SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number: 1-10695
Parker & Parsley Petroleum Company
(Exact name of registrant as specified in its charter)
Delaware 74-2570602
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 West Wall, Suite 101, Midland, Texas 79701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(915) 683-4768
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock.................................... New York Stock Exchange
Rights to Acquire Shares of
Common Stock.................................. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by
non-affiliates of the Registrant as of February 3, 1997...... $1,174,357,828
Number of shares of Common Stock outstanding as of
February 3, 1997............................................. 35,085,247
Page 1 of 15 pages.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Board of Directors consists of two persons who are
employees of the Company and seven who are outside directors. The directors and
executive officers of the Company, and their ages at March 31, 1997, are:
Name Age Position
---- --- --------
Scott D. Sheffield...... 44 Chairman of the Board, President, Chief Executive
Officer, and Director
Mel Fischer............. 63 Director, Executive Vice President - World Wide
Exploration
R. Hartwell Gardner..... 62 Director
James L. Houghton....... 66 Director
Jerry P. Jones.......... 65 Director
Charles E. Ramsey, Jr... 60 Director
Arthur L. Smith......... 44 Director
Edward O. Vetter........ 76 Director
Michael D. Wortley...... 49 Director
Timothy A. Leach........ 37 Executive Vice President - Engineering
Steven L. Beal.......... 38 Senior Vice President, Chief Financial Officer
and Treasurer
Mark L. Withrow......... 49 Senior Vice President, General Counsel and
Secretary
David A. Chroback....... 41 Senior Vice President - Geology
Timothy L. Dove......... 40 Senior Vice President - Business Development
Lon C. Kile............. 41 Senior Vice President - Investor Relations
The Company has classified its Board of Directors into three classes.
Directors in each class are elected to serve for three-year terms and until
their successors are elected and qualified. Each year, the directors of one
class stand for election as their terms of office expire. Messrs. Fischer, Smith
and Vetter are designated as Class I directors, and their terms of office expire
at the annual meeting of stockholders in 1998. Messrs. Gardner, Jones and Ramsey
are designated as Class II directors, and their terms of office expire at the
annual meeting of stockholders in 1999. Messrs. Sheffield, Houghton and Wortley
are Class III directors, and their terms of office expire at the annual meeting
of stockholders in 1997.
Executive officers serve at the discretion of the Board of Directors.
Set forth below is biographical information about each of the Company's
directors and executive officers.
Scott D. Sheffield. Mr. Sheffield, a graduate of the University of
Texas with a Bachelor of Science degree in Petroleum Engineering, has been the
President and a director of the Company since May 1990 and has been the Chairman
of the Board and Chief Executive Officer since October 1990. Mr. Sheffield was
the sole director of the Company from May 1990 until October 1990. Mr. Sheffield
joined Parker & Parsley Development Company ("PPDC"), a predecessor of the
2
Company, as a petroleum engineer in 1979. Mr. Sheffield served as Vice President
- - Engineering of PPDC from September 1981 until April 1985, when he was elected
President and a director. In March 1989, Mr. Sheffield was elected Chairman of
the Board and Chief Executive Officer of PPDC. Before joining PPDC's
predecessor, Mr. Sheffield was employed as a production and reservoir engineer
for Amoco Production Company.
Mel Fischer. Mr. Fischer, a graduate of the University of California
at Berkeley with a Masters degree in Geology, was elected a director of the
Company in November 1995. Before joining the Company as a director, Mr. Fischer
worked in the petroleum industry for 32 years, starting as a Petroleum Geologist
with Texaco in 1962 and retiring from the position of President, Occidental
International Exploration and Production Company, in March 1994. For the 10
years before becoming President of Occidental International, Mr. Fischer held
the position of Executive Vice President - World Wide Exploration with
Occidental Oil and Gas Corporation. He is a registered geologist in the state of
California, a member of the American Association of Petroleum Geologists, and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah. Effective February 1, 1997, Mr. Fischer
expanded his duties with Parker & Parsley Petroleum Company when he was
appointed to serve as Executive Vice President - World Wide Exploration for the
Company.
R. Hartwell Gardner. Mr. Gardner, elected a director of the Company in
November 1995, graduated from Colgate University with a Bachelor of Arts degree
in Economics and then earned a Masters degree in Business Administration from
Harvard University. Until October 1, 1995, Mr. Gardner was the Treasurer of
Mobil Oil Corporation and Mobil Corporation from 1974 and 1976 respectively. Mr.
Gardner is a member of the Financial Executives Institute of which he served as
Chairman in 1986/1987 and is a Director of Oil Investment Corporation Ltd. and
Oil Casualty Investment Corporation Ltd., Pembroke, Bermuda.
