--------------------------------------------------------------------------------

Exhibit 10.42

 
AGREEMENT AND PLAN OF MERGER

 

AMONG

KERR-MCGEE OIL & GAS CORPORATION

KERR-MCGEE OIL & GAS (SHELF) LLC

W&T OFFSHORE, INC.

AND

W&T ENERGY V, LLC
 
 

GULF OF MEXICO
OFFSHORE STATES
OF TEXAS AND LOUISIANA

Effective October 1, 2005

 

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AGREEMENT AND PLAN OF MERGER
 
LIST OF EXHIBITS
 
A
 
Schedule 1 -
 
Leases, Units and Royalty Interests
 
 
Schedule 2 -
 
Permits and Easements; Pipelines and Other Facilities
 
 
Schedule 3 -
 
Related Contracts
 
 
Schedule 4 -
 
Allocated Values for Certain Property
 
B
 
Certificate of Merger
 
C
 
Pending Litigation and Claims Affecting the Property
 
D
 
Nonforeign Affidavit
 
E
 
Imbalances
 
F
 
Tax Partnerships
 
G
 
Ongoing Projects/Commitments
 
H
 
Intentionally Omitted
 
I
 
Access and Indemnification Agreement
 

 

 

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TABLE OF CONTENTS
 

     
Page
       
ARTICLE 1 MERGER
………………………...............................................……………………………...
1
 
1.1
The Merger ……………………………………………………………....................
1
 
1.2
Effective Time ………...…………..………………………………….......................
1
 
1.3
Certificate of Formation; Limited Liability Company Agreement
……..........................
2
 
1.4
Managers ………………………………………………………………...................
2
 
1.5
Membership Interests of Merger Sub …………………...…………….......................
2
 
1.6
The Property ……………………………………………………………..................
2
 
1.7
Exclusions from the Property …………………………………………......................
4
       
ARTICLE 2 CONSIDERATION ……………………………………………………..................................
6
 
2.1
Merger Consideration; Certain Other Payments …...………………….......................
6
 
2.2
Adjustments at Closing ……………………………………………….......................
6
 
2.3
Adjustments after Closing …………………………………………….......................
8
 
2.4
Payment Method ………………………………………………………....................
9
 
2.5
Principles of Accounting ………………………...……………………......................
9
   
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
…………………………..................................
9
 
3.1
Reciprocal Representations and Warranties
…….......………...………......................
9
 
3.2
KMG’s Representations and Warranties …………………...…………......................
10
 
3.3
W&T’s Representations and Warranties …………………...…………......................
14
 
3.4
Limitation as to Environmental Matters …………………...………….........................
15
 
3.5
Notice of Changes ………………………………...…………………......................
15
 
3.6
Representations and Warranties Exclusive …………………………….......................
15
       
ARTICLE 4 DISCLAIMER OF WARRANTIES
……………………………………..................................
15
 
4.1
Permits and Easements ………………………...………………………....................
15
 
4.2
Condition and Fitness of the Property ...……………………...……….......................
16
 
4.3
Information About the Property ……………………………………..........................
17
 
4.4
Subrogation of Warranties ……………………………………………......................
17
       
ARTICLE 5 DUE DILIGENCE REVIEW
…………………………………………….................................
18
 
5.1
Records Review …………………………………...…………………......................
18
 
5.2
Physical Inspection ……………………………………...……………......................
18
 
5.3
Environmental Assessment ……………………………………………......................
18
 
5.4
Bonding …………………………...…………………………………......................
21
 
5.5
Preferential Rights and Consents to Assign ……………………………......................
21
 
5.6
Title Defects ……………………………………………………………...................
22
 
5.7
Casualty Losses and Government Takings ………………………...….......................
26
       
ARTICLE 6 CLOSING AND POST-CLOSING OBLIGATIONS
…………………..................................
28
 
6.1
Closing Date ………………………...…………………………………...................
28
 
6.2
Conditions to Closing …………………...……………..……………........................
28
 
6.3
Closing …………………………………………...……………………...................
29

 
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6.4
Post-Closing Obligations …….......……………………..………………….......................
31
       
ARTICLE 7 INTENTIONALLY OMITTED
…………….…………………………...................................
32
       
ARTICLE 8 INDEMNITIES
32
 
8.1
Definition of Claims ……………..…………….......……………………….......................
32
 
8.2
Application of Indemnities ……………………..….......………………….........................
32
 
8.3
W&T’s Indemnity …………………………………….......……………….......................
33
 
8.4
KMG’s Indemnity …………………………………………........…………......................
34
 
8.5
W&T’s Plugging and Abandonment Obligations
………………….....................................
35
 
8.6
W&T’s Environmental Obligations …………………………………….............................
36
 
8.7
Notices and Defense of Indemnified Claims
……………..…………..................................
37
 
8.8
KMG’s Indemnity Limit ……………………………………………….............................
37
 
8.9
NORM ………………………………………………………………….........................
37
 
8.10
Pending Litigation and Claims ………………………………………….............................
37
 
8.11
Waiver of Consequential and Punitive Damages
………………………..............................
37
 
8.12
Hurricane-Related Costs ………………………………………………............................
38
   
ARTICLE 9 TAXES AND EXPENSES ………………………………………………...............................
39
 
9.1
Filing Expenses ………………………………………………………..............................
39
 
9.2
Ad Valorem, Real Property and Personal Property Taxes
……………...............................
39
 
9.3
Severance Taxes ………………………………………………………............................
39
 
9.4
Tax Reporting …………………………..……………………………..............................
39
 
9.5
Sales and Use Taxes ……………………………………………………..........................
40
 
9.6
Income Taxes …………………………………………………………............................
40
 
9.7
Incidental Expenses ………………………...………………………….............................
40
       
ARTICLE 10 CERTAIN COVENANTS PENDING CLOSING
…………………….................................
40
 
10.1
Operations …………………………………………………………….............................
40
 
10.2
Federal and State Approvals …………………………………………..............................
41
 
10.3
Limitations Related to KMG Sub …………………………….......……............................
41
 
10.4
KMG Sub ……………………………………………………………….........................
41
 
10.5
[Intentionally Omitted.] ………………………………………………..............................
41
 
10.6
HSR Act ………………………………………………………………...........................
41
       
ARTICLE 11 MISCELLANEOUS ……………………………………………………...............................
42
 
11.1
Imbalances ……………………………………………………………............................
42
 
11.2
[Intentionally omitted.] …………………………..…………………….............................
42
 
11.3
[Intentionally omitted.] …………………………..……………………..............................
42
 
11.4
Survival ……………………………………………………………….............................
42
 
11.5
Confidentiality and Public Announcements
………………………..…................................
42
 
11.6
Suspense Accounts ……………………………………………………............................
43
 
11.7
Marks and Logos; Post-Closing Inspections
…………………………...............................
43
 
11.8
Notices ……………………...…………………………………………..........................
43
 
11.9
Calculation Date ………………………………………………………............................
44
 
11.10
Assignment …………………...……………………………………….............................
44
 
11.11
Entire Agreement and Amendment …………………………………….............................
44

 
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11.12
Successors and Assigns …..............................……………………………………………..
45
 
11.13
Third Party Beneficiaries ……………………...............................…………………………
45
 
11.14
Severability ………………………………………………………..............................…….
45
 
11.15
Counterparts ……………………………………………………….............................……
45
 
11.16
Governing Law; Jurisdiction and Venue; Jury Waiver
……………….....................................
45
 
11.17
Exhibits ………………………………………………………………................................
46
 
11.18
Waiver ………………………………………………………………….............................
46
 
11.19
Interpretation …………………………………………………………................................
46
 
11.20
Default and Remedies …………………………………………………...............................
46

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AGREEMENT AND PLAN OF MERGER
 
This Agreement and Plan of Merger (the “Agreement”), dated the 23rd day of
January, 2006, is among Kerr-McGee Oil & Gas Corporation (“KMG”), a Delaware
corporation, and Kerr-McGee Oil & Gas (Shelf) LLC, a Delaware limited liability
company and wholly-owned subsidiary of KMG (“KMG Sub”), with offices at 16666
Northchase, Houston, Texas 77060, and W&T Offshore, Inc. (“W&T”), a Texas
corporation, and W&T Energy V, LLC, a Delaware limited liability company and
wholly-owned subsidiary of W&T (“Merger Sub”), with offices at 8 Greenway Plaza,
Suite 1330, Houston, Texas 77046.
 
RECITALS:
 
WHEREAS, prior to the date hereof KMG has assigned to KMG Sub, effective as of
October 1, 2005 (the “Calculation Date”), all of KMG’s right, title and interest
in and to certain assets and liabilities referred to collectively as the
“Property” and set forth in greater detail herein; and
 
WHEREAS, KMG and W&T propose that, upon and subject to the terms and conditions
hereinafter set forth, Merger Sub merge with and into KMG Sub under the terms of
Section 18-209 of the Delaware Limited Liability Company Act (the “Merger”), as
a result of which (a) KMG Sub will be the surviving entity in the Merger, (b)
the membership interests of Merger Sub, all of which are held by W&T, will be
converted into membership interests of KMG Sub and (c) the current issued
outstanding membership interests of KMG Sub (the “Membership Interests”), will
be converted into the right to receive the aggregate consideration hereinafter
provided for and KMG, as the holder of all of such currently issued and
outstanding Membership Interests will be entitled to receive such aggregate
consideration;
 
NOW THEREFORE, in consideration of the above recitals and of the covenants and
agreements herein contained, the parties agree as follows:
ARTICLE 1 
MERGER
 
1.1  The Merger. At the Effective Time (as hereinafter defined), Merger Sub
shall be merged with and into KMG Sub in accordance with this Agreement, and the
separate existence as a limited liability company of Merger Sub shall cease and
KMG Sub shall continue as the surviving entity (“Surviving Entity”) and will
succeed to and assume all the rights and obligations of Merger Sub in accordance
with the Delaware Limited Liability Company Act.
 
1.2  Effective Time. On the terms and subject to the conditions set forth in
this Agreement, on or prior to the Closing Date, in order to effect the Merger,
the Certificate of Merger (the “Certificate of Merger”) in substantially the
form of Exhibit B (completed as appropriate to reflect the terms of this
Agreement) shall be executed by KMG Sub as Surviving Entity. If all the
conditions to Closing in Section 6.2 shall have been fulfilled or waived in
accordance with this Agreement and this Agreement shall not have terminated as
provided in Section 11.20, on the terms and subject to the conditions set forth
in this Agreement, and no later than two business days subsequent to the Closing
the Certificate of Merger will be filed by W&T with the Secretary of State of
the State of Delaware and become effective in accordance with Delaware law upon
filing or such later time as agreed by the parties and designated in the
Certificate of Merger (the “Effective Time”). The parties shall execute and
deliver such other documents or certificates and take such other actions as may
be required to effect the Merger and consummate the transactions contemplated
hereby. The Merger shall have the effects set forth in this Agreement, Section
18-209 of the Delaware Limited Liability Act and other applicable provisions of
Delaware law.
 
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1.3  Certificate of Formation; Limited Liability Company Agreement. From and
after the Effective Time, (i) the certificate of formation of KMG Sub in effect
immediately prior to the Effective Time, as amended by the Merger Certificate,
shall be the certificate of formation of Surviving Entity, until further amended
in accordance with applicable law, and (ii) the Limited Liability Company
Agreement of Merger Sub in effect immediately prior to the Effective Time shall
be the Limited Liability Company Agreement of Surviving Entity, until further
amended in accordance with applicable law.
 
1.4  Managers. From and after the Effective Time, all of the managers and
officers of KMG Sub shall be deemed to have resigned and the managers and
officers of Surviving Entity shall be those persons serving as such on behalf of
Merger Sub immediately prior to the Effective Time. 
 
1.5  Membership Interests of Merger Sub. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of KMG, W&T, KMG Sub, Surviving Entity or Merger Sub, the
membership interests of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and become fully paid and
non-assessable membership interests of Surviving Entity, and such converted
membership interests will, collectively, represent all of the issued and
outstanding membership interests of Surviving Entity. 
 
1.6  The Property. KMG heretofore has assigned to KMG Sub, effective as of the
Calculation Date, all of KMG’s right, title and interest in and to the Property,
as set forth below:
 
1.6.1  The oil, gas and mineral lease(s), operating rights and other interests
in oil and gas described in Exhibit A, Schedule 1 (the “Leases”);
 
1.6.2  All rights, obligations and interest in any unit or pooled area in which
the Leases are included, to the extent that these rights, obligations and
interest arise from and are associated with the Leases or Wells (as hereinafter
defined), including without limitation, all rights and obligations derived from
any unitization, pooling, operating, communitization or other agreement or from
any declaration or order of any governmental authority, including without
limitation those described in Exhibit A, Schedule 1 (the “Units”);
 
1.6.3  All oil, gas and condensate wells (whether producing, not producing or
abandoned), water source, water injection and other injection or disposal wells
and systems located on the Leases or the Units (the “Wells”);
 
1.6.4  All equipment, facilities, flow lines, pipelines, gathering systems,
platforms, caissons, subsea equipment, tank batteries, improvements, fixtures,
inventory, spare parts, tools, moveables, immovables, abandoned property and
junk and other personal property located on the Leases, the Units, the Permits
and Easements (as hereinafter defined), or the sea floor covered thereby, or
located elsewhere to the extent acquired or held for use of the joint account as
identified in any operating agreement included in the Property (collectively,
the “Equipment”), including without limitation, the pipelines or gathering lines
which originated from and are located downstream of the Leases or Units
including without limitation those described on Exhibit A, Schedule 2 (the
“Off-Lease Pipelines”);
 
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1.6.5  The gas, oil or sulphur processing, treating, fractionation or handling
facilities, including without limitation those described in Exhibit A, Schedule
2, including without limitation, all buildings, pipes, valves, compressors,
tanks, pumps, equipment, fixtures, machinery and other related improvements,
moveables, immovables and other personal property located thereon or used solely
in connection therewith, or located elsewhere to the extent acquired or held for
use of the joint account as identified in any operating agreement included in
the Property (collectively, the “Facilities”);
 
1.6.6  To the extent assignable or transferable, all easements, rights-of-way,
licenses, permits, servitudes, surface leases, surface use agreements, surface
fee tracts and similar rights and interests to the extent applicable to or used
in operating the Leases, Units, Wells, Equipment, Off-Lease Pipelines or the
Facilities, including without limitation those described in Exhibit A, Schedule
2 (the “Permits and Easements”);
 
1.6.7  Any royalty, overriding royalty, net profits or other oil, gas or mineral
interests with respect the Leases and Units including without limitation those
interests described in Exhibit A, Schedule 1 (the “Royalty Interests”),
including all rights and obligations pertaining to the Royalty Interests under
any of the Related Contracts (as hereinafter defined);
 
1.6.8  To the extent assignable or transferable, all agreements, contracts and
contractual rights, obligations and interests applicable to the Property,
including unit agreements; farmout agreements; farmin agreements; operating
agreements; and hydrocarbon sales, purchase, gathering, compression,
transportation, treating, marketing, exchange, processing and fractionating
agreements, including those described in Exhibit A, Schedule 3, but excluding
(i) any contracts for the sale, purchase or exchange of Hydrocarbons (as defined
in Section 2.2.2(ii)) on a spot basis, and (ii) the Base Contract for Sale and
Purchase of Natural Gas between Cinergy Marketing & Trading, LP and KMG dated
June 1, 2005 (the “Cinergy Contract”) INSOFAR ONLY as such agreements, contracts
and contractual rights, obligations and interests cover and apply to the Leases,
the Units, the Wells, the Equipment, the Off-Lease Pipelines, the Facilities,
the Permits and Easements and the Royalty Interests (collectively, the “Related
Contracts”);
 
1.6.9  All rights against (including rights to receive make-up gas or to receive
cash balancing payments) third parties with respect to any oil or gas
production, transportation, and processing imbalances with respect to the
Property (“Imbalances”) related to production from the Property during the
period prior to the Calculation Date;
 
1.6.10  All other tangibles, miscellaneous interests or other assets on or being
used in connection with the Leases, including (subject to Section 6.4.1) all
lease files, right-of-way files, well files (including well logs), production
records, division order files, abstracts, title opinions, and contract files,
insofar as they are directly related to the Leases, the Units, the Wells or the
Imbalances (the “Property Records”); and
 
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1.6.11  All Suspense Accounts (as defined in Section 11.6).
 
