SCHEDULE 14A
(RULE 14A - 101)
INFORMATION REQUIRED
SCHEDULE 14A INFORMATION
ProxyStatement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.____________)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
Parallel Petroleum Corporation
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(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PARALLEL PETROLEUM CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
Notice is hereby given that Parallel's Annual Meeting of Stockholders
will be held at the Amarillo Club, 600 S. Tyler, Amarillo, Texas 79101, on
Tuesday, June 18, 2002 at 3:00 p.m.
We intend to present for your approval at this meeting:
o the election of six Directors to serve until the next
Annual Meeting of Stockholders and until their
successors are duly elected and qualified;
o the ratification of the reappointment of KPMG LLP as
independent auditors for 2002; and
o the transaction of such other business that may
properly come before the Annual Meeting or any
adjournment thereof.
If you were a holder of record of Parallel common stock at the close of
business on May 10, 2002, you are entitled to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas W. Ortloff
Secretary
May 17, 2002
YOUR VOTE IS IMPORTANT TO ASSURE A QUORUM AT THE MEETING. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING, PLEASE BE SURE THAT THE ENCLOSED PROXY IS PROPERLY
COMPLETED, DATED, SIGNED AND RETURNED WITHOUT DELAY IN THE POSTAGE PAID
ENVELOPE.
PARALLEL PETROLEUM CORPORATION
One Marienfeld Place, Suite 465
110 N. Marienfeld
Midland, Texas 79701
(915) 684-3727
PROXY STATEMENT
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SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors
of Parallel for the Annual Meeting of Stockholders. The meeting will be held at
the Amarillo Club, 600 S. Tyler, Amarillo, Texas 79101, at 3:00 p.m. on Tuesday,
June 18, 2002, for the purposes set forth in the accompanying Notice of Annual
Meeting, and at any adjournments thereof. The principal executive office of the
Company is located at One Marienfeld Place, Suite 465, 110 N. Marienfeld,
Midland, Texas 79701.
We will bear the cost of soliciting proxies. Proxies will be solicited
primarily by mail, but may be supplemented by personal solicitation by officers,
employees and Directors of Parallel. No additional compensation will be paid for
their solicitation efforts. The Notice of Annual Meeting of Stockholders, Proxy
Statement and Proxy are first being mailed to stockholders on or about May 17,
2002.
VOTING AT THE ANNUAL MEETING
The close of business on May 10, 2002 has been fixed by the Board of
Directors as the record date for determining stockholders entitled to notice of
and to vote at the Annual Meeting. At that date, Parallel had issued and
outstanding 20,663,861 shares of voting common stock.
Holders of common stock are entitled to vote on all matters properly
brought before the meeting, including the matters described in the Notice of
Annual Meeting accompanying this Proxy Statement. Each share of common stock you
own entitles you to one vote. Cumulative voting is not permitted.
QUORUM AND VOTING REQUIREMENTS
The presence of a majority of the outstanding shares of common stock,
whether in person or by proxy, constitutes a quorum at the Annual Meeting.
Abstentions and broker non-votes are counted as present and entitled to vote for
purposes of determining a quorum.
Abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the number of shares present and entitled to
vote with respect to any particular matter, but will not be counted as a vote in
favor of such matter. An abstention from voting on a matter or a proxy
instructing that a vote be withheld has the same effect as a vote against the
matter since it is one less vote for approval.
A broker non-vote occurs when a nominee holding shares of common stock
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to that item and
has not received instructions from the beneficial owner. Broker non-votes on one
or more maters will have no impact on such matters since they are not considered
"shares present" for voting purposes.
Directors will be elected by a plurality of votes cast. A plurality
means that the individuals who receive the largest number of votes cast are
elected as Directors up to the maximum number of Directors to be chosen at the
meeting. Any shares not voted (whether by abstention, broker non-vote or
otherwise) have no impact in the election of Directors, except to the extent the
failure to vote for an individual results in another individual receiving a
larger number of votes.
Assuming the presence of a quorum, the affirmative vote of the holders
of a majority of the shares of common stock present in person or represented by
proxy at the Annual Meeting is required for the ratification of the selection by
the Board of Directors of KPMG LLP as Parallel's independent auditor for 2002.
HOW TO REVOKE YOUR PROXY
You may revoke a proxy at any time before it is voted. You can do this
by delivering a later dated proxy or by notifying the Secretary in writing
specifically revoking the proxy. Your attendance and voting in person at the
Annual Meeting will also revoke a proxy. If you do not make any specification on
the proxy, your shares will be voted in accordance with the recommendation of
the Board of Directors as stated herein, or at the discretion of the named
proxies with regard to any other matter that may properly come before the Annual
Meeting.
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STOCK OWNERSHIP
This table shows information as of May 10, 2002 about the beneficial
ownership of common stock by: (1) each person known by us to own beneficially
more than five percent of our outstanding common stock, (2) each executive
officer of Parallel, (3) each Director and nominee for Director of Parallel, and
(4) all of our executive officers and Directors (and nominees) as a group:
Name and Address Amount and Nature Percent
of of of
Beneficial Owner Beneficial Ownership (1) Class (2)
------------------ ------------------------ ---------
Thomas R. Cambridge 1,107,045 (3) 5.27%
2201 Civic Circle, Suite 216
Amarillo, Texas 79109
Dewayne E. Chitwood 1,618,557 (4) 7.59%
400 Pine St., Suite 700
Abilene, Texas 79601
Larry C. Oldham 957,090 (5) 4.54%
One Marienfeld Place, Suite 465
Midland, Texas 79701
Martin B. Oring 61,500 (6)
706 Cinnamon Lane *
Franklin Lakes, New Jersey 07417
Charles R. Pannill 135,995 (7)
3416 Acorn Run *
Fort Worth, Texas 76019
Jeffrey G. Shrader 42,500 (8)
801 S. Filmore, Suite 600 *
Amarillo, Texas 79105
Eric A. Bayley 223,490 (9)
One Marienfeld Place, Suite 465 1.07%
Midland, Texas 79701
John S. Rutherford 111,300 (10)
One Marienfeld Place, Suite 465 *
Midland, Texas 79701
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Name and Address Amount and Nature Percent
of of of
Beneficial Owner Beneficial Ownership (1) Class (2)
------------------ ------------------------ ---------
Wes-Tex Drilling Company, L.P. 1,246,773 (11) 5.94%
519 First National Bank Building West
Abilene, Texas 79601
Julia Jones Matthews 1,942,856 (12) 8.91%
400 Pine, Suite 900
Abilene, Texas 79601
Dodge Jones Foundation 1,371,428 (13) 6.34%
400 Pine, Suite 900
Abilene, Texas 79601
All Executive Officers and Directors 4,257,477 (14) 18.85%
as a Group (8 persons)
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* Less than one percent.
(1) Unless otherwise indicated, all shares of common stock are held
directly with sole voting and investment powers.
(2) Securities not outstanding, but included in the beneficial ownership of
each such person, are deemed to be outstanding for the purpose of
computing the percentage of outstanding securities of the class owned
by such person, but are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person. Shares
of common stock that may be acquired within sixty days upon exercise of
outstanding stock options or upon conversion of preferred stock are
deemed to be outstanding.
(3) Includes 767,045 shares of common stock held indirectly through
Cambridge Collateral Services, Ltd., a limited partnership of which Mr.
Cambridge and his wife are the general partners. Also included are
350,000 shares of common stock underlying presently exercisable stock
options held by Mr. Cambridge.
