2006 Carrizo Proxy Statement
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
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Proxy
Statement
o
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Additional Materials
o
Soliciting
Material Pursuant to ss.240.14.a-11(c) or ss.240.14a-12
CARRIZO
OIL & GAS, INC.
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April
27,
2006
Dear
Fellow Shareholder:
You
are
cordially invited to attend the Annual Meeting of Shareholders of Carrizo
Oil
& Gas, Inc. (the “Company”) to be held at 9:00 a.m. on Tuesday, May 23,
2006, at the Doubletree Hotel Houston Downtown, 400 Dallas Street, Houston,
Texas.
This
booklet includes the notice of the meeting and the proxy statement, which
contains information about the Board and its committees and personal information
about the nominees for the Board. Other matters on which action is expected
to
be taken during the meeting are also described.
We
hope
you will find it convenient to attend in person. Whether or not you expect
to
attend, to assure representation at the meeting and the presence of a quorum,
please date, sign and promptly mail the enclosed proxy in the return envelope
provided.
A
copy of
the Company’s 2005 Annual Report to Shareholders is also enclosed.
SINCERELY,
/s/
S.P.
JOHNSON IV
S.P.
JOHNSON IV
Chief
Executive Officer
CARRIZO
OIL & GAS, INC.
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To
Be Held MAY 23, 2006
To
the
Shareholders of
Carrizo
Oil & Gas, Inc.:
NOTICE
IS
HEREBY GIVEN that the Annual Meeting of Shareholders of Carrizo Oil & Gas,
Inc. (the “Company”) will be held at Doubletree Hotel Houston Downtown, 400
Dallas Street, Houston, Texas, on Tuesday, May 23, 2006, at 9:00 a.m. for
the following purposes:
(1) to
elect
seven members to the Board of Directors for the ensuing year;
(2) to
approve an amendment to the Incentive Plan to increase by 450,000 shares
the
number of shares of common stock available for issuance under the Incentive
Plan
and the approval of the performance goals set forth in the Incentive Plan
in
order to allow certain grants and awards made to our executive officers to
qualify as performance-based compensation deductible under Section 162(m)
of the
Internal Revenue Code;
(3) to
approve the appointment of Pannell Kerr Forster of Texas, P.C. as independent
registered public accounting firm for the fiscal year ending December 31,
2006; and
(4) to
transact such other business as may properly come before the
meeting.
The
Company has fixed the close of business on April 25, 2006, as the record
date
for determining shareholders entitled to notice of, and to vote at, such
meeting
or any adjournment thereof.
You
are
cordially invited to attend the meeting in person. Even if you plan to attend
the meeting, you are requested to mark, sign, date and return the accompanying
proxy as soon as possible.
By
Order
of the Board of Directors
-s-
PAUL
F. BOLING
PAUL
F.
BOLING
Secretary
April
27,
2006
1000
Louisiana Street, Suite 1500
Houston,
TX 77002
CARRIZO
OIL & GAS, INC.
1000
Louisiana Street, Suite 1500
Houston,
Texas 77002
PROXY
STATEMENT
This
Proxy Statement is furnished in connection with the solicitation of proxies
by
the Board of Directors of Carrizo Oil & Gas, Inc., a Texas corporation (the
“Company”), to be voted at the 2006 Annual Meeting of Shareholders (the “Annual
Meeting”) to be held at Doubletree Hotel Houston Downtown, 400 Dallas Street,
Houston, Texas on Tuesday, May 23, 2006, at 9:00 a.m., and any and all
adjournments thereof.
This
statement and the accompanying form of proxy are first being mailed to
shareholders on or about May 2, 2006. In addition to the solicitation of
proxies
by mail, regular officers and employees of the Company may, without additional
compensation, solicit the return of proxies by mail, telephone, telegram
or
personal contact. The Company will pay the cost of soliciting proxies in
the
accompanying form. The Company will reimburse brokers or other persons holding
stock in their names or in the names of their nominees for their reasonable
expenses in forwarding proxy material to beneficial owners of
stock.
Voting
Procedures
Shareholders
of record as of April 25, 2006, the record date for determining persons
entitled to notice of, and to vote at, the Annual Meeting, are entitled to
vote
on all matters at the Annual Meeting and at any adjournments thereof. On
that
date, the issued and outstanding capital stock of the Company consisted of
24,396,463 shares of common stock, par value $0.01 per share (the “Common
Stock”). No other class of stock is outstanding. Each share of Common Stock is
entitled to one vote on each matter submitted to a vote of shareholders.
Cumulative voting is not allowed. The holders of a majority of the shares
entitled to vote at the Annual Meeting, represented in person or by proxy,
constitute a quorum for the transaction of business at the Annual
Meeting.
All
duly
executed proxies received prior to the Annual Meeting will be voted in
accordance with the choices specified thereon and, in connection with any
other
business that may properly come before the meeting, in the discretion of
the
persons named in the proxy. As to any matter for which no choice has been
specified in the proxy, the shares represented thereby will be voted by the
persons named in the proxy, to the extent applicable, (1) for the election
as a
director of each nominee listed herein; (2) for the approval of an amendment
to
the Incentive Plan increasing by 450,000 shares the number of shares of Common
Stock available for issuance under the Incentive Plan; (3) for the
appointment of Pannell Kerr Forster of Texas, P.C. (“PKF”) as the Company’s
independent registered public accounting firm for the fiscal year ending
December 31, 2006; and (4) in the discretion of the persons named in the
proxy in connection with any other business that may properly come before
the
meeting. A shareholder giving a proxy may revoke it at any time before it
is
voted at the Annual Meeting by delivering written notice to the Secretary
of the
Company or by delivering a properly executed proxy bearing a later date.
A
shareholder who attends the Annual Meeting may, if he or she wishes, vote
by
ballot at the Annual Meeting and that vote will cancel any proxy previously
given. Attendance at the Annual Meeting will not in itself, however, constitute
the revocation of a proxy.
Proxies
indicating shareholder abstentions will be counted for purposes of determining
whether there is a quorum at the Annual Meeting, but will not be voted on
any
matter and therefore will have the same effect as a vote against a matter,
except in the case of director elections, which are determined by a plurality
of
votes cast, as to which those abstentions will have no effect. Shares
represented by “broker nonvotes” (i.e.,
shares
held by brokers or nominees for which instructions have not been received
from
the beneficial owners or persons entitled to vote and for which the broker
or
nominee does not have discretionary power to vote on a particular matter)
will
be counted for purposes of determining whether there is a quorum at the Annual
Meeting, but will not be voted on any matter, and thus will be disregarded
in
the calculation of “votes cast” with respect to that matter (even though those
shares may be considered as entitled to vote or be voted on other matters).
Votes cast by proxy or in person at the Annual Meeting will be counted by
the
persons appointed as election inspectors for the Annual Meeting.
Security
Ownership of Management and Certain Beneficial Owners
The
table
below sets forth information concerning (i) the only persons known by the
Company, based solely on statements filed by such persons pursuant to Section
13(d) or 13(g) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), to own beneficially in excess of 5% of the Common Stock as of
December 31, 2005, and (ii) the shares of Common Stock beneficially owned
as of March 31, 2006 by each director, the Chief Executive Officer, the four
other executive officers and one former executive officer whose names appear
in
the “Summary Compensation Table,” and by all executive officers and directors
collectively. Except as indicated, each individual has sole voting power
and
sole investment power over all shares listed opposite his name. As of March
31,
2006, the Company had 24,391,963 shares of Common Stock issued and
outstanding.
|
|
Amount
and Nature of
Beneficial
Ownership
|
|
Name
and Address of Beneficial Owner(1)
|
|
Number
of Shares(2)
|
|
Percent
of
Common
Stock
(rounded)
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
S.
P. Johnson IV
|
|
|
767,079
|
|
|
3.1
|
%
|
Jack
Bayless
|
|
|
15,000
|
|
|
*
|
|
Paul
F. Boling
|
|
|
62,710
|
|
|
*
|
|
Gregory
E. Evans
|
|
|
33,167
|
|
|
*
|
|
J.
Bradley Fisher
|
|
|
70,850
|
|
|
*
|
|
Kendall
A. Trahan(3)
|
|
|
-
|
|
|
-
|
|
Steven
A. Webster
|
|
|
2,625,938
|
|
|
10.6
|
%
|
Thomas
L. Carter, Jr.
|
|
|
5,458
|
|
|
*
|
|
Paul
B. Loyd, Jr.
|
|
|
219,990
|
|
|
*
|
|
F.
Gardner Parker
|
|
|
96,667
|
|
|
*
|
|
Roger
A. Ramsey
|
|
|
16,333
|
|
|
*
|
|
Frank
A. Wojtek
|
|
|
251,833
|
|
|
1.0
|
%
|
Executive
Officers and Directors as a Group (11
persons)
|
|
|
4,165,025
|
|
|
16.6
|
%
|
Advisory
Research, Inc.(4).
|
|
|
2,175,858
|
|
|
8.9
|
%
|
Oberweis
Asset Management, Inc.(5)
|
|
|
1,236,131
|
|
|
5.1
|
%
|
__________
*
Less
than 1%.
(1) Except
as
otherwise noted and pursuant to applicable community property laws, each
shareholder has sole voting and investment power with respect to the shares
beneficially owned. The business address of each director and executive
officer
is c/o Carrizo Oil & Gas, Inc., 1000 Louisiana Street, Suite 1500, Houston,
Texas 77002.
(2) The
table
includes shares of Common Stock that can be acquired through the exercise
of
options within 60 days of March 31, 2006 as follows: Mr. Johnson — 225,556, Mr.
Bayless — none, Mr. Boling — 30,000, Mr. Evans — 6,667, Mr. Fisher — 30,000, Mr.
Trahan — none, Mr. Webster — 276,945, Mr. Carter — 3,333, Mr. Loyd — 26,500, Mr.
Parker — 51,667, Mr. Ramsey — 7,833, Mr. Wojtek — 833, and all executive
officers and directors as a group — 659,334. The percent of the class owned by
each person has been computed assuming the exercise of all options deemed
to be
beneficially owned by that person, and assuming that no options held by
any
other person have been exercised. The table excludes shares of Common Stock
subject to options that cannot be exercised within 60 days of March 31,
2006 as
follows: Mr. Johnson — 11,112, Mr. Bayless — none, Mr. Boling — 15,000, Mr.
Evans — 13,333, Mr. Fisher — none, Mr. Trahan — none, Mr. Webster — 8,889, Mr.
Carter — 6,667, Mr. Loyd — 3,000, Mr. Parker — 3,333, Mr. Ramsey — 5,667, Mr.
Wojtek — 1,667, and all officers and directors as a group — 68,668.
(3) Mr.
Trahan left the Company in July 2005.
(4) Based
solely on an amendment to Schedule 13G filed on February 15, 2006, Advisory
Research, Inc., an investment advisor, reports sole dispositive and voting
power
over these shares. The address of the principal business office of Advisory
Research, Inc. is 180 North Stetson Street, Suite 5500, Chicago, Illinois
60601.
(5) Based
solely on a Schedule 13G filed on February 14, 2006, Oberweis Asset Management,
Inc., an investment adviser, and James D. Oberweis and James W. Oberweis,
the
principal stockholders of Oberweis Asset Management, Inc., report shared
voting
and dispositive power over 1,236,131 shares. The address of their principal
business office is 3333 Warrenville Road, Suite 500, Lisle, Illinois
60532.
PROPOSAL
I
ELECTION
OF DIRECTORS
The
persons designated as proxies in the enclosed proxy card intend, unless
the
proxy is marked with contrary instructions, to vote for the following nominees
as directors to serve until the 2007 Annual Meeting of Shareholders and
until
their successors have been duly elected and qualified or until their resignation
or removal: Mr. S.P. Johnson IV, Mr. Steven A. Webster, Mr. Thomas L.
Carter,
Jr., Mr. Paul B. Loyd, Jr., Mr. F. Gardner Parker, Mr. Roger A. Ramsey and
Mr.
Frank A. Wojtek. The Board of Directors has no reason to believe that any
nominee for election as a director will not be a candidate or will be unable
to
serve, but if for any reason one or more of these nominees is unavailable
as a
candidate or unable to serve when election occurs, the persons designated
as
proxies in the enclosed proxy card, in the absence of contrary instructions,
will in their discretion vote the proxies for the election of any of the
other
nominees or for a substitute nominee or nominees, if any, selected by the
Board
of Directors. The affirmative vote of a plurality of the votes cast by holders
entitled to vote in the election of directors at the Annual Meeting is required
for the election of each nominee for director.
Nominees
The
following sets forth information concerning the seven nominees for election
as
directors at the Annual Meeting, including information as to each nominee’s age
as of April 1, 2006, position with the Company and business experience during
the past five years. All nominees are currently serving as directors and
are
standing for re-election.
S.P.
Johnson IV,
age 50,
has served as our President and Chief Executive Officer and a director since
December 1993. Prior to that, he worked for Shell Oil Company for 15 years.
His
managerial positions included Operations Superintendent, Manager of Planning
and
Finance and Manager of Development Engineering. Mr. Johnson is also a director
of Basic Energy Services, Inc. (a well servicing contractor). Mr. Johnson
is a
Registered Petroleum Engineer and has a B.S. in Mechanical Engineering from
the
University of Colorado.
Steven
A. Webster,
age 54,
has been the Chairman of our Board of Directors since June 1997 and has been
a
director since 1993. Mr. Webster has served as Co-Managing Partner of Avista
Capital Holdings, L.P., a private equity firm focused on investments in the
energy, media and healthcare sectors, since July 2005. From January 2000
until
June 2005, Mr. Webster served as the Chairman of Global Energy Partners,
Ltd.,
an affiliate of CSFB Private Equity, which made private equity investments
in
the energy business. From December 1997 to May 1999, Mr. Webster was the
Chief
Executive Officer and President of R&B Falcon Corporation, an offshore
drilling contractor, and prior to that, was Chairman and Chief Executive
Officer
of Falcon Drilling Company, which he founded in 1988. Mr. Webster is also
a
director of Grey Wolf, Inc. (an onshore drilling company), SEACOR Holdings,
Inc.
(a marine transportation and service provider), Geokinetics, Inc. (a seismic
acquisition and geophysical services company), Crown Resources Corporation
(a
precious metals exploration company), Goodrich Petroleum Corporation (an
oil and
gas exploration company), Basic Energy Services, Inc. (a well servicing
company), Brigham Exploration Company (an oil and gas exploration company)
and
Hercules Offshore, Inc. (a offshore drilling contractor), as well as various
private companies. He is also a trust manager of Camden Property Trust (a
real
estate investment trust). Mr. Webster holds an M.B.A. degree from Harvard
Business School and a Bachelor of Science in Industrial Management degree
from
Purdue University.
Thomas
L. Carter, Jr.,
age 54,
became a director in March 2005. He has been President and Chief Executive
Officer of Black Stone Minerals Company, L.P., a privately-owned Delaware
limited partnership located in Houston, Texas, since its formation in 1998.
Mr.
