Public Offering Registration - HERCULES OFFSHORE, INC. - 7-8-2005

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Public Offering Registration - HERCULES OFFSHORE, INC. - 7-8-2005 Powered By Docstoc
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As filed with the Securities and Exchange Commission on July 8, 2005 Registration No. 333-

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Hercules Offshore, LLC to be converted as described herein to a corporation to be renamed

HERCULES OFFSHORE, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

1381
(Primary Standard Industrial Classification Code Number)

83-0402575
(I.R.S. Employer Identification No.)

2929 Briarpark Drive, Suite 435 Houston, Texas 77042 (713) 952-4176
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Steven A. Manz Chief Financial Officer Hercules Offshore, LLC 2929 Briarpark Drive, Suite 435 Houston, Texas 77042 (713) 952-4176
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to: David L. Emmons Tull R. Florey Baker Botts L.L.P. 910 Louisiana Street One Shell Plaza Houston, Texas 77002-4995 (713) 229-1234 Approximate date of commencement of proposed sale to the public: registration statement. T. Mark Kelly Douglas E. McWilliams Vinson & Elkins L.L.P. 1001 Fannin Street 2300 First City Tower Houston, Texas 77002-6760 (713) 758-2222 As soon as practicable after the effective date of this

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the ―Securities Act‖), check the following box.  If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1)(2) Amount of Registration Fee

Common Stock, par value $0.01 per share(3)

$172,500,000

$20,304

(1) Includes shares of common stock subject to an over-allotment option granted to the underwriters. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act. (3) Includes the associated rights to purchase preferred stock, which initially will be attached to and trade with the shares of common stock being registered hereby. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED JULY 8, 2005

Shares

Hercules Offshore, Inc. Common Stock
We are selling shares of our common stock and the selling stockholders are selling shares of our common stock. Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $ and $ per share. We will apply to list our common stock on the NASDAQ National Market under the symbol “HERK.” We will not receive any of the proceeds from the shares of common stock sold by the selling stockholders. The underwriters have an option to purchase a maximum of over-allotments of shares. additional shares from the selling stockholders to cover

Investing in our common stock involves risks. See “ Risk Factors ” beginning on page 11.
Price to Public Underwriting Discounts and Commissions Proceeds to Hercules Proceeds to Selling Stockholders

Per Share Total

$ $ $

$ $

$ $ , 2005.

$

Delivery of the shares of common stock will be made on or about

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Credit Suisse First Boston
Howard Weil Incorporated
The date of this prospectus is , 2005.

Citigroup
Simmons & Company
International

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TABLE OF CONTENTS
Page

P ROSPECTUS S UMMARY R ISK F ACTORS F ORWARD -L OOKING I NFORMATION U SE OF P ROCEEDS D IVIDEND P OLICY C APITALIZATION D ILUTION S ELECTED C ONSOLIDATED F INANCIAL D ATA M ANAGEMENT ’ S D ISCUSSION AND A NALYSIS OF F INANCIAL C ONDITION AND R ESULTS OF O PERATIONS I NDUSTRY O VERVIEW B USINESS M ANAGEMENT C ERTAIN R ELATIONSHIPS AND R ELATED P ARTY T RANSACTIONS S ELLING S TOCKHOLDERS D ESCRIPTION OF C APITAL S TOCK S HARES E LIGIBLE FOR F UTURE S ALE U NDERWRITING N OTICE TO C ANADIAN R ESIDENTS M ATERIAL U NITED S TATES F EDERAL T AX C ONSIDERATIONS FOR N ON -U.S. H OLDERS L EGAL M ATTERS E XPERTS W HERE Y OU C AN F IND M ORE I NFORMATION I NDEX TO F INANCIAL S TATEMENTS

1 11 21 23 23 24 25 26 28 42 47 56
Page

64 66 67 74 75 78 80 83 83 83 F-1

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. Dealer Prospectus Delivery Obligation Until , 2005 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. i

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Industry and Market Data In this prospectus, we rely on and refer to information regarding our industry from the U.S. Energy Information Administration, the U.S. Minerals Management Service, Bloomberg L.P., John S. Herold, Inc. and ODS-Petrodata, Inc. These organizations are not affiliated with us and are not aware of and have not consented to being named in this prospectus. Neither we nor the underwriters have independently verified the accuracy or completeness of this information. In addition, in many cases we have made statements in this prospectus regarding our industry and our position in the industry based on our experience in the industry and our own evaluation of market conditions. We cannot assure you that any of these statements are accurate or that our assumptions correctly reflect our position in the industry. Non-GAAP Financial Measures The body of accounting principles generally accepted in the United States is commonly referred to as ―GAAP.‖ A non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measures. In this prospectus, we disclose EBITDA, a non-GAAP financial measure. EBITDA is calculated as net income before interest expense, taxes, depreciation and amortization. EBITDA is not a substitute for the GAAP measures of earnings and cash flow. Financial Statements We were formed in July 2004 to provide drilling and liftboat services to the oil and natural gas exploration and production industry. Since our formation, we have acquired our fleet of jackup rigs and liftboats in a number of separate asset acquisitions, including: • • • • • • in August 2004, we acquired five jackup rigs from Parker Drilling Company and assumed the management of another jackup rig from an unrelated party; in October 2004, we acquired 22 liftboats from Global Industries, Ltd.; in January 2005, we acquired an additional jackup rig from Parker Drilling; in January 2005, we acquired a jackup rig, which we had been managing since August 2004, from Porterhouse Offshore L.P.; in June 2005, we acquired 17 liftboats, one of which we are holding for sale, from Superior Energy Services, Inc.; and in June 2005, we acquired a jackup rig from Transocean Inc.

As a result of our recent formation, we have limited operating history upon which you can base an evaluation of our current business and our future earnings prospects. This prospectus includes audited financial statements only as of December 31, 2004 and for the period from inception (July 27, 2004) to December 31, 2004 and unaudited financial statements as of and for the three-month period ended March 31, 2005. In this prospectus, we refer to the period from inception (July 27, 2004) to December 31, 2004 as the five-month period ended December 31, 2004. We have not completed or provided in this prospectus any stand-alone pre-acquisition financial statements for the assets we acquired in the transactions described above. As described under ―Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisition History and Financial Statement Presentation,‖ we have concluded that we are not required to include such pre-acquisition financial statements in this prospectus, and we believe that separate audited financial statements for the assets we acquired as of any date or for any period prior to our acquisition of those assets would not be meaningful to investors. As a result, and given our recent date of formation, we have not provided in this prospectus three years of audited financial statements that normally would be included in a prospectus forming part of an SEC registration statement. ii

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PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that is important to you or that you should consider before investing in our common stock. You should read carefully the entire prospectus, including the risk factors, financial data and financial statements included herein, before making a decision about whether to invest in our common stock. Unless the context requires otherwise or we specifically indicate otherwise, the information in this prospectus assumes that the underwriters do not exercise their over-allotment option, the information in this prospectus relating to us assumes the completion of the conversion of our company from a Delaware limited liability company to a Delaware corporation, which we refer to as the “Conversion,” as described under the caption “The Conversion” below, and the terms “Hercules,” “our company,” “we,” “our,” “ours” and “us” refer to Hercules Offshore, Inc. and its subsidiaries after giving effect to the Conversion. Our Company We are a leading provider of shallow-water drilling and liftboat services to the oil and natural gas exploration and production industry in the U.S. Gulf of Mexico. We currently own and operate a fleet of eight jackup rigs that can drill in maximum water depths ranging from 85 to 250 feet and a fleet of 38 liftboats with leg lengths ranging from 105 to 229 feet. In the U.S. Gulf of Mexico, we have the fourth-largest fleet of jackup rigs operating in water depths of 250 feet and less and the largest fleet of liftboats with leg lengths greater than 100 feet, with a market share of approximately 35% in this class of liftboats. We contract our jackup rigs and liftboats to major integrated energy companies and independent oil and natural gas operators. Our jackup rigs are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Our rigs are used primarily for exploration and development drilling in the shallow waters of the U.S. Gulf of Mexico. Six of our eight jackup rigs have a cantilever design that permits the drilling platform to be extended out from the hull to perform drilling or workover operations over certain types of preexisting platforms or structures. Our other two jackup rigs have a slot-type design, which requires drilling operations to take place through a slot in the hull. Historically, rigs with a cantilever design have maintained higher levels of utilization than rigs with a slot-type design, which are primarily used for exploratory drilling. However, one of our slot-type rigs has a competitive advantage in very shallow water as it is one of the few jackup rigs in the world that can drill in water depths as shallow as nine feet. We acquired six of our jackup rigs from Parker Drilling Company in two separate transactions completed in August 2004 and January 2005. We acquired a seventh jackup rig in January 2005 that we had previously operated under a management agreement with the rig’s prior owner. In June 2005, we acquired an eighth jackup rig located in the Middle East, Rig 16 , from Transocean Inc. We intend to refurbish Rig 16 in the United Arab Emirates and to seek work for the rig in a suitable international location. 1

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The following table contains information regarding our jackup rig fleet as of June 30, 2005.
Maximum/Minimu m Water Depth Rating (feet)

Rig Name

Type

Rated Drilling Depth(1) (feet)

11 15 16 20 21 22 25 30 (1) (2)

Mat-supported, cantilever Independent leg, slot Independent leg, cantilever Mat-supported, cantilever Mat-supported, cantilever Mat-supported, cantilever Independent leg, cantilever Mat-supported, slot

175/21 85/9 170/16 85/20 120/22 173/22 190/12 250/25

20,000 (2) 20,000 16,000 25,000 20,000 15,000 20,000 20,000

Rated drilling depth means drilling depth stated by the manufacturer of the rig. Depending on deck space and other factors, a rig may not have the actual capacity to drill at the rated drilling depth. Rated workover depth. Rig 11 is currently configured for workover activity.

Our liftboats are self-propelled, self-elevating vessels with a large open deck space, which provides a versatile, mobile and stable platform to support a broad range of offshore maintenance and construction services throughout the life of an oil or natural gas well. Once a liftboat is in position, typically adjacent to an offshore production platform or well, third-party service providers perform inspection, maintenance or construction service on the platform or well. Unlike larger and more costly alternatives, such as jackup rigs or construction barges, our liftboats are self-propelled and can quickly reposition at a worksite or move to another location without third-party assistance. We acquired 22 of our liftboats from Global Industries, Ltd. in October 2004 and 17 of our liftboats, one of which we are holding for sale, from Superior Energy Services, Inc. in June 2005. The following table contains information regarding the liftboat fleet we operate as of June 30, 2005.
Leg-Length/ Liftboat Class (feet) Number of Liftboats Average Deck Area (square feet) Average Maximum Deck Load (pounds)

229 190-215 140-150 120-130 105

2 3 5 14 14

5,000 4,108 2,463 1,869 1,381

500,000 567,000 200,000 133,357 117,143

We generally contract our jackup rigs and liftboats under daily rental agreements that provide for a fixed rental rate while operating, which we refer to as a ―dayrate.‖ To date, most of our contracts have been on a short-term basis. Our Industry and Recent Trends The drilling and liftboat service industry is cyclical and typically driven by general economic activity and changes in actual or anticipated oil and natural gas prices. In general, demand for our rigs is correlated to our customers’ expectations of energy prices, particularly natural gas prices. As a result, we expect that sustained high energy prices generally would have a positive impact on our earnings, whereas sustained low energy prices generally would have a negative impact on our earnings. Demand for liftboats historically has been less cyclical than demand for jackup rigs, although demand for liftboats and for jackup rigs generally is affected by the same factors. We believe that recent trends in the industry, including the trends identified below, should benefit our operations. 2

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Strong Commodity Price Environment. Currently, oil and natural gas prices are high relative to historical levels. The rolling twelve-month average price of oil has increased from $18.42 per barrel as of January 1, 1996 to $48.90 per barrel as of July 1, 2005. The rolling twelve-month average price of natural gas has increased from $1.72 per mmbtu to $6.33 per mmbtu over the same period. We believe that high oil and natural gas prices, if sustained, could result in increased exploration and development drilling activity and higher demand and dayrates for drilling and liftboat service companies. Growing U.S. Demand for Natural Gas and Maturing Natural Gas Fields . Most of our customers in the shallow-water U.S. Gulf of Mexico are drilling or maintaining natural gas wells. Currently, approximately one-quarter of domestic natural gas production comes from the U.S. Gulf of Mexico. According to the Energy Information Administration, or EIA, from 1988 to 2004 U.S. demand for natural gas grew by 12.0 billion cubic feet per day, equal to an annual rate of 1.4%, while domestic supply grew by 4.7 billion cubic feet per day, equal to an annual rate of 0.6%. Over the next two decades, the EIA projects a need for a 15% growth in domestic natural gas production (from approximately 19 trillion cubic feet to 22 trillion cubic feet per year) and an increase in liquefied natural gas, or LNG, imports from abroad in order to meet growing demand for natural gas. Although the overall number of natural gas wells drilled in the United States has increased in recent years, a corresponding increase in production has not been realized. We believe that a further increase in drilling activity for natural gas will be required as a result of the expected increasing demand for natural gas and the increasing production decline rates of natural gas wells in the United States. Increasing Capital Budgets of Oil and Natural Gas Producers. With commodity prices near historic highs, many oil and natural gas exploration and production companies are generating cash flow that exceeds their recent levels of capital investment. Many of these companies have been using a portion of their excess cash flow to increase capital budgets in an attempt to meet rising demand for oil and natural gas and to mitigate production and reserve declines. Reduced Supply of Jackup Rigs in the U.S. Gulf of Mexico . Increased international demand for jackup rigs has caused some contract drillers to redeploy rigs from the U.S. Gulf of Mexico to international areas, in many cases under multi-year contracts. According to ODS-Petrodata, the number of marketed jackup rigs in the U.S. Gulf of Mexico has declined from 149 rigs in March 2001 to 94 rigs in June 2005, a decline of approximately 37%. This redeployment, together with attrition, has reduced the overall supply of jackup rigs in the U.S. Gulf of Mexico and has created a more favorable operating environment for service companies, with increased utilization and higher dayrates for the remaining rigs. In addition, we believe a substantial majority of the newbuild jackup rigs recently ordered in the industry, which according to ODS-Petrodata have estimated construction costs per rig ranging from approximately $100.0 million to $150.0 million, are intended to service the rising demand in international drilling markets. Aging Production Infrastructure in the U.S. Gulf of Mexico. The aging of production platforms in the U.S. Gulf of Mexico is expected to increase the demand for the types of maintenance and decommissioning services provided from our liftboat fleet. Currently, there are over 3,900 production platforms in the U.S. Gulf of Mexico, of which approximately 59% are more than 15 years old and 83% are in water depths of 180 feet or less, which is within the operating capability of our liftboat fleet. These production platforms are generally subject to extensive and detailed periodic inspections and require frequent maintenance. Accordingly, we believe the aging of the U.S. Gulf of Mexico production platforms will provide a source of demand for liftboat services that is less discretionary, and more stable, than drilling activity. Our Strengths Favorable Niche Position in Shallow-Water Jackup Rig Market. We believe that our fleet of jackup rigs fills an important niche in the shallow-water drilling market of the U.S. Gulf of Mexico, with three of our eight rigs capable of working in special drilling situations. Our Rig 21 and Rig 22 are the only jackup rigs in the U.S. Gulf 3

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of Mexico with square mats, which allow these rigs to approach a platform from all four sides. This characteristic is particularly important in the U.S. Gulf of Mexico where many platforms have pipelines beneath the structure. Rig 15 is one of the few jackup rigs in the U.S. Gulf of Mexico capable of working in water depths as shallow as nine feet. We believe these characteristics contribute to the utilization of our rig fleet. Leading Provider of Liftboat Services in U.S. Gulf of Mexico. We operate the largest fleet of liftboats in the U.S. Gulf of Mexico with leg lengths greater than 100 feet. Our liftboat fleet comprises a broad range of liftboat sizes and capabilities, which allows us to provide customers with an effective and cost-efficient liftboat for a particular application. Our large liftboat fleet is deployed across the major producing areas of the U.S. Gulf of Mexico continental shelf, permitting us more effectively to respond to customer demand and minimize travel time between jobs. We believe our liftboat captains and crews are some of the most experienced in the industry. Operation of Jackup Rigs and Liftboats Provides Balance to Our Business. Jackup rigs are used primarily for exploration and development drilling. Consequently, utilization and dayrates for jackup rigs tend to be more closely correlated with oil and natural gas price expectations and drilling activity levels than utilization and dayrates for liftboats. In contrast, liftboats are used throughout the life of an oil and natural gas field. As a result, utilization and dayrates for liftboats tend to be more stable than for jackup rigs. We believe that our liftboats help us balance our exposure to commodity prices and drilling activity levels that we experience with our jackup rigs. Strong Relationships with a Diversified Customer Base. Our customer base includes major integrated energy companies and independent exploration and production companies. This customer base provides exposure to the spending patterns of major integrated energy companies, which are more stable, and of smaller independent exploration and production companies, which are more commodity-driven and subject to wider fluctuations. We benefit from our management’s long-standing relationships with many of our customers, and in some instances, we have preferred service provider relationships with our clients. Experienced and Incentivized Management Team . Our senior and operating level management team has extensive industry experience in the U.S. Gulf of Mexico and internationally, with an average of approximately 25 years of experience in the oil service industry. We believe that their considerable knowledge of and experience in our industry enhances our ability to operate effectively throughout industry cycles. Our management also has substantial experience in identifying and completing asset acquisitions. Our incentive compensation plans are designed to align our management’s interests with our operating, financial and safety performance. Our Strategies Focus on Drilling and Liftboat Services. We view our core business as providing shallow-water drilling and liftboat services to the exploration and production industry. As one of the largest operators of shallow-water jackup rigs and liftboats in the U.S. Gulf of Mexico, we believe we are well-positioned to benefit from any increased levels of drilling and production maintenance activity. We also intend to selectively pursue expansion opportunities in international markets with characteristics similar to the shallow-water U.S. Gulf of Mexico, such as West Africa, the Middle East and the Asia-Pacific region. Maintain Our Status as an Efficient, Low-Cost Service Provider . We strive to maintain an organizational structure and asset base that allow us to be an efficient, low-cost service provider in the industry. Because of the smaller rig and crew sizes required to operate our jackup fleet as compared to higher specification assets, we believe our rigs have an operating and capital cost advantage. In addition, our liftboat operations are organized to allow for the integration of future liftboat acquisitions without significant incremental overhead. Pursue Strategic Growth Opportunities . We believe that opportunities remain to acquire shallow-water rigs from service providers that are more focused on higher specification assets needed to service customers operating 4

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in the deepwater market segment or drilling complex ultra-deep wells. We also believe that opportunities exist to acquire liftboats from smaller-scale operators as those operators may opt for consolidation given the economic and operational advantages associated with operating a larger fleet. Remain Financially Disciplined and Conservative. We use return on capital employed in evaluating new investments and intend to pursue only those investments that we believe will produce strong returns on capital employed throughout an entire industry cycle. Furthermore, we intend to maintain a conservative capital structure and sufficient liquidity to operate throughout the industry cycle. Recent Developments Liftboat Acquisition from Superior Energy. In June 2005, we acquired 17 liftboats from Superior Energy Services, Inc. for an aggregate purchase price of $20.0 million. One of these liftboats is being held for sale. The liftboats we acquired have leg lengths ranging from 105 to 130 feet. Jackup Rig Acquisition from Transocean . In June 2005, we acquired our jackup rig Rig 16 from Transocean Inc. for a purchase price of $20.0 million. This rig is capable of drilling in water depths of up to 170 feet and is currently cold-stacked in the Middle East. We intend to refurbish Rig 16 in the United Arab Emirates and to seek work for the rig in a suitable international location. Option to Acquire Odin Spirit. In June 2005, we paid $250,000 for an option to purchase the Odin Spirit , a 250-foot mat-supported, slot jackup rig. The exercise price of the option is $12.5 million, plus an additional amount relating to certain approved capital expenditures to be undertaken on this rig prior to any closing of the purchase. We would apply the $250,000 option fee to the payment of the exercise price upon any exercise. If we exercise this option, we anticipate that we would complete the acquisition of the rig in the third quarter of 2005. The rig is currently located in Singapore and, if acquired, we expect to spend a significant amount to refurbish the rig and to seek work for it in a suitable international location. Senior Secured Credit Agreement. In June 2005, we entered into a senior secured credit agreement with a syndicate of financial institutions. This agreement provides for a $140.0 million term loan and a $25.0 million revolving credit facility. The term loan matures in June 2010 and has quarterly principal payments in an amount equal to 1% per annum. We used $54.6 million of the proceeds from the term loan to repay all outstanding amounts under the credit facility of our drilling company subsidiary and $47.5 million of the proceeds to repay all outstanding amounts under the credit facility of our liftboat company subsidiary, in each case including accrued interest, fees and applicable prepayment premiums. We terminated both of those credit facilities in connection with the repayment. In addition, we used $20.0 million of the remaining proceeds from the term loan to fund the purchase price of Rig 16 . The Conversion We were formed in July 2004 as a Delaware limited liability company. Prior to the completion of this offering, we will convert to a Delaware corporation and change our name to Hercules Offshore, Inc. In the Conversion, each of our limited liability company interests will be converted into shares of common stock. Upon completion of the Conversion, we will have outstanding shares of common stock, 57.5% of which will be owned by LR-Hercules Holdings, L.P. (―Lime Rock‖) and 28.8% of which will be owned by Greenhill Capital Partners, L.P. and its affiliates (―Greenhill‖). Following this offering, Lime Rock will hold % of the outstanding common stock (or % if the underwriters exercise the over-allotment option in full), and Greenhill will hold % of the outstanding common stock (or % if the underwriters exercise the over-allotment option in full). 5

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Given our status as a limited liability company, our owners elected to be taxed at the member unitholder level rather than at the company level. Following the Conversion, we will be taxed at the company level. As a result, for periods following the Conversion, our financial statements will include a tax provision on our income. On a pro forma basis after giving effect to the Conversion, as if we had been subject to income taxes, we would have recorded a tax provision of approximately $2.9 million for the five-month period ended December 31, 2004 and approximately $4.1 million for the three-month period ended March 31, 2005. In addition, upon completion of the Conversion, we will record a tax provision related to the recognition of deferred taxes equal to the tax effect of the difference between the book and tax basis of our assets and liabilities as of the effective date of the Conversion. Assuming we had completed the Conversion as of June 30, 2005, the amount of the provision would have been approximately $ million. For additional information about the Conversion, please read ―Certain Relationships and Related Party Transactions—Conversion.‖ Principal Executive Offices Our principal executive offices are located at 2929 Briarpark Drive, Suite 435, Houston, Texas 77042, and our telephone number is (713) 952-4176. Our corporate website address is www.herculesoffshore.com . The information contained in or accessible from our corporate website is not part of this prospectus. 6

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The Offering Common stock offered by us Common stock offered by the selling stockholders Common stock to be outstanding after the offering Common stock held by the selling stockholders after the offering Use of proceeds full). We estimate that the net proceeds to us from this offering, after deducting underwriter discounts and commissions and our estimated offering expenses, will be approximately $ million. We intend to use the net proceeds from this offering to repay a portion of the amounts outstanding under our new term loan and for other corporate purposes, which may include the acquisition and refurbishment of the Odin Spirit and the acquisition of additional rigs and liftboats. We will not receive any proceeds from the sale of common stock by the selling stockholders. See ―Use of Proceeds.‖ The selling stockholders have granted the underwriters a 30-day option to purchase a maximum of additional shares of our common stock at the initial public offering price to cover over-allotments. You should consider carefully all of the information set forth in this prospectus and, in particular, the specific factors set forth under ―Risk Factors‖ below, before deciding whether to invest in our common stock. We do not intend to declare or pay regular dividends on our common stock in the foreseeable future. HERK shares shares shares shares ( shares if the underwriters exercise the over-allotment option in

Over-allotment option

Risk factors

Dividend policy NASDAQ National Market symbol for our common stock

The number of shares of our common stock to be outstanding after this offering excludes shares of common stock reserved for issuance under our 2004 long-term incentive plan, of which options to purchase shares at a weighted average exercise price of $ per share have been issued as of June 30, 2005, after giving effect to the Conversion. Effective upon and subject to the completion of this offering, we plan to grant options to purchase an aggregate of shares of our common stock to employees with an exercise price equal to the public offering price per share indicated on the cover of this prospectus. The number of shares of common stock to be outstanding after the offering set forth in this prospectus does not take these awards into account. 7

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Summary Consolidated Financial Data We have derived the following consolidated financial information as of and for the five-month period ended December 31, 2004 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated financial information as of and for the three-month period ended March 31, 2005 from our unaudited consolidated financial statements included elsewhere in this prospectus. The consolidated financial information as of and for the three-month period ended March 31, 2005 includes, in management’s opinion, all adjustments necessary for the fair presentation of our financial position as of such date and our results of operations for such period. We were formed in July 2004 and commenced operations in August 2004. From our formation to March 31, 2005, we completed several significant asset acquisitions that impact the comparability of our historical financial results. Our financial results reflect the impact of the assets only after the date of their acquisition. This prospectus does not include any financial information relating to the assets for periods prior to their acquisition date. As described under ―Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisition History and Financial Statement Presentation,‖ we have concluded that we are not required to include such pre-acquisition financial statements in this prospectus, and we believe that separate audited financial statements for the assets we acquired as of any date or for any period prior to our acquisition of those assets would not be meaningful to investors. In addition, prior to the completion of this offering, we will convert from a Delaware limited liability company to a Delaware corporation to be renamed Hercules Offshore, Inc. Please read ―—The Conversion‖ above. As a result of the foregoing, the historical financial information may not be indicative of our future performance. In addition, our results of operations for the five-month period ended December 31, 2004 and the three-month period ended March 31, 2005 are not necessarily indicative of the results of operations that may be achieved for an entire year. You should read the following information in conjunction with ―Selected Consolidated Financial Data,‖ ―Management’s Discussion and Analysis of Financial Condition and Results of Operations‖ and our consolidated financial statements and the related notes included elsewhere in this prospectus. 8

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Five Months Ended December 31, 2004 Three Months Ended March 31, 2005

(dollars in thousands, except per share data)

INCOME STATEMENT DATA: Revenues: Drilling services Marine services Total revenues Costs and Expenses: Operating expenses for drilling services Operating expenses for marine services Depreciation and amortization General and administrative Total costs and expenses Operating Income Other Income (Expense): Interest expense Other, net Total other income (expense) Net Income(a) Net Income Per Share(a)(b): Basic Diluted Weighted Average Shares Outstanding(b): Basic Diluted OTHER FINANCIAL DATA: EBITDA(c) Net cash (used in) provided by: Operating activities Investing activities Financing activities Capital expenditures Deferred drydocking expenditures

$

24,006 7,722 31,728 12,799 4,198 2,016 2,808 21,821 9,907 (2,070 ) 228 (1,842 )

$

24,891 9,164 34,055 11,241 4,580 2,462 2,201 20,484 13,571 (2,303 ) 134 (2,169 )

$

8,065

$

11,402

$

12,151 (6,495 ) (96,274 ) 117,229 94,443 601
As of December 31, 2004

$

16,167 6,548 (40,949 ) 28,488 42,326 623
As of March 31, 2005

(dollars in thousands)

BALANCE SHEET DATA: Cash and cash equivalents Working capital Total assets Long-term debt, net of current portion Total members’ equity 9

$

14,460 30,283 132,156 53,000 71,087

$

8,547 30,972 173,859 77,000 86,818

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Five Months Ended December 31, 2004 Three Months Ended March 31, 2005

OPERATING DATA: Rigs: Number of rigs (as of end of period) Average revenue per rig per day(d) Rig utilization(e) Liftboats: Number of liftboats (as of end of period) Average revenue per liftboat per day(d) Liftboat utilization(e) (a)

$

5 32,098 99.6 % 22 5,720 68.9 %

$

7 40,833 99.3 % 22 6,311 73.3 %

$

$

(b)

(c)

On a pro forma basis after giving effect to the Conversion, as if we had been subject to income taxes, for the five-month period ended December 31, 2004 and the three-month period ended March 31, 2005, net income would have been $5.2 million and $7.3 million, respectively, and diluted net income per share would have been $ and $ , respectively. The weighted average shares outstanding reflects the conversion of each outstanding membership interest into a total of shares of common stock. The calculation of diluted weighted average shares outstanding includes outstanding options to purchase and shares of common stock for the five-month period ended December 31, 2004 and the three-month period ended March 31, 2005, respectively. EBITDA consists of net income before interest expense, taxes, depreciation and amortization. See ―Non-GAAP Financial Measures.‖ EBITDA is included in this prospectus because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using EBITDA. In addition, we utilize EBITDA in evaluating acquisition targets. Management also believes that EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. EBITDA is not a substitute for the GAAP measures of earnings or of cash flow and is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented for us may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, taxes, depreciation and amortization. The following tables reconcile EBITDA with our net income and with our net cash provided by (used in) operating activities. Reconciliation of EBITDA
Five Months Ended December 31, 2004 Three Months Ended March 31, 2005 (dollars in thousands)

Net income Plus: interest expense Plus: depreciation and amortization EBITDA Less: interest expense Plus: amortization of deferred financing fees Plus: allowance for doubtful accounts Less: increase in current assets Plus: increase in current liabilities Net cash (used in) provided by operating activities (d)

$

8,065 2,070 2,016 12,151 (2,070 ) 215 519 (22,379 ) 5,069

$

11,402 2,303 2,462 16,167 (2,303 ) 246 — (8,534 ) 972

$

(6,495 )

$

6,548

(e)

Average revenue per rig or liftboat per day in the table above and elsewhere in this prospectus is defined as revenue earned by our rigs or liftboats, as applicable, in the period divided by the total number of days our rigs or liftboats, as applicable, were under contract, known as operating days, in the period. Utilization for our fleet shown in the table above and elsewhere in this prospectus is defined as the total number of operating days for our rigs or liftboats, as applicable, in the period as a percentage of the total number of calendar days in the period.

10

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RISK FACTORS You should carefully consider each of the following risks and all of the information set forth in this prospectus before deciding to invest in our common stock. If any of the following risks and uncertainties develop into actual events, our business, financial condition, results of operations or cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks faced by us described below and elsewhere in this prospectus. See “Forward-Looking Information.” Risks Related to Our Business Our business depends on the level of activity in the oil and natural gas industry in the U.S. Gulf of Mexico, which is significantly affected by volatile oil and natural gas prices. Our business depends on the level of activity in oil and natural gas exploration, development and production primarily in the U.S. Gulf of Mexico, and in particular, the level of exploration, development and production expenditures of our customers. Oil and natural gas prices and our customers’ expectations of potential changes in these prices significantly affect this level of activity. In particular, changes in the price of natural gas materially affect our operations because drilling in the shallow-water U.S. Gulf of Mexico is primarily focused on developing and producing natural gas reserves. Oil and natural gas prices are extremely volatile and are affected by numerous factors, including the following: • • • • • • • • • the demand for oil and natural gas in the United States and elsewhere; the cost of exploring for, producing and delivering oil and natural gas; economic and weather conditions in the United States and elsewhere; expectations regarding future prices; advances in exploration, development and production technology; the ability of the Organization of Petroleum Exporting Countries, commonly called ―OPEC,‖ to set and maintain production levels and pricing; the level of production in non-OPEC countries; the policies of various governments regarding exploration and development of their oil and natural gas reserves; and the worldwide military and political environment, uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in the Middle East or further acts of terrorism in the United States, or elsewhere.

Depending on the market prices of oil and natural gas, companies exploring for oil and natural gas may cancel or curtail their drilling programs, thereby reducing demand for drilling services. Any reduction in the demand for drilling and liftboat services may materially erode dayrates and utilization rates for our units, which would adversely affect our financial condition and results of operations. Demand for our services is highly cyclical and limited by our areas of operation. Historically, the offshore service industry has been highly cyclical, with periods of high demand and high dayrates often followed by periods of low demand and low dayrates. Periods of low demand intensify the competition in the industry and often result in rigs or liftboats being idle for long periods of time. We may be required to idle rigs or liftboats or enter into lower dayrate contracts in response to market conditions in the 11

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future. In the U.S. Gulf of Mexico, contracts are generally short term, and oil and natural gas companies tend to respond quickly to upward or downward changes in prices. Due to the short-term nature of most of our contracts, changes in market conditions can quickly affect our business. In addition, customers generally have the right to terminate our contracts with little or no notice, and without penalty. As a result of the cyclicality of our industry, we expect our results of operations to be volatile. In addition, the U.S. Gulf of Mexico, and in particular the shallow-water region of the U.S. Gulf of Mexico, is a mature oil and natural gas production region that has experienced substantial seismic survey and exploration activity for many years. Because a large number of oil and natural gas prospects in this region have already been drilled, additional prospects of sufficient size and quality could be more difficult to identify. According to the EIA, the average size of the U.S. Gulf of Mexico discoveries has declined significantly since the early 1990s. In addition, the amount of natural gas production in the shallow-water U.S. Gulf of Mexico has declined over the last decade. Moreover, oil and natural gas companies may be unable to obtain financing necessary to drill prospects in this region. The decrease in the size of oil and natural gas prospects, the decrease in production or the failure to obtain such financing may result in reduced drilling activity in the U.S. Gulf of Mexico. In addition, we expect demand for drilling and liftboat services in this region to continue to fluctuate, and such fluctuations may adversely affect our financial condition and results of operations. Our industry is highly competitive, with intense price competition. Our industry is highly competitive. Our contracts are traditionally awarded on a competitive bid basis. Pricing is often the primary factor in determining which qualified contractor is awarded a job. Dayrates also depend on the supply of vessels. Generally, excess marine service capacity puts downward pressure on dayrates. Excess capacity can occur when newly constructed vessels enter the market, when vessels are mobilized between market areas and when non-marketed vessels are re-activated. Many other companies in the drilling industry are larger than we are and have more diverse fleets, or fleets with generally higher specifications, and greater resources than we have. In addition, the competitive environment has intensified as recent mergers among oil and natural gas companies have reduced the number of available customers. Finally, competition among shallow-water drilling and marine service providers is also affected by each provider’s reputation for safety and quality. We cannot assure you that we will be able to maintain our competitive position, and we believe that competition for contracts will continue to be intense in the foreseeable future. A single customer accounts for a significant portion of our revenues. We derive a significant amount of our revenue from a single major integrated energy company. Chevron Corporation represented approximately 25% and 38% of our marine services revenues for the five-month period ended December 31, 2004 and the three-month period ended March 31, 2005, respectively. Chevron represented approximately 33% and 31% of our drilling services revenues for the five-month period ended December 31, 2004 and the three-month period ended March 31, 2005, respectively. If completed, the recently announced merger of Chevron and Unocal Corporation could result in a decrease in Chevron’s activity in the U.S. Gulf of Mexico. Our financial condition and results of operations will be materially adversely affected if Chevron curtails its activities in the U.S. Gulf of Mexico, terminates its contracts with us, fails to renew its existing contracts or refuses to award new contracts to us and we are unable to enter into contracts with new customers at comparable dayrates. Re-activation of non-marketed rigs or mobilization of rigs back to the U.S. Gulf of Mexico could result in excess rig supply in the region. If industry conditions continue to improve, inactive rigs that are not currently being marketed could be reactivated to meet an increase in demand for drilling rigs. Improved market conditions, particularly relative to other drilling markets, could also lead to jackup rigs and other mobile offshore drilling units being moved into the U.S. Gulf of Mexico or could lead to increased rig construction and rig upgrade programs by our competitors. Some of our competitors have already announced plans to upgrade existing equipment or build additional jackup 12

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rigs with higher specifications than our rigs. According to ODS-Petrodata, as of June 15, 2005, 33 jackup rigs had been ordered by industry participants, national oil companies and financial investors for delivery through 2009. A significant increase in the supply of jackup rigs or other mobile offshore drilling units could adversely affect both our utilization and dayrates. Upgrade and refurbishment projects are subject to risks, including delays and cost overruns, which could have an adverse impact on our results of operations. We make upgrade and refurbishment expenditures for our fleet from time to time, including when we acquire units or when repairs or upgrades are required by law or in response to an inspection by a governmental authority. We intend to refurbish Rig 16 , a rig that we recently acquired and that has not worked for approximately six years. In addition, if we exercise the option to purchase the Odin Spirit as described under ―Prospectus Summary—Recent Developments,‖ we would expect to spend a significant amount to refurbish the rig prior to placing it into service. Upgrade and refurbishment projects are subject to the risks of delay or cost overruns inherent in any large construction project, including costs or delays resulting from the following: • • • • • • • • • unexpectedly long delivery times for key equipment and materials; shortages of skilled labor necessary to perform the work; unforeseen increases in the cost of equipment, labor and raw materials, particularly steel; unforeseen engineering problems; unanticipated actual or purported change orders; work stoppages; financial or other difficulties at shipyards; adverse weather conditions; and inability to obtain required permits or approvals.

Significant cost overruns or delays would adversely affect our financial condition and results of operations. Additionally, capital expenditures for rig upgrade and refurbishment projects could exceed our planned capital expenditures. Our jackup rigs are at a relative disadvantage to higher specification rigs. Many of our competitors have jackup fleets with generally higher specification rigs than those in our jackup fleet. Particularly during market downturns when there is decreased rig demand, higher specification rigs may be more likely to obtain contracts than lower specification jackup rigs such as ours. In addition, higher specification rigs may be more adaptable to different operating conditions and therefore have greater flexibility to move to areas of demand in response to changes in market conditions. Because many of our rigs were designed specifically for drilling in the shallow-water U.S. Gulf of Mexico, our ability to move them to other regions in response to changes in market conditions is limited. Furthermore, in recent years, an increasing amount of exploration and production expenditures have been concentrated in deepwater drilling programs and deeper formations, including deep natural gas prospects, requiring higher specification jackup rigs, semisubmersible drilling rigs or drillships. This trend is expected to continue and could result in a decline in demand for lower specification jackup rigs like ours, which could have an adverse impact on our financial condition and results of operations. Our acquisition strategy may be unsuccessful if we incorrectly predict operating results, are unable to identify and complete future acquisitions, fail to successfully integrate acquired assets or businesses we acquire, or are unable to obtain financing for acquisitions on acceptable terms. The acquisition of assets or businesses that are complementary to our drilling and liftboat operations is an important component of our business strategy. We believe that attractive acquisition opportunities may arise from time to time, and any such acquisition could be significant. At any given time, discussions with one or more potential sellers may be at different stages. However, we cannot assure you that any such discussions will result 13

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in the consummation of an acquisition transaction or that we will be able to identify or complete any acquisitions, and we cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our common stock. Any future acquisitions could present a number of risks, including: • • • the risk of incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized as a result of acquiring operations or assets; the risk of failing to integrate the operations or management of any acquired operations or assets successfully and timely; and the risk of diversion of management’s attention from existing operations or other priorities.

In addition, we may not be able to obtain, on terms we find acceptable, sufficient financing that may be required for any such acquisition or investment. If we are unsuccessful in completing acquisitions of other operations or assets, our financial condition could be adversely affected and we may be unable to implement an important component of our business strategy successfully. In addition, if we are unsuccessful in integrating our acquisitions in a timely and cost-effective manner, our financial condition and results of operations could be adversely affected. Our business involves numerous operating hazards, and our insurance may not be adequate to cover our losses. Our operations are subject to the usual hazards inherent in the drilling and operation of oil and natural gas wells, such as blowouts, reservoir damage, loss of production, loss of well control, punchthroughs, craterings, fires and pollution. The occurrence of these events could result in the suspension of drilling or production operations, claims by the operator, severe damage to or destruction of the equipment involved and injury or death to rig or liftboat personnel. We may also be subject to personal injury and other claims of rig or liftboat personnel as a result of our drilling and liftboat operations. Operations also may be suspended because of machinery breakdowns, abnormal operating conditions, failure of subcontractors to perform or supply goods or services and personnel shortages. In addition, our drilling and liftboat operations are subject to perils peculiar to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Tropical storms, hurricanes and other severe weather prevalent in the U.S. Gulf of Mexico, such as Hurricane Ivan in September 2004, could have a material adverse effect on our operations. In addition, less severe storms could result in our liftboats leaving location and ceasing to earn a dayrate until the weather and sea conditions improve. Damage to the environment could result from our operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to property, environmental and other damage claims by oil and natural gas companies and other businesses operating offshore and in coastal areas. Our insurance policies and contractual rights to indemnity may not adequately cover losses, and we may not have insurance coverage or rights to indemnity for all risks. Moreover, pollution and environmental risks generally are not totally insurable. Following the terrorist attacks on September 11, 2001, insurance underwriters increased insurance premiums for many of the coverages historically maintained and issued general notices of cancellation to their customers for war risk, terrorism and political risk insurance in respect of a wide variety of insurance coverages, including liability and aviation coverages. Insurance markets are volatile. Insurance premiums and/or deductibles could be increased further or coverages may be unavailable in the future. If a significant accident or other event, including terrorist acts, war, civil disturbances, pollution or environmental damage, occurs and is not fully covered by insurance or a recoverable indemnity from a customer, it could adversely affect our financial condition and results of operations. Moreover, we may not be able to maintain adequate insurance in the future at rates we consider reasonable or be able to obtain insurance against certain risks. 14

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Failure to employ a sufficient number of skilled workers or an increase in labor costs could hurt our operations. We require skilled personnel to operate and provide technical services and support for our rigs and liftboats. In periods of increasing activity and when the number of operating units in the U.S. Gulf of Mexico increases, either because of new construction, re-activation of idle units or the mobilization of units into the region, shortages of qualified personnel could arise, creating upward pressure on wages and difficulty in staffing our units. In addition, our ability to expand our operations depends in part upon our ability to increase the size of our skilled labor force. We will need to hire additional rig-based employees in connection with the commencement of operations of Rig 16 and , if we decide to exercise our purchase option, of the Odin Spirit . Moreover, in the past year, our labor costs have increased significantly. Although our employees are not covered by a collective bargaining agreement, the marine services industry has been targeted by maritime labor unions in an effort to organize U.S. Gulf of Mexico employees. A significant increase in the wages paid by competing employers or the unionization of our U.S. Gulf of Mexico employees could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both. If either of these events were to occur, our capacity and profitability could be diminished and our growth potential could be impaired. Governmental laws and regulations may add to our costs or limit drilling activity and liftboat operations. Our operations are affected in varying degrees by governmental laws and regulations. The industries in which we operate are dependent on demand for services from the oil and natural gas industry and, accordingly, are also affected by changing tax and other laws relating to the energy business generally. We are also subject to the jurisdiction of the United States Coast Guard, the National Transportation Safety Board and the United States Customs and Border Protection Service, as well as private industry organizations such as the American Bureau of Shipping. We may be required to make significant capital expenditures to comply with laws and the applicable regulations and standards of those authorities and organizations. Moreover, the cost of compliance could be higher than anticipated. Similarly, as we expand our international operations, we will become subject to certain international conventions and the laws, regulations and standards of other foreign countries in which we operate. It is also possible that these conventions, laws, regulations and standards may in the future add significantly to our operating costs or limit our activities. In addition, as our vessels age, the costs of drydocking the vessels in order to comply with government laws and regulations and to maintain their class certifications are expected to increase, which could have an adverse effect on our financial condition and results of operations. Compliance with or a breach of environmental laws can be costly and could limit our operations. Our operations are subject to regulations that require us to obtain and maintain specified permits or other governmental approvals, control the discharge of materials into the environment, require the removal and cleanup of materials that may harm the environment or otherwise relate to the protection of the environment. For example, as an operator of mobile offshore drilling units and liftboats in navigable U.S. waters and some offshore areas, we may be liable for damages and costs incurred in connection with oil spills or other unauthorized discharges of chemicals or wastes resulting from those operations. Laws and regulations protecting the environment have become more stringent in recent years, and may in some cases impose strict liability, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. Some of these laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed. The application of these requirements, the modification of existing laws or regulations or the adoption of new requirements could have a material adverse effect on our financial condition and results of operations. 15

Table of Contents Index to Financial Statements

The cost of becoming a reporting company could have an adverse impact on our business. Following this offering, we will be subject to reporting and other obligations under the Securities Exchange Act of 1934. These requirements include the preparation and filing of detailed annual, quarterly and current reports. In addition, we will be required to keep abreast of and comply with material changes in the applicable rules and regulations promulgated by the SEC, including the changes and requirements mandated by the Sarbanes-Oxley Act of 2002. We expect these rules and regulations to result in both a significant initial cost, as we implement internal controls and other procedures designed to comply with the requirements of the Sarbanes-Oxley Act, and in an ongoing increase in our legal, audit and financial compliance costs, to divert management attention from operations and strategic opportunities and to make legal, accounting and administrative activities more time-consuming and costly. We also expect to incur substantially higher costs to maintain directors and officers insurance. We will be subject to additional political, economic, and other uncertainties as we expand our international operations. An element of our business strategy is to expand into international oil and natural gas producing areas such as West Africa, the Middle East and the Asia-Pacific region, including India. Our international operations will be subject to a number of risks inherent in any business operating in foreign countries, including: • • • • • • • • political, social and economic instability; potential seizure or nationalization of assets; increased operating costs; modification or renegotiation of contracts; import-export quotas; restrictions on currency repatriations; currency fluctuations and devaluations; and other forms of government regulation and economic conditions that are beyond our control.

As our international operations expand, the exposure to these risks will increase. Our financial condition and results of operations could be susceptible to adverse events beyond our control that may occur in the particular country or region in which we are active. Our debt could adversely affect our ability to operate our business and make it difficult to meet our debt service obligations. As of March 31, 2005, after giving effect to the completion of our new term loan in June 2005, this offering and application of the net proceeds from the term loan and this offering as described under ―Use of Proceeds,‖ we would have had total outstanding debt of approximately $ million. This debt would have represented approximately % of our total capitalization. We would have up to $ million of available capacity under our revolving credit facility, under which we may continue to borrow to fund working capital or other needs in the near term. Our level of debt and the limitations imposed on us by our existing or future debt agreements could have significant consequences on our business and future prospects, including the following: • • we may not be able to obtain necessary financing in the future for working capital, capital expenditures, acquisitions, debt service requirements or other purposes; our less leveraged competitors could have a competitive advantage because they have greater flexibility to utilize their cash flow to improve their operations and to be profitable at decreased dayrates in the event of a downturn in our industry; 16

Table of Contents Index to Financial Statements

• •

we may be exposed to risks inherent in interest rate fluctuations because our borrowings generally are at variable rates of interest, which would result in higher interest expense in the event of increases in interest rates; and we could be more vulnerable in the event of a downturn in our business that would leave us less able to take advantage of significant business opportunities and to react to changes in our business and in market or industry conditions.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our future cash flows may be insufficient to meet all of our debt obligations and commitments, and any insufficiency could negatively impact our business. To the extent we are unable to repay our indebtedness as it becomes due or at maturity with cash on hand or from other sources, we will need to refinance our debt, sell assets or repay the debt with the proceeds from further equity offerings. Additional indebtedness or equity financing may not be available to us in the future for the refinancing or repayment of existing indebtedness, and we can provide no assurance as to the timing of any asset sales or the proceeds that could be realized by us from any such asset sale. Our senior secured credit agreement imposes significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and taking some actions. Our senior secured credit agreement imposes significant operating and financial restrictions on us. These restrictions limit our ability to: • • • • • • • make investments and other restricted payments, including dividends; incur additional indebtedness; create liens; restrict dividend or other payments by our subsidiaries to us; sell our assets or consolidate or merge with or into other companies; engage in transactions with affiliates; and make capital expenditures.

These limitations are subject to a number of important qualifications and exceptions. Our credit agreement also requires us to maintain a minimum interest coverage ratio and a maximum leverage ratio. These covenants may adversely affect our ability to finance our future operations and capital needs and to pursue available business opportunities. A breach of any of these covenants could result in a default in respect of the related debt. If a default occurred, the relevant lenders could elect to declare the debt, together with accrued interest and other fees, immediately due and payable and proceed against any collateral securing that debt. Risks Related to Our Limited Operating History Because we have a limited operating history and we have not provided three years of audited financial statements that normally would be required in an SEC registration statement, you may not be able to evaluate our current business and future earnings prospects accurately. We were formed in July 2004 to provide drilling and liftboat services to the oil and natural gas exploration and production industry. As a result, we have limited operating history upon which you can base an evaluation of our current business and our future earnings prospects. In addition, this prospectus includes audited financial statements only as of December 31, 2004 and for the five-month period ended December 31, 2004 and unaudited financial statements as of and for the three-month 17

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period ended March 31, 2005. We have acquired our fleet of jackup rigs and liftboats in a number of separate asset acquisitions since our formation in July 2004. We have not completed or provided in this prospectus any stand-alone pre-acquisition financial statements for the assets we acquired in these transactions. As a result, and given our recent date of formation, we have not provided in this prospectus three years of audited financial statements that normally would be included in a prospectus forming part of an SEC registration statement. Accordingly, you have limited financial information upon which to make your decision whether to invest in our common stock. The limited historical financial information provided in this prospectus may not be representative of our future financial results or capital structure. Since our inception in July 2004, we have made six separate acquisitions of a total of eight jackup rigs and 39 liftboats (one of which is held for sale), received $67.4 million in various equity contributions from our owners and completed four separate debt financings for total proceeds of $101.0 million and a refinancing of existing debt during June 2005 for proceeds of $140.0 million. In addition, prior to the completion of this offering, we will convert from a limited liability company to a corporation, which will require us to pay taxes on our income. As a result, our historical financial statements included in this prospectus do not reflect the results of operations of all of our existing assets or our capital structure upon completion of this offering. Accordingly, those historical financial statements may not be representative of our future financial performance or capital structure. Risks Related to Our Principal Stockholders Following this offering, our two largest stockholders and their affiliates, to the extent they vote together, will control the outcome of stockholder voting. Following this offering, Lime Rock will hold % of the outstanding common stock of our company (or % if the underwriters exercise the over-allotment option in full), and Greenhill will hold % of the outstanding common stock of our company (or % if the underwriters exercise the over-allotment option in full). Accordingly, to the extent Lime Rock and Greenhill vote together, they will be able to control the outcome of matters requiring a stockholder vote, including the election of directors, adoption of amendments to our certificate of incorporation or bylaws and approval of transactions involving a change of control. In addition, as a result of its ownership, Lime Rock will be able to exert significant control over us and may be able effectively to control the outcome of matters requiring a stockholder vote. Investors in this offering, by themselves, will not be able to affect the outcome of any stockholder vote. 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. Our interests may conflict with those of Lime Rock, Greenhill and their affiliates in a number of areas relating to our past and ongoing relationships, including: • • • • the timing and manner of any sales or distributions by Lime Rock or Greenhill of all or any portion of their ownership interests in us; business opportunities that may be presented to Lime Rock or Greenhill and to our directors associated with Lime Rock or Greenhill; competition between those stockholders and us within the same lines of business; and our dividend policy.

We may not be able to resolve any potential conflicts with Lime Rock, Greenhill and their affiliates, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party. 18

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Risks Related to this Offering, the Securities Markets and Ownership of Our Common Stock We will limit foreign ownership of our company, which could reduce the price of our common stock. Our certificate of incorporation will limit the percentage of outstanding common stock and other classes of capital stock that can be owned by non-United States citizens within the meaning of statutes relating to the ownership of U.S.-flagged vessels. Applying the statutory requirements applicable today, our certificate of incorporation would provide that no more than 20% of our outstanding common stock may be owned by non-United States citizens and will establish mechanisms to maintain compliance with these requirements. These restrictions may have an adverse impact on the liquidity or market value of our common stock because holders may be unable to transfer our common stock to non-United States citizens. Any attempted or purported transfer of our common stock in violation of these restrictions will be ineffective to transfer such common stock or any voting, dividend or other rights in respect of such common stock. Substantial sales of our common stock by our current holders or us could cause our stock price to decline and issuances by us may dilute your ownership interest in our company. We are unable to predict whether significant amounts of our common stock will be sold by our current holders after the offering. Any sales of substantial amounts of our common stock in the public market by our current holders or us, or the perception that these sales might occur, could lower the market price of our common stock. Further, if we issue additional equity securities to raise additional capital, your ownership interest in our company may be diluted and the value of your investment may be reduced. Please read ―Shares Eligible for Future Sale‖ for information about the number of shares that will be outstanding and could be sold after this offering. The initial public offering price of our common stock may not be indicative of the market price of our common stock after this offering. Prior to this offering, there has been no public market for our common stock. An active market for our common stock may not develop or be sustained after this offering. The initial public offering price of our common stock will be determined by negotiations between us and representatives of the underwriters, based on numerous factors that we discuss in the ―Underwriting‖ section of this prospectus. This price may not be indicative of the market price at which our common stock will trade after this offering. We have no plans to pay regular dividends on our common stock, so you may not receive funds without selling your common stock. We do not intend to declare or pay regular dividends on our common stock in the foreseeable future. Instead, we generally intend to invest any future earnings in our business. Subject to Delaware law, our board of directors will determine the payment of future dividends on our common stock, if any, and the amount of any dividends in light of any applicable contractual restrictions limiting our ability to pay dividends, our earnings and cash flows, our capital requirements, our financial condition, and other factors our board of directors deems relevant. Our new senior secured credit agreement restricts our ability to pay dividends or other distributions on our equity securities. Accordingly, you may have to sell some or all of your common stock in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell our common stock and may lose the entire amount of your investment. The price of our common stock may be volatile. The market price of our common stock could be subject to significant fluctuations after this offering and may decline below the initial public offering price. You may not be able to resell your shares at or above the initial public offering price. Among the factors that could affect our stock price are: • our operating and financial performance and prospects; 19

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• • • • • • • • • •

quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income and revenues; changes in revenue or earnings estimates; publication of research reports by analysts; speculation in the press or investment community; strategic actions by us or our competitors, such as acquisitions or restructurings; sales of our common stock by stockholders; actions by institutional investors, Lime Rock or Greenhill; fluctuations in oil and natural gas prices; general market conditions; and U.S. and international economic, legal and regulatory factors unrelated to our performance.

The stock markets in general have experienced extreme volatility that has at times been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Provisions in our charter documents or Delaware law may inhibit a takeover, which could adversely affect the value of our common stock. Our certificate of incorporation and bylaws will contain, and Delaware corporate law contains, provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable. These provisions will apply even if the offer may be considered beneficial by some of our stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline. Please read ―Description of Capital Stock‖ for a description of these provisions. Purchasers in this offering will experience immediate and substantial dilution in net tangible book value per share. Dilution per share represents the difference between the initial public offering price and the net consolidated book value per share immediately after the offering of our common stock. Purchasers of our common stock in this offering will experience immediate dilution of $ in net tangible book value per share as of March 31, 2005, based on an assumed offering price of $ per share. 20

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FORWARD-LOOKING INFORMATION Certain of the statements contained in this prospectus are forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements include information concerning our possible or assumed future financial performance and results of operations, including statements about the following subjects : • • • • • our strategy, including the expansion and growth of our operations and our ability to make future acquisitions on attractive terms; our ability to enter into new contracts for our rigs and liftboats and future utilization rates and contract rates for the units; the correlation between demand for our rigs and our liftboats and our earnings and customers’ expectations of energy prices; expected useful lives of our rigs and liftboats; our plans, expectations and any effects of focusing on shallow-water drilling and liftboat services in the U.S. Gulf of Mexico, pursuing efficient, low-cost operations, pursuing strategic growth opportunities and maintaining a conservative capital structure and sufficient liquidity; our plans regarding increased international operations; future capital expenditures and refurbishment costs; expected general and administrative expenses; sufficiency of funds for required capital expenditures, working capital and debt service; our ability to obtain an attractive price for dispositions of certain assets; liabilities under laws and regulations protecting the environment; expected outcomes of litigation, claims and disputes and their expected effects on our financial condition and results of operations; and expectations regarding improvements in offshore drilling activity, demand for our rigs and liftboats, operating revenues, operating and maintenance expense, insurance expense and deductibles, interest expense, debt levels and other matters with regard to outlook.

• • • • • • • •

We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Although it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties described under ―Risk Factors‖ above and the following: • • • • • • oil and natural gas prices, and industry expectations about future prices; demand for offshore jackup rigs and liftboats; our ability to enter into and the terms of future contracts; the impact of governmental laws and regulations; the adequacy of sources of liquidity; uncertainties relating to the level of activity in offshore oil and natural gas exploration, development and production; 21

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• • • • • •

competition and market conditions in the contract drilling and liftboat industries; the availability of skilled personnel; labor relations and work stoppages; operating hazards, war, terrorism and cancellation or unavailability of insurance coverage; the effect of litigation and contingencies; and our inability to achieve our plans or carry out our strategy.

Many of these factors are beyond our ability to control or predict. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. 22

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USE OF PROCEEDS We estimate that our net proceeds from the sale of shares of our common stock in this offering will be approximately $ million, after deducting underwriting discounts and commissions and our estimated offering expenses. This estimate assumes a public offering price of $ per share, which is the mid-point of the offering price range indicated on the cover of this prospectus. We will not receive any of the proceeds from any sale of shares of our common stock by the selling stockholders. We intend to use the net proceeds we receive from this offering to repay approximately $ million of indebtedness outstanding under our new senior secured term loan, together with accrued and unpaid interest to the repayment date of approximately $ million. We intend to use the remainder of the net proceeds for other corporate purposes, which may include the acquisition and refurbishment of the Odin Spirit for approximately $ million and the acquisition of additional rigs and liftboats. In June 2005, we entered into a $140.0 million senior secured term loan. We used the proceeds from the term loan to repay all outstanding amounts under two credit facilities, including accrued interest, fees and applicable prepayment premiums, and to fund the purchase price of the jackup rig Rig 16 . We terminated both of those credit facilities in connection with the repayment. Amounts outstanding under our new senior secured term loan currently bear interest at either (1) the highest of (a) Comerica Bank’s base rate, (b) the three-month certificate of deposit rate plus 0.5% and (c) the Federal funds effective rate plus 0.5%, in each case plus 2.25%, or (2) LIBOR plus 3.25%. As of June 30, 2005, amounts outstanding under the term loan bore interest at 6.58%. The term loan matures in June 2010 and has quarterly principal payments in an amount equal to 1% per annum. For additional information about the term loan, please read ―Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources‖ in this prospectus. DIVIDEND POLICY We do not intend to declare or pay regular dividends on our common stock in the foreseeable future. Instead, we generally intend to invest any future earnings in our business. Subject to Delaware law, our board of directors will determine the payment of future dividends on our common stock, if any, and the amount of any dividends in light of: • • • • • any applicable contractual restrictions limiting our ability to pay dividends; our earnings and cash flows; our capital requirements; our financial condition; and other factors our board of directors deems relevant.

Our new senior secured credit agreement restricts our ability to pay dividends or other distributions on our equity securities. 23

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CAPITALIZATION We have provided in the table below our consolidated cash and cash equivalents and capitalization as of March 31, 2005: (1) on an actual basis; (2) on a pro forma basis after giving effect to the Conversion; and (3) on a pro forma as adjusted basis after giving effect to the completion of our new term loan, this offering and the use of the net proceeds therefrom as described under ―Use of Proceeds‖ as if these transactions had occurred as of March 31, 2005. This table should be read in conjunction with ―Selected Consolidated Financial Data,‖ ―Management’s Discussion and Analysis of Financial Condition and Results of Operations‖ and our consolidated financial statements and related notes appearing elsewhere in this prospectus.
March 31, 2005 Pro Forma As Adjusted

Actual

Pro Forma

(in thousands, except par values)

Cash and cash equivalents Long-term debt, including current portion: Senior secured credit facilities Total long-term debt, including current portion Members’/stockholders’ equity: Member interests Preferred stock, par value $0.01 per share; 50,000 shares authorized pro forma and pro forma as adjusted; no shares issued and outstanding pro forma or pro forma as adjusted Common stock, par value $0.01 per share; 200,000 shares authorized pro forma and pro forma as adjusted; shares issued and outstanding pro forma; shares issued and outstanding pro forma as adjusted Additional paid-in capital Retained earnings Total members’/stockholders’ equity Total capitalization 24

$ $

8,547 81,000 81,000 67,351

$ $

8,547 81,000 81,000 —

$ $

—

—

—

—

— — 19,467 86,818 $ 167,818

19,467 86,818 $ 167,818 $

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DILUTION The net tangible book value of our common stock as of March 31, 2005 was approximately $ million, or $ per share. Net tangible book value per share represents our total tangible assets less our total liabilities and divided by the aggregate number of shares of our common stock outstanding. Dilution in net tangible book value per share represents the difference between the amount per share of our common stock that you pay in this offering and the net tangible book value per share of our common stock immediately after this offering. After giving effect to the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, the net tangible book value of our common stock as of March 31, 2005 would have been approximately $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing holders who will receive shares in the Conversion and an immediate dilution in net tangible book value of $ per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution per share: Assumed initial public offering price per share Net tangible book value per share as of March 31, 2005 Increase in net tangible book value per share attributable to new investors Net tangible book value per share after this offering Dilution in net tangible book value per share to new investors $ $ $

These computations assume that no additional shares are issued upon exercise of outstanding stock options granted under our 2004 long-term incentive plan. As of March 31, 2005, options to purchase shares of common stock at a weighted average exercise price of per share have been granted under the plan. See ―Management—2004 Long-Term Incentive Plan.‖ We have provided in the following table, as of March 31, 2005, the differences between the amounts paid or to be paid by the groups set forth in the table with respect to the aggregate number of shares of our common stock acquired or to be acquired by each group. The amount paid by the existing stockholders is based on stockholders’ equity as reflected on our balance sheet.
Average Price per Share

Shares Purchased Numbe r

Total Consideration

Percent

Amount (dollars in thousands)

Percent

Existing stockholders Option holders(1) New investors Total

%

$

%

$

100.0 %

$

100.0 %

(1)

Excludes options to purchase approximately

shares of our common stock to be granted in connection with the offering. 25

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SELECTED CONSOLIDATED FINANCIAL DATA We have derived the following consolidated financial information as of and for the five-month period ended December 31, 2004 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated financial information as of and for the three-month period ended March 31, 2005 from our unaudited consolidated financial statements included elsewhere in this prospectus. The consolidated financial information as of and for the three-month period ended March 31, 2005 includes, in management’s opinion, all adjustments necessary for the fair presentation of our financial position as of such date and our results of operations for such period. We were formed in July 2004 and commenced operations in August 2004. From our formation to March 31, 2005, we completed several significant asset acquisitions that impact the comparability of our historical financial results. Our financial results reflect the impact of the assets only after the date of their acquisition. This prospectus does not include any financial information relating to the assets for periods prior to their acquisition date. As described under ―Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisition History and Financial Statement Presentation,‖ we have concluded that we are not required to include such pre-acquisition financial statements in this prospectus, and we believe that separate audited financial statements for the assets we acquired as of any date or for any period prior to our acquisition of those assets would not be meaningful to investors. In addition, prior to the completion of this offering, we will convert from a Delaware limited liability company to a Delaware corporation to be renamed Hercules Offshore, Inc. Please read ―Prospectus Summary—The Conversion.‖ As a result of the foregoing, the historical financial information may not be indicative of our future performance. In addition, our results of operations for the five-month period ended December 31, 2004 and the three-month period ended March 31, 2005 are not necessarily indicative of the results of operations that may be achieved for an entire year. You should read the following information in conjunction with ―Management’s Discussion and Analysis of Financial Condition and Results of Operations‖ and our consolidated financial statements and the related notes included elsewhere in this prospectus. 26

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Five Months Ended December 31, 2004 Three Months Ended March 31, 2005

(dollars in thousands, except per share data)

INCOME STATEMENT DATA: Revenues: Drilling services Marine services Total revenues Costs and Expenses: Operating expenses for drilling services Operating expenses for marine services Depreciation and amortization General and administrative Total costs and expenses Operating Income Other Income (Expense): Interest expense Other, net Total other income (expense) Net Income(a) Net Income Per Share(a)(b): Basic Diluted Weighted Average Shares Outstanding(b): Basic Diluted OTHER FINANCIAL DATA: Net cash (used in) provided by: Operating activities Investing activities Financing activities Capital expenditures Deferred drydocking expenditures

$

24,006 7,722 31,728 12,799 4,198 2,016 2,808 21,821 9,907 (2,070 ) 228 (1,842 )

$

24,891 9,164 34,055 11,241 4,580 2,462 2,201 20,484 13,571 (2,303 ) 134 (2,169 )

$

8,065

$

11,402

$

(6,495 ) (96,274 ) 117,229 94,443 601

$

6,548 (40,949 ) 28,488 42,326 623
As of March 31, 2005

As of December 31, 2004 (dollars in thousands)

BALANCE SHEET DATA: Cash and cash equivalents Working capital Total assets Long-term debt, net of current portion Total members’ equity (a)

$

14,460 30,283 132,156 53,000 71,087

$

8,547 30,972 173,859 77,000 86,818

(b)

On a pro forma basis after giving effect to the Conversion, as if we had been subject to income taxes, for the five-month period ended December 31, 2004 and the three-month period ended March 31, 2005, net income would have been $5.2 million and $7.3 million, respectively, and diluted net income per share would have been $ and $ , respectively. The weighted average shares outstanding reflects the conversion of each outstanding membership interest into a total of shares of common stock. The calculation of diluted weighted average shares outstanding includes outstanding options to purchase and shares of common stock for the five-month period ended December 31, 2004 and the three-month period ended March 31, 2005, respectively.

27

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data” and our consolidated financial statements and notes thereto appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. See “Forward-Looking Information.” Overview We are a leading provider of shallow-water drilling and liftboat services to the oil and natural gas exploration and production industry in the U.S. Gulf of Mexico. We provide these services to major integrated energy companies and independent oil and natural gas operators. We report our business activities in two business segments, Contract Drilling Services and Marine Services: • Contract Drilling Services. We own and operate a fleet of eight jackup rigs that can drill in maximum water depths ranging from 85 to 250 feet. Under most of our contract drilling service agreements, we are paid a fixed daily rental rate called a ―dayrate,‖ and we are required to pay all costs associated with our own crews as well as the upkeep and insurance of the rig and equipment. Marine Services. We own and operate a fleet of 38 liftboats with leg lengths ranging from 105 to 229 feet. Our liftboats are used to provide a wide range of offshore support services, including platform maintenance, platform construction, well intervention and decommissioning services, and can be moved from location to location within a short period of time. Under most of our liftboat contracts, we are paid a fixed dayrate for the rental of the vessel, which typically includes the costs of a small crew of four to eight employees, and we also receive a variable rate for reimbursement of other operating costs such as catering, fuel and rental equipment and other items.

•

Our revenues are affected primarily by dayrates, fleet utilization and the number and type of units in our fleet. Utilization and dayrates, in turn, are influenced principally by the demand for rig and liftboat services from the exploration and production sectors of the oil and natural gas industry. Our contracts in the U.S. Gulf of Mexico tend to be short-term in nature and are heavily influenced by changes in the supply of units relative to the fluctuating expenditures for both drilling and production activity. Our operating costs are primarily a function of fleet configuration and utilization levels. The most significant direct operating costs for our Contract Drilling Services segment are wages paid to crews, maintenance and repairs to the rigs, and marine insurance. These costs do not vary significantly whether the rig is operating under contract or idle, unless we believe that the rig is unlikely to work for a prolonged period of time, in which case we may decide to ―cold-stack‖ the rig. Cold-stacking is a common term used to describe a rig that is expected to be idle for a protracted period and typically for which routine maintenance is suspended and the crews are either redeployed or laid-off. When a rig is cold-stacked, operating expenses for the rig are greatly reduced because the crew is smaller and maintenance activities are suspended. Rigs that have been cold-stacked typically require a lengthy reactivation project that can involve significant expenditures, particularly if the rig has been cold-stacked for a long period of time. The most significant costs for our Marine Services segment are the wages paid to crews and the amortization of regulatory drydocking costs. Unlike our Contract Drilling Services segment, a significant portion of the expenses incurred with operating each liftboat are paid for or reimbursed by the customer under contractual terms and prices. This includes fuel, catering expenses, offshore communications and crane overtime. We record reimbursements from customers as revenues and the related expenses as operating costs. Our liftboats are required to undergo regulatory inspections every year and to be drydocked two out of every five years; the 28

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drydocking expenses and time of drydock vary depending on the condition of the vessel. All costs associated with regulatory inspections, including related drydocking costs, are deferred and amortized over the period until the next scheduled inspection. Industry Background and Trends Market conditions continued to improve during the first quarter of 2005. Our jackup rigs were contracted at dayrates ranging from approximately $31,000 to $42,000 in the first quarter of 2005, as compared to dayrates ranging from approximately $23,000 to $37,000 for the five-month period ended December 31, 2004. Our liftboats were contracted at dayrates ranging from approximately $3,600 to $14,300 in the first quarter of 2005, as compared to dayrates ranging from approximately $3,300 to $13,700 for the five-month period ended December 31, 2004. The following table compares utilization rates for our jackup rigs, as operated by us or previous owners, with rates for similar units in the U.S. Gulf of Mexico for the first quarter of 2005 and the years ended December 31, 2004, 2003, 2002 and 2001. The industry utilization rates for jackup rigs presented below are based on data provided by ODS-Petrodata and include the total number of jackup rigs of the specified type in the U.S. Gulf of Mexico. No industry data is available with respect to utilization rates of liftboats in the U.S. Gulf of Mexico; however, we believe that the utilization rates for our liftboats are comparable to those for similar vessels in our industry. The rates for our rigs and liftboats are based on all of the rigs and liftboats currently in our fleet, other than Rig 16 , which was located in the Middle East for all periods presented, and therefore include utilization data for such units when owned and operated by prior owners. As a result, the utilization rates for our rigs and liftboats presented below may not be indicative of the utilization rates that we would have achieved had we owned the assets for all of the periods presented or that we will achieve in the future. Utilization shown in the table below equals the total number of operating days for all rigs or liftboats of the specified type in the period as a percentage of the total number of calendar days in the period.
Three Months Ended March 31, 2005 2004

Year Ended December 31, 2001 2002 2003

Jackup Rigs: U.S. Gulf of Mexico 250-foot mat slot jackup rigs 200-foot mat cantilever jackup rigs Hercules rigs(1) Liftboats: Hercules liftboats(2) (1) (2)

63.1 % 85.2 76.2 70.0 %

12.9 % 61.2 77.4 72.0 %

34.6 % 84.9 91.7 58.0 %

48.5 % 98.2 84.5 60.0 %

68.8 % 99.1 99.3 68.0 %

Excludes Rig 16 , which is located in the Middle East. This rig has been stacked since 1999. Unlike jackup rigs, liftboats are required to undergo annual inspections as well as more thorough inspections requiring drydocking two out of every five years. As a result, we believe that utilization rates of approximately 90% represent effectively full utilization of our liftboat fleet.