(4) Includes 932,488 shares of common stock held directly by Wes-Tex
Drilling Company, L.P., a limited partnership, and 314,285 shares of
common stock that may be acquired by Wes-Tex Drilling Company, L.P.
upon conversion of 110,000 shares of preferred stock. In his capacity
as president, chief executive officer and a manager of Wes-Tex
Holdings, LLC, the general partner of Wes-Tex Drilling Company, L.P.,
Mr. Chitwood may be deemed to have shared voting and investment powers
with respect to such shares. See note 11 below. Also included are
20,000 shares of common stock held by the Estate of Myrle Greathouse
(the "Estate"); 157,142 shares that may be acquired by the Greathouse
Charitable Remainder Trust (the "Trust") upon conversion of 55,000
shares of preferred stock; and 157,142 shares of common stock that may
be acquired by the Greathouse Foundation (the "Foundation") upon
conversion of 55,000 shares of preferred stock. Mr. Chitwood is the
executor (but not a beneficiary) of the Estate, the trustee (but not a
beneficiary) of the Trust and the executive director and a director of
the Foundation. In these capacities, Mr. Chitwood may also be deemed to
have shared voting and investment powers with respect to the shares of
common stock beneficially owned by the Estate, the Trust and the
Foundation. However, Mr. Chitwood disclaims beneficial ownership of all
shares of common stock held by Wes-Tex Drilling Company, L.P., the
Estate, Trust and Foundation. Also included are 37,500 shares of common
stock underlying presently exercisable stock options held by Mr.
Chitwood.
(5) Includes 200,000 shares of common stock held individually through
Oldham Properties, Ltd., a limited partnership of which Mr. Oldham is
the general partner and he and his wife are the limited partners. Also
included are 420,000 shares of common stock underlying presently
exercisable stock options held by Mr. Oldham.
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(6) Of the total number of shares shown, 24,000 shares are held directly by
Mr. Oring's wife and 37,500 shares may be acquired by Mr. Oring upon
exercise of stock options held by Mr. Oring.
(7) Includes 97,500 shares of common stock underlying presently exercisable
stock options. Also included are 1,300 shares held by Mr. Pannill as
custodian for the benefit of two minor grandchildren and as to which
Mr. Pannill disclaims beneficial ownership.
(8) Includes 37,500 shares of common stock underlying presently exercisable
stock options.
(9) Includes 205,000 shares of common stock underlying presently
exercisable stock options. A total of 6,790 shares of common stock are
held indirectly by Mr. Bayley through individual retirement accounts
and Parallel's 408(k) Plan.
(10) Includes 108,750 shares of common stock underlying presently
exercisable stock options. Also included are 2550 shares held
indirectly by Mr. Rutherford through his 408(k) Plan.
(11) Includes 314,285 shares of common stock that may be acquired upon
conversion of 110,000 shares of preferred stock. See note 4 above.
(12) Includes 400,000 shares of common stock owned directly by the Julia
Jones Matthews Family Trust and 171,428 shares of common stock that may
be acquired by the Trust upon conversion of 60,000 shares of preferred
stock held directly by the Trust. By virtue of her position as the
President and a Director of the Dodge Jones Foundation, Matthews has
shared voting and investment powers with respect to, and may also be
deemed to be the beneficial owner of, 971,428 shares of common stock
that may be acquired by the Dodge Jones Foundation upon conversion of
340,000 shares of preferred stock held by it, and 400,000 shares of
common stock that are owned directly by the Dodge Jones Foundation.
Matthews disclaims beneficial ownership of all shares of common stock
beneficially owned by the Dodge Jones Foundation. See note 14.
(13) Includes 971,428 shares that may be acquired upon conversion of 340,000
shares of preferred stock. The Dodge Jones Foundation has shared voting
and investment powers with respect to such shares of common stock. See
note 12.
(14) Includes 1,293,750 shares of common stock underlying stock options that
are presently exercisable or that become exercisable within sixty days
and 628,569 shares of common stock that may be acquired upon conversion
of 220,000 shares of preferred stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
Parallel's Directors and officers to file periodic reports with the SEC. These
reports show the Directors' and officers' ownership, and the changes in
ownership, of Parallel's common stock and other equity securities. To our
knowledge, all Section 16(a) filing requirements were complied with during 2001,
except that one transaction involving Mr. Oldham's exercise of an employee stock
option was reported in one Form 4 report that was filed late.
ELECTION OF DIRECTORS
Our Directors are elected annually by our stockholders to serve until
the next annual meeting of stockholders and until their respective successors
are duly elected. The number of directors comprising the whole Board is
determined by the Board of Directors. Our six current Directors and nominees
were elected as Directors at the last annual meeting of stockholders. Mr. E. R.
Duke, a former Director, was also elected as a Director at last year's annual
meeting and he served in such capacity until his death in January, 2002. On
January 24, 2002, following Mr. Duke's death, the Board of Directors reduced the
size of the Board from seven to six directors. All nominees have consented to
serve as Directors if elected at the Annual Meeting. If any nominee becomes
unavailable for any reason, a substitute nominee
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may be proposed by the Board and the shares represented by proxy will be voted
for any substitute nominee, unless the Board reduces the number of directors.
The Board has no reason to expect that any nominee will become unavailable.
Shares represented by the accompanying form of proxy will be voted for the
election of the six nominees named below unless other instructions are shown on
the proxy card.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING SIX
NOMINEES FOR ELECTION AS DIRECTORS AT THE ANNUAL MEETING.
Director
Nominee Since Position with Company
------- --------- -------------------------
Thomas R. Cambridge 1985 Chairman of the Board of
Directors and Chief
Executive Officer
Larry C. Oldham 1979 President, Treasurer and
Director
Dewayne E. Chitwood(1) 2000 Director
Martin B. Oring(1)(2) 2001 Director
Charles R. Pannill(1)(2) 1982 Director
Jeffrey G. Shrader(1)(2) 2001 Director
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(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Cambridge, age 66, is an independent petroleum geologist engaged in
the exploration for, development and production of oil and natural gas. Since
1990, these activities have been carried out through Cambridge Production, Inc.,
a Texas corporation. Mr. Cambridge has served as a Director of the Company since
February, 1985; as President during the period from October, 1985 to October,
1994; and as Chairman of the Board of Directors and Chief Executive Officer
since October, 1985.
Mr. Chitwood, age 64, is president, chief executive officer and a
manager of Wes-Tex Holdings, LLC, the general partner of Wes-Tex Drilling
Company, L.P., a partnership engaged in oil and gas exploration and production.
During the five-year period preceding Mr. Chitwood's association with Wes- Tex
in 1997, he was an owner and founder of CBS Insurance L.P., a general insurance
agency.
Mr. Oldham, age 48, a founder of Parallel, has served as an officer and
Director of Parallel since its formation in 1979. Mr. Oldham became President in
October, 1994, and served as Executive Vice President prior to that time. Mr.
Oldham is a member of the Permian Basin Landman's Association.
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Mr. Oring, age 56, is the president and owner of Wealth Preservation,
LLC, a financial counseling firm founded by Mr. Oring in January, 2001. From
1998 to December, 2000, Mr. Oring was Managing Director Executive Services of
Prudential Securities Incorporated, and from 1996 to 1998, Mr. Oring was
Managing Director Capital Markets of Prudential Securities Incorporated. From
1989 to 1996, Mr. Oring was Manager of Capital Planning for The Chase Manhattan
Corporation.
Mr. Pannill, age 75, was employed by The Western Company of North
America for over thirty years until his retirement in February, 1982. During his
employment with The Western Company of North America, Mr. Pannill served in
various capacities, including those of an executive officer and director.
Mr. Shrader, age 51, has been a shareholder in the law firm of Sprouse,
Smith & Rowley, P.C., Amarillo, Texas, since January, 1993. Mr. Shrader has also
been a director of Hastings Entertainment, Inc. since 1992.
OTHER INFORMATION; COMMITTEES OF THE BOARD
Five meetings of the Board of Directors were held in 2001. Mr. Duke, a
former Director of the Company, was absent one meeting. Each other Director
attended all meetings of the Board held during the period in which he was a
Director. The Directors took action by unanimous written consent on one occasion
during 2001.
The Board has two permanent committees: the Compensation Committee and
the Audit Committee. We do not have a standing nominating committee. The review
of recommendations for nominees for Board membership is made by the full Board
of Directors.
The Compensation Committee administers our stock option plans and has
the responsibility of reviewing and recommending to the Board of Directors the
compensation and terms of benefit arrangements with Parallel's officers and the
making of awards under such arrangements. In 2001, Mr. Pannill and Mr. Chitwood
each served as a member of the Compensation Committee for a portion of the year.
Mr. Duke was a member of the Compensation Committee for the entire year. Mr.