Carter has also served as Managing General Partner of Black Stone Energy
Company
from 1980 to the present. Prior to the formation of Black Stone, Mr. Carter
served as Managing General Partner of W.T. Carter & Bros. from 1987 through
1992. From 1975 to 1979, Mr. Carter was with Texas Commerce Bank in Houston,
Texas. Mr. Carter holds an M.B.A. and B.B.A. from the University of Texas
at
Austin.
Paul
B. Loyd, Jr.,
age 59,
has been a director since 1993. Mr. Loyd was Chairman of the Board and Chief
Executive Officer of Reading & Bates Corporation from 1991 to 1997 and from
1999 to 2001 until its merger with Transocean Inc. Mr. Loyd has been the
principal of Loyd & Associates, Inc., a private financial consulting firm,
since 1989. Mr. Loyd was Chief Executive Officer and a director of
Chiles-Alexander International, Inc. from 1987 to 1989, President and a director
of Griffin-Alexander Drilling Company, from 1984 to 1987, and prior to that,
a
director and Chief Financial Officer of Houston Offshore International, all
of
which are companies in the offshore drilling industry. Mr. Loyd is currently
a
director of Frontier Oil Corporation (a refining and marketing company) and
is a
member of the Board of Trustees of Southern Methodist University. Mr. Loyd
served as President of our company from its inception in September 1993 until
December 1993. Mr. Loyd holds an undergraduate degree from Southern Methodist
University and an M.B.A. degree from Harvard Business School.
F.
Gardner Parker,
age 64,
has been a director since 2000. He has been Managing Outside Trust Manager
with
Camden Property Trust since 1998. He also serves on the boards of Crown
Resources Corporation, Sharps Compliance Corp. (a waste management services
provider), Blue Dolphin Energy Company (a pipeline operations and oil and
gas
exploration and production holding company) and Hercules Offshore, Inc. (an
offshore drilling contractor). In addition, he serves on the board of directors
of the following private companies: Gillman Automobile Dealerships, Net Near
U
Communications, MCS Technologies, Camp Longhorn, Inc., nii communications,
inc.,
Sherwood Healthcare Inc., and Arena Power. Mr. Parker also worked with Ernst
& Ernst (now Ernst & Young LLP) for 14 years, seven of which he served
as a partner. He is a graduate of The University of Texas.
Roger
A. Ramsey, age
67,
has been a director since 2004. He is the Chairman and Chief Executive Officer
of Med Shred, Inc., a privately held corporation. He served as Chairman of
the
Board of Allied Waste Industries, Inc. from October 1989 through his retirement
in December 1998, and Chief Executive Officer of that company from October
1989
through July 1997. Beginning in 1960, Mr. Ramsey was employed by the
international accounting firm of Arthur Andersen LLP. In 1968, Mr. Ramsey
co-founded Browning-Ferris Industries, Inc. (“BFI”) and served as its Vice
President and Chief Financial Officer until 1976. Mr. Ramsey is a director
of
WCA Waste Corporation (a waste management company). Mr. Ramsey is also a member
of the Board of Trustees at Texas Christian University and Chairman of the
Board
of Vericenter, Inc.
Frank
A. Wojtek,
age 50,
has been a director since 1993. He has been Vice President, Secretary and
Director of A-Texian Compressor, Inc. (a natural gas compression services
company) since July 2004. Mr. Wojtek served as our Chief Financial Officer,
Vice
President, Secretary and Treasurer from 1993 until August 2003. From 1992 to
1997, Mr. Wojtek was the Assistant to the Chairman of the Board of Reading
&
Bates Corporation (an offshore drilling company). Mr. Wojtek has also held
the
positions of Vice President and Secretary/Treasurer of Loyd & Associates,
Inc., a private financial consulting firm, since 1989. Mr. Wojtek held the
positions of Vice President and Chief Financial Officer of Griffin-Alexander
Drilling Company from 1984 to 1987, Treasurer of Chiles-Alexander International
Inc. from 1987 to 1989, and Vice President and Chief Financial Officer of India
Offshore Inc. from 1989 to 1992, all of which were companies in the offshore
drilling industry. Mr. Wojtek is a Certified Public Accountant and holds a
B.B.A. in Accounting with Honors from The University of Texas.
Director
Independence
The
Board
has determined that Messrs. Carter, Loyd, Parker and Ramsey are “independent
directors” within the meaning of Marketplace Rule 4200(a)(15) of the Nasdaq
Stock Market.
Committees
of the Board of Directors
The
Board
of Directors held four meetings during the fiscal year ended December 31, 2005,
and transacted business on 14 occasions during the fiscal year by unanimous
written consent.
During
2005, each director attended at least 75% of the aggregate of the total number
of Board of Directors’ meetings and of meetings of committees of the Board of
Directors on which he served held during his service on the Board of Directors.
The Board of Directors has a Nominating Committee, an Audit Committee, a
Compensation Committee and a Budget Committee.
The
Board
of Directors has a Nominating Committee, which currently consists of Messrs.
Webster (chairman), Loyd and Carter. The primary responsibilities of the
Nominating Committee include identifying, evaluating and recommending, for
the
approval of the entire Board of Directors, potential candidates to become
members of the Board of Directors and recommending membership on standing
committees of the Board of Directors. The Nominating Committee held one meeting
during 2005. A copy of the Nominating Committee Charter may be found on the
Company’s website at www.carrizo.cc.
The
Board of Directors has determined that Messrs. Loyd and Carter are independent
for purposes of Nasdaq Marketplace Rule 4200(a)(15). Mr. Webster’s service on
the Nominating Committee is pursuant to an exception provided under the Nasdaq
rules, which will permit him to serve on the committee until March 5, 2007.
Under the Nasdaq rules, a non-independent member of the Board of Directors
may
serve up to two years as a member of a nominating committee under exceptional
and limited circumstances where such individual’s membership is required by the
best interests of the Company and its shareholders. The Board of Directors
believes these criteria are met with respect to Mr. Webster’s membership on the
Nominating Committee because of his extensive knowledge of the Company and
the
oil and gas industry and because he is a major shareholder of the
Company.
The
Board
of Directors has an Audit Committee, which currently consists of Messrs. Parker
(chairman), Carter and Ramsey. The Audit Committee held nine meetings during
2005. The Audit Committee has direct responsibility for the appointment,
retention, compensation and oversight of the independent registered public
accounting firm for the purpose of preparing the Company’s annual audit report
or performing other audit, review or attest services for the Company. The Audit
Committee has sole authority to approve all engagement fees and terms of the
independent registered public accounting firm and to establish policies and
procedures for preapproval of audit and nonaudit services. The Audit Committee
also reviews and discusses the annual audited financial statements with
management and the independent registered public accounting firm. A copy of
the
Audit Committee Charter may be found on the Company’s website at www.carrizo.cc.
The
Board
has determined that all of the members of the Audit Committee satisfy the
independence standards under the Nasdaq Marketplace Rules and Rule 10A-3 of
the
Securities Exchange Act. In addition, the Board has determined that Mr. Parker
is an “audit committee financial expert,” as such term is defined in Item 401(h)
of Regulation S-K promulgated by the Securities and Exchange Commission (the
“SEC”). Mr. Parker is a certified public accountant and served as partner in a
major accounting firm.
The
Board
of Directors has a Compensation Committee which currently consists of Messrs.
Parker (chairman) and Ramsey. The Compensation Committee held five meetings
during 2005. The primary responsibilities of the Compensation Committee are
to
review
and
approve the compensation of the CEO and the Company’s other executive officers
and oversee and advise the Board on the policies that govern the Company’s
compensation programs. The Compensation Committee has been appointed by the
Board of Directors to administer the Company’s stock option plans (subject in
some cases to action by the full Board). A copy of the Compensation Committee
Charter can be found on the Company’s website at www.carrizo.cc.
The
Board of Directors has determined that Messrs. Parker and Ramsey are independent
for purposes of Nasdaq Marketplace Rule 4200(a)(15).
Director
Nominations Process
In
assessing the qualifications of candidates for director, the Nominating
Committee considers, in addition to qualifications set forth in the Company’s
bylaws, each potential nominee’s personal and professional integrity,
experience, reputation, skills, ability and willingness to devote the time
and
effort necessary to be an effective board member, and commitment to acting
in
the best interests of the Company and its shareholders. The Nominating Committee
also considers requirements under the listing standards of the Nasdaq Stock
Market, Inc. for a majority of independent directors, as well as qualifications
applicable to membership on Board committees under the listing standards
and
various regulations. The Nominating Committee makes recommendations to the
Board, which in turn makes the nominations for consideration by the
shareholders.
Suggestions
for potential nominees for director can come to the Nominating Committee
from a
number of sources, including incumbent directors, officers, executive search
firms and others. The Nominating Committee will consider director candidates
recommended by shareholders. The extent to which the Nominating Committee
dedicates time and resources to the consideration and evaluation of any
potential nominee brought to its attention depends on the information available
to the Committee about the qualifications and suitability of the individual,
viewed in light of the needs of the Board, and is at the Committee’s discretion.
Recognizing the contribution of incumbent directors who have been able to
develop, over a period of time, increasing insight into the Company and its
operations and, therefore, provide an increasing contribution to the Board
as a
whole, the Nominating Committee reviews each incumbent director’s qualifications
to continue on the Board in connection with the selection of nominees to
take
office when that director’s term expires, and conducts a more detailed review of
each director’s suitability to continue on the Board following expirations of
the director’s term.
In
addition, the Nominating Committee’s policy is that it will consider candidates
for the Board recommended by shareholders. Any such recommendation should
include the candidate’s name and qualifications for Board membership and should
be submitted in writing to the Secretary, Carrizo Oil & Gas, Inc., 1000
Louisiana Street, Suite 1500, Houston, Texas 77002, along with:
• a
signed
statement of the proposed candidate consenting to be named as a candidate
and,
if nominated and elected, to serve as a director;
• a
statement that the writer is a shareholder of the Company and is proposing
a
candidate for consideration by the Nominating Committee;
• a
statement detailing any relationship between the candidate and any customer,
supplier or competitor of the Company;
• the
financial and accounting background of the candidate, to enable the Nominating
Committee to determine whether the candidate would be suitable for Audit
Committee membership; and
• detailed
information about any relationship or understanding between the proposing
shareholder and the candidate.
Although
the Nominating Committee will consider candidates recommended by shareholders,
it may determine not to recommend that the Board, or the Board may determine
not
to, nominate those candidates for election to the Board of
Directors.
Shareholder
Communication with the Board of Directors
Shareholders
may communicate with the Board by submitting their communications in writing,
addressed to the Board as a whole or, at the election of the shareholder,
to one
or more specific directors, c/o Secretary, Carrizo Oil & Gas, Inc., 1000
Louisiana Street, Suite 1500, Houston, Texas 77002.
The
Audit
Committee of the Board of Directors has established procedures for the receipt,
retention and treatment of complaints regarding accounting, internal accounting
controls, or auditing matters. Shareholders who wish to submit a complaint
under
these procedures should submit the complaint in writing to: F. Gardner Parker,
Chairman of the Audit Committee, Carrizo Oil & Gas, Inc., 1000 Louisiana
Street, Suite 1500, Houston, Texas 77002. The Company also has a confidential
hotline by which employees can communicate concerns or complaints regarding
these matters.
Director
Attendance at Annual Meeting of Shareholders
The
Company does not have a policy regarding director attendance at annual meetings
of shareholders. Five of the Company’s directors attended the 2005 Annual
Meeting of Shareholders.
Code
of Conduct
The
Company has a Code of Conduct that is applicable to all employees and directors
and that satisfies the requirements of Nasdaq Marketplace Rule 4350(n). The
Code
of Conduct is available on the Company’s website at www.carrizo.cc.
Section
16(a) Reporting Compliance
Section
16(a) of the Exchange Act requires that the Company’s executive officers and
directors, and persons who own more than 10% of a registered class of the
Company’s equity securities, file reports of ownership and changes of ownership
with the SEC. Officers, directors and greater than 10% shareholders are required
by SEC regulation to furnish the Company with copies of all such forms they
file.
Based
solely on its review of the copies of such forms received by the Company,
and on
written representations by the Company’s officers and directors regarding their
compliance with the filing requirements, the Company believes that during
the
fiscal year ended December 31, 2005, all reports required by Section 16(a)
to be
filed by its directors, officers and greater than 10% beneficial owners were
filed on a timely basis, except that Mr. Johnson did not file a Form 4 reporting
a grant of stock options on February 28, 2005 on a timely basis.
Compensation
of Nonemployee Directors
For
the
2005-2006 director term, each director not employed by the Company or any
of its
subsidiaries (an “Outside Director”) received an annual retainer of $10,000 plus
compensation of $2,500 per regular meeting attended ($1,000 if attended via
telephone), $1,000 per special meeting attended ($500 if attended via telephone)
and $1,000 per committee meeting ($500 if attended via telephone). The
additional annual retainers for the Chairmen of the Audit, Compensation and
Nominating Committees were $12,500, $6,000 and $2,500, respectively, and
for
non-chairman members of the Audit and Compensation Committees were $7,500
and
$4,000, respectively. Outside Director compensation for the 2006-2007 director
term is currently expected to be the same as compensation for the 2005-2006
term.
Directors
who are also employees of the Company receive no payments for serving as
directors. All directors are reimbursed for travel and lodging expenses of
attending meetings.
Under
the
Incentive Plan, the Chairmen of the Audit, Compensation and Nominating
Committees and the nonchairmen members of the Audit, Compensation and Nominating
Committees who are deemed by the Committee to be independent for purposes
of the
rules of the Nasdaq Stock Market may be granted stock options and/or restricted
stock at the discretion of the Board of Directors or the Compensation Committee.
The vesting terms of any stock options or shares of restricted stock granted
to
Outside Directors are at the discretion of the Compensation Committee or
the
Board of Directors. Each stock option granted to an Outside Director (i)
has a
ten-year term and (ii) has an exercise price equal to the fair market value
of a share of Common Stock on the date of grant. Shares of restricted stock
granted to Outside Directors in the 2005-2006 director term and the 2006-2007
director term will become fully vested on the first anniversary of the date
of
grant.
Mr.
Webster did not receive the award for the Nominating Committee Chairman.
Mr.
Webster will not receive the awards mentioned above which he would otherwise
be
entitled in light of the consulting agreement between the Company and an
entity
owned by Mr. Webster. The Company does not expect to make any regular grants
of
stock options or restricted stock to Mr. Webster.
COMPENSATION
OF EXECUTIVE OFFICERS
The
following table sets forth the compensation for the fiscal years ended
December 31, 2005, 2004 and 2003 of (1) the Company’s Chief Executive
Officer, (2) its four other most highly compensated executive officers serving
at December 31, 2005 and (3) one executive officer who left the Company during
2005 (collectively, the “Named Executives”).
SUMMARY
COMPENSATION TABLE
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation Awards
|
|
|
|
Year
|
|
Salary($)
|
|
Bonus($)(1)
|
|
Other
Annual
Compensation
($)(2)
|
|
Restricted
Stock (3)
|
|
Stock
Options
(#)
|
|
All
Other Compensation ($)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.P.
