EXECUTION VERSION
 

 

 
 

                     CREDIT AGREEMENT            dated as of January 27, 2011  
         among            CARRIZO OIL & GAS, INC.,      as Borrower,          
 BNP PARIBAS,      as Administrative Agent,            CREDIT AGRICOLE CORPORATE
AND INVESTMENT BANK       and       ROYAL BANK OF CANADA,      as Co-Syndication
Agents,            CAPITAL ONE, N.A.      and      COMPASS BANK,      as
Co-Documentation Agents,            and            The Lenders Party Hereto    
                   BNP PARIBAS SECURITIES CORP.      Sole Lead Arranger and Sole
Bookrunner              

 
 
 
 

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TABLE OF CONTENTS
 
Page
 
 
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
 

 Section 1.01  Terms Defined Above 1   Section 1.02  Certain Defined Terms 1 
 Section 1.03  Types of Loans and Borrowings 25   Section 1.04  Terms Generally;
Rules of Construction  25   Section 1.05  Accounting Terms and Determinations;
GAAP  25 

 
ARTICLE II
THE CREDITS
 

 Section 2.01  Commitments  26  Section 2.02   Loans and Borrowings  26  Section
2.03  Requests for Borrowings  27  Section 2.04  Interest Elections  28  Section
2.05  Funding of Borrowings  29  Section 2.06  Termination and Reduction of
Aggregate Maximum Credit Amounts  30  Section 2.07  Borrowing Base  31  Section
2.08  Letters of Credit  33

 
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
 

 Section 3.01  Repayment of Loans  38  Section 3.02  Interest  38  Section 3.03
 Alternate Rate of Interest  39  Section 3.04  Prepayments  40  Section 3.05
 Fees  42

 
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
 

 Section 4.01  Prepayments Generally; Pro Rata Treatment; Sharing of Set-offs
 43  Section 4.02  Presumption of Payment by the Borrower  44  Section 4.03
 Payments and Deductions to a Defaulting Lender  44  Section 4.04  Disposition
of Proceeds  46

 
ARTICLE V
INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY
 
 

 Section 5.01  Increased Costs  47  Section 5.02  Break Funding Payments  48
 Section 5.03  Taxes  48  Section 5.04  Mitigation Obligations; Replacement of
Lenders  50  Section 5.05  Illegality  51

 
 
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ARTICLE VI
CONDITIONS PRECEDENT
 

 Section 6.01  Effective Date  52  Section 6.02  Each Credit Event  54

 
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
 

 Section 7.01  Organization; Powers  55  Section 7.02  Authority; Enforceability
 55  Section 7.03  Approvals; No Conflict  55  Section 7.04  Financial
Condition; No Material Adverse Change  56  Section 7.05  Litigation  56  Section
7.06  Environmental Matters  57  Section 7.07  Compliance with Laws; No Defualt
 58  Section 7.08  Investment Company Act  58  Section 7.09  Taxes  58  Section
7.10  ERISA  59  Section 7.11  Disclosure; No Material Misstatements  59
 Section 7.12  Insurance  60  Section 7.13  Restriction on Liens  60  Section
7.14  Subsidiaries  60  Section 7.15  Location of Business and Offices  60
 Section 7.16  Properties; Titles, Etc.  61  Section 7.17  Maintenance of
Properties  62  Section 7.18  Gas Imbalances Prepayments  62  Section 7.19
 Marketing of Production  63  Section 7.20  Hedge Agreements  63  Section 7.21
 Use of Loans and Letters of Credit  63  Section 7.22  Solvency  63

 
ARTICLE VIII
AFFIRMATIVE COVENANTS
 
 

 Section 8.01  Financial Statements; Other Information  64  Section 8.02
 Notices of Material Events  67  Section 8.03  Existence; Conduct of Business
 67  Section 8.04  Payment of Taxes  68  Section 8.05  Operation and Maintenance
of Properties  68  Section 8.06  Insurance  69  Section 8.07  Books and Records;
Inspection Rights  69  Section 8.08  Compliance with Laws  69  Section 8.09
 Environmental Matters  69  Section 8.10  Further Assurances  71  Section 8.11
 Reserve Reports  71  Section 8.12  Title Information  72  Section 8.13
 Additional Collateral; Additional Guarantors  73  Section 8.14  ERISA
Compliance  74

 
 
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 Section 8.15  Marketing Activities  75  Section 8.16  Unrestricted Subsidiaries
 75

 
ARTICLE IX
NEGATIVE COVENANTS
 

 Section 9.01  Financial Covenants  76  Section 9.02  Debt  76  Section 9.03
 Liens  78  Section 9.04  Dividends, Distribution and Redemptions; Repayment of
Senior Notes  78  Section 9.05  Investments, Loan and Advances  80  Section 9.06
 Nature of Business  82  Section 9.07  Proceeds of Notes  83  Section 9.08
 ERISA Compliance  83  Section 9.09  Sale or Discount of Receivables  83
 Section 9.10  Mergers, Etc.  84  Section 9.11  Sale of Oil and Gas Properties
 84  Section 9.12  Environmental Matters  85  Section 9.13  Transactions with
Affiliates  85  Section 9.14  Negative Pledge Agreements; Dividend Restrictions
 86  Section 9.15  Hedge Agreements  86  Section 9.16  Unrestricted Subsidiaries
 88  Section 9.17  Gas Imbalances, Take-or-Pay or Other Prepayments  88

 
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
 

 Section 10.01  Events of Default  88  Section 10.02  Remedies  90

 
ARTICLE XI
THE AGENTS
 

 Section 11.01  Appointment; Powers  92  Section 11.02  Duties and Obligations
of Administrative Agent  92  Section 11.03  Action by Administrative Agent  93
 Section 11.04  Reliance by Administrative Agent  93  Section 11.05  Subagents
 94  Section 11.06  Resignation or Removal of Administrative Agent  94  Section
11.07  Agents as Lenders  94  Section 11.08  No Reliance  94  Section 11.09
 Administrative Agent May File Proofs of Claim  95  Section 11.10  Authority of
Administrative Agent to Release Collateral and Liens  96  Section 11.11  The
Arranger, the Co-Syndication Agents and the Co-Documentation Agents  96

 
ARTICLE XII
MISCELLANEOUS
 
 

 Section 12.01  Notices  96  Section 12.02  Waivers; Amendments  97

 
 
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 Section 12.03  Expenses, Indemnity; Damage Waiver  98  Section 12.04
 Successors and Assigns  101  Section 12.05  Survival; Revival; Reinstatement
 104  Section 12.06  Counterparts; Integration; Effectiveness  104  Section
12.07  Severability  105  Section 12.08  Right of Setoff  105  Section 12.09
 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS  105  Section 12.10
 Headings  107  Section 12.11  Confidentiality  107  Section 12.12  Interest
Rate Limitation  107  Section 12.13  Collateral Matters; Hedge Agreements  108
 Section 12.14  No Third Party Beneficiaries  109  Section 12.15  USA Patriot
Act Notice  109  Section 12.16  EXCULPATION PROVISIONS  109

 
 
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ANNEXES, EXHIBITS AND SCHEDULES
 
 

 
 

 Annex I    List of Maximum Credit Amounts      Exhibit A   Form of Note
 Exhibit B  Form of Borrowing Request  Exhibit C    Form of Interest Election
Request  Exhibit D        Form of Compliance Certificate  Exhibit E  Form of
Legal Opinion of Baker Botts L.L.P., special counsel to the Borrower  Exhibit
F-1      Security Instruments  Exhibit F-2  Form of Guaranty and Pledge
Agreement  Exhibit G  Form of Assignment and Assumption  Exhibit H    Form of
Reserve Report Certificate          Schedule 1.02  Approved Counterparties
 Schedule 7.05       Litigation  Schedule 7.06   Environmental Matters  Schedule
7.10(e)   ERISA Matters  Schedule 7.14     Subsidiaries and Partnerships
 Schedule 7.15   Location of Subsidiaries  Schedule 7.18  Gas Imbalances
 Schedule 7.19  Marketing Contracts  Schedule 7.20   Hedge Agreements  Schedule
9.02  Existing Debt  Schedule 9.03   Existing Liens  Schedule 9.05   Existing
Investments  Schedule 9.08(c)   ERISA Compliance Matters  Schedule 9.13
 Affiliate Transactions

 
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THIS CREDIT AGREEMENT dated as of January 27, 2011 is among: Carrizo Oil & Gas,
Inc., a corporation duly formed and existing under the laws of the State of
Texas (the “Borrower”); each of the Lenders from time to time party hereto; BNP
Paribas (in its individual capacity, “BNP”), as administrative agent for the
Lenders (in such capacity, together with its successors in such capacity, the
“Administrative Agent”); Credit Agricole Corporate and Investment Bank and Royal
Bank of Canada, as co-syndication agents for the Lenders (each in such capacity,
together with its successors in such capacity, a “Co-Syndication Agent” and,
collectively, the “Co-Syndication Agents”); and Capital One, N.A. and Compass
Bank, as co-documentation agents for the Lenders (each in such capacity,
together with its successors in such capacity, a “Co-Documentation Agent” and,
collectively, the “Co-Documentation Agents”).
 
R E C I T A L S
 
A.           The Borrower has requested that the Lenders provide certain loans
to and extensions of credit on behalf of the Borrower.
 
B.           The Lenders have agreed to make such loans and extensions of credit
subject to the terms and conditions of this Agreement.
 
C.           In consideration of the mutual covenants and agreements herein
contained and of the loans, extensions of credit and commitments hereinafter
referred to, the parties hereto agree as follows:
 
ARTICLE I
 
Definitions and Accounting Matters
 
Section 1.01 Terms Defined Above.  As used in this Agreement, each term defined
above has the meaning indicated above.
 
Section 1.02 Certain Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:
 
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.
 
“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/100 of 1%) equal to the LIBO Rate for such Interest Period multiplied
by the Statutory Reserve Rate.
 
“Administrative Questionnaire” means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
 
“Affected Loans” has the meaning assigned such term in Section 5.05.
 
“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
 
 
 

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“Agents” means, collectively, the Administrative Agent, the Co-Syndication
Agents and the Co-Documentation Agents; and “Agent” shall mean either the
Administrative Agent, any Co-Syndication Agent or any Co-Documentation Agent, as
the context requires.
 
“Aggregate Maximum Credit Amounts” at any time shall equal the sum of the
Maximum Credit Amounts, as the same may be reduced or terminated pursuant to
Section 2.06.
 
“Agreement” means this Credit Agreement, as the same may from time to time be
amended, modified, supplemented or restated.
 
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest
of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective
Rate in effect on such day plus ½ of 1.0% and (c) the Adjusted LIBO Rate for a
three month Interest Period on such day (or if such day is not a Business Day,
the immediately preceding Business Day) plus 1.0%.  Any change in the Alternate
Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or
the Adjusted LIBO Rate shall be effective from and including the effective date
of such change in the Prime Rate, the Federal Funds Effective Rate or the
Adjusted LIBO Rate, respectively.
 
“Applicable Margin” means, for any day, with respect to any ABR Loan or
Eurodollar Loan, as the case may be, the rate per annum set forth in the
Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization
Percentage then in effect:
 
Borrowing Base Utilization Grid
Borrowing Base
Utilization
Percentage
<25%
³ 25% but
<50%
³ 50% but  
<75%
³ 75% but  
<90%
³ 90%
   Eurodollar Loans
2.00%
2.25%
2.50%
2.75%
3.00%
   ABR Loans
1.00%
1.25%
1.50%
1.75%
2.00%

Each change in the Applicable Margin shall apply during the period commencing on
the effective date of such change and ending on the date immediately preceding
the effective date of the next such change, provided, however, that if at any
time the Borrower fails to deliver a Reserve Report required to be delivered
pursuant to Section 8.11(a), and for each day during the period from and
including the date on which such Reserve Report was required to be delivered to
but excluding the date on which such Reserve Report is delivered, the
“Applicable Margin” means the rate per annum set forth on the above Borrowing
Base Utilization Grid when the Borrowing Base Utilization Percentage is at its
highest level.
 
“Applicable Percentage” means, with respect to any Lender at any time, the
percentage of the Aggregate Maximum Credit Amounts represented by such Lender’s
Maximum Credit Amount at such time; provided that if the Commitments have
terminated or expired, the Applicable Percentages shall be determined based upon
the Commitments most recently in effect; provided further that, at any time that
a Defaulting Lender shall exist, “Applicable Percentage” shall mean the
percentage of the Aggregate Maximum Credit Amounts (disregarding any Defaulting
Lenders’ Maximum Credit Amounts at such time) represented by
 
 
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such Lender’s Maximum Credit Amount at such time.  The Applicable Percentages of
the Lenders as of the Effective Date are set forth on Annex I.
 
“Approved Counterparty” means (a) any Lender or any Affiliate of a Lender, (b)
any other Person whose long term senior unsecured debt rating is A-/A3 by S&P or
Moody’s (or their equivalent) or higher (at the time the Hedge Agreement is
entered into) and (c) any other Person listed on Schedule 1.02.
 
“Approved Fund” means any Person (other than a natural person) that is engaged
in making, purchasing, holding or investing in bank loans and similar extensions
of credit in the ordinary course of its business and that is administered or
managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an
Affiliate of an entity that administers or manages a Lender.
 
“Approved Petroleum Engineers” means (a) Netherland, Sewell & Associates, Inc.,
(b) Ryder Scott Company, L.P., (c) Cawley, Gillespie & Associates, Inc., (d)
Fairchild and Wells, Inc. (e) DeGolyer and MacNaughton, (f) LaRoche Petroleum
Consultants Ltd. and (g) any other independent petroleum engineers reasonably
acceptable to the Administrative Agent.
 
“Arranger” means BNP Paribas Securities Corp., in its capacities as the sole
lead arranger and sole bookrunner hereunder.
 
“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required
by Section 12.04(b)), and accepted by the Administrative Agent, in the form of
Exhibit G or any other form approved by the Administrative Agent.
 
“Availability” means, at any time, the amount by which the Borrowing Base
exceeds the total Revolving Credit Exposures at such time.
 
“Availability Period” means the period from and including the Effective Date to
but excluding the Termination Date.
 
“Avista” means Avista Capital Partners II, L.P., a Delaware limited partnership,
and its successors and permitted assigns.
 
“Avista JV Partner” means ACP II Marcellus LLC, a Delaware limited liability
company, and its successors and permitted assigns.
 
“Avista Marcellus Joint Venture” means that certain joint venture between
Carrizo (Marcellus) LLC (or other wholly owned Subsidiaries of the Company),
Avista Capital Partners II, L.P. and Avista JV Partner pursuant to that certain
Amended and Restated Participation Agreement effective as of October 1, 2010 and
the other documents delivered in connection therewith, in each case as in effect
on the Effective Date, together with (i) any amendments, restatements,
supplements or other modifications thereto made after the Effective Date and
(ii) any other documents delivered in connection therewith after the Effective
Date that, in each case, are not materially adverse to the Lenders.
 
 
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“Board” means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.
 
“Borrowing” means Loans of the same Type, made, converted or continued on the
same date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect.
 
“Borrowing Base” means at any time an amount equal to the amount determined in
accordance with Section 2.07, as the same may be adjusted from time to time
pursuant to Sections 2.07(e), 2.07(f), 8.12(c) or 9.11.
 
“Borrowing Base Deficiency” occurs if at any time the total Revolving Credit
Exposures exceeds the Borrowing Base then in effect.
 
“Borrowing Base Utilization Percentage” means, as of any day, the fraction
expressed as a percentage, the numerator of which is the sum of the Revolving
Credit Exposures of the Lenders on such day, and the denominator of which is the
Borrowing Base in effect on such day.
 
“Borrowing Request” means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
 
“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in Houston, Texas are authorized or required by law to
remain closed; and if such day relates to a Borrowing or continuation of, a
payment or prepayment of principal of or interest on, or a conversion of or
into, or the Interest Period for, a Eurodollar Loan or a notice by the Borrower
with respect to any such Borrowing or continuation, payment, prepayment,
conversion or Interest Period, any day which is also a day on which banks are
open for dealings in dollar deposits in the London interbank market.
 
“Capital Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital leases
on the balance sheet of the Person liable (whether contingent or otherwise) for
the payment of rent thereunder.
 
“Carrizo UK Facility” means that certain $84,000,000 Senior Secured
Multicurrency Credit Facility Agreement, to be dated on or about January 28,
2011, among the Borrower, as parent, Carrizo UK Huntington, as borrower, and, in
various capacities, BNP Paribas and Societe Generale.
 
“Carrizo UK Huntington” means Carrizo UK Huntington Ltd, a company incorporated
under the laws of England and Wales.
 
“Carrizo UK Huntington Project” means the development, operation and related
financing of the Huntington Petroleum Field and the facilities and
infrastructure associated therewith, including the floating production and
storage and offloading facility, by Carrizo UK Huntington.
 
“Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or “group” (within the
meaning of Rule 13d-5 of the Securities Exchange Act of 1934 and the rules of
the SEC thereunder as in effect on the date
 
 
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hereof), of Equity Interests representing more than fifty percent (50.0%) of the
aggregate ordinary voting power represented by the issued and outstanding Equity
Interests of the Borrower, (b) occupation of a majority of the seats (other than
vacant seats) on the board of directors of the Borrower by Persons who were
neither (i) nominated by the board of directors of the Borrower nor (ii)
appointed by directors so nominated or (c) any “change in control” (or other
similar event, howsoever designated) shall occur under (and not be waived in
accordance with) any of the Senior Notes.
 
“Change in Law” means (a) the adoption of any law, rule or regulation by any
Governmental Authority after the date of this Agreement, (b) any change in any
law, rule or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by any
Lender or the Issuing Bank (or, for purposes of Section 5.01(b)), by any lending
office of such Lender or by such Lender’s or the Issuing Bank’s holding company,
if any) with any request, guideline or directive (whether or not having the
force of law) of any Governmental Authority made or issued after the date of
this Agreement; provided that notwithstanding anything herein to the contrary,
the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests,
rules, guidelines or directives issued thereunder or in connection therewith by
a Governmental Authority and resulting in additional costs or limitations on the
making, maintenance or pricing of loans or the participation in, or issuance or
maintenance of, letters of credit, shall be deemed to be a “Change in Law”,
regardless of the date enacted, adopted or issued.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time,
and any successor statute.
 
“Commitment” means, with respect to each Lender, the commitment of such Lender
to make Loans and to acquire participations in Letters of Credit hereunder,
expressed as an amount representing the maximum aggregate amount of such
Lender’s Revolving Credit Exposure hereunder, as such commitment may be (a)
modified from time to time pursuant to Section 2.06 and (b) modified from time
to time pursuant to assignments by or to such Lender pursuant to Section
12.04(b).  The amount representing each Lender’s Commitment shall at any time be
the lesser of such Lender’s Maximum Credit Amount and such Lender’s Applicable
Percentage of the then effective Borrowing Base.
 
“Consolidated Net Income” means, for any period, the aggregate of the net income
(or loss) of the Borrower and the Consolidated Subsidiaries after allowances for
taxes for such period determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following (without duplication): (a) the net
income of any Person (including any Unrestricted Subsidiary) in which the
Borrower or any Consolidated Subsidiary has an interest (which interest does not
cause the net income of such other Person to be consolidated with the net income
of the Borrower and the Consolidated Subsidiaries in accordance with GAAP),
except to the extent of the amount of dividends or distributions actually paid
in cash during such period by such other Person to the Borrower or to a
Consolidated Subsidiary, as the case may be (it being understood that any cash
distributions received by the Borrower or any of the Restricted Subsidiaries in
respect of its profit interests in Avista JV Partner shall be included in the
calculation of Consolidated Net Income for any period of determination to the
extent such cash distributions were so received
 
 
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during such period); (b) the net income (but not loss) during such period of any
Consolidated Subsidiary to the extent that the declaration or payment of
dividends or similar distributions or transfers or loans by such Consolidated
Subsidiary is not at the time permitted by operation of the terms of its charter
or any agreement, instrument or Governmental Requirement applicable to such
Consolidated Subsidiary or is otherwise restricted or prohibited, in each case
determined in accordance with GAAP; (c) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to the date
of such transaction; (d) any extraordinary non-cash gains or losses during such
period and (e) any gains or losses attributable to writeups or writedowns of
assets, including ceiling test writedowns; and provided further that if, during
such period, (i) the Borrower or any Consolidated Subsidiary shall acquire or
dispose of any proved producing Oil and Gas Properties in a transaction
involving aggregate consideration in an amount in excess of 2% of the Borrower’s
proved oil and natural gas properties asset balance as of the end of the most
recently ended fiscal quarter or fiscal year for which financial statements have
been delivered pursuant to Section 8.01(a) or 8.01(b), as the case may be, or
(ii) a Subsidiary which, together with its Subsidiaries, owns proved producing
Oil and Gas Properties which represent more than 2% of the Borrower’s proved oil
and natural gas properties asset balance as of the end of the most recently
ended fiscal quarter or fiscal year for which financial statements have been
delivered pursuant to Section 8.01(a) or 8.01(b), as the case may be, shall be
redesignated as either an Unrestricted Subsidiary or a Restricted Subsidiary,
then Consolidated Net Income shall be calculated after giving pro forma effect
to such acquisition, disposition or redesignation, as if such acquisition,
disposition or redesignation had occurred on the first day of such period. For
the avoidance of doubt, the aggregate of the net income (or loss) attributable
to any Unrestricted Subsidiaries shall be excluded in calculating Consolidated
Net Income except as otherwise provided in clause (a) of the preceding sentence.
 
“Consolidated Subsidiaries” means each Restricted Subsidiary of the Borrower
(whether now existing or hereafter created or acquired) the financial statements
of which are consolidated with the financial statements of the Borrower in
accordance with GAAP.
 
“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or
otherwise.  “Controlling” and “Controlled” have meanings correlative thereto.
 
“Credit Parties” means, collectively, the Borrower and the Guarantors, and
“Credit Party” means any of them.
 
“Current Production” means, for each month, the lesser of (a) the highest of the
most recent three (3) prior month’s production volume of crude oil, natural gas
liquids and natural gas, of the Borrower and the Restricted Subsidiaries and (b)
the internally forecasted production of crude oil and natural gas, calculated on
a natural gas equivalent basis, of the Borrower and the Restricted Subsidiaries
for each month for the next 48 months.
 
“Debt” means, for any Person, the sum of the following (without duplication):
(a) all obligations of such Person for borrowed money or evidenced by bonds,
bankers’ acceptances, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, surety or other bonds and similar
 
 
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instruments; (c) all obligations of such Person to pay the deferred purchase
price of Property or services (other than (i) accrued pension costs and other
employee benefit and compensation obligations arising in the ordinary course of
business and (ii) accounts payable incurred in the ordinary course of business
which are either (x) current or (y) being contested in good faith by appropriate
action and for which adequate reserves have been maintained in accordance with
GAAP); (d) all obligations under Capital Leases; (e) all obligations under
Synthetic Leases; (f) all Debt (as defined in the other clauses of this
definition) of others secured by (or for which the holder of such Debt has an
existing right, contingent or otherwise to be secured by) a Lien on any Property
of such Person, whether or not such Debt has been assumed by such Person,
provided that the amount of Debt for purposes of clause (f) shall be an amount
equal to the lesser of the unpaid amount of such Debt and the fair market value
of the encumbered Property; (g) all Debt (as defined in the other clauses of
this definition) of others guaranteed by such Person or in respect of which such
Person otherwise assures a creditor against loss of the Debt (howsoever such
assurance shall be made) to the extent of the lesser of the amount of such Debt
and the maximum stated amount of such guarantee or assurance against loss; (h)
obligations to deliver commodities, goods or services, including, without
limitation, Hydrocarbons, in consideration of one or more advance payments (but
only to the extent of such advance payments and only to the extent such
commodities, goods or services have not been delivered), other than gas
balancing arrangements in the ordinary course of business; (i) any Debt of a
partnership for which such Person is liable either by agreement, by operation of
law or by a Governmental Requirement but only to the extent of such liability;
(j) Disqualified Capital Stock of such Person; and (k) the undischarged balance
of any production payment created by such Person or for the creation of which
such Person directly or indirectly received payment.  The Debt of any Person
shall include all obligations of such Person of the character described above to
the extent such Person remains legally liable in respect thereof notwithstanding
that any such obligation is not included as a liability of such Person under
GAAP.
 
“Default” means any event or condition which constitutes an Event of Default or
which upon notice, lapse of time or both would, unless cured or waived, become
an Event of Default.
 
“Defaulting Lender” means any Lender that has (a) failed to fund any portion of
its Loans or participations in Letters of Credit within three (3) Business Days
of the date required to be funded by it hereunder, (b) notified the Borrower,
the Administrative Agent, the Issuing Bank or any Lender in writing that it does
not intend to comply with any of its funding obligations under this Agreement or
has made a public statement to the effect that it does not intend to comply with
its funding obligations under this Agreement, (c) failed, within three (3)
Business Days after request by the Administrative Agent or the Borrower, to
confirm that it will comply with the terms of this Agreement relating to its
obligations to fund prospective Loans and participations in then outstanding
Letters of Credit, (d) otherwise failed to pay over to the Administrative Agent
or any other Lender any other amount required to be paid by it hereunder within
three Business Days of the date when due, unless the subject of a good faith
dispute, or (e) become the subject of a bankruptcy or insolvency proceeding, or
has had a receiver, conservator, trustee or custodian appointed for it, or has a
parent company that has become the subject of a bankruptcy or insolvency
proceeding, or has had a receiver, conservator, trustee or custodian appointed
for it or, in the good faith determination of the Administrative Agent or the
Borrower, has taken any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any such proceeding or appointment; provided
that a Lender shall not become a Defaulting Lender solely
 
 
7

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Index
 
as the result of the acquisition or maintenance of an ownership interest in such
Lender or any Person controlling such Lender or the exercise of control over
such Lender or any Person controlling such Lender by a Governmental Authority or
an instrumentality thereof.
 
“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is 91 days after the earlier
of (a) the Maturity Date and (b) the date on which there are no Loans, LC
Exposure or other obligations outstanding under this Agreement and all of the
Commitments are terminated.
 
“dollars” or “$” refers to lawful money of the United States of America.
 
“Domestic Subsidiary” means any Restricted Subsidiary that is organized under
the laws of the United States of America or any state thereof or the District of
Columbia.
 
“EBITDAX” means, for any period, the sum of (a) Consolidated Net Income for such
period, plus (b) the following expenses or charges to the extent deducted in
calculating Consolidated Net Income for such period (without duplication):
interest expense, income taxes, depreciation, depletion, amortization,
exploration expenses, all non-cash charges arising from the write-off of
intangible assets and all other noncash charges or expenses, minus (c) all
noncash income included in the calculation of Consolidated Net Income for such
period.
 
“Effective Date” means the date on which the conditions specified in Section
6.01 are satisfied (or waived in accordance with Section 12.02).
 
“Engineering Reports” has the meaning assigned such term in Section 2.07(c)(i).
 
“Environmental Laws” means any and all Governmental Requirements pertaining in
any way to health, safety, the environment, the preservation or reclamation of
natural resources, or the management, Release or threatened Release of any
Hazardous Materials, in effect in any and all jurisdictions in which the
Borrower or any other Credit Party is conducting, or at any time has conducted,
business, or where any Property of the Borrower or any other Credit Party is
located, including, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean
Air Act, as amended, the Comprehensive Environmental, Response, Compensation,
and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Law, as amended, and other
environmental conservation or protection Governmental Requirements.
 
 
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Index
 
“Environmental Permit” means any permit, registration, license, approval,
consent, exemption, variance, or other authorization required under or issued
pursuant to applicable Environmental Laws.
 
“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest (other than any Debt security which by its terms is convertible
at the option of the holder into Equity Interests).
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute.
 
“ERISA Affiliate” means each trade or business (whether or not incorporated)
which together with the Borrower or any other Credit Party would be deemed to be
a “single employer” within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
 
“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Adjusted LIBO Rate.
 
“Event of Default” has the meaning assigned such term in Section 10.01.
 
“Excepted Liens” means:  (a) Liens on any Property, including Oil and Gas
Properties, for Taxes, assessments or other governmental charges or levies which
are not delinquent or which are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in accordance with
GAAP; (b) Liens in connection with workers’ compensation, unemployment insurance
or other social security, old age pension or public liability obligations; (c)
statutory landlord’s liens, operators’, vendors’, carriers’, warehousemen’s,
repairmen’s, mechanics’, suppliers’, workers’, materialmen’s, construction,
customs authorities or other like Liens on Property (including Oil and Gas
Properties), arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of Oil and
Gas Properties each of which is in respect of obligations that are not more than
90 days past due or which are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in accordance with
GAAP; (d) the terms of the oil and gas leases and lease burdens payable to third
parties which are deducted in the calculation of discounted present value in any
Reserve Report including, without limitation, any royalty, overriding royalty,
net profits interest, production payment, carried interest or reversionary
working interest; (e) contractual Liens on Property (including Oil and Gas
Properties), which arise in the ordinary course of business under operating
agreements, joint venture agreements, oil and gas partnership agreements, oil
and gas leases, farm-out agreements, division orders, contracts for the sale,
transportation or exchange of oil and natural gas, unitization and pooling
declarations and agreements, area of mutual interest agreements, overriding
royalty agreements, marketing agreements, processing agreements, net profits
agreements, development agreements, gas balancing or deferred production
agreements, injection, repressuring and recycling agreements, salt water or
other disposal agreements, seismic

 
9

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Index
  
or other geophysical permits or agreements, and other agreements which are usual
and customary in the oil and gas business and are for claims which are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP,
provided that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or any Restricted Subsidiary or materially
impair the value of such Property subject thereto; (f) Liens arising solely by
virtue of any statutory or common law provision relating to banker’s liens,
rights of set-off or similar rights and remedies (including any such banker’s
liens, rights of set-off or similar rights and remedies that are contractually
agreed upon in deposit account agreements, securities account agreements or
commodities account agreements entered into in the ordinary course of business)
and burdening only deposit accounts or other funds maintained with a creditor
depository institution, provided that no such deposit account is a dedicated
cash collateral account or is subject to restrictions against access by the
depositor in excess of those set forth by regulations promulgated by the Board
and no such deposit account is intended by the Borrower or any other Credit
Party to provide collateral to the depository institution; (g) easements,
restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations in any Property, including any Oil and Gas Property, of the
Borrower or any Restricted Subsidiary for the purpose of roads, pipelines,
transmission lines, transportation lines, distribution lines for the removal of
gas, oil, coal or other minerals or timber, and other like purposes, or for the
joint or common use of real estate, zoning restrictions, rights of way,
facilities and equipment, that do not secure any monetary obligations and which
in the aggregate do not materially impair the use of such Property for the
purposes of which such Property is held by the Borrower or any Restricted
Subsidiary or materially impair the value of such Property subject thereto; (h)
Liens on cash or securities pledged to secure performance of tenders, surety and
appeal bonds, government contracts, performance and return of money bonds, bids,
trade contracts, leases, statutory obligations, regulatory obligations and other
obligations of a like nature incurred in the ordinary course of business; (i)
judgment and attachment Liens on any Property, including Oil and Gas Properties,
not giving rise to an Event of Default; (j) consents to assignment, preferential
rights to purchase, and similar contractual provisions regarding Oil and Gas
Properties; (k) the rights of farmees and similar Persons who have a right to
acquire a working interest in Oil and Gas Properties of the Borrower or any of
the Restricted Subsidiaries, to the extent disclosed in the most recently
delivered Reserve Report; (l) unsubordinated mortgages granted by lessors on
Property with respect to which the Borrower or any of the Restricted
Subsidiaries owns a Hydrocarbon Interest to the extent such mortgage does not
cover any tract of land under which a wellbore is located and (m) Liens on
Property, including Oil and Gas Properties, arising from precautionary UCC
filings; provided, further that no intention to subordinate the first priority
Lien granted in favor of the Administrative Agent and the Lenders is to be
hereby implied or expressed by the permitted existence of such Excepted Liens.
 
“Exchange Offer” means a registered offer to exchange outstanding Senior Notes
for new Senior Notes (the “exchange notes”) having terms substantially identical
in all material respects to such outstanding Senior Notes (except that the
exchange notes shall not contain any transfer restrictions).
 
“Excluded Taxes” means, with respect to the Administrative Agent, any Lender,
the Issuing Bank or any other recipient of any payment to be made by or on
account of any
 
 
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Index
 
obligation of the Borrower or any Guarantor hereunder or under any other Loan
Document, (a) income or franchise taxes imposed on (or measured by) its net
income by the United States of America or such other jurisdiction under the laws
of which such recipient is organized or in which its principal office is located
or, in the case of any Lender, in which its applicable lending office is
located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction in which the Borrower or any
Guarantor is located, (c) taxes imposed as a result of a present or former
connection between the recipient and the taxing jurisdiction (other than
connections arising from such recipient having executed, delivered, become a
party to, performed its obligations under, received payments under, received or
perfected a security interest under, engaged in any other transaction pursuant
to or enforced any Loan Document, or sold or assigned an interest in any Loan or
Loan Document), (d) any backup withholding tax that is withheld from amounts
payable to a Lender that has failed to comply with Section 5.03(e), (e) in the
case of a Foreign Lender other than an assignee under Section 5.04(a), any
withholding tax that is imposed on amounts payable to such Foreign Lender at the
time such Foreign Lender becomes a party to this Agreement (or designates a new
lending office) or is attributable to such Foreign Lender’s failure or inability
to comply with Section 5.03(e), except to the extent that such Foreign Lender
(or its assignor, if any) was entitled, at the time of designation of a new
lending office (or assignment), to receive additional amounts with respect to
such withholding tax pursuant to Section 5.03(a) or Section 5.03(b), and (f) in
the case of any Lender, any withholding taxes that are attributable to such
Lender’s failure to comply with FATCA.
 