Chitwood replaced Mr. Pannill on the Compensation Committee on May 2, 2001 and
Mr. Chitwood and Mr. Duke served as members of the Compensation Committee
throughout the remainder of 2001. On January 24, 2002, following Mr. Duke's
death, the membership of the Compensation Committee was changed to include Mr.
Chitwood, Mr. Oring, Mr. Pannill and Mr. Shrader, the current members of the
Compensation Committee. The Compensation Committee held four meetings in 2001
and took action by unanimous written consent on one occasion. Each member of the
Compensation Committee attended all meetings held during the period in which he
was a member.
The Audit Committee of the Board of Directors reviews the results of
the annual audit of the Company's financial statements and recommendations of
the independent auditors with respect to our accounting practices, policies and
procedures. As prescribed by our Audit Committee charter, the Audit Committee is
also responsible for overseeing management's conduct of our financial reporting
process, our systems of internal accounting and financial controls, and the
independent audit of our financial statements.
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During the period from January 1, 2001 to May 2, 2001, the members of
the Audit Committee were Mr. Duke and Mr. Chitwood. Since May 2, 2001, the Audit
Committee has been composed of Mr. Oring, Mr. Pannill and Mr. Shrader. Two
meetings of the Audit Committee were held in 2001 when the members were Mr. Duke
and Mr. Chitwood. Two other meetings of the Audit Committee were held in 2001
when the members were Messrs. Oring, Pannill and Shrader. Each member of the
Audit Committee attended all meetings held during the period in which he was a
member.
REPORT OF THE AUDIT COMMITTEE
Our Audit Committee is presently composed of Mr. Oring, Mr. Pannill and
Mr. Shrader. The Audit Committee operates under a written charter adopted by the
Board of Directors. The Audit Committee reviews and reassesses the adequacy of
the charter on an annual basis. The Audit Committee is responsible for
monitoring and overseeing management's conduct of our financial reporting
process, our systems of internal accounting and financial controls, and the
independent audit of our financial statements by our independent auditors, KPMG
LLP.
The Audit Committee reviews the charter annually to ensure that it
meets the listing standards for issuers with securities listed for trading on
The Nasdaq Stock Market. The charter specifies that the Audit Committee will
have at least three members, comprised solely of independent directors, each of
whom is able to read and understand fundamental financial statements. At least
one member of our Audit Committee must have past employment experience in
finance or accounting. Each of the current Audit Committee members is an
"independent director" as defined in the applicable listing standards. The Audit
Committee recommends to the Board the appointment of auditors for the Company.
The Audit Committee reviewed and discussed the audited financial
statements with both management and KPMG LLP. Specifically, the Audit Committee
discussed with KPMG LLP matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication With Audit Committees).
The Audit Committee received from KPMG LLP the written disclosure and
the letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and discussed with KPMG LLP the issue of its
independence from Parallel.
Based on the Audit Committee's review of the audited financial
statements and its discussions with management and KPMG LLP, the Audit Committee
recommended to the Board that the audited financial statements be included in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
Martin B. Oring
Charles R. Pannill
Jeffrey G. Shrader
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AUDIT FEES
The aggregate fees billed for professional services rendered for the
audit and quarterly reviews of our financial statements for the fiscal year
ended December 31, 2001 were $72,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed for the professional services described in
Paragraph (c)(4)(ii) of Rule 2- 01 of Regulation S-X rendered by KPMG LLP for
the fiscal year ended December 31, 2001.
ALL OTHER FEES
All other fees billed or to be billed by KPMG LLP for the fiscal year
ending December 31, 2001 for services other than those described above were
$5,000. These fees relate to the review and consultation on auditing and
accounting matters related to (a) new SEC requirements, (b) audit committee
consultations and (c) additional review of property write-offs, tax accrual and
impairment calculation.
The Audit Committee has concluded that the provision of services
covered in the sections captioned "Financial Information Systems Design and
Implementation Fees" and "All Other Fees" are compatible with maintaining KPMG
LLP's independence.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
Our Committee is responsible for formulating and administering the
overall compensation principles and plans for Parallel, including establishing
the compensation paid to our officers, administering our stock option plans and,
generally, reviewing our compensation programs at least annually. None of the
members of the Compensation Committee are current or former employees of
Parallel.
Goals and Objectives
Creating value for our stockholders is the primary objective of
Parallel's Board. Our Committee supports this objective by establishing
compensation arrangements that will attract and retain qualified executives. At
the same time, we are mindful of, and try to balance our executive compensation
arrangements with, the interests and concerns of stockholders. We try to
emphasize compensation arrangements that we believe will (1) motivate and retain
talented individuals and reward performance, (2) provide long term performance
incentives, (3) encourage the application of prudent decision making processes
in an industry marked by volatility and high risk and (4) maintain the alignment
of management's interests with the interests of Parallel stockholders.
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Compensation Components
In the past, we have generally reviewed executive compensation in June
of each year. In reviewing the overall compensation of our officers, we consider
the following components of executive compensation:
o base salaries;
o stock option grants;
o cash bonuses;
o insurance plans; and
o contributions by Parallel to the 408(k) retirement
plan.
Evaluation Factors
Historically, we have evaluated compensation paid to our officers based
upon the following factors:
o Parallel's oil and gas reserves;
o the market value of Parallel's common stock;
o cash flow and earnings;
o the extent to which the officers have been successful
in finding and creating opportunities for Parallel to
participate in drilling or acquisition ventures
having quality prospects;
o the ability of our officers to formulate and maintain
sound budgets for drilling ventures and other
business activities;
o the overall financial condition of Parallel;
o the extent to which proposed business plans are met;
o comparing the compensation packages of our officers
with the compensation packages of officers of other
companies similar to Parallel;
o the volatility of our industry and, in particular,
the performance of our executives during periods of
depressed industry conditions; and
o the individual performance, leadership, business
knowledge and level of responsibility of our
officers.
We do not assign relative weights or rankings to these factors. Instead, we make
subjective determinations based upon a consideration of all of these factors.
In establishing base salaries for our officers, we have not relied on
independent consultants to analyze or prepare formal surveys for us. However,
when considering salary increases we do make informal comparisons of our
executives' compensation with the compensation paid to executives of other
publicly and privately held companies similar to Parallel. We also rely on our
general knowledge and experience in the oil and gas industry, focusing on a
subjective analysis of each of our executive's contributions to Parallel's
overall performance. In addition, we take into account the fact that we do not
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provide significant perquisites to our executive officers. While specific
performance levels or "benchmarks" are not used to establish salaries or grant
stock options, we do take into account historic comparisons of Parallel's
performance. With respect to awards of stock options, we attempt to provide the
executives with a long term incentive compensation vehicle that could result in
future additional compensation to the executives, but only if the value of our
common stock increases for all stockholders. All stock options are granted with
exercise prices equal to the fair market value of the common stock on the date
of grant. When awarding stock options, we consider the number of options granted
on prior occasions and the length of time between option grants. We believe that
granting stock options encourages long term performance and helps align the
interests of management with our stockholders.
CEO Compensation
In the case of Mr. Cambridge, the Chief Executive Officer of Parallel,
the factors we consider in establishing recommended levels and components of
compensation, in addition to those discussed above, include the amount of time
devoted by Mr. Cambridge to Parallel's overall business activities, the fact
that he does not participate in any of Parallel's insurance or retirement plans
and the extent to which Mr. Cambridge becomes directly involved in special
projects that Parallel undertakes. These factors are included and considered in
the evaluation of Mr. Cambridge's compensation since he does not serve the
Company as a full-time employee. In June, 2001, our Committee reviewed Mr.
