Related Party Transactions and Outside Related Director Information

Hercules Offshore, Inc. (HERO)

3/24/2006 Proxy Information

Initial Public Offering

We paid the expenses of the selling stockholders in our initial public offering, including a single firm of attorneys for the selling stockholders, other than the underwriting discounts, commissions and taxes with respect to shares of common stock sold by the selling stockholders and the fees and expenses of any other attorneys, accountants and other advisors separately retained by them. The total estimated fees payable by us with respect the offering were $1.2 million.

Registration Rights Agreement

We entered into a registration rights agreement with the members of our company at the time of our conversion to a Delaware corporation. Under the agreement, holders of at least 25% of the registrable securities subject to the agreement may require us to file a registration statement under the Securities Act of 1933 to register the sale of shares of our common stock, subject to certain limitations, including that the reasonably anticipated gross proceeds must be at least $15.0 million. These stockholders may request a total of three such demand registrations and only one in any six-month period. These holders also have the right to cause us to register their registrable securities on Form S-3, when it becomes available to us, if the reasonably anticipated gross proceeds would be at least $10.0 million. In addition, if we propose to register securities under the Securities Act, then the holders who are party to the agreement will have “piggy-back” rights, subject to quantity limitations determined by underwriters if the offering involves an underwriting, to request that we register their registrable securities. There is no limit to the number of these “piggy-back” registrations in which these holders may request their shares be included. We generally will bear the registration expenses incurred in connection with registrations. We have agreed to indemnify these stockholders against certain liabilities, including liabilities under the Securities Act, in connection with any registration effected under the agreement. These registration rights will terminate at the earlier of (a) seven years from the closing date of our initial public offering or (b) with respect to any holder, the date that all registrable securities held by that holder may be sold in a three-month period without registration under Rule 144 of the Securities Act and such registrable securities represent less than one-percent of all outstanding shares of our capital stock.


We were formed in July 2004 as a Delaware limited liability company. On November 1, 2005, in connection with our initial public offering, we were converted to a Delaware corporation named Hercules Offshore, Inc. Upon the conversion, (1) each outstanding membership interest of the limited liability company was converted into 350 shares of common stock of the corporation, and (2) each outstanding option to purchase membership interests of the limited liability company became an option for that whole number of shares of common stock equal to the number of interests subject to the option prior to conversion multiplied by 350, with an exercise price per share equal to the exercise price in effect prior to the conversion divided by 350.


One of our former managers, who served as manager from July 2004 until May 2005, is a principal in Bassoe Offshore USA, a provider of rig brokerage services. We paid $0.2 million to Bassoe in July 2005 for rig brokerage services in connection with our acquisition of a jackup rig. We also have engaged Bassoe to provide such services in connection with our sale of a platform rig.

In January 2005, we acquired a jackup rig from Porterhouse Offshore L.P. for $20.0 million. Thomas E. Hord, vice president, operations and chief operating officer of our drilling company subsidiary, Thomas J. Seward II, the former president of our drilling company subsidiary, and one of our former managers beneficially owned 1.3%, 1.3% and 2.6%, respectively, limited partnership interests in Porterhouse Offshore. In connection with this transaction, Mr. Hord received 217 membership interests valued at $0.2 million, Mr. Seward’s affiliate, the Thomas J. Seward II Defined Benefit Plan, received 216 membership interests valued at $0.2 million, and the former manager and his affiliate, Bass Rig AS, each received 432 membership interests valued at $0.4 million.

In addition, since January 1, 2005, our executive officers, directors and 5% stockholders invested cash and other property in our company in exchange for membership interests through a number of other private placements as follows:

• We issued 100 membership interests to Steven A. Manz, our chief financial officer, on January 20, 2005 for $0.1 million in cash.

• We issued 125 membership interests to Harbour Capital Consultants, Inc., an affiliate of Mr. Seward, on January 13, 2005 for $0.1 million in cash.

• We issued 322 membership interests to Mr. Hord on January 13, 2005 for $0.3 million in cash and other property.

• We issued 19 membership interests to Don P. Rodney, vice president, finance of our drilling company subsidiary, on January 13, 2005 for $19,000 in cash.

• We issued 2,702 membership interests to Kestrel Capital, LP, which interests are beneficially owned by Steven A. Webster, one of our directors, on January 13, 2005 for $2.7 million in cash and other property.

During 2005, one of our subsidiaries purchased an aggregate of approximately $167,000 in rig equipment monitoring products and services from MBH Datasource, Inc. Mr. Hord holds a 50% ownership interest in MBH Datasource.

We believe that the transactions described under this caption “—Other” were on terms that were reasonable and in our best interest, although those transactions, together with the arrangements described under “—Initial Public Offering” and “Registration Rights Agreement,” may not have been on or have terms as favorable to our company as we could have obtained from unaffiliated third-parties in arms-length transactions. In addition, our interests may conflict with those of Lime Rock, Greenhill and their affiliates with respect to our past and ongoing business relationships, and because of their ownership, we may not be able to resolve these conflicts on terms commensurate with those possible in arms-length transactions.