“Existing 2018 Notes” means the Borrower’s 8.625% Senior Notes due 2018 issued
pursuant to the Existing 2018 Notes Indenture, the aggregate outstanding
principal amount of which as of the Effective Date is $400,000,000.
 
“Existing 2018 Notes Indenture” means that certain Indenture dated as of May 28,
2008 among the Borrower, certain Subsidiaries of the Borrower and Wells Fargo
Bank, National Association, as trustee, as supplemented by the Fourth
Supplemental Indenture dated as of November 2, 2010, and as the same may be
amended, restated, modified or further supplemented from time to time (to the
extent such amendment, restatement, modification or supplement is applicable to
the Existing 2018 Notes) in accordance with the terms of this Agreement.
 
“Existing Convertible Notes” means the Borrower’s 4.375% Convertible Senior
Notes due 2028 issued on May 28, 2008 pursuant to the Convertible Notes
Indenture, the aggregate outstanding principal amount of which as of the
Effective Date is $73,750,000.
 
“Existing Convertible Notes Indenture” means that certain Indenture dated as of
May 28, 2008 among the Borrower, certain Subsidiaries of the Borrower and Wells
Fargo Bank, National Association, as trustee, as supplemented by the First
Supplemental Indenture dated as of May 28, 2008, the Second Supplemental
Indenture dated as of May 14, 2009, the Fifth Supplemental Indenture dated as of
November 2, 2010, and as the same may be amended, restated, modified or further
supplemented from time to time (to the extent such amendment, restatement,
modification or supplement is applicable to the Convertible Notes) in accordance
with the terms of this Agreement.
 
 
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Index
 
“Existing Credit Agreement” means that certain Credit Agreement dated as of May
25, 2006 among the Borrower, Wells Fargo Bank, N.A., as administrative agent,
and others as guarantors, agents and lenders, as amended.
 
“Existing Senior Notes” means the Existing Convertible Notes and the Existing
2018 Notes.
 
“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of
this Agreement, and any current or future regulations or official
interpretations thereof.
 
“Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.
 
“Financial Officer” means, for any Person, the chief financial officer,
principal accounting officer, treasurer or controller of such Person.  Unless
otherwise specified, all references herein to a Financial Officer means a
Financial Officer of the Borrower.
 
“Financial Statements” means the financial statement or statements of the
Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).
 
“Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located.  For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
 
“Foreign Subsidiary” means any Restricted Subsidiary that is not a Domestic
Subsidiary.
 
“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time  subject to the terms and conditions set
forth in Section 1.05.
 
“Governmental Authority” means the government of the United States of America or
any other nation or any political subdivision thereof, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government.
 
“Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement,
whether now or hereinafter in effect, of any Governmental Authority.
 
“Guarantee” has the meaning set forth in the definition of “Investment”.
 
 
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Index
 
“Guarantors” means
 
(a)        CLLR, Inc., a Delaware corporation,
 
Bandelier Pipeline Holding, LLC, a Delaware limited liability company,
 
Carrizo Marcellus Holding Inc., a Delaware corporation,
 
Mescalero Pipeline, LLC, a Delaware limited liability company,
 
Hondo Pipeline, Inc., a Delaware corporation,
 
Carrizo (Marcellus) LLC, a Delaware limited liability company, and
 
Carrizo (Marcellus) WV LLC, a Delaware limited liability company, and
 
(b) each Material Domestic Subsidiary that guarantees after the Effective Date
the Obligations pursuant to Section 8.13.
 
“Guaranty Agreement” means an agreement executed by the Guarantors in
substantially the form of Exhibit F-2 unconditionally guarantying, on a joint
and several basis, payment of the Obligations.
 
“Hazardous Material” means any substance regulated or as to which liability
might arise under any applicable Environmental Law including:  (a) any chemical,
compound, material, product, byproduct, substance or waste defined as or
included in the definition or meaning of “hazardous substance,” “hazardous
material,” “hazardous waste,” “solid waste,” “toxic waste,” “extremely hazardous
substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar
meaning or import found in any applicable Environmental Law; (b) Hydrocarbons,
petroleum products, petroleum substances, natural gas, oil, oil and gas waste,
crude oil, and any components, fractions, or derivatives thereof; and (c)
radioactive materials, explosives, asbestos or asbestos containing materials,
polychlorinated biphenyls, radon, infectious or medical wastes.
 
“Hedge Agreement” means any agreement with respect to any swap, forward, future
or derivative transaction or option or similar agreement, whether exchange
traded, “over-the-counter” or otherwise, involving, or settled by reference to,
one or more rates, currencies, commodities, equity or debt instruments or
securities, or economic, financial or pricing indices or measures of economic,
financial or pricing risk or value or any similar transaction or any combination
of these transactions.
 
“Hedge Bank” means any Person that is party to a Hedge Agreement with the
Borrower or any Restricted Subsidiary if either (i) at the time such Hedge
Agreement was entered into, such Person was a Lender or Affiliate of a Lender
hereunder or (ii) such Hedge Agreement was in effect on the Effective Date and
such Person or an Affiliate of such Person was a Lender on the Effective Date.
 
“Hedge Position Cancellation Event” means any assignment, termination, sale or
unwinding of any hedge position under any Hedge Agreement upon which the Lenders
relied in
 
 
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Index
 
determining the then-effective Borrowing Base, or the creation of any
off-setting position (whether evidenced by a floor, put or Hedge Agreement) with
respect to any hedge position under any Hedge Agreement upon which the Lenders
relied in determining the then-effective Borrowing Base, in each case if (a) the
effect of such action, after taking into account the net hedging position under
all then outstanding Hedge Agreements of the Borrower and the Restricted
Subsidiaries taken as a whole (including any other Hedge Agreements executed
contemporaneously with the taking of such action), would be to cancel any of the
Borrower’s or any of the Restricted Subsidiaries’ positions under all such
Hedging Agreements and (b) to the extent the value attributed to such cancelled
positions for purposes of determining the then-effective Borrowing Base were
excluded from the Borrowing Base at such time, the Borrowing Base would
reasonably be expected to be reduced by an amount in excess of 3% thereof.
 
“Hedge Termination Value” means, in respect of any one or more Hedge Agreements,
after taking into account the effect of any legally enforceable netting
agreement relating to such Hedge Agreements, (a) for any date on or after the
date such Hedge Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Hedge Agreements, as determined by the
counterparties to such Hedge Agreements.
 
“Highest Lawful Rate” means, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Obligations under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.
 
“Hydrocarbon Interests” means all rights, titles, interests and estates now or
hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or
other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever nature.
 
“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined or separated therefrom.
 
“Indemnified Taxes” means Taxes other than Excluded Taxes.
 
“Indentures” means (a) the Existing Convertible Notes Indenture, (b) the
Existing 2018 Notes Indenture and (b) the indentures, supplemental indentures or
other agreements under or pursuant to which any Permitted Additional Senior
Notes are issued.
 
“Initial Reserve Report” means the reserve report prepared by the Borrower with
respect to certain Oil and Gas Properties of the Borrower and the Restricted
Subsidiaries as of October 1, 2010.
 
 
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Index
 
“Interest Election Request” means a request by the Borrower to convert or
continue a Borrowing in accordance with Section 2.04.
 
“Interest Expense” means, for any period, the sum (determined without
duplication) of the aggregate interest expense of the Borrower and the
Consolidated Subsidiaries for such period paid in cash, including, to the extent
included in interest expense under GAAP, (a) the portion of any payments or
accruals under Capital Leases allocable to interest expense, plus (b) the
portion of any payments or accruals under Synthetic Leases allocable to interest
expense, whether or not the same constitutes interest expense under GAAP.
 
“Interest Payment Date” means (a) with respect to any ABR Loan, the last day of
each March, June, September and December and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months’ duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months’ duration after
the first day of such Interest Period.
 
“Interest Period” means, with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
(or, with the consent of each Lender, nine or twelve months) thereafter, as the
Borrower may elect; provided, that (a) if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day and (b) any Interest Period pertaining to a
Eurodollar Borrowing that commences on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period.  For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
 
“Interim Redetermination” has the meaning assigned such term in Section 2.07(b).
 
“Interim Redetermination Date” means the date on which a Borrowing Base that has
been redetermined pursuant to an Interim Redetermination becomes effective as
provided in Section 2.07(d).
 
“Investment” means, as applied to any Person: (a) the acquisition (whether for
cash, Property, services or securities or otherwise) of Equity Interests in any
other Person; (b) the making of any loan or capital contribution to, assumption
of Debt of, or purchase or other acquisition of any other Debt or equity
participation or interest in any other Person (including the purchase of
Property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such Property to such Person, but excluding
any such advance, loan or extension of credit having a term not exceeding ninety
(90) days representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business); or (c) the entering into of any
guarantee of, or other contingent obligation pursuant to which such Person
assures a creditor against loss with respect to, Debt of any other Person (a
“Guarantee”);
 
 
15

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Index
 
provided that, (i) with respect to the UK Cost Overrun Guarantee, only amounts
actually demanded in good faith by or paid to the Person to whom such Debt is
owed shall be considered an “Investment” and (ii) with respect to any Guarantee
other than the UK Cost Overrun Guarantee, the amount of the Investment
represented by such Guarantee shall be the lesser of the amount of the Debt that
is the subject of such Guarantee and the maximum stated amount of such
Guarantee.
 
“Issuing Bank” means BNP, in its capacity as the issuer of Letters of Credit
hereunder.  The Issuing Bank may, in its discretion, arrange for one or more
Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case
the term “Issuing Bank” shall include any such Affiliate with respect to Letters
of Credit issued by such Affiliate.
 
“LC Commitment” at any time means Fifteen Million dollars ($15,000,000) or, if
less, the Aggregate Maximum Credit Amounts.
 
“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter
of Credit.
 
“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of
all outstanding Letters of Credit at such time plus (b) the aggregate amount of
all LC Disbursements that have not yet been reimbursed by or on behalf of the
Borrower at such time.  The LC Exposure of any Lender at any time shall be its
Applicable Percentage of the total LC Exposure at such time.
 
“Lenders” means the Persons listed on Annex I and any Person that shall have
become a party hereto pursuant to an Assignment and Assumption, other than any
such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
 
“Letter of Credit” means any letter of credit issued pursuant to this Agreement.
 
“Letter of Credit Agreements” means all letter of credit applications and other
agreements (including any amendments, modifications or supplements thereto)
submitted by the Borrower, or entered into by the Borrower, with the Issuing
Bank relating to any Letter of Credit.
 
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate (rounded upwards, if necessary, to the next 1/100 of 1%)
appearing on Reuters Screen LIBOR01 Page (or on any successor or substitute page
of such service, or any successor to or substitute for such service, providing
rate quotations comparable to those currently provided on such page of such
service, as determined by the Administrative Agent from time to time for
purposes of providing quotations of interest rates applicable to dollar deposits
in the London interbank market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the rate for
dollar deposits with a maturity comparable to such Interest Period.  In the
event that such rate is not available at such time for any reason, then the
“LIBO Rate” with respect to such Eurodollar Borrowing for such Interest Period
shall be the rate (rounded upwards, if necessary, to the next 1/100 of 1%) at
which dollar deposits of an amount comparable to such Eurodollar Borrowing and
for a maturity comparable to such Interest Period are offered by the principal
London office of the Administrative Agent in
 
 
16

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immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
 
“Lien” means any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a financing lease, consignment
or bailment for security purposes or (b) production payments and the like
payable out of Oil and Gas Properties.  The term “Lien” shall include easements,
restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations.  For the purposes of this Agreement, the Borrower and the Credit
Parties shall be deemed to be the owner of any Property which it has acquired or
holds subject to a conditional sale agreement or leases under a financing lease
pursuant to which title to the Property has been retained by or vested in some
other Person in a transaction intended to create a financing.
 
“Loan Documents” means this Agreement, the Notes, if any, the Letter of Credit
Agreements, the Letters of Credit and the Security Instruments.
 
“Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
 
“Majority Lenders” means, at any time while no Loans or LC Exposure are
outstanding, Lenders having more than fifty percent (50.0%) of the Aggregate
Maximum Credit Amounts; and at any time while any Loans or LC Exposure are
outstanding, Lenders holding more than fifty percent (50.0%) of the outstanding
aggregate principal amount of the Loans and participation interests in Letters
of Credit (without regard to any sale by a Lender of a participation in any Loan
under Section 12.04(c)); provided that the Maximum Credit Amount and the
outstanding principal amount of the Loans of, and the participation interests in
Letters of Credit held by, each Defaulting Lender (if any) shall be excluded
from the determination of Majority Lenders to the extent set forth in Section
4.03(c)(ii).
 
“Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property or financial condition
of the Borrower and the Restricted Subsidiaries, taken as a whole, (b) the
ability of the Borrower and the Guarantors, taken as a whole, to perform their
obligations under the Loan Documents, (c) the validity or enforceability of any
Loan Document or (d) the rights and remedies of the Administrative Agent, the
Issuing Bank or the Lenders under the Loan Documents.
 
“Material Domestic Subsidiary” means, as of any date, any Domestic Subsidiary
that (a) is a Wholly-Owned Subsidiary and (b) together with its Subsidiaries,
(i) owns Property which represents more than 1% of the consolidated assets of
the Borrower and the Consolidated Subsidiaries as of the last day of the most
recently ended fiscal quarter of the Borrower for which financial statements
have been delivered pursuant to Section 8.01(a) or 8.01(b), or (ii) is
responsible for more than 1% of the consolidated revenues of the Borrower and
the Consolidated Subsidiaries for the most recently ended period of four
consecutive fiscal quarters of the Borrower for which financial statements have
been delivered pursuant to Section 8.01(a) or
 
 
17

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8.01(b), but excluding (i) the value of the Equity Interests such Domestic
Subsidiary owns in any other Domestic Subsidiaries and (ii) intercompany debt
owed to such Domestic Subsidiary from any other Domestic Subsidiary or the
Borrower.
 
“Material Indebtednesss” means Debt (other than the Loans and Letters of
Credit), or obligations in respect of one or more Hedge Agreements, of any one
or more Credit Parties in an aggregate principal amount exceeding
$10,000,000.  For purposes of determining Material Indebtednesss, the “principal
amount” of the obligations of the Borrower or any other Credit Party in respect
of any Hedge Agreement at any time shall be the Hedge Termination Value thereof.
 
“Maturity Date” means January 27, 2016.
 
“Maximum Credit Amount” means, as to each Lender, the amount set forth opposite
such Lender’s name on Annex I under the caption “Maximum Credit Amount”, as such
amount may be, as the same may be (a) reduced or terminated from time to time in
connection with a reduction or termination of the Aggregate Maximum Credit
Amounts pursuant to Section 2.06(b) or (b) modified from time to time pursuant
to any assignment permitted by Section 12.04(b).
 
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that
is a nationally recognized rating agency.
 
“Mortgaged Property” means any Property owned by the Borrower or any Guarantor
which is subject to the Liens created under the terms of the Security
Instruments.
 
“New Borrowing Base Notice” has the meaning assigned such term in Section
2.07(d).
 
“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting
Lender at such time.
 
“Non-Recourse Debt” means any Debt of any Unrestricted Subsidiary, in each case
in respect of which: (a) the holder or holders thereof (i) shall, except as
provided in the immediately succeeding clause (ii), have recourse only to, and
shall have the right to require the obligations of such Unrestricted Subsidiary
to be performed, satisfied, and paid only out of, the Property of such
Unrestricted Subsidiary and/or one or more of its Subsidiaries and the Equity
Interests in such Unrestricted Subsidiary and (ii) except for the UK Cost
Overrun Guarantee and other Guarantees permitted under Section 9.05(o), shall
have no direct or indirect recourse (including by way of guaranty, support or
indemnity) to the Borrower or any of the Restricted Subsidiaries or to any
Property of the Borrower or any of the Restricted Subsidiaries, whether for
principal, interest, fees, expenses or otherwise; and (b) the terms and
conditions relating to the non-recourse nature of such Debt are in form and
substance reasonably acceptable to the Administrative Agent (it being understood
that such terms and conditions with respect to the Carrizo UK Facility are
acceptable to the Administrative Agent).
 
“North Sea Properties” means the UK Petroleum Production Licence No. P1114
governing Blocks 22/14b and 22/19b, together with any other licences unitized
therewith and all associated property, plant and equipment located on, or
related to such licenses.
 
 
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“Notes” means the promissory notes of the Borrower described in Section 2.02(d)
and being substantially in the form of Exhibit A, together with all amendments,
modifications, replacements, extensions and rearrangements thereof.
 
“Obligations” means any and all amounts owing by the Borrower or any of the
Restricted Subsidiaries (whether direct or indirect (including those acquired by
assumption), absolute or contingent, due or to become due, now existing or
hereafter arising): (a) to the Administrative Agent, the Issuing Bank or any
Lender under any Loan Document; (b) to any Hedge Bank under any Hedge Agreement
between the Borrower or any Restricted Subsidiary and such Hedge Bank, in each
case, after giving effect to all netting arrangements relating to such Hedge
Agreement; (c) obligations under all Treasury Management Agreements with any
Lender or any Affiliate of a Lender; and (d) all renewals, extensions and/or
rearrangements of any of the above.
 
“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now
or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; (d) all operating
agreements, contracts and other agreements, including production sharing
contracts and agreements, which relate to any of the Hydrocarbon Interests or
the production, sale, purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under
and which may be produced and saved or attributable to the Hydrocarbon
Interests, including all oil in tanks, and all rents, issues, profits, proceeds,
products, revenues and other incomes from or attributable to the Hydrocarbon
Interests; (f) all tenements, hereditaments, appurtenances and Properties in any
manner appertaining, belonging, affixed or incidental to the Hydrocarbon
Interests and (g) all Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereafter acquired and situated upon, used, held for use
or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment, rental equipment or other personal Property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
 
“Organizational Documents” means, with respect to any Person, (a) in the case of
any corporation, the certificate of incorporation and by-laws (or similar
documents) of such Person, (b) in the case of any limited liability company, the
certificate of formation and limited liability company agreement (or similar
documents) of such Person, (c) in the case of any limited partnership, the
certificate of formation and limited partnership agreement (or similar
documents) of such Person, (d) in the case of any general partnership, the
partnership agreement (or similar document) of such Person and (e) in any other
case, the functional equivalent of the foregoing.
 
 
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“Other Taxes” means any and all present or future stamp or documentary taxes or
any other excise or Property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement and any other Loan Document other than
Excluded Taxes.
 
“Participant” has the meaning set forth in Section 12.04(c)(i).
 
“Permitted Additional Senior Notes” means any unsecured senior, senior
subordinated or convertible notes issued after the Effective Date by the
Borrower under Section 9.02(f).
 
“Permitted Refinancing Debt” means Debt (for purposes of this definition, “new
Debt”) incurred in exchange for (other than pursuant to an Exchange Offer), or
proceeds of which are used to extend, refinance, renew, replace, defease,
discharge, refund or otherwise retire for value, in whole or in part, any other
Debt (the “Refinanced Debt”); provided that (a) such new Debt is in an aggregate
principal amount not in excess of the sum of (i) the aggregate principal amount
then outstanding of the Refinanced Debt (or, if the Refinanced Debt is exchanged
or acquired for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount) and
(ii) an amount necessary to pay all accrued (including, for the purposes of
defeasance, future accrued) and unpaid interest on the Refinanced Debt and any
fees and expenses, including premiums, related to such exchange or refinancing;
(b) such new Debt has a stated maturity no earlier than the sooner to occur of
(i) the date that is 91 days after the Maturity Date (as in effect on the date
of incurrence of such new Debt) and (ii) the stated maturity date of the
Refinanced Debt; (c) such new Debt has an average life at the time such new Debt
is incurred that is no shorter than the shorter of (i) the period beginning on
the date of incurrence of such new Debt and ending on the date that is 91 days
after the Maturity Date (as in effect on the date of incurrence of such new
Debt) and (ii) the average life of the Refinanced Debt at the time such new Debt
is incurred; (d) the covenants of such new Debt, when taken as a whole, are not
materially more onerous to the Borrower and the Credit Parties than those
imposed by the Refinanced Debt, as determined in good faith by a Financial
Officer; (e) such new Debt is not incurred or guaranteed by a non-Guarantor
Restricted Subsidiary if the Borrower or a Guarantor is the issuer or is
otherwise an obligor on the Refinanced Debt; and (f) if the Refinanced Debt was
subordinated in right of payment to the Obligations or the guarantees under the
Guaranty Agreement, such new Debt (and any guarantees thereof) is subordinated
in right of payment to the Obligations (or, if applicable, the guarantees under
the Guaranty Agreement) to at least the same extent as the Refinanced Debt.
 
“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
 
“Plan” means any employee pension benefit plan, as defined in section 3(2) of
ERISA, which (a) is currently or hereafter sponsored, maintained or contributed
to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time
during the six calendar years preceding the date hereof, sponsored, maintained
or contributed to by the Borrower or any other Credit Party or an ERISA
Affiliate.
 
“Prime Rate” means the rate of interest per annum publicly announced from time
to time by the Administrative Agent as its prime rate in effect at its principal
office in Houston; each
 
 
20

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change in the Prime Rate shall be effective from and including the date such
change is publicly announced as being effective.  Such rate is set by the
Administrative Agent as a general reference rate of interest, taking into
account such factors as the Administrative Agent may deem appropriate; it being
understood that many of the Administrative Agent’s commercial or other loans are
priced in relation to such rate, that it is not necessarily the lowest or best
rate actually charged to any customer and that the Administrative Agent may make
various commercial or other loans at rates of interest having no relationship to
such rate.
 
“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, including, without limitation,
cash, securities, accounts and contract rights.
 
“Proposed Borrowing Base” has the meaning assigned to such term in Section
2.07(c)(i).
 
“Proposed Borrowing Base Notice” has the meaning assigned to such term in
Section 2.07(c)(ii).
 
“Redemption” means with respect to any Debt, the repurchase, redemption,
prepayment, repayment, defeasance or any other acquisition or retirement for
value (or the segregation of funds with respect to any of the foregoing) of such
Debt.  “Redeem” has the correlative meaning thereto.
 
“Redetermination Date” means, with respect to any Scheduled Redetermination or
any Interim Redetermination, the date that the redetermined Borrowing Base
related thereto becomes effective pursuant to Section 2.07(d).
 
“Refinanced Debt” has the meaning assigned such term in the definition of
“Permitted Refinancing Debt”.
 
“Register” has the meaning assigned such term in Section 12.04(b)(iv).
 
“Regulation D” means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
 
“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors (including attorneys, accountants and experts) of such Person and such
Person’s Affiliates.
 
“Release” means any depositing, spilling, leaking, pumping, pouring, placing,
emitting, discarding, abandoning, emptying, discharging, migrating, injecting,
escaping, leaching, dumping, or disposing.
 
“Remedial Work” has the meaning assigned such term in Section 8.09(a).
 
“Required Lenders” means, at any time while no Loans or LC Exposure are
outstanding, Lenders having at least sixty six and two-thirds percent (66-2/3%)
of the Aggregate Maximum Credit Amounts; and at any time while any Loans or LC
Exposure are outstanding, Lenders holding at least sixty six and two-thirds
percent (66-2/3%) of the outstanding aggregate principal
 
 
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amount of the Loans or participation interests in such Letters of Credit
(without regard to any sale by a Lender of a participation in any Loan under
Section 12.04(c)); provided that the Maximum Credit Amount and the outstanding
principal amount of the Loans of, and the participation interests in Letters of
Credit held by, each Defaulting Lender (if any) shall be excluded from the
determination of Required Lenders to the extent set forth in
Section 4.03(c)(ii).
 
“Reserve Report” means a report, in form and substance reasonably satisfactory
to the Administrative Agent, setting forth, as of each January 1st or July 1st
(or such other date in the event of an Interim Redetermination), the oil and gas
reserves attributable to the Oil and Gas Properties of the Borrower and the
Credit Parties, together with a projection of the rate of production and future
net income, taxes, operating expenses and capital expenditures with respect
thereto as of such date, based upon the economic assumptions consistent with the
Administrative Agent’s lending requirements at the time.
 
“Reserve Report Certificate” means a certificate of a Responsible Officer in
substantially the form of Exhibit H attached hereto certifying as to the matters
set forth in Section 8.11(c).
 
“Responsible Officer” means, as to any Person, the Chief Executive Officer, the
President, any Financial Officer or any Vice President of such Person.  Unless
otherwise specified, all references to a Responsible Officer herein shall mean a
Responsible Officer of the Borrower.
 
“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the
Borrower or any of the Restricted Subsidiaries, or any payment (whether in cash,
securities or other Property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or
termination of any such Equity Interests in the Borrower or any of the
Restricted Subsidiaries.
 
“Restricted Subsidiary” means any Subsidiary of the Borrower that is not an
Unrestricted Subsidiary.
 
“Revolving Credit Exposure” means, with respect to any Lender at any time, the
sum of the outstanding principal amount of such Lender’s Loans and its LC
Exposure at such time.
 
“Sale” has the meaning set forth in Section 9.11.
 
“Scheduled Redetermination” has the meaning assigned such term in Section
2.07(b).
 
“Scheduled Redetermination Date” means the date on which a Borrowing Base that
has been redetermined pursuant to a Scheduled Redetermination becomes effective
as provided in Section 2.07(d).
 
“SEC” means the Securities and Exchange Commission or any successor Governmental
Authority.
 
 
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“Security Instruments” means the Guaranty Agreement, the mortgages, deeds of
trust and other agreements, instruments or certificates described or identified
in Exhibit F-1, and any and all other agreements or instruments, now or
hereafter executed and delivered by the Borrower or any Guarantor (other than
Hedge Agreements and Treasury Management Agreements) as security for the payment
or performance of the Obligations.
 
“Senior Debt” means, at any date, all Total Debt other than the Senior Notes.
 
“Senior Notes” means the Existing Senior Notes, any Permitted Additional Senior
Notes and any Permitted Refinancing Debt in respect thereof.
 
“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.
 
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve
percentages shall include those imposed pursuant to such Regulation
D.  Eurodollar Loans shall be deemed to constitute eurocurrency funding and to
be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to any
Lender under such Regulation D or any comparable regulation.  The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.
 
“subsidiary” of a Person means (a) a corporation, partnership, joint venture,
limited liability company or other business entity of which Equity Interests
representing more than 50% of the ordinary voting power to elect a majority of
the board of directors, managers or other governing body (irrespective of
whether or not at the time Equity Interests of any other class or classes of
such Person shall have or might have voting power by reason of the happening of
any contingency) are at the time owned or controlled by such Person or one or
more of its subsidiaries or by such Person and one or more of its subsidiaries,
and (b) any partnership of which such Person or any of its subsidiaries is a
general partner.
 
“Subsidiary” means any subsidiary of the Borrower.
 
“Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases
on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.
 
 
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Index
 
“Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
 
“Termination Date” means the earlier of the Maturity Date and the date of
termination of the Commitments.
 
“Title Policies and Procedures” means the “Carrizo Title Examination in Barnett
Shale Urban Areas Policies and Procedures; Work Product and Expected Results”,
amended and revised as of November 18, 2009, a copy of which was delivered to
the Administrative Agent prior to the Effective Date, as amended, supplemented,
restated or otherwise modified from time to time (but only to the extent any
such amendment, supplement, restatement or other modification would not
reasonably be expected to be disadvantageous to the Lenders in any material
respect).
 
“Total Debt” means, at any date, an amount equal to (a) all Debt of the Borrower
and the Consolidated Subsidiaries, excluding (i) non-cash obligations under or
as a result of the application of FAS 133 or otherwise and (ii) the Borrower’s
obligations under the UK Cost Overrun Guarantee, less (b) all cash and cash
equivalents of the Borrower and the Consolidated Subsidiaries as of such date
which is unrestricted and subject to no Liens other than in favor of the
Administrative Agent.  For purposes of this definition and for determining the
Borrower’s compliance with Section 9.01(a), Debt of the Borrower and the
Consolidated Subsidiaries shall not include, for each date of determination
during the period from January 1, 2011 through December 31, 2011, an amount
equal to (i) $6,404,669 (which represents the equity component of the aggregate
principal amount of Existing Convertible Notes outstanding on the Effective Date
(determined pursuant to FASB Staff Position (“FSB”) Accounting Principles Board
(“APB”) 14-1)), multiplied by (ii) a fraction, (x) the numerator of which is
equal to the aggregate outstanding principal amount of the Existing Convertible
Notes on such date of determination and (y) the denominator of which is equal to
$73,750,000.
 
“Transactions” means, with respect to (a) the Borrower, the execution, delivery
and performance by the Borrower of this Agreement and each other Loan Document
to which it is a party, the borrowing of Loans, the use of the proceeds thereof
and the issuance of Letters of Credit hereunder, and the grant of Liens by the
Borrower on Mortgaged Properties and other Properties pursuant to the Security
Instruments and (b) each Guarantor, the execution, delivery and performance by
such Guarantor of each Loan Document to which it is a party, the guaranteeing of
the Obligations under the Guaranty Agreement by such Guarantor and the grant of
Liens by such Guarantor on Mortgaged Properties and other Properties pursuant to
the Security Instruments.
 
“Treasury Management Agreements” means any agreements regarding bank services
provided to the Borrower or any Restricted Subsidiary for commercial credit
cards and treasury management services, including, without limitation,
controlled disbursement, automated clearinghouse transactions, return items,
overdrafts and interstate depository network services.
 
“Type”, when used in reference to any Loan or Borrowing, refers to whether the
rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.
 
 
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Index
 
“UK Cost Overrun Guarantee” means the Borrower’s obligations under the Carrizo
UK Facility.
 
“Unrestricted Subsidiary” means Carrizo UK Huntington and any other Subsidiary
designated as such on Schedule 7.14 or which the Borrower has designated in
writing to the Administrative Agent to be an Unrestricted Subsidiary pursuant to
Section 9.16.
 
“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding
Equity Interests (other than any directors’ qualifying shares mandated by
applicable law), on a fully-diluted basis, are owned by the Borrower or one or
more other Wholly-Owned Subsidiaries or are owned by the Borrower and one or
more other Wholly-Owned Subsidiaries.
 
Section 1.03 Types of Loans and Borrowings.  For purposes of this Agreement,
Loans and Borrowings may be classified and referred to by Type (e.g., a
“Eurodollar Loan” or a “Eurodollar Borrowing”).
 
Section 1.04 Terms Generally; Rules of Construction.  The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined.  Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.  The words “include”,
“includes” and “including” as used in this Credit Agreement shall be deemed to
be followed by the phrase “without limitation”.  The word “will” shall be
construed to have the same meaning and effect as the word “shall”.  Unless the
context requires otherwise, (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth in the Loan Documents), (b)
any reference herein to any law shall be construed as referring to such law as
amended, modified, codified or reenacted, in whole or in part, and in effect
from time to time, (c) any reference herein to any Person shall be construed to
include such Person’s successors and assigns (subject to the restrictions
contained in the Loan Documents), (d) the words “herein”, “hereof” and
“hereunder”, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (e) with
respect to the determination of any time period, the word “from” means “from and
including” and the word “to” means “to and including” and (f) any reference
herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed
to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to,
this Agreement.  No provision of this Agreement or any other Loan Document shall
be interpreted or construed against any Person solely because such Person or its
legal representative drafted such provision.
 
Section 1.05 Accounting Terms and Determinations; GAAP.  Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the Financial Statements except for changes in which Borrower’s independent
certified public accountants concur and which are disclosed therein (provided
that, unless the Borrower and the Majority Lenders shall otherwise agree in
writing, no such change shall modify or affect the manner in which compliance
with the covenants contained herein is
 
 
25

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Index
 
computed, such that all such computations shall be conducted utilizing financial
information presented consistently with prior periods); and provided further
that, if the Borrower notifies the Administrative Agent that the Borrower wishes
to amend any covenant in Article IX or any financial ratio or requirement set
forth in any Loan Document or any definition used therein to eliminate the
effect of any change in GAAP on the operation of such covenant, financial ratio
or requirement or definition (or if the Administrative Agent notifies the
Borrower that the Required Lenders wish to amend Article IX or any other Loan
Document for such purpose), then the Borrower’s compliance with such covenant,
financial ratio or requirement shall be determined on the basis of GAAP in
effect immediately before the relevant change in GAAP became effective, until
either such notice is withdrawn or such covenant, financial ratio or requirement
or definition is amended in a manner satisfactory to the Borrower and the
Majority Lenders.  Notwithstanding anything to the contrary in this Agreement or
any other Loan Document, for purposes of calculations made pursuant to the terms
of this Agreement or any other Loan Document, GAAP will be deemed to treat
leases that would have been classified as operating leases in accordance with
generally accepted accounting principles in the United States of America as in
effect on December 31, 2009 in a manner consistent with the treatment of such
leases under generally accepted accounting principles in the United States of
America as in effect on December 31, 2009, notwithstanding any modifications or
interpretive changes thereto that may occur thereafter.
 
