<PAGE> 1
(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:
<PAGE> 2
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 Midland Petroleum Club, 501 West Wall Street, Midland,
Texas 79701, on Wednesday, June 23, 1999 at 10:00 a.m.
We intend to present for your approval at this meeting:
o the election of five Directors to serve until the next Annual Meeting
of Stockholders and until their successors shall be duly elected and
qualified;
o a proposal to authorize the issuance and sale of up to 5,000,000
shares of common stock in privately negotiated transactions to
purchasers and upon terms to be approved by the Board of Directors;
o the ratification of the reappointment of KPMG LLP as independent
auditors for 1999; 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 12, 1999, you are entitled to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas W. Ortloff
Secretary
May 24, 1999
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.
<PAGE> 3
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 for the Annual Meeting of Stockholders. The meeting will
be held at the Midland Petroleum Club, 501 West Wall Street, Midland, Texas
79701, at 10:00 a.m. on Wednesday, June 23, 1999, 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 May 25, 1999.
VOTING AT THE ANNUAL MEETING
The close of business on May 12, 1999 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 18,331,858 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.
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<PAGE> 4
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.
o Election of Directors: 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.
o Approval of Auditors: To be approved, this matter must receive the
affirmative vote of the majority of the shares present in person or by proxy at
the meeting and entitled to vote. Broker non-votes and abstentions on this
matter have the effect of negative votes.
o Approval of Issuance of Common Stock: To be adopted, the proposal
authorizing the issuance of additional shares of common stock must receive the
affirmative vote of the majority of the shares present in person or by proxy at
the meeting and entitled to vote. Broker non-votes on this matter do not affect
the outcome. Abstentions have the effect of negative votes.
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<PAGE> 5
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.
STOCK OWNERSHIP
This table shows information as of May 12, 1999 about the beneficial
ownership of common stock by: (1) each person known by us to own beneficially
more than five percent of the 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:
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of of Percent of
Beneficial Owner Beneficial Ownership(1) Class(2)
------------------ ------------------------ ---------
<S> <C> <C>
Thomas R. Cambridge 967,045(3) 5.22%
216 Texas Commerce Bank Building
Amarillo, Texas 79109
Ernest R. Duke 269,973(4) 1.47%
408 West Wall Street
Midland, Texas 79701
Myrle Greathouse 1,644,057(5) 8.64%
401 Cypress, Suite 519
Abilene, Texas 79601
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of of Percent of
Beneficial Owner Beneficial Ownership(1) Class(2)
---------------- ---------------------- --------
<S> <C> <C>
Larry C. Oldham 697,090(6) 3.72%
One Marienfeld Place, Suite 465
Midland, Texas 79701
Charles R. Pannill 89,495(7) *
3416 Acorn Run
Fort Worth, Texas 76019
Wes-Tex Drilling Company 1,246,773(8) 6.69%
519 First National Bank Building West
Abilene, Texas 79601
Julia Jones Matthews 1,742,846(9) 8.95%
400 Pine, Suite 900
Abilene, Texas 79601
Dodge Jones Foundation 1,371,482(10) 7.10%
400 Pine, Suite 900
Abilene, Texas 79601
All Executive Officers and Directors 3,667,660(11) 18.64%
as a Group (5 persons)
</TABLE>
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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.
(3) Includes 200,000 shares of common stock underlying presently
exercisable stock options.
(4) Includes 35,000 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
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<PAGE> 7
is a partner, and 20,000 shares held in the name of Mr. Duke's wife.
Mr. Duke has shared voting and investment powers with respect to
such shares.
(5) Includes 932,488 shares of common stock held directly by Wes-Tex
Drilling Company, a corporation, and 314,285 shares of common stock
that may be acquired by Wes-Tex upon conversion of 110,000 shares of
preferred stock held by Wes-Tex. 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. See note 8 below. Also included are 60,000 shares of
common stock underlying presently exercisable stock options, 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. The Greathouse Charitable
Remainder Trust and the Greathouse Foundation may each acquire
157,142 shares of common stock upon conversion of 55,000 shares of
preferred stock held by each of them. Such shares of common stock
are included in the total number of shares shown in the table.
However, Mr. Greathouse disclaims beneficial ownership of all
314,284 shares of common stock that may be acquired by The
Greathouse Charitable Remainder Trust and the Greathouse Foundation.
(6) Includes 387,000 shares of common stock underlying presently
exercisable stock options.
