Exhibit 10.1

 
EMPLOYMENT AGREEMENT
 
This AGREEMENT (the "Agreement") by and between Carrizo Oil & Gas, Inc., a Texas
corporation (the "Company") and Richard H. Smith (the "Executive"), to be
effective as of the 23rd day of August, 2006 (the "Agreement Effective Date").
 
In entering into this Agreement, the Board of Directors of the Company (the
"Board") desires to provide the Executive with substantial incentives to serve
the Company as one of its senior executives performing at the highest level of
leadership and stewardship, without distraction or concern over minimum
compensation, benefits or tenure, to manage the Company's future growth and
development, and maximize the returns to the Company's stockholders.
 
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
 
1.  Employment Period. As of the Agreement Effective Date (hereinafter defined),
the Company hereby agrees to employ the Executive and the Executive hereby
agrees to accept employment with the Company, in accordance with, and subject
to, the terms and provisions of this Agreement, for the period (the "Employment
Period") commencing on the Agreement Effective Date and ending on the first
anniversary of the Agreement Effective Date; provided, on the Agreement
Effective Date and on each day thereafter, the Employment Period shall
automatically be extended for an additional one day without any further action
by either the Company or the Executive, it being the intention of the parties
that there shall be continuously a remaining term of not less than one year's
duration of the Employment Period until an event has occurred as described in,
or one of the parties shall have made an appropriate election and notification
pursuant to, the provisions of Section 3.
 
2.  Terms of Employment.
 
(a)  Position and Duties. As of the Agreement Effective Date, the Executive
shall become a full time employee and company officer with the title and
responsibilities of Vice President - Land, and during the Employment Period,
excluding any periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote full attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive hereunder,
to use the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period, it shall not be
a violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not interfere with the performance of
the Executive's responsibilities as an employee of the Company in accordance
with this Agreement.
 
(b)  Compensation.
 
(i)  Base Salary. Commencing on the Agreement Effective Date and thereafter
during his Employment Period, the Executive shall receive an annual base salary
of $180,000 ("Annual Base Salary"), which shall be paid on a semimonthly basis.
During the Employment Period, the Annual Base Salary shall
 
 
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be reviewed at least annually and shall be increased at any time and from time
to time as shall be substantially consistent with increases in base salary
generally awarded in the ordinary course of business to executives of the
Company and its affiliated companies. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive under this
Agreement. As used in this Agreement, the term "affiliated companies" shall
include, when used with reference to the Company, any company controlled by,
controlling or under common control with the Company.
 
(ii)  Annual Bonus. In addition to Annual Base Salary, the Executive may be
awarded, for each fiscal year or portion thereof during the Employment Period,
an Annual Bonus (the "Annual Bonus"), in an amount comparable to the Annual
Bonus Award to other Company executives, taking into account the Executive's
position, responsibilities, and accomplishments with the Company, prorated for
any period consisting of less than 12 full months.
 
(iii)  Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans that are tax-qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended ("Code"), and all plans that are supplemental
to any such tax-qualified plans, in each case to the extent that such plans are
applicable generally to other salaried employees of the Company and its
affiliated companies.
 
(iv)  Welfare Benefit Plans. During the Employment Period, the Executive and/or
the Executive's family, as the case may be, shall be eligible for participation
in and shall receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company or its affiliated companies
(including, without limitation, medical, prescription, dental, vision,
disability, salary continuance, group life and supplemental group life,
accidental death and travel accident insurance plans and programs) to the extent
applicable generally to other salaried employees of the Company and its
affiliated companies.
 
(v)  Expenses. During the Employment Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies, practices and procedures of the
Company and its affiliated companies.
 
(vi)  Vacation. During the Employment Period, the Executive shall be entitled to
paid vacation in accordance with the plans, policies, programs and practices of
the Company and its affiliated companies.
 
 
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3.  Termination of Employment.
 
(a)  Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 13(d) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For the purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for either (i) 180 consecutive business
days or (ii) in any two-year period 270 nonconsecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably.)
 