ARTICLE II
The Credits
 
Section 2.01 Commitments.  Subject to the terms and conditions set forth herein,
each Lender agrees to make Loans to the Borrower during the Availability Period
in an aggregate principal amount that will not result in (a) such Lender’s
Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the total
Revolving Credit Exposures exceeding the total Commitments.  Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, repay and reborrow the Loans.
 
Section 2.02 Loans and Borrowings.
 
(a) Borrowings; Several Obligations.  Each Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Commitments.  The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments are several and no Lender shall be
responsible for any other Lender’s failure to make Loans as required.
 
(b) Types of Loans.  Subject to Section 3.03, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in
accordance herewith.  Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
 
 
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(c) Minimum Amounts; Limitation on Number of Borrowings.  At the commencement of
each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an
aggregate amount that is an integral multiple of $1,000,000 and not less than
$5,000,000.  At the time that each ABR Borrowing is made, such Borrowing shall
be in an aggregate amount that is an integral multiple of $500,000 and not less
than $1,000,000; provided that an ABR Borrowing may be in a lesser aggregate
amount that is equal to the entire unused balance of the total Commitments or
that is required to finance the reimbursement of an LC Disbursement as
contemplated by Section 2.08(e).  Borrowings of more than one Type may be
outstanding at the same time, provided that there shall not at any time be more
than a total of eight (8) Eurodollar Borrowings outstanding.  Notwithstanding
any other provision of this Agreement, the Borrower shall not be entitled to
request, or to elect to convert or continue, any Borrowing if the Interest
Period requested with respect thereto would end after the Maturity Date.
 
(d) Notes.  If requested in writing by a Lender, the Loans made by such Lender
shall be evidenced by a single promissory note of the Borrower in substantially
the form of Exhibit A, dated, in the case of (i) any Lender party hereto as of
the date of this Agreement, as of the date of this Agreement or (ii) any Lender
that becomes a party hereto pursuant to an Assignment and Assumption, as of the
effective date of the Assignment and Assumption, payable to the Lender in a
principal amount equal to its Maximum Credit Amount as in effect on such date,
and otherwise duly completed.  In the event that the Maximum Credit Amount of
any Lender whose Loans are evidenced by a Note increases or decreases for any
reason (whether pursuant to Section 2.06, Section 12.04(b) or otherwise), upon
the prior written request of such Lender, the Borrower shall deliver or cause to
be delivered on the effective date of such increase or decrease, a new Note
payable to the Lender in a principal amount equal to its Maximum Credit Amount
after giving effect to such increase or decrease, and otherwise duly
completed.  The date, amount, Type, interest rate and, if applicable, Interest
Period of each Loan made by each Lender whose Loans are evidenced by a Note, and
all payments made on account of the principal thereof, shall be recorded by such
Lender on its books for its Note, and, prior to any transfer, may be endorsed by
such Lender on a schedule attached to such Note or any continuation thereof or
on any separate record maintained by such Lender.  Failure to make any such
notation or to attach a schedule shall not affect any Lender’s or the Borrower’s
rights or obligations in respect of such Loans or affect the validity of such
transfer by any Lender of its Note.
 
Section 2.03 Requests for Borrowings.  To request a Borrowing, the Borrower
shall notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 12:00 noon, Houston time, three
Business Days before the date of the proposed Borrowing or (b) in the case of an
ABR Borrowing, not later than 11:00 a.m., Houston time, on the date of the
proposed Borrowing; provided that no such notice shall be required for any
deemed request of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as provided in Section 2.08(e).  Each such Borrowing Request shall
be irrevocable and shall be confirmed promptly by hand delivery or telecopy to
the Administrative Agent of a written Borrowing Request in substantially the
form of Exhibit B and signed by the Borrower.  Each such telephonic and written
Borrowing Request shall specify the following information in compliance with
Section 2.02:
 
 
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(i) the aggregate amount of the requested Borrowing;
 
(ii) the date of such Borrowing, which shall be a Business Day;
 
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
 
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of
the term “Interest Period”;
 
(v) the amount of the then effective Borrowing Base, the current total Revolving
Credit Exposures (without regard to the requested Borrowing) and the pro forma
total Revolving Credit Exposures (giving effect to the requested Borrowing); and
 
(vi) the location and number of the Borrower’s account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.05.
 
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing.  If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration.  Each Borrowing
Request shall constitute a representation that the amount of the requested
Borrowing shall not cause the total Revolving Credit Exposures to exceed the
total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and
the then effective Borrowing Base).
 
Promptly following receipt of a Borrowing Request in accordance with this
Section 2.03, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender’s Loan to be made as part of the
requested Borrowing.
 
Section 2.04 Interest Elections.
 
(a) Conversion and Continuance.  Each Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Borrowing, shall have an initial Interest Period as specified in such Borrowing
Request.  Thereafter, the Borrower may elect to convert such Borrowing to a
different Type or to continue such Borrowing and, in the case of a Eurodollar
Borrowing, may elect Interest Periods therefor, all as provided in this Section
2.04.  The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans comprising each such portion shall be considered a separate
Borrowing.
 
(b) Interest Election Requests.  To make an election pursuant to this Section
2.04, the Borrower shall notify the Administrative Agent of such election by
telephone by the time that a Borrowing Request would be required under Section
2.03 if the Borrower were requesting a Borrowing of the Type resulting from such
election to be made on the effective date of such election.  Each such Interest
Election Request shall be irrevocable and shall be
 
 
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confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Interest Election Request in substantially the form of Exhibit C and
signed by the Borrower.
 
(c) Information in Interest Election Requests.  Each telephonic and written
Interest Election Request shall specify the following information in compliance
with Section 2.02:
 
(i) the Borrowing to which such Interest Election Request applies and, if
different options are being elected with respect to different portions thereof,
the portions thereof to be allocated to each resulting Borrowing (in which case
the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall
be specified for each resulting Borrowing);
 
(ii) the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;
 
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
 
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period
to be applicable thereto after giving effect to such election, which shall be a
period contemplated by the definition of the term “Interest Period”.
 
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month’s duration.
 
(d) Notice to Lenders by the Administrative Agent.  Promptly following receipt
of an Interest Election Request, the Administrative Agent shall advise each
Lender of the details thereof and of such Lender’s portion of each resulting
Borrowing.
 
(e) Effect of Failure to Deliver Timely Interest Election Request and Events of
Default and Borrowing Base Deficiencies on Interest Election.  If the Borrower
fails to deliver a timely Interest Election Request with respect to a Eurodollar
Borrowing prior to the end of the Interest Period applicable thereto, then,
unless such Borrowing is repaid as provided herein, at the end of such Interest
Period such Borrowing shall be converted to an ABR Borrowing.  Notwithstanding
any contrary provision hereof, if an Event of Default has occurred and is
continuing and the Administrative Agent, at the request of the Majority Lenders,
so notifies the Borrower, then, so long as an Event of Default is
continuing:  (i) no outstanding Borrowing may be converted to or continued as a
Eurodollar Borrowing (and any Interest Election Request that requests the
conversion of any Borrowing to, or continuation of any Borrowing as, a
Eurodollar Borrowing shall be ineffective) and (ii) unless repaid, each
Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto.
 
Section 2.05 Funding of Borrowings.
 
(a) Funding by Lenders.  Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately available
funds by 2:00
 
 
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p.m., Houston time, to the account of the Administrative Agent most recently
designated by it for such purpose by notice to the Lenders.  The Administrative
Agent will make such Loans available to the Borrower by promptly crediting the
amounts so received, in like funds, to an account of the Borrower designated by
the Borrower in the applicable Borrowing Request; provided that ABR Loans made
to finance the reimbursement of an LC Disbursement as provided in Section
2.08(e) shall be remitted by the Administrative Agent to the Issuing
Bank.  Nothing herein shall be deemed to obligate any Lender to obtain the funds
for its Loan in any particular place or manner or to constitute a representation
by any Lender that it has obtained or will obtain the funds for its Loan in any
particular place or manner.
 
(b) Presumption of Funding by the Lenders.  Unless the Administrative Agent
shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the Administrative Agent
such Lender’s share of such Borrowing, the Administrative Agent may assume that
such Lender has made such share available on such date in accordance with
Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount.  In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent, then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to the Borrower to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation or (ii) in the case of the
Borrower, the interest rate applicable to the Type of such Borrowing.  If the
Borrower and such Lender shall pay such interest to the Administrative Agent for
the same or an overlapping period, the Administrative Agent shall promptly remit
to the Borrower the amount of such interest paid by the Borrower for such
period.  If such Lender pays such amount to the Administrative Agent, then such
amount shall constitute such Lender’s Loan included in such Borrowing.
 
Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts.
 
(a) Scheduled Termination of Commitments.  Unless previously terminated, the
Commitments shall terminate on the Maturity Date.  If at any time the Aggregate
Maximum Credit Amounts or the Borrowing Base is terminated or reduced to zero,
then the Commitments shall terminate on the effective date of such termination
or reduction.
 
(b) Optional Termination and Reduction of Aggregate Credit Amounts.
 
(i) The Borrower may at any time terminate, or from time to time reduce, the
Aggregate Maximum Credit Amounts; provided that (A) each reduction of the
Aggregate Maximum Credit Amounts shall be in an amount that is an integral
multiple of $10,000,000 and (B) the Borrower shall not terminate or reduce the
Aggregate Maximum Credit Amounts if, after giving effect to any concurrent
prepayment of the Loans in accordance with Section 3.04(b), the total Revolving
Credit Exposures would exceed the total Commitments.
 
 
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(ii) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Aggregate Maximum Credit Amounts under Section
2.06(b)(i) at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof.  Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof.  Each notice delivered by the
Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable; provided
that a notice of reduction or termination of the Aggregate Maximum Credit
Amounts delivered by the Borrower may state that such notice is conditioned upon
the effectiveness of other credit facilities or other securities offerings, in
which case such notice may be revoked by the Borrower (by at least one Business
Day’s prior notice to the Administrative Agent on or prior to the specified
effective date) if such condition is not satisfied.  Any termination or
reduction of the Aggregate Maximum Credit Amounts shall be permanent and may not
be reinstated.  Except for termination of a Defaulting Lender under Section
5.04(b), each reduction of the Aggregate Maximum Credit Amounts shall be made
ratably among the Lenders in accordance with each Lender’s Applicable
Percentage.
 
Section 2.07 Borrowing Base.
 
(a) Initial Borrowing Base.  For the period from and including the Effective
Date to but excluding the first Redetermination Date, the amount of the
Borrowing Base shall be Three Hundred Fifty Million Dollars
($350,000,000).  Notwithstanding the foregoing, the Borrowing Base may be
subject to further adjustments from time to time pursuant to Section 2.07(e),
Section 2.07(f), Section 8.12(c) or Section 9.11.
 
(b) Scheduled and Interim Redeterminations.  Except as set forth in the
following sentence, the Borrowing Base shall be redetermined semi-annually in
accordance with this Section 2.07 (a “Scheduled Redetermination”), and, subject
to Section 2.07(d), such redetermined Borrowing Base shall become effective and
applicable to the Borrower, the Administrative Agent, the Issuing Bank and the
Lenders on May 1st and November 1st of each year, commencing May 1, 2011.  In
addition, the Borrower may, by notifying the Administrative Agent thereof, and
the Administrative Agent may, at the direction of the Required Lenders, by
notifying the Borrower thereof, each elect to cause the Borrowing Base to be
redetermined once between each Scheduled Redetermination (an “Interim
Redetermination”) in accordance with this Section 2.07.
 
(c) Scheduled and Interim Redetermination Procedure.
 
(i) Each Scheduled Redetermination and each Interim Redetermination shall be
effectuated as follows:  Upon receipt by the Administrative Agent of (A) the
Reserve Report and the Reserve Report Certificate, and (B) such other reports,
data and supplemental information, including, without limitation, the
information provided pursuant to Section 8.11(c), as may, from time to time, be
reasonably requested by the Majority Lenders (the Reserve Report, such
certificate and such other reports, data and supplemental information being the
“Engineering Reports”), the Administrative Agent shall evaluate the information
contained in the Engineering Reports and shall in good faith propose a new
Borrowing Base (the “Proposed Borrowing Base”) based upon such information and
such other information (including, without limitation, the status of title
information with respect to the Oil and Gas Properties as described
 
 
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in the Engineering Reports and the existence of any other Debt) as the
Administrative Agent deems appropriate in its sole discretion consistent with
its normal and customary oil and gas lending criteria as it exists at the
particular time.
 
(ii) The Administrative Agent shall notify the Borrower and the Lenders of the
Proposed Borrowing Base (the “Proposed Borrowing Base Notice”):
 
(A) in the case of a Scheduled Redetermination, (1) if the Administrative Agent
shall have received the Engineering Reports required to be delivered by the
Borrower pursuant to Section 8.11(a) and (c) in a timely manner, then on or
before the April 15th and October 15th of such year following the date of
delivery or (2) if the Administrative Agent shall not have received the
Engineering Reports required to be delivered by the Borrower pursuant to Section
8.11(a) and (c) in a timely manner, then promptly after the Administrative Agent
has received complete Engineering Reports from the Borrower and has had a
reasonable opportunity to determine the Proposed Borrowing Base in accordance
with Section 2.07(c)(i); and
 
(B) in the case of an Interim Redetermination, promptly, and in any event within
fifteen (15) days, after the Administrative Agent has received the required
Engineering Reports.
 
(iii) Any Proposed Borrowing Base that would increase the Borrowing Base then in
effect must be approved or deemed to have been approved by all of the Lenders as
provided in this Section 2.07(c)(iii); and any Proposed Borrowing Base that
would decrease or maintain the Borrowing Base then in effect must be approved or
be deemed to have been approved by the Required Lenders as provided in this
Section 2.07(c)(iii).  Upon receipt of the Proposed Borrowing Base Notice, each
Lender shall have fifteen (15) days to agree with the Proposed Borrowing Base or
disagree with the Proposed Borrowing Base by proposing an alternate Borrowing
Base, and each Lender shall make its determination of the appropriate amount of
the Borrowing Base consistent with each such Lender’s normal and customary oil
and gas lending criteria as it exists at the particular time.  If at the end of
such 15-day period, any Lender has not communicated its approval or disapproval
in writing to the Administrative Agent, such silence shall be deemed to be an
approval of the Proposed Borrowing Base.  If, at the end of such 15-day period,
all of the Lenders, in the case of a Proposed Borrowing Base that would increase
the Borrowing Base then in effect, or the Required Lenders, in the case of a
Proposed Borrowing Base that would decrease or maintain the Borrowing Base then
in effect, have approved or deemed to have approved (as aforesaid) the Proposed
Borrowing Base, then the Proposed Borrowing Base shall become the new Borrowing
Base, effective on the date specified in Section 2.07(d).  If, however, at the
end of such 15-day period, all of the Lenders or the Required Lenders, as
applicable, have not approved or deemed to have approved (as aforesaid) the
Proposed Borrowing Base, then the Administrative Agent shall poll the Lenders to
ascertain the highest Borrowing Base then acceptable to all of the Lenders or a
number of Lenders sufficient to constitute the Required Lenders, as applicable,
and such amount shall become the new Borrowing Base, effective on the date
specified in Section 2.07(d).
 
(d) Effectiveness of a Redetermined Borrowing Base.  After a redetermined
Borrowing Base is approved or is deemed to have been approved by all of the
Lenders or the
 
 
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Required Lenders, as applicable, pursuant to Section 2.07(c)(iii), the
Administrative Agent shall notify the Borrower and the Lenders of the amount of
the redetermined Borrowing Base (the “New Borrowing Base Notice”), and such
amount shall become the new Borrowing Base, effective and applicable to the
Borrower, the Administrative Agent, the Issuing Bank and the Lenders:
 
(i) in the case of a Scheduled Redetermination, (A) if the Administrative Agent
shall have received the Engineering Reports required to be delivered by the
Borrower pursuant to Section 8.11(a) and (c) in a timely and complete manner,
then on the May 1st or November 1st, as applicable, following such notice, or
(B) if the Administrative Agent shall not have received the Engineering Reports
required to be delivered by the Borrower pursuant to Section 8.11(a) and (c) in
a timely and complete manner, then on the Business Day next succeeding delivery
of such notice; and
 
(ii) in the case of an Interim Redetermination, on the Business Day next
succeeding delivery of such notice.
 
Such amount shall then become the Borrowing Base until the next Scheduled
Redetermination Date, the next Interim Redetermination Date or the next
adjustment to the Borrowing Base under Section 2.07(e), Section 2.07(f), Section
8.12(c) or Section 9.11, whichever occurs first.  Notwithstanding the foregoing,
no Scheduled Redetermination or Interim Redetermination shall become effective
until the New Borrowing Base Notice related thereto is received by the Borrower.
 
(e) Reduction of Borrowing Base Upon Issuance of Permitted Additional Senior
Notes.  Upon the issuance of any Permitted Additional Senior Notes in accordance
with Section 9.02(f) (other than Senior Notes issued pursuant to an Exchange
Offer or constituting Permitted Refinancing Debt up to the original principal
amount of the refinanced Senior Notes), the Borrowing Base then in effect shall
be reduced by an amount equal to the product of 0.25 multiplied by the stated
principal amount of such Permitted Additional Senior Notes (without regard to
any initial issue discount), and the Borrowing Base as so reduced shall become
the new Borrowing Base immediately upon the date of such issuance, effective and
applicable to the Borrower, the Administrative Agent, the Issuing Bank and the
Lenders on such date until the next redetermination or modification thereof
hereunder.
 
(f) Reduction of Borrowing Base Upon Hedge Position Cancellation Event.  Upon
the occurrence of a Hedge Position Cancellation Event, the Required Lenders
shall have the right to reduce the Borrowing Base by an amount determined by the
Required Lenders to be the value attributed to the positions that were cancelled
pursuant to such Hedge Position Cancellation Event for purposes of determining
the then-effective Borrowing Base.
 
Section 2.08 Letters of Credit.
 
(a) General.  Subject to the terms and conditions set forth herein, the Borrower
may request the issuance of dollar denominated Letters of Credit for its own
account or for the account of any of its Restricted Subsidiaries, in a form
reasonably acceptable to the Administrative Agent and the Issuing Bank, at any
time and from time to time during the
 
 
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Availability Period; provided that the Borrower may not request the issuance,
amendment (to extend the term or increase the amount), renewal or extension of
Letters of Credit hereunder, and the Issuing Bank shall not issue, amend (to
extend the term or increase the amount), renew or extend a Letter of Credit, if
a Borrowing Base Deficiency exists at such time or would exist as a result
thereof or if the LC Exposure would exceed the LC Commitment after giving effect
thereto.  Subject to the terms and conditions set forth herein, the Issuing Bank
shall then arrange for the Letter of Credit to be issued on the Borrower’s
behalf.  In the event of any inconsistency between the terms and conditions of
this Agreement and the terms and conditions of any form of letter of credit
application or other agreement submitted by the Borrower to, or entered into by
the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms
and conditions of this Agreement shall control.
 
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.  To
request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the Borrower shall hand deliver
or telecopy (or transmit by electronic communication, if arrangements for doing
so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (not less than three (3) Business Days in advance of the
requested date of issuance, amendment, renewal or extension) a notice:
 
(i) requesting the issuance of a Letter of Credit or identifying the Letter of
Credit to be amended, renewed or extended;
 
(ii) specifying the date of issuance, amendment, renewal or extension (which
shall be a Business Day);
 
(iii) specifying the date on which such Letter of Credit is to expire (which
shall comply with Section 2.08(c));
 
(iv) specifying the amount of such Letter of Credit;
 
(v) specifying the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit; and
 
(vi) specifying the amount of the then effective Borrowing Base, the current
total Revolving Credit Exposures (without regard to the requested Letter of
Credit or the requested amendment, renewal or extension of an outstanding Letter
of Credit) and the pro forma total Revolving Credit Exposures (giving effect to
the requested Letter of Credit or the requested amendment, renewal or extension
of an outstanding Letter of Credit).
 
Each such notice shall constitute a representation that, after giving effect to
the requested issuance, amendment, renewal or extension, as applicable, (i) the
LC Exposure shall not exceed the LC Commitment and (ii) the total Revolving
Credit Exposures shall not exceed the total Commitments (i.e. the lesser of the
Aggregate Maximum Credit Amounts and the then effective Borrowing Base).
 
 
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If requested by the Issuing Bank, the Borrower also shall submit a letter of
credit application in a form acceptable to the Issuing Bank in connection with
any request for a Letter of Credit.
 
(c) Expiration Date.  Each Letter of Credit shall expire at or prior to the
close of business on the earlier of (i) the date one year after the date of the
issuance of such Letter of Credit (or, in the case of any renewal or extension
thereof, one year after such renewal or extension) and (ii) unless
satisfactorily collateralized in the Issuing Bank’s reasonable opinion, the date
that is five Business Days prior to the Maturity Date; provided that any Letter
of Credit with a one-year term may provide for the automatic renewal thereof for
additional one-year periods (which shall in no event extend beyond the date
referred to in clause (ii)).
 
(d) Participations.  By the issuance of a Letter of Credit (or an amendment to a
Letter of Credit increasing the amount thereof) and without any further action
on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants
to each Lender, and each Lender hereby acquires from the Issuing Bank, a
participation in such Letter of Credit equal to such Lender’s Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit.  In consideration and in furtherance of the foregoing, each Lender
hereby absolutely and unconditionally agrees to pay to the Administrative Agent,
for the account of the Issuing Bank, such Lender’s Applicable Percentage of each
LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on
the date due as provided in Section 2.08(e), or of any reimbursement payment
required to be refunded to the Borrower for any reason.  Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this Section 2.08(d) in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including any amendment, renewal or extension of any Letter of Credit or the
occurrence and continuance of a Default, the existence of a Borrowing Base
Deficiency or reduction or termination of the Commitments, and that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever.
 
(e) Reimbursement.  If the Issuing Bank shall make any LC Disbursement in
respect of a Letter of Credit prior to 11:00 a.m., Houston time, then the
Borrower shall reimburse such LC Disbursement by paying to the Administrative
Agent an amount equal to such LC Disbursement not later than 4:00 p.m., Houston
time, on the same Business Day, if the Borrower shall have received notice of
such LC Disbursement prior to 12:00 noon, Houston time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, Houston time, on the Business Day
immediately following the day that the Borrower receives such notice; provided
that if such LC Disbursement is not less than $1,000,000, the Borrower shall,
subject to the conditions to Borrowing set forth herein, be deemed to have
requested, and the Borrower does hereby request under such circumstances, that
such payment be financed with an ABR Borrowing in an equivalent amount and, to
the extent so financed, the Borrower’s obligation to make such payment shall be
discharged and replaced by the resulting ABR Borrowing.  If the Borrower fails
to make such payment when due, the Administrative Agent shall notify each Lender
of the applicable LC Disbursement, the payment then
 
 
35

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due from the Borrower in respect thereof and such Lender’s Applicable Percentage
thereof.  Promptly following receipt of such notice, each Lender shall pay to
the Administrative Agent its Applicable Percentage of the payment then due from
the Borrower, in the same manner as provided in Section 2.05 with respect to
Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to
the payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Issuing Bank the amounts so received by it from the
Lenders.  Promptly following receipt by the Administrative Agent of any payment
from the Borrower pursuant to this Section 2.08(e), the Administrative Agent
shall distribute such payment to the Issuing Bank or, to the extent that Lenders
have made payments pursuant to this Section 2.08(e) to reimburse the Issuing
Bank, then to such Lenders and the Issuing Bank as their interests may
appear.  Any payment made by a Lender pursuant to this Section 2.08(e) to
reimburse the Issuing Bank for any LC Disbursement (other than the funding of
ABR Loans as contemplated above) shall not constitute a Loan and shall not
relieve the Borrower of its obligation to reimburse such LC Disbursement.
 
(f) Obligations Absolute.  The Borrower’s obligation to reimburse LC
Disbursements as provided in Section 2.08(e) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under any and all circumstances whatsoever and irrespective of
(i) any lack of validity or enforceability of any Letter of Credit, any Letter
of Credit Agreement or this Agreement, or of any term or provision therein, (ii)
any draft or other document presented under a Letter of Credit proving to be
forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a
Letter of Credit against presentation of a draft or other document that appears
on its face to comply, but does not comply, with the terms of such Letter of
Credit or any Letter of Credit Agreement, or (iv) any other event or
circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section 2.08(f), constitute a legal or
equitable discharge of, or provide a right of setoff against, the Borrower’s
obligations hereunder.  Neither the Administrative Agent, the Lenders nor the
Issuing Bank, nor any of their Related Parties shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission
or delivery of any draft, notice or other communication under or relating to any
Letter of Credit (including any document required to make a drawing thereunder),
any error in interpretation of technical terms or any consequence arising from
causes beyond the control of the Issuing Bank; provided that the foregoing shall
not be construed to excuse the Issuing Bank from liability to the Borrower to
the extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Bank’s
failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof.  In
furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.  The parties hereto expressly agree that, in the
absence of gross negligence or willful misconduct on the part of the Issuing
Bank (as finally determined by a court of
 
 
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competent jurisdiction), the Issuing Bank shall be deemed to have exercised all
requisite care in each such determination.
 
(g) Disbursement Procedures.  The Issuing Bank shall, promptly following its
receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit.  The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an LC
Disbursement thereunder; provided that any failure to give or delay in giving
such notice shall not relieve the Borrower of its obligation to reimburse the
Issuing Bank and the Lenders with respect to any such LC Disbursement.
 
(h) Interim Interest.  If the Issuing Bank shall make any LC Disbursement, then,
until the Borrower shall have reimbursed the Issuing Bank for such LC
Disbursement (either with its own funds or a Borrowing under Section 2.08(e)),
the unpaid amount thereof shall bear interest, for each day from and including
the date such LC Disbursement is made to but excluding the date that the
Borrower reimburses such LC Disbursement, at the rate per annum then applicable
to ABR Loans.  Interest accrued pursuant to this Section 2.08(h) shall be for
the account of the Issuing Bank, except that interest accrued on and after the
date of payment by any Lender pursuant to Section 2.08(e) to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
 
(i) Replacement of the Issuing Bank.  The Issuing Bank may be replaced at any
time by written agreement among the Borrower, the Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank.  The Administrative Agent
shall notify the Lenders of any such replacement of the Issuing Bank.  At the
time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 3.05(b).  From and after the effective date of any such replacement, (i)
the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require.  After the
replacement of the Issuing Bank hereunder, the replaced Issuing Bank shall
remain a party hereto and shall continue to have all the rights and obligations
of the Issuing Bank under this Agreement with respect to Letters of Credit
issued by it prior to such replacement, but shall not be required to issue
additional Letters of Credit.
 
(j) Cash Collateralization.  If (i) any Event of Default shall occur and be
continuing and the Borrower receives notice from the Administrative Agent or the
Required Lenders demanding the deposit of cash collateral pursuant to this
Section 2.08(j), or (ii) the Borrower is required to pay to the Administrative
Agent the excess attributable to an LC Exposure in connection with any
prepayment pursuant to Section 3.04(b), then the Borrower shall deposit, in an
account with the Administrative Agent, in the name of the Administrative Agent
and for the benefit of the Issuing Bank and the Lenders, an amount in cash equal
to, in the case of an Event of Default, the LC Exposure, and in the case of a
payment required by Section 3.04(b), the amount of such excess as provided in
Section 3.04(b), as of such date; provided that the obligation to deposit such
cash collateral shall become effective immediately, and such deposit shall
become promptly due and payable, without demand or other notice of
 
 
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any kind, upon the occurrence of any Event of Default with respect to the
Borrower or any other Credit Party described in Section 10.01(h) or Section
10.01(i). The Borrower hereby grants to the Administrative Agent, for the
benefit of the Issuing Bank and the Lenders, an exclusive first priority and
continuing perfected security interest in and Lien on such account and all cash,
checks, drafts, certificates and instruments, if any, from time to time
deposited or held in such account, all deposits or wire transfers made thereto,
any and all investments purchased with funds deposited in such account, all
interest, dividends, cash, instruments, financial assets and other Property from
time to time received, receivable or otherwise payable in respect of, or in
exchange for, any or all of the foregoing, and all proceeds, products,
accessions, rents, profits, income and benefits therefrom, and any substitutions
and replacements therefor.  The Borrower’s obligation to deposit amounts
pursuant to this Section 2.08(j) shall be absolute and unconditional, without
regard to whether any beneficiary of any such Letter of Credit has attempted to
draw down all or a portion of such amount under the terms of a Letter of Credit,
and, to the fullest extent permitted by applicable law, shall not be subject to
any defense or be affected by a right of set-off, counterclaim or recoupment
which the Borrower or any other Credit Party may now or hereafter have against
any such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or
any other Person for any reason whatsoever.  Such deposit shall be held as
collateral securing the payment and performance of the Borrower’s and the
Guarantor’s obligations under this Agreement and the other Loan Documents.  The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account.  Other than any interest
earned on the investment of such deposits, which investments shall be made at
the option and sole discretion of the Administrative Agent and at the Borrower’s
risk and expense, such deposits shall not bear interest.  Interest or profits,
if any, on such investments shall accumulate in such account.  Moneys in such
account shall be applied by the Administrative Agent to reimburse the Issuing
Bank for LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated, be applied to satisfy other obligations of
the Borrower and the Guarantors under this Agreement or the other Loan
Documents.  If on any date of determination after the Borrower has posted cash
collateral, the amount of such cash collateral exceeds the LC Exposure, then the
Administrative Agent shall release such excess to the Borrower within three (3)
Business Days of its receipt of a request for such release.  
 
ARTICLE III
Payments of Principal and Interest; Prepayments; Fees
 
Section 3.01 Repayment of Loans.  The Borrower hereby unconditionally promises
to pay to the Administrative Agent for the account of each Lender the then
unpaid principal amount of each Loan on the Termination Date.
 
Section 3.02 Interest.
 
(a) ABR Loans.  The Loans comprising each ABR Borrowing shall bear interest at
the Alternate Base Rate plus the Applicable Margin, but in no event to exceed
the Highest Lawful Rate.
 
 
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(b) Eurodollar Loans.  The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Margin, but in no event to exceed the Highest
Lawful Rate.
 
(c) Post-Default Rate.  Notwithstanding the foregoing, if an Event of Default
has occurred and is continuing, or if any principal of or interest on any Loan
or any fee or other amount payable by the Borrower or any Guarantor hereunder or
under any other Loan Document is not paid when due, whether at stated maturity,
upon acceleration or otherwise, then at the direction of the Required Lenders,
all Loans outstanding, in the case of an Event of Default, and such overdue
amount, in the case of a failure to pay amounts when due, shall bear interest,
after as well as before judgment, at a rate per annum equal to two percent (2%)
plus the rate applicable to ABR Loans as provided in Section 3.02(a), but in no
event to exceed the Highest Lawful Rate.
 
(d) Interest Payment Dates.  Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and on the Termination Date;
provided that (i) interest accrued pursuant to Section 3.02(c) shall be payable
on demand, (ii) in the event of any repayment or prepayment of any Loan (other
than an optional prepayment of an ABR Loan prior to the Termination Date),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment, and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
 
(e) Interest Rate Computations.  All interest hereunder shall be computed on the
basis of a year of 360 days, unless such computation would exceed the Highest
Lawful Rate, in which case interest shall be computed on the basis of a year of
365 days (or 366 days in a leap year), except that interest computed by
reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days (or
366 days in a leap year), and in each case shall be payable for the actual
number of days elapsed (including the first day but excluding the last
day).  The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall
be determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error, and be binding upon the parties hereto.
 
Section 3.03 Alternate Rate of Interest.  If prior to the commencement of any
Interest Period for a Eurodollar Borrowing:
 
(a) the Administrative Agent determines (which determination shall be conclusive
absent manifest error) that adequate and reasonable means do not exist for
ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest Period;
or
 
(b) the Administrative Agent is advised by the Majority Lenders that the
Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period will
not adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest Period;
 
 
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then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made either as an ABR Borrowing or at an alternate rate of
interest determined by the Majority Lenders as their cost of funds.
 
Section 3.04 Prepayments.
 
(a) Optional Prepayments. Subject to any break funding costs payable pursuant to
Section 5.02 and prior notice in accordance with Section 3.04(b), the Borrower
shall have the right at any time and from time to time to (i) prepay ABR Loans
in whole or in part, in a minimum aggregate amount of $1,000,000 or any integral
multiple of $500,000 in excess thereof or, if less than $500,000, the remaining
balance of the ABR Loans, and (ii) prepay any Eurodollar Borrowing in whole in
or in part, in a minimum aggregate amount of $5,000,000 or any integral multiple
of $1,000,000 in excess thereof or, if less than $1,000,000, the remaining
balance of such Eurodollar Borrowing.  
 
