benefits
and continued medical, dental and vision insurance. Effective in May 2004,
payment to Mr. Wise of his annual salary was suspended. In May 2004, Mr. Wise
initiated an arbitration in connection with his employment agreement. Mr. Wise
asserts that he is entitled to additional perquisites under the terms of his
pre-existing employment agreement. Mr. Wise is not entitled to receive benefits
under his employment agreement that otherwise would arise in connection with any
future change in control of El Paso. Any salary, bonus, or benefits received by
Mr. Wise in connection with any full-time employment during the remaining
three-year term will reduce the salary, bonus, or benefits payable to Mr. Wise
under the terms of his agreement. In March 2003, El Paso transferred ownership
of Mr. Wise's company-owned automobile to Mr. Wise and agreed to purchase his
Houston residence, if timely requested to do so at the greater of its appraised
value or the amount of Mr. Wise's investment. In 1997, El Paso loaned Mr. Wise
$1,564,000 with interest at 6.8% for the purchase of his Houston residence. On
34
March 19, 2003, Mr. Wise repaid this loan in full with accrued interest,
consisting of $1,564,000 in principal and $617,436 in interest. In 2001, El Paso
loaned Mr. Wise $7,332,195 with interest at 4.99% to fund Mr. Wise's exercise of
options to purchase El Paso common stock. This outstanding loan obligation
became payable by Mr. Wise in full upon the cessation of his employment. On
April 23, 2003, Mr. Wise repaid this loan in full with accrued interest,
consisting of $7,332,195 in principal and $594,549 in interest. In addition, Mr.
Wise held 1,887,917 vested stock options. These options are exercisable by Mr.
Wise through March 12, 2006, unless they expire earlier in accordance with their
terms. Any portion of these options not exercised by March 12, 2006 or any
earlier applicable expiration date will be forfeited on that date. Of these
1,887,917 stock options, 100,000 were converted automatically into shares of El
Paso common stock on October 25, 2003, with the value per option equal to the
fair market value of El Paso common stock on that date. Mr. Wise forfeited
258,333 unvested stock options when he ceased to be an employee of El Paso on
March 12, 2003. In addition, 491,639 shares of restricted stock held by Mr. Wise
as of March 12, 2003 became vested as of that date, and 139,609 shares of
restricted stock were forfeited as of that date. Mr. Wise also became vested in
33,281 performance units, the performance cycle for which ended in June 2003,
without value, and he forfeited 2,219 unvested performance units.
BENEFIT PLANS
Severance Pay Plan. The Severance Pay Plan is a broad-based employee plan
providing severance benefits following a "qualifying termination" for all
salaried employees of El Paso and certain of its subsidiaries. The plan also
includes an executive supplement, which provides enhanced severance benefits for
certain executive officers of El Paso and certain of its subsidiaries, including
Messrs. Foshee, Somerhalder, Scott, Phillips and Baker. The enhanced severance
benefits available under the supplement include an amount equal to two times the
sum of the officer's annual salary, including annual target bonus amounts as
specified in the plan. A qualifying termination includes an involuntary
termination of the officer as a result of the elimination of the officer's
position or a reduction in force and a termination for "good reason" (as defined
under the plan). In the event the Severance Pay Plan is terminated, the
executive supplement will continue as a separate plan unless the action
terminating the Severance Pay Plan explicitly terminates the supplement. The
executive supplement of the Severance Pay Plan terminates on January 1, 2005,
unless extended. In the event of a "change in control" (as defined in the Key
Executive Severance Protection Plan) of El Paso, participants whose termination
of employment entitles them to severance pay under the executive supplement and
the Key Executive Severance Protection Plan will receive severance pay under the
Key Executive Severance Protection Plan, rather than under the executive
supplement.
2004 Key Executive Severance Protection Plan. El Paso periodically reviews
its benefits plans and engages Deloitte Consulting to make recommendations
regarding its plans. Deloitte recommended that El Paso adopt a new executive
severance plan that more closely aligns with current market arrangements than El
Paso's Key Executive Severance Protection Plan and Employee Severance Protection
Plan (as described below). In light of Deloitte's recommendation, El Paso
adopted this plan in March 2004. This plan provides severance benefits following
a "change in control" of El Paso for executives of El Paso and certain of its
subsidiaries designated by the Board or the Compensation Committee, including
Messrs. Foshee, Scott and Baker. This plan is intended to replace the Key
Executive Severance Protection Plan and the Employee Severance Protection Plan,
and participants are required to waive their participation under those plans (if
applicable) as a condition to becoming participants in this plan. The benefits
of the plan include: (1) a cash severance payment in an amount equal to three
times the annual salary and target bonus for Mr. Foshee, two times the annual
salary and target bonus for executive vice presidents and senior vice
presidents, including Messrs. Scott and Baker, and one times the annual salary
and target bonus for vice presidents; (2) a pro-rated portion of the executive's
target bonus for the year in which the termination of employment occurs; (3)
continuation of life and health insurance following termination for a period of
36 months for Mr. Foshee, 24 months for executive vice presidents and senior
vice presidents, including Messrs. Scott and Baker, and 12 months for vice
presidents; (4) a gross-up payment for any federal excise tax imposed on an
executive in connection with any payment or distribution made by El Paso or any
of its affiliates under the plan or otherwise; provided that in the event a
reduction in payments in respect of the executive of 10% or less would cause no
excise tax to be payable in respect of that executive, then the executive will
not be entitled to a gross-
35
up payment and payments to the executive shall be reduced to the extent
necessary so that the payments shall not be subject to the excise tax; and (5)
payment of legal fees and expenses incurred by the executive to enforce any
rights or benefits under the plan. Benefits are payable for any termination of
employment of an executive in the plan within two years following the date of a
change in control, except where termination is by reason of death, disability,
for "cause" (as defined in the plan) or instituted by the executive other than
for "good reason" (as defined in the plan). Benefits are also payable under the
plan for terminations of employment prior to a change in control that arise in
connection with, or in anticipation of, a change in control. Benefits are not
payable for any termination of employment following a change in control if (i)
the termination occurs in connection with the sale, divestiture or other
disposition of designated subsidiaries of El Paso, (ii) the purchaser or entity
subject to the transaction agrees to provide severance benefits at least equal
to the benefits available under the plan, and (iii) the executive is offered, or
accepts, employment with the purchaser or entity subject to the transaction. A
change in control generally occurs if: (i) any person or entity becomes the
beneficial owner of more than 20% of El Paso's common stock; (ii) a majority of
the current members of the Board of Directors of El Paso or their approved
successors cease to be directors of El Paso (or, in the event of a merger, the
ultimate parent following the merger); or (iii) a merger, consolidation, or
reorganization of El Paso, a complete liquidation or dissolution of El Paso, or
the sale or disposition of all or substantially all of El Paso's and its
subsidiaries' assets (other than a transaction in which the same stockholders of
El Paso before the transaction own 50% of the outstanding common stock after the
transaction is complete). This plan generally may be amended or terminated at
any time prior to a change in control, provided that any amendment or
termination that would adversely affect the benefits or protections of any
executive under the plan shall be null and void as it relates to that executive
if a change in control occurs within one year of the amendment or termination.
In addition, any amendment or termination of the plan in connection with, or in
anticipation of, a change in control which actually occurs shall be null and
void. From and after a change in control, the plan may not be amended in any
manner that would adversely affect the benefits or protections provided to any
executive under the plan.
Key Executive Severance Protection Plan. This plan, initially adopted in
1992, provides severance benefits following a "change in control" of El Paso for
certain officers of El Paso and certain of its subsidiaries, including Messrs.
Somerhalder and Phillips. The benefits of the plan include: (1) an amount equal
to three times the participant's annual salary, including maximum bonus amounts
as specified in the plan; (2) continuation of life and health insurance for an
18-month period following termination; (3) a supplemental pension payment
calculated by adding three years of additional credited pension service; (4)
certain additional payments to the terminated employee to cover excise taxes if
the payments made under the plan are subject to excise taxes on golden parachute
payments; and (5) payment of legal fees and expenses incurred by the employee to
enforce any rights or benefits under the plan. Benefits are payable for any
termination of employment for a participant in the plan within two years of the
date of a change in control, except where termination is by reason of death,
disability, for cause or instituted by the employee for other than "good reason"
(as defined in the plan). A change in control occurs if: (i) any person or
entity becomes the beneficial owner of 20% or more of El Paso's common stock;
(ii) any person or entity (other than El Paso) purchases the common stock by way
of a tender or exchange offer; (iii) El Paso stockholders approve a merger or
consolidation, sale or disposition or a plan of liquidation or dissolution of
all or substantially all of El Paso's assets; or (iv) if over a two year period
a majority of the members of the Board of Directors at the beginning of the
period cease to be directors. A change in control has not occurred if El Paso is
involved in a merger, consolidation or sale of assets in which the same
stockholders of El Paso before the transaction own 80% of the outstanding common
stock after the transaction is complete. This plan generally may be amended or
terminated at any time, provided that no amendment or termination may impair
participants' rights under the plan or be made following the occurrence of a
change in control. This plan is closed to new participants, unless the Board
determines otherwise.
