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EXHIBIT 4.1
As of May 1, 2001
To: Participants Listed on Exhibit "A"
Re: Letter Agreement Regarding Participation in
Carrizo 2001 Program
Gentlemen:
This binding letter agreement (this "Agreement") is by and between each
of the undersigned participants ("Participant"), including Berea Oil & Gas
Corp., as manager of the Participants (the "Managing Participant"), and Carrizo
Oil & Gas, Inc. ("Carrizo"), and sets forth the entire agreement among each
Participant and Carrizo concerning the participation by the Participant in
Carrizo's 2001 Seismic and Acreage Program described herein (the "Program").
Each Participant and Carrizo may be referred to in this Agreement individually
as a "Party" and collectively as the "Parties." The Parties hereby agree to the
following:
1. OVERVIEW. Carrizo generates oil and gas prospects for exploration
and development using seismic, well control and other geological and geophysical
information. Carrizo generally attempts to assign a portion or all of the
working interests in a generated prospect with other industry participants and
investors on a promoted basis, which may include receiving a cash payment, an
overriding royalty interest, a carried interest, a back-in interest or other
similar arrangement. Certain accredited and knowledgeable investors have
expressed a desire to fund a portion of Carrizo's costs of generating new
prospects in exchange for receiving a proportionate share of the working
interests and, in addition, certain of the promotional benefits and interests.
2. THE PROGRAM.
(a) PURPOSE AND MANAGEMENT. The Program's operations and the Program
Funds (as defined below) will be dedicated to purchasing, developing, evaluating
or otherwise acquiring geological and geophysical information/data ("Geological
Data") for the purpose of generating prospects; optioning, leasing or otherwise
acquiring the mineral interests in acreage ("Acreage") covering such prospects;
and assigning a portion the mineral interests in such prospects on a promoted
basis to third parties. The Program will emphasize its exploration efforts in
South Texas, and the Program and all aspects of this Agreement shall be
exclusively limited to the project areas and areas of mutual interest as
mutually agreed as specified on Exhibit "C" attached hereto ("AMI's"), and such
additional project areas as are mutually agreed in writing and subsequently
added to the program ("the Project Areas"). Carrizo, or Program Manager, will
administer and manage all of the operations with respect to the acquisition of
Geological Data, generation and acquisition of prospects, the commitment of
Program Funds (herein defined) to any prospect and the general administration of
the Program's activities.
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(b) PROGRAM COMMITMENT AND FUTURE MANDATORY AND ELECTIVE CASH CALL
CONTRIBUTIONS. Contemporaneously with the execution of this Agreement by all of
the Parties, each Participant will pay or wire transfer in cash to Carrizo
thirty-five percent (35%) of the amount next to such Participant's name on
Exhibit "A" hereto. The remaining sixty-five percent (65%) will be paid from
time to time via mandatory cash calls from Carrizo to the Participants
("Mandatory Cash Call"). Mandatory Cash Calls will be made to the Participants,
in the sole business judgment of Carrizo, based on expected upcoming Program
cash needs. Each Participant is severally responsible for and will pay its
proportionate share ("Allocable Share") of Mandatory Cash Calls as denoted on
Exhibit "A" within ten (10) days of receipt of written notice of each Mandatory
Cash Call. Mandatory Cash Call amounts will not exceed that amount that would in
conjunction with existing Program Funds result in an amount greater than
$250,000 remaining in the Program Account after payment of costs specifically
identified by Carrizo in writing concurrently with such Mandatory Cash Call. The
total amount reflected on Exhibit "A" of $3,500,000.00 is hereby defined as the
"Commitment Amount". Carrizo will promptly deposit into and maintain all cash
amounts in an interest-bearing Program account ("Program Account") including all
Commitment Amount funds reflected on Exhibit "A" which have been delivered to
Carrizo, any profits earned and interest accrued, and less any amounts paid out
of the funds in accordance with this Agreement (collectively, the "Program
Funds"). There is no obligation on the part of Carrizo to obtain the highest
interest rate available for Program Funds.
