SCHEDULE 14A
(RULE 14A - 101)
INFORMATION REQUIRED
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____________)
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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
(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
To Our Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of Parallel
Petroleum Corporation (the "Company") will be held at the Midland Petroleum
Club, 501 West Wall Street, Midland, Texas 79701, on Wednesday, May 14, 1997
at 10:00 a.m., for the purpose of taking action on:
1. The election of the six current Directors to serve until the next
Annual Meeting of Stockholders and until their successors shall be
duly elected and qualified;
2. Approval of the Parallel Petroleum Corporation Non-Employee
Directors Stock Option Plan;
3. The ratification of the reappointment of KPMG Peat Marwick LLP
as the Company's independent auditor for 1997; and
4. The transaction of such other business as may properly come
before the Annual Meeting or any adjournment thereof.
The Company's Board of Directors has fixed the close of business on
April 10, 1997 as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. This Notice of Annual Meeting, the Proxy Statement and the Proxy
are being mailed to stockholders of the Company beginning on or about April
15, 1997. The principal executive office of the Company is located at One
Marienfeld Place, Suite 465, 110 N. Marienfeld, Midland, Texas 79701.
By Order of the Board of Directors
THOMAS W. ORTLOFF
Secretary
April 14, 1997
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE AND PROMPTLY RETURN YOUR
SIGNED PROXY IN THE POSTAGE PAID ENVELOPE. THE PROXY IS REVOCABLE
AT ANY TIME PRIOR TO ITS USE.
<PAGE>1
PARALLEL PETROLEUM CORPORATION
One Marienfeld Place, Suite 465
110 N. Marienfeld
Midland, Texas 79701
(915) 684-3727
PROXY STATEMENT
__________________
SOLICITATION OF PROXIES
The accompanying Proxy is solicited on behalf of the Board of
Directors of Parallel Petroleum Corporation (the "Company") in connection
with the Annual Meeting of Stockholders to be held at the Midland Petroleum
Club, 501 West Wall Street, Midland, Texas 79701, at 10:00 a.m. on Wednesday,
May 14, 1997, for the purposes set forth in the accompanying Notice of Annual
Meeting, and at any adjournments thereof.
The cost of preparing, assembling and mailing the Notice of Annual
Meeting of Stockholders, Proxy Statement and Proxy, which are first being
mailed to the stockholders on or about April 15, 1997, will be borne by the
Company. It is contemplated that solicitation of Proxies will be primarily
by mail, but may be supplemented by personal solicitation by the Company's
officers, employees and Directors for which no additional compensation will
be paid.
Any stockholder giving a Proxy may revoke it at any time before it
is voted by delivering a later dated Proxy, or by notifying the Secretary of
the Company either in person or by written notice specifically revoking the
power to use and vote the Proxy. Stockholder attendance and voting in person
at the Annual Meeting will also revoke any Proxy given by such stockholder.
If no specification is made on the Proxy, the 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.
VOTING AT THE ANNUAL MEETING
The close of business on April 10, 1997 has been fixed by the Company's
Board of Directors as the record date for the determination of stockholders
entitled to vote at the annual Meeting of Stockholders. As of that date, the
Company had issued and outstanding 17,796,608 shares of $.01 par value Common
Stock.
The Company's Certificate of Incorporation does not permit cumulative
voting by the stockholders. The Common Stock is the Company's only class of
<PAGE> 2
voting securities outstanding. Accordingly, each holder of Common Stock as
of the record date shall be entitled to cast one vote for each share of Common
Stock.
The holders of a majority of the issued and outstanding shares of
Common Stock entitled to vote, whether present in person or represented 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. A broker "non-vote" occurs when a nominee holding
shares of the Company's 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.
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 election of Directors,
adoption of the Parallel Petroleum Corporation Non-Employee Directors Stock
Option Plan and for the ratification of the selection by the Board of Directors
of KPMG Peat Marwick LLP as the Company's auditor for 1997.
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. Accordingly, 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. Broker
non-votes on one or more matters will have no impact on such matters since
they are not considered "shares present" for voting purposes.
<PAGE> 3
STOCK OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of April 10,
1997 with respect to the beneficial ownership of Common Stock by (i) each
person known to the Company to own beneficially more than five percent of
the outstanding Common Stock, (ii) each executive officer of the Company,
(iii) each Director and nominee for Director of the Company, and (iv) all
executive officers and Directors (and nominees) of the Company as a group:
<TABLE>
<CAPTION>
Percent
Name and Address Amount and Nature of of
of Beneficial Owner Beneficial Ownership (1) Class (2)
- ------------------- ------------------------ ---------
<S> <C> <C>
Thomas R. Cambridge 842,045(3) 4.67%
216 Texas Commerce Bank Building
Amarillo, Texas 79109
Danny H. Conklin 125,624(4) *
730 First National Place I
Amarillo, Texas 79701
Ernest R. Duke 215,973(5) 1.21%
408 West Wall Street
Midland, Texas 79701
Myrle Greathouse 1,020,488(6) 5.73%
401 Cypress, Suite 519
Abilene, Texas 79601
Larry C. Oldham 806,090(7) 4.38%
One Marienfeld Place, Suite 465
Midland, Texas 79701
Charles R. Pannill 95,495(8) *
3416 Acorn Run
Fort Worth, Texas 76019
Wes-Tex Drilling Company 972,488(9) 5.46%
519 First National Bank Building West
Abilene, Texas 79601
All Executive Officers and Directors
as a Group (6 persons) 3,105,715(10) 16.59%
</TABLE>
___________________
* Less than one percent.
(1) Unless otherwise indicated, all shares of Common Stock are held directly
with sole voting and investment powers.
<PAGE> 4
(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.
(3) Includes 225,000 shares of Common Stock underlying presently exercisable
stock options.
(4) Includes 25,000 shares of Common Stock underlying a presently exercisable
stock option.
(5) Includes 12,500 shares of Common Stock underlying a presently exercisable
stock option. Also included are 74,395 shares held by Duke and Cain
Partnership, a general partnership in which Mr. Duke is a partner, and
16,000 shares held in the name of Mr. Duke's wife. Mr. Duke has shared
voting and investment powers with respect to such shares.
(6) Includes 972,488 shares of Common Stock held directly by Wes-Tex Drilling
Company ("Wes-Tex"), a corporation. Mr. Greathouse is the chairman of
the board of directors and sole shareholder of Wes-Tex and, accordingly,
has shared voting and investment powers with respect to such shares.
Also included are 25,000 shares of Common Stock underlying a presently
exercisable stock option, and 1,000 shares held by a twenty-two member
investment club, of which Mr. Greathouse is a member, and as to which
Mr. Greathouse has shared voting and investment powers. See note 9 below.
(7) Includes 612,000 shares of Common Stock underlying presently exercisable
stock options.
(8) Includes 25,000 shares of Common Stock underlying a presently exercisable
stock option. 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.
(9) Myrle Greathouse, a Director of the Company, is the chairman of the board
of directors and sole shareholder of Wes-Tex Drilling Company. Wes-Tex
has shared voting and investment powers with respect to such shares.
See note 6 above.