Employee Severance Protection Plan. This plan, initially adopted in 1992,
provides severance benefits following a "change in control" (as defined in the
Key Executive Severance Protection Plan) of El Paso for certain salaried,
non-executive employees of El Paso and certain of its subsidiaries. The benefits
of the plan include: (1) severance pay based on the formula described below, up
to a maximum of two times the participant's annual salary, including maximum
bonus amounts as specified in the plan; (2) continuation of
36
life and health insurance for an 18-month period following termination (plus an
additional payment, if necessary, equal to any additional income tax imposed on
the participant by reason of his or her continued life and health insurance
coverage); and (3) payment of legal fees and expenses incurred by the employee
to enforce any rights or benefits under the plan. The formula by which severance
pay is calculated under the plan consists of the sum of: (i) one-twelfth of a
participant's annual salary and maximum bonus for every $7,000 of his or her
annual salary and maximum bonus, but no less than five-twelfths nor more than
the entire salary and bonus amount, and (ii) one-twelfth of a participant's
annual salary and maximum bonus for every year of service performed immediately
prior to a change in control. Benefits are payable for any termination of
employment for a participant in the plan within two years of the date of a
change in control, except where termination is by reason of death, disability,
for cause or instituted by the employee for other than "good reason" (as defined
in the plan). This plan generally may be amended or terminated at any time,
provided that no amendment or termination may impair participants' rights under
the plan or be made following the occurrence of a change in control. This plan
has been closed to new participants, unless the Board determines otherwise.
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 the event of a change in
control (as defined under the Key Executive Severance Protection Plan) of El
Paso, the supplemental pension benefits become fully vested and nonforfeitable.
Senior Executive Survivor Benefits Plan. This plan provides certain senior
executives (including each of the named executives in this proxy statement,
except for Messrs. Wise and Kuehn who are no longer employees) of El Paso and
its subsidiaries who are designated by the plan administrator with survivor
benefit coverage in lieu of the coverage provided generally for employees under
El Paso's group life insurance plan. The amount of benefits provided, on an
after-tax basis, is two and one-half times the executive's annual salary.
Benefits are payable in installments over 30 months beginning within 31 days
after the executive's death, except that the plan administrator may, in its
discretion, accelerate payments.
Benefits Protection Trust Agreement. El Paso maintains a trust for the
purpose of funding certain of its employee benefit plans (including the
severance protection plans described above). The trust consists of a trustee
expense account, which is used to pay the fees and expenses of the trustee, and
a benefit account, which is made up of three subaccounts and used to make
payments to participants and beneficiaries in the participating plans. The trust
is revocable by El Paso at any time before a "threatened change in control"
(which is generally defined to include the commencement of actions that would
lead to a "change in control" (as defined under the Key Executive Severance
Protection Plan)) as to assets held in the trustee expense account, but is not
revocable (except as provided below) as to assets held in the benefit account at
any time. The trust generally becomes fully irrevocable as to assets held in the
trust upon a threatened change in control. The trust is a grantor trust for
federal tax purposes, and assets of the trust are subject to claims by El Paso's
general creditors in preference to the claims of plan participants and
beneficiaries. Upon a threatened change in control, El Paso must deliver $1.5
million in cash to the trustee expense account. Prior to a threatened change in
control, El Paso may freely withdraw and substitute the assets held in the
benefit account, other than the initially funded amount; however, no such assets
may be withdrawn from the benefit account during a threatened change in control
period. Any assets contributed to the trust during a threatened change in
control period may be withdrawn if the threatened change in control period ends
and there has been no threatened change in control. In addition, after a change
in control occurs, if the trustee determines that the amounts held in the trust
are less than "designated percentages" (as defined in the Trust Agreement) with
respect to each
37
subaccount in the benefit account, the trustee must make a written demand on El
Paso to deliver funds in an amount determined by the trustee sufficient to
attain the designed percentages. Following a change in control and if the
trustee has not been requested to pay benefits from any subaccount during a
"determination period" (as defined in the Trust Agreement), El Paso may make a
written request to the trustee to withdraw certain amounts which were allocated
to the subaccounts after the change in control occurred. The trust generally may
be amended or terminated at any time, provided that no amendment or termination
may result, directly or indirectly, in the return of any assets of the benefit
account to El Paso prior to the satisfaction of all liabilities under the
participating plans (except as described above) and no amendment may be made
unless El Paso, in its reasonable discretion, believes that such amendment would
have no material adverse effect on the amount of benefits payable under the
trust to participants. In addition, no amendment may be made after the
occurrence of a change in control which would (i) permit El Paso to withdraw any
assets from the trustee expense account, (ii) directly or indirectly reduce or
restrict the trustee's rights and duties under the trust, or (iii) permit El
Paso to remove the trustee following the date of the change in control.
Alternative Benefits Program (ABP). In 2001, Mr. Wise reduced the balance
of certain compensation payable to him under the Supplemental Benefits Plan by
$5,000,000, in exchange for the right to participate in the ABP. The program
provides for a loan to purchase a life insurance policy under a family trust.
The amount of the loan to Mr. Wise was $9,000,000. The trust is the named
beneficiary under the life insurance policy, and the loan with accrued interest
will be repaid, on an after-tax basis, with proceeds of the policy after the
participant's, or his spouse's death, whichever is later. The compensation that
was reduced had been awarded in prior years and was disclosed as required in
earlier proxy statements of El Paso. The cost of this program will not exceed
the cost El Paso would have paid as compensation with respect to the reduced
amounts. An amount of $2,608 was imputed as income in 2003 for Mr. Wise and is
included, to the extent required under the rules of the SEC, in the "Other
Annual Compensation" column to the Summary Compensation Table on page 21 of this
proxy statement. This program is now closed to new participants.
DIRECTOR INDEMNIFICATION AGREEMENTS
El Paso has entered into indemnification agreements with each member of the
Board of Directors as part of El Paso's indemnification program and in order to
enable El Paso to attract and retain qualified directors. The indemnification
agreements provide for payment of reasonable expenses (including attorneys'
fees) incurred by each of the directors in defending a proceeding related to
their service as a director in advance of its final disposition. El Paso may
maintain insurance, enter into contracts, create a trust fund or use other means
available to ensure payment of any indemnity payments and expense advances. In
the event of a change in control of El Paso, El Paso is obligated to pay the
costs of independent legal counsel who will be selected to provide legal advice
with respect to all matters concerning the rights of each director to indemnity
payments and expense advances after any such change in control.
38
EQUITY COMPENSATION PLAN INFORMATION TABLE
The following table provides information concerning equity compensation
plans as of December 31, 2003, that have been approved by stockholders and
equity compensation plans that have not been approved by stockholders. The table
includes (a) the number of securities to be issued upon exercise of options,
warrants and rights outstanding under the equity compensation plans, (b) the
weighted-average exercise price of all outstanding options, warrants and rights
and (c) additional shares available for future grants under all of El Paso's
equity compensation plans.
(A) (B) (C)
-------------------------- -------------------- -----------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EQUITY COMPENSATION
ISSUED UPON EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS(1) WARRANTS AND RIGHTS COLUMN (A))
------------- -------------------------- -------------------- -----------------------
Equity compensation plans
approved by
stockholders............ 6,954,152 $34.75 6,056,015(2)
Equity compensation plans
not approved by
stockholders............ 26,544,491 $52.50 25,890,530(3)
---------- ----------
Total..................... 33,498,643 31,946,545
========== ==========
---------------
(1) Column (a) does not include 2,759,206 shares with a weighted-average
exercise price of $36.84 per share which were assumed by El Paso under the
Executive Award Plan of Sonat Inc. as a result of the merger with Sonat in
October 1999. The Executive Award Plan of Sonat Inc. has been terminated and
no future awards can be made under it.