James L. Houghton. Mr. Houghton is a certified public accountant and a
graduate of Kansas University with a Bachelor of Science degree in Accounting,
as well as a Bachelor of Law degree. Mr. Houghton was elected a director of the
Company in October 1991. Until October 1, 1991, Mr. Houghton was the lead oil
and gas tax specialist for the accounting firm of Ernst & Young, was a member of
Ernst & Young's National Energy Group, and had served as the Southwest Regional
Director of Tax. Mr. Houghton is a member of the American Institute of Certified
Public Accountants, a member of the Oklahoma Society of Certified Public
Accountants and a former Chairman of its Federal and Oklahoma Taxation Committee
and past President of the Oklahoma Institute on Taxation. He has also served as
a Director for the Independent Petroleum Association of America and as a member
of its Tax Committee. He is a former coordinator for the International Society
of the Energy Advocates and was previously the Editor of Commerce Clearing
House's Ernst & Young's Oil and Gas Federal Income Taxation and Matthew Bender's
Taxation of Mining Operations. Mr. Houghton is currently a member of the Board
of Advisors for the Natural Resources Tax Review and an editor of Foundation
Press' The Federal Income Taxation of Oil and Gas and Natural Resources
Transactions. Since 1990, Mr. Houghton has served as trustee of the J.E. and
L.E. Mabee Foundation, Inc.
3
Jerry P. Jones. Mr. Jones earned a Bachelor of Science degree from West
Texas State College in 1953 and a Bachelor of Law degree from the University of
Texas School of Law in 1959. Elected a director of the Company in May 1991, Mr.
Jones has been an attorney with the law firm of Thompson & Knight, P.C., Dallas,
Texas, since September 1959 and is a shareholder in the firm. He has served on
its Management Committee for a number of years and was chairman of the
litigation section for several years. He has specialized in civil litigation,
particularly in the area of energy disputes. Mr. Jones is a member of the
American College of Trial Lawyers, a qualified mediator, a member of the
Advisory Board of the International Mediation Center, Dallas, Texas, and is a
co-founder and member of Lawyers Concerned for Lawyers and Texas Lawyers
Concerned for Lawyers.
Charles E. Ramsey, Jr. Mr. Ramsey is a graduate of the Colorado School
of Mines with a Petroleum Engineering degree and a graduate of the Smaller
Company Management program at the Harvard Graduate School of Business
Administration. In October 1991, Mr. Ramsey was elected a director of the
Company and began operating an independent management and financial consulting
firm. From June 1958 until June 1986, Mr. Ramsey held various engineering and
management positions in the oil and gas industry, and for six years before
October 1, 1991, was a Senior Vice President in the Corporate Finance Department
of Dean Witter Reynolds Inc. (Dallas, Texas office). His industry experience
includes 12 years of senior management experience in the positions of President,
Chief Executive Officer and Executive Vice President of May Petroleum Inc. Mr.
Ramsey is also a former director of MBank Dallas, the Dallas Petroleum Club and
Lear Petroleum Corporation.
Arthur L. Smith. Mr. Smith has a Bachelor of Arts degree from Duke
University, and is a graduate of New York University's Stern School of Business
with a Masters of Business Administration degree in Economics. Mr. Smith, who
has been serving as a director of the Company since August 1991, is Chairman and
Chief Executive Officer of John S. Herold, Inc., a petroleum research and
consulting firm based in Stamford, Connecticut. Mr. Smith acquired control of
John S. Herold, Inc. in 1984 after nine years on Wall Street in institutional
equity research and corporate finance with Oppenheimer and Company, Inc., The
First Boston Corporation, and Argus Research Corp. From 1988 to 1993, he served
on the Board of Directors of the New York Society of Security Analysts. Mr.
Smith holds the Chartered Financial Analyst (CFA) designation.
Edward O. Vetter. Mr. Vetter is a graduate of the Massachusetts
Institute of Technology. Mr. Vetter, who has been serving as a director of the
Company since February 1992, has in the past served as director of AMR
Corporation, American Airlines, Inc., Cabot Corporation, The Western Company of
North America and Champion International Corporation. Since 1977, Mr. Vetter
has been President of Edward O. Vetter & Associates, a management consulting
firm in Dallas, Texas. Mr. Vetter was the Energy Advisor to the Governor of
Texas from 1979 to 1983 and was a Presidential appointee to the U.S.
Competitiveness Policy Council. He is a life trustee of the Massachusetts
Institute of Technology and a former member of the National Petroleum Council.
Michael D. Wortley. Mr. Wortley, a graduate of Southern Methodist
University with a Bachelor of Arts degree in Political Science, the University
of North Carolina at Chapel Hill with a Masters degree in Regional Planning, and
4
Southern Methodist University with a Juris Doctorate degree, became a director
of the Company in April 1991. Mr. Wortley, a partner with the law firm of Vinson
& Elkins L.L.P. (Dallas, Texas office), specializes in acquisitions and
securities matters and serves as the co-head of the Corporate Finance and
Securities Section of the firm. He served on the Board of Directors of Johnson &
Wortley, P.C., from May 1994 until December 1994 and from April 1990 to May
1993, as President and Chairman of the Board from November 1991 to May 1993 and
as the Managing Director from February 1992 to May 1993.
Timothy A. Leach. Mr. Leach, a graduate of Texas A&M University with a
Bachelor of Science degree in Petroleum Engineering and the University of Texas
of the Permian Basin with a Masters of Business Administration degree, was
elected Executive Vice President - Engineering of the Company in March 1995. Mr.