(b)  Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean
for the Company's termination of the Executive's employment for any of the
following: (i) the Executive's final conviction of a felony crime that enriched
the Executive at the expense of the Company; provided, however, that after
indictment, the Company may suspend the Executive from the rendition of
services, but without limiting or modifying in any other way the Company's
obligations under this Agreement; (ii) a breach by the Executive of a fiduciary
duty owed to the Company; (iii) a breach by the Executive of any of the
covenants made by him in Sections 8 and 10 hereof; (iv) the willful and gross
neglect by the Executive of the duties specifically and expressly required by
this Agreement; or (v) the Executive's continuing failure to substantially
perform his duties and responsibilities hereunder (except by reason of the
Executive's incapacity due to physical or mental illness or injury) for a period
of 45 days after the Required Board Majority, as defined herein, has delivered
to the Executive a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Executive has not substantially performed his duties and
responsibilities hereunder (that period being the "Grace Period"); provided,
that for purposes of this clause (v), the Company shall not have Cause to
terminate the Executive's employment unless (A) at a meeting of the Board called
and held following the Grace Period in the city in which the Company's principal
executive offices are located, of which the Executive was given not less than 10
days' prior written notice and at which the Executive was afforded the
opportunity to be represented by counsel, appear and be heard, the Required
Board Majority shall adopt a written resolution which (1) sets forth the
Required Board Majority's determination that the failure of the Executive to
substantially perform his duties and responsibilities hereunder has (except by
reason of his incapacity due to physical or mental illness or injury)continued
past the Grace Period and (2) specifically identifies the bases for that
determination, and (B) the Company, at the written direction of the Required
Board Majority, shall deliver to the Executive a Notice of Termination for Cause
to which a copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. "Required
Board Majority" means at any time a majority of the members of the Board at that
time which includes at least a majority of the
 
 
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Directors, each of whom has not been an employee of the Company or any
subsidiary of the Company.
 
(c)  Good Reason; Window Period. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason, or during a
Window Period by the Executive without any reason. For purposes of this
Agreement. "Window Period" shall mean the 60-day period immediately following
elapse of one year after any Change of Control as defined in Section 9 of this
Agreement. For purposes of this Agreement, "Good Reason" shall mean:
 
(i)  the assignment to the Executive of any duties materially inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 2 of this Agreement, or any other action by the Company which results
in a material diminution, in absolute terms, in such position, authority, duties
or responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
 
(ii)  any material failure by the Company to comply with any of the provisions
of this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
 
(iii)  any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement;
 
(iv)  any failure by the Company to comply with and satisfy the requirements of
Section 11 of this Agreement, provided that (A) the successor described in
Section 11(c) has received, at least 10 days prior to the Date of Termination
(as defined in subparagraph (e) below), written notice from the Company or the
Executive of the requirements of such provision and (B) such failure to be in
compliance and satisfy the requirements of Section 11 shall continue as of the
Date of Termination.
 
Notwithstanding any provision to the contrary, in order for any event(s) in
subparagraph (i) through (iv) above to constitute "Good Reason" for purposes of
this Agreement, (A) the Executive must notify the Company via Notice of
Termination within 180 days following the occurrence of the event(s) that the
Executive intends to terminate his employment with the Company because of the
occurrence of Good Reason (which event must be described by the Executive in
reasonable detail in the Notice of Termination) and (B) within 60 days after
receiving such Notice of Termination from the Executive, the Company must fail
to reinstate the Executive to the position he was in, or otherwise cure the
circumstances giving rise to Good Reason.
 
(d)  Notice of Termination. Any termination by the Company for Cause, or by the
Executive for Good Reason or without any reason during a Window Period, shall be
 
 
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communicated by Notice of Termination to the other party hereto given in
accordance with Section 13 of this Agreement. The failure by the Company to set
forth in the Notice of Termination any fact or circumstance which contributes to
a showing of Cause shall not waive any right of the Company hereunder or
preclude the Company from asserting such fact or circumstance in enforcing the
Company's rights hereunder.
 
