UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 27, 2004
PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-13305 75-1971716
(Commission file number) (IRS employer identification number)
1004 N. Big Spring, Suite 400, Midland, Texas 79701
(Address of principal executive offices) (Zip code)
(432) 684-3727
(Registrant's telephone number including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off- Balance Sheet Arrangement of a Registrant.
On September 27, 2004, Parallel Petroleum Corporation and its
subsidiaries, Parallel, L.P. and Parallel, L.L.C., entered into a Second Amended
and Restated Credit Agreement (or the Credit Agreement) with First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank. We entered
into the Credit Agreement for the primary purpose of being able to borrow
additional funds with which to purchase oil and gas properties, including our
September 27, 2004 purchase of producing oil and gas properties from Chevron
U.S.A. Inc. You can find additional information about our agreement with Chevron
in our Form 8-K Report dated September 16, 2004 and filed with the Securities
and Exchange Commission (or SEC) on September 22, 2004 and in our Form 8-K
Report dated September 27, 2004 and filed with the SEC on October 1, 2004.
The Credit Agreement provides for a revolving credit facility which
means that we can borrow, repay and reborrow funds drawn under the credit
facility. The total amount that we can borrow and have outstanding at any one
time is limited to the lesser of $200 million or the "borrowing base"
established by our lenders. The current borrowing base, after giving effect to
the purchase of properties from Chevron, is $72 million. The principal amount
presently outstanding under the credit facility is $55 million. The amount of
the borrowing base is based primarily upon the estimated value of our oil and
gas reserves. The borrowing base amount is redetermined by the lenders
semi-annually on or about April 1 and October 1 of each year or at other times
required by the lenders or at our request. If, as a result of the lenders'
redetermination of the borrowing base, the outstanding principal amount of our
loan exceeds the borrowing base, we must either provide additional collateral to
the lenders or repay the principal of the note in an amount equal to the excess.
Except for the principal payments that may be required because of our
outstanding loans being in excess of the borrowing base, interest only is
payable monthly.
Loans made to us under this credit facility bear interest at First
American Bank's base rate or the LIBOR rate, at our election. Generally, First
American Bank's base rate is equal to the sum of (a) the prime rate published in
the Wall Street Journal, and (b) if the principal amount outstanding is equal to
or greater than 85% of the borrowing base established by the lenders, a margin
of 2.00%.
The LIBOR rate is generally equal to the sum of (a) the rate designated
as "British Bankers Association Interest Settlement Rates" and offered on one,
two, three, six or twelve month interest periods for deposits of $1.0 million,
and (b) a margin ranging from 4.75% to 2.75%, depending upon the outstanding
principal amount of the loans. If the principal amount outstanding is equal to
or greater than 85% of the borrowing base established by the lenders, the margin
is 4.75%. If the principal amount outstanding is equal to or greater than 75% of
the borrowing base, but less than 85% of the borrowing base, the margin is
2.75%. If the principal amount outstanding is equal to or greater than 50%, but
less than 75% of the borrowing base, the margin is 2.50%.If the principal amount
outstanding is less than 50% of the borrowing base, the margin is 2.25%.
2
The interest rate we are required to pay, including the applicable
margin, may never be less than 4.50%.
In the case of base rate loans, interest is payable on the last day of
each month. In the case of LIBOR loans, interest is payable on the last day of
each applicable interest period.
If the total outstanding borrowings under the credit facility are less
than the borrowing base, an unused commitment fee is required to be paid to the
lenders. The amount of the fee is .25% of the daily average of the unadvanced
amount of the borrowing base. The fee is payable quarterly.
If the borrowing base is increased, we are required to pay a fee of
..375% on the amount of any increase in the borrowing base.
As required by the Credit Agreement, we paid a facility fee in the
amount of $300,000.
All outstanding principal under the revolving credit facility is due
and payable on December 20, 2008. The maturity date of our outstanding loans may
be accelerated by the lenders upon the occurrence of an event of default under
the Credit Agreement. Generally, the events of default specified in the Credit
Agreement include:
. failure to timely pay the interest on and principal of the loans;
. any representation or warranty being untrue in any material
respect;
. failure to observe or perform any of the covenants contained in
the loan documents;
. default on indebtedness (other than under the Credit Agreement)
of $250,000 or more;
. liquidation or reorganization under any insolvency loan;
. final judgment against us in the amount of $250,000 or more;
. the occurrence of an event of default under any of our hedging
transactions;
. the occurrence of a change of control;
. the imposition of any lien for failure to pay income, payroll or
similar taxes; or
. any of the loan documents between us and the lenders ceasing to
be in full force and effect.
3
Parallel, L.L.C., a subsidiary of Parallel Petroleum Corporation,
guaranteed payment of the loans.
Our obligations to the lenders are secured by substantially all of our
oil and gas properties.
In addition to customary affirmative covenants, the Credit Agreement
contains various restrictive covenants and compliance requirements. Among these
restrictions are limitations on our ability to:
. dispose of assets;
. incur additional indebtedness;
. create liens on our assets;
. enter into specified investments or acquisitions;
. repurchase, redeem or retire our capital stock or other
securities;
. merge or consolidate, or transfer all or substantially all of our
assets and the assets of our subsidiaries;
. engage in specified transactions with subsidiaries and
affiliates;
. engage in other specified corporate activities; and
. the Credit Agreement also contains restrictions on all retained
earnings and net income for payment of dividends on our common
stock.
The Credit Agreement also requires that we have:
. at the end of each quarter, a current ratio (as defined in the
Credit Agreement) of at least 1.1 to 1.0;
. at the end of each quarter, a funded debt ratio (as defined in
the Credit Agreement) of not more than 3.0 to 1.0; and
. at all times, adjusted consolidated net worth (as defined in the
Credit Agreement) of at least (a) $50.0 million, plus (b)
seventy-five percent (75%) of the net proceeds from any equity
securities issued by Parallel, plus (c) fifty percent (50%) of
Parallel's consolidated net income for each fiscal quarter, if
positive, and zero percent (0%) if negative.
As part of the closing transactions under the Credit Agreement,
Parallel and its subsidiaries also entered into a separate commitment letter
with the lenders. Under the commitment letter, the lenders have agreed to make
available an additional
4
$20,500,000 under the Credit Agreement for Parallel's completion of the purchase
of oil and gas properties from Caprock Oil & Gas, L.P. and other third parties
owning interests in these same properties, including one of the principals of
Caprock Oil & Gas, L.P.; and for Parallel's purchase of additional working
interests in its Fullerton property located in Andrews County, Texas. The
commitment is subject to certain conditions, including:
. title to, and the environmental condition of, all of the
properties being satisfactory to the lenders;
. completion of the property acquisitions by October 31, 2004; and
. other customary closing conditions.
The commitment letter also provides that the borrowing base under the
Credit Agreement will be automatically reduced by $10 million on April 1, 2005
if all of the Caprock properties are acquired.
5
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
10.1 Second Amended and Restated Credit Agreement, dated as
of September 27, 2004, among Parallel Petroleum
Corporation, Parallel, L.P., Parallel, L.L.C. and
First American Bank, SSB, BNP Paribas, Citibank F.S.B.
and Western National Bank
6
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 30, 2004
PARALLEL PETROLEUM CORPORATION
By: /s/ Larry C. Oldham
------------------------------------
Larry C. Oldham, President and Chief
Executive Officer
7