Leach had been serving as Senior Vice President - Engineering since March 1993
and served as Vice President - Engineering of the Company from October 1990 to
March 1993. Mr. Leach joined PPDC as Vice President - Engineering in September
1989. Before joining PPDC, Mr. Leach was employed as Senior Vice President and
Director of First City Texas - Midland, N.A.
Steven L. Beal. Mr. Beal, a graduate of the University of Texas with a
Bachelor of Business Administration degree in Accounting and a certified public
accountant, was elected Senior Vice President - Finance in January 1995 and
Chief Financial Officer in March 1995. Mr. Beal has been the Company's Chief
Accounting Officer since November 1992 and has been the Company's Treasurer
since October 1990. Mr. Beal joined PPDC as Treasurer in March 1988 and was
elected Vice President - Finance in October 1991. Before joining PPDC, Mr. Beal
was employed as an audit manager for Price Waterhouse.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian
University with a Bachelor of Science degree in Accounting and Texas Tech
University with a Juris Doctorate degree, was Vice President - General Counsel
of the Company from January 1991 to January 1995, when he was appointed Senior
Vice President, General Counsel. He has been the Company's Secretary since
August 1992. Mr. Withrow joined PPDC in January 1991. Before joining PPDC, Mr.
Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe &
MacDonald, Midland, Texas.
David A. Chroback. Mr. Chroback, a graduate of Hanover College with a
Bachelor of Science degree in Geology, and a graduate of Southern Illinois
University at Carbondale with a Master of Science degree in Geology, was elected
Senior Vice President - Geology of the Company in October 1996. He had served as
Vice President - Geology of the Company since February 1993. Mr. Chroback has
been the Geological Manager since June 1992, and prior to that has been a Senior
Geologist with the Company since January 1988. Before joining the Company, he
was a project geologist with Indian Wells Oil Company. Mr. Chroback was
previously employed by Amoco Production Company as a petroleum geologist from
1980 through 1984.
Timothy L. Dove. Mr. Dove joined the Company in May 1994 as Vice
President - International and was promoted to Senior Vice President - Business
Development in October 1996. Prior to joining the Company, Mr. Dove was employed
with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
5
capacities in international exploration and production, marketing, refining and
marketing, and planning and development. Mr. Dove earned a Bachelor of Science
degree in Mechanical Engineering from Massachusetts Institute of Technology in
1979 and received his Masters of Business Administration in 1981 from the
University of Chicago.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
Bachelor of Business Administration degree in Accounting, joined the Company in
1985 and was recently promoted to Senior Vice President - Investor Relations in
October 1996. Previously, he was Vice President and Manager of the Mid-Continent
Division. Prior to that he held the positions of Vice President - Equity Finance
& Analysis and Vice President - Marketing and Program Administration. Prior to
joining the Company, he was employed as Supervisor - Senior, Audit, in charge of
the Company's audit, with Ernst & Young.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
General. As compensation for services as a director, each non-employee
director receives an annual retainer fee, which is paid 50% in cash and 50% in
the form of Company common stock. See "Equity Compensation Plan" below. The
amount of the annual retainer fee for 1996 was $40,000, and the amount of the
annual retainer fee for 1997 is also $40,000. In addition, each non-employee
director is reimbursed for travel expenses incurred in connection with attending
meetings of the Board of Directors or its committees and an additional $2,500
for services as chairman of a committee. No additional fees are paid for
attending board or committee meetings. Executive officers of the Company who
serve as directors do not receive additional compensation for serving on the
Board of Directors.
A non-employee director may elect, before the beginning of a year, to
defer payment of all or portion of his cash compensation for that year until a
later year or until his termination of services as a director. Deferred
compensation accrues interest (compounded quarterly) at the prime rate in effect
from time to time at the Company's primary lending institution. Accrued interest
is payable at the time the deferred compensation is payable. A director's
deferred compensation and accrued interest become immediately payable upon his
termination of services as a director of the Company or upon the occurrence of a
change in control of the Company. In addition, a director who suffers a
financial or personal hardship or other emergency circumstances may request the
Company to accelerate the payment of his deferred compensation. The decision
whether to permit acceleration will be made by the Company's Board of Directors,
acting on a majority vote of all directors other than the director making the
request.
Under the Company's Long-term Incentive Plan, each non-employee
director is eligible to receive $125,000 of Company common stock at the time he
begins to serve as a director. The price used to calculate the number of shares
to be awarded is the average trading price of the Company's common stock during
the 60 days immediately preceding the award. The shares awarded are subject to
6
vesting and transfer restrictions that lapse with respect to one-third of the
shares six months after the award, another one-third of the shares one year
after the award and the remaining one-third of the shares two years after the
award. The vesting of ownership and the lapse of the transfer restrictions may
be accelerated in the event of the death, disability or retirement of the
director or a change in control of the Company. The Long-term Incentive Plan
requires each non-employee director to make an election under the Internal
Revenue Code to include the value of the stock in his income in the year of
grant and provides for a cash award to the non-employee director in an amount
sufficient to pay the federal income taxes due with respect to the award and
such cash payment.