(e)  Date of Termination. For purposes of this Agreement, the term "Date of
Termination" means (i) if the Executive's employment is terminated by the
Company for Cause, or by the Executive during a Window Period or for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
 
4.  Obligations of the Company upon Termination.
 
(a)  Disability, Good Reason or During a Window Period; Other than for Cause or
Death (except during a Window Period). If, during the Employment Period, (x) the
Company shall terminate the Executive's employment other than for Cause,
including a termination by reason of Disability (but not by reason of death), or
(y) the Executive shall terminate employment for Good Reason or (z) his
employment shall be terminated during a Window Period by the Company for Cause,
by the Executive without any reason, or by reason of death:
 
(i)  the Company shall pay or provide to or in respect of the Executive the
following amounts and benefits:
 
A.  in a lump sum in cash, within 10 days after the Date of Termination, an
amount equal to the sum of (1) the Executive's Annual Base Salary through the
Date of Termination, (2) any deferred compensation previously awarded to or
earned by the Executive (together with any accrued interest or earnings thereon)
and (3) any compensation for unused vacation time for which the Executive is
eligible in accordance with the plans, policies, programs and practices of the
Company and its affiliated companies, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as (the "Accrued Obligation");
 
B.  in a lump sum cash, discounted at 6%, within 10 days after the Date of
Termination, an amount equal to 100% of Annual Base Salary that would have been
paid annually to the Executive pursuant to this Agreement for the period (the
"Remaining Employment Period") beginning on the Date of Termination and ending
on the latest possible date of termination of the Employment Period in
accordance with the provisions of Section 1 hereof (the "Final Expiration Date")
if the
 
 
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Executive's employment had not been terminated; (if the termination occurs after
the date a Change of Control occurs the "Remaining Employment Period" will be a
minimum of 18 months);
 
C.  effective as of the Date of Termination, (1) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with respect to,
each and every stock option, restricted stock award, restricted stock unit award
and other equity-based award and performance award (each, a "Compensatory
Award") that is outstanding as of a time immediately prior to the Date of
Termination and (2) unless a longer post-employment term is provided in the
applicable award agreement, the extension of the term during which each and
every Compensatory Award may be exercised by the Executive until the earlier of
(x) the first anniversary of the Date of Termination or (y) the date upon which
the right to exercise any Compensatory Award would have expired if the Executive
had continued to be employed by the Company under the terms of this Agreement
until the Final Expiration Date; and
 
D.  as soon as practicable following the calendar year of the date of
termination, an amount equal to the product of (x) the Annual Bonus that would
have been paid to the Executive with respect to the year of termination had the
Date of Termination not occurred and (y) a fraction, the numerator of which is
the number of days in the fiscal year through the Date of Termination and the
denominator of which is 365.
 
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is terminated
prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (x) was at the
request of a third party who has taken steps reasonably calculated to effect the
Change of Control or (y) otherwise arose in connection with or anticipation of
the Change of Control, then for all purposes of this Agreement, the "date a
Change of Control occurs" shall mean the date immediately prior to the date of
such termination of employment.
 
(ii)  for the Remaining Employment Period, or such longer period as any plan,
program, practice or policy may provide, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices and
policies described in Section 2(b)(iv) of this Agreement if the Executive's
employment had not been terminated in accordance with the plans, practices,
programs or policies of the Company and its affiliated companies(such
continuation of such benefits for the applicable period herein set forth shall
be hereinafter referred to as "Welfare Benefit Continuation"), but with the
Company's medical benefits coverages being secondary to any coverages provided
by another employer. For purposes of determining eligibility of the Executive
for retiree benefits pursuant to such plans, practices, programs and
 
 
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policies, the Executive shall be considered to have remained employed until the
Final Expiration Date and to have retired on such date.
 
(b)  Death (except during a Window Period). If the Executive's employment is
terminated by reason of the Executive's death during the Employment Period and
other than during a Window Period in which event the provisions of Section 4(a)
shall govern, this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other than (i) the
payment of Accrued Obligations (which shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination), (ii) the payment of an amount equal to the Annual Salary that
would have been paid to the Executive pursuant to this Agreement during the
Remaining Employment Period if the Executive's employment had not terminated by
reason of death (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of Termination)
reduced by the amount payable in respect of the Executive's death under any life
insurance policy (other than accidental death and dismemberment or travel
accident policies) but only to the extent such amounts are attributable to
premiums paid by the Company, (iii) during the period beginning on the Date of
Termination and ending on the first anniversary thereof medical benefits
coverage determined as if the Executive's employment had not terminated by
reason of death, (iv) as soon as practicable following the fiscal year in which
death occurs, payment of an amount equal to the product of (x) the Annual Bonus
that would have been paid to the Executive with respect to the year of
termination had the Date of Termination not occurred and (y) a fraction, the
numerator of which is the number of days in the fiscal year through the Date of
Termination and the denominator of which is 365 and (v) effective as of the Date
of Termination, (A) immediate vesting and exercisability of, and termination of
any restrictions on sale or transfer (other than any such restriction arising by
operation of law) with respect to, each and every Compensatory Award outstanding
as of a time immediately prior to the Date of Termination, (B) the extension of
the term during which each and every Compensatory Award may be exercised or
purchased by the Executive until the earlier of (1) the first anniversary of the
Date of Termination or (2) the date upon which the right to exercise or purchase
any Compensatory Award would have expired if the Executive had continued to be
employed by the Company under the terms of this Agreement until the Final
Expiration Date.
 