1.7  Exclusions from the Property. The Property does not include the following,
which were reserved by KMG, unto itself and its successors and assigns, from the
assignment to KMG Sub referred to in the first recital of the Agreement;
provided, however, none of the following items shall be considered excluded if
they are owned by the joint account as identified in any operating agreement
included in the Property (the “Excluded Assets”):
 
1.7.1  Unless the parties otherwise agree in writing and enter into a separate
data license agreement, (i) seismic, geological, geochemical, or geophysical
data (including cores and other physical samples or materials from wells or
tests) belonging to KMG or licensed from third parties, and (ii) interpretations
of seismic, geological, geochemical or geophysical data belonging to KMG or
licensed from third parties;
 
1.7.2  KMG’s intellectual property used in developing or operating the Property,
including without limitation, proprietary computer software, computer software
licensed from third parties, patents, pending patent applications, trade
secrets, copyrights, names, marks and logos;
 
1.7.3  Concurrent interests in any and all easements, rights-of-way, licenses,
permits, servitudes, surface leases, surface use agreements, contracts,
facilities, equipment, pipelines, and similar rights and interests relating to
rights and interests reserved and not assigned by KMG in the Facilities (if any)
and necessary or convenient to the possession and full enjoyment of such
reserved rights and interests;
 
1.7.4  KMG’s corporate, financial and tax records, and legal files, except that
KMG will provide W&T or Surviving Entity (as hereinafter defined) with copies of
any tax records that are necessary, if any, for Surviving Entity’s ownership,
administration or operation of the Property;
 
1.7.5  Notwithstanding any other provision of this Agreement to the contrary,
any records or information that KMG considers proprietary or confidential
(including without limitation, employee information, internal valuation data,
business plans, reserve reports, transaction proposals and related information
and correspondence, business studies, bids and documents protected by any
privilege), or which KMG cannot legally provide to KMG Sub because of third
party restrictions;
 
1.7.6  Trade credits and rebates from contractors and vendors, and adjustments
or refunds attributable to KMG’s interest in the Property that relate to any
period before the Calculation Date, including without limitation, transportation
tax credits and refunds, tariff refunds, take-or-pay claims, insurance premium
adjustments, and audit adjustments under the Related Contracts;
 
4

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1.7.7  Claims of KMG for refund of or loss carry forwards with respect to (i)
production, windfall profit, severance, ad valorem or any other taxes
attributable to any period prior to the Calculation Date, (ii) income or
franchise taxes and (iii) any taxes attributable to the excluded items described
in this Section 1.2;
 
1.7.8  Deposits, cash, checks in process of collection, cash equivalents,
accounts and notes receivable and other funds attributable to any periods before
the Calculation Date, and security or other deposits made with third parties
prior to the Calculation Date;
 
1.7.9  All proceeds, benefits, income or revenues with respect to the Property
attributable to periods prior to the Calculation Date;
 
1.7.10  All Claims arising from acts, omissions or events, or damage to or
destruction of the Property before the Calculation Date, and all related rights,
titles, claims and interests of KMG (i) under any policy or agreement of
insurance or indemnity, (ii) under any bond or letter of credit, or (iii) to any
insurance or condemnation proceeds or awards;
 
1.7.11  All shore base facilities;
 
1.7.12  Contracts for support services (except for those support service
contracts specifically listed as part of the Related Contracts in Exhibit A,
Schedule 3);
 
1.7.13  All swap, futures, or derivative contracts backed by or related to
hydrocarbons;
 
1.7.14   (i) Pipelines, equipment and other facilities located on the Leases,
the Units, or the Permits and Easements that are not associated with or used in
connection with the Leases or the Units; (ii) any equipment, materials, spare
parts, tools and other personal property that may have been previously used on
the Leases, the Units or the Permits and Easements, but is presently stored or
warehoused at a KMG or third party site not located on the Property and not
acquired or held for use of the joint account as identified in any operating
agreement included in the Property; and (iii) except as provided in Section
1.1.5, any gas processing plants or their associated facilities, pipelines and
gathering lines, wherever located;
 
1.7.15  (i) Radio towers, remote terminal units, personal computer equipment,
vehicles, communication equipment, and photocopy machines, wherever located,
(ii) all leased vehicles and equipment for which W&T or Surviving Entity (as
hereafter defined) does not assume the applicable lease under this Agreement,
and (iii) all third party equipment and property located on or used in
connection with the Property, including without limitation contractor equipment;
 
1.7.16  The Cinergy Contract and any contracts for sale, purchase or exchange of
Hydrocarbons on a spot basis; and
 
1.7.17  KMG’s interest in the offshore “Boxer” pipeline currently operated by an
affiliate of Shell Oil Company.
 
5

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ARTICLE 2
CONSIDERATION
 
2.1  Merger Consideration; Certain Other Payments
 
2.1.1  Conversion of Membership Interests. At the Effective Time, by virtue of
the Merger and without any action on the part of KMG, W&T, KMG Sub, Surviving
Entity or Merger Sub, the aggregate Membership Interests, all of which are held
by KMG, will be converted to the right to receive, in the aggregate,
$1,339,400,000 (the “Base Merger Consideration”), adjusted as specified in
Sections 2.1.2, 2.2 and 2.3. As of the Effective Time, all such Membership
Interests will no longer be outstanding and will automatically be cancelled and
retired and will cease to exist, and KMG will cease to have any rights with
respect to the Membership Interests, except the right to receive the Base Merger
Consideration, as it may be adjusted pursuant to the terms hereof.
 
 
2.1.2  Performance Deposit. Upon execution of this Agreement, W&T shall pay to
KMG $25,000,000 as a performance deposit (“Performance Deposit”), to assure
W&T’s performance under this Agreement. The Performance Deposit is solely to
assure the performance of W&T pursuant to the terms and conditions of this
Agreement. If W&T refuses or is unable for any reason (including failure to
obtain financing) to close the transaction in accordance with the terms of this
Agreement, KMG may, at its sole option, retain the Performance Deposit as agreed
liquidated damages and not as a penalty. However, if this Agreement is
terminated pursuant to the provisions of Section 11.20 (Default and Remedies)
other than Section 11.20.1 (KMG’s Remedies), the Performance Deposit shall be
returned without interest as provided in this Agreement within one (1) business
day of termination. If Closing occurs, KMG shall retain and credit the
Performance Deposit against the Base Merger Consideration at Closing, in which
case W&T must pay KMG an amount equal to the Base Merger Consideration, adjusted
as provided in Section 2.2, less the Performance Deposit.
 
2.1.3  Bond Premium Payment Reimbursement. From the date hereof until the
Closing or earlier termination of this Agreement, premium payments made by KMG
to obtain bonds for KMG Sub under applicable regulations of the federal Minerals
Management Service (“MMS”) shall be reimbursed by W&T immediately as incurred by
KMG. Such reimbursement under this Section 2.1.3 is non-refundable, unless this
Agreement is terminated by W&T pursuant to Section 11.20.2 (in which case KMG
shall refund such reimbursement amount, without interest), and shall not be
taken as an adjustment to the Base Merger Consideration under Sections 2.2 and
2.3.
 
2.2  Adjustments at Closing
 
2.2.1  Preliminary Settlement Statement. At Closing, the Base Merger
Consideration will be adjusted as set forth in Sections 2.1.2, 2.2.2 and 2.2.3.
No later than three (3) days prior to the Closing Date, KMG will provide W&T a
preliminary settlement statement identifying all adjustments to the Base Merger
Consideration to be made at Closing (the “Preliminary Settlement Statement”).
KMG and W&T acknowledge that some items in the Preliminary Settlement Statement
may be estimates (e.g., revenues) or otherwise subject to change in the Final
Settlement Statement (as hereinafter defined) for the Property, to be prepared
pursuant to Section 2.3.
 
6

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2.2.2  Upward Adjustments. The Base Merger Consideration will be increased by
the following expenses, revenues and other items:
 
(i)  KMG’s share of all actual production and operating costs and expenses,
overhead charges under applicable operating agreements (or, with respect to
active producing or injection Wells included in the Property operated by KMG
that are not subject to an operating agreement, an overhead charge of $500 per
each such Well per month), capital expenditures paid or incurred by KMG in
connection with ownership or operation of the Property (including without
limitation royalties, minimum royalties, rentals, and prepaid charges), to the
extent they are attributable to the Property for the period on and after the
Calculation Date until Closing but excluding Hurricane-Related Costs (as defined
in Section 8.12);
 
(ii)  KMG’s share of any proceeds from the sale of oil, gas, casinghead gas,
condensate, distillate and other liquid and gaseous hydrocarbons of every kind
or description (“Hydrocarbons”) produced from or attributable to the Property
and other income from the Property received by Surviving Entity or W&T, to the
extent they are attributable to the ownership or operation of the Property
before the Calculation Date;
 
(iii)  $60.00 per barrel for all merchantable Hydrocarbons produced from or
attributable to the Property before the Calculation Date that are stored in the
Lease or unit stock tanks as identified on the OGAR for the production month of
September, 2005 filed with the MMS (the “Stock Tank Oil”) (but excluding all
Hydrocarbons produced from or attributable to the Property before the
Calculation Date and stored in gathering lines or production facilities upstream
of the sale or custody transfer meters (or other applicable point at which the
transfer of title actually occurs) of the purchaser or processor of Hydrocarbon
production attributable to the Property which shall, at Closing, be the property
of Surviving Entity);
 
(iv)  Imbalance adjustments pursuant to Section 11.1, as applicable; and
 
(v)  Any other increases in the Base Merger Consideration specified in this
Agreement or otherwise agreed in writing between KMG and W&T prior to or at
Closing.
 
2.2.3  Downward Adjustments. The Base Merger Consideration will be decreased by
the following expenses and revenues:
 
(i)  KMG’s share of all actual production and operating costs and expenses,
overhead charges under applicable operating agreements, capital expenditures
paid or incurred by W&T in connection with ownership or operation of the
Property (including without limitation royalties, minimum royalties, rentals,
and prepaid charges), to the extent they are attributable to the Property for
the period before the Calculation Date;
 
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(ii)  KMG’s share of any proceeds from the sale of Hydrocarbons produced from or
attributable to the Property and other income attributable to the Property and
received by KMG, to the extent they are attributable to the ownership and
operation of the Property for the period from and after the Calculation Date
until Closing; provided, however, if the Closing Date is on or after the 25th
calendar day of the month, the proceeds of sale of Hydrocarbons marketed by KMG
for the prior calendar month shall be deemed to have been received for purposes
of adjusting the Base Merger Consideration;
 
(iii)  Imbalance adjustments pursuant to Section 11.1, as applicable; and
 
(iv)  Any other decreases in the Base Merger Consideration specified in this
Agreement or otherwise agreed in writing between KMG and W&T.
 
2.3  Adjustments after Closing
 
2.3.1  Final Settlement Statement. Within 120 days after Closing (the “Final
Settlement Date”), KMG will prepare a final settlement statement containing a
final reconciliation of the adjustments to the Base Merger Consideration
specified in Section 2.2 (the “Final Settlement Statement”). However, failure of
KMG to complete the Final Settlement Statement within 120 days after Closing
will not constitute a waiver of any right to an adjustment otherwise due. W&T
will have 30 days after receiving the Final Settlement Statement to provide KMG
with written exceptions to any items in the Final Settlement Statement that W&T
believes in good faith to be questionable. All items in the Final Settlement
Statement to which W&T does not take written exception within the 30-day review
period will be deemed correct.
 
2.3.2  Payment of Post-Closing Adjustments. Any adjustments to the Base Merger
Consideration (excluding disputed items) will be offset against each other so
that only one payment is required. The party owing payment will pay the other
party the net post-Closing adjustment to the Base Merger Consideration within 10
days after the expiration of W&T’s 30-day review period for the Final Settlement
Statement. However, the payment of any disputed items will be subject to the
further rights of the parties under Section 2.3.3.
 
2.3.3  Resolution of Disputed Items. After the completion and delivery of the
Final Settlement Statement, the parties shall negotiate in good faith to attempt
to reach agreement on the amount due with respect to any disputed items in the
Final Settlement Statement. If the parties agree on the amount due with respect
to any disputed items, and a payment adjustment is required, the party owing
payment will pay the other party within 10 days after the parties reach
agreement. If the parties are unable to agree on the amount due with respect to
any disputed items within 60 days after KMG receives W&T’s written exceptions to
the Final Settlement Statement, then the disputed items will be submitted to a
mutually agreed upon independent expert (“Accounting Referee”). The costs and
expenses of the Accounting Referee shall be shared equally by W&T and KMG.
Within 10 days after a decision of the Accounting Referee, W&T and KMG, as the
case may be, shall promptly make a cash payment to the other equal to the sum as
may be found by the Accounting Referee.
 
2.3.4  Further Revenues and Expenses.
 
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2.3.4.1  KMG agrees as follows with respect to production marketed by it:
 
(i)  If the Closing Date occurs before the 25th calendar day of the month, the
proceeds of sale of Hydrocarbons for the prior month shall be deemed to be
received on the 25th calendar day of the month and KMG shall wire transfer to
W&T the proceeds by the 5th business day following such 25th calendar day;
 
(ii)  The proceeds of the sale of Hydrocarbons for the calendar month during
which the Closing occurs shall be deemed to be received on the 25th calendar day
of the following month and KMG shall wire transfer the proceeds to W&T by the
5th business day following such 25th calendar day; and
 
(iii)  The proceeds of the sale of Hydrocarbons for any other month following
the Closing shall be deemed to be received on the 25th day of the month
following the month of production and shall be wire transferred to W&T by the
5th business day following such 25th calendar day;
 
2.3.4.2  After the completion of the post-Closing adjustments under this Section
2.3, (i) if either party receives revenues that belong to the other party under
this Agreement, the party receiving the revenues agrees to promptly remit those
revenues to the other party, and (ii) if either party pays expenses that are the
responsibility of the other party under this Agreement, the party on whose
behalf the expenses were paid agrees to promptly reimburse the other party for
the expenses paid on its behalf upon receiving satisfactory evidence of such
payment. However, neither party will be obligated to reimburse the other party
for any single expense in excess of $5,000 unless it has been consulted about
that expense prior to payment.
 
2.4  Payment Method. Unless the parties otherwise agree in writing, all payments
under this Agreement will be by wire transfer in immediately available funds to
an account designated by the party receiving payment.
 
2.5  Principles of Accounting. The Preliminary Settlement Statement and Final
Settlement Statement will be prepared in accordance with generally accepted
accounting principles in the United States, and applicable laws, rules and
regulations, and with reasonable supporting documentation for each item in those
statements.
 
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
 
3.1  Reciprocal Representations and Warranties. By their execution of this
Agreement, KMG and W&T each represent and warrant that the following statements
are true and accurate as to itself, as of the execution date of this Agreement,
and the Closing Date.
 
3.1.1  Corporate Authority. It is a corporation duly organized and in good
standing under the laws of its state of incorporation, is duly qualified to
carry on its business in the states onshore of where the Property is located,
and has all the requisite power and authority to enter into and perform this
Agreement.
 
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3.1.2  Requisite Approvals. Upon execution of this Agreement, it will have taken
all necessary actions pursuant to its articles of incorporation, bylaws and
other governing documents to fully authorize (i) the execution and delivery of
this Agreement and any transaction documents related to this Agreement; and (ii)
the consummation of the transaction contemplated by this Agreement.
 
3.1.3  Validity of Obligation. This Agreement and all other transaction
documents it is to execute and deliver on or before the Closing Date (i) have
been duly executed by its authorized representatives; (ii) constitute its valid
and legally binding obligations; and (iii) are enforceable against it in
accordance with their respective terms.
 
3.1.4  No Violation of Contractual Restrictions. Its execution, delivery and
performance of this Agreement does not conflict with or violate any agreement or
instrument to which it is a party or by which it is bound, except any provision
contained in agreements customary in the oil and gas industry relating to (i)
the preferential right to purchase all or any portion of the Property; (ii)
required consents to transfer and related provisions; (iii) maintenance of
uniform interest provisions; and (iv) any other third-party approvals or
consents contemplated in this Agreement.
 
3.1.5  No Violation of Other Legal Restrictions. Its execution, delivery and
performance of this Agreement do not violate any law, rule, regulation,
ordinance, judgment, decree or order to which it or the Property is subject.
 
3.1.6  Bankruptcy. There are no bankruptcy, reorganization or receivership
proceedings pending, being contemplated by, or to its actual knowledge,
threatened against it.
 
3.1.7  Brokers’ Fees. It has not incurred any obligation for brokers’, finders’
or similar fees for which the other party would be liable.
 
3.1.8  No Restraining Litigation. To its knowledge, there is no action, suit,
proceeding, claim or investigation by any person, entity, administrative agency
or governmental body pending or, to its knowledge, threatened, against it before
any court or governmental agency that seeks substantial damages in connection
with, or seeks to restrain, enjoin, materially impair or prohibit the
consummation of all or part of the transaction contemplated in this Agreement.
 
3.2  KMG’s Representations and Warranties. By its execution of this Agreement,
KMG represents and warrants to W&T that the following statements are true and
accurate, as of the execution date of this Agreement and the Closing Date.
 
3.2.1  Limited Liability Company Authority of KMG Sub. KMG Sub is a limited
liability company, validly existing and in good standing under the laws of the
State of Delaware and is now, or at Closing will be duly qualified to carry on
its business in the states of Louisiana and Texas.
 
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3.2.2  No Conflicts.  This Agreement, and the execution and delivery hereof by
KMG, does not and the consummation of the transactions contemplated hereby will
not (i) conflict with or result in a breach of KMG Sub’s certificate of
formation or limited liability company agreement or any other governing
documents of KMG Sub, (ii) violate or conflict with, or constitute a default
under, or result in the creation or imposition of any security interest, lien or
encumbrance upon any property or assets of KMG Sub under any mortgage, indenture
or agreement to which it is a party or by which the Property is bound, which
violation, conflict or default might adversely affect the ability of KMG to
perform its obligations under this Agreement or the ability of Surviving Entity
to own the Property, or (iii) violate any statute or law or any judgment,
decree, order, writ, injunction, regulation or rule of any court or governmental
authority, which violation might adversely affect the ability of KMG to perform
its obligations under this Agreement or the ability of Surviving Entity to own
the Property.
 