Equity Compensation Plan. Under the Parker & Parsley Petroleum Company
Non-Employee Director Equity Compensation Plan (the "Director Plan"), which the
Company's stockholders adopted in 1994, each non-employee director automatically
receives 50% of the amount of the annual retainer fee in the form of Company
common stock. Pursuant to the Director Plan, on the last business day of the
month in which the annual meeting of the stockholders of the Company is held,
each non-employee director will automatically receive an award of Company common
stock equal to 50% of the then current annual retainer fee. The number of shares
included in each such award is determined by dividing 50% of the annual retainer
fee by the closing sales price of the Company's common stock on the business day
immediately preceding the date of the award. On May 31, 1996, each non-employee
director (Mr. Fischer, Mr. Gardner, Mr. Houghton, Mr. Jones, Mr. Ramsey, Mr.
Smith, Mr. Vetter and Mr. Wortley) received an award of 812 shares of the
Company's common stock (which number was calculated by dividing $20,000 by
$24.625, the closing sales price of the Company's common stock on May 30, 1996).
When issued, the shares of Company common stock awarded pursuant to the
Director Plan are subject to transfer restrictions that lapse on the first
anniversary of the date of the award. In addition, if a non-employee director's
services as a director of the Company are terminated for any reason before the
next annual meeting of the Company's stockholders, a pro rata portion of the
shares are forfeited based on the number of regularly scheduled meetings of the
Board of Directors remaining to be held before the next annual meeting of the
Company's stockholders.
Compensation of Executive Officers
The compensation paid to the Company's executive officers is
administered by the Compensation Committee of the Board of Directors and
generally consists of base salaries, annual bonuses, awards made pursuant to the
Company's Long-term Incentive Plan, contributions to the Company-sponsored
401(k) retirement plan, and miscellaneous perquisites. The following table
summarizes the total compensation for 1996, 1995, and 1994 awarded to, earned by
or paid to the following persons (the "Named Executive Officers").
7
SUMMARY COMPENSATION TABLE (a)
Annual Compensation Long-term Compensation
------------------------------ -----------------------
Awards
-----------------------
Other All
Annual Restricted Shares Other
Name and Compen- Stock Underlying Compen-
Principal Position Year Salary Bonus(b) sation(c) Awards(d) Options sation(e)
- ------------------ ---- -------- -------- -------- ---------- ---------- ---------
Scott D. Sheffield 1996 $390,000 $375,375 $ 47,770 $ - $ 70,000 $ 87,990
Chairman of the 1995 321,094 - 12,592 - 56,232 8,260
Board, President, 1994 330,000 165,000 69,636 6,581 - 8,260
and Chief
Executive Officer
Timothy A. Leach 1996 200,000 157,500 38,516 59,500 31,000 49,519
Executive Vice 1995 171,925 - 8,992 - 31,824 6,930
President 1994 120,000 84,000 33,409 1,763 - 6,930
Steven L. Beal 1996 175,000 133,875 33,021 59,500 25,000 41,269
Sr. Vice President, 1995 147,364 - 7,192 - 28,324 6,631
Chief Financial 1994 100,000 70,000 27,068 1,681 - 4,500
Officer & Treasurer
Mark L. Withrow 1996 175,000 201,737 33,021 59,500 21,000 43,103
Sr. Vice President 1995 157,438 - 7,192 - 27,743 6,930
& General Counsel 1994 144,000 72,000 20,916 2,460 - 6,930
David A. Chroback 1996 175,000 133,875 32,870 59,500 21,000 41,077
Sr. Vice President 1995 143,125 - 6,740 - 27,493 6,441
1994 110,000 55,000 21,926 1,312 - 4,950
Timothy L. Dove 1996 160,609 190,080 30,842 59,500 21,000 38,834
Sr. Vice President 1995 133,583 - 6,934 199,988 15,000 6,011
1994(f) 84,359 40,833 20,916 - 12,000 -
(a) See "Compensation of Executive Officers - Employee Investment
Partnerships" for information about Company-sponsored employee
investment partnerships in which the Named Executive Officers invested
their own funds.
(b) Represents the amount awarded under the Company's annual bonus program
and bonus awards related to specific events in accordance with the
Company's executive compensation program administered by the
Compensation Committee of the Board of Directors. In 1994 the annual
bonus was paid one-half in cash and one-half in restricted stock. In
1996, Mr. Sheffield received all of his bonus in cash, and all other
Named Executive Officers received one-half of a previously established
8
target level in restricted stock and the other one-half of target plus
any excess above target in cash. The amounts shown in the Summary
Compensation Table include both the cash and the value of restricted
stock awards. The amount of cash and the number and value of shares
of restricted stock awarded for each year under the annual bonus
program are as follows:
Restricted Stock Award
----------------------
Number Value of
Year Cash Award of Shares Shares
---- ---------- --------- --------
Mr. Sheffield........ 1996 $ 375,375 - $ -
1995 - - -
1994 82,500 3,529 82,500
Mr. Leach............ 1996 112,493 1,494 45,007
1995 - - -
1994 42,000 1,797 42,000
Mr. Beal............. 1996 94,502 1,307 39,373
1995 - - -
1994 35,000 1,497 35,000
Mr. Withrow.......... 1996 102,377 1,307 39,373
1995 - - -
1994 36,000 1,540 36,000
Mr. Chroback......... 1996 94,502 1,307 39,373
1995 - - -
1994 27,500 1,176 27,500
Mr. Dove............. 1996 93,956 1,200 36,137
1995 - - -
1994 20,427 873 20,406
The number of shares of the restricted stock awarded as annual bonuses
was calculated using the last closing sales price of the Company's
common stock before the time of the award ($30.125 for 1996 and $23.375
for 1994). Ownership of the restricted stock awarded in 1996 vests on
August 13, 1997, and ownership of the restricted stock awarded in 1994
vested on March 31, 1995. Subject to accelerated lapse in certain
circumstances, the transfer restrictions lapse on one-third of the
shares on each of the first, second and third anniversaries of the date
of grant (February 13, 1997, for 1996 awards and November 15, 1994, for
1994 awards). In 1996, Mr. Withrow and Mr. Dove each received
restricted stock bonus awards of 2,436 shares valued at $59,987 on the
date of grant in recognition of their critical role in the successful
divestiture of the Company's Australasian assets. These shares vest on
April 3, 1997, and transfer restrictions lapse one-third each year
beginning April 3, 1997. Dividends are paid on the restricted stock at
the same rate as they are paid on all other shares of common stock.
