On June 29, 2001, CCBM, Inc. a wholly owned subsidiary of the Company ("CCBM"), issued a non-recourse promissory note payable in the amount of $7,500,000 to RMG as consideration for certain interest in oil and gas leases held by RMG in Wyoming and Montana. The RMG note is payable in 41-monthly principal payments of $125,000 plus interest at eight percent per annum commencing July 31, 2001 with the balance due December 31, 2004. The RMG note is secured solely by CCBM's interests in the oil and gas leases in Wyoming and Montana. At December 31, 2001, the principal balance of this note was $6,750,000.

     In December 2001, the Company entered into a capital lease agreement secured by certain production equipment in the amount of $243,369. The lease is payable in one payment of $11,323 and 35 monthly payments of $7,549 including interest at 8.6 percent per annum. The Company has the option to acquire the equipment at the conclusion of the lease for $1.

     In November 1999, certain members of the Board of Directors provided a bridge loan in the amount of $2,000,000 to the Company secured by certain oil and natural gas properties. This bridge loan bore interest at 14 percent per annum. Also, in consideration for the bridge loan, the Company assigned to those members of the Board of Directors an Overriding Royalty Interest in certain of the Company's producing properties. The bridge loan was repaid from the proceeds of the sale of Subordinated Notes, Common Stock and Warrants in 1999.

     In December 1999, the Company consummated the sale of $22 million principal amount of 9% Senior Subordinated Notes due 2007 (the "Subordinated Notes") to an investor group led by CB Capital Investors, L.P. (now known as JP Morgan Partners, LLC) which included certain members of the Board of Directors. As discussed in Note 9, the Company also sold Common Stock and Warrants to this investor group. The Subordinated Notes were sold at a discount of $688,761, which is being amortized over the life of the notes. Quarterly interest payments began on March 31, 2000. The Company may elect to increase the amount of the Subordinated Notes for 60 percent of the interest which would otherwise be payable in cash. For the years ended December 31, 2000 and 2001, the amount of the Subordinated Notes was increased by $1,227,325 and
$1,282,295 for such interest. Such Senior Subordinated Notes had a fair market value at December 31, 2001 of
approximately $24 million.

     The Company is subject to certain covenants under the terms of the Subordinated Notes securities purchase agreement, including but not limited to, (a) maintenance of a specified tangible net worth, (b) maintenance of a ratio of EBITDA (earnings before interest, taxes, depreciation and amortization) to quarterly Debt Service (as defined in the agreement) of not less than 1.00 to 1.00, and (c) a limitation of its capital expenditures (as defined) to a specified amount for the year ended December 31, 2000 and thereafter equal to the Company's EBITDA for the immediately prior fiscal year (unless approved by the Company's Board of Directors and a CB Capital Investors, L.P. director). The Company is currently in compliance with the covenants under the Subordinated Notes.

     Estimated maturities of long-term debt are $2,107,030 in 2002, $8,205,391 in 2003, $3,836,498 in 2004 and the remainder in 2007.

     During 1999, Carrizo restructured certain current accounts payable into vendor notes, extending the payment dates through 2001. Such notes totaled $1,198,310 and none at December 31, 2000 and 2001, respectively, and bear interest at rates of 8 percent to 10 percent. The weighted average interest rates of such notes was 9 percent in 2000.

7. MANDATORILY REDEEMABLE PREFERRED STOCK

     In January 1998, the Company consummated the sale of 300,000 shares of Series A Preferred Stock and Warrants to purchase 1,000,000 shares of Common Stock to affiliates of Enron Corp. The net proceeds received by the Company from this transaction were approximately $28.8 million. A portion of the proceeds were used to repay indebtedness. The remaining proceeds were used primarily for oil and natural gas exploration and development activities in Texas and Louisiana. The Series A Preferred Stock provided for annual cumulative dividends of $9.00 per share, payable quarterly in cash or, at the option of the Company until January 15, 2002, in additional shares of Series A Preferred Stock. During 1999, the Company issued preferred stock dividends to the holders of the Series A Preferred Stock of 29,684.39 shares.

     In December 1999, the Company consummated the repurchase of all the outstanding shares of Series A Preferred Stock and 750,000 Warrants for $12 million. At the same time, the Company reduced the exercise price of the remaining 250,000 Warrants from $11.50 per share to $4.00 per share. This repurchase at a discount resulted in a credit of $21,868,413 which was included in 1999 net income available to common shareholders, net of stock dividends paid to the holders of the Series A Preferred Stock of $2,417,358.