(10) Includes 924,500 shares of Common Stock underlying presently exercisable
stock options.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires, among
other things, that the Company's Directors and officers file with the Securities
and Exchange Commission, at specified times, reports of beneficial ownership
and changes in beneficial ownership of the Company's Common Stock and other
equity securities. To the Company's knowledge, all Section 16(a) filing
requirements have been complied with during the year ended December 31, 1996,
except that two transactions involving the purchase by Mr. Duke and his wife
<PAGE> 5
of a total of 15,000 shares of the Company's Common Stock were reported five
days late, and Mr. Conklin also reported a purchase of 5,000 shares of the
Company's Common Stock five days after the due date of the report.
ELECTION OF DIRECTORS
Directors of the Company are elected annually by the stockholders to
serve until the next annual meeting of stockholders and until their respective
successors are duly elected. The Bylaws of the Company provide that the
number of directors comprising the whole Board shall from time to time be
fixed and determined by resolution adopted by the Board of Directors. The
Board of Directors has fixed the size of the Board at six directors.
Accordingly, the Board of Directors is recommending that the six current
Directors of the Company be re-elected. If any nominee becomes unavailable
for any reason, a substitute nominee may be proposed by the Board of
Directors and the shares represented by Proxy will be voted for any
substitute nominee, unless the Board reduces the number of directors.
The Board of Directors has no reason to expect that any nominee will become
unavailable. Unless otherwise directed in the accompanying Proxy, it is the
intention of the persons named in such Proxy to vote the shares represented
by such Proxy FOR the election of the following six nominees for the offices
of director of the Company to hold office until the next annual meeting of
stockholders and until their respective successors have been duly elected and
qualified:
<TABLE>
<CAPTION>
Director
Nominee Since Position with Company
- ------- -------- ---------------------
<S> <C> <C>
Thomas R. Cambridge 1985 Chairman of the Board of
Directors and Chief
Executive Officer
Larry C. Oldham 1979 President, Treasurer
and Director
Danny H. Conklin(1) 1985 Director
Ernest R. Duke(1) 1980 Director
Myrle Greathouse(2) 1993 Director
Charles R. Pannill(2) 1982 Director
</TABLE>
_____________
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Mr. Cambridge, age 62, is an independent petroleum geologist engaged
in the exploration for, development and production of oil and gas. From 1970
until 1990, such activities were carried out primarily through Cambridge &
<PAGE> 6
Nail Partnership, a Texas general partnership. Since 1990, such oil and gas
activities have been carried out through Cambridge Production, Inc., a Texas
corporation. Mr. Cambridge serves the Company in the capacity of a consultant,
not as a full-time employee. He received a Bachelor of Science degree and
a Master of Science degree in Geology from the University of Nebraska in
1958 and 1960, respectively.
Mr. Oldham, age 43, a founder of the Company, has served as an
officer and Director of the Company since its formation in 1979. Prior to
the Company's formation, Mr. Oldham was employed by Dorchester Gas Corporation
during the period 1976 to 1979 and by KPMG Peat Marwick LLP during 1975 and
1976. Mr. Oldham became President of the Company in October, 1994, and
served as Executive Vice President of the Company prior to that time. Mr.
Oldham is a member of the American Institute of Certified Public Accountants
and a member of the Permian Basin Landman's Association. He received a
Bachelor of Business Administration degree from West Texas State University
in 1975.
Mr. Conklin, age 62, is an independent petroleum geologist and a
principal partner in Philcon Development Co., a privately held oil and gas
exploration partnership. Mr. Conklin is a director of Boatmens' First
National Bank of Amarillo, Amarillo, Texas, a director of Southwestern
Public Service Company, Amarillo, Texas, and former Chairman of the
Independent Petroleum Association of America. Mr. Conklin received a
Bachelor of Science degree in Geology from Oklahoma State University in
1957.
Mr. Duke, age 69, is the president and majority shareholder of
Mustang Mud, Inc., a privately held oil field service company. He received
a Bachelor of Science degree in Geology from Southern Methodist University
in 1950.
Mr. Greathouse, age 74, is the chairman of the board of directors
and sole shareholder of Wes-Tex Drilling Company, a corporation engaged in
contract drilling of oil and gas wells and, to a lesser extent, oil and gas
exploration and production. Mr. Greathouse graduated from the University of
Oklahoma in 1949 with a Bachelor's degree in Business Administration.
Mr. Pannill, age 71, 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. He received a Bachelor of Science degree in Geology from Texas
A&M University in 1950.
Each officer of the Company is appointed annually by the Company's
Board of Directors to serve at the Board's discretion and until their respective
successors in office are elected and qualified. There are no family
relationships between any of the Directors or officers of the Company.
Other Information; Committees of the Board
During the fiscal year ended December 31, 1996, four meetings of the
Company's Board of Directors were held. All Directors were in attendance at
all of the meetings. The Directors also took action by unanimous written
consent on two occassions.
<PAGE> 7
During 1996, the members of the Audit Committee were Mr. Conklin and
Mr. Duke. The function of the Audit Committee is to review the results of the
annual audit of the Company's financial statements and recommendations of the
independent auditors with respect to the Company's accounting practices,
policies and procedures and to recommend to the Board of Directors the
appointment of auditors for the Company. The Audit Committee held one meeting
in 1996 at which both members were present.
Messrs. Greathouse and Pannill served as members of the Compensation
Committee of the Board of Directors during 1996. The Compensation Committee
administers the Company's stock option plans and has the responsibility of
reviewing and recommending to the Board of Directors the compensation and
promotion of officers of the Company, the terms of any proposed employee
benefit arrangements and the making of awards under such arrangements. The
Compensation Committee met two times during the fiscal year ended December
31, 1996. Both members of the Compensation Committee participated in the
consideration of the compensation of the Company's executive officers and
the recommendations to the full Board of Directors.
The Company does not have a standing nominating committee. The review
of recommendations for nominees for Board membership is made by the full Board
of Directors.
APPROVAL OF NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In February, 1997, the Board of Directors adopted the Non-Employee
Directors Stock Option Plan (the "1997 Plan"). The 1997 Plan is attached to
this Proxy Statement as Appendix A. The purpose of the 1997 Plan is to
secure for the Company and its stockholders the benefits of the incentives
inherent in increased Common Stock ownership by members of the Board of
Directors of the Company who are not employees of the Company ("non-employee
Directors") and to provide a means whereby non-employee Directors of the
Company may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its stockholders. The
1997 Plan provides for the granting to Directors who are not employees of
the Company of options to purchase up to 500,000 shares of Common Stock.
Options granted under the 1997 Plan will not be incentive stock options.
At the date of this Proxy Statement, no action had been taken with respect
to future grants of options under the 1997 Plan. Consequently, while it is
expected that the current non-employee Directors of the Company will likely
be granted options in the future, the non-employee Directors that may receive
such options, the number of options and dollar values, are not currently
determinable.
At the Annual Meeting, stockholders will be asked to approve and
ratify the action taken by the Board of Directors in adopting the 1997 Plan.
