Carrizo Oil and Gas, Inc.
CARRIZO OIL & GAS INC (Form: DEF 14A, Received: 04/18/2017 06:07:19)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Schedule 14A Information

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

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Carrizo Oil & Gas, Inc.
(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

 

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Notice of 2017 Annual Meeting

of Shareholders and Proxy Statement

 

Carrizo Oil & Gas, Inc.

 

 

(CARRIZO LOGO)

 

 

Tuesday, May 16, 2017 at 9:00 a.m., Houston Time

Two Allen Center, The Forum, 1200 Smith Street, 12th Floor, Houston, Texas 77002

 

 

 

 

(CARRIZO LOGO)   Carrizo Oil & Gas, Inc.
500 Dallas Street, Suite 2300
Houston, Texas 77002

  

 

April 18, 2017

 

Dear Fellow Shareholder:

 

You are cordially invited to attend the 2017 Annual Meeting of Shareholders of Carrizo Oil & Gas, Inc. to be held at 9:00 a.m., Central time, on Tuesday, May 16, 2017, at Two Allen Center, The Forum, located at 1200 Smith Street, 12th Floor, Houston, Texas 77002.

 

On or about April 20, 2017, we will mail to our shareholders of record, as of March 20, 2017, a Notice of Annual Meeting of Shareholders, our proxy statement, form of proxy card and our 2016 Annual Report to Shareholders.

 

The Notice of Annual Meeting of Shareholders and the proxy statement describe the matters to be acted upon during the meeting. We also encourage you to read our 2016 Annual Report to Shareholders.

 

We urge you to participate in the annual meeting and hope you will find it convenient to attend in person. Whether or not you expect to attend, we encourage you to vote promptly. It is important to assure representation of your shares at the meeting and the presence of a quorum. You may vote your shares by internet, by telephone or by mail. Instructions regarding all three methods of voting are provided in our proxy statement and on the proxy card. If you hold your shares through an account with a broker, bank, nominee, fiduciary or other custodian, please follow the instructions you receive from them to vote your shares.

 

Thank you for your ongoing support and continued interest in Carrizo Oil & Gas, Inc.

 

Sincerely,  
   
-S- S.P. JOHNSON IV  
   
S.P. Johnson IV  
President and Chief Executive Officer  

 

 

 

 

(CARRIZO LOGO)

 

 
Notice of Annual Meeting of Shareholders of Carrizo Oil & Gas, Inc.
 

  

Date: Time: Place:
Tuesday, May 16, 2017 9:00 a.m., Central time Two Allen Center, The Forum, 1200 Smith Street, 12th Floor, Houston, Texas 77002

 

Items of Business

 

1. To elect seven members to the Board of Directors to serve until the 2018 annual meeting of shareholders, until their successors are elected and qualified or until the earlier of their death, resignation or removal.

 

2. To approve, in an advisory vote, the compensation of the Company’s named executive officers.

 

3. To vote, on an advisory basis, whether future advisory votes on the Company’s executive compensation will take place every one, two or three years;

 

4. To amend our Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock from 90,000,000 to 180,000,000;

 

5. To approve the 2017 Incentive Plan of Carrizo Oil & Gas, Inc.;

 

6. To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

 

7. To transact such other business as may properly come before the meeting.

 

The Company has fixed the close of business on March 20, 2017, 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. However, even if you plan to attend the meeting, you are requested to read the proxy materials and to vote by internet, by telephone or by mail using the instructions on the proxy card, or in the manner prescribed by your broker or other nominee, as soon as possible. The proxy materials were first made available to shareholders on or about April 20, 2017.

 

By Order of the Board of Directors,  
   
-S- MARCUS G. BOLINDER  
   
Marcus G. Bolinder  
Corporate Secretary  
April 18, 2017  

 

 

 

 

(CARRIZO LOGO)

 

Important Notice of Internet Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on May 16, 2017. Our proxy statement and the accompanying form of proxy are attached. Our financial and other information is contained in our 2016 Annual Report to Shareholders. This proxy statement and our 2016 Annual Report to Shareholders are also available at www.proxyvote.com.

 

Cast Your Vote Right Away  

 

YOUR VOTE IS IMPORTANT: Whether you plan to attend the Annual Meeting or not, please vote your shares by the Internet, telephone or mail in order to ensure the presence of a quorum. If you attend in person, you may choose to vote your shares at that time even if you have previously voted your shares. Any proxy may be revoked by the submission of a later dated proxy or a written notice of revocation before close of the Annual Meeting.

 

Even if you plan to attend the Annual Meeting, please read this proxy statement with care and vote right away using any of the following methods. In all cases, have your proxy card or voting instructions accessible and follow the instructions. If your shares are held in the name of a broker or other nominee, follow the voting instructions you receive from such broker or other nominee to vote your shares.



BY INTERNET USING
YOUR COMPUTER
BY TELEPHONE BY MAILING YOUR
PROXY CARD
     
(GRAPHIC) (GRAPHIC) (GRAPHIC)
     
Visit 24/7
www.proxyvote.com
Dial toll-free 24/7
1-800-690-6903
or the number provided by
your broker or other nominee
Cast your ballot,
sign your proxy card
and send by free post

  

 

 

 

Table of Contents

 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS 1
       
CORPORATE GOVERNANCE AND BOARD MATTERS 6
       
    Our Corporate Governance Practices 6
    Leadership Structure 6
    Director Independence 7
    Committees of the Board of Directors, Composition and Meetings 7
    Meetings and Attendance 8
    The Board’s Role in Risk Oversight 9
    Majority Vote in Director Elections 9
    Code of Ethics and Business Conduct 10
    Shareholder Communication with the Board of Directors 10
    Compensation Committee Interlocks and Insider Participation 10
       
PROPOSAL 1. ELECTION OF DIRECTORS 11
       
    Director Nominations Process 11
    Director Nominees 12
    Director Compensation 17
       
EXECUTIVE OFFICERS 19
       
EXECUTIVE COMPENSATION 20
       
    Compensation Discussion and Analysis 20
    Compensation Committee Report 31
    Summary Compensation Table 32
    Grants of Plan-Based Awards 34
    Outstanding Equity-Based Awards at Fiscal Year-End 35
    Option Exercises and Stock Vested 36
    Employment Agreements 37
    Potential Payments to the Named Executive Officers Upon Termination or Change of Control 39
    Equity Compensation Plans Information 41

 

  i CARRIZO OIL & GAS  

  

 

 

 

PROPOSAL 2. ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS 42
       
PROPOSAL 3. ADVISORY VOTE ON FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION 43
       
PROPOSAL 4. APPROVAL OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED SHARES 44
       
PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN OF CARRIZO OIL & GAS, INC. 46
       
PROPOSAL 6. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 55
       
    Independent Registered Public Accounting Firm’s Fees 56
    Audit Committee Preapproval Policy 56
    Audit Committee Report 57
       
OTHER ITEMS 58
   
    Security Ownership of Management and Certain Beneficial Owners 58
    Section 16(a) Beneficial Ownership Reporting Compliance 59
    Related Party Transactions 60
    Shareholder Proposals for Next Annual Meeting 62
    Proxy Solicitation and Expenses 62
    Delivery of One Proxy Statement and Annual Report to a Single Household to Reduce Duplicate Mailings 62
    Forward Looking Statements 63
       
APPENDIX A 2017 INCENTIVE PLAN OF CARRIZO OIL & GAS, INC. A-1

 

  2017 PROXY STATEMENT ii  

 

 


 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS

 

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,” “Carrizo” or “we”), for use at its 2017 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at 9:00 a.m., Central time, on Tuesday, May 16, 2017, at Two Allen Center, The Forum, located at 1200 Smith Street, 12th Floor, Houston, Texas 77002, and any and all adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders and as described below.

 

Why did you provide these proxy materials to me?

 

We are providing these proxy materials to you because you were either a registered holder or the beneficial owner of issued and outstanding shares of capital stock of the Company at the close of business on the record date and therefore you or your broker or other nominee are entitled to receive notice of, and to vote on all

matters at, the Annual Meeting and any adjournments thereof. This proxy statement describes matters on which we would like you, as a shareholder, to vote. It also gives you information on these matters so that you can make an informed decision.


 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, shareholders will vote on the matters outlined in the Notice of Annual Meeting of Shareholders, including the election of seven director nominees, a non-binding shareholder advisory vote to approve the compensation of the Company’s named executive officers, a non-binding shareholder advisory vote on the frequency of future advisory votes on executive compensation, approval of the amendment

to the Amended and Restated Articles of Incorporation of Carrizo Oil & Gas, Inc., approval of the 2017 Incentive Plan of Carrizo Oil & Gas, Inc. (the “2017 Incentive Plan”), and ratification of the selection of the Company’s independent registered public accounting firm. Also, management will be available to respond to questions from shareholders.


 

What matters will be considered at the Annual Meeting?

 

At the Annual Meeting, you will be voting on three proposals:

 

Proposal 1. To elect seven members to the Board of Directors to serve until the 2018 annual meeting of shareholders, until their successors are elected and qualified or until the earlier of their death, resignation or removal.

 

Proposal 2. To approve, in an advisory vote, the compensation of the Company’s named executive officers.

Proposal 3. To vote, on an advisory basis, on the frequency of future advisory votes on executive compensation.

 

Proposal 4. To approve the amendment to the Amended and Restated Articles of Incorporation of Carrizo Oil & Gas, Inc. to increase the authorized shares.

 

Proposal 5. To approve the 2017 Incentive Plan of Carrizo Oil & Gas, Inc.

 

Proposal 6. To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.


 

How does the Board recommend that I vote?

 

Proposal 1. The Board of Directors recommends that shareholders vote “FOR” the election of the seven nominees for director.

 

Proposal 2. The Board of Directors recommends that shareholders vote “FOR” the approval, on a non-binding advisory basis, of the compensation of the Company’s named executive officers.

Proposal 3. The Board of Directors recommends that shareholders select “1 YEAR” as the frequency of future advisory votes on the compensation of the company’s named executive officers.

 

Proposal 4. The Board of Directors recommends that shareholders vote “FOR” the approval of the amendment



  1 CARRIZO OIL & GAS  

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS

 

to the Amended and Restated Articles of Incorporation of Carrizo Oil & Gas, Inc. to increase the authorized shares.

 

Proposal 5. The Board of Directors recommends that shareholders vote “FOR” the approval of the 2017 Incentive Plan of Carrizo Oil & Gas, Inc.

Proposal 6. The Board of Directors recommends that shareholders vote “FOR” the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.


 

What vote is required for a proposal to be approved?

 

Proposal 1. The affirmative vote of a majority 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. With respect to the election of directors in an uncontested election, such as that being held at the Annual Meeting, “majority of votes” cast means the number of votes cast “FOR” the election as a director of such nominee exceeds the number of votes cast “AGAINST” such nominee. See also “Corporate Governance and Board Matters—Majority Vote in Director Elections” for additional information regarding election of directors.

 

Proposal 2. The affirmative vote of the holders of a majority of the shares entitled to vote on and that vote for or against or expressly abstain with respect to the matter is required to approve, on an advisory basis, the proposal relating to the advisory vote on the executive compensation of the Company’s named executive officers. As an advisory vote, the shareholders’ vote on this proposal is not binding on our Board of Directors or the Company. However, we expect that the Compensation Committee will review the voting results on such proposal and give consideration to the outcome when making future decisions regarding compensation of the named executive officers.

Proposal 3. The advisory vote on the frequency of future advisory votes on executive compensation is a plurality vote. The Company will consider shareholders to have expressed a non-binding preference for the frequency option that receives the most favorable votes. As an advisory vote, the shareholders’ vote on this proposal is not binding on our Board of Directors or the Company. However, we expect that the Board of Directors will review the voting results on such proposal and give consideration to the outcome when making future decisions regarding the frequency of future advisory votes on compensation of the named executive officers.

 

Proposal 4. The affirmative vote of the holders of a majority of the shares entitled to vote on and that vote for or against or expressly abstain with respect to the matter is required to approve the amendment to the Amended and Restated Articles of Incorporation.

 

Proposal 5. The affirmative vote of the holders of a majority of the shares entitled to vote on the matter is required to approve the 2017 Incentive Plan.

 

Proposal 6. The affirmative vote of the holders of a majority of the shares entitled to vote on the matter is required to approve the proposal relating to ratification of the Company’s independent registered public accounting firm.


 

What is a proxy and how will my proxy be voted? What is a proxy statement?

 

A proxy is another person or entity that you legally designate to vote your shares. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. 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.

A proxy statement is a document that the United States Securities and Exchange Commission (“SEC”) requires that we make available to you when we ask you to vote your shares at the Annual Meeting.


 

Who is entitled to vote at the Annual Meeting?

 

The holders of record of the issued and outstanding shares of capital stock of the Company at the close of business on the record date may vote on all matters at the Annual Meeting and any adjournments thereof.

On the record date, 65,658,342 shares of common stock, par value $0.01 per share (“Common Stock”) of the Company were issued and outstanding. No other class of stock is outstanding.



  2017 PROXY STATEMENT 2  

 

 

 

  

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS

 

What is the record date and what does it mean?

 

The record date for the annual meeting is March 20, 2017. The record date is the date on which a shareholder must own shares as of record in order to be eligible for

notice of, and to vote at, an annual meeting. The record date is fixed by the Board of Directors in accordance with Texas law.


 

What are the voting rights of the holders of Common Stock?

 

Each share of Common Stock is entitled to one vote on each matter submitted to a vote of shareholders. 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.


 

How do I vote my shares?

 

Shareholders that are entitled to vote at the Annual Meeting may do so in person at the Annual Meeting or by proxy submitted by Internet, by telephone or by mail using the instructions set forth on the enclosed proxy card.

 

Shareholder of Record. If you are a shareholder of record, you may vote in person at the Annual Meeting or you can give a proxy to be voted at the meeting, over the telephone, by Internet, or by mailing in a proxy card. Please refer to the specific voting instructions set forth on the enclosed proxy card. Even if you currently plan to attend the Annual Meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the Annual Meeting.

Street Name Holder. If, like most of our shareholders, you hold your shares in “street name,” you must vote your shares in the manner prescribed by your broker or other nominee. Your broker or other nominee will enclose, or explain how you can access, a voting instruction card for you to use in directing the broker or other nominee how to vote your shares. Since a beneficial owner is the shareholder of record, if you are a “street name” holder, you may vote your shares in person at the Annual Meeting only if you obtain a signed proxy from your broker or other nominee giving you a right to vote the shares.


 

What is the difference between a shareholder of record and a “street name” holder?

 

Shareholder of Record. If your shares are registered directly in your name with Wells Fargo Shareowner Services, the Company’s stock transfer agent, you are considered the “shareholder of record,” or a registered holder, with respect to those shares.

 

Street Name Holder. If, like most of our shareholders, your shares are held in a stock brokerage account, by a bank, fiduciary or other custodian, or by another nominee, you are considered the beneficial owner of these shares, and

your shares are held in ‘‘street name.’’ In this case, such broker or other nominee is considered the shareholder of record for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to instruct your broker or other nominee on how to vote the shares held in your account. If you hold your shares through a broker or other nominee we recommend that you follow the directions provided by your broker or other nominee to provide voting instructions.


 

How many shares must be present or represented in order to hold and transact business at the Annual Meeting?

 

The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote at the Annual Meeting constitutes a quorum, which is required to transact business at the Annual Meeting. Proxies indicating “abstentions” and shares represented by

“broker non-votes” will be counted for purposes of determining whether there is a quorum at the Annual Meeting. The persons appointed as election inspectors will determine whether a quorum exists.


 

  3 CARRIZO OIL & GAS  

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS

 

What are broker non-votes and how will they affect the vote on a proposal?

 

A “broker non-vote” occurs when a broker or other nominee returns a valid proxy card without voting on such proposal because they did not receive voting instructions from the street name owner and do not have discretionary authority to vote the shares on a particular proposal. Shares represented by broker non-votes will not be voted on any proposal for which the broker or other nominee does not have discretionary authority to vote. Such shares will be disregarded in the calculation of “votes cast” with respect to such proposal and therefore will have no effect on the outcome of that proposal (even though those shares may be considered entitled to vote or be voted on other proposals). Under applicable rules, brokers or other nominees have discretionary voting power with respect to matters that are considered routine, but not with respect to non-routine matters. A broker or other nominee cannot vote without instructions on non-routine matters, therefore there may be broker non-votes on any such proposals.

 

The proposals relating to the election of directors, the advisory vote on executive compensation, the advisory

vote on the frequency of advisory votes on executive compensation, and the approval of the 2017 Incentive Plan are non-routine proposals for which the broker or other nominee does not have discretionary authority to vote their customers’ shares under applicable stock exchange rules and may result in broker non-votes. The broker non-votes will have no effect on the outcome of these matters.

 

If you do not instruct your broker or other nominee how to vote your shares, then they may vote your shares in their discretion on any matter for which they have discretionary authority under applicable NASDAQ Stock Market Rules. The proposals relating to the approval of the amendment to the Amended and Restated Articles of Incorporation and the ratification of the Company’s independent registered public accounting firm are routine proposals for which the broker or other nominee has discretionary authority to vote their customers’ shares under applicable stock exchange rules.


 

What are abstentions and how will they affect the vote on a proposal?

 

An “abstention” occurs when the beneficial owner of shares is present, in person or by proxy, and entitled to vote at the meeting (or when a broker or other nominee holding shares for a beneficial owner is present and entitled to vote at the meeting), but such person refrains from voting as to a particular proposal by indicating that he or she “abstains” as to that proposal. Abstentions will not be counted as votes cast for the election of directors at the Annual Meeting and therefore will have no effect on the election of any nominee, and with respect to the advisory vote on the frequency of advisory votes on

executive compensation, absentions will have no effect on the outcome or the vote on the matter. With respect to the proposals relating to the advisory vote on executive compensation, the approval of the amendment to the Amended and Restated Articles of Incorporation, the approval of the 2017 Incentive Plan, and the ratification of the Company’s independent registered public accounting firm, holders that expressly “ABSTAIN” from voting with respect to such proposals will have the same effect as a vote “AGAINST” the proposal.


 

What happens if I do not specify how I want my shares voted?

 

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 in this proxy statement; (2) “FOR” the approval, on an advisory basis, of the compensation of the Company’s named executive officers; (3) the selection, on an advisory basis, of “1 YEAR” as the frequency of future advisory votes on executive compensation; (4) “FOR”

the approval of the amendment to the Amended and Restated Articles of Incorporation of Carrizo Oil & Gas, Inc.; (5) “FOR” the approval of the 2017 Incentive Plan of Carrizo Oil & Gas, Inc.; (6) “FOR” the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017; and (7) in the discretion of the persons named in the proxy in connection with any other business that may properly come before the Annual Meeting.