(7) Includes 35,000 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.
(8) Mr. Greathouse, a Director of Parallel, is the chairman of the board
of directors and sole stockholder of Wes-Tex Drilling Company.
Wes-Tex has shared voting and investment powers with respect to such
shares. See note 5 above.
(9) Includes 200,000 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
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<PAGE> 8
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 10.
(10) 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 9.
(11) Includes 717,000 shares of common stock underlying presently
exercisable stock options 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 have been complied with during
1998, except that one transaction involving the purchase by Mr. Duke of 5,000
shares of common stock was reported late.
ELECTION OF DIRECTORS
Directors of Parallel are elected annually by the 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. After Danny H. Conklin resigned from
the Board in January, 1999, the size of the Board was reduced from six to five
directors. If any nominee becomes unavailable for any reason, a substitute
nominee 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 following five nominees unless other instructions are
shown on the proxy card:
THE BOARD IS RECOMMENDING THAT THE FIVE CURRENT DIRECTORS OF PARALLEL
BE RE-ELECTED.
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<PAGE> 9
<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
Ernest R. Duke(1) 1980 Director
Myrle Greathouse(2) 1993 Director
Charles R. Pannill(1)(2) 1982 Director
</TABLE>
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(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Mr. Cambridge, age 63, 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 & 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 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. Cambridge serves the Company in the capacity of a
consultant and not as a full-time employee.
Mr. Oldham, age 45, a founder of the Company, has served as an officer
and Director of the Company since its formation in 1979. 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 the Permian Basin
Landman's Association.
Mr. Duke, age 72, is a consultant to MI Drilling Fluids, LLC and the
president and majority shareholder of Mustang Mud, Inc., a privately held oil
field service company.
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<PAGE> 10
Mr. Greathouse, age 76, is the chairman of the board of directors and
sole shareholder of Wes-Tex Drilling Company, a corporation engaged in oil and
gas exploration and production.
Mr. Pannill, age 73, 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.
OTHER INFORMATION; COMMITTEES OF THE BOARD
During 1998, four meetings of the Board of Directors were held. All
Directors other than Mr. Greathouse attended at least 75% of the total number
of meetings of the Board. Mr. Greathouse was not present at two meetings. The
Directors also took action by unanimous written consent on four occasions.
The Board has two permanent committees: the Audit Committee and the
Compensation Committee. Parallel does not have a standing nominating committee.
The review of recommendations for nominees for Board membership is made by the
full Board of Directors.
The Audit Committee reviews 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.
The Audit Committee recommends to the Board the appointment of auditors for the
Company. During 1998, the members of the Audit Committee were Messrs. Conklin
and Duke. The Audit Committee held one meeting in 1998 at which both members
were present.
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 terms of benefit arrangements with the Company's
officers and the making of awards under such arrangements. Messrs. Greathouse
and Pannill served as members of the Compensation Committee of the Board of
Directors during 1998. The Compensation Committee took action by unanimous
written consent on one occasion and held one meeting during 1998, which both
members attended.
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<PAGE> 11
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
During 1998, the members of the Compensation Committee were Myrle
Greathouse and Charles R. Pannill, outside Directors of Parallel.
Our Compensation Committee is responsible for formulating and
recommending to the full Board of Directors the compensation paid to Parallel's
executive officers, Mr. Cambridge and Mr. Oldham. We generally review executive
compensation on an annual basis. In reviewing the overall compensation of our
executive 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.
In establishing the compensation paid to our executives, we emphasize
providing compensation that will (1) motivate and retain the executives and
reward performance, (2) encourage the long term success of Parallel, and (3)
encourage the application of prudent decision making processes in an industry
marked by volatility and high risk.
Historically, we have evaluated compensation paid to our executive
officers based upon the following factors:
o the growth in Parallel's oil and gas reserves;
o the market value of Parallel's common stock;
o cash flow;
o the extent to which the executive 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 executives 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; and
o by comparing the compensation packages of our executive officers with
the compensation packages of executive officers of other companies
similar to Parallel.
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<PAGE> 12
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 the executive officers, we have not
relied on independent consultants to analyze or prepare formal surveys for us.
However, 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 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 an
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 awarded a 19.8% increase in the cash compensation paid to Mr.
Oldham and a 10% increase in the cash compensation paid to Mr. Cambridge,
effective in August, 1998. Their previous salary increases were in August,
1996, when they each received a 10% increase. At the same time we increased Mr.