Johnson, IV
|
|
|
2005
|
|
|
276,354
|
|
|
214,535
|
|
|
—
|
|
|
9,300
|
|
|
8,333
|
|
|
8,968
|
|
President
and Chief
|
|
|
2004
|
|
|
257,548
|
|
|
130,046
|
|
|
—
|
|
|
—
|
|
|
8,334
|
|
|
38,605
|
|
Executive
Officer
|
|
|
2003
|
|
|
241,668
|
|
|
123,796
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
|
5,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
F. Boling(5)
|
|
|
2005
|
|
|
168,671
|
|
|
112,668
|
|
|
—
|
|
|
4,710
|
|
|
—
|
|
|
5,721
|
|
Chief
Financial Officer,
|
|
|
2004
|
|
|
157,500
|
|
|
56,421
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
|
6,315
|
|
Vice
President, Secretary
|
|
|
2003
|
|
|
68,626
|
|
|
31,382
|
|
|
—
|
|
|
—
|
|
|
20,000
|
|
|
1,249
|
|
and
Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Bradley Fisher (6)
|
|
|
2005
|
|
|
222,043
|
|
|
175,412
|
|
|
—
|
|
|
5,850
|
|
|
—
|
|
|
22,948
|
|
Vice
President and
|
|
|
2004
|
|
|
187,425
|
|
|
109,796
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,669
|
|
Chief
Operating Officer
|
|
|
2003
|
|
|
175,771
|
|
|
72,496
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
|
10,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory
E. Evans (7)
|
|
|
2005
|
|
|
145,340
|
|
|
89,409
|
|
|
—
|
|
|
1,500
|
|
|
20,000
|
|
|
3,118
|
|
Vice
President of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack
Bayless (8)
|
|
|
2005
|
|
|
36,458
|
|
|
31,823
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vice
President of Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kendall
A. Trahan (9)
|
|
|
2005
|
|
|
105,024
|
|
|
—
|
|
|
—
|
|
|
3,600
|
|
|
—
|
|
|
11,019
|
|
|
|
|
2004
|
|
|
165,567
|
|
|
42,671
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,504
|
|
|
|
|
2003
|
|
|
155,210
|
|
|
32,796
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,269
|
|
__________
(1) Consists
of bonuses earned with respect to the fiscal years listed. The bonuses
for 2005
are expected to be paid in May 2006.
(2) For
the
fiscal years 2003, 2004 and 2005 the Named Executives did not receive
any annual
compensation not properly categorized as salary or bonus, except for
certain
perquisites and other personal benefits which are not shown because the
aggregate amount of such compensation, if any, for each Named Executive
during
each of those fiscal years did not exceed the lesser of $50,000 or 10%
of total
salary and bonus reported for that Named Executive.
(3) The
restricted stock vests in three equal annual installments beginning on
the first
anniversary of May 23, 2005, the grant date. As of December 31, 2005,
the number
of shares of restricted stock held by the named executive officers and
their
market value (based on the common stock’s closing price of $24.70 on December
30, 2005 (the last trading day in 2005 on the Nasdaq National Stock Market))
were as follows:
Name
|
|
Shares
of Restricted
Stock
|
|
Market
Value
|
|
S.P.
Johnson IV
|
|
|
9,300
|
|
$
|
229,710
|
|
Paul
F. Boling
|
|
|
4,710
|
|
$
|
116,337
|
|
J.
Bradley Fisher
|
|
|
5,850
|
|
$
|
144,495
|
|
Gregory
E. Evans
|
|
|
1,500
|
|
$
|
37,050
|
|
Jack
Bayless
|
|
|
-
|
|
|
-
|
|
Kendall
A. Trahan
|
|
|
-
|
|
|
-
|
|
(4) For
the
fiscal year 2005, all other compensation consists of special cash bonuses
in
lieu of stock options of $15,000 and $7,500 for Messrs. Fisher and Trahan,
respectively; contributions of $8,310, $5,079, $6,612, $2,625, $0 and
$2,980 by
the Company under its 401(k) plan for Messrs. Johnson, Boling, Fisher,
Evans,
Bayless and Trahan, respectively; life insurance premiums of $658, $641,
$657,
$493, $0 and $539 for Messrs. Johnson, Boling, Fisher, Evans, Bayless
and
Trahan, respectively; and overriding royalties of $1,133 for Mr. Fisher.
The
compensation from overriding royalties awarded to Mr. Fisher arises from
a
one-time award of an overriding royalty interest on the Pitchfork Ranch
A-90 #1
well to Mr. Fisher in 2001. The Company has since adopted a policy that
it will
not grant any overriding royalty interests to its executive officers.
For
the
fiscal year 2004, all other compensation consists of special cash bonuses
in
lieu of stock options of $25,000, $30,000 and $15,500 for Messrs. Johnson,
Fisher and Trahan, respectively; contributions of $12,794, $5,559, $8,358
and
$11,693 by the Company under its 401(k) plan for Messrs. Johnson, Boling,
Fisher
and Trahan, respectively; life insurance premiums of $811, $756, $811 and
$811
for Messrs. Johnson, Boling, Fisher and Trahan, respectively; and overriding
royalties of $1,500 for Mr. Fisher. Due to the low number of shares of
Common
Stock available for issuance under the Incentive Plan, in the first quarter
of
2004, the Compensation Committee recommended and the Board of Directors
approved
the award of a special cash bonus in lieu of stock options to a number
of key
employees, including Messrs. Johnson, Fisher and Trahan. Subsequently,
because
of the availability of additional shares under the Incentive Plan, the
Board of
Directors gave these employees the option to receive stock options in lieu
of a
portion of the cash bonus. The special bonuses described above were paid
to
Messrs. Johnson, Fisher and Trahan over three equal installments on April
15,
2004, August 31, 2004 and February 28, 2005. Mr. Johnson elected to receive
stock options in lieu of a portion of his cash bonus and therefore he received
$25,000 and options to purchase 16,668 shares of Common Stock.
For
the
fiscal year 2003, all other compensation consists of contributions of $4,818,
$1,125, $4,674, $2,753 and $4,622 by the Company under its 401(k) plan
for
Messrs. Johnson, Boling, Fisher and Trahan, respectively, life insurance
premiums of $697, $124, $595, $688 and $604 for Messrs. Johnson, Boling,
Fisher
and Trahan, respectively, and overriding royalties of $5,599 for Mr. Fisher.
For
the fiscal year 2002, all other compensation consists of contributions
of
$4,088, $3,947 and $4,129 by the Company under its 401(k) plan for Messrs.
Johnson, Fisher and Trahan, respectively, life insurance premiums of $648,
$533
and $546 for Messrs. Johnson, Fisher and Trahan, respectively, and overriding
royalties of $7,368 for Mr. Fisher.
(5) Mr.
Boling commenced his employment with the Company in August 2003.
(6) Mr.
Fisher became Vice President and Chief Operating Officer in March
2005.
(7) Mr.
Evans
commenced his employment with the Company in March 2005.
(8) Mr.
Bayless commenced his employment with the Company in October 2005.
(9) Mr.
Trahan left the Company in July 2005.
Options/SAR
Grants in Last Fiscal Year
The
following table sets forth information with respect to stock options granted
during the fiscal year 2005 to the Named Executives.
|
|
|
|
|
|
|
|
|
|
Potential
Realizable
|
|
|
|
|
|
|
|
|
|
|
|
Values
at Assumed
|
|
|
|
Number
of
|
|
%
of Total
|
|
|
|
|
|
Annual
Rates of Stock
|
|
|
|
Securities
|
|
Options/SARs
|
|
|
|
|
|
Price
Appreciation for
|
|
|
|
Underlying
|
|
Granted
to
|
|
|
|
|
|
Option
Term(1)(2)
|
|
|
|
Options/SARs
|
|
Employees
in
|
|
Exercise
Price
|
|
|
|
|
|
Name
|
|
Granted
|
|
Fiscal
Year
|
|
($/share)(1)
|
|
Expiration
Date
|
|
5%($)
|
|
10%($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
P. Johnson IV
|
|
|
8,333
|
|
|
6.5
|
%
|
|
15.01
|
|
|
02/28/15
|
|
$
|
203,739
|
|
$
|
324,421
|
|
Paul
F. Boling
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
J.
Bradley Fisher
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gregory
E. Evans
|
|
|
20,000
|
|
|
15.5
|
%
|
|
14.90
|
|
|
03/02/15
|
|
$
|
485,411
|
|
$
|
772,935
|
|
Jack
Bayless
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Kendall
A. Trahan
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
__________
(1) The
exercise price of the options granted is equal to or greater than the market
value of the Common Stock on the date of grant.
(2) Potential
realizable value of each grant assumes that the market price of the underlying
security (based upon the value of the Common Stock on the date of grant)
appreciates at annualized rates of 5% and 10% over the term of the award.
Actual
gains, if any, on stock option exercises are dependent on the future performance
of Common Stock and overall market conditions. There can be no assurance
that
the amounts reflected on this table will be achieved.
Aggregated
Option Exercises and Fiscal Year-End Option Values
The
following table sets forth information with respect to the unexercised
options
to purchase the Common Stock held by the Named Executives at December 31,
2005.
|
|
|
|
|
|
Number
of Securities
|
|
Value
of Unexercised In-the-
|
|
|
|
|
|
|
|
Underlying
Unexercised
|
|
Money
Options at Fiscal
|
|
|
|
Shares
|
|
Value
|
|
Options
at Fiscal Year-End
|
|
Year-End($)(2)
|
|
|
|
Acquired
on
|
|
Realized
|
|
|
|
|
|
Name
|
|
Exercise(#)
|
|
($)(1)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
P. Johnson IV
|
|
|
—
|
|
|
—
|
|
|
225,556
|
|
|
11,112
|
|
|
5,571,233
|
|
|
274,466
|
|
Paul
F. Boling
|
|
|
—
|
|
|
—
|
|
|
30,000
|
|
|
15,000
|
|
|
741,000
|
|
|
370,500
|
|
J.
Bradley Fisher
|
|
|
40,000
|
|
|
546,250
|
|
|
30,000
|
|
|
—
|
|
|
741,000
|
|
|
—
|
|
Gregory
E. Evans
|
|
|
—
|
|
|
—
|
|
|
6,667
|
|
|
13,333
|
|
|
164,675
|
|
|
329,325
|
|
Jack
Bayless
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Kendall
A. Trahan
|
|
|
87,295
|
|
|
917,256
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
__________
(1) Value
realized is calculated based on the difference between the option exercise
price
and the closing market price of the Company’s Common Stock on the date of
exercise, multiplied by the number of shares underlying the
options.
(2) Value
of
unexercised in-the-money options is calculated based upon the difference between
the option price and the closing price of the Company’s Common Stock at fiscal
year-end, multiplied by the number of shares underlying the options. The closing
price of the Company’s Common Stock, as reported on the Nasdaq Stock Market on
December 30, 2005 (the last trading day of 2005), was $24.70.
Compensation
Committee Interlocks and Insider Participation
The
members of the Compensation Committee during the last completed fiscal year
were
Mr. Parker and Mr. Ramsey. There are no matters relating to interlocks or
insider participation that we are required to report.
Certain
Transactions
Pinnacle
Transaction
During
the second quarter of 2003, we and Rocky Mountain Gas, Inc. (“RMG”) each
contributed our interests in certain natural gas and oil leases in Wyoming
and
Montana in areas prospective for coalbed methane to a newly formed joint
venture, Pinnacle Gas Resources, Inc. In exchange for the contribution of these
assets, we and RMG each received 37.5% of the common stock of Pinnacle and
options to purchase additional Pinnacle common stock, or on a fully diluted
basis, we and RMG each received an ownership interest in Pinnacle of 26.9%.
U.S.
Energy Corp. and Crested Corp (collectively, “U.S. Energy”) later succeeded to
RMG’s interest in Pinnacle. We retained our interests in approximately 145,000
gross acres in the Castle Rock project area in Montana and the Oyster Ridge
project area in Wyoming. We no longer have a drilling obligation in connection
with the oil and natural gas leases contributed to Pinnacle.
Simultaneously
with the contribution of these assets, affiliates and related parties of CSFB
Private Equity (the “CSFB Parties”) contributed approximately $17.6 million of
cash to Pinnacle in return for redeemable preferred stock of Pinnacle, 25%
of
Pinnacle’s common stock as of the closing date and warrants to purchase Pinnacle
common stock at an exercise price of $100.00 per share, subject to
adjustments.
In
March
2004, the CSFB parties contributed additional funds of $11.8 million to continue
funding the 2004 development program of Pinnacle. In 2005, the CSFB Parties
contributed $15.0 million to Pinnacle to finance an acquisition of additional
acreage. CCBM and U.S. Energy elected not to participate in the equity
contribution. In November 2005, the CSFB Parties and a former Pinnacle employee
received 30,000 and 2,000 shares of Pinnacle common stock, respectively, after
exercising certain warrants and options.
In
April
2006, prior to and in connection with a private placement by Pinnacle of
7,400,000 shares of its common stock, Pinnacle issued 44 new shares of its
common stock to each of its stockholders for each existing share in a stock
split; Pinnacle redeemed the preferred stock held by the CSFB Parties at
110% of
par value; the CSFB Parties exercised all of their warrants on a “cashless” net
exercise basis; and we and U.S. Energy exercised our respective options on
a
“cashless” net exercise basis. On April 11, 2006, after the stock split, the
redemption of the preferred stock, the warrant and option exercises and the
private placement, we owned 2,459,102 shares of Pinnacle’s common stock, and our
ownership of Pinnacle was 9.5% on a fully diluted basis. On such date, U.S.
Energy and the CSFB Parties owned 2,459,102 and 7,306,782 shares of Pinnacle’s
common stock, respectively, and their ownership of Pinnacle was 9.5% and
28.3%
on a fully diluted basis, respectively.
We
previously had the right to appoint two members of Pinnacle’s board of
directors. We agreed to give up this right in connection with the transactions
described above. However, Mr. Johnson and Mr. Parker currently serve on
Pinnacle’s board of directors.
Immediately
following its formation, Pinnacle acquired an approximate 50% working interest
in existing leases and approximately 36,529 gross acres prospective for coalbed
methane development in the Powder River Basin of Wyoming from an unaffiliated
party for $6.2 million. At the time of the Pinnacle transaction, these wells
were producing at a combined gross rate of approximately 2.5 MMcfd, or an
estimated 1 MMcfd net to Pinnacle. At the end of 2005 Pinnacle’s production was
approximately 17.8 Mmcfe/d gross (6.0 Mmcfe/d net). As of December 31, 2005,
Pinnacle owned interests in approximately 418,000 gross acres (272,000 net)
in
the Powder River Basin.
Our
Chairman, Steven A. Webster, serves as Chairman of Global Energy Partners,
which
through June 30, 2005, was an affiliate of CSFB Private Equity. Mr. Webster
now
serves as Co-Managing Partner of Avista Capital Partners LP, which is not
affiliated with CSFB but which has an affiliate that provides consulting
services to an affiliate of CSFB. Mr. Webster has entered into a consulting
contract with CSFB Private Equity to assist through 2006 in monitoring certain
of its investments, including Pinnacle. Mr. Webster and certain of his Avista
associates serve on the board of directors of Pinnacle.