 

Are there any other matters to be acted upon at the Annual Meeting?

 

As of the date of this proxy statement, the Board of Directors is not aware of any matters that may be brought before the Annual Meeting other than those described above. By submitting a proxy by internet, by telephone or by mail using the instructions on the enclosed proxy card, you give to the persons named in the form of proxy

or their substitutes discretionary voting authority with respect to any other business that may properly come before the Annual Meeting, and they intend to vote with respect to any such matters in accordance with their best judgment.


 

  2017 PROXY STATEMENT 4  

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS

 

Can I change my mind?

 

Shareholder of Record. A shareholder of record giving a proxy may revoke it at any time before it is voted at the Annual Meeting by delivering written notice to the Corporate Secretary of the Company or by delivering a properly executed proxy bearing a later date. A shareholder of record 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.

 

Street Name Holder. If you hold your shares in “street name,” you should follow the directions provided by your broker or other nominee regarding how to revoke your proxy.


 

Where can I find the voting results of the Annual Meeting?

 

The preliminary voting results will be announced at the Annual Meeting. The final voting results will be tallied by the persons appointed as election inspectors and published within four business days, via a Form 8-K

filed with the SEC and available to the public at the SEC’s internet site at www.sec.gov , following the conclusion of the Annual Meeting.


 

  5 CARRIZO OIL & GAS  

 

 

 

 

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

Our Corporate Governance Practices

 

The Board of Directors and our Nominating and Corporate Governance Committee periodically review our governance practices and regulatory or legislative initiatives related thereto, and adopt practices that enhance our governance and risk profile, including:

 

Annual election of all directors.

 

Majority Vote Standard. The Board has adopted a bylaw amendment requiring a majority voting standard for the election of directors in uncontested elections and related policies regarding director resignation.

 

Separate Chairman of the Board and CEO.

 

Independent Board. Five of the seven members of our Board are independent.

 

Lead Independent Director.

 

Independent Board Committees. Each of the Audit, Compensation and Nominating and Corporate Governance committees of the Board is comprised entirely of independent directors.

 

Committee Charters. Each standing committee operates under a written charter that has been approved by the Board.

 

Independent Directors Meet Without Management and Non-Independent Directors.
Minimum Stock Ownership Guidelines. Each named executive officer and non-employee directors of the Company must continually own a minimum number of Company shares as set forth below:

 

Position Ownership Guidelines
Chief Executive Officer 5x annual base salary
Chief Financial Officer 5x annual base salary
All other Named Executive Officers 3x annual base salary
Non-Employee Directors 3x annual cash retainer

 

Until the time the named executive officer or non-employee director has reached their minimum ownership requirement, they are required to maintain at least 30% of the shares remaining after applying payment to satisfy the elected tax withholding or for the exercise price of a stock option.

 

No Hedging Company Securities. No named executive officers or non-employee director of the Company may hedge Carrizo Oil & Gas, Inc. securities, including publicly traded options, puts, calls and short sales.

 

Leadership Structure

 

The Board of Directors believes our Company’s current leadership structure, with Mr. S.P. Johnson IV serving as Chief Executive Officer, Mr. Steven A. Webster serving as Chairman of the Board and Mr. F. Gardner Parker serving as Lead Independent Director, is the optimal structure for the Company at this time. From the time that we became a publicly traded company in 1997, the roles of Chairman of the Board and Chief Executive Officer have been held by separate individuals. We believe it is the Chief Executive Officer’s responsibility to lead the Company and the Chairman’s responsibility to lead the Board of Directors. As directors continue to have more oversight responsibilities than ever before, we believe it is beneficial to have a separate Chairman who has the responsibility of leading the Board. In addition, by having another director serve as Chairman of the Board, our Chief Executive Officer is able to focus his energy on leading the Company.

 

Our bylaws provide that the Lead Independent Director will coordinate and moderate executive sessions of the

Board of Director’s independent members and serve as the principal liaison between the Chief Executive Officer and the independent directors on topics or issues as requested by a majority of the independent directors, any committee of the Board of Directors or the entire Board of the Directors. Our Lead Independent Director can also call meetings of independent directors.

 

We believe our Chief Executive Officer and our Chairman have an excellent working relationship. We believe this relationship and separation provides strong leadership for the Board of Directors, while also positioning our Chief Executive Officer as the leader of the Company in the eyes of our employees and other stakeholders. Although the Board has determined that Mr. Webster is not independent under applicable NASDAQ Stock Market Rules, the Board believes that this conclusion does not prevent Mr. Webster from exercising effective leadership in his role as Chairman of the Board and is, in any event, in the best interests of the Company.



  2017 PROXY STATEMENT 6  

 

 

 

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

Director Independence

 

The Board has determined that Mr. Parker, Mr. Thomas L. Carter, Jr., Mr. Robert F. Fulton, Mr. Roger A. Ramsey and Mr. Frank A. Wojtek are “independent directors” within the meaning of NASDAQ Listing Rule 5605(a)(2). In making this determination, the Board took into account the transactions between the Company and affiliates of Black Stone Minerals, L.P. described in “Related Party Transactions—Certain Matters Regarding Mr. Carter.” The Board determined that these transactions did not result in a relationship that interferes with the exercise of Mr. Carter’s independent judgment in carrying out

the responsibilities of a director of the Company and therefore did not preclude a finding that Mr. Carter is independent. Until December 23, 2016, Mr. Fulton served on the Board of Directors for Basic Energy Services, Inc., an oilfield service provider that performed services for the Company during 2016. The Board also determined that this arrangement did not result in a relationship that interferes with the exercise of Mr. Fulton’s independent judgment in carrying out the responsibilities of a director of the Company and therefore did not preclude a finding that Mr. Fulton is independent.


 

Committees of the Board of Directors, Composition and Meetings

 

The Board of Directors has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. The table below provides the current composition of each standing committee of the Board:

 

Name

Audit

Compensation

Nominating
and Corporate
Governance
F. Gardner Parker Chairman Member  
Thomas L. Carter, Jr. Member   Chairman
Robert F. Fulton   Member Member
Roger A. Ramsey Member Chairman  
Frank A. Wojtek     Member
Number of Committee Meetings Held in 2016 4 4 2

 

Audit Committee

 

The primary responsibilities of the Audit Committee are to oversee the accounting and financial reporting processes and audit of the financial statements of the Company and to assist the Board of Directors in monitoring (i) the integrity of the financial statements, (ii) the performance, independence and qualifications of the independent registered public accounting firm, (iii) the performance of the Company’s internal audit function, and (iv) the Company’s compliance with legal and regulatory requirements. 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 pre-approval of audit and non-audit services. The Audit Committee also reviews and discusses the annual audited financial statements, the quarterly unaudited financial statements and internal control over financial reporting with management and the independent registered public accounting firm. A copy of the Audit Committee Charter may be found on our website at www.carrizo.com under “About Us - Governance.”

The Board has determined that all of the members of the Audit Committee satisfy the independence standards under the NASDAQ Listing Rules and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, the Board has determined that Mr. Parker is an “audit committee financial expert,” as such term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated by the SEC. Mr. Parker is a certified public accountant and served as partner in a major accounting firm.



  7 CARRIZO OIL & GAS  

 

 

 

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

Compensation Committee

 

The primary responsibilities of the Compensation Committee are (i) to review and approve the compensation of our executive officers and directors, (ii) to oversee and advise the Board on the policies that govern our compensation programs, and (iii) to administer the Company’s incentive compensation plans. The Compensation Committee has the authority to select, retain, terminate, and approve the fees and other retention terms of special counsel, compensation consultants or other experts or consultants, as it deems appropriate, without seeking approval of the Board of Directors or management. The Compensation Committee has historically retained an independent compensation consulting firm to provide the Compensation Committee with market data and recommendations regarding our executive and director compensation programs when the Compensation Committee considers compensation of the named executive officers and directors. The Compensation Committee retained Longnecker & Associates (“Longnecker”) for compensation recommendations in 2014, 2015 and 2016 and retained Pearl Meyer & Partners, LLC (“Pearl Meyer”) for compensation recommendations in 2017. Our Chief Executive Officer annually reviews the performance of our named executive officers, other than himself,

and makes recommendations to the Compensation Committee regarding base salary adjustments, annual bonuses and long-term incentive awards for such other named executive officers.

 

The Compensation Committee has been appointed by the Board of Directors to administer the Incentive Plan of Carrizo Oil & Gas, Inc., as amended and restated effective May 15, 2014 (the “Prior Incentive Plan”), the Carrizo Oil & Gas, Inc. Cash-Settled Stock Appreciation Rights Plan (the “Cash SAR Plan”), and, if approved by the shareholders, the 2017 Incentive Plan, subject in some cases to action by the full Board. The Board of Directors has designated a special stock award committee of the Board consisting solely of Mr. Johnson to determine whether and how much to award certain eligible participants, excluding “officers” (as defined in Rule 16a-1 promulgated under Section 16 of the Exchange Act) and directors, shares of restricted stock, restricted stock units (“RSUs”), options and stock appreciation rights (“SARs”) under the Prior Incentive Plan, the Cash SAR Plan, and, if approved by the shareholders, the 2017 Incentive Plan, up to an aggregate of 15,000 shares per quarterly calendar period. A copy of the Compensation Committee Charter may be found on our website at www.carrizo.com under “About Us - Governance.”


 

Nominating and Corporate Governance Committee

 

The primary responsibilities of the Nominating and Corporate Governance Committee include (i) identifying, evaluating and recommending, for the approval of the entire Board of Directors, potential candidates to become members of the Board of Directors, (ii) recommending membership on standing committees of the Board of Directors, (iii) developing and recommending to the entire Board of Directors corporate governance principles and practices for the Company and assisting in the implementation of such policies, and (iv) assisting

in the identification, evaluation and recommendation of potential candidates to become officers of the Company. The Nominating and Corporate Governance Committee reviews the Company’s Code of Ethics and Business Conduct and its enforcement and reviews and recommends to the Board whether waivers should be made with respect to such Code. A copy of the Nominating and Corporate Governance Committee Charter may be found on our website at www.carrizo.com under “About Us - Governance.”


 

Meetings and Attendance

 

The Board of Directors held four meetings during 2016 and transacted business on four occasions during the year by unanimous written consent. During 2016, 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 that were held during his service on the Board of Directors.

 

Non-employee directors ordinarily meet in executive session without management present at most regularly scheduled Board meetings. Additionally, the independent

directors periodically meet without management or non- independent directors present at regularly scheduled Board meetings and may meet at other times at the discretion of the Lead Independent Director, a majority of the independent directors, any committee of the Board of Directors or the entire Board of the Directors.

 

The Company does not have a policy regarding director attendance at annual meetings of shareholders. All of the Company’s directors attended the 2016 Annual Meeting of Shareholders in person.



  2017 PROXY STATEMENT 8  

 

 

 

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

The Board’s Role in Risk Oversight

 

The Board of Directors generally oversees risk management, and the Chief Executive Officer and other members of executive management generally manage the material risks that we face. The Board of Directors focuses on the most significant risks facing the Company and the Company’s general risk management strategy, and also ensures that risks undertaken by the Company are consistent with the Board’s risk tolerance.

 

Responsibility for risk oversight generally rests with the entire Board of Directors. Risks falling within this area would include but are not limited to business ethics, general business and industry risks, operating risks and financial risks. We have not concentrated responsibility for all risk management in a single risk management officer, but rather rely on various executive and other management personnel to understand, assess, mitigate and generally manage material risks that we face in various areas including capital expenditure plans, liquidity, operations and health, safety and environmental. These personnel report to the Board of Directors, as appropriate, regarding material risks and our management of those risks. The Board of Directors monitors the risk management information provided to it and provides feedback to management from time to time.

The standing committees of the Board assist the Board of Directors in managing specific risk areas. The Audit Committee assists the Board of Directors in oversight of the integrity of the Company’s financial statements and various matters relating to our publicly available financial information and our internal and independent auditors. The Audit Committee also evaluates related party transactions and potential conflicts of interest. The Audit Committee receives information from our employees and others regarding public disclosure, our internal controls over financial reporting and material violations of law. Certain risks associated with our governance fall within the authority of the Nominating and Corporate Governance Committee, which is responsible for evaluating independence of directors and Board candidates. Risks associated with retaining and incentivizing management fall within the scope of the authority of the Compensation Committee, which assists the Board of Directors in reviewing and administering compensation, benefits, incentive and equity-based compensation plans. These committees receive reports from management periodically regarding management’s assessment of risks and report regularly to the full Board of Directors.


 

Majority Vote in Director Elections

 

The Company’s bylaws provide that in an election of directors at a meeting of shareholders at which a quorum is present, (a) if the number of nominees exceeds the number of directors to be elected (a “contested election”), the members of the Board of Directors that are elected by shareholders will be elected by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at such meeting and (b) in an election of directors that is not a contested election (an “uncontested election”), the members of the Board of Directors that are elected by shareholders shall be elected by a majority of the votes cast by the holders of shares entitled to vote in the election of directors at such meeting. For purposes of the bylaws, in an uncontested election of directors a “majority of votes cast” shall mean that the number of shares voted “for” a director exceeds the number of votes cast “against” that director.

The Company’s Code of Ethics and Business Conduct provides that, as a condition to being nominated to continue to serve as a director, whether by the Board of Directors or by shareholder, an incumbent director nominee will agree that if such incumbent director nominee fails to receive the required vote for election to the Board of Directors at the next meeting of the shareholders of the Company at which such nominee faces re-election, he or she will submit to the Board of Directors an irrevocable letter of resignation that would be effective upon, and only in the event that the Board of Directors accepts, such resignation.

 

The Board of Directors will decide whether to accept or reject such resignation, or whether other action should be taken, taking into account the recommendation of the Nominating and Corporate Governance Committee of the Board of Directors and will publicly disclose (by a press release, a filing with the SEC or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results.



  9 CARRIZO OIL & GAS  

 

 

 

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

Code of Ethics and Business Conduct

 

The Nominating and Corporate Governance Committee developed and recommended to the Board a Code of Ethics and Business Conduct, which the Board has adopted. The Code of Ethics and Business Conduct is applicable to all employees, officers and directors and satisfies the requirements of NASDAQ Listing Rule 5610. Any waiver of, or amendment to, the Code of Ethics and Business Conduct of the Company may be approved only by the Board and will be promptly

disclosed as required by law, the regulations of the SEC, and the NASDAQ Stock Market Rules. Such waivers will be disclosed promptly by posting to our website. The Nominating and Corporate Governance Committee also reviews and may recommend to the Board waivers of, or amendments to, the Code of Ethics and Business Conduct. The Code of Ethics and Business Conduct is available on the Company’s website at www.carrizo.com under “About Us - Governance.”


 

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 Corporate Secretary, Carrizo Oil & Gas, Inc., 500 Dallas Street, Suite 2300, 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., 500 Dallas Street, Suite 2300, Houston, Texas 77002. The Company also has a hotline by which employees can confidentially communicate illegal and unethical activities including concerns or complaints regarding the matters noted above. The phone number is 877-888-0002.


 

Compensation Committee Interlocks and Insider Participation

 

The members of the Compensation Committee during the last completed fiscal year were Messrs. Fulton, Parker and Ramsey. There are no matters relating to interlocks or insider participation that we are required to report.

 

  2017 PROXY STATEMENT 10  

 

 

 

 

PROPOSAL 1. ELECTION OF DIRECTORS  

 

The Board of Directors is responsible for determining the ultimate direction of our business, determining the principles of our business strategy and policies and promoting the long-term interests of the Company. The Board of Directors possesses and exercises oversight authority over our business, but, subject to our governing documents and applicable law, delegates day-to-day management of the Company to our Chief Executive Officer and our executive management.

 

Director Nominations Process 

 

In assessing the qualifications of candidates for director, the Nominating and Corporate Governance 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 and Corporate Governance Committee also considers requirements under the listing standards of the NASDAQ Stock Market 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 and Corporate Governance 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 and Corporate Governance Committee from a number of sources, including incumbent directors, officers, executive search firms and others. The extent to which the Nominating and Corporate Governance 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 Nominating and Corporate Governance Committee about the qualifications and suitability of the individual, viewed in light of the needs of the Board of Directors, and is at the Nominating and Corporate Governance 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 and Corporate Governance 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 expiration of the director’s term.

 

In addition, the Nominating and Corporate Governance 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 Corporate Secretary, Carrizo Oil & Gas, Inc., 500 Dallas Street, Suite 2300, 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 and Corporate Governance 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 and Corporate Governance 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 and Corporate Governance 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. 

 

Our Code of Ethics and Business Conduct provides that as a condition to being nominated to continue to serve as a director, whether by the Board or by a shareholder, an incumbent director nominee will agree that if such incumbent director nominee fails to receive the required vote for election to the Board at the next meeting of the shareholders of the Company at which such nominee faces re-election, he or she will submit to the Board an irrevocable letter of resignation that would be effective upon, and only in the event that the Board accepts, such resignation.


 

  11 CARRIZO OIL & GAS  

 

 

 

 

PROPOSAL 1. ELECTION OF DIRECTORS

 

The Nominating and Corporate Governance Committee considers diversity in identifying nominees for director and endeavors to have a Board representing diverse experience in areas that will contribute to the Board’s ability to perform its roles relating to oversight of the Company’s business, strategy and risk exposure

 

worldwide. For example, the Nominating and Corporate Governance Committee takes into account, among other things, the diversity of business, leadership and personal experience of Board candidates and determines how that experience will serve the best interests of the Company.


Director Nominees 

 

The Board of Directors has nominated for election as directors at the annual meeting the seven nominees named below. If elected, each nominee will serve until the 2018 Annual Meeting of Shareholders or until their successors have been elected and qualified or until their death, resignation or removal.

 

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 on the enclosed proxy card, in the absence of contrary instructions by shareholders, 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. 

  

Each nominee brings a strong and unique background and set of skills to the Board of Directors, giving the Board of Directors as a whole, competence and experience in a wide variety of areas, including corporate governance and board service, executive management, corporate finance and financial markets, investment, the oil and gas industry, and civic leadership. Information regarding the business experience and qualifications of each nominee is provided below. All nominees are currently serving as directors and are standing for re-election.



Board Recommendation 

 

The Board of Directors recommends that shareholders vote “FOR” the election of the seven nominees for director.

 

  2017 PROXY STATEMENT 12  

  

 

 

  

PROPOSAL 1. ELECTION OF DIRECTORS

 

(PHOTO S.P. JOHNSON IV)   S.P. Johnson IV
Age: 61
Director Since: 1993

(PHOTO STEVEN A. WEBSTER)     Steven A. Webster
Age: 65 
Director Since: 1993


Principal Occupation 

President and Chief Executive Officer, Carrizo Oil & Gas, Inc.

