def14a
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. )
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Filed by the Registrant þ |
Filed by a Party other than the Registrant o |
Check the appropriate box: |
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Preliminary Proxy Statement. |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)). |
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Definitive Proxy Statement. |
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Definitive Additional Materials. |
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Soliciting Material Pursuant to Sec. 240.14a-12. |
Parallel Petroleum Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (check the appropriate box): |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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(1) Title of each class of securities to which transaction applies: |
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(2) Aggregate number of securities to which transaction applies: |
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(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): |
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(4) Proposed maximum aggregate value of transaction: |
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(5) Total fee paid: |
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Fee paid previously with preliminary materials. |
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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. |
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(1) Amount previously paid: |
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(2) Form, Schedule or Registration Statement No.: |
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(3) Filing Party: |
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(4) Date Filed: |
PARALLEL PETROLEUM CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Wednesday, May 28, 2008
Dear Stockholder:
Notice is hereby given that the Annual Meeting of Stockholders of Parallel Petroleum
Corporation, or Parallel, will be held at the Midland Petroleum Club, 501 W. Wall, Midland, Texas
79701, on Wednesday, May 28, 2008 at 10:00 a.m.
We intend to present for your approval at this meeting:
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the election of five Directors to serve until the
next Annual Meeting of Stockholders and until their successors are
duly elected and qualified; |
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the proposed Parallel Petroleum Corporation 2008 Long-Term
Incentive Plan (a copy of which is attached hereto and marked
Appendix A); |
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the ratification of the reappointment of BDO
Seidman, LLP as independent auditors for 2008; and |
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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 April 16,
2008, you are entitled to vote at the Annual Meeting.
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BY ORDER OF THE BOARD OF DIRECTORS |
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Thomas W. Ortloff |
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Secretary |
April 23, 2008
YOUR VOTE IS IMPORTANT TO ASSURE A QUORUM AT THE MEETING. WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE BE SURE THAT THE ENCLOSED PROXY IS PROPERLY COMPLETED, DATED, SIGNED AND RETURNED
WITHOUT DELAY IN THE POSTAGE PAID ENVELOPE.
PARALLEL PETROLEUM CORPORATION
TABLE OF CONTENTS
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Appendix A 2008 Long-Term Incentive Plan |
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Appendix B Audit Committee Charter |
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ii
PARALLEL PETROLEUM CORPORATION
1004 N. Big Spring, Suite 400
Midland, Texas 79701
(432) 684-3727
PROXY STATEMENT
For Annual Meeting of Stockholders to Be Held on Wednesday, May 28, 2008
GENERAL
Solicitation of Proxies
The accompanying proxy is solicited on behalf of the Board of Directors of Parallel Petroleum
Corporation for use at the Annual Meeting of Stockholders. The meeting will be held at the Midland
Petroleum Club, 501 W. Wall, Midland, Texas 79701, at 10:00 a.m. on Wednesday, May 28, 2008, for
the purposes set forth in the accompanying Notice of Annual Meeting.
We will bear the cost of soliciting proxies. We have retained Georgeson, Inc., a proxy
solicitation firm, to solicit proxies for a fee of approximately $10,000, plus certain
out-of-pocket expenses. Additionally, we may use our officers and employees to solicit proxies in
person or by telephone, facsimile or similar means. Any officers or employees soliciting proxies
will not receive any extra compensation for their efforts. We may also reimburse brokers or other
persons holding stock in their names or in the names of their nominees for their charges and
expenses in forwarding proxies and proxy materials to the beneficial owners of such stock.
The Notice of Annual Meeting of Stockholders, this Proxy Statement, proxy form and our 2007
Annual Report to stockholders is being distributed on or about April 23, 2008.
References in this Proxy Statement to we, us, our, Parallel or the Company mean
Parallel Petroleum Corporation and, where applicable, its former consolidated subsidiaries.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDERS MEETING TO BE HELD ON MAY 28, 2008
Parallels Proxy Statement and Annual Report on Form 10-K are available at
www.plll.com.
The following proxy materials are available for you to review under the caption Proxy
Materials at www.plll.com:
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Parallels Notice of Annual Meeting and 2008 Proxy Statement; |
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the proxy card; |
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Parallels Annual Report to Stockholders, including Form 10-K for the fiscal year
ended December 31, 2007; and |
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any amendments to the foregoing materials that are required to be furnished to
stockholders. |
Proposals to be Considered at the Annual Meeting
At the Annual Meeting, stockholders will be asked to consider and act upon the following
proposals:
1. the election of a board of five directors;
2. the approval of the Parallel Petroleum Corporation 2008 Long-Term Incentive Plan;
3. the ratification of the Audit Committees appointment of BDO Seidman, LLP as the
independent registered public accounting firm of the Company for the fiscal year ending December
31, 2008; and
4. the transaction of any other business that may properly come before the Annual Meeting or
any adjournments or postponements thereof.
Voting at the Annual Meeting
The close of business on April 16, 2008 has been fixed by the Board of Directors as the record
date for this years Annual Meeting. All stockholders who owned the Companys common stock on the
record date are entitled to this notice and to vote at the Annual Meeting and any adjournments or
postponements thereof. As of the record date, Parallel had issued and outstanding 41,367,420
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.
Where the stockholder is not the record holder, such as where shares are held through a
broker, nominee, fiduciary or other custodian, the stockholder must provide voting instructions to
the record holder of the shares in accordance with the record holders requirements in order to
ensure the shares are properly voted.
In accordance with Delaware law, a list of stockholders entitled to vote at the meeting will
be available at the meeting, and for 10 days prior to the meeting, at 1004 N. Big Spring, Suite
400, Midland, Texas 79701, between the hours of 9 a.m. and 4 p.m.
Your Board strongly encourages you to exercise your right to vote. Voting early helps ensure
that Parallel receives a quorum of shares necessary to hold the Annual Meeting without incurring
additional expense and delay.
Quorum and Voting Requirements
Quorum. The presence of a majority of the outstanding shares of common stock, whether present
in person at the Annual Meeting or represented by proxy at the Annual Meeting, will constitute a
quorum at the Annual Meeting. Abstentions and broker non-votes are counted as present and entitled
to vote for purposes of determining whether a quorum exists.
Election of Directors. Assuming a quorum is present, Directors will be elected by a plurality
of the votes of the shares represented in person or by proxy and entitled to vote. A plurality
means that the individuals who receive the most FOR votes will be elected as Directors up to the
maximum number of Directors to be chosen at the meeting.
Other Proposals. Assuming a quorum is present, the proposals to approve the 2008 Long-Term
Incentive Plan and to ratify the Audit Committees selection of our independent auditors requires
the affirmative vote, in person or by proxy, of a majority of the votes cast.
Effect of Withheld Votes, Abstentions and Broker Non-Votes. In the election of Directors, you
may withhold your vote. Withheld votes will be excluded from the vote and will have no effect on
the outcome, except to the extent the failure to vote for an individual results in another
individual receiving a larger number of votes.
You may vote to abstain on the other two proposals that we will present at the Annual
Meeting. 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. Abstentions are counted as votes cast, and therefore have the same effect as votes cast
against the proposals since it is one less vote for approval.
Broker non-votes will not be counted as votes cast on a proposal and will have no impact on a
proposal since they are treated as not being entitled to vote on the matters and, therefore, are
not counted for purposes of determining whether a proposal has been approved. 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.
-2-
How to Revoke Your Proxy
You may revoke a proxy at any time before it is voted. You can do this by:
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delivering a later dated proxy; |
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notifying the Secretary in writing specifically revoking the proxy; or |
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voting in person at the meeting. |
If your shares are held in street name, you must obtain a proxy, executed in your favor,
from your broker or other holder of record, to be able to vote in person at the meeting.
If you do not make any specification on the proxy as to how to vote your shares, your shares
will be voted in accordance with the recommendations of the Board of Directors as stated below, or
at the discretion of the named proxies with regard to any other matter that may properly come
before the Annual Meeting or any adjournment thereof.
Board Recommendations
All shares entitled to vote and represented by properly completed proxies received prior to
the meeting and not revoked will be voted at the meeting in accordance with your instructions. If
you return a signed proxy card without indicating how your shares should be voted on a matter and
do not revoke your proxy, the shares represented by your proxy will be voted as the Board of
Directors recommends. The Boards recommendations are set forth together with the description of
each item in this Proxy Statement. In summary, the Board recommends a vote:
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FOR the proposal to elect the five nominated Directors, as set forth below and on
page 7 of this Proxy Statement; |
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FOR the proposal to approve the Parallel Petroleum Corporation 2008 Long-Term
Incentive Plan; and |
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FOR the proposal to ratify the reappointment of BDO Seidman, LLP as independent
auditors for 2007, as set forth on page 49 of this Proxy Statement. |
With respect to any other matter that properly comes before the Annual Meeting, the proxy
holders will vote as recommended by the Board of Directors or, if no recommendation is given, in
their own discretion in the best interests of Parallel. At the date this Proxy Statement went to
press, the Board of Directors had no knowledge of any business other than that described in this
Proxy Statement that would be presented for consideration at the Annual Meeting.
Selection of Nominees for Director
Larry C. Oldham, Martin B. Oring, Ray M. Poage and Jeffrey G. Shrader served as Directors of
Parallel throughout 2007. Edward A. Nash served as a Director for a portion of the year, beginning
in June 2007 when he was elected as a Director at last years annual meeting of stockholders.
Our nominees for election as Director at the 2008 Annual Meeting of Stockholders are Edward A.
Nash, Larry C. Oldham, Martin B. Oring, Ray M. Poage and Jeffrey G. Shrader. One of the nominees,
Mr. Oldham, is an executive officer of Parallel. All of the nominees were elected by our
stockholders as a Director at last years annual meeting and are standing for re-election. Each of
the five nominees was approved for our slate of Directors by our Corporate Governance and
Nominating Committee.
Conduct of the Meeting
In order to ensure that the Annual Meeting is conducted in an orderly fashion and that
stockholders wishing to speak at the meeting have a fair opportunity to speak, we will have an
agenda and certain guidelines and rules for the conduct of the meeting. The Chairman of the Board
will announce the closing of the polls during the Annual Meeting. Proxies must be received prior to
the closing of the polls in order to be counted.
-3-
STOCK OWNERSHIP
The table below shows information as of April 16, 2008 about the beneficial ownership of
common stock by (1) each person known by us to own beneficially more than five percent of our
outstanding common stock; (2) our five current executive officers named in the Summary Compensation
Table on page 34 of this Proxy Statement; (3) each Director and nominee for Director of Parallel;
and (4) all of our executive officers and Directors (and nominees) as a group.
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Name and Address |
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Amount and Nature |
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Percent |
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Beneficial Owner |
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Beneficial Ownership(1) |
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Class(2) |
Larry C. Oldham |
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733,590 |
(3) |
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1.77 |
% |
1004 N. Big Spring, Suite 400
Midland, Texas 79701 |
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Donald E. Tiffin |
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19,350 |
(4) |
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* |
1004 N. Big Spring, Suite 400
Midland, Texas 79701 |
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Eric A. Bayley |
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153,690 |
(5) |
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* |
1004 N. Big Spring, Suite 400
Midland, Texas 79701 |
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Steven D. Foster |
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11,000 |
(6) |
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* |
1004 N. Big Spring, Suite 400
Midland, Texas 79701 |
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John S. Rutherford |
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59,800 |
(7) |
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* |
1004 N. Big Spring, Suite 400
Midland, Texas 79701 |
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Edward A. Nash |
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1,100 |
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* |
16214 Lafone Drive
Spring, Texas 77379 |
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Martin B. Oring |
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145,709 |
(8) |
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* |
10817 Grande Blvd.
West Palm Beach, Florida 33417 |
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Ray M. Poage |
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109,213 |
(9) |
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* |
4711 Meandering Way
Colleyville, Texas 76034 |
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Jeffrey G. Shrader |
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55,395 |
(10) |
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* |
801 S. Filmore, Suite 600
Amarillo, Texas 79105 |
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Dreman Value Management, L.L.C |
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2,203,250 |
(11) |
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5.33 |
% |
520 East Cooper Ave., Suite 230-4
Aspen, Colorado 81611 |
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Neuberger Berman, Inc. |
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4,443,544 |
(12) |
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10.74 |
% |
605 Third Avenue
New York, New York 10158 |
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Next Century Growth Investors, LLC |
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2,947,394 |
(13) |
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7.12 |
% |
5500 Wayzata Blvd., Suite 1275
Minneapolis, Minnesota 55416 |
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All Executive Officers, Directors and |
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1,288,647 |
(14) |
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3.10 |
% |
Nominees as a Group (9 persons) |
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* |
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Less than one percent. |
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(1) |
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Unless otherwise indicated, all shares of common stock are held directly with sole
voting and investment powers. |
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(2) |
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Securities not outstanding, but included in the beneficial ownership of each such
person, are deemed to be outstanding for the purpose of computing the percentage of
outstanding securities of the class owned by such person, but are not deemed to be
outstanding for the purpose of computing the percentage of the class owned by any other
person. Shares of common stock that may be acquired within sixty days of April 16, 2008
upon exercise of outstanding stock options are deemed to be outstanding. |
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(3) |
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Includes 400,000 shares of common stock held indirectly through Oldham Properties,
Ltd., a limited partnership, and as to which Mr. Oldham disclaims beneficial ownership.
Also included are 15,000 shares of common stock underlying a presently exercisable stock
option held by Mr. Oldham. At the date of this Proxy Statement, a total of 50,000 shares
of common stock were pledged as collateral to secure repayment of loans. |
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(4) |
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Of the total number of shares shown, 9,350 shares are held indirectly through Mr.
Tiffin=s individual retirement account. |
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(5) |
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Includes 50,000 shares of common stock underlying presently exercisable stock
options. A total of 6,790 shares of common stock are held indirectly by Mr. Bayley
through an Individual Retirement Account and 408(k) Plan. At the date of this Proxy
Statement, a total of 65,000 shares of common stock were pledged as collateral to secure
repayment of loans. The total number of shares shown also includes 200 shares of common
stock underlying a stock purchase warrant. |
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(6) |
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Includes 400 shares of common stock held by Mr. Fosters wife and 9,000 shares held
in his 408(k) Plan. |
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(7) |
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Includes 44,000 shares of common stock underlying a presently exercisable stock
option. At the date of this Proxy Statement, a total of 45,800 shares of common stock
were pledged as collateral to secure repayment of loans. |
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(8) |
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Of the total number of shares shown, 82,019 shares are held by Wealth Preservation,
LLC, a limited liability company owned and controlled by Mr. Oring and his wife, and
57,295 shares may be acquired by Mr. Oring upon exercise of stock options that are
presently exercisable. |
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(9) |
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Includes 20,068 shares of common stock held indirectly by Mr. Poage through his
individual retirement account. Also included are 78,750 shares that may be acquired upon
exercise of presently exercisable stock options. |
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(10) |
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Includes 20,000 shares of common stock that may be acquired upon exercise of a
presently exercisable stock option. At the date of this Proxy Statement, a total of
25,000 shares of common stock were pledged as collateral to secure repayment of loans. |
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(11) |
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As reported in Schedule 13G filed by Dreman Value Management, L.L.C., an investment
advisor, with the Securities and Exchange Commission on February 14, 2008, Dreman Value
Management, L.L.C., or Dreman, reported beneficial ownership of 2,203,250 shares of
common stock. Of these shares, Dreman reported sole voting power with respect to 624,950
shares; shared voting power with respect to 22,900 shares and shared dispositive power
with respect to 2,203,250 shares. |
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(12) |
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Based on Amendment No. 2 to Schedule 13G filed by Neuberger Berman, Inc., Neuberger
Berman, LLC, Neuberger Berman Management, Inc. and Neuberger Berman Equity Funds with the
Securities and Exchange Commission on March 10, 2008, Neuberger Berman, Inc., or
NBI, reported beneficial ownership of 4,443,544 shares of common stock. Of these
shares, NBI and Neuberger Berman, LLC each reported sole voting power with respect to
117,803 shares; shared voting power with respect to 3,410,841 shares; and shared
dispositive power with respect to 4,443,544 shares. Neuberger Berman Management, Inc.
reported shared voting and dispositive powers with respect to
3,410,841 shares and
Neuberger Berman Equity Funds reported shared voting and dispositive powers with respect
to 3,376,341 shares. NBI is the parent company of Neuberger Berman, LLC, an investment
advisor and broker-dealer, and Neuberger Berman Management Inc., an investment advisor to
a series of public mutual funds. Neuberger Berman, LLC is deemed to be a beneficial
owner of such shares since it has shared dispositive power, and in some cases the sole
power to vote such shares. Neuberger Berman Management Inc. is deemed to be a beneficial
owner of such shares since it has shared dispositive and voting power. The holdings of
Lehman Brothers Asset Management LLC, an affiliate of Neuberger Berman LLC, are also
included in the total number of shares shown. |
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(13) |
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Based on Schedule 13G filed by Next Century Growth Investors, LLC, Thomas L. Press
and Donald M. Longlet with the Securities and Exchange Commission on February 14, 2008,
Next Century Growth Investors, LLC, or NCGI, reported beneficial ownership of 2,947,394
shares of common stock. NCGI reported that it may be deemed to be the beneficial owner of
such shares by virtue of its investment discretion and/or voting power over client
securities, which may be revoked, and that Thomas L. Press and Donald M. Longlet may also
be deemed to have beneficial ownership of such shares as a result of their positions with
and ownership positions in NCGI, |
-5-
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which could be deemed to confer upon each of them voting and/or investment power over
the shares. Each of NCGI, Thomas L. Press and Donald M. Longlet disclaim beneficial
ownership of such shares except to the extent of each of their respective pecuniary
interests therein, if any. |
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(14) |
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Includes 265,045 shares of common stock underlying stock options that are presently
exercisable. The unexercisable portion of stock options held by our officers and
directors do not become exercisable within the next sixty days. |
Equity Compensation Plans
At December 31, 2007, a total of 631,920 shares of common stock were authorized for issuance
under our equity compensation plans. In the table below, we describe certain information about
these shares and the equity compensation plans which provide for their authorization and issuance.
You can find additional information about our stock grant and stock option plans beginning on page
43.
Equity Compensation Plan Information
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(a) |
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(b) |
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(c) |
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Number of securities |
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remaining available for |
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future issuance under |
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Number of securities to |
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Weighted-average |
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equity compensation |
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be issued upon exercise |
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exercise price of |
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plans (excluding |
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of outstanding options, |
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outstanding options, |
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securities reflected in |
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Plan category |
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warrants and rights |
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warrants and rights |
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column (a)) |
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Equity compensation
plans approved by
security holders |
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374,500 |
(1) |
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$ |
8.03 |
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74,420 |
(2) |
Equity compensation
plans not approved
by security holders |
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183,000 |
(3) |
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$ |
4.97 |
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0 |
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Total |
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557,500 |
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$ |
7.03 |
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74,420 |
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(1) |
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Includes shares of common stock issuable upon exercise of stock options granted under our
1992 Stock Option Plan, 1997 Nonemployee Directors Stock Option Plan, 1998 Stock Option Plan,
and 2001 Nonemployee Directors Stock Option Plan. |
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(2) |
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These shares of common stock are available for future issuance under our 2004 Non-Employee
Director Stock Grant Plan. |
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(3) |
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These shares represent shares of common stock underlying stock options granted on June 20,
2001 to non-officer employees under our 2001 Employee Stock Option Plan. The 2001 Employee
Stock Option Plan is the only equity compensation plan in effect that we have adopted without
approval of our stockholders. Our Directors and officers are not eligible to participate in
this plan. A description of the material features of this plan can be found under the caption
2001 Employee Stock Option Plan on page 46. |
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PROPOSAL #1 ELECTION OF DIRECTORS
Our Directors are elected annually by our stockholders to serve until the next annual meeting
of stockholders and until their respective successors are duly elected. The number of directors
comprising the whole Board is determined by the Board of Directors.
Our five nominees for Directors are Jeffrey G. Shrader, Larry C. Oldham, Edward A. Nash,
Martin B. Oring and Ray M. Poage. Messrs. Shrader, Oldham, Nash, Oring and Poage were all elected
as Directors at the last annual meeting of stockholders. All nominees have consented to serve as
Directors if elected at the Annual Meeting. If any nominee becomes unavailable for any reason, a
substitute nominee 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. We do not know of any
reason why any nominee will become unavailable. Shares represented by the accompanying form of
proxy will be voted for the election of the five nominees named below unless other instructions are
shown on the proxy card.
Your Board of Directors recommends a vote FOR the following five nominees for election as
Directors at the Annual Meeting.
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Director |
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Nominee |
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Age |
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Since |
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Position with Company |
Jeffrey G. Shrader(1)(2)(3)(4) |
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57 |
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2001 |
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Chairman of the Board of Directors; Director |
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Larry C. Oldham(1) |
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54 |
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1979 |
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Director, President and Chief Executive Officer |
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Edward A. Nash(1)(2)(3)(4) |
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59 |
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2007 |
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Director |
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Martin B. Oring(1)(2)(3)(4) |
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62 |
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2001 |
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Director |
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Ray M. Poage(1)(2)(3)(4) |
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60 |
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2003 |
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Director |
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(1) |
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Member of Hedging and Acquisitions Committee. |
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(2) |
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Member of Compensation Committee.
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(3) |
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Member of Audit Committee.
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(4) |
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Member of Corporate Governance and Nominating Committee. |
Mr. Shrader has been a shareholder in the law firm of Sprouse Shrader Smith, Amarillo, Texas,
since January 1993. He has also served as a director of Hastings Entertainment, Inc. since 1992.
Mr. Shrader is the Chairman of the Corporate Governance and Nominating Committee.
Mr. Oldham is a founder of Parallel and has served as an officer and Director since its
formation in 1979. Mr. Oldham became President of Parallel in October 1994, and served as
Executive Vice President before becoming President. Effective January 1, 2004, Mr. Oldham became
Chief Executive Officer. Mr. Oldham received a Bachelor of Business Administration degree from West
Texas State University in 1975.
Mr. Nash served as a consultant to TOTAL Petrochemicals, Inc. from February 2004 until
December 2006, providing advisory services primarily in the areas of corporate relocation,
construction, safety and communications. He also served as a consultant to Clayton Williams Energy,
Inc. from September 2003 to September 2004, primarily in the area of acquisitions. From 2000 to
March 2003, Mr. Nash was employed by TOTAL as a Senior Vice President of Special Projects and as
Senior Vice President of its U.S. onshore division. From 1974 to 2000, Mr. Nash was employed by
Fina, Inc. in various capacities, including serving as Vice President of Human Resources, Vice
President Exploration and Production from April 1998 to 2000 and as President of Fina Natural Gas
Company from 1999 to 2000. Mr. Nash graduated from Texas A&M University in 1970 with a Bachelors
of Science degree
in Mechanical Engineering. He is a registered professional engineer in petroleum and mechanical
engineering. Mr. Nash is the Chairman of the Compensation Committee.
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Mr. Oring is an owner and managing member of Wealth Preservation, LLC, a financial counseling
firm founded by Mr. Oring in January 2001. From 1998 to December 2000, Mr. Oring was Managing
Director Executive Services of Prudential Securities Incorporated, and from 1996 to 1998, Mr. Oring
was Managing Director Capital Markets of Prudential Securities Incorporated. From 1989 to 1996,
Mr. Oring was Manager of Capital Planning for The Chase Manhattan Corporation. Mr. Oring is also a
director of PetroHunter Energy Corporation. Mr. Oring is the Chairman of the Hedging and
Acquisitions Committee.
Mr. Poage was a partner in KPMG LLP from 1980 to June 2002 when he retired. Mr. Poages
responsibilities included supervising and managing both audit and tax professionals and providing
services, primarily in the area of taxation, to private and publicly held companies engaged in the
oil and natural gas industry. Mr. Poage is Chairman of the Audit Committee.
PROPOSAL #2 APPROVAL OF PARALLEL PETROLEUM CORPORATION
2008 LONG-TERM INCENTIVE PLAN
On March 27, 2008, the Board of Directors, upon recommendation of the Compensation Committee,
adopted the Parallel Petroleum Corporation 2008 Long-Term Incentive Plan, which is referred to
below as the Plan, to be effective as of May 28, 2008, subject to approval by Parallels
stockholders.
The Plan authorizes the Compensation Committee of the Companys Board of Directors to grant
nonqualified and incentive stock options, restricted stock awards, performance awards and other
awards to selected employees. The Plan also authorizes the grant of nonqualified stock options,
restricted stock awards, performance awards and other awards to non-employee Directors. A total of
2,000,000 shares of common stock have been authorized for award under the Plan.
The Plan, if approved by the stockholders, will be in addition to Parallels current (i) 1992
Stock Option Plan, (ii) 1997 Nonemployee Directors Stock Option Plan, (iii) 1998 Stock Option Plan,
(iv) 2001 Employee Stock Option Plan, (v) 2001 Nonemployee Directors Stock Option Plan and (vi)
2004 Non-Employee Directors Stock Grant Plan. However, there are no options available for issuance
under our current stock options plans, and we have not granted any stock options or stock based
awards to any of our executive officers since November 2002.
During 2007, we granted one stock option to one non-employee Director of Parallel to purchase
17,500 shares of common stock at an exercise price of $22.89 per share, the closing price of our
stock on the date of grant. Our 2004 Non-Employee Directors Stock Grant Plan is the only plan under
which stock-based awards may currently be granted, and then only to non-employee Directors.
As of April 15, 2008, the number of shares of common stock to be issued upon exercise of
outstanding stock options totaled 442,724 shares, with a weighted-average exercise price of $7.84
per share.
As of April 15, 2008, the closing price of our common stock as reported on the Nasdaq Global
Market was $22.79 per share.
The following summary of the Plan is qualified in its entirety by reference to the actual text
of the Plan, which is attached to this proxy statement as Appendix A.
Description of the Plan
General
The purpose of the Plan is to attract and retain the services of key employees, key
consultants and outside directors of Parallel and to provide such persons with a proprietary
interest in Parallel through the granting of
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incentive stock options, nonqualified stock options, restricted stock, performance awards and other
awards that will (i) increase the interest of such persons in Parallels welfare, (ii) furnish an
incentive to such persons to continue their services for Parallel and (iii) provide a means through
which Parallel may attract able persons as employees, consultants and outside directors.
If adopted by the stockholders, the effective date of the Plan will be May 28, 2008, and the
Plan will remain in effect until May 28, 2018, unless sooner terminated by the Board of Directors
of Parallel. No award may be made under the Plan after its expiration date. However, awards made
prior thereto may extend beyond the expiration date.
Committees Authority
The Plan will be administered by the Compensation Committee, or the Committee, of the Board
of Directors consisting of two or more Board members who are non-employee directors in accordance
with Rule 16b-3 under the Securities Exchange Act of 1934, and outside directors in accordance
with Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). The Committee,
in its discretion, will have authority to (i) interpret the Plan, (ii) prescribe, amend, and
rescind any rules and regulations necessary or appropriate for the administration of the Plan,
(iii) establish performance goals for awards under the Plan and certify the extent of a
participants achievement, and (iv) make such other determinations or certifications and take such
other action as it deems necessary or advisable in the administration of the Plan. The Committee
may delegate to officers of Parallel, pursuant to a written delegation, the authority to perform
specified functions under the Plan. Any actions taken by any officers of Parallel pursuant to such
written delegation of authority will be deemed to have been taken by the Committee. Any
interpretation, determination or other action made or taken by the Committee will be final, binding
and conclusive on all interested parties.