The
Company, the CSFB Parties, U.S. Energy, Peter G. Schoonmaker, Gary W. Uhland
and
Pinnacle also entered into an agreement providing generally for multiple demand
registration rights with respect to the Pinnacle common stock in favor of the
CSFB Parties, one demand registration right in favor of the Company and U.S.
Energy and certain piggyback registration rights for the Company and U.S. Energy
subject to the satisfaction of specified conditions.
Certain
Matters Regarding Mr. Webster
In
December 2001, the Company sold to Mr. Webster a 2% working interest in
certain leases in Matagorda County and the right to participate in the Staubach
#1 well located within those leases in exchange for $20,000 and the payment
by
Mr. Webster of a 33% promoted interest for drilling costs through casing
point of that well. The terms of this sale were consistent with the terms of
sales to other participants in this project.
In
November 1999, the Company entered into a month-to-month agreement with San
Felipe Resource Company, an entity owned by Mr. Webster, under which Mr. Webster
provides consulting services to the Company in exchange for a fee of $9,000
per
month, which was increased to $12,000 per month effective April 2003. The
Company provides office space for Mr. Webster’s son.
In
the
first quarter of 2004, due to the low number of shares of Common Stock available
for issuance under the Incentive Plan, the Compensation Committee recommended
and the Board of Directors approved the award of a special cash bonus in lieu
of
stock options to Mr. Webster. The special bonus was paid to Mr. Webster in
three
equal installments of $40,000 on April 15, 2004, August 31, 2004 and
February 28, 2005.
Certain
Matters Regarding Mr. Carter
On
March
3, 2005, the Board of Directors appointed Mr. Carter to the Board of Directors
and the Nominating Committee. Mr. Carter and his immediate family members
collectively own interests directly and indirectly through entities, which
are
royalty owners in the Company’s Louisiana Delta Farms #1, Louisiana Delta Farms
#2 and King Gas #1. Mr. Carter also serves as an executive officer, general
partner or controlling shareholder of these entities (the “Black Stone
Entities”) and in some cases he and his family hold substantial interests in
these entities. The Black Stone Entities acquired the royalty interests from
a
third party in June 2004. The Company estimates that, during 2005, (i) the
Black
Stone Entities collectively earned approximately $213,063 from working interests
in which the Company is a partial owner, (ii) approximately $6,500 of the amount
received from these working interests was attributable to the ownership of
Mr.
Carter and his immediate family, and (iii) Mr. Carter’s family members received
$562 directly from these working interests. In addition, the Black Stone
Entities own royalty interests in the undeveloped Lazarus and Twins Prospects,
which the Company may develop in the future.
Employment
Agreements
The
Company has entered into employment agreements with each executive officer
listed below. The following chart shows the annual base salaries that the
executive officers listed therein are currently being paid by the
Company.
Name
and Current Position
|
Annual
Salary
|
|
|
S.
P. Johnson IV
|
$283,500
|
President
and Chief Executive Officer
|
|
Paul
F. Boling
Chief
Financial Officer, Vice President, Secretary and
Treasurer
|
$173,250
|
J.
Bradley Fisher
Vice
President and Chief Operating Officer
|
$226,800
|
Gregory
E. Evans(1)
Vice
President of Exploration
|
$175,000
|
Jack
Bayless(2)
Vice
President of Land
|
$175,000
|
__________
(1) Mr.
Evans’ employment with the Company commenced in March 2005.
(2) Mr.
Bayless’ employment with the Company commenced in October 2005 and his
employment agreement was entered into in January 2006.
Each
of
the employment agreements of Mr. Johnson and Mr. Fisher has an initial
three-year term; provided that at the end of the second year of such initial
term and on every day thereafter, the term of each such employment agreement
will automatically be extended for one day, such that the remaining term of
the
agreement shall never be less than one year. The employment agreements for
Mr.
Boling, Mr. Bayless and Mr. Evans have an initial one year term; provided that
at the date of the agreement and on every day thereafter, the term of such
employment agreement is automatically extended for one day, such that the
remaining term of the agreement shall never be less than one year. Under each
agreement, both the Company and the employee may terminate the employee’s
employment at any time. Upon termination of employment on account of disability
or if employment is terminated by the Company for any reason (except under
certain limited circumstances defined as “for cause” in the agreement), or if
employment is terminated either (x) for any reason (including by reason of
death) during a sixty day period following the elapse of one year after such
a
change of control (“window period”) or (y) by the employee with good reason (as
defined), under the agreements the employee will generally be entitled to (i)
an
immediate lump sum cash payment equal to 150% for Messrs. Johnson and Fisher
and
100% in the case of Mr. Boling, Mr. Bayless and Mr. Evans (375% for Mr. Johnson
and 275% for Mr. Fisher, if termination occurs after or in anticipation of
a
change of control) of his annual base salary that would have been payable for
the remainder of the term of the applicable agreement discounted at 6%, (ii)
continued participation in all the Company’s welfare benefit plans and continued
life insurance and medical benefits coverage, (iii) a pro-rated bonus for the
year of termination and (iv) the immediate vesting of any stock options or
restricted stock previously granted to such employee and outstanding as of
the
time immediately prior to the date of his termination, an extension of the
period of exercisability of any such awards until the earlier of (A) one year
following his date of termination or (B) the date such awards would have lapsed
had the employee remained employed for the remaining term, or, in the case
of
Mr. Johnson, a cash payment in lieu of each outstanding compensatory equity
award. If the termination is after or in anticipation of a change of control,
the assumed remaining employment period for Mr. Boling, Mr. Bayless and Mr.
Evans for purposes of calculating the lump sum described above in subparagraph
(i) shall be 18 months. If employment terminates due to death of the employee
and other than in a window period, the Company will pay a sum equal to the
amount of the employee’s annual base salary for the remaining term of the
agreement, reduced by the amount payable under any life insurance policies
to
the extent that such amounts are attributable to premiums paid by the Company,
a
prorated annual bonus for the year of death, continued welfare benefits for
the
employee’s dependents for one year following death and immediate vesting and
extension of exercisability of equity awards as described above. The salaries
in
each of these agreements are subject to periodic review and provide for
increases consistent with increases in base salary generally awarded to other
executives of the Company. Each agreement entitles the employee to participate
in all of the Company’s incentive, savings, retirement and welfare benefit plans
in which other executive officers of the Company participate. The agreements
each provide for an annual bonus in an amount comparable to the annual bonus
of
other Company executives, taking into account the individual’s position and
responsibilities. In the event of a dispute regarding the employee’s rights upon
termination of employment, (a) the parties are required to submit the dispute
to
arbitration; (b) the Company is only required to pay the employee’s attorneys
fees pending a dispute if the termination occurred within two years after a
change in control (as defined in the agreement) or, in the case of a termination
before a change in control, if the termination was not initiated by the employee
(with or without good reason); and (c) the Company is only required to pay
the
employee severance pending resolution of a dispute in the case of a termination
within two years after a change in control. The agreements also provide that
the
employees will be entitled to a gross-up payment to offset the effect of any
excise tax imposed under Section 4999 of the Code in connection with payments
contingent on a change of control. Upon a voluntary termination of employment,
the employees have agreed to be subject to one-year noncompetition and one-year
nonsolicitation covenants.
Mr.
Trahan was a party to an employment agreement with terms substantially similar
to those for Mr. Johnson and Mr. Fisher. Mr. Trahan has contended that he
terminated his employment in 2005 for “good reason” under his employment
agreement and was therefore entitled to additional compensation. The Company
disputes his contention. As consideration for certain amendments to their
employment agreements in January 2006, which amendments are reflected in the
descriptions of the employment agreements above, Mr. Fisher, Mr. Evans, Mr.
Boling and Mr. Bayless received awards of 35,000, 25,000, 25,000 and 15,000
shares of restricted stock, respectively. The restricted stock granted to
Messrs. Boling, Fisher and Evans vests in full on the date 30 months following
the grant
date,
and
the restricted stock granted to Mr. Bayless vests in three equal annual
installments beginning on October 15, 2006 (the first anniversary of his
employment commencement date), in each case subject to forfeiture upon earlier
departure from the Company.
Audit
Committee Report
The
Audit
Committee’s purpose is to assist the Board of Directors in its oversight of the
Company’s internal controls and financial statements and the audit process. The
Board of Directors, in its business judgment, has determined that the members
of
the Audit Committee, are “independent,” as required by applicable standards of
the Nasdaq Stock Market. The Audit Committee operates pursuant to a written
charter adopted by our Board of Directors. A copy of the Audit Committee Charter
is available on the Company’s website at www.carrizo.cc.
Management
is responsible for the preparation, presentation and integrity of the Company’s
financial statements, accounting and financial reporting principles and internal
controls and procedures designed to assure compliance with accounting standards
and applicable laws and regulations. The independent registered public
accounting firm is responsible for performing an independent audit of the
consolidated financial statements in accordance with generally accepted auditing
standards.
In
performing its oversight role, the Audit Committee has reviewed and discussed
the audited financial statements with management and the independent registered
public accounting firm. The Audit Committee has also discussed with the
independent registered public account firm the matters required to be discussed
by Statement on Auditing Standards No. 61, Communication with Audit Committees,
as currently in effect. The Audit Committee has received the written disclosures
and the letter from the independent registered public accounting firm required
by Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees, as currently in effect.
Based
on
the reports and discussions described in this report, and subject to the
limitations on the role and responsibilities of the Audit Committee referred
to
below and in the charter, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2005.
Members
of the Audit Committee rely, without independent verification, on the
information provided to them and on the representations made by management
and
the independent registered public accounting firm. Accordingly, the Audit
Committee’s oversight does not provide an independent basis to determine that
management has maintained appropriate accounting and financial reporting
principles or appropriate internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee’s considerations and discussions referred to
above do not assure that the audit of the Company’s financial statements has
been carried out in accordance with generally accepted auditing standards,
that
the financial statements are presented in accordance with generally accepted
accounting principles or that the independent registered public accounting
firm
are in fact “independent.”
The
Audit
Committee
F.
Gardner Parker
Thomas
L.
Carter, Jr..
Roger
A.
Ramsey
Pursuant
to SEC Rules, the foregoing Audit Committee Report is not deemed “filed” with
the SEC and is not incorporated by reference into the Company’s Annual Report on
Form 10-K.
Compensation
Committee Report on Executive Compensation
The
Company’s executive compensation programs are designed to attract and retain
highly qualified executives and to motivate them to maximize shareholder
returns. The Company’s executive compensation program is intended to provide
competitive compensation levels and incentive pay levels that vary based on
corporate and individual performance.
There
are
three basic components to the Company’s current compensation system: base pay;
annual incentive compensation in the form of a cash bonus; and long-term
equity-based incentive compensation. Each component is addressed in the context
of individual and Company performance and competitive conditions. In determining
competitive compensation levels, the Company analyzes data that includes
information regarding the general oil and natural gas exploration and production
industry.
Actual
individual awards and changes in remuneration to the individual executives
are
recommended by the Compensation Committee but approved by the Board of
Directors. The Chief Executive Officer works with the Compensation Committee
in
the
design
of
the plans and makes recommendations to the Committee regarding the salaries
and
bonuses of Company employees that report directly to him. Grants or awards
of
stock, including stock options, are individually determined and administered
by
the Compensation Committee.
Base
Pay.
Base pay
is designed to be competitive with salary levels for comparable executive
positions at other oil and natural gas exploration and production companies
and
the Compensation Committee reviews such comparable salary information as one
factor to be considered in determining the base pay for the Company’s executive
officers. Other factors the Compensation Committee considers in determining
base
pay for each of the executive officers are that officer’s responsibilities,
experience, leadership, potential future contribution, and demonstrated
individual performance. The types and relative importance of specific financial
and other business objectives vary among the Company’s executives depending on
their positions and the particular operations and functions for which they
are
responsible. The Compensation Committee also considers the Company’s earnings
levels and progress in implementing its business strategy in establishing base
salary increases for executives. The employment contracts of the executive
officers provide that base pay is to be reviewed at least annually and will
be
increased at any time and from time to time, and that any increase will be
substantially consistent with increases in base salary generally awarded in
the
ordinary course of business to executives of the Company. In the past, the
Company has taken into account positive financial results and drilling success
in determining base salaries. Additionally, the Company has engaged an
independent compensation consultant to review the Company’s current compensation
levels for all employees, including executives. Changes in compensation levels,
including base pay for executives, are expected to be made effective in the
second quarter of 2006 after the Compensation Committee receives and considers
the independent consultant’s compensation report.
Annual
Bonus.
The
annual bonus is determined by the Compensation Committee. The employment
agreements with the executive officers contemplate annual bonus awards in an
amount comparable to the annual bonus of other Company executives, taking into
account the individual’s position and responsibilities. As a result of the
Company’s positive financial results and continued drilling success in 2005,
each of Messrs. Johnson, Boling, Bayless, Fisher and Evans was awarded a bonus
equal to 75%, 50%, 17%, 77% and 50%, respectively, of their annual base
pay. Additionally,
Mr. Boling received a $25,000 bonus for his work on the Company’s July 2005
refinancing project.
Special
Cash Bonus in lieu of Stock Options. Due
to
the low number of shares of Common Stock available for issuance under the
Incentive Plan, in the first quarter of 2004, the Compensation Committee
recommended and the Board of Directors approved the award of a special cash
bonus in lieu of stock options to a number of key employees, including the
Company’s executive officers. Subsequently, because of the availability of
additional shares under the Incentive Plan, the Board of Directors gave these
employees the option to receive stock options in lieu of a portion of the cash
bonus. The special bonuses were paid to each recipient over three equal
installments on April 15, 2004, August 31, 2004 and February 28, 2005. Mr.
Fisher did not elect to receive any stock options and received a total cash
bonus of $45,000. Mr. Johnson elected to receive stock options in lieu of a
portion of his cash bonus and therefore he received $25,000 and options to
purchase 16,668 shares of Common Stock.
Long-Term
Equity-Based Compensation.
In the
past, the Company has relied upon stock option awards to provide long-term
incentives for executives, although most recently the Compensation Committee
has
begun to rely upon restricted stock. Prior to the Company’s IPO, the
shareholders and the Board of Directors of the Company approved the Company’s
Incentive Plan. The objectives of the Incentive Plan are to (i) attract and
retain the services of key employees, qualified independent directors and
qualified consultants and other independent contractors and (ii) encourage
a
sense of proprietorship in and stimulate the active interest of those persons
in
the development and financial success of the Company by making awards designed
to provide participants in the Incentive Plan with proprietary interest in
the
growth and performance of the Company. Long-term equity-based compensation
is
tied to shareholder return.
Under
the
Company’s Incentive Plan, long-term incentive compensation includes stock
options, which generally have a ten-year term and vest on a schedule determined
by the Compensation Committee or the Board of Directors. The exercise price
of
stock options granted is equal to or greater than the fair market value of
the
Common Stock on the date of grant; accordingly, executives receiving stock
options are rewarded only if the market price of the Common Stock appreciates.