The 1997 Plan was unanimously approved by the Board of Directors and the
Board of Directors recommends that the adoption of the 1997 Plan be ratified
by the stockholders. Unless otherwise indicated, the proxies received from
stockholders will be voted in favor thereof. The affirmative vote of a
<PAGE> 8
majority of the shares represented at the meeting will constitute approval
and ratification of the 1997 Plan. While stockholder approval of the 1997
Plan is not required under Delaware law, certain rules of The Nasdaq Stock
Market require the 1997 Plan to be approved by the Company's stockholders.
If the required stockholder approval is not obtained, the 1997 Plan will be
terminated and no options under the 1997 Plan will be granted.
Administration. The 1997 Plan is administered by the Compensation
Committee, the members of which are eligible to participate in the 1997 Plan.
The Compensation Committee has the sole authority to select the non-employee
Directors who are to be granted options and to establish the number of shares
issuable under each option. The Compensation Committee is authorized to
interpret the 1997 Plan, and to adopt such rules and regulations, consistent
with the provisions of the 1989 Plan, as it may deem advisable.
Eligibility. Only non-employee Directors of the Company whom the
Compensation Committee selects shall be eligible to receive one or more
nonqualified options under the Plan. Members of the Compensation Committee
are eligible to participate in the 1997 Plan.
Stock to be Optioned. The aggregate number of shares of Common
Stock which may be issued pursuant to the exercise of stock options granted
under the 1997 Plan may not exceed in the aggregate 500,000 shares, subject
to adjustments in the number of shares with respect to options and purchase
prices therefor in the event of stock splits or stock dividends, and for
equitable adjustments in the event of recapitalization, mergers,
consolidations, acquisitions of more than 50% of the outstanding shares of
Common Stock by any person or entity, dissolution and liquidation, and
similar events. If any outstanding option granted under the 1997 Plan
expires or terminates prior to its exercise in full, the shares allocable to
the unexercised portion of such option may be subsequently granted under the
1997 Plan. Exercise of an option in any manner shall result in a decrease
in the number of shares of stock which may thereafter be available, both for
purposes of the 1997 Plan and for sale to any one individual, by the number
of shares as to which the option is exercised.
Terms of Grants. Options granted to non-employee Directors shall
contain such terms and conditions and may be exercisable for such periods, as
may be 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 the Company 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 will not be less than the fair market value of the
stock subject to the option at the time of grant.
Options granted under the 1997 Plan are not transferable other than
by will or the laws of descent and distribution and are exercisable during
the optionee's lifetime only by the optionee and while the optionee is a
Director of the Company, except that if the optionee ceases to be a Director
of the Company as a result of death or disability, any options held by the
optionee may be exercised in full by the optionee's legal representative at
any time during the period of one year following such termination. If an
optionee ceases to be a Director of the Company other than for cause, death
or disability, options may be exercised within three months thereafter, but
only as to the number of shares the optionee was entitled to purchase as of
the date the optionee ceased to be a Director.
<PAGE> 9
Amendment or Termination. The Board of Directors of the Company
may amend or terminate the 1997 Plan at any time, but may not in any way
impair the rights of an optionee under an outstanding option without the
consent of such optionee.
Term of Plan. The 1997 Plan will terminate upon and no further
options shall be granted after the expiration of ten years from the date of
its adoption by the Board of Directors.
Federal Tax Aspects. Options granted under the 1997 Plan will be
"nonqualified" and will not be "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Nonqualified options under the 1997 Plan will not have a "readily
ascertainable value" at the time of the grant of such options or at any time
until the options are exercised, and as a result, an optionee who receives a
nonqualified option will not be taxed upon the receipt of the option.
An optionee who receives a nonqualified option will generally
recognize ordinary income upon the exercise of the option in the amount by
which the fair market value of the underlying shares at the time of exercise
exceeds the exercise price. However, shares received upon exercise of
options by a participant who is subject to Section 16(b) of the Securities
Exchange Act of 1934 (by reason of being an officer, director, or person who
beneficially owns 10% or more of any class of equity security of the Company)
will be treated as being non-transferable and subject to a substantial risk
of forfeiture for the six months following the date of exercise (the period
during which Section 16(b) applies). Such optionee will recognize ordinary
income when the six-month period expires in the amount by which the fair
market value of the Common Stock at that time exceeds the amount paid for
the shares. The optionee subject to Section 16(b) may, however, elect
pursuant to Section 83(b) of the Code, to include in income at the time of
exercise of the option the amount by which the fair market value of the
shares purchased exceeds the option price even though the six-month period
of Section 16(b) of the Securities Exchange Act of 1934 has not expired.
If the optionee makes such an election, subsequent appreciation in the value
of the shares will not be treated as compensation taxable as ordinary income.
The Company will be entitled to a deduction from income as an ordinary and
necessary business expense when and to the extent ordinary income is
recognized by an optionee.
Upon the sale of the shares received upon the exercise of a
nonqualified option, the seller will generally recognize either short-term or
long-term capital gain or loss, depending upon the holding period of the
shares. The required holding period for long-term capital gain or loss
treatment is more than one year. The measure of the taxable gain or loss is
determined by the difference between the price paid for the shares upon the
exercise of the options (plus the amount of income recognized) and the
selling price of the shares.
The foregoing statements are based upon current federal income tax
laws and regulations and are subject to change if the tax laws and regulations,
or interpretations thereof, change.
<PAGE> 10
EXECUTIVE COMPENSATION
Report of the Compensation Committee
The Compensation Committee (the "Committee") of the Board of
Directors is responsible for formulating and recommending to the full Board
of Directors the compensation paid to the Company's executive officers.
In reviewing the overall compensation of the Company's executive officers,
the Committee reviews and considers the following components of executive
compensation: base salaries, stock option grants, cash bonuses, insurance
plans, and Company contributions to the Company's 408(k) retirement plan.
The Committee consists of Myrle Greathouse and Charles R. Pannill, non-employee
Directors of the Company.
In establishing the compensation paid to the Company's executives,
the Committee emphasizes (i) providing compensation that will motivate and
retain the Company's executives and reward performance, (ii) encouraging the
long-term success of the Company, and (iii) encouraging the application of
prudent decision making processes in an industry marked by volatility and
high risk.
Historically, the Committee has evaluated compensation paid to the
Company's executive officers based upon a variety of factors, including the
Company's growth in oil and gas reserves, the market value of the Company's
Common Stock, cash flow, the extent to which the Company's executive officers
are able to find and create opportunities for the Company to participate in
drilling or acquisition ventures having quality prospects, their ability to
formulate and maintain sound budgets for the Company's drilling ventures and
other business activities, the overall financial condition of the Company,
and the extent to which proposed business plans are met. The Committee does
not assign relative weights or rankings to these factors but instead makes a
subjective determination based upon a consideration of all such factors.
In establishing base salaries for the Company's executive officers, the
Committee does not rely on formal surveys or comparisons with other companies,
but instead relies on their general knowledge and experience, focusing on a
subjective analysis of each executive's contributions to the Company's
overall performance. Independent consultants have not been utilized by the
Committee. While specific performance levels or "benchmarks" are not used
to establish salaries, the Committee does take into account historic comparisons
of Company performance. With respect to awards of stock options, the
Committee tries to provide the Company's executives with an incentive
compensation vehicle that could result in future additional compensation to
the executives, but only if the value of the Company increases for all
stockholders. All stock options are granted with exercise prices equal to
the fair market value of the Company's Common Stock on the date of grant.