Eligibility
Any employee, consultant or outside director of Parallel whose judgment, initiative, and
efforts contributed or may be expected to contribute to the successful performance of Parallel is
eligible to participate in the Plan; provided that only employees of Parallel will be eligible to
receive incentive stock options. The Committee, upon its own action, may grant, but is not required
to grant, an award to any employee, consultant or outside director of Parallel or any subsidiary.
Awards may be granted by the Committee at any time and from time to time as the Committee
determines. Awards need not contain similar provisions. As of April 15, 2008, we had 44 employees,
four outside directors and two consultants who would be eligible under the Plan.
Financial Effects of Awards
Parallel will receive no monetary consideration for the granting of awards under the Plan,
unless otherwise provided when granting restricted stock. Parallel will receive no monetary
consideration other than the option price for shares of common stock issued to participants upon
the exercise of their stock options.
Number of Shares Available for Awards
The maximum number of shares of common stock that may be delivered pursuant to awards granted
under the Plan is 2,000,000 shares, 100% of which may be delivered pursuant to incentive stock
options. Subject to certain adjustments, the maximum number of Parallels shares of common stock
with respect to which stock options may be granted to any officer of Parallel subject to Section 16
of the Securities Exchange Act of 1934, or a covered employee as defined in Section 162(m)(3) of
the Code, during any calendar year is 2,000,000 shares. In addition, to the extent Section 162(m)
of the Code applies to awards granted under the Plan and Parallel intends to comply with the
requirements of Section 162(m) of the Code with respect to those awards, no participant may receive
in any calendar year performance-based awards with an aggregate value of more than $1,000,000
(based on the fair market value of shares of the common stock at the time of the grant of a
performance-based award involving the issuance of shares of common stock). Shares to be issued may
be made available from authorized but unissued common stock, common stock held by Parallel in its
treasury, or common stock purchased by Parallel on the open market or otherwise. During the term
of the Plan, Parallel will at all times reserve and keep enough shares of its common stock
available to satisfy the requirements of the Plan.
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Grants of Awards
The grant of an award must be authorized by the Committee and will be evidenced by an award
agreement setting forth the award being granted, the total number of shares of common stock subject
to the award(s), the option price (if applicable), the award period, the date of grant, and such
other terms, provisions, limitations and performance objectives, as are approved by the Committee,
but not inconsistent with the Plan.
Award Period
The Committee may, in its discretion, provide that an incentive may not be exercised in whole
or in part for any period or periods of time or beyond any date specified in the award agreement.
Except as provided in the award agreement, an incentive may be exercised in whole or in part at any
time during its term. The award period for an incentive will be reduced or terminated upon
termination of service. No incentive granted under the Plan may be exercised at any time after the
end of its award period and no portion of any incentive may be exercised after the expiration of
ten years from its date of grant.
Vesting
The Committee, in its sole discretion, may determine that an incentive will be immediately
vested in whole or in part, or that all or any portion may not be vested until a date, or dates,
subsequent to its date of grant, or until the occurrence of one or more specified events, subject
in any case to the terms of the Plan. If the Committee imposes conditions upon vesting, then,
subsequent to the date of grant, the Committee may, in its sole discretion, accelerate the date on
which all or any portion of an incentive may be vested.
Reuse of Shares
To the extent that any award under the Plan is forfeited, expires or is canceled, in whole or
in part, then the number of shares of common stock covered by the award or stock option so
forfeited, expired or canceled may again be awarded under the Plan. If previously acquired shares
of common stock are delivered to Parallel in full or partial payment of the exercise price for
the exercise of a stock option granted under the Plan, the number of shares of common stock
available for future awards under the Plan will be reduced only by the net number of shares of
common stock issued upon the exercise of the stock option. Previously acquired shares of common
stock surrendered to Parallel for payment of applicable employment tax withholding or other tax
payment due with respect to any award may again be awarded pursuant to the provisions of the Plan.
Awards that may be satisfied either by the issuance of shares of common stock or by cash or other
consideration shall be counted against the maximum number of shares of common stock that may be
issued under the Plan only during the period that the award is outstanding or to the extent the
award is ultimately satisfied by the issuance of shares of common stock. Awards will not reduce
the number of shares of common stock that may be issued, however, if the settlement of the award
will not require the issuance of shares of common stock. Only shares forfeited back to Parallel,
shares canceled on account of termination, expiration or lapse of an award, shares surrendered in
payment of the exercise price of an option or shares withheld for payment of applicable employment
taxes and/or withholding obligations resulting from the exercise of an option shall again be
available for grant of incentive stock options under the Plan, but shall not increase the maximum
number of shares of common stock that may be delivered pursuant to incentive stock options.
Stock Options
The Compensation Committee may grant awards under the Plan in the form of options to purchase
shares of Parallels common stock. The Compensation Committee will have the authority to determine
the terms and conditions of each option, the number of shares subject to the option, and the manner
and time of the options exercise.
The fair market value of shares of common stock subject to options is determined by the
closing price as reported on the Nasdaq Global Market on the date the value is to be determined.
The exercise price of an option may be paid in cash, in shares of Parallels common stock or a
combination of both. Unless terminated
earlier, the stock options granted under the Plan expire no
more than ten years from the date of the grant.
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Recipients of stock options may pay the option exercise price (i) in cash, check, bank draft
or money order payable to the order of Parallel and in U.S. dollars, (ii) by delivering to Parallel
shares of its common stock (including restricted stock) already owned by the participant having a
fair market value equal to the aggregate option exercise price and that the participant has not
acquired from Parallel within six months prior to the exercise date, (iii) by delivering (including
by FAX or electronic transmission) to Parallel or its designated agent an executed irrevocable
option exercise form (or exercise instructions) together with irrevocable instructions from the
participant to a broker or dealer, reasonably acceptable to Parallel, to sell certain of the shares
of common stock purchased upon the exercise of the option or to pledge such shares to the broker as
collateral for a loan from the broker and to deliver to Parallel the amount of sale or loan
proceeds necessary to pay the purchase price, and (iv) by any other form of valid consideration
that is acceptable to the Committee in its sole discretion.
Nonqualified Stock Option Grants
The option price for shares of common stock that may be purchased under a nonqualified stock
option may be equal to or greater than the fair market value of the shares on the date of grant.
Incentive Stock Option Grants
Incentive stock options may only be granted to employees of Parallel. The option price for
shares of common stock that may be purchased under an incentive stock option must be at least equal
to the fair market value of the shares on the date of grant. If an incentive stock option is
granted to an employee who owns or is deemed to own (by reason of certain attribution rules of the
Code) more than ten percent of the combined voting power of all classes of stock of Parallel (or
any parent or subsidiary), the option price must be at least 110% of the fair market value of the
common stock on the date of grant. The Committee may not grant incentive stock options under the
Plan to any employee that would permit the aggregate fair market value (determined on the date of
grant) of the common stock with respect to which incentive stock options (under the Plan and any
other plan of Parallel and its subsidiaries) are exercisable for the first time by such employee
during any calendar year to exceed $100,000. To the extent any stock option granted under the Plan
that is designated as an incentive stock option exceeds this limit or otherwise fails to qualify as
an incentive stock option, such stock option (or any such portion thereof) will be a nonqualified
stock option.
Restricted Stock Grants
Shares of restricted stock awarded under the Plan will be subject to the terms, conditions,
restrictions and/or limitations, if any, that the Compensation Committee deems appropriate,
including restrictions on continued employment. The Compensation Committee may also restrict
continued entitlement to the awarded shares of restricted stock to the attainment of specific
performance targets it establishes that are based upon one or more of the following criteria
described below under Performance Goals.
Each participant who is awarded or receives restricted stock will be issued a stock
certificate or certificates evidencing such shares of common stock. Such certificate(s) will be
registered in the name of the participant, and will bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such restricted stock. During such period as may
be determined by the Committee commencing on the date of grant or the date of exercise of an award,
the participant will not be permitted to sell, transfer, pledge or assign shares of restricted
stock. Unless otherwise provided in a particular award agreement, upon termination of service for
any reason during the restriction period, the nonvested shares of restricted stock will be
forfeited by the participant. The provisions of restricted stock need not be the same with respect
to each participant.
Performance Awards
The Committee may grant performance awards to any participant upon such terms and conditions
as are specified at the time of the grant and may include provisions establishing the performance
period, the performance goals to be achieved during a performance period, and the maximum or
minimum settlement values, provided that
-11-
such terms and conditions are (i) not inconsistent with
the Plan, (ii) to the extent a performance award issued under the Plan is subject to Section 409A
of the Code, in compliance with the applicable requirements of Section 409A of
the Code and the regulations or other guidance issued thereunder and (iii) to the extent the
Committee determines that an award shall comply with the requirements of Section 162(m) of the
Code, in compliance with the applicable requirements of Section 162(m) of the Code and the
regulations and other guidance issued thereunder. Each performance award will have its own terms
and conditions. Performance awards may be valued by reference to the fair market value of a share
of common stock or according to any formula or method deemed appropriate by the Committee, in its
sole discretion, including, but not limited to, achievement of performance goals based upon the
factors described below under Performance Goals and/or remaining in the employ of Parallel for
a specified period of time. Performance awards may be paid in cash, shares of common stock or other
consideration, or any combination thereof. The extent to which any applicable performance objective
has been achieved will be conclusively determined by the Committee.
Other Awards
The Committee may grant to any participant other forms of awards, based upon, payable in, or
otherwise related to, in whole or in part, shares of common stock, if the Committee determines that
such other form of award is consistent with the purpose and restrictions of the Plan. The terms and
conditions of such other form of award will be specified by the grant. Such other awards may be
granted for no cash consideration, for such minimum consideration as may be required by applicable
law or for such other consideration as may be specified by the grant.
Performance Goals
Awards of restricted stock, performance awards and other awards (whether relating to cash or
shares of common stock) under the Plan may be made subject to the attainment of performance goals
relating to one or more business criteria which, where applicable, shall be within the meaning of
Section 162(m) of the Code and consist of one or more or any combination of the following criteria:
one or more measures of reserves of oil and natural gas; one or more components of the production
of oil and natural gas; cash flow; cost; revenues; sales; ratio of debt to debt plus equity; net
borrowing, credit quality or debt ratings; profit before tax; economic profit; earnings before
interest and taxes; earnings before interest, taxes, depreciation and amortization; gross margin;
earnings per share (whether on a pre-tax, after-tax, operational or other basis); operating
earnings; capital expenditures; expenses or expense levels; economic value added; ratio of
operating earnings to capital spending or any other operating ratios; free cash flow; net profit;
net sales; net asset value per share; the accomplishment of mergers, acquisitions, dispositions,
public offerings or similar extraordinary business transactions; sales growth; price of Parallels
common stock; return on assets, equity or stockholders equity; market share; inventory levels,
inventory turn or shrinkage; or total return to stockholders (Performance Criteria). Any
Performance Criteria may be used to measure the performance of Parallel as a whole or any business
unit of Parallel and may be measured relative to a peer group or index. Any Performance Criteria
may include or exclude (i) extraordinary, unusual, and/or non-recurring items of gain or loss, (ii)
gains or losses on the disposition of a business, (iii) changes in tax or accounting regulations or
laws, (iv) the effect of a merger or acquisition, as identified in Parallels quarterly and annual
earnings releases, or (v) other similar occurrences. In all other respects, Performance Criteria
shall be calculated in accordance with Parallels financial statements, under generally accepted
accounting principles, or under a methodology established by the Committee prior to the issuance of
an award which is consistently applied and identified in the audited financial statements,
including footnotes, or the Management Discussion and Analysis section of Parallels Annual Report
on Form 10-K and/or the Compensation Discussion and Analysis section of Parallels Annual Report or
proxy statement. However, to the extent Section 162(m) of the Code is applicable, the Committee
may not in any event increase the amount of compensation payable to an individual upon the
attainment of a Performance Goal.
No Repricing
No awards under the Plan may be repriced or exchanged for awards with lower exercise prices
because of a drop in market prices since grant, unless such repricings or exchanges are approved by
the stockholders of Parallel.
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Amendment and Discontinuance
Subject to certain limitations, the Board may at any time and from time to time, without the
consent of the participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in
part, except that no amendment for which stockholder approval is required either (i) by any
securities exchange or inter-dealer quotation system on
which the common stock is listed or traded or (ii) in order for the Plan and incentives awarded
under the Plan to comply with Sections 162(m), 421 and 422 of the Code, including any successors to
such Sections, or other applicable law, shall be effective unless such amendment is approved by the
requisite vote of the stockholders of Parallel entitled to vote thereon. Unless required by law, no
action contemplated or permitted by Article 9 (Amendment or Discontinuance) of the Plan shall
adversely affect any rights of participants or obligations of Parallel to participants with respect
to any incentive previously granted under the Plan without the consent of the affected participant.
Capital Adjustments
If any dividend or other distribution (whether in the form of cash, common stock, other
securities or other property), recapitalization, stock split, reverse stock split, rights offering,
reorganization, merger, consolidation, split-up, spin-off, split-off, combination, subdivision,
repurchase or exchange of common stock or other securities, issuance of warrants or other rights to
purchase common stock or other securities, or other similar corporate transaction or event affects
the fair value of an award, then the Committee shall adjust (i) the number of shares and type of
common stock issuable and the price paid for such shares, and/or (ii) the amount paid for forfeited
shares, if any.
Change in Control Provisions
The existence of the Plan and the incentives granted thereunder do not affect in any way the
right or power of Parallel or its stockholders to make or authorize any Change in Control. Subject
to any required stockholder action or except as may be required to comply with Section 409A of the
Code and the regulations or other guidance issued thereunder, if Parallel is the surviving or
resulting corporation in any merger, consolidation or share exchange, any incentive granted under
the Plan shall pertain to and apply to the securities or rights (including cash, property, or
assets) to which a holder of the number of shares of common stock subject to the incentive would
have been entitled. In the event of any merger, consolidation or share exchange pursuant to which
Parallel is not the surviving or resulting corporation, there will be substituted for each share of
common stock subject to the unexercised portions of outstanding incentives, that number of shares
of each class of stock or other securities or that amount of cash, property, or assets of the
surviving, resulting or consolidated company which were distributed or distributable to the
stockholders of Parallel in respect to each share of common stock held by them, such outstanding
incentives to be thereafter exercisable for such stock, securities, cash, or property in accordance
with their terms. Notwithstanding the foregoing, except as may be required to comply with Section
409A of the Code and the regulations or other guidance issued thereunder, all incentives granted
under the Plan may be canceled by Parallel, in its sole discretion, as of the effective date of any
Change in Control in accordance with the terms and provisions of the Plan providing for notice or
payments. In case Parallel, at any time while any incentive under the Plan is in force and remains
unexpired, (i) sells all or substantially all of its property, or (ii) dissolves, liquidates, or
winds up its affairs, then each participant under the Plan will be entitled to receive, in lieu of
each share of common stock of Parallel which such participant would have been entitled to receive
under the incentive, the same kind and amount of any securities or assets as may be issuable,
distributable or payable upon any such sale, dissolution, liquidation or winding up with respect to
each share of common stock of Parallel. As used in the Plan, the term Change in Control means any
one of the following, except as otherwise provided in the Plan:
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any person, subject to certain exceptions, acquires ownership of stock of Parallel
that, together with stock held by such person, constitutes more than 50% of the total
fair market value or total voting power of Parallels stock; provided, however, if any
person is considered to own more than 50% of the total fair market value or total
voting power of Parallel, the acquisition of additional stock by the same person is not
considered to be a Change in Control; |
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during any 12-month period, a majority of members of the Board is replaced by
directors whose appointment or election is not endorsed by a majority of the Board
before the date of the appointment or election; provided, however, that any such
director shall not be considered to be endorsed by the |
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Board if his or her initial
assumption of office occurs as a result of an actual or threatened solicitation of
proxies or consents by or on behalf of a person other than the Board; or |
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there is consummated a merger or consolidation of Parallel or any direct or indirect
subsidiary of Parallel with any other corporation, except if: |
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(i) |
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the merger or consolidation would result in the voting stock of
Parallel outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting stock of the
surviving entity or any parent thereof) more than 70% of the total voting power
of the stock of Parallel or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation; or |
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the merger or consolidation is effected to implement a
recapitalization of Parallel (or similar transaction) in which no person is or
becomes the beneficial owner, directly or indirectly, during the 12-month
period ending on the date of the most recent acquisition by such person or
group, of stock of Parallel (not including in the stock beneficially owned by
such person any stock acquired directly from Parallel or its affiliates other
than in connection with the acquisition by Parallel or its affiliates of a
business) representing 30% or more of the total voting power of Parallels then
outstanding stock; or |
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any person acquires (or has acquired during the 12-month period ending on the date
of the most recent acquisition by such person) assets of Parallel that have a total
gross fair market value equal to at least 40% of the total gross fair market value of
all of Parallels assets immediately before such acquisition or acquisitions. However,
there is no Change in Control when there is a sale or transfer to (i) a stockholder of
Parallel (immediately before the asset transfer) in exchange for or with respect to
Parallels then outstanding stock; (ii) an entity, at least 50% of the total value or
voting power of the stock of which is owned, directly or indirectly, by Parallel; (iii)
a person that owns directly or indirectly, at least 50% of the total value or voting
power of the outstanding stock of Parallel; or (iv) an entity, at least 50% of the
total value or voting power of the stock of which are owned by a person that owns,
directly or indirectly, at least 50% of the total value or voting power of the
outstanding stock of Parallel. |
If an award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the
foregoing definition and to the extent necessary to comply with the requirements of Section 409A of
the Code, the definition of Change in Control for purposes of such award shall be the definition
provided for under Section 409A of the Code and the regulations or other guidance issued
thereunder.
Termination of Service
In case of a participants termination of service, the award period for all unvested awards
will terminate or be reduced unless the Committee accelerates vesting of the award. Vested
incentive stock options must be exercised within three months of termination except in the case of
death, disability or retirement and will be exercisable for a period of one year following
termination due to death or disability.
Federal Income Tax Consequences
The following is a brief summary of certain federal income tax consequences applicable to our
employees relating to awards made under the Plan as set forth below. This summary does not purport
to address all aspects of federal income taxation and does not describe state, local or foreign tax
consequences. In addition, the grant and exercise of options and other awards authorized under the
Plan to non-employee Directors may be taxed on a different basis. This summary is not an opinion
and participants will need to consult their own tax counsel. This discussion is based upon
provisions of the Code and the treasury regulations issued thereunder (the Treasury Regulations),
and judicial and administrative interpretations under the Code and Treasury Regulations, all as in
effect as of the date hereof, and all of which are subject to change (possibly on a retroactive
basis) or different interpretation.
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In 2004, a new Section 409A was added to the Code to regulate all types of deferred
compensation. If the
requirements of Section 409A of the Code are not satisfied, deferred
compensation and earnings thereon will be subject to tax as it vests, plus an interest charge at
the underpayment rate plus 1% and a 20% penalty tax. Certain performance awards, stock options and
certain types of restricted stock are subject to Section 409A of the Code.
Incentive Stock Options
A participant will not recognize income at the time an incentive stock option is granted. When
a participant exercises an incentive stock option, a participant also generally will not be
required to recognize income (either as ordinary income or capital gain). Similarly, Parallel is
not entitled to any deduction at the time of grant or at the time of exercise. To the extent that
the fair market value (determined as of the date of grant) of the common stock with respect to
which the participants incentive stock options are exercisable for the first time during any year
exceeds $100,000, the incentive stock options for the common stock over $100,000 will be treated as
nonqualified stock options, and not incentive stock options, for federal tax purposes, and the
participant will recognize income as if the incentive stock options were nonqualified stock
options.
In addition to the foregoing, if the fair market value of the common stock received upon
exercise of an incentive stock option exceeds the exercise price, then the excess may be deemed a
tax preference adjustment for purposes of the federal alternative minimum tax calculation. The
federal alternative minimum tax may produce significant tax repercussions depending upon the
participants particular tax status.
The tax treatment of any common stock acquired by exercise of an incentive stock option will
depend upon whether the participant disposes of his or her shares prior to two years after the date
the incentive stock option was granted or one year after the common stock was transferred to the
participant (referred to as the holding period). If a participant disposes of common stock
acquired by exercise of an incentive stock option after the expiration of the holding period, any
amount received in excess of the participants tax basis for such shares will be treated as
short-term or long-term capital gain, depending upon how long the participant has held the common
stock. If the amount received is less than the participants tax basis for such shares, the loss
will be treated as short-term or long-term capital loss, depending upon how long the participant
has held the shares.
If the participant disposes of common stock acquired by exercise of an incentive stock option
prior to the expiration of the holding period, the disposition will be considered a disqualifying
disposition. If the amount received for the common stock is greater than the fair market value of
the common stock on the exercise date, then the difference between the incentive stock options
exercise price and the fair market value of the common stock at the time of exercise will be
treated as ordinary income for the tax year in which the disqualifying disposition occurs. The
participants basis in the common stock will be increased by an amount equal to the amount treated
as ordinary income due to such disqualifying disposition. In addition, the amount received in
such disqualifying disposition over the participants increased basis in the common stock will be
treated as capital gain. However, if the price received for common stock acquired by exercise of an
incentive stock option is less than the fair market value of the common stock on the exercise date
and the disposition is a transaction in which the participant sustains a loss which otherwise would
be recognizable under the Code, then the amount of ordinary income that the participant will
recognize is the excess, if any, of the amount realized on the disqualifying disposition over the
basis of the common stock.
Nonqualified Stock Options
A participant generally will not recognize income at the time a nonqualified stock option is
granted. When a participant exercises a nonqualified stock option, the difference between the
option price and any higher market value of the common stock on the date of exercise will be
treated as compensation taxable as ordinary income to the participant, and Parallel will be
entitled to a corresponding deduction for the same amount. The participants tax basis for common
stock acquired under a nonqualified stock option will be equal to the option price paid for such
common stock, plus any amounts included in the participants income as compensation. When a
participant disposes of common stock acquired by exercise of a nonqualified stock option, any
amount received in excess of the participants tax basis for such shares will be treated as
short-term or long-term capital gain, depending upon how long the participant has held the common
stock. If the amount received is less than the participants tax basis for such shares, the loss
will be treated as short-term or long-term capital loss, depending upon how long the participant
has held the shares.
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Special Rule if Option Price is Paid for in Shares of Common Stock
If a participant pays the exercise price of a nonqualified stock option with previously-owned
shares of Parallel common stock and the transaction is not a disqualifying disposition of common
stock previously acquired
under an incentive stock option, the number of shares of common stock received equal to the number
of shares of common stock surrendered is treated as having been received in a tax-free exchange.
The participants tax basis and holding period for these shares of common stock received will be
equal to the participants tax basis and holding period for the common stock surrendered. The
shares of common stock received in excess of the number of shares of common stock surrendered will
be treated as compensation taxable as ordinary income to the participant to the extent of their
fair market value. The participants tax basis in these shares of common stock will be equal to
their fair market value on the date of exercise, and the participants holding period for such
shares will begin on the date of exercise.
If the use of previously acquired common stock to pay the exercise price of a nonqualified
stock option constitutes a disqualifying disposition of common stock previously acquired under an
incentive stock option, the participant will have ordinary income as a result of the disqualifying
disposition in an amount equal to the excess of the fair market value of the common stock
surrendered, determined at the time such common stock was originally acquired on exercise of the
incentive stock option, over the aggregate option price paid for such common stock. As discussed
above, a disqualifying disposition of common stock previously acquired under an incentive stock
option occurs when the participant disposes of such shares before the end of the holding period.
The other tax results from paying the exercise price with previously-owned shares are as described
above, except that the participants tax basis in the shares of common stock that are treated as
having been received in a tax-free exchange will be increased by the amount of ordinary income
recognized by the participant as a result of the disqualifying disposition.
Restricted Stock
A participant who has been granted an award in the form of restricted stock will not recognize
taxable income at the time of the grant, and the Company will not be entitled to a deduction at the
time of the grant, assuming that the restrictions constitute a substantial risk of forfeiture for
U.S. income tax purposes. When such restrictions lapse, the participant will receive taxable,
ordinary income (and have tax basis in the shares) in an amount equal to the excess of the fair
market value of the shares at such time over the amount, if any, paid for such shares. The Company
will be entitled to a corresponding deduction. However, a participant who receives restricted stock
may make an election under Section 83(b) of the Code within 30 days of the date of transfer of the
common stock to recognize ordinary income on the date of transfer of the common stock equal to the
excess of the fair market value of such shares (determined without regard to the restrictions on
such common stock) over the purchase price, if any, of such shares, and Parallel will take a
corresponding income tax deduction at such time. At the time of sale of such shares, any gain or
loss realized by the participant will be treated as either short-term or long-term capital gain (or
loss) depending on the holding period. For purposes of determining any gain or loss realized, the
participants tax basis will be the amount previously taxable as ordinary income, plus the purchase
price, if any, paid by the participant for such shares.
Other Awards
In the case of an award of performance awards or other stock or cash awards, the recipient
will generally recognize ordinary income in an amount equal to any cash received and the fair
market value of any shares received on the date of payment or delivery, provided that the award is
exempt from or complies with Section 409A of the Code. In that taxable year, Parallel will receive
a federal income tax deduction in an amount equal to the ordinary income which the participant has
recognized.
Federal Tax Withholding
Any ordinary income realized by an employee with respect to an award under the Plan is subject
to withholding of federal, state and local income tax and to withholding of the participants share
of tax under the Federal Insurance Contribution Act (FICA) and the Federal Unemployment Tax Act
(FUTA).
To satisfy federal income tax withholding requirements, Parallel will have the right to
require that, as a condition to delivery of any certificate for common stock, the participant remit
to Parallel an amount sufficient to satisfy all or part of the withholding requirements.
Alternatively, Parallel may withhold a portion of the common stock (valued at fair market value)
that otherwise would be issued to the participant or permit the participant to deliver shares of
common stock that the participant has not acquired from Parallel within the prior six months to
satisfy all or part of the withholding tax obligations.
-16-
Withholding does not represent an increase in the participants total income tax obligation,
since it is fully credited toward his or her tax liability for the year. Additionally, withholding
does not affect the participants tax basis in the common stock. Compensation income realized and
tax withheld will be reflected on Forms W-2 supplied by Parallel to employees by January 31 of the
succeeding year.
Deferred compensation that is subject to Section 409A of the Code is subject to Federal income
tax withholding and reporting requirements.
Tax Consequences to Parallel
To the extent that a participant recognizes ordinary income in the circumstances described
above, we will be entitled to a corresponding deduction provided that, among other things, the
income meets the test of reasonableness, is an ordinary and necessary business expense, is not an
excess parachute payment within the meaning of Section 280G of the Code and is not disallowed by
the $1,000,000 limitation on certain executive compensation under Section 162(m) of the Code.
Awards of options granted under the Plan will automatically qualify for the performance-based
compensation exception under Section 162(m) of the Code pursuant to their expected terms so long
as those options are granted with an exercise price at least equal to the fair market value of the
common stock at the date of grant. In addition, awards of restricted stock or performance awards
may qualify under Section 162(m) if they are granted in accordance with the performance conditions
referenced in the Plan. Under Section 162(m), the terms of the award must state, in terms of an
objective formula or standard, the method of computing the amount of compensation payable under the
award, and must preclude discretion to increase the amount of compensation payable under the terms
of the award.
