Document:

exhibit10_1.htm

    

      
        
           

        

        
           

          
          

        

        
          
            

            

          

           

          
            

            

            CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
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      EXHIBIT 10.1

       

      

      RESTRUCTURING
SUPPORT AND FORBEARANCE AGREEMENT

      

      BY
AND AMONG

      

      TABERNA
CAPITAL MANAGEMENT LLC,

       

      THE
BANK OF NEW YORK MELLON TRUST COMPANY, N.A., AS SUCCESSOR TO JP MORGAN CHASE
BANK, NATIONAL ASSOCIATION, AS TRUSTEE,

       

      HOLDERS
OF THE AFFILIATE DEBT,

       

      AND

       

      TARRAGON
CORPORATION

       

      

       

      DATED:  OCTOBER
30, 2008

       

      

      

      
        
           

        

        
           

          
          

          
            

            

          

        

        
           

          
            CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

            

          

        

      

      RESTRUCTURING
SUPPORT AND FORBEARANCE AGREEMENT

      

      

      This
Restructuring Support and Forbearance Agreement (this “Agreement”) dated as
of October 30, 2008, is entered into by and among TABERNA CAPITAL MANAGEMENT
LLC, a Delaware limited liability company (“Taberna”), as
collateral manager for the benefit of TABERNA PREFERRED FUNDING II, LTD.,
TABERNA PREFERRED FUNDING III, LTD., TABERNA PREFERRED FUNDING IV, LTD., TABERNA
PREFERRED FUNDING V, LTD. AND TABERNA PREFERRED FUNDING VI,
LTD.  (collectively, the “Taberna Debt
Holders”), THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL
ASSOCIATION (“BNY”), as successor to JP Morgan Chase Bank, National Association,
as Trustee under those certain subordinated unsecured notes issued pursuant to
the subordinated indentures between Tarragon Corporation and BNY dated as of
June 15, 2005, September 12, 2005, and March 1, 2006 (as amended, extended,
supplemented, increased, consolidated, renewed or otherwise modified or replaced
from time to time), ROBERT ROTHENBERG and BEACHWOLD PARTNERS, L.P., a Texas
Limited Partnership and TARRAGON CORPORATION, a Nevada corporation (“Tarragon”).  Capitalized
terms used herein and not defined herein shall have the meaning ascribed to them
in Section 17.

       

      RECITALS

       

      A. Tarragon
is a developer, owner and manager of real estate.

       

      B. The
Taberna Debt Holders own, in the aggregate, $125,000,000 (One Hundred Twenty
Five Million Dollars) principal amount of promissory notes of Tarragon issued
pursuant to the Loan Documents and all Claims associated therewith (the “Taberna
Debt”).

       

      C. Taberna
is a collateral manager that manages various collateral debt obligation
vehicles, including those issued by the Taberna Debt Holders evidencing the
Taberna Debt.

       

      D. The
parties hereto have engaged in good faith negotiations with the objective of
reaching an agreement regarding the financial restructuring of Tarragon and the
Tarragon Subsidiaries, including the restructuring of the Taberna Debt and the
Affiliate Debt, pursuant to the terms of the Affiliate Debt
Agreement.

       

      E. Tarragon
intends to implement a financial restructuring under which a substantial portion
of Tarragon’s senior unsecured creditor claims are resolved (the “Financial
Restructuring”) which, at Tarragon’s discretion, may result in the
Tarragon Debtors filing voluntary petitions for relief (the “Filing”) under
chapter 11 of the Bankruptcy Code (“Chapter 11”) and
seeking approval by the Bankruptcy Court of a disclosure statement (the “Disclosure
Statement”) and a plan of reorganization (the “Plan”).  To
the extent the Financial Restructuring is not implemented pursuant to a Filing,
the form and terms of such Financial Restructuring must be acceptable to Taberna
in its sole and absolute discretion.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      F. Taberna
has informed Tarragon that the failure of Tarragon to make the October 30, 2008
interest payment with respect to the Taberna Debt would preclude Taberna from
entering into negotiations with respect to the Financial
Restructuring.

       

      G. Any
Filing by Tarragon would constitute an event of default under the Taberna
Promissory Note and Loan Documents evidencing the Taberna Debt.

       

      H. Tarragon
is also the issuer of the Affiliate Debt, which is held by Beachwold and
Rothenberg (Beachwold, Rothenberg, William S. Friedman, a partner of Beachwold,
and any of their affiliates are hereinafter collectively referred to as the
“holders of the
Affiliate Debt”).

       

      I. Tarragon
also anticipates that, in connection with the Financial Restructuring, some or
all of the membership interests in Newco shall be issued to ***, or its
affiliates (“***”) or some other
third party(ies), which shall not include, directly or indirectly, any holders
of the Affiliate Debt (“Third
Party”).

       

      J. The
parties hereto wish to further agree to use their commercially reasonable
efforts to timely complete the Financial Restructuring in accordance with, the
terms, conditions and limitations contained herein.

       

      STATEMENT
OF AGREEMENT

       

      In
consideration of the premises and the mutual covenants and agreements set forth
herein, and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
bound hereby, do hereby agree as follows:

       

      1.           Agreements
of BNY, Taberna and the Taberna Debt Holders.  BNY and Taberna,
for itself and on behalf of the Taberna Debt Holders, agree that, so long as
this Agreement has not been terminated in accordance with Section 15 hereof,
it:

       

      (i) will not
vote or take any action whatsoever to oppose the Financial Restructuring or, if
applicable, the Plan or otherwise agree to, consent to, or provide any support
to any other plan of reorganization of the Tarragon Debtors that is not
supported by Tarragon;

       

      (ii) will not
object to or otherwise commence any proceeding to oppose or alter the Financial
Restructuring or the Plan (or any other document filed in furtherance of the
Financial Restructuring) or take any other action that is inconsistent with
consummation of the Plan and the Financial Restructuring;

       

      (iii) will not
sell, transfer, assign, mortgage, pledge or otherwise encumber any of the
Taberna Debt owned by it or grant any option thereon or any right or interest
(voting or otherwise) therein, or enter into any agreement, letter of intent or
understanding to do any of the foregoing;

       

        
          

        

      

       

      *** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE
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        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (iv) will not
take any action or otherwise pursue any right or remedy under the Loan
Documents, with respect to any Default or Event of Default (as defined in the
Loan Documents), or  initiate, or have initiated on its behalf, any
litigation or proceeding of any kind with respect to the Taberna Debt, other
than to enforce this  Agreement; and

       

      (v)  will
not exercise any of its rights or remedies under the Taberna Promissory Notes or
any other Loan Documents or applicable law with respect to any event of default
now existing or hereafter arising under the Taberna Promissory Notes or any
other Loan Document, including  (i) accelerating the maturity of the
Taberna Promissory Notes or initiating proceedings for the collection of the
principal amount of, any interest on, or any other amount with respect to the
Notes; and (ii) filing or joining in filing any involuntary petition in
bankruptcy with respect to Tarragon, or otherwise initiate or participate in
similar insolvency, reorganization or moratorium proceedings for the benefit of
creditors of Tarragon (other than the Filing as contemplated herein)
..

       

      2. Exchange.  Subject
to the terms and conditions hereof, on the Effective Date Tarragon, Taberna and
the holders of the Affiliate Debt agree to observe and perform the following
agreements and covenants:

       

      (a) Each
Taberna Debt Holder shall sell, assign and deliver to Newco all Taberna Debt
owned by it, and in exchange therefor, Newco shall issue, sell and deliver to
such Taberna Debt Holder Newco’s secured senior promissory notes having the
terms and provisions set forth below in Section 3 (the “Newco Senior Notes”),
which terms and provisions shall be set forth in an Indenture(s) (the
“Indenture”), the form and substance of which shall be acceptable to BNY and
U.S. Bank National Association (together, BNY and U.S. Bank National Association
are referred to herein as the “Trustees”).  The
principal amount of Newco Senior Notes issued, sold and delivered to each
Taberna Debt Holder shall be equal to the principal amount of Taberna Promissory
Notes delivered in exchange therefor by such Taberna Debt Holder, and the final
maturity date of such Newco Senior Notes so issued, sold and delivered shall
match the final maturity date of the Taberna Promissory Notes so
surrendered.    The aggregate principal amount of all Newco
Senior Notes to be issued, sold and delivered by Newco to the Taberna Debt
Holder shall be equal to $125,000,000 (One Hundred Twenty Five Million
Dollars).  (Such issuance of the Newco Senior Notes in exchange for
the Taberna Debt being herein sometimes called the “Exchange”.)

       

      (b) The
holders of the Affiliate Debt shall pledge all equity securities of Newco and
Tarragon received or held by them in respect of any disposition of the
Affiliated Debt under the Financial Restructuring to secure the full payment and
discharge of all of Newco’s obligations under the Newco Senior Notes pursuant to
a pledge and security agreement, in form and substance reasonably acceptable to
Taberna (the “Affiliate Pledge and
Security Agreement”), that such holders and each Taberna Debt Holder
agree to execute and deliver on the Effective Date.  The Affiliate
Pledge and Security Agreement will be non-recourse to the holders of the
Affiliate Debt and will contain customary exculpation provisions with respect
thereto.  To the extent the holders of the Affiliate Debt sell, assign
and deliver to Newco all or a portion of the Affiliate Debt owned by them, and
in exchange therefor, Newco issues and delivers to such holders
Newco’s  subordinated notes, such subordinated notes shall have
substantially the terms and provisions set forth below in Section
4  (the “Newco Subordinated
Notes”).

       

      
        
           

        

        
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        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (c) Newco’s
claim against Tarragon with respect to the Taberna Debt shall be satisfied
through the issuance to Newco of shares of Restructured Tarragon’s stock (which
may be preferred stock (with an aggregate dividend preference sufficient to pay
interest on the Newco Senior Notes and Newco Subordinated Notes as and when such
interest is due), common stock or a combination thereof) which shares shall have
the same terms and shall vote with Tarragon’s common stock (collectively, the
“Replacement
Securities”). The Replacement Securities and any equity securities
pledged by the holders of the Affiliate Debt under the Affiliate Pledge and
Security Agreement shall, at the Effective Date, represent at least 80% of
Restructured Tarragon’s issued and outstanding shares of preferred stock and
common stock in the aggregate.

       

      (d) Newco
shall pledge all Replacement Securities received by it in respect of the Taberna
Debt, pursuant to the Financial Restructuring, to secure the full payment and
discharge of all of Newco’s obligations under the Newco Senior Notes pursuant to
a pledge and security agreement, in form and substance reasonably acceptable to
Taberna  (the “Pledge and Security
Agreement”), that Newco and each Taberna Debt Holder agree to execute and
deliver on the Effective Date.

       

      (e) Newco
shall cause an irrevocable letter of credit with a face amount of $2,500,000
(Two Million Five Hundred Thousand Dollars) (the “Letter of Credit”) to
be issued by a commercial bank reasonably acceptable to Taberna solely to secure
payment of Newco’s obligations under the Newco Senior Notes, as set forth in the
Pledge and Security Agreement.

       

      (f) Newco
shall issue to ***, the
holders of the Affiliate Debt or to the Third Party (which Third Party shall be
subject to the prior written approval of Taberna, which approval shall not be
unreasonably withheld), as applicable, membership interests of Newco which,
after their issuance, shall represent substantially all of the then outstanding
membership interests of Newco; provided, however, that in no event shall the
holders of the Affiliate Debt own more than 49% of the economic or voting
interests in Newco without Taberna’s prior written consent, which consent may be
withheld in Taberna’s sole discretion.  Tarragon agrees to take
commercially reasonable efforts to cause Newco to issue such membership
interests.

       

      (g) So long
as Newco is a wholly owned subsidiary of Tarragon, Tarragon will cause Newco to
comply with Newco’s obligations set forth in this Agreement.

      
         

        
          

        

      

      
        *** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE
COMMISSION***

         

      

      
        
           

        

        
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        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (h) Taberna,
for itself and the Taberna Debt Holders, will direct or request the Trustees to
take such action as may be necessary or required under the terms of the Taberna
Promissory Notes or the other Loan Documents to fulfill such Person's
obligations under this Agreement or in connection with the Financial
Restructuring.

       

      3. The Newco
Senior Notes.   The Newco Senior Notes will be in the principal
amount of $125 million and will mature in 2035-6. The Newco Senior Notes will
bear cumulative interest at the rate of 2% per annum for the first seven years
following the issuance thereof, which rate shall thereafter increase by 2% per
annum each of the following three years until the Newco Senior Notes shall bear
cumulative interest at the rate of 8% per annum.  The Newco Senior
Notes shall continue to bear cumulative interest at the rate of 8% per annum
until the 15th anniversary of issuance of the Newco Senior Notes, at which time
the interest rate shall increase to a cumulative rate of 18% and shall remain at
such rate until maturity.  Interest shall be payable quarterly. The
Newco Senior Notes will be prepayable by Newco at any time in whole or in part
without premium or penalty. The Newco Senior Notes will be secured by the
Affiliate Pledge and Security Agreement, the Pledge and Security Agreement and
the Letter of Credit.  It will be an event of default under the Newco
Senior Notes if there is a default under the Newco Subordinated Notes, unless
waived in writing by Taberna.  The Newco Senior Notes (and/or any
related agreements as may be necessary or desirable) will contain the following
covenants:

       

      (a) Without
prior consent from Taberna in its sole discretion, a prohibition on the
incurrence, or any guaranty, by Newco of any additional indebtedness other than
the Newco Senior Notes and, if applicable, the Newco Subordinated
Notes.

       

      (b) A
prohibition on related party transactions between Tarragon, *** or the
Third Party and their affiliates on the one hand, and Newco on the other hand,
except on arm’s length terms and subject to Taberna’s prior written approval
(such approval not to be unreasonably withheld) or as otherwise provided
herein.

       

      (c) Any
transfer (directly or indirectly) by *** or the Third Party to any person of (i)
equity interests in Newco that in the aggregate results in *** or the Third
Party having less than a controlling economic or voting interest in Newco, (ii)
control over the management of, or day-to-day responsibilities with respect to,
Newco, (iii) any right to appoint a majority (or any lesser controlling number)
of the members of the Newco board of managers, or (iv) any right of first offer
with respect to *** or the Third Party’s equity interests in Newco, or any
issuance of any warrants or options with respect to *** or the Third Party’s
equity interests in Newco, that would result in any of the circumstances
described in (i) through (iii) above, will be subject to prior written approval
of Taberna, which approval may be withheld in Taberna’s sole
discretion.  All proceeds of any such transfer or issuance shall be
immediately applied to reduce amounts due or payable or to become due or payable
with respect to the Newco Senior Notes.

       

       

        
          

        

      

      *** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE
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        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (d) Newco may
not issue any additional equity securities that would result in *** or the
Third Party holding less than 51% of the economic or voting interest in Newco
without Taberna’s prior written consent, which consent may be withheld in
Taberna’s sole discretion. Proceeds from any such issuance of equity must be
used either to reduce the obligations under the Newco Senior Notes or fund
Tarragon’s operations in accordance with Tarragon’s business plan.

       

      (e) Newco and
the holders of the Affiliate Debt, as applicable, may not transfer any of their
equity interest in Restructured Tarragon that would have the effect of reducing
Newco’s or such holders’ aggregate economic or voting interest in Restructured
Tarragon to less than 51%, without Taberna’s prior written consent, which
consent may be withheld in Taberna’s sole discretion. In the event that Taberna
consents to such transfer, all proceeds of any such transfer shall be
immediately applied to reduce amounts due or payable or to become due or payable
with respect to the Newco Senior Notes.

       

      (f) Without
Taberna’s prior written consent, which consent may be withheld in Taberna’s sole
discretion, Newco and the holders of the Affiliate Debt shall cause Restructured
Tarragon not to either (i) issue any equity securities that would have the
effect of reducing Newco’s and such holders’ aggregate economic or voting
interest in Restructured Tarragon to less than 51%, or (ii) issue common stock
or securities convertible into common stock at a price less than the value
accorded the shares of Restructured Tarragon’s common stock in the Financial
Restructuring.

       

      (g) Subject
to its fiduciary obligations, Newco and, if applicable, the holders of the
Affiliate Debt shall not allow Restructured Tarragon (or any wholly-owned
subsidiary) to sell certain assets that are mutually agreed upon in good faith
by Restructured Tarragon and Taberna and are identified in the Indenture at a
price less than their value in the Financial Restructuring, except with
Taberna’s prior written approval (provided that Taberna shall be deemed to have
consented to any sale that is approved by the Bankruptcy Court after notice and
a hearing).