Critical Accounting Policies Critical accounting policies are those that are important to our results of operations, financial condition and cash flows and require management’s most difficult, subjective or complex judgments. Different amounts would be reported under alternative assumptions. We have evaluated the accounting policies used in the preparation of the consolidated financial statements and related notes appearing elsewhere in this prospectus. We apply those accounting policies that we believe best reflect the underlying business and economic events, consistent with accounting principles generally accepted in the United States. We believe that our policies are generally consistent with those used by other companies in our industry. 29

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We periodically update the estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business and general economic environment. Our significant accounting policies are summarized in Note A to our consolidated financial statements. We believe that our more critical accounting policies include those related to property and equipment, revenue recognition, allowance for doubtful accounts and deferred charges. Inherent in such policies are certain key assumptions and estimates. Property and Equipment Property and equipment represents 74.8% of our total assets as of March 31, 2005. Property and equipment is stated at cost, less accumulated depreciation. Expenditures that substantially increase the useful lives of our assets are capitalized and depreciated, while routine expenditures for maintenance items are expensed as incurred. Depreciation is computed using the straight-line method over the useful life of the asset. We review our property and equipment for potential impairment when events or changes in circumstances indicate that the carrying value of any asset may not be recoverable. For property and equipment, the determination of recoverability is made based on the estimated undiscounted future net cash flows of the assets being reviewed. Any actual impairment charge would be recorded using the estimated discounted value of future cash flows. Our estimates, assumptions and judgments used in the application of our property and equipment accounting policies reflect both historical experience and expectations regarding future industry conditions and operations. Using different estimates, assumptions and judgments, especially those involving the useful lives of our rigs and liftboats and expectations regarding future industry conditions and operations, would result in different carrying values of assets and results of operations. For example, a prolonged downturn in the drilling industry in which utilization and dayrates were significantly reduced could result in an impairment of the carrying value of our jackup rigs. Revenue Recognition Revenues are generated from our rigs and liftboats working under daywork contracts as the services are provided. Some of our contracts also allow us to recover additional direct costs, including mobilization and demobilization costs, additional labor and additional catering costs. Under most of our liftboat contracts, we receive a variable rate for reimbursement of costs such as catering, fuel and rental equipment and other items. Revenue for the recovery or reimbursement of these costs is recognized when the costs are incurred except for mobilization revenues, which are amortized over the related drilling contract. Allowance for Doubtful Accounts Accounts receivable represents approximately 16.6% of our assets and 70.4% of our current assets as of March 31, 2005. We continuously monitor our accounts receivable from our customers to identify any collectability issues. An allowance for doubtful accounts is established when a review of customer accounts indicates that a specific amount will not be collected. We establish an allowance for doubtful accounts based on the actual amount we believe is not collectable. Deferred Charges All of our liftboats are required to undergo regulatory inspections on an annual basis and to be drydocked two out of every five years to ensure compliance with U.S. Coast Guard regulations for vessel safety and vessel maintenance standards. Costs associated with these inspections, which generally involve setting the vessels on a drydock, are deferred, and the costs are amortized over the period of time between the inspection and the time the next inspection is due. As of March 31, 2005, our deferred charges related to regulatory inspection costs totaled $0.7 million. The amortization of the regulatory inspection costs was reported as part of our depreciation and amortization expense. 30

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Acquisition History and Financial Statement Presentation Acquisitions from Parker Drilling and Assumption of Management of Rig 30 In August 2004, we acquired five jackup rigs, four platform rigs and related assets from Parker Drilling Company for $39.3 million. The four platform rigs and related assets that we acquired are not core to our business. We have sold three of the four platform rigs, and we intend to sell the fourth, which is inactive. In January 2005, we acquired another jackup rig and related assets from Parker Drilling for $21.5 million. The jackup rigs acquired ranged in age from 22 years to 33 years, with an average expected remaining useful life of approximately 15 years. Each of the jackup rigs we acquired from Parker Drilling was, at the time we acquired it, operating under a short-term contract with a customer. We assumed the obligation to perform these contracts and completed each of them within 90 days of our acquisition of the rigs. Thereafter, the rigs began working under contracts that we negotiated with our customers. We did not acquire any rights to the Parker Drilling name in the acquisitions, and we have not marketed the rigs under the Parker Drilling name. Immediately following the August 2004 acquisition, we hired 248 rig-based employees who had been employed by Parker Drilling. Seven out of the 27 members of our headquarters staff following the acquisition were employed by Parker Drilling immediately prior to the acquisition; however, none of our senior management, and only one salesperson in our marketing staff, had been employed by Parker Drilling immediately prior to the acquisition. Other than this salesperson, we did not hire any financial, legal, human resources, information technology, marketing, safety, training, payroll, purchasing, warehouse, transportation or environmental employees or managers from Parker Drilling. The substantial majority of the Parker Drilling employees that we hired were rig-based, hourly compensated employees. Concurrent with the August 2004 closing, we hired two operations management personnel and four office employees who had been employed by Hercules Offshore Corporation (―Unrelated HOC‖). Unrelated HOC was formed in March 2001 by Thomas J. Seward II, the current president of our drilling company subsidiary, and Thomas E. Hord, the current vice president, operations and chief operating officer of that subsidiary, to manage a single jackup rig, Rig 30 (formerly named the Odin Victory ), under a rig management contract with Porterhouse Offshore L.P., the owner of the rig. We do not own or control Unrelated HOC. At the closing, Unrelated HOC and Porterhouse Offshore terminated the rig management contract, and Porterhouse Offshore entered into a new contract with us under which we were reimbursed for all of our expenses plus $100 per day. Aside from the rig management contract with Porterhouse Offshore, we did not acquire any other assets or liabilities of Unrelated HOC, and the rig-based crews operating Rig 30 remained employees of Unrelated HOC until we hired them in January 2005 in connection with our acquisition of the rig as described below. Acquisition from Global Industries In October 2004, we acquired 22 liftboats and related assets from Global Industries, Ltd. for $53.5 million, including a property in New Iberia, Louisiana, which we use as an operational office. At the time of the acquisition, some of the liftboats were operating under short-term contracts with customers, with the remaining liftboats available for work. We assumed those contracts and completed them within 30 days of our acquisition of the units. Thereafter, the units began working under short-term contracts that we negotiated with our customers. We did not acquire any rights to the Global Industries name in the acquisition, and we have not marketed the rigs under the Global Industries name. The liftboats acquired ranged in age from four years to 32 years, with an expected average remaining useful life of approximately 15 years. Under a transition services agreement, for six months following the acquisition, Global Industries was to perform the accounting and marketing/sales functions related to the liftboat operations on our behalf. Subsequent 31

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to closing, however, we began hiring our own accounting and administrative support personnel, some of whom were former Global Industries employees, and terminated the transition services agreement in February 2005. In connection with the closing of the acquisition, we hired 151 vessel-based employees, nine mechanics, the general manager of the group and a liftboat operations manager who had been employed by Global Industries immediately prior to the acquisition. We did not hire any financial, legal, human resources, information technology, marketing, safety, training, payroll, purchasing, warehouse, transportation or environmental employees or managers from Global Industries. The substantial majority of Global Industries employees that we hired were vessel-based, hourly compensated employees. Acquisition from Porterhouse Offshore In January 2005, we acquired the jackup rig Rig 30 and related assets from Porterhouse Offshore for $20.0 million. At the time of acquisition, the age of the rig was 26 years, with an expected remaining useful life of approximately 15 years, and was operating under a short-term contract. As described above, we had managed the rig under the management contract entered into with Porterhouse Offshore concurrent with the closing of the August 2004 Parker Drilling acquisition. We hired the rig-based personnel operating the rig, who were employees of Unrelated HOC, at the time of the acquisition of the rig. We did not acquire any personnel from Porterhouse Offshore. Acquisition from Superior In June 2005, we acquired 17 liftboats and related assets from Superior Energy Services, Inc. for $20.0 million. At the time of the acquisition, ten of the liftboats were operating under short-term contracts with customers, three of the vessels were stacked, and the remaining four liftboats were available for work. We completed such contracts within 30 days of our acquisition of the units. Thereafter, any work for the units is under contracts that we negotiate with our customers. We did not acquire any rights to the Superior Energy name in the acquisition, and we have not marketed the liftboats under the Superior Energy name. The liftboats acquired ranged in age from 20 years to 33 years, with an expected remaining average useful life of approximately 15 years. Average utilization of these liftboats during the first quarter of 2005 was approximately 61%. The average utilization of the 13 actively marketed liftboats during that period was 80%. In connection with the closing of the acquisition, we hired 35 vessel-based employees who had been employed by Superior Energy immediately prior to the acquisition. These employees are all hourly compensated employees. We did not hire any financial, legal, human resources, information technology, marketing, safety, training, payroll, purchasing, warehouse, transportation or environmental employees or managers from Superior Energy. Acquisition from Transocean In June 2005, we acquired jackup rig Rig 16 from Transocean Inc. for a purchase price of $20.0 million. This rig is capable of drilling in water depths of up to 170 feet. The rig is currently cold-stacked in the Middle East. We intend to refurbish the rig and to seek work for it under a longer-term contract in a suitable international location. The age of the rig is 24 years, with an expected remaining useful life of approximately 15 years. We did not acquire any customer contracts from Transocean and did not hire any employees from Transocean in connection with the acquisition. Nature of Acquisitions We believe that the acquisitions described above represent the acquisition of assets, not of ―businesses‖ within the meaning of applicable accounting guidance. We did not acquire separate entities, subsidiaries or divisions. Although we hired rig- and vessel-based personnel, and some shore-based staff, we did not acquire from the sellers most of the personnel who had performed management functions of overseeing and supporting 32

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the assets that were sold to us. As of June 30, 2005, we employed approximately 430 people in our drilling operations and 250 people in our liftboat operations, exclusive of headquarters staff. Approximately 60% of those employees were employees of Parker Drilling, Global Industries or Superior Energy immediately prior to our related acquisition of assets from those companies. We have independently developed the operating rights necessary to operate the assets, including the establishment of our own operating privileges with the U.S. Coast Guard and the U.S. Minerals Management Service. We did not acquire any of our processes and systems from any of the sellers. Instead, we have independently developed the material systems we use in operating our business, including systems related to management; accounting; payroll; benefits; health, safety and environment; training; marketing and sales; maintenance; and project management. We did not acquire any intangible assets or intellectual property from any of the sellers. Without the systems we have developed, we could not successfully access our customer base to generate revenue. Financial Statements Since we have concluded that the acquisitions of rigs and liftboats described above do not constitute the acquisition of businesses, we have not provided audited stand-alone pre-acquisition financial statements of the assets acquired. We do not believe that separate audited financial statements for the assets acquired for any date or period prior to our acquisition of those assets would be meaningful to investors. There are significant differences between the organization, operation and overhead structures of our company, on the one hand, and of each of the sellers, on the other hand. In addition, Parker Drilling had held the assets we acquired from them for sale and accounted for their operations as discontinued operations since 2003. We believe, therefore, that for an extended period such assets did not receive the same management attention, marketing effort or maintenance as other assets operated by Parker Drilling or that we provide to the rigs and our other assets. Changes in Financial Reporting of Future Results of Operations As a newly organized private company, we have relied on outside service providers for much of our administrative support functions. In connection with this offering, we expect that we will incur substantial expenses to develop the infrastructure to support the reporting and compliance requirements necessitated by being a public company. As a result, our general and administrative expenses likely will increase, and we estimate that this increase will be approximately $5 million per year based on our general and administrative expenses for the three-month period ended March 31, 2005. Prior to the Conversion, our company is a limited liability company, and our owners have elected to be taxed at the member unitholder level rather than at the company level. In connection with this offering, we are reorganizing our corporate structure as a corporation. Following the Conversion, we will be required to recognize a tax provision on our income. Because all of our income in 2004 and the first three months of 2005 was generated in the U.S. Gulf of Mexico, our effective tax rate as a corporation would have been approximately 36%. We expect that our effective tax rate will fluctuate from time to time based on our decision to move assets to areas outside the United States and future acquisitions and investment decisions. In addition, upon completion of the Conversion, we will record a tax provision related to the recognition of deferred taxes equal to the tax effect of the difference between the book and tax basis of our assets and liabilities as of the effective date of the Conversion. Assuming we had completed the Conversion as of June 30, 2005, the amount of the provision would have been approximately $ million. Results of Operations We were formed in July 2004 and commenced operations in August 2004. From our formation to March 31, 2005, we completed several significant transactions that impact the comparability of our historical financial results. These transactions include: • • the acquisition of five jackup rigs from Parker Drilling in August 2004; the acquisition of 22 liftboats from Global Industries in October 2004; 33

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• •

the acquisition of a jackup rig from Parker Drilling in January 2005; and the acquisition of a jackup rig from Porterhouse Offshore in January 2005.

Our financial results reflect the impact of these assets only after the date of their acquisition. This prospectus does not include any financial information relating to the assets for periods prior to their acquisition date. The following table sets forth our operating days, average utilization rates, average revenue and expenses per day, revenues and operating expenses by operating segment and other selected information for the periods indicated:
For the Five Months Ended December 31, 2004 For the Three Months Ended March 31, 2005

(dollars in thousands, except per day amounts)

Contract Drilling Services Segment: Number of rigs (as of end of period) Operating days Available days Utilization(1) Average revenue per rig per day(2) Average operating expense per rig per day(3) Revenues Operating expenses Depreciation and amortization General and administrative expenses Operating income Marine Services Segment: Number of liftboats (as of end of period) Operating days Available days Utilization(1) Average revenue per liftboat per day(2) Average operating expense per liftboat per day(3) Revenues Operating expenses Depreciation and amortization General and administrative expenses Operating income Total Company: Revenues Operating expenses Depreciation and amortization General and administrative expenses Operating income Interest expense Net income (1) (2) (3)

$ $ $ $ $ $ $

5 748 751 99.6 % 32,098 17,046 24,006 12,799 1,070 1,972 8,165 22 1,350 1,958 68.9 % 5,720 2,144 7,722 4,198 946 581 1,997 31,728 16,997 2,016 2,808 9,907 2,070 8,065

$ $ $ $ $ $ $

7 610 614 99.3 % 40,833 18,309 24,891 11,241 1,292 1,183 11,175 22 1,452 1,980 73.3 % 6,311 2,313 9,164 4,580 1,167 441 2,976 34,055 15,821 2,462 2,201 13,571 2,303 11,402

$ $ $ $ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $ $ $ $

Utilization is defined as the total number of operating days for our rigs or liftboats, as applicable, in the period as a percentage of the total number of calendar days in the period. Average revenue per rig or liftboat per day is defined as revenue earned by our rigs or liftboats, as applicable, in the period divided by the total number of operating days for our rigs or liftboats, as applicable, in the period. Average operating expense per rig or liftboat per day is defined as operating expenses incurred by our rigs or liftboats, as applicable, in the period divided by the total number of days in the period. 34

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Three-Month Period Ended March 31, 2005 versus the Five-Month Period Ended December 31, 2004 Average Revenue per Day Contract Drilling Services Segment. Average revenue per rig per day for our Contract Drilling Services segment increased to $40,833 for the three-month period ended March 31, 2005 (the ―Current Period‖), compared with $32,098 for the five-month period ended December 31, 2004 (the ―Prior Period‖), an increase of 27%. This increase resulted from higher dayrates on our rigs and the January 2005 acquisitions of Rig 25 and Rig 30 , which have earned dayrates that have been higher than the average for the rest of our rig fleet. Marine Services Segment. Average revenue per liftboat per day for our Marine Services segment increased to $6,311 for the Current Period, compared with $5,720 for the Prior Period, an increase of 10%. This increase resulted from higher dayrates for our liftboats with leg lengths of 105, 130, 150, 200 and 229 feet and higher utilization of larger vessels, which typically have higher dayrates. Average Operating Expense per Day Contract Drilling Services Segment. Average operating expense per rig per day for our Contract Drilling Services segment increased to $18,309 for the Current Period, compared with $17,046 for the Prior Period, an increase of 7%. The increase resulted primarily from an increase in labor and catering expenses, which represented approximately 65% of our average daily operating expenses in each period. The increase in our labor costs per day resulted primarily from raises paid to our crews in the Current Period. Marine Services Segment. Average operating expense per liftboat per day for our Marine Services segment increased to $2,313 for the Current Period, compared with $2,144 for the Prior Period, an increase of 4%. This increase resulted primarily from higher labor expenses due to raises paid to our crews in the Current Period. Utilization and Operating Days Contract Drilling Services Segment. Utilization for our Contract Drilling Services segment was 99.3% for the Current Period, compared with 99.6% for the Prior Period. The Current Period reflects our ownership of seven jackup rigs following the acquisitions of Rig 25 and Rig 30 in January 2005. The Prior Period reflects our ownership of only five jackup rigs. Marine Services Segment. Utilization for our Marine Services segment increased to 73.3% in the Current Period, compared with 68.9% for the Prior Period. Operating days for the Current Period totaled 1,452. Operating days for the Prior Period totaled 1,350. Both periods include only our 22 liftboats acquired from Global Industries in October 2004. Three-Month Period Ended March 31, 2005 Revenues Consolidated. Total revenues for the three-month period ended March 31, 2005 were $34.1 million. Total revenues were positively impacted by the additions of Rig 25 and Rig 30 to our fleet in January 2005 and higher jackup dayrates and higher liftboat utilization and dayrates. Contract Drilling Services Segment . Revenues for our Contract Drilling Services segment were $24.9 million for the three-month period ended March 31, 2005. Rig 25 and Rig 30, which were acquired in January 2005, contributed revenues of approximately $6.2 million. Average revenue per rig per day was $40,833 and average utilization was 99.3%. Marine Services Segment. Revenues for our Marine Services segment were $9.2 million for the three-month period ended March 31, 2005. Average revenue per liftboat per day was $6,311 and average utilization was 73.3%. 35

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Operating Expenses Consolidated. Total operating expenses for the three-month period ended March 31, 2005 were $15.8 million. Total operating expenses were impacted by the acquisition of Rig 25 and Rig 30 in January 2005 and increased rig and liftboat operating expenses. Contract Drilling Services Segment . Operating expenses for our Contract Drilling Services segment were $11.3 million for the three-month period ended March 31, 2005. Average operating expenses per rig were $18,309 per day. Segment operating expenses were impacted by the acquisition of Rig 25 and Rig 30 , which had operating expenses of approximately $3.0 million for the period. Average labor costs per rig, which include wages and benefits paid to crews, were $10,325 per day. Average rig maintenance expenses per rig, excluding capitalized costs, were $2,469 per day. Other rig expenses, which include catering, rentals, communications, insurance and mobilization costs, averaged $5,515 per rig per day. Marine Services Segment. Operating expenses for our Marine Services segment were $4.5 million for the three-month period ended March 31, 2005. Our most significant operating expenses consisted of labor ($2.6 million), catering ($0.7 million) and repair and maintenance ($0.4 million). Operating expenses on our liftboats averaged $2,313 per liftboat per day in the period, ranging from $1,148 per day for the smaller vessels to $2,999 per day for the larger vessels. Depreciation and Amortization Expenses Total depreciation and amortization expenses were $2.5 million for the three-month period ended March 31, 2005. First quarter results included $0.6 million of depreciation expense for the five rigs acquired in August 2004, $0.6 million of depreciation expense for Rig 25 and Rig 30 acquired in January 2005, $0.8 million of depreciation expense for our liftboat fleet, $0.3 million of amortization of regulatory inspections and related drydockings and $0.2 million of amortization of capitalized finance costs. General and Administrative Expenses General and administrative expenses were $2.2 million for the three-month period ended March 31, 2005. Our Contract Drilling Service and Marine Services segments incurred general and administrative expenses of $1.2 million and $0.4 million, respectively. General and administrative expenses for our corporate office were $0.6 million and included the costs associated with newly hired corporate management personnel and related office support costs. Interest Expense Interest expense was $2.3 million for the three-month period ended March 31, 2005. First quarter results included $0.8 million of interest expense associated with $25.0 million of borrowings incurred in the acquisitions of Rig 25 and Rig 30 in January 2005, $1.0 million associated with the $28.0 million in borrowings incurred in the acquisition of five jackup rigs in August 2004 and $0.5 million associated with the $28.0 million in borrowings incurred in the acquisition of 22 liftboats in October 2004. Five-Month Period Ended December 31, 2004 Revenues Consolidated. Total revenues were $31.7 million for the five-month period ended December 31, 2004. Revenues for the period include activity for the five jackup rigs acquired from Parker Drilling in August 2004 and for the 22 liftboats acquired from Global Industries in October 2004. Contract Drilling Services Segment . Revenues for our Contract Drilling Services segment were $24.0 million for the five-month period ended December 31, 2004. Segment revenues included activity for the five jackup rigs beginning on August 2, 2004. Average revenue per rig per day was $32,098 and average utilization was 99.6%. 36

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Marine Services Segment. Revenues for our Marine Services segment were $7.7 million for the five-month period ended December 31, 2004. Segment revenues included activity for the 22 liftboats beginning on October 2, 2004. Average revenue per liftboat per day was $5,720 and average utilization was 68.9%. Operating Expenses Consolidated. Total operating expenses were $17.0 million for the five-month period ended December 31, 2004. Total operating expenses included expenses for five jackup rigs beginning on August 2, 2004 and for 22 liftboats beginning on October 2, 2004. Contract Drilling Services Segment . Operating expenses for our Contract Drilling Services segment were $12.8 million for the five-month period ended December 31, 2004. Average operating expenses per rig were $17,046 per day. Average labor costs per rig, which include wages and benefits paid to crews, were $9,631 per day. Rig maintenance expenses per rig, excluding capitalized costs, were $2,508 per day. Other rig expenses, which included catering, rentals, communications, insurance and mobilization costs, averaged $4,907 per rig per day. Marine Services Segment. Operating expenses for our Marine Services segment were $4.2 million for the five-month period ended December 31, 2004. Segment expenses included three months of activity from the inception of the segment on October 2, 2004 with the acquisition of 22 liftboats from Global Industries. Our most significant operating expenses were labor ($2.2 million), vessel maintenance, excluding capital expenditures and drydocking costs ($0.5 million), and insurance ($0.4 million). Operating expenses on our liftboats averaged $2,144 per liftboat per day in the period, ranging from $1,158 per day for the smaller vessels to $3,014 per day for the larger vessels. Depreciation and Amortization Expenses Total depreciation and amortization expenses were $2.0 million for the five-month period ended December 31, 2004 and included $1.1 million of depreciation expense associated with the acquisition of five jackup rigs from Parker Drilling in August 2004 and $0.9 million of depreciation expense associated with the 22 liftboats from Global Industries in October 2004. General and Administrative Expenses General and administrative expenses were $2.8 million for the five-month period ended December 31, 2004. Our Contract Drilling Services and Marine Services segments incurred general and administrative expenses of $2.0 million and $0.6 million, respectively. General and administrative expense for our corporate office were $0.2 million. Interest Expense Interest expense was $2.1 million for the five-month period ended December 31, 2004, which represented interest due on a $28.0 million term loan used to fund the acquisition of five jackup rigs from Parker Drilling in August 2004 and an additional $28.0 million term loan used to fund the acquisition of 22 liftboats from Global Industries in October 2004. Liquidity and Capital Resources Sources and Uses of Cash Sources and Uses of Cash for the Three-Month Period Ended March 31, 2005 Net cash provided by operating activities for the three-month period ended March 31, 2005 was $6.5 million, which was primarily attributable to net income of $11.4 million plus depreciation and amortization of 37

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$2.5 million and an increase in accounts payable and other current liabilities of $1.0 million, partially offset by a $8.4 million increase in accounts receivable and other current assets. The increase in accounts receivable was attributable to the increased revenue from Rig 25 and Rig 30 acquired in January 2005 and to higher average dayrates for our contract drilling services segment. Net cash used in investing activities for the three-month period ended March 31, 2005 was $40.9 million. The net cash investments during the period included the acquisition of Rig 25 and Rig 30 in January 2005 for an aggregate of $41.5 million and an increase in deferred drydocking expenses of $0.6 million. The acquisition of Rig 25 was funded in part by a $2.0 million deposit paid in 2004, which was applied towards the purchase price at closing. Net cash provided by financing activities for the three-month period ended March 31, 2005 totaled $28.5 million. This included borrowings of $25.0 million under one of our term loans for the acquisition of Rig 25 and Rig 30 and contributions from owners totaling $4.3 million, which were partially offset by $0.8 million in fees and expenses paid in connection with the term loan. Sources and Uses of Cash for the Five-Month Period Ended December 31, 2004 Net cash used in operating activities for the five-month period ended December 31, 2004 was $6.5 million. Net income for the period totaled $8.1 million, which was offset by the adjustments to net income representing a reduction in cash of $14.6 million. The adjustments to reconcile net income to net cash used by operating activities included an increase in accounts receivable and other current assets totaling $21.7 million partially offset by depreciation of $2.0 million and an increase in accounts payable and other current liabilities of $5.1 million. The increases in both the current assets and the current liabilities were attributable to the start-up of our business activities. Net cash used in investing activities for the five-month period ended December 31, 2004 was $96.2 million. The net cash investments during the period included the acquisition of five jackup and four platform rigs from Parker Drilling in August 2004 for $39.3 million, the acquisition of a fleet of 22 liftboats from Global Industries in October 2004 for $53.5 million, an increase in deferred drydocking expenses of $0.6 million and a deposit of $2.0 million related to the purchase of Rig 25 , which closed in January 2005. Additionally, in November 2004 we sold three platform rigs for $0.8 million that we had purchased from Parker Drilling in August 2004. We accounted for this sale as a reduction in the original purchase price of the assets. Net cash provided by financing activities for the five-month period ended December 31, 2004 totaled $117.2 million. This included contributions from owners of $63.0 million and proceeds from borrowings under our term loans totaling $56.0 million, less lenders fees and expenses totaling $1.8 million. Liquidity and Financing Arrangements Contributions from owners and borrowings from our creditors represented our primary source of liquidity for the five-month period ended December 31, 2004. For the same period, our primary uses of cash were the acquisitions of the jackup and platform rigs from Parker Drilling and the fleet of liftboats from Global Industries. Contributions from owners, borrowings from our creditors and cash from operations represented our primary sources of liquidity for the three-month period ended March 31, 2005. For the same period, our primary uses of cash were the acquisition of a jackup rig from Parker Drilling and the acquisition of a jackup rig from Porterhouse Offshore L.P. We believe that our current cash on hand and our cash flow from operations for the year ending December 31, 2005 and for the first six months of 2006, together with availability under our revolving credit facility and the net proceeds to us from this offering, will be adequate during such period to repay our debts as they become due, to make normal recurring capital additions and improvements, to meet working capital requirements, to refurbish Rig 16 , to acquire and refurbish the Odin Spirit if we decide to exercise our purchase option and otherwise to operate our business. Our ability to make payments on our indebtedness and to fund planned capital expenditures 38

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in the future will depend on our ability to generate cash, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our future cash flows may be insufficient to meet all of our debt obligations and commitments, and any insufficiency could negatively impact our business. To the extent we are unable to repay our indebtedness as it becomes due or at maturity with cash on hand or from other sources, we will need to refinance our debt, sell assets or repay the debt with the proceeds from further equity offerings. Additional indebtedness or equity financing may not be available to us in the future for the refinancing or repayment of existing indebtedness, and we can provide no assurance as to the timing of any asset sales or the proceeds that could be realized by us from any such asset sale. Cash Cash balances as of March 31, 2005 totaled $8.5 million. This represented a decrease of $6.0 million from the cash balances of $14.5 million as of December 31, 2004. The decrease was due to the acquisitions of Rig 25 and Rig 30 for $21.5 million and $20.0 million, respectively, partially offset by additional borrowings of $25.0 million under our term loan, contributions from owners totaling $4.3 million and cash flow generated from operations. Debt Our current debt structure is used to fund our business operations, and our revolving credit facility is a source of liquidity. As of March 31, 2005, we had outstanding long-term debt of $81.0 million, including current maturities of $4.0 million. In June 2005, we repaid our existing long-term debt, together with accrued interest, fees and applicable prepayment premiums, with the net proceeds from our new term loan described below. In June 2005, we entered into a senior secured credit agreement with a syndicate of financial institutions. This agreement provides for a $140.0 million term loan and a $25.0 million revolving credit facility. We may seek commitments to increase the amount available under the credit agreement by an additional $25.0 million if the amount outstanding under the term loan is no more than $105.0 million and our leverage ratio, after giving effect to the incurrence of the additional $25.0 million of borrowings, is no greater than 2.5 to 1. We used $54.6 million of the proceeds from the term loan to repay all outstanding amounts under the credit facility of our drilling company subsidiary and $47.5 million of the proceeds to repay all outstanding amounts under the credit facility of our liftboat company subsidiary, in each case including accrued interest, fees and applicable prepayment premiums. We terminated both of those credit facilities in connection with the repayment. In addition, we used $20.0 million of the remaining proceeds from the term loan to fund the purchase price of Rig 16 . In connection with the repayment of the two credit facilities, we will recognize in the second quarter of 2005 pretax charges of approximately $1.9 million, consisting of the write-off of deferred financing costs related to the retired debt. The revolving credit facility provides for swing line loans of up to $2.5 million and for the issuance of up to $5.0 million of letters of credit. The revolving loans bear interest at either (1) the highest of (a) Comerica Bank’s base rate, (b) the three-month certificate of deposit rate plus 0.5% and (c) the Federal funds effective rate plus 0.5%, in each case plus 2.25%, or (2) LIBOR plus 3.25%. We may prepay the revolving loans at any time without premium or penalty. The revolving loans mature in June 2008. We are required to pay a commitment fee of 0.50% on the average daily amount of the unused commitment amount of the revolving credit facility and a letter of credit fee of 3.25%, plus a fronting fee of 0.13%, with respect to the undrawn amount of each issued letter of credit. As of June 30, 2005, no amounts were outstanding and no letters of credit had been issued under the revolving credit facility. The term loan bears interest at either (1) the highest of (a) Comerica Bank’s base rate, (b) the three-month certificate of deposit rate plus 0.5% and (c) the Federal funds effective rate plus 0.5%, in each case plus 2.25%, or (2) LIBOR plus 3.25%. Principal payments of $350,000 are due quarterly, and the outstanding principal balance of the term loans is payable in full in June 2010. We may prepay the term loans at any time without premium or penalty, except that prepayments made during the first year with proceeds from debt issuances or in 39

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connection with a repricing of the term loan will be made at 101% of the principal repaid. As of June 30, 2005, the entire principal amount of the original $140.0 million term loan was outstanding, and the interest rate was 6.58%. We are required to prepay the term loan with: • • • • • the proceeds from sales of certain assets; the proceeds from casualties or condemnations of assets to the extent that the net cash proceeds from any such casualty or condemnation exceed $1.0 million and are not reinvested within one year; the net proceeds of certain debt for borrowed money; 25% of the net proceeds of any public or private offering of our equity securities, provided that holders of the term loan may reject the mandatory prepayment; and 50% of excess cash flow if either our leverage ratio is above 3.0 to 1.0 or the outstanding principal balance of the term loan is greater than $110.0 million.

Our obligations under the credit agreement are secured by our liftboats, rigs and substantially all of our other personal property, including the equity of our subsidiaries. All of our material subsidiaries guarantee our obligations under the agreement and have granted similar liens on substantially all of their assets. The credit agreement contains financial covenants relating to leverage and interest coverage. Other covenants contained in the agreement restrict, among other things, repurchases of equity interests, mergers, asset dispositions, guaranties, debt, liens, acquisitions, dividends, distributions, investments, affiliate transactions, prepayments of other debt and capital expenditures. The credit agreement contains customary events of default. In addition, on or before August 13, 2005, the credit agreement requires us to enter into hedging contracts with an approved counterparty with the purpose and effect of fixing the interest rate on at least 50% of the outstanding principal amount of the term loan. We expect to repay $ proceeds from this offering. Capital Expenditures We expect capital expenditures and deferred drydocking costs to be approximately $112 million in 2005, excluding future acquisitions of additional rigs or liftboats. Of this amount, approximately $83 million relates to purchases of jackup rigs and liftboats completed during the first six months of 2005, approximately $12 million relates to the refurbishment of Rig 16 and the liftboats acquired from Superior Energy and approximately $10 million relates to capital expenditures on our other assets. We plan to spend approximately $7 million for regulatory inspections and related drydocking costs of our liftboats. In addition, we have paid $250,000 for an option to purchase the jackup rig Odin Spirit . The exercise price of the option is $12.5 million, plus an additional amount relating to certain approved capital expenditures to be undertaken on the rig prior to any closing of the purchase. We would apply the $250,000 option fee to the payment of the exercise price upon any exercise. If we exercise this option, we expect to spend a significant amount to refurbish the rig prior to placing it into service. The timing and amounts we actually spend in connection with our plans to upgrade and refurbish other selected rigs and liftboats is subject to our discretion and will depend on our view of market conditions and our cash flows. From time to time, we may review possible acquisitions of rigs, liftboats or businesses, joint ventures, mergers or other business combinations and may in the future make significant capital commitments for such purposes. Any such transactions could involve the payment by us of a substantial amount of cash. We would likely fund the cash portion of such transactions, if any, through cash balances on hand, the incurrence of additional debt, sales of assets, equity interests or other securities or a combination thereof. If we acquire additional assets, we would expect that the ongoing capital expenditures for our company as a whole would increase in order to maintain our equipment in a competitive condition. 40 of the outstanding amount under the term loan, together with the accrued and unpaid interest, with

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Our ability to fund capital expenditures would be adversely affected if conditions deteriorate in our business or industry, we experience poor results in our operations or we fail to meet covenants under our revolving credit facility and term loans. Asset Dispositions In addition, from time to time we may consider possible dispositions of assets. As of March 31, 2005, Rig 41 , a platform rig, had been classified as an asset held for resale. We believe that the net book value of $2.0 million for this asset as of March 31, 2005 is reasonable and will be realized upon disposal. In addition, as of June 30, 2005, the Moonfish , a liftboat, has been classified as an asset held for resale. We believe that the net book value of $0.2 million for this asset as of June 30, 2005 is reasonable and will be realized upon disposal. Contractual Obligations The following table summarizes our contractual obligations as of March 31, 2005, after giving effect to the completion of our new term loan in June 2005, this offering and the application of the net proceeds from the term loan and this offering as described under ―Use of Proceeds‖:
Payments due by period ending March 31, 2007 to 2008 2009 to 2010 (in thousands)

Contractual Obligations(1)

2006

Thereafter

Total

Long-term debt obligations Operating lease obligations Total contractual obligations (1)

$ 108.0 $

$ 215.0 $

$ 90.0 $

— — —

$ 413.0 $

As of March 31, 2005, we did not have any material purchase obligations for goods or services.

Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Recent Accounting Pronouncements In November 2004, we adopted an incentive compensation plan for key management personnel, which includes equity-based compensation as well as other forms that our board of directors deems appropriate to provide incentives for attracting and retaining qualified management personnel. To date, seven employees have been granted stock options under this plan. In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (―SFAS‖) No. 123R, ―Share-Based Payment.‖ SFAS 123R requires that companies expense the value of employee stock options and similar awards. We intend to adopt SFAS No. 123R effective on January 1, 2006. Under this method, we will record compensation expense at fair value for all awards we grant after the date we adopt the standard. In addition, we will be required to record compensation expense at fair value (as previous awards continue to vest) for the unvested portion of previously granted stock option awards that were outstanding as of the date of adoption. We estimate that the expense associated with this adoption will total approximately $ per quarter. We have not recognized any expense associated with our option grants to date. Quantitative and Qualitative Disclosures About Market Risk We are exposed to interest rate risk with respect to our variable rate debt. All of the debt under our term loan is at variable rates. We do not currently hedge our variable interest rate debt. Our new credit agreement, however, requires us to enter into hedging contracts with an approved counterparty on or before August 13, 2005, with the purpose and effect of fixing the interest rate on at least 50% of the outstanding principal amount of the term loan. As of June 30, 2005, the interest rate for the $140.0 million outstanding under the term loan was 6.58%. A hypothetical 100 basis point increase in the average interest rate on our variable rate debt would increase our annual interest expense by approximately $1.4 million. 41

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INDUSTRY OVERVIEW The drilling and liftboat service industry is cyclical and typically driven by general economic activity and changes in actual or anticipated oil and natural gas prices. In general, demand for our rigs is correlated to our customers’ expectations of energy prices, particularly natural gas prices. As a result, we expect that sustained high energy prices generally would have a positive impact on our earnings, whereas sustained low energy prices generally would have a negative impact on our earnings. Demand for liftboats historically has been less cyclical than demand for jackup rigs, although demand for liftboats and for jackup rigs generally is affected by the same factors. We believe that recent trends in the industry, including the trends identified below, should benefit our operations. Strong Commodity Price Environment. Currently, oil and natural gas prices are high relative to historical levels. As illustrated in the charts below, the rolling twelve-month average price of oil has increased from $18.42 per barrel as of January 1, 1996 to $48.90 per barrel as of July 1, 2005, and the rolling twelve-month average price of natural gas has increased from $1.72 per mmbtu to $6.33 per mmbtu over the same period. We believe that high oil and natural gas prices, if sustained, could result in increased exploration and development drilling activity and higher demand and dayrates for drilling and liftboat service companies. U.S. CRUDE OIL PRICE ROLLING TWELVE MONTH AVERAGE

Source: Bloomberg (last twelve months rolling average of historical WTI-Cushing prices). As of July 1, 2005. 42

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U.S. NATURAL GAS PRICE ROLLING TWELVE MONTH AVERAGE

Source: Bloomberg (last twelve months rolling average of historical Henry Hub prices). As of July 1, 2005. Growing U.S. Demand for Natural Gas and Maturing Natural Gas Fields . Most of our customers in the shallow-water U.S. Gulf of Mexico are drilling or maintaining natural gas wells. Currently, approximately one-quarter of domestic natural gas production comes from the U.S. Gulf of Mexico. According to the EIA, from 1988 to 2004 U.S. demand for natural gas grew by 12.0 billion cubic feet per day, equal to an annual rate of 1.4%, while domestic supply grew by 4.7 billion cubic feet per day, equal to an annual rate of 0.6%. Over the next two decades, the EIA projects a need for a 15% growth in domestic natural gas production (from approximately 19 trillion cubic feet to 22 trillion cubic feet per year) and an increase in liquefied natural gas, or LNG, imports from abroad in order to meet growing demand for natural gas. U.S. NATURAL GAS PRODUCTION vs. U.S. NATURAL GAS CONSUMPTION

Source: EIA. As of December 31, 2004 43

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As illustrated in the chart below, although the overall number of natural gas wells drilled in the United States has increased in recent years, a corresponding increase in production has not been realized. We believe that a further increase in drilling activity for natural gas will be required as a result of the expected increasing demand for natural gas and the increasing production decline rates of natural gas wells in the United States. U.S. NATURAL GAS PRODUCTION AND GAS WELLS DRILLED

Source: EIA. As of December 31, 2004. Increasing Capital Budgets of Oil and Natural Gas Producers. With commodity prices near historic highs, many oil and natural gas exploration and production companies are generating cash flow that exceeds their recent levels of capital investment. Many of these companies have been using a portion of their excess cash flow to increase capital budgets in an attempt to meet rising demand for oil and natural gas and to mitigate production and reserve declines. HISTORICAL U.S. UPSTREAM CAPITAL EXPENDITURES OF TOP 50 U.S. PRODUCERS

Source: John S. Herold, Inc. 38 Global Upstream Performance Review—Top 50 U.S. Producers.
th

44

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Reduced Supply of Jackup Rigs in the U.S. Gulf of Mexico. Increased international demand for jackup rigs has caused some contract drillers to redeploy rigs from the U.S. Gulf of Mexico to international areas, in many cases under multi-year contracts. According to ODS-Petrodata, the number of marketed jackup rigs in the U.S. Gulf of Mexico has declined from 149 rigs in March 2001 to 94 rigs in June 2005, a decline of approximately 37%. As illustrated in the charts below, this redeployment, together with attrition, has reduced the overall supply of jackup rigs in the U.S. Gulf of Mexico (see first chart below) and has created a more favorable operating environment for service companies, with increased utilization and higher dayrates for the remaining rigs (see second chart below). In addition, we believe a substantial majority of the newbuild jackup rigs recently ordered in the industry, which according to ODS-Petrodata have estimated construction costs per rig ranging from approximately $100.0 million to $150.0 million, are intended to service the rising demand in international drilling markets. U.S. GULF OF MEXICO SUPPLY AND DEMAND

Source: ODS-Petrodata. As of June 30, 2005. SHALLOW WATER U.S. GULF OF MEXICO JACKUP DAYRATES

Source: ODS-Petrodata. As of June 30, 2005. Note: Data unavailable for 250-foot mat slot jackup rigs from January 2002 – June 2002. 45

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Aging Production Infrastructure in the U.S. Gulf of Mexico. The aging of production platforms in the U.S. Gulf of Mexico is expected to increase the demand for the types of maintenance and decommissioning services provided from our liftboat fleet. Currently, there are over 3,900 production platforms in the U.S. Gulf of Mexico, of which approximately 59% are more than 15 years old and 83% are in water depths of 180 feet or less, which is within the operating capability of our liftboat fleet. These production platforms are generally subject to extensive and detailed periodic inspections and require frequent maintenance. Accordingly, we believe the aging of the U.S. Gulf of Mexico production platforms will provide a source of demand for liftboat services that is less discretionary, and more stable, than drilling activity. INSTALLATION DATE OF PRODUCTION PLATFORMS IN THE U.S. GULF OF MEXICO

Source: U.S. Department of the Interior/Minerals Management Service. As of May 31, 2005. 46

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BUSINESS Overview We are a leading provider of shallow-water drilling and liftboat services to the oil and natural gas exploration and production industry in the U.S. Gulf of Mexico. We currently own and operate a fleet of eight jackup rigs that can drill in maximum water depths ranging from 85 to 250 feet and a fleet of 38 liftboats with leg lengths ranging from 105 to 229 feet. In the U.S. Gulf of Mexico, we have the fourth-largest fleet of jackup rigs operating in water depths of 250 feet and less and the largest fleet of liftboats with leg lengths greater than 100 feet, with a market share of approximately 35% in this class of liftboats. We contract our jackup rigs and liftboats to major integrated energy companies and independent oil and natural gas operators. Our jackup rigs are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Our rigs are used primarily for exploration and development drilling in the shallow waters of the U.S. Gulf of Mexico. Six of our eight jackup rigs have a cantilever design that permits the drilling platform to be extended out from the hull to perform drilling or workover operations over certain types of preexisting platforms or structures. Our other two jackup rigs have a slot-type design, which requires drilling operations to take place through a slot in the hull. Historically, rigs with a cantilever design have maintained higher levels of utilization than rigs with a slot-type design, which are primarily used for exploratory drilling. However, one of our slot-type rigs has a competitive advantage in very shallow water as it is one of the few jackup rigs in the world that can drill in water depths as shallow as nine feet. We acquired six of our jackup rigs from Parker Drilling Company in two separate transactions completed in August 2004 and January 2005. We acquired a seventh jackup rig in January 2005 that we had previously operated under a management agreement with the rig’s prior owner. In June 2005, we acquired an eighth jackup rig located in the Middle East, Rig 16 , from Transocean Inc. We intend to refurbish Rig 16 in the United Arab Emirates and to seek work for the rig in a suitable international location. Our liftboats are self-propelled, self-elevating vessels with a large open deck space, which provides a versatile, mobile and stable platform to support a broad range of offshore maintenance and construction services throughout the life of an oil or natural gas well. Once a liftboat is in position, typically adjacent to an offshore production platform or well, third-party service providers perform inspection, maintenance or construction service on the platform or well. Unlike larger and more costly alternatives, such as jackup rigs or construction barges, our liftboats are self-propelled and can quickly reposition at a worksite or move to another location without third-party assistance. We acquired 22 of our liftboats from Global Industries, Ltd. in October 2004 and 17 of our liftboats, one of which we are holding for sale, from Superior Energy Services, Inc. in June 2005. Our Strengths Favorable Niche Position in Shallow-Water Jackup Rig Market. We believe that our fleet of jackup rigs fills an important niche in the shallow-water drilling market of the U.S. Gulf of Mexico, with three of our eight rigs capable of working in special drilling situations. Our Rig 21 and Rig 22 are the only jackup rigs in the U.S. Gulf of Mexico with square mats, which allow these rigs to approach a platform from all four sides. This characteristic is particularly important in the U.S. Gulf of Mexico where many platforms have pipelines beneath the structure. Rig 15 is one of the few jackup rigs in the U.S. Gulf of Mexico capable of working in water depths as shallow as nine feet. We believe these characteristics contribute to the utilization of our rig fleet. Leading Provider of Liftboat Services in U.S. Gulf of Mexico. We operate the largest fleet of liftboats in the U.S. Gulf of Mexico with leg lengths greater than 100 feet. Our liftboat fleet comprises a broad range of liftboat sizes and capabilities, which allows us to provide customers with an effective and cost-efficient liftboat for a particular application. Our large liftboat fleet is deployed across the major producing areas of the U.S. Gulf of 47

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Mexico continental shelf, permitting us more effectively to respond to customer demand and minimize travel time between jobs. We believe our liftboat captains and crews are some of the most experienced in the industry. Operation of Jackup Rigs and Liftboats Provides Balance to Our Business. Jackup rigs are used primarily for exploration and development drilling. Consequently, utilization and dayrates for jackup rigs tend to be more closely correlated with oil and natural gas price expectations and drilling activity levels than utilization and dayrates for liftboats. In contrast, liftboats are used throughout the life of an oil and natural gas field. As a result, utilization and dayrates for liftboats tend to be more stable than for jackup rigs. We believe that our liftboats help us balance our exposure to commodity prices and drilling activity levels that we experience with our jackup rigs. Strong Relationships with a Diversified Customer Base. Our customer base includes major integrated energy companies and independent exploration and production companies. This customer base provides exposure to the spending patterns of major integrated energy companies, which are more stable, and of smaller independent exploration and production companies, which are more commodity-driven and subject to wider fluctuations. We benefit from our management’s long-standing relationships with many of our customers, and in some instances, we have preferred service provider relationships with our clients. Experienced and Incentivized Management Team . Our senior and operating level management team has extensive industry experience in the U.S. Gulf of Mexico and internationally, with an average of approximately 25 years of experience in the oil service industry. We believe that their considerable knowledge of and experience in our industry enhances our ability to operate effectively throughout industry cycles. Our management also has substantial experience in identifying and completing asset acquisitions. Our incentive compensation plans are designed to align our management’s interests with our operating, financial and safety performance. Our Strategies Focus on Drilling and Liftboat Services. We view our core business as providing shallow-water drilling and liftboat services to the exploration and production industry. As one of the largest operators of shallow-water jackup rigs and liftboats in the U.S. Gulf of Mexico, we believe we are well-positioned to benefit from any increased levels of drilling and production maintenance activity. We also intend to selectively pursue expansion opportunities in international markets with characteristics similar to the shallow-water U.S. Gulf of Mexico, such as West Africa, the Middle East and the Asia-Pacific region. Maintain Our Status as an Efficient, Low-Cost Service Provider . We strive to maintain an organizational structure and asset base that allow us to be an efficient, low-cost service provider in the industry. Because of the smaller rig and crew sizes required to operate our jackup fleet as compared to higher specification assets, we believe our rigs have an operating and capital cost advantage. In addition, our liftboat operations are organized to allow for the integration of future liftboat acquisitions without significant incremental overhead. Pursue Strategic Growth Opportunities . We believe that opportunities remain to acquire shallow-water rigs from service providers that are more focused on higher specification assets needed to service customers operating in the deepwater market segment or drilling complex ultra-deep wells. We also believe that opportunities exist to acquire liftboats from smaller-scale operators as those operators may opt for consolidation given the economic and operational advantages associated with operating a larger fleet. Remain Financially Disciplined and Conservative. We use return on capital employed in evaluating new investments and intend to pursue only those investments that we believe will produce strong returns on capital employed throughout an entire industry cycle. Furthermore, we intend to maintain a conservative capital structure and sufficient liquidity to operate throughout the industry cycle. 48

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Our Fleet Jackup Rigs As of June 30, 2005, our jackup rigs were operating under contracts ranging in duration from well-to-well to six months, at an average dayrate of $41,500. The following table contains information regarding our jackup rig fleet as of June 30, 2005. We include information in the table for rated drilling depth, which means drilling depth stated by the manufacturer of the rig. Depending on deck space and other factors, a rig may not have the actual capacity to drill at the rated drilling depth.
Maximum/Minimu m Water Depth Rating (feet)

Rig Name

Type

Year Built

Rated Drilling Depth (feet)

Status

11 15 16 20 21 22 25 30 (1)

Mat-supported, cantilever Independent leg, slot Independent leg, cantilever Mat-supported, cantilever Mat-supported, cantilever Mat-supported, cantilever Independent leg, cantilever Mat-supported, slot

1980 1982 1981 1980 1980 1971 1980 1979

175/21 85/9 170/16 85/20 120/22 173/22 190/12 250/25

20,000 (1) 20,000 16,000 25,000 20,000 15,000 20,000 20,000

Contracted Contracted Shipyard Contracted Contracted Contracted Contracted Contracted

Rated workover depth. Rig 11 is currently configured for workover activity.

Jackup rigs are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Once a foundation is established, the drilling platform is jacked further up the legs so that the platform is above the highest expected waves. The rig hull includes the drilling rig, jackup system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter landing deck and other related equipment. Jackup rig legs may operate independently or have a lower hull referred to as a ―mat‖ attached to the lower portion of the legs in order to provide a more stable foundation in soft bottom areas, similar to those encountered in the shallow-water U.S. Gulf of Mexico. Independent leg rigs are better suited for harder or uneven seabed conditions while mat rigs are better suited for soft bottom conditions. In addition, mat rigs generally are able to more quickly position themselves on the worksite and more easily move on and off location than independent leg rigs. Five of our eight jackup rigs are mat-supported. Six of our jackup rigs have a cantilever design that permits the drilling platform to be extended out from the hull and to perform drilling or workover operations over some types of preexisting platforms or structures. Our two other jackup rigs have a slot-type design, which requires drilling operations to take place through a slot in the hull. Slot-type rigs are usually used for exploratory drilling rather than development drilling, in that their configuration makes them difficult to position over existing platforms or structures. Jackup rigs with the cantilever feature, which can be used for both exploratory and development drilling, historically have achieved higher dayrates and utilization rates. 49

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Liftboats The following table contains information regarding our liftboats as of June 30, 2005:
Year Built Leg Length (feet) Deck Area (square feet) Maximum Deck Load (pounds) Gross Tonnage

Liftboat Name(1)

Kingfish Man-O-War Wahoo Amberjack Swordfish Manta Ray Seabass Hammerhead Blue Runner Starfish Pompano Sandshark Stingray Albacore Moray Skipfish Sailfish Mahi Mahi Rockfish Gar Grouper Sea Robin Tilapia Snapper Barracuda Carp Cobia Dolphin Herring Marlin Corina Pike Remora Wolffish Seabream Sea Trout Tarpon Palometa (1)

1996 1996 1981 1981 2000 1981 1981 1980 1980 1978 1981 1982 1979 1985 1980 1985 1982 1980 1984 1978 1979 1981 1976 1982 1979 1978 1978 1980 1979 1979 1974 1980 1976 1977 1980 1978 1979 1972

229 229 215 205 190 150 150 145 140 140 130 130 130 129 128 128 127 124 122 120 120 120 118 118 105 105 105 105 105 105 105 105 105 105 105 105 105 102

5,000 5,000 4,525 3,800 4,000 2,400 2,600 1,648 3,400 2,266 1,864 1,940 2,266 2,200 1,824 1,000 2,300 2,409 1,536 2,100 2,100 1,728 1,900 1,000 1,648 1,648 1,648 1,648 1,648 1,648 1,100 1,000 1,600 900 1,000 1,100 1,648 1,100

500,000 500,000 500,000 500,000 700,000 200,000 200,000 150,000 300,000 150,000 100,000 150,000 150,000 150,000 130,000 110,000 150,000 142,000 125,000 150,000 150,000 150,000 110,000 100,000 110,000 110,000 110,000 110,000 110,000 110,000 100,000 130,000 130,000 130,000 130,000 130,000 110,000 120,000

188 188 491 417 189 194 186 178 174 99 196 196 99 171 178 91 179 97 195 98 97 98 97 98 93 98 94 97 97 97 98 92 94 99 92 97 97 99

The Pike and Corina are currently stacked. All other liftboats are either available or operating. In addition, we own a liftboat, the Moonfish , that is currently stacked and held for sale.

Liftboats are self-propelled, self-elevating work platforms complete with legs, cranes and living accommodations. Once on location, a liftboat hydraulically lowers its legs until the legs are seated on the ocean floor and then jacks up until the work platform is elevated above the wave action. Once the liftboats are positioned, their stability, open deck area, crane capacity and relatively low costs of operation make them ideal work platforms for a wide range of offshore support services, such as: • platform construction, inspection, maintenance and removal; 50

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• • • • •

well intervention and workover; well plug and abandonment; crane lift services; pipeline installation and maintenance; and offshore crew accommodation.

Our liftboats are ideal working platforms to support platform and pipeline inspection and maintenance tasks because of their ability to maneuver efficiently and support multiple activities at different working heights. Diving operations may also be performed from our liftboats in connection with underwater inspections and repair. In addition, our liftboats provide an effective platform from which to perform well-servicing activities such as mechanical wireline, electrical wireline and coiled tubing operations. Technological advances, such as coiled tubing, allow more well-servicing procedures to be conducted from liftboats. Moreover, during both platform construction and removal, smaller platform components can be installed and removed more efficiently and at a lower cost using a liftboat crane and liftboat-based personnel than with a specialized construction barge. The length of the legs is the principal measure of capability for a liftboat, as it determines the maximum water depth in which the liftboat can operate. Our liftboats are capable of operating in water depths of up to 180 feet. Five of our liftboats have leg lengths of 190 feet or greater, which allows us to service approximately 83% of the 3,900 existing production platforms in the shallow-water U.S. Gulf of Mexico. In addition, the capability to reposition at a work site or to move to another location within a short time adds to their versatility. Each of our liftboats is staffed with two full-time crews that work 24 hours per day, seven days per week, and rotate based on a 14 days on and 14 days off schedule. Currently, we operate 38 liftboats in the U.S. Gulf of Mexico. Contracts Our contracts to provide services are individually negotiated and vary in their terms and provisions. We obtain most of our contracts through competitive bidding against other contractors. In general, contracts provide for payment on a dayrate basis, with higher rates while the unit is operating and lower rates for periods of mobilization or when operations are interrupted or restricted by equipment breakdowns, adverse weather conditions or other factors. To date, most of our contracts have been on a short-term basis. A dayrate drilling contract generally extends over a period of time covering the drilling of a single well or group of wells or covering a stated term. These contracts typically can be terminated by the customer under various circumstances such as the loss or destruction of the drilling unit or the suspension of drilling operations for a specified period of time as a result of a breakdown of major equipment. The contract term in some instances may be extended by the customer’s exercising options for the drilling of additional wells or for an additional term, or by exercising a right of first refusal. A liftboat contract generally is based on a flat dayrate for the vessel and crew, with variable costs such as catering, fuel and oil charged to the customer at a surcharge. Our liftboat dayrates are determined by prevailing market rates, vessel availability and historical rates paid by the specific customer. Liftboat contracts generally are for shorter terms than are drilling contracts. Customers Our customers primarily include major integrated energy companies and independent oil and natural gas operators in the U.S. Gulf of Mexico. Our three largest drilling customers for the five-month period ended December 31, 2004 were Chevron, Bois d’Arc Offshore and Petroquest Energy, which accounted for 33.1%, 19.4% and 10.7%, respectively, of our drilling services revenues for that period. Our four largest drilling customers for the three-month period ended March 31, 2005 were Chevron, Noble Energy, Bois d’Arc Offshore and Century, which accounted for 31.4%, 17.2%, 13.8%, and 13.1%, respectively, of our drilling services 51

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revenues for that period. Our two largest liftboat customers for the five-month period ended December 31, 2004 were Chevron and Bois d’Arc Offshore, which accounted for 40.1% and 12.5%, respectively, of our marine services revenues for that period. Our largest liftboat customer for the three-month period ended March 31, 2005 was Chevron, which accounted for 37.5% of our marine services revenues for that period. No other customer accounted for more than 10% of our drilling or marine services revenues for either period. Competitors The U.S. Gulf of Mexico shallow-water market is highly competitive. Drilling and liftboat contracts are traditionally awarded on a competitive bid basis. Pricing is often the primary factor in determining which qualified contractor is awarded a job, although technical capability of service and equipment, unit availability, unit location, safety record and crew quality may also be considered. Many of our competitors in the U.S. Gulf of Mexico shallow-water market have greater financial and other resources than we have and may be better able to make technological improvements to existing equipment or replace equipment that becomes obsolete. Safety We actively participate with government, trade organizations and the public in creating responsible laws, regulations and standards to safeguard the workplace, the community and the environment. Our Operations Department manages our health and safety program and identifies areas that may require special emphasis, including new initiatives that evolve within the industry. Our Human Resources Department coordinates our training, whether conducted in-house or at a training facility. Supervisors carry out and monitor compliance with the safety and health policies on their vessels. In addition, our incentive bonus program for rig and liftboat employees includes safety performance as a component. Insurance We maintain insurance coverage that includes physical damage, third party liability, maritime employers liability, pollution and other coverage. Our primary marine package provides for hull and machinery coverage for our rigs and liftboats up to a scheduled value for each asset. Rig coverages include a $1.0 million deductible per occurrence; liftboat deductibles vary from $150,000 to $500,000 depending on the insured value of the particular vessel. There is no deductible in the event of a total loss. The protection and indemnity coverage under the primary marine package has a $5.0 million limit per occurrence with excess liability up to $50.0 million. The primary marine package also provides coverage for cargo and charterer’s legal liability. Vessel pollution is covered under a Water Quality Insurance Syndicate policy. In addition to our marine package, we have separate policies providing coverage for general domestic liability, employer’s liability, domestic auto liability and non-owned aircraft liability, with customary deductibles and coverages. Insurance premiums under our program are approximately $5.5 million for the twelve-month policy period. We believe that our insurance coverage is customary for the industry and adequate for our business. However, there are risks that such insurance will not adequately protect us against or not be available to cover all the liability from all of the consequences and hazards we may encounter in our operations. Regulation Our operations are affected in varying degrees by governmental laws and regulations. Our industry is dependent on demand for services from the oil and natural gas industry and, accordingly, is also affected by changing tax and other laws relating to the energy business generally. We are also subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board, the U.S. Customs and Border Protection Service, as well as private industry organizations such as the American Bureau of Shipping. The Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards, and the U.S. Customs Service is authorized to inspect vessels at will. Coast Guard regulations also require annual inspections and periodic drydock inspections or special examinations of our vessels. 52

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The shorelines and shallow water areas of the U.S. Gulf of Mexico are ecologically sensitive. Heightened environmental concerns in these areas have led to higher drilling costs, a more difficult and lengthy well permitting process and, in general, have adversely affected drilling decisions of oil and natural gas companies. In the United States, regulations applicable to our operations include regulations that require us to obtain and maintain specified permits or governmental approvals, control the discharge of materials into the environment, require removal and cleanup of materials that may harm the environment or otherwise relate to the protection of the environment. For example, as an operator of mobile offshore units in navigable U.S. waters and some offshore areas, we may be liable for damages and costs incurred in connection with oil spills or other unauthorized discharges of chemicals or wastes resulting from or related to those operations. Laws and regulations protecting the environment have become more stringent and may in some cases impose strict liability, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. Some of these laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts which were in compliance with all applicable laws at the time they were performed. The application of these requirements or the adoption of new or more stringent requirements could have a material adverse effect on our financial condition and results of operations. The U.S. Federal Water Pollution Control Act of 1972, commonly referred to as the Clean Water Act, prohibits the discharge of specified substances into the navigable waters of the United States without a permit. The regulations implementing the Clean Water Act require permits to be obtained by an operator before specified exploration activities occur. Offshore facilities must also prepare plans addressing spill prevention control and countermeasures. Violations of monitoring, reporting and permitting requirements can result in the imposition of civil and criminal penalties. With respect to the operation of our vessels, compliance with the permitting and other requirements of the Clean Water Act are the responsibility of our customers who contract for the operation of our liftboats and jackup rigs. The terms of our customer contracts generally provide that the customer will assume responsibility for obtaining required permits, comply with such requirements and indemnify us for costs or liabilities caused by their non-compliance with such permits or other requirements. The U.S. Oil Pollution Act of 1990 (―OPA‖) and related regulations impose a variety of requirements on ―responsible parties‖ related to the prevention of oil spills and liability for damages resulting from such spills. Few defenses exist to the liability imposed by OPA, and the liability could be substantial. Failure to comply with ongoing requirements or inadequate cooperation in the event of a spill could subject a responsible party to civil or criminal enforcement action. OPA also requires owners and operators of all vessels over 300 gross tons to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under OPA. The U.S. Coast Guard has implemented regulations requiring evidence of financial responsibility in the amount of $900 per gross ton. Under OPA, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessel in the fleet having the greatest maximum liability under OPA. Vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance or guarantee. We have obtained the necessary OPA financial assurance certifications for each of our vessels subject to such requirements. The Coast Guard and Maritime Transportation Act of 2004 (the ―CGMTA‖) recently amended OPA to require the owner or operator of any non-tank vessel of 400 gross tons or more that carries oil of any kind as a fuel for main propulsion to prepare and submit a response plan that covers each applicable vessel by August 8, 2005. The vessel response plan must include detailed information on actions to be taken by vessel personnel to prevent or mitigate any discharge or substantial threat of discharge. We expect to complete and submit the required plans to the Coast Guard prior to the August 2005 deadline. The U.S. Outer Continental Shelf Lands Act authorizes regulations relating to safety and environmental protection applicable to lessees and permittees operating on the outer continental shelf. Included among these are regulations that require the preparation of spill contingency plans and establish air quality standards for certain pollutants, including particulate matter, volatile organic compounds, sulfur dioxide, carbon monoxide and 53

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nitrogen oxides. Specific design and operational standards may apply to outer continental shelf vessels, rigs, platforms, vehicles and structures. Violations of lease conditions or regulations related to the environment issued pursuant to the Outer Continental Shelf Lands Act can result in substantial civil and criminal penalties, as well as potential court injunctions curtailing operations and canceling leases. Such enforcement liabilities can result from either governmental or citizen prosecution. The U.S. Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA or the ―Superfund‖ law, imposes liability without regard to fault or the legality of the original conduct on some classes of persons that are considered to have contributed to the release of a ―hazardous substance‖ into the environment. These persons include the owner or operator of a facility where a release occurred, the owner or operator of a vessel from which there is a release, and companies that disposed or arranged for the disposal of the hazardous substances found at a particular site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the cost of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. It is also not uncommon for third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. Recent terrorist actions have spurred a variety of initiatives intended to enhance vessel security. In October 2003, the U.S. Coast Guard finalized regulations required to implement the Maritime Transportation and Security Act of 2002. These regulations required, among other things, the development of vessel security plans and on-board installation of automatic information systems, or AIS, to enhance vessel-to-vessel and vessel-to-shore communications. We believe that our vessels are in substantial compliance with all vessel security regulations. Although significant capital expenditures may be required to comply with these governmental laws and regulations, such compliance has not materially adversely affected our earnings or competitive position. Our operations are conducted in the U.S. domestic trade, which is governed by the coastwise laws of the United States. The U.S. coastwise laws reserve marine transportation, including liftboat services, between points in the United States to vessels built in and documented under the laws of the United States and owned and manned by U.S. citizens. Generally, an entity is deemed a U.S. citizen for these purposes so long as: • • • • it is organized under the laws of the United States or a state; each of its president or other chief executive officer and the chairman of its board of directors is a U.S. citizen; no more than a minority of the number of its directors necessary to constitute a quorum for the transaction of business are non-U.S. citizens; at least 75% of the interest and voting power in the corporation is held by U.S. citizens free of any trust, fiduciary arrangement or other agreement, arrangement or understanding whereby voting power may be exercised directly or indirectly by non-U.S. citizens; and in the case of a limited partnership, the general partner meets U.S. citizenship requirements for U.S. coastwise trade.

•

Because we could lose our privilege of operating our liftboats in the U.S. coastwise trade if non-U.S. citizens were to own or control in excess of 25% of our outstanding interests, our certificate of incorporation will restrict foreign ownership and control of our common stock to not more than 20% of our outstanding interests. Two of our liftboats rely on an exemption from the Jones Act in order to operate in the U.S. Gulf of Mexico. If these liftboats were to lose this exemption, we would be unable to use them in the U.S. Gulf of Mexico and would be forced to seek opportunities for them in international locations. 54

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The United States is one of approximately 165 member countries to the International Maritime Organization (―IMO‖), a specialized agency of the United Nations that is responsible for developing measures to improve the safety and security of international shipping and to prevent marine pollution from ships. Among the various international conventions negotiated by the IMO is the International Convention for the Prevention of Pollution from Ships (―MARPOL‖). MARPOL imposes environmental standards on the shipping industry relating to oil spills, management of garbage, the handling and disposal of noxious liquids, harmful substances in packaged forms, sewage and air emissions. Annex VI to MARPOL, which became effective internationally on May 19, 2005, sets limits on sulfur dioxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances. Annex VI also imposes a global cap on the sulfur content of fuel oil and allows for specialized areas to be established internationally with more stringent controls on sulfur emissions. For vessels over 400 gross tons, platforms and drilling rigs, Annex VI imposes various survey and certification requirements. The United States has not yet ratified Annex VI. Any vessels we operate internationally would, however, become subject to the requirements of Annex VI in those countries that have implemented its provisions. Because we currently anticipate offering only our rigs for international projects, and such rigs are generally exempt from the more costly compliance requirements of Annex VI, we do not anticipate incurring significant costs to comply with Annex VI in the near term. If the United States does elect to ratify Annex VI in the future, we could be required to incur potentially significant costs to bring certain of our vessels into compliance with these requirements. Employees As of June 30, 2005, we had approximately 700 employees. We require skilled personnel to operate and provide technical services and support for our rigs and liftboats. As a result, we conduct extensive personnel recruiting, training and safety programs. We will need to hire additional rig-based employees in connection with the commencement of operations of Rig 16 and, if we decide to exercise our purchase option, of the Odin Spirit. As of June 30, 2005, none of our employees was working under collective bargaining agreements. Efforts have been made from time to time, however, to unionize portions of the offshore workforce in the U.S. Gulf of Mexico. We believe that our employee relations are good. Properties We maintain our principal executive offices in Houston, Texas, which is under lease, and have an operational office in New Iberia, Louisiana, which we own. Legal Proceedings We and our subsidiaries are routinely involved in litigation, claims and disputes arising in the ordinary course of our business. We do not believe that ultimate liability, if any, resulting from any such pending litigation will have a material adverse effect on our financial condition or results of operations. 55

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MANAGEMENT Executive Officers and Directors The following table sets forth information concerning our executive officers and directors, including their ages, as of June 30, 2005:
Name Age Position Director Class

John T. Reynolds Randall D. Stilley Steven A. Manz Thomas J. Seward II Randal R. Reed Thomas E. Hord Don P. Rodney Renee M. Pitre Thomas R. Bates, Jr. J. William Franklin, Jr. Boris Gutin V. Frank Pottow Steven A. Webster

35 51 39 74 48 53 57 43 55 33 30 41 53

Chairman of the Board Chief Executive Officer and President and Director Chief Financial Officer President, Hercules Drilling Company, LLC President, Hercules Liftboat Company, LLC Vice President, Operations and Chief Operating Officer, Hercules Drilling Company, LLC Vice President, Finance, Hercules Drilling Company, LLC Vice President, Finance, Hercules Liftboat Company, LLC Director Director Director Director Director

N/A N/A N/A N/A N/A N/A

John T. Reynolds has served as Chairman of the Board of Directors since our formation. Mr. Reynolds is co-founder and a managing director of Lime Rock Management LP. Prior to founding Lime Rock in 1998, Mr. Reynolds was a Vice President at Goldman Sachs & Co. He was a senior analyst for oil services in the Investment Research department at Goldman Sachs, where he worked from 1992 to 1998. Randall D. Stilley has served as Chief Executive Officer and President since October 2004. Prior to joining Hercules, Mr. Stilley was Chief Executive Officer of Seitel, Inc., an oilfield services company, from January 2004 to October 2004. From 2000 until he joined Seitel, Mr. Stilley was an independent business consultant and managed private investments. From 1997 until 2000, Mr. Stilley was President of the Oilfield Services Division at Weatherford International, Inc., an oilfield services company. Prior to joining Weatherford in 1997, Mr. Stilley served in a variety of positions at Halliburton Company, an oilfield services company. Mr. Stilley is a member of the Executive Committee at the Houston Technology Center. He is a registered professional engineer in the state of Texas and a member of the Society of Petroleum Engineers. Steven A. Manz has served as Chief Financial Officer since January 2005. Prior to joining Hercules, Mr. Manz worked at Noble Corporation, a contract drilling company, from May 1995 to January 2005 in a number of roles, including Managing Director of the Noble Technology Services Division, Vice President of Strategic Planning, Director of Accounting and Investor Relations and Internal Audit Manager. Prior to joining Noble, Mr. Manz served as senior auditor of Cooper Industries, an electrical products manufacturer, from May 1993 to May 1995 and as a member of the Audit Group of Price Waterhouse LLP from August 1989 to May 1993. Thomas J. Seward II has served as President of our subsidiary, Hercules Drilling Company, LLC, since joining our company in August 2004 in connection with our assumption from Unrelated HOC of the management contract for jackup rig Rig 30 . Mr. Seward served as Chairman and CEO of Unrelated HOC from 2001 until July 2004. From 1999 to 2001, Mr. Seward managed private investments. Mr. Seward founded Unrelated HOC in 1981 and served as Chairman from 1981 until 1995 and President from 1990 until 1999. 56

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Randal R. Reed has served as President of our subsidiary, Hercules Liftboat Company, LLC, since October 2004. From 1995 to October 2004, Mr. Reed was manager of the fleet of liftboats, diveboats and crewboats of Global Industries, Ltd. Thomas E. Hord has served as Vice President, Operations and Chief Operating Officer of Hercules Drilling Company, LLC since August 2004. Prior to joining our company, Mr. Hord supervised rig operations and marketing for Unrelated HOC and its predecessor companies since 1982. Don P. Rodney has served as Vice President, Finance of Hercules Drilling Company, LLC since August 2004. From October 2003 to June 2004, Mr. Rodney was Chief Financial Officer of Unrelated HOC. From November 2002 to July 2003, he was Treasurer of TODCO, a contract drilling company. Mr. Rodney was Controller, Inland Water Division of Transocean from February 2001 until November 2002. From November 1992 until January 2001, Mr. Rodney served as Vice President, Finance for R&B Falcon Drilling USA, Inc., a marine contract drilling company, and its predecessors. From 1976 to November 1992, Mr. Rodney worked for Atlantic Pacific Marine Corp., a marine contract drilling company, in a number of positions, including as Controller from 1983 until November 1992. Renee M. Pitre has served as Vice President, Finance of Hercules Liftboat Company, LLC since November 2004. From 1997 to November 2004, she was controller over four divisions of Global Industries, Ltd. From 1992 to 1997, Ms. Pitre was controller for the Americas region for Sub Sea International, an offshore oilfield services company. Thomas R. Bates, Jr. has served as a director since our formation. Mr. Bates has been a managing director at Lime Rock Management LP since joining Lime Rock in 2001. From 1998 through 2000, Mr. Bates was President of the Discovery Group of Baker Hughes Incorporated, an oilfield services company. From 1997 to 1998, he was President and Chief Executive Officer of Weatherford/Enterra, Inc., an oilfield services company. From 1992 to 1997, Mr. Bates was President of Anadrill at Schlumberger Limited, an oilfield services company. Mr. Bates was Vice President of Sedco Forex at Schlumberger from 1986 to 1992. Mr. Bates serves on the board of directors of NATCO Group Inc. and NQL Drilling Tools Inc. J. William Franklin, Jr. has served as a director since our formation. Mr. Franklin has been a principal at Lime Rock Management LP since joining Lime Rock in February 2003. From July 2000 to February 2003, he was an associate at Riverstone Holdings, a private equity firm. From July 1998 to July 2000, Mr. Franklin was obtaining his master’s of business administration from Harvard Business School. From July 1996 to July 1998, Mr. Franklin was an analyst with Simmons & Company International. From January 1995 to July 1996, he was the senior financial analyst in the Corporate Development Group of Parker & Parsley Petroleum Company, an oil and natural gas exploration and production company. Boris Gutin has served as a director since October 2004. Mr. Gutin has been an associate at Greenhill Capital Partners since joining Greenhill in August 2003. From September 2001 to August 2003, Mr. Gutin was obtaining his master’s of business administration from Harvard Business School. From August 1999 to August 2001, he was an investment professional at American Securities Capital Partners, a private equity firm. From August 1998 to August 1999, Mr. Gutin was in the Principal Investment Area of Goldman Sachs & Co. and, from August 1996 to August 1998, he was in Goldman Sachs’ Leveraged Finance Group. V. Frank Pottow has served as a director since October 2004. Mr. Pottow joined Greenhill & Co. as a managing director in July 2002 and has served as a member of the Investment Committee of Greenhill Capital Partners since July 2002. From October 1997 to July 2002, he was a managing director of SG Capital Partners, LLC. From June 1996 to October 1997, he was a managing director of Thayer Capital Partners. From January 1992 to March 1996, he was a Principal of Odyssey Partners, L.P. Steven A. Webster has served as a director since May 2005. Mr. Webster has been President and Co-Managing Partner of Avista Capital Partners LP, a partnership focusing on private equity investments in 57

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energy, media, healthcare and other industries, since June 2005. Since 2000, he has served as Chairman of Global Energy Partners, an affiliate of Credit Suisse First Boston LLC, which has specialized in private equity investments in the energy industry. From 1998 to 1999, he served as President and CEO of R&B Falcon Corporation, a marine contract drilling company. From 1988 through 1997, Mr. Webster was Chairman and CEO of Falcon Drilling Company Inc., a company he founded. Mr. Webster has been a financial intermediary since 1979 and an active investor since 1984 in the energy sector. He serves as Chairman of Carrizo Oil & Gas Inc., Basic Energy Services and Crown Resources Corporation. He is also a trust manager of Camden Property Trust and a director of Brigham Exploration Company, Geokinetics Inc., Grey Wolf, Inc., Goodrich Petroleum Corporation and Seabulk International Inc. Board Structure and Compensation of Directors Upon completion of the offering, our board of directors will consist of seven members. Our board has determined that Messrs. and are independent under applicable NASDAQ Marketplace Rules. Following the phase-in period permitted under those rules, we intend that a majority the members of our board will be independent directors. Our directors will be divided into three classes serving staggered three-year terms. Class I, Class II and Class III directors will serve until our annual meetings of stockholders in 2006, 2007 and 2008, respectively. At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired. This classification of our board of directors could have the effect of increasing the length of time necessary to change the composition of a majority of the board of directors. In general, at least two annual meetings of stockholders will be necessary for stockholders to effect a change in a majority of the members of the board of directors. Directors who are also full-time officers or employees of our company will receive no additional compensation for serving as directors. All other directors will receive an annual retainer of $ . Each non-employee director also will receive a fee of $ for each board meeting attended and $ for each committee meeting attended. In addition, the chairman of the audit committee will receive an annual fee of $ , the chairman of the compensation committee will receive an annual fee of $ and the chairman of the nominating and governance committee will receive an annual fee of $ . Any fees payable to directors who are affiliated with Lime Rock or Greenhill will be paid to Lime Rock and Greenhill, as applicable. Under our 2004 long-term incentive plan, the board will have authority to determine the awards made to non-employee directors under the plan from time to time without the prior approval of our stockholders. Board Committees Our board of directors plans to have an audit committee, a nominating and governance committee and a compensation committee following this offering. Following the phase-in period permitted under the NASDAQ Marketplace Rules, we intend that all the members of our nominating and governance committee and of our compensation committee will be independent under applicable provisions of those rules. In addition, we intend that the members of our audit committee will be independent under applicable provisions of the Securities Exchange Act of 1934 and the NASDAQ Marketplace Rules following the phase-in period. Nominating and Governance Committee . The nominating and governance committee, which is expected to consist of Messrs. (chair), and , will assist the board in identifying and recommending candidates to fill vacancies on the board of directors and for election by the stockholders, recommending committee assignments for directors to the board of directors, monitoring and assessing the performance of the 58

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board of directors and individual non-employee directors, reviewing compensation received by directors for service on the board of directors and its committees and developing and recommending to the board of directors appropriate corporate governance policies, practices and procedures for our company. Audit Committee . The audit committee, which is expected to consist of Messrs. (chair), and , will assist the board in overseeing (a) the integrity of our financial statements, (b) our compliance with legal and regulatory requirements, (c) the independence, qualifications and performance of our independent registered public accounting firm and (d) the performance of our internal audit function. Compensation Committee . The compensation committee, which is expected to consist of Messrs. (chair), and , will (a) review and approve the compensation of our executive officers and other key employees, (b) evaluate the performance of our chief executive officer and oversee the performance evaluation of senior management and (c) administer and make recommendations to the board of directors with respect to our incentive-compensation plans, equity-based plans and other compensation benefit plans. Security Ownership of Executive Officers and Directors The following table sets forth information as of , 2005 with respect to the ownership of our common stock by each of our directors, by each named executive officer in the summary compensation table below and by all directors and executive officers as a group. To our knowledge, except as indicated in the footnotes to this table or as provided by applicable community property laws, the persons named in the table have sole investment and voting power with respect to the shares of common stock indicated.
Percentage Beneficially Owned Number of Shares Before Offering After Offering

Name and Address of Beneficial Owner(1)

John T. Reynolds(2) Randall D. Stilley Thomas J. Seward II(3) Randal R. Reed Thomas E. Hord Don P. Rodney Thomas R. Bates, Jr.(4) J. William Franklin, Jr. Boris Gutin V. Frank Pottow Steven A. Webster(5) All directors and executive officers as a group (13 persons)(2)(4) * (1) (2) (3) (4) (5)

57.5 % * 1.5 % * 1.3 % * 57.5 % — — — 5.9 % 67.3 %

Represents ownership of less than 1%. The address of each beneficial owner is 2929 Briarpark Drive, Suite 435, Houston, Texas 77042. Includes shares owned by Lime Rock. Mr. Reynolds serves as a managing member of LR2 GP, LLC, which controls the investment decisions of Lime Rock. Mr. Reynolds disclaims beneficial ownership of the shares shown in the table. Mr. Seward directly owns shares of our common stock and is the beneficial owner of shares of our common stock through the Thomas J. Seward II Defined Benefit Plan. Includes shares owned by Lime Rock. Mr. Bates is a member of LR2 GP, LLC, which controls the investment decisions of Lime Rock. Mr. Bates disclaims beneficial ownership of the shares shown in the table. Mr. Webster directly owns shares of our common stock and is the beneficial owner of shares of our common stock through Kestral Capital, LP, over which Mr. Webster shares voting and investment power. 59

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Executive Compensation The following table provides information regarding the compensation awarded to or earned during the five-month period ended December 31, 2004 by our chief executive officer and each of the next four most highly compensated executive officers who were serving as executive officers on December 31, 2004 (collectively, the ―named executive officers‖). Summary Compensation Table
Annual Compensation Long-Term Compensation Securities Underlying Options All Other Compensation(1)

Name and Principal Position

Salary

Bonus

Randall D. Stilley(2) Chief Executive Officer and President Thomas J. Seward II(3) President, Hercules Drilling Company, LLC Thomas E. Hord(3) Vice President, Operations and Chief Operating Officer, Hercules Drilling Company, LLC Randal R. Reed(2) President, Hercules Liftboat Company, LLC Don P. Rodney(3) Vice President, Finance, Hercules Drilling Company, LLC (1) (2) (3)

$ 57,692 63,050 52,779

$ 64,000 79,000 79,000 —

$

— 1,268 2,132

31,250 30,037

20,000 44,000

901 2,174

These amounts represent employer matching contributions pursuant to our 401(k) plan. Messrs. Stilley and Reed joined our company in October 2004. Messrs. Seward, Hord and Rodney joined our company in August 2004.