Parallel may not deduct compensation of more than $1,000,000 that is paid to an individual
who, on the last day of the taxable year, is either the chief executive officer or is among the
three highest compensated officers for the taxable year (other than the principal executive
officer or the principal financial officer) as reported in Parallels proxy statement. The
limitation on deductions does not apply to certain types of compensation, including qualified
performance-based compensation, and only applies to compensation paid by a publicly-traded
corporation (and not compensation paid by non-corporate entities). To the extent the Committee
determines that awards in the form of stock options, performance awards, performance-based
restricted stock and performance based cash payments under other awards granted under the Plan
shall comply with the requirements of Section 162(m) of the Code, Parallel intends that such awards
will be constructed so as to constitute qualified performance-based compensation and, as such, are
intended to qualify under Section 162(m) of the Code as exempt from the $1,000,000 limitation on
deductible compensation.
If a individuals rights under the Plan are accelerated as a result of a change in control and
the individual is a disqualified individual under Section 280G of the Code, the value of any such
accelerated rights received by such individual may be included in determining whether or not such
individual has received an excess parachute payment under Section 280G of the Code, which could
result in (i) the imposition of a 20% Federal excise tax (in addition to Federal income tax)
payable by the individual on the value of such accelerated rights, and (ii) the loss by Parallel of
a compensation deduction.
New Plan Benefits
Because the grant of awards under the Plan is discretionary and will depend on the
Compensation Committees final actions and the fair market value of common stock at various future
dates, it is not possible to determine the exact amount or type of future benefits that will be
received by directors, executive officers, employees and consultants if the Plan is approved by our
stockholders. The Compensation Committee has not taken, and will not take, any action authorizing
the grant of awards unless the Plan is approved by our stockholders. If the Plan is not approved by
the stockholders, the Plan will not become effective. In this event, the Board of Directors will
consider whether to adopt alternative arrangements based on its assessment of the needs of
Parallel.
We did not grant any stock options to any of our officers or employees in 2007. One stock
option to purchase 17,500 shares was granted in March 2007 to one non-employee Director at an
exercise price of $22.89 per share. You can find more information about this option grant in the
2007 Director Compensation table on page 41.
The Board of Directors unanimously recommends that you vote FOR the proposal to approve the
Parallel Petroleum Corporation 2008 Long-Term Incentive Plan.
-17-
GOVERNANCE OF THE COMPANY
Under the Delaware General Corporation Law and Parallels bylaws, our business, property and
affairs are managed by or under the direction of the Board of Directors. Members of the Board are
kept informed of our business through discussions with the Chairman of the Board, the Chief
Executive Officer and other officers, by reviewing materials provided to them and by participating
in meetings of the Board and its committees. We currently have five members of the Board, including
Edward A. Nash, Larry C. Oldham, Martin B. Oring, Ray M. Poage and Jeffrey G. Shrader. All of these
Directors are standing for re-election at the Annual Meeting.
The Board of Directors held twenty-six meetings in 2007. Each Director attended 100% of the
meetings held during the period in which he was a Director, except that Mr. Oldham and Mr. Shrader
were not in attendance at two meetings; Mr. Poage and Mr. Nash were not in attendance at one
meeting; and one former director was not in attendance at one meeting. Our independent Directors
meet alone in executive session in conjunction with their Audit, Compensation and Corporate
Governance and Nominating Committee meetings.
Director Independence
The Board has determined that all of our Directors, other than Mr. Oldham, meet the definition
of an independent director for purposes of NASD Rule 4200(a)(15), the independence standards
applicable to us. The Board based these determinations primarily on responses of the Directors to
questions regarding employment and compensation history, affiliations and family and other
relationships, comparisons of the independence criteria under NASD Rule 4200(a)(15) to the
particular circumstances of each Director and on discussions among the Directors.
Committees of the Board of Directors
The Board has four standing committees:
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the Audit Committee; |
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the Corporate Governance and Nominating Committee; |
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the Compensation Committee; and |
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the Hedging and Acquisitions Committee. |
Audit Committee
The Audit Committee of the Board of Directors reviews the results of the annual audit of our
consolidated financial statements and recommendations of the independent auditors with respect to
our accounting practices, policies and procedures. As prescribed by our Audit Committee Charter,
the Audit Committee also assists the Board of Directors in fulfilling its oversight
responsibilities, reviewing our systems of internal accounting and financial controls, and the
independent audit of our consolidated financial statements. The Audit Committee is directly
responsible for the appointment, compensation, retention and oversight of the work of the auditors.
The Audit Committee operates under a charter, which we amended in February 2008. The Audit
Committee Charter, as amended, is attached to this Proxy Statement as Appendix B. You can also view
the charter on our website at www.plll.com. The Audit Committee reviews the charter annually to
ensure that it meets the listing standards for issuers with securities listed for trading on The
Nasdaq Global Market. The charter specifies that the Audit Committee will have at least three
members, comprised solely of independent directors.
The Audit Committee of the Board of Directors presently consists of four directors, all of
whom have no financial or personal ties to Parallel (other than director compensation and equity
ownership as described in this Proxy Statement) and meet the Nasdaq standards for independence. The
members of the Audit Committee are Messrs. Poage (Chairman), Nash, Oring and Shrader. The Board of
Directors has determined that at least one member of the Audit Committee, Ray M. Poage, meets the
criteria of an audit committee financial expert as that
-18-
term is defined in Item 407(d)(5) of
Regulation S-K, and is independent for purposes of Nasdaq listing standards and
Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended. Mr. Poages background and
experience includes service as a partner of KPMG LLP where Mr. Poage participated extensively in
accounting, auditing and tax matters related to the oil and natural gas business.
Ten meetings of the Audit Committee were held in 2007. Each member of the Audit Committee
attended all of the meetings, except that Mr. Shrader was not in attendance at one meeting.
In February 2007 and again in February 2008, the Audit Committee reviewed its charter and
conducted an annual self-evaluation of its performance and reviewed and considered the transactions
described under Certain Related Person Transactions beginning on page 47 of this Proxy Statement.
Corporate Governance and Nominating Committee
The Boards Corporate Governance and Nominating Committee operates under a charter outlining
the functions and responsibilities of the Committee, including recommending to the full Board of
Directors nominees for election as directors of Parallel, and making recommendations to the Board
of Directors from time to time as to matters of corporate governance. The members of the Corporate
Governance and Nominating Committee are Messrs. Shrader (Chairman), Nash, Oring and Poage, all of
whom meet the Nasdaq listing standards for independence. The charter authorizes the Committee to
retain search firms to assist it in identifying qualified Director candidates. However, a search
firm has not been retained to date and all of the Director candidates for 2008 are currently
members of the Board. The charter for the Corporate Governance and Nominating Committee can be
viewed on our website at www.plll.com.
Although no Director candidates were recommended by stockholders during the past year, the
committee will consider candidates for Director suggested by stockholders. The Committee has not
developed or specified any particular differences in the manner in which it would evaluate a
nominee for Director based on whether the nominee is recommended by a stockholder. Stockholders
wishing to suggest a candidate for Director should write to any one of the members of the committee
at his address shown on page 4 of this Proxy Statement. Suggestions should include:
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a statement that the writer is a stockholder and is proposing a candidate for
consideration by the committee; |
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the name of and contact information for the candidate; |
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a statement of the candidates age, business and educational experience; |
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information sufficient to enable the committee to evaluate the candidate; |
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a statement detailing any relationship between the candidate and any joint
interest owner, customer, supplier or competitor of Parallel; |
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detailed information about any relationship or understanding between the
proposing stockholder and the candidate; and |
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a statement that the candidate is willing to be considered and willing to serve
as a Director if nominated and elected. |
It is the Boards policy that Directors may not serve concurrently on more than three public
company boards. It is also the Boards policy that a non-employee Director may not stand for
re-election at the annual meeting of stockholders following the date on which he or she attains age
72.
Under our bylaws, nominations for director may be made only by the Board of Directors or a
Board of Directors committee, or by a stockholder entitled to vote who delivers timely notice along
with the additional information and materials required by the bylaws to our corporate Secretary.
To be timely, a stockholders notice
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must be received at our offices not less than 60 nor more than 90 days prior
to the meeting. However, if less than 70 days notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by a stockholder must be received not later
than the tenth day after the day on which the notice of the date of the meeting was mailed or
public disclosure was made. You can obtain a copy of our bylaws by writing to the corporate
Secretary, 1004 N. Big Spring, Suite 400, Midland, Texas 79701. A copy of our bylaws can also be
viewed on our website at www.plll.com.
One meeting of the Corporate Governance and Nominating Committee was held in 2007. All members
of the Committee were present.
Compensation Committee
The Compensation Committee of the Board of Directors administers and approves all elements of
compensation and awards for our executive officers. The Committee has the responsibility to review
and approve the corporate goals and objectives relevant to each executive officers compensation,
evaluates individual performance of each executive in light of those goals and objectives, and
determines and approves each executives compensation based on this evaluation. The members of the
Compensation Committee are Edward A. Nash (Chairman), Martin B. Oring, Ray M. Poage, and Jeffrey G.
Shrader. The charter for the Compensation Committee can be viewed on our website at www.plll.com.
Generally, on its own initiative the Compensation Committee reviews the performance and
compensation of all of our executives and then reviews and discusses its conclusions and
recommendations with management.
Members of the Committee are non-management directors who, in the opinion of the Board,
satisfy the independence standards of the Nasdaq Global Market. The Committee has the sole
authority to retain consultants and advisors as it may deem appropriate in its discretion, and sole
authority to approve related fees and retention terms for these advisors.
For additional information regarding the functions of the Compensation Committee, please see
Executive Compensation Compensation Discussion and Analysis Internal and External
Assistance on page 30.
Ten meetings of the Compensation Committee were held in 2007. Each member of the Compensation
Committee attended all of the meetings held during 2007.
Hedging and Acquisitions Committee
The Hedging and Acquisitions Committee presently consists of all five of our Directors,
including Messrs. Nash, Oldham, Poage, Shrader and Oring (Chairman). This committee reviews,
assists and advises management on overall risk management strategies and techniques, with the
objective of implementing prudent commodity and interest rate derivative arrangements. The Hedging
and Acquisitions Committee also reviews with management oil and gas acquisition opportunities, and
consults with members of management to review plans and strategies for pursing acquisitions. The
Hedging and Acquisitions Committee does not have a separate charter.
Two meetings of the Hedging and Acquisitions Committee were held during 2007. Each member of
the Hedging and Acquisitions Committee attended all meetings held during 2007.
Code of Ethics
The Board has adopted a code of ethics which applies to all of our Directors, officers and
employees, including our Chief Executive Officer, Chief Financial Officer and all other financial
officers and executives. You may review the code of ethics on our website at www.plll.com. A copy
of our code of ethics has also been filed with the Securities and Exchange Commission and is
incorporated by reference as an exhibit to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2007. We will provide without charge to each person, upon written or oral request, a
copy of our code of ethics. Requests should be directed to:
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Manager of Investor Relations
Parallel Petroleum Corporation
1004 N. Big Spring, Suite 400
Midland, Texas 79701 |
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Telephone: (432) 684-3727
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Stockholder Communications with Directors
Parallel stockholders who want to communicate with any individual Director can write to that
Director at his address shown on page 4 of this Proxy Statement under the caption Stock
Ownership.
Your letter should indicate that you are a Parallel stockholder. Depending on the subject
matter, the Director will:
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if you request, forward the communication to the other Directors; |
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request that management handle the inquiry directly, for example where it is a
request for information about Parallel or it is a stock-related matter; or |
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not forward the communication to the other Directors or management if it is
primarily commercial in nature or if it relates to an improper or irrelevant topic. |
Director Attendance at Annual Meetings
We typically schedule a Board meeting in conjunction with our annual meeting of stockholders.
Although we do not have a formal policy on the matter, we expect our Directors to attend each
annual meeting, absent a valid reason, such as illness or a schedule conflict. Last year, all of
the individuals then serving as Director attended our annual meeting of stockholders.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors and officers to
file periodic reports with the Securities and Exchange Commission. These reports show the
Directors and officers ownership and the changes in ownership, of our common stock and other
equity securities. To our knowledge, all Section 16(a) filing requirements were complied with
during 2007.
Report of the Audit Committee
The Audit Committee of our Board of Directors is comprised of the four Directors named below.
The Audit Committee reviewed and discussed Parallels audited financial statements with
management, which has primary responsibility for the financial statements and the overall reporting
process. In addition, the Audit Committee discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61 (Communication With Audit
Committees), as modified or supplemented.
The Audit Committee received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and discussed with the independent auditors the issue of its independence from
Parallel.
The Audit Committee also heard the report of the independent auditors regarding certain
critical accounting policies and practices used by Parallel and alternative treatments, and
received copies of material written communications between the independent auditors and Parallel.
Based on the Audit Committees review of the audited financial statements and in reliance on
its discussions with management and the independent auditors, the Audit Committee recommended to
the Board of Directors that the audited financial statements for the fiscal year ended December 31,
2007 be included in Parallels Annual Report on Form 10-K for the last fiscal year for filing with
the Securities and Exchange Commission.
The foregoing report is provided by the following independent Directors, who constitute the
Audit Committee.
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Ray M. Poage (Chairman)
Edward A. Nash
Martin B. Oring
Jeffrey G. Shrader
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Audit Fees
BDO Seidman, LLP audited our consolidated financial statements for the years ended December
31, 2007 and December 31, 2006. The aggregate fees for professional services rendered by BDO
Seidman, LLP for 2007 and 2006 were:
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Fiscal Year Ended December 31, |
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Type of Fees |
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2007 |
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2006 |
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Audit fees(1) |
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$ |
736,000 |
(1) |
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$ |
469,000 |
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Audit-related fees |
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13,000 |
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52,000 |
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Tax fees |
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All other fees |
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Total |
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$ |
749,000 |
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$ |
521,000 |
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(1) |
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Includes fees for professional services rendered in connection with the audit
of our internal control over financial reporting under Section 404 of the
Sarbanes-Oxley Act of 2002 in the amounts of $175,000 and $160,000 for 2007 and 2006,
respectively. |
We retained an independent third party to assist us in our Sarbanes-Oxley 404 readiness and
assessment of internal control over financial reporting. The aggregate fees for services provided
in connection with the internal control over financial reporting for 2007 and 2006 were
approximately $75,000 and $65,000, respectively, including associated expenses.
In the above table, audit fees are fees we paid for professional services for the audit of
our consolidated financial statements included in our Annual Report on Form 10-K and for the review
of our consolidated financial statements included in our Quarterly Reports on Form 10-Q, or for
services that are normally provided by our principal accountants in connection with statutory and
regulatory filings or engagements and fees for Sarbanes-Oxley 404 audit work. Audit-related fees
are fees billed for assurance and related regulatory filings.
Pre-approval Policies and Procedures
The Audit Committee had not, as of the time of mailing this Proxy Statement, adopted policies
and procedures for pre-approving audit or permissible non-audit services performed by our
independent auditors. Instead, the Audit Committee as a whole pre-approves all such services. In
the future, our Audit Committee may approve the services of our independent auditors pursuant to
pre-approval policies and procedures adopted by the Audit Committee, provided the policies and
procedures are detailed as to the particular service, the Audit Committee is informed of each
service, and such policies and procedures do not include delegation of the Audit Committees
responsibilities to our management.
EXECUTIVE OFFICERS
Our executive officers are appointed annually by the Board of Directors to serve at the
Boards discretion and until his or her successor is duly appointed.
There are no family relationships between any of our Directors or officers.
Biographical information for Mr. Oldham, our President and Chief Executive Officer and a
nominee for Director, is included above under Proposal #1 Election of Directors on page 7. Set
forth below is biographical information regarding our other executive officers at the date of this
Proxy Statement.
Donald E. Tiffin, 50, served as Vice President of Business Development from June 2002 until
January 1, 2004 when he became Chief Operating Officer. From August 1999 until May 2002, Mr. Tiffin
served as General Manager of First Permian, L.P. and from July 1993 to July 1999, Mr. Tiffin was
the Drilling and Production Manager in the Midland, Texas office of Fina Oil and Chemical Company.
Mr. Tiffin graduated from the University of Oklahoma in 1979 with a Bachelor of Science degree in
Petroleum Engineering.
-22-
Eric A. Bayley, 59, has been Vice President of Corporate Engineering since July 2001. From
October 1993 until July 2001, Mr. Bayley was employed by Parallel as Manager of Engineering. From
December 1990 to October 1993, Mr. Bayley was an independent consulting engineer and devoted
substantially all of his time to Parallel. Mr. Bayley graduated from Texas A&M University in 1978
with a Bachelor of Science degree in Petroleum Engineering. He graduated from the University of
Texas of the Permian Basin in 1984 with a Masters of Business Administration degree.
John S. Rutherford, 47, has been Vice President of Land and Administration of Parallel since
July 2001. From October 1993 until July 2001, Mr. Rutherford was employed as Manager of
Land/Administration. From May 1991 to October 1993, Mr. Rutherford served as a consultant to
Parallel, devoting substantially all of his time to Parallels business. Mr. Rutherford graduated
from Oral Roberts University in 1982 with a degree in Education, and in 1986 he graduated from
Baylor University with a Masters degree in Business Administration.
Steven D. Foster, 52, has been the Chief Financial Officer of Parallel since June 2002. From
November 2000 to May 2002, Mr. Foster was the Controller and Assistant Secretary of First Permian,
L.P. and from September 1997 to November 2000, he was employed by Pioneer Natural Resources, USA in
the capacities of Director of Revenue Accounting and Manager of Joint Interest Accounting. Mr.
Foster graduated from Texas Tech University in 1977 with a Bachelor of Business Administration
degree in Accounting. He is a certified public accountant.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction and Overview
The Compensation Committee of the Board of Directors is responsible for determining the types
and amounts of compensation we pay to our executives. Our Committee operates under a written
charter that you can view on our website at www.plll.com. The Board of Directors has affirmatively
determined that each Director who is a member of the Committee meets the independence requirements
of the Nasdaq Global Market. The Board determines, in its business judgment, whether a particular
Director satisfies the requirements for membership on the Committee set forth in the Committees
charter. None of the members of the Compensation Committee are current or former employees of
Parallel or any of its subsidiaries.
Our Compensation Committee is responsible for formulating and administering the overall
compensation principles and plans for Parallel. This includes establishing the compensation paid
to our officers, administering our compensation plans and, generally, reviewing our compensation
programs at least annually.
The Committee periodically meets in executive session without members of management or
management directors present and reports to the Board of Directors on its actions and
recommendations.
We discuss below the philosophy, objectives and principles we followed last year for
compensating our executive officers.
Compensation Philosophy and Objectives
The Committees compensation philosophy is to provide an executive compensation program that:
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is competitive with compensation programs offered by comparable companies engaged in
businesses similar to ours; |
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rewards performance, skills and talents necessary to advance our company objectives
and further the interests of stockholders; |
-23-
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is balanced between a fair and reasonable cash compensation and incentives linked to
Parallels overall operating performance; and |
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is fair to our executives, but within reasonable limits. |
The Companys practice is and has been to link compensation with performance, measured at the
company level, and to emphasize the importance of each executives contribution to the overall
success of the Company. The overall objectives of our compensation philosophy are to:
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provide a reasonable and competitive level of current annual income; |
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provide incentives that encourage our executives to continue their employment with
us; |
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motivate executives to accomplish our company goals and reward performance; |
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create an environment conducive to company-oriented success rather than individual
success; |
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align compensation and benefits with business strategy and competitive market data; |
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encourage the application of prudent decision making processes in an industry marked
by volatility and high risk; and |
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provide for overall compensation arrangements that are fair and reasonable pay for
achievements beneficial to Parallel and its stockholders. |
Our Committee supports these objectives by emphasizing compensation arrangements that we
believe will attract and retain qualified executives and reward them for creating a solid platform
for the long-term growth and success of Parallel. At the same time, we are mindful of, and try to
balance our executive compensation arrangements with, the interests and concerns of stockholders.
To more fully understand our current compensation philosophies and practices, it is important
to keep in mind some historical milestones that have influenced the shaping of our compensation
practices. For instance, it was not until May 2002 that we had more than seven employees, as
compared to 43 employees that we currently have; our total market capitalization (including shares
held by our officers and directors) at December 31, 2002 was approximately $58.0 million, as
compared to a total market capitalization (including shares held by our officers and directors) of
approximately $727.0 million at December 31, 2007; and it was not until the latter part of 2004
that the market price of our stock consistently exceeded $5.00 per share. Given our small size,
limited staff and limited resources in earlier years, the compensation of our executives consisted
primarily of salaries, cash bonuses and stock options, with an emphasis on the use of stock
options. Since November 2002, however, we have limited the use of stock option awards to our
executives and we relied more heavily on our Incentive and Retention Plan as a long-term incentive.
For 2007, we chose, as we have in the past, to continue a relatively simple compensation framework
for our executives. We believe the benefits of this approach include maintaining a higher degree of
understanding and certainty for our executives as well as the investing public, and avoiding
complex benefit packages and agreements that are less transparent than our compensation program and
that require significant time and cost to properly administer. However, as we describe below under
Analysis and Outlook, we anticipate adopting a long-term equity based incentive plan, in part due
to the oil and natural gas exploration and production industry continuing to experience increased
competition for qualified personnel at all levels.
Compensation Components
Our judgments regarding executive compensation are primarily based upon our assessment of
company performance, and each executive officers leadership, performance and individual
contributions to Parallels business. The accounting and tax treatment of different elements of
compensation has not had a significant impact on our use of any particular form of compensation. In
reviewing the overall compensation of our officers, we have historically considered and used a mix
of the following components or elements of executive compensation:
-24-
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base salaries; |
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stock option grants; |
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annual cash bonuses; |
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health and life insurance plans which are generally available to all of our
employees; |
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contributions by Parallel to our 401(k) retirement plan; |
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§ |
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an equity based cash incentive plan; |
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change of control arrangements; and |
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limited perquisites and personal benefits provided by Parallel to our executive
officers. |
To help give you a better understanding of the overall compensation picture of our executives,
we have included the following table showing the elements of executive compensation we have used in
the past and certain types of executive compensation that we have not used:
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Used by |
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Parallel |
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Used by |
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Not Used by |
Elements of Compensation |
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Prior to 2007 |
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Parallel in 2007 |
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Parallel |
Base salaries |
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ü |
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ü |
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Employment agreements |
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ü |
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Cash bonuses |
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ü |
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ü |
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Stock awards |
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ü |
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Change of control/severance arrangements |
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ü |
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ü |
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Defined benefit pension plan |
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ü |
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Defined contribution plan |
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ü |
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ü |
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Stock options |
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ü |
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Tax gross-ups |
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ü |
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Employee stock purchase/ownership plan |
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ü |
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Supplemental executive retirement
plans/benefits |
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ü |
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Deferred compensation plan |
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ü |
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Incentive and retention plan |
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ü |
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ü |
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Limited perquisites and personal benefit |
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ü |
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ü |
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Evaluation Factors
In addition to comparing the compensation packages of our officers with the compensation
packages of officers of other companies similar to Parallel, we also relied, as we have in the
past, on our general knowledge and experience in the oil and natural gas industry, focusing on a
subjective analysis of each of our executives contributions to Parallels overall performance.
Except for comparing the salaries and bonuses of our executives with the salaries and bonuses of
executives in our peer group of companies, other specific performance levels or benchmarks were
not used in 2007 to establish salaries, cash bonuses or grant stock options. We do take into
account historic comparisons of Parallels financial and operational performance. The link between
pay and company performance is based primarily on the Compensation Committees evaluation of
periodic results of certain
elements of company performance. Generally, our evaluations are influenced equally by operational
metrics and financial metrics.
-25-
We have not adopted specific target or performance levels with respect to quantitative or
qualitative performance-related factors which would automatically result in increases or decreases
in compensation. Instead, we make subjective determinations based upon a consideration of many
factors, including those we have described below. We have not assigned relative weights or rankings
to these factors. Specific elements of company performance and individual performance that we
consider in setting compensation policies and making compensation decisions include the following
factors, several of which we consider in the context of Parallel alone and by comparison with peer
companies:
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growth in the quantity and value of our proved oil and natural gas reserves; |
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volumes of oil and natural gas produced by Parallel and our executives ability to
replace oil and natural gas produced with new oil and natural gas reserves; |
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cash flows from operations; |
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revenues; |
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earnings per share; |
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the market value of our common stock; |
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the extent to which the officers have been successful in finding and creating
opportunities for Parallel to participate in acquisition, exploitation and drilling
ventures having quality prospects; |
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the ability of our officers to formulate and maintain sound budgets for our business
activities; |
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the overall financial condition of Parallel; |
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the achievement by management of specific tasks and goals set by the Board of
Directors from time to time; |
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the effectiveness of our compensation packages in motivating officers to remain in
Parallels employment; |
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oil and gas finding costs and operating costs; and |
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the ability of our executives to effectively implement risk management practices,
including oil and natural gas and interest rate hedging activities. |
In addition to considering the elements of performance described above, other factors that we
consider in determining compensation include:
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longevity of service; and |
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the individual performance, leadership, business knowledge and level of
responsibility of our officers. |
Although we believe the key components of our executive compensation program, base salary,
cash bonuses and the potential for awards under our Incentive and Retention Plan, have provided an
adequate mix of different types of compensation that reflect the outcome of our analysis of the
evaluation factors described above, after further review and evaluation of the adequacy and
effectiveness of our long-term incentive compensation arrangements we also believe that the
implementation of a long-term incentive plan could provide a platform for more definitive long-term
incentives for our executives while at the same time creating a more performance based award
program. For instance, while we believe that potential payments under our Incentive and Retention
Plan are reflective of longer-term operational metrics such as reserve growth, increased production
and increased cash flows from operations, the plan (a) does not contain provision for any
compensation payments for Company or individual performance, whether short-term or long-term, (b)
does not provide for any payments unless and until a triggering
-26-
event occurs, and (c)
does not provide certainty of awards for any individual since awards will not be made until a
triggering event does occur. More information about the Incentive and Retention Plan and the
implementation of a long-term incentive plan is set forth below under the caption Incentive and
Retention Plan and Analysis and Outlook. Base salaries and cash bonuses are more closely linked
to the short-term objectives of providing reasonable and competitive levels of current annual
increases. Since the elements of compensation we use are fairly limited, the results of our
evaluation of the Companys performance and each executives individual performance are reflected
more by the amounts of compensation we award, rather than by type of award.
With our compensation philosophy and objectives in mind, we discuss below in more detail the
key elements of executive compensation and the factors underlying our decisions for 2007.
Base Salaries
Salary levels are based on factors including individual and company performance, level and
scope of responsibility and competitive salary levels within the industry. We do not give specific
weights to these factors. The Committee determines base salary levels by reviewing comparative
salary data gathered by our CEO and CFO and by the Committees consultant, and by reviewing
publicly available information such as proxy statements filed by other exploration and production
companies with similar market capitalizations. As the beginning point for determining base
salaries, we reviewed an initial list of 57 publicly-traded companies in our industry. This initial
list was then narrowed to 18 companies following our review and after making certain changes to the
proposed peer group that had been suggested by management. This peer group was selected based
primarily on the similarity of total revenues and business models of Parallel and the companies in
the peer group. Using this peer group, we targeted the median percentile range of salaries and
cash bonuses for executive officers of the eighteen company peer group. The peer group consisted of
the following:
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Abraxas Petroleum Corporation
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Gulfport Energy Corporation |
Arena Resources, Inc.
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Legacy Reserves, LP |
Bill Barrett Corporation
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Petroleum Development Corporation |
Carrizo Oil & Gas, Inc.
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PetroQuest Energy, Inc. |
Concho Resources, Inc.
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Rex Energy Corporation |
Delta Petroleum Corporation
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Rosetta Resources, Inc. |
Edge Petroleum Corporation
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The Exploration Company of Delaware, Inc. |
GMX Resources, Inc.
