EXHIBIT 99.1

SECURITIES PURCHASE AGREEMENT

AMONG

CARRIZO OIL & GAS, INC.

AS ISSUER,

AND

THE INVESTORS LISTED ON SCHEDULE 1.1 HERETO

FEBRUARY 20, 2002

TABLE OF CONTENTS

                                                                          Page
                                                                          ----
ARTICLE I DEFINITIONS........................................................1
   1.1     Defined Terms.....................................................1
   1.2     Terms Generally...................................................7
   1.3     Use of Defined Terms..............................................8
   1.4     Cross-References..................................................8
   1.5     Currency..........................................................8
   1.6     Accounting Terms; GAAP............................................8

ARTICLE II PURCHASE AND SALE OF THE SHARES...................................8
   2.1     Authorization and Issuance of the Shares..........................8
   2.2     Delivery of the Shares............................................8
   2.3     Closing...........................................................9

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................9
   3.1     Corporate Existence...............................................9
   3.2     Corporate Power and Authorization.................................9
   3.3     Binding Obligations..............................................10
   3.4     No Violation.....................................................10
   3.5     Consents.........................................................10
   3.6     SEC Documents and Financial Statements...........................10
   3.7     Reserve Report...................................................11
   3.8     No Material Adverse Effect.......................................11
   3.9     Liabilities; Indebtedness........................................11
   3.10    Litigation.......................................................11
   3.11    Specified Contract and Commitments...............................12
   3.12    Title to Properties and Assets; Leases...........................13
   3.13    Compliance with the Law..........................................14
   3.14    Taxes............................................................14
   3.15    Employee Benefit Matters.........................................15
   3.16    Investment Company Act...........................................16
   3.17    Public Utility Holding Company Act...............................16
   3.18    No Restrictions on Affiliates....................................16
   3.19    Capitalization...................................................17
   3.20    Subsidiaries.....................................................17
   3.21    Environmental Matters............................................17
   3.22    Intellectual Property and Other Intangible Assets................19
   3.23    No Public Offer..................................................19
   3.24    Insurance........................................................19
   3.25    Certain Transactions.............................................19
   3.26    Use of Proceeds..................................................20
   3.27    Plugging and Abandonment Obligations.............................20
   3.28    No Material Misstatements or Omissions...........................20

   3.29    Fees and Commissions...........................................20
   3.30    Projections....................................................21

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTORS....................21
   4.1     Representations and Warranties of Each Investor................21

ARTICLE V CONDITIONS TO PURCHASE..........................................22
   5.1     Conditions to Obligations of Investors on the Closing Date.....22

ARTICLE VI TRANSFER OF SECURITIES.........................................23
   6.1     Restriction on Transfer........................................23
   6.2     Restrictive Legends............................................23
   6.3     Notice of Transfer.............................................24

ARTICLE VII MISCELLANEOUS.................................................25
   7.1     Notices........................................................25
   7.2     Survival of Agreement..........................................25
   7.3     Successors and Assigns.........................................26
   7.4     Expenses of the Investors......................................26
   7.5     Indemnification................................................27
   7.6     Third Party Claims.............................................28
   7.7     GOVERNING LAW..................................................30
   7.8     Waivers; Amendments............................................30
   7.9     No Fiduciary Relationship......................................31
   7.10    No Duty........................................................31
   7.11    Construction...................................................31
   7.12    Severability...................................................31
   7.13    Counterparts...................................................32
   7.14    Confidentiality................................................32
   7.15    Headings.......................................................32
   7.16    Entire Agreement...............................................33

SCHEDULE 1.1   -   Investors
SCHEDULE 1.2   -   Projections
SCHEDULE 3.4   -   No Violation
SCHEDULE 3.9   -   Liabilities
SCHEDULE 3.10  -   Litigation
SCHEDULE 3.11  -   Specified Contracts
SCHEDULE 3.12  -   Exceptions to Title
SCHEDULE 3.15  -   Employee Benefit Matters
SCHEDULE 3.19  -   Ownership; Capital Stock
SCHEDULE 3.20  -   Subsidiaries
SCHEDULE 3.21  -   Environmental Matters
SCHEDULE 3.22  -   Liens
SCHEDULE 3.25  -   Certain Transactions
SCHEDULE 3.27  -   Plugging and Abandonment Obligations
SCHEDULE 3.29  -   Fees and Commissions

SECURITIES PURCHASE AGREEMENT dated as of February 20, 2002 by and among CARRIZO OIL & GAS, INC., a corporation organized under the laws of the State of Texas (the "Company"), and the Persons listed on Schedule 1.1 hereto (together with successors and permitted assignees thereof, individually, an "Investor" and collectively, the "Investors").

RECITALS

WHEREAS, the Company is engaged in the exploration, development, exploitation and production of natural gas and crude oil (the "SUBJECT BUSINESS");

WHEREAS, the Company desires to issue to the Investors and the Investors, severally and not jointly, desire to purchase from the Company (i) 60,000 shares (the "SHARES") of Series B Convertible Participating Preferred Stock (the "SERIES B CONVERTIBLE PREFERRED STOCK") and (ii) warrants to purchase 252,632 shares of Common Stock (as hereinafter defined) on the terms and for the consideration provided herein;

WHEREAS, the proceeds of the Purchased Securities (as defined herein) shall be used (i) to fund the Company's ongoing drilling and development program, (ii) to fund working capital and (iii) for general corporate purposes;

NOW THEREFORE, the parties to this Agreement hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1 DEFINED TERMS.

As used in this Agreement, the following terms shall have the following respective meanings:

"2002 SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated as of February 20, 2002 among the Company and the shareholders of the Company party thereto as amended from time to time.

"AFFILIATE" means, with respect to any specified Person, (i) any other Person that directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with such Person, (ii) any Person owning, beneficially or of record, five percent or more of the voting stock of the Company (on a fully diluted basis) and (iii) any director or executive officer of such Person.

"AGREEMENT" means this Agreement, together with all Schedules, Exhibits and Annexes attached hereto, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof.

"APPLICABLE LAW" means all provisions of laws, statutes, ordinances, rules, regulations, permits, certificates or orders of any Governmental Authority applicable to the Person in question or any of its assets or property, and all judgments, injunctions, orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party or by which any of its assets or properties are bound.

"BENEFIT PLANS" has the meaning given to such term in Section 3.15(a).

"BENEFIT PROGRAM OR AGREEMENT" has the meaning given to such term in Section 3.15(a).

"BOARD" means the board of directors of the Company.

"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which banks are authorized or required to be closed in New York, New York or Houston, Texas; provided, however, that any determination of a Business Day relating to a securities exchange or other securities market means a Business Day on which such exchange or market is open for trading.

"CAPITAL LEASE OBLIGATIONS" means any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

"CAPITAL STOCK" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, but excluding any debt securities convertible into such equity.

"CLOSING" means the issuance and purchase of the Purchased Securities on the Closing Date.

"CLOSING DATE" has the meaning given to such term in Section 2.3.

"CODE" means the Internal Revenue Code of 1986, as amended, and the rules and regulations issued thereunder, as from time to time in effect, or any successor thereto.

"COMMISSION" means the Securities and Exchange Commission (or a successor thereto).

"COMMON STOCK" means the common stock, $.01 par value per share, of the Company.

"COMPANY" has the meaning given to such term in the Preamble to this Agreement.

"CONFIDENTIAL INFORMATION" has the meaning given to such term in Section 7.14.

"CONTROL" means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

"DEFENSIBLE TITLE" shall mean, with respect to the assets of the Company (i) the title of the Company to such assets is free and clear of all Liens of any kind whatsoever, and (ii) as to those wells for which a "working interest" and a "net revenue interest" are set forth on Schedule 3.12, the Company is entitled to receive the percentage of all hydrocarbons produced, saved and marketed from such wells in an amount not less than the net revenue interest set forth therein, without reduction, suspension or termination throughout the duration of the productive life of such wells, and the Company is obligated to bear the percentage of costs and expenses related to the maintenance, development and operation of such wells in an amount not greater than the working interest set forth on such Schedule, without increase throughout the productive life of such wells, except increases that also result in a proportionate increase in net revenue interest and as set forth on such Schedule.

"DESIGNATED TITLE EXCEPTIONS" has the meaning given to such term in Section 3.12(a).

"ENVIRONMENTAL LAWS" means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, pipeline safety and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products, distillates or byproducts, drilling fluids, produced waters, other wastes from the exploitation, development or production of crude oil or natural gas, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations from time to time promulgated thereunder.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"FINANCIAL OFFICER" of any Person means its chief financial officer or principal accounting officer.

"GAAP" means generally accepted accounting principles in the United States of America in effect from time to time.

"GOVERNMENTAL AUTHORITY" means any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States or any political subdivision thereof, or of any other country.

"GUARANTY" of or by any Person shall mean any obligation, contingent or otherwise, of such Person guarantying or having the economic effect of guarantying any Indebtedness or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness or other obligation, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment of such Indebtedness or other obligation or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation; provided, however, that the term "Guaranty" shall not include endorsements for collection or deposit in the ordinary course of business.

"HAZARDOUS MATERIALS" shall mean all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, byproducts, drilling fluids, produced waters, other wastes from the exploitation, development or production of crude oil or natural gas, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

"INDEBTEDNESS" of any Person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, including the undischarged balance of any production payments created by such Person or for the creation of which such Person directly or indirectly received payment and obligations to deliver goods or services including hydrocarbons in consideration of advance payments other than (i) obligations to sell or purchase hydrocarbons, (ii) obligations with pipelines for firm transportation of natural gas of such Person, and (iii) oil and gas balancing agreements, take or pay agreements or other prepayment obligations in respect of hydrocarbons, in each case, incurred in the ordinary course of business and which are customary in the oil and gas industry, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable, accrued obligations (including management fees) incurred in the ordinary course of business and the amount of any deferred rent obligations),
(f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees given by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations of such Person in respect of commodity price hedging agreements or arrangements, interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements and (j) all obligations and exposures of such Person as an account party in respect of letters of credit and bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a

general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

"INDEMNIFIED PERSON" has the meaning given to such term in
Section 7.5(a).

"INDEMNIFYING PERSON" has the meaning given to such term in
Section 7.6(a).

"INTERIM BALANCE SHEET" has the meaning given to such term in
Section 3.6.

"IRS" has the meaning given to such term in Section 3.15(b).

"LIEN" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Agreement, the Company shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes; provided, however, that for purposes of Section 3.12, the term "Lien" shall not include a trust or similar arrangement established for the purpose of defeasing any Indebtedness pursuant to the terms evidencing or providing for the issuance of such Indebtedness.

"LOSSES" has the meaning given to such term in Section 7.5(a).

"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect on the business, assets, liabilities (actual or contingent), operations, results of operations, condition (financial or other) or prospects of the Company and its Subsidiaries, taken as a whole, (b) any material impairment of the ability of the Company or any of its Subsidiaries to perform any of its material obligations under any Transaction Document or (c) any material impairment of any material rights of or benefits available to the Investors under any Transaction Document.

"PERMITS" shall mean all licenses, permits, exceptions, franchises, accreditations, privileges, rights, variances, waivers, approvals and other authorizations (including, without limitation, those relating to environmental matters) of, by or from Governmental Authorities necessary for the conduct of the business of the Company.

"PERSON" shall be construed as broadly as possible and includes natural person, corporation, limited liability company, partnership, joint venture, trust, unincorporated association or other organization and a Governmental Authority.

"PLAN" has the meaning given to such term in Section 3.15(a).

"PROJECTIONS" means the Company's forecasted (a) quarterly cash flow statements, (b) drilling plan and (c) balance sheet, working capital and capitalization all attached hereto as Schedule 1.2.

"PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

"PURCHASED SECURITIES" means the Series B Convertible Preferred Stock and the Warrants.

"REGISTRATION RIGHTS AGREEMENT" has the meaning given to such term in the Warrant Agreement.

"REPORTS" has the meaning given to such term in Section 3.7.

"REQUIRED INVESTORS" means Investors holding a majority of the shares of Common Stock of the Company issuable (for the purposes of clarity, "issuable" includes the shares of Common Stock of the Company that are issuable upon the date hereof and are issued subsequent to the date hereof) upon (a) the conversion of the Series B Convertible Preferred Stock and (b) the exercise of the Warrants.

"RESTRICTED SECURITIES" means the Purchased Securities, the Underlying Shares, the Warrants and the Warrant Shares, to the extent the Purchased Securities, the Underlying Shares, the Warrants and the Warrant Shares have not then been sold to the public pursuant to (a) registration under the Securities Act or (b) Rule 144 (or similar or successor rule) promulgated under the Securities Act.

"SEC DOCUMENTS" has the meaning given to such term in Section 3.6.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SERIES B CONVERTIBLE PREFERRED STOCK" means the Series B Convertible Participating Preferred Stock, par value $0.01 per share, of the Company.

"SERIES B DOCUMENTS" means this Agreement, the Statement of Resolution Establishing Series of Shares designated Series B Convertible Preferred Stock and any other document or instrument executed and delivered by the Company in connection with the Series B Convertible Preferred Stock or this Agreement.

"SHARES" means the 60,000 shares of Series B Convertible Preferred Stock purchased at the Closing.

"SPECIFIED CONTRACTS" has the meaning given to such term in
Section 3.11.

"STATEMENT OF RESOLUTIONS" means that certain Statement of Resolutions dated February 20, 2002 establishing a series of shares designated Series B Convertible Preferred Stock.

"SUBJECT BUSINESS" has the meaning given to such term in the recitals to this Agreement.

"SUBSIDIARY" means, with respect to any Person, any other Person of which more than fifty percent (50%) of the shares of stock or other interests entitled to vote in the election of directors or comparable Persons performing similar functions (excluding shares or other interests entitled to vote only upon the failure to pay dividends thereon or other contingencies) are at the time owned or controlled, directly or indirectly through one or more Subsidiaries, by such Person. Unless the context otherwise requires, the term "Subsidiary" means a Subsidiary of the Company.

"SURVIVAL DATE" has the meaning given to such term in Section 7.2.

"TAXES" has the meaning given to such term in Section 3.14

"TAX RETURNS" has the meaning given to such term in Section 3.14.

"THIRD PARTY CLAIM" has the meaning given to such term in
Section 7.6(a).

"TRANSACTION DOCUMENTS" means the Warrants, the Warrant Agreement, the Registration Rights Agreement, the 2002 Shareholders Agreement and the Series B Documents.

"TRANSFER" means any sale, transfer, assignment, or other disposition of any interest in, with or without consideration, any security, including any disposition of any security or of any interest therein which would constitute a sale thereof within the meaning of the Securities Act.

"UNDERLYING SHARES" means the Common Stock and other securities issuable upon conversion of the Shares.

"US$" and "UNITED STATES DOLLARS" shall each mean lawful currency of the United States.

"UNITED STATES" means the United States of America.

"WARRANT AGREEMENT" means the Warrant Agreement dated the date hereof among the Company and the other signatories thereto, as such Agreement may be amended, supplemented or otherwise modified from time to time.

"WARRANTS" has the meaning given to such term in the Warrant Agreement.

"WARRANT SHARES" has the meaning given to such term in the Warrant Agreement.

1.2 TERMS GENERALLY.

The definitions in Section 1.1 shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "INCLUDE", "INCLUDES" and "INCLUDING" shall be deemed to be followed by the phrase "WITHOUT LIMITATION".

1.3 USE OF DEFINED TERMS.

Terms defined in this Agreement and used in any Exhibit, Schedule, Certificate, Annex or any Transaction Document or other document delivered in connection with this Agreement, shall have the meanings assigned herein unless otherwise defined or the context otherwise requires.

1.4 CROSS-REFERENCES.

Unless otherwise specified, references in this Agreement or any Transaction Document to any Article or Section are references to such Article or
Section of this Agreement or such Transaction Document, as the case may be, and references in any Article, Section or definition to any clause are references to such clause of such Section, Article or definition.

1.5 CURRENCY.

Unless otherwise specified herein, all statements or references to dollar amounts or $ set forth herein or in any other Transaction Document shall refer to United States Dollars.

1.6 ACCOUNTING TERMS; GAAP.

Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing.

ARTICLE II

PURCHASE AND SALE OF THE SHARES

2.1 AUTHORIZATION AND ISSUANCE OF THE SHARES.

(a) The Company has authorized the issuance of the Purchased Securities.

(b) On the Closing Date, the Company shall sell to each Investor, and each Investor shall severally purchase from the Company, upon satisfaction of the conditions set forth in Section 5.1 hereof (or waiver in writing of such conditions by such Investor), (i) the number of shares of Series B Convertible Preferred Stock set forth opposite such Investor's name on Schedule 1.1 for the purchase price set forth opposite its name and (ii) Warrants to purchase the number of shares of Common Stock set forth opposite such Investor's name on Schedule 1.1 for the purchase price set forth opposite its name.

2.2 DELIVERY OF THE SHARES.

On the Closing Date, the Company shall deliver to each Investor (i) a certificate, registered in such Investor's name, representing the Shares of Series B Convertible Preferred

Stock purchased by such Investor at the Closing and (ii) the Warrants registered in such Investor's name representing the right to purchase the number of shares of Common Stock set forth opposite such Investor's name on Schedule 1.1. Delivery shall be made against receipt by the Company of the aggregate purchase price for the Purchased Securities being purchased by such Investor by wire transfer of immediately available funds to an account designated by the Company.

2.3 CLOSING.

Subject to the satisfaction of the conditions precedent set forth in
Section 5.1 hereof (or the waiver in writing of such conditions by the Investors), the delivery of the Purchased Securities shall take place at the offices of Baker Botts L.L.P., One Shell Plaza, 910 Louisiana, Houston, Texas 77002-4995 on the date of execution of the Transaction Documents and the closing of the transactions contemplated thereby (the "CLOSING DATE").

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Investors that, after the issuance and sale of the Purchased Securities, as of the Closing Date:

3.1 CORPORATE EXISTENCE.

The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. The Company has all necessary power and authority to conduct its business as it is now being conducted and to own, operate and lease the properties and assets it currently owns, operates and holds under lease. The Company is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its business activities or its ownership or leasing of property makes such qualification necessary. On or before the date hereof the Company has delivered or made available to the Investors true and complete copies of the Company's Articles of Incorporation and By-laws, together with all amendments thereto.

3.2 CORPORATE POWER AND AUTHORIZATION.

The Company has all requisite power and authority to issue the Purchased Securities and to execute, deliver, and perform the Transaction Documents and to consummate the transactions contemplated thereby. The execution, delivery and performance of the Transaction Documents and the consummation of the transactions to be performed by the Company thereunder have been duly and validly authorized by all necessary action on the part of the Board of Directors, and no other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery and performance of the Transaction Documents by the Company or to consummate the transactions to be performed by the Company thereunder.

3.3 BINDING OBLIGATIONS.

Each of the Transaction Documents when executed and delivered by the Company shall constitute a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except insofar as the enforceability thereof may be limited (i) by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) by general principles of equity and public policy (regardless of whether considered at law or in equity). When issued and delivered to the Investors at the Closing upon payment therefor as provided in this Agreement, the Shares will be duly authorized, validly issued, fully paid and nonassessable and free and clear of any Liens created by the Company.

3.4 NO VIOLATION.

Except as disclosed on Schedule 3.4, the execution, delivery and performance by the Company of the Transaction Documents, the consummation of the transactions provided for therein and contemplated thereby, and the fulfillment by the Company of the terms thereof, will not (a) conflict with or result in a breach of any provision of the Articles of Incorporation or By-laws of the Company, (b) result in any default or in any material modification of the terms of any Indebtedness, material instrument or agreement, of the Company or the creation of any Lien upon any of the properties or assets owned by the Company, or (c) result in a violation by the Company of any Applicable Law or Permit applicable to the Company.

3.5 CONSENTS.

All consents, approvals, qualifications, orders or authorizations of, or filings with, any Governmental Authority required to be obtained by the Company, and all consents under any material contracts, agreements, or instruments by which the Company is bound or to which it is subject, and required in connection with the Company's valid execution, delivery, or performance of the Transaction Documents, and the consummation of the transactions contemplated thereby, has been obtained or made other than the filing of a Form D with the Commission and the filing of the Statement of Resolutions with the Secretary of State of the State of Texas.

3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS.

The Company has timely filed with the Commission all forms, reports, schedules, statements and other documents required to be filed by it since January 1, 2000 under the Exchange or the Securities Act (such documents, as supplemented and amended since the time of filing, collectively, the "SEC DOCUMENTS"). The SEC Documents, including, without limitation, any financial statements or schedules included therein, at the time filed (and, in the case of registration statements, on the dates of effectiveness) (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be. The financial statements of the Company included in the SEC Documents at the time filed (and, in the case of registration

statements, on the dates of effectiveness) complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission), and fairly present (subject in the case of unaudited statements to normal, recurring audit adjustments) the combined financial position of the Company, as of the dates thereof and the combined results of operations and cash flows for the periods then ended. The condensed balance sheet for the Company included in its quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2001 is referred to herein as the "INTERIM BALANCE SHEET".

3.7 RESERVE REPORT.

The Company has delivered to the Investors a copy of the reserve report dated as of February 23, 2001 prepared by Ryder Scott Company Petroleum Engineers and the reserve report dated as of February 20, 2001 prepared by Fairchild, Ancell & Well, Inc., respectively, (the "Reports"), relating to the oil and gas reserves attributable to properties owned to which the Company has rights under lease or farm out or other written agreement by the Company. To the knowledge of the Company, the estimates of reserves in the Reports were prepared in accordance with standard geological and engineering methods generally accepted in the oil and gas industry. The estimates of the lease operating expenses in the Reports reasonably reflect the historical experience of the Company and the Company has no reason to believe that the estimates will not reflect future lease operating expenses and the historical factual information supplied by the Company to the independent engineering firm in connection with the preparation of the Reports was, at the time of delivery to such firm, true and complete in all material respects.

3.8 NO MATERIAL ADVERSE EFFECT.

Except as disclosed on Schedule 3.8, since December 31, 2000 there has been no Material Adverse Effect with respect to the Company nor any acquisition or disposition of any material asset by the Company or any contract or arrangement therefor, otherwise than for fair value in the ordinary course of business.

3.9 LIABILITIES; INDEBTEDNESS.

Except for liabilities incurred in the ordinary course of business and that would not, individually or in the aggregate, have a Material Adverse Effect, the Company does not have any liabilities, direct or contingent (including but not limited to liability with respect to any Plan or, to the Company's knowledge, any Environmental Law) other than those provided for in the Interim Balance Sheet or disclosed on Schedule 3.9. Except as would not have a Material Adverse Effect or as disclosed on the Interim Balance Sheet or in the audited financial statements of the Company or as incurred in the ordinary course of business, the Company has no Indebtedness other than the Indebtedness disclosed on Schedule 3.9.

3.10 LITIGATION.

Except as disclosed on Schedule 3.10, there is no action, suit or proceeding, or any governmental investigation or any arbitration, in each case pending or, to the knowledge of the

Company, threatened against the Company or any material property of the Company before any Governmental Authority (i) which challenges the legality, enforceability or validity of this Agreement or the Transaction Documents, or
(ii) which, if adversely determined, would have a Material Adverse Effect or impair the ability or obligation of the Company to perform fully on a timely basis any obligations which it has or will have under the Transaction Documents.

3.11 SPECIFIED CONTRACT AND COMMITMENTS.

(a) Except as set forth on Schedule 3.11 and except for the Transaction Documents to be entered into pursuant to or in connection with this Agreement, the Company has no (i) employment or consulting contract involving annual payments by the Company in excess of $150,000 and not cancelable without liability on sixty days' notice or less; (ii) capital redemption or purchase agreements; (iii) agreements providing for the indemnification of other parties for such parties' negligence or other fault (except for such obligations incurred in the ordinary course of business as an owner or operator of oil and gas properties, including obligations under master service agreements, drilling contracts, indemnification of Company directors and similar agreements) or the sharing of the tax liability of other parties; (iv) collective bargaining agreements; (v) gas sales or purchase contract, gas marketing agreement or transportation agreement under which the Company is the seller, which agreement is not terminable without penalty on thirty days' notice or less, and which provides for a price less than fair market value; (vi) agreement for capital expenditures, the acquisition of commodities, equipment or material or the construction of fixed assets which individually are expected to require aggregate future payments by the Company in excess of $1,000,000 and all which in the aggregate would be expected to require future payments in excess of $2,500,000 (excluding future expenditures for drilling and/or completion of oil and gas wells for which specific expenditures are not yet committed); (vii) agreement for, or that contemplates, the sale of any interest in oil or gas leases which involves payment (including property received in exchange or other non-cash consideration) to the Company in excess of $1,000,000 in the aggregate;
(viii) agreement which requires future payments by the Company in excess of $400,000 (and not covered by clauses (vi) or (vii) or the exceptions thereto) which is not otherwise specifically disclosed herein; (ix) agreements containing covenants limiting or restricting the freedom of the Company to compete in any line of business or territory or with any person or entity; (x) area of mutual interest agreements binding the Company other than areas of mutual interest established pursuant to standard form joint operating agreements, or the exhibits or attachments thereto; (xi) futures, hedge, swaps, collars, puts, calls, floors, caps, options or other contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, including hydrocarbons; (xii) indentures, mortgages, promissory notes, loan agreements, guaranties or other agreements or commitments relating to the borrowing of money or the incurrence of any other Indebtedness, or any related security agreements; (xiii) voting trust or other agreement or understanding with respect to the voting of its Capital Stock; (xiv) contracts, commitments, agreements, understandings or arrangements of any kind to which the Company is a party relating to the issuance of any Capital Stock of the Company, other than the Transaction Documents, (xv) agreements with respect to any of its Capital Stock which grant registration rights to any Person other than the Transaction Documents, (xvi) confidentiality agreements that would prohibit or restrict the disclosure of any information to the Investors (other than agreements that impose confidentiality restrictions involving seismic, geological or geophysical data or similar technical and business matters relating to the exploration for oil and gas and

agreements that impose confidentiality restrictions relating to discussions with potential investors or potential parties to business combinations with the Company, provided that such discussions are no longer ongoing) or (xvii) any other material agreement or instrument (collectively, "SPECIFIED CONTRACTS"). None of the Specified Contracts have been amended or modified except as set forth on Schedule 3.11.

(b) All of the Specified Contracts are in full force and effect and constitute legal, valid and binding obligations of the Company, and, to the knowledge of the Company, the other parties thereto, enforceable in all material respects in accordance with their respective terms, except insofar as the enforceability thereof may be limited (i) by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) by general principles of equity and public policy (regardless of whether considered at law or in equity). Neither the Company nor, to the knowledge of the Company, any other party to any Specified Contract, is in default in complying with any provisions thereof, and no condition or event or fact exists which, with notice, lapse of time or both would constitute a default thereunder on the part of the Company or, to the knowledge of the Company, any other party thereto, except for any such default, condition, event or fact that, individually or in the aggregate, would not have a Material Adverse Effect.

(c) The Company has no contracts or subcontracts whereby the Company receives payments from the federal government for the sale of products to, or the provision of services to the government. The Company has provided the Investors with a true and complete copy of each contract, agreement and instrument listed on Schedule 3.11 or has otherwise made such documents available for the Investors to review.

3.12 TITLE TO PROPERTIES AND ASSETS; LEASES.

(a) Except as set forth on Schedule 3.12, the Company has Defensible Title to all of its properties and assets (real and personal, tangible and intangible) reflected on the Interim Balance Sheet at a book cost in excess of $200,000 and all of the material assets thereafter acquired by the Company (except to the extent that (a) such assets have thereafter been disposed of in the ordinary course of business consistent with past practice or (b) leases for such property have expired pursuant to their terms), and, in each case free and clear of all Liens except (i) Liens for taxes not yet due and payable or, if payable, that are being contested in good faith in the ordinary course of business, (ii) statutory Liens (including materialmen's, mechanic's, repairmen's, landlord's and other similar liens) arising in the ordinary course of business to secure payments not yet due and payable or, if payable, that are being contested in good faith in the ordinary course of business, (iii) easements, restrictions, reservations or other encumbrances, as well as such imperfections or irregularities of title, if any, as are not material, (iv) obligations or duties to any municipality or public authority with respect to any franchise, grant, license or permit and all applicable laws, rules, regulations and orders of any Governmental Authority, (v) all lessors' royalties, overriding royalties, net profits interests, production payments, carried interests, reversionary interests and other burdens on or deductions from the proceeds of production, (vi) the terms and conditions of joint operating agreements and other oil and gas contracts, (vii) all rights to consent by, required notices to, and filings with or other actions by governmental or tribal entities, if any, in connection with the change of ownership or control of an interest in federal, state, tribal or other domestic governmental oil and gas leases, if the same

are customarily obtained subsequent to such change of ownership or control, but only insofar as such consents, notices, filings and other actions relate to the transactions contemplated by this Agreement, (viii) any preferential purchase rights, (ix) required third party consents to assignment, (x) conventional rights of reassignment prior to abandonment and (xi) the terms and provisions of oil and gas leases, unit agreements, pooling agreements, communication agreements and other documents creating interests comprising the oil and gas properties; provided, however, the exceptions described in clauses (iv) through
(xi) inclusive above are qualified to include only those exceptions in each case which do not operate to (A) reduce the net revenue interest of the Company below that set forth on Schedule 3.12, (B) increase the proportionate share of costs and expenses of leasehold operations attributable to or to be borne by the working interest of the Company above that set forth on Schedule 3.12 without a proportionate increase in the net revenue interest of the Company or (C) increase the working interest of the Company above that set forth on Schedule 3.12 without a proportionate increase in the net revenue interest of the Company, and, provided, further, that the foregoing defects, limitations, liens and encumbrances, whether individually material or not, do not in the aggregate create a Material Adverse Effect upon the Company (the categories of exceptions in clauses (iv) through (xi), as so qualified and as any such exceptions may exist from time to time, being referred to as the "DESIGNATED TITLE EXCEPTIONS"). To the Company's knowledge, all equipment now owned by the Company which is necessary to the business of the Company is in good condition and repair (ordinary wear and tear excepted), except where the failure to be in good condition and repair would not have a Material Adverse Effect.

(b) Except as set forth on Schedule 3.12, but only to the knowledge of the Company with respect to oil and gas leases not operated by the Company, the oil and gas leases in which the Company owns an interest (i) have been maintained according to their terms and in compliance with all material agreements to which such oil and gas leases are subject, except where the failure to be so maintained or any noncompliance would not have a Material Adverse Effect, and (ii) are in full force and effect, except where the failure to be in full force and effect would not have a Material Adverse Effect.

(c) All royalties, overriding royalties, compensatory royalties and other payments due with respect to the oil and gas properties of the Company have been properly and correctly paid, except where the failure to make such payment would not have a Material Adverse Effect.

3.13 COMPLIANCE WITH THE LAW.

The Company (i) is not in violation of any Applicable Law and (ii) has not failed to obtain any Permit, necessary to the ownership of any of its properties or the conduct of its business, except in either case where a violation or failure would not have a Material Adverse Effect.

3.14 TAXES.

The Company (i) has filed all tax returns and reports ("TAX RETURNS") required to be filed by or with respect to the Company, (ii) has included all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return, and (iii) has

paid all taxes, assessments, fees, imposts, duties or other charges, including any interest and penalties (all collectively referred to herein as "TAXES"), due with respect to such Tax Returns except for such failures as would not have a Material Adverse Effect. There is no claim against the Company for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to the Company.

3.15 EMPLOYEE BENEFIT MATTERS.

(a) Definitions. Where the following words and phrases appear in this Agreement, they shall have the respective meanings set forth below, unless the context clearly indicates to the contrary:

(i) PLAN: Each "employee benefit plan," as such term is defined in Section 3(3) of ERISA, including, but not limited to, any employee benefit plan that may be exempt from some or all of the provisions of its ERISA, which is sponsored, maintained, or contributed to by the Company or any of its ERISA Affiliates (as hereinafter defined) for the benefit of the employees, former employees, independent contractors, or agents of the Company or any of its ERISA Affiliates, or has been so sponsored, maintained or contributed to since September 2, 1974.

(ii) BENEFIT PROGRAM OR AGREEMENT: Each personnel policy, stock option plan, collective bargaining agreement, workers' compensation agreement or arrangement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement, and each other employee benefit plan, agreement, arrangement, program, practice or understanding, which is not described in Section 3.15(a)(i) and which is sponsored, maintained, or contributed to by the Company for the benefit of the employees, former employees, independent contractors, or agents of the Company or any of its Subsidiaries, or has been so sponsored, maintained, or contributed to since September 2, 1974.

(iii) BENEFIT PLANS: Collectively, the Plans and Benefit Programs or Agreements.

(b) Employee Benefit Plan Compliance.

(i) Neither the Company nor any corporation, trade, business, or entity under common control with the Company, within the meaning of Section 414(b), (c), (m), or (o) of the Code or Section 4001 of ERISA, ("ERISA Affiliate") contributes to or has an obligation to contribute to, nor has the Company or any ERISA Affiliate at any time within six years prior to the Closing Date contributed to or had an obligation to contribute to, a multi-employer plan within the meaning of Section 3(37) of ERISA or any plan subject to Title IV of ERISA; and

(ii) All obligations, whether arising by operation of law or by contract, required to be performed in connection with the Benefit Plans have been performed, and there have been no defaults, omissions, or violations by any party with respect to any

Benefit Plan or law applicable thereto, except as would not have a Material Adverse Effect; and

(iii) Each Plan that is intended to be qualified under Section 401(a) of the Code (A) satisfies the requirements of such
Section in all material respects, (B) has received a favorable determination letter from the Internal Revenue Service ("IRS") regarding such qualified status and (C) has not, since receipt of the most recent favorable determination letter, been amended or operated in a way that would materially and adversely affect such qualified status and, to the extent such letter does not cover amendments required by law, both the time for adopting such amendments if not previously adopted and filing such amendments with the IRS if not previously filed has not expired.