Oldham's salary, we also granted stock options to Mr. Oldham to purchase
100,000 shares of common stock at an exercise price of $3.60 per share, the
fair market value of our common stock on the date of grant. The previous grant
of a stock option to Mr. Oldham was in February, 1997 when we granted to him a
stock option to purchase 100,000 shares of common stock. Mr. Cambridge was also
granted a stock option to purchase 50,000 shares of common stock at an exercise
price of $3.60 per share. In May, 1997, a stock option to purchase 100,000
shares of Common Stock was granted to Mr. Cambridge. Until the grant of the
stock options in 1997 and 1998, our executive officers had not been awarded
stock options since October, 1993.
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
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<PAGE> 13
time devoted by Mr. Cambridge to Parallel's business and the fact that he does
not participate in any of Parallel'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 reviewing the overall compensation of Mr. Cambridge in 1998, we
took into account the fact that Mr. Cambridge had not received an increase in
his salary since August, 1996 or an award of stock options since May, 1997. We
further considered Parallel's overall financial condition and operating results
for 1997 and the first seven months of 1998, and the individual contributions
made by Mr. Cambridge. Throughout 1998, Parallel was faced with a precipitous
downturn in the oil and gas industry. While many of our competitors experienced
insurmountable financial problems or ceased active drilling operations
altogether, we believe the insight, experience and leadership of Mr. Cambridge
has been instrumental in keeping Parallel positioned to survive the adverse
effects of a severe industry downturn. In August, 1998, we awarded Mr.
Cambridge a stock option to purchase 50,000 shares of common stock and a 10%
increase in his cash compensation. We feel that the stock option awards to our
executive officers, including Mr. Cambridge, act as a catalyst to advancing the
financial interests of stockholders along with those of management. It is our
conclusion that the amount and types of compensation currently being paid to
our executive officers are sufficient to motivate them and encourage their
efforts to increase the value of Parallel for all stockholders.
Provisions of the Internal Revenue Code that restrict the
deductibility of certain compensation over one million dollars per year has not
been a factor in our considerations or recommendations.
Myrle Greathouse
Charles R. Pannill
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<PAGE> 14
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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------- ---------------------------------------------------
OTHER
ANNUAL RESTRICTED SECURITIES
NAME AND COMPEN- STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS SATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
--------- ---- ------ ----- ------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T.R. Cambridge, 1998 $ 73,631 $ 500 $ 900 0 50,000 0 0
Chief
Executive
Officer and 1997 $ 70,686 $ 1,000 $ 825 0 100,000 0 0
Chairman of
the Board 1996 $ 66,402 $ 2,945 $ 825 0 0 0 0
of Directors
L.C. Oldham, 1998 $112,923 $ 500 $ 23,150(1) 0 100,000 0 $ 5,139(2)
President,
Treasurer 1997 $104,297 $ 1,000 $ 16,620(1) 0 100,000 0 $ 6,695(2)
and Director
1996 $ 98,766 $ 4,346 $ 11,290(1) 0 0 0 $ 2,963(2)
</TABLE>
- ---------
(1) Such amount includes insurance premiums for nondiscriminatory group life,
medical, disability and dental insurance as follows: $17,445 for 1998;
$11,532 for 1997; and $10,417 for 1996.
(2) For 1996, such amount represents contributions made by Parallel to Mr.
Oldham's individual retirement account maintained under the 408(k)
simplified employee pension plan/individual retirement account ("SEP
Account"). For 1997, such amount includes $3,129 contributed by Parallel
to Mr. Oldham's SEP Account and the reimbursement to Mr. Oldham of $3,566
for income tax preparation and planning. For 1998, such amount includes
$3,388 contributed by Parallel to Mr. Oldham's SEP Account and the
reimbursement to Mr. Oldham of $1,751 for income tax preparation and
planning.
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<PAGE> 15
STOCK OPTIONS
Parallel uses stock options as part of the overall compensation of
Directors, officers and employees. We have included summary descriptions of our
stock option plans so you can review the types of options we have granted and
the significant features of our stock options.