Completion of In Progress Prospects Beyond Program Commitment Amount.
If at any time during the Program Term Carrizo determines that Program Funds
plus the remaining Commitment Amount that has not been mandatorily cash-called
by Carrizo is insufficient to pay for Program expenses as delineated in Section
2(c) below, Carrizo may, with the consent of the Managing Participant, make an
"Elective Cash Call" to the Participants in an amount not to exceed each
Participant's Allocable Share of cash reasonably required to complete any
prospects currently in acquisition progress but not yet fully assembled and sold
("In Progress Prospects"). In determining the total amount of cash requested
from each Participant, Carrizo shall provide an analysis of expected cash flows
by prospect to and from the Program Account until all such remaining In Progress
Prospects have been completed or abandoned.
In the event that any Participant(s) elects not to pay for its
Allocable Share of an Elective Cash Call ("Non-Electing Participant"), then the
remaining electing Participants may elect to take, on a basis proportionate to
the Allocable Shares of such electing Participants, or on any other basis upon
which they may mutually agree, such non-electing interest in the remaining In
Progress Prospects and will pay to the Program Account their share of the
Elective Cash Call relative to the non-electing interest. As among the
Participants, the interests of the Non-Electing Participant(s) in such In
Progress Prospects shall be diluted on a dollar-for-dollar basis by funds
contributed by electing Participants in such Elective Cash Call and the
Allocable Shares shall be proportionately adjusted. If electing Participants do
not subscribe for all of any such Elective Cash Call, then Carrizo shall not
further develop or market such In Progress Prospect without the consent of the
Managing Participant, which consent shall not be unreasonably withheld.
Elective Prospect. During the Program Term, should Carrizo encounter
prospect opportunities for which the remaining Program Funds plus the remaining
Commitment Amount that has not been mandatorily cash-called by Carrizo is
insufficient to fund the assembly of such
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prospect(s) ("Elective Prospect") Carrizo may, with the consent of the Managing
Participant, deliver a "Prospect Election Notice" to the Participants along with
reasonable supporting information as to geology, location/acreage to be
acquired, and estimated Ground Floor Costs to be incurred. Within seven (7) days
of such delivery Participants will sign the Elective Prospect Election Notice
either agreeing to proceed with the Elective Prospect or electing to decline
participation. A cash call will be made to those Participants electing to
proceed to fund the Elective Prospect based upon the estimated budget prepared,
and each Participant will pay their Allocable Share within ten (10) days after
delivery of such cash call. If a portion of the Participants chooses to decline
the Elective Prospect, then the electing Participants may choose to take all of
the proportionate share of the non-elected portion of the Elective Prospect,
whereupon such Elective Prospect shall then be deemed to be a Program prospect
and subject to the terms of this Agreement. If electing Participants do not
subscribe for all costs to assemble of any such Elective Prospect, then Carrizo
shall, after 30 days written notice to the Managing Participant advising
Participants of its intent to develop the prospect, be entitled to proceed with
development of such Elective Prospect for Carrizo's own account (including
assigning its interest to third parties on a promoted basis not subject to this
Agreement).
(c) PROSPECT GENERATION AND PLACEMENT. In accordance with the authority
granted to Carrizo under this Agreement, Carrizo will use the Program Funds to
purchase, develop or otherwise acquire Geological Data to generate prospects;
acquire Acreage covering such prospects; market such prospects; and for related
matters. Such generated prospects (i) may include prospects generated solely by
Carrizo as well as prospects generated by others and (ii) may be subject to
pre-existing burdens ("Pre-existing Burdens") including, but not limited to,
landowner's royalty interest, overriding royalty interests, back-in and/or
carried interests, third party prospect bonuses, consulting fees or other
promotional interest placed on the prospect by third parties.
(A) Unless otherwise agreed by Carrizo and the Managing
Participant, the interest acquired by Carrizo (the "Available
Interest") in any prospect generated pursuant to this Agreement will be
allocated as follows:
(i) Carrizo Interest: Carrizo will be allocated a
Ground-Floor working interest equal to the product of
25% times the working interest comprising the
Available Interest (the "Carrizo Share", as adjusted
pursuant to Section 2(c)(B) below); provided,
however, that Carrizo may not sell or otherwise
dispose of its elected share of the Available
Interest without the prior written consent of the
Managing Participant.