 

Recent Business Experience 

Mr. Johnson has served as our President and Chief Executive Officer since December 1993. Prior to that, he worked for Shell Oil Company for 15 years, where his managerial positions included Operations Superintendent, Manager of Planning and Finance and Manager of Development Engineering. Mr. Johnson is a Registered Petroleum Engineer and holds a B.S. in Mechanical Engineering from the University of Colorado.

  

Other Current Public Company Directorships 

None

  

Public Company Directorships Within the Past Five Years 

Basic Energy Services, Inc.

 

Reasons for Nomination

Mr. Johnson brings to the Board of Directors extensive experience in oil and gas exploration and production and the energy industry through his roles at the Company and other energy companies. He also brings to the Board extensive knowledge of the Company by virtue of his being a co-founder and long-time director and President and Chief Executive Officer of the Company. Mr. Johnson’s current employment agreement with the Company provides that he will be a director. For more information regarding his employment agreement, please read “Executive Compensation - Employment Agreements.”

Principal Occupation

Co-Managing Partner and Co-Chief Executive Officer, Avista Capital Holdings, LP

  

Recent Business Experience 

Mr. Webster has been the Chairman of our Board of Directors since June 1997. Mr. Webster has served as Co-Managing Partner of Avista Capital Partners LP, a private equity firm focused on investments in the energy, healthcare and other business sectors, since he co-founded the firm in 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 holds an M.B.A. from Harvard Business School where he was a Baker Scholar. He also holds a B.S. in Industrial Management and an Honorary Doctorate in Management from Purdue University.

  

Other Current Public Company Directorships

Camden Property Trust 

Era Group Inc. 

Oceaneering International, Inc.

 

Public Company Directorships Within the Past Five Years 

Basic Energy Services, Inc.
Geokinetics, Inc. 

Hercules Offshore, Inc.

Hi-Crush Partners LP
SEACOR Holdings, Inc.

 

Reasons for Nomination

Mr. Webster brings to the Board of Directors experience in, and knowledge of, the energy industry, knowledge of the Company as a co-founder and long-time director, business leadership skills from his tenure as chief executive officer of publicly traded companies and his over 30-year career in private equity and investment activities, and experience as a director of several other public and private companies.


 

  13 CARRIZO OIL & GAS  

 

 

 

 

PROPOSAL 1. ELECTION OF DIRECTORS

 

(PHOTO F. GARDNER PARKER)    

F. Gardner Parker  

Independent 

Age: 75 

Director Since: 2000 

Committees: Audit (Chair) 

and Compensation

(PHOTO THOMAS L. CARTER)    

Thomas L. Carter, Jr.

Independent

Age: 65

Director Since: 2005

Committees: Audit and Nominating and

Corporate Governance (Chair)


 

Principal Occupation

Private Investor

 

Recent Business Experience  

Mr. Parker has been the Lead Independent Director of our Board of Directors since May 2012. Mr. Parker has been a private investor since 1984. Prior to that, he worked with Ernst & Ernst (now Ernst & Young LLP) for 14 years, seven of which he served as a partner. In the private sector, Mr. Parker is Chairman of the Board of Edge Resources Ltd, an Energy capital fund and Norton Ditto, a men’s clothing retailer. He is a graduate of The University of Texas at Austin and is board certified by the National Association of Corporate Directors. Mr. Parker is also a 2011 National Association of Corporate Directors (NACD) Board Leadership Fellow. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for experienced corporate directors-a rigorous suite of courses spanning leading practices for boards and committees- and he supplements his skill sets through ongoing engagement with the director community and access to leading practices. 

 

Other Current Public Company Directorships

Camden Property Trust

Sharps Compliance Corp.

 

Public Company Directorships Within the Past Five Years

Hercules Offshore, Inc. 

Triangle Petroleum Corporation

 

Reasons for Nomination

Mr. Parker brings to the Board of Directors an extensive background in accounting and tax matters, experience as a director on the boards and audit committees of numerous public and private companies, and financial experience through his involvement in structuring private and venture capital investments for the past 30 years.

Principal Occupation

Chairman and Chief Executive Officer,

Black Stone Minerals, L.P.

 

Recent Business Experience

Mr. Carter has served as President, Chief Executive Officer and Chairman of the general partner of Black Stone Minerals, L.P., a publicly traded mineral acquisition and management company (“BSM”), since its formation in 2014. Mr. Carter is the founder of Black Stone Minerals Company, L.P. (“BSMC”), BSM’s predecessor, and has served as President, Chief Executive Officer and Chairman of its general partner since 1998. Mr. Carter served as Managing General Partner of W.T. Carter & Bro. from 1987 to 1992 and Black Stone Energy Company from 1980 to present, both of which preceded BSMC’s general partner. Mr. Carter founded Black Stone Energy Company, BSMC’s operating and exploration subsidiary, in 1980. From 1978 to 1980, Mr. Carter served as a lending officer in the Energy Department of Texas Commerce Bank in Houston, Texas, after serving in various other roles from 1975. He has served as a Trustee at Episcopal High School in Houston, Texas since 2004, and as a Trustee of St. Edward’s University since 2009. Mr. Carter has been a trustee of a nonprofit since 1998, and was elected to a four-year term as president of the board of trustees of the nonprofit in 2013. Mr. Carter also serves on the University of Texas at Austin Internal Audit Committee, the University Lands Advisory Board, and the Ripley Foundation board. Mr. Carter received M.B.A. and B.B.A. degrees from the University of Texas at Austin.

 

Other Current Public Company Directorships

Black Stone Minerals, L.P.

 

Public Company Directorships Within the Past Five Years

None

   

Reasons for Nomination

Mr. Carter brings to the Board of Directors extensive knowledge of the oil and gas exploration and production business and knowledge of accounting and finance.


 

  2017 PROXY STATEMENT 14  

  

 

 

 

PROPOSAL 1. ELECTION OF DIRECTORS

 

(PHOTO ROBERT F. FULTON)    

Robert F. Fulton

Independent 

Age: 65 

Director Since: 2012 

Committees: Compensation and 

Nominating and Corporate Governance

(PHOTO ROGER A. RAMSEY)    

Roger A. Ramsey  

Independent

Age: 78 

Director Since: 2004

Committees: Audit and 

Compensation (Chair)



Principal Occupation

Retired 

 

Recent Business Experience

Mr. Fulton served as President and Chief Executive Officer of Frontier Drilling ASA, an offshore oil and gas drilling and production contractor, from September 

2002 through July 2010. From December 2001 to August 2002, Mr. Fulton managed personal investments. Prior to December 2001, Mr. Fulton spent most of his business career in the energy service and contract drilling industry. He served as Executive Vice President and Chief Financial Officer of Merlin Offshore Holdings, Inc. from August 1999 until November 2001. From 1998 to June 1999, Mr. Fulton served as Executive Vice President of Finance for R&B Falcon Corporation, during which time he was instrumental in effecting the merger of Falcon Drilling Company with Reading & Bates Corporation to create R&B Falcon Corporation and the merger of R&B Falcon Corporation with Cliffs Drilling Company. He graduated with a B.S. degree in Accountancy from the University of Illinois and an M.B.A. in finance from Northwestern University. 

 

Other Current Public Company Directorships

None 

 

Public Company Directorships Within the Past Five Years

Basic Energy Services, Inc.

 

Reasons for Nomination

Mr. Fulton brings to the Board of Directors extensive knowledge of the oil and gas exploration and production business and accounting and finance gained through his roles in executive positions at numerous public and private companies.

Principal Occupation

Retired

 

Recent Business Experience

Mr. Ramsey served as Managing Partner of Ramjet Capital Ltd., a private investment firm, from 1999 through January 2013. He served as the Chairman and Chief Executive Officer of MedServe, Inc., a privately held medical waste disposal and treatment company, from 2004 through December 2009. He served as Chairman of the Board of Allied Waste Industries, Inc., a waste recycling, transportation and disposal company, 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, a certified public accountant, was employed by the international accounting firm of Arthur Andersen LLP. In 1968, Mr. Ramsey co-founded Browning-Ferris Industries, Inc., a waste management company, and served as its Vice President and Chief Financial Officer until 1978. Mr. Ramsey also served as a director of WCA Waste Corporation, a waste management company, from June 2004 through March 2012 when the company was taken private. Mr. Ramsey is currently a member of the Board of Trustees at Texas Christian University.

  

Other Current Public Company Directorships

None

 

Public Company Directorships Within the Past Five Years  

WCA Waste Corporation

  

Reasons for Nomination

Mr. Ramsey brings to the Board of Directors experience and perspective as chief executive officer of several publicly traded and private companies and knowledge of accounting and finance as a director of several public and private companies.


 

  15 CARRIZO OIL & GAS  

 

 

 

  

PROPOSAL 1. ELECTION OF DIRECTORS

 

 

(PHOTO FRANK A. WOJTEK)    

Frank A. Wojtek

Independent

Age: 61

Director Since: 1993

Committees: Nominating and

Corporate Governance

   

Principal Occupation  

President and Director, A-Texian Compressor, Inc.

 

Recent Business Experience  

Mr. Wojtek is currently the President and Director of A-Texian Compressor, Inc., a natural gas compression services company, and has served in various capacities with that 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, Secretary and Treasurer of Loyd & Associates, Inc., a private financial consulting firm, from 1989 to 2013. 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 holds a B.B.A. in Accounting with Honors from The University of Texas at Austin.

 

Other Current Public Company Directorships

None

 

Public Company Directorships Within the Past Five Years  

None

 

Reasons for Nomination  

Mr. Wojtek brings to the Board of Directors knowledge of the Company and the energy industry by virtue of his service as an executive officer or director of the Company since its founding, experience in accounting and experience in financial executive positions at public and private companies.


 

  2017 PROXY STATEMENT 16  

  

 

 

 

PROPOSAL 1. ELECTION OF DIRECTORS

 

Director Compensation

 

The Company uses a combination of cash and equity-based compensation to attract and retain qualified candidates to serve on the Board. The Company also reimburses travel, meal and lodging expenses incurred by our non-employee directors to attend Board and Board committee meetings. In setting director

compensation, the Company considers the significant amount of time that directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of its Board. Mr. Johnson receives no compensation for serving as a director.


 

For the 2016-2017 director term, the annual cash retainer and additional annual amounts paid to the non-employee directors in respect of their roles as members or chairmen of committees, as Chairman of the Board and as Lead Independent Director, and meeting attendance fees were as follows:

 

 

Board of
Directors

Audit

Compensation

Nominating
and Corporate Governance
Annual Cash Retainer $60,000      
Chairman of the Board of Directors 120,000      
Lead Independent Director 26,500      
Committee Chairman   $20,000 $15,000 $10,000
Committee Member   9,000 5,000 3,000
Meeting Attendance 2,500 1,000 1,000 1,000
Meeting Attendance via Teleconference 1,000 500 500 500
Special Meeting Attendance 1,000      
Special Meeting Attendance via Teleconference 500      

 

For the 2017-2018 director term, the annual cash retainer and additional annual amounts paid to the non-employee directors in respect of their roles as members or chairmen of committees, as Chairman of the Board and as Lead Independent Director, and meeting attendance fees will be as follows:

 

 

Board of

Directors

Audit

Compensation

Nominating
and Corporate

Governance

Annual Cash Retainer $70,000      
Chairman of the Board of Directors 120,000      
Lead Independent Director 26,500      
Committee Chairman   $25,000 $17,500 $10,000
Committee Member   15,000 7,500 3,000
Meeting Attendance 2,500 1,500 1,500 1,000
Meeting Attendance via Teleconference 1,000 500 500 500
Special Meeting Attendance 1,000      
Special Meeting Attendance via Teleconference 500      

 

Under the Prior Incentive Plan, and, if approved by the shareholders, the 2017 Incentive Plan, non-employee directors may be granted stock options, restricted stock, RSUs or any combination of such awards for their service to the Board at the discretion of the Board of Directors or the Compensation Committee. Awards may be made

to non-employee directors in respect of their roles as members or chairmen of committees, as Chairman of the Board and as Lead Independent Director. Awards are also granted to non-employee directors upon joining the Board and after each annual shareholder meeting.


 

  17 CARRIZO OIL & GAS  

 

 

 

 

PROPOSAL 1. ELECTION OF DIRECTORS

 

For the 2016-2017 director term, non-employee directors were awarded the following RSUs:

 

        Nominating
  Board of     and Corporate
  Directors Audit Compensation Governance
Director 2,500      
Chairman of the Board of Directors 3,900      
Lead Independent Director 500      
Committee Chairman   1,750 1,050 400
Committee Member   1,050 700 300

 

Because future awards are at 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, in each case in accordance with the Prior Incentive Plan and, if approved by the shareholders, the 2017

Incentive Plan. The vesting terms of any stock options or shares of restricted stock and RSUs granted to directors are at the discretion of the Compensation Committee or the Board of Directors. Director awards for the 2017-2018 director term will remain the same as for the 2016-2017 term.


 

The following table summarizes the cash compensation earned or paid to each of our non-employee directors during 2016 and stock awards granted for the 2016-2017 director term.

 

Name Fees Earned or
Paid in Cash
Stock
Awards
(1)

Option
Awards

All Other
Compensation

Total
Steven A. Webster $190,000 $242,240 (2) $  — $  — $432,240
F. Gardner Parker 127,000 206,283   333,283
Thomas L. Carter, Jr. 92,000 149,508   241,508
Robert F. Fulton 83,000 132,475   215,475
Roger A. Ramsey 95,125 174,110   269,235
Frank A. Wojtek 75,249 105,980   181,229

 

(1) Represents the aggregate grant date fair value of RSUs granted on May 17, 2016 for the 2016-2017 director term computed in accordance with FASB ASC Topic 718. The grant date fair value of $37.85 per share is based on the average of the high and low stock price of our Common Stock on the NASDAQ Global Select Market on the May 17, 2016 grant date.

(2) As of December 31, 2016, Mr. Webster held 23,340 exercisable Cash SARs, which were granted on July 13, 2010. During 2016, Mr. Webster exercised 18,332 Cash SARs granted on June 3, 2009 and received $327,708 paid in cash.

 

  2017 PROXY STATEMENT 18  

 

 

 

 

EXECUTIVE OFFICERS

 

The following table sets forth certain information as of March 20, 2017 with respect to the executive officers.

 

Executive Officer   Age   Position
S.P. Johnson IV   61   President, Chief Executive Officer and Director
Brad Fisher   56   Vice President and Chief Operating Officer
David L. Pitts   50   Vice President and Chief Financial Officer
Gerald A. Morton   58   General Counsel and Vice President of Business Development
Richard H. Smith   59   Vice President of Land
Gregory F. Conaway   41   Vice President and Chief Accounting Officer

 

Set forth below is certain background information of each of our executive officers (other than Mr. Johnson, whose background is described above under “Proposal 1. Election of Directors”).

 

Brad Fisher has served as Vice President and Chief Operating Officer since March 2005. Prior to that time, he served as Vice President of Operations since July 2000 and General Manager of Operations from April 1998 to June 2000. Prior to joining us, Mr. Fisher spent 14 years with Cody Energy and its predecessor Ultramar Oil & Gas Limited where he held various managerial and technical positions, last serving as Senior Vice President of Engineering and Operations. Mr. Fisher holds a B.S. degree in Petroleum Engineering from Texas A&M University.

 

David L. Pitts has served as Vice President and Chief Financial Officer since August 2014. Mr. Pitts also served as Treasurer from August 2014 to March 2015 and Vice President and Chief Accounting Officer from January 2010 to September 2014. Prior to joining us, he served as an audit partner with Ernst & Young LLP. Prior to his employment at Ernst &Young LLP from 2002 to 2009, Mr. Pitts was a senior manager with Arthur Andersen. Mr. Pitts is a CPA and holds a B.S. in Accounting and Business from Southwest Baptist University.

 

Gerald A. Morton has served as General Counsel and Vice President of Business Development of the Company since 2008. Prior to joining the Company, Mr. Morton spent 15 years with Pogo Producing Company, where he held various positions including Vice President – Law, Corporate Secretary, and Senior Vice President for Asia and Pacific operations. Mr. Morton began his oil industry career in 1982 working for Texaco as a geophysicist. Mr. Morton graduated from Brigham Young University with an Engineering Geology degree. He received his MBA in Finance in 1985 and a law degree in 1988, both from the University of Houston.

Richard H. Smith has served as Vice President of Land since August 2006. Prior to joining us, Mr. Smith held the position of Vice President of Land for Petrohawk Energy Corporation from March 2004 through August 2006. Mr. Smith served with Unocal Corporation from April 2001 until March 2004 where he held the position of Land Manager — Gulf Region USA with areas of concentration in the Outer Continental Shelf, Onshore Texas and Louisiana and Louisiana State Waters. From September 1997 until March 2001 Mr. Smith held the position of Land Manager — Gulf Coast Region with Basin Exploration, Inc. Mr. Smith held various land management positions with Sonat Exploration Company, Michel T. Halbouty Energy Co., Pend Oreille Oil & Gas Company and Norcen Explorer, Inc. from the time he began his career in 1980 until the time he joined Basin Exploration. Mr. Smith is a Certified Professional Landman with a B.B.A. in Petroleum Land Management from the University of Texas at Austin.

 

Gregory F. Conaway has served as Vice President and Chief Accounting Officer since September 2014. Mr. Conaway joined the Company in July 2011 serving as Assistant Controller — Financial Reporting and served as Controller — Financial Reporting from May 2012 to September 2014. Prior to joining us, Mr. Conaway worked for Ernst & Young LLP, holding positions of increasing responsibility including senior manager. Mr. Conaway began his career with Arthur Andersen in 1998. Mr. Conaway is a CPA and holds a M.B.A. and B.B.A. in Accounting from Angelo State University.


 

  19 CARRIZO OIL & GAS  

 

 

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Executive Summary

 

The Compensation Committee of our Board of Directors oversees our compensation program. Our compensation program is designed to specifically address our desire to motivate and retain all of our employees.

 

Our executive compensation program covers our President and Chief Executive Officer (“CEO”), our principal executive officer, our Vice President & Chief Financial Officer (“CFO”), our principal financial officer, and our other three most highly-compensated executive officers during the last fiscal year (collectively, the “Named Executive Officers”).

 

Our executive compensation program is designed to pay our Named Executive Officers a significant amount of their compensation in equity of the Company in order to incentivize them to consistently build long-term

shareholder value and to align our executives with our shareholders. The following Compensation Discussion and Analysis explains how the Compensation Committee has structured our executive compensation program to achieve this objective.

 

Although this section of the proxy statement specifically addresses the compensation program of our Named Executive Officers, we are focused on the compensation of all of our employees and structuring all of our compensation programs to reward behavior that we believe will ultimately increase shareholder value, and the Compensation Committee considers compensation programs of all of our employees with the focus of tying a substantial portion of compensation to the Company’s performance and creation of shareholder value.