(b) Notice and Terms of Optional Prepayment.  The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later
than 12:00 noon, Houston time, three Business Days before the date of
prepayment, or (ii) in the case of prepayment of ABR Loans, not later than 12:00
noon, Houston time, on the Business Day of such prepayment.  Each such notice
shall be irrevocable and shall specify the prepayment date and the principal
amount of each Borrowing or portion thereof to be prepaid.  Promptly following
receipt of any such notice relating to a Borrowing, the Administrative Agent
shall advise the Lenders of the contents thereof.  Each optional prepayment of a
Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing.  Prepayments shall be accompanied by accrued interest to the extent
required by Section 3.02.
 
(c) Mandatory Prepayments.
 
(i) If, after giving effect to any termination or reduction of the Aggregate
Maximum Credit Amounts pursuant to Section 2.06(b), the total Revolving Credit
Exposures exceeds the total Commitments, then the Borrower shall immediately
(and in any event on the Business Day of such termination or reduction) (A)
prepay the Borrowings on the date of such termination or reduction in an
aggregate principal amount equal to such excess, and (B) if any excess remains
after prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j).
 
(ii) Upon any redetermination of or adjustment to the amount of the Borrowing
Base in accordance with Section 2.07 (other than in accordance with Section
2.07(e), Section 2.07(f) or Section 9.11) or Section 8.12(c), if the total
Revolving Credit Exposures exceeds the redetermined or adjusted Borrowing Base,
then the Borrower shall take one or more
 
 
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of the following actions to cure the Borrowing Base Deficiency: (A) deliver to
the Administrative Agent reserve engineering and mortgages covering such oil and
gas properties not previously evaluated by the Borrower in the immediately
preceding Reserve Report with a value and quality satisfactory to the Lenders in
their sole discretion sufficient to eliminate such Borrowing Base Deficiency or
(B) prepay the Borrowings in an aggregate principal amount equal to such excess,
and  if any excess remains after prepaying all of the Borrowings as a result of
an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an
amount equal to such excess to be held as cash collateral as provided in Section
2.08(j).  The Borrower shall be obligated to make such prepayments either within
30 days or in six substantially equal monthly installments, with accrued
interest thereon, the first of which shall be due on the thirtieth day following
receipt of the New Borrowing Base Notice in accordance with Section 2.07(d);
provided that all payments required to be made pursuant to this Section
3.04(c)(ii) must be made on or prior to the Termination Date.
 
(iii) Upon any adjustment to the Borrowing Base pursuant to Section 2.07(e),
Section 2.07(f) or Section 9.11, if the total Revolving Credit Exposures exceeds
the Borrowing Base as adjusted, then the Borrower shall (A) prepay the
Borrowings in an aggregate principal amount equal to such excess, and (B) if any
excess remains after prepaying all of the Borrowings as a result of an LC
Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
equal to such excess to be held as cash collateral as provided in Section
2.08(j).  The Borrower shall be obligated to make such prepayment and/or deposit
of cash collateral (x) in the case of an adjustment to the Borrowing Base
pursuant to Section 2.07(e), within one Business Day after the applicable
Permitted Additional Senior Notes are issued, (y) in the case of an adjustment
to the Borrowing Base pursuant to Section 2.07(f), within one Business Day after
the date on which the Borrower receives written notice from the Administrative
Agent of the reduced amount of the Borrowing Base and (z) in the case of an
adjustment to the Borrowing Base pursuant to Section 9.11, within one Business
Day of the date it or any of the Restricted Subsidiaries receives cash proceeds
as a result of the applicable disposition; provided that all payments required
to be made pursuant to this Section 3.04(c)(iii) must be made on or prior to the
Termination Date.
 
(iv) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be
applied, first, ratably to any ABR Borrowings then outstanding, and, second, to
any Eurodollar Borrowings then outstanding, and if more than one Eurodollar
Borrowing is then outstanding, to each such Eurodollar Borrowing in order of
priority beginning with the Eurodollar Borrowing with the least number of days
remaining in the Interest Period applicable thereto and ending with the
Eurodollar Borrowing with the most number of days remaining in the Interest
Period applicable thereto.
 
(v) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be
applied ratably to the Loans included in the prepaid Borrowings.  Prepayments
pursuant to this Section 3.04(c) shall be accompanied by accrued interest to the
extent required by Section 3.02.
 
(d) No Premium or Penalty.  Prepayments permitted or required under this Section
3.04 shall be without premium or penalty, except as required under Section 5.02.
 
 
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Section 3.05 Fees.
 
(a) Commitment Fees.  Subject to Section 4.03(c)(i), the Borrower agrees to pay
to the Administrative Agent for the account of each Lender a commitment fee,
which shall accrue at the rate per annum of 0.50% on the average daily amount of
the unused amount of such Lender’s Commitment during the period from and
including the date of this Agreement to but excluding the Termination
Date.  Accrued commitment fees shall be payable in arrears on the last day of
March, June, September and December of each year and on the Termination Date,
commencing on the first such date to occur after the date hereof.  All
commitment fees shall be computed on the basis of a year of 360 days, unless
such computation would exceed the Highest Lawful Rate, in which case such
commitment fees shall be computed on the basis of a year of 365 days (or 366
days in a leap year), and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
 
(b) Letter of Credit Fees.  The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at a rate equal to the
Applicable Margin used to determine the interest rate applicable from time to
time to Eurodollar Loans on the average daily amount of such Lender’s LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the date of this Agreement
to but excluding the later of the date on which such Lender’s Commitment
terminates and the date on which such Lender ceases to have any LC Exposure;
provided that notwithstanding the foregoing if an Event of Default has occurred
and is continuing, or if any principal of or interest on any Loan or any fee or
other amount payable by the Borrower or any Guarantor hereunder or under any
other Loan Document is not paid when due, whether at stated maturity, upon
acceleration or otherwise, then at the direction of the Required Lenders, the
participation fee shall accrue at a rate equal to two percent (2%) plus the
Applicable Margin for ABR Loans, but in no event to exceed the Highest Lawful
Rate, (ii) to the Issuing Bank a fronting fee, which shall accrue at a rate of
0.25% per annum on the average daily amount of the LC Exposure (excluding any
portion thereof attributable to unreimbursed LC Disbursements) during the period
from and including the date of this Agreement to but excluding the later of the
date of termination of the Commitments and the date on which there ceases to be
any LC Exposure, provided that in no event shall such fee be less than $500.00
during any quarter, and (iii) to the Issuing Bank, for its own account, its
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder.  Participation fees
and fronting fees accrued through and including the last day of March, June,
September and December of each year shall be payable on the third Business Day
following such last day, commencing on the first such date to occur after the
date of this Agreement; provided that all such fees shall be payable on the
Termination Date and any such fees accruing after the Termination Date shall be
payable on receipt of written demand setting forth such amounts with reasonable
particularity.  Any other fees payable to the Issuing Bank pursuant to this
Section 3.05(b) shall be payable within 10 days after receipt of written demand
setting forth such amounts with reasonable particularity.  All participation
fees and fronting fees shall be computed on the basis of a year of 360 days,
unless such computation would exceed the Highest Lawful Rate, in which case such
fees shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and shall be payable for the actual number of days elapsed (including the
first day but excluding the last day).
 
 
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(c) Administrative Agent Fees.  The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times
separately agreed upon between the Borrower and the Administrative Agent.
 
ARTICLE IV
Payments; Pro Rata Treatment; Sharing of Set-offs
 
Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
 
(a) Payments by the Borrower.  The Borrower shall make each payment required to
be made by it hereunder (whether of principal, interest, fees or, except as
otherwise provided in Section 2.08(a), reimbursement of LC Disbursements, or of
amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise)
prior to 12:00 noon, Houston time, on the date when due, in immediately
available funds, without defense, deduction, recoupment, set-off or
counterclaim.  Fees, once paid, shall be fully earned and shall not be
refundable under any circumstances.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments shall be made to the Administrative Agent
at its offices specified in Section 12.01, except payments to be made directly
to the Issuing Bank as expressly provided herein and except that payments
pursuant to Section 5.01, Section 5.02, Section 5.03 and Section 12.03 shall be
made directly to the Persons entitled thereto.  The Administrative Agent shall
distribute any such payments received by it for the account of any other Person
to the appropriate recipient promptly following receipt thereof.  If any payment
hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension.  All payments hereunder shall be made in dollars.
 
(b) Application of Insufficient Payments.  If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, unreimbursed LC Disbursements, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then
due hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.
 
(c) Sharing of Payments by Lenders.  If any Lender shall, by exercising any
right of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater proportion
of the aggregate amount of its Loans and participations in LC Disbursements and
accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the Loans and participations in LC Disbursements of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Loans and
participations in LC Disbursements; provided that (i) if any such
 
 
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participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase
price returned to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any
payment made by the Borrower to a Lender pursuant to Section 5.04(b) or pursuant
to and in accordance with the express terms of this Agreement or any payment
obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or participations in LC Disbursements to any
assignee or participant, other than to the Borrower or any other Credit Party or
Affiliate thereof (as to which the provisions of this Section 4.01(c) shall
apply).  The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that subject to Section 12.08, any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.
 
Section 4.02 Presumption of Payment by the Borrower.  Unless the Administrative
Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Administrative Agent for the account of the Lenders or
the Issuing Bank that the Borrower will not make such payment, the
Administrative Agent may assume that the Borrower has made such payment on such
date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the Issuing Bank, as the case may be, the amount
due.  In such event, if the Borrower has not in fact made such payment, then
each of the Lenders or the Issuing Bank, as the case may be, severally agrees to
repay to the Administrative Agent forthwith on demand the amount so distributed
to such Lender or Issuing Bank with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
 
Section 4.03 Payments and Deductions to a Defaulting Lender.
 
(a) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.05(a), Section 2.08(d), Section 2.08(e) or Section 4.02
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender’s
obligations under such Sections until all such unsatisfied obligations are fully
paid in cash.
 
(b) If a Defaulting Lender (or a Lender who would be a Defaulting Lender but for
the expiration of the relevant grace period) as a result of the exercise of a
set-off shall have received a payment in respect of its Revolving Credit
Exposure which results in its Revolving Credit Exposure being less than its
Applicable Percentage of the aggregate Revolving Credit Exposures, then no
payments will be made to such Defaulting Lender until such time as such
Defaulting Lender shall have complied with Section 4.03(c) and all amounts due
and owing to the Lenders has been equalized in accordance with each Lender’s
respective pro rata share of the Obligations.  Further, if at any time prior to
the acceleration or maturity of the Loans, the Administrative Agent shall
receive any payment in respect of principal of a Loan or a reimbursement of an
LC Disbursement while one or more Defaulting Lenders shall be party to
 
 
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this Agreement, the Administrative Agent shall apply such payment first to the
Borrowing(s) for which such Defaulting Lender(s) shall have failed to fund its
pro rata share until such time as such Borrowing(s) are paid in full or each
Lender (including each Defaulting Lender) is owed its Applicable Percentage of
all Loans then outstanding.  After acceleration or maturity of the Loans,
subject to the first sentence of this Section 4.03(b), all principal will be
paid ratably as provided in Section 10.02(c).
 
(c) Notwithstanding any provision of this Agreement to the contrary, if any
Lender becomes a Defaulting Lender, then the following provisions shall apply
for so long as such Lender is a Defaulting Lender:
 
(i) Fees shall cease to accrue on the unfunded portion of the Commitment of such
Defaulting Lender pursuant to Section 3.05.
 
(ii) The Commitment, the Maximum Credit Amount and the outstanding principal
balance of the Loans of, and the participation interests in Letters of Credit
held by, such Defaulting Lender shall not be included in determining whether all
Lenders, the Required Lenders or the Majority Lenders have taken or may take any
action hereunder (including any consent to any amendment or waiver pursuant to
Section 12.02); provided that any waiver, amendment or modification requiring
the consent of each affected Lender shall require the consent of such Defaulting
Lender if it is an affected Lender; and provided further that no Defaulting
Lender shall participate in any redetermination or affirmation of the Borrowing
Base, but the Commitment of any Defaulting Lender (i.e. such Defaulting Lender’s
Applicable Percentage of the Borrowing Base) may not be increased without the
consent of such Defaulting Lender.
 
(iii) If any LC Exposure exists at the time a Lender becomes a Defaulting
Lender, then:
 
(A) all or any part of such LC Exposure shall be automatically reallocated
(effective as of the date such Lender becomes a Defaulting Lender) among the
Non-Defaulting Lenders in accordance with their respective Applicable
Percentages but only to the extent (x) the sum of all Non-Defaulting Lenders’
Revolving Credit Exposures plus such Defaulting Lender’s LC Exposure does not
exceed the total of all non-Defaulting Lenders’ Commitments and (y) no Default
or Event of Default has occurred and is continuing at such time;
 
(B) if the reallocation described in clause (A) above cannot, or can only
partially, be effected, then the Borrower shall, within three (3) Business Days
following the Borrower’s receipt of written notice by the Administrative Agent,
cash collateralize such Defaulting Lender’s LC Exposure (after giving effect to
any partial reallocation pursuant to clause (A) above) in accordance with the
procedures set forth in Section 2.08(j) for so long as such LC Exposure is
outstanding;
 
(C) if the Borrower cash collateralizes any portion of such Defaulting Lender’s
LC Exposure pursuant to this Section 4.03, then the Borrower shall not be
required to pay any fees to such Defaulting Lender pursuant to Section 3.05(b)
with respect to
 
 
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such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s
LC Exposure is cash collateralized;
 
(D) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to
clause (A) above, then the fees payable to the Lenders pursuant to Section
3.05(a) and Section 3.05(b) shall be adjusted in accordance with such
non-Defaulting Lenders’ Applicable Percentages after giving effect to such
reallocation; or
 
(E) if any Defaulting Lender’s LC Exposure is neither cash collateralized nor
reallocated pursuant to Section 4.03(c), then, without prejudice to any rights
or remedies of the Issuing Bank or any Lender hereunder, all letter of credit
fees payable under Section 3.05(b) with respect to such Defaulting Lender’s LC
Exposure shall be payable to the Issuing Bank until such LC Exposure is cash
collateralized and/or reallocated.
 
(d) So long as any Lender is a Defaulting Lender, the Issuing Bank shall not be
required to issue, amend or increase any Letter of Credit, unless it is
satisfied that the Defaulting Lender’s LC Exposure will be 100% covered by the
Commitments of the Non-Defaulting Lenders and/or cash collateral will be
provided by the Borrower in accordance with Section 4.03(c)(iii)(B), and
participating interests in any such newly issued or increased Letter of Credit
shall be allocated among Non-Defaulting Lenders in a manner consistent with
Section 4.03(c)(iii)(A) (and Defaulting Lenders shall not participate therein).
 
(e) In the event that the Administrative Agent, the Borrower and the Issuing
Bank each agrees that a Defaulting Lender has adequately remedied all matters
that caused such Lender to be a Defaulting Lender, then the LC Exposures of the
Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment
and on such date, if necessary as a result of a Loan funding pursuant to Section
2.08(e), such Lender shall purchase at par such of the Loans of the other
Lenders  as the Administrative shall determine may be necessary in order for
such Lender to hold such Loans in accordance with its Applicable Percentage.
 
Section 4.04 Disposition of Proceeds.  The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Lenders of all of the Borrower’s or
each Guarantor’s interest in and to production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property. The
Security Instruments further provide in general for the application of such
proceeds to the satisfaction of the Obligations and other obligations described
therein and secured thereby.  Notwithstanding the assignment contained in such
Security Instruments, (a) the Administrative Agent and the Lenders agree that,
so long as no Event of Default has occurred and is continuing, they will neither
notify the purchaser or purchasers of such production nor take any other action
to cause such proceeds to be remitted to the Administrative Agent or the
Lenders, but the Lenders will instead permit such proceeds to be paid to the
relevant Credit Party and (b) the Lenders hereby authorize the Administrative
Agent to take such actions as may be necessary to cause such proceeds to be paid
to the relevant Credit Party so long as no Event of Default has occurred and is
continuing.
 
 
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ARTICLE V
Increased Costs; Break Funding Payments; Taxes; Illegality
 
Section 5.01 Increased Costs.
 
(a) Eurodollar Changes in Law.  If any Change in Law shall:
 
(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate); or
 
(ii) impose on any Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender;
 
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or otherwise), then
the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
 
(b) Capital Requirements.  If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has the effect of reducing the rate
of return on such Lender’s or the Issuing Bank’s capital or on the capital of
such Lender’s or the Issuing Bank’s holding company, if any, as a consequence of
this Agreement or the Loans made by, or participations in Letters of Credit held
by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level
below that which such Lender or the Issuing Bank or such Lender’s or the Issuing
Bank’s holding company could have achieved but for such Change in Law (taking
into consideration such Lender’s or the Issuing Bank’s policies and the policies
of such Lender’s or the Issuing Bank’s holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender’s or the Issuing
Bank’s holding company for any such reduction suffered.
 
(c) Certificates.  A certificate of a Lender or the Issuing Bank setting forth
in reasonable detail the computation of the amount or amounts necessary to
compensate such Lender or the Issuing Bank or its holding company, as the case
may be, as specified in Section 5.01(a) or (b) shall be delivered to the
Borrower contemporaneously with any request for payment under Section 5.01(a) or
(b).  Such certificate shall be conclusive absent manifest error and state that
such Lender or the Issuing Bank (as the case may be) is charging similar costs
to similarly situated borrowers at such time.  The Borrower shall pay such
Lender or the Issuing Bank, as the case may be, the amount shown as due on any
such certificate within 30 days after receipt thereof.
 
(d) Effect of Failure or Delay in Requesting Compensation.  Failure or delay on
the part of any Lender or the Issuing Bank to demand compensation pursuant to
this Section 5.01 shall not constitute a waiver of such Lender’s or the Issuing
Bank’s right to demand such compensation; provided that the Borrower shall not
be required to compensate a Lender or the Issuing Bank pursuant to this Section
5.01 for any increased costs or reductions incurred more
 
 
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than 180 days prior to the date that such Lender or the Issuing Bank, as the
case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender’s or the Issuing Bank’s
intention to claim compensation therefor; provided further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.
 
Section 5.02 Break Funding Payments.  In the event of (a) the payment of any
principal of any Eurodollar Loan or an assignment of any Eurodollar Loan
pursuant to Section 5.04(b) in each case other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan into an ABR Loan other than
on the last day of the Interest Period applicable thereto, or (c) the failure to
borrow (for a reason other than the failure of a Lender to make a Loan when
obligated to do so), convert, continue or prepay any Eurodollar Loan on the date
specified in any notice delivered pursuant hereto, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event.  In the case of a Eurodollar Loan, such loss, cost
or expense to any Lender shall be deemed to include an amount determined by such
Lender to be the excess, if any, of (i) the amount of interest which would have
accrued on the principal amount of such Loan had such event not occurred, at the
Adjusted LIBO Rate that would have been applicable to such Loan, for the period
from the date of such event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow, convert or continue, for the
period that would have been the Interest Period for such Loan), over (ii) the
amount of interest which would accrue on such principal amount for such period
at the interest rate which such Lender would bid were it to bid, at the
commencement of such period, for dollar deposits of a comparable amount and
period from other banks in the eurodollar market.
 
A certificate of any Lender setting forth in reasonable detail the computation
of any amount or amounts that such Lender is entitled to receive pursuant to
this Section 5.02 shall be delivered to the Borrower contemporaneously with any
request for payment under this Section 5.02.  Such certificate shall be
conclusive absent manifest error and state that such Lender or the Issuing Bank
(as the case may be) is charging similar costs to similarly situated borrowers
at such time.  The Borrower shall pay such Lender the amount shown as due on any
such certificate within 30 days after receipt thereof.
 
Section 5.03 Taxes.
 
(a) Payments Free of Taxes.  Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall to the
extent permitted by applicable law be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided that if the
Borrower or any Guarantor shall be required to deduct any Indemnified Taxes or
Other Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all such deductions (including deductions
applicable to additional sums payable under this Section 5.03(a)), the
Administrative Agent, Lender or Issuing Bank (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been
required, (ii) the Borrower or such Guarantor shall make such deductions and
(iii) the Borrower or such Guarantor shall pay
 
 
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the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
 
(b) Payment of Other Taxes by the Borrower.  The Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with applicable law.
 
(c) Indemnification by the Borrower.  The Borrower shall indemnify the
Administrative Agent, each Lender and the Issuing Bank, within 30 days after
written demand therefor, which demand shall contain an invoice setting forth in
reasonable detail the amounts subject to indemnification under this Section
5.03(c), for the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section 5.03) and any penalties that
are not the fault of such indemnified Person, interest and reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified Taxes
or Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority.  For the avoidance of doubt, no indemnification shall be
required under this Section 5.03(c) for any and all present or future stamp or
documentary taxes or any other excise or Property taxes, charges or similar
levies arising from any transfer of an interest hereunder between parties
unrelated to the Borrower.  A certificate of the Administrative Agent, a Lender
or the Issuing Bank setting forth in reasonable detail the calculations of the
amount of such payment or liability under this Section 5.03 shall be delivered
to the Borrower contemporaneously with any request for payment under this
Section 5.03 and shall be conclusive absent manifest error.
 
(d) Evidence of Payments.  As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
 
(e) Tax Documentation.  Each Lender that is a “United States person” within the
meaning of Section 7701(a)(30) of the Code and is not an exempt recipient
described under Section 1.6049-4(c)(1)(ii)(m) of the Treasury Regulations shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law, properly completed and executed originals
of Internal Revenue Service Form W-9 or such other documentation prescribed by
applicable law or reasonably requested by the Borrower as will enable the
Borrower to determine that such Lender is not subject to backup withholding or
information reporting requirements.  Each Foreign Lender that is entitled to an
exemption from or reduction of withholding tax under the law of the jurisdiction
in which the Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement or any other Loan Document
shall deliver to the Borrower (with a copy to the Administrative Agent), at the
time or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
 
 
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If a payment made to a Lender or other recipient by or on account of any
obligation of the Borrower hereunder or under any other Loan Document would be
subject to U.S. federal withholding tax imposed by FATCA if such Lender or other
recipient were to fail to comply with the applicable reporting requirements of
FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as
applicable), such Lender or other recipient shall deliver to the Borrower and
the Administrative Agent at the time or times prescribed by law and at such time
or times reasonably requested by the Borrower or the Administrative Agent such
documentation prescribed by applicable law (including as prescribed by Section
1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably
requested by the Borrower or the Administrative Agent as may be necessary for
the Borrower and the Administrative Agent to comply with their obligations under
FATCA and to determine that such Lender or other recipient has or has not
complied with its obligations under FATCA or to determine the amount to deduct
and withhold from such payment.  Solely for purposes of this Section 5.03(e),
“FATCA” shall include amendments made to FATCA after the date of this Agreement.
 
(f) Tax Refunds.  If the Administrative Agent or a Lender determines, in its
sole discretion, that it has received a refund of any Taxes or Other Taxes  as
to which it has been indemnified by the Borrower or with respect to which the
Borrower has paid additional amounts pursuant to this Section 5.03, it shall
promptly pay over an amount equal to such refund to the Borrower (but only to
the extent of indemnity payments made, or additional amounts paid, by the
Borrower under this Section 5.03 with respect to the Taxes or Other Taxes giving
rise to such refund), net of all reasonable out-of-pocket expenses in connection
therewith of the Administrative Agent or such Lender and without interest (other
than any interest paid by the relevant Governmental Authority with respect to
such refund); provided, that the Borrower, upon the request of the
Administrative Agent or such Lender, agrees to repay the amount paid over to the
Borrower (plus any penalties that are not the fault of such Person, interest, or
other charges imposed by the relevant Governmental Authority) to the
Administrative Agent or such Lender in the event the Administrative Agent or
such Lender is required to repay such refund to such Governmental
Authority.  This Section 5.03 shall not be construed to require the
Administrative Agent or any Lender to make available its tax returns (or any
other information relating to its taxes which it deems confidential) to the
Borrower or any other Person.
 
Section 5.04 Mitigation Obligations; Replacement of Lenders.
 
(a) Designation of Different Lending Office.  If any Lender requests
compensation under Section 5.01, or if the Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 5.03, then such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the reasonable judgment of such Lender,
such designation or assignment (i) would eliminate or reduce amounts payable
pursuant to Section 5.01 or Section 5.03, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender in any material respect.  The
Borrower hereby agrees to pay all
 
 
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reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.
 
(b) Replacement of Lenders.  If (i) any Lender requests compensation under
Section 5.01, (ii) the Borrower is required to pay any additional amount to any
Lender or any Governmental Authority for the account of any Lender pursuant to
Section 5.03, (iii) any Lender asserts an illegality under Section 5.05, (iv)
any Lender is a Defaulting Lender, (v) any Lender does not consent to any
proposed increase in or reaffirmation of the Borrowing Base, (vi) in connection
with any consent to or approval of any proposed amendment, waiver, consent or
release with respect to any Loan Document that requires the consent of each
Lender or the consent of each Lender affected thereby, the consent of the
Required Lenders shall have been obtained but any Lender has not so consented to
or approved such proposed amendment, waiver, consent or release, or (vii) in
connection with any consent to or approval of any proposed amendment, waiver,
consent or release with respect to any Loan Document that requires the consent
of the Required Lenders, the consent of the Majority Lenders shall have been
obtained but any Lender has not so consented to or approved such proposed
amendment, waiver, consent or release, then in any such case, the Borrower may,
at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 12.04), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if such Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans and
participations in LC Disbursements, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder, from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 5.01, for payments
required to be made pursuant to Section 5.03 or an illegality under Section
5.05, such assignment will result in a reduction in such compensation or
payments or avoid the illegality.  A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.  Each Lender hereby agrees to
make such assignment and delegations required under this Section 5.04(b).
 
Section 5.05 Illegality.  Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its applicable lending
office to honor its obligation to make or maintain Eurodollar Loans either
generally or having a particular Interest Period hereunder, then (a) such Lender
shall promptly notify the Borrower and the Administrative Agent thereof and such
Lender’s obligation to make such Eurodollar Loans shall be suspended (the
“Affected Loans”) until such time as such Lender may again make and maintain
such Eurodollar Loans and (b) all Affected Loans which would otherwise be made
by such Lender shall be made instead as ABR Loans (and, if such Lender so
requests by notice to the Borrower and the Administrative Agent, all Affected
Loans of such Lender then outstanding shall be automatically converted into ABR
Loans on the last day of the then current Interest Period for such Affected
Loan) and, to the extent that Affected Loans are so made as (or
 
 
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converted into) ABR Loans, all payments of principal which would otherwise be
applied to such Lender’s Affected Loans shall be applied instead to its ABR
Loans.
 
ARTICLE VI
Conditions Precedent
 
Section 6.01 Effective Date.  The obligations of the Lenders to make Loans and
of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 12.02):
 
(a) The Administrative Agent, the Arranger and the Lenders shall have received
all fees and amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced prior to the Effective Date, reimbursement or
payment of all out-of-pocket expenses required to be reimbursed or paid by the
Borrower hereunder (including, without limitation, to the extent invoiced prior
to the Effective Date, the fees and expenses of Vinson & Elkins L.L.P., counsel
to the Administrative Agent).
 
(b) The Administrative Agent shall have received a certificate of the Secretary
or an Assistant Secretary of the Borrower and each Guarantor setting forth (i)
resolutions of its board of directors with respect to the authorization of the
Borrower or such Guarantor to execute and deliver the Loan Documents to which it
is a party and to perform its obligations under such Loan Documents, (ii) the
officers of the Borrower or such Guarantor (y) who are authorized to sign the
Loan Documents to which the Borrower or such Guarantor is a party and (z) who
will, until replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing documents and
giving notices and other communications in connection with this Agreement and
the transactions contemplated hereby, (iii) specimen signatures of such
authorized officers, and (iv) the Organizational Documents of the Borrower or
such Guarantor, certified as being true and complete.  The Administrative Agent
and the Lenders may conclusively rely on such certificate until the
Administrative Agent receives notice in writing from the Borrower to the
contrary.
 
(c) The Administrative Agent shall have received certificates of the appropriate
State agencies of each of the States in which the Borrower or applicable
Guarantor, as the case may be, is organized with respect to the existence,
qualification and good standing of the Borrower and each Guarantor.
 
(d) The Administrative Agent shall have received a compliance certificate which
shall be substantially in the form of Exhibit D, duly and properly executed by a
Responsible Officer and dated as of the date of Effective Date.
 
(e) The Administrative Agent shall have received from each party hereto
counterparts (in such number as may be requested by the Administrative Agent) of
this Agreement signed on behalf of such party.
 
(f) The Administrative Agent shall have received from each party thereto duly
executed counterparts (in such number as may be requested by the Administrative
Agent) of the Guaranty Agreement and the other Security Instruments described on
Exhibit F-1.  In
 
 
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connection with the execution and delivery of such Security Instruments, the
Administrative Agent shall:
 
(i) be reasonably satisfied that such Security Instruments create first
priority, perfected Liens (provided that Liens which are permitted by the terms
of Section 9.03 to attach to the Mortgaged Properties may exist and have
whatever priority such Liens have at such time under applicable law) on at least
80% of the total value of the Oil and Gas Properties of the Borrower and the
Restricted Subsidiaries evaluated in the Initial Reserve Report; and
 
(ii) have received certificates, together with undated, blank stock powers for
each such certificate, representing all of the issued and outstanding Equity
Interests of each of the Guarantors, to the extent such Equity Interests are
certificated.
 
(g) The Administrative Agent shall have received an opinion of Baker Botts
L.L.P., special counsel to the Borrower, substantially in the form of Exhibit E
hereto.
 
(h) The Administrative Agent shall have received a certificate of insurance
coverage of the Borrower evidencing that the Borrower is carrying insurance in
accordance with Section 7.12.
 
(i) The Administrative Agent shall have received title information in form and
substance reasonably acceptable to the Administrative Agent (it being understood
that title information with respect to Oil and Gas Properties of the Borrower
and the Restricted Subsidiaries located in the Barnett Shale prepared in
accordance with the Title Policies and Procedures shall be acceptable to the
Administrative Agent) setting forth the status of title to at least 75% of the
total value of the Oil and Gas Properties evaluated in the Initial Reserve
Report.  It is understood and agreed that title information with respect to Oil
and Gas Properties of the Borrower and the Restricted Subsidiaries located in
the Barnett Shale shall be deemed satisfactory if such title information meets
the qualifications described in the Title Policies and Procedures for
establishment of satisfactory title such that no additional curative actions
need be taken pursuant to the requirements set forth in the Title Policies and
Procedures.
 
(j) The Administrative Agent shall have received a certificate of a Responsible
Officer certifying that the Credit Parties have received all consents and
approvals required by Section 7.03.
 
(k) The Administrative Agent shall have received (i) the financial statements
referred to in Section 7.04(a) and (ii) the Initial Reserve Report accompanied
by a Reserve Report Certificate.
 
(l) The Administrative Agent shall have received appropriate UCC search reports
from the jurisdiction of organization of each of the Credit Parties reflecting
no prior Liens (other than those being assigned or released on or prior to the
Effective Date or Liens permitted by Section 9.03) encumbering the Properties of
such Credit Party.
 
(m) The Administrative Agent shall have received evidence that, on the date of
the initial funding of Loans hereunder, (i) the loans and other Debt of the
Borrower outstanding under the Existing Credit Agreement shall be paid in full
with the proceeds of such initial
 
 
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funding, (ii) the commitments of the lenders thereunder shall be terminated and
(iii) all Liens securing the Existing Credit Agreement shall be released.
 
(n) The Administrative Agent shall be reasonably satisfied that, after giving
effect to the making of the Loans to be made on the Effective Date, the
application of the proceeds thereof and the issuance of any Letters of Credit to
be issued on the Effective Date, Availability will be greater than or equal to
the greater of (i) 10% of the Borrowing Base and (ii) $25,000,000.
 
(o) The Administrative Agent shall have received a certificate of a Responsible
Officer certifying it has not assigned, terminated, sold or unwound any hedge
position under any Hedge Agreement disclosed to the Lenders on January 14, 2011
in a report prepared by Asset Risk Management and has not created any
off-setting position (whether evidenced by a floor, put or Hedge Agreement) with
respect to any such hedge position if the effect of such action, after taking
into account the net hedging position under all Hedge Agreements of the Borrower
and the Restricted Subsidiaries outstanding on the Effective Date taken as a
whole (including any other Hedge Agreements executed contemporaneously with the
taking of such action), was to cancel any of the Borrower’s or any of the
Restricted Subsidiaries’ positions under such Hedging Agreements.
 
(p) The Administrative Agent shall have received such other documents as the
Administrative Agent or special counsel to the Administrative Agent may
reasonably request.
 
The Administrative Agent shall notify the Borrower and the Lenders promptly of
the occurrence of the Effective Date, and such notice shall be conclusive and
binding.  Notwithstanding the foregoing, the obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 12.02) at or prior to 2:00 p.m., Houston time, on February
19, 2011 (and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).
 
Section 6.02 Each Credit Event.  The obligation of each Lender to make a Loan on
the occasion of any Borrowing (including the initial funding), and of the
Issuing Bank to issue, amend (to increase the amount or extend the term), renew
or extend any Letter of Credit, is subject to the satisfaction of the following
conditions:
 
(a) At the time of and immediately after giving effect to such Borrowing or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, no Default or Event of Default shall have occurred and be
continuing.
 