(ii) Participant Interest: The Managing Participant,
will be allocated a Ground-Floor working interest
equal to 25% times the working interest comprising
the Available Interest (the "Participant Share" as
adjusted pursuant to Section 2(c)(B) below).
(iii) Promoted Interest: The remaining interest (the
"Promoted Interest Share", as adjusted pursuant to
Section 2(c)(B) below) comprising the Available
Interest not allocated in (i), and (ii) above will be
allocated and marketed to third parties on a promoted
basis.
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(iv) Reallocation of Participant Share: The Managing
Participant shall have the right, at its sole
discretion, to reallocate the Participant Share and
assign the related working interests, to other
Participants, to affiliates of other Participants, or
with the consent of Carrizo which shall not be
unreasonably withheld, to third party qualified
investors and Carrizo agrees to assist in marketing
any such working interests. The Managing Participant
may sell such interests at a profit or promote, and
if so, shall be entitled to retain any profit or
promote so earned for its own account. The Managing
Participant shall not offer to sell any portion of
the Participant share to any party to which Carrizo
is attempting to sell the Promoted Interest Share
without the express written consent of Carrizo.
Notwithstanding any such reallocation and assignment,
the Managing Participant shall remain liable to pay
costs associated with any such assigned working
interests that are assigned to persons who are not
Participants if such costs are not paid by such
non-Participants.
(v) Participant Payment for Ground Floor Interests:
No additional payment will be required for the
Participant Share, as it is being allocated in
partial consideration for the funding of the
Commitment Amount in the Program by the Participants.
(vi) Carrizo Payment for Ground Floor Interests:
Carrizo shall pay to the Participants (or with the
written consent of the Managing Participant, pay into
the Program Account) for its Carrizo Share an amount
equal to the Carrizo Share of the Ground Floor Cost.
Such payments may be made from Carrizo's share of
distributions pursuant to paragraph (d) below, to the
extent of such distributions.
For purposes of this Agreement, "Ground-Floor" and "Ground-Floor Costs"
shall mean the actual costs, including an allocated portion of the
Management Expense Reimbursement (herein defined), paid with Program
Funds to generate, acquire and assemble any prospect pursuant to this
Agreement. The Carrizo Share and the Participant Share shall be
referred to collectively in this Agreement as the "Ground-Floor Share."
(B) Carrizo will use commercially reasonable efforts to sell
or otherwise place all of the Promoted Interest Share to third parties
on a promoted basis, with promoted terms as determined by Carrizo in
its sole business judgment. For purposes of this Agreement,
"commercially reasonable efforts" means efforts which are designed to
enable Carrizo, directly or indirectly, to achieve such desired result
in accordance with industry practice, or otherwise assist in the
consummation of such result, and which do not require Carrizo to expend
any funds or assume liabilities other than expenditures and liabilities
which are customary and reasonable in nature and amount in the context
of such action. In the event 75% (being Promoted Interest Share x 75%)
or more (but not all) of the Promoted Interest Share is placed on a
promoted basis and Carrizo believes it cannot or does not wish to place
the remainder of the Promoted Interest Share on a promoted basis, (i)
the remaining portion of the Promoted Interest Share will be allocated
50% to Carrizo and 50% to the Managing
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Participant and shall be part of (and shall adjust) the Carrizo Share
and the Participant Share, respectively; and (ii) the Promoted Interest
Share shall be reduced accordingly.