3.2.3  Membership Interests. KMG is, and will be on the Closing Date, the sole
record and beneficial owner and holder of the Membership Interests, free and
clear of all pledges or other liens. All of the outstanding Membership Interests
owned by KMG have been duly authorized and validly issued and are fully paid and
non-assessable. No third party has any rights or options relating to the
Membership Interests or to the issuance of new membership interests.
 
3.2.4  Broker’s Fees. KMG Sub has not incurred any liability, contingent or
otherwise, for brokers’ or finders’ fees relating to the transactions
contemplated by this Agreement for which W&T shall have any responsibility
whatsoever.
 
3.2.5  Assets. At Closing, the Property will constitute all of the assets of KMG
Sub, and all of the liabilities of the KMG Sub at Closing will relate only to
the ownership or operation of the Property.
 
3.2.6  Books and Records. The minute books and other records of KMG Sub, all of
which have been made available to W&T, are complete and correct in all material
respects. The minute books of KMG Sub contain accurate and complete records of
all meetings held of, and limited liability company action taken by, the member,
and no meeting of any such member has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of
those books and records will be in the possession of the KMG or KMG Sub.
 
3.2.7  No Company Employees. KMG Sub does not have any employees, and KMG Sub is
not obligated for any employee benefit plan.
 
3.2.8  Insurance. At Closing and during the period it owns the Property, KMG and
KMG Sub, as the case may be, will have insurance, or be self-insured, for all
risks normally insured against by a person carrying on the same business as KMG
or KMG Sub, as the case may be.
 
3.2.9  Disregarded Entity for Tax Purposes. KMG Sub is a disregarded entity for
tax purposes in accordance with Internal Revenue Service Regulation Section
301.7701-2(c)2; and KMG Sub does not have, nor has it ever had, any active
business other than that associated with its ownership of the Property.
 
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3.2.10  No Default. Except as disclosed in writing prior to the end of the Due
Diligence Period, to KMG’s knowledge, neither KMG nor KMG Sub is in breach or
default of any Lease included in the Property or any Material Related Contract
(as defined in Section 3.2.22), which breach or default has not been remedied or
which breach or default would have a material adverse effect on the ownership or
operation of any of the Property.
 
3.2.11  No Repayment. Except as disclosed in writing prior to the end of the Due
Diligence Period, to KMG’s knowledge, none of the Property is encumbered by
take-or-pay or other similar arrangements with purchasers of oil or gas whereby
KMG Sub is obligated (i) to deliver production without receiving payment
therefor, or (ii) to repay monies received for production paid for but not
taken.
 
3.2.12  Leases in Full Force and Effect; Condition of Property. To KMG’s
knowledge, the Leases are in full force and effect, and neither KMG while it
owned the Property, nor KMG Sub has violated any laws, statutes, regulations or
orders applicable to any of the Property or the operation thereof which
violation (i) would have a material adverse affect on the ownership or operation
of any material part of the Property or (ii) has not been remedied. To KMG’s
knowledge, taken as a whole, the Property which are tangible assets are in a
state of repair so as to be adequate for current operations, except for any
requirements for repairs or replacements attributable to Hurricanes Katrina or
Rita.
 
3.2.13  Tax Returns. KMG Sub or KMG has filed or caused to be filed (on a timely
basis since its formation) all tax returns that are or were required to be filed
by or with respect to KMG Sub, either separately or as a member of a group of
companies, pursuant to applicable legal requirements. KMG Sub, or KMG, has paid
all taxes that have become due pursuant to those tax returns or otherwise, or
pursuant to any notice of deficiency, statutory notice of deficiency or notice
of administrative proceedings or proposed deficiency or assessment with respect
to KMG Sub or any of its properties from any taxing authority. There are no
outstanding agreements or waivers by or with respect to KMG Sub as a separate
entity that extend the statutory period of limitations applicable to any tax
returns required to be filed by KMG Sub as a separate entity for any period.
There are no present disputes as to taxes of any nature payable by KMG Sub. KMG
Sub is not and will not be liable for any claim for taxes of KMG or any member
of any affiliated or consolidated group of which KMG is a member.
 
3.2.14  No Investment. KMG Sub does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, or other entity.
 
3.2.15  Outstanding Commitments. Except as set forth on Exhibit G, to KMG’s
knowledge, as of the execution date of this Agreement, there are no outstanding
authorities for expenditure or other commitments to drill or rework or make
other capital expenditures with respect to the Property that require aggregate
expenditures by KMG or KMG Sub in excess of $500,000 for the particular
individual operation or project (net to KMG Sub’s interest) after the
Calculation Date.
 
3.2.16  Mortgages and Other Instruments. The transactions contemplated by this
Agreement do not violate any covenants or restrictions imposed on KMG or KMG Sub
by any bank or other financial institution in connection with a mortgage or
other instrument, and will not result in the creation or imposition of a lien on
any portion of the Property.
 
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3.2.17  Lawsuits and Claims. Except as disclosed in Exhibit C or disclosed to
W&T in writing prior to Closing, and limited by Section 3.4, to KMG’s knowledge,
there is no written demand or lawsuit, nor any compliance order, notice of
probable violation or similar governmental action, pending or threatened before
any court or governmental agency that (i) would result in a material impairment
or loss of title to any part of the Property, or substantial impairment of the
value thereof, or (ii) would materially hinder or impede the operation of any
material part of the Property.
 
3.2.18  Tax Partnerships. Except as set forth on Exhibit F, KMG represents that
(i) none of the Property operated by it is subject to any tax partnership
agreement or provisions requiring a partnership income tax return to be filed
under Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code of
1986, as amended, or any similar state statute and (ii) to its knowledge, no
other Property is subject to any such agreement or provisions.
 
3.2.19  Qualification. KMG Sub is now, or at Closing will be qualified to own
and, as applicable, operate any federal oil, gas and mineral leases, and any
oil, gas and mineral leases for all states in which the Property is located,
including meeting all bonding requirements.
 
3.2.20  Governmental Approval. KMG is unaware of any fact or circumstance which
would preclude or inhibit unconditional approval of KMG’s assignment(s) to KMG
Sub of that portion of the Property which constitutes state or federal oil, gas
and mineral leases, by any federal or state authority having
jurisdiction, including meeting existing or increased state and federal bonding
or supplemental security requirements of such authority.
 
3.2.21  Calls on Production. Except as disclosed by KMG in writing prior to the
end of the Due Diligence Period, to KMG’s knowledge, the Property is not subject
to any calls on production, hedging or any marketing arrangements which affect
KMG Sub’s ability to freely market the production from the Property, other than
contracts that are terminable by KMG Sub on 60 days or fewer notice without the
payment of any fee or penalty, or as provided in the Material Related Contracts.
 
3.2.22  Marketing. To KMG’s knowledge, other than the Cinergy Contract, and any
other Material Related Contract identified on Exhibit A, Schedule 3 under the
caption “Marketing Agreements”, there are no gas or oil purchase agreements
(excluding gathering, transportation or processing agreements) included in the
Related Contracts pertaining to production from any material portion of the
Property that cannot be cancelled with 60 or fewer days notice.
 
3.2.23  Material Related Contracts. Exhibit A, Schedule 3 sets forth all Related
Contracts of the type described below (collectively, the “Material Related
Contracts”):
 
(i)  any Related Contract that can reasonably be expected to result in aggregate
payments by KMG Sub or Surviving Entity of more than $100,000 that is not
terminable without penalty on 60 days or fewer notice during the current or any
subsequent calendar year (based solely on the terms thereof and without regard
to any expected increase in volumes or revenues, but excluding joint or unit
operating agreements);
 
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(ii)  any Related Contract that can reasonably be expected to result in
aggregate revenues to KMG Sub or Surviving Entity of more than $500,000 during
the current calendar year (based solely on the terms thereof and without regard
to any expected increase in volumes or revenues);
 
(iii)  any Hydrocarbon purchase and sale, transportation, gathering, processing
or similar contract that is not terminable without penalty on 60 days or fewer
notice;
 
(iv)  any sale-leaseback or similar contract that can reasonably be expected to
result in aggregate payments by KMG Sub or Surviving Entity of more than
$100,000 during the current or any subsequent calendar year;
 
(v)  any Related Contract that constitutes a lease under which KMG Sub is the
lessor or the lessee of real or personal property which lease (A) cannot be
terminated by KMG Sub without penalty upon 60 days or fewer notice and (B)
involves an annual base rental of more than $100,000;
 
(vi)  any Related Contract with any affiliate of KMG that will not be terminated
prior to Closing; and
 
(vii)  any farmout or farmin agreement with respect to which no interest in the
Property affected thereby has been earned, and any partnership, joint venture,
participation, exploration or area of mutual interest agreements, excluding
joint or unit operating agreements and tax partnership or area of mutual
interest provisions which may be a part thereof.
 
3.3  W&T’s Representations and Warranties. By its execution of this Agreement,
W&T represents and warrants to KMG that the following statements are true and
accurate, as of the execution date of this Agreement and the Closing Date. 
 
3.3.1  Independent Evaluation. W&T is an experienced and knowledgeable investor
in the oil and gas business. In making the decision to enter into this
Agreement, W&T has been advised by and has relied solely on its own expertise
and legal, tax, reservoir engineering and other professional counsel concerning
this merger transaction.
 
3.3.2  Qualification. Consummating the merger transaction contemplated in this
Agreement will not cause W&T or Merger Sub to be disqualified or to exceed any
acreage limitation imposed by law, statute or regulation.
 
3.3.3  Securities Laws and W&T’s Other Dealings. W&T and Merger Sub have
complied with all federal and state securities laws applicable to W&T and Merger
Sub in regard to the Merger and will comply with such laws if either
subsequently disposes of all or any part of the Property. Except for traditional
financing from reputable financial institutions, neither W&T nor Merger Sub has
not sought or solicited, nor is W&T or Merger Sub participating with, investors,
partners or other third parties in order to fund the Base Merger Consideration
or the Performance Deposit and to close this transaction, and all funds used by
W&T in connection with this transaction are W&T’s own funds.
 
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3.3.4  Merger Sub. Merger Sub is a limited liability company validly existing
and in good standing under the laws of Delaware and is duly qualified to own its
properties and to carry on its business as now being conducted.
 
3.3.5  Operator’s Bond Qualifications. W&T is unaware of any fact or
circumstance which would preclude or inhibit W&T’s or Surviving Entity’s
qualification to operate the Leases and Wells for which W&T or Surviving Entity
is seeking operatorship, including meeting the existing or increased state and
federal bonding or supplemental security requirements of any state or federal
authority having jurisdiction.
 
3.3.6  No Investment Company. Neither W&T nor Merger Sub is (i) an investment
company or a company controlled by an investment company within the meaning of
the Investment Company Act of 1940, as amended, or (ii) subject in any respect
to the provisions of that act.
 
3.3.7  W&T’s Funds. W&T has arranged or will arrange to have available by the
Closing Date sufficient funds to enable W&T to pay in full the Base Merger
Consideration as adjusted pursuant to this Agreement, and otherwise to perform
its obligations under this Agreement without financing that is subject to any
material contingency. W&T has provided KMG with a true and correct copy of the
commitment letter of TD Securities (USA) LLC dated January 20, 2006 to provide a
$1,300,000,000 senior debt facility to W&T in connection with the financing of
the Merger.
 
3.4  Limitation as to Environmental Matters. The warranties and representations
of KMG in this Article 3 do not extend to environmental matters, permits,
compliance with environmental laws and regulations, and environmental Claims
pertaining to the ownership or operation of the Property. All liabilities and
obligations of KMG and W&T with respect to environmental matters, permits,
compliance with environmental laws and regulations, and environmental Claims
pertaining to the ownership or operation of the Property will be governed solely
and exclusively by the provisions of Sections 4.2, 4.3, 5.3 and Article 8,
regardless of the warranties or representations in this Article 3.
 
3.5  Notice of Changes. Prior to Closing, KMG and W&T will each give the other
prompt written notice of any matter of which it becomes aware materially
affecting any of their representations or warranties under this Article 3 or
rendering any such warranty or representation untrue or inaccurate.
 
3.6  Representations and Warranties Exclusive. ALL REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION THOSE IN
THIS ARTICLE 3) ARE EXCLUSIVE, AND ARE GIVEN IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, ALL OF WHICH ARE EXPRESSLY
DISCLAIMED.
 
ARTICLE 4
DISCLAIMER OF WARRANTIES
 
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4.1  Permits and Easements. KMG HAS HERETOFORE CONVEYED THE PROPERTY TO KMG SUB
SUBJECT TO ALL ROYALTIES, OVERRIDING ROYALTIES, BURDENS, ENCUMBRANCES, AND
SURFACE RIGHTS, AND (EXCEPT FOR THE SPECIAL WARRANTY OF TITLE IN THE
CONVEYANCING DOCUMENTS) WITHOUT WARRANTY OF TITLE, EXPRESS OR IMPLIED.
SPECIFICALLY WITH RESPECT TO THE PERMITS AND EASEMENTS, KMG EXPRESSLY DISCLAIMS,
AND W&T HEREBY WAIVES, ALL WARRANTIES AND REPRESENTATIONS THAT KMG OR KMG SUB
OWNS THE PERMITS AND EASEMENTS, THAT THEY ARE IN FORCE AND EFFECT; THAT THEY MAY
BE ASSIGNED; THAT THEY ARE CONTIGUOUS; THAT THE EQUIPMENT LIES WITHIN THE
PERMITS AND EASEMENTS; OR THAT THEY GRANT THE RIGHT TO LAY, MAINTAIN, REPAIR,
REPLACE, OPERATE, CONSTRUCT, OR REMOVE THE EQUIPMENT. KMG EXPRESSLY DISCLAIMS,
AND W&T HEREBY WAIVES, ALL WARRANTIES AND REPRESENTATIONS THAT THERE ARE ANY
PERMITS AND EASEMENTS IN FORCE AND EFFECT WITH RESPECT TO THE EQUIPMENT. If
necessary, W&T or Surviving Entity shall secure its own rights to operate and
maintain the Equipment on the lands of others at its own expense.
 
4.2  Condition and Fitness of the Property. KMG HAS HERETOFORE CONVEYED THE
PROPERTY TO KMG SUB WITHOUT ANY, AND EXCEPT AS SET FORTH IN THIS AGREEMENT
HEREBY DISCLAIMS ANY, EXPRESS, STATUTORY OR IMPLIED WARRANTY OR REPRESENTATION
OF ANY KIND, INCLUDING WARRANTIES RELATING TO (i) THE CONDITION OR
MERCHANTABILITY OF THE PROPERTY, (ii) THE FITNESS OF THE PROPERTY FOR A
PARTICULAR PURPOSE, (iii) (EXCEPT FOR THE SPECIAL WARRANTY OF TITLE IN THE
CONVEYANCING DOCUMENTS) TITLE TO ANY OF THE PROPERTY, (iv) THE CONTENTS,
CHARACTER OR NATURE OF ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR
ANY ENGINEERING, GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE
PROPERTY, (v) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN
OR MARKETABILITY OF THE PROPERTY, (vi) THE CONTENT, CHARACTER OR NATURE OF ANY
INFORMATION MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY KMG
OR THIRD PARTIES WITH RESPECT TO THE PROPERTY, (vii) ANY OTHER MATERIALS OR
INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE TO W&T OR ITS AFFILIATES, OR ITS
OR THEIR EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY
DISCUSSION OR PRESENTATION RELATING THERETO AND (viii) ANY IMPLIED OR EXPRESS
WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT. EXCEPT AS EXPRESSLY
SET FORTH IN THIS AGREEMENT, KMG FURTHER DISCLAIMS ANY REPRESENTATION OR
WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF FREEDOM FROM LATENT VICES OR DEFECTS
OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY PROPERTY OR RIGHTS OF A
PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR
RETURN OF THE PURCHASE PRICE. BEFORE CLOSING, W&T WILL INSPECT OR WILL HAVE BEEN
GIVEN THE OPPORTUNITY TO INSPECT, THE PROPERTY AND SUBJECT TO W&T’s RIGHTS UNDER
ARTICLE 5, AGREES TO CONSUMMATE THIS MERGER TRANSACTION, INCLUDING ACCEPTANCE OF
THE PROPERTY NOW OWNED BY KMG SUB “AS IS,”“WHERE IS,” AND “WITH ALL FAULTS” AND
IN ITS PRESENT CONDITION AND STATE OF REPAIR. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, KMG MAKES NO REPRESENTATION OR WARRANTY AS TO (i) THE VALUE,
QUALITY, QUANTITY, VOLUME OR DELIVERABILITY OF ANY OIL, GAS OR OTHER MINERALS OR
RESERVES (IF ANY) IN, UNDER OR ATTRIBUTABLE TO THE PROPERTY PREVIOUSLY CONVEYED
TO KMG SUB (INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND
RECOMPLETION OR DRILLING OPPORTUNITIES), (ii) GAS BALANCING OR PAYOUT ACCOUNT
INFORMATION, ALLOWABLES, OR OTHER REGULATORY MATTERS, (iii) EXCEPT AS EXPRESSLY
SET FORTH IN SECTIONS 3.2.12 OR 3.2.17 OF THIS AGREEMENT, THE PHYSICAL,
OPERATING OR REGULATORY COMPLIANCE OF THE PROPERTY, (iv) ANY MATTER OR
CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE
ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE
ENVIRONMENT OR ANY OTHER ENVIRONMENTAL CONDITION OF THE PROPERTY, (v)
PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR, or (vi) THE GEOLOGICAL
OR ENGINEERING CONDITION OF THE PROPERTY OR ANY VALUE THEREOF; PROVIDED,
HOWEVER, THE FOREGOING DISCLAIMERS SHALL NOT DIMINISH OR PREJUDICE W&T’S RIGHTS
AND REMEDIES UNDER ARTICLE 5 OR SECTIONS 8.4, 8.12 OR 11.1.
 
