Exhibit 10.1
Execution Version
AMENDED AND RESTATED PARTICIPATION AGREEMENT
     THIS AMENDED AND RESTATED PARTICIPATION AGREEMENT, among Carrizo
(Marcellus) WV LLC, a Delaware limited liability company (“Carrizo”), Carrizo
Oil & Gas, Inc., a Texas corporation (“COGI” and, together with Carrizo, the
“Carrizo Parties”), Avista Capital Partners II, L.P., a Delaware limited
partnership (“Avista”), and ACP II Marcellus LLC, a Delaware limited liability
company (“Investor LLC” and, together with Avista, the “Avista Parties”), is
entered into this 16th day of November, 2010 (the “Execution Date”) and
effective as of the 1st day of October, 2010 (the “Effective Date”). In this
Agreement, Carrizo, COGI, Avista and Investor LLC are collectively referred to
as the “Parties” and each as a “Party.”
RECITALS:
     A. Carrizo (Marcellus) LLC, a Delaware limited liability company (“Carrizo
PA”), COGI and the Avista Parties are parties to that certain Participation
Agreement, dated November 3, 2008 and effective as of August 1, 2008, as amended
by that certain Amendment No. 1 to Participation Agreement by and among Carrizo
PA, COGI and the Avista Parties, dated as of August 4, 2010 and as further
amended by that certain Omnibus Amendment (the “Omnibus Amendment”) by and among
Carrizo PA, COGI and the Avista Parties, dated as of September 10, 2010 (the
“Original Participation Agreement”).
     B. On August 4, 2010, Carrizo PA and COGI, on the one hand, and Investor
LLC, on the other hand, entered into separate purchase and sale agreements with
Reliance Marcellus II, LLC whereby Carrizo PA and Investor LLC agreed to sell
certain of their respective Oil and Gas Interests located in the Commonwealth of
Pennsylvania and subject to the Original Participation Agreement (the “Reliance
Disposition”). The Reliance Disposition closed on September 10, 2010.
     C. On the Execution Date and concurrently with the execution hereof,
Carrizo PA and COGI assigned to each of Carrizo and Investor LLC an undivided
50% interest in and to all of Carrizo PA’s and COGI’s right, title and interest
in and to the Oil and Gas Interests dedicated by Carrizo PA and COGI pursuant to
the Original Participation Agreement located in the geologic play area commonly
known as the Marcellus Shale in Maryland, New York, Pennsylvania, Virginia and
West Virginia (the “Designated Area”), none of which were included in the
Reliance Disposition (the “Marcellus Restructuring”).
     D. In connection with the Marcellus Restructuring, Carrizo PA assigned to
Carrizo all of Carrizo PA’s right, title and interest in and to the Original
Participation Agreement and that certain Operating Agreement, dated November 3,
2008 and effective August 1, 2008, as amended by the Omnibus Amendment and the
Amendment to Operating Agreement, dated as of the Execution Date, and as
otherwise amended from time to time (the “Operating Agreement”).
     E. Giving effect to the Reliance Disposition and the Marcellus
Restructuring, the Parties desire to amend and restate the Original
Participation Agreement to more accurately reflect the Parties’ joint
development activities with respect to the Oil and Gas Interests in the
Designated Area.
     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of

 

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which is hereby acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
     “ACP II” means ACP II AMS LP, a Delaware limited partnership.
     “ACP II Offshore” means ACP II AMS (Offshore) LP, a Delaware limited
partnership.
     “Affiliate” means any Person that, directly or indirectly, or through one
or more intermediaries controls, is controlled by, or is under common control
with another Person. For the purposes of this Agreement, “control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management of a Person, whether through the ownership of Voting
Securities or by contract, agency, or otherwise. Notwithstanding the foregoing,
COGI and its Subsidiaries and other Affiliates shall not be deemed to be
Affiliates of Avista or any of its Subsidiaries or its other Affiliates, and
vice versa.
     “Agreement” means this Amended and Restated Participation Agreement.
     “AMI” has the meaning set forth in the Operating Agreement.
     “Avista” means Avista Capital Partners II, L.P., a Delaware limited
partnership.
     “Avista Allocation Threshold” means the first time that (a) the aggregate
amounts of Net Cash Flow From Production allocated to Investor LLC pursuant to
Section 3.1(a) and proceeds allocated to Investor LLC pursuant to Section 3.2(a)
equal (b) $11,456,135.89.
     “Avista Controlled Entity” means (a) any general partner or managing member
of ACP II or ACP II Offshore or any Affiliate of such general partner or
managing member (excluding portfolio companies), provided that such Person is
controlled by the same Persons (the “Avista Controlling Parties”) that, as of
November 3, 2008, controlled Avista GP, or (b) any Person organized, formed or
incorporated and managed or controlled by the Avista Controlling Parties
(excluding portfolio companies) as a vehicle for purposes of making investments.
     “Avista GP” means Avista Capital Partners II GP, LLC, a Delaware limited
liability company.
     “Avista Offshore” means Avista Capital Partners (Offshore) II LP, a
Delaware limited partnership.
     “Avista Parties” means Avista and Investor LLC.
     “Business Day” means any day other than a Saturday, a Sunday or a day on
which banks are closed for business in Houston, Texas.
     “Carrizo” means Carrizo (Marcellus) WV LLC, a Delaware limited liability
company.
     “Carrizo Allocation Threshold” means the first time that (a) the aggregate
amounts of

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Net Cash Flow From Production allocated to Carrizo pursuant to Section 3.1(b)
and proceeds allocated to Carrizo pursuant to Section 3.2(b) equal (b)
$11,456,135.89.
     “Carrizo Cap” means $55,453,916.71, excluding any payments by Carrizo to
Investor LLC under Section 5.2(b) and expenditures by Carrizo in connection with
Exclusive Operations conducted by it in which Investor LLC does not participate.
     “Carrizo Equalization Share” means 25%, which is 100% minus the Investor
Equalization Share.
     “Carrizo PA” has the meaning set forth in the recitals to this Agreement.
     “Carrizo Parties” means COGI and Carrizo.
     “Cash Call” has the meaning set forth in Exhibit D of the Operating
Agreement.
     “Change of Control” means, with respect to any Person, a Transfer of at
least a majority of the Voting Securities of such Person, in one transaction or
series of related transactions, to, in the case of Carrizo, any Person other
than COGI or a wholly owned Subsidiary of COGI or in the case of Investor LLC,
any Person other than an Avista Controlled Entity.
     “COGI” means Carrizo Oil & Gas, Inc., a Texas corporation.
     “Designated Area” has the meaning set forth in the recitals to this
Agreement.
     “Drilling Unit” has the meaning set forth in the Operating Agreement.
     “Entitlement” means that quantity of Hydrocarbons (excluding all quantities
used or lost in Joint Operations) of which a Party has the right and obligation
to take delivery pursuant to the terms of the Operating Agreement, as such
rights and obligations may be adjusted by the terms of any lifting, balancing or
other disposition agreements entered into pursuant to Article 9 of the Operating
Agreement.
     “Equity Offeror” has the meaning set forth in Section 4.3(b)(i).
     “Equity Purchase Rights” has the meaning set forth in Section 4.2(b).
     “Equity ROFR Initiator” has the meaning set forth in Section 4.2(b).
     “Equity Tag-Along Initiator” has the meaning set forth in
Section 4.3(b)(i).
     “Equity Tag-Along Interest” means, with respect to Carrizo or Investor LLC,
as applicable, such Party’s interest in the Properties (expressed as a
percentage of all of such Party’s interest in the Properties) that is equal to
the product of (x) such Party’s Participation Interest in all of the Properties
and (y) the Indirect Beneficial Ownership Interest in the other Party that is
subject to the Proposed Equity Tag-Along Sale.
     “Equity Tag-Along Notice” has the meaning set forth in Section 4.3(b)(ii).