9
(c) Includes (i) cash payments to Mr. Sheffield equal to 50% of the federal
income tax liability associated with the cash bonus received in lieu of
restricted stock under the annual bonus program and cash payments to
other Named Executive Officers for federal income tax liability
associated with the receipt of restricted stock awards pursuant to the
annual bonus program; (ii) cash payments for a portion of the federal
income tax liability associated with the receipt of restricted stock
pursuant to the Company's Performance Unit Program which was
discontinued in 1995; and (iii) automobile allowances as shown below.
Amounts not shown below represent miscellaneous perquisites.
Federal Tax Federal Tax
Liability - Liability -
Annual Performance Automobile
Year Bonus Program Unit Program Allowance
---- ------------- ------------ ----------
Mr. Sheffield 1996 $ 35,178 $ - $ 10,200
1995 - - 10,200
1994 54,087 2,957 10,200
Mr. Leach 1996 29,524 - 6,600
1995 - - 6,600
1994 23,625 792 6,600
Mr. Beal 1996 25,829 - 4,800
1995 - - 4,800
1994 19,121 755 4,800
Mr. Withrow 1996 25,829 - 4,800
1995 - - 4,800
1994 20,250 1,105 4,800
Mr. Chroback 1996 25,829 - 4,800
1995 - - 4,800
1994 15,186 - 4,800
Mr. Dove 1996 23,706 - 4,800
1995 - - 4,800
1994 17,227 - 2,800
(d) The restricted stock awarded in 1996 represents grants on November 19,
1996, to Messrs. Leach, Beal, Withrow, Chroback and Dove of 2,000
shares each of common stock with vesting restrictions that lapse
November 19, 1999. The restricted stock awarded in 1995 to Mr. Dove
represents a grant on June 1, 1995, of 10,389 shares of common stock
with vesting restrictions that lapse June 1, 1998. The restricted stock
awarded in 1994 represents partial settlement of Performance Units
through grants of common stock on December 30, 1994, of 321 shares to
Mr. Sheffield, 86 shares to Mr. Leach, 82 shares to Mr. Beal, 120
shares to Mr. Withrow and 64 shares to Mr. Chroback. Vesting of the
shares was accelerated so that 50% of the shares vested on December 31,
1995, and the remaining 50% vested on December 31, 1996. The shares are
10
subject to transfer restrictions that will lapse with respect to
one-third of the shares at the end of 1998, one-third of the shares at
the end of 1999 and one-third of the shares at the end of 2000.
Dividends are paid on the restricted stock at the same rate as they are
paid on all other shares of common stock.
The values of the awards were calculated using the closing sales price
of the Company's common stock of $29.75 on November 18, 1996, $19.25 on
May 31, 1995, and $20.50 on December 30, 1994.
The total number and value of all shares of restricted stock that each
executive officer held on December 31, 1996, are as follows based on
the closing sales that day of $36.75:
Number of Shares Value
---------------- -----------
Mr. Sheffield 54,400 $ 1,999,200
Mr. Leach 16,969 623,611
Mr. Beal 16,185 594,799
Mr. Withrow 24,908 915,369
Mr. Chroback 12,181 447,652
Mr. Dove 15,116 555,513
(e) Includes (i) Company contributions under the Company's 401(k) plan,
(ii) 1996 Company contributions to the Company's deferred compensation
retirement plan for executives, (iii) deemed payment of one-third of
the principal and all accrued interest related to a 1995 stock
acquisition loan program and (iv) $1,330 of premiums paid in each of
1996, 1995 and 1994 with respect to term life insurance policies for
the benefit of Mr. Sheffield.
