-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RQPEN7FEJro2KZ6W/3UWxPky2Ap81IghtvSyLGk5MUU2k7hHPQ7lMGpofPqPy0vI NoE1tpgrWLCvvMrgc6e/Kg== 0000950129-98-004750.txt : 19981118 0000950129-98-004750.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950129-98-004750 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARRIZO OIL & GAS INC CENTRAL INDEX KEY: 0001040593 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760415919 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29187-87 FILM NUMBER: 98752425 BUSINESS ADDRESS: STREET 1: 14811 ST MARYS LANE STREET 2: STE 148 CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 2814961352 MAIL ADDRESS: STREET 1: CARRIZO OIL & GAS INC STREET 2: 14811 ST MARYS LANE STE 148 CITY: HOUSTON STATE: TX ZIP: 77079 10-Q 1 CARRIZO OIL & GAS, INC. - 09/30/98 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30 1998 ----------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission File Number 000-22915. CARRIZO OIL & GAS, INC. (Exact name of registrant as specified in its charter) TEXAS 76-0415919 ----- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 14811 ST. MARY'S LANE, SUITE 148, HOUSTON, TEXAS 77079 - ------------------------------------------------ ----- (Address of principal executive offices) (Zip Code) (281) 496-1352 -------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X* No --- --- * The registrant became subject to the reporting requirements of Section 13 of the Securities Act of 1933 on August 5, 1997. The number of shares outstanding of the registrant's common stock, par value $0.01 per share, as of November 10, 1998, the latest practicable date, was 10,375,000. 2 CARRIZO OIL & GAS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 INDEX PART I. FINANCIAL INFORMATION
PAGE Item 1. Condensed Balance Sheets - As of September 30, 1998 and December 31, 1997 2 Condensed Statements of Operations - For the three-month and nine-month periods ended September 30, 1998 and 1997 3 Condensed Statements of Cash Flows - For the nine-month periods ended September 30, 1998 and 1997 4 Notes to Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Items 1-6. 13 SIGNATURES 16
3 CARRIZO OIL & GAS, INC. CONDENSED BALANCE SHEETS
December 31, September 30, 1997 1998 ------------ ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,674,837 $ 3,435,197 Accounts receivable 3,635,504 4,584,359 Advances to operators 1,817,990 1,425,986 Other current assets 108,633 581,503 ------------ ------------ Total current assets 8,236,964 10,027,045 PROPERTY AND EQUIPMENT, net (full-cost method of accounting for oil and gas properties) 45,082,833 71,003,122 OTHER ASSETS 338,638 394,210 ------------ ------------ $ 53,658,435 $ 81,424,377 ============ ============ LIABILITIES AND EQUITY CURRENT LIABILITIES: Bank loan (Note 3) $ -- $ 3,500,000 Accounts payable, trade 10,433,479 10,023,455 Dividends payable -- 704,509 Other current liabilities 79,328 155,626 ------------ ------------ Total current liabilities 10,512,807 14,383,590 LONG-TERM DEBT (Note 3) 7,950,000 4,100,000 DEFERRED INCOME TAXES 2,300,267 2,076,036 MANDATORILY REDEEMABLE PREFERRED STOCK (10,000,000 shares authorized with none and 313,091.72 issued and outstanding at December 31, 1997 and September 30, 1998, respectively) (Note 4) -- 29,974,454 SHAREHOLDERS' EQUITY: Warrants (Note 4) -- 300,000 Common Stock (40,000,000 shares authorized with 10,375,000 issued and outstanding at December 31, 1997 and September 30, 1998) 103,750 103,750 Additional paid-in capital 32,845,727 32,845,727 Retained earnings (deficit) 365,690 (2,219,270) Deferred compensation (419,806) (139,910) ------------ ------------ 32,895,364 30,890,297 ------------ ------------ $ 53,658,435 $ 81,424,377 ============ ============
The accompanying notes are an integral part of these financial statements. -2- 4 CARRIZO OIL & GAS, INC. UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three For the Nine Months Ended Months Ended September 30, September 30, ---------------------------- ---------------------------- 1997 1998 1997 1998 ----------- ----------- ----------- ----------- OIL AND NATURAL GAS REVENUES $ 2,069,237 $ 1,508,897 $ 6,234,261 $ 5,696,543 COSTS AND EXPENSES: Oil and natural gas operating expenses 583,361 732,208 1,779,154 2,015,017 Depreciation, depletion and amortization 647,295 862,998 1,635,319 2,483,365 General and administrative 388,227 661,608 992,988 2,054,240 ----------- ----------- ----------- ----------- Total costs and expenses 1,618,883 2,256,814 4,407,461 6,552,622 ----------- ----------- ----------- ----------- OPERATING INCOME (LOSS) 450,354 (747,917) 1,826,800 (856,079) OTHER INCOME AND EXPENSES: Interest income 43,784 12,150 43,784 285,687 Interest expense (172,261) (46,564) (641,921) (49,649) Interest expense, related parties (51,664) -- (137,067) -- Capitalized interest 162,767 41,062 627,547 41,062 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 432,980 (741,269) 1,719,143 (578,979) TAX EXPENSE (BENEFIT) 151,543 (246,080) 2,086,115 (162,551) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 281,437 $ (495,189) $ (366,972) $ (416,428) =========== =========== =========== =========== LESS: DIVIDENDS AND ACCRETION ON PREFERRED SHARES -- (756,595) -- (2,168,533) ----------- ----------- ----------- ----------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 281,437 $(1,251,784) $ (366,972) $(2,584,961) =========== =========== =========== =========== BASIC EARNINGS (LOSS) PER COMMON SHARE (Note 2) $ .04 $ (.12) $ (.05) $ (.25) =========== =========== =========== =========== DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 2) $ .04 $ (.12) $ (.05) $ (.25) =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. -3- 5 CARRIZO OIL & GAS, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, ------------------------------ 1997 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (366,972) $ (416,428) Adjustment to reconcile net income (loss) to net cash provided by operating activities- Depreciation, depletion and amortization 1,635,319 2,483,365 Deferred income taxes 2,086,115 (224,231) Changes in assets and liabilities- Accounts receivable (860,949) (948,855) Other current assets (96,461) (472,870) Other assets -- (163,519) Accounts payable, trade (618,303) (1,180,837) Interest payable to related parties and other current liabilities (259,242) 76,298 ------------ ------------ Net cash provided by (used in) operating activities 1,519,507 (847,077) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, accrual basis (21,951,646) (28,015,811) Adjustment to cash basis 4,862,620 770,813 Advance to operators (1,618,929) 392,004 ------------ ------------ Net cash used in investing activities (18,707,955) (26,852,994) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from sale of stock 28,243,054 -- Net proceeds from sale of preferred stock -- 28,810,431 Proceeds from bank loan -- 3,500,000 Proceeds from long-term debt 10,594,454 4,100,000 Debt repayments (20,408,934) (7,950,000) Proceeds from related-party notes payable 130,545 -- Distributions (90,000) -- ------------ ------------ Net cash provided by financing activities 18,469,119 28,460,431 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,280,671 760,360 CASH AND CASH EQUIVALENTS, beginning of period 1,492,603 2,674,837 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 2,773,274 $ 3,435,197 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for interest (net of amounts capitalized) $ 151,441 $ 8,587 ============ ============
The accompanying notes are an integral part of these financial statements. -4- 6 CARRIZO OIL & GAS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. NATURE OF OPERATIONS, COMBINATION AND OFFERING: The condensed financial statements included herein have been prepared by Carrizo Oil & Gas, Inc. (the Company), and are unaudited, except for the balance sheet at December 31, 1997, which has been prepared from the audited financial statements at that date. The financial statements reflect necessary adjustments, all of which were of a recurring nature, and are in the opinion of management necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The Company believes that the disclosures presented are adequate to allow the information presented not to be misleading. The condensed financial statements included herein should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The Company was formed in 1993 and is the surviving entity after a series of combination transactions (the Combination). The Combination included the following transactions: (a) Carrizo Production, Inc. (a Texas corporation and an affiliated entity with ownership substantially the same as Carrizo), was merged into Carrizo and the outstanding shares of capital stock of Carrizo Production, Inc., were exchanged for an aggregate of 343,000 shares of common stock of Carrizo; (b) Carrizo acquired Encinitas Partners Ltd. (a Texas limited partnership of which Carrizo Production, Inc., served as the general partner) as follows: Carrizo acquired from the shareholders who serve as directors of Carrizo their limited partner interests in Encinitas Partners Ltd. for an aggregate consideration of 468,533 shares of common stock and, on the same date, Encinitas Partners Ltd. was merged into Carrizo and the outstanding limited partner interests in Encinitas Partners Ltd. were exchanged for an aggregate of 860,699 shares of common stock; (c) La Rosa Partners Ltd. (a Texas limited partnership of which Carrizo served as the general partner) was merged into Carrizo and the outstanding limited partner interests in La Rosa Partners Ltd. were exchanged for an aggregate of 48,700 shares of common stock; and (d) Carrizo Partners Ltd. (a Texas limited partnership of which Carrizo served as the general partner) was merged into Carrizo and the outstanding limited partner interests in Carrizo Partners Ltd. were exchanged for an aggregate of 569,068 shares of common stock. Simultaneous with the Combination, the Company completed its initial public offering (the Offering) of 2,875,000 shares of its common stock at a public offering price of $11.00 per share. The Offering provided the Company with proceeds of approximately $28.1 million, net of expenses. The Combination was accounted for as a reorganization of entities as prescribed by Securities and Exchange Commission (SEC) Staff Accounting Bulletin 47 because of the high degree of common ownership among, and the common control of, the combining entities. Accordingly, the accompanying financial statements have been prepared using the historical costs and results of operations of the affiliated entities. There were no significant differences in accounting methods or their application among the combining entities. All intercompany balances have been eliminated. Certain reclassifications have been made to prior period amounts to conform to the current period's financial statement presentation. -5- 7 2. EARNINGS PER COMMON SHARE: Supplemental earnings per share information is provided below:
For the Three Months Ended September 30 ----------------------------------------------------------------------------------------- Income (Loss) Shares Per-Share Amount 1997 1998 1997 1998 1997 1998 ------------- ------------- ------------- ------------- ------ ------ Net Income (loss) $ 281,437 $ (495,189) Less: Dividends and accretion on preferred stock (756,595) ------------- Basic Earnings per Share Net Income (loss) available to common shareholders 281,437 (1,251,784) 7,500,000 10,375,000 $ .04 $(.12) ====== ===== Stock Options -- -- 222,120 28,270 ------------- ------------- ------------- ------------- Diluted Earnings per Share Net Income (loss) available to common shareholders plus assumed conversions $ 281,437 $ (1,251,784) 7,722,120 10,403,270 $ .04 $(.12) ============= ============= ============= ============= ====== =====
For the Nine Months Ended September 30 ----------------------------------------------------------------------------------------- Income (Loss) Shares Per-Share Amount 1997 1998 1997 1998 1997 1998 ------------- ------------- ------------- ------------- ------ ------ Net Income (loss) $ (366,972) $ (416,428) Less: Dividends and accretion on preferred stock -- (2,168,533) ------------- ------------- Basic Earnings per Share Net Income (loss) available to common shareholders (366,972) (2,584,961) 7,500,000 10,375,000 $ (.05) $ (.25) ====== ====== Stock Options -- -- 222,120 76,732 ------------- ------------- ------------- ------------- Diluted Earnings per Share Net Income (loss) available to common shareholders plus assumed conversions $ (366,972) $ (2,584,961) 7,722,120 10,451,732 $ (.05) $ (.25) ============= ============= ============= ============= ====== ======
Net income (loss) per common share has been computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods. During the nine months ended September 30, 1998, the Company had outstanding 250,000 stock options and warrants to purchase 1,000,000 shares of common stock, which were antidilutive and were not included in the calculation as the exercise price exceeded the market value. The Company adopted SFAS No. 128, "Earnings per Share," effective December 31, 1997. This accounting change had no effect on previously reported earnings per share (EPS) data. 3. FINANCING ARRANGEMENTS In connection with the Initial Public Offering, the Company entered into an amended revolving credit agreement with Compass Bank, (the "Company Credit Facility"), which provides for a maximum loan amount of $25 million, subject to borrowing base limitations. Prior to the Offering, the Company utilized various credit facilities as well as borrowings from certain directors and officers of the Company. Except for the Company Credit Facility, all of these facilities and borrowings were terminated with the close of the Offering. Under the Company Credit Facility, the principal outstanding is due and payable upon maturity in June 1999 with interest due monthly. The interest rate for borrowings is calculated at a floating rate based on the Compass index rate or LIBOR plus 2 percent. The Company's obligations are secured by certain of its oil and gas properties and cash or cash equivalents included in the borrowing base. Under the Company Credit Facility, Compass, in its sole discretion, will make semiannual borrowing base determinations based upon the proved oil and natural gas properties of the Company. Compass may redetermine the borrowing base and the monthly borrowing base reduction at any time and from time to time. The Company may also request borrowing base redeterminations in addition to its required semiannual reviews at the Company's cost. At September 30, 1998, the borrowing base amounted to $5,750,000 with $4.1 million outstanding. The Company is subject to certain covenants under the terms of the Company Credit Facility, including, but not limited to, (a) maintenance of specified tangible net worth and (b) maintenance of a ratio of quarterly cash flow (net income plus depreciation and other noncash charges, less noncash income) to quarterly debt service (payments made for principal in connection with the credit facility plus payments made for principal other than in connection with such credit facility) of no less than 1.25 to 1.00. The Company Credit Facility also places restrictions on, among other things, (a) incurring additional indebtedness, loans and liens, (b) changing the nature of business or business structure, (c) selling assets and (d) paying dividends. In December 1997, the Company and Compass entered into an amendment to the Company Credit Facility that provided for a term loan of $3 million. Interest for borrowings under the term loan was calculated at a floating rate based on the Compass index rate plus 2 percent. The amount outstanding under the term loan as of December 31, 1997 was $3 million. Amounts outstanding under the term loan were repaid in January 1998. In September 1998, the Company and Compass Bank entered into an amendment for the Company Credit Facility that provides for a term loan of $7 million, which is due on the earlier of (i) the date of closing of the sale by the Company of convertible subordinated debt or of equity of the Company, (ii) the repayment of the Company Credit Facility and (iii) September 30, 1999. Interest for borrowings under the term loan is calculated at a floating rate based on the Compass index rate plus 2 percent. The amount outstanding under the term loan as of September 30, 1998 was $3.5 million, and the Company's ability to borrow additional amounts under the term loan terminates on December 31, 1998. This loan is guaranteed by certain members of the Board of Directors. 4. SALES OF PREFERRED STOCK AND WARRANTS: In January 1998, the Company consummated the sale of 300,000 shares of Preferred Stock and Warrants to purchase 1,000,000 shares of Common Stock to affiliates of Enron Corp. The net proceeds received by the Company from this transaction were approximately $28.8 million. A portion of the proceeds were used to repay indebtedness of $7.95 million. -6- 8 The remaining proceeds are being used primarily for oil and natural gas exploration and development activities in Texas and Louisiana. The Preferred Stock provides for annual cumulative dividends of $9.00 per share, payable quarterly in cash or, at the option of the Company until January 15, 2002, in additional shares of Preferred Stock. Payments for the three and nine months ended September 30, 1998 were made by the issuance of an additional 7,018.81 and 20,110.53 shares of Preferred Stock, respectively. As of October 15, 1998, there were 320,110.53 shares of Preferred Stock outstanding. The Warrants, which had a fair value at issuance of $.30 per share, will be accreted through the term of the Preferred Stock. The Preferred Stock is required to be redeemed by the Company (i) on January 8, 2005, or (ii) after a request for redemption from the holders of at least 30,000 shares of the Preferred Stock (or, if fewer than such number of shares of Preferred Stock are outstanding, all of the outstanding shares of Preferred Stock) and the occurrence of certain events. Included among those events is for two consecutive fiscal quarterly periods the quarterly Cash Flow (as defined below) of the Company is less than the amount of the dividends accrued with respect to the Preferred Stock. "Cash Flow" means net income prior to preferred dividends and accretion (i) plus (to the extent included in net income prior to preferred dividends and accretion) depreciation, depletion and amortization and other non-cash charges and losses on the sale of property (ii) minus non-cash income items and required principal payments on indebtedness for borrowed money with a maturity from the original date of incurrence of such indebtedness of six months or greater (excluding voluntary prepayments and refinancings, but including prepayments (other than in connection with refinancings) which would otherwise be due under such indebtedness within a 60-day period following the date of such prepayments). The Preferred Stock also may be redeemed at the option of the Company at any time in whole or in part. All redemptions are at a price per share, together with dividends accumulated and unpaid to the date of redemption, decreasing over time from an initial rate of $104.50 per share to $100 per share. The Warrants (i) enable the holders to purchase 1,000,000 share of Common Stock at a price of $11.50 per share (payable in cash, by "cashless exercise" and certain other methods), subject to adjustments, (ii) expire after a seven-year term, and (iii) are exercisable after one year. If the Company fails to meet its redemption obligations, the holders of the Preferred Stock will generally have the right, voting as a class, to elect additional directors, which in most cases will constitute a majority of the board. The Company's Cash Flow (as defined above) for the three months ended September 30, 1998 was less than the amount of the dividends accrued with respect to the Preferred Stock. There can be no assurance that the Company's Cash Flow for the three months ended December 31, 1998 will exceed the amount of the dividends to be accrued with respect to the Preferred Stock. 