The annual salaries for our named executive officers and Steven A. Manz, our chief financial officer, for 2005 are as follows: Mr. Stilley—$300,000; Mr. Seward—$225,000; Mr. Hord—$225,000; Mr. Reed—$125,000; Mr. Rodney—$150,000; and Mr. Manz—$180,000. In addition, each of these executives participates in our annual incentive bonus program. Under the program, bonuses are paid to our executive officers and other management personnel on a discretionary basis as determined by the Compensation Committee based on target objectives established by the Committee. The program provides incentives to maximize our profitability, optimize our capital expenditures and maintain high safety standards. Target bonuses as a percentage of base salary for our named executive officers and Mr. Manz are as follows: Mr. Stilley—50%; Mr. Seward—50%; Mr. Hord—50%; Mr. Reed—50%; Mr. Rodney—40% and Mr. Manz—50%. If our performance is above specified thresholds determined by the Compensation Committee, bonuses may exceed the target bonus, with the maximum bonus payable of up to two times the target bonus. 2004 Long-Term Incentive Plan We have adopted the Hercules Offshore 2004 Long-Term Incentive Plan for our employees, consultants and directors. The plan authorizes the granting of awards covering an aggregate of shares of our common stock in any combination of the following: • • • options to purchase shares of our common stock, which may be incentive stock options or non-qualified stock options; restricted stock and other stock-based awards, such as restricted stock units and phantom stock; and performance stock awards.

The plan also authorizes the granting of cash awards to participants. 60

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Administration. Following the closing of this offering, the plan will be administered by the compensation committee of our board of directors, which has the authority to determine the terms and conditions of each award and to adopt rules, regulations and guidelines regarding the plan. Stock Options. The compensation committee is authorized under the plan to grant options to purchase shares of common stock, which may be incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code or non-qualified stock options. Options will be evidenced by a written award agreement with the participant, which will include any provisions that the compensation committee may specify. The exercise price of an option intended to be an incentive stock option may not be less than the fair market value of our common stock on the date of grant. All incentive stock options granted under the plan must have a term of no more than ten years. The grant price, number of shares, terms and conditions of exercise, whether a stock option may qualify as an incentive stock option under the Internal Revenue Code, and other terms of a stock option grant will be fixed by the compensation committee as of the grant date. The grant price of any stock option must be paid in full at the time the stock is delivered to the participant. The price must be paid in cash or, if permitted by the compensation committee and elected by the participant, by means of tendering previously owned shares of our common stock or shares issued pursuant to an award under the plan or any combination of the foregoing. Restricted Stock Awards. The compensation committee may make awards consisting of common stock subject to restrictions on transferability and other restrictions that the committee chooses to impose, including limitations on the right to vote or receive dividends, if any, with respect to the common stock to which the award relates. These awards may be subject to forfeiture upon termination of employment, upon a failure to satisfy performance goals during an applicable restriction period, or any other comparable measurement of performance. Performance Stock Awards. The compensation committee may grant performance shares to participants on terms and conditions as it may determine. The compensation committee has the discretion to determine the number of performance shares granted to each participant and to set performance goals and other terms or conditions to payment of the performance shares in its discretion which, depending on the extent to which they are met, will determine the number and value of performance shares that will be paid to the participant. Other Stock-Based Awards. The compensation committee may, subject to limitations under applicable law, grant other awards that are payable in or valued relative to shares of our common stock, such as restricted stock units and phantom stock, as it deems to be consistent with the purposes of the plan, including shares of common stock awarded purely as a bonus and not subject to any restrictions or conditions. The compensation committee will determine the terms and conditions of any other stock-based awards. Deferred Payment. The compensation committee may permit a participant to defer the payment of an award in certain circumstances. The payment of awards that have been deferred may be paid in installments or in a single future lump-sum payment, and may, in the discretion of the compensation committee, be credited with interest and dividend equivalents, depending upon the nature of the award that has been deferred. Amendment, Modification and Termination. Subject to applicable stock exchange or NASDAQ rules, the compensation committee may at any time amend or terminate the plan without stockholder approval. The compensation committee may amend or terminate any outstanding award without approval of the participant; however, no amendment or termination may be made that would otherwise adversely impact a participant, without the consent of the participant. 61

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Option Grants, Exercise and Valuation During 2004, options were granted to the named executive officers as shown in the first table below. All such options have an exercise price at least equal to fair market value on the grant date. All options will become exercisable upon the completion of this offering. Shown in the second table below is information with respect to unexercised options held at December 31, 2004. Option Grants in 2004
Number of Securities Underlying Options Granted % of Total Options Granted to Employees in 2004 Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1) 5% 10%

Name

Exercise Price ($ per share)

Expiration Date

Randall D. Stilley Thomas J. Seward II Randal R. Reed Thomas E. Hord Don P. Rodney (1)

—

73.2 % — 14.6 % 12.2 % —

—

11/17/2014 — 11/17/2014 12/31/2006

—

—

The amounts under these columns result from calculations assuming 5% and 10% annual growth rates through the actual option term as set by the SEC. The gains reflect a future value based upon growth at these prescribed rates. Aggregated Fiscal Year-End Option Value
Number of Shares Underlying Unexercised Options at Fiscal Year End(1) Value of Unexercised In-the-Money Options at Fiscal Year End(2) Exercisable Unexercisable

Name

Exercisable

Unexercisable

Randall D. Stilley Thomas J. Seward II Randal R. Reed Thomas E. Hord Don P. Rodney (1) (2)

—

—

—

—

Number of options shown includes all options as of December 31, 2004. Prior to this offering, there was no public market for common stock and, therefore, the values of each unexercised in-the-money stock option is calculated as the product of (a) the number of options and (b) the difference between the estimated initial public offering price of $ per share and the exercise price of the stock option. 62

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Option Grants in Connection with this Offering Effective upon and subject to the completion of this offering, we plan to grant options with respect to an aggregate of shares of our common stock to our employees under our 2004 long-term incentive plan. The following table sets forth the grants of stock options we plan to make under our 2004 long-term incentive plan to the named executive officers and all executive officers and directors as a group. The exercise price per share of the stock options granted at the closing of this offering will be the public offering price per share indicated on the cover of this prospectus. Stock options issued in connection with this offering will become exercisable in equal amounts on each of the anniversary of the closing of this offering.
Securities Underlying Options Granted % of Initial Option Grants

Name

Randall D. Stilley Thomas J. Seward II Randal R. Reed Thomas E. Hord Don P. Rodney All executive officers and directors as a group(1) (1) Includes options to purchase officer in January 2005. shares of common stock to be awarded to Steven A. Manz, who became our chief financial

Employment Agreements We have entered into employment agreements with each of Mr. Stilley for a term ending on November 11, 2006, Mr. Manz for a term ending on January 10, 2007, Mr. Seward for a term ending on August 1, 2006 and Mr. Hord for a term ending on August 1, 2006. Each agreement may be terminated by us for cause upon 10 days’ written notice to the executive officer and by us or the executive officer without cause upon 90 days’ written notice to the other party. The agreements with Messrs. Seward and Hord are subject to automatic renewals for successive one-year terms until either party terminates the contract upon 90 days’ written notice to the other party, in which case the agreement will terminate at the end of the calendar quarter in which the 90th day occurs. Under each agreement, the executive is entitled to a base salary and an annual bonus based on the achievement of performance criteria established by our board. If the executive is terminated without cause (as defined in each agreement) during the term of the agreement, the executive will be entitled to (1) the executive’s monthly base salary at the rate then in effect for the remainder of the term of the agreement, but not less than twelve months, payable in installments, (2) an additional sum, payable in monthly installments, equal to the executive’s annual bonus for the year prior to the year in which the executive is terminated without cause, and (3) continued medical benefits for the remainder of the term of the agreement, but not less than twelve months. During the term and for a period of one year following the term, each executive is subject to a covenant not to compete with us or solicit our employees. Each executive has also covenanted not to reveal our confidential information during the term of employment or thereafter and to assign to us any inventions created by the executive while employed by us. Compensation Committee Interlocks and Insider Participation None of our executive officers have served as members of a compensation committee (or if no committee performs that function, the board of directors) of any other entity that has an executive officer serving as a member of our board of directors. 63

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Offering by Selling Stockholders We are paying the expenses of the offering by the selling stockholders, 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. Registration Rights Agreement We have entered into a registration rights agreement with our existing holders. 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 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 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 this 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. Conversion We were formed in July 2004 as a Delaware limited liability company. Prior to the completion of this offering, we will convert to a Delaware corporation and change our name to Hercules Offshore, Inc. In the Conversion, (1) each of our limited liability company interests will be converted into shares of common stock, and (2) each outstanding option will become an option for that whole number of shares of common stock equal to the number of shares subject to the option prior to Conversion multiplied by , with an exercise price per share equal to the exercise price in effect prior to the Conversion divided by . Transactions Before the Conversion 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 an aggregate of $0.4 million to Bassoe in the five-month period ended December 31, 2004 for rig brokerage services in connection with our acquisition of jackup rigs. We made no such payments to Bassoe in the three-month period ended March 31, 2005. We also have engaged Bassoe to provide such services in connection with our sale of a platform rig. In January 2005, we acquired the jackup rig Rig 30 from Porterhouse Offshore for $20.0 million. Thomas E. Hord, vice president, operations and chief operating officer of our drilling company subsidiary, Thomas J. Seward II, president of our drilling company subsidiary, and one of our former managers beneficially own 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. 64

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In addition, prior to the Conversion, our executive officers, directors and 5% stockholders have invested cash and other property in our company in exchange for membership interests through a number of other private placements as follows: • We issued an aggregate of 39,322 membership interests to Lime Rock in three separate transactions between August 2, 2004 and December 16, 2004 for an aggregate of $39.3 million in cash and all of Lime Rock’s membership interest in our subsidiary, Hercules Holdings LLC, which interest had a nominal value . We issued an aggregate of 19,661 membership interests to Greenhill in two separate transactions on October 1, 2004 and December 16, 2004 for an aggregate of $19.7 million in cash. We issued an aggregate of 596 membership interests to Randall D. Stilley, our chief executive officer, president and a director, in two separate transactions on October 1, 2004 and December 16, 2004 for an aggregate of $0.6 million in cash. 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 400 membership interests to Mr. Seward on July 29, 2004 for $0.1 million in cash. We also issued an aggregate of 250 membership interests to the Thomas J. Seward II Defined Benefit Plan, which interests are beneficially owned by Mr. Seward, on August 2, 2004 for $0.3 million in cash. In addition, 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 an aggregate of 655 membership interests to Mr. Hord in three separate transactions between July 29, 2004 and January 13, 2005 for an aggregate of $0.2 million in cash and a promissory note in the amount of $0.2 million, which was repaid on September 15, 2004. We issued an aggregate of 119 membership interests to Don P. Rodney, vice president, finance of our drilling company subsidiary, in two separate transactions on August 2, 2004 and January 13, 2005 for an aggregate of $0.1 million in cash. We issued an aggregate of 1,040 membership interests to Steven A. Webster, one of our directors, in two separate transactions on July 29, 2004 and August 2, 2004 for an aggregate of $1.0 million in cash. We also issued an aggregate of 2,962 membership interests to Kestrel Capital, LP, which interests are beneficially owned by Mr. Webster, in three separate transactions between July 29, 2004 and January 13, 2005 for an aggregate of $3.0 million in cash. We issued an aggregate of 1,065 membership interests to one of our former managers in three separate transactions between July 29, 2004 and December 16, 2004 for an aggregate of $0.9 million in cash and $0.1 million of rig brokerage services rendered. We also issued an aggregate of 444 membership interests to BassRig AS and 75 membership interests to Bass Invest AS (which subsequently assigned its membership interests to BassRig AS), each of which is an affiliate of the former manager, in four separate transactions between July 29, 2004 and December 16, 2004 for an aggregate of $0.3 million in cash and $0.1 million of rig brokerage services rendered. 65

• • • •

•

• •

•

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SELLING STOCKHOLDERS The following table sets forth information as of , 2005 regarding shares beneficially owned by all selling stockholders. To our knowledge, except as indicated in the footnotes to this table or as provided by applicable community property laws, upon consummation of this offering, the persons named in the table have sole investment and voting power with respect to the shares of common stock indicated.
Maximum Number of Shares to be Sold Upon Exercise of Over-Allotment Option(1)

Name and Address of Beneficial Owners

Shares Beneficially Owned

Number of Shares to be Sold in Offering

Percentage Beneficially Owned After Offering (Assuming No Exercise of OverAllotment Option) After Offering (Assuming Exercise of OverAllotment Option in Full)

Before Offering

LR-Hercules Holdings, L.P.(2) Greenhill Capital Partners, L.P.(3) Greenhill Capital, L.P.(3) Greenhill Capital Partners (Executives), L.P.(3) Greenhill Capital Partners (Cayman), L.P.(3)

57.5 % 17.8 % 5.7 % 2.7 % 2.5 %

* (1)

(2)

(3)

Represents ownership of less than 1%. If the underwriters fully exercise their over-allotment option, then the selling stockholders will sell the number of shares of common stock indicated. If the underwriters partially exercise their over-allotment option, then the number of shares to be sold by each selling stockholder will be allocated pro rata. LR2 GP, L.P., the general partner of LR-Hercules Holdings, L.P., as well as LR2 GP, LLC, which controls the general partner, may be deemed to beneficially own the shares held by LR-Hercules Holdings, L.P. The address of LR-Hercules Holdings, L.P. is c/o Lime Rock Management LP, 518 Riverside Avenue, Westport, Connecticut 06880. GCP Managing Partner, L.P., the managing general partner of Greenhill Capital Partners, L.P., Greenhill Capital, L.P., Greenhill Capital Partners (Executives), L.P. and Greenhill Capital Partners (Cayman), L.P. (the ―Funds‖), as well as Greenhill Capital Partners, LLC, which controls the managing general partner, and Greenhill & Co., Inc., the sole member of Greenhill Capital Partners, LLC, may be deemed to beneficially own the shares held by the Funds. The address of the Funds is 300 Park Avenue, New York, New York 10022. 66

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DESCRIPTION OF CAPITAL STOCK In connection with our conversion from a limited liability company to a corporation, we will file a certificate of incorporation in Delaware and adopt bylaws. The following describes our common stock, preferred stock, certificate of incorporation and bylaws that will be in effect following the Conversion and upon the closing of this offering. This description is a summary only and is subject to the complete text of our certificate of incorporation and bylaws, forms of which we have filed as exhibits to the registration statement of which this prospectus is a part. Our authorized capital stock will consist of 200,000,000 shares of common stock, par value $.01 per share, and 50,000,000 shares of preferred stock, par value $.01 per share. Immediately prior to this offering, there has been no public market for our common stock. Although we will apply to list our common stock on the NASDAQ National Market, a market for our common stock may not develop, and if one develops, it may not be sustained. Common Stock Each share of common stock will entitle the holder to one vote on all matters on which holders are permitted to vote, including the election of directors. There will be no cumulative voting rights. Accordingly, holders of a majority of shares entitled to vote in an election of directors will be able to elect all of the directors standing for election. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of the common stock will share equally on a per share basis any dividends when, as and if declared by the board of directors out of funds legally available for that purpose. If we are liquidated, dissolved or wound up, the holders of our common stock will be entitled to a ratable share of any distribution to stockholders, after satisfaction of all of our liabilities and of the prior rights of any outstanding class of our preferred stock. Our common stock will carry no preemptive or other subscription rights to purchase shares of our stock and will not be convertible, redeemable or assessable or entitled to the benefits of any sinking fund. Preferred Stock Our board of directors will have the authority, without stockholder approval, to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and terms of each such series. The board may determine the designation and other terms of each series, including, among others: • • • • • • • dividend rates; whether dividends will be cumulative or non-cumulative; redemption rights; liquidation rights; sinking fund provisions; conversion or exchange rights; and voting rights.

The issuance of preferred stock, while providing us with flexibility in connection with possible acquisitions and other corporate purposes, could reduce the relative voting power of holders of our common stock. It could also affect the likelihood that holders of our common stock will receive dividend payments and payments upon liquidation. For purposes of the rights plan described below, our board of directors intends to designate shares of preferred stock to constitute the Series A Junior Participating Preferred Stock prior to completion of the offering. For a description of the rights plan, please read ―—Stockholder Rights Plan.‖ 67

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The issuance of shares of capital stock, or the issuance of rights to purchase shares of capital stock, could be used to discourage an attempt to obtain control of our company. For example, if, in the exercise of its fiduciary obligations, our board of directors determined that a takeover proposal was not in the best interest of our stockholders, the board could authorize the issuance of preferred stock or common stock without stockholder approval. The shares could be issued in one or more transactions that might prevent or make the completion of the change of control transaction more difficult or costly by: • • • diluting the voting or other rights of the proposed acquiror or insurgent stockholder group; creating a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent board; or effecting an acquisition that might complicate or preclude the takeover.

In this regard, our certificate of incorporation will grant our board of directors broad power to establish the rights and preferences of the authorized and unissued preferred stock. Our board could establish one or more series of preferred stock that entitle holders to: • • • • • • vote separately as a class on any proposed merger or consolidation; cast a proportionately larger vote together with our common stock on any transaction or for all purposes; elect directors having terms of office or voting rights greater than those of other directors; convert preferred stock into a greater number of shares of our common stock or other securities; demand redemption at a specified price under prescribed circumstances related to a change of control of our company; or exercise other rights designed to impede a takeover.

Alternatively, a change of control transaction deemed by the board to be in the best interest of our stockholders could be facilitated by issuing a series of preferred stock having sufficient voting rights to provide a required percentage vote of the stockholders. Certificate of Incorporation and Bylaws Election and Removal of Directors Our board of directors will consist of between one and 16 directors, excluding any directors elected by holders of preferred stock pursuant to provisions applicable in the case of defaults. The exact number of directors will be fixed from time to time by resolution of the board. Our board of directors will be divided into three classes serving staggered three-year terms, with only one class being elected each year by our stockholders. At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired. This system of electing and removing directors may discourage a third party from making a tender offer or otherwise attempting to obtain control of our company, because it generally makes it more difficult for stockholders to replace a majority of the directors. In addition, no director may be removed except for cause, and directors may be removed for cause by an affirmative vote of shares representing a majority of the shares then entitled to vote at an election of directors. Any vacancy occurring on the board of directors and any newly created directorship may be filled only by a majority of the remaining directors in office. Stockholder Meetings Our certificate of incorporation and our bylaws will provide that special meetings of our stockholders may be called only by the chairman of our board of directors or a majority of the directors. Our certificate of incorporation and our bylaws will specifically deny any power of any other person to call a special meeting. 68

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Stockholder Action by Written Consent Our certificate of incorporation and our bylaws will provide that holders of our common stock will not be able to act by written consent without a meeting, unless such consent is unanimous. Amendment of Certificate of Incorporation The provisions of our certificate of incorporation described above under ―—Election and Removal of Directors,‖ ―—Stockholder Meetings‖ and ―—Stockholder Action by Written Consent‖ may be amended only by the affirmative vote of holders of at least 75% of the voting power of our outstanding shares of voting stock, voting together as a single class. The affirmative vote of holders of at least a majority of the voting power of our outstanding shares of stock will generally be required to amend other provisions of our certificate of incorporation. Amendment of Bylaws Our bylaws may generally be altered, amended or repealed, and new bylaws may be adopted, with: • the affirmative vote of a majority of directors present at any regular or special meeting of the board of directors called for that purpose, provided that any alteration, amendment or repeal of, or adoption of any bylaw inconsistent with, specified provisions of the bylaws, including those related to special and annual meetings of stockholders, action of stockholders by written consent, classification of the board of directors, nomination of directors, special meetings of directors, removal of directors, committees of the board of directors and indemnification of directors and officers, requires the affirmative vote of at least 75% of all directors in office at a meeting called for that purpose; or the affirmative vote of holders of 75% of the voting power of our outstanding shares of voting stock, voting together as a single class.

•

Other Limitations on Stockholder Actions Our bylaws will also impose some procedural requirements on stockholders who wish to: • • • • make nominations in the election of directors; propose that a director be removed; propose any repeal or change in our bylaws; or propose any other business to be brought before an annual or special meeting of stockholders.

Under these procedural requirements, in order to bring a proposal before a meeting of stockholders, a stockholder must deliver timely notice of a proposal pertaining to a proper subject for presentation at the meeting to our corporate secretary along with the following: • • • • • a description of the business or nomination to be brought before the meeting and the reasons for conducting such business at the meeting; the stockholder’s name and address; any material interest of the stockholder in the proposal; the number of shares beneficially owned by the stockholder and evidence of such ownership; and the names and addresses of all persons with whom the stockholder is acting in concert and a description of all arrangements and understandings with those persons, and the number of shares such persons beneficially own. 69

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To be timely, a stockholder must generally deliver notice: • in connection with an annual meeting of stockholders, not less than 120 nor more than 180 days prior to the date on which the annual meeting of stockholders was held in the immediately preceding year, but in the event that the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date of the preceding annual meeting of stockholders, a stockholder notice will be timely if received by us not later than the close of business on the later of (1) the 120th day prior to the annual meeting and (2) the 10th day following the day on which we first publicly announce the date of the annual meeting; or in connection with the election of a director at a special meeting of stockholders, not less than 40 nor more than 60 days prior to the date of the special meeting, but in the event that less than 55 days’ notice or prior public disclosure of the date of the special meeting of the stockholders is given or made to the stockholders, a stockholder notice will be timely if received by us not later than the close of business on the 10th day following the day on which a notice of the date of the special meeting was mailed to the stockholders or the public disclosure of that date was made.

•

In order to submit a nomination for our board of directors, a stockholder must also submit any information with respect to the nominee that we would be required to include in a proxy statement, as well as some other information. If a stockholder fails to follow the required procedures, the stockholder’s proposal or nominee will be ineligible and will not be voted on by our stockholders. Limitation of Liability of Directors and Officers Our certificate of incorporation will provide that no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except as required by applicable law, as in effect from time to time. Currently, Delaware law requires that liability be imposed for the following: • • • • any breach of the director’s duty of loyalty to our company or our stockholders; any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; and any transaction from which the director derived an improper personal benefit.

As a result, neither we nor our stockholders have the right, through stockholders’ derivative suits on our behalf, to recover monetary damages against a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior, except in the situations described above. Our bylaws will provide that, to the fullest extent permitted by law, we will indemnify any officer or director of our company against all damages, claims and liabilities arising out of the fact that the person is or was our director or officer, or served any other enterprise at our request as a director, officer, employee, agent or fiduciary. We will reimburse the expenses, including attorneys’ fees, incurred by a person indemnified by this provision when we receive an undertaking to repay such amounts if it is ultimately determined that the person is not entitled to be indemnified by us. Amending this provision will not reduce our indemnification obligations relating to actions taken before an amendment. Foreign Ownership In order to continue to enjoy the benefits of U.S. flag registry for our liftboats, we must maintain U.S. citizenship for U.S. coastwise trade purposes as defined in the Merchant Marine Act of 1936, the Shipping Act of 1916 and applicable federal regulations. Under these regulations, to maintain U.S. citizenship and, therefore, be qualified to engage in U.S. coastwise trade: • our president or chief executive officer, our chairman of the board and a majority of a quorum of our board of directors must be U.S. citizens; and 70

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•

at least 75% of the ownership and voting power of each class of our stock must be held by U.S. citizens free of any trust, fiduciary arrangement or other agreement, arrangement or understanding whereby voting power may be exercised directly or indirectly by non-U.S. citizens, as defined in the Merchant Marine Act, the Shipping Act and applicable federal regulations.

In order to protect our ability to register our liftboats under federal law and operate our liftboats in U.S. coastwise trade, our certificate of incorporation will contain provisions that limit foreign ownership of our capital stock to a fixed percentage that is equal to 5% less than the percentage that would prevent us from being a U.S. citizen (currently 25%) for purposes of the Merchant Marine Act and the Shipping Act. We refer to the percentage limitation on foreign ownership as the permitted percentage. The permitted percentage is currently 20%. Our certificate of incorporation provides that: • any transfer, or attempted or purported transfer, of any shares of our capital stock that would result in the ownership or control in excess of the permitted percentage by one or more persons who is not a U.S. citizen for purposes of U.S. coastwise shipping will be void and ineffective as against us; and if, at any time, persons other than U.S. citizens own shares of our capital stock or possess voting power over any shares of our capital stock, in each case (either of record or beneficially) in excess of the permitted percentage, we may withhold payment of dividends on and suspend the voting rights attributable to such shares.

•

Certificates representing our common stock may bear legends concerning the restrictions on ownership by persons other than U.S. citizens. In addition, our certificate of incorporation permits us to: • • • require, as a condition precedent to the transfer of shares of capital stock on our records, representations and other proof as to the identity of existing or prospective stockholders; establish and maintain a dual stock certificate system under which different forms of certificates may be used to reflect whether the owner thereof is a U.S. citizen; and redeem any shares held by non-U.S. citizens that exceed the permitted percentage at a price based on the then-current market price of the shares.

Anti-Takeover Effects of Some Provisions Some provisions of our certificate of incorporation and bylaws could make the following more difficult: • • acquisition of control of us by means of a proxy contest or otherwise, or removal of our incumbent officers and directors.

These provisions, as well as our ability to issue preferred stock, are designed to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us, and that the benefits of this increased protection outweigh the disadvantages of discouraging those proposals, because negotiation of those proposals could result in an improvement of their terms. Stockholder Rights Plan Prior to consummation of the offering, we intend to adopt a preferred share purchase rights plan. Under the plan, each share of our common stock will include one right to purchase preferred stock. The rights will separate from the common stock and become exercisable (1) ten days after public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% of our 71

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outstanding common stock or (2) ten business days following the start of a tender offer or exchange offer that would result in a person’s acquiring beneficial ownership of 15% of our outstanding common stock. A 15% beneficial owner is referred to as an ―acquiring person‖ under the plan. Our board of directors can elect to delay the separation of the rights from the common stock beyond the ten-day periods referred to above. The plan also will confer on our board the discretion to increase or decrease the level of ownership that causes a person to become an acquiring person. Until the rights are separately distributed, the rights will be evidenced by the common stock certificates and will be transferred with and only with the common stock certificates. After the rights are separately distributed, each right will entitle the holder to purchase from us one one-hundredth of a share of Series A Junior Participating Preferred Stock for a purchase price of $ . The rights will expire at the close of business on , unless we redeem or exchange them earlier as described below. If a person becomes an acquiring person, the rights will become rights to purchase shares of our common stock for one-half the current market price, as defined in the rights agreement, of the common stock. This occurrence is referred to as a ―flip-in event‖ under the plan. After any flip-in event, all rights that are beneficially owned by an acquiring person, or by certain related parties, will be null and void. Our board of directors will have the power to decide that a particular tender or exchange offer for all outstanding shares of our common stock is fair to and otherwise in the best interests of our stockholders. If the board makes this determination, the purchase of shares under the offer will not be a flip-in event. If, after there is an acquiring person, we are acquired in a merger or other business combination transaction or 50% or more of our assets, earning power or cash flow are sold or transferred, each holder of a right will have the right to purchase shares of the common stock of the acquiring company at a price of one-half the current market price of that stock. This occurrence is referred to as a ―flip-over event‖ under the plan. An acquiring person will not be entitled to exercise its rights, which will have become void. Until ten days after the announcement that a person has become an acquiring person, our board of directors may decide to redeem the rights at a price of $.01 per right, payable in cash, shares of our common stock or other consideration. The rights will not be exercisable after a flip-in event until the rights are no longer redeemable. At any time after a flip-in event and prior to either a person’s becoming the beneficial owner of 50% or more of the shares of our common stock or a flip-over event, our board of directors may decide to exchange the rights for shares of our common stock on a one-for-one basis. Rights owned by an acquiring person, which will have become void, will not be exchanged. Other than provisions relating to the redemption price of the rights, the rights agreement may be amended by our board of directors at any time that the rights are redeemable. Thereafter, the provisions of the rights agreement other than the redemption price may be amended by the board of directors to cure any ambiguity, defect or inconsistency, to make changes that do not materially adversely affect the interests of holders of rights (excluding the interests of any acquiring person), or to shorten or lengthen any time period under the rights agreement. No amendment to lengthen the time period for redemption may be made if the rights are not redeemable at that time. The rights will have certain anti-takeover effects. The rights will cause substantial dilution to any person or group that attempts to acquire us without the approval of our board of directors. As a result, the overall effect of the rights may be to render more difficult or discourage any attempt to acquire us even if the acquisition may be favorable to the interests of our stockholders. Because the board of directors can redeem the rights or approve a tender or exchange offer, the rights should not interfere with a merger or other business combination approved by the board. 72

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Delaware Business Combination Statute We will elect to be subject to Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions. Section 203 prevents an ―interested stockholder,‖ which is defined generally as a person owning 15% or more of a corporation’s voting stock, or any affiliate or associate of that person, from engaging in a broad range of ―business combinations‖ with the corporation for three years after becoming an interested stockholder unless: • • the board of directors of the corporation had previously approved either the business combination or the transaction that resulted in the stockholder’s becoming an interested stockholder; upon completion of the transaction that resulted in the stockholder’s becoming an interested stockholder, that person owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, other than statutorily excluded shares; or following the transaction in which that person became an interested stockholder, the business combination is approved by the board of directors of the corporation and holders of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.

•

Under Section 203, the restrictions described above also do not apply to specific business combinations proposed by an interested stockholder following the announcement or notification of designated extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation’s directors, if such extraordinary transaction is approved or not opposed by a majority of the directors who were directors prior to any person becoming an interested stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. Section 203 may make it more difficult for a person who would be an interested stockholder to effect various business combinations with a corporation for a three-year period. Section 203 also may have the effect of preventing changes in our management and could make it more difficult to accomplish transactions which our stockholders may otherwise deem to be in their best interests. Listing of Common Stock We will apply to list our common stock on the NASDAQ National Market under the symbol ―HERK.‖ Transfer Agent and Registrar The transfer agent and registrar for our common stock is 73 .

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SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock. The market price of our common stock could drop because of sales of a large number of shares in the open market following this offering or the perception that those sales may occur. These factors also could make it more difficult for us to raise capital through future offerings of common stock. After this offering, we will have shares of our common stock outstanding. All of the shares of our common stock sold in this offering will be freely tradable without restriction under the Securities Act, except for any shares that may be acquired by one of our affiliates, as that term is defined in Rule 144 under the Securities Act. Affiliates are individuals or entities that directly, or indirectly through one or more intermediaries, control, are controlled by, or are under common control with, us and may include our directors and officers as well as our significant stockholders. All of the shares outstanding upon completion of the offering, other than the shares sold in the offering, are deemed ―restricted securities‖ as defined in Rule 144, and may not be sold other than through registration under the Securities Act or under an exemption from registration, such as the one provided by Rule 144. In general, beginning 90 days after the date of the prospectus, a stockholder subject to Rule 144 who has owned common stock of an issuer for at least one year may, within any three-month period, sell up to the greater of: • • 1% of the total number of shares of common stock then outstanding; and the average weekly trading volume of the common stock during the four calendar weeks preceding the filing with the SEC of the stockholder’s required notice of sale.

Rule 144 requires stockholders to aggregate their sales with other affiliated stockholders for purposes of complying with this volume limitation. Sales under Rule 144 are also subject to other requirements regarding the manner of sale, notice and availability of current public information about us. A stockholder who has owned common stock for at least two years, and who has not been an affiliate of the issuer for at least 90 days, may sell common stock free from the manner of sale, public information, volume limitation and notice requirements of Rule 144. Each of our company, our executive officers and directors, the selling stockholders and certain other persons has agreed that, without the prior written consent of Credit Suisse First Boston LLC and Citigroup Global Markets Inc. on behalf of the underwriters, it will not, for a period of 180 days after the date of this prospectus, sell shares of common stock or take other related actions, subject to limited exceptions, all as described under ―Underwriting.‖ These lock-up agreements cover an aggregate of shares. Upon completion of the offering, we expect that options to purchase shares of common stock will have been granted under our 2004 long-term incentive plan. We intend to file a registration statement on Form S-8 under the Securities Act to register shares of common stock reserved for issuance under that plan. This registration will permit the resale of these shares by nonaffiliates in the public market without restriction under the Securities Act, upon completion of the lock-up period described above. Shares registered under the Form S-8 registration statement held by affiliates will be subject to Rule 144 volume limitations. In addition, holders of the shares of our common stock issued in the Conversion, other than the shares sold by the selling stockholders in the offering, have registration rights with respect to their shares. See ―Certain Relationships and Related Party Transactions—Registration Rights Agreement.‖ 74

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UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 2005, we and the selling stockholders have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston LLC and Citigroup Global Markets Inc. are acting as representatives, the following respective number of shares of our common stock:
Underwriter Number of Shares

Credit Suisse First Boston LLC Citigroup Global Markets Inc. Howard Weil Incorporated Simmons & Company International

Total

$

The underwriting agreement provides that the underwriters are obligated to purchase all of the shares of our common stock in this offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of the non-defaulting underwriters may be increased or this offering may be terminated. The selling stockholders have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional outstanding shares from the selling stockholders at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the representatives may change the public offering price and concession and discount to broker/dealers. The following table summarizes the compensation and estimated expenses we and the selling stockholders will pay:
Per Share Without Over-allotment With Over-allotment Without Over-allotment Total With Over-allotment

Underwriting Discounts and Commissions paid by us Expenses payable by us Underwriting Discounts and Commissions paid by selling stockholders Expenses payable by selling stockholders

$ $ $ $

$ $ $ $ .

$ $ $ $

$ $ $ $

We estimate that our out-of-pocket expenses for this offering will be approximately $

The representatives have informed us that the underwriters do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the shares of common stock being offered. 75

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We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston LLC and Citigroup Global Markets Inc. for a period of 180 days after the date of this prospectus , except with respect to common stock issued or issuable pursuant to stock options outstanding on the date of this prospectus and common stock and other stock-based awards issued or issuable pursuant to our 2004 long-term incentive plan. However, in the event that either (1) during the last 17 days of the ―lock-up‖ period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the ―lock-up‖ period, we announce that we will release earnings results during the 16-day period beginning on the last day of the ―lock-up‖ period, then in either case the expiration of the ―lock-up‖ will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless Credit Suisse First Boston LLC and Citigroup Global Markets Inc. waive, in writing, such an extension. Our officers and directors, the selling stockholders and certain other persons have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston LLC and Citigroup Global Markets Inc. for a period of 180 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of the ―lock-up‖ period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the ―lock-up‖ period, we announce that we will release earnings results during the 16-day period beginning on the last day of the ―lock-up‖ period, then in either case the expiration of the ―lock-up‖ will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless Credit Suisse First Boston LLC and Citigroup Global Markets Inc. waive, in writing, such an extension. The underwriters have reserved for sale at the initial public offering price up to shares of the common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We and the selling stockholders have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect. We will apply to list our common stock on the NASDAQ National Market. Some of the underwriters and their affiliates have engaged in transactions with, and performed commercial and investment banking financial advisor or lending services for, us and our affiliates from time to time, for which they have received customary compensation and may do so in the future. Affiliates of Credit Suisse First Boston LLC and Citigroup Global Markets Inc. are arrangers and agents under our credit facility and receive fees customary for performing these services and interest on such. See ―Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity and Financing Arrangements—Debt.‖ 76

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Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined by negotiation between us and the underwriters. The principal factors to be considered in determining the initial public offering price include the following: • • • • • • • • the information included in this prospectus and otherwise available to the underwriters; market conditions for initial public offerings; the history of and prospects for our business and our past and present operations; the history of and prospects for the industry in which we compete; our past and present earnings and current financial position; an assessment of our management; the market of securities of companies in businesses similar to ours; and the general condition of the securities markets.

The initial public offering price may not correspond to the price at which our common stock will trade in the public market subsequent to this offering, and an active trading market may not develop and continue after this offering. In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934 (the ―Exchange Act‖). • • Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

•

•

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NASDAQ National Market or otherwise and, if commenced, may be discontinued at any time. 77

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A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make Internet distributions on the same basis as other allocations. NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of our common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. Representations of Purchasers By purchasing common stock in Canada and accepting a purchase confirmation a purchaser is representing to us and the dealer from whom the purchase confirmation is received that: • • • the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws, where required by law, that the purchaser is purchasing as principal and not as agent, and the purchaser has reviewed the text above under ―—Resale Restrictions.‖

Rights of Action—Ontario Purchasers Only Under Ontario securities legislation, a purchaser who purchases a security offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the common stock, for rescission against us in the event that this prospectus contains a misrepresentation. A purchaser will be deemed to have relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the common stock. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the common stock. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In no case will the amount recoverable in any action exceed the price at which the common stock was offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions. Enforcement of Legal Rights All of our directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or 78

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those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada. Taxation and Eligibility for Investment Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 79

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MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS The following is a summary of certain United States federal income and estate tax considerations applicable to non-U.S. holders relating to the purchase, ownership and disposition of our common stock, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. The rules governing the United States federal income and estate taxation of non-U.S. holders are complex, and no attempt will be made in this prospectus to provide more than a summary of certain of those rules. This summary is based on the Internal Revenue Code of 1986, Treasury regulations, rulings and pronouncements of the Internal Revenue Service, and judicial decisions as of the date of this prospectus. These authorities may be changed, perhaps retroactively, so as to result in United States federal income and estate tax consequences different from those described in this summary. We have not sought any ruling from the IRS with respect to the statements made and conclusions reached in this summary, and there can be no assurance that the IRS will agree with these statements and conclusions. This summary is addressed only to persons who are non-U.S. holders who hold our common stock as a capital asset. As used in this discussion, ―non-U.S. holder‖ means a beneficial owner of our common stock that for United States federal income tax purposes is not: • • • • • an individual who is a citizen or resident of the United States; a partnership, or other entity treated as a partnership for United States federal income tax purposes; a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; an estate whose income is subject to United States federal income taxation regardless of its source; or a trust (1) if it is subject to the supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) that has a valid election in effect under applicable Treasury regulations to be treated as a United States person.

An individual may be treated as a resident of the United States in any calendar year for U.S. federal income tax purposes, instead of a nonresident, by, among other ways, being present in the United States for at least 31 days in that calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For purposes of the 183-day calculation, all of the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year are counted. Residents are taxed for U.S. federal income tax purposes as if they were U.S. citizens. This summary does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction or the effect of any tax treaty. In addition, this discussion does not address tax considerations that are the result of a holder’s particular circumstances or of special rules, such as those that apply to holders subject to the alternative minimum tax, financial institutions, tax-exempt organizations, insurance companies, dealers or traders in securities or commodities, regulated investment companies, real estate investment trusts, certain former citizens or former long-term residents of the United States, or persons who will hold our common stock as a position in a hedging transaction, ―straddle‖ or ―conversion transaction‖. Special rules not discussed herein may apply to a non-U.S. holder that is a controlled foreign corporation or passive foreign investment company. If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our common stock, then the United States federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Such a partner should consult its tax advisor as to its consequences. THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY PROSPECTIVE PURCHASER OF OUR COMMON STOCK. INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS TO ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. 80

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Dividends Payments on our common stock will constitute dividends for United States federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. Amounts not treated as dividends for United States federal income tax purposes will constitute a return of capital and will first be applied against and reduce a holder’s adjusted basis in our common stock, but not below zero, and then the excess, if any, will be treated as gain from the sale of common stock. Dividends paid on our common stock to a non-U.S. holder generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate specified by an applicable treaty. However, dividends that are effectively connected with the conduct of a trade or business within the United States by the non-U.S. holder (and, where a tax treaty applies, are attributable to a United States permanent establishment of the non-U.S. holder) are not subject to the withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to United States federal income tax on a net income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Internal Revenue Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional ―branch profits tax‖ at a 30% rate or such lower rate specified by an applicable treaty. A non-U.S. holder of our common stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will generally be required to complete IRS Form W-8BEN (or valid substitute or successor form) and certify under penalty of perjury that such holder is not a United States person as defined under the Internal Revenue Code. Special certification and other requirements apply to certain non-U.S. holders that are pass-through entities rather than corporations or individuals and to non-U.S. holders whose stock is held through certain foreign intermediaries. A non-U.S. holder of our common stock eligible for a reduced rate of United States withholding tax pursuant to a treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. Disposition of Our Common Stock A non-U.S. holder will generally not be subject to United States federal income tax on any gain realized on the sale, exchange, redemption, retirement or other disposition of our common stock unless: • • • the gain is effectively connected with the conduct of a trade or business in the United States (and, where a tax treaty applies, is attributable to a United States permanent establishment of the non-U.S. holder); the non-U.S. holder is an individual present in the United States for 183 days or more in the taxable year in which disposition occurs and certain other conditions are met; or we are or have been a ―United States real property holding corporation‖ for United States federal income tax purposes at any time during the shorter of the non-U.S. holder’s holding period for our common stock and the five year period ending on the date of disposition.

An individual non-U.S. holder described in the first bullet point immediately above will be subject to tax on the net gain derived from the disposition in the same manner as if the non-U.S. holder were a United States person as defined under the Internal Revenue Code. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax on the gain derived from the disposition, which tax may be offset by United States source capital losses, even though the individual is not considered a resident of the United States. If a non-U.S. holder that is a foreign corporation falls under the first bullet point immediately above, it will be subject to tax on its net gain derived from the disposition in the same manner as if it were a United States person as defined under the Internal Revenue Code and, in addition, may be subject to the additional ―branch profits tax‖ at a 30% rate or such lower rate specified by an applicable treaty. 81

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We are not currently and do not anticipate becoming a ―United States real property holding corporation‖ for United States federal income tax purposes. If we become a ―United States real property holding corporation,‖ a non-U.S. holder may, in certain circumstances, be subject to United States federal income tax on the disposition of our common stock. Certain United States Federal Estate Tax Considerations Common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for United States federal estate tax purposes) at the time of death will generally be includable in the decedent’s gross estate for United States federal estate tax purposes, unless an applicable treaty provides otherwise. Information Reporting and Backup Withholding In general, we must submit annually an information return to the IRS and to each non-U.S. holder describing any dividends paid, regardless of whether withholding was required. Copies of these returns may also be made available under the provisions of a specific treaty or agreement to the tax authority of the country in which the non-U.S. holder resides. In addition, a non-U.S. holder may be subject to United States backup withholding on dividends paid and on the proceeds from a disposition of our common stock unless the non-U.S. holder complies with the required certification procedures to establish that it is not a United States person as defined under the Internal Revenue Code. Any amount withheld from a payment under the backup withholding rules may be allowed as a credit against the non-U.S. holder’s United States federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the IRS. 82

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LEGAL MATTERS Certain legal matters in connection with this offering will be passed upon for us by Baker Botts L.L.P., Houston, Texas, for the selling stockholders by Fulbright & Jaworski L.L.P., Houston, Texas, and for the underwriters by Vinson & Elkins L.L.P., Houston, Texas. EXPERTS The consolidated balance sheet of Hercules Offshore, LLC and its subsidiaries as of December 31, 2004 and the related consolidated statements of operations, members’ equity and cash flows for the period from inception (July 27, 2004) to December 31, 2004 have been audited by Grant Thornton LLP, independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. In this prospectus we refer to that registration statement, together with all amendments, exhibits and schedules to that registration statement, as ―the registration statement.‖ As is permitted by the rules and regulations of the SEC, this prospectus, which is part of the registration statement, omits some information, exhibits, schedules and undertakings set forth in the registration statement. For further information with respect to us, and the securities offered by this prospectus, please refer to the registration statement. Following this offering, we will be required to file current, quarterly and annual reports, proxy statements and other information with the SEC. You may read and copy those reports, proxy statements and other information at the public reference facility maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of this material may also be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (800) 732-0330. The SEC maintains a Web site at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. 83

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INDEX TO FINANCIAL STATEMENTS
Page

Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2004 and March 31, 2005 Consolidated Statements of Operations for the period from inception (July 27, 2004) to December 31, 2004 and for the three months ended March 31, 2005 Consolidated Statement of Members’ Equity for the period from inception (July 27, 2004) to December 31, 2004 and for the three months ended March 31, 2005 Consolidated Statement of Cash Flows for the period from inception (July 27, 2004) to December 31, 2004 and for the three months ended March 31, 2005 Notes to Consolidated Financial Statements F-1

F-2 F-3 F-4 F-5 F-6 F-7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors Hercules Offshore, LLC We have audited the accompanying consolidated balance sheet of Hercules Offshore, LLC and subsidiaries as of December 31, 2004, and the related consolidated statements of operations, members’ equity and cash flows for the period from July 27, 2004 (inception) to December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hercules Offshore, LLC and subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the period from July 27, 2004 (inception) to December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. /s/ GRANT THORNTON LLP Houston, Texas March 18, 2005 F-2

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Hercules Offshore, LLC and Subsidiaries CONSOLIDATED BALANCE SHEETS
December 31, 2004 March 31, 2005

(unaudited) (In thousands, except unit data)

ASSETS CURRENT ASSETS Cash and cash equivalents Accounts receivable, net Deposits Assets held for sale Prepaid expenses and other Total current assets PROPERTY AND EQUIPMENT, net DEFERRED CHARGES Total assets LIABILITIES AND MEMBERS’ EQUITY CURRENT LIABILITIES Current portion of long-term debt Accounts payable Accrual liabilities Other liabilities Total current liabilities LONG-TERM DEBT, net of current portion COMMITMENTS AND CONTINGENCIES MEMBERS’ EQUITY Member Units (64,022 and 68,351 units issued and outstanding) Retained earnings Total members’ equity Total liabilities and members’ equity The accompanying notes are an integral part of these statements. F-3 $ 63,022 8,065 71,087 132,156 $ 67,351 19,467 86,818 173,859 $ 3,000 1,838 2,548 683 8,069 53,000 $ 4,000 1,781 4,089 171 10,041 77,000 $ $ 14,460 19,501 2,032 — 2,359 38,352 91,774 2,030 132,156 $ $ 8,547 28,888 32 2,040 1,506 41,013 129,968 2,878 173,859

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Hercules Offshore, LLC and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS
Period from inception (July 27, 2004) to December 31, 2004 Three months ended March 31, 2005 (unaudited) (In thousands, except unit data)

Revenues Drilling services Marine services Costs and Expenses Operating expenses for drilling services Operating expenses for marine services Depreciation and amortization General and administrative

$

24,006 7,722 31,728 12,799 4,198 2,016 2,808 21,821

$

24,891 9,164 34,055 11,241 4,580 2,462 2,201 20,484 13,571 (2,303 ) 134

Operating Income Other Income (Expense) Interest expense Other, net Net Income Basic and Diluted Earnings per Unit Weighted Average Units Outstanding— Basic and Diluted $ $

9,907 (2,070 ) 228 8,065 192.16 41,971 $ $

11,402 168.25 67,766

The accompanying notes are an integral part of these statements. F-4

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Hercules Offshore, LLC and Subsidiaries CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
Number of Units Member Units Retained Earnings Total Members’ Equity

(In thousands, except unit data)

Balance at July 27, 2004 Member contributions Net income Balance at December 31, 2004 Member contributions (unaudited) Net income (unaudited) Balance at March 31, 2005 (unaudited)

— 64,022 — 64,022 4,329 — 68,351 The accompanying notes are an integral part of these statements. F-5

$

— 63,022 — 63,022 4,329 —

$

— — 8,065 8,065 — 11,402

$

— 63,022 8,065 71,087 4,329 11,402

$ 67,351

$ 19,467

$ 86,818

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Hercules Offshore, LLC and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from inception (July 27, 2004) to December 31, 2004 Three months ended March 31, 2005 (unaudited) (In thousands)

Cash flows from operating activities Net income Adjustments to reconcile net income to net cash (used in) provided by operating activities Depreciation and amortization Amortization of deferred financing fees Provision for bad debts (Increase) decrease in operating assets— Increase in receivables Decrease (increase) in prepaid expenses and other Increase (decrease) in operating liabilities— Increase (decrease) in accounts payable Increase in accrued liabilities (Decrease) increase in other liabilities Net cash (used in) provided by operating activities Cash flows from investing activities Purchase of property and equipment Proceeds from disposal of assets, net of commissions Increase in deferred drydocking expenditures Deposits Net cash used by investing activities Cash flows from financing activities Proceeds from borrowings Payment of debt issuance costs Contributions from members Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosures of cash flow information Cash paid for interest

$

8,065

$

11,402

2,016 215 519 (20,020 ) (2,359 ) 1,838 2,548 683 (6,495 ) (94,443 ) 803 (601 ) (2,033 ) (96,274 ) 56,000 (1,793 ) 63,022 117,229 14,460 — $ $ 14,460 1,484 $ $

2,462 246 — (9,387 ) 853 (57 ) 1,542 (513 ) 6,548 (42,326 ) — (623 ) 2,000 (40,949 ) 25,000 (841 ) 4,329 28,488 (5,913 ) 14,460 8,547 1,458

The accompanying notes are an integral part of these statements. F-6

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. Organization

Hercules Offshore, LLC (the ―Company‖) was formed July 27, 2004 in the state of Delaware. The Company owns, as of March 31, 2005, through its subsidiaries Hercules Holdings, LLC (―Holdings‖) and Hercules Liftboat Holdings, LLC (―Liftboats‖), seven jackup drilling rigs, one platform rig and twenty-two liftboat vessels that provide shallow-water drilling and liftboat services to the oil and natural gas exploration and production industry. On August 2, 2004, Holdings purchased five jackup drilling rigs and four platform rigs from Parker Drilling Company (―Parker‖) for $39,250,000. In November 2004, the Company sold three of the four platform rigs acquired from Parker for net proceeds of $802,750. No gain or loss was recognized on the transaction. On October 2, 2004, Liftboats purchased a fleet of 22 liftboats and an operating facility located in New Iberia, Louisiana from Global Industries, Ltd. (―Global‖) for $53,500,000. During January 2005, Holdings completed the purchase of two jackup drilling rigs, Rig 25 (formerly the Parker 25 ) and Rig 30 (formerly the Odin Victory ), for $21,500,000 and $20,000,000, respectively. Since the purchase of the liftboats from Global, Global had performed invoicing and other administrative functions for the Company under a transition services agreement until the Company could assume these functions. The following table summarizes amounts processed through Global as of and for the period from inception to December 31, 2004 (in thousands):
Expenses Accounts Payable Revenues Receivables

$458

$61

$2,451

$1,553

A portion of the sales and receivables relates to office space rented by Global. Rental income from Global was $54,000 for the period from inception to December 31, 2004 and is included in other, net on the Consolidated Statement of Operations. Rent receivable from Global was $18,000 at December 31, 2004. The transition services agreement was terminated in February 2005, and there were no material balances due to or from Global at March 31, 2005. 2. Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, except as discussed elsewhere herein, necessary for a fair presentation of the consolidated financial position of the Company as of March 31, 2005, and the results of its operations and cash flows for the three months ended March 31, 2005. The consolidated results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the full year. 3. Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany account balances and transactions have been eliminated in consolidation. 4. Cash and Cash Equivalents Cash and cash equivalents includes cash on hand and cash maintained in United States bank deposit accounts. F-7

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE A—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued 5. Revenue Recognition

Revenue generated from the operation of the Company’s drilling rigs and liftboats are recognized under domestic dayrate contracts as services are performed. Certain of the Company’s contracts include provisions for the recovery of other direct costs, including mobilization and demobilization costs, extra labor and extra catering. Under most of its liftboat contracts, the Company receives a variable rate for reimbursement of costs such as catering, fuel, and rental equipment and other items. Revenue for the recovery of these costs is recognized when the costs are incurred. For certain Contract Drilling Services contracts, the Company may receive lump-sum fees for the mobilization of equipment and personnel. Mobilization fees received and costs incurred to mobilize a rig from one market to another under contracts longer than one month are recognized over the term of the related drilling contract. The Company records reimbursements from customers for ―out-of-pocket‖ expenses as revenues and the related cost as direct operating expenses. 6. Stock-Based Compensation

Stock-based employee compensation arrangements are accounted for using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25 (―APB Opinion 25‖), ―Accounting for Stock Issued to Employees,‖ and related interpretations. Accordingly, compensation cost for options granted to employees is measured as the excess, if any, of the fair value of member units at the date of grant over the exercise price an employee must pay to acquire the member units. No compensation cost has been recognized in the accompanying consolidated financial statements. Had the Company determined compensation cost using the alternative fair value method prescribed by SFAS No. 123 described below, pro forma net income would not be materially different than that reported in accompanying financial statements. In December 2004, the Financial Accounting Standards Board (―FASB‖) issued Statement of Financial Accounting Standards (―SFAS‖) No. 123 (revised 2004) Share-Based Payment (―SFAS No. 123R‖), which replaces SFAS No. 123, Accounting for Stock-Based Compensation (―SFAS No. 123‖), and supersedes APB Opinion 25. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim period in fiscal 2006, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS No. 123R in the first quarter of fiscal 2006. Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock beginning with the first quarter of adoption of SFAS No. 123R as the requisite service is rendered on or after the required effective date, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company is evaluating the requirements of SFAS No. 123R and has not determined the impact of its adoption. 7. Allowance for Doubtful Accounts

Management of the Company monitors the accounts receivable from its customers for any collectibility issues. An allowance for doubtful accounts is established based on reviews of individual customer accounts, F-8

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE A—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued recent loss experience, current economic conditions, and other pertinent factors. Accounts deemed uncollectible are charged to the allowance. During the period from inception to December 31, 2004, the Company recorded a provision for bad debts of $519,165. No amounts have been applied against the allowance, and the allowance was $519,165 at both December 31, 2004 and March 31, 2005. 8. Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Expenditures for property and equipment and items that substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred. Depreciation is computed utilizing the straight-line method over the useful lives of the assets. Amortization of leasehold improvements is computed utilizing the straight-line method over the useful lives of the assets or over the lives of the leases, whichever is shorter. The useful lives of property and equipment for the purposes of computing depreciation are as follows:
Years

Drilling rigs and marine equipment Drilling machinery and equipment Furniture and fixtures Computer equipment Automobiles and trucks Building 9. Assets Held for Sale

15 3 5 3 3 20

Assets are classified as held for sale when the Company has a plan for disposal and those assets meet the held for sale criteria of SFAS No. 144, ―Accounting for Impairment or Disposal of Long-Lived Assets.‖ During the first quarter of 2005, the Company’s Contract Drilling Services segment committed to a plan to sell Rig 41 (a platform rig), in connection with the Company’s efforts to dispose of certain non-strategic assets. The rig has been idle since being acquired on August 2, 2004. The Company is actively marketing the rig to various equipment dealers and third party contract drillers. The rig was classified as an asset held for sale in March 2005. The estimated fair value of the rig less its selling costs exceed the rig’s carrying value of approximately $2,000,000 and, as such, no loss has been recognized for the three months ended March 31, 2005. 10. Impairment of Long-Lived Assets

The carrying value of long-lived assets, principally property and equipment, is reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. For property and equipment held for use, the determination of recoverability is made based upon the estimated undiscounted future net cash flows of the related asset or group of assets being evaluated. Actual impairment charges are recorded using an estimate of discounted future cash flows. There were no impairment charges for the periods from inception to December 31, 2004 or for the three months ended March 31, 2005. 11. Deferred Charges

Deferred charges consist of drydocking costs and financing fees. The drydock costs are capitalized at cost and amortized on the straight-line method through the date of the next drydocking, ranging between 12 and 24 F-9

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE A—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued months. Unamortized drydocking costs, net of accumulated amortization, at December 31, 2004 and March 31, 2005 were $452,256 and $705,380, respectively. Accumulated amortization of drydocking costs at December 31, 2004 and March 31, 2005 was $149,228 and $519,360, respectively. Financing fees are deferred and amortized over the life of the applicable debt instrument. Unamortized deferred financing fees at December 31, 2004 were $1,577,793, net of accumulated amortization of $215,283. Unamortized deferred financing fees at March 31, 2005 were $2,172,537, net of accumulated amortization of $461,283. The amortization expense related to deferred financing fees is included in interest expense on the statement of operations. Unamortized fees are written off through earnings when the applicable debt instrument is paid off before maturity. All financing fees at December 31, 2004 and March 31, 2005 relate to debt obtained through credit agreements dated July 30, 2004, October 1, 2004, and January 4, 2005 (see Note E). 12. Deposits

Deposits at December 31, 2004 include $2,000,000 placed in escrow for the purchase of the jackup drilling rig, Rig 25 . The purchase was consummated in January 2005 and the deposit was applied to the purchase price. (see Note K). 13. Income Taxes

The Company is a limited liability corporation and has elected to be taxed as a partnership. As such, the members of the Company are taxed on their proportionate share of net income. Accordingly, no provision or liability for income taxes is included in the accompanying financial statements for the Company. When the Company becomes a taxable entity as is expected by management, a provision will be made reflecting the difference between the book and tax basis of assets and liabilities. 14. Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 15. Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair values because of their short-term nature. The carrying amount of long-term debt is equal to fair market value because the debt bears interest at market rates. 16. Earnings Per Unit

The Company calculates earnings per unit by dividing net income by the weighted average number of member units outstanding. Diluted earnings per unit include the dilutive effects of any outstanding unit options calculated under the treasury method. Options with an exercise price equal to or in excess of the average market price of the Company’s units are excluded from the calculation of the dilutive effect of unit options for diluted earnings per unit calculations. There were no options outstanding with dilutive effects for the period from inception (July 27, 2004) to December 31, 2004 or the three months ended March 31, 2005. F-10

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE B—PROPERTY AND EQUIPMENT The following is a summary of property and equipment—at cost, less accumulated depreciation (in thousands):
December 31, 2004 March 31, 2005

Drilling rigs and marine equipment Drilling machinery and equipment Building Land Automobiles and trucks Computer equipment Furniture and fixtures Total property and equipment Less accumulated depreciation Total property and equipment, net NOTE C—ASSET ACQUISITIONS

$

89,432 667 2,400 600 353 139 33 93,624 (1,850 )

$

129,022 1,148 2,400 600 370 320 126 133,986 (4,018 )

$

91,774

$

129,968

During January 2005, Holdings completed the purchase of two jackup drilling rigs, Rig 25 (formerly the Parker 25 ) and Rig 30 (formerly the Odin Victory ), for $21,500,000 and $20,000,000, respectively. These purchases were partially funded by a $25,000,000 term loan under the Lehman Credit Agreement (as defined in Note E below). In connection with this new term loan, the Lehman Credit Agreement was amended in January 2005 to increase the amount of credit available to the Company from $28,000,000 to $53,000,000 (see Note E). NOTE D—BENEFIT PLANS The Company has established a 401(k) plan for its employees. Participation is available to all employees beginning two months from the date of hire. Participants can contribute up to a maximum of $14,000 each year, and the Company matches participant contributions equal to 100% of the first 3% and 50% of the next 2% of a participant’s salary. The Company made matching contributions of $167,858 and $204,373 for the period from inception to December 31, 2004 and the three months ended March 31, 2005, respectively. NOTE E—LONG-TERM DEBT Long-term debt is comprised of the following (in thousands):
December 31, 2004 March 31, 2005

12.5% senior secured term loan (Lehman) due December 2006 Senior secured term loan (Comerica) due October 2009 Total debt Less debt due within one year Total long-term debt F-11

$

28,000 28,000 56,000 3,000

$

53,000 28,000 81,000 4,000

$

53,000

$

77,000

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE E—LONG-TERM DEBT—Continued The scheduled maturity of our debt as of December 31, 2004 was as follows (in thousands):
Years ending December 31,

2005 2006 2007 2008 2009 Total Lehman Commercial Paper Inc. term loan

$

3,000 32,000 4,000 4,000 13,000

$ 56,000

On July 30, 2004, Holdings entered into a credit agreement with Lehman Commercial Paper Inc. (the ―Lehman Credit Agreement‖) providing for a $28,000,000 term loan. On January 4, 2005, the Lehman Credit Agreement was amended, providing for an additional $25,000,000 term loan, which increased the total amount outstanding under the Lehman Credit Agreement to $53,000,000. At March 31, 2005, the entire balance of both term loans was outstanding. The term loan bears interest at 12.5% per annum with interest payable monthly. Both term loans are due in full on December 31, 2006. Payment of the loan is secured by liens on all of the assets of Holdings. Holdings must comply with several covenants defined by the credit agreement, including interest coverage ratio, leverage ratio, minimum EBITDA and certain limitations on investments and payments. Management believes it was in compliance with all covenants and had not caused an event of default as of December 31, 2004 and March 31, 2005. Comerica Bank term loan On October 1, 2004, Liftboats entered a credit agreement with Comerica Bank providing for a $28,000,000 term loan and a $4,000,000 revolving credit line. At December 31, 2004 and March 31, 2005, the entire balance of the term loan was outstanding and no amount was drawn on the revolving credit line. The term loan and revolving credit line bear interest at a prime rate determined by the agent to the credit agreement plus a margin derived from the ratio of funded debt to EBITDA. The average interest rates for the period ended December 31, 2004 and for the three months ended March 31, 2005 were approximately 5.7 percent and 6.1 percent, respectively. The term loan is due in installments of principal payable on the first day of each calendar quarter in the amount of $1,000,000 each, beginning on April 1, 2005, and matures on October 1, 2009. Payment of the loan is secured by liens on all of the assets of Liftboats. Liftboats must comply with several covenants defined by the credit agreement, including tangible net worth, leverage, fixed charge ratio and minimum loan to value. Management believes it was in compliance with all covenants and had not caused an event of default as of December 31, 2004 and March 31, 2005. Refinancing The Company refinanced its long-term debt in June 2005. See Note L. NOTE F—CONCENTRATION OF CREDIT RISK The Company maintains its cash in bank deposit accounts at high credit quality financial institutions as permitted by its credit agreements. The balances, at times, may exceed federally insured limits. F-12

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE F—CONCENTRATION OF CREDIT RISK—Continued The Company provides services to a diversified group of customers in the oil and natural gas exploration and production industry in the U.S. Gulf of Mexico. Credit is extended based on an evaluation at each customer’s financial condition. The Company maintains an allowance for doubtful accounts receivable based on expected collectibility and establishes a reserve when required payment is unlikely to occur. NOTE G—SALES TO MAJOR CUSTOMERS The customer base for the Company is primarily concentrated in the oil and natural gas exploration and production industry. Sales to customers exceeding 10 percent or more of the Company’s total revenue are as follows:
Period from inception (July 27, 2004) to December 31, 2004 Three Months Ended March 31, 2005

Chevron Noble Energy Bois d’Arc Offshore NOTE H—COMMITMENTS AND CONTINGENCIES

31 % — 15 %

33 % 14 % 10 %

Operating Leases—The Company has operating lease commitments for real estate and office space that expire at various dates through 2009. As of March 31, 2005, future minimum rental payments related to operating leases were as follows (in thousands):
Years ending December 31,

2005 2006 2007 2008 2009 Total

$ 90 108 108 108 89 $ 503

Rental expense for operating leases for the period from inception to December 31, 2004 and for the three months ended March 31, 2005 was $34,572 and $33,397 respectively. Legal Proceedings—The Company is involved in various claims and lawsuits in the normal course of business. Management does not believe any accruals are necessary in accordance with SFAS No. 5, Accounting for Contingencies. Self Insurance—The Company is self-insured for the deductible portion of its insurance coverage. Management believes adequate accruals have been made on known and estimated exposures up to the deductible portion of the Company’s insurance coverages. Management believes that claims and liabilities in excess of the amounts accrued are adequately insured. NOTE I—STOCK-BASED COMPENSATION PLAN The Company adopted the Hercules Offshore 2004 Long-Term Incentive Plan (the ―Plan‖) to provide long-term incentives to non-employee Managers, officers and key employees (―Eligible Participants‖) of the F-13

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE I—STOCK-BASED COMPENSATION PLAN—Continued Company. Under the Plan, the Managers of the Company may grant incentive stock options, non-qualified options, performance stock awards, restricted stock awards, phantom stock and cash awards or any combination thereof from time to time to Eligible Participants. Up to 7,000 member units are available for issuance under the Plan. The Compensation Committee of the Board of Managers establishes the terms of the awards, including the term, vesting period and exercise price. As of December 31, 2004, there had been no awards granted to Eligible Participants under the Plan. There were options to purchase 2,350 member units granted under the Plan during the three months ended March 31, 2005. The options generally expire five years from the effective date of grant, except that the award to one executive officer covering 250 member units expires on December 31, 2006. The options vest and become exercisable one-third on the effective date of grant and one-third on each of the first and second anniversaries of the effective date of grant.
Number of Units Under Option Weighted-Average Exercise Price

Outstanding at December 31, 2004 Granted Exercised Forfeited Outstanding at March 31, 2005 Exercisable at March 31, 2005 NOTE J—SEGMENTS

— 2,350 — — 2,350 783

$

— 1,000 — —

$ $

1,000 1,000

The Company’s operations are aggregated into two reportable segments: (i) Contract Drilling Services and (ii) Marine Services. The Contract Drilling Services segment consists of jackup rigs used in support of offshore drilling activities. The Marine Services segment consists of liftboats used in offshore support services. Accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (see Note A). The Company eliminates intersegment revenue and expenses, if any. Operating results and net income by segment were as follows (in thousands):
Period from Inception (July 27, 2004) to December 31, 2004 Contract Drilling Services Marine Services Corporate and Other

Total

Revenues Operating expenses Depreciation and amortization General and administrative expenses Operating income (loss) Interest expense Other, net Net income (loss) Total property and equipment, net of accumulated depreciation

$

24,006 12,799 1,070 1,972 8,165 (1,648 ) 158

$

7,722 4,198 946 581 1,997 (422 ) 64

$

— — — 255 (255 ) — 6

$ 31,728 16,997 2,016 2,808 9,907 (2,070 ) 228 $ 8,065

$ $ F-14

6,675 38,843

$

1,639

$ $

(249 ) 13

$ 52,918

$ 91,774

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE J—SEGMENTS—Continued
Three Months Ended March 31, 2005 Contract Drilling Services Marine Services (unaudited) Corporate and Other

Total

Revenues Operating expenses Depreciation and amortization General and administrative expenses Operating income (loss) Interest expense Other, net Net income (loss) Total property and equipment, net of accumulated depreciation NOTE K—RELATED PARTIES

$

24,891 11,241 1,292 1,183 11,175 (1,783 ) 73

$

9,164 4,580 1,167 441 2,976 (520 ) 54

$

— — 3 577 (580 ) — 7

$

34,055 15,821 2,462 2,201 13,571 (2,303 ) 134

$ $

9,465 77,650

$

2,510

$ $

(573 ) 91

$

11,402

$ 52,227

$ 129,968

A former Manager of the Company is a principal in Bassoe Offshore USA. The Company paid $442,250 in the period from inception to December 31, 2004 to Bassoe Offshore USA for rig brokerage fees in connection with acquisitions by the Company of certain jackup rigs. The services were bid under competitive marketplace conditions. The Company believes that these transactions during 2004 were on terms that were reasonable and in the best interest of the Company. The Company made no such payments to Bassoe Offshore USA in the three months ended March 31, 2005. In January 2005, the Company purchased Rig 30 from Porterhouse Offshore, LP (―Porterhouse‖). Two of the Company’s officers and a Manager of the Company at the time of acquisition were partners in Porterhouse, which owned and sold Rig 30 to the Company. The Company believes that this transaction was on terms that were reasonable and in the best interest of the Company. In the transaction, these individuals received membership units in the Company valued at $211,209, $211,209 and $422,338, respectively. NOTE L—SUBSEQUENT EVENTS (Unaudited) The following describes certain events that have occurred subsequent to March 31, 2005: In June 2005, the Company purchased 17 liftboats from Superior Energy Services, Inc. for $20,000,000. One of these liftboats is being held for sale. The transaction was funded by an increase in the Company’s term loan from Comerica. In connection with this term loan, the Comerica loan agreement was amended to increase the amount of credit to the Company from $28,000,000 to $47,000,000. In June 2005, the Company entered into a senior secured credit agreement with a syndicate of financial institutions. This agreement provides for a $140,000,000 term loan and a $25,000,000 revolving credit facility. The Company may seek commitments to increase the amount available under the credit agreement by an additional $25,000,000 if the amount outstanding under the term loan is no more than $105,000,000 and the Company’s leverage ratio, after giving effect to the incurrence of the additional $25,000,000 of borrowings, is no greater than 2.5 to 1. The Company used $54,600,000 of the proceeds from the term loan to repay all outstanding amounts under the Lehman Credit Agreement and $47,500,000 of the proceeds to repay all outstanding amounts F-15

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Hercules Offshore, LLC and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED NOTE L—SUBSEQUENT EVENTS (Unaudited)—Continued under the Comerica credit agreement, in each case including accrued interest, fees and applicable prepayment premiums. The Company terminated both of those credit agreements in connection with the repayment. The revolving credit facility provides for swing line loans of up to $2,500,000 and for the issuance of up to $5,000,000 of letters of credit. The revolving loans bear interest at either (1) the highest of (a) Comerica Bank’s base rate, (b) the three-month certificate of deposit rate plus 0.5% and (c) the Federal funds effective rate plus 0.5%, in each case plus 2.25%, or (2) LIBOR plus 3.25%. The Company may prepay the revolving loans at any time without premium or penalty. The revolving loans mature in June 2008. The Company is required to pay a commitment fee of 0.50% on the average daily amount of the unused commitment amount of the revolving credit facility and a letter of credit fee of 3.25%, plus a fronting fee of 0.13%, with respect to the undrawn amount of each issued letter of credit. As of June 30, 2005, no amounts were outstanding and no letters of credit had been issued under the revolving credit facility. The term loan bears interest at either (1) the highest of (a) Comerica Bank’s base rate, (b) the three-month certificate of deposit rate plus 0.5% and (c) the Federal funds effective rate plus 0.5%, in each case plus 2.25%, or (2) LIBOR plus 3.25%. Principal payments of $350,000 are due quarterly, and the outstanding principal balance of the term loans is payable in full in June 2010. The Company may prepay the term loans at any time without premium or penalty, except that prepayments made during the first year with proceeds from debt issuances or in connection with a repricing of the term loan will be made at 101% of the principal repaid. The Company is required to make prepayments on the term loan in certain cases. As of June 30, 2005, the entire principal amount of the original $140,000,000 term loan was outstanding, and the interest rate was 6.58%. In June 2005, the Company purchased the jackup rig, Rig 16 , from Transocean Inc. for $20,000,000. A $2,000,000 refundable escrow account was funded by the Company in May 2005. The Company funded the purchase price with proceeds from its new term loan. In June 2005, the Company paid $250,000 for an option to purchase the Odin Spirit jackup rig. The exercise price of the option is $12,500,000, plus certain approved capital expenditures to be undertaken on this rig prior to any closing of the purchase. The Company would apply the $250,000 option fee to the payment of the exercise price upon any exercise. During the second quarter of 2005, options to purchase 350 member units with an exercise price of $2,000 per unit were granted to eligible participants under the Plan. F-16

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PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth the expenses, other than underwriting discounts and commissions, payable in connection with the sale of common stock being registered. The selling stockholders will not bear any portion of such expenses. All the amounts shown are estimates except for the SEC registration fee. SEC registration fee NASD filing fee NASDAQ filing fee Legal fees and expenses Blue sky fees and expenses (including legal fees) Printing expenses Accounting fees and expenses Transfer agent fees and expenses Miscellaneous Total * To be filed by amendment. Item 14. Indemnification of Officers and Directors. Delaware law permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director, but not an officer in his or her capacity as such, to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except that such provision shall not eliminate or limit the liability of a director for (1) any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) liability under section 174 of the Delaware General Corporation Law (the ―DGCL‖) for unlawful payment of dividends or stock purchases or redemptions or (4) any transaction from which the director derived an improper personal benefit. Our certificate of incorporation will provide that, to the fullest extent of Delaware law, none of our directors will be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Under Delaware law, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any type of proceeding, other than an action by or in the right of the corporation, because he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation a director, officer, employee or agent of another corporation or other entity, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such proceeding if: (1) he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and (2) with respect to any criminal proceeding, he or she had no reasonable cause to believe that his or her conduct was unlawful. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit brought by or in the right of the corporation because he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other entity, against expenses, including attorneys’ fees, actually and reasonably incurred in connection with such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification will be made if the person is found liable to the corporation unless, in such a case, the court determines the person is nonetheless entitled to indemnification for such expenses. A corporation must also indemnify a present or former director or officer has been successful on the merits or otherwise in defense of any proceeding, or in defense of any claim, issue or matter therein, against expenses, including attorneys’ fees, actually and reasonably incurred by him or her. Expenses, including attorneys’ fees, incurred by a director or II-1 $ 20,304 17,750 * * * * * * * $ *

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officer, or any employees or agents as deemed appropriate by the board of directors, in defending civil or criminal proceedings may be paid by the corporation in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of such director, officer, employee or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. The Delaware law regarding indemnification and the advancement of expenses is not exclusive of any other rights a person may be entitled to under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Under the DGCL, the termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that a person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, had reasonable cause to believe that his or her conduct was unlawful. Our certificate of incorporation and bylaws will authorize indemnification of any person entitled to indemnity under law to the full extent permitted by law. Delaware law also provides that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other entity, against any liability asserted against and incurred by such person, whether or not the corporation would have the power to indemnify such person against such liability. We will maintain, at our expense, an insurance policy that insures our officers and directors, subject to customary exclusions and deductions, against specified liabilities that may be incurred in those capacities. ITEM 15. Recent Sales of Unregistered Securities Hercules Offshore, LLC was formed in July 2004. Since the date of our formation, we have issued the following securities that were not registered under the Securities Act: (1) On July 29, 2004, we issued an aggregate of 1,267 membership interests to the following persons in connection with the formation of our company: (a) 67 membership interests to Steven A. Webster and one of his affiliates for an aggregate purchase price of $16,750; (b) 400 membership interests to a former manager of our company and one of his affiliates for an aggregate purchase price of $100,000; and (c) 800 membership interests to two executive officers for an aggregate purchase price of $200,000. (2) On August 2, 2004, we issued an aggregate of 21,983 membership interests to the following persons in connection with the acquisition of five jackup rigs from Parker Drilling Company: (a) 19,000 membership interests to LR-Hercules Holdings, LP (―Lime Rock‖) in exchange for $19.0 million in cash and all of Lime Rock’s membership interest in our subsidiary, Hercules Holdings LLC, which interest had a nominal value; (b) 1,233 membership interests to Steven A. Webster and one of his affiliates for an aggregate purchase price of $1.2 million; (c) 1,050 membership interests to a former manager of our company and certain of his affiliates in exchange for $900,000 in cash and $150,000 of rig brokerage services rendered; (d) 50 membership interests to two employees of Bassoe Offshore USA, Inc. (―Bassoe‖) in exchange for $50,000 of rig brokerage services rendered; (e) 350 membership interests to two executive officers for an aggregate purchase price of $350,000; II-2

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(f) 150 membership interests to an executive officer in exchange for a promissory note in the amount of $150,000; and (g) 150 membership interests to three private investors for an aggregate purchase price of $100,000. (3) On October 1, 2004, we issued an aggregate of 31,000 membership interests to the following persons in connection with the acquisition of 22 liftboats from Global Industries, Ltd.: (a) 14,000 membership interests to Lime Rock for an aggregate purchase price of $14.0 million; (b) 16,500 membership interests to Greenhill Capital Partners, L.P. and its affiliates (―Greenhill‖) for an aggregate purchase price of $16.5 million; and (c) 500 membership interests to an executive officer for a purchase price of $500,000. (4) On December 16, 2004, we issued an aggregate of 9,772 membership interests to the following persons in connection with the acquisition of a jackup rig from Parker Drilling Company: (a) 6,322 membership interests to Lime Rock for an aggregate purchase price of $6.3 million; (b) 3,161 membership interests to Greenhill for an aggregate purchase price of $3.2 million; (c) 30 membership interests to three private investors for an aggregate purchase price of $30,000; (d) 115 membership interests to two executive officers for an aggregate purchase price of $115,000; (e) 134 membership interests to a former manager of our company and one of his affiliates for an aggregate purchase price of $134,000; and (f) 10 membership interests to two employees of Bassoe for an aggregate purchase price of $10,000. (5) On January 13, 2005, we issued an aggregate of 4,229 membership interests to the following persons in connection with the acquisition of a jackup rig from Porterhouse Offshore L.P.: (a) 538 membership interests to two executive officers and their affiliates for an aggregate purchase price of $0.5 million; (b) 864 membership interests to a former manager of our company and one of his affiliates for an aggregate purchase price of $0.9 million; (c) 2,702 membership interests to Steven A. Webster and one of his affiliates for an aggregate purchase price of $2.7 million; and (d) 125 membership interests to Harbour Capital Consultants, Inc., an affiliate of an executive officer, for a purchase price of $125,000. (6) On January 20, 2005, we issued 100 membership interests to an executive officer for a purchase price of $100,000. Each of the transactions above was exempt from registration under the Securities Act by virtue of Section 4(2) thereof as a transaction not involving a public offering. Prior to the closing of the offering, we will convert from a Delaware limited liability company into a Delaware corporation. At the time of the Conversion, our outstanding membership interests will be automatically converted into a total of shares of common stock. The issuance of common stock to our members in the Conversion will be exempt from registration under the Securities Act by virtue of the exemption provided under Section 3(a)(9) thereof as the common stock will be exchanged by us with our existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. The issuance of common stock will also be exempt from registration under the Securities Act by virtue of Section 4(2) thereof as a transaction not involving a public offering. II-3

Table of Contents Index to Financial Statements

ITEM 16. Exhibits and Financial Statement Schedules (A) Exhibits:
Exhibit Number Description

1.1* 2.1 3.1 3.2 4.1* 4.2

4.3* 4.4* 5.1* 10.1+ 10.2+ 10.3+ 10.4+ 10.5+ 10.6+* 10.7 10.8* 10.9* 10.10* 10.11* 10.12* 10.13* 21.1 23.1 23.2* 24.1

Form of Underwriting Agreement. Plan of Conversion. Form of Certificate of Incorporation. Form of Bylaws. Form of specimen common stock certificate. Credit Agreement dated as of June 30, 2005 among Hercules Offshore, LLC (the ―Company‖), as Borrower, Comerica Bank, as Administrative Agent, Citicorp North America, Inc., as Syndication Agent, Credit Suisse, Cayman Islands Branch, as Documentation Agent, and the Lenders party thereto. Form of Rights Agreement between the Company and , as rights agent. Form of Certificate of Designations of Series A Junior Participating Preferred Stock. Opinion of Baker Botts L.L.P. regarding validity of securities being issued. Employment Agreement, dated effective as of October 11, 2004, by and between the Company and Randall D. Stilley. Employment Agreement, dated effective as of January 10, 2005, by and between the Company and Steven A. Manz. Employment Agreement, dated effective as of January 1, 2005, by and between Hercules Drilling Company, LLC and Thomas J. Seward II. Employment Agreement, dated effective as of January 1, 2005, by and between Hercules Drilling Company, LLC and Thomas E. Hord. Hercules Offshore 2004 Long-Term Incentive Plan. Form of Stock Option Agreement. Form of Registration Rights Agreement between the Company and the holders listed on the signature page thereto. Asset Purchase Agreement dated as of July 9, 2004 among Hercules Drilling Company, LLC (formerly named Hercules Assets, LLC) (―Hercules Drilling‖) and Parker Drilling Offshore USA, LLC. Asset Purchase Agreement dated September 2, 2004 among Hercules Liftboat Company, LLC (formerly named Mercury Offshore Assets, LLC) and Global Industries, Ltd. Asset Purchase Agreement dated as of November 15, 2004 among Hercules Drilling and Parker Drilling Offshore USA, LLC. Asset and Securities Purchase Agreement dated as of January 13, 2005 among Hercules Drilling, the Company, Porterhouse Offshore, LP and Filet Ltd. Rig Sale Agreement dated as of the May 13, 2005 among Transocean Offshore Deepwater Drilling Inc. and the Company. Vessel Purchase Agreement dated as of May 19, 2005 among Superior Energy Services, L.L.C. and the Company. List of subsidiaries. Consent of Grant Thornton LLP. Consent of Baker Botts L.L.P. (included in Exhibit 5.1). Powers of Attorney (included on signature pages of this registration statement).