When awarding stock options, the Committee considers the number of options
granted on prior occasions.
The Company does not provide significant perquisites to its employees
or Directors, and only one executive officer of the Company participates in
the Company's group insurance and retirement plans.
<PAGE> 11
In the case of Mr. Cambridge, the Chief Executive Officer of the
Company, the factors considered by the Committee in establishing recommended
levels and components of compensation also include the amount of time devoted
by Mr. Cambridge to the business of the Company and the fact that he does not
participate in any of the Company's insurance or retirement plans. These
additional 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 May, 1996, and after considering the Company's overall
operating performance and the individual contributions made by the Company's
executive officers towards the achievement of these results, including the
sustained growth in the Company's oil and gas reserves, financing arrangements,
increased oil and gas production, and the increased responsibilities of Mr.
Cambridge generally associated with the Company's growth, the Committee
determined to increase the cash compensation paid to Mr. Cambridge from
$64,260 per year to $70,686 per year, a 10% increase. In addition to the
increase in his annual cash compensation, Mr. Cambridge also received a
Christmas bonus in an amount equivalent to two weeks of his regular monthly
cash compensation, as did all officers and employees of the Company.
For the third consecutive year, the Committee determined that it would not
grant any stock options to either of the Company's executive officers,
including Mr. Cambridge. This decision is not a reflection on the individual
performance of the executive officers of the Company, but is consistent with
the Committee's conclusion that the amount and types of compensation,
currently being paid to the Company's executive officers are sufficient to
motivate such officers and encourage ongoing efforts directed towards
increasing the value of the Company for all stockholders.
Recently enacted provisions of the Internal Revenue Code of 1986, as
amended, that restrict the deductibility of certain compensation over one
million dollars per year has not been a factor in the Committee's considerations
or recommendations.
Myrle Greathouse
Charles R. Pannill
<PAGE> 12
Summary of Annual Compensation
The Summary Compensation Table below sets forth for each of the three
fiscal years ended December 31, 1996, a summary of the types and amounts of
compensation paid to the executive officers of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------ -------
Other
Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Name and Principal Year Salary Bonus sation Awards Options/ Payouts sation
Position ($) ($) ($) ($) SARs(#) ($) ($)
- ------------------ ---- ------ ----- ------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T.R. Cambridge 1996 $66,402 $2,945 $ 825 0 0 0 0
Chief Executive
Officer and 1995 $62,475 $3,560 $ 900 0 0 0 0
Chairman of
the Board of 1994 $52,500 $ 500 $ 900 0 0 0 0
Directors
L.C. Oldham 1996 $98,766 $4,346 $11,290(1) 0 0 0 $2,963(2)
President,
Treasurer 1995 $92,181 $5,015 $11,521(1) 0 0 0 $2,765(2)
and Director
1994 $87,792 $4,800 $10,809(1) 0 0 0 $1,129(2)
</TABLE>
- -------------------
(1) Such amount includes insurance premiums for nondiscriminatory group life,
medical, disability and dental insurance as follows: $10,417 for 1996;
$9,171 for 1995; and $8,445 for 1994.
(2) Such amount represents contributions made by the Company to Mr. Oldham's
individual retirement account maintained under the Company's 408(k)
simplified employee pension plan/individual retirement account.
<PAGE> 13
Stock Options
The Company has in the past utilized stock options as part of its
overall compensation of Directors, officers and employees. Narrative
descriptions of the Company's stock option plans are set forth under the
caption "Stock Option Plans" below. No stock options were granted in 1996
to the Company's executive officers.
The following table sets forth certain information with respect to
stock option exercises during the fiscal year ended December 31, 1996 by the
executive officers of the Company and the value of each such executive
officer's unexercised stock options at December 31, 1996.
Aggregated Option/SAR Exercises in
Last Fiscal Year and Fiscal Year - End Option/SAR Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Securities Underlying In-the-Money
Acquired Unexercised Options Options
on Value at Fiscal Year-End (#) at Fiscal Year-End (#) (1)
Exercise Realized ---------------------------- ------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- --------- ---------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T.R. Cambridge 0 0 225,000 25,000 $661,687 $18,562
L.C. Oldham 0 0 612,000 25,000 $2,274,337 $18,562
</TABLE>
_______________
(1) Value of in-the-money options is equal to the fair market value of a
share of Common Stock at fiscal year-end ($4.68 per share), based on
the last sale price of the Company's Common Stock, less the exercise
price.
<PAGE> 14
STOCK PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Returns
<TABLE>
<CAPTION>
Company Market Peer
Date Index Index Index
- ---- ------- ------ -----
<S> <C> <C> <C>
12/31/91 100.000 100.000 100.000
01/31/92 120.455 105.847 106.686
02/28/92 100.000 108.246 112.874
03/31/92 86.364 103.137 105.672
04/30/92 95.455 98.714 105.542
05/29/92 81.818 99.996 112.652
06/30/92 86.364 96.086 114.595
07/31/92 118.182 99.490 111.276
08/31/92 127.273 96.449 109.764
09/30/92 127.273 100.034 119.366
10/30/92 136.364 103.974 117.618
11/30/92 122.727 112.247 114.566
12/31/92 113.636 116.378 115.322
01/29/93 118.182 119.691 122.917
02/26/93 204.545 115.226 132.270
03/31/93 206.818 118.561 147.304
04/30/93 263.636 113.501 153.638
05/28/93 263.636 120.281 161.118
06/30/93 290.909 120.837 162.750
07/30/93 277.273 120.980 153.696
08/31/93 345.455 127.233 160.873
09/30/93 554.545 131.022 159.483
10/29/93 545.455 133.967 159.525
11/30/93 436.364 129.972 143.388
12/31/93 427.273 133.595 137.716
01/31/94 436.364 137.650 141.258
02/28/94 645.455 136.363 142.473
03/31/94 581.818 127.976 132.415
04/29/94 618.182 126.315 134.561
05/31/94 595.455 126.624 139.486
06/30/94 545.455 121.993 137.498
07/29/94 518.182 124.495 138.865
08/31/94 527.273 132.432 131.635
09/30/94 509.091 132.093 133.591
10/31/94 518.182 134.689 136.747
11/30/94 418.182 130.221 129.318
12/30/94 418.182 130.586 127.363
01/31/95 427.273 131.318 118.941
02/28/95 427.273 138.263 118.592
03/31/95 300.000 142.361 125.113
04/28/95 218.182 146.843 126.118
05/31/95 254.546 150.630 128.151
06/30/95 290.909 162.836 127.968
07/31/95 281.819 174.805 128.103
<PAGE> 15
08/31/95 290.909 178.348 126.244
09/29/95 300.000 182.449 129.588
10/31/95 272.728 181.404 122.832
11/30/95 254.546 185.663 125.015
12/29/95 259.091 184.675 133.819
01/31/96 372.728 185.588 138.510
02/29/96 327.273 192.660 141.862
03/29/96 390.910 193.301 138.710
04/30/96 536.364 209.340 150.740
05/31/96 563.637 218.952 160.673
06/28/96 563.637 209.081 168.251
07/31/96 700.001 190.458 157.883
08/30/96 727.273 201.129 158.312
09/30/96 736.364 216.523 172.992
10/31/96 745.455 214.128 180.949
11/29/96 736.364 227.378 188.430
12/31/96 681.819 227.142 193.321
</TABLE>
<TABLE>
<CAPTION>
Legend
Symbol CRSP Total Returns Index for: 12/31/91 12/31/92 12/31/93 12/31/94 12/30/95 12/29/96
<S> <C> <C> <C> <C> <C> <C>
_________ Parallel Petroleum Corporation 100.00 113.6 427.3 418.2 259.1 681.8
... ___ . Nasdaq Stock Market (US Companies) 100.00 116.4 133.6 130.6 184.7 227.1
- - - - - - NASDAQ Stocks (SIC 1310-1319 US 100.00 115.3 137.7 127.4 133.8 193.3
Companies) Crude Petroleum and
Natural Gas
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/91.
