EXHIBIT 99.1
EXECUTION COPY

SECURITIES PURCHASE AGREEMENT

AMONG

CARRIZO OIL & GAS, INC.

AS ISSUER,

AND

THE INVESTORS LISTED ON SCHEDULE 1.1 HERETO

DECEMBER 15, 1999

TABLE OF CONTENTS

                                                                                                               Page


Article I DEFINITIONS.............................................................................................2
   1.1    Defined Terms...........................................................................................2
   1.2    Terms Generally........................................................................................16
   1.3    Use of Defined Terms...................................................................................16
   1.4    Cross-References.......................................................................................17
   1.5    Currency...............................................................................................17
   1.6    Accounting Terms; GAAP.................................................................................17

Article II PURCHASE AND SALE OF THE PURCHASED SECURITIES.........................................................17
   2.1    Authorization and Issuance of the Purchased Securities.................................................17
   2.2    Delivery of the Purchased Securities...................................................................18
   2.3    Closing................................................................................................18

Article III PROVISIONS OF THE NOTES AND THE WARRANTS.............................................................18
   3.1    The Notes..............................................................................................18
   3.2    General Provisions As To Payments......................................................................18
   3.3    Interest...............................................................................................19
   3.4    Interest on Overdue Amounts............................................................................21
   3.5    Mandatory Prepayment...................................................................................21
   3.6    Optional Prepayments...................................................................................22
   3.7    Securities Register....................................................................................22
   3.8    Lost, Etc. Securities..................................................................................23
   3.9    Several Obligations; Remedies Independent..............................................................23

Article IV REPRESENTATIONS AND WARRANTIES........................................................................23
   4.1    Corporate Existence....................................................................................23
   4.2    Corporate Power and Authorization......................................................................24
   4.3    Binding Obligations....................................................................................24
   4.4    No Violation...........................................................................................24
   4.5    Consents...............................................................................................24
   4.6    SEC Documents and Financial Statements.................................................................24
   4.7    Reserve Report.........................................................................................25
   4.8    No Material Adverse Effect.............................................................................25
   4.9    Liabilities; Indebtedness..............................................................................25
   4.10   Litigation.............................................................................................26
   4.11   Specified Contract and Commitments.....................................................................26
   4.12   Title to Properties and Assets; Leases.................................................................27
   4.13   Compliance with the Law................................................................................28
   4.14   Taxes..................................................................................................29
   4.15   Employee Benefit Matters...............................................................................29
   4.16   Investment Company Act.................................................................................30
   4.17   Public Utility Holding Company Act.....................................................................30

   4.18   No Restrictions on Affiliates..........................................................................31
   4.19   Capitalization.........................................................................................31
   4.20   Subsidiaries...........................................................................................31
   4.21   Environmental Matters..................................................................................31
   4.22   Intellectual Property and Other Intangible Assets......................................................33
   4.23   No Public Offer........................................................................................33
   4.24   Insurance..............................................................................................33
   4.25   Certain Transactions...................................................................................33
   4.26   Use of Proceeds........................................................................................34
   4.27   Plugging and Abandonment Obligations...................................................................34
   4.28   No Material Misstatements or Omissions.................................................................34
   4.29   Fees and Commissions...................................................................................35
   4.30   Enron Purchase Agreement...............................................................................35
   4.31   Projections............................................................................................35

Article V REPRESENTATIONS AND WARRANTIES OF INVESTORS............................................................35
   5.1    Representations and Warranties of Each Investor........................................................35

Article VI CONDITIONS TO PURCHASE................................................................................36
   6.1    Conditions to Obligations of Investors on the Closing Date.............................................36

Article VII AFFIRMATIVE COVENANTS................................................................................37
   7.1    Existence; Businesses and Properties...................................................................38
   7.2    Insurance..............................................................................................38
   7.3    Taxes, Etc.............................................................................................38
   7.4    Financial Statements, Reports, etc.....................................................................39
   7.5    Litigation and Other Notices...........................................................................40
   7.6    Employee Benefits......................................................................................41
   7.7    Maintaining Records; Access to Properties and Inspections..............................................41
   7.8    Subsidiaries...........................................................................................42
   7.9    Compliance with Environmental Laws.....................................................................42
   7.10   Preparation of Environmental Reports...................................................................42
   7.11   Amendments.............................................................................................42
   7.12   Fiscal Year............................................................................................42

Article VIII NEGATIVE COVENANTS..................................................................................43
   8.1    Indebtedness...........................................................................................43
   8.2    Liens..................................................................................................44
   8.3    Investments, Loans and Advances........................................................................46
   8.4    Mergers, Consolidations, Sales of Assets and Acquisitions..............................................47
   8.5    Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends..................49
   8.6    Transactions with Affiliates...........................................................................49
   8.7    Business of Company and Subsidiaries...................................................................50
   8.8    Subsidiary Capital Stock...............................................................................50
   8.9    Limitation on Certain Payments and Prepayments.........................................................50
   8.10   Tangible Net Worth Requirement.........................................................................50
   8.11   EBITDA to Debt Service Ratio...........................................................................50

   8.12   Consolidated Capital Expenditures......................................................................50
   8.13   Certain Documents and Agreements.......................................................................51

Article IX SUBORDINATION OF NOTES................................................................................52
   9.1    Notes Subordinate to Senior Indebtedness...............................................................52
   9.2    Payment Over of Proceeds Upon Dissolution, Etc.........................................................52
   9.3    No Payment When Senior Indebtedness in Default.........................................................53
   9.4    Payment Permitted If No Default........................................................................55
   9.5    Subrogation to Rights of Holders of Senior Indebtedness................................................55
   9.6    Provisions Solely to Define Relative Rights............................................................56
   9.7    No Waiver of Subordination Provisions..................................................................56
   9.8    Notice to Investors....................................................................................56
   9.9    Reliance on Judicial Order or Certificate of Liquidating Agent.........................................57
   9.10   Holders of Senior Indebtedness as Third Party Beneficiary..............................................57

Article X TRANSFER OF SECURITIES.................................................................................58
   10.1   Restriction on Transfer................................................................................58
   10.2   Restrictive Legends....................................................................................58
   10.3   Notice of Transfer.....................................................................................59

Article XI EVENTS OF DEFAULT.....................................................................................59
   11.1   Defaults...............................................................................................59

Article XII MISCELLANEOUS........................................................................................62
   12.1   Notices................................................................................................62
   12.2   Survival of Agreement..................................................................................62
   12.3   Successors and Assigns.................................................................................63
   12.4   Expenses of the Investors..............................................................................63
   12.5   Indemnification........................................................................................64
   12.6   Third Party Claims.....................................................................................65
   12.7   GOVERNING LAW..........................................................................................67
   12.8   Waivers; Amendments....................................................................................67
   12.9   Independence of Covenants..............................................................................68
   12.10  No Fiduciary Relationship; No Duty of Designated Holder................................................68
   12.11  No Duty................................................................................................69
   12.12  Construction...........................................................................................69
   12.13  Severability...........................................................................................69
   12.14  Counterparts...........................................................................................69
   12.15  Confidentiality........................................................................................69
   12.16  Headings...............................................................................................70
   12.17  Entire Agreement.......................................................................................70

EXHIBITS

EXHIBIT A - Form of Compliance Sideletter

EXHIBIT B - Form of Note

EXHIBIT B - Form of Solvency Certificate

EXHIBIT D - Form of Payment Direction Letter

EXHIBIT E - Form of Opinion of Company's Counsel

SCHEDULE 1.1    - Investors
SCHEDULE 1.2    - Projections
SCHEDULE 4.9    - Liabilities
SCHEDULE 4.10   - Litigation
SCHEDULE 4.11   - Specified Contracts
SCHEDULE 4.12   - Exceptions to Title
SCHEDULE 4.15   - Employee Benefit Matters
SCHEDULE 4.19   - Ownership; Capital Stock
SCHEDULE 4.21   - Environmental Matters
SCHEDULE 4.22   - Liens
SCHEDULE 4.25   - Certain Transactions
SCHEDULE 4.27   - Plugging and Abandonment Obligations
SCHEDULE 4.29   - Fees and Commissions
SCHEDULE 8.1    - Existing Indebtedness
SCHEDULE 8.2    - Existing Liens
SCHEDULE 8.6    - Transactions with Affiliates

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INVESTOR                                PRINCIPAL AMOUNT OF    PURCHASE PRICE OF     NUMBER OF WARRANT
                                        NOTES PURCHASED        NOTES                 SHARES

--------------------------------------------------------------------------------------------------------
CB Capital Investors, L.P.              $17,600,001            $17,401,267.32        2,208,152
380 Madison Avenue
12th Floor
New York, NY  10017
Attention:  Christopher C. Behrens
            Dorian Faust
Telephone:  (212) 622-3100
Telecopier: (212) 622-3101

with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York  10112
Attention:  Frederick M. Bachman, Esq.
Telephone No.:  (212) 408-2400
Telecopier No.: (212) 728-5950
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---------------------------------------------------------------------------------------------------------
INVESTOR                                PURCHASE PRICE OF     NUMBER OF SHARES OF    PURCHASE PRICE OF
                                        WARRANTS              PURCHASED COMMON       PURCHASED COMMON
                                                              STOCK                  STOCK
---------------------------------------------------------------------------------------------------------
CB Capital Investors, L.P.              $198,733.68           2,909,092              $6,400,002
380 Madison Avenue
12th Floor
New York, NY  10017
Attention:  Christopher C. Behrens
            Dorian Faust
Telephone:  (212) 622-3100
Telecopier: (212) 622-3101

with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York  10112
Attention:  Frederick M. Bachman, Esq.
Telephone No.:   (212) 408-2400
Telecopier No.:  (212) 728-5950
---------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------
 Mellon Ventures, L.P.                  2,200,000              2,175,158.29                276,019
 5 Radnor Corporate Center
 100 Matsonford Road, Suite 170
 Radnor, PA  19087
 Attention: Marc A. Cole
 Telephone:       (610) 688-4758
 Telecopier:      (610) 688-3930

 with a copy to:

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

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Douglas A.P. Hamilton                     733,333                725,052.46                 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX  77079
----------------------------------------------------------------------------------------------------------
Paul B. Loyd, Jr.                         733,333                725,052.46                 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX  77079
----------------------------------------------------------------------------------------------------------
Steven A. Webster                         733,333                725,052.46                 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX  77079
----------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------
Mellon Ventures, L.P.                  24,841.71                 363,636                   800,000
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA  19087
Attention: Marc A. Cole
Telephone:       (610) 688-4758
Telecopier:      (610) 688-3930

with a copy to:

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

---------------------------------------------------------------------------------------------------------

Douglas A.P. Hamilton                    8,280.54                   121,212                266,666
14811 St. Mary's Lane
Suite 148
Houston, TX  77079
---------------------------------------------------------------------------------------------------------
Paul B. Loyd, Jr.                        8,280.54                   121,212                266,666
14811 St. Mary's Lane
Suite 148
Houston, TX  77079
---------------------------------------------------------------------------------------------------------
Steven A. Webster                        8,280.54                   121,212                266,666
14811 St. Mary's Lane
Suite 148
Houston, TX  77079
---------------------------------------------------------------------------------------------------------

ANNEX A

SCHEDULE OF DOCUMENTS

1. INSURANCE. Satisfactory evidence that the insurance policies required by Section 7.2 of the Agreement are in full force and effect.;

2. CERTIFIED CHARTER. A copy of the Articles of Incorporation of the Company, and all amendments thereto, certified by the Secretary of State or other appropriate official of the jurisdiction of incorporation;

3. GOOD STANDING CERTIFICATES. Good standing certificates for the Company issued by the Secretary of State or other appropriate official of the jurisdiction of incorporation of such Person and each jurisdiction where the conduct of the Company's business activities or the ownership of its Properties necessitates qualification;

4. SOLVENCY CERTIFICATE. A certificate from the Financial Officer of the Company, substantially in the form of Exhibit C to the Agreement.

5. PROJECTIONS. True and complete copies of the Projections.

6. OFFICER'S CERTIFICATE. A certificate of a Responsible Officer of the Company certifying as to the matters set forth in Section 6.1(b) and
(d) of the Agreement.

7. SECRETARY'S CERTIFICATE. A Certificate of the Secretary of the Company, together with true and correct copies of the Articles of Incorporation and Bylaws of the Company, and all amendments thereto, true and complete copies of the resolutions of the Board of Directors of the Company authorizing or ratifying the execution, delivery and performance of the Transaction Documents and the Enron Purchase Agreement and the names of the officer or officers of the Company authorized to sign the Transaction Documents (or amendments thereto) and the Enron Purchase Agreement together with a sample of the true signature of each such officer;

8. LEGAL OPINIONS. The favorable, written opinion of Baker & Botts, L.L.P., counsel to the Company, as to the transactions contemplated by the Transaction Documents, substantially in the form of Exhibit D to the Agreement, dated the Closing Date, addressed to the Investors;

9. ACCOUNTANT'S LETTER. A letter authorizing the independent certified public accountants of the Company to communicate with the Investors or their designated representatives in accordance with Section 7.7.

10. LIEN SEARCHES. Satisfactory results of (i) a Uniform Commercial Code lien search and other filings and registrations of Liens against Properties of the Company and (ii) pending litigation and judgment searches, in each such jurisdiction as the Investors shall reasonably require;

11. ENRON REPURCHASE. True and complete copies of the duly executed Enron Purchase Agreement and all documents executed in connection therewith. Each of the conditions precedent to the Company's obligations to consummate the Enron Repurchase shall have been satisfied or waived with the consent of the Investors and the Enron Repurchase shall have been consummated in accordance with all Applicable Law;

12. AMENDMENT TO SENIOR CREDIT AGREEMENT. True and complete copies of the executed amendment to the Senior Credit Agreement. Copies of all legal opinions required to be delivered thereunder, together with letters from counsel rendering such opinions permitting the Investors to rely thereon. All conditions precedent to the initial borrowings thereunder shall have been satisfied;

13. PAYMENT DIRECTION LETTER. Duly executed originals of a letter of direction, in substantially the form of Exhibit E to the Agreement.

14. SMALL BUSINESS CONCERN DOCUMENTS. (i) Deliver to CB Capital Investors, L.P. and Mellon Ventures, L.P. a Size Status Declaration on SBA Form 480 and an Assurance of Compliance on SBA Form 652 and (ii) provide to CB Capital Investors, L.P. and Mellon Ventures, L.P. the information necessary for the preparation of CB Capital Investors, L.P. and Mellon Ventures, L.P. of a Portfolio Financing Report on SBA Form 1031.

15. NASDAQ. Evidence satisfactory to the Investors that NASDAQ has concurred with the Company that the transactions contemplated by the Transaction Documents do not trigger the shareholder approval requirements of Rule 4660(i) and are in compliance with NASDAQ's Voting Rights Policy of Rule 4310(c)(21);

16. AMENDED FOUNDERS REGISTRATION RIGHTS AGREEMENT. True and complete copies of the Amended Founders Registration Rights Agreement, the terms and conditions of which shall be reasonably satisfactory to the Investors;

17. FEE LETTER. Duly executed originals of the Fee Letter; and

18. OTHER DOCUMENTS. Such other documents, instruments and agreement as the Investors shall reasonably require.

SECURITIES PURCHASE AGREEMENT dated as of
December 15, 1999, 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) up to $22,000,000 principal amount of the Notes (as hereinafter defined), (ii) warrants to purchase 2,760,189 shares of Common Stock (as hereinafter defined), and (iii) 3,636,364 shares of Common Stock, on the terms and for the consideration provided herein, in each case on the terms and for the consideration provided herein;

WHEREAS, the Company has entered into an agreement (the "ENRON PURCHASE AGREEMENT") with Enron North America Corp., Sundance Assets, L.P. and Joint Energy Development Investments II Limited Partnership (collectively, the "ENRON PARTIES"), pursuant to which the Company will, concurrently with the execution and delivery of this Agreement and the sale of the Purchased Securities (as hereinafter defined), purchase (the "ENRON REPURCHASE") from the Enron Parties all of the Company's 9% Series A Preferred Stock, par value $0.01 (liquidation amount of approximately $34,000,000) and warrants to purchase 750,000 shares of the Common Stock in consideration for $12,000,000 and the amendment of the terms of the warrants to purchase 250,000 shares of the Common Stock to be retained by the Enron Parties;

WHEREAS, the proceeds of the Purchased Securities shall be used (i) to pay the cash consideration for the Enron Repurchase, (ii) to fund the Company's ongoing drilling program, (iii) to fund working capital and (iv) for general corporate purposes;

WHEREAS, the Notes shall be subordinated, to the extent and in the manner provided herein, to the senior credit facility provided to the Company pursuant to the terms of the First Amended, Restated and Combined Loan Agreement dated as of August 28, 1997 (as such agreement has been or may be amended, modified, restated or otherwise supplemented through the date hereof and from time to time after the date hereof in accordance with the provisions thereof and hereof, including, without limitation Section 8.13(c) hereof, the "SENIOR CREDIT AGREEMENT") among the Company and Compass Bank (together with successors and permitted assignees thereof the "SENIOR LENDER").

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:

"ACCELERATED AMOUNT" has the meaning given to such term in
Section 9.3(g).

"ACQUISITION" has the meaning given to such term in Section 8.4.

"ACQUISITION LIMIT" has the meaning given to such term in
Section 8.4.

"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.

"AMENDED FOUNDERS REGISTRATION RIGHTS AGREEMENT" means the
Registration Rights Agreement dated as of June 4, 1997 among the Company, Douglas A. P. Hamilton, Paul B. Loyd, Jr., Steven A. Webster, Frank A. Wojtek, S. P. Johnson IV and DAPHAM PARTNERSHIP, L.P., as amended on the date 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.

"APPLICABLE PREPAYMENT PREMIUM" means, at any date of determination in connection with a prepayment of the Notes in accordance with Sections 3.5 and 3.6 hereof during any period set forth below, an amount equal to the amount set forth below opposite such period:

                 PREPAYMENT DATE DURING                                        % OF PRINCIPAL
                       THE PERIOD                                                BEING PAID
                       ----------                                                ----------
Closing Date to and including the first anniversary of
   the Closing Date                                                                  9%

After the first anniversary of the Closing Date to and
   including the second anniversary of the Closing Date                              7%

After the second anniversary of the Closing Date to and
   including the third anniversary of the Closing Date                               5%

After the third anniversary of the Closing Date to and
   including the fourth anniversary of the Closing Date                              4%

After the fourth anniversary of the Closing Date to and
   including the fifth anniversary of the Closing Date                               3%

After the fifth anniversary of the Closing Date to and
   including the sixth anniversary of the Closing Date                               2%

After the sixth anniversary of the Closing Date to and
   including the seventh anniversary of the Closing Date                             1%

At any time after the seventh anniversary of the Closing
   Date                                                                              0%

provided, however, that the amount of any Applicable Prepayment Premium payable to an Investor in accordance with the foregoing may be reduced by such Investor, in its sole discretion.

"ASSET SALE" has the meaning given to such term in Section 8.4.

"BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq., as amended from time to time.

"BENEFIT PLANS" has the meaning given to such term in Section 4.15(a).

"BENEFIT PROGRAM OR AGREEMENT" has the meaning given to such term in Section 4.15(a).

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

"BOARD OF GOVERNORS" means the Board of Governors of the Federal Reserve System of the United States of America.

"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.

"CB CAPITAL DIRECTOR" has the meaning given to such term in the Shareholders Agreement.

"CHANGE OF CONTROL" means the occurrence of any of the following events: (i) the Company shall have merged into or consolidate with any other Person, or permitted any other Person to merge into or consolidate with it or sold, leased or sub-leased (as lessor or sub-lessor) or voluntarily transferred or otherwise disposed of all or substantially all of its assets or liquidated, wound-up or dissolved itself (or suffered any liquidation or dissolution in any such case in a transaction that would violate Section 8.4,
(ii) any "PERSON" (as such term is used in Sections 13(d) and 14 (d) of the Exchange Act) other than a Permitted Holder is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) provided that such person shall be deemed to have "BENEFICIAL OWNERSHIP" of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the outstanding voting securities of the Company (excluding attribution of beneficial ownership directly or indirectly through the Shareholders Agreement and, for purposes of determining the 35% threshold, excluding beneficial ownership of any Purchased Securities or Warrant Shares (other than Purchased Securities and Warrant Shares that have been transferred at any time in a Public Sale)); or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with any new directors (A) elected in accordance with the Shareholders Agreement so long as such agreement is in effect or (B) whose election by such members of the Board or whose nomination for election by the shareholders of the Company, as the case may be, was approved by a vote of at least a majority of the directors of the Company then still in office) cease for any reason to constitute a majority of the Board then in office.

"CHANGE OF CONTROL NOTICE" has the meaning given to such term in Section 3.5(b).

"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 2.2.

"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.

"COMPANY NOTICE DATE" has the meaning given to such term in
Section 3.5(b).

"COMPANY PARTIES" has the meaning given to such term in
Section 7.7.

"COMPETITOR" has the meaning given to such term in the Shareholders Agreement.

"COMPLIANCE SIDELETTER" means the Regulatory Compliance Sideletter in substantially the form of Exhibit A hereto, as such Sideletter may be amended, supplemented or otherwise modified from time to time.

"CONFIDENTIAL INFORMATION" has the meaning given to such term in Section 12.15.

"CONSOLIDATED CAPITAL EXPENDITURES" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability) by the Company or any of the Subsidiaries during such period that, in accordance with GAAP, are or should be included in "additions to property, plant and equipment" or similar items reflected in the consolidated statement of cash flows of the Company and the Subsidiaries for such period (including the amount included under GAAP in connection with any Capital Lease Obligation entered into during such period but excluding (i) expenditures made with the proceeds of insurance used to purchase like-kind assets and (ii) capitalized interest on the Notes and (iii) expenditures made or recorded in connection with any Acquisition or Production Payment.

"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.

"DEBT SERVICE" means the sum of (i) actual cash principal and interest amounts paid (including any capitalized interest payments) that the Company is obligated to pay during such quarter on Indebtedness other than in connection with the Senior Credit Agreement and (ii) cash principal and interest amounts (including any capitalized interest payments) required to be paid by the Company during such quarter in connection with the Senior Credit Agreement (excluding (A) payments made in connection with the closing of the transactions contemplated by the Transaction Documents, (B) payments required by the Ninth Amendment, (C) the scheduled balloon payment on the term loan under the Senior Credit Agreement due August 31, 2001 and (D) the scheduled balloon payment due July 1, 2001 to be applied against the Seitel Note; provided that the interest payments under (i) and (ii) above shall be net of interest income.

"DEFAULT" means any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default.

"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 4.12, 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.

"DEFERRED INTEREST AMOUNT" has the meaning given to such term in Section 3.3(a).

"DESIGNATED HOLDER OF SUBORDINATED OBLIGATIONS" means CB Capital Investors, L.P., as of the date hereof, and any substitute holder of Subordinated Obligations thereafter designated as such by notice to the Company given by the Required Investors.

"DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness outstanding under the Senior Credit Agreement and (b) any other Senior Indebtedness which had an aggregate original principal amount, together with commitments to lend additional amounts, of at least $5,000,000, if the instrument governing such Senior Indebtedness expressly states that such Indebtedness is "Designated Senior Indebtedness" for the purpose of this Agreement.

"DESIGNATED TITLE EXCEPTIONS" has the meaning given to such term in Section 4.12(a).

"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terns of any security into which its is convertible, or for which its is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with
Section 8.6 hereof.