       

      (h) Other
than dividends to pay interest on the Newco Senior Notes as contemplated under
Section 2(c) and the dividends described in Section 3(k), and without Taberna’s
prior written consent, which consent may be withheld in Taberna’s sole
discretion, Restructured Tarragon shall not pay any dividend or make any
distribution to Newco or the holders of the Affiliate Debt on account of or with
respect to Newco’s or such holders’ equity interest(s) in Restructured Tarragon,
except that such a dividend or distribution may be made from GAAP net income as
follows:  (i) up to $1 million during the calendar year ending
December 31, 2009, which shall be reduced by the amount of  $2,739.72
for each day in 2009 that elapsed prior to the Plan becoming “effective”; (ii)
up to $1.5 million during the calendar year ending December 31, 2010; (iii) up
to $2 million during the calendar year ending December 31, 2011; and (iv) up to
$2.5 million during the calendar year ending December 31, 2012. and (v) for each
year thereafter in an amount not greater than 120% of the amount of such
dividend or distribution made during the immediately preceding calendar year;
provided, however, that any
allowable distribution or dividend that could have been made in any given
calendar year as described above but that was not made in any given calendar
year may be made in, or carried over to, any subsequent calendar year provided
that there exists sufficient GAAP net income to make such additional
distribution or dividend.

       

       

        
          

        

      

      *** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE
COMMISSION***

      
        
           

        

        
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        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (i) If
applicable, without Taberna’s prior written consent, which consent may be
withheld in Taberna’s sole discretion, Newco shall not make any payment of
principal on account of any of the Newco Subordinated Notes.

       

      (j) Without
Taberna’s prior written consent, which consent may be withheld in Taberna’s sole
discretion, Newco shall not pay any dividend or make any distribution on account
of or with respect to, or otherwise redeem, any of its equity securities, except
that during the calendar year 2009 and for each subsequent calendar year
thereafter such a dividend or distribution may be made only from GAAP net income
in the following amounts:  (i) up to $1 million during the calendar
year ending December 31, 2009; (ii) up to $1.5 million during calendar year
ending  December 31, 2010; (iii) up to $2.0 million during the
calendar year ending December 31, 2011; (iv) up to $2.5 million during the
calendar year ending December 31, 2012; and (v) for each year thereafter in an
amount not greater than 120% of the amount of such dividend or distribution made
during the immediately preceding calendar year; provided, however, that any
allowable distribution or dividend that could have been made in any given
calendar year as described above but that was not made in any given calendar
year may be made in, or carried over to, any subsequent calendar year provided
that there exists sufficient GAAP net income to make such additional
distribution or dividend.

       

      (k) Restructured
Tarragon may make to Newco and the holders of the Affiliate Debt, and Newco and
the holders of the Affiliate Debt may receive and retain, annual distributions
in addition to the dividends to pay interest on the Newco Senior Notes as
contemplated under Section 2(c) and the dividends described in Section 3(h)
(whether or not such amounts were distributed) from Cash Available for
Distribution (as defined below) so long as the outstanding principal balance of
the Newco Senior Notes is paid down in an amount that is equal to 400% of the
incremental distribution allowed under this Section 3(k), which payment of the
Newco Senior Notes may be paid by Restructured Tarragon to Newco as a special
dividend or otherwise.  For purposes hereof, “Cash Available for
Distribution” means cash flow from Tarragon’s operating activities, as reported
in accordance with GAAP; plus the net cash proceeds from sales or refinancing of
properties, less amounts of such net proceeds distributed to minority partners;
after deducting payments of dividends on preferred investments as described
herein.

       

      4. Newco
Subordinated Notes.   The Newco Subordinated Notes will be
issued in the principal amount of $10,000,000 and will mature in
2038.  The Newco Subordinated Notes will be prepayable by Newco in
whole or in part without premium or penalty. The Newco Subordinated Notes will,
until the 17th
anniversary of issuance, pay cumulative interest in an amount not to exceed
$760,000 per annum.  The Newco Subordinated Notes will be subordinated
in all respects to the Newco Senior Notes, which subordination shall be further
evidenced by an intercreditor agreement by and between Taberna and the holders
of the Newco Subordinated Notes. The Newco Subordinated Notes will be
unsecured.

       

      
        
           

        

        
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        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      5. Payments on Signing of This
Agreement.

       

      (a) Simultaneously
with the execution and delivery of this Agreement, Tarragon  shall pay
Taberna the sum of  (i) $2,462,366.67 on account of interest payable
on the Taberna Debt (the “Interest Payment”),
and  (ii) $300,000 on account of the fees and expenses incurred by
Taberna in connection with its evaluation, negotiation and/or documentation of
this  Agreement and related documents  (the “Expense Payment”).
The Payment and Expense Payment shall each be paid by wire transfer in
immediately available funds to an account designated in writing by
Taberna.

       

      (b) In
addition to the Interest Payment and the Expense Payment, Tarragon, *** or the
Third Party shall make the following payments to Taberna by wire transfer to the
same account designated above: (i) the sum of $625,000 on or before January 30,
2009; and (ii) the sum of $625,000 on before April 30, 2009 (collectively, the
“Additional
Payments”).  The Additional Payments shall be made in
satisfaction of all of the payments due on the Taberna Debt on January 30, 2009
and April 30, 2009.

       

      6. Board
Composition.  There shall be at least one “independent”
director on the board of restructured Tarragon.  The parties shall
further take commercially reasonable efforts to afford observation rights on
Tarragon’s Board to a representative of Taberna until all obligations under the
Newco Senior Notes have been paid in full.  Newco agrees to afford
observation rights on Newco’s board of managers to a representative of Taberna
until all obligations under the Newco Senior Notes have been paid in
full.

       

      7. Management
Agreement.  Taberna will consent to a commercially reasonable
management agreement entered into by Tarragon and *** or any Third Party, to the
extent required and approved by holders of the Affiliate Debt.  The
terms, provisions and counter-party of and to such management agreement shall be
subject to Taberna’s reasonable approval, and such agreement shall not be
amended or modified without Taberna’s written consent (such consent not to be
unreasonably withheld).

       

      8. Representations
and Warranties of Taberna and Each Taberna Debt
Holder.  Taberna, for itself and on behalf of each of the
Taberna Debt Holders, represents and warrants to Tarragon and Newco that the
following statements are true, correct and complete insofar as they relate to
it:

       

      (a) It is a
corporation, partnership, limited liability company or other legal entity, as
the case may be, duly organized, validly existing and in good standing under the
laws of its corporation or formation.

       

       

        
          

        

      

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        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (b) It has
all requisite corporate, partnership, limited liability company or similar
authority to enter into this Agreement and, subject to Bankruptcy Court
approval, carry out the transactions contemplated hereby and perform its
obligations contemplated hereunder, and the execution and delivery of this
Agreement and the performance of such party’s obligations hereunder have been
duly authorized by all necessary corporate, limited liability, partnership or
other similar action on its part.

       

      (c) The
execution, delivery, and, subject to any necessary Bankruptcy Court approval,
performance by it of this Agreement does not and shall not violate any provision
of Law applicable to it or its charter or bylaws (or other similar governing
documents) or any material agreement by which it is bound or to which its assets
are subject.

       

      (d) The
execution, delivery and performance by such party of this Agreement does not and
shall not require any registration or filing with, consent or approval of, or
notice to, or other action to, with or by, any federal, state or foreign
governmental authority or regulatory body.

       

      (e) This
Agreement is its legally valid and binding obligation, enforceable in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or limiting
creditors’ rights generally or by equitable principles relating to
enforceability or a ruling of the Bankruptcy Court.

       

      (f) The
Taberna Debt is owned free and clear of all liens, mortgages, charges, security
interests, burdens, encumbrances or other restrictions or limitations of any
nature whatsoever (“Liens”) other than
this Agreement and other than under the Loan Documents.

       

      (g) On
consummation of the Exchange pursuant to the terms hereof, the Taberna Debt
shall be sold, assigned and delivered to Newco free and clear of all Liens other
than this Agreement and other than under the Loan Documents.

       

      (h) There are
no actions, suits, claims or legal or administrative arbitration or other
alternative dispute resolution proceedings, audits or investigations (each a “
Legal
Proceeding” and collectively “Legal Proceedings”)
pending or threatened against it that, if adversely determined, (i) could have a
material adverse effect on it or its ability to consummate the transactions
provided for herein or (ii) would reduce, limit or otherwise adversely affect
the obligations of the Tarragon Debtors under the Taberna Debt.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (i) It is an
“accredited investor” as such term is defined under Rule 501 under the
Securities Act of 1933, as amended (the “Securities Act”), and
has such knowledge and experience in business and financial matters as to be
capable of evaluating the merits and risks of the investment in the Newco Senior
Notes; is capable of bearing the economic risks associated with the investment
in the Newco Senior Notes, and has been provided access to such information and
documents regarding  Newco and Tarragon as are necessary in order to
make a fully informed decision on whether or not to purchase the Newco Senior
Notes; has been afforded an opportunity to ask questions of, and receive answers
from, ***, Newco
and Tarragon concerning the Newco Senior Notes and has performed its own due
diligence in making the decision to invest in the Newco Senior Notes; is
acquiring the Newco Senior Notes for its own account, for investment and no with
a view to any “distribution” thereof within the meaning of the Securities Act,
and has no present intention of selling, transferring or otherwise distributing
such securities; has been advised that the Newco Senior Notes have not been and
are not being registered under the Securities Act, Newco is not obligated to and
does not intend to register the Newco Senior Notes under the Securities Act and
that Newco, in issuing the Newco Senior Notes, is relying upon, among other
things, the representations and warranties of such Taberna
Debt  Holder in this Agreement in concluding that the issuance of the
Newco Senior Notes will be exempt from the provisions of the Securities Act and
the rules and regulations promulgated thereunder.

       

      (j) (i) the
Taberna Debt Holders are the holders of 100% of the Taberna Debt, (ii) Taberna
has been authorized by the Taberna Debt Holders to execute, deliver and perform
this Agreement on behalf of the Taberna Debt Holders and (iii) by Taberna’s and
BNY’s execution hereof, this Agreement constitutes valid and binding obligations
of the Taberna Debt Holders enforceable against the Taberna Debt Holders in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
limiting creditors’ rights generally or by equitable principles relating to
enforceability.

       

      9. Representations
and Warranties of Tarragon. Tarragon represents and
warrants to Taberna and each Taberna Debt Holder that the following statements
are true, correct and complete:

       

      (a) It is a
corporation duly organized, validly existing and in good standing under the laws
of Nevada.

       

      (b) It has
all requisite corporate authority to enter into this Agreement and, subject to
any necessary Bankruptcy Court approval, carry out the transactions contemplated
hereby and perform its obligations contemplated hereunder, and the execution and
delivery of this Agreement and the performance of its obligations hereunder have
been duly authorized by all necessary corporate action on its part.

       

      (c) The
execution, delivery, and, subject to Bankruptcy Court approval, performance by
it of this Agreement does not and shall not violate any provision of Law
applicable to it or its charter or bylaws (or other similar governing documents)
or any material agreement by which it is bound or to which its assets are
subject.

       

      (d) The
execution, delivery and performance by it of this Agreement does not and shall
not require any registration or filing with, consent or approval of, or notice
to, or other action to, with or by, any federal, state or foreign governmental
authority or regulatory body.

       

       

        
          

        

      

      *** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE
COMMISSION***

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (e) This
Agreement is its legally valid and binding obligation, enforceable in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or limiting
creditors’ rights generally or by equitable principles relating to
enforceability or a ruling of the Bankruptcy Court.

       

      10. Agreement
with Respect to Newco.  Tarragon will
promptly create Newco in a manner reasonably acceptable to Taberna.

       

      11. Notification
of Certain Matters.  Taberna shall
give prompt notice to Tarragon and Newco, and *** or
Third Party and Newco shall give prompt notice to Taberna, of (i) Taberna,
Tarragon or Newco, as the case may be, becoming aware that any representation or
warranty made by any party to this Agreement is untrue or inaccurate in any
material respect, (ii) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which reasonably could be expected to cause
any representation or warranty contained in the Disclosure Statement to be
untrue or inaccurate in any material respect and (iii) any failure of any
party to this Agreement to comply with or satisfy any covenant or agreement to
be complied with or satisfied by it hereunder; and Taberna, Tarragon and
Newco  shall give prompt notice to each other of any notice or other
communication from any person alleging that the consent of such person is
required in connection with any of the Financial Restructuring or the
Exchange.

       

      12. Consents and
Approvals.  

       

      (a) The
parties hereto shall cooperate with each other and use their commercially
reasonable efforts to promptly (i) prepare and file all necessary
documentation, (ii) effect all applications, notices, petitions and filings
and (iii) obtain all permits, consents, approvals and authorizations of all
third parties and governmental authorities, which are necessary or advisable to
consummate the Financial Restructuring and the Exchange.  The parties
hereto shall consult with each other with respect to the obtaining of all such
permits, consents, approvals and authorizations, and each party will keep the
other apprised of the status of matters relating to completion of the Financial
Restructuring and the Exchange.  Each of the parties shall each use
its reasonable commercial efforts to resolve any objections that may be asserted
by any governmental authority or any other person with respect to this Exchange
Agreement or the Financial Restructuring.  The parties, with respect
to any threatened or pending preliminary or permanent injunction or other order,
decree or ruling or statute, rule, regulation or executive order that would
adversely affect the ability of the parties hereto to consummate the
transactions contemplated hereby, shall use reasonable commercial efforts to
prevent the entry, enactment or promulgation thereof, as the case may
be.

       

      (b) The
parties shall promptly advise each other upon receiving any communication from
any governmental authority whose consent or approval is required for
consummation of any of the transactions contemplated hereby which causes such
party to believe that there is a reasonable likelihood that any such consent or
approval will not be obtained or that the receipt of any such approval will be
materially delayed.

       

       

        
          

        

      

      *** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE
COMMISSION***

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      13. Conditions to Closing of the
Exchange.

       

      13.1 Conditions to Each Party’s
Obligation to Close.  The obligation of each party to effect
the Exchange shall be subject to the satisfaction at or prior to the Effective
Date, of the following conditions:

       

      (a) The
Financial Restructuring shall have been concluded and, to the extent applicable,
the Bankruptcy Court shall have entered a Final Order approving the Confirmed
Plan, and such Confirmed Plan shall be effective;

       

      (b) The
Trustees and Newco shall have executed all necessary documents, including any
Indentures required by the Trustees;

       

      (c) All
material filings, notifications, consents or approvals required by Law with
respect to the Exchange shall have been made and, to the extent required,
obtained, and any waiting period (and any extension thereof) applicable by Law
to the Exchange shall have expired or terminated; and

       

      (d) No action
shall be pending which seeks to challenge or enjoin the Exchange under any Law,
and no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Exchange shall be in
effect; nor shall there be any statute, rule, regulation or order enacted,
entered, enforced by any governmental authority which prevents or prohibits the
consummation of the Exchange.  In the event an injunction or other
order shall have been issued, each party agrees to use its commercially
reasonable efforts to have such injunction
or other order lifted.

       

      13.2 Newco’s
Conditions.  In addition to the conditions set forth in Section
13.1, all obligations of Newco to effect the Exchange under this Agreement are
subject to the fulfillment, as determined by Newco in its reasonable discretion,
prior to or at the Effective Date, of each of the following
conditions:

       

      (a) The
representations and warranties of Taberna contained in this Agreement shall be
true and correct when made as of the date of this Agreement and as of the
Closing as though made as of the Closing.

       

      (b) Each of
Taberna and the Taberna Debt Holders shall have performed and complied with all
covenants, undertakings, agreements and conditions required by
this  Agreement to be performed or complied with by it prior to or at
the Effective Date.

       

      (c) Taberna
shall have delivered to Newco a certificate of an executive officer
of  Taberna to the effect that each of the conditions specified above
in Sections 13.2(a) and 13.2(b), as applicable, are satisfied in all respects
and certifying as to the due authority and incumbency of each Person executing
this Agreement and any other document or instrument executed in connection with
the Closing.

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (d) Taberna  shall
have delivered or shall have caused to be delivered to Newco (i) the originals
of the Taberna Promissory Notes to be exchanged by it for Newco Senior Notes,
together with any necessary allonge or assignment, duly executed by such Taberna
Debt Holder, or (ii) a certification that the original Taberna Promissory
Note(s) cannot be located.