<PAGE> 16
The indexes in the performance graph, prepared by the Center for
Research in Security Prices of the University of Chicago Graduate School of
Business, compare the annual cumulative total stockholder return on the
Company's Common Stock with the cumulative total return of The Nasdaq Stock
Market (U.S.) Index and a peer group index comprised of 142 U.S. companies
engaged in crude oil and natural gas operations, based on a three-digit
standard industrial classification ("SIC") code, whose stocks were traded on
Nasdaq during the five year period ended December 31, 1996. The table
assumes that the value of an investment in the Company's Common Stock and
each index was $100 at the end of 1991 and that all dividends were reinvested.
Change of Control Arrangements
The Company's outstanding stock options and stock option plans contain
certain "change of control" provisions which are applicable to the Company's
outstanding stock options, including the options held by Messrs. Cambridge
and Oldham, and other Directors of the Company. Such provisions include the
following: if (i) the Company is not the surviving entity in any merger or
consolidation, (ii) the Company sells, leases or exchanges all or substantially
all of its assets, (iii) the Company is to be dissolved and liquidated,
(iv) any person or group acquires beneficial ownership of more than 50% of
the Company's outstanding Common Stock, or (v) in connection with a contested
election of directors, the persons who were directors of the Company before
such election cease to constitute a majority of the Board of Directors (each
such event, a "Corporate Change"), then within (a) ten days after approval
by the stockholders of the Company of such merger, consolidation, sale,
lease or exchange of assets or dissolution or election of directors or (b)
thirty days of such change of control, the Compensation Committee (the
"Committee") of the Board of Directors shall effect one or more of the
following alternatives: (1) accelerate the time at which options may be
exercised, (2) require the mandatory surrender to the Company by optionees
of some or all of such options, in which event the Committee shall cancel
such options and pay to each the "Change of Control Value", (3) make such
adjustments to such options as the Committee deems appropriate to reflect
such Corporate Change or (4) provide that thereafter upon any exercise of
an option theretofore granted the optionee shall be entitled to purchase
under such option, in lieu of the number of shares of Common Stock as to
which such option is then exercisable, the number and class of shares of
stock or other securities or property to which the optionee would have been
entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution the optionee had been the
holder of record of the number of shares of Common Stock as to which such
option is then exercisable. The "Change of Control Value" is an amount
equal to, whichever is applicable, (i) the per share price offered to
stockholders of the Company in any merger, consolidation, sale of assets or
dissolution transaction, (ii) the price per share offered to stockholders of
the Company in any tender offer or exchange offer whereby a Corporate Change
takes place, or (iii) if such Corporate Change occurs other than pursuant to
a tender or exchange offer, the fair market value per share of the shares
into which such options being surrendered are exercisable, as determined by
the Committee as of the date determined by the Committee to be the date of
cancellation and surrender of such options.
<PAGE> 17
Compensation of Directors
Messrs. Conklin, Duke, Greathouse and Pannill, non-employee Directors
of the Company, each receive $1,000 for attendance at meetings of the Board
of Directors and $500 for attendance at meetings of Board committees of which
they are members. All Directors are reimbursed for expenses incurred in
connection with attending meetings.
The Company's 1992 Stock Option Plan provides for the granting of a
one-time option to purchase 25,000 shares of the Company's Common Stock to
each individual who was a non-employee Director of the Company on March 1,
1992 and to each individual who becomes a non-employee Director following
March 1, 1992. Each non-employee Director of the Company has been granted
an option pursuant to these provisions of the 1992 Plan, all of which were
granted prior to 1995.
Stock Option Plans
1983 Incentive Stock Option Plan. In May, 1984, the Company's
stockholders approved and adopted the Company's 1983 Incentive Stock Option
Plan (the "1983 Plan"). Options granted under the 1983 Plan are intended to
be "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), which, generally,
provides the holder of an "incentive" option with certain favorable tax
benefits. Under the terms of the 1983 Plan, all employees of the Company
were eligible to participate. The 1983 Plan authorized the granting of
options to purchase a total of 750,000 shares of the Company's Common Stock.
The exercise price of options granted under the 1983 Plan must be at least
equal to the fair market value of the Company's Common Stock on the date of
grant. Subject to the right of accumulation, each option is exercisable as
to one-third of the shares optioned one year after the date of grant, with
an additional one-third of the shares becoming exercisable at the end of
each year thereafter. Options are cumulative and, to the extent not exercised
in each annual period, may be exercised in whole or in part three years after
the date of grant. All options expire, in any event, ten years after the date
of grant. Although the 1983 Plan expired by its own terms on May 19, 1993,
incentive stock options to purchase 537,000 shares of Common Stock, which
were granted prior to May 19, 1993, remain outstanding and subject to all of
the terms and conditions of the 1983 Plan. The 1983 Plan is administered by
the Compensation Committee of the Company's Board of Directors.
1992 Stock Option Plan. In May, 1992, the Company's stockholders
approved and adopted the Company's 1992 Stock Option Plan (the "1992 Plan").
The 1992 Plan provides for the granting to key employees (including officers
<PAGE> 18
and Directors who are also key employees) of the Company and Directors who
are not employees of the Company of 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 within the meaning of Section
422 of the Code, or options which do not constitute incentive stock options.
Options granted to non-employee 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 has the sole authority to select the employees who
are to be granted options, to establish the number of shares issuable under
each option and to establish such terms and conditions as may be approved by
the Compensation Committee, except that the purchase price of Common Stock
issued under each option shall not be less than the fair market value of the
stock subject to the option 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 non-employee
Director of the Company on March 1, 1992 and to each individual who becomes
a non-employee Director following March 1, 1992. Members of the Compensation
Committee are not eligible to participate in the 1992 Plan other than to
receive a non-qualified 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 an agreement
that existed prior to the date such option is granted ("Prior Option"). An
option 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 shall be determined by the Compensation Committee and, such purchase
price may, without limitation, be equal to the price for which the optionee
could have purchased Common Stock under the Prior Option.