"EBITDA" means, with respect to the Company and its Subsidiaries for any period, the sum of net income plus interest (net of interest income), taxes, depletion, depreciation, amortization, any other non-cash charges and capitalized (cash) income not reflected in the Company's income statement, less non-cash income items and all capitalized

general and administrative expenses, including capitalized expenses relating to full-time staff salaries allocated to capital projects, all as determined in accordance with GAAP.

"ENRON PARTIES" has the meaning given to such term in the recitals hereof.

"ENRON PURCHASE AGREEMENT" has the meaning given to such term in the recitals hereof.

"ENRON REPURCHASE" has the meaning given to such term in the recitals hereof.

"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.

"EVENT OF DEFAULT" has the meaning given to such term in
Section 11.1.

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

"FEE LETTER" means the letter agreement dated as of the date hereof among the Company, CB Capital Investors, L.P. and Mellon.

"FINAL MATURITY DATE" means December 15, 2007.

"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 12.5.

"INDEMNIFYING PERSON" has the meaning given to such term in
Section 12.6.

"INTEREST PAYMENT DATE" means each March 31, June 30, September 30 and December 31.

"INTEREST PERIOD" means (i) initially, the period from and including the Closing Date to but excluding the first Interest Payment Date to occur thereafter and (ii) thereafter, the period from and including each Interest Payment Date to but excluding the immediately following Interest Payment Date.

"INTERIM BALANCE SHEET" has the meaning given to such term in
Section 4.6.

"INVESTMENTS" has the meaning given to such term in Section 8.4.

"IRS" has the meaning given to such term in Section 4.15(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 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 but only to the extent that such defeasance is permitted under this Agreement.

"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.

"MATERIAL INDEBTEDNESS" means Indebtedness of the Company or any of its Subsidiaries in an aggregate principal amount exceeding $3,750,000.

"MAXIMUM LAWFUL RATE" has the meaning given such term in
Section 3.3(c).

"MULTIEMPLOYER PLAN" has the meaning set forth in Section 4001(a)(3) of ERISA

"NINTH AMENDMENT" means the Ninth Amendment to the Senior Credit Agreement between the Company and the Senior Lender dated as of the date hereof.

"NONMONETARY BLOCKAGE PERIOD" has the meaning given to such term in Section 9.3(b).

"NOTE DOCUMENTS" means this Agreement, the Notes and any other document or instrument executed and delivered by the Company in connection with the Notes or this Agreement (other than the Warrant Agreement, the Warrants, the Shareholders Agreement and the Registration Rights Agreement).

"NOTES" means the $22,000,000 aggregate principal amount of 9% Senior Subordinated Notes due 2007 dated the Closing Date in substantially the form of Exhibit A hereto.

"NOTE REGISTER" shall have the meaning given to such term in
Section 3.7(a).

"OBLIGATIONS" means the due and punctual payment of the principal of, premium, if any, and interest on the Notes, and other monetary obligations, liabilities and the performance of all other obligations of the Company to the Investors, howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, primary or secondary, due or to become due, or now existing or hereafter arising, under this Agreement, the Notes or any other Note Document.

"OIL AND GAS PROPERTIES" means fee, leasehold or other interests in or under mineral estates or oil, gas or other liquid or gaseous hydrocarbon leases, including, without limitation, overriding royalty and royalty interests, leasehold estate interests, net profits interests, production payment interests and mineral fee interests, together with all contracts executed in connection therewith, all oil, gas and other minerals produced and to be produced therefrom, all proceeds thereof, and all tenements, hereditaments, appurtenances and properties, real or personal, appertaining, belonging, affixed or incidental thereto.

"PAYMENT BLOCKAGE PERIOD" has the meaning given to such term in Section 9.3(a).

"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.

"PERMITTED HOLDERS" shall mean CB Capital Investors, L.P. and Mellon Ventures, L.P.

"PERMITTED INVESTMENTS" shall mean:

(i) direct obligations of, or obligations the principal of and interest on which are unconditionally guarantied by, the United States of America (or by any agency thereof to the

extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;

(ii) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from Standard & Poor's Ratings Service or from Moody's Investors Service, Inc.;

(iii) investments in certificates of deposit, banker's acceptances, repurchase agreements and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $250,000,000; and

(iv) shares of funds registered under the Investment Company Act of 1940, as amended, that have assets of at least $100,000,000 and invest only in obligations described in clauses (i) through (iii) above to the extent that such shares are rated by Moody's Investors Service, Inc. or Standard & Poor's Ratings Service in one of the two highest rating categories assigned by such agency for shares of such nature

"PERMITTED LIENS" means any Lien permitted in accordance with
Section 8.4.

"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 4.15(a).

"PROCEEDING" has the meaning given such term in Section 9.2.

"PRODUCER'S LIEN" means the security interest created by a Producer's Lien Statute in favor of royalty owners, producers and other interest owners of oil and gas production in their oil and gas production and certain related proceeds.

"PRODUCER'S LIEN STATUTE" means Section 9-319 or 9.319 of the Uniform Commercial Code (as the case may be) as in effect in the states of Texas, Kansas and Wyoming, Section 48-9-1 et seq. of the New Mexico Statutes 1978 Annotated, Section 458 of the Oklahoma Statutes Annotated and any other statutes in effect in any other state of the United States granting royalty owners, producers and other interest owners of oil and gas production a security interest in their oil and gas production and certain related proceeds to secure payment of the purchase price for such production.

"PRODUCTION PAYMENTS" means the grant or transfer to any Person of a production payment (whether volumetric or dollar denominated) or similar royalty, overriding royalty, net profits interest or other similar interest in Oil and Gas Properties, or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such Oil and Gas Properties where the holder of such interest has recourse solely to such interest and the grantor or the transferor thereof has an express contractual obligation to produce

and sell hydrocarbons from such Oil and Gas Properties to be so operated and maintained, in each case in a reasonably prudent manner.

"PROJECTIONS" means the Company's forecasted (a) quarterly cash flow statements, (b) drilling plan and (c) balance sheet, working capital and capitalization all attached here to as Schedule 1.1A.

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

"PUBLIC SALE" has the meaning given to such term in the Shareholders Agreement.

"PURCHASED COMMON STOCK" means the 3,636,364 shares of Common Stock purchased at the Closing.

"PURCHASE MONEY INDEBTEDNESS" means Indebtedness incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and any extension, renewal or replacement of any such Indebtedness.

"PURCHASED SECURITIES" means the Notes, the Warrants and the Purchased Common Stock.

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

"RELEASE" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment.

"REMEDIAL ACTION" means (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to (i) clean up, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, the actions described in clause (i) or (ii) above.

"REPORTABLE EVENT" means any of the events set forth in
Section 4043(b) of ERISA.

"REPORTS" has the meaning given to such term in Section 4.7.

"REQUIRED INVESTORS" means Investors holding Notes representing a majority of the then outstanding principal balance of the Notes.

"RESPONSIBLE OFFICER" of any Person means, (i) with respect to any individual, such individual or any other Person duly authorized to act on behalf of such individual and (ii) with respect to any institution, the chief executive officer or a Financial Officer of such Person.

"RESTRICTED SECURITIES" means the Purchased Securities and the Warrant Shares, to the extent the Purchased Securities 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.

"REPURCHASE CLOSING DATE" has the meaning given to such term in Section 3.5(b).

"REPURCHASE NOTICE" has the meaning given to such term in
Section 3.5(b).

"REPURCHASE NOTICE DATE" has the meaning given to such term in
Section 3.5(b).

"SEC DOCUMENTS" has the meaning given to such term in Section 4.6.

"SECURITY" has the meaning given to such term in Section 2(l) of the Securities Act.

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

"SENIOR CREDIT AGREEMENT" has the meaning given to such term in the recitals hereof.

"SENIOR CREDIT DOCUMENTS" has the meaning given to the term "LOAN DOCUMENTS" in the Senior Credit Agreement.

"SENIOR INDEBTEDNESS" means the following Indebtedness, including the principal of, and premium (if any) and interest on loans and other extensions of credit under the documents evidencing such Indebtedness (including, without limitation, any interest accruing subsequent to the commencement of any Proceeding whether or not such interest constitutes an allowed claim in any such Proceeding) and all commitment, facility and other fees payable under the documents evidencing such Indebtedness and all expenses, reimbursements, indemnities and other amounts payable by the Company and its Subsidiaries under the documents evidencing such Indebtedness:

(a) all "Obligations" under and as defined in the Senior Credit Agreement, now existing or hereinafter created, under the Senior Credit Agreement;

(b) Indebtedness incurred pursuant to borrowing base limitations which are supported by Oil and Gas Properties and are reasonable and customary for financings in the Subject Business;

(c) Purchase Money Indebtedness issued or incurred to finance Consolidated Capital Expenditures;

(d) Indebtedness (other than Production Payments) incurred to finance the cash purchase price, or issued to sellers as all or part of the purchase price, of Acquisitions permitted under Section 8.4;

(e) Indebtedness (other than Production Payments) incurred to finance expenditures incurred for the development of Oil and Gas Properties with proved hydrocarbon reserves;

(f) with respect to any Subsidiaries of the Company, the contingent obligations or guaranty, if any, of such Subsidiary, under or in respect of Indebtedness covered under clauses (a) through (e) above; and

(g) subject to the provisions of Section 8.13(c), any and all refinancings, replacements or refunding of any of the amounts referred to in clauses (a) and (f) above;

provided, that any Indebtedness specified in the foregoing clauses (a) through
(g) (or any refinancing, replacement or refunding thereof) shall not constitute "Senior Indebtedness" if (A) at the time of incurrence thereof, the Company shall elect, and the documents evidencing such Indebtedness shall confirm, that such Indebtedness is not Senior Indebtedness or (B) after giving pro forma effect to the incurrence of such Indebtedness, (i) the financial covenants set forth in Sections 8.10 and 8.11 would be violated or (ii) Total Debt to Capitalization would be greater than 60%. Senior Indebtedness shall be considered outstanding whenever any loan commitment under the Senior Credit Agreement or any Senior Refinancing Agreement is outstanding.

"SENIOR LENDER" has the meaning given to such term in the recitals hereof.

"SENIOR NONMONETARY DEFAULT" means the occurrence or existence of any event, circumstance, condition or state of facts that, by the terms of any instrument pursuant to which any Senior Indebtedness is outstanding, permits one or more holders of such Senior Indebtedness (or a trustee or agent on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise become due and payable, other than a Senior Payment Default.

"SENIOR NONMONETARY DEFAULT NOTICE" shall have the meaning given to such term in Section 9.3(b).

"SENIOR PAYMENT DEFAULT" means any default in the payment of principal of (or premium, if any) or interest on, or other amount payable in respect of, any Senior Indebtedness when due that, by the terms of any instrument pursuant to which any Senior Indebtedness is outstanding, permits one or more holders of such Senior Indebtedness (or a trustee or agent on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise become due and payable, other than a Senior Nonmonetary Default.

"SENIOR REFINANCING AGREEMENT" has the meaning given to such term in Section 8.13(c).

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

"SOLVENT" means, as to any Person, such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage.

"SPECIFIED CONTRACTS" has the meaning given to such term in
Section 4.11.

"STATED RATE" has the meaning given to such term in Section 3.3 hereof.

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

"SUBORDINATED OBLIGATIONS" shall have the meaning given to such term in Section 9.1.

"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 12.2.

"TANGIBLE NET WORTH" means the total assets of the Company exclusive of (i) those assets classified as intangible, including, without limitation, goodwill, patents, trademarks, trade names, copyrights, franchises and deferred charges, (ii) treasury stock and minority interests in any Person,
(iii) cash set apart and held in sinking or other analogous fund established for the purpose of redemption or other retirement of capital stock, (iv) to the extent not already deducted from total assets, allowances for depreciation, depletion, obsolescence and/or amortization of properties, uncollectible accounts, and contingent but probable liabilities as to which an amount can be established, (v) deferred taxes and (vi) all assets arising from advances to officers, former officers or sales representatives of the Company made outside of the ordinary course of business; less total liabilities of the Company, all of the above being determined in accordance with GAAP.

"TAXES" has the meaning given to such term in Section 4.14

"TAX RETURNS" has the meaning given to such term in Section 4.14.

"THIRD PARTY CLAIM" has the meaning given to such term in
Section 12.6.

"TOTAL DEBT" shall mean, at any date and without duplication,
(i) the aggregate amount of all Indebtedness of the Company and the Subsidiaries on a consolidated basis at such date (other than any Indebtedness described in clause (i) or (j) of the definition of the term "Indebtedness" and other than Production Payments) minus cash on hand (excluding any cash representing the proceeds of any Indebtedness the incurrence of which is subject to any calculation that includes Total Debt) to the extent the amount of such cash exceeds $2,000,000.

"TOTAL DEBT TO CAPITALIZATION" means the ratio, expressed as a percentage of (i) Total Debt to (ii) Total Debt plus Tangible Net Worth.

"TRANSACTION DOCUMENTS" means the Warrants, the Warrant Agreement, the Registration Rights Agreement, the Compliance Sideletter, the Note Documents, the Shareholders Agreement, the Fee Letter and the Amended Founders Registration Rights Agreement.

"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.

"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. If any changes in accounting principles from those currently employed become effective by the promulgation of rules, regulations pronouncements and opinions by or required by the Financial Accounting Standards Board (FASB) or the American Institute of Certified Public Accountants (AICPA) (or any successors thereto) resulting in a change in any financial covenant calculations required by Sections 8.10, 8.11 or 8.12, such covenants shall continue to be calculated under the previous accounting principles and the holders of the Notes and the Company agree to negotiate in good faith to amend such covenant calculations to equitably reflect such changes with the desired result that the criteria for evaluation of the financial condition of the Company and its Subsidiaries shall be the same as if such changes had not been made. If no agreement can be reached regarding such amendments within thirty
(30) days after the effectiveness of such change in accounting principles, then the Company shall continue to calculate those covenants which were affected using the previous accounting principles.

ARTICLE II

PURCHASE AND SALE OF THE PURCHASED SECURITIES

2.1 AUTHORIZATION AND ISSUANCE OF THE PURCHASED SECURITIES.

(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 6.1 hereof (or waiver in writing of such conditions by such Investor), (i) a Note in the principal amount equal to the amount set forth opposite such Investor's name on Schedule 1.1 for the purchase price set forth opposite its name, (ii) Warrants to purchase the number of shares of Common Stock set forth opposite its name on Schedule 1.1 for the purchase price set forth

opposite its name and (iii) the number of shares of Common Stock set forth opposite its name on Schedule 1.1 for the purchase price set forth opposite its name.

(c) Each Investor and the Company hereby acknowledge and agree that the Notes are part of an "INVESTMENT unit" within the meaning of Section 1273(c)(2) of the Code, that includes the Warrants and the Common Stock. Notwithstanding anything to the contrary contained herein or in the Warrant Agreement, each Investor and the Company hereby further acknowledge and agree that solely for United States federal income tax purposes the aggregate "ISSUE PRICE" of the Notes, the Warrants and the Common Stock being purchased by such Investor, for purposes of Section 1273(b) of the Code (and for purposes of comparable state and local income tax laws) shall equal the purchase price set forth on Schedule 1.1 opposite such Investor's name. The Investors and the Company agree to use the foregoing issue prices for all income tax purposes with respect to this transaction.

2.2 DELIVERY OF THE PURCHASED SECURITIES.

On the Closing Date, the Company shall deliver to each Investor (i) a duly executed Note (payable to the order of such Investor), (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 and (iii) a certificate, registered in such Investor's name, representing the shares of Purchased Common Stock purchased by such Investor at the Closing. 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 6.1 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

PROVISIONS OF THE NOTES AND THE WARRANTS

3.1 THE NOTES.

The Notes shall be in the aggregate principal amount of Twenty Two Million Dollars ($22,000,000). The Notes shall be dated the Closing Date. The aggregate amount of the Notes shall, subject to the provisions for mandatory and optional prepayment and acceleration contained herein, mature and be payable in full on the Final Maturity Date.

3.2 GENERAL PROVISIONS AS TO PAYMENTS.

(a) The Company shall make each payment in respect of the principal of, premium, if any, or accrued interest on the Notes, or any other amount due to the Investors under

this Agreement or any other Note Document, not later than 2:00 p.m., New York City time, on the day when due, to the Investors as provided in the Notes and Schedule 1.1 attached hereto, or in such other manner as instructed from time to time in writing by the Investor. All payments hereunder shall be made in United States Dollars by wire transfer of immediately available funds.

(b) Whenever any payment (including principal of, premium, if any, or interest on the Notes or other amount) hereunder or under any other Note Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of such interest, or other amount, if applicable.

(c) The Company hereby authorizes the Investors to make appropriate notations on the grid attached to the Notes, including the date, outstanding principal amount and any prepayment thereof and the Deferred Interest Amounts to be added to the principal amount of the Notes in accordance with Section 3.3(a), which notations shall be conclusive absent manifest error; provided, however, that the failure of the Investors to make such notation or any error on the Notes shall not affect the obligation of the Company to repay, in accordance with the terms of the Notes and this Agreement, the principal amount of the Notes together with all interest, prepayment premiums, if any, and other amounts due hereunder.

(d) Neither the Company nor any of its Subsidiaries shall purchase, redeem or otherwise acquire any Notes from any holder thereof except upon payment or prepayment thereof in accordance with the specific terms thereof and of this Agreement unless the Company or such Subsidiary shall have offered to purchase, redeem or otherwise acquire, as the case may be, Notes from each holder of the Notes at the time outstanding upon the same terms and conditions and on a pro rata basis (based upon the principal amount of the Notes then held by each such holder). Any Notes so purchased, redeemed or otherwise acquired by the Company or any Subsidiary of the Company shall be cancelled and not be deemed outstanding for any purpose under this Agreement.

(e) Except to the extent otherwise provided herein, each payment of principal of the Notes by the Company shall be made for the account of the holders thereof pro rata in accordance with the respective unpaid principal amounts of the Notes held by them and each payment of interest on Notes shall be made for the account of the holders thereof pro rata in accordance with the amounts of interest on such Notes then due and payable to the respective Investors.

3.3 INTEREST.

(a) Interest shall be payable on the principal amount of the Notes, and to the maximum extent permitted by Applicable Law on any increase thereof as provided below, at a fixed rate per annum equal to 9% (the "STATED Rate"). Notwithstanding the foregoing, in connection with any Interest Payment Date occurring prior to the fifth anniversary of the Closing Date, the Company may elect to defer a portion of the interest owing on such Interest Payment Date provided that (i) no Default or Event of Default has occurred and is continuing, and (ii) the Company gives the Investors written notice of such election prior to the commencement of the

related Interest Period, which notice shall include the amount of interest the Company elects to defer on such Interest Payment Date; and provided further that the maximum amount of interest the Company may elect to defer on any Interest Payment Date shall be an amount equal to 60% of the interest accrued on the Notes during such Interest Period. If the Company elects to defer a portion of the interest due on any Interest Payment Date (such amount being hereinafter referred to as the "DEFERRED INTEREST AMOUNT"), then the aggregate principal amount of the Notes shall be automatically deemed to be increased by an amount equal to the Deferred Interest Amount owing on such Interest Payment Date.

(b) Interest on the Notes shall accrue from day to day and shall be payable (as provided in Section 3.3(a) above) on each Interest Payment Date, commencing March 31, 2000, on the date of any prepayment in accordance with Sections 3.5 and 3.6 hereof and on maturity of the Notes, whether by acceleration or otherwise. All computations of interest hereunder shall be made on the basis of a 360-day year consisting of twelve 30-day months.

(c) The Investors, the Company and any other parties to the Transaction Documents intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained in the Transaction Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect (the "Maximum Lawful Rate"). Neither the Company, nor any Subsidiary, nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the Maximum Lawful Rate, and the provisions of this section shall control over all other provisions of the Transaction Documents which may be in conflict or apparent conflict herewith. The Investors expressly disavow any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) any Investor or any other holder of any or all of the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be charged by applicable law then in effect, then all sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at such Investor's or holder's option, promptly returned to the Company or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the Maximum Lawful Rate, the Company and the Investors (and any other payors thereof) shall to the greatest extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder. Notwithstanding anything to the contrary set forth in this Section 3.3 or Section 3.4, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the Maximum Lawful Rate, then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be

equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, the Company shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by the Investors, is equal to the total interest which would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in Section 3.3(a) and (b) and Section 3.4, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Investor pursuant to the terms hereof exceed the amount which such Investor could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. As used in this section the term "applicable law" means the laws of the State of New York or the laws of the United States of America, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

3.4 INTEREST ON OVERDUE AMOUNTS.

So long as any Event of Default shall have occurred and be continuing, the Company shall pay, in cash on demand from time to time, interest to the extent permitted by law on the Notes at a rate per annum equal to two percent (2%) above the Stated Rate.

3.5 MANDATORY PREPAYMENT.

(a) Any and all principal of the Notes remaining unpaid, together with all interest accrued but unpaid thereon, automatically and unconditionally shall be due and payable in full in cash on the Final Maturity Date.

(b) In the event of a Change of Control, each Investor shall have the option to require the Company to repurchase all the Notes held by such Investor at a purchase price in cash equal to the then outstanding principal amount of the Notes plus the Applicable Prepayment Premium, together with all interest accrued on such Notes through the date of repurchase. The Company shall give the Investors notice (a "CHANGE OF CONTROL NOTICE") of any transaction that would result in a Change of Control not less than thirty (30) days prior to the anticipated date of the consummation of such transaction (but in no event later than the third Business Day following the Company becoming aware thereof). Any Investor may exercise its right to require the Company to repurchase the Notes held by it by delivering written notice of such exercise (a "REPURCHASE NOTICE") to the Company within twenty (20) days after receipt of the Change of Control Notice. Within 15 days after the first date of receipt of a Repurchase Notice by the Company (the "REPURCHASE NOTICE DATE"), the Company shall give a notice to all other Investors advising them of the receipt by the Company of such Repurchase Notice, together with a copy of such Repurchase Notice. The date upon which the Company shall so advise such other Holders is herein called the "COMPANY NOTICE DATE". Within 15 days after the Company Notice Date, each such other Investor also may give a Repurchase Notice to the Company and each such Repurchase Notice shall be deemed given as of the date of the Repurchase Notice

given by the Investor initially exercising its repurchase rights hereunder. The repurchase of the Notes shall be consummated on a date selected by the Company upon at least 15 days' prior written notice to the Investors which have given the relevant Repurchase Notice(s), but in no event later than the date of consummation of such Change of Control or three (3) Business Days after the Company becomes aware of such Change of Control (the "REPURCHASE CLOSING DATE"). On the Repurchase Closing Date, the Company shall purchase from the Investors which have given such Repurchase Notice(s), and such Investor shall sell to the Company, the Notes held by such Investor for the purchase price specified in this paragraph (b).

(c) In connection with any Change of Control, the Company covenants to (i) repay in full all Indebtedness under the Senior Credit Agreement and to terminate all commitments thereunder and to repay in full all other Senior Indebtedness the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Senior Credit Agreement and all other such Senior Indebtedness or (ii) obtain the requisite consents under the Senior Credit Agreement and all other Senior Indebtedness to permit the repurchase of the Notes as provided in paragraph (b) above.