 

2016 Performance Highlights

 

Summarized below are some of the many objectives we accomplished during 2016 that we believe will help us continue to navigate the Company through a challenging commodity price environment.

 

Increased average daily oil production 12% year- over- year to 25,745 Bbls/d in 2016, exceeding our initial expectations of 8% growth, despite reducing capital expenditures by 21% compared to the prior year;

 

Reduced average well costs in the Eagle Ford from $4.6 million at year-end 2015 to $4.1 million at year-end 2016;

 

Utilizing new Generation 3 rigs, increased drilling rate by approximately 40% to approximately 3.5 wells per rig per month by year-end 2016;
Exited 2016 with a record 200.2 MMBoe of proved reserves;

 

Grew our Eagle Ford net acreage position to 100,195 net acres at year-end 2016, which included net bolt-on acres acquired from an affiliate of Sanchez Energy Corporation located primarily in the core volatile oil window of the Eagle Ford; and

 

De-risked a large portion of our Delaware Basin acreage position, adding material potential drilling locations to our drilling inventory.

 

  2017 PROXY STATEMENT 20  

  

 

 

 

EXECUTIVE COMPENSATION

 

Pay For Performance: Total Shareholder Return

 

The oil and gas industry experienced a continued low commodity price environment in 2016 stemming in large part from the global oversupply of crude oil. Although this challenging environment led to production declines for many domestic exploration and production companies, our management team was able to deliver another year of production and reserve growth in 2016. These accomplishments are attributable to our management team’s ability to maintain financial flexibility, control costs and continue to improve the

efficiency of our drilling and completion operations in the Eagle Ford Shale, one of the highest return plays in the U.S. The following graph presents a comparison of total shareholder returns of the Company’s common stock, the average returns of our 2015 and 2016 compensation peer groups, and the S&P 500 and Dow Jones U.S. Exploration and Production indexes, assuming an investment of $100 (with reinvestment of all dividends) was invested on December 31, 2011.


 

(LINE GRAPH)  

 

As shown above, we have outperformed our 2015 and 2016 compensation peer groups, as well as the Dow Jones U.S. Exploration and Production Index, over the cumulative five-year period. We view this as a testament to management’s ability to position the Company for success during a challenging environment and will allow

Carrizo to emerge from this commodity price downcycle in a strong position. See “Executive Compensation Philosophy, Goals and Objectives—Compensation Should Be Benchmarked” for information about our 2016 Compensation Peer Group.


 

  21 CARRIZO OIL & GAS  

 

 

 

 

 

EXECUTIVE COMPENSATION

 

Pay-for-Performance: Increased At-Risk Compensation

 

The Compensation Committee reviews and adjusts the compensation of our executives each year to ensure continued alignment with the goals and objectives of the Company, as well as motivate executives to maximize

long-term value creation for our shareholders. This has been accomplished by continuing to implement compensation programs weighted towards at-risk, variable compensation.


 

2016 Shareholder Advisory Vote on Executive Compensation

 

At our 2016 annual meeting of shareholders, holders of 79.5% of the shares entitled to vote on the matter voted in favor of the compensation of the named executive officers as described in our 2016 proxy statement. The Compensation Committee believes that the level of support received from our shareholders indicates that they consider our compensation philosophy and our executive compensation policies to be effective and aligned with their interests. Although the results of this advisory vote indicated that no change to our executive compensation program was necessary, the Compensation

Committee also considered compensation decisions made by our compensation peer group, information provided by its independent compensation consultant and public commentary of institutional investors, when determining whether changes to our executive compensation program were necessary in 2017. The Compensation Committee will continue to monitor and consider the outcomes of the annual advisory votes on our executive compensation program when making compensation decisions for our executives in the future.


 

Executive Compensation Program and Corporate Governance Highlights

 

We believe our annual incentive bonus and long-term equity-based incentive awards for 2016 continue to align our executives’ compensation with the interests of our shareholders. Additionally, the following table summarizes the compensation best practices that we follow and the disfavored compensation practices that we avoid.

 

Compensation Best Practices That We Follow
Majority “at risk” or variable compensation.   The majority of our executive compensation is “at risk” or variable. Our annual incentive bonus is based on performance against key operational and financial metrics that drive both our short-term and long-term corporate strategy. The value delivered by our long-term equity based incentive awards is tied to both absolute and relative shareholder return performance.
Significant Equity-Based Compensation. A significant portion of our executive compensation is equity-based, with the majority of the value settled based on a combination of our absolute and relative total shareholder return.
Stock Ownership Guidelines. Named executive officers and non-employee directors are required to maintain meaningful ownership of our stock to ensure their interests are closely aligned with the long-term financial interests of our shareholders.
Independent Compensation  Committee.   Our Compensation  Committee  is comprised solely of independent directors.
Independent Compensation Consultant. The Compensation Committee retains an independent compensation consultant who provides no other services to the Company.
Compensation  Benchmarking. The Compensation  Committee  annually  reviews  an  analysis of  executive compensation prepared by its independent compensation consultant using competitive compensation data based on relevant peer company and survey data to ensure our executive compensation program is designed appropriately and takes into account market changes.
Compensation Risk Assessment. There is an appropriate balance between long-term and short-term focus in our compensation programs and the Compensation Committee has the ability to exercise discretion to ensure risk mitigation occurs in management decision making.
Clawback Policy. The Board of Directors is committed to adopting a clawback policy as required by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 if and when final regulations have been adopted by the SEC and NASDAQ.
Minimal Perquisites. We provide minimal perquisites to our named executive officers that are not generally available to all other employees.

 

  2017 PROXY STATEMENT 22  

 

 

 

 

EXECUTIVE COMPENSATION

 

Disfavored Compensation Practices That We Avoid
No Liberal Share Recycling. Neither the Prior Incentive Plan nor the 2017 Incentive Plan, if approved by the shareholders, contains liberal share recycling.
No Repricing. No repricing or exchange of underwater stock options or SARs or other awards is permitted without shareholder approval.
No Payment of Dividends Prior to Vesting. No payment of dividends prior to the vesting of restricted stock or performance shares.
No Hedging or Derivatives Trading  of the Company’s  Securities. No hedging of the Company’s  securities, including publicly traded options, puts, calls and short sales by named executive officers or non-employee directors permitted.
No Guaranteed Bonus. No guaranteed annual incentive bonus and no cash retention bonus for named executive officers.
No Future Agreements to Provide Tax Gross-ups.   The Board adopted a policy in May 2011 that employment agreements entered after the adoption of such policy would not contain provisions entitling employees to tax gross-up payments.
No Supplemental Executive Retirement Benefits. We do not provide pensions or other supplemental executive retirement benefits to our named executive officers.

 

The Compensation Committee oversees the Company’s compensation programs, administers the Company’s Cash SAR Plan, Prior Incentive Plan, and if approved by the shareholders, the 2017 Incentive Plan and reviews and approves all compensation decisions relating to our executives, including all grants of equity-based awards. The Compensation Committee is empowered by the Board of Directors and by the Compensation Committee’s Charter to make all the decisions regarding compensation for executives without ratification or other action by the Board of Directors. The Compensation Committee also advises the Board of Directors on the adoption of policies that govern the Company’s compensation programs.

 

The Compensation Committee is composed entirely of independent non-employee members of the Board of Directors. The Nominating and Corporate Governance Committee recommended the appointment of these directors to serve on the Compensation Committee after determining that they had the independence, knowledge and skills to accomplish the scope of responsibilities set out in the Compensation Committee’s Charter.

The Compensation Committee regularly meets with its independent compensation consultant, Longnecker in 2014-2016 and Pearl Meyer in 2017, who assists and advises the Compensation Committee on all aspects of its executive compensation program. The services the independent compensation consultant provides include:

 

analyzing the appropriateness of the Company’s compensation peer group and stock performance peer group (discussed below);

 

providing and analyzing competitive market compensation data;

 

analyzing the effectiveness of executive compensation programs and making recommendations to the Compensation Committee, as necessary; and

 

evaluating how well our compensation programs adhere to the philosophies and principles of the Company.

 

The Compensation Committee also receives data, advice and counsel from the independent compensation consultant on matters pertaining to non-employee director compensation.


 

Executive Compensation Philosophy, Goals and Objectives

 

Objectives

 

The guiding philosophy and specific objectives of our executive compensation program are: (i) to align executive compensation design and outcomes with our business strategy; (ii) to encourage management to create sustained value for our shareholders; (iii) to attract, retain, and engage our executives; and (iv) to support a performance-based culture for all of our employees. These primary objectives are evaluated annually by: (a) measuring and managing executive compensation; (b) aligning incentive plan goals with

shareholder value-added measures; and (c) having an open and objective discussion between management and the Compensation Committee in setting goals for and measuring performance of the executive officers.

 

We believe that each of these objectives is important to our compensation program. Our compensation program is designed to reward our executives for meeting or exceeding short-term performance targets and furthering the long-term strategy of the Company


 

  23 CARRIZO OIL & GAS  

 

 

 

 

EXECUTIVE COMPENSATION

 

without subjecting the Company to excessive or unnecessary risks. Specifically, the components of our executives’ compensation, such as base salaries, annual incentive bonuses and long-term equity-based incentive awards, are evaluated and determined on a periodic basis to ensure the amount and type of compensation received by each executive corresponds to the executive’s performance and targets for the Company’s performance.

 

Our goal is to establish executive base salaries near the 50th percentile and total direct compensation between the 50th and 75th percentiles of executives in comparable positions in our compensation peer group. Total direct compensation includes base salary, annual incentive bonus and grant date fair value of long-term equity based incentive compensation and includes both targeted total direct compensation (based on annual incentive bonus targets) and actual total direct compensation (based on annual incentive bonus actually paid).

 

Based on an assessment of individual performance, responsibilities, experience, leadership, contributions, company performance and compensation data of executives in comparable positions in our compensation peer group, our CEO makes recommendations to the Compensation Committee for adjustments to base salaries, annual incentive bonus targets and

long-term incentive awards for executives other than himself. The Compensation Committee considers the recommendations of our CEO along with their assessment of the CEO’s performance and compensation data of our compensation peer group in setting our executive compensation.

 

Based on a review of 2016 actual total direct compensation, in March 2017, the Compensation Committee observed that the actual total direct compensation paid to the Company’s executives was below the 50th percentile of executives in our compensation peer group. This was primarily due to a maximum payout level of our annual incentive bonus that was substantially below that of our compensation peer group. Therefore, to better align the Company’s 2017 total direct compensation of our executives with that of our compensation peer group, the Compensation Committee exercised its discretionary authority by changing the maximum payout of our annual incentive bonus effective with the 2016 annual incentive bonus. See “Annual Incentive Bonus” below for further discussion. Compensation practices and philosophies are evolving and additional changes may be required in the future in order to maintain executive compensation levels that are competitive with the market.


 

Compensation Should Be Benchmarked

 

The Compensation Committee engages its independent compensation consultant to annually review the composition of the compensation peer group used for executive compensation decisions. This process considers potential peers based on several metrics, including oil and gas revenue, assets, proved oil and gas reserves, capital expenditures, market capitalization, enterprise value and operational similarity. Potential peer companies are narrowed down to those generally within a range of 0.5 to 3.0 times the Company for the various metrics with final peer company selections made based on discussions with management. The resulting compensation peer group is reviewed and approved by the Compensation Committee.

The compensation peer groups used for executive compensation decisions in 2017, 2016 and 2015 are presented in the table below. From 2015 to 2016, seven companies were removed from the compensation peer group, one as a result of being acquired and the others due to significant decline in size as a result of the depressed commodity price environment and ten companies were added to the compensation peer group which better aligned with the Company with respect to the various metrics described above. We decided to increase the number of companies in the compensation peer group from 13 to 16 to achieve a compensation peer group size that was more in line with the size used by our peer group. From 2016 to 2017, one company was removed from the compensation peer group and one company was added for the same reasons discussed above.


 

  2017 PROXY STATEMENT 24  

 

 

 

 

EXECUTIVE COMPENSATION

 

  2015
Compensation
Peer Group
  2016
Compensation
Peer Group
  2017
Compensation
Peer Group
Bill Barrett Corporation X   X   X
Bonanza Creek Energy, Inc. X   X    
Comstock Resources, Inc. X        
Diamondback Energy, Inc.     X   X
EP Energy Corporation         X
EXCO Resources, Inc. X        
Gulfport Energy Corporation X   X   X
Halcòn Resources Corporation X        
Laredo Petroleum, Inc. X   X   X
Matador Resources Company     X   X
Midstates Petroleum Company, Inc. X        
Northern Oil and Gas, Inc. X        
Oasis Petroleum Inc. X   X   X
Parsley Energy, Inc.     X   X
PDC Energy, Inc. X   X   X
Range Resources Corporation     X   X
Rice Energy Inc.     X   X
Rosetta Resources Inc. (1) X        
RSP Permian, Inc.     X   X
Sanchez Energy Corporation     X   X
SM Energy Corporation     X   X
Swift Energy Company X        
Whiting Petroleum Company     X   X
WPX Energy, Inc.     X   X
(1) Effective July 20, 2015, Rosetta Resources, Inc. was acquired by Noble Energy, Inc.

 

The Compensation Committee uses compensation data from the compensation peer group, supplemented with published industry survey data when necessary, to benchmark our executives’ base salary, annual incentive bonus, long-term equity-based incentive compensation and total direct compensation. Additionally,

the Compensation Committee uses this compensation data to ensure that compensation decisions are appropriate, reasonable and consistent with the Company’s compensation philosophy, goals and objectives, considering the labor market in which we compete for executive talent.


 

Executive Compensation Components

The Compensation Committee believes that compensation paid to our named executive officers, should be competitive with the compensation peer group and closely aligned with our performance on both a short-term and long-term basis. Our executive compensation program is also designed to assist us in attracting and retaining highly qualified executives critical to our long-term success and motivating them to maximize shareholder return. To that end, the Compensation Committee believes that the compensation of the named executive offices should consist of the following components:

base salary;
annual incentive bonus;
long-term equity-based incentive awards;

severance and change of control benefits; and
perquisites and other benefits.

 

Base Salary

 

A competitive base salary is the foundation of our executive compensation program. Base salaries are intended to help attract highly qualified candidates and provide a stable source of income so our executives can focus on day-to-day job responsibilities.

 

After considering the recommendations of our CEO for adjustments to base salaries for executives other than himself, and compensation data of our compensation peer group provided by its independent compensation

consultant, in March 2017, the Compensation Committee approved increases to the base salaries of the named executive officers as set forth below, with increases effective April 2, 2017. The increases in base salaries were based on the Compensation Committee’s decision that our executives’ individual performances, corporate performance, industry inflation, and the competitive aspects of the oil and gas industry warranted the increases with individual adjustments determined with reference to competitive market data by position and our goal of targeting base salaries that approximate the 50th percentile of our compensation peer group. 


 

  25 CARRIZO OIL & GAS  

 

 

 

 

EXECUTIVE COMPENSATION

 

 

  2015
Base Salary
  2016
Base Salary
    2017
Base Salary
S. P. Johnson IV $650,000   $650,000     $670,000
Brad Fisher 470,000   470,000     485,000
David L. Pitts 350,000   390,000 (1)   430,000
Gerald A. Morton 371,000   371,000     383,000
Richard H. Smith 335,000   335,000     346,000
(1) Effective May 1, 2016, Mr. Pitts’ base salary was increased to $390,000 from $350,000.

 

Annual Incentive Bonus

 

Executives are eligible for an annual incentive bonus which is considered performance based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and is designed to focus executives on achieving our annual corporate plan linked to our strategy. Execution against our annual corporate plan is important to drive longer term shareholder value by creating financial strength, managing costs, and investing in projects that will deliver future value. We employ balanced performance metrics to further specific objectives of our strategy, such as achievement of plan, cost management, cash flow and capital efficiency.

Annual incentive bonus targets, expressed as a percentage of base salary, are established for each executive. The Compensation Committee approves the targets for each executive considering recommendations of our CEO for adjustments to the targets for executives other than himself, and compensation data of our compensation peer group provided by its independent compensation consultant. In March 2016, the Compensation Committee approved the following 2016 annual incentive bonus target for each executive:


 

 

 

Named Executive Officer

2016 Target
Bonus Level
% of Base Salary

S.P. Johnson IV 100%
Brad Fisher 90%
David L. Pitts 90%
Gerald A. Morton 90%
Richard H. Smith 80%

 

Each year, the Compensation Committee establishes performance metrics and targets for executives’ annual incentive bonuses. The targets established by the Compensation Committee are calculated differently than the annual guidance the Company may include in earnings releases or public filings. In March 2016,

the Compensation Committee approved the 2016 target levels for each performance metric which were based on the Company’s 2016 corporate plan and the Compensation Committee’s discussions with Longnecker. The table below sets forth the 2016 performance metrics, targets and the Company’s 2016 actual results.


 

2016 Operational and Financial Metrics Target   Actual
Average Daily Oil Production (Bbls/d) 23,465   25,681
Drill-Bit Finding and Development Cost ($/Boe) $11.69   $11.40
Lease Operating and General and Administrative Expense ($/Boe) $11.03   $9.06

 

Based on the advice of Longnecker, our independent compensation consultant at the time, and consistent with prior years, in March 2016, the Compensation Committee determined that each executive’s annual incentive bonus opportunity would range from zero to 100% of target depending on the Company’s actual results versus the performance metric targets. The actual bonus paid could be more or less than the payout indicated based on actual results as determined by the Compensation Committee in its discretion.


 

  2017 PROXY STATEMENT 26  

 

 

 

 

EXECUTIVE COMPENSATION 

 

In March 2017, Pearl Meyer, our new independent compensation consultant, observed that the executive annual incentive bonus opportunity of substantially all of the companies included in our compensation peer group ranged from zero to 200% of target. Therefore, while our executives’ annual incentive bonus targets were in line with the compensation peer group, primarily due to the maximum payout level of our annual incentive bonus of 100% of target, 2015 annual incentive bonuses actually paid by our compensation peer group significantly exceeded the 2015 annual incentive bonuses paid by the Company.

 

In March 2017, the Compensation Committee considered the 2016 annual incentive bonus payouts for executive officers based on 2016 actual results using the 2016 performance metrics, targets and payout levels established by the Compensation Committee in March 2016 (which was 110% of target) and compared them to what they would have been if the 2016 performance metrics, targets and payout levels had been established consistent with those determined by the Compensation Committee for 2017 as set forth below (which was 153% of target).