(c)  Cause, Other than for Disability, Good Reason or During a Window Period. If
the Executive's employment shall be terminated for Cause during the Employment
Period and other than during a Window Period, in which event the provisions of
Section 4(a) shall govern, this Agreement shall terminate without further
obligations to the Executive other than for Accrued Obligations. If the
Executive terminates employment during the Employment Period, excluding a
termination for any Disability, Good Reason or without any reason during a
Window Period, in which event the provisions of Section 4(a) shall govern, this
Agreement shall terminate without further obligations to the Executive, other
than for the payment of Accrued Obligations. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
 
5.  Non-exclusivity of Rights. Except as provided in Section 4 of this
Agreement, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise
 
 
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affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amount which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as such plan, policy, practice or program is
superseded by this Agreement.
 
6.  Full Settlement; Resolution of Disputes.
 
(a)  The Company's obligation to make payments provided for in this Agreement
and otherwise to perform its obligations hereunder shall not be affected by any
setoff, counterclaim, recoupment, defense, mitigation or other claim, right or
action which the Company may have against the Executive or others. In the event
(i) prior to a Change in Control, the Executive's employment is terminated for
any reason other than Executive's voluntary termination (with or without Good
Reason), or (ii) within two years after a Change in Control, the Executive's
employment is terminated by the Company or the Executive for any reason, the
Company agrees to pay promptly as incurred, to the full extent permitted by law,
all legal fees and expenses which the Executive may reasonably incur as a result
of any arbitration pursuant to Section 6(b) (regardless of the outcome thereof)
initiated by the Company, the Executive or others regarding the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any such payment pursuant to this Agreement), plus
in each case interest on any delayed payment at the annual percentage rate which
is three percentage points above the interest rate shown as the Prime Rate in
the Money Rates column in the then most recently published edition of The Wall
Street Journal (Southwest Edition), or, if such rate is not then so published on
at least a weekly basis, the interest rate announced by Chase Manhattan Bank (or
its successor), from time to time, as its Base Rate (or prime lending rate),
from the date those amounts were required to have been paid or reimbursed to the
Employee until those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law; provided, further, that if the Executive is not the
prevailing party in any such arbitration, then he shall, upon the conclusion
thereof, repay to the Company any amounts that were previously advanced pursuant
to this sentence by the Company as payment of legal fees and expenses.
 
(b)  Any dispute arising out of or relating to this Agreement, including the
breach, termination or validity thereof, shall be finally resolved by
arbitration in accordance with the CPR Institute for Dispute Resolution Rules
for Non-Administered Arbitration in effect on the date of this Agreement by a
single arbitrator selected in accordance with the CPR Rules. The arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16, and judgment
on the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of arbitration shall be in Harris County, Texas.
The arbitrator's decision must be based on the provisions of this Agreement and
the relevant facts, and the arbitrator's reasoned decision and award shall be
binding on both parties. Nothing herein is or shall be deemed to preclude the
company's resort to the injunctive relief prescribed in this Agreement,
including any injunctive relief implemented by the arbitrator pursuant to this
Section 6(b). The parties will each bear
 
 
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their own attorneys' fees and costs in connection with any dispute, except in
the circumstances in which the Company is required to advance the Executive's
attorneys' fees in accordance with Section 6(a).
 
