-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FmELEG4sDFZTov1kbLcZ2AdkzTMH0SzPTbdaBvXqeHd7xcIKrgK+UtXSxipO+Gei T3NXMm024KZsKBB5+ReLpA== /in/edgar/work/20000814/0000950129-00-004179/0000950129-00-004179.txt : 20000921 0000950129-00-004179.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950129-00-004179 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARRIZO OIL & GAS INC CENTRAL INDEX KEY: 0001040593 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 760415919 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29187-87 FILM NUMBER: 698809 BUSINESS ADDRESS: STREET 1: 14811 ST MARYS LANE STREET 2: STE 148 CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 2814961352 MAIL ADDRESS: STREET 1: CARRIZO OIL & GAS INC STREET 2: 14811 ST MARYS LANE STE 148 CITY: HOUSTON STATE: TX ZIP: 77079 10-Q 1 e10-q.txt CARRIZO OIL & GAS, INC. - DATED JUNE 30, 2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2000 ------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission File Number 000-22915. CARRIZO OIL & GAS, INC. (Exact name of registrant as specified in its charter) TEXAS 76-0415919 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 14811 ST. MARY'S LANE, SUITE 148, HOUSTON, TEXAS 77079 - ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) (281) 496-1352 ------------------------------- (Registrant's telephone number) 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 --- --- The number of shares outstanding of the registrant's common stock, par value $0.01 per share, as of August 8, 2000, the latest practicable date, was 14,028,864. 2 CARRIZO OIL & GAS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 INDEX
PART I. FINANCIAL INFORMATION PAGE Item 1. Condensed Balance Sheets - As of June 30, 2000 and December 31, 1999 2 Condensed Statements of Operations - For the three-month and six-month periods ended June 30, 1999 and 2000 3 Condensed Statements of Cash Flows - For the six-month periods ended June 30, 1999 and 2000 4 Notes to Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Items 1-6. 17 SIGNATURES 20
3 CARRIZO OIL & GAS, INC. CONDENSED BALANCE SHEETS
December 31, June 30, 1999 2000 ------------ ------------ ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 11,345,618 $ 11,631,027 Accounts receivable, net of allowance for doubtful accounts of $480,000 at December 31, 1999 and June 30, 2000, respectively 4,424,283 4,616,727 Advances to operators 1,266,770 2,153,436 Other current assets 487,398 752,801 ------------ ------------ Total current assets 17,524,069 19,153,991 PROPERTY AND EQUIPMENT, net (full-cost method of accounting for oil and gas properties) 64,336,738 63,431,171 DEFERRED INCOME TAXES 820,252 820,252 OTHER ASSETS 985,315 1,105,341 ------------ ------------ $ 83,666,374 $ 84,510,755 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 4,095,567 $ 3,178,605 Accrued liabilities 481,239 420,398 Advances for joint operations 1,066,203 277,634 Current maturities of long-term debt 3,542,742 5,271,082 ------------ ------------ Total current liabilities 9,185,751 9,147,719 LONG-TERM DEBT (Note 3) 33,627,265 30,917,702 SHAREHOLDERS' EQUITY: Warrants (3,010,189 outstanding at December 31, 1999 and June 30, 2000) 765,047 765,047 Common Stock (40,000,000 shares authorized with 14,011,364 issued and outstanding at December 31, 1999 and June 30, 2000, respectively) 140,114 140,114 Additional paid-in capital 62,608,343 62,608,343 Accumulated deficit (22,660,146) (19,068,170) ------------ ------------ 40,853,358 44,445,334 ------------ ------------ $ 83,666,374 $ 84,510,755 ============ ============
The accompanying notes are an integral part of these financial statements. -2- 4 CARRIZO OIL & GAS, INC. UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three For the Six Months Ended Months Ended June 30, June 30, -------------------------------- -------------------------------- 1999 2000 1999 2000 ------------ ------------ ------------ ------------ OIL AND NATURAL GAS REVENUES $ 1,925,265 $ 5,826,737 $ 3,767,580 $ 10,106,334 COSTS AND EXPENSES: Oil and natural gas operating expenses 636,840 983,521 1,380,545 1,861,188 Depreciation, depletion and amortization 985,053 1,740,600 1,928,244 3,409,406 General and administrative 480,474 724,157 1,187,999 1,455,283 ------------ ------------ ------------ ------------ Total costs and expenses 2,102,367 3,448,278 4,496,788 6,725,877 ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) (177,102) 2,378,459 (729,208) 3,380,457 OTHER INCOME AND EXPENSES: Interest income 6,879 110,929 13,364 274,700 Interest expense (343,397) (873,052) (603,779) (1,813,889) Capitalized interest 340,306 872,692 600,688 1,801,775 ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (173,314) 2,489,028 (718,935) 3,643,043 INCOME TAXES 7,002 25,567 14,004 51,067 ------------ ------------ ------------ ------------ NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (180,316) 2,463,461 (732,939) 3,591,976 CUMULATIVE EFFECT OF CHANGE IN METHOD OF REPORTING COSTS OF START-UP ACTIVITIES (Note 6) -- -- 77,731 -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ (180,316) $ 2,463,461 $ (810,670) $ 3,591,976 ============ ============ ============ ============ LESS: DIVIDENDS AND ACCRETION ON PREFERRED SHARES (806,736) -- (1,595,579) -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (987,052) $ 2,463,461 $ (2,406,249) $ 3,591,976 ============ ============ ============ ============ BASIC INCOME (LOSS) PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (Note 2) $ (0.10) $ 0.18 $ (0.22) $ 0.26 BASIC INCOME (LOSS) PER COMMON SHARE OF CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (Notes 2 and 5) -- -- (0.01) -- ------------ ------------ ------------ ------------ BASIC INCOME (LOSS) PER COMMON SHARE (Note 2) $ (0.10) $ 0.18 $ (0.23) $ 0.26 ============ ============ ============ ============ DILUTED INCOME (LOSS) PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (Note 2) $ (0.10) $ 0.15 $ (0.22) $ 0.23 DILUTED INCOME (LOSS) PER COMMON SHARE OF CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (Notes 2 and 5) -- -- (0.01) -- ------------ ------------ ------------ ------------ DILUTED INCOME (LOSS) PER COMMON SHARE (Note 2) $ (0.10) $ 0.15 $ 0.23 $ 0.23 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. -3- 5 CARRIZO OIL & GAS, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, -------------------------------- 1999 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (810,670) $ 3,591,976 Adjustment to reconcile net income (loss) to net cash provided by operating activities- Depreciation, depletion and amortization 1,928,244 3,409,406 Discount accretion -- 15,444 Cumulative effect of change in accounting principle 77,731 -- Changes in assets and liabilities- Accounts receivable 1,139,141 (192,444) Other assets (89,416) (544,429) Accounts payable, trade 2,277,632 139,363 Other current liabilities (149,491) (60,841) ------------ ------------ Net cash provided by operating activities 4,373,171 6,358,475 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, accrual basis (5,327,514) (7,419,966) Proceeds from sale of Metro Project -- 5,075,127 Adjustment to cash basis (251,031) (450,279) Advances to operators 131,195 (886,666) Advances for joint operations (788,569) ------------ ------------ Net cash used in investing activities (5,447,350) (4,470,353) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 100,000 -- Debt repayments -- (1,602,713) ------------ ------------ Net cash provided by (used in) financing activities 100,000 (1,602,713) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (974,179) 285,409 CASH AND CASH EQUIVALENTS, beginning of period 1,187,656 11,345,618 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 213,477 $ 11,631,027 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for interest (net of amounts capitalized) $ 3,085 $ 12,114 ============ ============
The accompanying notes are an integral part of these financial statements. -4- 6 CARRIZO OIL & GAS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. ACCOUNTING POLICIES The condensed financial statements included herein have been prepared by Carrizo Oil & Gas, Inc. (the Company), and are unaudited, except for the balance sheet at December 31, 1999, which has been prepared from the audited financial statements at that date. The financial statements reflect necessary adjustments, all of which were of a recurring nature, and are in the opinion of management necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The Company believes that the disclosures presented are adequate to allow the information presented not to be misleading. The condensed financial statements included herein should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 2. EARNINGS PER COMMON SHARE: Supplemental earning per share information is provided below:
For the Three Months Ended June 30, ---------------------------------------------------------------------------------------- Income (Loss) Shares Per-Share Amount 1999 2000 1999 2000 1999 2000 ------------- ---------- ---------- ---------- ------ ----- Net income (loss) $ (180,316) $2,463,461 Less: Dividends and accretion on preferred stock (806,736) -- ---------- ---------- Basic Earnings per Share Net income (loss) available to common shareholders (987,052) 2,463,461 10,375,000 14,011,364 $(0.10) $0.18 ====== ===== Stock Options and Warrants -- -- -- 2,077,334 ---------- ---------- ---------- ---------- Diluted Earnings per Share Net Income (loss) available to common shareholders plus assumed conversions $ (987,052) $2,463,461 10,375,000 16,088,698 $(0.10) $0.15 ========== ========== ========== ========== ====== =====
-5- 7
For the Six Months Ended June 30, ------------------------------------------------------------------------------------------- Income (Loss) Shares Per-Share Amount 1999 2000 1999 2000 1999 2000 ----------- ----------- ----------- ----------- ----- ----- Net income (loss) before cumulative effect of change in accounting principle $ (732,939) $ 3,591,976 Less: Dividends and accretion on preferred stock (1,595,579) -- ----------- ----------- Basic Earnings per Share before cumulative change in accounting principle Net income (loss) available to common shareholders (2,328,518) 3,591,976 10,375,000 14,011,364 $(0.22) $0.26 ====== ===== Stock Options and Warrants -- -- -- 1,663,082 ----------- ----------- ----------- ----------- Diluted Earnings per Share before cumulative effect of change in accounting principle Net income (loss) available to common shareholders plus assumed conversions (2,328,518) 3,591,976 10,375,000 15,674,446 $(0.22) $0.23 =========== =========== =========== =========== ====== ===== Cumulative effect of change in accounting principle $ (77,731) $ -- Basic Earnings per Share of cumulative effect of change in accounting principle Net loss available to common shareholders (77,731) -- 10,375,000 14,011,364 $(0.01) $ -- ====== ===== Stock Options and Warrants -- -- -- 1,663,082 ----------- ----------- ----------- ----------- Diluted Earnings per Share before cumulative effect of change in accounting principle Net loss available to common shareholders plus assumed conversions $ (77,731) $ -- 10,375,000 15,674,446 $(0.01) $ -- =========== =========== =========== =========== ====== ===== Net Income (loss) $ (810,670) $ 3,591,976 Less: Dividends and accretion on preferred stock (1,595,579) -- ----------- ----------- Basic Earnings per Share Net income (loss) available to common shareholders (2,406,249) 3,591,976 10,375,000 14,011,364 $(0.23) $0.26 ====== ===== Stock Options and Warrants -- -- -- 1,663,082 ----------- ----------- ----------- ----------- Diluted Earnings per Share Net Income (loss) available to common shareholders plus assumed conversions $(2,406,249) $ 3,591,976 10,375,000 15,674,446 $(0.23) $0.23 =========== =========== =========== =========== ====== =====