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Venoco, Inc. |
Goodrich Petroleum Corporation
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Warren Resources, Inc. |
Base salaries for each executive are reviewed individually on an annual basis. Salary
adjustments are based on the individuals experience, background and responsibilities, the
individuals performance during the prior year, the general movement of salaries in the
marketplace, and our financial position. As a result of these factors, an executives base salary
may be above or below the base salaries of executives in other oil and gas exploration and
production companies at any point in time. Upon completion of the Committees review and
evaluation, and based on the financial and operations results and the criteria for the salary
determinations, our named executive officers received the following increases in their annual base
salaries:
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Mr. Oldham |
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from |
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$ |
330,000 |
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to |
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$ |
350,000 |
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Mr. Tiffin |
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from |
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$ |
275,000 |
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to |
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$ |
300,000 |
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Mr. Rutherford |
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from |
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$ |
175,000 |
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to |
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$ |
190,000 |
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Mr. Foster |
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from |
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$ |
190,000 |
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to |
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$ |
210,000 |
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Mr. Bayley |
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from |
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$ |
175,000 |
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to |
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$ |
190,000 |
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-27-
Cash Bonuses
Historically, we have used, and continue to use, short-term incentives in the form of annual
cash bonuses to compensate executive officers. Annual cash bonuses are viewed by the Committee as
supplemental short-term incentives in recognition of Parallels overall performance and the efforts
made by our executives during a particular year. Cash bonuses are based on a subjective
determination of amounts we deem sufficient to reward our executives and remain competitive within
our geographic environment. As with base salaries, we also targeted the median percentile rankings
of our eighteen-company peer group. We did not use specific performance targets when determining
cash bonuses. The Committee considers Parallels overall performance, the individual performance of
each executive, and the level of responsibility and experience of each executive to determine the
final bonus amounts. Bonuses are paid at the discretion of the Committee based on the overall
accomplishments of Parallel and individual performance.
After completing our review in December 2007, the Committee awarded cash bonuses as follows:
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Amount of |
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Bonus |
Mr. Oldham |
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$ |
200,000 |
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Mr. Tiffin |
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$ |
175,000 |
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Mr. Rutherford |
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$ |
70,000 |
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Mr. Foster |
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$ |
70,000 |
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Mr. Bay ley |
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$ |
70,000 |
|
There were no material differences in the decision making process we used in determining the
salaries and cash bonuses of our respective officers.
Stock Options
Prior to 2003, we relied heavily on the use of stock options as a form of compensation because
of our size and limited cash resources. The Committee did not make any option grants to any
officers during the period from 2003 to 2007, and the last time we granted stock options to our
Chief Executive Officer, Mr. Oldham, was on June 20, 2001 when he was granted a stock option to
purchase 200,000 shares of common stock at an exercise price of $4.97 per share, the fair market
value of the common stock on the date of grant. In May 2003, Mr. Oldham voluntarily relinquished
100,000 shares of common stock underlying this option in order to restore and make available shares
of stock for option grants to non-officer employees. The last time we granted stock options to any
of our other executives was on November 14, 2002 when we granted stock options to Mr. Tiffin, our
Chief Operating Officer, and to Mr. Foster, our Chief Financial Officer. Mr. Tiffin was granted a
stock option to purchase 50,000 shares of common stock and Mr. Foster was granted a stock option to
purchase 35,000 shares of stock. The exercise price of both stock options was $2.18 per share, the
fair market value of the common stock on the date of
grant.
We do not have a specific program or plan with regard to the timing or dating of option
grants. Our stock options have not been granted at regular intervals or on pre-determined dates.
The Committees practice as to when options are granted has historically been made at the
discretion of the Committee. Generally, no distinctions have been made in the timing of option
grants to executives as compared to employees. Since October 1993, stock options have been granted
to our officers and employees on thirteen different occasions. On eight occasions, options were
awarded to employees only; on four occasions options were awarded to officers and employees; and on
one occasion an option was awarded to one officer.
We do not grant discounted options and exercise prices are not based on a formula. All of our
options are granted at-the-money. In other words, the exercise price of the option equals the
fair market value of the underlying stock on the actual date of grant. As part of our 2006
compensation review, we conducted an internal review of all of our stock option grants going back
to August 1996 and did not find any instances of option
backdating, nor did we backdate any options in 2007. In addition, we have not repriced any
of our stock options and do not intend to do so.
-28-
Historically, the granting of options has not been purposefully timed around the public
announcement of material non-public information. Our Committees practice has been to meet whenever
one or more of the Committee members expresses a desire to discuss in executive session any
particular aspect of executive compensation, and the proximity of any stock option grant to
earnings or other material announcements is coincidental. We have not and do not plan to
purposefully time the release of material non-public information for the purpose of affecting the
value of executive compensation.
Other Compensation
Our executive officers participate in a 401(k) retirement and savings plan on the same basis
as other employees. Parallel matches certain employee contributions to its 401(k) retirement plan
with cash contributions. Company matching amounts for the named executive officers are included
under the caption All Other Compensation in the Summary Compensation Table on page 34.
We do not have a written policy or formula regarding the adjustment, reduction or recovery of
awards of payments if company performance is not optimal. However, the Committee does take into
account compensation realized or potentially realizable from prior compensation awards in setting
new types and amounts of compensation. Although we have never decreased the compensation of any of
our executive officers, the percentage increases in annual salaries and cash bonuses vary from year
to year, with some increases being smaller than previous years.
Allocation of Amounts and Types of Compensation
Other than our 401(k) retirement plan and outstanding stock options that were granted to our
executive officers prior to 2003, and although we believe that our Incentive and Retention Plan
does have some long-term incentive characteristics, we do not presently have in place what we would
consider to be a traditional type of long-term incentive program. Since we have not had a
traditional form of long-term incentive program, the method of allocating different forms of
long-term compensation has not been a significant consideration for us. The Committee has not
adopted a specific policy for allocating between long-term and currently paid out compensation, nor
have we adopted a specific policy for allocating between cash and non-cash compensation. However,
since December 2002, the compensation we have paid to our executives has emphasized the use of cash
rather than non-cash compensation. We have chosen to do this in order to maintain and continue our
practice of having a simplified, but effective and competitive, compensation package. In
determining the amount and mix of compensation elements for each executive officer, the Committee
relies on judgment, not upon fixed guidelines or formulas, or short term changes in our stock
price. Specific allocation policies have not been applied by the Committee largely because company
performance in the oil and natural gas industry is often volatile and cyclical and Parallels
performance in any given year, whether favorable or unfavorable, may not necessarily be
representative of immediate past results or future performance. The Committee also recognizes that
company performance is often the result of factors beyond the control of Parallel or its
executives, especially oil and natural gas prices. For instance, even when we believe our
executives have demonstrated superior individual performance during any particular year, the
year-end value and quantities of our proved reserves, which are based on oil and gas prices at
December 31 of each year, may reflect a level of company performance, whether good or bad, that is
not necessarily reflective of actual company and individual performance. Consequently, the
Compensation Committee examines and recommends executive compensation levels based on the
evaluation factors described above compared over a period of time, rather than applying these
factors on an isolated or snapshot basis at the time compensation levels are established by the
Committee. In this regard, and partly due to the peculiarities of financial accounting requirements
for exploration and production companies, the Committee emphasizes a subjective approach to
allocating the amounts and types of compensation for our executives.
By choosing to pay the elements of compensation discussed above, we try to maintain a simple
and competitive position for our total compensation package.
-29-
Internal and External Assistance
Our Committee has the authority to retain, at Parallels expense, compensation consultants.
Utilizing this authority, our Committee engaged the services of an independent compensation
consultant, Mercer Human Resources Consultants, Inc., to assist us in our review of executive
compensation for 2007. The consultant reports directly to the Committee. We specifically instructed
our consultant to use its data base to prepare a peer group of companies based on similarity of
revenues and business models and to provide the Committee with information regarding this peer
group with respect to base salaries, bonuses, long-term incentives and other types of compensation,
as well overall current compensation trends and practices. In the course of our evaluation of
executive compensation last year, we compared the data provided to us by our consultant to
components and levels of compensation paid to our executives. We also compared the companies
suggested by our consultant and by management for inclusion in the peer group. This year, our use
of data provided by management was much more limited. Although management provided the Committee
with a proposed peer group, we selected the peer group suggested by Mercer, after taking into
account changes suggested by management. Our final selection was based primarily on the similarity
of revenue and business models of Parallel and the peer companies. Our review included comparisons
of pay data for comparable executive positions and compensation components used by the peer group.
Our independent consultant also provided the Committee with statistical information and advice on
current competitive compensation practices and trends in the marketplace.
When our Committee meets in formal session, we do so outside the presence of management,
including Mr. Oldham, our Chief Executive Officer. However, the Compensation Committee did seek
informal input and insight of Mr. Oldham and Mr. Tiffin concerning broad, general topics such as
the overall design and levels of our existing compensation program, the morale of our executive
officers, and any specific factors that they believed to be appropriate for the Committees
consideration and which the Committee may not be aware of, such as individual performance, and
extraordinary day-to-day efforts or accomplishments of any of our executives.
Change of Control Arrangements
Our stock option plans and our Incentive and Retention Plan contain change of control
provisions. We use these provisions in an effort to provide some assurance to the Board of
Directors that the Board will be able to rely upon our executives continuing in their positions
with Parallel, and that Parallel will be able to rely upon each executives services and advice as
to the best interests of Parallel and its stockholders without concern that the executive might be
distracted by the personal uncertainties and risks created by any proposed or threatened change of
control. More information about these change of control provisions can be found under the caption
Potential Payments Upon Change of Control on page 37.
Stock Option Plans
As described in more detail under the caption Potential Payments Upon Change of Control on
page 37, the Compensation Committee may adjust the stock options currently outstanding and held by
our executives upon the occurrence of a change of control. With this authority, the Compensation
Committee may in its discretion elect to accelerate the vesting of any stock options that were not
fully vested at the time of a change of control. In addition, under some of our stock option plans,
acceleration of vesting schedules will automatically occur. In the Outstanding Equity Awards at
Fiscal Year-End table on page 36, you can see the stock options currently held by our executives
and the exercise prices for each of these options. Mr. Oldham, our Chief Executive Officer, is the
only executive officer that has a stock option that had not fully vested as of December 31, 2007.
As described in that table, Mr. Oldham holds a stock option to purchase a total of 37,500 shares of
common stock which remained unvested to the extent of 30,000 shares at December 31, 2007. If a
change of control had occurred on December 31, 2007, a total of 30,000 shares would have
automatically vested on that date. Under the terms of Mr. Oldhams stock option, he would have to
pay an aggregate of $186,375 to purchase all 37,500 shares. The value of the portion of the option
subject to accelerated vesting would have been $379,800 ($17.63 per share closing price on December
31, 2007, multiplied by 30,000 shares subject to accelerated vesting minus $149,100, the aggregate
exercise price for the unvested portion of the option).
-30-
Incentive and Retention Plan
In 2002 and before, long-term incentives were made up of stock options. In 2004, upon
recommendation of the Committee, we adopted the Incentive and Retention Plan described in more
detail on page 38. Generally, this plan authorizes the Committee to grant executive officers awards
in the form of base shares, with one base share being equated to one share of our common stock.
The value of base shares fluctuates directly with changes in the price of Parallels stock which we
believe more closely ties the interests of our executives directly to those of stockholders. The
base shares are paid out only upon a corporate transaction or a change of control. These
triggering events are further described below and on page 39. Payouts, when triggered, are to be
paid in cash. The Committee will determine the total number of base shares to grant each executive
officer by using individual performance, level of responsibility, experience and the extent to
which each executive officer may have contributed to the occurrence of a triggering event under the
plan, as well as the outcome of the event. All of our other employees and consultants are also
eligible to participate in this plan.
The Incentive and Retention Plan was designed to align the interests of executives with
stockholders and to provide each executive with a significant incentive to manage the Company from
the perspective of an owner with an equity stake in the business. When we were in the initial
stages of formulating this plan, we began with the concept of a more traditional long-term
incentive plan which would provide our executives with potential cash awards based on year-to-year
comparisons of the growth in our proved oil and gas reserves or related exploration and production
criteria, with these annual cash awards being predicated on various performance factors, such as a
predetermined percentage increase in our proved oil and natural gas reserves or other related
criteria. However, we realized that under this approach annual cash payments could result simply as
a result of increases in the prices of oil and natural gas which would not necessarily equate to
actual growth in our reserves or any specific achievements by our executives and under
circumstances that might not result in additional value to our stockholders. After further
consideration, we decided to tie any potential rewards under this plan to the market price of our
stock. Although not linked to any specific performance measures, the Committee believed that
linking potential rewards to the market price of our stock would reflect a bundling of company
performance measures that are of importance to investors in smaller exploration and production
companies like Parallel, and which would be reflected in the market price of our stock. In
addition, and instead of providing for automatic annual bonuses, we believed it important to
reward our executives under circumstances that were more likely to coincide with events that could
also result in our stockholders realizing value. Thus, one prong of the Incentive and Retention
Plan provides for payments only when there is a corporate transaction, such as a merger or sale
of Parallel. The second prong of the plan provides for payments upon the occurrence of a change on
control. We structured the Incentive and Retention Plan in this fashion primarily to satisfy our
objective of retaining management, and to more closely connect potential payments to our executives
to an event in which all of our stockholders would be more likely to realize value from their
investments in Parallel. Further, the Committee remains of the belief that the Incentive and
Retention Plan should eliminate, or at least reduce, any reluctance management might have to pursue
potential corporate transactions that may be in the best interests of stockholders. The cash
benefits are payable in one lump-sum.
The oil and natural gas industry in our specific areas of operation continues to experience
increases in leasing, acquisitions, drilling and development activities. This activity has resulted
in significant management turnover within the areas we operate, largely because of greater
compensation packages and incentives being offered by our competitors. At the time we implemented
the plan, the Committee believed that the potential rewards to our executives under the Incentive
and Retention Plan would provide the necessary incentive for our executives to remain employed by,
and diligently pursue the goals of, Parallel. Since adopting the plan, none of our officers have
left our employment. However, recognizing that the plan has not resulted in any compensation to our
executives over the last four years, the Committee is presently re-evaluating this area of our
compensation program.
Under the Incentive and Retention Plan, our officers, employees and consultants are eligible
to receive a one-time performance payment upon the occurrence of a corporate transaction or a
one-time retention payment upon the occurrence of a change of control. Generally, a corporate
transaction means an acquisition of Parallel, a sale of substantially all of Parallels assets or
the dissolution of Parallel. A change of control generally means the acquisition of 60% or more of
our outstanding common stock or an event that results in our current Directors ceasing to
constitute a majority of the Board of Directors.
-31-
In the case of a corporate transaction, the total aggregate potential payments would be equal
to the sum of (a) the per share price received by all stockholders minus a base price of $3.73 per
share, multiplied by 1,080,362 base shares, plus (b) the per share price received by all
stockholders minus an additional base price of $8.62 per share, multiplied by 400,000 additional
base shares. If a change of control occurs, the aggregate potential payments to all plan
participants would be equal to the sum of (a) the per share closing price of Parallels common
stock on the day immediately preceding the change of control, minus the base price of $3.73 per
share, multiplied by 1,080,362, plus (b) the per share closing price of Parallels common stock on
the day immediately preceding the change of control, minus an additional base price of $8.62 per
share, multiplied by 400,000 additional base shares.
If a corporate transaction or change of control occurs, the Compensation Committee has the
discretion to allocate for payment to each of our executives, employees or consultants a portion of
the total performance bonus or retention payment as the Committee determines in its sole
discretion. Although the Committee has not made any awards under our Incentive and Retention Plan,
for illustration purposes, assuming a corporate transaction or change of control occurred on
December 31, 2007, and that the applicable price of our common stock was $17.63 per share, the
closing price of our common stock as of December 31, 2007, the total aggregate potential payments
to all eligible participants would have been approximately $18.6 million.
The change of control provisions in our stock option plans and in the Incentive and Retention
Plan utilize single triggers. As compared to double triggers, we believe that single triggers
provide a more definitive outcome for our executives if a triggering event does occur and are more
likely to prevent an executive from becoming entangled in various interpretive issues concerning
the applicability of a second or double trigger to any particular triggering event. For these
reasons, coupled with the fact that none of our executives have deferred compensation arrangements
or employment or other post-termination compensation agreements with Parallel, we believe the use
of single triggers is not inconsistent with the best interests of Parallel or our stockholders.
Stock Ownership/Retention Guidelines
We do not have formal written guidelines or policy statements requiring specified levels of
stock ownership or holding practices. Under our policy covering insider trading procedures, our
executives, their spouses and other immediate family members sharing the executives household are
prohibited from selling any securities of Parallel that are not owned at the time of the sale, a
short sale. Also, no such person may buy or sell puts, calls or exchange-traded options in
Parallels securities. These transactions are speculative in nature and may involve a bet against
the company which we believe is inappropriate for our insiders.
Perquisites and Personal Benefits
We have provided limited perquisites and personal benefits to our executives, including club
memberships and allowing our executives a choice of receiving a car allowance or personal use of a
company provided vehicle. We encourage our executives to belong to a social club so that they have
an appropriate entertainment forum for customers and appropriate interaction with their
communities.
Our executives also participate in Parallels other benefit plans on the same terms as other
employees. These plans include medical and dental insurance, and life insurance. All employees,
including our executives, age fifty or over are also eligible to participate in an extended health
care coverage plan that we maintain. We do not have charitable gift matching or discounts on
products.
The types and amounts of perquisites we provide to our executives are included in the All
Other Compensation column of the Summary Compensation Table on page 34.
Analysis and Outlook
During our review of 2007 compensation, we determined that the compensation paid to our
executives was below that of the peer group selected by the Committee. The actions of the
Compensation Committee in increasing our executives salaries and awarding cash bonuses were based
mostly on the Committees decision to bring our executives salaries and bonuses up to the median
percentile range of the salaries and bonuses of executives of our
-32-
peer companies. In addition to performance at the Company level, the Committee also compared
the individual efforts, talents and performance of Parallels executives with the individuals
performing similar functions for the peer companies, some of whom are known by one or more members
of the Committee. The Committees decisions were also influenced by the individual efforts of each
of our executives in response to specific requests made by our Board of Directors. Going forward,
the Committee intends to use, more so than it has in the past, objective performance criteria to
support certain components of executive compensation rather than the more subjective approach that
we have historically used. Based on discussions the Committee has had with our consultant,
management and our own deliberations, the Committee further determined that the Incentive and
Retention Plan may not be providing the types of incentives anticipated when the plan was
originally implemented. In particular, the Committee believes the Incentive and Retention Plan may
not continue to provide the necessary incentives to attract and retain qualified oil and gas
industry personnel at a time of increased competition for such personnel at all levels and that the
absence of an equity based long-term incentive plan could make it more difficult to recruit and
retain qualified personnel. Towards this end, and subject to applicable regulatory and
stockholder approval requirements, the Committee intends to adopt a long-term incentive plan that
would authorize awards of stock options, restricted stock, performance awards or other equity based
awards, although no such plan had been adopted by the Compensation Committee at the time our Annual
Report on Form 10-K, which includes this Compensation Discussion and Analysis, was filed with the
SEC.
Limit on Deductibility of Certain Compensation
Provisions of the Internal Revenue Code that restrict the deductibility of certain
compensation over one million dollars per year were not a factor in our considerations or
recommendations for our 2007 compensation review. Section 162(m) of the Code currently imposes a $1
million limitation on the deductibility of certain compensation paid to our executives. Excluded
from the limitation is compensation that is performance based. For compensation to be performance
based, it must meet certain criteria, including being based on predetermined objective standards
approved by stockholders. Compensation to our executives does not currently qualify as performance
based compensation and thus is not deductible by us for federal income tax purposes.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
with management.
Based on its review and discussions, the Committee recommended to the Board of Directors that
the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the year
ended December 31, 2007 and in our Proxy Statement for this years Annual Meeting of Stockholders.
Members of the Compensation Committee
Edward A. Nash (Chairman)
Martin B. Oring
Ray M. Poage
Jeffrey G. Shrader
-33-
Summary of Annual Compensation
The table below shows a summary of the types and amounts of compensation paid for 2006 and
2007 to Larry C. Oldham, our President and Chief Executive Officer, and to our other four executive
officers for the years ended December 31, 2007 and 2006. Also included is the compensation we paid
to Thomas R. Cambridge, our former Chairman of the Board of Directors, for the same years. Mr.
Cambridge retired from the Board of Directors on June 26, 2007.
Summary Compensation Table
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Change in |
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Pension |
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Value and |
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Non- |
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Non- |
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Equity |
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qualified |
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Incentive |
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Deferred |
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All |
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Plan |
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Com- |
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Other |
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Name and |
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Stock |
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Option |
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Com- |
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pensation |
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Com- |
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Principal Position |
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Year |
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Salary |
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Bonus |
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Awards |
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Awards |
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pensation |
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Earnings |
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pensation |
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Total |
L. C. Oldham |
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2007 |
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$330,000 |
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$200,000 |
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0 |
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12,303 |
(2) |
0 |
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0 |
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$59,415(3) |
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$601,718 |
President, Chief Executive Officer and Director |
|
2006 |
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$300,000 |
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$185,000 |
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0 |
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16,683 |
(3) |
0 |
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0 |
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$51,090(3) |
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$552,773 |
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D. E. Tiffin |
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2007 |
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$275,000 |
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$175,000 |
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0 |
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0 |
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0 |
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0 |
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$47,730(4) |
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$497,730 |
Chief Operating Officer |
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2006 |
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$250,000 |
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$147,500 |
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0 |
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0 |
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0 |
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0 |
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$43,247(4) |
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$440,747 |
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E. A. Bayley |
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2007 |
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$175,000 |
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$ 70,000 |
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0 |
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0 |
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0 |
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0 |
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$41,640(5) |
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$286,640 |
Vice President of Corporate Engineering |
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2006 |
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$160,000 |
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$ 60,000 |
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0 |
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0 |
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0 |
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0 |
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$39,321(5) |
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$259,321 |
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J. S. Rutherford |
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2007 |
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$175,000 |
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$ 70,000 |
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0 |
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0 |
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0 |
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0 |
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$39,560(6) |
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$284,560 |
Vice President of Land and Administration |
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2006 |
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$160,000 |
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$ 60,000 |
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0 |
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0 |
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0 |
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0 |
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$38,174(6) |
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$258,174 |
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S. D. Foster |
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2007 |
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$190,000 |
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$ 70,000 |
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0 |
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0 |
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0 |
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0 |
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$44,493(7) |
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$304,493 |
Chief Financial Officer |
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2006 |
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$175,000 |
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$ 60,000 |
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0 |
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0 |
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0 |
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0 |
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$45,547(7) |
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$280,547 |
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T. R. Cambridge(8) |
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2007 |
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$ 70,889 |
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0 |
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0 |
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0 |
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0 |
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0 |
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0 |
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$ 70,889 |
Former Chairman of the Board of Directors |
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2006 |
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$135,000 |
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$ 60,000 |
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0 |
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0 |
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0 |
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0 |
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$ 5,152 |
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$200,152 |
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(1) |
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Included in this column is (a) all other compensation received by the named executive officer
but not reported under any other column of this table, and (b) the incremental cost of all
perquisites and personal benefits for each named executive officer, in each case as identified
in the following table: |
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Mr. |
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Mr. |
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Mr. |
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Mr. |
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Mr. |
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Mr. |
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Oldham |
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Tiffin |
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Rutherford |
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Foster |
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Bayley |
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Cambridge |
Personal use of club memberships(a) |
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2007 |
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$ |
0 |
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$ |
0 |
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$ |
1,547 |
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$ |
1,670 |
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$ |
2,085 |
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$ |
0 |
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2006 |
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$ |
0 |
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$ |
0 |
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$ |
3,376 |
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$ |
3,652 |
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$ |
0 |
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$ |
0 |
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Personal use of company car(b) |
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2007 |
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$ |
4,625 |
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$ |
0 |
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$ |
5,644 |
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$ |
0 |
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$ |
10,291 |
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$ |
0 |
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2006 |
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$ |
1,723 |
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$ |
0 |
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$ |
1,179 |
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$ |
0 |
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$ |
8,401 |
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$ |
0 |
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Car allowance |
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2007 |
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$ |
0 |
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$ |
8,050 |
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$ |
0 |
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$ |
8,050 |
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$ |
0 |
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$ |
0 |
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2006 |
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$ |
0 |
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$ |
6,000 |
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$ |
0 |
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$ |
6,000 |
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$ |
0 |
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$ |
0 |
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Personal use of office space(c) |
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2007 |
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$ |
1,809 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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2006 |
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$ |
2,366 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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CEO life insurance(d) |
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2007 |
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|
$ |
4,063 |
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|
$ |
0 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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2006 |
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|
$ |
3,793 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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Personal use of charter aircraft |
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2007 |
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(e) |
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$ |
0 |
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(e) |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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2006 |
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(e) |
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(e) |
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(e) |
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$ |
0 |
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$ |
0 |
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$ |
0 |
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Tax gross up(f) |
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|
2007 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
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$ |
0 |
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$ |
0 |
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|
2006 |
|
|
$ |
3,629 |
|
|
$ |
1,687 |
|
|
$ |
3,697 |
|
|
$ |
3,559 |
|
|
$ |
3,836 |
|
|
$ |
5,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(g) |
|
|
2007 |
|
|
$ |
5,935 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
-34-
|
|
|
|
(a) |
|
The value of personal use of club memberships represents that portion of annual club
dues determined by multiplying the total annual club dues by a fraction equal to expenses
for personal use divided by total business and personal expenses. All employees pay or
reimburse us for their personal expenses. |
|
(b) |
|
Personal use of a company car is based on the sum of the fair lease value of the car,
maintenance expense and gas expense, multiplied by a fraction, the numerator of which is
the number of miles driven for personal use and the denominator of which is the total
number of miles driven. |
|
(c) |
|
Includes personal use of office space by Mr. Oldhams wife for charitable, civic and
personal activities. The value has been determined by multiplying the number of square
feet in the office by the cost per square foot paid by Parallel under its lease agreement
covering its executive offices, and as adjusted for a proportionate share of common area
maintenance expenses. |
|
(d) |
|
We provide a $100,000 whole life insurance policy for Mr. Oldham and pay the premiums
for maintaining the policy in force. |
|
(e) |
|
From time to time, the executives spouse will accompany the executive on business
trips when there is an unoccupied seat on the aircraft. However, there is no aggregate
incremental cost to us. |
|
(f) |
|
The tax gross up payments for each named executive officer were made in connection
with cash bonuses in the amount of $10,000 that were awarded to each named executive
officer on December 6, 2006. |
|
(g) |
|
Includes the cost of commercial airfare for Mr. Oldhams wife when she accompanied him
on seven separate business trips. |
|
(2) |
|
The amounts shown in this column represent the dollar amount we recognized for financial
statement reporting purposes, computed in accordance with FAS 123(R), of an option award made
to Mr. Oldham prior to 2006. For a discussion of valuation assumptions, see Note 11 to our
Consolidated Financial Statements included in this Annual Report on Form 10-K. |
|
(3) |
|
For 2007, such amount includes Parallels contribution in the amount of $19,800 to Mr.
Oldhams individual retirement account maintained under Parallels 401(k) plan; insurance
premiums in the amount of $23,183 for nondiscriminatory group life, medical, disability,
long-term care and dental insurance; and $16,432 representing the total value of all other
compensation and perquisites and personal benefits provided to Mr. Oldham as described in
footnote 1. For 2006, such amount includes Parallels 2006 contribution in the amount of
$18,000 to Mr. Oldhams individual retirement account maintained under Parallels 401(k) plan;
insurance premiums in the amount of $21,579 for nondiscriminatory group life, medical,
disability, long-term care and dental insurance; and $11,511 representing the total value of
all other compensation and perquisites and personal benefits provided to Mr. Oldham as
described in footnote 1. |
|
(4) |
|
For 2007, such amount includes Parallels contribution in the amount of $16,500 to Mr.