(c)  If, upon a termination within two years following a Change in Control,
there shall be any dispute between the Company and the Executive concerning (i)
in the event of any termination of the Executive's employment by the Company,
whether such termination was for Cause or Disability, or (ii) in the event of
any termination of employment by the Executive, whether Good Reason existed or
whether such termination occurred during a Window Period, then, unless and until
there is a final, determination by an arbitrator declaring that such termination
was for Cause or not for Disability or that the determination by the Executive
of the existence of Good Reason was not made in good faith or that the
termination by the Executive did not occur during a Window Period, the Company
shall pay all amounts, and provide all benefits, to the Executive and/or the
Executive's family or other beneficiaries, as the case may be, that the Company
would be required to pay or provide pursuant to Section 4(a) hereof as though
such termination were by the Company without Cause or by the Executive with Good
Reason or during a Window Period; provided, however, that the Company shall not
be required to pay any disputed amounts pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such arbitrator not to
be entitled.
 
(d)  Notwithstanding any provision of Section 4, except in the case of a
termination of employment within two years following a Change in Control, the
Company's obligation to pay the amounts due on any termination of employment
under Section 4 (other than the Accrued Obligations) are conditioned on the
Executive's execution (without revocation during any applicable statutory
revocation period) of a waiver and release of any and all claims against the
Company and its affiliates in such form as may be prescribed by the Company.
 
7.  Certain Additional Payments by the Company.
 
(a)  Anything in this Agreement to the contrary notwithstanding and except as
set forth below, in the event it shall be determined that any payment or
distribution in the nature of compensation (within the meaning of Section
280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 7 (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Code, together with any interest or penalties imposed
with respect to such excise tax ("Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross Up Payment") in an amount
such that, after payment (whether through withholding at the source or
otherwise) by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto), employment
taxes and Excise Tax imposed upon the Gross Up Payment, the Executive retains an
amount of the Gross Up Payment equal to the Excise Tax imposed upon the
Payments.
 
(b)  Subject to the provisions of this Section 7, all determinations required to
be made under this Section 7, including whether and when a Gross Up Payment is
required and
 
 
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the amount of such Gross Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by Pannell Kerr Forster of Texas,
P.C. (or such other nationally recognized certified public accounting firm that
is providing audit services for the Company immediately prior to the date of a
Change of Control in replacement of Pannell Kerr Forster of Texas, P.C.) (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control or the Accounting Firm declines or is unable to serve, the Executive
shall appoint another nationally recognized certified public accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of negligence or similar penalty.
Any determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to the following provisions of this Section 7 and
the Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
 
(c)  The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30 day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
 
(i)  give the Company any information reasonably requested by the Company
relating to such claim;
 
(ii)  take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company;
 
 
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(iii)  cooperate with the Company in good faith in order to effectively contest
such claim; and
 
(iv)  permit the Company to participate in any proceedings relating to such
claim;
 
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after tax basis, for any Excise Tax, employment tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation of the
foregoing provisions of this Section 7, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall provide the
amount of such payment to the Executive as an additional payment ("Supplemental
Payment") (subject to possible repayment as provided in the next paragraph) and
shall indemnify and hold the Executive harmless, on an after tax basis, from any
Excise Tax, employment tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such payment or with respect to any
imputed income with respect thereto; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross Up
Payment or Supplemental Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
 
(d)  If, after the receipt by the Executive of an amount provided by the Company
pursuant to the foregoing provisions of this Section 7, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company complying with the requirements of this Section 7)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto).
 
8.  Confidential Information. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement)
(referred to herein as "Confidential Information"). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information,
 
 
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knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this Section 8
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement. Also, within 14 days of the termination of
the Executive's employment for any reason, the Executive shall return to Company
all documents and other tangible items of or containing Company information
which are in the Executive's possession, custody or control.
 
9.  Change of Control.
 
As used in this Agreement, the terms set forth below shall have the following
respective meanings:
 
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Agreement.
 
"Associate" shall mean, with reference to any Person, (a) any corporation, firm,
partnership, association, unincorporated organization or other entity (other
than the Company or a subsidiary of the Company) of which such Person is an
officer or general partner (or officer or general partner of a general partner)
or is, directly or indirectly, the Beneficial Owner of 10% or more of any class
of equity securities, (b) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity and (c) any relative or spouse of such Person,
or any relative of such spouse, who has the same home as such Person.
 