-6- 8 Net income (loss) per common share has been computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods. The Company had outstanding 443,500 stock options and 1,000,000 warrants, during the three months and six months ended June 30, 1999, respectively, which were antidilutive and were not included in the calculation because the exercise price of these instruments exceeded the underlying market value of the options and warrants. 3. FINANCING ARRANGEMENTS: In connection with Carrizo's initial public offering in 1997, Carrizo amended its existing credit facility with Compass Bank ("Compass"), to provide for a maximum loan amount of $25 million, subject to borrowing base limitations. Under this facility, the principal outstanding is due and payable upon maturity in January 2002, with interest due monthly. This facility was subsequently amended in September 1998 to provide for a term loan under the facility (the "Term Loan") in addition to the then existing revolving credit facility limited by the Company's borrowing base (the "Borrowing Base Facility"). The Borrowing Base Facility was amended in March, 1999 to provide for a maximum loan amount under such facility of $10 million. Substantially all of Carrizo's oil and natural gas property and equipment is pledged as collateral under this facility. The interest rate for both borrowings is calculated at a floating rate based on the Compass index rate or LIBOR plus 2 percent. The Company's obligations are secured by certain of its oil and gas properties and cash or cash equivalents included in the borrowing base. The Borrowing Base Facility and the Term Loan are referred to collectively as the "Company Credit Facility". Proceeds from the Borrowing Base portions of this credit facility have been used to provide funding for exploration and development activity. Under the Borrowing Base Facility, Compass, in its sole discretion, will make semiannual borrowing base determinations based upon the proved oil and natural gas properties of the Company. Compass may also redetermine the borrowing base and the monthly borrowing base reduction at any time at its discretion. The Company may also request borrowing base redeterminations in addition to the required semiannual reviews at the Company's cost. At December 31, 1999 and June 30, 2000, amounts outstanding under the Borrowing Base Facility totaled $5,876,000 and $5,426,000, respectively, with an additional $1,208,392 and $4,170,000, respectively, available for future borrowings. The Borrowing Base totaled $7,308,382 and $10,270,000 at December 31, 1999 and June 30, 2000, respectively. The Borrowing Base Facility was also available for letters of credit, one of which has been issued for $224,000 at December 31, 1999 and June 30, 2000. Certain members of the Board of Directors have provided collateral, primarily in the form of marketable securities, to secure the Borrowing Base Facility. As of August 1, 2000, the aggregate amount of this collateral was approximately $3.0 million. The Term Loan was initially due and payable upon maturity in September 1999. The Company had $7,000,000 outstanding under the Term Loan at December 31, 1998. In March 1999, the Company borrowed an additional $2 million on the term loan portion of the Company Credit Facility increasing outstanding borrowings under the Term Loan to $9 million. In March 1999, the maturity date of the Term Loan was amended to provide for twelve monthly installments of $750,000 beginning January 1, 2000. In December 1999, the additional $2 million under the term loan was repaid with proceeds from the sale of the Subordinated Notes, Common Stock and Warrants leaving $7,000,000 outstanding at December 31, 1999 and June 30, 2000. The repayment terms were also amended to provide for $1.74 million of principal due ratably over the last six months of 2000, $2.64 million of principal due ratably over the first six months of 2001, and the balance due in July 2001. Certain members of the Board of Directors have guaranteed the Term Loan. The Company is subject to certain covenants under the terms of the Company Credit Facility, including but not limited to (a) maintenance of specified tangible net worth, (b) a ratio of quarterly EBITDA (earnings before interest, taxes, depreciation and amortization) to quarterly debt service of not less than 1.25 to 1.00, and (c) a specified minimum amount of working capital. The Company Credit Facility also places restrictions on, among other things, (a) incurring additional indebtedness, guaranties, loans and liens, (b) changing the nature of business or business structure, (c) selling assets and (d) paying dividends. In March 1999, the Company Credit Facility was amended to decrease the required specified tangible net worth covenant. In November 1999, certain members of the Board of Directors provided a bridge loan in the amount of $2,000,000 to the Company secured by certain oil and natural gas properties. This bridge loan bore interest at 14 percent per annum. Also, in consideration for the bridge loan, the Company assigned to those members of the Board of Directors an Overriding Royalty Interest in certain of the Company's producing properties. The bridge loan was repaid from the proceeds of the sale of Subordinated Notes, Common Stock and Warrants. -7- 9 In December 1999, the Company consummated the sale of $22 million principal amount of 9 percent Senior Subordinated Notes due 2007 (the "Subordinated Notes") to an investor group led by CB Capital Investors, L.P. which included certain members of the Board of Directors. The Company also sold Common Stock and Warrants to this investor group. The Subordinated Notes were sold at a discount of $688,761, which is being amortized over the life of the notes. Interest is payable quarterly beginning June 30, 2000. The Company may elect to increase the amount of the Subordinated Notes for 60 percent of the interest which would otherwise be payable in cash. The Subordinated Notes were increased by $606,046 for such interest as of June 30, 2000. Such Senior Subordinated Notes had a fair market value at June 30, 2000 of approximately $22 million. The Company is subject to certain covenants under the terms under the Subordinated Notes securities purchase agreement, including but not limited to, (a) maintenance of a specified tangible net worth, (b) maintenance of a ratio of EBITDA (earnings before interest, taxes, depreciation and amortization) to quarterly Debt Service (as defined in the agreement) of not less than 1.00 to 1.00, and (c) a limitation of its capital expenditures to a specified amount for the year ended December 31, 2000 and thereafter equal to the Company's EBITDA for the immediately prior fiscal year. During 1999, Carrizo restructured certain current accounts payable into vendor notes, extending the payment dates through 2001. Such notes totaled $1,778,982 at June 30, 2000 and bear interest at rates of 8 percent to 10 percent. 4. INCOME TAXES: The Company decreased the valuation allowance associated with $2,489,028 and $3,643,043 of its net operating loss carryforwards for three month and six month periods ended June 30, 2000 as management has determined that it is more likely than not that such carryforwards will be utilized based upon the Company's latest estimate of future taxable income. As a result of this determination, the Company realized a deferred tax benefit in the amount of $881,660 and $1,311,065 for the three and six months ended June 30, 2000. 5. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: On January 1, 1999 the Company adopted the American Institute of Certified Public Accountants Statement of Position ("SOP") 98-5, which provides guidance on the accounting for start-up costs. SOP 98-5 requires that start-up costs be expensed as incurred. The cumulative effect of this change in accounting principle to write off unamortized organization costs is $77,731 in 1999. 6. COMMITMENTS AND CONTINGENCIES: The Company, as one of three plaintiffs, has filed a lawsuit against BNP Petroleum Corporation, Seiskin Interests, LTD, Pagenergy Company, LLC and Gap Marketing Company, LLC, as defendants, in the 229th Judicial District Court of Duval County, Texas, for fraud and breach of contract in connection with an agreement between plaintiffs and defendants whereby the defendants were obligated to drill a test well in an area known as the Slick Prospect in Duval County, Texas. The allegations of the Company in this litigation are that BNP gave the Company inaccurate and incomplete information on which the Company relied in making its decision not to participate in the test well and the prospect, resulting in the loss of the Company's interest in the lease, the test well and four subsequent wells drilled in the prospect. The Company seeks to enforce its approximate 23.68% interest in the prospect and seeks damages or rescission, as well as costs and attorneys' fees. The case was originally filed in Duval County, Texas on February 25, 2000. In mid March, 2000, the defendants filed an original answer and certain counterclaims against plaintiffs, seeking unspecified damages for slander of title, tortious interference with business relations, bad-faith litigation, and exemplary damages. The case proceeded to trial before the Court (without a jury) on June 19, 2000. The trial is currently in recess and is expected to resume on September 5, 2000. On July 3, 2000, the Company became aware that on June 30, 2000, defendants filed a second amended answer and counterclaim and certain supplemental responses to requests for disclosure in which they stated that they were seeking damages in the amount of $33.5 million by virtue of an alleged lost sale of the subject properties, $17 million in alleged lost profits from other prospective contracts, and unspecified incidental and consequential damages from the alleged wrongful suspension of funds under their gas sales contract with the gas purchaser on the properties, alleged damage to relationships with trade creditors and financial institutions, including the inability to leverage the Slick Prospect, and attorneys' fees at prevailing hourly rates in Duval County, Texas incurred in defending against plaintiffs' claims and for 40% of any aggregate recovery in prosecuting their counterclaims. While the Company believes it has sufficient legal defenses to all of the defendants' counterclaims and intends to vigorously defend itself in this matter, there can be no assurance that the outcome of any portion of this litigation will be favorable to the Company. An adverse outcome on the counterclaims or related matters could have a material adverse effect on the Company. The Company has also alleged that BNP Petroleum Corporation, Seiskin Interests, LTD and Pagenergy Company, LLC breached a contract with the plaintiffs by obtaining oil and gas leases within an area restricted by that contract. This breach of contract allegation is the subject of an additional lawsuit by plaintiffs in the 165th District Court in Harris County, Texas. The Company is seeking damages as a result of defendants' actions as well as costs and attorneys' fees. 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In September 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133" and SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of SFAS No. 133" is effective for fiscal years beginning after June 15, 2000. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance. Statement No. 133 cannot be applied retroactively. Statement No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1998 and, at the Company's election, before January 1, 1999. The Company routinely enters into financial instrument contracts to hedge price risks associated with the sale of crude oil and natural gas. Statement No. 133 amends, modifies and supercedes significantly all of the authoritative literature governing the accounting for and disclosure of derivative financial instruments and hedging activities. As a result, adoption of Statement No. 133 will impact the accounting for and disclosure of the Company's operations. The Company intends to adopt the provisions of such statement in accordance with the requirements provided by the statement. Management is currently assessing the financial statement impact; however, such impact is not determinable at this time. In March of 2000, the FASB issued Interpretation No. 44 "Accounting for Certain Transactions involving Stock -8- 10 11 Compensation - an interpretation of APB No. 25" ("the Interpretation") which clarifies the application of APB 25 for only certain issues associated with accounting for the issuance or subsequent modifications of stock compensation and is effective July 1, 2000. For certain modifications, including stock options repricings made subsequent to December 15, 1998, the Interpretation requires that variable plan accounting be applied to those modified awards prospectively from July 1, 2000. On February 17, 2000, Carrizo repriced certain employee and director stock options covering 358,500 shares of stock with a weighted average exercise price of $9.13 to a new exercise price of $2.25 through the cancellation of existing options and issuance of new options at current market prices. This repricing resulted in the recognition of $714,000 of compensation expense upon adoption of the Interpretation in the third quarter of 2000 which will be recognized in income over the remaining vesting period for those options through February 2003. Subsequent to the adoption of the Interpretation, the Company will be required to record the effects of any further changes in its stock price on the corresponding