(b) With respect to Loans made and/or Letters of Credit issued on the Effective
Date, the representations and warranties of the Borrower and the Guarantors set
forth in this Agreement and in the other Loan Documents shall be true and
correct on and as of the Effective Date, except to the extent any such
representations and warranties are expressly limited to an earlier date, in
which case, on and as of the Effective Date, such representations and warranties
shall continue to be true and correct as of such specified earlier date, and
(ii) with respect to any Borrowing or issuance, amendment, renewal or extension
of any Letter of
 
 
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Credit after the Effective Date, the representations and warranties of the
Borrower and the Guarantors set forth in this Agreement and in the other Loan
Documents shall be true and correct in all material respects on and as of the
date of such Borrowing or the date of issuance, amendment, renewal or extension
of such Letter of Credit, as applicable, except to the extent any such
representations and warranties are expressly limited to an earlier date, in
which case, on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, such
representations and warranties shall continue to be true and correct in all
material respects as of such specified earlier date.
 
(c) The receipt by the Administrative Agent of a Borrowing Request in accordance
with Section 2.03 or a request for a Letter of Credit in accordance with Section
2.08(b), as applicable.
 
Each request for a Borrowing and each request for the issuance, amendment (to
increase the amount or extend the term), renewal or extension of any Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in Sections 6.02(a) and
6.02(b).
 
ARTICLE VII
Representations and Warranties
 
The Borrower represents and warrants to the Lenders that:
 
Section 7.01 Organization; Powers.  Each of the Borrower and its Restricted
Subsidiaries (a) is validly existing and in good standing under the laws of the
jurisdiction of its organization and (b) has all requisite power and authority,
and has all material governmental licenses, authorizations, consents and
approvals necessary, to own its assets and to carry on its business as conducted
at the time in question, and is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required, except
where failure to have such power, authority, licenses, authorizations, consents,
approvals and qualifications could not reasonably be expected to have a Material
Adverse Effect.
 
Section 7.02 Authority; Enforceability.  The Transactions are within each Credit
Party’s corporate or limited liability company powers and have been duly
authorized by all necessary corporate or limited liability company and, if
required, stockholder or member action.  Each Loan Document to which any Credit
Party is a party has been duly executed and delivered by such Credit Party and
constitutes a legal, valid and binding obligation of such Credit Party,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
 
Section 7.03 Approvals; No Conflicts.  The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any
Governmental Authority or any other third Person (including shareholders or any
class of directors, whether interested or disinterested, of the Borrower or any
other Person), nor is any such consent, approval, registration, filing or other
action necessary for the validity or enforceability of any Loan Document or the
consummation of the transactions contemplated thereby, except (i) such as have
 
 
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been obtained or made and are in full force and effect, (ii) the recordings and
filings necessary to perfect the Liens created pursuant to the Security
Instruments, (iii) those third party approvals or consents which, if not made or
obtained, would not cause a Default hereunder or could not reasonably be
expected to have a Material Adverse Effect and (iv) the filing of any required
documents with the SEC, (b) will not violate any applicable law or regulation or
the Organizational Documents of the Borrower or any Restricted Subsidiary or any
order of any Governmental Authority binding upon the Borrower or any Restricted
Subsidiary (except for such violations that would not reasonably be expected to
have a Material Adverse Effect), (c) will not violate or result in a default
under any indenture, agreement or other instrument evidencing Material
Indebtedness binding upon the Borrower or any Restricted Subsidiary or its
Properties, or give rise to a right thereunder to require any payment to be made
by the Borrower or such Restricted Subsidiary and (d) will not result in the
creation or imposition of any Lien on any Property of the Borrower or any
Restricted Subsidiary (other than the Liens created by the Loan Documents).
 
Section 7.04 Financial Condition; No Material Adverse Change.
 
(a) The Borrower has heretofore furnished to the Lenders (i) its consolidated
balance sheet and related statements of operations, stockholders’ equity and
cash flows as of and for the fiscal year ended December 31, 2009 and reported on
by KPMG, LLP, independent public accountants and (ii) its unaudited consolidated
balance sheet and related statements of operations and cash flows as of and for
the fiscal quarter ended September 30, 2010.  Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its consolidated Subsidiaries as
of such date and for such period in accordance with GAAP.
 
(b) Since December 31, 2009, there has been no event, development or
circumstance that has had a Material Adverse Effect.
 
(c) As of the date of this Agreement, other than the Borrower’s $400,000,000
8.625% Senior Notes due 2018, neither the Borrower nor any Restricted Subsidiary
has any material Debt (including Disqualified Capital Stock) or any material
contingent liabilities, material off-balance sheet liabilities or partnerships,
material liabilities for taxes, material unusual forward or long-term
commitments or material unrealized or anticipated losses from any unfavorable
commitments, that are required to be disclosed in the Financial Statements by
GAAP and are not so referred to or reflected or provided for in the Financial
Statements or otherwise disclosed prior to the date hereof in writing to the
Administrative Agent and the Lenders.
 
Section 7.05 Litigation.
 
(a) Except as set forth on Schedule 7.05, there are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened, in
writing, against or affecting the Borrower or any of the Restricted Subsidiaries
(i) not fully covered by insurance (except for normal deductibles) as to which
there is a reasonable possibility of an adverse determination
 
 
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that, if adversely determined, could reasonably be expected, individually or in
the aggregate, to result in a Material Adverse Effect, or (ii) that involve any
Loan Document or the Transactions.
 
(b) Since the date of this Agreement, there has been no change in the status of
the matters disclosed in Schedule 7.05 that, individually or in the aggregate,
has resulted in, or could reasonably be expected to result in, a Material
Adverse Effect.
 
Section 7.06 Environmental Matters.  Except for such matters as set forth on
Schedule 7.06 or that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect:
 
(a) the Borrower and the Restricted Subsidiaries and each of their respective
Properties and operations thereon are, and to the knowledge of the Borrower,
within all applicable statute of limitation periods have been, in compliance
with all applicable Environmental Laws.
 
(b) the Borrower and the Restricted Subsidiaries have obtained all Environmental
Permits required for their respective operations and each of their Properties
(it being understood that the term “Properties” as used in this Section 7.06
shall not include surface interests owned by Persons other than the Borrower or
any Restricted Subsidiary lying over any mineral interests of the Borrower or
any Restricted Subsidiary), with all such Environmental Permits being currently
in full force and effect, and no Responsible Officer of the Borrower has
received any written notice or otherwise has knowledge that any such existing
Environmental Permit will be revoked or that any application for any new
Environmental Permit or renewal of any existing Environmental Permit will be
protested or denied.
 
(c) there are no claims, demands, suits, orders, inquiries, or proceedings
concerning any violation of, or any liability (including as a potentially
responsible party) under, any applicable Environmental Laws that is pending or,
to the knowledge of a Responsible Officer of the Borrower, threatened, in
writing, against the Borrower or any of the Restricted Subsidiaries or any of
their respective Properties or as a result of any operations at such Properties.
 
(d) none of the Properties of the Borrower or any of the Restricted Subsidiaries
contains or, to the knowledge of a Responsible Officer of the Borrower, has
contained any (i) underground storage tanks; (ii) asbestos containing materials;
(iii) landfills or dumps; (iv) hazardous waste management units as defined
pursuant to RCRA or any comparable state law or (v) sites on or nominated for
the National Priority List promulgated pursuant to CERCLA or any state remedial
priority list promulgated or published pursuant to any comparable state law.
 
(e) there has been no Release or threatened Release of Hazardous Materials at,
on, under or from any Credit Party’s Properties, there are no investigations,
remediations, abatements, removals or monitorings of Hazardous Materials
required under applicable Environmental Laws at such Properties, and none of
such Properties are adversely affected by any Release or threatened Release of a
Hazardous Material originating or emanating from any
 
 
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other real property, where any of the foregoing could result in the imposition
of any liability on or any restrictions on the operations of any Credit Party
with respect to Oil and Gas Properties constituting a material portion of the
Borrowing Base pursuant to Environmental Laws.
 
(f) neither the Borrower nor any of the Restricted Subsidiaries has received any
written notice asserting an alleged liability or obligation under any applicable
Environmental Laws with respect to the investigation, remediation, abatement,
removal, or monitoring of any Hazardous Materials at, under, or Released or
threatened to be Released from any real properties offsite the Borrower’s or any
of the Restricted Subsidiaries’ Properties and, to the Borrower’s knowledge,
there are no conditions or circumstances that could reasonably be expected to
result in the receipt of such written notice.
 
(g) to the Borrower’s knowledge, there has been no exposure of any Person or
Property to any Hazardous Materials as a result of or in connection with the
operations and businesses of the Borrower’s or any of the Restricted
Subsidiaries’ Properties that could reasonably be expected to form the basis for
a claim for damages or compensation.
 
(h) the Borrower and the Restricted Subsidiaries have made available to the
Lenders complete and correct copies of all current environmental site assessment
reports, investigations, studies, analyses, and correspondence on environmental
matters (including matters relating to any alleged non-compliance with or
liability under Environmental Laws) that are in any of the Credit Party’s
possession or control and relating to their respective Properties or operations
thereon.
 
Section 7.07 Compliance with Laws; No Default.
 
(a) Each of the Borrower and the Restricted Subsidiaries is in compliance with
all Governmental Requirements applicable to it or its Property and all
agreements and other instruments binding upon it or its Property, except where
the failure to be in compliance, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
 
(b) No Default has occurred and is continuing.
 
Section 7.08 Investment Company Act.  No Credit Party is an “investment company”
or a company “controlled” by an “investment company,” within the meaning of, and
subject to regulation and registration as such under, the Investment Company Act
of 1940, as amended.
 
Section 7.09 Taxes.  Each of the Borrower and the Subsidiaries has timely filed
or caused to be filed all Tax returns required to have been filed and has paid
or caused to be paid all Taxes required to have been paid by it, except (a)
Taxes or the filing of returns that are being contested in good faith by
appropriate proceedings and for which the Borrower, such Restricted Subsidiary
or such Unrestricted Subsidiary, as applicable, has set aside on its books
adequate reserves in accordance with GAAP or (b) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse
Effect; provided that, in the case of Taxes or Tax returns of any Unrestricted
Subsidiary, this representation and warranty shall only apply to those Taxes
(and returns with respect to such Taxes) for which the Borrower or any of the
Restricted Subsidiaries could be held liable by the Governmental Authority that
assessed such
 
 
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Taxes.  The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of Taxes are, in the reasonable opinion of the Borrower,
adequate in all material respects.  No Tax Lien has been filed against any
Property of the Borrower or any Subsidiary that would reasonably be expected to
have a Material Adverse Effect and, to the knowledge of the Borrower, no claim
is being asserted with respect to any Tax that, if unpaid, would reasonably be
expected to have a Material Adverse Effect.
 
Section 7.10 ERISA.  Except to the extent noncompliance could not reasonably be
expected to have a Material Adverse Effect:
 
(a) The Borrower, the Restricted Subsidiaries and each ERISA Affiliate have
complied in all material respects with ERISA and, where applicable, the Code
regarding each Plan.
 
(b) Each Plan is, and has been, established and maintained in substantial
compliance with its terms, ERISA and, where applicable, the Code.
 
(c) No act, omission or transaction with respect to any Plan has occurred which
could result in imposition on any Credit Party or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
subsections (c), (i), (l) or (m) of section 502 of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary
duty liability damages under section 409 of ERISA.
 
(d) Full payment when due has been made of all amounts which the Borrower, any
Restricted Subsidiary or any ERISA Affiliate is required under the terms of each
Plan or applicable law to have paid as contribu­tions to such Plan as of the
date hereof.
 
(e) Except as set forth on Schedule 7.10(e), neither the Borrower nor any
Restricted Subsidiary nor any ERISA Affiliate sponsors, maintains, or
contributes to an employee welfare benefit plan, as defined in section 3(1) of
ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by the
Borrower, any Restricted Subsidiary or any ERISA Affiliate in its sole
discretion at any time without any material liability.
 
(f) Neither the Borrower nor any Restricted Subsidiary nor any ERISA Affiliate
sponsors, maintains or contributes to, or has at any time in the six-year period
preceding the date hereof sponsored, maintained or contributed to, any employee
pension benefit plan, as defined in section 3(2) of ERISA, that is subject to
Title IV of ERISA, section 302 of ERISA or section 412 of the Code.
 
Section 7.11 Disclosure; No Material Misstatements.  None of the financial
statements, certificates, reports or other written information (other than
Reserve Reports and any information delivered in connection therewith) furnished
by or on behalf of the Borrower or any Restricted Subsidiary to the Arranger,
the Administrative Agent or any Lender pursuant to this Agreement or any other
Loan Document or delivered by the Borrower or any Restricted Subsidiary to the
Administrative Agent or any Lender hereunder or under any other Loan Document
(as modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the
 
 
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circumstances under which they were made, not materially misleading on the date
when furnished; provided that with respect to financial estimates, projected or
forecasted financial information and other forward-looking information, the
Borrower represents and warrants only that such information was prepared in good
faith based upon assumptions believed to be reasonable at the time of
preparation; it being understood that (1) such projections and forecasts, as to
future events, are not to be viewed as facts, that actual results during the
period(s) covered by any such projections or forecasts may differ significantly
from the projected or forecasted results and that such differences may be
material and that such projections and forecasts are not a guarantee of
financial performance, and (2) no representation is made with respect to
information of a general economic or general industry nature.  There are no
statements or conclusions in any Reserve Report or in any information delivered
in connection therewith which are based upon or include materially misleading
information of a material fact or fail to take into account material information
regarding the material matters reported therein, it being understood that
projections concerning volumes attributable to the Oil and Gas Properties of the
Borrower and the Restricted Subsidiaries and production and cost estimates
contained in each Reserve Report and in other information delivered in
connection therewith are necessarily based upon professional opinions, estimates
and projections and that no warranty is made with respect to such opinions,
estimates and projections.
 
Section 7.12 Insurance.  Each of the Borrower and the Restricted Subsidiaries
has (a) all insurance policies sufficient for the compliance in all material
aspects by each of them with all material Governmental Requirements and all
material agreements to which the Borrower or such Restricted Subsidiary is a
party and (b) insurance coverage in at least the amounts and against such risk
(including, without limitation, public liability) that are usually insured
against by companies similarly situated and engaged in the same or a similar
business for the assets and operations of the Borrower and the Restricted
Subsidiaries.  The Administrative Agent and the Lenders have been named as
additional insureds in respect of such liability insurance policies and the
Administrative Agent has been named as loss payee with respect to Property loss
insurance.
 
Section 7.13 Restriction on Liens.  Except as permitted under Section 9.14,
neither the Borrower nor any Restricted Subsidiary is a party to any material
agreement or arrangement or is subject to any order, judgment, writ or decree,
which either prohibits or purports to prohibit it from granting Liens to the
Administrative Agent and the Lenders on or in respect of its Properties to
secure the Obligations.
 
Section 7.14 Subsidiaries.  All of the Subsidiaries are set forth on Schedule
7.14 or have been disclosed in writing to the Administrative Agent (which shall
promptly furnish a copy to the Lenders) as a supplement to Schedule
7.14.  Schedule 7.14, as supplemented from time to time, identifies each
Subsidiary as either Restricted or Unrestricted, and each Restricted Subsidiary
on such schedule is a Wholly-Owned Subsidiary.
 
Section 7.15 Location of Business and Offices.  The Borrower’s jurisdiction of
organization is Texas; the name of the Borrower as listed in the public records
of its jurisdiction of organization is Carrizo Oil & Gas, Inc.; and the
organizational identification number of the Borrower in its jurisdiction of
organization is 0128552700.  The Borrower’s principal place of business and
chief executive offices are located at the address specified in Section 12.01
(or as
 
 
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set forth in a notice delivered in accordance with Section 12.01(c)).  Each
Restricted Subsidiary’s jurisdiction of organization, name as listed in the
public records of its jurisdiction of organization, organizational
identification number in its jurisdiction of organization, and the location of
its principal place of business and chief executive office is stated on Schedule
7.15 (or as set forth in a notice delivered pursuant to Section 8.01(k) in
accordance with Section 12.01).
 
Section 7.16 Properties; Titles, Etc.
 
(a) Each of the Borrower and the Restricted Subsidiaries has good and defensible
title to the Oil and Gas Properties evaluated in the most recently delivered
Reserve Report (other than those disposed of in compliance with Section 9.11
since delivery of such Reserve Report and those title defects disclosed in
writing to the Administrative Agent), and good title to all its personal
Properties, in each case, free and clear of all Liens other than (i) in the case
of Properties other than Oil and Gas Properties, Liens permitted by Section 9.03
and (ii) in the case of Oil and Gas Properties, Liens permitted by the terms of
Section 9.03 to exist on Oil and Gas Properties.  After giving full effect to
the Liens permitted by Section 9.03, the Borrower or the Restricted Subsidiary
specified as the owner owns the net interests in production attributable to the
Hydrocarbon Interests as reflected in the most recently delivered Reserve Report
and Exhibit A to any mortgage or deed of trust (including those delivered on the
Effective Date), in each case as of the date delivered, and, except as described
in such Reserve Report or such Exhibit A, in each case as of the date delivered,
the ownership of such Properties shall not in any material respect obligate the
Borrower or such Restricted Subsidiary to bear the costs and expenses relating
to the maintenance, development and operations of each such Property in an
amount in excess of the working interest of each Property set forth in such
Reserve Report or such Exhibit A that is not offset by a corresponding
proportionate increase in the Borrower’s or such Restricted Subsidiary’s net
revenue interest in such Property.
 
(b) All material leases and agreements necessary for the conduct of the business
of the Borrower and the Restricted Subsidiaries are valid and subsisting and in
full force and effect, except to the extent any failure to be valid and
subsisting and in full force and effect could not reasonably be expected to have
a Material Adverse Effect, and there exists no default, or event or circumstance
which with the giving of notice or the passage of time or both would give rise
to a default, under any such lease or agreement which could reasonably be
expected to have a Material Adverse Effect.
 
(c) The rights and Properties presently owned, leased or licensed by the
Borrower and the Restricted Subsidiaries including all easements and rights of
way, include all rights and Properties reasonably necessary to permit the
Borrower and the Credit Parties to conduct their business, except to the extent
any failure to satisfy the foregoing could not reasonably be expected to have a
Material Adverse Effect.
 
(d) All of the Properties of the Borrower and the Restricted Subsidiaries (other
than the Oil and Gas Properties, which are addressed in Section 7.17) which are
reasonably necessary for the operation of their businesses are in good working
condition and are maintained in accordance with prudent business standards,
except to the extent any failure to satisfy the foregoing could not reasonably
be expected to have a Material Adverse Effect.
 
 
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(e) Each of the Borrower and the Restricted Subsidiaries owns, or is licensed to
use, all trademarks, trade names, copyrights, patents and other intellectual
Property material to its business, and the use thereof by each such Person does
not infringe upon the rights of any other Person, except for any such
infringements that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.  The Borrower and the
Restricted Subsidiaries either own or have valid licenses or other rights to use
all databases, geological data, geophysical data, engineering data, seismic
data, maps, interpretations and other technical information used in and material
to their businesses, subject to the limitations contained in the agreements
governing the use of the same, which limitations are customary for companies
engaged in the business of the exploration and production of Hydrocarbons, with
such exceptions as could not reasonably be expected to have a Material Adverse
Effect.
 
Section 7.17 Maintenance of Properties.  Except for such acts or failures to act
as could not be reasonably expected to have a Material Adverse Effect, the Oil
and Gas Properties (and Properties unitized therewith) of the Borrower and the
Restricted Subsidiaries have been maintained, operated and developed in a good
and workmanlike manner and in conformity with all Governmental Requirements and
in conformity with the provisions of all leases, subleases or other contracts
comprising a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of the Oil and Gas Properties of the Borrower and the
Restricted Subsidiaries.  Specifically in connection with the foregoing, except
for those as could not be reasonably expected to have a Material Adverse Effect,
(i) no Oil and Gas Property of the Borrower or any Restricted Subsidiary is
subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) and (ii)
none of the wells comprising a part of the Oil and Gas Properties (or Properties
unitized therewith) of the Borrower and the Restricted Subsidiaries is deviated
from the vertical more than the maximum permitted by Governmental Requirements,
and such wells are, in fact, bottomed under and are producing from, and the well
bores are wholly within, the Oil and Gas Properties (or in the case of wells
located on Properties unitized therewith, such unitized Properties) of the
Borrower and the Restricted Subsidiaries.  All pipelines, wells, gas processing
plants, platforms and other material improvements, fixtures and equipment owned
in whole or in part by the Borrower or any Restricted Subsidiary that are
necessary to conduct normal operations are being maintained in a state adequate
to conduct normal operations, and with respect to such of the foregoing which
are operated by the Borrower or any Restricted Subsidiary, in a manner
consistent with the past practices of the Borrower and the Restricted
Subsidiaries (other than those the failure of which to maintain in accordance
with this Section 7.17 could not reasonably be expected to have a Material
Adverse Effect).
 
Section 7.18 Gas Imbalances, Prepayments.  Except as set forth on Schedule 7.18
or included in the most recently delivered Reserve Report Certificate delivered
pursuant to Section 8.11(c) or as disclosed in writing to the Administrative
Agent, on a net basis there are no gas imbalances, take or pay or other
prepayments which would require the Borrower or any Restricted Subsidiary to
deliver Hydrocarbons produced from the Oil and Gas Properties of the Borrower
and the Restricted Subsidiaries at some future time without then or thereafter
receiving full payment therefor exceeding a volume equal to one-half Bcf of gas
(on an Mcf equivalent basis) in the aggregate.
 
 
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Section 7.19 Marketing of Production.  As of the date hereof and as of the date
of delivery of each Reserve Report, except for contracts listed and in effect on
the date hereof on Schedule 7.19, and thereafter either disclosed in writing to
the Administrative Agent or in the most recently delivered Reserve Report
Certificate (with respect to each of which contracts the Borrower represents
that it or the Restricted Subsidiary party thereto is receiving a price for all
production sold thereunder which is computed substantially in accordance with
the terms of such contract and is not having deliveries curtailed substantially
below the delivery capacity of the subject Property or Properties), no material
agreements exist (which are not cancelable on 60 days notice or less without
penalty or detriment) for the sale of production from Oil and Gas Properties of
the Borrower and the Restricted Subsidiaries (including, without limitation,
calls on, or other rights to purchase, production, whether or not the same are
currently being exercised) that (a) pertain to the sale of production at a fixed
price and (b) have a maturity or expiry date of longer than six (6) months from
the date hereof or the date of delivery of such Reserve Report, as applicable.
 
Section 7.20 Hedge Agreements.  Schedule 7.20, as of the date hereof, and after
the date hereof, each report required to be delivered by the Borrower pursuant
to Section 8.01(d), sets forth a true and complete list of all Hedge Agreements
of the Borrower and each Restricted Subsidiary, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value thereof (as of the last Business Day
of the most recent month preceding such date of delivery for which a mark to
market value is reasonably available), all credit support agreements relating
thereto (including any margin required or supplied) and the counterparty to each
such agreement.
 
Section 7.21 Use of Loans and Letters of Credit.  The proceeds of the Loans and
the Letters of Credit shall be used to refinance amounts outstanding under the
Existing Credit Agreement, pay fees, expenses, and transaction costs in
connection with this Agreement, for working capital, and for general corporate
purposes.  Neither the Borrower nor any Restricted Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation T, U or X of the
Board).  No part of the proceeds of any Loan or Letter of Credit will be used
for any purpose which violates the provisions of Regulations T, U or X of the
Board.
 
Section 7.22 Solvency.  Immediately after giving effect to the transactions
contemplated hereby, (a) the aggregate assets (after giving effect to amounts
that could reasonably be received by reason of indemnity, offset, insurance or
any similar arrangement), at a fair valuation, of the Credit Parties, taken as a
whole, will exceed the aggregate Debt of the Credit Parties on a consolidated
basis, as such Debt becomes absolute and matures, (b) no Credit Party will have
incurred, has intended to incur or believes that it will incur, Debt beyond its
ability to pay such Debt (after taking into account the timing and amounts of
cash to be received by it and the amounts to be payable on or in respect of its
liabilities, and giving effect to amounts that could reasonably be received by
reason of indemnity, offset, insurance or any similar arrangement) as such Debt
becomes absolute and matures and (c) no Credit Party will have (and will have no
reason to believe that it will have thereafter) unreasonably small capital for
the conduct of its business.
 
 
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ARTICLE VIII
Affirmative Covenants
 
Until the Commitments have expired or been terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents shall have been paid in full (other than
indemnities and other contingent obligations not then due and payable and as to
which no claim has been made as of the time of determination) and all Letters of
Credit shall have expired or terminated and all LC Disbursements shall have been
reimbursed, the Borrower covenants and agrees with the Lenders that:
 
Section 8.01 Financial Statements; Other Information.  The Borrower will furnish
to the Administrative Agent:
 
(a) Annual Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than 90 days after the end of
each fiscal year of the Borrower, its audited consolidated balance sheet and
related statements of operations, stockholders’ equity and cash flows as of the
end of and for such fiscal year, setting forth in each case in comparative form
the figures for the previous fiscal year, all reported on by independent public
accountants of recognized national standing (without a “going concern” or like
qualification or exception and without any qualification or exception as to the
scope of such audit) to the effect that such consolidated financial statements
present fairly in all material respects the financial condition and results of
operations of the Borrower and its Consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied.
 
(b) Quarterly Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year of the Borrower, its
consolidated balance sheet and related statements of operations and cash flows
as of the end of and for such fiscal quarter and the then elapsed portion of the
fiscal year, setting forth in each case in comparative form the figures for (or,
in the case of the balance sheet, as of the end of) the corresponding period or
periods of the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial condition
and results of operations of the Borrower and its Consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes.
 
(c) Certificate of Financial Officer – Compliance.  Concurrently with any
delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and is continuing as of the
date of such certificate and, if a Default has occurred and is continuing,
specifying the details thereof and any action taken or proposed to be taken with
respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 9.01 and (iii) with the delivery of the
financial statements under Section 8.01(a) only, stating whether any change in
GAAP or in the application thereof has occurred since December 31, 2009 which
materially changes the calculation of any covenant or affects compliance with
the terms of this Agreement and, if applicable, specifying the effect of such
change on the financial statements accompanying such certificate.
 
 
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(d) Certificate of Financial Officer – Hedge Agreements.  Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b), a
certificate of a Financial Officer, in form and substance reasonably
satisfactory to the Administrative Agent, setting forth as of the last day of
such fiscal quarter or fiscal year, a true and complete list of all Hedge
Agreements of the Borrower and the Restricted Subsidiaries, the material terms
thereof (including the type, term, effective date, termination date and notional
amounts or volumes), the net mark-to-market value thereof (as of the last day of
such fiscal quarter or fiscal year), any new credit support agreements relating
thereto not listed on Schedule 7.20, any margin required or supplied under any
credit support agreement, and the counterparty to each such Hedge Agreement.
 
(e) Certificate of Insurer – Insurance Coverage.  Concurrently with any delivery
of financial statements under Section 8.01(a), if requested by the
Administrative Agent, a certificate of insurance coverage from each insurer with
respect to the insurance required by Section 8.06, in form and substance
satisfactory to the Administrative Agent, and, if requested by the
Administrative Agent or any Lender, copies of the applicable policies.
 
(f) SEC and Other Filings; Reports to Shareholders.  Promptly after the same
become publicly available, copies of all annual, regular, periodic and special
reports and registration and proxy statements filed by the Borrower or any
Restricted Subsidiary with the SEC or with any national securities exchange.
 
(g) Notices Under Material Instruments. Promptly after receipt, (i) a copy of
any notice of default received from any holder or holders of any Senior Notes or
any trustee or agent on its or their behalf, to the extent such notice has not
otherwise been delivered to the Administrative Agent hereunder and (ii) a copy
of any notice or report given to or received from the lenders or any agent or
representative on their behalf under the Carrizo UK Facility specifically
related to the Borrower’s guaranty obligations thereunder, including any reports
or notices relating to cost overruns.
 
(h) Lists of Purchasers.  In connection with the delivery of any Reserve Report
to the Administrative Agent pursuant to Section 8.11, a list of (i) the
purchasers that accounted for at least 75% of the aggregate volume of
Hydrocarbons purchased from the Borrower and the Restricted Subsidiaries in the
six-month period prior to the “as of” date of such Reserve Report (in descending
order based on volumes purchased) and (ii) to the extent not included in the
group of purchasers described in clause (i), each purchaser that accounted for
at least 10% of the aggregate volume of Hydrocarbons purchased from the Borrower
and the Restricted Subsidiaries in such six-month period.
 
(i) Notice of Sales of Oil and Gas Properties.  In the event the Borrower or any
Restricted Subsidiary intends to sell, transfer, assign or otherwise dispose of
any Oil or Gas Properties or any Equity Interests in any Restricted Subsidiary
owning Oil and Gas Properties in accordance with Section 9.11 (other than
pursuant to Section 9.11(a)) in a transaction involving consideration in excess
of two percent (2%) of the then effective Borrowing Base, prior written notice
of such disposition, the consideration to be received in connection therewith,
the anticipated date of closing and any other details thereof reasonably
requested by the Administrative Agent or any Lender.
 
 
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(j) Issuance of Permitted Additional Senior Notes; Permitted Refinancing
Debt.  Promptly upon the closing and consummation of the issuance of any
Permitted Additional Senior Notes or the refinancing of any Debt with the
proceeds of Permitted Refinancing Debt, a true and correct copy of the material
documents relating to such Permitted Additional Senior Notes or such Permitted
Refinancing Debt.
 
(k) Information Regarding Borrower and Guarantors.  Prompt written notice (and
in any event within ten (10) days prior thereto or such later date as may be
reasonably acceptable to the Administrative Agent) of any change (i) in the
Borrower’s or any Guarantor’s corporate or limited liability company name,
(ii) in the location of the Borrower’s or any Guarantor’s chief executive office
or principal place of business, (iii) in the Borrower’s or any Guarantor’s
identity or corporate structure, (iv) in the Borrower’s or any Guarantor’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (v) in the Borrower’s or any
Guarantor’s federal taxpayer identification number.
 
(l) Production Report and Lease Operating Statements.  Within five Business Days
of the delivery of each Reserve Report, a report in form and substance
reasonably satisfactory to the Administrative Agent, setting forth, for each
calendar month during the period of 12 consecutive calendar months most recently
ended prior to the date of such Reserve Report, the volume of production and
sales attributable to production (and the prices at which such sales were made
and the revenues derived from such sales) for each such calendar month from the
Oil and Gas Properties of the Borrower and the Restricted Subsidiaries, and
setting forth the related ad valorem, severance and production taxes and lease
operating expenses attributable thereto and incurred for each such calendar
month.
 
(m) Certificate of Financial Officer – Consolidating Information.  If, at any
time, all of the Subsidiaries of the Borrower are not Restricted Subsidiaries,
then concurrently with any delivery of financial statements under Section
8.01(a) or Section 8.01(b), a certificate of a Financial Officer setting forth
consolidating spreadsheets that show all Unrestricted Subsidiaries and the
eliminating entries, in such form as would be presentable to the auditors of the
Borrower.
 
(n) Termination of Hedge Positions.  In the event that the Borrower or any
Restricted Subsidiary intends to assign, terminate, sell or unwind any hedge
position under any Hedge Agreement upon which the Lenders relied in determining
the then-effective Borrowing Base, or create any off-setting position (whether
evidenced by a floor, put or Hedge Agreement) with respect to any hedge position
under any Hedge Agreement upon which the Lenders relied in determining the
then-effective Borrowing Base, and the effect of such action, after taking into
account the net hedging position under all then outstanding Hedge Agreements of
the Borrower and the Restricted Subsidiaries taken as a whole (including any
other Hedge Agreements executed contemporaneously with the taking of such
action), would be to cancel any of the Borrower’s or any of the Restricted
Subsidiaries’ positions under all such Hedging Agreements, prior written notice
of such intent not less than two (2) Business Days prior to the proposed date of
such action; provided that such notice need only be provided to the extent that,
if the value attributed to such cancelled positions for purposes of determining
the then-
 
 
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effective Borrowing Base were excluded from the Borrowing Base at such time, the
Borrowing Base would reasonably be expected to be reduced by an amount in excess
of 1% thereof.
 
(o) Other Requested Information.  Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any Restricted Subsidiary (including, without
limitation, any Plan and any reports or other information required to be filed
with respect thereto under the Code or under ERISA), or compliance with the
terms of this Agreement or any other Loan Document, as the Administrative Agent
or any Lender (acting through the Administrative Agent) may reasonably request.
 
Documents required to be delivered pursuant to this Section 8.01 or Section 8.11
may be delivered electronically and shall be deemed to have been so delivered on
the date (i) on which the Borrower posts such documents, or provides a link
thereto, on its website (located on the date hereof at www.crzo.net) or (ii) on
which such documents are posted on the Borrower’s behalf on the website of the
SEC or on IntraLinks or another relevant website, if any, to which each Lender
and the Administrative Agent have access (whether a commercial third-party
website or whether sponsored by the Administrative Agent); provided that, the
Borrower shall notify the Administrative Agent of the posting of any such
documents and the Administrative Agent shall in turn give the Lenders notice of
such posting; and provided further that, if requested by the Administrative
Agent, the Compliance Certificate to be delivered under Section 8.01(c) shall
also be delivered in a tangible, physical version or in .pdf format.
 