"Beneficial Owner" shall mean, with reference to any securities, any Person if:
 
(a)  such Person or any of such Person's Affiliates and Associates, directly or
indirectly, is the "beneficial owner" of (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Exchange Act, as in effect on the
date of this Agreement) such securities or otherwise has the right to vote or
dispose of such securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any
security under this subsection (a) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (i) arises solely from a revocable proxy or consent given in
response to a public (i.e., not including a solicitation exempted by Rule
14a-2(b)(2) of the General Rules and Regulations under the Exchange Act) proxy
or consent solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act and (ii)
is not then reportable by such Person on Schedule 13D under the Exchange Act (or
any comparable or successor report);
 
(b)  such Person or any of such Person's Affiliates and Associates, directly or
indirectly, has the right or obligation to acquire such securities (whether such
right or obligation is exercisable or effective immediately or only after the
passage of time or the occurrence of an event) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to
 
 
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"beneficially own," (i) securities tendered pursuant to a tender or exchange
offer made by such Person or any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange or (ii)
securities issuable upon exercise of Exempt Rights; or
 
(c)  such Person or any such Person's Affiliates or Associates (i) has any
agreement, arrangement or understanding (whether or not in writing) with any
other Person (or any Affiliate or Associate thereof) that beneficially owns such
securities for the purpose of acquiring, holding, voting (except as set forth in
the proviso to subsection (a) of this definition) or disposing of such
securities or (ii) is a member of a group (as that term is used in Rule 13d-5(b)
of the General Rules and Regulations under the Exchange Act) that includes any
other Person that beneficially owns such securities;
 
provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition. For purposes hereof, "voting" a security
shall include voting, granting a proxy, consenting or making a request or demand
relating to corporate action (including, without limitation, a demand for
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of Section
14(a) of the Exchange Act) in respect of such security.
 
The terms "beneficially own" and "beneficially owning" shall have meanings that
are correlative to this definition of the term "Beneficial Owner".
 
"Change of Control" shall mean any of the following:
 
(a)  any Person (other than an Exempt Person) shall become the Beneficial Owner
of 40% or more of the shares of Common Stock then outstanding or 40% or more of
the combined voting power of the Voting Stock of the Company then outstanding;
provided, however, that no Change of Control shall be deemed to occur for
purposes of this subsection (a) if such Person shall become a Beneficial Owner
of 40% or more of the shares of Common Stock or 40% or more of the combined
voting power of the Voting Stock of the Company solely as a result of (i) an
Exempt Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this definition are satisfied; or
 
(b)  individuals who, as of the Agreement Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the Agreement Effective Date whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board;
provided, further, that there shall be excluded, for this purpose, any such
individual whose initial assumption of office occurs as a result of any actual
or threatened election contest that is subject to the provisions of Rule 14a-11
under the Exchange Act; or
 
 
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(c)  the Company engages in and completes a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 85% of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding Voting Stock of such
corporation beneficially owned, directly or indirectly, by all or substantially
all of the Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such reorganization, merger, or consolidation is in
substantially the same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding Common Stock, (ii)
no Person (excluding any Exempt Person or any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 40% or more of the Common Stock then outstanding or 40% or more of
the combined voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then outstanding
Voting Stock of such corporation and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such reorganization,
merger or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement or initial action by the Board providing for
such reorganization, merger or consolidation; or
 
(d)  the Company engages in and completes (i) a complete liquidation or
dissolution of the Company unless such liquidation or dissolution is approved a
part of a plan of liquidation and dissolution involving a sale or disposition of
all or substantially all of the assets of the Company to a corporation with
respect to which, following such sale or other disposition, all of the
requirements of clauses (ii) (A), (B) and (C) of this subsection (d) are
satisfied, or (ii) the sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with respect to which,
following such sale or other disposition, (A) more than 85% of the then
outstanding shares of common stock or such corporation and the combined voting
power of the Voting Stock of such corporation is then beneficially owned,
directly or indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to such sale
or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the outstanding Common
Stock, (B) no Person (excluding any Exempt Person and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 40% or more of the Common Stock then outstanding or 40% or more of
the combined voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a majority of
the members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement or initial
action of the Board providing for such sale or other disposition of assets of
the Company.
 
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
 
"Exempt Person" shall mean the Company, any subsidiary of the Company, any
employee benefit plan of the Company or any subsidiary of the Company, and any
Person
 
 
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organized, appointed or established by the Company for or pursuant to the terms
of any such plan.
 