3.6 OPTIONAL PREPAYMENTS.

(a) The Company may, at any time, at its option, prepay the Notes in whole and from time to time in part, upon not less than thirty (30) days' prior written notice to the Investors; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $1,000,000 or integral multiples of $100,000 in excess thereof. Each prepayment of the Notes shall include payment in cash of the principal amount of the Notes proposed to be prepaid on such prepayment date, all accrued but unpaid interest thereon to the date of such prepayment on the portion of the Notes being prepaid and the Applicable Prepayment Premium in respect of the portion of the Notes being prepaid. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated pro rata among all of the Notes outstanding at such time in proportion, to the respective unpaid principal amounts.

(b) Each notice of prepayment pursuant to this Section 3.6 shall specify the proposed date of such prepayment, the principal amount of the Notes to be prepaid, the interest owing on such principal amount and the aggregate Applicable Prepayment Premium in respect of the Notes being prepaid on such prepayment date.

3.7 SECURITIES REGISTER.

(a) The Company shall cause to be kept at its principal office a register for the registration and transfer of the Notes (the "NOTE REGISTER"). The names and addresses of the holders of the Notes, the transfer of the Notes, and the names and addresses of the transferees of the Notes shall be registered in the Note Register.

(b) The Person in whose name any registered Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes of this Agreement and the Company shall not be affected by any notice to the contrary, until due presentment of such Note for registration of transfer so provided in this Section 3.7(b). Payment of or on account of the

principal, premium, interest and any other amount paid on any registered Note shall be made to (or based upon the written order of) such registered holder.

3.8 LOST, ETC. SECURITIES.

Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of a financial institution or other institutional investor being satisfactory) of the ownership and the loss, theft, destruction or mutilation of any Note, and in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company (if such Investor is a financial institution or other institutional investor, its own agreement being satisfactory) or, in the case of any such mutilation, upon surrender for cancellation of such Note, the Company shall, without charge, issue, register and deliver in lieu of such Note a new Note of like kind representing the same rights represented by and dated the date of such lost, stolen, destroyed or mutilated Note. Any such new Note shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Note shall be at any time enforceable by any Person.

3.9 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT.

No Investor shall have any obligation to any other Investor in respect of the failure by such Investor to purchase any Note required to be purchased by such Investor. The amounts payable by the Company at any time hereunder and under the Notes to each Investor shall be separate and independent debt and, subject to the provisions of Articles IX and XI, each holder shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes held by it and it shall not be necessary for any other holder to consent to or be joined as an additional party in, any proceedings for such purposes.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

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

4.1 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.

4.2 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.

4.3 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 Purchased Securities will be duly authorized, validly issued, fully paid and nonassessable and free and clear of any Liens created by the Company.

4.4 NO VIOLATION.

The execution, delivery and performance by the Company of the Transaction Documents and the Enron Purchase Agreement, 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.

4.5 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 Enron Purchase Agreement, and the consummation of the transactions contemplated thereby, has been obtained or made other than the filing of a Form D with the SEC.

4.6 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 August 5, 1997 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, 1999 is referred to herein as the "INTERIM BALANCE SHEET".

4.7 RESERVE REPORT.

The Company has delivered to the Investors a copy of the reserve report dated as of February 19, 1999, prepared by Ryder Scott Company Petroleum Engineers and the reserve report dated as of March 11, 1999 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.

4.8 NO MATERIAL ADVERSE EFFECT.

Since December 31, 1998, 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.

4.9 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 4.9. 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 4.9.

4.10 LITIGATION.

Except as disclosed on Schedule 4.10, 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 of 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.

4.11 SPECIFIED CONTRACT AND COMMITMENTS.

(a) Except as set forth on Schedule 4.11 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 $125,000 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 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 $750,000 and all which in the aggregate would be expected to require future payments in excess of $2,500,000; (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 included in clauses (vi) or (vii)) 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; (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 4.11.

(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 4.11 or has otherwise made such documents available for the Investors to review.

4.12 TITLE TO PROPERTIES AND ASSETS; LEASES.

(a) Except as set forth on Schedule 4.12, the Company has Defensible Title to all of its properties and assets (real and personal, tangible and intangible) reflected on the Interim Balance Sheet and all of the material assets thereafter acquired by the Company (except to the extent that such assets have thereafter been disposed of in the ordinary course of business consistent with past practice), 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 4.12, (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 4.12 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 4.12 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 4.12, 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.

4.13 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.

4.14 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.

4.15 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 ERISA, which is sponsored, maintained, or contributed to by the Company or any of 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 Internal Revenue Service if not previously filed has not expired.

(c) No Additional Rights or Obligations. Except as set forth on Schedule 4.15, 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.

4.16 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.

4.17 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.

4.18 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.

4.19 CAPITALIZATION.

The authorized capital stock of the Company consists of (i) 40,000,000 shares of Common Stock of which 14,011,364 shares will be issued and outstanding as of the Closing Date (after giving effect to the Enron Repurchase and the consummation of the transactions contemplated by the Transaction Documents) and an additional 1,000,000 shares are reserved for issuance under the Incentive Plan of the Company and 222,120 shares are reserved for issuance pursuant to other outstanding options and (ii) 10,000,000 shares of Preferred Stock, par value $0.01, none of which will be issued and outstanding (after giving effect to the Enron Repurchase and the consummation of the transactions contemplated by the Transaction Documents). Schedule 4.19 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 for up to 1,000,000 shares of Common Stock reserved for issuance upon purchases of shares of Common Stock under the Incentive Plan of the Company or the other outstanding options set forth on Schedule 4.19, 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 exercise of the rights of purchase represented by the Warrants, and such shares, when issued upon receipt of payment therefor or upon a net exercise in accordance with the terms of the Warrants and of the Warrant Agreement, will be legally and validly issued, fully paid and nonassessable and will be free of any preemptive rights of shareholders.

4.21     ENVIRONMENTAL MATTERS.

         Except as set forth on Schedule 4.21:

              (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 4.21(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 4.21 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 4.21 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 4.21, the Company has not received any written notice that it is a potentially responsible party under any Environmental Laws.

4.22 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 4.22, 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.

4.23 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.

4.24 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.

4.25 CERTAIN TRANSACTIONS.

Except as set forth on Schedule 4.25 , (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.

4.26 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. No part of the proceeds from the issuance of the Purchased Securities will be used by the Company to purchase or carry any "margin securities" as that term is defined in Regulation U of the Federal Reserve Board or to extend credit to others for the purpose of purchasing or carrying margin stock. Neither the purchase of the Securities nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations T, U or X of the Federal Reserve Board.

4.27 PLUGGING AND ABANDONMENT OBLIGATIONS.

Except as set forth on Schedule 4.27 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 obligated by law or contract to plug and abandon.

4.28 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, except as set forth in Section 4.30, 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 IV, 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.

4.29 FEES AND COMMISSIONS.

Except as set forth on Schedule 4.29, 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.

4.30 ENRON PURCHASE AGREEMENT.

The representations and warranties of the Company and, to the Company's knowledge, of the other parties to the Enron Purchase Agreement contained in the Enron Purchase Agreement are true in all material respects.

4.31 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 V

REPRESENTATIONS AND WARRANTIES OF INVESTORS

5.1 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 part of the Purchased Securities 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 Purchased Securities under the Securities Act, and each Investor agrees that the Purchased 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 X hereof. Such Investor understands that any transfer agent of the Company will be issued stop-transfer restrictions with respect to the Purchased 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 Purchased 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 Purchased Securities in violation of the Federal or any state securities laws.

ARTICLE VI

CONDITIONS TO PURCHASE

6.1 CONDITIONS TO OBLIGATIONS OF INVESTORS ON THE CLOSING DATE.

The obligations of the Investors to purchase the Notes hereunder is 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 Default. On the Closing Date and after giving effect to the transactions contemplated by the Transaction Documents and the Enron Purchase Agreement, no Default or Event of Default shall have occurred and be continuing.

(c) 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 or the Enron Purchase Agreement.

(d) Enron Repurchase. The Enron Repurchase shall have been consummated, or will be consummated simultaneously with the closing of the transactions contemplated hereby, substantially in accordance with the terms of the Enron Purchase Agreement, the terms and conditions of which shall be reasonably acceptable to the Investors.

(e) Senior Facility. The Company shall have entered into, or will simultaneously with the closing of the transactions contemplated hereby, an amendment to the Senior Credit Agreement, the terms and conditions of which shall be acceptable to the Investors.

(f) 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.

(g) 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.

(h) 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.

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

ARTICLE VII

AFFIRMATIVE COVENANTS

The Company covenants and agrees with each Investor, solely in its capacity as a purchaser of a Note, that until payment in full of all Obligations (other than contingent or disputed indemnity and expense reimbursement obligations for which no claim has been made), unless the Required Investors shall otherwise consent in writing, the Company will, and will cause each of its Subsidiaries to:

7.1 EXISTENCE; BUSINESSES AND PROPERTIES.

(a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 8.4 (including without limitation any Asset Sales permitted by such Section); and

(b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, Permits, franchises, authorizations, patents, copyrights, trademarks and trade names used or held for use in the conduct of its business except where the failure to do so could not reasonably be expected to have a Material Adverse Effect;

(c) Comply with all applicable laws, rules, regulations and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and

(d) Maintain and preserve at all times all property material to the conduct of such business and keep such property in reasonable repair (subject to ordinary wear and tear), working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be conducted at all times in accordance with industry standards for a prudent operator (except as otherwise expressly permitted under Section 8.4, including without limitation any Asset Sales permitted by such Section); provided, that this Section 7.1(d) shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties, provided that such discontinuance of operation or maintenance could not reasonably be expected to have a Material Adverse Effect.

7.2 INSURANCE.

At all times, maintain with financially sound and reputable insurers insurance with respect to its properties and businesses against loss or damage of the kind customarily insured against by companies of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such companies.

7.3 TAXES, ETC.

Pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim if (i) the validity, applicability or amount thereof shall be contested in good faith by appropriate proceedings and the Company shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien or (ii) the nonpayment thereof could not reasonably be expected to have a Material Adverse Effect.

7.4 FINANCIAL STATEMENTS, REPORTS, ETC.

In the case of the Company, furnish to each Investor:

(a) within 90 days after the end of each Fiscal Year, its consolidated and consolidating balance sheets and related statements of operations, shareholders' equity and cash flows showing the financial condition of the Company and its consolidated Subsidiaries as of the close of such Fiscal Year and the results of its operations and the operations of such Subsidiaries during such year, in each case setting forth comparative figures for the preceding Fiscal Year and comparable budgeted figures for such period, in the case of such consolidated financial statements (but not such budgeted figures) audited by Arthur Andersen LLP or another firm of independent public accountants of recognized national standing reasonably acceptable to the Required Investors and accompanied by an opinion of such accountants (which shall not be qualified as to the scope of the audit or as to the going-concern status of the Company and its Subsidiaries) to the effect that such consolidated financial statements fairly present in all material respects the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied (unless the Company's certified public accountants concur in any change therein, and such change is disclosed to the Investors and is consistent with GAAP);

(b) within 45 days after the end of each of the first three fiscal quarters of each Fiscal Year, its unaudited consolidated and consolidating balance sheets and related statements of operations, shareholders' equity and cash flows showing the financial condition of the Company and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the Fiscal Year, in each case setting forth comparative figures for the corresponding periods in the prior Fiscal Year and comparable budgeted figures for such period, all certified by one of its Financial Officers as fairly presenting in all material respects the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied (unless the Company's certified public accountants concur in any change therein, and such change is disclosed to the Investors and is consistent with GAAP), subject to normal year-end audit adjustments;

(c) within 30 days after the end of each month, reports setting forth its operating and production data for such month and unaudited financial statements (estimated by management of the Company in good faith based on reasonable assumptions, but not required to be certified by a Financial Officer) setting forth the Company's results of operations for such month and financial condition as of the end of such month, such reports and financial statements to be prepared on a basis consistent with the Company's current practice or as reasonably agreed by the Company and the Required Investors;

(d) concurrently with any delivery of financial statements under sub-paragraph (a) or (b) above, a certificate of the accounting firm or Financial Officer opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) (i) certifying that, to such firm or person's best knowledge, no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any

corrective action taken or proposed to be taken with respect thereto and (ii) setting forth computations in reasonable detail satisfactory to the Investors demonstrating compliance with the covenants contained in Sections 8.10 and 8.11;

(e) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which the Company has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which the Company filed with the Commission or any Governmental Authority which may be substituted therefor, or any national securities exchange or quotation system;

(f) promptly, from time to time, such other information (including, without limitation, current and projected annual budgets (presented on a monthly basis) regarding the operations, business affairs and financial condition of the Company or any Subsidiary, or compliance with the terms of any Transaction Document, as the Required Investors may reasonably request, subject in all cases to any confidentiality restrictions that may be applicable to the Company and to any confidentiality restrictions that the Company reasonably imposes on the Persons receiving such information; provided that the Company will use commercially reasonable efforts to furnish such information (excluding information covered by confidentiality restrictions in agreements relating to seismic, geologic or geophysical data or similar technical and business matters relating to the exploration for oil and gas), which requirement shall be satisfied if the Investor is offered the opportunity to review such confidential information by executing or otherwise becoming a party to the confidentiality restrictions on substantially the same terms (including any standstill provisions) as are applicable to the Company; provided, further, that neither the Company nor any of its Subsidiaries shall be required to disclose to any Investor or any agents or representatives thereof any information which is the subject of attorney-client privilege or attorney's work product privilege properly asserted by the applicable Person to prevent the loss of such privilege in connection with such information.

7.5 LITIGATION AND OTHER NOTICES.

Upon any Responsible Officer of the Company obtaining knowledge thereof, furnish to each Investor prompt written notice of the following:

(a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto;

(b) the filing or commencement of, or any written threat or written notice of intention of any person to file or commence, any action, suit, proceeding or investigation, whether at law or in equity or by or before any Governmental Authority, against the Company or any Affiliate thereof that if adversely determined could result in a Material Adverse Effect;

(c) any written or oral notice of any violation of, or liability under, any Environmental Laws, the subject matter of which could reasonably be expected to result in a Material Adverse Effect;

(d) any notices of a default or event of default under the Senior Credit Agreement or any Senior Refinancing Agreement; and

(e) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect.

7.6 EMPLOYEE BENEFITS.

Comply in all material respects with the applicable provisions of ERISA and the Code and furnish to the Investors as soon as possible after, and in any event within 10 days after any Responsible Officer of the Company or any ERISA Affiliate knows or has reason to know that, any ERISA Event has occurred that, alone or together with any other ERISA Event could reasonably be expected to result in liability of the Company in an aggregate amount exceeding $500,000 or requiring payments exceeding $100,000 in any year, a statement of a Financial Officer of the Company setting forth details as to such ERISA Event and the action, if any, that the Company proposes to take with respect thereto.

7.7 MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS.

Keep proper books of record and account in which proper entries in conformity with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities; permit, and will cause each of its Subsidiaries to permit, any representatives designated by the Required Investors to visit and inspect the financial records and the properties of the Company or any Subsidiary at reasonable times and as often as reasonably requested, and to make extracts from and copies of such financial records, and permit any representatives designated by any such Investor to discuss the affairs, finances and condition of the Company or any Subsidiary with the officers thereof and independent accountants therefor (with representatives of the Company being given reasonable opportunity to be present unless an Event of Default or Default has occurred and is continuing), subject in all cases to any confidentiality restrictions that may be applicable to the Company and to any confidentiality restrictions that the Company reasonably imposes on the Persons receiving such information; provided, however, that notwithstanding the provisions of Section 12.5, any Investor for whose benefit such inspection and visitation is made acknowledges that in connection with such inspection and visitation, none of the Company, its Affiliates and their respective officers, directors, employees and agents (the "COMPANY PARTIES") shall have any responsibility for the condition of any operational property of the Company or its Subsidiaries so visited and inspected, the access and egress thereto, and any vice or defect therein or thereon, and assumes all responsibility for and hereby releases and indemnifies the Company Parties against any claim for damage or injury to such Investor (or the representatives thereof) (other than any claim for damage or injury arising out of the gross negligence or willful misconduct of any Company Party); provided, further, that neither the Company nor any of its Subsidiaries shall be required to disclose to any Investor or any agents or representatives thereof any information which is the subject of attorney-client privilege or attorney's work product privilege properly asserted by the applicable Person to prevent the loss of such privilege in connection with such information; and provided, further, that the Company will use commercially reasonable efforts to furnish such information (excluding information covered by confidentiality restrictions in agreements relating to seismic, geologic or geophysical data or similar technical and business matters relating to the exploration for oil and gas), which requirement shall be satisfied if the Investor is offered the opportunity to review such confidential information by executing or otherwise becoming a party

to the confidentiality restrictions on substantially the same terms (including any standstill provisions) as are applicable to the Company.

7.8 SUBSIDIARIES.

Promptly inform the Investors of the creation or acquisition of any direct or indirect Subsidiary (subject to the provisions of Section 8.4 hereof) and cause each direct or indirect Subsidiary to enter into a guaranty in form and substance reasonably satisfactory to the Investors, which guaranty shall provide for a guaranty by such Subsidiary of the Notes on a senior subordinated basis.

7.9 COMPLIANCE WITH ENVIRONMENTAL LAWS.

Comply, and use commercially reasonable efforts to cause all lessees and other persons occupying its Properties to comply, in all respects with all Environmental Laws and Permits applicable to its operations and Properties except to the extent that the failure to comply therewith could not reasonably be expected to result in liability in a Material Adverse Effect; obtain and renew all Permits necessary for its operations and Properties, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and promptly implement and diligently conduct and complete any Remedial Action required under, and in accordance with, Environmental Laws, except to the extent that: (a) the cost of such Remedial Action could not reasonably be expected to exceed $100,000; or (b) the necessity of any such Remedial Action is being contested in good faith by appropriate proceedings timely instituted and in the manner provided by applicable law.

7.10 PREPARATION OF ENVIRONMENTAL REPORTS.

If a Default caused by reason of a breach of Section 4.21 or 7.9 shall have occurred and be continuing, at the request of the Required Investors, provide to the Investors as soon as reasonably practical after such request, at the expense of the Company, an environmental site assessment report for the properties which are the subject of such Default prepared by an environmental consulting firm reasonably acceptable to the Required Investors and indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties.

7.11 AMENDMENTS.

Promptly supply to the Investors certified copies of any amendments to the Senior Credit Agreement (in each case, subject to Section 8.13 hereof).

7.12 FISCAL YEAR.

Maintain a fiscal year ending on December 31 of each year.

ARTICLE VIII

NEGATIVE COVENANTS

The Company covenants and agrees with each Investor, solely in its capacity as a purchase of a Note, that, until payment in full of all Obligations (other than contingent and disputed indemnity and expense reimbursement obligations for which no claim has been made), unless the Required Investors shall otherwise consent in writing, the Company will not, nor will it cause or permit any of the Subsidiaries to:

8.1 INDEBTEDNESS.

Incur, create, assume or permit to exist any Indebtedness, except:

(a) Indebtedness existing on the Closing Date and set forth in Schedule 8.1;

(b) the Senior Indebtedness;

(c) Indebtedness under this Agreement and the other Note Documents;

(d) in the case of the Company, interest rate protection agreements, foreign currency exchange agreements or other interest or interest rate hedging agreements entered into in the ordinary course and not for speculative purposes;

(e) Indebtedness of the Company to any wholly owned Subsidiary of the Company and Indebtedness of any wholly owned Subsidiary of the Company to the Company or any other wholly owned Subsidiary of the Company, so long as such Indebtedness is evidenced by an intercompany note pledged to the Senior Lender to the extent provided in the Senior Credit Agreement and any Indebtedness of the Company to any wholly owned Subsidiary shall be subordinated to all Senior Indebtedness and the Notes;

(f) all Indebtedness with respect to Production Payments;

(g) in the case of the Company, additional unsecured Indebtedness in an aggregate principal amount at any time outstanding not in excess of $500,000;

(h) in the case of the Company, commodity price hedging agreements or arrangements entered into in the ordinary course and not for speculative purposes;

(i) Guaranties by the Company of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Company or any other Subsidiary;

(j) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided, that (i) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (ii) the aggregate principal amount of Indebtedness permitted by this clause (j) shall not exceed $2,500,000 at any time outstanding;

(k) Indebtedness arising under any performance bond, or letter of credit obtained for similar purposes, or any reimbursement obligations in respect thereof, entered into in the ordinary course of business; and

(l) Purchase Money Indebtedness and Capital Lease Obligations to the extent such Purchase Money Indebtedness and Capital Lease Obligations do not constitute Senior Indebtedness, in an aggregate principal amount at any time outstanding not in excess of $10,000,000.

8.2 LIENS.

Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except:

(a) Liens existing on the date hereof and set forth in Schedule 8.2, provided that such Liens shall secure only those obligations which they secure on the date hereof;

(b) any Lien securing Senior Indebtedness, provided that, in the case of security interest securing Purchase Money Indebtedness, (i) such security interest secures Indebtedness permitted by the definition of Senior Indebtedness, (ii) such security interest is incurred, and the Indebtedness secured thereby is created, within 180 days after the acquisition (or completion of construction) of the property or assets subject thereto, (iii) the Indebtedness secured thereby does not include any other Indebtedness that is not Senior Indebtedness from the same financing source and (iv) such security interest do not apply to any other property or assets of the Company or any Subsidiary except any such property or assets which are the subject of any Lien securing Senior Indebtedness from such financing source;

(c) any Lien existing on any property or asset (together with any receivables, intangibles and proceeds related thereto) prior to the acquisition thereof by the Company or any Subsidiary, provided that (i) such Lien is not created in contemplation of or in connection with such acquisition and (ii) such Lien does not apply to any other property or assets of the Company or any Subsidiary; and provided, further, that such Liens do not secure any Indebtedness or other obligation not permitted under this Agreement;

(d) Liens for taxes, assessments and governmental charges or liens which are being contested in compliance with Section 7.3;

(e) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlord's or other like Liens arising in the ordinary course of business and securing obligations that (i) are not due and payable, (ii) which are being contested in compliance with Section 7.3, or (iii) which are not being contested, provided that such Liens do not exceed $50,000 at any one time outstanding;

(f) pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance and other social security laws or regulations;

(g) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(h) zoning restrictions, easements, licenses, covenants, conditions, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business and minor irregularities of title that, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries;

(i) Liens securing Purchase Money Indebtedness in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Company or any Subsidiary (together with any receivables, intangibles and proceeds related thereto), provided that (i) such security interests secure Indebtedness permitted by Section 8.1(l), (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within 180 days after such acquisition (or completion of construction),
(iii) the Indebtedness secured thereby does not exceed 85% of the lesser of the cost or the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction) (provided that this clause
(iii) shall not apply to the extent such Indebtedness is recourse only to such assets) and (iv) such security interests do not apply to any other property or assets of the Company or any Subsidiary;

(j) Liens arising out of judgments or awards (other than any judgment that is described in clause (i) of Article VII and constitutes an Event of Default thereunder) in respect of which the Company shall in good faith be prosecuting an appeal or proceedings for review and in respect of which it shall have secured a subsisting stay of execution pending such appeal or proceedings for review, provided the Company shall have set aside on its books adequate reserves, in accordance with GAAP, with respect to such judgment or award;

(k) deposits, Liens or pledges to secure payments of workmen's compensation and other payments, public liability, unemployment and other insurance, old-age pensions or other social security obligations, or the performance of bids, tenders, leases, contracts (other than contracts for the payment of money), public or statutory obligations, surety, stay or appeal bonds, or other similar obligations arising in the ordinary course of business;

(l) unperfected Liens arising by operation of law under Article 2 of the Uniform Commercial Code in favor of unpaid sellers or prepaying buyers of goods relating to amounts that are not past due in accordance with their respective terms of sale;

(m) any rights arising as a matter of law or existing on the Closing Date, in each case of the lessor of any premises leased by the Company with respect to tangible property on the leased premises;

(n) any Designated Title Exceptions which are incurred in the ordinary course of business and would not materially adversely affect the operations of the Company or otherwise in the aggregate have a Material Adverse Effect;

(o) any Producer's Lien;

(p) Liens on the property or assets of any Person existing at the time such Person becomes a Subsidiary of the Company and not incurred as a result of (or in connection with or in anticipation of) such Person's becoming a Subsidiary of the Company, provided that such Liens do not extend to or cover any property or assets of the Company or any of its Subsidiaries other than the property or assets encumbered at the time such Person becomes a Subsidiary of the Company, and provided, further, that such Liens do not secure any Indebtedness or other obligation not permitted under this Agreement; and

(q) Liens securing Indebtedness permitted to be incurred under
Section 8.1(d) and (h).