(C) Notwithstanding anything herein to the contrary, with
respect to the Carrizo Share, Participant Share and Promoted Interest
Shares of each prospect, it is agreed and understood that all
assignments of leasehold, farm-in interest and/or any other interest in
prospects will be made subject to a Joint Operating Agreement in the
form attached as Exhibit "D" (the "JOA"), subject only to such changes,
alterations, or amendments as negotiated between Carrizo and the third
party purchaser(s) applicable to such prospect. Carrizo and the
Managing Participant (or its successor if Carrizo or the Managing
Participant sells or otherwise transfers all or a portion of its
interest) shall be responsible for, and obligated to pay, their
respective share of the drilling costs, if any, of each prospect
initial test well and other prospect costs related thereto pursuant to
the JOA for the prospect.
(d) PROSPECT SALES; PROGRAM FUND DISBURSEMENT TO CARRIZO AND
PARTICIPANTS; ALLOCATIONS OF CASH AND NON-CASH BENEFITS; AND PREFERRED RETURN TO
PARTICIPANTS. Any and all cash proceeds from the sale of the Promoted Interest
Share in each prospect, including cash received in respect of non-cash
promotional benefits derived from the Promoted Interest Share, such as carried
or back-in interests, or from the sale of any other asset or service acquired or
developed with Program Funds, shall be distributed promptly after receipt
thereof as follows:
(A) first, 100% to the Participants (based on each
Participant's Allocable Share) until the Participants as a group are
distributed an amount of cash equal to the total amount invested by the
Participants in the Program and not previously distributed pursuant to
this paragraph (the "Unreturned Capital Contributions"), plus an amount
equal to a 20% annually compounded Preferred Return on the Unreturned
Capital Contributions, calculated from the date on which the funds were
invested through the date on which the corresponding funds are
distributed to the Participants.
(B) Thereafter, 50% to the Participants (based on each
Participant's Allocable Share) and 50% to Carrizo, until all such cash
proceeds are accounted for.
(C) Notwithstanding the foregoing, any completion costs
payable with respect to a retained carried interest in the Promoted
Interest Share shall be payable 50% by the Participants (based on each
Participant's Allocable Share) and 50% by Carrizo, and any proceeds
derived from any such carried interest shall be distributed 50% to the
Participants (based on each Participant's Allocable Share) and 50% to
Carrizo, until such completion costs have been reimbursed (without any
preferential rate of return), after which such proceeds shall be
distributed as provided in paragraphs (A) and (B) above.
3. PROGRAM TERM. This Agreement and the Program shall remain in full
force and effect for a period commencing on the Effective Date (May 1, 2001) of
this Agreement and ending on May 1, 2003; provided, however, as to In Progress
Prospects only, this Agreement shall continue until such time as such In
Progress Prospects are fully assembled and either 100% placed or abandoned by
Carrizo. If on May 1, 2003, the Commitment Amount plus Program Account earned
interest, less the Management Expense Reimbursement, has not been fully
expended, then Carrizo
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and the Managing Participant may elect to either (i) extend this Agreement and
the Program Term for an additional period of time to be determined by mutual
agreement of Carrizo and the Managing Participant, or (ii) terminate and be
released from the Program and this Agreement and any future obligations. Upon
the final termination of the Program and this Agreement, Carrizo will promptly
distribute (in the case of the Program Account) all of the Program Funds to the
Participants based on each Participant's Allocable Share of such funds less such
Participant's Allocable Share of any reserve established by Carrizo to cover the
Program's proportionate share of the costs of any In-Progress Prospects or other
contingencies. Carrizo will release and disburse any reserved Program Funds as
soon as the funds are no longer needed for the relevant Program prospect(s).
After the final termination of the Program and this Agreement, Carrizo agrees
that it will not, either independently or in conjunction with a third party,
pursue any action with regard to any prospects acquired or developed in whole or
in part with Program Funds, without the prior written approval of the Managing
Participant, which shall not be unreasonably withheld or delayed.
Until December 31, 2003, Participants shall have a right of first offer
to (i) provide financing to Carrizo to extend the Program, including those
certain Elective Prospects defined in Section 2(b) herein, or (ii) form a new
program to cover any additional projects as mutually agreed within the Project
Areas or AMI's. Carrizo shall not complete any transaction covered by this first
offer right with third parties on the same terms or terms which are less
favorable to Carrizo than those of this Program unless first offered to and
rejected by the Program Participants.