+ Management contract or compensatory plan or arrangement. * To be filed by amendment. II-4

Table of Contents Index to Financial Statements

(B) Financial Statement Schedules: Financial statement schedules are omitted because they are not required or the required information is shown in our consolidated financial statements or the notes thereto. ITEM 17. Undertakings (a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5

Table of Contents Index to Financial Statements

SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on July 8, 2005. HERCULES OFFSHORE, LLC By: /s/ R ANDALL D. S TILLEY

Randall D. Stilley Chief Executive Officer and President

POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Randall D. Stilley and Steven A. Manz, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in his name place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement, any registration statement for the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on July 8, 2005.
Signature Title

/s/

R ANDALL D. S TILLEY
Randall D. Stilley

Chief Executive Officer and President (Principal Executive Officer)

/s/

S TEVEN A. M ANZ
Steven A. Manz

Chief Financial Officer (Principal Financial and Accounting Officer)

/s/

J OHN T. R EYNOLDS
John T. Reynolds

Chairman of the Board

/s/

T HOMAS R. B ATES , J R .
Thomas R. Bates, Jr.

Manager

/s/

J. W ILLIAM F RANKLIN , J R .
J. William Franklin, Jr.

Manager

/s/

B ORIS G UTIN
Boris Gutin

Manager

/s/

V. F RANK P OTTOW
V. Frank Pottow

Manager

/s/

S TEVEN A. W EBSTER
Steven A. Webster

Manager

II-6

Table of Contents Index to Financial Statements

INDEX TO EXHIBITS
Exhibit Number Description

1.1* 2.1 3.1 3.2 4.1* 4.2

4.3* 4.4* 5.1* 10.1+ 10.2+ 10.3+ 10.4+ 10.5+ 10.6+* 10.7 10.8* 10.9* 10.10* 10.11* 10.12* 10.13* 21.1 23.1 23.2* 24.1

Form of Underwriting Agreement. Plan of Conversion. Form of Certificate of Incorporation. Form of Bylaws. Form of specimen common stock certificate. Credit Agreement dated as of June 30, 2005 among Hercules Offshore, LLC (the ―Company‖), as Borrower, Comerica Bank, as Administrative Agent, Citicorp North America, Inc., as Syndication Agent, Credit Suisse, Cayman Islands Branch, as Documentation Agent, and the Lenders party thereto. Form of Rights Agreement between the Company and , as rights agent. Form of Certificate of Designations of Series A Junior Participating Preferred Stock. Opinion of Baker Botts L.L.P. regarding validity of securities being issued. Employment Agreement, dated effective as of October 11, 2004, by and between the Company and Randall D. Stilley. Employment Agreement, dated effective as of January 10, 2005, by and between the Company and Steven A. Manz. Employment Agreement, dated effective as of January 1, 2005, by and between Hercules Drilling Company, LLC and Thomas J. Seward II. Employment Agreement, dated effective as of January 1, 2005, by and between Hercules Drilling Company, LLC and Thomas E. Hord. Hercules Offshore 2004 Long-Term Incentive Plan. Form of Stock Option Agreement. Form of Registration Rights Agreement between the Company and the holders listed on the signature page thereto. Asset Purchase Agreement dated as of July 9, 2004 among Hercules Drilling Company, LLC (formerly named Hercules Assets, LLC) (―Hercules Drilling‖) and Parker Drilling Offshore USA, LLC. Asset Purchase Agreement dated September 2, 2004 among Hercules Liftboat Company, LLC (formerly named Mercury Offshore Assets, LLC) and Global Industries, Ltd. Asset Purchase Agreement dated as of November 15, 2004 among Hercules Drilling and Parker Drilling Offshore USA, LLC. Asset and Securities Purchase Agreement dated as of January 13, 2005 among Hercules Drilling, the Company, Porterhouse Offshore, LP and Filet Ltd. Rig Sale Agreement dated as of the May 13, 2005 among Transocean Offshore Deepwater Drilling Inc. and the Company. Vessel Purchase Agreement dated as of May 19, 2005 among Superior Energy Services, L.L.C. and the Company. List of subsidiaries. Consent of Grant Thornton LLP. Consent of Baker Botts L.L.P. (included in Exhibit 5.1). Powers of Attorney (included on signature pages of this registration statement).

+ Management contract or compensatory plan or arrangement. * To be filed by amendment. II-7

Exhibit 2.1 PLAN OF CONVERSION OF HERCULES OFFSHORE, LLC INTO HERCULES OFFSHORE, INC. This PLAN OF CONVERSION (this ―Plan‖), dated as of July 7, 2005, is hereby authorized, adopted and approved by Hercules Offshore, LLC, a Delaware limited liability company (the ―Converting LLC‖), in order to set forth the terms, conditions and procedures governing the conversion of the Converting LLC into a Delaware corporation pursuant to Section 18-216 of the Delaware Limited Liability Company Act (as amended, the ―LLC Act‖) and Section 265 of the Delaware General Corporation Law (as amended, the ―DGCL‖). WHEREAS, the Converting LLC is a limited liability company formed and existing under the laws of the State of Delaware; WHEREAS, the internal affairs of the Converting LLC and the conduct of its business are governed by that certain Amended and Restated Operating Agreement of the Converting LLC dated as of October 1, 2004 (as amended from time to time, the ―Operating Agreement‖); WHEREAS, pursuant to Section 3.14 of the Operating Agreement, the Converting LLC may convert into a Delaware corporation in connection with a Qualified IPO, and the Members have authorized and approved such conversion pursuant to the Operating Agreement; WHEREAS, the Converting LLC intends to file a registration statement on Form S-1 with the Securities and Exchange Commission with respect to the registration under the Securities Act of 1933, as amended, of an offering of its securities that would constitute a Qualified IPO pursuant to the Operating Agreement (the ―Proposed Offering‖); and WHEREAS, in connection with the Proposed Offering, the Managers of the Converting LLC have determined, in accordance with Section 6.1(a) of the Operating Agreement, that (a) the Converting LLC should make or engage in the Proposed Offering, (b) the Proposed Offering is structured so as to qualify as a Qualified IPO if consummated and (c) it is in the best interests of the Converting LLC and its Members for the Converting LLC to convert into a Delaware corporation pursuant to Section 18-216 of the LLC Act and Section 265 of the DGCL upon the terms and subject to the conditions and in accordance with the procedures set forth herein, and the Managers have authorized, adopted and approved the Conversion and the execution, delivery and filing of any and all instruments, certificates and documents necessary or desirable in connection therewith;

NOW, THEREFORE, the Converting LLC does hereby authorize, adopt and approve this Plan to effectuate the conversion of the Converting LLC into a Delaware corporation as follows: 1. Definitions . Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Operating Agreement. 2. Conversion; Effect of Conversion . Upon the terms and subject to the conditions of this Plan and pursuant to the relevant provisions of the LLC Act and the DGCL, including, without limitation, Section 18-216 of the LLC Act and Section 265 of the DGCL, respectively, the Converting LLC shall convert (referred to herein as the ―Conversion‖) into a Delaware corporation named ―Hercules Offshore, Inc.‖ (referred to herein as the ―Resulting Corporation‖) at the Effective Time (as defined below). The Converting LLC shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and the Conversion shall not be deemed to constitute a dissolution of the Converting LLC and shall constitute a continuation of the existence of the Converting LLC in the form of a corporation of the State of Delaware. The Conversion otherwise shall have the effects specified in the DGCL and the LLC Act, including, without limitation, subsections (d), (e) and (f) of Section 265 of the DGCL and subsection (h) of Section 18-216 of the LLC Act. 3. Certificate of Conversion; the Certificate of Incorporation; Effective Time . The Conversion shall be effected by the filing with the Secretary of State of the State of Delaware of: (a) a duly executed Certificate of Conversion meeting the requirements of Section 265 of the DGCL (the ―Certificate of Conversion‖) and (b) a duly executed Certificate of Incorporation of the Resulting Corporation, substantially in the form of Exhibit A attached hereto (the ―Certificate of Incorporation‖). The Conversion shall become effective upon such filing of the Certificate of Conversion and the Certificate of Incorporation, or such later effective time as shall be approved by the Managers in accordance with Sections 3.14, 6.1(a) and 6.5(a) of the Operating Agreement and specified in the Certificate of Conversion; provided that, in any event, the filing of the Certificate of Conversion shall have been approved by the Managers in accordance with Sections 6.1(a) and 6.5(a) of the Operating Agreement. The date and time of such effectiveness is referred to herein as the ―Effective Time.‖ 4. Governance and Other Matters Related to the Resulting Corporation . (a) Bylaws . At the Effective Time, the Bylaws of the Resulting Corporation shall be substantially in the form of Exhibit B attached hereto, and shall be adopted as such by the Board of Directors of the Resulting Corporation. (b) Directors and Officers . The directors and officers of the Resulting Corporation immediately after the Effective Time shall be those individuals who were serving as Managers and officers, respectively, of the Converting LLC immediately prior to the Effective Time. The Converting LLC and, after the Effective Time, the Resulting Corporation and its Board of Directors shall take such actions to cause each of such individuals to be appointed as a director and/or officer, as the case may be, of the Resulting Corporation. 2

5. Effect of the Conversion on the Membership Interests of the Converting LLC . Upon the terms and subject to the conditions of this Plan, at the Effective Time, automatically by virtue of the Conversion and without any further action on the part of the Converting LLC, the Resulting Corporation or any equityholder thereof: (a) Conversion of Membership Interests . Each outstanding Membership Interest of the Converting LLC shall be converted into such number of validly issued, fully paid and nonassessable shares of the common stock, par value $0.01 per share (the ―Common Stock‖), of the Resulting Corporation as shall be approved by the Managers in accordance with Sections 3.14, 6.1(a) and 6.5(a) of the Operating Agreement (such number, the ―Ratio‖), with each Membership Interest being converted into the same number of shares of Common Stock, such that the proportional ownership interest of each record holder of Membership Interests in the Converting LLC immediately prior to the Effective Time shall be the same as such holder’s proportional ownership interest in the Resulting Corporation immediately following such Effective Time. All such shares of Common Stock (the ―Shares‖) will be duly issued, fully paid and nonassessable. Following the Effective Time, all Membership Interests of the Converting LLC shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a Membership Interest immediately prior to the Effective Time shall cease to have any rights in respect thereof, except the right to receive that portion of the Shares into which such Membership Interest was converted pursuant to the Conversion and this Section 5. (b) Conversion of Options under the LTIP . Each Option (as defined in the Hercules Offshore 2004 Long-Term Incentive Plan (the ―LTIP‖)) outstanding under the LTIP immediately prior to the Effective Time, whether or not then exercisable, shall continue to be outstanding according to the terms and conditions as set forth in the LTIP and any option agreements thereunder in effect immediately prior to the Effective Time, except that (A) each Option shall be an option for that whole number of shares of Common Stock (rounded up to the next whole share) equal to the number of shares of Common Stock (as defined in the LTIP, ―Plan Common Stock‖) subject to such Option immediately prior to the Effective Time multiplied by the Ratio, and (B) the exercise price per share of Common Stock shall be an amount equal to the exercise price per share of Plan Common Stock subject to such Option in effect immediately prior to the Effective Time divided by the Ratio (the price per share, as so determined, being rounded down to the nearest whole cent). (c) Exchange of Membership Interests for Stock Certificates . Promptly following the Effective Time, the Resulting Corporation shall deliver or cause to be delivered to each record holder of Membership Interests one or more certificates representing, or shall make or cause to be made in the Resulting Corporation’s share transfer records book-entry notation evidencing, that number of Shares into which such holder’s Membership Interests were converted pursuant to the Conversion and the provisions of this Section 5. A certificate representing the proper number of Shares into which the Membership Interests were converted into pursuant to the Conversion and this Section 5 shall only be issued to the person in whose name such Membership Interests were registered immediately prior to the Conversion. Until all Shares are delivered in 3

accordance with this Section 5(c), each Membership Interest shall be deemed at any time after the Effective Time to represent only the right to receive that portion of the Shares into which such Membership Interest was converted pursuant to the Conversion and this Section 5. (d) No Further Ownership Rights in Membership Interests . All Shares issued in exchange for Membership Interests pursuant to the Conversion in accordance with the terms of this Section 5 shall be deemed to have been issued in full satisfaction of all rights pertaining to the Membership Interests under the Operating Agreement. After the Effective Time, there shall be no further registration of transfers on the transfer books of the Converting LLC of the Membership Interests that were outstanding immediately prior to the Effective Time. 6. Transfer Restrictions . Prior to any proposed transfer (whether by sale, assignment, pledge or otherwise) of Shares, the proposed transferor (the ―Transferor‖) will give written notice to the Resulting Corporation of his intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail and shall be accompanied by a written opinion of legal counsel who shall be reasonably satisfactory to the Resulting Corporation, addressed to the Resulting Corporation, to the effect that the proposed transfer of the securities in question may be effected without registration under the Securities Act of 1933, as amended (the ―Securities Act‖), and that such proposed transfer does not call into question the exemption from registration under which such Shares were initially issued by the Resulting Corporation. Any such legal opinion must be reasonably satisfactory to the Resulting Corporation and must state that it may also be relied upon by any transfer agent, stock exchange or counsel to the Resulting Corporation. As a condition to the transfer, the Resulting Corporation may also require a certificate of the Transferor that certifies as to matters that assist the Resulting Corporation in establishing compliance with securities laws at the time of the original issuance of the Shares as well as at the time of the proposed transfer. Upon compliance with the terms hereof to the satisfaction of the Resulting Corporation, the Transferor shall be entitled to transfer such securities in accordance with the terms of the notice delivered by the Transferor to the Resulting Corporation. Each certificate or book-entry notation evidencing the Shares so transferred shall bear or be subject to an appropriate restrictive legend reasonably deemed appropriate by the Resulting Corporation, including any appropriate legend relating to the restrictions and obligations hereunder. The Transferor shall, prior to any transfer (unless such transfer is made pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act), cause any transferee of the Shares to enter into an agreement with the Resulting Corporation that the transferee will take and hold such securities subject to the provisions and upon the conditions specified herein. Without limiting the generality of any other provision hereof, the provisions of this Section 6 shall be binding on successive transferees. Any sale or transfer, or purported sale or transfer, of Shares shall be null and void, and the Resulting Corporation shall have no obligation to effect any transfer, unless the terms, conditions and provisions of this Section 6 are strictly observed and followed or are waived by the Resulting Corporation. The Resulting Corporation may issue stop transfer instructions to any transfer agent or registrar for the Common Stock in order to implement any restriction on transfer contemplated hereby. In addition to any other legend, the certificates or book-entry notations evidencing Shares shall bear or be subject to the following legend: THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION AS TO THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION, THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT ANY PROSPECTUS DELIVERY REQUIREMENTS ARE NOT APPLICABLE. THE SHARES WERE (1) ISSUED PURSUANT TO A PLAN OF CONVERSION AND (2) ARE SUBJECT TO PROVISIONS OF THE BYLAWS OF THE CORPORATION, BOTH OF WHICH INCLUDE ADDITIONAL RESTRICTIONS ON THE TRANSFER OF THE SHARES. COPIES OF SUCH PLAN AND BYLAWS MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE CORPORATE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION. 4

7. Further Assurances . If, at any time after the Effective Time, the Resulting Corporation shall determine or be advised that any deeds, bills of sale, assignments, agreements, documents or assurances or any other acts or things are necessary, desirable or appropriate, consistent with the terms of this Plan, (a) to vest, perfect or confirm, of record or otherwise, in the Resulting Corporation its right, title or interest in, to or under any of the rights, privileges, immunities, powers, purposes, franchises, properties or assets of the Converting LLC, or (b) to otherwise carry out the purposes of this Plan, the Resulting Corporation and its appropriate officers and directors (or their designees), are hereby authorized to solicit in the name of the Converting LLC any third-party consents or other documents required to be delivered by any third party, to execute and deliver, in the name and on behalf of the Converting LLC, all such deeds, bills of sale, assignments, agreements, documents and assurances and do, in the name and on behalf of the Converting LLC, all such other acts and things necessary, desirable or appropriate to vest, perfect or confirm its right, title or interest in, to or under any of the rights, privileges, immunities, powers, purposes, franchises, properties or assets of the Converting LLC and otherwise to carry out the purposes of this Plan. 8. Implementation and Interpretation; Termination and Amendment . This Plan shall be implemented and interpreted, prior to the Effective Time, by the Managers and, following the Effective Time, by the Board of Directors of the Resulting Corporation, (a) each of which shall have full power and authority to delegate and assign any matters covered hereunder to any other party or parties, including, without limitation, any officers of the Converting LLC or the Resulting Corporation, as the case may be, and (b) the interpretations and decisions of which shall be final, binding and conclusive on all parties. The Managers or the Board of Directors of the Resulting Corporation, as applicable, at any time and from time to time, may terminate, amend or modify this Plan without any further consent or approval of any Member of the Converting LLC, any stockholder of the Resulting Corporation or any other Person. 9. Third Party Beneficiaries . This Plan shall not confer any rights or remedies upon any Person other than as expressly provided herein. 5

10. Severability . If any provision of this Plan or the application thereof to any Person or circumstance is held invalid or unenforceable to any extent, the remainder of this Plan and the application of that provision to other Persons or circumstances shall not be affected thereby, and that provision shall be enforced to the greatest extent permitted by law. 11. Governing Law . This Plan shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. 6

IN WITNESS WHEREOF, Hercules Offshore, LLC has caused this Plan to be executed by its duly authorized representative as of the date first stated above. HERCULES OFFSHORE, LLC By: /s/ Randall D. Stilley Randall D. Stilley Chief Executive Officer and President

7

Exhibit A (Certificate of Incorporation)

Exhibit B (Bylaws)

Exhibit 3.1 FORM OF CERTIFICATE OF INCORPORATION OF HERCULES OFFSHORE, INC. FIRST: The name of the Corporation is Hercules Offshore, Inc. (hereinafter, the ―Corporation‖). SECOND: The address of the registered office of the Corporation in the State of Delaware is The Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Zip Code 19801, and the name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the ―DGCL‖). FOURTH: The aggregate number of shares of capital stock that the Corporation shall have authority to issue is 250,000,000 (Two Hundred Fifty Million), of which 200,000,000 (Two Hundred Million) shares are classified as common stock, par value $0.01 per share (―Common Stock‖), and 50,000,000 (Fifty Million) shares are classified as preferred stock, par value $0.01 per share (―Preferred Stock‖). The Corporation may issue shares of any class or series of its capital stock from time to time for such consideration and for such corporate purposes as the Board of Directors of the Corporation (the ―Board of Directors‖) may from time to time determine. The following is a statement of the powers, preferences and rights, and the qualifications, limitations or restrictions, of the Preferred Stock and the Common Stock: Division A. Preferred Stock The shares of Preferred Stock may be divided into and issued in one or more series, the relative rights, powers and preferences of which series may vary in any and all respects. The Board of Directors is expressly vested with the authority to fix, by resolution or resolutions adopted prior to and providing for the issuance of any shares of each particular series of Preferred Stock and incorporate in a certificate of designations filed with the Secretary of State of the State of Delaware, the designations, powers, preferences, rights, qualifications, limitations and restrictions thereof, of the shares of each series of Preferred Stock, to the extent not provided for in this Certificate of Incorporation, and with the authority to increase or decrease the number of shares within each such series; provided, however , that the Board of Directors may not decrease the number of shares within a series of Preferred Stock below the number of shares within such series that is then outstanding. The authority of the Board of Directors with respect to fixing the designations, powers, preferences, rights, qualifications,

limitations and restrictions of each such series of Preferred Stock shall include, but not be limited to, determination of the following: (1) the distinctive designation and number of shares of that series; (2) the rate of dividends (or the method of calculation thereof) payable with respect to shares of that series, the dates, terms and other conditions upon which such dividends shall be payable, and the relative rights of priority of such dividends to dividends payable on any other class or series of capital stock of the Corporation; (3) the nature of the dividend payable with respect to shares of that series as cumulative, noncumulative or partially cumulative, and if cumulative or partially cumulative, from which date or dates and under what circumstances; (4) whether shares of that series shall be subject to redemption, and, if made subject to redemption, the times, prices, rates, adjustments and other terms and conditions of such redemption (including the manner of selecting shares of that series for redemption if fewer than all shares of such series are to be redeemed); (5) the rights of the holders of shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation (which rights may be different if such action is voluntary than if it is involuntary), including the relative rights of priority in such event as to the rights of the holders of any other class or series of capital stock of the Corporation; (6) the terms, amounts and other conditions of any sinking or similar purchase or other fund provided for the purchase or redemption of shares of that series; (7) whether shares of that series shall be convertible into or exchangeable for shares of capital stock or other securities of the Corporation or of any other corporation or entity, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (8) the extent, if any, to which the holders of shares of that series shall be entitled (in addition to any voting rights required by law) to vote as a class or otherwise with respect to the election of directors or otherwise; (9) the restrictions and conditions, if any, upon the issue or reissue of any additional Preferred Stock ranking on a parity with or prior to shares of that series as to dividends or upon liquidation, dissolution or winding up; (10) any other repurchase obligations of the Corporation, subject to any limitations of applicable law; and (11) any other designations, powers, preferences, rights, qualifications, limitations or restrictions of shares of that series. 2

Any of the designations, powers, preferences, rights, qualifications, limitations or restrictions of any series of Preferred Stock may be dependent on facts ascertainable outside this Certificate of Incorporation, or outside the resolution or resolutions providing for the issue of such series of Preferred Stock adopted by the Board of Directors pursuant to authority expressly vested in it by this Certificate of Incorporation. Except as applicable law or this Certificate of Incorporation otherwise may require, the terms of any series of Preferred Stock may be amended without consent of the holders of any other series of Preferred Stock or any class of capital stock of the Corporation. The relative powers, preferences and rights of each series of Preferred Stock in relation to the powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to the authority granted in this Division A of this Article FOURTH, and the consent, by class or series vote or otherwise, of holders of Preferred Stock of such series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock, whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however , that the Board of Directors may provide in such resolution or resolutions adopted with respect to any series of Preferred Stock that the consent of holders of at least a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of shares of any or all other series of Preferred Stock. Shares of any series of Preferred Stock shall have no voting rights except as required by law or as provided in the relative powers, preferences and rights of such series. Division B. Common Stock 1. Dividends . Dividends may be paid on the Common Stock, as the Board of Directors shall from time to time determine, out of any assets of the Corporation available for such dividends after full cumulative dividends on all outstanding shares of capital stock of all series ranking senior to the Common Stock in respect of dividends and liquidation rights (referred to in this Division B as ―stock ranking senior to the Common Stock‖) have been paid, or declared and a sum sufficient for the payment thereof set apart, for all past quarterly dividend periods, and after or concurrently with making payment of or provision for dividends on the stock ranking senior to the Common Stock for the then current quarterly dividend period. 2. Distribution of Assets . In the event of any liquidation, dissolution or winding up of the Corporation, or any reduction or decrease of its capital stock resulting in a distribution of assets to the holders of the Common Stock, after there shall have been paid to or set aside for the holders of the stock ranking senior to the Common Stock the full preferential amounts to which they are respectively entitled, the holders of the Common Stock shall be entitled to receive, pro rata, all of the remaining assets of the Corporation available for distribution to its stockholders. The Board of Directors may distribute in kind to the holders of the Common Stock such remaining assets of the Corporation, or may sell, transfer or otherwise dispose of all or any of the remaining property and assets of the Corporation to any other corporation or other purchaser and receive payment therefor wholly or partly in cash or property, 3

and/or in stock of any such corporation, and/or in obligations of such corporation or other purchaser, and may sell all or any part of the consideration received therefor and distribute the same or the proceeds thereof to the holders of the Common Stock. 3. Voting Rights . Subject to the voting rights expressly conferred under prescribed conditions upon the stock ranking senior to the Common Stock, the holders of the Common Stock shall exclusively possess full voting power for the election of directors and for all other purposes. 4. Foreign Ownership of Common Stock . (a) In General . It is the policy of the Corporation that Non-U.S. Citizens should Own, individually or in the aggregate, no more than the Permitted Percentage of the Common Stock. If at any time Non-U.S. Citizens, individually or in the aggregate, become the Owners of more than the Permitted Percentage of the Common Stock, then the Corporation shall have the power to take the actions prescribed in subparagraphs (c), (d) and (e) of this paragraph 4 of Division B of this Article FOURTH. The provisions of this paragraph 4 are intended to assure that the Corporation remains in continuous compliance with the citizenship requirements of the Merchant Marine Act of 1936, as amended, and the Shipping Act of 1916, as amended, for purposes of owning and operating vessels in the U.S. coastwise trade (collectively, the ―Maritime Laws‖) and the regulations promulgated thereunder. Any amendments to the Maritime Laws or the regulations relating to the citizenship of U.S. vessel owners or operators of coastwise trade vessels are deemed to be incorporated herein by reference. (b) Dual Stock Certificate System . To implement the policy set forth in subparagraph (a) hereof, the Corporation may institute a Dual Stock Certificate System such that (i) each certificate representing shares of Common Stock that are Owned by a U.S. Citizen shall be marked ―U.S. Citizen‖ and each stock certificate representing shares of Common Stock that are Owned by a Non-U.S. Citizen shall be marked ―Non-U.S. Citizen,‖ but with all such certificates to be identical in all other respects and to comply with all provisions of the DGCL; (ii) to the extent necessary to enable the Corporation to submit any proof of citizenship required by law or by contract with the United States government (or any agency thereof), the Corporation may require the record holders and the Owners of such shares of Common Stock to confirm their citizenship status from time to time, and voting rights and dividends and other distributions payable with respect to shares of Common Stock held by such record holder or Owned by such Owner may, in the discretion of the Board of Directors, be withheld until confirmation of such citizenship status is received; and (iii) the share transfer records of the Corporation shall be maintained in such manner as to enable the percentage of Common Stock that is Owned by Non-U.S. Citizens and by U.S. Citizens to be confirmed. The Board of Directors is authorized to take such other ministerial actions or make such interpretations as it may deem necessary or advisable in order to implement the policy set forth in subparagraph (a) hereof. (c) Restrictions on Transfer; Change of Status . (i) Any transfer, or attempted transfer, of any Common Stock, the effect of which would be to cause one or more Non-U.S. Citizens to Own Common Stock in excess of the 4

Permitted Percentage, shall be ineffective as against the Corporation, and neither the Corporation nor its transfer agent or registrar shall register such transfer or purported transfer on the share transfer records of the Corporation and neither the Corporation nor its transfer agent or registrar shall be required to recognize the transferee or purported transferee thereof as a stockholder of the Corporation for any purpose whatsoever except to the extent necessary to effect any remedy available to the Corporation under this paragraph 4 of Division B of this Article FOURTH. A citizenship certificate may be required from all transferees (and from any recipient upon original issuance) of Common Stock of the Corporation and, if such transferee (or recipient) is acting as a fiduciary or nominee for an Owner, such Owner, and registration of transfer (or original issuance) shall be denied upon refusal to furnish such certificate. (ii) Each record holder and Owner shall advise the Corporation in writing of any change in such record holder’s or Owner’s citizenship status. (d) No Voting Rights; Temporary Withholding of Dividends and Other Distributions . If on any date (including any record date) the number of shares of Common Stock that is Owned by Non-U.S. Citizens is in excess of the Permitted Percentage (such shares of Common Stock herein referred to as the ―Excess Shares‖), the Corporation shall determine those shares Owned by Non-U.S. Citizens that constitute such Excess Shares. The determination of those shares of Common Stock that constitute Excess Shares shall be made by reference to the date or dates shares were acquired by Non-U.S. Citizens, starting with the most recent acquisition of shares of Common Stock by a Non-U.S. Citizen and including, in reverse chronological order of acquisition, all other acquisitions of shares by Non-U.S. Citizens from and after the acquisition of those shares by a Non-U.S. Citizen that first caused the Permitted Percentage to be exceeded. The determination of the Corporation as to those shares of Common Stock that constitute the Excess Shares shall be conclusive. Shares of Common Stock deemed to constitute such Excess Shares shall (so long as such excess exists) not be accorded any voting rights and shall not be deemed to be outstanding for purposes of determining the vote required on any matter properly brought before the stockholders of the Corporation for a vote thereon. The Corporation shall (so long as such excess exists) withhold the payment of dividends, if any, and the sharing in any other distribution (upon liquidation or otherwise) in respect of the Excess Shares. At such time as the Permitted Percentage is no longer exceeded, full voting rights shall be restored to any shares of Common Stock previously deemed to be Excess Shares and any dividend or other distribution with respect thereto that has been withheld shall be due and paid solely to the record holders of such shares of Common Stock at the time the Permitted Percentage is no longer exceeded. (e) Redemption of Excess Shares . The Corporation shall have the power, but not the obligation, to redeem Excess Shares subject to the following terms and conditions: (i) the per share redemption price (the ―Non-U.S. Citizen Redemption Price‖) to be paid for the Excess Shares to be redeemed shall be the sum of (A) the Average Closing Sales Price of the Common Stock and (B) any dividend or other distribution declared with respect to such shares prior to the date such shares are called for redemption hereunder but which has been withheld by the Corporation pursuant to subparagraph (d); 5

(ii) the Non-U.S. Citizen Redemption Price shall be paid in cash; (iii) a notice of redemption shall be given by first class mail, postage prepaid, mailed not less than ten (10) days prior to the redemption date to each holder of record of the shares of Common Stock to be redeemed, at such holder’s address as the same appears on the share transfer records of the Corporation. Each such notice shall state (A) the redemption date, (B) the number of shares of Common Stock to be redeemed from such holder, (C) the Non-U.S. Citizen Redemption Price, and the manner of payment thereof, (D) the place where certificates for such shares are to be surrendered for payment of the Non-U.S. Citizen Redemption Price, and (E) that dividends and other distributions, if any, on the shares of Common Stock to be redeemed will cease to accrue on such redemption date; (iv) from and after the redemption date, dividends and other distributions, if any, on the shares of Common Stock called for redemption shall cease to accrue and such shares shall no longer be deemed to be outstanding and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the Non-U.S. Citizen Redemption Price) shall cease. Upon surrender of the certificates for any shares of Common Stock so redeemed in accordance with the requirements of the notice of redemption (properly endorsed or assigned for transfer if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the Non-U.S. Citizen Redemption Price. In case fewer than all the shares of Common Stock represented by any such certificate are redeemed, a new certificate shall be issued representing the shares of Common Stock not redeemed without cost to the holder thereof; and (v) such other terms and conditions as the Board of Directors may reasonably determine. (f) Determination of Citizenship . In determining the citizenship of the Owners or their transferees of shares of Common Stock, the Corporation may rely on the share transfer records of the Corporation and the citizenship certificates given by the Owners or their transferees or any recipients (in the case of original issuance) (in each case whether such certificates have been given on their own behalf or on behalf of others) to establish the citizenship of such Owners, transferees or recipients of the shares of Common Stock. The determination of the citizenship of Owners and their transferees of the shares of Common Stock may also be subject to proof in such other way or ways as the Corporation may deem reasonable. The Corporation may at any time require proof, in addition to the citizenship certificates, of any Owner or proposed transferee of shares of Common Stock, and the payment of dividends and other distributions may be withheld, and any application for transfer of ownership on the share transfer records of the Corporation may be refused, until such additional proof is submitted. The determination of the Corporation as to the citizenship of the Owners or their transferees in accordance with this subparagraph (f) shall be conclusive. (g) Severability . Each provision of subparagraphs (a) through (f) of this paragraph 4 of Division B of this Article FOURTH is intended to be severable from every other provision. If any one or more of the provisions contained in such subparagraphs of this 6

paragraph 4 is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of any other provision of subparagraphs (a) through (f) of this paragraph 4 shall not be affected, and such subparagraphs of this paragraph 4 shall be construed as if the provisions held to be invalid, illegal or unenforceable had been reformed to the extent required to be valid, legal and enforceable. (h) Definitions . For purposes of this paragraph 4 of Division B of this Article FOURTH: (i) ―Average Closing Sales Price‖ shall mean the average of the daily Closing Prices (as hereinafter defined) per share of Common Stock for the 20 consecutive Trading Days (as hereinafter defined) immediately prior to the date notice of redemption is given. (ii) The ―Closing Price‖ for any day shall mean the last sale price on such day, regular way, or in case no such sale takes place on such day, the average of the closing bid and asked prices on such day, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted for trading on the principal National Securities Exchange (other than the Nasdaq Stock Market) on which shares of Common Stock are listed or admitted to trading or, if shares of Common Stock are not listed or admitted to trading on any National Securities Exchange (other than the Nasdaq Stock Market), the last quoted price on such day or, if not so quoted, the average of the high bid and low asked prices on such day in the over-the-counter market, as reported by the Nasdaq Stock Market or such other system then in use, or, if on any such day shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in shares of Common Stock selected by the Corporation, or if on any such day no market maker is making a market in shares of Common Stock, the fair value of shares of Common Stock as determined reasonably and in good faith by the Board of Directors. (iii) ―National Securities Exchange‖ shall mean an exchange registered with the Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, supplemented or restated from time to time, and any successor to such statute, or the Nasdaq Stock Market or any successor thereto. (iv) A Person shall be deemed the ―Owner‖ of, or to ―Own,‖ shares of Common Stock or other ownership interests to the extent such shares or other ownership interests (a) are owned beneficially or held of record (with the power to act on behalf of the beneficial owner) by such Person; (b) may be voted by such Person; (c) are entitled to dividends or other distributions in respect of such shares or ownership interests by such Person; or (d) which by any other means whatsoever are controlled by such Person, or in which control is permitted to be exercised by such Person, with the Board of Directors being authorized to determine reasonably the meaning of such control for this purpose under the guidelines set forth in Subpart C (Sections 67.30-67.47) of Title 46 of the Code of Federal Regulations, as amended, modified or supplemented). 7

(v) ―Trading Day‖ means a day on which the principal National Securities Exchange on which shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if shares of Common Stock are not listed or admitted to trading on any National Securities Exchange, a day on which banking institutions in New York City generally are open. (vi) ―U.S. Citizen‖ shall mean: (a) an individual who is native-born, naturalized, a derivative citizen of the United States, or otherwise qualifies as a United States citizen; (b) a partnership of which all of its general partners are citizens of the United States and at least 75% of the interest in the partnership is Owned by citizens of the United States; (c) a trust whereby each of its trustees is a citizen of the United States, each beneficiary with an enforceable interest in the trust is a citizen of the United States, and at least 75% of the interest in the trust is Owned by citizens of the United States; (d) an association or joint venture if each of its members is a citizen of the United States; (e) a corporation if (I) it is incorporated under the laws of the United States or of a State of the United States or a political subdivision thereof, Guam, Puerto Rico, the Virgin Islands, American Samoa, the District of Columbia, the Northern Mariana Islands, or any other territory or possession of the United States, (II) its chief executive officer, by whatever title, and its chairman of the board of directors are citizens of the United States, (III) no more of its directors are non-citizens than a minority of the number necessary to constitute a quorum, and (IV) at least 75% of the interest in the corporation is Owned by citizens of the United States; (f) a governmental entity that is an entity of the federal government of the United States or of the government of a State of the United States or a political subdivision thereof, Guam, Puerto Rico, the Virgin Islands, American Samoa, the District of Columbia, the Northern Mariana Islands, or any other territory or possession of the United States, all as further defined in Subpart C (Sections 67.30-67.47) of Title 46 of the Code of Federal Regulations, as amended, modified or supplemented. With respect to a limited liability company, a ―U.S. Citizen‖ shall mean an entity that meets the requirements of subclause (b) above, and, if the limited liability company has a chief financial officer, by whatever title, or a board of directors, then it shall also meet such relevant requirements of subclause (e) above. (vii) ―Non-U.S. Citizen‖ shall mean any Person other than a U.S. Citizen. (viii) ―Permitted Percentage‖ shall mean a percentage 5% less than the percentage that would cause the Corporation to be no longer qualified as a U.S. Citizen qualified to engage in coastwise trade under the Maritime Laws. (ix) ―Person‖ shall mean an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity. Division C. Other Provisions Applicable to the Corporation’s Capital Stock 1. Preemptive Rights . No holder of any stock of the Corporation shall be entitled as of right to purchase or subscribe for any part of any unissued or treasury stock of the Corporation, or of any additional stock of any class, to be issued by reason of any increase of the 8

authorized capital stock of the Corporation, or to be issued from any unissued or additionally authorized stock, or of bonds, certificates of indebtedness, debentures or other securities convertible into stock of the Corporation, but any such unissued or treasury stock, or any such additional authorized issue of new stock or securities convertible into stock, may be issued and disposed of by the Board of Directors to such persons, firms, corporations or associations, and upon such terms as the Board of Directors may, in its discretion, determine, without offering to the stockholders then of record, or any class of stockholders, any thereof, on the same terms or any terms. 2. Votes Per Share . Any holder of Common Stock of the Corporation having the right to vote at any meeting of the stockholders or of any class or series thereof shall be entitled to one vote for each share of stock held by him, provided that no holder of Common Stock shall be entitled to cumulate his votes for the election of one or more directors or for any other purpose. FIFTH: (a) Directors. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the authority and powers conferred on the Board of Directors by the DGCL or by the other provisions of this Certificate of Incorporation, the Board of Directors is authorized and empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, this Certificate of Incorporation and the Bylaws of the Corporation; provided, however , that no Bylaws hereafter adopted, or any amendments thereto, shall invalidate any prior act of the Board of Directors that would have been valid if such Bylaws or amendment had not been adopted. (b) Number, Election and Terms of Directors . The number of directors that shall constitute the whole Board of Directors shall be fixed from time to time by a majority of the directors then in office, subject to an increase in the number of directors by reason of any provisions contained in or established pursuant to Article FOURTH, but in any event shall not be less than one nor more than 16, plus that number of directors who may be elected by the holders of any one or more series of Preferred Stock voting separately as a class pursuant to the provisions applicable in the case or arrearages in the payment of dividends or other defaults contained in this Certificate of Incorporation or the Board of Directors’ resolution providing for the establishment of any series of Preferred Stock. The directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes: Class I, Class II and Class III. Each director shall serve for a term ending on the third annual meeting of stockholders following the annual meeting of stockholders at which that director was elected; provided , however , that the directors first designated as Class I directors shall serve for a term expiring at the annual meeting of stockholders next following the date of their designation as Class I directors, the directors first designated as Class II directors shall serve for a term expiring at the second annual meeting of stockholders next following the date of their designation as Class II directors, and the directors first designated as Class III directors shall serve for a term expiring at the third annual meeting of stockholders next following the date of their designation as Class III directors. Each director shall hold office until the annual meeting of stockholders at which that director’s term expires and, the foregoing notwithstanding, shall serve until his successor shall have been duly elected and qualified or until his earlier death, resignation or removal. 9

At each annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the Board of Directors shall have designated one or more directorships whose term then expires as directorships of another class in order to more nearly achieve equality of number of directors among the classes. In the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his earlier death, resignation or removal. The Board of Directors shall specify the class to which a newly created directorship shall be allocated. Election of directors need not be by written ballot unless the Bylaws of the Corporation so provide. (c) Removal of Directors . No director of the Corporation may be removed from office as a director by vote or other action of the stockholders or otherwise except for cause, and then only by the affirmative vote of the holders of at least a majority of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class. Except as applicable law otherwise provides, cause for the removal of a director shall be deemed to exist only if the director whose removal is proposed: (i) has been convicted, or has been granted immunity to testify in any proceeding in which another has been convicted, of a felony by a court of competent jurisdiction and that conviction is no longer subject to direct appeal; (ii) has been found to have been negligent or guilty of misconduct in the performance of his duties to the Corporation in any matter of substantial importance to the Corporation by (A) the affirmative vote of at least eighty percent (80%) of the directors then in office at any meeting of the Board of Directors called for that purpose or (B) a court of competent jurisdiction; or (iii) has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability to serve as a director of the Corporation. Notwithstanding the foregoing, whenever holders of outstanding shares of one or more series of Preferred Stock are entitled to elect members of the Board of Directors voting separately as a class pursuant to the provisions applicable in the case of arrearages in the payment of dividends or other defaults contained in this Certificate of Incorporation or the Board of Directors’ resolution providing for the establishment of any series of Preferred Stock, any such director of the Corporation so elected may be removed in accordance with the provisions of this Certificate of Incorporation or that Board of Directors’ resolution. The foregoing provisions are subject to the terms of any series of Preferred Stock with respect to the directors to be elected solely by the holders of such series of Preferred Stock. (d) Vacancies . Except as a Board of Directors’ resolution providing for the establishment of any series of Preferred Stock may provide otherwise, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors 10

in which the new directorship was created or the vacancy occurred and until that director’s successor shall have been elected and qualified or until his earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. The foregoing provisions are subject to the terms of any Preferred Stock with respect to the directors to be elected solely by the holders of such Preferred Stock. (e) Amendment of this Article FIFTH. In addition to any other affirmative vote required by applicable law, this Article FIFTH may not be amended, modified or repealed except by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class. SIXTH: (a) Action by Written Consent; Special Meetings. No action required to be taken or that may be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting, and the power of the stockholders of the Corporation to consent in writing to the taking of any action by written consent without a meeting is specifically denied, unless such action without a meeting is taken by unanimous written consent. Unless otherwise provided by the DGCL, by this Certificate of Incorporation or by any provisions established pursuant to Article FOURTH hereof with respect to the rights of holders of one or more outstanding series of Preferred Stock, special meetings of the stockholders of the Corporation may be called at any time only by the Chairman of the Board of Directors, if there is one, or by the Board of Directors pursuant to a resolution approved by the affirmative vote of at least a majority of the members of the Board of Directors, and no such special meeting may be called by any other person or persons. (b) Amendment of this Article SIXTH . In addition to any other affirmative vote required by applicable law, this Article SIXTH may not be amended, modified or repealed except by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class. SEVENTH: No director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director of the Corporation; provided , however , that this Article SEVENTH shall not eliminate or limit the liability of such a director (1) for any breach of such director’s duty of loyalty to the Corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, as the same exists or as such provision may hereafter be amended, supplemented or replaced, or (4) for any transactions from which such director derived an improper personal benefit. If the DGCL is amended after the filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by such law, as so amended. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. 11

EIGHTH: The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. The Bylaws may be amended, in whole or in part, and new Bylaws may be adopted (i) by action of the Board of Directors; provided, however , that any proposed alteration, amendment or repeal of, or the adoption of any Bylaw inconsistent with, Section 3, 9, 10 or 11 of Article II of the Bylaws, Section 2, 3, 4, 7, 10 or 11 of Article III of the Bylaws, Article V of the Bylaws or Section 1 of Article VII of the Bylaws, by the Board of Directors shall require the affirmative vote of not less than 75% of all directors then in office at a regular or special meeting of the Board of Directors called for that purpose; or (ii) by the affirmative vote of the shares representing not less than 75% of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class; provided that in the case of any such stockholder action at a meeting of stockholders, notice of the proposed alteration, amendment, repeal or adoption of the new Bylaw or Bylaws must be contained in the notice of such meeting. In addition to any other affirmative vote required by applicable law, this Article EIGHTH may not be amended, modified or repealed except by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class. NINTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the DGCL, order a meeting of the creditors or class of creditors, and/or the stockholders or a class of stockholders of the Corporation as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agrees to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which said application has been made, be binding on all of the creditors or class of creditors, and/or the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. TENTH: The name and mailing address of the sole incorporator is as follows: [Name] Hercules Offshore, Inc. [Address] Houston, Texas [Zip Code] 12

of

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Incorporation to be executed on its behalf this , . HERCULES OFFSHORE, INC. By: Name: Title: Sole Incorporator 13

day

Exhibit 3.2 FORM OF BYLAWS OF HERCULES OFFSHORE, INC. (the “Corporation”) ARTICLE I Capital Stock Section 1. Share Ownership . Shares of the capital stock of the Corporation shall be represented by certificates; provided, however , that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation’s stock may be uncertificated shares. Owners of shares of the capital stock of the Corporation shall be recorded in the share transfer records of the Corporation, and ownership of such shares shall be evidenced by a certificate or book entry notation in the share transfer records of the Corporation. Any certificates representing such shares shall be signed by the Chairman of the Board, if there is one, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Corporate Secretary or an Assistant Corporate Secretary. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer at the date of its issuance. Section 2. Stockholders of Record . The Board of Directors of the Corporation may appoint one or more transfer agents or registrars of any class of stock or other security of the Corporation. The Corporation may be its own transfer agent if so appointed by the Board of Directors. The Corporation shall be entitled to treat the holder of record of any shares of the Corporation as the owner thereof for all purposes, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or any rights deriving from such shares, on the part of any other person, including (but without limitation) a purchaser, assignee or transferee, unless and until such other person becomes the holder of record of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such other person. Section 3. Transfer of Shares . The shares of the capital stock of the Corporation shall be transferable in the share transfer records of the Corporation by the holder of record thereof, or his duly authorized attorney or legal representative. All certificates representing shares surrendered for transfer, properly endorsed, shall be canceled and new certificates for a like number of shares shall be issued therefor. In the case of lost, stolen, destroyed or mutilated certificates representing shares for which the Corporation has been requested to issue new certificates, new certificates or other evidence of such new shares may be issued upon such conditions as may be required by the Board of Directors or the Corporate Secretary or an Assistant Corporate Secretary for the protection of the Corporation and any transfer agent or registrar. Uncertificated shares shall be transferred in the share transfer records of the Corporation upon the written instruction originated by the appropriate person to transfer the shares.

Section 4. Stockholders of Record and Fixing of Record Date . For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive a distribution by the Corporation (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares) or a share dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may provide that the share transfer records shall be closed for a stated period of not more than 60 days, and in the case of a meeting of stockholders not less than ten days, immediately preceding the meeting, or it may fix in advance a record date for any such determination of stockholders, such date to be not more than 60 days, and in the case of a meeting of stockholders not less than ten days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the share transfer records are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive a distribution (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares) or a share dividend, the day next preceding the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such distribution or share dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as herein provided, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the share transfer records and the stated period of closing has expired. Section 5. Restrictions on Transfer of Conversion Shares . (a) Reference is made to the Plan of Conversion dated as of July 7, 2005 (the ―Plan of Conversion‖). Shares of the Corporation’s common stock received by stockholders pursuant to the Plan of Conversion and the Conversion (as defined in the Plan of Conversion) are referred to herein as ―Conversion Shares.‖ Prior to any proposed transfer (whether by sale, assignment, pledge or otherwise) of Conversion Shares, the proposed transferor (the ―Transferor‖) will give written notice to the Corporation of his intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail and shall be accompanied by a written opinion of legal counsel who shall be reasonably satisfactory to the Corporation, addressed to the Corporation, to the effect that the proposed transfer of the securities in question may be effected without registration under the Securities Act of 1933, as amended (the ―Securities Act‖), and that such proposed transfer does not call into question the exemption from registration under which such Conversion Shares were initially issued by the Corporation. Any such legal opinion must be reasonably satisfactory to the Corporation and must state that it may also be relied upon by any transfer agent, stock exchange or counsel to the Corporation. As a condition to the transfer, the Corporation may also require a certificate of the Transferor that certifies as to matters that assist the Corporation in establishing compliance with securities laws at the time of the original issuance of the Conversion Shares as well as at the time of the proposed transfer. Upon compliance with the terms of these Bylaws to the satisfaction of the Corporation, the Transferor shall be entitled to transfer such securities in accordance with the terms of the notice delivered by the Transferor to the Corporation. Each certificate or book-entry notation evidencing the Conversion Shares so transferred shall bear or be subject to an appropriate restrictive legend reasonably deemed appropriate by the Corporation, including any appropriate legend relating to the restrictions and 2

obligations under this Section 5. The Transferor shall, prior to any transfer (unless such transfer is made pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act), cause any transferee of the Conversion Shares to enter into an agreement with the Corporation that the transferee will take and hold such securities subject to the provisions and upon the conditions specified herein. Without limiting the generality of any other provision hereof, the provisions of this Section 5(a) shall be binding on successive transferees. (b) Any sale or transfer, or purported sale or transfer, of Conversion Shares shall be null and void, and the Corporation shall have no obligation to effect any transfer, unless the terms, conditions and provisions of this Section 5 are strictly observed and followed or are waived by the Corporation. The Corporation may issue stop transfer instructions to any transfer agent or registrar for the Corporation’s common stock in order to implement any restriction on transfer contemplated by this Section 5. (c) In addition to any other legend, the certificates or book-entry notations evidencing Conversion Shares shall bear or be subject to the following legend: THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION AS TO THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION, THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT ANY PROSPECTUS DELIVERY REQUIREMENTS ARE NOT APPLICABLE. THE SHARES WERE (1) ISSUED PURSUANT TO A PLAN OF CONVERSION AND (2) ARE SUBJECT TO PROVISIONS OF THE BYLAWS OF THE CORPORATION, BOTH OF WHICH INCLUDE ADDITIONAL RESTRICTIONS ON THE TRANSFER OF THE SHARES. COPIES OF SUCH PLAN AND BYLAWS MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE CORPORATE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION. (d) If any provision or provisions of this Section 5 shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Section 5 shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ARTICLE II Meetings of Stockholders Section 1. Place of Meetings . All meetings of stockholders shall be held at the principal office of the Corporation, in the City of Houston, Texas, or at such other place within or without the State of Delaware as may be designated by the Board of Directors or officer calling the meeting. 3

Section 2. Annual Meeting . The annual meeting of the stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors or as may otherwise be stated in the notice of the meeting. Failure to designate a time for the annual meeting or to hold the annual meeting at the designated time shall not work a dissolution of the Corporation. Section 3. Special Meetings . Unless otherwise provided by the General Corporation Law of the State of Delaware (the ―DGCL‖), by the Certificate of Incorporation of the Corporation as filed with the Secretary of State of the State of Delaware (as it may be amended or restated from time to time, the ―Certificate of Incorporation‖) or by any provisions established pursuant thereto with respect to the rights of holders of one or more outstanding series of the Corporation’s preferred stock, special meetings of the stockholders of the Corporation may be called at any time only by the Chairman of the Board, if there is one, or by the Board of Directors pursuant to a resolution approved by the affirmative vote of at least a majority of the members of the Board of Directors, and no such special meeting may be called by any other person or persons. Section 4. Notice of Meeting . Notice of all meetings stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than 60 days before the date of the meeting, either personally or by mail or in any other manner allowed by the DGCL, by or at the direction of the Chairman of the Board, if there is one, the Chief Executive Officer, if there is one, the President, the Corporate Secretary or the officer or person calling the meeting to each stockholder of record entitled to vote at such meetings. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the share transfer records of the Corporation, with postage thereon prepaid. To the fullest extent permitted by Section 233 of the DGCL, if the stockholder consents, only one copy of such notice need be delivered to stockholders who share an address. If sent by facsimile, such notice shall be deemed to be delivered when directed to a number at which the stockholder has consented to receive notice. If sent by electronic mail, such notice shall be deemed to be delivered when directed to an electronic mail address at which the stockholder has consented to receive notice. Any notice required to be given to any stockholder, under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, need not be given to a stockholder if notice of two consecutive annual meetings and all notices of meetings held during the period between those annual meetings, if any, or all (but in no event less than two) payments (if sent by first class mail) of dividends or interest on securities during a 12-month period have been mailed to that person, addressed to his address as shown on the share transfer records of the Corporation, and have been returned undeliverable. Any action or meeting taken or held without notice to such person shall have the same force and effect as if the notice had been duly given. If such a person delivers to the Corporation a written notice setting forth his then current address, the requirement that notice be given to that person shall be reinstated. Section 5. Voting List . The officer or agent having charge of the share transfer records of the Corporation shall make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in 4

alphabetical order, with the address of and the number of shares registered in the name of each stockholder, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal place of business of the Corporation and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original share transfer records shall be prima facie evidence as to who are the stockholders entitled to examine such list or to vote at any meeting of stockholders. Failure to comply with any requirements of this Section 5 shall not affect the validity of any action taken at such meeting. Section 6. Voting; Proxies . Except as otherwise provided in the Certificate of Incorporation or as otherwise provided under the DGCL, each holder of shares of capital stock of the Corporation entitled to vote shall be entitled to one vote for each share standing in his name on the records of the Corporation, either in person or by proxy executed in writing by him or by his duly authorized attorney-in-fact or, if the proxy is not executed in writing, then in a manner approved by the Board of Directors, a duly authorized committee of the Board, the Chairman of the Board, or the Corporate Secretary or by any other proxy allowed under Section 212 of the DGCL. A proxy shall be revocable unless expressly provided therein to be irrevocable, and the proxy is coupled with an interest sufficient in law to support an irrevocable power. At each election of directors, every holder of shares of the Corporation entitled to vote shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected, and for whose election he has a right to vote, but in no event shall he be permitted to cumulate his votes for one or more directors. Section 7. Quorum and Vote of Stockholders . Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the holders of shares of capital stock entitled to cast a majority of all the votes which could be cast at such meeting by the holders of all of the outstanding shares of capital stock entitled to vote on any matter that is to be voted on at such meeting, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, provided that, where a separate vote by a class or series or classes or series is required, a quorum with respect to such matter shall consist of a majority of the shares of such class or series or classes or series, and in such case the absence of a quorum with respect to such matter shall not affect the existence of a quorum with respect to any other matter. If a quorum is not represented, a majority in interest of those represented may adjourn the meeting from time to time. At all meetings of stockholders for the election of directors, a plurality of the votes cast by holders of shares entitled to vote in the election of directors at the meeting shall be sufficient to elect. In the case of a matter submitted for action by the stockholders at the direction of the Board of Directors as to which a stockholder approval requirement is applicable under a rule or policy of a national stock exchange or quotation system or any provision of the Internal Revenue Code or under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the ―Exchange Act‖), in each case for which no higher voting requirement is specified by law, the Certificate of Incorporation or these Bylaws, the vote required for approval shall be the requisite vote specified in such rule or policy or Internal Revenue Code provision or Rule 16b-3, as the case may be (or the highest such requirement if more than one is applicable). Unless otherwise required by applicable law, the Certificate of Incorporation or these Bylaws, for approval or ratification of any matter approved and recommended by the Board of Directors, including, without limitation, the appointment of an independent registered public accounting firm 5

(if submitted for a vote at the direction of the Board of Directors), the vote required for approval or ratification shall be a majority of the votes cast on the matter, voted for or against. Section 8. Presiding Officer and Conduct of Meetings . The Chairman of the Board, if there is one, or in his absence, the Chief Executive Officer, if there is one, or in his absence, the President, shall preside at all meetings of the stockholders or, if such officers are not present at a meeting, by such other person as the Board of Directors shall designate or if no such person is designated by the Board of Directors, the most senior officer of the Corporation present at the meeting. The Corporate Secretary of the Corporation, if present, shall act as secretary of each meeting of stockholders; if he is not present at a meeting, then such person as may be designated by the presiding officer shall act as secretary of the meeting. The conduct of any meeting of stockholders and the determination of procedure and rules shall be within the discretion of the officer presiding at such meeting (the ―Chairman of the Meeting‖), and there shall be no appeal from any ruling of the Chairman of the Meeting with respect to procedure or rules. Accordingly, in any meeting of stockholders or part thereof, the Chairman of the Meeting shall have the sole power to determine appropriate rules or to dispense with theretofore prevailing rules. Section 9. Proper Business—Annual Meeting of Stockholders . At any annual meeting of stockholders, only such business shall be conducted as shall be a proper subject for the meeting and as shall have been properly brought before the meeting. To be properly brought before an annual meeting of stockholders, business (other than business relating to any nomination of directors, which is governed by Article III, Section 4 of these Bylaws) must (a) be specified in the notice of such meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise be properly brought before the meeting by or at the direction of the Chairman of the Meeting or the Board of Directors (or any duly authorized committee thereof) or (c) otherwise (i) be properly requested to be brought before the meeting by a stockholder of record entitled to vote in the election of directors generally, in compliance with the provisions of this Section 9 and (ii) constitute a proper subject to be brought before such meeting. For business to be properly brought before an annual meeting of stockholders, any stockholder who intends to bring any matter (other than a matter relating to any nomination of directors, which is governed by Article III, Section 4 of these Bylaws) before an annual meeting of stockholders and is entitled to vote on such matter must deliver written notice of such stockholder’s intent to bring such matter before the annual meeting of stockholders, either by personal delivery or by United States mail, postage prepaid, to the Corporate Secretary of the Corporation. Such notice must be received by the Corporate Secretary not less than 120 days nor more than 180 days prior to the date on which the immediately preceding year’s annual meeting of stockholders was held; provided, however , that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the 120th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public disclosure of an adjournment of an annual meeting of stockholders commence a new time period for the giving of a stockholder’s notice as described above. To be in proper written form, a stockholder’s notice to the Corporate Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting of 6

stockholders (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation’s books and records, of the stockholder proposing such business, (c) evidence, reasonably satisfactory to the Corporate Secretary of the Corporation, of such stockholder’s status as such and of the number of shares of each class of capital stock of the Corporation of which such stockholder is the beneficial owner, (d) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names and the number of shares beneficially owned by them) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (e) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at an annual meeting of stockholders except in accordance with the procedures set forth in this Section 9. Beneficial ownership shall be determined in accordance with Rule 13d-3 under the Exchange Act. When used in these Bylaws, ―person‖ has the meaning ascribed to such term in Section 2(a)(2) of the Securities Act of 1933, as amended, as the context may require. The Chairman of the Meeting shall, if the facts warrant, determine and declare to the meeting that a proposal made by a stockholder of the Corporation pursuant to this Section 9 was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective proposal shall be disregarded. Notwithstanding anything to the contrary set forth herein, the stockholders may, by unanimous written consent, waive the notice procedures of this Section 9. Nothing in this Section 9 shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of, the Board of Directors of the Corporation. Section 10. Proper Business—Special Meeting of Stockholders . At any special meeting of stockholders, only such business shall be conducted as shall have been set forth in the notice of such meeting or shall otherwise have been properly brought before the meeting by or at the direction of the Chairman of the Board of Directors or the Board of Directors (or any duly authorized committee thereof). Section 11. Action by Written Consent . Unless otherwise provided by the DGCL or the Certificate of Incorporation, no action required to be taken or that may be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting, and the power of the stockholders of the Corporation to consent in writing to the taking of any action by written consent without a meeting is specifically denied, unless such action without a meeting is taken by unanimous written consent. ARTICLE III Directors Section 1. Genera l. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the authority and powers conferred on the Board of Directors by the DGCL or by the Certificate of Incorporation, the Board of 7

Directors is authorized and empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, the Certificate of Incorporation and these Bylaws; provided, however , that no Bylaws hereafter adopted, or any amendments thereto, shall invalidate any prior act of the Board of Directors that would have been valid if such Bylaws or amendment had not been adopted. Section 2. Classification of Board of Directors; Qualifications . Each director elected solely by the holders of Preferred Stock pursuant to Division A of Article FOURTH of the Certificate of Incorporation (or elected by such directors to fill a vacancy) shall, except as otherwise provided pursuant to the Certificate of Designations for such series of Preferred Stock, serve for a term ending upon the earlier of the election of his successor or the termination at any time of a right of the holders of Preferred Stock to elect members of the Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed in the manner provided in the Certificate of Incorporation. As provided in Article FIFTH of the Certificate of Incorporation, the directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes: Class I, Class II and Class III. At each annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the Board of Directors shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes. In the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior death, resignation, disqualification or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 3. Newly Created Directorships and Vacancies . Within the limits specified in the Certificate of Incorporation, the number of directors that shall constitute the whole Board of Directors shall be fixed by, and may be increased or decreased from time to time by, the affirmative vote of a majority of the members at any time constituting the Board of Directors. Except as provided in the Certificate of Incorporation, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until that director’s successor shall have been elected and qualified or until his earlier death, resignation or removal. Notwithstanding the foregoing paragraph of this Section 3, whenever holders of outstanding shares of Preferred Stock are entitled to elect members of the Board of Directors pursuant to the provisions of Division A of Article FOURTH of the Certificate of Incorporation, 8

any vacancy or vacancies resulting by reason of the death, resignation, disqualification or removal of any director or directors or any increase in the number of directors shall be filled in accordance with the provisions of such Division. Section 4. Nomination of Directors . Nominations for the election of directors may be made by the Board of Directors or by any stockholder (each, a ―Nominator‖) entitled to vote in the election of directors. Such nominations, other than those made by the Board of Directors, shall be made in writing pursuant to timely notice delivered to or mailed and received by the Corporate Secretary of the Corporation as set forth in this Section 4 and shall include the information required under this Section 4. To be timely in connection with an annual meeting of stockholders, a Nominator’s notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days nor more than 180 days prior to the date on which the immediately preceding year’s annual meeting of stockholders was held; provided, however , that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the 120th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. To be timely in connection with any election of a director at a special meeting of the stockholders, a Nominator’s notice, setting forth the name of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 40 days nor more than 60 days prior to the date of such meeting; provided, however , that in the event that less than 55 days’ notice or prior public disclosure of the date of the special meeting of the stockholders is given or made to the stockholders, the Nominator’s notice to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. At such time, the Nominator shall also submit written evidence, reasonably satisfactory to the Corporate Secretary of the Corporation, that the Nominator is a stockholder of the Corporation and shall identify in writing (a) the name and address of the Nominator, (b) the number of shares of each class or series of capital stock of the Corporation owned beneficially by the Nominator, (c) the name and address of each of the persons with whom the Nominator is acting in concert, (d) the number of shares of capital stock beneficially owned by each such person with whom the Nominator is acting in concert and (e) a description of all arrangements or understandings between the Nominator and each nominee and any other persons with whom the Nominator is acting in concert pursuant to which the nomination or nominations are to be made. At such time, the Nominator shall also submit in writing (i) the name, age, business address and residence address of such proposed nominee, (ii) the principal occupation or employment of such proposed nominee, (iii) the number of shares of each class of capital stock of the Corporation beneficially owned by such proposed nominee, (iv) the written consent of such proposed nominee to having such person’s name placed in nomination at the meeting and to serve as a director if elected, (v) any other information relating to such proposed nominee that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Exchange Act and (vi) a notarized affidavit executed by each such proposed nominee to the effect that, if elected as a member of the Board of Directors, he will serve and that he is eligible for election as a member of the Board of Directors. Within 30 days (or such shorter time period that may exist prior to the date of the meeting) after the Nominator has submitted the aforesaid items to the Corporate Secretary of the 9