Tiffins individual retirement account maintained under Parallels 401(k) plan; insurance
premiums in the amount of $23,180 for nondiscriminatory group life, medical, disability,
long-term care and dental insurance; and $8,050 representing the total value of all other
compensation and perquisites and personal benefits provided to Mr. Tiffin as described in
footnote 1. For 2006, such amount includes Parallels 2006 contribution in the amount of
$15,000 to Mr. Tiffins individual retirement account maintained under Parallels 401(k) plan;
insurance premiums in the amount of $20,560 for nondiscriminatory group life, medical,
disability, long-term care and dental insurance; and $7,687 representing the total value of
all other compensation and perquisites and personal benefits provided to Mr. Tiffin as
described in footnote 1. |
|
(5) |
|
For 2007, such amount includes Parallels contribution in the amount of $10,500 to Mr.
Bayleys individual retirement account maintained under Parallels 401(k) plan; insurance
premiums in the amount of $18,764 for nondiscriminatory group life, medical, disability,
long-term care and dental insurance; and $12,376 representing the total value of all other
compensation and perquisites and personal benefits provided to Mr. Bayley as described in
footnote 1. For 2006, such amount includes Parallels 2006 contribution in the amount of
$9,600 to Mr. Bayleys individual retirement account maintained under Parallels 401(k) plan;
insurance premiums in the amount of $17,484 for nondiscriminatory group life, medical,
disability, long-term care and dental insurance; and $12,237 representing the total value of
all other compensation and perquisites and personal benefits provided to Mr. Bayley as
described in footnote 1. |
|
(6) |
|
For 2007, such amount includes Parallels contribution in the amount of $10,500 to Mr.
Rutherfords individual retirement account maintained under the 401(k) plan; insurance
premiums in the amount of $21,869 for nondiscriminatory group life, medical, disability and
dental insurance; and $7,191 representing the total value of all other compensation and
perquisites and personal benefits provided to Mr. Rutherford as described in footnote 1. For
2006, such amount includes Parallels 2006 contribution in the amount of $9,600 to Mr.
Rutherfords individual retirement account maintained under the 401(k) plan; insurance
premiums in the amount of $20,322 for nondiscriminatory group life, medical, disability and
dental insurance; and $8,252 representing the total value of all other compensation and
perquisites and personal benefits provided to Mr. Rutherford as described in footnote 1. |
|
(7) |
|
For 2007, such amount includes Parallels contribution in the amount of $11,400 to Mr.
Fosters individual retirement account maintained under Parallels 401(k) plan; insurance
premiums in the amount of $23,373 for nondiscriminatory group life, medical, disability,
long-term care and dental insurance; and $9,720 representing the total value of all other
compensation and perquisites and personal benefits provided to Mr. Foster as described in
footnote 1. For 2006, such amount includes Parallels 2006 contribution in the amount of
$10,500 to Mr. Fosters individual retirement account maintained under Parallels 401(k) plan;
insurance premiums in the amount of $21,836 for nondiscriminatory group life, medical,
disability, long-term care and dental insurance; and $13,211 representing the total value of
all other compensation and perquisites and personal benefits provided to Mr. Foster as
described in footnote 1. |
|
(8) |
|
The 2007 information shown in this table for Mr. Cambridge is for the period from January 1,
2007 to June 26, 2007, the date of his retirement. Except as described under Item 13.
Certain Relationships and Related Transactions, and Director Independence on page 90, no
other payments were made to Mr. Cambridge or his affiliated entities for the fiscal year ended
December 31, 2007. |
-35-
Outstanding Equity Awards at Fiscal Year-End
Historically, we have used stock options as part of the overall compensation of Directors,
officers and employees. However, we did not grant any stock options in 2007 to any of the executive
officers named in the Summary Compensation Table. Summary descriptions of our stock option plans
are included in this Proxy Statement, beginning on page 44 so you can review the types of options
we have granted in the past and the significant features of our stock options.
In the table below, we show certain information about the outstanding equity awards held by
the named executive officers at December 31, 2007.
Outstanding Equity Awards at 2007 Fiscal Year-End
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Options Awards |
|
Stock Awards |
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Equity |
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Equity |
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Incentive |
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Incentive |
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Plan |
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Equity |
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Plan |
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Awards: |
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Incentive |
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Awards: |
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Market or |
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Number |
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Number |
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Plan |
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Number |
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Payout |
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of |
|
of |
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Awards: |
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Market |
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of |
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Value of |
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Securities |
|
Securities |
|
Number |
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Number |
|
Value |
|
Unearned |
|
Unearned |
|
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Under- |
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Under- |
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of |
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of Shares |
|
of Shares |
|
Shares, |
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Shares, |
|
|
lying |
|
lying |
|
Securities |
|
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or |
|
or Units |
|
Units or |
|
Units or |
|
|
Unexer- |
|
Unexer- |
|
Under- |
|
|
|
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|
|
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|
Units or |
|
of |
|
Other |
|
Other |
|
|
cised |
|
cised |
|
lying |
|
|
|
|
|
|
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Stock |
|
Stock |
|
Rights |
|
Rights |
|
|
Options |
|
Options |
|
Unexer- |
|
|
|
|
|
|
|
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That |
|
That |
|
That |
|
That |
|
|
(#) |
|
(#) |
|
cised |
|
Option |
|
Option |
|
Have |
|
Have |
|
Have |
|
Have |
|
|
Exer- |
|
Unexer- |
|
Unearned |
|
Exercise |
|
Expiration |
|
Not |
|
Not |
|
Not |
|
Not |
Name |
|
cisable |
|
cisable |
|
Options |
|
Price |
|
Date |
|
Vested |
|
Vested |
|
Vested |
|
Vested |
L.C. Oldham |
|
|
7,500 |
(1) |
|
|
30,000 |
(1) |
|
|
0 |
|
|
|
4.97 |
|
|
|
06-20-11 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E.A. Bayley |
|
|
25,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
3.60 |
|
|
|
08-04-08 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
50,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4.97 |
|
|
|
06-20-11 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.S. Rutherford |
|
|
44,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4.97 |
|
|
|
06-20-11 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.E. Tiffin |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
S.D. Foster |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
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|
T.R. Cambridge |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
(1) |
|
This stock option is exercisable with respect to 7,500 shares on the first day of January in
each of the years 2007, 2008, 2009, 2010 and 2011. |
-36-
Option Exercises and Stock Vested in 2007
In the table below, we show certain information about (i) the number of shares of common stock
acquired upon exercise of stock options by each of the named executive officers in 2007 and the
value realized on exercise of the stock options and (ii) stock awards.
|
|
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|
|
|
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|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of |
|
|
|
|
|
Number of |
|
|
|
|
Shares |
|
Value |
|
Shares |
|
Value |
|
|
Acquired |
|
Realized |
|
Acquired |
|
Realized |
|
|
on |
|
on |
|
on |
|
on |
Name |
|
Exercise |
|
Exercise(1) |
|
Vesting |
|
Vesting |
Larry C. Oldham |
|
|
46,000 |
|
|
$ |
661,020 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald E. Tiffin |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric A. Bayley |
|
|
25,000 |
|
|
$ |
464,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John S. Rutherford |
|
|
2,000 |
|
|
$ |
31,980 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
2,000 |
|
|
$ |
31,980 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
2,000 |
|
|
$ |
29,780 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven D. Foster |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas R. Cambridge |
|
|
100,000 |
|
|
$ |
1,890,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
1,707 |
(2) |
|
$ |
26,015 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
25,000 |
(2) |
|
$ |
384,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
26,707 |
(2) |
|
$ |
361,079 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
23,293 |
(2) |
|
$ |
356,383 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
23,293 |
(2) |
|
$ |
312,592 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
1,707 |
(2) |
|
$ |
20,569 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
50,000 |
(2) |
|
$ |
636,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
25,000 |
(2) |
|
$ |
325,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
23,293 |
(2) |
|
$ |
283,010 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value realized on exercise is equal to the closing price of our common stock on the date
of exercise, less the exercise price of the stock option exercised, multiplied by the number
of shares acquired on exercise. |
|
(2) |
|
These shares were acquired by Mr. Cambridge during the period from August 23, 2007 to
September 11, 2007 upon exercise of stock options following his retirement on June 26, 2007.
All of the stock options exercised by Mr. Cambridge after his retirement would have expired by
their own terms on September 26, 2007 had they not been exercised. |
Potential Payments Upon Change of Control
Stock Option Plans
Our outstanding stock options and stock option plans contain certain change of control
provisions which are applicable to our outstanding stock options, including the options held by our
officers and Directors. For purposes of our options, a change of control occurs if:
|
|
|
we are not the surviving entity in a merger or consolidation (or survive only as a
subsidiary of another entity); |
|
|
|
|
we sell, lease or exchange all or substantially all of our assets; |
|
|
|
|
we dissolve and liquidate; |
|
|
|
|
any person or group acquires beneficial ownership of more than 50% of our common
stock; or |
|
|
|
|
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. |
-37-
Under our 1992 Stock Option Plan and 2001 Employee Stock Option Plan, if a change of control
occurs, the Compensation Committee of the Board of Directors can:
|
|
|
accelerate the time at which options may be exercised; |
|
|
|
|
require optionees to surrender some or all of their options and pay to each optionee
the change of control value; |
|
|
|
|
make adjustments to the options to reflect the change of control; or |
|
|
|
|
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:
|
|
|
the per share price offered to our stockholders in a merger, consolidation, sale of
assets or dissolution transaction; |
|
|
|
|
the price per share offered to our stockholders in a tender offer or exchange offer
where a change of control takes place; or |
|
|
|
|
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. |
In the case of our 1997 Nonemployee Directors Stock Option Plan, 1998 Stock Option Plan and
2001 Nonemployee Director Stock Option Plan, upon the occurrence of a change of control, any
outstanding options under these plans become fully exercisable and upon exercise of the option, the
option holder will be entitled to purchase, instead of the numbers of shares of stock for which the
option is then exercisable, the number and class of shares of stock or other securities or property
to which the option holder would have been entitled under the terms of the change of control if,
immediately before the change of control, the option holder had been the holder of record of the
number of shares of stock for which the option is then exercisable.
Incentive and Retention Plan
On September 22, 2004, the Compensation Committee of the Board of Directors approved and
adopted an incentive and retention plan for our officers and employees. On September 24, 2004, the
Board of Directors adopted the plan upon recommendation by the Compensation Committee.
The purpose of the plan is to advance the interests of Parallel and its stockholders by
providing officers and employees with incentive bonus compensation which is linked to a corporate
transaction. As defined in the plan, a corporate transaction means:
|
|
|
an acquisition of us by way of purchase, merger, consolidation, reorganization or
other business combination, whether by way of tender offer or negotiated transaction,
as a result of which our outstanding securities are exchanged or converted into cash,
property and/or securities not issued by us; |
|
|
|
|
a sale, lease, exchange or other disposition by us of all or substantially all of
our assets; |
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our stockholders approve a plan or proposal for our liquidation or dissolution; or |
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any combination of any of the foregoing. |
-38-
The plan recognizes the possibility of a proposed or threatened transaction and the need to be
able to rely upon officers and employees continuing their employment, and that Parallel be able to
receive and rely upon their advice as to the best interests of Parallel and its stockholders
without concern that they might be distracted by the personal uncertainties and risks created by
any such transaction. In this regard, the plan provides for a retention payment upon the occurrence
of a change of control, as defined below.
All members of Parallels executive group are participants in the plan. For purposes of the
plan, the executive group includes Messrs. Oldham, Tiffin, Foster, Rutherford and Bayley and any
other officer employee of Parallel selected by the Compensation Committee in its sole discretion.
In addition, the Committee may designate other non-officer employees of Parallel and consultants to
Parallel as participants in the plan who will also be eligible to receive a performance bonus upon
the occurrence of a corporate transaction or a retention payment upon the occurrence of a change of
control.
Generally, the plan provides for:
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the payment of a one-time performance bonus to eligible officers and employees upon
the occurrence of a corporate transaction; or |
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|
a one time retention payment upon a change of control of Parallel. A change of
control is generally defined as the acquisition of beneficial ownership of 60% or more
of the voting power of Parallels outstanding voting securities by any person or group
of persons, or a change in the composition of the Board of Directors of Parallel such
that the individuals who, at the effective date of the plan, constitute the Board of
Directors cease for any reason to constitute at least a majority of the Board of
Directors. |
On August 23, 2005, the Compensation Committee of the Board of Directors of Parallel approved
and adopted amendments to the incentive and retention plan, and on that same date, the Board of
Directors approved the amendments upon recommendation by the Compensation Committee. Generally, the
plan was amended to provide for 400,000 additional base shares with an associated additional
base price of $8.62 per share. The plan was further amended on February 27, 2007 to expand the
class of eligible participants to include consultants to Parallel.
The amount of these payments depends on future prices of Parallels common stock, which is
undeterminable until a triggering event occurs. In the case of a corporate transaction, the total
cash obligation for performance bonuses is equal to the sum of (a) per share price received by all
stockholders minus a base price of $3.73 per share, multiplied by 1,080,362 shares, plus (b) the
per share price received by all stockholders minus an additional base price of $8.62 per share,
multiplied by 400,000 additional base shares. As an example, if the stockholders of Parallel
received the December 31, 2007 per share closing price of $17.63 in a merger, tender offer or other
corporate transaction, the total aggregate potential payments to all plan participants would be
[($17.63 $3.73) x 1,080,362], plus [$17.63 $8.62) x 400,000], or $18.6 million. If a change of
control occurs, the total amount of cash retention payments to all plan participants would be equal
to the sum of (a) per share closing price of Parallels common stock on the day immediately
preceding the change of control minus the base price of $3.73 per share, multiplied by 1,080,362,
plus (b) the per share closing price of Parallels common stock on the day immediately preceding
the change of control minus an additional base price of $8.62 per share, multiplied by 400,000.
If a corporate transaction or change of control occurs, the Compensation Committee will
allocate for payment to each member of the executive group such portion of the total performance
bonus or retention payment as the Compensation Committee determines in its sole discretion. After
making these allocations, if any part of the total performance bonus or retention payment amount
remains unallocated, the Compensation Committee may allocate any remaining portion of the
performance bonus or retention payment among all other participants in the plan. After all
allocations of the performance bonus have been made, each participants proportionate share of the
performance bonus or retention payment will be paid in a cash lump sum.
There is no certainty with respect to whether or when payments under this plan might be
triggered, or the amount of any potential payment to any member of the executive group or other
participants if a triggering event did occur.
-39-
Our ultimate liability under the plan is not readily determinable because of the inability to
predict the occurrence of a corporate transaction or change of control, or our stock price on the
future date of any such corporate transaction or change of control. No liability will be recorded
until such time as a corporate transaction or change of control becomes probable and the amount of
the liability becomes determinable. The occurrence of a change of control or a corporate
transaction could have a negative impact on our financial condition and results of operations,
depending upon the price of our common stock at the time of a change of control or corporate
transaction.
The plan is entirely unfunded and the plan makes no provision for segregating any of our
assets for payment of any amounts under the plan.
A participants rights under the plan are not transferable.
The plan is administrated by the Compensation Committee of the Board of Directors of Parallel.
The Compensation Committee has the power, in its sole discretion, to take such actions as may be
necessary to carry out the provisions and purposes of the plan. The Compensation Committee has the
authority to control and manage the operation and administration of the plan and has the power to:
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designate the officers and employees of, and consultants to, Parallel and its
subsidiaries who participate in the plan, in addition to the executive group; |
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maintain records and data necessary for proper administration of the plan; |
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adopt rules of procedure and regulations necessary for the proper and efficient
administration of the plan; |
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enforce the terms of the plan and the rules and regulations it adopts; |
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employ agents, attorneys, accountants or other persons; and |
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perform any other acts necessary or appropriate for the proper management and
administration of the plan. |
The plan automatically terminates and expires on the date participants receive a performance
bonus or retention payment.
Non-Officer Severance Plan
In January 2006, a Non-Officer Employee Severance Plan was implemented for the purpose of
providing our non-officer employees with an incentive to remain employed by us. This plan provides
for a one-time severance payment to non-officer employees equal to one year of their then current
base salary upon the occurrence of a change of control within the meaning of the plan. Based on the
aggregate non-officer base salaries in effect as of December 31, 2007, if a change of control had
occurred at December 31, 2007, the total severance amount payable under this plan would have been
approximately $3.8 million.
Compensation of Directors
In addition to reviewing the compensation of our executive officers, the Compensation
Committee also periodically reviews the compensation program for our four non-employee Directors,
all of whom are members of the Compensation Committee. The last time Director compensation was
modified was in June 2004. At its meeting held on February 12, 2008, the Committee authorized and
approved the payment of an annual cash retainer fee in the amount of $50,000 for each non-employee
Director, which will be paid in lieu of all other cash fees. The per meeting fees that we have
been paying to our non-employee Directors for attendance at Board and Board committee meetings, and
the fees paid for serving as Chairman of Board committees, were terminated effective January 1,
2008. The Committee is also currently reviewing and evaluating the equity component of Director
compensation.
-40-
Mr. Oldham, our only Director who is also an officer of Parallel, does not receive any
compensation for his services as a member of the Board or the Boards Hedging and Acquisitions
Committee.
In the table below, we show certain information about the compensation paid to our
non-employee Directors during 2007.
2007 Director Compensation
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Change in |
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Fees |
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Pension |
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Earned |
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Value and |
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or |
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Non-Equity |
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Nonqualified |
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Paid in |
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Stock |
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Option |
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Incentive Plan |
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Deferred |
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All Other |
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Name |
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Cash |
|
Awards(1) |
|
Awards(2) |
|
Compensation |
|
Compensation |
|
Compensation |
|
Total |
D.E. Chitwood(3) |
|
$ |
1,500 |
|
|
$ |
0 |
|
|
$ |
0 |
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|
|
0 |
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|
|
0 |
|
|
|
0 |
|
|
$ |
1,500 |
|
|
E.A. Nash |
|
$ |
11,375 |
|
|
$ |
23,964 |
|
|
$ |
0 |
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|
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0 |
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|
|
0 |
|
|
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0 |
|
|
$ |
35,339 |
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M.B. Oring |
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$ |
33,000 |
|
|
$ |
23,964 |
|
|
$ |
77,872 |
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|
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0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
134,836 |
|
|
R.M. Poage |
|
$ |
32,250 |
|
|
$ |
23,964 |
|
|
$ |
203,238 |
(4) |
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0 |
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|
|
0 |
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|
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0 |
|
|
$ |
259,452 |
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|
J.G. Shrader |
|
$ |
41,750 |
(5) |
|
$ |
23,964 |
|
|
$ |
77,872 |
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|
|
0 |
|
|
|
0 |
|
|
|
0 |
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|
$ |
143,586 |
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(1) |
|
On the first day of July of each year, beginning July 1, 2004, our non-employee directors are
automatically granted shares of common stock having a value of $25,000. The actual number of
shares granted is determined by dividing $25,000 by the average daily closing price of the
common stock for ten consecutive trading days commencing fifteen trading days before the first
day of July of each year. Under this plan, a total of 1,100 shares of common stock have been
granted to Mr. Nash and each of Messrs. Oring, Poage and Shrader have been granted a total of
10,395 shares of common stock since inception of the plan, which includes 1,100 shares granted
to each of them on the July 1, 2007 grant date. For the July 1, 2007 grant, the 1,100 shares
were calculated by dividing $25,000 by $22.723, the ten trading day average closing price of
the stock, beginning on June 18, 2007. Since July 1, 2007 was not a business day, the amount
set forth in this column is based on the closing price of our common stock on July 2, 2007,
the first business day following the grant date. The amounts shown in this column represent
the dollar amount we recognized for financial statement reporting purposes with respect to the
fiscal year ended December 31, 2007, computed in accordance with FAS 123R and also represents
the aggregate grant date fair value computed in accordance with FAS 123R. Due to an
inadvertent error in calculating the number of shares granted to each of our non-employee
directors in 2007, each non-employee director received 39 more shares than the total of 1,061
shares that each non-employee director should have received. Our non-employee directors have
agreed to offset against future cash fees the economic equivalent (approximately $919) of the
additional 39 shares. |
|
(2) |
|
The amounts shown in this column represent the dollar amount we recognized for financial
statement reporting purposes with respect to the fiscal year ended December 31, 2007, computed
in accordance with FAS 123(R) of option awards made to the non-employee Directors prior to
2007 and the option award made to Mr. Poage in 2007 as further described in footnote (4)
below. The amounts shown exclude the impact of estimated forfeitures. For a discussion of
valuation assumptions, see Note 11 to our consolidated financial statements included in our
Annual Report on Form 10-K accompanying this Proxy Statement. For information about the
aggregate number of stock options held by each of our nonemployee Directors, you should read
the table below under the heading Outstanding Equity Awards at 2007 Fiscal Year-End. |
|
(3) |
|
Mr. Chitwood resigned from the Board of Directors on January 23, 2007. |
|
(4) |
|
On March 27, 2007, a stock option to purchase 17,500 shares of common stock was granted to
Mr. Poage under the Parallel Petroleum Corporation 1997 Nonemployee Directors Stock Option
Plan. The option becomes exercisable with respect to 8,750 shares on March 27, 2008 and the
remaining 8,750 shares become exercisable on March 27, 2009. The grant date fair value of the
option award, computed in accordance with FAS 123(R), was $217,898. |
|
(5) |
|
This amount includes $7,500 for Mr. Shraders service as Chairman of the Corporate Governance
and Nominating Committee for 2004, 2005 and 2006, but paid in 2007. |
Narrative descriptions of the components of our Director compensation are included below under
the captions Cash; Stock Options; Other; 2004 Non-Employee Director Stock
Grant Plan; Stock Option Plans
1997 Nonemployee Directors Stock Option Plan and 2001
Nonemployee Directors Stock Option Plan.
-41-
In the table below, we show certain information about the outstanding equity awards held by
our non-employee Directors at December 31, 2007.
Outstanding Equity Awards at 2007 Fiscal Year-End
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Option Awards |
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Stock Awards |
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Equity |
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Equity |
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Incentive |
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Incentive |
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Plan |
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Equity |
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Plan |
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Awards: |
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Incentive |
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Awards: |
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Market or |
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Number |
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Number |
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Plan |
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Number |
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Payout |
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of |
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of |
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Awards: |
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Number |
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Market |
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of |
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Value of |
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Securities |
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Securities |
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Number |
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of |
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Value |
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Unearned |
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Unearned |
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Under- |
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Under- |
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of |
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Shares |
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of Shares |
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Shares, |
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Shares, |
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lying |
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lying |
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Securities |
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or |
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or Units |
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Units or |
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Units or |
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Unexer- |
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Unexer- |
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Under- |
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Units of |
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of |
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Other |
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Other |
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cised |
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cised |
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lying |
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Stock |
|
Stock |
|
Rights |
|
Rights |
|
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Options |
|
Options |
|
Unexer- |
|
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That |
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That |
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That |
|
That |
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(#) |
|
(#) |
|
cised |
|
Option |
|
Option |
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Have |
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Have |
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Have |
|
Have |
|
|
Exer- |
|
Unexer- |
|
Unearned |
|
Exercise |
|
Expiration |
|
Not |
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Not |
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Not |
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Not |
Name |
|
cisable |
|
cisable |
|
Options |
|
Price |
|
Date |
|
Vested |
|
Vested |
|
Vested |
|
Vested |
E.A. Nash |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
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|
0 |
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M.B. Oring |
|
|
5,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
4.58 |
|
|
|
05-02-11 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
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25,000 |
|
|
|
0 |
|
|
|
0 |
|
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$ |
4.97 |
|
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06-21-11 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
34,500 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
2.80 |
|
|
|
12-18-12 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
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0 |
|
|
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20,000 |
|
|
|
0 |
|
|
|
0 |
|
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$ |
4.61 |
|
|
|
05-07-11 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
10,000 |
|
|
|
15,000 |
(1) |
|
|
0 |
|
|
$ |
12.27 |
|
|
|
08-23-15 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
10,000 |
|
|
|
15,000 |
(1) |
|
|
0 |
|
|
$ |
12.27 |
|
|
|
08-23-15 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
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R.M. Poage |
|
|
50,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
2.61 |
|
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|
04-28-13 |
|
|
|
0 |
|
|
|
0 |
|
|
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0 |
|
|
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0 |
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|
20,000 |
|
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|
30,000 |
(2) |
|
|
0 |
|
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$ |
12.27 |
|
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08-23-15 |
|
|
|
0 |
|
|
|
0 |
|
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0 |
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0 |
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|
0 |
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17,500 |
(3) |
|
|
0 |
|
|
$ |
22.89 |
|
|
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03-27-17 |
|
|
|
0 |
|
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0 |
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|
0 |
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0 |
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J.G. Shrader |
|
|
20,000 |
|
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30,000 |
(2) |
|
|
0 |
|
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$ |
12.27 |
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08-23-15 |
|
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0 |
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0 |
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0 |
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0 |
|
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(1) |
|
These stock options become exercisable with respect to 5,000 shares on the twenty-third day
of August in each of the years 2008 through 2010. |
|
(2) |
|
These stock options become exercisable with respect to 10,000 shares on August 23, 2008 and
on the twenty-third day of August in each of the years 2009 and 2010. |
|
(3) |
|
This stock option becomes exercisable with respect to 8,750 shares on March 27, 2008, and an
additional 8,750 shares become exercisable on March 27, 2009. |
Cash
Following stockholder approval of the 2004 Non-Employee Director Stock Grant Plan in June
2004, we reduced by one-half the per meeting and annual cash fees we had been paying to our
non-employee Directors. For 2007, we paid each non-employee Director a cash fee of $750 for
attendance at each meeting of the Board of Directors and each non-employee Director who is a member
of a Board committee also received:
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|
|
$375 per meeting for service on the Compensation Committee, with the Chairman of the
Compensation Committee being entitled to receive an additional fee of $2,500 per year; |
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|
|
$375 per meeting for service on the Audit Committee, with the Chairman of the Audit
Committee being entitled to receive an additional fee of $5,000 per year and each other
Audit Committee member receiving $2,500 per year; |
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|
|
$375 per meeting for service on the Corporate Governance and Nominating Committee,
with the Chairman of the Corporate Governance and Nominating Committee being entitled
to receive an additional fee of $2,500 per year; and |
-42-
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|
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$375 per meeting for service on the Hedging and Acquisitions Committee, with the
Chairman of the Hedging and Acquisitions Committee being entitled to receive an
additional fee of $2,500 per year. |
Stock Options
Directors who are not employees of Parallel are also eligible to participate in Parallels
1997 Nonemployee Directors Stock Option Plan and the 2001 Nonemployee Directors Stock Option Plan.
You can find more information about these stock option plans under the caption Stock Option Plans
below.
Other
All Directors are reimbursed for expenses incurred in connection with attending meetings.
Parallel provides liability insurance for its Directors and officers. The cost of this
coverage for 2007 was approximately $524,000.
We do not offer non-employee Directors travel accident insurance, life insurance or a pension
or retirement plan.
2004 Non-Employee Director Stock Grant Plan
In April 2004, upon recommendation of the Boards Compensation Committee, our Directors
approved the 2004 Non-Employee Director Stock Grant Plan. The plan was later approved by our
stockholders at our annual meeting held on June 22, 2004. Directors of Parallel who are not
employees of Parallel or any of its subsidiaries are eligible to participate in the Plan. Under
this Plan, each non-employee Director is entitled to receive an annual retainer fee consisting of
shares of common stock that will be automatically granted on the first day of July in each year.