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4.3  Information About the Property. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, THE PARTIES EACH DISCLAIM ALL LIABILITY AND RESPONSIBILITY FOR ANY
REPRESENTATION, WARRANTY, STATEMENTS OR COMMUNICATIONS (ORALLY OR IN WRITING) TO
THE OTHER PARTY (INCLUDING, BUT NOT LIMITED TO, ANY INFORMATION CONTAINED IN ANY
OPINION, INFORMATION, OR ADVICE THAT MAY HAVE BEEN PROVIDED TO ANY SUCH PARTY BY
ANY EMPLOYEE, OFFICER, DIRECTOR, AGENT, CONSULTANT, ENGINEER OR ENGINEERING
FIRM, TRUSTEE, REPRESENTATIVE, PARTNER, MEMBER, BENEFICIARY, STOCKHOLDER OR
CONTRACTOR OF SUCH DISCLAIMING PARTY OR ITS AFFILIATES) WHEREVER AND HOWEVER
MADE, INCLUDING THOSE MADE IN ANY DATA ROOM AND ANY SUPPLEMENTS OR AMENDMENTS
THERETO OR DURING ANY NEGOTIATIONS WITH RESPECT TO THIS AGREEMENT OR ANY
CONFIDENTIALITY AGREEMENT PREVIOUSLY EXECUTED BY THE PARTIES WITH RESPECT TO
THIS TRANSACTION. KMG MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
AS TO THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION OR
RECORDS FURNISHED TO W&T IN CONNECTION WITH THIS TRANSACTION. ANY DATA,
INFORMATION OR OTHER RECORDS FURNISHED BY KMG ARE PROVIDED TO W&T AS A
CONVENIENCE AND W&T’S RELIANCE ON OR USE OF THE SAME IS AT W&T’S SOLE RISK.
 
4.4  Subrogation of Warranties. To the extent transferable, KMG has given and
granted to KMG Sub, its successors and assigns full power and right of
substitution and subrogation in and to all covenants and warranties (including
warranties of title) by preceding owners, vendors, or others, given or made with
respect to the Property or any part thereof prior to the Calculation Date of
this Agreement.
 
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ARTICLE 5
DUE DILIGENCE REVIEW 
 
5.1  Records Review. To allow W&T to confirm KMG’s and KMG Sub’s title to the
Property and conduct other due diligence with respect to this merger
transaction, for a period of thirty (30) days following execution of this
Agreement (the “Due Diligence Period”), KMG shall make available to W&T, and
W&T’s authorized representatives, at mutually agreeable times before Closing,
during normal business hours, all corporate minute books for KMG Sub, and all
contract, lease, Environmental Health & Safety Department records and
operational records, to the extent such data and records are in KMG’s possession
and relate to the Property. With KMG’s permission, W&T may photocopy such
records at its sole expense. W&T shall keep confidential all information made
available to W&T until the Closing Date. The Confidentiality Agreement (as
defined in Section 5.3.2) will continue in force until the Closing Date. W&T
shall take all reasonable steps necessary to ensure that W&T’s authorized
representatives and financing sources comply with the provisions of this Section
5.1 and any confidentiality agreement with any third party in effect to which
KMG or KMG Sub is a party and which has been provided to W&T for review.
 
5.2  Physical Inspection. Before Closing, (i) with respect to that portion of
the Property operated by KMG or KMG Sub, KMG will permit W&T and its
representatives, at their sole risk and expense, to conduct reasonable
inspections of the Property at times approved by KMG, and (ii) with respect to
that portion of the Property not operated by KMG or KMG Sub, KMG will attempt to
obtain access to the Property, in accordance with the applicable operating
agreements, for W&T and its representatives, at their sole risk and expense, to
conduct reasonable inspections of the Property subject to the terms and
conditions required by the operator of the Property and, in the case of clause
(i) and (ii) of this sentence, subject to execution by W&T or any W&T
representatives of the Access and Indemnification Agreement attached hereto as
Exhibit I with respect to any Property operated by KMG, or a customary access
and indemnification agreement if required by a third party operator, as
applicable. W&T shall repair any damage to the Property resulting from its
inspection and shall INDEMNIFY, DEFEND AND HOLD KMG HARMLESS from and against
any and all Claims arising from W&T inspecting and observing the Property and
KMG’s and KMG Sub’s records pursuant to this Article 5, including, without
limitation, (i) Claims for personal injuries to or death of employees of the
W&T, its contractors, agents, consultants, representatives and invitees, and
damage to the property of W&T or others acting on behalf of W&T, regardless of
whether such Claims arise out of or result in whole or in part, from the
condition of the Property or KMG’s and KMG Sub’s (or their employees’, agents’,
contractors’, successors’ or assigns’) sole or concurrent negligence, strict
liability or fault, and (ii) Claims for personal injuries to or death of
employees of KMG and KMG Sub or third parties, and damage to the property of KMG
and KMG Sub or third parties, to the extent caused by the negligence, gross
negligence or willful misconduct of W&T.
 
5.3  Environmental Assessment.
 
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5.3.1  Inspection. Prior to Closing, W&T will have the right to conduct a Phase
I environmental assessment of the Property, subject to the terms set forth in
Section 5.2. However, the Phase I environmental assessment must be conducted by
an agent or representative of W&T (the “Inspector”) acceptable to both KMG and
W&T. For purposes of this Agreement, a “Phase I environmental assessment” means
(i) a review of KMG’s or KMG Sub’s and the government’s environmental records
related to the Property, (ii) the submission of pre-inspection questionnaires to
KMG, (iii) a site visit to visually inspect the Property, and (iv) interviews
with corporate and site personnel of KMG. A Phase I environmental assessment
does not include soil or groundwater sampling or effluent sampling or testing or
subsurface testing of any kind, unless otherwise agreed in writing by KMG and
W&T.
 
5.3.2  Inspection Results. Each party will be entitled to receive a copy of the
Inspector’s final Phase I inspection results for the Property, including without
limitation all final written reports, data and conclusions of the Inspector. W&T
agrees to hold confidential and not disclose the Phase I inspection results for
the Property, and any KMG or KMG Sub information reviewed during the Phase I
Inspection, in accordance with the terms of the Confidentiality Agreement
between W&T and KMG dated July 12, 2005 (the “Confidentiality Agreement”). If
Closing does not occur, W&T shall promptly return to KMG all written reports,
data and conclusions of the Inspector.
 
5.3.3  Notice of Adverse Environmental Conditions.
 
5.3.3.1  Prior to Closing, W&T will review the inspection results for the
Property and determine, based on those results and such other information as may
be available to W&T if any Adverse Environmental Conditions exist with respect
to the Property. No later than twenty (20) business days before Closing (the
“Environmental Notice Deadline”), W&T will notify KMG in writing of any Adverse
Environmental Condition with respect to the Property. Such notice shall describe
in reasonable detail the Adverse Environmental Condition, include all data and
information in W&T’s and the Inspector’s possession or control bearing thereon,
and include the estimated Environmental Defect Value attributable thereto. The
“Environmental Defect Value” attributable to any Adverse Environmental Condition
will be the estimated amount of all reasonable costs and Claims net to KMG Sub’s
interest in the allegedly affected portion of the Property associated with the
existence, remediation or correction of the Adverse Environmental Condition, as
reasonably determined and estimated by the Inspector on a current cost basis.
“Adverse Environmental Condition” means and includes, with respect to any
portion of the Property (i) the failure of the Property to be in compliance with
applicable Environmental Laws, or any contract or agreement relating to the
environmental condition of the Property (except to the extent such noncompliance
with an agreement or contract was previously waived by the other party or is
barred by the statute of limitations or the current owner of the Property does
not have standing to assert a claim for noncompliance), (ii) the Property being
subject to any agreements, consent orders, decrees, or judgments, in existence
at this time based on any Environmental Laws that negatively impact the future
use of any material portion of the Property, or that require any change in the
present conditions of any of the Property, and (iii) the Property being subject
to any uncured notices of violations of or noncompliance with any applicable
Environmental Laws; provided, however, that no individual matter shall be deemed
to be or constitute an Adverse Environmental Condition unless the Environmental
Defect Value for such matter exceeds $25,000, net to KMG Sub’s interest in the
allegedly affected portion of the Property. The term “Environmental Laws” means
any statute, law, ordinance, rule, regulation, code, order, judicial writ,
injunction, or decree issued by any federal, state, or local governmental
authority as in effect on or before the Calculation Date relating to the control
of any pollutant or protection of the air, water, land or environment or the
release or disposal of hazardous materials, hazardous substances or waste
materials. KMG will notify W&T of any Adverse Environmental Conditions of which
it becomes aware between execution of this Agreement and the Closing. However,
such notice shall not entitle W&T to give KMG any additional notices of Adverse
Environmental Conditions based thereon after the Environmental Notice Deadline.
 
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5.3.3.2  If the parties are unable to agree upon the Environmental Defect Value
for a particular Adverse Environmental Condition within fifteen (15) days prior
to Closing, after having attempted in good faith to resolve the disagreement by
negotiation between management level persons having authority to resolve the
disagreement, then the disputed matters shall be submitted to a mutually agreed
independent expert (“Environmental Referee”). The costs and expenses of the
Environmental Referee shall be shared equally by W&T and KMG. Subject to
Section 6.3, the decision of the Environmental Referee regarding the amount of
the Environmental Defect Value shall be binding on both parties.
 
5.3.4  Rights and Remedies for Environmental Conditions.
 
5.3.4.1  With respect to any Adverse Environmental Condition affecting the
Property, W&T may request KMG to cure the Adverse Environmental Condition, but
KMG will have no obligation to cure the Adverse Environmental Condition.
 
5.3.4.2  The rights and remedies of the Parties with respect to uncured Adverse
Environmental Conditions on the Property (other than Adverse Environmental
Conditions that KMG has agreed to cure) are as follows:
 
(i)  If the collective Environmental Defect Values attributable to all uncured
Adverse Environmental Conditions is less than or equal to 1.5% of the Base
Merger Consideration (the “ED Deductible Amount”), the Parties will be obligated
to proceed with Closing without curative action by KMG with respect to such
Adverse Environmental Conditions and without an adjustment to the Base Merger
Consideration, except as provided in clause (ii) below.
 
(ii)  If an uncured Adverse Environmental Condition for an individual matter has
an Environmental Defect Value in excess of $5 million, net to KMG Sub’s interest
in the allegedly affected portion of the Property, the Base Merger Consideration
will be reduced by the amount of the Environmental Defect Value in excess of $5
million, and the parties will be obligated to proceed with Closing without
curative action by KMG.
 
(iii)  If the collective Environmental Defect Values attributable to all uncured
Adverse Environmental Conditions exceeds the ED Deductible Amount, the Base
Merger Consideration will be reduced by the amount of the collective
Environmental Defect Values in excess of the ED Deductible Amount, to the extent
such reduction has not been taken into account under clause (ii), and the
parties will be obligated to proceed with Closing without curative action by
KMG.
 
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5.3.4.3  The term “cure” or “curative” means, with respect to any Adverse
Environmental Condition, the undertaking and completion of those actions and
activities necessary to remediate such Adverse Environmental Condition to the
degree necessary such that such Adverse Environmental Condition no longer
constitutes an Adverse Environmental Condition as defined above. KMG shall
promptly notify W&T at such time as it believes an Adverse Environmental
Condition has been cured. W&T shall promptly notify KMG of whether it agrees
such condition is cured. If W&T fails to notify KMG of its determination with
respect to such cure within seven (7) days following receipt of KMG’s notice,
such Adverse Environmental Condition shall be deemed cured. If KMG and W&T are
unable to agree that an Adverse Environmental Condition has been cured, after
having attempted in good faith to resolve the disagreement by negotiation
between management level persons having authority to resolve the disagreement,
then the disputed matter shall be submitted to the Environmental Referee, whose
decision will be binding on both parties.
 
5.3.4.4  If KMG refuses or is unable to cure an Adverse Environmental Condition
before Closing, KMG may notify W&T that KMG elects to retain the affected
portion of the Property and cause KMG Sub to re-convey such portion of the
Property to KMG prior to Closing. In such case, the Environmental Defect Value
for such portion of the Property for purposes of Section 5.3.4.2
(notwithstanding clause (ii) or (iii) thereof) shall be determined to be an
amount which is mutually agreed upon by KMG and W&T (the “Agreed Value”). If KMG
fails to give notice of KMG’s election to retain such portion of the Property
within the time allowed therefor, KMG and W&T will have the rights and remedies
set forth in Section 5.3.4.2 with respect to the uncured Adverse Environmental
Condition, unless the parties otherwise agree in writing.
 
5.3.5  Exclusive Remedies. Except as provided in Section 8.4.4, the remedies set
forth in this Section 5.3 are the sole and exclusive remedies of W&T with
respect to any Adverse Environmental Condition (and all Environmental
Obligations arising out of any such Adverse Environmental Condition)
attributable to KMG’s or KMG Sub’s ownership, operation or the condition of the
Property prior to the Calculation Date, regardless of whether W&T notifies KMG
of any such Adverse Environmental Condition. KMG shall have no liability to W&T
for any such Adverse Environmental Condition (or its related Environmental
Obligations) if W&T fails to notify KMG as provided in Section 5.3.3.
 
5.4  Bonding.
 
5.4.1  Bonding Requirements. W&T agrees to, or cause Surviving Entity to,
promptly purchase and post, and to maintain in accordance with applicable laws,
any and all bonds, supplemental bonds or other securities on behalf of Surviving
Entity which may be required of it pursuant to all applicable federal and state
laws, rules and regulations.
 
5.5  Preferential Rights and Consents to Assign.
 
5.5.1  Notices to Holders.
 
5.5.1.1  With respect to any portion of the Property as to which the conveyance
to KMG Sub pursuant to the Contribution Agreement (as defined in Section 8.4.1),
or the Merger transaction contemplated herein, may trigger third party
preferential purchase rights, rights of first refusal, or similar rights
(collectively, “Preferential Rights”), or may require third party consents to
assign or trigger similar rights (collectively, “Consents”), KMG shall use
reasonable efforts to (i) notify the holders of the Preferential Rights and
Consents of the proposed transaction, (ii) provide them with any information
about the transaction to which they are entitled (including the portion of the
Base Merger Consideration allocated by the parties to the affected portion of
the Property, as set forth in Exhibit A, Schedule 4, provided that the parties
have allocated a portion of the Base Merger Consideration to such portion of the
Property, and otherwise such portion of the Base Merger Consideration as
mutually agreed upon by KMG and W&T), and (iii) in the case of Consents, ask the
holders of the Consents to consent to the transaction.
 
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5.5.1.2  KMG shall promptly notify W&T whether (i) any Preferential Rights are
exercised or waived, (ii) any Consents are denied, or (iii) the requisite time
periods have elapsed and any Preferential Rights are deemed waived or Consents
deemed given by the lapse of such requisite time periods under the applicable
agreements.
 
5.5.2  Remedies After Closing.
 
5.5.2.1  Preferential Rights. After Closing, if KMG or W&T discovers, or any
third party has alleged or alleges, the existence of Preferential Rights, KMG
and W&T will attempt to obtain waivers of those Preferential Rights. If KMG and
W&T are unable to obtain waivers of such Preferential Rights, and such
Preferential Rights are not deemed waived, or the third party ultimately
establishes and exercises its rights, then W&T shall convey such Property or
portion of such Property to the third party holder of the Preferential Rights
and W&T shall be entitled to receive (and KMG hereby assigns to W&T all of KMG’s
rights to) all proceeds to be received from such third party, in connection with
the sale, due to an exercise of Preferential Rights, of any portion of the
Property. W&T’s receipt of proceeds from the sale of the affected Property shall
be W&T’s sole remedy if Preferential Rights are established and exercised after
Closing.
 
5.5.2.2  Consents. After Closing, KMG and W&T shall cooperate and attempt to
obtain any unobtained Consents, including Consents alleged by third parties or
identified after Closing.
 