"Exempt Rights" shall mean any rights to purchase shares of Common Stock or
other Voting Stock of the Company if at the time of the issuance thereof such
rights are not separable from such Common Stock or other Voting Stock (i.e., are
not transferable otherwise than in connection with a transfer of the underlying
Common Stock or other Voting Stock) except upon the occurrence of a contingency,
whether such rights exist as of the Agreement Effective Date or are thereafter
issued by the Company as a dividend on shares of Common Stock or other Voting
Securities or otherwise.
 
"Exempt Transaction" shall mean an increase in the percentage of the outstanding
shares of Common Stock or the percentage of the combined voting power of the
outstanding Voting Stock of the Company beneficially owned by any Person solely
as a result of a reduction in the number of shares of Common Stock then
outstanding due to the repurchase of Common Stock or Voting Stock by the
Company, unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial Owner
of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or additional Voting Stock representing 1% or
more of the combined voting power of the then outstanding Voting Stock, or (b)
any other Person (or Persons) who is (or collectively are) the Beneficial Owner
of shares of Common Stock constituting 1% or more of the then outstanding shares
of Common Stock or Voting Stock representing 1% or more of the combined voting
power of the then outstanding Voting Stock shall become an Affiliate or
Associate of such Person.
 
"Person" shall mean any individual, firm, corporation, partnership, association,
trust, unincorporated organization or other entity.
 
"Voting Stock" shall mean, with respect to a corporation, all securities of such
corporation of any class or series that are entitled to vote generally in the
election of directors of such corporation (excluding any class or series that
would be entitled so to vote by reason of the occurrence of any contingency, so
long as such contingency has not occurred).
 
10.  Non-Compete and Non-Solicitation.
 
(a)  The Executive recognizes that in each of the highly competitive businesses
in which the Company is engaged, personal contact is of primary importance in
securing new customers and in retaining the accounts and goodwill of present
customers and protecting the business of the Company. The Executive, therefore,
agrees that during the Employment Period and, if the Date of Termination occurs
by reason of the Executive terminating his employment for reasons other than
Disability or Good Reason and other than during a Window Period, for a period of
one year after the Date of Termination, he will not either within 20 miles of
any geographic location of any Shale play with respect to which he has devoted
substantial attention to the material business interests of the Company or any
of its affiliated companies or with respect to any immediate geologic trends in
any non-Shale plays in which the Company or any of its affiliated companies is
active as of the Date of Termination, without regard, in either case, to whether
the Executive has worked at such location (the "Relevant Geographic Area"), (i)
accept employment or render service to
 
 
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any person that is engaged in a business directly competitive with the business
then engaged in by the Company or any of its affiliated companies, (ii) enter
into or take part in or lend his name, counsel or assistance to any business,
either as proprietor, principal, investor, partner, director, officer,
executive, consultant, advisor, agent, independent contractor, or in any other
capacity whatsoever, for any purpose that would be competitive with the business
of the Company or any of its affiliated companies or (iii) regardless of
geographic area, directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer, advisor,
stockholder, partner or in any other individual or representative capacity
whatsoever, either for his own benefit or for the benefit of any other person or
entity either (A) hire, contract or solicit, or attempt any of the foregoing,
with respect to hiring any employee of the Company or its affiliated companies,
or (B) induce or otherwise counsel, advise or encourage any employee of the
Company or its affiliated companies to leave the employment of the Company or
its affiliated companies (all of the foregoing activities described in (i), (ii)
and (iii) are collectively referred to as the "Prohibited Activity").
Notwithstanding anything contained in this Section 10 to the contrary, the
Prohibited Activity shall not be applicable to the state or federal waters of
the Gulf of Mexico except as to the area covered by any state or federal oil and
gas lease in which Company owns a working interest which was acquired by Company
prior to or during the Employment Period and further limited to the depths in
which Company owns such working or operating rights interest. For the avoidance
of doubt, the provisions of this Section 10 will not apply following a
termination of the Executive's employment by the Company with or without Cause,
by the Executive due to Disability or Good Reason or by the Executive during a
Window Period.
 
(b)  In addition to all other remedies at law or in equity which the Company may
have for breach of a provision of this Section 10 by the Executive, it is agreed
that in the event of any breach or attempted or threatened breach of any such
provision, the Company shall be entitled, upon application to any court of
proper jurisdiction, to a temporary restraining order or preliminary injunction
(without the necessity of (i) proving irreparable harm, (ii) establishing that
monetary damages are inadequate or (iii) posting any bond with respect thereto)
against the Executive prohibiting such breach or attempted or threatened breach
by proving only the existence of such breach or attempted or threatened breach.
If the provisions of this Section 10 should ever be deemed to exceed the time,
geographic or occupational limitations permitted by the applicable law, the
Executive and the Company agree that such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by the applicable law.
 