8.3 INVESTMENTS, LOANS AND ADVANCES.

Purchase, hold or acquire any Capital Stock, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other Person ("INVESTMENTS"), except:

(a) Permitted Investments;

(b) loans or advances to employees in the ordinary course of business in an aggregate amount to any single employee not in excess of $75,000 (or, if and to the extent such loans or advances shall be used by such employee for relocation expenses, $100,000) and in an aggregate amount for all employees of the Company and the Subsidiaries not in excess of $500,000 at any one time outstanding;

(c) trade credits and accounts arising in the ordinary course of business;

(d) loans or advances by the Company or any wholly owned Subsidiary to the Company or any wholly owned Subsidiary that are permitted under Section 8.1(e);

(e) Investments in any Subsidiary formed after the date hereof by the Company, provided that the Company and such Subsidiary comply with the provisions of Section 7.8;

(f) interest rate and commodity price protection agreements permitted under Section 8.1(d) and (h);

(g) Investments made as a result of the receipt of non-cash consideration from an asset sale that was made pursuant to and in compliance with Section 8.5;

(h) Investments made in any debtor of the Company as a result of the receipt of stock, obligations or securities in settlement of debts created in the ordinary course of business and owing to the Company or any of its Subsidiaries;

(i) Investments made pursuant to the requirements of farm-out, farm-in, joint operating, joint venture or area of mutual interest agreements, gathering systems, pipelines or other similar or customary arrangements entered into in the ordinary course of business

(including, without limitation, advances to operators under operating agreements entered into by Borrower in the ordinary course of business) (provided that any such single Investment in excess of $1,000,000 shall be approved by the Board of Directors of the Company);

(j) Investments made in connection with Acquisitions permitted under Section 8.4;

(k) any other Investments in any Person having an aggregate fair market value (measured on the date each such investment was made and without giving effect to subsequent changes in value), when taken together with all other investments made pursuant to this clause (k) not to exceed $1,000,000; and

(l) any other Investment made by the Company or any of its Subsidiaries with the consent of the Required Investors (such consent not to be unreasonably withheld).

8.4 MERGERS, CONSOLIDATIONS, SALES OF ASSETS AND ACQUISITIONS.

(a) Merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it or sell, lease or sub-lease (as lessor or sub-lessor) or voluntarily transfer or otherwise dispose of all or substantially all of the assets (whether now owned or hereafter acquired) of the Company or any Subsidiary of the Company or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution);

(b) Sell the Capital Stock of any Subsidiary;

(c) Sell, convey, lease or sub-lease (as lessor or sub-lessor) or voluntarily transfer or otherwise dispose of, in one transaction or a series of transactions, any of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, other than the Capital Stock of any Subsidiary (an "ASSET SALE"); or

(d) Purchase, lease or otherwise acquire all or substantially all of the business, property or assets of any Person, or Capital Stock of any Person, or any division, line of business or business unit of any Person (including, without limitation, (i) by the merger or consolidation of such Person into the Company or any of its Subsidiaries or by the merger of a Subsidiary of the Company into such Person and (ii) the purchase of proved reserves) (an "ACQUISITION");

except that:

(i) any wholly owned Subsidiary of the Company may be merged with or into the Company or any of the Company's other wholly owned Subsidiaries, or be liquidated, wound-up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Company or any of the Company's wholly owned Subsidiaries; provided, in the case of such a merger involving the Company, the Company shall be the continuing or surviving Person, and in the case of any other such merger, the Company or such wholly owned Subsidiary shall be the continuing or surviving Person;

(ii) the Company and its Subsidiaries may make Consolidated Capital Expenditures;

(iii) the Company and its Subsidiaries may sell or otherwise dispose of inventory (including oil and gas sold as produced and seismic data) or Permitted Investments in the ordinary course of business;

(iv) the Company and its Subsidiaries may make Asset Sales (including, without limitation, the sale of the Capital Stock of any Subsidiary) provided that (A) in addition to Asset Sales permitted by clauses (iii), (vi) and (viii), proved reserves sold in Asset Sales in any Fiscal Year do not represent more than 25% of the net present value of the Company's proved reserves determined as of the Company's most recent reserve report; or (B) the book value of assets (net of allowances for depreciation, amortization and depletion) sold in Asset Sales (other than those specified in clauses (iii), (iv)(A), (vi) and
(viii) does not exceed $10,000,000 in any Fiscal Year;

(v) the Company and its Subsidiaries may make Acquisitions provided that the aggregate consideration paid (including any assumed liabilities) for any Acquisition does not exceed $12,500,000 (the "ACQUISITION LIMIT"), and provided further that, for each Fiscal Year from and after January 1, 2001, the Acquisition Limit shall be increased by $1,000,000 at the beginning of such Fiscal Year;

(vi) the Company and its Subsidiaries may make other Asset Sales and Acquisitions with the consent of the Required Investors (such consent not to be unreasonably withheld);

(vii) the Company or any of its Subsidiaries may make Asset Sales constituting the conveyance of Production Payments to the extent that (A) such conveyance is made to a Person providing financing for the Acquisition of proved reserves permitted by clause (v) of this
Section 8.4 or (B) such conveyance applies to proved reserves theretofore owned by the Company or such Subsidiary and such conveyance constitutes an Asset Sale permitted by clause (iv)(A) of this Section 8.4;

(viii) the Company and its Subsidiaries may make Asset Sales of equipment which is replaced by equipment of equal suitability and value provided that the aggregate book value of such replacement equipment does not exceed $5,000,000 in any Fiscal Year;

(ix) any wholly owned Subsidiary of the Company may be merged into any other Person in connection with an Acquisition provided that such Acquisition would be permitted under clause (v) of this Section 8.4.; and

(x) the Company or any Subsidiary may make Asset Sales to any Subsidiary formed after the date hereof by the Company provided that the Company and such Subsidiary comply with the provisions of Section 7.8.

8.5 DIVIDENDS AND DISTRIBUTIONS; RESTRICTIONS ON ABILITY OF SUBSIDIARIES TO PAY DIVIDENDS.

(a) In the case of the Company or any Subsidiary, declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any shares of any class of its Capital Stock or set aside any amount for any such purpose; provided, however, that (i) any Subsidiary may declare and pay dividends or make other distributions to the Company, (ii) the Company may declare and pay dividends consisting entirely of capital stock of the Company, (iii) the Company may make cash payments in lieu of fractional shares in an aggregate amount not exceeding $100,000, (iv) the Company may declare and pay distributions effecting "poison pill" rights plans provided that any securities or rights so distributed have a nominal fair market value at the time of declaration and (v) the Company may consummate the Enron Repurchase on the terms set forth in the Enron Purchase Agreement as in effect on the date hereof.

(b) Permit its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (i) pay any dividends or make any other distributions on its capital stock or any other interest or (ii) except as provided by Section 8.1(e) of this Agreement or Sections 6.01 and 6.03 of the Senior Credit Agreement (or similar no more restrictive limitations in other agreements evidencing permitted Senior Indebtedness) , make or repay any loans or advances to the Company or the parent of such Subsidiary.

8.6 TRANSACTIONS WITH AFFILIATES.

Except as provided in the Transaction Documents and as set forth on Schedule 8.6, sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates unless such transaction is on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those that could be obtained at the time of such transaction on an arm's-length basis from a Person who is not an Affiliate and if such transaction involves an amount in excess of $500,000, such transaction has been approved by a majority of the members of the Board having no personal stake in such transaction; provided, however, that this Section 8.6 (i) shall not apply to transactions between a Subsidiary and the Company or any other Subsidiary, (ii) shall not prohibit any person serving as an officer, director, employee or consultant of the Company or any Subsidiary from (A) receiving reasonable compensation, benefits or indemnification in connection with his or her services in such capacity (except as otherwise included hereby), provided that any such compensation, benefits or indemnification are approved by a majority of the disinterested members of the Board or by the Compensation Committee, (B) receiving advances for travel or other business expenses made in the ordinary course of business or (C) participating in any benefit or compensation plan; and (iii) shall not restrict the Company from repaying to any director or its Affiliates when due on its scheduled maturity dates any Indebtedness for borrowed money permitted to be incurred in accordance with this Agreement.

8.7 BUSINESS OF COMPANY AND SUBSIDIARIES.

Engage at any time in any business or business activity other than the Subject Business and business activities reasonably connected thereto.

8.8 SUBSIDIARY CAPITAL STOCK.

Issue any shares or other units of any class of Capital Stock of any Subsidiary (other than directors' qualifying shares), except Capital Stock that is issued to the Company or any other wholly owned Subsidiary.

8.9 LIMITATION ON CERTAIN PAYMENTS AND PREPAYMENTS.

Optionally prepay, repurchase or redeem or otherwise defease with respect to any Indebtedness of the Company or any Subsidiary that is payable to, or guaranteed by or otherwise credit-enhanced by, any Affiliate (other than a Subsidiary of the Company) of the Company or that is subordinated to the Notes; except that, to the extent this Section 8.9 is applicable, the Company may make optional prepayments under the Senior Credit Agreement provided that (i) the term loans thereunder shall only be paid in accordance with their scheduled maturities or in accordance with the mandatory repayment provisions set forth in the Senior Credit Agreement as in effect on the date hereof, (ii) the guarantees by Affiliates of the Company of such term loans shall remain outstanding until payment in full of such term loans and (iii) to the extent the revolving credit facility under the Senior Credit Agreement is so guaranteed or credit-enhanced no prepayment shall effect a permanent reduction in the amount of the revolving credit facility under the Senior Credit Agreement unless replaced by a revolving credit facility of at least the same amount.

8.10 TANGIBLE NET WORTH REQUIREMENT.

Permit Tangible Net Worth at any time to be less than $26,000,000, increasing by (i) fifty percent (50%) of net income (excluding losses) of the Company subsequent to December 31, 1999 and (ii) one hundred percent (100%) of any increases in shareholders' equity resulting from the sale or issuance of stock in the Company subsequent to December 31, 1999.

8.11 EBITDA TO DEBT SERVICE RATIO.

Permit the ratio of quarterly EBITDA to quarterly Debt Service to be less than 1.00 to 1.00 at any time.

8.12 CONSOLIDATED CAPITAL EXPENDITURES.

The Company shall not make Consolidated Capital Expenditures
(i) in the fiscal year ending December 31, 2000, in excess of $16,800,000 and
(ii) in any fiscal year thereafter, in excess of the Company's EBITDA for the immediately prior fiscal year, in each case unless such excess Consolidated Capital Expenditures are approved by the Board and at least one CB Capital Director votes in favor of such approval.

8.13 CERTAIN DOCUMENTS AND AGREEMENTS.

(a) Permit any amendment or modification that is materially adverse to the Investors to the Enron Purchase Agreement.

(b) Permit any waiver, supplement, modification, amendment, termination or release of any indenture, instrument or agreement pursuant to which any Indebtedness is outstanding in an aggregate amount of more than $500,000 that is payable to any Affiliate (other than a Subsidiary) of the Company or that is subordinated to the Notes, to the extent that any such waiver, supplement, modification, amendment, termination or release would be materially adverse to the Investors.

(c) The Company shall not, and shall not permit any of its Subsidiaries to, amend, supplement or otherwise modify the terms of the Senior Credit Documents, or refinance, replace or refund the same (any agreement under which such refinancing, replacement or refunding is incurred being referred to as a "SENIOR REFINANCING Agreement"), without the prior consent of the Required Investors, if the effect of such amendment, supplement or other modification or such refinancing, replacement or refunding is to: shorten the scheduled maturity of any payment of any principal amount of the term loans under the Senior Credit Agreement or Senior Refinancing Agreement from the scheduled maturity thereof as in effect on the date hereof, provided that the foregoing shall not prohibit any acceleration (whether automatic or upon notice) of the scheduled maturity date based on the occurrence of any Event(s) of Default or mandatory prepayments as provided in the Senior Credit Agreement as in effect on the date hereof; or (ii) make more restrictive (except to the extent that any such covenant becomes more restrictive by its terms) any one or more of the financial covenants under the Senior Credit Agreement (or related definitions) as in effect on the date hereof (or any comparable provisions of any Senior Refinancing Agreement) or add any new financial covenant unless simultaneously with such amendment of the Senior Credit Agreement or any Senior Refinancing Agreement, this Agreement shall be deemed to be automatically amended in such a manner (including adding new financial covenants or revising existing financial covenants in each case preserving the current percentage setback) as shall make the provisions hereof similarly more restrictive on the Company and each Investor and the Company agree to promptly thereafter execute and deliver an amendment hereto that incorporates each such deemed amendment; provided that if after any covenants are made more restrictive an amendment to the Senior Credit Agreement or Senior Refinancing Agreement makes the financial covenants less restrictive, then this Agreement shall be deemed to be automatically amended in such a manner as shall make the provisions hereof similarly less restrictive, but in no event shall any amendment of this Agreement make the provisions less restrictive than the provisions existing as of the Closing Date or as amended thereafter other than pursuant to this Section 8.13(c).

ARTICLE IX

SUBORDINATION OF NOTES

9.1 NOTES SUBORDINATE TO SENIOR INDEBTEDNESS.

The Company hereby covenants and agrees (and to the extent applicable to clause (ii) below, shall cause such Subsidiary to agree), and the Investors by their acceptance of the Notes, likewise covenant and agree, that, to the extent and in the manner hereinafter set forth in this Article IX, the Indebtedness represented by (i) the Notes, the payment of the principal of (and premium, if any) and interest on the Notes (ii) any guaranty executed and delivered by a Subsidiary pursuant to Section 7.8 hereof and (iii) any other Obligations of the Company hereunder or under any of the Note Documents (collectively all such amounts being hereinafter referred to as the "SUBORDINATED OBLIGATIONS") are hereby expressly made subordinate and subject in right of payment to the prior indefeasible payment in full in cash of all Senior Indebtedness as set forth below.

For the purposes of this Article IX, payments on account of the Subordinated Obligations shall include, without limitation, payments as a sinking fund for the Subordinated Obligations or in respect of a redemption, retirement, purchase or other acquisition of any of the Subordinated Obligations.

9.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.

(a) In the event of (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company, or to its assets, or (ii) any proceeding for liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in any such event specified in (i), (ii) or (iii) above (each such event, if any, herein sometimes referred to as a "PROCEEDING") the holders of Senior Indebtedness shall be paid in full in cash or otherwise to the satisfaction of the holders of Senior Indebtedness of all amounts due or to become due on or in respect of all Senior Indebtedness before the holders of the Subordinated Obligations are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, by set off or otherwise (except for securities excluded under Section 9.2(c)) on account of the Subordinated Obligations, and to that end the holders of Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes) which may be payable or deliverable in respect of the Subordinated Obligations in any such Proceeding.

(b) In the event that, notwithstanding the foregoing provisions of this Section 9.2, any holder of the Subordinated Obligations shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment

of any other indebtedness of the Company being subordinated to the payment of the Subordinated Obligations), in violation of this Article IX, and if such violation shall have been known to such holder, such payment or distribution shall be paid over or delivered forthwith to the holders of Senior Indebtedness or such other Person who is agent for the holders of Senior Indebtedness for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness.

(c) For purposes of this Article only, the words "CASH, PROPERTY OR SECURITIES" shall not be deemed to include securities of the Company as reorganized or readjusted, or securities of the Company or any other Person provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a Proceeding under any applicable bankruptcy law which are subordinated in right of payment to all Senior Indebtedness which may at the time be outstanding to substantially the same extent as, or to a greater extent than, the Subordinated Obligations are so subordinated as provided in this Article IX.

9.3 NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.

(a) In the event that any Senior Payment Default with respect to any Senior Indebtedness shall have occurred and be continuing (including any Senior Payment Default arising upon any acceleration (whether automatic or upon notice) of Senior Indebtedness following the occurrence of a Senior Nonmonetary Default) or would result from any payment of the Subordinated Obligations, then, no payment or distribution of any kind or character, whether in cash, property or securities, by set-off or otherwise (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Subordinated Obligations) shall be made by the Company, and no such payment or distribution shall be accepted by the Investors, on account of the Subordinated Obligations unless and until (i) such Senior Payment Default shall have been cured or waived in accordance with the agreement or instrument evidencing such Senior Indebtedness or shall have ceased to exist or (ii) the holders of such Senior Indebtedness or their duly authorized agents have waived the benefit of this Section 9.3(a) in writing or
(iii) all amounts then due and payable in respect of such Senior Indebtedness shall have been paid in full in cash (such period during which a Senior Payment Default continues being, a "PAYMENT BLOCKAGE PERIOD").

(b) In the event that any Senior Nonmonetary Default shall have occurred and be continuing, then, upon the receipt by the Company and the Designated Holder of Subordinated Obligations of written notice of such Senior Nonmonetary Default (a "SENIOR NONMONETARY DEFAULT NOTICE") from any holder of Designated Senior Indebtedness, no payment or distribution of any kind or character, whether in cash, property or securities, by set-off or otherwise (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Subordinated Obligations) shall be made by the Company or accepted by the Investors on account of the Subordinated Obligations during the period (the "NONMONETARY DEFAULT BLOCKAGE PERIOD") commencing on the date of receipt of such Senior Nonmonetary Default Notice and ending on the earlier of (a) the date on which such Senior Nonmonetary Default shall have been cured or

waived in accordance with the agreement or instrument evidencing such Senior Indebtedness or shall have ceased to exist and any acceleration of such Senior Indebtedness shall have been rescinded or annulled or the Senior Indebtedness to which such Senior Nonmonetary Default relates shall have been discharged or (b) or the holders of such Senior Indebtedness or their agents have waived the benefits of this Section 9.3(b) in writing or (c) the 181st day after the date of receipt of such written notice; provided, however, that during any period of 360 consecutive days, the aggregate number of days during which a Nonmonetary Default Blockage Period shall be in effect shall not exceed 181 days and there shall be a period of at least 179 consecutive days in each such 360-day period when no Nonmonetary Default Blockage Period is in effect. For all purposes of this Section 9.3(b), no Senior Nonmonetary Default which existed or was continuing on the date of commencement of any Nonmonetary Default Blockage Period with respect to any Senior Indebtedness shall be, or be made, the basis for the commencement of a another Nonmonetary Default Blockage Period by the holders (or any agent or other representative thereof) of such Senior Indebtedness whether or not within a period of 360 consecutive days, unless such Senior Nonmonetary Default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Nonmonetary Default Blockage Period that, in either case, would give rise to a Senior Nonmonetary Default pursuant to any provisions under which a Senior Nonmonetary Default previously existed or was continuing shall constitute a new Senior Nonmonetary Default for this purpose).

(c) In the event that, notwithstanding the foregoing, the Company or a trustee shall make any payment or distribution to the holders of Subordinated Obligations prohibited by the foregoing provisions of this Section 9.3, and if such fact shall have been known to the Investors, then such payment or distribution shall be deemed received by the Investors in trust for the benefit of the holders of Senior Indebtedness and shall promptly be paid over and delivered forthwith to the holders of such Senior Indebtedness or such other Person who is agent for the holders of such Senior Indebtedness.

(d) The provisions of this Section shall not apply to any payment with respect to which Section 9.2 would be applicable.

(e) Notwithstanding anything to the contrary contained herein, the Notes shall continue to accrue interest during any Payment Blockage Period or Nonmonetary Default Blockage Period at the rates provided hereunder or under the Notes.

(f) If an Event of Default shall occur and be continuing at any time during the continuance of a Payment Blockage Period or a Nonmonetary Default Blockage Period, no holder of Subordinated Obligations shall ask, demand or sue for any payment or distribution or seek any other remedy (except as otherwise provided in paragraph (g) below) in respect of the Subordinated Obligations or commence or join in with any other creditor (other than the agent for the holders of Senior Indebtedness) in commencing any Proceeding prior to the earliest to occur of (i) acceleration of such Senior Indebtedness, (ii) the occurrence of an Event of Default specified in Sections 11.1(f) or (g) hereof or
(iii) the earliest to occur of (x) 181 days after the commencement of such Payment Blockage Period or Nonmonetary Blockage Period or (y) the expiration of such Payment Blockage Period or Nonmonetary Default Blockage Period.

(g) Nothing in this Section 9.3 shall limit the rights of holders of Subordinated Obligations to accelerate the maturity of the Subordinated Obligations during a Payment Blockage Period or Nonmonetary Default Blockage Period; provided, however, that if, at the termination or expiration of such Payment Blockage Period or Nonmonetary Default Blockage Period, as the case may be, all existing Defaults and Events of Default, except non-payment of principal or interest that has become due solely because of acceleration (the "ACCELERATED Amount"), have been cured or waived, then the holders of Subordinated Obligations shall not take any action to collect, or exercise any remedies in respect of, the Accelerated Amount and, absent subsequent Defaults or Events of Defaults, the Accelerated Amount shall be paid in accordance with the original scheduled terms.

9.4 PAYMENT PERMITTED IF NO DEFAULT.

Nothing contained in this Article or elsewhere in this Agreement or in any other Note Document shall prevent the Company, at any time except during any Proceeding referred to in Section 9.2 hereof or under the conditions described in Section 9.3 hereof, from making payments (including any payment which may be payable by reason of the payment of any other Indebtedness of the Company being subordinated to payment of the Subordinated Obligations) at any time on account of the Subordinated Obligations.

9.5 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.

(a) Subject to the prior payment in full in cash of all Senior Indebtedness, the holders of the Subordinated Obligations shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article (equally and ratably with the holders of all Indebtedness of the Company which by its express terms is subordinated to indebtedness of the Company to substantially the same extent as the Subordinated Obligations are subordinated and is entitled to like rights or subrogation) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Subordinated Obligations shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Subordinated Obligations would be entitled except for the provisions of this Article to the holders of Senior Indebtedness by the holders of the Subordinated Obligations, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the holders of the Subordinated Obligations, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness.

(b) If any payment by the Company in respect of Senior Indebtedness must be disgorged by any holder of Senior Indebtedness as a result of any action under the United States Bankruptcy Code or other debtor relief law, the obligations in respect of which such payment was made shall continue to constitute Senior Indebtedness and shall remain entitled to the benefit of the provisions of this Article IX. Without limitation of the foregoing, in the event of any such disgorgement by a holder of Senior Indebtedness, all holders of Subordinated Obligations, if any, who have become subrogated to the rights of such holder of Senior Indebtedness pursuant to this Section 9.5 and have obtained payment from the Company through the exercise of such subrogation rights shall disgorge and pay to such holder of Senior Indebtedness any payment so

obtained, to the extent of the payment or payments disgorged by such holders of Senior Indebtedness.

9.6 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.