5.6  Title Defects.
 
5.6.1  Certain Definitions.
 
5.6.1.1  Title Defects. For the purposes of this Agreement, a “Title Defect”
means any impairment, encumbrance, lien, encroachment, irregularity, defect in,
default, objection or dispute concerning KMG’s and KMG Sub’s title to the
Property, and that in the reasonable opinion of W&T would:
 
(i)  Reduce, impair or prevent KMG Sub from receiving payment for sales of
Hydrocarbons from the purchasers of production and/or the operator from all or a
portion of the Property;
 
(ii)  Reduce KMG Sub’s net revenue interest in all or a portion of the Property
below that attributable thereto and set forth in the applicable Schedule to
Exhibit A;
 
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(iii)  Increase KMG Sub’s working interest in all or a portion of the Property
above that attributable thereto and set forth in the applicable Schedule to
Exhibit A without a proportional increase in KMG Sub’s net revenue interest
therein; or
 
(iv)  Restrict, interfere with or extinguish KMG Sub’s right to operate, market
Hydrocarbons from (excluding Material Related Contracts) or use the Property as
owner, lessee, licensee or permittee, as applicable.
 
Notwithstanding the foregoing, no individual matter described above shall be
deemed to be or constitute a Title Defect unless the Title Defect Value for such
matter exceeds $25,000, net to KMG Sub’s interest in the affected portion of the
Property, and no Adverse Environmental Condition, Imbalances, Permitted
Encumbrances, Consents or Preferential Rights will be considered a Title Defect
under this Section 5.6.
 
The parties acknowledge that lack of MMS approval of the assignment of all of
the Leases into KMG Sub shall not be considered a Title Defect, but shall be
treated as a condition to Closing pursuant to clause (c) of Section 6.2.2.
 
5.6.1.2  Permitted Encumbrances. The term “Permitted Encumbrances” means:
 
(i)  Any materialman’s, mechanics’, repairman’s, employees’, contractors’,
operators’, or other similar liens, security interests or charges for liquidated
amounts arising in the ordinary course of business incidental to construction,
maintenance, development, production or operation of the Property, or the
production or processing of Hydrocarbons therefrom, that are not delinquent or,
if delinquent, are being contested in good faith by appropriate proceedings;
 
(ii)  Any liens for taxes not yet delinquent or, if delinquent, that are being
contested in good faith by appropriate proceedings;
 
(iii)  Any liens or security interests created by law or reserved in oil, gas
and/or mineral leases for royalty, bonus or rental or for compliance with the
terms of any Property;
 
(iv)  Any third party easements, rights-of-way, servitudes, permits, licenses,
surface leases and other rights with respect to surface operations, to the
extent such matters do not interfere in any material respect with KMG Sub’s
operation of the portion of the Property burdened thereby;
 
(v)  The Preferential Rights and Consents referred to in Section 5.5.1, and
other preferential purchase rights, consent to assignment provisions and similar
restrictions that may apply with respect to any sale, transfer or other
disposition of any Property by Surviving Entity after the Closing;
 
(vi)  liens created under any Leases and/or operating agreements or by operation
of law in respect of obligations that are not yet due or that are being
contested in good faith by appropriate proceedings by or on behalf of KMG;
 
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(vii)  any encumbrance affecting the Property which is expressly assumed, bonded
or paid by W&T at or prior to Closing or which is discharged by KMG at or prior
to Closing;
 
(viii)  the terms and conditions of the Leases and the Material Related
Contracts;
 
(ix)  such Title Defects as W&T may have waived;
 
(x)  rights of a common owner of any interest in rights of way or easements
currently held by KMG and such common owner as tenants in common or through
common ownership;
 
(xi)  All royalties, overriding royalties, net profits interests, carried
interests, reversionary interests and other burdens, to the extent that the net
cumulative effect of such burdens, as to a particular Property, does not operate
to reduce the net revenue interest of KMG Sub in such Property below that
specified in the applicable Schedule to Exhibit A;
 
(xii)  Conventional rights of reassignment arising upon surrender or abandonment
of any Property pursuant to joint operating agreements;
 
(xiii)  Rights reserved to or vested in any governmental authority to control or
regulate any of the Wells or Units included in the Property and all applicable
laws, rules, regulations and orders of such authorities so long as the same have
not been applied to decrease KMG Sub’s net revenue interest below the net
revenue interest specified in the applicable Schedule to Exhibit A; and
 
(xiv)  all other instruments, obligations, defects, and irregularities affecting
the Property that individually or in the aggregate are not such as to materially
interfere with the operation or use of any of the Property (as currently owned
and operated), do not reduce the net revenue interest of KMG in any Property to
an amount less than the net revenue interest set forth on the applicable
Schedule to Exhibit A for such Property and do not obligate KMG to bear a
working interest for such Property in any amount greater than the working
interest set forth on the applicable Schedule to Exhibit A for such Property
(unless the net revenue interest for such Property is greater than the net
revenue interest set forth on the applicable Schedule to Exhibit A in the same
proportion as any increase in such working interest).
 
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5.6.2  Notice of Title Defects. W&T will review title to the Property prior to
Closing and notify KMG in writing of any Title Defect it discovers as soon as
reasonably practicable after its discovery, but in no event more than three (3)
business days after conclusion of the Due Diligence Period. Such notice shall
describe in reasonable detail the Title Defect, including W&T’s calculation of
the Adjustment Value of the Leases(s) or Unit(s) affected by the Title Defect,
W&T’s calculation of the reduction in the Base Merger Consideration for the
Title Defect (the “Title Defect Value”), and include all data and information in
W&T’s possession or control bearing thereon. The Title Defect Value resulting
from a Title Defect shall be the amount by which the Adjustment Value of the
affected part(s) of the Property (the “Title Defect Property”) is reduced as a
result of the existence of such Title Defect. The Title Defect Value shall be
determined in accordance with the following terms and conditions: (i) if W&T and
KMG agree on the Title Defect Value, then that amount shall be the Title Defect
Value; (ii) if the Title Defect is an Encumbrance that is undisputed and
liquidated in amount, then the Title Defect Value shall be the amount necessary
to be paid to remove the Title Defect from the Title Defect Property; (iii) if
the Title Defect represents a discrepancy between (A) the net revenue interest
for any Title Defect Property and (B) the net revenue interest stated in the
applicable Schedule to Exhibit A, then the Title Defect Value shall be the
product of the Adjustment Value of such Property, or part thereof, multiplied by
a fraction, the numerator of which is the net revenue interest decrease and the
denominator of which is the net revenue interest stated in the applicable
Schedule to Exhibit A; (iv) if the Title Defect represents an obligation or
Encumbrance upon or other defect in title to the Title Defect Property of a type
not described above, the Title Defect Value shall be determined by taking into
account the Adjustment Value of the Title Defect Property, the portion of the
Title Defect Property affected by the Title Defect, the legal effect of the
Title Defect, the potential economic effect of the Title Defect over the life of
the Title Defect Property, the values placed upon the Title Defect by W&T and
KMG and such other reasonable factors as are necessary to make a proper
evaluation; (v) the Title Defect Value with respect to a Title Defect Property
shall be determined without duplication of any costs or losses included in
another Title Defect Value calculation hereunder; and (vi) notwithstanding
anything to the contrary in this Section 5.6, the aggregate Title Defect Values
attributable to the effects of all Title Defects upon any Title Defect Property
shall not exceed the value of the Title Defect Property.
 
5.6.3  Waiver of Title Defects. W&T will be deemed to have conclusively waived
any Title Defect about which it fails to notify KMG in writing within three (3)
business days after the conclusion of the Due Diligence Period.
 
5.6.3.1  Disputes Regarding Title Defect Value. If the parties are unable to
agree upon the Title Defect Value for a particular Title Defect within fifteen
(15) days prior to Closing, after having attempted in good faith to resolve the
disagreement by negotiation between management level persons having authority to
resolve the disagreement, then the disputed matters shall be submitted to a
mutually agreed upon independent expert (“Title Referee”). The costs and
expenses of the Title Referee shall be shared equally by W&T and KMG and the
decision of the Title Referee regarding the amount of the Title Defect Value
shall be binding on both parties.
 
5.6.4  Request to Cure Title Defects. If W&T notifies KMG of a Title Defect as
provided in Section 5.6.2, W&T may request KMG to cure the Title Defect, but KMG
will have no obligation to cure any Title Defect. If KMG agrees to attempt to
cure a Title Defect, KMG must cure the Title Defect before Closing, unless the
parties otherwise agree in writing.
 
5.6.5  Remedies for Uncured Title Defects. If W&T notifies KMG of any Title
Defect as provided in Section 5.6.2, and KMG refuses or is unable to cure the
Title Defect before Closing, then W&T and KMG will have the following rights and
remedies with respect to the uncured Title Defect(s) in the Property, unless the
parties otherwise agree in writing.
 
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(i)  W&T may waive the uncured Title Defect and proceed with Closing without
adjustment to the Base Merger Consideration.
 
(ii)  KMG may elect to retain the affected portion of the Property and cause KMG
Sub to reconvey such portion of the Property to KMG prior to the Closing. In
such case, the Title Defect Value for such portion of the Property for purposes
of clause (iii) below shall be the Agreed Value.
 
(iii)  If the collective Title Defect Values of uncured, unwaived Title Defects
are less than or equal to 1.5% of the Base Merger Consideration (the “TD
Deductible Amount”), KMG and W&T will be obligated to proceed with Closing
without curative action by KMG with respect to such Title Defects and without
adjustment to the Base Merger Consideration.
 
(iv)  If the collective Title Defect Values of uncured, unwaived Title Defects
exceeds the TD Deductible Amount, the Base Merger Consideration will be reduced
by the amount of the collective Title Defect Values in excess of the TD
Deductible Amount, in which case the parties will be obligated to proceed with
Closing without curative action by KMG.
 
5.6.6  Exclusive Remedy. The remedies set forth in this Section 5.6 are W&T’s
exclusive remedies under this Agreement for all Title Defects, and KMG shall
have no other liability to W&T with respect to Title Defects.
 
5.6.7  Interest Additions. If it is determined prior to Closing that KMG Sub
owns a net revenue interest in any of the Property that is greater than the net
revenue interest set forth in Exhibit A, Schedule 1 (a “NRI Increase”), the
parties shall use their best efforts to reach mutual agreement regarding an
upward adjustment to the Base Merger Consideration on account of the NRI
Increase using the principles applicable to the calculation of Title Defect
Values set forth in Section 5.6.2 (such value being referred to as “NRI Value”).
If the parties are unable to agree on the amount of the upward adjustment,
Closing shall nevertheless occur and the dispute shall be resolved by the Title
Referee, after the parties have made a good faith attempt to resolve the dispute
by negotiation between management level persons having authority to settle the
dispute. The Title Referee’s decision on such matter shall be binding upon both
parties. Notwithstanding the foregoing, no individual matter described above
shall be deemed to be or constitute an NRI Increase unless the NRI Value for
such matter exceeds $25,000, net to KMG Sub’s interest in the affected portion
of the Property. If the collective NRI Values are less than or equal to 1.5% of
the Base Merger Consideration, KMG and W&T will be obligated to proceed with
Closing without adjustment to the Base Merger Consideration.

 
5.7  Casualty Losses and Government Takings.
 
5.7.1  Notice of Casualty Losses. If, prior to the Closing Date, all or part of
the Property is damaged or destroyed by fire, flood, storm, or other casualty
(“Casualty Loss”), or is taken in condemnation or under the right of eminent
domain, or if proceedings for such purposes shall be pending or threatened
(“Government Taking”), KMG must promptly notify W&T in writing of the nature and
extent of the Casualty Loss or Government Taking and KMG’s estimate of the cost
required to repair or replace that portion of the Property affected by the
Casualty Loss or value of the Property taken by the Government Taking.
 
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5.7.2  Remedies for Casualty Losses and Government Takings. With respect to each
Casualty Loss to or Government Taking of the Property, KMG and W&T will have the
following rights and remedies:
 
(i)  If the aggregate agreed cost to repair or replace the portion of the
Property affected by the Casualty Loss is less than the Applicable Deductible,
the Base Merger Consideration will not be adjusted, and the parties will proceed
with Closing. As used herein, the “Applicable Deductible” is (a) if KMG Sub’s
working interest in the affected portion of the Property is between 50% and
100%, $5 million, (b) if KMG Sub’s working interest in the affected portion of
the Property is between 40% and 49.99%, $4 million, (c) if KMG Sub’s working
interest in the affected portion of the Property is between 30% and 39.99%, $3
million, (d) if KMG Sub’s working interest in the affected portion of the
Property is between 20% and 29.99%, $2 million and (e) if KMG Sub’s working
interest in the affected portion of the Property is greater than 0% but less
than 20%, $1 million. If the Adjustment Value of the portion of the Property
taken in any Government Taking is less than 2% of the Base Merger Consideration,
the Base Merger Consideration will not be adjusted by the aggregate Adjustment
Value of the Property taken by the Government Taking, and the parties will
proceed with Closing.
 
(ii)  If the aggregate agreed cost to repair or replace the portion of the
Property affected by the Casualty Loss is greater than the Applicable
Deductible, the Base Merger Consideration will be reduced by the aggregate
amount of the agreed cost of the Casualty Loss in excess of the Applicable
Deductible, and the parties will proceed with Closing. If the Adjustment Value
of the Property taken in any Government Taking is greater than 2% of the Base
Merger Consideration, the Base Merger Consideration will be reduced by the
aggregate amount of the Adjustment Value of the Property taken by the Government
Taking in excess of 2% of the Base Merger Consideration, and the parties will
proceed with Closing.
 
5.7.3  Insurance Proceeds and Settlement Payments. If KMG and W&T adjust the
Base Merger Consideration of the Property due to a Casualty Loss or Government
Taking, and proceed with Closing, KMG will be entitled to (i) all insurance
proceeds payable to KMG with respect to any such Casualty Loss, (ii) all sums
paid to KMG or W&T by third parties by reason of any such Casualty Loss, and
(iii) all compensation paid to KMG or W&T with respect to any such Government
Taking. If KMG and W&T do not adjust the Base Merger Consideration of the
Property due to a Casualty Loss or Government Taking and proceed with Closing,
KMG will remit to W&T without recourse to KMG (i) all insurance proceeds payable
to KMG with respect to any such Casualty Loss, (ii) all sums paid to KMG by
third parties by reason of any such Casualty Loss, and (iii) all compensation
paid to KMG with respect to any such Government Taking.
 
5.7.4  Change in Condition. W&T will assume all risk and loss with respect to,
and any change in the condition of the Property from and after the Calculation
Date, including production of Hydrocarbons through normal depletion, the
watering-out, casing collapse or sand infiltration of any well, and the
depreciation of personal property through ordinary wear and tear. None of the
events or conditions set forth in this Section 5.7.4 will be considered a
Casualty Loss with respect to the Property, nor will they be cause for any other
reduction in the Base Merger Consideration, or give rise to any right to
terminate this Agreement.
 
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ARTICLE 6
CLOSING AND POST-CLOSING OBLIGATIONS
 
6.1  Closing Date. The closing of the Merger is referred to as the “Closing” and
shall be held the later of (i) 9:00 a.m. local time at KMG’s offices located in
Houston, Texas on March 31, 2006, and (ii) within ten (10) days after written
notice from KMG to W&T (the “Closing Notice”) that KMG has received notice from
the MMS and, where applicable, the State of Louisiana that the transfer of all
of the Leases from KMG to KMG Sub has been approved by the MMS and, where
applicable, the State of Louisiana (“Closing Date”). Time is of the essence in
the performance of this Agreement. All events of Closing shall each be deemed to
have occurred simultaneously with the other, regardless of when actually
occurring, and each shall be a condition precedent to the other. If the Closing
occurs, all conditions of Closing shall be deemed to have been satisfied or
waived (but KMG’s and W&T’s warranties and representations shall not be waived
and shall survive the Closing, to the extent provided in Section 11.4).
 
6.2  Conditions to Closing. KMG and W&T will use commercially reasonable efforts
to satisfy their respective conditions to Closing set forth in this Section 6.2
prior to the Closing Date. KMG and W&T will not be obligated to close the
transaction described in this Agreement unless each of the conditions to its
performance set forth in this Section 6.2 is satisfied prior to Closing, or it
waives in whole or part any such condition to its performance that is
unsatisfied at Closing. 
 
6.2.1  Representations and Warranties.
 
(i)  KMG will not be obligated to close if, as of the Closing Date, the
representations and warranties in this Agreement by W&T are not, taken as a
whole, true and accurate in all material respects.
 
(ii)  W&T will not be obligated to close if, as of the Closing Date, the
representations and warranties in this Agreement by KMG are not, taken as a
whole, true and accurate in all material respects.
 
6.2.2  Performance of Obligations.
 
(a)  KMG will not be obligated to close if, as of the Closing Date, W&T has not
performed in all material respects all obligations under this Agreement that W&T
is required to perform on or before Closing.
 
(b)  W&T will not be obligated to close if, as of the Closing Date, KMG has not
performed in all material respects all obligations under this Agreement that KMG
is required to perform on or before Closing.
 
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(c)  W&T will not be obligated to close if, as of the Closing Date, approval by
the MMS of the assignment of all of the Leases from KMG to KMG Sub has not been
received by KMG.
 