intrinsic value recognized on July 1, 2000 of the repriced options in its results of operations as compensation expense until the repriced options either are exercised or expire. -9- 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors that have affected certain aspects of the Company's financial position and results of operations during the periods included in the accompanying unaudited condensed financial statements. This discussion should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the annual financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and the unaudited condensed financial statements included elsewhere herein. Unless otherwise indicated by the context, references herein to "Carrizo" or "Company" mean Carrizo Oil & Gas, Inc., a Texas corporation that is the registrant. GENERAL OVERVIEW The Company began operations in September 1993 and initially focused on the acquisition of producing properties. As a result of the increasing availability of economic onshore 3-D seismic surveys, the Company began to obtain 3-D seismic data and options to lease substantial acreage in 1995 and began to drill its 3-D based prospects in 1996. The Company drilled 32 wells in 1999 and 20 wells through the six months ended June 30, 2000. The Company has budgeted to drill up to 45 gross wells (14.1 net) in 2000; however, in order to drill the expected number of wells the Company may need to obtain additional financing, and the actual number of wells drilled will vary depending upon the Company's ability to obtain this financing, success of drilling programs, and other factors. If the Company drills the number of wells it has budgeted for 2000, depreciation, depletion and amortization, oil and gas operating expenses and production are expected to increase. The Company has typically retained the majority of its interests in shallow, normally pressured prospects and sold a portion of its interests in deeper, overpressured prospects. The Company has primarily grown through the internal development of properties within its exploration project areas, although the Company acquired properties with existing production in the Camp Hill Project in late 1993, the Encinitas Project in early 1995 and the La Rosa Project in 1996. The Company made these acquisitions through the use of limited partnerships with Carrizo or Carrizo Production, Inc. as the general partner. In addition, in November 1998, the Company acquired assets in Wharton County, Texas in the Jones Branch project area for $3,000,000. The Company's revenues, profitability, future growth and ability to borrow funds or obtain additional capital, and the carrying value of its properties are substantially dependent on the success of the Company's exploration program and the prevailing prices of oil and natural gas. It is impossible to predict future oil and natural gas price movements with certainty. Declines in prices received for oil and natural gas may have an adverse effect on the Company's financial condition, liquidity, ability to finance capital expenditures, and results of operations. Lower prices may also impact the amount of reserves that can be produced economically by the Company. Due to the instability of oil and natural gas prices, the Company began utilizing, from time to time, certain hedging instruments (e.g., NYMEX futures contracts) for a portion of its oil and gas production to achieve a more predictable cash flow, as well as to reduce the exposure to price fluctuations. The Company's hedging arrangements apply to only a portion of its production, provide only partial price protection against declines in oil and natural gas prices and limit potential gains from future increases in prices. Such hedging arrangements may expose the Company to risk of financial loss in certain circumstances, including instances where production is less than expected, the Company's customers fail to purchase contracted quantities of oil or natural gas, or a sudden unexpected event materially impacts oil or natural gas prices. The Company accounts for all these transactions as hedging activities and, accordingly, gains and losses from hedging activities are included in oil and gas revenues during the period the hedged transactions occur. The Company expects that the amount of hedges that it has in place will vary from time to time. The Company entered into natural gas hedging transactions covering 240,000 MMbtu and 240,000 MMbtu at an average price (Houston Ship Channel) of $2.60 and $3.50 resulting in a gain of $32,000 and a loss of $340,000 for the three and six months ended June 30, 2000, respectively. The Company also entered into oil hedging transactions covering 39,300 Bbls and 12,200 Bbls at an average price of $25.54 and $25.45 resulting in a loss of $129,000 and a gain of $1,000 for the three and six months ended June 30, 2000, respectively. Further, the Company entered into natural gas hedging transactions covering 420,000 MMbtu and 1,080,000 MMbtu at an average price (Houston Ship Channel) of $1.98 and $2.07 resulting in a loss of $85,000 and a gain of $32,000 for the three and six months ended June 30, 1999, respectively. The Company had outstanding hedge positions as of June 30, 2000 and 1999, respectively, covering 600,000 MMbtu for July-December 2000 and 720,000 MMbtu for July-December 1999 at an average price of $3.61 and $1.93 (Houston Ship Channel). The Company also had outstanding hedge -10- 13 positions as of June 30, 2000 and 1999, respectively, covering 18,000 Bbls for July-September 2000 and 36,000 Bbls for July-December 1999 at an average price of $26.45 and $15.45. The fair market value of the hedge positions as June 30, 2000 is approximately $(533,000). The Company uses the full-cost method of accounting for its oil and gas properties. Under this method, all acquisition, exploration and development costs, including any general and administrative costs that are directly attributable to the Company's acquisition, exploration and development activities, are capitalized in a "full-cost pool" as incurred. The Company records depletion of its full-cost pool using the unit-of-production method. To the extent that such capitalized costs in the full-cost pool (net of depreciation, depletion and amortization and related deferred taxes) exceed the present value (using a 10 percent discount rate) of estimated future net after-tax cash flows from proved oil and gas reserves, such excess costs are charged to operations. Primarily as a result of depressed oil and natural gas prices, and the resulting downward reserve quantity revisions, the Company recorded a ceiling test write-down of $20.3 million in 1998. A ceiling test write-down was not required for the three months and six months ended June 30, 2000 and 1999. Once incurred, a write-down of oil and gas properties is not reversible at a later date. RESULTS OF OPERATIONS Three Months Ended June 30, 2000, Compared to the Three Months Ended June 30, 1999 Oil and natural gas revenues for the three months ended June 30, 2000 increased 203 percent to $5,827,000 from $1,925,000 for the same period in 1999. Production volumes for natural gas during the three months ended June 30, 2000 increased 100 percent to 1,396,688 Mcf from 697,268 Mcf for the same period in 1999. Average gas prices increased 60 percent to $3.15 per Mcf in the second quarter of 2000 from $1.97 per Mcf in the same period in 1999. Production volumes for oil in the second quarter of 2000 increased 21 percent to 51,430 Bbls from 42,562 Bbls for the same period in 1999. Average oil prices increased 115 percent to $27.72 per barrel in the second quarter of 2000 from $12.92 per barrel in the same period in 1999. Oil and natural gas production increased primarily as a result of the commencement of production from the Cabeza Creek Project wells, additional Matagorda Project wells, the Cedar Point Project well and higher than anticipated production from wells in which the Company had a back-in working interest after pay out, offset by the natural decline of existing wells. Oil and natural gas revenues include the impact of hedging activities as discussed above under "General Overview." The following table summarizes production volumes, average sales prices and operating revenues for the Company's oil and natural gas operations for the three months ended June 30, 1999 and 2000:
2000 Period Compared to 1999 Period June 30, --------------------------- --------------------------- Increase % Increase 1999 2000 (Decrease) (Decrease) ---------- ---------- ---------- ---------- Production volumes- Oil and condensate (Bbls) 42,562 51,430 8,868 21% Natural gas (Mcf) 697,268 1,396,688 699,420 100% Average sales prices-(1) Oil and condensate (per Bbl) $ 12.92 $ 27.72 $ 14.80 115% Natural gas (per Mcf) 1.97 3.15 1.18 60% Operating revenues- Oil and condensate $ 550,047 $1,425,850 $ 875,803 159% Natural gas 1,375,218 4,400,887 8,025,669 220% ---------- ---------- ---------- Total $1,925,265 $5,826,737 $3,901,472 203% ========== ========== ==========
- ---------- (1) Includes impact of hedging activities. -11- 14 Oil and natural gas operating expenses for the three months ended June 30, 2000 increased 54 percent to $984,000 from $637,000 for the same period in 1999 primarily due to the additional severance tax on the additional revenue and the addition of new production offset by a reduction in costs on older producing fields. Operating expenses per equivalent unit decreased to $.58 per Mcfe in the second quarter of 2000 from $.67 per Mcfe in the same period in 1999 as a result of the increase in production of natural gas and cost control measures implemented in certain oil producing fields. Depreciation, depletion and amortization (DD&A) expense for the three months ended June 30, 2000 increased 76 percent to $1,741,000 from $985,000 for the same period in 1999. This increase was due to increased amortization of deferred loan costs, increased production and additional seismic and drilling costs offset by the lower asset base resulting from the ceiling test write-down in the fourth quarter of 1998 and the sale of the Metro Project in the second quarter of 2000. General and administrative expense for the three months ended June 30, 2000 increased 51 percent to $724,000 from $480,000 for the same period in 1999 primarily as a result of ramp-up of employee expenses based upon the drilling success in the last twelve months offset by cost control measures implemented in the first quarter of 1999. Interest income for the three months ended June 30, 2000 increased to $111,000 from $7,000 in the second quarter of 1999 primarily as a result of the financing that closed during the fourth quarter of 1999. Net interest expense for the three months ended June 30, 2000, decreased to zero from $3,000 from in the same period in 1999. Capitalized interest increased to $873,000 in the second quarter of 2000 from $340,000 in the second quarter of 1999 primarily as a result of the financing that closed during the fourth quarter of 1999. Income before income taxes for the three months ended June 30, 2000 increased to $2,489,000 from a loss of $173,000 in the same period in 1999. Net income for the three months ended June 30, 2000 increased to $2,463,000 from a loss of $180,000 for the same period in 1999 primarily as a result of the factors described above. Six Months Ended June 30, 2000, Compared to the Six Months Ended June 30, 1999 Oil and natural gas revenues for the six months ended June 30, 2000 increased 168 percent to $10,107,000 from $3,768,000 for the same period in 1999. Production volumes for natural gas during the six months ended June 30, 2000 increased 84 percent to 2,577,304 Mcf from 1,400,962 Mcf for the same period in 1999. Average gas prices increased 47 percent to $2.87 per Mcf in the first half of 2000 from $1.94 per Mcf in the same period in 1999. Production volumes for oil in the first half of 2000 increased 15 percent to 104,241 Bbls from 90,321 Bbls for the same period in 1999. Average oil prices increased 126 percent to $26.11 per barrel in the first half of 2000 from $11.55 per barrel in the same period in 1999. Oil and natural gas production increased primarily as a result of the commencement of production from the Cabeza Creek Project wells, additional Matagorda Project wells, the Cedar Point Project well and higher than anticipated production from wells in which the Company had a back-in working interest after payout, offset by the natural decline of existing wells. Oil and natural gas revenues include the impact of hedging activities as discussed above under "General Overview." -12- 15 The following table summarizes production volumes, average sales prices and operating revenues for the Company's oil and natural gas operations for the six months ended June 30, 1999 and 2000:
2000 Period Compared to 1999 Period June 30, ----------------------------- ----------------------------- Increase % Increase 1999 2000 (Decrease) (Decrease) ----------- ----------- ----------- ----------- Production volumes- Oil and condensate (Bbls) 90,321 104,241 13,920 15% Natural gas (Mcf) 1,400,962 2,577,304 1,176,342 84% Average sales prices-(1) Oil and condensate (per Bbl) $ 11.55 $ 26.11 $ 14.57 126% Natural gas (per Mcf) 1.94 2.87 0.93 47% Operating revenues- Oil and condensate $ 1,043,484 $ 2,722,410 $ 1,678,926 161% Natural gas 2,724,096 7,384,924 4,660,828 171% ----------- ----------- ----------- Total $ 3,767,580 $10,107,334 $ 6,339,754 168% =========== =========== ===========
- ---------- (1) Includes impact of hedging activities. Oil and natural gas operating expenses for the six months ended June 30, 2000 increased 35 percent to $1,861,000 from $1,381,000 for the same period in 1999 primarily due to the addition of new wells offset by a reduction in costs on older producing fields. Operating expenses per equivalent unit decreased to $.58 per Mcfe in the first half of 2000 from $.71 per Mcfe in the same period in 1999 as a result of increased production of natural gas and the implementation of cost control measures in certain oil producing fields during the first quarter of 1999. Depreciation, depletion and amortization (DD&A) expense for the six months ended June 30, 2000 increased 77 percent to $3,409,406 from $1,928,000 for the same period in 1999. This increase was due to increased amortization of deferred loan costs, additional production and seismic and drilling costs offset by the lower asset base resulting from the ceiling test write-down in the fourth quarter of 1998 and the sale of the Metro Project in the second quarter of 2000. General and administrative expense for the six months ended June 30, 2000 increased 22 percent to $1,455,000 from $1,188,000 for the same period in 1999 primarily as a result of the ramp-up of employee expenses based upon the drilling success during the second half of 1999 and the first half of 2000, offset by cost control measures implemented in the first quarter of 1999. Interest income for the six months ended June 30, 2000 increased to $275,000 from $13,000 in the first half of 1999. Net interest expense for the six months ended June 30, 2000 increased to $12,000 from $3,000 for the same period in 1999. Capitalized interest increased to $1,802,000 in the first half of 2000 from $601,000 in the first half of 1999 primarily as a result of the financing that closed during the fourth quarter of 1999. Income (loss) before income taxes for the six months ended June 30, 2000 increased to income of $3,643,000 from a loss of $719,000 for the same period in 1999. Net income (loss) for the six months ended June 30, 2000 increased to income of $3,592,000 from a loss of $811,000 for the same period in 1999 primarily as a result of the factors described above and the charge of $78,000 for the cumulative effect of change in method of reporting costs of start-up activities. LIQUIDITY AND CAPITAL RESOURCES The Company has made and will be required to make oil and gas capital expenditures substantially in excess of its net cash flow from operations in order to fully explore and develop its existing properties. While the Company believes that the financing consummated in December 1999 combined with the proceeds from the recent sale of the Company's interest in the Metro Project Area will provide sufficient capital to carry out the Company's 2000 exploration plan, management of the Company continues to seek financing for its future capital program from a variety of sources. No assurance can be given that the Company will be able to obtain additional financing on terms that would be acceptable to the Company. Without raising additional capital, the Company anticipates that it could be required to limit or defer its planned oil and gas exploration and development program subsequent to 2000, which could adversely affect the recoverability and ultimate value of the Company's oil and gas properties. -13- 16 The Company's primary sources of liquidity have included proceeds from the initial public offering, from the December 1999 sale of Subordinated Notes, Common Stock and Warrants, the 1998 sale of shares of Preferred Stock and Warrants, funds generated by operations, equity capital contributions, borrowings, primarily under revolving credit facilities and the Palace agreement and the sale of the Company's interest in the Metro Project Area in June 2000 for approximately $5.1 million. Cash flows provided by operations (after changes in working capital) were $4,373,000 and $7,864,000 for the six months ended June 30, 1999 and 2000, respectively. The increase in cash flows provided by operations in 2000 as compared to 1999 was due primarily to additional revenue due to higher production and higher oil and gas prices during the first half of 2000. The Company has budgeted capital expenditures for the year ended December 31, 2000 of approximately $13.9 million of which $2.3 million is expected to be used to fund 3-D seismic surveys and land acquisitions and $11.6 million of which is expected to be used for drilling activities in the Company's project areas. The Company has budgeted to drill up to approximately 45 gross wells (14.1 net) in 2000. The actual number of wells drilled and capital expended is dependent upon available financing, cash flow, drilling rigs and other factors. The Company has continued to reinvest a substantial portion of its cash flows into increasing its 3-D supported drilling prospect portfolio, improving its 3-D seismic interpretation technology and funding its drilling program. Oil and gas capital expenditures were $7.4 million for the six months ended June 30, 2000. The Company's drilling efforts resulted in the successful completion of 18 gross wells (3.2 net) during the year ended December 31, 1999 and 13 gross wells (3.9 net) during the six months ended June 30, 2000. FINANCING ARRANGEMENTS In connection with Carrizo's initial public offering in 1997, Carrizo entered into an amended revolving credit facility with Compass Bank (the "Company Credit Facility"), to provide for a maximum loan amount of $25 million, subject to borrowing base limitations. The principal outstanding is due and payable in January 2002, with interest due monthly. The Company Credit Facility was amended in March 1999 to provide for a maximum loan amount under such facility of $10 million. The interest rate on all revolving credit loans is calculated, at the Company's option, at a floating rate based on the Compass index rate or LIBOR plus 2 percent. The Company's obligations are secured by substantially all of its oil and gas properties and cash or cash equivalents included in the borrowing base. Certain members of the Board of Directors have provided collateral, primarily in the form of marketable securities, to secure the revolving credit loans. As of May 1, 2000, the aggregate amount of this collateral was approximately $6.6 million. Under the Company Credit Facility, Compass, in its sole discretion, will make semiannual borrowing base determinations based upon the proved oil and natural gas properties of the Company. Compass may also redetermine the borrowing base and the monthly borrowing base reduction at any time at its discretion. The Company may also request borrowing base redeterminations in addition to the required semiannual reviews at the Company's cost. In December 1997, the Company Credit Facility was amended to provide for a term loan of $3 million, bearing interest at the Index Rate. The amount outstanding under the $3 million term loan as of December 31, 1998 was $3 million, which was repaid in January 1999. In September 1998, the Company Credit Facility was further amended to provide for an additional $7 million term loan bearing interest at the Index Rate, of which $7 million was borrowed in the fourth quarter of 1998. In March 1999, the Company Credit Facility was further amended to increase the $7 million term loan by $2 million. In December 1999, $2 million principal amount of the term loan was repaid with proceeds from the sale from the Subordinated Notes, Common Stock and Warrants. Certain members of the Board of Directors have guaranteed the term loan. As currently amended pursuant to an amendment dated December 1999, interest on the term loan is payable monthly, bearing interest at the Index Rate. Unless preceded by the Term Loan Maturity Date (as defined below), principal payments on the term loan are not due until June 1, 2000, whereupon the term loan is repayable in consecutive monthly installments in the amount $290,000 each, beginning July 1, 2000 through December 1, 2000, and thereafter in the amount of $440,000, beginning January 1, 2001 until the Term Loan Maturity Date, when the entire principal balance, plus interest, is payable. Term Loan Maturity Date means the earlier of: (1) the date of closing of the issuance of additional equity of the Company, if the net proceeds of such issuance are sufficient to repay in full the term loan; (2) the date of -14- 17 closing of the issuance of convertible subordinated debt of the Company, if the proceeds of such issuance are sufficient to repay in full the term loan; (3) the date of repayment of the revolving credit loans and the termination of the revolving commitment; and (4) July 1, 2001. The Company is subject to certain covenants under the terms of the Company Credit Facility, including but not limited to (a) maintenance of specified tangible net worth, (b) a ratio of quarterly EBITDA (earnings before interest, taxes, depreciation and amortization) to quarterly debt service of not less than 1.25 to 1.00, and (c) a specified minimum amount of working capital. The Company Credit Facility also places restrictions on, among other things, (a) incurring additional indebtedness, guaranties, loans and liens, (b) changing the nature of business or business structure, (c) selling assets and (d) paying dividends. Proceeds of the revolving credit loans have been used to provide funding for exploration and development activity. At December 31, 1999 and June 30, 2000, outstanding revolving credit loans totaled $5,876,000 and $5,426,000, respectively with an additional $1,208,392 and $4,170,000, respectively, available for future borrowings. The outstanding amount of the term loan was $7,000,000 at December 31, 1999 and June 30, 2000. The Company Credit Facility also provides for the issuance of letters of credit, one of which has been issued for $224,000 at December 31, 1999 and June 30, 2000. In November 1999, certain members of the Board of Directors provided a bridge loan in the amount of $2,000,000, to the Company, secured by certain oil and natural gas properties. This bridge loan bore interest at 14 percent per annum. Also in consideration for the bridge loan, the Company assigned to Messrs. Hamilton, Webster, and Loyd an aggregate 1.0 percent overriding royalty interest ("ORRI") in the Huebner #1 and Fondren Letulle #1 wells (combined with the prior assignment, a 2 percent overriding royalty interest), a .8794 percent ORRI in Neblett #1 (N. La. Copita), a 1.0466 percent ORRI in STS 104-5 #1, a 1.544 percent ORRI in USX Hematite #1, a 2.0 percent ORRI in Huebner #2 and a 2.0 percent ORRI in Burkhart #1. On December 15, 1999 the bridge loan was repaid in its entirety with proceeds from the sale of Common Stock, Subordinated Notes and Warrants. Such overriding royalty interests are limited to the well bore and proportionately reduced to the Company's working interest in the well. In December 1999, the Company consummated the sale of $22 million principal amount of 9 percent Senior Subordinated Notes due 2007 (the "Subordinated Notes") to an investor group led by CB Capital Investors, L.P. which included certain members of the Board of Directors. The Subordinated Notes were sold at a discount of $688,761 which is being amortized over the life of the notes. Interest is payable quarterly beginning March 31, 2000. The Company may elect, for a period of five years, to increase the amount of the Subordinated Notes for up to 60 percent of the interest which would otherwise be payable in cash. The Subordinated Notes were increased by $606,046 for such interest as of June 30, 2000. Concurrent with the sale of the notes, the Company consummated the sale of 3,636,364 shares of Common Stock at a price of $2.20 per share and Warrants to purchase up to 2,760,189 shares of the Company's Common Stock at an exercise price of $2.20 per share. For accounting purposes, the Warrants are valued at $0.25 per Warrant. The sale was made