       

      13.3 Taberna’s
Conditions.  In addition to the conditions set forth in Section
13.1, all obligations of Taberna and the Taberna Debt Holders to effect the
Exchange under this Agreement are subject to the fulfillment, as determined by
Taberna in its reasonable discretion, prior to or at the Effective Date, of each
of the following conditions:

       

      (a) The
representations and warranties of Tarragon and Newco contained in this Agreement
shall be true and correct when made as of the date of this Agreement and as of
the Closing as though made as of the Closing.

       

      (b) Each of
Tarragon and Newco shall have performed and complied with all covenants,
undertakings, agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Effective Date.

       

      (c) Each of
Tarragon and Newco shall have delivered to Taberna a certificate of one of its
executive officers to the effect that each of the conditions specified above in
Sections 13.3(a) and 13.3(b), as applicable, are satisfied as to it in all
respects and certifying as to the due authority and incumbency of each Person
executing this Agreement and any other document or instrument executed in
connection with the Closing.

       

      (d) Newco
shall have delivered to each Taberna Debt Owner the originals of the Newco
Senior Notes to be exchanged by it for Taberna Debt.

       

      (e) Tarragon
and Newco shall have delivered to Taberna a certificate of the Secretary of
State of the state of organization of *** and
Newco as to the good standing of each such entity in such jurisdiction as of the
most recent practicable date.

       

      14. Closing of the
Exchange.

       

      (a) The
closing of the Exchange (the “Closing”) shall take
place on the Effective Date.

       

      (b) At the
Closing, (i) Taberna shall deliver or shall cause to be delivered to Newco the
various certificates, instruments, and documents referred to in Section 13.2.
above, and (ii) Newco will deliver to the Taberna Debt Holders the various
certificates, instruments and documents referred to in Section 13.3
above.

       

      15. Termination
of the Agreement.  

       

       

        
          

        

      

      *** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE
COMMISSION***

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      15.1 Taberna
may elect (in its sole and absolute discretion) to terminate this Agreement in
the event that the Interest Payment and Expense Payment are not made to Taberna
on or before October 30, 2008.

       

      15.2 Taberna
may elect (in its sole and absolute discretion) to terminate this Agreement in
the event that the Additional Payments are not made as an when due under Section
5(b) hereof.

       

      15.3 Taberna
may elect (in its sole and absolute discretion) to terminate this Agreement in
the event that, by January 31, 2009, Tarragon has not either (i) made a Filing,
or (ii) presented Taberna with an acceptable Financial Restructuring that does
not contemplate a Filing.  In the event Taberna elects to terminate
under this Section 15.3, such termination shall be effective unless, on or
before February 28, 2009, Tarragon shall have made a Filing or presented an
acceptable Financial Restructuring to Taberna that does not contemplate a
Filing.

       

      15.4 Any of
the parties may terminate this Agreement as provided below:

       

      (a) Taberna,
Tarragon and Newco may terminate this Agreement by mutual written consent at any
time.

       

      (b) Tarragon
or Newco may terminate this Agreement by giving written notice to Taberna at any
time prior to the Closing (i) in the event any of Taberna or any Taberna
Debt Owner has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, Tarragon and/or Newco has notified
Taberna and Newco of the breach, and the breach has continued without cure for a
period of thirty (30) days after the notice of breach, or (ii) if the
Closing shall not have occurred on or before sixty (60) days following the
Effective Date by reason of the failure of any condition precedent under
Sections 13.1 or 13.3 hereof, or upon the satisfaction of any such condition
precedent hereof becoming impossible or impracticable with the use of
commercially reasonable efforts (unless the failure results primarily from
Tarragon or Newco breaching any representation, warranty, or covenant contained
in this Agreement).

       

      (c) Taberna
may terminate this Agreement by giving written notice to Tarragon and Newco at
any time prior to the Closing (i) in the event Tarragon or Newco has
breached any representation, warranty, or covenant contained in this Agreement
in any material respect, Taberna has notified Tarragon and Newco of the breach,
and the breach has continued without cure for a period of thirty (30) days after
the notice of breach, or (ii) if the Closing shall not have occurred on or
before sixty (60) days following the Effective Date by reason of the failure of
any condition precedent under Sections 13.1 or 13.3 hereof, or upon the
satisfaction of any such condition becoming impossible or impracticable with the
use of commercially reasonable efforts (unless the failure results primarily
from any of Taberna or a Taberna Debt Owner itself breaching any representation,
warranty, or covenant contained in this Agreement).

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      (d) Taberna
may terminate this Agreement by giving written notice to Tarragon and Newco in
the event that the Closing does not occur for any reason on or before June 30,
2009.

       

      (e) Taberna
may terminate this Agreement by written notice to Tarragon and Newco in the
event that the Bankruptcy Court shall have entered any order dismissing the
Chapter 11 Case or an order pursuant to Section 1112 of the Bankruptcy Code
converting the Chapter 11 Case with respect to Tarragon (but not any Tarragon
Subsidiary) to a case under chapter 7 of the Bankruptcy Code. For clarification,
if the Bankruptcy Court issues such an order converting the Chapter 11 Case with
respect to a Tarragon Subsidiary to a case under chapter 7 of the Bankruptcy
Code but such order does not convert the Chapter 11 Case with respect to
Tarragon to a case under said chapter 7, Taberna will not have a right to
terminate this  Agreement under this Section 15.3(e).

       

      15.5 Effect of
Termination.  If any party terminates this Agreement pursuant
to this Section 15, all rights and obligations of the parties hereunder shall
terminate without any liability of any party to any other parties (except for
any liability of any party then in breach), and all of the parties hereto shall
have all rights, claims and defenses against one another.

       

      16. Additional
Claims or Equity Interests.  Notwithstanding
anything in this Agreement, no party to this agreement (or any party under their
control) will acquire additional debt or claims against the Tarragon Debtors to
the extent that such acquisition, when considered in the context of other
acquisitions or restructuring terms, would be reasonably likely to prejudice
Tarragon’s ability to preserve its net operating losses for income tax
purposes.

       

      17. Definitions.

       

      17.1 Certain
Definitions

       

      “Affiliate Debt” means $38
million principal amount of subordinated promissory notes of Tarragon issued
pursuant to the related loan documents and all Claims associated
therewith.

       

      “Affiliate Debt Agreement”
means, if applicable, an agreement by and among the holders of the Affiliate
Debt, Tarragon and Newco pursuant to which Newco will acquire, own and exchange
the Affiliate Debt for the Newco Subordinated Notes as described herein, which
agreement shall be consistent with the terms of this Agreement and the Financial
Restructuring.

       

      “Approved Plan” means a plan of
reorganization of Tarragon that results in Replacement Securities being issued
to Newco with respect to and/or in exchange for the Taberna Debt and Affiliate
Debt, which Replacement Securities will represent a supermajority of Tarragon’s
issued and outstanding shares of common and preferred stock upon their
issuance.

       

      “Bankruptcy Code” means the
United States Bankruptcy Code, 11 U.S.C. § 101, et. Seq.

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

      

       

       

      “Bankruptcy Court” means the
United States Bankruptcy Court for the district in which the Filing is
made.

       

      “Board of Directors” means the
Board of Directors of any Tarragon Debtor and “Boards of Directors” means the
Board of Directors of two or more Tarragon Debtors.

       

      “Chapter 11 Case” means the
Chapter 11 bankruptcy proceeding of Tarragon initiated by the
Filing.

       

      “Claims” means claims, rights,
causes of action arising out of or otherwise relating to the Taberna
Debt.

       

      “Confirmed Plan” means an
Approved Plan that has been confirmed by the Bankruptcy Court in the Chapter 11
Case.

       

      “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 ownership of voting
securities, by contract or otherwise.

       

       

      “Effective Date” means the date
the transactions contemplated by the Financial Restructuring close, which may,
as applicable, be the effective date of a Confirmed Plan, or at such other date,
time or place as the parties may agree.

       

       

      “Final
Order” means an order
entered by a court exercising jurisdiction over the subject matter as to which
(i) no appeal, certiorari proceeding or other review or rehearing has been
requested or is still pending, and (ii) the time for filing a notice of appeal
or petition for certiorari or further review or rehearing has
expired.

       

      “Law” means any United States
or non-United States law (statutory, common or otherwise), including any
statute, ordinance, regulation, rule, code, executive order, injunction,
judgment, degree or other order of a governmental authority.

      

      “Loan Documents” means the
indentures, loan agreements, the Taberna Promissory Notes and other documents
that evidence the Taberna Debt.

       

      “Newco” means a Delaware
limited liability company, or any other entity acceptable to Taberna, that is
initially a direct, wholly-owned subsidiary of Tarragon, and that is formed
promptly after the date hereof.

       

      “Person” means an individual,
corporation, partnership, limited partnership, limited liability company, joint
venture, syndicate, trust or association.

       

      “Plan Filing Date” means the
date on which the Tarragon Debtors first file a plan of reorganization in the
Chapter 11 Case.

       

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      “Restructured Tarragon” means
Tarragon as it is constituted after the Effective Date.

       

      “Replacement Securities” means
any debt, equity or other securities of any nature distributable with respect to
and/or in exchange for the Taberna Debt and Affiliate Debt under a Confirmed
Plan or Financial Restructuring.

       

      “Tarragon Subsidiary” or “Tarragon Subsidiaries” means
any Person which is directly or indirectly controlled by Tarragon.

       

      “Tarragon Debtors” means
Tarragon and those Tarragon Subsidiaries that join as petitioners in the
Filing.

       

      “Taberna Promissory Notes”
means the promissory notes issued under the Loan Documents that evidence the
Taberna Debt.

       

      17.2 Additional
Definitions.  The following terms have the meanings set forth
in the Section set forth below:

       

      
        	
                Defined Term

              	
                Location of Definition

              
	
                ***

              	
                Preamble

              
	
                Affiliate
      Pledge and Security Agreement

              	
                Section
      2(b)

              
	
                Chapter
      11

              	
                Recitals

              
	
                Closing

              	
                Section
      14(a)

              
	
                Disclosure
      Statement

              	
                Recitals

              
	
                Exchange

              	
                Section
      3(a)

              
	
                Filing

              	
                Recitals

              
	
                Filing
      Date

              	
                Section
      1

              
	
                Financial
      Restructuring

              	
                Recitals

              
	
                Legal
      Proceedings

              	
                Section
      7(h)

              
	
                Letter
      of Credit

              	
                Section
      3(d)

              
	
                Liens

              	
                Section
      7(f)

              
	
                Plan

              	
                Section
      1

              
	
                Plan
      Filing Date

              	
                Section
      1(f)

              
	
                Pledge
      and Security Agreement

              	
                Section
      3(c)

              
	
                Securities
      Act

              	
                Section
      7(h)

              
	
                Taberna

              	
                Preamble

              
	
                Taberna
      Debt

              	
                Recitals

              
	
                Taberna
      Debt Holders

              	
                Preamble

              
	
                Tarragon

              	
                Recitals

              

      

      

       

        
          

        

      

      *** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE
COMMISSION***

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      18. Amendments
and Waivers.  This Agreement may not be modified, amended or
supplemented except by a written agreement signed by Taberna, Tarragon and
Newco.

       

      19. GOVERNING
LAW; JURISDICTION.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ANY CONFLICTS OF LAW PROVISIONS THAT WOULD REQUIRE THE APPLICATION OF THE LAW
OF ANY OTHER JURISDICTION.  BY ITS EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES
THAT ANY LEGAL ACTION, SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ANY MATTER
UNDER, OR ARISING OUT OF OR IN CONNECTION WITH, THIS  AGREEMENT, OR
FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RENDERED IN ANY SUCH ACTION, SUIT
OR PROCEEDING, SHALL BE BROUGHT IN ANY FEDERAL OR STATE COURT IN THE BOROUGH OF
MANHATTAN, THE CITY OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY ACCEPTS AND SUBMITS ITSELF TO
THE EXCLUSIVE JURISDICTION OF EACH SUCH COURT, GENERALLY AND UNCONDITIONALLY,
WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING; PROVIDED, THAT IN THE
EVENT OF A CHAPTER 11 FILING BY THE TARRAGON DEBTORS, THE BANKRUPTCY COURT SHALL
HAVE EXCLUSIVE JURISDICTION OVER ANY ISSUES RELATING TO THIS AGREEMENT.

       

      20. Specific
Performance.  It is understood and agreed by the parties that
money damages would not be a sufficient remedy for any breach of this Agreement
by any party, and each non-breaching party shall be entitled to specific
performance and injunctive or other equitable relief as a remedy of any such
breach.

       

      21. Headings.  The headings of
the Sections, paragraphs and subsections of this  Agreement are
inserted for convenience only, and shall not affect the interpretation
hereof.

       

      22. Successors
and Assigns; Severability; Several Obligations.  This Agreement is
intended to bind and inure to the benefit of the parties and their respective
successors, assigns, heirs, executors, administrators and
representatives.  The invalidity or unenforceability at any time of
any provision hereof shall not affect or diminish in any way the continuing
validity and enforceability of the remaining provisions hereof.  The
agreements, representations and obligations of each of the parties under this
Agreement are, in all respects, several and not joint.

       

      23. Prior
Negotiations; Entire Agreement.  This Agreement constitutes the
entire agreement of the parties related to the Exchange and the Financial
Restructuring and supersedes all other prior negotiations with respect to the
subject matter hereof. 

       

      24. Counterparts.  This
Agreement may be executed and delivered (including by facsimile or other form of
electronic transmission) in one or more counterparts, each of which shall be
deemed an original and all of which shall constitute one and the same
agreement.

       

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

      
        CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

        

      

       

      25. Notices. All notices and other
communications under this Agreement shall be in writing and shall be given in
the manner set forth in the Taberna Promissory Note or the other Loan Documents.

       

      26. Reservation
of Rights.  Except as expressly provided in this Agreement,
nothing herein is intended to, or does, in any manner waive, limit, impair or
restrict the ability of any of the parties hereto to protect and preserve its
rights, remedies and interests, including its claims against the Tarragon
Debtors with respect to the Taberna Debt.  Nothing herein shall be
deemed an admission of any kind.  If the transactions contemplated
herein are not consummated, or this Agreement is terminated for any reason, the
parties hereto fully reserve any and all of their rights.

       

      [THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

       

      

       

      
 

       

      
        
           

        

        
          19

          
            

          

        

        
           

          
            CONFIDENTIAL
TREATMENT REQUESTED BY TARRAGON CORPORATION – CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION

            

          

        

      

      IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the
date first written above.

       

      
        	 
      	
                TABERNA
      CAPITAL MANAGEMENT LLC, as Collateral Manager for the benefit of the
      Taberna Debt Holders

                 

              	 
      
	 
      	
                By:

              	
                /s/
      Howard Altschul

              
	 
      	
                Name:

              	
                Howard
      Altschul

              
	 
      	
                Title:

              	
                Managing
      Director

              

      

       

      
        	 
      	
                THE
      BANK OF NEW YORK MELLON TRUST COMPANY, N.A., As Successor To JP Morgan
      Chase Bank, National Association (as
      to Section 1 hereof only)

                 

              	 
      
	 
      	
                By:

              	
                /s/
      Maria D. Calzado

              
	 
      	
                Name:

              	
                Maria
      D. Calzado

              
	 
      	
                Title:

              	
                Vice
      President

              

      

      

      
        	 
      	
                ROBERT
      ROTHENBERG, as holder of Affiliate Debt

                 

                /s/
      Robert Rothenberg

              

      

      

      
        	 
      	
                BEACHWOLD
      PARTNERS, L.P., as holder of Affiliate Debt

                 

              	 
      
	 
      	
                By:

              	
                /s/
      William S. Friedman

              
	 
      	
                Name:

              	
                William
      S. Friedman

              
	 
      	
                Title:

              	
                General
      Partner

              

      

      

      
        	 
      	
                TARRAGON
      CORPORATION

                 

              	 
      
	 
      	
                By:

              	
                /s/
      William S. Friedman

              
	 
      	
                Name:

              	
                William
      S. Friedman

              
	 
      	
                Title:

              	
                Chief
      Executive Officer

              

      

      

      
        
           

        

        
          20exh.htm

    
      EXHIBIT
10.1

       

      EXECUTION VERSION

       

      
        SEVENTH
AMENDMENT TO CREDIT AGREEMENT

         

        SEVENTH AMENDMENT TO CREDIT AGREEMENT
(this “Amendment”)
dated as of October 29, 2008, by and among CARRIZO OIL & GAS, INC., a Texas
corporation (“Borrower”),
certain SUBSIDIARIES OF BORROWER, as Guarantors (in such capacity, “Guarantors”),
the LENDERS party hereto (the “Lenders”),
JPMORGAN CHASE BANK, N.A., as resigning administrative agent for the Lenders (in
such capacity, the “Resigning
Agent”) and as resigning issuing bank (in such capacity, the “Resigning
Issuing Bank”) and GUARANTY BANK, as successor administrative agent for
the Lenders (in such capacity, the “Successor
Agent”) and as successor issuing bank (in such capacity, the “Successor
Issuing Bank”).  Unless otherwise expressly defined herein,
capitalized terms used but not defined in this Amendment have the meanings
assigned to such terms in the Credit Agreement (as defined
below).