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 130, "Reporting Comprehensive Income" ("Statement No. 130") and Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information ("Statement No. 131"). In February 1998, the FASB issued Statement No. 132 "Employers' Disclosure About Pension and Other Post-retirement Benefits" ("Statement No. 132") that revised disclosure requirements for pension and other post-retirement benefits. Statement No. 132 does not impact Carrizo's disclosure or reporting. During the first quarter of 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accounts issued two Statements of Position ("SOP"), SOP 98-5 "Reporting on the Costs of Start-up Activities" and SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Statement No. 130 established standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. This standard does not currently alter the Company's reporting or disclosure. Statement No. 131 established standards for the way public enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also established standards for related disclosure about products and services, geographic areas and major customers. Statement No. 131 will not currently impact the Company's disclosure or reporting. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance. Statement No. 133 cannot be applied retroactively. Statement No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 and, at the company's election, before January 1, 1998. The Company routinely enters into financial instrument contracts to hedge price risks associated with the sale of crude oil and natural gas. Statement No. 133 amends, modifies and supercedes significantly all of the authoritative literature governing the accounting for and disclosure of derivative financial instruments and hedging activities. As a result, adoption of Statement No. 133 will impact the accounting for and disclosure of the Company's operations. The Company is assessing the impact Statement No. 133 will have on its financial accounting and disclosures and intends to adopt the provisions of such statement in accordance with the requirements provided by the statement. SOP 98-1 establishes guidance on the accounting for the costs of computer software developed or obtained for internal use. The Company's current accounting policies adhere to the provisions of the SOP. SOP 98-5 provides guidance on the accounting for start up costs and organization costs, and must be adopted for fiscal years beginning after December 15, 1998. At adoption, the Company will be required to record the cumulative effect of a change in accounting principle to write off any unamortized start up or organization costs remaining on the balance sheet. The Company plans to adopt the SOP in the first quarter of 1999. -7- 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors that have affected certain aspects of the Company's financial position and results of operations during the periods included in the accompanying unaudited condensed financial statements. This discussion should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the annual financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and the unaudited condensed financial statements included elsewhere herein. Unless otherwise indicated by the context, references herein to "Carrizo" or "Company" mean Carrizo Oil & Gas, Inc., a Texas corporation that is the registrant. GENERAL OVERVIEW The Company began operations in September 1993 and initially focused on the acquisition of producing properties. As a result of the increasing availability of economic onshore 3-D seismic surveys, the Company began to obtain 3-D seismic data and options to lease substantial acreage in 1995 and began to drill its 3-D based prospects in 1996. The Company drilled 70 wells in 1997. As a result of unexpected delays in settling certain land issues, lower than expected commodity prices, poor weather, and delays of other parties in non-operated areas, the Company drilled 49 gross wells in the nine months ended September 30, 1998 which is fewer than number contemplated in the initial budget. During the fourth quarter, the Company plans to drill between 10 and 20 gross wells, however, the actual number of which may vary depending upon weather delays and other factors. Depreciation, depletion and amortization, oil and gas operating expenses and production are expected to increase. The Company has typically retained the majority of its interests in shallow, normally pressured prospects and sold a portion of its interests in deeper, overpressured prospects. The financial statements are prepared on the basis of a combination of Carrizo and the entities that were a party to the Combination Transactions. Carrizo and the entities combined with it in the Combination Transactions were not required to pay federal income taxes due to their status as partnerships or Subchapter S corporations, which are not subject to federal income taxation. Instead, taxes for such periods were paid by the shareholders and partners of such entities. On May 16, 1997, Carrizo terminated its status as an S corporation and thereafter became subject to federal income taxes. In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company established a deferred tax liability in the second quarter of 1997 which resulted in a noncash charge to income of approximately $1.6 million. The Company has primarily grown through the internal development of properties within its exploration project areas, although the Company acquired properties with existing production in the Camp Hill Project in late 1993, the Encinitas Project in early 1995 and the La Rosa Project in 1996. The Company made these acquisitions through the use of limited partnerships with Carrizo or Carrizo Production, Inc. as the general partner. However, as operations have expanded, the Company has increasingly funded its activities through bank borrowings and cash flow from operations in order to retain a greater portion of the interests it develops. The Company's revenues, profitability, future growth and ability to borrow funds or obtain additional capital, and the carrying value of its properties are substantially dependent on the success of the Company's exploration program and the prevailing prices of oil and natural gas. It is impossible to predict future oil and natural gas price movements with certainty. Declines in prices received for oil and natural gas may have an adverse effect on the Company's financial condition, liquidity, ability to finance capital expenditures, and results of operations. Lower prices may also impact the amount of reserves that can be produced economically by the Company. Due to the instability of oil and natural gas prices, in 1995 the Company began utilizing, from time to time, certain hedging instruments (e.g., NYMEX futures contracts) for a portion of its oil and gas production to achieve a more predictable cash flow, as well as to reduce the exposure to price fluctuations. The Company's hedging arrangements apply to only a portion of its production, provide only partial price protection against declines in oil and natural gas prices and limit potential gains from future increases in prices. Such hedging arrangements may expose the Company to risk of financial loss in certain circumstances, including instances where production is less than expected, the Company's customers fail to purchase contracted quantities of oil or natural gas, or a sudden unexpected event materially impacts oil or natural gas prices. The Company accounts for all these transactions as hedging activities and, accordingly, gains and losses from hedging activities are included in oil and gas revenues during the period the hedged transactions occur. Historically, gains and losses from hedging activities have not been material. The Company expects that the amount of hedges that it has in place will vary -8- 10 from time to time. The Company had outstanding hedge positions as of September 30, 1998 covering 1,092 Mmcf for October 1998 through March 1999 at an average price of $2.27 (Houston Ship Channel). The Company uses the full-cost method of accounting for its oil and gas properties. Under this method, all acquisition, exploration and development costs, including any general and administrative costs that are directly attributable to the Company's acquisition, exploration and development activities, are capitalized in a "full-cost pool" as incurred. The Company records depletion of its full-cost pool using the unit-of-production method. To the extent that such capitalized costs in the full-cost pool (net of depreciation, depletion and amortization and related deferred taxes) exceed the present value (using a 10 percent discount rate) of estimated future net after-tax cash flows from proved oil and gas reserves, such excess costs are charged to operations. The Company has not been required to make any such write-downs. Once incurred, a write-down of oil and gas properties is not reversible at a later date. The ceiling test for many full cost companies, including Carrizo, could be negatively impacted by prolonged unfavorable oil and gas prices, potentially resulting in the Company recording a non-cash charge to earnings related to its oil and gas properties during 1998. RESULTS OF OPERATIONS Three Months Ended September 30, 1998, Compared to the Three Months Ended September 30, 1997 Oil and natural gas revenues for the three months ended September 30, 1998 decreased 27 percent to $1,509,000 from $2,069,000 for the same period in 1997. Production volumes for natural gas during the three months ended September 30, 1998 decreased 13 percent to 604,860 Mcf from 694,873 Mcf for the same period in 1997. Average gas prices decreased 15 percent to $1.81 per Mcf in the third quarter of 1998 from $2.14 per Mcf in the same period in 1997. Production volumes for oil in the third quarter of 1998 decreased 5 percent to 31,317 Bbls from 33,104 Bbls for the same period in 1997. Average oil prices decreased 25 percent to $13.31 per barrel in the third quarter of 1998 from $17.66 per barrel in the same period in 1997. The decrease in natural gas production was due primarily to the curtailment of production as a result of regulatory action from the Company's Wheeler wells and declines in production from the Company's Encinitas wells combined with the delay in commencement of production from several wells drilled during the second quarter of 1998. The decrease in oil production was due primarily to normal declines in existing wells partially offset by production from new wells. The following table summarizes production volumes, average sales prices and operating revenues for the Company's oil and natural gas operations for the three months ended September 30, 1997 and 1998:
1998 Period Compared to 1997 Period September 30 -------------------------- ------------------------- Increase % Increase 1997 1998 (Decrease) (Decrease) ---------- ---------- ---------- ---------- Production volumes- Oil and condensate (Bbls) 33,104 31,317 (1,787) (5%) Natural gas (Mcf) 694,873 604,860 (90,013) (13%) Average sales prices-(1) Oil and condensate (per Bbl) $ 17.66 $ 13.31 $ (4.35) (25%) Natural gas (per Mcf) 2.14 1.81 (.33) (15%) Operating revenues- Oil and condensate $ 584,457 $ 416,767 $ (167,690) (29%) Natural gas 1,484,780 1,092,130 (392,650) (26%) ---------- ---------- ---------- Total $2,069,237 $1,508,897 $ (560,340) (27%) ========== ========== ==========
- ----------------- (1) Includes impact of hedging activities. Oil and natural gas operating expenses for the three months ended September 30, 1998 increased 26 percent to $732,000 from $583,000 for the same period in 1997. Operating expenses per equivalent unit increased to $.92 per Mcfe in the third quarter of 1998 from $.65 per in the same period in 1997 primarily as a result of decreased production of natural gas. -9- 11 Depreciation, depletion and amortization (DD&A) expense for the three months ended September 30, 1998 increased 33 percent to $863,000 from $647,000 for the same period in 1997. This increase was due to additional seismic and drilling costs and depreciation on 3-D computer equipment and related software. General and administrative expense for the three months ended September 30, 1998 increased 70 percent to $662,000 from $388,000 for the same period in 1997 as a result of increases in the number of employees and related benefits and increased office space as well as other costs related to being a public company. Interest income for the three months ended September 30, 1998 decreased to $12,000 from $44,000 in the third quarter of 1997. Net interest expense for the three months ended September 30, 1998, decreased to $6,000 from $61,000 in the same period in 1997. Capitalized interest decreased to $41,000 in the third quarter of 1998 from $163,000 in the third quarter of 1997. Income (loss) before income taxes for the three months ended September 30, 1998 decreased 271 percent to a loss of $741,000 from income of $433,000 in the same period in 1997. Net income (loss) for the three months ended September 30, 1998 decreased to a loss of $495,000 from income of $281,000 for the same period in 1997 primarily as a result of decreased revenue and increased DD&A and general and administrative expense. Nine Months Ended September 30, 1998, Compared to the Nine Months Ended September 30, 1997 Oil and natural gas revenues for the nine months ended September 30, 1998 decreased 9 percent to $5,697,000 from $6,234,000 for the same period in 1997. Production volumes for natural gas during the nine months ended September 30, 1998 decreased 9 percent to 1,936,029 Mcf from 2,123,056 Mcf for the same period in 1997. Average gas prices increased 2 percent to $2.26 per Mcf for the nine months ended September 30, 1998 from $2.21 per Mcf in the same period in 1997. Production volumes for oil for the nine months ended September 30, 1998 increased 24 percent to 101,131 Bbls from 81,654 Bbls for the same period in 1997. Average oil prices decreased 31 percent to $13.02 per barrel for the nine months ended September 30, 1998 from $18.97 per barrel in the same period in 1997. The increase in oil production was due primarily to production from new wells drilled and completed during 1997 and 1998. The following table summarizes production volumes, average sales prices and operating revenues for the Company's oil and natural gas operations for the nine months ended September 30, 1997 and 1998:
1998 Period Compared to 1997 Period September 30 -------------------------- ------------------------- Increase % Increase 1997 1998 (Decrease) (Decrease) ---------- ---------- ---------- ---------- Production volumes- Oil and condensate (Bbls) 81,654 101,131 19,477 24% Natural gas (Mcf) 2,123,056 1,936,029 (187,027) (9%) Average sales prices-(1) Oil and condensate (per Bbl) $ 18.97 $ 13.02 $ (5.95) (31%) Natural gas (per Mcf) 2.21 2.26 .05 2% Operating revenues- Oil and condensate $1,549,056 $1,316,453 $ (232,603) (15%) Natural gas 4,685,205 4,380,090 (305,115) (7%) ---------- ---------- ---------- Total $6,234,261 $5,696,543 $ (537,718) (9%) ========== ========== ==========