Section 8.02 Notices of Material Events.  The Borrower will furnish to the
Administrative Agent, promptly after a Responsible Officer obtains knowledge
thereof, written notice of the following:
 
(a) the occurrence of any Default;
 
(b) (i) the filing or commencement of, or the threat in writing of, any action,
suit, proceeding, investigation or arbitration by or before any arbitrator or
Governmental Authority against the Borrower or any Subsidiary not previously
disclosed in writing to the Administrative Agent as to which there is a
reasonable possibility of an adverse determination that, if adversely
determined, could reasonably be expected to result in a Material Adverse Effect
and (ii) any material adverse development in any action, suit, proceeding,
investigation or arbitration by or before any arbitrator or Governmental
Authority against the Borrower or any Subsidiary (whether or not previously
disclosed to the Administrative Agent) that could reasonably be expected to
result in a Material Adverse Effect; and
 
(c) any other development that has had a Material Adverse Effect.
 
Each notice delivered under this Section 8.02 shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
 
Section 8.03 Existence; Conduct of Business.  The Borrower will, and will cause
each of the Restricted Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges
 
 
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and franchises material to the conduct of its business and maintain, if
necessary, its qualification to do business in each other jurisdiction in which
its Oil and Gas Properties is located or the ownership of its Properties
requires such qualification, except where the failure to so satisfy the
foregoing requirements could not reasonably be expected to have a Material
Adverse Effect; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 9.10 or any
transaction under Section 9.11.
 
Section 8.04 Payment of Taxes.  The Borrower will, and will cause each
Subsidiary to, pay or discharge all Tax liabilities of the Borrower or such
Subsidiary, as the case may be, before the same shall become delinquent, except
where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings, and the Borrower or such Subsidiary has set aside on
its books adequate reserves with respect thereto in accordance with GAAP or (b)
the failure to pay or discharge the same could not reasonably be expected to
result in a Material Adverse Effect; provided that, in the case of Tax
liabilities of any Unrestricted Subsidiary, this covenant shall only apply to
those Tax liabilities for which the Borrower or any of the Restricted
Subsidiaries could be held liable by the Governmental Authority that assessed
the Taxes giving rise to such Tax liabilities.
 
Section 8.05 Operation and Maintenance of Properties.  The Borrower, at its own
expense, will, and will cause each of the Restricted Subsidiaries to:
 
(a) operate its Oil and Gas Properties and other material Properties, or cause
such Oil and Gas Properties and other material Properties to be operated, in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
with all applicable Governmental Requirements, including, without limitation,
applicable proration requirements and Environmental Laws, except, in each case,
where the failure to so operate or comply could not reasonably be expected to
have a Material Adverse Effect.
 
(b) except to the extent disposed of pursuant to a transaction permitted by this
Agreement, keep and maintain all Property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted.
 
(c) promptly pay and discharge, or make reasonable and customary efforts to
cause to be paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements pertaining to its Oil
and Gas Properties and will do all other things necessary to keep unimpaired its
rights with respect thereto and prevent any forfeiture thereof or default
thereunder except, in each case, where the failure to do so, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
 
(d) promptly perform, or make reasonable and customary efforts to cause to be
performed, in accordance with industry standards, the obligations required by
each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and other
material Properties except, in each case, where the failure to do so,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
 
 
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(e) to the extent neither the Borrower nor a Restricted Subsidiary is the
operator of any of its Oil and Gas Properties, the Borrower shall use
commercially reasonable efforts to cause the operator to comply with this
Section 8.05 except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
 
Section 8.06 Insurance.  The Borrower will, and will cause each of the
Restricted Subsidiaries to, maintain, with financially sound and reputable
insurance companies, insurance in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar businesses
operating in the same or similar locations (provided that this Section 8.06
shall not be breached if an insurance company with which the Borrower or any
Restricted Subsidiary maintains insurance becomes financially troubled and the
Borrower or such Restricted Subsidiary reasonably promptly obtains coverage from
a different, financially sound insurer).  The loss payable clauses or provisions
in the insurance policy or policies insuring any of the collateral for the Loans
shall be endorsed in favor of and made payable to the Administrative Agent as
its interests may appear and such policies shall name or otherwise include the
Administrative Agent and the Lenders as “additional insureds” and provide that
the insurer will endeavor to give at least 30 days prior notice of any
cancellation thereof to the Administrative Agent.
 
Section 8.07 Books and Records; Inspection Rights.  The Borrower will, and will
cause each of the Restricted Subsidiaries to, keep proper books of record and
account in accordance with GAAP.  The Borrower will, and will cause each of the
Restricted Subsidiaries to, permit any representatives designated by the
Administrative Agent (or any Lender, provided that such Lender coordinates its
visitation with the Administrative Agent), upon reasonable prior notice and no
more often than once in the aggregate for the Administrative Agent or the
Lenders, as the case may be, in any period of 12 calendar months (unless an
Event of Default has occurred and is continuing, in which case there shall be no
limit to the number or frequency of such visitations or inspections while such
Event of Default is continuing), to visit and inspect its Properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and at the expense of the Administrative Agent or the
applicable Lender, as applicable; provided, however, that the Borrower will bear
the expenses of any such visitation or inspection made while an Event of Default
has occurred and is continuing.
 
Section 8.08 Compliance with Laws.  The Borrower will, and will cause each of
the Restricted Subsidiaries to, comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it or its Property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
 
Section 8.09 Environmental Matters.
 
(a) The Borrower shall at its sole expense: (i) comply, and shall cause its
Properties (it being understood that the term “Properties” as used in this
Section 8.09 shall not include surface interests owned by Persons other than the
Borrower or any Restricted Subsidiary lying over any mineral interests of the
Borrower or any Restricted Subsidiary) and
 
 
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operations and each Restricted Subsidiary and each Restricted Subsidiary’s
Properties and operations to comply, with all applicable Environmental Laws, the
breach of which could be reasonably expected to have a Material Adverse Effect;
(ii) not Release or threaten to Release, and shall cause each Restricted
Subsidiary not to Release or threaten to Release, any Hazardous Material on,
under, about or from the Borrower’s or any Restricted Subsidiary’s Properties or
any other property offsite the Property to the extent caused by the Borrower’s
or any Restricted Subsidiary’s operations except in compliance with applicable
Environmental Laws, the Release or threatened Release of which could reasonably
be expected to have a Material Adverse Effect; (iii) timely obtain or file, and
shall cause each Restricted Subsidiary to timely obtain or file, all
Environmental Permits, if any, required under applicable Environmental Laws to
be obtained or filed in connection with the operation or use of the Borrower’s
or the Restricted Subsidiaries’ Properties, which failure to obtain or file
could reasonably be expected to have a Material Adverse Effect; (iv) promptly
commence and diligently prosecute to completion, and shall cause each Restricted
Subsidiary to promptly commence and diligently prosecute to completion, any
assessment, evaluation, investigation, monitoring, containment, cleanup,
removal, repair, restoration, remediation or other remedial obligations
(collectively, the “Remedial Work”) in the event any Remedial Work is required
or reasonably necessary under applicable Environmental Laws because of or in
connection with the actual or suspected past, present or future Release or
threatened Release of any Hazardous Material on, under, about or from the
Borrower’s or any Restricted Subsidiary’s Properties, which failure to commence
and diligently prosecute to completion could reasonably be expected to have a
Material Adverse Effect; (v) conduct, and cause its Restricted Subsidiaries to
conduct, their respective operations and businesses in a manner that will not
expose any Property or Person to Hazardous Materials that could reasonably be
expected to form the basis for a claim for damages or compensation that could
reasonably be expected to have a Material Adverse Effect; and (vi) establish and
implement, and shall cause each Restricted Subsidiary to establish and
implement, such procedures as may be necessary to continuously determine and
assure that the Borrower’s and such Restricted Subsidiary’s obligations under
this Section 8.09(a) are timely and fully satisfied, except to the extent that
the failure to so establish and implement could not reasonably be expected to
have a Material Adverse Effect.
 
(b) In the event that a Responsible Officer of the Borrower obtains knowledge of
any threatened (in writing) action, investigation or inquiry by any Governmental
Authority or any threatened (in writing) demand or lawsuit by any Person against
the Borrower or any Restricted Subsidiary or its Properties in connection with
any Environmental Laws which (individually or in the aggregate with all other
such actions then in existence) could reasonably be expected to have a Material
Adverse Effect, the Borrower will notify the Administrative Agent in writing of
such action promptly, but in no event later than ten Business Days, after the
later of (i) a Responsible Officer obtaining knowledge thereof and (ii) a
Responsible Officer determining that such action (individually or in the
aggregate with all other such actions then in existence) could reasonably be
expected to have a Material Adverse Effect).
 
(c) Upon request by the Administrative Agent and no more than once per year in
the absence of any Event of Default (or as otherwise required to be obtained by
the Administrative Agent by any Governmental Authority), the Borrower will, and
will cause each Restricted Subsidiary to, provide environmental assessments,
audits and tests in accordance
 
 
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with the most current version of the American Society of Testing Materials
standards in connection with any future acquisitions of Oil and Gas Properties
or other Properties.
 
Section 8.10 Further Assurances.
 
(a) The Borrower at its sole expense will, and will cause each other Credit
Party to, promptly execute and deliver to the Administrative Agent all such
other documents, agreements and instruments reasonably requested by the
Administrative Agent to comply with, cure any defects (in regards to errors and
mistakes) in, or accomplish the conditions precedent, covenants and agreements
of the Borrower or any other Credit Party, as the case may be, in the Loan
Documents, including the Notes, or to further evidence and more fully describe
the collateral intended as security for the Obligations, or to perfect, protect
or preserve any Liens created pursuant to this Agreement or any of the Security
Instruments or the priority thereof, or to make any recordings, file any notices
or obtain any consents, all as may be reasonably necessary or appropriate in
connection therewith.
 
(b) The Borrower hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Mortgaged Property without the signature of the Borrower or any
other Credit Party where permitted by law.  A carbon, photographic or other
reproduction of the Security Instruments or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.
 
Section 8.11 Reserve Reports.
 
(a) On or before April 1st and October 1st of each year, commencing April 1,
2011, the Borrower shall furnish to the Administrative Agent a Reserve Report
evaluating the proved Oil and Gas Properties of the Borrower and its Domestic
Subsidiaries as of the immediately preceding January 1st and July 1st located
within the geographic boundaries of the United States of America (or the Outer
Continental Shelf adjacent to the United States of America).  The Reserve Report
as of January 1 of each year shall be prepared by one or more Approved Petroleum
Engineers, and the July 1 Reserve Report of each year shall be prepared by the
Borrower, which shall certify such Reserve Report to be true and accurate and to
have been prepared, except as otherwise specified therein, in accordance with
the procedures used in the immediately preceding January 1 Reserve Report.
 
(b) In the event of an Interim Redetermination, the Borrower shall furnish to
the Administrative Agent a Reserve Report prepared by the Borrower, which shall
certify such Reserve Report to be true and accurate and to have been prepared,
except as otherwise specified therein, in accordance with the procedures used in
the immediately preceding January 1 Reserve Report.  For any Interim
Redetermination requested by the Administrative Agent or the Borrower pursuant
to Section 2.07(b), the Borrower shall provide such Reserve Report with an “as
of” date as required by the Administrative Agent as soon as possible, but in any
event no later than thirty (30) days following the receipt of such request.
 
(c) With the delivery of each Reserve Report, the Borrower shall provide to the
Administrative Agent a Reserve Report Certificate from a Responsible Officer
certifying
 
 
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that: (i) there are no statements or conclusions in any Reserve Report or in any
information delivered in connection therewith which are based upon or include
materially misleading information of a material fact or fail to take into
account material information regarding the material matters reported therein (it
being understood that projections concerning volumes attributable to the Oil and
Gas Properties of the Borrower and the Restricted Subsidiaries and production
and cost estimates contained in such Reserve Report and in other information
delivered in connection therewith are necessarily based upon professional
opinions, estimates and projections and that no warranty is made with respect to
such opinions, estimates and projections), (ii) except as set forth in an
exhibit to such certificate, the Borrower or any of the Restricted Subsidiaries
owns good and defensible title to the Oil and Gas Properties evaluated in such
Reserve Report and such Properties are free of all Liens except for Liens
permitted by Section 9.03, (iii) except as set forth on an exhibit to such
certificate, on a net basis there are no gas imbalances, take or pay or other
prepayments in excess of the volume specified in Section 7.18 with respect to
the Oil and Gas Properties of the Borrower and the Restricted Subsidiaries
evaluated in such Reserve Report which would require the Borrower or any
Restricted Subsidiary to deliver Hydrocarbons either generally or produced from
such Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor, (iv) none of the Oil and Gas Properties of the
Borrower and the Restricted Subsidiaries evaluated in the immediately preceding
Reserve Report have been sold since the date of the last Borrowing Base
determination except as set forth on an exhibit to the certificate, which
certificate shall list all such Oil and Gas Properties that have been so sold
and in such detail as reasonably required by the Administrative Agent, (v)
attached to such certificate is a list of all marketing agreements entered into
subsequent to the later of the date hereof or the most recently delivered
Reserve Report Certificate which the Borrower could reasonably be expected to
have been obligated to list on Schedule 7.19 had such agreement been in effect
on the date hereof and (vi) attached thereto is a schedule of the Oil and Gas
Properties evaluated by such Reserve Report that are Mortgaged Properties and
demonstrating the percentage of the total value of the Oil and Gas Properties
that the value of such Mortgaged Properties represent.
 
Section 8.12 Title Information.
 
(a) Within 30 days after the delivery to the Administrative Agent of each
Reserve Report required by Section 8.11(a) (or such later date as may be
acceptable to the Administrative Agent), the Borrower will deliver title
information in form and substance reasonably acceptable to the Administrative
Agent (it being understood that title information with respect to Oil and Gas
Properties of the Borrower and the Restricted Subsidiaries located in the
Barnett Shale prepared in accordance with the Title Policies and Procedures
shall be acceptable to the Administrative Agent) covering enough of the Oil and
Gas Properties evaluated by such Reserve Report that were not included in the
immediately preceding Reserve Report so that the Administrative Agent shall have
received, together with title information previously delivered to the
Administrative Agent, satisfactory title information on at least 75% of the
total value of the Oil and Gas Properties evaluated by such Reserve Report.
 
(b) If title information for additional Properties has been provided under
Section 8.12(a), the Borrower shall, within 60 days of notice from the
Administrative Agent that title defects or exceptions exist with respect to such
additional Properties that are not permitted by Section 9.03, either (i) cure
any such title defects or exceptions (including defects
 
 
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or exceptions as to priority), (ii) substitute acceptable Mortgaged Properties
with no title defects or exceptions (other than Liens which are permitted by
Section 9.03) having an equivalent value or (iii) deliver title information in
form and substance reasonably acceptable to the Administrative Agent (it being
understood that title information with respect to Oil and Gas Properties of the
Borrower and the Restricted Subsidiaries located in the Barnett Shale prepared
in accordance with the Borrower’s title policies and procedures shall be
acceptable to the Administrative Agent) so that the Administrative Agent shall
have received, together with title information previously delivered to the
Administrative Agent, satisfactory title information on at least 75% of the
value of the Oil and Gas Properties evaluated by such Reserve Report.
 
(c) If any title defect or exception identified by the Administrative Agent
pursuant to a notice to the Borrower as described in Section 8.12(b) cannot be
cured or the Borrower does not substitute acceptable Mortgaged Properties or the
Borrower does not comply with the requirement to provide acceptable title
information covering 75% of the value of the Oil and Gas Properties evaluated in
the most recent Reserve Report, in each case within the 60-day period described
in Section 8.12(b), such default shall not be a Default, but instead the
Administrative Agent and/or the Required Lenders shall have the right to
exercise the remedy described in the immediately succeeding sentence in their
sole discretion from time to time, and any failure to so exercise such remedy at
any time shall not be a waiver as to any future exercise of such remedy by the
Administrative Agent or the Lenders.  To the extent that the Administrative
Agent or the Required Lenders are not satisfied with title to any Mortgaged
Property after the 60-day period described in Section 8.12(b) has elapsed, such
Mortgaged Property shall not count towards the 75% title requirement and shall
be deemed not to have been included in the most recently delivered Reserve
Report, and the Administrative Agent may send a notice to the Borrower and the
Lenders that the then outstanding Borrowing Base shall be reduced by an amount
as determined by the Required Lenders to cause the Borrower to be in compliance
with the requirement to provide satisfactory title information on 75% of the
value of the Oil and Gas Properties evaluated by the most recently delivered
Reserve Report.  This new Borrowing Base shall become effective immediately
after receipt of such notice.
 
For purposes of this Section 8.12, it is understood and agreed that title
information with respect to Oil and Gas Properties of the Borrower and the
Restricted Subsidiaries located in the Barnett Shale shall be deemed
satisfactory if such title information meets the qualifications described in the
Title Policies and Procedures for establishment of satisfactory title such that
no additional curative actions need be taken pursuant to the requirements set
forth in the Title Policies and Procedures.
 
Section 8.13 Additional Collateral; Additional Guarantors.
 
(a) In connection with each redetermination of the Borrowing Base, the Borrower
shall review the Reserve Report delivered in connection therewith and the list
of current Mortgaged Properties (as described in Section 8.11(c)(vi)) to
ascertain whether the Mortgaged Properties represent at least 80% of the total
value of the Oil and Gas Properties evaluated in such Reserve Report.  In the
event that the Mortgaged Properties do not represent at least 80% of such total
value, then the Borrower shall, and shall cause its Restricted Subsidiaries to,
grant, within thirty (30) days of delivery of the certificate required under
Section 8.11(c), to the Administrative Agent as security for the Obligations a
first-priority Lien
 
 
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interest (provided that Liens which are permitted by the terms of Section 9.03
to attach to the Mortgaged Properties may exist and have whatever priority such
Liens have at such time under applicable law) on additional Oil and Gas
Properties not already subject to a Lien of the Security Instruments such that
after giving effect thereto, the Mortgaged Properties will represent at least
80% of such total value.  All such Liens will be created and perfected by and in
accordance with the provisions of deeds of trust, security agreements and
financing statements or other Security Instruments, all in form and substance
reasonably satisfactory to the Administrative Agent and in sufficient executed
(and acknowledged where necessary or appropriate) counterparts for recording
purposes.  In order to comply with the foregoing, if any Restricted Subsidiary
places a Lien on its Oil and Gas Properties and such Subsidiary is not a
Guarantor, then it shall become a Guarantor and comply with Section 8.13(b).
 
(b) If (i) the Borrower shall form or acquire a Material Domestic Subsidiary or
otherwise determines that any Restricted Subsidiary is a Material Domestic
Subsidiary, (ii) the Borrower elects to have a Domestic Subsidiary guarantee the
Obligations or (iii) a Domestic Subsidiary incurs or guarantees any Debt for
borrowed money in excess of $500,000, then the Borrower shall promptly cause
such Subsidiary to guarantee the Obligations pursuant to the Guaranty
Agreement.  In connection with any such guaranty, the Borrower shall, or shall
cause the relevant Subsidiary, if applicable, to, (A) execute and deliver a
supplement to the Guaranty Agreement executed by such Subsidiary, (B) pledge all
of the Equity Interests of such new Domestic Subsidiary (including, without
limitation, delivery of original stock certificates, if any, evidencing the
Equity Interests of such Subsidiary, together with an appropriate undated stock
power for each certificate duly executed in blank by the registered owner
thereof) and (C) execute and deliver such other additional closing documents,
certificates and legal opinions as shall reasonably be requested by the
Administrative Agent in connection therewith.
 
(c) In the event that the Borrower or any Domestic Subsidiary becomes the direct
owner of a Foreign Subsidiary which would qualify as a Material Domestic
Subsidiary if it were a Domestic Subsidiary, then (i) in the case of a Domestic
Subsidiary becoming the direct owner, the Borrower shall cause such Domestic
Subsidiary to promptly guarantee the Obligations pursuant to the Guaranty
Agreement by executing and delivering a supplement to the Guaranty Agreement,
(ii) the Borrower shall, or shall cause such Domestic Subsidiary to, pledge
sixty six and two-thirds percent (66-2/3%) of all the Equity Interests of such
Foreign Subsidiary (including, without limitation, delivery of original stock
certificates evidencing such Equity Interests of such Foreign Subsidiary, if
any, together with appropriate stock powers for each certificate duly executed
in blank by the registered owner thereof) and (iii) the Borrower shall, or shall
cause such Domestic Subsidiary to, execute and deliver such other additional
closing documents, certificates and legal opinions as shall reasonably be
requested by the Administrative Agent in connection therewith.
 
Section 8.14 ERISA Compliance.  The Borrower will promptly furnish, and will
cause the Restricted Subsidiaries and any ERISA Affiliate to promptly furnish,
to the Administrative Agent upon its request (i) promptly after the filing
thereof with the United States Secretary of Labor or the Internal Revenue
Service, copies of each annual and other material report with respect to each
Plan or any trust created thereunder, and (ii) within five (5) Business Days
after becoming aware of the occurrence of any material “prohibited transaction,”
as described in
 
 
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section 406 of ERISA or in section 4975 of the Code, in connection with any Plan
or any trust created thereunder, a written notice signed by a Responsible
Officer of the Borrower, the applicable Restricted Subsidiary or the applicable
ERISA Affiliate, as the case may be, specifying the nature thereof, what action
such Person is taking or proposes to take with respect thereto, and, when known,
any action taken or proposed by the Internal Revenue Service or the Department
of Labor with respect thereto.
 
Section 8.15 Marketing Activities.  The Borrower will not, and will not permit
any Credit Party to, engage in marketing activities for any Hydrocarbons or
enter into any contracts related thereto other than (i) contracts for the sale
of Hydrocarbons scheduled or reasonably estimated to be produced from their
proved Oil and Gas Properties during the period of such contract, (ii) contracts
for the sale of Hydrocarbons scheduled or reasonably estimated to be produced
from proved Oil and Gas Properties of third parties during the period of such
contract associated with the Oil and Gas Properties of the Borrower and the
Credit Parties that the Borrower or one of its Subsidiaries has the right to
market pursuant to joint operating agreements, unitization agreements or other
similar contracts that are usual and customary in the oil and gas business and
(iii) other contracts for the purchase and/or sale of Hydrocarbons of third
parties (A) to the extent the aggregate amount owed by the Borrower and its
Restricted Subsidiaries under all such contracts described in this clause (iii)
does not exceed an amount equal to 1% of the then-effective Borrowing Base or
(B) which have generally offsetting provisions (i.e. corresponding pricing
mechanics, delivery dates and points and volumes) such that no “position” is
taken and (B) for which appropriate credit support has been taken to alleviate
the material credit risks of the counterparty thereto.
 
Section 8.16 Unrestricted Subsidiaries.
 
(a) The Borrower will cause its management, business and affairs and the
management, business and affairs of the Restricted Subsidiaries to be conducted
in such a manner (including, without limitation, by keeping separate books of
account, furnishing separate financial statements of Unrestricted Subsidiaries
to creditors and potential creditors thereof and by not permitting Properties of
the Borrower and the Restricted Subsidiaries to be commingled with those of
Unrestricted Subsidiaries) so that each Unrestricted Subsidiary that is a
corporation will be treated as a corporate entity separate and distinct from
each of the Borrower and the Restricted Subsidiaries.
 
(b) Other than pursuant to the UK Cost Overrun Guarantee and any other Guarantee
permitted under Section 9.05(g)(iii) or Section 9.05(q), the Borrower will not,
and will not permit any of the Restricted Subsidiaries to, incur, assume,
guarantee or be or become liable for any Debt of any of the Unrestricted
Subsidiaries.
 
(c) The Borrower will not permit any Unrestricted Subsidiary to hold any Equity
Interest in, or any Debt of, the Borrower or any Restricted Subsidiary.
 
 
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ARTICLE IX
Negative Covenants
 
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents have been paid in full (other than indemnities
and other contingent obligations not then due and payable and as to which no
claim has been made as of the time of determination) and all Letters of Credit
have expired or terminated and all LC Disbursements shall have been reimbursed,
the Borrower covenants and agrees with the Lenders that:
 
Section 9.01 Financial Covenants.
 
(a) Ratio of Total Debt to EBITDAX.  The Borrower will not, as of the last day
of any fiscal quarter, permit its ratio of Total Debt as of such date to EBITDAX
for the period of four consecutive fiscal quarters ending on such date to be
greater than the following:
 
Fiscal Quarter Ending
Ratio
March 31, 2011 through December 31, 2011
4.75 to 1.00
March 31, 2012 through June 30, 2012
4.25 to 1.00
September 30, 2012 and thereafter
4.00 to 1.00

(b) Current Ratio.  The Borrower will not permit, as of the last day of any
fiscal quarter, its ratio of (i) consolidated current assets of the Borrower and
the Restricted Subsidiaries (including the unused amount of the total
Commitments, but excluding non-cash assets under FAS 133) to (ii) consolidated
current liabilities of the Borrower and the Restricted Subsidiaries (excluding
(x) non-cash obligations under FAS 133, (y) current maturities under this
Agreement and (z) the non-cash effects, if any, of any non-cash stock option
re-pricing accrual), in each case determined in accordance with GAAP, to be less
than 1.00 to 1.00.  For purposes of determining the Borrower’s compliance with
this Section 9.01(b), the Borrower’s options to acquire mineral interests and
leases under agency agreements (x) with independent third parties that are not
Affiliates or subsidiaries of any Credit Party or (y) with Affiliates of any
Credit Party in connection with joint ventures or other transactions approved by
an independent committee of the Borrower’s board of directors will be excluded
from the calculation of consolidated current liabilities.
 
(c) Maximum Senior Debt to EBITDAX.  The Borrower will not permit, as of the
last day of any fiscal quarter, its ratio of Senior Debt as of such date to
EBITDAX for the period of four consecutive fiscal quarters ending on such date
to be more than 2.50 to 1.00.
 
(d) Minimum EBITDAX to Interest Expense.  The Borrower will not permit, as of
the last day of any fiscal quarter, its ratio of EBITDAX for the period of four
consecutive fiscal quarters ending on such date to Interest Expense for the
period of four consecutive fiscal quarters ending on such date to be less than
2.50 to 1.00.
 
Section 9.02 Debt.  The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, incur, create, assume or suffer to exist any Debt,
except:
 
 
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(a) the Loans and any other Obligations and any guaranty of or suretyship
arrangement in respect thereof.
 
(b) Debt of the Borrower and the Credit Parties existing on the date hereof that
is reflected in the Financial Statements or in Schedule 9.02, including the
Existing Senior Notes, and any Permitted Refinancing Debt in respect thereof.
 
(c) Debt associated with bonds or surety obligations (i) required in connection
with self-insurance or the performance of contracts, (ii) required by
Governmental Requirements in connection with the operation of the Oil and Gas
Properties or (iii) required in connection with the enforcement of rights or
claims of the Borrower or any of the Restricted Subsidiaries or in connection
with the appeal of judgments that do not result in a Default or an Event of
Default.
 
(d) intercompany Debt between the Borrower and any Restricted Subsidiary or
between Restricted Subsidiaries to the extent permitted by Section 9.05(g);
provided that such Debt is not held, assigned, transferred, negotiated or
pledged to any Person other than the Borrower or any of the Restricted
Subsidiaries, and, provided further, that any such Debt for borrowed money owed
by a Credit Party to a non-Credit Party shall be subordinated to the Obligations
on terms set forth in the Guaranty Agreement.
 
(e) endorsements of negotiable instruments for collection in the ordinary course
of business.
 
(f) Permitted Additional Senior Notes issued by the Borrower and any guarantees
of such Debt by the Borrower or any other Guarantor, provided that (i) at the
time of incurring such Debt (A) no Default has occurred and is then continuing
and (B) no Default would result from the incurrence of such Debt after giving
effect to the incurrence of such Debt (and any concurrent repayment of Debt with
the proceeds of such incurrence), (ii) such Debt does not have any scheduled
amortization prior to 91 days after the Maturity Date, (iii) such Debt does not
mature sooner than 91 days after the Maturity Date, (iv) the covenants
applicable to such Debt are not materially more onerous, taken as a whole, than
the covenants applicable to the Existing 2018 Notes, (v) the Borrowing Base is
reduced pursuant to Section 2.07(e) and prepayment is made to the extent
required by Section 3.04(c)(iii), and (vii) the aggregate principal amount of
such Permitted Additional Senior Notes does not exceed $400,000,000 at any time;
and any Permitted Refinancing Debt in respect thereof.
 
(g) Debt under Capital Leases and Debt secured by Liens permitted under Section
9.03(d) in an aggregate principal amount at any time not to exceed $20,000,000.
 
(h) Debt in the form of guaranties by the Borrower or any of the Restricted
Subsidiaries of Debt of (A) the Borrower or any of the Restricted Subsidiaries
permitted under this Section 9.02 and (B) other Subsidiaries to the extent an
Investment would be permitted under Section 9.05(g)(iii) or Section 9.05(q).
 
(i) Debt owed to insurance companies for premiums on policies required by
Section 8.06.
 
 
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(j) other Debt not to exceed $5,000,000 (measured as of the date of incurrence)
in the aggregate at any one time outstanding.
 
Section 9.03 Liens.  The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, create, incur, assume or permit to exist any Lien on
any of its Properties (now owned or hereafter acquired), except:
 
(a) Liens securing the payment of any Obligations.
 
(b) Liens described on Schedule 9.03.
 
(c) Excepted Liens.
 
(d) Liens encumbering assets securing Debt incurred to finance the purchase,
construction or improvement of such assets (and any refinancings thereof which
do not increase the principal amount thereof); provided that (i) the principal
amount of the Debt secured by a purchased asset shall not exceed one hundred
percent (100%) of the purchase price of such asset, (ii) such Liens shall not
extend to or encumber any other asset of any Credit Party other than the
agreement and proceeds and individual financings may be cross–collateralized
with other asset specific acquisition/construction financings provided by such
Person or its Affiliates, and (iii) such Liens shall attach to such purchased,
constructed or improved asset within 180 days after such acquisition or the
completion of such construction or improvement (or substantially
contemporaneously with refinancings of such Debt which do not increase the
amount thereof).
 
(e) Liens on the proceeds of insurance policies and unearned or refunded
premiums securing Debt owed to an insurance company permitted by Section
9.02(i).
 
(f) Liens on Equity Interests in Unrestricted Subsidiaries and joint ventures
that are not Restricted Subsidiaries, and rights directly related to such Equity
Interests.
 
(g) Liens on intercompany receivables owing from Carrizo UK Huntington granted
in connection with the Carrizo UK Facility to the extent such receivables arise
from one or more Investments made in Carrizo UK Huntington in accordance with
Section 9.05; provided, that recourse to the Person granting such Lien is
limited solely to the Property so pledged.
 
(h) Liens securing obligations or Debt not in excess of $10,000,000 in the
aggregate at any time.
 
Section 9.04 Dividends, Distributions and Redemptions; Repayment of Senior
Notes.
 
(a) Restricted Payments.  The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, declare or make, or agree to pay or make, directly
or indirectly, any Restricted Payment, return any capital to its stockholders on
account of its Equity Interests or make any distribution of its Property to its
Equity Interest holders on account of its Equity Interests, except
 
 
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(i) the Borrower may declare and pay dividends with respect to its Equity
Interests payable solely in additional shares of its Equity Interests (other
than Disqualified Capital Stock),
 
(ii) Subsidiaries may declare and pay dividends ratably with respect to their
Equity Interests,
 
(iii) the Borrower may make Restricted Payments pursuant to and in accordance
with equity incentive plans, stock option plans or arrangements or other benefit
plans or arrangements for management, employees or directors of the Borrower and
the Restricted Subsidiaries in an amount not to exceed $3,000,000 during any
fiscal year (with any portion of such $3,000,000 amount that is unused in any
fiscal year to be carried forward to successive fiscal years and added to such
amount) and $15,000,000 during the term of this Agreement,
 
(iv) the Borrower may make cash payments in lieu of issuing fractional shares in
an aggregate amount not exceeding $200,000 during the term of this Agreement,
 
(v) the Borrower may declare and pay distributions of rights to acquire Equity
Interests in the Borrower effecting “poison pill” rights plans, provided that
any securities or rights so distributed have a nominal fair market value at the
time of declaration,
 
(vi) the Borrower may make repurchases, redemptions, defeasances or other
acquisitions or retirements for value of (A) any of its Equity Interests in
connection with the exercise of stock options or other rights to acquire Equity
Interests of the Borrower if such Equity Interests represent a portion of the
exercise or exchange price thereof and (B) any of its Equity Interests held by
any current or former officers, directors or employees of the Borrower or any of
the Restricted Subsidiaries in connection with the exercise or vesting of any
equity compensation (including, without limitation, stock options, restricted
stock and phantom stock) in order to satisfy any tax withholding obligation with
respect to such exercise or vesting; provided that the aggregate amount of
Restricted Payments made pursuant to this clause (vi) shall not exceed $500,000
during any fiscal year (with any portion of such $500,000 amount that is unused
in any fiscal year to be carried forward to successive fiscal years and added to
such amount) and $2,500,000 during the term of this Agreement,
 
(vii) to the extent otherwise constituting a Restricted Payment, the Borrower
may make repurchases, redemptions, defeasances or other acquisitions or
retirements for value of any rights under any cash and/or equity-settled equity
stock appreciation agreement or plan of the Borrower or any Restricted
Subsidiary, and
 
(viii) if no Default, Event of Default or Borrowing Base Deficiency exists at
the time of declaration, other Restricted Payments in an aggregate amount not to
exceed $5,000,000 during any fiscal year (with any portion of such $5,000,000
amount that is unused in any fiscal year to be carried forward to successive
fiscal years and added to such amount) and $25,000,000 during the term of this
Agreement.
 