to an investor group led by CB Capital Investors, L.P. which included certain members of the Board of Directors. The Warrants have an exercise price of $2.20 per share and expire in December 2007. The Company is subject to certain covenants under the terms under the related Securities Purchase Agreement, including but not limited to, (a) maintenance of a specified Tangible Net Worth, (b) maintenance of a ratio of EBITDA (earnings before interest, taxes depreciation and amortization) to quarterly Debt Service (as defined in the agreement) of not less than 1.00 to 1.00, and (c) limit its capital expenditures to a specified amount for the year ended December 31, 2000, and thereafter to an amount equal to the Company's EBITDA for the immediately prior fiscal year, as well as limits on the Company's ability to (i) incur indebtedness, (ii) incur or allow liens, (iii) engage in mergers, consolidation, sales of assets and acquisitions, (iv) declare dividends and effect certain distributions (including restrictions on distributions upon the Common Stock), (v) engage in transactions with affiliates (vi) make certain repayments and prepayments, including any prepayment of the Company's Term Loan, any subordinated debt, indebtedness that is guaranteed or credit-enhanced by any affiliate of the Company, and prepayments that effect certain permanent reductions in revolving credit facilities. Of the approximately $29,000,000 net proceeds of this financing, $12,060,000 was used to fund the Enron Repurchase described below and related expenses, $2,025,000 was used to repay the bridge loan extended to the Company by its outside directors, $2 million was used to repay a portion of the Compass Term Loan, $1 million was -15- 18 used to repay a portion of the Compass Borrowing Base Facility, and the Company expects the remaining proceeds to be used to fund the Company's ongoing exploration and development program and general corporate purposes. In December 1999, the Company consummated the repurchase of all the outstanding shares of Preferred Stock and 750,000 Warrants for $12 million. At the same time, the Company reduced the exercise price of the remaining 250,000 Warrants from $11.50 per share to $4.00 per share. EFFECTS OF INFLATION AND CHANGES IN PRICE The Company's results of operations and cash flows are affected by changing oil and gas prices. If the price of oil and gas increases (decreases), there could be a corresponding increase (decrease) in the operating cost that the Company is required to bear for operations, as well as an increase (decrease) in revenues. Inflation has had a minimal effect on the Company. -16- 19 PART II. OTHER INFORMATION Item 1 - Legal Proceedings From time to time the Company is a party to various legal proceedings arising in the ordinary course of business. The Company is not currently a party to any litigation that it believes could have a material adverse effect on the financial position of the Company, except for the litigation described below. The Company, as one of three plaintiffs, has filed a lawsuit against BNP Petroleum Corporation, Seiskin Interests, LTD, Pagenergy Company, LLC and Gap Marketing Company, LLC, as defendants, in the 229th Judicial District Court of Duval County, Texas, for fraud and breach of contract in connection with an agreement between plaintiffs and defendants whereby the defendants were obligated to drill a test well in an area known as the Slick Prospect in Duval County, Texas. The allegations of the Company in this litigation are that BNP gave the Company inaccurate and incomplete information on which the Company relied in making its decision not to participate in the test well and the prospect, resulting in the loss of the Company's interest in the lease, the test well and four subsequent wells drilled in the prospect. The Company seeks to enforce its approximate 23.68% interest in the prospect and seeks damages or rescission, as well as costs and attorneys' fees. The case was originally filed in Duval County, Texas on February 25, 2000. In mid March, 2000, the defendants filed an original answer and certain counterclaims against plaintiffs, seeking unspecified damages for slander of title, tortious interference with business relations, bad-faith litigation, and exemplary damages. The case proceeded to trial before the Court (without a jury) on June 19, 2000. The trial is currently in recess and is expected to resume on September 5, 2000. On July 3, 2000, the Company became aware that on June 30, 2000, defendants filed a second amended answer and counterclaim and certain supplemental responses to requests for disclosure in which they stated that they were seeking damages in the amount of $33.5 million by virtue of an alleged lost sale of the subject properties, $17 million in alleged lost profits from other prospective contracts, and unspecified incidental and consequential damages from the alleged wrongful suspension of funds under their gas sales contract with the gas purchaser on the properties, alleged damage to relationships with trade creditors and financial institutions, including the inability to leverage the Slick Prospect, and attorneys' fees at prevailing hourly rates in Duval County, Texas incurred in defending against plaintiffs' claims and for 40% of any aggregate recovery in prosecuting their counterclaims. While the Company believes it has sufficient legal defenses to all of the defendants' counterclaims and intends to vigorously defend itself in this matter, there can be no assurance that the outcome of any portion of this litigation will be favorable to the Company. An adverse outcome on the counterclaims or related matters could have a material adverse effect on the Company. The Company has also alleged that BNP Petroleum Corporation, Seiskin Interests, LTD and Pagenergy Company, LLC breached a contract with the plaintiffs by obtaining oil and gas leases within an area restricted by that contract. This breach of contract allegation is the subject of an additional lawsuit by plaintiffs in the 165th District Court in Harris County, Texas. The Company is seeking damages as a result of defendants' actions as well as costs and attorneys' fees. Item 2 - Changes in Securities and Use of Proceeds None Item 3 - Defaults Upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders (A) Annual Meeting of Shareholders on May 19, 2000. (B) Set forth below are the results of the voting with respect to each matter acted upon at the meeting (proxy totals in thousands):
Broker For Against Withheld Abstain Non votes ---------- ------- -------- ------- --------- Election of Directors 12,579,462 9,500 S. P. Johnson IV 12,579,462 9,500 Frank A. Wojtek 12,579,462 9,500 Steven A. Webster 12,579,462 9,500 Douglas A. P. Hamilton 12,579,462 9,500 Paul B. Loyd, Jr. 12,579,462 9,500 Arnold L. Chavkin 12,578,462 10,500 Christopher C. Behrens 12,579,462 9,500 Approval of the Amendment to the Incentive Plan increasing the number of shares of Common Stock available for issuance under the Plan. 12,491,637 80,625 16,700 Approval of the Amendment to the Incentive Plan allowing Directors to receive Options when acting as Independent Contractors 12,401,811 173,970 13,181 Approval of the Amendment to the Incentive Plan clarifying that the Board of Directors may grant Options to Directors in replacement of prior Option Grants to Directors 12,397,797 178,570 12,595
-17- 20 Approval of the Issuance of twenty percent (20%) or more of the Company's Common Stock upon the exercise of certain previously issued warrants to purchase Common Stock of the Company, which approval is necessary in order to comply with the corporate governance rules of the NASDAQ National Market. 10,629,116 45,000 81,140 1,833,706 Approval of the Appointment of Arthur Andersen L.L.P. as Independent Public Accountants for the fiscal year ending December 31, 2000. 12,573,867 10,400 4,695
Item 5 - Other Information FORWARD LOOKING STATEMENTS The statements contained in all parts of this document, including, but not limited to, those relating to the Company's schedule, targets, estimates or results of future drilling, budgeted wells, increases in wells, budgeted and other future capital expenditures, use of offering proceeds, effects of litigation, expected production or reserves, increases in reserves, acreage working capital requirements, hedging activities, the ability of expected sources of liquidity to implement its business strategy, matters relating to the Palace Agreement, including cost of wells and any effect of that agreement, and any other statements regarding future operations, financial results, business plans and cash needs and other statements that are not historical facts are forward looking statements. When used in this document, the words "anticipate," "estimate," "expect," "may," "project," "believe" and similar expression are intended to be among the statements that identify forward looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to the Company's dependence on its exploratory drilling activities, the volatility of oil and natural gas prices, the need to replace reserves depleted by production, operating risks of oil and natural gas operations, the Company's dependence on its key personnel, factors that affect the Company's ability to manage its growth and achieve its business strategy, risks relating to, limited operating history, technological changes, significant capital requirements of the Company, the potential impact of government regulations, litigation, competition, the uncertainty of reserve information and future net revenue estimates, property acquisition risks and other factors detailed in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. Item 6 - Exhibits and Reports on Form 8-K Exhibits -18- 21
EXHIBIT NUMBER DESCRIPTION - ------ ----------- +2.1 -- Combination Agreement by and among the Company, Carrizo Production, Inc., Encinitas Partners Ltd., La Rosa Partners Ltd., Carrizo Partners Ltd., Paul B. Loyd, Jr., Steven A. Webster, S.P. Johnson IV, Douglas A.P. Hamilton and Frank A. Wojtek dated as of June 6, 1997 (incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-29187)). +3.1 -- Amended and Restated Articles of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). +3.2 -- Amended and Restated Bylaws of the Company, as amended by Amendment No. 1 (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-A (Registration No. 000-22915) and Amendment No. 2 (incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K dated December 15, 1999). +4.1 -- Ninth Amendment to First Amended, Restated and Combined Loan Agreement by and between Carrizo Oil & Gas, Inc. and Compass Bank dated August 27, 1999 (incorporated herein by reference to Exhibit 99.10 to the Company's Current Report on Form 8-K dated December 15, 1999). 10.1 -- Incentive Plan of the Company, amended and restated as of February 17, 2000. 10.2 -- Amendment to the Employment Agreement between the Company and S. P. Johnson IV. 10.3 -- Amendment to the Employment Agreement between the Company and Frank A. Wojtek. 27.1 -- Financial Data Schedule.
- ---------- + Incorporated herein by reference as indicated. Reports on Form 8-K The only Current Report on Form 8-K for the quarter ended June 30, 2000 was a report dated July 3, 2000 to report, under Item 5, the status of certain litigation in the 229th Judicial District Court of Duval County, Texas and the 165th Judicial Court of Harris County, Texas in which the Company is a party. -19- 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Carrizo Oil & Gas, Inc. (Registrant) Date: August 14, 2000 By: /s/ S. P. Johnson, IV -------------------------------------------- President and Chief Executive Officer (Principal Executive Officer) Date: August 14, 2000 By: /s/ Frank A. Wojtek -------------------------------------------- Chief Financial Officer (Principal Financial and Accounting Officer) -20- 23 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- +2.1 -- Combination Agreement by and among the Company, Carrizo Production, Inc., Encinitas Partners Ltd., La Rosa Partners Ltd., Carrizo Partners Ltd., Paul B. Loyd, Jr., Steven A. Webster, S.P. Johnson IV, Douglas A.P. Hamilton and Frank A. Wojtek dated as of June 6, 1997 (Incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-29187)). +3.1 -- Amended and Restated Articles of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. +3.2 -- Statement of Resolution Establishing Series of Shares Designated 9% Series A Preferred Stock (Incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). +3.3 -- Amended and Restated Bylaws of the Company, as amended by Amendment No. 1 (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-A (Registration No. 000-22915). 27.1 -- Financial Data Schedule.