         

        WITNESSETH:

         

         

        WHEREAS, Borrower, Guarantors, Resigning Agent and certain
Lenders have entered into that certain Credit Agreement, dated as of May 25,
2006 (as the same has been and may hereafter be amended, restated, supplemented
or otherwise modified from time to time, the “Credit
Agreement”); and

         

        WHEREAS, Resigning Agent and Resigning Issuing Bank desire to
resign as Administrative Agent and Issuing Bank, respectively, under the Credit
Agreement and Successor Agent and Successor Issuing Bank desire to be appointed
as Administrative Agent and Issuing Bank, respectively, under the Credit
Agreement; and

         

        WHEREAS, Borrower has requested that Successor Agent and
Lenders (a) amend the Credit Agreement (i) to increase the Borrowing Base and
the Conforming Borrowing Base, (ii) to extend the Maturity Date and (iii) for
certain other purposes as provided herein; and (b) waive any Event of Default
that has occurred as a result of the existence of the Liens more particularly
described in Schedule
7.02 attached hereto (the “Specified
Event of Default”); and

         

        WHEREAS, Successor Agent and Lenders have agreed to (a) amend
the Credit Agreement as provided herein, and (b) waive the Specified Event of
Default, in each case, subject to the terms and conditions set forth
herein.

         

        NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed, the
parties hereto hereby agree as follows:

         

        SECTION
1. 
Amendments to Credit
Agreement.  Subject to the
satisfaction or waiver in writing of each condition precedent set forth in Section 7
of this Amendment, and in reliance on the representations, warranties, covenants
and agreements contained in this Amendment, the Credit Agreement shall be
amended in the manner provided in this Section 1.

         

            1.1     Cover
Page.  The cover page to the
Credit Agreement shall be and it hereby is amended in its entirety and replaced
with the cover page attached hereto as Annex
A.

         

        
          
            Seventh
Amendment to Credit Agreement

            
            

          

          
            Page
1

            
              

            

          

          
            
            

          

        

      

       

      
        
          1.2    Preamble.  The preamble to the Credit Agreement shall be and it
hereby is amended by deleting the reference to “JPMORGAN CHASE BANK, NATIONAL
ASSOCIATION” and substituting in lieu thereof the name “GUARANTY
BANK”.

           

          1.3    Additional
Definitions.  The following
definitions shall be and they hereby are added to Section 1.01
of the Credit Agreement in appropriate alphabetical order:

           

          “Adjusted
Daily LIBO Rate” means, for any day, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to (a) the Daily LIBO
Rate on such day (or, if such day is not a Business Day, on the immediately
preceding Business Day) multiplied by (b) the Statutory Reserve Rate
applicable on such day (or, if such day is not a Business Day, on the
immediately preceding Business Day).

           

           “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.

           

          “Carrizo
Marcellus” means Carrizo (Marcellus) LLC, a Delaware limited liability
company, and its successors and permitted assigns.

           

          “Cash
Collateral Account” has the meaning assigned to such term in Section
2.05(j).

           

          “Cash
Management Obligations” means, with respect to any Credit Party, any
obligations of such Credit Party owed to Guaranty Bank or any of its
Affiliates  in
respect of treasury management arrangements, depositary or other cash management
services.

           

          “Commitment
Increase Amount” has the meaning assigned to such term in Section
2.02A.

           

          “Daily
LIBO Rate” means, for any day, the rate appearing on Reuters BBA Libor
Rates Page 3750 (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, on such day,
as the rate for dollar deposits with a maturity equal to one (1)
month.  In the event that such rate is not available at such time for
any reason, then the "Daily LIBO
Rate" for such day shall be the rate determined by the Administrative
Agent to be the average of the rates at which dollar deposits of $5,000,000 with
a maturity equal to one (1) month are offered to major banks in the London
interbank market in London, England by leading banks in the London interbank
market selected by 

           

          
            
              Seventh
Amendment to Credit Agreement

              
              

            

            
              Page
2

              
                

              

            

            
              
              

            

          

           

          
             

            
              	 	
                      the
      Administrative Agent in immediately available funds in the London
      interbank market at approximately 11:00 a.m., London time, on such
      day.

                    	 

            

             

          

          “Fee
Letter” means that certain Fee Letter, dated as of October 29, 2008,
between Borrower and Guaranty Bank.

           

          “Guaranty
Bank” means Guaranty Bank, a federal saving bank.

           

          “Lender
Certificate” has the meaning assigned to such term in Section
2.02A.

           

          “Marcellus
Holdings” means Carrizo Marcellus Holding Inc., a Delaware corporation,
and its successors and permitted assigns.

           

          “Marcellus
Joint Venture” means that certain joint venture between Carrizo Marcellus
and Avista JV Partner pursuant to which Carrizo Marcellus intends to dedicate
the Marcellus Properties to such joint venture; provided that such joint venture
is governed by the Marcellus JV Operating Agreement, the Marcellus JV
Participation Agreement and such other documents, agreements and instruments
delivered in connection therewith.

           

          “Marcellus
JV Documents” means the Marcellus JV Operating Agreement, the Marcellus
JV Participation Agreement and any other documents, agreements and instruments
governing the Marcellus Joint Venture, in each case, as the same may be amended,
modified or supplemented from to time to time to the extent permitted
hereunder.

           

          “Marcellus
JV Operating Agreement” means a certain Operating Agreement between
Carrizo Marcellus and Avista JV Partner relating to the Marcellus Joint Venture
and containing terms and conditions substantially similar to, and no less
favorable to the Lenders in any material respect than, those set forth in that
certain draft Operating Agreement distributed to the Administrative Agent and
Lenders on October 22, 2008, as the same may be amended, modified or
supplemented from time to time to the extent permitted hereunder.

           

          “Marcellus
JV Participation Agreement” means a certain Participation Agreement among
Borrower, Carrizo Marcellus, Avista and Avista JV Partner relating to the
Marcellus Joint Venture and containing terms and conditions substantially
similar to, and no less favorable to the Lenders in any material respect than,
those set forth in that certain draft Participation Agreement distributed to the
Administrative Agent and Lenders on October 22, 2008, as the same may be
amended, modified or supplemented from time to time to the extent permitted
hereunder.

           

          “Marcellus
Properties” means those certain Oil and Gas Interests of Carrizo
Marcellus that are located in Pennsylvania, New York, Maryland, 

           

          
            
              Seventh
Amendment to Credit Agreement

              
              

            

            
              Page
3

              
                

              

            

            
              
              

            

          

           

          Virginia
and/or West Virginia and will be dedicated to the Marcellus Joint
Venture.

           

          “Seventh
Amendment Effective Date” means October 29, 2008.

           

          1.4    Amended Definitions.  The
following definitions in Section 1.01
of the Credit Agreement shall be and they hereby are amended in their respective
entireties to read as follows:

           

          “Administrative
Agent” means Guaranty Bank, in its capacity as contractual representative
of the Lenders hereunder pursuant to ARTICLE X and not in its individual
capacity as a Lender, and any successor agent appointed pursuant to ARTICLE
X.

           

          “Aggregate
Commitment” means, as of the Seventh Amendment Effective Date,
$222,500,000 and thereafter as such amount may be reduced or increased from time
to time pursuant to Section 2.02 and Section 2.02A and as a result of changes in
the Borrowing Base; provided that such amount shall not at any time exceed the
lesser of (i) the Maximum Facility Amount and (ii) the Borrowing Base then in
effect.  If
at any time the Borrowing Base is reduced below the Aggregate Commitment, the
Aggregate Commitment shall be reduced automatically to the amount of the
Borrowing Base in effect at such time.

           

          “Applicable
Rate” means, for any day, with respect to any ABR Loan or Eurodollar
Loan, or with respect to the Unused Commitment Fees payable hereunder, as the
case may be, the applicable rate per annum set forth below under the caption
“ABR Spread”, “Eurodollar Spread” or “Unused Commitment Fee Rate”, as the case
may be, based upon the Borrowing Base Usage applicable on such
date:

           

          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        	
                                                Borrowing

                                                Base
      Usage

                                              	
                                                Eurodollar
      

                                                Spread

                                              	
                                                ABR  

                                                Spread

                                              	
                                                Unused
      Commitment Fee Rate

                                              	 
      
	 	 	 	 
	
                                                Greater
      than or 

                                                equal
      to 100%

                                              	
                                                350
      b.p.

                                              	
                                                225
      b.p.

                                              	
                                                37.5
      b.p.

                                              
	 	 	 	 
	
                                                Greater
      than 90% and less than 100%

                                              	
                                                275
      b.p.

                                              	
                                                150
      b.p.

                                              	
                                                37.5
      b.p.

                                              
	 	 	 	 
	
                                                Greater
      than 75% and less than or equal to 90%

                                              	
                                                250
      b.p.

                                              	
                                                125
      b.p.

                                              	
                                                50
      b.p.

                                              
	 	 	 	 
	
                                                Greater
      than 50% and less than or equal to 75%

                                              	
                                                225
      b.p.

                                              	
                                                100
      b.p.

                                              	
                                                50
      b.p.

                                              
	 	 	 	 
	
                                                Less
      than or equal

                                                to
      50%

                                              	
                                                200
      b.p.

                                              	
                                                75
      b.p.

                                              	
                                                50
      b.p.

                                              

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
          Seventh
Amendment to Credit Agreement

          
          

        

        
          Page
4

          
            

          

        

        
          
          

        

      

       

      
        Each
change in the Applicable Rate 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 change.

         

        “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;
provided that,
when used in connection with a Eurodollar Loan, the term “Business Day” shall
also exclude any day on which banks are not open for dealings in dollar deposits
in the London interbank market.

         

        “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 Credit Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.02, (b) increased from time to time as a result of changes in the
Aggregate Commitment pursuant to Section 2.02A, (c) reduced or increased from
time to time as a result of changes to the Borrowing Base, and (d) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 11.04; provided that no Lender’s Commitment shall exceed
such Lender’s Applicable Percentage of the lesser of (x) the Maximum Facility
Amount and (y) the Borrowing Base then in effect.  The initial amount
of each Lender’s Commitment (which amount is such Lender’s Applicable Percentage
of the Aggregate Commitment) is set forth in Schedule 2.01, or in the Assignment
and Assumption or Lender Certificate pursuant to which such Lender shall have
assumed or agreed to provide its Commitment, as applicable.

         

        “Conforming Date”
means January 1,
2010.

         

        “Consolidated EBITDAX”
means the Borrower’s consolidated earnings determined in accordance with GAAP
(excluding earnings of Unrestricted Subsidiaries) before interest expense,
income taxes, depreciation, amortization, depletion, oil and gas asset
impairment write downs, lease impairment expense, gains and losses from the sale
of capital assets, and other non-cash charges.  For purposes of
calculating Consolidated EBITDAX, Consolidated EBITDAX shall not include (a) the
non-cash effects of (i) the early extinguishment of long-term debt, (ii) CCBM’s
equity investment in Pinnacle and (iii) any stock option re-pricing expenses,
(b) the income (or deficit) of any Person that is not a Subsidiary in which the
Borrower or any of its Restricted Subsidiaries has an Equity Interest, except to
the extent of the amount of dividends or other distributions actually paid to
the Borrower or any of its Restricted Subsidiaries, (c) the income (or deficit)
of any Restricted Subsidiary in which any other Person (other than the Borrower
or any of its Restricted Subsidiaries) has an Equity Interest, except to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is not prohibited by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary, and (d) any
portion of the 

         

        
          
            Seventh
Amendment to Credit Agreement

            
            

          

          
            Page
5

            
              

            

          

          
            
            

          

        

         

        
           

          
            	 	
                    consolidated
      earnings of Marcellus Holdings that is allocated or remitted to Avista or
      Avista JV Partner in accordance with the Marcellus JV Participation
      Agreement or the Marcellus JV Operating
      Agreement.

                  	 

          

           

        

        “Defaulting Lender”
means any Lender that (a) has failed to fund any portion of the Loans or any
participation in any Letter of Credit required to be funded by it hereunder
within one Business Day of the date required to be funded by it hereunder, (b)
has 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) has otherwise failed to pay over to the Administrative Agent or
any other Lender any other amount required to be paid by it hereunder within one
Business Day of the date when due, unless the subject of a good faith dispute,
or (d) has been deemed insolvent or become the subject of a bankruptcy or
insolvency proceeding.

         

        “Issuing Bank” means
Guaranty Bank, in its capacity as the issuer of Letters of Credit hereunder, and
its successors in such capacity as provided in Section 2.05(i).  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.

         

        “LIBO Rate” means,
with respect to any Eurodollar Borrowing for any Interest Period, the rate
appearing on Reuters BBA Libor Rates Page 3750 (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
at which dollar deposits of $5,000,000 and for a maturity comparable to such
Interest Period are offered to major banks in the London interbank market in
London, England by leading banks in the London interbank market selected by the
Administrative Agent in 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.

         

        “Maturity Date” means
October 29, 2012.

         

        “Maximum Facility
Amount” means $500,000,000.

         

        
          
            Seventh
Amendment to Credit Agreement

            
            

          

          
            Page
6

            
              

            

          

          
            
            

          

        

         

        “Obligations” means
(a) all obligations of every nature of the Borrower and the other Credit Parties
from time to time owed to the Administrative Agent, the Issuing Bank, the
Lenders or any of them and the Lender Counterparties under any Loan Document or
Swap Agreement (including, with respect to any Swap Agreement, obligations owed
under any Swap Agreement to any Person that was a Lender Counterparty at the
time such Swap Agreement was entered into), whether for principal, interest,
reimbursement of amounts drawn under any Letter of Credit, payments for early
termination of Swap Agreements, funding indemnification amounts, fees, expenses,
indemnification or otherwise and (b) Cash Management Obligations.

         

        “Prime Rate” means the
rate of interest per annum publicly announced from time to time by Guaranty Bank
as its prime rate in effect at its principal office in Houston,
Texas.  Each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being
effective.

         

        “Redetermination Date”
means (a) with respect to any Scheduled Redetermination, each March 31 and
September 30 of each year, commencing March 31, 2009, and (b) with respect
to any Special Redetermination (other than the Special Redetermination set forth
in the following clause (c)), the first day of the first month which is not less
than twenty (20) Business Days following the date of a request for a Special
Redetermination and (c) with respect to any Redetermination pursuant to Section
7.04, the date notice of such Redetermination is delivered to the Borrower
pursuant to Section 3.06.

         

        “Secured
Parties” means the
holders from time to time of the Obligations, and “Secured
Party” means any of
them.

         

        “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 (a) with respect to the Base
CD Rate, for new negotiable nonpersonal time deposits in dollars over $100,000
with maturities approximately equal to three months and (b) with respect to the
Adjusted LIBO Rate or the Adjusted Daily 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.