Stock options are thus designed to align the interests of the Company’s
executives with those of its shareholders by encouraging executives to enhance
the value of the Company and, hence, the price of the Common Stock and each
shareholder’s return. On March 2, 2005, the Compensation Committee granted
options to purchase 20,000 shares of Common Stock to Mr. Evans at an
exercise price per share of $14.90. These options have a ten-year term and
vest
in three annual installments beginning on the first anniversary of the grant
date.
Particularly
given the significant increase in the Company’s stock price in the past few
years, the Compensation Committee believes that the use of restricted stock
may
be a preferable tool to incentivize executive officers. On January 23, 2006,
the
Compensation Committee granted 25,000, 35,000, 25,000 and 15,000 shares of
restricted stock to Messrs. Boling, Fisher, Evans and Bayless, respectively.
The
restricted stock granted to Messrs. Boling, Fisher and Evans vests in full
on
the date 30 months following the grant date, and the restricted stock granted
to
Mr. Bayless for his initial employment incentive award vests in three equal
annual installments beginning on October 15, 2006 (the first anniversary of
his
employment commencement date), in each case subject to
forfeiture
upon earlier departure from the Company. The grants to Messrs. Boling, Fisher
and Evans were made in exchange for the amendments to the executives’ employment
agreements in January 2006. The Compensation Committee retains the flexibility
to grant either restricted stock or stock options in the future, depending
on
various factors, including the price of the Common Stock.
The
Company may periodically grant new awards to provide continuing incentive for
future performance. In making the decision to grant additional awards, the
Compensation Committee would expect to consider factors such as the size of
previous grants and the number of awards held. In determining whether to grant
executive officers awards under the Plan, the Compensation Committee considers
factors, including that executive’s current ownership stake in the Company, the
degree to which increasing that ownership stake would provide the executive
with
additional incentives for future performance, the likelihood that the grant
of
those awards would encourage the executive to remain with the Company and the
value of the executive’s service to the Company.
Section
162(m) of the Internal Revenue Code.
Section
162(m) of the Internal Revenue Code of 1986, as amended, generally limits (to
$1
million per covered executive) the deductibility for federal income tax purposes
of annual compensation paid to a company’s chief executive officer and each of
its other four most highly compensated executive officers. The Compensation
Committee and the Board of Directors will take deductibility or nondeductibility
of compensation into account but have in the past authorized, and will retain
the discretion in the future to authorize, the payment of potentially
nondeductible amounts.
Compensation
of the Chief Executive Officer.
The
Compensation Committee based the compensation of the Company’s Chief Executive
Officer, Mr. Johnson, on the same considerations described above for other
executive officers. As a result of the Company’s positive financial results and
continued drilling success, in April 2006, the Company awarded Mr. Johnson
a
bonus of $212,625. Mr. Johnson’s base salary may be changed after the
Compensation Committee receives and considers the report of the independent
compensation consultant.
Executive
compensation is an evolving field. The Compensation Committee monitors trends
in
this area, as well as changes in law, regulation and accounting practices,
that
may affect either its compensation practices or its philosophy. Accordingly,
the
Committee reserves the right to alter its approach in response to changing
conditions.
The
Compensation Committee
F.
Gardner Parker
Roger
A.
Ramsey
Performance
Graph
The
following graph presents a comparison of the yearly percentage change in the
cumulative total return on the Common Stock over the period from December 31,
2000 to December 31, 2005, with the cumulative total return of the S&P 500
Index and of the American Stock Exchange Natural Resource Industry Index of
publicly traded companies over the same period. The graph assumes that $100
was
invested on December 31, 2000, in the Common Stock at the closing market price
at the beginning of this period and in each of the other two indices and the
reinvestment of all dividends, if any.
The
graph
is presented in accordance with SEC requirements. Shareholders are cautioned
against drawing any conclusions from the data contained therein, as past results
are not necessarily indicative of future financial performance.
COMPARISON
OF CUMULATIVE TOTAL RETURN*
AMONG
CARRIZO OIL & GAS, INC., THE S&P 500 INDEX AND
THE
AMERICAN STOCK EXCHANGE NATURAL RESOURCE INDUSTRY INDEX
(PERFORMANCE
GRAPH)
|
|
S
& P
|
|
AMEX
|
|
C
O & G
|
|
12/31/00
|
|
|
100
|
|
|
100
|
|
|
100
|
|
12/31/01
|
|
|
87
|
|
|
81
|
|
|
49
|
|
12/31/02
|
|
|
67
|
|
|
89
|
|
|
58
|
|
12/31/03
|
|
|
84
|
|
|
133
|
|
|
79
|
|
12/31/04
|
|
|
92
|
|
|
169
|
|
|
124
|
|
12/31/05
|
|
|
95
|
|
|
259
|
|
|
271
|
|
Pursuant
to SEC Rules, the foregoing Compensation Committee Report and Stock Performance
Graph are not deemed “filed” with the SEC and are not incorporated by reference
into the Company’s Annual Report on Form 10-K.
Equity
Compensation Plans
Information
concerning our equity compensation plan at December 31, 2005 is as
follows:
Plan
Category
|
|
Number
of Securities to be Issued Upon
Exercise
of Outstanding Options,
(a)
|
|
Weighted-Average
Exercise Price of Outstanding Options,
(b)
|
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected
in Column (a))
(c)
|
|
Equity
compensation plans
approved
by security
holders
|
|
|
1,025,204
|
|
$
|
5.53
|
|
|
338,577
|
|
PROPOSAL
2
PROPOSAL
TO AMEND INCENTIVE PLAN
At
the
time of its initial public offering, the Company adopted the Incentive Plan.
The
objectives of the Incentive Plan are to:
• attract
and retain the services of key employees, qualified directors and qualified
consultants and other independent contractors; and
• encourage
the sense of proprietorship in and stimulate the active interest of those
persons in the development and financial success of the Company by making
awards
(“Awards”) designed to provide participants in the Incentive Plan with
proprietary interest in the growth and performance of the Company.
The
Company currently has reserved 2,350,000 shares of Common Stock for use in
connection with the Incentive Plan. Persons eligible for Awards are (i)
employees holding positions of responsibility with the Company and whose
performance can have a significant effect on the success of the Company,
(ii)
nonemployee directors and (iii) certain nonemployee consultants and other
independent contractors.
As
of
April 21, 2006, 1,897,171 options (excluding awards that have been forfeited
or
otherwise again become available under the Incentive Plan) and 222,285 shares
of
restricted stock had been granted under the Incentive Plan to 99 current
and
former employees and directors of the Company. As of April 21, 2006, there
were
230,544 shares available for issuance under the Incentive Plan. If the
shareholders vote in favor of the proposal set forth herein, an additional
450,000 shares of Common Stock will be available for issuance under the Plan.
The proposed increase in the number of authorized shares available under
the
Plan is equal to approximately 1.8% of the currently outstanding Common Stock.
Shares of Common Stock that are the subject of awards under the Incentive
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 or are exchanged for awards that do not involve
Common Stock, will not count against this limit and may be regranted under
the
Incentive Plan.
The
Company is not proposing any amendment to the terms of the Incentive Plan
with
respect to the approval of material terms of the performance-based goals
under
the Incentive Plan. However, Section 162(m) of the Code denies an employer
a tax
deduction for certain compensation in excess of $1 million paid to “covered
employees” of a publicly held corporation unless the compensation is qualified
performance-based compensation. The Section 162(m) regulations generally
require
that shareholders approve the material terms of the performance awards. As
more
fully discussed below, the performance measures which the Company may use
as a
basis for performance-based awards are: increased revenue, net income, stock
price, market share, earnings per share, return on equity or assets or decrease
in costs. As part of this proposal, shareholders are being asked to approve
the
use of these performance goals for performance awards under the Plan so as
to
allow the Company to structure awards as qualified performance-based
compensation exempt from the $1 million annual limit on deductible
compensation.
Summary
of Incentive Plan
The
Compensation Committee administers the Incentive Plan with respect to Awards
to
non-employee directors, employees and independent contractors and has broad
power to take actions thereunder, to interpret the Incentive Plan and to
adopt
rules, regulations and guidelines for carrying out its purposes. The
Compensation Committee may, in its discretion, among other things, extend
or
accelerate the exercisability of, accelerate the vesting of or eliminate
or make
less restrictive any restrictions contained in any Award, waive any restrictions
or other provision of the Incentive Plan or in any Award or otherwise amend
or
modify any Award in any manner that is either (i) not adverse to that
participant holding the Award or (ii) consented to by that participant. The
Compensation Committee also may delegate to the chief executive officer and
other senior officers of the Company its duties under the Incentive Plan.
In
February 2005, the Compensation Committee delegated authority to the Chief
Executive Officer to designate certain eligible participants, including
executive officers and directors, to receive options under the Plan and to
determine the number of options to be issued to each such designee, subject
to
certain limitations. Any repricing of stock options granted under the Incentive
Plan will require shareholder approval.
The
Board
of Directors may amend, modify, suspend or terminate the Incentive Plan for
the
purpose of addressing any changes in legal requirements or for any other
lawful
purpose, 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
shareholders of the Company 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 shareholder approval is otherwise required
by
applicable legal requirements. The Board of Directors may make certain
adjustments in the event of any subdivision, split or consolidation of
outstanding shares of Common Stock, any declaration of a stock dividend payable
in shares of Common Stock, any recapitalization or capital reorganization
of the
Company, any consolidation or merger of the Company with another corporation
or
entity, any 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).
Awards
to
employees and independent contractors may be in the form of (i) rights to
purchase a specified number of shares of Common Stock at a specified price
not
less than that of the fair market value on the date of grant (“Options”), (ii)
rights to receive a payment, in cash or Common Stock, equal to the fair market
value or other specified value of a number of shares of Common Stock on the
rights exercise date over a specified strike price, (iii) grants of restricted
or unrestricted Common Stock units denominated in Common Stock, (iv) grants
denominated in cash and (v) grants denominated in cash, Common Stock, units
denominated in Common Stock or any other property which are made subject
to the
attainment of one or more performance goals (“Performance Awards”). Subject to
certain limitations, the Compensation Committee has the authority to determine
the other terms, conditions and limitations of Awards under the Incentive
Plan.
An Option may be either an incentive stock option (“ISO”) that qualifies, or a
nonqualified stock option (“NSO”) that does not qualify, with the requirements
of Sections 422 of the Code; provided that independent contractors cannot
be
awarded ISOs. The Compensation Committee will determine the employees and
independent contractors to receive Awards and the terms, conditions and
limitations applicable to each such Award, which conditions may, but need
not,
include continuous service with the Company, achievement of specific business
objectives, attainment of specified growth rates, increases in specified
indices
or other comparable measures of performance.
Section
162(m) of the Code generally limits the deductibility for federal income
tax
purposes of annual compensation paid to a company’s executive officers to $1
million per covered executive in a taxable year. The Compensation Committee
and
the Board of Directors may take deductibility and nondeductibility of
compensation into account but have in the past authorized, and retain in
the
future the discretion to authorize, the payment of potentially nondeductible
amounts.
To
preserve the Company’s ability to deduct the compensation associated with grants
and awards made under the Incentive Plan, the plan provides that grants or
awards in the form of Options or stock appreciation rights made to an individual
employee in any calendar year cannot cover an aggregate of more than 250,000
shares of Common Stock, and the aggregate amount of shares of Common Stock
or
stock units that may be the subject of Stock Awards in any calendar year
may not
exceed 50,000 shares. In addition, the maximum cash or other award (other
than
Options, SARs or stock awards) in respect of any one year period may not
exceed
$500,000.
The
Incentive Plan permits, but does not require, the Compensation Committee
to
structure any Performance Award made to a named executive officer as
performance-based compensation. The particular performance-based objectives
that
may be imposed in connection with a Performance Award that qualifies as
performance-based compensation under Code Section 162(m) are:
· increased
revenue;
· net
income;
· changes
in stock price;
· market
share;
· earnings
per share;
· return
on
equity or assets; or
· decrease
in costs.
Performance
Awards may include more than one performance goal, and a performance goal
may be
based on one or more business criteria applicable to the grantee, the Company
as
a whole or one or more of the Company’s business units.
On
the
date of his or her first appointment or election to the Board of Directors
and
on or after each annual award date, a nonemployee director may be granted
one or
more discretionary Awards of NSOs or shares of restricted stock that are
determined by the Compensation Committee or the Board of Directors and
the
specific terms of the Awards, including the vesting schedule, are at the
discretion of the Compensation Committee or the Board of Directors. Each
NSO
granted to nonemployee directors (i) has a ten-year term and (ii) has an
exercise price per share equal to the fair market value of a Common Stock
share
on the date of grant, unless otherwise provided in the Award. The NSOs
automatically vest upon certain change in control events and upon a nonemployee
director’s death. If a nonemployee director resigns from the Board without the
consent of a majority of the other directors, such director’s NSOs may be
exercised only to the extent that they were exercisable on the resignation
date.
The
Incentive Plan also currently provides for discretionary Awards of stock
options
and/or shares of restricted stock to the Chairmen of the Audit, Compensation
and
Nominating Committees and non-chairman members of the Audit, Compensation
and
Nominating Committees who are deemed “independent” for purposes of Nasdaq rules.
The
Compensation Committee and the Board of Directors has flexibility in
establishing the specific terms of Awards of stock options and restricted
stock
granted, including without limitation the vesting schedules for those Awards
and
the dates the Awards may be granted. Awards of restricted stock granted
to
executive officers in 2005 vest in three equal annual installments beginning
on
the first anniversary of the date of grant. Awards of restricted stock
granted
to directors in 2005 vest in full on the first anniversary of the date
of grant
or earlier upon a change in control of the Company or the director’s death.
Options granted to executive officers in 2005 become exercisable in three
equal
annual increments beginning on the first anniversary of the date of
grant.
As
of
April 25, 2006, the last reported sales price of Common Stock on the Nasdaq
National Market was $30.77.
New
Plan Benefits
The
allocation of some of the proposed new shares available for issuance under
the
Incentive Plan is not currently determinable as such allocation depends
on
future decisions to be made by the Compensation Committee or the Board
of
Directors in their sole discretion, subject to applicable provisions of
the
Incentive Plan. The Company expects to award (1) each nonemployee director
1,000 shares of restricted stock; (2) each member of the Audit and Compensation
Committees 1,500 and 1,000 additional shares of restricted stock, respectively;
and (3) the chairmen of the Audit, Compensation and Nominating Committees
2,500,
1,500 and 1,500 additional shares of restricted stock, respectively. Since
Mr.
Webster, the current chairman of the Nominating Committee, is not considered
an
independent director, he will not receive the award of 1,500 shares of
restricted stock that the chairman of the Nominating Committee would otherwise
receive.Because future Awards are in the discretion of the Board and
Compensation Committee, the number of shares subject to future Awards could
increase or decrease and the type and terms of future Awards could change
as
well, all without the need for future shareholder approval.
Federal
Income Tax Consequences
The
following is a summary of the general rules of present federal income tax law
relating to the tax treatment of stock awards, ISOs and NSOs issued under the
Incentive Plan. The discussion is general in nature and does not take into
account a number of considerations which may apply in light of the particular
circumstances of a participant under the Incentive Plan, including those
described under “─Deductibility; Excise Taxes.”
