El Paso Corp. could be forced to pay out more than $75 million in severance benefits if disgruntled investors, Selim K. Zilkha and Oscar S. Wyatt, succeed in replacing the company’s existing board of directors with their own slate of candidates at the upcoming stockholders meeting in June.

The Houston-based energy company made this disclosure in a preliminary proxy statement filed with the Securities and Exchange Commission (SEC) on Wednesday.

Not surprisingly, El Paso attacked both Zilkha, a Los Angeles businessman, and Houston oilman Wyatt, saying that they haven’t offered shareholders a road map for returning the company to financial health. In contrast, El Paso said it already is carrying out a “detailed operational and financial plan” to get the company back on its feet, including selling non-core assets, cutting annual expenses, settling long-standing legal and regulatory matters, obtaining new credit facilities and installing board members who have “substantial management expertise” in the oil and natural gas industry.

Zilkha filed a preliminary proxy statement with the SEC in March, signaling his intent to wrest control of the board from El Paso and replace it with his own nine-member board. He is said to be “working closely” with Wyatt, a sharp critic of El Paso management. Zilkha owns 8.9 million shares of common stock in El Paso, and Wyatt has 4.678 million shares of company stock. Both men acquired their holdings through the sale of their companies to El Paso.

Noting that this was a “critical period” for El Paso, the company urged shareholders to vote against the Zilkha-Wyatt proxy campaign. “We believe that continuity of knowledge and direction is critical and that a wholesale change in our board of directors would adversely affect the execution of our plan and would threaten the achievement of these objectives,” it said in the preliminary proxy material.

El Paso reminded shareholders that Zilkha was a former director of El Paso, during which time he “was in favor of and supported El Paso’s strategic decisions.” Zilkha “did not vote against, or dissent from a single decision made by our board.”

Moreover, the company cited several “conflicts or potential conflicts of interest” involving Wyatt and El Paso. Wyatt founded Coastal Corp., which was sold to El Paso in 2001.

“Industry trade publications…have reported NuCoastal [Wyatt’s new company] has been seeking to acquire energy assets that compete with El Paso, including Enron’s Transwestern natural gas pipeline system…In addition. [he] has been a bidder for certain El Paso assets,” the company said. Wyatt also is currently a lead plaintiff in a shareholder lawsuit against El Paso, and has participated in a “negative letter-writing campaign” against the company, it noted.

El Paso further identified instances of questionable behavior by Wyatt at Coastal. It noted Wyatt and another Coastal official pled guilty to “knowingly and willfully” violating federal crude oil pricing regulations in connection with 1975 sales of domestic and foreign crude, and he was enjoined in 1979 from ever owning interests in certain former Coastal subsidiaries (now owned by El Paso) under a settlement of charges that Coastal failed to provide winter gas supplies to several Texas cities in the 1970s.

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