In the following table, we show certain information with respect to
stock options granted in 1998 to the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ----------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
T. R. Cambridge 50,000 (2) 22.73% $3.60 8-4-08 $113,400 $286,200
L.C. Oldham 100,000 (3) 45.50% $3.60 8-4-08 $226,800 $572,400
</TABLE>
- ---------
(1) These amounts are calculated based on the indicated annual rates of
appreciation and annual compounding from the date of grant to the end of
the option term. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock and overall stock
market conditions. There is no assurance that the amounts reflected in
this table will be achieved.
(2) A nonqualified stock option to purchase 50,000 shares of common stock was
granted to Mr. Cambridge on August 4, 1998 pursuant to Parallel's Non-
employee Directors' Stock Option Plan. The option is exercisable in two
equal annual installments, commencing August 4, 1999.
(3) On August 4, 1998 an incentive stock option to purchase 54,000 shares of
common stock and a nonqualified stock option to purchase 46,000 shares of
common stock were granted to Mr. Oldham pursuant to the 1992 Stock Option
Plan. Both options are exercisable in two equal annual installments,
commencing August 4, 1999.
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<PAGE> 16
The following table shows certain information with respect to stock
options exercised in 1998 by Parallel's executive officers and the value of
their unexercised stock options at December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(2)
ACQUIRED ON REALIZED ------------------------------ -------------------------
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ------ ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
T.R. Cambridge 150,000 $129,000 150,000 100,000 $ 0(3) $ 0(3)
L. C. Oldham 0 0 367,000 180,000 $ 159,770 $ 0(4)
</TABLE>
- ---------
(1) The value realized is equal to the fair market value of a share of common
stock on the date of exercise ($1.50 per share), based on the last sale
price of Parallel's common stock, less the exercise price.
(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 ($1.44 per share), based on the
last sale price of Parallel's common stock, less the exercise price.
(3) At December 31, 1998, the exercise prices of all of the options held by
Mr. Cambridge exceeded $1.44, the fair market value of our common stock on
that date.
(4) The exercise prices of all of Mr. Oldham's unexercisable options exceeded
the fair market value of our common stock on December 31, 1998.
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<PAGE> 17
STOCK PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
[Graph]
LEGEND
<TABLE>
<CAPTION>
Symbol Total Returns Index for: 12/31/93 12/31/94 12/30/95 12/29/96 12/31/97 12/31/98
- ------ ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
______ [X] Parallel Petroleum Corporation 100.00 97.9 60.6 159.6 229.8 48.9
.. ___ .* Nasdaq Stock Market (US Companies) 100.00 97.8 138.3 170.0 208.3 293.5
- - - - - o NASDAQ Stocks (SIC 1310-1319 US 100.00 92.5 97.2 140.5 133.9 64.4
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 $100.00 on 12/13/93.
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<PAGE> 18
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 Parallel's
common stock with the cumulative total return of The Nasdaq Stock Market (U.S.)
Index and a peer group index comprised of 118 U.S. companies engaged in crude
oil and natural gas operations, based on a three-digit standard industrial
classification or SIC code, whose stocks were traded on Nasdaq during the
five-year period ended December 31, 1998. The table assumes that the value of
an investment in Parallel's common stock and each index was $100 at the end of
1993 and that all dividends were reinvested.
CHANGE OF CONTROL ARRANGEMENTS
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 Messrs. Cambridge and
Oldham, and other Directors of Parallel. 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;
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<PAGE> 19
o make adjustments to the options to reflect the change of control; or
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 non-employee Directors each receive $1,000 for attending
meetings of the Board of Directors and $500 for attending meetings of Board
committees that they serve on. Under these arrangements, during 1998, Danny H.
Conklin and Ernest R. Duke each received $4,000. Myrle Greathouse received
$3,000 and Charles R. Pannill received $4,500. All Directors are reimbursed for
expenses incurred in connection with attending meetings.
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 non-employee director after March 1, 1992. No options were
granted in 1998 under this plan.
-17-
<PAGE> 20
Directors who are not employees of Parallel are also eligible to
participate in the Non-Employee Directors Stock Option Plan. On August 4, 1998,
Messrs. Conklin, Duke, Greathouse and Pannill were each granted an option to
purchase 25,000 shares of common stock. Mr. Cambridge was granted an option to
purchase 50,000 shares of common stock. All of the options were granted with an
exercise price of $3.60 per share, the fair market value of the common stock on
the date of grant. The options are exercisable with respect to one-half of the
shares on August 4, 1999, and one-half on August 4, 2000. The options expire on
August 4, 2008.