(c) No Additional Rights or Obligations. Except as set forth on Schedule 3.15, the execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated thereby will not
(i) require the Company to make a larger contribution to, or pay greater benefits under, any Benefit Plan than it otherwise would, or (ii) create or give rise to any additional vested rights or service credits under any Benefit Plan.

(d) No Additional Severance. The Company is not a party to any agreement, nor has the Company established any policy or practice requiring it to make a payment or provide any other form of compensation or benefit to any person performing services for the Company upon termination of such services that would not be payable or provided in the absence of the consummation of the transactions contemplated by the Transaction Documents.

(e) No Excess Parachute Payments. In connection with the consummation of the transaction contemplated by the Transaction Documents, no payments have or will be made under the Benefit Plans.

3.16 INVESTMENT COMPANY ACT.

The Company is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.

3.17 PUBLIC UTILITY HOLDING COMPANY ACT.

The Company is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended.

3.18 NO RESTRICTIONS ON AFFILIATES.

The Company is not a party to any agreement that would purport to impose restrictions or limitations on the Investors or any of their Affiliates.

3.19 CAPITALIZATION.

The authorized capital stock of the Company consists of (i) 40,000,000 shares of Common Stock of which 14,064,077 shares are issued and outstanding as of the date hereof and an additional 1,456,037 shares are reserved for issuance under the Incentive Plan of the Company, 216,120 shares are reserved for issuance pursuant to other outstanding options and 3,010,189 shares are reserved for issuance upon exercise of rights of purchase represented by the warrants listed on Schedule 3.19, 1,052,632 shares are reserved for issuance upon conversion of the Shares and 252,632 shares are reserved for issuance upon conversion of the Warrants and (ii) 10,000,000 shares of Preferred Stock, par value $0.01, of which 60,000 shares of Series B Convertible Preferred Stock are authorized for issuance and of which the Shares will be issued and outstanding at the Closing and no other shares of Preferred Stock will be issued and outstanding as of the Closing Date (after giving effect to the transactions contemplated by the Transaction Documents). Schedule 3.19 sets forth the name and address of each person known to the Company to be the beneficial owner of 5% or more of the outstanding shares of Common Stock. Except as set forth on Schedule 3.19, there are no outstanding subscriptions, warrants, options, calls, commitments or other rights to purchase or acquire, or securities convertible into or exchangeable for, any Capital Stock of the Company. All of the outstanding shares of Common Stock are validly issued, fully paid and nonassessable. There have been reserved for issuance, and the Company shall at all times keep reserved, out of the authorized and unissued shares of the Company's Common Stock, a number of shares sufficient to provide for the conversion of the Shares and the exercise of the rights of purchase represented by the Warrants, and such shares, when issued upon conversion in accordance with the terms of the Series B Convertible Preferred Stock or upon receipt of payment therefor or upon a net exercise in accordance with the terms of the Warrants and the Warrant Agreement, will be legally and validly issued, fully paid and nonassessable and will be free of any preemptive rights of shareholders.

3.21     ENVIRONMENTAL MATTERS.

         Except as set forth on Schedule 3.21:

                  (a) the properties and operations of the Company have not

violated and are not in violation of any Environmental Laws or any order or requirement of any court or Governmental Authority to the extent pertaining to health or the environment, except where a violation would not have a Material Adverse Effect, nor are there any conditions existing on such property or resulting from operations thereon that may give rise to any on-site or off-site remedial obligations under any Environmental Law, except for any condition that would not have a Material Adverse Effect;

(b) without limitation of Section 3.21(a) above, the Company is not subject to any pending or, to the knowledge of the Company, threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority under any Environmental Law;

(c) except as would not have a Material Adverse Effect, (i) all notices, Permits, licenses or similar authorizations, if any, required to be obtained or filed by the Company under any Environmental Law, including without limitation those relating to the treatment, storage, disposal or release of any Hazardous Material into the environment, have been duly obtained or filed, and
(ii) the Company has complied and is in compliance with the terms and conditions of all such notices, Permits, licenses and similar authorizations;

(d) except as would not have a Material Adverse Effect, (i) all Hazardous Materials generated by or as a result of operations on properties owned by the Company and requiring disposal have been transported only by carriers maintaining valid authorizations under applicable Environmental Laws and treated and disposed of only at treatment, storage and disposal facilities maintaining valid authorizations under applicable Environmental Laws and (ii) such carriers and facilities have been and are operating in compliance with such authorizations and are not the subject of any pending or threatened action investigation or inquiry by any Governmental Authority in connection with any Environmental Laws;

(e) except as would not have a Material Adverse Effect, (i) there are no asbestos-containing materials on or in any property owned or used by the Company and (ii) there are no storage tanks or similar containers on or under any such properties from which Hazardous Materials may be released into the surrounding environment;

(f) without limiting the foregoing, there is no material liability of the Company (accrued or contingent) to any non-governmental third party in tort or under common law or under Environmental Laws in connection with any release or threatened release of any Hazardous Material into the environment as a result of operations conducted on its properties; and

(g) Schedule 3.21 separately lists for the Company any and all existing liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations in which there is a possible uninsured loss greater than $250,000 or $500,000 in the aggregate against or affecting it and relating to the release, discharge or emission of any Hazardous Material, or to the generation, treatment, storage or disposal of any wastes, or otherwise relating to the protection of the environment or to the non-compliance with any notices, Permits, licenses, consent decrees or other authorizations and the disposition of each such liability. With respect to each such pending or prior matter, Schedule 3.21 hereto lists the date of such liability, the claimant or investigating agency, the nature and a brief description of the matter, the damages claimed or relief sought, and the status or outcome of the matter. Except as set forth on Schedule 3.21, the Company has not received any written notice that it is a potentially responsible party under any Environmental Laws.

3.22 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.

The Company (i) owns or has the right to use, free and clear of all Liens, all patents, trademarks, service marks, trade names and copyrights, and all applications, licenses and rights with respect to the foregoing, and all trade secrets, including know-how, inventions, designs, processes, works of authorship, computer programs, and technical data and information (collectively, "Intellectual Property") used and sufficient for use in the conduct of its business as now conducted without infringing upon or violating any right, Lien, or claim of others, and (ii) except as described on Schedule 3.22, is not obligated or under any liability whatsoever to make any payments by way of royalties, fees, or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright, or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise, except for such failures to have the right to use such obligations and not have a Material Adverse Effect.

3.23 NO PUBLIC OFFER.

Neither the Company nor anyone acting on its behalf has offered to any Person securities of the Company, or any part thereof, or any instruments convertible, exercisable or exchangeable into such securities, or has solicited from, or otherwise approached or negotiated in respect thereof with, any Person other than the Investors and not more than 25 institutional investors any offer to acquire the same, in a manner, or taken or failed to take any other action, so as to make the transactions contemplated by this Agreement subject to the registration requirements of Section 5 of the Securities Act.

3.24 INSURANCE.

The Company maintains property, casualty, general liability and other insurance policies with coverage limits in amounts and with carriers as in each case are customary in accordance with sound business practices and which the Company believes are adequate in the circumstances. The Company has previously provided, or made available to the Investors true and complete copies of all of the Company's insurance policies. The Company has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all material claims and actions covered by insurance, and no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. The Company has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened.

3.25 CERTAIN TRANSACTIONS.

Except as set forth on Schedule 3.25, (a) the Company is not indebted directly or indirectly to any of its officers, directors or shareholders or to their respective spouses or children in any amount whatsoever, (b) none of such officers, directors or shareholders, or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any Person with which the Company has a business relationship (other than ownership interests of less than 5% in a publicly traded company), or any Person that competes

with the Company (other than ownership interests of less than 5% in a publicly traded competitor), and (c) no officer, director or 10% shareholder, or any member of his immediate family, has a direct or material indirect financial interest in any material contract with the Company other than employment arrangements and benefit plans.

3.26 USE OF PROCEEDS.

All proceeds from the issuance of the Purchased Securities will be used by the Company only in accordance with the recitals of this Agreement.

3.27 PLUGGING AND ABANDONMENT OBLIGATIONS.

Except as set forth on Schedule 3.27 and as would not have a Material Adverse Effect, there is no well located upon any property owned by the Company that the Company is currently in default on an obligation imposed by law or contract to plug and abandon.

3.28 NO MATERIAL MISSTATEMENTS OR OMISSIONS.

None of the Transaction Documents contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading, in view of the circumstances in which they were made (provided that the Company makes no representation or warranty as to any representations or warranties made by any Person other than the Company or its Subsidiaries in any Transaction Document). To the knowledge of the Company, there is no fact or information relating to the business, prospects, condition (financial or otherwise), affairs, operations or assets of the Company that has not been disclosed to the Investors in writing by the Company which could result in a Material Adverse Effect, including, without limitation, through disclosure in the SEC Documents. The financial statements and other related financial data (excluding all projections and pro forma financial data) and reserve reports furnished to the Investors by or at the direction of the Company in connection with the negotiation of this Agreement do not contain any material misstatement of fact and, when considered with all other written statements furnished to the Investors in that connection, such financial statements, related financial data (excluding all projections and pro forma financial data) and reserve reports do not omit to state a material fact or any fact necessary to make the statement contained therein not misleading. The circumstances and events that are not required to be identified on the Schedules hereto by reason of the materiality qualifications contained in the representations and warranties in this Article III, or which are otherwise within such qualifications, in the aggregate do not have, and could not reasonably be expected to have, a Material Adverse Effect on the Company when taken in the context of all of the assets, obligations and operations of the Company.

3.29 FEES AND COMMISSIONS.

Except as set forth on Schedule 3.29, the Company has not retained, nor are any fees due from the Company to, any intermediary retained by such party, any finder, broker, agent, financial advisor, or other intermediary, in connection with the transactions contemplated by the Transaction Documents.

3.30 PROJECTIONS.

The Projections have been prepared in good faith based upon material assumptions that were reasonable at the time the Projections were prepared and as of the Closing Date; provided that, notwithstanding any other provisions hereof, it is recognized by the Investors that the Projections and any reserve report delivered in connection with this Agreement as they relate to future events are not to be viewed as fact and that the actual results during the period or periods covered by the Projections or reserve reports may differ from the projected results set forth therein by a material amount; and, without limiting the generality of the foregoing, no representation or warranty is made as to future prices of hydrocarbons or as to the timing or results of future exploration or production operations, other than the representation that the assumptions relating thereto were reasonable.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF INVESTORS

4.1 REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.

Each Investor represents and warrants to the Company, severally and not jointly, as of the date hereof as follows:

(a) Purchase for its Own Account. Such Investor is purchasing the Purchased Securities for its own account, without a view to the distribution thereof in violation of the Securities Act, all without prejudice, however, to the right of such Investor at any time, in accordance with this Agreement or the Transaction Documents, lawfully to sell or otherwise to dispose of all or any of the Purchased Securities, Underlying Shares and Warrant Shares held by it.

(b) Accredited Investor. Such Investor is an "accredited investor" within the meaning of Regulation D under the Securities Act.

(c) Authority, Etc. Such Investor has the power and authority to enter into and perform this Agreement and the execution and performance hereof have been duly authorized by all proper and necessary action; this Agreement constitutes the valid and legally binding obligation of such Investor, enforceable against it in accordance with its terms, except as limited by bankruptcy, insolvency or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights and the application of equitable principles.

(d) Securities Act Compliance. Such Investor understands that the Company has not registered the Restricted Securities under the Securities Act, and each Investor agrees that the Restricted Securities, may not be sold or transferred or offered for sale or transfer by it without registration under the Securities Act or the availability of an exemption therefrom, all as more fully provided in Article VI hereof. Such Investor understands that any transfer agent of the Company will be issued stop-transfer restrictions with respect to the Restricted Securities unless such transfer is subsequently registered under the Securities Act and applicable state and other securities laws or unless an exemption from such registration is available. Such Investor has experience in analyzing and investing in entities like the Company, such Investor can bear

the economic risk of its investment, including the full loss of its investment, and by reason of its business or financial experience or the business or financial experience of its professional advisors has the capacity to evaluate the merits and risks of its investment and protect its own interest in connection with the purchase of the Restricted Securities from the Company at the Closing. Such Investor has received copies of the SEC Documents. Such Investor has had a reasonable opportunity to ask questions relating to and otherwise discuss the terms and conditions of the offering and the other information set forth in the SEC Documents and the Company's business, management and financial affairs with the Company's management, customers and other parties, and such Investor has received satisfactory responses to its inquiries. Such Investor does not have any contract, undertaking, agreement or arrangements with any Person to sell, transfer or grant a participation to such Person or to any third Person, with respect to any of the Restricted Securities in violation of the Federal or any state securities laws.

ARTICLE V

CONDITIONS TO PURCHASE

5.1 CONDITIONS TO OBLIGATIONS OF INVESTORS ON THE CLOSING DATE.

The obligations of the Investors to purchase the Purchased Securities hereunder are subject to the satisfaction of the following conditions:

(a) Transaction Documents. The Investors shall have received, in form and substance satisfactory to them and their counsel, a duly executed copy of each of the Transaction Documents, together with such additional documents, instruments, certificates as the Investors and their counsel shall reasonably require in connection therewith, including those listed in the Schedule of Documents attached hereto as Annex A and incorporated herein, each in form and substance satisfactory to the Investors and their counsel.

(b) No Litigation. There shall exist no actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or threatened against or affecting the Company or its business, assets or rights which involve any of the transactions contemplated by the Transaction Documents.

(c) Payment of Fees and Expenses. All fees and expenses owing by the Company to the Investors under the terms of any Transaction Document or any other document executed in connection herewith or therewith shall have been paid to the Investors or other party to which owed on the Closing Date. The counsel for the Investors shall have received payment in full to the extent invoiced for all reasonable legal fees, and all costs and expenses incurred, by such counsel through the Closing Date in connection with the transactions contemplated under the Transaction Documents and instruments in connection therewith.

(d) Requisite Approvals. The Company shall have obtained copies of all required governmental and other consents, licenses, Permits and approvals relating to the transactions contemplated by the Transaction Documents, which consents, licenses, Permits and approvals shall be in form and substance acceptable to Investors and its counsel.

(e) Representations and Warranties; Performance of Covenants. The representations and warranties of the Company contained in each Transaction Document and in any certificate or other instrument delivered pursuant to any of the foregoing shall be correct in all material respects as though made on and as of the Closing Date. The Company shall have satisfied each of the conditions precedent set forth therein on and as of the Closing Date.

(f) Legal Matters. All matters relating to the Transaction Documents and the transactions contemplated thereby shall be reasonably satisfactory to the Investors and their counsel.

ARTICLE VI

TRANSFER OF SECURITIES

6.1 RESTRICTION ON TRANSFER.

The Restricted Securities shall not be transferable except a holder of Restricted Securities may transfer such Restricted Securities upon the conditions specified in this Article VI, which conditions are intended to ensure compliance with the provisions of the Securities Act in respect of the transfer thereof; provided, however, that any such transfer shall be subject to the restrictions contained in the Warrant Agreement and the 2002 Shareholders Agreement and any transferee, by acceptance of the Restricted Securities, will be deemed to have agreed to be bound by and entitled to the benefits of Section 7.14.

6.2 RESTRICTIVE LEGENDS.

Each certificate for the Restricted Securities, and each certificate for any such securities issued to subsequent transferees of any such certificate shall (unless otherwise permitted by the provisions of Section 6.3 hereof) be stamped or otherwise imprinted with a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF FEBRUARY 20, 2002, AMONG THE ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF

SUCH CONDITIONS, THE ISSUER HEREOF HAS AGREED

TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF."

6.3 NOTICE OF TRANSFER.

(a) Each holder shall, prior to any Transfer of any Restricted Securities, give five Business Days prior written notice (or, if such five Business Day notice period is not reasonably practicable, such notice as is reasonably practicable), to the Company of such holder's intention to effect such Transfer and to comply in all other respects with the provisions of this
Section 6.3 in making such proposed Transfer. Each such notice shall describe the manner and circumstances of the proposed Transfer. Upon request by the Company, the holder delivering such notice shall deliver a written opinion, addressed to the Company, of counsel for such holder (which may be one of its internal counsels), stating that in the opinion of such counsel (which opinion must be reasonably satisfactory to the Company) such proposed Transfer does not involve a transaction requiring registration of such Restricted Securities under the Securities Act. Such holder shall thereupon be entitled to Transfer the Restricted Securities in accordance with the terms of the notice delivered to the Company, if the Company does not reasonably object to such Transfer and request such opinion, within five days after delivery of such notice or, if the Company does request such opinion, upon its receipt thereof. Each certificate or other instrument evidencing the securities issued upon the Transfer of any Restricted Securities (and each certificate or other instrument evidencing any untransferred balance of such Restricted Securities) shall bear the legend set forth in Section 6.2 above unless (i) such opinion of counsel is to the effect that registration of any future Transfer is not required by the applicable provisions of the Securities Act or (ii) the Company shall have waived the requirement of such legend.

(b) Notwithstanding the foregoing provisions of this Section 6.3, the restrictions imposed by Section 6.3(a) upon the transferability of any Restricted Securities shall cease and terminate when (i) such Restricted Securities are sold or otherwise disposed of pursuant to an effective registration statement under the Securities Act or as otherwise contemplated by paragraph (a) above in a manner that does not require that the Restricted Securities so transferred continue to bear the legend set forth in Section 6.2 above or (ii) the holder of such Restricted Securities has met the requirements for Transfer of such Restricted Securities under Rule 144(k). Whenever the restrictions imposed by this Section shall terminate, upon the written request of the holder of any Restricted Securities as to which such restrictions have terminated, as promptly as practicable but in any event within ten Business Days of receipt of such request, the Company shall, without charge, issue, register and deliver a new instrument not bearing the restrictive legend set forth in
Section 6.2 above and not containing any other reference to the restrictions imposed by this Section.

ARTICLE VII

MISCELLANEOUS

7.1 NOTICES.

All notices, demands and requests of any kind to be delivered to any party hereto in connection with this Agreement shall be (a) delivered personally, (b) sent by nationally-recognized overnight courier, (c) sent by first class, registered or certified mail, return receipt requested or (d) sent by facsimile, in each case to such party at its address as follows:

(i) if to the Company, to:

Carrizo Oil & Gas, Inc. 14701 St. Mary's Lane, Suite 800 Houston, Texas 77079 Attention: Chief Financial Officer Telephone No.: (281) 496-1352 Telecopier No.: (281) 496-1251

with a copy to:

Baker Botts L.L.P.

One Shell Plaza
910 Louisiana
Houston, Texas 77002-4915
Attention: Gene Oshman, Esq.
Telephone No.: (713) 229-1178
Telecopier No.: (713) 229-1522

(ii) if to any Investor, to such Investor's address set forth in Schedule 1.1 hereto.

Any notice, demand or request so delivered shall constitute valid notice under this Agreement and shall be deemed to have been received (A) on the day of actual delivery in the case of personal delivery, (B) on the next Business Day after the date when sent in the case of delivery by nationally-recognized overnight courier, (C) on the fifth Business Day after the date of deposit in the U.S. mail in the case of mailing or (D) upon receipt in the case of a facsimile transmission or the next Business Day if such day is not a Business Day. Any party hereto may from time to time by notice in writing served upon the other as aforesaid designate a different mailing address or a different person to which all such notices, demands or requests thereafter are to be addressed.

7.2 SURVIVAL OF AGREEMENT.

All agreements, representations and warranties contained herein or made in writing by or on behalf of the Company in connection with the transactions contemplated hereby shall survive

the execution and delivery of this Agreement and the other Transaction Documents without limit; provided, however, that for purposes of the indemnification contained in Section 7.5, the representations and warranties set forth in Article III (other than Sections 3.2, 3.3 and 3.19) shall survive until the third anniversary of the Closing Date (the "SURVIVAL DATE"). No termination or cancellation (regardless of cause or procedure) of this Agreement shall in any way affect or impair the powers, obligations, duties, rights and liabilities of the parties hereto in any way with respect to any transaction or event occurring prior to such termination or cancellation, or any of the representations contained in this Agreement and the other Transaction Documents and all such undertakings, agreements, covenants, warranties and representations shall survive such termination or cancellation as provided above. To the fullest extent allowed by law, the Investors shall be entitled to rely upon, and shall be deemed to have relied upon, all representations, warranties and covenants to be performed prior to the Closing Date contained in any Transaction Document, notwithstanding any knowledge of the Investors to the contrary, or any contrary information delivered to the Investors by the Company or any other Person.

7.3 SUCCESSORS AND ASSIGNS.

Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party, and all covenants, promises and agreements by or on behalf of the Company or the Investors that are contained in the Transaction Document shall bind and inure to the benefit of their respective successors and permitted assigns except that the Company shall not assign its rights or obligations hereunder without the consent of the Required Investors. Each Investor shall have the right, subject to the provisions of Article VI hereof, to assign or otherwise transfer its rights under this Agreement (in connection with the transfer of Restricted Securities) or any Purchased Securities, Underlying Shares and Warrant Shares held by it.

7.4 EXPENSES OF THE INVESTORS.

The Company shall pay (a) all out-of-pocket expenses reasonably incurred by the Investors (including, without limitation, the reasonable fees, charges and disbursements of counsel for the Investors and any auditors, accountants, appraisers, consultants, advisors and agents employed or retained by the Investors) in connection with (i) the preparation, execution and delivery of this Agreement and the other Transaction Documents, (ii) the purchase of the Purchased Securities hereunder (including the Investors' due diligence investigation in connection therewith) and (iii) all filings by any Investor required to be made by the Commission in connection with the transactions contemplated by the Transaction Documents and (b) all out-of-pocket expenses incurred by the Investors, including the fees, charges and disbursements of counsel for the Investors, in connection with the enforcement or protection of the Investors' rights under the provisions of any Transaction Document provided that the Investors prevail in any such enforcement proceedings; provided, however, that the Company shall not be obligated to pay in excess of $75,000 to by Mellon Ventures, L.P. for expenses incurred by Mellon Ventures, L.P. arising under subsection (a) above.

7.5 INDEMNIFICATION.

(a) In addition to all rights and remedies available to the Investors at law or in equity, the Company shall indemnify the Investors and their affiliates, stockholders, officers, directors, employees, agents, representatives, counsel, successors and permitted assigns (collectively, the "INDEMNIFIED PERSONS") and save and hold each of them harmless against and pay on behalf of or reimburse such party as and when incurred for any loss, liability, demand, claim, action, cause of action, cost, damage, deficiency, penalty, fine or expense, whether or not arising out of any claims by or on behalf of the Company or any third party, including interest, penalties, reasonable attorneys' fees and expenses and all amounts paid in investigation, defense or settlement of any of the foregoing (collectively, "LOSSES") which any such party may suffer, sustain or become subject to, to the extent arising out of or as a result of:

(i) any misrepresentation or breach of a representation or warranty on the part of the Company under Article III of this Agreement;

(ii) any nonfulfillment or breach of any covenant or agreement on the part of the Company under this Agreement or any other Transaction Document;

(iii) any action, demand, proceeding, investigation or claim by any third party (including, without limitation, governmental agencies) against any Indemnified Person that, if successful, would give rise to or evidence the existence of or relate to a breach of any of the representations, warranties or covenants of the Company; and

(iv) any action, demand, proceeding, investigation or claim by any third party (including, without limitation, governmental agencies) against any Indemnified Person relating to or arising from Environmental Laws relating to the Company (including without limitation relating to or arising from any Hazardous Material regarding the Company or its Subsidiaries and relating to the Company and its Subsidiaries or any predecessor thereto or any of the operators, properties or assets of any of them).

(b) Notwithstanding the foregoing, and subject to the following part of this sentence, upon judicial determination, which is final and no longer appealable, that the act or omission giving rise to the indemnification hereinabove provided resulted primarily out of or was based primarily upon the Indemnified Person's gross negligence, fraud or willful misconduct (unless such action was based upon the Indemnified Person's reliance in good faith upon any of the representations, warranties, covenants or promises made by the Company in the Transaction Documents) by the Indemnified Person, the Company shall not be responsible for any Losses sought to be indemnified in connection therewith, and the Company shall be entitled to recover from the Indemnified Person all amounts previously paid in full or partial satisfaction of such indemnity with interest thereon at the rate of 8% per annum, together with all costs and expenses of the Company reasonably incurred in effecting such recovery, if any.

(c) All indemnification rights hereunder shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby

without limit, regardless of any investigation, inquiry or examination made for or on behalf of, or any knowledge of the Investors and/or any of the Indemnified Persons or the acceptance by the Investors of any certificate or opinion; provided, however that any Indemnified Person shall be required to assert any claim for indemnification in respect of Losses to the extent arising out of or as a result of any representation or warranty referred to in clause (i) or (iii) of Section 7.5(a) on or prior to the Survival Date, if any, applicable to such representation or warranty.

(d) The indemnity obligations that the Company has under this
Section 7.5 shall be in addition to any liability that the Company may otherwise have. The Company further agrees that the indemnification commitment set forth in this Agreement shall apply whether or not the Indemnified Person is a formal party to any such lawsuits, claims or other proceedings.

(e) Any indemnification of the Investors or any other Indemnified Person by the Company pursuant to this Section 7.5 shall be effected by wire transfer of immediately available funds from the Company to an account designated by the Investors or any other Indemnified Person within fifteen days after the determination thereof.

7.6 THIRD PARTY CLAIMS.

(a) If any claim (a "THIRD PARTY CLAIM") is asserted against an Indemnified Person and such Indemnified Person intends to seek indemnification hereunder from the Company (the "INDEMNIFYING PERSON"), then such Indemnified Person shall give notice of the Third Party Claim to the Indemnifying Person as soon as practicable after the Indemnified Person has reason to believe that the Indemnifying Person will have an indemnification obligation with respect to such Third Party Claim and shall provide the Indemnifying Person with all papers served with respect to such Third Party Claim. Such notice shall describe in reasonable detail, to the extent known, the nature of the Third Party Claim, an estimate of the amount of damages attributable to the Third Party Claim and the basis of the Indemnified Person's request for indemnification under this Agreement. The failure of the Indemnified Person to so notify the Indemnifying Person of the Third Party Claim shall not relieve the Indemnifying Person from any duty to indemnify hereunder unless and to the extent that the Indemnifying Person demonstrates that the failure of the Indemnified Person to promptly notify it of such Third Party Claim prejudiced its ability to defend such Third Party Claim; provided, that the failure of the Indemnified Person to notify the Indemnifying Person shall not relieve the Indemnifying Person from any liability which it may have to the Indemnified Person otherwise than under this Agreement. Thereafter, the Indemnified Person shall deliver to the Indemnifying Person, within five Business Days after the Indemnified Person's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Person relating to the Third Party Claim.

(b) The Indemnifying Person shall have the right to participate in, or assume control of, and the Indemnifying Person's insurance carrier shall have the right to participate in, the defense of the Third Party Claim at its own expense by giving prompt written notice to the Indemnified Person, using counsel of its choice reasonably acceptable to the Indemnified Person. If it elects to assume control of the defense of such Third Party Claim, the Indemnifying Person shall defend such Third Party Claim by promptly and vigorously prosecuting all appropriate proceedings to a final conclusion or settlement. After notice from the Indemnifying Person to

the Indemnified Person of its election to assume the defense of such Third Party Claim, the Indemnified Person shall have the right to participate in the defense of the Third Party Claim using counsel of its choice, but the Indemnifying Person shall not be liable to the Indemnified Person hereunder for any legal or other expenses subsequently incurred by the Indemnified Person in connection with its participation in the defense thereof unless (i) the employment thereof has been specifically authorized in writing by the Indemnifying Person, (ii) the Indemnifying Person fails to assume the defense or diligently prosecute the Third Party Claim or (iii) there shall exist or develop a conflict that would ethically prohibit counsel to the Indemnifying Person from representing the Indemnified Person. If requested by the Indemnifying Person, the Indemnified Person agrees to cooperate with the Indemnifying Person and its counsel in contesting any Third Party Claim that the Indemnifying Person elects to contest, including the making of any related counterclaim against the Third Party asserting the Third Party Claim or any cross-complaint against any Person, in each case only if and to the extent that any such counterclaim or cross-complaint arises from the same actions or facts giving rise to the Third Party Claim. The Indemnifying Person shall have the right, acting in good faith and with due regard to the interests of the Indemnified Person, to control all decisions regarding the handling of the defense without the consent of the Indemnified Person, but shall not have the right to admit liability with respect to, or compromise, settle or discharge any Third Party Claim or consent to the entry of any judgment with respect to such Third Party Claim without the consent of the Indemnified Person, which consent shall not be unreasonably withheld, unless such settlement, compromise or consent includes an unconditional release of the Indemnified Person from all liability and obligations arising out of such Third Party Claim and which would not otherwise adversely affect the Indemnified Person.

(c) If the Indemnifying Person fails to assume the defense of a Third Party Claim within thirty (30) days after receipt of written notice of the Third Party Claim, then the Indemnified Person shall have the right to defend the Third Party Claim by promptly and vigorously prosecuting all appropriate proceedings to a final conclusion or settlement. The Indemnifying Person shall have the right to participate in the defense of the Third Party Claim using counsel of its choice, but the Indemnified Person shall not be liable to the Indemnifying Person hereunder for any legal or other expenses incurred by the Indemnifying Person in connection with its participation in the defense thereof. If requested by the Indemnified Person, the Indemnifying Person agrees to cooperate with the Indemnified Person and its counsel in contesting any Third Party Claim that the Indemnified Person elects to contest, including the making of any related counterclaim against the Third Party asserting the Third Party Claim or any cross-complaint against any Person, in each case only if and to the extent that any such counterclaim or cross-complaint arises from the same actions or facts giving rise to the Third Party Claim. The Indemnified Person shall have the right, acting in good faith and with due regard to the interests of the Indemnifying Person, to control all decisions regarding the handling of the defense without the consent of the Indemnifying Person, but shall not have the right to compromise or settle any Third Party Claim or consent to the entry of any judgment with respect to such Third Party Claim without the consent of the Indemnifying Person, which consent shall not be unreasonably withheld, unless such settlement, compromise or consent includes an unconditional release of the Indemnifying Person from all liability and obligations arising out of such Third Party Claim.

7.7 GOVERNING LAW.

(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.

(b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT SHALL LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION.

(c) THE COMPANY HEREBY AGREES THAT SERVICE UPON THEM BY REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED) SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE INVESTORS TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION.

(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY, THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY DOCUMENTS RELATED HERETO.

7.8 WAIVERS; AMENDMENTS.

(a) No failure or delay of the Investors in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Investors hereunder are cumulative and not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or any other Transaction Document or consent to any departure by the Company therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (b) below,

and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances.

(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Required Investors; provided that no such amendment, waiver or modification shall (i) change any of the provisions of this Section 7.8 or the definition of "Required Investors" or any other provision hereof specifying the number or percentage of Investors required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Investor or (ii) increase the obligations of any Investor or otherwise disproportionately adversely affect any of the rights of any Investor under this Agreement, without the written consent of each Investor affected thereby.

7.9 NO FIDUCIARY RELATIONSHIP.

No provision in this Agreement or in any of the other Transaction Documents and no course of dealing between the parties shall be deemed to create any fiduciary duty by the Investors to the Company other than any fiduciary duty any Investor may have as a member of the Board of Directors of the Company.

7.10 NO DUTY.

All attorneys, accountants, appraisers, and other professional Persons and consultants retained by the Investors shall have the right to act exclusively in the interest of the Investors and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to the Company or any of its shareholders or any other Person.

7.11 CONSTRUCTION.

The Company and the Investors acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Transaction Documents with its legal counsel and that this Agreement and the other Transaction Documents shall be construed as if jointly drafted by the Investors and the Company.

7.12 SEVERABILITY.

Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement is to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, void or otherwise unenforceable provisions shall be void. It is the intent of the parties, however, that any invalid, void or otherwise unenforceable provisions be automatically replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable to the fullest extent permitted by Applicable Law.

7.13 COUNTERPARTS.

This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract.

7.14 CONFIDENTIALITY.

For the purposes of this Section 7.14, "CONFIDENTIAL INFORMATION" means information delivered to any Investor by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement (including, without limitation, any information regarding the transactions contemplated hereby provided prior to the Closing Date), provided that such term does not include information that (a) was publicly known or otherwise known to such Investor prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by any Investor or any Person acting on its behalf, or (c) otherwise becomes known to any Investor other than through disclosure by the Company or any Subsidiary. Each Investor will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Investor in good faith to protect confidential information of third parties delivered to such Investor, provided that such Investor may deliver or disclose Confidential Information to
(i) its directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by the Purchased Securities), (ii) its financial advisors and other professional advisors who are made aware of the confidential nature of such information, (iii) any other holder of the Purchased Securities, (iv) any institutional investor to which any Investor sells or offers to sell the Purchased Securities or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 7.14), (v) any Person from which such Investor offers to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 7.14), (vi) any federal or state regulatory authority having jurisdiction over such Investor,
(vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about its investment portfolio, or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Investor,
(x) in response to any subpoena or other legal process or (y) in connection with any litigation to which such Investor is a party. Each holder of the Purchased Securities, by its acceptance of the Purchased Securities, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 7.14 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of the Purchased Securities of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee, such holder will enter into an agreement with the Company embodying the provisions of this Section 7.14.

7.15 HEADINGS.

Article and Section headings and the Table of Contents used herein are for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

7.16 ENTIRE AGREEMENT.

This Agreement and the agreements and documents referred to herein contain the entire agreement of the parties and supersede any and all prior agreements among the parties with respect to the subject matter hereof (including, without limitation, the Term Sheet dated January 29, 2002 between the Company, Mellon Ventures Inc. and Steven A. Webster.

* * * *

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their authorized officers, all as of the day and year first above written.

COMPANY

CARRIZO OIL & GAS, INC.

By:    /s/ FRANK A. WOJTEK
   -----------------------------------
    Name:  Frank A. Wojtek
    Title: Chief Financial Officer and
           Vice President

INVESTORS

MELLON VENTURES, L.P.

