Document:

Unassociated Document

    
      

    

    Exhibit
      10.2

    

    AMES
      NATIONAL CORPORATION

    Ames,
      Iowa

    

    AMES
      NATIONAL CORPORATION STOCK PURCHASE PLAN

    Effective
      1999 through 2008

    

    August
      10, 2005

    

    GENERAL:

    The
      shareholders of the Ames National Corporation (Company) approved a resolution
      on
      January 27, 1999, renewing the existing stock purchase plan for a ten-year
      period, which included a broader group of employees and added limited
      participation by non-officer members of the Board of Directors. 

    

    OBJECTIVE:
      

    To
      encourage equity interests by officers, employees, and directors which provides
      additional incentive to improve banking performance and retain qualified
      individuals.

    

    ELIGIBILITY:

    Participants
      shall include all full-time Company and subsidiary banks’ (Banks) employees with
      three years of service and all current Company and Bank supervisors, officers,
      and members of the Boards of Directors. The eligibility requirements concerning
      length of employment will be determined as of December 31st of the preceding
      year. For the purpose of this plan, full-time participation will require 1,800
      hours of service. The three years of service need not be consecutive.
      Eligibility will not include employees, officers, or directors who are not
      in
      the employ of the Company or Banks as of June 15th.

    

    DISTRIBUTION:

    The
      total
      number of shares available each year shall be 42,000 with each non-officer
      director eligible to purchase up to 240 shares annually. The remaining shares
      will be allocated based upon the percentage of each participant’s compensation
      to total compensation of employees, supervisors, and officers.

    

    PRICE:

    The
      purchase price shall be determined annually by an independent appraiser as
      of
      March 31st unless there is ample evidence of current market transactions
      including NASDAQ or similar market pricing.

    

    In
      the
      event there is ample evidence of current market transactions, the fair market
      value of the stock shall be determined by the average of the closing prices
      on
      the last three days on which there was trading activity up to and including
      June
      8th.

    

    Participants
      and their allocated shares will be certified at the May meeting of the Board
      of
      Directors together with the purchase price (as previously described) to be
      in
      effect for the purchase of shares at the first business day prior to June
      16th.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ADMINISTRATION
      OF PLAN:

    The
      plan
      shall be administered by the Compensation Committee (the "Committee") of the
      Board of Directors of the Company. The Committee shall designate a person (the
      "Plan Coordinator") who shall coordinate the actions and information between
      Plan Participants and the Company. 

    

    PLAN
      MODIFICATION AND TERMINATION:

    The
      Plan
      will continue from year to year through 2008, but may be modified, suspended
      or
      discontinued at any time by the Company's Board of Directors. 

    

    CONCLUSION:

    This
      Plan
      is intended to clarify the Resolution presented to the Ames National Corporation
      shareholders on January 27, 1999, to provide information to current and
      prospective employees, officers, and directors, and to aid in administering
      the
      stock purchase plan.Exhibit 10.2 2005

    
      

    

    Exhibit
      10.2

    AMENDMENT
      NO. 1 

    TO
      THE

    KERR-McGEE
      CORPORATION

    DEFERRED
      COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

    Amended
      and Restated Effective as of January 1, 2003

    

    

    WHEREAS,
      the Kerr-McGee Corporation Deferred Compensation Plan for Non-Employee Directors
      (the “Plan”) was amended and restated in its entirety as of January 1,
      2003;

    

    WHEREAS,
      by the terms of Section 7.1 of the Plan, Kerr-McGee Corporation (the “Company”)
      reserves the right to amend the Plan at any time; and

    

    WHEREAS,
      the Company desires to amend the Plan to remove the option gain deferral feature
      in order to comply with Internal Revenue Code section 409A and applicable
      guidance thereto.

    

    NOW,
      THEREFORE,
      the Plan is amended as follows, effective January 1, 2005:

    

    
      	
              1.
                

            	
              Section
                4.1 of the Plan is amended by adding the following sentence to the
                end
                thereto:

            

    

    

    
      	 	
              “Notwithstanding
                anything herein to the contrary, no deferral election on a Deferral
                Form
                may defer the receipt of all or any portion of the gain attributable
                to a
                stock option or stock appreciation right award that vests after
                2004.”