The Board of Directors of the Company may amend or terminate the
1992 Plan at any time, but may not in any way terminate or restrict the
rights of a participant under an outstanding option without the consent of
such participant. The Board of Directors may not make any alteration or
amendment which would materially increase the benefits accruing to participants
under the 1992 Plan, increase the aggregate number of shares which may be
issued pursuant to the provisions of the 1992 Plan, change the class of
individuals eligible to receive options under the 1992 Plan, or extend the
term of the 1992 Plan, without the approval of the stockholders of the
Company.
The 1992 Plan will terminate upon and no further options may be
granted thereunder after the expiration of ten years from the date of its
adoption by the Board of Directors.
Other Option Grants. In addition to the stock options granted pursuant
to the Company's stock option plans, the Company has, on two occasions,
granted stock options to Mr. Cambridge pursuant to the general corporate
powers of the Company, rather than pursuant to such plans. Upon recommendation
of the Company's Compensation Committee, the Board of Directors of the
Company granted a non-qualified stock option to Mr. Cambridge to purchase
150,000 shares of Common Stock at an exercise price of $.64 per share, the
fair market value of the Common Stock on December 11, 1991, the date of grant.
The option became exercisable as to 50,000 shares on each of December 11, 1992,
1993, and 1994. On October 18, 1993, and upon further recommendation of the
Company's Compensation Committee, the Board of Directors granted a non-qualified
stock 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 exercisable in four equal annual
increments of 25,000 shares, commencing on October 18, 1994. Neither option
is transferable other than by will or the laws of descent and distribution
and both options terminate ten years from the date of grant.
<PAGE> 19
Retirement Plan
The Company maintains under Section 408(k) of the Code a combination
simplified employee pension ("SEP") and individual retirement account ("IRA")
plan (the "SEP/IRA") for eligible employees. Generally, eligible employees
include all employees who are at least twenty-one years of age.
Company contributions to employee SEP accounts may be made from time to
time at the discretion of the Company, as authorized from time to time by the
Compensation Committee of the Board of Directors, and the percentage of such
contributions may also vary from time to time. However, the same percentage
contribution must be made for all participating employees. The Company is
not required to make annual contributions to the employees SEP accounts.
The Company may make tax-deductible contributions for each employee
participant of up to 15% of such participant's compensation or $30,000,
whichever is less. Under the prototype simplified employee pension plan
adopted by the Company, all of the Company's 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 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 by the Company, employees
may make individual annual IRA contributions of up to the lesser of $2,000 or
100% 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.
The Company presently makes matching contributions to employee
accounts in an amount equal to the contribution made by each employee, not to
exceed, however, 3% of each such employee's salary during any calendar year.
During the fiscal year ended December 31, 1996, the Company contributed an
aggregate of $7,985 to the accounts of five employee participants, of which
$2,963 was allocated to the account of Mr. Oldham, the President and a
Director of the Company.
Certain Transactions
Historically, Wes-Tex Drilling Company ("Wes-Tex"), a Texas
corporation, has provided contract drilling and other related oil and gas
services to the Company in connection with the Company's oil and gas
exploration and development activities, and it is anticipated that Wes-Tex
will continue to perform contract drilling services for the Company in the
future. Myrle Greathouse, a director and the sole shareholder of Wes-Tex,
has served as a Director of the Company since December, 1993. During the
year ended December 31, 1996, the Company paid approximately $176,000 to
Wes-Tex for contract drilling services provided by Wes-Tex during 1996.
The largest aggregate amount outstanding and owed by the Company to Wes-Tex
at one time during the fiscal year ended December 31, 1996 was approximately
$176,000. At December 31, 1996, the Company was not indebted to Wes-Tex.
<PAGE> 20
From time to time, Wes-Tex acquires undivided interests in oil and
gas leasehold acreage from the Company and participates with the Company and
other interest owners in the drilling and development of such acreage.
Wes-Tex participates in such operations under standard form operating
agreements on the same or similar terms afforded by the Company to
nonaffiliated third parties. The Company invoices 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 the year ended December 31, 1996, the Company billed Wes-Tex the
aggregate amount of approximately $42,000 for Wes-Tex's proportionate share
of lease operating expenses incurred on properties operated by the Company.
The largest amount owed to the Company by Wes-Tex at any one time during the
year ended December 31, 1996 for its share of lease operating expenses was
approximately $19,000, and at December 31, 1996, Wes-Tex owed the Company
approximately $1,500 for such expenses. During the fiscal year ended
December 31, 1996, the Company disbursed approximately $80,000 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 the Company owned interests.
E. R. Duke, a Director of the Company, is the sole shareholder and
director of Mustang Mud, Inc. ("Mustang"), an oil field service company
primarily engaged in the sale and application of drilling fluids and
chemicals used in the drilling of wells. The Company has, from time to time,
purchased supplies and services from Mustang in connection with the Company's
drilling activities. During 1996, the Company paid approximately $74,000 to
Mustang for supplies and services provided by Mustang to the Company. The
Company was indebted to Mustang in the amount of approximately $2,600 at
December 31 1996. The largest aggregate amount outstanding and owed by the
Company to Mustang at any one time during the fiscal year ended December 31,
1996 was approximately $56,000.
Mr. Duke and Mustang each own interests in three oil properties in
which the Company also owns interests, two of which are operated by the
Company. In 1996, the Company billed Mr. Duke and Mustang the aggregate
amounts of approximately $44,000 and $3,000, respectively, for lease operating
expenses. During the same period, Mr. Duke and Mustang paid the Company
approximately $30,000 and $3,000, respectively. At December 31, 1996, Mr.
Duke and Mustang owed the Company approximately $15,000 and $100 respectively,
for their pro rata share of lease operating expenses. During 1996, the
Company disbursed approximately $57,000 and $4,000, respectively, to Mr.
Duke and Mustang in payment of their pro rata share of the proceeds from
sales of oil produced from properties in which Mr. Duke, Mustang and the
Company owned interests.
During the year ended December 31, 1996, Cambridge Production, Inc.
("CPI"), a corporation owned by Mr. Cambridge, served as operator of 18 wells
on oil and gas leases in which the Company owned an interest. Generally, the
operator of a well is responsible for the day to day operations on the lease,
overseeing of production, employment of field personnel, maintenance of
production and other records, determining the location and timing of drilling
of wells, gas contract administration, joint interest billings, revenue
distribution, making various regulatory filings, reporting to working
interest owners and other matters. During 1996, CPI billed the Company
approximately $199,000, which included $63,000 for the Company's pro rata
share of lease operating expenses and $136,000 for the Company's pro rata
share of drilling expenses. Of the total amount billed to the Company,
approximately $228,000 was paid by the Company to CPI during 1996. The
largest amount owed by the Company to CPI at any one time during 1996 was
approximately $53,000. At December 31, 1996, CPI owed the Company
approximately $8,200. CPI's billings to the Company are made monthly on the
<PAGE> 21
same basis as made to all other working interest owners in the wells. The
Company's pro rata share of oil and gas sales during 1996 from the wells
operated by CPI was approximately $205,000.