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     “Equity Tag-Along Rights” has the meaning set forth in Section 4.3(b)(i).
     “Exclusive Operations” has the meaning set forth in the Operating Agreement
and includes any Subsequent Exclusive Operation described in Section 5.2(b).
     “Governmental Authority” or “Governmental Authorities” means any nation or
state and any political subdivision thereof and any governmental, regulatory or
administrative agency, commission, body or other authority exercising or
entitled to exercise any administrative, executive, judicial, legislative,
police, regulatory or taxing authority or power; and any court or governmental
tribunal.
     “Hydrocarbons” means oil, condensate, gas, casinghead gas and other liquid
or gaseous hydrocarbons.
     “Indirect Beneficial Ownership Interest” means Carrizo’s or Investor LLC’s,
as applicable, interest in the Properties (expressed as a percentage of all of
such Party’s interest in the Properties) represented by limited liability
company interests in such Party, which the Parties acknowledge and agree shall
be in the same proportion that a Person’s aggregate ownership of limited
liability company interests bears to all of the issued and outstanding limited
liability company interests in such Party; provided that the Profit Interest
shall be disregarded for purposes of such calculation.
     “Investor Equalization Share” means 75%.
     “Investor LLC” means ACP II Marcellus LLC, a Delaware limited liability
company.
     “Investor LLC Agreement” means the limited liability company agreement of
Investor LLC, dated November 3, 2008, as amended from time to time.
     “Investor LLC Cap” means $55,453,916.71, excluding any payments by Investor
LLC to Carrizo under Section 5.2(b) and expenditures by Investor LLC in
connection with Exclusive Operations conducted by it in which Carrizo does not
participate.
     “JOA Trigger Date” has the meaning set forth in Section 5.2(a).
     “Joint Account” has the meaning set forth in the Operating Agreement.
     “Joint Operations” has the meaning set forth in the Operating Agreement.
     “Joint Properties” has the meaning set forth in the Operating Agreement.
     “Laws” means all laws, statutes, rules, regulations, ordinances, orders,
decrees, requirements, judgments and codes of Governmental Authorities.
     “Management Services Agreement” means the Management Services Agreement
dated November 3, 2008, by and between COGI and Investor LLC, as amended from
time to time.
     “Marcellus Restructuring” has the meaning set forth in the recitals to this
Agreement.

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     “Membership Interest” means the interest in Investor LLC designated as such
in the Investor LLC Agreement, having the rights and preferences set forth
therein.
     “Minimum Commitment Date” means the date on which the aggregate
contributions of the Carrizo Parties, on the one hand, and the Avista Parties,
on the other hand, pursuant to Section 2.1 and 2.2 have satisfied the Carrizo
Cap and the Investor LLC Cap.
     “Net Cash Flow From Production” means the positive amount, if any, shown on
the Cash Call for a given calendar month (e.g., March) that is calculated as
(a) the proceeds from the sale of the Parties’ Entitlements to Hydrocarbons from
Operations conducted on the Properties actually received by the Operator in
respect of joint marketing conducted pursuant to Section 2.3 during the calendar
month immediately preceding the date of such Cash Call (e.g., February) plus the
positive adjustment, if any, by which estimated operating and capital
expenditures for Operations of the Parties reflected on the Cash Call for the
second calendar month immediately preceding the date of such Cash Call (e.g.,
January) exceeded actual or accrued operating and capital expenditures for
Operations of the Parties during such second preceding calendar month, less
(b) the total amount of estimated operating and capital expenditures for
Operations of the Parties during the calendar month immediately following the
date of such Cash Call (e.g., April) less the negative adjustment, if any, by
which actual or accrued operating and capital expenditures for Operations of the
Parties reflected on the Cash Call for the second calendar month immediately
preceding the date of such Cash Call (e.g., January) exceeded the estimated
operating and capital expenditures for Operations of the Parties reflected on
the Cash Call for such second preceding calendar month. Notwithstanding the
foregoing, both the proceeds from the sale of Entitlements and the operating and
capital expenditures attributable to Properties that either (i) Carrizo has
Transferred to COGI or a wholly-owned Subsidiary of COGI or (ii) Investor LLC
has Transferred to an Avista Controlled Entity in accordance with
Section 4.1(b), shall be included in this definition of “Net Cash Flow From
Production.” However, neither the proceeds from the sale of Entitlements, nor
the operating and capital expenditures attributable to Exclusive Operations
where either Carrizo or Investor LLC is a Non-Consenting Party pursuant to
(i) Article 7.4(B)(1) of the Operating Agreement or Section 5.2(b) or
(ii) Article 7.4(B)(2), (3) or (4) of the Operating Agreement until the
termination of the Non-Consenting Party’s relinquishment of its rights in the
affected Property, shall be included in this definition of “Net Cash Flow From
Production.”
     “Non-Consenting Party” means either Carrizo or Investor LLC, if such Party
elects not to participate in an Exclusive Operation as described in the
Operating Agreement. For the avoidance of doubt, as used herein, the term
“Non-Consenting Party” shall not include any other party that may be subject to
the Operating Agreement.
     “Offered Equity Interest” has the meaning set forth in Section 4.3(b)(ii).
     “Offered Property Interest” has the meaning set forth in
Section 4.3(a)(ii).
     “Oil and Gas Interests” means (a) interests in and rights with respect to
oil, gas, mineral, and related properties and assets of any kind and nature,
direct or indirect, including working, leasehold and mineral interests and
operating rights and royalties, overriding royalties, production payments, net
profit interests and other nonworking interests and nonoperating

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interests; (b) all interests in rights with respect to Hydrocarbons and other
minerals or revenues therefrom, all contracts in connection therewith and claims
and rights thereto (including all oil and gas leases, operating agreements,
unitization and pooling agreements and orders, division orders, transfer orders,
mineral deeds, royalty deeds, oil and gas sales, exchange and processing
contracts and agreements, and in each case, interests thereunder), surface
interests, fee interests, reversionary interests, reservations, and concessions;
(c) all easements, rights of way, licenses, permits, leases, and other interests
associated with, appurtenant to, or necessary for the operation of any of the
foregoing; and (d) all interests in equipment and machinery (including wells,
well equipment and machinery), oil and gas production, gathering, transmission,
treating, processing, and storage facilities (including tanks, tank batteries,
pipelines, and gathering systems), pumps, water plants, electric plants,
gasoline and gas processing plants, refineries, and other tangible personal
property and fixtures associated with, appurtenant to, or necessary for the
operation of any of the foregoing.
     “Omnibus Amendment” has the meaning set forth in the recitals to this
Agreement.
     “Operator” has the meaning set forth in the Operating Agreement.
     “Operating Agreement” has the meaning set forth in the recitals to this
Agreement.
     “Operating Committee” has the meaning set forth in the Operating Agreement.
     “Operation” means any Joint Operation or Exclusive Operation in which both
Investor LLC and Carrizo participate.
     “Participation Interest” means as to any Party, the undivided interest of
such Party (expressed as a percentage of the total interests of all the Parties)
in the rights and obligations derived from the Parties’ respective interests in
each of the Properties and each Operation thereon.
     “Party” and “Parties” has the meaning set forth in the preamble to this
Agreement.
     “Permitted Pledge” means the pledge, hypothecation or other voluntary
encumbrance of a Party’s direct or indirect interest (including the securities
of any of its Affiliates) in the Properties; provided that (a) each pledge,
hypothecation or encumbrance of a Party’s direct interest in the Properties
complies with the Operating Agreement, and (b) with respect to each pledge,
hypothecation or other voluntary encumbrance of the limited liability company
interests of Carrizo or Investor LLC, any Transfer of such limited liability
company interests in connection with a secured party’s exercise of remedies
under such pledge, hypothecation or encumbrance is subject to the other Party’s
rights under Sections 4.2(b) and 4.3(b) of this Agreement.
     “Permitted Pledge Transfer” means, subject to Section 4.1(c), any Transfer
made in connection with a secured party’s exercise of remedies under a Permitted
Pledge or any Transfer made after commencement of a bankruptcy or insolvency
proceeding respecting the Party bound by the Permitted Pledge and approved by
the court or tribunal having jurisdiction over such proceeding.