The actual number of shares received is determined by dividing $25,000 by the average daily closing
price of the common stock on the Nasdaq Global Market for the ten consecutive trading days
commencing fifteen trading days before the first day of July of each year. Historically, Directors
fees had been paid solely in cash. However, in accordance with this plan and following approval by
our stockholders, we commenced paying an annual retainer fee in July 2004 to each non-employee
Director in the form of common stock having a value of $25,000.
This plan is administrated by the Compensation Committee. Although the Compensation Committee
has authority to adopt such rules and regulations for carrying out the plan as it may deem proper
and in the best interests of Parallel, the Committees administrative functions are largely
ministerial in view of the plans explicit provisions described below, including those related to
eligibility and predetermination of the timing, pricing and amount of grants. The interpretation by
the Compensation Committee of any provision of the plan is final.
The total number of shares of common stock initially available for grant under the plan was
116,000 shares, subject to adjustment as described below. If there is a change in the common stock
by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, exchange of shares, change in corporate structure or otherwise, the
aggregate number of shares available under the plan will be appropriately adjusted in order to
avoid dilution or enlargement of the rights intended to be made available under the plan.
The Board may suspend, terminate or amend the plan at any time or from time to time in any
manner that the Board may deem appropriate; provided that, without approval of the stockholders, no
revision or amendment shall change the eligibility of Directors to receive stock grants, the number
of shares of common stock subject to any grants, or materially increase the benefits accruing to
participants under the plan, and plan provisions relating to the amount, price and timing of grants
of stock may not be amended.
Shares acquired under the plan are non-assignable and non-transferable other than by will or
the laws of descent and distribution and may not be sold, pledged, hypothecated, assigned or
transferred until the non-employee Director holding such stock ceases to be a Director, except that
the Compensation Committee may permit a transfer of stock subject to the condition that the
Compensation Committee receive evidence satisfactory to it that the
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transfer is being made for essentially estate and/or tax planning purposes or a gratuitous or donative
purpose and without consideration.
The plan will remain in effect until terminated by the Board, although no additional shares of
common stock may be issued after the 116,000 shares subject to the plan have been issued.
At April 16, 2008, 74,420 shares of common stock were available for issuance under this plan.
Stock Option Plans
1992 Stock Option Plan. In May 1992, our stockholders approved and adopted the 1992
Stock Option Plan. The 1992 Plan expired by its own terms on March 1, 2002, but remains effective
only for purposes of outstanding options. The 1992 Plan provided for granting to key employees,
including officers and Directors who were also key employees of Parallel, and Directors who were
not employees, options to purchase up to an aggregate of 750,000 shares of common stock. Options
granted under the 1992 Plan to employees are either incentive stock options or options which do not
constitute incentive stock options. Options granted to non-employee Directors are not incentive
stock options.
The 1992 Plan is administered by the Boards Compensation Committee, none of whom were
eligible to participate in the 1992 Plan, except to receive a one-time option to purchase 25,000
shares at the time he or she became a Director. The Compensation Committee selected the employees
who were granted options and established the number of shares issuable under each option and other
terms and conditions approved by the Compensation Committee. The purchase price of common stock
issued under each option is the fair market value of the common stock at the time of grant.
The 1992 Plan provided 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 became a nonemployee Director following March 1, 1992. Members of the Compensation
Committee were not eligible to participate in the 1992 Plan other than to receive a nonqualified
stock option to purchase 25,000 shares of common stock as described above.
When the 1992 Plan expired on March 1, 2002, 65,000 shares of common stock remained authorized
for issuance under the 1992 Plan. However, the 1992 Plan prohibited the grant of options after
March 1, 2002. Consequently, no additional options are available for grant under the 1992 Plan.
At April 16, 2008, options to purchase a total of 7,295 shares of common stock were
outstanding under the 1992 Plan.
1997 Nonemployee Directors Stock Option Plan. The 1997 Nonemployee 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 this plan are
not incentive stock options within the meaning of the Internal Revenue Code.
This 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 the terms and conditions of the options in accordance with the
plan. Under provisions of the plan, the option exercise price must be the fair market value of the
stock subject to the option on the grant due. Options are not transferable other than by will or
the laws of descent and distribution and are not exercisable after ten years from the date of
grant.
The purchase price of shares as to which an option is exercised must be paid in full at the
time of exercise in cash, by delivering to Parallel shares of stock having a fair market value
equal to the purchase price, or a combination of cash and stock, as established by the Compensation
Committee.
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Options may not be granted under this plan after March 27, 2007 and at December 31, 2007,
there were no shares of common stock available for future option grants under this plan.
At April 16, 2008, options to purchase a total of 97,500 shares of common stock were
outstanding under this plan.
1998 Stock Option Plan. In June 1998, our stockholders adopted the 1998 Stock Option
Plan. The 1998 Plan provides for the granting of options to purchase up to 850,000 shares of common
stock. Stock options granted under the 1998 Plan may be either incentive stock options or stock
options which do not constitute incentive stock options.
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 and 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 and common stock. The purchase price of common stock issued under each option must not be
less than the fair market value of the common stock at the time of grant. Options granted under the
1998 Plan are not transferable other than by will or the laws of descent and distribution and are
not exercisable after ten years from the date of grant.
Options may not be granted under the 1998 Plan after March 11, 2008. However, at December 31,
2007, there were no shares of common stock available for future option grants under the 1998 Stock
Option Plan.
At April 16, 2008, options to purchase a total of 43,929 shares of common stock were
outstanding under this plan.
2001 Nonemployee Directors Stock Option Plan. The 2001 Nonemployee Directors Stock
Option Plan was approved by our stockholders at the annual meeting of stockholders held in June
2001. This plan provides for granting to Directors who are not employees of Parallel options to
purchase up to an aggregate of 500,000 shares of common stock. Options granted under the plan will
not be incentive stock options within the meaning of the Internal Revenue Code.
This 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 prescribes from time
to time in accordance with the plan. Under provisions of the plan, the option exercise price must
be the fair market value of the stock subject to the option on the grant date. Options are not
transferable other than by will or the laws of descent and distribution and are not exercisable
after ten years from the date of grant.
The purchase price of shares as to which an option is exercised must be paid in full at the
time of exercise in cash, by delivering to Parallel shares of stock having a fair market value
equal to the purchase price, or a combination of cash and stock, as established by the Compensation
Committee.
Options may not be granted under this plan after May 2, 2011. However, at December 31, 2007,
no shares of common stock were available for future option grants under this plan.
At April 16, 2008, options to purchase 150,000 shares of common stock were outstanding under
this plan.
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2001 Employee Stock Option Plan. In June 2001, our Board of Directors adopted the 2001
Employee Stock Option Plan. This plan authorized the grant of options to purchase up to 200,000
shares of common stock, or less than 1.00% of our outstanding shares of common stock. Directors and
officers are not eligible to receive options under this plan. Only employees are eligible to
receive options. Stock options granted under this plan are not incentive stock options.
This plan was implemented without stockholder approval.
The 2001 Employee Stock Option Plan is administrated by the Compensation Committee of the
Board of Directors. The Compensation Committee selects the employees who are granted options and
establishes the number of shares issuable under each option.
Options granted to employees contain terms and conditions that are approved by the
Compensation Committee. The Compensation Committee is empowered and authorized, but is not
required, to provide for the exercise of options by payment in cash or by delivering to Parallel
shares of common stock having a fair market value equal to the purchase price, or any combination
of cash and common stock. The purchase price of common stock issued under each option must not be
less than the fair market value of the common stock at the time of grant. Options granted under
this plan are not transferable other than by will or the laws of descent and distribution.
The Employee Stock Option Plan will expire on June 20, 2011. However, at December 31, 2007, no
shares of common stock were available for future option grants under this plan.
At April 16, 2008, options to purchase 144,000 shares of common stock were outstanding under
this plan.
Section 401(k) Retirement Plan
Effective January 1, 2005, we adopted a retirement plan qualifying under Section 401(k) of the
Internal Revenue Code. This plan is designed to provide eligible employees with an opportunity to
save for retirement on a tax-deferred basis. A third party acts as the plans administrator and is
responsible for the day-to-day administration and operation of the plan. This plan is maintained on
a yearly basis beginning on January 1 and ending on December 31 of each year.
Each employee is eligible to participate in the plan as of the date of his or her employment.
An employee may elect to have his or her compensation reduced by a specific percentage or dollar
amount and have that amount contributed to the plan as a salary deferred contribution. A plan
participants aggregate salary deferred contributions for a plan year may not exceed certain
statutory dollar limits, which for 2007 was $15,500. In addition to the annual salary deferral
limit, employees who reach age 50 or older during a calendar year can elect to take advantage of a
catch-up salary deferral contribution which, for 2007, was $5,000. The amount deferred by a plan
participant, and any earnings on that amount, are not subject to income tax until actually
distributed to the participant.
Each year, in addition to salary deferrals made by a participant, Parallel may contribute to
the plan safe harbor contributions and discretionary matching contributions. Matching
contributions, if made, will equal a uniform percentage of a participants salary deferrals. The
Compensation Committee established a safe harbor profit sharing contribution of 3% and a
discretionary matching contribution in an amount not to exceed 3% of a participants annual salary.
Each participant will share in discretionary profit sharing contributions, if any, regardless of
the amount of service completed by the participant during the applicable plan year.
Each participant may direct the investment of his or her interest in the plan under
established investment direction procedures setting forth the investment choices available to the
participants. Each participant will be entitled to all of the participants account under the plan
upon retirement after age 65. Each participant is at all times 100% vested in amounts attributed to
the participants salary deferrals and to matching contributions and discretionary profit sharing
contributions made by Parallel. The plan contains special provisions relating to disability and
death benefits.
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Participants may borrow from their respective plan accounts, subject to the plan
administrators determination that the participant submitting an application for a loan meets the
rules and requirements set forth in the written loan program established by Parallel. Parallel has
the right to amend the plan at any time. However, no amendment may authorize or permit any part of
the plan assets to be used for purposes other than the exclusive benefit of participants or their
beneficiaries.
We make matching contributions to employee accounts in an amount equal to the contribution
made by each employee, subject to a maximum of 6% of each employees salary during any calendar
year. During 2007, we contributed an aggregate of $274,335 to the accounts of 45 employee
participants. Of this amount, $19,800 was allocated to Mr. Oldhams account; $10,500 was allocated
to Mr. Bayleys account; $10,500 was allocated to Mr. Rutherfords account; $16,500 to Mr. Tiffins
account; and $11,400 to Mr. Fosters account.
Certain Related Person Transactions
During 2007, Cambridge Production, Inc., a corporation owned by Thomas R. Cambridge, our
former Chairman of the Board, served as operator of two wells on oil and natural gas leases in
which we acquired a working interest in 1984. 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 natural gas contracts, joint interest billings, revenue distribution, making various
regulatory filings, reporting to working interest owners and other matters. During 2007, Cambridge
Production billed us approximately $27,000 for our pro rata share of lease operating expenses. The
largest amount we owed Cambridge Production at any one time during 2007 was approximately $6,400.
As of December 31, 2007, approximately $750 was owed by us to Cambridge Production for these
expenses. Our pro rata share of oil and natural gas sales during 2007 from the wells operated by
Cambridge Production was approximately $65,000. Cambridge Productions billings to us are made
monthly on the same basis as all other working interest owners in the wells.
Cambridge Partnership, Ltd., a limited partnership controlled by Mr. Cambridge, acquired an
undivided working interest in 1999 from us in an oil and natural gas prospect located in south
Texas. The interest was acquired on the same terms as all other unaffiliated working interest
owners. Since then, Cambridge Partnership, Ltd. has participated with us in the drilling and
development of this prospect. Cambridge Partnership, Ltd. has participated in these operations
under standard form operating agreements on the same or similar terms afforded by us to
nonaffiliated third parties. Although we are not the operator of this project, we invoice Cambridge
Partnership, Ltd., on a monthly basis, without interest, for its pro rata share of operating
expenses. During 2007, we billed Cambridge Partnership, Ltd. approximately $1,300 for its
proportionate share of lease operating expenses incurred on properties we administer, and Cambridge
Partnership, Ltd. paid us approximately $1,600 for its proportionate share of lease operating
expenses, which included approximately $285 attributable to expenses billed to Cambridge
Partnership, Ltd. in 2006. The largest amount owed to us by Cambridge Partnership, Ltd. at any one
time during 2007 for its share of lease operating expenses was approximately $300. At December 31,
2007, no amount was owed to us by Cambridge Partnership, Ltd. for these expenses. During 2007, we
disbursed approximately $4,600 to Cambridge Partnership, Ltd. in payment of revenues attributable
to its pro rata share of the proceeds from sales of oil and natural gas produced from properties in
which we and Cambridge Partnership, Ltd. owned interests. We and Cambridge Partnership, Ltd. sold
our interests in this project in June 2007 to an unaffiliated third party and we distributed
approximately $10,000 to Cambridge Partnership, Ltd., its pro rata share of the sales proceeds.
Cambridge Production, Inc. maintains an office in Amarillo, Texas from which Mr. Cambridge
performed his duties and services as Chairman of the Board and as geological consultant to us until
his retirement on June 26, 2007. Prior to his retirement, we reimbursed Cambridge Production, Inc.
$3,000 per month for office and administrative expenses incurred on our behalf. During 2007 we
reimbursed Cambridge Production, Inc. a total of $18,000.
In December 2001, and prior to his employment with us, Donald E. Tiffin, our Chief Operating
Officer, received from an unaffiliated third party a 3% working interest in our Diamond M project
in Scurry County, Texas for services rendered in connection with assembling the project. In August
2002, shortly after his employment with us, and due to the personal financial exposure in the
Diamond M project and to prevent the interest from being acquired by a third party, Mr. Tiffin
assigned two-thirds of his ownership interest in the project to us at no cost,
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leaving him with a 1% working interest. We acquired our initial interest in the Diamond M
Project from the same third party in December 2001, but did not become operator of the project
until March 1, 2003. As with other nonaffiliated interest owners, we invoice Mr. Tiffin on a
monthly basis, without interest, for his share of drilling, development and lease operating
expenses. During 2007, we billed Mr. Tiffin a total of approximately $45,000 for his proportionate
share of capital expenditures and lease operating expenses, and Mr. Tiffin paid us approximately
$47,000 for these drilling and development expenses, which included approximately $8,000
attributable to expenses billed to Mr. Tiffin in 2006. During 2007, we disbursed to Mr. Tiffin
approximately $65,000 in oil and natural gas revenues related to his interest in this project. The
largest aggregate amount outstanding and owed to us by Mr. Tiffin at any one time during 2007 was
approximately $11,000. At December 31, 2007, Mr. Tiffin owed us approximately $5,000.
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.
Procedures for Reviewing Certain Transactions
We have adopted a written policy for the review, approval or ratification of related party
transactions. All of our Directors, officers and employees are subject to the policy. Under this
policy, the Audit Committee reviews all related party transactions for potential conflicts of
interest situations. Generally, our policy defines a related party transaction as a transaction
in which we are a participant and the amount involved exceeds $10,000, and in which a related party
has an interest. A related party is:
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a Director or officer of Parallel or a nominee to become a Director; |
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an owner of more than 5% of our outstanding common stock; |
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certain family members of any of the above persons; and |
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any entity in which any of the above persons is employed or is a partner or
principal or in which such person has a 5% or greater ownership interest. |
Approval Procedures
Before entering into a related party transaction, the related party or the department within
Parallel responsible for the potential transaction must notify the Audit Committee of the facts and
circumstances of the proposed transaction, including:
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the related partys relationship to Parallel and interest in the transaction; |
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the material terms of the proposed transaction; |
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the benefits to Parallel of the proposed transaction; |
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the availability of other sources of comparable properties or services; and |
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whether the proposed transaction is on terms comparable to terms available to an
unrelated third party or to employees generally. |
The Audit Committee will then consider all of the relevant facts and circumstances available
to it, including the matters described above and, if applicable, the impact on a Directors
independence. No member of the Audit Committee is permitted to participate in any review,
consideration or approval of any related party transaction if such member or any of his or her
immediate family members is the related party. After review, the Audit Committee may approve,
modify or disapprove the proposed transaction. The Audit Committee will approve only those related
party transactions that are in, or are not inconsistent with, the best interests of Parallel and
its stockholders.
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Ratification Procedures
If an officer or Director of Parallel becomes aware of a related party transaction that has
not been previously approved or ratified by the Audit Committee then, if the transaction is pending
or ongoing, the transaction must be submitted to the Audit Committee and the Audit Committee will
consider the matters described above. Based on the conclusions reached, the Audit Committee will
evaluate all options, including ratification, amendment or termination of the related party
transaction. If the transaction is completed, the Audit Committee will evaluate the transaction,
taking into account the same factors as described above, to determine if rescission of the
transaction or any disciplinary action is appropriate, and will request that we evaluate our
controls and procedures to determine the reason the transaction was not submitted to the Audit
Committee for prior approval and whether any changes to the procedures are recommended.
PROPOSAL #3 RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee, subject to ratification by the stockholders at the Annual Meeting, has
reappointed the firm of BDO Seidman, LLP as independent auditors for the fiscal year ending
December 31, 2008. In making this appointment, the Audit Committee considered the fact that BDO
Seidman has not provided any non-audit services. If the stockholders do not ratify this
appointment, the Audit Committee may consider other independent public accountants or continue the
appointment of BDO Seidman, LLP. Stockholder ratification of the appointment is not required under
the laws of the State of Delaware, but the Board believes it is important to allow the stockholders
to vote on this proposal.
Representatives of BDO Seidman, 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 BDO
Seidman, LLP as Parallels independent auditors for the fiscal year ending December 31, 2008.
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, 2007 as filed with the Securities and Exchange Commission upon written request
to the Manager of Investor Relations, Parallel Petroleum Corporation, 1004 N. Big Spring, Suite
400, Midland, Texas 79701.
STOCKHOLDER PROPOSALS
Stockholders desiring to submit proposals under SEC Rule 14a-8 for inclusion in our proxy
statement and form of proxy for the 2009 annual meeting must submit proposals to us at our
principal executive office on or before January 26, 2009 and must satisfy the conditions
established by the SEC for such proposals.
Proposals that stockholders wish to present at the 2009 annual meeting (but not included in
the related proxy statement) must be received by Parallel within the time periods established by
our bylaws, and must satisfy the other conditions for such proposals set forth in our bylaws. These
requirements are separate and apart from and in addition to the requirements of the SEC that a
stockholder must meet to have a stockholder proposal included in our proxy statement under SEC Rule
14a-8. To be timely, a stockholders notice must be received at our offices not less than 60 nor
more than 90 days prior to the meeting. However, if less than 70 days notice or prior public
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disclosure of the date of the 2009 annual meeting is given, notices of matters to be submitted at
the annual meeting, including
nominations for Directors, must be received not later than 10 days after the day on which notice of
the date of the annual meeting was mailed or public disclosure was made. If we do not timely
receive notice of a matter to be brought before the meeting, such matter may be excluded from
consideration at the meeting. Stockholders are advised to review our bylaws which contain these
advance notice requirements.
Proposals should be sent to:
Secretary of Parallel Petroleum Corporation
1004 N. Big Spring, Suite 400
Midland, Texas 79701
The use of certified mail, return receipt requested, is suggested.
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Appendix A
PARALLEL PETROLEUM CORPORATION
2008 LONG-TERM INCENTIVE PLAN
The Parallel Petroleum Corporation 2008 Long-Term Incentive Plan (this Plan) was adopted by
the Board of Directors of Parallel Petroleum Corporation, a Delaware corporation (the Company),
effective as of May 28, 2008, subject to approval by the Companys stockholders.
ARTICLE 1
PURPOSE
The purpose of this Plan is to attract and retain the services of key Employees, key
Consultants and Outside Directors of the Company and its Subsidiaries and to provide such persons
with a proprietary interest in the Company through the granting of incentive stock options,
nonqualified stock options, restricted stock, performance awards and other awards, whether granted
singly or in combination, that will
(a) increase the interest of such persons in the Companys welfare;
(b) furnish an incentive to such persons to continue their services for the Company;
and
(c) provide a means through which the Company may attract able persons as Employees,
Consultants and Outside Directors.
With respect to Reporting Participants, the Plan and all transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 (the 1934 Act). To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted
by law and deemed advisable by the Committee.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, unless the context requires otherwise, the following terms shall
have the meanings indicated:
2.1 Award means the grant of any Incentive Stock Option, Nonqualified Stock Option,
Restricted Stock, Performance Award or Other Award, whether granted singly or in combination (each
individually referred to herein as an Incentive).
2.2 Award Agreement means a written agreement between a Participant and the Company which
sets out the terms of the grant of an Award.
2.3 Award Period means the period set forth in the Award Agreement during which one or more
Incentives granted under an Award may be exercised.
2.4 Board means the Board of Directors of the Company.
2.5 Change in Control means the occurrence of any of the following:
(a) Any Person (as defined below), other than (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding stock under an employee benefit plan
of the Company or any of its Affiliates (as defined below), (iii) an underwriter
temporarily holding stock pursuant to an offering of such stock, or (iv) a corporation
owned, directly or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, acquires ownership of stock of the
Company that, together with stock held by such Person, constitutes more than 50% of the
total fair market value or total voting power of the Companys stock. However, if any
Person is considered to own more than 50% of the total fair market value or total voting
power of the Companys stock, the acquisition of additional stock by the same Person is not
considered to be a Change in Control;
(b) During any 12-month period, a majority of members of the Board is replaced by
directors whose appointment or election is not endorsed by a majority of the Board before
the date of the appointment or election; provided, however, that any such director shall not
be considered to be endorsed by the Board if his or her initial assumption of office occurs
as a result of an actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) There is consummated a merger or consolidation of the Company or any direct or
indirect subsidiary of the Company with any other corporation, except if:
(i) the merger or consolidation would result in the voting stock of the Company
outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting stock of the surviving entity or any
parent thereof) more than 70% of the total voting power of the stock of the Company
or such surviving entity or any parent thereof outstanding immediately after such
merger or consolidation; or
(ii) the merger or consolidation is effected to implement a recapitalization of
the Company (or similar transaction) in which no Person is or becomes the beneficial
owner, directly or indirectly, during the 12-month period ending on the date of the
most recent acquisition by such Person, of stock of the Company (not including in
the stock beneficially owned by such Person any stock acquired directly from the
Company or its Affiliates other than in connection with the acquisition by the
Company or its Affiliates of a business) representing 30% or more of the total
voting power of the Companys then outstanding stock; or
(d) Any Person acquires (or has acquired during the 12-month period ending on the date
of the most recent acquisition by such Person) assets of the Company that have a total gross
fair market value equal to at least 40% of the total gross fair market value of all of the
Companys assets immediately before such acquisition or acquisitions. However, there is no
Change in Control when there is such a sale or transfer to (i) a stockholder of the Company
(immediately before the asset transfer) in exchange for or with respect to the Companys
then outstanding stock; (ii) an entity, at least 50% of the total value or voting power of
the stock of which is owned, directly or indirectly, by the Company; (iii) a Person that
owns directly or indirectly, at least 50% of the total value or voting power of the
outstanding stock of the Company; or (iv) an entity, at least 50% of the total value or
voting power of the stock of which are owned by a Person that owns, directly or indirectly,
at least 50% of the total value or voting power of the outstanding stock of the Company.
For purposes of this Section 2.5:
2
(a) Person shall have the meaning given in Section 7701(a)(1) of the Code. Person
shall include more than one Person acting as a group as defined by the Final Treasury
Regulations issued under Section 409A of the Code.
(b) Affiliate shall have the meaning set forth in Rule 12b-2 promulgated under
Section 12 of the Securities Exchange Act of 1934, as amended.
The provisions of this Section 2.5 shall be interpreted in accordance with the requirements of
the Final Treasury Regulations under Code Section 409A, it being the intent of the parties that
this Section 2.5 shall be in compliance with the requirements of said Code Section and said
Regulations.
2.6 Code means the Internal Revenue Code of 1986, as amended.
2.7 Committee means the committee appointed or designated by the Board to administer the
Plan in accordance with Article 3 of this Plan.
2.8 Common Stock means the common stock, par value $0.01 per share, which the Company is
currently authorized to issue or may in the future be authorized to issue, or any securities into
which or for which the common stock of the Company may be converted or exchanged, as the case may
be, pursuant to the terms of this Plan.
2.9 Company means Parallel Petroleum Corporation, a Delaware corporation, and any successor
entity.
2.10 Consultant means any natural person, who is not an Employee, rendering bona fide
services to the Company or a Subsidiary, with compensation, pursuant to a written independent
contractor agreement between such person and the Company or a Subsidiary, provided that such
services are not rendered in connection with the offer or sale of securities in a capital raising
transaction and do not directly or indirectly promote or maintain a market for the Companys
securities.
2.11 Corporation means any entity that (i) is defined as a corporation under Section 7701 of
the Code and (ii) is the Company or is in an unbroken chain of corporations (other than the
Company) beginning with the Company, if each of the corporations other than the last corporation in
the unbroken chain owns stock possessing a majority of the total combined voting power of all
classes of stock in one of the other corporations in the chain. For purposes of clause (ii)
hereof, an entity shall be treated as a corporation if it satisfies the definition of a
corporation under Section 7701 of the Code.
2.12 Date of Grant means the effective date on which an Award is made to a Participant as
set forth in the applicable Award Agreement; provided, however, that solely for purposes of Section
16 of the 1934 Act and the rules and regulations promulgated thereunder, the Date of Grant of an
Award shall be the date of stockholder approval of the Plan if such date is later than the
effective date of such Award as set forth in the Award Agreement. The determination of Fair Market
Value shall, where applicable, be in compliance with Section 409A of the Code.
2.13 Employee means a common law employee (as defined in accordance with the Regulations and
Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary
of the Company.
2.14 Executive Officer means an officer of the Company or a Subsidiary subject to Section 16
of the 1934 Act or a covered employee as defined in Section 162(m)(3) of the Code.
2.15 Fair Market Value means, as of a particular date, (a) if the shares of Common Stock are
listed on the Nasdaq Global Market, the closing sales price per share of Common Stock on the Nasdaq
Global
3
Market on that date, or, if there shall have been no such sale so reported on that date, on
the last preceding date on which such a sale was so reported, (b) if the shares of Common Stock are
listed on any other established national securities exchange, the closing sales price per share of
Common Stock on the consolidated transaction reporting system for the principal securities exchange
for the Common Stock on that date, or, if there shall have been no such sale so reported on that
date, on the last preceding date on which such a sale was so reported, (c) if the shares of Common
Stock are not so listed but are quoted on the Nasdaq National Market System, the closing sales
price per share of Common Stock on the Nasdaq National Market System on that date, or, if there
shall have been no such sale so reported on that date, on the last preceding date on which such a
sale was so reported, (d) if the Common Stock is not so listed or quoted, the mean between the
closing bid and asked price on that date, or, if there are no quotations available for such date,
on the last preceding date on which such quotations shall be available, as reported by Nasdaq, or,
if not reported by Nasdaq, by the National Quotation Bureau, Inc., or (e) if none of the above is
applicable, such amount as may be determined by the Committee (acting on the advice of an
Independent Third Party, should the Committee elect in its sole discretion to utilize an
Independent Third Party for this purpose), in good faith, to be the fair market value per share of
Common Stock. Notwithstanding the foregoing provisions of this Section 2.15, to the extent an
Award is intended to be in compliance with some or all of the requirements of Section 409A of the
Code, Fair Market Value for purposes of the Plan and any Award shall be the definition provided
for under Section 409A of the Code and Section 1.409A-1(b)(5)(iv) of the regulations issued
thereunder or any successor provision thereto.