Corporation, the Corporate Secretary of the Corporation shall determine whether the evidence of the Nominator’s status as a stockholder submitted by the Nominator is reasonably satisfactory and shall notify the Nominator in writing of his determination. The failure of the Corporate Secretary of the Corporation to find such evidence reasonably satisfactory, or the failure of the Nominator to submit the requisite information in the form or within the time indicated, shall make the person to be nominated ineligible for nomination at the meeting at which such person is proposed to be nominated. The Chairman of the Meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Beneficial ownership shall be determined in accordance with Rule 13d-3 under the Exchange Act. Section 5. Place of Meetings and Meetings by Telephone . Meetings of the Board of Directors may be held either within or without the State of Delaware, at whatever place is specified by the officer calling the meeting. Meetings of the Board of Directors may also be held by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting by means of conference telephone or other communications equipment shall constitute presence in person at such meeting, except where a director participates in a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. In the absence of specific designation by the officer calling the meeting, the meetings shall be held at the principal office of the Corporation. Section 6. Regular Meetings . The Board of Directors shall meet each year immediately following the annual meeting of the stockholders for the transaction of such business as may properly be brought before the meeting. The Board of Directors shall also meet regularly at such other times as shall be designated by the Board of Directors. No notice of any kind to either existing or newly elected members of the Board of Directors for such annual or regular meetings shall be necessary. The time or place of holding regular meetings of the Board of Directors may be changed by the Chairman of the Board of Directors or the President and Chief Executive Officer by giving written notice thereof as provided in Section 7 hereof. Section 7. Special Meetings . Special meetings of the Board of Directors may be held at any time upon the call of the Chairman of the Board, if there is one, or a majority of the directors then in office. Written notice of the time and place of, and general nature of the business to be transacted at, all special meetings of the Board of Directors, shall be given to each director and may be given by any of the following methods: (a) by mail or telegram sent to the last known business address of such director at least four days before the meeting, (b) by facsimile to the business facsimile number of such director transmitted at least one day before the meeting or (c) orally at least one day before the meeting. For purposes of the foregoing sentence, notice shall be deemed given (i) by mail, when deposited in the U.S. mail, postage prepaid, or by telegram, when the telegram is delivered to the telegraph company for transmittal, (ii) by facsimile, when transmittal is confirmed by the sending facsimile machine and (iii) orally, when communicated in person or by telephone to the director or to a person at the business telephone number of the director who may reasonably be expected to communicate it to the director. In calculating the number of days notice received by a director, the date the notice is given by any of the foregoing methods shall be counted, but the date of the meeting to which the notice relates shall not be 10

counted. Notice of the time, place and purpose of a meeting may be waived in writing before or after such meeting, and shall be equivalent to the giving of notice. Participation in a meeting of the Board of Directors shall constitute presence in person at such meeting, except when a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Except as otherwise herein provided, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 8. Quorum and Voting . Except as otherwise provided by law, a majority of the number of directors fixed in the manner provided in the Certificate of Incorporation shall constitute a quorum for the transaction of business. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the affirmative vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Any regular or special directors’ meeting may be adjourned from time to time by those present, whether a quorum is present or not. Section 9. Compensation . Directors shall receive such compensation for their services as shall be determined by the Board of Directors. Section 10. Removal . No director of the Corporation may be removed from office as a director by vote or other action of the stockholders or otherwise except for cause, and then only by the affirmative vote of the holders of at least a majority of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class. Except as applicable law otherwise provides, cause for the removal of a director shall be deemed to exist only if the director whose removal is proposed: (i) has been convicted, or has been granted immunity to testify in any proceeding in which another has been convicted, of a felony by a court of competent jurisdiction and that conviction is no longer subject to direct appeal; (ii) has been found to have been negligent or guilty of misconduct in the performance of his duties to the Corporation in any matter of substantial importance to the Corporation by (A) the affirmative vote of at least 80% of the directors then in office at any meeting of the Board of Directors called for that purpose or (B) a court of competent jurisdiction; or (iii) has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability to serve as a director of the Corporation. No proposal by a stockholder to remove a director of the Corporation shall be voted upon at a meeting of the stockholders unless such stockholder shall have delivered or mailed in a timely manner (as set forth in this Section 10) and in writing to the Corporate Secretary of the Corporation (a) notice of such proposal, (b) a statement of the grounds, if any, on which such director is proposed to be removed, (c) evidence, reasonably satisfactory to the Corporate Secretary of the Corporation, of such stockholder’s status as such and of the number of shares of each class of the capital stock of the Corporation beneficially owned by such stockholder and (d) a list of the names and addresses of other beneficial owners of shares of the capital stock of the Corporation, if any, with whom such stockholder is acting in concert, and of the number of shares of each class of the capital stock of the Corporation beneficially owned by 11

each such beneficial owner. To be timely in connection with an annual meeting of stockholders, a stockholder’s notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days nor more than 180 days prior to the date on which the immediately preceding year’s annual meeting of stockholders was held; provided, however , that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the 120th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. Within 30 days (or such shorter period that may exist prior to the date of the meeting) after such stockholder shall have delivered the aforesaid items to the Corporate Secretary of the Corporation, the Corporate Secretary and the Board of Directors of the Corporation shall respectively determine whether the items to be ruled upon by them are reasonably satisfactory and shall notify such stockholder in writing of their respective determinations. If such stockholder fails to submit a required item in the form or within the time indicated, or if the Corporate Secretary or the Board of Directors of the Corporation determines that the items to be ruled upon by them are not reasonably satisfactory, then such proposal by such stockholder may not be voted upon by the stockholders of the Corporation at such annual meeting of the stockholders. The Chairman of the Meeting shall, if the facts warrant, determine and declare to the meeting that a proposal to remove a director of the Corporation was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective proposal shall be disregarded. Beneficial ownership shall be determined as specified in accordance with Rule 13d-3 under the Exchange Act. All of the foregoing provisions of this Section 10 are subject to the terms of any series of Preferred Stock with respect to the directors to be elected solely by the holders of such series of Preferred Stock. Section 11. Committees . The Board of Directors, by resolution or resolutions adopted by a majority of the full Board of Directors, may designate one or more members of the Board of Directors to constitute one or more committees, which shall in each case be comprised of such number of directors as the Board of Directors may determine from time to time. Subject to such restrictions as may be contained in the Certificate of Incorporation or that may be imposed by the DGCL, any such committee shall have and may exercise such powers and authority of the Board of Directors in the management of the business and affairs of the Corporation as the Board of Directors may determine by resolution and specify in the respective resolutions appointing them, including, without limitation, the power and authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL. Each duly authorized action taken with respect to a given matter by any such duly appointed committee of the Board of Directors shall have the same force and effect as the action of the full Board of Directors and shall constitute for all purposes the action of the full Board of Directors with respect to such matter. The Board of Directors shall have the power at any time to change the membership of any such committee and to fill vacancies in it. A majority of the members of any such committee shall constitute a quorum. The Board of Directors shall name a chairman at the time it designates members to a committee. Each such committee shall appoint such 12

subcommittees and assistants as it may deem necessary. Except as otherwise provided by the Board of Directors, meetings of any committee shall be conducted in accordance with the provisions of Sections 5 and 7 of this Article III as the same shall from time to time be amended. Any member of any such committee elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of a member of a committee shall not of itself create contract rights. Section 12. Standing Committees . The committees of the Board of Directors may include an audit committee, a compensation committee, a nominating and governance committee and an executive committee and any other committees designated by the Board of Directors. Section 13. Board and Committee Action Without a Meeting . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if a consent in writing or by electronic transmission, setting forth the action so taken, is given by all the members of the Board of Directors or such committee, as the case may be, and shall be filed with the Corporate Secretary of the Corporation. ARTICLE IV Officers Section 1. Officers. The officers of the Corporation shall consist of a President and a Corporate Secretary and such other officers and agents as the Board of Directors may from time to time elect or appoint. The Board of Directors may delegate to the Chairman of the Board, if there is one, and/or the Chief Executive Officer, if there is one, the authority to appoint or remove additional officers and agents of the Corporation. Each officer shall hold office until his successor shall have been duly elected or appointed and shall qualify or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Any two or more offices may be held by the same person. Section 2. Vacancies; Removal . Whenever any vacancies shall occur in any office by death, resignation, increase in the number of offices of the Corporation or otherwise, the officer so elected shall hold office until his successor is chosen and qualified. The Board of Directors may at any time remove any officer of the Corporation, whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Powers and Duties of Officers . The officers of the Corporation shall have such powers and duties as generally pertain to their offices as well as such powers and duties as from time to time shall be conferred by the Board of Directors. The Corporate Secretary shall have the duty to record the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose. 13

Section 4. Action with Respect to Securities of Other Corporations and Entities . Unless otherwise directed by the Board of Directors, the President, the Chief Executive Officer, any Vice President and the Treasurer of the Corporation shall each have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation or entity in which the Corporation may hold securities and otherwise to exercise any and all rights and powers that the Corporation may possess by reason of its ownership of securities in such other corporation or entity. ARTICLE V Indemnification Section 1. General. The Corporation shall, to the fullest extent permitted by applicable law in effect on the date of effectiveness of these Bylaws, and to such greater extent as applicable law may thereafter permit, indemnify and hold the Indemnitee harmless from and against any and all losses, liabilities, claims, damages and, subject to Article V, Section 2 (Expenses), Expenses (as this and all other capitalized words used in this Article V not previously defined in these Bylaws are defined in Article V, Section 16 (Definitions)), whatsoever arising out of any event or occurrence related to the fact that the Indemnitee is or was a director or Officer of the Corporation or is or was serving in another Corporate Status. Section 2. Expenses. If the Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If the Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to any Matter in such Proceeding, the Corporation shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf relating to such Matter. The termination of any Matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such Matter. To the extent that the Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 3. Advances. In the event of any threatened or pending Proceeding in which the Indemnitee is a party or is involved and that may give rise to a right of indemnification under this Article V, following written request to the Corporation by the Indemnitee, the Corporation shall promptly pay to the Indemnitee amounts to cover Expenses reasonably incurred by Indemnitee in such Proceeding in advance of its final disposition upon the receipt by the Corporation of (i) a written undertaking executed by or on behalf of the Indemnitee providing that the Indemnitee will repay the advance if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as provided in these Bylaws and (ii) satisfactory evidence as to the amount of such Expenses. Section 4. Repayment of Advances or Other Expenses . The Indemnitee agrees that the Indemnitee shall reimburse the Corporation for all Expenses paid by the Corporation in defending any Proceeding against the Indemnitee in the event and only to the extent that it shall be determined pursuant to the provisions of this Article V or by final judgment or other final 14

adjudication under the provisions of any applicable law that the Indemnitee is not entitled to be indemnified by the Corporation for such Expenses. Section 5. Request for Indemnification . To obtain indemnification, the Indemnitee shall submit to the Corporate Secretary of the Corporation a written claim or request. Such written claim or request shall contain sufficient information to reasonably inform the Corporation about the nature and extent of the indemnification or advance sought by the Indemnitee. The Corporate Secretary of the Corporation shall promptly advise the Board of Directors of such request. Section 6. Determination of Entitlement; No Change of Control . If there has been no Change of Control at the time the request for indemnification is submitted, the Indemnitee’s entitlement to indemnification shall be determined in accordance with Section 145(d) of the DGCL. If entitlement to indemnification is to be determined by an Independent Counsel, the Corporation shall furnish notice to the Indemnitee within ten days after receipt of the request for indemnification, specifying the identity and address of Independent Counsel. The Indemnitee may, within 14 days after receipt of such written notice of selection, deliver to the Corporation a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and the objection shall set forth with particularity the factual basis for such assertion. If there is an objection to the selection of Independent Counsel, either the Corporation or the Indemnitee may petition the Court for a determination that the objection is without a reasonable basis and/or for the appointment of Independent Counsel selected by the Court. Section 7. Determination of Entitlement; Change of Control . If there has been a Change of Control at the time the request for indemnification is submitted, the Indemnitee’s entitlement to indemnification shall be determined in a written opinion by the Independent Counsel selected by the Indemnitee. The Indemnitee shall give the Corporation written notice advising of the identity and address of the Independent Counsel so selected. The Corporation may, within seven days after receipt of such written notice of selection, deliver to the Indemnitee a written objection to such selection. The Indemnitee may, within five days after the receipt of such objection from the Corporation, submit the name of another Independent Counsel and the Corporation may, within seven days after receipt of such written notice of selection, deliver to the Indemnitee a written objection to such selection. Any objections referred to in this Section 7 may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of an Independent Counsel, and such objection shall set forth with particularity the factual basis for such assertion. The Indemnitee may petition the Court for a determination that the Corporation’s objection to the first and/or second selection of Independent Counsel is without a reasonable basis and/or for the appointment as Independent Counsel of a person selected by the Court. Section 8. Procedures of Independent Counsel . If a Change of Control shall have occurred before the request for indemnification is sent by the Indemnitee, the Indemnitee shall be presumed (except as otherwise expressly provided in this Article V) to be entitled to indemnification upon submission of a request for indemnification in accordance with Article V, Section 5 (Request for Indemnification), and thereafter the Corporation shall have the burden of proof to overcome the presumption in reaching a determination contrary to the presumption. The presumption shall be used by the Independent Counsel as a basis for a determination of 15

entitlement to indemnification unless the Corporation provides information sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of the Independent Counsel convinces him by clear and convincing evidence that the presumption should not apply. Except in the event that the determination of entitlement to indemnification is to be made by the Independent Counsel, if the person or persons empowered under Article V, Section 6 (Determination of Entitlement; No Change of Control) or Section 7 (Determination of Entitlement; Change of Control) to determine entitlement to indemnification shall not have made and furnished to the Indemnitee in writing a determination within 60 days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and the Indemnitee shall be entitled to such indemnification unless the Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification or such indemnification is prohibited by applicable law. The termination of any Proceeding or of any Matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article V) of itself adversely affect the right of the Indemnitee to indemnification or create a presumption that the Indemnitee did not act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Corporation, or with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful. A person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan of the Corporation shall be deemed to have acted in a manner not opposed to the best interests of the Corporation. For purposes of any determination hereunder, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal Proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise or on information supplied to him by the Officers of the Corporation or another enterprise in the course of their duties or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term ―another enterprise‖ as used in this Section shall mean any other corporation or any partnership, limited liability company, association, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, Officer, employee or agent. The provisions of this paragraph shall not be deemed to be exclusive or to limit in any way the circumstances in which an Indemnitee may be deemed to have met the applicable standards of conduct for determining entitlement to rights under this Article V. Section 9. Independent Counsel Expenses . The Corporation shall pay any and all reasonable fees and expenses of the Independent Counsel incurred acting pursuant to this Article V and in any Proceeding to which it is a party or witness in respect of its investigation and written report and shall pay all reasonable fees and expenses incident to the procedures in which such Independent Counsel was selected or appointed. No Independent Counsel may serve if a timely objection has been made to his selection until a court has determined that such objection is without a reasonable basis. 16

Section 10. Adjudication . In the event that (i) a determination is made pursuant to Article V, Section 6 (Determination of Entitlement; No Change of Control) or Section 7 (Determination of Entitlement; Change of Control) that the Indemnitee is not entitled to indemnification under this Article V; (ii) advancement of Expenses is not timely made pursuant to Article V, Section 3 (Advances); (iii) the Independent Counsel has not made and delivered a written opinion determining the request for indemnification (A) within 90 days after being appointed by the Court, (B) within 90 days after objections to his selection have been overruled by the Court or (C) within 90 days after the time for the Corporation or the Indemnitee to object to his selection; or (iv) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Article V, Section 6 (Determination of Entitlement; No Change of Control), Section 7 (Determination of Entitlement; Change of Control) or Section 8 (Procedures of Independent Counsel), the Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. In the event that a determination shall have been made that the Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding commenced pursuant to this Section 10, the Corporation shall have the burden of proving that the Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. If a determination shall have been made or deemed to have been made that the Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 10, or otherwise, unless the Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification, or such indemnification is prohibited by law. The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 10 that the procedures and presumptions of this Article V are not valid, binding and enforceable and shall stipulate in any such proceeding that the Corporation is bound by all provisions of this Article V. In the event that the Indemnitee, pursuant to this Section 10, seeks a judicial adjudication to enforce his rights under, or to recover damages for breach of, this Article V, the Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all Expenses actually and reasonably incurred by him in such judicial adjudication, but only if he prevails therein. If it shall be determined in such judicial adjudication that the Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Expenses incurred by the Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 11. Participation by the Corporation . With respect to any such Proceeding as to which the Indemnitee notifies the Corporation of the commencement thereof, (a) the Corporation will be entitled to participate therein at its own expense and (b) except as otherwise provided below, to the extent that it may wish, the Corporation (jointly with any other indemnifying party 17

similarly notified) will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After receipt of notice from the Corporation to the Indemnitee of the Corporation’s election so to assume the defense thereof, the Corporation will not be liable to the Indemnitee under this Article V for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. The Indemnitee shall have the right to employ his own counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) the Indemnitee shall have reasonably concluded that there is a conflict of interest between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel employed by the Indemnitee shall be subject to indemnification pursuant to the terms of this Article V; provided that the Corporation shall not be entitled to assume the defense of any Proceeding brought in the name of or on behalf of the Corporation or as to which the Indemnitee shall have made the conclusion provided for in clause (ii) of this sentence. The Corporation shall not be liable to indemnify the Indemnitee under this Article V for any amounts paid in settlement of any action or claim effected without its written consent, which consent shall not be unreasonably withheld. The Corporation shall not settle any action or claim in any manner that would impose any limitation or unindemnified penalty on the Indemnitee without the Indemnitee’s written consent, which consent shall not be unreasonably withheld. Section 12. Nonexclusivity of Rights . The rights of indemnification and advancement of Expenses as provided by this Article V shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled to under applicable law, the Certificate of Incorporation, these Bylaws, any agreement, a vote of stockholders or a resolution of directors or otherwise. No amendment, alteration or repeal of this Article V or any provision hereof shall be effective as to any Indemnitee for acts, events and circumstances that occurred, in whole or in part, before such amendment, alteration or repeal. The provisions of this Article V shall continue as to an Indemnitee whose Corporate Status has ceased for any reason and shall inure to the benefit of his heirs, executors and administrators. Neither the provisions of this Article V nor those of any agreement to which the Corporation is a party shall be deemed to preclude the indemnification of any person who is not specified in this Article V as having the right to receive indemnification or is not a party to any such agreement, but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL. Section 13. Insurance and Subrogation . The Corporation may maintain insurance, at its expense, to protect itself and any director, Officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnity such person against such expense, liability or loss under applicable law. The Corporation shall not be liable under this Article V to make any payment of amounts otherwise indemnifiable hereunder if, but only to the extent that, the Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 18

In the event of any payment hereunder, the Corporation shall be subrogated to the extent of such payment to all the rights of recovery of the Indemnitee, who shall execute all papers required and take all action reasonably requested by the Corporation to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. Section 14. Severability . If any provision or provisions of this Article V shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Article V shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 15. Certain Actions for Which Indemnification Is Not Provided . Notwithstanding any other provision of this Article V, no person shall be entitled to indemnification or advancement of Expenses under this Article V with respect to any Proceeding, or any Matter therein, brought or made by such person against the Corporation. Section 16. Definitions . For purposes of this Article V only: ―Change of Control‖ means: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the ―Exchange Act‖)) (a ―Person‖) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (1) the then outstanding shares of common stock of the Company (the ―Outstanding Company Common Stock‖) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the ―Outstanding Company Voting Securities‖); provided, however , that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (D) any acquisition by any entity pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this definition; or (ii) Individuals who, as of the date of effectiveness of these Bylaws, constitute the Board (the ―Incumbent Board‖) cease for any reason to constitute at least a majority of the Board; provided, however , that any individual becoming a director subsequent to such date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or 19

(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a ―Business Combination‖), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common equity of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation, or the similar managing body of a non-corporate entity, resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, other than a liquidation or dissolution in connection with a transaction to which subsection (iii) applies. ―Corporate Status‖ describes the status of Indemnitee as a director, Officer, employee, agent or fiduciary of the Corporation or of any other corporation, partnership, limited liability company, association, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Corporation. ―Court‖ means the Court of Chancery of the State of Delaware or any other court of competent jurisdiction. ―Designated Professional Capacity‖ shall include, but not be limited to, a physician, nurse, psychologist or therapist, registered surveyor, registered engineer, registered architect, attorney, certified public accountant or other person who renders such professional 20

services within the course and scope of his employment, who is licensed by appropriate regulatory authorities to practice such profession and who, while acting in the course of such employment, committed or is alleged to have committed any negligent acts, errors or omissions in rendering such professional services at the request of the Corporation or pursuant to his employment (including, without limitation, rendering written or oral opinions to third parties). ―Expenses‖ shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. ―Indemnitee‖ includes any Officer (including an Officer acting in his Designated Professional Capacity) or director of the Corporation who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Article V, Section 1 (General) or Section 2 (Expenses) by reason of his Corporate Status. ―Independent Counsel‖ means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the five years previous to his selection or appointment has been, retained to represent: (i) the Corporation or Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. ―Matter‖ is a claim, a material issue or a substantial request for relief. ―Officer‖ means the president, the treasurer, the secretary, and each vice president of the Corporation and any other corporation, partnership, limited liability company, association, joint venture, trust, employee benefit plan or other enterprise for which such person is or was serving in such position at the request of the Corporation (and all variants of the preceding positions such as assistant treasurer, assistant secretary, senior vice president, and similar modifications), in each case elected or appointed pursuant to proper corporate authority, and each other person designated by the President of the Corporation from time to time as constituting an ―Officer.‖ ―Proceeding‖ includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Article V, Section 10 (Adjudication) to enforce his rights under this Article V. Section 17. Notices . Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee shall, if he anticipates or contemplates making a claim for Expenses or an advance pursuant to the terms of this Article V, notify the Corporation of the commencement of such Proceeding; provided, however , that any delay in so notifying the Corporation shall not constitute a waiver or release by the Indemnitee of rights hereunder and that any omission by the Indemnitee to so notify the Corporation shall not relieve the Corporation from any liability that it may have to the Indemnitee otherwise than under this Article V. Any communication required or permitted to the Corporation shall be addressed to 21

the Corporate Secretary of the Corporation, and any such communication to the Indemnitee shall be addressed to the Indemnitee’s address as shown on the Corporation’s records unless he specifies otherwise and shall be personally delivered or delivered by overnight mail delivery. Any such notice shall be effective upon receipt. Section 18. Contractual Rights . The right to be indemnified or to the advancement or reimbursement of Expenses (i) is a contract right based upon good and valuable consideration, pursuant to which the Indemnitee may sue as if these provisions were set forth in a separate written contract between the Indemnitee and the Corporation, (ii) is and is intended to be retroactive and shall be available as to events occurring prior to the adoption of these provisions and (iii) shall continue after any rescission or restrictive modification of such provisions as to events occurring prior thereto. Section 19. Indemnification of Employees, Agents and Fiduciaries . The Corporation, by adoption of a resolution of the Board of Directors, may indemnify and advance Expenses to a person who is an employee (including an employee acting in his Designated Professional Capacity), agent or fiduciary of the Corporation including any such person who is or was serving at the request of the Corporation as a director, Officer, employee, agent or fiduciary of any other corporation, partnership, joint venture, limited liability company, trust, employee benefit plan or other enterprise to the same extent and subject to the same conditions (or to such lesser extent and/or with such other conditions as the Board of Directors may determine) under which it may indemnify and advance Expenses to an Indemnitee under this Article V. ARTICLE VI Miscellaneous Provisions Section 1. Offices . The address of the registered office of the Corporation in the State of Delaware is The Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801, and the name of the registered agent of the Corporation at such address is The Corporation Trust Company. The principal office of the Corporation shall be located in Houston, Texas, unless and until changed by resolution of the Board of Directors. The Corporation may also have offices at such other places as the Board of Directors may designate from time to time, or as the business of the Corporation may require. The principal office and registered office may be, but need not be, the same. Section 2. Resignations . Any director or officer may resign at any time. Any resignation shall be made in writing and shall take effect at the time specified therein or, if no time is specified, at the time of its receipt by the Chairman of the Board, if there is one, the Chief Executive Officer, if there is one, the President or the Corporate Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. Section 3. Separability . If one or more of the provisions of these Bylaws shall be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provision hereof and these Bylaws shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein. 22

Section 4. Notice to Stockholders by Electronic Transmission . Without limiting the manner by which notice may be given effectively to stockholders, any notice required to be given to stockholders by the provisions of these Bylaws may be given by electronic transmission to an electronic address at which the stockholder has consented to receive notice, to the fullest extent allowed under Section 232 of the DGCL. ARTICLE VII Amendment of Bylaws Section 1. Vote Requirements . Except as otherwise required by law or the Certificate of Incorporation, these Bylaws may be amended, in whole or in part, and new Bylaws may be adopted (i) by the affirmative vote of the shares representing not less than 75% of the voting power of all outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors, voting together as a single class; provided that in the case of any such stockholder action at a meeting of stockholders, notice of the proposed alteration, amendment, repeal or adoption of the new Bylaw or Bylaws must be contained in the notice of such meeting; or (ii) by action of the Board of Directors; provided, however , that any proposed alteration, amendment or repeal of, or the adoption of any Bylaw inconsistent with Section 3, 9, 10 or 11 of Article II, Section 2, 4, 7, 10 or 11 of Article III, Article V or this sentence, by the Board of Directors shall require the affirmative vote of not less than 75% of all directors then in office at a regular or special meeting of the Board of Directors called for that purpose. 23

Exhibit 4.2 $25,000,000 S ENIOR S ECURED 3- YEAR R EVOLVING C REDIT F ACILITY $140,000,000 S ENIOR S ECURED 5-Y EAR T ERM B F ACILITY C REDIT A GREEMENT D ATED AS OF J UNE 29, 2005
AMONG

H ERCULES O FFSHORE , LLC,
AS

B ORROWER ,

C OMERICA B ANK ,
AS

A DMINISTRATIVE A GENT ,

C ITICORP N ORTH A MERICA , I NC .,
AS

S YNDICATION A GENT ,

C REDIT S UISSE , C AYMAN I SLANDS B RANCH ,
AS

D OCUMENTATION A GENT ,
AND

T HE L ENDERS P ARTY H ERETO J OINT L EAD A RRANGERS AND J OINT B OOKRUNNERS C ITIGROUP G LOBAL M ARKETS I NC . AND C REDIT S UISSE , C AYMAN I SLANDS B RANCH

TABLE OF CONTENTS
Page

ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS Section 1.01 Terms Defined Above Section 1.02 Certain Defined Terms Section 1.03 Types of Loans and Borrowings Section 1.04 Terms Generally; Rules of Construction Section 1.05 Accounting Terms and Determinations; GAAP ARTICLE II THE CREDITS Section 2.01 Commitments Section 2.02 Loans and Borrowings Section 2.03 Requests for Borrowings Section 2.04 Interest Elections Section 2.05 Funding of Borrowings Section 2.06 Termination and Reduction of Revolving Commitments Section 2.07 Reserved Section 2.08 Letters of Credit Section 2.09 Swing Line Loans Section 2.10 Revolving Commitment Increase; Term Loan Increase ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES Section 3.01 Repayment of Loans Section 3.02 Interest Section 3.03 Alternate Rate of Interest Section 3.04 Prepayments Section 3.05 Fees ARTICLE IV PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs Section 4.02 Presumption of Payment by the Borrower Section 4.03 Certain Deductions by the Administrative Agent ARTICLE V INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY Section 5.01 Increased Costs Section 5.02 Break Funding Payments Section 5.03 Taxes Section 5.04 Mitigation Obligations Section 5.05 Illegality ARTICLE VI CONDITIONS PRECEDENT Section 6.01 Effective Date Section 6.02 Each Credit Event i

1 1 1 22 22 23 23 23 23 25 25 27 27 28 28 33 35 38 38 39 40 40 42 43 43 44 45 45 45 46 46 47 47 48 48 51

ARTICLE VII REPRESENTATIONS AND WARRANTIES Section 7.01 Organization; Powers Section 7.02 Authority; Enforceability Section 7.03 Approvals; No Conflicts Section 7.04 Financial Projections; No Material Adverse Change Section 7.05 Litigation Section 7.06 Environmental Matters Section 7.07 Compliance with the Laws and Agreements; No Defaults Section 7.08 Investment Company Act Section 7.09 Public Utility Holding Company Act Section 7.10 Taxes Section 7.11 ERISA Section 7.12 Disclosure; No Material Misstatements Section 7.13 Insurance Section 7.14 Restriction on Liens Section 7.15 Subsidiaries Section 7.16 Location of Business and Offices Section 7.17 Properties; Titles, Etc. Section 7.18 Maintenance of Properties Section 7.19 Swap Agreements Section 7.20 Use of Proceeds Section 7.21 Solvency Section 7.22 Charters and Contracts ARTICLE VIII AFFIRMATIVE COVENANTS Section 8.01 Financial Statements; Ratings Change; Other Information Section 8.02 Notices of Material Events Section 8.03 Existence; Conduct of Business Section 8.04 Payment of Obligations Section 8.05 Performance of Obligations under Loan Documents Section 8.06 Operation and Maintenance of Properties Section 8.07 Insurance Section 8.08 Books and Records; Inspection Rights Section 8.09 Compliance with Laws Section 8.10 Environmental Matters Section 8.11 Further Assurances Section 8.12 Credit Support; Collateral Section 8.13 ERISA Compliance Section 8.14 Vessel Information Section 8.15 Hedging Contracts ARTICLE IX NEGATIVE COVENANTS Section 9.01 Financial Covenants Section 9.02 Debt ii

51 51 52 52 52 53 53 54 55 55 55 55 56 57 57 57 57 57 58 58 58 59 59 59 59 61 62 62 62 62 63 63 63 64 64 65 65 66 66 66 66 67

Section 9.03 Section 9.04 Section 9.05 Section 9.06 Section 9.07 Section 9.08 Section 9.09 Section 9.10 Section 9.11 Section 9.12 Section 9.13 Section 9.14 Section 9.15 Section 9.16 Section 9.17 Section 9.18

Liens Restricted Payments; Issuance of Equity Interests Investments, Loans and Advances Nature of Business Limitation on Operating Leases Proceeds of Notes ERISA Compliance Sale or Discount of Receivables Mergers, Etc. Disposition of Properties Environmental Matters Transactions with Affiliates Subsidiaries Negative Pledge Agreements; Dividend Restrictions Swap Agreements Limitation on Capital Expenditures

67 68 69 70 70 70 70 72 72 72 72 73 73 73 73 74 74 74 76 77 77 77 77 77 78 79 79 79 80 80 81 81 81 82 82 82 83 86 89 90 90 90

ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 10.01 Events of Default Section 10.02 Remedies Section 10.03 Disposition of Proceeds Section 10.04 Acceleration of Hedging Agreements ARTICLE XI THE AGENTS Section 11.01 Appointment; Powers Section 11.02 Duties and Obligations of Agents Section 11.03 Action by Administrative Agent Section 11.04 Reliance by Administrative Agent Section 11.05 Subagents Section 11.06 Resignation or Removal of Administrative Agent Section 11.07 Agents as Lenders Section 11.08 No Reliance Section 11.09 Administrative Agent May File Proofs of Claim Section 11.10 Authority of the Administrative Agent to Release Collateral and Liens Section 11.11 The Joint Lead Arrangers, the Syndication Agent and the Documentation Agent ARTICLE XII MISCELLANEOUS Section 12.01 Notices Section 12.02 Waivers; Amendments Section 12.03 Expenses, Indemnity; Damage Waiver Section 12.04 Successors and Assigns Section 12.05 Survival; Revival; Reinstatement Section 12.06 Counterparts; Integration; Effectiveness Section 12.07 Severability Section 12.08 Right of Setoff iii

Section 12.09 Section 12.10 Section 12.11 Section 12.12 Section 12.13 Section 12.14 Section 12.15 Section 12.16 Section 12.17 Section 12.18

GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS Headings Confidentiality Interest Rate Limitation EXCULPATION PROVISIONS [Intentionally Omitted.] Collateral Matters; Swap Agreements No Third Party Beneficiaries Electronic Communications USA Patriot Act Notice iv

91 92 92 93 94 94 94 94 94 96

ANNEXES, EXHIBITS AND SCHEDULES Annex I Annex II Exhibit A-1 Exhibit A-2 Exhibit B Exhibit C Exhibit D Exhibit E-1 Exhibit E-2 Exhibit E-3 Exhibit E-5 Exhibit E-6 Exhibit F-1 Exhibit F-2 Exhibit G Exhibit H Exhibit I Exhibit J Schedule 1.02 Schedule 7.05 Schedule 7.15 Schedule 7.17 Schedule 7.18 Schedule 7.19 Schedule 7.22 Schedule 9.02 Schedule 9.05 Revolving Commitments Term Commitments and Term Loan Percentage Form of Note (Revolving Loans) Form of Note (Term Loans) Form of Borrowing Request Form of Interest Election Request Form of Compliance Certificate Form of Legal Opinion of Baker Botts L.L.P., special counsel to the Borrower Form of Legal Opinion of Local Counsel Form of First Preferred Ship Mortgage Form of First Naval Ship Mortgage Form of First Preferred Fleet Mortgage Form of Guaranty and Pledge Agreement Form of Security Agreement Form of Assignment and Assumption Form of Notice of Commitment Increase Form of Joinder Agreement Form of Notice of Term Loan Increase Approved Counterparties Litigation Subsidiaries and Partnerships Properties; Titles, Etc. Maintenance of Properties Swap Agreements Charters and Contracts Debt, Liens, and Applicable Property Investments v

THIS CREDIT AGREEMENT dated as of June 29, 2005, is among: Hercules Offshore, LLC, a limited liability company duly formed and existing under the laws of the State of Delaware (the ― Borrower ‖); each of the Lenders from time to time party hereto; Comerica Bank (in its individual capacity, ― Comerica ‖), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the ― Administrative Agent ‖); Citicorp North America, Inc. (in its individual capacity, ― Citicorp ‖), as syndication agent for the Lenders (in such capacity, together with its successors in such capacity, the ― Syndication Agent ‖); and Credit Suisse, Cayman Islands Branch, as documentation agent for the Lenders (in such capacity, together with its successors in such capacity, the ― Documentation Agent ‖). RECITALS A. The Borrower has requested that the Lenders provide certain loans to and extensions of credit on behalf of the Borrower. B. The Lenders have agreed to make such loans and extensions of credit subject to the terms and conditions of this Agreement. C. In consideration of the mutual covenants and agreements herein contained and of the loans, extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows: ARTICLE I Definitions and Accounting Matters Section 1.01 Terms Defined Above . As used in this Agreement, each term defined above has the meaning indicated above. Section 1.02 Certain Defined Terms . As used in this Agreement, the following terms have the meanings specified below: ― ABR ‖, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. ― Adjusted LIBO Rate ‖ means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. ― Administrative Questionnaire ‖ means an Administrative Questionnaire in a form supplied by the Administrative Agent. ― Affected Loans ‖ has the meaning assigned such term in Section 5.05. ― Affiliate ‖ means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

― Agents ‖ means, collectively, the Administrative Agent, the Syndication Agent and the Documentation Agent; and ―Agent‖ shall mean either the Administrative Agent, the Syndication Agent or the Documentation Agent, as the context requires. ― Agreement ‖ means this Credit Agreement, as the same may from time to time be amended, modified, supplemented or restated. ― Alternate Base Rate ‖ means, for any day, a rate per annum equal to the greatest of (a) the Base Rate in effect on such day, (b) the Base CD Rate in effect on such day plus ½ of 1% and (c) the Federal Funds Effective Rate in effect on such day plus ½ of 1%. Any change in the Alternate Base Rate due to a change in the Base Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Base Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. ― Applicable Margin ‖ means, for any day, 2.25% per annum with respect to any ABR Loan or 3.25% per annum with respect to any Eurodollar Loan. ― Applicable Percentage ‖ means, with respect to (i) any Revolving Lender, the percentage of the total Revolving Commitments represented by such Revolving Lender’s Revolving Commitment as such percentage is set forth on Annex I as such Annex I is amended by the Administrative Agent from time to time to reflect Assignments, (ii) any Term Loan Lender, its Term Loan Percentage and (iii) any Lender, the percentage of the total outstanding Loans and LC Exposure of all Lenders to the outstanding Loans and LC Exposure of such Lender. ― Approved Counterparty ‖ means (a) any Agent or Lender or any Affiliate of an Agent or Lender and (b) any other Person whose long term senior unsecured debt rating is A-/A3 by S&P or Moody’s (or their equivalent) or higher. ― Approved Fund ‖ means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. ― Assessment Rate ‖ means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as ―well-capitalized‖ and within supervisory subgroup ―B‖ (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be reasonably determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. ― Assignment ‖ has the meaning assigned such term in Section 12.03(b)(i). ― Availability Period ‖ means the period from and including the Effective Date to but excluding the Revolving Credit Maturity Date. 2

― Base CD Rate ‖ means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. ― Base Rate ‖ means the rate of interest per annum publicly announced from time to time by Comerica Bank as its base rate in effect at its principal office in Detroit, Michigan; each change in the Base Rate shall be effective from and including the date such change is publicly announced as being effective. Such rate is set by the Administrative Agent as a general reference rate of interest, taking into account such factors as the Administrative Agent may deem appropriate; it being understood that many of the Administrative Agent’s commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Administrative Agent may make various commercial or other loans at rates of interest having no relationship to such rate. ― Board ‖ means the Board of Governors of the Federal Reserve System of the United States of America or any successor Governmental Authority. ― Borrowing ‖ means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. ― Borrowing Request ‖ means a request by the Borrower for a Borrowing in accordance with Section 2.03. ― Business Day ‖ means any day that is not a Saturday, Sunday or other day on which commercial banks in Detroit, Michigan or Houston, Texas are authorized or required by law to remain closed; and if such day relates to a Borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice by the Borrower with respect to any such Borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in dollar deposits are carried out in the London interbank market. ― Capital Expenditures ‖ means, in respect of any Person, for any period, the aggregate (determined without duplication) of all expenditures and costs that are capital in nature and any other expenditures that are capitalized on the balance sheet of such Person in accordance with GAAP including refurbishment of the Jupiter and dry docking costs and expenses, other than (i) repairs or replacements made with the proceeds of any Casualty Event, and (ii) Capital Expenditures made within nine (9) months of the acquisition of any Property to the extent such expenditure is included in and permitted by Section 9.05(i). ― Capital Leases ‖ means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, recorded as capital leases on the balance sheet of the Person liable (whether contingent or otherwise) for the payment of rent thereunder. ― Casualty Event ‖ means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by condemnation or similar proceeding of, any Property of the Borrower or any of its Subsidiaries. ― Change of Control ‖ means (a) (i) before the IPO, the failure of the Existing Owners to own, directly or indirectly, beneficially or of record, Equity Interests representing more than 50% 3

of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower, or (ii) after the IPO, (A) the failure of the Existing Owners to own, directly or indirectly, beneficially or of record, Equity Interests representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower, or (B) any ―person‖ or ―group‖ (as such terms are used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the ― Exchange Act ‖)), other than the Existing Owners, shall become, or obtain rights (whether by means of warrants, options, or otherwise) to become a ―beneficial owner‖ as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act, directly or indirectly, of more than the percentage of the outstanding Equity Interests of the Borrower then owned by the Existing Owners, (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated, or (c) the failure of the Borrower to own all of the issued and outstanding Equity Interests in the Guarantors, except as otherwise permitted by this Agreement. ― Change in Law ‖ means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 5.01(b), by any lending office of such Lender or by such Lender’s or the Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. ― Code ‖ means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. ― Commitment ‖ means with respect to a Term Loan Lender its Term Commitment and respect to a Revolving Lender its Revolving Commitment. ― Commitment Fee Rate ‖ means 0.50% per annum. ― Commitment Increase Effective Date ‖ has the meaning assigned such term in Section 2.10(b)(i). ― Consolidated Current Assets ‖ means, with respect to any Person as at any date of determination, the total assets of such Person and its consolidated Subsidiaries which should properly be classified as current assets on a consolidated balance sheet of such Person and its consolidated Subsidiaries in accordance with GAAP. ― Consolidated Current Liabilities ‖ means, with respect to any Person as at any date of determination, the total liabilities of such Person and its consolidated Subsidiaries which should properly be classified as current liabilities (other than the current portion of any Loans) on a consolidated balance sheet of such Person and its consolidated Subsidiaries in accordance with GAAP. ― Consolidated Net Income ‖ means with respect to the Borrower and the Consolidated Subsidiaries, for any period, the aggregate of the net income (or loss) of the Borrower and the Consolidated Subsidiaries after allowances for taxes for such period determined on a 4

consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) the following: (a) the net income of any Person in which the Borrower or any Consolidated Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Borrower and the Consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in cash during such period by such other Person to the Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net income (but not loss) during such period of any Consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that Consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Governmental Requirement applicable to such Consolidated Subsidiary or is otherwise restricted or prohibited, in each case determined in accordance with GAAP; (c) the net income (or loss) of any Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (d) any extraordinary gains or losses during such period and (e) any gains or losses attributable to writeups or writedowns of assets; and provided further that if the Borrower or any Consolidated Subsidiary shall acquire, dispose or discontinue use of any Property during such period, then Consolidated Net Income shall be calculated after giving pro forma effect to such acquisition, disposition or discontinuance, as if such acquisition, disposition or discontinuance had occurred on the first day of such period. With respect to any pro forma adjustment made pursuant to this definition, such adjustments shall be made in good faith by the Borrower based on reasonable assumptions which determination, in each case shall be subject to revision by the Administrative Agent on any reasonable basis. No pro forma adjustment shall be made for the Superior Acquisition except as provided for in the definition of EBITDA. ― Consolidated Subsidiaries ‖ means each Subsidiary of the Borrower (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of the Borrower in accordance with GAAP. ― Consolidated Working Capital ‖ means, at any time, the excess of Consolidated Current Assets on such date in excess of Consolidated Current Liabilities on such date. ― Control ‖ means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. For the purposes of this definition, and without limiting the generality of the foregoing, any Person that owns directly or indirectly 20% or more of the Equity Interests having ordinary voting power for the election of the directors or other governing body of a Person (other than as a limited partner of such other Person) will be deemed to ―control‖ such other Person. ― Controlling ‖ and ― Controlled ‖ have meanings correlative thereto. ― Debt ‖ means, for any Person, the sum of the following (without duplication): (a) all obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of credit, surety or other bonds and similar instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of such Person to pay the deferred purchase price of Property or services; (d) all obligations under Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other 5

clauses of this definition) of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) a Lien on any Property of such Person, whether or not such Debt is assumed by such Person, provided that the amount of Debt shall be deemed to be limited to the greater of (i) the amount of such Debt assumed and (ii) the fair market value of such Property; (g) all Debt (as defined in the other clauses of this definition) of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the lesser of the amount of such Debt and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others, provided that the amount of any such obligation or undertaking shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such obligation or undertaking is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith; (i) any Debt of a partnership for which such Person is liable either by agreement, by operation of law or by a Governmental Requirement but only to the extent of such liability; and (j) Disqualified Capital Stock. The term ― Debt ‖ as used in this Agreement includes any obligation of a Person that would be considered indebtedness for tax purposes but is not set forth on the balance sheet of such Person, including, but not limited to, (A) any tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product of such Person, and (B) the aggregate amount of uncollected accounts receivables of such Person subject at such time to a sale of receivables (or similar transaction). ― Default ‖ means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. ― Disposition ‖ or ― Dispose ‖ means the sale, transfer, license, lease, assignment, conveyance or other transfer or disposition (including any sale and leaseback transaction) of any Property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith, but excluding any such transfer or other disposition of cash or cash equivalents. ― Disqualified Capital Stock ‖ means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock), pursuant to a sinking fund obligation or otherwise, or is convertible or exchangeable for Debt or redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is six months after the earlier of (a) the Term Loan Maturity Date and (b) the date on which there are no Loans, LC Exposure or other obligations hereunder outstanding and all of the Commitments are terminated. ― dollars ‖ or ― $ ‖ refers to lawful money of the United States of America. ― Domestic Subsidiary ‖ means any Subsidiary that is organized under the laws of the United States of America or any state thereof or the District of Columbia. 6

― Drilling Rigs ‖ means the jackup and platform drilling rigs of the Borrower and its Subsidiaries, together with the related equipment and spare parts. ― EBITDA ‖ means, for any period, the sum of Consolidated Net Income for such period plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: interest, income taxes, depreciation, amortization, and other similar noncash charges, minus all noncash income added to Consolidated Net Income; provided that EBITDA for the four quarters ending September 30, 2005 shall equal EBITDA for the nine-month period ending September 30, 2005 times 4/3 plus $3,000,000; EBITDA for the four quarters ending December 31, 2005 shall equal EBITDA for such four quarters plus $2,000,000; EBITDA for the four quarters ending March 31, 2006 shall equal EBITDA for such four quarters plus $1,000,000. ― Effective Date ‖ means the date on which the initial funding of the Loans takes place under Section 6.01. ― Environmental Laws ‖ means any and all Governmental Requirements pertaining in any way to health, safety, the environment or the preservation or reclamation of natural resources, in effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting or at any time has conducted business, or where any Property of the Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 (― OPA ‖), as amended, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (― CERCLA ‖), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (― RCRA ‖), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Governmental Requirements. The term ―oil‖ shall have the meaning specified in OPA, the terms ― hazardous substance ‖ and ― release ‖ (or ― threatened release ‖) have the meanings specified in CERCLA, the terms ― solid waste ‖ and ― disposal ‖ (or ― disposed ‖) have the meanings specified in RCRA and the term ― oil and gas waste ‖ shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code (― Section 91.1011 ‖); provided , however , that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (b) to the extent the laws of the state or other jurisdiction in which any Property of the Borrower or any Subsidiary is located establish a meaning for ― oil ,‖ ― hazardous substance ,‖ ― release ,‖ ― solid waste ,‖ ― disposal ‖ or ― oil and gas waste ‖ which is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply. ― Equity Interests ‖ means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such Equity Interest. ― ERISA ‖ means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute. 7

― ERISA Affiliate ‖ means each trade or business (whether or not incorporated) which together with the Borrower or a Subsidiary would be deemed to be a ―single employer‖ within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code. ― ERISA Event ‖ means (a) a ―Reportable Event‖ described in section 4043 of ERISA and the regulations issued thereunder, (b) the withdrawal of the Borrower, a Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was a ―substantial employer‖ as defined in section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of withdrawal liability pursuant to section 4202 of ERISA or (f) any other event or condition which might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. ― Eurodollar ‖, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. ― Event of Default ‖ has the meaning assigned such term in Section 10.01. ― Excepted Liens ‖ means: (a) Liens for Taxes, assessments or other governmental charges or levies which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (b) Liens in connection with workers’ compensation, unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent; (c) landlord’s liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s, construction or other like Liens arising by operation of law or in the ordinary course of business, each of which is in respect of obligations that are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (d) banker’s liens, rights of set-off or similar rights and remedies, provided that no deposit account is a dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board and no such deposit account is intended by Borrower or any of its Subsidiaries to provide collateral to the depository institution; (e) maritime liens for crew wages or for salvage and general average, each of which is in respect of obligations that are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any real Property of the Borrower or any Subsidiary, which in the aggregate do not materially impair the use of such Property for the purposes of which such Property is held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (g) Liens on cash or securities pledged to secure performance of tenders, surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other obligations of a like nature incurred in the ordinary course of business and (h) judgment and attachment Liens not giving rise to an Event of Default, provided that any appropriate legal proceedings which may have been duly initiated for 8

the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired and no action to enforce such Lien has been commenced; provided , further that Liens described in clauses (a) through (e) shall remain ―Excepted Liens‖ only for so long as no action to enforce such Lien has been commenced and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted existence of such Excepted Liens. ― Excess Cash Flow ‖ means, without duplication, for any Person for any period for which such amount is being determined: (a) Consolidated Net Income (without giving effect to pro forma adjustment with respect to any cash net after-tax income from discontinued operations or after-tax gain on disposal of discontinued operations) adjusted to exclude any amount of extraordinary gain included in Consolidated Net Income and actually applied pursuant to Section 3.04(c)(iii) or (iv), plus (b) the amount of depreciation, amortization, deferred taxes and other non-cash expenses which, pursuant to GAAP, were deducted in determining such Consolidated Net Income of such Person, plus (c) decreases in Consolidated Working Capital, minus (d) increases in Consolidated Working Capital, minus (e) the amount of Capital Expenditures and purchases of intangibles in such period to the extent funded with Internally Generated Funds, minus (f) payments of principal under the Term Loans pursuant to Section 3.01(b) or any payments or repayments of any other Indebtedness (in the case of any revolving credit, only to the extent accompanied by a permanent reduction in commitments thereunder), in each case made during such period to the extent funded with Internally Generated Funds, minus (g) optional prepayments of principal under the Term Loans and the Revolving Loans to the extent accompanied by a permanent reduction of commitments thereunder made during such period to the extent funded with Internally Generated Funds, minus (h) Investments made during such period to the extent funded with Internally Generated Funds. ― Excluded Taxes ‖ means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower or any Guarantor hereunder or under any other Loan Document, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America or such other jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower or any Guarantor is located and (c) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable 9

to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 5.03(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts with respect to such withholding tax pursuant to Section 5.03(a) or Section 5.03(c). ― Existing Credit Agreements ‖ means (i) the Credit Agreement dated October 1, 2004, by and between Hercules Liftboat Company, LLC, as borrower, Comerica, as agent, and the banks party thereto, as amended; and (ii) the Credit Agreement dated as of July 30, 2004, among Hercules Holdings LLC, as borrower, Lehman Commercial Paper Inc., as administrative agent and syndication agent, as amended. ― Existing Owners ‖ means Lime Rock Partners LLC, Greenhill Capital Partners, L.P. and their respective Affiliates. ― Federal Funds Effective Rate ‖ means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. ― Financial Institution ‖ means any bank, savings and loan, credit union or other Person that takes deposits, any insurance company, broker/dealer, credit, or other similar institution, any private investment fund, hedge fund or other Person regularly in the business of making or participating in loans (or the purchase, sale, holding or managing of equity or financial assets or portfolios) or an Affiliate of any of the foregoing. ― Financial Officer ‖ means, for any Person, the chief financial officer, principal accounting officer, treasurer or controller of such Person. Unless otherwise specified, all references herein to a Financial Officer means a Financial Officer of the Borrower. ― Financial Statements ‖ means the financial statement or statements of the Borrower and its Consolidated Subsidiaries referred to in Section 7.04(c). ― First Naval Ship Mortgage ‖ means a mortgage in substantially the form of Exhibit E-5, as the same may be amended, modified or supplemented from time to time. ― Fleet Mortgages ‖ means together (x) a mortgage by Hercules Liftboat Company, LLC and (y) a mortgage by Hercules Drilling Company, LLC, each substantially in the form of Exhibit E-6, as the same may be amended, modified or supplemented from time to time. ― Foreign Lender ‖ means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. 10

― Foreign Subsidiary ‖ means any Subsidiary that is not a Domestic Subsidiary. ― GAAP ‖ means generally accepted accounting principles in the United States of America as in effect from time to time subject to the terms and conditions set forth in Section 1.05. ― Governmental Authority ‖ means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government over the Borrower, any Subsidiary, any of their Properties, any Agent, the Issuing Bank or any Lender. ― Governmental Requirement ‖ means any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement, whether now or hereafter in effect, including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority. ― Guarantors ‖ means, collectively, each Subsidiary that is required to guarantee the Indebtedness pursuant to Section 8.12(a). ― Guaranty Agreement ‖ means an agreement executed by the Guarantors in substantially the form of Exhibit F-1 unconditionally guarantying on a joint and several basis, payment of the Indebtedness, as the same may be amended, modified or supplemented from time to time. ― Highest Lawful Rate ‖ means, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws allow as of the date hereof. ― Indebtedness ‖ means any and all amounts owing or to be owing by the Borrower, any of its Subsidiaries or any Guarantor (whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising): (a) to the Administrative Agent, the Issuing Bank or any Lender under any Loan Document; (b) to any Lender or Agent or any Affiliate of a Lender or Agent under any Swap Agreement between the Borrower or any Subsidiary and such Lender or Agent or any such Affiliate of a Lender or Agent permitted by the terms of this Agreement while such Person (or in the case of its Affiliate, the Person affiliated therewith) is a Lender or an Agent hereunder and (c) all renewals, extensions and/or rearrangements of any of the above. ― Indemnified Taxes ‖ means Taxes other than Excluded Taxes. ― Information Memorandum ‖ means the Confidential Information Memorandum dated June 2005 relating to the Borrower and the Transactions. 11

― Interest Election Request ‖ means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.04. ― Interest Expense ‖ means, for any period, the sum (determined without duplication) of the aggregate gross cash interest expense of the Borrower and the Consolidated Subsidiaries for such period; provided that Interest Expense for the four quarters ending September 30, 2005 shall equal Interest Expense for the three-month period ending September 30, 2005 times 4; Interest Expense for the four quarters ending December 31, 2005 shall equal Interest Expense for the six-month period ending December 31,2005 times 2; and Interest Expense for the four quarters ending March 31, 2006 shall equal Interest Expense for the nine-month period ending March 31, 2006 time 4/3. ― Interest Payment Date ‖ means (a) with respect to any ABR Loan, the first day of each January, April, July and October and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period. ― Interest Period ‖ means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, with the consent of each applicable Lender that is holding Indebtedness related to such Eurodollar Borrowing, nine or twelve months) thereafter, as the Borrower may elect; provided , that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period; (c) no Interest Period for a Revolving Borrowing may end after the Revolving Credit Maturity Date; (d) no Interest Period for a Term Loan Borrowing may end after the Term Loan Maturity Date; (e) no Interest Period for a Term Loan Borrowing shall be selected which extends beyond any date upon which an installment of the Term Loan will be due if such Term Loan Borrowing must be repaid in connection with such installment; (f) the last Interest Period may be such shorter period as to end on the Revolving Credit Maturity Date or the Term Loan Maturity Date, as applicable; and (g) notwithstanding any of the foregoing language, the first two Eurodollar Borrowings under the Term Loan will each have an Interest Period of one week. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. ― Internally Generated Funds ‖ means funds not constituting the proceeds of any Debt, issuance of Equity Interests or Dispositions of Property (except proceeds from Dispositions of Property permitted under Section 9.12). 12

― Investment ‖ means, for any Person: (a) the acquisition (whether for Property, services or otherwise) of Equity Interests of any other Person; (b) the making of any deposit with, or advance, loan or capital contribution to, purchase or other acquisition of any Debt or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding ninety (90) days representing the purchase price of inventory or supplies sold by such Person in the ordinary course of business); (c) the purchase or acquisition (in one or a series of transactions) of Property of another Person that constitutes a business unit or (d) the entering into of any guarantee of, or other contingent obligation (including the deposit of any Equity Interests to be sold) with respect to, Debt or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person. ― IPO ‖ means the initial public offering of the Borrower’s stock. ― Issuing Bank ‖ means Comerica, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.08(i). ― Joinder ‖ means a Joinder Agreement executed by any Lender substantially in the form of Exhibit I , as the same may be amended, modified or supplemented from time to time. ― Joint Lead Arrangers ‖ means with respect to the Term Tranche, Citigroup Global Markets Inc. and Credit Suisse, Cayman Islands Branch, in their capacities as the joint lead arrangers and joint bookrunners hereunder. ― Jupiter ‖ means the jackup drilling rig named Transocean Jupiter at the time of acquisition thereof by Hercules Drilling Company, LLC. ― LC Commitment ‖ at any time means five million dollars ($5,000,000). ― LC Disbursement ‖ means a payment made by the Issuing Bank pursuant to a Letter of Credit. ― LC Exposure ‖ means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. ― Lenders ‖ means, collectively, the Revolving Lenders and the Term Loan Lenders. ― Letter of Credit ‖ means any letter of credit issued pursuant to this Agreement. ― Letter of Credit Agreements ‖ means all letter of credit applications and other agreements (including any amendments, modifications or supplements thereto) submitted by the Borrower, or entered into by the Borrower, with the Issuing Bank relating to any Letter of Credit. 13

― LIBO Rate ‖ means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent for the related Eurodollar Borrowing from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the ― LIBO Rate ‖ with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. ― Lien ‖ means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term ― Lien ‖ shall include easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations relating to real Property. For the purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to be the owner of any Property which they have acquired or hold subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing. ― Lift Boat ‖ means the self-propelled, self-elevating vessels of the Borrower and its Subsidiaries, together with the related equipment and spare parts. ― Loan Documents ‖ means this Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit and the Security Instruments. ― Loans ‖ means the loans made by the Lenders to the Borrower pursuant to this Agreement. ― Majority Lenders ‖ means Majority Revolving Lenders and Majority Term Loan Lenders. ― Majority Revolving Lenders ‖ means, at any time while no Loans or LC Exposure is outstanding, Revolving Lenders having more than fifty percent (50%) of the total Revolving Commitments; and at any time while any Loans or LC Exposure is outstanding, Revolving Lenders holding more than fifty percent (50%) of the outstanding aggregate principal amount of the Revolving Loans and LC Exposure (without regard to any sale by a Lender of a participation in any Revolving Loan under Section 12.04(b)(ii)). 14

― Majority Term Loan Lenders ‖ means, at any time while no Loans or LC Exposure is outstanding, Term Loan Lenders having more than fifty percent (50%) of the total Term Commitments; and at any time while any Loans or LC Exposure is outstanding, Term Loan Lenders holding more than fifty percent (50%) of the outstanding aggregate principal amount of the Term Loans (without regard to any sale of a participation in any Term Loan under Section 12.04(b)). ― Material Adverse Effect ‖ means a material adverse change in, or material adverse effect on (a) the business, Property, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower and its Subsidiaries, taken as a whole, to perform any of their payment or other material obligations under the Loan Documents, (c) the validity or enforceability of any Loan Document or (d) the ability of the Administrative Agent, any other Agent, the Issuing Bank or any Lender to enforce any of their respective material rights under the Loan Documents. ― Material Indebtedness ‖ means Debt (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the ―principal amount‖ of the obligations of the Borrower or any of its Subsidiaries in respect of any Swap Agreement at any time shall be the Swap Termination Value. ― Material Subsidiary ‖ means a Subsidiary of Borrower having: (a) assets of $2,000,000 or more or (b) EBITDA (calculated on a separate basis) of $500,000 or more. If (i) the asset value of the Subsidiaries that are not Guarantors exceeds $5,000,000 in the aggregate, or (ii) the value of EBITDA (calculated on a separate basis) of such Subsidiaries that are not Guarantors exceeds $3,000,000 in the aggregate, then those Subsidiaries holding a majority of those assets or representing a majority of such EBITDA shall each be a Material Subsidiary. ― Moody’s ‖ means Moody’s Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency. ― Multiemployer Plan ‖ means a Plan which is a multiemployer plan as defined in section 3(37) or 4001 (a)(3) of ERISA. ― New Funds Amount ‖ has the meaning assigned such term in Section 2.10(b)(iii). ― Notes ‖ means the promissory notes of the Borrower described in Section 2.02(e) and being substantially in the form of Exhibit A-1 or Exhibit A-2, as applicable, together with all amendments, modifications, replacements, extensions and rearrangements thereof. ― Notice of Commitment Increase ‖ has the meaning assigned such term in Section 2.10(b)(i). ― Notice of Term Loan Increase ‖ has the meaning assigned such term in Section 2.10(c)(i). 15

― Organization Documents ‖ shall mean, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity. ― Other Taxes ‖ means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and any other Loan Document. ― Participant ‖ has the meaning set forth in Section 12.04(c)(i). ― PBGC ‖ means the Pension Benefit Guaranty Corporation, or any successor thereto. ― Permitted Refinancing Debt ‖ means Debt (for purposes of this definition, ― new Debt ‖) incurred in exchange for, or proceeds of which are used to refinance, all of any other Debt (the ― Refinanced Debt ‖); provided that (a) such new Debt is in an aggregate principal amount not in excess of the sum of (i) the aggregate principal amount then outstanding of the Refinanced Debt (or, if the Refinanced Debt is exchanged or acquired for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount) and (ii) an amount necessary to pay any fees and expenses, including premiums, related to such exchange or refinancing; (b) such new Debt has a stated maturity no earlier than the stated maturity of the Refinanced Debt and an average life no shorter than the average life of the Refinanced Debt; (c) such new Debt does not contain any covenants which are more onerous in any material respect to the Borrower and its Subsidiaries than those imposed by the Refinanced Debt and (d) if such Refinanced Debt is subordinated in right of payment to the Indebtedness, such new Debt (and any guarantees thereof) is subordinated in right of payment to the Indebtedness (or, if applicable, the Guaranty Agreement) to at least the same extent as the Refinanced Debt. ― Person ‖ means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. ― Plan ‖ means any employee pension benefit plan, as defined in section 3(2) of ERISA, which (a) is currently or hereafter sponsored, maintained or contributed to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time during the six calendar years preceding the date hereof, sponsored, maintained or contributed to by the Borrower or a Subsidiary or an ERISA Affiliate. ― Preferred Ship Mortgage ‖ means that certain First Preferred Ship Mortgage in substantially the form of Exhibit E-3 as the same may be amended, modified or supplemented from time to time. 16

― Property ‖ means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and contract rights. ― Qualified Equity Interests ‖ means all Equity Interests of a Person other than Disqualified Capital Stock. ― Redemption ‖ means with respect to any Debt, the repurchase, redemption, prepayment, repayment, or defeasance or any other acquisition or retirement for value (or the segregation of funds with respect to any of the foregoing) of such Debt. ― Redeem ‖ has the correlative meaning thereto. ― Reducing Percentage Lender ‖ has the meaning assigned such term in Section 2.10(b)(iii). ― Reduction Amount ‖ has the meaning assigned such term in Section 2.10(b)(iii). ― Refinanced Debt ‖ has the meaning assigned such term in the definition of ―Permitted Refinancing Debt‖. ― Register ‖ has the meaning assigned such term in Section 12.04(b). ― Regulation D ‖ means Regulation D of the Board, as the same may be amended, supplemented or replaced from time to time. ― Related Fund ‖ shall mean, with respect to any Term Loan Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Term Loan Lender or by an Affiliate of such investment advisor. ― Related Parties ‖ means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors (including attorneys, accountants and experts) of such Person and such Person’s Affiliates. ― Remedial Work ‖ has the meaning assigned such term in Section 8.10(a). ― Request for Advance ‖ has the meaning assigned such term in Section 2.09(c)(i) ― Required Hedge ‖ means the Swap Agreements required to be entered into pursuant to Section 8.15. ― Responsible Officer ‖ means, as to any Person, the Chief Executive Officer, the President or any Financial Officer of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrower. ― Restricted Payment ‖ means (a) any dividend or other distribution (whether in cash, securities or other Property) with respect to any Equity Interests in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other Property), including any sinking 17

fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any Subsidiary, but excluding any dividend or distribution paid in the Borrower’s Qualified Equity Interests, or (b) any payment made by the Borrower or any of its Subsidiaries to Redeem (including pursuant to mandatory repurchase covenants), prior to any scheduled maturity, scheduled sinking fund or scheduled mandatory redemption, any Debt (other than Indebtedness). ― Revolving Borrowing ‖ shall mean a Borrowing comprised of Revolving Loans. ― Revolving CI Lender ‖ has the meaning assigned such term in Section 2.10(a). ― Revolving Commitment ‖ shall mean with respect to each Revolving Lender, the commitment of such Revolving Lender to make Revolving Loans pursuant to Section 2.01(a) and to acquire participations in Letters of Credit pursuant to Section 2.01(b), as such commitment may be (a) reduced or terminated from time to time pursuant to Section 2.06, (b) terminated pursuant to ARTICLE X, or (c) modified from time to time to reflect any assignments permitted by Section 12.04. The initial amount of each Revolving Lender’s Revolving Commitment shall be the amount set forth on Annex I attached hereto. ― Revolving Credit Exposure ‖ means, with respect to any Revolving Lender at any time, the sum of the outstanding principal amount of such Revolving Lender’s Revolving Loans, risk participations in Swing Line Loans and its LC Exposure at such time. ― Revolving Commitment Increase ‖ has the meaning assigned such term in Section 2.10(a). ― Revolving Credit Maturity Date ‖ shall mean the earlier to occur of (a) June 29, 2008 or (b) the date that the Aggregate Revolving Commitments are sooner terminated pursuant to Section 2.03(b) or Section 10.02. ― Revolving Lender ‖ means a Lender with an outstanding Revolving Loan, and those Persons listed on Annex I and any other Person that shall have become a party hereto as a Revolving Lender pursuant to an Assignment from a Revolving Lender, other than any such Person that ceases to be a party hereto pursuant to an Assignment. ― Revolving Loans ‖ shall mean Loans made under the Revolving Commitments. ― Revolving Notes ‖ shall mean Notes issued pursuant to Section 2.06 evidencing Loans under the Revolving Tranche. ― Revolving Tranche ‖ shall mean the Revolving Commitments, the Revolving Loans including the Swing Line Loans and the LC Exposure. ― SEC ‖ means the Securities and Exchange Commission or any successor Governmental Authority. 18

― Security Agreement ‖ means an agreement substantially in the form of Exhibit F-2, as the same may be amended, modified or supplemented from time to time. ― Security Instruments ‖ means the Guaranty Agreement, the Security Agreement, each Fleet Mortgage, each First Naval Mortgage, the Preferred Ship Mortgage and any and all other agreements now or hereafter executed and delivered by the Borrower or any other Person as security for the payment or performance of the Indebtedness, as such agreements securing the Indebtedness may be amended, modified, supplemented or restated from time to time. ― S&P ‖ means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., and any successor thereto that is a nationally recognized rating agency. ― Statutory Reserve Rate ‖ means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as ―Eurocurrency Liabilities‖ in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. ― Subsidiary ‖ means any Person of which at least a majority of the outstanding Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board of directors, manager or other governing body of such Person (irrespective of whether or not at the time Equity Interests of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower or one or more of its Subsidiaries or by the Borrower and one or more of its Subsidiaries. Unless otherwise indicated herein, each reference to the term ― Subsidiary ‖ shall mean a Subsidiary of the Borrower. ― Superior Acquisition ‖ means the acquisition of certain Lift Boats by the Borrower and its Subsidiaries pursuant to the Vessel Purchase Agreement dated as of May 19, 2005 between the Borrower and Superior Energy Services, L.L.C. ― Swap Agreement ‖ means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, ―over-the-counter‖ or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for 19

payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement. ― Swap Termination Value ‖ means, in respect of any one or more Swap Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Agreements, (a) for any date on or after the date such Swap Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Agreements, as determined by the counterparties to such Swap Agreements. ― Swing Line ‖ means the Revolving Tranche made available by Swing Line Bank pursuant to Section 2.09. ― Swing Line Borrowing ‖ means a borrowing of a Swing Line Loan pursuant to Section 2.09. ― Swing Line Bank ‖ means Comerica in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder. ― Swing Line Loan ‖ has the meaning specified in Section 2.09(a). ― Swing Line Loan Notice ‖ means a notice of a Swing Line Borrowing pursuant to Section 2.09(b), which, if in writing, shall be substantially in the form of Exhibit B. ― Swing Line Sublimit ‖ means an amount equal to the lesser of (a) $2,500,000 and (b) the aggregate of the Revolving Commitments of all Revolving Lenders. The Swing Line Sublimit is part of, and not in addition to, the Revolving Commitments. ― Synthetic Leases ‖ means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, treated as operating leases on the financial statements of the Person liable (whether contingently or otherwise) for the payment of rent thereunder and which were properly treated as indebtedness for borrowed money for purposes of U.S. federal income taxes, if the lessee in respect thereof is obligated to either purchase for an amount in excess of, or pay upon early termination an amount in excess of, 80% of the residual value of the Property subject to such operating lease upon expiration or early termination of such lease. ― Taxes ‖ means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. ― Term CI Lender ‖ has the meaning assigned such term in Section 2.10(a). ― Term Commitments ‖ shall mean with respect to each Term Loan Lender, the commitment of such Term Loan Lender to make Term Loans, expressed as an amount representing the maximum aggregate amount of such Term Loan Lender’s Term Credit Exposure hereunder. The amount of each Term Loan Lender’s Term Commitment is set forth on Annex II attached hereto. Each Term Loan Lender’s Term Commitment shall terminate immediately after 20

the Term Loan Funding Date. The aggregate amount of the Term Loan Lenders’ Term Commitments is $140,000,000. ― Term Credit Exposure ‖ shall mean with respect to any Term Loan Lender at any time, the outstanding principal amount of such Term Loan Lender’s Term Loans. ― Term Loan ‖ shall have the meaning assigned such term in Section 2.01(b). ― Term Loan Borrowing ‖ shall mean a Borrowing comprised of Term Loans. ― Term Loan Increase ‖ has the meaning assigned such term in Section 2.10(a). ― Term Loan Increase Effective Date ‖ has the meaning assigned such term in Section 2.10(c)(i) ― Term Loan Lender ‖ shall mean a Lender with an outstanding Term Loan, and those Persons listed on Annex II and any other Person that shall have become a party hereto as a Term Loan Lender pursuant to an Assignment from a Term Loan Lender, other than any such Person that ceases to be a party hereto pursuant to an Assignment. ― Term Loan Maturity Date ‖ shall mean the earlier to occur of (a) June 29, 2010 or (b) the date the Term Loans are accelerated pursuant to Section 11.02. ― Term Loan Percentages ‖ shall mean with respect to any Term Loan Lender, the percentage set forth in the column titled ―Term Loan Percentage‖ on Annex II for such Term Loan Lender or in the Assignment pursuant to which such Term Loan Lender becomes a party hereto, as applicable. ― Term Notes ‖ shall mean Notes issued pursuant to Section 2.02(e) evidencing Loans under the Term Loan B Facility. ― Term Tranche ‖ shall mean the Term Commitments and the Term Loans. ― Three-Month Secondary CD Rate ‖ means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. ― Total Debt ‖ means, at any date, all Debt of the Borrower and the Consolidated Subsidiaries on a consolidated basis, excluding (i) non-cash obligations under FAS 133, (ii) accounts payable and other accrued liabilities (for the deferred purchase price of Property or 21

services) from time to time incurred in the ordinary course of business which are not greater than ninety (90) days past the date of invoice or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, (iii) Debt between or among the Borrower and its Subsidiaries permitted by Section 9.02, and (iv) Debt permitted under Section 9.02(c). ― Tranche ‖ means the Revolving Tranche or the Term Tranche as the context may require. ― Transactions ‖ means, with respect to (a) the Borrower, the execution, delivery and performance by the Borrower of this Agreement, and each other Loan Document to which it is a party, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, and the grant of Liens by the Borrower on Properties pursuant to the Security Instruments and (b) each Guarantor, the execution, delivery and performance by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the Indebtedness and the other obligations under the Guaranty Agreement by such Guarantor and such Guarantor’s grant of the security interests and provision of collateral under the Security Instruments, and the grant of Liens by such Guarantor on Properties pursuant to the Security Instruments. ― Type ‖, when used in reference to any Loan or Borrowing, refers to whether the Loan or Borrowing is under the Revolving Tranche or the Term Tranche and whether the rate of interest on such Loan, or on the Loans comprising such Borrowing under the Revolving Tranche or the Term Tranche, is determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate. ― USA Patriot Act ‖ shall have the meaning assigned such in Section 12.18. ― Wholly-Owned Subsidiary ‖ means any Subsidiary of which all of the outstanding Equity Interests (other than any directors’ qualifying shares mandated by applicable law), on a fully-diluted basis, are owned by the Borrower or one or more of the Wholly-Owned Subsidiaries of the Borrower or are owned by the Borrower and one or more of the Wholly-Owned Subsidiaries of the Borrower. Section 1.03 Types of Loans and Borrowings . For purposes of this Agreement, Loans and Borrowings, respectively, may be classified and referred to by Type ( e.g ., a ― Eurodollar Loan ‖ or a ― Eurodollar Borrowing ‖). Section 1.04 Terms Generally; Rules of Construction . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words ―include‖, ―includes‖ and ―including‖ shall be deemed to be followed by the phrase ―without limitation‖. The word ―will‖ shall be construed to have the same meaning and effect as the word ―shall‖. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth in the Loan Documents), (b) any reference herein to any law shall be construed as referring to such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, (c) any reference herein to any Person shall be construed to 22

include such Person’s successors and assigns (subject to the restrictions contained in the Loan Documents), (d) the words ―herein‖, ―hereof‖ and ―hereunder‖, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) with respect to the determination of any time period, the word ―from‖ means ―from and including‖ and the word ―to‖ means ―to and including‖ and (f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any Person solely because such Person or its legal representative drafted such provision. Section 1.05 Accounting Terms and Determinations; GAAP . Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Majority Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II The Credits Section 2.01 Commitments . (a) Revolving Commitments . Subject to the terms and conditions set forth herein, each Revolving Lender agrees to make Revolving Loans to the Borrower during the Availability Period in an aggregate principal amount that will not result in (i) such Revolving Lender’s Revolving Credit Exposure exceeding such Revolving Lender’s Revolving Commitment or (ii) the total Revolving Credit Exposures exceeding the total Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, repay and reborrow the Revolving Loans. (b) Term Commitments . Each Term Loan Lender severally agrees, subject to the terms and conditions set forth herein, to make an amortizing term loan (collectively, the ― Term Loans ‖) to the Borrower on the Effective Date in the principal amount of such Term Loan Lender’s Term Commitment. Once repaid or prepaid, Term Loans may not be reborrowed. Section 2.02 Loans and Borrowings . (a) Borrowings; Several Obligations . Each Loan made under the Revolving Tranche shall be made as part of a Revolving Borrowing consisting of Revolving Loans made by the 23

Revolving Lenders ratably in accordance with their respective Revolving Commitments. Each Loan made under the Term Tranche shall be made as part of a Term Loan Borrowing consisting of Term Loans made by the Term Loan Lenders ratably in accordance with their respective Term Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required. (b) Types of Loans . Subject to Section 3.03, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) Minimum Amounts; Limitation on Number of Revolving Borrowings . At the commencement of each Interest Period for any Eurodollar Borrowing that is a Revolving Borrowing, such Revolving Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $1,000,000. At the time that each ABR Borrowing that is a Revolving Borrowing is made, such Revolving Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $500,000; provided that an ABR Borrowing that is a Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.08(e). Revolving Borrowings of more than one Type may be outstanding at the same time, provided that there shall not at any time be more than a total of 5 Eurodollar Revolving Borrowings outstanding. (d) Minimum Amounts; Limitation on Number of Term Loan Borrowings . At the commencement of each Interest Period for any Eurodollar Borrowing that is a Term Loan Borrowing, such Term Loan Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing that is a Term Loan Borrowing is made, such Term Loan Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $3,000,000. Term Loan Borrowings of more than one Type may be outstanding at the same time, provided that there shall not at any time be more than a total of 5 Eurodollar Term Loan Borrowings outstanding. (e) Notes . Any Lender may request that the Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender, substantially in the form of Exhibit A-1 , with respect to Revolving Loans and Exhibit A-2 with respect to Term Loans, as applicable, dated (i) the Effective Date or (ii) the effective date of an Assignment pursuant to Section 12.04(b), in a principal amount equal to its Revolving Commitment or Term Commitment as the case may be, as originally in effect and otherwise duly completed and such substitute Notes as required by Section 12.04(b); provided that promissory notes requested in amounts less than $1,000,000 shall require the consent of the Borrower, such consent not to be unreasonably withheld or delayed. The date, amount, Type, interest rate and Interest Period of each Loan made by each Lender, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books and maintained in accordance with its usual practice. 24