(2) In column (c), equity compensation plans approved by stockholders include
2,831,050 shares available for future issuance under the Employee Stock
Purchase Plan.
(3) In column (c), equity compensation plans not approved by stockholders
include 71,800 shares available for future awards granted under the
Restricted Stock Award Plan for Management Employees.
STOCKHOLDER APPROVED PLANS
2001 Omnibus Incentive Compensation Plan. This plan provides for the grant
to officers and key employees of El Paso and its subsidiaries of stock options,
stock appreciation rights, limited stock appreciation rights, performance units
and restricted stock. A maximum of 6,000,000 shares in the aggregate may be
subject to awards under this plan. The plan administrator designates which
employees are eligible to participate, the amount of any grant and the terms and
conditions (not otherwise specified in the plan) of such grant. If a "change in
control" (defined in substantially the same manner as under the Key Executive
Severance Protection Plan) of El Paso 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 stock automatically lapse; and (5) the current year's target bonus
amount becomes payable for each officer participating in the plan within 30
days, assuming target levels of performance were achieved by El Paso and the
officer for the year in which the change in control occurs, or the prior year if
target levels have not been established for the current year, except that no
bonus amounts will become payable in connection with a change in control that
results solely from a change to the Board of Directors of El Paso. The plan
generally may be amended or terminated at any time. Any amendment following a
change in control that impairs participants' rights requires participant
consent.
1999 Omnibus Incentive Compensation Plan and 1995 Omnibus Compensation Plan
-- Terminated Plans. These plans provided for the grant to eligible 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. These plans have been replaced by the 2001 Omnibus Incentive
Compensation Plan.
39
Although these plans have been terminated with respect to new grants, certain
stock options and shares of restricted stock remain outstanding under them. If a
"change in control" of El Paso occurs, all outstanding stock options become
fully exercisable and restrictions placed on restricted stock lapse. For
purposes of the plans, the term "change in control" has substantially the same
meaning given such term in the Key Executive Severance Protection Plan.
NON-STOCKHOLDER APPROVED PLANS
Strategic Stock Plan. This plan is an equity compensation plan that has
not been approved by the stockholders. This plan provides for the grant of stock
options, stock appreciation rights, limited stock appreciation rights and shares
of restricted stock to non-employee members of the Board of Directors, officers
and key employees of El Paso and its subsidiaries primarily in connection with
El Paso's strategic acquisitions. A maximum of 4,000,000 shares in the aggregate
may be subject to awards under this plan. The plan administrator determines
which employees are eligible to participate, the amount of any grant and the
terms and conditions (not otherwise specified in the plan) of such grant. If a
change in control, as defined earlier under the Key Executive Severance
Protection Plan, of El Paso 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 stock automatically lapse. The plan generally may be amended or
terminated at any time, provided that no amendment or termination may impair
participants' rights under the plan.
Restricted Stock Award Plan for Management Employees. This plan is an
equity compensation plan which has not been approved by the stockholders. The
plan provides for the granting of restricted shares of El Paso's common stock to
management employees (other than executive officers and directors) of El Paso
and its subsidiaries for specific accomplishments beyond that which are normally
expected and which will have a significant and measurable impact on the
long-term profitability of El Paso. A maximum of 100,000 shares in the aggregate
may be subject to awards under this plan. The plan administrator designates
which employees are eligible to participate, the amount of any grant and the
terms and conditions (not otherwise specified in the plan) of such grant. The
plan generally may be amended or terminated at any time, provided that no
amendment or termination may impair participants' rights under the plan.
Omnibus Plan for Management Employees. This plan is an equity compensation
plan which has not been approved by the stockholders. This plan provides for the
grant of stock options, stock appreciation rights, limited stock appreciation
rights and shares of restricted stock to salaried employees (other than
employees covered by a collective bargaining agreement) of El Paso and its
subsidiaries. A maximum of 58,000,000 shares in the aggregate may be subject to
awards under this plan. If a change in control, as defined earlier under the Key
Executive Severance Protection Plan, of El Paso 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 stock automatically lapse. The plan
generally may be amended or terminated at any time, provided that no amendment
or termination may impair participants' rights under the plan.
PROPOSAL NO. 2 -- RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors is seeking stockholder ratification of the
resolution appointing PricewaterhouseCoopers LLP, 1100 Louisiana Street, Suite
4100, Houston, Texas 77002, as independent certified public accountants for El
Paso for fiscal year 2004. PricewaterhouseCoopers LLP has served continuously as
El Paso's independent certified public accountants since 1983.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST ON THE PROPOSAL IS
REQUIRED FOR APPROVAL OF THIS PROPOSAL. ABSTENTIONS AND BROKER NON-VOTES ARE NOT
COUNTED AS VOTES CAST, AND THEREFORE DO NOT AFFECT THE OUTCOME OF THE PROPOSAL.
40
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 2004 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 2003. During fiscal years 2003 and 2002,
PricewaterhouseCoopers LLP billed El Paso in the amounts listed below for
professional services rendered for the years ended December 31, 2003 and 2002.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees for professional services rendered for El Paso by
PricewaterhouseCoopers LLP for the years ended December 31, 2003 and 2002, were:
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
AUDIT...................................................... $11,100,000 $10,840,000
AUDIT RELATED.............................................. 2,620,000 670,000
TAX........................................................ 850,000 770,000
ALL OTHER.................................................. 90,000 430,000
----------- -----------
TOTAL.................................................... $14,660,000 $12,710,000
=========== ===========
The Audit fees for the years ended December 31, 2003 and 2002,
respectively, were for professional services rendered for the audits of the
consolidated financial statements of El Paso, statutory subsidiary and equity
investee audits, the review of documents filed with the Securities and Exchange
Commission, consents, and the issuance of comfort letters.
The Audit Related fees for the years ended December 31, 2003, were for
professional services rendered for the carve-out audits of businesses disposed
of by El Paso, Sarbanes-Oxley Act of 2002 Section 404 readiness assessment,
responding to inquiries of certain federal agencies related to audit work
performed, working capital review of certain discontinued operations, accounting
consultations, and other attest services. Fees for the year ended December 31,
2002, were for services rendered for internal audit services, due diligence
related to acquisitions, accounting consultations pertaining to divestitures,
and other attest services.
Tax fees for the years ended December 31, 2003 and 2002, respectively, were
for professional services related to tax compliance and tax planning.
All Other fees for the year ended December 31, 2003, were for professional
services rendered for other advisory services. Fees for the year ended December
31, 2002, were for services rendered for risk management and environmental
advisory services.
El Paso's Audit Committee has adopted a pre-approval policy for audit and
non-audit services. See page 9 of this proxy statement for a description of this
policy.
The Audit Committee has considered whether the provision of non-audit
services by PricewaterhouseCoopers LLP is compatible with maintaining auditor
independence and has determined that auditor independence has not been
compromised. A representative of PricewaterhouseCoopers LLP will be at the
Annual Meeting and will have the opportunity to make a statement if he or she
desires to do so and is expected to be available to answer appropriate
questions.
WE RECOMMEND THAT YOU VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR EL
PASO FOR THE FISCAL YEAR 2004.
41
PROPOSAL NO. 3 -- STOCKHOLDER PROPOSAL: STOCK OPTION EXPENSING PROPOSAL
The Advisors' Inner Circle Fund/United Association S&P 500 Index Fund, 1
Freedom Valley Drive, Oaks, PA 19456, the beneficial owner of 36,945 shares of
common stock has indicated it will present a proposal for action at the 2004
Annual Meeting as follows:
"STOCK OPTION EXPENSING PROPOSAL
Resolved, that the stockholders of El Paso Corporation ("Company") hereby
request that the Company's Board of Directors establish a policy of
expensing in the Company's annual income statement the costs of all future
stock options issued by the Company.
SUPPORTING STATEMENT: Current accounting rules give companies the choice
of reporting stock option expenses annually in the company income statement
or as a footnote in the annual report (See: Financial Accounting Standards
Board Statement 123). Many companies, including ours, report the cost of
stock options as a footnote in the annual report, rather than include the
option costs in determining operating income. We believe that expensing
stock options would more accurately reflect a company's operational
earnings.
Stock options are an important component of our Company's executive
compensation program. We believe that the lack of option expensing can
promote excessive use of options in a company's compensation plans, obscure
and understate the cost of executive compensation and promote the pursuit
of corporate strategies designed to promote short-term stock price rather
than long-term corporate value.