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 are intended to be "incentive stock options" within
the meaning of the Internal Revenue Code which, generally, provides the
optionee with certain favorable tax benefits. Although the 1983 Plan expired by
its own terms in 1993, incentive stock options to purchase 247,000 shares of
common stock remain outstanding. The 1983 Plan is 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. All options expire, in any event, ten years after the date of grant.
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 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 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
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<PAGE> 21
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 non-employee
Director of Parallel 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 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.
The 1992 Plan will expire by its own terms in May, 2002.dd
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. The Parallel Petroleum 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 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 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.
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<PAGE> 22
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.
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.
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. The 1998 Plan will expire in
June, 2008.
OTHER OPTION GRANTS. The Board of Directors granted a non-qualified
stock option to Mr. Cambridge in October, 1993 under the general corporate
powers of Parallel. 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.
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<PAGE> 23
RETIREMENT PLAN
Parallel 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.
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 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 $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.
Parallel 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 employee's salary during any calendar year. During 1998,
Parallel contributed an aggregate of $11,632 to the accounts of seven employee
participants. Of this amount, $3,388 was allocated to Mr. Oldham's account.
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<PAGE> 24
CERTAIN TRANSACTIONS
From time to time, Wes-Tex Drilling Company, a corporation, acquires
undivided interests in oil and gas leasehold acreage from Parallel and
participates with Parallel and other interest owners in the drilling and
development of such acreage. Myrle Greathouse, a director and the sole
shareholder of Wes-Tex, is also a Director of Parallel. 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 1998, we billed Wes-Tex $83,946 for Wes-Tex's 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 1998 for its share
of lease operating expenses was $28,945. At December 31, 1998, Wes-Tex owed us
$579 for these expenses. During 1998, we disbursed $34,330 to Wes-Tex in
payment of revenues attributable to Wes-Tex's pro rata share of the proceeds
from sales of gas and oil produced from properties in which Wes-Tex and
Parallel owned interests.
In April, 1998, Parallel privately placed 600,000 shares of $.60
cumulative convertible preferred stock to eight accredited investors. Of the
600,000 shares of preferred stock, 100,000 shares were purchased by Wes-Tex,
50,000 shares were purchased by the Greathouse Foundation and 50,000 shares
were purchased by the Greathouse Charitable Remainder Trust. The Greathouse
Foundation is a tax-exempt entity under Section 501(c)(3) of the Internal
Revenue Code and engages in the business of making charitable grants for
benevolent purposes. Mr. Greathouse is the chairman of the board of directors
of the Greathouse Foundation. The Greathouse Charitable Remainder Trust is a
charitable remainder trust in which Mr. Greathouse and his wife are the
trustees and uni-trust beneficiaries. All of the shares of preferred stock were
purchased for cash at a price of $10 per share on the same terms as all other
unaffiliated purchasers. The net proceeds from the sale of the preferred stock,
approximately $5,919,000, were used by Parallel to reduce bank debt.
In October, 1998, the holders of the $.60 cumulative convertible
preferred stock, including Wes-Tex, the Foundation and the Trust, surrendered
all of the preferred stock to Parallel in exchange for Parallel's issuance of a
like number of shares of a newly created class of preferred stock, designated
as the 6% convertible preferred stock, $0.10 par value per share. After the
exchange, Wes-Tex was the record holder of 100,000 shares of the newly created
class of preferred stock, the Foundation was the record holder of 50,000
shares and the Trust was the record holder of 50,000
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<PAGE> 25
shares of $.60 cumulative convertible preferred stock. All outstanding shares
of the preferred stock were cancelled and restored to the status of authorized
but unissued preferred stock.
The rights, privileges and preferences of the 6% convertible preferred
stock are substantially identical to the $.60 cumulative convertible preferred
stock, except that the initial conversion price of the preferred stock is $3.50
per share, while the initial conversion price of the $.60 cumulative
convertible preferred stock was $6.40 per share.
In October, 1998, Parallel privately placed an additional 374,500
shares of 6% convertible preferred stock. Of the 374,500 shares that were sold,
10,000 shares were purchased by Wes-Tex, 5,000 shares were purchased by the
Foundation and 5,000 shares were purchased by the Trust. These purchases were
made for cash at a price of $10 per share on the same terms as all other third
parties. The net proceeds from the sale of the preferred stock, approximately
$3,709,000, were used to reduce bank debt.