- ---------- (1) Includes impact of hedging activities. Oil and natural gas operating expenses for the nine months ended September 30, 1998 increased 13 percent to $2,015,000 from $1,779,000 for the same period in 1997 primarily due to the addition of new wells offset by a reduction in costs on older producing fields. Operating expenses per equivalent unit increased to $.79 per Mcfe for the nine months ended September 30, 1998 from $.68 per Mcfe in the same period in 1997 reflecting the cost of operating more wells and as a result of declining production of natural gas. Depreciation, depletion and amortization (DD&A) expense for the nine months ended September 30, 1998 increased 52 percent to $2,483,000 from $1,635,000 for the same period in 1997. This increase was due to additional seismic and drilling costs. General and administrative expense for the nine months ended September 30, 1998 increased 107 percent to $2,054,000 from $993,000 for the same period in 1997 as a result of increases in the number of employees and related benefits and increased office space. -10- 12 Interest income for the nine months ended September 30, 1998 increased to $286,000 from $44,000 for the same period in 1997. Net interest expense for the nine months ended September 30, 1998, decreased to $9,000 from $151,000 in the same period in 1997. Capitalized interest decreased to $41,000 for the nine months ended September 30, 1998 from $628,000 for the same period in 1997 as total interest paid decreased as a result of debt retirement using proceeds from the Initial Public Offering and the Preferred Stock and Warrants sale. Income (loss) before income taxes for the nine months ended September 30, 1998 decreased 134 percent to a loss of $579,000 from income of $1,719,000 in the same period in 1997. Net loss for the nine months ended September 30, 1998 increased to $416,000 from $367,000 for the same period in 1997 primarily as a result of decreased production and oil prices and increased DD&A and general and administrative expense. The 1997 period also included a one-time charge for income taxes. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity have included proceeds for the Offering and from the sale of shares of Preferred Stock and the Warrants (each as defined below), funds generated by operations, equity capital contributions and borrowings, primarily under revolving credit facilities. Cash flows provided by (used in) operations (after changes in working capital) were $1,520,000 and $(847,000) for the nine months ended September 30, 1997 and 1998, respectively. The decrease in cash flows provided by operations in 1998 as compared to 1997 was due primarily to decreases in trade accounts payable. The Company has continued to reinvest a substantial portion of its cash flows into increasing its 3-D prospect portfolio, improving its 3-D seismic interpretation technology and funding its drilling program. Oil and gas capital expenditures were $28.3 million for the nine months ended September 30, 1998. The Company's drilling efforts resulted in the successful completion of 46 gross wells (17.5 net) during the year ended December 31, 1997 and 30 gross wells (9.5 net) during the nine months ended September 30, 1998. During the fourth quarter, the Company plans to drill between 10 and 20 wells, however, the actual number of wells may vary depending upon weather delays and other factors. The Company has experienced and expects to continue to experience substantial working capital requirements primarily due to the Company's active exploration and development programs and, to a much lesser extent, its technology enhancement programs. While the Company believes that the net proceeds from the Offering, net proceeds for the sale of shares of Preferred Stock and the Warrants, cash flow from operations and borrowings under the Company's credit facilities should allow the Company to implement its current capital commitments, the Company is exploring alternatives for additional financing to ensure to the Company's continued growth, and fund its aggressive development and exploration program and continued technological enhancement. In the event such capital resources are not available to the Company, its exploration and other activities may be curtailed. FINANCING ARRANGEMENTS In connection with the Offering, the Company entered into an amended revolving credit agreement with Compass Bank, (the "Company Credit Facility"), which provides for a maximum loan amount of $25 million, subject to borrowing base limitations. Prior to the Offering, the Company utilized various credit facilities as well as borrowings from certain directors and officers of the Company. Except for the Company Credit Facility, all of these facilities and borrowings were terminated with the close of the Offering. Under the Company Credit Facility, the principal outstanding is due and payable upon maturity in June 1999 with interest due monthly. The interest rate for borrowings is calculated at a floating rate based on the Compass index rate or LIBOR plus 2 percent. The Company's obligations are secured by certain of its oil and gas properties and cash or cash equivalents included in the borrowing base. Under the Company Credit Facility, Compass, in its sole discretion, will make semiannual borrowing base determinations based upon the proved oil and natural gas properties of the Company. Compass may redetermine the borrowing base and the monthly borrowing base reduction at any time and from time to time. The Company may also request borrowing base redeterminations in addition to its required semiannual reviews at the Company's cost. At September 30, 1998, the borrowing base amounted to $5,750,000 with $4.1 million outstanding. The Company is subject to certain covenants under the terms of the Company Credit Facility, including, but not limited to, (a) maintenance of specified tangible net worth and (b) maintenance of a ratio of quarterly cash flow (net income plus depreciation and other noncash charges, less noncash income) to quarterly debt service (payments made for principal in connection with the credit facility plus payments made for principal other than in connection with such credit facility) of no less than 1.25 to 1.00. The Company Credit Facility also places restrictions on, among other things, (a) incurring additional indebtedness, loans and liens, (b) changing the nature of business or business structure, (c) selling assets and (d) paying dividends. -11- 13 In December 1997, the Company and Compass entered into an amendment to the Company Credit Facility that provided for a term loan of $3 million. Interest for borrowings under the term loan was calculated at a floating rate based on the Compass index rate plus 2 percent. The amount outstanding under the term loan as of December 31, 1997 was $3 million. Amounts outstanding under the term loan were repaid in January 1998. In September 1998, the Company and Compass Bank entered into an amendment for the Company Credit Facility that provides for a term loan of $7 million, which is due on the earlier of (i) the date of closing of the sale by the Company of convertible subordinated debt or of equity of the Company, (ii) the repayment of the Company Credit Facility and (iii) September 30, 1999. Interest for borrowings under the term loan is calculated at a floating rated based on the Compass index rate plus 2 percent. The amount outstanding under the term loan as of September 30, 1998 was $3.5 million, and the Company's ability to borrow additional amounts under the term loan terminates on December 31, 1998. This loan is guaranteed by certain members of the Board of Directors. In January 1998, the Company consummated the sale of 300,000 shares of Preferred Stock and Warrants to purchase 1,000,000 shares of Common Stock to affiliates of Enron Corp. The net proceeds received by the Company from this transaction were approximately $28.8 million. A portion of the proceeds was used to repay indebtedness, as described above. The remaining balance is expected to be used primarily for oil and natural gas exploration and development activities in Texas and Louisiana. The Preferred Stock provides annual cumulative dividends of $9.00 per share, payable quarterly in cash, or, at the option of the Company until January 15, 2002, in additional shares of Preferred Stock. Payments for the three and nine months ended September 30, 1998 were made by the issuance of an additional 7,018.81 and 20,110.53 shares of Preferred Stock, respectively. As of October 15, 1998 there were 320,110.53 shares of Preferred Stock outstanding. The Preferred Stock is required to be redeemed by the Company (i) on January 8, 2005, or (ii) after the occurrence of certain events, including (a) certain failures to declare and pay any two dividends, (b) certain breaches of provisions relating to the Preferred Stock, (c) for two consecutive fiscal quarterly periods the quarterly Cash Flow (as defined below) of the Company is less than the amount of the dividends accrued with respect to the Preferred Stock, (d) certain failures to pay or accelerations with respect to indebtedness for borrowed money, (e) certain violations of the shareholders' agreement relating to the Preferred Stock and (f) certain sales or dispositions of substantially all of the Company's assets. "Cash Flow" means net income prior to preferred dividends and accretion (i) plus (to the extent included in net income prior to preferred dividends and accretion) depreciation, depletion and amortization and other non-cash charges and losses on the sale of property (ii) minus non-cash income items and required principal payments on indebtedness for borrowed money with a maturity from the original date of incurrence of such indebtedness of six months or greater (excluding voluntary prepayments and refinancings, but including prepayments (other than in connection with refinancings) which would otherwise be due under such indebtedness within a 60-day period following the date of such prepayments). The Preferred Stock also may be redeemed at the option of the Company at any time in whole or in part. All redemptions are at a price per share, together with dividends accumulated and unpaid to the date of redemption, decreasing over time from an initial rate of $104.50 per share to $100.00 per share. If the Company fails to meet its redemption obligations, the holders of the Preferred Stock will generally have the right, voting separately as a class, to elect additional directors, which in most cases will constitute a majority of the board. The Company's Cash Flow (as defined above) for the three months ended September 30, 1998 was less than the amount of the dividends accrued with respect to the Preferred Stock. There can be no assurance that the Company's Cash Flow for the three months ended December 31, 1998 will exceed the amount of the dividends to be accrued with respect to the Preferred Stock. EFFECTS OF INFLATION AND CHANGES IN PRICE The Company's results of operations and cash flows are affected by changing oil and gas prices. If the price of oil and gas increases (decreases), there could be a corresponding increase (decrease) in the operating cost that the Company is required to bear for operations, as well as an increase (decrease) in revenues. Inflation has had a minimal effect on the Company. YEAR 2000 DISCLOSURE The "Year 2000 Issue" is a general term used to refer to certain business implications of the arrival of the new millennium. In simple terms, on January 1, 2000, all computerized systems that use the two-digit convention to identify the applicable year, including both information technology systems and non-information technology systems that use embedded technology could fail completely or create erroneous data as a result of the system failing to recognize the two digit internal date "00" as representing the year 2000. -12- 14 The Company has completed its initial assessment of Year 2000 compliance of its internal information technology systems, which consist primarily of financial and accounting systems and geological evaluation systems, and does not believe that these systems have any material issues with respect to Year 2000 compliance. The Company's internal information technology systems are all new and widely utilized. Its vendors have advised the Company that all of these systems are either Year 2000 compliant or can be easily upgraded to be Year 2000 compliant. The Company anticipates that its Year 2000 remediation efforts for information technology systems, consisting primarily of software upgrades, will continue through 1999, and anticipates incurring less than $10,000 in connection with these efforts. The Company is aware of its exposure to embedded technology and assessment is ongoing. The Company has not identified any non-information technology systems that use embedded technology on which it relies, however such assessment is expected to continue through 1999. Through communications with industry partners and others, the Company is also evaluating the risk presented by potential Year 2000 non-compliance of third parties. Because such risks vary substantially, companies are being contacted based on the estimated magnitude of the risk posed to the Company by their potential Year 2000 non-compliance. The Company anticipates that these efforts will continue through 1999 and will not result in significant costs to the Company. At this time the Company is unaware of situations where material disruptions of its business activities are likely to occur because of Year 2000 non-compliance by third parties. The Company's assessment of its Year 2000 issues involves many assumptions concerning future events. There can be no assurance that the Company's assumptions will prove accurate, and actual results could differ significantly from the assumptions. In conduction its Year 2000 compliance efforts, the Company has relied primarily on vendor representations with respect to its internal computerized systems and representations from third parties with which the Company has business relationships and has not independently verified these representations. There can be no assurance that these representations will prove to be accurate. A Year 2000 failure could result in a business disruption that adversely effects the Company's business, financial condition or results of operations. Although it is not currently aware of any likely business disruption, the Company is developing contingency plans to address Year 2000 failures and expects this work to continue through 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not required or not applicable. -13- 15 PART II. OTHER INFORMATION Item 1 - Legal Proceedings From time to time the Company is a party to various legal proceedings arising in the ordinary course of business. The Company is not currently a party to any litigation that it believes could have a material adverse effect on the financial position of the Company. Item 2 - Changes in Securities and Use of Proceeds None Item 3 - Defaults Upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders None Item 5 - Other Information FORWARD LOOKING STATEMENTS The statements contained in all parts of this document, including, but not limited to, those relating to the Company's schedule, targets, estimates or results of future drilling, budgeted wells, increases in wells, budgeted and other future capital expenditures, use of offering proceeds, effects of litigation, expected production or reserves, increases in reserves, acreage working capital requirements, hedging activities, the ability of expected sources of liquidity to implement its business strategy, and any other statements regarding future operations, financial results, business plans and cash needs and other statements that are not historical facts are forward looking statements. When used in this document, the words "anticipate," "estimate," "expect," "may," "project," "believe" and similar expression are intended to be among the statements that identify forward looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to the Company's dependence on its exploratory drilling activities, the volatility of oil and natural gas prices, the need to replace reserves depleted by production, operating risks of oil and natural gas operations, the Company's dependence on its key personnel, factors that affect the Company's ability to manage its growth and achieve its business strategy, risks relating to, limited operating history, technological changes, significant capital requirements of the Company, the potential impact of government regulations, litigation, competition, the uncertainty of reserve information and future net revenue estimates, property acquisition risks and other factors detailed in the Registration Statement and the Company's other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. Item 6 - Exhibits and Reports on Form 8-K Exhibits Exhibit Number Description - ------- ----------- +2.1 -- Combination Agreement by and among the Company, Carrizo Production, Inc., Encinitas Partners Ltd., La Rosa Partners Ltd., Carrizo Partners Ltd., Paul B. Loyd, Jr., Steven A. Webster, S.P. Johnson IV, Douglas A.P. Hamilton and Frank A. Wojtek dated as of June 6, 1997 (Incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-29187)). +3.1 -- Amended and Restated Articles of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). -14- 16 +3.2 -- Statement of Resolution Establishing Series of Shares Designated 9% Series A Preferred Stock (Incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). +3.3 -- Amended and Restated Bylaws of the Company, as amended by Amendment No. 1 (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-A (Registration No. 000-22915)). 4.1 -- Limited Guaranty by Douglas A. P. Hamilton for the benefit of Compass Bank. 4.2 -- Notice of Final Agreement with respect to a term loan from Compass Bank. 4.3 -- Limited Guaranty by Paul B. Loyd, Jr. for the benefit of Compass Bank. 4.4 -- Limited Guaranty by Steven A. Webster for the benefit of Compass Bank. 4.5 -- Fourth Amendment to First Amended, Restated, and Combined Loan Agreement by and between Carrizo Oil & Gas, Inc. and Compass Bank. 27.1 -- Financial Data Schedule. + Incorporated herein by reference as indicated. Reports on Form 8-K The Company did not file any reports on a Form 8-K during the quarter ended September 30, 1998. -15- 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Carrizo Oil & Gas, Inc. (Registrant) Date: November 16, 1998 By: /s/ S. P. Johnson IV ------------------------ President and Chief Executive Officer (Principal Executive Officer) Date: November 16, 1998 By: /s/ Frank A. Wojtek ----------------------- Chief Financial Officer (Principal Financial and Accounting Officer) -16- 18 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- +2.1 -- Combination Agreement by and among the Company, Carrizo Production, Inc., Encinitas Partners Ltd., La Rosa Partners Ltd., Carrizo Partners Ltd., Paul B. Loyd, Jr., Steven A. Webster, S.P. Johnson IV, Douglas A.P. Hamilton and Frank A. Wojtek dated as of June 6, 1997 (Incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-29187)). +3.1 -- Amended and Restated Articles of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). +3.2 -- Statement of Resolution Establishing Series of Shares Designated 9% Series A Preferred Stock (Incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). +3.3 -- Amended and Restated Bylaws of the Company, as amended by Amendment No. 1 (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-A (Registration No. 000-22915). 4.1 -- Limited Guaranty by Douglas A. P. Hamilton for the benefit of Compass Bank. 4.2 -- Notice of Final Agreement with respect to a term loan from Compass Bank. 4.3 -- Limited Guaranty by Paul B. Loyd, Jr. for the benefit of Compass Bank. 4.4 -- Limited Guaranty by Steven A. Webster for the benefit of Compass Bank. 4.5 -- Fourth Amendment to First Amended, Restated, and Combined Loan Agreement by and between Carrizo Oil & Gas, Inc. and Compass Bank. 27.1 -- Financial Data Schedule.
