Selim K. Zilkha, El Paso Corp.’s largest stockholder who is spearheading an effort to unseat the company’s current board of directors, said this week he was troubled about the “severance costs” that shareholders could be burdened with if they succeed in replacing El Paso’s board, particularly the compensation to be paid to Chairman William Wise when he steps down later this year.

Zilkha identified his concerns in a terse letter sent to the Houston energy company’s board Tuesday. It was then submitted as part of a definitive proxy statement to the Securities and Exchange Commission (SEC).

The El Paso investor’s letter was in response to a company SEC filing in February, which said a “change in control” of El Paso’s board would make the company liable for huge payouts for severance and other benefit packages. “El Paso’s recent disclosure regarding severance costs…is troubling for several reasons, not the least of which is that these very severance claimants [board members] held the reins while the company’s equity market capitalization fell from in excess of $37 billion to $3 billion,” Zilkha wrote.

El Paso “fails to reveal what severance compensation…Wise will receive if and when he leaves El Paso later this year,” he said. The company “implies that Wise, having agreed to leave El Paso later this year, would receive more from El Paso if he happens to leave after a change in the composition of the board than if he leaves before such a change.”

According to the company’s 2002 proxy statement, officers of El Paso and its subsidiaries would, in the event of a “change in control,” be entitled to three times their annual salaries, including maximum bonus amounts; continued life and health insurance for 18 months after leaving; supplemental pension benefits; and payment of their legal fees and expenses to enforce the rights and benefits under the company’s plan.

In 2001, Wise received $1.3 million in annual salary, a $3.4 million bonus, and $210,481 in other annual compensation. He also had more than $2.4 million in restricted stock awards and securities options that year.

“Mr. Zilkha already knows the answer to these questions” about Wise’s severance compensation because he was a former member of El Paso’s board when these issues were decided, said company spokeswoman Norma Dunn.

In late February, Zilkha and another key El Paso investor, Oscar S. Wyatt Jr., announced plans to wrest control of the current 12-member board from the financially weakened company at El Paso’s annual shareholder meeting this year, and replace it with a nine-member board.. The proposed board would include Zilkha, but not Wyatt (See Daily GPI, Feb. 20).

Zilkha, 75, owns 8.9 million shares of common stock in El Paso; he acquired his holdings when he sold his company Zilkha Energy Co., in 1998 to Sonat Inc., which was then gobbled up by El Paso the following year. Wyatt, 74, owns 4.678 million shares of El Paso common stock. He sold Coastal Corp., the company he founded, to El Paso for $24 billion in 2001. Wyatt has been a harsh critic of El Paso’s Wise over the past months, and has led a class-action lawsuit accusing the company of engaging in fraudulent schemes and conduct.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.