            

    

    

    
      	
              2.

            	
              The
                first sentence of Section 4.1(a) of the Plan is amended and restated
                in
                its entirety to read as follows:

            

    

    

    
      	 	
              “A
                Director may elect to defer receipt of all or any portion of the
                gain
                attributable to a stock option or stock appreciation right award
                that
                vests before 2005.”

            

    

    

    

    IN
      WITNESS WHEREOF, KERR-MCGEE CORPORATION
      has, on its behalf and on behalf of its participating affiliates, caused this
      amendment to be executed by its duly authorized officers this 14th
      day of December, 2005.

    

    
      	
                  ATTEST:

            	
              KERR-McGEE
                CORPORATION

            
	 	 
	
                  /s/
                John F. Reichenberger

            	
              /s/
                Frances G. Heartwell

            
	
                  John
                F.
                Reichenberger

            	
              Frances
                G. Heartwell

            
	
                  Assistant
                Secretary

            	
              Vice
                President, Human ResourcesExhibit 10.4 2005

    
      

    

    Exhibit
      10.4

    AMENDMENT
      NO. 1

    TO
      THE

    KERR-McGEE
      CORPORATION

    EXECUTIVE
      DEFERRED COMPENSATION PLAN

    Amended
      and Restated Effective as of January 1, 2003

    

    

    WHEREAS,
      the
      Kerr-McGee Corporation Executive Deferred Compensation Plan (the “Plan”) was
      amended and restated in its entirety as of January 1, 2003;

    

    WHEREAS,
      by
      the terms of Section 7.1 of the Plan, Kerr-McGee Corporation (the “Company”)
      reserves the right to amend the Plan at any time; and

    

    WHEREAS,
      the
      Company desires to amend the Plan to remove the option gain deferral feature
      in
      order to comply with Internal Revenue Code section 409A and applicable guidance
      thereto.

    

    NOW,
      THEREFORE,
      the Plan is amended as follows, effective January 1, 2005:

    

    
      	
              1.

            	
              Section
                4.1 of the Plan is amended by adding the following sentence to the
                end
                thereto:

            

    

    

    “Notwithstanding
      anything herein to the contrary, no deferral election on a Deferral Form may
      defer the receipt of all or any portion of the gain attributable to a stock
      option or stock appreciation right award that vests after 2004.”

    

    
      	
              2.

            	
              The
                first sentence of Section 4.1(a) of the Plan is amended and restated
                in
                its entirety to read as follows:

            

    

    

    “An
      Eligible Employee may elect to defer receipt of all or any portion of the gain
      attributable to a stock option or stock appreciation right award that vests
      before 2005.”

    

    

    IN
      WITNESS WHEREOF, KERR-MCGEE CORPORATION has,
      on its behalf and on behalf of its participating affiliates, caused this
      amendment to be executed by its duly authorized officers this 14th
      day of December, 2005.

    

    
      	
                  ATTEST:

            	
              KERR-McGEE
                CORPORATION

            
	 	 
	
                  /s/
                John F. Reichenberger

            	
              /s/
                Frances G. Heartwell

            
	
                  John
                F.
                Reichenberger

            	
              Frances
                G. Heartwell

            
	
                  Assistant
                Secretary

            	
              Vice
                President, Human ResourcesExhibit 10.42 2005

    
      

    

    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

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    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

               

            

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    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

              

      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

      
        
          	 	
                  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

                

        

         

        
          
            
            

          

          
            ii

            
              

            

          

          
            
            

          

        

        
          	 	
                  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

                

        

      

    

    

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

    

    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.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    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”);
      

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    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

        
          

        

      

      
        
        

      

    

    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

        
          

        

      

      
        
        

      

    

    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

        
          

        

      

      
        
        

      

    

    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; 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (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.
      

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    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);

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (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.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    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;

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    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

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    (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.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    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. 

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    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. 

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    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).

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

    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

            	 

    

    

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

    

    
      	 	
              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. 

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

    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

        
          

        

      

      
        
        

        
        

      

    

    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

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