+ Incorporated herein by reference as indicated. EX-4.1 2 LIMITED GUARANTY BY DOUGLAS A. P. HAMILTON 1 EXHIBIT 4.1 LIMITED GUARANTY THIS LIMITED GUARANTY ("Guaranty"), is made and entered into as of September 24, 1998 by DOUGLAS A. P. HAMILTON ("Guarantor"), for the benefit of COMPASS BANK, a Texas state chartered banking institution ("Bank"). W I T N E S S E T H: WHEREAS, on the date hereof, Bank has advanced or will advance certain funds to CARRIZO OIL & GAS, INC., a Texas corporation ("Borrower") pursuant to the Fourth Amendment of even date herewith to that certain First Amended and Restated Loan Agreement dated August 28, 1997, as amended by the First Amendment thereto dated December 23, 1997, the Second Amendment thereto dated December 30, 1997 and the Third Amendment thereto dated July 30, 1998 (the "Loan Agreement"), specifically including the indebtedness evidenced by that certain term promissory note dated of even date herewith, executed by Borrower and payable to Bank, in the principal amount of $7,000,000.00 and all other notes given in substitution therefor or in modification, renewal or extension thereof in whole or in part (the "Second Term Note"); WHEREAS, as a condition to Bank's entry into said Fourth Amendment and its advance of funds to Borrower thereunder, Guarantor has agreed to enter into this Guaranty of certain indebtedness owed or to be owed by Borrower to Bank; and WHEREAS, Guarantor will directly and indirectly benefit from the Second Term Loan, as defined in the Loan Agreement, as amended by the Fourth Amendment and evidenced by the Second Term Note. NOW, THEREFORE, for and in consideration of the premises and the extension of credit by Bank to Borrower pursuant to the Loan Agreement, and for TEN AND NO/100 DOLLARS ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce Bank to execute the Fourth Amendment, Bank and Guarantor hereby agree as follows: 1. Guarantor unconditionally guarantees the prompt payment to Bank of the following (the "Guaranteed Indebtedness"): (a) Any and all indebtedness, obligations (including reimbursement obligations) and liabilities of Borrower to Bank now existing or hereafter incurred in connection with or incident to the Second Term Loan, under or arising out of or in connection with any documents executed in connection with any indebtedness of Borrower to Bank in connection with the Second Term Loan 2 or any promissory note or notes executed by Borrower at any time in connection with the Second Term Loan, whether for principal, interest, penalty interest, fees, expenses or otherwise, including, without limitation, all sums, principal, accrued interest and other amounts owing with respect to the Second Term Note, together with any and all renewals, extensions and/or rearrangements thereof, whether with or without notice to Guarantor; (b) All interest, charges, expenses, attorneys' or other fees and any other sums payable to or incurred by the Bank in connection with the execution, administration or enforcement of the Bank's rights and remedies under the Second Term Note; and (c) All post-petition interest on the Guaranteed Indebtedness in the event of a bankruptcy or insolvency of the Borrower. Provided, however, that Guarantor's obligation hereunder shall never exceed $3,500,000.00. Guarantor shall at all times maintain at least $4,000,000 in Liquid Assets. To evidence such maintenance of Liquid Assets, Guarantor shall deliver to Bank, on or before the forty-fifth (45th) day after the end of each calendar quarter, a Certificate of Liquidity in the form attached hereto as Exhibit "A", certifying the value of such Guarantor's Liquid Assets effective as of the end of each calendar quarter. "Liquid Assets" shall mean Cash on hand and balances in checking accounts available for immediate withdrawal, the value, from time to time, of short-term, highly liquid investments that are readily convertible to Cash, such as treasury bills, commercial paper and money market funds, and the value, from time to time, of unrestricted shares of stock that are publicly traded on the New York Stock Exchange, the American Stock Exchange, or NASDAQ, and otherwise acceptable to the Bank, but only to the extent the foregoing are free from all liens, claims and encumbrances, including liens or security interests in favor of the Bank. "Cash" shall mean legal tender of the United States of America. 2. If the Guaranteed Indebtedness is not paid by Guarantor when due, as required herein, and this Guaranty is placed in the hands of an attorney for collection, or if this Guaranty is enforced by suit or through the Bankruptcy Court or through any judicial proceedings, Guarantor shall pay to Bank an amount equal to its reasonable attorneys' fees and collection costs incurred by Bank in the collection of the Guaranteed Indebtedness. 3. This is an absolute, complete and continuing Guaranty, and no notice of the Guaranteed Indebtedness or any extension of credit already or hereafter contracted by or extended to Borrower need be given to Guarantor, nor shall anything herein contained be a limitation upon the amount of credit which may be extended to Borrower, the numbers of transactions with Borrower, repayments by Borrower to Bank, or the allocation by Bank of repayment by Borrower, it being the understanding of the Guarantor that Guarantor's liability shall continue hereunder so long as any of the Guaranteed Indebtedness remains unpaid. Borrower and Bank may rearrange, increase, decrease, extend and/or renew the Guaranteed Indebtedness without notice to Guarantor and in such -2- 3 event Guarantor will remain fully bound hereunder on the Guaranteed Indebtedness. The obligations of Guarantor hereunder shall not be released, impaired or diminished by any amendment, modification or alteration of the Loan Agreement or the Second Term Note. Guarantor expressly waives all notices of any kind, presentment for payment, demand for payment, protest, notice of protest, notice of intent to accelerate, notice of acceleration, dishonor, diligence, notice of any amendment of the Loan Agreement, notice of any adverse change in the financial condition of Borrower, notice of any adjustment, indulgence, forbearance or compromise that might be granted or given by Bank to Borrower, and also notice of acceptance of this Guaranty, acceptance on the part of Bank being conclusively presumed by its request for this Guaranty and delivery of the same to it. The liability and obligations of Guarantor hereunder shall not be affected or impaired by any action or inaction by Bank in regard to any matter waived or notice of which is waived by Guarantor in this paragraph or in any other paragraph of this Guaranty. 4. Guarantor authorizes Bank, without notice or demand and without affecting Guarantor's liability hereunder, (a) to take and hold security for the payment of this Guaranty and/or the Guaranteed Indebtedness, and to exchange, enforce, waive and/or release any such security; (b) to apply such security and direct the order or manner of sale thereof as Bank in its discretion may determine; (c) to obtain a guaranty of the Guaranteed Indebtedness from any one or more other persons, corporations or entities whomsoever and to enforce, waive, rearrange, modify, limit or release at any time or times such other persons, corporations or entities from their obligations under such guaranties; (d) to waive or delay the exercise of any of its rights or remedies against the Borrower or any other person or entity; (e) to renew, extend, or modify the terms of any of the Guaranteed Indebtedness or any instrument or agreement evidencing the same; and (f) to fully or partially release at any time any Guarantor which executes this Guaranty whether with or without consideration. 5. Guarantor waives any right to require Bank to (a) proceed against, or make any effort at the collection of the Guaranteed Indebtedness from Borrower or any other guarantor or party liable for the Guaranteed Indebtedness; (b) proceed against or exhaust any collateral held by Bank; or (c) pursue any other remedy in Bank's power whatsoever. Guarantor further waives any and all rights and remedies which Guarantor may have or be able to assert by reason of the provisions of Chapter 34 of the Texas Business and Commerce Code. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of Borrower or any other guarantor of the Guaranteed Indebtedness, and Guarantor shall remain liable under this Guaranty regardless of whether Borrower or any other guarantor be found not liable on the Guaranteed Indebtedness for any reason including, without limitation, insanity, minority, disability, bankruptcy, insolvency, death or corporate dissolution, even though rendering the Guaranteed Indebtedness void or unenforceable or uncollectible as against Borrower or any other guarantor. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Indebtedness is rescinded or must otherwise be returned by Bank upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made and will, thereupon, guarantee payment of such amount as to which refund or restitution has been made, together with interest accruing thereon subsequent to the -3- 4 date of refund or restitution at the applicable rate under the Loan Agreement and collection costs and fees (including, without limitation, attorneys' fees) applicable thereto, subject to the limitations set forth in Sections 1 and 10 hereof. 6. The liability and obligations of Guarantor hereunder shall not be affected or impaired by (a) the failure of Bank or any other party to exercise diligence or reasonable care in the preservation, protection or other handling or treatment of all or any part of the collateral securing payment of all or any part of the Guaranteed Indebtedness, (b) the failure of any security interest or lien intended to be granted or created to secure the Guaranteed Indebtedness to be properly perfected or created or the unenforceability of any security interest or lien for any other reason, or (c) the subordination of any such security interest or lien to any other security interest or lien. 7. Bank may pursue any remedy without altering the obligations of Guarantor hereunder and without liability to Guarantor, even though Bank's pursuit of such remedy may result in Guarantor's loss of rights of subrogation or to proceed against others for reimbursement or contribution or any other right. In no event shall any payment by Guarantor entitle it, by subrogation or otherwise, to any rights against Borrower or any right to participate in any security now or hereafter held by Bank prior to payment in full of all of the Guaranteed Indebtedness and, in any event, not until 367 days after the making of any payment and/or the granting of any security interest by Borrower or any other guarantor to Bank in connection with the Guaranteed Indebtedness. 8. Should the status of Borrower change in any way, including, without limitation, as a result of any dissolution of Borrower, any sale, lease or transfer of any or all of the assets of Borrower, any changes in the shareholders of Borrower, or any reorganization of Borrower, this Guaranty shall continue, and shall cover the Guaranteed Indebtedness under the new status. 9. The liability of Guarantor for the payment of the Guaranteed Indebtedness shall be primary and not secondary. 10. Guarantor is familiar with and has independently reviewed the books and records regarding the financial condition of Borrower and is familiar with the value of any and all collateral intended to be granted as security for the payment of the Guaranteed Indebtedness; Guarantor is not, however, relying on such financial condition or such collateral as an inducement to enter into this Guaranty. As of the date hereof, and after giving effect to this Guaranty and the contingent obligations evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets and property which, valued fairly, exceed such Guarantor's obligations, debts and liabilities, and has and will have assets and property sufficient to satisfy, repay and discharge the same. Notwithstanding the definition of Guaranteed Indebtedness herein, the liability of Guarantor hereunder is limited to (a) the lowest amount that would render this Guaranty void against creditors or creditors' representatives under any fraudulent conveyance or similar law or under Sections 544 or 548 of the Bankruptcy Code of 1978, as revised, minus (b) $1.00. -4- 5 11. If Borrower shall at any time or times be or become obligated to Bank for payment of any indebtedness other than the Guaranteed Indebtedness, Bank (without in anywise impairing its rights hereunder or diminishing Guarantor's liability) shall be at liberty at any time or times to apply to such other indebtedness any amounts paid to or received by or coming into the hands of Bank from or attributable to Borrower or any other person or party liable for any of such other indebtedness or from or attributable to or representing proceeds of any property or security held by Bank securing payment of such other indebtedness or any credits, deposits or offsets due Borrower or other party liable on any of such other indebtedness (whether or not the Guaranteed Indebtedness or such other indebtedness are then due), it being intended to give Bank the right to apply all payments, credits and offsets and amounts becoming available for application on or credit against the indebtedness of Borrower to Bank (now or hereafter existing) first toward payment and satisfaction of the Borrower's indebtedness not hereby guaranteed, before making application thereof on or against the Guaranteed Indebtedness. 12. Guarantor represents and warrants that this Guaranty accurately and completely embodies the entire agreement between Guarantor and Bank with respect to the respective rights, obligations and liabilities of Guarantor and Bank hereunder, and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. Guarantor acknowledges that Guarantor is not relying on any representations (oral or otherwise) of Bank, or any other party, other than as expressly described in this Guaranty. 13. This Guaranty was reviewed by Guarantor, and Guarantor acknowledges and agrees that Guarantor (a) understands fully all of the terms of this Guaranty and the consequences and implications of Guarantor's execution of this Guaranty, and (b) has been afforded an opportunity to have this Guaranty reviewed by, and to discuss the terms, consequences and implications of this Guaranty with an attorney or other such persons as Guarantor may have desired. 14. This Guaranty is and shall be in every particular available to the successors and assigns of Bank and is and shall always be fully binding upon the heirs, executors, administrators, successors and assigns of Guarantor. This Guaranty is intended for and shall inure to the benefit of Bank and each and every other person who shall from time to time be or become the owner or holder of any of the Guaranteed Indebtedness, and each and every reference herein to "Bank" shall also include and refer to each and every successor or assignee of Bank at any time holding or owning any part of or interest in any part of the Guaranteed Indebtedness. This Guaranty shall be transferable and negotiable, with the same force and effect and to the same extent that the Guaranteed Indebtedness is transferable, it being understood and stipulated that upon the assignment or transfer by Bank of any of the Guaranteed Indebtedness the legal or beneficial owner of the Guaranteed Indebtedness (or part thereof or interest therein thus transferred or assigned by Bank) shall also, unless provided otherwise by Bank in its assignment, have and may exercise all of the rights granted to Bank under this Guaranty to the extent of the part of or interest in the Guaranteed Indebtedness thus assigned or transferred to such person or entity. Guarantor expressly waives notice of transfer or assignment of the Guaranteed Indebtedness, or any part thereof, or of the rights of Bank hereunder. -5- 6 15. All amounts becoming payable by Guarantor to Bank under this Guaranty shall be payable at Bank's offices in the City of Houston, Harris County, Texas. 16. Any notice hereunder to Guarantor shall be in writing, duly stamped and addressed to Guarantor at the address shown below Guarantor's signature hereto, or at such other address as Guarantor may by written notice, received by Bank, have designated as Guarantor's address for such purpose. Any notice provided for herein shall become effective upon the earlier of (a) the first business day of Bank following the deposit in a regularly maintained postal deposit box of the United States Postal Service, or (b) the day of its receipt by Guarantor; but actual notice, however given or received, shall always be effective. The preceding sentence shall not be construed in anywise to affect or impair any waiver of notice or demand herein provided or to require giving of notice or demand to or upon Guarantor in any situation or for any reason. 17. It is the intention of the parties hereto to comply strictly with all applicable usury laws; accordingly, it is agreed that notwithstanding any provisions to the contrary in this Guaranty, or in any documents securing payment hereof or otherwise relating hereto, in no event shall this Guaranty or such documents require the payment or permit the collection of an aggregate amount of interest in excess of the maximum amount permitted by such laws, including the laws of the State of Texas and the laws of the United States of America. If any such excess of interest is contracted for, charged or received under this Guaranty or under the terms of any documents securing payment hereof or otherwise relating hereto, or if under any circumstances, the amount of interest (including all amounts payable hereunder which are not denominated as interest but which constitute interest under the applicable laws) contracted for, charged or received under this Guaranty shall exceed the maximum amount of interest permitted by the applicable usury laws, then in any such event (a) the provisions of this paragraph shall govern and control, (b) Guarantor shall not be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by the applicable usury laws, (c) any such excess interest which may have been collected shall be either applied as a credit against the then unpaid Guaranteed Indebtedness or, if the Guaranteed Indebtedness shall have been paid in full, refunded to Guarantor, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under the applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Guaranty or under such other documents which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable usury laws, by amortizing, prorating, allocating and spreading in equal parts during the full period during which this Guaranty is to be in effect, all interest at any time contracted for, charged or received from Guarantor or otherwise by the holder or holders hereof in connection with this Guaranty. 