2.16 Independent Third Party means an individual or entity independent of the Company having
experience in providing investment banking or similar appraisal or valuation services and with
expertise generally in the valuation of securities or other property for purposes of this Plan.
The Committee may utilize one or more Independent Third Parties.
2.17 Incentive is defined in Section 2.1 hereof.
2.18 Incentive Stock Option means an incentive stock option within the meaning of Section
422 of the Code, granted pursuant to this Plan.
2.19 Nonqualified Stock Option means a nonqualified stock option, granted pursuant to this
Plan, which is not an Incentive Stock Option.
2.20 Option Price means the price which must be paid by a Participant upon exercise of a
Stock Option to purchase a share of Common Stock.
2.21 Other Award means an Award issued pursuant to Section 6.6 hereof.
2.22 Outside Director means a director of the Company who is not an Employee or a
Consultant.
2.23 Participant means an Employee, Consultant or Outside Director of the Company or a
Subsidiary to whom an Award is granted under this Plan.
2.24 Plan means this Parallel Petroleum Corporation 2008 Long-Term Incentive Plan, as
amended from time to time.
2.25 Performance Award means an Award hereunder of cash or shares of Common Stock pursuant
to Section 6.5 hereof.
2.26 Performance Goal means any of the goals set forth in Section 6.7 hereof.
4
2.27 Reporting Participant means a Participant who is subject to the reporting requirements
of Section 16 of the 1934 Act.
2.28 Restricted Stock means shares of Common Stock issued or transferred to a Participant
pursuant to Section 6.4 of this Plan which are subject to restrictions or limitations set
forth in this Plan and in the related Award Agreement.
2.29 Retirement means any Termination of Service solely due to retirement upon or after
attainment of age sixty-five (65), or permitted early retirement as determined by the Committee.
2.30 Stock Option means a Nonqualified Stock Option or an Incentive Stock Option.
2.31 Subsidiary means (i) any corporation in an unbroken chain of corporations beginning
with the Company, if each of the corporations other than the last corporation in the unbroken chain
owns stock possessing a majority of the total combined voting power of all classes of stock in one
of the other corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general partnership interest and a
majority of the limited partnership interests entitled to vote on the removal and replacement of
the general partner, and (iii) any partnership or limited liability company, if the partners or
members thereof are composed only of the Company, any corporation listed in item (i) above or any
limited partnership listed in item (ii) above. Subsidiaries means more than one of any such
corporations, limited partnerships, partnerships or limited liability companies.
2.32 Termination of Service occurs when a Participant who is (i) an Employee of the Company
or any Subsidiary ceases to serve as an Employee of the Company and its Subsidiaries, for any
reason; (ii) an Outside Director of the Company or a Subsidiary ceases to serve as a director of
the Company and its Subsidiaries for any reason; or (iii) a Consultant of the Company or a
Subsidiary ceases to serve as a Consultant of the Company and its Subsidiaries for any reason.
Except as may be necessary or desirable to comply with applicable federal or state law, a
Termination of Service shall not be deemed to have occurred when a Participant who is an Employee
becomes an Outside Director or Consultant or vice versa. If, however, a Participant who is an
Employee and who has an Incentive Stock Option ceases to be an Employee but does not suffer a
Termination of Service, and if that Participant does not exercise the Incentive Stock Option within
the time required under Section 422 of the Code upon ceasing to be an Employee, the Incentive Stock
Option shall thereafter become a Nonqualified Stock Option. Notwithstanding the foregoing
provisions of this Section 2.32, if an Award issued under this Plan is subject to Section
409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply
with the requirements of Section 409A of the Code, the definition of Termination of Service for
purposes of such Award shall be the definition of separation from service provided for under
Section 409A of the Code and the regulations or other guidance issued thereunder.
2.33 Total and Permanent Disability means a Participant is qualified for long-term
disability benefits under the Companys or Subsidiarys disability plan or insurance policy; or, if
no such plan or policy is then in existence or if the Participant is not eligible to participate in
such plan or policy, that the Participant, because of a physical or mental condition resulting from
bodily injury, disease, or mental disorder, is unable to perform his or her duties of employment
for a period of six (6) continuous months, as determined in good faith by the Committee, based upon
medical reports or other evidence satisfactory to the Committee; provided that,
with respect to any Incentive Stock Option, Total and Permanent Disability shall have the
meaning given it
under the rules governing Incentive Stock Options under the Code. Notwithstanding the foregoing
provisions of this Section 2.33, if an Award issued under the Plan is subject to Section
409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply
with the requirements of Section 409A of the Code, the definition of Total and Permanent
Disability for purposes of such Award shall be the definition of disability provided for under
Section 409A of the Code and the regulations or other guidance issued thereunder.
5
ARTICLE 3
ADMINISTRATION
Subject to the terms of this Article 3, the Plan shall be administered by the Board or
such committee of the Board as is designated by the Board to administer the Plan (the Committee).
The Committee shall consist of not fewer than two persons. Any member of the Committee may be
removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in
the membership of the Committee may be filled by appointment by the Board. At any time there is no
Committee to administer the Plan, any references in this Plan to the Committee shall be deemed to
refer to the Board.
If necessary to satisfy the requirements of Section 162(m) of the Code and/or Rule 16b-3
promulgated under the 1934 Act, membership on the Committee shall be limited to those members of
the Board who are outside directors under Section 162(m) of the Code and/or non-employee
directors as defined in Rule 16b-3 promulgated under the 1934 Act. The Committee shall select one
of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and
the act of a majority of the members of the Committee present at a meeting at which a quorum is
present shall be the act of the Committee.
The Committee shall determine and designate from time to time the eligible persons to whom
Awards will be granted and shall set forth in each related Award Agreement, where applicable, the
Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance
requirements, as are approved by the Committee, but not inconsistent with the Plan. The Committee
shall determine whether an Award shall include one type of Incentive or two or more Incentives
granted in combination and shall determine, where applicable, whether the requirements of Section
162(m) of the Code shall apply to an Award to be granted to an Executive Officer. Although the
members of the Committee shall be eligible to receive Awards, all decisions with respect to any
Award, and the terms and conditions thereof, to be granted under the Plan to any member of the
Committee shall be made solely and exclusively by the other members of the Committee, or if such
member is the only member of the Committee, by the Board.
The Committee, in its sole discretion, shall (i) interpret the Plan, (ii) prescribe, amend and
rescind any rules and regulations necessary or appropriate for the administration of the Plan,
(iii) establish performance goals for an Award and certify the extent of their achievement, and
(iv) make such other determinations or certifications and take such other action as it deems
necessary or advisable in the administration of the Plan. Any interpretation, determination or
other action made or taken by the Committee shall be final, binding, and conclusive on all
interested parties.
The Committee may delegate to officers of the Company, pursuant to a written delegation, the
authority to perform specified functions under the Plan. Any actions taken by any officers of the
Company pursuant to such written delegation of authority shall be deemed to have been taken by the
Committee. Notwithstanding the foregoing, to the extent necessary to satisfy the requirements of
Section 162(m) of the Code and/or Rule 16b-3 promulgated under the 1934 Act, any function relating
to a Reporting Participant or a covered employee (as defined in Section 162(m) of the Code) shall
be performed solely by the Committee.
With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3
promulgated under the 1934 Act, Section 422 of the Code, Section 162(m) of the Code, the rules of
any exchange or inter-dealer quotation system upon which the Companys securities are listed or
quoted, or any other applicable law, rule or restriction (collectively, applicable law), to the
extent that any such restrictions are no longer required by applicable law, the Committee shall
have the sole discretion and authority to grant Awards that are not subject to such mandated
restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards.
6
ARTICLE 4
ELIGIBILITY
Any Employee (including an Employee who is also a director or an officer), Consultant or
Outside Director of the Company whose judgment, initiative and efforts contributed or may be
expected to contribute to the successful performance of the Company is eligible to participate in
the Plan; provided that only Employees of a corporation shall be eligible to receive Incentive
Stock Options. The Committee, upon its own action, may grant, but shall not be required to grant,
an Award to any Employee, Consultant or Outside Director of the Company or any Subsidiary. Awards
may be granted by the Committee at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and may include or exclude previous
Participants, as the Committee shall determine. Except as required by this Plan, Awards granted at
different times need not contain similar provisions. The Committees determinations under the Plan
(including, without limitation, determinations of which Employees, Consultants or Outside
Directors, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be uniform and may be made
by it selectively among Participants who receive, or are eligible to receive, Awards under the
Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
5.1 Number Available for Awards. Subject to adjustment as provided in Articles 11 and
12, the maximum number of shares of Common Stock that may be delivered pursuant to Awards
granted under the Plan is 2,000,000 shares, of which 2,000,000 shares may be delivered pursuant to
Incentive Stock Options. Subject to adjustment pursuant to Articles 11 and 12, the maximum
number of shares of Common Stock with respect to which Stock Options may be granted to any
Participant during any calendar year is 2,000,000 shares of Common Stock. Shares to be issued may
be made available from authorized but unissued Common Stock, Common Stock held by the Company in
its treasury, or Common Stock purchased by the Company on the open market or otherwise. During the
term of this Plan, the Company will at all times reserve and keep available the number of shares of
Common Stock that shall be sufficient to satisfy the requirements of this Plan.
5.2 Reuse of Shares. To the extent that any Award under this Plan shall be forfeited, shall
expire or be canceled, in whole or in part, then the number of shares of Common Stock covered by
the Award or stock option so forfeited, expired or canceled may again be awarded pursuant to the
provisions of this Plan. If previously acquired shares of Common Stock are delivered to the
Company in full or partial payment of the exercise price for the exercise of a Stock Option granted
under this Plan, the number of shares of Common Stock available for future Awards under this Plan
shall be reduced only by the net number of shares of Common Stock issued upon the exercise of the
Stock Option. Previously acquired shares of Common Stock surrendered to the Company for payment of
applicable employment tax withholding or other tax payment due with respect to any Award may again
be awarded pursuant to the provisions of this Plan. Awards that may be satisfied either by the
issuance of shares of Common Stock or by cash or other consideration shall be counted against the
maximum number of shares of Common Stock that may be issued under this Plan only during the
period that the Award is outstanding or to the extent the Award is ultimately satisfied by the
issuance of shares of Common Stock. Awards will not reduce the number of shares of Common Stock
that may be issued pursuant to this Plan if the settlement of the Award will not require the
issuance of shares of Common Stock. Notwithstanding any provisions of this Plan to the contrary,
only shares forfeited back to the Company, shares canceled on account of termination, expiration or
lapse of an Award, shares surrendered in payment of the exercise price of an option or shares
withheld for payment of applicable employment taxes and/or withholding obligations resulting from
the exercise of an option shall again be available for grant of Incentive Stock Options under the
Plan, but shall not increase the maximum number of shares described in Section 5.1 above
as the maximum number of shares of Common Stock that may be delivered pursuant to Incentive Stock
Options.
7
ARTICLE 6
GRANT OF AWARDS
6.1 In General.
(a) The grant of an Award shall be authorized by the Committee and shall be evidenced
by an Award Agreement setting forth the Incentive or Incentives being granted, the total
number of shares of Common Stock subject to the Incentive(s), the Option Price (if
applicable), the Award Period, the Date of Grant, and such other terms, provisions,
limitations, and performance objectives, as are approved by the Committee, but (i) not
inconsistent with the Plan, (ii) to the extent an Award issued under the Plan is subject to
Section 409A of the Code, in compliance with the applicable requirements of Section 409A of
the Code and the regulations or other guidance issued thereunder and (iii) to the extent the
Committee determines that an Award shall comply with the requirements of Section 162(m) of
the Code, in compliance with the applicable requirements of Section 162(m) of the Code and
the regulations and other guidance issued thereunder. The Company shall execute an Award
Agreement with a Participant after the Committee approves the issuance of an Award. Any
Award granted pursuant to this Plan must be granted within ten (10) years of the date of
adoption of this Plan. The Plan shall be submitted to the Companys stockholders for
approval; however, the Committee may grant Awards under the Plan prior to the time of
stockholder approval. Any such Award granted prior to such stockholder approval shall be
made subject to such stockholder approval. The grant of an Award to a Participant shall not
be deemed either to entitle the Participant to, or to disqualify the Participant from,
receipt of any other Award under the Plan.
(b) If the Committee establishes a purchase price for an Award, the Participant must
accept such Award within a period of thirty (30) days (or such shorter period as the
Committee may specify) after the Date of Grant by executing the applicable Award Agreement
and paying such purchase price.
(c) Any Award under this Plan that is settled in whole or in part in cash on a deferred
basis may provide for interest equivalents to be credited with respect to such cash payment.
Interest equivalents may be compounded and shall be paid upon such terms and conditions as
may be specified by the grant.
6.2 Option Price. The Option Price for any share of Common Stock which may be purchased under
a Nonqualified Stock Option for any share of Common Stock may be equal to or greater than the Fair
Market Value of the share on the Date of Grant. The Option Price for any share of Common Stock
which may be purchased under an Incentive Stock Option must be at least equal to the Fair Market
Value of the share on the Date of Grant; if an Incentive Stock Option is granted to an Employee who
owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more
than ten percent (10%) of the combined
voting power of all classes of stock of the Company (or any parent or Subsidiary), the Option
Price shall be at least 110% of the Fair Market Value of the Common Stock on the Date of Grant.
6.3 Maximum ISO Grants. The Committee may not grant Incentive Stock Options under the Plan to
any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant)
of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of
the Company and its Subsidiaries) are exercisable for the first time by such Employee during any
calendar year to exceed $100,000. To the extent any Stock Option granted under this Plan which is
designated as an Incentive Stock Option exceeds this limit or otherwise fails to qualify as an
Incentive Stock Option, such Stock Option (or any such portion thereof) shall be a Nonqualified
Stock Option. In such case, the Committee shall designate which stock will be treated as Incentive
Stock Option stock by causing the issuance of a separate
stock certificate and identifying such
stock as Incentive Stock Option stock on the Companys stock transfer records.
8
6.4 Restricted Stock. If Restricted Stock is granted to or received by a Participant under an
Award (including a Stock Option), the Committee shall set forth in the related Award Agreement: (i)
the number of shares of Common Stock awarded, (ii) the price, if any, to be paid by the Participant
for such Restricted Stock and the method of payment of the price, (iii) the time or times within
which such Award may be subject to forfeiture, (iv) specified Performance Goals of the Company, a
Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, which
the Committee determines must be met in order to remove any restrictions (including vesting) on
such Award, and (v) all other terms, limitations, restrictions and conditions of the Restricted
Stock, which shall be consistent with this Plan, to the extent the Committee determines that an
Award shall comply with the requirements of Section 162(m) of the Code, in compliance with the
requirements of Section 162(m) of the Code and the regulations issued thereunder, and to the
extent Restricted Stock granted under the Plan is subject to Section 409A of the Code, in
compliance with the applicable requirements of Section 409A of the Code and the regulations or
other guidance issued thereunder. The provisions of Restricted Stock need not be the same with
respect to each Participant.
(a) Legend on Shares. Each Participant who is awarded or receives Restricted Stock
shall be issued a stock certificate or certificates in respect of such shares of Common
Stock. Such certificate(s) shall be registered in the name of the Participant, and shall
bear an appropriate legend referring to the terms, conditions and restrictions applicable to
such Restricted Stock, substantially as provided in Section 15.9 hereof.
(b) Restrictions and Conditions. Shares of Restricted Stock shall be subject to the
following restrictions and conditions:
(i) Subject to the other provisions of this Plan and the terms of the
particular Award Agreements, during such period as may be determined by the
Committee commencing on the Date of Grant or the date of exercise of an Award (the
Restriction Period), the Participant shall not be permitted to sell, transfer,
pledge or assign shares of Restricted Stock. Except for these limitations, the
Committee may in its sole discretion, remove any or all of the restrictions on such
Restricted Stock whenever it may determine that, by reason of changes in applicable
laws or other changes in circumstances arising after the date of the Award, such
action is appropriate.
(ii) Except as provided in sub-paragraph (i) above or in the applicable Award
Agreement, the Participant shall have, with respect to his or her Restricted Stock,
all of the rights of a stockholder of the Company, including the right to vote the
shares, and the right to receive any dividends thereon. Certificates for shares of
Common Stock free of restriction under this Plan shall be delivered to the
Participant promptly after, and only after, the
Restriction Period shall expire without forfeiture in respect of such shares of
Common Stock or after any other restrictions imposed on such shares of Common
Stock by the applicable Award Agreement or other agreement have expired.
Certificates for the shares of Common Stock forfeited under the provisions of the
Plan and the applicable Award Agreement shall be promptly returned to the Company by
the forfeiting Participant. Each Award Agreement shall require that each
Participant, in connection with the issuance of a certificate for Restricted Stock,
shall endorse such certificate in blank or execute a stock power in form
satisfactory to the Company in blank and deliver such certificate and executed stock
power to the Company.
(iii) The Restriction Period of Restricted Stock shall commence on the Date of
Grant or the date of exercise of an Award, as specified in the Award Agreement, and,
subject to Article 12 of this Plan, unless otherwise established by the
Committee in the Award
9
Agreement setting forth the terms of the Restricted Stock,
shall expire upon satisfaction of the conditions set forth in the Award Agreement,
which such conditions may provide for vesting based on such Performance Goals as may
be determined by the Committee in its sole discretion.
(iv) Except as otherwise provided in the particular Award Agreement, upon
Termination of Service for any reason during the Restriction Period, the nonvested
shares of Restricted Stock shall be forfeited by the Participant. If a Participant
has paid any consideration to the Company for such forfeited Restricted Stock, the
Committee shall specify in the Award Agreement that either (i) the Company shall be
obligated to, or (ii) the Company may, in its sole discretion, elect to, pay to the
Participant, as soon as practicable after the event causing forfeiture, in cash, an
amount equal to the lesser of the total consideration paid by the Participant for
such forfeited shares or the Fair Market Value of such forfeited shares as of the
date of Termination of Service, as the Committee, in its sole discretion shall
select. Upon any forfeiture, all rights of a Participant with respect to the
forfeited shares of the Restricted Stock shall cease and terminate, without any
further obligation on the part of the Company.
6.5 Performance Awards.
(a) The Committee may grant Performance Awards to one or more Participants. The terms
and conditions of Performance Awards shall be specified at the time of the grant and may
include provisions establishing the performance period, the Performance Goals to be achieved
during a performance period, and the maximum or minimum settlement values, provided that
such terms and conditions are (i) not inconsistent with the Plan and (ii) to the extent a
Performance Award issued under the Plan is subject to Section 409A of the Code, in
compliance with the applicable requirements of Section 409A of the Code and the regulations
or other guidance issued thereunder. If the Performance Award is to be in shares of Common
Stock, the Performance Awards may provide for the issuance of the shares of Common Stock at
the time of the grant of the Performance Award or at the time of the certification by the
Committee that the Performance Goals for the performance period have been met; provided,
however, if shares of Common Stock are issued at the time of the grant of the Performance
Award and if, at the end of the performance period, the Performance Goals are not certified
by the Committee to have been fully satisfied, then, notwithstanding any other provisions of
this Plan to the contrary, the Common Stock shall be forfeited in accordance with the terms
of the grant to the extent the Committee determines that the Performance Goals were not met.
The forfeiture of shares of Common Stock issued at the time of the grant of the Performance
Award due to failure to achieve the established Performance Goals shall be separate from and
in addition to any other restrictions provided for in this Plan that may be applicable to
such shares of Common Stock. Each Performance Award granted to one or more Participants
shall have its own terms and conditions.
To the extent the Committee determines that a Performance Award shall comply with the
requirements of Section 162(m) of the Code and if it is determined to be necessary in order
to satisfy Section 162(m) of the Code, at the time of the grant of a Performance Award
(other than a Stock Option) and to the extent permitted under Section 162(m) of the Code and
the regulations issued thereunder, the Committee shall provide for the manner in which the
Performance Goals shall be reduced to take into account the negative effect on the
achievement of specified levels of the Performance Goals which may result from enumerated
corporate transactions, extraordinary events, accounting changes and other similar
occurrences which were unanticipated at the time the Performance Goal was initially
established. In no event, however, may the Committee increase the amount earned under such
a Performance Award, unless the reduction in the Performance Goals would reduce or eliminate
the amount to be earned under the Performance Award and the Committee determines not to make
such reduction or elimination.
10
With respect to a Performance Award that is not intended to satisfy the requirements
of Code Section 162(m), if the Committee determines, in its sole discretion, that the
established performance measures or objectives are no longer suitable because of a change
in the Companys business, operations, corporate structure, or for other reasons that the
Committee deemed satisfactory, the Committee may modify the performance measures or
objectives and/or the performance period.
(b) Performance Awards may be valued by reference to the Fair Market Value of a share
of Common Stock or according to any formula or method deemed appropriate by the Committee,
in its sole discretion, including, but not limited to, achievement of Performance Goals or
other specific financial, production, sales or cost performance objectives that the
Committee believes to be relevant to the Companys business and/or remaining in the employ
of the Company for a specified period of time. Performance Awards may be paid in cash,
shares of Common Stock, or other consideration, or any combination thereof. If payable in
shares of Common Stock, the consideration for the issuance of such shares may be the
achievement of the performance objective established at the time of the grant of the
Performance Award. Performance Awards may be payable in a single payment or in installments
and may be payable at a specified date or dates or upon attaining the performance objective.
The extent to which any applicable performance objective has been achieved shall be
conclusively determined by the Committee.
(c) Notwithstanding the foregoing, in order to comply with the requirements of Section
162(m) of the Code, no Participant may receive in any calendar year Performance Awards
intended to comply with the requirements of Section 162(m) of the Code which have an
aggregate value of more than $1,000,000, and if such Performance Awards involve the issuance
of shares of Common Stock, said aggregate value shall be based on the Fair Market Value of
such shares at the time of the grant such Performance Awards. In no event, however, shall
any Performance Awards not intended to comply with the requirements of Section 162(m) of the
Code be issued contingent upon the failure to attain the Performance Goals applicable to the
Performance Awards intended to comply with the requirements of Section 162(m) of the Code.
6.6 Other Awards. The Committee may grant to any Participant other forms of Awards, based
upon, payable in, or otherwise related to, in whole or in part, shares of Common Stock, if the
Committee determines that such other form of Award is consistent with the purpose and restrictions
of this Plan. The terms and conditions of such other form of Award shall be specified by the
grant. Such Other Awards may be granted for no cash consideration, for such minimum consideration
as may be required by applicable law, or for such other consideration as may be specified by the
grant.
6.7 Performance Goals. Awards of Restricted Stock, Performance Awards and Other Awards
(whether relating to cash or shares of Common Stock) under the Plan may be made subject to the
attainment of
Performance Goals relating to one or more business criteria which, where applicable, shall be
within the meaning of Section 162(m) of the Code and consist of one or more or any combination of
the following criteria: one or more measures of reserves of oil and natural gas; one or more
components of the production or costs of production of oil and natural gas; cash flow; cost;
revenues; sales; ratio of debt to debt plus equity; net borrowing, credit quality or debt ratings;
profit before tax; economic profit; earnings before interest and taxes; earnings before interest,
taxes, depreciation and amortization; gross margin; earnings per share (whether on a pre-tax,
after-tax, operational or other basis); operating earnings; capital expenditures; expenses or
expense levels; economic value added; ratio of operating earnings to capital spending or any other
operating ratios; free cash flow; net profit; net sales; net asset value per share; the
accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary
business transactions; sales growth; price of the Companys Common Stock; return on assets, equity
or stockholders equity; or total return to stockholders (Performance Criteria). Any Performance
Criteria may be used to measure the performance of the Company as a whole or any business unit of
the Company and may be measured relative to a peer group or index. Any Performance Criteria may
include or exclude (i) extraordinary, unusual and/or non-recurring items
11
of gain or loss, (ii)
gains or losses on the disposition of a business, (iii) changes in tax or accounting regulations or
laws, (iv) the effect of a merger or acquisition, as identified in the Companys quarterly and
annual earnings releases, or (v) other similar occurrences. In all other respects, Performance
Criteria shall be calculated in accordance with the Companys financial statements, under generally
accepted accounting principles, or under a methodology established by the Committee prior to the
issuance of an Award which is consistently applied and identified in the audited financial
statements, including footnotes, or which is identified in the Compensation Discussion and
Analysis section of the Companys annual report. However, to the extent Section 162(m) of the Code
is applicable, the Committee may not in any event increase the amount of compensation payable to an
individual upon the attainment of a Performance Goal.
ARTICLE 7
AWARD PERIOD; VESTING
7.1 Award Period. Subject to the other provisions of this Plan, the Committee may, in its
discretion, provide that an Incentive may not be exercised in whole or in part for any period or
periods of time or beyond any date specified in the Award Agreement. Except as provided in the
Award Agreement, an Incentive may be exercised in whole or in part at any time during its term.
The Award Period for an Incentive shall be reduced or terminated upon Termination of Service. No
Incentive granted under the Plan may be exercised at any time after the end of its Award Period.
No portion of any Incentive may be exercised after the expiration of ten (10) years from its Date
of Grant. However, if an Employee owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes
of stock of the Company (or any parent or Subsidiary) and an Incentive Stock Option is granted to
such Employee, the term of such Incentive Stock Option (to the extent required by the Code at the
time of grant) shall be no more than five (5) years from the Date of Grant.
7.2 Vesting. The Committee, in its sole discretion, may determine that an Incentive will be
immediately vested in whole or in part, or that all or any portion may not be vested until a date,
or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events,
subject in any case to the terms of the Plan. If the Committee imposes conditions upon vesting,
then, subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the
date on which all or any portion of the Incentive may be vested.
ARTICLE 8
EXERCISE OR CONVERSION OF INCENTIVE
8.1 In General. A vested Incentive may be exercised or converted, during its Award Period,
subject to limitations and restrictions set forth in the Award Agreement
8.2 Securities Law and Exchange Restrictions. In no event may an Incentive be exercised or
shares of Common Stock be issued pursuant to an Award if a necessary listing or quotation of the
shares of Common Stock on a stock exchange or inter-dealer quotation system or any registration
under state or federal securities laws required under the circumstances has not been accomplished.
8.3 Exercise of Stock Option.
(a) In General. If a Stock Option is exercisable prior to the time it is vested, the
Common Stock obtained on the exercise of the Stock Option shall be Restricted Stock which is
subject to the applicable provisions of this Plan and the Award Agreement. If the Committee
imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may,
in its sole discretion, accelerate the date on which all or any portion of the Stock Option
may be exercised. No
Stock Option may be exercised for a fractional share of Common Stock.
The granting of a Stock Option shall impose no obligation upon the Participant to exercise
that Stock Option.