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     “Person” means any individual, firm, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, Governmental Authority, or any other entity.
     “Profit Interest” means the interest in Investor LLC designated as such in
the Investor LLC Agreement, having the rights and preferences set forth therein.
     “Properties” means all Oil and Gas Interests dedicated pursuant to
Sections 2.1(a) and 2.1(b); provided that any Oil and Gas Interests in
Properties relinquished by Carrizo or Investor LLC pursuant to Exclusive
Operations under Article 7 of the Operating Agreement or as set forth in
Section 5.2(b) shall not be deemed “Properties” hereunder from and after such
event, except to the extent otherwise expressly provided herein.
     “Property Offeror” has the meaning set forth in Section 4.3(a)(ii).
     “Property Tag-Along Initiator” has the meaning set forth in
Section 4.3(a)(i).
     “Property Tag-Along Interest” has the meaning set forth in
Section 4.3(a)(iii).
     “Property Tag-Along Notice” has the meaning set forth in
Section 4.3(a)(ii).
     “Property Tag-Along Rights” has the meaning set forth in Section 4.3(a)(i).
     “Proposed Equity Tag-Along Sale” means the Transfer of limited liability
company interests (expressed as a percentage), other than the Profit Interest,
in either Carrizo or Investor LLC, as applicable, to, in the case of Carrizo,
any Person other than COGI or a wholly owned Subsidiary of COGI, or in the case
of Investor LLC, any Person other than an Avista Controlled Entity, in one
transaction or a series of related transactions, that constitutes a Transfer of
an Indirect Beneficial Ownership Interest in Carrizo’s or Investor LLC’s, as
applicable, interests in the Properties that is equal to or greater than the
Tag-Along Threshold.
     “Proposed Property Tag-Along Sale” has the meaning set forth in
Section 4.3(a)(i).
     “Proposing Party” has the meaning set forth in Section 5.2(b).
     “Prospect” has the meaning set forth in the Operating Agreement.
     “Qualifying Equity Interests” has the meaning set forth in Section 4.2(b).
     “Qualifying Equity Transfer” has the meaning set forth in Section 4.2(b).
     “Reliance Disposition” has the meaning set forth in the recitals to this
Agreement.
     “Selling Member” has the meaning set forth in Section 4.2(b).
     “Subsequent Exclusive Operation” has the meaning set forth in the Operating
Agreement.
     “Subsidiary” of a Person means a corporation, partnership, joint venture,
limited liability

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company or other business entity of which a majority of the shares of securities
or other interests having ordinary voting power for the election of directors or
other governing body (other than securities or interests having such power only
by reason of the happening of a contingency) are at the time beneficially owned,
or the management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person.
     “Tag-Along Threshold” means, with respect to Carrizo or Investor LLC,
(a) 10% of such Party’s interest in the proved reserves (based on the most
recent independent reserve report) in the Properties, (b) 10% of the aggregate
acquisition cost of such Party’s net mineral leasehold interests in the
Properties or (c) 10% of such Party’s book value in the Joint Properties.
     “Taxes” means all income, profits, franchise, sales, use, ad valorem,
property, severance, production, excise, stamp, documentary, real property
transfer or gain, gross receipts, goods and services, registration, capital,
transfer, or withholding taxes or other governmental fees or charges imposed by
any Governmental Authority, including any interest, penalties, or additional
amounts that may be imposed with respect thereto.
     “Transaction Documents” means this Agreement, the Operating Agreement, the
Investor LLC Agreement, the Management Services Agreement and any instrument of
assignment, conveyance and sale pursuant to which a Carrizo Party assigns and
transfers to Investor LLC a record title or beneficial ownership interest in any
Oil and Gas Interests.
     “Transfer” means any sale, assignment, conveyance, transfer or other
disposition, voluntary or involuntary, by operation of law (including without
limitation by merger or other business combination transaction) or otherwise;
provided that unless otherwise specified herein, a Party’s entry into a
Permitted Pledge shall not constitute a Transfer. When used as a verb, the term
“Transfer” shall have a correlative meaning.
     “Transfer Taxes” means any Transfer, documentary, sales, use, registration,
value-added, and other similar Taxes, including interest, fines, penalties or
additional amounts which may be imposed with respect thereto, incurred in
connection with the execution, delivery or performance of this Agreement or the
transactions contemplated hereby.
     “Voting Securities” means any securities which at present or upon
conversion entitle the owner or holder thereof to vote for the election of
directors of the entity who issued such securities or, with respect to
unincorporated entities, Persons exercising similar functions.
     “Work Program and Budget” has the meaning set forth in the Operating
Agreement.
ARTICLE 2
DEDICATIONS; EXPENSE ALLOCATION; JOINT MARKETING
          2.1 Dedication of Oil and Gas Interests.
          (a) The Carrizo Parties hereby confirm the dedication, for the joint
benefit of Carrizo and Investor LLC, of (i) 100% of their interests in and to
the properties described on Exhibit 2.1, and all of their Oil and Gas Interests
associated with such

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properties and (ii) 100% of their interests in the Oil and Gas Interests that
the parties to the Operating Agreement agree to acquire pursuant to the
Operating Agreement.
          (b) Investor LLC hereby confirms the dedication, for the joint benefit
of Investor LLC and Carrizo, of (i) 100% of its interests in and to the
properties described on Exhibit 2.1, and all of its Oil and Gas Interests
associated with such properties and (ii) 100% of its interest in the Oil and Gas
Interests that the parties to the Operating Agreement agree to acquire pursuant
to the Operating Agreement.
          (c) The Parties acknowledge that, following the Effective Date,
activities and operations with respect to certain Oil and Gas Interests
dedicated pursuant to Sections E.2.1(a) and (b) may constitute Exclusive
Operations whereby Carrizo or Investor LLC elect not to participate in such
activities or operations in accordance with the Operating Agreement. In such
case, the Parties agree that notwithstanding Sections (a) and (b), the Oil and
Gas Interests associated with Operations relinquished by Carrizo or Investor LLC
pursuant to Exclusive Operations (i) under Article 7.4(B)(1) of the Operating
Agreement or as set forth in Section 5.2(b) shall no longer constitute
Properties hereunder and (ii) under Article 7.4(B)(2), (3) or (4) of the
Operating Agreement shall not constitute Properties hereunder unless and until
the Non-Consenting Party has reinstated its rights pursuant to Article 7.4(C)(2)
of the Operating Agreement.
          2.2 Capital Commitments.
          (a) Investor LLC shall fund all expenditures and amounts allocated to
or required to be paid by Investor LLC under the Operating Agreement, up to the
Investor LLC Cap.
          (b) Carrizo shall fund all expenditures and amounts allocated to or
required to be paid by it under the Operating Agreement, up to the Carrizo Cap.
          (c) From and after the satisfaction of the funding obligations
provided for in Sections 2.2(a) and (b) above, Carrizo’s and Investor LLC’s
funding obligations shall be governed by the Operating Agreement. At Carrizo’s
election, the funding of expenditures and other amounts provided for in
Sections 2.2(a) and (b) above may be accomplished by net cash calls in
accordance with the Operating Agreement.
          (d) Notwithstanding anything to the contrary herein or in the
Operating Agreement, if either Party fails to make any capital commitments as
required by Section 2.2(a) or Section 2.2(b), as applicable, and such failure is
not cured within ten (10) Business Days of notice provided by the non-defaulting
Party, at the option of the non-defaulting Party the provisions in Article 20.3
of the Operating Agreement (regarding the AMI) shall terminate and be of no
further effect as between Carrizo and Investor LLC.
          2.3 Joint Marketing. Notwithstanding anything to the contrary in
Article 9 of the Operating Agreement, until the provisions of Section 3.1(a) and
3.1(b) are no longer applicable, Carrizo, in its capacity as Operator under the
Operating Agreement, shall use commercially reasonable efforts, and Investor LLC
hereby irrevocably designates Carrizo as