 

To better align the Company’s 2017 total direct compensation of our executives with that of our

compensation peer group, and consistent with the Company’s compensation philosophy described in this Compensation Discussion and Analysis, the Compensation Committee determined in March 2017 that it was appropriate to change the maximum payout of our annual incentive bonus from 100% to 200% for 2016 and 2017 and apply consistent performance metric targets and payout levels effective with the 2016 annual incentive bonus.

 

Nevertheless, in spite of achieving 2016 actual results at 153% of targeted performance levels (utilizing 2016 performance metrics, targets and payout levels consistent with those determined for 2017), management recommended, and the Compensation Committee approved, the exercise of negative discretion to reduce the payout of the 2016 annual incentive bonuses to 125% of the newly established target due to the continued depressed commodity price environment. Further, management proposed, and the Compensation Committee approved, the annual incentive bonus be paid 75% in cash and 25% in RSUs that vested substantially concurrent with the time of grant. See “Executive Compensation—Summary Compensation Table” for further details. The actual payout for each named executive officer is set forth below:


 

Named Executive Officer Target Payout   Actual Payout
S.P. Johnson IV $650,000   $812,500
Brad Fisher 423,000   528,750
David L. Pitts 351,000   438,750
Gerald A. Morton 333,900   417,375
Richard H. Smith 268,000   335,000

 

The Compensation Committee has approved the following performance metrics, targets and payout levels for executives’ 2017 annual incentive bonus. The performance metric targets were based on the Company’s 2017 corporate plan and the Compensation Committee’s discussions with Pearl Meyer. These performance metrics are substantially the same as those used to determine annual incentive bonuses for all Carrizo employees.

 

2017 Operational and Financial Metrics Threshold (50%)   Target (100%)   Maximum (200%)
Average Daily Oil Production (Bbls/d) 31,400   31,650   33,495
Drill-Bit Finding and Development Cost ($/Boe) $14.00   $13.00   $11.40
Lease Operating Expense ($/Boe) $7.50   $7.13   $6.41
General and Administrative Expense ($ in thousands) $44,000   $43,000   $39,900

 

Each executive’s 2017 annual incentive bonus payout opportunity will range from zero to 200% of target depending on the Company’s actual results versus the performance metric targets. The actual bonus paid could be more or less than the payout indicated based on actual results as determined by the Compensation Committee in its discretion.

 

Long-Term Equity-Based Incentive Awards

 

The objectives of our long-term incentive plan are to attract and retain the services of executives, encourage a sense of proprietorship, stimulate the active interest in our development and financial success, and align their

interests with those of our shareholders. We intend to achieve these objectives by granting awards designed to provide our executive officers with a meaningful proprietary interest in our growth and performance.


 

  27 CARRIZO OIL & GAS  

 

 

 

 

EXECUTIVE COMPENSATION

 

One of the fundamental philosophies of our compensation program is that all of our full-time employees are eligible for grants of long-term equity incentive awards. We believe that granting long-term equity incentives to virtually all full-time employees is somewhat unusual in our industry, although it has become more prevalent in recent years in order to attract and retain employees at various levels. The Compensation Committee believes that long-term equity incentive awards give employees a direct interest in our financial results and the performance of the Company, furthering our goal of aligning the interests of each employee with those of our shareholders.

 

Determining the Amount of Long-Term Equity-Based Incentive Compensation

 

The total dollar amount of long-term incentives to be awarded to each executive is generally based on the amount that results in total direct compensation between the 50th and 75th percentiles of executives in comparable positions in our compensation peer group. The Compensation Committee considers recommendations of our CEO for adjustments to the amount of long-term incentives for executives other than himself and compensation data of our compensation peer group provided by the independent compensation consultant and ultimately determines the amount of long-term incentives to be awarded to each executive in its discretion. While long-term incentives are considered primarily forward-looking, the Company’s and executive’s performance in the prior year may be considered in determining the size of the awards.

 

Allocating Amount of Long-Term Equity-Based Incentive 

Compensation Among Award Types

 

In 2014 and 2015, our long-term equity-based incentive awards for executives consisted of 75% RSUs and 25% performance shares. In the Compensation

Committee’s opinion, awards of RSUs provide an effective retention incentive and therefore, long-term incentive compensation has historically been weighted more towards RSUs than other types of awards. Through consultation with Longnecker, the Compensation Committee determined that in 2016, our long-term equity-based incentive compensation for executives would consist of 65% RSUs, 25% SARs to be settled in cash (“Cash SARs”) and 10% performance shares.

 

We believe RSUs, Cash SARs and performance shares align the interests of our executive officers with the interests of our shareholders on a long-term basis, and for RSUs and performance shares, encourages retention and stock ownership in the Company. See also “Corporate Governance and Board Matters—Our Corporate Governance Practices—Minimum Stock Ownership Guidelines.”

 

We believe this combination of long-term equity awards provides incentives that capture absolute total return performance of our Common Stock as well as awards that also capture variable performance relative to the performance of other oil and gas companies and consistent with combinations of long-term equity awards used by other companies in our compensation peer group. The Compensation Committee may, in its discretion, determine in the future to grant additional long-term equity incentive awards or award types, or to change the mix of award types, as it deems appropriate at the time of such awards.

 

2016 Grants of Long-Term Equity-Based Incentives

 

On March 14, 2016, the Compensation Committee approved the following grants of long-term equity-based incentives to each Named Executive Officer with the number of awards granted determined by dividing the allocated amount of long-term incentive compensation by the grant date fair value per unit described below:



2016 Long-Term Equity-Based Incentives
  RSUs  

Cash SARs

  Performance Shares
Name # $   # $   #  $
S.P. Johnson IV 85,671 $27.30   91,014 $9.88   10,074 $35.71
Brad Fisher 54,981 $27.30   58,410 $9.88   6,465 $35.71
David L. Pitts 28,086 $27.30   29,838 $9.88   3,303 $35.71
Gerald A. Morton 31,080 $27.30   33,016 $9.88   3,655 $35.71
Richard H. Smith 21,222 $27.30   22,544 $9.88   2,496 $35.71

 

All 2016 long-term equity-based incentives awarded to executives include a performance condition allowing the Company to avail itself of the benefits of Section 162(m) of the Code, which is described below under “—Tax Considerations of Executive Compensation—Section 162(m) of the Internal Revenue Code.” The performance condition established by the Compensation Committee for the 2016 awards was average daily

production of the Company for the quarter ended June 30, 2016 of at least (a) 20,230 barrels of oil per day (“Bbls/d”), if the Company’s average realized crude oil price was greater than or equal to $30 per Bbl, or (b) 16,184 Bbls/d, if the Company’s average realized crude oil price was less than $30 per Bbl for such quarter, in each case excluding the impacts of derivative settlements on the average realized prices and impacts of oil and gas



  2017 PROXY STATEMENT 28  

 

 

 

EXECUTIVE COMPENSATION

 

property acquisitions and divestitures on daily production (the “2016 Production Target”). On July 27, 2016, the Compensation Committee certified that the 2016 Production Target was met as average daily production for the quarter ended June 30, 2016 was 23,942 Bbls/d. Because the 2016 Production Target was met, the RSUs, Cash SARs and performance shares will vest as described below, subject to continued employment and, for performance shares, subject to the market condition described below.

 

RSUs

 

The RSUs were granted under the Company’s Prior Incentive Plan with a grant date fair value per RSU of $27.30, the average of the high and low price of the Company’s common stock on the March 14, 2016 grant date. The RSUs vest ratably over a three-year period, one-third of which vested on March 17, 2017, and an additional one-third will vest on March 17, 2018 and March 17, 2019.

 

Cash SARs

 

The Cash SARs were granted under the Company’s Cash SAR Plan at an exercise price of $27.30 with a grant date fair value per Cash SAR of $9.88, based on a Black- Scholes-Merton option pricing model calculated as of the March 14, 2016 grant date. The Cash SARs vest ratably over a two year period, one-half of which vested and became exercisable on March 17, 2017 and the remaining one- half will vest on March 17, 2018 and all of them expire March 17, 2021.

 

Performance Shares

The performance shares were granted under the Company’s Prior Incentive Plan with a grant date fair value per performance share of $35.71, based on a Monte Carlo simulation model calculated as of the March 14, 2016 grant date. The performance shares cliff vest on March 17, 2019, with the actual number of performance shares to vest ranging from zero to 200% of target based on the Company’s total shareholder return (“TSR”) relative to our 2016 stock performance peer group over a three-year performance period.

 

Linear interpolation is used to determine the payout multiplier for relative TSR that falls between the percentiles listed above.

 

For 2014, the Company utilized a single peer group to benchmark executive compensation and determine relative TSR for performance shares. Beginning in 2015, Longnecker and management recommended, and the Compensation Committee approved, the use of two different peer groups: a compensation peer group, used to benchmark executive compensation, consisting of companies with appropriately-sized metrics such as oil and gas revenue, assets and market capitalization, and a stock performance peer group, used for purposes of determining the relative TSR for the performance shares, consisting of companies that do not necessarily fit within the same sized metrics used to develop the compensation peer group but enabling the Company to compare itself with companies with similar operations in our established core areas such as the Eagle Ford. The Compensation Committee reviews and approves the stock performance peer group each year.



The 18 companies that comprise the stock performance peer group for performance shares granted in 2016 and the 17 companies that comprise the stock performance peer group for performance shares granted in 2015 are presented in the table below:

     
  2015 2016
  Stock Stock
  Performance Performance
  Peer Group Peer Group
Antero Resources Corporation X X
Bill Barrett Corporation X X
Bonanza Creek Energy, Inc. X X
Chesapeake Energy Corporation X X
Devon Energy Corporation X X
EOG Resources, Inc. X X
EP Energy Corporation X X
Gulfport Energy Corporation X X
Laredo Petroleum, Inc. X X
Marathon Oil Corporation X X
Noble Energy, Inc. X X
Northern Oil and Gas, Inc. X  
Oasis Petroleum Inc. X X
PDC Energy, Inc. X X
Range Resources Corporation   X
Rice Energy Inc.   X
Rosetta Resources Inc. (1) X  
Sanchez Energy Corporation X X

 

  29 CARRIZO OIL & GAS  

 

 

 

 

EXECUTIVE COMPENSATION

 

  2015 2016
  Stock Stock
  Performance Performance
  Peer Group Peer Group
SM Energy Corporation   X
Whiting Petroleum Corp. X X

 

(1) Effective July 20, 2015, Rosetta Resources, Inc. was acquired by Noble Energy, Inc.

 

Severance and Change of Control Benefits

 

As described in more detail under “Executive Compensation—Employment Agreements” and “Executive Compensation—Potential Payments to the Named Executive Officers Upon Termination or Change of Control,” we have entered into employment agreements with the named executive officers that provide for specified severance pay and benefits upon certain termination events, including termination events after a change of control. The employment agreements contain pay and benefits provisions that we believe are comparable

to similar provisions employed by a majority of the companies in our 2016 Compensation Peer Group. The Compensation Committee believes these agreements encourage executives to remain in our employment, including in the event of a change of control of the Company and during circumstances which indicate that a change of control may occur. The Compensation Committee believes this program is important in maintaining strong leadership and in encouraging retention in these situations.



Perquisites and Other Benefits

 

We pay premiums for supplemental life insurance for the named executive officers and make matching 401(k) contributions for the named executive officers and all of our other employees. We believe providing these

benefits as part of our overall compensation package is necessary to attract and retain highly qualified executives and that these benefits are comparable to those provided by our 2016 Compensation Peer Group.



Clawback Provisions

 

Other than legal requirements under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), the Board of Directors has not adopted a formal clawback policy to recoup incentive based compensation in the event of a financial statement restatement. Section 304 of Sarbanes-Oxley mandates that the CEO and CFO reimburse the Company for any bonus or other incentive-based or equity-based compensation they received and any profits from the sale

of securities they realized in a year following the issuance of financial statements that are later required to be restated as a result of misconduct. The Board of Directors has reaffirmed that the Company will adopt a clawback policy as required by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 if and when final regulations have been adopted by the SEC and NASDAQ.



Tax Considerations of Executive Compensation

 

Section 162(m) of the Internal Revenue Code

 

Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation that we may deduct in any one year with respect to compensation paid to each of our Named Executive Officers other than the CFO. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. Annual incentive bonuses subject to performance metrics, long-term RSUs subject to a production performance goal, SARs and performance shares generally are performance-based compensation meeting those requirements and, as such, should be fully

deductible by us. Non-performance based compensation would include base salaries and the IRS value of any perquisites. To maintain flexibility in compensating our executive officers in a manner designed to promote varying corporate goals, the Compensation Committee has not adopted a policy requiring all compensation to be tax deductible. As noted above, the Compensation Committee took Section 162(m) into account in connection with the 2016 awards of equity-based compensation and the 2016 payout of the 2015 annual incentive bonuses subject to performance metrics.



  2017 PROXY STATEMENT 30  

 

 

 

EXECUTIVE COMPENSATION

 

Section 409A of the Internal Revenue Code

 

To the extent one or more elements of compensation provided to employees is subject to Section 409A of the Code, the Company intends that these elements be compliant so that the employees are not subject to income inclusion at vesting and the additional income taxes imposed by Section 409A. Section 409A requires that “deferred compensation” either comply with certain deferral election, payment timing, and other rules or be subject to a 20% additional income tax and interest at a premium rate imposed on the person who is to receive the deferred compensation. The Company believes that if the adverse tax consequences of Section 409A become applicable to the Company’s

compensation arrangements such arrangements would be less efficient and less effective in incentivizing and retaining employees. The Company intends to operate its compensation arrangements so that they are compliant with or exempt from Section 409A and therefore, in 2008, amended or modified its compensation programs and awards, including the employment agreements to the extent necessary to make them compliant or exempt. The employment agreements of the named executive officers provide that the Company will provide additional payments in the event that an additional tax is imposed under Section 409A.



Compensation Committee Report

 

We, the members of the Compensation Committee, have reviewed and discussed with management the section titled “Compensation Discussion and Analysis” included in this proxy statement. Based on that review and discussion, we have recommended to the Company’s Board of Directors the inclusion of the “Compensation Discussion and Analysis” section in the Company’s proxy statement for the 2017 Annual Meeting of Shareholders.

 

The Compensation Committee

 

Roger A. Ramsey (Chair)

F. Gardner Parker 

Robert F. Fulton

 

Pursuant to SEC Rules, the foregoing Compensation 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 for the year ended December 31, 2016.

 

  31 CARRIZO OIL & GAS  

 

 

 

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth the compensation during 2016, 2015 and 2014 of the Company’s Principal Executive Officer, the Company’s Principal Financial Officer and the three other most highly compensated named executive officers serving as of December 31, 2016.

               
        Stock Option All Other  
Named Executive Officer and   Salary Bonus (1) Awards (2) Awards (2) Compensation (3) Total
Principal Position Year ($) ($) ($) ($) ($) ($)
S. P. Johnson IV 2016 $650,000 $812,500 $2,698,156 $899,062 $23,695 $5,083,413
President and Chief 2015 650,000 325,000 3,662,527 23,906 4,661,433
Executive Officer 2014 637,000 487,500 6,594,365 25,559 7,744,424
Brad Fisher 2016 $470,000 $528,750 $1,731,586 $576,990 $19,667 $3,326,993
Vice President and 2015 470,000 211,500 2,355,764 19,878 3,057,142
Chief Operating Officer  2014 461,000 317,250 2,218,771 14,085 3,011,106
David L. Pitts 2016 $376,154 $438,750 $884,565 $294,748 $20,397 $2,014,614
Vice President and 2015 350,000 157,500 1,214,426 20,608 1,742,534
Chief Financial Officer  2014 345,000 236,250 2,029,659 30,141 2,641,050
Gerald A. Morton 2016 $371,000 $417,375 $978,857 $326,141 $24,304 $2,117,677
General Counsel and 2015 368,000 166,950 1,304,965 24,514 1,864,429
Vice President of              
Business Development              
Richard H. Smith 2016 $335,000 $335,000 $668,392 $222,696 $20,534 $1,581,622
Vice President of Land 2015 335,000 134,000 891,089 20,225 1,380,314
  2014 330,000 201,000 825,015 29,388 1,385,403

 

(1) The amount shown for 2014 includes amounts earned with respect to 2014, but paid in 2015. The named executive officers’ annual incentive bonuses with respect to 2015 were paid in 2016 with grants of RSUs that vested substantially concurrent with the time of grant, with an aggregate grant date fair value of $27.30 per share. The named executive officers’ annual incentive bonuses with respect to 2016 were paid in 2017 with 25% paid with grants of RSUs that vested substantially concurrent with the time of grant, with an aggregate grant date fair value of $26.94 per share and the remaining 75% paid in cash.

(2) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. For a discussion of the valuation assumptions, see Note 9 of the Notes to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016. See “Grants of Plan-Based Awards Table” for information on RSUs, performance shares, and Cash SARs granted in 2016.

(3) The amounts shown as “All Other Compensation” include the following:

 

  Year Mr. Johnson Mr. Fisher Mr. Pitts Mr. Morton Mr. Smith
Matching contributions under the 401(k) Plan 2016 $15,900 $15,900 $15,900 $15,900 $15,900
  2015 15,900 15,900 15,900 15,900 15,900
  2014 9,267 10,275 15,600 15,600
Financial consulting services 2016 $ — $ — $ — $ — $ —
  2015
  2014 10,000 10,000 10,000
Other compensation 2016 $7,795 $3,767 $4,497 $8,404 $4,634
  2015 8,006 3,978 4,708 8,614 4,325
  2014 6,292 3,810 4,541 3,788

 

  2017 PROXY STATEMENT 32  

   

 

 

 

EXECUTIVE COMPENSATION

 

Effect of Company Performance on Chief Executive Officer Realizable Pay

 

The Chief Executive Officer’s at-risk compensation consists of a metric-driven annual incentive bonus and performance shares. Although we do not classify our RSUs and Cash SARs as performance-based compensation, the actual amount realized or realizable to the Chief Executive Officer can and does vary significantly based on the Company’s stock price. Realizable compensation

is not a substitute for reported compensation in evaluating our executive compensation programs, but we believe understanding the realizable compensation is important in understanding the impact of the Company’s performance and stock price on the value of what an executive could realize and the value of what an executive ultimately receives.



The following chart demonstrates how the Company’s performance and stock price significantly impact the Chief Executive Officer’s realizable compensation.

 

(BAR CHART)

 

The amounts indicated as Reported on the table above are calculated as the sum of base salary, annual incentive bonus, and the grant date fair value of long-term equity-based incentive awards as reported in the 2016 Summary Compensation Table. The amounts indicated as Realizable are calculated as the sum of actual base salary and annual incentive bonus earned each year as well as the intrinsic value of the long-term equity-based incentive awards using the closing price of our Common Stock on the NASDAQ Global Select Market on December 31, 2016 of $37.35 per share. The intrinsic value of the long-term equity-based incentive awards is calculated as follows:

 

for RSUs, the closing stock price on December 31, 2016 multiplied by the number of RSUs granted in each year;

 

for performance shares, the closing stock price on December 31, 2016 multiplied by the projected payout of performance shares as if the performance period ended on December 31, 2016 for each respective grant; and

 

for Cash SARs, the difference between the closing stock price on December 31, 2016 less the exercise price multiplied by number rights granted.