         

        
          
            Seventh
Amendment to Credit Agreement

            
            

          

          
            Page
7

            
              

            

          

          
            
            

          

        

         

        1.5    Increases in the Aggregate
Commitment.  The Credit Agreement shall be and it hereby is
amended by adding a new Section 2.02A
immediately after Section 2.02 to read
as follows:

         

        Section 2.02A
Increases in the
Aggregate Commitment.  So long as no Default has occurred and
is continuing or would arise as a result thereof, it is agreed by the parties
hereto that one or more financial institutions acceptable to the Borrower and
the Administrative Agent may become a Lender under this Agreement or a Lender
may increase its Commitment, in each case, with the consent of the
Administrative Agent and by executing and delivering to the Borrower and the
Administrative Agent a certificate substantially in the form of Exhibit E hereto
(a “Lender
Certificate”).  No Lender shall have any obligation to increase
its Commitment hereunder in connection with any increase in the Aggregate
Commitment pursuant to this Section 2.02A.  Upon receipt and agreement
by the Borrower and the Administrative Agent of any such Lender Certificate, (a)
the Aggregate Commitment automatically, without further action by the Borrower,
the Administrative Agent or any Lender, shall be increased by the amount
indicated in such Lender Certificate on the effective date set forth in such
Lender Certificate (the amount of such increase, the “Commitment Increase
Amount”); provided that (a) the
Commitment Increase Amount together with the existing Aggregate Commitment does
not, in the aggregate, exceed the lesser of (i) the Maximum Facility Amount and
(ii) the Borrowing Base then in effect, (b) the Register shall be amended to add
the Commitment of such additional Lender or to reflect the increase in the
Commitment of an existing Lender, and the Applicable Percentages of the Lenders
shall be adjusted accordingly to reflect the additional Lender or the increase
in the Commitment of an existing Lender, (c) any such additional Lender shall be
deemed to be a party in all respects to this Agreement and any other Loan
Document to which the Lenders are a party, (d) upon the effective date set forth
in such Lender Certificate, any such Lender party to the Lender Certificate
shall purchase a pro rata portion of the outstanding Credit Exposure of each of
the existing Lenders such that the Lenders (including any additional Lender, if
applicable) shall have the appropriate portion of the Aggregate Credit Exposure
(based in each case on such Lender’s Applicable Percentage, as revised pursuant
to this Section), and (e) the Borrower shall have paid to the Administrative
Agent, for the benefit of any additional Lender and any existing Lender
increasing its Commitment, any and all fees payable in the amounts and at the
times separately agreed upon between the Borrower and the Administrative
Agent.

         

        1.6    Letters of
Credit.  Clause (b) of Section 2.05 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        (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 

         

        
          
            Seventh
Amendment to Credit Agreement

            
            

          

          
            Page
8

            
              

            

          

          
            
            

          

        

         

        
           

          
            	 	
                    Administrative
      Agent (reasonably in advance of the requested date of issuance, amendment,
      renewal or extension) a notice requesting the issuance of a Letter of
      Credit, or identifying the Letter of Credit to be amended, renewed or
      extended, and specifying the date of issuance, amendment, renewal or
      extension (which shall be a Business Day), the date on which such Letter
      of Credit is to expire (which shall comply with paragraph (c) of this
      Section), the amount of such Letter of Credit, 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.  If
      requested by the Issuing Bank, the Borrower also shall submit a letter of
      credit application on the Issuing Bank’s standard form in connection with
      any request for a Letter of Credit.  A Letter of Credit shall be
      issued, amended, renewed or extended only if (and upon issuance,
      amendment, renewal or extension of each Letter of Credit the Borrower
      shall be deemed to represent and warrant that), after giving effect to
      such issuance, amendment, renewal or extension (i) the LC Exposure shall
      not exceed $20,000,000 and (ii) the Aggregate Credit Exposure shall not
      exceed the Aggregate Commitment.  Notwithstanding the foregoing,
      the Issuing Bank shall not at any time be obligated to issue, amend, renew
      or extend any Letter of Credit if any Lender is at such time a Defaulting
      Lender hereunder, unless (x) the Borrower cash collateralizes such
      Defaulting Lender’s portion of the total LC Exposure (calculated after
      giving effect to the issuance, amendment, renewal or extension of such
      Letter of Credit) in accordance with the procedures set forth in Section
      2.05(j) or (y) the Issuing Bank has entered into arrangements
      satisfactory to the Issuing Bank in its sole discretion with the Borrower
      or such Defaulting Lender to eliminate the Issuing Bank’s risk with
      respect to such Defaulting Lender.

                  	 

          

        

         

        1.7    Letters of
Credit.  Clause (j) of Section 2.05 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        (j)           Cash
Collateralization.

         

        (i)           If
at any time the Borrower elects to cash collateralize the LC Exposure of any
Defaulting Lender pursuant to Section 2.05(b), the Borrower shall deposit in an
account with the Administrative Agent, in the name of the Administrative Agent
and for the benefit of the Lenders (the “Cash Collateral Account”), an amount in
cash equal to such Defaulting Lender’s portion of the total LC Exposure at such
time as calculated pursuant to clause (x) of Section 2.05(b) (less any amounts
already on deposit in such Cash Collateral Account representing cash collateral
for any portion of such Defaulting Lender’s portion of the total LC
Exposure).

         

        (ii)           If
any Letter of Credit is outstanding at the time any Lender is a Defaulting
Lender, upon the written request of the Issuing Bank demanding the deposit of
cash collateral pursuant to this paragraph, the Borrower shall promptly, and in
any event within one (1) Business Day after receipt of such written request,
cash collateralize such Defaulting Lender’s portion of the total LC Exposure at
such time by depositing in 

         

        
          
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        the
Cash Collateral Account an amount in cash equal to such Defaulting Lender’s
portion of the total LC Exposure at such time (less any amounts already on
deposit in such Cash Collateral Account representing cash collateral for any
portion of such Defaulting Lender’s portion of the total LC
Exposure).

         

        (iii)           If
any Event of Default shall occur and be continuing, on the Business Day that the
Borrower receives notice from the Administrative Agent or the Required Lenders
(or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure
representing greater than 66-2/3% of the total LC Exposure) demanding the
deposit of cash collateral pursuant to this paragraph, the Borrower shall
deposit in the Cash Collateral Account an amount in cash equal to the total LC
Exposure as of such date plus any accrued and unpaid interest thereon; provided
that the obligation to deposit such cash collateral shall become effective
immediately, and such deposit shall become immediately due and payable, without
demand or other notice of any kind, upon the occurrence of any Event of Default
with respect to the Borrower described in clause (h) or (i) of ARTICLE
IX.

         

        (iv)           Deposits
in the Cash Collateral Account made pursuant to the foregoing paragraphs (i),
(ii) and (iii) shall be held by the Administrative Agent as collateral for the
payment and performance of the obligations of the Borrower under this
Agreement.  The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over the Cash Collateral
Account.  Other than any interest earned on the investment of such
deposits and interest at the rate per annum in effect for accounts of the same
type maintained with the Administrative Agent at such time, 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 (but subject to the consent of Lenders with LC
Exposure  representing 66-2/3% or more of the total LC Exposure), be
applied to satisfy other obligations of the Borrower under this
Agreement.

         

        (v)           If
the Borrower is required to provide an amount of cash collateral pursuant to
paragraphs (i), (ii) or (iii) above, such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower within three Business Days after
(x) in the case of cash collateral provided pursuant to paragraphs (i) or (ii)
above, the applicable Defaulting Lender is no longer a Defaulting Lender and
(y) in the case of cash collateral 

         

        
          
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        provided
pursuant to paragraph (iii) above, all Events of Default have been cured or
waived.

         

        1.8    Fees.  Clauses (b)
and (c) of Section
2.11 of the Credit Agreement shall be and they hereby are amended in
their respective entireties to read as follows:

         

        (b)           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 the same Applicable Rate used to determine the
interest rate applicable 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 Effective Date 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, and (ii) to the
Issuing Bank a fronting fee, which shall accrue at a rate of 0.125% 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 Seventh Amendment Effective Date to but excluding the later of the
date of termination of the Aggregate Commitment and the date on which there
ceases to be any LC Exposure, as well as the Issuing Bank’s 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 Effective Date
(or in the case of the fronting fee, the first such date to occur after the
Seventh Amendment Effective Date); provided that all
such fees shall be payable on the date on which the Aggregate Commitment
terminates and any such fees accruing after the date on which the Aggregate
Commitment terminates shall be payable on demand.  Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand.  All participation fees and fronting fees shall
be computed on the basis of a year of 360 days and shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day).

         

        (c)           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 (including, without limitation, the fees set forth in the
Fee Letter).

         

        1.9    Interest.  Clause
(a) of Section
2.12 of the Credit Agreement shall be and it hereby is amended in its
entirety to read as follows:

         

        (a)           The
Loans comprising each ABR Borrowing shall bear interest at the Alternate Base
Rate plus the Applicable Rate with respect to ABR Loans; provided that the
interest rate on any ABR Loan for any day shall never be less 

         

        
          
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          than
the sum of (i) the Adjusted Daily LIBO Rate on such day plus (ii) the
Applicable Rate with respect to Eurodollar Loans on such day.

        

         

        1.10    Payments Generally; Pro Rata
Treatment; Sharing of Set-offs.  Clauses (a), (b) and (e) of
Section 2.17 of
the Credit Agreement shall be and they hereby are amended in their respective
entireties to read as follows:

         

        (a)           The
Borrower shall make each payment required to be made by it hereunder (whether of
principal, interest, fees or reimbursement of LC Disbursements, or of amounts
payable under Section 2.14, Section 2.15 or Section 2.16, or otherwise) prior to
12:00 noon, on the date when due, in immediately available funds, without
set-off or counterclaim.  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 at 333 Clay Street, Suite 4400, Houston,
Texas 77002, except payments to be made directly to the Issuing Bank as
expressly provided herein and except that payments pursuant to Section 2.14,
Section 2.15, Section 2.16 and Section 11.03 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 in like funds as
received.  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)           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; provided that in the event such funds
are received by and available to the Administrative Agent as a result of the
exercise of any rights and remedies with respect to any collateral under the
Security Instruments, the parties entitled to a ratable share of such funds
pursuant to the foregoing clause (ii) and the determination of each parties’
ratable share shall include, on a pari passu basis, (x) the Lender
Counterparties and the actual aggregate amounts then due and owing to each
Lender Counterparty by the Borrower or any Guarantor as a result of the early
termination of any transactions under any Swap Agreements included in the
Obligations (after giving effect to any netting agreements) and (y) Cash
Management Obligations then due and owing to Guaranty Bank or any of its
Affiliates by the Borrower or any Guarantor.

         

        
          
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        (e)           If
any Lender shall fail to make any payment required to be made by it pursuant to
Section 2.05(d), Section 2.05(e), Section 2.06(b), Section 2.17(d) or Section
11.03(c), 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.  Notwithstanding anything to the contrary contained in this
Agreement, but subject in all respects to the foregoing sentence, at any time
and from time to time any Lender is a Defaulting Lender, any amounts received by
the Administrative Agent for the repayment of principal on the Loans or
reimbursement of any LC Disbursement shall be applied ratably to prepay the
Loans of, and reimbursement obligations owed to, all non-Defaulting Lenders
until such time as each non-Defaulting Lender’s pro rata portion of the
Aggregate Credit Exposure is equal to its Applicable Percentage.

         

        1.11    Reserve Report; Proposed Borrowing
Base; Conforming Borrowing Base.  Section 3.01 of
the Credit Agreement shall be and it hereby is amended in its entirety to read
as follows:

         

        Section
3.01.  Reserve
Report; Proposed Borrowing Base; Conforming Borrowing
Base.  During the period from the Seventh Amendment Effective
Date until the first Redetermination after the Seventh Amendment Effective Date,
the Borrowing Base shall be $250,000,000 and the Conforming Borrowing Base shall
be $215,000,000.  As soon as available and in any event by February 28
and August 31 of each year, beginning February 28, 2009, the Borrower shall
deliver to the Administrative Agent and each Lender a Reserve Report, prepared
as of the immediately preceding December 31 and June 30, respectively, in form
and substance reasonably satisfactory to the Administrative Agent and prepared
by an Approved Petroleum Engineer (or, in the case of any Reserve Report other
than the Reserve Report due on February 28 of each year, by petroleum engineers
employed by the Borrower or its Subsidiaries) together with such other
information, reports and data concerning the value of the Borrowing Base
Properties as the Administrative Agent shall deem reasonably necessary to
determine the value of such Borrowing Base Properties.  Simultaneously
with the delivery to the Administrative Agent and the Lenders of each Reserve
Report, the Borrower shall submit to the Administrative Agent and each Lender
the Borrower’s requested amount of the Borrowing Base as of the next
Redetermination Date.  Promptly after the receipt by the
Administrative Agent of such Reserve Report and Borrower’s requested amount for
the Borrowing Base, the Administrative Agent shall submit to the Lenders a
recommended amount of the Borrowing Base and, with respect to any
Redetermination prior to the Conforming Date, the Conforming Borrowing Base as
of the next Redetermination Date; provided that no Redetermination of the
Conforming Borrowing Base shall be required after the Conforming
Date.

         

        
          
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        1.12    Capitalization.  Section 4.13 of the
Credit Agreement shall be and it hereby is amended by deleting the phrase
“Effective Date” located therein and substituting in lieu thereof the phrase
“Seventh Amendment Effective Date”.

         

        1.13    Deposit
Accounts.  Section 4.18 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
4.18.  Deposit
Accounts.  From and after sixty (60) days after the Seventh
Amendment Effective Date (or such longer time as acceptable to Administrative
Agent in its sole discretion), except for deposit and
investment accounts maintained at financial institutions other than the
Administrative Agent the aggregate balance of which does not exceed $200,000 at
any time for all such other deposit and investment accounts taken as a whole, no
Credit Party maintains any deposit or investment account (and no Affiliate of
any Credit Party maintains any deposit or investment account) into which either
(a) proceeds of Hydrocarbon production from the Oil and Gas Interests included
in the Borrowing Base Properties are deposited or (b) distributions and
dividends on Equity Interests owned by any Credit Party are paid and deposited,
in each case, other than (x) deposit or investment accounts maintained with the
Administrative Agent or (y) deposit or investment accounts maintained with other
financial institutions acceptable to the Administrative Agent with respect to
which a control agreement in favor of the Administrative Agent for the benefit
of the Secured Parties, in form and substance reasonably satisfactory to the
Administrative Agent, has been executed and delivered.

         

        1.14    Financial Statements; Other
Information.  Clause (e) of Section 6.01 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        (e)           as
soon as available, and in any event no later than February 28 and August 31 of
each year, the Reserve Reports required on such dates pursuant to Section
3.01;

         

        1.15    Notice of Material
Events.  The lead-in sentence to Section 6.02 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
6.02  Notices of Material
Events.  The Borrower shall promptly notify the Administrative
Agent in writing of each of the following (and the Administrative Agent shall
promptly notify each Lender of the occurrence thereof):

         

        1.16    Restricted
Subsidiaries.  Section 6.13 of the
Credit Agreement shall be and it hereby is amended by deleting the phrase
“Effective Date” located in clause (a) therein and substituting in lieu thereof
the phrase “Seventh Amendment Effective Date”.

         

        1.17    Production Proceeds and Bank
Accounts.  Section 6.15 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        
          
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        Section
6.15.  Production
Proceeds and Bank Accounts.  Within sixty (60) days after the
Seventh Amendment Effective Date (or such longer time as acceptable to
Administrative Agent in its sole discretion), subject to the terms and
conditions of the Mortgages, each Credit Party shall cause all production
proceeds and revenues attributable to the Oil and Gas Interests of such Credit
Party and all distributions and dividends on any Equity Interests owned by any
Credit Party to be paid and deposited into deposit accounts of such Credit Party
maintained with the Administrative Agent or with other financial institutions
acceptable to the Administrative Agent and cause all such deposit accounts at
such other financial institutions (other than deposit and investment accounts
the aggregate balance of which does not exceed $200,000 at any time for all such
other deposit and investment accounts taken as a whole) to be subject to a
control agreement in favor of the Administrative Agent for the benefit of the
Secured Parties, in form and substance reasonably satisfactory to the
Administrative Agent (each, an “Eligible
Account”).

         

        1.18    Liens.  Section 7.02 of the
Credit Agreement shall be and it hereby is amended by (a) deleting the “and” at
the end of clause (g) thereof, (b) deleting the period at the end of clause (h)
thereof and substituting in lieu thereof the phrase “; and” and (c) adding a new
clause (i) to the end thereof to read as follows:

         

        (i)           Liens
consisting of beneficial ownership interests of Avista JV Partner in the
Marcellus Properties; provided that such Marcellus Properties do not constitute
Borrowing Base Properties.