During 1998, 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
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 1998, Cambridge Production
billed us $69,894 for our pro rata share of lease operating expenses and
drilling and workover expenses. We paid $84,554 to Cambridge Production during
1998, which included amounts remaining unpaid and owed to Cambridge Production
at the end of 1997. The largest amount we owed Cambridge Production at any one
time during 1998 was $22,981. At December 31, 1998, 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 1998 from the wells operated by
Cambridge Production was $217,806.
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.
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<PAGE> 26
APPROVAL OF ISSUANCE OF COMMON STOCK
We are seeking your approval for the issuance of up to 5,000,000
shares of common stock. While stockholder approval of this proposal is not
required under Delaware law, your authorization for the issuance and sale of
these shares will enable us to comply with certain rules of the Nasdaq National
Market. These rules require our stockholders to approve the issuance and sale
of securities representing more than 20% of our outstanding common stock in
privately negotiated transactions at a price less than the greater of market
value or book value. Five million shares represents approximately 27.3% of our
outstanding common stock.
Our oil and gas exploration, development and acquisition activities
require substantial and continuing capital expenditures. Historically, the
sources of financing to fund our capital expenditures have included:
o cash flow from operations;
o sales of our equity securities; and
o bank borrowings.
Because of the recent and sustained deterioration in prices we receive
for the oil and gas we produce, the capital normally available to us from our
cash flow and bank borrowings has been significantly reduced. In January, 1998,
we were receiving approximately $17.00 per barrel of oil and $2.70 per Mcf of
gas for the oil and gas we produced. Since then, oil prices have been as low as
$10.00 per barrel, the lowest level we have seen since Parallel was formed in
1979. At January 1, 1999, we were receiving approximately $10.50 per barrel of
oil and $2.00 per Mcf of gas. Primarily as a result of the decline in prices of
oil and gas, Parallel experienced a significant decline in operating cash flow
and revenues. In April, 1999, oil prices increased to approximately $16.00 per
barrel of oil, while gas prices have remained at approximately $2.00 per Mcf.
There can be no assurance that oil and gas prices will not decline in the
future.
Recognizing that falling oil and gas prices would adversely impact our
financial condition, results of operations and our ability to borrow additional
funds from our bank lender, as well as our ability to fund capital expenditures,
the Board of Directors authorized the sale of a total of 974,500 shares of
preferred stock in April and October, 1998 to a limited number of accredited
investors, including entities controlled by Myrle Greathouse, a Director of
Parallel. The preferred stock was sold at a price of $10 per share and is
convertible into shares of common stock. Based on the initial conversion rate of
$3.50 per share, the preferred stock is convertible into
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<PAGE> 27
a total of 2,785,714 shares of common stock, or approximately 15.2% of the total
number of outstanding shares of common stock. For additional information about
our preferred stock, you should read the discussion under "Certain Transactions"
on page 22 of this proxy statement. The net proceeds from the sale of the
preferred stock, approximately $9,628,000 in the aggregate, were used to reduce
our bank debt.
Primarily because of sustained low oil and gas prices, which has
adversely affected the value of our proved oil and gas reserves, we were
informed by our bank lender in March, 1999 that our available borrowing
capacity under our revolving credit facility was reduced from $21,100,000 to
$18,815,889. This means that we have borrowed all the funds currently available
under our revolving credit agreement.
At a meeting of the Board of Directors on February 16, 1999, we
reviewed available financing options in light of our need for capital and the
current market conditions in the domestic oil and gas industry. After
considering the advantages and disadvantages of issuing common stock, preferred
stock or debt securities, the Board determined that it would be in the best
interests of the stockholders to issue additional shares of common stock, rather
than preferred stock or debt securities, for the following reasons:
o the issuance of preferred stock or debt securities would
carry with it a dividend or interest payment obligation,
further restricting cash flow available to fund capital
expenditures;
o certain covenants in our loan agreement restrict our ability
to incur additional debt or pay dividends;
o obtaining favorable interest rates or dividend rates and
establishing other acceptable terms of a new series of
preferred stock or debt securities was believed to be
unlikely in view of current economic conditions in the oil
and gas industry; and
o the issuance of common stock would avoid issuing additional
shares of preferred stock with rights, preferences and
privileges senior to the common stock.
After considering the expense, time requirements and the uncertainty of
being able to consummate a public offering of securities, the Board further
determined that the most attractive option was to issue common stock through
privately negotiated sales, rather than a public offering.