We believe that the differences in the Chief Executive Officer’s realizable compensation and reported compensation effectively illustrate the high correlation between the change in the Company’s stock price and performance and the Chief Executive Officer’s compensation.



  33 CARRIZO OIL & GAS  

 

 

 

EXECUTIVE COMPENSATION

 

 

Grants of Plan-Based Awards

 

The table below contains information with respect to grants of plan-based awards to the named executive officers during 2016.

 

      Estimated Future Payouts      All Other     All Other     Exercise       
      Under Equity      Stock Awards:     Option     Price    Grant Date Fair  
      Incentive Plan Awards    Number of     Awards:     of Option    Value of Stock  
Named Executive Officer   Grant Date   Threshold
(#)
    Target
(#)
    Maximum
(#)
    Shares or
Units (#)
    Number of
Rights (#)
   

Awards ($/Share) 

  Awards
($) (1)
 
S.P. Johnson IV   3/14/2016                             11,907 (2)                 $325,002  
    3/14/2016                             85,671 (3)                 2,338,390  
    3/14/2016                                     91,014 (4)         899,400  
    3/14/2016           10,074 (5)     20,148                           359,766  
Brad Fisher   3/14/2016                             7,749 (2)                 $211,509  
    3/14/2016                             54,981 (3)                 1,500,706  
    3/14/2016                                     58,410 (4)         577,208  
    3/14/2016           6,465 (5)     12,930                           230,880  
David L. Pitts   3/14/2016                             5,771 (2)                 $157,519  
    3/14/2016                             28,086 (3)                 766,607  
    3/14/2016                                     29,838 (4)         294,859  
    3/14/2016           3,303 (5)     6,606                           117,958  
Gerald A. Morton   3/14/2016                             6,117 (2)                 $166,964  
    3/14/2016                             31,080 (3)                 848,329  
    3/14/2016                                     33,016 (4)         326,264  
    3/14/2016             3,655 (5)     7,310                           130,528  
Richard H. Smith   3/14/2016                             4,910 (2)                 $134,018  
    3/14/2016                             21,222 (3)                 579,254  
    3/14/2016                                     22,544 (4 )         222,780  
    3/14/2016           2,496 (5)     4,992                           89,138  

(1) Represents the grant date fair value of the awards calculated in accordance with FASB ASC Topic 718. For a discussion of the valuation assumptions, see Note 9 of the Notes to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016. The grant date fair value of RSUs is based on the average high and low stock price of our Common Stock on the NASDAQ Global Select Market on the date of grant. To compute the grant date fair value of the Cash SARs and the performance shares, the Company used a Black-Scholes-Merton option pricing model and a Monte Carlo valuation model, respectively.

(2) Represents RSUs granted under the Prior Incentive Plan for payment of the named executive officers’ annual incentive bonuses with respect to 2015, that vested in a single installment on March 15, 2016.

(3 ) Represents RSUs granted under the Prior Incentive Plan that vest in one-third increments on March 17, 2017, March 17, 2018 and March 17, 2019, subject to the satisfaction of a performance target. On July 27, 2016, the Compensation Committee certified that the performance target had been met.

(4) Represents Cash SARs granted under the Cash SAR Plan that vest in one-half increments on March 17, 2017 and March 17, 2018, subject to the satisfaction of a performance target. On July 27, 2016, the Compensation Committee certified that the performance target had been met.

(5) Represents performance shares (at target) granted under the Prior Incentive Plan that cliff vest on March 17, 2019 based on the TSR of the Company’s common stock relative to the TSR achieved by our 2016 Stock Performance Peer Group, subject to the satisfaction of a performance target. On July 27, 2016, the Compensation Committee certified that the performance target had been met; however, the award remains subject to the TSR performance metrics, the results of which will not be known until following the end of the performance period.

 

  2017 PROXY STATEMENT 34  

 

 

 

 

EXECUTIVE COMPENSATION 

 

Outstanding Equity-Based Awards at Fiscal Year-End

  

The table below presents information on the outstanding equity-based awards held by the named executive officers as of December 31, 2016. 

 

    Option Awards   Stock Awards  
Named
Executive
Officer
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable (1)
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable (1)
    Option
Exercise
Price
($)
    Option
Expiration
Date
  Number
of Shares
or Units of
Stock That
Have Not
Vested (1) (#)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($) (2)
    Equity
Incentive
Plan Awards:
Number of
Unearned
Shares or
Units of Stock
That Have Not
Vested (1) (#)
    Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares or
Units of Stock
That Have Not
Vested ($) (2)
 
S. P. Johnson IV     219,279 (3)           $17.28     7/13/2017                                
            91,014 (4)     27.30     3/17/2021                                
                                  21,420 (5)   $800,037                  
                                  52,318 (6)     1,954,077                  
                                  34,178 (8)     1,276,548                  
                                  85,671 (10)     3,199,812                  
                                                  15,020 (7)   $560,997  
                                                  13,978 (9)     522,078  
                                                  10,074 (11)     376,264  
Brad Fisher     27,335 (3)         $28.68     6/18/2017                                
            58,410 (4)     27.30     3/17/2021                                
                                  11,608 (5)   $433,559                  
                                  21,983 (8)     821,065                  
                                  54,981 (10)     2,053,540                  
                                                  8,140 (7)   $304,029  
                                                  8,991 (9)     335,814  
                                                  6,465 (11)     241,468  
David L. Pitts     20,021 (3)         $28.68     6/18/2017                                
            29,838 (4)     27.30     3/17/2021                                
                                  5,387 (5)   $201,204                  
                                  20,928 (6)     781,661                  
                                  11,333 (8)     423,288                  
                                  28,086 (10)     1,049,012                  
                                                  3,777 (7)   $141,071  
                                                  4,635 (9)     173,117  
                                                  3,303 (11)     123,367  
Gerald A. Morton     28,500 (3)         $17.28     7/13/2017                                
            33,016 (4)     27.30     3/17/2021                                
                                  6,712 (5)   $250,693                  
                                  20,928 (6)     781,661                  
                                  12,178 (8)     454,848                  
                                  31,080 (10)     1,160,838                  
                                                  4,707 (7)   $175,806  
                                                  4,980 (9)     186,003  
                                                  3,655 (11)     136,514  
Richard H. Smith           22,544 (4)   $27.30     3/17/2021                                
                                  4,316 (5)   $161,203                  
                                  8,315 (8)     310,565                  
                                  21,222 (10)     792,642                  
                                                  3,027 (7)   $113,058  
                                                  3,401 (9)     127,027  
                                                  2,496 (11)     93,226  

 

  35 CARRIZO OIL & GAS  

  

 

 

 

EXECUTIVE COMPENSATION

  

(1) Represents awards subject to a performance target, which the Compensation Committee certified that the performance target had been met.

(2) Based on the closing price of our Common Stock on the NASDAQ Global Select Market on December 31, 2016 ($37.35 per share).

(3) Represents an award of Cash SARs that were fully vested as of December 31, 2016.

(4) Represents an award of Cash SARs that vest in one-half increments on March 17, 2017 and March 17, 2018.

(5) Represents an award of RSUs that vest or vested in one-third increments on March 17, 2015, March 17, 2016 and March 17, 2017.

(6) Represents an award of RSUs that cliff vest on March 17, 2017.

(7) Represents performance-based TSR awards that are presented at 100% of the target award that cliff vest on March 28, 2017. The number of shares of common stock issuable upon vesting range from zero to 200% of the targeted shares granted based upon the performance of the Company’s TSR relative to our 2014 Industry Peer Group at the end of an approximate three-year performance period.

(8) Represents an award of RSUs that vest or vested in one-third increments on March 17, 2016, March 17, 2017 and March 17, 2018.

(9) Represents performance-based TSR awards that are presented at 100% of the target award that cliff vest on March 17, 2018. The number of shares of common stock issuable upon vesting range from zero to 200% of the targeted shares granted based upon the performance of the Company’s TSR relative to our 2015 Stock Performance Peer Group at the end of an approximate three-year performance period.

(10) Represents an award of RSUs that vest in one-third increments on March 17, 2017, March 17, 2018 and March 17, 2019.

(11) Represents performance-based TSR awards that are presented at 100% of the target award that cliff vest on March 17, 2019. The number of shares of common stock issuable upon vesting range from zero to 200% of the targeted shares granted based upon the performance of the Company’s TSR relative to our 2016 Stock Performance Peer Group at the end of a three-year performance period.

 

Option Exercises and Stock Vested

 

The following table shows information concerning the amounts realized by the named executive officers on the exercise of Cash SARs and the vesting of RSUs during 2016: 

 

    Option Awards     Stock Awards  
Named Executive Officer  

Number of SARs  

Exercised (#) 

   

Value Realized  

on Exercise ($) 

   

Number of Shares
Acquired on
Vesting
(#) (1)  

   

Value Realized
on Vesting
($) (2)

 
S.P. Johnson IV     223,283     $3,505,743       81,144     $2,696,064  
Brad Fisher     5,753       63,714       118,427       4,006,839  
David L. Pitts     8,029       99,760       26,686       878,419  
Gerald A. Morton     41,448       493,509       31,049       1,028,540  
Richard H. Smith     13,116       149,972       21,504       708,068  

(1) Represents the number of shares acquired upon vesting of RSUs, without taking into account any shares sold to satisfy applicable tax obligations.
(2) Represents the value realized based on the vesting date closing price per share of our Common Stock on the NASDAQ Global Select Market, without taking into account the applicable tax obligations.

 

 

  2017 PROXY STATEMENT 36  

 

 

 

 

EXECUTIVE COMPENSATION

 

Employment Agreements 

 

The Company has entered into employment agreements with each of the named executive officers listed below along with their annual base salary as of December 31, 2016.

 

Named Executive Officer and Current Position   Annual Base Salary  
S. P. Johnson IV   $650,000  
President and Chief Executive Officer        
         
Brad Fisher     470,000  
Vice President and Chief Operating Officer        
         
David L. Pitts     390,000  
Vice President and Chief Financial Officer        
         
Gerald A. Morton     371,000  
General Counsel and Vice President of Business Development        
         
Richard H. Smith     335,000  
Vice President of Land        

 

The employment agreements each 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 until an event (as described in the applicable agreement) that gives rise to termination of employment occurs. Under each agreement, both the Company and the employee may terminate the employee’s employment at any time. Mr. Johnson’s employment agreement provides that he will serve as President, Chief Executive Officer and a member of the Board of Directors. 

 

Upon termination of employment on account of disability or by the Company for any reason (except under certain limited circumstances defined as “for cause” in the applicable agreement), or if employment is terminated either (a) for any reason (including by reason of death) during the 30-day period immediately following elapse of one year after any change of control (“window period”) or (b) by the employee for good reason (as defined in the applicable agreement), under the agreements the employee will generally be entitled to the following: 

 

(i) an immediate lump sum cash payment equal to 145% for Messrs. Johnson and Fisher and 97% in the case of Messrs. Morton, Pitts and Smith (363% for Mr. Johnson, 266% for Mr. Fisher and 145% for Messrs. Morton, Pitts and Smith, if termination occurs after or in anticipation of a change of control) of his annual base salary, 

 

(ii) in lieu of a prorated bonus for the year of termination, an immediate lump sum cash payment equal to 100% for Mr. Johnson, 90% for Mr. Fisher, and 80% in the case of Messrs. Morton, Pitts and Smith of his annual base salary prorated based on the number of days in the fiscal year in which he was employed (unless his employment is terminated as a result of disability or after

 

the date a change of control occurs, in either of which cases the lump sum is not prorated),

 

(iii) in lieu of continued participation in the Company’s welfare benefit plans, practices, programs and policies (other than the Company’s medical and dental plans) for the remaining employment period (as defined in the applicable agreement), an immediate lump sum cash payment equal to 3% of the employee’s annual base salary,

 

(iv) continued medical and dental benefits coverage for the employee and his dependents for one year following his termination of employment, and 

 

(v) the immediate vesting of any stock options, restricted stock awards, RSUs and any other equity- based awards previously granted to such employee and outstanding as of the time immediately prior to the date of his termination and 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. Notwithstanding this provision, each of the Company’s performance-based RSUs awarded to the named executive officers since December 14, 2008 have provided that in no event would such accelerated vesting occur in the event of a termination without cause or for good reason prior to a change in control unless the performance condition underlying the awards has been satisfied.

 

If employment terminates due to the death of the employee and other than during a window period, the Company will provide continued medical and dental benefits coverage for the employee’s dependents for one year following death and immediate vesting and extension of exercisability of equity-based awards as described above. Under the employment agreements of Messrs. Johnson, Fisher, Morton, Pitts and Smith,


  37 CARRIZO OIL & GAS  

 


 

 

 

EXECUTIVE COMPENSATION

 

the Company will also provide the employee with supplemental term life insurance protection with a death benefit as shown in the table below. 

 

The salaries in each of these agreements are subject to periodic review and provide for increases generally consistent with increases in base salary 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 to the extent such plans are generally applicable to the other executive officers of the Company. The agreements each provide for an annual bonus in an amount generally comparable to the annual bonus of other Company executives, taking into account the individual’s position, responsibilities and accomplishments.

 

In the event of a dispute regarding the employee’s rights upon termination of employment, (i) the parties are required to submit the dispute to arbitration; (ii) 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 applicable 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 (iii) 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 employment agreements of each of the named executive officers also provide that such 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 as well as a gross-up payment to offset the effect of any additional taxes imposed under Section 409A of the Code. However, the Company has since adopted a policy that employment agreements entered after the adoption of that policy would not provide tax gross-up payments. Upon a voluntary termination of employment, the employees have agreed to be subject to one-year noncompetition and one-year nonsolicitation covenants.




  2017 PROXY STATEMENT 38  

 

 

 

 

EXECUTIVE COMPENSATION

 

Potential Payments to the Named Executive Officers Upon Termination or Change of Control

 

The following table provides a summary of the potential payments to each of the named executive officers in connection with certain termination events, including a termination related to a change of control of our company.

 

Named Executive Officer

Voluntary

Termination
(No Good Reason/
No Change of
Control)

or Involuntary For
Cause Termination

Good Reason/
Involuntary
Not for Cause
Termination

Change of
Control
Termination
(Involuntary,
Good Reason,
Voluntary)

Death

Disability

S.P. Johnson IV(1)
Severance payments $  — $2,262,000 $3,679,000 $  — $2,262,000
Cash SARs (2) 915,146 915,146 915,146 915,146
Restricted shares (3) 7,230,474 7,230,474 7,230,474 7,230,474
Performance shares (4) (5) (6) 1,975,378 2,016,767 1,352,800 1,352,800
Life insurance benefits (7) 2,085,000
Benefits continuation 4,879 4,879 4,879 4,879
Total $  — $12,387,877 $13,846,266 $11,588,299 $11,765,299
Brad Fisher (1)
Severance payments $  — $1,541,600 $2,110,300 $  — $1,541,600
Cash SARs (2) 587,313 587,313 587,313 587,313
Restricted shares (3) 3,308,164 3,308,164 3,308,164 3,308,164
Performance shares (4) (5) (6) 1,176,937 1,203,498 784,348 784,348
Life insurance benefits (7) 1,393,000
Benefits continuation 4,939 4,939 4,939 4,939
Total $  — $6,618,953 $7,214,214 $6,077,764 $6,226,364
David L. Pitts (1)
Severance payments $  — $1,014,000 $1,201,200 $  — $1,014,000
Cash SARs (2) 300,021 300,021 300,021 300,021
Restricted shares (3) 2,455,165 2,455,165 2,455,165 2,455,165
Performance shares (4) (5) (6) 580,055 593,625 380,466 380,466
Life insurance benefits (7) 1,202,000
Benefits continuation 4,006 4,006 4,006 4,006
Total $  — $4,353,247 $4,554,017 $4,341,658 $4,153,658
Gerald A. Morton (1)
Severance payments $  — $964,600 $1,142,680 $  — $964,600
Cash SARs (2) 331,976 331,976 331,976 331,976
Restricted shares (3) 2,648,040 2,648,040 2,648,040 2,648,040
Performance shares (4) (5) (6) 666,504 681,521 446,265 446,265
Life insurance benefits (7) 1,290,000
Benefits continuation 4,939 4,939 4,939 4,939
Total $  — $4,616,059 $4,809,156 $4,721,220 $4,395,820
Richard H. Smith (1)
Severance payments $  — $871,000 $1,031,800 $  — $871,000
Cash SARs (2) 226,680 226,680 226,680 226,680
Restricted shares (3) 1,264,410 1,264,410 1,264,410 1,264,410
Performance shares (4) (5) (6) 443,684 453,939 294,204 294,204
Life insurance benefits (7) 1,235,000
Benefits continuation 4,939 4,939 4,939 4,939
Total $  — $2,810,713 $2,981,768 $3,025,233 $2,661,233

 

  39 CARRIZO OIL & GAS  

 

 

 

 

EXECUTIVE COMPENSATION

 

(1) Information in this table assumes a termination date of December 31, 2016 and a price per share of our Common Stock of $37.35 (the closing market price per share on December 31, 2016).

(2) Represents the value of accelerated vesting of Cash SARs that were unvested at December 31, 2016 based on the difference between the exercise price and the closing market price per share of our common stock on December 31, 2016.

(3) Represents the value of accelerated vesting of shares of RSUs that were unvested at December 31, 2016 based on the closing market price per share of our common stock on December 31, 2016.

(4) Represents the value of accelerated vesting of performance shares that were unvested at December 31, 2016 for Good Reason/Involuntary Not for Cause termination based on the number of shares of common stock granted upon vesting based upon the actual performance of the Company’s TSR relative to our 2014 Industry Peer Group, 2015 Stock Performance Peer Group and 2016 Stock Performance Peer Group and the closing market price per share of our common stock on December 31, 2016.