Cambridge's overall compensation and performance. Upon review, the Committee
recommended, and the Board of Directors approved, an increase in Mr. Cambridge's
cash compensation from $77,755 to $101,080, effective June 1, 2001, and the
grant of a stock option to purchase 100,000 shares of common stock. A cash bonus
of $25,000 was also awarded to Mr. Cambridge. The Committee's determination was
based on Parallel's and Mr. Cambridge's performance over the prior twelve-month
period, with an objective of creating an overall compensation arrangement that
would both reward Mr. Cambridge for his prior performance and provide long term
incentives. In this regard, at the end of 2000, Parallel had achieved record
levels of revenues, net income and the discounted present value of oil and gas
reserves. However, during the first half of 2001, we saw natural gas and oil
prices begin to fall. Although the full extent of the adverse effects of these
price declines was not known until the end of 2001, our recommendations
underscored our belief that the stock option granted to Mr. Cambridge, coupled
with the increase in the cash component of his compensation, would provide and
maintain an incentive for Mr. Cambridge to continue his efforts to increase the
value of Parallel for the benefit of all of our stockholders, even under
deteriorating industry conditions. The cash bonus to Mr. Cambridge was made in
recognition of his individual responsibilities and as a reward for extraordinary
efforts during the period under review. We also believe that the leadership,
business skills and execution of business plans demonstrated by Mr. Cambridge in
2000 and 2001 have been instrumental in keeping Parallel on track for future
growth and increasing the value of Parallel. In reviewing the overall
compensation of Mr. Cambridge and evaluating his individual performance, we also
took into account the fact that he had not received an increase in his cash
compensation since August, 1998 and that the previous stock option grant to Mr.
Cambridge was made in October, 1999.
We anticipate that our Committee will be reviewing and considering
alternative incentive compensation arrangements for our executive officers,
including Mr. Cambridge.
Limit on Deductibility of Certain Compensation
Provisions of the Internal Revenue Code that restrict the deductibility
of certain compensation over one million dollars per year have not been a factor
in our considerations or recommendations.
Dewayne E. Chitwood
Charles R. Pannill
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SUMMARY OF ANNUAL COMPENSATION
The table below shows a summary of the types and amounts of
compensation paid to our executive officers during the last three years.
Summary Compensation Table
Long-Term Compensation
-----------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ----------------------------------- ------------
Other All
Annual Restricted Securities Other
Compen- Stock Underlying LTIP Compen-
Name and Salary Bonus sation Awards Options/ Payouts sation
Principal Position Year ($) ($) ($) ($) SAR(#) ($) ($)
------------------ ---- ------- --------- ---------- ---------- ---------- ------- ------------
T. R. Cambridge 2001 91,362 26,000 900 0 100,000 0 0
Chief Executive 2000 77,755 2,000 900 0 0 0 0
Officer and 1999 77,755 1,000 900 0 50,000 0 0
Chairman of the
Board
L. C. Oldham 2001 170,392 26,000 17,922 (1) 0 200,000 0 14,470(2)
President 2000 161,000 2,000 10,067 0 0 0 12,230
and Director 1999 125,000 1,000 20,221 0 100,000 0 5,771
E. A. Bayley 2001 96,155 26,000 15,705 (3) 0 50,000 0 6,489(4)
Vice President of
Engineering
J. S. Rutherford 2001 103,411 26,000 15,028 (5) 0 50,000 0 6,925(6)
Vice President of
Land and
Administration
----------
(1) These amounts include insurance premiums for nondiscriminatory group
life, medical, disability and dental insurance as follows: $16,366 for
2001; $7,058 for 2000; and $18,534 for 1999.
(2) For 2001, such amount includes $11,482 contributed by Parallel to Mr.
Oldham's individual retirement account maintained under the 408(k)
simplified employee pension plan/individual retirement account and the
reimbursement to Mr. Oldham of $2,988 for income tax preparation and
planning. For 2000, such amount includes $9,750 contributed by Parallel
to Mr. Oldham's retirement account and the reimbursement to Mr. Oldham
of $2,480 for income tax preparation and planning. The amount shown for
1999 includes Parallel's contribution of $3,750 to Mr. Oldham's
retirement account and reimbursement of $2,021 for income tax
preparation.
(3) This amount includes insurance premiums in the amount of $14,808 for
nondiscriminatory group life, medical, disability and dental insurance.
(4) This amount represents Parallel's contribution to Mr. Bayley's
individual retirement account maintained under the 408(k) simplified
employee pension plan/individual retirement account.
(5) This amount includes insurance premiums in the amount of $13,155 for
nondiscriminatory group life, medical, disability and dental insurance.
-12-
(6) This amount represents Parallel's contribution to Mr. Rutherford's
individual retirement account maintained under the 408(k) simplified
employee pension plan/individual retirement account.
STOCK OPTIONS
Parallel uses stock options as part of the overall compensation of
Directors, officers and employees. Summary descriptions of our stock option
plans are included in this Proxy Statement so you can review the types of
options we have granted and the significant features of our stock options.
In the following table, we show certain information with respect to
stock options granted in 2001 to the named executive officers.
Option/Sar Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Option Price Appreciation for
Underlying Granted to Exercise or Option Term (2)
Options Employees in Base Price Expiration --------------------------
Name Granted (#) Fiscal Year (1) ($/Sh) Date 5%($) 10%($)
------------------- --------------- --------------- ----------- ------------- -------- ----------
T. R. Cambridge 100,000(3) 25.0% 4.97 June 20, 2011 313,110 790,230
L. C. Oldham 200,000(4) 50.0% 4.97 June 20, 2011 626,220 1,580,460
E. A. Bayley 50,000(5) 12.5% 4.97 June 20, 2011 156,555 395,115
J. S. Rutherford 50,000(5) 12.5% 4.97 June 20, 2011 156,555 395,115
-----------
(1) Percentages are calculated excluding from the denominator the stock
option granted to Mr. Cambridge since he is not an employee.
(2) These amounts are calculated based on the indicated annual rates of
appreciation and annual compounding from the date of grant to the end
of the option term. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock and overall
stock market conditions. There is no assurance that the amounts
reflected in this table will be achieved.
(3) A nonqualified stock option to purchase 100,000 shares of common stock
was granted to Mr. Cambridge on June 20, 2001 under Parallel's 2001
Nonemployee Directors' Stock Option Plan. The option is exercisable in
two equal annual installments on December 21, 2001 and June 21, 2002.
(4) On June 20, 2001 an incentive stock option to purchase 200,000 shares
of common stock was granted to Mr. Oldham under Parallel's 1998 Stock
Option Plan. The option is exercisable in ten equal annual
installments, commencing January 1, 2002.
(5) On June 20, 2001, nonstatutory stock options to purchase 50,000 shares
of common stock were granted to Mr. Bayley and Mr. Rutherford. The
options were granted under Parallel's Employee Stock Option Plan and
are exercisable in two equal installments on June 20, 2002 and June 20,
2003.
-13-
The following table shows certain information about stock options
exercised in 2001 and the value of unexercised stock options held by Parallel's
executive officers at December 31, 2001.
Aggregated Option/SAR Exercises in
Last Fiscal Year and Fiscal Year - End Option/SAR Values
Value of Unexercised
Number of Securities Underlying in-the-Money Options
Unexercised Options at Fiscal Year-End ($) (2)
Shares Value at Fiscal Year-End (#) --------------------------
Acquired on Realized -------------------------------
Name Exercise ($)(1) Exercisable Unexercisable Exercisable Unexercisable
------ ----------- -------- ----------- ------------- ----------- -------------
T.R. Cambridge -- -- 350,000 50,000 68,000(3) (3)
L. C. Oldham 247,000 670,340 400,000 200,000 136,700(4) (4)
E. A. Bayley -- -- 205,000 50,000 54,680(5) (5)
J. S. Rutherford 11,250 25,875 108,750 50,000 54,680(6) (6)
----------
(1) The value realized is equal to the fair market value of a share of
common stock on the date of exercise, less the exercise price of the
stock options exercised.
(2) The value of in-the-money options is equal to the fair market value of
a share of common stock at fiscal year-end ($3.18 per share), based on
the last sale price of Parallel's common stock, less the exercise
price.
(3) At December 31, 2001, the exercise prices of exercisable options to
purchase a total of 300,000 shares of common stock held by Mr.
Cambridge exceeded $3.18, the fair market value of our common stock on
that date. In addition, an unexercisable stock option to purchase
50,000 shares of common stock was held by Mr. Cambridge at fiscal
year-end, which also had an exercise price greater than $3.18.
(4) At December 31, 2001, the exercise prices of exercisable options to
purchase a total of 300,000 shares of common stock held by Mr. Oldham
exceeded the fair market value of our common stock on December 31,
2001, and the exercise price of unexercisable options to purchase
200,000 shares exceeded the fair market value of our common stock at
the same date.