By: MVMA, L.P.,
its General Partner

By:    /s/ MARC A. COLE
   -----------------------------------
    Name:  Marc A. Cole
    Title: Associate

/s/ STEVEN A. WEBSTER
--------------------------------------
Steven A. Webster

                       NUMBER OF SHARES OF SERIES B CONVERTIBLE     PURCHASE PRICE OF SERIES B        NUMBER OF     PURCHASE PRICE
      INVESTOR               PREFERRED STOCK PURCHASED             CONVERTIBLE PREFERRED STOCK      WARRANT SHARES    OF WARRANTS
      --------         ----------------------------------------    ---------------------------      --------------  -------------
Mellon Ventures, L.P.                  40,000                                 $3,990,000               168,421          $10,000
Steven A. Webster                      20,000                                 $1,995,000                84,211          $ 5,000

EXHIBIT 99.2

CARRIZO OIL & GAS, INC.

STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES

DESIGNATED

SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK

Pursuant to Article 2.13 of the Texas Business Corporation Act

Carrizo Oil & Gas, Inc., a Texas corporation (the "Corporation"), hereby certifies:

A. That, pursuant to the authority contained in Article IV of the Amended and Restated Articles of Incorporation of the Corporation (the "Articles of Incorporation") and in accordance with the provisions of Article 2.13 of the Texas Business Corporation Act (the "TBCA"), the Board of Directors of the Corporation has duly adopted, at a meeting held January 28, 2002 and a Special Committee has duly adopted by unanimous written consent dated as of February 19, 2002, the following resolution creating and providing for the establishment and issuance of a series of shares of Preferred Stock as hereinafter described, providing for the designations, preferences, limitations and relative rights, voting, redemption and other rights thereof and the qualifications, limitations or restrictions thereof, in addition to those set forth in the Articles of Incorporation, all in accordance with the provisions of Article 2.13 of the TBCA.

RESOLVED, that pursuant to Article IV of the Articles of Incorporation, which authorizes the issuance of 50,000,000 shares of stock, consisting of 10,000,000 shares of preferred stock, par value of $.01 per share (the "Preferred Stock"), none of which is outstanding, and 40,000,000 shares of common stock, par value $.01 per share (the "Common Stock"), the Corporation hereby provides for the issuance of a series of 150,000 shares of Preferred Stock, designated as Series B Convertible Participating Preferred Stock ("Series B Preferred Stock"), and hereby approves the designation, issuance and sale by this Corporation of 60,000 shares of the Series B Preferred Stock and hereby provides for the following designations, preferences, limitations and relative rights, voting, redemption and other rights thereof and the qualifications, limitations or restrictions thereof:

1. Designation of the Series. There shall be a series of Preferred Stock designated as "Series B Convertible Participating Preferred Stock", par value $.01 per share, consisting of 150,000 shares. Each share of Series B Preferred Stock shall be referred to herein as a "Series B Preferred Share" or "Share."

2. Voting.

Except provided herein or as otherwise as required by law, the Series B Preferred Stock shall not have any right to vote for the election of directors or for any other purpose. So long as the Series B Preferred Stock is outstanding, the Corporation shall not, without the affirmative vote of the holders of at least a majority of all outstanding Shares or written consent

of the holders of at least a majority of all outstanding Shares, voting or consenting separately as a class:

(i) create (by reclassification or otherwise), authorize or issue, or effect any corporate transaction such as a merger or consolidation that results in the creation or issuance of, any class or series of Prior Stock or Parity Stock;

(ii) effect any corporate transaction such as a merger or consolidation, or approve an amendment to the Articles of Incorporation, that would result in: (A) an increase or decrease of the aggregate number of authorized shares of Series B Preferred Stock, or (B) a change in the designations, preferences, limitations, or relative rights of the shares of Series B Preferred Stock;

(iii) effect any change in the Corporation's Article of Incorporation or bylaws, as then in effect (the "Bylaws"), that adversely affects the rights, preferences or privileges of the Series B Preferred Stock;

(iv) materially change the nature of the Corporation's business from a company engaged (whether directly or through holdings in other entities) in the exploration, exploitation, development and production of oil and natural gas and related activities; or

(v) issue any shares of Series B Preferred Stock except pursuant to Section 3 or pursuant to the Securities Purchase Agreement, dated February 20, 2002 between the Corporation and the investors listed therein.

For purposes hereof:

(x) "Junior Stock" shall collectively mean all equity securities (including the Common Stock) of the Corporation which rank junior (but in no case senior) to the Series B Preferred Stock as to payment of dividends or distributions upon liquidation, dissolution or winding up of the Corporation;

(y) "Parity Stock" shall collectively mean all equity securities of the Corporation which rank on a parity with the Series B Preferred Stock as to payment of dividends or distributions upon liquidation, dissolution or winding up of the Corporation; and

(z) "Prior Stock" shall collectively mean all equity securities of the Corporation which rank senior to the Series B Preferred Stock as to payment

of dividends or distributions upon liquidation, dissolution or winding up of the Corporation.

To the extent that the holders of the Series B Preferred Stock shall have the right to vote as a class (alone or together with any other series of stock of the Corporation) pursuant to the requirements of applicable law on any matter not set forth herein as otherwise requiring the vote of such holders, the approval of such matter shall require only the vote of the holders of a majority of the Shares entitled to vote thereon (unless a higher percentage is required by law or the Articles of Incorporation) or written consent of the holders of a majority of the Shares entitled so to vote (unless a higher percentage is required by law or the Articles of Incorporation). Without limiting the generality of the foregoing, to the extent the vote of holders of Series B Preferred Stock is required (pursuant to provisions of current law or any change thereto) for approval of (1) any plan of merger, consolidation, conversion or exchange for which the TBCA requires a shareholder vote, (2) any disposition of assets for which the TBCA requires a shareholder vote, (3) any dissolution of the Corporation for which the TBCA requires a shareholder vote, and (4) any amendment of the Articles of Incorporation of the Corporation for which the TBCA requires a shareholder vote, such vote shall be (in lieu of any greater vote required by the TBCA) the affirmative vote of the holders of a majority of the outstanding Series B Preferred Shares entitled to vote thereon.

The rights of holders of Series B Preferred Shares to take any action as provided in this Statement of Resolutions or otherwise (including without limitation the waiver of any rights of such holders) may be exercised at any annual meeting of shareholders or at a special meeting of shareholders held for such purpose or at any adjournment thereof, or without a meeting, without prior notice and without a vote, if a consent or counterpart consents in writing, setting forth the action so taken, shall be signed by the holder or holders of Shares having not less than the minimum number of votes that would be necessary to take such action at a meeting at which the holders of all Shares entitled to vote on the action were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those holders of Series B Preferred Shares who did not consent in writing to the action.

For the taking of any action as provided in this Section 2 by the holders of Series B Preferred Shares or for any action as to which the holders of Series B Preferred Stock are entitled to vote, each such holder shall have one vote for each Share standing in its name on the transfer books of the Corporation as of any record date fixed for such purpose or, if no such date be fixed, at the close of business on the business day next preceding the day on which notice is given, or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

So long as the right to vote pursuant to this Section 2 continues (and unless such right has been exercised by written consent of the minimum number of Shares required to take such action), upon the written request of holders of a majority of the Series B Preferred Shares outstanding addressed to the Secretary of the Corporation at the principal office of the Corporation, the Secretary of the Corporation shall call a special meeting of the holders of Shares

entitled to vote as provided herein. Such meeting shall be held within thirty
(30) days after delivery of such request to the Secretary, at the place and upon the notice provided by law and in the Bylaws, for the holding of meetings of shareholders.

3. Dividends. The last day of June and December on which the Series B Preferred Stock shall be outstanding shall be deemed to be a "Dividend Due Date" (except that if any such date is a Saturday, Sunday or legal holiday, then the next succeeding date that is not a Saturday, Sunday or legal holiday shall be the Dividend Due Date). The holders of Series B Preferred Shares shall be entitled to receive, if, when and as declared by the Board of Directors out of funds legally available therefor, cumulative dividends at the applicable rate per annum set forth below on each Series B Preferred Share, calculated on the basis of a year of 360 days consisting of twelve 30-day months, payable semi-annually on each Dividend Due Date, with respect to the semi-annual period ending on the Dividend Due Date. Dividends will be paid, at the option of the Corporation, (i) at the rate of $8.00 per share per year in cash or (ii) by issuing additional fully paid and nonassessable shares of Series B Preferred Stock (or fractions thereof) at the annual rate of 0.10 of a Share of Series B Preferred Stock on each Series B Preferred Share. Dividends on each Series B Preferred Share (or fraction thereof) shall accumulate, be cumulative and accrue dividends thereon daily from and after February 20, 2002 (or in the event of a Share (or fraction thereof) initially issued after the first issuance of any Shares, from the immediately preceding Dividend Due Date or, if none, from the date of such first issuance), whether or not there are profits, surplus or other funds of the Corporation legally available therefore. The record date for the payment of the aforementioned dividends shall be the fifteenth day of June or December, as the case may be, immediately preceding the relevant Dividend Due Date. For purposes hereof, the term "legal holiday" shall mean any day on which banking institutions are authorized to close in New York, New York or Houston, Texas.

Each fractional share of Series B Preferred Stock outstanding shall be entitled to a ratably proportionate amount of all dividends or distributions accruing or made with respect to each outstanding Series B Preferred Share pursuant to this Section 3 and all such dividends or distributions with respect to such outstanding fractional shares shall be cumulative and shall accrue dividends thereon daily, and shall be payable in the same manner and at such times as provided for in this Section 3 with respect to dividends or distributions on each outstanding Series B Preferred Share.

On each Dividend Due Date all dividends which shall be accumulated on each Series B Preferred Share outstanding on such Dividend Due Date shall be deemed to become "due." Any dividend which shall not be paid on the Dividend Due Date on which it shall become due shall be deemed to be "past due" until such dividend shall be paid or until the Series B Preferred Share with respect to which such dividend became due shall no longer be outstanding, whichever is the earlier to occur. If any dividend payable pursuant to the foregoing part of Section 3 is not paid on the Dividend Due Date therefor, then the amount of such dividend shall be computed as if the amount thereof had been compounded semi-annually from the date of such Dividend Due Date to the date such dividend is paid ("Additional Dividends").

Unless all accrued dividends on the Series B Preferred Stock shall have been paid and a sum sufficient for the payment thereof set apart, no dividend shall be paid or declared, and no distribution shall be made, on any Junior Stock and no redemption of any Junior Stock shall occur other than dividends payable in Junior Stock and any payments in respect of fractional Shares.

In addition to the foregoing, if the Corporation declares a cash dividend on the Common Stock of the Corporation, the holders of shares of Series B Preferred Stock shall be entitled to receive for each share of Series B Convertible Preferred Stock a cash dividend in the amount of the cash dividend that would be received by a holder of the Common Stock into which such share of Series B Convertible Preferred Stock is convertible on the record date for such cash dividend. In any such case, the Corporation shall declare a cash dividend on the Series B Convertible Preferred Stock at the same time that it declares a cash dividend on the Common Stock and shall establish the same record date for the dividend on the Series B Convertible Preferred Stock as is established for such cash dividend on the Common Stock.

Any reference to "dividend" or "distribution" in this Section 3 shall not be deemed to include any distribution made in connection with any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

4. Redemption.

(a) Corporation Optional Redemption. At the election of the Corporation, upon not less than 20 and not more than 60 days' prior written notice, the Series B Preferred Shares may be redeemed for cash, out of legally available funds, as a whole or in part, at any time or from time to time, as follows:

(i) through the first anniversary of the Issue Date (as defined below), at a price per share equal to 120% of the Purchase Price/Dividend Preference (as defined below);

(ii) from and after the first anniversary of the Issue Date through the second anniversary of the Issue Date, at a price per share equal to 115% of the Purchase Price/Dividend Preference;

(iii) from and after the second anniversary of the Issue Date through the third anniversary of the Issue Date, at a price per share equal to 110% of the Purchase Price/Dividend Preference; and

(iv) after the third anniversary of the Issue Date, at a price per share equal to the Purchase Price/Dividend Preference.

(b) Holder Optional Redemption. At any time or from time to time after the third anniversary of the Issue Date, upon 90 days' prior written notice by a holder to the Corporation setting forth the proposed Redemption Date, all or part of the Series B Preferred

Shares owned by such holder may be redeemed for cash, out of legally available funds, at a price per share equal to the Purchase Price/Dividend Preference, at the election of such holder. Upon receipt of notice from a holder under this
Section 4(b), the Corporation shall provide notice to each other holder of Series B Preferred Shares as set forth below.

(c) For purposes hereof,

(i) "Issue Date" shall mean the first date on which any shares of Series B Preferred Stock are issued (which shall be the same date for all shares of Series B Preferred Stock whether issued on that date or subsequently issued).

(ii) "Purchase Price/Dividend Preference" shall mean $100 plus all cumulative and accrued dividends (whether or not earned or declared) accumulated and unpaid on such Share, including Additional Dividends, through the date the Corporation has paid or properly provided for the Redemption Price.

(iii) "Redemption Date" shall mean the date of any redemption made pursuant to this Section 4.

(iv) "Redemption Price" shall mean the price paid by the Corporation for any redemption pursuant to this Section 4.

No sinking fund shall be established for the Series B Preferred Stock.

Notice of any redemption of the Series B Preferred Shares required to be given by the Corporation shall be mailed by means of certified mail (return receipt requested), postage paid, addressed to the holders of record of the Series B Preferred Shares, at their respective addresses then appearing on the books of the Corporation and last known address (if different). Each such notice shall be deemed received by the holder of record upon deposit with the United States Postal Service or by facsimile to the holder at the last fax number supplied by the holder to the Corporation. Upon the mailing of any such redemption notice (which in the event of a redemption pursuant to Section 4(b) shall be at least 15 days prior to the Redemption Date called for in the holders' notice pursuant to such section), the Corporation shall become obligated to redeem, on the Redemption Date specified therein, all shares of Series B Preferred Stock called for redemption. Each notice of redemption by the Corporation shall specify (i) the Redemption Date, (ii) the Redemption Price,
(iii) the place for payment and for delivering the stock certificate(s) and transfer instrument(s) in order to collect the Redemption Price (which shall be at a reasonable location in the United States), and (iv) whether all or less than all Series B Preferred Shares are being redeemed and the total number of Series B Preferred Shares being redeemed. If fewer than all the outstanding Series B Preferred Shares are to be redeemed pursuant to Section 4(a), the Corporation will select those to be redeemed as nearly pro rata as practicable based upon the number of Shares of each holder then held as a percentage of the number of Shares then issued and outstanding. Failure by the Corporation to give the notice

described in this paragraph, or the formal insufficiency of any such notice, shall not prejudice the rights of any holders of Series B Preferred Shares to cause the Corporation to redeem any such shares held by such holder, provided the holder receives the Redemption Price on the Redemption Date.

Any notice by a holder giving rise to redemption of the Series B Preferred Shares pursuant to Section 4(b) required to be given by the holder or holders thereof shall be mailed by means of certified mail (return receipt requested), postage paid, or by facsimile to the Corporation at its registered office and must specify the number of Shares for which redemption is sought.

After the Redemption Date for any Series B Preferred Shares, the holder of such shares shall not be entitled to receive payment of the Redemption Price for such Shares until such holder shall cause to be delivered to the place specified in the notice given (which shall be at a reasonable location in the United States) with respect to such redemption the certificate(s) representing such Series B Preferred Shares and, if required by the Corporation, duly endorsed to the Corporation or in blank or accompanied by instruments of transfer to the Corporation or in blank. No interest shall accrue on the Redemption Price of any Series B Preferred Share after its Redemption Date.

Provided the Redemption Price of a Series B Preferred Share has been paid or properly provided for in accordance with Section 6, at the close of business on the Redemption Date for any Series B Preferred Share, such Share shall be deemed to cease to be outstanding and all rights of any person other than the Corporation in such Share shall be extinguished on the Redemption Date (including all rights to vote or consent or to receive future dividends with respect to such Share) except for the right to receive the Redemption Price, without interest, for the Shares in accordance with the provisions of this Section 4, subject to applicable escheat laws.

(d) Redemption Subject to Applicable Law. Notwithstanding the redemption rights granted to the holders of Series B Preferred Shares in this
Section 4, the Corporation shall be required to redeem shares of Series B Preferred Stock only if (i) after giving effect to the redemption, the Corporation would not be insolvent, (ii) the net assets of the Corporation are not less than the amount of the proposed redemption and (iii) funds are otherwise legally available therefor under the TBCA, as from time to time amended. Without limiting the generality of any provision hereof or of any applicable law, failure to redeem the Series B Preferred Shares in accordance with the requirements of this Section 4 shall result in dividends continuing to accrue and accumulate on such Shares and shall result in the holders of such Shares having the right to vote such Shares as otherwise permitted herein (and all other rights and obligations shall continue with respect to such Shares as set forth herein), but shall not result in the Redemption Price of such Shares being deemed to be a debt of the Corporation.

In the event that the total amount of funds legally available for redemption of Series B Preferred Shares is insufficient to redeem the Series B Preferred Shares that are the subject of a notice of redemption, then the Series B Preferred Shares shall be redeemed ratably

based on the aggregate redemption amount payable with respect to the shares of Series B Preferred Stock then redeemable.

If a notice of redemption is given and the Corporation is unable to redeem the Series B Preferred Shares that are the subject of such notice of redemption because (i) after giving effect to the redemption, the Corporation would be insolvent, (ii) the net assets of the Corporation are less than the amount of the proposed redemption or (iii) funds are not legally available therefor under the TBCA, as from time to time amended, the obligation of the Corporation to redeem such shares of Series B Preferred Stock shall continue until the Corporation is permitted to redeem such Series B Preferred Stock in accordance with this Section 4(d).

5. Liquidation. In the event of any voluntary or involuntary dissolution, liquidation, winding up or Sale (as defined below) of the Corporation (each a "Liquidation"), before any distribution of assets shall be made to the holders of any Junior Stock of the Corporation, the holder of each Series B Preferred Share then outstanding shall, after payment or provision for payment of debts and other liabilities of the Corporation, be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders the greater of the following amounts per Share and no more: (i) $100 in cash plus all cumulative and accrued dividends (whether or not earned or declared) accumulated and unpaid on such Share, including Additional Dividends, through the date fixed for the distribution of assets of the Corporation to the holders of Series B Preferred Stock; or (ii) the liquidation distribution, if any, payable in such Liquidation with respect to each share of Common Stock, distributed pro rata to the holders of the Series B Preferred Stock, any Parity Stock and the Common Stock on an as-converted basis (assuming the conversion of all Series B Preferred Stock and Parity Stock (if convertible into Common Stock) at the time such liquidation distribution is paid to holders of such Common Stock). For purposes hereof, "Sale" shall mean and shall be deemed to have occurred at such time as any of the following occur: (x) a Change of Control Merger (as defined in Section 9(iii)); or (y) the sale, transfer or other disposition by the Corporation of all or substantially all of the assets of the Corporation to another entity.

If upon any Liquidation of the Corporation, the amount available pursuant to Section 5(i) hereof is greater than the amount available pursuant to Section 5(ii) hereof, and the assets available for distribution to the holders of Series B Preferred Stock then outstanding (hereinafter in this paragraph called the "Total Amount Available") shall be insufficient to pay the holders of all outstanding Series B Preferred Stock the full amounts (including all dividends accumulated and unpaid) to which they shall be entitled by reason of such Liquidation of the Corporation pursuant to Section 5(i), then the holders of the Series B Preferred Stock shall be entitled to share the Total Amount Available pro rata based upon the number of shares of Series B Preferred Stock then held by each holder.

In the event that a liquidation distribution is payable to holders of shares of Common Stock, then the Board of Directors of the Corporation shall determine in its reasonable judgment whether clause (i) or
(ii) of the first paragraph of this Section 5 will result in a greater payment to the holders of Series B Preferred Stock. Any such distribution under clause (ii) of

such paragraph shall be made to the fullest extent reasonably practicable in the same type of cash, securities or other assets as is made to holders of Common Stock.

The holder of any Series B Preferred Shares shall not be entitled to receive any payment owed for such Shares under this Section 5 until such holder shall cause to be delivered to the Corporation at such reasonable location in the United States as the Corporation may designate the certificate(s) representing such Series B Preferred Shares and, if required by the Corporation, duly endorsed to the Corporation or in blank or accompanied by instruments of transfer to the Corporation or in blank. As in the case of the Redemption Price, no interest shall accrue on any payment upon liquidation after the due date thereof, provided that the Corporation has delivered the payment required for such Shares under this Section 5 or duly provided therefor under
Section 6 below.

After the full amount of the liquidating distribution of a Share has been paid or properly provided for in Section 6 below, such Share will not entitle the holder thereof to any further participation in any distribution of assets by the Corporation. Such Share shall be deemed to cease to be outstanding and all rights of any person other than the Corporation in such Share shall be extinguished on the date of such payment or proper provision for such payment (including all rights to vote or consent or to receive future dividends or distributions with respect to such Share) except for the right to receive the payment due upon Liquidation under this Section 5, without interest, for the Shares in accordance with the provisions of this Section 5, subject to applicable escheat laws.

6. Payments. The Corporation may, on or prior to the Redemption Date, the date of distribution of assets to shareholders for a Liquidation or the date a Change of Control Purchase Price is due (each, a "Payment Date"), deposit with any bank or trust company in Texas, or any bank or trust company in the United States duly appointed and acting as transfer agent for the Corporation, as a trust fund, a sum sufficient to make the payment required on such Payment Date, with irrevocable instructions and authority to such bank or trust company to give or complete the notice if any required in connection with such payment thereof and to pay, on or after the Payment Date to the Persons entitled thereto certified by an officer of the Corporation, the payment due on the Payment Date upon the surrender of such Persons' respective share certificates representing the Shares.

Any payment which may be owed for the payment of the Redemption Price for any Series B Preferred Shares pursuant to Section 4 or the payment of any amount distributed with respect to any Series B Preferred Shares under Section 5 or the Change of Control Purchase Price pursuant to Section 9 shall be deemed to have been "paid or properly provided for" upon the earlier to occur of: (i) the date upon which the funds sufficient to make such payment shall be deposited in a manner contemplated by the preceding paragraph or (ii) the date upon which a check payable to the person entitled to receive such payment shall be delivered to such person or mailed to such person at either the address of such person then appearing on the books of the Corporation or such other address as the Corporation shall deem reasonable, provided such check shall provide good funds.

7. Conversion. Holders of shares of Series B Preferred Stock shall have the right to convert all or a portion of such Shares into shares of Common Stock, as follows:

(a) Subject to and upon compliance with the provisions of this
Section 7, a holder of Series B Preferred Shares shall have the right, at such holder's option, at any time to convert all or any of such Shares into the number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) obtained by dividing the (i) the product of (A) $100 plus all cumulative and accrued dividends (whether or not earned or declared) accumulated and unpaid on such Share, including Additional Dividends, through the date of surrender of such Share multiplied by
(B) each Share to be converted by (ii) the Conversion Price (as defined below) and by surrender of such shares, such surrender to be made in the manner provided in paragraph (b) of this Section 7; provided, however, that the right to convert shares called for redemption pursuant to Section 4 hereof shall terminate at the close of business on the fourth business day preceding the Redemption Date (but only to the extent the Redemption Price is paid or provided for by the Corporation on the Redemption Date). No Series B Preferred Share may be converted in part into Common Stock without the consent of the Corporation. "Conversion Price" shall mean the conversion price per share of Common Stock into which the Series B Preferred Stock is convertible, as such Conversion Price may be adjusted pursuant to this Section 7. The initial Conversion Price will be $5.70.

(b) In order to exercise the conversion right, the holder of each share of Series B Preferred Stock to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Corporation or in blank, at the office of the Corporation, accompanied by written notice to the Corporation that the holder thereof elects to convert such Series B Preferred Share. Unless the shares issuable on conversion are to be issued in the same name as the name in which such Series B Preferred Share is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid or are not required to be paid). As promptly as practicable after the surrender of certificates for Series B Preferred Shares as aforesaid, the Corporation shall issue and shall deliver at such office to such holder, or on such holder's written order, a certificate or certificates for the number of shares of Common Stock issuable upon the conversion of such shares in accordance with the provisions of this
Section 7, and any fractional interest in respect of a share of Common Stock arising upon such conversion shall be settled as provided in paragraph (c) of this Section 7.

Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series B Preferred Shares shall have been surrendered and such notice received by the Corporation as aforesaid, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the

Corporation shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such shares shall have been surrendered and such notice received by the Corporation. All shares of Common Stock delivered upon conversion of the Series B Preferred Stock will upon delivery be duly and validly issued and fully paid and nonassessable.

(c) In connection with the conversion of any Series B Preferred Shares, the Corporation shall not be obligated to issue any fractional shares or scrip representing fractions of shares of Common Stock upon conversion of the Series B Preferred Stock. If the Corporation elects not to issue fractional shares or scrip, then instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the conversion of a Series B Preferred Share, the Corporation shall pay to the holder of such share an amount in cash (computed to the nearest cent) equal to the Closing Price of Common Stock on the Trading Date immediately preceding the date of conversion multiplied by the fraction of a share of Common Stock represented by such fractional interest. If more then one Series B Preferred Share shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series B Preferred Shares so surrendered.

(d) The Conversion Price shall be adjusted from time to time as follows:

(i) In case the Corporation shall after the Issue Date (A) pay a dividend or make a distribution on its Common Stock that is paid or made (1) in shares of its Common Stock or (2) in rights to purchase stock or other securities if such rights are not separable from the Common Stock except upon the occurrence of a contingency, (B) subdivide or split its outstanding Common Stock into a greater number of shares, (C) combine its outstanding Common Stock into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Stock, the Conversion Price in effect immediately prior thereto shall be adjusted or (in the case of clause (A)(2)) other provision shall be made so that the holder of any Series B Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock of the Corporation and rights to purchase stock or other securities which such holder would have owned or have been entitled to receive after the occurrence of any of the events described above had such share been surrendered for conversion immediately prior to the occurrence of such event or the record date therefor, whichever is earlier. In the event of the redemption of any rights referred to in clause (A), such holder shall have the right to receive, in lieu of any such rights, any cash, property or securities paid in respect of such redemption; provided, however, that if the value of such cash, property or securities is less than $.01 per share of Common Stock, such holder shall not be entitled to such cash, property or securities; provided, further, that any adjustments which by reason of the foregoing clause are not required to be made shall be carried

forward and taken into account in any subsequent adjustment. An adjustment made pursuant to this subparagraph (i) shall become effective immediately after the close of business on the record date for determination of shareholders entitled to receive such dividend or distribution in the case of a dividend or distribution (except as provided in paragraph (h) below) and shall become effective immediately after the close of business on the effective date in the case of a subdivision, split, combination or reclassification. Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under clauses (ii), (iii) and (vi) below.

(ii) In case the Corporation shall issue after the Issue Date to all holders of Common Stock Options (as defined below) entitling them (for a period expiring within 45 days after the issuance thereof) to subscribe for or purchase Common Stock without consideration or at a price per share less than the Current Market Price per share of Common Stock at the record date for the determination of the shareholders entitled to receive such Options, then the Conversion Price in effect immediately prior thereto shall be adjusted to equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the date of issuance of such Options by (B) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding (on a Fully Diluted Basis) on the date of the issuance of such Options (without giving effect to any such issuance) and (2) the number of shares which the aggregate proceeds from the exercise of such Options would purchase at such Current Market Price, and the denominator of which shall be the sum of (1) the number of shares of Common Stock outstanding (on a Fully Diluted Basis) on the date of issuance of such Options (without giving effect to any such issuance) and (2) the number of additional shares of Common Stock offered for subscription. Such adjustment shall be made successively whenever any such Options are issued, and shall become effective immediately after such record date. In determining whether any Options entitle the holders of Common Stock to subscribe for or purchase shares of Common Stock at less than such Current Market Price, there shall be taken into account any consideration received by the Corporation upon issuance and upon exercise of such Options, the value of such consideration, if other than cash, to be determined by the Valuation Procedure (as defined).

(iii) In case the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock after the Issue Date of any shares of capital stock of the Corporation or its subsidiaries (other than Common Stock) or evidences of its indebtedness or assets, including all equity and debt securities (any of the foregoing being hereinafter in this subparagraph (iii) called the "Securities"), but excluding (I) Options, dividends and distributions referred to in subparagraphs (i) and (ii) above, (II) dividends and distributions in connection with the Liquidation of the Corporation, and (III) a cash dividend for which the

Series B Preferred Shares are entitled to receive a dividend under Section 3, then in each such case, the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (A) the Conversion Price in effect on the record date mentioned below by (B) a fraction, the numerator of which shall be the Current Market Price per share of the Common Stock on the record date mentioned below less the then fair market value as determined by the Valuation Procedure as of such record date of the portion of the Securities applicable to one share of Common Stock, and the denominator of which shall be the Current Market Price per share of the Common Stock on such record date; provided, however, that in the event the then fair market value (as so determined) of the portion of Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price per share of Common Stock on the record date mentioned above, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of Series B Preferred Shares shall have the right to receive the amount and kind of Securities such holder would have received had such holder converted each such Series B Preferred Share immediately prior to the record date for the distribution of the Securities. Except as provided in paragraph (h) below, such adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution.

(iv) Notwithstanding anything in subparagraph (ii) above or (vi) below, if the Corporation in any manner issues or sells any Options or Convertible Securities, then the maximum number of shares of Common Stock issuable upon the exercise or conversion of such Options or Convertible Securities shall be deemed, for purposes hereof, to be outstanding and to have been issued and sold by the Corporation. If Options or Convertible Securities issued by the Corporation shall by their terms provide for an increase or increases with the passage of time or otherwise in the price payable to the Corporation upon the exercise or conversion thereof, the Conversion Price upon any such increase becoming effective shall forthwith be readjusted to reflect the same. Upon the expiration or termination of such Options or Convertible Securities, if any such Options or Convertible Securities shall not have been exercised or converted, as the case may be, then the Conversion Price shall forthwith be readjusted and thereafter be the rate which it would have been had an adjustment been made on the basis that (A) the only Options or Convertible Securities so issued or sold were those so exercised or converted and they were issued or sold for the consideration actually received by the Corporation upon such exercise or conversion plus the consideration, if any, actually received by the Corporation for the granting or sale of all such Options or Convertible Securities whether or not exercised or converted and (B) the Corporation issued and sold a number of shares of Common Stock equal to those actually issued upon exercise or conversion of such Options or Convertible Securities, and such shares were issued and sold for a consideration equal to the aggregate exercise and/or conversion price in effect under the Options or Convertible Securities actually exercised or

converted at the respective dates of their exercise or conversion. In connection with the foregoing, for purposes of subparagraphs (ii) and (vi), the aggregate consideration received by the Corporation in connection with the issuance of shares of Common Stock or of Options or Convertible Securities shall be deemed to be equal to the sum of the aggregate offering price (before deduction of underwriting discounts or commissions and expenses payable to third parties) of all such securities plus the minimum aggregate amount, if any, payable upon the exercise or conversion of such Options or Convertible Securities into shares of Common Stock.

(v) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subparagraph (v) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and provided, however, that any adjustment shall be required and shall be made in accordance with the provisions of this Section 7 (other than this subparagraph (v)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holder of shares of Common Stock. All calculations under this Section 7 shall be made to the nearest cent (with .005 being rounded upward) or to the nearest 1/100th of a share (with .005 of a share being rounded upward), as the case may be. Anything in this paragraph (d) to the contrary notwithstanding, the Corporation shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this paragraph (d), as it in its discretion shall determine to be advisable in order that any stock dividend, subdivision of shares, distribution of rights or warrants to purchase stock or securities, issuance of Options or Convertible Securities, or a distribution of other assets or any other transaction which could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended, hereafter made by the Corporation to its shareholders shall not be taxable to such shareholders.

(vi) To the extent not covered by subsections
7(d)(i), (ii) or (iii) hereof, in the event the Corporation shall after the Issue Date and prior to the first anniversary of the Issue Date sell or issue (other than in an Excluded Issuance) Common Stock, Options or Convertible Securities without consideration or with a consideration per share of Common Stock less than the Conversion Price:

(a) for the first $5 million of aggregate consideration received by the Corporation for such sales or issuances during such period, the Conversion Price shall be reduced concurrently with such sale or issuance to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, (1) the numerator of which shall be the sum of (A) number of shares of Common Stock outstanding (on a Fully Diluted Basis) immediately prior to such issue plus (B) the number of shares of Common Stock which the aggregate

consideration received by the Corporation for the total number of additional shares of Common Stock so sold or issued (or shares of Common Stock issuable upon exercise or conversion of Options or Convertible Securities, as the case may be) would purchase at such Conversion Price, and (2) the denominator of which shall be the sum of (A) the number of shares of Common Stock outstanding (on a Fully Diluted Basis) immediately prior to such issue plus (B) the number of such additional shares of Common Stock so issued (or shares of Common Stock issuable upon exercise or conversion of Options or Convertible Securities, as the case may be); and,

(b) for any transaction pursuant to which the aggregate consideration received by the Corporation for such sales or issuances during such period exceeds $5 million after taking into account the adjustment provided for in subparagraph (a) and for any amounts in excess of the $5 million of aggregate consideration received by the Corporation provided for in subparagraph (a) during such period, the Conversion Price of the Series B Preferred Shares shall be reduced concurrently with such issuance to a price equal to the price per share of Common Stock received in such transaction;

provided, however, that the Conversion Price as adjusted in this subparagraph (vi) shall not be less than $4.75, appropriately adjusted for stock splits, reverse stock splits and similar recapitalizations (the "Floor Price").