4. PROGRAM INFORMATION. Carrizo will furnish the Participants with the
following information concerning Program operations and activities: monthly
information concerning (i) the balance of the Program Funds, (ii)
prospect-by-prospect expenditure reports showing reasonable detail of specific
expenditures, including dates, amounts and type of expenditure, (iii) an
Activity Report containing information for all Program prospects, including
whether any prospects have been abandoned and the dated of such abandonment and
(iv) an accurate and complete accounting of the Management Expense
Reimbursement. Each Participant agrees to keep confidential and not to disclose
to any person any information or matter relating to this Agreement, the
Program's investments or any information obtained in connection with this
Agreement except to the extent that (x) the information to be disclosed is
publicly known at the time of the proposed disclosure; (y) such Participant
receives the prior written approval of Carrizo; or (z) such disclosure is
reasonably and in good faith believed to be required by law or in response to
any governmental agency request or in connection with an examination by any
regulatory authorities.
5. OPERATIONS RELATING TO THE PROGRAM AND THE PROSPECTS. Carrizo will
administer and otherwise manage all matters related to this Agreement and the
Program, including, without limitation, selecting the financial institution with
which to deposit Program Funds, investing the Program Funds, disbursing Program
Funds and accounting for Program activities, including allocating costs among
prospects. Except to the extent written amendments are required pursuant to
Section 12 below, such administrative and management decisions will be made by
Carrizo in its sole discretion, after consultation with the Managing
Participant. Carrizo will conduct all the Program operations including, without
limitation, engaging and supervising engineers, geologists, geophysicists and
other consultants or analysts in connection with all Program operations,
defining the areas covered by each prospect, and determining all matters
relating to the manner, method and timing of Program transactions. The Managing
Participant shall be provided Program Information
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on an ongoing basis through final termination of the Program. The Managing
Participant shall not have decision-making authority, but shall be allowed to
provide input and recommendations. Carrizo's management duties and rights shall
not be limited except that Carrizo shall not direct or spend the Commitment
Amount outside of the Project Areas without first obtaining the Managing
Participant's prior written consent. Except those rights and benefits expressly
stated in this agreement, no Participant will have any rights, liens against or
ownership in, or any management or other rights with respect to, any prospect or
the assets, rights or interest comprising any prospect (including any Geological
Data and Acreage) or any other assets of Carrizo.
6. MANAGEMENT EXPENSE REIMBURSEMENT. Carrizo will pay its own overhead
costs and expenses relating to generating and marketing prospects pursuant to
this Agreement and managing the Program, provided Carrizo will be reimbursed for
any direct costs related thereto and a reasonable allocation of overhead for
employees primarily dedicated to this Program (the "Management Expense
Reimbursement") which amount will be paid from the Commitment Amount as depicted
on Exhibit "B"; An allocation of the The Management Expense Reimbursement to the
identified prospects shall be included for purposes of determining the
Ground-Floor Cost of any prospect. The Management Expense Reimbursement will be
allocated among the Participants based on each Participant's Allocable Share.
7. PROGRAM AREAS. Carrizo has identified the prospects defined in
Exhibit "C" as being available to the Program, and Carrizo shall use reasonable
commercial efforts to cause such prospects to be included in the Program. Any
and all potential prospects within areas defined in Exhibit C in which Carrizo
acquires an interest during the Program Term or in contemplation of the Program
Term will be fully dedicated to the Program.
8. PUT OF PROGRAM INTEREST FOR STOCK.
(a) PARTICIPANTS' EXCHANGE OPTION. At any time prior to the earlier of
(i) May 1, 2003, or (ii) the date the Participant's Unreturned Capital
Contributions are equal to zero, a Participant may at its sole option elect to
exchange its entire Program interest for common stock, $.01 par value, of
Carrizo (the "Common Stock"), subject to the terms and provisions of this
Section 8. The number of shares of Common Stock for which the Program interest
shall be exchangeable shall be equal to the Participant's Unreturned Capital
Contribution on the effective date of the exchange divided by $9.00.