"The failure to expense stock option grants has introduced a significant
distortion in reported earnings," stated Federal Reserve Board Chairman
Greenspan. "Reporting stock options as expenses is a sensible and positive
step toward a clearer and more precise accounting of a company's worth."
Globe and Mail, "Expensing Options is a Bandwagon Worth Joining," Aug. 16,
2002.
Warran Buffett wrote in a New York Times Op-Ed piece on July 24, 2002:
There is a crisis of confidence today about corporate earnings reports
and the credibility of chief executives. And it's justified.
For many years, I've had little confidence in the earnings numbers
reported by most corporations. I'm not talking about Enron and
WorldCom -- examples of outright crookedness. Rather, I am referring to
the legal, but improper, accounting methods used by chief executives to
inflate reported earnings.
Options are a huge cost for many corporations and a huge benefit to
executives. No wonder, then, that they have fought ferociously to avoid
making a charge against their earnings.
Without blushing, almost all CEOs have told their shareholders that
options are cost-free. . .
When a company gives something of value to its employees in return for
their services, it is clearly a compensation expense. And if expenses
don't belong in the earnings statement, where in the world do they
belong?
Bear Stearns recently reported that more than 356 companies are expensing
stock options or have indicated their intention to do so. 101 of these
companies are S&P 500 companies, representing 39% of the index based on
market capitalization. See Bear Stearns Equity Research, Sept. 4, 2003,
"More Companies Voluntarily Adopt Fair Value Expensing of Employee Stock
Options."
This Fund, along with other Building Trades' union pension funds,
sponsored this expensing proposal last proxy season and received
majority votes at 26 companies, including Fluor, Calpine, Georgia-
Pacific, U.S. Bancorp, Thermo Electron, Veritas Software, Apple Computer
and Kohl's. We urge your support for this important reform."
42
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION
TO THE STOCKHOLDER PROPOSAL
Your Board of Directors believes that the proposal is contrary to the
interests of El Paso and our stockholders and, accordingly, is recommending that
our stockholders vote AGAINST the proposal for the following reasons:
The issue of whether to expense stock options has not been definitively
resolved by accounting authorities. Current accounting rules allow companies to
choose whether to include the grant of stock options on their income statement
as an expense, or to disclose in the notes to their financial statements the
impact that expensing equity-based compensation would have had on reported
earnings. El Paso, like many corporations, does not expense stock options and
discloses the impact of expensing in the notes to its annual financial
statements. El Paso believes that this method of accounting adequately informs
stockholders of the financial impact of stock options and makes it easier to
compare El Paso's financial performance with that of other companies.
In addition to reducing the comparability of El Paso's financial statements
with that of other companies, expensing options would not provide stockholders
with additional useful information. El Paso already discloses in the notes to
its consolidated financial statements pro forma net earnings and earnings per
share as if El Paso had expensed equity-based compensation. Such disclosure
adequately informs stockholders of the financial impact of equity-based
compensation such as stock option grants on El Paso's financial performance.
The expensing of stock options also raises several difficult issues that
have not yet been resolved. Stock options are difficult to value accurately, and
valuation involves opinions and assumptions that vary from company to company.
Moreover, there are transition issues raised by a change in accounting treatment
to expense stock options. The companies that have decided to expense options
have not adopted consistent valuation methods or transition approaches. This
lack of a reliable, standard method of valuing stock options and questions about
transitioning to expensing also will increase the difficulty of comparing
financial results.
To summarize, your Board of Directors believes that the proposal of the
Advisors' Inner Circle Fund/ United Association S&P 500 Fund is not in the best
interests of El Paso or its stockholders. WE URGE STOCKHOLDERS TO VOTE AGAINST
THIS PROPOSAL. Proxies solicited by the Board of Directors will be so voted
unless the stockholder otherwise specifies.
WE RECOMMEND THAT YOU VOTE "AGAINST" THIS STOCKHOLDER PROPOSAL FOR EXPENSING
STOCK OPTIONS.
PROPOSAL NO. 4. -- STOCKHOLDER PROPOSAL: COMMONSENSE EXECUTIVE COMPENSATION
PROPOSAL
The Central Laborers' Pension Fund, P.O. Box 1267, Jacksonville, IL 62651,
the beneficial owner of 3,776 shares of common stock has indicated it will
present a proposal for action at the 2004 Annual Meeting as follows:
"COMMONSENSE EXECUTIVE COMPENSATION PROPOSAL
Resolved, that the shareholders of El Paso Corporation ("Company") request
that the Company's Board of Directors and its Executive Compensation
Committee replace the current system of compensation for senior executives
with the following "Commonsense Executive Compensation" program including
the following features:
(1) Salary -- The chief executive officer's salary should be targeted
at the mean of salaries paid at peer group companies, not to exceed
$1,000,000 annually. No senior executive should be paid more than the CEO.
(2) Annual Bonus -- The annual bonus paid to senior executives should
be based on well-defined quantitative (financial) and qualitative
(non-financial) performance measures. The maximum level of annual bonus
should be a percentage of the executive's salary level, capped at 100% of
salary.
43
(3) Long-Term Equity Compensation -- Long-term equity compensation to
senior executives should be in the form of restricted shares, not stock
options. The restricted share program should utilize justifiable
performance criteria and challenging performance benchmarks. It should
contain a vesting requirement of at least three years. Executives should be
required to hold all shares awarded under the program for the duration of
their employment. The value of the restricted share grant should not exceed
$1,000,000 on the date of grant.
(4) Severance -- The maximum severance payment to a senior executive
should be no more than one year's salary and bonus.
(5) Disclosure -- Key components of the executive compensation plan
should be outlined in the Compensation Committee's report to shareholders,
with variances from the Commonsense program explained in detail.
The Commonsense compensation program should be implemented in a manner that
does not violate any existing employment agreement or equity compensation
plans.
SUPPORTING STATEMENT: We believe that compensation paid to senior
executives at most companies, including ours, is excessive, unjustified,
and contrary to the interests of the Company, its shareholders, and other
important corporate constituents. CEO pay has been described as a
"wasteland that has not been reformed." (Institutional Shareholder Services
senior vice-president, Wall Street Journal, "Executive Pay Keeps Rising,
Despite Outcry," October 3, 2003). As of 2002, the CEO-worker pay gap of
282-to-1 was nearly seven times as large as the 1982 ratio of 42-to-1
according to the United for a Fair Economy's Tenth Annual CEO Compensation
Survey ("Executive Excess 2003 -- CEO's Win, Workers and Taxpayers Lose.")
We believe that it is long past time for shareholders to be proactive and
provide companies clear input on the parameters of what they consider to be
reasonable and fair executive compensation. We believe that executive
compensation should be designed to promote the creation of long-term
corporate value. The Commonsense executive compensation principles seek to
focus senior executives, not on quarterly performance numbers, but on
long-term corporate value growth, which should benefit all the important
constituents of the Company. We challenge our Company's leadership to
embrace the ideas embodied in the Commonsense proposal, which still offers
executives the opportunity to build personal long-term wealth but only when
they generate long-term corporate value."
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION
TO THE STOCKHOLDER PROPOSAL
Your Board of Directors believes that the proposal is contrary to the
interests of El Paso and our stockholders and, accordingly, is recommending that
our stockholders vote AGAINST the proposal for the following reasons:
The main purposes of El Paso's compensation policies are to maximize
stockholder value over the long term, and to attract, motivate and retain
competent executives. El Paso's Compensation Committee, with assistance from
independent executive compensation consultants, designs compensation policies
that are intended to facilitate the achievement of these objectives. El Paso's
compensation programs are competitive and consistent with comparable companies,
align executive compensation with stockholder interest, and link pay to the
performance of the individual and El Paso. The proposal would limit the amount
and type of compensation that could be offered to El Paso's senior executive
officers. Such a proposal would prevent El Paso from aligning the interests of
its senior executives with those of its stockholders, and would put El Paso at a
competitive disadvantage for hiring and retaining top executive talent.