The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the holders of the Subordinated Obligations on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Agreement or in any other Note Document is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the holders of the Subordinated Obligations, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Subordinated Obligations the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with its terms and the terms of this Agreement; or (b) affect the relative rights against the Company of the holders of the Subordinated Obligations and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the holders of the Subordinated Obligations from exercising all remedies otherwise permitted by Applicable Law upon default under this Agreement, subject to the rights, if any, under this Article of the holders of Senior Indebtedness and subject further to the provisions of Sections 9.3(f) and (g).

9.7 NO WAIVER OF SUBORDINATION PROVISIONS.

(a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof any such holder may have or be otherwise charged with.

(b) Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the holders of the Subordinated Obligations, without incurring responsibility to the holders of the Subordinated Obligations and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the holders of the Subordinated Obligations to the holders of Senior Indebtedness, do any one or more of the following: (i) except as otherwise provided in Section 8.12(c), change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness, or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable in any manner for the collection of Senior Indebtedness; and (iii) exercise or refrain from exercising any rights against the Company and any other Person.

9.8 NOTICE TO INVESTORS.

(a) The Company shall give prompt written notice to the holders of Subordinated Obligations of any fact known to the Company which would prohibit the making of any payment

or distribution to the holders of Subordinated Obligations in respect of the Subordinated Obligations. Notwithstanding the provisions of this Article or any other provision of this Agreement, insofar as the rights of the holders of Senior Indebtedness are concerned, the holders of Subordinated Obligations shall be charged with knowledge of the existence of any facts actually known to them (notwithstanding the absence of any such notice from the Company) which would prohibit the making of any payment to the holders of Subordinated Obligations in respect of the Subordinated Obligations; provided, however, that the foregoing shall not affect the requirement of a Senior Nonmonetary Default Notice to initiate a Nonmonetary Default Blockage Period under Section 9.3(b).

(b) The holders of Subordinated Obligations shall be entitled to rely on the delivery to them of any written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee or agent therefor) to establish that such notice has been given by a holders of Senior Indebtedness (or a trustee or agent therefor) entitled to deliver any notice under this Article. In the event that the holders of Subordinated Obligations determine in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the holders of Subordinated Obligations may request such Person to furnish evidence to the reasonable satisfaction of the holders of Subordinated Obligations as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the holders of Subordinated Obligations may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.

9.9 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.

Upon any payment or distribution of assets of the Company referred to in this Article, the holders of Subordinated Obligations shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the payment or distribution, delivered to the Investors, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article.

9.10 HOLDERS OF SENIOR INDEBTEDNESS AS THIRD PARTY BENEFICIARY.

The provisions of this Article IX (i) are intended for the benefit of the holders of Senior Indebtedness (ii) shall be deemed to be a continuing offer to all holders of Senior Indebtedness to act in reliance on such provisions (but such reliance shall not be required to be proven to receive the benefits hereof) and (iii) may be enforced against the Company and the holders of Subordinated Obligations by the holders of Senior Indebtedness.

                                   ARTICLE X

                             TRANSFER OF SECURITIES

10.1     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 X, 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 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 12.15; and provided, further, that neither the rights of any Investor under the Note Documents nor the Purchased Securities nor any part thereof or participation therein may be transferred or assigned to a Competitor, and the Notes may not be transferred or assigned in aggregate principal amounts of less than $1,000,000.

10.2 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 10.3 hereof) be stamped or otherwise imprinted with a legend in substantially the following form:

                  OF THE CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF."

10.3     NOTICE OF TRANSFER.

              (a) Each holder shall, prior to any Transfer of any Restricted

Securities, give 5 Business Days prior written notice (or, if such 5 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 10.3 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 10.2 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 10.3, the restrictions imposed by Section 10.3(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 10.2 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 (10) 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 10.3 above and not containing any other reference to the restrictions imposed by this Section.

                                   ARTICLE XI

                                EVENTS OF DEFAULT

11.1     DEFAULTS.

         The occurrence of one or more of the following events shall constitute

an "EVENT OF DEFAULT":

(a) Payment of Principal. The Company shall fail to make any payment of principal on the Notes when and as the same shall become due and payable including at the due date thereof, by acceleration or otherwise;

(b) Payment of Interest and Fees. The Company shall fail to make any payment of interest on any Note, or any fee or any other amount payable hereunder or under the Notes when and as the same shall become due and payable including at the due date thereof, by acceleration or otherwise, and such failure shall continue unremedied for five (5) Business Days after the due date thereof;

(c) Covenant Defaults. The Company or any of its Subsidiaries shall default in the due observance or performance of any covenant or agreement to be observed or performed under this Agreement or any Note Document (other than a covenant which is dealt with specifically elsewhere in this Section 11.1) and such default shall continue unremedied for thirty (30) days after the earlier of (i) notice thereof from the Required Investors and (ii) a Responsible Officer of the Company or such Subsidiary becoming aware of such default;

(d) Misrepresentations. Any representation, warranty or certification by or on behalf of the Company or any of its Subsidiaries or a Responsible Officer made or furnished in writing to the Investors by or on behalf of the Company or any of its Subsidiaries in this Agreement, any of the other Transaction Documents or any instrument, certificate or financial statement furnished (in compliance with or in reference thereto) proves to have been false or misleading in any material respect when made or furnished;

(e) Other Defaults. The Company or any of its Subsidiaries shall fail to pay when due any amount in excess of $3,750,000 payable with respect to any Indebtedness and such failure shall continue beyond any applicable period of grace, or any other event shall occur or condition shall exist in respect of any Material Indebtedness or under any evidence of any such Material Indebtedness or of any mortgage, indenture or other agreement relating thereto, and such other event or condition shall have caused the acceleration of the payment of such Material Indebtedness and such Material Indebtedness shall not have been paid in full within six (6) Business Days of the date of such acceleration;

(f) Voluntary Insolvency and Related Proceedings. The Company or any of its Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, or any other federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for, consent to the appointment of, or a court of competent jurisdiction shall enter an order appointing, a receiver, trustee, custodian, sequestrator or officer with similar powers of itself or for any substantial part of its property or assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) fail generally to pay its debts as they become due
(vii) shall be adjudicated insolvent or (viii) take any corporate or stockholder action in furtherance of any of the foregoing;

(g) Involuntary Insolvency and Related Proceedings. (i) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (x) relief in respect of the Company or any of its Subsidiaries or of any substantial part of the property or assets thereof, under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency or similar law, (y) the appointment of a receiver, trustee, custodian, sequestrator or similar official for any such Person or for any substantial part of its property or (z) the winding-up or liquidation of any such Person, and any such proceeding, petition or order shall continue unstayed and in effect for a period of sixty (60) consecutive days or
(ii) a warrant of attachment, execution or similar process shall be issued against any substantial part of the Property of the Company or any of its Subsidiaries and the enforcement of such attachment, execution or similar process is not stayed pending appeal;

(h) ERISA. A Reportable Event shall occur which the Requisite Investors, in its or their sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if the Company or any of its Subsidiaries is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from the Company or such Subsidiary's complete or partial withdrawal from such Plan;

(i) Challenge to Agreement. This Agreement or any other Note Document shall cease to be in full force and effect and enforceable in accordance with its terms, or the Company or any of its Subsidiaries shall assert the invalidity of any of the foregoing; or

(j) Judgments. A judgment or judgments for the payment of money in excess of $2,500,000 in the aggregate shall be rendered against the Company and the same shall not (i) be fully covered by insurance or other comparable bond, or (ii) within sixty (60) days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within sixty (60) days after the expiration of any such stay; then, and in any such event (other than an event described in paragraphs (f) or (g) above), and at any time thereafter during the continuance of such event, the Required Investors may, take any of the following actions and at the same or different times: (i) declare the Notes (if outstanding) to be forthwith due and payable, whereupon the entire unpaid principal of the Notes, together with accrued but unpaid interest thereon and all other Obligations, shall become forthwith due and payable in full in cash, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Company, anything contained herein or in any other Note Document to the contrary notwithstanding, or (ii) exercise any and all other remedies provided under any Note Document upon the occurrence and continuance of an Event of Default;

provided, however, that with respect to the occurrence of an Event of Default described in paragraphs (f) or (g) above, the principal of the Notes, together with accrued but unpaid interest and fees thereon and any other liabilities of the Company and any of their Subsidiaries accrued hereunder or any other Note Document, shall automatically become due and payable in full in cash, all without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company, anything contained herein or in any other Note Document to the contrary notwithstanding.

                                   ARTICLE XII

                                  MISCELLANEOUS

12.1     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. 14811 St. Mary's Lane, Suite 148 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 is 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.

12.2 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 12.5 but without affecting the rights of the holders of the Notes under Section 11.1 (including, without limitation, Section 11.1(d)), the representations and warranties set forth in Article IV (other than Sections 4.2, 4.3 and 4.19) 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. The Company further agrees that to the extent the Company makes a payment or payments to the Investors as holders of Notes under this Agreement or any other Transaction Document, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy, insolvency or similar state or United States federal law, common law or equitable cause, then to the fullest extent permitted by applicable law, to the extent of such payment or repayment, the Obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been received by the Investors. 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.

12.3 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 X hereof, to assign or otherwise transfer its rights under this Agreement (in connection with the transfer of Restricted Securities) or any Purchased Securities held by it.

12.4 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. The expenses of any exercise by any Investor of its rights of inspection and visitation under
Section 7.7 shall not be borne by the Company; provided, however, that (i) the Required Investors shall be entitled to make, or designate representatives to make, two visits and inspections per year at the expense of the Company (provided that the aggregate amount of such expenses shall not exceed $2,500 per visit) and (ii) the Company shall bear all expenses of any visit or inspection if a Default has occurred and is continuing at the time of such visit or inspection.

12.5 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, officer, 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 (excluding any tax and any diminution in value of the Notes), 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 IV 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 (including without limitation relating to or arising from any Hazardous Material regarding the Company or its Subsidiaries and relating to the Company or 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 interest borne by the Notes, 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 12.5(a) on or prior to the Survival Date, if any, applicable to such representation or warranty.

(d) The indemnity obligations that the Company have under this
Section 12.5 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) (e) Any indemnification of the Investors or any other Indemnified Person by the Company pursuant to this Section 12.5 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 (15) days after the determination thereof.

12.6 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.

12.7 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 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 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.

12.8 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) reduce the principal amount of any Note or reduce the rate of interest thereon, without the written consent of each Investor affected thereby, (ii) postpone the scheduled date of payment of the principal amount of any Note, or any interest thereon, or reduce the amount of, waive or excuse any such payment, without the written consent of each Investor affected thereby, (iii) change Section 3.2(e) hereof in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Investor, (iv) change any of the provisions of this Section 12.8 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 (v) 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.

12.9 INDEPENDENCE OF COVENANTS.

All covenants hereunder shall be given in any jurisdiction independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.

12.10 NO FIDUCIARY RELATIONSHIP; NO DUTY OF DESIGNATED HOLDER.

(a) 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.

(b) The Designated Holder of Subordinated Obligations (i) is being designated under this Agreement for the convenience of the holders of Designated Senior Indebtedness in connection with the giving of notices under Section 9.3 and (ii) does not constitute the agent, trustee or other fiduciary or representative of any other holder of Subordinated Obligations. The Designated Holder of Subordinated Obligations shall not have any duties or obligations to any holder of Subordinated Obligations, whether for the retransmission of any notice under Section 9.3

or otherwise, and each such holder, by its acceptance of any Subordinated Obligations, expressly disclaims any duty or obligation.

12.11 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 it's shareholders or any other Person.

12.12 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.

12.13 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.

12.14 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.

12.15 CONFIDENTIALITY.

For the purposes of this Section 12.15, "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, including, without limitation, acting as an Observer (as defined in the Shareholders Agreement)), (ii) its financial advisors and other professional advisors who are made aware of the confidential nature of such information, (iii) any other holder of Purchased Securities, (iv) any institutional investor to which any Investors sells or offers to sell 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 12.15), (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 12.15), (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, (y) in connection with any litigation to which such Investor is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Investor may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under the Notes and this Agreement. Each holder of Purchased Securities, by its acceptance of Purchased Securities, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 12.15 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of 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 12.15. Notwithstanding anything to the contrary contained herein, no Person may disclose any information that such Person knows was received in violation of the last sentence of Section 2.6(c) of the Shareholders Agreement.

12.16 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.

12.17 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 Commitment Letter and Term Sheet dated December 1, 1999 between the Company and Chase Capital Partners and the Confidentiality Agreement dated November 1, 1999 between the Company and Chase Capital Partners).

* * * *

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/ S. P. Johnson IV
    ------------------------------------
    Name:  S. P. Johnson IV
    Title: President

INVESTORS

CB CAPITAL INVESTORS, L.P.

By: CB Capital Investors, Inc.,
its General Partner

By:  /s/ Christopher Behrens
     -------------------------------------
    Name:  Christopher Behrens
    Title: General Partner


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


/s/ Paul B. Loyd, Jr.
------------------------------------------
Paul B. Loyd, Jr.


/s/ Steven A. Webster
------------------------------------------
Steven A. Webster

[Securities Purchase Agreement]

MELLON VENTURES, L.P.

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

By: MVMA, Inc., its general partner

By:  /s/ John P. Shoemaker
     ---------------------------------
      Name:  John P. Shoemaker
      Title: Managing Director

EXHIBIT 99.2

EXECUTION COPY

CARRIZO OIL & GAS, INC.

(A TEXAS CORPORATION)

SHAREHOLDERS AGREEMENT

DECEMBER 15, 1999

Article I     DEFINITIONS; RULES OF CONSTRUCTION......................................................................1
   1.1        Definitions.............................................................................................1
   1.2        Rules of Construction...................................................................................9

Article II    BOARD OF DIRECTORS; SHAREHOLDER ACTION.................................................................10
   2.1        Election of Directors Generally........................................................................10
   2.2        Election of Additional CB Capital Directors............................................................10
   2.3        Committees of the Board................................................................................11
   2.4        Expenses...............................................................................................11
   2.5        Vacancies..............................................................................................11
   2.6        Board and Committee Observer...........................................................................11
   2.7        Boards of Subsidiaries.................................................................................12
   2.8        Number of Directors....................................................................................13
   2.9        Issuance of Purchased Securities.......................................................................13
   2.10       Covenant to Vote.......................................................................................13
   2.11       Expiration of this Article.............................................................................13

Article III   ISSUANCES AND TRANSFERS OF STOCK.......................................................................14
   3.1        Joinder Agreement; Certain Transfers...................................................................14
   3.2        Tag-Along Rights.......................................................................................15

Article IV    RIGHTS TO SUBSCRIBE FOR SECURITIES.....................................................................15
   4.1        General................................................................................................15
   4.2        Excluded Securities....................................................................................17

Article V     COVENANTS..............................................................................................17
   5.1        Equity Incentive Plans.................................................................................17
   5.2        Other Covenants........................................................................................17

Article VI    AMENDMENT AND WAIVER...................................................................................18
   6.1        Amendment..............................................................................................18
   6.2        Waiver.................................................................................................18

Article VII   DURATION; TERMINATION..................................................................................18

Article VIII  MISCELLANEOUS..........................................................................................19
   8.1        Severability...........................................................................................19
   8.2        Entire Agreement.......................................................................................19
   8.3        Certain Shareholders...................................................................................19
   8.4        Successors and Assigns.................................................................................19
   8.5        Remedies...............................................................................................20
   8.6        Notices................................................................................................20
   8.7        GOVERNING LAW..........................................................................................21
   8.8        Further Assurances.....................................................................................22

8.9        Representation and Warranties of the Shareholders......................................................22
8.10       Legends; Stop Transfer Instructions....................................................................23
8.11       Conflicting Agreements.................................................................................23
8.12       Counterparts; Validity.................................................................................23
8.13       Regulatory Matters.....................................................................................24
8.14       Consent of Spouses.....................................................................................24
8.15       Fiduciary Duties.......................................................................................24

SCHEDULES AND EXHIBITS

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

EXECUTION COPY

SHAREHOLDERS AGREEMENT
dated as of December 15, 1999, 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 Common 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:

"ADDITIONAL CB CAPITAL DIRECTOR" and "ADDITIONAL CB CAPITAL

DIRECTORS" have the meanings given to such terms in Section 2.2.

"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" means the exploration, development, exploitation and production of natural gas and crude oil.

"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.

"CB CAPITAL" means CB Capital Investors, L.P., a Delaware limited partnership, and any successor thereto.

"CB CAPITAL DIRECTOR" and "CB CAPITAL DIRECTORS" have the

meanings given to such terms in Section 2.2.

"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.

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

"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" has the meaning given such term in Section 3.1(c).

"COMPLIANCE SIDELETTER" has the meaning given to such term in the Purchase Agreement.

"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

"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 Shareholder pursuant to the Purchase Agreement.

"FOUNDER SHAREHOLDERS" shall mean, collectively, (i) the Original Founder Shareholders and (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(a).

"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 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.

"INITIAL CB CAPITAL DIRECTOR" and "INITIAL CB CAPITAL

DIRECTORS" have the meanings given to such terms in Section 2.1.

"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(a).

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

"LIQUIDITY OPPORTUNITY" means (i) a Sale of the Company, (ii) a proposed Sale of the Company which would include the sale of the Shares held by CB Capital and which would have been consummated but for the failure of CB Capital to vote in favor of, or elect to participate in, such proposed Sale of the Company or (ii) the occurrence of a Minimum Public Float.

"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, or

(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.

"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 Fully Diluted Common Stock at the time of determination.

"MELLON" means Mellon Ventures, L.P.

"MINIMUM PUBLIC FLOAT" means an aggregate value determined using the then Market Price of all shares of Common Stock held by Persons other than Affiliates of the Company of not less than $40,000,000 and a minimum trading volume of 250,000 shares (the level of trading volume to be determined in accordance with clause (ii) and (iii) of subsection (e)(1) of Rule 144 under the Securities Act.

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

"OBSERVER" has the meaning given to such term in Section 2.6.

"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 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 and Warrant Shares (including any Warrant Shares to be issued to such Shareholder upon exercise of the Warrants) 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.

"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).

"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.

"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).

"REGULATED HOLDER" has the meaning given to such term in the Compliance Sideletter.

"REGULATORY PROBLEM" has the meaning given to such term in the Compliance Sideletter.

"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 outstanding shares of Common Stock and the Warrant Shares (including any Warrant Shares to be issued to such Shareholder upon exercise of the Warrants) held by all Investors at the time in question.

"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.

"SHAREHOLDERS" means the holders of Common Stock and the holders of Common Stock Equivalents (including, without limitation, the Warrants), 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 or (b) ceased to be outstanding.

"SIGNIFICANT SHAREHOLDER" means (i) Mellon or (ii) a Shareholder who at the time in question holds at least 10% of the Fully Diluted Common Stock in the aggregate and who is not a Founder Shareholder. No Transferee of Mellon shall be deemed to be a Significant Shareholder unless such Transferee satisfies the criteria set forth in clause (ii) above by virtue of ownership of Purchased Securities issued under the Purchase Agreement.

"SPOUSAL CONSENT" has the meaning given to such term in
Section 8.14.

"STOCK" means the Common Stock and the Warrants 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).

"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).

"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 Shareholder) made (i) by agreement among the Company and the Requisite Investors within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by a nationally recognized investment banking firm (an "APPRAISER") (as defined

below) selected in accordance with the further provisions of this definition. If the Board and the Requisite Investors 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 Investors, 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 Investors. 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 Investors 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.

"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

BOARD OF DIRECTORS; SHAREHOLDER ACTION

2.1 ELECTION OF DIRECTORS GENERALLY.

(a) Subject to Section 2.8, for so long as CB Capital owns at least 15 % of the Fully Diluted Common Stock, each Shareholder shall from time to time take such action, in his capacity as a shareholder of the Company, including the voting of all Securities owned or controlled by such Shareholder, as may be necessary to cause the number of directors constituting the Company's entire Board to be fixed at seven and to cause the election of two directors nominated by CB Capital (each an "INITIAL CB CAPITAL DIRECTOR" and together the "INITIAL CB CAPITAL DIRECTORS").

(b) Subject to Section 2.8, for so long as CB Capital owns at least 7 1/2% of the Fully Diluted Common Stock but less than 15% of the Fully Diluted Common Stock, each Shareholder shall from time to time take such action, in his capacity as a shareholder of the Company, including the voting of all Securities owned or controlled by such Shareholder, as may be necessary to cause the number of directors constituting the Company's entire Board to be fixed at seven and to cause the election of one Initial CB Capital Director.

2.2 ELECTION OF ADDITIONAL CB CAPITAL DIRECTORS.

(a) Subject to Section 2.8, in addition to the Initial CB Capital Directors designated pursuant to Section 2.1, if at any time after the fifth anniversary of the date hereof and for so long as (i) CB Capital owns at least 15% of the Fully Diluted Common Stock and (ii) a Liquidity Opportunity has not occurred, CB Capital shall have the right to designate two additional members of the Board (each an "ADDITIONAL CB CAPITAL DIRECTOR" and together the "ADDITIONAL CB CAPITAL DIRECTORS"). The Initial CB Capital Directors and the Additional CB Capital Directors are referred to herein collectively as the "CB CAPITAL DIRECTORS" and each, individually, a "CB CAPITAL DIRECTOR". Each Shareholder shall, at such times as CB Capital is entitled to designate the Additional CB Capital Directors and upon written notice from the Company or CB Capital, take such action, in his capacity as a Shareholder of the Company, including the voting of all Securities owned or controlled by such shareholder, as may be necessary to cause the number of directors constituting the Company's entire Board to be fixed at nine and to cause the Additional CB Capital Directors to be elected to the Board.

(b) Notwithstanding anything to the contrary contained herein, no Stockholder shall be required to vote or otherwise take action to cause the election of any Person under Article II or otherwise who has been removed from the Board for "cause" (as defined in Article 7, Section 2 of the Charter) or who the Board has determined could, if elected, be removed for cause as a result of prior actions or omissions. With respect to any determination of cause hereunder for which a determination is otherwise to be made by the Board, such determination shall require the affirmative vote of all CB Capital Directors other than those CB Capital Directors that the Company has alleged may be removed for cause.

2.3 COMMITTEES OF THE BOARD.

For so long as CB Capital is entitled to designate a CB Capital Director, (i) the Company shall have at least three committees established by the Board (any committee established by the Board, a "COMMITTEE"), including without limitation, an Audit Committee, a Compensation Committee and a Budget Committee, (ii) at least one CB Capital Director shall be a member of each Committee, (iii) all actions taken by any Committee shall be taken at a meeting or shall be approved by unanimous written consent of the members of the Committee and (iv) if no CB Capital Director is a member of any Committee, any action proposed to be taken by such Committee shall be approved by the Board before such action becomes effective.

The Budget Committee shall consider matters relating to the Company's drilling program and the Company's budget and related matters; provided, however, that such committee's actions shall be advisory only and not binding on the Company or the Board except to the extent otherwise decided by the Board.

2.4 EXPENSES.

The Company shall pay the reasonable out-of-pocket expenses incurred by each Board member designated pursuant to Section 2.1 or 2.2 in connection with attending the meetings of the Board and any Committee.

2.5 VACANCIES.

If a vacancy is created on the Board by reason of the death, removal or resignation of any CB Capital Director, then (i) such vacancy may be filled by the remaining directors in accordance with Sections 2.1 or 2.2, as applicable, and (ii) if not so filled, each of the Shareholders shall, as promptly as practicable upon the request of CB Capital, take such action, in his capacity as a shareholder of the Company, including the voting of all Securities owned or controlled by such Shareholder, as may be necessary to elect a director to fill such vacancy in accordance with the selection procedures set forth in Sections 2.1 and 2.2 as applicable.