(b) Redemption of Senior Notes; Amendment of Indentures. The Borrower will not,
and will not permit any of the Restricted Subsidiaries to:
 
 
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(i) Redeem the Senior Notes (other than (A) as the result of the conversion of
Senior Notes into Equity Interests of the Borrower (other than Disqualified
Capital Stock), (B) with the net cash proceeds of a substantially concurrent
(for this purpose meaning 150 days) offering of common Equity Interests or
Permitted Refinancing Debt, (C) cash payments made in settlement of the
Borrower’s obligations under (1) the Existing Convertible Notes Indenture upon
the conversion or required repurchase of any Existing Convertible Notes
thereunder or (2) any other indenture pursuant to which any convertible notes of
the Borrower are issued upon the conversion or required repurchase of any such
convertible notes thereunder, and (D) voluntary Redemptions of the Existing
Convertible Notes so long as (1) immediately after giving effect to any such
Redemption, Availability is greater than or equal to 25% of the Borrowing Base
and (2) the aggregate amount paid by the Borrower and the Restricted
Subsidiaries to effect all such Redemptions does not exceed $30,000,000); or
 
(ii) amend, modify, waive or otherwise change, consent or agree to any
amendment, modification, waiver or other change to, any of the terms of any of
the Senior Notes or any of the Indentures pursuant to which the Senior Notes are
issued if the effect thereof would be to shorten the maturity of any of the
Senior Notes to a date that is earlier than 91 days after the Maturity Date or
to shorten the average life of any of the Senior Notes to a period that is
shorter than the period from the date of effectiveness of any such amendment,
modification, waiver or other change to the date that is 91 days after the
then-effective Maturity Date, provided that the foregoing shall not prohibit the
execution of supplemental indentures associated with (A) the incurrence of
additional Senior Notes to the extent permitted by Section 9.02(f), (B) the
issuance of Permitted Refinancing Debt, (C) the addition of guarantors if
required by the terms of any Indenture provided such Person complies with
Section 8.13(b) or (D) the correction of defects, ambiguities or deficiencies
which can be adopted without consent of all or any portion of the holders of the
Senior Notes.
 
For the avoidance of doubt, the issuance of Senior Notes pursuant to an Exchange
Offer in exchange for previously issued Senior Notes shall not constitute a
Redemption of Senior Notes.
 
Section 9.05 Investments, Loans and Advances.  The Borrower will not, and will
not permit any of the Restricted Subsidiaries to, make or permit to remain
outstanding any Investments in or to any Person, except that the foregoing
restriction shall not apply to:
 
(a) Investments reflected in the Financial Statements or which are disclosed in
Schedule 9.05 and any refinancings or replacements thereof, provided that the
amount of such Investment is not increased.
 
(b) accounts receivable arising in the ordinary course of business and
endorsements of negotiable instruments for deposit and collection in the
ordinary course of business.
 
(c) readily marketable direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency thereof,
in each case maturing within one year from the date of creation thereof.
 
 
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(d) commercial paper maturing within one year from the date of creation thereof
rated in one of the two highest grades by S&P or Moody’s.
 
(e) deposits maturing within one year from the date of creation thereof with,
including certificates of deposit issued by, any Lender or any office located in
the United States of any other bank or trust company which is organized under
the laws of the United States or any state thereof, has capital, surplus and
undivided profits aggregating at least $100,000,000 (as of the date of such bank
or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time,
by S&P or Moody’s, respectively, or, in the case of any Foreign Subsidiary, a
bank organized in a jurisdiction in which the Foreign Subsidiary conducts
operations having assets in excess of $500,000,000 (or its equivalent in another
currency).
 
(f) deposits in money market funds investing exclusively in Investments
described in Section 9.05(c), Section 9.05(d) or Section 9.05(e).
 
(g) Investments (measured on a cost basis) (i) made by the Borrower or any
Guarantor in or to the Borrower or any other Guarantor, (ii) made by any
Subsidiary in or to the Borrower or any Guarantor and (iii) made by the Borrower
or any Guarantor in or to all other Subsidiaries which are not Guarantors which,
together with the guaranties permitted by Section 9.02(h)(B), do not at the time
of making any such Investment, exceed 2.5% of the consolidated quarterly
revenues of the Borrower and the Restricted Subsidiaries for the most recent
fiscal quarter for which financial statements have been delivered pursuant to
Section 8.01(a) or 8.01(b); provided that Investments made pursuant to the UK
Cost Overrun Guarantee shall not be permitted to be made under this clause
(iii).
 
(h) Investments (including, without limitation, capital contributions) in
general or limited partnerships or other types of entities (each a “venture”)
entered into by the Borrower or any of the Restricted Subsidiaries with others;
provided that (i) any such venture is engaged exclusively in oil and gas
exploration, development, production, processing and related activities,
including transportation, (ii) the interest in such venture is acquired on fair
and reasonable terms and (iii) such venture interests acquired and capital
contributions made (valued as of the date such interest was acquired or the
contribution made) do not exceed, in the aggregate at any time outstanding, an
amount equal to $15,000,000.
 
(i) Investments in direct ownership interests in additional Oil and Gas
Properties and gas gathering systems related thereto or related to or made
pursuant to the requirements of farm-out, farm-in, joint operating, joint
venture or area of mutual interest agreements, gathering systems, pipelines or
other similar arrangements which are usual and customary in the oil and gas
exploration and production business located within the geographic boundaries of
the United States of America.
 
(j) the contribution to Carrizo UK Huntington of the North Sea Properties.
 
(k) Investments in stock, obligations or securities received in settlement of
debts arising from Investments permitted under this Section 9.05 owing to the
Borrower or any Restricted Subsidiary as a result of a bankruptcy or other
insolvency proceeding of the obligor
 
 
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in respect of such debts or upon the enforcement of any Lien in favor of the
Borrower or any of its Restricted Subsidiaries.
 
(l) prepayments on drilling contracts, deposits made for Property acquisitions
and advance payments made on undeveloped leases and for configuration of
gathering systems or otherwise, in each case in the ordinary course of business
of the Borrower and the Restricted Subsidiaries.
 
(m) Investments made as a result of the receipt of non-cash consideration in
connection with any disposition of Property permitted hereunder.
 
(n) Investments (i) the consideration for which consists solely of common Equity
Interests of the Borrower or warrants, options or other rights to purchase or
acquire common Equity Interests of the Borrower or (ii) with up to 100% of the
net cash proceeds of an offering of common Equity Interests by the Borrower (to
the extent made within 150 days of the closing of such offering), in each case
in (A) joint ventures engaging in businesses conducted by companies in the oil
and gas industry, (B) any Unrestricted Subsidiary or non-Guarantor Restricted
Subsidiary or (C) any other Person, so long as, immediately after giving effect
to any such Investment made pursuant to this clause (C), Availability is equal
to or greater than 30% of the Borrowing Base.
 
(o) Investments made in connection with the purchase, lease or other acquisition
of tangible assets of any Person, and investments made in connection with the
purchase, lease or other acquisition of the Equity Interests of any Person
(including by the merger or consolidation of such Person into the Borrower or
any of the Restricted Subsidiaries); provided that (i) any newly acquired
Material Domestic Subsidiary shall promptly comply with the requirements of
Section 8.13(b), (ii) no Default exists immediately before and immediately after
giving effect to such Investment and (iii) after giving effect to such
Investment, the Borrower shall be in pro forma compliance with the covenants set
forth in Section 9.01 as of the last day of the fiscal quarter most recently
ended for which financial statements have been delivered pursuant to Section
8.01(a) or 8.01(b), as the case may be, with such covenants being calculated as
if such acquisition had occurred on the first day of the period of four
consecutive fiscal quarters ending on such day.
 
(p) Investments by the Borrower or any of the Restricted Subsidiaries consisting
of profit interests in Avista JV Partner and Investments received by the
Borrower or any of the Restricted Subsidiaries in exchange for such profit
interests in connection with a merger, conversion, consolidation or other
combination of Avista JV Partner with another Person.
 
(q) other Investments made after the Effective Date (including Investments in
Unrestricted Subsidiaries and Foreign Restricted Subsidiaries made after the
Effective Date) not to exceed $80,000,000 (measured on a cost basis) in the
aggregate at any time; provided that no Event of Default exists or would result
from such Investment.
 
Section 9.06 Nature of Business.  The Borrower will not, and will not permit any
of the Restricted Subsidiaries to, allow any material change to be made in the
character of its business
 
 
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as an independent oil and gas exploration and production company and activities
reasonably incidental or related thereto.
 
Section 9.07 Proceeds of Notes.  The Borrower will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by Section
7.21.  Neither the Borrower nor any Person acting on behalf of the Borrower has
taken or will take any action which would cause any of the Loan Documents to
violate Regulations T, U or X or any other regulation of the Board or to violate
Section 7 of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect.  If requested by the Administrative Agent, the Borrower will furnish to
the Administrative Agent a statement to the foregoing effect in conformity with
the requirements of FR Form U-1 or such other form referred to in Regulation U,
Regulation T or Regulation X of the Board, as the case may be.
 
Section 9.08 ERISA Compliance.  The Borrower will not, and will not permit any
of the Restricted Subsidiaries to, at any time to the extent that any of the
following could reasonably be expected to have a Material Adverse Effect:
 
(a) engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which the Borrower, any Restricted Subsidiary or any ERISA
Affiliate could be subjected to either a civil penalty assessed pursuant to
subsections (c), (i), (l) or (m) of section 502 of ERISA or a tax imposed by
Chapter 43 of Subtitle D of the Code.
 
(b) fail to make, or permit any ERISA Affiliate to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, the Borrower, any Restricted Subsidiary or
any ERISA Affiliate is required to pay as contributions thereto.
 
(c) contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to (i) any
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities in their
sole discretion at any time without any material liability, except as set forth
on Schedule 9.08(c), or (ii) any employee pension benefit plan, as defined in
section 3(2) of ERISA, that is subject to Title IV of ERISA, section 302 of
ERISA or section 412 of the Code.
 
Section 9.09 Sale or Discount of Receivables.  Except for receivables obtained
by the Borrower or any of the Restricted Subsidiaries out of the ordinary course
of business or the settlement of joint interest billing accounts in the ordinary
course of business or discounts granted to settle collection of accounts
receivable or the sale of defaulted accounts arising in the ordinary course of
business in connection with the compromise or collection thereof and not in
connection with any financing transaction, the Borrower will not, and will not
permit any of the Restricted Subsidiaries to, discount or sell (with or without
recourse) any of its notes receivable or accounts receivable.
 
 
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Section 9.10 Mergers, Etc.  The Borrower will not, and will not permit any of
the Restricted Subsidiaries to, merge into or with or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
sell, transfer, lease or otherwise dispose of (whether in one transaction or in
a series of related transactions) all or substantially all of its Property to
any other Person (whether now owned or hereafter acquired) (any such
transaction, a “consolidation”); provided that (a) any Restricted Subsidiary may
participate in a consolidation with (i) the Borrower so long as the Borrower
shall be the continuing or surviving entity or transferee, as applicable, or
(ii) any other Subsidiary (provided that if one of such Subsidiaries is a
Wholly-Owned Subsidiary, then the continuing or surviving Person or transferee,
as applicable, shall be a Wholly-Owned Subsidiary), (b) the Borrower and the
Restricted Subsidiaries may engage in Sales permitted by clauses (a) through (e)
of Section 9.11 and Sales of Property of any type not restricted under Section
9.11, and (c) the Borrower and the Restricted Subsidiaries may make Investments
permitted by Section 9.05.
 
Section 9.11 Sale of Oil and Gas Properties.  The Borrower will not, and will
not permit any of the Restricted Subsidiaries to, sell, assign (other than
assignments intended to convey a Lien), farm-out, convey or otherwise transfer
(collectively, a “Sale”) any Oil and Gas Property or Equity Interests of any
Restricted Subsidiary owning Oil and Gas Properties to any Person other than the
Borrower or any Restricted Subsidiary, except for:
 
(a) the Sale of Hydrocarbons and geological and seismic data in the ordinary
course of business;
 
(b) farmouts of undeveloped acreage to which no proved reserves are attributable
and assignments in connection with such farmouts;
 
(c) the Sale of equipment that is no longer necessary or useful for the business
of the Borrower or such Restricted Subsidiary or is replaced by equipment of at
least comparable value and use, or the Sale of surplus equipment;
 
(d) unless an Event of Default has occurred and is continuing, the Sale of any
Oil and Gas Property or any interest therein or the Sale of any Equity Interests
of any Restricted Subsidiary owning Oil and Gas Properties; provided (with
respect to this clause (d) only) that (i) the consideration received in respect
of such Sale shall be any of the following (or a combination thereof): (1) cash,
(2) the assumption of liabilities not constituting debt for borrowed money
associated with the assets subject of such Sale (provided the assumption of
liabilities shall not exceed 10% of the aggregate consideration for such Sale),
(3) other Oil and Gas Properties (provided that such exchange qualifies for
nonrecognition of gain or loss under the provisions of Section 1031 of the
Code), or (4) in the case of farm-outs, carried or royalty or net profits
interests in the Property subject of such farm-out (provided that,
notwithstanding the foregoing, if a Borrowing Base Deficiency results from such
Sale, the cash portion of the consideration shall be an amount at least
sufficient to pay such Borrowing Base Deficiency under Section 3.04(c)(iii)),
(ii) the consideration received in respect of such Sale shall be equal to or
greater than the fair market value of the Property subject of such Sale (as
determined in good faith by a Financial Officer, provided that if a Financial
Officer determines in good faith that such Sale involves Oil and Gas Property or
Equity Interests in a Restricted Subsidiary owning any Oil and Gas Property
having a fair market value in excess of $25,000,000, the
 
 
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board of directors of the Borrower shall reasonably determine whether the
consideration received in respect of such Sale is equal to or greater than the
fair market value of the Property subject of such Sale and, if requested by the
Administrative Agent, the Borrower shall deliver a certificate of a Responsible
Officer certifying to that effect), (iii) in the case of any Sale of Oil and Gas
Properties included in the most recently delivered Reserve Report or Equity
Interests of a Restricted Subsidiary owning Oil and Gas Properties included in
the most recently delivered Reserve Report, if the aggregate consideration
received in respect of such Sale, together with the aggregate consideration
received in respect of all other Sales of Oil and Gas Properties included in the
most recently delivered Reserve Report and Sales of Restricted Subsidiaries
owning Oil and Gas Properties included in the most recently delivered Reserve
Report effected since the most recent Scheduled Redetermination Date, would
exceed an amount equal to five percent (5%) of the then effective Borrowing
Base, the Borrowing Base shall be reduced, effective immediately upon the
consummation of such Sale, by an amount equal to the value, if any, attributable
to the Property that is being disposed of pursuant to such Sale in the
then-current Borrowing Base, as determined by Administrative Agent and confirmed
by the Required Lenders after the receipt of the notice contemplated by Section
8.01(i) by the Administrative Agent;
 
(e) the Sale of such Property to which the exceptions pursuant to Section
9.11(a) to (d) or (f) do not apply or are not relied upon having a fair market
value not to exceed $1,000,000 during any 6-month period; and
 
(f) the Sale of such Property to the extent permitted by Section 9.05 or Section
9.10.
 
Section 9.12 Environmental Matters.  The Borrower will not, and will not permit
any Credit Party to, cause or permit any of its Property to be in violation of,
or do anything or permit anything to be done which will subject any such
Property to a Release or threatened Release of Hazardous Materials, exposure to
any Hazardous Materials, or to any Remedial Work under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where
such violations, Release or threatened Release, exposure, or Remedial Work could
reasonably be expected to have a Material Adverse Effect.
 
Section 9.13 Transactions with Affiliates.  The Borrower will not, and will not
permit any of the Restricted Subsidiaries to, enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of Property
or the rendering of any service, with any Affiliate (other than the Guarantors
and Wholly-Owned Subsidiaries of the Borrower) unless such transactions are
otherwise not prohibited under this Agreement and are upon terms substantially
as favorable to it as it would obtain in a comparable transaction with a Person
not an Affiliate (or, if in the good faith judgment of the Borrower’s Board of
Directors, no comparable transaction is available with which to compare any such
transaction, such transaction is otherwise fair to the Borrower or the relevant
Restricted Subsidiary from a financial point of view); provided that the
foregoing shall not apply to:
 
(a) transactions described on Schedule 9.13;
 
 
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(b) any Restricted Payment permitted by Section 9.04, Debt permitted by Section
9.02, or Investments permitted by Section 9.05;
 
(c) the payment of reasonable and customary directors’ fees and other benefits
to Persons who are not otherwise Affiliates of the Borrower or any Restricted
Subsidiary;
 
(d) any employment or severance or other employee compensation, arrangement or
plan or any amendment thereto, entered into by the Borrower or any of the
Restricted Subsidiaries in the ordinary course of business or which is customary
in the oil and gas business, and payments, awards, grants or issuances of Equity
Interests pursuant thereto;
 
(e) provision of officers’ and directors’ indemnification and insurance in the
ordinary course of business to the extent permitted by law; and
 
(f) transactions with Avista or any of its Subsidiaries or any other Affiliate
entered into in connection with the Avista Marcellus Joint Venture.
 
Section 9.14 Negative Pledge Agreements; Dividend Restrictions.  The Borrower
will not, and will not permit any of the Restricted Subsidiaries to, create,
incur, assume or suffer to exist any contract, agreement or understanding (other
than this Agreement, the Security Instruments) which in any way prohibits or
restricts the granting, conveying, creation or imposition of any Lien on any of
its Property in favor of the Administrative Agent and the Lenders or restricts
any Restricted Subsidiary from paying dividends or making distributions to the
Borrower or any Guarantor, or which requires the consent of or notice to other
Persons in connection therewith; provided that the foregoing shall not prevent
(a) prohibitions or restrictions in joint venture agreements or agreements
entered into in connection with joint ventures with respect to the transfer of,
or the making of dividends or distributions with respect to, Equity Interests in
any joint venture, or with respect to the transfer of or other encumbrance with
respect to Property that is the subject of any joint venture or agreements
entered into in connection therewith, (b) customary non-assignment provisions in
leases, licenses, permits and other agreements entered into in the ordinary
course of business, (c) in connection with any Sale of Property permitted
hereunder, any restriction with respect to such Property imposed under the
agreement or agreements governing such Sale, (d) restrictions imposed by any
Governmental Authority or under any Governmental Requirement or (e) any
restriction imposed on the granting, conveying, creation or imposition of any
Lien on any Property of the Borrower or any of the Restricted Subsidiaries
imposed by any contract, agreement or understanding related to the Liens
permitted under clause (b), (d), (e), (f), (g) or (h) of Section 9.03 so long as
such restriction only applies to the Property permitted under such clauses to be
encumbered by such Liens.
 
Section 9.15 Hedge Agreements.
 
(a) The Borrower will not, and will not permit any of the Restricted
Subsidiaries to, enter into or maintain any Hedge Agreements with any Person
other than:
 
(i) Hedge Agreements in respect of commodities (A) with an Approved Counterparty
and (B) the notional volumes for which (when aggregated with other commodity
Hedge Agreements then in effect other than basis differential swaps on volumes
already hedged pursuant to other Hedge Agreements) do not exceed, as of the date
such Hedge
 
 
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Agreement is executed or at any time during the term of this Agreement, the
percentage set forth below of the Credit Parties’ Current Production for each
month during the period during which such Hedge Agreement is in effect, for each
of crude oil, natural gas liquids and natural gas, calculated separately:
 
Calendar Year Hedged (relative to measurement date)
Percentage Limitation
       Oil                         NGL’s/ Gas
Months 1-24
100%
100%
Months 25-36
75%
75%
Months 37-48
50%
50%

No Hedge Agreement in respect of commodities shall have a tenor of longer than 4
years.  For purposes of the foregoing volume limitations, floors and puts shall
be disregarded.
 
(ii) Hedge Agreements in respect of interest rates with an Approved
Counterparty, as follows: (A) Hedge Agreements effectively converting interest
rates from fixed to floating, the notional amounts of which (when aggregated
with all other Hedge Agreements of the Borrower and the Credit Parties then in
effect effectively converting interest rates from fixed to floating) do not
exceed 50% of the then outstanding principal amount of any Credit Party’s Debt
for borrowed money which bears interest at a fixed rate and (B) Hedge Agreements
effectively converting interest rates from floating to fixed, the notional
amounts of which (when aggregated with all other Hedge Agreements of the
Borrower and the Credit Parties then in effect effectively converting interest
rates from floating to fixed) do not exceed 75% of the then outstanding
principal amount of any Credit Party’s Debt for borrowed money which bears
interest at a floating rate.
 
(b) In no event shall any Hedge Agreement contain any requirement, agreement or
covenant for the Borrower or any Restricted Subsidiary to post collateral or
margin to secure its obligations under such Hedge Agreement or to cover market
exposures, other than collateral or margin not in excess of $2,000,000 for all
Hedge Agreements of the Borrower and the Restricted Subsidiaries at any time to
the extent permitted under Section 9.03(h); provided that this sentence shall
not prevent a Hedge Bank from requiring the obligations under any Hedge
Agreement with the Borrower or any Restricted Subsidiary to be secured by the
Liens granted to the Administrative Agent under the Security Instruments
pursuant to such Security Instruments.
 
(c) In no event shall any Hedge Position Cancellation Event occur if (i) an
Event of Default has occurred and is continuing at the time of such Hedge
Position Cancellation Event and (ii) immediately after giving effect to such
Hedge Position Cancellation Event and any concurrent prepayments of the Loans,
Availability would be less than $5,000,000.
 
 
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Section 9.16 Unrestricted Subsidiaries.
 
(a) Unless designated as an Unrestricted Subsidiary on Schedule 7.14 as of the
date hereof or thereafter, subject to Section 9.16(b), any Person that becomes a
Wholly Owned Subsidiary of the Borrower or any of its Restricted Subsidiaries
shall be classified as a Restricted Subsidiary.
 
(b) The Borrower may designate by written notification thereof to the
Administrative Agent, any Restricted Subsidiary, including a newly formed or
newly acquired Subsidiary, as an Unrestricted Subsidiary if (i) prior, and after
giving effect, to such designation, neither a Default nor a Borrowing Base
Deficiency would exist and (ii) such designation is deemed to be an Investment
in an Unrestricted Subsidiary in an amount equal to the fair market value as of
the date of such designation of the Borrower’s direct and indirect ownership
interest in such Subsidiary and such Investment would be permitted to be made at
the time of such designation under Section 9.05(o).  Except as provided in this
Section 9.16(b), no Restricted Subsidiary may be redesignated as an Unrestricted
Subsidiary.
 
(c) The Borrower may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary if, immediately after giving effect to such designation: (i) the
representations and warranties of the Credit Parties contained in each of the
Loan Documents are true and correct in all material respects on and as of such
date as if made on and as of the date of such redesignation (or, if stated to
have been made expressly as of an earlier date, were true and correct in all
material respects as of such date), (ii) no Default exists and (iii) the
Borrower complies with the requirements of Section 8.13 and Section 8.16.  Any
such designation shall be treated as a cash dividend in an amount equal to the
lesser of (A) the fair market value of the Borrower’s and the Restricted
Subsidiaries’ direct and indirect ownership interest in such Subsidiary and (B)
the amount of the Borrower’s and the Restricted Subsidiaries’ cost basis of
their investment previously made for purposes of the limitation on Investments
under Section 9.05(g)(iii) and/or Section 9.05(o).
 
(d) No Unrestricted Subsidiary shall have any Debt other than Non-Recourse
Debt.  The aggregate principal amount of all Non-Recourse Debt outstanding at
any one time shall not exceed $120,000,000.
 
Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments.  The Borrower
will not, and will not permit any Restricted Subsidiary to, allow gas
imbalances, take-or-pay or other prepayments with respect to the Oil and Gas
Properties of the Borrower or any Restricted Subsidiary that would require the
Borrower or such Restricted Subsidiary to deliver Hydrocarbons at some future
time without then or thereafter receiving full payment therefor to exceed a
volume equal to one-half Bcf of gas (on an Mcf equivalent basis) in the
aggregate.
 
ARTICLE X
Events of Default; Remedies
 
Section 10.01 Events of Default.  One or more of the following events shall
constitute an “Event of Default”:
 
 
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(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof, by acceleration or otherwise.
 
(b) the Borrower shall fail to pay any interest on any Loan or any fee or any
other amount (other than an amount referred to in Section 10.01(a)) payable
under any Loan Document, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of three Business Days.
 
(c) any representation or warranty made or deemed made by or on behalf of the
Borrower or any other Credit Party in or in connection with any Loan Document or
any amendment or modification of any Loan Document or waiver under such Loan
Document, or in any certificate furnished pursuant to or in connection with any
Loan Document, shall prove to have been materially incorrect when made or deemed
made.
 
(d) the Borrower shall fail to observe or perform any covenant, condition or
agreement contained in Section 8.01(l), Section 8.02, Section 8.03 (with respect
to the legal existence of the Borrower or any other Credit Party) or in Article
IX.
 
(e) the Borrower or any other Credit Party shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than those
specified in Section 10.01(a) to (d)) or any other Loan Document, and such
failure shall continue unremedied for a period of 30 days after the earlier to
occur of (A) notice thereof from the Administrative Agent to the Borrower (which
notice will be given at the request of any Lender) or (B) a Responsible Officer
otherwise becoming aware of such default.
 
(f) the Borrower or any other Credit Party shall fail to make any payment (of
principal or interest) in respect of any Material Indebtedness, when and as the
same shall become due and payable, after the expiration of any applicable period
of grace and/or notice and cure.
 
(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
Redemption thereof or any offer to Redeem to be made in respect thereof, prior
to its scheduled maturity or require the Borrower or any other Credit Party to
make an offer in respect thereof; provided that this clause (g) shall not apply
to secured Debt permitted under Section 9.02(g) that becomes due as a result of
the voluntary sale or transfer of the property or assets securing such
Indebtedness.
 
(h) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Borrower or any other Credit Party or its debts, or of a
substantial part of its assets, under any  Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any other Credit Party or for a substantial
part of its assets, and, in any such
 
 
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case, such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be entered.
 
(i) the Borrower or any other Credit Party shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any proceeding or
petition described in Section 10.01(h), (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any other Credit Party or for a substantial
part of its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors or (vi) take any action for the purpose of
effecting any of the foregoing.
 
(j) the Borrower or any other Credit Party shall become unable, admit in writing
its inability or fail generally to pay its debts generally as they become due.
 
(k) (i) one or more judgments for the payment of money in an aggregate amount in
excess of $10,000,000 (to the extent not covered by independent third party
insurance as to which the insurer does not dispute coverage and is not subject
to an insolvency proceeding) or (ii) any one or more non-monetary judgments that
have, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, shall be rendered against any Credit Party and the
same shall remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to attach or levy upon any assets of the Borrower or any
other Credit Party to enforce any such judgment.
 
(l) the Loan Documents after delivery thereof shall for any reason, except to
the extent permitted by the terms thereof, cease to be in full force and effect
and valid, binding and enforceable in accordance with their terms against the
Borrower or a Guarantor party thereto or shall be repudiated by any of them, or
cease to create a valid and perfected Lien of the priority required thereby on
any material portion of the collateral purported to be covered thereby, except
to the extent permitted by the terms of this Agreement, or the Borrower or any
other Credit Party shall so state in writing.
 
(m) a Change in Control shall occur.
 
Section 10.02 Remedies.
 
(a) In the case of an Event of Default other than one described in Section
10.01(h) or Section 10.01(i) at any time thereafter during the continuance of
such Event of Default, the Majority Lenders may, by notice to the Borrower, take
either or both of the following actions, at the same or different times:  (i)
terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Notes and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and the other
obligations of the Borrower and the Guarantors accrued hereunder and under the
Notes and the other Loan Documents then outstanding to be due and payable in
whole (or in
 
 
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part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower and the Guarantors
accrued hereunder and under the Notes and the other Loan Documents (including,
without limitation, the payment of cash collateral to secure the LC Exposure as
provided in Section 2.08(j)), shall become due and payable immediately, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby waived by the
Borrower and each Guarantor; and in case of an Event of Default described in
Section 10.01(h) or Section 10.01(i), the Commitments shall automatically
terminate and the Notes and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and the other obligations of
the Borrower and the Guarantors accrued hereunder and under the Notes and the
other Loan Documents (including, without limitation, the payment of cash
collateral to secure the LC Exposure as provided in Section 2.08(j)), shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower and
each Guarantor.
 
(b) In the case of the occurrence of an Event of Default, the Administrative
Agent and the Lenders will have all other rights and remedies available at law
and equity.
 
(c) Except as otherwise provided in Section 4.03, all proceeds realized from the
liquidation or other disposition of collateral or otherwise received after
maturity of the Notes, whether by acceleration or otherwise, shall be applied:
 
(i) first, to payment or reimbursement of that portion of the Obligations
constituting fees, expenses and indemnities payable to the Administrative Agent
in its capacity as such;
 
(ii) second, pro rata to payment or reimbursement of that portion of the
Obligations constituting fees, expenses and indemnities payable to the Lenders;
 
(iii) third, pro rata to payment of accrued interest on the Loans;
 
(iv) fourth, pro rata to payment of principal outstanding on the Loans,
Obligations referred to in clauses (b) and (c) of the definition of Obligations
and to serve as cash collateral to be held by the Administrative Agent to secure
the LC Exposure;
 
(v) fifth, pro rata to any other Obligations; and
 
(vi) sixth, any excess, after all of the Obligations shall have been
indefeasibly paid in full in cash (other than indemnities and other contingent
obligations not then due and payable and as to which no claim has been made as
of the time of determination), shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.
 
 
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ARTICLE XI
The Agents
 
Section 11.01 Appointment; Powers.  Each of the Lenders and the Issuing Bank
hereby irrevocably appoints the Administrative Agent as its agent and authorizes
the Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms hereof and the
other Loan Documents, together with such actions and powers as are reasonably
incidental thereto.
 
Section 11.02 Duties and Obligations of Administrative Agent.  The
Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents.  Without limiting the generality of
the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing (the use of the term “agent” herein and in the other Loan
Documents with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any other Credit Party that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity.  The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or under any other Loan Document or in connection herewith
or therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in Article VI or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent or as to those conditions precedent
expressly required to be to the Administrative Agent’s satisfaction, (vi) the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower and the Credit Parties or any other
obligor or guarantor, or (vii) any failure by the Borrower or any other Person
(other than itself) to perform any of its obligations hereunder or under any
other Loan Document or the performance or observance of any covenants,
agreements or other terms or conditions set forth herein or therein.  For
purposes of determining compliance with the conditions specified in Article VI,
each Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the
Administrative Agent shall have received written notice from such Lender prior
to the proposed closing date specifying its objection thereto.
 
 
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Section 11.03 Action by Administrative Agent.  The Administrative Agent shall
have no duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Majority Lenders, the Required Lenders or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02; and in all cases the Administrative
Agent shall be fully justified in failing or refusing to act hereunder or under
any other Loan Documents unless it shall (a) receive written instructions from
the Majority Lenders, the Required Lenders or the Lenders, as applicable (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02) specifying the action to be taken
and (b) be indemnified to its satisfaction by the Lenders against any and all
liability and expenses which may be incurred by it by reason of taking or
continuing to take any such action.  The instructions as aforesaid and any
action taken or failure to act pursuant thereto by the Administrative Agent
shall be binding on all of the Lenders.  If a Default has occurred and is
continuing, then the Administrative Agent shall take such action with respect to
such Default as shall be directed by the requisite Lenders in the written
instructions (with indemnities) described in this Section 11.03, provided that,
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default as it shall
deem advisable in the best interests of the Lenders.  In no event, however,
shall the Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement, the other Loan Documents or applicable law.  If a Default has
occurred and is continuing, neither the Co-Syndication Agents nor the
Co-Documentation Agents shall have any obligation to perform any act in respect
thereof.  The Administrative Agent shall not be liable for any action taken or
not taken by it with the consent or at the request of the Majority Lenders, the
Required Lenders or the Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
12.02), and otherwise the Administrative Agent shall not be liable for any
action taken or not taken by it hereunder or under any other Loan Document or
under any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY
NEGLIGENCE, except for its own gross negligence or willful misconduct.
 