To the extent not covered by subsections 7(d) (i),
(ii) or (iii) hereof, in the event the Corporation shall after the first anniversary of the Issue Date sell or issue (other than in an Excluded Issuance) Common Stock, Options or Convertible Securities without consideration or with a consideration per share of Common Stock less than the Conversion Price, the Conversion Price of the Series B Preferred Shares shall be reduced concurrently with such issue to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the sum of (1) number of shares of Common Stock outstanding (on a Fully Diluted Basis) immediately prior to such issue plus (2) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of additional shares of Common Stock so sold or issued (or shares of Common Stock issuable upon exercise or conversion of Options or Convertible Securities, as the case may be) would purchase at such Conversion Price, and (2) the denominator of which shall be the sum of (1) the number of shares of Common Stock outstanding (on a Fully Diluted Basis) immediately prior to such issue plus (2) the number of such additional shares of Common Stock so issued (or shares of Common Stock issuable upon exercise or conversion of Options or Convertible Securities, as the case may be), provided, however, that the Conversion Price as adjusted shall not be less than the Floor Price.

For purposes of the adjustments required by this section, the consideration received by the Corporation for the issuance of any Options or Convertible Securities subject to adjustment required by this section shall be deemed to be the consideration received by the Corporation for such Options or Convertible Securities, plus the consideration or premiums stated in such Options or Convertible Securities to be paid for the Common Stock covered thereby. For purposes of the adjustments required by this subsection, the Common Stock which the holders of any outstanding Options or Convertible Securities shall be entitled to subscribe for or purchase shall be deemed issued and outstanding immediately prior to such sale or issuance. In case the Corporation shall sell or issue Common Stock, Options or Convertible Securities containing the right to subscribe for or purchase Common Stock for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "price per share" of Common Stock and the "consideration received by the Corporation" for purposes of the first sentence of this subsection, the fair value of said property shall be determined under the Valuation Procedure. In determining the "price per share" of Common Stock, any underwriting discounts, placement agent fees, commissions or similar charges shall not be deducted from the price received by the Corporation for sales of securities.

(vii) An Excluded Issuance shall be the sale or issuance of Common Stock, Options or Convertible Securities to the extent described in any of the following clauses:

(a) any securities issued upon conversion of the Series B Preferred Stock;

(b) any securities issued or granted to eligible officers, employees or directors of, or consultants to, the Corporation and its subsidiaries pursuant to any stock option, issuance, appreciation rights, restricted stock, phantom stock, stock purchase plan or other equity incentive plan for such persons (including without limitation, securities issued upon the exercise of such securities, but excluding any stock options that are not issued pursuant to the Corporation's Incentive Plan or other duly adopted stock option plan) (including any duly adopted amendments thereto);

(c) any securities issued upon exercise of any warrants or options outstanding as of the Issue Date;

(d) any securities issued to financial institutions in connection with debt financings;

(e) securities issuable under the Letter Agreement Regarding Participation in Carrizo 2001 Program dated as of May 1, 2001, among the

Corporation, Berea Associates, LLC, Berea Oil & Gas Corp., PAC Finance (USA) Inc., William R. Ziegler, Thomas H. O'Neill, Jr. and Berea Associates II LLC, through Amendment No. 1 effective as of May 2001;

(f) any securities issued as consideration in a Change of Control transaction;

(g) up to an aggregate of 500,000 shares of Common Stock issued after the Issue Date as consideration for any property acquisition, provided, however, that the Corporation shall be entitled to issue, as Excluded Issuances, additional shares of Common Stock for property acquisitions (in excess of such 500,000 shares) upon the prior written consent of Mellon Ventures, L.P., which consent shall not be unreasonably withheld; or

(h) securities of the Corporation issued upon the conversion or exercise of other securities, which other securities of the Corporation had previously resulted in an adjustment hereunder (or which had, pursuant to the terms hereof, not required an adjustment).

(e) In case the Corporation shall be a party to any transaction (including without limitation a merger, consolidation, conversion, share exchange, sale of all or substantially all of the Corporation's assets or reclassification or recapitalization of the Common Stock (each of the foregoing being referred to as a "Transaction"), in each case as a result of which shares of Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), then the Series B Preferred Stock remaining outstanding will thereafter no longer be subject to conversion into Common Stock pursuant to this Section 7, but instead shall be convertible into the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Transaction by a holder of that number of shares or fraction thereof of Common Stock into which one Series B Preferred Share was convertible immediately prior to such Transaction. The Corporation shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph
(e) and it shall not consent or agree to the occurrence of any Transaction until the Corporation has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series B Preferred Stock which will contain provisions enabling the holders of the Series B Preferred Stock which remains outstanding after such Transaction to convert into the consideration received by holders of Common Stock at the Conversion Price immediately after such Transaction. In the event that at any time, as a result of an adjustment made pursuant to this Section 7, the Series B Preferred Stock shall become subject to conversion into any securities other than shares of Common Stock, thereafter the number of such other securities so issuable upon conversion of the shares of Series B Preferred Shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Series B Preferred Shares contained in this Section 7. The provisions of this

paragraph (e) shall similarly apply to successive Transactions. Nothing in this
Section requires the Series B Preferred Stock to remain outstanding pursuant to a Transaction.

(f) If:

(i) the Corporation shall declare a dividend (or any other distribution) on the Common Stock that would cause an adjustment to the Conversion Price of the Series B Preferred Stock pursuant to the terms of any of the paragraphs above (including such an adjustment that would occur but for the terms of the first sentence of subparagraph (d)(v) above);

(ii) the Corporation shall authorize the granting to the holders of the Common Stock of Options;

(iii) there shall be any reclassification or change of the Common Stock (other than an event to which paragraph
(d)(i) of this Section 7 applies) or any consolidation, merger, conversion or share exchange to which the Corporation is a party and for which approval of any shareholders of the Corporation is required, or the sale or transfer of all or substantially all of the assets of the Corporation or any Change of Control (as defined in Section 9 below); or

(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;

then, in addition to actions otherwise required to be taken pursuant to this
Section 7, the Corporation shall cause to be mailed to the holders of the Series B Preferred Shares at their addresses as shown on the stock records of the Corporation, at least five days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of Options, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or Options are to be determined or (B) the date on which such reclassification, change, consolidation, merger, conversion, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, conversion, share exchange, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 7.

(g) Whenever the Conversion Price is adjusted as herein provided, the Corporation shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price, the facts requiring such adjustment and upon which such adjustment is based and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series B Preferred Share at such holder's last address as shown on the stock records of the Corporation.

(h) In any case in which paragraph (d) of this Section 7 provides that an adjustment shall become effective immediately after a record date for an event and the date fixed for conversion pursuant to this Section 7 occurs after such record date but before the occurrence of such event, the Corporation may defer until the actual occurrence of such event (i) issuing to the holder of any Series B Preferred Share surrendered for conversion the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to paragraph (c) of this Section 7.

(i) For purposes of this Section 7, the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Corporation or any corporation wholly owned by the Corporation.

(j) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of Common Stock or its issued shares of Common Stock held in its treasury, or both, for the purpose of effecting conversion of the Series B Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding Series B Preferred Shares not theretofore converted. For purposes of this paragraph, the number of shares of Common Stock which shall be deliverable upon the conversion of all outstanding shares of Series B Preferred Shares shall be computed as if at the time of computation all such outstanding shares were held by a single holder.

Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock deliverable upon conversion of the Series B Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price.

The Corporation will endeavor to make the shares of Common Stock required to be delivered upon conversion of the Series B Preferred Stock eligible for trading upon any quotation system or national securities exchange upon which the Common Stock is then traded, prior to such delivery.

(k) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Series B Preferred Shares (or any other securities issued on account of the Series B Preferred Stock pursuant hereto) or shares of Common Stock on conversion of the Series B Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of Series B Preferred Shares (or any other securities issued on account of the Series B Preferred Stock pursuant hereto) or shares of Common Stock in a name other than the name in which the shares of Series B Preferred Stock with respect to which such Common Stock shares are issued were registered and the Corporation

shall not be required to make any issue or delivery unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the reasonable satisfaction of the Corporation, that such tax has been paid or is not required to be paid.

(l) For purposes of this Section 7, the following terms shall have the meanings indicated:

"Closing Price" with respect to a particular security on any day shall mean on such day the reported last sales price, regular way, for such security or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, for such security in either case as reported on the New York Stock Exchange, on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ National Market") or, if such security is not quoted on the NASDAQ National Market, the average of the closing bid and asked prices for such security in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on each such date shall not have been reported by NASDAQ, the average of the bid and asked prices for such security for such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the holders of a majority of the Series B Preferred Stock then outstanding, or, if no such quotations are available, the fair market value of such security furnished by any New York Stock Exchange member firm selected from time to time by the holders of a majority of the Series B Preferred Stock then outstanding for that purpose.

"Convertible Securities" means any capital stock, evidence of indebtedness or other securities or rights convertible into or exchangeable for Common Stock

"Current Market Price" per share of Common Stock on any date shall mean the average of the daily Closing Prices for the 5 consecutive Trading Dates prior to the date of determination.

"Fully Diluted Basis" means, with respect to the Common Stock at any time of determination, the number of shares of Common Stock that would be issued and outstanding at such time, assuming full conversion, exercise and exchange of all issued and outstanding Options and Convertible Securities that shall be (or may become) exchangeable for, or exercisable or convertible into, Common Stock.

"Options" means any warrants, options or other rights to subscribe for or to purchase (i) Common Stock or (ii) Convertible Securities.

"Trading Date" with respect to any security means (i) if such security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for trading, (ii) if such security is quoted on the NASDAQ National Market, or any similar

system of automated dissemination of quotations of securities prices, a day on which trades may be made on such system, (iii) if not quoted as described in clause (ii), days on which quotations are reported by the National Quotation Bureau Incorporated or (iv) otherwise, any Business Day.

"Valuation Procedure" means, with respect to the determination of any amount or value required to be determined in accordance with such procedure (the "Valuation Amount"), a determination (which shall be final and binding on the Corporation and the holders of the Series B Preferred Stock) made
(i) by agreement among the Corporation and the holders of a majority of the Series B Preferred Stock then outstanding (the "Requisite Holders") within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected in accordance with the further provisions of this definition. If the Board of Directors of the Corporation and the Requisite Holders are unable to agree upon an acceptable Appraiser within ten (10) days after the date either party proposed that one be selected, the Appraiser will be selected by an arbitrator located in New York City, New York, selected by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the Appraiser (within ten (10) days of his appointment) from a list, jointly prepared by the Board of Directors of the Corporation and the Requisite Holders, of not more than six Appraisers of national standing in the United States, of which no more than three may be named by the Board of Directors and no more than three may be named by the Requisite Holders. The arbitrator may consider, within the ten-day period allotted, arguments from the parties regarding which Appraiser to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Board of Directors and the Requisite Holders shall submit to the Appraiser their respective determinations of the valuation amount, and any supporting arguments and other data as they may desire, within ten (10) days of the appointment of the Appraiser, and the Appraiser shall as soon as practicable thereafter make its own determination of the valuation amount. The final valuation amount for purposes hereof shall be the average of the two valuation amounts closest together, as determined by the Appraiser, from among the valuation amounts submitted by the Board (the "Corporation's Valuation") and the Requisite Holders (the "Holders' Valuation") and the valuation amount calculated by the Appraiser. The fees and expenses of the Appraiser and arbitrator (if any) used to determine the valuation amount shall be (i) paid by the Corporation if the Corporation's Valuation is not used to determine the average in the preceding sentence, (ii) paid by the holders of the Series B Preferred Stock if the Holders' Valuation is not used to determine the average in the preceding sentence or (iii) borne equally by the Corporation and the holders of the Series B Preferred Stock if the Corporation's Valuation and the Holders' Valuation are both used to determine the average in the preceding sentence. If required by any Appraiser or arbitrator, the Corporation shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Corporation in favor of such Corporation or arbitrator and its officers, directors, partners, employees, agents and Affiliates. As used herein, "Appraiser" means (a) with respect to a determination of the fair market value of any security, an investment banking firm and (b) with respect to a determination of other valuation required hereunder, a firm of the type generally considered to be qualified in making determinations of the type required.

The Corporation shall not take any action which results in an adjustment of the number of shares of Common Stock issuable upon conversion of a Series B Preferred Share if the total number of shares of Common Stock issuable after such action upon conversion of the Series B Preferred Stock then outstanding, together with the total number of shares of Common Stock then outstanding, would exceed the total number of shares of Common Stock then authorized under the Articles of Incorporation.

8. Automatic Conversion. All shares of Series B Preferred Stock shall be automatically converted into shares of Common Stock, at the then applicable Conversion Price, by written consent of the holders of greater than 51% of the outstanding shares of Series B Preferred Stock voting together as a class.

9. Change of Control. Upon the occurrence of any of the following events (each a "Change of Control"), the Corporation shall make an offer (the "Change of Control Offer") to each holder of Series B Preferred Shares to repurchase all or any part (but not, in the case of any holder requiring the Corporation to purchase less than all of the Series B Preferred Shares held by such holder, any fractional shares) of such holder's Series B Preferred Shares at an offer price per Share in cash equal to 105% of the Change of Control Purchase Price (as defined below):

(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or group of persons is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Corporation other than pursuant to transactions contemplated by subparagraph (iii) below;

(ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Corporation (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Corporation was approved by a vote of a majority of the directors of the Corporation then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office;

(iii) the merger or consolidation of the Corporation with or into another Person or the merger of another Person with or into the Corporation (a "Change of Control Merger"), except for a merger or consolidation in which the securities of the Corporation that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Corporation are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction at least a majority of the aggregate voting power of the Voting Stock of the surviving entity; and

(iv) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation (in one transaction or a series of related transactions) to another entity.

For purposes hereof, the "Change of Control Purchase Price" shall mean $100 plus all cumulative and accrued dividends (whether or not earned or declared) accumulated and unpaid on such Share, including Additional Dividends, through the date of payment of the Change of Control Purchase Price
(the "Change of Control Payment Date")

Notwithstanding the foregoing, no Change of Control shall be deemed to have occurred pursuant to Section 9(i) as a result of (1) any Person that is currently a party to the Shareholders' Agreement dated as of December 15, 1999 among the Corporation, CB Capital Investors, L.P. (now J.P. Morgan Partners, LLC), S. P. Johnson, IV, Frank A. Wojtek, Paul B. Loyd, Jr., Steven A. Webster, Douglas A. P. Hamilton, DAPHAM Partnership, L.P. and Mellon Ventures L.P. becoming the beneficial owner at any time of more than 50% of the Voting Stock of the Corporation or (2) any other Person becoming the beneficial owner of more than 50% of the Voting Stock to the extent caused by the attribution to that other Person of the beneficial ownership of Voting Stock of a Person who is both listed in clause (1) above and is a member of a group with such other Person solely because of a voting agreement, tag along rights or other rights substantially similar to the rights set forth in the Shareholders' Agreement referenced in clause (1) and (3) the Shareholders' Agreement, dated the date hereof, among the Company and the shareholder named therein.

In the event of a Change of Control (a) pursuant to a transaction contemplated by subsections (i) or (ii) above, the Corporation shall provide the holders of the Series B Preferred Shares with advance notice so as to allow a repurchase under this Section as provided below, and (b) pursuant to a transaction contemplated by subsections (iii) or (iv) above, with advance notice so as to allow a repurchase under this Section concurrently with the consummation of such transaction, and such notice shall state, among other things: (1) that a Change of Control is expected to or has occurred (as the case may be) and that such holder has or may have the right to require the Corporation to purchase such holder's Series B Preferred Shares for the Change of Control Purchase Price; (2) the circumstances and relevant facts regarding such Change of Control; (3) the Change of Control Payment Date (which shall be concurrently with the consummation of the transaction unless the Corporation is not a party to the transaction, in which case such date shall be as soon as practicable, but in no event later than 15 days following the Change of Control; provided, however, that the Corporation shall provide notice of the Change of Control provisions contained herein to any third party that causes a Change of Control under subsections (i) or (ii) above pursuant to a transaction to which the Corporation is not a party as soon as practicable after the Corporation becomes aware of such Change of Control) and (4) the instructions determined by the Corporation, consistent with this Section 9, that a holder must follow in order to have its Series B Preferred Shares purchased.

The Corporation shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Series B Preferred Shares pursuant to this Section 9. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 9, the

Corporation shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 9 by virtue thereof.

Notwithstanding the repurchase rights granted to the holders of Series B Preferred Shares in this Section 9, the Corporation shall be required to offer and to purchase shares of Series B Preferred Stock only if (i) after giving effect to the repurchase, the Corporation would not be insolvent,
(ii) the net assets of the Corporation are not less than the amount of the proposed repurchase and (iii) funds are otherwise legally available therefor under TBCA, as from time to time amended; provided, however, that the Corporation shall not be a party to a Change of Control transaction if the circumstances described in subsections (i), (ii), (iii) or (iv) would then exist. Without limiting the generality of any provision hereof or of any applicable law, failure to repurchase the Series B Preferred Shares in accordance with the requirements of this Section 9 shall result in dividends continuing to accrue and accumulate on such Shares and shall result in the holders of such Shares having the right to vote such Shares as otherwise permitted herein (and all other rights and obligations shall continue with respect to such Shares as set forth herein), but shall not result in the Change in Control Purchase Price of such Shares being deemed to be a debt of the Corporation.

In the event that the total amount of funds legally available for purchase of Series B Preferred Shares is insufficient to repurchase the Series B Preferred Shares that are the subject of Change of Control Offer, then the Series B Preferred Shares shall be repurchased ratably based on the aggregate amount payable with respect to the shares of Series B Preferred Stock then required to be repurchased.

If Change of Control Offer is made and the Corporation is unable to repurchase the Series B Preferred Shares that are the subject of such Change of Control Offer because (i) after giving effect to the repurchase, the Corporation would be insolvent, (ii) the net assets of the Corporation are less than the amount of the proposed repurchase or (iii) funds are not legally available therefor under the TBCA, as from time to time amended, the obligation of the Corporation to repurchase such shares of Series B Preferred Stock shall continue until the Corporation is permitted to repurchase such Series B Preferred Stock in accordance with this Section 9.

The Corporation shall not be required to make a Change of Control Offer to the holders of Series B Preferred Shares upon a Change of Control if a third party makes the Change of Control Offer described above in the manner, at the times and otherwise in compliance with the requirements set forth and purchases all Series B Preferred Shares validly tendered and not withdrawn under such Change of Control Offer. Further, the Corporation's obligation to purchase any Series B Preferred Shares tendered to the Corporation pursuant to a Change of Control Offer may be discharged by a third party's purchase of such Shares and payment therefor in accordance with the terms of the Change of Control Offer.

After the full amount of the Change of Control Purchase Price of a Share has been paid or properly provided for, such Share will not entitle the holder thereof to any further participation in any distribution of assets by the Corporation. Such Share shall be deemed to

cease to be outstanding and all rights of any person other than the Corporation in such Share shall be extinguished on the date of such payment or proper provision for such payment (including all rights to vote or consent or to receive future dividends or distributions with respect to such Share) except for the right to receive the Change of Control Purchase Price due under this Section 9, without interest, for the Shares in accordance with the provisions of this
Section 9, subject to applicable escheat laws.

For purposes of this Section 9, the following terms shall have the meanings indicated:

"Capital Stock" means, with respect to any Person, any and all shares, interests, rights to purchase, warrants or options (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) the equity (which includes, but is not limited to, ordinary shares, preference shares and partnership and joint venture interests) of such Person (excluding any debt securities that are convertible into, or exchangeable for, such equity).

"Exchange Act" means the Securities and Exchange Act of 1934, as amended.

"Person" means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or agency or political subdivision thereof or any other entity.

"Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

10. Status of Reacquired Series B Preferred Shares. Shares issued and reacquired by the Corporation (including Series B Preferred Shares that have been redeemed) shall have the status of authorized and unissued shares of Preferred Stock undesignated as to series, subject to later issuance.

11. No Preemptive Rights. The shares of Series B Preferred Shares shall have no preemptive or subscription rights, except those that may be provided by contract.

12. Ranking.

Any class or classes of stock of the Corporation shall be deemed to rank:

(i) prior to the Series B Preferred Stock, as to dividends or as to the distribution of assets upon liquidation, dissolution or winding up, if the holders of such class shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Series B Preferred Stock;

(ii) on a parity with the Series B Preferred Stock, as to dividends or as to the distribution of assets upon liquidation, dissolution or winding up, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof be different from those of the Series B Preferred Stock, if the holders of such class of stock and the Series B Preferred Stock shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation prices, without preference or priority of one over the other; and

(iii) junior to the Series B Preferred Stock, as to dividends or as to the distribution of assets upon liquidation, dissolution or winding up, if such stock shall be the Common Stock or if the holders of Series B Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of shares of such stock.

The Series B Preferred Stock shall rank prior to all other series of the Corporation's Preferred Stock as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up.

13. Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof.

14. Amendments. No provision of these terms of the Series B Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock, voting together as a separate class.

IN WITNESS WHEREOF, this Statement of Resolution has been executed by an officer of the Corporation, this 20th day of February, 2002.

CARRIZO OIL & GAS, INC.

By:  /s/ FRANK A. WOJTEK
  ----------------------------------
  Name:  Frank A. Wojtek
  Title: Vice President, Chief
         Financial Officer

EXHIBIT 99.3

CARRIZO OIL & GAS, INC.

(A TEXAS CORPORATION)

SHAREHOLDERS AGREEMENT

FEBRUARY 20, 2002

ARTICLE I  DEFINITIONS; RULES OF CONSTRUCTION.....................................................................1
   1.1       Definitions..........................................................................................1
   1.2       Rules of Construction................................................................................8

ARTICLE II  SHAREHOLDER VOTE IN FAVOR OF A MERGER.................................................................8
   2.1       Shareholder Vote in Favor of a Merger................................................................8

ARTICLE III  ISSUANCES AND TRANSFERS OF STOCK.....................................................................9
   3.1       Joinder Agreement; Certain Transfers.................................................................9
   3.2       Tag-Along Rights....................................................................................10

ARTICLE IV  RIGHTS TO SUBSCRIBE FOR SECURITIES...................................................................11
   4.1       General.............................................................................................11
   4.2       Excluded Securities.................................................................................12

ARTICLE V  AMENDMENT AND WAIVER..................................................................................12
   5.1       Amendment...........................................................................................12
   5.2       Waiver..............................................................................................12

ARTICLE VI  DURATION; TERMINATION................................................................................13

ARTICLE VII  MISCELLANEOUS.......................................................................................13
   7.1       Severability........................................................................................13
   7.2       Entire Agreement....................................................................................14
   7.3       Certain Shareholders................................................................................14
   7.4       Successors and Assigns..............................................................................14
   7.5       Remedies............................................................................................14
   7.6       Notices.............................................................................................15
   7.7       GOVERNING LAW.......................................................................................16
   7.8       Further Assurances..................................................................................17
   7.9       Representation and Warranties of the Shareholders...................................................17
   7.10      Legends; Stop Transfer Instructions.................................................................17
   7.11      Conflicting Agreements..............................................................................18
   7.12      Counterparts; Validity..............................................................................18
   7.13      Consent of Spouses..................................................................................18
   7.14      Fiduciary Duties....................................................................................19
   7.15      Other Covenant......................................................................................19

Schedule I  - Shareholders
Exhibit A   - Form of Joinder Agreement
Exhibit B   - Spousal Consent

SHAREHOLDERS AGREEMENT dated as of February 20, 2002, among CARRIZO OIL & GAS, INC., a Texas corporation (the "COMPANY"), and the Shareholders (as hereinafter defined).

PREAMBLE

The Company and the Investors (as hereinafter defined) who are initially parties to this Agreement have entered into a Securities Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), pursuant to which such Investors acquired from the Company shares of Series B Convertible Preferred Stock and Warrants. The execution and delivery of this Agreement is a condition to the completion of the transactions contemplated by the Purchase Agreement.

ACCORDINGLY, in consideration of the mutual covenants and agreements contained in this Agreement, the sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS; RULES OF CONSTRUCTION

1.1 DEFINITIONS.

Capitalized terms used in this Agreement have the meanings ascribed to them below:

"1999 SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement, dated as of December 15, 1999, among the Company and the shareholders named therein.

"AFFILIATE" means, with respect to any specified Person, any other Person that directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with such Person.

"APPLICABLE LAW" means all provisions of laws, statutes, ordinances, rules, regulations, permits, certificates or orders of any Governmental Authority applicable to the Person in question or any of its assets or property, and all judgments, injunctions, orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party or by which any of its assets or properties are bound.

"BOARD" and "BOARD OF DIRECTORS," unless otherwise specified, means the Board of Directors of the Company.

"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which banks are authorized or required to be closed in New York, New York or Houston, Texas; provided, however, that any determination of a Business Day relating to a securities exchange or

other securities market means a Business Day on which such exchange or market is open for trading.

"BY-LAWS" means the By-laws of the Company, as amended, modified, supplemented or restated and in effect from time to time.

"CHANGE OF CONTROL" shall have the meaning assigned thereto in the Statement of Resolution establishing the Series B Convertible Preferred Stock.

"CHARTER" means the Articles of Incorporation of the Company as amended and restated and filed with the Secretary of State of the State of Texas and all amendments thereto in effect on the date hereof.

"CLOSING PRICE" with respect to a particular Security on any day shall mean on such day the reported last sales price, regular way, for such Security or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, regular way, for such Security in either case as reported on the New York Stock Exchange, on the principal national securities exchange on which such Security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ National Market") or, if such Security is not quoted on the NASDAQ National Market, the average of the closing bid and asked prices for such Security in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such Security on each such date shall not have been reported by NASDAQ, the average of the bid and asked prices for such Security for such day as furnished by any New York Stock Exchange member firm regularly making a market in such Security selected for such purpose by the holders of a majority of the Common Stock issuable (for purposes of clarity, "issuable" includes the shares of Common Stock of the Company that are issuable upon the date hereof and are issued subsequent to the date hereof) upon conversion of the Series B Preferred Stock, if no such quotations are available, the fair market value of such Security furnished by any New York Stock Exchange member firm selected from time to time by the holders of a majority of the Common Stock issuable (for purposes of clarity, "issuable" includes the shares of Common Stock of the Company that are issuable upon the date hereof and are issued subsequent to the date hereof) upon conversion of the Series B Preferred Stock.

"COMMON STOCK" means (i) the Common Stock, $.01 par value, of the Company and (ii) any other class of capital stock of the Company hereafter authorized that is not limited to a fixed sum or percentage of par or stated value with respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company.

"COMMON STOCK EQUIVALENTS" means all shares of Common Stock outstanding, all shares of Common Stock issuable (without regard to any present restrictions on such issuance) upon the conversion, exchange or exercise of all securities of the Company that are convertible, exchangeable or exercisable for Common Stock and all Common Stock appreciation rights, phantom Common Stock rights and other rights to acquire, or to receive or be paid an

amount based on the market price (less any exercise, conversion or purchase price) of, the Common Stock.

"COMPANY" has the meaning given to such term in the caption on the first page of this Agreement.

"COMPETITOR" means (i) any Person who is actively engaged in the exploration, development, exploitation and production of natural gas and crude oil and (ii) any Affiliate of a Person identified in clause (i) above (it being agreed that an investment firm shall not be deemed to control a Person described in clause (i) above merely as a result of owning a minority interest in such Person if it does not otherwise control such Person).

"CONTROL" means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

"CONVERTIBLE SECURITIES" means any capital stock, evidence of indebtedness or other securities or rights convertible into or exchangeable for Common Stock, including the Series B Convertible Preferred Stock.

"CURRENT MARKET PRICE" per share of Common Stock on any date shall mean the average of the daily Closing Prices of the Common Stock for the 5 consecutive Trading Dates before the date of determination.

"EQUITY INCENTIVE PLANS" means any stock option, issuance, appreciation rights, restricted stock, phantom stock, stock purchase plan or other equity incentive plan for the directors, officers, and employees of, and consultants to, the Company and its Subsidiaries.

"EXCLUDED SECURITIES" has the meaning given to such term in
Section 4.2.

"EXISTING SHARES" means the shares owned by the Original Founder Shareholders as of the Closing Date other than any shares issued to such Original Founder Shareholders pursuant to the Purchase Agreement.

"FOUNDER SHAREHOLDERS" shall mean, collectively, (i) the Original Founder Shareholders, (ii) any Transferee of the Securities held by an Original Founder Shareholder who hereafter becomes a party to this Agreement as a "Founder Shareholder" pursuant to a Joinder Agreement executed and delivered pursuant to Section 3.1(b) and (iii) any Transferee of the Securities held by an Original Founder Shareholder who became a party to the 1999 Shareholders' Agreement as a "Founder Shareholder" pursuant to a Joinder Agreement executed and delivered pursuant to Section 3.1(b) thereto.

"FULLY DILUTED COMMON STOCK" means, with respect to the Common Stock at any time of determination, the number of shares of Common Stock that would be issued and outstanding at such time, assuming full conversion, exercise and exchange of all issued and outstanding Convertible Securities and Options that shall be (or may become) exchangeable for, or exercisable or convertible into, Common Stock, including the Series B Convertible Preferred

Stock and the Warrants, except that the number of shares of Fully Diluted Common Stock shall not include the number of shares of Common Stock issuable upon exercise, conversion or exchange of Options or Convertible Securities that, at the time of determination, are Out of the Money. For purposes of determining the percentage of the Fully Diluted Common Stock, any Investor shall be deemed to hold shares of Common Stock issuable upon any such exercise, conversion or exchange of Convertible Securities and Options held by such Investor.

"GOVERNMENTAL AUTHORITY" means any federal, state, municipal or other government, governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or any political subdivision thereof, or of any other country.

"INVESTORS" means, collectively, those persons listed on Schedule I attached hereto under the heading "Investors," and every other Person who hereafter becomes a party to this Agreement as an "Investor" pursuant to a Joinder Agreement executed and delivered pursuant to Section 3.1(b).

"JOINDER AGREEMENT" has the meaning given to such term in
Section 3.1.

"MELLON" means Mellon Ventures, L.P.

"NONVOTING SECURITIES" has the meaning given to such term in
Section 4.1(d).

"OFFERED SECURITIES" has the meaning given to such term in
Section 4.1(a).

"OPTIONS" means any warrants, options or other rights to subscribe for or to purchase (i) Common Stock or (ii) Convertible Securities.

"ORIGINAL FOUNDER SHAREHOLDERS" means S.P. Johnson IV, Frank
A. Wojtek, Steven A. Webster, Douglas A. P. Hamilton, Paul B. Loyd, Jr. and DAPHAM Partnership L.P. (and each, individually, an "ORIGINAL FOUNDER SHAREHOLDER"). With respect to each Founder Shareholder, the Original Founder Shareholder is the Original Founder Shareholder from whom such Founder Shareholder acquired, whether directly or indirectly, its Shares.

"OUT OF THE MONEY" means, at any date of determination (a) in the case of an Option, that the aggregate fair market value as of such date of the shares of Common Stock issuable upon the exercise of such Option is less than the aggregate exercise price payable upon such exercise and (b) in the case of a Convertible Security, that the quotient resulting from dividing the fair market value as of such date of such Convertible Security by the number of shares issuable as of such date upon conversion or exchange of such Convertible Security is greater than the fair market value of a share of Common Stock.

"PERMITTED TRANSFER" shall mean any Transfer by a Founder Shareholder (i) to the spouse, parent, sibling or any lineal descendant of the Original Founder Shareholder of such Founder Shareholder, (ii) to any trust for the benefit of any person specified in clause (i) above or to any family partnership or other estate planning vehicle, the interests of which are held by such Founder Shareholder and/or the persons specified in clause (i) above, (iii) by gift to a charitable

organization qualified under Section 501(c) of the Internal Revenue Code, (iv) to the estate of such Founder Shareholder, (v) of up to $3 million in aggregate Current Market Price of shares of Common Stock to one or more other Founder Shareholders, or (vi) to any Person in a Public Sale; provided, however, that in each case (other than clauses (v) and (vi)) such Permitted Transfer is made in accordance with Section 3.1(b).

"PERSON" shall be construed as broadly as possible and shall include an individual or natural person, a partnership (including a limited liability partnership), a corporation, an association, joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a Governmental Authority.

"PREEMPTIVE OFFER" has the meaning given to such term in
Section 4.1(a).

"PREEMPTIVE OFFER ACCEPTANCE NOTICE" has the meaning given to such term in Section 4.1(b).

"PREEMPTIVE OFFER PERIOD" has the meaning given to such term in Section 4.1(a).

"PROPORTIONATE PERCENTAGE" means, with respect to any Shareholder, the fraction, expressed as a percentage, (i) the numerator of which is the total number of shares of Common Stock, Warrant Shares and Underlying Shares held by such Shareholder and (ii) the denominator of which is the total number of shares of Fully Diluted Common Stock at the time of determination, provided, however, that (i) with respect to Sponsor or its affiliates, no Common Stock, Warrant Shares or Underlying Shares that are counted in the numerator of Proportionate Percentage under this Agreement may be also counted in the numerator of the definition of "Proportionate Percentage" under the 1999 Shareholders' Agreement and no Securities included in the numerator of "Proportionate Percentage" under the 1999 Shareholders' Agreement may be included in the numerator of the definition of Proportionate Percentage hereunder and (ii) with respect to Steven A. Webster, the numerator of Proportionate Percentage under this Agreement shall be the total number of shares of Common Stock issued upon conversion of the Series B Preferred Stock and exercise of the Warrants, Warrant Shares and Underlying Shares held by Mr. Webster.
"PUBLIC OFFERING" means a public offering of Common Stock pursuant to a registration statement declared effective under the Securities Act, except that a Public Offering shall not include an offering made in connection with a business acquisition or an employee benefit plan.

"PUBLIC SALE" means any sale of Securities to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker (pursuant to the provisions of Rule 144 or otherwise or pursuant to a tender offer made to all shareholders of the Company pursuant to Regulation 14D (or successor regulations) under the Securities Exchange Act of 1934).

"PURCHASE AGREEMENT" has the meaning given to such term in the Preamble.

"REFUSED SECURITIES" has the meaning given to such term
Section 4.1(c).

"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof entered into simultaneously with the execution and delivery of this Agreement between the Company and the Investors named therein.