6.2.3  Legal Proceedings. Neither party will be obligated to close if, as of the
Closing Date, any suit or other proceeding is pending before any court or
governmental agency seeking to restrain, prohibit, or declare illegal, or
seeking substantial damages in connection with, the transaction that is the
subject of this Agreement. In such event, the parties shall endeavor to reach an
agreement to allow them to proceed with Closing, including a mutually acceptable
arrangement with regard to such suit, action or proceeding, and any portion of
the Property, if any, affected thereby, but subject to any court order
prohibiting such Closing.
 
6.2.4  Consents. Neither party will be obligated to close if, as of the Closing
Date, the waiting period (and any extension thereof) under the HSR Act (as
defined in Section 10.6) applicable to the transactions contemplated hereby
shall not have expired or been terminated, and any other necessary consent from
any other state or federal governmental authority relating to the consummation
of the transaction contemplated by this Agreement has not been obtained or
waived.
 
6.2.5  Insurance. KMG will not be required to close if W&T, as of the Closing
Date, on behalf of itself and Surviving Entity, does not have insurance
providing the following minimum insurance coverages with limits of liability of
not less than those set out below:
 
(a)  Insurance which shall comply with all applicable Workers’ Compensation and
Occupational Disease Laws and which shall cover all W&T employees performing any
work or activities as to the Property; and
 
(b)  Comprehensive/Commercial General Liability Insurance (including contractual
liability coverage) with a combined bodily injury and property damage limit of
not less than $35,000,000 for each occurrence, together with Pollution Liability
Insurance with a coverage of not less than $35,000,000 for each occurrence.
 
Such insurance shall include coverage for all reasonably insurable liability
assumed by W&T under the terms of this Agreement and Surviving Entity upon
consummation of the Merger with limits not less than those set out above. All
such insurance of W&T hereunder shall be written on policy forms and by
insurance companies reasonably acceptable to KMG. At Closing, W&T shall furnish
KMG with certificates of insurance listing all such insurance policies, which
certificates must be signed by authorized representatives of the insurance
companies. W&T shall ensure that its insurers waive all rights of recovery or
subrogation against KMG, its parent, subsidiaries, affiliates, agents,
directors, officers, employees, or servants. Neither failure to comply, nor full
compliance with the insurance provisions of this Agreement, shall limit or
relieve W&T from its indemnity obligations in accordance with this Agreement.
 
6.3  Closing. At or before Closing, the following events shall occur and the
parties hereto shall execute, acknowledge (if necessary), or cause the execution
and acknowledgement (if necessary) of, and exchange, as applicable, the
following items:
 
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(i)  Surviving Entity shall execute, acknowledge and deliver the Certificate of
Merger in the form as set forth on Exhibit B and file the Certificate of Merger
with the Delaware Secretary of State;
 
(ii)  KMG and W&T shall execute and deliver a Preliminary Settlement Statement
(as described in Section 2.2 hereof) that shall set forth the Base Merger
Consideration, each adjustment to be made thereto in accordance with this
Agreement, and the resulting amount to be wire transferred to KMG at Closing;
 
(iii)  KMG shall deliver to W&T a certificate stating that the representations
of KMG and KMG Sub contained in Article 3 hereof are, taken as a whole, true and
accurate in all material respects as of the Closing Date;
 
(iv)  KMG shall deliver to W&T certificates of good standing for KMG Sub, from
the states of Louisiana and Texas;
 
(v)  W&T shall deliver to KMG a certificate stating that the representations of
W&T and Merger Sub contained in Article 3 hereof are, taken as a whole, true and
accurate in all material respects as of the Closing Date;
 
(vi)  W&T shall deliver to KMG cash by wire transfer in the amount of the
adjusted Base Merger Consideration, as detailed in the Preliminary Settlement
Statement, to an account designated by KMG;
 
(vii)  KMG and KMG Sub shall each execute and deliver a Nonforeign Affidavit in
the form of Exhibit D;
 
(viii)  W&T shall furnish KMG with Certificate(s) of Insurance confirming the
existence of the insurance coverages pursuant to Section 6.2.5;
 
(ix)  W&T and KMG shall each furnish to the other a certified resolution or
secretary’s certificate of such company evidencing the authority of such company
and W&T and KMG, respectively, to enter into this Agreement and close the
transaction contemplated hereby in a form and having content satisfactory to the
other party;
 
(x)  W&T shall provide to KMG evidence of its purchase of any and all bonds,
supplemental bonds or other securities on behalf of Surviving Entity that may be
required of it pursuant to applicable governmental regulations, to maintain its
qualification to hold title to and/or operate federal oil, gas and mineral
leases after the Closing Date;
 
(xi)  KMG and KMG Sub shall settle any intercompany accounts between such
parties;
 
(xii)  The parties shall execute and deliver any other appropriate instruments
necessary to effect and support the merger transaction contemplated in this
Agreement, including, without limitation, any documentation necessary to
effectuate the Merger in accordance with requirements of governmental
regulations; and
 
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(xiii)  W&T shall deliver to KMG or MMS, at KMG’s election, an executed
indemnification agreement with U.S. Specialty Insurance Company, or other
reputable bonding company mutually acceptable to KMG and W&T, for the transfer
of MMS bonds from KMG to W&T.
 
6.4  Post-Closing Obligations. KMG and W&T have the following post-Closing
obligations:
 
6.4.1  Property Records. Within forty-five (45) days after Closing, KMG, on
behalf of KMG Sub, shall deliver to W&T the originals or legible copies of the
Property Records at a location designated by W&T. Any transportation, postage or
delivery costs from KMG’s offices shall be at W&T’s sole cost, risk and expense.
If KMG retains any original Property Records, W&T shall have the right to access
and review those original Property Records (excluding such records which are
subject to attorney-client privilege) during normal business hours. W&T agrees
to maintain the Property Records for seven (7) years after Closing. W&T shall
provide KMG and its representatives reasonable access to and the right to copy
such Property Records and to the extent in W&T’s possession after Closing, any
other information or documents made available for W&T’s review in the data room
established by KMG in connection with the transactions contemplated hereby, for
the purposes of (i) preparing and delivering any accounting provided under this
Agreement and adjusting, prorating and settling the charges and credits provided
in this Agreement; (ii) complying with any law, rule or regulation affecting
KMG’s or KMG Sub’s interest in the Property prior to the Closing Date; (iii)
preparing any audit of the books and records of any third party relating to
KMG’s or KMG Sub’s interest in the Property prior to the Closing Date, or
responding to any audit prepared by such third parties; (iv) preparing tax
returns; (v) responding to or disputing any tax or royalty audit; or (vi)
asserting, defending or otherwise dealing with any claim, lawsuit or dispute
pertaining to KMG’s Retained Obligations (as defined in Section 8.4.1) or the
Property or arising under this Agreement. Within the seven (7) year period
referenced above, W&T shall notify KMG in writing before destroying any Property
Records. If, within thirty (30) days following receipt of W&T’s notice, KMG
notifies W&T that KMG desires to retain such Property Records or such other
information or documents, W&T shall refrain from the destruction of such
Property Records and, at KMG’s expense, deliver such Property Records to KMG.
KMG agrees to use all reasonable efforts, but without any obligation to incur
any cost or expense in connection therewith, to cooperate with W&T’s efforts to
obtain access to files, records and data relating to the Property not provided
by KMG which are in the possession of any third party operator of any of the
Property.
 
6.4.2  MMS Matters and Other Filings. Within one (1) business day following
Closing, W&T shall file with MMS the limited liability company agreement of
Surviving Entity, along with such other documentation as may be required by the
MMS, including bonds, supplemental bonds, and other securities, in order that
the MMS will recognize W&T as the sole owner of the membership interests of
Surviving Entity, will revise its records regarding authorizing signatories for
Surviving Entity to include solely representatives of W&T, and will maintain
Surviving Entity’s qualification to hold title to and/or operate federal oil,
gas and mineral leases after the Closing Date. Promptly following Closing, W&T
shall file all appropriate forms and/or documentation with the states in which
Surviving Entity is qualified to do business in order to evidence the Merger in
the records of such states.
 
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6.4.3  Further Assurances. KMG and W&T agree to execute and deliver from time to
time such further instruments and do such other acts as may be reasonably
requested and necessary to effectuate the purposes of this Agreement.
 
6.4.4  Financial Information. KMG agrees that on or before the later of (i)
March 31, 2006 and (ii) the date that KMG delivers the Closing Notice, KMG shall
provide the following: (x) all of the data necessary to prepare a statement of
revenue and direct operating expenses to meet the disclosure and filing
requirements pursuant to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended; (y) direct access to such data for
auditing; and (z) a letter to the auditors representing that such data is
complete and accurate in all material respects. After Closing, KMG shall
continue to provide such data and assistance as is reasonably necessary for W&T
to complete its required filings. Data provided will be limited to such
information that KMG has readily available for up to three years prior to the
year in which the request is made and within the periods 2003 to 2005. All
expenses (both internal and external) for this process shall be borne by W&T.
W&T shall DEFEND, INDEMNIFY AND HOLD KMG HARMLESS from and against any Claims
arising out of or in connection with W&T’s or Surviving Entity’s use of such
data.
 
6.4.5  Seismic Data. KMG agrees to license to W&T and/or Surviving Entity, on a
mutually agreeable seismic data license form and at W&T’s sole risk and expense,
any proprietary seismic data, insofar as it relates to the Leases or the Units,
with respect to which KMG has the right to grant a license to W&T and/or
Surviving Entity.
 
6.4.6  Maintenance of Insurance. So long as W&T shall have any indemnification
obligations under Article 8, W&T shall keep in effect the insurance required by
Section 6.2.5 and shall submit to KMG, upon request, evidence reasonably
satisfactory to KMG that such insurance policies are still in full force and
effect.
 
ARTICLE 7
INTENTIONALLY OMITTED
 
ARTICLE 8
INDEMNITIES
 
8.1  Definition of Claims. As used in this Agreement, the term “Claims” means
any and all losses, liabilities, damages, punitive damages, obligations,
expenses, fines, penalties, costs, claims, causes of action and judgments for:
(i) breaches of contract; (ii) loss or damage to property, injury to or death of
persons (including illness and disease), and other tortious injury; and (iii)
violations of applicable laws, rules, regulations, orders or any other legal
right or duty actionable at law or equity. The term “Claims” also includes
reasonable attorneys’ fees, court costs, and other reasonable costs resulting
from the investigation or defense of any Claim within the scope of the
indemnities in this Agreement.
 
8.2  Application of Indemnities.
 
8.2.1  Covered Claims and Parties. All indemnities set forth in this Agreement
extend to the officers, directors, employees and affiliates of the party
indemnified. The indemnities set forth in this Agreement do not extend to (i)
any part of an indemnified claim that is the result of the willful misconduct or
fraud of the indemnified party, (ii) punitive damages assessed against the
indemnified party arising from the acts or omissions of the indemnified party,
or (iii) civil or criminal fines or penalties imposed by any court or regulatory
authority assessed against the indemnified party due the indemnified party’s
failure to comply with applicable laws, regulations or orders.
 
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8.2.2  Express Negligence Disclosure. UNLESS THIS AGREEMENT EXPRESSLY PROVIDES
TO THE CONTRARY, THE INDEMNITY, RELEASE, WAIVER AND ASSUMPTION PROVISIONS SET
FORTH IN THIS AGREEMENT APPLY REGARDLESS OF WHETHER THE INDEMNIFIED PARTY (OR
ITS EMPLOYEES, AGENTS, CONTRACTORS, SUCCESSORS OR ASSIGNS) CAUSES, IN WHOLE OR
PART, AN INDEMNIFIED CLAIM, INCLUDING WITHOUT LIMITATION INDEMNIFIED CLAIMS
ARISING OUT OF OR RESULTING, IN WHOLE OR IN PART, FROM, OUT OF OR IN CONNECTION
WITH THE CONDITION OF THE PROPERTY OR THE INDEMNIFIED PARTY’S (OR ITS
EMPLOYEES’, AGENTS’, REPRESENTATIVES’, CONTRACTORS’, SUCCESSORS’ OR ASSIGNS’)
SOLE OR CONCURRENT NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY OR FAULT. KMG
AND W&T ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE
RULE AND IS CONSPICUOUS.
 
8.2.3  Other Limitations. The indemnities of the indemnifying party in this
Agreement do not cover or include any amounts that the indemnified party may
legally recoup from other third party owners under applicable joint operating
agreements or other agreements, or for which the indemnified party is reimbursed
by any third party. The indemnifying party will pay all costs incurred by the
indemnified party in obtaining reimbursement from third parties. There will be
no upward or downward adjustment in the Base Merger Consideration as a result of
any matter for which KMG or W&T is indemnified under this Agreement.
 
8.3  W&T’s Indemnity. From and after the Closing, W&T SHALL INDEMNIFY, DEFEND
AND HOLD KMG HARMLESS from and against any and all Claims caused by, resulting
from or incidental to:
 
8.3.1  All liabilities, obligations and duties with respect to the ownership and
(if applicable) operations of the Property that are attributable to periods on
or after the Calculation Date except as otherwise specifically provided in this
Agreement (“Surviving Entity’s Assumed Obligations”);
 
8.3.2  Plugging and Abandonment Obligations and Environmental Obligations (each
as defined in Sections 8.5 and 8.6) except to the extent KMG has an express
indemnification obligation as set forth in Section 8.4.4 with respect thereto;
 
8.3.3  If applicable, KMG’s operation of the Property on behalf of KMG Sub and
any assistance in the transition of operations under Section 10.1, except to the
extent caused by KMG’s gross negligence or willful misconduct, net of any
insurance proceeds actually received;
 
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8.3.4  Any obligations for brokerage or finder’s fees or commissions incurred by
W&T or Merger Sub in connection with the Merger or the other transactions
contemplated hereby;
 
8.3.5  Any violation by W&T or Merger Sub of state or federal securities laws,
or W&T’s or Merger Sub’s dealings (including any dealings in breach of W&T’s or
Merger Sub’s warranties and representations in Section 3.3.3) with its partners,
investors, financial institutions, assignees and other third parties in
connection with the transaction under this Agreement, or any subsequent sale or
other disposition of the Property (or portion thereof) by W&T, its affiliates or
assignees;
 
8.3.6  Any Imbalances associated with the Property;
 
8.3.7  W&T’s inspection of the Property pursuant to Sections 5.2 and 5.3; and
 
8.3.8  Subject to Section 11.4, any breach of W&T’s representations and
warranties set forth in Article 3.
 
8.4  KMG’s Indemnity. Subject to Section 8.6, KMG shall INDEMNIFY, DEFEND AND
HOLD W&T HARMLESS from and against any and all Claims caused by, resulting from
or incidental to:
 
8.4.1  All liabilities (including the “Retained Liabilities” as defined in the
Contribution Agreement dated January 17, 2006 (the “Contribution Agreement”),
between KMG and KMG Sub), obligations and duties with respect to the ownership
and (if applicable) operation of the Property that are attributable to periods
before the Calculation Date, except for Surviving Entity’s Assumed Obligations
or as otherwise specifically provided in this Agreement (“KMG’s Retained
Obligations”);
 
8.4.2  If applicable, KMG’s operation of the Property on behalf of KMG Sub and
any assistance in the transition of operations under Section 10.1, to the extent
caused by KMG’s gross negligence or willful misconduct, net of any insurance
proceeds actually received;
 
8.4.3  KMG’s access to the Property after Closing for the purposes described in
this Agreement, except to the extent caused by W&T’s gross negligence or willful
misconduct; and
 
8.4.4  any Claims by third parties arising directly from an Adverse
Environmental Condition caused or existing on or before the Calculation Date
(and unrelated to an Adverse Environmental Condition that was resolved at
Closing) that are asserted in writing against W&T or Surviving Entity on or
before six months from the Closing Date and of which W&T notifies KMG on or
before such six month anniversary; and
 
8.4.5  Subject to Section 11.4, any breach of KMG’s representations and
warranties set forth in Article 3.
 
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In addition, subject to Section 8.8, if Closing occurs, KMG shall INDEMNIFY,
DEFEND AND HOLD W&T HARMLESS from and against any and all liabilities, losses,
expenses, fines or penalties arising out of, resulting from or incidental to the
termination of the tax partnerships described on Exhibit F, to the extent such
matters are related to the period prior to the Calculation Date.
 