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agent for such purpose, to market on behalf of Investor LLC all of Investor
LLC’s Entitlement to Hydrocarbons from the Properties, together with Carrizo’s
Entitlement to Hydrocarbons from the Properties, as a single stream. Investor
LLC shall not market and shall cause its Affiliates not to market any of its
Entitlement without the prior written consent of Carrizo. Investor LLC
acknowledges and agrees that Carrizo does not warrant or guarantee any market or
price that it will be able to procure for the Parties’ collective Entitlement.
ARTICLE 3
ALLOCATIONS OF NET CASH FLOW FROM PRODUCTION
AND PROPERTY SALE PROCEEDS
          3.1 Allocation of Net Cash Flow From Production. Within twenty
(20) days following the end of each calendar month, Net Cash Flow From
Production shall be allocated between Investor LLC and Carrizo as follows:
          (a) the Investor Equalization Share thereof to Investor LLC, and the
Carrizo Equalization Share thereof to Carrizo, until the Avista Allocation
Threshold is reached;
          (b) thereafter, 100% to Carrizo, until the Carrizo Allocation
Threshold is reached; and
          (c) thereafter, with respect to each Operation from which such Net
Cash Flow From Production arises, in accordance with their respective
Participation Interests in that Operation.
          3.2 Allocation of Proceeds from Property Dispositions. Except as
provided in Section 3.3, proceeds received in the preceding calendar month from
the Transfer of any Oil and Gas Interest in the Properties shall be allocated at
the same time as allocations are being made pursuant to Section 3.1, except that
proceeds from a single Property Transfer in excess of $1,000,000 shall be
allocated promptly after receipt thereof, in either case, between Investor LLC
and Carrizo as follows:
          (a) the Investor Equalization Share thereof to Investor LLC and the
Carrizo Equalization Share thereof to Carrizo, until the Avista Allocation
Threshold is reached;
          (b) thereafter, 100% to Carrizo, until the Carrizo Allocation
Threshold is reached; and
          (c) thereafter, in accordance with the Parties’ respective
Participation Interests in the Oil and Gas Interests disposed of.
          3.3 Special Allocation of Proceeds from Certain Property Dispositions.
Proceeds from any Transfer of Oil and Gas Interests in the Properties (i) by
Carrizo to COGI or a wholly owned Subsidiary of COGI, (ii) by Avista to an
Avista Controlled Entity in accordance with Section 4.1(b), (iii) attributable
to Operations relinquished by Carrizo or Investor LLC pursuant to Exclusive
Operations under Article 7.4(B)(1) of the Operating Agreement or as set

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forth in Section 5.2(b) or (iv) effected pursuant to Sections 4.2(a), 4.3(a)(v)
or 4.3(b), shall not be subject to Section 3.2 and shall be allocated 100% to
the Transferring Party. Proceeds from any Transfer of Oil and Gas Interests in
Properties pursuant to which Exclusive Operations were conducted by a Party in
which the other Party did not participate pursuant to Article 7.4(B)(2), (3) or
(4) of the Operating Agreement shall be allocated 100% to the Party
participating in such Exclusive Operations to the extent required to terminate
the relinquishment of the Non-Consenting Party’s rights in the affected Property
or Properties pursuant to Article 7.4(C)(2) of the Operating Agreement and shall
not be subject to Section 3.2; provided, if such allocation results in
termination of such relinquishment, any remaining proceeds shall be allocated to
the Parties as otherwise contemplated by Section 3.2,
          3.4 Coordination With Operating Agreement. Nothing in this ARTICLE 3
shall change or affect any Party’s obligation to pay its proportionate share of
all costs and liabilities incurred in Operations on or in connection with the
Properties, as its share thereof is set forth in the Operating Agreement.
ARTICLE 4
TRANSFER OF OIL AND GAS INTERESTS IN PROPERTIES
          4.1 Transfer Restrictions.
          (a) Carrizo’s Transfer of any of its interest in the Properties
dedicated pursuant to Section 2.1 to any Person shall be subject to
Sections 4.2(a) and 4.3(a), except for Transfers to COGI or any wholly owned
Subsidiary of COGI or any Permitted Pledge Transfer. Transfers of limited
liability company interests in Carrizo shall be subject to Section 4.2(b) or
Section 4.3(b), as applicable.
          (b) Without the prior written consent of the Carrizo Parties (which
may not be unreasonably withheld), Investor LLC may not Transfer any of its
interest in the Properties to any Avista Controlled Entity. Investor LLC’s
Transfer of any of its interest in the Properties dedicated pursuant to
Section 2.1 to any Person shall be subject to Sections 4.2(a) and 4.3(a), except
for Transfers to any Avista Controlled Entity with the prior written consent of
the Carrizo Parties (which may not be unreasonably withheld) or any Permitted
Pledge Transfer. Transfers of limited liability company interests in Investor
LLC shall be subject to Section 4.2(b) or Section 4.3(b), as applicable.
          (c) Promptly following receipt, the Carrizo Parties shall provide
Investor LLC a copy of any notification of default under any agreement governing
any material funded debt of Carrizo or any of its Affiliates that are
“Restricted Subsidiaries” (as such term may be defined in COGI’s senior secured
revolving credit facility or other similar commercial financing agreement), the
result of which default is to cause, or permit the holder or holders thereof to
cause, such debt to be accelerated. Following Carrizo’s default under the terms
of any Permitted Pledge of Carrizo’s interest in the Properties but prior to the
secured party’s exercise of remedies with respect to such interest, Carrizo
agrees to designate Investor LLC (or its designee) as “co-operator” under the
Operating Agreement for any Operations with respect to such Properties.

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          (d) Notwithstanding any provision of this Agreement to the contrary,
any Transfer of a Party’s interest in the Properties (including, for purposes of
this Section 4.1(d) only, a Party’s entry into a Permitted Pledge) is subject to
the restrictions on Transfer in the event of such Party’s default set forth in
Article 8.2(A)(5) of the Operating Agreement.
          4.2 Transfers Below the Tag-Along Threshold.
          (a) Carrizo and Investor LLC may Transfer their respective interests
in the Properties (in a single transaction or series of related transactions)
constituting less than the Tag-Along Threshold, subject to applicable
preferential purchase rights and other Transfer restrictions set forth in the
Operating Agreement; provided that the Parties hereby agree that any exclusion
in the Operating Agreement from such preferential purchase rights and other
Transfer restrictions with respect to Affiliate transactions shall not apply to
Transfers by Carrizo to any Affiliate other than COGI or a wholly owned
Subsidiary of COGI or by Investor LLC to any of its Affiliates.
          (b) In connection with any Transfer of limited liability company
interests in Carrizo or Investor LLC (in such capacity, the “Equity ROFR
Initiator”) that is below the threshold for a Proposed Equity Tag-Along Sale
(except Transfers to, in the case of Carrizo, COGI or any wholly owned
Subsidiary of COGI, or in the case of Investor LLC, any Avista Controlled
Entity), in one transaction or a series of related transactions (a “Qualifying
Equity Transfer”), the other Party shall be entitled to exercise a right of
first refusal (the “Equity Purchase Rights”) to purchase the limited liability
company interests that are subject to the Qualifying Equity Transfer (the
“Qualifying Equity Interests”) in accordance with this Section 4.2(b). Once the
final terms and conditions of a Qualifying Equity Transfer have been fully
negotiated, the Person that proposes to Transfer (the “Selling Member”) the
Qualifying Equity Interests shall disclose all the final terms and conditions as
are relevant to the Equity ROFR Initiator, and the Equity ROFR Initiator shall
forward such notice to the Party that has the Equity Purchase Rights hereunder
(Carrizo or Investor LLC, as applicable), which notice shall be accompanied by a
copy of all instruments or relevant portions of instruments establishing such
terms and conditions. The Party having the Equity Purchase Rights shall have the
right to acquire the Qualifying Equity Interests from the Selling Member on the
same final terms and conditions as such Selling Member negotiated with the
proposed transferee if, within thirty (30) days of the Selling Member’s notice,
such Party delivers to the Equity ROFR Initiator a counter-notification that it
accepts such terms and conditions without reservations or conditions. If Carrizo
or Investor LLC, as applicable, does not deliver such counter-notification, the
Selling Member may complete the Transfer of the Qualifying Equity Interests to
the proposed transferee under terms and conditions no more favorable to the
Selling Member than those set forth in the notice to the Parties, provided that
such Transfer is concluded within one hundred eighty (180) days from the date of
the notice.
          4.3 Other Transfers. Preferential purchase rights and other Transfer
restrictions set forth in the Operating Agreement and otherwise applicable shall
not apply to any Transfer (including Transfers described under Section 4.3(b))
of a Party’s direct or indirect