By placing limits on salaries and bonuses, the proposal would restrict the
Compensation Committee's discretion in setting competitive compensation for
senior executives. The Compensation Committee believes that the compensation
program of senior 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
44
and long-term objectives and operating performance of El Paso. To achieve these
ends, salaries and bonuses are, to a significant extent, dependent upon El
Paso's financial performance and the return on its common stock. Specifically,
the Compensation Committee targets the 50th percentile of El Paso's peer group
of companies for establishing total direct cash compensation (base salary and
annual cash incentive bonus) and long-term equity awards. The Board of Directors
believes that such an arrangement is necessary to make certain that the
interests of El Paso's executives are aligned with those of its stockholders.
However, to ensure that El Paso is strategically and competitively positioned
for the future, the Compensation Committee also has the discretion to attribute
weight to other factors in determining executive compensation. After examining
all of these factors, the Compensation Committee arrives at the appropriate
amounts of executive compensation. Limiting the Compensation Committee's
flexibility in setting executive compensation for senior executives would
prevent El Paso from offering its senior executives salaries and bonuses that
are commensurate with their individual performance and the performance of El
Paso, and competitive with comparable companies.
The proposal would also restrict the amounts and types of incentive
compensation that El Paso could offer its senior executives. Incentive
compensation is an important part of the compensation package for senior
executive officers. Incentive compensation focuses management on the long-term
interests of El Paso's stockholders, encourages the achievement of performance
goals and aligns the interests of senior executives with those of El Paso's
stockholders. Stock options and other forms of incentive compensation are also
commonly used by many of El Paso's competitors. The Board of Directors believes
that it must offer El Paso's senior executives competitive employment packages
to retain its current executives, and to remain competitive when recruiting
executives in the future. By limiting the amounts and types of incentive
compensation available to senior executives, the proposal removes incentives to
achieve long-range performance goals and makes El Paso less attractive when
attempting to hire and retain the best executive talent.
Finally, the proposal would limit the amount of severance payments that
could be offered to El Paso's senior executives. Severance packages provide
financial security against possible job loss and, in the context of a change of
control, allow an executive officer to objectively advise the Board of Directors
whether the bid is in the best interests of El Paso's stockholders without
regard to the potential impact on that executive's job security. Severance
packages are a common feature of executive employment agreements and the
Compensation Committee expends a great deal of effort to ensure that the
severance packages offered by El Paso are competitive with those offered by El
Paso's peers. Restricting the amounts that El Paso may offer as severance
payments would significantly limit El Paso's ability to successfully attract and
retain senior executives.
For the reasons described above, the Board of Directors believes that the
proposal of Central Laborers' Pension Fund is inconsistent with El Paso's
executive compensation principles and practices and not in the best interests of
our stockholders. WE URGE STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL. Proxies
solicited by the Board of Directors will be so voted unless the stockholder
otherwise specifies.
WE RECOMMEND THAT YOU VOTE "AGAINST" THIS STOCKHOLDER PROPOSAL TO RESTRICT
EXECUTIVE COMPENSATION.
45
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 timely
complied with during the fiscal year ended December 31, 2003.
By Order of the Board of
Directors
/s/ DAVID L. SIDDALL
------------------------------
DAVID L. SIDDALL
Corporate Secretary
Houston, Texas
October 7, 2004
Exhibit A -- Audit Committee Charter
46
EXHIBIT A
(EL PASO LOGO)
AUDIT COMMITTEE CHARTER
OBJECTIVES
The Audit Committee is a committee of El Paso Corporation's (the "Company")
Board of Directors (the "Board"). Its primary purposes are to (A) assist the
Board in fulfilling its oversight responsibilities relating to the integrity of
the Company's financial statements, the Company's compliance with legal and
regulatory requirements (including disclosure controls and procedures), the
evaluation of the independent auditor's qualifications, independence and
performance and the performance of the Company's internal audit functions and
(B) prepare the report by the Audit Committee required by the Securities and
Exchange Commission's ("SEC") to be included in the Company's proxy statement,
or, if the Company does not file a proxy statement, in the Company's annual
report filed on Form 10-K with the SEC. The Audit Committee provides an open
avenue of communication between the internal auditors, the independent
accountants, and the Board.
MEMBERSHIP AND POLICIES
- The Board, based upon a recommendation by the Governance Committee of the
Board, shall appoint the Chairperson and members of the Committee
annually. The Audit Committee shall be composed of not less than three
members of the Board, each of whom shall qualify as "independent"
(pursuant to Section 10A of the Securities Exchange Act of 1934, and the
rules of the SEC thereunder, and the rules adopted by the New York Stock
Exchange). Members of the Committee may be removed from the Committee by
action of the full Board.
- Each member of the Audit Committee shall be financially literate, as such
qualification is interpreted by the Company's Board in its business
judgment, or must become financially literate within a reasonable period
of time after his or her appointment to the Audit Committee.
- Subject to any phase-in period adopted by the SEC, at least one member of
the Audit Committee shall be an "audit committee financial expert," as
such term is defined in the rules adopted by the SEC and interpreted by
the Company's Board in its business judgment; provided, however, that if
at least one member of the Audit Committee is not determined by the Board
to be an "audit committee financial expert," then the Company shall
disclose such determination and the reasons for such determination as
required by applicable SEC rules. At least one member of the Audit
Committee shall have accounting or related financial management
expertise, as the Company's board interprets such qualification in its
business judgment in accordance with the rules of the New York Stock
Exchange; provided, however, that this may be the same individual as the
member who is an "audit committee financial expert" (if any) described in
the preceding sentence.
- Audit Committee members shall not serve on the audit committee of more
than two other publicly traded companies unless the Board first
determines that the simultaneous service does not impair the Audit
Committee member's ability to effectively serve on this Company's Audit
Committee and discloses such determination in the Company's annual proxy
statement.
- The Audit Committee shall have the authority to engage independent
counsel and other advisers, as it determines necessary to carry out its
duties. Such engagement shall not require approval of the Board. The
Company shall provide appropriate funding, as determined by the Audit
Committee for (i) compensation to any registered public accounting firm
engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Company, (ii)
compensation for independent counsel and other advisers retained by the
Audit Committee, and
A-1
(iii) ordinary administrative expenses of the Audit Committee that are
necessary or appropriate in carrying out is duties.
- The Audit Committee shall establish a schedule of meetings each year in
order to discharge its responsibilities, and shall meet at least
quarterly, and more frequently as circumstances require. The Audit
Committee may also meet by telephone conference call or any other means
permitted by law or the Company's By-laws.
- In discharging its duties under this Charter, the Committee may
investigate any matter brought to its attention with full access to all
books, records, facilities and personnel of the Company, may conduct
meetings or interview with any officer or employee of the Company, the
Company's outside counsel, internal audit service providers, independent
auditors, or consultants to the Committee and may invite any such persons
to attend one or more meetings of the Committee.
- The Committee may designate one or more subcommittees consisting of at
least one member to address specific issues on behalf of the Committee.
In addition, the Audit Committee may delegate to one or more designated
members of the Audit Committee the authority to pre-approve any
transaction for which such delegation is permissible under applicable law
and the rules of the New York Stock Exchange, provided that such
pre-approval decision is subsequently presented to the full Audit
Committee at its next scheduled meeting.
- A Secretary, who need not be a member of the Committee, shall be
appointed by the Committee to keep minutes of all meetings of the
Committee and such other records as the Committee deems necessary and
appropriate.
- The Audit Committee shall make regular reports to the Board on its
activities and shall review with the Board any issues that arise with
respect to the quality or integrity of the Company's financial
statements, the Company's compliance with legal or regulatory
requirements, the performance and independence of the independent
auditors or the performance of the internal audit function.
FUNCTIONS
A. INDEPENDENT AUDITOR
- The Audit Committee shall be directly responsible for the appointment,
termination, compensation, retention, evaluation and oversight of the
work of the independent auditing firm engaged by the Company (including
resolution of disputes between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing an
audit report or performing any other audit, review or attest services for
the Company, and the independent auditor shall report directly to the
Audit Committee. The Audit Committee's selection of the Company's
independent auditor may be subject to shareholder approval if required by
law or by the Company's Restated Certificate of Incorporation or By-laws.
The Committee shall have sole authority to approve all audit engagement
fees and terms and all significant non-audit engagements. All auditing
services and permitted non-audit services provided to the Company by the
independent auditor shall be pre-approved by the Audit Committee in
accordance with applicable law and the Committee shall consider whether
the provision of any non-audit services is compatible with the
independent auditor's independence. These responsibilities do not
preclude the Committee from obtaining the input of management, but these
responsibilities may not be delegated to management. Similarly, while the
Committee retains ultimate oversight over the independent audit function,
management may consult with the independent auditor whenever necessary.