"REQUISITE INVESTORS" means those Investors who hold in the aggregate in excess of 50% of the Common Stock issuable (for purposes of clarity, "issuable" includes the shares of Common Stock of the Company that are issuable upon the date hereof and are issued subsequent to the date hereof) upon conversion of the Series B Preferred Stock and exercise of the Warrants.

"REQUISITE FOUNDER SHAREHOLDERS" means those Founder Shareholders who hold in excess of 50% of the outstanding shares of Common Stock held by all Founder Shareholders at the time in question.

"SALE OF THE COMPANY" means (i) the sale (in one or a series of related transactions) of all or substantially all of the Company's assets to a Person or a group of Persons acting in concert, (ii) the sale or transfer (in one or a series of related transactions) of all or substantially all of the outstanding capital stock of the Company, to one Person or a group of Persons acting in concert, or (iii) the merger or consolidation of the Company with or into another Person who is not an Affiliate of the Company, in each case in clauses (ii) and (iii) above under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Company, immediately prior to such transaction, own less than a majority in voting power of the outstanding capital stock of the Company, or the surviving or resulting corporation or acquirer, as the case may be, immediately following such transaction. A sale (or multiple related sales) of one or more subsidiaries of the Company (whether by way of merger, consolidation, reorganization or sale of all or substantially all assets or Securities) which constitutes all or substantially all of the consolidated assets of the Company shall be deemed a Sale of the Company.

"SALE NOTICE" has the meaning given to such term in Section 3.2(a).

"SECURITIES" means, with respect to any Person, such Person's "securities" as defined in Section 2(1) of the Securities Act of 1933, as amended, and includes such Person's capital stock or other equity interests or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, such Person's capital stock or other equity or equity-linked interests, including phantom stock and stock appreciation rights.

"SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Securities and Exchange Commission thereunder, all as the same shall be in effect from time to time.

"SECURITIES AND EXCHANGE COMMISSION" means the Securities and Exchange Commission or any Governmental Authority succeeding to the functions thereof.

"SERIES B CONVERTIBLE PREFERRED STOCK" means the Series B Convertible Participating Preferred Stock, par value $0.01 per share, of the Company.

"SHAREHOLDERS" means the holders of Common Stock and the holders of Common Stock Equivalents (including, without limitation, the Warrants and Series B Convertible Preferred Stock), in each case, who are parties hereto, and shall include any other Person who hereafter becomes a party to this Agreement as a Shareholder pursuant to a Joinder Agreement executed and delivered pursuant to Section 3.1 or 3.2(b).

"SHARES" means any shares or other units of Stock issued by the Company and purchased or otherwise acquired by any Shareholder. As to any particular Securities constituting Shares, such Securities will cease to be Shares for all purposes of this Agreement when they have (a) been Transferred in a Public Sale (except as to the Series B Preferred Stock as it relates to
Section 2.1) or (b) ceased to be outstanding.

"SPONSOR" means (i) Mellon or (ii) a Transferee of Mellon who at the time in question holds more than 50% of the Common Stock issuable (for purposes of clarity, "issuable" includes the shares of Common Stock of the Company that are issuable upon the date hereof and are issued subsequent to the date hereof) upon conversion of the Series B Preferred Stock.

"SPOUSAL CONSENT" has the meaning given to such term in
Section 7.13.

"STOCK" means the Series B Convertible Preferred Stock, the Common Stock and the Warrant Shares and any and all other capital stock or equity Securities (including derivative Securities therefor) of the Company, excluding Options but including, to the extent applicable, the Stock received upon exercise of the Options.

"SUBSIDIARY" means, with respect to any Person, any other Person of which more than fifty percent (50%) of the shares of stock or other interests entitled to vote in the election of directors or comparable Persons performing similar functions (excluding shares or other interests entitled to vote only upon the failure to pay dividends thereon or other contingencies) are at the time owned or controlled, directly or indirectly through one or more Subsidiaries, by such Person.

"TAG-ALONG NOTICE" has the meaning given to such term in
Section 3.2(b).

"TRADING DATE" with respect to any Security means (i) if such Security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for trading, (ii) if such Security is quoted on the NASDAQ National Market, or any similar system of automated dissemination of quotations of securities prices, a day on which trades may be made on such system, (iii) if not quoted as described in clause
(ii), days on which quotations are reported by the National Quotation Bureau Incorporated or (iv) otherwise, any Business Day.

"TRANSFER" of Securities shall be construed broadly and shall include any issuance, sale, assignment, transfer, participation, gift, bequest, distribution, or other disposition

thereof (but not any pledge or hypothecation thereof, placement of a lien thereon or grant of a security interest therein or other encumbrance thereon until the execution and foreclosure with respect to the foregoing), in each case whether voluntary or involuntary or by operation of law or otherwise. "TRANSFEROR" means a Person Transferring Securities, and "TRANSFEREE" means a Person acquiring Securities through a Transfer.

"TRANSFERRING SHAREHOLDER" has the meaning given such term in
Section 3.2(a).

"UNDERLYING SHARES" means the Common Stock and other Securities issuable upon conversion of the Series B Convertible Preferred Stock.

"WARRANT AGREEMENT" means the Warrant Agreement dated as of the date hereof entered into simultaneously with the execution and delivery of this Agreement between the Company and the Investors named therein.

"WARRANTS" has the meaning given to such term in the Warrant Agreement.

"WARRANT SHARES" has the meaning given to such term in the Warrant Agreement.

1.2 RULES OF CONSTRUCTION.

The use in this Agreement of the term "including" means "including, without limitation." The words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to sections, schedules and exhibits mean the sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.

ARTICLE II

SHAREHOLDER VOTE IN FAVOR OF A MERGER

2.1 SHAREHOLDER VOTE IN FAVOR OF A MERGER.

If the holders of at least 51% of the Common Stock then outstanding approve a merger, Sale of the Company or sale of substantially all of the assets of the Company (an "Approved Sale"), each holder of Series B Convertible Preferred Stock will consent to, vote for and raise no

objections against the Approved Sale (including voting or consenting to the Approved Sale to the extent otherwise required under Sections 2(i) through (iv) of the Statement of Resolutions) as a holder of the Series B Convertible Preferred Stock; provided, however, that (a) the holders of the Series B Convertible Preferred Stock shall only be required to consent to, vote for and raise no objections against the Approved Sale to the extent that the consummation of such Approved Sale will constitute a Change of Control and the Company complies with each of its obligations set forth in Section 9 of the Statement of Resolution establishing the Series B Convertible Preferred Stock or to the extent the Approved Sale is a reincorporation merger in which the only changes to the rights and preferences of the Series B Convertible Preferred Stock are those required to conform to the laws of the jurisdiction into which the Company reincorporates; (b) this Section 2.1 shall not in any way limit the rights and preferences of the holders of the Series B Convertible Preferred Stock set forth in the Statement of Resolution; and (c) this Section 2.1 shall not in any way limit a holder of Series B Convertible Preferred Stock with respect to such holder's rights as a holder of Common Stock or other Securities of the Company. Notwithstanding anything in this Agreement to the contrary, no Investor may transfer any shares of Series B Convertible Preferred Stock unless and until the transferee agrees with the Company to comply with this Section.

ARTICLE III

ISSUANCES AND TRANSFERS OF STOCK

3.1 JOINDER AGREEMENT; CERTAIN TRANSFERS.

(a) The provisions regarding Transfers of Stock contained in this Article III shall apply to all shares of Stock now owned or hereafter acquired by a Shareholder, including shares of Stock acquired by reason of original issuance, dividend, distribution, exchange, conversion and acquisition of outstanding shares of Stock from another Person, and such provisions shall apply to any shares of Stock obtained by a Shareholder upon the exercise, exchange or conversion of any option, warrant or other derivative Security.

(b) Except for transfers that constitute Public Sales, no Shareholder shall Transfer any Stock to a Person (other than the Company or a Subsidiary of the Company) not already a party to this Agreement as a Shareholder unless and until such Person executes and delivers to the Company a joinder agreement in substantially the form attached hereto as Exhibit A and otherwise in form and substance reasonably acceptable to the Company and the Requisite Investors (a "JOINDER AGREEMENT"), pursuant to which such Person will thereupon become a party to, and be bound by and obligated to comply with the terms and provisions of, this Agreement, as a Shareholder hereunder. Any Person who executes a Joinder Agreement shall be designated an Investor if the Transferor was an Investor and the Transferee was not a Founder Shareholder or an Affiliate of a Founder Shareholder. No Person who is not a Shareholder who acquires Stock in a Public Sale shall be permitted or required to execute a Joinder Agreement. No Person who acquires less than 7 1/2% of the Fully Diluted Common Stock pursuant to a Transfer shall be permitted or required to execute a Joinder Agreement. Any Transferor shall notify the Company at least five days prior to any Transfer that requires the execution of a Joinder Agreement.

(c) The Company shall provide (and upon written request by any Shareholder, authorize such Shareholder to provide) any readily available financial and other information concerning the Company to any prospective transferee of Stock owned by such Shareholder as such purchaser may reasonably request; provided that, the provision of any such information shall be subject to the confidentiality provisions set forth in Section 7.14 of the Purchase Agreement and any such prospective transferee of Stock shall be deemed to have agreed to be bound by and entitled to the benefits of Section 7.14 of the Purchase Agreement and that such transferee is not a Competitor of the Company.

3.2 TAG-ALONG RIGHTS.

(a) If at any time any Founder Shareholder (the "TRANSFERRING SHAREHOLDER") proposes to Transfer any shares of Common Stock (other than Permitted Transfers), then at least twenty five (25) days prior to the expected closing of such Transfer, such Transferring Shareholder shall deliver a written notice (the "SALE NOTICE") to the Sponsor offering the Sponsor the option to participate in such proposed Transfer. Such Sale Notice shall specify in reasonable detail the identity of the prospective Transferee and, to the extent known, the terms and conditions of the Transfer.

(b) Sponsor may, within 15 days of the receipt of a Sale Notice, give written notice (each, a "TAG-ALONG NOTICE") to the Transferring Shareholder stating that Sponsor wishes to participate in such proposed Transfer and stating that such notice is binding and irrevocable and specifying the amount of Common Stock Sponsor desires to include in such proposed Transfer.

(c) If Sponsor does not give the Transferring Shareholder a timely Tag-Along Notice with respect to the Transfer proposed in the Sale Notice, the Transferring Shareholder may thereafter transfer the shares specified in the Sale Notice on substantially the same terms and conditions set forth in the Sale Notice. If Sponsor gives the Transferring Shareholder a timely Tag-Along Notice, then the Transferring Shareholder shall use all reasonable efforts to cause the prospective Transferee(s) to agree to acquire all shares identified in all Tag-Along Notices that are timely given to the Transferring Shareholder, upon the same terms and conditions as applicable to the Transferring Shareholder's shares. If such prospective Transferee (s) are unwilling or unable to acquire all shares proposed to be included in such sale upon such terms, then the Transferring Shareholder may elect either to cancel such proposed Transfer or to allocate the maximum number of shares that each prospective Transferee is willing to purchase among the Transferring Shareholder or Transferring Shareholders, as the case may be, and the Sponsor in proportion to such Shareholders' (including the Transferring Shareholder's or Transferring Shareholders', as the case may be) Proportionate Percentages.

ARTICLE IV

RIGHTS TO SUBSCRIBE FOR SECURITIES

4.1 GENERAL.

(a) Except in the case of Excluded Securities (as hereinafter defined), the Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange (i) any equity Security of the Company, (ii) any debt Security of the Company which by its terms is convertible into or exchangeable for any equity Security of the Company, (iii) any option, warrant or other right to subscribe for, purchase or otherwise acquire any equity Security or any debt Security referred to in clause
(i) or (ii) or (iv) any other Common Stock Equivalent, unless in each case the Company shall have first offered (the "PREEMPTIVE OFFER") to sell such Securities to the Investors (the "OFFERED SECURITIES") by delivery to such Investors of written notice of such offer stating that such Company proposes to sell such Offered Securities, and to the extent then known, the number or amount of the Offered Securities proposed to be sold, the proposed purchase price therefor and any other terms and conditions of such offer (such notice shall be deemed to be satisfactory if such terms and conditions are set out in the same general level of detail as the term sheet used in connection with the offering contemplated by the Purchase Agreement). Without limiting the generality of any other provisions hereof, the final terms and conditions of the Offered Securities (and the drafts of any purchase or ancillary documents) need not be set prior to the mailing of the Preemptive Offer. The Preemptive Offer shall by its terms remain open and irrevocable for a period of 10 Business Days from the date it is delivered by the Company (the "PREEMPTIVE OFFER PERIOD").

(b) Each Investor shall have the option, exercisable at any time during the Preemptive Offer Period by delivering a binding and irrevocable written notice to the Company (a "PREEMPTIVE OFFER ACCEPTANCE NOTICE"), to subscribe for the number or amount of such Offered Securities up to its Proportionate Percentage of the total number or amount of Offered Securities proposed to be issued.

(c) If Preemptive Offer Acceptance Notices are not given by the Investors for all the Offered Securities, the Company shall have 90 days from the expiration of the Preemptive Offer Period to sell all or any part of such Offered Securities as to which Preemptive Offer Acceptances Notices have not been given by the Investors (the "REFUSED SECURITIES") to any other Persons, but only upon terms and conditions in all material respects, including unit price and interest rates, which are no more favorable, in the aggregate, to such other Persons or less favorable, in the aggregate, to the Company than those set forth in the Preemptive Offer. Upon the closing, which shall include full payment to the Company, of the sale to such other Persons of all the Refused Securities, the Investors shall purchase from the Company, and the Company shall sell to the Investors, the Offered Securities with respect to which Preemptive Offer Acceptance Notices were delivered by the Investors, at the terms specified in the Preemptive Offer. The Investors purchasing the Offered Securities under this Section must execute all documents and agreements no later than the time of the Closing to the extent reasonably requested by the Company. In each case, any Offered Securities not purchased by the Investors

or any other Persons in accordance with this Section 4.1 may not be sold or otherwise disposed of until they are again offered to the Investors under the procedures specified in this Section 4.1.

4.2 EXCLUDED SECURITIES.

The rights of the Investors under Section 4.1 shall not apply to the following Securities (the "EXCLUDED SECURITIES"):

(a) Securities issued or granted to eligible officers, employees or directors of, or consultants to, the Company and its Subsidiaries pursuant to an Equity Incentive Plan;

(b) any Securities issued by the Company in any Public Offering;

(c) any Securities issued by the Company as consideration in a merger, business combination or acquisition of property or assets;

(d) Securities issued upon the exercise or conversion of outstanding Common Stock Equivalents and other derivative Securities and Common Stock Equivalents and other derivative Securities issued in compliance with (or not otherwise in violation of) this Article IV;

(e) the Warrant Shares;

(f) the Underlying Shares;

(g) Securities issued in a distribution from the Company, stock split, reverse stock split, subdivision, stock dividend, reclassification, combination or capital reorganization; and

(h) Shares of Series B Convertible Preferred Stock issued as dividends on shares of Series B Convertible Preferred Stock.

ARTICLE V

AMENDMENT AND WAIVER

5.1 AMENDMENT.

Except as expressly set forth herein, the provisions of this Agreement may only be amended or waived with the prior written consent of (i) the Company,
(ii) the Requisite Founder Shareholders and (iii) the Requisite Investors; provided, however, that (A) any such amendment, modification, or waiver that would adversely affect in any material respect the rights hereunder of any Investor or any Founder Shareholder, in their capacities as such, without similarly affecting the rights hereunder of all the Investors or Founder Shareholders, as the case may be, may not be made without the prior written consent of such adversely affected Investor or Founder Shareholder, Schedule I to this Agreement shall be deemed to be automatically amended from time to time to reflect Transfers of Stock, and the Company will, from time to time, distribute to the Shareholders a revised Schedule I to reflect any such changes.

5.2 WAIVER.

No course of dealing between the Company, its Subsidiaries and the Shareholders (or any of them) or any delay in exercising any rights hereunder will operate as a waiver of any rights of any party to this Agreement. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

ARTICLE VI

DURATION; TERMINATION

The provisions of Article III and Article IV of this Agreement shall terminate upon the first to occur of (A) notice of termination by the Requisite Investors , (B) a Sale of the Company which has been consented to by the Requisite Investors and the consideration received by the Shareholders in connection with such sale consists solely of cash, (C) Sponsor does not own more than 50% of the Common Stock issuable (for purposes of clarity, "issuable" includes the shares of Common Stock of the Company that are issuable upon the date hereof and are issued subsequent to the date hereof) upon conversion of the Series B Preferred Stock acquired pursuant to the Purchase Agreement, and (D) Sponsor no longer owns any Series B Convertible Preferred Stock. Anything contained herein to the contrary notwithstanding, as to any particular Shareholder, this Agreement shall no longer be binding or of further force or effect as to such Shareholder, except as otherwise expressly provided herein, as of the date such Shareholder has Transferred all of such Shareholder's interest in the Company's Securities in accordance with the terms hereof and the Transferees of such Securities have, if required by Section 3.2(b) hereof, executed Joinder Agreements but such Shareholder shall remain responsible for all actions or omissions during such time that the Agreement was applicable to such Shareholder.

ARTICLE VII

MISCELLANEOUS

7.1 SEVERABILITY.

Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, void or otherwise unenforceable provisions shall be null and void. It is the intent of the parties, however, that any invalid, void or otherwise unenforceable provisions be automatically replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable to the fullest extent permitted by Applicable Law.

7.2 ENTIRE AGREEMENT.

This Agreement and the agreements and documents referred to herein contain the entire agreement among the parties hereto with respect to the subject matter hereof and thereof and supersede and preempt any and all prior and contemporaneous understandings, agreements, arrangements, or representations by or among the parties, written or oral, which may related to the subject matter hereof or thereof in any way. Other than this Agreement, the Statement of Resolutions and the other agreements referred to herein and to be executed and delivered in connection herewith, there are no other agreements to which the parties hereto are bound continuing in effect relating to pre-emptive or similar rights or voting of Series B Convertible Preferred Stock.

7.3 CERTAIN SHAREHOLDERS.

Any Shareholder that is a party to this Agreement and is an entity that was formed for the sole purpose of acquiring Stock or that has no substantial assets other than Stock or interests in Stock shall agree that (a) shares of its common stock or other instruments reflecting equity interests in such entity (and the shares of common stock or other equity interests in any similar entities controlling such entity) will note the restrictions contained in this Agreement on the transfer of Stock as if such common stock or other equity interests were Stock and (b) no shares of such common stock or other equity interests may be transferred to any Person other than in accordance with the terms and provisions of this Agreement as if such common stock or other equity interests were Stock.

7.4 SUCCESSORS AND ASSIGNS.

Except as otherwise provided herein, this Agreement will bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Shareholders and any subsequent permitted holders of Shares and the respective successors and permitted assigns of each of them, so long as they hold Shares. None of the provisions hereof shall create, or be construed or deemed to create, any right to employment in favor of any Person by the Company or any of its Subsidiaries. This Agreement is not intended to create any third party beneficiaries.

7.5 REMEDIES.

(a) Each Shareholder shall have all rights and remedies reserved for such Shareholder pursuant to this Agreement and all rights and remedies which such holder has been granted at any time under any other agreement or contract and all of the rights which such holder has under any law or equity. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law or equity.

(b) The parties hereto agree that if any parties seek to resolve any dispute arising under this Agreement pursuant to a legal proceeding, the prevailing parties to such proceeding

shall be entitled to receive reasonable fees and expenses (including reasonable attorneys' fees and expenses) incurred in connection with such proceedings.

(c) It is acknowledged that it will be impossible to measure in money the damages that would be suffered by any party hereto if any Person also party hereto fails to comply with any of the obligations imposed on it upon them in this Agreement or in the Charter or By-laws and that in the event of any such failure, the aggrieved party will be irreparably damaged and will not have an adequate remedy at law. Any such aggrieved party shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law.

7.6 NOTICES.

All notices, demands and requests of any kind to be delivered to any party hereto in connection with this Agreement shall be in writing (i) delivered personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by first class, registered or certified mail, return receipt requested or (iv) sent by facsimile, in each case to such party at its address as follows:

(a) if to the Company, to:

Carrizo Oil & Gas, Inc. 14701 St. Mary's Lane, Suite 800 Houston, Texas 77079 Attention:

Telephone No.: (281) 496-1352
Telecopier No.: (281) 496-1251

with a copy to:

Baker Botts L.L.P.
3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002-4915
Attention: Gene Oshman, Esq.
Telephone No.: (713) 229-1178
Telecopier No.: (713) 229-1522

(b) if to a Shareholder, to such Shareholder's address as set forth on Schedule I hereto.

Any notice, demand or request so delivered shall constitute valid notice under this Agreement and shall be deemed to have been received (i) on the day of actual delivery in the case of personal delivery, if delivered on a Business Day (otherwise on the next Business Day), (ii) on the next Business Day after the date when sent in the case of delivery by nationally-recognized overnight

courier, (iii) on the fifth Business Day after the date of deposit in the U.S. mail in the case of mailing or (iv) upon receipt in the case of a facsimile transmission. Any party hereto may from time to time by notice in writing served upon the other as aforesaid designate a different mailing address or a different Person to which all such notices, demands or requests thereafter are to be addressed.

7.7 GOVERNING LAW.

(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK EXCEPT TO THE EXTENT OF INTERNAL CORPORATE MATTERS, WHICH SHALL BE GOVERNED BY THE PROVISIONS OF THE APPLICABLE LAW OF THE STATE OF TEXAS.

(b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT SHALL LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF NEW YORK OR THE STATE OF TEXAS. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION.

(c) THE COMPANY HEREBY AGREES THAT SERVICE UPON THEM BY REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED) SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE INVESTORS TO BRING PROCEEDINGS AGAINST THE COMPANY OR THE SHAREHOLDERS IN THE COURTS OF ANY OTHER JURISDICTION.

(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY, THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO

ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY DOCUMENTS RELATED HERETO.

7.8 FURTHER ASSURANCES.

Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the provisions of this Agreement and the consummation of the transactions contemplated hereby.

7.9 REPRESENTATION AND WARRANTIES OF THE SHAREHOLDERS.

Each Shareholder (as to himself or itself only) represents and warrants to the Company and the other Shareholders that, as of the time such Shareholder becomes a party to this Agreement:

(a) this Agreement (or the separate joinder agreement executed by such Shareholder) has been duly and validly executed and delivered by such Shareholder and this Agreement constitutes a legal and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms; and

(b) the execution, delivery and performance by such Shareholder of this Agreement and the consummation by such Shareholder of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time, or both (A) violate any Applicable Law, or (B) conflict with, or result in a breach or default under, any term or condition of any agreement or other instrument to which such Shareholder is a party or by which such Shareholder is bound, except for such violations, conflicts, breaches or defaults that would not, in the aggregate, materially affect the Shareholder's ability to perform its obligations hereunder.

(c) Such Shareholder owns beneficially and of record the number of shares of Common Stock and Warrants as set forth on Schedule I.

7.10 LEGENDS; STOP TRANSFER INSTRUCTIONS.

(a) Each certificate evidencing Shares (including any Shares outstanding prior to the date hereof) and each certificate issued in exchange for or upon the Transfer of any Shares (if such shares remain Shares as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A SHAREHOLDERs AGREEMENT DATED AS OF FEBRUARY 20, 2002, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S SHAREholders. THE TERMS OF SUCH SHAREholders AGREEMENT INCLUDE, AMONG OTHER THINGS, VOTING AGREEMENTS AND RESTRICTIONS ON TRANSFERS. A COPY OF SUCH SHAREholders AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."

The legend set forth above shall be removed from the certificates evidencing any shares which cease to be Shares in accordance with the terms of this Agreement.

(b) The Company agrees to give effect to the transfer restrictions imposed by this Agreement by placing an "issuer hold" on the Shares owned by the Original Founder Shareholders and it will not release such issuer hold except in respect of a transfer in compliance with this Agreement. Each Shareholder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Existing Shares in order to implement the restrictions on transfer established in this Agreement. The Company agrees to keep a copy of this Agreement (as it may from time to time be amended) at its place of business and to make this Agreement subject to the same right of examination by shareholders of the Company, in person or by agent, attorney or accountant, as are the books and records of the Company. If any Original Founder Shareholder Transfers any Existing Shares (other than in a Permitted Transfer) such Existing Shares will be legended in accordance with Section 7.10(a) and this Section 7.10(b) shall no longer apply to such transferred Existing Shares.

7.11 CONFLICTING AGREEMENTS.

No Shareholder shall enter into any agreements or arrangements of any kind with any Person with respect to any Securities on terms inconsistent with the provisions of this Agreement (whether or not such agreements or arrangements are with other Shareholders or with Persons that are not parties to this Agreement), including agreements or arrangements with respect to the acquisition or disposition of Securities of the Company in a manner which is inconsistent with this Agreement.

7.12 COUNTERPARTS; VALIDITY.

This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. The failure of any Shareholder to execute this Agreement does not make it invalid as against any other Shareholder.

7.13 CONSENT OF SPOUSES.

If requested by the Company or Requisite Investors, each Shareholder who is an individual shall cause his or her spouse, as applicable to execute and deliver a separate consent and agreement substantially in the form attached hereto as Exhibit B and otherwise in form and substance reasonably acceptable to the Company and the Requisite Investors (a "SPOUSAL CONSENT"). The signature of a spouse on a Spousal Consent shall not be construed as making such spouse a shareholder of the Company or a party to this Agreement except as may otherwise be set forth in such consent. Each Shareholder who is an individual will certify his or her marital status to the Company at the Company's request. The Company or Requisite Investors will request Spousal Consents as contemplated by this
Section 8.13 whenever such action may be advantageous in enforcing (or assuring the enforceability of in the future) the terms of this Agreement.

7.14 FIDUCIARY DUTIES.

Without limiting the generality of any other provision hereof, no Original Founder Shareholder, while serving as a director of the Company, shall be restricted from taking or omitting to take any action as a director to the extent such action or omission is required to satisfy any fiduciary duty imposed upon him as a director by applicable law in respect of his relationship to the Company and its shareholders.

7.15 OTHER COVENANT.

The Company shall comply with, and each Investor for so long as such Investor owns at least 10% of the Common Stock issuable (for purposes of clarity, "issuable" includes the shares of Common Stock of the Company that are issuable upon the date hereof and are issued subsequent to the date hereof) upon conversion of the Series B Preferred Stock acquired pursuant to the Purchase Agreement shall be entitled to the benefit of, the provisions of Sections 7.4
(a) and (b) and 8.6 of the Securities Purchase Agreement dated December 15, 1999, by and between the investors named therein.

* * * * *

IN WITNESS WHEREOF, the undersigned have duly executed this Shareholders Agreement as of the date first written above.

COMPANY:

CARRIZO OIL & GAS, INC.

By:    /s/ FRANK A. WOJTEK
   -----------------------------------
    Name:  Frank A. Wojtek
    Title: Chief Financial Officer and
           Vice President

INVESTORS:

MELLON VENTURES, L.P.

By: MVMA, L.P., its general partner

By: MVMA, Inc., its general partner

By:    /s/ MARC A. COLE
   --------------------------------
    Name:  Marc A. Cole
    Title: Associate

    /s/ STEVEN A. WEBSTER
    -------------------------------
    Steven A. Webster

ORIGINAL FOUNDER SHAREHOLDERS:

/s/ S. P. JOHNSON IV
-------------------------------------
S. P. Johnson IV


/s/ FRANK A. WOJTEK
-------------------------------------
Frank A. Wojtek


/s/ STEVEN A. WEBSTER
-------------------------------------
Steven A. Webster


/s/ DOUGLAS A.P. HAMILTON
-------------------------------------
Douglas A.P. Hamilton


/s/ PAUL B. LOYD, JR.
-------------------------------------
Paul B. Loyd, Jr.

DAPHAM PARTNERSHIP, L.P.

By: /s/ VERONICA A. LAVOUN
   --------------------------------------
   Name:  Veronica A. LaVoun
   Title: General Partner

                                           AS OF 12/31/01                                  SERIES B
                                             SHARES OF            1999 WARRANT           CONVERTIBLE       2002 WARRANT
           NAME AND ADDRESS                 COMMON STOCK             SHARES            PREFERRED SHARES       SHARES

INVESTORS
Mellon Ventures, L.P.                          363,636              276,019                 40,000               168,421
1114 Avenue of the Americas
31st Floor
New York, New York  10036
Attention:  Marc A. Cole
Telephone No.:  (212) 389-2700
Telecopier No.: (212) 389-2755


          with a copy to:
Dechert
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA  19103-2793
Attention:  David S. Denious, Esq.
Telephone:  (215) 994-4000
Telecopier: (215) 994-2222

Steven A. Webster                            1,725,228*              92,006                 20,000                84,211
14701 St. Mary's Lane
Suite 800
Houston, Texas 77079

* Excludes shares for which shareholder disclaims beneficial ownership.

                                                 AS OF 12/31/01                               SERIES B
                                                    SHARES OF          1999 WARRANT         CONVERTIBLE         2002 WARRANT
ORIGINAL FOUNDER SHAREHOLDERS                     COMMON STOCK            SHARES          PREFERRED SHARES         SHARES
-----------------------------                    ---------------       ------------       ----------------      ------------
S. P. Johnson IV
14701 St. Mary's Lane, Suite 148
Houston, TX  77079                                    715,083
                                                                          ------               ------              ------

Frank A. Wojtek
14701 St. Mary's Lane, Suite 148
Houston, TX  77079                                  1,092,221
                                                                          ------               ------              ------
Steven A. Webster
14701 St. Mary's Lane, Suite 148
Houston, TX  77079                                  1,725,228*            92,006               20,000              84,211

Douglas A. P. Hamilton
1114 Avenue of the Americas, 31st Floor
New York, New York  10036                             778,208*            92,006
                                                                                               ------              ------
Paul B. Loyd, Jr.
14701 St. Mary's Lane, Suite 148
Houston, TX  77079                                  1,550,468             92,006
                                                                                               ------              ------
DAPHAM Partnership L.P.
1114 Avenue of the Americas, 31st Floor
New York, New York  10036                             395,960
                                                                          ------               ------              ------

* Excludes shares for which shareholder disclaims beneficial ownership.

EXHIBIT A

JOINDER AGREEMENT

The undersigned is executing and delivering this Joinder Agreement pursuant to the Shareholders Agreement dated on or about February 20, 2002 (the "Shareholders Agreement"), among Carrizo Oil & Gas, Inc., a Texas corporation (the "Company"), and the Shareholders named therein.

By executing and delivering this Joinder Agreement to the Company, the undersigned hereby agrees to become a party to, to be bound by, and to comply with the provisions of [(i)] the Shareholders Agreements [and (ii) the Registration Rights Agreement dated on or about February 20, 2002, among the Company and the Investors named therein, in each case] in the same manner as if the undersigned were an original signatory to [each of] such agreement[s]. In connection therewith, effective as of the date hereof the undersigned hereby makes the representations and warranties contained in Section 7.9 of the Shareholders Agreement.

The undersigned agrees that he shall be a [Founder Shareholder][Investor], as such term is defined in the Shareholders Agreement.

Accordingly, the undersigned has executed and delivered this Joinder Agreement as of the __ day of ____________, 20__.

[Bracketed provisions applicable to Investors only.]

EXHIBIT B

CONSENT AND AGREEMENT OF SPOUSE

I, ____________________________________________, am the spouse of ________________________________________, one of the shareholders in Carrizo Oil & Gas, Inc., a Texas corporation (the "Company"). I understand that my spouse is a party to that certain Shareholders Agreement dated on or about February 20, 2002 (as the same may hereafter be amended, the "Agreement"), among the Company and certain of its shareholders, and that I have reviewed the Agreement.

The Agreement contains certain provisions regarding my acquiring or retaining any equity securities, or rights to received equity securities (the "Securities") issued by the Company. I agree that I may not acquire any Securities (whether by gift, purchase, will, intestate succession, operation of law or decree, order or injunction of any court, division of community or marital property, or otherwise), except in compliance with the terms of the Agreement. I acknowledge and understand that if I ever propose to acquire any Securities in compliance with the Agreement, I must first agree to become a party to the Shareholders Agreement.

Executed this ____ day of ___________, 20__.

EXHIBIT 99.4

WARRANT AGREEMENT

DATED AS OF FEBRUARY 20, 2002

AMONG

CARRIZO OIL & GAS, INC.

AND

THE INITIAL WARRANT HOLDERS
LISTED ON SCHEDULE I HERETO

TABLE OF CONTENTS

                                                                                                               PAGE
                                                                                                               ----

ARTICLE I DEFINITIONS.............................................................................................1
   1.1    DEFINITIONS.............................................................................................1
   1.2    ACCOUNTING TERMS AND DETERMINATIONS.....................................................................7

ARTICLE II AUTHORIZATION AND ISSUANCE OF WARRANTS; RESERVATION OF WARRANT SHARES..................................7
   2.1    AUTHORIZATION AND ISSUANCE OF WARRANTS..................................................................7
   2.2    RESERVATION OF WARRANT SHARES...........................................................................7

ARTICLE III FORM; REGISTER; EXCHANGE  FOR WARRANTS; TRANSFER......................................................8
   3.1    FORM OF WARRANT; REGISTER...............................................................................8
   3.2    EXCHANGE OF WARRANTS FOR WARRANTS.......................................................................8
   3.3    TRANSFER OF WARRANT.....................................................................................9
   3.4    TRANSFER; LEGENDS.......................................................................................9

ARTICLE IV EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES......................................................10
   4.1    EXERCISE OF WARRANTS...................................................................................10
   4.2    EXCHANGE FOR WARRANT SHARES............................................................................10
   4.3    ISSUANCE OF COMMON STOCK...............................................................................10

ARTICLE V ADJUSTMENT OF EXERCISE PRICE AND SHARES................................................................12
   5.1    GENERAL................................................................................................12
   5.2    STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.........................................................12
   5.3    ISSUANCE OF COMMON STOCK...............................................................................13
   5.4    DISTRIBUTION OF EQUITY SECURITIES......................................................................16
   5.5    CAPITAL REORGANIZATION, CAPITAL RECLASSIFICATIONS, MERGER, ETC. .......................................17
   5.6    OTHER ACTIONS AFFECTING COMMON STOCK...................................................................17
   5.7    MISCELLANEOUS..........................................................................................18

ARTICLE VI COVENANTS OF THE COMPANY..............................................................................20
   6.1    NOTICES OF CERTAIN ACTIONS.............................................................................20
   6.2    MERGER OR CONSOLIDATION OF THE COMPANY.................................................................21

ARTICLE VII MISCELLANEOUS........................................................................................21
   7.1    NOTICES................................................................................................21
   7.2    NO VOTING RIGHTS; LIMITATIONS OF LIABILITY.............................................................22
   7.3    AMENDMENTS AND WAIVERS.................................................................................23
   7.4    REMEDIES...............................................................................................23
   7.5    BINDING EFFECT.........................................................................................24
   7.6    COUNTERPARTS...........................................................................................24
   7.7    GOVERNING LAW..........................................................................................24
   7.8    BENEFITS OF THIS AGREEMENT.............................................................................24
   7.9    HEADINGS...............................................................................................24

SCHEDULE I    -   Initial Warrant Holders
EXHIBIT A     -   Registration Rights Agreement
EXHIBIT B     -   Form of Warrant

WARRANT AGREEMENT dated as of February 20, 2002, among CARRIZO OIL & GAS, INC., a Texas corporation (the "COMPANY"), and the initial warrant holders listed on Schedule I hereto (the "INITIAL HOLDERS").