(c)  The covenants of the Executive set forth in this Section 10 are independent
of and severable from every other provision of this Agreement; and the breach of
any other provision of this Agreement by the Company or the breach by the
Company of any other agreement between the Company and the Executive shall not
affect the validity of the provisions of this Section 10 or constitute a defense
of the Executive in any suit or action brought by the Company to enforce any of
the provisions of this Section 10 or seek any relief for the breach thereof by
the Executive.
 
(d)  The Executive acknowledges, agrees and stipulates that: (i) the terms and
provisions of this Agreement are reasonable and constitute an otherwise
enforceable agreement to which the terms and provisions of this Section 10 are
ancillary or a part of as contemplated by
 
 
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TEX. BUS. & COM. CODE ANN. Sections 15.50-15.52; (ii) the consideration provided
by the Company under this Agreement is not illusory; and (iii) the consideration
given by the Company under this Agreement, including, without limitation, the
provision by the Company of Confidential Information to the Executive as
contemplated by Section 8, gives rise to the Company's interest in restraining
and prohibiting the Executive from engaging in the Prohibited Activity within
the Relevant Geographic Area as provided under this Section 10, and the
Executive's covenant not to engage in the Prohibited Activity within the
Relevant Geographic Area pursuant to this Section 10 is designed to enforce the
Executive's consideration (or return promises), including, without limitation,
the Executive's promise to not disclose Confidential Information under this
Agreement.
 
11.  Successors.
 
(a)  This Agreement is personal to the Executive and without the prior written
consent of the Company shall not be assignable by the Executive otherwise than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's heirs, executors and other
legal representatives.
 
(b)  This Agreement shall inure to the benefit of and be binding upon he Company
and may only be assigned to a successor described in Section 11(c).
 
(c)  The Company will require any successor (whether direct or indirect, y
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
 
12.  Section 409A. If any provision provided herein results in the imposition of
an excise tax under the provisions of Section 409A of the Internal Revenue Code
and related regulations and Treasury pronouncements ("Section 409A"), the
Executive and the Company agree that any such provision will be reformed to
avoid imposition of any such excise tax in the manner that the Executive and the
Company determine are appropriate to comply with Section 409A.
 
13.  Miscellaneous.
 
(a)  This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas, without reference to principles of conflict of laws
that would require the application of the laws of any other state or
jurisdiction.
 
(b)  The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect.
 
(c)  This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
heirs, executors and other legal representatives.
 
 
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(d)  All notices and other communications hereunder shall be in writing and
shall be given, if by the Executive to the Company, by telecopy or facsimile
transmission at the telecommunications number set forth below and, if by either
the Company or the Executive, either by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
 
If to the Executive:
 
Name: Richard H. Smith
1110 Joshua Lane
Houston, TX 77055  

 
If to the Company:
 
Carrizo Oil & Gas, Inc.
1000 Louisiana Street , Suite 1500
Houston, Texas 77002
Fax Number: (713) 358-6473
Telephone Number: (713) 328-1000
Attention: Corporate Secretary

 
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
 
(e)  The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
 
(f)  The Company may withhold from any amounts payable under this Agreement such
federal, state or local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
 
(g)  The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement; provided, however, that any claim for
"Good Reason" termination must be raised within 180 days following the
occurrence of the event giving rise to the right to terminate for "Good Reason"
as set forth in Section 3(c) hereof.
 
(h)  This Agreement contains the complete and total understanding of the parties
concerning the subject matter hereof and expressly supersedes any previous
agreement between the parties relating to the subject matter hereof.
 
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IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the
authorization from its Board of Directors, the Company has caused these presents
to be executed in its name on its behalf, all to be effective as of the
Agreement Effective Date.

CARRIZO OIL & GAS, INC.

By: /s/S.P. Johnson IV    
Name: S.P. Johnson IV    
Title:  President and Chief Executive Officer

EXECUTIVE

/s/Richard H. Smith
Richard H. Smith
 
 
 
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