(b) EXERCISE OR EXCHANGE OPTION. Any Participant exercising its
exchange option provided in paragraph 8(a) must notify Carrizo in writing of its
desire to exchange its entire Program interest for the Common Stock. Within ten
(10) days following such notice, Carrizo shall issue to the exchanging
Participant the number of shares of the Common Stock to which the exchanging
Participant is entitled. At such time, and as a condition to delivery of the
shares of Common Stock, the exchanging Participant shall deliver to Carrizo an
assignment of all such Participant's Program interest.
(c) REGISTRATION OF COMMON STOCK. If Carrizo has in effect a shelf
registration statement under the Securities Act of 1933 that can be used to
register the issuance of the Common Stock provided for herein, then the Common
Stock shall be issued pursuant to such registration
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statement. If the Common Stock cannot be issued pursuant to an effective
registration statement, and the Common Stock is therefore restricted as provided
below, then the exchanging Participants shall have piggy-back registration
rights for sales by other Carrizo shareholders with respect to such Common
Stock, on terms customary for such registration rights.
(d) ACCESS TO INFORMATION REGARDING THE GENERAL PARTNER. If the
issuance of the Common Stock is not registered as contemplated in paragraph (c)
above, Carrizo shall furnish the exchanging Participant all information material
to the decision by the exchanging Participant to exchange its Program interest
for the Common Stock, and any other information necessary to make the
information furnished not misleading.
(e) RESTRICTIONS ON TRANSFER. If the issuance of the Common Stock is
not registered as contemplated in paragraph (c) above, it may not be sold or
transferred in the absence of an effective registration statement under the
Securities Act or an exemption from registration thereunder. Accordingly, the
certificates evidencing such Common Stock shall bear legends substantially as
follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND STATE SECURITIEES LAWS, AND
MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE APPLICABLE ACTS OR UNTIL THE
CORPORATION HAS RECEIVED ADVICE OF ITS COUNSEL THAT
THE SHARES MAY BE TRANSFERRED WITHOUT SUCH
REGISTRATION.
(f) REPRESENTATIONS AND COVENANTS OF PARTICIPANT. Each Participant, at
the time of execution of this Agreement and prior to the consummation of any
exchange of interest in the Program for Common Stock as contemplated herein,
represents and warrants to Carrizo and its counsel: (i) that it is acquiring its
interest in the Program and the Common Stock for its own account (and not for
the account of others) with the present intention of holding its interest in the
Program and such Common Stock for purposes of investment; (ii) that it has no
intention of selling its interest in the Program and any such Common Stock in a
public distribution in violation of the federal securities laws or any
applicable state securities laws; (iii) that it understands that its interest in
the Program and the Common Stock it may acquire in the exchange has not been
registered under the Securities Act on the basis that the offers and sales to
such Participant are exempt from the registration provisions thereof and that
Carrizo's reliance on such exemption is predicated upon the representations of
each Participant set forth herein; (iv) that it is an "accredited investor" as
such term in defined in Regulation D promulgated under the Securities Act; (v)
the state of its residence is as set forth on Exhibit "A" hereto; and (vi) that
it has been given full and complete access to, and the opportunity to ask
questions of Carrizo's executive officers regarding, any information it deemed
material to its decision purchase its interest in the Program and to exchange
its Program interest for the Common Stock. Each Participant acquiring its
interest in the Program and Common Stock in an exchange of its Program interest
as contemplated hereby, shall as a condition precedent to consummation of such
acquisition and exchange, take any and all action and execute any and all
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documents or instruments as reasonably requested by Carrizo for the purpose of
compliance with any state or federal securities laws, and obtaining exemptions
from registration.
9. NO LOAN OR GUARANTEED REPAYMENT. Nothing in this Agreement is
intended to create a loan from the Participants to Carrizo or otherwise
guarantee the Participants that they will fully recover a specific amount of
money. Except as specifically set forth in the terms of this Agreement, the
Participants shall not be entitled to the return of any part of the Program
Funds, to demand early repayment or the partition of any Program Funds or to be
paid interest on the Program Funds.