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interests in the Properties to any Person (in a single transaction or series of
related transactions), if such Oil and Gas Interests equal or exceed the
Tag-Along Threshold; provided that any such Transfer not otherwise excepted in
this ARTICLE 4 shall be subject to the restrictions set forth in this
Section 4.3:
               (a) Tag-Along Rights in Sales of the Properties.
     (i) If Carrizo or Investor LLC (such Party, the “Property Tag-Along
Initiator”) desires to Transfer all or a part of its interests in the Properties
to, in the case of Carrizo, a Person that is not COGI or a wholly owned
Subsidiary of COGI, or in the case of Investor LLC, any Person, in a single
transaction or series of related transactions, equal to or greater than the
Tag-Along Threshold (a “Proposed Property Tag-Along Sale”), then the other Party
shall be entitled to exercise tag-along rights to participate in such Proposed
Property Tag-Along Sale (in accordance with this Section 4.3(a)) at the same
price and on the same terms and conditions as those offered to the Property
Tag-Along Initiator (“Property Tag-Along Rights”).
     (ii) No later than ten (10) Business Days following the Property Tag-Along
Initiator’s receipt of an offer constituting a Proposed Property Tag-Along Sale,
the Property Tag-Along Initiator shall deliver a written notice (a “Property
Tag-Along Notice”) to the other Party stating that it desires to effect a
Proposed Property Tag-Along Sale, which notice shall set forth (A) the identity
of the Person (the “Property Offeror”) that desires to acquire the Property
Tag-Along Initiator’s interest in the Properties, (B) a summary in reasonable
detail of the representations, warranties, covenants, conditions and
indemnification proposed by the Property Offeror, (C) the Property Tag-Along
Initiator’s interest in the Properties (the “Offered Property Interest”) that
the Property Offeror proposes to acquire (expressed as a percentage of all of
the Property Tag-Along Initiator’s interest of such type in the Properties),
(D) the proposed total purchase price for the Offered Property Interest and
(E) any other material terms governing the offer.
     (iii) Within twenty (20) Business Days of its receipt of a Property
Tag-Along Notice, Carrizo or Investor LLC, as applicable, shall have the right,
but not the obligation, to elect, by written notice to the Property Tag-Along
Initiator, to include a portion of its interest in the Properties constituting
the same type of interest as the Offered Interest in the Proposed Property
Tag-Along Sale (expressed as a percentage of all of such Party’s interest of
such type in the Properties) that is equal to the product of (x) its
Participation Interest in the Properties and (y) the Offered Property Interest
(the “Property Tag-Along Interest”). Such Party’s failure to give unconditional
written notice of such election within such period shall be deemed an election
by such Party not to exercise its Property Tag-Along Rights.

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     (iv) If Carrizo or Investor LLC, as applicable, exercises its Property
Tag-Along Rights, then both Parties shall participate in the Proposed Property
Tag-Along Sale, and the Offered Property Interest shall be reduced to the extent
of the Property Tag-Along Interest.
     (v) If Carrizo or Investor LLC, as applicable, does not elect to exercise
its Property Tag-Along Rights, then the Property Tag-Along Initiator may, for a
period of sixty (60) days from the date of the Property Tag-Along Notice,
consummate the Proposed Property Tag-Along Sale upon terms and conditions that
are no more favorable to the Property Tag-Along Initiator than those set forth
in the Property Tag-Along Notice. Immediately after the closing of the Proposed
Property Tag-Along Sale, the Property Tag-Along Initiator shall provide the
other Party true and complete copies of all agreements relating to such
Transfer.
     (vi) In the event that the Property Offeror fails to purchase the Property
Tag-Along Interest for which Property Tag-Along Rights have been properly
exercised from Carrizo or Investor LLC, as applicable, in accordance with
Section 4.3(a)(iv) and the Property Tag-Along Initiator consummates the Proposed
Property Tag-Along Sale in violation of this Section 4.3(a), then the Property
Tag-Along Initiator shall be required to purchase the other Party’s Property
Tag-Along Interest in the Properties in accordance with the provisions of
Section 4.3(a)(iv).
          (b) Sales of Membership Interests in Carrizo or Investor LLC. In
addition to the Property Tag-Along Rights of Carrizo and Investor LLC described
in Section 4.3(a), the limited liability company agreements of Carrizo and
Investor LLC shall prohibit Transfers of limited liability company interests in
such Party and other transactions that constitute a Proposed Equity Tag-Along
Sale, except in accordance with Section 4.2(b) and this Section 4.3(b).
     (i) In connection with any Proposed Equity Tag-Along Sale with respect to
Carrizo or Investor LLC (in such capacity, the “Equity Tag-Along Initiator”),
the other Party shall be entitled to exercise tag-along rights to sell to the
proposing acquiror (the “Equity Offeror”) the Equity Tag-Along Interest of its
interest in the Properties (the “Equity Tag-Along Rights”) as determined by
Section 4.3(b)(iii).
     (ii) No later than ten (10) Business Days following the Equity Tag-Along
Initiator’s receipt of a notice from one of its members of such member’s intent
to Transfer an amount of limited liability company interests in the Equity
Tag-Along Initiator constituting a Proposed Equity Tag-Along Sale, the Equity
Tag-Along Initiator shall deliver a written notice (an “Equity Tag-Along
Notice”) to Carrizo or Investor LLC, as applicable, stating that a member of the
Equity Tag-Along Initiator desires to effect a Proposed Equity Tag-Along Sale,
which notice shall set forth (A) the identity of the Equity Offeror, (B) a
summary in reasonable detail