PREAMBLE

The Company is entering into a Securities Purchase Agreement dated as of the date hereof with the Initial Holders (the "SECURITIES PURCHASE AGREEMENT") pursuant to which the Company is issuing to the Initial Holders (i) 60,000 shares of its Series B Convertible Preferred Stock (as defined below), and (ii) Warrants (as defined below) to purchase 252,632 shares of the Company's common stock as set forth on Schedule I. In order to induce the Initial Holders to enter into the Securities Purchase Agreement and to purchase the Series B Convertible Preferred Stock, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company is willing to issue the Warrants to the Initial Holders. This Agreement sets forth terms and conditions applicable to the Warrants.

NOW, THEREFORE, the parties to this Agreement hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1 DEFINITIONS.

As used in this Agreement, the following terms shall have the following meanings:

"AFFILIATE" means, with respect to any specified Person, any other Person that directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with such Person.

"ALLOCABLE NUMBER" has the meaning given to such term in
Section 4.2.

"APPLICABLE LAW" means all provisions of laws, statutes, ordinances, rules, regulations, permits, certificates or orders of any Governmental Authority applicable to the Person in question or any of its assets or property, and all judgments, injunctions, orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party or by which any of its assets or properties are bound.

"ASSIGNMENT FORM" means the assignment form attached as Annex C to a Warrant.

"BOARD" means the board of directors of the Company.

"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which banks are authorized or required to be closed in New York, New York or Houston, Texas; provided, however, that any determination of a Business Day relating to a securities exchange or other securities market means a Business Day on which such exchange or market is open for trading.

"CLOSING DATE" has the meaning given to such term in the Securities Purchase Agreement.

"COMMISSION" means the Securities and Exchange Commission (or a successor thereto).

"COMMON STOCK" means (i) the Common Stock, $.01 par value, of the Company, and (ii) any other class of capital stock of the Company hereafter authorized that is not limited to a fixed sum or percentage of par or stated or liquidation value with respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company.

"COMPANY" has the meaning given to such term in the Preamble.

"CONTROL" means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

"CONVERTIBLE SECURITIES" has the meaning given to such term in
Section 5.3(b)(i).

"DELIVERY DATE" has the meaning given to such term in Section 4.3(a).

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"EXCHANGE FORM" means the exchange form attached as Annex B to a Warrant.

"EXERCISE FORM" means the exercise form attached as Annex A to a Warrant.

"EXERCISE PRICE" means $5.94 per Warrant Share, subject to adjustment from time to time in the manner provided in Article V.

"EXPIRATION TIME" means 5:00 p.m., Eastern time, on February 20, 2007.

"FLOOR PRICE" means $4.75 per Warrant Share, appropriately adjusted for stock splits, reverse stock splits and similar recapitalizations.

"FULLY DILUTED BASIS" means, with respect to the Common Stock at any time of determination, the number of shares of Common Stock that would be issued and outstanding at such time, assuming full conversion, exercise and exchange of all issued and outstanding Convertible Securities and Options that shall be (or may become) exchangeable for, or

exercisable or convertible into, Common Stock, including the Warrants except that the number of shares of Common Stock outstanding on a Fully Diluted Basis shall not include the number of shares of Common Stock issuable upon exercise, conversion or exchange of Options or Convertible Securities that, at the time of determination, are Out of the Money.

"GAAP" means generally accepted accounting principles in the United States of America in effect from time to time.

"GOVERNMENTAL AUTHORITY" means any federal, state, municipal or other government, governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or any political subdivision thereof, or of any other country.

"HOLDER" means with respect to any Warrant, the holder of such Warrant as set forth in the Warrant Register.

"IRC" has the meaning given to such term in Section 2.2(b).

"MARKET PRICE" means, for any security as of any date of determination:

(a) if such security is Publicly Traded as of the date of determination, the price determined by computing the average, over a period consisting of the most recent four (4) Business Days occurring on or prior to the date of determination, of the applicable price set forth below (but excluding any trades or quotations that are not bona fide, arm's length transactions):

(i) the average of the closing prices for such security on such Business Day on all domestic national securities exchanges on which such security may be listed if such exchanges are the primary securities markets for such security, or

(ii) if there have been no sales on any such exchange on such Business Day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such Business Day if such exchanges are the primary securities markets for such security, or

(iii) if on any Business Day such security is not so listed, the closing sales price on such Business Day quoted on the Nasdaq National Market or the Nasdaq Small-Cap Market, as applicable, or if there have been no sales on the Nasdaq National Market or the Nasdaq Small-Cap Market, as the case may be, on such business day, the average of the highest bid and lowest asked prices quoted on the Nasdaq National Market or the Nasdaq Small-Cap Market, as the case may be;

(iv) if on any Business Day such security is not quoted in the Nasdaq National Market or Nasdaq Small-Cap Market, the average of the highest bid and lowest asked prices on such Business Day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization;

provided, that (1) for the purposes of any determination of the "Market Price" of any share of a security on any day after the "ex" date or any similar date for any dividend or distribution paid or to be paid with respect to such security, any price of such security on a day prior to such "ex" date or similar date shall be reduced by the fair market value of the per share amount of such dividend or distribution as determined in good faith by the Board of Directors of the Company and (2) for the purposes of any determination of the "Market Price" of any security on any day after (i) the effective day of any subdivision (by stock split or otherwise) or combination (by reverse stock split or otherwise) of outstanding securities or (ii) the "ex" date or any similar date for any dividend or distribution with respect to such securities in shares of that security, any price of such security on a day prior to such effective date or "ex" date or similar date shall be appropriately adjusted to reflect such subdivision, combination, dividend or distribution; and

(b) if such security is not Publicly Traded as of the date of determination, (i) in the case of the Common Stock, the Market Value Per Share, determined in accordance with the Valuation Procedure, and (ii) in the case of any other security, the fair market value of one share or other applicable unit of such security, determined in accordance with the Valuation Procedure, except that if the Market Price of the Common Stock is being determined for purposes of
Section 4.3(c), such determination shall be made in good faith by the Board exercising reasonable business judgment.

"MARKET VALUE" means the highest price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and assuming full disclosure of all relevant information and a reasonable period of time for effectuating such sale. For the purposes of determining the Market Value, (i) the exercise price of Options to acquire Common Stock that are not Out of the Money shall be deemed to have been received by the Company and (ii) the liquidation preference or indebtedness, as the case may be, represented by Convertible Securities that are not Out of the Money shall be deemed to have been eliminated or cancelled.

"MARKET VALUE PER SHARE" means the price per share of Common Stock obtained by dividing (A) the Market Value by (B) the number of shares of Common Stock outstanding (on a Fully Diluted Basis) at the time of determination.

"OPTIONS" has the meaning given to such term in Section 5.3(b)(i).

"OUT OF THE MONEY" means, at any date of determination (a) in the case of an Option, that the aggregate fair market value as of such date of the shares of Common Stock issuable upon the exercise of such Option is less than the aggregate exercise price payable upon such exercise and (b) in the case of a Convertible Security, that the quotient resulting from dividing the fair market value as of such date of such Convertible Security by the number of shares issuable as of such date upon conversion or exchange of such Convertible Security is greater than the fair market value of a share of Common Stock.

"PERSON" shall be construed as broadly as possible and shall include an individual or natural person, a partnership (including a limited liability partnership), a corporation, an association, joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a Governmental Authority.

"PUBLICLY TRADED" means, with respect to any security, that such security is (a) listed on a domestic securities exchange, (b) quoted on the Nasdaq National Market or the Nasdaq Small-Cap Market or (c) traded in the domestic over-the-counter market, which trades are reported by the National Quotation Bureau, Incorporated.

"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof, substantially in the form of Exhibit A hereto.

"REQUISITE HOLDERS" means, as of any date of determination, Holders holding Warrants or Warrant Shares representing at least a majority of the Warrant Shares (i) previously issued or (ii) issuable upon exercise of Warrants then outstanding.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SECURITIES PURCHASE AGREEMENT" has the meaning given to such term in the Preamble.

"SERIES B CONVERTIBLE PREFERRED STOCK" means the Series B Convertible Participating Preferred Stock, par value $0.01 per share, of the Company.

"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated as of the date hereof among the Company and the shareholders of the Company party thereto.

"SUBSIDIARY" means, with respect to any Person, any other Person of which more than fifty percent (50%) of the shares of stock or other interests entitled to vote in the election of directors or comparable Persons performing similar functions (excluding shares or other interests entitled to vote only upon the failure to pay dividends thereon or other contingencies) are at the time owned or controlled, directly or indirectly through one or more Subsidiaries, by such Person.

"TRANSFER" means any sale, transfer, assignment, or other disposition of any interest in, with or without consideration, any security, including any disposition of any security or of any interest therein which would constitute a sale thereof within the meaning of the Securities Act.

"VALUATION PROCEDURE" means, with respect to the determination of any amount or value required to be determined in accordance with such procedure (the "VALUATION AMOUNT"), a determination (which shall be final and binding on the Company and the Holders) made (i) by agreement among the Company and the Requisite Holders within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by

an Appraiser (as defined below) selected in accordance with the further provisions of this definition. If the Board and the Requisite Holders are unable to agree upon an acceptable Appraiser within ten (10) days after the date either party proposed that one be selected, the Appraiser will be selected by an arbitrator located in New York City, New York, selected by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the Appraiser (within ten (10) days of his appointment) from a list, jointly prepared by the Board and the Requisite Holders, of not more than six Appraisers of national standing in the United States, of which no more than three may be named by the Board and no more than three may be named by the Requisite Holders. The arbitrator may consider, within the ten-day period allotted, arguments from the parties regarding which Appraiser to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Board and the Requisite Holders shall submit to the Appraiser their respective determinations of the valuation amount, and any supporting arguments and other data as they may desire, within ten (10) days of the appointment of the Appraiser, and the Appraiser shall as soon as practicable thereafter make its own determination of the valuation amount. The final valuation amount for purposes hereof shall be the average of the two valuation amounts closest together, as determined by the Appraiser, from among the valuation amounts submitted by the Board (the "COMPANY'S VALUATION") and the Requisite Holders (the "HOLDERS' VALUATION") and the valuation amount calculated by the Appraiser. The fees and expenses of the Appraiser and arbitrator (if any) used to determine the valuation amount shall be (i) paid by the Company if the Company's Valuation is not used to determine the average in the preceding sentence, (ii) paid by the Holders if the Holders' Valuation is not used to determine the average in the preceding sentence or (iii) borne equally by the Company and the Holders if the Company's Valuation and the Holders' Valuation are both used to determine the average in the preceding sentence. If required by any Appraiser or arbitrator, the Company shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Company in favor of such Company or arbitrator and its officers, directors, partners, employees, agents and Affiliates. As used herein, "APPRAISER" means (a) with respect to a determination of Market Value or the fair market value of any security, an investment banking firm and (b) with respect to a determination of other valuation required hereunder, a firm of the type generally considered to be qualified in making determinations of the type required.

"WARRANT" has the meaning given to such term in Section 3.1(a).

"WARRANT REGISTER" has the meaning given to such term in
Section 3.1(b).

"WARRANT SHARES" means (a) the shares of Common Stock issued or issuable upon exercise of a Warrant in accordance with Section 4.1 or upon exchange of a Warrant in accordance with Section 4.2, (b) all other securities or other property issued or issuable upon any such exercise or exchange in accordance with this Agreement and (c) any securities of the Company distributed with respect to the securities referred to in the preceding clauses (a) and (b). As used in this Agreement, the phrase "WARRANT SHARES THEN HELD" by any Holder or Holders means Warrant Shares held at the time of determination by such Holder or Holders and Warrant

Shares issuable upon exercise of Warrants held at the time of determination by such Holder or Holders.

1.2 ACCOUNTING TERMS AND DETERMINATIONS.

Except as otherwise may be expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Holders hereunder and under the Warrants shall be prepared, in accordance with GAAP. All calculations made for the purposes of determining compliance with the terms of this Agreement and the Warrants shall (except as otherwise may be expressly provided herein) be made by application of GAAP.

ARTICLE II

AUTHORIZATION AND ISSUANCE OF
WARRANTS; RESERVATION OF WARRANT SHARES

2.1 AUTHORIZATION AND ISSUANCE OF WARRANTS.

The Company has authorized the issuance of the Warrants to the Initial Holders pursuant to the terms of the Securities Purchase Agreement.

2.2 RESERVATION OF WARRANT SHARES.

The Company has authorized the issuance of such number of shares of Common Stock as shall be necessary to permit the Company to comply with its obligations, as of the date hereof, to issue Warrant Shares pursuant to the Warrants. The Company will at all times have authorized, and reserve and keep available, free from preemptive or similar rights, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon the exercise or exchange of each Warrant, the number of authorized but unissued Warrant Shares issuable upon exercise or exchange of all outstanding Warrants. The Company shall as promptly as necessary take all actions necessary to ensure that Warrant Shares shall be duly authorized and, when issued upon exercise or exchange of any Warrant in accordance with the terms hereof, shall be validly issued, fully paid and non-assessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (except to the extent of any applicable provisions set forth in this Agreement, the Shareholders' Agreement and the Registration Rights Agreement) and free and clear of all preemptive or similar rights.

ARTICLE III

FORM; REGISTER; EXCHANGE
FOR WARRANTS; TRANSFER

3.1 FORM OF WARRANT; REGISTER.

(a) Form. Each Warrant issued hereunder shall be in the form of Exhibit B (each, a "WARRANT") and shall be executed on behalf of the Company by its Chairman or its Chief Executive Officer and by its Chief Financial Officer, its Treasurer or its Assistant Treasurer, except that a Warrant need not bear any legend appearing on the first page of such form from and after such time as all the restrictions to which such legend relates no longer apply. Upon initial issuance, each Warrant shall be dated as of the date of signature thereof by the Company.

(b) Register. Each Warrant issued, exchanged or transferred hereunder shall be registered in a warrant register (the "WARRANT REGISTER"). The Warrant Register shall set forth the number of each Warrant, the name and address of the Holder thereof and the original number of Warrant Shares purchasable upon the exercise thereof. The Warrant Register will be maintained by the Company and will be available for inspection by any Holder at the principal office of the Company or such other location as the Company may designate to the Holders in the manner set forth in Section 7.1. The Company shall be entitled to treat the Holder of any Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person.

3.2 EXCHANGE OF WARRANTS FOR WARRANTS.

(a) Exchange. The Holder may exchange any Warrant or Warrants issued hereunder for another Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares that could be purchased pursuant to the Warrant or Warrants being so exchanged. In order to effect an exchange permitted by this Section 3.2, the Holder shall deliver to the Company such Warrant or Warrants accompanied by a written request signed by the Holder thereof specifying the number and denominations of Warrants to be issued in such exchange and the names in which such Warrants are to be issued. As promptly as practicable but in any event within ten (10) Business Days of receipt of such a request, the Company shall, without charge, issue, register and deliver to the Holder thereof each Warrant to be issued in such exchange.

(b) Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Holder being satisfactory) of the ownership and the loss, theft, destruction or mutilation of any Warrant, and in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company (if the Holder is a financial institution or other institutional investor, its own agreement being satisfactory) or, in the case of any such mutilation, upon surrender of such Warrant, the Company shall, without charge, issue register and deliver in lieu of such Warrant a new Warrant of like kind representing the same

rights represented by and dated the date of such lost, stolen, destroyed or mutilated Warrant. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by any Person.

(c) Expenses. The Company shall pay all expenses and taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to an exchange of a Warrant pursuant to this Section 3.2; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance of any Warrant in a name other than that of the Holder of the Warrant being exchanged.

3.3 TRANSFER OF WARRANT.

Subject to the provisions of the Securities Purchase Agreement (including, without limitation, Article VI thereof), each Warrant may be transferred, in whole or in part, to an "accredited investor", as such term is defined in Rule 501(a) promulgated pursuant to the Securities Act, by the Holder thereof by delivering to the Company such Warrant accompanied by a properly completed, duly executed, Assignment Form. As promptly as practicable but in any event within ten (10) Business Days of receipt of such Assignment Form, the Company shall, without charge, issue, register and deliver to the Holder thereof a new Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares that could be purchased pursuant to the Warrant being transferred. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced and may be required to be deposited and remain with the Company in its discretion. The Company shall not be liable for complying with a request by a fiduciary or nominee of a fiduciary to register a transfer of any Warrant which is registered in the name of such fiduciary or nominee, unless made with the actual knowledge that such fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with knowledge of such facts that the Company's participation therein amounts to bad faith.

3.4 TRANSFER; LEGENDS.

The provisions of Article VI of the Purchase Agreement shall apply to the Warrants and the Warrant Shares.

ARTICLE IV

EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES

4.1 EXERCISE OF WARRANTS.

On any Business Day on or prior to the Expiration Time, a Holder may exercise a Warrant, in whole or in part, by delivering to the Company such Warrant accompanied by a properly completed Exercise Form and a certified or bank check or wire transfer in an aggregate amount equal to the product obtained by multiplying (a) the Exercise Price times (b) the number of Warrant Shares being purchased. Any partial exercise of a Warrant shall be for a whole number of Warrant Shares only.

4.2 EXCHANGE FOR WARRANT SHARES.

On any Business Day on or prior to the Expiration Time, a Holder may exchange a Warrant, in whole or in part, for Warrant Shares by delivering to the Company such Warrant accompanied by a properly completed Exchange Form. The number of shares of Common Stock to be received by a Holder upon such exchange shall be equal to (a) the number of Warrant Shares allocable to the portion of the Warrant being exchanged (the "ALLOCABLE NUMBER"), as specified by such Holder in the Exchange Form less (b) the number of shares equal to the quotient obtained by dividing (i) the product obtained by multiplying (A) the Exercise Price times (B) the Allocable Number by (ii) the Market Price as of the Delivery Date (as defined below). The Allocable Number need not be a whole number, but in the case of any partial exchange of a Warrant under this Section 4.2, the Allocable Number shall be determined so that the number of Warrant Shares to be issued in such exchange shall be a whole number only.

4.3 ISSUANCE OF COMMON STOCK.

(a) Issuance of Common Stock. As promptly as practicable but in any event within ten (10) Business Days following the delivery date (the "DELIVERY DATE") of (i) an Exercise Form or Exchange Form in accordance with
Section 4.1 or 4.2, (ii) the related Warrant and (iii) any required payment of the Exercise Price, the Company shall, without charge, issue, register and deliver one or more stock certificates representing the aggregate number of shares of Common Stock to which the Holder of such Warrant is entitled and, upon compliance with the applicable provisions of this Warrant Agreement and the Securities Purchase Agreement, transfer to such Holder appropriate evidence of ownership of other securities or property (including any cash) to which such Holder is entitled, in such denominations, and registered or otherwise placed in, or payable to the order of, such name or names, as may be directed in writing by such Holder. The Company shall deliver such stock certificates, evidence of ownership and any other securities or property (including any cash) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share (or fractional interest in any other security), as hereinafter provided.

(b) Partial Exercise or Exchange. If a Holder shall exercise or exchange a Warrant for less than all of the Warrant Shares that could be purchased or received thereunder, the Company shall issue, register and deliver to the Holder, as promptly as practicable but in any event within ten (10) Business Days of the Delivery Date, a new Warrant evidencing the right to purchase the remaining Warrant Shares. In the case of an exchange pursuant to
Section 4.2, the number of remaining Warrant Shares shall be the original number of Warrant Shares subject to the Warrant so exchanged reduced by the Allocable Number. Each Warrant surrendered pursuant to Section 4.1 or 4.2 shall be canceled.

(c) Fractional Shares. The Company shall not be required to issue fractional shares of Common Stock or fractional units of any other security upon the exercise or exchange of a Warrant. If any fraction of a share of Common Stock or fractional unit of any other security would be issuable on the exercise or exchange of any Warrant, the Company may, in lieu of issuing such fractional share or unit, pay to such Holder for any such fraction an amount in cash equal to the product obtained by multiplying (i) such fraction times (ii) the Market Price for the Common Stock or for a unit of such other security, as the case may be, as of the Delivery Date.

(d) Expenses. The Company shall pay all expenses and taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to the initial issuance of Warrant Shares upon the exercise or exchange of a Warrant; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance of any Warrant or any certificate for, or any other evidence of ownership of, Warrant Shares in a name other than that of the Holder of the Warrant being exercised or exchanged.

(e) Record Ownership. To the extent permitted by Applicable Law, the Person in whose name any certificate for shares of Common Stock or other evidence of ownership of any other security is issued upon exercise or exchange of a Warrant shall for all purposes be deemed to have become the holder of record of such shares or other security on the Delivery Date, irrespective of the date of delivery of such certificate or other evidence of ownership (subject, in the case of any exercise to which Section 4.3(h) applies, to the consummation of a transaction upon which such exercise is conditioned), notwithstanding that the transfer books of the Company shall then be closed or that such certificates or other evidence of ownership shall not then actually have been delivered to such Person.

(f) Approvals. If any securities constituting Warrant Shares or any portion thereof to be issued upon exercise or exchange of a Warrant require registration or approval under any Applicable Law or require listing on any national securities exchange or quotation systems before such securities may be so issued, the Company will as expeditiously as possible cause such securities to be registered, approved or listed, as applicable. The Company may suspend the exercise of any Warrant so affected for the period during which such registration, approval or listing is required but not in effect.

(g) Quotation. On or before the Closing Date, the Company shall have filed with The Nasdaq National Market a notification form for the listing of additional shares with respect to the Warrant Shares, and the Company shall file any and all agreements, forms and other documents, and take all other action necessary for the listing of such shares on or before the tenth day following the Closing Date. The Company shall maintain the designation or quotation, or listing, of its Common Stock on the Nasdaq National Market (or on the New York Stock Exchange or the American Stock Exchange) or the Nasdaq Small-Cap Market (if the Common Stock becomes ineligible for quotation on the Nasdaq National Market) until the date on which none of the Warrants or Warrant Shares remain outstanding, unless the Company fails to maintain the criteria or other standards for such designation, listing or quotation; provided, however, that the Company shall use its reasonable best efforts to maintain any such designation, listing or quotation.

(h) Conditional Exercise or Exchange. Any Exercise Form or Exchange Form delivered under Section 4.1 or 4.2 may condition the exercise or exchange of any Warrant on the consummation of a transaction being undertaken by the Company or the Holder of such Warrant, and such exercise or exchange shall not be deemed to have occurred except concurrently with the consummation of such transaction, except that, for purposes of determining whether such exercise or exchange is timely it shall be deemed to have occurred on the Delivery Date. If any exercise of a Warrant is so conditioned, then, subject to delivery of the items required by Section 4.3(a) and compliance with the other terms hereof, the Company shall deliver the certificates and other evidence of ownership of other securities or other property in such manner as such Holder shall direct as required in connection with the consummation such transaction upon which the exercise is conditioned. At any time that such Holder shall give notice to the Company that such transaction has been abandoned or such Holder has withdrawn from participation in such transaction, the Company shall return the items delivered pursuant to Section 4.3(a), and such Holder's election to exercise such Warrant shall be deemed rescinded.

ARTICLE V

ADJUSTMENT OF EXERCISE PRICE AND SHARES.

5.1 GENERAL.

The Exercise Price and the number and kind of Warrant Shares issuable upon exercise of each Warrant shall be subject to adjustment from time to time in accordance with this Article V.

5.2 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.

If, at any time after the Closing Date, the Company shall:

(i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock; or

(ii) subdivide, split or reclassify its outstanding shares of Common Stock into a larger number of shares of Common Stock; or

(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock;

then (A) the number of Warrant Shares issuable upon exercise of each Warrant shall be adjusted so as to equal the number of Warrant Shares that the Holder of such Warrant would have held immediately after the occurrence of such event if the Holder had exercised such Warrant immediately prior to the occurrence of such event and (B) the Exercise Price shall be adjusted to be equal to (x) the Exercise Price immediately prior to the occurrence of such event multiplied by
(y) a fraction (1) the numerator of which is the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to the adjustment in clause (A) and (2) the denominator of which is the number of Warrant Shares issuable upon exercise of this Warrant immediately after the adjustment in clause (A). An adjustment made pursuant to this Section 5.2 shall become effective immediately after the occurrence of such event retroactive to the record date, if any, for such event.

5.3 ISSUANCE OF COMMON STOCK.

(a) General. If, at any time after the Closing Date, the Company shall issue or sell (or, in accordance with Section 5.3(b), shall be deemed to have issued or sold) any shares of Common Stock (other than any issuance for which an adjustment is made pursuant to Section 5.2 or 5.5) without consideration or for a consideration per share less than the Market Price for the Common Stock determined as of the date of such issuance or sale, then, effective immediately upon such issuance or sale, the Exercise Price and the number Warrant Shares issuable upon exercise of each Warrant shall be adjusted as follows:

(i) The Exercise Price shall be reduced to an amount equal to the product obtained by multiplying (A) the Exercise Price in effect immediately prior to such issuance or sale times (B) a fraction,
(I) the numerator of which shall be the sum of (x) the product of (1) the number of shares of Common Stock outstanding (on a Fully Diluted Basis) immediately prior to such issuance or sale times (2) the Market Price for the Common Stock as of the date of such issuance or sale plus
(y) the consideration, if any, received by the Company upon such issuance or sale, and (II) the denominator of which shall be the product of (x) the number of shares of Common Stock outstanding (on a Fully Diluted Basis) immediately after such issuance or sale times (y) such Market Price; and

(ii) The number of Warrant Shares issuable upon exercise of such Warrant shall be increased to the number of shares determined by multiplying (A) the number of Warrant Shares issuable upon exercise of such Warrant immediately prior to such issuance or sale by (B) a fraction, (1) the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment in clause
(i) of this Section 5.3(a), and

(2) the denominator of which shall be the Exercise Price in effect immediately after such adjustment;

provided, however, that notwithstanding anything to the contrary set forth herein, the Exercise Price shall not be lower than the Floor Price.

(b) Issuance of Options or Convertible Securities. The issuance or sale of Options or Convertible Securities shall be deemed, in accordance with this Section 5.3(b), to be the issuance of Common Stock.

(i) Definitions. For the purposes of this Section 5.3(b), the term "OPTIONS" means any warrants, options or other rights to subscribe for or to purchase (A) Common Stock or (B) Convertible Securities, and the term "CONVERTIBLE SECURITIES" means any capital stock, evidence of indebtedness or other securities or rights convertible into or exchangeable for Common Stock.

(ii) Issuance of Options. If the Company in any manner issues or grants any Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options (or upon conversion or exchange of the total maximum amount of Convertible Securities issuable upon the exercise of such Options) shall be deemed, for purposes of Section 5.3(a), to be outstanding and to have been issued and sold by the Company. For purposes of Section 5.3(a), the Common Stock issuable upon exercise of Options or upon conversion or exchange of Convertible Securities issuable upon exercise of Options for Convertible Securities shall be deemed to have been issued and sold at a price per share equal to (A) the sum of (x) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of such Options plus (y) the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options plus (z) in the case of such Options for Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon issuance or sale of such Convertible Securities and the conversion or exchange thereof divided by (B) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options.

(iii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities, then the maximum number of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities shall be deemed, for purposes of Section 5.3(a) to be outstanding and to have been issued and sold by the Company. For purposes of Section 5.3(a), the Common Stock issuable upon conversion or exchange of Convertible Securities shall be deemed to have been issued and sold at a price per share equal to (A) the sum of (x) the total amount received or receivable by the Company as consideration for the issuance or sale of such Convertible Securities plus (y) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof

divided by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.

(iv) Superseding Adjustment. To the extent the Warrants have not been exercised, if, at any time after any adjustment of the Exercise Price and the number of Warrant Shares issuable upon exercise of the Warrants shall have been made pursuant to Section 5.3(a) as a result of the issuance of Options or Convertible Securities, or after any new adjustment of the Exercise Price and the number of Warrant Shares shall have been made pursuant to this Section
5.3(b)(iv) (each of the foregoing, a "PREVIOUS ADJUSTMENT"):

(A) such Options or the right of conversion or exchange of such Convertible Securities shall expire, or be terminated or surrendered, and all or a portion of such Options or the right of conversion or exchange with respect to all or a portion of such Convertible Securities, as the case may be, shall not have been exercised or treated as having been exercised or otherwise canceled or acquired by the Company in connection with any settlement, including any cash settlement, of such Options or the rights of conversion or exchange of such Convertible Securities; or

(B) there has been any change in the number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (including as a result of a change in the number of Convertible Securities issuable upon the exercise of such Options or the operation of antidilution provisions applicable thereto); or

(C) the consideration per share for which shares of Common Stock are issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities, or the maturity of such Convertible Securities, shall be changed;

then the Previous Adjustment shall be rescinded and annulled and the shares of Common Stock which were deemed to have been issued and that gave rise to the Previous Adjustment shall no longer be deemed to have been issued. Thereupon, a recomputation shall be made of the adjustment, if any, of the Exercise Price and the number of Warrant Shares issuable upon exercise of the Warrants as a consequence of such Options or Convertible Securities on the basis of:

(D) treating the number of shares of Common Stock, if any, theretofore actually issued or issuable pursuant to the previous exercise of such Options or such right of conversion or exchange (including Options or rights treated as exercised, otherwise cancelled or acquired in connection with any settlement), as having been issued on the date or dates of such issuance as determined for purposes of the Previous Adjustment and for the total amount of

consideration actually received and receivable therefor (determined in the manner described in Section 5.3(b)(ii) or
(iii), as the case may be);

(E) treating the maximum number of shares of Common Stock (1) issuable upon the exercise (or upon the conversion or exchange of Convertible Securities issuable upon the exercise) of all Options which then remain outstanding and
(2) issuable upon the conversion or exchange of all Convertible Securities which then remain outstanding, as having been issued; and

(F) making the computations called for in
Section 5.3(a) hereof on the basis of the revised terms of such outstanding Options or Convertible Securities, as the case may be, as if they were newly issued at the time of such revision.

Any adjustment of the Exercise Price and the number of Warrant Shares issuable upon exercise of the Warrants resulting from such recomputation shall supersede the Previous Adjustment.

(v) No Further Adjustments. Any adjustment of the Exercise Price or the number of Warrant Shares issuable upon the exercise of Warrants to be made pursuant to this Section 5.3 with respect to the issuance of (A) any Options (whether for Common Stock or Convertible Securities), (B) any Convertible Securities issuable upon the exercise of such Options or (C) any shares of Common Stock issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities shall be made effective upon the issuance of such Options. Any adjustment of the Exercise Price or the number of Warrant Shares issuable upon the exercise of Warrants to be made pursuant to this Section 5.3 with respect to the issuance of (x) any Convertible Securities (other than Convertible Securities issuable upon the exercise of Options) or (y) any shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities shall be made effective upon the issuance of such Convertible Securities. No further adjustment of the Exercise Price or the number of Warrant Shares issuable upon the exercise of Warrants shall be made upon the actual issuance of Common Stock or of Convertible Securities upon the exercise of such Options or upon the actual issuance of Common Stock upon conversion or exchange of Convertible Securities.

5.4 DISTRIBUTION OF EQUITY SECURITIES.

If, at any time after the Closing Date, the Company shall distribute any of its equity securities or rights to acquire equity securities (other than Common Stock) to holders of Common Stock on a pro rata basis, then the Company shall cause effective provision to be made so that, effective as of the effective date of such event retroactive to the record date, if any, of such event, each Warrant shall, upon the basis and upon the terms and conditions specified in this Warrant, in addition to the Warrant Shares immediately theretofore purchasable and receivable upon the exercise of this Warrant, be exercisable for the kind and number of shares or other units of equity securities or rights to acquire equity securities to which a holder of the number of Warrant Shares issuable upon exercise of such Warrant would have been entitled had

such Warrant been exercised immediately prior to the record date of such event. In any such case, if necessary, the provisions of this Agreement and the Warrants with respect to the rights and interests thereafter of the Holders of the Warrants shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares or other units of equity securities or rights to acquire equity securities thereafter deliverable upon the exercise of the Warrants .

5.5 CAPITAL REORGANIZATION, CAPITAL RECLASSIFICATIONS, MERGER, ETC.

If, at any time after the Closing Date, there shall be (i) any capital reorganization or any reclassification of the capital stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares to which Section 5.2 applies or any distribution to which Section 5.4 applies), (ii) any consolidation, merger or business combination of the Company with another Person or (iii) any sale or conveyance by the Company of all or substantially all of its assets or property to, another Person, then in each case the transaction shall be effected in such a way that holders of the shares of Common Stock shall be entitled to receive stock, securities or assets (including, without limitation, cash) with respect to or in exchange for the shares of the Common Stock and the Company shall cause effective provision to be made so that each Warrant shall, upon the basis and upon the terms and conditions specified in this Warrant in lieu of the Warrant Shares immediately theretofore purchasable and receivable upon the exercise of this Warrant, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of Warrant Shares issuable upon exercise of such Warrant would have been entitled upon such event. In any such case, if necessary, the provisions of this Agreement and the Warrants with respect to the rights and interests thereafter of the Holders of the Warrants shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock, other securities, cash or other property thereafter deliverable upon the exercise of the Warrants.

