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the Company. Such holders also had the option
of receiving a change of control repayment price upon certain deemed
change of control transactions. Mellon Ventures, Inc., converted
all of its Series B Preferred Stock (approximately 49,938 shares)
into 876,099 shares of common stock on May 25, 2004. Steven A. Webster
converted all of his Series B Preferred Stock (approximately 25,195
shares) into 442,026 shares of common stock on June 30, 2004. As
a result, no shares of Series B Preferred Stock remain outstanding
at December 31, 2004. The total value of the Series B Preferred
Stock upon conversion was $7.5 million and was reclassified to stockholders'
equity following the conversion.
The warrants have a five-year term and entitle
the holders to purchase up to 252,632 shares of Carrizo's common
stock at a price of $5.94 per share, subject to adjustments, and
are exercisable at any time after issuance. The warrants may be
exercised on a cashless exercise basis. During the year ended December
31, 2004, Mellon Ventures, Inc. exercised all of its 168,422 warrants
on a cashless exercise basis for a total of 36,570 shares of common
stock.
Net proceeds of the sale of the Series
B Preferred Stock were approximately $5.8 million and were used
primarily to fund the Company's ongoing exploration and development
program and general corporate purposes.
10. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is party to
certain legal actions and claims arising in the ordinary course
of business. While the outcome of these events cannot be predicted
with certainty, management does not expect these matters to have
a materially adverse effect on the financial position or results
of operations of the Company.
The operations and financial position of the
Company continue to be affected from time to time in varying degrees
by domestic and foreign political developments as well as legislation
and regulations pertaining to restrictions on oil and natural gas
production, imports and exports, natural gas regulation, tax increases,
environmental regulations and cancellation of contract rights. Both
the likelihood and overall effect of such occurrences on the Company
vary greatly and are not predictable.
In July 2001, the Company was notified of
a prior lease in favor of a predecessor of ExxonMobil purporting
to be valid and covering the same property as the Company's Neblett
lease in Starr County, Texas. The Neblett lease is part of a unit
in N. La Copita Prospect in which the Company owns a non-operating
interest. The operator of the lease, GMT, filed a petition for,
and was granted, a temporary restraining order against ExxonMobil
in the 229th Judicial Court in Starr County, Texas enjoining ExxonMobil
from taking possession of the Neblett wells. Pending resolution
of the underlying title issue, the temporary restraining order was
extended voluntarily by agreement of the parties, conditioned on
GMT paying the revenues into escrow and agreeing to provide ExxonMobil
with certain discovery materials in this action. ExxonMobil has
filed a counterclaim against GMT and all the non-operators, including
the Company, to establish the validity of their lease, remove cloud
on title, quiet title to the property, and for conversion, trespass
and punitive damages. The Company, along with GMT and other partners,
reached a final settlement with ExxonMobil on February 11, 2003.
Under the terms of the settlement, the Company recovered the balance
of its drilling costs (approximately $0.1 million) and certain other
costs and retained no further interest in the property. No reserves
with respect to these properties were included in the Company's
reported proved reserves as of December 31, 2002.
Rent expense for each of the years ended December
31, 2002, 2003 and 2004 was $0.2 million. Effective December 2004,
the Company relocated its offices and entered into a new long-term
operating lease agreement that expires December 2011. Under the
terms of the lease agreement, the Company received a rent abatement
equal to six months of lease payments that is being amortized to
expense over the term of the lease. The Company is obligated for
remaining lease payments as of December 31, 2004 as follows:
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