(5) At December 31, 2001, the exercise prices of exercisable options to
purchase a total of 165,000 shares of common stock held by Mr. Bayley
exceeded $3.18, the fair market value of our common stock on that date.
In addition, an unexercisable stock option to purchase 50,000 shares of
common stock was held by Mr. Bayley at fiscal year-end, which also had
an exercise price greater than $3.18.
(6) At December 31, 2001, the exercise prices of exercisable options to
purchase a total of 68,750 shares of common stock held by Mr.
Rutherford exceeded $3.18, the fair market value of our common stock on
that date. In addition, an unexercisable stock option to purchase
50,000 shares of common stock was held by Mr. Rutherford at fiscal
year-end, which also had an exercise price greater than $3.18.
-14-
At December 31, 2001, a total of 2,946,250 shares of common stock were
authorized for issuance under our equity compensation plans. In the table below,
we describe certain information about these shares and the equity compensation
plans which provide for their authorization and issuance. You can find
additional information about our stock option plans beginning on page 19 of this
Proxy Statement.
Equity Compensation Plan Information
(a) (b) (c)
Plan category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans (excluding
securities reflected in
column (a))
------------------------------ ------------------------------ -------------------------------
Equity compensation plans
approved by security holders 1,803,750 $3.87 567,500
Equity compensation plans
not approved by security 575,000(1) $3.80 0
holders
Total 2,378,750 $3.86 567,500
------------------------------ ------------------------------ -------------------------------
(1) These shares include an aggregate of 200,000 shares of common stock
underlying stock options granted in June, 2001 to non-officer employees
pursuant to the Employee Stock Option Plan; 275,000 shares of common
stock underlying a stock purchase warrant we issued to an investment
banking firm in November, 2001; and 100,000 shares of common stock
underlying a stock option granted to Mr. Cambridge in 1993.
-15-
STOCK PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
The indexes in the performance graph compare the annual cumulative
total stockholder return on Parallel's common stock with the cumulative total
return of The Nasdaq Stock Market (U.S.) Index and a peer group index comprised
of 105 U.S. companies engaged in crude oil and natural gas operations, based on
an SIC Code Index for crude petroleum and natural gas companies, whose stocks
were traded on Nasdaq during the five-year period ended December 31, 2001. The
SIC Code Index is published by the Center for Research in Security Prices of the
University of Chicago Graduate School of Business. The table assumes that the
value of an investment in Parallel's common stock and each index was $100 at the
end of 1996 and that all dividends were reinvested.
[PERFORMANCE GRAPH]
Symbol Total Returns Index for: 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
------ ----------------------- -------- -------- -------- -------- -------- --------
|X| Parallel Petroleum Corporation 100.0 144.0 30.7 36.0 81.3 67.8
* Nasdaq Stock Market (US Companies) 100.0 122.5 172.7 320.9 193.0 153.1
o NASDAQ Stocks (SIC 1310-1319 US 100.0 95.3 46.3 47.8 99.4 74.5
Companies) Crude Petroleum and
Natural Gas
-16-
CHANGE OF CONTROL ARRANGEMENTS
Agreements
In June, 2001, Parallel entered into Change of Control Agreements with
Mr. Cambridge, Mr. Oldham, Mr. Bayley, Mr. Rutherford and four other employees.
These agreements provide that upon the occurrence of a Change of Control, each
person will receive a single lump sum cash payment in an amount equal to one
year's salary. The agreements also provide for continued participation in
Parallel's medical, dental, disability and life insurance and retirement plans
for a period of twelve months after a Change of Control. A Change of Control
occurs when:
o any person becomes the beneficial owner of Parallel's voting
shares entitling that person to 20% or more of the voting
power of Parallel;
o less than a majority of the members of the Board are
continuing directors; or
o the stockholders of Parallel approve a transaction providing
for (1) Parallel to be merged, consolidated or otherwise
combined with another person, (2) the sale of all or
substantially all the assets or stock of Parallel or (3) the
liquidation or dissolution of Parallel.
Stock Option Plans
Parallel's outstanding stock options and stock option plans contain
certain change of control provisions which are applicable to Parallel's
outstanding stock options, including the options held by our officers and
Directors. For purposes of our options, a change of control occurs if:
o Parallel is not the surviving entity in a merger or
consolidation;
o Parallel sells, leases or exchanges all or substantially all
of its assets;
o Parallel is to be dissolved and liquidated;
o any person or group acquires beneficial ownership of more than
50% of Parallel's common stock; or
o in connection with a contested election of directors, the
persons who were directors of Parallel before the election
cease to constitute a majority of the Board of Directors.
If a change of control occurs, the Compensation Committee of the Board
of Directors can:
o accelerate the time at which options may be exercised;
o require optionees to surrender some or all of their options
and pay to each optionee the change of control value;
o make adjustments to the options to reflect the change of
control; or
-17-
o permit the holder of the option to purchase, instead of the
shares of common stock as to which the option is then
exercisable, the number and class of shares of stock or other
securities or property which the optionee would acquire under
the terms of the merger, consolidation or sale of assets and
dissolution if, immediately before the merger, consolidation
or sale of assets or dissolution, the optionee had been the
holder of record of the shares of common stock as to which the
option is then exercisable.
The change of control value is an amount equal to, whichever is
applicable:
o the per share price offered to Parallel's stockholders in a
merger, consolidation, sale of assets or dissolution
transaction;
o the price per share offered to Parallel's stockholders in a
tender offer or exchange offer where a change of control takes
place; or
o if a change of control occurs, other than from a tender or
exchange offer, the fair market value per share of the shares
into which the options being surrendered are exercisable, as
determined by the Committee.
COMPENSATION OF DIRECTORS
Parallel's nonemployee Directors each receive $1,500 for attending
meetings of the Board of Directors and $750 for attending meetings of Board
committees. Under these arrangements, during 2001, Mr. Duke, a Director until
his death in January, 2002, received $8,750; Mr. Pannill - $8,500; Mr. Chitwood
- $9,750; Mr. Oring - $6,000; and Mr. Shrader - $6,000. All Directors are
reimbursed for expenses incurred in connection with attending meetings.
Directors who are not employees of Parallel are eligible to participate
in Parallel's 1997 Nonemployee Directors Stock Option Plan and the 2001
Nonemployee Directors Stock Option Plan. On May 2, 2001, Mr. Oring and Mr.
Shrader were each granted an option to purchase 5,000 shares of common stock
under the 1997 Nonemployee Directors Stock Option Plan. Mr. Chitwood was also
granted an option to purchase 25,000 shares under this plan. All of the options
have an exercise price of $4.58, the fair market value of the common stock on
May 2, 2001. The options became exercisable as to one-half of the shares on
November 8, 2001 and the remaining one-half become exercisable on May 8, 2002.
The options expire ten years from the grant date.
On June 20, 2001, options to purchase a total of 225,000 shares of
common stock were granted under the 2001 Nonemployee Directors Stock Option Plan
to our nonemployee Directors. Mr. Duke received an option to purchase 25,000
shares of common stock; Mr. Chitwood - 25,000 shares; Mr. Oring - 25,000 shares;
Mr. Pannill - 25,000 shares; Mr. Shrader - 25,000 shares; and Mr. Cambridge -
100,000 shares. All of the options were granted with an exercise price of $4.97
per share, the fair market value of the common stock on the date of grant. The
options became exercisable with respect to one-half of the shares on December
21, 2001, and the remaining one-half become exercisable on June 21, 2002. The
options expire on June 20, 2011.
Parallel's 1992 Stock Option Plan provides for the granting of a
one-time stock option to purchase 25,000 shares of common stock to each person
who becomes a nonemployee director after March 1, 1992. On May 7, 2002, Mr.
Oring and Mr. Shrader each received a stock option to purchase
-18-
20,000 shares of common stock under these provisions of the plan. The options
granted to them are exercisable for 20,000 shares of common stock, rather than
25,000 shares, because at the time of grant there were only 40,000 shares
remaining available for grant under the plan. The options have an exercise price
of $4.61 per share, the fair market value of the common stock on the date of
grant. The options became exercisable as to one- half of the shares on November
8, 2001 and the remaining one-half become exercisable on May 8, 2002. The
options expire ten years from the grant date.