11
401(k) Employer Non-Qualified Savings Plan Stock Acquisition
Name Year Match Employer Match Loan Agreement
---- ---- --------------- -------------------------- -----------------
Mr. Sheffield 1996 $ 6,750 $ 29,250 $ 50,660
1995 6,930 - -
1994 6,930 - -
Mr. Leach 1996 7,500 15,000 27,019
1995 6,930 - -
1994 6,930 - -
Mr. Beal 1996 7,688 6,563 27,019
1995 6,930 - -
1994 6,930 - -
Mr. Withrow 1996 7,688 13,125 22,290
1995 6,631 - -
1994 4,500 - -
Mr. Chroback 1996 7,688 13,125 20,264
1995 6,441 - -
1994 4,950 - -
Mr. Dove 1996 7,875 12,046 18,913
1995 6,011 - -
1994 - - -
(f) Mr. Dove joined the Company as an employee on April 28, 1994.
Stock Options. The Long-term Incentive Plan provides for employee
awards in the form of stock options, stock appreciation rights, restricted
stock, and Performance Units payable in stock or cash. The maximum number of
shares of common stock that may be issued under the Long-term Incentive Plan is
equal to 10% of the total shares of Company common stock outstanding from time
to time. The Long-term Incentive Plan had 105,155 shares available for
additional awards at December 31, 1996.
12
The following table sets forth information about stock option grants
made during 1996 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-------------------------------------
% of Total
Number of Options Exercise
Securities Granted to or Base
Underlying Employees Price
Options in Fiscal per Share Expiration Grant Date
Name Granted(a) Year (b) Date Value(c)
---- ----------- ----------- --------- ---------- ----------
Mr. Sheffield 70,000 11.0% $ 29.75 11/19/01 $ 707,700
Mr. Leach 31,000 4.9% 29.75 11/19/01 313,410
Mr. Beal 25,000 3.9% 29.75 11/19/01 252,750
Mr. Withrow 21,000 3.3% 29.75 11/19/01 212,310
Mr. Chroback 21,000 3.3% 29.75 11/19/01 212,310
Mr. Dove 21,000 3.3% 29.75 11/19/01 212,310
(a) Stock options were granted under the Long-term Incentive Plan. The
options were granted on November 19, 1996, vest at the rate of
one-third each year commencing on the first anniversary of the grant
date, and have a term of five years. The Compensation Committee retains
discretion, subject to plan limits, to modify the terms of the options
and to reprice the options. In the event of a change in control as
defined in the Long-term Incentive Plan, each holder of an option will
immediately be granted corresponding stock appreciation rights and the
options will immediately become fully vested and exercisable in full.
(b) The exercise price per share is equal to the closing price of the
Company's common stock on the NYSE composite tape on the day before the
date of grant.
(c) The estimated grant date value of the options is determined using the
Black-Scholes model. The material assumptions and adjustments
incorporated in the Black-Scholes model in estimating the value of the
options include the following:
o An interest rate of 6.18% which represents the interest rate on a
U. S. Treasury security with a maturity date corresponding to the
option term.
o Volatility of 32.22% calculated using daily stock prices for the
120-day period prior to the grant date.
o Dividends at the rate of $.10 per share representing the
annualized dividends paid with respect to a share of common stock
at the date of grant.
13
No other adjustments were made to the model for non-transferability or
risk of forfeiture. The ultimate values of the options will depend on the future
market price of the Company's stock, which cannot be forecast with reasonable
accuracy. The actual value, if any, an optionee will realize upon exercise of an
option will depend on the excess of the market value of the company's common
stock over the exercise price on the date the option is exercised.
The following table sets forth, for each Named Executive Officer,
information concerning the exercise of stock options during 1996 and the value
of unexercised stock options as of December 31, 1996.
AGGREGATED EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTIONS VALUES
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End at Fiscal Year-End(b)
Acquired on Value --------------------------- --------------------------
Exercise Realized(a) Exercisable Unexercisable Exercisable Unexercisable
----------- ----------- ----------- ------------- ----------- -------------
Mr. Sheffield 30,000 $ 541,250 66,666 103,334 $ 1,474,988 $ 1,077,512
Mr. Leach 16,666 300,898 9,500 50,000 167,438 551,875
Mr. Beal 20,784 262,458 - 41,666 - 468,738
Mr. Withrow 12,500 147,063 4,334 37,666 76,387 440,738
Mr. Chroback 6,000 110,751 13,334 37,666 259,387 440,738
Mr. Dove - - 13,000 35,000 187,125 372,750
(a) Amounts were calculated by multiplying the number of options exercised
by the market price of the Company's common stock at the time of
exercise minus the exercise price.
(b) Amounts were calculated by multiplying the number of unexercised
options by the closing sales price of the Company's common stock on
December 31, 1996 ($36.75) minus the exercise price.
Retirement Plan. Effective January 1, 1996, the Compensation Committee
approved a deferred compensation retirement plan for the executive officers of
the Company. Each executive is allowed to contribute up to 25% of base salary.
The Company provides a matching contribution of 100% of the employee's
contribution limited to the first 10% of the executive's base salary. The
Company matching contribution vests immediately.
Employee Investment Partnerships. During 1994, the Company formed a
Direct Investment Partnership to invest in all wells drilled by the Company
during that year (except in certain circumstances where its participation would
impose additional costs on the Company). The Company had also formed Direct
Investment Partnerships in 1992 and 1993. No partnerships were formed in 1995 or
1996, and the Company does not expect to form any new partnerships in the
future.