         

        1.19    Dispositions.  Clause
(b) of Section
7.04 of the Credit Agreement shall be and it hereby is amended in its
entirety to read as follows:

         

        (b)           Dispositions
of (i) Borrowing Base Properties or (ii) one hundred percent (100%) of the
Equity Interests of any Restricted Subsidiary that owns Borrowing Base
Properties, in each case, made between Scheduled Redeterminations of the
Borrowing Base; provided that the Engineered Value of all Borrowing Base
Properties subject to Dispositions referenced in clause (i) above and the
Engineered Value of all Borrowing Base Properties owned by each Restricted
Subsidiary subject to Dispositions referenced in clause (ii) above, does not
exceed, in the aggregate for all such Dispositions made between Scheduled
Redeterminations, five percent (5%) of the Borrowing Base most recently
determined;

         

        1.20    Dispositions.  Clause
(c) of Section
7.04 of the Credit Agreement shall be and it hereby is amended in its
entirety to read as follows:

         

        (c)           subject
to the prior written consent of the Required Lenders, any other Disposition of
(x) Borrowing Base Properties or (y) one hundred percent (100%) of the Equity
Interests of any Restricted Subsidiary that owns Borrowing Base Properties,
provided that no such consent is required if (i) the Borrower delivers prior
written notice of such Disposition to the Administrative Agent at 

         

        
          
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                    least thirty (30)
      days prior to the date of such Disposition, or such shorter period of time
      agreed to by the Administrative Agent, specifying the Borrowing Base
      Properties subject to such Disposition (and, in the case of a Disposition
      of one hundred percent (100%) of the Equity Interests of any Restricted
      Subsidiary, specifying the Equity Interests subject to such Disposition
      and the Borrowing Base Properties owned by such Restricted Subsidiary),
      the proposed closing date for such Disposition and the consideration to be
      received by the Borrower and any Guarantors, as the case may be, as a
      result of such Disposition, and (ii) the Credit Parties prepay the
      Borrowings pursuant to Section 2.10(b) in an amount sufficient to
      eliminate any Borrowing Base Deficiency as determined by the Required
      Lenders after the receipt of such notice by the Administrative Agent and
      in such Lenders’ complete and sole discretion using such methodologies,
      assumptions and discount rates as such Lenders customarily use in
      assigning collateral value to Oil and Gas Interests as of such date of
      determination;

                  	 

          

           

        

        1.21    Dispositions.  Clause
(g) of Section
7.04 of the Credit Agreement shall be and it hereby is amended in its
entirety to read as follows:

         

        (g)           except
for Equity Interests of any Restricted Subsidiary that owns Borrowing Base
Properties, Dispositions of any assets not constituting Borrowing Base
Properties or the proceeds thereof;

         

        1.22    Investments, Loans, Advances,
Guarantees and Acquisitions.  Clause (p) of Section 7.05 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        (p)           investments
in an aggregate amount not to exceed $15,000,000 at any time outstanding made at
any time prior to July 1, 2009 from the cash proceeds of the equity issuance
made by Borrower on or about February 15, 2008; provided that, with
respect to each investment made pursuant to this clause (p), (i) at the
time such investment is made, no Default or Event of Default shall have occurred
and be continuing or be caused by such investment and (ii) before and
immediately after giving effect to such investment, Borrowing Base Usage
(calculated by using the Borrowing Base rather than the Conforming Borrowing
Base, at any time prior to the Conforming Date) is not greater than
75%;

         

        1.23    Investments, Loans, Advances,
Guarantees and Acquisitions.  Clause (q) of Section 7.05 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        (q)           any
other investments in any Person in an aggregate amount not to exceed $60,000,000
at any time outstanding for all such investments; provided that, with
respect to each investment made pursuant to this clause (q), (i) immediately
after giving effect to such investment, the total outstanding amount of
investments made pursuant to this clause (q) with the proceeds of Loans shall
not exceed $50,000,000, (ii) at the time such investment is made, no
Default or Event of Default shall have occurred and be continuing or be caused
by such investment 

         

         

        
          
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        and (iii) before and
immediately after giving effect to such investment, Borrowing Base Usage
(calculated by using the Borrowing Base rather than the Conforming Borrowing
Base, at any time prior to the Conforming Date) is not greater than 75%;
and

         

        1.24    Investments, Loans, Advances,
Guarantees and Acquisitions.  Section 7.05 of the
Credit Agreement shall be and it hereby is amended by adding a new clause (r)
immediately following clause (q) to read as follows:

         

        
        

        (r)           investments
by the Borrower or any of its Restricted Subsidiaries consisting of profit
interests in Avista JV Partner acquired in connection with the Marcellus Joint
Venture and investments received by the Borrower or any of its 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.

         

        1.25    Restricted
Payments.  Section 7.07 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
7.07.  Restricted
Payments.  The Borrower will not, nor will it permit any of its
Restricted Subsidiaries to, declare or make, or agree to pay or make, directly
or indirectly, any Restricted Payment, except that (a) the Borrower may declare
and pay dividends with respect to its Equity Interests payable solely in
additional shares of its common stock, (b) any Restricted Subsidiary may make
Restricted Payments to the Borrower or any Guarantor, (c) 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, (d) the Borrower may
declare and pay distributions effecting “poison pill” rights plans provided that
any securities or rights so distributed have a nominal fair market value at the
time of declaration, (e) the Borrower may make any mandatory or optional cash
payments or deliveries of the Borrower’s capital stock, or any combination
thereof, in settlement of its obligations under any Convertible Notes Documents
upon the conversion or required repurchase of any Convertible Notes thereunder,
and (f) the Borrower may make repurchases, redemptions or other acquisitions or
retirements for value of its Equity Interests (i) deemed to occur upon the
exercise of stock options or other rights to acquire Equity Interests of
Borrower if such Equity Interests represent a portion of the exercise or
exchange price thereof or (ii) to the extent of any withholding tax liability
incurred as a result of any exercise, vesting, grant or exchange of Equity
Interests of Borrower issued under any incentive plan adopted by the holders of
its Equity Interests, in accordance with such incentive plan; provided that (A)
at the time of such repurchase, redemption or other acquisition or retirement
for value, no Default or Event of Default has occurred and is continuing or
would be caused by such Restricted Payment and (B) such withholding tax is
remitted to the appropriate governmental authority within thirty (30) days after
such repurchase, redemption or other acquisition or retirement for
value.

         

        
          
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        1.26    Transactions with
Affiliates.  Section 7.08 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
7.08.  The Borrower will not, nor will it permit any of its Restricted
Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or
purchase, lease or otherwise acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except (a) in the
ordinary course of business at prices and on terms and conditions not less
favorable to the Borrower or such Restricted Subsidiary than could be obtained
on an arm’s-length basis from unrelated third parties, (b) transactions between
or among the Borrower and its Restricted Subsidiaries not involving any other
Affiliate, (c) transactions described on Schedule 7.08, (d) any Restricted
Payment permitted by Section 7.07, (e) investments permitted under Section 7.05,
(f) with respect to any Person serving as an officer, director, employee or
consultant of the Borrower or any Restricted Subsidiary, (i) the payment of
reasonable compensation, benefits or indemnification liabilities in connection
with his or her services in such capacity provided that the payment of any such
compensation, benefits or indemnification liabilities are approved by a majority
of the disinterested members of the Board of Directors of the Borrower or by the
Compensation Committee of the Borrower, (iii) the making of advances for travel
or other business expenses in the ordinary course of business or (iii) such
Person’s participation in any benefit or compensation plan, (g) the repayment of
Indebtedness permitted under Section 7.01(c), and (h) transactions with Avista
or any of its Subsidiaries entered into in connection with the Marcellus Joint
Venture.

         

        1.27    Restrictive
Agreements.  Section 7.09 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
7.09.  Restrictive
Agreements.  The Borrower will not, nor will it permit any of
its Restricted Subsidiaries to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Restricted
Subsidiary to create, incur or permit to exist any Lien upon any of its property
or assets (other than property or assets consisting of (1) Equity Interests in
any Unrestricted Subsidiary, (2) Equity Interests of joint ventures permitted
under Section 7.05(o), 7.05(p) or 7.05(q), (3) investments permitted under
Section 7.05(j) if such restriction or conditions apply only to the property or
assets that are the subject of such investment and (4) unless the value of such
Equity Interests are included in the determination of the Borrowing Base, Equity
Interests in Pinnacle permitted under Section 7.05(l), and (5) profit interests
in Avista JV Partner permitted under Section 7.05(r)), or (b) the ability of any
Restricted Subsidiary to pay dividends or other distributions with respect to
any of its Equity Interests or to make or repay loans or advances to the
Borrower or any Restricted Subsidiary or to Guarantee Indebtedness of the
Borrower or any Restricted Subsidiary; provided that (i) the
foregoing shall not apply to restrictions and conditions imposed by law or by
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                      to restrictions
      and conditions set forth in the Second Lien Facility Documents, (iii) the
      foregoing shall not apply to restrictions and conditions existing on the
      date hereof identified on Schedule 7.09 (but shall apply to any extension
      or renewal of, or any amendment or modification expanding the scope of,
      any such restriction or condition), (iv) clause (a) of the foregoing shall
      not apply to restrictions or conditions imposed by any agreement relating
      to secured Indebtedness permitted by this Agreement (other than the Second
      Lien Facility) if such restrictions or conditions apply only to the
      property or assets securing such Indebtedness, (v) clause (a) of the
      foregoing shall not apply to customary provisions in leases and other
      contracts restricting the assignment thereof (other than oil, gas and
      mineral leases constituting Mortgaged Properties), (vi) existing
      restrictions with respect to a Person acquired by the Borrower or any of
      its Restricted Subsidiaries (except to the extent such restrictions were
      put in place in connection with or in contemplation of such acquisition),
      which restrictions are not applicable to any Person, or the properties or
      assets of any Person, other than the Person, or the property or assets of
      the Person, so acquired; and (vii) any restriction with respect to
      Equity Interests of a Restricted Subsidiary imposed pursuant to an
      agreement entered into for the sale or disposition of such Equity
      Interests or any restriction with respect to the assets of a Credit Party
      imposed pursuant to an agreement entered into for the sale or disposition
      of such assets or all or substantially all the Equity Interests of such
      Restricted Subsidiary pending the closing of such sale or
      disposition.

                    	 

            

             

          

        

        1.28    Leverage
Ratio.  Section 7.12 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
7.12.  Financial
Covenants.

         

        (a)           Consolidated Current
Ratio.  The Borrower will not permit the Consolidated Current
Ratio to be less than 1.00 to 1.00 at any time.  For purposes of
determining the Borrower’s compliance with this Section 7.12(a), 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) in connection with the Marcellus Joint Venture will be excluded
from the calculation of Consolidated Current Liabilities.

         

        (b)           Leverage
Ratio.  The Borrower will not permit the ratio, determined as
of the end of any fiscal quarter ending on or after September 30, 2008, of (A)
Total Net Debt as of the end of such fiscal quarter to (B) Consolidated EBITDAX
for the trailing four fiscal quarter period ending on such date, to be greater
than 4.00 to 1.00.  For purposes of determining the Borrower’s
compliance with this Section 7.12(b), Consolidated EBITDAX shall not include the
net revenue attributable to any assets that are subject to a Lien granted to
secure Non-Recourse Debt.

         

        1.29    Marcellus JV
Documents.  Article VII of the Credit Agreement shall be and it
hereby is amended by adding a new Section 7.16 to the
end thereof to read as follows:

         

        
          
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        Section
7.16.  Marcellus JV
Documents.  Without the Administrative Agent’s prior written
consent, the Borrower will not, nor will it permit any Restricted Subsidiary to,
enter into or permit any supplement, modification or amendment of, or waive any
right or obligation of any Person under, any Marcellus JV Document if the effect
thereof would be materially adverse to the Administrative Agent and/or the
Lenders.

         

        1.30    Notices.  Subclause
(ii) of Section
11.01(a) of the Credit Agreement shall be and it hereby is amended in its
entirety to read as follows:

         

        (ii)           if
to the Administrative Agent or Issuing Bank, to Guaranty Bank, 333 Clay Street,
Suite 4400, Houston, Texas 77002, Telecopy No.: (713) 890-8868,
Attention:  Kelly L. Elmore III;

         

        1.31    Waivers;
Amendments.  Section 11.02 of the
Credit Agreement shall be and it hereby is amended by adding a new clause (c) to
the end thereof to read as follows:

         

        (c)           Notwithstanding
anything to the contrary contained in this Section 11.02, the Administrative
Agent may, with the consent of the Borrower only, amend, modify or supplement
this Agreement or any of the other Loan Documents to correct any clerical errors
or cure any ambiguity, omission, mistake, defect or inconsistency.

         

        1.32    Governing Law; Jurisdiction; Consent
to Service of Process.  Clause (b) of Section 11.09 shall
be and it hereby is amended in its entirety to read as follows:

         

        (b)           EACH
CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS
STATE COURT SITTING IN HOUSTON, TEXAS IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH TEXAS STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT
THAT THE ADMINISTRATIVE AGENT, THE ISSUING BANK OR ANY LENDER MAY OTHERWISE HAVE
TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST ANY CREDIT
PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

         

        
          
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        1.33    Marshaling; Payments Set
Aside.  Article XI of the Credit Agreement shall be and it
hereby is amended by adding a new Section 11.15 to the
end thereof to read as follows:

         

        Section
11.15  Marshaling; Payments Set
Aside.  Neither
Administrative Agent nor any Lender shall be under any obligation to marshal any
assets in favor of any Credit Party or any other Person or against or in payment
of any or all of the Obligations.  To the extent that any Credit Party
makes a payment or payments to Administrative Agent or any Lender, or
Administrative Agent or any Lender enforces any security interests or exercises
their rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, any other state
or federal law, common law or any equitable cause, then, to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor or related thereto, shall be
reinstated and continued in full force and effect as if such payment or payments
had not been made or such enforcement or setoff had not occurred.

         

        1.34    Amendment to
Schedules.  Schedule 2.01, Schedule 4.13 and
Schedule 7.02
to the Credit Agreement shall be and they hereby are amended in their respective
entireties and replaced with Schedule 2.01, Schedule 4.13 and
Schedule 7.02
attached hereto.

         

        1.35   Deletion of
Schedule.  Schedule 4.18 of the
Credit Agreement shall be and it hereby is deleted and the reference to
“Schedule 4.18 – Deposit and Investment Accounts” located on the page
immediately following the Table of Contents shall be and it hereby is
deleted.

         

        1.36    Amendment to
Exhibits.  Each of the Exhibits to the Credit Agreement shall
be and they hereby are amended by (a) deleting all references to “JPMorgan Chase
Bank, N.A.” or “JPMorgan Chase Bank, National Association” solely in its
capacity as Administrative Agent under the Credit Agreement and substituting in
lieu thereof the name “Guaranty Bank”.

         

        1.37    Amendment to Exhibits. Exhibit E to the
Credit Agreement shall be and it hereby is deleted in its entirety and replaced
with Exhibit E
attached hereto and the reference to “Exhibit E – Form of Intercreditor
Agreement Amendment” located on the page immediately following the Table of
Contents shall be and it hereby is deleted in its entirety and replaced with the
phrase “Exhibit E – Form of Lender Certificate”.

         

        1.38    Redetermined Borrowing Base and
Conforming Borrowing Base.  This Amendment shall constitute
notice of the Redetermination of the Borrowing Base and the Conforming Borrowing
Base pursuant to Section 3.06 of
the Credit Agreement, and the Successor Agent, the Lenders and the Borrower
hereby acknowledge that effective as of Seventh Amendment Effective Date, the
Borrowing Base is $250,000,000, the Conforming Borrowing Base is $215,000,000
and the Monthly Reduction is $0.00.

         

        
          
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        SECTION
2. New Lenders and Reallocation of
Commitments and Loans.  The Lenders have agreed among
themselves to reallocate their respective Applicable Percentages of the
Aggregate Commitment and to, among other things, allow certain financial
institutions identified by Guaranty Bank, in its capacity as Lead Arranger, in
consultation with Borrower, to become a party to the Credit Agreement as a
Lender (each, a “New
Lender”) by acquiring an interest in the Aggregate
Commitment.  The Successor Agent and Borrower hereby consent to such
reallocation and to each New Lender’s acquisition of an interest in the
Aggregate Commitment.  On the Seventh Amendment Effective Date and
after giving effect to such reallocation of the Aggregate Commitment, the
Applicable Percentage of each Lender shall be as set forth on Schedule 2.01 of this
Amendment.  With respect to such reallocation, each New Lender shall
be deemed to have acquired its Commitment from each of the other Lenders
pursuant to the terms of the Assignment and Assumption attached as Exhibit A to the
Credit Agreement as if such New Lender and the other Lenders
had executed an Assignment and Assumption with respect to such
allocation.  Borrower and the Successor Agent hereby consent to such
assignment to the New Lenders.  To the extent requested by any Lender
or by JPMorgan Chase Bank, N.A. or Bank of Scotland plc (each a “Departing Lender” and
collectively, the “Departing Lenders”)
in accordance with Section 2.15 of the
Credit Agreement, the Borrower shall pay to such Lender or Departing Lender,
within the time period prescribed by Section 2.15 of the
Credit Agreement, any amounts required to be paid by the Borrower under Section 2.15 of the
Credit Agreement in the event the payment of any principal of any Eurodollar
Loan, the conversion of any Eurodollar Loan, or the assignment of any Eurodollar
Loan by any Departing Lender other than on the last day of an Interest Period
applicable thereto is required in connection with the reallocation contemplated
by this Section
2 or the assignments contemplated in Section 7.9 of this
Amendment.