STOCK OPTION PLANS
1983 Incentive Stock Option Plan
In May, 1984, our stockholders approved and adopted the 1983 Incentive
Stock Option Plan. Stock options granted under the 1983 Plan were incentive
stock options within the meaning of the Internal Revenue Code. Incentive stock
options can provide the optionee with certain favorable tax benefits. The 1983
Plan was administered by the Compensation Committee of the Board of Directors.
Under the terms of the 1983 Plan, all employees of Parallel were eligible to
participate. The 1983 Plan authorized the granting of options to purchase a
total of 750,000 shares of common stock. All options granted under the 1983 Plan
were granted with exercise prices equal to the fair market value of the common
stock on the date of grant. Options granted under the 1983 Plan could not be
exercised for a period more than ten years after the grant date.
The 1983 Plan expired by its own terms in 1993, except with respect to
outstanding options. The last outstanding stock option granted under the 1983
Plan was exercised in December, 2001.
No additional options are available to be granted under the 1983 Plan.
1992 Stock Option Plan
In May, 1992, our stockholders approved and adopted the 1992 Stock
Option Plan. The 1992 Plan provides for granting to key employees, including
officers and Directors who are also key employees of Parallel, and Directors who
are not employees, options to purchase up to an aggregate of 750,000 shares of
common stock. Options granted under the 1992 Plan to employees may be either
incentive stock options or options which do not constitute incentive stock
options. Options granted to nonemployee Directors will not be incentive stock
options.
The 1992 Plan is administered by the Board's Compensation Committee,
none of whom are eligible to participate in the 1992 Plan except to receive a
one-time option to purchase 25,000 shares at the time he becomes a Director. The
Compensation Committee selects the employees who are to be granted options and
establishes the number of shares issuable under each option and other such terms
and conditions as may be approved by the Compensation Committee. The purchase
price of common stock issued under each option must not be less than the fair
market value of the common stock at the time of grant.
The 1992 Plan provides for the granting of an option to purchase 25,000
shares of common stock to each individual who was a nonemployee Director of
Parallel on March 1, 1992 and to each individual who becomes a nonemployee
Director following March 1, 1992. Members of the Compensation
-19-
Committee are not eligible to participate in the 1992 Plan other than to receive
a nonqualified stock option to purchase 25,000 shares of common stock as
described above.
An option may be granted in exchange for an individual's right and
option to purchase shares of common stock pursuant to the terms of a prior
option agreement. An agreement that grants an option in exchange for a prior
option must provide for the surrender and cancellation of the prior option. The
purchase price of common stock issued under an option granted in exchange for a
prior option is determined by the Compensation Committee and may be equal to the
price for which the optionee could have purchased common stock under the prior
option.
At March 1, 2002, 65,000 shares of common stock remained authorized for
issuance under the plan. However, the 1992 Plan prohibits the grant of options
after March 1, 2002. Consequently, no additional options are available to be
granted under the 1992 Plan.
At March 1, 2002, options to purchase a total of 508,750 shares of
common stock were outstanding under this plan.
1997 Nonemployee Directors Stock Option Plan
The Parallel Petroleum 1997 Non-employee Directors Stock Option Plan
was approved by our stockholders at the annual meeting of stockholders held in
May, 1997. This plan provides for granting to Directors who are not employees of
Parallel options to purchase up to an aggregate of 500,000 shares of common
stock. Options granted under the plan will not be incentive stock options within
the meaning of the Internal Revenue Code.
The Directors Plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee has sole authority to select the
Nonemployee Directors who are to be granted options; to establish the number of
shares which may be issued to Nonemployee Directors under each option; and to
prescribe the terms and conditions of the options in accordance with the Plan.
Under provisions of the Directors Plan, the option exercise price must be the
fair market value of the stock subject to the option on the date the option is
granted. Options are not transferable other than by will or the laws of descent
and distribution and are not exercisable after ten years from the date of grant.
The purchase price of shares as to which an option is exercised must be
paid in full at the time of exercise (1) in cash, (2) by delivering to Parallel
shares of stock having a fair market value equal to the purchase price, or (3) a
combination of cash or stock, as established by the Compensation Committee.
Options may not be granted under this plan after March 27, 2007. At
March 1, 2002, options to purchase a total of 405,000 shares of common stock
were outstanding under this plan.
At March 1, 2002, options to purchase 82,500 shares of common stock
were available for future grant under this plan.
1998 Stock Option Plan
In June, 1998, our stockholders adopted the 1998 Stock Option Plan. The
1998 Plan provides for the granting of options to purchase up to 850,000 shares
of common stock. Stock options granted under the 1998 Plan may be either
incentive stock options or stock options which do not constitute incentive stock
options.
-20-
The 1998 Plan is administered by the Compensation Committee of the
Board of Directors. Members of the Compensation Committee are not eligible to
participate in the 1998 Plan. Only employees are eligible to receive options
under the 1998 Plan. The Compensation Committee selects the employees who are
granted options and establishes the number of shares issuable under each option.
Options granted to employees contain terms and conditions that are
approved by the Compensation Committee. The Compensation Committee is empowered
and authorized, but is not required, to provide for the exercise of options by
payment in cash or by delivering to Parallel shares of common stock having a
fair market value equal to the purchase price, or any combination of cash or
common stock. The purchase price of common stock issued under each option must
not be less than the fair market value of the common stock at the time of grant.
Options granted under the 1998 Plan are not transferable other than by will or
the laws of descent and distribution and are not exercisable after ten years
from the date of grant.
Options may not be granted under the 1998 Plan after March 11, 2008. At
March 1, 2002, options to purchase a total of 665,000 shares of common stock
were outstanding under this plan.
At Mach 1, 2002, there were available for future grant under the 1998
Stock Option Plan options to purchase 145,000 shares of common stock.
2001 Nonemployee Directors Stock Option Plan
The Parallel Petroleum 2001 Nonemployee Directors Stock Option plan was
approved by our stockholders at the annual meeting of stockholders held in June,
2001. This plan provides for granting to Directors who are not employees of
Parallel options to purchase up to an aggregate of 500,000 shares of common
stock. Options granted under the plan will not be incentive stock options within
the meaning of the Internal Revenue Code.
The Directors Plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee has sole authority to select the
Nonemployee Directors who are to be granted options; to establish the number of
shares which may be issued to Nonemployee Directors under each option; and to
prescribe such terms and conditions, as the Committee shall prescribe from time
to time in accordance with the Plan. Under provisions of the Directors Plan, the
option exercise price must be the fair market value of the stock subject to the
option on the date the option is granted. Options are not transferable other
than by will or the laws of descent and distribution and are not exercisable
after ten years from the date of grant.
Options may not be granted under this plan after May 2, 2011. At March
1, 2002, options to purchase 225,000 shares of common stock were outstanding
under this plan.
At March 1, 2002, there were available for future grant under this plan
options to purchase 275,000 shares of common stock.
Employee Stock Option Plan
In June, 2001, our Board of Directors adopted the Parallel Petroleum
Employee Stock Option Plan. This plan provides for the granting of options to
purchase up to 200,000 shares of common stock, less than 1.00% of our
outstanding shares of common stock. Directors and officers are not eligible to
-21-
receive options under this plan. Only employees are eligible to receive options.
Stock options granted under this plan are not incentive stock options.
This plan was implemented without stockholder approval.
The Employee Stock Option Plan is administered by the Compensation
Committee of the Board of Directors. The Compensation Committee selects the
employees who are granted options and establishes the number of shares issuable
under each option.
Options granted to employees contain terms and conditions that are
approved by the Compensation Committee. The Compensation Committee is empowered
and authorized, but is not required, to provide for the exercise of options by
payment in cash or by delivering to Parallel shares of common stock having a
fair market value equal to the purchase price, or any combination of cash or
common stock. The purchase price of common stock issued under each option must
not be less than the fair market value of the common stock at the time of grant.
Options granted under this plan are not transferable other than by will or the
laws of descent and distribution.
The Employee Stock Option Plan will expire on June 20, 2011. Unless
some of the options that have been granted under the plan are forfeited and
again become available for future grant, no additional options may be granted
under this plan.
At March 1, 2002, options to purchase 200,000 shares of common stock
were outstanding under this plan.