18. In case any of the provisions of this Guaranty shall for any reason be held to be invalid, illegal, or unenforceable, such invalidity, illegality, or unenforceability shall not affect -6- 7 any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 19. In all instances herein, the singular shall be construed to include the plural and the masculine to include the feminine. 20. This Guaranty may be executed in multiple counterparts each of which shall constitute an original, but all of which when taken together shall constitute one and the same Guaranty. 21. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. All actions or proceedings with respect to the Guaranteed Indebtedness or this Guaranty may be instituted in the Courts of the State of Texas located in Harris County, Texas, or the United States District Court for the Southern District of Texas, and by execution and delivery of this Guaranty, Guarantor irrevocably and unconditionally submits to the jurisdiction (both subject matter and personal) of each such Court, and irrevocably and unconditionally waives (a) any objection Guarantor may now or hereafter have to the laying of venue in any such Courts, (b) any claim that any action or proceeding brought in any of such Courts has been brought in an inconvenient forum, and (c) any right to bring any action or proceeding with respect to the Guaranteed Indebtedness or this Guaranty in any forum other than the courts of the State of Texas located in Harris County, Texas, or the United States District Court for the Southern District of Texas. 22. Guarantor represents and warrants to Bank that this Guaranty is a valid, binding and enforceable obligation of Guarantor and does not violate any provisions of any law, rule, regulation, contract or agreement enforceable against Guarantor. 23. Guarantor hereby agrees that a counterpart of this Guaranty bearing the signature of Guarantor may be effectively delivered to the Bank by the delivery of an electronic facsimile sent via telecopier; and that Guarantor shall be bound by his facsimile signature thereon. EXECUTED this 24th day of September, 1998. GUARANTOR: ---------------------------------------- DOUGLAS A. P. HAMILTON Address: c/o Anatar Investments, Inc. 45 Rockefeller Plaza 20th Floor New York, NY 10111 -7- 8 STATE OF NEW YORK COUNTY OF NEW YORK We, ___________________________ and _________________________, sign our names to this instrument as witnesses to the signature of DOUGLAS A. P. HAMILTON (the "Signor"), and being duly sworn, do hereby declare to the undersigned authority that we are personally acquainted with the Signor, that we know the Signor to be the person that he purports to be through his signature, that he has signed this instrument willingly, and that each of us, in the presence and hearing of the Signor, the undersigned authority, and each other, hereby execute this instrument as witnesses to the Signor's signing, and that to the best of our knowledge, the Signor is twenty-one years of age or older, of sound mind, and under no constraint or undue influence. WITNESSES: ----------------------------------- Printed Name: ----------------------------------- Printed Name: STATE OF NEW YORK COUNTY OF NEW YORK The foregoing instrument was subscribed, sworn to and acknowledged before me by DOUGLAS A. P. HAMILTON the Signor, and was also subscribed and sworn to before me by _________________________and _______ __________________, as witnesses, this ______ day of September, 1996. ------------------------ Notary Public in and for The State of ----------- [Notarial Seal or Stamp] -8- EX-4.2 3 NOTICE OF FINAL AGREEMENT 1 EXHIBIT 4.2 NOTICE OF FINAL AGREEMENT TO: CARRIZO OIL & GAS, INC. 14811 ST. MARY'S LANE, SUITE 148 HOUSTON, TEXAS 77079 ATTENTION: FRANK A. WOJTEK, VICE PRESIDENT (COLLECTIVELY, WHETHER ONE OR MORE, "BORROWER") As of the effective date of this Notice, Borrower and COMPASS BANK ("Bank") have consummated a transaction pursuant to which Bank has agreed to make a loan or loans to Borrower, or to renew and extend an existing loan or loans to Borrower, which is comprised of a reducing revolving loan in the amount of up to $75,000,000 and a term loan in the amount of $7,000,000.00 (collectively, the "Loan"). In connection with the Loan, Borrower and Bank and the guarantors and other obligors, if any (collectively, whether one or more, "Other Obligors") have executed and delivered certain agreements, instruments and documents (collectively hereinafter referred to as the "Written Loan Agreement"). It is the intention of Borrower, Bank and Other Obligors that this Notice be incorporated by reference into each of the written agreements, instruments and documents comprising the Written Loan Agreement. Borrower, Bank and Other Obligors each warrants and represents that the entire agreement made and existing by or among Borrower, Bank and Other Obligors with respect to the Loan is contained within the Written Loan Agreement, as amended and supplemented hereby, and that no agreements or promises have been made by, or exist by or among, Borrower, Bank and Other Obligors that are not reflected in the Written Loan Agreement. THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Each party hereto acknowledges that this Agreement may be executed in several counterparts by each party at different times and in different locations; that each separate counterpart bearing the signature of any party may be effectively delivered to the other parties by the delivery of an electronic facsimile sent via telecopier; that each party so delivering any such counterpart shall be bound by its facsimile signature thereon; and that the signature pages from counterparts signed by each party may be collated into one or more copies of this agreement, which shall constitute one and the same agreement among all parties hereto. Effective Date: September 24, 1998. ACKNOWLEDGED AND AGREED BORROWER: BANK: CARRIZO OIL & GAS, INC. COMPASS BANK By: By: -------------------------------- -------------------------------- Frank A. Wojtek Kathleen J. Bowen Vice President Vice President GUARANTORS: - --------------------------------- Paul B. Loyd, Jr. - --------------------------------- Steven A. Webster - --------------------------------- Douglas A.P. Hamilton EX-4.3 4 LIMITED GUARANTY BY PAUL B. LOYD, JR. 1 LIMITED GUARANTY THIS LIMITED GUARANTY ("Guaranty"), is made and entered into as of September 24, 1998 by PAUL B. LOYD, JR. ("Guarantor"), for the benefit of COMPASS BANK, a Texas state chartered banking institution ("Bank"). W I T N E S S E T H: WHEREAS, on the date hereof, Bank has advanced or will advance certain funds to CARRIZO OIL & GAS, INC., a Texas corporation ("Borrower") pursuant to the Fourth Amendment of even date herewith to that certain First Amended and Restated Loan Agreement dated August 28, 1997, as amended by the First Amendment thereto dated December 23, 1997, the Second Amendment thereto dated December 30, 1997 and the Third Amendment thereto dated July 30, 1998 (the "Loan Agreement"), specifically including the indebtedness evidenced by that certain term promissory note dated of even date herewith, executed by Borrower and payable to Bank, in the principal amount of $7,000,000.00 and all other notes given in substitution therefor or in modification, renewal or extension thereof in whole or in part (the "Second Term Note"); WHEREAS, as a condition to Bank's entry into said Fourth Amendment and its advance of funds to Borrower thereunder, Guarantor has agreed to enter into this Guaranty of certain indebtedness owed or to be owed by Borrower to Bank; and WHEREAS, Guarantor will directly and indirectly benefit from the Second Term Loan, as defined in the Loan Agreement, as amended by the Fourth Amendment and evidenced by the Second Term Note. NOW, THEREFORE, for and in consideration of the premises and the extension of credit by Bank to Borrower pursuant to the Loan Agreement, and for TEN AND NO/100 DOLLARS ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce Bank to execute the Fourth Amendment, Bank and Guarantor hereby agree as follows: 1. Guarantor unconditionally guarantees the prompt payment to Bank of the following (the "Guaranteed Indebtedness"): (a) Any and all indebtedness, obligations (including reimbursement obligations) and liabilities of Borrower to Bank now existing or hereafter incurred in connection with or incident to the Second Term Loan, under or arising out of or in connection with any documents executed in connection with any indebtedness of Borrower to Bank in connection with the Second Term Loan 2 or any promissory note or notes executed by Borrower at any time in connection with the Second Term Loan, whether for principal, interest, penalty interest, fees, expenses or otherwise, including, without limitation, all sums, principal, accrued interest and other amounts owing with respect to the Second Term Note, together with any and all renewals, extensions and/or rearrangements thereof, whether with or without notice to Guarantor; (b) All interest, charges, expenses, attorneys' or other fees and any other sums payable to or incurred by the Bank in connection with the execution, administration or enforcement of the Bank's rights and remedies under the Second Term Note; and (c) All post-petition interest on the Guaranteed Indebtedness in the event of a bankruptcy or insolvency of the Borrower. Provided, however, that Guarantor's obligation hereunder shall never exceed $3,500,000.00. Guarantor shall at all times maintain at least $4,000,000 in Liquid Assets. To evidence such maintenance of Liquid Assets, Guarantor shall deliver to Bank, on or before the forty-fifth (45th) day after the end of each calendar quarter, a Certificate of Liquidity in the form attached hereto as Exhibit "A", certifying the value of such Guarantor's Liquid Assets effective as of the end of each calendar quarter. "Liquid Assets" shall mean Cash on hand and balances in checking accounts available for immediate withdrawal, the value, from time to time, of short-term, highly liquid investments that are readily convertible to Cash, such as treasury bills, commercial paper and money market funds, and the value, from time to time, of unrestricted shares of stock that are publicly traded on the New York Stock Exchange, the American Stock Exchange, or NASDAQ, and otherwise acceptable to the Bank, but only to the extent the foregoing are free from all liens, claims and encumbrances, including liens or security interests in favor of the Bank. "Cash" shall mean legal tender of the United States of America. 2. If the Guaranteed Indebtedness is not paid by Guarantor when due, as required herein, and this Guaranty is placed in the hands of an attorney for collection, or if this Guaranty is enforced by suit or through the Bankruptcy Court or through any judicial proceedings, Guarantor shall pay to Bank an amount equal to its reasonable attorneys' fees and collection costs incurred by Bank in the collection of the Guaranteed Indebtedness. 3. This is an absolute, complete and continuing Guaranty, and no notice of the Guaranteed Indebtedness or any extension of credit already or hereafter contracted by or extended to Borrower need be given to Guarantor, nor shall anything herein contained be a limitation upon the amount of credit which may be extended to Borrower, the numbers of transactions with Borrower, repayments by Borrower to Bank, or the allocation by Bank of repayment by Borrower, it being the understanding of the Guarantor that Guarantor's liability shall continue hereunder so long as any of the Guaranteed Indebtedness remains unpaid. Borrower and Bank may rearrange, increase, decrease, extend and/or renew the Guaranteed Indebtedness without notice to Guarantor and in such -2- 3 event Guarantor will remain fully bound hereunder on the Guaranteed Indebtedness. The obligations of Guarantor hereunder shall not be released, impaired or diminished by any amendment, modification or alteration of the Loan Agreement or the Second Term Note. Guarantor expressly waives all notices of any kind, presentment for payment, demand for payment, protest, notice of protest, notice of intent to accelerate, notice of acceleration, dishonor, diligence, notice of any amendment of the Loan Agreement, notice of any adverse change in the financial condition of Borrower, notice of any adjustment, indulgence, forbearance or compromise that might be granted or given by Bank to Borrower, and also notice of acceptance of this Guaranty, acceptance on the part of Bank being conclusively presumed by its request for this Guaranty and delivery of the same to it. The liability and obligations of Guarantor hereunder shall not be affected or impaired by any action or inaction by Bank in regard to any matter waived or notice of which is waived by Guarantor in this paragraph or in any other paragraph of this Guaranty. 4. Guarantor authorizes Bank, without notice or demand and without affecting Guarantor's liability hereunder, (a) to take and hold security for the payment of this Guaranty and/or the Guaranteed Indebtedness, and to exchange, enforce, waive and/or release any such security; (b) to apply such security and direct the order or manner of sale thereof as Bank in its discretion may determine; (c) to obtain a guaranty of the Guaranteed Indebtedness from any one or more other persons, corporations or entities whomsoever and to enforce, waive, rearrange, modify, limit or release at any time or times such other persons, corporations or entities from their obligations under such guaranties; (d) to waive or delay the exercise of any of its rights or remedies against the Borrower or any other person or entity; (e) to renew, extend, or modify the terms of any of the Guaranteed Indebtedness or any instrument or agreement evidencing the same; and (f) to fully or partially release at any time any Guarantor which executes this Guaranty whether with or without consideration. 5. Guarantor waives any right to require Bank to (a) proceed against, or make any effort at the collection of the Guaranteed Indebtedness from Borrower or any other guarantor or party liable for the Guaranteed Indebtedness; (b) proceed against or exhaust any collateral held by Bank; or (c) pursue any other remedy in Bank's power whatsoever. Guarantor further waives any and all rights and remedies which Guarantor may have or be able to assert by reason of the provisions of Chapter 34 of the Texas Business and Commerce Code. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of Borrower or any other guarantor of the Guaranteed Indebtedness, and Guarantor shall remain liable under this Guaranty regardless of whether Borrower or any other guarantor be found not liable on the Guaranteed Indebtedness for any reason including, without limitation, insanity, minority, disability, bankruptcy, insolvency, death or corporate dissolution, even though rendering the Guaranteed Indebtedness void or unenforceable or uncollectible as against Borrower or any other guarantor. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Indebtedness is rescinded or must otherwise be returned by Bank upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made and will, thereupon, guarantee payment of such amount as to which refund or restitution has been made, together with interest accruing thereon subsequent to the -3- 4 date of refund or restitution at the applicable rate under the Loan Agreement and collection costs and fees (including, without limitation, attorneys' fees) applicable thereto, subject to the limitations set forth in Sections 1 and 10 hereof. 6. The liability and obligations of Guarantor hereunder shall not be affected or impaired by (a) the failure of Bank or any other party to exercise diligence or reasonable care in the preservation, protection or other handling or treatment of all or any part of the collateral securing payment of all or any part of the Guaranteed Indebtedness, (b) the failure of any security interest or lien intended to be granted or created to secure the Guaranteed Indebtedness to be properly perfected or created or the unenforceability of any security interest or lien for any other reason, or (c) the subordination of any such security interest or lien to any other security interest or lien. 7. Bank may pursue any remedy without altering the obligations of Guarantor hereunder and without liability to Guarantor, even though Bank's pursuit of such remedy may result in Guarantor's loss of rights of subrogation or to proceed against others for reimbursement or contribution or any other right. In no event shall any payment by Guarantor entitle it, by subrogation or otherwise, to any rights against Borrower or any right to participate in any security now or hereafter held by Bank prior to payment in full of all of the Guaranteed Indebtedness and, in any event, not until 367 days after the making of any payment and/or the granting of any security interest by Borrower or any other guarantor to Bank in connection with the Guaranteed Indebtedness. 8. Should the status of Borrower change in any way, including, without limitation, as a result of any dissolution of Borrower, any sale, lease or transfer of any or all of the assets of Borrower, any changes in the shareholders of Borrower, or any reorganization of Borrower, this Guaranty shall continue, and shall cover the Guaranteed Indebtedness under the new status. 9. The liability of Guarantor for the payment of the Guaranteed Indebtedness shall be primary and not secondary. 10. Guarantor is familiar with and has independently reviewed the books and records regarding the financial condition of Borrower and is familiar with the value of any and all collateral intended to be granted as security for the payment of the Guaranteed Indebtedness; Guarantor is not, however, relying on such financial condition or such collateral as an inducement to enter into this Guaranty. As of the date hereof, and after giving effect to this Guaranty and the contingent obligations evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets and property which, valued fairly, exceed such Guarantor's obligations, debts and liabilities, and has and will have assets and property sufficient to satisfy, repay and discharge the same. Notwithstanding the definition of Guaranteed Indebtedness herein, the liability of Guarantor hereunder is limited to (a) the lowest amount that would render this Guaranty void against creditors or creditors' representatives under any fraudulent conveyance or similar law or under Sections 544 or 548 of the Bankruptcy Code of 1978, as revised, minus (b) $1.00. -4- 5 11. If Borrower shall at any time or times be or become obligated to Bank for payment of any indebtedness other than the Guaranteed Indebtedness, Bank (without in anywise impairing its rights hereunder or diminishing Guarantor's liability) shall be at liberty at any time or times to apply to such other indebtedness any amounts paid to or received by or coming into the hands of Bank from or attributable to Borrower or any other person or party liable for any of such other indebtedness or from or attributable to or representing proceeds of any property or security held by Bank securing payment of such other indebtedness or any credits, deposits or offsets due Borrower or other party liable on any of such other indebtedness (whether or not the Guaranteed Indebtedness or such other indebtedness are then due), it being intended to give Bank the right to apply all payments, credits and offsets and amounts becoming available for application on or credit against the indebtedness of Borrower to Bank (now or hereafter existing) first toward payment and satisfaction of the Borrower's indebtedness not hereby guaranteed, before making application thereof on or against the Guaranteed Indebtedness. 