Failure to make such recordation shall not affect any Lender’s or the Borrower’s rights or obligations in respect of such Loans. Section 2.03 Requests for Borrowings . To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon, New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day before the date of the proposed Borrowing; provided that no such notice shall be required for any deemed request of an ABR Borrowing to finance the reimbursement of an LC Disbursement as provided in Section 2.08(e). Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in substantially the form of Exhibit B and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term ―Interest Period‖; and (v) the location and number of the Borrower’s account to which funds are to be disbursed. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Each Borrowing Request for Revolving Loans shall constitute a representation to the Administrative Agent of the Revolving Loans that the amount of the requested Borrowing shall not cause the total Revolving Credit Exposures to exceed the total Revolving Commitments. Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Term Loan Lender or Revolving Lender, as the case may be, of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing. Section 2.04 Interest Elections . (a) Conversion and Continuance . Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in 25

the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.04. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) Interest Election Requests . To make an election pursuant to this Section 2.04, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in substantially the form of Exhibit C and signed by the Borrower. (c) Information in Interest Election Requests . Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term ―Interest Period‖. (d) If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. (e) Notice to Lenders by the Administrative Agent . Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Term Loan Lender or Revolving Lender, as the case may be, of the details thereof and of such Lender’s portion of each resulting Borrowing. (f) Effect of Failure to Deliver Timely Interest Election Request and Events of Default . If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing: (i) no outstanding Borrowing may be converted to or 26

continued as a Eurodollar Borrowing (and any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective) and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. Section 2.05 Funding of Borrowings . (a) Funding by Lenders . Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in Dallas, Texas for Revolving Loans and in Dallas, Texas for Term Loans and designated by the Borrower in the applicable Borrowing Request; provided that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.08(e) shall be remitted by the Administrative Agent to the Issuing Bank. Nothing herein shall be deemed to obligate any Lender to obtain the funds for its Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for its Loan in any particular place or manner. (b) Presumption of Funding by the Lenders . Unless the Administrative Agent shall have received notice from a Lender under its Tranche prior to the proposed date of any Borrowing under such Tranche that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.05(a) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if such Lender has not in fact made its share of the applicable Borrowing available to Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, at a rate per annum equal to the Federal Funds Effective Rate for the first three (3) Business Days after the date such payment is required, and thereafter at the rate then applicable to Borrower or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing. Section 2.06 Termination and Reduction of Revolving Commitments . (a) Scheduled Termination of Revolving Commitments . Unless previously terminated, the Revolving Commitments shall terminate on the Revolving Credit Maturity Date. (b) Optional Termination and Reduction of Revolving Commitments . (i) The Borrower may at any time terminate, or from time to time reduce, the Revolving Commitments; provided that (A) each reduction of the Revolving Commitments shall be in an amount that is an integral multiple of $100,000 and not less 27

than $1,000,000 and (B) the Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 3.04(c), the total Revolving Credit Exposures would exceed the total Revolving Commitments. (ii) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Revolving Commitments under Section 2.06(b)(i) at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Revolving Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable; provided that a notice of termination of the Revolving Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Revolving Commitments shall be permanent and may not be reinstated. Each reduction of the Revolving Commitments shall be made ratably among the Revolving Lenders in accordance with each Revolving Lender’s Applicable Percentage. Section 2.07 Reserved . Section 2.08 Letters of Credit . (a) General . Subject to the terms and conditions set forth herein, the Borrower may request, and the Issuing Bank shall cause, the issuance of dollar denominated Letters of Credit for the Borrower’s own account or for the account of any of its Subsidiaries, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions . To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (not less than five (5) Business Days in advance of the requested date of issuance, amendment, renewal or extension) a notice: (i) requesting the issuance of a Letter of Credit or identifying the Letter of Credit to be amended, renewed or extended; (ii) specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day); 28

(iii) specifying the date on which such Letter of Credit is to expire (which shall comply with Section 2.08(c)); (iv) specifying the amount of such Letter of Credit; and (v) specifying the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. Each notice shall constitute a representation that after giving effect to the requested issuance, amendment, renewal or extension, as applicable, (A) the LC Exposure shall not exceed the LC Commitment and (B) the total Revolving Credit Exposures shall not exceed the total Revolving Commitments. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank’s standard form in connection with any request for a Letter of Credit. (c) Expiration Date . Each Letter of Credit shall expire at or prior to the close of business on the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension). (d) Participations . By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Revolving Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Revolving Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Revolving Lender’s Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in Section 2.08(e), or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this Section 2.08(d) in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Revolving Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement . If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 11:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, New York City time, on the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the 29

day of receipt; provided that if such LC Disbursement is not less than $500,000, the Borrower shall, subject to the conditions to Borrowing set forth herein, be deemed to have requested, and the Borrower does hereby request under such circumstances, that such payment be financed with an ABR Borrowing in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Borrowing. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Revolving Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.04(a) with respect to Revolving Loans made by such Revolving Lender (and Section 2.04(a) shall apply, mutatis mutandis , to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this Section 2.08(e), the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this Section 2.08(e) to reimburse the Issuing Bank, then to such Revolving Lenders and the Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this Section 2.08(e) to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not constitute a Revolving Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement. (f) Obligations Absolute . The Borrower’s obligation to reimburse LC Disbursements as provided in Section 2.08(e) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit or any Letter of Credit Agreement, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.08(f), constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Revolving Lenders nor the Issuing Bank, nor any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s failure to exercise care when determining 30

whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised all requisite care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) Disbursement Procedures . The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement. (h) Interim Interest . If the Issuing Bank shall make any LC Disbursement, then, until the Borrower shall have reimbursed the Issuing Bank for such LC Disbursement (either with its own funds or a Borrowing under Section 2.08(e)), the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans. Interest accrued pursuant to this Section 2.08(h) shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to Section 2.08(e) to reimburse the Issuing Bank shall be for the account of such Revolving Lender to the extent of such payment. (i) Replacement of the Issuing Bank . The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Revolving Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 3.05(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term ―Issuing Bank‖ shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of the Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization . If (i) any Event of Default shall occur and be continuing and the Borrower receives notice from the Administrative Agent or the Majority Revolving 31

Lenders demanding the deposit of cash collateral pursuant to this Section 2.08(j), or (ii) the Borrower is required to pay to the Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then the Borrower shall deposit, in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Revolving Lenders, an amount in cash equal to, in the case of an Event of Default, the LC Exposure, and in the case of a payment required by Section 3.04(c), the amount of such excess as provided in Section 3.04(c), as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower or any Subsidiary described in Section 10.01(h) or Section 10.01(i). The Borrower hereby grants to the Administrative Agent, for the benefit of the Issuing Bank and the Lenders, an exclusive first priority and continuing perfected security interest in and Lien on such account and all cash, checks, drafts, certificates and instruments, if any, from time to time deposited or held in such account, all deposits or wire transfers made thereto, any and all investments purchased with funds deposited in such account, all interest, dividends, cash, instruments, financial assets and other Property from time to time received, receivable or otherwise payable in respect of, or in exchange for, any or all of the foregoing, and all proceeds, products, accessions, rents, profits, income and benefits therefrom, and any substitutions and replacements therefor. The Borrower’s obligation to deposit amounts pursuant to this Section 2.08(j) shall be absolute and unconditional, without regard to whether any beneficiary of any such Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrower or any of its Subsidiaries may now or hereafter have against any such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such deposit shall be held as collateral securing the payment and performance of the Borrower’s and the Guarantor’s obligations under this Agreement and the other Loan Documents. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent, subject to Section 10.02(c), to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other obligations of the Borrower and the Guarantors under this Agreement or the other Loan Documents. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, and the Borrower is not otherwise required to pay to the Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. 32

Section 2.09 Swing Line Loans . (a) The Swing Line . Subject to the terms and conditions set forth herein, the Swing Line Bank agrees to make loans (each such loan, a ― Swing Line Loan ‖) to Borrower from time to time on any Business Day in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit; provided , however , that after giving effect to any Swing Line Loan, the sum of (i) the outstanding principal balance of all Revolving Loans plus (ii) the LC Exposure plus (iii) the outstanding principal balance of all Swing Line Loans shall not exceed the Revolving Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.09, prepay under Section 3.04, and reborrow under this Section 2.09. Immediately upon the making of a Swing Line Loan, each Revolving Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Bank a risk participation in such Swing Line Loan in an amount equal to the product of such Revolving Lender’s Applicable Percentage times the amount of such Swing Line Loan. (b) Borrowing Procedures . Each Swing Line Loan shall be made upon Borrower’s irrevocable notice to the Swing Line Bank and Administrative Agent (a ― Swing Line Loan Notice ‖), which may be given by telephone. Each such notice must be received by Swing Line Bank and Administrative Agent not later than 12:00 p.m. New York City time on the requested borrowing date, and shall specify (i) the amount to be borrowed and (ii) the requested borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Bank and Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer. Promptly after receipt by Swing Line Bank of any telephonic Swing Line Loan Notice, Swing Line Bank will confirm with Administrative Agent (by telephone or in writing) that Administrative Agent has also received such Swing Line Loan Notice and, if not, Swing Line Bank will notify Administrative Agent (by telephone or in writing) of the contents thereof. Unless Swing Line Bank has received notice (by telephone or in writing) from Administrative Agent (including at the request of any Revolving Lender) prior to 12:00 p.m. New York City time on the date of the proposed Swing Line Loan (A) directing Swing Line Bank not to make such Swing Line Loan as a result of the limitations set forth in the proviso to the first sentence of Section 2.09(a), or (B) that one or more of the applicable conditions specified in Section 6.01 hereof is not then satisfied, then, subject to the terms and conditions hereof, Swing Line Bank will, not later than 1:00 p.m. New York City time on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to Borrower. (c) Refinancing of Swing Line Loans . (i) Swing Line Bank at any time in its sole and absolute discretion may request, on behalf of Borrower (which hereby irrevocably authorizes Swing Line Bank to so request on its behalf), that each Revolving Lender make a Revolving Loan in an amount equal to such Revolving Lender’s Applicable Percentage of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a ― Request for Advance ‖ for purposes hereof) and in accordance with the requirements of Section 2.03, without regard to the minimum and multiples specified therein for the principal amount of Revolving Loans, but subject to 33

the unutilized portion of the Revolving Commitment and the conditions set forth in Section 6.01. Swing Line Bank shall furnish Borrower with a copy of the applicable Request for Advance promptly after delivering such notice to Administrative Agent. Each Revolving Lender shall make an amount equal to such Revolving Lender’s Applicable Percentage of the amount specified in such Request for Advance available to Administrative Agent in immediately available funds for the account of Swing Line Bank at Administrative Agent’s office not later than 12:00 p.m. New York City time on the day specified in such Request for Advance, whereupon subject to Section 2.09(c)(ii), each Revolving Lender that so makes funds available shall be deemed to have made a Revolving Loan to Borrower in such amount. Administrative Agent shall remit the funds so received to Swing Line Bank. (ii) If for any reason any Swing Line Loan cannot be refinanced by such a Revolving Loan in accordance with Section 2.09(c)(i), the request for Revolving Loans submitted by Swing Line Bank as set forth herein shall be deemed to be a request by Swing Line Bank that each Revolving Lender fund its risk participation in the relevant Swing Line Loan and each Revolving Lender’s payment to Administrative Agent for the account of Swing Line Bank pursuant to Section 2.09(c)(i), shall be deemed payment in respect of such participation. (iii) If any Revolving Lender fails to make available to Administrative Agent for the account of Swing Line Bank any amount required to be paid by such Revolving Lender pursuant to the foregoing provisions of this Section 2.09(c) by the time specified in Section 2.09(c)(i), Swing Line Bank shall be entitled to recover from such Revolving Lender (acting through Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to Swing Line Bank at a rate per annum equal to the Federal Funds Effective Rate for the first three (3) Business Days after the date such payment is required, and thereafter at the rate then applicable to Borrower. A certificate of Swing Line Bank submitted to any Revolving Lender (through Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error. (iv) Each Revolving Lender’s obligation to make Revolving Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.09(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Revolving Lender may have against Swing Line Bank, Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of an Event of Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing. (d) Repayment of Participations . (i) At any time after any Revolving Lender has purchased and funded a risk participation in a Swing Line Loan, if Swing Line Bank receives any payment on account of such Swing Line Loan, Swing Line Bank will distribute to such Revolving Lender its Applicable Percentage of such payment (appropriately adjusted, in the case of interest 34

payments, to reflect the period of time during which such Revolving Lender’s risk participation was funded) in the same funds as those received by Swing Line Bank. (ii) If any payment received by Swing Line Bank in respect of principal or interest on any Swing Line Loan is required to be returned by Swing Line Bank under any circumstance (including pursuant to any settlement entered into by Swing Line Bank in its discretion), each Revolving Lender shall pay to Swing Line Bank its Applicable Percentage thereof on demand of Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Effective Rate. Administrative Agent will make such demand upon the request of Swing Line Bank. The obligations of Revolving Lenders under this clause shall survive the payment in full of the Indebtedness and the termination of this Agreement. (e) Interest for Account of Swing Line Bank . Swing Line Bank shall be responsible for invoicing Borrower for interest on the Swing Line Loans. Until each Revolving Lender funds its Revolving Loan or risk participation pursuant to Section 2.09 to refinance such Revolving Lender’s Applicable Percentage of any Swing Line Loan, interest in respect of such Applicable Percentage shall be solely for the account of Swing Line Bank. (f) Payments Directly to Swing Line Bank . Borrower shall make all payments of principal and interest in respect of the Swing Line Loans directly to Swing Line Bank. Section 2.10 Revolving Commitment Increase; Term Loan Increase . (a) Subject to the terms and conditions set forth herein, the Borrower shall have the right, without the consent of the Lenders, to cause either a one-time increase in the Revolving Commitments of the Revolving Lenders (a ― Revolving Commitment Increase ‖) or to borrow additional Term Loans (a ― Term Loan Increase ‖) by adding to this Agreement one or more additional financial institutions that (A) in the case of a Revolving Commitment Increase, are not already Revolving Lenders hereunder and that are reasonably satisfactory to the Administrative Agent (each a ― Revolving CI Lender ‖) or by allowing one or more existing Revolving Lenders to increase their respective Revolving Commitments, or (B) in the case of a Term Loan Increase, are not already Term Loan Lenders hereunder and that are reasonably satisfactory to the Administrative Agent (each a ― Term CI Lender ‖) or by allowing one or more existing Term Loan Lenders to increase their respective Term Credit Exposure; provided , however that (i) no Event of Default shall have occurred which is continuing, (ii) the Term Credit Exposure of all Term Lenders shall be no greater than $105,000,000, (iii) the ratio of Total Debt immediately after such Revolving Commitment Increase or Term Loan Increase (assuming for the purpose of such calculation, in the case of a Revolving Commitment Increase, that such Revolving Commitment Increase is fully utilized) to EBITDA for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination is not greater than 2.5 to 1.0, (iv) no such Revolving Commitment Increase or Term Loan Increase shall exceed $25,000,000, (v) no Revolving Lender’s Revolving Commitment shall be increased without such Revolving Lender’s prior written consent and (vi) if, on the effective date of such Revolving Commitment Increase, any Revolving Loans have been funded, then the Borrower shall be 35

obligated to pay any breakage fees or costs in connection with the reallocation of such outstanding Revolving Loans. (b) Revolving Commitment Increase . (i) The Revolving Commitment Increase shall be requested by written notice from the Borrower to the Administrative Agent (a ― Notice of Commitment Increase ‖) in the form of Exhibit H attached hereto and shall be approved by the Administrative Agent, such consent to not be unreasonably withheld. Such Notice of Commitment Increase shall specify (A) the proposed effective date of such Revolving Commitment Increase, which date shall be no earlier than five (5) Business Days after receipt by the Administrative Agent of such Notice of Commitment Increase, (B) the amount of the requested Revolving Commitment Increase, (C) the identity of each Revolving CI Lender or Revolving Lender that has agreed in writing to increase its Revolving Commitment hereunder, and (D) the amount of the respective Revolving Commitments of the then existing Revolving Lenders and the Revolving CI Lenders from and after the Commitment Increase Effective Date (as defined below). The Administrative Agent shall execute a counterpart of the Notice of Commitment Increase, the Revolving CI Lenders shall execute a Joinder and such Revolving Commitment Increase shall be effective on the proposed effective date set forth in the Notice of Commitment Increase or on another date agreed to by the Administrative Agent and the Borrower (such date referred to as the ― Commitment Increase Effective Date ‖). (ii) On the Commitment Increase Effective Date, to the extent that there are Revolving Loans outstanding as of such date, (A) each Revolving CI Lender shall, by wire transfer of immediately available funds, deliver to the Administrative Agent such Revolving CI Lender’s New Funds Amount, which amount, for each such Revolving CI Lender, shall constitute Revolving Loans made by such Revolving CI Lender to the Borrower pursuant to this Agreement on such Commitment Increase Effective Date, (B) the Administrative Agent shall, by wire transfer of immediately available funds, pay to each then Reducing Percentage Lender its Reduction Amount, which amount, for each such Reducing Percentage Lender, shall constitute a prepayment by the Borrower pursuant to Section 3.04, ratably in accordance with the respective principal amounts thereof, of the principal amounts of all then outstanding Revolving Loans of such Reducing Percentage Lender, and (C) the Borrower shall be responsible to pay to each Revolving Lender any breakage fees or costs in connection with the reallocation of any outstanding Revolving Loans. (iii) For purposes of this Section 2.10 and Exhibit H , the following defined terms shall have the following meanings: (A) ― New Funds Amount ‖ means the amount equal to the product of a Revolving Lender’s increased Revolving Commitment or a Revolving CI Lender’s Revolving Commitment (as applicable) represented as a percentage of the aggregate Revolving Commitments after giving effect to the Revolving Commitment Increase, times the aggregate principal amount of the outstanding Revolving Loans immediately prior to giving effect to the Revolving Commitment Increase, if any, as of a Commitment Increase Effective Date (without regard to any increase in the aggregate principal amount of Revolving Loans as a result of borrowings 36

made after giving effect to the Revolving Commitment Increase on such Commitment Increase Effective Date); (B) ― Reducing Percentage Lender ‖ means each then existing Revolving Lender immediately prior to giving effect to the Revolving Commitment Increase that does not increase its respective Revolving Commitment as a result of the Revolving Commitment Increase and whose relative percentage of the Revolving Commitments shall be reduced after giving effect to such Revolving Commitment Increase; and (C) ― Reduction Amount ‖ means the amount by which a Reducing Percentage Lender’s outstanding Revolving Loans decrease as of the Commitment Increase Effective Date (without regard to the effect of any borrowings made on such Commitment Increase Effective Date after giving effect to the Revolving Commitment Increase). (iv) The Revolving Commitment Increase shall become effective on the Commitment Increase Effective Date and upon such effectiveness (A) the Administrative Agent shall record in the register each then Revolving CI Lender’s information as provided in the Notice of Commitment Increase and pursuant to an Administrative Questionnaire satisfactory to the Administrative Agent that shall be executed and delivered by each Revolving CI Lender to the Administrative Agent on or before the Commitment Increase Effective Date, (B) Annex I hereof shall be amended and restated to set forth all Revolving Lenders (including any Revolving CI Lenders) that will be Revolving Lenders hereunder after giving effect to such Revolving Commitment Increase (which shall be set forth in Annex I to the applicable Notice of Commitment Increase) and the Administrative Agent shall distribute to each Revolving Lender (including each Revolving CI Lender) a copy of such amended and restated Annex I, and (C) each Revolving CI Lender identified on the Notice of Commitment Increase for such Revolving Commitment Increase shall be a ―Revolving Lender‖ for all purposes under this Agreement. (c) Term Loan Increase . (i) The Term Loan Increase shall be requested by written notice from the Borrower to the Administrative Agent (a ― Notice of Term Loan Increase ‖) in the form of Exhibit J attached hereto and shall be approved by the Administrative Agent, such consent to not be unreasonably withheld. Such Notice of Term Loan Increase shall specify (A) the proposed effective date of such Term Loan Increase, which date shall be no earlier than five (5) Business Days after receipt by the Administrative Agent of such Notice of Term Loan Increase, (B) the amount of the requested Term Loan Increase, (C) the identity of each Term CI Lender or Term Loan Lender that has agreed in writing to increase its Term Credit Exposure hereunder, and (D) the amount of the respective Term Credit Exposure of the then existing Term Loan Lenders and the Term CI Lenders from and after the Term Loan Increase Effective Date (as defined below). The Administrative Agent shall execute a counterpart of the Notice of Term Loan Increase, the Term CI Lenders shall execute a Joinder and such Term Loan Increase shall be effective on the date that the Term CI Lender or Term Loan Lender, as applicable, makes such additional Term Loan to the Borrower or on another date agreed to by the Administrative Agent and the Borrower (such date referred to as the ― Term Loan Increase Effective Date ‖). 37

(ii) The Term Loan Increase shall become effective on the Term Loan Increase Effective Date and upon such effectiveness (A) the Administrative Agent shall record in the register each then Term CI Lender’s information as provided in the Notice of Term Loan Increase and pursuant to an Administrative Questionnaire satisfactory to the Administrative Agent that shall be executed and delivered by each Term CI Lender to the Administrative Agent on or before the Term Loan Increase Effective Date, (B) Annex II hereof shall be amended and restated to set forth all Term Loan Lenders (including any Term CI Lenders) that will be Term Loan Lenders hereunder after giving effect to such Term Loan Increase (which shall be set forth in Annex II to the applicable Notice of Term Loan Increase) and the Administrative Agent shall distribute to each Term Loan Lender (including each Term CI Lender) a copy of such amended and restated Annex II, and (C) each Term CI Lender identified on the Notice of Term Loan Increase for such Term Loan Increase shall be a ―Term Loan Lender‖ for all purposes under this Agreement. ARTICLE III Payments of Principal and Interest; Prepayments; Fees Section 3.01 Repayment of Loans . (a) Revolving Loans . The Borrower hereby unconditionally promises to pay to the Administrative Agent, for the account of each Revolving Lender, the then unpaid principal amount of each Revolving Loan on the Revolving Credit Maturity Date. (b) Term Loans . The Borrower shall pay to the Administrative Agent, for the account of each Term Loan Lender, the Term Loans in an initial installment on or before October 1, 2005 and thereafter in consecutive quarterly installments on or before each Quarterly Date, as set forth below:
Payment Date Principal Installment

October 1, 2005 January 1, 2006 April 1, 2006 July 1, 2006 October 1, 2006 January 1, 2007 April 1, 2007 July 1, 2007 October 1, 2007 January 1, 2008 April 1, 2008 July 1, 2008 October 1, 2008 January 1, 2009 April 1, 2009 July 1, 2009 October 1, 2009 January 1, 2010 April 1, 2010 Term Loan Maturity Date Total 38

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 350,000.00 133,350,000.00 140,000,000.00

; provided that upon any partial prepayment pursuant to Section 3.04, such prepayment shall be applied pro rata to the remaining installments including the final payment on the Term Loan Maturity Date in accordance with Section 3.04. If not sooner paid, the Borrower promises to repay in full the Term Loans on the Term Loan Maturity Date. (c) The Borrower shall repay each Swing Line Loan as provided in Section 2.09. Section 3.02 Interest . (a) ABR Loans . The Loans, including all Swing Line Loans, comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate. (b) Eurodollar Loans . The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate. (c) Post-Default . Notwithstanding the foregoing, if an Event of Default under Sections 10.01(a) or (b) has occurred and is continuing, then all Loans outstanding shall bear interest, after as well as before judgment, at a rate per annum equal to two percent (2%) plus the then applicable rate of interest accruing on the Loans, but in no event to exceed the Highest Lawful Rate. (d) Interest Payment Dates . Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and on the Revolving Credit Maturity Date for Revolving Loans and on the Term Loan Maturity Date for Term Loans; provided that (i) interest accrued pursuant to Section 3.02(c) shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than an optional prepayment of an ABR Loan prior to the Revolving Credit Maturity Date or the Term Loan Maturity Date, as applicable), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) Interest Rate Computations . All interest hereunder shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, 39

Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error, and be binding upon the parties hereto. Section 3.03 Alternate Rate of Interest . If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Majority Revolving Lenders or the Majority Term Lenders, as the case may be, that the Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Revolving Lenders or the Term Loan Lenders, as the case may be, by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the relevant Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. Section 3.04 Prepayments . (a) Optional Prepayments . The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with Section 3.04(b). (b) Notice and Terms of Optional Prepayment . The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon, New York City time, three Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and whether the prepayment is to be applied to Revolving Loans, Term Loans or Swing Line Loans; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.06(b), then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.06(b), but the Borrower shall be responsible for any break funding payments pursuant to Section 5.02. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the applicable Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 3.02. Prepayments of the 40

Term Loan shall be applied pro rata to the remaining installments of principal including the payment due on the Term Loan Maturity Date. (c) Mandatory Prepayments . (i) After giving effect to any termination or reduction of the Revolving Commitments pursuant to Section 2.06(b), the Borrower shall (A) prepay the Revolving Borrowings on the date of such termination or reduction in an aggregate principal amount equal to the difference between the new Revolving Commitments and the Revolving Credit Exposure, and (B) if any excess remains after prepaying all of the Revolving Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Revolving Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j). (ii) Within five (5) Business Days of the delivery of the financial statements required by Section 8.01(a), the Borrower shall prepay the Term Loans during any period of time when the aggregate Term Loans outstanding exceeds $110,000,000 and thereafter when the leverage ratio referenced in Section 9.01(b) is greater than or equal to 3.0 to 1.0, in an amount equal to 50% of the Excess Cash Flow for the four quarters ending on the preceding December 31, commencing December 31, 2005. (iii) The Borrower shall prepay the Term Loans to the extent required by Section 9.02(f), Section 9.04(b) and Section 9.12(e) on the date fixed for prepayment as set forth therein, in an amount equal to 100% of the principal amount due, plus, accrued and unpaid interest on the principal amount prepaid to the date of prepayment and any payments required by Section 5.02; provided that for any mandatory prepayment under Section 9.04(b), the Borrower shall provide the Term Loan Lenders with written notice of the amount of such prepayment, and each Term Loan Lender shall have ten (10) Business Days from receipt of such notice to notify the Borrower in writing that it will accept or reject such mandatory prepayment. (iv) No later than thirty (30) days following the date of receipt by the Borrower or any of its Subsidiaries of net cash proceeds in excess of $1,000,000 from any Casualty Event, the Borrower shall prepay the Term Loans in an amount equal to 100% of the net cash proceeds from such Casualty Event, plus accrued and unpaid interest on the principal amount prepaid to the date of prepayment and any payments required by Section 5.02; provided , however , that no such prepayment shall be required if, within thirty (30) days following the date of receipt of such proceeds, the Borrower provides written notice to the Administrative Agent of the Borrower’s intent to reinvest the proceeds of such Casualty Event, in which case the Borrower shall, directly or through one or more of its Subsidiaries, invest such net cash proceeds within three hundred sixty-five (365) days of receipt thereof in long term productive assets of the general type used in the business of the Borrower and its Subsidiaries, which investment may include the repair, restoration or replacement of the applicable assets the subject of such Casualty Event. 41

(v) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied, first, ratably to any ABR Borrowings then outstanding, and, second, to any Eurodollar Borrowings then outstanding, and if more than one Eurodollar Borrowing is then outstanding, to each such Eurodollar Borrowing in order of priority beginning with the Eurodollar Borrowing with the least number of days remaining in the Interest Period applicable thereto and ending with the Eurodollar Borrowing with the most number of days remaining in the Interest Period applicable thereto. (vi) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied ratably to the Loans included in the prepaid Borrowings. Prepayments pursuant to this Section 3.04(c) shall be accompanied by accrued interest to the extent required by Section 3.02. Prepayments of the Term Loan shall be applied pro rata to the remaining installments of principal including the payment due on the Term Loan Maturity Date. (vii) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be accompanied by a written statement from a Responsible Officer of the Borrower detailing the reason for such prepayment as reasonably requested by the Administrative Agent. (d) No Premium or Penalty . Prepayments permitted or required under this Section 3.04 shall be without premium or penalty, except as required under Section 5.02. Any mandatory prepayment of the Term Loans pursuant to Section 9.02(f) or any repricing prior to the first anniversary of the Effective Date shall be in the amount of 101% of the principal being repaid. Section 3.05 Fees . (a) Commitment Fees . The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender a commitment fee, which shall accrue at the applicable Commitment Fee Rate on the average daily amount of the unused amount of the Revolving Commitment of such Revolving Lender (after deducting all outstanding Revolving Loans, Swing Line Loans and LC Exposure) during the period from and including the Effective Date to but excluding the Revolving Credit Maturity Date. Accrued commitment fees shall be payable in arrears on the first day of January, April, July and October of each year and on the Revolving Credit Maturity Date, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) Letter of Credit Fees . The Borrower agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Margin used to determine the interest rate applicable to Eurodollar Loans on the average daily amount of such Revolving Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Revolving Lender’s Revolving Commitment terminates and the date on which such Revolving Lender ceases to have any LC Exposure, (ii) to the Issuing Bank a 42

fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, provided that in no event shall such fee be less than $250 during any quarter, and (iii) to the Issuing Bank, for its own account, its standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the date of this Agreement; provided that all such fees shall be payable on the Revolving Credit Maturity Date and any such fees accruing after the Revolving Credit Maturity Date shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this Section 3.05(b) shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) Administrative Agent Fees . The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. ARTICLE IV Payments; Pro Rata Treatment; Sharing of Set-offs. Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs . (a) Payments by the Borrower . The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without defense, deduction, recoupment, set-off or counterclaim. Fees, once paid, shall be fully earned and shall not be refundable under any circumstances. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices specified in Section 12.01, except payments to be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to Section 5.01, Section 5.02, Section 5.03 and Section 12.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. 43

(b) Application of Insufficient Payments . If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) Sharing of Payments by Lenders . If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this Section 4.01(c) shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 4.01(c) shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. Section 4.02 Presumption of Payment by the Borrower . Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. 44

Section 4.03 Certain Deductions by the Administrative Agent . If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(b), Section 2.08(d), Section 2.08(e) or Section 4.02 then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid. ARTICLE V Increased Costs; Break Funding Payments; Taxes; Illegality Section 5.01 Increased Costs . (a) Eurodollar Changes in Law . If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) Capital Requirements . If any Lender or the Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital or on the capital of such Lender’s or the Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Bank’s policies and the policies of such Lender’s or the Issuing Bank’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company for any such reduction suffered. (c) Certificates . A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in Section 5.01(a) or (b) shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. 45

(d) Effect of Failure or Delay in Requesting Compensation . Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 5.01 shall not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section 5.01 for any increased costs or reductions incurred more than 365 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 365-day period referred to above shall be extended to include the period of retroactive effect thereof. Section 5.02 Break Funding Payments . In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan into an ABR Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto, then, in any such event, the Borrower shall compensate each Lender requesting a reimbursement for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 5.02 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Section 5.03 Taxes . (a) Payments Free of Taxes . Any and all payments by or on account of any obligation of the Borrower or any Guarantor under any Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower or any Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or such Guarantor shall make such deductions and (iii) the Borrower or such Guarantor shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. 46

(b) Payment of Other Taxes by the Borrower . The Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Indemnification by the Borrower . The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 5.03) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate of the Administrative Agent, a Lender or the Issuing Bank as to the amount of such payment or liability under this Section 5.03 shall be delivered to the Borrower and shall be conclusive absent manifest error. (d) Evidence of Payments . As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Foreign Lenders . Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement or any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. Section 5.04 Mitigation Obligations . If any Lender requests compensation under Section 5.01, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.03, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 5.01 or Section 5.03, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. Section 5.05 Illegality . Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its applicable lending office to honor its obligation to make or maintain Eurodollar Loans either generally or having a particular Interest Period hereunder, then (a) such Lender shall promptly notify the Borrower and the Administrative Agent thereof and such Lender’s obligation to make such Eurodollar Loans shall 47

be suspended (the ― Affected Loans ‖) until such time as such Lender may again make and maintain such Eurodollar Loans and (b) all Affected Loans which would otherwise be made by such Lender shall be made instead as ABR Loans (and, if such Lender so requests by notice to the Borrower and the Administrative Agent, all Affected Loans of such Lender then outstanding shall be automatically converted into ABR Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) ABR Loans, all payments of principal which would otherwise be applied to such Lender’s Affected Loans shall be applied instead to its ABR Loans. ARTICLE VI Conditions Precedent Section 6.01 Effective Date . The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 12.02 or the last paragraph of this Section 6.01): (a) The Administrative Agent, the Joint Lead Arrangers and the Lenders shall have received all commitment, facility and agency fees and all other fees and amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (b) The Administrative Agent shall have received a certificate of the Secretary or an Assistant Secretary of the Borrower and each Guarantor setting forth (i) resolutions of its board of directors or members with respect to the authorization of the Borrower or such Guarantor to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of the Borrower or such Guarantor (y) who are authorized to sign the Loan Documents to which the Borrower or such Guarantor is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of such authorized officers, and (iv) the Organizational Documents of the Borrower and such Guarantor, certified as being true and complete. The Administrative Agent and the Lenders may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Borrower to the contrary. (c) The Administrative Agent shall have received certificates of the appropriate State agencies with respect to the existence, qualification and good standing of the Borrower and each Guarantor. (d) The Administrative Agent shall have received a compliance certificate which shall be substantially in the form of Exhibit D, duly and properly executed by a Responsible Officer and dated as of the Effective Date. 48

(e) The Administrative Agent shall have received from each party hereto counterparts (in such number as may be requested by the Administrative Agent) of this Agreement signed on behalf of such party. (f) The Administrative Agent shall have received duly executed Notes payable to the order of each Lender that has requested a Note in a principal amount equal to its respective Commitment dated as of the date hereof. (g) The Administrative Agent shall have received from each party thereto duly executed counterparts (in such number as may be requested by the Administrative Agent) of the Security Instruments, including the Guaranty Agreement. In connection with the execution and delivery of the Security Instruments, the Syndication Agent shall: (i) be reasonably satisfied that the Security Instruments create first priority, perfected Liens (subject only to Excepted Liens identified in clauses (a) to (c) and (e) and (f) of the definition thereof but subject to the provisos at the end of such definition) on (A) the Equity Interests of the Subsidiaries of the Borrower, (B) the Drilling Rigs and Lift Boats, and (C) all other personal Property of the Borrower and the Subsidiaries for which a security interest can be perfected under the Uniform Commercial Code by the filing of a financing statement; and (ii) have received certificates, if any, together with undated, blank stock or membership interest powers for each such certificate, representing all of the issued and outstanding Equity Interests of the Subsidiaries of the Borrower (which certificates shall promptly be delivered to the Administrative Agent by Syndication Agent). (h) The Administrative Agent shall have received an opinion of (i) Baker Botts L.L.P., special counsel to the Borrower, substantially in the form of Exhibit E-1 hereto, and (ii) local counsel in each of the following jurisdictions: Panama and any other jurisdictions reasonably requested by the Syndication Agent, substantially in the form of Exhibit E-2. (i) The Syndication Agent shall have received a certificate of insurance coverage of the Borrower evidencing that the Borrower is carrying insurance in accordance with Section 7.13. (j) The Administrative Agent shall have received appropriate UCC or other relevant search certificates reflecting no prior Liens encumbering the Properties of the Borrower and the Subsidiaries for each of the following jurisdictions: Delaware, Panama and any other jurisdiction requested by the Syndication Agent; other than those being assigned or released on or prior to the Effective Date or Liens permitted by Section 9.03 (which search certificates shall be promptly delivered to Administrative Agent by Syndication Agent). (k) The Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower certifying that the Borrower has received all consents and approvals required by Section 7.03. (l) The Administrative Agent shall have received the projections referred to in Section 7.04(a), together with a certificate of a Responsible Officer of the Borrower to the effect 49

that such projections were prepared in good faith based upon assumptions believed to be reasonable at the time, and the Administrative Agent shall be satisfied that such projections are not materially inconsistent with the forecasts previously provided to the Joint Lead Arrangers. (m) The Administration Agents shall have received reasonably satisfactory evidence (including an officer’s certificate accompanied by satisfactory supporting schedules and other data) that (x) the ratio of Total Debt of the Borrower as of the Effective Date to EBITDA of the Borrower for the twelve months ended on May 31, 2005, in each case calculated on a pro forma basis reasonably acceptable to the Joint Lead Arrangers, inclusive of the Jupiter acquisition, is not greater than 2.0 to 1.0. The Administrative Agent shall have received a solvency certificate from a Responsible Officer of the Borrower, in form and substance reasonably satisfactory to the Administrative Agent, confirming the solvency of the Borrower and the Guarantors, taken as a whole, after giving effect to the Transactions. (n) The Syndication Agent shall have received, reviewed and been satisfied with, the following: (i) title information as the Syndication Agent may reasonably require satisfactory to the Syndication Agent setting forth the status of title to the Borrower’s and its Subsidiaries’ personal Properties; and (ii) information as the Syndication Agent may reasonably require regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), leases, material contracts, debt agreements, corporate organization, legal structure, contingent liabilities and management of the Borrower and its Subsidiaries. (o) The Administrative Agent shall have received a letter from CT Corporation System evidencing the appointment of CT Corporation System as authorized agent for service of process on each of the Borrower and each Guarantor under each Loan Document to which it is a party. (p) Concurrently with the initial funding of the Revolving Loans, the Borrower and the Guarantors shall have repaid the Existing Credit Agreements and all of the agreements evidencing and securing such Debt shall have been terminated and the related financing statements released, amended or assigned as required by the Administrative Agent. (q) The Administrative Agent shall have received such other documents as the Administrative Agent or special counsel to the Administrative Agent may reasonably request. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 12.02 or deemed waived pursuant to the following provisions) at or prior to 2:00 p.m., New York City time, on July 6, 2005 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time); provided that upon the funding of the Term Loans and the initial Revolving Loans hereunder, the foregoing conditions 50

in this Section 6.01 shall be deemed satisfied unless otherwise specified in writing by the Administrative Agent. Section 6.02 Each Credit Event . The obligation of each Lender to make a Loan on the occasion of any Borrowing (including the initial funding), and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: (a) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing. (b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no event, development or circumstance has occurred or shall then exist that has resulted in, or could reasonably be expected to have, a Material Adverse Effect. (c) The representations and warranties of the Borrower and the Guarantors set forth in this Agreement and in the other Loan Documents shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, except to the extent any such representations and warranties are expressly limited to an earlier date. (d) The making of such Loan or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, would not cause any Lender or the Issuing Bank to violate or exceed any applicable Governmental Requirement, and no Change in Law shall have occurred, and no litigation shall be pending or threatened, which does or, with respect to any threatened litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, the issuance, amendment, renewal, extension or repayment of any Letter of Credit or any participations therein or the consummation of the transactions contemplated by this Agreement or any other Loan Document. (e) The receipt by the Administrative Agent of a Borrowing Request in accordance with Section 2.03 or a request for a Letter of Credit in accordance with Section 2.08(b), as applicable. Each request for a Borrowing and each request for the issuance, amendment, renewal or extension of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in Section 6.02(a) through (e). ARTICLE VII Representations and Warranties The Borrower represents and warrants to the Lenders that: Section 7.01 Organization; Powers . Each of the Borrower and the Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority, and has all material governmental licenses, 51

authorizations, consents and approvals necessary, to own its assets and to carry on its business as now conducted, and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where failure to have such power, authority, licenses, authorizations, consents, approvals and qualifications could not reasonably be expected to have a Material Adverse Effect. Section 7.02 Authority; Enforceability . The Transactions are within the Borrower’s and each Guarantor’s limited liability company, corporate or partnership powers and have been duly authorized by all necessary limited liability company, corporate or partnership and, if required, member, shareholder or partner action (including, without limitation, any action required to be taken by any class of directors of the Borrower or any other Person, whether interested or disinterested, in order to ensure the due authorization of the Transactions). Each Loan Document to which the Borrower and each Guarantor is a party has been duly executed and delivered by the Borrower and such Guarantor and constitutes a legal, valid and binding obligation of the Borrower and such Guarantor, as applicable, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Section 7.03 Approvals; No Conflicts . The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other third Person (including members, partners, shareholders or any class of directors, whether interested or disinterested, of the Borrower or any other Person), nor is any such consent, approval, registration, filing or other action necessary for the validity or enforceability of any Loan Document or the consummation of the transactions contemplated thereby, except such as have been obtained or made and are in full force and effect other than the recording and filing of the Security Instruments as required thereby or by this Agreement, (b) will not violate any applicable law or regulation or the organizational or governing documents of the Borrower or any Subsidiary or any order of any Governmental Authority, (c) will not violate or result in a default under any material indenture, agreement or other instrument binding upon the Borrower or any Subsidiary or its Properties, or give rise to a right thereunder to require any payment to be made by the Borrower or such Subsidiary and (d) will not result in the creation or imposition of any Lien on any Property of the Borrower or any Subsidiary (other than the Liens created by the Loan Documents). Section 7.04 Financial Projections; No Material Adverse Change . (a) The Borrower has heretofore furnished to the Lenders the Borrower’s consolidated projections for the period beginning the Effective Date and ending December 31, 2009. The Borrower’s consolidated projections were prepared in good faith based upon assumptions believed to be reasonable at the time. Such projections are not materially inconsistent with the projections previously provided to the Joint Lead Arrangers. (b) The Administrative Agent shall have received a pro forma consolidated balance sheet of the Borrower as of the Effective Date, after giving effect to the Transactions, together with a certificate of a Responsible Officer of the Borrower to the effect that such statements present fairly, in all material respects, the pro forma financial position of the Borrower and its 52

Subsidiaries in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes. (c) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 2004, reported on by Grant Thornton LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended March 31, 2005, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its Consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the unaudited quarterly financial statements. (d) Since December 31, 2004 there has been no event, development or circumstance that has had or could reasonably be expected to have a Material Adverse Effect. (e) Neither the Borrower nor any Subsidiary has any material Debt (including Disqualified Capital Stock) or any contingent liabilities, off-balance sheet liabilities or partnerships, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except for those arising with respect to the Transactions and those disclosed in the financial statements or other written materials delivered to the Administrative Agent and/or the Joint Lead Arrangers. Section 7.05 Litigation . (a) Except as set forth on Schedule 7.05, there are no actions, suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary or any of their Properties (i) as to which there is a reasonable possibility of an adverse determination that would reasonable be expected to have a Material Adverse Effect, or (ii) that involve any Loan Document or the Transactions. (b) Since the date of this Agreement, there has been no change in the status of the matters disclosed in Schedule 7.05 that has resulted in, or would reasonably be expected to have, Material Adverse Effect. Section 7.06 Environmental Matters . Except as could not be reasonably expected to have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions could not be reasonably expected to have a Material Adverse Effect): (a) neither any Property of the Borrower or any Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws. (b) no Property of the Borrower or any Subsidiary nor the operations currently conducted thereon or, to the knowledge of the Borrower, by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to 53

any remedial obligations under Environmental Laws, other than the asbestos remediation to be undertaken on the following vessels: Snapper, Pike, and Lorina. (c) all notices, permits, licenses, exemptions, approvals or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property of the Borrower and each Subsidiary, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance, oil and gas waste or solid waste into the environment, have been duly obtained or filed, and the Borrower and each Subsidiary are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations. (d) all hazardous substances, solid waste and oil and gas waste, if any, generated at any and all Property of the Borrower or any Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the knowledge of the Borrower, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws. (e) the Borrower has taken all steps reasonably necessary to determine and has determined that no oil, hazardous substances, solid waste or oil and gas waste, have been disposed of or otherwise released and there has been no threatened release of any oil, hazardous substances, solid waste or oil and gas waste on or to any Property of the Borrower or any Subsidiary except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment. (f) to the extent applicable, all Property of the Borrower and each Subsidiary currently satisfies all design, operation, and equipment requirements imposed by the OPA, and the Borrower does not have any reason to believe that such Property, to the extent subject to the OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement. (g) neither the Borrower nor any Subsidiary has any known contingent liability or Remedial Work in connection with any release or threatened release of any oil, hazardous substance, solid waste or oil and gas waste into the environment. Section 7.07 Compliance with the Laws and Agreements; No Defaults . (a) Each of the Borrower and each Subsidiary is in compliance with all Governmental Requirements applicable to it or its Property and all agreements and other instruments binding upon it or its Property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, and possesses all licenses, permits, franchises, exemptions, approvals and other governmental authorizations necessary for the ownership of its Property and the conduct of its business, except where the failure to do so, 54

individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (b) Neither the Borrower nor any Subsidiary is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default or would require the Borrower or a Subsidiary to Redeem or make any offer to Redeem under any indenture, note, credit agreement or instrument pursuant to which any Material Indebtedness is outstanding or by which the Borrower or any Subsidiary or any of their Properties is bound. (c) No Default has occurred and is continuing. Section 7.08 Investment Company Act . Neither the Borrower nor any Subsidiary is an ―investment company‖ or a company ―controlled‖ by an ―investment company,‖ within the meaning of, or subject to regulation under, the Investment Company Act of 1940, as amended. Section 7.09 Public Utility Holding Company Act . Neither the Borrower nor any Subsidiary is a ―holding company,‖ or a ―subsidiary company‖ of a ―holding company,‖ or an ―affiliate‖ of a ―holding company‖ or of a ―subsidiary company‖ of a ―holding company,‖ or a ―public utility‖ within the meaning of, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. Section 7.10 Taxes . Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of Taxes and other governmental charges are, in the reasonable opinion of the Borrower, adequate. Section 7.11 ERISA . (a) The Borrower, the Subsidiaries and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan. (b) Each Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code. (c) No act, omission or transaction has occurred which could result in imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of (i) either a material civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) material breach of fiduciary duty liability damages under section 409 of ERISA. (d) No Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated since September 2, 1974. No liability to the PBGC (other than for 55

the payment of current premiums which are not past due) by the Borrower, any Subsidiary or any ERISA Affiliate has been or is expected by the Borrower, any Subsidiary or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred. (e) Full payment when due has been made of all material amounts which the Borrower, the Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan as of the date hereof, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan. (f) The actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Borrower’s most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term ―actuarial present value of the benefit liabilities‖ shall have the meaning specified in section 4041 of ERISA. (g) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion at any time without any material liability. (h) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the six-year period preceding the date hereof sponsored, maintained or contributed to, any Multiemployer Plan. (i) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan. Section 7.12 Disclosure; No Material Misstatements . The Borrower has disclosed to the Agents all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Information Memorandum nor any of the other reports, financial statements, certificates or other oral or written information furnished by the Borrower or any Subsidiary to the Agents or any of their Affiliates in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or under any other Loan Document (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of the Effective Date, to the knowledge of the Borrower, there is no fact peculiar to the Borrower or any Subsidiary which could reasonably be expected to have a Material Adverse Effect or in the future is reasonably likely to have a Material Adverse Effect and which has not been set forth in this Agreement or the Loan Documents or the other documents, certificates and statements furnished to the Agents by or on 56

behalf of the Borrower or any Subsidiary prior to, or on, the date hereof in connection with the transactions contemplated hereby. Section 7.13 Insurance . The Borrower has, and has caused all of its Subsidiaries to have, (a) all insurance policies sufficient for the compliance by each of them with all material Governmental Requirements, all material agreements and all other Loan Documents and (b) insurance coverage in at least amounts and against such risk (including, without limitation, public liability) that are usually insured against by companies similarly situated and engaged in the same or a similar business for the assets and operations of the Borrower and its Subsidiaries. The Administrative Agent and the Lenders have been named in a manner such that they are afforded the stature of additional insureds in respect of such liability insurance policies and the Administrative Agent has been named as loss payee with respect to Property loss insurance. Section 7.14 Restriction on Liens . Except as permitted by Section 9.16, neither the Borrower nor any of the Subsidiaries is a party to any material agreement or arrangement, or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to the Administrative Agent for the benefit of the Lenders on or in respect of their Properties to secure the Indebtedness and the Loan Documents. Section 7.15 Subsidiaries . Except as set forth on Schedule 7.15 or as disclosed in writing to the Administrative Agent (which shall promptly furnish a copy to the Lenders), which shall be a supplement to Schedule 7.15, the Borrower has no Subsidiaries and each Subsidiary on such schedule is a Wholly-Owned Subsidiary. As of the Effective Date, the Borrower has no Foreign Subsidiaries. Section 7.16 Location of Business and Offices . The Borrower’s jurisdiction of organization is Delaware; the name of the Borrower as listed in the public records of its jurisdiction of organization is Hercules Offshore, LLC; and the organizational identification number of the Borrower in its jurisdiction of organization is 3834166 (or, in each case, as set forth in a notice delivered to the Administrative Agent pursuant to Section 8.01(l) in accordance with Section 12.01). The Borrower’s principal place of business and chief executive offices are located at the address specified in Section 12.01 (or as set forth in a notice delivered pursuant to Section 8.01(l) and Section 12.01(c)). Each Subsidiary’s jurisdiction of organization, name as listed in the public records of its jurisdiction of organization, organizational identification number in its jurisdiction of organization, and the location of its principal place of business and chief executive office is stated on Schedule 7.15 (or as set forth in a notice delivered pursuant to Section 8.01(l)). Section 7.17 Properties; Titles, Etc . (a) Each of the Borrower and the Subsidiaries has good and defensible title to all of its material real Properties and good title to all of its material personal Properties, in each case, free and clear of all Liens except Liens permitted by Section 9.03. (b) All material leases and agreements necessary for the conduct of the business of the Borrower and the Subsidiaries are valid and subsisting, in full force and effect, and there exists no default or event or circumstance which with the giving of notice or the passage of time 57

or both would give rise to a default under any such lease or leases that could reasonably be expected to have a Material Adverse Effect. (c) The rights and Properties presently owned, leased or licensed by the Borrower and the Subsidiaries including, without limitation, all easements and rights of way, include all rights and Properties necessary to permit the Borrower and the Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the date hereof. (d) Except as set forth in Schedule 7.17, all of the material Properties of the Borrower and the Subsidiaries which are reasonably necessary for the operation of their businesses are in good working condition and are maintained in accordance with prudent business standards. (e) The Borrower and each Subsidiary owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual Property material to its business, and the use thereof by the Borrower and such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower and its Subsidiaries either own or have valid licenses or other rights to use all databases, geological data, geophysical data, engineering data, seismic data, maps, interpretations and other technical information used in their businesses as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in its line of business, with such exceptions as could not reasonably be expected to have a Material Adverse Effect. Section 7.18 Maintenance of Properties . Except for such acts or failures to act as could not be reasonably expected to have a Material Adverse Effect, and other than with respect to the Properties described on Schedule 7.18, the Properties of the Borrower and its Subsidiaries have been maintained, operated and developed in a good and workmanlike manner and in conformity with all Government Requirements and in conformity with the provisions of all leases, subleases or other contracts comprising a part of their Properties and other contracts and agreements related thereto. Other than the Properties described on Schedule 7.18, all plants, platforms and other material improvements, fixtures and equipment owned in whole or in part by the Borrower or any of its Subsidiaries that are necessary to conduct normal operations are being maintained in a state adequate to conduct normal operations, and with respect to such of the foregoing which are operated by the Borrower or any of its Subsidiaries, in a manner consistent with practices of the industry and in compliance in all material respects with all applicable contracts, agreements and all Governmental Requirements. Section 7.19 Swap Agreements . As of the Effective Date, Schedule 7.19 sets forth a true and complete list of all Swap Agreements of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement. Section 7.20 Use of Proceeds . The proceeds of the Revolving Loans and the Letters of Credit shall be used for working capital and general corporate purposes of the Borrower and its 58

Subsidiaries. The proceeds of the Term Loan shall be used to provide funding in connection with the acquisition of the Jupiter and its refurbishment, to refinance the Debt under the Existing Credit Agreements and to pay fees and expenses related to the foregoing. The Borrower and its Subsidiaries are not engaged principally, or as one of its or their important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board). No part of the proceeds of the Term Loan will be used for any purpose which violates the provisions of Regulations T, U or X of the Board. Section 7.21 Solvency . After giving effect to the transactions contemplated hereby, (a) the aggregate assets (after giving effect to amounts that could reasonably be received by reason of indemnity, offset, insurance or any similar arrangement), at a fair valuation, of the Borrower and the Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrower and the Guarantors on a consolidated basis, as the Debt becomes absolute and matures, (b) each of the Borrower and the Guarantors will not have incurred or intended to incur, and will not believe that it will incur, Debt beyond its ability to pay such Debt (after taking into account the timing and amounts of cash to be received by each of the Borrower and the Guarantors and the amounts to be payable on or in respect of its liabilities, and giving effect to amounts that could reasonably be received by reason of indemnity, offset, insurance or any similar arrangement) as such Debt becomes absolute and matures and (c) each of the Borrower and the Guarantors will not have (and will have no reason to believe that it will have thereafter) unreasonably small capital for the conduct of its business. Section 7.22 Charters and Contracts . Schedule 7.22, as of the date hereof, and after the date hereof, each report required to be delivered by the Borrower pursuant to Section 8.01(i), sets forth, a true and complete list of all drilling contracts and other revenue producing charters and contracts related to each Drilling Rig and Lift Boat and such other information relating to such contracts and charters as has been previously delivered to the Administrative Agent in similar reports. ARTICLE VIII Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit have expired, terminated or been cash collateralized to the reasonable satisfaction of the Issuing Bank and all LC Disbursements shall have been reimbursed,, the Borrower covenants and agrees with the Lenders that: Section 8.01 Financial Statements; Ratings Change; Other Information . The Borrower will furnish to the Administrative Agent: (a) Annual Financial Statements . As soon as available, but in any event in accordance with then applicable law and not later than 90 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent 59

public accountants of recognized national standing (without a ―going concern‖ or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP. (b) Quarterly Financial Statements . As soon as available, but in any event in accordance with then applicable law and not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes. (c) Certificate of Financial Officer — Compliance . Concurrently with any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer in substantially the form of Exhibit D hereto (i) certifying as to whether a Default exists and, if a Default exists, specifying the details thereof and any action taken or proposed to be taken with respect thereto and (ii) setting forth reasonably detailed calculations of Excess Cash Flow (for the period ending December 31) and demonstrating compliance with Section 9.01. (d) [Intentionally omitted] . (e) Certificate of Insurer – Insurance Coverage . Concurrently with any delivery of financial statements under Section 8.01(a), a certificate of insurance coverage from each insurer with respect to the insurance required by Section 8.07, in form and substance reasonably satisfactory to the Administrative Agent, and, if requested by the Administrative Agent, all copies of the applicable policies. (f) Other Accounting Reports . Promptly upon receipt thereof, a copy of each other report or letter submitted to the Borrower or any of its Subsidiaries by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower or any such Subsidiary, and a copy of any response by the Borrower or any such Subsidiary, or the Board of Directors of the Borrower or any such Subsidiary, to such letter or report. (g) SEC and Other Filings; Reports to Shareholders . Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the SEC, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be. (h) Notices Under Material Instruments . Promptly after the furnishing thereof, copies of any financial statement, material report or material notice furnished to or by any Person 60

pursuant to the terms of any preferred stock designation, indenture, loan or credit or other similar agreement in respect of Material Indebtedness, other than this Agreement and not otherwise required to be furnished to the Administrative Agent pursuant to any other provision of this Section 8.01. (i) Charter Report . Concurrently with any delivery of financial statements under Section 8.01(a) and Section 8.01(b), a report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth for the immediately preceding fiscal quarter, with respect to each Drilling Rig, Lift Boat and other vessel of the Borrower or any of its Subsidiaries, all drilling contracts and other revenue producing charters and contracts related to such Drilling Rig, Lift Boat or such other information related to such charter or contract as the Administrative Agent may reasonably request. (j) [Intentionally Omitted.] (k) Notice of Casualty Events . Prompt written notice, and in any event within ten Business Days, of the occurrence of any Casualty Event or the commencement of any action or proceeding that could reasonably be expected to result in a Casualty Event; provided that such loss, casualty or other insured damage is in excess of $1,000,000. (l) Information Regarding Borrower and Guarantors . Prompt written notice (and in any event within three (3) Business Days prior thereto) of any change (i) in the Borrower or any Guarantor’s corporate name, (ii) in the location of the Borrower or any Guarantor’s chief executive office or principal place of business, (iii) in the Borrower or any Guarantor’s identity or corporate structure or in the jurisdiction in which such Person is incorporated or formed, (iv) in the Borrower or any Guarantor’s jurisdiction of organization or such Person’s organizational identification number in such jurisdiction of organization, and (v) in the Borrower or any Guarantor’s federal taxpayer identification number. (m) [Intentionally Omitted.] (n) Other Requested Information . Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA), or compliance with the terms of this Agreement or any other Loan Document, as the Administrative Agent or any Lender through the Administrative Agent may reasonably request. Section 8.02 Notices of Material Events . The Borrower will furnish to the Administrative Agent prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of, or the threat in writing of, any action, suit, proceeding, investigation or arbitration by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof not previously disclosed in writing to the Administrative Agent or any material adverse development in any action, suit, proceeding, investigation or arbitration (whether or not previously disclosed to the Administrative Agent) 61

that, in either case, if adversely determined, could reasonably be expected to result in liability in excess of $3,000,000; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $1,000,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 8.03 Existence; Conduct of Business . Except as permitted by Section 9.11 and Section 9.12, the Borrower will, and will cause each Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect (a) its legal existence and (b) the rights, licenses, permits, privileges and franchises material to the conduct of its business and maintain, if necessary, its qualification to do business in each other jurisdiction in which its Properties is located or the ownership of its Properties requires such qualification, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. Section 8.04 Payment of Obligations . The Borrower will, and will cause each Subsidiary to, pay its obligations, including Tax liabilities of the Borrower and all of its Subsidiaries before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings and the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP or (b) the failure to make payment could not reasonably be expected to result in a Material Adverse Effect or result in the seizure or levy of any Property of the Borrower or any Subsidiary. Section 8.05 Performance of Obligations under Loan Documents . The Borrower will pay the Notes according to the reading, tenor and effect thereof, and the Borrower will, and will cause each Subsidiary to, do and perform every act and discharge all of the obligations to be performed and discharged by them under the Loan Documents, including, without limitation, this Agreement, at the time or times and in the manner specified. Section 8.06 Operation and Maintenance of Properties . The Borrower, at its own expense, will, and will cause each Subsidiary to: (a) operate its Properties or cause such Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Governmental Requirements, including, without limitation, Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of its Properties, except, in each case, where the failure to comply could not reasonably be expected to have a Material Adverse Effect. 62

(b) preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear excepted) all of its Properties, including, without limitation, all vessels, rigs, equipment, machinery and facilities, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect. (c) promptly pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to its Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder except, in each case, where the failure to comply could not reasonably be expected to have a Material Adverse Effect. (d) promptly perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its Properties except, in each case, where the failure to comply could not reasonably be expected to have a Material Adverse Effect. (e) to the extent the Borrower is not the operator of any of its Property, the Borrower shall use reasonable efforts to cause the operator to comply with this Section 8.06. Section 8.07 Insurance . The Borrower will, and will cause each Subsidiary to, maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations, but in any event as required by applicable law and the other Loan Documents. The loss payable clauses or provisions in said insurance policy or policies insuring any of the collateral for the Loans shall be endorsed in favor of and made payable to the Administrative Agent as its interests may appear and such policies shall name the Administrative Agent and the Lenders in a manner such that they are afforded the stature of ―additional insureds‖ and provide that the insurer will endeavor to give at least 30 days prior notice of any cancellation to the Administrative Agent. Section 8.08 Books and Records; Inspection Rights . The Borrower will, and will cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each Subsidiary to, permit any representatives designated by the Administrative Agent or any of the Lenders, upon reasonable prior notice, to visit and inspect its Properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. Section 8.09 Compliance with Laws . The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its Property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 63

Section 8.10 Environmental Matters . (a) Except where the failure to do so could not reasonably be expected to have a Material Adverse Effect, the Borrower shall at its sole expense: (i) comply, and shall cause its Properties and operations and each Subsidiary and each Subsidiary’s Properties and operations to comply, with all applicable Environmental Laws; (ii) not dispose of or otherwise release, and shall cause each Subsidiary not to dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid waste on, under, about or from any of the Borrower’s or its Subsidiaries’ Properties or any other Property to the extent caused by the Borrower’s or any of its Subsidiaries’ operations except in compliance with applicable Environmental Laws; (iii) timely obtain or file, and shall cause each Subsidiary to timely obtain or file, all notices, permits, licenses, exemptions, approvals, registrations or other authorizations, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of the Borrower’s or its Subsidiaries’ Properties; (iv) promptly commence and diligently prosecute to completion, and shall cause each Subsidiary to promptly commence and diligently prosecute to completion, any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other remedial obligations (collectively, the ― Remedial Work ‖) in the event any Remedial Work is required or reasonably necessary under applicable Environmental Laws because of or in connection with the actual or suspected past, present or future disposal or other release of any oil, oil and gas waste, hazardous substance or solid waste on, under, about or from any of the Borrower’s or its Subsidiaries’ Properties; and (v) establish and implement, and shall cause each Subsidiary to establish and implement, such procedures as may be necessary to continuously determine and assure that the Borrower’s and its Subsidiaries’ obligations under this Section 8.10(a) are timely and fully satisfied. (b) The Borrower will promptly, but in no event later than five days after the occurrence thereof, notify the Administrative Agent in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any landowner or other third party against the Borrower or its Subsidiaries or their Properties of which the Borrower has knowledge in connection with any Environmental Laws (excluding routine testing and corrective action) if the Borrower reasonably anticipates that such action will result in liability (whether individually or in the aggregate) in excess of $3,000,000, not fully covered by insurance, subject to normal deductibles. Section 8.11 Further Assurances . (a) The Borrower at its sole expense will, and will cause each Subsidiary to, promptly execute and deliver to the Administrative Agent, all such other documents, agreements and instruments reasonably requested by the Administrative Agent to comply with, cure any defects or accomplish the conditions precedent, covenants and agreements of the Borrower or any Subsidiary, as the case may be, in the Loan Documents, including the Notes, or to further evidence and more fully describe the collateral intended as security for the Indebtedness, or to correct any omissions in this Agreement or the Security Instruments, or to state more fully the obligations secured therein, or to perfect, protect or preserve any Liens created pursuant to this Agreement or any of the Security Instruments or the priority thereof, or to make any recordings, file any notices or obtain any consents, all as may be reasonably necessary or appropriate, in the sole reasonable discretion of the Administrative Agent, in connection therewith. 64

(b) The Borrower hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of its Property without the signature of the Borrower or any other Guarantor where permitted by law. A carbon, photographic or other reproduction of the Security Instruments or any financing statement covering its Property or any part thereof shall be sufficient as a financing statement where permitted by law. Section 8.12 Credit Support; Collateral . (a) The Borrower shall promptly cause each Material Subsidiary (whether now in existence or hereafter created, acquired or coming into existence), but no later than five days after such Subsidiary has been created, acquired or otherwise comes into existence, to absolutely and unconditionally guarantee the timely payment of the Indebtedness pursuant to the Guaranty Agreement; in connection therewith, the Borrower shall, or shall cause such Subsidiary to, (i) execute and deliver the Guaranty Agreement or a supplement to the Guaranty Agreement as required by the Administrative Agent, (ii) pledge all of the Equity Interests of such Subsidiary (including, if certificated, delivery of original stock or membership interest certificates evidencing the Equity Interests of such Subsidiary, together with an appropriate undated stock or membership interest powers for each certificate duly executed in blank by the registered owner thereof), (iii) execute and deliver a Security Agreement, together with any and all applicable financing statements, and (iv) execute and deliver such other additional closing documents, certificates and legal opinions as shall be reasonably requested by the Administrative Agent. (b) The Borrower will at all times cause all of the Drilling Rigs, Lift Boats and other personal Properties of the Borrower and each Material Subsidiary for which a security interest can be perfected under the Uniform Commercial Code by the filing of a financing statement and other property of Borrower and its Material Subsidiaries reasonably requested by the Administrative Agent to be subject to a Lien pursuant to Security Instruments, in form and substance satisfactory to the Administrative Agent. In order to comply with the foregoing, the Borrower shall, and shall promptly cause each Material Subsidiary (whether now in existence or hereafter created, acquired or coming into existence), but no later than five days after such Subsidiary has been created, acquired or otherwise comes into existence, to execute and deliver First Naval Ship Mortgages, Fleet Mortgages or other types of mortgages, and such other Security Instruments, other additional closing documents, certificates and legal opinions as shall be reasonably requested by the Administrative Agent. Section 8.13 ERISA Compliance . The Borrower will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the Administrative Agent (i) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan or any trust created thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA Event or of any material ―prohibited transaction,‖ as described in section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by the President or the principal Financial Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature thereof, what action the Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor 65

or the PBGC with respect thereto, and (iii) immediately upon receipt thereof, copies of any notice of the PBGC’s intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower will, and will cause each Subsidiary and ERISA Affiliate to, (A) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (B) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA. Section 8.14 Vessel Information . On or before July 30th of each year, commencing July 30, 2005, the Borrower shall furnish to the Administrative Agent (a) the class certificates required by Section 1.11 of the First Naval Ship Mortgages and the Fleet Mortgages, and (b) the insurance certificate required by Section 1.15(g) of the First Naval Ship Mortgages and the Fleet Mortgages. Section 8.15 Hedging Contracts . On or before forty-five (45) days after the Effective Date, the Borrower shall enter into a Swap Agreement satisfactory to the Administrative Agent with the purpose and effect of fixing interest rates on the Term Loan, that is accruing interest at a variable rate, provided that (a) the aggregate notional amount of such contracts shall be at least fifty percent (50%) of the anticipated outstanding principal balance of the indebtedness to be hedged by such contracts or an average of such principal balances calculated using a generally accepted method of matching interest swap contracts to declining principal balances, (b) the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness to be hedged by such contract and (c) each such contract is with an Approved Counterparty. ARTICLE IX Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit have expired, terminated or been cash collateralized to the reasonable satisfaction of the Issuing Bank and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: Section 9.01 Financial Covenants . (a) Interest Coverage Ratio . The Borrower will not, as of the last day of any fiscal quarter commencing with the quarter ending on September 30, 2005, permit its ratio of EBITDA for the period of four fiscal quarters then ending to Interest Expense for such period to be less than 3.5 to 1.0. (b) Leverage Ratio . The Borrower will not, as of the last day of any fiscal quarter commencing with the quarter ending on September 30, 2005, permit its ratio of Total Debt as of 66

such day to EBITDA for the four fiscal quarters ending on such day to be greater than 3.75 to 1.0. Section 9.02 Debt . The Borrower will not, and will not permit any Subsidiary to, incur, create, assume or suffer to exist any Debt, except: (a) the Indebtedness; (b) accounts payable and accrued expenses, liabilities or other obligations to pay the deferred purchase price of Property or services, from time to time incurred in the ordinary course of business which are not greater than ninety (90) days past the date of invoice or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP. (c) Debt associated with bonds or surety obligations required by Governmental Requirements and performance bonds issued in connection with the operation of its Properties in the ordinary course of its business; (d) endorsements of negotiable instruments for collection in the ordinary course of business; (e) Debt existing on the Effective Date and described in Schedule 9.02 attached hereto; (f) Permitted Refinancing Debt; provided that 100% of the net proceeds of any Permitted Refinancing Debt of the Term Loan are applied to prepay the Term Loans; (g) intercompany Debt (i) between the Borrower and any Guarantor or between Guarantors, and (ii) between the Borrower and any Subsidiary that is not a Guarantor or between any Subsidiaries that are not Guarantors to the extent permitted by Section 9.05(h); provided that such Debt is not held, assigned, transferred, negotiated or pledged to any Person other than the Borrower or one of its Subsidiaries that is a Guarantor; (h) Debt in respect of Capital Leases not exceeding $5,000,000 in aggregate amount equivalent to principal at any time outstanding; (i) Debt secured by Liens permitted by Section 9.03(f), not exceeding $10,000,000 in aggregate principal amount at any time outstanding; and (j) other Debt not to exceed $7,500,000 in the aggregate. Section 9.03 Liens . The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except: (a) Liens securing the payment of any Indebtedness pursuant to the Loan Documents; (b) Excepted Liens; 67

(c) Liens securing Debt permitted under Section 9.02(e) provided that all such Liens and all Properties to which such Liens apply are also fully disclosed and set forth on Schedule 9.02; (d) Liens securing Debt permitted under Section 9.02(f) provided that a satisfactory intercreditor arrangement is entered into between the Administrative Agent and the holders of such Debt if such Lien secures Debt that refinances all or any part of the Term Notes; (e) Liens securing Capital Leases allowed under Section 9.02(h), but only on the Property under lease and improvements and accessions thereto and proceeds thereof; (f) purchase-money Liens on Property acquired or held by the Borrower or any Subsidiary, to secure the purchase price of such Property or to secure Debt incurred solely for the purpose of financing the acquisition of such Property to be subject to such Liens, or Liens existing on any such Property at the time of acquisition thereof (or at the time the Borrower acquires the Subsidiary owning such Property), or renewals or refinancings of any such Liens for the same or a lesser amount; provided that (i) no such Lien may extend to or cover any Property other than the property being acquired and improvements and accessions thereto and proceeds thereof, (ii) no such renewal or refinancing may extend to or cover any Property not previously subject to the Lien being renewed or refinanced and (iii) the aggregate principal amount of Debt at any time outstanding secured by such Liens may not exceed the amount permitted by Section 9.02(i); and (g) Liens incurred in the ordinary course of business of the Borrower or any Subsidiary with respect to obligations (other than Debt for borrowed money) that do not exceed $1,000,000 at any one time outstanding; Section 9.04 Restricted Payments; Issuance of Equity Interests . (a) Except as otherwise permitted in Section 9.04(c), the Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except so long as no Default has occurred and is continuing or would result from such payment (i) Subsidiaries may declare and pay dividends ratably with respect to their Equity Interests, (ii) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (iii) the Borrower may declare and pay dividends to the owners of the Borrower in such amounts as are required for the payment of taxes allocable to the owners of the Borrower for U.S. federal and state income tax purposes ( provided that the Borrower shall deliver to the Administrative Agent on the date which is three Business Days prior to the date on which such payment is made a certificate of the chief accounting officer of the owner of the Borrower or Affiliate thereof that is responsible for making such calculation certifying (A) as to the amount of such calculation and providing reasonably detailed information on an anonymous basis as to the method of making such calculation and (B) that such calculation was made in good faith and based upon the reasonable belief that the amount of such distribution reflects the actual amount of U.S. federal and state income taxes that will be owing by the owners of the Borrower for U.S. federal and state income tax purposes within 30 Business Days after the date of such distribution), (iv) the Borrower and its Subsidiaries may make regularly 68

scheduled payments of principal and interest on, and voluntary and mandatory prepayments of, Debt permitted by Section 9.02 other than prepayments of Debt that is expressly subordinated to the Indebtedness, (v) the Borrower may, in connection with any reorganization or conversion of the Borrower from a limited liability company to a corporation, issue Equity Interests of the resulting corporation to its members in exchange for or conversion of such members’ Equity Interests in the limited liability company, and (vi) any other Restricted Payment consented to in writing by the Majority Lenders. (b) The Borrower will not, and will not permit any of its Subsidiaries to, issue, sell or otherwise Dispose of any shares of Equity Interests except (i) Subsidiaries may issue Equity Interests to the Borrower or any other Wholly-Owned Subsidiary to the extent not otherwise prohibited hereunder; and (ii) the Borrower may issue Equity Interests provided that 25% of the net proceeds of the issuance of such Equity Interests (excluding any amounts that are rejected by Term Loan Lenders pursuant to Section 3.04(c)(iii)) shall be applied to prepay the Term Loan within twenty (20) Business Days after the date on which the proceeds from the sale of such Equity Interests are received. (c) So long as no Default has occurred and is continuing or would result from such payment, the Borrower may declare and pay dividends to the owners of the Borrower with the net proceeds of the issuance of Equity Interests of the Borrower pursuant to the IPO not required for a mandatory prepayment pursuant to Section 9.04(b). Section 9.05 Investments, Loans and Advances . The Borrower will not, and will not permit any Subsidiary to, make or permit to remain outstanding any Investments in or to any Person, except that the foregoing restriction shall not apply to: (a) Investments reflected in the Financial Statements or which are disclosed to the Lenders in Schedule 9.05; (b) accounts receivable arising in the ordinary course of business; (c) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year from the date of creation thereof; (d) commercial paper maturing within one year from the date of creation thereof rated one of the two the highest grades by S&P or Moody’s; (e) deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $200,000,000 (as of the date of such bank or trust company’s most recent financial reports) or has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or Moody’s, respectively or, in the case of any Foreign Subsidiary, a bank organized in a jurisdiction in which the Foreign Subsidiary conducts operations having assets in excess of $1,000,000,000 (or its equivalent in another currency); 69