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of the representations, warranties, covenants, conditions and indemnification
proposed by the Equity Offeror, (C) the amount of such member’s limited
liability company interests in the Equity Tag-Along Initiator (the “Offered
Equity Interest”) that the Equity Offeror is willing to acquire (expressed as a
percentage of all outstanding limited liability company interests in the Equity
Tag-Along Initiator), (D) the proposed total purchase price for the Offered
Equity Interest and (E) any other material terms governing the offer.
     (iii) Within twenty (20) Business Days of its receipt of an Equity
Tag-Along Notice, Carrizo or Investor LLC, as applicable, shall have the right,
but not the obligation, to elect, by written notice to the Equity Tag-Along
Initiator, to require that the Equity Offeror acquire such Party’s Equity
Tag-Along Interest in the Properties concurrently with its consummation of the
Proposed Equity Tag-Along Sale; provided that in the case of a Change of Control
of the Equity Tag-Along Initiator, such Party’s Equity Tag-Along Interest shall
equal all of its right, title and interest in the Properties. Such Party’s
failure to give unconditional written notice of such election within such period
shall be deemed an election by such Party not to exercise its Equity Tag-Along
Rights.
     (iv) If Carrizo or Investor LLC, as applicable, exercises its Equity
Tag-Along Rights, then the Equity Offeror shall be required, as a condition to
its acquisition of the Offered Equity Interest, to purchase such Party’s Equity
Tag-Along Interest in the Properties for the market value (expressed in U.S.
dollars) of such interest, based upon the amount in cash a willing buyer would
pay a willing seller in an arm’s length transaction.
     (v) If Carrizo or Investor LLC, as applicable, does not elect to exercise
its Equity Tag-Along Rights, then the Equity Offeror may, for a period of sixty
(60) days from the date of the Equity Tag-Along Notice, consummate the Proposed
Equity Tag-Along Sale upon terms and conditions that are no more favorable to
the member of the Equity Tag-Along Initiator selling the Offered Equity Interest
than those set forth in the Equity Tag-Along Notice. Immediately after the
closing of the Proposed Equity Tag-Along Sale, the Equity Tag-Along Initiator
shall provide Carrizo or Investor LLC, as applicable, true and complete copies
of all agreements relating to such Transfer.
     (vi) In the event that the Equity Offeror fails to purchase the Equity
Tag-Along Interest in the Properties from Carrizo or Investor LLC, as
applicable, in accordance with Section 4.3(b)(iv) and the Equity Offeror
consummates the Proposed Equity Tag-Along Sale in violation of this Section
4.3(b), then the Equity Tag-Along Initiator shall be required to purchase the
other Party’s Equity Tag-Along Interest in the Properties in accordance with the
provisions of Section 4.3(b)(iv).

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          (c) Certain Transfers of Membership Interests and Investor LLC’s
Interest in the Properties. The Parties agree that (a) at the time of the
Transfer of all Membership Interests in Investor LLC to an unAffiliated third
Person, or (b) the sale of all or substantially all of the assets of Investor
LLC to an unAffiliated third Person, Investor LLC may, by written notice
delivered no later than simultaneously with the notice required under
Section 4.3(a)(ii) or 4.3(b)(ii), as applicable, require, as a condition to any
such Transfer and in accordance with Article 4.9(B) of the Operating Agreement,
that the Parties jointly operate the Properties by either (x) entering into a
mutually acceptable new joint operating agreement or series of joint operating
agreements on a well by well or Prospect area by Prospect area basis, each of
which will be based upon the AAPL model form attached hereto as Exhibit 4.3(c)
naming Investor LLC as “co-operator” or (y) Carrizo designating Investor LLC (or
its designee) as “co-operator” under the Operating Agreement. The division of
rights, duties and responsibilities of the Parties as “co-operator” shall be
negotiated in good faith with the goal of developing a mutually satisfactory and
workable mechanism by which the Parties shall jointly operate the Properties. If
the Parties are unable to reach mutual agreement on alternative (x) or
(y) above, the Parties shall work together in good faith to develop an
alternative solution.
ARTICLE 5
OPERATING AGREEMENT AND CERTAIN RESTRICTIONS
          5.1 Operations Subject to Laws, Contract and Operating Agreement. The
activities of Carrizo and Investor LLC with respect to the Designated Area shall
be conducted subject to applicable Laws and the terms of this Agreement and the
Operating Agreement.
          5.2 Operating Agreement. Investor LLC and Carrizo are parties to the
Operating Agreement, which governs the Joint Operations with respect to the
exploration and development of the Properties. Notwithstanding any provision of
the Operating Agreement to the contrary, Investor LLC and Carrizo agree as
follows:
          (a) The AMI shall not be reduced to the Prospect areas in accordance
with Article 20.3(A) of the Operating Agreement until the first to occur of:
(i) December 31, 2010; (ii) the Minimum Commitment Date; (iii) Carrizo
designates Investor LLC (or its designee) as “co-operator” of the Properties
pursuant to Section 4.1(c); and (iv) a request by Investor LLC that it (or its
designee) be designated as “co-operator” of the Properties pursuant to
Section 4.3(c) (such date, the “JOA Trigger Date”).
          (b) Until the Minimum Commitment Date, if either Carrizo or Investor
LLC is a Non-Consenting Party in a Subsequent Exclusive Operation proposed by
the other Party pursuant to Article 7.4(B)(2) of the Operating Agreement (the
“Proposing Party”), then the consequence for such Non-Consenting Party’s
election not to participate in such Subsequent Exclusive Operation shall not be
as set forth in Article 7.4(C)(2)(a) of the Operating Agreement, but shall
consist of the following: (i) the Proposing Party shall designate a Drilling
Unit consisting of 320 acres around the proposed location of the wellbore as
part of the proposal to conduct such Subsequent Exclusive Operation, and
(ii) the Non-Consenting Party shall permanently sell, transfer and convey to the
Proposing Party all of such Non-Consenting Party’s Participation Interest within
such Drilling Unit

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at a price equal to the aggregate acquisition cost actually paid by the
Non-Consenting Party for its Participation Interest in the Drilling Unit, plus
the aggregate amount of all direct costs actually paid by the Non-Consenting
Party under the Operating Agreement attributable to the Drilling Unit after the
acquisition thereof. Any Transfer under this Section 5.2(b) will be subject to
the preemptive rights, excluding rights otherwise entitled to the Non-Consenting
Party, set forth in Article 12.2(G) of the Operating Agreement.
          (c) Until the Minimum Commitment Date, Carrizo agrees that the
aggregate expenditures under each six-month Work Program and Budget it proposes
pursuant to Article 6.1(B) of the Operating Agreement will not exceed 115% of
the aggregate expenditures under the six-month Work Program and Budget proposed
by it for the calendar quarter immediately preceding each such proposed Work
Program and Budget.
          (d) Until the Minimum Commitment Date, with respect to each Prospect
for which any drilling Operations are proposed in a Work Program and Budget, the
Operating Committee will vote on a well-by-well basis with respect thereto.
Until the Minimum Commitment Date, Investor LLC shall cause each of its
representatives on the Operating Committee to vote in favor of any Exploration
Well and associated items as proposed by Carrizo in the Work Program and Budget.
          (e) Until Investor LLC (or its designee) is designated as
“co-operator” of the Properties pursuant to Section 4.1(c) or 4.3(c), any
amounts payable to the Operator by Investor LLC in respect of proposals approved
by Investor LLC under Article 5.12 of the Operating Agreement (Voting by Notice)
that are in excess of the amounts that would otherwise be payable by Investor
LLC as contemplated by the Work Program and Budget in effect at such time shall
be due by the later of (i) fifteen (15) Business Days from Investor LLC’s
approval and (ii) the first Business Day of the Calendar Quarter immediately
following such approval notwithstanding any other time limit set forth in
Article 1.6 of Exhibit D to the Operating Agreement (Payments and Advances).
          (f) The minimum percent of Participating Interest necessary to approve
decisions of the Operating Committee shall not be modified as provided in
Article 5.9(B) under the Operating Agreement until the JOA Trigger Date.
          (g) In the event of a conflict between the provisions of this
Agreement and the provisions of the Operating Agreement, the provisions of this
Agreement shall prevail.
          5.3 Restrictions on Avista’s Investments in the AMI. Without the prior
written consent of COGI, which may not be unreasonably withheld, Avista shall
not (and shall cause its controlled Affiliates not to), directly or indirectly,
make any controlling investment in any third Person engaged or that engages in
the exploration, exploitation or development of Hydrocarbons within the AMI,
except as provided in this Agreement and except for such activities that are de
minimis or incidental to activities in the AMI other than exploration,
exploitation or development of Hydrocarbons.