- ---------- + Incorporated herein by reference as indicated. EX-10.1 2 ex10-1.txt 1ST AMENDMENT TO EMPLOYMENT AGRMT - S P JOHNSON,IV 1 EXHIBIT 10.1 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This AMENDMENT (the "Amendment") by and between Carrizo Oil & Gas, Inc., a Texas corporation (the "Company"), and S. P. Johnson, IV (the "Executive"), dated as of the ___ day of _______________, 2000 and to be effective as of the date hereof, is an amendment to that certain Employment Agreement by and between the Company and the Executive dated as of ______________, 1997 (the "Employment Agreement"). RECITALS The Company and the Executive have previously entered into the Employment Agreement to provide for terms and conditions of the Executive's employment by the Company; and The Company and the Executive, in connection with a number of employment related matters, have determined that is appropriate to amend the Employment Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. The parties agree that the actions of the Company's Board of Directors, pursuant to which certain directors have or may become more active in the operations or oversight of the Company's business (other than actions resulting in a material diminution of the Executive's position or duties) shall not constitute Good Reason under Section 3(c) of the Employment Agreement. 2. Section 4(a)(i)(D) of the Employment Agreement is amended to read hereafter as follows: "D. effective as of the Date of Termination, (1) immediate vesting and exercisability of, and termination of any restrictions on sale or transfer (other than any such restriction arising by operation of law) with respect to, each and every stock option, restricted stock award, restricted stock unit award and other equity-based award and performance award (each, a "Compensatory Award") that is outstanding as of a time immediately prior to the Date of Termination and (2) the extension of the term during which each and every Compensatory Award may be exercised by the Executive until the earlier of (x) the first anniversary of the Date of Termination or (y) the date upon which the right to exercise any Compensatory Award would have expired if the Executive had continued to be employed by the Company under the terms of this Agreement until the Final Expiration Date. 2 3. Section 4(b) of the Employment Agreement is amended to read hereafter as follows: "(b) Death (except during a Window Period). If the Executive's employment is terminated by reason of the Executive's death during the Employment Period and other than during a Window Period in which event the provisions of Section 4(a) shall govern, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than (i) the payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination), (ii) the payment of an amount equal to the Annual Salary that would have been paid to the Executive pursuant to this Agreement during the Remaining Employment Period if the Executive's employment had not terminated by reason of death (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) reduced by the amount payable in respect of Executive's death under any life insurance policy (other than accidental death and dismemberment or travel accident policies) but only to the extent such amounts are attributable to premiums paid by the Company, (iii) during the period beginning on the Date of Termination and ending on the first anniversary thereof medical benefits coverage determined as if Executive's employment had not terminated by reason of death, (iv) as soon as practicable following the fiscal year in which death occurs, payment of an amount equal to the product of (x) the Annual Bonus that would have been paid to Executive with respect to the year of termination had the Date of Termination not occurred and (y) a fraction, the numerator of which is the number of days in the fiscal year through the Date of Termination and the denominator of which is 365 and (v) effective as of the Date of Termination, (A) immediate vesting and exercisability of, and termination of any restrictions on sale or transfer (other than any such restriction arising by operation of law) with respect to, each and every Compensatory Award outstanding as of a time immediately prior to the Date of Termination and (B) the extension of the term during which each and every Compensatory Award may be exercised or purchased by the Executive until the earlier of (1) the first anniversary of the Date of Termination or (2) the date upon which the right to exercise or purchase any Compensatory Award would have expired if the Executive had continued to be employed by the Company under the terms of this Agreement until the Final Expiration Date. 3 IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. CARRIZO OIL & GAS, INC. By: -------------------------------------- By: -------------------------------------- S. P. Johnson, IV EX-10.2 3 ex10-2.txt 1ST AMENDMENT TO EMPLOYMENT AGRMT - FRANK A WOJTEK 1 EXHIBIT 10.2 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This AMENDMENT (the "Amendment") by and between Carrizo Oil & Gas, Inc., a Texas corporation (the "Company"), and Frank A. Wojtek (the "Executive"), dated as of the ___ day of _______________, 2000 and to be effective as of the date hereof, is an amendment to that certain Employment Agreement by and between the Company and the Executive dated as of ______________, 1997 (the "Employment Agreement"). RECITALS The Company and the Executive have previously entered into the Employment Agreement to provide for terms and conditions of the Executive's employment by the Company; and The Company and the Executive, in connection with a number of employment related matters, have determined that is appropriate to amend the Employment Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. The parties agree that the actions of the Company's Board of Directors, pursuant to which certain directors have or may become more active in the operations or oversight of the Company's business (other than actions resulting in a material diminution of the Executive's position or duties) shall not constitute Good Reason under Section 3(c) of the Employment Agreement. 2. Section 4(a)(i)(D) of the Employment Agreement is amended to read hereafter as follows: "D. effective as of the Date of Termination, (1) immediate vesting and exercisability of, and termination of any restrictions on sale or transfer (other than any such restriction arising by operation of law) with respect to, each and every stock option, restricted stock award, restricted stock unit award and other equity-based award and performance award (each, a "Compensatory Award") that is outstanding as of a time immediately prior to the Date of Termination and (2) the extension of the term during which each and every Compensatory Award may be exercised by the Executive until the earlier of (x) the first anniversary of the Date of Termination or (y) the date upon which the right to exercise any Compensatory Award would have expired if the Executive had continued to be employed by the Company under the terms of this Agreement until the Final Expiration Date. 2 3. Section 4(b) of the Employment Agreement is amended to read hereafter as follows: "(b) Death (except during a Window Period). If the Executive's employment is terminated by reason of the Executive's death during the Employment Period and other than during a Window Period in which event the provisions of Section 4(a) shall govern, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than (i) the payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination), (ii) the payment of an amount equal to the Annual Salary that would have been paid to the Executive pursuant to this Agreement during the Remaining Employment Period if the Executive's employment had not terminated by reason of death (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) reduced by the amount payable in respect of Executive's death under any life insurance policy (other than accidental death and dismemberment or travel accident policies) but only to the extent such amounts are attributable to premiums paid by the Company, (iii) during the period beginning on the Date of Termination and ending on the first anniversary thereof medical benefits coverage determined as if Executive's employment had not terminated by reason of death, (iv) as soon as practicable following the fiscal year in which death occurs, payment of an amount equal to the product of (x) the Annual Bonus that would have been paid to Executive with respect to the year of termination had the Date of Termination not occurred and (y) a fraction, the numerator of which is the number of days in the fiscal year through the Date of Termination and the denominator of which is 365 and (v) effective as of the Date of Termination, (A) immediate vesting and exercisability of, and termination of any restrictions on sale or transfer (other than any such restriction arising by operation of law) with respect to, each and every Compensatory Award outstanding as of a time immediately prior to the Date of Termination and (B) the extension of the term during which each and every Compensatory Award may be exercised or purchased by the Executive until the earlier of (1) the first anniversary of the Date of Termination or (2) the date upon which the right to exercise or purchase any Compensatory Award would have expired if the Executive had continued to be employed by the Company under the terms of this Agreement until the Final Expiration Date. 3 IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. CARRIZO OIL & GAS, INC. By: -------------------------------------- By: -------------------------------------- Frank A. Wojtek EX-10.3 4 ex10-3.txt AMENDMENT TO INCENTIVE PLAN 1 EXHIBIT 10.3 INCENTIVE PLAN OF CARRIZO OIL & GAS, INC. (AS AMENDED AND RESTATED EFFECTIVE AS OF FEBRUARY 17, 2000, HOWEVER, THE CHANGES TO THE DEFINITION OF "INDEPENDENT CONTRACTOR" IN SECTION 3 AND TO THE NUMBER OF AUTHORIZED SHARES IN SECTION 5 ARE SUBJECT TO SHAREHOLDER APPROVAL AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS.) 1. Plan. This Incentive Plan of Carrizo Oil & Gas, Inc. (the "Plan") was adopted by Carrizo Oil & Gas, Inc. to reward certain corporate officers and key employees of Carrizo Oil & Gas, Inc. and certain independent consultants by enabling them to acquire shares of common stock of Carrizo Oil & Gas, Inc. 2. Objectives. This Plan is designed to attract and retain key employees of the Company and its Subsidiaries (as hereinafter defined), to attract and retain qualified directors of the Company, to attract and retain consultants and other independent contractors, to encourage the sense of proprietorship of such employees, directors and independent contractors and to stimulate the active interest of such persons in the development and financial success of the Company and its Subsidiaries. These objectives are to be accomplished by making Awards (as hereinafter defined) under this Plan and thereby providing Participants (as hereinafter defined) with a proprietary interest in the growth and performance of the Company and its Subsidiaries. 3. Definitions. As used herein, the terms set forth below shall have the following respective meanings: "Annual Director Award Date" means, for each year beginning on or after the IPO Closing Date, the first business day of the month next succeeding the date upon which the annual meeting of stockholders of the Company is held in such year. "Authorized Officer" means the Chairman of the Board or the Chief Executive Officer of the Company (or any other senior officer of the Company to whom either of them shall delegate the authority to execute any Award Agreement). "Award" means an Employee Award, a Director Award or an Independent Contractor Award. "Award Agreement" means any Employee Award Agreement, Director Award Agreement or Independent Contractor Award Agreement. -1- 2 "Board" means the Board of Directors of the Company. "Cash Award" means an award denominated in cash. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means (i) the Compensation Committee of the Board or (ii) such other committee of the Board as is designated by the Board to administer the Plan or (iii) to the extent contemplated hereby, the Board. "Common Stock" means the Common Stock, par value $.01 per share, of the Company. "Company" means Carrizo Oil & Gas, Inc., a Texas corporation. "Director" means an individual serving as a member of the Board. "Director Award" means the grant of a Director Option. "Director Award Agreement" means a written agreement between the Company and a Participant who is a Nonemployee Director setting forth the terms, conditions and limitations applicable to a Director Award. "Disability" means, with respect to a Nonemployee Director, the inability to perform the duties of a Director for a continuous period of more than three months by reason of any medically determinable physical or mental impairment. "Dividend Equivalents" means, with respect to shares of Restricted Stock that are to be issued at the end of the Restriction Period, an amount equal to all dividends and other distributions (or the economic equivalent thereof) that are payable to stockholders of record during the Restriction Period on a like number of shares of Common Stock. "Employee" means an employee of the Company or any of its Subsidiaries and an individual who has agreed to become an Employee of the Company or any of its Subsidiaries and is expected to become such an Employee within the following six months. "Employee Award" means the grant of any Option, SAR, Stock Award, Cash Award or Performance Award, whether granted singly, in combination or in tandem, to a Participant who is an Employee pursuant to such applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. -2- 3 "Employee Award Agreement" means a written agreement between the Company and a Participant who is an Employee setting forth the terms, conditions and limitations applicable to an Employee Award. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" of a share of Common Stock means, as of a particular date, (i) if shares of Common Stock are listed on a national securities exchange, the mean between the highest and lowest sales price per share of Common Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed 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, (ii) if shares of Common Stock are not so listed but are quoted on the Nasdaq National Market, the mean between the highest and lowest sales price per share of Common Stock reported by the Nasdaq National 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, (iii) 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 the Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the National Quotation Bureau Incorporated or (iv) if shares of Common Stock are not publicly traded, the most recent value determined by an independent appraiser appointed by the Company for such purpose; provided that, notwithstanding the foregoing, "Fair Market Value" in the case of any Award made in connection with the IPO, means the price per share to the public of the Common Stock in the IPO, as set forth in the final prospectus relating to the IPO. "Incentive Option" means an Option that is intended to comply with the requirements set forth in Section 422 of the Code. "Independent Contractor" means a person providing services to the Company or any of its Subsidiaries, including an Employee or Nonemployee Director. "Independent Contractor Award" means the grant of any Nonqualified Stock Option, SAR, Stock Award, Cash Award or Performance Award, whether granted singly, in combination or in tandem, to a Participant who is an Independent Contractor pursuant to such applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. "Independent Contractor Award Agreement" means a written agreement between the Company and a Participant who is an Independent Contractor setting forth the terms, conditions and limitations applicable to an Independent Contractor Award. -3- 4 "IPO" means the first time a registration statement filed under the Securities Act of 1933 and respecting an underwritten primary offering by the Company of shares of Common Stock is declared effective under that Act and the shares registered by that registration statement are issued and sold by the Company (otherwise than pursuant to the exercise of any overallotment option). "IPO Closing Date" means the date on which the Company first receives payment for the shares of Common Stock it sells in the IPO. "Nonemployee Director" has the meaning set forth in paragraph 4(b) hereof. "Nonqualified Stock Option" means an Option that is not an Incentive Option. "Option" means a right to purchase a specified number of shares of Common Stock at a specified price. "Participant" means an Employee, Director or Independent Contractor to whom an Award has been made under this Plan. "Performance Award" means an award made pursuant to this Plan to a Participant who is an Employee or Independent Contractor who is subject to the attainment of one or more Performance Goals. "Performance Goal" means a standard established by the Committee, to determine in whole or in part whether a Performance Award shall be earned. "Restricted Stock" means any Common Stock that is restricted or subject to forfeiture provisions. "Restriction Period" means a period of time beginning as of the date upon which an Award of Restricted Stock is made pursuant to this Plan and ending as of the date upon which the Common Stock subject to such Award is no longer restricted or subject to forfeiture provisions. "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any successor rule. "SAR" means a right to receive a payment, in cash or Common Stock, equal to the excess of the Fair Market Value or other specified valuation of a specified number of shares of Common Stock on the date the right is exercised over a specified strike price, in each case, as determined by the Committee. "Stock Award" means an award in the form of shares of Common Stock or units denominated in shares of Common Stock. -4- 5 "Subsidiary" means (i) in the case of a corporation, any corporation of which the Company directly or indirectly owns shares representing more than 50% of the combined voting power of the shares of all classes or series of capital stock of such corporation which have the right to vote generally on matters submitted to a vote of the stockholders of such corporation and (ii) in the case of a partnership or other business entity not organized as a corporation, any such business entity of which the Company directly or indirectly owns more than 50% of the voting, capital or profits interests (whether in the form of partnership interests, membership interests or otherwise). 4. Eligibility. (a) Employees. Key Employees eligible for Employee Awards under this Plan are those who hold positions of responsibility and whose performance, in the judgment of the Committee, can have a significant effect on the success of the Company and its Subsidiaries. (b) Directors. Directors eligible for Director Awards under this Plan are those who are not employees of the Company or any of its Subsidiaries ("Nonemployee Directors"). (c) Independent Contractors. Independent Contractors eligible for Independent Contractor Awards under this Plan are those Independent Contractors providing services to, or who will provide services to, the Company or any of its Subsidiaries. 5. Common Stock Available for Awards. Subject to the provisions of paragraph 15 hereof, there shall be available for Awards under this Plan granted wholly or partly in Common Stock (including rights or options that may be exercised for or settled in Common Stock) an aggregate of 1,500,000 shares of Common Stock, all of which shall be available for Incentive Options. The number of shares of Common Stock that are the subject of Awards under this Plan, that are forfeited or terminated, expire unexercised, are settled in cash in lieu of Common Stock or in a manner such that all or some of the shares covered by an Award are not issued to a Participant or are exchanged for Awards that do not involve Common Stock, shall again immediately become available for Awards hereunder. The Committee may from time to time adopt and observe such procedures concerning the counting of shares against the Plan maximum as it may deem appropriate. The Board and the appropriate officers of the Company shall from time to time take whatever actions are necessary to file any required documents with governmental authorities, stock exchanges and transaction reporting systems to ensure that shares of Common Stock are available for issuance pursuant to Awards. 6. Administration. (a) This Plan, as it applies to Participants who are Employees or Independent Contractors but not with respect to Participants who are Nonemployee Directors, shall be administered by the Committee. To the extent required in order for Employee Awards to be -5- 6 exempt from Section 16 of the Exchange Act by virtue of the provisions of Rule 16b-3, (i) the Committee shall consist of at least two members of the Board who meet the requirements of the definition of "non-employee director" set forth in Rule 16b-3(b)(3)(i) promulgated under the Exchange Act or (ii) Awards may be granted by, and the Plan may be administered by, the Board. (b) Subject to the provisions hereof, insofar as this Plan relates to the Employee Awards or Independent Contractor Awards, the Committee shall have full and exclusive power and authority to administer this Plan and to take all actions that are specifically contemplated hereby or are necessary or appropriate in connection with the administration hereof. Insofar as this Plan relates to Employee Awards or Independent Contractor Awards, the Committee shall also have full and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as it may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan. The Committee may, in its discretion, provide for the extension of the exercisability of an Employee Award or Independent Contractor Award, accelerate the vesting or exercisability of an Employee Award or Independent Contractor Award, eliminate or make less restrictive any restrictions contained in an Employee Award or Independent Contractor Award, waive any restriction or other provision of this Plan (insofar as such provision relates to Employee Awards or to Independent Contractor Awards) or an Employee Award or Independent Contractor Award or otherwise amend or modify an Employee Award or Independent Contractor Award in any manner that is either (i) not adverse to the Participant to whom such Employee Award or Independent Contractor Award was granted or (ii) consented to by such Participant. The Committee may make an award to an individual who it expects to become an Employee of the Company or any of its Subsidiaries within the next six months, with such award being subject to the individual's actually becoming an Employee within such time period, and subject to such other terms and conditions as may be established by the Committee. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Employee Award or Independent Contractor Award in the manner and to the extent the Committee deems necessary or desirable to further the Plan purposes. Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned. (c) No member of the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of paragraph 7 of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute. 7. Delegation of Authority. The Committee may delegate to the Chief Executive Officer and to other senior officers of the Company its duties under this Plan pursuant to such -6- 7 conditions or limitations as the Committee may establish, except that the Committee may not delegate to any person the authority to grant Awards to, or take other action with respect to, Participants who are subject to Section 16 of the Exchange Act. 8. Employee and Independent Contractor Awards. (a) The Committee shall determine the type or types of Employee Awards to be made under this Plan and shall designate from time to time the Employees who are to be the recipients of such Awards. Each Employee Award may be embodied in an Employee Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee in its sole discretion and shall be signed by the Participant to whom the Employee Award is made and by an Authorized Officer for and on behalf of the Company. Employee Awards may consist of those listed in this paragraph 8(a) hereof and may be granted singly, in combination or in tandem. Employee Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under this Plan or any other employee plan of the Company or any of its Subsidiaries, including the plan of any acquired entity. An Employee Award may provide for the grant or issuance of additional, replacement or alternative Employee Awards upon the occurrence of specified events, including the exercise of the original Employee Award granted to a Participant. All or part of an Employee Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Company and its Subsidiaries, achievement of specific business objectives, increases in specified indices, attainment of specified growth rates and other comparable measurements of performance. Upon the termination of employment by a Participant who is an Employee, any unexercised, deferred, unvested or unpaid Employee Awards shall be treated as set forth in the applicable Employee Award Agreement. (i) Stock Option. An Employee Award may be in the form of an Option. An Option awarded pursuant to this Plan may consist of an Incentive Option or a Nonqualified Option. The price at which shares of Common Stock may be purchased upon the exercise of an Incentive Option shall be not less than the Fair Market Value of the Common Stock on the date of grant. The price at which shares of Common Stock may be purchased upon the exercise of a Nonqualified Option shall be not less than the Fair Market Value of the Common Stock on the date of grant. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Options awarded pursuant to this Plan, including the term of any Options and the date or dates upon which they become exercisable, shall be determined by the Committee. (ii) Stock Appreciation Right. An Employee Award may be in the form of an SAR. The terms, conditions and limitations applicable to any SARs awarded pursuant to this Plan, including the term of any SARs and the date or dates upon which they become exercisable, shall be determined by the Committee. -7- 8 (iii) Stock Award. An Employee Award may be in the form of a Stock Award. The terms, conditions and limitations applicable to any Stock Awards granted pursuant to this Plan shall be determined by the Committee. (iv) Cash Award. An Employee Award may be in the form of a Cash Award. The terms, conditions and limitations applicable to any Cash Awards granted pursuant to this Plan shall be determined by the Committee. (v) Performance Award. Without limiting the type or number of Employee Awards that may be made under the other provisions of this Plan, an Employee Award may be in the form of a Performance Award. A Performance Award shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective Performance Goals established by the Committee prior to the earlier to occur of (x) 90 days after the commencement of the period of service to which the Performance Goal relates and (y) the lapse of 25% of the period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain. A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met. Such a Performance Goal may be based on one or more business criteria that apply to the individual, one or more business units of the Company, or the Company as a whole, and may include one or more of the following: increased revenue, net income, stock price, market share, earnings per share, return on equity, return on assets or decrease in costs. Unless otherwise stated, such a Performance Goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria). In interpreting Plan provisions applicable to Performance Goals and Performance Awards, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and Treasury Regulation ss. 1.162-27(e)(2)(i), and the Committee in establishinG such goals and interpreting the Plan shall be guided by such provisions. Prior to the payment of any compensation based on the achievement of Performance Goals, the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Performance Awards made pursuant to this Plan shall be determined by the Committee. (b) Notwithstanding anything to the contrary contained in this Plan, the following limitations shall apply to any Employee Awards made hereunder: (i) no Participant may be granted, during any one-year period, Employee Awards consisting of Options or SARs that are exercisable for more than 250,000 shares of Common Stock; -8- 9 (ii) no Participant may be granted, during any one-year period, Stock Awards covering or relating to more than 50,000 shares of Common Stock (the limitation set forth in this clause (ii), together with the limitation set forth in clause (i) above, being hereinafter collectively referred to as the "Stock Based Awards Limitations"); and (iii) no Participant may be granted Employee Awards consisting of cash or in any other form permitted under this Plan (other than Employee Awards consisting of Options or SARs or otherwise consisting of shares of Common Stock or units denominated in such shares) in respect of any one-year period having a value determined on the date of grant in excess of $500,000. (c) The Committee shall have the sole responsibility and authority to determine the type or types of Independent Contractor Awards to be made under this Plan and may make any such Awards as could be made to an Employee, other than Incentive Options. 