10. NO FIDUCIARY RELATIONSHIP. This Agreement is intended as a sharing
agreement among co-owner of working interests subject to an operating agreement.
Nothing in this Agreement is intended to create a partnership, mining
partnership, joint venture, agency or other relationship creating fiduciary or
quasi-fiduciary duties or similar duties and obligations or otherwise subject
any of the Parties to joint and several or vicarious liability or to impose any
duty, obligation or liability that would arise therefrom with respect to the
Parties. The obligations of the Participants hereunder shall be several and not
joint.
11. LIMITATION ON LIABILITY. Except to the extent arising from the bad
faith, gross negligence or willful misconduct by Carrizo, Carrizo shall not be
liable to any Program Participant for any expenses, claims, losses, damages,
demands, suits or liabilities, including attorneys' fees and costs of litigation
("Claims"), of every kind to the extent arising out of or connected directly or
indirectly with (i) this Agreement, (ii) any action by any person taken as a
result of this Agreement, or (iii) Carrizo's management and decisions with
respect to the operations and activities of the Program. To the extent of any
judgment rendered as a result of Carrizo's gross negligence or willful
misconduct, Carrizo shall indemnify and hold harmless the Participants from any
such judgment. Carrizo shall indemnify and hold harmless each Program
Participant from and against any claims incurred by such Participant asserted by
a third party to the extent it is determined such claim arises out of, or
results from, Carrizo's conduct relating to the operations of the Program or the
Program prospects, provided that Carrizo shall be permitted to utilize Program
Funds to defend and satisfy any Claims relating to the operations of the Program
or the Program prospects and pay any costs (including damages and attorney's
fees) related thereto except to the extent it is determined that such Claims
result solely from the bad faith, gross negligence or willful misconduct of
Carrizo. Each Participant shall hold Carrizo harmless from and against any
Claims (i) as among or between the Participants arising out of any alleged
breach of this Agreement by any other Participant, (ii) arising from any alleged
breach of duty by the Managing Participant claimed to be owed to any other
Participant, (iii) based on any allegedly false statements or omissions of a
material fact in statements made between or among Participants, (iv) brought by
an assignee, transferee or successor of any Participant as a result of any
transaction by which such assignee, transferee or successor acquires an interest
in the Program from a Participant or acquires any rights under this Agreement.
12. AMENDMENT. Any provision of this Agreement may be amended, modified
or waived by written consent of both (i) Carrizo and (ii) Participants having
Allocable Shares representing more than two-thirds of the Allocable Shares of
all Participants; provided that (i) no amendment, modification or waiver which
extends or shortens the Program Term shall be effective
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without consent of all Parties; (ii) no amendment, modification or waiver which
releases all or a substantial portion of the Program Funds, releases Carrizo
from or defers its obligation to pay cash proceeds or assign non-cash
promotional benefits, or releases any Participant or Carrizo from its obligation
to participate in any prospect and pay its proportionate costs related thereto,
shall be effective without consent of all Parties; and (iii) no amendment,
modification or waiver which modifies the percentages of Carrizo Interest,
Participant Interest or Promoted Interest, or which increases the amount of the
Management Expense Reimbursement, shall be effective without consent of all
Parties.
13. ASSIGNMENT. Except as otherwise provided herein, Participant shall
not transfer, assign or otherwise alienate any or all of its rights, title or
interest under this Agreement to any other person without Carrizo's prior
written consent, which shall not be unreasonably withheld. This Agreement shall
be binding upon the Parties' respective successors and assigns.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT
UNDER, AND SHALL BE CONSTRUED, INTERPRETED AND GOVERNED BY AND ACCORDING TO, THE
LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ANY CONFLICTS OF LAW RULES OR
PRINCIPLES WHICH, IF APPLIED, MIGHT PERMIT OR REQUIRE THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION.
15. NOTICES. Notices under this Agreement shall be in writing and shall
be sent by registered or certified mail, or by telefax, and shall be sent to the
address set forth below for each party:
If to Carrizo:
Carrizo Oil & Gas, Inc.