         

        SECTION
3.  Resignation
and Appointment of Administrative Agent and Issuing Bank.

         

        3.1    Resignation of Resigning Agent and
Resigning Issuing Bank.

         

        (a)           Pursuant
to ARTICLE X of the Credit Agreement, the Resigning Agent hereby resigns as
Administrative Agent under the Credit Agreement upon the effectiveness of this
Amendment.  Upon the effectiveness of such resignation, the Resigning
Agent shall be discharged from its duties and obligations as Administrative
Agent under the Credit Agreement and the other Loan
Documents.  Notwithstanding such resignation and the assignment
contained in Section
4.1 of this Amendment, the provisions of ARTICLE X and Section 11.03 of the
Credit Agreement shall continue in effect for the benefit of the Resigning Agent
in respect of any action taken or omitted to be taken by it while it was acting
as the Administrative Agent under the Credit Agreement and the other Loan
Documents.

         

        (b)           Pursuant
to Section
2.05(i) of the Credit Agreement, the Resigning Issuing Bank hereby
resigns as Issuing Bank under the Credit Agreement upon the effectiveness of
this Amendment.  Upon the effectiveness of such resignation, the
Resigning Issuing Bank shall be discharged from its duties and obligations as
Issuing Bank under the Credit Agreement and the other Loan
Documents.  Notwithstanding such resignation, the provisions of Section 11.03 of the
Credit Agreement shall continue in effect for the benefit of the Resigning
Issuing Bank in respect of any action taken or omitted to be taken by it while
it was acting as the Issuing Bank under the Credit Agreement and the other Loan
Documents.

         

        
          
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        3.2    Appointment of Successor Agent and
Successor Issuing Bank.

         

        (a)           Pursuant
to ARTICLE X of the Credit Agreement, the Lenders hereby appoint the Successor
Agent as Administrative Agent under the Credit Agreement and the other Loan
Documents.  By its execution hereof, the Successor Agent hereby
accepts such appointment and by its acceptance of such appointment, the
Successor Agent hereby succeeds to and becomes vested with all the rights,
powers, privileges and duties of the Resigning Agent in its capacity as
Administrative Agent under the Credit Agreement.  Notwithstanding the
appointment of the Successor Agent as Administrative Agent, Guaranty Bank, as a
Lender, shall have the same rights and powers under the Credit Agreement and any
other Loan Document with respect to its Commitment and its Loans as any other
Lender and may exercise the same as though it were not the Administrative
Agent.  In addition, the term “Lender” or “Lenders” in the Credit
Agreement or any other Loan Document shall, at any time when Guaranty Bank is a
Lender, unless the context otherwise indicates, include the Successor Agent in
its individual capacity.

         

        (b)           Pursuant
to Section
2.05(i) of the Credit Agreement, the Borrower and the Successor Agent
hereby appoint the Successor Issuing Bank as Issuing Bank under the Credit
Agreement and the other Loan Documents.  By its execution hereof, the
Successor Issuing Bank hereby accepts such appointment and by its acceptance of
such appointment, the Successor Issuing Bank hereby succeeds to and becomes
vested with all the rights, powers, privileges and duties of the Issuing Bank
under the Credit Agreement with respect to any Letters of Credit issued on or
after the Seventh Amendment Effective Date.

         

        SECTION
4.  Assignment

         

        4.1    Resigning Agent
Assignment.  Upon the effectiveness of this Amendment, the
Resigning Agent, solely in its capacity as Administrative Agent under the Credit
Agreement, hereby transfers, assigns, conveys and delivers, as of the Seventh
Amendment Effective Date, to the Successor Agent, for the benefit of itself and
the Secured Parties, all of the Resigning Agent’s, right, title and interest in,
to and under (i) the Credit Agreement and the other Loan Documents, (ii) any and
all collateral granted to the Resigning Agent, for the benefit of the Secured
Parties, under any Loan Document and (iii) all proceeds of any and all of the
foregoing (collectively, the “Assigned Items”);
provided that the Resigning Agent expressly reserves all of its rights and
benefits provided to it under ARTICLE X and Section 11.03 of the
Credit Agreement.  The Assigned Items are being assigned and
transferred by the Resigning Agent to the Successor Agent without recourse and
except as expressly provided in Section 4.2 of this
Amendment, without representation or warranty, express or implied, by the
Resigning Agent.

         

        4.2    Representations
and Warranties.

         

        (a)           The
Resigning Agent represents and warrants to the Successor Agent that (i) the
Resigning Agent is, in all material respects, the owner and holder of the
Assigned Items, (ii) the Assigned Items are, in all material respects, free and
clear of any lien, encumbrance or other adverse claim and (iii) the Resigning
Agent has full right, power and authority to transfer to the Successor Agent all
of the Assigned Items and to execute and deliver this Amendment.

         

        
          
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        (b)           The
Successor Agent represents and warrants to the Resigning Agent that (i) the
Successor Agent has full right, power and authority to assume the Assigned Items
and to execute and deliver this Amendment and (ii) the Successor Agent has made
an independent decision to enter into this Amendment and to assume the Assigned
Items, without reliance on any representation or warranty by the Resigning
Agent, other than those representations and warranties expressly set forth
herein.

         

        (c)           Each
Credit Party represents and warrants to the Resigning Agent and the Successor
Agent that as of the Seventh Amendment Effective Date, both before and
immediately after giving effect to this Amendment, such Credit Party has no
right of setoff, defense or counterclaim against the enforcement of the Assigned
Items.

         

        4.3    UCC Financing
Statements.  The Resigning Agent and each Credit Party hereby
authorizes the Successor Agent to file UCC financing statement amendments and
other assignment documents assigning all of the Resigning Agent’s right, title
and interest in, to and under the Assigned Items to the Successor
Agent.

         

        4.4    Collateral.  The
Resigning Agent shall, at the Credit Parties’ expense, promptly, but in any
event within ten (10) Business Days after the Seventh Amendment Effective Date,
deliver to the Successor Agent all of the collateral in the possession or
control of the Resigning Agent, solely in its capacity as administrative agent
for the Lenders under the Credit Agreement, including, without limitation, any
stock certificates (together with stock powers with respect thereto) held by the
Resigning Agent in connection with the Credit Agreement and any other Loan
Documents.

         

        4.5    Modification of
Mortgages.  Within thirty (30) days after the Seventh Amendment
Effective Date (or such longer time as is acceptable to the Successor Agent in
its sole discretion), the Resigning Agent and each Credit Party agrees to
deliver to the Successor Agent assignments and/or amendments to each of the
Mortgages as shall be reasonably requested by the Successor Agent to evidence
the assignment of the Resigning Agent’s right, title and interest in, to and
under the Mortgages to the Successor Agent, duly executed by the Resigning
Agent, the Successor Agent and the appropriate Credit Parties and in form and
substance reasonably satisfactory to the Successor Agent.

         

        4.6    Insurance
Certificates.  Within thirty (30) days after the Seventh
Amendment Effective Date (or such longer time as is acceptable to the Successor
Agent in its sole discretion), Borrower shall deliver to the Successor Agent (a)
copies of standard insurance certificates issued to Successor Agent evidencing
the insurance coverage required to be maintained by the Credit Parties pursuant
to Section 6.05
of the Credit Agreement and (b) standard endorsements in favor of the Successor
Agent naming the Successor Agent as additional insured with respect to all
liability insurance policies and loss payee with respect to all casualty and
property insurance policies, in the case of each of clauses (a) and (b), in form
and substance reasonably satisfactory to the Successor Agent.

         

        4.7    Further
Assurance.  The Resigning Agent agrees from time to time, at
the Credit Parties’ expense, to do such further acts and things, and to execute
and deliver such additional conveyances, assignments, agreements, instruments
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        any time
reasonably deem necessary or desirable to carry out the intent and purposes set
forth in Section
3 and Section
4 of this Amendment.

         

        SECTION
5.  Consents.

         

        5.1    Appointment of Guaranty Bank as
Successor Agent.  Each Credit Party hereby consents to the
appointment by the Lenders of the Successor Agent as Administrative Agent under
the Credit Agreement and the other Loan Documents pursuant to Section 3 of this
Amendment.

         

        5.2    Appointment of Guaranty Bank as
Successor Issuing Bank.  Each Lender hereby consents to the
appointment by the Borrower and the Successor Agent of the Successor Issuing
Bank as Issuing Bank under the Credit Agreement and the other Loan Documents
pursuant to Section
3 of this Amendment.

         

        5.3    Assignment.  Each
Lender and each Credit Party hereby consents to the assignment of the Assigned
Items by the Resigning Agent to the Successor Agent pursuant to Section 4 of this
Amendment.

         

        5.4    Termination of JPMorgan Swap
Agreements.  Each Lender hereby consents to the termination,
cancellation or novation of each of the JPMorgan Swap Agreements (as defined
below).

         

        SECTION
6.  Limited Waiver.  The
Successor Agent and the Lenders, on a one-time basis only and upon the
satisfaction of the conditions precedent listed in Section 7 hereof,
hereby waive the Specified Event of Default.  Notwithstanding the
foregoing, the execution of this Amendment shall not be deemed to be (x) except
with respect to the Specified Event of Default, a waiver of, or consent by the
Successor Agent, the Resigning Agent or any Lender to, any Default or Event of
Default which may exist or hereafter occur under the Credit Agreement or any
other Loan Document, (y) a waiver of any Credit Party’s obligations under the
Credit Agreement or any other Loan Document, or (z) a waiver of any rights,
remedies, offsets, claims, or other causes of action that the Successor Agent,
the Resigning Agent, the Resigning Issuing Bank or any Lender may have against
any Credit Party under the Credit Agreement and the other Loan Documents, all of
which rights the Successor Agent, the Resigning Agent, the Resigning Issuing
Bank and the Lenders specifically reserve.

         

        SECTION
7.  Conditions.  The
amendments to the Credit Agreement contained in Section 1 of this
Amendment, the assignment and reallocations contained in Section 2 of this
Amendment, the appointment of a successor administrative agent and successor
issuing bank contained in Section 3 of this
Amendment, the assignment contained in Section 4 of this
Amendment, the consents contained in Section 5 of this
Amendment and the limited waiver contained in Section 6 of this
Amendment shall become effective upon the satisfaction of each of the conditions
set forth in this Section 7.

         

        7.1    Execution and
Delivery.  Each Credit Party, the Lenders, the Resigning Agent,
the Resigning Issuing Bank, the Successor Agent and the Successor Issuing Bank
shall have executed and delivered this Amendment.

         

        
          
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        7.2    No Default.  After
giving effect to the limited waiver contained in Section 6 of this
Amendment, no Default shall have occurred and be continuing or shall result from
the effectiveness of this Amendment.

         

        7.3    Fees.  Borrower and
Successor Agent shall have executed and delivered a fee letter in connection
with this Amendment and Borrower shall have paid to the Successor Agent, for the
benefit of the Lenders (including the New Lenders), all fees payable under such
fee letter at the time this Amendment becomes effective.

         

        7.4    Notes.  Borrower
shall have executed and delivered a replacement promissory note to Guaranty Bank
and a promissory note to each New Lender that has requested a promissory note in
accordance with Section 2.08(e) of
the Credit Agreement.

         

        7.5    Carrizo
Marcellus.  The Borrower shall have complied, and shall have
caused Carrizo Marcellus to comply, with Sections 6.13 and
6.14 of the
Credit Agreement with respect to Carrizo Marcellus, including, without
limitation, the execution and delivery of a Counterpart Agreement (it being
understood that this condition may be satisfied substantially contemporaneously
with the effectiveness of this Amendment).

         

        7.6    Marcellus
Holdings.  The Borrower shall have complied, and shall have
caused Marcellus Holdings to comply, with Sections 6.13 and
6.14 of the
Credit Agreement with respect to Marcellus Holdings, including, without
limitation, the execution and delivery of a Counterpart Agreement and Pledge
Agreement (it being understood that this condition may be satisfied
substantially contemporaneously with the effectiveness of this
Amendment).

         

        7.7    Authorization and Good
Standing.  The Successor Agent shall have received such
documents and certificates as the Successor Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each Credit
Party, the authorization of this Amendment and any other legal matters relating
to the Credit Parties or this Amendment, all in form and substance reasonably
satisfactory to the Successor Agent and its counsel.

         

        7.8    Legal Opinion.  The
Successor Agent shall have received a favorable written opinion (addressed to
the Successor Agent and the Lenders and dated the Seventh Amendment Effective
Date) of Baker Botts L.L.P., counsel for the Credit Parties, in form and
substance reasonably satisfactory to the Successor Agent.  The Credit
Parties hereby request such counsel to deliver such opinion.

         

        7.9    Assignment.  The
Successor Agent shall have received a duly executed copy of (a) a certain
Assignment and Assumption dated as of the Seventh Amendment Effective Date among
JPMorgan Chase Bank, N.A., as assignor, and Guaranty Bank, as assignee, pursuant
to which JPMorgan Chase Bank, N.A. shall have assigned all of its rights and
obligations as a Lender under the Credit Agreement to Guaranty Bank and (b) a
certain Assignment and Assumption dated as of the Seventh Amendment Effective
Date among Bank of Scotland plc, as assignor, and Guaranty Bank, as assignee,
pursuant to which Bank of Scotland plc shall have assigned all of its rights and
obligations as a Lender under the Credit Agreement to Guaranty Bank, and in the
case of the Assignment and Assumption referenced in clause (a) above only, the

         

        
          
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        Resigning
Agent shall have received from Guaranty Bank the $3,500 processing and
recordation fee required by Section 11.04(b) of the Credit
Agreement.

         

        7.10    Fees to Resigning Issuing
Bank.  Borrower shall have paid to the Resigning Issuing Bank
all accrued and unpaid fronting fees owed to the Resigning Issuing Bank pursuant
to Section
2.11(b) of the Credit Agreement (as in effect immediately prior to the
effectiveness of this Amendment).

         

        7.11    JPMorgan Swap
Agreements.  With respect to each Swap Agreement entered into
with JPMorgan Chase Bank, N.A. or any of its Affiliates and in effect
immediately prior to the Seventh Amendment Effective Date (collectively, “JPMorgan Swap
Agreements” and, individually, a “JPMorgan Swap
Agreement”), Borrower shall, at Borrower’s expense and on terms and
conditions satisfactory to JPMorgan Chase Bank, N.A. and such Affiliates, either
(a) terminate each existing hedge transaction under such JPMorgan Swap Agreement
and pay in full any and all Indebtedness and liabilities owed to JPMorgan Chase
Bank, N.A. arising from such termination or (b) novate each existing hedge
transaction under such JPMorgan Swap Agreement on terms and conditions
reasonably satisfactory to JPMorgan Chase Bank, N.A.

         

        7.12    Other
Documents.  The Successor Agent, the Resigning Agent and the
Resigning Issuing Bank shall have received such other instruments and documents
incidental and appropriate to the transaction provided for herein as the
Successor Agent, the Resigning Agent, the Resigning Issuing Bank or their
special counsel may reasonably request prior to the date hereof, and all such
documents shall be in form and substance reasonably satisfactory to the
Successor Agent.

         

        SECTION
8.  Representations and Warranties of
Borrower.  To induce the Lenders to enter into this Amendment,
each Credit Party hereby represents and warrants to the Lenders as
follows:

         

        8.1    Reaffirmation of Representations and
Warranties/Further Assurances.  After giving effect to the
amendments herein, each representation and warranty of such Credit Party
contained in the Credit Agreement or in any of the other Loan Documents is true
and correct in all material respects as of the date hereof (except to the extent
such representations and warranties specifically refer to an earlier
date).

         

        8.2    Corporate Authority; No
Conflicts.  The execution, delivery and performance by such
Credit Party (to the extent a party hereto or thereto) of this Amendment and all
documents, instruments and agreements contemplated herein are within such Credit
Party’s corporate or other organizational powers, have been duly authorized by
all necessary action, require no action by or in respect of, or filing with, any
court or agency of government and do not violate or constitute a default under
any provision of any applicable law or other agreements binding upon such Credit
Party or result in the creation or imposition of any Lien upon any of the assets
of such Credit Party except for Permitted Liens and otherwise as permitted in
the Credit Agreement.