2.6 BOARD AND COMMITTEE OBSERVER.

(a) If, at any time CB Capital is entitled to (i) nominate and have elected a CB Capital Director , such directorship shall be vacant and CB Capital has acted with reasonable promptness to propose a nominee to be elected to the Board or (ii) have a CB Capital Director designated as a member of any Committee and CB Capital has acted with reasonable promptness to propose a CB Capital Director to be appointed to such Committee and such designation shall

not have been made, then CB Capital shall have the right to have one or more representatives (each such representative, an "OBSERVER") present at all meetings of the Board of Directors and all such Committees, as the case may be. The number of Observers shall at all times and from time to time be equal to that number of CB Capital Directors that CB Capital is then entitled to elect pursuant to Sections 2.1 and 2.2 above but whose directorships on the Board or membership on such Committee, as the case may be, are at the time vacant.

(b) Each Observer, to the fullest extent permitted by law, shall be entitled to participate in any meeting of the Board or any Committee, as the case may be, as if such Observer were a director or member of such Committee, but shall not be entitled to vote on any actions proposed to be taken by the Board or such Committee. The Company will give each Observer reasonable prior notice (it being agreed that the same prior notice given to the members of the Board shall be deemed reasonable prior notice) of the time and place of any proposed meeting of the Board, such notice in all cases to include, subject to the terms hereof, true and complete copies of all documents furnished to any director in connection with such meeting. The Company will deliver to each Observer copies of all papers which may be distributed from time to time to the members of the Board or any applicable Committee at such time as such papers are so distributed to them, including copies of any written consent. In addition, from time to time upon the request of each Observer, the Company will furnish to such Observer such information regarding the business, affairs, prospects and financial condition of the Company which a member of the Board or any applicable Committee would be entitled to receive.

(c) The Company reserves the right to withhold any information and to exclude an Observer from any meeting or portion thereof if (i) access to such information or attendance at such meeting could reasonably be expected, based on advice of counsel, to adversely affect the attorney-client privilege between the Company and its counsel or (ii) such disclosure is prohibited by an agreement with a third party; provided that, in the case of clause (ii), the Company will use commercially reasonable efforts to provide such information or allow the Observer to attend such meeting, which requirement shall be satisfied if the Observer is offered the opportunity to obtain such information or attend such meeting by executing or otherwise becoming a party to the confidentiality restrictions on substantially the same terms (including any standstill provisions) as are applicable to the Company. CB Capital acknowledges that any information provided to an Observer shall be subject to the confidentiality provisions contained in Section 12.15 of the Purchase Agreement and each Observer will be deemed to have agreed to be bound by and entitled to the benefits of Section 12.15 of the Purchase Agreement. Notwithstanding anything to the contrary contained in this Agreement or the Purchase Agreement, no person serving as an Observer may use or disclose any information received by such Observer as such, unless and except to the extent that such use or disclosure could have been made by a director of the Company in compliance with all laws and duties applicable to a director as such under such circumstances.

2.7 BOARDS OF SUBSIDIARIES.

The Company shall use its reasonable best efforts, in its capacity as a shareholder, partner or member of each of its Subsidiaries with net assets of at least $3,000,000, to cause the composition of the board of directors or equivalent governing body of such Subsidiary and any committees thereof to be identical, or as nearly identical as possible, to the composition of the

Board of the Company (including the CB Capital Directors) and any Committees thereof and shall cause such Subsidiary to provide to CB Capital, observation and information rights identical, or as nearly as identical as possible, to those provided by the Company in Section 2.6.

2.8 NUMBER OF DIRECTORS.

(a) The Company may increase the size of the Board by one additional member at any time at or after the time of the first shareholders' meeting following the Closing Date provided such increase has been approved by the Board.

(b) If the Company at any time increases the size of the Board beyond that set forth herein (specifically excluding increases pursuant to Sections 2.1, 2.2 and 2.8(a)), then the size of the Board shall be further increased, if necessary, and CB Capital shall be entitled to nominate, and each Shareholder shall from time to time take such action, in his capacity as a shareholder of the Company, including the voting of all Securities owned or controlled by such Shareholder, as may be necessary to cause to be elected, that number of directors such that (i) the proportion of the number of CB Capital Directors (excluding any directors to be elected pursuant to Section 2.2) to the total number of members of the whole Board is at least as great as the proportion of CB Capital's ownership of the Fully Diluted Common Stock at the time in question and (ii) to the extent applicable, the Additional CB Capital Directors are elected pursuant to Section 2.2.

2.9 ISSUANCE OF PURCHASED SECURITIES.

The Company shall submit the issuance of the Warrants, the Warrant Shares and the Common Stock included in the Purchased Securities (as defined in the Purchase Agreement) as a matter to be approved by the shareholders at the Company's first shareholders' meeting following the Closing Date in accordance with Section 5.7(i) of the Warrant Agreement. The Shareholders shall take such action, in their capacity as a shareholders of the Company, including the voting of all Securities owned or controlled by such Shareholder, as may be necessary to approve such issuance.

2.10 COVENANT TO VOTE.

If any Shareholder is required to take any action pursuant to this Article II, then, without limiting the generality of the foregoing provisions, such Shareholder shall, in his capacity as a shareholder of the Company, act, together with CB Capital and the other Shareholders, to call, and otherwise use reasonable efforts to assist CB Capital to cause the Company to promptly hold, a special meeting of shareholders, and each of the Shareholders hereby agrees to vote all of the Securities owned by such Shareholder and entitled to vote at such meeting, in person or by proxy in favor of such action.

2.11 EXPIRATION OF THIS ARTICLE.

Notwithstanding anything to the contrary contained herein, the provisions of this Article (other than Section 2.9) shall expire at such time that CB Capital no longer owns at least 7 1/2% of the Fully Diluted Common Stock.

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 shares 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) No Shareholder shall, without the prior written consent of the Company, Transfer any Stock, or any interest therein, to any Competitor. A Shareholder may rely in good faith on a representation from the Company for a period of three months that a potential Transferee is not a Competitor, and unless such Shareholder has actual knowledge that such representation has become untrue, such Transfer shall be valid; provided, however, that if a Shareholder requests but does not receive a representation from the Company that a potential Transferee is not a Competitor, such Shareholder shall be entitled to rely on a representation from the potential Transferee that such potential Transferee is not a Competitor. As used herein, the term "COMPETITOR" means (i) any Person who is actively engaged in the Business 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).

(d) 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 12.15 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 12.15 of the Purchase Agreement.

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 Significant Shareholders offering the Significant Shareholders 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) Any Significant Shareholder 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 such Significant Shareholder wishes to participate in such proposed Transfer and stating that such notice is binding and irrevocable and specifying the amount of Common Stock such Significant Shareholder desires to include in such proposed Transfer.

(c) If none of the Significant Shareholders gives 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 one or more Significant Shareholders give 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 Significant Shareholders giving timely Tag-Along Notices 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 such Company, (ii) any debt Security of such Company which by its terms is convertible into or exchangeable for any equity Security of such 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 or caused such Subsidiary to offer (the "PREEMPTIVE OFFER") to sell such Securities to the Significant Shareholders (the "OFFERED SECURITIES") by delivery to such Significant Shareholders 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 such Company (the "PREEMPTIVE OFFER PERIOD").

(b) Each Significant Shareholder 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 Significant Shareholders 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 Significant Shareholders (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 Significant Shareholders shall purchase from the Company, and the Company shall sell to the Significant Shareholders, the Offered Securities with respect to which Preemptive Offer Acceptance Notices were delivered by the Significant Shareholders, at the terms specified in the Preemptive Offer. The Significant Shareholders 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 Significant Shareholders 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 Significant Shareholders under the procedures specified in this Section 4.1.

(d) To the extent, pursuant to a Preemptive Offer, a Significant Shareholder is issued nonvoting Securities or other Securities (the "Nonvoting Securities") due to a Regulatory Problem (as provided in the Compliance Sideletter), such nonvoting Securities shall be deemed to be part of the same Preemptive Offer and such Significant Shareholder shall not be entitled to additional Offered Securities and the issuance of such Nonvoting Securities shall not be treated as a new issuance for purposes of this Article IV.

4.2 EXCLUDED SECURITIES.

The rights of the Significant Shareholders 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; and

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

ARTICLE V

COVENANTS

5.1 EQUITY INCENTIVE PLANS.

The maximum number of Common Stock Equivalents issuable under the Equity Incentive Plans shall not exceed 2,500,000 shares and equivalents
(including any shares and equivalents issued or issuable as of the Closing Date)
(subject to pro rata adjustment in the event of any stock dividend or distribution paid in shares of Common Stock or any stock split or subdivision, reverse stock split or combination or other similar pro rata recapitalization event affecting the Common Stock).

5.2 OTHER COVENANTS.

The Company shall comply with, and (i) each Investor for so long as such Investor owns at least 7 1/2 % of the Fully Diluted Common Stock and (ii) Mellon (but not its Transferee unless such Transferee satisfies the criteria in clause (i) above by virtue of ownership of Purchased Securities issued under the Purchase Agreement) shall be entitled to the benefit of, the provisions of Sections 7.4, 7.7 and 8.6 of the Purchase Agreement, as in effect on the date hereof or as amended with the consent of the Requisite Investors, whether or not any Notes remain outstanding.

ARTICLE VI

AMENDMENT AND WAIVER

6.1 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, (B) no amendment to Section 8.15 or this clause may be made without the prior written consent of CB Capital, for so long as it or any of its Affiliates holds 7 1/2% of the Fully Diluted Common Stock any Securities of the Company, and (C) Schedule I to this Agreement shall be deemed to be automatically amended from time to time to reflect Transfers of Stock made in accordance with Section 3.1(a) without requiring the consent of any party, and the Company will, from time to time, distribute to the Shareholders a revised Schedule I to reflect any such changes.

6.2 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 VII

DURATION; TERMINATION

The provisions of this Agreement, other than Section 2.6(c), 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 and (C) no Investor owns more than 7 1/2% of the Fully Diluted Common Stock; provided, however that the provisions of Section 3.1(c) shall survive until terminated by agreement of the Company, the Requisite Investors and the Requisite Founder Shareholders. 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 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 VIII

MISCELLANEOUS

8.1 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.

8.2 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 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 following the termination of the arrangements with affiliates of Enron Corp. relating to pre-emptive or similar rights, voting of capital stock of the Company or election of members of the Board of Directors.

8.3 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.

8.4 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.

8.5 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.

8.6 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. 14811 St. Mary's Lane, Suite 148 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.

8.7 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.

8.8 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.

8.9 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.

8.10 LEGENDS; STOP TRANSFER INSTRUCTIONS.

(a) Each certificate evidencing Shares (other than Existing Shares) and each certificate issued in exchange for or upon the Transfer of any Shares (other than Existing Shares) 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 DECEMBER , 1999, 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 Existing 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 Original Founder 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 8.10(a) and this Section 8.10(b) shall no longer apply to such transferred Existing Shares.

8.11 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.

8.12 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.

8.13 REGULATORY MATTERS.

(a) Each Shareholder agrees to cooperate with the Company in all reasonable respects in complying with the terms and provisions of the Compliance Sideletter, including without limitation, voting to approve amending the Charter, By-laws or this Agreement in a manner reasonably acceptable to the Shareholders and CB Capital or any Regulated Holder entitled to make such request pursuant to the Compliance Sideletter in order to remedy a Regulatory Problem. Anything contained in this Section 8.13 to the contrary notwithstanding, no Shareholder shall be required under this Section 8.13 to take any action that would adversely affect in any material respect such Shareholder's rights under this Agreement, the Charter or the By-laws or as a shareholder of the Company.

(b) The Company will notify each Shareholder not later than 5 Business Days prior to the effective date thereof of all of the material terms of any proposed amendment of the Charter or the By-laws. CB Capital agrees to notify the Company as to whether or not it would have a Regulatory Problem promptly after CB Capital has notice of any proposed amendment or waiver.

8.14 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 8.14 whenever such action may be advantageous in enforcing (or assuring the enforceability of in the future) the terms of this Agreement.

8.15 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.

* * * * *

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/ S. P.  JOHNSON IV
    ---------------------------------------
    Name: S. P. Johnson IV
    Title:

INVESTORS:

CB CAPITAL INVESTORS, L.P.

By:  /s/ CHRISTOPHER BEHRENS
    ---------------------------------------
    Name: Christopher Behrens
    Title: General Partner

MELLON VENTURES, L.P.

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

By: MVMA, Inc., its general partner

By:  /s/ JOHN P. SHOEMAKER
    -----------------------------
    Name: John P. Shoemaker
    Title: Managing Director

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/ Kenneth C. Huff
    --------------------------------------
    Name:  Kenneth C. Huff
    Title: General Partner

                                                       SHARES OF COMMON
                NAME AND ADDRESS                             STOCK                       WARRANT SHARES
INVESTORS

CB Capital Investors, L.P.                                 2,909,092                        2,208,152
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, New York 10017
Telephone:  (212) 622-3100
Telecopy:   (212) 622-3101
Attn: Christopher C. Behrens
         Dorian Faust

         with a copy of notices to:

O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
24th Floor
New York, New York 10112
Telephone: (212) 408-2400
Telecopy:  (212) 728-5950
Attn:  Frederick M. Bachman, Esq.

Mellon Ventures, L.P.                                        363,636                          276,019

5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA 19087
Attention:  Marc A. Cole
Telephone:  (610) 688-4758
Telecopier:  (610) 688-3930

with a copy to:

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

ORIGINAL FOUNDER SHAREHOLDERS

S. P. Johnson IV                                             783,085                                0
14811 St. Mary's Lane, Suite 148
Houston, TX 77079

Frank A. Wojtek                                            1,273,721                                0
14811 St. Mary's Lane, Suite 148
Houston, TX 77079

Steven A. Webster                                          1,669,094                           92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079

Douglas A. P. Hamilton                                       922,010                           92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079

Paul B. Loyd, Jr.                                          1,550,468                           92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079

DAPHAM Partnership L.P.                                      610,432                                0
7501 East Thompson Peak
Scottsdale, AZ 85255

EXHIBIT A

JOINDER AGREEMENT

The undersigned is executing and delivering this Joinder Agreement pursuant to the Shareholders Agreement dated on or about December , 1999 (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 December , 1999, 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 8.11 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 ____________, 199__.

[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 December , 1999 (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 ___________, 199_.

EXHIBIT 99.3

EXECUTION COPY

WARRANT AGREEMENT

DATED AS OF DECEMBER 15, 1999

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.....................................................................6

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.......................................................7

   3.1    FORM OF WARRANT; REGISTER...............................................................................7
   3.2    EXCHANGE OF WARRANTS FOR WARRANTS.......................................................................8
   3.3    TRANSFER OF WARRANT.....................................................................................8
   3.4    TRANSFER; LEGENDS.......................................................................................9

ARTICLE IV EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES.......................................................9

   4.1    EXERCISE OF WARRANTS....................................................................................9
   4.2    EXCHANGE FOR WARRANT SHARES.............................................................................9
   4.3    ISSUANCE OF COMMON STOCK................................................................................9

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...............................................................................12
   5.4    DISTRIBUTION OF EQUITY SECURITIES......................................................................15
   5.5    CAPITAL REORGANIZATION, CAPITAL RECLASSIFICATIONS, MERGER, ETC.........................................16
   5.6    OTHER ACTIONS AFFECTING COMMON STOCK...................................................................16
   5.7    MISCELLANEOUS..........................................................................................17

ARTICLE VI COVENANTS OF THE COMPANY..............................................................................19

   6.1    NOTICES OF CERTAIN ACTIONS.............................................................................19
   6.2    MERGER OR CONSOLIDATION OF THE COMPANY.................................................................20

ARTICLE VII MISCELLANEOUS........................................................................................20

   7.1    NOTICES................................................................................................20
   7.2    NO VOTING RIGHTS; LIMITATIONS OF LIABILITY.............................................................21
   7.3    AMENDMENTS AND WAIVERS.................................................................................22
   7.4    REMEDIES...............................................................................................22
   7.5    BINDING EFFECT.........................................................................................22
   7.6    COUNTERPARTS...........................................................................................23
   7.7    GOVERNING LAW..........................................................................................23
   7.8    BENEFITS OF THIS AGREEMENT.............................................................................23
   7.9    HEADINGS...............................................................................................23

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

EXECUTION COPY

WARRANT AGREEMENT dated as of
December 15, 1999, 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) $22.0 million aggregate principal amount of its Senior Subordinated Notes due 2007 (the "NOTES"), (ii) 3,636,364 shares of the Company's common stock and
(iii) Warrants (as defined below) to purchase 2,760,189 shares of the Company's common stock. In order to induce the Initial Holders to enter into the Securities Purchase Agreement and to purchase the Notes, 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.

"COMPLIANCE SIDELETTER" has the meaning given to such term in the Securities Purchase Agreement.

"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 $2.20 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 December 15, 2007.

"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.

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

"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.

"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 8.1. 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, Section 10 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; provided, however, that no Warrant may be transferred to a Competitor (as defined in the Shareholders Agreement). 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 X 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. The Company shall have the Warrant Shares listed for quotation on The Nasdaq National Market on or before the Closing Date, and the Company will file any and all agreements, forms and other documents, including, without limitation, the Nasdaq National Market Notification Form for Listing of Additional Shares and take all other action necessary for the listing of such shares on or before 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.

(i) Regulatory Problem. No Holder shall exercise or exchange any Warrant for shares of Common Stock if, after giving effect to such exercise, such Holder reasonably determines that such exercise would cause such Holder and its Affiliates to have a Regulatory Problem (as defined in the Compliance Sideletter).

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.

(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.

(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 or Options) 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 has 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 much 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) the issuance of Common Stock or Options to purchase Common Stock issued to employees, officers or directors of the Company or any Subsidiary, or the issuance of Common Stock upon the exercise of any such Options, provided, however, that the aggregate amount of all such Common Stock or Common Stock which may be acquired upon the exercise of such Options shall not exceed 1,000,000 shares and equivalents (subject to pro rata adjustment in the event of any stock dividend or distribution paid in shares of Common Stock or any stock split or subdivision, reverse stock split or combination or other similar pro rata recapitalization event affecting the Common Stock)(other than issuances covered by clause (vi) below or by Section 5.3(b) for which the securities of Common Stock shall be deemed to have been sold for a consideration per share less than the Market Price for the Common Stock determined as of the date of the grant of such option (provided that any options issued pursuant to the Company's stock option or Equity Incentive Plans which are issued at fair market value in accordance with the terms of such Plan shall also be deemed to be issued at or greater than Market Price for purposes of this Section), (iii) the issuance from time to time of shares of Common Stock upon the exercise of any of the Warrants, (iv) any exercise of the Warrants or the warrants issued to affiliates of Enron Corp. on January 8, 1998, as amended through the date hereof, (v) 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 and (vi) securities issued upon exercise of conversion or exchange rights, options or subscription calls, warrants, commitments or claims, provided that the foregoing are issued and outstanding on the date hereof and are listed on Schedule 4.19 of the Purchase Agreement.

(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.

(i) Shareholder Approval. The Company shall not enter into any transaction which would result in an adjustment under this Article V that would cause Warrants to become exercisable for a number of shares equal to or greater than 2,075,000 shares of Common Stock at a price less than $1.73 per share of Common Stock unless the shareholders of the Company have previously voted to approve the issuance of the Warrants, the Warrant Shares and the Common Stock included in the Purchased Securities (as defined in the Securities Purchase Agreement) upon the terms of the Transaction Documents. The Company shall submit such issuance as a matter to be approved by the shareholders at the Company's first shareholders' meeting following the Closing Date.

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 is expected to become effective, 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 each Holder, 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 or exchange 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 tradeable.

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. 14811 St. Mary's Lane, Suite 148 Houston, Texas 77079 Attention:

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 on it 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/ S. P. Johnson IV
   ------------------------------------------
   Name:  S. P. Johnson IV
   Title: President

CB CAPITAL INVESTORS, L.P.

By: CB Capital Investors, Inc., its general
partner

By: /s/ Christopher Behrens
    ------------------------------------------
   Name:  Christopher Behrens
   Title: General Partner

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

/s/ Paul B. Loyd, Jr.
----------------------------------------------
    Paul B. Loyd, Jr.

/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/ John P. Shoemaker
     -------------------------------
   Name:   John P. Shoemaker
   Title:  Managing Director

              INVESTOR                             NUMBER OF WARRANT SHARES
              --------                             ------------------------
CB Capital Investors, L.P.                                 2,208,152
380 Madison Avenue
12th Floor
New York, NY  10017
Attention:
Telephone:  (212) 622-3100
Telecopier: (212) 622-3101

with a copy to:

O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention:  Frederick M. Bachman, Esq.
Telephone No.:  (212) 408-2400
Telecopier No.: (212) 728-5950


Mellon Ventures, L.P.                                        276,019
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA  19087
Attention: Marc A. Cole
Telephone:       (610) 688-4758
Telecopier:      (610) 688-3930

with a copy to:

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


Douglas A.P. Hamilton                                         92,006
14811 St. Mary's Lane
Suite 148
Houston, TX   77079

              INVESTOR                             NUMBER OF WARRANT SHARES
              --------                             ------------------------
Paul B. Loyd, Jr.                                             92,006
14811 St. Mary's Lane
Suite 148
Houston, TX   77079


Steven A. Webster                                             92,006
14811 St. Mary's Lane
Suite 148
Houston, TX   77079

EXHIBIT A

REGISTRATION RIGHTS AGREEMENT

[SEE ATTACHED]

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 DECEMBER ___, 1999, 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. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER ___ 1999, 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. COPIES OF THE SECURITIES PURCHASE AGREEMENT AND THE SHAREHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.

NO. W                                                        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 $2.20 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 December __, 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 December __, 1999, 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):

[ ] irrevocable

[ ] conditioned upon the consummation of the transaction described briefly below:

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):

[ ] irrevocable

[ ] conditioned upon the consummation of the transaction described briefly below:

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 99.4

EXECUTION COPY

CARRIZO OIL & GAS, INC.,

A TEXAS CORPORATION

REGISTRATION RIGHTS AGREEMENT

December 15, 1999

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.      FOUNDER AGREEMENT............................................8
   5.5.      LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS................9
   5.6.      EXPENSES OF REGISTRATION.....................................9
   5.7.      REGISTRATION PROCEDURES.....................................10
   5.8.      INDEMNIFICATION.............................................11
   5.9.      CERTAIN AGREEMENTS OF HOLDERS...............................14
   5.10.     RULE 144 REPORTING..........................................15
   5.11.     TRANSFER OF REGISTRATION RIGHTS.............................15
   5.12.     LOCKUP AGREEMENT............................................16
   5.13.     TERMINATION OF REGISTRATION RIGHTS..........................16

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

   6.1.      GOVERNING LAW...............................................16
   6.2.      SUCCESSOR AND ASSIGNS.......................................17
   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

EXECUTION COPY

THIS REGISTRATION RIGHTS
AGREEMENT is entered into as of the
15th day of December, 1999 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, among others, the Purchasers pursuant to which the Company is issuing to the Purchasers (i) $19,800,001 million aggregate principal amount of its Senior Subordinated Notes due 2007, (ii) Warrants (as defined below) to purchase 2,484,171 shares of Common Stock and (iii) 3,272,728 shares of Common Stock. 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:

"Combined Registrable Securities" has the meaning given to such term in Section 5.4.