(f) deposits in money market funds investing at least 95% of their assets in Investments described in Section 9.05(c), Section 9.05(d) or Section 9.05(e); (g) Investments in stock, obligations or securities received in settlement of debts arising from Investments permitted under this Section 9.05 owing to the Borrower or any Subsidiary as a result of a bankruptcy or other insolvency proceeding of the obligor in respect of such debts or upon the enforcement of any Lien in favor of the Borrower or any of its Subsidiaries; provided that the Borrower shall give the Administrative Agent prompt written notice in the event that the aggregate amount of all investments held at any one time under this Section 9.05(g) exceeds $250,000; (h) Investments in, and loans or advances to, (i) any Guarantor or the Borrower, and (ii) any Subsidiary that is not a Guarantor, but not to exceed $1,000,000 in the aggregate; (i) Investments not exceeding the aggregate cost of $50,000,000 during the term of this Agreement from Internally Generated Funds plus Investments made with (A) the net proceeds of the issuance of Equity Interests of the Borrower not required for a mandatory prepayment pursuant to Section 9.04(b) or (B) borrowings under the Revolving Commitment Increase or the Term Loan Increase, but not to exceed $150,000,000 during the term of this Agreement. Section 9.06 Nature of Business . The Borrower will not, and will not permit any Subsidiary to, allow any material change to be made in the character of its business as a contract driller and provider of drilling related services. Section 9.07 Limitation on Operating Leases . The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal), under operating leases or operating lease agreements which would cause the aggregate amount of all payments made by the Borrower and the Subsidiaries pursuant to all such leases or lease agreements, including, without limitation, any residual payments at the end of any lease, to exceed $1,000,000 in any period of twelve consecutive calendar months during the life of such leases. Section 9.08 Proceeds of Notes . The Borrower will not permit the proceeds of the Notes to be used for any purpose other than those permitted by Section 7.20. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause any of the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. If requested by the Administrative Agent, the Borrower will furnish to the Administrative Agent a statement to the foregoing effect in conformity with the requirements of FR Form U-1 or such other form referred to in Regulation U, Regulation T or Regulation X of the Board, as the case may be. 70

Section 9.09 ERISA Compliance . The Borrower will not, and will not permit any Subsidiary to, at any time: (a) engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with which the Borrower, a Subsidiary or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b) terminate, or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability of the Borrower, a Subsidiary or any ERISA Affiliate to the PBGC; (c) fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto; (d) permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) permit, or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by the Borrower, a Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities (the term ―actuarial present value of the benefit liabilities‖ shall have the meaning specified in section 4041 of ERISA); (f) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan; (g) acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower or a Subsidiary or with respect to any ERISA Affiliate of the Borrower or a Subsidiary if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (h) incur, or permit any ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; and 71

(j) amend, or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower, a Subsidiary or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code. Section 9.10 Sale or Discount of Receivables . Except for receivables obtained by the Borrower or any Subsidiary out of the ordinary course of business or discounts granted to settle collection of accounts receivable or the sale of defaulted accounts arising in the ordinary course of business in connection with the compromise or collection thereof and not in connection with any financing transaction, the Borrower will not, and will not permit any Subsidiary to, discount or sell (with or without recourse) any of its notes receivable or accounts receivable. Section 9.11 Mergers, Etc . The Borrower will not, and will not permit any Subsidiary to, merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person, except that (i) any Wholly-Owned Subsidiary may merge with or into any other Wholly-Owned Subsidiary or the Borrower and (ii) the Borrower may merge with or into a corporation having no material Property or liabilities that is owned by the members of the Borrower for the purpose of reorganizing or converting the Borrower from a limited liability company to a corporation so long as the survivor assumes all of the obligations of the Borrower hereunder. Section 9.12 Disposition of Properties . The Borrower will not, and will not permit any of its Subsidiaries to, Dispose of any Property other than Dispositions among the Borrower and the Guarantors, except for (a) inventory held for sale in the ordinary course of business; (b) Disposition of equipment that is no longer necessary for the business of the Borrower or such Subsidiary or is replaced by equipment of at least comparable value and use; (c) Dispositions of inventory not in the ordinary course of business and equipment (other than jackup Drilling Rigs and Lift Boats) in an aggregate amount not to exceed $1,000,000 during any consecutive 12-month period; (d) Dispositions of Property as the result of a Casualty Event and (e) Dispositions (excluding as a result of Casualty Events) of Properties or any interest therein in an aggregate amount not to exceed $2,500,000 during any consecutive 12-month period; provided that (i) no Default exists or would exist after giving effect to such sale; (ii) such Disposition is pursuant to a good faith arms’ length transaction with non-Affiliated third party purchasers; (iii) 100% of the consideration received in respect of such sale shall be cash; (iv) the consideration received in respect of such Disposition shall be equal to or greater than the fair market value of the Property subject of such Disposition (as reasonably determined by the managing member of the Borrower), (v) if any such Disposition is of a Subsidiary, such Disposition shall include all the Equity Interests of such Subsidiary and the Subsidiary being Disposed of has no continuing Investment in any other Subsidiary of the Borrower not being simultaneously Disposed of or in the Borrower; and (vi) 100% of the net cash proceeds of the sale of such Property are applied to prepay the Term Loan within 3 Business Days of the date on which such proceeds are received; and (f) Dispositions consented to by the Majority Lenders. Section 9.13 Environmental Matters . The Borrower will not, and will not permit any Subsidiary to, cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any Remedial Work under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all 72

relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations could reasonably be expected to have a Material Adverse Effect. Section 9.14 Transactions with Affiliates . The Borrower will not, and will not permit any Subsidiary to, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate (other than the Guarantors and Wholly-Owned Subsidiaries of the Borrower) unless such transactions are not otherwise prohibited under this Agreement and are upon fair and reasonable terms no less favorable to such Affiliate than it would obtain in a comparable arm’s length transaction with a Person not an Affiliate. Section 9.15 Subsidiaries . The Borrower will not, and will not permit any Subsidiary to, create or acquire any additional Subsidiary, unless the Borrower complies with Section 8.12. The Borrower shall not, and shall not permit any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in any Subsidiary except in compliance with Section 9.11 and Section 9.12. Section 9.16 Negative Pledge Agreements; Dividend Restrictions . The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any contract, agreement or understanding (other than this Agreement or the Security Instruments) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property in favor of the Administrative Agent for the benefit of the Lenders or restricts any Subsidiary from paying dividends or making distributions to the Borrower or any Guarantor, or which requires the consent of or notice to other Persons in connection therewith, except customary negative pledges contained in, and limited to, specific leases, licenses, conveyances, partnership agreements and co-owner’s agreements, and similar conveyances and agreements to the extent that any such negative pledge does not materially impair the use of the Property covered by such negative pledge for the purposes for which such Property is held or materially impair the value of such Property. Section 9.17 Swap Agreements . The Borrower will not, and will not permit any Subsidiary to, enter into any Swap Agreements with any Person other than Swap Agreements in respect of interest rates with a Lender or Affiliate of a Lender, as follows: (i) Swap Agreements effectively converting interest rates from fixed to floating, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrower and its Subsidiaries then in effect effectively converting interest rates from fixed to floating) do not exceed 50% of the then outstanding principal amount of the Borrower’s Debt for borrowed money which bears interest at a fixed rate and (ii) Swap Agreements effectively converting interest rates from floating to fixed, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrower and its Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not exceed 75% of the then outstanding principal amount of the Borrower’s Debt for borrowed money which bears interest at a floating rate. In no event shall any Swap Agreement contain any requirement, agreement or covenant for the Borrower or any Subsidiary to post collateral or margin to secure their obligations under such Swap Agreement or to cover market exposures, except that any Swap Agreement with a Lender or an Affiliate of a Lender or counterparty will be secured by the Security Instruments. 73

Section 9.18 Limitation on Capital Expenditures . The Borrower shall not, and the Borrower shall cause its Subsidiaries not, to collectively make more than $20,000,000 in 2005 (including initial refurbishment of the Jupiter) and $25,000,000 in any calendar year thereafter on Capital Expenditures. ARTICLE X Events of Default; Remedies Section 10.01 Events of Default . One or more of the following events shall constitute an ― Event of Default ‖: (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof, by acceleration or otherwise. (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in Section 10.01(a)) payable under any Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days. (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with any Loan Document or any amendment or modification of any Loan Document or waiver under such Loan Document, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made. (d) the Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 8.02, Section 8.03, Section 8.13 or in Article IX. (e) the Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any other Loan Document, and such failure shall continue unremedied for a period of 30 days (or such shorter period as set forth in any other Loan Document) after the earlier to occur of (A) notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender) or (B) a Responsible Officer of the Borrower or such Subsidiary otherwise becoming aware of such default. (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable. (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of such Material Indebtedness or any trustee or agent on its or their behalf to cause such Material Indebtedness to become due, or to 74

require the Redemption thereof or any offer to Redeem to be made in respect thereof, prior to its scheduled maturity or require the Borrower or any Subsidiary to make an offer in respect thereof. (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 30 days or an order or decree approving or ordering any of the foregoing shall be entered. (i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 10.01(h), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or any stockholder of the Borrower shall make any request or take any action for the purpose of calling a meeting of the stockholders of the Borrower to consider a resolution to dissolve and wind-up the Borrower’s affairs. (j) the Borrower or any Material Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due. (k) (i) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 (to the extent not covered by independent third party insurance provided by insurers of the highest claims paying rating or financial strength as to which the insurer does not dispute coverage and is not subject to an insolvency proceeding) or (ii) any one or more non-monetary judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, shall be rendered against the Borrower, any of its Material Subsidiaries or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any of its Material Subsidiaries to enforce any such judgment. (l) the Loan Documents after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms against the Borrower or a Guarantor party thereto or shall be repudiated by any of them, or cease to create a valid and perfected Lien of the priority required thereby on any material part of the collateral purported to be covered thereby, except to the extent permitted by the terms of this Agreement, or the Borrower or any of its Subsidiaries shall so state in writing. 75

(m) an ERISA Event shall have occurred that, in the opinion of the Majority Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding (i) $500,000 in any year or (ii) $1,000,000 for all periods. (n) a Change in Control shall occur. Section 10.02 Remedies . (a) In the case of an Event of Default other than one described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter during the continuance of such Event of Default, the Administrative Agent may, and at the request of the Majority Lenders, shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Notes and the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower and the Guarantors accrued hereunder and under the Notes and the other Loan Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall become due and payable immediately, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by the Borrower and each Guarantor; and in case of an Event of Default described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), the Commitments shall automatically terminate and the Notes and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and the other obligations of the Borrower and the Guarantors accrued hereunder and under the Notes and the other Loan Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and each Guarantor. (b) In the case of the occurrence of an Event of Default, the Administrative Agent and the Lenders will have all other rights and remedies available at law and equity. (c) All proceeds realized from the liquidation or other disposition of collateral or otherwise received after maturity of the Notes, whether by acceleration or otherwise, shall be applied: (i) first , to payment or reimbursement of that portion of the Indebtedness constituting fees, expenses and indemnities payable to the Administrative Agent in its capacity as such; (ii) second , pro rata to payment or reimbursement of that portion of the Indebtedness constituting fees, expenses and indemnities payable to the Lenders; (iii) third , pro rata to payment of accrued interest on the Loans; 76

(iv) fourth , pro rata to (A) payment of principal outstanding on the Loans, (B) the payment obligations owing to an Agent, a Lender or an Affiliate of an Agent or a Lender under a Swap Agreement permitted by this Agreement and (C) to serve as cash collateral to be held by the Administrative Agent to secure the LC Exposure; (v) fifth , pro rata to any other Indebtedness; and (vi) sixth , any excess, after all of the Indebtedness shall have been indefeasibly paid in full in cash, shall be paid to the Borrower or as otherwise required by any Governmental Requirement. Section 10.03 Disposition of Proceeds . The Security Instruments contain the grant of a security interest by the Borrower and the Guarantors unto and in favor of the Administrative Agent for the benefit of the Lenders of all of the Borrower’s or each Guarantor’s interest in and to the accounts and earnings derived from the drilling contracts and revenue producing charters and other contracts pertaining to the Drilling Rigs and other vessels of the Borrower and the Guarantors. The Security Instruments further provide in general for the application of such proceeds to the satisfaction of the Indebtedness and other obligations described therein and secured thereby. Notwithstanding the terms contained in such Security Instruments, until the occurrence of an Event of Default, (a) the Administrative Agent and the Lenders agree that they will neither notify the obligors under such charters or contracts nor take any other action to cause such proceeds to be remitted to the Administrative Agent or the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrower and the Guarantors and (b) the Lenders hereby authorize the Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to the Borrower and/or such Guarantors. Section 10.04 Acceleration of Hedging Agreements . Notwithstanding anything to the contrary contained herein, acceleration and termination of all Hedging Agreements involving any Agent, Lender or the Affiliate of any Agent or Lender shall be governed by the terms of the Hedging Agreements. ARTICLE XI The Agents Section 11.01 Appointment; Powers . Each of the Revolving Lenders and the Issuing Bank hereby appoints Comerica as its Administrative Agent with respect to the Revolving Tranche. Each of the Term Loan Lenders hereby appoints Comerica as its Administrative Agent with respect to the Term Tranche. Each Lender and the Issuing Bank authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof and the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. Section 11.02 Duties and Obligations of Agents . The Agents shall have no duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing (the use of the term ―agent‖ herein and in the other Loan Documents with reference to the Administrative 77

Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law; rather, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties), (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except as provided in Section 11.03, and (c) except as expressly set forth herein, the Administrative Agent shall have no duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or under any other Loan Document or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or in any other Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, (v) the satisfaction of any condition set forth in Article VI or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent or as to those conditions precedent expressly required to be to the Administrative Agent’s satisfaction, (vi) the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower and its Subsidiaries or any other obligor or guarantor, or (vii) any failure by the Borrower or any other Person (other than itself) to perform any of its obligations hereunder or under any other Loan Document or the performance or observance of any covenants, agreements or other terms or conditions set forth herein or therein. For purposes of determining compliance with the conditions specified in Article VI, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received written notice from such Lender prior to the proposed Effective Date specifying its objection thereto. Section 11.03 Action by Administrative Agent . The Administrative Agent shall have no duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise in writing as directed by the Majority Lenders, the Majority Term Loan Lenders or the Majority Revolving Lenders, as the case may be (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02) and in all cases the Administrative Agent shall be fully justified in failing or refusing to act hereunder or under any other Loan Documents unless it shall (a) receive written instructions from the Majority Lenders, the Majority Term Loan Lenders, the Majority Revolving Lenders or the Lenders, as applicable, (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02) specifying the action to be taken and (b) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. The instructions as aforesaid and any action taken or failure to act pursuant thereto by the Administrative Agent shall be binding on all of the Lenders. If a Default has occurred and 78

is continuing, then the Administrative Agent shall take such action with respect to such Default as shall be directed by the requisite Lenders in the written instructions (with indemnities) described in this Section 11.03, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the applicable Lenders. In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the Loan Documents or applicable law. If a Default has occurred and is continuing, neither the Syndication Agent nor the Documentation Agent shall have any obligation to perform any act in respect thereof. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Majority Lenders, the Majority Term Loan Lenders, the Majority Revolving Lenders, as the case may be, or the Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02), and otherwise the Administrative Agent shall not be liable for any action taken or not taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct. Section 11.04 Reliance by Administrative Agent . The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon and each of the Borrower, the Lenders and the Issuing Bank hereby waives the right to dispute the Administrative Agent’s record of such statement, except in the case of gross negligence or willful misconduct by the Administrative Agent. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent. Section 11.05 Subagents . The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding Sections of this Article XI shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Section 11.06 Resignation or Removal of Administrative Agent . Subject to the appointment and acceptance of a successor Agent as provided in this Section 11.06, the 79

Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Borrower, and the Administrative Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation or removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank or such other location as approved by the Majority Lenders or if no such successor shall be appointed by the retiring Agent as aforesaid, the Majority Lenders shall thereafter perform all of the duties of the retiring Administrative Agent hereunder until such appointment by the <Majority Lenders is made and accepted. Upon the acceptance of its appointment as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Agent’s resignation hereunder, the provisions of this Article XI and Section 12.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. Section 11.07 Agents as Lenders . Each bank serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder. Section 11.08 No Reliance . Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, any other Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and each other Loan Document to which it is a party. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, any other Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder. The Agents shall not be required to keep themselves informed as to the performance or observance by the Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided for herein or to inspect the Properties or books of the Borrower or its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, no Agent or the Joint Lead Arrangers shall have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of such Agent or any of its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this transaction as special counsel to Citicorp and its Affiliates only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each other party hereto will consult with its own 80

legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein. Section 11.09 Administrative Agent May File Proofs of Claim . In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Borrower or any of its Subsidiaries, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Indebtedness that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 12.03) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; (c) and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 12.03. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Indebtedness or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding. Section 11.10 Authority of the Administrative Agent to Release Collateral and Liens . Each Lender and the Issuing Bank hereby authorizes the Administrative Agent to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents. Each Lender and the Issuing Bank hereby authorizes the Administrative Agent to execute and deliver to the Borrower, at the Borrower’s sole cost and expense, any and all releases of Liens, termination statements, assignments or other documents reasonably requested by the Borrower in connection with any sale or other disposition of Property to the extent such sale or other disposition is permitted by the terms of Section 9.12 or is otherwise authorized by the terms of the Loan Documents. Section 11.11 The Joint Lead Arrangers, the Syndication Agent and the Documentation Agent . The Joint Lead Arrangers, the Syndication Agent and the Documentation Agent shall 81

have no duties, responsibilities or liabilities under this Agreement and the other Loan Documents other than their duties, responsibilities and liabilities in their capacity as Lenders hereunder. ARTICLE XII Miscellaneous Section 12.01 Notices . (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to Section 12.01(b)), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (i) if to the Borrower, to it at 2929 Briarpark Drive, Suite 435, Houston, Texas 77042, (Telecopy No. 713.952.4342); (ii) if to the Administrative Agent, to it at 910 Louisiana, Suite 410, Houston, Texas 77002, Attention of Mona M. Foch (Telecopy No. 713.220.5651), with a copy to [ ], at [ ], Attention of [ ] (Telecopy No. [ ]); (iii) if to the Issuing Bank, to it at 910 Louisiana, Suite 410, Houston, Texas 77002, Attention of Mona M. Foch (Telecopy No. 713.220.5651); and (iv) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. (b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Articles II, III, IV and V unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. (c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. Section 12.02 Waivers; Amendments . (a) No failure on the part of the Administrative Agent, any other Agent, the Issuing Bank or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege, or any abandonment or discontinuance of steps to enforce such right, power or privilege, under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, 82

power or privilege. The rights and remedies of the Administrative Agent, any other Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by Section 12.02(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any other Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof nor any Security Instrument nor any provision thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Majority Lenders or by the Borrower and the Administrative Agent with the consent of the Majority Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, or reduce any other Indebtedness hereunder or under any other Loan Document, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment or prepayment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or any other Indebtedness hereunder or under any other Loan Document, or reduce the amount of, waive or excuse any such payment, or postpone or extend the Term Loan Maturity Date or Revolving Credit Maturity Date without the written consent of each Lender affected thereby, (iv) change Section 4.01(b) or Section 4.01(c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) release any Guarantor (except as set forth in the Guaranty Agreement or as permitted pursuant to Section 9.11 or 9.12 hereof) or release all or substantially all of the collateral (other than as provided in Section 11.10) without the written consent of each Lender, or (vi) change any of the provisions of this Section 12.02(b) or the definition of ―Majority Lenders‖, ―Majority Term Loan Lenders‖, ―Majority Revolving Lenders‖ or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or under any other Loan Documents or make any determination or grant any consent hereunder or any other Loan Documents, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, any other Agent or the Issuing Bank hereunder or under any other Loan Document without the prior written consent of the Administrative Agent, such other Agent or the Issuing Bank, as the case may be. Notwithstanding the foregoing, any supplement to Schedule 7.15 (Subsidiaries) shall be effective simply by delivering to the Administrative Agent a supplemental schedule clearly marked as such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the Lenders. Section 12.03 Expenses, Indemnity; Damage Waiver . (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including, without limitation, the reasonable fees, charges and disbursements of counsel and other outside consultants for the Administrative 83

Agent, the reasonable travel, photocopy, mailing, courier, telephone and other similar expenses, and the cost of environmental audits and surveys and appraisals, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration (both before and after the execution hereof and including advice of counsel to the Administrative Agent as to the rights and duties of the Administrative Agent and the Lenders with respect thereto) of this Agreement and the other Loan Documents and any amendments, modifications or waivers of or consents related to the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all costs, expenses, Taxes, assessments and other charges incurred by any Agent or any Lender in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement or any Security Instrument or any other document referred to therein, (iii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iv) all out-of-pocket expenses incurred by any Agent, the Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for any Agent, the Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this Section 12.03, or in connection with the Loans made or Letters of Credit issued hereunder, including, without limitation, all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) THE BORROWER SHALL INDEMNIFY EACH AGENT, THE JOINT LEAD ARRANGERS, THE ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN ― INDEMNITEE ‖) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT 84

NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (vii) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to any Agent, the Joint Lead Arrangers or the Issuing Bank under Section 12.03(a) or (b), each 85

Lender severally agrees to pay to such Agent, the Joint Lead Arrangers or the Issuing Bank, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against such Agent, the Joint Lead Arrangers or the Issuing Bank in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section 12.03 shall be payable not later than 10 days after written demand therefor. Section 12.04 Successors and Assigns . (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that (i) except as permitted by Section 9.11, the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 12.04. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in Section 12.04(b)(ii)) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) (i) (A) Any Term Loan Lender may assign all or a portion of its Term Loan to a Related Fund, Affiliate or existing Term Loan Lender or a Related Fund of an existing Term Loan Lender, (B) any Revolving Lender may assign all or a portion of its Revolving Commitment and corresponding Revolving Loan, Swing Line participation and LC Exposure to an Affiliate or existing Revolving Lender, (C) until the 61st day after the Effective Date Citicorp may assign all or a portion of its Term Loan to one or more assignees, and, (D) upon the written consent of the Administrative Agent, the Issuing Bank (with respect to the Revolving Tranche only) and the Borrower, which consent shall not be unreasonably withheld, any Lender may assign to one or more assignees, all or a portion of its rights and obligations under this Agreement pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit G (an ― Assignment ‖); provided , however , that (A) any such assignment shall be in the amount of at least $1,000,000 with respect to the Revolving Tranche or the remaining amount of the assigning Lender’s Revolving Commitment and at least $1,000,000 with respect to the Term 86

Tranche or such lesser amount to which the Borrower and the Administrative Agent have consented, with Related Funds treated as one assignee for purposes of determining compliance with such minimum assignment amount and (B) the assignee or assignor shall pay to the Administrative Agent a processing and recordation fee of $3,500 for each assignment; provided that only one such fee shall be payable in connection with simultaneous assignments to or by two or more Related Funds. (ii) Assignments shall be subject to the following additional conditions: (A) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement; (B) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment, together with a processing and recordation fee of $3,500; and (C) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and (D) notwithstanding anything to the contrary contained in this Agreement, if such Assignment is made at a time when an Event of Default has occurred and is continuing, the written consent of the Borrower to such Assignment shall not be required. (iii) Subject to Section 12.04(b)(iv) and the acceptance and recording thereof, from and after the effective date specified in each Assignment the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment, be released from its obligations under this Agreement (and, in the case of an Assignment covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Section 5.01, Section 5.02, Section 5.03 and Section 12.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 12.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.04(c)(i). (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the ― Register ‖). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for 87

inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. In connection with any changes to the Register, if necessary, the Administrative Agent will reflect the revisions on Annex I and forward a copy of such revised Annex I to the Borrower, the Issuing Bank and each Lender. (v) Upon its receipt of a duly completed Assignment executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire and applicable required tax forms (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section 12.04(b) and any written consent to such assignment required by Section 12.04(b), the Administrative Agent shall accept such Assignment and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this Section 12.04(b). (c) (i) Any Lender may, without the consent of the Borrower, the Administrative Agent or the Issuing Bank, sell participations to one or more banks or other entities (a ― Participant ‖) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the proviso to Section 12.02 that affects such Participant. In addition such agreement must provide that the Participant be bound by the provisions of Section 12.03. Subject to Section 12.04(c)(ii), the Borrower agrees that each Participant shall be entitled to the benefits of Section 5.01, Section 5.02 and Section 5.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.04(b). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 12.08 as though it were a Lender, provided such Participant agrees to be subject to Section 4.01(c) as though it were a Lender. (ii) A Participant shall not be entitled to receive any greater payment under Section 5.01 or Section 5.03 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 5.03 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 5.03(e) as though it were a Lender. 88

(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including, without limitation, any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (e) Notwithstanding any other provisions of this Section 12.04, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower and the Guarantors to file a registration statement with the SEC or to qualify the Loans under the ―Blue Sky‖ laws of any state. Section 12.05 Survival; Revival; Reinstatement . (a) All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any other Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Section 5.01, Section 5.02, Section 5.03 and Section 12.03 and Article XI shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement, any other Loan Document or any provision hereof or thereof. (b) To the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Administrative Agent’s and the Lenders’ Liens, security interests, rights, powers and remedies under this Agreement and each Loan Document shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Administrative Agent and the Lenders to effect such reinstatement. 89

Section 12.06 Counterparts; Integration; Effectiveness . (a) This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. (b) This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof and thereof. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. (c) Except as provided in Section 6.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. Section 12.07 Severability . Any provision of this Agreement or any other Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 12.08 Right of Setoff . If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations (of whatsoever kind, including, without limitations obligations under Swap Agreements) at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower or any Subsidiary against any of and all the obligations of the Borrower or any Subsidiary owed to such Lender now or hereafter existing under this Agreement or any other Loan Document, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 12.08 are in addition to other rights and remedies (including other rights of setoff) which such Lender or its Affiliates may have. 90

Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS . (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION. (c) THE BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS AND HEREBY CONFERS AN IRREVOCABLE SPECIAL POWER, AMPLE AND SUFFICIENT, TO CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 111 8TH AVENUE, NEW YORK, NEW YORK 10011 AS ITS DESIGNEE, APPOINTEE AND AGENT WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING IN NEW YORK TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH PROCEEDING AND AGREES THAT THE FAILURE OF SUCH AGENT TO GIVE ANY ADVICE OF ANY SUCH SERVICE OF PROCESS TO THE BORROWER SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR OF ANY CLAIM BASED THEREON. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY REASONABLY SATISFACTORY TO THE ADMINISTRATIVE AGENT ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION. EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT), SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION. 91

(d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09. Section 12.10 Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 12.11 Confidentiality . Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement or any other Loan Document, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 12.11, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any Swap Agreement relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 12.11 or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section 12.11, ― Information ‖ means all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary and their businesses, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower or a Subsidiary; provided that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 12.11 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of 92

care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Section 12.12 Interest Rate Limitation . It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower); and (ii) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the stated term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.12. To the extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of determining the Highest Lawful Rate applicable to a Lender, such Lender elects to determine the applicable rate ceiling under such Chapter by the weekly ceiling from time to time in effect. Chapter 346 of the Texas Finance Code does not apply to the Borrower’s obligations hereunder. 93

Section 12.13 EXCULPATION PROVISIONS . EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT ―CONSPICUOUS.‖ Section 12.14 [Intentionally Omitted.] Section 12.15 Collateral Matters; Swap Agreements . The benefit of the Security Instruments and of the provisions of this Agreement relating to any collateral securing the Indebtedness shall also extend to and be available to those Lenders or their Affiliates which are counterparties to any Swap Agreement with the Borrower or any of its Subsidiaries on a pro rata basis in respect of any obligations of the Borrower or any of its Subsidiaries which arise under any such Swap Agreement while such Person or its Affiliate is a Lender, but only while such Person or its Affiliate is a Lender, including any Swap Agreements between such Persons in existence prior to the date hereof. No Lender or any Affiliate of a Lender shall have any voting rights under any Loan Document as a result of the existence of obligations owed to it under any such Swap Agreements. Section 12.16 No Third Party Beneficiaries . This Agreement, the other Loan Documents, and the agreement of the Lenders to make Loans and the Issuing Bank to issue, amend, renew or extend Letters of Credit hereunder are solely for the benefit of the Borrower, and no other Person (including, without limitation, any Subsidiary of the Borrower, any obligor, contractor, subcontractor, supplier or materialsman) shall have any rights, claims, remedies or privileges hereunder or under any other Loan Document against the Administrative Agent, any other Agent, the Issuing Bank or any Lender for any reason whatsoever. There are no third party beneficiaries. Section 12.17 Electronic Communications . (a) The Borrower hereby agrees that, unless otherwise requested by the Administrative Agent, it will provide to the Administrative Agent all information, documents 94

and other materials that it is obligated to furnish to the Administrative Agent pursuant to the Loan Documents, including, without limitation, all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, borrowing or other extension of credit (including any election of an interest rate or interest period relating thereto), (ii) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (iii) provides notice of any Default or Event of Default under this Agreement, (iv) is required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any borrowing or other extension of credit hereunder or (v) initiates or responds to legal process (all such non-excluded information being referred to herein collectively as the ― Communications ‖) by transmitting the Communications in an electronic/soft medium ( provided such Communications contain any required signatures) in a format acceptable to the Administrative Agent, to mona_foch@comerica.com (or such other e-mail address designated by the Administrative Agent from time to time). (b) Each party hereto agrees that the Administrative Agent may make the Communications available to the Lenders and the Issuing Bank by posting the Communications on IntraLinks or another relevant website, if any, to which each Lender, the Issuing Bank and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent) (the ― Platform ‖). Nothing in this Section 12.17 shall prejudice the right of the Administrative Agent to make the Communications available to the Lenders and the Issuing Bank in any other manner specified in the Loan Documents. (c) The Borrower hereby acknowledges that certain of the Lenders may be ―public-side‖ Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities) (each, a ― Public Lender ‖). The Borrower hereby agrees that (i) Communications that are to be made available on the Platform to Public Lenders shall be clearly and conspicuously marked ―PUBLIC‖ which, at a minimum, shall mean that the word ―PUBLIC‖ shall appear prominently on the first page thereof, (ii) by marking Communications ―PUBLIC,‖ the Borrower shall be deemed to have authorized the Agents, the Issuing Bank and the Lenders to treat such Communications as either publicly available information or not material information (although it may be sensitive and proprietary) with respect to the Borrower or its securities for purposes of United States Federal and state securities laws, (iii) all Communications marked ―PUBLIC‖ are permitted to be made available through a portion of the Platform designated ―Public Lender,‖ and (iv) the Agents shall be entitled to treat any Communications that are not marked ―PUBLIC‖ as being suitable only for posting on a portion of the Platform not designated ―Public Lender.‖ (d) Each Lender agrees that e-mail notice to it (at the address provided pursuant to the next sentence and deemed delivered as provided in the next paragraph) specifying that Communications have been posted to the Platform shall constitute effective delivery of such Communications to such Lender for purposes of the Loan Documents. Each Lender agrees (i) to notify the Administrative Agent in writing (including by electronic communication) from time to time to ensure that the Administrative Agent has on record an effective e-mail address for such Lender to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such e-mail address. 95

(e) Each party hereto agrees that any electronic communication referred to in this Section 12.17 shall be deemed delivered upon the posting of a record of such communication (properly addressed to such party at the e-mail address provided to the Administrative Agent) as ―sent‖ in the e-mail system of the sending party or, in the case of any such communication to the Administrative Agent, upon the posting of a record of such communication as ―received‖ in the e-mail system of the Administrative Agent; provided that if such communication is not so received by the Administrative Agent during the normal business hours of the Administrative Agent, such communication shall be deemed delivered at the opening of business on the next Business Day for the Administrative Agent. (f) Each party hereto acknowledges that (i) the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution, (ii) the Communications and the Platform are provided ―as is‖ and ―as available,‖ (iii) none of the Agents, their affiliates nor any of their respective officers, directors, employees, agents, advisors or representatives (collectively, the ― Agent Parties ‖) warrants the adequacy, accuracy or completeness of the Communications or the Platform, and each Agent Party expressly disclaims liability for errors or omissions in any Communications or the Platform, and (iv) no warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with any Communications or the Platform. Section 12.18 USA Patriot Act Notice . Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the ― Act ‖), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act. [SIGNATURES BEGIN NEXT PAGE] 96

The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. BORROWER: HERCULES OFFSHORE, LLC By: Name: Title: /s/ Steven A. Manz Steven A. Manz CFO and Secretary

[Signature Page – Credit Agreement] 1

ADMINISTRATIVE AGENT:

COMERICA BANK as Administrative Agent By: Name: Title: /s/ Mona M. Foch Mona M. Foch Senior Vice President—Texas Division

[Signature Page – Credit Agreement] 2

SYNDICATION AGENT:

CITICORP NORTH AMERICA, INC. By: Name: Title: /s/ Paul Sharkey Paul Sharkey Vice President Citicorp North America, Inc.

[Signature Page – Credit Agreement] 3

DOCUMENTATION AGENT:

CREDIT SUISSE, CAYMAN ISLANDS BRANCH By: Name: Title: /s/ Thomas R. Cantello Thomas R. Cantello Vice President /s/ Denise L. Alvarez Denise L. Alvarez Associate [Signature Page – Credit Agreement] 4

REVOLVING LENDERS:

COMERICA BANK By: Name: Title: /s/ Mona M. Foch Mona M. Foch Senior Vice President—Texas Division

[Signature Page – Credit Agreement] 5

REVOLVING LENDERS:

HIBERNIA NATIONAL BANK By: Name: Title: /s/ S. John Castellano S. John Castellano Senior Vice President

[Signature Page – Credit Agreement] 6

TERM LOAN LENDERS:

CITICORP NORTH AMERICA, INC. By: Name: Title: /s/ Paul Sharkey Paul Sharkey Vice President Citicorp North America, Inc.

[Signature Page – Credit Agreement] 7

ANNEX I LIST OF REVOLVING COMMITMENTS Aggregate Revolving Commitments
Name of Revolving Lender Applicable Percentage Revolving Commitment

Comerica Bank Hibernia National Bank TOTAL Annex I - 1

80 % 20 % 100.00 %

$ $ $

20,000,000 5,000,000 25,000,000

ANNEX II TERM COMMITMENTS AND TERM LOAN PERCENTAGE
Name of Lender Term Commitment Amount Term Loan Percentage

Citicorp North America, Inc. TOTAL Annex II - 1

$ $

140,000,000 140,000,000

100.00 % 100.00 %

EXHIBIT A-1 FORM OF NOTE (REVOLVING LOAN) $[ ] June 29, 2005

FOR VALUE RECEIVED, Hercules Offshore, LLC, a Delaware limited liability company (the ― Borrower ‖) hereby promises to pay to the order of [ ] (the ― Lender ‖), at the principal office of Comerica Bank (the ― Administrative Agent ‖), at 910 Louisiana, Suite 410, Houston, Texas 77002, the principal sum of [ ] Dollars ($[ ]) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Revolving Loans made by the Lender to the Borrower under the Credit Agreement, as hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Revolving Loan, at such office, in like money and funds, for the period commencing on the date of such Revolving Loan until such Revolving Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate, Interest Period and maturity of each Revolving Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, may be endorsed by the Lender on the schedules attached hereto or any continuation thereof or on any separate record maintained by the Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender’s or the Borrower’s rights or obligations in respect of such Revolving Loans or affect the validity of such transfer by any Lender of this Note. This Note is one of the Revolving Notes referred to in the Credit Agreement dated as of June 29, 2005 among the Borrower, the Administrative Agent, and the other agents and lenders signatory thereto (including the Lender), and evidences Revolving Loans made by the Lender thereunder (such Credit Agreement as the same may be amended, supplemented or restated from time to time, the ― Credit Agreement ‖). Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. This Note is issued pursuant to the Credit Agreement and is entitled to the benefits provided for in the Credit Agreement and the other Loan Documents. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events, for prepayments of Revolving Loans upon the terms and conditions specified therein and other provisions relevant to this Note. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. HERCULES OFFSHORE, LLC By: Name: Title: Exhibit A-1 - 1

EXHIBIT A-2 FORM OF NOTE (TERM LOAN) $[ ] June 29, 2005

FOR VALUE RECEIVED, Hercules Offshore, LLC, a Delaware limited liability company (the ― Borrower ‖) hereby promises to pay to the order of [ ] (the ― Lender ‖), at the principal office of Comerica Bank (the ― Administrative Agent ‖), at 910 Louisiana, Suite 410, Houston, Texas 77002, the principal sum of [ ] Dollars ($[ ]) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Term Loans made by the Lender to the Borrower under the Credit Agreement, as hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Term Loan, at such office, in like money and funds, for the period commencing on the date of such Term Loan until such Term Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate, Interest Period and maturity of each Term Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, may be endorsed by the Lender on the schedules attached hereto or any continuation thereof or on any separate record maintained by the Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender’s or the Borrower’s rights or obligations in respect of such Term Loans or affect the validity of such transfer by any Lender of this Note. This Note is one of the Term Notes referred to in the Credit Agreement dated as of June 29, 2005 among the Borrower, the Administrative Agent, and the other agents and lenders signatory thereto (including the Lender), and evidences Term Loans made by the Lender thereunder (such Credit Agreement as the same may be amended, supplemented or restated from time to time, the ― Credit Agreement ‖). Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. This Note is issued pursuant to the Credit Agreement and is entitled to the benefits provided for in the Credit Agreement and the other Loan Documents. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events, for prepayments of Term Loans upon the terms and conditions specified therein and other provisions relevant to this Note. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. HERCULES OFFSHORE, LLC By: Name: Title: Exhibit A-2 - 1

EXHIBIT B FORM OF BORROWING REQUEST [ ], 200[ ]

Hercules Offshore, LLC, a Delaware limited liability company (the ― Borrower ‖), pursuant to Section 2.03 of the Credit Agreement dated as of June 29, 2005 (together with all amendments, restatements, supplements or other modifications thereto, the ― Credit Agreement ‖) among the Borrower, Comerica Bank, as Administrative Agent and the other agents and lenders (the ― Lenders ‖) which are or become parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Credit Agreement), hereby requests a Borrowing as follows: (i) Aggregate amount of the requested Borrowing is $[ (ii) Date of such Borrowing is [ ], 200[ ]; ];

(iii) Requested Borrowing is to be [an ABR Borrowing] [a Eurodollar Borrowing]; (iv) In the case of a Eurodollar Borrowing, the initial Interest Period applicable thereto is [ $[ ];

(vi) Total Revolving Credit Exposures on the date hereof (i.e., outstanding principal amount of Loans and total LC Exposure) is ]; and (vii) Pro forma total Revolving Credit Exposures (giving effect to the requested Borrowing) is $[ ]; and

(viii) Location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05 of the Credit Agreement, is as follows: [ [ [ [ [ ] ] ] ] ] Exhibit B - 1

The undersigned certifies that he/she is the [ ] of the Borrower, and that as such he/she is authorized to execute this certificate on behalf of the Borrower. The undersigned further certifies, represents and warrants on behalf of the Borrower that the Borrower is entitled to receive the requested Borrowing under the terms and conditions of the Credit Agreement. HERCULES OFFSHORE, LLC By: Name: Title: Exhibit B - 2

EXHIBIT C FORM OF INTEREST ELECTION REQUEST [ ], 200[ ]

Hercules Offshore, LLC, a Delaware limited liability company (the ― Borrower ‖), pursuant to Section 2.04 of the Credit Agreement dated as of June 29, 2005 (together with all amendments, restatements, supplements or other modifications thereto, the ― Credit Agreement ‖) among the Borrower, Comerica Bank, as Administrative Agent and the other agents and lenders (the ― Lenders ‖) which are or become parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Credit Agreement), hereby makes an Interest Election Request as follows: (i) The [Term Loan] [Revolving] Borrowing to which this Interest Election Request applies, and if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information specified pursuant to (iii) and (iv) below shall be specified for each resulting Borrowing) is [ ]; (ii) The effective date of the election made pursuant to this Interest Election Request is [ (iii) The resulting Borrowing is to be [an ABR Borrowing] [a Eurodollar Borrowing][; and] [(iv) [If the resulting Borrowing is a Eurodollar Borrowing] The Interest Period applicable to the resulting Borrowing after giving effect to such election is [ ]]. The undersigned certifies that he/she is the [ ] of the Borrower, and that as such he/she is authorized to execute this certificate on behalf of the Borrower. The undersigned further certifies, represents and warrants on behalf of the Borrower that the Borrower is entitled to receive the requested continuation or conversion under the terms and conditions of the Credit Agreement. HERCULES OFFSHORE, LLC By: Name: Title: Exhibit C - 1 ], 200[ ];[and]

EXHIBIT D FORM OF COMPLIANCE CERTIFICATE The undersigned hereby certifies that he/she is the [ ] of Hercules Offshore, LLC, a Delaware limited liability company (the ― Borrower ‖), and that as such he/she is authorized to execute this certificate on behalf of the Borrower. With reference to the Credit Agreement dated as of June 29, 2005 (together with all amendments, restatements, supplements or other modifications thereto being the ― Agreement ‖) among the Borrower, Comerica, as Administrative Agent, and the other agents and lenders (the ― Lenders ‖) which are or become a party thereto, and such Lenders, the undersigned represents and warrants as follows (each capitalized term used herein having the same meaning given to it in the Agreement unless otherwise specified): (a) The representations and warranties of the Borrower contained in Article VII of the Agreement and in the Loan Documents and otherwise made in writing by or on behalf of the Borrower or any Guarantor pursuant to the Agreement and the Loan Documents were true and correct when made, and are repeated at and as of the time of delivery hereof and are true and correct in all material respects at and as of the time of delivery hereof, except to the extent such representations and warranties are expressly limited to an earlier date or the Majority Lenders have expressly consented in writing to the contrary. (b) Since [same date as audited financials in Section 7.04(a)], no change has occurred, either in any case or in the aggregate, in the condition, financial or otherwise, of the Borrower or any Subsidiary which could reasonably be expected to have a Material Adverse Effect [or specify event]. (c) There exists no Default or Event of Default [or specify Default and describe]. (d) Attached hereto are the detailed computations necessary to determine [Excess Cash Flow and] whether the Borrower is in compliance with Section 9.01 as of the end of the [fiscal quarter][fiscal year] ending [ ]. EXECUTED AND DELIVERED this [ ] day of [ ]. HERCULES OFFSHORE, LLC By: Name: Title: Exhibit D - 1

EXHIBIT E-3 FORM OF FIRST PREFERRED SHIP MORTGAGE by HERCULES DRILLING COMPANY, LLC, as Shipowner, to COMERICA BANK as Administrative Agent, as Mortgagee FIRST PREFERRED SHIP MORTGAGE dated June 28, 2005, to be effective as of June 29, 2005, by HERCULES DRILLING COMPANY, LLC, a limited liability company organized and existing under the laws of the State of Delaware, with offices at 2929 Briarpark Drive, Suite 435, Houston, Texas 77042 (the ― Shipowner ‖), to COMERICA BANK., with offices at 910 Louisiana, Suite 410, Houston, Texas, 77002, as administrative agent (in such capacity, together with its successors in such capacity, the ― Mortgagee ‖) for (i) the lenders (the ― Lenders ‖) from time to time parties to the Credit Agreement referred to below, and (ii) the Secured Swap Providers under the Secured Swap Agreements (each as defined below). RECITALS A. The Shipowner is the sole owner of 100% of the following Vanuatu flag vessel:
Name Official No. Home Port Place Built Gross Net

Hercules 30 540

Port Vila

Singapore

4917.46

4917.46

which vessel has been duly documented in the name of the Shipowner in accordance with the laws of the Republic of Vanuatu (the ― Vessel ‖). B. Hercules Offshore, LLC, a Delaware limited liability company (the ― Borrower ‖), has entered into that certain Credit Agreement dated as of June 29, 2005 (as amended, supplemented or otherwise modified from time to time, the ― Credit Agreement ‖), among the Borrower, the Mortgagee and the Lenders, a copy of which is attached hereto as Exhibit A and incorporated herein by reference, providing for the making of the Loans to the Borrower, all as contemplated therein. C. The Shipowner is a wholly-owned subsidiary of the Borrower, and the Shipowner will derive substantial benefits from the making of the Loans to the Borrower. Exhibit E-3 - 1

D. It is a condition precedent to the obligation of the Lenders to make the Loans to the Borrower under the Credit Agreement that the Shipowner shall have executed and delivered this Mortgage to the Mortgagee. E. Pursuant to the Credit Agreement, the Mortgagee has agreed to act as Administrative Agent on behalf of the Lenders with respect to this Mortgage. F. The Shipowner has heretofore agreed to execute and deliver this First Preferred Ship Mortgage (the ― Mortgage ‖) on the Vessel to secure, inter alia , the Borrower’s indebtedness pursuant to the Credit Agreement in the original principal amount of USD 190,000,000 and interest thereon and premium, if any, and all other amounts payable hereunder and under the other Loan Documents and the Secured Swap Agreements and to secure the full and punctual performance and observance of all agreements, covenants and conditions contained herein and contained in the Credit Agreement, the Notes and the other Loan Documents. The formula for the calculation of interest, premium and the terms of their payment together with the terms of the repayment and prepayment of principal, as well as certain agreements, covenants and conditions, are provided in the Credit Agreement. In consideration of the premises and the additional covenants herein contained and for other good and valuable consideration, the receipt and accuracy of which are hereby acknowledged, and for the purpose of securing as a priority in favor of the Mortgagee, for the benefit of the Lenders, the due and punctual payment and performance of the Obligations (as defined below), the Shipowner has granted, conveyed, mortgaged, pledged, confirmed, assigned, transferred and set over and by these presents does grant, convey, mortgage, pledge, confirm, assign, transfer and set over, unto the Mortgagee, for the benefit of the Lenders, and its successors and assigns, the whole 100% of the above mentioned Vessel owned by the Shipowner, including, without limitation, all of the boilers, engines, machinery, masts, spars, boats, anchors, cables, chains, rigging, tackle, capstans, outfit, tools, pumps and pumping equipment, apparel, furniture equipment, drilling equipment, drill pipes, drilling masts, rotary tables, substructures, draw work, drill bits, blowout prevention equipment, collars, racking, housing, spare parts and supporting inventory, vehicles and living quarters (excluding equipment aboard the Vessel which is not owned by the Shipowner) and all other appurtenances to said Vessel appertaining or belonging, whether now owned or hereafter acquired, whether on board or not, and also any and all additions, improvements and replacements in general effected subsequently on or to the Vessel, or any part thereof, or appurtenance thereto; TO HAVE AND TO HOLD all and singular the above mortgaged and described property unto the Mortgagee and its successors and assigns, to its and to its successors’ and assigns’ own use, benefit and behoof forever; PROVIDED , HOWEVER , and these presents are upon the condition, if the Shipowner or the other Obligors (as defined below) or their successors or assigns shall pay or cause to be paid to the Mortgagee and the Lenders the Obligations (as defined below), as and when the same shall become due and payable in accordance with the terms of the Credit Agreement, the other Loan Documents and this Mortgage, and shall duly perform the agreements, covenants and conditions herein and in the Credit Agreement and other Loan Documents, then this Mortgage and the rights hereby granted shall cease and be void, otherwise to remain in full force and effect. Exhibit E-3 - 2

This Mortgage secures and enforces the following (collectively, the ― Obligations ‖, it being acknowledged and agreed that the ―Obligations‖ shall include extensions of credit and amounts owing of the types described below, whether outstanding on the date hereof or extended or owing from time to time after the date hereof): (a) all indebtedness, liabilities, obligations and undertakings of every kind or description of the Shipowner, the Borrower and its Subsidiaries (collectively, the ― Obligors ‖), (including, without limitation, all Indebtedness) to the Administrative Agent, the Lenders, or any Secured Swap Provider, arising out of or outstanding or owing under, advanced or issued pursuant to, or evidenced by, the Credit Agreement, the Notes and each other Loan Document to which any of them is a party or the Secured Swap Agreements to which any Secured Swap Provider is a party, including, without limitation, the unpaid principal of and interest and premium on the Loans and all other obligations and liabilities of the Obligors (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to any Obligor, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, arising out of or outstanding under, advanced or issued pursuant to, or evidenced by, the Credit Agreement, the Notes, any other Loan Document or any Secured Swap Agreement, and whether on account of principal, interest, premium, reimbursement obligations, amounts owing upon liquidation, acceleration of obligations under, or termination (including early termination) of any Secured Swap Agreement, fees, indemnities, costs, expenses or otherwise (including, without limitation, all costs, fees and disbursements of counsel to the Mortgagor or any Agent, Lender or Secured Swap Provider that are required to be paid by the Obligors pursuant to the terms of the Credit Agreement, the Notes, any other Loan Document or any Secured Swap Agreement); (b) the prompt and complete payment when due of any and all additional loans or advances made by the Lenders to or for the benefit of the Borrower or any other Obligor pursuant to the Credit Agreement or any other Loan Document (it being contemplated that the Lenders may lend additional sums to the Obligors pursuant to the Credit Agreement or the other Loan Documents from time to time, but shall not be obligated to do so except as expressly set forth in the Credit Agreement or such other Loan Document, and the Shipowner and the Mortgagee agree that the payment of any such additional loans shall be secured by this Mortgage); (c) the prompt and complete payment when due of any and all sums which may be advanced or paid by the Mortgagee or the Lenders under the terms hereof or of the Credit Agreement or other Loan Documents on account of the failure of the Shipowner to comply with the covenants of the Shipowner contained herein, or the failure of the Shipowner or any other Obligor to comply with the covenants of the Shipowner or any other Obligor contained in the Credit Agreement or any other Loan Documents; and all other indebtedness of the Shipowner arising pursuant to the provisions of this Mortgage, including penalties, indemnities, legal and other fees, charges and expenses, and amounts advanced by and expenses incurred in order to preserve any collateral or security interest, whether due after acceleration or otherwise; Exhibit E-3 - 3

(d) the timely and complete performance of all agreements, covenants and conditions contained in this Mortgage, the Credit Agreement, the Notes and the other Loan Documents; and (g) all renewals, modifications, amendments, restatements, rearrangements, consolidations, substitutions, replacements, enlargements, and extensions of all or any part of the Obligations. The Shipowner certifies that true forms of the Credit Agreement (including the Notes) are attached to this Mortgage as Exhibit A, and that the terms and conditions of the Credit Agreement and the Notes are incorporated by reference into this Mortgage and form a part hereof. The Shipowner for itself, its successors and assigns, hereby represents, warrants, covenants, declares and agrees with the Mortgagee and its successors and assigns that the Vessel is to be held subject to the further covenants, conditions, terms and uses hereinafter set forth. ARTICLE I DEFINED TERMS; REPRESENTATIONS & WARRANTIES; COVENANTS Section 1.01 Certain Defined Terms . The following terms used herein have the meanings given to them as follows: ― Secured Swap Agreement ‖ any Swap Agreement entered into by the Borrower, the Shipowner or any Subsidiary permitted by the terms of Section 9.17 of the Credit Agreement. ― Secured Swap Provider ‖ means any Lender or Agent (or Affiliate of any Lender or Agent) party to any Secured Swap Agreement with the Borrower or any Subsidiary while such Lender or Agent (or in the case of its Affiliate, the Person affiliated therewith) is a Lender or an Agent under the Credit Agreement. Section 1.02 Payment and Performance of Obligations . (a) The Shipowner agrees that it will promptly and faithfully pay or cause to be paid the Obligations secured hereby and that it will perform and observe all agreements, covenants and conditions, on its part to be performed or observed, contained herein, in the Credit Agreement and each other Loan Document to which it is a party. (b) The Obligations secured hereby are obligations in Dollars of the United States of America and the term ― USD ‖ when used herein shall mean such Dollars. Notwithstanding fluctuations in the value or rate of Dollars in terms of gold, or any other currency, all payments hereunder or otherwise in respect of the Obligations hereby secured shall be payable in Dollars, whether such payment is made before or after the due date. Section 1.03 Legal Existence; Citizenship; Authorization . The Shipowner is duly organized and validly existing as a limited liability company under the laws of the State of Delaware; it is duly qualified to engage in the trade in which the Vessel operates; it is duly authorized to mortgage the Vessel; all limited liability company action necessary as required by law for the execution and delivery of this Mortgage has been duly and effectively taken; it has Exhibit E-3 - 4

full power and authority to own and mortgage the Vessel; the Mortgage, the Credit Agreement and the Obligations hereby secured are and will be valid and enforceable obligations of the Shipowner enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles. All necessary consents and approvals of any Governmental Authority or any other entity to the entering into and performance of this Mortgage have been duly obtained or given and the entering into and performance of this Mortgage does not and will not contravene the terms of or constitute a default under (with or without giving of notice or lapse of time or both) any material agreement, instrument or document to which the Shipowner is a party or by which it or its properties are bound or affected. The Shipowner is now, and shall so remain until this Mortgage is discharged, a citizen of the United States pursuant to Section 2 of the Shipping Act of 1916, as amended (46 USC § 802), and is fully qualified to own and operate vessels documented under the laws of the United States. Section 1.04 Ownership of Vessel; Warranty and Defense of Title . The Shipowner lawfully owns and is lawfully possessed of the whole of the Vessel free from any lien or encumbrance whatsoever (other than Liens permitted by Section 9.03 of the Credit Agreement (― Permitted Liens ‖)) and will warrant and defend the title and possession thereto and to every part thereof for the benefit of the Mortgagee against the claims and demands of all persons whomsoever, provided, however , that notwithstanding anything herein to the contrary, no intention to subordinate the first priority security interest and Lien granted in favor of the Mortgagee herein is to be hereby implied or expressed by the permitted existence of the Permitted Liens. The Shipowner is the sole owner of the whole of the Vessel. Section 1.05 Recordation . The Shipowner will cause this Mortgage to be duly recorded in accordance with the provisions of the Vanuatu Maritime Act Cap. 131, as amended (hereinafter called the ― Vanuatu Maritime Law ‖), and will otherwise comply with and satisfy all of the provisions of the Vanuatu Maritime Law in order to establish and maintain this Mortgage as a first preferred mortgage lien thereunder upon the Vessel and upon all renewals, replacements and improvements made in or to the same for the amount of the Obligations secured hereby. Section 1.06 Operation of Vessel . The Shipowner will not cause or permit the Vessel to be operated in any manner contrary to applicable law, engage in any unlawful trade or operations or violate any applicable law or carry any cargo, in the case of any of the foregoing, that will unreasonably expose the Vessel to penalty, forfeiture or capture and will not do, or suffer or permit to be done, anything which can or may injuriously affect the registration of the Vessel under the laws and regulations of the Republic of Vanuatu and will at all times keep the Vessel duly documented thereunder. Section 1.07 Claims, Taxes, Fees etc . The Shipowner will pay and discharge or cause to be paid and discharged prior to delinquency, all claims and demands in respect of, and all taxes, assessments, governmental charges, levies, fees, fines and penalties imposed on the Vessel, its cargoes or any income or profits therefrom, in each case on a timely basis, and all lawful claims which, if unpaid, might become a lien or charge upon such Vessel or any income therefrom not constituting a Permitted Lien; provided that the Shipowner shall not be required to Exhibit E-3 - 5

pay any such claim, demand, fee, tax, assessment, charge, fine, levy, or penalty which is being contested in good faith and by proper proceedings if the Shipowner has maintained adequate reserves with respect thereto in accordance with GAAP, and such Vessel shall not have been arrested or detained therefor, and provided further that such contest shall not subject such Vessel, or any part thereof, to forfeiture or loss. Section 1.08 Liens . Neither the Shipowner, any charterer, the Master of the Vessel nor any other Person has or shall have any right, power or authority to, and shall not, create, incur or permit to be placed or imposed or continued upon the Vessel, its freights, profits or hire, any Lien whatsoever other than for crew’s wages and salvage, the lien of this Mortgage and Permitted Liens. Section 1.09 Notice of Mortgage . The Shipowner will place, and at all times and places will retain, a properly certified copy of this Mortgage on board the Vessel with her papers and will cause such certified copy and such Vessel’s marine document to be exhibited to any and all persons having business therewith which might give rise to any lien thereon other than liens for crew’s wages and salvage, and to any representative of the Mortgagee; and will place and prominently display in the chart room and in the Master’s cabin of such Vessel a framed printed notice in plain type reading as follows: “NOTICE OF MORTGAGE This Vessel is covered by a First Preferred Ship Mortgage in favor of Comerica Bank, as Administrative Agent, Mortgagee, under authority of the Vanuatu Maritime Act Cap. 131, as amended. Under the terms of said Mortgage, neither the owner, any charterer, the Master of this Vessel nor any other person has any right, power or authority to create, incur or permit to be imposed upon this Vessel any other lien whatsoever except Permitted Liens (as defined in the Mortgage).‖ Section 1.10 Libel or Attachment . If a libel or complaint be filed against the Vessel or the Vessel is otherwise attached, levied upon or taken into custody or sequestered by virtue of any legal proceeding in any court or by a government or other authority, the Shipowner will promptly notify the Mortgagee thereof by facsimile, telex, cable or telegram, as appropriate, confirmed by letter, at its office, and within thirty (30) days of any arrest arising out of such libel or complaint will cause such Vessel to be released and all Liens thereon (other than Permitted Liens) to be discharged and will promptly notify the Mortgagee thereof in the manner aforesaid. In the event that the Shipowner does not appear in such action by filing a claim of owner or similar pleading within such thirty (30) day period, the Shipowner does hereby authorize and empower the Mortgagee, in the name of the Shipowner, or its successor or assigns, to apply for and receive possession of and to take possession of such Vessel with all the rights and powers that the Shipowner, or its successors or assigns, might have, possess or exercise in any such event; and this power of attorney shall be irrevocable and may be exercised not only by the Mortgagee hereinabove named but also by any one such appointee or the appointees of the Mortgagee, with full power of substitution, to the same extent as if the said appointee or appointees had been named as one of the attorneys above named by express designation. The Shipowner will notify the Mortgagee within three (3) Business Days after it has become known to the Shipowner of any average or salvage incurred by the Vessel. Exhibit E-3 - 6

Section 1.11 Maintenance of Vessel . (a) Except while such Vessel is undergoing repairs, maintenance or is stacked or in lay up, the Shipowner will at all times and without cost or expense to the Mortgagee maintain and preserve, or cause to be maintained and preserved, the Vessel in good running order and repair, so that the Vessel shall be, insofar as due diligence can make it so, tight, staunch, strong and well and sufficiently tackled, appareled, furnished, equipped and in every respect seaworthy and in good operating condition and fit for its intended service; and will keep the Vessel, or cause it to be kept in such condition as will entitle it to at least the current classification and rating for the Vessel in the American Bureau of Shipping, or other classification society of like standing. The Shipowner will at all times keep the Vessel (other than a Vessel that is stacked or in lay up) in such condition to ensure that it maintains its current classification rating from the American Bureau of Shipping, and the Shipowner shall furnish to the Mortgagee annually, commencing July 30, 2005, a certificate from the American Bureau of Shipping confirming that such classification has been maintained. The Vessel shall, and the Shipowner covenants that it will, at all times comply in all material respects with all applicable laws, treaties and conventions to which the Republic of Vanuatu is a party, and rules and regulations issued thereunder, and shall have on board as and when required thereby valid certificates showing compliance therewith. The Shipowner will not make, or permit to be made, any substantial change in the structure, rig or type of the Vessel that would materially diminish the value of the Vessel without first receiving the written consent of the Mortgagee, which consent shall not be unreasonably withheld. (b) So long as any of the Obligations are outstanding, the Shipowner will cause the Vessel (other than when the Vessel is stacked or in lay up) to be repaired and overhauled as the need arises in order to keep such Vessel well maintained and in seaworthy condition. (c) The Shipowner will promptly, but in any event within forty-eight (48) hours thereof, give notice to the Mortgagee if the Vessel is put into the possession of any yard for the purpose of repairs in an amount exceeding or likely to exceed ten percent (10%) of the insured total loss value of such Vessel at any time. Section 1.12 Inspection; Attorney in Fact . (a) Subject to the terms of the Credit Agreement, the Shipowner will at all reasonable times afford the Mortgagee or its authorized representatives at their risk and expense full and complete access to the Vessel during normal business hours for the purpose of inspecting such Vessel, its cargoes and its papers, and the Shipowner will deliver for inspection copies of such contracts and documents relating to such Vessel, whether on board or not, as the Mortgagee may request, provided however , that (i) non public information obtained by the Mortgagee pursuant to any Loan Document concerning the Shipowner, the Vessel, any other assets of the Shipowner or the Shipowner’s financial condition and prospects shall be kept confidential by the Mortgagee in accordance with Section 12.11 of the Credit Agreement (subject to the exceptions contained therein), unless such non governmental parties shall agree prior thereto to be bound by this Section 1.12 and (ii) any inspection of the Vessel and its papers shall be subject to the requirements of any operators of such Vessel and any applicable Governmental Authority. Exhibit E-3 - 7

(b) The Shipowner hereby appoints the Mortgagee as attorney-in-fact of the Shipowner, whether or not an event of default shall have occurred or is continuing, to appear before governmental bodies, classification societies and insurers and to demand and receive to the same extent that the Shipowner itself might, all information and certificates respecting (i) the corporate status of the Shipowner under the laws of its jurisdiction of incorporation or any other jurisdiction in which it may have qualified to do business, (ii) the status of the Vessel under the laws and regulations of its country of registration and its compliance with the requirements thereof, and (iii) the state of the records of the Vessel or of the Shipowner in respect of the Vessel in any classification society with which the Vessel may be classed or of any company, association or club by whom the Vessel or the Shipowner in respect of the Vessel may be insured; and the Shipowner hereby agrees that the Mortgagee may execute its powers as attorney-in-fact as aforesaid through its agents, representatives and attorneys. This power of attorney is coupled with an interest and shall be irrevocable as long as the Obligations remain outstanding. Section 1.13 No Change in Registry . The Shipowner will not transfer or change the flag or port of documentation of the Vessel without the written consent of the Mortgagee first had and obtained, and any such written consent to any one transfer or change of flag or port of documentation shall not be construed to be a waiver of this provision with respect to any subsequent proposed transfer or change of flag or port of documentation for the Vessel. Section 1.14 Sale or other Disposition s. Except as permitted by the Credit Agreement, the Shipowner will not sell, mortgage, bareboat charter, transfer or in any other way dispose of all or any part of the Vessel, provided, however, the Shipowner may bareboat charter the Vessel in the ordinary course of business. Section 1.15 Insurance . (a) Types and Coverage . The Shipowner will, at its own expense, when and so long as this Mortgage shall be outstanding, insure or cause to be insured the Vessel against the risks indicated below, in addition to such other risks which would be covered by experienced, prudent, and responsible owners of similar vessels engaged in similar operations in places and under conditions comparable to those in which such Vessel is employed from time to time and possessing financial and operating characteristics similar to the Shipowner (― Similar Companies ‖) in accordance with the usual and customary practices of Similar Companies, and keep it insured, in the aggregate, in lawful money of the United States, for not less than the higher of (i) the full commercial value of such Vessel as reasonably determined by the Shipowner, (ii) the amount of coverage that would be obtained by Similar Companies on such Vessel, or (iii) an amount with respect to such Vessel when aggregated with the coverage on all other Drilling Rigs and Lift Boats equals at least USD 190,000,000. The Vessel shall in no event be insured for an amount less than the agreed valuations as set forth in the applicable marine and war risk policies. Such insurance shall be on the basis of ―new for old‖ with no deduction for depreciation and shall cover marine and war risk perils, on hull and machinery (including excess value), and shall be maintained in the broadest forms available in the American, British or equivalent insurance markets for vessels of the same type as such Vessel, provided that war risk insurance shall only be required if such Vessel operates outside of the United States territorial waters in the Gulf of Mexico. The Shipowner shall also obtain such workmen’s compensation or Exhibit E-3 - 8

longshoremen’s and harbor worker’s insurance as shall be required by applicable law, including endorsements for Outer Continental Shelf operations, borrowed servant, voluntary compensation, and in rem claims. In addition, the Shipowner shall maintain or cause to be maintained protection and indemnity insurance, including coverage for contractual liability, contractual and legal wreck removal, crew coverage, excess collision, salvage, general average, care, pollution, custody and control coverage through underwriters or associations reasonably acceptable to the Mortgagee in an amount equal to the higher of (i) the full commercial value of the Vessel as reasonably determined by the Shipowner, (ii) the amount of coverage that would be obtained by Similar Companies on the Vessel, and (iii) an amount with respect to the Vessel when aggregated with the coverage on all other Drilling Rigs and Lift Boats equals at least USD 190,000,000, provided, however, that war risk protection and indemnity insurance shall be in an amount not less than the amount of insurance against total loss. The Shipowner shall at all times during which the Vessel is operating within the jurisdiction of the United States of America, maintain or cause to be maintained insurance or post bond or maintain or cause to be maintained approved evidence of financial responsibility with respect to such Vessel to cover the actual cost of removal of discharged oil for which the Shipowner or such Vessel may be held strictly liable (or held liable due to the negligence of the Shipowner, any charterer or any other Person) under the Clean Water Act of 1977, OPA or the Outer Continental Shelf Lands Act, or under any other federal or state law which, in the future, may apply to such Vessel or to the Shipowner; and the Shipowner shall maintain insurance covering similar pollution risks or liabilities incident thereto under any law, regulation, or judicial decision of any foreign jurisdiction or jurisdictions or political subdivision thereof applicable to the Shipowner, such Vessel, or its operations. (b) Deductibles . No insurance required to be carried by the Shipowner pursuant to this Section 1.15 shall include a deductible or self-insured retention in excess of USD 2,000,000 per occurrence. (c) Insurers; Provisions . The policy or policies of insurance shall be issued by responsible underwriters reasonably acceptable to the Mortgagee, shall contain conditions, terms, stipulations and insuring covenants reasonably satisfactory to the Mortgagee and shall be kept in full force and effect by the Shipowner so long as this Mortgage shall be outstanding. All insurance policies, binders and other interim insurance contracts (with the exception of Workers’ Compensation, U.S. Longshoremen & Harbor Workers Compensation and Maritime Employers Liability) shall be executed and issued in the name of the Shipowner, shall name the Mortgagee and the Lenders in a manner such that they are afforded the stature of additional insureds, and shall provide that loss shall be payable to the Mortgagee for distribution by it to itself and the Shipowner as their interests may appear. The Mortgagee shall permit all insurance proceeds to be applied in the manner set forth in this Mortgage and in the Credit Agreement. All insurance policies shall provide (i) for at least thirty (30) days’ prior notice to be given to the Mortgagee by the underwriters or association in the event of (A) cancellation or reduction in amount or material change in coverage or (B) the failure of the Shipowner to pay any premium or call which would suspend coverage under the policy or the payment of a claim thereunder and (ii) that (A) there shall be no recourse against the Mortgagee (or its assignee) for the payment of premiums or commissions and (B) if such policies provide for the payment of club calls, assessments or advances, there shall be no recourse against the Mortgagee (or its assignee) for the payment thereof. Exhibit E-3 - 9

(d) Compliance . The Shipowner shall not do any act, nor voluntarily suffer nor permit any act to be done, whereby any insurance required by this Section 1.15 shall or may be suspended, impaired or defeated, or suffer or permit the Vessel to undertake any drilling operations, carry any cargoes or proceed into an area then excluded by trading warranties under its marine and war risk policies (including protection and indemnity) without obtaining all necessary additional coverage, satisfactory in form and substance, and evidence of which shall be furnished, to the Mortgagee. (e) Loss . In the event of an actual or constructive total loss or a compromised constructive total loss or requisition of the Vessel, (i) all insurance payments therefor shall be paid to the Mortgagee and, at the Shipowner’s option, shall be applied to the Obligations in the manner required by the Credit Agreement or turned over to the Shipowner in accordance with Section 3.04(c)(iv) of the Credit Agreement, and (ii) the Mortgagee shall retain out of the insurance payments received on account of such loss and held by the Mortgagee, any sum or sums that shall be or become owing to the Mortgagee under this Mortgage for the cost, if any, of collecting the insurance, which sum or sums shall become the sole property of the Mortgagee. The Shipowner shall not declare or agree with underwriters that the Vessel is a constructive or compromised, agreed or arranged constructive total loss without the prior written consent of the Mortgagee. (f) Policies . The Shipowner upon execution of this Mortgage, shall deliver to the Mortgagee a broker’s certificate evidencing the insurance maintained under this Section 1.15. If the Shipowner executes any new or renewal policies of insurance under this Section 1.15, the Shipowner will promptly, but in any event within 5 days thereafter, deliver to the Mortgagee a true and complete copy of a broker’s certificate with respect to such policies. Upon the request of the Mortgagee, but so long as no Event of Default has occurred and is continuing not more than once in each calendar year, the Shipowner shall provide to the Mortgagee copies of all insurance policies, binders and other evidences of the insurances on the Vessel. (g) Certificates . Annually, commencing July 30, 2005, the Shipowner shall furnish to the Mortgagee, a certificate of a reputable insurance broker, in form and substance reasonably satisfactory to the Mortgagee as to the insurance maintained by the Shipowner pursuant to this Section 1.15, specifying the respective policies of insurance covering the same and attaching certificates of confirmation evidencing the same and stating with regard to the insurance maintained by the Shipowner pursuant to this Section 1.15 the amounts, deductibles, and the risks against which such insurance is issued. (h) Obligation to Collect . The Shipowner shall, at no cost or expense to the Mortgagee, have the duty and responsibility to make all proofs of loss and take any and all other steps necessary to effect collections from underwriters for any loss under any insurance on or in respect of the Vessel or the operation thereof. Section 1.16 Reimbursement . The Shipowner will reimburse the Mortgagee promptly with interest at the rate provided for in Section 3.02(c) of the Credit Agreement, for any and all expenditures which the Mortgagee may, from time to time, make, lay out or expend in providing such protection in respect of insurance, discharge or purchase of liens, taxes, dues, assessments, governmental charges, fines and penalties lawfully imposed, repairs, attorneys’ fees, translation Exhibit E-3 - 10

fees for documents made in a language other than English and other matters as the Shipowner is obligated herein to provide, but fails to provide. Such obligation of the Shipowner to reimburse the Mortgagee shall be an additional indebtedness due from the Shipowner, secured by this Mortgage, and shall be payable by the Shipowner on demand. The Mortgagee, though privileged so to do, shall be under no obligation to the Shipowner to make any such expenditures, nor shall the making thereof relieve the Shipowner of any default in that respect. Section 1.17 Contracts . The Shipowner will use its commercially reasonable efforts to fully perform any and all charter parties or drilling contracts which are or may be entered into with respect to the Vessel. Section 1.18 Taxes . If at any time taxes should be levied anywhere on the principal or the interest in respect of or arising out of this Mortgage or any other instruments to be effected thereunder or in any other manner whatsoever as a consequence of or in connection with the Obligations, such taxes shall be borne and paid by the Shipowner. If by the provisions of the relevant law such an arrangement cannot be legally made, the Mortgagee may require immediate payment of all sums secured under this Mortgage. Section 1.19 Further Assurances . (a) In the event that this Mortgage or any provision hereof shall be deemed invalidated in whole or in part by reason of any present or future law or any decision of any authoritative court, or if the documents at any time held by the Mortgagee shall be deemed by the Mortgagee for any reason insufficient to carry out the true intent and spirit of this Mortgage, then from time to time, the Shipowner will execute, on its own behalf, such other and further assurances and documents as in the reasonable opinion of the Mortgagee may be required more effectively to subject the Vessel to the payment of the Obligations, as in this Mortgage provided, and the performance of the terms and provisions of this Mortgage, the Notes and the Credit Agreement. (b) From time to time on the request of the Mortgagee, the Shipowner will furnish to the Mortgagee: (i) such favorable opinions of counsel, including United States legal opinions, in form and substance reasonably satisfactory to the Mortgagee and (ii) such instruments executed by the Shipowner or on its behalf or by any or all officers, members, managers or directors of the Shipowner, in each case, relating to this Mortgage or any of the transactions contemplated hereby, as the Mortgage may reasonably request. ARTICLE II EVENTS OF DEFAULT AND REMEDIES Section 2.01 Events of Default . The occurrence and continuation of an Event of Default under the Credit Agreement shall constitute an ― Event of Default ‖ hereunder. Section 2.02 Remedies . Upon the occurrence and during the continuance of any Event of Default, the Mortgagee may, at the Mortgagee’s option, and by or through itself or otherwise, do any one or more of the following: (a) exercise all of the rights and remedies in foreclosure and otherwise given to mortgagees by the laws and regulations of the Republic of Vanuatu or of any country where the Vessel may be found or of any other applicable jurisdiction. Exhibit E-3 - 11

(b) bring suit at law, in equity or in admiralty, in any court of any nation of the world, or initiate and prosecute such other judicial, extrajudicial, or administrative proceedings, as it may be advised, to recover judgment for the Obligations, and collect the same out of any and all of the properties of the Shipowner, whether covered by this Mortgage or otherwise. (c) take and enter into possession of the Vessel, at any time, wherever the same may be, without legal process and without being responsible for loss or damage, and the Shipowner or other person in possession forthwith upon demand of the Mortgagee shall surrender to the Mortgagee possession of such Vessel. (d) without being responsible for loss or damage, the Mortgagee may hold, lay up, lease, charter, operate or otherwise use the Vessel for such time and upon such terms as it may deem to be for its best advantage, and demand, collect and retain all hire, day rates, freights, earnings, issues, revenues, income, profits, return premiums, salvage awards or recoveries, recoveries in general average, and all other sums due or to become due in respect of such Vessel or in respect of any insurance thereon from any person whomsoever, accounting only for the net profits, if any, arising from such use of such Vessel and charging upon all receipts from the use of such Vessel or from the sale thereof by court proceedings or pursuant to Section 2.02(e), all costs, expenses, charges, damages or losses by reason of such use; and if at any time the Mortgagee shall avail itself of the right herein given it to take the Vessel, the Mortgagee shall have the right to dock such Vessel, for a reasonable time at any dock, pier or other premises of the Shipowner without charge, or to dock her at any other place at the cost and expense of the Shipowner. (e) sell the Vessel without judicial process and without being responsible for any loss or damage arising therefrom, except as may be directly and proximately caused by its willful misconduct, recklessness or gross negligence, in such place, time and manner as the Mortgagee may, in its sole judgment, deem fit. In the event that the Vessel shall be offered for sale by private sale, reasonable notice must be given to the Shipowner but need not be more than twenty (20) days before the private sale, and no newspaper publication of notice shall be required, nor notice of adjournment of sale; sale may be held at such place and at such time as the Mortgagee by notice may have specified, or may be adjourned by the Mortgagee from time to time by announcement at the time and place appointed for such sale or for such adjourned sale, and without further notice or publication the Mortgagee may make any such sale at the time and place to which the same shall be so adjourned. At the sale, the Mortgagee may acquire such Vessel in satisfaction of all or a portion of the outstanding Obligations. Section 2.03 Finality of Sale . It is expressly agreed that upon payment of the purchase price, the purchaser shall acquire good and peaceful title to the Vessel subject of such sale, and shall not be affected by any claim or potential claim of the Shipowner, whether or not such claim or potential claim comes to the knowledge of the purchaser. Any sale of the Vessel made in pursuance of this Mortgage, whether under the power of sale hereby granted or any judicial proceedings, shall operate to divest all right, title and interest of any nature whatsoever of the Exhibit E-3 - 12