- The Audit Committee shall evaluate, at least annually, the independent
auditor's qualifications, performance and independence, including a view
and evaluation of the lead partner of the independent auditor. In
connection with each such evaluation, the Audit Committee shall obtain
and review a formal written report by the independent auditor which (a)
describes the audit firm's internal quality control procedures, (b)
describes any material issues raised by the most recent internal quality
control
A-2
review or peer review of the auditing firm, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, with respect to one or more independent audits
carried out by the auditing firm and steps taken to address the issues,
and (c) delineates all relationships between the independent auditor and
the Company in order to assess the auditor's independence. The Audit
Committee shall also review and evaluate the lead partner of the
independent auditor. In making its evaluations, the Audit Committee shall
consult with and take into consideration the opinions of management and
the Company's internal auditor. The Audit Committee shall present its
conclusions with respect to the independent auditor to the Board.
- In addition to assuring the regular rotation of audit partners as
required by law, the Audit Committee shall consider whether, in order to
ensure continuing auditor independence, there should be regular rotation
of the audit firm itself.
- The Audit Committee shall set clear hiring policies for employees or
former employees of the independent auditor in compliance with applicable
law and listing standards. At a minimum, the Audit Committee will adopt
hiring policies in compliance with Section 10A(l) of the Securities
Exchange Act of 1934 and applicable New York Stock Exchange rules.
B. OVERSIGHT OF FINANCIAL STATEMENTS, INTERNAL CONTROLS OVER FINANCIAL REPORTING
AND DISCLOSURE CONTROLS AND PROCEDURES
- The Audit Committee shall meet with management and the independent
auditor to discuss the annual and quarterly financial statements
(including the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations"), and to
discuss such other filings with the SEC as the Committee deems necessary.
The Audit Committee shall review and discuss the financial information to
be included in the Company's quarterly reports on Form 10-Q and annual
reports on Form 10-K and shall include a review and discussion of any
matters required to be communicated to the Committee by the independent
auditor under generally accepted accounting standards, applicable law or
regulation, applicable listing standards (including the rules of the New
York Stock Exchange). Following such a review and discussion of the
financial information to be included in the annual report on Form 10-K,
the Committee shall make a determination whether to recommend to the
Board that the audited financial statements be included in the Company's
annual report on Form 10-K.
- The Audit Committee shall discuss generally the types of information to
be disclosed, and the type of presentation to be made, with regard to
earnings press releases and financial information and earnings guidance
given to analysts and rating agencies with a special emphasis on
reviewing pro forma or adjusted non-GAAP data.
- The Audit Committee shall meet periodically with management to discuss
risk assessment and risk management guidelines and policies and the
Company's significant risk exposures (whether financial, operating or
otherwise), as well as the steps management has taken to monitor and
control these exposures. The Audit Committee shall also discuss the
Company's major risk exposures with the Company internal and independent
auditors. By such review and discussion, the Audit Committee does not
assume responsibility for risk management.
- The Audit Committee may meet in executive session (without management or
independent auditors present), and shall meet, at least once a quarter,
with each of Company management, internal audit and the independent
auditor in separate executive sessions.
- The Audit Committee shall review with the Corporate Controller and the
independent auditor any changes in accounting policies as well as any
other significant financial reporting issues.
- The Audit Committee shall review with the independent auditor (a) plans
and scope for each annual audit, including the adequacy of staffing and
other factors that may affect the effectiveness and timeliness of the
audit, (b) the results of the annual audit and resulting opinion
(including major issues regarding accounting and auditing principles and
practices), and (c) the adequacy of the Company's
A-3
internal controls including any annual report of management on internal
controls over financial reporting and any attestation of such report by
the independent auditor.
- The Audit Committee shall review with the independent auditor any audit
problems or difficulties and management's responses, including (a)
accounting adjustments that the auditors noted or proposed but were
"passed" (as immaterial or otherwise), (b) any significant disagreements
with management, (c) any restrictions on the scope of activities or
access to information, (d) communications between the audit team and its
national office with respect to issues presented by the engagement team,
and (e) any management or internal control letter issued or proposed to
be issued by the audit firm to the Company. This review shall also
include discussion of the responsibilities, budget and staffing of the
Company's internal audit functions.
- The Committee shall review with the Chief Executive Officer, the Chief
Financial Officer and the General Counsel the Company's disclosure
controls and procedures and shall review periodically, but in no event
less frequently than quarterly, management's conclusions about the
efficacy of such disclosure controls and procedures, including any
significant deficiencies in, or material non-compliance with, such
controls and procedures.
- The Audit Committee shall establish and maintain procedures for (a) the
receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters,
and (b) the confidential, anonymous submission by employees of the
Company of concerns regarding questionable accounting or auditing
matters.
- The Audit Committee shall review with management and the independent
auditor any correspondence with regulators or government agencies and any
published reports which raise issues regarding the Company's financial
statements or accounting policies.
- The Audit Committee shall meet periodically with the Company's general
counsel and other appropriate legal staff of the Company to review
material legal affairs of the Company, the Company's compliance policies
and any material reports or inquiries received from regulators or
governmental agencies.
- The Audit Committee shall prepare the report for inclusion in the
Company's annual proxy statement, in accordance with applicable rules and
regulations of the SEC and the New York Stock Exchange, as applicable.
C. INTERNAL AUDIT
- The Audit Committee shall discuss with management and the internal
auditor and review the internal audit function established by the Company
as required by the New York Stock Exchange.
- The Audit Committee shall participate in the selection or removal of the
head of internal audit.
- The Audit Committee shall review annually with the head of internal
audit: (a) audit plans and scope for internal audit activities, (b)
results of audits performed, (c) adequacy of the Company's internal
controls, (d) a summary of compliance with the Company's Code of Business
Conduct, and (e) the internal audit department charter.
- The Audit Committee shall review with the head of internal audit and the
independent auditor the coordination of the audit effort to ensure
completeness of coverage, reduction of redundant efforts, and the
effective use of audit resources.
- The Audit Committee shall meet, on a quarterly basis, with the head of
internal audit, the independent auditor and management to discuss (a) all
significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the Company's ability to record,
process, summarize, and report financial information, and (b) any fraud,
whether or not material, that involves management or other employees who
have a significant role in the Company's internal controls over financial
reporting.
A-4
D. OTHER DUTIES AND FUNCTIONS
- The Audit Committee shall review and reassess the adequacy of this
charter at least annually and submit any proposed changes to the Board
for approval.
- The Audit Committee shall conduct an annual performance evaluation in
accordance with the rules adopted by the New York Stock Exchange, which
may be done in conjunction with the annual evaluations of the Board and
committees thereof conducted by the Governance Committee.
- The Audit Committee will perform such other functions as assigned by
applicable law, the rules adopted by the New York Stock Exchange, the
Company's restated certificate of incorporation or By-laws, or the Board.
- While the Audit Committee has the responsibilities and powers set forth
in this Charter, members of the Audit Committee are not employees of the
Company and are entitled to rely on the integrity of the Company's
management and the independent auditor. The Audit Committee has neither
the duty nor the responsibility to (1) conduct audit, accounting or legal
reviews, or (2) ensure that the Company's financial statements are
complete, accurate and in accordance with GAAP. Rather, the Company's
management is responsible for the Company's financial reporting process,
internal audit process, and the preparation of the Company's financial
statements in accordance with GAAP. The Company's independent auditor is
responsible for auditing those financial statements.
Effective: February 4, 2004
A-5
EL PASO CORPORATION
c/o EquiServe Trust Company, N.A.
P.O. Box 8694
Edison, NJ 08818-8694
-----------------------
YOUR VOTE IS IMPORTANT. PLEASE VOTE IMMEDIATELY.
VOTE-BY-INTERNET VOTE-BY-TELEPHONE
Log on to the internet and go to OR Call toll-free
http://www.eproxyvote.com/ep 1-877-PRX-VOTE (1-877-779-8683)
If outside the continental U.S. call
collect on a Touch-Tone Phone (201-536-8073).
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
DETACH HERE
--------------------------------------------------------------------------------
PLEASE MARK
X VOTES AS IN 1107
THIS EXAMPLE.
The Board of Directors recommends a vote FOR proposals 1 and 2.