(5) Represents the value of accelerated vesting of performance shares that were unvested at December 31, 2016 for Change of Control termination. If a change of control occurs in the first half of the performance period, then the named executive officer will receive a payment for the number of shares of common stock granted based upon 100% of the target award and the closing market price per share of our common stock on the termination date. If a change of control occurs in the second half of the performance period, then the named executive officer will receive a payment for the number of shares of common stock granted based upon the greater of 100% of the target award or the percentage of shares to be awarded based upon the Company’s TSR relative to the peer group (as defined in the award agreement) as of the termination date. Therefore, the value of the accelerated vesting of performance shares due to a change of control termination is based on the number of shares of common stock issuable upon vesting based upon the actual performance of the Company’s TSR relative to our 2014 Industry Peer Group and 2015 Stock Performance Peer Group and 100% of the target award for the 2016 performance shares and the closing market price per share of our common stock on December 31, 2016.
(6) Represents the value of accelerated vesting of performance shares that were unvested at December 31, 2016 for Death or Disability termination based on the number of shares of common stock granted upon vesting based upon the actual performance of the Company’s TSR relative to our 2014 Industry Peer Group, 2015 Stock Performance Peer Group and 2016 Stock Performance Peer Group as of the date of termination and the closing market price per share of our common stock on December 31, 2016, prorated for the number of completed months in the performance period.

(7) Represents the death benefit of company provided supplemental life insurance and group term life insurance.

 

  2017 PROXY STATEMENT 40  

 

 

 

 

EXECUTIVE COMPENSATION

 

Equity Compensation Plans Information

 

Information concerning our equity compensation plans at December 31, 2016 is as follows:

 

Plan Category

Number of
Securities to be
Issued Upon
Vesting of
Restricted Stock
and Performance
Shares (1)

(a)

Weighted-
Average Exercise
Price of
Outstanding
Options (2)

(b)

Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding
Securities Reflected
in Column (a)) (3)
(c)

Equity compensation plans approved by security holders 1,266,220 $  — 858,982
Equity compensation plans not approved by security holders
Total 1,266,220 $  — 858,982

 

Information concerning our equity compensation plans at March 31, 2017 is as follows:

 

Plan Category

Number of
Securities to be
Issued Upon
Vesting of
Restricted Stock
and Performance
Shares (1)

(a)

Weighted-
Average Exercise
Price of
Outstanding
Options (2)

(b)

Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding
Securities Reflected
in Column (a)) (3)
(c)

Equity compensation plans approved by security holders 1,432,983 $  — 26,275
Equity compensation plans not approved by security holders
Total 1,432,983 $  — 26,275

(1) Consists of shares of Common Stock that are issuable upon vesting of restricted stock awards, RSUs and performance shares granted under the Prior Incentive Plan. Amount does not include awards of Cash SARs.

(2) This weighted-average exercise price does not reflect the shares issuable upon vesting of restricted stock awards, RSUs and performance shares which have no exercise price and does not reflect the exercise price of Cash SARs.

(3) The number of securities remaining available for future issuance under our equity compensation plans assumes all future grants will be full value stock awards.

 

  41 CARRIZO OIL & GAS  

 

 

 

 

PROPOSAL 2. ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS

 

The Board of Directors recognizes the interest the Company’s shareholders have in the compensation of our named executive officers. In recognition of that interest and in accordance with the requirements of SEC rules and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, this proposal, commonly known as a “say on pay” proposal, provides our shareholders with the opportunity to cast an advisory vote on the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the SEC’s compensation disclosure rules, including the discussion of the Company’s compensation program and philosophy and the compensation tables. This advisory vote is intended to give our shareholders an opportunity to provide an overall assessment of the compensation of the named executive officers rather than focus on any specific item of compensation.

 

We encourage you to review the discussions and information presented in “Executive Compensation,” including the “Compensation Discussion and Analysis” and the compensation tables and associated narrative disclosure, in considering how to cast your vote. As described in the “Compensation Discussion and Analysis” included in this proxy statement, the guiding philosophy and specific objectives of our executive compensation program are: (i) to align executive compensation design and outcomes with our business strategy; (ii) to encourage management to create sustained value

for our shareholders; (iii) to attract, retain, and engage our executives and (iv) to support a performance-based culture for all of our employees.

 

As an advisory vote, the shareholders’ vote on this proposal is not binding on our Board or the Company and the Board could, if it concluded it was in the Company’s best interests to do so, choose not to follow or implement the outcome of the advisory vote. However, we expect that the Compensation Committee will review the voting results on this proposal and give consideration to the outcome when making future decisions regarding compensation of the named executive officers.

 

The Board of Directors has adopted a policy providing for an annual advisory vote on executive compensation. We expect the Board of Directors will review and give consideration to the voting results of the proposal on the frequency of future advisory votes on executive compensation when determining its policy on the frequency of advisory votes on executive compensation.

 

Management will present the following resolution at the Annual Meeting:

 

“RESOLVED, that the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement relating to the 2017 Annual Meeting pursuant to the executive compensation disclosure rules promulgated by the SEC, is hereby approved.”


 

Board Recommendation

 

The Board of Directors recommends that shareholders approve, on an advisory basis, the compensation of the named executive officers by voting “FOR” Proposal No. 2.

 

  2017 PROXY STATEMENT 42  

 

 

 

 

PROPOSAL 3. ADVISORY VOTE ON FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

 

This proposal, commonly known as a “say-on-frequency” proposal, provides our shareholders with the opportunity to cast an advisory vote on whether the Company should hold a shareholder advisory vote on the compensation of the Company’s named executive officers (such as Proposal 2) every year, every two years or every three years or to abstain from such vote.

 

The Board of Directors recommends that the Company hold an advisory vote on executive compensation every year. The Board of Directors believes that an annual advisory vote on executive compensation provides shareholders with a frequent and consistent opportunity to express their views on our executive compensation as disclosed in our annual proxy statement. It is important to note that our compensation objectives are designed to reward our executives both for meeting or exceeding the short-term financial and operating goals as well as furthering the long-term strategy of the Company. Accordingly, the Board encourages shareholders to consider our executive compensation practices and

the results we achieve over a multi-year horizon. Nonetheless, the Board believes that an annual advisory vote will allow our Compensation Committee to take shareholders’ views into account more quickly than a less frequent vote would allow and to evaluate changes in our shareholders’ views over time as our executive compensation program evolves.

 

As an advisory vote, the shareholders’ vote on this proposal is not binding on our Board or the Company and the Board could, if it concluded it was in the Company’s best interests to do so, choose not to follow or implement the outcome of the advisory vote. However, we expect that the Board of Directors will review the voting results on such proposal and give consideration to the outcome when making future decisions regarding the frequency of future advisory votes on compensation of the named executive officers. In future years, the Board could recommend to shareholders that the advisory vote on executive compensation be held less frequently than annually.


 

Board Recommendation

 

The Board of Directors recommends that shareholders select “1 YEAR” as the frequency of future advisory votes on the compensation of the named executive officers.

 

  43 CARRIZO OIL & GAS  

 

 

 

 

 

PROPOSAL 4. APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CARRIZO OIL & GAS, INC. TO INCREASE THE AUTHORIZED SHARES

 

The Board of Directors has unanimously approved a resolution to amend Article Four of our Amended and Restated Articles of Incorporation to increase the total number of shares of all classes of stock which the Company will have authority to issue from 100,000,000 to 190,000,000 and the number of authorized shares of common stock from 90,000,000 to 180,000,000.

 

The proposed amendment would replace the first sentence of Article Four of the Articles with the following sentence:

 

“The aggregate number of shares that the corporation shall have the authority to issue, is 190,000,000 shares, consisting of 180,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per share.”

 

If the amendment is approved by the shareholders, it will become effective upon the filing of articles of amendment with the Secretary of State of the State of Texas, which filing is expected to occur promptly after the Annual Meeting. Thereafter, the additional shares may be issued from time to time by action of our Board of Directors on such terms and for such purposes as our Board of Directors may consider appropriate from time to time.



Current Capital Structure

 

Under Texas law, the Company may only issue shares of capital stock to the extent such shares have been authorized under our Amended and Restated Articles of Incorporation. Our Amended and Restated Articles of Incorporation currently authorize the Company to issue 90,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”). As of March 31, 2017, 65,796,342

 

shares of Common Stock were issued and outstanding and 1,432,983 shares of Common Stock were reserved for issuance. After taking into account the reserved shares, a balance of 22,770,675 authorized but unissued shares of Common Stock would be available for issuance under our Amended and Restated Articles of Incorporation. No shares of Preferred Stock as of such date were issued and outstanding or reserved for issuance.


Reasons for Amendment

 

The number of issued and outstanding shares of Common Stock has increased from 30,635,230 as of May 23, 2008 to 65,796,342 as of March 31, 2017. As a result, the number of available shares of Common Stock has been reduced. Our Board of Directors considers it desirable that it have the flexibility to have additional shares of Common Stock available for issuance in connection with possible financings, stock dividends or stock splits, acquisition transactions, employee benefit plans and other corporate purposes. The availability of the additional shares for issuance in the future would give us greater flexibility and would generally allow shares of Common Stock to be issued without the expense and delay of a special shareholders’ meeting.

 

If the Amendment is approved by the shareholders, the Board of Directors does not intend to solicit further shareholder approval prior to the issuance of any additional shares of Common Stock, except as may be required by applicable law or the rules of any stock exchange or quotation system on which the Common Stock may be listed or quoted. The NASDAQ Global Select Market, on which the Common Stock is quoted, currently requires shareholder approval in certain instances, including in connection with transactions where the present or potential issuance of shares is or will be equal to or in excess of 20% of the number of shares of Common Stock outstanding before such issuance.


  2017 PROXY STATEMENT 44  

 

 

 

PROPOSAL 4. APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED ARTICLES

 

The proposed Amendment could, under certain circumstances, have an anti-takeover effect, although this is not the intention of this proposal. For example, in the event of a hostile attempt to take over control of Carrizo, it may be possible for us to endeavor to impede the attempt by issuing shares of Common Stock, which would dilute the voting power of the other outstanding shares and increase the potential cost to acquire control of us. The proposed amendment therefore may have the effect of discouraging unsolicited takeover attempts and potentially limiting the opportunity for our shareholders to dispose of their shares at a premium, which is often offered in takeover attempts, or that may be available under a merger proposal. The proposed amendment may have the effect of permitting our current management, including the current Board of Directors, to retain its position, and place it in a better position to

 

resist changes that shareholders may wish to make if they are dissatisfied with the conduct of our business. However, the Board is not aware of any attempt to take control of Carrizo, and the Board has not presented this proposal with the intent that it be utilized as a type of anti-takeover device. The Board has no current plans for the issuance of the additional shares of Common Stock for which authorization is being sought, except in connection with equity compensation plans.

 

To the extent that additional authorized shares are issued in the future, the issuance may decrease the existing shareholders’ percentage equity ownership and, depending on the price at which they are issued, could be dilutive to the existing shareholders. The holders of Common Stock have no preemptive rights and the Board has no plans to grant such rights with respect to any such shares.



Board Recommendation

 

The Board of Directors recommends that shareholders vote “FOR” the adoption of the approval of the proposed amendment to the Amended and Restated Articles of Incorporation of Carrizo Oil & Gas, Inc. to increase the authorized shares.

 

  45 CARRIZO OIL & GAS  

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017

INCENTIVE PLAN OF CARRIZO OIL & GAS, INC.

 

The Board has unanimously approved the 2017 Incentive Plan to replace the Prior Incentive Plan, subject to shareholder approval at the Annual Meeting, and recommends that the Company’s shareholders approve and adopt the 2017 Incentive Plan. We intend to reserve 2,675,000 shares for issuance pursuant to awards under the 2017 Incentive Plan, which is in addition to approximately 26,275 shares (as of March 31, 2017) which remain available for grant pursuant to the Prior Incentive Plan assuming all future grants will be full value stock awards. If our shareholders approve the 2017 Incentive Plan, shares that would otherwise become available for issuance under the Prior Incentive Plan as a result of forfeitures, expiration or cancellation of previously made awards will become available for issuance under the 2017 Incentive Plan, and no additional grants will be made pursuant to the Prior Incentive Plan.

 

The 2017 Incentive Plan is intended to replace the Prior Incentive Plan and is needed to continue our equity compensation program. As of December 31, 2016, there were 858,982 shares of common stock remaining available for grant under the Prior Incentive Plan assuming all future grants will be full value stock awards. Any previously granted awards that are outstanding under the Prior Incentive Plan will remain outstanding in accordance with their terms. As of March 31, 2017, an aggregate of 1,432,983 shares are subject to unvested restricted stock awards, RSUs, and performance shares. As of March 31, 2017, the Company has outstanding Cash SARs covering 965,078 shares. See also “Executive Compensation— Equity Compensation Plans Information” for additional information concerning our equity compensation plans.

 

If the 2017 Incentive Plan is not approved by the shareholders, we will not be able to continue our equity- based long-term incentive program, and we may be required to increase significantly the cash component of our executive compensation program in order to remain competitive and adequately compensate our employees.

 

The Company considers the 2017 Incentive Plan an essential element of total compensation and believes the 2017 Incentive Plan promotes its interests and the interests of its shareholders by:

 

attracting and retaining the services of key employees, qualified directors and qualified independent contractors; and

 

encouraging the sense of proprietorship in and stimulating the active interest of those persons in the development and financial success of the Company by making awards designed to provide participants in the 2017 Incentive Plan with proprietary interest in the growth and performance of the Company.

 

Shareholder approval of the 2017 Incentive Plan will also constitute approval for purposes of satisfying the shareholder approval requirements (a) under Section 162(m) of the Code, and the rules and regulations thereunder so that the Compensation Committee has the discretion to grant awards in the future under the 2017 Incentive Plan that meet the requirements of “performance-based compensation” exempt from the deduction limitations thereunder and (b) under Section 422 of the Code so that the Compensation Committee may grant incentive stock options, or ISOs.


  2017 PROXY STATEMENT 46  

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN

 

Best Practices
Independent Oversight. The Compensation Committee of our Board of Directors, composed solely of independent directors, will approve all grants made under the 2017 Incentive Plan; provided, however, that the Compensation Committee may delegate to any committee of the Board, to the Chief Executive Officer and to any of our other senior officers its duties under the 2017 Incentive Plan pursuant to such conditions or limitations as the Committee may establish; provided, however, that such delegation will not extend to the authority to make awards to participant who are subject to Section 16 of the Exchange Act. As with the Prior Incentive Plan, the Compensation Committee has delegated to the special stock award committee of our Board of Directors, which committee consists solely of Mr. Johnson in his capacity as a director, the authority to grant awards with respect to a maximum of 15,000 shares per quarterly calendar period to non-executive employees. See “Committees of the Board of Directors” for information regarding the special stock award committee.
No Repricing of Options or SARs. The 2017 Incentive Plan prohibits repricing, replacement and regranting of stock options or SARs at lower prices unless approved by our shareholders.
No Discounted Options or SARs. Stock options and SARs may not be granted with an exercise price below the closing price of our common stock on the date of grant.
No Dividends on Options or SARs. Dividends and dividend equivalents may not be paid or accrued on stock options or SARs.

Limited Terms for Options and SARs. Stock options and SARs granted under the 2017 Incentive Plan are limited to 10-year terms.

No Liberal Share Counting. Shares that are tendered by a participant or withheld (1) as full or partial payment of withholding taxes related to the exercise or settlement of options, or (2) as payment for the option price, and shares repurchased in the open market with the proceeds of the payment of the option price will not become available again for awards under the 2017 Incentive Plan.
No Dividends or Dividend Equivalents on Unvested Awards. Any dividends or dividend equivalents will only be paid if the underlying shares vest pursuant to the terms of the award.
Annual Limitation on Director Awards and Compensation. The aggregate grant value of awards and cash compensation paid to any individual non-employee director may not exceed $1,000,000 in any calendar year.
Awards may be subject to future clawback or recoupment. All awards granted under the 2017 Incentive Plan will be subject to any clawback policy required by applicable law.
No Transferability. Awards generally may not be transferred, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, unless otherwise provided in the applicable award agreement.
No “Evergreen” Provision. Shares authorized for issuance under the 2017 Incentive Plan will not be replenished automatically. Any additional shares to be issued over and above the amount for which we are seeking authorization must be approved by our shareholders.
No Automatic Grants. There are no automatic grants to new participants or “reload” grants when outstanding awards are exercised, expire or are forfeited.
No Tax Gross-ups. Participants do not receive tax gross-ups under the 2017 Incentive Plan. As discussed in the Compensation Discussion and Analysis section, no tax gross-ups have been provided in any employment agreements since May 2011.

 

Section 162(m)

 

Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation that we may deduct in any one year with respect to compensation paid to each of our Named Executive Officers other than the CFO. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. The Section 162(m) regulations generally require that shareholders approve the material terms of the performance goals, and that performance goals be

 

submitted for reapproval no later than five years after initial shareholder approval. The performance goals include the class of employees eligible to receive awards, the business criteria on which the award is based, and the maximum amount of compensation that could be paid to an employee under the plan, and are set forth under the captions “—Eligibility”, “—Performance Awards”, and “—Award Limits” below.


  47 CARRIZO OIL & GAS  

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN

 

Summary of the 2017 Incentive Plan

 

A description of the 2017 Incentive Plan appears below. Because the description of the 2017 Incentive Plan in this proxy statement is a summary, it may not contain all the information that may be important to you. The summary is qualified by reference to the 2017 Incentive

 

Plan. You should carefully read the entire copy of the 2017 Incentive Plan. A copy of the full text of the 2017 Incentive Plan is attached hereto as Appendix A to this proxy statement.


Eligibility

 

Persons eligible for Awards (as defined in the 2017 Incentive Plan) are (i) all employees of the Company, (ii) non-employee directors and (iii) certain independent

 

contractors. As of March 31, 2017, approximately 237 employees and non-employee directors would be eligible for grants of Awards under the 2017 Incentive Plan.


Shares Available for Awards

 

The 2017 Incentive Plan provides that up to 2,675,000 shares of Common Stock, plus the shares remaining available for awards under the Prior Incentive Plan, may be issued, all of which may be issued as incentive stock options under Section 422 of the Code. The 2017 Incentive Plan provides that each full value stock award (e.g. restricted stock, RSUs and performance shares) count as 1.35 shares of Common Stock and each Option and stock-settled SAR count as one share of Common Stock.

 

The number of shares of Common Stock that are the subject of Awards under the 2017 Incentive Plan or the Prior Incentive Plan that are forfeited or terminated, expire unexercised, are settled in cash in lieu of Common Stock or are exchanged for Awards that do not involve

 

Common Stock immediately become available for additional Awards under the 2017 Incentive Plan and the share limit under the 2017 Incentive Plan shall be increased by the same amount as such shares were counted against the share limit (under the 2017 Incentive Plan or Prior Incentive Plan, as applicable). However, the number of shares reserved for issuance under the 2017 Incentive Plan is not increased by (i) shares of Common Stock not issued or delivered as a result of the net settlement of stock-settled SARs or stock option, (ii) shares of Common Stock used to pay the exercise price or withholding taxes related to an outstanding Award, or (iii) shares of Common Stock repurchased on the open market with the proceeds of the option exercise price.