"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.

"Founder Registration Notice" has the meaning given to such term in Section 5.4.

"Founders" means the Original Founders and any Persons to whom Registrable Securities are transferred in accordance with the Founders Agreement.

"Founders Agreement" means the Registration Rights Agreements dated as of June 4, 1997, as amended by Amendment No. 1 dated as of the date hereof and as may be amended in accordance with this Agreement, among the Company and the Original Founders.

"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 5.11 hereof.

"Holder Registration Notice" has the meaning given to such term in Section 5.4.

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

"Original Founders" shall mean S. P. Johnson IV, Frank A. Wojtek, Steven A. Webster, Douglas A.P. Hamilton, Paul B. Loyd, Jr. and DAPHAM Partnership L.P.

"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 (i) the shares of Common Stock of the Company held by the Purchasers on the date hereof and (ii) all shares of Common Stock of the Company issuable upon the conversion, exchange or exercise of all securities of the Company that are convertible, exchangeable or exercisable for Common Stock hereafter acquired (including without limitation, any Common Stock issued to the Purchasers pursuant to 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 5.13.

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 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.

"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 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 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 5.1:

(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 an aggregate of four such registrations 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 registrations have 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). 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 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.

(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 Registrable Securities and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering by selling 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 Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities and 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 an aggregate of four such registrations 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 registrations have 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. Founder Agreement.

If the Company receives notice from the Founders of a request for registration pursuant to Sections 5.1(a) or 5.3(a) of the Founders Agreement (a "Founder Registration Notice"), the Company shall promptly notify the Holders after receipt of the Founder Registration Notice, and the Holders may thereafter give notice, within 20 days after the date of the Founder Registration Notice, of a registration request pursuant to Sections 5.1(a) or 5.3(a), as the case may be, of this Agreement. If the Company receives notice from the Initiating Holders of a request for registration pursuant to Sections 5.1(a) or 5.3(a) of this Agreement (a "Holder Registration Notice"), the Company shall promptly notify the Founders after receipt of the

Holder Registration Notice, and the Founders may thereafter give notice, within 20 days after receipt of the Holder Registration Notice, of a registration request pursuant to Sections 5.1(a) or 5.3(a), as the case may be, of the Founders Agreement. In either such event, the Registrable Securities of the Holders requesting registration and of the Founders requesting registration (collectively, the "Combined Registrable Securities") (whether or not such Holders or Founders, as the case may be, initiated such request) shall be included in such registration with priority over any securities of other securityholders who may be entitled to exercise piggyback registration rights. The registration shall be governed by the registration rights agreement to which the Person initiating the request for registration is a party (e.g., if the request for registration is initiated by the Founders, the Founders Agreement shall govern and if the request for registration is initiated by the Holders, this Agreement shall govern) and for purposes of such registration, the term "Registrable Securities" as used in the Founders Agreement or this Agreement, as the case may be, shall mean the Combined Registrable Securities and the term "Holders" as used in the Founders Agreement or this Agreement, as the case may be, shall include the Holders as defined under the Founders Agreement and the Holders as defined under this Agreement.

5.5. 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. The Company shall not, after the date hereof, grant any registration rights which conflict with or impair, or have any priority over, the registration rights granted hereby. If the Company grants to other investors any registration rights which are not prohibited by the foregoing sentence, such registration rights shall be issued under registration rights agreements which contain sharing provisions similar to
Section 5.4 above. Without limiting the generality of the foregoing, registration rights which contain such sharing provisions and which otherwise contain the same provisions as this Agreement shall not be deemed to have priority or impair the Purchasers' registration rights.

(b) Within the limitations prescribed by this Section 5.5(b), but not otherwise, the Company may grant to subsequent investors in the Company 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.

5.6. 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.

5.7. 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.

5.8. 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.

5.9. 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.

5.10. 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.

5.11. 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 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.

5.12. 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 5.12 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 5.12. The Company may impose stock-transfer instructions with respect to securities subject to the foregoing restriction until the end of said restriction.

5.13. 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 material 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 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., 14811 St. Mary's Lane, Suite 148, 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/ S. P. Johnson IV
    -----------------------------------------
   Name:  S. P. Johnson IV
   Title: President

"PURCHASERS"

CB CAPITAL INVESTORS, L.P.

By: /s/ Christopher Behrens
    -----------------------------------------
   Name:  Christopher Behrens
   Title: General Partner

MELLON VENTURES, L.P.

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

By: MVMA, Inc., its general partner

By:  /s/ John P. Shoemaker
     ------------------------------
   Name:  John P. Shoemaker
   Title: Managing Director

ANNEX A

PURCHASERS

CB Capital Investors, L.P.
380 Madison Avenue
12th Floor
New York, NY 10017
Attention: Christopher C. Behrens
Dorian Faust
Telephone: (212) 622-3100
Telecopier: (212) 622-3101

with a copy to:

O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Frederick M. Bachman, Esq.
Telephone No.: (212) 408-2400
Telecopier No.: (212) 728-5950

Mellon Ventures, L.P.
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA 19087
Attention: Marc A. Cole
Telephone: (610) 688-4758
Telecopier: (610) 688-3930

with a copy to:

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

EXHIBIT 99.5

CARRIZO OIL & GAS, INC.,
a Texas corporation

AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

December 15, 1999

TABLE OF CONTENTS

                                                                       Page
                                                                       ----

1.       Certain Definitions..............................................1

2.       [Intentionally omitted] .........................................3

3.       [Intentionally omitted] .........................................3

4.       [Intentionally omitted] .........................................3

5.       Registration Rights..............................................3
         5.1      Requested Registration..................................3
         5.2      Company Registration....................................5
         5.3      Registration on Form S-3................................6
         5.4      Chase Agreement.........................................9
         5.5      Limitations on Subsequent Registration Rights...........9
         5.6      Expenses of Registration...............................10
         5.7      Registration Procedures................................10
         5.8      Indemnification........................................12
         5.9      Certain Agreements of Holders..........................14
         5.10     Rule 144 Reporting.....................................16
         5.11     Transfer of Registration Rights........................16
         5.12     Lockup Agreement.......................................16
         5.13     Termination of Registration Rights.....................17

6.       Miscellaneous...................................................17
         6.1      GOVERNING LAW..........................................17
         6.2      Successors and Assigns.................................17
         6.3      Effectiveness..........................................17
         6.4      Entire Agreement; Amendment............................17
         6.5      Notices, Etc...........................................17
         6.6      Delays or Omissions....................................18
         6.7      Severability...........................................18
         6.8      Titles and Subtitles...................................18
         6.9      Gender.................................................18
         6.10     Counterparts...........................................18

AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is entered into
as of the 15th day of December, 1999 by and among Carrizo Oil & Gas, Inc., a Texas corporation (the "Company"), and certain shareholders of the company whose names are set forth on Annex A attached hereto (the "Purchasers") and amends and restates the Registration Rights Agreement dated as of June 4, 1997.

Recitals

The Company is entering into a Registration Rights Agreement dated December 15, 1999 with, among others, CB Capital Investors, L.P. The Company now wishes to amend this Agreement in accordance with the Chase Agreement.

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

1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings:

"Chase Agreement" means the Registration Rights Agreement dated as of December 15, 1999 among the Company and the Shareholders of the Company listed on Annex A attached thereto.

"Chase Holders" means the Purchasers under the Chase Agreement and any Persons to whom Registrable Securities are transferred in accordance with the Chase Agreement.

"Chase Registration Notice" has the meaning given to such term in
Section 5.4.

"Combined Registrable Securities" has the meaning given to such term in
Section 5.4.

"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 5.11 hereof.

"Holder Registration Notice" has the meaning given to such term in
Section 5.4.

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

"Purchased Shares" shall mean the Common Stock purchased by the Purchasers pursuant to the Purchase Authorizations.

"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 (i) the shares of Common Stock of the Company held by the Purchasers on the date hereof and (ii) all shares of Common Stock of the Company issuable upon the conversion, exchange or exercise of all securities of the Company that are convertible, exchangeable or exercisable for Common Stock hereafter acquired (including without limitation, any Common Stock issued to the Purchasers pursuant to 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 5.13.

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 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.

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

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

2. [Intentionally omitted]

3. [Intentionally omitted]

4. [Intentionally omitted]

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 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 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 5.1:

(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 an aggregate of four such registrations 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 registrations have 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. 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 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, he 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.

(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 Registrable Securities and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering by selling 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 Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities and 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 an aggregate of four such registrations 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 registrations have 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 Chase Agreement.

If the Company receives notice from the Chase Holders of a request for registration pursuant to Sections 5.1(a) or 5.3(a) of the Chase Agreement (a "Chase Registration Notice"), the Company shall promptly notify the Holders after receipt of the Chase Registration Notice, and the Holders may thereafter give notice, within 20 days after the date of the Chase Registration Notice, of a registration request pursuant to Sections 5.1(a) or 5.3(a), as the case may be, of this Agreement. If the Company receives notice from the Initiating Holders of a request for registration pursuant to Sections 5.1(a) or 5.3(a) of this Agreement (a "Holder Registration Notice"), the Company shall promptly notify the Chase Holders after receipt of the Holder Registration Notice, and the Chase Holders may thereafter give notice, within 20 days after receipt of the Holder Registration Notice, of a registration request pursuant to Sections 5.1(a) or 5.3(a), as the case may be, of the Chase Agreement. In either such event, the Registrable Securities of the Holders requesting registration and of the Chase Holders requesting registration (collectively, the "Combined Registrable Securities") (whether or not such Holders or Chase Holders, as the case may be, initiated such request) shall be included in such registration with priority over any securities of other securityholders who may be entitled to exercise piggyback registration rights. The registration shall be governed by the registration rights agreement to which the Person initiating the request for registration is a party (e.g., if the request for registration is initiated by the Chase Holders, the Chase Agreement shall govern and if the request for registration is initiated by the Holders, this Agreement shall govern) and for purposes of such registration, the term "Registrable Securities" as used in the Chase Agreement or this Agreement, as the case may be, shall mean the Combined Registrable Securities and the term "Holders" as used in the Chase Agreement or this Agreement, as the case may be, shall include the Holders as defined under the Chase Agreement and the Holders as defined under this Agreement.

5.5 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. The Company shall not, after the date hereof, grant any registration rights which conflict with or impair, or have any priority over, the registration rights granted hereby. If the Company grants to other investors any registration rights which are not prohibited by the foregoing sentence, such registration rights shall be issued under registration rights agreements which contain sharing provisions similar to
Section 5.4 above. Without limiting the generality of the foregoing, registration rights which contain such sharing provisions and which otherwise contain

the same provisions as this Agreement shall not be deemed to have priority or impair the Purchasers' registration rights.

(b) Within the limitations prescribed by this Section 5.5(b), but not otherwise, the Company may grant to subsequent investors in the Company 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.

5.6 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.

5.7 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.

5.8 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
5.8 (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 5.8 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 5.8(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 5.8(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 5.8(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 5.8(c) hereof. Notwithstanding the provisions of this Section 5.8(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.

5.9 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 5.9(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.

(c) 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.

5.10 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.

5.11 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 150,000 (subject to appropriate adjustment for any other 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.

5.12 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 5.12 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 5.12. The Company may impose stock-transfer instructions with respect to securities subject to the foregoing restriction until the end of said restriction.

5.13 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 all Registrable Securities then held by such Holder.

6. Miscellaneous.

6.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE STATE OF TEXAS.

6.2 Successors 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 further, 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.

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., 14811 St. Mary's Lane, Suite 148, 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/ S. P. Johnson IV
     -------------------------------------
   Name:  S. P. Johnson IV
          --------------------------------
   Title: President
          --------------------------------

"PURCHASERS"

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

/s/ Paul B. Loyd, Jr.
------------------------------------------
Paul B. Loyd, Jr.

/s/ Steven A. Webster
------------------------------------------
Steven A. Webster

/s/ Frank A. Wojtek
------------------------------------------
Frank A. Wojtek

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

DAPHAM PARTNERSHIP L.P.

By:  /s/ Kenneth Huff
     -------------------------------------
     Kenneth Huff
     General Partner

ANNEX A

PURCHASERS

Douglas A.P. Hamilton
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079

Paul B. Loyd, Jr.
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079

Steven A. Webster
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079

Frank A. Wojtek
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079

Sylvester P. Johnson IV
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079

DAPHAM Partnership L.P.
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079

EXECUTION COPY

EXHIBIT 99.6

COMPLIANCE SIDELETTER

Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement dated as of the date hereof (the "SECURITIES PURCHASE AGREEMENT") among Carrizo Oil & Gas, Inc., a Texas corporation (the "COMPANY"), CB Capital Investors, L.P. and Mellon Ventures, L.P. (each, an "INVESTOR", and collectively, the "INVESTORS") and the other parties identified therein, pursuant to which the Investors purchased: (i) $19,800,000 aggregate principal amount of the Company's 9% Senior Subordinated Notes due 2007 (the "NOTES"); (ii) 3,272,728 shares (the "SHARES") of the Company's common stock, $0.01 par value (the "COMMON STOCK"); and (iii) warrants to purchase up to 2,484,170 shares of Common Stock (the "WARRANTS" and together with the Notes and Shares, the "SECURITIES"). Each 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 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 or millions of dollars (fewer than 500 employees; less than $500 million in annual receipts) under the SIC (Standard Industrial Classification) System for the industry (SIC Code No. 1311) 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, 652 and Parts A and B of Form 1031 regarding the Company and its affiliates, when delivered to the Investors, 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 at the closing of the sale of the Securities under the Purchase Agreement (the "CLOSING").

(b) The proceeds from the sale of the Securities will be used by the Company for the purposes described in Section 4.26 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 Company is engaged in the exploration, development, exploitation and production of natural gas and crude oil (the "BUSINESS"). 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. (See 13 CFR Section 107.720.)

(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 Investors, 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.

2. Regulatory Compliance.

(a) Regulatory Compliance Cooperation.

(i) In the event that an 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 such Investor in order (A) to effectuate and facilitate any transfer by the Investor of any Securities of the Company then held by such Investor to any Person designated by such 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 such Investor to permit any Person(s) designated by such Investor to exercise any voting power which is relinquished by such 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 such Investor in order to effectuate the intent of the foregoing; 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 an 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 an 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) Each 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 an 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 each other Investor 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 and the other Investors under this Compliance Sideletter.

(vi) Each Investor represents to the Company that it does not, and as a result of its purchase of Securities (including the Warrant Shares) contemplated by the Securities Purchase Agreement will not, as of the date hereof have a Regulatory Problem.

(vii) To the extent an Investor receives nonvoting securities that have voting rights under state law, each 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.

(b) Information Rights and Related Covenants.

(i) Provide to the Investors 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 Investors 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 such information as shall have been reasonably requested by them to enable them to prepare 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 either Investor or the Affiliates of either Investor, 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 to the extent the Investor is otherwise entitled to such information under the Shareholders Agreement or Purchase Agreement and (B) furnish to such Person all readily available information reasonably requested by it in order for it to prepare and file SBA Form 468 and any other readily available 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's representations in Sections 1(b), (c) and
(d) untrue during such period.

3. SHAREHOLDER COOPERATION.

The Company shall use its commercially reasonable efforts to cause the provisions attached hereto as Exhibit A to be included in the Shareholders Agreement.

4. DEFINITIONS.

"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.

CB CAPITAL INVESTORS, L.P.

By: CB Capital Investors, Inc.,
its General Partner

By: /s/ CHRISTOPHER BEHRENS
    ----------------------------------------
    Name: Christopher Behrens
    Title: General Partner

MELLON VENTURES, L.P.

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

By: /s/ JOHN P. SHOEMAKER
    ----------------------------------------
    Name: John P. Shoemaker
    Title: Managing Director

Agreed as of the date first set forth above:

CARRIZO OIL & GAS, INC.

By: /s/ S. P. JOHNSON IV
     ----------------------------
      Name: S. P. Johnson IV
      Title: President

SBIC                                  Securities
----                                  ----------



CB Capital 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.                 $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

EXHIBIT A

INSERT INTO SHAREHOLDERS AGREEMENT

SECTION __. REGULATORY MATTERS.

(a) Each Shareholder agrees to cooperate with the Company in all reasonable respects in complying with the terms and provisions of the letter agreement between the Company and Investor, a copy of which is attached hereto as EXHIBIT __, regarding small business matters (the "Compliance Sideletter"), including without limitation, voting to approve amending the Charter, the By-laws or this Agreement in a manner reasonably acceptable to the Shareholders and the Investor or any Regulated Holder (as defined in the Compliance Sideletter) entitled to make such request pursuant to the Compliance Sideletter in order to remedy a Regulatory Problem (as defined in the Compliance Sideletter). Anything contained in this Section __ to the contrary notwithstanding, no Shareholder shall be required under this Section __ to take any action that would adversely affect in any material respect such Shareholder's rights under this Agreement or as a shareholder of the Company.

(b) The Company will notify each Shareholder of all material terms of any proposed amendment of the Charter or Bylaws not later than ___ Business Days prior to the effective date thereof. Each of CB Capital and Mellon agrees to notify the Company as to whether or not it would have a Regulatory Problem promptly after CB Capital or Mellon, as the case may be, has notice of any proposed amendment or waiver.

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 _____ ("Employment Agreement"), and by this agreement hereby amend the Employment Agreement effective as of December ___, 1999 as follows:

Nothing in the Shareholders Agreement dated December __, 1999 among S.P. Johnson IV, Frank A. Wojtek, Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster, CB Capital Investors, L.P. ("Chase") and certain other shareholders (the "Shareholders Agreement") or in the transactions contemplated by the Securities Purchase Agreement dated December __, 1999 among Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster, Chase 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 December, 1999, effective as of the day and year first above written.

CARRIZO OIL & GAS, INC.

Title:

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 _____ ("Indemnification Agreement"), and by this agreement hereby amend the Indemnification Agreement effective as of December 15, 1999 as follows:

Nothing in the Shareholders Agreement dated December 15, 1999 among S.P. Johnson IV, Frank A. Wojtek, Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster, CB Capital Investors, L.P. ("Chase") and certain other investors (the "Shareholders Agreement") or in the transactions contemplated by the Securities Purchase Agreement dated December 15, 1999 among Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster, Chase 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 15th day of December, 1999, effective as of the day and year first above written.

CARRIZO OIL & GAS, INC.

Title:

INDEMNITEE

EXHIBIT 99.10

NINTH AMENDMENT

TO

FIRST AMENDED, RESTATED, AND COMBINED LOAN AGREEMENT
DATED AUGUST 28, 1997
BY AND BETWEEN CARRIZO OIL & GAS, INC.
AND COMPASS BANK

This Ninth Amendment to the Loan Agreement (this "Ninth Amendment") by and between CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"), and COMPASS BANK, an Alabama state chartered bank, formerly a Texas chartered bank (the "Bank"), is entered into on this 15th day of December 1999, and shall be effective as of that date for all purposes.

W I T N E S S E T H:

Borrower and Bank entered into a First Amended, Restated, and Combined Loan Agreement dated August 28, 1997, as amended by the First Amendment thereto dated December 23, 1997, the Second Amendment thereto dated December 30, 1997, the Third Amendment thereto dated July 30, 1998, the Fourth Amendment thereto dated September 24, 1998, the Fifth Amendment thereto dated March 22, 1999, the Sixth Amendment thereto dated April 23, 1999, the Seventh Amendment thereto dated August 27, 1999 and the Eighth Amendment thereto dated November 11, 1999 (collectively, the "Loan Agreement"). Capitalized terms used, but not defined herein, shall have the meanings prescribed therefor in the Loan Agreement.

Borrower has requested that the Loan Agreement be further amended and that the Bank consent to Borrower entering into a certain subordinated loan transaction otherwise disallowed under certain covenants in the Loan Agreement, and the Bank has agreed to such requests, subject to the terms and conditions set forth in this Ninth Amendment.

NOW, THEREFORE, in consideration of the mutual promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by Borrower and Bank, and each intending to be legally bound hereby, the parties agree as follows:

I. Specific Amendments to Loan Agreement.

Article I, Definitions, is hereby amended by adding the following definitions thereto:

"Borrower Certificate" means the certificate from an authorized officer of Borrower certifying that attached thereto as Exhibits A, B, C and D are true and complete copies of the Chase Documents and the Enron Documents.

"Chase" means, collectively, CB Capital Investors, L.P. and its affiliates, together with its permitted successors and assigns.

"Chase Documents" means the Securities Purchase Agreement, the Warrant Agreement, the Shareholders' Agreement and the Registration Rights Agreement comprising the Chase Transaction, each as amended, modified, rearranged and/or restated from time to time in compliance with the Chase Subordination Agreement and the Chase Purchase Agreement.

"Chase Purchase Agreement" means the Securities Purchase Agreement between Borrower and the Investors dated December 15, 1999 in the form of Exhibit "A" attached to the Chase Certificate.

"Chase Subordinated Promissory Notes" means those certain promissory notes dated December 15, 1999 executed by Borrower payable to the Investors in the form attached as Exhibit "B" to the Chase Purchase Agreement.

"Chase Subordination Agreement" means the Memorandum of Subordination Agreement between the Bank, Borrower and the Investors dated December 15, 1999 in the form of Exhibit "A" attached to the Ninth Amendment.

"Chase Transaction" means that certain transaction between Borrower and the Investors as evidenced by the Chase Documents.

"Current Assets" and "Current Liabilities" means at any time, all assets or liabilities, respectively, that should, in accordance with GAAP, be classified as current assets or current liabilities on the balance sheet of Borrower; provided that Current Assets shall include the available but unadvanced portion of the Revolving Commitment and Current Liabilities shall not include the current scheduled payments under the Second Term Loan.

"Enron Documents" means that certain Stock and Warrant Purchase Agreement dated December 1, 1999 among Borrower, Enron North America Corp., Sundance Assets, L.P. and Joint Energy Development Investments II Limited Partnership and the amended warrants contemplated thereby.

"Enron Transaction" means the transaction evidenced by the Enron Documents.

"Investors" means those Persons listed on Schedule 1.1 of the Chase Purchase Agreement, together with their permitted successors and assigns.

"Ninth Amendment" means the Ninth Amendment to this Agreement executed by Borrower and Bank on December 15, 1999.

"Working Capital" means Current Assets minus Current Liabilities.

Article I, Definitions, is hereby amended by revising the definition of "Loan Documents" by adding the clause "and the Chase Subordination Agreement" immediately after the term "including the Subordination Agreement" in that definition.

Article I, Definitions, is hereby further amended by revising the following defined terms in their entirety to read as follows:

"Maturity Date" means January 1, 2002.

"Second Term Loan Maturity Date" means the earlier of: (1) the date of closing of the issuance of additional equity of Borrower, other than with regard to the Chase Transaction, if the net proceeds of such issuance are sufficient to repay in full the Second Term Loan; (2) the date of closing of the issuance of convertible subordinated debt of Borrower, other than with regard to the Chase Transaction, if the proceeds of such issuance are sufficient to repay in full the Second Term Loan; (3) the date of repayment of the Revolving Loan and the termination of the Revolving Commitment; and (4) July 1, 2001.

"Second Term Loan Note" means the Second Amended and Restated Term Note in the original face amount of $9,000,000.00 executed December 15, 1999, but dated effective March 22, 1999, made by Borrower payable to the order of Bank, in substantially the form attached to the Ninth Amendment as Exhibit "B," together with all deferrals, renewals, extensions, amendments, modifications or rearrangements thereof, which promissory note shall evidence the advances to Borrower by Bank pursuant to Section 2.22 hereof.