8.5  W&T’s Plugging and Abandonment Obligations.
 
8.5.1  Description of Obligations. From and after the Closing, the
indemnification rights in Section 8.4 for the benefit of W&T shall not cover any
plugging and abandonment obligations related to the Property (the “Plugging and
Abandonment Obligations”), regardless of whether they are attributable to the
ownership or operation of the Property before or after the Calculation Date and
regardless of whether resulting from any acts or omissions of KMG (INCLUDING
THOSE ARISING FROM KMG’s SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE,
GROSS NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT) or the condition of the
Property when acquired, including Claims related to:
 
(a)  The necessary and proper plugging, replugging and abandonment of all wells
on the Property, whether plugged and abandoned before or after the Calculation
Date;
 
(b)  The necessary and proper removal, abandonment, and disposal of all
platforms, structures, pipelines, facilities, equipment, abandoned property and
junk located on or comprising part of the Property, including the Off-Lease
Pipelines, the Facilities and any junk on the sea floor covered by the Leases,
the Units, or the Permits and Easements;
 
(c)  The necessary and proper capping and burying of all flow lines associated
with the Wells and located on or comprising part of the Property;
 
(d)  The necessary and proper restoration of the Property, both surface and
subsurface, as may be required by applicable laws, regulation or contract;
 
(e)  Any necessary clean-up or disposal of Property contaminated by naturally
occurring radioactive material (“NORM”) as may be required by applicable laws,
regulations or contract;
 
(f)  All obligations arising from contractual requirements and demands made by
courts, authorized regulatory bodies or parties claiming a vested interest in
the Property; and
 
(g)  Obtaining and maintaining all bonds, or supplemental or additional bonds,
that may be required contractually or by governmental authorities.
 
8.5.2  Exclusions from W&T’s Plugging and Abandonment Obligations. W&T’s
obligations under this Section 8.5 do not include any civil or criminal fines or
penalties that may be levied against KMG or KMG Sub by any court or regulatory
authority for non-compliance with Environmental Laws, or other applicable laws,
regulations or orders (as in effect on or before the Calculation Date), in
connection with the ownership or operation of the Property before the
Calculation Date.
 
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8.5.3  Standard of Operations. W&T shall conduct all plugging, replugging,
abandonment, removal, disposal and restoration operations in a good and
workmanlike manner and in compliance with all applicable laws and regulations.
 
8.6  W&T’s Environmental Obligations.
 
8.6.1  Description of Obligations. From and after the Closing, except as set
forth in Section 8.6.2, the indemnification rights in Section 8.4 for the
benefit of W&T shall not cover any the following occurrences, events,
conditions, and activities on or related to the Property (the “Environmental
Obligations”), regardless of whether arising from the ownership or operation of
the Property before or after the Calculation Date, and regardless of whether
resulting from any acts or omissions of KMG (INCLUDING THOSE ARISING FROM KMG’S
SOLE, JOINT, CONCURRENT, OR COMPARATIVE NEGLIGENCE, GROSS NEGLIGENCE, STRICT
LIABILITY OR OTHER FAULT) or the condition of the Property when acquired:
 
(i)  Environmental pollution or contamination, including pollution or
contamination of the soil, sea, groundwater or air by Hydrocarbons, drilling
fluid or other chemicals, brine, produced water, NORM, or any other substance;
 
(ii)  Underground injection activities and waste disposal on the Property;
 
(iii)  Clean-up responses, and the cost of remediation, control, assessment or
compliance with respect to surface, sea floor and subsurface pollution caused by
spills, pits, ponds, lagoons or subsurface storage tanks;
 
(iv)  Non-compliance with applicable land use, surface disturbance, licensing or
notification rules, regulations, demands or orders of appropriate state or
federal regulatory agencies;
 
(v)  Disposal on the Property of any hazardous substances, wastes, materials and
products generated by or used in connection with the ownership or operation of
the Property before or after the Calculation Date; and
 
(vi)  Non-compliance with Environmental Laws.
 
8.6.2  Exclusions from W&T’s Environmental Obligations. W&T’s Environmental
Obligations do not include:
 
(i)  Any civil or criminal fines or penalties that may be levied against KMG by
any court or regulatory authority for any such violation of any laws, rules or
regulations in connection with the ownership or operation of the Property before
the Calculation Date, all of which shall remain the responsibility of KMG;
 
(ii)  Disposal offsite from the Property before the Calculation Date of any
hazardous substances, wastes, NORM, materials and products generated by or used
in connection with the ownership or operation of the Property before the
Calculation Date; or
 
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(iii)  any Claims described in Section 8.4.4.
 
8.7  Notices and Defense of Indemnified Claims. Each party shall immediately
notify the other party of any Claim of which it becomes aware and for which it
is entitled to indemnification from the other party under this Agreement. The
indemnifying party shall be obligated to defend at the indemnifying party’s sole
expense any litigation or other administrative or adversarial proceeding against
the indemnified party relating to any Claim for which the indemnifying party has
agreed to indemnify and hold the indemnified party harmless under this
Agreement. However, the indemnified party shall have the right to participate
with the indemnifying party in the defense of any such Claim at its own expense.
In the event the indemnifying party is not disputing its liability to the
indemnified party with respect to a Claim, an indemnified party shall not be
entitled to settle any Claim without the prior written consent of the
indemnifying party.
 
8.8  KMG’s Indemnity Limit. Notwithstanding anything herein to the contrary, (i)
in no event shall KMG be required to indemnify W&T for any individual Claim of
less than $10,000 and (ii) KMG shall not be required to indemnify W&T for
aggregate liabilities in excess of 50% of the Base Merger Consideration;
provided, however, that (x) any payments in respect of Hurricane-Related Costs
(as defined in Section 8.12) shall not be limited by this Section 8.8; (y) KMG’s
indemnity with respect to Retained Liabilities under the Contribution Agreement
and any Claims resulting from the litigation and claims listed on Exhibit C
shall not be limited by this Section 8.8; and (z) the terms and provisions of
this Article 8 shall be W&T’s sole and exclusive remedy for any Claims caused
by, resulting from, or incidental to KMG’s Retained Obligations and the other
matters specified in Section 8.4.
 
8.9  NORM. W&T ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND GAS PRODUCING
FORMATIONS CAN CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL. SCALE FORMATION
OR SLUDGE DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM ON EQUIPMENT, MATERIALS
AND OTHER PROPERTY. SOME OR ALL OF THE EQUIPMENT, MATERIALS AND OTHER PROPERTY
SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE BACKGROUND LEVELS. A
HEALTH HAZARD MAY EXIST IN CONNECTION WITH THIS EQUIPMENT, MATERIALS AND OTHER
PROPERTY BY REASON THEREOF. THEREFORE, SURVIVING ENTITY MAY NEED TO FOLLOW
SAFETY AND HEALTH PROCEDURES WHEN HANDLING THIS EQUIPMENT, MATERIALS AND OTHER
PROPERTY.
 
8.10  Pending Litigation and Claims.Notwithstanding anything in this Agreement
to the contrary other than as set forth in this Section 8.10, KMG shall
INDEMNIFY, DEFEND AND HOLD W&T HARMLESS from and against any Claims resulting
from the litigation and claims listed on Exhibit C.
 
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8.11  Waiver of Consequential and Punitive Damages.NEITHER W&T NOR KMG SHALL BE
ENTITLED TO RECOVER FROM THE OTHER, RESPECTIVELY, AND EACH PARTY RELEASES THE
OTHER PARTY FROM, ANY LOSSES, COSTS, EXPENSES, OR DAMAGES ARISING UNDER THIS
AGREEMENT OR IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
IN THIS AGREEMENT ANY AMOUNT IN EXCESS OF THE ACTUAL COMPENSATORY DAMAGES, COURT
COSTS AND REASONABLE ATTORNEYS FEES, SUFFERED BY SUCH PARTY. W&T AND KMG BOTH
WAIVE, AND RELEASE THE OTHER FROM ANY RIGHT TO RECOVER PUNITIVE, SPECIAL,
EXEMPLARY AND CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH OR WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT; PROVIDED, HOWEVER, ANY SUCH
DAMAGES RECOVERED BY A THIRD PARTY (OTHER THAN SUBSIDIARIES, AFFILIATES OR
PARENTS OF A PARTY) FOR WHICH A PARTY OWES THE OTHER PARTY AN INDEMNITY UNDER
THIS ARTICLE 8 SHALL NOT BE WAIVED.
 
8.12  Hurricane-Related Costs.
 
8.12.1  For the purposes of this Agreement, “Hurricane-Related Costs” means
actual, out-of-pocket costs incurred by (i) KMG or KMG Sub prior to Closing and
(ii) Surviving Entity or W&T after Closing, in each case (x) net to KMG Sub’s
interest in the affected portion of the Property and (y) to third parties for
the repair of physical damage to equipment, platforms, pipelines and other
tangible property included in the Property to the extent such damage is directly
and demonstrably attributable to Hurricanes Katrina or Rita, and necessary to
(1) restore such property to serviceable condition, as compared to its
pre-hurricane condition, or (2) to bring such property into compliance with
applicable MMS rules or regulations or those of any other governmental body or
similar authority having jurisdiction over the Property, or subject to
Section 8.12.3, the replacement of any such damaged property, and for which no
adjustment to the Base Merger Consideration was previously made pursuant to any
provision of this Agreement (“Hurricane-Related Damages”). Notwithstanding
anything to the contrary in this Agreement, KMG is solely responsible for all
Hurricane-Related Costs and Hurricane-Related Damages, as defined herein.
 
8.12.2  Prior to June 1, 2006, with respect to KMG-operated Properties, subject
to Section 10.1, KMG agrees to use its commercially reasonable efforts to
identify, through completion of the Level II Surveys for the Property, and
repair or, subject to Section 8.12.3, replace any Property that suffered
Hurricane-Related Damages in accordance with its customary business practices
(“Identified Operated Hurricane-Related Damages”). Prior to Closing, KMG will
pay all Hurricane-Related Costs for Identified Operated Hurricane-Related
Damages directly and not invoice KMG Sub. After Closing, KMG shall continue to
make payments for Identified Operated Hurricane-Related Damages directly, and if
applicable, upon written request shall promptly reimburse Surviving Entity or
W&T in the event Surviving Entity or W&T is invoiced or has to complete the
repair work on behalf of KMG for the Identified Hurricane-Related Damages. Prior
to October 1, 2006, with respect to KMG-nonoperated Properties, KMG agrees to
use its commercially reasonable efforts to contact the operators and identify,
through a Level II Survey, damage reports or from an AFE, the repairs necessary
for the Hurricane-Related Damages (“Identified Non-Operated Hurricane-Related
Damages”). Upon any request for reimbursement from KMG, W&T will provide, upon
request, copies of any relevant AFEs or invoices, if available at such time.
 
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8.12.3  As of the date of this Agreement, KMG represents that, to the best of
its knowledge, there is no Property that has Hurricane-Related Damage which
requires full replacement. In the case of a claim for Hurricane-Related Costs
consisting of expenses for the replacement of property, KMG’s reimbursement
obligation shall apply only if repair was not practicable and if the value of
such Property prior to such damage, in KMG’s reasonable commercial judgment,
would warrant replacement, and then only to the portion of the replacement cost
necessary to restore the affected property to a condition similar to that which
existed prior to the damage considering normal wear and tear, and in no event
will KMG’s reimbursement obligation extend to the cost of any upgrading or
improvement (as compared to its condition prior to the hurricane) of the
property so replaced Notwithstanding any other provision of this Agreement, if
KMG elects not to replace any Property pursuant to this Section 8.12.3, the Base
Merger Consideration will be reduced by the Agreed Value of that Property
(including the Leases, Wells or reserves included therein).
 
ARTICLE 9
TAXES AND EXPENSES
 
9.1  Filing Expenses. Subsequent to Closing, W&T shall pay all costs of
recording and filing any instruments that must be filed to effectuate the merger
transaction contemplated hereby.
 
9.2  Ad Valorem, Real Property and Personal Property Taxes. All Ad Valorem
Taxes, Real Property Taxes, Personal Property Taxes, and similar obligations
(“Property Taxes”) on the Property are KMG’s obligation for periods before the
Calculation Date and W&T’s obligation for periods after the Calculation Date. If
Property Taxes for the current tax year have not been assessed and paid by KMG
as of the Closing Date, W&T for the Surviving Entity shall file all required
reports and returns incident to the Property Taxes and pay the Property Taxes
for the current tax year and subsequent periods. KMG will reimburse W&T promptly
for KMG’s proportionate share of these taxes, prorated as of the Calculation
Date, upon receipt of evidence of W&T’s payment of the taxes. W&T will reimburse
KMG promptly for W&T’s proportionate share of these taxes, prorated as of the
Calculation Date, as a closing adjustment to the Base Merger Consideration, upon
receipt of evidence of KMG’s payment of the taxes.
 
9.3  Severance Taxes. KMG and/or KMG Sub shall bear and pay all severance or
other taxes measured by Hydrocarbon production from the Property, or the receipt
of proceeds therefrom, to the extent attributable to production from the
Property before the Calculation Date. W&T shall bear and pay all such taxes on
production from the Property on and after the Calculation Date. KMG shall
withhold and pay on behalf of W&T all such taxes on production from the Property
between the Calculation Date and the Closing Date, and the amount of any such
payment shall be reimbursed to KMG as a closing adjustment to the Base Merger
Consideration pursuant to Section 2.2. If either party pays taxes owed by the
other, upon receipt of evidence of payment the nonpaying party will reimburse
the paying party promptly for its proportionate share of such taxes.
 
9.4  Tax Reporting. KMG and W&T agree to furnish to each other at Closing or as
soon thereafter as practicable any and all information and documents reasonably
required to comply with tax reporting requirements and audits. 
 
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9.5  Sales and Use Taxes. W&T shall be responsible for and pay all federal,
state, or local sales, transfer, gross proceeds, use and similar taxes incident
to or applicable to this transaction. If KMG is required to pay such sales, use
or similar taxes on behalf of W&T, W&T will reimburse KMG at Closing for all
such sales and use taxes.
 
9.6  Income Taxes. Each party shall be responsible for its own state and federal
income taxes, if any, as may result from this transaction.
 
9.7  Incidental Expenses. Each party shall bear its own respective expenses
incurred in connection with the negotiation and closing of this transaction,
including its own consultants’ fees (including, with respect to W&T, all costs,
expenses and fees related to the engagement of its independent petroleum
engineers), attorneys’ fees, accountants’ fees, and other similar costs and
expenses.
 
ARTICLE 10
CERTAIN COVENANTS PENDING CLOSING
 
10.1  Operations. From and after the date of execution of this Agreement and
until the Closing, subject to Section 10.1.1 and the constraints of applicable
operating agreements, KMG and/or KMG Sub (i) shall operate, manage and
administer the Property in a good and workmanlike manner consistent with its
past practices, and shall carry on its business with respect to the Property in
substantially the same manner as before execution of this Agreement; (ii) shall
not sell, dispose of, or encumber the Property with a lien or mortgage (other
than Permitted Encumbrances), the effect of which would be to cause KMG Sub’s
interest in the Property to be less than that set forth on Exhibit A, Schedule
1, except with respect to the sale of Hydrocarbons in the ordinary course of
business; and (iii) shall promptly notify W&T of the receipt of any notice of
preferential rights to purchase with respect to the Property. Notwithstanding
the foregoing, KMG and/or KMG Sub shall have no obligation to extend the primary
term of any of the Leases from which Hydrocarbons have never been produced or to
renew same. From and after the date of execution of this Agreement and until the
Closing, subject to Section 10.1.1 and the constraints of applicable operating
agreements, KMG and/or KMG Sub shall, except for emergency action taken in the
face of serious risk to life, property or the environment (i) submit to W&T, for
prior written approval, all requests for operating or capital expenditures and
all proposed contracts and agreements relating to the Property that involve
individual commitments of more than $50,000 that would be required to be
expended by Surviving Entity after the Calculation Date; and (ii) not approve or
elect to go nonconsent as to any proposed well or, except as required by
applicable law or regulations, plug and abandon or agree to plug and abandon any
well without W&T’s prior written approval. On any matter requiring W&T’s
approval under this Section 10.1, W&T shall respond within seven (7) days from
KMG’s and/or KMG Sub’s request for approval (or such shorter period of time as
may be required by the applicable operating agreement) and failure of W&T to
respond within such time period shall release KMG and/or KMG Sub from the
obligation to obtain W&T’s approval before proceeding on such matter as KMG
and/or KMG Sub may elect in its sole discretion. W&T’s sole remedy for KMG’s
and/or KMG Sub’s breach of its obligations under this Section 10.1 shall be
equal to W&T’s actual damages, if any, for such breach. 
 
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10.1.1  Non Operated Properties. To the extent that KMG and/or KMG Sub is not
the operator of any of the Property, the obligations of KMG and/or KMG Sub in
Section 10.1 concerning operations or activities that normally, or pursuant to
existing contracts are carried out or performed by the operator, shall be
construed to require only that KMG and/or KMG Sub use all reasonable efforts
(without being obligated to incur any expense or institute any cause of action)
to cause the operator of such portion of the Property to take such actions or
render such performance within the constraints of the applicable operating or
other agreements.
 
10.2  Federal and State Approvals. KMG, prior to Closing, shall file for
approval with the applicable government agencies all conveyances on official
forms and related documentation required to effectuate the transfer of the
Property to KMG Sub in accordance with the requirements of federal or state
regulations (the “Federal Assignment Documents”). KMG further agrees to take all
other actions required of it by federal or state agencies having jurisdiction to
obtain all requisite regulatory approvals, of (i) the assignment documents
requiring federal or state approval in order for KMG Sub to be recognized by the
federal or state agencies as the owner of the Property, and (ii) KMG Sub’s
qualification as the operator of record with respect to that portion of the
Property for which KMG Sub becomes successor operator under the operating
agreements applicable to any of the Property, together with any necessary rights
of use and easements as to the pipeline(s) included in the Property. KMG shall
provide W&T approved copies of the Federal Assignment Documents as soon as they
are available.
 