Other Option Grants
The Board of Directors granted a nonqualified stock option to Mr.
Cambridge in October, 1993 under the general corporate powers of Parallel,
without stockholder approval. Upon recommendation of the Board's Compensation
Committee, the Board granted the option to Mr. Cambridge to purchase 100,000
shares of common stock at an exercise price of $3.9375 per share, the fair
market value of the common stock on the date of grant. The option is not
transferable, except by will or the laws of descent and distribution. The option
expires in October, 2003.
RETIREMENT PLAN
Parallel maintains under Section 408(k) of the Code a combination
simplified employee pension and individual retirement account plan for eligible
employees. Generally, eligible employees include all employees who are at least
twenty-one years of age.
Contributions to employee SEP accounts may be made at the discretion of
Parallel, as authorized by the Compensation Committee of the Board of Directors.
The percentage of contributions may vary from time to time. However, the same
percentage contribution must be made for all participating employees. Parallel
is not required to make annual contributions to the employees SEP accounts.
Parallel may make tax-deductible contributions for each employee participant of
up to 15% of a participant's compensation, or $30,000, whichever is less. Under
the prototype simplified employee pension plan adopted by Parallel, all of the
SEP contributions must be made to SEP/IRAs maintained with the sponsor of the
plan, a national investment banking firm. All contributions to employees'
accounts are immediately 100% vested and become the property of each employee at
the time of
-22-
contribution, including employer contributions, income-deferral contributions
and IRA contributions. Generally, earnings on contributions to an employee's
SEP/IRA account are not subject to federal income tax until withdrawn.
In addition to receiving SEP contributions made by Parallel, employees
may make individual annual IRA contributions of up to the lesser of $10,500 or
15% of compensation. Each employee is responsible for the investment of funds in
his or her own SEP/IRA and can select investments offered through the sponsor of
the plan.
Distributions may be taken by employees at any time and must commence
by April 1st following the year in which the employee attains age 70 1/2.
Parallel presently makes matching contributions to employee accounts in
an amount equal to the contribution made by each employee, not to exceed,
however, 6% of each employee's salary during any calendar year. During 2001,
Parallel contributed an aggregate of $39,760 to the accounts of eight employee
participants. Of this amount, $11,482 was allocated to Mr. Oldham's account;
$2,574 was allocated to Mr. Bayley's account; and $6,925 was allocated to Mr.
Rutherford's account.
INCENTIVE AWARD AGREEMENTS
Following meetings of Parallel's Board of Directors and its
Compensation Committee in May, 2000, and August, 2000, the Board of Directors at
a meeting held in September, 2000, authorized Parallel to enter into Incentive
Award Agreements with Mr. Cambridge, Mr. Oldham, Mr. Bayley, Mr. Rutherford and
four other employees. These agreements, which were entered into in December,
2001, are intended to provide an incentive to the participants and to reward
outstanding efforts and achievements by them when there is a material
contribution to Parallel's success resulting from an Award Event. An Award Event
generally means an acquisition of First Permian, a sale of substantially all of
First Permian's assets, or Parallel's sale or other disposition of its 30.675%
ownership interest in First Permian. The agreements awarded Unit Equivalent
Rights to the recipients. A Unit Equivalent Right is essentially equivalent to a
Common Unit of common membership interest in First Permian. At March 1, 2002,
First Permian had outstanding 1,140,992 Common Units and 1,350,000 Preferred
Units. Parallel owns 350,000 Common Units of First Permian. The Unit Equivalent
Rights entitle the recipient to a one-time cash bonus. Payment of the bonus is
triggered by the occurrence of an Award Event. The amount of a bonus payment is
equal to the difference between $30.00 per Common Unit and the price per Common
Unit received by First Permian's holders of Common Units in a transaction that
constitutes an Award Event, multiplied by the number of Unit Equivalent Rights
granted to the recipient. To illustrate, assuming the holders of First Permian's
Common Units received $100.00 per Common Unit from a sale of assets, a recipient
of 1,000 Unit Equivalent Rights would be entitled to receive a cash payment
equal to $70.00 ($100.00 minus $30.00) multiplied by 1,000, or $70,000.00. Under
these Incentive Award Agreements, 9,564 Unit Equivalent Rights were granted to
Mr. Oldham; 2,394 were granted to Mr. Cambridge; 2,869 to Mr. Bayley; 7,173 to
Mr. Rutherford; and a total of 2,500 Unit Equivalent Rights were granted to four
other employees.
On April 8, 2002, First Permian sold all of its assets to a third party
for the gross purchase price of $120 million cash and 3,043,979 shares of the
third party's common stock. The net proceeds to First Permian were $19,835,427
cash and $83,391,325 in stock, based on $27.40 per share, the fair market value
of the purchaser's stock on the closing date. Parallel's 30.675% share of the
net proceeds of cash and stock had an aggregate value on the closing date of
$31,664,805, or $90.47 per Common Unit.
-23-
Under the Incentive Award Agreements, the holders of the Unit Equivalent Rights
are entitled to receive in 2002 $60.47 per Unit Equivalent Right ($90.47 less
$30.00), or a total of $578,335 for Mr. Oldham; $433,751 for Mr. Rutherford;
$173,488 for Mr. Bayley; and $144,765 for Mr. Cambridge.
The Incentive Award Agreements also contemplate cash payments upon a
Change of Control of Parallel, defined as:
o any person becoming the owner of 20% or more of Parallel's
voting securities;
o less than a majority of the members of Parallel's Board of
Directors continuing to serve as a Director; or
o approval by Parallel's stockholders of a transaction providing
for (1) Parallel to be merged, consolidated or otherwise
combined with another person, (2) the sale of all or
substantially all of the assets of Parallel, or (3) the
liquidation or dissolution of Parallel.
Upon the occurrence of a Change of Control, each holder of Unit
Equivalent Rights is entitled to receive a cash payment in an amount equal to
the number of Unit Equivalent Rights owned, multiplied by the Per Unit Change of
Control Value. The Per Unit Change of Control Value means the quotient of (a)
the sum of (1) the remainder of (A) the discounted future net income of First
Permian's total proved reserves using SEC requirements, minus (B) the sum of (i)
all liabilities of First Permian as set forth in its balance sheet as of the
most recent date preceding the Change of Control plus (ii) the liquidation
amount of First Permian's outstanding Preferred Units (approximately $13,500,000
plus cumulated but unpaid cash dividends), (2) plus all current assets of First
Permian as set forth in its balance sheet, divided by (b) the total number of
First Permian's outstanding Common Units.
CERTAIN TRANSACTIONS
From time to time, Wes-Tex Drilling Company, L.P. acquires undivided
interests in oil and gas leasehold acreage from our company and participates
with us and other interest owners in our drilling and development operations.
Myrle Greathouse, a Director of Parallel from October, 1993 until his
resignation on December 19, 2000, was also the sole director and the sole
shareholder of Wes-Tex until his death on December 29, 2000. Mr. Chitwood was
appointed to Parallel's Board on December 19, 2000 to fill the vacancy created
by Mr. Greathouse's resignation and he became the executor of Mr. Greathouse's
estate on January 17, 2001. Mr. Chitwood became the Chief Executive Officer of
Wes-Tex on January 30, 2001. Wes-Tex participates in these operations under
standard form operating agreements on the same or similar terms afforded by
Parallel to nonaffiliated third parties. We invoice all working interest owners,
including Wes-Tex, on a monthly basis, without interest, for their pro rata
share of lease acquisition, drilling and operating expenses. During 2001, we
billed Wes-Tex $22,221 for its proportionate share of lease operating expenses
incurred on properties we operate. The largest amount owed to us by Wes-Tex at
any one time during 2001 for its share of lease operating expenses was $6,170.
At December 31, 2001, Wes- Tex owed us $1,267 for these expenses. During 2001,
we disbursed $58,335 to Wes-Tex in payment of revenues attributable to Wes-Tex's
pro rata share of the proceeds from sales of oil and gas produced from
properties in which Wes-Tex and Parallel owned interests.
During 2001, Cambridge Production, Inc., a corporation owned by Mr.