5.6 OTHER ACTIONS AFFECTING COMMON STOCK.

(a) Equitable Equivalent. If at any time or from time to time the Company shall take any action affecting its Common Stock, other than any action of a type otherwise described in this Article V (whether or not such action of a type otherwise described in this Article V results in an adjustment to the Warrants), then the number of Warrant Shares issuable upon exercise of each Warrant shall be adjusted to such extent, if any, and in such manner and at such time, as the Board shall in good faith determine to be equitable in the circumstances, provided that no such adjustment shall decrease the number of Warrant Shares issuable upon exercise of such Warrant and provided, further, that no adjustment shall be required for any cash dividends paid out of retained earnings.

(b) No Avoidance. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the

Company; provided that the Company shall not be deemed to be avoiding or seeking to avoid observance or performance if any action otherwise in compliance with this Agreement is structured so as to avoid the need for, or to minimize the extent of any adjustment under this Article V. The Company shall at all times in good faith assist in the carrying out of all the provisions of this Article V and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holders against impairment.

5.7 MISCELLANEOUS.

(a) Calculation of Consideration Received. If any Common Stock, Options, Convertible Securities or other securities are issued or sold or deemed to have been issued or sold for cash, then the consideration received therefor shall be deemed to be the net amount received by the Company therefor. If any Common Stock, Options, Convertible Securities or other securities are issued or sold for consideration other than cash, then the amount of the consideration other than cash received by the Company shall be the fair market value of such consideration, as of the date of receipt, determined in accordance with the Valuation Procedure.

(b) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issuance of Common Stock.

(c) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. If the Company shall take any such record of the holders of its Common Stock and shall, thereafter and before the taking of the action for which such record was taken, legally abandon its plan to take such action, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.

(d) Deferral of Issuance. In any case in which this Article V shall require that any adjustment in the number of Warrant Shares purchasable hereunder or in the Exercise Price be made effective as of immediately after a record date for a specified event, the Company may elect to defer, until the occurrence of such event, the issuing to the Holder of any Warrant exercised after such record date of the shares of Common Stock and other capital stock of the Company, if any, issuable upon such exercise over and above the number of shares of Common Stock and other capital stock of the Company, if any, that would have been issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment. In such case, the Company shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment.

(e) Notice; Adjustment Rules. Whenever the Exercise Price and the number of Warrant Shares shall be adjusted as provided in this Article V, the Company shall provide to each Holder a statement, signed by the Chairman, the President or the Chief Financial Officer of the Company, describing in detail the facts requiring such adjustment and setting forth a calculation of the Exercise Price and the number of Warrant Shares applicable to each Warrant after giving effect to such adjustment. All calculations under this Article V shall be made to the nearest one hundredth of a cent ($.0001) or to the nearest one-tenth of a share, as the case may be. Adjustments pursuant to this Article V shall apply to successive events or transactions of the types covered thereby. Notwithstanding any other provision of this Article V, no adjustment shall be made to the number of shares of Common Stock or to the Exercise Price if such adjustment represents less than 1% of the number of shares previously required to be so delivered, but any lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to 1% or more of the number of shares to be so delivered.

(f) Certain Adjustments. The Company may make such reductions in the Exercise Price or increase in the number of Warrant Shares to be received by any Holder upon the exercise or exchange of a Warrant, in addition to those adjustments required by this Article V, as it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Stock, or any issuance wholly for cash of any shares of Common Stock, or any issuance wholly for cash of shares of Common Stock or Convertible Securities, or any stock dividend, or any issuance of Options hereinafter made by the Company to the holders of its Common Stock shall not be taxable to such holders.

(g) Excluded Issuances. Notwithstanding any other provision of this Article V, no adjustment shall be made pursuant to Section 5.3 or 5.5 in respect of: (i) the issuance of Common Stock in an underwritten public offering that is registered with the Commission, (ii) any securities issued upon conversion of the Series B Preferred Stock; (iii) any securities issued or granted to eligible officers, employees or directors of, or consultants to, the Corporation and its subsidiaries pursuant to any stock option, issuance, appreciation rights, restricted stock, phantom stock, stock purchase plan or other equity incentive plan for such persons (including without limitation, securities issued upon the exercise of such securities, but excluding any stock options that are not issued pursuant to a stock option plan or a stock purchase plan); (iv) any securities issued upon exercise of any warrants or options outstanding as of the Closing Date; (v) any securities issued to financial institutions in connection with debt financings; (vi) securities issuable under the Letter Agreement Regarding Participation in Carrizo 2001 Program dated as of May 1, 2001, among the Corporation, Berea Associates, LLC, Berea Oil & Gas Corp., PAC Finance (USA) Inc., William R. Ziegler, Thomas H. O'Neill, Jr. and Berea Associates II LLC, as in effect as of the Closing Date; (vii) the issuance of Common Stock or Options in any merger, share exchange, consolidation, liquidation or other business combination required to be approved and actually approved by the requisite vote (being not less than a majority based on voting power) of the shareholders of the Company; (viii) up to an aggregate of 500,000 shares of Common Stock issued after the Closing Date as consideration for any property acquisition, provided, however, that the Corporation shall be entitled to issue, as an excluded issuance

hereunder, additional shares of Common Stock for property acquisitions (in excess of such 500,000 shares) upon the prior written consent of Mellon Ventures L.P., which consent shall not be unreasonably withheld; or (ix) securities of the Corporation issued upon the conversion or exercise of other securities, which other securities of the Corporation had previously resulted in an adjustment hereunder (or which had, pursuant to the terms hereof, not required an adjustment).

(h) Par Value. The Company shall not increase the par value of any shares of Common Stock or other securities issuable upon the exercise of the Warrants to an amount that exceeds the Exercise Price. Before taking any action that would cause an adjustment pursuant to this Article V that would reduce the Exercise Price below the par value per share of the Common Stock, the Company shall be required to take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted.

ARTICLE VI

COVENANTS OF THE COMPANY

6.1 NOTICES OF CERTAIN ACTIONS.

In the event that the Company:

(a) shall authorize issuance to all holders of Common Stock of rights or warrants to subscribe for or purchase capital stock of the Company or of any other subscription rights or warrants; or

(b) shall authorize a dividend or other distribution to all holders of Common Stock of evidences of its indebtedness, cash or other property or assets; or

(c) becomes a party to any consolidation or merger for which approval of any shareholders of the Company will be required, or to a conveyance or transfer of the properties and assets of the Company substantially as an entirety, or of any capital reorganization or reclassification or change of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); or

(d) commences a voluntary or involuntary dissolution, liquidation or winding up; or

(e) takes any other action which would require an adjustment pursuant to Article V;

then the Company shall provide a written notice to each Holder stating (i) the date as of which the holders of record of Common Stock to be entitled to receive any such rights, warrants or distribution are to be determined, (ii) the material terms of any such consolidation or merger and the expected effective date thereof, or (iii) the material terms of any such conveyance, transfer, dissolution, liquidation or winding up and the expected effective date thereof, and the date as of which it is expected that holders of record of Common Stock will be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, conveyance, transfer, dissolution, liquidation or winding up. Such notice shall be given not later than seven (7) Business Days prior to the effective date (or the applicable record date, if earlier) of such event. The failure to give the notice required by this Section 7.1 or any defect therein shall not affect the legality or validity of any distribution, right, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action.

6.2 MERGER OR CONSOLIDATION OF THE COMPANY.

The Company will not merge or consolidate with or into, or sell, transfer or lease all or substantially all of its property (and such sale or transfer of property is effected in such a way that holders of the shares of Common Stock shall be entitled to receive stock, securities or assets (including, without limitation, cash) with respect to or in exchange for shares of the Common Stock) to any other entity unless the successor or purchasing entity expressly assumes, by supplemental agreement reasonably satisfactory in form and substance to the Requisite Holders, the due and punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by the Company; provided, however, that the initial obligation of such successor with respect to the exercise of Warrants shall be only as set forth in Section 5.5, and provided, further, that if the successor or purchasing entity, as the case may be (if not the Company), is not organized under the laws of the United States of America or any state or political subdivision thereof and the Common Stock in such transaction is converted into the right to receive securities of such entity, such securities of such entity shall be marketable and freely tradable.

ARTICLE VII

MISCELLANEOUS

7.1 NOTICES.

All notices, demands and requests of any kind to be delivered to any party hereto in connection with this Agreement shall be in writing (i) delivered personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by first class, registered or certified mail, return receipt requested or (iv) sent by facsimile, in each case to such party at its address as follows:

(a) if to the Company, to:

Carrizo Oil & Gas, Inc. 14701 St. Mary's Lane, Suite 800 Houston, Texas 77079 Attention: President Telephone No.: (281) 496-1352 Telecopier No.: (281) 496-1251

with a copy to:

Baker Botts, L.L.P.

One Shell Plaza
910 Louisiana
Houston, Texas 77002-4915
Attention: Gene Oshman, Esq.
Telephone No.: (713) 229-1178
Telecopier No.: (713) 229-1522

(b) if to any Holder, to such Holder's address as set forth on Schedule I hereto.

Any notice, demand or request so delivered shall constitute valid notice under this Agreement and shall be deemed to have been received (i) on the day of actual delivery in the case of personal delivery, if delivered on a Business Day (otherwise on the next Business Day), (ii) on the next Business Day after the date when sent in the case of delivery by nationally-recognized overnight courier, (iii) on the fifth Business Day after the date of deposit in the U.S. mail in the case of mailing or (iv) upon receipt in the case of a facsimile transmission. Any party hereto may from time to time by notice in writing served upon the other as aforesaid designate a different mailing address or a different Person to which all such notices, demands or requests thereafter are to be addressed.

7.2 NO VOTING RIGHTS; LIMITATIONS OF LIABILITY.

No Warrant shall entitle the holder thereof to any rights as a shareholder of the Company, as such, including, without limitation, voting rights, the right to call meetings, consent or receive notices as a shareholder in respect of any meeting or to the benefit of any fiduciary duty owed to a shareholder of the Company as such, all of which rights and duties are expressly disclaimed and waived by the Holder. No dividends are payable or will accrue on the Warrants or the Warrant Shares until, and except to the extent that, the Warrants are exercised. No provision hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder shall give rise to any liability of such Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a shareholder of the Company.

7.3 AMENDMENTS AND WAIVERS.

(a) Written Document. Any provision of this Agreement may be amended or waived, but only pursuant to a written agreement signed by the Company and the Requisite Holders, provided that no such amendment or modification shall without the written consent of each Holder affected thereby
(i) shorten the Expiration Date of any Warrant, (ii) increase the Exercise Price of any Warrant, (iii) change any of the provisions of this Section 7.3(a) or the definition of "Requisite Holders" or any other provision hereof specifying the number or percentage of Holders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder or otherwise act with respect to this Agreement or any Warrants or (iv) increase the obligations of any Holder or otherwise disproportionately adversely affect the rights and benefits of any Holder under this Agreement.

(b) No Waiver; Cumulative Remedies. No failure on the part of any Holder to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement, the Warrants or the Registration Rights Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement, the Warrant or the Registration Rights Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

7.4 REMEDIES.

(a) Each Holder shall have all rights and remedies reserved for such Holder pursuant to this Agreement and all rights and remedies which such Holder has been granted at any time under any other agreement or contract and all of the rights which such Holder has under any law or equity. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law or equity.

(b) The parties hereto agree that if any parties seek to resolve any dispute arising under this Agreement pursuant to a legal proceeding, the prevailing parties to such proceeding shall be entitled to receive reasonable fees and expenses (including reasonable attorneys' fees and expenses) incurred in connection with such proceedings.

(c) It is acknowledged that it will be impossible to measure in money the damages that would be suffered by any party hereto if any Person also party hereto fails to comply with any of the obligations imposed upon them in this Agreement and that in the event of any such failure, the aggrieved party will be irreparably damaged and will not have an adequate remedy at law. Any such aggrieved party shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law.

7.5 BINDING EFFECT.

This Agreement shall be binding upon and inure to the benefit of the Company, each Holder and their respective successors and permitted assigns.

7.6 COUNTERPARTS.

This Agreement may be executed in two or more counterparts each of which shall constitute an original but all of which when taken together shall constitute but one agreement.

7.7 GOVERNING LAW.

THIS AGREEMENT AND EACH WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS EXCEPT TO THE EXTENT THAT THE NEW YORK CONFLICTS OF LAWS PRINCIPLES WOULD APPLY THE APPLICABLE LAWS OF THE STATE OF TEXAS TO INTERNAL MATTERS RELATING TO CORPORATIONS ORGANIZED THEREUNDER).

7.8 BENEFITS OF THIS AGREEMENT.

Nothing in this Agreement shall be construed to give to any Person other than the Company and each Holder of a Warrant or a Warrant Share any legal or equitable right, remedy or claim hereunder.

7.9 HEADINGS.

Section headings in this Agreement have been inserted for convenience of reference only and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

* * * *

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their authorized officers, all as of the date and year first above written.

CARRIZO OIL & GAS, INC.

By: /s/ FRANK A. WOJTEK
   ---------------------------------
   Name:  Frank A. Wojtek
   Title: Vice President and
          Chief Financial Officer




/s/ STEVEN A. WEBSTER
------------------------------------
Steven A. Webster

MELLON VENTURES, L.P.

By: MVMA, L.P., its general partner

By: MVMA, Inc., its general partner

By: /s/ MARC A. COLE
   --------------------------------
   Name:  Marc A. Cole
   Title: Associate

                                                           NUMBER OF WARRANT
              INVESTOR                                          SHARES

Mellon Ventures, L.P.                                             168,421
1114 Avenue of the Americas, 31st Floor
New York, New York 10036
Attention:  Marc A. Cole
Telephone:  (212) 389-2700
Telecopier: (212) 389-2755

with a copy to:

Dechert
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA  19103-2793
Attention:  David S. Denious, Esq.
Telephone:  (215) 994-4000
Telecopier: (215) 994-2222

Steven A. Webster                                                  84,211
14701 St. Mary's Lane
Suite 800
Houston, TX  77079

EXHIBIT A

REGISTRATION RIGHTS AGREEMENT

[SEE EXHIBIT 99.5]

EXHIBIT B

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF FEBRUARY 20, 2002, AMONG THE ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, THE ISSUER HEREOF HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF.

NO. X                                                        WARRANT TO PURCHASE
                                                                     ____ SHARES
                                                                 OF COMMON STOCK

                                                                         ,
                                                                ---------  -----

COMMON STOCK PURCHASE WARRANT

THIS CERTIFIES that, for value received, [INSERT NAME OF HOLDER] (the "HOLDER"), or assigns, is entitled to purchase from CARRIZO OIL & GAS, INC., a Texas corporation (the "COMPANY"), ___ shares of the COMMON STOCK, $.01 par value (the "COMMON STOCK"), of the Company, at the price (the "EXERCISE PRICE") of $5.94 per share, at any time or from time to time during the period commencing on the date hereof and ending at 5:00 P.M. Eastern time, on February 20, 2007 (the "EXPIRATION TIME").

This Warrant has been issued pursuant to the Warrant Agreement (as amended or supplemented from time to time, the "WARRANT AGREEMENT") dated as of February 20, 2002, between the Company and the Initial Holders named therein, and is subject to the terms and conditions, and the Holder is entitled to the benefits, thereof, including without limitation provisions (i) for adjusting the number of Warrant Shares issuable upon the exercise hereof and

the Exercise Price to be paid upon such exercise and (ii) providing certain other rights. A copy of the Warrant Agreement is on file and may be inspected at the principal executive office of the Company. The Holder of this certificate, by acceptance of this certificate, agrees to be bound by the provisions of the Warrant Agreement. Capitalized terms used but not defined herein shall have the meanings given to them in the Warrant Agreement.

SECTION 1. EXERCISE OF WARRANT. On any Business Day prior to the Expiration Time, the Holder may exercise this Warrant, in whole or in part, by delivering to the Company this Warrant accompanied by a properly completed Exercise Form in the form of Annex A and a check in an aggregate amount equal to the product obtained by multiplying (a) the Exercise Price by (b) the number of Warrant Shares being purchased. Any partial exercise of a Warrant shall be for a whole number of Warrant Shares only.

SECTION 2. EXERCISE PRICE. The Exercise Price is subject to adjustment from time to time as provided in the Warrant Agreement.

SECTION 3. EXCHANGE OF WARRANT. On any Business Day prior to the Expiration Date, the Holder may exchange this Warrant, in whole or in part, for Warrant Shares by delivering to the Company this Warrant accompanied by a properly completed Exchange Form in the form of Annex B. The number of shares of Common Stock to be received by the Holder upon such exchange shall be determined as provided in Section 4.2 of the Warrant Agreement.

SECTION 4. TRANSFER. Subject to the limitations set forth in the Warrant Agreement, this Warrant may be transferred by the Holder by delivery to the Company of this Warrant accompanied by a properly completed Assignment Form in the form of Annex C.

SECTION 5. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company will issue a new Warrant of like denomination and tenor upon compliance with the provisions set forth in the Warrant Agreement.

SECTION 6. NO SHAREHOLDER RIGHTS. This Warrant shall not entitle the holder hereof to any voting rights or, except as otherwise provided in the Warrant Agreement, other rights of a shareholder of the Company, as such.

SECTION 7. SUCCESSORS. All of the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns.

SECTION 8. HEADINGS. Section headings in this Warrant have been inserted for convenience of reference only and shall not affect the construction of, or be taken into consideration in interpreting, this Warrant.

SECTION 9. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS

OF LAWS EXCEPT TO THE EXTENT THAT THE NEW YORK CONFLICTS OF LAWS PRINCIPLES WOULD APPLY THE APPLICABLE LAWS OF THE STATE OF TEXAS TO INTERNAL MATTERS RELATING TO CORPORATIONS ORGANIZED THEREUNDER).

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officers and this Warrant to be dated as of the date first set forth above.

CARRIZO OIL & GAS, INC.

Title: [Chairman or Chief Executive Officer]

ATTEST:

ANNEX A

EXERCISE FORM

[TO BE SIGNED UPON EXERCISE OF WARRANT]

TO CARRIZO OIL & GAS, INC.

The undersigned, being the Holder of the within Warrant, hereby elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder _________ shares of, the Common Stock of CARRIZO OIL & GAS, INC. (the "Company") and requests that the certificates for such shares be issued in the name of, and be delivered to, _______________________, whose address is __________________________________ ________________________________.

The undersigned warrants to the Company that the undersigned
(a) is not acquiring the Warrant Shares with a view to transfer such Warrant Shares in violation of the Securities Act of 1933, as amended (the "Securities Act"), (b) acknowledges that the issuance of the Warrant Shares has not been registered under the Securities Act and the Warrant Shares may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption therefrom is available and (c) is an "accredited investor" within the meaning of Regulation D under the Securities Act.

The foregoing exercise is (check one):

ANNEX B

EXCHANGE FORM

[TO BE SIGNED UPON EXERCISE OF WARRANT]

TO CARRIZO OIL & GAS, INC.

The undersigned, being the Holder of the within Warrant, hereby irrevocably elects to exchange, pursuant to Section 4.2 of the Warrant Agreement referred to in such Warrant, the portion of such Warrant representing the right to purchase _________ shares of Common Stock of CARRIZO OIL & GAS, INC. (the "Company"). The undersigned hereby requests that the certificates for the number of shares of Common Stock issuable in such exchange pursuant to such
Section 4.2 be issued in the name of, and be delivered to, _____________, whose address is ________________________________________.

The undersigned warrants to the Company that the undersigned
(a) is not acquiring the Warrant Shares with a view to transfer such Warrant Shares in violation of the Securities Act of 1933, as amended (the "Securities Act"), (b) acknowledges that the issuance of the Warrant Shares has not been registered under the Securities Act and the Warrant Shares may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption therefrom is available and (c) is an "accredited investor" within the meaning of Regulation D under the Securities Act.

The foregoing exercise is (check one):

ANNEX C

ASSIGNMENT FORM

[TO BE SIGNED ONLY UPON TRANSFER OF WARRANT]

For value received, the undersigned hereby sells, assigns and transfers unto _________________________, all of the rights represented by the within Warrant to purchase shares of Common Stock of CARRIZO OIL & GAS, INC. (the "COMPANY"), to which such Warrant relates, and appoints ________________________ Attorney to transfer such Warrant on the books of the Company, with full power of substitution in the premises.

DATED:

EXHIBIT 99.5

CARRIZO OIL & GAS, INC.,

A TEXAS CORPORATION

REGISTRATION RIGHTS AGREEMENT

February 20, 2002

TABLE OF CONTENTS

                                                                                                                PAGE
                                                                                                                ----


SECTION 1.   CERTAIN DEFINITIONS..................................................................................1


SECTION 2.   [INTENTIONALLY OMITTED]..............................................................................3


SECTION 3.   [INTENTIONALLY OMITTED]..............................................................................3


SECTION 4.   [INTENTIONALLY OMITTED]..............................................................................3


SECTION 5.   REGISTRATION RIGHTS..................................................................................3

         5.1.     REQUESTED REGISTRATION..........................................................................3
         5.2.     COMPANY REGISTRATION............................................................................5
         5.3.     REGISTRATION ON FORM S-3........................................................................6
         5.4.     LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS...................................................9
         5.5.     EXPENSES OF REGISTRATION........................................................................9
         5.6.     REGISTRATION PROCEDURES.........................................................................9
         5.7.     INDEMNIFICATION................................................................................11
         5.8.     CERTAIN AGREEMENTS OF HOLDERS..................................................................14
         5.9.     RULE 144 REPORTING.............................................................................15
         5.10.    TRANSFER OF REGISTRATION RIGHTS................................................................15
         5.11.    LOCKUP AGREEMENT...............................................................................16
         5.12.    TERMINATION OF REGISTRATION RIGHTS.............................................................16

SECTION 6.   MISCELLANEOUS.......................................................................................16

         6.1.     GOVERNING LAW..................................................................................16
         6.2.     SUCCESSOR AND ASSIGNS..........................................................................16
         6.3.     EFFECTIVENESS..................................................................................17
         6.4.     ENTIRE AGREEMENT; AMENDMENT....................................................................17
         6.5.     NOTICES, ETC...................................................................................17
         6.6.     DELAYS OR OMISSIONS............................................................................17
         6.7.     SEVERABILITY...................................................................................18
         6.8.     TITLES AND SUBTITLES...........................................................................18
         6.9.     GENDER.........................................................................................18
         6.10.    COUNTERPARTS...................................................................................18

THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the 20th day of February, 2002 by and among CARRIZO OIL & GAS, INC., a Texas corporation (the "Company"), and the shareholders of the Company listed on Annex A attached hereto (the "Purchasers").

Recitals

The Company is entering into a Securities Purchase Agreement (the "Securities Purchase Agreement") dated as of the date hereof, with the Purchasers pursuant to which the Company is issuing to the Purchasers (i) 60,000 shares of its Series B Convertible Preferred Stock (as defined below), and (ii) Warrants (as defined below) to purchase 252,632 shares of Common Stock (as defined below). In order to induce the Purchasers to enter into the Securities Purchase Agreement, the Company wishes to grant registration rights to the Purchasers as more fully set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the parties hereby agree as follows:

Section 1. Certain Definitions.

As used in this Agreement, the following terms shall have the following respective meanings:

"Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

"Common Stock" shall mean the common stock of the Company, par value $.01 per share, and any other securities issued in respect of Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation, share exchange or similar event.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

"Holder" shall mean any Purchaser holding Registrable Securities and any Person holding Registrable Securities to whom the rights under this Agreement have been transferred in accordance with Section 5.10 hereof.

"Initiating Holders" shall mean any Holder(s) who in the aggregate are Holders of not less than 51% of the then outstanding Sponsor Registrable Securities.

"Person" means any individual, any foreign or domestic corporation, general partnership, limited partnership, limited liability company, firm, joint venture, association, individual retirement account, joint stock company, trust, estate, unincorporated organization, governmental or regulatory body or other entity.

"Registrable Securities" shall mean the shares of Common Stock of the Company issuable (for purposes of clarity, "issuable" includes the shares of Common Stock of the Company that are issuable upon the date hereof and are issued subsequent to the date hereof) upon (a) the conversion of the Series B Convertible Preferred Stock or (b) the exercise of the Warrants; provided, however, that securities shall be treated as Registrable Securities only if and only for so long as they are held by a Holder or a permitted transferee pursuant to the terms hereof, and (i) they have not been disposed of pursuant to a registration statement declared effective by the Commission, so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, or (ii) they have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act, so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, or (iii) the registration rights as to the Holder of such Registrable Securities have not expired pursuant to Section 5.12.

The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.

"Registration Expenses" shall mean all expenses, other than Selling Expenses (as defined below), incurred by the Company in complying with
Section 5.1, 5.2 or 5.3 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company) and the reasonable fees and disbursements of one counsel for all Holders.

"Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.

"Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and, except as set forth above, all fees and disbursements of counsel for any Holder.

"Series B Convertible Preferred Stock" means the Series B Convertible Participating Preferred Stock, par value $0.01 per share, of the Company, and any other securities issued in respect of the Series B Convertible Participating Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation, share exchange or similar event.

"Sponsor" shall mean Mellon Ventures, L.P.

"Sponsor Registrable Securities" shall mean the Registrable Securities issuable upon conversion of the Series B Preferred Stock purchased by the Sponsor and upon exercise of the Warrants issued to the Sponsor.

"Warrant Agreement" shall mean the Warrant Agreement dated as of the date hereof among the Company and the parties named therein.

"Warrants" has the meaning given to such term in the Warrant Agreement.

Section 2. [Intentionally Omitted]

Section 3. [Intentionally Omitted]

Section 4. [Intentionally Omitted]

Section 5. Registration Rights.

5.1. Requested Registration.

(a) Request for Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to not less than 5% of the shares of Sponsor Registrable Securities then outstanding, the Company will:

(i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and

(ii) as soon as practicable, use its reasonable best lawful efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Sponsor Registrable Securities as are specified in such request, together with all or such portion of the Sponsor Registrable Securities of any Holders joining in such request as are specified in a written request received by the Company within 20 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 5.1:

(A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(B) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date three (3) months immediately following the effective date of, a Company-initiated registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all

reasonable efforts to cause such registration statement to become effective (and provided, further, that the Company cannot pursuant to this Section 5.1(a)(ii)(B) or pursuant to
Section 5.3(a)(ii)(B) delay implementation of a demand for registration more than once in any 24-month period);

(C) After the Company has effected one registration which may be effected at the option of the Holders pursuant to either this Section 5.1(a) or Section 5.3(a), and such registration has been declared or ordered effective; or

(D) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its reasonable best lawful efforts to register, qualify or comply under this Section 5.1 shall be deferred once (with respect to any demand for registration hereunder) for a period not to exceed ninety (90) days from the date of receipt of written request from the Initiating Holders, provided that the Company cannot pursuant to this Section 5.1(a)(ii)(D) or pursuant to
Section 5.3(a)(ii)(D) delay implementation of a demand for registration more than once in any 12-month period.

Subject to the foregoing clauses (A) through (D), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders.

(b) Underwriting. In the event that a registration pursuant to
Section 5.1 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to
Section 5.1(a)(i). In such event, the right of any Holder to registration pursuant to Section 5.1 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 5.1, and the inclusion of such Holder's Registrable Securities, as the case may be, in the underwriting to the extent requested shall be limited to the extent provided herein.

The Company shall (together with all Holders and other holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 5.1, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit the Registrable Securities to be included in such registration and underwriting (provided that securities of other securityholders are not included therein). In the event of a limitation on the number of Registrable Securities to be included in a registration, then the Company shall so advise all Holders and the number of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders. No Registrable Securities excluded from the underwriting by reason of the

underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of Registrable Securities in accordance with the above provisions, the Company or the underwriters may round the number of Registrable Securities allocated to any Holder to the nearest 100 shares.

If any Holder of Registrable Securities disapproves of the terms of the underwriting, such Person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 180 days after the effective date of such registration, or such other shorter period of time as the underwriters may require.

(c) The Company shall not register securities for sale for its own account in any registration requested pursuant to this Section 5.1 unless permitted to do so by the written consent of Holders who hold at least 2/3 of the Registrable Securities as to which registration has been requested or unless the underwriter shall indicate in writing to the Initiating Holders that the inclusion of the shares to be sold for the account of the Company will not adversely affect the registration, the price of the shares to be sold and the number of shares to be sold for the account of the Holders. The Company may not cause any other registration of securities for sale for its own account (other than a registration effected solely to implement an employee benefit plan or stock option plan or a transaction contemplated by Rule 145 of the Commission) to be initiated after a registration requested pursuant to Section 5.1 and to become effective less than 90 days after the effective date of any registration requested pursuant to Section 5.1.

5.2. Company Registration.

(a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (x) a registration relating solely to employee benefit plans, or (y) a registration relating solely to a Commission Rule 145 transaction, the Company will:

(i) promptly give to each Holder written notice thereof; and

(ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 20 days after receipt of such written notice from the Company, by any Holder.

(b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 5.2(a)(i). In such event the right of any Holder to registration pursuant to Section 5.2 shall be conditioned upon such Holder's participation in such underwriting, and the inclusion of Registrable Securities in the underwriting shall be limited to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary

form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 5.2, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriters may exclude some or all Registrable Securities from such registration and underwriting (provided that securities of other securityholders are similarly excluded) (although securities to be sold by the Company need not be excluded under any provision of this Section 5.2). In the event of a limitation (or elimination) on the number of Registrable Securities and other securities to be included in a registration, the Company shall so advise all Holders and any other holders requesting to distribute their securities through such underwriting pursuant to piggy-back registration rights and the number of Registrable Securities and other such securities that may be included in the registration and underwriting shall (except as set forth below) be allocated among all Holders thereof and such other holders in proportion, as nearly as practicable, to the respective amounts of securities requested to be included in such registration. To facilitate the allocation of Registrable Securities in accordance with the above provisions, the Company may round the number of Registrable Securities and other securities allocated to any Holder or other holder to the nearest 100 shares. If any Holder disapproves of the terms of any such underwriting, it may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 180 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. Notwithstanding anything to the contrary in this Section 5.2, in the case of registrations requested pursuant to Section 5.1 or 5.3 of both the Registration Rights Agreement dated December 15, 1999 by and among the Company and the Purchasers listed therein (the "Chase Agreement") and the Registration Rights Agreement dated as of June 4, 1997 as amended by Amendment No. 1 dated as of December 15, 1999, among the Company and the Purchasers listed therein (the "Founders Agreement", and, together with the Chase Agreement, the "Prior Agreements"), the Holders may participate in any such registration only in respect of that portion of any such registration as remains after inclusion of all Registrable Securities (as defined in the Prior Agreements) requested by the Holders (as defined in the Prior Agreements) with registration rights under the Prior Agreements to be included in such registration, provided, however, that the foregoing is not intended to limit or impair the registration rights, if any, a holder may have pursuant to any other registration rights agreement with the Company to which such holder is a party, including any registration rights a holder may have under the Prior Agreements.

(c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to or after the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.

5.3. Registration on Form S-3.

(a) In addition to the registration rights provided in Sections 5.1 and 5.2, if the Company shall receive from Initiating Holders a written request that the Company file a registration statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of the Sponsor Registrable Securities and the Company is a registrant entitled to use Form

S-3 to register the Sponsor Registrable Securities for such an offering by the Initiating Holders, the Company will:

(i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and

(ii) as soon as practicable, use its best lawful efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Sponsor Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holders joining in such request as are specified in a written request received by the Company within 20 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 5.3:

(A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(B) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date three (3) months immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective (and provided, further, that the Company cannot pursuant to this Section 5.3(a)(ii)(B) or pursuant to Section 5.1(a)(ii)(B) delay implementation of a demand for registration more than once in any 24-month period);

(C) After the Company has effected one registration which may be effected at the option of the Holders pursuant to either this Section 5.3(a) or Section 5.1(a), and such registration has been declared or ordered effective; or

(D) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its reasonable best lawful efforts to register, qualify or comply under this Section 5.3 shall be deferred once (with respect to any demand for registration hereunder) for a period not to exceed ninety (90) days

from the date of receipt of written request for registration; provided, however, that the Company cannot pursuant to this
Section 5.3(a)(ii)(D) or pursuant to Section 5.1(a)(ii)(D) delay implementation of a demand for registration more than once in any 12-month period.

Subject to the foregoing clauses (A) through (D), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as reasonably practicable, after receipt of the request or requests for registration.

(b) Underwriting. In the event that a registration pursuant to
Section 5.3 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to
Section 5.3(a)(i). In such event, the right of any Holder to registration pursuant to Section 5.3 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 5.3, and the inclusion of such Holder's Registrable Securities, as the case may be, in the underwriting to the extent requested shall be limited to the extent provided herein.

The Company shall (together with all Holders and other holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 5.3, if the managing underwriter determines that marketing factors require a limitation of the number of Registrable Securities to be underwritten, the underwriters may limit the Registrable Securities to be included in such registration and underwriting (provided that securities of other securityholders are not included therein). In the event of a limitation on the number of Registrable Securities to be included in a registration, the Company shall so advise all Holders, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of Registrable Securities in accordance with the above provisions, the Company or the underwriters may round the number of Registrable Securities allocated to any Holder to the nearest 100 shares.

If any Holder disapproves of the terms of the underwriting, such Person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities so withdrawn shall also be withdrawn from registration, and such securities shall not be transferred in a public distribution prior to 180 days after the effective date of such registration, or such other shorter period of time as the underwriters may require.