We have sought expressions of interest from accredited investors known
to us, including certain holders of our preferred stock, who have expressed an
interest in making an additional investment in Parallel. The terms of any
proposed sale, including the price per share, will be determined by arms-length
negotiation and included in definitive agreements to be entered into at the time
of sale. Although we do not presently have any definitive agreements with these
or any other potential investors, if the proposal is approved, we will continue
our discussions with them, as well as other prospective investors. However, even
if this proposal is approved by the stockholders, we can give no assurance that
we will be able to obtain additional capital through the sale of any shares of
our common stock to these or any other potential investors.
Any proposed sale of our stock will be submitted to the Board for its
prior review and consideration. Unless the Directors determine that the terms
of any proposed sale, including the sales price, are just and reasonable and
that the transaction is in the best interests of and fair to Parallel and its
stockholders, we will not enter into any agreements for the sale of our stock.
In making this determination, factors that the Board will review and consider
will include:
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<PAGE> 28
o the prices of our common stock as reported on the Nasdaq National
Market, the trading volume in and the volatility in prices of our
common stock;
o the number of shares of common stock proposed to be sold in comparison
to average trading volumes of the common stock;
o appropriate discount factors for the restricted nature of the common
stock due to the absence of registration with the SEC;
o our oil and gas reserves and the potential for growth of our reserves;
o recent trends in and prospects for the oil and gas industry as a
whole;
o comparisons with other publicly traded oil and gas companies similar
to Parallel; and
o the business, operations, financial condition and prospects of
Parallel generally.
Shares of common stock that we sell in privately negotiated
transactions, if any, will not be freely tradeable and will be restricted
securities within the meaning of Rule 144 under the Securities Act of 1933. In
general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned shares constituting restricted securities for at least one
year is entitled to publicly resell such securities within any three-month
period a number of shares that does not exceed the greater of one percent of
the outstanding common stock or the average weekly trading volume in the common
stock during the four calendar weeks preceding the date on which notice of such
sale is filed pursuant to Rule 144. Sales under Rule 144 also are subject to
certain provisions regarding the manner of sale, notice requirements and the
availability of current public information about Parallel. A stockholder who is
not an affiliate of Parallel for at least 90 days prior to a proposed
transaction and who has beneficially owned restricted securities for at least
two years is entitled to sell such shares under Rule 144(k) without regard to
the limitations described above. If this proposal is approved, any shares of
common stock that we may sell will be restricted securities, and prospective
investors may require a discount from market prices due to the restricted
nature of the common stock.
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<PAGE> 29
Between January 4, 1999 and May 18, 1999, the closing price of our
common stock as reported on the Nasdaq National Market ranged from a low of
$1.00 per share to a high of $2.28 per share. At May 19, 1999, the closing price
of our common stock as reported on the Nasdaq National Market was $1.625 per
share.
If stockholders approve the proposal to issue and sell the common
stock, such sales, if any, will require the prior approval of the Board of
Directors and will necessarily occur after the Annual Meeting. Consequently, we
are not able at the present time to determine the number of shares that we may
be able to sell in any one transaction or the price per share at which the
common stock may be sold.
At the present time, our cash flow from operations is adequate to meet
normal operating expenses, the interest expense under our credit facility and
preferred stock dividend requirements. However, without the additional capital
we would receive from the sale of the common stock, our exploration activities
may be curtailed until there is sustained improvement in oil and gas prices or
alternative sources of funding can be found. Our ability to remain in
compliance with the covenants in our loan agreement could also be adversely
affected. If we become in default under our loan agreement, our bank lender
could declare all of our debt to be immediately due and payable. The additional
funds we obtain from the sale of the common stock will strengthen our ability
to remain in compliance with the covenants in our loan agreement, and allow us
to continue our current drilling activities and remain competitive during a
significant and material downturn in the oil and gas industry. We believe the
benefits from the sale of our common stock will be an advantage to Parallel
because:
o we will have the opportunity to increase our proved reserves by
drilling additional wells or acquiring producing properties;
o the availability of additional financing in a depressed oil and gas
market will strengthen our competitive position in our primary areas
of operation;
o we can increase our cash flow if our drilling activities are
successful; and
o we will have additional time to maximize cash flow and increase the
value of our assets.