FOR AGAINST ABSTAIN
1. Election of Directors. 2. Ratification of the appointment of
NOMINEES: (01) John M. Bissell, (02) Juan Carlos Braniff, PricewaterhouseCoopers LLP as --- --- ---
(03) James L. Dunlap, (04) Douglas L. Foshee, independent certified public
(05) Robert W. Goldman, (06) Anthony W. Hall, Jr., accountants for fiscal year ending
(07) Thomas R. Hix, (08) William H. Joyce, December 31, 2004.
(09) Ronald L. Kuehn, Jr., (10) J. Michael Talbert,
(11) John L. Whitmire, (12) Joe B. Wyatt
FOR WITHHOLD MARK HERE
ALL NOMINEES --- --- AUTHORITY TO FOR ---
LISTED ABOVE VOTE FOR ALL COMMENTS
NOMINEES
LISTED ABOVE
MARK HERE
FOR ADDRESS ---
CHANGE AND
NOTE AT LEFT
____ _________________________________________________
For all nominees except as noted above.
[ ] The Board of Directors recommends a vote AGAINST
proposals 3 and 4.
FOR AGAINST ABSTAIN
3. Approval of Stockholder Proposal regarding
expensing costs of all future stock options
in the annual income statement. --- --- ---
4. Approval of Stockholder Proposal regarding
Commonsense Executive Compensation. --- --- ---
PLEASE 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 with
the full corporation name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized
person. If held jointly, both parties must sign and date.
Signature: Date: Signature: Date:
--------------------- ------------- ------------------- --------------
DETACH HERE
--------------------------------------------------------------------------------
SOLICITED BY THE BOARD OF DIRECTORS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 18, 2004
The undersigned hereby appoints Douglas L. Foshee and Robert W. Baker,
and each or any of them jointly, 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 September 20, 2004 at the Annual Meeting of Stockholders to be held at the
Four Seasons Hotel Houston, 1300 Lamar Street, Houston, Texas 77010 on Thursday,
November 18, 2004, 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 AND 2
AND AGAINST PROPOSALS 3 AND 4.
SEE REVERSE (IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE) SEE REVERSE
SIDE SIDE
(EL PASO LOGO)
EL PASO CORPORATION VOTE BY INTERNET - www.proxyvote.com
ATTN: ARMIDA ESTRADA Use the Internet to transmit your voting instructions
1001 LOUISIANA and for electronic delivery of information up until
HOUSTON, TX 77002 11:59 P.M. Eastern Time the day before the cut-off
date or meeting date. Have your proxy card in hand
when you access the web site and follow the
instructions to obtain your records and to create an
electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions up until 11:59 P.M. Eastern Time the day
before the cut-off date or meeting date. Have your
proxy card in hand when you call and then follow the
instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in
the postage-paid envelope we have provided or return it
to El Paso Corporation, c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.
YOUR VOTE IS IMPORTANT!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY
TELEPHONE OR INTERNET.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: ELPASO KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
EL PASO CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR PROPOSALS 1 AND 2
VOTE ON DIRECTORS FOR WITHHOLD FOR ALL To withhold authority to vote, mark
ALL ALL EXCEPT "For All Except" and write the
nominee's number on the line below.
1. Election of Directors
Nominees: (01) John M. Bissell (07) Thomas R. Hix [ ] [ ] [ ] __________________________________
(02) Juan Carlos Braniff (08) William H. Joyce
(03) James L. Dunlap (09) Ronald L. Kuehn, Jr.
(04) Douglas L. Foshee (10) J. Michael Talbert
(05) Robert W. Goldman (11) John L. Whitmire
(06) Anthony W. Hall, Jr. (12) Joe B. Wyatt
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
2. Ratification of the appointment of PricewaterhouseCoopers LLP as independent certified public
accountants for fiscal year ending December 31, 2004. [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4.
3. Approval of Stockholder Proposal regarding expensing costs of all future stock options in the
annual income statement. [ ] [ ] [ ]
4. Approval of Stockholder Proposal regarding Commonsense Executive Compensation. [ ] [ ] [ ]
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 corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person. If held
jointly, both parties must sign and date.
___________________________________________ _______________________________
___________________________________________ _______________________________
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
--------------------------------------------------------------------------------
SOLICITED BY THE BOARD OF DIRECTORS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 18, 2004
The undersigned hereby appoints Douglas L. Foshee and Robert W. Baker,
and each or any of them, with power of substitution, as proxies for the
undersigned and authorizes them to represent and vote, as designated, all of the
shares of common stock of El Paso Corporation, held of record by the undersigned
on September 20, 2004 at the Annual Meeting of Stockholders to be held at the
Four Seasons Hotel Houston, 1300 Lamar Street, Houston, Texas 77010 on Thursday,
November 18, 2004, 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 AND 2
AND AGAINST PROPOSALS 3 AND 4.
SEE REVERSE (IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE) SEE REVERSE
SIDE SIDE
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 18, 2004
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: STATE STREET BANK AND TRUST COMPANY, TRUSTEE UNDER
EL PASO CORPORATION RETIREMENT SAVINGS PLAN
The undersigned hereby directs the Trustee to vote, in person or by
proxy, the full and fractional shares of common stock of El Paso Corporation
credited to my account under the referenced Plan at the close of business on
September 20, 2004, the record date, at the Annual Meeting of Stockholders to be
held at the Four Seasons Hotel Houston, 1300 Lamar Street, Houston, Texas 77010,
on Thursday, November 18, 2004, in accordance with and as described in the
Notice of Annual Meeting of Stockholders and Proxy Statement. Enclosed please
find the Notice of Annual Meeting of Stockholders and Proxy Statement, the
El Paso Corporation 2003 Annual Report, this voting instruction card and a
postage-paid return envelope.
If this voting instruction card is completed, dated, signed and
returned in the accompanying envelope to the Trustee by November 16, 2004, the
shares of stock represented by this voting instruction card will be voted in the
manner directed herein by the undersigned. If this voting instruction card is
properly executed and returned without direction given, the shares represented
by this voting instruction card will be voted FOR proposals 1 and 2 and AGAINST
proposals 3 and 4.
IF THIS VOTING INSTRUCTION CARD IS NOT RETURNED TO THE TRUSTEE, THE
TRUSTEE SHALL VOTE THE SHARES OF STOCK REPRESENTED BY THIS VOTING INSTRUCTION
CARD IN THE SAME PROPORTION AS THOSE SHARES FOR WHICH THE TRUSTEE DID RECEIVE
CLEAR AND TIMELY INSTRUCTIONS FROM OTHER PLAN PARTICIPANTS AS VOTED.
TO BE COMPLETED, SIGNED AND DATED ON REVERSE SIDE.
ADDRESS CHANGES/COMMENTS:
-------------------------------------------------------------
-------------------------------------------------------------
[ELPASO LOGO] VOTE BY INTERNET - www.proxyvote.com
EL PASO CORPORATION Use the internet to transmit your voting
ATTN: ARMIDA ESTRADA instructions and for electronic delivery of
1001 LOUISIANA information up until 11:59 P.M. Eastern Time
HOUSTON, TX 77002 the day before the cut-off date. Have
your voting instruction card in hand when
you access the web site. You will be
prompted to enter your 12-digit Control
Number which is located below to obtain your
records and to create an electronic voting
instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off
date. Have your voting instruction card in
hand when you call. You will be prompted to
enter your 12-digit Control Number which is
located below and then follow the simple
instructions the Voice provides you.
VOTE BY MAIL
Mark, sign, and date your voting instruction
card and return it in the postage-paid
envelope we have provided or return it to
El Paso Corporation, c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717. Your card must be
received by 11:59 P.M. Eastern Time the day
before the cut-off date to be included in
the tabulation.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
-------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
EL PASO CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors-Nominees:
(01) John M. Bissell, (02) Juan Carlos Braniff, For All Nominees Withhold Authority to
(03) James L. Dunlap, (04) Douglas L. Foshee, Vote for all Nominees
(05) Robert W. Goldman, (06) Anthony W. Hall, Jr., [ ] [ ]
(07) Thomas R. Hix, (08) William H. Joyce,
(09) Ronald L. Kuehn, Jr., (10) J. Michael Talbert, [ ]
(11) John L. Whitmire, (12) Joe B. Wyatt --------------------------------
For all Nominees Except as Noted
2. Ratification of the appointment of PricewaterhouseCoopers LLP as For Against Abstain
Independent Certified Public Accountants for fiscal year ending [ ] [ ] [ ]
December 31, 2004.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4.