(c) The Company shall not register securities for sale for its own account in any registration requested pursuant to this Section 5.3 unless permitted to do so by the written consent of Holders who hold at least 2/3 of the Registrable Securities as to which registration has been requested or unless the underwriter shall indicate in writing to the Initiating Holders that the

inclusion of the shares to be sold for the account of the Company will not adversely affect the registration, the price of the shares to be sold and the number of shares to be sold for the account of the Holders. The Company may not cause any other registration of securities for sale for its own account (other than a registration effected solely to implement an employee benefit plan or stock option plan or a transaction contemplated by Rule 145 of the Commission) to be initiated after a registration requested pursuant to Section 5.3 and to become effective less than 90 days after the effective date of any registration requested pursuant to Section 5.3.

5.4. Limitations on Subsequent Registration Rights.

(a) The Company represents and warrants to the Purchasers that the registration rights granted to the Purchasers hereby do not conflict with any other registration rights granted by the Company.

(b) Within the limitations prescribed by this Section 5.4(b), but not otherwise, the Company may grant to subsequent investors in the Company piggy-back registration rights such as those provided in Section 5.2. Such rights may only pertain to shares of Common Stock, including shares of Common Stock into which any other securities may be converted. Such rights may be granted with respect to (i) registrations requested pursuant to Section 5.1 or 5.3, but only in respect of that portion of any such registration as remains after inclusion of all Registrable Securities requested by Holders to be included in such registration and (ii) registrations initiated by the Company, provided that such rights shall be limited in all cases to sharing pro rata in the available portion of the registration in question with Holders, such sharing to be based on the number of shares of Common Stock held by the respective Holders and held by such other investors, plus the number of shares of Common Stock into which other securities held by the Holders and such other investors are convertible, which are entitled to registration rights. The Company shall not, after the date hereof, grant any registration rights which conflict with or impair the registration rights granted hereby, provided that the foregoing shall not limit the ability of the Company to grant subsequent demand registration rights.

5.5. Expenses of Registration.

All Registration Expenses incurred in connection with the registrations pursuant to Section 5.1, Section 5.2 and Section 5.3 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders or other holders registering securities shall be borne by the Holders or holders of such securities pro rata on the basis of the number of shares so registered.

5.6. Registration Procedures.

In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will:

(a) Prepare and file with the Commission a registration statement with respect to such securities and use its best lawful efforts to cause such registration statement to become and remain effective for a period of one hundred twenty (120) days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment that (I) includes any prospectus required by Section 10(a)(3) of the Securities Act or (II) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;

(b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;

(c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;

(d) Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing;

(e) Cause all such Registrable Securities registered pursuant hereto to be listed on each securities exchange or quoted on a quotation system on which similar securities issued by the Company are then listed or quoted;

(f) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;

(g) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securities holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; and

(h) If requested by Holders of 50% of all of the Registrable Securities that are being registered in such registration, furnish to each prospective seller a signed counterpart, a "comfort" letter signed by the independent public accountants who have certified the Company's financial statements included in the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and with respect to events subsequent to the date of the financial statements, as are customarily covered (at the time of such registration and closing) in "comfort" letters delivered to the underwriters in underwritten public offerings of securities.

5.7. Indemnification.

(a) To the extent permitted by law, the Company will indemnify each Holder, each of its officers and directors, partners and legal counsel and each Person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each Person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions or proceedings in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers and directors, partners and legal counsel and each Person controlling such Holder, each such underwriter and each Person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing, settling or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by such Holder, controlling Person or underwriter and stated to be specifically for use therein. Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any such

untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement becomes effective or in the final prospectus filed with the Commission pursuant to Rule 424(b) of the Commission, the indemnity agreement herein shall not inure to the benefit of any underwriter if a copy of the final prospectus filed pursuant to Rule 424(b) was not furnished to the Person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act.

(b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors, officers and legal counsel, each underwriter, if any, of the Company's securities covered by such a registration statement, each Person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each Person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, legal counsel, Persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein. Notwithstanding the foregoing, the liability of each Holder under this subsection (b) shall be limited in an amount equal to the net proceeds from the sale of the Registrable Securities sold by such Holder. In addition, insofar as the foregoing indemnity relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement becomes effective or in the final prospectus filed pursuant to Rule 424(b) of the Commission, the indemnity agreement herein shall not inure to the benefit of the Company, any underwriter or (if there is no underwriter) any Holder if a copy of the final prospectus filed pursuant to Rule 424(b) was not furnished to the Person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act.

(c) Each party entitled to indemnification under this Section
5.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and

provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnified Party shall consent to entry of any judgment or enter into any settlement without the consent of each Indemnifying Party (which consent shall not be unreasonably withheld). Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.

(d) If the indemnification provided for in this Section 5.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any losses, claims, damages, expenses or liabilities referred to therein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, expenses or liabilities in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and all shareholders offering securities in the offering (the "Selling Shareholders") on the other in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and the Selling Shareholders on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Selling Shareholders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Selling Shareholders agree that it would not be just and equitable if contribution pursuant to this Section 5.7(d) were based solely upon the number of entities from whom contribution was requested or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 5.7(d). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages, expenses and liabilities referred to above in this Section 5.7(d) shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim, subject to the provisions of Section 5.7(c) hereof. Notwithstanding the provisions of this Section 5.7(d), no Selling Shareholder shall be required to contribute any amount or make any other payments under this Agreement which in the aggregate exceed the proceeds received by such Selling Shareholder. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in

connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

5.8. Certain Agreements of Holders.

(a) The Holder(s) included in any registration shall furnish to the Company such information regarding such Holder(s), the Registrable Securities and the distribution proposed by such Holder(s), as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in Section 5.

(b) The failure of any Holder(s) to be included in a registration to furnish the information requested pursuant to Section 5.8(a) shall not affect the obligation of the Company under Section 5 to the remaining Holder(s) who furnish such information unless, in the reasonable opinion of counsel to the Company or the underwriters, such failure impairs or may impair the legality of the registration statement or the underlying offering.

(c) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event requiring the preparation of a supplement or amendment to a prospectus relating to Registrable Securities so that, as thereafter delivered to such Holder, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, each Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statements contemplated by this Agreement until its receipt of copies of the supplemented or amended prospectus from the Company and, if so directed by the Company, each Holder shall deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities that is current at the time of receipt of such notice.

(d) Each Holder agrees to notify the Company, at any time when a prospectus relating to the registration statement contemplated by this Agreement is required to be delivered by it under the Act, of the occurrence of any event relating to such Holder which requires the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading relating to such Holder, and such Holder shall promptly make available to the Company information necessary to enable the Company to prepare any such supplement or amendment. Each Holder agrees not to take any action with respect to any distribution deemed to be made pursuant to such registration statement that constitutes a violation of Rule 10(b)6 under the Exchange Act or any other applicable rule, regulation or law.

(e) Each Holder acknowledges and agrees that in the event of sales under a shelf registration statement pursuant to this Agreement, (1) the Registrable Securities sold pursuant to such registration statement are not transferable on the books of the Company unless the share certificate submitted to the transfer agent evidencing such Registrable Securities is accompanied by a certificate reasonably satisfactory to the Company to the effect that (A) the

Registrable Securities have been sold in accordance with such registration statement and (B) the requirement of delivering a current prospectus has been satisfied and (2) such Holder will not effect any public sale or distribution of Registrable Securities pursuant to such shelf registration statement pursuant to this Agreement at any time that the Company shall have advised the Holders in writing that the sale by such Holders pursuant to such shelf registration could reasonably be expected to adversely affect, or require the premature disclosure of any proposed acquisition, disposition or other transaction involving the Company; provided, however, the Company may not restrict any such sales unless at least five (5) days' prior written notice is provided to each Holder and provided further the Company may not restrict sales by Holders for a total of more than 60 (sixty) days during any one year period.

5.9. Rule 144 Reporting.

With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best lawful efforts to:

(a) Make and keep public information regarding the Company available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after 90 days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public.

(b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements);

(c) So long as a Holder owns any Restricted Securities, furnish to such Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration.

5.10. Transfer of Registration Rights.

The rights granted to a Holder under Section 5 may be assigned to a transferee or assignee in connection with any transfer or assignment of Registrable Securities by a Holder provided that: (i) such transfer may otherwise be effected in accordance with applicable securities laws, (ii) such assignee or transferee acquires at least the lesser of (a) one-half of the number of Registrable Securities originally held by the Holder that owned such Registrable Securities on the date hereof and (b) Registrable Securities consisting of or convertible into

150,000 shares of Common Stock (subject to appropriate adjustment for any stock splits, dividends, subdivisions, combinations, recapitalizations and the like) and (iii) the Holder notifies the Company in writing of the transfer or assignment, stating the name and the address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned and the assignee or transferee agrees in writing to be bound by the provisions of this Agreement.

5.11. Lockup Agreement.

In consideration for the Company's agreeing to its obligations under this Agreement, each Holder hereby agrees in connection with any registration of the Company's securities other than (x) a registration relating solely to employee benefit plans, or (y) a registration relating solely to a transaction contemplated by Rule 145 of the Commission (whether or not the Holder's Registrable Securities are included in a registration statement pursuant thereto) not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) other than intra-family transfers and transfer to trusts for estate planning purposes without the prior written consent of the Company or underwriters managing the offering, as the case may be, during the 90-day period beginning on the effective date of a registration statement filed pursuant hereto; provided, however, that such Holder shall be relieved of its obligations under this Section 5.11 unless all executive officers and directors of the Company enter into similar agreements. Each Holder hereby agrees that, upon the request of the Company or the underwriters, it will confirm in writing the provisions of this Section 5.11. The Company may impose stock-transfer instructions with respect to securities subject to the foregoing restriction until the end of said restriction.

5.12. Termination of Registration Rights.

The registration rights granted pursuant to this Agreement shall terminate as to any Holder at such time as such Holder may sell under Rule 144(k) all Registrable Securities then held by such Holder.

Section 6. Miscellaneous.

6.1. GOVERNING LAW.

THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS EXCEPT TO THE EXTENT THAT THE NEW YORK CONFLICTS OF LAWS PRINCIPLES WOULD APPLY THE APPLICABLE LAWS OF THE STATE OF TEXAS TO INTERNAL MATTERS RELATING TO CORPORATIONS THEREUNDER).

6.2. Successor and Assigns.

Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

6.3. Effectiveness.

This Agreement shall become effective upon its execution by each Purchaser.

6.4. Entire Agreement; Amendment.

This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that any provisions hereof may be amended, waived, discharged or terminated upon the written consent of the Company and the holders of a majority in interest of the aggregate of the then outstanding Registrable Securities; and provided further, that any such amendment, waiver, discharge or termination that would adversely affect in any material respect the rights hereunder of any Holder, in its capacity as such, without similarly affecting the rights hereunder of all of the Holders may not be made without the prior written consent of such adversely affected of Holder.

6.5. Notices, Etc.

All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, including Federal Express or similar courier service, or by facsimile transmission addressed (a) if to a Purchaser, at such Purchaser's address and/or telefax number set forth in Annex A attached hereto, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to the Company, to Carrizo Oil & Gas, Inc., 14701 St. Mary's Lane, Suite 800, Houston, Texas 77079, Attn: President; telefax number (281) 496-0884, or at such other address as the Company shall have furnished to the Holders.

Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or five days after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or, if sent by courier, on the next business day following the day of dispatch or sent by facsimile transmission, on the date of such transmission if confirmation of such transmission is received.

6.6. Delays or Omissions.

Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party upon any breach or default of another party the Company under this Agreement shall impair any such right, power or remedy of such party that is not in breach or default nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or

character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

6.7. Severability.

In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party.

6.8. Titles and Subtitles.

The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement.

6.9. Gender.

As used herein, masculine pronouns shall include the feminine and neuter, neuter pronouns shall include the masculine and the feminine.

6.10. Counterparts.

This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the undersigned or each of their respective duly authorized officers or representatives have executed this agreement effective upon the date first set forth above.

"COMPANY"

CARRIZO OIL & GAS, INC.

By: /s/ FRANK A. WOJTEK
    ---------------------------------------
    Name:  Frank A. Wojtek
    Title: Chief Financial Officer and
           Vice President

"PURCHASERS"

MELLON VENTURES, L.P.

By: MVMA, L.P., its general partner

By: MVMA, Inc., its general partner

    By: /s/ MARC A. COLE
        -------------------------------
        Name:  Marc A. Cole
        Title: Associate

/s/ STEVEN A. WEBSTER
---------------------------------------
Steve A. Webster

ANNEX A

PURCHASERS

Mellon Ventures, L.P.
1114 Avenue of the Americas, 31st Floor
New York, New York 10036
Attention: Marc A. Cole
Telephone No.: (212) 389-2700
Telecopier No.: (212) 389-2755

with a copy to:

Dechert
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: David S. Denious, Esq.
Telephone No.: (215) 994-4000
Telecopier No.: (215) 994-2222

Steven A. Webster
14701 St. Mary's Lane
Suite 800
Houston, Texas 77079

EXHIBIT 99.6

Effective as of February 20, 2002

COMPLIANCE SIDELETTER

Carrizo Oil & Gas, Inc.
14701 St. Mary's Lane, Suite 800
Houston, Texas 77079

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement dated as of February 20, 2002 (the "SECURITIES PURCHASE AGREEMENT") among Carrizo Oil & Gas, Inc., a Texas corporation (the "COMPANY"), Steven A. Webster and Mellon Ventures, L.P. (the "INVESTOR") and pursuant to which the Investor purchased: (i) 40,000 shares of Series B Convertible Participating Preferred Stock (the "PREFERRED STOCK"); and (ii) warrants to purchase up to 168,421 shares of Common Stock (the "WARRANTS" and together with the Preferred Stock, the "SECURITIES").

The Investor is a Small Business Investment Company ("SBIC") licensed by the United States Small Business Administration ("SBA"). In order for Investors to acquire and hold the Securities, they must obtain from the Company certain representations and rights as set forth below. As a material inducement to the Investors to enter into the Securities Purchase Agreement and to purchase the Securities, the Company hereby makes the following representations and warranties and agrees to comply with the following covenants:

1. SMALL BUSINESS MATTERS.

(a) The Company, together with its "affiliates" (as that term is defined in Title 13, Code of Federal Regulations, Section 121.103):

CHECK ONE

[ ] (i) has a tangible net worth not in excess of $18

million, and average net income after Federal income taxes (excluding any carry-over losses) for the preceding 2 completed fiscal years not in excess of $6 million; or

[X] (ii) does not exceed the size standard in number of employees under the SIC (Standard Industrial Classification) System for the industry in which it combined with its affiliates is primarily engaged and in which it alone is primarily engaged.

The information set forth in the Small Business Administration Forms 480 and Parts A and B of Form 1031 regarding the Company and its affiliates, when delivered to the Investor, will be accurate and complete and will be in form and substance

acceptable to each Investor. Copies of such forms shall be completed and executed by the Company and delivered to the Investors concurrently with the execution of this Compliance Sideletter.

(b) The proceeds from the sale of the Securities will be used by the Company for the purposes described in Section 3.26 of the Securities Purchase Agreement. No portion of such proceeds (i) will be used to provide capital to a corporation licensed under the Small Business Investment Act of 1958, as amended ("SBIA"), (ii) will be used to acquire farm land, (iii) will be used to fund production of a single item or defined limited number of items, generally over a defined production period, and such production will constitute the majority of the activities of the Company and its Subsidiaries (examples include motion pictures and electric generating plants), or (iv) will be used for any purpose contrary to the public interest (including, but not limited to, activities which are in violation of law) or inconsistent with free competitive enterprise, in each case, within the meaning of 13 C.F.R. Section 107.720.

(c) Neither the Company's nor any of its Subsidiaries' primary business activity involves, directly or indirectly, providing funds to others, the purchase or discounting of debt obligations, factoring or long-term leasing of equipment with no provision for maintenance or repair, and neither the Company nor any of its Subsidiaries is classified under Major Group 65 (Real Estate) of the SIC Manual. The assets of the business of the Company and its Subsidiaries (the "BUSINESS") will not be reduced or consumed, generally without replacement, as the life of the Business progresses, and the nature of the Business does not require that a stream of cash payments be made to the Business's financing sources, on a basis associated with the continuing sale of assets (examples of such businesses would include real estate development projects and oil and gas wells). (See 13 CFR Section 107.720). The Company is engaged in the exploration, development, exploitation and production of natural gas and crude oil. The Company is engaged in a regular and continuous business operation and was not formed for the purpose of a single project or limited series of projects.

(d) The proceeds from the sale of the Securities will not be used substantially for a foreign operation; and at Closing or within one year thereafter, no more than 49 percent of the employees or tangible assets of the Company and its Subsidiaries will be located outside the United States (unless the Company can show, to SBA's satisfaction, that the proceeds from the sale of the Securities will be used for a specific domestic purpose). This subsection (d) does not prohibit such proceeds from being used to acquire foreign materials and equipment or foreign property rights for use or sale in the United States.

(e) To the best actual knowledge of the Company, each SBIC that owns any Securities issued by the Company, together with a description of the kinds and amounts of Securities held, are listed on Schedule I hereto. Without the consent of the Investor, the Company will use commercially reasonable efforts not to issue Securities to any SBIC in the future unless such issuance is part of a public offering, merger, business combination, transfer, exchange or distribution to security holders if

such issuance would cause an Investor to be deemed to be a member of an "Investor Group" in "Control" of the Company (as such terms are defined in 13 CFR Section 107.865) except as required by any Transaction Document as that term is used in both the Securities Purchase Agreement and the Securities Purchase Agreement dated December 15, 1999 among the Company and the investors that are a party thereto.

2. Regulatory Compliance.

(a) Regulatory Compliance Cooperation.

(i) In the event that the Investor reasonably determines and notifies the Company that it has a Regulatory Problem, the Company agrees to use all commercially reasonable efforts to take all such actions as are reasonably requested by the Investor in order (A) to effectuate and facilitate any transfer by the Investor of any Securities of the Company then held by the Investor to any Person designated by the Investor, (B) to permit the Investor (or any of its Affiliates) to exchange all or any portion of the voting Securities then held by such Person on a share-for-share basis for shares of a class of non-voting Securities of the Company, which non-voting Securities shall be identical in all respects to such voting Securities, except that such new Securities shall be non-voting to the extent permitted by law and shall be convertible into voting Securities on such terms as are requested by the Investor and reasonably acceptable to the Company in light of regulatory considerations then prevailing, and (C) to continue and preserve the respective allocation of the voting interests with respect to the Company arising out of the Investor's ownership of voting Securities before the transfers and amendments referred to above but only to the extent that the Investor enters into any agreement reasonably requested by the Company to ensure that the Company will not be put in a materially worse position as a result of any of the foregoing requested actions than it would have been without such change occurring. Such actions may include, without limitation: (x) entering into such additional agreements as are reasonably requested by the Investor to permit any Person(s) designated by the Investor to exercise any voting power which is relinquished by the Investor upon any exchange of voting Securities for nonvoting Securities of the Company; and (y) entering into such additional agreements, seeking to adopt such amendments to this Compliance Sideletter, the Company's Amended and Restated Articles of Incorporation (the "Charter") and the Company's Amended and Restated Bylaws (the "Bylaws") and taking such additional actions as are reasonably requested by the Investor in order to effectuate the intent of the foregoing and (z) using commercially reasonable efforts to cause shareholders of the Company holding a sufficient number of shares of voting stock to obtain required approvals to cooperate in all reasonable respects in complying with this Compliance Sideletter, including without limitation by such shareholders voting to approve amending the Charter and the Bylaws in order to remedy a Regulatory Problem (subject in all cases to compliance with applicable fiduciary duties of the Company's directors); provided, however, that, without limiting the generality of which actions are not deemed to be reasonably requested, such actions may not change in a manner that is materially adverse to any Investor or the Company, any of the agreements, rights or obligations of the parties reflected herein or in the Charter, Bylaws or Shareholders' Agreement and shall

not result in material liability to the Company or any officer or director thereof, nor require the Company to breach any law, contract, agreement, permit or regulation nor accelerate or change any obligation of the Company. Subject to the foregoing, if the Investor elects to transfer Securities of the Company to a Regulated Holder in order to avoid a Regulatory Problem, the Company and such Regulated Holder shall enter into such mutually acceptable agreements as such Regulated Holder may reasonably request in order to assist such Regulated Holder in complying with applicable laws and regulations to which it is subject. Such agreements may include restrictions on the redemption, repurchase or retirement of Securities of the Company that would result or be reasonably expected to result in such Regulated Holder holding more voting Securities or total Securities (equity and debt) than it is permitted to hold under such laws and regulations.

(ii) In the event the Investor has the right to acquire any of the Company's Securities from the Company (as the result of a preemptive offer, pro rata offer or otherwise), and the Investor reasonably determines that it has a Regulatory Problem, at the Investor's request, the Company will use commercially reasonable efforts to offer to sell to the Investor non-voting Securities on the same terms as would have existed had the Investor acquired the Securities so offered and immediately requested their exchange for non-voting Securities pursuant to subsection (i) above.

(iii) The Investor agrees to use commercially reasonable efforts to cooperate with the Company in complying with this Compliance Sideletter, including, without limitation, voting to approve amending this Compliance Sideletter, the Shareholders' Agreement, the Charter or Bylaws in a manner reasonably requested by the Investor requesting such amendment.

(iv) In the event that any Subsidiary of the Company ever offers to issue any of its Securities to the Investor, then the Company will use commercially reasonable efforts to cause such Subsidiary to enter into agreements with the Investor substantially similar to this Section 2(a) and Section 2(b) below.

(v) Any actions taken by the Company under this Compliance Sideletter shall be at the sole cost and expense of the Investor that has required that the Company assist it in connection with such Regulatory Problem. Such Investor agrees to indemnify and hold harmless the Company and its officers, directors, agents and employees to the fullest extent permitted by law from and against any and all losses, claims, damages, reasonable expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities resulting from or arising out of the actions (other than gross negligence or willful misconduct) taken by the Company under this Compliance Sideletter.

(vi) The Investor represents to the Company that it does not, and as a result of its purchase of Securities (including the Warrant Shares or the Underlying Shares) contemplated by the Securities Purchase Agreement will not, as of the date hereof have a Regulatory Problem.

(vii) To the extent the Investor receives nonvoting securities that have voting rights under state law, the Investor must vote all of such nonvoting Securities in a manner which is proportional to the related voting Securities (for which such nonvoting Securities were obtained or exchanged) and otherwise take any action reasonably required by the Company so that the issuance of any nonvoting Securities does not result in an Investor having a veto or blocking right that it would not have had in the absence of such issuance of nonvoting Securities.

(viii) The Company will notify the Investor not later than 5 days prior to the effective date of the material terms of any proposed amendment of the Charter or the Bylaws. The Investor agrees to notify the Company as to whether or not it would have a Regulatory Problem promptly after the Investor has notice of any proposed amendment or waiver.

(b) Information Rights and Related Covenants. The Company hereby covenants and agrees to take the following actions:

(i) Provide to the Investor and the SBA reasonable access to its books and records for the purpose of confirming the use of the proceeds of such financing and for all other purposes reasonably required by the SBA.

(ii) Provide to the Investor and the SBA a certificate of its chief financial officer (1) verifying the use of such proceeds and (2) to his knowledge certifying compliance by the Company with the provisions of this Agreement (provided that such certificate may be truthfully given).

(iii) Promptly after the end of each fiscal year (but in any event prior to March 31 of each year), the Company shall provide to Investors a written assessment, in form and substance reasonably satisfactory to Investors, of the economic impact of Investors' financing hereunder, specifying the full-time equivalent jobs created or retained, the impact of the financing on the consolidated revenues and profits of the Business and on taxes paid by the Business and its employees (See 13 CFR Section 107.630(e)).

(iv) Upon the request of the Investor or its Affiliates, the Company will (A) provide to such Person such financial statements and other information as such Person may from time to time reasonably request for the purpose of assessing the Company's financial condition and (B) furnish to such Person all information reasonably requested by it in order for it to prepare and file SBA Form 468 and any other information reasonably requested or required by any governmental agency asserting jurisdiction over such Person.

(v) For a period of one year following the date hereof, neither the Company nor any of its Subsidiaries will change its business activity if such change would render the Company ineligible to receive financial assistance from an

SBIC under the SBIA and the regulations thereunder (within the meanings of the 13 CFR Sections 107.720 and 107.760(b)).

(vi) The Company will at all times comply with the non-discrimination requirements of 13 C.F.R., Parts 112, 113 and 117.

3. [Intentionally left blank.]

4. DEFINITIONS.

Unless the context otherwise requires, capitalized terms used but not defined herein have the meanings given to them in the Securities Purchase Agreement.

"Affiliate" means, with respect to any Person, (i) a director, officer or shareholder of such Person, (ii) a spouse, parent, sibling or descendant of such Person (or spouse, parent, sibling or descendant of any director or executive officer of such Person), and (iii) any other Person that, directly or indirectly through one or more intermediaries, Controls, or is Controlled by, or is under common Control with, such Person.

"Control" means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

"Person" shall be construed broadly and shall include an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity (or any department, agency or political subdivision thereof).

"Regulated Holder" means any holder of the Company's Securities that is (or that is a subsidiary of a bank holding company that is) subject to the various provisions of Regulation Y of the Board of Governors of the Federal Reserve Systems, 12 C.F.R., Part 225 (or any successor to Regulation Y).

"Regulatory Problem" means (i) any set of facts or circumstances wherein it has been asserted by the Small Business Administration, the Federal Reserve Board, the Controller of the Currency or any other governmental regulatory agency hereafter charged with the regulation of banks or financial service institutions (or Investor believes and notifies the Company that there is a significant risk of such assertion) that such Person (or any bank holding company that controls such Person) is not entitled to hold, or exercise any material right with respect to, all or any portion of the Securities of the Company which such Person holds or (ii) when such Person and its Affiliates would own, control or have power (including voting rights) over a greater quantity of Securities of the Company than is permitted under any requirement of the Small Business Administration, the Federal Reserve Board, the Controller of the Currency or any other

governmental regulatory agency hereafter charged with the regulation of banks or financial service institutions applicable to such Person or to which such Person is subject.

"Securities" means, with respect to any Person, such Person's capital stock or any options, warrants or other Securities which are directly or indirectly convertible into, or exercisable or exchangeable for, such Person's capital stock (whether or not such derivative Securities are issued by the Company). Whenever a reference herein to Securities refers to any derivative Securities, the rights of Investor shall apply to such derivative Securities and all underlying Securities directly or indirectly issuable upon conversion, exchange or exercise of such derivative Securities.

"Shareholders' Agreement" means the Shareholders' Agreement to be entered into on the date of the Closing among the Company and certain shareholders of the Company.

"Subsidiary" means, with respect to any Person, any other Person of which the securities having a majority of the ordinary voting power in electing the board of directors (or other governing body), at the time as of which any determination is being made, are owned by such first Person either directly or through one or more of its Subsidiaries.

* * * * *

Please indicate your acceptance of the terms of this letter agreement by returning a signed copy to the undersigned.

MELLON VENTURES, L.P.

By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner

By:   /s/ MARC A. COLE
   -------------------------------------
   Name:  Marc A. Cole
   Title: Associate

Agreed as of the date first set forth above:

CARRIZO OIL & GAS, INC.

By:   /s/ FRANK A. WOJTEK
   -------------------------------------------
   Name:  Frank A. Wojtek
   Title:

SBIC                                                    Securities
----                                                    ----------

JP Morgan Partners formerly (CB Capital                 Purchased in 1999
Investors, L.P.)                                        $17,600,001 Senior Subordinated Notes, due 2007

                                                        Warrants to purchase up to 2,208,152 shares of
                                                        Common Stock

                                                        2,909,092 shares of Common Stock


Mellon Ventures, L.P.                                   Purchased in 1999
                                                        $2,200,000 Senior Subordinated Notes, due 2007

                                                        Warrants to purchase up to 276,019 shares of Common
                                                        Stock

                                                        363,636 shares of Common Stock

                                                        Purchased in 2002
                                                        40,000 shares of Preferred Stock

                                                        Warrants to purchase up to 168,421 shares of Common
                                                        Stock

EXHIBIT 99.7

AMENDMENT TO EMPLOYMENT AGREEMENT

Carrizo Oil & Gas, Inc., a Texas corporation ("Company"), and _________________ ("Executive") have previously entered into an Employment Agreement dated as of June 6, 1997 ("Employment Agreement"), and by this agreement hereby amend the Employment Agreement effective as of February ___, 2002 as follows:

Nothing in the Shareholders Agreement dated February ___, 2002 among S.P. Johnson IV, Frank A. Wojtek, Steven A. Webster, Paul B. Loyd, Jr., Douglas A.P. Hamilton, Mellon Ventures, L.P. ("Mellon") and certain other shareholders (the "Shareholders Agreement") or in the transactions contemplated by the Securities Purchase Agreement dated February ___, 2002 among Steven A. Webster, Mellon and certain other investors (including the addition of any new parties thereto), shall constitute a "Change of Control" within the meaning of
Section 9 of the Employment Agreement. Without limiting the generality of the foregoing, no "Change of Control" shall result from the attribution of beneficial ownership directly or indirectly through the Shareholders Agreement such that a shareholder is deemed to beneficially own 40% or more of the shares of the Company's common stock then outstanding (a "40% Holder"), unless such shareholder would be deemed to be a 40% Holder in the absence of the Shareholders Agreement.

In witness whereof, the parties have caused these presents to be executed this ____ day of February, 2002, effective as of the day and year first above written.

CARRIZO OIL & GAS, INC.

EXHIBIT 99.8

AMENDMENT TO INDEMNIFICATION AGREEMENT

Carrizo Oil & Gas, Inc., a Texas corporation ("Company") and ________________ previously entered into an Indemnification Agreement dated as of June 14, 1997 ("Indemnification Agreement"), and by this agreement hereby amend the Indemnification Agreement effective as of February ___, 2002 as follows:

Nothing in the Shareholders Agreement dated February ___, 2002 among S.P. Johnson IV, Frank A. Wojtek, Steven A. Webster, Paul B. Loyd, Jr., Douglas A.P. Hamilton, Mellon Ventures, L.P. ("Mellon") and certain other investors (the "Shareholders Agreement") or in the transactions contemplated by the Securities Purchase Agreement dated February ___, 2002 among Steven A. Webster, Mellon and certain other investors, as it may be amended from time to time (including the addition of any new parties thereto), shall constitute a "Change of Control" within the meaning of the definition in the Indemnification Agreement. Without limiting the generality of the foregoing, no "Change of Control" shall result from the attribution of beneficial ownership directly or indirectly through the Shareholders Agreement such that a shareholder is deemed to beneficially own 40% or more of the shares of the Company's common stock then outstanding (a "40% Holder"), unless such shareholder would be deemed to be a 40% Holder in the absence of the Shareholders Agreement.

In witness whereof, the parties have caused these presents to be executed this ___ day of February, 2002, effective as of the day and year first above written.

CARRIZO OIL & GAS, INC.

INDEMNITEE

EXHIBIT 99.9

CARRIZO OIL & GAS, INC. ANNOUNCES CLOSING OF FINANCING

Carrizo Oil & Gas, Inc. (Nasdaq: CRZO) today announced the closing and funding of a $6 million financing with an investor group led by Mellon Ventures, L.P. Pursuant to the financing, the Company sold $6 million in stated amount of a new series of convertible participating preferred stock and warrants to purchase Carrizo common stock. The proceeds of the Financing are expected to be used primarily to fund the Company's ongoing exploration and development program.

The preferred stock is convertible into common stock by the investors at a conversion price of $5.70 per share, subject to adjustment and is initially convertible into 1,052,632 shares of common stock. Dividends on the preferred stock will be payable in either cash at a rate of 8% per annum or, at the Company's option, by payment in kind of additional shares of the same series of preferred stock at a rate of 10% per annum. The preferred stock is redeemable in whole or in part at the holders' option after three years or at the Company's option at any time. The warrants have a five-year term and entitle the holders to purchase up to 252,632 shares of Carrizo's common stock at a price of $5.94 per share, subject to adjustment, and are exercisable at any time after issuance.

Joining Mellon Ventures in the investor group was Steven A. Webster, Carrizo's Chairman of the Board. Mellon Ventures was also an investor in the Company's 1999 financing which raised $30 million.

"We enthusiastically welcome Mellon Ventures' and Steve Webster's increased stake in our company and the continued confidence they have shown in Carrizo," commented S.P. Johnson, IV, President and Chief Executive Officer of Carrizo. "This financing is being made possible because of the success of Carrizo's drilling program this past year. We expect the transactions to provide the additional capital needed to accelerate the pace of exploration and development program in our areas of our recent success, especially in the LaRose Prospect Area in Louisiana and the Cabeza Creek Project Area in Goliad County, Texas."

The financing includes a shareholders' agreement among the investors, the Company and the Company's founding shareholders providing for certain preemptive rights for new securities issuances by the Company and tag-along rights for certain sales by the founding shareholders. The investors will be entitled to certain registration rights relating to the common stock underlying preferred stock and the new warrants.

Carrizo Oil & Gas, Inc. is a Houston-based energy company engaged in the exploration, development, exploitation and production of oil and natural gas primarily in proved onshore trends along the Texas and Louisiana Gulf Coast regions. Carrizo controls significant prospective acreage blocks and utilizes advanced 3-D seismic techniques to identify potential oil and gas reserves and drilling opportunities.

Statements in this news release, including but not limited to those relating to the use of proceeds and effect of Financing, accelerated pace of exploration and development program and other statements that are not historical facts are forward-looking statements that are based on

current expectations. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that these expectations will prove correct. Important facts that could cause actual results to differ materially from those in the forward-looking statements include results and dependence on exploratory drilling activities, operating risks, capital requirements and availability, dependence on key personnel, oil and gas price levels, availability of drilling rigs, weather, land issues, matters outside the Company's control and other risks described in the Company's most recent 10-K and other filings with the Securities and Exchange Commission.