Administration

 

The Compensation Committee administers the 2017 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 2017 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 2017 Incentive Plan or in any Award or otherwise amend or modify any Award in any manner that is either (a) not adverse to that participant holding the Award or (b) consented to by that participant. However, except in connection with a transaction involving the Company or its capitalization, the terms of outstanding awards may not be amended without approval of the shareholders of the Company to (i) reduce the exercise price of outstanding options

 

or SARs, (ii) cancel, exchange, substitute, buyout or surrender outstanding options or SARs in exchange for cash or other Awards, (iii) take any other action with respect to a stock option or SAR that would be treated as a repricing under the rules and regulations of the principal national securities exchange on which the shares of Common Stock are listed or (iv) permit the grant of any stock options or SARs that contain a so-called “reload” feature under which additional stock options, SARs or other Awards are granted automatically to the participant upon exercise of the original stock option or SAR.

 

The Compensation Committee also may delegate to the chief executive officer, other senior officers of the Company or to other committees of the Board its duties under the 2017 Incentive Plan to the extent allowed by applicable law. See “Committees of the Board of Directors” for information regarding the special stock award committee.



  2017 PROXY STATEMENT 48  

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN

 

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.


 

Amendment; Termination

 

The Board of Directors may amend, modify, suspend or terminate the 2017 Incentive Plan for the purpose of addressing any changes in legal requirements or for any other lawful purpose, except that no amendment that would adversely affect the rights of any participant under any Award previously granted to such participant may be made without the consent of such participant and no amendment will 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 law.


 

Adjustment

 

The Board of Directors may make certain adjustments, including changes to the shares subject to outstanding Awards, shares available for grant under the 2017 Incentive Plan, and the annual limits on Awards, 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).


 

Clawback

 

Awards under the 2017 Incentive Plan will be subject to the provisions of any clawback policy required by applicable law or implemented by the Company, which

clawback policy may provide for forfeiture, repurchase and/or recoupment of Awards and amounts paid or payable pursuant to or with respect to Awards.


 

Awards

 

At the discretion of the Compensation Committee or the special stock award committee, as applicable, employees, consultants or non-employee directors may be granted Awards under the 2017 Incentive Plan in the

form of stock options, SARs, stock awards, cash awards or performance awards. Such Awards may be granted singly, in combination, or in tandem.


 

Options

 

Awards may be in the form of rights to purchase a specified number of shares of Common Stock at a specified price not less than that of the fair market value of a share of Common Stock on the date of grant (“Options”). An Option may be either an incentive stock option (“ISO”) that is intended to comply, or a nonqualified stock option (“NSO”) that is not intended to comply, with the requirements of Section 422 of the Code; provided that independent contractors and directors cannot be awarded ISOs. The Compensation Committee

will determine the participants to receive Options and the terms, conditions and limitations applicable to each such Option. The term of each Option may not be longer than ten years from the date of grant; provided, however, if the term of a NSO expires when trading in the Common Stock is prohibited by applicable law or at a time in which there is a blackout period or restriction period under the Company’s insider trading policy or practices (as then in effect), then the term of such NSO shall expire on the 30th day after the expiration of such prohibition.


 

  49 CARRIZO OIL & GAS  

 

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN

 

Stock Appreciation Rights

 

Awards may also be in the form of SARs, which are 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 not less than the fair market value of a share of Common Stock on the date of grant. The term of each SAR may not be longer than ten years

from the date of grant; provided, however, if the term of a SAR expires when trading in the Common Stock is prohibited by applicable law or at a time in which there is a blackout period or restriction period under the Company’s insider trading policy or practices (as then in effect), then the term of such SAR shall expire on the 30th day after the expiration of such prohibition.


 

Stock Awards

 

Awards may also be in the form of grants of Common Stock or units denominated in Common Stock, including restricted stock and RSUs (“Stock Awards”). The terms, conditions and limitations applicable to any Stock Award will be determined by the Compensation Committee. At

the discretion of the Compensation Committee, the terms of a Stock Award may include rights to receive dividends or dividend equivalents, which will only be paid if the underlying shares vest pursuant to the terms of the Stock Award.


 

The table below summarizes restricted stock, RSU, and performance share award activity under the Prior Incentive Plan for the period from January 1, 2017 through March 31, 2017. There were no other share-based awards granted during this period.

 

    Weighted-Average
    Grant Date
  Share/Units Fair Value
Unvested restricted stock awards and units as of January 1, 2017 1,266,220 $39.55
Granted 796,183 $27.54
Vested 661,345 $43.48
Forfeited 3,933 $29.42
Unvested restricted stock awards and units as of March 31, 2017 1,432,983 $31.81

 

Cash Awards

 

Awards may also be in the form of grants denominated in cash. The terms, conditions and limitations applicable to

any cash awards granted pursuant to the 2017 Incentive Plan will be determined by the Compensation Committee.


 

Performance Awards

 

At the discretion of the Compensation Committee, any of the above-described Awards may be made in the form of a performance award. A performance award is an award that is subject to the attainment of one or more performance goals. Performance goals 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. The terms, conditions and limitations applicable to any performance award will be determined by the Compensation Committee.

 

The 2017 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. At the discretion of the Compensation Committee, certain Awards under the 2017 Incentive Plan will be intended to qualify as performance-based compensation under Section 162(m) of the Code. 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 $1,000,000 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.


 

  2017 PROXY STATEMENT 50  

 

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN

 

The particular performance-based objectives that may be imposed in connection with a performance award that qualifies as performance-based compensation under Section 162(m) of the Code are:

 

revenue and income measures (which include revenues, revenues including the net cash impact of derivative settlements (“Adjusted Revenues”), gross margin, operating income, earnings before or after the effect of certain items such as interest, income taxes, depreciation, depletion and amortization, and non-cash or non-recurring items of income or expense (“Adjusted EBITDA”), net income before the effect of certain non-cash or non-recurring items of income or expense (“Adjusted Net Income”), net income and related per share amounts);

 

expense measures (which include operating expense, general and administrative expense and depreciation, depletion and amortization expense);

 

operating measures (which include production volumes, margin, drilling, completion, leasehold or seismic capital expenditures, results of drilling and completion activities and the number of wells drilled, brought on production and/or producing);

 

reserve measures (which include developed, undeveloped and total reserves, reserve replacement ratios, extensions and discoveries, revisions of previous estimates, PV-10 values, finding and development costs and other reserve measures);

 

cash flow measures (which include net cash flows from operating activities, discretionary cash flows from operating activities and working capital);

 

liquidity measures (which include Adjusted EBITDA, net debt to Adjusted EBITDA, working capital and the credit facility borrowing base);

 

leverage measures (which include debt-to-equity ratio, debt-to-total capitalization ratio, and net debt);

 

market measures (which include stock price, total shareholder return and market capitalization measures);

 

return measures (which include return on equity, return on assets and return on invested capital);

 

corporate value measures (which include compliance, safety, environmental and personnel matters); and

 

measures relating to acquisitions or dispositions.

Performance awards may include one or more performance goals, either individually or in any combination, and 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, subsidiaries, business segments, divisions, geographic regions and measured either annually or over a period of years, on an absolute basis or relative to a pre- established target, to results over a previous period or to a designated peer group, in each case as specified by the Compensation Committee in the Award.

 

The Compensation Committee may provide in any performance award that any evaluation of performance may include or exclude any of the following events that occurs during a performance period: (i) asset impairments, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (iv) any reorganization and restructuring programs, (v) unusual, infrequently occurring, nonrecurring or one-time events affecting the Company or its financial statements as described in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders, Form 10-K or Form 10-Q for the applicable period, (vi) acquisitions or divestitures, (vii) foreign exchange gains and losses, (viii) derivative settlements or (ix) such other objective adjustments as may be provided for connection with the establishment of the performance goal. The amount of cash or shares payable or vested pursuant to performance awards that are intended to satisfy the requirements of performance-based compensation under Section 162(m) of the Code may not be adjusted upward; provided, however, that the Compensation Committee may retain the discretion to adjust the amount of cash or shares payable or vested pursuant to such performance awards downward either on a formula or discretionary basis or any combination, as determined by the Compensation Committee.

 

The performance targets used by the Company in 2016 are described in “Compensation Discussion and Analysis—Executive Compensation Components—Long-Term Incentive Awards.”


 

Award Limits

 

To preserve the Company’s ability to deduct the compensation associated with grants and Awards made under the 2017 Incentive Plan, the plan provides that grants or Awards in the form of Options or SARs made to

an individual employee in any calendar year cannot cover an aggregate of more than 375,000 shares of Common Stock, and no participant may be granted Stock Awards relating to more than 375,000 shares of Common Stock in


 

  51 CARRIZO OIL & GAS  

 

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN

 

any calendar year. In addition, the maximum cash award made to any participant in respect of any calendar year may not exceed $5,000,000.

 

No non-employee director may be granted during any calendar year Awards (in his or her capacity as a director) having a fair value determined on the date of grant when added to all cash compensation paid to the non- employee director during the same calendar year in excess of $1,000,000.

In general, each Award is only subject to a single limitation. However, a participant may be granted Awards in combination such that portions of the Award are subject to differing limitations, in which event each portion of the combination Award is subject only to a single appropriate limitation. For example, if a participant is granted an Award that is in part a Stock Award and in part a cash award, then the Stock Award shall be subject only to the limitation relating to Stock Awards and the cash award shall be subject only to the limitation relating to cash awards.


 

U.S. Federal Income Tax Consequences

 

The following is a summary of the general rules of current U.S. Federal income tax law relating to the tax treatment of award that may be issued under the 2017 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. This summary is not complete and does not attempt to describe any tax consequences arising in the context of the participant’s death or the income tax laws of any local, state or foreign country in which the participant’s income or gain may be taxable.


 

Stock Awards

 

Restricted Stock. A participant generally recognizes no taxable income at the time of an award of restricted stock. A participant may, however, make an election under Section 83(b) of the Code to have the grant taxed as compensation income at the date of receipt, with the result that any future appreciation or depreciation in the value of the shares of stock granted may be taxed as capital gain or loss on a subsequent sale of the shares. If the participant does not make a Section 83(b) election, the grant will be taxed as compensation income at the full fair market value on the date the restrictions imposed on the shares expire. Unless a participant makes a Section 83(b) election, any dividends paid to the participant on the shares of restricted stock will generally be compensation income to the participant and deductible

by us as compensation expense. In general, we will receive a deduction for U.S. Federal income tax purposes for any compensation income taxed to the participant. To the extent a participant realizes capital gains, as described above, we will not be entitled to any deduction for federal income tax purposes.

 

Restricted Stock Units. A participant who is granted RSUs will recognize no income upon grant of the RSUs. At the time the underlying shares of common stock (or cash in lieu thereof) are delivered to a participant, the participant will recognize compensation income equal to the full fair market value of the shares received. We will generally be entitled to a deduction for U.S. Federal income tax purposes the corresponds to the compensation income recognized by the participant.


 

Options; Stock Appreciation Rights

 

Options granted under the 2017 Incentive Plan may constitute ISOs within the meaning of Section 422 of the Code, while other options granted under the 2017 Incentive Plan may constitute NSOs. Grants of Options to non-employee directors and independent contractors are NSOs. The Code provides for tax treatment of 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 taxable income for U.S. Federal income tax purposes, although the difference between the exercise price of the ISO and the fair market value of the stock at the date 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 grant date or within one year of the exercise date), any gain will be taxed to the optionee as long-term capital gain. 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. 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).


 

  2017 PROXY STATEMENT 52  

 

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN

 

In contrast, upon the exercise of an NSO, the optionee recognizes ordinary taxable income on the exercise date in an amount equal to the excess of the fair market value of the shares purchased over the exercise price. Upon the sale of such shares by the optionee, any difference between the fair market value at the date of sale and the fair market value at the date of exercise will be treated generally as capital gain or loss. Subject to the limitations discussed below, upon exercise of an NSO, the Company is entitled to a tax deduction in an amount equal to the ordinary taxable income recognized by the participant.

Participants do not recognize taxable income upon the grant of a SAR. Upon the exercise of a SAR, the participant will recognize ordinary income in an amount equal to the cash or fair market value of the shares of stock received at the date of exercise of the SAR. The participant’s tax basis in any shares of Common Stock received on the exercise of a SAR will generally equal the fair market value of such shares on the date of exercise. Subject to the limitations discussed below, the Company will be entitled to a deduction for U.S. Federal income tax purposes that corresponds as to timing and amount with the taxable income recognized by the participant under the foregoing rules.


 

Deductibility; Excise Taxes

 

In general, a U.S. Federal income tax deduction is allowed to the Company in an amount equal to the ordinary taxable income recognized by a participant with respect to Awards granted under the 2017 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 obligations with respect to the participant’s ordinary taxable income. As discussed above, Section 162(m) of the Code may limit the Company’s ability to deduct compensation expense in excess of $1 million to any named executive officer, unless the excess amounts satisfy the requirements for qualified performance- based compensation. The 2017 Incentive Plan permits the Compensation Committee to structure grants and Awards made under the 2017 Incentive Plan to “covered employees” as performance-based compensation that is exempt from the limitation of Section 162(m) of the Code. However, the Compensation Committee may award compensation that is or may become non-deductible, and expects to consider whether it believes such grants are in our interest, balancing tax efficiency with long- term strategic objectives.

 

Change in Control. The acceleration of the exercisability or the vesting of an award upon the occurrence of a change in control may result in an “excess parachute payment” within the meaning of Section 280G of the Code. 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 calendar years preceding calendar year in which the change in control occurs. 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 tax deduction with respect to such excess.

 

Code Section 409A. Section 409A of the Code generally provides that any deferred compensation arrangement must satisfy specific requirements, both in operation and in form, regarding (i) the timing of payment, (ii) the advance election of deferrals, and (iii) restrictions on the acceleration of payment. Failure to comply with Section 409A of the Code may result in the early taxation (plus interest) to the participant of deferred compensation and the imposition of a 20% penalty on the participant on such deferred amounts included in the participant’s taxable income. The Company intends to structure Awards under the 2017 Incentive Plan in a manner that is designed to be exempt from or comply with Section 409A of the Code.


 

2017 Incentive Plan Future Benefits

 

The allocation of some of the shares that would become available for issuance under the 2017 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 2017 Incentive Plan. No Awards have been granted that are

contingent on the approval of the 2017 Incentive Plan. Therefore, it is not possible to determine the benefits that will be received in the future by participants in the 2017 Incentive Plan or the benefits that would have been received by such participants if the 2017 Incentive Plan had been in effect in the year ended December 31, 2016. Certain tables in this proxy statement set forth


 

  53 CARRIZO OIL & GAS  

 

 

 

 

PROPOSAL 5. APPROVAL OF THE 2017 INCENTIVE PLAN

 

information with respect to prior awards granted to our named executive officers under the Prior Incentive Plan currently in effect.

 

In 2017, the Company currently expects to award each non-employee director RSUs as described in more detail above under “Director Compensation.” 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.

The Board believes that the approval of the 2017 Incentive Plan is in the best interest of the Company and its shareholders. The Board therefore recommends a vote for the 2017 Incentive Plan, and it is intended that the proxies not marked to the contrary will be so voted. Because approval of the 2017 Incentive Plan will increase the number of shares available for issuance 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 approval of the 2017 Incentive Plan.


 

Board Recommendation and Vote Requirement

 

The Board of Directors recommends that shareholders vote “FOR” the approval of the 2017 Incentive Plan of Carrizo Oil & Gas, Inc.

 

  2017 PROXY STATEMENT 54  

 

 

 

 

PROPOSAL 6. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee has appointed, and recommends the approval of the appointment of, KPMG LLP as independent registered public accounting firm for the fiscal year ending December 31, 2017. KPMG LLP served as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2016, 2015 and 2014. Representatives of KPMG LLP 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 KPMG LLP as the Company’s independent registered public accounting firm for 2017. 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 KPMG LLP, the Board of Directors may consider the appointment of another independent registered public accounting firm.



Board Recommendation

 

The Board of Directors recommends that shareholders vote “FOR” the ratification of the appointment of KPMG LLP as independent registered public accounting firm for the Company for 2017.

 

  55 CARRIZO OIL & GAS  

 

 

 

   

PROPOSAL 6. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Independent Registered Public Accounting Firm’s Fees

 

The following table sets forth the fees billed to us by KPMG LLP for professional services rendered in connection with the audit of the Company’s annual financial statements included in the Company’s Annual Reports on Form 10-K for the years ended December 31, 2016 and

2015, and the review of the Company’s quarterly financial statements included in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016 and 2015, June 30, 2016 and 2015 and September 30, 2016 and 2015.



Description   2016     2015  
Audit Fees (1)     $966,649       $1,068,403  
Audit-Related Fees            
Tax Fees (2)     39,760       19,585  
All Other Fees     1,927       1,786  
Total     $1,008,336       $1,089,774  

(1) Includes $113,119 and $136,290 of fees associated with services rendered in connection with securities offerings and related SEC filings during 2016 and 2015, respectively.
(2) The 2016 and 2015 tax fees consist of tax consulting services provided in connection with the preparation and review of the Company’s Section 382 ownership change analysis.

 

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 Exchange Act and the applicable rules and regulation of the SEC) will be

subject to pre-approval of the Audit Committee. The Audit Committee has delegated authority to pre-approve permitted services to certain members of management subject to the limitations set forth in the pre-approval policy. Such approval must be reported to the Audit Committee at the next scheduled meeting. No non-audit services were performed by KPMG LLP pursuant to the de minimis exception in 2016 and 2015.



 

  2017 PROXY STATEMENT 56  

 

 

 

 

PROPOSAL 6. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Audit Committee Report

 

The Audit Committee’s purpose is to assist the Board of Directors in its oversight of the Company’s internal controls, financial statements and the audit process. The Board of Directors, in its business judgment, has determined that each member of the Audit Committee is “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.com under “About Us-Governance.”

 

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 and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board.

 

In connection with fulfilling its responsibilities under the Audit Committee Charter, the Audit Committee met with management and KPMG LLP, our independent registered public accounting firm, and discussed and reviewed the Company’s audited financial statements as of and for the year ended December 31, 2016. The Audit Committee also discussed with KPMG LLP the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard 1301, Communications with Audit Committees . The Audit Committee reviewed and discussed with KPMG LLP the auditor’s independence from the Company and its management. As part of that review, KPMG LLP provided the Audit Committee the written disclosures and letter required by Public Company Accounting Oversight Board Rule 3526, Communication with Audit Committees Concerning Independence .

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 Audit Committee 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 year ended December 31, 2016.

 

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 and internal control over financial reporting has been carried out in accordance with the standards of the Public Company Accounting Oversight Board, that the financial statements are presented in accordance with U.S. generally accepted accounting principles or that the independent registered public accounting firm is in fact “independent.”

 

The Audit Committee