Subsection 2.10(a), Borrowing Base Oil and Gas Properties, is hereby amended by replacing the first two sentences of that section with the following text:

The Borrowing Base attributable to the Borrowing Base Oil and Gas Properties is established at $3,750,000.00 effective as of November 22, 1999; provided, however, that the Borrowing Base value attributable to the Borrowing Base Oil and Gas Properties shall be reduced to $2,750,000.00 at the earlier of: (i) the consummation of the Chase Transaction by Borrower and the Investors or (ii) December 15, 1999; and such latter Borrowing Base shall then continue in effect until redetermined on the next Borrowing Base review currently scheduled for March 1, 2000.

Section 2.24, Repayment of Second Term Loan, as amended by the Fifth Amendment, is hereby further amended by replacing the text of that section with the following:

Interest on the Second Term Note, calculated as aforesaid in
Section 2.04, shall be repaid by Borrower in monthly installments on the first day of each month following the advance from Bank to Borrower pursuant to Section 2.22, through and including the Second Term Loan Maturity Date. For the period beginning on the date of the Ninth Amendment until June 1, 2000, principal payments on the Second Term Loan evidenced by Second Term Note shall not be due, unless preceded by the Second Term Loan Maturity Date, when the entire unpaid balance of the Second Term Note, inclusive of principal and interest, shall be paid in full. Except as provided for in the preceding sentence, principal under the Second Term Loan evidenced by the Second Term Note will be repaid in consecutive monthly installments in the amount of $290,000.00 each, beginning on July 1, 2000 through and including December 1, 2000, and thereafter in consecutive monthly installments in the amount of $440,000.00 each, beginning on January 1, 2001, and continuing on the first day of each successive calendar month until the Second Term Loan Maturity Date, when the entire unpaid balance of the Second Term Note, inclusive of principal and interest, shall be paid in full.

Article III, Conditions, is hereby amended by adding the following
Section 3.23.

3.23 Conditions Precedent in Connection with the Ninth Amendment. The Ninth Amendment shall not be binding on the Bank until satisfaction of the following conditions precedent:

(a) Receipt of Ninth Amendment, Second Amended and Restated Term Note and Compliance Certificate. Bank shall have received multiple fully executed counterparts of the Ninth Amendment, as requested by Bank, the Second Amended and Restated Term Note and the Compliance Certificate duly executed by an authorized officer for Borrower.

(b) Additional Loan Documents. Bank shall have received multiple fully executed counterparts of the (i) Chase Subordination Agreement, (ii) the Borrower Certificate to which the instruments evidencing the Chase Transaction are attached as Exhibits A, B, C, and D and (iii) the Enron Documents, all in form and substance satisfactory to Bank.

(c) Accuracy of Representations and Warranties and No Event of Default. After giving effect to the Ninth Amendment, the representations and warranties contained in Article IV of the Loan Agreement shall be true and correct in all material respects on the date of the Ninth Amendment with the same effect as though such representations and warranties had been made on such date; and after giving effect to the Ninth Amendment, no Event of Default shall have occurred and be continuing or will have occurred upon the execution of the Ninth Amendment.

(d) Legal Matters Satisfactory to Special Counsel to Bank. All legal matters incident to the consummation of the transactions contemplated by the Ninth Amendment shall be satisfactory to the firm of Porter & Hedges, L.L.P., special counsel for Bank.

(e) Legal Fees. All reasonable legal fees and expenses owed by Bank to Porter & Hedges, L.L.P. in connection with the Loan Agreement shall have been paid by Borrower including the legal fees and expenses incurred by Bank to such counsel in connection with the Ninth Amendment through December 15, 1999 in the amount of $14,423.21 for which an invoice will be delivered to Borrower at least twenty-four (24) hours prior to its signing of the Ninth Amendment.

(f) No Material Adverse Change. No material adverse change shall have occurred since the date of this Agreement in the condition, financial or otherwise, of Borrower.

(g) Restructuring Fee. Bank shall have received a restructuring fee in the amount of $85,000.00, $60,000.00 of which shall represent the fee due from Borrower to Bank for Bank's continued commitment pursuant to the Second Term Loan.

(h) Principal Payment. Bank shall have received a principal payment of $2,000,000.00 to be applied against the Second Term Note.

(i) Payment of Subordinated Promissory Note. Bank shall have received satisfactory evidence of the full and final payment of the Subordinated Promissory Note by Borrower.

(j) Principal Payment on Note. Bank shall have received a principal payment of $1,000,000.00 to be applied against the Note pursuant to the reduction of the Borrowing Base pursuant to Section 2.10(a), as amended by the Ninth Amendment.

Article V, Affirmative Covenants, is hereby amended by adding the following new Section 5.38:

5.38 Working Capital. Borrower shall maintain a minimum Working Capital balance at all times of $2,000,000.00.

Article V, Affirmative Covenants, is hereby further amended by revising the following sections to read as follows:

Section 5.19 Tangible Net Worth Requirement, as amended by the First and Sixth Amendments, is hereby further amended by revising that section in its entirety to read as follows:

Effective on the date of the Ninth Amendment, Borrower shall maintain a total Tangible Net Worth of not less than $34,000,000.00, increasing by: (x) fifty percent (50%) of net income (excluding losses) of Borrower subsequent to December 31, 1999, and (y) one hundred percent (100%) of any increases in shareholders' equity resulting from the sale or issuance of stock in Borrower subsequent to December 31, 1999.

Section 5.20 Cash Flow to Debt Service Ratio, is amended by revising that section in its entirety to read as follows:

5.20 EBITDA to Debt Service Ratio. Borrower will maintain (calculated in accordance with GAAP) a ratio of quarterly EBITDA to quarterly Debt Service of not less than 1.25 to 1.0. For the purposes of calculating this ratio:

(a) "EBITDA" shall be defined as the sum of net income plus interest (net of interest income), taxes, depletion, depreciation, amortization, any other non-cash charges, and capitalized (cash) income not reflected in Borrower's income statement, less non-cash income items of Borrower, and all capitalized general and administrative expenses, including capitalized expenses relating to full-time staff salaries allocated to capital projects.

(b) "Debt Service" shall be defined as the sum of (i) actual cash principal and interest amounts (including any capitalized interest payments) that Borrower is obligated to pay during such quarter on Indebtedness other than in connection with this Agreement and (ii) cash principal and interest amounts (including any capitalized interest payments) required to be paid by Borrower during such quarter in connection with this Agreement (excluding payments made pursuant to the Chase Transaction and the repayment of the Subordinated Promissory Note); provided that the interest payments under (i) and (ii) above shall be net of interest income.

For purposes of calculating the Cash Flow to Debt Service Ratio, Debt Service shall not include required payments (i) pursuant to the Ninth Amendment, (ii) the scheduled balloon payment on the Term Loan due July 1, 2001 and (iii) the scheduled balloon payment due August 31, 2001 to be applied against the Seitel Data promissory note listed on Schedule A to the Seventh Amendment.

Section 6.01, Other Indebtedness, as amended by the Seventh and Eighth Amendments, is hereby further amended by deleting the word "and" immediately preceding clause (f) and adding the following clause
(g) at the end of that Section:

and (g) the Indebtedness evidenced by the Chase Subordinated Promissory Notes and guaranties executed by any Subsidiary of Borrower guarantying payment thereof.

Exhibit "B" (Form of Note) attached to the Fifth Amendment is hereby replaced with Exhibit "B" attached to this Ninth Amendment.

II. Certain Consents. Bank consents to Borrower:

A. Entering into and the consummating the Chase Transaction and executing the Chase Subordinated Promissory Notes evidencing Borrower's obligations to the Investors pursuant to the Chase Purchase Agreement, the terms of such notes thereby limited and restricted by the Chase Subordination Agreement; provided, however, that, notwithstanding anything to the contrary in the Chase Purchase Agreement, Bank consents to (i) the optional prepayments of the Chase Subordinated Promissory Notes as provided in Section 3.6 of the Chase Purchase Agreement, if and only if, (x) no Event of Default shall have occurred or be continuing, (y) any such prepayment would not cause the occurrence of an Event of Default, and (z) the Second Term Loan shall have been paid in full and (ii) the mandatory prepayments of the Chase Subordinated Promissory Notes as provided in Section 3.5 of the Chase Purchase Agreement but only to the extent as provided therein and in the Chase Subordination Agreement;

B. Paying in full the Subordinated Promissory Notes.

C. Entering into and the consummation of the transaction evidenced by the Enron Documents.

D. Issuing of stock of Borrower pursuant to the Chase Transaction, the dividends and distribution terms of such stock thereby limited and restricted by the Loan Agreement; and

E. Issuing of certain stock warrants of Borrower pursuant to the Chase Transaction, provided that such stock warrants shall be limited and restricted by the Loan Agreement.

III. Certain Waivers. Bank hereby waives compliance with the negative covenants of the Loan Agreement, including the provisions of Section 6.01 and 6.07 of the Loan Agreement, solely to the extent that any such covenants would be breached by the execution, delivery and performance of the Chase Transaction and the Enron Transaction to the extent, but only to the extent, that such transaction is described in the Chase Transaction and the Enron Transaction.

IV. Reaffirmation of Representations and Warranties. To induce Bank to enter into this Ninth Amendment, Borrower hereby reaffirms, as of the date hereof, after giving effect to the Ninth Amendment, its representations and warranties contained in Article IV of the Loan Agreement and in all other documents executed pursuant thereto, and additionally represents and warrants as follows:

A. The execution and delivery of this Ninth Amendment and the performance by Borrower of its obligations under this Ninth Amendment are within Borrower's power, have been duly authorized by all necessary corporate action, have received all necessary governmental approval (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the articles of incorporation, charter or bylaws of Borrower or of any agreement binding upon Borrower.

B. The Loan Agreement as amended by this Ninth Amendment, represents the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with its terms, subject as to enforcement only to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally.

C. No Event of Default or Unmatured Event of Default has occurred and is continuing as of the date hereof.

V. Defined Terms. Except as amended hereby, terms used herein that are defined in the Loan Agreement shall have the same meanings in this Ninth Amendment.

VI. Reaffirmation of Loan Agreement. This Ninth Amendment shall be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as further amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Loan Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Loan Agreement as amended hereby.

VII. Entire Agreement. The Loan Agreement, as hereby further amended, embodies the entire agreement between Borrower and Bank and supersedes all prior proposals, agreements and understandings relating to the subject matter hereof. Borrower certifies that it is relying on no representation, warranty, covenant or agreement except for those set forth in the Loan Agreement as hereby further amended and the other documents previously executed or executed of even date herewith.

VIII. Governing Law. THIS NINTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. This Ninth Amendment has been entered into in Harris County, Texas, and it shall be performable for all purposes in Harris County, Texas. Courts within the State of Texas shall have jurisdiction over any and all disputes between Borrower and Bank, whether in law or equity, including, but not limited to, any and all disputes arising out of or relating to this Ninth Amendment or any other Loan Document; and venue in any such dispute whether in federal or state court shall be laid in Harris County, Texas.

IX. Severability. Whenever possible each provision of this Ninth Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Ninth Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Ninth Amendment.

X. Execution in Counterparts. Each party hereto acknowledges that this Agreement may be executed in several counterparts by each party at different times and in different locations; that each separate counterpart bearing the signature of any party may be effectively delivered to the other parties by the delivery of an electronic facsimile sent via telecopier; that each party so delivering any such counterpart shall be bound by its facsimile signature thereon; and that the signature pages from counterparts signed by each party may be collated into one or more copies of this agreement, which shall constitute one and the same agreement among all parties hereto.

XI. Section Captions. Section captions used in this Ninth Amendment are for convenience of reference only, and shall not affect the construction of this Ninth Amendment.

XII. Successors and Assigns. This Ninth Amendment shall be binding upon Borrower and Bank and their respective successors and assigns, and shall inure to the benefit of Borrower and Bank, and the respective successors and assigns of Bank.

XIII. Non-Application of Chapter 346 of Texas Finance Codes. In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Loan Agreement as hereby further amended or any other Loan Documents or the transactions contemplated hereby.

XIV. Notice. THIS NINTH AMENDMENT TOGETHER WITH THE LOAN AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Ninth Amendment to be duly executed as of the day and year first above written.

BANK                                                  BORROWER

COMPASS BANK                                          CARRIZO OIL & GAS, INC.


By: /s/ Murray E. Brasseux                            By:  /s/ Frank A. Wojtek
    -------------------------                              ---------------------
    Murray E. Brasseux                                     Frank A. Wojtek
    Executive Vice President                               Vice President

EXHIBIT "A"

FORM OF CHASE SUBORDINATION AGREEMENT

EXHIBIT "B"

SECOND AMENDED AND RESTATED TERM NOTE

$9,000,000.00 Houston, Texas March 22, 1999

On the dates hereinafter prescribed, for value received, CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"), having an address at 14811 St. Mary's Lane, Suite 148, Houston, Texas 77079, promises to pay to the order of COMPASS BANK (herein called "Bank"), at its principal offices at 24 Greenway Plaza, Fourteenth Floor, Houston, Harris County, Texas 77046, (i) the principal amount of NINE MILLION AND NO/100 DOLLARS ($9,000,000.00), and (ii) interest on the principal balance remaining unpaid from the date of the advance until maturity at a rate of interest equal to lesser of (a) the "Floating Rate" (as hereinafter defined), calculated on the basis of a year of 365 or 366 days, as the case may be, and for the actual number of days elapsed (including the first day but excluding the last day), or (b) the "Maximum Rate" (as hereinafter defined). Any increase or decrease in interest rate resulting from a change in the Maximum Rate shall be effective immediately when such change becomes effective, without notice to Borrower, unless Applicable Law (as defined below) requires that such increase or decrease not be effective until a later time, in which event such increase or decrease shall be effective at the earliest time permitted under the provisions of such law.

Notwithstanding the foregoing, if during any period the Floating Rate exceeds the Maximum Rate, the rate of interest in effect on this Note shall be limited to the Maximum Rate during each such period, but at all times thereafter the rate of interest in effect on this Note shall be the Maximum Rate until the total amount of interest accrued on this Note equals the total amount of interest which would have accrued hereon if the Floating Rate had at all times been in effect.

All payments on this Note shall be applied first to accrued interest and the balance, if any, to principal.

"Floating Rate" means a per annum interest rate equal to the Index Rate (as defined below) in effect from time to time plus two percent (2.0%), provided that at such time no Event of Default or Unmatured Event of Default (as defined in the First Amended, Restated, and Combined Loan Agreement dated August 28, 1997, as amended by the First Amendment thereto dated December 23, 1997, the Second Amendment thereto dated December 30, 1997, the Third Amendment dated July 30, 1998, the Fourth Amendment dated September 24, 1998 and the Fifth Amendment thereto dated March 22, 1999, the Sixth Amendment thereto dated April 23, 1999, the Seventh Amendment thereto dated August 27, 1999, the Eighth Amendment thereto dated November 11, 1999 and the Ninth Amendment thereto dated of even date herewith, between Borrower and Bank (the "Loan Agreement")) has occurred and is continuing; then thereafter, "Floating Rate" shall mean a per annum interest rate equal to the Index Rate in effect from time to time plus five percent (5%).

"Index Rate" means at any time, the prime rate established in The Wall Street Journal's "Money Rates" or similar table. If multiple prime rates are quoted in the table, then the highest prime rate will be the Index Rate. In the event that the prime rate is no longer published by The Wall Street Journal in the "Money Rates" or similar table, then Bank may select an alternative published index based upon comparable information as a substitute Index Rate. Upon the selection of a substitute Index Rate, the applicable interest rate shall thereafter vary in relation to the substitute index. Such substitute index shall be the same index that is generally used as a substitute by Bank on all Index Rate loans.

"Maximum Rate" means the Maximum Rate of non-usurious interest permitted from day to day by Applicable Law.

"Applicable Law" means that law in effect from time to time and applicable to this Note which lawfully permits the charging and collection of the highest permissible lawful, non-usurious rate of interest on this Note. To the extent federal law permits Lender to contract for, charge or receive a greater amount of interest, Lender will rely on federal law instead of the Texas Finance Code for the purpose of determining the Maximum Rate. Additionally, to the maximum extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, implement any other method of computing the Maximum Rate under the Texas Finance Code or under other applicable law, by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

"Business Day" shall mean any day on which banks are open for general banking business in the State of Texas, other than a Saturday, a Sunday, a legal holiday or any other day on which banks in the State of Texas are required or authorized by law or executive order to close.

Principal and interest, calculated pursuant to Section 2.04 of the Loan Agreement, on this Note shall be repaid by Borrower as set forth in Section 2.24 of the Loan Agreement.

When the first (1st) day of a calendar month falls upon a Saturday, Sunday or legal holiday, the payment of interest and principal, if any, due upon such date shall be due and payable upon the next succeeding Business Day.

In no event shall the aggregate of the interest on this Note, plus any other amounts paid in connection with the loan evidenced by this Note which would under Applicable Law be deemed "interest," ever exceed the maximum amount of interest which, under Applicable Law, could be lawfully charged on this Note. Bank and Borrower specifically intend and agree to limit contractually the interest payable on this Note to not more than an amount determined at the Maximum Rate. Therefore, none of the terms of this Note or any other instruments pertaining to or securing this Note shall ever be construed to create a contract to pay interest at a rate in excess of the Maximum Rate,

and neither Borrower nor any other party liable herefor shall ever be liable for interest in excess of that determined at the Maximum Rate, and the provisions of this paragraph shall control over all provisions of this Note or of any other instruments pertaining to or securing this Note. If any amount of interest taken or received by Bank shall be in excess of the maximum amount of interest which, under Applicable Law, could lawfully have been collected on this Note, then the excess shall be deemed to have been the result of a mathematical error by the parties hereto and shall be refunded promptly to Borrower. All amounts paid or agreed to be paid in connection with the indebtedness evidenced by this Note which would under Applicable Law be deemed "Interest" shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated and spread throughout the full term of this Note.

This Note is secured by all security agreements, collateral assignments, mortgages and lien instruments executed by Borrower (or by any other party) in favor of Bank, including those executed simultaneously herewith, those executed heretofore and those hereafter executed, and including specifically and without limitation the "Security Instruments" described and defined in the Loan Agreement.

This Note is the Second Amended and Restated Term Note issued pursuant to the Ninth Amendment to the Loan Agreement and it amends and restates, but does not extinguish, the Term Note dated September 24, 1998 in the face amount of $7,000,000.00, and the Amended and Restated Term Note dated March 22, 1999 in the face amount of $9,000,000.00, both executed by Borrower and made payable to Bank. Reference is hereby made to the Loan Agreement for a statement of the rights and obligations of the holder of this Note and the duties and obligations of Borrower in relation thereto; but neither this reference to the Loan Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of Borrower to pay any outstanding and unpaid principal of and interest on this Note when due, in accordance with the terms of the Loan Agreement.

In the event of default in the payment when due of any of the principal of or any interest on this Note, or in the event of default under the terms of the Loan Agreement or any of the Security Instruments, or if any event occurs or condition exists which authorizes the acceleration of the maturity of this Note under any agreement made by Borrower, Bank (or other holder of this Note) may, at its option, without presentment or demand or any notice to Borrower or any other person liable herefor, declare the unpaid principal balance of and accrued interest on this Note to be immediately due and payable.

If this Note is collected by suit or through the Probate or Bankruptcy Court, or any judicial proceeding, or if this Note is not paid at maturity, however such maturity may be brought about, and is placed in the hands of an attorney for collection, then Borrower agrees to pay reasonable attorneys' fees, not to exceed 10% of the full amount of principal and interest owing hereon at the time this Note is placed in the hands of an attorney.

Borrower and all sureties, endorsers and guarantors of this Note waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate maturity,

notice of acceleration of maturity, and all other notices, filing of suit and diligence in collecting this Note or enforcing any of the security herefor, and agree to any substitution, exchange or release of any such security or the release of any party primarily or secondarily liable hereon and further agrees that it will not be necessary for Bank, in order to enforce payment of this Note by them, to first institute suit or exhaust its remedies against any Borrower or others liable herefor, or to enforce its rights against any security herefor, and consent to any one or more extensions or postponements of time of payment of this Note on any terms or any other indulgences with respect hereto, without notice thereof to any of them. Bank may transfer this Note, and the rights and privileges of Bank under this Note shall inure to the benefit of Bank's representatives, successors or assigns.

Executed December 15, 1999 but effective the 22nd day of March 1999.

CARRIZO OIL & GAS, INC.

COMPLIANCE CERTIFICATE

I, Frank A. Wojtek, Vice President of CARRIZO OIL & GAS, INC. (the "Company"), pursuant to Section 3.23(a) of the First Amended, Restated, and Combined Loan Agreement dated as of August 28, 1997, as amended, by and among COMPASS BANK ("Bank") and the Company (the "Agreement") do hereby certify, as of the date hereof, that to my knowledge:

1. After giving effect to the Ninth Amendment, no Event of Default (as defined in the Agreement) has occurred and is continuing, and no Unmatured Event of Default (as defined in the Agreement) has occurred and is continuing;

2. No material adverse change has occurred in the business prospects, financial condition, or the results of operations of the Company since the date of the previous Financial Statements (as defined in the Agreement) provided to Bank;

3. After giving effect to the Ninth Amendment, each of the representations and warranties of the Company contained in Article IV of the Agreement is true and correct in all respects.

This certificate is executed this 15th day of December 1999.

EXHIBIT 99.11

THURSDAY DECEMBER 16, 8:15 AM EASTERN TIME

COMPANY PRESS RELEASE

SOURCE: CARRIZO OIL AND GAS, INC.

CARRIZO OIL & GAS, INC. ANNOUNCES
CLOSING OF FINANCING AND BUYBACK OF PREFERRED STOCK

HOUSTON. Dec. 16/PRNewswire/-- Carrizo Oil & Gas, Inc. (Nasdaq: CRZO - news) today announced the closing and funding of its previously announced $30 million Financing with an investor group led by Chase Capital Partners, and the completion of the previously announced buyback, from affiliates of Enron Corp., of all of the Company's 9% Series A Preferred Stock.

Pursuant to the Financing, the Company sold $22 million aggregate principal amount of 9% Senior Subordinated Notes due 2007, 3,636,364 shares of Common Stock at a price of $2.20 per share and issued new warrants to purchase up to an additional 2,760,189 shares of Carrizo's Common Stock at a price of $2.20 per share. The Company also completed the previously announced amendment of its bank facility.

The proceeds of the Financing were used to fund the $12 million buyback of the Preferred Stock and repay a total of approximately $5 million of the Company's senior debt, with the remaining proceeds being available primarily to fund the Company's ongoing exploration and development program.

In the Enron transaction, all of the Company's $34 million of preferred stock obligation to Enron was eliminated in exchange for the $12 million purchase price. In addition, 750,000 previously outstanding warrants held by Enron affiliates were eliminated while the exercise price of the remaining 250,000 warrants held by the Enron affiliates was reduced to $4.00 per share.

In connection with the Financing, Arnold Chavkin and Christopher Behrens joined Carrizo's Board of Directors. Both are General Partners of Chase Capital Partners and serve on the boards of several public and private companies, many of which are in the energy industry.

The investor group, which originally included Chase Capital Partners, and the Company's three outside directors, was expanded to include Mellon Ventures, L.P.

Carrizo Oil & Gas, Inc. is a Houston-based energy company engaged in the exploration, development, exploitation and production of oil and natural gas 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 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 the results of and dependence on exploratory drilling activities, operating risks, regulatory and environmental matters, 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