14
The 1994 Direct Investment Partnership was formed in January 1994 with
ten employee participants. Mr. Chroback was the only Named Executive Officer who
participated. The total initial capital contributions were approximately
$144,000, with the employees contributing approximately $142,600 (99%) and the
managing general partner contributing approximately $1,400 (1%). The partnership
pays .34% of the costs and receives .34% of the revenues attributable to the
Company's interest in the wells in which the partnership participates. Mr.
Chroback contributed $11,167 and has received distributions of $9,184 since the
partnership formation.
The Direct Investment Partnership program replaced prior employee
partnership programs that had been sponsored by the Company and its predecessors
during 1987 through 1991. As of December 31, 1996, the aggregate contributions
that have been made to those partnerships and the Direct Investment Partnerships
by the Named Executive Officers and the aggregate distributions that have been
received by the Named Executive Officers from those partnerships are as follows:
Mr. Sheffield contributed $643,334 and received $782,323 ($156,648 of which was
received during 1996); Mr. Leach contributed $361,255 and received $394,798
($75,397 of which was received during 1996); Mr. Withrow contributed $120,673
and received $91,716 ($21,330 of which was received during 1996); Mr. Beal
contributed $169,573 and received $219,264 ($40,014 of which was received during
1996); and Mr. Chroback contributed $80,667 and received $77,858 ($16,654 of
which was received during 1996).
Severance Agreements. On January 1, 1996, the Company entered into
severance agreements with its officers to replace their employment agreements
that expired at the end of 1995. Salaries and bonuses are set by the
Compensation Committee independent of these agreements, and the Compensation
Committee can increase or reduce base salary at its discretion.
Either the Company or the officer may terminate the officer's
employment under the severance agreement at any time. The Company must pay the
officer an amount equal to one year's base salary if the officer's employment is
terminated because of death, disability, or normal retirement. The Company must
pay the officer an amount equal to one year's base salary and continue health
insurance for the officer's family for one year if the Company terminates the
officer's employment without cause or if the officer terminates employment for
good reason, which is when reductions in the officer's base annual salary exceed
specified limits or when the officer's responsibilities have been significantly
reduced. If within one year after a change of control of the Company, the
Company terminates the officer without cause or if the officer terminates
employment for good reason, the Company must pay the officer an amount equal to
2.99 times the sum of the officer's base salary plus target bonus for the year
and continue health insurance for the officer's family for one year. If the
officer terminates employment with the Company without reason between six months
and one year after a change in control, or at any time within one year after a
change in control if the officer is required to move, then the Company must pay
the officer one year's base salary and continue health insurance for the
officer's family for one year. Officers are also entitled to additional payments
for certain tax liabilities that may apply to severance payments following a
change of control.
15
Indemnification Agreements
The Company has entered into indemnification agreements with each of
its directors and officers, including the Named Executive Officers. Those
agreements require the Company to indemnify the directors and officers to the
fullest extent permitted by the Delaware General Corporation Law and to advance
expenses in connection with certain claims against directors and officers. The
Company expects to enter into similar agreements with persons selected to be
directors and officers in the future. Each indemnification agreement also
provides that, upon a potential change in control of the Company and if the
indemnified director or officer so requests, the Company will create a trust for
the benefit of the indemnified director or officer in an amount sufficient to
satisfy payment of all liabilities and suits against which the Company has
indemnified the director or officer.
Compensation Committee Interlocks and Insider Participation
Mr. Fischer, Mr. Ramsey (Chairman), Mr. Smith, and Mr. Wortley served
as members of the Compensation Committee of the Company's Board of Directors
during 1996. None of them was an officer or employee, or former officer or
employee, of the Company during 1996. Mr. Fischer was employed by the Company on
February 1, 1997, and resigned from the Compensation Committee that day.
Mr. Smith is the Chairman and Chief Executive Officer of John S.
Herold, Inc., which has provided financial services to the Company periodically
since 1990. During 1996, the Company paid John S. Herold, Inc. and a joint
venture approximately $60,405 as consideration for its services. Mr. Sheffield,
the Company's Chairman, President and Chief Executive Officer, owns less than 1%
of the outstanding common stock of John S. Herold, Inc.
Mr. Wortley is a partner of Vinson & Elkins L.L.P., which provided
various legal services to the Company during 1996 as the Company's primary
outside corporate counsel. The dollar amount of fees that the Company paid to
Vinson & Elkins L.L.P. during the last fiscal year of that law firm did not
exceed 5% of that firm's gross revenues for that year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership by 5% Stockholders
The following table provides information about the beneficial ownership
of the Company's common stock by the persons known to the Company to be the
beneficial owners of more than 5% of the Company's common stock.
16
Title Name and Address of Amount and Nature of Percentage of
of Class Beneficial Owner Beneficial Ownership Class (d)
- ------------ ------------------------------------ -------------------- -------------
Common Stock Denver Investment Advisors LLC 3,817,640 (a) 10.89%
1225 17th Street, 26th Floor
Denver, Colorado 80202
Common Stock FMR Corp. 3,658,400 (b) 10.43%
82 Devonshire Street
Boston, Massachusetts 02109
Common Stock Mackay-Shields Financial Corporation 1,808,050 (c) 5.16%
9 West 57th Street
New York, New York 10019
- ---------------
(a) Based on the Schedule 13G dated January 10, 1997, filed with the Securities
and Exchange Commission, this person holds sole voting power of 2,488,400
shares, sole investment power of 3,814,100 shares, and shared voting and
investment power of 3,540 shares.