9. Director Awards. Each Nonemployee Director of the Company shall be granted Director Awards in accordance with this paragraph 9 and subject to the applicable terms, conditions and limitations set forth in this Plan and the applicable Director Award Agreement. Notwithstanding anything to the contrary contained herein, Director Awards shall not be made in any year in which a sufficient number of shares of Common Stock are not available to make such Awards under this Plan. (a) Initial Director Options. On the IPO Closing Date, each Nonemployee Director shall be automatically awarded a Director Option on 10,000 shares of Common Stock. (b) Other Director Options. Effective upon the IPO Closing Date, on the date of his or her first appointment or election to the Board of Directors, a Nonemployee Director shall automatically be granted a Director Option that provides for the purchase of 10,000 shares of Common Stock. In addition, on each Annual Director Award Date, each Nonemployee Director shall automatically be granted a Director Option that provides for the purchase of 2,500 shares of Common Stock. (c) Terms. Each Director Option shall have a term of ten years from the date of grant, notwithstanding any earlier termination of the status of the holder as a Nonemployee Director. The purchase price of each share of Common Stock subject to a Director Option shall be equal to the Fair Market Value of the Common Stock on the date of grant. All Director Options shall vest and become exercisable in increments of one-third of the total number of shares of Common Stock that are subject thereto (rounded up to the nearest whole number) on the first and second anniversaries of the date of grant and of all remaining shares of Common Stock that are subject thereto on the third anniversary of the date of grant. All -9- 10 unvested Director Options shall be forfeited if the Nonemployee Director resigns as a Director without the consent of a majority of the other Directors. (d) Agreements. Any Award of Director Options shall be embodied in a Director Award Agreement, which shall contain the terms, conditions and limitations set forth above and shall be signed by the Participant to whom the Director Options are granted and by an Authorized Officer for and on behalf of the Company. 10. Payment of Awards. (a) General. Payment of Employee Awards or Independent Contractor Awards may be made in the form of cash or Common Stock, or a combination thereof, and may include such restrictions as the Committee shall determine, including, in the case of Common Stock, restrictions on transfer and forfeiture provisions. If payment of an Employee Award or Independent Contractor Award is made in the form of Restricted Stock, the applicable Award Agreement relating to such shares shall specify whether they are to be issued at the beginning or end of the Restriction Period. In the event that shares of Restricted Stock are to be issued at the beginning of the Restriction Period, the certificates evidencing such shares (to the extent that such shares are so evidenced) shall contain appropriate legends and restrictions that describe the terms and conditions of the restrictions applicable thereto. In the event that shares of Restricted Stock are to be issued at the end of the Restricted Period, the right to receive such shares shall be evidenced by book entry registration or in such other manner as the Committee may determine. (b) Deferral. With the approval of the Committee, amounts payable in respect of Employee Awards or Independent Contractor Awards may be deferred and paid either in the form of installments or as a lump-sum payment. The Committee may permit selected Participants to elect to defer payments of some or all types of Employee Awards or Independent Contractor Awards in accordance with procedures established by the Committee. Any deferred payment of an Employee Award or Independent Contractor Award, whether elected by the Participant or specified by the Award Agreement or by the Committee, may be forfeited if and to the extent that the Award Agreement so provides. (c) Dividends and Interest. Rights to dividends or Dividend Equivalents may be extended to and made part of any Employee Award or Independent Contractor Award consisting of shares of Common Stock or units denominated in shares of Common Stock, subject to such terms, conditions and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and Dividend Equivalents for Employee Awards or Independent Contractor Awards consisting of shares of Common Stock or units denominated in shares of Common Stock. -10- 11 (d) Substitution of Awards. At the discretion of the Committee, a Participant who is an Employee or Independent Contractor may be offered an election to substitute an Employee Award or Independent Contractor Award for another Employee Award or Independent Contractor Award or Employee Awards or Independent Contractor Awards of the same or different type. 11. Stock Option Exercise. The price at which shares of Common Stock may be purchased under an Option shall be paid in full at the time of exercise in cash or, if elected by the optionee, the optionee may purchase such shares by means of tendering Common Stock or surrendering another Award, including Restricted Stock or Director Restricted Stock, valued at Fair Market Value on the date of exercise, or any combination thereof. The Committee shall determine acceptable methods for Participants who are Employees or Independent Contractors to tender Common Stock or other Employee Awards or Independent Contractor Awards; provided that any Common Stock that is or was the subject of an Employee Award or Independent Contractor Award may be so tendered only if it has been held by the Participant for six months. The Committee may provide for procedures to permit the exercise or purchase of such Awards by use of the proceeds to be received from the sale of Common Stock issuable pursuant to an Employee Award or Independent Contractor Award. Unless otherwise provided in the applicable Award Agreement, in the event shares of Restricted Stock are tendered as consideration for the exercise of an Option, a number of the shares issued upon the exercise of the Option, equal to the number of shares of Restricted Stock or Director Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock or Director Restricted Stock so submitted as well as any additional restrictions that may be imposed by the Committee. 12. Taxes. The Company shall have the right to deduct applicable taxes from any Employee Award payment and withhold, at the time of delivery or vesting of cash or shares of Common Stock under this Plan, an appropriate amount of cash or number of shares of Common Stock or a combination thereof for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee may also permit withholding to be satisfied by the transfer to the Company of shares of Common Stock theretofore owned by the holder of the Employee Award with respect to which withholding is required. If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made. The Committee may provide for loans, on either a short term or demand basis, from the Company to a Participant who is an Employee or Independent Contractor to permit the payment of taxes required by law. 13. Amendment, Modification, Suspension or Termination. The Board may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that (i) no amendment or alteration that would adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant and (ii) no amendment or alteration shall be effective prior to its approval by the stockholders of the Company -11- 12 to the extent such approval is then required pursuant to Rule 16b-3 in order to preserve the applicability of any exemption provided by such rule to any Award then outstanding (unless the holder of such Award consents) or to the extent stockholder approval is otherwise required by applicable legal requirements. 14. Assignability. Unless otherwise determined by the Committee and provided in the Award Agreement, no Award or any other benefit under this Plan constituting a derivative security within the meaning of Rule 16a-1(c) under the Exchange Act shall be assignable or otherwise transferable except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. The Committee may prescribe and include in applicable Award Agreements other restrictions on transfer. Any attempted assignment of an Award or any other benefit under this Plan in violation of this paragraph 14 shall be null and void. 15. Adjustments. (a) The existence of outstanding Awards shall not affect in any manner 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 capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock) 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 of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above. (b) In the event of any subdivision or consolidation of outstanding shares of Common Stock, declaration of a dividend payable in shares of Common Stock or other stock split, then, except with respect to the Existing Options, (i) the number of shares of Common Stock reserved under this Plan, (ii) the number of shares of Common Stock covered by outstanding Awards in the form of Common Stock or units denominated in Common Stock, (iii) the exercise or other price in respect of such Awards, (iv) the appropriate Fair Market Value and other price determinations for such Awards, (v) the number of shares of Common Stock covered by Director Options automatically granted pursuant to paragraph 9 hereof and (vi) the Stock Based Awards Limitations shall each be proportionately adjusted by the Board to reflect such transaction. In the event of any other recapitalization or capital reorganization of the Company, any consolidation or merger of the Company with another corporation or entity, the adoption by the Company of any plan of exchange affecting the Common Stock or any distribution to holders of Common Stock of securities or property (other than normal cash dividends or dividends payable in Common Stock), the Board shall make appropriate adjustments to (i) the number of shares of Common Stock covered by Awards in the form of Common Stock or units denominated in Common Stock, (ii) the exercise or other price in respect of such Awards, (iii) the appropriate Fair Market Value and other price -12- 13 determinations for such Awards, (iv) the number of shares of Common Stock covered by Director Options automatically granted pursuant to paragraph 9 hereof and (v) the Stock Based Awards Limitations to give effect to such transaction shall each be proportionately adjusted by the Board to reflect such transaction; provided that such adjustments shall only be such as are necessary to maintain the proportionate interest of the holders of the Awards and preserve, without exceeding, the value of such Awards. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board shall be authorized to issue or assume Awards by means of substitution of new Awards, as appropriate, for previously issued Awards or to assume previously issued Awards as part of such adjustment. (c) In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board may make such adjustments to outstanding Awards or other provisions for the disposition of outstanding Awards as it deems equitable, and shall be authorized, in its discretion, (i) to provide for the substitution of a new Award or other arrangement (which, if applicable, may be exercisable for such property or stock as the Board determines) for an outstanding Award or the assumption of an outstanding Award, regardless of whether in a transaction to which Section 424(a) of the Code applies, (ii) to provide, prior to the transaction, for the acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, the outstanding Award and, if the transaction is a cash merger, to provide for the termination of any portion of the Award that remains unexercised at the time of such transaction or (iii) to provide for the acceleration of the vesting and exercisability of an outstanding Award and the cancellation thereof in exchange for such payment as shall be mutually agreeable to the Participant and the Board. 16. Restrictions. No Common Stock or other form of payment shall be issued with respect to any Award unless the Company shall be satisfied based on the advice of its counsel that such issuance will be in compliance with applicable federal and state securities laws. It is the intent of the Company that grants of Awards under this Plan comply with Rule 16b-3 with respect to persons subject to Section 16 of the Exchange Act unless otherwise provided herein or in an Award Agreement, that any ambiguities or inconsistencies in the construction of such an Award or this Plan be interpreted to give effect to such intention. Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation and any applicable federal or state securities law. The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions. 17. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights thereto under this Plan, -13- 14 any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto, nor shall this Plan be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to an Award of cash, Common Stock or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan. 18. Governing Law. This Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, shall be governed by and construed in accordance with the laws of the State of Texas. 19. Effectiveness. The Plan as hereby amended and restated shall be effective as of February 17, 2000, except for the change to the definition of "Independent Contractor" and to the number of authorized shares in Section 5, which shall become effective upon shareholder approval at the 2000 Annual Meeting of Shareholders. -14- EX-27.1 5 ex27-1.txt FINACIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 11,631,027 0 4,616,727 480,000 0 19,153,991 63,431,171 33,290,045 84,510,755 9,147,719 0 0 0 140,114 44,295,220 84,510,755 5,826,737 5,826,737 0 3,448,278 0 0 360 2,489,028 25,567 2,463,461 0 0 0 2,463,461 .18 .15
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