12. Guarantor represents and warrants that this Guaranty accurately and completely embodies the entire agreement between Guarantor and Bank with respect to the respective rights, obligations and liabilities of Guarantor and Bank hereunder, and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. Guarantor acknowledges that Guarantor is not relying on any representations (oral or otherwise) of Bank, or any other party, other than as expressly described in this Guaranty. 13. This Guaranty was reviewed by Guarantor, and Guarantor acknowledges and agrees that Guarantor (a) understands fully all of the terms of this Guaranty and the consequences and implications of Guarantor's execution of this Guaranty, and (b) has been afforded an opportunity to have this Guaranty reviewed by, and to discuss the terms, consequences and implications of this Guaranty with an attorney or other such persons as Guarantor may have desired. 14. This Guaranty is and shall be in every particular available to the successors and assigns of Bank and is and shall always be fully binding upon the heirs, executors, administrators, successors and assigns of Guarantor. This Guaranty is intended for and shall inure to the benefit of Bank and each and every other person who shall from time to time be or become the owner or holder of any of the Guaranteed Indebtedness, and each and every reference herein to "Bank" shall also include and refer to each and every successor or assignee of Bank at any time holding or owning any part of or interest in any part of the Guaranteed Indebtedness. This Guaranty shall be transferable and negotiable, with the same force and effect and to the same extent that the Guaranteed Indebtedness is transferable, it being understood and stipulated that upon the assignment or transfer by Bank of any of the Guaranteed Indebtedness the legal or beneficial owner of the Guaranteed Indebtedness (or part thereof or interest therein thus transferred or assigned by Bank) shall also, unless provided otherwise by Bank in its assignment, have and may exercise all of the rights granted to Bank under this Guaranty to the extent of the part of or interest in the Guaranteed Indebtedness thus assigned or transferred to such person or entity. Guarantor expressly waives notice of transfer or assignment of the Guaranteed Indebtedness, or any part thereof, or of the rights of Bank hereunder. -5- 6 15. All amounts becoming payable by Guarantor to Bank under this Guaranty shall be payable at Bank's offices in the City of Houston, Harris County, Texas. 16. Any notice hereunder to Guarantor shall be in writing, duly stamped and addressed to Guarantor at the address shown below Guarantor's signature hereto, or at such other address as Guarantor may by written notice, received by Bank, have designated as Guarantor's address for such purpose. Any notice provided for herein shall become effective upon the earlier of (a) the first business day of Bank following the deposit in a regularly maintained postal deposit box of the United States Postal Service, or (b) the day of its receipt by Guarantor; but actual notice, however given or received, shall always be effective. The preceding sentence shall not be construed in anywise to affect or impair any waiver of notice or demand herein provided or to require giving of notice or demand to or upon Guarantor in any situation or for any reason. 17. It is the intention of the parties hereto to comply strictly with all applicable usury laws; accordingly, it is agreed that notwithstanding any provisions to the contrary in this Guaranty, or in any documents securing payment hereof or otherwise relating hereto, in no event shall this Guaranty or such documents require the payment or permit the collection of an aggregate amount of interest in excess of the maximum amount permitted by such laws, including the laws of the State of Texas and the laws of the United States of America. If any such excess of interest is contracted for, charged or received under this Guaranty or under the terms of any documents securing payment hereof or otherwise relating hereto, or if under any circumstances, the amount of interest (including all amounts payable hereunder which are not denominated as interest but which constitute interest under the applicable laws) contracted for, charged or received under this Guaranty shall exceed the maximum amount of interest permitted by the applicable usury laws, then in any such event (a) the provisions of this paragraph shall govern and control, (b) Guarantor shall not be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by the applicable usury laws, (c) any such excess interest which may have been collected shall be either applied as a credit against the then unpaid Guaranteed Indebtedness or, if the Guaranteed Indebtedness shall have been paid in full, refunded to Guarantor, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under the applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Guaranty or under such other documents which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable usury laws, by amortizing, prorating, allocating and spreading in equal parts during the full period during which this Guaranty is to be in effect, all interest at any time contracted for, charged or received from Guarantor or otherwise by the holder or holders hereof in connection with this Guaranty. 18. In case any of the provisions of this Guaranty shall for any reason be held to be invalid, illegal, or unenforceable, such invalidity, illegality, or unenforceability shall not affect -6- 7 any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 19. In all instances herein, the singular shall be construed to include the plural and the masculine to include the feminine. 20. This Guaranty may be executed in multiple counterparts each of which shall constitute an original, but all of which when taken together shall constitute one and the same Guaranty. 21. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. All actions or proceedings with respect to the Guaranteed Indebtedness or this Guaranty may be instituted in the Courts of the State of Texas located in Harris County, Texas, or the United States District Court for the Southern District of Texas, and by execution and delivery of this Guaranty, Guarantor irrevocably and unconditionally submits to the jurisdiction (both subject matter and personal) of each such Court, and irrevocably and unconditionally waives (a) any objection Guarantor may now or hereafter have to the laying of venue in any such Courts, (b) any claim that any action or proceeding brought in any of such Courts has been brought in an inconvenient forum, and (c) any right to bring any action or proceeding with respect to the Guaranteed Indebtedness or this Guaranty in any forum other than the courts of the State of Texas located in Harris County, Texas, or the United States District Court for the Southern District of Texas. 22. Guarantor represents and warrants to Bank that this Guaranty is a valid, binding and enforceable obligation of Guarantor and does not violate any provisions of any law, rule, regulation, contract or agreement enforceable against Guarantor. 23. Guarantor hereby agrees that a counterpart of this Guaranty bearing the signature of Guarantor may be effectively delivered to the Bank by the delivery of an electronic facsimile sent via telecopier; and that Guarantor shall be bound by his facsimile signature thereon. EXECUTED this 24th day of September, 1998. GUARANTOR: -------------------------------------- PAUL B. LOYD, JR. Address: 901 Threadneedle #200 Houston, TX 77079 -7- 8 STATE OF TEXAS COUNTY OF HARRIS We,________ and ________, sign our names to this instrument as witnesses to the signature of PAUL B. LOYD, JR., (the "Signor"), and being duly sworn, do hereby declare to the undersigned authority that we are personally acquainted with the Signor, that we know the Signor to be the person that he purports to be through his signature, that he has signed this instrument willingly, and that each of us, in the presence and hearing of the Signor, the undersigned authority, and each other, hereby execute this instrument as witnesses to the Signor's signing, and that to the best of our knowledge, the Signor is twenty-one years of age or older, of sound mind, and under no constraint or undue influence. WITNESSES: ------------------------------------- Printed Name: -------------------------------------- Printed Name: STATE OF TEXAS COUNTY OF HARRIS The foregoing instrument was subscribed, sworn to and acknowledged before me by PAUL B. LOYD, JR., the Signor, and was also subscribed and sworn to before me by and, as witnesses, this day of September, 1996. ------------------------------------- Notary Public in and for The State of [Notarial Seal or Stamp] -8- EX-4.4 5 LIMITED GUARANTY BY STEVEN A. WEBSTER 1 EXHIBIT 4.4 LIMITED GUARANTY THIS LIMITED GUARANTY ("Guaranty"), is made and entered into as of September 24, 1998 by STEVEN A. WEBSTER ("Guarantor"), for the benefit of COMPASS BANK, a Texas state chartered banking institution ("Bank"). W I T N E S S E T H: WHEREAS, on the date hereof, Bank has advanced or will advance certain funds to CARRIZO OIL & GAS, INC., a Texas corporation ("Borrower") pursuant to the Fourth Amendment of even date herewith to that certain First Amended and Restated Loan Agreement dated August 28, 1997, as amended by the First Amendment thereto dated December 23, 1997, the Second Amendment thereto dated December 30, 1997 and the Third Amendment thereto dated July 30, 1998 (the "Loan Agreement"), specifically including the indebtedness evidenced by that certain term promissory note dated of even date herewith, executed by Borrower and payable to Bank, in the principal amount of $7,000,000.00 and all other notes given in substitution therefor or in modification, renewal or extension thereof in whole or in part (the "Second Term Note"); WHEREAS, as a condition to Bank's entry into said Fourth Amendment and its advance of funds to Borrower thereunder, Guarantor has agreed to enter into this Guaranty of certain indebtedness owed or to be owed by Borrower to Bank; and WHEREAS, Guarantor will directly and indirectly benefit from the Second Term Loan, as defined in the Loan Agreement, as amended by the Fourth Amendment and evidenced by the Second Term Note. NOW, THEREFORE, for and in consideration of the premises and the extension of credit by Bank to Borrower pursuant to the Loan Agreement, and for TEN AND NO/100 DOLLARS ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce Bank to execute the Fourth Amendment, Bank and Guarantor hereby agree as follows: 1. Guarantor unconditionally guarantees the prompt payment to Bank of the following (the "Guaranteed Indebtedness"): (a) Any and all indebtedness, obligations (including reimbursement obligations) and liabilities of Borrower to Bank now existing or hereafter incurred in connection with or incident to the Second Term Loan, under or arising out of or in connection with any documents executed in connection with any indebtedness of Borrower to Bank in connection with the Second Term Loan 2 or any promissory note or notes executed by Borrower at any time in connection with the Second Term Loan, whether for principal, interest, penalty interest, fees, expenses or otherwise, including, without limitation, all sums, principal, accrued interest and other amounts owing with respect to the Second Term Note, together with any and all renewals, extensions and/or rearrangements thereof, whether with or without notice to Guarantor; (b) All interest, charges, expenses, attorneys' or other fees and any other sums payable to or incurred by the Bank in connection with the execution, administration or enforcement of the Bank's rights and remedies under the Second Term Note; and (c) All post-petition interest on the Guaranteed Indebtedness in the event of a bankruptcy or insolvency of the Borrower. Provided, however, that Guarantor's obligation hereunder shall never exceed $3,500,000.00. Guarantor shall at all times maintain at least $4,000,000 in Liquid Assets. To evidence such maintenance of Liquid Assets, Guarantor shall deliver to Bank, on or before the forty-fifth (45th) day after the end of each calendar quarter, a Certificate of Liquidity in the form attached hereto as Exhibit "A", certifying the value of such Guarantor's Liquid Assets effective as of the end of each calendar quarter. "Liquid Assets" shall mean Cash on hand and balances in checking accounts available for immediate withdrawal, the value, from time to time, of short-term, highly liquid investments that are readily convertible to Cash, such as treasury bills, commercial paper and money market funds, and the value, from time to time, of unrestricted shares of stock that are publicly traded on the New York Stock Exchange, the American Stock Exchange, or NASDAQ, and otherwise acceptable to the Bank, but only to the extent the foregoing are free from all liens, claims and encumbrances, including liens or security interests in favor of the Bank. "Cash" shall mean legal tender of the United States of America. 2. If the Guaranteed Indebtedness is not paid by Guarantor when due, as required herein, and this Guaranty is placed in the hands of an attorney for collection, or if this Guaranty is enforced by suit or through the Bankruptcy Court or through any judicial proceedings, Guarantor shall pay to Bank an amount equal to its reasonable attorneys' fees and collection costs incurred by Bank in the collection of the Guaranteed Indebtedness. 3. This is an absolute, complete and continuing Guaranty, and no notice of the Guaranteed Indebtedness or any extension of credit already or hereafter contracted by or extended to Borrower need be given to Guarantor, nor shall anything herein contained be a limitation upon the amount of credit which may be extended to Borrower, the numbers of transactions with Borrower, repayments by Borrower to Bank, or the allocation by Bank of repayment by Borrower, it being the understanding of the Guarantor that Guarantor's liability shall continue hereunder so long as any of the Guaranteed Indebtedness remains unpaid. Borrower and Bank may rearrange, increase, decrease, extend and/or renew the Guaranteed Indebtedness without notice to Guarantor and in such -2- 3 event Guarantor will remain fully bound hereunder on the Guaranteed Indebtedness. The obligations of Guarantor hereunder shall not be released, impaired or diminished by any amendment, modification or alteration of the Loan Agreement or the Second Term Note. Guarantor expressly waives all notices of any kind, presentment for payment, demand for payment, protest, notice of protest, notice of intent to accelerate, notice of acceleration, dishonor, diligence, notice of any amendment of the Loan Agreement, notice of any adverse change in the financial condition of Borrower, notice of any adjustment, indulgence, forbearance or compromise that might be granted or given by Bank to Borrower, and also notice of acceptance of this Guaranty, acceptance on the part of Bank being conclusively presumed by its request for this Guaranty and delivery of the same to it. The liability and obligations of Guarantor hereunder shall not be affected or impaired by any action or inaction by Bank in regard to any matter waived or notice of which is waived by Guarantor in this paragraph or in any other paragraph of this Guaranty. 4. Guarantor authorizes Bank, without notice or demand and without affecting Guarantor's liability hereunder, (a) to take and hold security for the payment of this Guaranty and/or the Guaranteed Indebtedness, and to exchange, enforce, waive and/or release any such security; (b) to apply such security and direct the order or manner of sale thereof as Bank in its discretion may determine; (c) to obtain a guaranty of the Guaranteed Indebtedness from any one or more other persons, corporations or entities whomsoever and to enforce, waive, rearrange, modify, limit or release at any time or times such other persons, corporations or entities from their obligations under such guaranties; (d) to waive or delay the exercise of any of its rights or remedies against the Borrower or any other person or entity; (e) to renew, extend, or modify the terms of any of the Guaranteed Indebtedness or any instrument or agreement evidencing the same; and (f) to fully or partially release at any time any Guarantor which executes this Guaranty whether with or without consideration. 5. Guarantor waives any right to require Bank to (a) proceed against, or make any effort at the collection of the Guaranteed Indebtedness from Borrower or any other guarantor or party liable for the Guaranteed Indebtedness; (b) proceed against or exhaust any collateral held by Bank; or (c) pursue any other remedy in Bank's power whatsoever. Guarantor further waives any and all rights and remedies which Guarantor may have or be able to assert by reason of the provisions of Chapter 34 of the Texas Business and Commerce Code. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of Borrower or any other guarantor of the Guaranteed Indebtedness, and Guarantor shall remain liable under this Guaranty regardless of whether Borrower or any other guarantor be found not liable on the Guaranteed Indebtedness for any reason including, without limitation, insanity, minority, disability, bankruptcy, insolvency, death or corporate dissolution, even though rendering the Guaranteed Indebtedness void or unenforceable or uncollectible as against Borrower or any other guarantor. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Indebtedness is rescinded or must otherwise be returned by Bank upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made and will, thereupon, guarantee payment of such amount as to which refund or restitution has been made, together with interest accruing thereon subsequent to the -3- 4 date of refund or restitution at the applicable rate under the Loan Agreement and collection costs and fees (including, without limitation, attorneys' fees) applicable thereto, subject to the limitations set forth in Sections 1 and 10 hereof. 