If the proposal is approved and if we are able to sell any shares of
our common stock, the net proceeds will be used to help fund exploratory and
development activities, property acquisitions, to reduce bank debt, or a
combination of any of these expenditures.
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<PAGE> 30
EFFECT OF ISSUANCE AND SALE OF SHARES ON EXISTING STOCKHOLDERS
After giving effect to the assumed issuance of 5,000,000 shares of
common stock, these shares would represent approximately 21.4% of the total
number of shares outstanding. As described on page 26 and page 27, these shares
may be sold at prices less than quoted market prices at the time of sale.
Although the number of shares of common stock collectively owned by purchasers
would not constitute a majority of the outstanding shares of common stock, the
purchasers may nonetheless collectively own a sufficient number of shares of
common stock to influence control of Parallel.
Stockholders will suffer dilution of their ownership interest in
Parallel as a result of the issuance and sale of the common stock. We are not
able to quantify the dilutive effect of any sales of our common stock because
the sales price is not presently known. However, regardless of the sales price,
the issuance of additional shares of common stock could reduce net book value
per share and earnings (loss) per share, will have a dilutive effect on the
voting power of current stockholders, and could depress the market price of the
common stock.
RECOMMENDATION AND VOTE
Parallel's Board of Directors has unanimously approved the proposal to
authorize the issuance and sale of up to 5,000,000 shares of common stock. The
Board of Directors believes that having the ability to sell these shares of
common stock in privately negotiated transactions is in the best interest of
Parallel and its stockholders.
To effect the proposal, the following resolution will be proposed at
the Annual Meeting and proxies will be voted in favor of the resolution unless
stockholders specify otherwise:
RESOLVED, that Parallel Petroleum Corporation be authorized to issue
and sell in privately negotiated transactions up to 5,000,000 shares
of common stock at a price and upon other terms as shall be approved
by the Board of Directors.
If the stockholders do not approve this proposal at the Annual
Meeting, we will consider other financing alternatives that may be available to
us from time to time, including other permissible methods of public or private
sales of our debt or equity securities, sales of property interests or
alternative bank financing.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE AUTHORIZATION
OF THE ISSUANCE AND SALE OF UP TO 5,000,000 SHARES OF COMMON STOCK IN PRIVATELY
NEGOTIATED TRANSACTIONS TO PURCHASERS AND UPON TERMS TO BE APPROVED BY THE
BOARD OF DIRECTORS.
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<PAGE> 31
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, 1999. 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 AUDITORS FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1999.
FINANCIAL STATEMENTS
The 1998 Annual Report to Stockholders accompanying this proxy
statement includes our Form 10-K Report filed with the SEC. Our audited
financial statements, as contained in pages F-1 through and including page F-23
of our Form 10-K Report, are incorporated by reference into this proxy
statement.
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, 1998 AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION UPON WRITTEN REQUEST TO THE MANAGER OF PUBLIC RELATIONS
OF THE COMPANY, ONE MARIENFELD PLACE, SUITE 465, 110 N. MARIENFELD, MIDLAND,
TEXAS 79701.
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<PAGE> 32
STOCKHOLDER PROPOSALS
Stockholders desiring to submit proposals for inclusion in our proxy
statement for the 2000 annual meeting of stockholders must submit proposals to
us at our principal executive office on or before January 7, 2000. 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 the registrant did not receive notice until
after March 20, 1999. For our annual meeting in 2000, management proxies will
be permitted to use discretionary voting authority for matters submitted at the
annual meeting other than pursuant to the procedures in SEC Rule 14a-8 if
notice of the matter was not delivered to us on or before April 8, 2000.
By Order of the Board of Directors
THOMAS W. ORTLOFF
Secretary
Midland, Texas
May 24, 1999
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<PAGE> 33
PARALLEL PETROLEUM CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - JUNE 23, 1999
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 May 12, 1999, which the
undersigned is entitled to vote at the 1999 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 24, 1999, receipt of which is acknowledged.
<TABLE>
<S> <C>
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, Ernest R. Duke, Myrle Greathouse, Larry C. Oldham, Charles R. Pannill.
2. APPROVAL OF THE ISSUANCE AND SALE OF UP TO 5,000,000 SHARES OF COMMON STOCK IN PRIVATELY NEGOTIATED TRANSACTIONS:
___ FOR ___ AGAINST ___ ABSTAIN
3. APPROVAL OF SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS 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.
</TABLE>
<PAGE> 34
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 ___________________________, 1999
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