Cambridge, served as operator of two wells on oil and gas leases in which we
also owned an interest. Generally, the operator of a well is responsible for the
day to day operations on the lease, overseeing production, employing field
-24-
personnel, maintaining production and other records, determining the location
and timing of drilling of wells, administering gas contracts, joint interest
billings, revenue distribution, making various regulatory filings, reporting to
working interest owners and other matters. During 2001, Cambridge Production
billed us $115,493 for our pro rata share of lease operating expenses and
drilling and workover expenses. We paid $131,561 to Cambridge Production during
2001, which included amounts remaining unpaid and owed to Cambridge Production
at the end of 2000. The largest amount we owed Cambridge Production at any one
time during 2001 was $28,492. At December 31, 2001, no amounts were due to us
from Cambridge Production. Cambridge Production's billings to Parallel are made
monthly on the same basis as all other working interest owners in the wells. Our
pro rata share of oil and gas sales during 2001 from the wells operated by
Cambridge Production was $319,308. At December 31, 2001, we owed Cambridge
Production $2,625.
E. R. Duke, a Director of Parallel until January, 2002, and two
entities owned and controlled by Mr. Duke (Duke and Cain Partnership and Mustang
Mud, Inc.), collectively owned interests in a total of 15 wells in which
Parallel also owned interests in 2001. Five of these wells are operated by
Parallel. In 2001, we billed Mr. Duke and the two entities an aggregate amount
of $222,557 for lease operating expenses and drilling and workover expenses.
During the same period, Mr. Duke and the two entities paid Parallel an aggregate
amount of $215,364. At December 31, 2001, Mr. Duke and the two entities owed
Parallel $10,428 for their pro rata share of lease operating and drilling and
workover expenses. The largest amount owed to us by Mr. Duke and the two
entities at any one time during 2001 was $67,048. We disbursed an aggregate
amount of $102,679 to Mr. Duke and the two entities for payment of their pro
rata share of the proceeds from sales of oil and gas produced from these wells.
Parallel's billings to Mr. Duke and the two entities are made monthly on the
same basis as all other working interest owners in the wells.
Martin B. Oring, a Director of Parallel, is the owner and manager of
Wealth Preservation, L.L.C., a financial consulting services firm. One of Wealth
Preservation's clients is Stonington Corporation, an investment banking firm we
engaged in November, 2001 for the purpose of obtaining general corporate
financial advisory services and financial advisory services in the placement of
debt or equity securities. Under Wealth Preservation's August, 2001 consulting
agreement with Stonington, Wealth Preservation agreed to assist Stonington in
determining the type and nature of financial advice to be provided by Stonington
to Parallel. The consulting agreement required Stonington to pay Mr. Oring an
initial fee of $12,500, and thereafter a quarterly fee in the amount of $6,250.
The agreement also provides that Mr. Oring is entitled to receive one-third of
any warrants, options or other rights that Parallel has issued and may in the
future issue to Stonington. Under Parallel's agreement with Stonington, we
issued to Stonington five-year warrants to purchase 275,000 shares of common
stock having an exercise price of $2.95 per share, the fair market value of
Parallel's common stock on the date the warrants were issued. Parallel may be
required to issue to Stonington warrants to purchase an additional 100,000
shares of common stock if Parallel consummates the sale of any debt or equity
securities. We are also required under our agreement with Stonington to pay
aggregate fees of $200,000 to Stonington for its services. Mr. Oring's agreement
with Stonington expires when Parallel's agreement with Stonington expires. Our
agreement with Stonington terminates June 30, 2002, unless extended by the
parties on mutually acceptable terms.
During 2001, we paid $72,098 to First Permian for reimbursement of
general and administrative expenses. First Permian paid $23,647 to us for
reimbursement of general and administrative expenses.
-25-
At December 31, 2001, no amounts were owed First Permian. At that same date,
First Permian owed us $1,170. First Permian also paid Parallel management fees
in the aggregate amount of $68,750.
We believe the transactions described above were made on terms no less
favorable than if we had entered into the transactions with an unrelated party.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, subject to ratification by the stockholders at
the Annual Meeting, has reappointed the firm of KPMG LLP as independent auditors
for the fiscal year ending December 31, 2002. If the stockholders do not ratify
this appointment, the Board may consider other independent public accountants or
continue the appointment of KPMG LLP. KPMG LLP has been our independent auditor
since 1979.
Representatives of KPMG LLP are expected to be present at the Annual
Meeting of Stockholders and will be afforded an opportunity to make a statement
at the Annual Meeting if they desire to do so. It is expected that such
representatives will be available to respond to appropriate questions.
STOCKHOLDERS ARE REQUESTED TO VOTE FOR THE RATIFICATION OF THE
REAPPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITOR FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2002.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other business to be presented at the Annual Meeting of
Stockholders. If any other matter properly comes before the Annual Meeting, the
persons appointed by the proxy intend to vote such proxy in accordance with
their best judgment.
STOCKHOLDERS MAY OBTAIN, WITHOUT CHARGE, A COPY OF OUR ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001 AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UPON WRITTEN REQUEST TO THE MANAGER OF INVESTOR RELATIONS,
PARALLEL PETROLEUM CORPORATION, ONE MARIENFELD PLACE, SUITE 465, 110 N.
MARIENFELD, MIDLAND, TEXAS 79701.
-26-
STOCKHOLDER PROPOSALS
Stockholders desiring to submit proposals under SEC Rule 14a-8 for
inclusion in our proxy statement and form of proxy for the 2002 annual meeting
must submit proposals to us at our principal executive office on or before
January 17, 2003 and must satisfy the conditions established by the SEC for such
proposals. Proposals should be sent to:
Secretary of Parallel Petroleum Corporation
One Marienfeld Place
110 N. Marienfeld, Suite 465
Midland, Texas 79701.
The use of certified mail, return receipt requested, is suggested.
The proxy confers discretionary authority on the persons named therein
to vote with respect to the election of any person as a director where the
nominee is unable to serve and matters incident to the conduct of the Annual
Meeting, including matters of which we received notice not later than April 19,
2002.
Proposals that stockholders wish to present at the 2003 annual meeting
(other than pursuant to the procedures in SEC Rule 14a-8) must be received by
Parallel within the time periods established by our bylaws, and must satisfy the
other conditions for such proposals set forth in our bylaws. Under the terms of
our bylaws, if we provide at least 70 days' notice or prior public disclosure of
the date of the 2003 annual meeting, notice of a matter to be submitted at the
2003 annual meeting must be delivered to us not less than 60 days nor more than
90 days prior to the meeting. If less than 70 days' notice or prior public
disclosure of the date of the 2003 annual meeting is given, notices of matters
to be submitted at the annual meeting must be received not later than 10 days
after the day on which notice of the date of the annual meeting was mailed or
public disclosure was made. If we do not timely receive notice of a matter to be
brought before the meeting, such matter may be excluded from consideration at
the meeting. Stockholders are advised to review our bylaws which contain these
advance notice requirements.
By Order of the Board of Directors
THOMAS W. ORTLOFF
Secretary
Midland, Texas
May 17, 2002
-27-
PROXY PARALLEL PETROLEUM CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - JUNE 18, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. Cambridge and Larry C.
Oldham, severally, as Proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as designated below, all of
the shares of Common Stock of PARALLEL PETROLEUM CORPORATION of record in the
name of the undersigned at the close of business on May 10, 2002, which the
undersigned is entitled to vote at the 2002 Annual Meeting of Stockholders of
the Company and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated May 17, 2002, receipt of which is acknowledged.
1. ELECTION OF DIRECTORS:
FOR ALL NOMINEES LISTED BELOW WITHHOLD AUTHORITY
[ ] (except as marked to the contrary) [ ] (to vote for all nominees below)
(INSTRUCTIONS: To withhold authority to vote for any nominee below, strike a
line through the nominee's name)
Thomas R. Cambridge, Dewayne E. Chitwood, Larry C. Oldham, Martin B. Oring,
Charles R. Pannill, Jeffrey G. Shrader.
2. APPROVAL OF SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Please See Reverse Side)
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any and all
adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER(S). IF NO INDICATION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name by an
authorized person.
DATED , 2002
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Signature
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED POSTAGE PRE-PAID
ENVELOPE.