6. The liability and obligations of Guarantor hereunder shall not be affected or impaired by (a) the failure of Bank or any other party to exercise diligence or reasonable care in the preservation, protection or other handling or treatment of all or any part of the collateral securing payment of all or any part of the Guaranteed Indebtedness, (b) the failure of any security interest or lien intended to be granted or created to secure the Guaranteed Indebtedness to be properly perfected or created or the unenforceability of any security interest or lien for any other reason, or (c) the subordination of any such security interest or lien to any other security interest or lien. 7. Bank may pursue any remedy without altering the obligations of Guarantor hereunder and without liability to Guarantor, even though Bank's pursuit of such remedy may result in Guarantor's loss of rights of subrogation or to proceed against others for reimbursement or contribution or any other right. In no event shall any payment by Guarantor entitle it, by subrogation or otherwise, to any rights against Borrower or any right to participate in any security now or hereafter held by Bank prior to payment in full of all of the Guaranteed Indebtedness and, in any event, not until 367 days after the making of any payment and/or the granting of any security interest by Borrower or any other guarantor to Bank in connection with the Guaranteed Indebtedness. 8. Should the status of Borrower change in any way, including, without limitation, as a result of any dissolution of Borrower, any sale, lease or transfer of any or all of the assets of Borrower, any changes in the shareholders of Borrower, or any reorganization of Borrower, this Guaranty shall continue, and shall cover the Guaranteed Indebtedness under the new status. 9. The liability of Guarantor for the payment of the Guaranteed Indebtedness shall be primary and not secondary. 10. Guarantor is familiar with and has independently reviewed the books and records regarding the financial condition of Borrower and is familiar with the value of any and all collateral intended to be granted as security for the payment of the Guaranteed Indebtedness; Guarantor is not, however, relying on such financial condition or such collateral as an inducement to enter into this Guaranty. As of the date hereof, and after giving effect to this Guaranty and the contingent obligations evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets and property which, valued fairly, exceed such Guarantor's obligations, debts and liabilities, and has and will have assets and property sufficient to satisfy, repay and discharge the same. Notwithstanding the definition of Guaranteed Indebtedness herein, the liability of Guarantor hereunder is limited to (a) the lowest amount that would render this Guaranty void against creditors or creditors' representatives under any fraudulent conveyance or similar law or under Sections 544 or 548 of the Bankruptcy Code of 1978, as revised, minus (b) $1.00. -4- 5 11. If Borrower shall at any time or times be or become obligated to Bank for payment of any indebtedness other than the Guaranteed Indebtedness, Bank (without in anywise impairing its rights hereunder or diminishing Guarantor's liability) shall be at liberty at any time or times to apply to such other indebtedness any amounts paid to or received by or coming into the hands of Bank from or attributable to Borrower or any other person or party liable for any of such other indebtedness or from or attributable to or representing proceeds of any property or security held by Bank securing payment of such other indebtedness or any credits, deposits or offsets due Borrower or other party liable on any of such other indebtedness (whether or not the Guaranteed Indebtedness or such other indebtedness are then due), it being intended to give Bank the right to apply all payments, credits and offsets and amounts becoming available for application on or credit against the indebtedness of Borrower to Bank (now or hereafter existing) first toward payment and satisfaction of the Borrower's indebtedness not hereby guaranteed, before making application thereof on or against the Guaranteed Indebtedness. 12. Guarantor represents and warrants that this Guaranty accurately and completely embodies the entire agreement between Guarantor and Bank with respect to the respective rights, obligations and liabilities of Guarantor and Bank hereunder, and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. Guarantor acknowledges that Guarantor is not relying on any representations (oral or otherwise) of Bank, or any other party, other than as expressly described in this Guaranty. 13. This Guaranty was reviewed by Guarantor, and Guarantor acknowledges and agrees that Guarantor (a) understands fully all of the terms of this Guaranty and the consequences and implications of Guarantor's execution of this Guaranty, and (b) has been afforded an opportunity to have this Guaranty reviewed by, and to discuss the terms, consequences and implications of this Guaranty with an attorney or other such persons as Guarantor may have desired. 14. This Guaranty is and shall be in every particular available to the successors and assigns of Bank and is and shall always be fully binding upon the heirs, executors, administrators, successors and assigns of Guarantor. This Guaranty is intended for and shall inure to the benefit of Bank and each and every other person who shall from time to time be or become the owner or holder of any of the Guaranteed Indebtedness, and each and every reference herein to "Bank" shall also include and refer to each and every successor or assignee of Bank at any time holding or owning any part of or interest in any part of the Guaranteed Indebtedness. This Guaranty shall be transferable and negotiable, with the same force and effect and to the same extent that the Guaranteed Indebtedness is transferable, it being understood and stipulated that upon the assignment or transfer by Bank of any of the Guaranteed Indebtedness the legal or beneficial owner of the Guaranteed Indebtedness (or part thereof or interest therein thus transferred or assigned by Bank) shall also, unless provided otherwise by Bank in its assignment, have and may exercise all of the rights granted to Bank under this Guaranty to the extent of the part of or interest in the Guaranteed Indebtedness thus assigned or transferred to such person or entity. Guarantor expressly waives notice of transfer or assignment of the Guaranteed Indebtedness, or any part thereof, or of the rights of Bank hereunder. -5- 6 15. All amounts becoming payable by Guarantor to Bank under this Guaranty shall be payable at Bank's offices in the City of Houston, Harris County, Texas. 16. Any notice hereunder to Guarantor shall be in writing, duly stamped and addressed to Guarantor at the address shown below Guarantor's signature hereto, or at such other address as Guarantor may by written notice, received by Bank, have designated as Guarantor's address for such purpose. Any notice provided for herein shall become effective upon the earlier of (a) the first business day of Bank following the deposit in a regularly maintained postal deposit box of the United States Postal Service, or (b) the day of its receipt by Guarantor; but actual notice, however given or received, shall always be effective. The preceding sentence shall not be construed in anywise to affect or impair any waiver of notice or demand herein provided or to require giving of notice or demand to or upon Guarantor in any situation or for any reason. 17. It is the intention of the parties hereto to comply strictly with all applicable usury laws; accordingly, it is agreed that notwithstanding any provisions to the contrary in this Guaranty, or in any documents securing payment hereof or otherwise relating hereto, in no event shall this Guaranty or such documents require the payment or permit the collection of an aggregate amount of interest in excess of the maximum amount permitted by such laws, including the laws of the State of Texas and the laws of the United States of America. If any such excess of interest is contracted for, charged or received under this Guaranty or under the terms of any documents securing payment hereof or otherwise relating hereto, or if under any circumstances, the amount of interest (including all amounts payable hereunder which are not denominated as interest but which constitute interest under the applicable laws) contracted for, charged or received under this Guaranty shall exceed the maximum amount of interest permitted by the applicable usury laws, then in any such event (a) the provisions of this paragraph shall govern and control, (b) Guarantor shall not be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by the applicable usury laws, (c) any such excess interest which may have been collected shall be either applied as a credit against the then unpaid Guaranteed Indebtedness or, if the Guaranteed Indebtedness shall have been paid in full, refunded to Guarantor, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under the applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Guaranty or under such other documents which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable usury laws, by amortizing, prorating, allocating and spreading in equal parts during the full period during which this Guaranty is to be in effect, all interest at any time contracted for, charged or received from Guarantor or otherwise by the holder or holders hereof in connection with this Guaranty. 18. In case any of the provisions of this Guaranty shall for any reason be held to be invalid, illegal, or unenforceable, such invalidity, illegality, or unenforceability shall not affect -6- 7 any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 19. In all instances herein, the singular shall be construed to include the plural and the masculine to include the feminine. 20. This Guaranty may be executed in multiple counterparts each of which shall constitute an original, but all of which when taken together shall constitute one and the same Guaranty. 21. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. All actions or proceedings with respect to the Guaranteed Indebtedness or this Guaranty may be instituted in the Courts of the State of Texas located in Harris County, Texas, or the United States District Court for the Southern District of Texas, and by execution and delivery of this Guaranty, Guarantor irrevocably and unconditionally submits to the jurisdiction (both subject matter and personal) of each such Court, and irrevocably and unconditionally waives (a) any objection Guarantor may now or hereafter have to the laying of venue in any such Courts, (b) any claim that any action or proceeding brought in any of such Courts has been brought in an inconvenient forum, and (c) any right to bring any action or proceeding with respect to the Guaranteed Indebtedness or this Guaranty in any forum other than the courts of the State of Texas located in Harris County, Texas, or the United States District Court for the Southern District of Texas. 22. Guarantor represents and warrants to Bank that this Guaranty is a valid, binding and enforceable obligation of Guarantor and does not violate any provisions of any law, rule, regulation, contract or agreement enforceable against Guarantor. 23. Guarantor hereby agrees that a counterpart of this Guaranty bearing the signature of Guarantor may be effectively delivered to the Bank by the delivery of an electronic facsimile sent via telecopier; and that Guarantor shall be bound by his facsimile signature thereon. EXECUTED this 24th day of September, 1998. GUARANTOR: ----------------------------------- STEVEN A. WEBSTER Address: 901 Threadneedle #200 Houston, TX 77079 -7- 8 STATE OF TEXAS COUNTY OF HARRIS We, _____________ and ______________, sign our names to this instrument as witnesses to the signature of STEVEN A. WEBSTER (the "Signor"), and being duly sworn, do hereby declare to the undersigned authority that we are personally acquainted with the Signor, that we know the Signor to be the person that he purports to be through his signature, that he has signed this instrument willingly, and that each of us, in the presence and hearing of the Signor, the undersigned authority, and each other, hereby execute this instrument as witnesses to the Signor's signing, and that to the best of our knowledge, the Signor is twenty-one years of age or older, of sound mind, and under no constraint or undue influence. WITNESSES: --------------------------- Printed Name: --------------------------- Printed Name: STATE OF TEXAS COUNTY OF HARRIS The foregoing instrument was subscribed, sworn to and acknowledged before me by STEVEN A. WEBSTER, the Signor, and was also subscribed and sworn to before me by ___________ and ___________, as witnesses, this day of September, 1996. ---------------------------- Notary Public in and for The State of _________ [Notarial Seal or Stamp] -8- EX-4.5 6 4TH AMEND. TO 1ST AMENDED COMBINED LOAN AGREEMENT 1 EXHIBIT 4.5 FOURTH AMENDMENT TO FIRST AMENDED, RESTATED, AND COMBINED LOAN AGREEMENT BY AND BETWEEN CARRIZO OIL & GAS, INC. AND COMPASS BANK This Fourth Amendment to the Loan Agreement (this "Fourth Amendment") by and between CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"), and COMPASS BANK, a Texas chartered bank (the "Bank"), is entered into on this 24th day of September 1998, and shall be effective as of that date for all purposes. W I T N E S S E T H: Borrower and Bank entered into a First Amended, Restated, and Amended Loan Agreement dated August 28, 1997, as amended by the First Amendment thereto dated December 23, 1997, the Second Amendment thereto dated December 30, 1997 and the Third Amendment thereto dated July 30, 1998 (collectively, the "Loan Agreement"). Capitalized terms used, but not defined herein, shall have the meanings prescribed therefor in the Loan Agreement. Borrower has requested that Bank provide a term loan to Borrower in the amount of $7,000,000.00, and Bank has agreed to do so according to the terms set forth herein, which shall be incorporated into the Loan Agreement. NOW, THEREFORE, in consideration of the mutual promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by Borrower and Bank, and each intending to be legally bound hereby, the parties agree as follows: I. Specific Amendments to Loan Agreement. Article I of the Loan Agreement is hereby amended by revising the following defined terms in their entirety to read as follows: "Floating Rate" means: (a) with respect to the Revolving Loan evidenced by the Note, the Index Rate in effect from time, and (b) with respect to the Second Term Loan evidenced by the Second Term Note, the Index Rate in effect from time to time plus two percent (2.00%). "Notes" means, collectively, the Note, Term Note, and the Second Term Note and any extension, renewal, rearrangement of, or substitute for either of such Notes. All references to the defined term, "Note," throughout this Agreement, as it existed prior to the Second Amendment, shall be construed to refer to all three of the Notes, with the exception of the references to the term, "Note," in the definitions of Floating Rate, Loan Excess, and 1 2 Note, and in Sections 2.01 through 2.03, 2.08, 2.09, 3.01, 3.04 and Exhibit "B" of the Loan Agreement, all of which shall remain singular and shall be construed to refer to the Note evidencing the Revolving Loan. Article I of the Loan Agreement is hereby amended by adding the following definitions thereto: "Borrower?s Additional Stock" has the meaning set forth in Section 2.25. "Convertible Subordinated Debt? has the meaning set forth in Section 2.25. "Fourth Amendment" means the Fourth Amendment to this Agreement executed by Borrower and Bank on September 24, 1998. "Second Term Loan" means that certain $7,000,000.00 term loan made or to be made by Bank to Borrower pursuant to Section 2.22 hereof. "Second Term Loan Maturity Date" means the earlier of: (1) the date of closing of the issuance of Borrower's Additional Stock; (2) the date of closing of the issuance of the Convertible Subordinate Debt; (3) the date of repayment of the Revolving Loan; and (4) September 29, 1999. "Second Term Note" means the promissory note in the original face amount of $7,000,000.00 dated of even date herewith, made by Borrower payable to the order of Bank, in substantially the form attached to the Fourth Amendment as Exhibit "A," together with all deferrals, renewals, extensions, amendments, modifications or rearrangements thereof, which promissory note shall evidence the advances to Borrower by Bank pursuant to Section 2.22 hereof. Article II of the Loan Agreement is hereby amended by adding the following sections thereto: 2.22 Second Term Loan. Subject to the terms and conditions and relying on the representations and warranties contained in this Agreement, Bank agrees to advance a minimum of $3,500,000 of the Second Term Loan at the closing of the Fourth Amendment. Upon written request from Borrower and provided that no Event of Default or Unmatured Event of Default has occurred and is continuing and provided further that no Event of Default or Unmatured Event of Default would result from such advance, Bank agrees to advance the remaining balance of the Term Loan to Borrower in a single advance prior to December 31, 1998. 2.23 Second Term Note. The obligation of Borrower to repay the Second Term Loan shall be evidenced by the Second Term Note. 2 3 2.24 Repayment of Second Term Loan. Interest on the Second Term Note, calculated as aforesaid in Section 2.04, shall be repaid by Borrower in monthly installments on the first day of each month following the advance from Bank to Borrower pursuant to Section 2.22, through and including the Second Term Loan Maturity Date, when the entire unpaid balance of the Second Term Note, inclusive of principal and interest, shall be paid in full. 2.25 Voluntary Prepayment of the Second Term Note. Borrower shall have the right and option to prepay, at any time subject to the contemporaneous payment of the prepayment fee prescribed below, the entire balance outstanding on the Second Term Note, together with all accrued, unpaid interest. No partial prepayments shall be permitted. If Borrower prepays the indebtedness evidenced by the Second Term Note prior to the Second Term Loan Maturity Date from a source other than proceeds raised by Borrower from its issuance of convertible subordinated debt (the "Convertible Subordinated Debt") or additional equity of Borrower ("Borrower's Additional Stock") or from proceeds drawn under the Revolving Loan, then as consideration for and as a condition to such prepayment privilege, Borrower shall simultaneously pay Bank a fee in the amount of $70,000.00. Article III of the Loan Agreement is hereby amended by adding the following Section 3.18. 