The Company owns a 25% working interest in the Southeast Leedy
Prospect in Custer County, Oklahoma, which is operated by Philcon Development
Co. ("Philcon"), a privately owned partnership engaged in the exploration for,
development and production of oil and gas. Danny H. Conklin, a Director of
the Company, is a principal partner of Philcon. During 1996, Philcon billed
the Company approximately $6,600 for the Company's pro rata share of lease
costs and related drilling and operating expenses, and approximately $6,200
was paid to Philcon by the Company in 1996. The Company was indebted to
Philcon in the approximate amount of $600 at December 31, 1996. The largest
aggregate amount outstanding and owed by the Company to Philcon at any one
time during 1996 was approximately $2,000.
Management of the Company believes that each of the above referenced
transactions was made on terms no less favorable than if such transactions
had been entered into 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 KPMG Peat Marwick LLP, independent
public accountants, as independent auditors for the year 1997. If the
stockholders do not ratify this appointment, the Board may consider other
independent public accountants or continue the appointment of KPMG Peat
Marwick LLP. KPMG Peat Marwick LLP has been the Company's independent
accountants since 1979.
Representatives of KPMG Peat Marwick 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 Peat Marwick LLP as the Company's independent auditor
for the fiscal year ending December 31, 1997.
OTHER MATTERS
The Company's 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, however, it is intended that the
persons named in the enclosed Proxy will vote said Proxy in accordance with
their best judgment on such matters.
Stockholders may obtain, without charge, a copy of the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 as filed with
<PAGE> 22
the Securities and Exchange Commission upon written request addressed to the
Assistant Secretary of the Company, One Marienfeld Place, Suite 465, 110 N.
Marienfeld, Midland, Texas 79701.
STOCKHOLDER PROPOSALS
Stockholders desiring to submit proposals for action at the Company's
1997 annual meeting of stockholders must submit such proposals to the Company
at its principal executive office on or before December 16, 1997. Proposals
should be sent to the Secretary of the Company, One Marienfeld Place, Suite
465, 110 N. Marienfeld, Midland, Texas 79701. The use of certified mail,
return receipt requested, is suggested.
By Order of the Board of Directors
THOMAS W. ORTLOFF
Secretary
Midland, Texas
April 14, 1997
<PAGE> 23
APPENDIX A
PARALLEL PETROLEUM CORPORATION
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of the Parallel Petroleum
Corporation Non-employee Directors Stock Option Plan (the "Plan") is to
secure for Parallel Petroleum Corporation (the "Company") and its
stockholders the benefits of the incentives inherent in increased
common stock ownership by members of the Board of Directors (the "Board")
of the Company who are not employees of the Company ("Non-employee
Directors") or any of its subsidiaries and to provide a means whereby
Non-employee Directors of the Company may develop a sense of proprietorship
and personal involvement in the development and financial success of the
Company, and to encourage them to remain with and devote their best efforts
to the business of the Company, thereby advancing the interests of the
Company and its stockholders. Accordingly, the Plan provides for granting
to Non-employee Directors the option ("Option") to purchase shares of common
stock of the Company ("Stock"), as hereinafter set forth. Options granted
under the Plan to Non-employee Directors are not intended to be incentive
stock options within the meaning of section 422 of the Internal Revenue Code
of 1986, as amended.
2. Administration. The Plan shall be administered by the Board of Directors
of the Company (the "Board") or by a committee (the "Committee") of two or
more directors of the Company appointed by the Board. If a Committee is not
appointed by the Board, the Board shall act as and be deemed to be the Committee
for all purposes of the Plan. The Committee shall have sole authority
(within the limitations described herein) to select the Non-employee
Directors who are to be granted Options; to establish the number of shares
which may be issued to Non-employee Directors under each Option; and to
prescribe the form of the agreement embodying awards of Options. The
Committee is authorized to interpret the Plan, to determine all questions
arising thereunder and to adopt such rules and regulations, consistent with
the provisions of the Plan, as it may deem advisable to carry out the Plan.
All decisions made by the Committee shall be final and conclusive. No
member of the Board shall be liable for anything done or omitted to be done
by such member or by any other member of the Board in connection with the
Plan, except for such member's own willful misconduct or as expressly
provided by statute.
3. Eligibility of Optionee. Options may be granted only to directors who
are not employees of the Company or any parent or subsidiary corporation of
the Company at the time the Option is granted. The adoption of this Plan
shall not be deemed to give any director any right to be granted an Option.
Options may be granted to the same Non-employee Director on more than one
occasion.
4. Shares Subject to the Plan. The aggregate number of shares which may
be issued under Options granted under the Plan shall not exceed 500,000
shares of Stock. Such shares may consist of authorized but unissued shares
of Stock or previously issued shares of Stock reacquired by the Company.
Any of such shares which remain unissued and which are not subject to
<PAGE> 24
outstanding Options at the termination of the Plan shall cease to be subject
to the Plan, but, until termination of the Plan, the Company shall at all
times make available sufficient number of shares to meet the requirements of
the Plan. If any Option hereunder expires or terminates prior to its
exercise in full, the shares theretofore subject to such Option may again be
subject to an Option granted under the Plan. The aggregate number of shares
which may be issued under the Plan shall be subject to adjustment in the
same manner as provided in Paragraph 7 hereof with respect to shares of
Stock subject to Options then outstanding. Exercise of an Option in any
manner shall result in a decrease in the number of shares of Stock which may
thereafter be available, both for purposes of the Plan and for sale to any
one individual, by the number of shares as to which the Option is exercised.
5. Option Agreements; Terms and Conditions. Each Option granted under the
Plan shall be evidenced by an agreement and shall contain such terms and
conditions, and may be exercisable for such periods, as the Committee shall
prescribe from time to time in accordance with this Plan, and shall comply
with the following terms and conditions:
(a) The Option exercise price shall be the fair market value of the
Stock subject to the Option on the date the Option is granted. For all
purposes under the Plan, the fair market of a share of Stock on a particular
date shall be equal to the average of the high and low sales prices of the
Stock on the date of grant as reported on the Nasdaq National Market tier of
The Nasdaq Stock Market ("NMS"), or on the stock exchange composite tape if
the Stock is traded on a national stock exchange on that date, or if no
prices are reported on that date, on the last preceding date on which such
prices of the Stock are so reported. If the Stock is not traded on the NMS
or other stock exchange on that date, but is otherwise traded over the
counter at the time a determination of its fair market value is required to
be made hereunder, its fair market value shall be deemed to be equal to the
average between the reported high and low or closing bid and asked prices of
the Stock on the most recent date on which the Stock was publicly traded.
If the Stock is not publicly traded at the time a determination of its value
is required to be made hereunder, the determination of its fair market value
shall be made by the Committee in such manner as it deems appropriate.