Stock
Awards and Related Tax Payments
Under
the
Code, federal income tax consequences with respect to a stock award depend
on
the facts and circumstances of each stock award and, in particular, the nature
of the restrictions imposed with respect to the shares which are the subject
of
the stock award. In general, if shares which are the subject of the stock award
are actually issued to a participant, but are subject to a “substantial risk of
forfeiture” (for example, if rights to ownership of the shares are conditioned
upon the future performance of substantial services by the participant), a
taxable event generally occurs only when the risk of forfeiture lapses. At
such
time as the substantial risk of forfeiture lapses, the participant will realize
ordinary income to the extent of the excess of the fair market value of the
shares on the date the risk of forfeiture lapses over the participant’s cost for
such shares (if any), and the same amount is then deductible by the Company
as
compensation expense. If the restrictions with respect to the shares that are
the subject of such stock award, by their nature, do not subject the key
employee to a “substantial risk of forfeiture” of the shares, then the
participant will realize ordinary income with respect to the shares to the
extent of the excess at the time of the grant of the fair market value of the
shares over the participant’s cost; and the same amount is then deductible by
the Company. If no shares are actually issued to the participant at the time
the
stock award is granted, the participant will generally realize ordinary income
at the time the participant receives shares free of any substantial risk of
forfeiture, and the amount of such income will be equal to the fair market
value
of the shares at such time over the participant’s cost, if any; and the same
amount is then deductible by the Company. The Company’s deductions for
compensation paid under the Incentive Plan are in all cases subject to certain
applicable tax law limitations.
Options
Some
of
the options issuable under the Incentive Plan may constitute ISOs within the
meaning of Section 422 of the Code, while other options granted under the
Incentive Plan may be NSOs. Grants to nonemployee directors are NSOs. The Code
provides for tax treatment of stock options qualifying as ISOs that may be
more
favorable to participants than the tax treatment accorded NSOs. Generally,
upon
the exercise of an ISO, the optionee will recognize no income for federal income
tax purposes. The difference between the exercise price of the ISO and the
fair
market value of the stock at the time of exercise is an addition to income
in
determining alternative minimum taxable income and such amount may be sufficient
in amount to subject the optionee to the alternative minimum tax. On the sale
of
shares acquired by exercise of an ISO (assuming that the sale does not occur
within two years of the date of grant of the option or within one year from
the
date of exercise), any gain will be taxed to the optionee as long-term capital
gain. In contrast, upon the exercise of an NSO, the optionee recognizes taxable
income (subject to withholding) in an amount equal to the difference between
the
then-fair market value of the shares on the date of exercise and the exercise
price. Upon any sale of such shares by the optionee, any difference between
the
sale price and the fair market value of the shares on the date of exercise
of
the NSO will be treated generally as capital gain or loss. No deduction is
available to the Company upon the grant or exercise of an ISO (although a
deduction may be available if the participant disposes of the shares so
purchased before the applicable holding periods expire), whereas, subject to
the
limitations discussed below, upon exercise of an NSO, the Company is entitled
to
a deduction in an amount equal to the income recognized by the participant.
Except with respect to death or disability, an optionee has three months after
termination of employment in which to exercise an ISO and retain favorable
tax
treatment at exercise.
Deductibility;
Excise Taxes
In
general, a federal income tax deduction is allowed to the Company in an amount
equal to the ordinary income recognized by a participant with respect to awards
under the Incentive Plan, provided that such amount constitutes an ordinary
and
necessary business expense of the Company, that such amount is reasonable and
that the Company satisfies any withholding obligation with respect to such
income. As discussed above, Section 162(m) of the Code may limit the company’s
ability to deduct compensation in excess of $1 million to any named executive
officer, unless the excess amounts can meet the requirements for qualified
performance-based compensation.
Change
in Control.
The
acceleration of the exercisability or the vesting of a grant or award upon
the
occurrence of a change in control may result in an “excess parachute payment”
within the meaning of Code Section 280G. A “parachute payment” occurs when an
employee receives payments contingent upon a change in control that exceed
an
amount equal to three times his or her “base
amount.”
The term “base amount” generally means the average annual compensation paid to
such employee during the five-year period preceding the change in control.
An
“excess parachute payment” is the excess of all parachute payments made to the
employee on account of a change in control over the employee’s base amount. If
any amount received by an employee is characterized as an excess parachute
payment, the employee is subject to a 20% excise tax on the amount of the
excess, and the company is denied a deduction with respect to such
excess.
Code
Section 409A.
Code
Section 409A imposes new constraints on nonqualified deferred compensation,
and
some awards under the Incentive Plan may be subject to these new rules. Failure
to comply with the new rules under Section 409A may result in the early taxation
of deferred compensation and the imposition of a 20% penalty. The new Section
409A is effective with respect to amounts deferred after December 31, 2004,
but
may also apply to amounts deferred earlier under arrangements with are
materially modified after October 3, 2004. Nothing in the proposed amendment
to
the Incentive Plan is intended to enlarge or modify those awards granted under
the plan prior to December 31, 2004. In IRS Notice 2005-1 and in proposed
regulations issued in September 2005, the IRS and Treasury Department have
provided interim guidance on transition issues and the meaning of various
provisions of new Section 409A and is expected to provide additional guidance
later in calendar year 2006. We intend to design awards granted under the
Incentive Plan in a manner that will satisfy the requirements of the new Section
409A to avoid the imposition of excise tax thereunder, but anticipate that
we
may be required to amend the Incentive Plan (and potentially outstanding award
agreements) before December 31, 2006, to make changes necessary to comply with
future guidance.
Copies
of
the Amended and Restated Incentive Plan, the First, Second, Third, Fourth,
Fifth
and Sixth Amendments to the Incentive Plan, and the proposed Seventh Amendment
to the Incentive Plan are attached as Appendix
A.
Board
Recommendation
The
Board
believes that the amendment of the Incentive Plan and the approval of the
performance measures for use in performance-based awards for purposes of Section
162(m) of the Code is in the best interest of the Company and its shareholders.
The
Board therefore recommends a vote for approval of the amendment, and it is
intended that the proxies not marked to the contrary will be so
voted.
Since
the amendment will increase the number of shares available for issuance under
the Incentive Plan to all directors and executive officers of the Company,
each
of the directors and executive officers of the Company has an interest and
may
benefit from the adoption of the amendment. Approval of the amendment to the
Incentive Plan and the approval of the performance measures for use in
performance-based awards for purposes of Section 162(m) of the Code will require
the affirmative vote of a majority of the shares of Common Stock cast and voted
for or against or expressly abstained with respect to the consideration of
the
amendment. Accordingly, abstentions will have the effect of a vote against
the
proposal and broker nonvotes will not be included in the tabulation of votes
cast on this matter.
PROPOSAL
3
APPOINTMENT
OF
PANNELL KERR FORSTER OF TEXAS, P.C.
AS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors has appointed, and recommends the approval of the appointment
of,
Pannell Kerr Forster of Texas, P.C. as independent registered public accounting
firm for the fiscal year ending December 31, 2006. PKF served as the Company’s
independent public registered accounting firm for the fiscal year ended December
31, 2005. Representatives of PKF are expected to be present at the Annual
Meeting and will be given the opportunity to make a statement, if they desire
to
do so, and to respond to appropriate questions.
Unless
shareholders specify otherwise in the proxy, proxies solicited by the Board
of
Directors will be voted by the persons named in the proxy at the Annual Meeting
to ratify the selection of PKF as the Company’s independent registered public
accounting firm for 2006. The affirmative vote of a majority of the votes cast
at the Annual Meeting will be required for ratification. Although the
appointment of an independent registered public accounting firm is not required
to be submitted to a vote of shareholders, the Board of Directors recommended
that the appointment be submitted to our shareholders for approval. If our
shareholders do not approve the appointment of PKF, the Board of Directors
will
consider the appointment of another independent registered public accounting
firm.
On
August
25, 2004, Ernst & Young LLP advised the Company by letter that it had
resigned from serving as the independent registered public accounting firm
of
the Company. Neither the Audit Committee nor the Board of Directors of the
Company recommended or approved Ernst & Young’s resignation.
As
noted
in the Company’s Current Report on Form 8-K filed on August 31, 2004, Ernst
& Young’s audit reports on the Company’s consolidated financial statements
as of and for the years ended December 31, 2003 and 2002 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified
as
to uncertainty, audit scope or accounting principles, except as
follows:
(i)
Ernst
& Young’s audit report on the consolidated financial statements of the
Company for the year ended December 31, 2003 contained two separate paragraphs
stating, respectively, that “As described in Note 2, the Company revised the
reported amount of the after-tax write-down that would have been taken as of
December 31, 2001 using prices in effect at that date. We audited the
adjustments described in Note 2 that were applied to revise the reported amount
of the full cost ceiling test write-down had the Company not utilized the
improvements in pricing subsequent to December 31, 2001 and/or the addition
of
proved oil and natural gas reserves on existing properties subsequent to the
end
of the period but prior to issuance of financial statements. Our procedures
included (a) agreeing the revised tax basis in the full cost ceiling test
computation to the Company’s underlying records obtained from management, and
(b) testing the mathematical accuracy of the revisions to the full cost ceiling
computation. In our opinion such adjustments are appropriate and have been
properly applied. However, we were not engaged to audit, review, or apply any
procedures to the 2001 consolidated financial statements of the Company other
than with respect to such adjustments and accordingly, we do not express an
opinion or any other form of assurance on the 2001 consolidated financial
statements taken as a whole,” and “As discussed in Note 2 to the consolidated
financial statements, effective January 1, 2003, the Company changed its method
of accounting for asset retirement obligations”; and
(ii)
Ernst & Young’s audit report on the consolidated financial statements of the
Company for the year ended December 31, 2002 contained a separate paragraph
stating that “As discussed above, the consolidated financial statements of the
Company as of December 31, 2001 and for the two years then ended were audited
by
other auditors who have ceased operations. As described in Note 5, the Company
revised the reported amounts of certain temporary differences at December 31,
2001. We audited the adjustments described in Note 5 that were applied to revise
the reported amounts of temporary differences in the 2001 consolidated financial
statements. Our procedures included (a) agreeing the revised temporary
differences to the Company’s underlying records obtained from management, and
(b) testing the mathematical accuracy of the revisions to the temporary
differences. In our opinion, such adjustments are appropriate and have been
properly applied. However, we were not engaged to audit, review, or apply any
procedures to the 2001 consolidated financial statements of the Company other
than with respect to such adjustments and, accordingly, we do not express an
opinion or any other form of assurance on the 2001 consolidated financial
statements taken as a whole.”
During
the Company’s last two fiscal years and for the period from January 1, 2004 to
August 31, 2004, there were no disagreements between the Company and Ernst
&
Young on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Ernst & Young, would have caused them to make
reference to the subject matter of the disagreements in connection with their
reports.
None
of
the “reportable events” described in item 304(a)(l)(v) of Regulations S-K under
the Securities Act of 1933, as amended, occurred with respect to the Company
within the last two fiscal years or for the period from January 1, 2004 to
August 31, 2004.
On
September 17, 2004, the Company retained the services of PKF as its new
independent registered public accounting firm. The Audit Committee approved
PKF’s engagement.
During
the fiscal years ended December 31, 2002 and December 31, 2003 and the period
from January 1, 2004 to September 17, 2004, neither the Company nor someone
on
its behalf consulted with PKF regarding any of the matters or events set forth
in Item 304(a)(2)(i) or (ii) of Regulation S-K.
Independent
Registered Public Accounting Firm’s Fees
PKF
billed the Company as set forth in the table below for professional services
rendered for the audit of the Company’s annual financial statements for the
years ended December 31, 2004 and 2005 and for the review of the Company’s
quarterly financial statements included in the Company’s Quarterly Report on
Form 10-Q for the quarters ended September 20, 2004, March 31, 2005, June 30,
2005 and September 30, 2005 and for work on other SEC filings. PKF
did
not provide any non-audit services for the Company during 2004 or 2005. All
amounts billed by PKF in 2004 were for work performed subsequent to its
engagement on September 23, 2004 and are reflected in the “Fiscal 2004” column
below.
Description
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
Audit
Fees
|
|
$
|
427,915
|
|
$
|
302,574
|
|
Audit
Related Fees
|
|
|
—
|
|
|
—
|
|
Tax
Fees
|
|
|
—
|
|
|
—
|
|
All
Other Fees
|
|
|
—
|
|
|
—
|
|
Audit
Committee Preapproval Policy
The
Audit
Committee has adopted a policy that all audit, review or attest engagements
and
permissible non-audit services, including the fees and terms thereof, to
be
performed by the independent registered public accounting firm, (subject
to, and
in compliance with, the de
minimis
exception for non-audit services described in Section 10A(i)(1)(B) of the
Securities Exchange Act of 1934 and the applicable rules and regulation of
the
SEC) will be subject to specific pre-approval of the Audit Committee. No
non-audit services were performed by PKF pursuant to the de
minimis
exception in 2005.
The
Board of Directors recommends that shareholders vote FOR the ratification
of the
appointment of PKF as independent registered public accounting firm for the
Company for 2006.
ADDITIONAL
INFORMATION
Other
Business
As
of the
date of this proxy statement, the Board of Directors is not informed of any
other matters, other than those above, that may be brought before the meeting.
The persons named in the enclosed form of proxy or their substitutes will
vote
with respect to any such matters in accordance with their best
judgment.
Shareholder
Proposals For Next Annual Meeting
Rule
14a-8 under the Securities Exchange Act of 1934, as amended, addresses when
a
company must include a shareholder’s proposal in its proxy statement and
identify the proposal in its form of proxy when the company holds an annual
or
special meeting of shareholders. Under Rule 14a-8, proposals that shareholders
intend to have included in the Company’s proxy statement and form of proxy for
the 2007 Annual Meeting of Shareholders must be received by the Company no
later
than January 2, 2007. However, if the date of the 2007 Annual Meeting of
Shareholders changes by more than 30 days from the date of the 2006 Annual
Meeting of Shareholders, the deadline is a reasonable time before the Company
begins to print and mail its proxy materials, which deadline will be set
forth
in a Quarterly Report on Form 10-Q or will otherwise be communicated to
shareholders. Shareholder proposals must also be otherwise eligible for
inclusion.
If
a
shareholder desires to bring a matter before an annual or special meeting
and
the proposal is submitted outside the process of Rule 14a-8, the shareholder
must follow the procedures set forth in the Company’s Bylaws. The Company’s
Bylaws provide generally that shareholders who wish to nominate directors
or to
bring business before a shareholders’ meeting must notify the Company and
provide certain pertinent information at least 80 days before the meeting
date
(or within ten days after public announcement pursuant to the Bylaws of the
meeting date, if the meeting date has not been publicly announced more than
90
days in advance). If the date of the 2007 Annual Meeting of Shareholders
is the
same as the date of the 2006 Annual Meeting of Shareholders, shareholders
who
wish to nominate directors or to bring business before the 2007 Annual Meeting
of Shareholders must notify the Company no later than March 4,
2007.