3.18 Conditions Precedent in Connection With the Fourth Amendment. The obligation of Bank to make the Second Term Loan referred to in Section 2.22 of this Agreement is subject to satisfaction of the following conditions precedent: (a) Receipt of Second Term Note, Fourth Amendment and Certificate of Compliance. Bank shall have received the Second Term Note, multiple counterparts of the Fourth Amendment, as requested by Bank, and the Certificate of Compliance duly executed by an authorized officer for Borrower. (b) Receipt of Certified Copy of Corporate Proceedings and Certificate of Incumbency. Bank shall have received from Borrower copies of the resolutions of its board of directors authorizing the transactions set forth in the Fourth Amendment and the execution of the Fourth Amendment and the Second Term Note, such copy or copies to be certified by the secretary or an assistant secretary as being true and correct and in full force and effect as of the date of such certificate. In addition, Bank shall have received from Borrower a certificate of incumbency signed by the secretary or an assistant secretary setting forth (a) the names of the officers executing the Fourth Amendment and the Second Term Note, (b) the office(s) to which such Persons have been elected and in which they presently serve and (c) an original specimen signature of each such person. (c) Accuracy of Representations and Warranties and No Event of Default. The representations and warranties contained in Article IV of the Loan Agreement shall be true and correct in all material respects on the date of the making of such Second Term Loan with the same effect as though such representations and warranties had been made on such date; 3 4 and no Event of Default shall have occurred and be continuing or will have occurred at the completion of the making of such Loan. (d) Legal Matters Satisfactory to Special Counsel to Bank. All legal matters incident to the consummation of the transactions contemplated by the Fourth Amendment shall be satisfactory to the firm of Porter & Hedges, L.L.P., special counsel for Bank. (e) No Material Adverse Change. No material adverse change shall have occurred since the date of this Agreement in the condition, financial or otherwise, of Borrower. (f) Facility Fee. Bank shall have received the Facility Fee in the amount of $100,000.00 prior to or at closing of the Fourth Amendment. II. Reaffirmation of Representations and Warranties. To induce Bank to enter into this Fourth Amendment, Borrower hereby reaffirms, as of the date hereof, its representations and warranties contained in Article IV of the Loan Agreement and in all other documents executed pursuant thereto, and additionally represents and warrants as follows: A. The execution and delivery of this Fourth Amendment and the performance by Borrower of its obligations under this Fourth Amendment are within Borrower's power, have been duly authorized by all necessary corporate action, have received all necessary governmental approval (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the charter or by-laws of Borrower or of any agreement binding upon Borrower. B. The Loan Agreement as amended by this Fourth Amendment, represents the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with its terms, subject as to enforcement only to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. C. No Event of Default or Unmatured Event of Default has occurred and is continuing as of the date hereof. III Defined Terms. Except as amended hereby, terms used herein that are defined in the Loan Agreement shall have the same meanings herein. IV Reaffirmation of Loan Agreement. This Fourth Amendment shall be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as further amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Loan Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Loan Agreement as amended hereby. 4 5 V Entire Agreement. The Loan Agreement, as hereby further amended, embodies the entire agreement between Borrower and Bank and supersedes all prior proposals, agreements and understandings relating to the subject matter hereof. Borrower certifies that it is relying on no representation, warranty, covenant or agreement except for those set forth in the Loan Agreement as hereby further amended and the other documents previously executed or executed of even date herewith. VI Governing Law. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. This Fourth Amendment has been entered into in Harris County, Texas, and it shall be performable for all purposes in Harris County, Texas. Courts within the State of Texas shall have jurisdiction over any and all disputes between Borrower and Bank, whether in law or equity, including, but not limited to, any and all disputes arising out of or relating to this Fourth Amendment or any other Loan Document; and venue in any such dispute whether in federal or state court shall be laid in Harris County, Texas. VII Severability. Whenever possible each provision of this Fourth Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Fourth Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Fourth Amendment. VIII Execution in Counterparts. Each party hereto acknowledges that this Agreement may be executed in several counterparts by each party at different times and in different locations; that each separate counterpart bearing the signature of any party may be effectively delivered to the other parties by the delivery of an electronic facsimile sent via telecopier; that each party so delivering any such counterpart shall be bound by its facsimile signature thereon; and that the signature pages from counterparts signed by each party may be collated into one or more copies of this agreement, which shall constitute one and the same agreement among all parties hereto. IX Section Captions. Section captions used in this Fourth Amendment are for convenience of reference only, and shall not affect the construction of this Fourth Amendment. X Successors and Assigns. This Fourth Amendment shall be binding upon Borrower and Bank and their respective successors and assigns, and shall inure to the benefit of Borrower and Bank, and the respective successors and assigns of Bank. XI Non-Application of Chapter 346 of Texas Finance Codes. In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Loan Agreement as hereby further amended or any other Loan Documents or the transactions contemplated hereby. XII Notice. THIS FOURTH AMENDMENT TOGETHER WITH THE LOAN AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL 5 6 AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be duly executed as of the day and year first above written. BANK BORROWER COMPASS BANK CARRIZO OIL & GAS, INC. By:___________________________ By:_____________________________ Kathleen J. Bowen Frank A. Wojtek Vice President Vice President 7 8 EXHIBIT "A" NOTE $7,000,000.00 Houston, Texas September 24, 1998 On the dates hereinafter prescribed, for value received, CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"), having an address at 14811 St. Mary's Lane, Suite 148, Houston, Texas 77079, promises to pay to the order of COMPASS BANK (herein called "Bank"), at its principal offices at 24 Greenway Plaza, Fourteenth Floor, Houston, Harris County, Texas 77046, (i) the principal amount of SEVEN MILLION AND NO/100 DOLLARS ($7,000,000.00), and (ii) interest on the principal balance remaining unpaid from the date of the advance until maturity at a rate of interest equal to lesser of (a) the "Floating Rate" (as hereinafter defined), calculated on the basis of a year of 365 or 366 days, as the case may be, and for the actual number of days elapsed (including the first day but excluding the last day), or (b) the ?Maximum Rate? (as hereinafter defined). Any increase or decrease in interest rate resulting from a change in the Maximum Rate shall be effective immediately when such change becomes effective, without notice to Borrower, unless Applicable Law (as defined below) requires that such increase or decrease not be effective until a later time, in which event such increase or decrease shall be effective at the earliest time permitted under the provisions of such law. Notwithstanding the foregoing, if during any period the Floating Rate exceeds the Maximum Rate, the rate of interest in effect on this Note shall be limited to the Maximum Rate during each such period, but at all times thereafter the rate of interest in effect on this Note shall be the Maximum Rate until the total amount of interest accrued on this Note equals the total amount of interest which would have accrued hereon if the Floating Rate had at all times been in effect. All payments on this Note shall be applied first to accrued interest and the balance, if any, to principal. "Floating Rate" means a per annum interest rate equal to the Index Rate (as defined below) in effect from time to time plus two percent (2.0%), provided that at such time no Event of Default or Unmatured Event of Default (as defined in the First Amended, Restated, and Amended Loan Agreement dated August 28, 1997, as amended by the First Amendment thereto dated December 23, 1997, the Second Amendment thereto dated December 30, 1997, the Third Amendment dated July 30, 1998 and the Fourth Amendment dated of even date herewith, between Borrower and Bank (the "Loan Agreement")) has occurred and is continuing; then thereafter, "Floating Rate" shall mean a per annum interest rate equal to the Index Rate in effect from time to time plus five percent (5%). "Index Rate" means at any time, the prime rate established in The Wall Street Journal's "Money Rates" or similar table. If multiple prime rates are quoted in the table, then the highest prime rate will be the Index Rate. In the event that the prime rate is no longer published by The Wall ----------------- Initial for Page 1 of 4 Identification 9 Street Journal in the "Money Rates" or similar table, then Bank may select an alternative published index based upon comparable information as a substitute Index Rate. Upon the selection of a substitute Index Rate, the applicable interest rate shall thereafter vary in relation to the substitute index. Such substitute index shall be the same index that is generally used as a substitute by Bank on all Index Rate loans. The Index Rate is eight and one-half percent (8.50%) as of the date of this Agreement. "Maximum Rate" means the Maximum Rate of non-usurious interest permitted from day to day by Applicable Law. "Applicable Law" means that law in effect from time to time and applicable to this Term Note which lawfully permits the charging and collection of the highest permissible lawful, non-usurious rate of interest on this Term Note. To the extent federal law permits Lender to contract for, charge or receive a greater amount of interest, Lender will rely on federal law instead of the Texas Finance Code, as supplemented by Texas Credit Title, for the purpose of determining the Maximum Rate. Additionally, to the maximum extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, implement any other method of computing the Maximum Rate under the Texas Finance Code, as supplemented by Texas Credit Title, or under other applicable law, by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration. "Business Day" shall mean any day on which banks are open for general banking business in the State of Texas, other than a Saturday, a Sunday, a legal holiday or any other day on which banks in the State of Texas are required or authorized by law or executive order to close. The principal sum and any accrued but unpaid interest of this Note shall be due and payable on or before the earlier of: (1) the date of closing of the issuance of Borrower's Additional Stock, as defined in the Loan Agreement; (2) the date of closing of the issuance of the Convertible Subordinate Debt, as defined in the Loan Agreement; (3) the date of repayment of the Revolving Loan; and (4) September 29, 1999; interest to accrue upon the principal sum from time to time owing and unpaid hereunder shall be due and payable in monthly installments, as it accrues, with the first such monthly installment of interest hereon being due and payable on the first day of November 1998, and with such subsequent installments of interest being due and payable on the first day of each succeeding month thereafter; provided, however, the final installment of interest hereunder shall be due and payable not later than the maturity of the principal sum hereof, howsoever such maturity may be brought about. ----------------- Initial for Page 2 of 4 Identification 10 When the first (1st) day of a calendar month falls upon a Saturday, Sunday or legal holiday, the payment of interest and principal, if any, due upon such date shall be due and payable upon the next succeeding Business Day. In no event shall the aggregate of the interest on this Note, plus any other amounts paid in connection with the loan evidenced by this Note which would under Applicable Law be deemed "interest," ever exceed the maximum amount of interest which, under Applicable Law, could be lawfully charged on this Note. Bank and Borrower specifically intend and agree to limit contractually the interest payable on this Note to not more than an amount determined at the Maximum Rate. Therefore, none of the terms of this Note or any other instruments pertaining to or securing this Note shall ever be construed to create a contract to pay interest at a rate in excess of the Maximum Rate, and neither Borrower nor any other party liable herefor shall ever be liable for interest in excess of that determined at the Maximum Rate, and the provisions of this paragraph shall control over all provisions of this Note or of any other instruments pertaining to or securing this Note. If any amount of interest taken or received by Bank shall be in excess of the maximum amount of interest which, under Applicable Law, could lawfully have been collected on this Note, then the excess shall be deemed to have been the result of a mathematical error by the parties hereto and shall be refunded promptly to Borrower. All amounts paid or agreed to be paid in connection with the indebtedness evidenced by this Note which would under Applicable Law be deemed "Interest" shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated and spread throughout the full term of this Note. This Note is secured by all security agreements, collateral assignments, mortgages and lien instruments executed by Borrower (or by any other party) in favor of Bank, including those executed simultaneously herewith, those executed heretofore and those hereafter executed, and including specifically and without limitation the "Security Instruments" described and defined in the Loan Agreement. This Note is the Second Term Note issued pursuant to the Fourth Amendment to the Loan Agreement. Reference is hereby made to the Loan Agreement for a statement of the rights and obligations of the holder of this Note and the duties and obligations of Borrower in relation thereto; but neither this reference to the Loan Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of Borrower to pay any outstanding and unpaid principal of and interest on this Note when due, in accordance with the terms of the Loan Agreement. In the event of default in the payment when due of any of the principal of or any interest on this Note, or in the event of default under the terms of the Loan Agreement or any of the Security Instruments, or if any event occurs or condition exists which authorizes the acceleration of the maturity of this Note under any agreement made by Borrower, Bank (or other holder of this Note) may, at its option, without presentment or demand or any notice to Borrower or any other person liable herefor, declare the unpaid principal balance of and accrued interest on this Note to be immediately due and payable. ----------------- Initial for Page 3 of 4 Identification 11 If this Note is collected by suit or through the Probate or Bankruptcy Court, or any judicial proceeding, or if this Note is not paid at maturity, however such maturity may be brought about, and is placed in the hands of an attorney for collection, then Borrower agrees to pay reasonable attorneys' fees, not to exceed 10% of the full amount of principal and interest owing hereon at the time this Note is placed in the hands of an attorney. Borrower and all sureties, endorsers and guarantors of this Note waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate maturity, notice of acceleration of maturity, and all other notices, filing of suit and diligence in collecting this Note or enforcing any of the security herefor, and agree to any substitution, exchange or release of any such security or the release of any party primarily or secondarily liable hereon and further agrees that it will not be necessary for Bank, in order to enforce payment of this Note by them, to first institute suit or exhaust its remedies against any Borrower or others liable herefor, or to enforce its rights against any security herefor, and consent to any one or more extensions or postponements of time of payment of this Note on any terms or any other indulgences with respect hereto, without notice thereof to any of them. Bank may transfer this Note, and the rights and privileges of Bank under this Note shall inure to the benefit of Bank's representatives, successors or assigns. Executed this 24th day of September 1998. CARRIZO OIL & GAS, INC. By: ---------------------------- Frank A. Wojtek Vice President ----------------- Initial for Page 4 of 4 Identification 12 COMPLIANCE CERTIFICATE I, Frank A. Wojtek, Vice President of CARRIZO OIL & GAS, INC. (the "Company"), pursuant to Section 3.18 of the First Amended, Restated, and Combined Loan Agreement dated as of August 28, 1997, as amended, by and among COMPASS BANK ("Bank") and the Company (the "Agreement") do hereby certify, as of the date hereof, that to my knowledge: 1. No Event of Default (as defined in the Agreement) has occurred and is continuing, and no Unmatured Event of Default (as defined in the Agreement) has occurred and is continuing; 2. No material adverse change has occurred in the business prospects, financial condition, or the results of operations of the Company since the date of the previous Financial Statements (as defined in the Agreement) provided to Bank; 3. Each of the representations and warranties of the Company contained in Article IV of the Agreement is true and correct in all respects. This certificate is executed this 24th day of September 1998. -------------------------- Frank A. Wojtek EX-27 7 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 3,435,197 0 4,584,359 0 0 10,027,045 71,003,122 0 81,424,377 14,383,590 0 29,974,454 0 103,750 30,879,927 81,424,377 5,696,543 5,696,543 4,498,382 4,498,382 2,054,240 0 8,587 (578,979) (162,551) (416,428) 0 0 0 (416,428) (.25) (.25)
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