common stock, which will be held in escrow until the conversion and cancellation of the preferred stock
or the exercise of the warrants held by EIG. The preferred stock will pay quarterly cash dividends of
6% per annum and an additional 2% per annum dividend. The 2% dividend may be deferred and
accumulated quarterly until paid. The shares of preferred stock also fully participate, on an
as-converted basis at four times, in cash dividends distributed to any class of common stockholders of
Plains Offshore.
The preferred holders have the right, at any time at their option, to convert any or all of such
holder’s preferred stock and exercise any of the associated non-detachable warrants into shares of
Class A common stock of Plains Offshore, at an initial conversion/exercise price of $20 per share; the
conversion price is subject to adjustment as a result of certain events. Furthermore, under the terms of
the securities purchase agreement, Plains Offshore has the right to convert all or a portion of the
outstanding shares of preferred stock if certain events occur more than 180 days after an initial public
offering or a qualified public offering of Plains Offshore. We have a right to purchase shares of
preferred stock, common stock and warrants under certain circumstances in order to permit the
consolidation of Plains Offshore for federal income tax purposes. Additionally, at any time on or after
the fifth anniversary of the closing date, we may exercise a call right to purchase all, but not less than
all, of the outstanding preferred stock and associated non-detachable warrants for cash, at a price
equal to the liquidation preference described below.
At any time after the fourth anniversary of the closing date, a majority of the preferred holders may
cause Plains Offshore to use its commercially reasonable efforts to consummate an exit event. An exit
event, as defined in the stockholders agreement, means, at the sole option of Plains Offshore (i) the
purchase by us or the redemption by Plains Offshore of all the preferred stock, warrants and common
stock held by the EIG Funds for the aggregate fair value thereof, or the repurchase option; (ii) a sale of
Plains Offshore or a sale of all or substantially all of its assets, in each case in an arms’ length
transaction with a third party, at the highest price available after reasonable marketing efforts by Plains
Offshore; or (iii) a qualified initial public offering. Under the repurchase option, the form of consideration
shall be at our sole discretion, which could be (a) cash, (b) our shares of registered, freely-tradable
common stock (valued at 95% of the average closing sale price) or (c) a combination of (a) and
(b) above. In the event that Plains Offshore fails to consummate an exit event prior to the applicable
exit event deadline, the conversion price of the preferred stock and the exercise price of the warrants
will immediately and automatically be adjusted such that all issued and outstanding shares of preferred
stock on an as-converted basis taken together with shares of common stock issuable upon exercise of
the warrants, in the aggregate, will constitute 49% of the common equity securities of Plains Offshore
on a fully diluted basis. In addition, we will be required to purchase $300 million of junior preferred
stock in Plains Offshore. If this occurs, our cash expenditures relating to the assets of Plains Offshore
will approximate the cash contribution made by EIG to Plains Offshore. Plains Offshore must use the
proceeds to repay its senior credit facility. See Note 5 – Long-Term Debt.
The preferred holders are entitled to vote on all matters on which common stockholders are
entitled to vote. Each holder is entitled to one vote for each share that such holder would be entitled to
receive if such holder’s shares of preferred stock were converted into common shares on the record
date set by the board of directors for such vote. Prior to an initial public offering, the holders have
preemptive rights with respect to certain issuances of equity securities of Plains Offshore. In the event
that we or any of our affiliates intend to transfer any of their common shares to an unaffiliated third
party purchaser, each other equity holder will have certain tag along rights.
In the event of liquidation of Plains Offshore, each preferred holder is entitled to receive the
liquidation preference before any payment or distribution is made on any junior or common stock. A
liquidation event includes any of the following events: (i) the liquidation, dissolution or winding up of
Plains Offshore, whether voluntary or involuntary, (ii) a sale, consolidation or merger of Plains Offshore
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