10.3  Limitations Related to KMG Sub. Except as may be expressly permitted by
this Agreement or as set forth in any exhibit hereto, from the date hereof until
the Closing Date, without first obtaining the written consent of W&T (which
consent will not be unreasonably withheld, conditioned or delayed), KMG will not
permit KMG Sub to (i) make any material change in the conduct of its business or
operations, including, without limitation, its trading activities and the
payment (including the timing of payments) of accounts payable of the company,
(ii) issue any membership interests, or repurchase, redeem or otherwise acquire
any such interests or make or propose to make any other change to its
capitalization, (iii) merge into or with or consolidate with any other entity or
acquire all or substantially all of the business or assets of any person, (iv)
make any change in its Limited Liability Company Agreement or the Contribution
Agreement and any Assignment and Bill of Sale executed pursuant thereto, (v)
purchase any securities of any person except for short-term investments made in
the ordinary course of business consistent with past practices, or (vi) commit
itself to do any of the foregoing.
 
10.4  KMG Sub.  Promptly after the date hereof, KMG agrees to file a certificate
of amendment to KMG Sub’s certificate of formation for the purpose of changing
its name.
 
10.5  [Intentionally Omitted.]HSR Act.  Within ten (10) business days following
the execution by the parties hereto of this Agreement (or such later time as
they may mutually agree), KMG and W&T will each (i) prepare and simultaneously
file with the Department of Justice (the “DOJ”) and the Federal Trade Commission
(the “FTC”) the notification and report form required for the transactions
contemplated by this Agreement by the Hart Scott Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder (the “HSR
Act”), (ii) request early termination of the waiting period thereunder and (iii)
comply in all material respects with the filing and disclosure requirements of
the HSR Act. KMG and W&T agree to respond within a reasonable time to any
requests for additional information and inquiries from the DOJ or the FTC
concerning such filings. KMG and W&T shall cooperate with each other and,
subject to the terms of Section 5.1 (which confidentiality provisions shall, for
purposes of this Section, be deemed to apply to KMG), shall promptly furnish all
information to the other party that is necessary for that party to comply with
the HSR Act. KMG and W&T shall keep each other fully advised with respect to any
requests from or communications with the DOJ or FTC concerning such filings.
Each of KMG and W&T shall use its commercially reasonable efforts to take all
actions reasonably necessary and appropriate in connection with any HSR Act
filing to consummate the transactions contemplated hereby.
 
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ARTICLE 11
MISCELLANEOUS
 
11.1  Imbalances.  KMG and W&T agree that the Base Merger Consideration paid at
Closing shall be adjusted pursuant to Section 11.1.1 for the Imbalances set
forth in Exhibit E on the basis of a price per Mcf or barrel, as applicable, to
be agreed upon by the parties prior to Closing (the “Imbalance Price”). If KMG
and W&T determine no later than 120 days after Closing that the Imbalances
stated in Exhibit E are inaccurate, the parties agree to exchange additional
compensation, pursuant to Section 2.3, on the basis of the Imbalance Price, for
the difference between the Imbalances and the revised Imbalances determined by
the parties. Such settlement shall be final and neither party thereafter shall
make claim upon the other concerning production imbalances with respect to the
Property. Except with respect to its right to receive the post-Closing Base
Merger Consideration adjustment set forth above, W&T will be solely responsible
for and shall assume all rights against (including rights to receive make-up gas
or to receive cash balancing payments) and obligations to (including obligations
to make-up gas or to make cash balancing payments) third parties with respect to
any Imbalances.
 
11.2  [Intentionally omitted.]
 
11.3  [Intentionally omitted.]
 
11.4  Survival.  All of the covenants, agreements, representations and
warranties made by the parties in this Agreement will survive the Closing for a
period of six (6) months and shall not be actionable thereafter. Neither party
to this Agreement will be entitled to make a Claim against the other party in
connection with the inaccuracy of the representations and warranties of the
other party in this Agreement unless the other party is notified of that Claim
in writing within six (6) months after the Closing Date.
 
11.5  Confidentiality and Public Announcements.  This Agreement and the terms
and provisions hereof, including the Base Merger Consideration, shall be
maintained confidential by W&T and KMG until Closing; provided, however, that
this Agreement and the terms and provisions thereof may be disclosed to W&T’s
lenders, if any, and their consultants, who shall be required to keep such
information confidential. If this Agreement is terminated prior to Closing,
following such termination, the parties agree to keep all terms of this
transaction confidential. Neither party may make press releases or other public
announcements concerning this transaction, without the other party’s prior
written approval and agreement to the form of the announcement, except as may be
required by applicable laws or rules and regulation of any governmental agency
or stock exchange (in which case the proposed disclosure shall be made available
to the non-disclosing party prior to such disclosure). Notwithstanding the
foregoing, KMG and W&T shall each have the right to also disclose the
transaction as it deems necessary to comply with SEC reporting requirements or
to customary recipients of either party’s investor relations communications in
the normal course of its business; provided, however, the disclosing party shall
prior to such disclosure make the proposed disclosure available to the
non-disclosing party (redacted of any material, non-public information contained
therein not specifically related to the Merger or the Property).
 
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11.6  Suspense Accounts.  If, at Closing, funds are being held in suspense for
the benefit of third parties with respect to the Property (“Suspense Accounts”),
then at Closing or as soon as practical thereafter, KMG shall transfer to W&T or
Surviving Entity all such funds held in suspense related to proceeds of
production and attributable to third parties’ interests in the Leases or lands
pooled or unitized therewith or Hydrocarbon production from the Leases or lands
pooled or unitized therewith (but not including any suspended funds relating to
any Claims described in Exhibit C), including funds suspended awaiting minimum
disbursement requirements, funds suspended under division orders and funds
suspended for title and other defects. W&T or Surviving Entity agrees to
administer all such Suspense Accounts and assume all payment obligations to the
proper parties in accordance with all applicable laws, rules and regulations,
which obligations (including obligations related to the sufficiency of the
suspended amounts) shall be included in Surviving Entity’s Assumed Obligations
to the extent related to periods after the Closing Date, and shall be included
in KMG’s Retained Obligations to the extent related to periods prior to the
Closing Date.
 
11.7  Marks and Logos; Post-Closing Inspections.  With respect to any portion of
the Property that KMG operates on behalf of KMG Sub, W&T agrees that within
thirty (30) days after Closing or within thirty (30) days after operations are
actually transferred, whichever is later, it will remove or cause to be removed
the names and marks used by KMG and/or KMG Sub or any of KMG’s other affiliates
and all variations and derivatives thereof and logos relating thereto from the
Property and will not thereafter make any use whatsoever of such names, marks
and logos. If W&T fails to comply with this Section 11.7, KMG shall have access
to the Property in order to remove such names, marks, and logos, all at W&T’s
expense. KMG at its sole cost shall have the right at any time after Closing to
reasonable access to the Property for the purpose of inspecting W&T’s compliance
with the terms of this Agreement; provided, however, KMG shall repair any damage
to the Property resulting from such inspections and any such access shall be
covered by KMG’s indemnity set forth in Section 8.4.
 
11.8  Notices.  All notices under this Agreement must be in writing. Any notice
under this Agreement may be given by personal delivery, facsimile transmission,
U.S. mail (postage prepaid), or commercial delivery service, and will be deemed
duly given when received by the party charged with such notice and addressed as
follows:
 

 
If to KMG or KMG Sub (before Closing):
         
Kerr-McGee Oil & Gas Corporation
   
1666 Northchase
   
Houston, Texas 77060
 

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Attention: Jim W. Bryan
   
Fax No.: (281) 673-5673
   
Telephone: (281) 673-6000
         
with copy to:
         
Kerr-McGee Corporation
   
123 Robert S. Kerr Avenue
   
Oklahoma City, Oklahoma 73102
   
Attention: General Counsel
   
Fax No.: (405) 270-1401
   
Telephone: (405) 270-1313
         
If to W&T and Surviving Entity (after Closing):
         
W&T Offshore, Inc.
   
Eight Greenway Plaza, Suite 1330
   
Houston, Texas 77046
   
Attention: Jamie L. Vazquez
   
Vice President
   
Fax No.: (713) 626-8527
   
Telephone: (713) 626-8525
 

 
Any party, by written notice to the other, may change the address or the
individual to which or to whom notices are to be sent under this Agreement.
 
11.9  Calculation Date.  The Calculation Date of this Agreement will be 12:01
a.m., local time, where the Property is located, on October 1, 2005.
 
11.10  Assignment.Prior to the Closing Date, no party may assign its rights or
obligations under this Agreement without the prior written consent of the other,
which may be withheld for any reason, including convenience. If Surviving Entity
sells, transfers or assigns all or a portion of the Property, (a) this Agreement
shall remain in effect between W&T and KMG as to the Property, regardless of
such sale or assignment (and W&T will remain obligated hereunder) and (b) W&T
shall cause Surviving Entity to require its successors and assigns expressly to
assume its obligations under this Agreement, to the extent related or applicable
to the Property or portion thereof acquired by them.
 
11.11  Entire Agreement and Amendment.This Agreement, together with any relevant
confidentiality agreement referred to in Section 5.1, constitutes the entire
understanding between the parties, replacing and superseding all prior
negotiations, discussions, arrangements, agreements and understandings between
the parties regarding the subject transaction and subject matter hereof (whether
written or oral), excepting any written agreements that may be executed by the
parties concurrently or after the execution of this Agreement. No other
agreement, statement, or promise made by any party, or to any employee, officer
or agent of any party, which is not contained in this Agreement shall be binding
or valid. This Agreement may be amended, modified, altered, supplemented, or
revoked only by written agreement signed by duly authorized representatives of
the parties hereto.
 
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11.12  Successors and Assigns.This Agreement binds and inures to the benefit of
the parties hereto their respective permitted successors and assigns, and all
the terms, provisions, covenants, obligations, indemnities, representations,
warranties and conditions of this Agreement shall be enforceable by the parties
hereto and their respective permitted successors and assigns.
 
11.13  Third Party Beneficiaries.It is understood and agreed that there shall be
no third party beneficiary of this Agreement, and that the provisions hereof do
not impart enforceable benefits, rights, or remedies in anyone who is not a
party or a successor or assignee of a party hereto.
 
11.14  Severability.If any provision of this Agreement is found by a court of
competent jurisdiction to be invalid or unenforceable, that provision will be
deemed modified to the extent necessary to make it valid and enforceable and if
it cannot be so modified, it shall be deemed deleted and the remainder of the
Agreement shall continue and remain in full force and effect.
 
11.15  Counterparts.This Agreement may be executed in counterparts, each of
which shall constitute an original and all of which shall constitute one
document.
 
11.16  Governing Law; Jurisdiction and Venue; Jury Waiver.
 
11.16.1  THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS-OF-LAW RULE OR
PRINCIPLE THAT MIGHT APPLY THE LAW OF ANOTHER JURISDICTION. THE ASSIGNMENT
DOCUMENTS, AND ANY OTHER INSTRUMENTS OF CONVEYANCE EXECUTED UNDER THIS
AGREEMENT, WILL BE GOVERNED BY AND MUST BE CONSTRUED ACCORDING TO THE LAWS OF
THE STATE WHERE THE PROPERTY TO WHICH THEY PERTAIN IS LOCATED, EXCLUDING ANY
CONFLICTS-OF-LAW RULE OR PRINCIPLE THAT MIGHT APPLY THE LAW OF ANOTHER
JURISDICTION, EXCEPT AS OTHERWISE PROVIDED IN THE ASSIGNMENT DOCUMENTS OR
INSTRUMENTS.
 
11.16.2  ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN
PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY ACTION ARISING OUT OF THIS
AGREEMENT. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR
INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT SHALL
BE EXCLUSIVELY LITIGATED IN STATE OR FEDERAL COURTS HAVING SITUS IN HOUSTON,
HARRIS COUNTY, TEXAS.
 
11.16.3  EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
 
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11.17  Exhibits.The Exhibits and Schedules attached to this Agreement are
incorporated into and made a part of this Agreement for all purposes. In the
event of a conflict or inconsistency between the provisions of the Exhibits
(including the Schedules attached thereto) and the provisions of this Agreement,
the provisions of this Agreement shall take precedence. 
 
11.18  Waiver.Any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived only by a written instrument
executed by the party waiving compliance. Except as otherwise expressly provided
in this Agreement, the failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect such party’s right
to enforce the same. No waiver by any party of any condition, or of the breach
of any term, provision, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of the breach of any
other term, provision, covenant, representation or warranty.
 
11.19  Interpretation. The parties stipulate and agree that this Agreement shall
be deemed and considered for all purposes to have been jointly prepared by the
parties, and shall not be construed against any one party (nor shall any
inference or presumption be made) on the basis of who drafted this Agreement or
any particular provision hereof, who supplied the form of Agreement, or any
other event of the negotiation, drafting or execution of this Agreement. Each
party agrees that this Agreement has been purposefully drawn and correctly
reflects its understanding of the transaction that it contemplates. In
construing this Agreement, the following principles will apply:
 
(a)  The Article, Section, Exhibit and Schedules references in this Agreement
refer to the Articles, Sections, Exhibits and Schedules of this Agreement. The
headings and titles in this Agreement are for convenience only and shall have no
significance in interpreting or otherwise affect the meaning of this Agreement.
 
(b)  The term “knowledge,” as applied to either party, shall mean the actual
knowledge of such party’s officers and directors, and its employees, agents,
representatives at a supervisory level and above.
 
(c)  The term “includes” and its derivatives shall mean “includes, but is not
limited to” and its corresponding derivative meanings.
 
11.20  Default and Remedies. If all of the conditions to Closing set forth in
Section 6.2 have not been satisfied or waived by the earlier of (i) September
30, 2006 and (ii) ninety (90) days after the delivery of Closing Notice, this
Agreement shall terminate automatically and no party hereto shall have any
further obligations or any liability to the other party pursuant to this
Agreement; provided, however, nothing herein shall relieve any party from
liability for willful failure to satisfy any conditions to Closing required to
be satisfied by it. 
 
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11.20.1  KMG’s Remedies. Upon failure of W&T to perform any of the obligations
under this Agreement to be performed by W&T prior to and on the Closing Date,
and such failure would prevent or materially delay the consummation of the
Merger, KMG, at KMG’s sole option, may (i) enforce specific performance, or (ii)
terminate this Agreement and retain the Performance Deposit as agreed liquidated
damages and not as a penalty. The remedies set forth in this Section 11.20.1
and, as applicable, Section 2.1.3 shall be KMG’s sole and exclusive remedies for
any such default, and KMG hereby expressly waives and releases all other
remedies (except as provided in Section 11.20.4).
 
11.20.2  W&T’s Remedies. Upon failure of KMG to perform any of the obligations
to be performed by KMG under Sections 5.1 or 5.2 or Article 10 prior to and on
the Closing Date, and such failure would have a material adverse effect on (i)
the Property, taken as a whole or (ii) the financial condition, or assets and
liabilities (taken as a whole) of KMG Sub, or would prevent or materially delay
the consummation of the Merger, W&T, at W&T’s sole option, may (i) enforce
specific performance, or (ii) terminate this Agreement and receive back the
Performance Deposit (without interest) from KMG. The remedies set forth in this
Section 11.20.2 and, as applicable, Section 2.1.3 shall be W&T’s sole and
exclusive remedies for such default, and W&T hereby expressly waives and
releases all other remedies (except as provided in Section 11.20.4).
 
11.20.3  Effect of Termination. Notwithstanding anything to the contrary in this
Agreement (except Section 11.20.4), in the event of termination of this
Agreement, the transaction shall not close and this Agreement shall become void
and have no further effect whatsoever, and no party hereto shall have any
further liability, obligations, right or duty to the other under this Agreement,
except as provided in Sections 11.20.1, 11.20.2, and 11.20.4, as applicable.
 
11.20.4  Other Remedies. Notwithstanding the provisions of Sections 11.20.1,
11.20.2 and 11.20.3, termination of this Agreement shall not prejudice or impair
KMG’s or W&T’s rights and obligations under Section 2.1.3 (Bond Premium Payment
Reimbursement), 5.1 (and the confidentiality agreements referenced therein), 5.2
(Physical Inspections), 5.3.2 (Inspection Results) and such other portions of
this Agreement as are necessary to the enforcement and construction of
Sections 2.1.3, 5.1, 5.2 and 5.3.2.
 

 

47

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IN WITNESS WHEREOF, the authorized representatives of KMG, KMG Sub, W&T and
Merger Sub execute this Agreement on the date first set forth above.
 
Kerr-McGee Oil & Gas Corporation
 
By: /s/ Grant W. Henderson
Grant W. Henderson
Vice President
W&T Offshore, Inc.
 
By: /s/ Tracy W. Krohn
Tracy W. Krohn
President & CEO
   
Kerr-McGee Oil & Gas (Shelf) LLC
 
By: /s/ Darrell E. Hollek
      Darrell E. Hollek
      Vice President
W&T Energy V, LLC
 
By: /s/ Jamie L. Vazquez
      Jamie L. Vazquez
      Assistant Secretary