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ARTICLE 6
INFORMATION RIGHTS
     Within forty-five (45) days following each calendar quarter after the
Execution Date, Carrizo shall provide Investor LLC with a written report
discussing the results of Joint Operations with respect to the Properties that
is in substantial compliance with the substantive requirements of Item 303 under
Regulation S-K (17 CFR Part 229.310) (but reduced to take into account the
matters for which such report will be used). The Avista Parties shall provide
COGI with such information concerning the Avista Parties as COGI may reasonably
request in order to timely comply with COGI’s reporting obligations under the
Securities Exchange Act of 1934, as amended, or COGI’s disclosure obligations
with respect to any registration statement it files under the Securities Act of
1933, as amended.
ARTICLE 7
REPRESENTATIONS
          7.1 Representations and Warranties of the Carrizo Parties. The Carrizo
Parties hereby represent and warrant to the Avista Parties as of the Execution
Date that:
          (a) Ownership of Carrizo. COGI owns, directly or indirectly, all of
the issued and outstanding securities of Carrizo.
          (b) Organization and Good Standing. Each of the Carrizo Parties is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither of the Carrizo Parties is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational, charter or equivalent documents. Each of the Carrizo Parties is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, would not reasonably be expected to have a material and adverse effect on
the ability of such Carrizo Party to perform its obligations under this
Agreement.
          (c) Authorization of Agreement. Each of the Carrizo Parties has the
requisite power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder. The execution and delivery of this Agreement by each of the Carrizo
Parties and the consummation by such Carrizo Party of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of such Carrizo Party and no further action is required by such Carrizo
Party, its board of directors or other governing body or shareholders, members
or partners in connection herewith. This Agreement has been duly executed by
each Carrizo Party and, when executed and delivered by the Avista Parties in
accordance with the terms hereof, will constitute the valid and binding
obligation of such Carrizo Party, enforceable against such Carrizo Party in
accordance

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with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other Laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by Laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
          (d) No Violation. The execution, delivery and performance of this
Agreement by the Carrizo Parties and the consummation by the Carrizo Parties of
the transactions contemplated hereby do not (i) conflict with or violate any
provision of either of the Carrizo Parties’ certificate or articles of
incorporation, bylaws or other organizational, charter or equivalent documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
instrument (evidencing a Carrizo Party’s debt or otherwise) or other
understanding to which either of the Carrizo Parties is a party or by which any
property or asset of either Carrizo Party is bound or affected, or (iii) subject
to any approvals which are expressly required under the terms of any applicable
Law, in order to consummate the transactions contemplated by this Agreement,
result in a violation of any Law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or Governmental Authority to which
either Carrizo Party is subject; except in the case of each of clauses (ii) and
(iii), such as would not, individually or in the aggregate, reasonably be
expected to have a material and adverse effect on the ability of either Carrizo
Party to perform its obligations under this Agreement.
          (e) Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Carrizo Parties.
          7.2 Representations and Warranties of the Avista Parties. The Avista
Parties represent and warrant to the Carrizo Parties as of the date of the
Execution Date that:
          (a) Ownership of Investor LLC. Avista owns, directly or indirectly,
all of the issued and outstanding securities of ACP II; Avista Offshore owns,
directly or indirectly, all of the issued and outstanding securities of ACP II
Offshore; and except for the Profit Interest, ACP II and ACP II Offshore own all
of the issued and outstanding securities of Investor LLC. Avista GP is the sole
general partner of and controls each of Avista and Avista Offshore.
          (b) Organization and Good Standing. Each of the Avista Parties is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither of the Avista Parties is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational, charter or equivalent documents. Each of the Avista Parties is
duly qualified to conduct business and is in good standing as a foreign
corporation or other

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entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
reasonably be expected to have a material and adverse effect on the ability of
such Avista Party to perform its obligations under this Agreement.
          (c) Authorization of Agreement. Each of the Avista Parties has the
requisite power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder. The execution and delivery of this Agreement by each of the Avista
Parties and the consummation by such Avista Party of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of such Avista Party and no further action is required by such Avista
Party, its board of directors or other governing body or shareholders, members
or partners in connection herewith. This Agreement has been duly executed by
each Avista Party and, when executed and delivered by the Carrizo Parties in
accordance with the terms hereof, will constitute the valid and binding
obligation of such Avista Party, enforceable against such Avista Party in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other Laws of general application
affecting enforcement of creditors’ rights generally and (ii) as limited by Laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
          (d) No Violation. The execution, delivery and performance of this
Agreement by the Avista Parties and the consummation by the Avista Parties of
the transactions contemplated hereby do not (i) conflict with or violate any
provision of either of the Avista Parties’ certificate or articles of
incorporation, bylaws or other organizational, charter or equivalent documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
instrument (evidencing a Avista Party’s debt or otherwise) or other
understanding to which either of the Avista Parties is a party or by which any
property or asset of either Avista Party is bound or affected, or (iii) subject
to any approvals which are expressly required under the terms of any applicable
Law, in order to consummate the transactions contemplated by this Agreement,
result in a violation of any Law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or Governmental Authority to which
either Avista Party is subject; except in the case of each of clauses (ii) and
(iii), such as would not, individually or in the aggregate, reasonably be
expected to have a material and adverse effect on the ability of either Avista
Party to perform its obligations under this Agreement.
          (e) Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Avista Parties.

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          7.3 Disclaimer of Other Representations. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS 7.1 AND 7.2 HEREOF OR
REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ANY OF THE OTHER
TRANSACTION DOCUMENTS, THE CARRIZO PARTIES AND THE AVISTA PARTIES MAKE NO, AND
DISCLAIM ANY, WARRANTY OR REPRESENTATION OF ANY KIND, EITHER EXPRESS, IMPLIED,
STATUTORY, OR OTHERWISE, INCLUDING ANY REPRESENTATION OR WARRANTY AS TO
(A) TITLE, (B) MERCHANTABILITY OF ALL OR ANY PART OF THE PROPERTIES DEDICATED OR
TRANSFERRED HEREUNDER, (C) FITNESS FOR ALL OR ANY PART OF THE PROPERTIES FOR ANY
PARTICULAR PURPOSE, OR (D) CONFORMITY OF ALL OR ANY PART OF THE PROPERTIES
DEDICATED OR TRANSFERRED HEREUNDER TO MODELS OR SAMPLES OF MATERIALS. EXCEPT AS
SET FORTH IN SECTIONS 7.1 AND 7.2, THE CARRIZO PARTIES AND THE AVISTA PARTIES
MAKE NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE,
AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION, OR MATERIALS NOW, HERETOFORE, OR HEREAFTER FURNISHED OR MADE
AVAILABLE TO THE OTHER PARTIES IN CONNECTION WITH THE PROPERTIES DEDICATED OR
TRANSFERRED HEREUNDER, INCLUDING ANY DESCRIPTION OF THE PROPERTIES DEDICATED OR
TRANSFERRED HEREUNDER, PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES DEDICATED OR
TRANSFERRED HEREUNDER, OR THE ABILITY OR POTENTIAL OF THE PROPERTIES DEDICATED
OR TRANSFERRED HEREUNDER TO PRODUCE HYDROCARBONS.
ARTICLE 8
RELATIONSHIP OF THE PARTIES
          8.1 Independent Co-Owners. Except as provided in Exhibit 8.1, it is
not the intention of the Parties to create, nor shall this Agreement be
construed as creating a relationship of partnership, association, principal and
agent, joint venture or a mining or other association, or otherwise render the
Parties liable as partners. The liability of the Parties hereto shall be several
and not joint or collective.
          8.2 Right of Competition. Except as expressly set forth in
Sections 5.3 and the Operating Agreement, nothing in this Agreement shall
preclude any Party, or its Affiliates, from engaging in any business or
purchasing any property of any sort whatsoever, whether or not in competition
with Operations under this Agreement, without consulting the other Party or
inviting or allowing the other Party to participate therein, and the doctrine of
corporate opportunity, or any analogous doctrine, shall not apply. Except as
expressly set forth in the Transaction Documents, no Carrizo Party shall have
any duty, including any fiduciary duty, to any Avista Party, and vice versa.