         

        8.3    Enforceability.  This
Amendment constitutes the valid and binding obligation of such Credit Party
enforceable in accordance with its terms, except as (i) the enforceability

         

        
          
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        thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditor’s
rights generally, and (ii) the availability of equitable remedies may be
limited by equitable principles of general application.

         

        8.4    Letters of
Credit.  As of the Seventh Amendment Effective Date, both
before and after giving effect to the consummation of the transactions
contemplated herein, there are no outstanding Letters of Credit and the
aggregate LC Exposure of all Lenders is $0.00.

         

        SECTION
9.  Miscellaneous.

         

        9.1    Reference to and Effect on the Loan
Documents.  Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Credit Agreement (including the
schedules and exhibits thereto) and the other Loan Documents to “JPMorgan Chase
Bank, N.A.” or “JPMorgan Chase Bank, National Association” solely in its
capacity as Administrative Agent, Collateral Agent and/or Issuing Bank shall be
deemed to refer to “Guaranty Bank”.

         

        9.2    Reaffirmation of Loan Documents and
Liens.  Any and all of the terms and provisions of the Credit
Agreement and the Loan Documents shall, except as amended and modified hereby,
remain in full force and effect.  Each Credit Party hereby agrees that
nothing contained in this Amendment shall in any manner affect or impair the
liabilities, duties and obligations of such Credit Party under the Credit
Agreement and the other Loan Documents or the Liens securing the payment and
performance thereof.

         

        9.3    Parties in
Interest.  All of the terms and provisions of this Amendment
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns.

         

        9.4    Legal
Expenses.  Borrower hereby agrees to pay all reasonable fees
and expenses of special counsel to the Successor Agent, the Resigning Agent, the
Resigning Issuing Bank and JPMorgan Chase Bank, N.A., in its capacity as a
Lender and as a Lender Counterparty, incurred by such parties in connection with
the preparation, negotiation and execution of this Amendment and all related
documents (including, without limitation, all reasonable out-of-pocket expenses
incurred by the Successor Agent or its counsel in connection with the recording
and filing of assignments and/or amendments to Mortgages and UCC-1 financing
statements).

         

        9.5    Further
Assurances.  Each Credit Party covenants and agrees from time
to time, as and when requested by the Successor Agent, the Resigning Agent, the
Resigning Issuing Bank or the Lenders, to execute and deliver or cause to be
executed or delivered, all such documents, instruments and agreements and to
take or cause to be taken such further or other action as the Successor Agent,
the Resigning Agent, the Resigning Issuing Bank or the Lenders, as the case may
be, may reasonably deem necessary or desirable in order to carry out the intent
and purposes of this Amendment.

         

        9.6    Counterparts.  This
Amendment may be executed in one or more counterparts and by different parties
hereto in separate counterparts each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall constitute
but one and the same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all signature
pages are physically attached to the same document.  Delivery of
photocopies of the signature pages to this Amendment by facsimile or

         

        
          
            Seventh
Amendment to Credit Agreement

            
            

          

          
            Page
28

            
              

            

          

          
            
            

          

        

         

        electronic
mail shall be effective as delivery of manually executed counterparts of this
Amendment.

         

        9.7    Headings.  The
headings, captions and arrangements used in this Amendment are, unless specified
otherwise, for convenience only and shall not be deemed to limit, amplify or
modify the terms of this Amendment, nor affect the meaning thereof.

         

        9.8    Governing Law.  This
Amendment shall be construed in accordance with and governed by the law of the
State of Texas.

         

        9.9    Complete
Agreement.  THIS AMENDMENT, THE CREDIT AGREEMENT, AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.

         

         

        [Remainder
of page intentionally blank]

         

        
          
            Seventh
Amendment to Credit Agreement

            
            

          

          
            Page
29

            
              

            

          

          
            
            

          

        

         

        IN WITNESS WHEREOF, the
parties have caused this Amendment to be duly executed by their respective
authorized officers to be effective as of the date first above
written.

         

         

        BORROWER:

         

        CARRIZO
OIL & GAS, INC.

         

         

         

        By:       /s/Paul F.
Boling

        Name: 
Paul F. Boling

        Title:  Vice President and Chief
Financial Officer

         

         

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        GUARANTORS:

         

        CCBM,
INC.

         

         

        
          By:       /s/Paul F.
Boling

          Name: 
Paul F. Boling

          Title:  Vice President

        

         

        CLLR,
INC.

         

         

        
          By:       /s/Paul F.
Boling

          Name: 
Paul F. Boling

          Title:  Vice President

        

         

        HONDO
PIPELINE, INC.

         

         

        
          By:       /s/Paul F.
Boling

          Name: 
Paul F. Boling

          Title:  Vice President

        

         

        CARRIZO
(MARCELLUS) LLC

         

         

        
          By:       /s/Paul F.
Boling

          Name: 
Paul F. Boling

          Title:  Vice President

        

         

        CARRIZO
MARCELLUS HOLDING INC.

         

         

        
          By:       /s/Paul F.
Boling

          Name: 
Paul F. Boling

          Title:  Vice President

        

         

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        SUCCESSOR
AGENT, SUCCESSOR 

        ISSUING
BANK AND LENDER:

         

        GUARANTY BANK, as Successor
Agent, 

        Successor
Issuing Bank and as a Lender

         

        

        By:       /s/Kelly L. Elmore
III                                                         

        Name: 
Kelly L. Elmore III

        Title:    
Senior Vice President

         

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        RESIGNING
AGENT AND RESIGNING 

        ISSUING
BANK:

         

        JPMORGAN CHASE BANK, N.A., as

        Resigning
Agent and Resigning Issuing Bank

         

        

        By:       /s/Kimberly
Coil

        Name: 
Kimberly Coil

        Title:    
Vice President

         

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        U.S. BANK NATIONAL
ASSOCIATION,

        as a
Co-Agent and as a Lender

         

         

        By:       
/s/Justin M.
Alexander

        Name: 
Justin M. Alexander

        Title:   
Vice President

        

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        ROYAL BANK OF
CANADA,

        as a
Co-Agent and as a Lender

         

         

        By:       /s/Don J.
McKinnerney

        Name: 
Don J. McKinnerney

        Title:    
Authorized Signatory

        

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        CAPITAL ONE,
N.A.,

        as a
Co-Agent and as a Lender

         

         

        By:       /s/Paul D.
Hein

        Name: 
Paul D. Hein

        Title:    
Vice President

         

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        CREDIT SUISSE,

        as a
Lender

         

        

        By:      
/s/Vanessa
Gomez

        Name: 
Vanessa Gomez

        Title:   
Director

        

        

        By:       /s/Nupur
Kumar

        Name: 
Nupur Kumar

        Title:   
 Associate

        

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        FORTIS CAPITAL
CORP.,

        as a
Lender

        

         

        By:      /s/Michele
Jones

        Name:
Michele Jones

        Title:   Director

        

        

         

        By:      /s/Darrell
Holley

        Name:
Darrell Holley

        Title:   Managing
Director

         

        
          
            Seventh
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        SCHEDULE
2.01

         

        APPLICABLE
PERCENTAGES AND COMMITMENTS

         

         

        
          
            	
                    Lender

                  	
                    Title

                  	
                    Applicable
      Percentage

                  	
                    Commitment1

                  	
                    Maximum

                    Facility
      Amount

                  
	
                    Guaranty
      Bank

                    333
      Clay Street

                    Suite
      4400

                    Houston,
      TX  77002

                    Attention:
      Kelly L. Elmore III

                    Telephone:
      (713) 890-8849

                    Facsimile:
      (713) 890-8868

                    kelly.elmore@guarantybank.com

                  	
                    Administrative
      Agent

                  	
                    33.7078652%

                  	
                    $75,000,000

                  	
                    $168,539,325.84

                  
	
                    U.S.
      Bank National Association

                    950
      17th
      St., DNCOT8E

                    Denver,
      CO  80202

                    Attention:  Justin
      M. Alexander

                    Telephone:  (303)
      585-4201

                    Facsimile:  (303)
      585-4362

                    justin.alexander@usbank.com

                     

                    With
      a copy to:

                     

                    U.S.
      Bank

                    555
      SW Oak, PDORP7LS

                    Attention:  Tony
      Wong

                    Telephone:  (503)
      275-3252

                    Facsimile:  (503)
      973-6900

                    tony.wong@usbank.com

                  	
                    Co-Agent

                  	
                    15.7303370%

                  	
                    $35,000,000

                  	
                    $78,651,685.39

                  

          

          

            

          

            
            1As of
Seventh Amendment Effective Date and subject to adjustment as a result of a
reduction or increase in the Aggregate Commitment pursuant to Section 2.02 and
Section 2.02A of the Credit Agreement, respectively, or a change in the
Borrowing Base.

          

        

         

        
          
            Seventh
Amendment to Credit Agreement

            Schedule
2.01

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          
            	
                    Royal
      Bank of Canada

                    3900
      Williams Tower

                    2800
      Post Oak Blvd.

                    Houston,
      Texas  77056

                    Attention:
      Don McKinnerney

                    Telephone:
      (713) 403-5607

                    Facsimile:
      (713) 403-5624

                    don.mckinnerney@rbccm.com

                  	
                    Co-Agent

                  	
                    15.7303370%

                  	
                    $35,000,000

                  	
                    $78,651,685.39

                  
	
                    Capital
      One, N.A.

                    5718
      Westheimer, Suite 1430

                    Houston,
      Texas  77057

                    Attention:
      Paul Hein

                    Telephone:
      (713) 435-7461

                    Facsimile:
      (713) 435-7106

                    paul.hein@capitalonebank.com

                     

                  	
                    Co-Agent

                  	
                    15.7303370%

                  	
                    $35,000,000

                  	
                    $78,651,685.39

                  
	
                    Credit
      Suisse

                    Eleven
      Madison Avenue

                    New
      York, New York  10010

                    Attention:
      Vanessa Gomez

                    Telephone:
      (212) 538-2993

                    Facsimile:
      (212) 448-3755

                    Vanessa.gomez@credit-suisse.com

                     

                    With
      a copy to:

                     

                    Credit
      Suisse

                    One
      Madison Avenue

                    New
      York, New York  10010

                    Attention:
      Loan Closers

                    Telephone:
      (212) 325-9041

                    Facsimile:
      (212) 538-9120

                    loan.closers@credit-suisse.com

                  	
                    Participant

                  	
                    11.2359551%

                  	
                    $25,000,000

                  	
                    $56,179,775.28

                  

          

        

         

        
          
            Seventh
Amendment to Credit Agreement

            Schedule
2.01

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          
            	
                    Fortis
      Capital Corp.

                    15455
      North Dallas Parkway

                    Suite
      1400

                    Addison,
      TX  75001

                    Attention:
      Michele Jones

                    Telephone:
      (214) 953-9303

                    Facsimile:
      (214)754-5982

                    Michele.jones@us.fortis.com

                     

                  	
                    Participant

                  	
                    7.8651685%

                  	
                    $17,500,000

                  	
                    $39,325,842.70

                  
	
                    TOTAL

                  	 
      	
                    100.00%

                  	
                    $222,500,000

                  	
                    $500,000,000

                  

          

        

         

        
          
            Seventh
Amendment to Credit Agreement

            Schedule
2.01

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        SCHEDULE
4.13

         

        

         

        CAPITALIZATION

         

        
          	
                  Legal
      Name

                	
                  Jurisdiction
      of Organization

                	
                  Shares
      of Capital Stock Outstanding

                	
                  Owners
      of Shares of Capital Stock Outstanding

                	
                  Tax
      Identification Number

                
	
                  Carrizo
      Oil & Gas, Inc.

                   

                  (Borrower)

                	
                  Texas

                	
                  N/A

                	
                  N/A

                	
                  76-0415919

                
	
                  CCBM,
      Inc.

                   

                  (Restricted
      Subsidiary)

                	
                  Delaware

                	
                  1,000
      shares of common stock

                	
                  100%
      - Carrizo Oil & Gas, Inc.

                	
                  76-0685601

                
	
                  Hondo
      Pipeline, Inc.

                  (Restricted
      Subsidiary)

                	
                  Delaware

                	
                  1,000
      shares of common stock

                	
                  100%
      - Carrizo Oil & Gas, Inc.

                	
                  26-1309563

                
	
                  CLLR,
      Inc.

                  (Restricted
      Subsidiary)

                	
                  Delaware

                	
                  1,000
      shares of common stock

                	
                  100%
      - Carrizo Oil & Gas, Inc.

                	
                  20-5154104

                
	
                  Carrizo
      (Marcellus) LLC

                  (Restricted
      Subsidiary)

                	
                  Delaware

                	
                  limited
      liability company interests

                	
                  100%
      - Carrizo Marcellus Holding Inc.

                	
                  26-3529055

                
	
                  Carrizo
      Marcellus Holding Inc.

                   

                  (Restricted
      Subsidiary)

                	
                  Delaware

                	
                  1000
      shares of common stock

                	
                  100%
      - Carrizo Oil & Gas, Inc.

                	
                  26-3528920

                

        

         

        
          
            Seventh
Amendment to Credit Agreement

            Schedule
4.13

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        SCHEDULE
7.02

         

        EXISTING
LIENS

         

         

        Liens
arising under that certain Security Agreement dated as of October 12, 2004 made
by the Borrower in favor of Deutsche Bank Securities, Inc., which Liens encumber
certain claims originally held by the Borrower against Enron North America Corp.
and Enron Corp., each in the amount of $1,096,056.00, claim numbers 2536 and
2576, respectively, in the bankruptcy cases of Enron Corp., et al., pending in the
United States Bankruptcy Court for the Southern District of New York, and all
proceeds thereof.

         

        
          
            Seventh
Amendment to Credit Agreement

            Schedule
7.02

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        EXHIBIT
E

        

        FORM OF
LENDER CERTIFICATE

         

        

         

        ________,
20___

        
 

         

        To:        GUARANTY
BANK,

         as Administrative
Agent

         

        The
Borrower, the Guarantors, the Administrative Agent and the Lenders have entered
into that certain Credit Agreement dated as of May 25, 2006 (as the same has
been and may hereafter be amended, restated, supplemented or otherwise modified
from time to time, the “Credit
Agreement”).  Unless otherwise defined herein, capitalized
terms used herein have the meaning specified in the Credit
Agreement.

         

        [Language for Existing
Lender]

         

        [           Please
be advised that the undersigned has agreed (a) to increase its Commitment under
the Credit Agreement effective __________, 20__ (the “Effective Date”) from
$________________ to $____________ and (b) that, from and after the Effective
Date, it shall continue to be a Lender in all respects under the Credit
Agreement and the other Loan Documents.]

         

        [Language for New
Lender]

         

        [           Please
be advised that the undersigned has agreed (a) to become a Lender under the
Credit Agreement effective __________, 20__ (the “Effective Date”) with
a Commitment of $____________ and (b) that, from and after the Effective Date,
it shall be deemed to be a Lender in all respects under the Credit Agreement and
the other Loan Documents.]

         

        Very
truly yours,

        

        

        

        By:                                                                         

        Name:

        Title:

         

        
          
            Seventh
Amendment to Credit Agreement

            Exhibit
E

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        Accepted
and Agreed:

         

        

         

        GUARANTY
BANK,

        as
Administrative Agent

         

        

         

        

         

        By:                                                                

        Name:

        Title:

         

        Accepted
and Agreed:

         

        CARRIZO
OIL & GAS, INC.

         

        By:                                                                

        Name:

        Title:

         

        
          
            Seventh
Amendment to Credit Agreement

            Exhibit
E

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        

        

        

        

        Guaranty

        Bank

        

        
          	
                   

                  CREDIT
      AGREEMENT

                   

                  dated
      as of

                  May
      25, 2006

                   

                  among

                   

                  CARRIZO
      OIL & GAS, INC.

                  as
      Borrower

                   

                  CERTAIN
      SUBSIDIARIES OF BORROWER,

                  as
      Guarantors

                   

                  The
      Lenders Party Hereto

                   

                  GUARANTY
      BANK,

                  as
      Administrative Agent, Sole Bookrunner and Lead Arranger

                   

                  and

                   

                  U.S.
      BANK NATIONAL ASSOCIATION, ROYAL BANK OF CANADA

                  AND
      CAPITAL ONE, N.A.,

                  as
      Co-Agents

                   

                   

                  $500,000,000
      Senior Secured Revolving Credit Facility

                   

                   

                

        

        

        
          
            Seventh
Amendment to Credit Agreement

            Annex
A

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