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(b) Notice and Payment. Subject to such administrative regulations as the Committee
may from time to time adopt, a Stock Option may be exercised by the delivery of written
notice to the Committee setting forth the number of shares of Common Stock with respect to
which the Stock Option is to be exercised and the date of exercise thereof (the Exercise
Date) which shall be at least three (3) days after giving such notice unless an earlier
time shall have been mutually agreed upon. On the Exercise Date, the Participant shall
deliver to the Company consideration with a value equal to the total Option Price of the
shares to be purchased, payable as provided in the Award Agreement, which may provide for
payment in any one or more of the following ways: (a) cash or check, bank draft, or money
order payable to the order of the Company, (b) Common Stock (including Restricted Stock)
owned by the Participant on the Exercise Date, valued at its Fair Market Value on the
Exercise Date, and which the Participant has not acquired from the Company within six (6)
months prior to the Exercise Date, (c) by delivery (including by FAX or electronic
transmission) to the Company or its designated agent of an executed irrevocable option
exercise form together with irrevocable instructions from the Participant to a broker or
dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock
purchased upon exercise of the Stock Option or to pledge such shares as collateral for a
loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to
pay such purchase price, and/or (d) in any other form of valid consideration that is
acceptable to the Committee in its sole discretion. If shares of Restricted Stock are
tendered as consideration for the exercise of a Stock Option, a number of shares of Common
Stock issued upon the exercise of the Stock Option with an Option Price equal to the value
of Restricted Stock used as consideration therefor shall be subject to the same restrictions
and provisions as the Restricted Stock so tendered.
(c) Issuance of Shares. Except as otherwise provided in Section 6.4 hereof
(with respect to shares of Restricted Stock) or in the applicable Award Agreement, upon
payment of all amounts due from the Participant, the Company shall cause certificates (or at
the Companys discretion, uncertified shares) for the Common Stock then being purchased to
be delivered as directed by the Participant (or the person exercising the Participants
Stock Option in the event of his death) at its principal business office promptly after the
Exercise Date; provided that if the Participant has exercised an Incentive Stock Option,
the Company may at its option retain physical possession of any
certificate evidencing the shares acquired upon exercise until the expiration of the holding
periods described in Section 422(a)(1) of the Code. The obligation of the Company to deliver
shares of Common Stock shall, however, be subject to the condition that, if at any time the
Committee shall determine in its discretion that the listing, registration or qualification
of the Stock Option or the Common Stock upon any securities exchange or inter-dealer
quotation system or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary as a condition of, or in connection with, the
Stock Option or the issuance or purchase of shares of Common Stock thereunder, the Stock
Option may not be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of any
conditions not reasonably acceptable to the Committee.
(d) Failure to Pay. Except as may otherwise be provided in an Award Agreement, if the
Participant fails to pay for any of the Common Stock specified in such notice or fails to
accept delivery thereof, that portion of the Participants Stock Option and right to
purchase such Common Stock may be forfeited by the Company.
8.4 Disqualifying Disposition of Incentive Stock Option. If shares of Common Stock acquired
upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration
of either
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two (2) years from the Date of Grant of such Stock Option or one (1) year from the
transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock
Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code,
such Participant shall notify the Company in writing of the date and terms of such disposition. A
disqualifying disposition by a Participant shall not affect the status of any other Stock Option
granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code.
ARTICLE 9
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this Article 9, the Board may at any time and
from time to time, without the consent of the Participants, alter, amend, revise, suspend or
discontinue the Plan in whole or in part; provided, however, that no amendment for which
stockholder approval is required either (i) by any securities exchange or inter-dealer quotation
system on which the Common Stock is listed or traded or (ii) in order for the Plan and Incentives
awarded under the Plan to continue to comply with Sections 162(m), 421, and 422 of the Code,
including any successors to such Sections, or other applicable law, shall be effective unless such
amendment shall be approved by the requisite vote of the stockholders of the Company entitled to
vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the
Committee, be applicable to any outstanding Incentives theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such
amendment to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request
of the Committee and as a condition to the exercisability thereof, execute a conforming amendment
in the form prescribed by the Committee to any Award Agreement relating thereto. Notwithstanding
anything contained in this Plan to the contrary, unless required by law, no action contemplated or
permitted by this Article 9 shall adversely affect any rights of Participants or
obligations of the Company to Participants with respect to any Incentive theretofore granted under
the Plan without the consent of the affected Participant.
ARTICLE 10
TERM
The Plan shall be effective from the date that this Plan is approved by the Board. Unless
sooner terminated by action of the Board, the Plan will terminate on May 28, 2018, but Incentives
granted before that date will continue to be effective in accordance with their terms and
conditions.
ARTICLE 11
CAPITAL ADJUSTMENTS
If any dividend or other distribution (whether in the form of cash, Common Stock, other
securities or other property), recapitalization, stock split, reverse stock split, rights offering,
reorganization, merger, consolidation, split-up, spin-off, split-off, combination, subdivision,
repurchase or exchange of Common Stock or other securities of the Company, issuance of warrants or
other rights to purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event affects the fair value of an Award, then the Committee shall adjust
any or all of the following so that the fair value of the Award immediately after the transaction
or event is equal to the fair value of the Award immediately prior to the transaction or event: (i)
the number of shares and type of Common Stock (or the securities or property) which thereafter may
be made the subject of Awards, (ii) the number of shares and type of Common Stock (or other
securities or property) subject to outstanding Awards, (iii) the number of shares and type of
Common Stock
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(or other securities or property) specified as the annual per-participant limitation
under Section 5.1 of the Plan, (iv) the Option Price of each outstanding Award, and (v) the
amount, if any, the Company pays for forfeited shares of Common Stock in accordance with
Section 6.4; provided however, that the number of shares of Common Stock (or other
securities or property) subject to any Award shall always be a whole number. Notwithstanding the
foregoing, no such adjustment shall be made or authorized to the extent that such adjustment would
cause the Plan or any Stock Option to violate Section 422 of the Code or Section 409A of the Code.
Such adjustments shall be made in accordance with the rules of any securities exchange, stock
market or stock quotation system to which the Company is subject.
Upon the occurrence of any such adjustment, the Company shall provide notice to each affected
Participant of its computation of such adjustment which shall be conclusive and shall be binding
upon each such Participant.
ARTICLE 12
RECAPITALIZATION, MERGER AND CONSOLIDATION
12.1 No Effect on Companys Authority. The existence of this Plan and Incentives granted
hereunder shall not affect in any way the right or power of the Company or its stockholders to make
or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the
Companys capital structure and its business, or any Change in Control, or any merger or
consolidation of the Company, or any issuance of bonds, debentures, preferred or preference stocks
ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights,
options or warrants to purchase same), or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
12.2 Conversion of Incentives Where Company Survives. Subject to any required action by the
stockholders and except as otherwise provided by Section 12.4 hereof or as may be required
to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, if
the Company shall be the surviving or resulting corporation in any merger, consolidation or
share exchange, any Incentive granted
hereunder shall pertain to and apply to the securities or rights (including cash, property, or
assets) to which a holder of the number of shares of Common Stock subject to the Incentive would
have been entitled.
12.3 Exchange or Cancellation of Incentives Where Company Does Not Survive. Except as
otherwise provided by Section 12.4 hereof or as may be required to comply with Section 409A
of the Code and the regulations or other guidance issued thereunder, in the event of any merger,
consolidation or share exchange pursuant to which the Company is not the surviving or
resulting corporation, there shall be substituted for each share of Common Stock subject to the
unexercised portions of outstanding Incentives, that number of shares of each class of stock or
other securities or that amount of cash, property, or assets of the surviving, resulting or
consolidated company which were distributed or distributable to the stockholders of the Company in
respect to each share of Common Stock held by them, such outstanding Incentives to be thereafter
exercisable for such stock, securities, cash, or property in accordance with their terms.
12.4 Cancellation of Incentives. Notwithstanding the provisions of Sections 12.2 and
12.3 hereof, and except as may be required to comply with Section 409A of the Code and the
regulations or other guidance issued thereunder, all Incentives granted hereunder may be canceled
by the Company, in its sole discretion, as of the effective date of any Change in Control, merger,
consolidation or share exchange, or any issuance of bonds, debentures, preferred or preference
stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any
rights, options, or warrants to purchase same), or of any proposed sale of all or substantially all
of the assets of the Company, or of any dissolution or liquidation of the Company, by either:
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(a) giving notice to each holder thereof or his personal representative of its
intention to cancel those Incentives for which the issuance of shares of Common Stock
involved payment by the Participant for such shares, and permitting the purchase during the
thirty (30) day period next preceding such effective date of any or all of the shares of
Common Stock subject to such outstanding Incentives, including in the Boards discretion
some or all of the shares as to which such Incentives would not otherwise be vested and
exercisable; or
(b) in the case of Incentives that are either (i) settled only in shares of Common
Stock, or (ii) at the election of the Participant, settled in shares of Common Stock, paying
the holder thereof an amount equal to a reasonable estimate of the difference between the
net amount per share payable in such transaction or as a result of such transaction, and the
price per share of such Incentive to be paid by the Participant (hereinafter the Spread),
multiplied by the number of shares subject to the Incentive. In cases where the shares
constitute, or would after exercise, constitute Restricted Stock, the Company, in its
discretion, may include some or all of those shares in the calculation of the amount payable
hereunder. In estimating the Spread, appropriate adjustments to give effect to the
existence of the Incentives shall be made, such as deeming the Incentives to have been
exercised, with the Company receiving the exercise price payable thereunder, and treating
the shares receivable upon exercise of the Incentives as being outstanding in determining
the net amount per share. In cases where the proposed transaction consists of the
acquisition of assets of the Company, the net amount per share shall be calculated on the
basis of the net amount receivable with respect to shares of Common Stock upon a
distribution and liquidation by the Company after giving effect to expenses and charges,
including but not limited to taxes, payable by the Company before such liquidation could be
completed.
(c) An Award that by its terms would be fully vested or exercisable upon a Change in
Control will be considered vested or exercisable for purposes of Section 12.4(a)
hereof.
ARTICLE 13
LIQUIDATION OR DISSOLUTION
Subject to Section 12.4 hereof, in case the Company shall, at any time while any
Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all
of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant shall
be entitled to receive, in lieu of each share of Common Stock of the Company which such Participant
would have been entitled to receive under the Incentive, the same kind and amount of any securities
or assets as may be issuable, distributable or payable upon any such sale, dissolution, liquidation
or winding up with respect to each share of Common Stock of the Company. If the Company shall, at
any time prior to the expiration of any Incentive, make any partial distribution of its assets, in
the nature of a partial liquidation, whether payable in cash or in kind (but excluding the
distribution of a cash dividend payable out of earned surplus and designated as such) and an
adjustment is determined by the Committee to be appropriate to prevent the dilution of the benefits
or potential benefits intended to be made available under the Plan, then the Committee shall, in
such manner as it may deem equitable, make such adjustment in accordance with the provisions of
Article 11 hereof.
ARTICLE 14
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER ENTITIES
Incentives may be granted under this Plan from time to time in substitution for similar
instruments held by employees, consultants or directors of a corporation, partnership, or limited
liability company who become or are about to become Employees, Consultants or Outside Directors of
the Company or any
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Subsidiary as a result of a merger or consolidation of the employing corporation
with the Company, the acquisition by the Company of equity of the employing entity, or any other
similar transaction pursuant to which the Company becomes the successor employer. The terms and
conditions of the substitute Incentives so granted may vary from the terms and conditions set forth
in this Plan to such extent as the Committee at the time of grant may deem appropriate to conform,
in whole or in part, to the provisions of the Incentives in substitution for which they are
granted.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 Investment Intent. The Company may require that there be presented to and filed with it
by any Participant under this Plan, such evidence as it may deem necessary to establish that the
Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired
for investment and not with a view to their distribution.
15.2 No Right to Continued Employment. Neither this Plan nor any Incentive granted under the
Plan shall confer upon any Participant any right with respect to continuance of employment by the
Company or any Subsidiary.
15.3 Indemnification of Board and Committee. No member of the Board or the Committee, nor any
officer or Employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or interpretation taken or made in good faith with
respect to the Plan, and all members of the Board and the Committee, each officer of the Company,
and each Employee of the Company acting on behalf of the Board or the Committee shall, to the
extent permitted by law, be fully indemnified and protected by the Company in respect of any such
action, determination or interpretation.
15.4 Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any person any right to be granted an Award or any other rights
except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the
Committee and executed on behalf of the Company, and then only to the extent and upon the terms and
conditions expressly set forth therein.
15.5 Compliance With Other Laws and Regulations. Notwithstanding anything contained herein to
the contrary, the Company shall not be required to sell or issue shares of Common Stock under any
Incentive if the issuance thereof would constitute a violation by the Participant or the Company of
any provisions of any law or regulation of any governmental authority or any national securities
exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted
or traded (including, without limitation, Section 16 of the 1934 Act and Section 162(m) of the
Code); and, as a condition of any sale or issuance of shares of Common Stock under an Incentive,
the Committee may require such agreements or undertakings, if any, as the Committee may deem
necessary or advisable to assure compliance with any such law or regulation. The Plan, the grant
and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares
of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
15.6 Tax Requirements. The Company or, if applicable, any Subsidiary (for purposes of this
Section 15.6, the term Company shall be deemed to include any applicable Subsidiary),
shall have the right to deduct from all amounts paid in cash or other form in connection with this
Plan, any Federal, state, local, or other taxes required by law to be withheld in connection with
an Award granted under this Plan. The Company may, in its sole discretion, also require the
Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of
any taxes that the Company is required to withhold in connection with the Participants income
arising with respect to the Award. Such payments shall be required
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to be made when requested by
the Company and may be required
to be made prior to the delivery of any certificate representing
shares of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an
amount that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the
required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion,
so consents in writing, the actual delivery by the exercising Participant to the Company of shares
of Common Stock that the Participant has not acquired from the Company within six (6) months prior
to the date of exercise, which shares so delivered have an aggregate Fair Market Value that equals
or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax
withholding payment; (iii) if the Company, in its sole discretion, so consents in writing, the
Companys withholding of a number of shares to be delivered upon the exercise of the Stock Option,
which shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the
required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may,
in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by
the Company to the Participant. The Committee may in the Award Agreement impose any additional tax
requirements or provisions that the Committee deems necessary or desirable.
15.7 Assignability. Incentive Stock Options may not be transferred, assigned, pledged,
hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent and
distribution and may be exercised during the lifetime of the Participant only by the Participant or
the Participants legally authorized representative, and each Award Agreement in respect of an
Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not
constitute a transfer of the Stock Option. The Committee may waive or modify any limitation
contained in the preceding sentences of this Section 15.7 that is not required for
compliance with Section 422 of the Code.
Except as otherwise provided herein, Nonqualified Stock Options may not be transferred,
assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will or the laws
of descent and distribution. The Committee may, in its discretion, authorize all or a portion of a
Nonqualified Stock Option to
be granted to a Participant on terms which permit transfer by such Participant to (i) the spouse
(or former spouse), children or grandchildren of the Participant (Immediate Family Members),
(ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) a
partnership or limited liability company in which the only partners or members are (1) such
Immediate Family Members and/or (2) entities which are controlled by the Participant and/or
Immediate Family Members, (iv) an entity exempt from federal income tax pursuant to Section
501(c)(3) of the Code or any successor provision, or (v) a split interest trust or pooled income
fund described in Section 2522(c)(2) of the Code or any successor provision, provided that
(x) there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to
which such Nonqualified Stock Option is granted must be approved by the Committee and must
expressly provide for transferability in a manner consistent with this Section, and (z) subsequent
transfers of transferred Nonqualified Stock Options shall be prohibited except those by will or the
laws of descent and distribution.
Following any transfer, any such Nonqualified Stock Option shall continue to be subject to the
same terms and conditions as were applicable immediately prior to transfer, provided that for
purposes of Articles 8, 9, 11, 13 and 15 hereof the term Participant shall be deemed to
include the transferee. The events of Termination of Service shall continue to be applied with
respect to the original Participant, following which the Nonqualified Stock Options shall be
exercisable or convertible by the transferee only to the extent and for the periods specified in
the Award Agreement. The Committee and the Company shall have no obligation to inform any
transferee of a Nonqualified Stock Option of any expiration, termination, lapse or acceleration of
such Stock Option. The Company shall have no obligation to register with any federal or state
securities commission or agency any Common Stock issuable or issued under a Nonqualified Stock
Option that has been transferred by a Participant under this Section 15.7.
15.8 Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Incentives
granted under this Plan shall constitute general funds of the Company.
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15.9 Legend. Each certificate representing shares of Restricted Stock issued to a Participant
shall bear the following legend, or a similar legend deemed by the Company to constitute an
appropriate notice of the provisions hereof (any such certificate not having such legend shall be
surrendered upon demand by the Company and so endorsed):
On the face of the certificate:
Transfer of this stock is restricted in accordance with
conditions printed on the reverse of this certificate.
On the reverse:
The shares of stock evidenced by this certificate are
subject to and transferable only in accordance with that
certain Parallel Petroleum Corporation 2008 Long-Term
Incentive Plan, a copy of which is on file at the principal
office of the Company in Midland, Texas. No transfer or
pledge of the shares evidenced hereby may be made except in
accordance with and subject to the provisions of said Plan.
By acceptance of this certificate, any holder, transferee or
pledgee hereof agrees to be bound by all of the provisions
of said Plan.
The following legend shall be inserted on a certificate evidencing Common Stock issued under
the Plan if the shares were not issued in a transaction registered under the applicable federal and
state securities laws:
Shares of stock represented by this certificate have been
acquired by the holder for investment and not for resale,
transfer or distribution, have been issued pursuant to
exemptions from the registration requirements of
applicable state and federal securities laws, and may not
be offered for sale, sold or transferred other than pursuant
to effective registration under such laws, or in
transactions otherwise in compliance with such laws, and
upon evidence satisfactory to the Company of compliance with
such laws, as to which the Company may rely upon an opinion
of counsel satisfactory to the Company.
A copy of this Plan shall be kept on file in the principal office of the Company in Midland,
Texas.
***************
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Appendix B
PARALLEL PETROLEUM CORPORATION
AUDIT COMMITTEE CHARTER
(As amended on February 12, 2008)
THE AUDIT COMMITTEE:
One committee of the Board of Directors will be known as the Audit Committee. The Audit Committee
will have a minimum of three members. Only independent directors meeting the requirements of the
Nasdaq National Market will serve on the Audit Committee.
The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its
oversight responsibilities by reviewing the financial reports and other financial information
provided by the Company to the public; the Companys systems of internal controls regarding finance
and accounting that management and the Board have established; and the Companys auditing,
accounting and financial reporting process generally. Consistent with this function, the Audit
Committee should encourage continuous improvement of, and should foster adherence to, the Companys
financial and accounting policies, procedures and practices. The Committee provides an avenue for
communication between internal accounting and financial personnel, the independent accountants and
the Board. The Committee should have a clear understanding with the independent accountants that
the ultimate accountability of the independent accountants is to the Board and the Committee.
Committee members shall be appointed by the Board of Directors. Each Committee member shall serve
for a period of one year or until his or her successor has been duly named and appointed.
GENERAL RESPONSIBILITIES:
The Committee will:
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assist the Board in fulfilling its fiduciary responsibilities to the stockholders with
respect to matters relating to the Companys accounting, reporting, audit and internal
control practices. |
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facilitate open avenues of communication between the Companys independent auditors and the
Board of Directors. |
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advise the independent auditors that they are ultimately accountable to the Board of Directors and the Audit Committee, and
not management. |
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report Committee actions to the full Board of Directors and make appropriate recommendations. |
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inquire into, review and receive written statements concerning the independence of the Companys independent auditors,
including a description of all relationships between the Company and the independent auditors. |
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conduct or authorize investigations into matters within the Committees scope of responsibility. The Committee is
authorized to retain and determine funding for independent counsel, accountants or other advisors it determines necessary
to carry out its duties. |
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meet at least four times each year in regular meetings (telephonically or in person), and more frequently if circumstances
warrant. A portion of each meeting may exclude Company employees to provide opportunity for independent discussion. |
In addition to the foregoing, it is the responsibility of: (i) management of the Company and the
independent auditors, under the oversight of the Audit Committee and the Board, to plan and conduct
financial audits and to determine that the Companys financial statements and disclosures are
complete and accurate in accordance with generally accepted accounting principles and applicable
rules and regulations and fairly present, in all material respects, the financial condition of the
Company; (ii) management of the Company, under the oversight of the Audit Committee and the Board,
to assure compliance by the Company with applicable legal and regulatory requirements; and (iii)
the internal accountants, under the oversight of the Audit Committee and the Board, to review the
Companys internal transactions and accounting which do not require involvement in the detailed
presentation of the Companys financial statements. (As amended February 12, 2008).
RESPONSIBILITIES FOR SELECTING INDEPENDENT AUDITORS AND REVIEWING INTERNAL ACCOUNTING FUNCTIONS:
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The Committee, subject to any action that may be taken by the full Board, shall have the sole
authority and responsibility to select, evaluate, determine the funding for, and, where
appropriate, replace the independent auditors. The Audit Committee also will review and
approve fees paid to the independent auditors. |
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The Committee will confirm and assure the objectivity of the internal accounting functions
and the independence of independent auditors, including a review of permissible non-audit
services, if any, provided by the independent auditors. |
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The Committee will assist in coordinating internal accounting functions and the external
audit activities. The purpose of coordinating this effort is to maximize completeness of
coverage and to reduce redundancy and overall costs. |
RESPONSIBILITIES FOR REVIEWING THE ANNUAL EXTERNAL AUDIT AND REVIEWING QUARTERLY AND ANNUAL
FINANCIAL STATEMENTS:
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The Audit Committee will strive to ensure that management provides the Committee with a
timely notification and analysis of significant financial reporting issues. (As amended
February 12, 2008) |
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The Committee will review and discuss with management and the independent auditors
significant financial reporting issues and judgments made in connection with the preparation
of the Companys financial statements. (As amended February 12, 2008) |
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The Audit Committee will ask management, internal accounting personnel and the independent
auditors about significant risks and exposures and will assess managements steps to minimize
them. |
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The Audit Committee will review the Companys annual financial
statements in Form 10-K with management and the independent auditors
before such annual financial statements are filed with the SEC. |
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The Audit Committee will review the Companys interim financial
statements in Form 10-Q with management and the independent auditors
before such interim financial statements are filed with the SEC. |
2
THE AUDIT COMMITTEE WILL REVIEW WITH THE INDEPENDENT AUDITORS AND THE
INTERNAL ACCOUNTING DEPARTMENT:
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The planned arrangements and scope of the annual audit. |
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The adequacy of the Companys internal controls, including computerized information systems
controls and security. |
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Any significant findings and recommendations made by the independent auditors or internal
accounting personnel, together with managements response. |
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The need for internal accounting personnel and the independent auditors to assess their
responsibility for detecting accounting and financial reporting errors, fraud and
defalcations, illegal acts and noncompliance with regulatory requirements. |
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The need for changes or improvements, including improvements in efficiency, in financial or
accounting practices or controls. |
THE AUDIT COMMITTEE WILL REVIEW WITH MANAGEMENT AND THE INDEPENDENT AUDITORS:
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The Companys annual financial statements and related notes. |
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The independent auditors audit of and report on the financial statements. |
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The auditors qualitative judgment about the appropriateness, not just the acceptability, of
accounting principles and financial disclosures. |
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Any serious difficulties or disputes with management encountered during the course of the
audit. |
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Anything else about the audit procedures or findings that generally accepted auditing
standards require the auditors to discuss with the Committee. |
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Changes in the Companys accounting policies and practices and
significant judgments that may affect the financial results. |
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The nature of any unusual or significant commitments or contingent
liabilities together with the underlying assumptions and estimates of
management. |
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The effect of changes on accounting standards that may materially
affect the Companys financial reporting practices. |
THE AUDIT COMMITTEE WILL CONSIDER AND REVIEW WITH MANAGEMENT AND INTERNAL ACCOUNTING PERSONNEL:
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Any significant findings during the year and managements response to them. |
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The budget and staffing for internal accounting requirements. |
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The activities, structure and qualifications of internal accounting personnel. |
3
APPROVAL OF AUDIT AND NON-AUDIT SERVICES:
In addition to approving the engagement of the independent auditors to audit the Companys
financial
statements, the Committee will approve all use of the Companys independent auditors for
permissible non-audit services prior to any such engagement. In addition, the Committee may from
time to time approve the use of the Companys independent auditors for permissible non-audit
services pursuant to pre-approval policies and procedures established by the Audit Committee,
provided the policies and procedures are detailed as to the particular service, the Audit Committee
is informed of each service, and such policies and procedures do not include delegation of the
Audit Committees responsibilities to management of the Company.
OTHER PERIODIC RESPONSIBILITIES:
The Audit Committee will:
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Annually review the Audit Committees charter and, where appropriate or necessary, update and
revise (subject to Board approval) the Audit Committees Charter. |
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Meet with the appropriate internal accounting personnel, the independent auditors, and
management in separate executive sessions to discuss matters that should be discussed
privately with the Audit Committee. |
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Annually review the Committees responsibilities, methodology and functions and evaluate its
own performance and institute appropriate changes to improve performance or reflect changes in
the business environment. |
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Review with the Companys counsel any legal matters that could have a significant impact on
the Companys financial statements. |
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Review significant risks and exposures. |
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Review with the independent auditors any findings on reporting errors, fraud and
defalcations, illegal acts and regulatory issues. |
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Review management letters and management responses. |
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Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and ensure that such
complaints are treated confidentially and anonymously. |
To the extent delegated by the Board, assist the Board in oversight of the Companys compliance
with policies and procedures addressing ethical concerns and the Companys code of conduct,
including the review and approval of significant conflicts of interest and related-party
transactions.
4
FORM OF PROXY CARD
6IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, PLEASE FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
Proxy
-
Parallel Petroleum
Corporation
Annual Meeting of Stockholders May 28, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeffrey G. Shrader 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 on the reverse side, 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 16, 2008, which the
undersigned is entitled to vote at the 2008 Annual Meeting of Stockholders of the Company and at
any and all adjournments thereof, with respect to the matters set forth on the reverse side and
described in the Notice of Annual Meeting and Proxy Statement dated April 23, 2008, receipt of
which is acknowledged.
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 MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED POSTAGE PRE-PAID
ENVELOPE.
(Please See Reverse Side)
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![(PARALLEL LOGO)](d55883d5588300.gif) |
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Electronic Voting Instructions
You can vote by
Internet or telephone!
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting
methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. |
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Proxies submitted by the Internet or telephone must be received by
1:00 a.m., Central Time, on May 28, 2008. |
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Graphic of
Computer |
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Vote by
Internet Log
on to the Internet and go to www.investorvote.com/PLLL Follow the steps outlined on the secured website. |
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Graphic of
Telephone |
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Vote by
telephone Call toll free 1-800-652-VOTE (8683) within the United
States, Canada &
Puerto Rico any time on a touch tone
telephone. There is
NO CHARGE to you for the call. |
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Using a black ink pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas.
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x |
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Follow the instructions provided by the recorded message. |
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Annual Meeting Proxy Card |
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CO123456789 |
12345
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▼IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE,
FOLD ALONG THE PERFORATION,
DETACH AND RETURN
THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.▼
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A |
Proposals The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 and 3.
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1. |
Election of Directors: |
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For
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Withhold
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For
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Withhold
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For
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Withhold |
01 Edward A. Nash
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o
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o
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02 Larry C. Oldham
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o
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o
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03 Martin B. Oring
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o
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04 Ray M. Poage
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o
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o
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05 Jeffrey G. Shrader
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o
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o |
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For
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Against
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Abstain
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For
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Against
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Abstain |
2.
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Approval of the 2008 Long-Term Incentive Plan
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3. |
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Approval of selection of BDO Seidman, LLP as independent auditors for the Company.
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o
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4.
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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.
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B |
Non-Voting
Items. |
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Change
of Address
Please print new address below.
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C |
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Authorized
Signatures
This section must be completed for your vote to be counted.
Date and Sign Below.
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Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
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Date (mm/dd/yyyy) Please print date below.
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Signature 1 Please keep signature within the box.
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Signature 2 Please keep signature within the box. |
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/ / |
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