(b) The Option shall not be transferable otherwise than by will or
the laws of descent and distribution, and may be exercised only by the
Non-employee Director during the Non-employee Director's lifetime and while
the Non-employee Director remains a director of the Company, except that:
(i) If the Non-employee Director ceases to be a director of the
Company because of disability, the Option may be exercised in full
by the Non-employee Director (or the Non-employee Director's estate
or the person who acquires the Option by will or the laws of descent
and distribution or otherwise by reason of the death of the
Non-employee Director) at any time during the period of one year
following such termination;
(ii) If the Non-employee Director dies while he is a director of
the Company, the Non-employee Director's estate, or the person who
acquires the Option by will or the laws of descent and distribution
or otherwise by reason of the death of the Non-employee Director,
<PAGE> 25
may exercise the Option in full at any time during the period of one
year following the date of the Non-employee Director's death; and
(iii) If the Non-employee Director ceases to be director of the
Company for any reason other than as described in clause (i) or
(ii) above, unless the Non-employee Director is removed for cause,
the Option may be exercised by the Non-employee Director at any
time during the period of three months following the date the
Non-employee Director ceases to be a director of the Company, or by
the Non-employee Director's estate (or the person who acquires the
Option by will or the laws of descent and distribution or otherwise
by reason of the death of the Non-employee Director) during a
period of one year following the Non-employee Director's death if
the Non-employee Director dies during such three-month period, but
in each case only as to the number of shares the Non-employee
Director was entitled to purchase hereunder upon exercise of the
Option as of the date the Non-employee Director ceases to be a
director.
(c) The Option shall not be exercisable in any event after the
expiration of ten years from the date of grant.
(d) The purchase price of shares as to which the Option is exercised
shall be paid in full at the time of exercise (a) in cash, (b) by delivering
to the Company shares of Stock having a fair market value equal to the
purchase price, or (c) any combination of cash or Stock, as shall be
established by the Committee. Unless and until a certificate or
certificates representing such shares shall have been issued by the Company
to the Non-employee Director, the Non-employee Director (or the person
permitted to exercise the Option in the event of Director's death) shall not
be or have any of the rights or privileges of a stockholder of the Company
with respect to shares acquirable upon an exercise of the Option.
(e) The terms and conditions of the respective Non-employee Director
Stock Option agreements need not be identical.
6. Term of Plan. The Plan shall be effective upon the date of its
approval and adoption by the stockholders of the Company. Except with
respect to Options then outstanding, if not sooner terminated under the
provisions of Paragraph 8, the Plan shall terminate upon and no further
Options shall be granted after the expiration of ten years from the date of
its adoption by the Board.
7. Recapitalization or Reorganization.
(a) The existence of the Plan and the Options granted hereunder shall
not affect in any way the right or power of the Board or the stockholders of
the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
<PAGE> 26
equity securities ahead of or affecting the Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any other
corporate act or proceeding.
(b) The shares with respect to which Options may be granted are
shares of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Stock or the payment of a stock
dividend on Stock without receipt of consideration by the Company, the number
of shares of Stock with respect to which such Option may thereafter be
exercised (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall
be proportionately reduced, and (ii) in the event of a reduction in the
number of outstanding shares shall be proportionately reduced, and the
purchase price per share shall be proportionately increased.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted
the optionee shall be entitled to purchase under such Option, in lieu of the
number of shares of Stock as to which such Option shall then be exercisable,
the number and class of shares of stock and securities to which the optionee
would have been entitled pursuant to the terms of the recapitalization if,
immediately prior to such recapitalization, the optionee had been the holder
of record of the number of shares of Stock as to which such Option is then
exercisable. If (i) the Company shall not be the surviving entity in any
merger or consolidation (or survives only as a subsidiary of an entity other
than a previously wholly-owned subsidiary of the Company), (ii) the Company
sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of
Stock, or (v) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such
election shall cease to constitute a majority of the Board (each such event
is referred to herein as a "Corporate Change"), then upon the occurrence of
any such Corporate Change, any outstanding Options held by Non-employee
Directors shall become fully exercisable and upon any exercise of an Option
theretofore granted the Non-employee Director shall be entitled to purchase
under such Option, in lieu of the number of shares of Stock as to which such
Option shall then be exercisable, the number and class of shares of stock or
other securities or property to which the Non-employee Director would have
been entitled pursuant to the terms of the Corporate Change if, immediately
prior to such Corporate Change, the Non-employee Director had been the
holder of record of the number of shares of Stock as to which such Option is
then exercisable.
(d) Any adjustment provided for in Subparagraphs (b) or (c) above
shall be subject to any required stockholder action.
(e) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor,
<PAGE> 27
or upon conversion of shares or obligations of the Company convertible into
such shares or other securities, and in any case whether or not for fair
value, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Stock subject to Options theretofore
granted or the purchase price per share.
8. Amendment or Termination of the Plan. The Board in its discretion may
terminate the Plan at any time with respect to any shares for which Options
have not theretofore been granted. The Board shall have the right to alter
or amend the Plan or any part thereof from time to time, provided, that no
change in any Option theretofore granted may be made which would impair the
rights of the optionee without the consent of such optionee.
9. Miscellaneous Provisions.
(a) Neither the Plan nor any action taken hereunder shall be construed
as giving any Non-Employee Director any right to be retained in the service
of the Company.
(b) An optionee's rights and interest under the Plan may not be assigned
or transferred in whole or in part either directly or by operation of law or
otherwise (except in the event of an optionee's death or disability, by will
or the laws of descent and distribution), including, but not by way of
limitation, execution, levy, garnishment, attachment, pledge, bankruptcy, or
in any other manner, and no such right or interest of any participant in the
Plan shall be subject to any obligation or liability of such participant.
(c) No shares of Stock shall be issued hereunder unless counsel for the
Company shall be satisfied that such issuance will be in compliance with
applicable Federal, state, and other securities laws and regulations.
(d) It shall be a condition to the obligation of the Company to issue
shares of Stock upon exercise of an Option, that the optionee (or any
beneficiary or person entitled to act under or through Optionee as provided
herein) pay to the Company, upon its demand, such amount as may be requested
by the Company for the purpose of satisfying any liability to withhold
Federal, state, local, or foreign income or other taxes. If the amount
requested is not paid, the Company may refuse to issue shares of Stock.
(e) By accepting any Option under the Plan, each optionee and each
person claiming under or through such person shall be conclusively deemed to
have indicated his or her acceptance and ratification of, and consent to,
any action taken under the Plan by the Company, the Board or the Committee.
PARALLEL PETROLEUM CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - MAY 14, 1997
PROXY
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 April 10, 1997, which
the undersigned is entitled to vote at the 1997 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 April 14, 1997, 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, Danny H. Conklin, Ernest R. Duke, Myrle Greathouse,
Larry C. Oldham, Charles R. Pannill.
2. APPROVAL OF NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
___ FOR ___ AGAINST ___ ABSTAIN
3. APPROVAL OF SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT PUBLIC
AUDITOR FOR THE COMPANY.
___ FOR ___ AGAINST ___ ABSTAIN
4. 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, 2 and 3.
_____________________________________________________
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.
_____________________________________________________
Signature
_____________________________________________________
Signature if held jointly
_____________________________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED POSTAGE PRE-PAID
ENVELOPE.
____________________________________________________
DATED ___________________________, 1997