14701 St. Mary's Lane, Suite 800
Houston, TX 77079
Telefax#: (281) 496-0884
Attn: S. P. Johnson IV
If to the Managing Participant:
Berea Oil & Gas, Corp.
50 Fountain Plaza
Suite 1220
Buffalo, NY 14202
If to the Participants:
Berea Associates, LLC
50 Fountain Plaza
Suite 1220
Buffalo, NY 14202
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Berea Oil & Gas Corp.
50 Fountain Plaza
Suite 1220
Buffalo, NY 14202
PAC Finance (USA) Inc.
c/o Colonial Navigation
750 Lexington Avenue
26th Floor
New York, NY 10022
William R. Ziegler
Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, NY 10169
Thomas H. O'Neill, Jr.
50 Fountain Plaza
Suite 1220
Buffalo, NY 14202
Berea Associates II LLC
50 Fountain Plaza
Suite 1220
Buffalo, NY 14202
Any party may, by proper written notice hereunder, change the address
or individuals to which such notices to it shall thereafter be sent.
16. EFFECTIVE DATE. This Agreement is effective as of the date first
written above. In witness of the foregoing, Carrizo and the undersigned
Participants hereby execute this Agreement as of the date first above written.
Sincerely,
CARRIZO OIL & GAS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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ACCEPTED AND AGREED TO BY THE FOLLOWING PARTICIPANTS:
Berea Associates, LLC
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Berea Oil & Gas Corp.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
PAC Finance (USA) Inc.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
- -------------------------------------
William R. Ziegler
- -------------------------------------
Thomas H. O'Neill, Jr.
Berea Associates II LLC
by Berea Oil & Gas Corp.
its Managing Member
By:
----------------------------------
Thomas H. O'Neill, Jr.
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EXHIBIT A
PROGRAM PARTICIPANTS, INVESTMENT AMOUNTS AND ALLOCABLE SHARES
<Table>
<Caption>
PROGRAM ALLOCABLE SHARE OF STATE OF
PROGRAM PARTICIPANT COMMITMENT AMOUNT COMMITMENT AMOUNT RESIDENCE
------------------- ----------------- ----------------- ---------
1 Berea Associates, LLC $ 425,000 12.14% New York
2 Berea Oil & Gas Corp. -0- -0- New York
3 PAC Finance (USA) Inc. 212,500 6.07% New York
4 William R. Ziegler 181,250 5.18% New York
5 Thomas H. O'Neill, Jr. 181,250 5.18% New York
6 Berea Associates II, LLC 2,500,000 71.43% New York
----------- ------
TOTAL $ 3,500,000 100.00%
=========== ======
</Table>
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EXHIBIT B
MANAGEMENT EXPENSE REIMBURSEMENT ESTIMATES
-----------------------------------------------------------
May, 2001 $ 17,000
June, 2001 $ 17,000
July, 2001 $ 17,000
August, 2001 $ 17,000
September, 2001 $ 17,000
October, 2001 $ 17,000
November, 2001 $ 17,000
December, 2001 $ 17,000
January, 2002 $ 18,000
February, 2002 $ 18,000
March, 2002 $ 18,000
April, 2002 $ 18,000
May, 2002 $ 18,000
June, 2002 $ 18,000
July, 2002 $ 18,000
August, 2002 $ 18,000
September, 2002 $ 18,000
October, 2002 $ 18,000
November, 2002 $ 18,000
December, 2002 $ 18,000
January, 2003 $ 19,000
February 2003 $ 19,000
March 2003 $ 19,000
April 2003 $ 19,000
--------
TOTAL $428,000
========
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EXHIBIT C
PROJECT AREAS
1. Beauty Project - The area depicted on Schedule C-1 attached within the bold
outline, less any areas within such bold outline labeled "Pre-Existing
AMI".
2. Tri-County Project - The area depicted on Schedule C-2 attached within the
bold outline, less any areas within such bold outline labeled "Pre-Existing
AMI".
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