(b) Based on the Schedule 13G dated January 9, 1997, filed with the Securities
and Exchange Commission, this person holds sole voting power of 87,500
shares, sole investment power of 3,658,400 shares, and no shared voting and
investment power.
(c) Based on the Schedule 13G dated February 7, 1997, filed with the Securities
and Exchange Commission, this person holds sole voting power of 60,000
shares, sole investment power of 60,000 shares, and no shared voting or
investment power.
(d) Based upon the number of shares outstanding at December 31, 1996.
Ownership by Management
The following table provides information about the beneficial ownership of
the Company's common stock as of February 3, 1997, by each of the Company's
directors, by each Named Executive Officer, by the Company's directors and Named
Executive Officers as a group, and by the Company's directors, officers and key
employees as a group. To the best of the Company's knowledge, each such person
holds sole investment and voting power over the shares shown, except as
otherwise indicated. None of these persons beneficially owns any of the 6-1/4%
Cumulative Guaranteed Monthly Income Convertible Preferred Shares issued by
Parker & Parsley Capital LLC, a wholly-owned special-purpose finance subsidiary
of the Company.
17
Title Name and Address of Amount and Nature of Percentage of
of Class Beneficial Owner (a) Beneficial Ownership Class (b)
- ------------ ------------------------------------- -------------------- -------------
Common Stock Scott D. Sheffield 381,236 (c)(d) 1.1%
Common Stock Mel H. Fischer 7,890 *
Common Stock R. Hartwell Gardner 9,340 *
Common Stock James L. Houghton 12,066 (e) *
Common Stock Jerry P. Jones 13,978 *
Common Stock Charles E. Ramsey, Jr. 15,662 *
Common Stock Arthur L. Smith 8,653 *
Common Stock Edward O. Vetter 12,623 (f) *
Common Stock Michael D. Wortley 6,144 *
Common Stock Timothy A. Leach 32,609 (c)(g) *
Common Stock Steven L. Beal 16,883 *
Common Stock Mark L. Withrow 37,000 (c)(h) *
Common Stock David A. Chroback 31,935 (c)(i) *
Common Stock Timothy L. Dove 31,040 (c) *
Common Stock Directors and Named Executive
Officers as a group (14 persons) 617,059 (j) 1.8%
Common Stock Directors, officers and key
contributors as a group (77 persons) 956,395 (k) 2.7%
- ---------------
* Less than 1%.
(a) Unless otherwise indicated, shares are held of record by the named person.
(b) Based on the number of shares outstanding at February 3, 1997.
(c) Includes the following number of shares subject to stock options that were
exercisable at or within 60 days of February 3, 1997: Mr. Sheffield 66,666;
Mr. Leach 9,500; Mr. Withrow 4,334; Mr. Chroback 13,334; and Mr. Dove
13,000.
(d) Includes 400 shares held in an IRA account by Mr. Sheffield and 100 shares
held by a minor child of Mr. Sheffield.
(e) Includes 4,004 shares held by Mr. Houghton's wife.
(f) Includes 9,970 shares held by a family trust of which Mr. Vetter is a
trustee.
(g) Includes 500 shares held in an IRA account by Mr. Leach's wife.
(h) Includes 2,000 shares held in an SEP account by Mr. Withrow.
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(i) Includes 780 shares held in an IRA account by Mr. Chroback.
(j) Includes 106,834 shares subject to stock options granted under the
Long-term Incentive Plan that were exercisable at or within 60 days after
February 3, 1997.
(k) Includes 284,564 shares subject to stock options granted under the
Long-term Incentive Plan that were exercisable at or within 60 days after
February 3, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, through a wholly-owned subsidiary, serves as operator of
properties in which it and its sponsored partnerships have an interest, for
which the Company receives producing well overhead, drilling well overhead, and
other charges related to the operation of the properties. The sponsored
partnerships reimburse the Company for their allocated share of general and
administrative charges. In 1996, the sponsored partnerships paid the Company a
total of $9.7 million for lease operating and supervision charges and
reimbursement of general and administrative expenses. The Company has guaranteed
$681 thousand of debt related to some of the sponsored partnerships.
See Compensation Committee Interlocks and Insider Participation included in
"Item 11. Executive Compensation" for a discussion of certain related
transactions involving members of the Compensation Committee.
19
PARKER & PARSLEY PETROLEUM COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
PARKER & PARSLEY PETROLEUM COMPANY
Date: April 3, 1997 By: /s/ Scott D. Sheffield
-----------------------------------------
Scott D. Sheffield, Chairman of the Board,
President, Chief Executive Officer
and Director (principal executive officer)
Date: April 3, 1997 By: /s/ Steven L. Beal
-----------------------------------------
Steven L. Beal, Senior Vice President
and Chief Financial Officer (principal
financial and accounting officer)
20