A
copy of
the Company’s Bylaws setting forth the requirements for the nomination of
director candidates by stockholders and the requirements for proposals by
stockholders may be obtained from the Company’s Secretary at the address
indicated on the first page of this proxy statement. A nomination or proposal
that does not comply with the above procedures will be disregarded. Compliance
with the above procedures does not require the Company to include the proposed
nominee or proposal in the Company’s proxy solicitation material.
Annual
Report on Form 10-K
Carrizo
will provide to each shareholder, without charge and upon written request,
a
copy of its Annual Report on Form 10-K for 2005, including the financial
statements, schedules and a list of exhibits. Any such written requests should
be directed to the Secretary of the Company, at the address indicated on
the
first page of this proxy statement.
By
Order
of the Board of Directors
/s/
PAUL F. BOLING
Paul
F.
Boling
Secretary
Dated:
April 27, 2006
Houston,
Texas
APPENDIX
A
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 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.
“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.
“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.
“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 over allotment 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.
“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 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 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.
(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 § 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;
(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
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.
(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 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 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, 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.
INCENTIVE
PLAN OF CARRIZO OIL & GAS, INC.
(As
Amended and Restated Effective February 17, 2000)
First
Amendment
WHEREAS,
Carrizo Oil & Gas, Inc., a Texas corporation (the “Company”), maintains the
Incentive Plan of Carrizo Oil & Gas, Inc., as amended and restated effective
February 17, 2000 (the “Plan”);
WHEREAS,
the Company desires amend the Plan to increase the aggregate number of shares
the Company’s common stock available for issuance under the Plan from 1,500,000
shares to 1,850,000 shares;
WHEREAS,
the Company’s shareholders approved such increase in the aggregate number of
shares of the Company’s common stock available for issuance under the Plan at
the Company’s annual shareholder meeting held on May 22, 2002; and
WHEREAS,
under Section 13 of the Plan, the Board of Directors of the Company has reserved
the right to amend the Plan;
NOW,
THEREFORE, the Plan is hereby amended, effective May 22, 2002, to increase
the
aggregate number of shares of the Company’s common stock available for issuance
under the Plan by deleting the number “1,500,000” from Section 5 of the Plan and
replacing said number with the number “1,850,000.”
IN
WITNESS WHEREOF, The Board of Directors of Carrizo Oil & Gas, Inc. has
caused this amendment to be executed by a duly authorized officer of the Company
in a number of copies, all of which shall constitute one and the same
instrument, which may be sufficiently evidenced by any executed copy hereof,
this 13th day of August, 2002, but effective as of the date specified
herein.
CARRIZO
OIL & GAS, INC.
By:
/s/
FRANK A. WOJTEK
Name:
Frank A. Wojtek
Title:
V.P. and Chief Financial Officer
INCENTIVE
PLAN OF CARRIZO OIL & GAS, INC.
(As
Amended and Restated Effective as of February 17, 2000)
Second
Amendment
Carrizo
Oil & Gas, Inc., a Texas corporation (the “Company”), having reserved the
right under Section 13 of the Incentive Plan of Carrizo Oil & Gas, Inc. (the
“Plan”), to amend the Plan, does hereby add at the end of Section 9 of the Plan,
effective as of February 18, 2003, a new subsection (e), to read as
follows:
(e)
Special Grant of Audit Committee Chairman Options. Effective February 18, the
chairman of the audit committee of the Company shall as a one-time grant be
granted a Director Option that provides for the purchase of 25,000 shares of
Common Stock, has a term of ten years from the date of such grant,
notwithstanding any earlier termination of the status of the holder as a
Nonemployee Director, and vests and becomes 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 and the purchase
price of each share of Common Stock subject to such Director Option shall be
equal to the Fair Market Value of the Common Stock on the date of
grant.
IN
WITNESS WHEREOF, this Amendment has been executed effective as of February
18,
2003.
CARRIZO
OIL & GAS, INC.
By:
/s/
FRANK A. WOJTEK
Frank
A.
Wojtek
Vice
President, Chief Financial
Officer,
Secretary and Treasurer
INCENTIVE
PLAN OF CARRIZO OIL & GAS, INC.
Third
Amendment
Carrizo
Oil & Gas, Inc., a Texas corporation (the “Company”), having reserved the
right under Section 13 of the Incentive Plan of Carrizo Oil & Gas, Inc. (the
“Plan”), to amend the Plan, does hereby amend and restate Section 9(b) of the
Plan, effective as of May 23, 2003, to read in its entirety as
follows:
(b)
Other
Director Options. 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:
(i)
each
Nonemployee Director shall automatically be granted a Director Option that
provides for the purchase of 2,500 shares of Common Stock;
(ii)
each
Nonemployee Director that is the chairman of each of the audit and Compensation
Committees, in addition to the Director Options granted under Section 9(b)(i),
also shall automatically be granted a Director Option that provides for the
purchase of an additional 3,000 and 2,000 shares, respectively; and
(iii)
the
Board or the Committee may, in its discretion, in addition to the Director
Options granted under Section 9(b)(i), grant Director Options for the purchase
of up to 3,000 shares and up to 2,000 shares, respectively, to non-chairmen
members of the audit and Compensation Committees who are deemed by the Committee
to be “independent” for purposes of the rules of The Nasdaq Stock Market,
Inc.
Grants
under Sections 9(b)(ii) and (iii) may be made to the chairman or a member of
the
audit committee or Compensation Committee, respectively, notwithstanding that
the same person may also receive grants under Section 9(b)(ii) or (iii) as
a
chairman or member of the Compensation Committee or audit committee,
respectively.
The
Company also does hereby amend and restate Section 19 of the Plan, effective
as
of May 23, 2003, to read in its entirety as follows:
19.
Effectiveness. The Plan was amended and restated effective February 17, 2000
and
subsequently amended by a First Amendment effective May 22, 2002, a Second
Amendment effective February 18, 2003 and a Third Amendment effective May 23,
2003.
IN
WITNESS WHEREOF, this Amendment has been executed effective as of May 23,
2003.
CARRIZO
OIL & GAS, INC.
By:
/s/
FRANK A. WOJTEK
Frank
A.
Wojtek
Vice
President, Chief Financial
Officer,
Secretary and Treasurer
INCENTIVE
PLAN OF CARRIZO OIL & GAS, INC.
Fourth
Amendment
Carrizo
Oil & Gas, Inc., a Texas corporation (the “Company”), having reserved the
right under Section 13 of the Incentive Plan of Carrizo Oil & Gas, Inc. (the
“Plan”), to amend the Plan, does hereby amend the Plan, effective as of May 21,
2004, as follows:
1.
The
definition of “Annual Director Award Date” in Section 3 of the Plan is hereby
amended in its entirety to read as follows:
“‘Annual
Director Award Date’ means, for each year, the first business day following the
date on which the annual meeting of stockholders of the Company is held in
such
year.”
2.
The
definition of “Director Award” in Section 3 of the Plan is hereby amended in its
entirety to read as follows:
“‘Director
Award’ means the grant of a Director Option or Director Restricted
Stock.”
3.
Section 3 of the Plan is hereby amended by adding the following definitions
to
Section 3 of the Plan in their respective alphabetical order:
“‘Change
in Control’ is defined in Attachment A.”
“‘Director
Restricted Stock” means Restricted Stock granted to Nonemployee Directors
pursuant to the applicable terms, conditions and limitations specified in
Section 9(f) hereof.”
4.
Section 5 of the Plan is hereby amended by replacing the number “1,850,000” with
the number “2,350,000.”
5.
Subsection 9(b) of the Plan is hereby amended to read in its entirety as
follow:
“(b)
Other
Director Options.
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:
(i)
the
Board or the Committee may, in its discretion, grant each Nonemployee Director
a
Director Option that provides for the purchase of such number of shares of
Common Stock as the Board or the Committee may determine in its discretion,
subject to the limitation that such awards may not exceed the number of shares
of Common Stock then available for award under this Plan;
(ii)
each
Nonemployee Director that is the chairman of each of the audit, compensation
and
nominating committees, in addition to the Director Options granted under Section
9(b)(i), also shall automatically be granted a Director Option that provides
for, in the case of the chairman of the audit committee, the purchase of an
additional 3,000 shares of Common Stock and, in the case of the chairman of
each
of the compensation or nominating committees, the purchase of an additional
2,000 shares of Common Stock, respectively; and
(iii)
the
Board or the Committee may, in its discretion, in addition to the Director
Options granted under Section 9(b)(i), grant Director Options for the purchase
of up to 3,000 shares to each Nonemployee Director who is a non-chairman member
of the audit committee and may grant Director Options for the purchase of up
to
2,000 shares to each Nonemployee Director who is a non-chairman member of the
compensation or nominating committees, provided that each such non- chairman
member of the audit, compensation or nominating committees to whom such Director
Option is to be granted is deemed by the Committee to be “independent” for
purposes of the rules of The Nasdaq Stock Market, Inc.”
6.
Section 9 of the Plan is hereby amended by adding to the end thereof a new
subsection (f), to read in its entirety as follows:
“(f)
Director
Restricted Stock.
(i)
On
each Annual Director Award Date, the Board or the Committee may, in its
discretion, grant each Nonemployee Director an Award of Director Restricted
Stock for such number of shares of Restricted Stock as the Board or the
Committee may
determine
in its discretion, subject to the limitation that such Awards may not exceed
the
number of shares of Common Stock then available for award under this
Plan.
(ii)
Each
Award of Director Restricted Stock shall vest in increments of one-third of
the
total number of shares of Restricted 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 Restricted Stock that are subject
thereto on the third anniversary of the date of grant; provided, however, that
upon a Change in Control, all shares of Director Restricted Stock shall
immediately vest. All unvested shares of Director Restricted Stock shall be
forfeited if the Nonemployee Director resigns as a Director without the consent
of a majority of the other Directors.
(iii)
Any
Award of Director Restricted Stock 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 Restricted
Stock is granted and by an Authorized Officer for and on behalf of the
Company.”
7.
The
Plan is hereby amended by adding “Attachment A” attached to this Amendment to
the end of the Plan as a new “Attachment A” thereto.
IN
WITNESS WHEREOF, this Amendment has been executed effective as of May 21,
2004.
CARRIZO
OIL & GAS, INC.
By:
/s/
Paul F. Boling
Paul
F.
Boling
Vice
President, Chief Financial
Officer,
Secretary and Treasurer
ATTACHMENT
A
“CHANGE
IN CONTROL”
The
following definitions apply regarding Change in Control provisions of the
foregoing Plan:
“Affiliate”
shall have the meaning ascribed to such term in Rule 12b-2 of the General
Rules
and Regulations under the Exchange Act, as in effect on the date of this
Agreement.
“Associate”
shall mean, with reference to any Person, (a) any corporation, firm,
partnership, association, unincorporated organization or other entity (other
than the Company or a subsidiary of the Company) of which such Person is
an
officer or general partner (or officer or general partner of a general partner)
or is, directly or indirectly, the Beneficial Owner of 10% or more of any
class
of equity securities, (b) any trust or other estate in which such Person
has a
substantial beneficial interest or as to which such Person serves as trustee
or
in a similar fiduciary capacity and (c) any relative or spouse of such Person,
or any relative of such spouse, who has the same home as such
Person.
“Beneficial
Owner” shall mean, with reference to any securities, any Person if:
(a)
such
Person or any of such Person’s Affiliates and Associates, directly or
indirectly, is the “beneficial owner” of (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Exchange Act, as in effect
on the
date of this Agreement) such securities or otherwise has the right to vote
or
dispose of such securities, including pursuant to any agreement, arrangement
or
understanding (whether or not in writing); provided, however, that a Person
shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” any
security under this subsection (a) as a result of an agreement, arrangement
or
understanding to vote such security if such agreement, arrangement or
understanding: (i) arises solely from a revocable proxy or consent given
in
response to a public (i.e.,
not
including a solicitation exempted by Rule 14a-2(b)(2) of the General Rules
and
Regulations under the Exchange Act) proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the General Rules
and
Regulations under the Exchange Act and (ii) is not then reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable or successor
report);
(b)
such
Person or any of such Person’s Affiliates and Associates, directly or
indirectly, has the right or obligation to acquire such securities (whether
such
right or obligation is exercisable or effective immediately or only after
the
passage of time or the occurrence of an event) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise
of
conversion rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to “beneficially own,” (i) securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person’s Affiliates or
Associates until such tendered securities are accepted for purchase or exchange
or (ii) securities issuable upon exercise of Exempt Rights; or
(c)
such
Person or any such Person’s Affiliates or Associates (i) has any agreement,
arrangement or understanding (whether or not in writing) with any other Person
(or any Affiliate or Associate thereof) that beneficially owns such securities
for the purpose of acquiring, holding, voting (except as set forth in the
proviso to subsection (a) of this definition) or disposing of such securities
or
(ii) is a member of a group (as that term is used in Rule 13d-5(b) of the
General Rules and Regulations under the Exchange Act) that includes any other
Person that beneficially owns such securities;
provided,
however, that nothing in this definition shall cause a Person engaged in
business as an underwriter of securities to be the Beneficial Owner of, or
to
“beneficially own,” any securities acquired through such Person’s participation
in good faith in a firm commitment underwriting until the expiration of 40
days
after the date of such acquisition. For purposes hereof, “voting” a security
shall include voting, granting a proxy, consenting or making a request or
demand
relating to corporate action (including, without limitation, a demand for
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of
Section
14(a) of the Exchange Act) in respect of such security.
The
terms
“beneficially own” and “beneficially owning” shall have meanings that are
correlative to this definition of the term “Beneficial Owner”.