Section 11.04 Reliance by Administrative Agent.  The Administrative Agent shall
be entitled to rely upon, and shall not incur any liability for relying upon,
any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by
the proper Person.  The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Borrower, the Lenders and the Issuing Bank hereby waives the right to dispute
the Administrative Agent’s record of such statement, except in the case of gross
negligence or willful misconduct by the Administrative Agent.  The
Administrative Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in good faith in
accordance with the advice of any such counsel, accountants or experts.  The
Administrative Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the
 
 
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assignment or transfer thereof permitted hereunder shall have been filed with
the Administrative Agent.
 
Section 11.05 Subagents.  The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties.  The exculpatory provisions
of the preceding Sections of this Article XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
 
Section 11.06 Resignation or Removal of Administrative Agent.  Subject to the
appointment and acceptance of a successor Administrative Agent as provided in
this Section 11.06, the Administrative Agent may resign at any time by giving
the Lenders, the Issuing Bank and the Borrower at least 30 days prior written
notice, and the Administrative Agent may be removed at any time with or without
cause by the Required Lenders.  Upon any such resignation or removal, the
Majority Lenders shall have the right, in consultation and with the consent of
the Borrower, to appoint a successor.  If no successor shall have been so
appointed by the Majority Lenders and shall have accepted such appointment
within 30 days after the retiring Administrative Agent gives notice of its
resignation or the removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Bank, appoint a successor Administrative Agent.  Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder.  The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor.  After the Administrative Agent’s resignation hereunder, the
provisions of this Article XI and Section 12.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
 
Section 11.07 Agents as Lenders.  Each bank serving as an Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not an Agent, and such bank and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any other Credit Party or other Affiliate
thereof as if it were not an Agent hereunder.
 
Section 11.08 No Reliance.  Each Lender acknowledges that it has, independently
and without reliance upon the Administrative Agent, any other Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement and each
other Loan Document to which it is a party.  Each Lender also acknowledges that
it will, independently and without reliance upon the Administrative Agent, any
other Agent or any other Lender and based on such documents and information as
it shall from time to time deem appropriate, continue to make its own decisions
in taking or not taking action under or based upon this Agreement, any other
Loan Document, any
 
 
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related agreement or any document furnished hereunder or thereunder.  The Agents
shall not be required to keep themselves informed as to the performance or
observance by the Borrower or any other Credit Party of this Agreement, the Loan
Documents or any other document referred to or provided for herein or to inspect
the Properties or books of any Credit Party.  Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Administrative Agent hereunder, no Agent or the Arranger shall
have any duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of the
Borrower or any other Credit Party (or any of their Affiliates) which may come
into the possession of such Agent or any of its Affiliates.  In this regard,
each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this
transaction as special counsel to the Administrative Agent only, except to the
extent otherwise expressly stated in any legal opinion or any Loan
Document.  Each other party hereto will consult with its own legal counsel at
its own cost.
 
Section 11.09 Administrative Agent May File Proofs of Claim.  In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Borrower or any other Credit Party, the
Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on
the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
 
(a) to file and prove a claim for the whole amount of the principal and interest
owing and unpaid in respect of the Loans and all other Obligations that are
owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
and
 
(b) to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;
 
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.
 
Nothing contained herein shall be deemed to authorize the Administrative Agent
to authorize or consent to or accept or adopt on behalf of any Lender any plan
of reorganization, arrangement, adjustment or composition affecting the
Obligations or the rights of any Lender or to authorize the Administrative Agent
to vote in respect of the claim of any Lender in any such proceeding.
 
 
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Section 11.10 Authority of Administrative Agent to Release Collateral and
Liens.  Each Lender, the Issuing Bank and each other Secured Party (by its
acceptance of the benefits of any Lien encumbering the Mortgaged Property)
hereby authorizes the Administrative Agent to release any collateral that is
permitted to be sold or released pursuant to the terms of the Loan
Documents.  Each Lender, the Issuing Bank and each other Secured Party (by its
acceptance of the benefits of any Lien encumbering the Mortgaged Property)
hereby authorizes the Administrative Agent to execute and deliver to the
Borrower, at the Borrower’s sole cost and expense, any and all releases of
Liens, termination statements, assignments or other documents reasonably
requested by the Borrower in connection with any sale or other disposition of
Property to the extent such sale or other disposition is permitted by the terms
of Section 9.11 or is otherwise authorized by the terms of the Loan
Documents.  Upon the request of the Administrative Agent at any time, the
Secured Parties will confirm in writing the Administrative Agent’s authority to
release particular types or items of Collateral pursuant to this Section 11.10.
 
Section 11.11 The Arranger, the Co-Syndication Agents and the Co-Documentation
Agents.  The Arranger, the Co-Syndication Agents and the Co-Documentation Agents
shall have no duties, responsibilities or liabilities under this Agreement and
the other Loan Documents other than their duties, responsibilities and
liabilities in their capacity as Lenders hereunder.
 
ARTICLE XII
Miscellaneous
 
Section 12.01 Notices.
 
(a) Except in the case of notices and other communications expressly permitted
to be given by telephone (and subject to Section 12.01(b)), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy (and, in the case of telecopy, followed by
an electronic mail message), as follows:
 
(i)  if to the Borrower or any Credit Party, to it at 1000 Louisiana Street,
Suite 1500, Houston, Texas 77002; Attention: Chief Financial Officer;
Fax:  (713) 328-1049; E-mail: paul.boling@crzo.net; with a copy to the Law
Department of the Borrower; Attention: General Counsel; Fax: (713) 328-1035;
E-mail: gerry.morton@crzo.net;
 
(ii) if to the Administrative Agent or to BNP, as the Issuing Bank, to it at 525
Washington Blvd., Loan Servicing – 8th Floor, Jersey City, New Jersey 07310,
Attention: Dina Wilson (Fax: (201) 850—4020, email:
agency.ls.support@americas.bnpparibas.com), with a copy to 1200 Smith Street,
Suite 3100, Houston, TX 77002; Attention: John Clark (email:
john.clark@americas.bnpparibas.com); and
 
(iii) if to any other Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
 
(b) Notices and other communications to the Lenders hereunder may be delivered
or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices
pursuant to Article II, Article III, Article IV and Article V unless otherwise
agreed by the Administrative Agent
 
 
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and the applicable Lender.  The Administrative Agent or the Borrower may, in its
discretion, agree to accept notices and other communications to it hereunder by
electronic communications pursuant to procedures approved by it; provided that
approval of such procedures may be limited to particular notices or
communications.
 
(c) Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto.  All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
 
Section 12.02 Waivers; Amendments.
 
(a) No failure on the part of the Administrative Agent, the Issuing Bank or any
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege, or any abandonment or discontinuance
of steps to enforce such right, power or privilege, under any of the Loan
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under any of the Loan Documents
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.  The rights and remedies of the Administrative Agent,
the Issuing Bank and the Lenders hereunder and under the other Loan Documents
are cumulative and are not exclusive of any rights or remedies that they would
otherwise have.  No waiver of any provision of this Agreement or any other Loan
Document or consent to any departure by the any Credit Party therefrom shall in
any event be effective unless the same shall be permitted by Section 12.02(b),
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.
 
(b) Neither this Agreement nor any provision hereof nor any Security Instrument
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Majority Lenders or by the Borrower and the Administrative Agent with the
consent of the Majority Lenders; provided that no such agreement shall (1)
increase the Commitment or the Maximum Credit Amount of any Lender without the
written consent of such Lender, (2) increase the Borrowing Base without the
written consent of each Lender, decrease or affirm at the existing amount the
Borrowing Base without the consent of the Required Lenders, or modify Section
2.07 or 3.04(c) in any manner adverse to the Lenders without the consent of each
Lender; provided that a Scheduled Redetermination may be postponed by the
Required Lenders, (3) reduce the principal amount of any Loan or LC Disbursement
or reduce the rate of interest thereon, or reduce any fees payable hereunder, or
reduce any other Obligations hereunder or under any other Loan Document, without
the written consent of each Lender affected thereby, (4) postpone the scheduled
date of payment or prepayment of the principal amount of any Loan or LC
Disbursement, or any interest thereon, or any fees payable hereunder, or any
other Obligations hereunder or under any other Loan Document, or reduce the
amount of, waive or excuse any such payment, or postpone or extend the Maturity
Date without the written consent of each Lender affected thereby, (5) change
Section 4.01(b), 4.01(c) or 10.02(c) in any manner
 
 
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that would alter the pro rata sharing of payments required thereby in a manner
adverse to any Lender without the written consent of such Lender, (6) waive or
amend Section 6.01 without the written consent of each Lender, (7) modify clause
(b) of the definition of Obligations, Section 10.02(c), Sections 12.02(b)(7),
Section 12.02(b)(9) or Section 12.13 without the consent of each Lender
adversely affected thereby and the consent of each Person that is adversely
affected thereby and a party to a Hedge Agreement secured by the Security
Instruments which is not a Lender (or an Affiliate of a Lender) at the time of
such agreement, (8) change any of the provisions of this Section 12.02(b) or the
definitions of “Required Lenders” or “Majority Lenders” or any other provision
hereof specifying the number or percentage of Lenders required to waive, amend
or modify any rights hereunder or under any other Loan Documents or make any
determination or grant any consent hereunder or any other Loan Documents,
without the written consent of each Lender, (9) amend or otherwise modify any
Security Instrument in a manner that results in the Obligations owed to any
Person under any Hedge Agreement secured by such Security Instrument no longer
being secured thereby, without the written consent of such Person, or (10)
release any Guarantor (except as set forth in the Guaranty Agreement) or release
all or a substantial portion of the Mortgaged Properties (other than as provided
in Section 11.10) without the written consent of all Lenders; provided further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent, any other Agent, or the Issuing Bank
hereunder or under any other Loan Document without the prior written consent of
the Administrative Agent, such other Agent or the Issuing Bank, as the case may
be.  Notwithstanding the foregoing, so long as each designation of an
Unrestricted Subsidiary set forth therein complies with this Agreement, any
supplement to Schedule 7.14 (Subsidiaries) shall be effective simply by
delivering to the Administrative Agent a supplemental schedule clearly marked as
such and, upon receipt, the Administrative Agent will promptly deliver a copy
thereof to the Lenders.
 
Section 12.03 Expenses, Indemnity; Damage Waiver.
 
                      (a)           The Borrower shall pay (i) all reasonable
out-of-pocket expenses incurred by the Administrative Agent, the Arranger and
their Affiliates, including, without limitation, the reasonable fees, charges
and disbursements of counsel and other outside consultants for the
Administrative Agent, the reasonable travel, photocopy, mailing, courier,
telephone and other similar expenses, and the cost of environmental invasive and
non-invasive assessments and audits and surveys and appraisals, in connection
with the syndication of the credit facilities provided for herein, the
preparation, negotiation, execution, delivery and administration (both before
and after the execution hereof and including advice of counsel to the
Administrative Agent as to the rights and duties of the Administrative Agent and
the Lenders with respect thereto) of this Agreement and the other Loan Documents
and any amendments, modifications or waivers of or consents related to the
provisions hereof or thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all costs, expenses, Taxes,
assessments and other charges incurred by any Agent or any Lender in connection
with any filing, registration, recording or perfection of any security interest
contemplated by this Agreement or any Security Instrument or any other document
referred to therein, (iii) all reasonable out-of-pocket expenses incurred by the
Issuing Bank in connection with the issuance, amendment, renewal or extension of
any Letter of Credit or any demand for payment thereunder, (iv) all
out-of-pocket expenses incurred by the Administrative Agent (and its Affiliates)
and the Lenders (including (A) the fees, charges and disbursements of counsel to
the Administrative
 
 
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Agent and (B) the fees, charges and disbursements of one primary counsel to the
Lenders as a group (plus no more than one additional counsel in each
jurisdiction that is relevant to such enforcement or protection of rights)) in
connection with this Agreement or any other Loan Document or in connection with
the Loans made or Letters of Credit issued hereunder, including, without
limitation, all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans or Letters of Credit.

(b) THE BORROWER SHALL INDEMNIFY EACH AGENT, THE ARRANGER, THE ISSUING BANK AND
EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH
PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND DEFEND AND HOLD EACH
INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, PENALTIES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE REASONABLE AND CUSTOMARY FEES,
CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY ANY
INDEMNITEE (INCLUDING ANY CLAIM, LITIGATION OR PROCEEDING INITIATED BY THE
BORROWER, OR ANY OF ITS AFFILIATES) ARISING OUT OF, IN CONNECTION WITH, OR AS A
RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE
PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF
THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE
OF THE BORROWER OR ANY OTHER CREDIT PARTY TO COMPLY WITH THE TERMS OF ANY LOAN
DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iii)
ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT
OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv)
ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, (v) THE
OPERATIONS OF THE BUSINESS OF THE BORROWER AND THE CREDIT PARTIES BY THE
BORROWER AND THE CREDIT PARTIES, (vi) ANY ASSERTION THAT THE LENDERS WERE NOT
ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS,
(vii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY OTHER CREDIT PARTY
OR ANY OF THEIR PROPERTIES OR OPERATIONS, INCLUDING, THE PRESENCE, GENERATION,
STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF
DISPOSAL OR TREATMENT OF HAZARDOUS MATERIALS ON OR AT ANY OF THEIR PROPERTIES,
(viii) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY OTHER CREDIT PARTY
WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY OTHER CREDIT PARTY,
(ix) THE PAST OWNERSHIP BY THE BORROWER OR ANY OTHER CREDIT PARTY OF ANY OF
THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH
LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (x)
THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED
RELEASE, TRANSPORT,

 
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ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF HAZARDOUS MATERIALS ON
OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY OTHER
CREDIT PARTY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS
ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OTHER CREDIT
PARTY, (xi) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR
ANY OTHER CREDIT PARTY, OR (xii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY
CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiii) ANY ACTUAL OR
PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF
THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING ALL TYPES OF NEGLIGENT
CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR
MORE OF THE INDEMNITEES; PROVIDED THAT THE INDEMNITY SET FORTH HEREIN SHALL NOT,
AS TO ANY INDEMNITEE, BE AVAILABLE TO SUCH INDEMNITEE TO THE EXTENT THAT SUCH
LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A
COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR THE BAD FAITH BREACH OF SUCH
INDEMNITEE’S OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT; AND
PROVIDED FURTHER THAT THE INDEMNITY SET FORTH HEREIN SHALL NOT APPLY TO DISPUTES
BETWEEN LENDERS UNLESS SUCH DISPUTE RESULTS FROM THE EXISTENCE OF A BREACH OF
ANY LOAN DOCUMENT BY A CREDIT PARTY.  WITH RESPECT TO THE OBLIGATION TO
REIMBURSE AN INDEMNITEE FOR FEES, CHARGES AND DISBURSEMENTS OF COUNSEL, EACH
INDEMNITEE AGREES THAT ALL INDEMNITEES WILL AS A GROUP UTILIZE ONE PRIMARY
COUNSEL (PLUS NO MORE THAN ONE ADDITIONAL COUNSEL IN EACH JURISDICTION WHERE A
PROCEEDING THAT IS THE SUBJECT MATTER OF THE INDEMNITY IS LOCATED) UNLESS (1)
THERE IS A CONFLICT OF INTEREST AMONG INDEMNITEES, (2) DEFENSES OR CLAIMS EXIST
WITH RESPECT TO ONE OR MORE INDEMNITEES THAT ARE NOT AVAILABLE TO ONE OR MORE
OTHER INDEMNITEES OR (3) SPECIAL COUNSEL IS REQUIRED TO BE RETAINED AND THE
BORROWER CONSENTS TO SUCH RETENTION.
 
(c) To the extent that the Borrower fails to pay any amount required to be paid
by it to the Administrative Agent, the Arranger or the Issuing Bank under
Section 12.03(a) or (b), each Lender severally agrees to pay to the
Administrative Agent, the Arranger or the Issuing Bank, as the case may be, such
Lender’s Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability
 
 
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or related expense, as the case may be, was incurred by or asserted against the
Administrative Agent, the Arranger or the Issuing Bank in its capacity as such.
 
(d) To the extent permitted by applicable law, neither any party hereto nor any
of their respective directors, officers, employees and agents shall assert, and
each hereby waives, any claim against any other such Person, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement, any other Loan Document or any agreement or instrument
contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit
or the use of the proceeds thereof.
 
(e) All amounts due under this Section 12.03 shall be payable promptly after
written demand therefor attaching the relevant invoices and/or a certificate, in
each case setting forth the basis for such demand in reasonable detail.
 
Section 12.04 Successors and Assigns.
 
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer without such
consent shall be null and void), (ii) no Lender may assign or otherwise transfer
its rights or obligations hereunder except in accordance with this Section 12.04
or as required under Section 5.04 and (iii) no Lender may assign to the Borrower
or to an Affiliate of the Borrower all or any portion of such Lender’s rights
and obligations under the Agreement or all or any portion of its Commitments or
the Loans owing to it hereunder. Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), Participants
(to the extent provided in Section 12.04(c)) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent,
the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim
under or by reason of this Agreement.
 
(b) (i) Subject to the conditions set forth in Section 12.04(b)(ii), any Lender
may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) with the prior written consent (such
consent not to be unreasonably withheld) of:
 
(A) the Borrower, provided that no consent of the Borrower shall be required if
such assignment is to a Lender, an Affiliate of a Lender, an Approved Fund or,
if an Event of Default has occurred and is continuing, to any other assignee;
and
 
(B) the Administrative Agent, provided that no consent of the Administrative
Agent shall be required for an assignment to an assignee that is a Lender
immediately prior to giving effect to such assignment.
 
 
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(ii) Assignments shall be subject to the following additional conditions:
 
(A) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender’s
Commitment or Loans, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, provided that no such
consent of the Borrower shall be required if an Event of Default has occurred
and is continuing;
 
(B) each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender’s rights and obligations under this Agreement;
 
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500; and
 
(D) if the assignee is not a Lender prior to such assignment, it shall deliver
to the Administrative Agent an Administrative Questionnaire.
 
(iii) Subject to Section 12.04(b)(iv) and the acceptance and recording thereof,
from and after the effective date specified in each Assignment and Assumption,
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Section 5.01,
Section 5.02, Section 5.03 and Section 12.03 as to events occurring within the
stated timeframes and prior to such assignment).  Any assignment or transfer by
a Lender of rights or obligations under this Agreement that does not comply with
this Section 12.04 shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
Section 12.04(c).
 
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Maximum Credit Amount of, and principal amount
of the Loans and LC Disbursements owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”).  The entries in the Register shall be
conclusive (absent manifest error), and the Borrower, the Administrative Agent,
the Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary.  The Register shall
be available for inspection by the Borrower, the Issuing Bank and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.  In
connection with any changes to the Register, if
 
 
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necessary, the Administrative Agent will reflect the revisions on Annex I and
forward a copy of such revised Annex I to the Borrower, the Issuing Bank and
each Lender.
 
(v) Upon its receipt of a duly completed Assignment and Assumption executed by
an assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in Section 12.04(b) and any written
consent to such assignment required by Section 12.04(b), the Administrative
Agent shall accept such Assignment and Assumption and record the information
contained therein in the Register.  No assignment shall be effective for
purposes of this Agreement unless it has been recorded in the Register as
provided in this Section 12.04(b).
 
(c) 
 
(i) Any Lender may, without the consent of the Borrower, the Administrative
Agent or the Issuing Bank, sell participations to one or more banks or other
entities (a “Participant”) in all or a portion of such Lender’s rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (A) such Lender’s obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrower, the Administrative Agent, the Issuing Bank and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement.  Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
12.02(b) that affects such Participant.  In addition, each agreement or
instrument creating any participation must include an agreement by the
Participant to be bound by the provisions of Section 12.11.  Subject to Section
12.04(c)(ii), the Borrower agrees that each Participant shall be entitled to the
benefits of Section 5.01 and Section 5.03 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to Section 12.04(a).
 
(ii) A Participant shall not be entitled to receive any greater payment under
Section 5.01 or Section 5.03 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower’s
prior written consent.  The Borrower shall be notified of each participation
sold to a Participant, and each Participant shall comply with Sections 5.03(e)
and 5.03(f) as though it were a Lender.  A Participant that fails to comply with
the preceding sentence shall not be entitled to any of the benefits of Section
5.03.
 
(d) Any Lender may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement to secure obligations of such
Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply
to any such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender
 
 
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from any of its obligations hereunder or substitute any such pledgee or assignee
for such Lender as a party hereto.
 
(e) Notwithstanding any other provisions of this Section 12.04, no transfer or
assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would require the Borrower or any of the Guarantors to file a registration
statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any
state.
 
Section 12.05 Survival; Revival; Reinstatement.
 
(a) All covenants, agreements, representations and warranties made by any Credit
Party herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit, regardless of any investigation made by
any such other party or on its behalf and notwithstanding that the
Administrative Agent, the Issuing Bank or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding and so long as the Commitments have not expired
or terminated.  The provisions of Section 5.01, Section 5.02, Section 5.03 and
Section 12.03 and Article XI shall survive and remain in full force and effect
regardless of the consummation of the transactions contemplated hereby, the
repayment of the Loans, the expiration or termination of the Letters of Credit
and the Commitments or the termination of this Agreement, any other Loan
Document or any provision hereof or thereof.
 
(b) To the extent that any payments on the Obligations or proceeds of any
collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent’s and the Lenders’ Liens, security interests, rights,
powers and remedies under this Agreement and each Loan Document shall continue
in full force and effect.  In such event, each Loan Document shall be
automatically reinstated and each Credit Party shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.
 
Section 12.06 Counterparts; Integration; Effectiveness.
 
(a) This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.
 
(b) This Agreement, the other Loan Documents and any separate letter agreements
with respect to fees payable to the Administrative Agent constitute the entire
 
 
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contract among the parties relating to the subject matter hereof and thereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof and thereof.  THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
 
(c) Except as provided in Section 6.01, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.  Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective
as delivery of a manually executed counterpart of this Agreement.
 
Section 12.07 Severability.  Any provision of this Agreement or any other Loan
Document held to be invalid, illegal or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
 
Section 12.08 Right of Setoff.  If an Event of Default shall have occurred and
be continuing, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other obligations (of whatsoever kind, including, without limitations
obligations under Hedge Agreements) at any time owing by such Lender to or for
the credit or the account of the Borrower or any other Credit Party against any
of and all the obligations of the Borrower or any other Credit Party owed to
such Lender now or hereafter existing under this Agreement or any other Loan
Document, irrespective of whether or not such Lender shall have made any demand
under this Agreement or any other Loan Document and although such obligations
may be unmatured.  Each Lender agrees to promptly notify the Borrower and the
Administrative Agent after any such setoff and application, provided that the
failure to give such notice shall not affect the validity of such setoff and
application.  The rights of each Lender under this Section 12.08 are in addition
to other rights and remedies (including other rights of setoff) which such
Lender may have.
 
Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
 
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED
STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE
OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER
IS
 
 
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LOCATED.  CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY
TO THIS AGREEMENT OR THE NOTES.
 
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY
LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT
PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT
OTHERWISE HAVING JURISDICTION.
 
(c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS
SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO
SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME
EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE
RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANOTHER PARTY IN ANY OTHER JURISDICTION.
 
(d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.
 
 
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Section 12.10 Headings.  Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
 
Section 12.11 Confidentiality.  Each of the Administrative Agent, the Issuing
Bank and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its and its
Affiliates’ directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority (and in connection therewith, to
the extent permitted by applicable law or such regulatory authority, the
disclosing Person agrees to inform the Borrower of such disclosure or pending
disclosure), (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process (and in connection therewith, to the
extent permitted by applicable law or such legal process, the disclosing Person
agrees to inform the Borrower of such disclosure or pending disclosure), (d) to
any other party to this Agreement or any other Loan Document, (e) in connection
with the exercise of any remedies hereunder or under any other Loan Document or
any suit, action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this Section
12.11, to (i) any assignee of or Participant in, or any prospective assignee of
or Participant in, any of its rights or obligations under this Agreement, (ii)
any actual or prospective counterparty (or its advisors) to any Hedge Agreement
relating to any Credit Party and its obligations or (iii) any credit insurance
provider relating to the Borrower and its obligations under the Loan Documents,
(g) with the consent of the Borrower or (h) to the extent such Information (i)
becomes publicly available other than as a result of a breach of this Section
12.11 or (ii) becomes available to the Administrative Agent, the Issuing Bank or
any Lender on a nonconfidential basis from a source other than the Borrower or
any Credit Party.  For the purposes of this Section 12.11, “Information” means
all information received from the Borrower or any Subsidiary relating to the
Borrower or any Subsidiary or the business of the Borrower or any Subsidiary,
other than any such information that is available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by
the Borrower or any Subsidiary.  Any Person required to maintain the
confidentiality of Information as provided in this Section 12.11 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
 
Section 12.12 Interest Rate Limitation.  It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to
it.  Accordingly, if the transactions contemplated hereby would be usurious as
to any Lender under laws applicable to it (including the laws of the United
States of America and the State of Texas or any other jurisdiction whose laws
may be mandatorily applicable to such Lender notwithstanding the other
provisions of this Agreement), then, in that event, notwithstanding anything to
the contrary in any of the Loan Documents or any agreement entered into in
connection with or as security for the Notes, it is agreed as follows:  (i) the
aggregate of all consideration which constitutes interest under law applicable
to any Lender that is contracted for, taken, reserved, charged or received by
such Lender under any of the Loan Documents or agreements or otherwise in
connection with the
 
 
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Notes shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Obligations (or, to the extent that the principal amount of the Obligations
shall have been or would thereby be paid in full (other than indemnities and
other contingent obligations not then due and payable and as to which no claim
has been made as of the time of determination), refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Obligations (or, to the
extent that the principal amount of the Obligations shall have been or would
thereby be paid in full (other than indemnities and other contingent obligations
not then due and payable and as to which no claim has been made as of the time
of determination), refunded by such Lender to the Borrower).  All sums paid or
agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the stated term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law.  If at any time and from time to time (i) the
amount of interest payable to any Lender on any date shall be computed at the
Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.12.  To the extent that Chapter 303 of
the Texas Finance Code is relevant for the purpose of determining the Highest
Lawful Rate applicable to a Lender, such Lender elects to determine the
applicable rate ceiling under such Chapter by the weekly ceiling from time to
time in effect.  Chapter 346 of the Texas Finance Code does not apply to the
Borrower’s obligations hereunder.
 
Section 12.13  Collateral Matters; Hedge Agreements.  The benefit of the
Security Instruments and of the provisions of this Agreement relating to any
collateral securing the Obligations shall also extend to and be available on a
pro rata basis to Hedge Banks in respect of any Obligations of the type
described in clause (b) of the definition thereof (after giving effect to all
netting arrangements relating to the Hedge Agreements giving rise to such
Obligations) and to the Lenders and their respective Affiliates in respect of
any Obligations of the type described in clause (c) of the definition
thereof.  Except as set forth in Section 12.02(b)(7), no Person shall have any
voting rights under any Loan Document as a result of the existence of
obligations owed to it under any Hedge Agreements or any Treasury Management
Agreements.
 
 
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Section 12.14 No Third Party Beneficiaries.  This Agreement and the other Loan
Documents, and the agreement of the Lenders to make Loans and the Issuing Bank
to issue, amend, renew or extend Letters of Credit hereunder, are solely for the
benefit of the Borrower, and no other Person (including, without limitation, any
contractor, subcontractor, supplier or materialsman) shall have any rights,
claims, remedies or privileges hereunder or under any other Loan Document
against the Administrative Agent, any other Agent, the Issuing Bank or any
Lender for any reason whatsoever.  There are no third party beneficiaries.
 
Section 12.15 USA Patriot Act Notice.  Each Lender hereby notifies the Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the “Act”), it is required to
obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.
 
Section 12.16 EXCULPATION PROVISIONS.  EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT
AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS
AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS
ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT
IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF
THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”
 

 
[SIGNATURES BEGIN NEXT PAGE]
 

 
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The parties hereto have caused this Agreement to be duly executed as of the day
and year first above written.
 

 

BORROWER:
CARRIZO OIL & GAS, INC.

 
By:
/s/ Paul F. Boling   

 
Paul F. Boling

 
 
Chief Financial Officer, Vice President,
Secretary and Treasurer

[Signature Page- Credit Agreement]
 
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ADMINISTRATIVE AGENT:
BNP PARIBAS

 
By:
/s/ Greg Smothers
 

 
Name:  Greg Smothers

 
Title:
Director

 
By:
/s/ Betsy Jocher
 

 
Name:  Betsy Jocher

 
Title:
Director

[Signature Page- Credit Agreement]
 
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CO-SYNDICATION AGENTS:
CREDIT AGRICOLE CORPORATE AND
INVESTMENT BANK, as Co-Syndication Agent

 

 
By:
/s/ Tom Byargeon   

 
Name:  Tom Byargeon

 
Title:
Managing Director

 
By:
/s/ Sharada Manne   

 
Name:  Sharada Manne

 
Title:
Director

 
 

 
[Signature Page- Credit Agreement]
 
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ROYAL BANK OF CANADA, as Co-Syndication Agent
 

 

 
By:
 /s/ Jason York

 
Name:  Jason York

 
Title:
Authorized Signatory

[Signature Page- Credit Agreement]
 
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CO-DOCUMENTATION AGENTS:
CAPITAL ONE, N.A., as Co-Documentation Agent

 

 
By:
 /s/ Eric Broussard 

 
Name:  Eric Broussard

 
Title:
Senior Vice President

[Signature Page- Credit Agreement]
 
5

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Index

 
COMPASS BANK, as Co-Documentation Agent

 

 
By:
 /s/ Kathleen J. Bowen 

 
Name:  Kathleen J. Bowen

 
Title:
Senior Vice President

[Signature Page- Credit Agreement]
 
6

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Index

 

LENDERS:   
BNP PARIBAS, as a Lender

 

 
By:
/s/ Greg Smothers  

 
Name:  Greg Smothers

 
Title:
Director

 
By:
/s/ Betsy Jocher  

 
Name:  Betsy Jocher

 
Title:
Director

 
                                                             

[Signature Page- Credit Agreement]
 
7

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Index

 

CO-SYNDICATION AGENTS:
CREDIT AGRICOLE CORPORATE AND
INVESTMENT BANK, as a Lender

 

 
By:
/s/ Tom Byargeon   

 
Name:  Tom Byargeon

 
Title:
Managing Director

 
By:
/s/ Sharada Manne   

 
Name:  Sharada Manne

 
Title:
Director

 
 
 
 
[Signature Page- Credit Agreement]
 
8

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Index

 
ROYAL BANK OF CANADA, as a Lender

 

 
By:
 /s/ Jason York

 
Name:  Jason York

 
Title:
Authorized Signatory

 

[Signature Page- Credit Agreement]
 
9

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Index

 
CAPITAL ONE, N.A., as a Lender

 

 
By:
 /s/ Eric Broussard 

 
Name:  Eric Broussard

 
Title:
Senior Vice President

[Signature Page- Credit Agreement]
 
10

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Index

 
COMPASS BANK, as a Lender

 

 
By:
 /s/ Kathleen J. Bowen 

 
Name:  Kathleen J. Bowen

 
Title:
Senior Vice President

[Signature Page- Credit Agreement]
 
11

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Index

 
REGIONS BANK, as a Lender

 

 
By:       /s/ Kelly L. Elmore III

 
Name:  Kelly L. Elmore III

 
Title:
Senior Vice President

 
[Signature Page- Credit Agreement]
 
12

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Index

 
UNION BANK, N.A. , as a Lender

 

 
By:       /s/ Damien Meiburger 

 
Name:  Damien Meiburger

 
Title:
Senior Vice President

 
 

 
[Signature Page- Credit Agreement]
 
13

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Index

 
SOCIETE GENERALE, as a Lender

 

 
By:       /s/ David M. Bornstein 

 
Name:  David M. Bornstein

 
Title:
Director

 
 
    

[Signature Page- Credit Agreement]
 
14

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Index

 

 
CREDIT SUISSE AG, CAYMAN ISLANDS
BRANCH, as a Lender

 

 
By:
/s/ Robert Hetu      

 
Name:  Robert Hetu

 
Title:
Managing Director

 

 
By:
/s/ Vipul Dhadda   

 
Name:  Vipul Dhadda

 
Title:
Associate

 
 
              

[Signature Page- Credit Agreement]
 
15

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Index

ANNEX I
 
LIST OF MAXIMUM CREDIT AMOUNTS
 
Name of Lender
Applicable Percentage
Maximum Credit Amount
BNP Paribas
13.1%
$ 98,571,428.57
Credit Agricole Corporate and Investment Bank
12.6%
$ 94,285,714.29
Royal Bank of Canada
12.6%
$ 94,285,714.29
Capital One, N.A.
12.6%
$ 94,285,714.29
Compass Bank
12.6%
$ 94,285,714.29
Regions Bank
9.1%
$ 68,571,428.57
Union Bank, N.A.
9.1%
$ 68,571,428.57
Societe Generale
9.1%
$ 68,571,428.57
Credit Suisse AG, Cayman Islands Branch
9.1%
$ 68,571,428.57
     
TOTAL
100.00%
$750,000,000.00

 

 
 

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