3. Approval of Stockholder Proposal regarding expensing costs of all For Against Abstain
future stock options in the annual income statement. [ ] [ ] [ ]
4. Approval of Stockholder Proposal regarding Commonsense Executive For Against Abstain
Compensation. [ ] [ ] [ ]
IMPORTANT: PLEASE MARK, SIGN, DATE, AND RETURN THIS VOTING INSTRUCTION CARD
PROMPTLY USING THE ENCLOSED ENVELOPE. PLEASE SIGN EXACTLY AS YOUR NAME APPEARS.
IF SIGNING 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. IF HELD JOINTLY, BOTH PARTIES MUST SIGN
AND DATE.
--------------------------------- ------- ---------------------- -----
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owner) Date
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 18, 2004
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: STATE STREET BANK AND TRUST COMPANY, TRUSTEE UNDER
EL PASO CORPORATION BENEFITS PROTECTION TRUST
The undersigned hereby directs the Trustee to vote, in person or by
proxy, the full and fractional shares of common stock of El Paso Corporation
credited to my account under the referenced Plan at the close of business on
September 20, 2004, the record date, at the Annual Meeting of Stockholders to be
held at the Four Seasons Hotel Houston, 1300 Lamar Street, Houston, Texas 77010,
on Thursday, November 18, 2004, in accordance with and as described in the
Notice of Annual Meeting of Stockholders and Proxy Statement. Enclosed please
find the Notice of Annual Meeting of Stockholders and Proxy Statement, the
El Paso Corporation 2003 Annual Report, this voting instruction card and a
postage-paid return envelope.
If this voting instruction card is completed, dated, signed and
returned in the accompanying envelope to the Trustee by November 16, 2004, the
shares of stock represented by this voting instruction card will be voted in the
manner directed herein by the undersigned. If this voting instruction card is
properly executed and returned without direction given, the shares represented
by this voting instruction card will be voted FOR proposals 1 and 2 and AGAINST
proposals 3 and 4.
IF THIS VOTING INSTRUCTION CARD IS NOT RETURNED TO THE TRUSTEE, THE
TRUSTEE SHALL VOTE THE SHARES OF STOCK REPRESENTED BY THIS VOTING INSTRUCTION
CARD IN ITS DISCRETION.
TO BE COMPLETED, SIGNED AND DATED ON REVERSE SIDE.
ADDRESS CHANGES/COMMENTS:
----------------------------------------------------------------------
----------------------------------------------------------------------
[ELPASO LOGO] VOTE BY MAIL
EL PASO CORPORATION Mark, sign, and date your voting instruction
ATTN: ARMIDA ESTRADA card and return it in the postage-paid envelope
1001 LOUISIANA we have provided. Your card must be received
HOUSTON, TX 77002 by 11:59 P.M. Eastern Time the day before the cut-off
date to be included in the tabulation
----------------------------------------------------------------------------------------------
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
EL PASO CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors-Nominees:
(01) John M. Bissell, (02) Juan Carlos Braniff, For All Nominees Withhold Authority to
(03) James L. Dunlap, (04) Douglas L. Foshee, Vote for all Nominees
(05) Robert W. Goldman, (06) Anthony W. Hall, Jr., [ ] [ ]
(07) Thomas R. Hix, (08) William H. Joyce,
(09) Ronald L. Kuehn, Jr., (10) J. Michael Talbert, [ ] --------------------------------
(11) John L. Whitmire, (12) Joe B. Wyatt For all Nominees Except as Noted
2. Ratification of the appointment of PricewaterhouseCoopers LLP as For Against Abstain
Independent Certified Public Accountants for fiscal year ending [ ] [ ] [ ]
December 31, 2004.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4.
3. Approval of Stockholder Proposal regarding expensing costs of all For Against Abstain
future stock options in the annual income statement. [ ] [ ] [ ]
4. Approval of Stockholder Proposal regarding Commonsense Executive For Against Abstain
Compensation. [ ] [ ] [ ]
IMPORTANT: PLEASE MARK, SIGN, DATE, AND RETURN THIS VOTING INSTRUCTION CARD
PROMPTLY USING THE ENCLOSED ENVELOPE. PLEASE SIGN EXACTLY AS YOUR NAME APPEARS.
IF SIGNING 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. IF HELD JOINTLY, BOTH PARTIES MUST SIGN
AND DATE.
------------------------------------------------- ---------------- ------------------------------------------------ --------------
------------------------------------------------- ---------------- ------------------------------------------------ --------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owner) Date
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 18, 2004
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE MANAGEMENT BOARD OF THE VALERO ARUBA THRIFT FOUNDATION,
MANAGEMENT BOARD OF THE VALERO REFINING COMPANY - ARUBA N.V.
THRIFT PLAN
The undersigned hereby directs the Management Board 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 September 20, 2004, the record date, at the Annual Meeting of
Stockholders to be held at the Four Seasons Hotel Houston, 1300 Lamar Street,
Houston, Texas 77010, on Thursday, November 18, 2004, in accordance with and as
described in the Notice of Annual Meeting of Stockholders and Proxy Statement.
If this voting instruction card is completed, dated, signed and
returned in the accompanying envelope to the Management Board by
November 15, 2004, the shares of stock represented by this voting instruction
card will be voted in the manner directed herein by the undersigned. If this
voting instruction card is properly executed and returned without direction
given, the shares represented by this voting instruction card will be voted
FOR proposals 1 and 2 and AGAINST proposals 3 and 4.
IF THIS VOTING INSTRUCTION CARD IS NOT RETURNED TO THE MANAGEMENT
BOARD, THE MANAGEMENT BOARD SHALL VOTE THE SHARES OF STOCK REPRESENTED BY THIS
VOTING INSTRUCTION CARD IN ITS DISCRETION.
TO BE COMPLETED, SIGNED AND DATED ON REVERSE SIDE.
ADDRESS CHANGES/COMMENTS:
---------------------------------------------------------------
---------------------------------------------------------------
[ELPASO LOGO] VOTE BY INTERNET - www.proxyvote.com
EL PASO CORPORATION Use the internet to transmit your voting
ATTN: ARMIDA ESTRADA instructions and for electronic delivery of
1001 LOUISIANA information up until 11:59 P.M. Eastern Time
HOUSTON, TX 77002 the day before the cut-off date or meeting
date. Have your voting instruction card in
hand when you access the web site. You will
be prompted to enter your 12-digit Control
Number which is located below to obtain your
records and to create an electronic voting
instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off date
or meeting date. Have your voting
instruction card in hand when you call. You
will be prompted to enter your 12-digit
Control Number which is located below and
then follow the simple instructions the
Voice provides you.
VOTE BY MAIL
Mark, sign, and date your voting instruction
card and return it in the postage-paid
envelope we have provided or return it to
El Paso Corporation, c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717. Your card must be
received by 11:59 P.M. Eastern Time the day
before the cut-off or meeting date to be
included in the tabulation.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
EL PASO CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors-Nominees:
(01) John M. Bissell, (02) Juan Carlos Braniff, For All Nominees Withhold Authority to
(03) James L. Dunlap, (04) Douglas L. Foshee, Vote for all Nominees
(05) Robert W. Goldman, (06) Anthony W. Hall, Jr., [ ] [ ]
(07) Thomas R. Hix, (08) William H. Joyce,
(09) Ronald L. Kuehn, Jr., (10) J. Michael Talbert,
(11) John L. Whitmire, (12) Joe B. Wyatt [ ] --------------------------------
For all Nominees Except as Noted
2. Ratification of the appointment of PricewaterhouseCoopers LLP as For Against Abstain
Independent Certified Public Accountants for fiscal year ending [ ] [ ] [ ]
December 31, 2004.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4.
3. Approval of Stockholder Proposal regarding expensing costs of all For Against Abstain
future stock options in the annual income statement. [ ] [ ] [ ]
4. Approval of Stockholder Proposal regarding Commonsense Executive For Against Abstain
Compensation. [ ] [ ] [ ]
IMPORTANT: PLEASE MARK, SIGN, DATE, AND RETURN THIS VOTING INSTRUCTION CARD
PROMPTLY USING THE ENCLOSED ENVELOPE. PLEASE SIGN EXACTLY AS YOUR NAME APPEARS.
IF SIGNING 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. IF HELD JOINTLY, BOTH PARTIES MUST SIGN
AND DATE.
----------------------------------- -------- ------------------------ ----------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owner) Date