“Change
of Control” shall mean any of the following:
(a)
any
Person (other than an Exempt Person) shall become the Beneficial Owner of
40% or
more of the shares of Common Stock then outstanding or 40% or more of the
combined voting power of the Voting Stock of the Company then outstanding;
provided, however, that no Change of Control shall be deemed to occur for
purposes of this subsection (a) if such Person shall become a Beneficial
Owner
of 40% or more of the shares of Common Stock or 40% or more of the combined
voting power of the Voting Stock of the Company solely as a result of (i)
an
Exempt Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii)
of subsection (c) of this definition are satisfied; or
(b)
individuals who, as of May 21, 2004, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to
May 21,
2004 whose election, or nomination for election by the Company’s shareholders,
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member
of the Incumbent Board; provided, further, that there shall be excluded,
for
this purpose, any such individual whose initial assumption of office occurs
as a
result of any actual or threatened election contest that is subject to the
provisions of Rule 14a-11 under the Exchange Act; or
(c)
the
Company engages in and completes a reorganization, merger or consolidation,
in
each case, unless, following such reorganization, merger or consolidation,
(i)
more than 85% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the combined
voting power of the then outstanding Voting Stock of such corporation
beneficially owned, directly or indirectly, by all or substantially all of
the
Persons who were the Beneficial Owners of the outstanding Common Stock
immediately prior to such reorganization, merger, or consolidation in
substantially the same proportions as their ownership, immediately prior
to such
reorganization, merger or consolidation, of the outstanding Common Stock,
(ii)
no Person (excluding any Exempt Person or any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly
or
indirectly, 40% or more of the Common Stock then outstanding or 40% or more
of
the combined voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then outstanding
Voting Stock of such corporation and (iii) at least a majority of the members
of
the board of directors of the corporation resulting from such reorganization,
merger or consolidation were members of the Incumbent Board at the time of
the
execution of the initial agreement or initial action by the Board providing
for
such reorganization, merger or consolidation; or
(d)
the
Company engages in and completes (i) a complete liquidation or dissolution
of
the Company unless such liquidation or dissolution is approved as part of
a plan
of liquidation and dissolution involving a sale or disposition of all or
substantially all of the assets of the Company to a corporation with respect
to
which, following such sale or other disposition, all of the requirements
of
clauses (ii) (A), (B) and (C) of this subsection (d) are satisfied, or (ii)
the
sale or other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which, following such
sale
or other disposition, (A) more than 85% of the then outstanding shares of
common
stock or such corporation and the combined voting power of the Voting Stock
of
such corporation is then beneficially owned, directly or indirectly, by all
or
substantially all of the Persons who were the Beneficial Owners of the
outstanding Common Stock immediately prior to such sale or other disposition
in
substantially the same proportion as their ownership, immediately prior to
such
sale or other disposition, of the outstanding Common Stock, (B) no Person
(excluding any Exempt Person and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 40% or more
of
the Common Stock then outstanding or 40% or more of the combined voting power
of
the Voting Stock of the Company then outstanding) beneficially owns, directly
or
indirectly, 40% or more of the then outstanding shares of common stock of
such
corporation and the combined voting power of the then outstanding Voting
Stock
of such corporation and (C) at least a majority of the members of the board
of
directors of such corporation were members of the Incumbent Board at the
time of
the execution of the initial agreement or initial action of the Board providing
for such sale or other disposition of assets of the Company.
Notwithstanding
the foregoing, no Change of Control shall be deemed to have occurred pursuant
to
subsections (a), (c) or (d) of this definition as a result of (i) any Person
that is currently party to the Shareholders Agreement dated as of December
15,
1999 among the Company, C.B. Capital Investors, L.P. (now J.P. Morgan Partners
(23A SBIC), LLC), S.P. Johnson IV, Frank A. Wojtek, Steven A. Webster and
Mellon
Ventures, L.P., as amended from time to time, or the Shareholders Agreement
dated as of February 20, 2002 among the Company, Mellon Ventures, L.P., S.P.
Johnson IV, Frank A. Wojtek and Steven A. Webster, as amended from time to
time
(collectively, the “Shareholders Agreements”), becoming the Beneficial Owner at
any time of 40% or more of the shares of Common Stock or 40% or more of the
combined voting power of the Voting Stock of the Company, or (ii) any other
Person becoming the Beneficial Owner at any time of 40% or more of the shares
of
Common Stock or 40% or more of the combined voting power of the Voting Stock
of
the Company to the extent caused by the attribution to that other Person
of
the
beneficial
ownership of the Common Stock or Voting Stock of a Person who is listed in
clause (i) above and is a member of a group with such other Person solely
because of a voting agreement, tag-along rights or other rights substantially
similar to the rights set forth in the Shareholders Agreements.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.
“Exempt
Person” shall mean the Company, any subsidiary of the Company, any employee
benefit plan of the Company or any subsidiary of the Company, and any Person
organized, appointed or established by the Company for or pursuant to the
terms
of any such plan.
“Exempt
Rights” shall mean any rights to purchase shares of Common Stock or other Voting
Stock of the Company if at the time of the issuance thereof such rights are
not
separable from such Common Stock or other Voting Stock (i.e.,
are not
transferable otherwise than in connection with a transfer of the underlying
Common Stock or other Voting Stock) except upon the occurrence of a contingency,
whether such rights exist as of May 21, 2004 or are thereafter issued by
the
Company as a dividend on shares of Common Stock or other Voting Securities
or
otherwise.
“Exempt
Transaction” shall mean an increase in the percentage of the outstanding shares
of Common Stock or the percentage of the combined voting power of the
outstanding Voting Stock of the Company beneficially owned by any Person
solely
as a result of a reduction in the number of shares of Common Stock then
outstanding due to the repurchase of Common Stock or Voting Stock by the
Company, unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial
Owner
of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or additional Voting Stock representing
1% or
more of the combined voting power of the then outstanding Voting Stock, or
(b)
any other Person (or Persons) who is (or collectively are) the Beneficial
Owner
of shares of Common Stock constituting 1% or more of the then outstanding
shares
of Common Stock or Voting Stock representing 1% or more of the combined voting
power of the then outstanding Voting Stock shall become an Affiliate or
Associate of such Person.
“Person”
shall mean any individual, firm, corporation, partnership, association, trust,
unincorporated organization or other entity.
“Voting
Stock” shall mean, with respect to a corporation, all securities of such
corporation of any class or series that are entitled to vote generally in
the
election of directors of such corporation (excluding any class or series
that
would be entitled so to vote by reason of the occurrence of any contingency,
so
long as such contingency has not occurred).
INCENTIVE
PLAN OF CARRIZO OIL & GAS, INC.
Fifth
Amendment
Carrizo
Oil & Gas, Inc., a Texas corporation (the “Company”), having reserved the
right under Section 13 of the Incentive Plan of Carrizo Oil & Gas, Inc. (the
“Plan”), to amend the Plan, does hereby amend Section 9 of the Plan, effective
as of May 10, 2005, to read in its entirety as follows:
“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)
Director
Options.
On the
date of a Nonemployee Director’s first appointment or election to the Board of
Directors and on or after each Annual Director Award Date, the Board or the
Committee may, in its discretion, grant such Nonemployee Director one or
more
Director Options that provides for the purchase of such number of shares
of
Common Stock as the Board or the Committee may determine in its discretion,
subject to the limitation that such Awards may not exceed the number of shares
of Common Stock then available for award under this Plan.
Each
Director Option shall, unless otherwise provided in the specific Award granted,
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. Upon a
Change
in Control, all Director Options shall immediately vest. All Director Options
held by a Nonemployee Director shall vest upon such Director’s death. All
unvested Director Options shall be forfeited if the Nonemployee Director
resigns
as a Director without the consent of a majority of the other
Directors.
Any
Award
of Director Options shall be embodied in a Director Award Agreement, which
shall
contain the terms, conditions and limitations of the Award, including without
limitation those 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. Without limiting the generality of any other provision hereof,
Director Options in addition to those provided for in the first paragraph
of
this subsection may be granted by the Board or the Committee to a Nonemployee
Director who serves as chairman or a member of the Audit, Compensation or
Nominating committees of the Board; provided that each such non-chairman
member
of any such committee to whom a Director Option is to be granted is deemed
by
the Committee to be “independent” for purposes of the rules of The Nasdaq Stock
Market, Inc.
(b)
Director
Restricted Stock.
On the
date of a Nonemployee Director’s first appointment or election to the Board of
Directors and on or after each Annual Director Award Date, the Board or the
Committee may, in its discretion, grant such Nonemployee Director one or
more
Awards of Restricted Stock for such number of shares of Restricted Stock
as the
Board or the Committee may determine in its discretion, subject to the
limitation that such Awards may not exceed the number of shares of Common
Stock
then available for award under this Plan.
Upon
a
Change in Control, all shares of Director Restricted Stock shall immediately
vest. All unvested Restricted Stock held by a Nonemployee Director shall
vest
upon such Director’s death. All unvested shares of Director Restricted Stock
shall be forfeited if the Nonemployee Director resigns as a Director without
the
consent of a majority of the other Directors.
Any
Award
of Director Restricted Stock shall be embodied in a Director Award Agreement,
which shall contain the terms, conditions and limitations of the Award,
including without limitation those set forth above, and shall be signed by
the
Participant to whom the Director Restricted Stock is granted and by an
Authorized Officer for and on behalf of the Company. Without limiting the
generality of any other provision hereof, Awards of Restricted Stock in addition
to those provided for in the first paragraph of this subsection may be granted
by the Board or the Committee to a Nonemployee Director who serves as chairman
or a member of the Audit, Compensation or Nominating committees of the Board;
provided that each such non-chairman member of any such committee to whom
an
Award of Restricted Stock is to be granted is deemed by the Committee to
be
“independent” for purposes of the rules of The Nasdaq Stock Market,
Inc.”
The
Company also does hereby amend and restate the definition of “Director
Restricted Stock” in Section 3 of the Plan, effective as of May 10, 2005, to
read in its entirety as follows:
““Director
Restricted Stock” means Restricted Stock granted to Nonemployee Directors
pursuant to Section 9 hereof.”
The
Company also does hereby amend and restate Section 19 of the Plan, effective
as
of May 10, 2005, to read in its entirety as follows:
“19.
Effectiveness. The Plan was amended and restated effective February 17, 2000
and
subsequently amended by a First Amendment effective May 22, 2002, a Second
Amendment effective February 18, 2003, a Third Amendment effective May 23,
2003,
a Fourth Amendment effective May 21, 2004 and a Fifth Amendment effective
May
10, 2005.”
IN
WITNESS WHEREOF, this Amendment has been executed effective as of May 10,
2005.
CARRIZO
OIL & GAS, INC.
/s/
Paul F. Boling
Paul
F.
Boling
Vice
President, Chief Financial
Officer,
Secretary and Treasurer
INCENTIVE
PLAN OF CARRIZO OIL & GAS, INC.
Sixth
Amendment
Carrizo
Oil & Gas, Inc., a Texas corporation (the “Company”), having reserved the
right under Section 13 of the Incentive Plan of Carrizo Oil & Gas, Inc. (the
“Plan”), to amend the Plan for any purpose permitted by law, does hereby amend
the Plan as set forth below.
The
first
sentence of Section 6(a) is hereby amended in its entirety to read as follows:
“This
Plan shall be administered by the Committee.”
Section
6(b) of the Plan is hereby amended in its entirety to read as
follows:
“Subject
to the provisions hereof, 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. 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 Award, accelerate the vesting or
exercisability of an Award, eliminate or make less restrictive any restrictions
contained in an Award, waive any restriction or other provision of this Plan
or
an Award or otherwise amend or modify an Award in any manner that is either
(i)
not adverse to the Participant to whom such Award was granted or (ii) consented
to by such Participant; provided, however, that no Option or Director Option
awarded pursuant to this Plan may be repriced without the approval of the
shareholders of the Company (except in connection with a change in the Company’s
capitalization or as otherwise provided in Section 15 hereof), if the effect
would be to reduce the exercise price for the shares underlying such Award.
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 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.”
IN
WITNESS WHEREOF, this Amendment has been executed effective as of August
17,
2005.
CARRIZO
OIL & GAS, INC.
/s/
Paul F. Boling__________________________
Paul
F.
Boling
Vice
President, Chief Financial Officer, Secretary and Treasurer
INCENTIVE
PLAN OF CARRIZO OIL & GAS, INC.
Seventh
Amendment
Carrizo
Oil & Gas, Inc., a Texas corporation (the “Company”), having reserved the
right under Section 13 of the Incentive Plan of Carrizo Oil & Gas, Inc. (the
“Plan”), to amend the Plan for any purpose permitted by law, does hereby amend
the Plan as set forth below.
The
Plan
is hereby amended, effective _________, 2006, to increase the aggregate
number
of shares of the Company’s common stock available for issuance under the Plan by
deleting the number “2,350,000” from Section 5 of the Plan and replacing said
number with the number “2,800,000.”
IN
WITNESS WHEREOF, this Amendment has been executed effective as of ________,
2006.
CARRIZO
OIL & GAS, INC.
___________________________________
Paul
F.
Boling
Vice
President, Chief Financial Officer, Secretary and Treasurer
CARRIZO
OIL & GAS, INC.
May
23, 2006
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS
The
undersigned hereby appoints S.P. Johnson IV and
Paul F. Boling, jointly and severally, proxies, with full power of substitution
and with discretionary authority to vote all shares of Common Stock that
the
undersigned is entitled to vote at the Annual Meeting of Shareholders of
Carrizo
Oil & Gas, Inc. (the "Company") to be held on Tuesday, May 23, 2006, at the
Doubletree Hotel Houston Downtown, Houston, Texas at 9:00 a.m. or at any
adjournment thereof, hereby revoking any proxy heretofore given.
This proxy, when properly executed, will be voted in the manner
directed
herein. In the absence of specific direction to the contrary, this proxy
will be voted for proposals 1, 2, 3 and 4.
The
undersigned hereby acknowledges receipt of the
Notice of, and Proxy Statement for, the aforementioned Annual
Meeting.
(Continued
and to be signed on the reverse
side)
ANNUAL
MEETING OF SHAREHOLDERS OF
CARRIZO
OIL & GAS,
INC.
May
23, 2006
Please
date, sign and
mail
your
proxy card in the
envelope
provided as
soon
as
possible.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE x
1.
ELECTION
OF DIRECTORS |
NOMINEES: |
|
|
FOR
|
AGAINST
|
ABSTAIN
|
|
|
o
|
S.P.
Johnson IV
|
|
2.
Approval of the Amendment to the
|
|
|
|
o
|
FOR
ALL NOMINEES
|
o
|
Steven
A. Webster
|
|
Incentive
Plan and performance goals under
|
|
|
|
|
|
o
|
Thomas
L. Carter, Jr.
|
|
the
Incentive Plan.
|
o
|
o
|
o
|
o |
WITHHOLD
AUTHORITY
|
o
|
Paul
B. Loyd, Jr.
|
|
|
|
|
|
|
FOR
ALL NOMINEES
|
o
|
F.
Gardner Parker
|
|
3.
Approval of the Appointment of Pannell
|
|
|
|
o |
FOR
ALL EXCEPT |
o
|
Roger
A. Ramsey
|
|
Kerr
Forster of Texas, P.C. as the
|
|
|
|
|
(See
instructions below) |
o
|
Frank
A. Wojtek
|
|
Company’s
Independent Registered Public
|
|
|
|
|
|
|
|
|
Accounting
Firm for the fiscal year ending
|
|
|
|
|
|
|
|
|
December
31, 2006.
|
o
|
o
|
o
|
INSTRUCTION:
To
withhold authority to vote for any
individual nominee(s), mark |
|
|
|
|
"FOR ALL EXCEPT" and fill in the box
next to each nominee you
|
|
4.
With discretionary authority as to such
|
|
|
|
wish
to withhold,
as shown here: x
|
|
other
matters as may properly come before the meeting.
|
|
|
|
To
change the address on your account, please check
the box at right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the account may not be
submitted via this method.
Signature
of Shareholder
_________________________________
Date_________________________________
Signature
of
Shareholder_________________________________
Date_________________________________
NOTE:
Please
sign exactly as your name or names
appear on this proxy. When shares are held jointly, each holder should
sign. When signing as executor, administrator, attorney, trustee or
guardian, please give full title as such. If the signer is a corporation,
please sign full corporate name by duly authorized officer, giving full title
as
such. If signer is a partnership, please sign in partnership name by
authorized person.