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ARTICLE 9
GOVERNING LAW; DISPUTE
RESOLUTION AND LIMITATION OF LIABILITY
          9.1 Governing Law. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE
PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS, USA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
          9.2 Dispute Resolution.
          (a) Any dispute, controversy or claim arising out of or in relation to
or in connection with this Agreement, including without limitation any dispute
as to the construction, validity, interpretation, enforceability or breach of
this Agreement, shall be mediated by a mutually acceptable mediator, which shall
commence within thirty (30) days after written notice by one Party to the other
demanding mediation. No Party may unreasonably withhold consent to the selection
of a mediator. The mediation shall be held in Honolulu, Hawaii. The Carrizo
Parties and the Avista Parties shall share the costs of the mediation equally,
except that each Party shall bear its own costs and expenses, including
attorneys’ fees, witness fees, travel expenses and preparation costs.
          (b) If the Parties are unable to resolve such dispute, controversy or
claim pursuant to the provisions in Section 9.2(a) within thirty (30) days after
the commencement of such mediation, a Party may seek relief from a court of
competent jurisdiction. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE STATE COURTS OF TEXAS LOCATED IN HOUSTON, TEXAS OR THE
FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN HOUSTON, TEXAS AND
APPROPRIATE APPELLATE COURTS THEREFROM, AND EACH PARTY HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF SUCH DISPUTE, CONTROVERSY OR CLAIM MAY BE HEARD
AND DETERMINED IN SUCH COURTS. THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAWS, ANY OBJECTION WHICH THEY MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH DISPUTE, CONTROVERSY OR CLAIM
BROUGHT IN ANY SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE
MAINTENANCE OF SUCH DISPUTE, CONTROVERSY OR CLAIM. EACH OF THE PARTIES HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
          9.3 Actual Damages. NO PARTY SHALL BE LIABLE OR HAVE ANY
RESPONSIBILITY TO ANY OTHER PARTY FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES INCLUDING LOST EARNINGS OR PROFITS. SUCH LIMITATION ON
LIABILITY SHALL APPLY TO ANY CLAIM OR ACTION, WHETHER IT IS BASED IN WHOLE OR IN
PART ON CONTRACT,

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NEGLIGENCE, STRICT LIABILITY, TORT, STATUTE OR ANY OTHER THEORY OF LIABILITY.
ARTICLE 10
MISCELLANEOUS
          10.1 Counterparts. This Agreement may be executed in counterparts, and
by different Parties in separate counterparts, each of which shall be deemed an
original instrument, but all such counterparts together shall constitute one
agreement.
          10.2 Notice. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
(2) Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:

      If to either of the Avista Parties:   If to either of the Carrizo Parties:
 
   
ACP II Marcellus LLC
  Carrizo Oil & Gas, Inc.
1000 Louisiana, Suite 1200
  1000 Louisiana St., Suite 1500
Houston, Texas 77002
  Houston, Texas 77002
Telephone: 713-328-1085
  Telephone: 713-328-1073
Fax: 713-328-1097
  Fax: 713-328-1060
Attn.: Robert Cabes
  Attn.: Gerry Morton

Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
facsimile, ordinary mail, or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Party notice in
the manner herein set forth.
          10.3 Expenses. Each Party shall pay its own legal fees and other costs
and expenses incurred by it in connection with the negotiation, execution and
delivery of this Agreement and the Operating Agreement.
          10.4 Transfer Taxes. All Transfer Taxes payable with respect to the
Properties shall be considered a joint interest expense and allocated in
accordance with the Operating Agreement.
          10.5 Captions. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
          10.6 Waivers. Any failure by any Party to comply with any of its
obligations, agreements, or conditions herein contained may only be waived in
writing in an instrument specifically identified as a waiver and signed by the
Party to whom such compliance is owed.

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No waiver of, or consent to a change in, any provision of this Agreement shall
be deemed or shall constitute a waiver of, or consent to a change in, any other
provisions hereof, nor shall such waiver constitute a continuing waiver unless
expressly provided in the waiver.
          10.7 Assignment. Except for assignments for the benefit of lenders in
connection with commercial financing activities (in which case the assigning
Party shall not be relieved of its obligations hereunder) and as provided in
ARTICLE 4, no Party may assign all or any part of its rights and obligations
under this Agreement without the prior written approval of each other Party.
This Agreement shall be binding upon and inure to the benefit of the Parties and
their respective permitted successors and assigns.
          10.8 Amendment. This Agreement may be amended or modified only by an
agreement in writing executed by all Parties expressly identifying it as an
amendment or modification hereof.
          10.9 No Third Person Beneficiaries. Nothing in this Agreement shall
entitle any Person other than the Parties to any claim, cause of action, remedy,
or right of any kind.
          10.10 Entire Agreement. This Agreement and the Operating Agreement
constitute the entire agreement between the Parties pertaining to the subject
matter hereof and supersede all prior agreements, understandings, negotiations,
and discussions, whether oral or written, of the Parties with respect thereto.
          10.11 Term. This Agreement is effective as of the Effective Date and
shall continue in effect until the Operating Agreement terminates, at which time
this Agreement shall terminate except as to rights and obligations previously
accrued.
          10.12 Survival. Articles 8 and 9 and Sections 10.2, 10.3, 10.12 and
10.13 shall survive the termination of this Agreement.
          10.13 References and Construction. In this Agreement:
          (a) References to any gender includes a reference to all other
genders;
          (b) References to the singular includes the plural, and vice versa;
          (c) Reference to any Article or Section means an Article or Section of
this Agreement;
          (d) Reference to any Exhibit means an Exhibit to this Agreement, all
of which are incorporated into and made a part of this Agreement;
          (e) Unless expressly provided to the contrary, “hereunder”, “hereof”,
“herein”, and words of similar import are references to this Agreement as a
whole and not any particular Section or other provision of this Agreement;

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          (f) “Include” and “including” shall mean include or including without
limiting the generality of the description preceding such term and are used in
an illustrative sense and not a limiting sense;
          (g) “Or” is not exclusive unless the context requires otherwise;
          (h) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement; and
          (i) Capitalized terms used in this Agreement that are not otherwise
defined are used with the respective meanings given thereto in the Operating
Agreement.
          10.14 Amendment and Restatement of Original Participation Agreement.
This Agreement amends and restates the Original Participation Agreement
effective as of the Effective Date. For the avoidance of doubt, upon giving
effect to such amendment and restatement, this Agreement shall be the “Marcellus
JV Participation Agreement” referred to in (x) the Credit Agreement dated as of
May 25, 2006 (as administrative agent, as amended, supplemented or otherwise
modified from time to time, the “Carrizo Credit Agreement”) among COGI, certain
subsidiaries of COGI (including Carrizo), the lenders party thereto and Wells
Fargo Bank, N.A., and (y) the Loan Documents (as defined in the Carrizo Credit
Agreement) executed in connection with the Carrizo Credit Agreement.
[Signature Page Follows]

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     IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
on the Execution Date and effective as of the Effective Date.

                      ACP II MARCELLUS LLC       CARRIZO OIL & GAS, INC.    
 
                   
By:
  ACP II AMS LP, its Manager       By:   /s/ S.P. Johnson, IV     
 
                   
 
              S.P. Johnson, IV    
By:
  Avista Capital Partners II, L.P., its General Partner           President and
Chief Executive Officer    
 
                    By:   Avista Capital Partners II
GP, LLC its General Partner       CARRIZO (MARCELLUS) WV LLC    
 
                   
By:
  /s/ Robert L. Cabes, Jr.        By:   /s/ S.P. Johnson, IV     
 
                   
 
  Robert L. Cabes, Jr.
Partner           S.P. Johnson, IV
President and Chief Executive Officer    
 
                    AVISTA CAPITAL PARTNERS II, L.P.                
 
                   
By:
  Avista Capital Partners II GP, LLC,
its General Partner                
 
                   
By:
  /s/ Robert L. Cabes, Jr.                 
 
                   
 
  Robert L. Cabes, Jr.
Partner                

[Signature Page to the Amended and Restated Participation Agreement]