Shipowner therein and thereto, and shall bar the Shipowner, its successors and assigns, and all persons claiming by, through or under them, from asserting any claim or right, title or interest therein or thereto. No purchaser shall be bound to inquire whether notice has been given, or whether any default has occurred, or as to the propriety of the sale, or as to the application of the proceeds thereof. Section 2.04 Power to Convey . The Mortgagee is hereby appointed attorney-in-fact of the Shipowner, upon the happening of any Event of Default, to execute and deliver to any purchaser aforesaid, and is hereby vested with full power and authority to make, in the name and on behalf of the Shipowner, a good conveyance of the title to the Vessel so sold. In the event of any sale of the Vessel, under any power herein contained, the Shipowner will, if and when required by the Mortgagee, execute such form of conveyance of such Vessel as the Mortgagee may direct or approve. Section 2.05 Place of Sale; Conveyance . Any sale may be conducted without bringing the Vessel subject of such sale to the place designated for such sale and in such manner as the Mortgagee may deem to be for its best advantage. The Shipowner hereby irrevocably constitutes and appoints the Mortgagee and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Shipowner or in the Mortgagee’s own name, to make in the name and on behalf of the Shipowner, all necessary transfers of the Vessel in accordance with this Article II for a good conveyance of the title to such Vessel, and for that purpose the Mortgagee shall execute all necessary instruments of assignment and transfer (including bills of sale), the Shipowner hereby ratifying and confirming all that its said attorney shall lawfully do by virtue hereof. Nevertheless, the Shipowner shall, if so requested by the Mortgagee, ratify and confirm any sale of the Vessel by executing and delivering to the purchaser thereof such proper bills of sale, conveyances, instruments of transfer and releases as may be designated in such request. Section 2.06 Revenues and Proceeds of Vessel; Prior Liens . (a) The Shipowner hereby irrevocably constitutes and appoints the Mortgagee and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Shipowner or in the Mortgagee’s own name, to demand, collect, receive, compromise and sue for, so far as may be permitted by law, all freights, hire, earnings, issues, revenues, income and profits of the Vessel and all amounts due from underwriters under any insurance thereon as payment of losses or as return premiums or otherwise, salvage awards and recoveries, recoveries in general average or otherwise, and all other sums due or to become due in respect of such Vessel or in respect of any insurance thereon from any person whomsoever, and to make, give and execute in the name of the Shipowner acquittances, receipts, releases or other discharges for the same, whether under seal or otherwise, all checks, notes, drafts, warrants, agreements and other instruments in writing with respect to the foregoing. To the extent permitted by law, the Shipowner hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and is irrevocable. The powers conferred on the Mortgagee hereunder are solely to protect its interests in the Vessel and shall not impose any duty upon it to exercise any such powers. THE MORTGAGEE SHALL BE ACCOUNTABLE ONLY FOR THE AMOUNTS THAT IT ACTUALLY RECEIVES AS A RESULT OF THE EXERCISE OF Exhibit E-3 - 13

SUCH POWERS, AND NEITHER IT NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS SHALL BE RESPONSIBLE TO THE SHIPOWNER FOR ANY ACT OR FAILURE TO ACT, EXCEPT FOR THE MORTGAGEE’S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Notwithstanding the foregoing, the Mortgagee agrees that it will not exercise any rights under the power of attorney provided for in this Section 2.05(a) unless an Event of Default shall have occurred and be continuing. (b) The Mortgagee is hereby irrevocably authorized to pay or furnish indemnity in the proper amounts against any Liens which have or may (in the opinion of the Mortgagee) have priority over the Lien of this Mortgage and which are not permitted under this Mortgage or the Credit Agreement. Section 2.07 Delivery of Vessel . Whenever any right to enter and take possession of the Vessel accrues to the Mortgagee, it may require the Shipowner to deliver, and the Shipowner shall on demand, at its own cost and expense, deliver to the Mortgagee such Vessel at the location reasonably designated by the Mortgagee. Section 2.08 Additional Rights . The Shipowner covenants and agrees that in addition to any and all other rights, powers and remedies elsewhere in this Mortgage granted to and conferred upon the Mortgagee, the Mortgagee in any suit to enforce any of its rights, powers or remedies shall be entitled as a matter of right and not as a matter of discretion (a) to seek the appointment of a receiver or receivers of the Vessel and any receiver or receivers so appointed shall have full right and power to use and operate such Vessel as shall be ordered by the federal court, and (b) to a decree ordering and directing the sale and disposal of the Vessel, and the Mortgagee may become the purchaser at such sale and shall have the right to credit against the purchase price any and all sums of money due hereunder. Section 2.09 Judgment . The Shipowner covenants that upon the occurrence of and continuance of any one or more of the Events of Default, upon written demand of the Mortgagee, the Shipowner will pay to the Mortgagee the whole amount due and payable on the Obligations hereby secured together with any other amounts due hereunder or under any other Loan Document; and in case the Shipowner shall fail to pay same forthwith upon such demand, the Mortgagee shall be entitled to recover judgment for the whole amount so due and unpaid, together with such further amounts as shall be sufficient to cover the reasonable fees and expenses of the Mortgagee’s or the Lenders’ agents, attorneys and counsel and any necessary advances, expenses and liabilities made or incurred by any of them hereunder. All moneys collected by the Mortgagee under this Section 2.08 shall be applied by the Mortgagee in accordance with the provisions of Section 2.11. Section 2.10 Acceptance of Cure . If at any time after an Event of Default and prior to any foreclosure action having been taken by the Mortgagee under any of the Loan Documents to realize upon the security provided by such documents, the Shipowner offers completely to cure all Events of Default and to pay all expenses, advances and damages to the Mortgagee consequent to such Events of Default, with interest at the rate provided for late payments in the Credit Agreement, then the Mortgagee may, but shall not be required to, accept such offer and payment and restore the Shipowner to its former position, but such action shall not affect any subsequent Event of Default or impair any rights consequent thereon. Exhibit E-3 - 14

Section 2.11 Restoration of Position . In case the Mortgagee shall have proceeded to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Mortgagee, then and in every such case the Shipowner and the Mortgagee shall be restored to their former positions and rights hereunder with respect to the property subject or intended to be subject to this Mortgage, and all rights, remedies and powers of the Mortgagee shall continue as if no such proceedings had been taken. Section 2.12 Application of Proceeds . The proceeds of any sale or other disposition of the Vessel received by the Mortgagee and the net earnings of any charter operation or other use of the Vessel received by the Mortgagee under any of the rights, powers or remedies herein specified and any and all other moneys received by the Mortgagee pursuant to or under the terms of this Mortgage or in any proceeding hereunder, the application of which has not elsewhere herein been specifically provided for, shall be applied as follows: (i) first , to the payment of all reasonable expenses and charges, including the expense of sale, the expenses of retaking, attorney’s fees, court costs, and any other expenses or advances made or incurred by the Mortgagee in the protection of its rights or the pursuance of its remedies hereunder; and (ii) second , in accordance with Section 10.02(c) of the Credit Agreement. Section 2.13 Deficiency . To the extent the proceeds of the sale of the Vessel are not sufficient to pay the aggregate amount of the Obligations, any Person liable for the Obligations (including without limitation, the Shipowner, the Borrower and any Subsidiary to the extent such Persons are liable) shall remain jointly and severally liable for such deficiency. Without limiting the generality of the foregoing, the rights and remedies of the Mortgagee under this Mortgage and the other agreements, documents and instruments securing or guarantying any of the Obligations shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any right or remedy. ARTICLE III GENERAL POWERS OF MORTGAGEE Section 3.01 Arrest or Detention of Vessel . In the event that the Vessel shall be arrested or detained by a marshal or other officer of any court of law, equity or admiralty jurisdiction in any country or nation of the world or by any government or other entity and shall not be released from arrest or detention within thirty (30) days from the date of arrest or detention, the Shipowner does hereby authorize and empower the Mortgagee, in the name of the Shipowner, or its successors or assigns, to apply for and receive possession of and to take possession of such Vessel with all the rights and powers that the Shipowner, or its successors or assigns, might have, possess or exercise in any such event; and this power of attorney shall be irrevocable and may be exercised not only by the Mortgagee but also by its appointee or appointees, with full power of substitution, to the same extent as if the said appointee or appointees had been named as the attorney above named by express designation. All expenditures made or incurred by them or any of them for the purpose of the foregoing shall be a debt due from the Shipowner, its successors and assigns, to the Mortgagee and shall be secured by the Lien of this Mortgage in like manner and extent as if the amount and description thereof were written herein. Exhibit E-3 - 15

Section 3.02 Suits . The Shipowner also authorizes and empowers the Mortgagee or its appointees or any of them to appear in the name of the Shipowner, its successors or assigns, in any court of any country or nation of the world where a suit is pending against the Vessel because of or on account of any alleged Lien against such Vessel from which such Vessel has not been released and to take such proceedings as to it may seem proper towards the defense of such suit and the discharge of such Lien, and all expenditures made or incurred by them or any of them for the purpose of such defense or purchaser or discharge shall be a debt due from the Shipowner, its successors and assigns, to the Mortgagee and shall be secured by the Lien of this Mortgage in like manner and extent as if the amount and description thereof were written herein. Section 3.03 Performance of Shipowner’s Obligations . If the Shipowner fails to perform any obligation or covenant under this Mortgage, the Mortgagee shall have the right, but not the obligation, to perform or take such actions to comply with the terms of this Mortgage, and all amounts reasonably expended in connection with such conduct shall be a demand obligation of the Shipowner owing to Mortgagee at the post-default rate of interest specified in Section 3.02(b) of the Credit Agreement and shall be secured by the Lien of this Mortgage in like manner and extent as if the amount and description thereof were written herein. ARTICLE IV SUNDRY PROVISIONS Section 4.01 Successors and Assigns . All of the covenants, promises, stipulations and agreements of the Shipowner in this Mortgage contained shall bind the Shipowner and its successors and assigns and shall inure to the benefit of the Mortgagee and its successors and assigns. In the event of any assignment of this Mortgage, the term ―Mortgagee‖, as used in this Mortgage, shall be deemed to mean any such assignee. Section 4.02 Agents . Wherever and whenever herein any right, power or authority is granted or given to the Mortgagee, such right, power or authority may be exercised in all cases by the Mortgagee or such agent or agents as it may appoint, and the act or acts of such agent or agents when taken shall constitute the act of the Mortgagee hereunder. Section 4.03 Severability . In the event that any provision of this Mortgage or the Credit Agreement shall be deemed invalid or unenforceable by reason of any present or future law or any decision of any authoritative court, the validity and enforceability of the other provisions hereof or thereof shall not be affected thereby. Section 4.04 Expenses . The Shipowner agrees to pay all reasonable costs and expenses in connection with the preparation, execution and delivery of the Credit Agreement, the Notes, this Mortgage, and any other instrument contemplated thereby (including the reasonable fees and out-of-pocket expenses of counsel to the Mortgagee and of local counsel selected by said counsel in any jurisdiction involved in the transactions contemplated by the Credit Agreement and this Mortgage) and costs and expenses, including counsel fees, in connection with the enforcement of the Credit Agreement, the Notes, this Mortgage and any other instrument contemplated thereby, as well as costs for translations and any and all stamp and other taxes of every character, if any, now or hereafter in effect, whether foreign or domestic, not including taxes imposed on the income or assets (including franchise and bank shares taxes) of the Mortgagee or the Lenders by Exhibit E-3 - 16

the United States of America or any political subdivisions thereof, which may be payable or determined to be payable in connection with the execution, delivery, performance or enforcement of the Credit Agreement, the Notes and this Mortgage, and any other instrument contemplated thereby and the payments to be made thereunder, whether any such tax be imposed upon the Mortgagee or the Lenders and to save the Lenders and the Mortgagee harmless from any and all liabilities with respect to or resulting from any delay or omission to pay such taxes. Section 4.05 INDEMNIFICATION . THE SHIPOWNER AGREES (a) TO INDEMNIFY AND HOLD HARMLESS THE MORTGAGEE, EACH LENDER AND EACH AGENT AND THEIR RESPECTIVE SUCCESSORS, ASSIGNS, EMPLOYEES, AGENTS AND AFFILIATES (INDIVIDUALLY AN “ INDEMNITEE ,” AND COLLECTIVELY, THE “ INDEMNITEES ”) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LOSSES, JUDGMENTS AND LIABILITIES (INCLUDING LIABILITIES FOR PENALTIES) OF WHATSOEVER KIND OR NATURE, AND (b) TO REIMBURSE EACH INDEMNITEE FOR ALL REASONABLE COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES, IN EACH CASE ARISING OUT OF OR RESULTING FROM THIS MORTGAGE OR THE EXERCISE BY ANY INDEMNITEE OF ANY RIGHT OR REMEDY GRANTED TO IT HEREUNDER (BUT EXCLUDING ANY CLAIMS, DEMANDS, LOSSES, JUDGMENTS AND LIABILITIES OR EXPENSES TO THE EXTENT INCURRED BY REASON OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE (AS DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL AND NON-APPEALABLE DECISION)). IN NO EVENT SHALL THE MORTGAGEE BE LIABLE, IN THE ABSENCE OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON ITS PART, FOR ANY MATTER OR THING IN CONNECTION WITH THIS MORTGAGE OTHER THAN TO ACCOUNT FOR MONIES ACTUALLY RECEIVED BY IT IN ACCORDANCE WITH THE TERMS HEREOF. IF AND TO THE EXTENT THAT THE OBLIGATIONS OF THE SHIPOWNER UNDER THIS SECTION 4.05 ARE UNENFORCEABLE FOR ANY REASON, THE SHIPOWNER HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF SUCH OBLIGATIONS WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. THE INDEMNITY OBLIGATIONS OF THE SHIPOWNER CONTAINED IN THIS SECTION 4.05 SHALL CONTINUE IN FULL FORCE AND EFFECT NOTWITHSTANDING THE FULL PAYMENT OF ALL OF THE NOTES AND THE PAYMENT OF ALL OTHER OBLIGATIONS AND NOTWITHSTANDING THE DISCHARGE THEREOF. Section 4.06 Counterparts . This Mortgage may be executed in any number of counterparts, and all such counterparts executed and delivered each as an original shall constitute but one and the same instrument. Section 4.07 Amendments . None of the terms and conditions of this Mortgage may be changed, waived, modified or varied in any manner whatsoever except in accordance with the terms of the Credit Agreement. Exhibit E-3 - 17

Section 4.08 Notices . (a) Any notice or other communication to be given pursuant hereto shall be sent by hand or by postage prepaid letter or by facsimile confirmed by letter and addressed: To the Shipowner: Hercules Drilling Company, LLC 2929 Briarpark Drive, Suite 435 Houston, Texas 77042 Attention: Don Rodney Telefax No.: 713-952-7977 To the Mortgagee: Comerica Bank, as Administrative Agent 910 Louisiana, Suite 410 Houston, TX 77002 Attention: Mona Foch (b) Any notice of communication sent by postage prepaid letter shall be deemed to be received three days after mailing. Any notice or communication sent by facsimile shall be deemed received at the opening of business the day after transmission. Any notice or communication sent by hand shall be deemed to be received on the day sent if sent during normal business hours and otherwise at the opening of business on the day following delivery. Section 4.09 Right of Peaceful Enjoyment . Subject in all respects to the terms and conditions of the Credit Agreement and the other Loan Documents, so long as no Event of Default shall have occurred and be continuing, the Shipowner (a) shall be suffered and permitted to retain actual possession and use of the Vessel and (b) if permitted by Section 9.12 of the Credit Agreement, shall have the right, from time to time, in its discretion, and without application to the Mortgagee, and without obtaining a release thereof by the Mortgagee, to dispose of, free from the lien hereof, any boilers, engines, machinery, masts, spars, sails, rigging, boats, anchors, chains, tackle, apparel, furniture, fittings or equipment, drilling equipment, pumps, drill pipes, collars, racking, housing, spare parts and supporting inventory, vehicles and living quarters or any other appurtenances of the Vessel that are no longer useful, necessary, profitable or advantageous in the operation of such Vessel, first or simultaneously having provided for the replacement thereof by new boilers, engines, machinery, masts, spars, sails, rigging, boats, anchors, chains, tackle, apparel, furniture, fittings, equipment, drilling equipment, pumps, drill pipes, collars, racking, housing, spare parts and supporting inventory, vehicles and living quarters or other appurtenances of substantially equal value to the Shipowner, which shall forthwith become subject to the lien of this Mortgage as a first preferred mortgage lien thereon. Section 4.10 Termination . (a) At such time as the Obligations shall have been paid in full, all Letters of Credit shall have terminated, and the Commitments have been terminated, then the Mortgagee, at the request and sole expense of the Shipowner, shall forthwith cause reconveyance, satisfaction and Exhibit E-3 - 18

discharge of this Mortgage to be entered upon the record, without recourse and without any representation or warranty of any kind, and shall execute and deliver or cause to be executed and delivered such instruments of reconveyance, satisfaction and reassignment as may be appropriate. Otherwise, this Mortgage shall remain and continue in full force and effect. (b) If the Vessel shall be sold by the Shipowner in a transaction permitted by Section 9.12 of the Credit Agreement, then the Mortgagee, at the request and sole expense of the Shipowner, shall promptly execute and deliver to the Shipowner all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Vessel, without recourse and without any representation or warranty; provided that the Shipowner shall have delivered to the Mortgagee, at least five (5) Business Days prior to the date of the proposed release, a written request of a Responsible Officer of the Shipowner for release identifying the Shipowner and such Vessel and the terms of the sale in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Shipowner stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents. Any such action taken by the Mortgagee shall be without warranty by or recourse. Section 4.11 Rights Cumulative . Each and every right, power and remedy herein given to the Mortgagee and/or the Lenders shall be cumulative and shall be in addition to every other right, power and remedy herein given or now or hereafter existing at law, in equity, in admiralty or by statute, and each and every right, power and remedy whether herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Mortgagee and/or the Lenders, and the exercise or the beginning of the exercise of any right, power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Mortgagee or by any Lender in the exercise of any right or power or in the pursuance of any remedy accruing upon any Event of Default shall impair any such right, power or remedy or be construed to be a waiver of any such Event of Default or to be an acquiescence therein; nor shall the acceptance by the Mortgagee of any security or of any payment of or on account of the Obligations hereby secured maturing after any Event of Default or of any payment on account of any past default be construed to be a waiver of any right to take advantage of any future Event of Default or of any past Event of Default not completely cured thereby. Section 4.12 GOVERNING LAW . THIS MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AND THE GENERAL MARITIME LAW OF THE UNITED STATES OF AMERICA. Section 4.13 No Waiver of Preferred Status . No provision of this Mortgage or the Credit Agreement shall be deemed to constitute a waiver by the Mortgagee of the preferred status of this Mortgage given by the laws of the Republic of Vanuatu or comparable legislation of any other jurisdiction where this Mortgage may be enforced, and any provision of or incorporated in this Mortgage which would otherwise constitute such a waiver shall to such extent be of no force or effect. Exhibit E-3 - 19

Section 4.14 Recordation . (a) The maximum principal amount that may be outstanding under this Mortgage is One Hundred Ninety Million United States Dollars (USD 190,000,000.00) and for the purpose of recording this Mortgage, the total amount of this First Preferred Ship Mortgage is One Hundred Ninety Million United States Dollars (USD 190,000,000.00), and interest, expenses and performance of mortgage covenants. The discharge amount is the same as the total amount. (b) Shipowner hereby grants the law firm of Vinson & Elkins L.L.P. a power of attorney to record this Mortgage through Vanuatu Maritime Service Limited in accordance with Vanuatu Maritime Law, and to take all actions incidental thereto and related therewith. Section 4.15 Defined Terms . All capitalized terms used in this Mortgage and not defined herein shall have the meanings given to them in the Credit Agreement. The Mortgagee hereby accepts all of the terms and conditions set forth in this First Preferred Ship Mortgage and the first preferred mortgage lien granted hereby. [Remainder of page intentionally left blank.] Exhibit E-3 - 20

IN WITNESS WHEREOF, the Shipowner has caused this Mortgage to be duly executed this

day of June, 2005.

HERCULES DRILLING COMPANY, LLC By: Name: Title: STATE OF TEXAS COUNTY OF HARRIS § § §

On this day of June, 2005, before me personally appeared , to me known, who, being by me duly sworn, did depose and say that he resides at that he is the of Hercules Drilling Company, LLC, the limited liability company described in the foregoing instrument; that he signed his name thereto by order of the Sole Manager of said limited liability company and that the foregoing instrument is the act and deed of said limited liability company. Notary Public Exhibit E-3 - 21

Agreed to and accepted by: COMERICA BANK, as Administrative Agent By: Name: Title: STATE OF TEXAS COUNTY OF HARRIS § § §

On this day of June, 2005, before me personally appeared , to me known, who, being by me duly sworn, did depose and say that resides at that is the of Comerica Bank, the Mortgagee described in the foregoing instrument; that he signed his name thereto by order of said Mortgagee and that the foregoing instrument is the act and deed of . Notary Public Exhibit E-3 - 22

Exhibit A Credit Agreement and Notes (See Attached) Exhibit E-3 - 23

EXHIBIT E-5 FORM OF FIRST NAVAL SHIP MORTGAGE on the Vessel HERCULES 21 executed by HERCULES DRILLING COMPANY, LLC, as Shipowner, COMERICA BANK, as Administrative Agent, as Mortgagee FIRST NAVAL MORTGAGE dated June , 2005, to be effective as of June , 2005, by HERCULES DRILLING COMPANY, LLC, a limited liability company organized and existing under the laws of the State of Delaware, with offices at 2929 Briarpark Drive, Suite 435, Houston, Texas 77042 (the ― Shipowner ‖), to COMERICA BANK, with offices at 910 Louisiana Suite 410, Houston, Texas, 77002, as administrative agent (in such capacity, together with its successors in such capacity, the ― Mortgagee ‖) for (i) the lenders (the ―Lenders‖) from time to time parties to the Credit Agreement referred to below and (ii) the Secured Swap Providers under the Secured Swap Agreements (each as defined below). FIRST: The Shipowner represents, warrants and covenants that: A. The Shipowner is the sole owner of the whole of the vessel Hercules 21, duly documented in the name of the Shipowner under the laws and flag of the Republic of Panama with Patente of Navigation No. 11050-81-H, bearing Radio Call Signals HO-3272, of 6,648 gross tonnage, 1,994 net tonnage, and 55.60 meters in length, 37.34 meters in width and 5.18 meters in depth (the ― Vessel ‖). B. Hercules Offshore, LLC, a Delaware limited liability company (the ― Borrower ‖), has entered into that certain Credit Agreement dated as of June 29, 2005 (as amended, supplemented or otherwise modified from time to time, the ― Credit Agreement ‖), among the Borrower, the Mortgagee and the Lenders, a copy of which is attached hereto as Exhibit A and incorporated herein by reference, providing for the making of the Loans to the Borrower, all as contemplated therein. C. The Shipowner is a wholly-owned subsidiary of the Borrower, and the Shipowner will derive substantial benefits from the making of the Loans to the Borrower. D. It is a condition precedent to the obligation of the Lenders to make the Loans to the Borrower under the Credit Agreement that the Shipowner shall have executed and delivered this Mortgage to the Mortgagee. Exhibit E-5 - 1

E. Pursuant to the Credit Agreement, the Mortgagee has agreed to act as Administrative Agent on behalf of the Lenders with respect to this Mortgage. F. The Shipowner has heretofore agreed to execute and deliver this First Naval Mortgage (the ― Mortgage ‖) on the Vessel to secure, inter alia, the Borrower’s indebtedness pursuant to the Credit Agreement in the original principal amount of USD 190,000,000 and interest thereon and premium, if any, and all other amounts payable hereunder and under the other Loan Documents and to secure the full and punctual performance and observance of all agreements, covenants and conditions contained herein and contained in the Credit Agreement, the Notes, the other Loan Documents and the Secured Swap Agreements. The formula for the calculation of interest, premium and the terms of their payment together with the terms of the repayment and prepayment of principal, as well as certain agreements, covenants and conditions, are provided in the Credit Agreement. SECOND: In consideration of the premises and of other good and valuable consideration, the receipt whereof is hereby acknowledged, and in order to secure and enforce the following (collectively, the ― Obligations ‖, it being acknowledged and agreed that the ―Obligations‖ shall include extensions of credit and amounts owing of the types described below, whether outstanding on the date hereof or extended or owing from time to time after the date hereof): (a) all indebtedness, liabilities, obligations and undertakings of every kind or description of the Shipowner, the Borrower and its Subsidiaries (collectively, the ― Obligors ‖), (including, without limitation, all Indebtedness) to the Administrative Agent, the Lenders, or any Secured Swap Provider, arising out of or outstanding or owing under, advanced or issued pursuant to, or evidenced by, the Credit Agreement, the Notes and each other Loan Document to which any of them is a party or the Secured Swap Agreements to which any Secured Swap Provider is a party, including, without limitation, the unpaid principal of and interest and premium on the Loans and all other obligations and liabilities of the Obligors (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to any Obligor, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, arising out of or outstanding under, advanced or issued pursuant to, or evidenced by, the Credit Agreement, the Notes, any other Loan Document or any Secured Swap Agreement, and whether on account of principal, interest, premium, reimbursement obligations, amounts owing upon liquidation, acceleration of obligations under, or termination (including early termination) of any Secured Swap Agreement, fees, indemnities, costs, expenses or otherwise (including, without limitation, all costs, fees and disbursements of counsel to the Mortgagor or any Agent, Lender or Secured Swap Provider that are required to be paid by the Obligors pursuant to the terms of the Credit Agreement, the Notes, any other Loan Document or any Secured Swap Agreement): (b) the prompt and complete payment when due of any and all additional loans or advances made by the Lenders to or for the benefit of the Borrower or any other Obligor pursuant to the Credit Agreement or any other Loan Document (it being contemplated that the Exhibit E-5 - 2

Lenders may lend additional sums to the Obligors pursuant to the Credit Agreement or the other Loan Documents from time to time, but shall not be obligated to do so except as expressly set forth in the Credit Agreement or such other Loan Document, and the Shipowner and the Mortgagee agree that the payment of any such additional loans shall be secured by this Mortgage); (c) the prompt and complete payment when due of any and all sums which may be advanced or paid by the Mortgagee or the Lenders under the terms hereof or of the Credit Agreement or other Loan Documents on account of the failure of the Shipowner to comply with the covenants of the Shipowner contained herein, or the failure of the Shipowner or any other Obligor to comply with the covenants of the Shipowner or any other Obligor contained in the Credit Agreement or any other Loan Documents; and all other indebtedness of the Shipowner arising pursuant to the provisions of this Mortgage, including penalties, indemnities, legal and other fees, charges and expenses, and amounts advanced by and expenses incurred in order to preserve any collateral or security interest, whether due after acceleration or otherwise; (d) the timely and complete performance of all agreements, covenants and conditions contained in this Mortgage, the Credit Agreement, the Notes and the other Loan Documents; and (g) all renewals, modifications, amendments, restatements, rearrangements, consolidations, substitutions, replacements, enlargements, and extensions of all or any part of the Obligations. the Shipowner hereby constitutes a first naval mortgage in accordance with the provisions of Chapter V Title IV of Book Second of the Code of Commerce and other pertinent legislation of the Republic of Panama in favor of the Mortgagee, its successors and assigns, upon one hundred percent (100%) of the Vessel, together with all of the boilers, engines, machinery, masts, spars, boats, anchors, cables, chains, rigging, tackle, capstans, outfit, tools, pumps and pumping equipment, apparel, furniture equipment, drilling equipment, drill pipes, drilling masts, rotary tables, substructures, draw work, drill bits, blowout prevention equipment, collars, racking, housing, spare parts and supporting inventory, vehicles and living quarters (excluding equipment aboard the Vessel which is not owned by the Shipowner) and all other appurtenances to said Vessel appertaining or belonging, whether now owned or hereafter acquired, whether on board or not, and also any and all additions, improvements and replacements in general effected subsequently on or to the Vessel, or any part thereof, or appurtenance thereto; PROVIDED, HOWEVER, and these presents are upon the condition, if the Shipowner or the other Obligors or their successors or assigns shall pay or cause to be paid to the Mortgagee and the Lenders the Obligations, as and when the same shall become due and payable in accordance with the terms of the Credit Agreement, the other Loan Documents, the Secured Swap Agreements and this Mortgage, and shall duly perform the agreements, covenants and conditions herein and in the Credit Agreement, the other Loan Documents and the Secured Swap Agreements, then this Mortgage and the rights hereby granted shall cease and be void, otherwise to remain in full force and effect. THIRD: The Shipowner certifies that true forms of the Credit Agreement (including the Notes) are attached to this Mortgage as Exhibit A, and that the terms and conditions of the Credit Exhibit E-5 - 3

Agreement and the Notes are incorporated by reference into this Mortgage and form a part hereof. FOURTH: The Shipowner represents, warrants, covenants and agrees with the Mortgagee as follows: ARTICLE I REPRESENTATIONS & WARRANTIES; COVENANTS Section 1.01 Certain Defined Terms . The following terms used herein have the meanings given to them as follows: ― Secured Swap Agreement ‖ any Swap Agreement entered into by the Borrower, the Shipowner or any Subsidiary permitted by the terms of Section 9.17 of the Credit Agreement. ― Secured Swap Provider ‖ means any Lender or Agent (or Affiliate of any Lender or Agent) party to any Secured Swap Agreement with the Borrower or any Subsidiary while such Lender or Agent (or in the case of its Affiliate, the Person affiliated therewith) is a Lender or an Agent under the Credit Agreement. Section 1.02 Payment and Performance of Obligations . The Shipowner agrees that it will promptly and faithfully pay or cause to be paid the Obligations secured hereby and that it will perform and observe all agreements, covenants and conditions on its part to be performed or observed, contained herein, in the Credit Agreement and each other Loan Document to which it is a party. Section 1.03 Legal Existence; Citizenship; Authorization . The Shipowner is duly organized and validly existing as a limited liability company under the laws of the State of Delaware; it is duly qualified to engage in the trade in which the Vessel operates; it is duly authorized to mortgage the Vessel; all limited liability company action necessary as required by law for the execution and delivery of this Mortgage has been duly and effectively taken; it has full power and authority to own and mortgage the Vessel, the Mortgage, the Credit Agreement, and the Obligations hereby secured are and will be valid and enforceable obligations of the Shipowner enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles. All necessary consents and approvals of any Governmental Authority or any other entity to the entering into and performance of this Mortgage have been duly obtained or given and the entering into and performance of this Mortgage does not and will not contravene the terms of or constitute a default under (with or without giving of notice or lapse of time or both) any material agreement, instrument or document to which the Shipowner is a party or by which it or its properties are bound or affected. Section 1.04 Ownership of Vessel; Warranty and Defense of Title . The Shipowner lawfully owns and is lawfully possessed of the whole of the Vessel free from any lien or encumbrance whatsoever (other than Liens permitted by Section 9.03 of the Credit Agreement (― Permitted Liens ‖)) and will warrant and defend the title and possession thereto and to every part thereof for the benefit of the Mortgagee against the claims and demands of all persons Exhibit E-5 - 4

whomsoever, provided, however, that notwithstanding anything herein to the contrary, no intention to subordinate the first priority security interest and Lien granted in favor of the Mortgagee herein is to be hereby implied or expressed by the permitted existence of the Permitted Liens. The Shipowner is the sole owner of the whole of the Vessel. Section 1.05 Registry . The Vessel is, and during the term of this Mortgage shall continue to be, duly and lawfully registered under the laws and flag of the Republic of Panama, and the Shipowner will comply with and satisfy all of the provisions of applicable law of the Republic of Panama in order to establish and maintain this Mortgage as a first naval mortgage thereunder upon the Vessel and upon all renewals, replacements and improvements made in or to the same. Section 1.06 Operation of Vessel . The Shipowner will not cause or permit the Vessel to be operated in any manner contrary to applicable law, engage in any unlawful trade or operations or violate any applicable law or carry any cargo, in the case of any of the foregoing, that will unreasonably expose the Vessel to penalty, forfeiture or capture and will not do, or suffer or permit to be done, anything which can or may injuriously affect the registration of the Vessel under the laws and regulations of the Republic of Panama and will at all times keep the Vessel duly documented thereunder. Section 1.07 Claims, Taxes, Fees etc . The Shipowner will pay and discharge or cause to be paid and discharged prior to delinquency, all claims and demands in respect of, and all taxes, assessments, governmental charges, levies, fees, fines and penalties imposed on the Vessel, its cargoes or any income or profits therefrom, in each case on a timely basis, and all lawful claims which, if unpaid, might become a lien or charge upon the Vessel or any income therefrom not constituting a Permitted Lien; provided that the Shipowner shall not be required to pay any such claim, demand, fee, tax, assessment, charge, fine, levy or penalty which is being contested in good faith and by proper proceedings if the Shipowner has maintained adequate reserves with respect thereto in accordance with GAAP, and the Vessel shall not have been arrested or detained therefor, and provided further that such contest shall not subject the Vessel, or any part thereof, to forfeiture or loss. Section 1.08 Liens . Neither the Shipowner, any charterer, the Master of the Vessel nor any other Person has or shall have any right, power or authority to, and shall not, create, incur or permit to be placed or imposed or continued upon the Vessel, its freights, profits or hire, any Lien whatsoever other than Permitted Liens. Exhibit E-5 - 5

Section 1.09 Notice of Mortgage . The Shipowner will place, and at all times and places will retain, a properly certified copy of this Mortgage on board the Vessel with her papers and will cause such certified copy and the Vessel’s marine document to be exhibited to any and all persons having business therewith which might give rise to any lien thereon other than liens for crew’s wages and salvage, and to any representative of the Mortgagee; and will place and prominently display in the chart room and in the Master’s cabin of the Vessel a framed printed notice in plain type reading as follows: “NOTICE OF MORTGAGE” This Vessel is owned by Hercules Drilling Company, LLC (―the Owner ‖) and is subject to a First Naval Mortgage (the ― Mortgage ‖) in favor of Comerica Bank, as Administrative Agent, Mortgagee. Under the terms of said Mortgage neither the Owner, any Charterer, the Master of this Vessel nor any other person has any right, power or authority to create, incur or permit to be placed or imposed or continued upon this Vessel any lien whatsoever other than said Mortgage and liens permitted by said Mortgage.‖ Section 1.10 Libel or Attachment . If a libel or complaint be filed against the Vessel or the Vessel is otherwise attached, levied upon or taken into custody or sequestered by virtue of any legal proceeding in any court or by a government or other authority, the Shipowner will promptly notify the Mortgagee thereof by facsimile, telex, cable or telegram, as appropriate, confirmed by letter, at its office, and within thirty (30) days of any arrest arising out of such libel or complaint will cause such Vessel to be released and all Liens thereon (other than Permitted Liens) to be discharged and will promptly notify the Mortgagee thereof in the manner aforesaid. In the event that the Shipowner does not appear in such action by filing a claim of owner or similar pleading within such thirty (30) day period, the Shipowner does hereby authorize and empower the Mortgagee, in the name of the Shipowner, or its successor or assigns, to apply for and receive possession of and to take possession of the Vessel with all the rights and powers that the Shipowner, or its successors or assigns, might have, possess or exercise in any such event; and this power of attorney shall be irrevocable and may be exercised not only by the Mortgagee hereinabove named but also by any one such appointee or the appointees of the Mortgagee, with full power of substitution, to the same extent as if the said appointee or appointees had been named as one of the attorneys above named by express designation. The Shipowner will notify the Mortgagee within three (3) Business Days after it has become known to the Shipowner of any average or salvage incurred by the Vessel. Section 1.11 Maintenance of Vessel . (a) (a) Except while the Vessel is undergoing repairs, maintenance or is stacked or in lay up, the Shipowner will at all times and without cost or expense to the Mortgagee maintain and preserve, or cause to be maintained and preserved, the Vessel in good running order and repair, so that the Vessel shall be, insofar as due diligence can make it so, tight, staunch, strong and well and sufficiently tackled, appareled, furnished, equipped and in every respect seaworthy and in good operating condition and fit for its intended service; and will keep the Vessel, or cause it to be kept in such condition as will entitle it to at least the current classification and rating for the Vessel in the American Bureau of Shipping, or other classification society of like standing. The Shipowner will at all times keep the Vessel (other than when such Vessel is stacked or in lay up) in such condition to ensure that it maintains its current classification rating from the American Bureau of Shipping, and the Shipowner shall furnish to the Mortgagee annually, commencing July 30, 2005, a certificate from the American Bureau of Shipping confirming that such classification has been maintained. The Vessel shall, and the Shipowner covenants that it will, at all times comply in all material respects with all applicable laws, treaties and conventions to which the United States of America is a party, and rules and regulations issued thereunder, and shall have on board as and when required thereby Exhibit E-5 - 6

valid certificates showing compliance therewith. The Shipowner will not make, or permit to be made, any substantial change in the structure, rig or type of the Vessel that would materially diminish the value of the Vessel without first receiving the written consent of the Mortgagee, which consent shall not be unreasonably withheld. (b) So long as any of the Obligations are outstanding, the Shipowner will cause the Vessel (other than when the Vessel is stacked or in lay up) to be repaired and overhauled as the need arises in order to keep the Vessel well maintained and in seaworthy condition. (c) The Shipowner will promptly, but in any event within forty-eight (48) hours thereof, give notice to the Mortgagee if the Vessel is put into the possession of any yard for the purpose of repairs in an amount exceeding or likely to exceed ten percent (10%) of the insured total loss value of the Vessel at any time. Section 1.12 Inspection . Subject to the terms of the Credit Agreement, the Shipowner will at all reasonable times afford the Mortgagee or its authorized representatives at their risk and expense full and complete access to the Vessel during normal business hours for the purpose of inspecting the Vessel, its cargoes and its papers, and the Shipowner will deliver for inspection copies of such contracts and documents relating to the Vessel, whether on board or not, as the Mortgagee may request, provided however, that (a) non public information obtained by the Mortgagee pursuant to any Loan Document concerning the Shipowner, the Vessel, any other assets of the Shipowner or the Shipowner’s financial condition and prospects shall be kept confidential by the Mortgagee in accordance with Section 12.11 of the Credit Agreement (subject to the exceptions contained therein), unless such non governmental parties shall agree prior thereto to be bound by this Section 1.12 and (b) any inspection of the Vessel and its papers shall be subject to the requirements of any operators of the Vessel and any applicable Governmental Authority. Section 1.13 No Change in Registry . The Shipowner will not transfer or change the flag or port of documentation of the Vessel without the written consent of the Mortgagee first had and obtained, and any such written consent to any one transfer or change of flag or port of documentation shall not be construed to be a waiver of this provision with respect to any subsequent proposed transfer or change of flag or port of documentation for the Vessel. Section 1.14 Sale or other Dispositions . Except as permitted by the Credit Agreement, the Shipowner will not sell, mortgage, bareboat charter, transfer or in any other way dispose of all or any part of the Vessel, provided, however, that Shipowner may bareboat charter the Vessel in the ordinary course of business. Section 1.15 Insurance . (a) Types and Coverage . The Shipowner will, at its own expense, when and so long as this Mortgage shall be outstanding, insure or cause to be insured the Vessel against the risks indicated below, in addition to such other risks which would be covered by experienced, prudent, and responsible owners of similar vessels engaged in similar operations in places and under conditions comparable to those in which the Vessel is employed from time to Exhibit E-5 - 7

time and possessing financial and operating characteristics similar to the Shipowner (―Similar Companies‖) in accordance with the usual and customary practices of Similar Companies, and keep it insured, in the aggregate, in lawful money of the United States, for not less than the higher of (i) the full commercial value of the Vessel as reasonably determined by the Shipowner, (ii) the amount of coverage that would be obtained by Similar Companies on the Vessel, or (iii) an amount with respect to such Vessel when aggregated with the coverage on all other Drilling Rigs and Lift Boats equals at least USD 190,000,000. The Vessel shall in no event be insured for an amount less than the agreed valuations as set forth in the applicable marine and war risk policies. Such insurance shall be on the basis of ―new for old‖ with no deduction for depreciation and shall cover marine and war risk perils, on hull and machinery (including excess value), and shall be maintained in the broadest forms available in the American, British or equivalent insurance markets for vessels of the same type as the Vessel, provided that war risk insurance shall only be required if the Vessel operates outside of the United States territorial waters in the Gulf of Mexico. The Shipowner shall also obtain such workmen’s compensation or longshoremen’s and harbor worker’s insurance as shall be required by applicable law, including endorsements for Outer Continental Shelf operations, borrowed servant, voluntary compensation, and in rem claims. In addition, the Shipowner shall maintain or cause to be maintained protection and indemnity insurance, including coverage for contractual liability, contractual and legal wreck removal, crew coverage, excess collision, salvage, general average, care, pollution, custody and control coverage through underwriters or associations reasonably acceptable to the Mortgagee in an amount equal to the higher of (i) the full commercial value of the Vessel as reasonably determined by the Shipowner, (ii) the amount of coverage that would be obtained by Similar Companies on the Vessel, and (iii) an amount with respect to the Vessel when aggregated with the coverage on all other Drilling Rigs and Lift Boats equals at least USD 190,000,000, provided, however, that war risk protection and indemnity insurance shall be in an amount not less than the amount of insurance against total loss. The Shipowner shall at all times during which the Vessel is operating within the jurisdiction of the United States of America, maintain or cause to be maintained insurance or post bond or maintain or cause to be maintained approved evidence of financial responsibility with respect to the Vessel to cover the actual cost of removal of discharged oil for which the Shipowner or the Vessel may be held strictly liable (or held liable due to the negligence of the Shipowner, any charterer or any other Person) under the Clean Water Act of 1977, OPA or the Outer Continental Shelf Lands Act, or under any other federal or state law which, in the future, may apply to the Vessel or to the Shipowner; and the Shipowner shall maintain insurance covering similar pollution risks or liabilities incident thereto under any law, regulation, or judicial decision of any foreign jurisdiction or jurisdictions or political subdivision thereof applicable to the Shipowner, the Vessel, or its operations. (b) Deductibles . No insurance required to be carried by the Shipowner pursuant to this Section 1.15 shall include a deductible or self-insured retention in excess of USD 2,000,000 per occurrence. (c) Insurers; Provisions . The policy or policies of insurance shall be issued by responsible underwriters reasonably acceptable to the Mortgagee, shall contain conditions, terms, stipulations and insuring covenants reasonably satisfactory to the Mortgagee and shall be kept in full force and effect by the Shipowner so long as this Mortgage shall be outstanding. All insurance policies, binders and other interim insurance contracts (with the exception of Workers’ Compensation, U.S. Longshoremen & Harbor Workers Compensation and Maritime Employers Exhibit E-5 - 8

Liability) shall be executed and issued in the name of the Shipowner, shall name the Mortgagee and the Lenders in a manner such that they are afforded the stature of additional insureds, and shall provide that loss shall be payable to the Mortgagee for distribution by it to itself and the Shipowner as their interests may appear. The Mortgagee shall permit all insurance proceeds to be applied in the manner set forth in this Mortgage and in the Credit Agreement. All insurance policies shall provide (i) for at least thirty (30) days’ prior notice to be given to the Mortgagee by the underwriters or association in the event of (A) cancellation or reduction in amount or material change in coverage or (B) the failure of the Shipowner to pay any premium or call which would suspend coverage under the policy or the payment of a claim thereunder and (ii) that (A) there shall be no recourse against the Mortgagee (or its assignee) for the payment of premiums or commissions and (B) if such policies provide for the payment of club calls, assessments or advances, there shall be no recourse against the Mortgagee (or its assignee) for the payment thereof. (d) Compliance . The Shipowner shall not do any act, nor voluntarily suffer nor permit any act to be done, whereby any insurance required by this Section 1.15 shall or may be suspended, impaired or defeated, or suffer or permit the Vessel to undertake any drilling operations, carry any cargoes or proceed into an area then excluded by trading warranties under its marine and war risk policies (including protection and indemnity) without obtaining all necessary additional coverage, satisfactory in form and substance, and evidence of which shall be furnished, to the Mortgagee. (e) Loss . In the event of an actual or constructive total loss or a compromised constructive total loss or requisition of the Vessel, (i) all insurance payments therefor shall be paid to the Mortgagee, and at the Shipowner’s option, shall be applied to the Obligations in the manner required by the Credit Agreement or turned over to the Shipowner in accordance with Section 3.04(c)(iv) of the Credit Agreement, and (ii) the Mortgagee shall retain out of the insurance payments received on account of such loss and held by the Mortgagee, any sum or sums that shall be or become owing to the Mortgagee under this Mortgage for the cost, if any, of collecting the insurance, which sum or sums shall become the sole property of the Mortgagee. The Shipowner shall not declare or agree with underwriters that the Vessel is a constructive or compromised, agreed or arranged constructive total loss without the prior written consent of the Mortgagee. (f) Policies . The Shipowner upon execution of this Mortgage, shall deliver to the Mortgagee a broker’s certificate evidencing the insurance maintained under this Section 1.15. If the Shipowner executes any new or renewal policies of insurance under this Section 1.15, the Shipowner will promptly, but in any event within 5 days thereafter, deliver to the Mortgagee a true and complete copy of a broker’s certificate with respect to such policies. Upon the request of the Mortgagee, but so long as no Event of Default has occurred and is continuing not more than once in each calendar year, the Shipowner shall provide to the Mortgagee copies of all insurance policies, binders and other evidences of the insurances on the Vessel. (g) Certificates . Annually, commencing July 30, 2005, the Shipowner shall furnish to the Mortgagee, a certificate of a reputable insurance broker, in form and substance reasonably satisfactory to the Mortgagee as to the insurance maintained by the Shipowner pursuant to this Section 1.15, specifying the respective policies of insurance covering the same Exhibit E-5 - 9

and attaching certificates of confirmation evidencing the same and stating with regard to the insurance maintained by the Shipowner pursuant to this Section 1.15 the amounts, deductibles, and the risks against which such insurance is issued. (h) Obligation to Collect . The Shipowner shall, at no cost or expense to the Mortgagee, have the duty and responsibility to make all proofs of loss and take any and all other steps necessary to effect collections from underwriters for any loss under any insurance on or in respect of the Vessel or the operation thereof. Section 1.16 Reimbursement . The Shipowner will reimburse the Mortgagee promptly with interest at the rate provided for in Section 3.02(c) of the Credit Agreement, for any and all expenditures which the Mortgagee may, from time to time, make, lay out or expend in providing such protection in respect of insurance, discharge or purchase of liens, taxes, dues, assessments, governmental charges, fines and penalties lawfully imposed, repairs, attorneys’ fees, translation fees for documents made in a language other than English and other matters as the Shipowner is obligated herein to provide, but fails to provide. Such obligation of the Shipowner to reimburse the Mortgagee shall be an additional indebtedness due from the Shipowner, secured by this Mortgage, and shall be payable by the Shipowner on demand. The Mortgagee, though privileged so to do, shall be under no obligation to the Shipowner to make any such expenditures, nor shall the making thereof relieve the Shipowner of any default in that respect. Section 1.17 Contracts . The Shipowner will use its commercially reasonable efforts to fully perform any and all charter parties or drilling contracts which are or may be entered into with respect to the Vessel. Section 1.18 Taxes . If at any time taxes should be levied anywhere on the principal or the interest in respect of or arising out of this Mortgage or any other instruments to be effected thereunder or in any other manner whatsoever as a consequence of or in connection with the Obligations, such taxes shall be borne and paid by the Shipowner. If by the provisions of the relevant law such an arrangement cannot be legally made, the Mortgagee may require immediate payment of all sums secured under this Mortgage. Section 1.19 Further Assurances . (a) In the event that this Mortgage or any provision hereof shall be deemed invalidated in whole or in part by reason of any present or future law or any decision of any authoritative court, or if the documents at any time held by the Mortgagee shall be deemed by the Mortgagee for any reason insufficient to carry out the true intent and spirit of this Mortgage, then from time to time, the Shipowner will execute, on its own behalf, such other and further assurances and documents as in the reasonable opinion of the Mortgagee may be required more effectively to subject the Vessel to the payment of the Obligations, as in this Mortgage provided, and the performance of the terms and provisions of this Mortgage, the Notes and the Credit Agreement. (b) From time to time on the request of the Mortgagee, the Shipowner will furnish to the Mortgagee: (i) such favorable opinions of counsel, including Panamanian and United States legal opinions, in form and substance reasonably satisfactory to the Mortgagee and Exhibit E-5 - 10

(ii) such instruments executed by the Shipowner or on its behalf or by any or all officers, members, managers or directors of the Shipowner, in each case, relating to this Mortgage or any of the transactions contemplated hereby, as the Mortgage may reasonably request. ARTICLE II EVENTS OF DEFAULT AND REMEDIES Section 2.01 Events of Default . The occurrence and continuation of an Event of Default under the Credit Agreement shall constitute an ― Event of Default ‖ hereunder. Section 2.02 Remedies . Upon the occurrence and during the continuance of any Event of Default, the Mortgagee may, at the Mortgagee’s option, and by or through itself or otherwise, do any one or more of the following: (a) exercise all of the rights and remedies in foreclosure and otherwise given to mortgagees by the laws and regulations of the Republic of Panama or of any country where the Vessel may be found or of any other applicable jurisdiction. (b) bring suit at law, in equity or in admiralty, in any court of any nation of the world, or initiate and prosecute such other judicial, extrajudicial, or administrative proceedings, as it may be advised, to recover judgment for the Obligations, and collect the same out of any and all of the properties of the Shipowner, whether covered by this Mortgage or otherwise. (c) take and enter into possession of the Vessel, at any time, wherever the same may be, without legal process and without being responsible for loss or damage, and the Shipowner or other person in possession forthwith upon demand of the Mortgagee shall surrender to the Mortgagee possession of the Vessel. (d) without being responsible for loss or damage, the Mortgagee may hold, lay up, lease, charter, operate or otherwise use the Vessel for such time and upon such terms as it may deem to be for its best advantage, and demand, collect and retain all hire, day rates, freights, earnings, issues, revenues, income, profits, return premiums, salvage awards or recoveries, recoveries in general average, and all other sums due or to become due in respect of the Vessel or in respect of any insurance thereon from any person whomsoever, accounting only for the net profits, if any, arising from such use of the Vessel and charging upon all receipts from the use of the Vessel or from the sale thereof by court proceedings or pursuant to Section 2.02(e), all costs, expenses, charges, damages or losses by reason of such use; and if at any time the Mortgagee shall avail itself of the right herein given it to take the Vessel, the Mortgagee shall have the right to dock the Vessel, for a reasonable time at any dock, pier or other premises of the Shipowner without charge, or to dock her at any other place at the cost and expense of the Shipowner. (e) sell the Vessel without judicial process and without being responsible for any loss or damage arising therefrom, except as may be directly and proximately caused by its willful misconduct, recklessness or gross negligence, in such place, time and manner as the Mortgagee may, in its sole judgment, deem fit. In the event that the Vessel shall be offered for sale by private sale, reasonable notice must be given to the Shipowner but need not be more than twenty (20) days before the private sale, and no newspaper publication of notice shall be Exhibit E-5 - 11

required, nor notice of adjournment of sale; sale may be held at such place and at such time as the Mortgagee by notice may have specified, or may be adjourned by the Mortgagee from time to time by announcement at the time and place appointed for such sale or for such adjourned sale, and without further notice or publication the Mortgagee may make any such sale at the time and place to which the same shall be so adjourned. At the sale, the Mortgagee may acquire the Vessel in satisfaction of all or a portion of the outstanding Obligations. Section 2.03 Finality of Sale . It is expressly agreed that upon payment of the purchase price, the purchaser shall acquire good and peaceful title to the Vessel, and shall not be affected by any claim or potential claim of the Shipowner, whether or not such claim or potential claim comes to the knowledge of the purchaser. Any sale of the Vessel made in pursuance of this Mortgage, whether under the power of sale hereby granted or any judicial proceedings, shall operate to divest all right, title and interest of any nature whatsoever of the Shipowner therein and thereto, and shall bar the Shipowner, its successors and assigns, and all persons claiming by, through or under them, from asserting any claim or right, title or interest therein or thereto. No purchaser shall be bound to inquire whether notice has been given, or whether any default has occurred, or as to the propriety of the sale, or as to the application of the proceeds thereof. Section 2.04 Place of Sale; Conveyance . Any sale may be conducted without bringing the Vessel to the place designated for such sale and in such manner as the Mortgagee may deem to be for its best advantage. The Shipowner hereby irrevocably constitutes and appoints the Mortgagee and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Shipowner or in the Mortgagee’s own name, to make in the name and on behalf of the Shipowner, all necessary transfers of the Vessel in accordance with this Article II for a good conveyance of the title to the Vessel, and for that purpose the Mortgagee shall execute all necessary instruments of assignment and transfer (including bills of sale), the Shipowner hereby ratifying and confirming all that its said attorney shall lawfully do by virtue hereof. Nevertheless, the Shipowner shall, if so requested by the Mortgagee, ratify and confirm any sale of the Vessel by executing and delivering to the purchaser thereof such proper bills of sale, conveyances, instruments of transfer and releases as may be designated in such request. Section 2.05 Revenues and Proceeds of Vessel; Prior Liens . (a) The Shipowner hereby irrevocably constitutes and appoints the Mortgagee and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Shipowner or in the Mortgagee’s own name, to demand, collect, receive, compromise and sue for, so far as may be permitted by law, all freights, hire, earnings, issues, revenues, income and profits of the Vessel and all amounts due from underwriters under any insurance thereon as payment of losses or as return premiums or otherwise, salvage awards and recoveries, recoveries in general average or otherwise, and all other sums due or to become due in respect of the Vessel or in respect of any insurance thereon from any person whomsoever, and to make, give and execute in the name of the Shipowner acquittances, receipts, releases or other discharges for the same, whether under seal or otherwise, all checks, notes, drafts, warrants, agreements and other instruments in writing with respect to the foregoing. To the extent permitted by law, the Shipowner hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney Exhibit E-5 - 12

is a power coupled with an interest and is irrevocable. The powers conferred on the Mortgagee hereunder are solely to protect its interests in the Vessel and shall not impose any duty upon it to exercise any such powers. THE MORTGAGEE SHALL BE ACCOUNTABLE ONLY FOR THE AMOUNTS THAT IT ACTUALLY RECEIVES AS A RESULT OF THE EXERCISE OF SUCH POWERS, AND NEITHER IT NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS SHALL BE RESPONSIBLE TO THE SHIPOWNER FOR ANY ACT OR FAILURE TO ACT, EXCEPT FOR THE MORTGAGEE’S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Notwithstanding the foregoing, the Mortgagee agrees that it will not exercise any rights under the power of attorney provided for in this Section 2.05(a) unless an Event of Default shall have occurred and be continuing. (b) The Mortgagee is hereby irrevocably authorized to pay or furnish indemnity in the proper amounts against any Liens which have or may (in the opinion of the Mortgagee) have priority over the Lien of this Mortgage and which are not permitted under this Mortgage or the Credit Agreement. Section 2.06 Delivery of Vessel . Whenever any right to enter and take possession of the Vessel accrues to the Mortgagee, it may require the Shipowner to deliver, and the Shipowner shall on demand, at its own cost and expense, deliver to the Mortgagee the Vessel at the location reasonably designated by the Mortgagee. Section 2.07 Additional Rights . The Shipowner covenants and agrees that in addition to any and all other rights, powers and remedies elsewhere in this Mortgage granted to and conferred upon the Mortgagee, the Mortgagee in any suit to enforce any of its rights, powers or remedies shall be entitled as a matter of right and not as a matter of discretion (a) to seek the appointment of a receiver or receivers of the Vessel and any receiver or receivers so appointed shall have full right and power to use and operate the Vessel as shall be ordered by the federal court, and (b) to a decree ordering and directing the sale and disposal of the Vessel, and the Mortgagee may become the purchaser at such sale and shall have the right to credit against the purchase price any and all sums of money due hereunder. Section 2.08 Judgment . The Shipowner covenants that upon the occurrence of and continuance of any one or more of the Events of Default, upon written demand of the Mortgagee, the Shipowner will pay to the Mortgagee the whole amount due and payable on the Obligations hereby secured together with any other amounts due hereunder or under any other Loan Document; and in case the Shipowner shall fail to pay same forthwith upon such demand, the Mortgagee shall be entitled to recover judgment for the whole amount so due and unpaid, together with such further amounts as shall be sufficient to cover the reasonable fees and expenses of the Mortgagee’s or the Lenders’ agents, attorneys and counsel and any necessary advances, expenses and liabilities made or incurred by any of them hereunder. All moneys collected by the Mortgagee under this Section 2.08 shall be applied by the Mortgagee in accordance with the provisions of Section 2.11. Section 2.09 Acceptance of Cure . If at any time after an Event of Default and prior to any foreclosure action having been taken by the Mortgagee under any of the Loan Documents to realize upon the security provided by such documents, the Shipowner offers completely to cure all Events of Default and to pay all expenses, advances and damages to the Mortgagee Exhibit E-5 - 13

consequent to such Events of Default, with interest at the rate provided for late payments in the Credit Agreement, then the Mortgagee may, but shall not be required to, accept such offer and payment and restore the Shipowner to its former position, but such action shall not affect any subsequent Event of Default or impair any rights consequent thereon. Section 2.10 Restoration of Position . In case the Mortgagee shall have proceeded to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Mortgagee, then and in every such case the Shipowner and the Mortgagee shall be restored to their former positions and rights hereunder with respect to the property subject or intended to be subject to this Mortgage, and all rights, remedies and powers of the Mortgagee shall continue as if no such proceedings had been taken. Section 2.11 Application of Proceeds . The proceeds of any sale or other disposition of the Vessel received by the Mortgagee and the net earnings of any charter operation or other use of the Vessel received by the Mortgagee under any of the rights, powers or remedies herein specified and any and all other moneys received by the Mortgagee pursuant to or under the terms of this Mortgage or in any proceeding hereunder, the application of which has not elsewhere herein been specifically provided for, shall be applied as follows: (i) first , to the payment of all reasonable expenses and charges, including the expense of sale, the expenses of retaking, attorney’s fees, court costs, and any other expenses or advances made or incurred by the Mortgagee in the protection of its rights or the pursuance of its remedies hereunder; and (ii) second , in accordance with Section 10.02(c) of the Credit Agreement. Section 2.12 Deficiency . To the extent the proceeds of the sale of the Vessel are not sufficient to pay the aggregate amount of the Obligations, any Person liable for the Obligations (including without limitation, the Shipowner, the Borrower and any Subsidiary to the extent such Persons are liable) shall remain jointly and severally liable for such deficiency. Without limiting the generality of the foregoing, the rights and remedies of the Mortgagee under this Mortgage and the other agreements, documents and instruments securing or guarantying any of the Obligations shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any right or remedy. ARTICLE III GENERAL POWERS OF MORTGAGEE Section 3.01 Arrest or Detention of Vessel . In the event that the Vessel shall be arrested or detained by a marshal or other officer of any court of law, equity or admiralty jurisdiction in any country or nation of the world or by any government or other entity and shall not be released from arrest or detention within thirty (30) days from the date of arrest or detention, the Shipowner does hereby authorize and empower the Mortgagee, in the name of the Shipowner, or its successors or assigns, to apply for and receive possession of and to take possession of the Vessel with all the rights and powers that the Shipowner, or its successors or assigns, might have, possess or exercise in any such event; and this power of attorney shall be irrevocable and may be exercised not only by the Mortgagee but also by its appointee or appointees, with full power of substitution, to the same extent as if the said appointee or appointees had been named as the attorney above named by express designation. All Exhibit E-5 - 14

expenditures made or incurred by them or any of them for the purpose of the foregoing shall be a debt due from the Shipowner, its successors and assigns, to the Mortgagee and shall be secured by the Lien of this Mortgage in like manner and extent as if the amount and description thereof were written herein. Section 3.02 Suits . The Shipowner also authorizes and empowers the Mortgagee or its appointees or any of them to appear in the name of the Shipowner, its successors or assigns, in any court of any country or nation of the world where a suit is pending against the Vessel because of or on account of any alleged Lien against the Vessel from which the Vessel has not been released and to take such proceedings as to it may seem proper towards the defense of such suit and the discharge of such Lien, and all expenditures made or incurred by them or any of them for the purpose of such defense or purchaser or discharge shall be a debt due from the Shipowner, its successors and assigns, to the Mortgagee and shall be secured by the Lien of this Mortgage in like manner and extent as if the amount and description thereof were written herein. Section 3.03 Performance of Shipowner’s Obligations . If the Shipowner fails to perform any obligation or covenant under this Mortgage, the Mortgagee shall have the right, but not the obligation, to perform or take such actions to comply with the terms of this Mortgage, and all amounts reasonably expended in connection with such conduct shall be a demand obligation of the Shipowner owing to Mortgagee at the post-default rate of interest specified in Section 3.02(b) of the Credit Agreement and shall be secured by the Lien of this Mortgage in like manner and extent as if the amount and description thereof were written herein. ARTICLE IV SUNDRY PROVISIONS Section 4.01 Mortgagee/Shipowner Information . The names, surnames, civil status, occupation and domicile of the Mortgagee and Shipowner are as follows: MORTGAGEE: Name: Civil Status: Occupation: Domicile: Fax: SHIPOWNER: Name: Civil Status: Occupation: Domicile: Fax: Hercules Drilling Company, LLC Limited liability company organized under the laws of Delaware, United States of America Shipowner 2929 Briarpark Drive, Suite 435, Houston, Texas 77042, USA 713-952-7990 Exhibit E-5 - 15 Comerica Bank, as Administrative Agent for the Lenders Corporation organized under the laws of the State of New York, United States of America Lending Institution and Administrative Agent 910 Louisiana, Suite 410, Houston, Texas, 77002 713-220-5651

Section 4.02 Successors and Assigns . All of the covenants, promises, stipulations and agreements of the Shipowner in this Mortgage contained shall bind the Shipowner and its successors and assigns and shall inure to the benefit of the Mortgagee and its successors and assigns. In the event of any assignment of this Mortgage, the term ―Mortgagee‖, as used in this Mortgage, shall be deemed to mean any such assignee. Section 4.03 Agents . Wherever and whenever herein any right, power or authority is granted or given to the Mortgagee, such right, power or authority may be exercised in all cases by the Mortgagee or such agent or agents as it may appoint, and the act or acts of such agent or agents when taken shall constitute the act of the Mortgagee hereunder. Section 4.04 Severability . In the event that any provision of this Mortgage or the Credit Agreement shall be deemed invalid or unenforceable by reason of any present or future law or any decision of any authoritative court, the validity and enforceability of the other provisions hereof or thereof shall not be affected thereby. Section 4.05 Expenses . The Shipowner agrees to pay all reasonable costs and expenses in connection with the preparation, execution and delivery of the Credit Agreement, the Notes, this Mortgage, and any other instrument contemplated thereby (including the reasonable fees and out-of-pocket expenses of counsel to the Mortgagee and of local counsel selected by said counsel in any jurisdiction involved in the transactions contemplated by the Credit Agreement and this Mortgage) and costs and expenses, including counsel fees, in connection with the enforcement of the Credit Agreement, the Notes, this Mortgage and any other instrument contemplated thereby, as well as costs for translations and any and all stamp and other taxes of every character, if any, now or hereafter in effect, whether foreign or domestic, not including taxes imposed on the income or assets (including franchise and bank shares taxes) of the Mortgagee or the Lenders by the United States of America or any political subdivisions thereof, which may be payable or determined to be payable in connection with the execution, delivery, performance or enforcement of the Credit Agreement, the Notes and this Mortgage, and any other instrument contemplated thereby and the payments to be made thereunder, whether any such tax be imposed upon the Mortgagee or the Lenders and to save the Lenders and the Mortgagee harmless from any and all liabilities with respect to or resulting from any delay or omission to pay such taxes. Section 4.06 INDEMNIFICATION . THE SHIPOWNER AGREES (a) TO INDEMNIFY AND HOLD HARMLESS THE MORTGAGEE, EACH LENDER AND EACH AGENT AND THEIR RESPECTIVE SUCCESSORS, ASSIGNS, EMPLOYEES, AGENTS AND AFFILIATES (INDIVIDUALLY AN “ INDEMNITEE ,” AND COLLECTIVELY, THE “ INDEMNITEES ”) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LOSSES, JUDGMENTS AND LIABILITIES (INCLUDING LIABILITIES FOR PENALTIES) OF WHATSOEVER KIND OR NATURE, AND (b) TO REIMBURSE EACH INDEMNITEE FOR ALL REASONABLE COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES, IN EACH CASE ARISING OUT OF OR RESULTING FROM THIS MORTGAGE OR THE EXERCISE BY ANY INDEMNITEE OF ANY RIGHT OR REMEDY GRANTED TO IT HEREUNDER (BUT EXCLUDING ANY CLAIMS, DEMANDS, LOSSES, JUDGMENTS AND LIABILITIES OR EXPENSES TO THE EXTENT INCURRED BY REASON OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE (AS Exhibit E-5 - 16

DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL AND NON-APPEALABLE DECISION)). IN NO EVENT SHALL THE MORTGAGEE BE LIABLE, IN THE ABSENCE OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON ITS PART, FOR ANY MATTER OR THING IN CONNECTION WITH THIS MORTGAGE OTHER THAN TO ACCOUNT FOR MONIES ACTUALLY RECEIVED BY IT IN ACCORDANCE WITH THE TERMS HEREOF. IF AND TO THE EXTENT THAT THE OBLIGATIONS OF THE SHIPOWNER UNDER THIS SECTION 4.06 ARE UNENFORCEABLE FOR ANY REASON, THE SHIPOWNER HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF SUCH OBLIGATIONS WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. THE INDEMNITY OBLIGATIONS OF THE SHIPOWNER CONTAINED IN THIS SECTION 4.06 SHALL CONTINUE IN FULL FORCE AND EFFECT NOTWITHSTANDING THE FULL PAYMENT OF ALL OF THE NOTES AND THE PAYMENT OF ALL OTHER OBLIGATIONS AND NOTWITHSTANDING THE DISCHARGE THEREOF. Section 4.07 Counterparts . This Mortgage may be executed in any number of counterparts, and all such counterparts executed and delivered each as an original shall constitute but one and the same instrument. In case of any discrepancy between an English counterpart and the Spanish and the Notarial version thereof in Spanish, as between the parties hereto, the English counterpart shall control. Section 4.08 Amendments . None of the terms and conditions of this Mortgage may be changed, waived, modified or varied in any manner whatsoever except in accordance with the terms of the Credit Agreement. Section 4.09 Notices . (a) Any notice or other communication to be given pursuant hereto shall be sent by hand or by postage prepaid letter or by facsimile confirmed by letter and addressed: To the Shipowner: Hercules Drilling Company, LLC 2929 Briarpark Drive, Suite 435 Houston, Texas 77042 Attention: Don Rodney Telefax No.: 713-952-7977 To the Mortgagee: Comerica Bank, as Administrative Agent 910 Louisiana, Suite 410 Houston, Texas 77002 Attention: Mona Foch. Telecopy No. 713-220-5651 Exhibit E-5 - 17

(b) Any notice of communication sent by postage prepaid letter shall be deemed to be received three days after mailing. Any notice or communication sent by facsimile shall be deemed received at the opening of business the day after transmission. Any notice or communication sent by hand shall be deemed to be received on the day sent if sent during normal business hours and otherwise at the opening of business on the day following delivery. Section 4.10 Right of Peaceful Enjoyment . Subject in all respects to the terms and conditions of the Credit Agreement and the other Loan Documents, so long as no Event of Default shall have occurred and be continuing, the Shipowner (a) shall be suffered and permitted to retain actual possession and use of the Vessel and (b) if permitted by Section 9.12 of the Credit Agreement, shall have the right, from time to time, in its discretion, and without application to the Mortgagee, and without obtaining a release thereof by the Mortgagee, to dispose of, free from the lien hereof, any boilers, engines, machinery, masts, spars, sails, rigging, boats, anchors, chains, tackle, apparel, furniture, fittings or equipment, drilling equipment, pumps, drill pipes, collars, racking, housing, spare parts and supporting inventory, vehicles and living quarters or any other appurtenances of the Vessel that are no longer useful, necessary, profitable or advantageous in the operation of the Vessel, first or simultaneously having provided for the replacement thereof by new boilers, engines, machinery, masts, spars, sails, rigging, boats, anchors, chains, tackle, apparel, furniture, fittings, equipment, drilling equipment, pumps, drill pipes, collars, racking, housing, spare parts and supporting inventory, vehicles and living quarters or other appurtenances of substantially equal value to the Shipowner, which shall forthwith become subject to the lien of this Mortgage as a first naval mortgage thereon. Section 4.11 Termination . (a) At such time as the Obligations shall have been paid in full, all Letters of Credit shall have terminated, and the Commitments have been terminated, then the Mortgagee, at the request and sole expense of the Shipowner, shall forthwith cause reconveyance, satisfaction and discharge of this Mortgage to be entered upon the record, without recourse and without any representation or warranty of any kind, and shall execute and deliver or cause to be executed and delivered such instruments of reconveyance, satisfaction and reassignment as may be appropriate. Otherwise, this Mortgage shall remain and continue in full force and effect. (b) If the Vessel shall be sold by the Shipowner in a transaction permitted by Section 9.12 of the Credit Agreement, then the Mortgagee, at the request and sole expense of the Shipowner, shall promptly execute and deliver to the Shipowner all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on the Vessel, without recourse and without any representation or warranty; provided that the Shipowner shall have delivered to the Mortgagee, at least five (5) Business Days prior to the date of the proposed release, a written request of a Responsible Officer of the Shipowner for release identifying the Shipowner and the Vessel and the terms of the sale in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Shipowner stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents. Any such action taken by the Mortgagee shall be without warranty by or recourse. Section 4.12 Rights Cumulative . Each and every right, power and remedy herein given to the Mortgagee and/or the Lenders shall be cumulative and shall be in addition to every other Exhibit E-5 - 18

right, power and remedy herein given or now or hereafter existing at law, in equity, in admiralty or by statute, and each and every right, power and remedy whether herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Mortgagee and/or the Lenders, and the exercise or the beginning of the exercise of any right, power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Mortgagee or by any Lender in the exercise of any right or power or in the pursuance of any remedy accruing upon any Event of Default shall impair any such right, power or remedy or be construed to be a waiver of any such Event of Default or to be an acquiescence therein; nor shall the acceptance by the Mortgagee of any security or of any payment of or on account of the Obligations hereby secured maturing after any Event of Default or of any payment on account of any past default be construed to be a waiver of any right to take advantage of any future Event of Default or of any past Event of Default not completely cured thereby. Section 4.13 GOVERNING LAW . THIS MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AND THE GENERAL MARITIME LAW OF THE UNITED STATES OF AMERICA; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION AND PERFECTION OF LIENS ON THE VESSEL OR AS OTHERWISE REQUIRED BY THE LAWS OF THE REPUBLIC OF PANAMA, THIS MORTGAGE SHALL BE GOVERNED BY THE LAWS OF THE REPUBLIC OF PANAMA. Section 4.14 No Waiver of Preferred Status . No provision of this Mortgage or the Credit Agreement shall be deemed to constitute a waiver by the Mortgagee of the preferred status of this Mortgage given to foreign flag vessels by 46 U.S.C. § 31325 and 31326, of the United States of America or comparable legislation of any other jurisdiction where this Mortgage may be enforced, and any provision of or incorporated in this Mortgage which would otherwise constitute such a waiver shall to such extent be of no force or effect. Section 4.15 Defined Terms . All capitalized terms used in this Mortgage and not defined herein shall have the meanings given to them in the Credit Agreement. FIFTH: The Mortgagee hereby accepts all of the terms and conditions set forth in this First Naval Mortgage and the first naval mortgage granted hereby. SIXTH: The Mortgagee and the Shipowner declare that they hereby confer a special Power of Attorney on Messrs. Benedetti & Benedetti, lawyers of Panama, Republic of Panama, empowering each of them individually to take all necessary steps to file and register this First Naval Mortgage in the appropriate registries of the Republic of Panama. Exhibit E-5 - 19

IN WITNESS WHEREOF, the parties hereto have executed this Mortgage as a deed as of this

day of June, 2005.

HERCULES DRILLING COMPANY, LLC By: Name: Title: NOTARIAL CERTIFICATION On this day of June, 2005 before me personally appeared known to me to be the of Hercules Drilling Company, LLC, a Delaware limited liability company, and that did further produce to me sufficient proof that he was duly authorized by the Sole Manager of Hercules Drilling Company, LLC to execute the foregoing Mortgage, and I, the Notary, hereby certify that the signature of the said on the foregoing Mortgage was placed thereon in my presence and is therefore authentic. Notary Public (Seal) (AUTHENTICATION) Exhibit E-5 - 20

ACCEPTANCE OF MORTGAGE The undersigned, of Comerica Bank, as Administrative Agent (the ―Mortgagee‖), having been duly appointed and authorized by the Mortgagee, referred to in the before written Mortgage, DOES HEREBY ACCEPT, on behalf of the Mortgagee, Mortgage executed to the Mortgagee by HERCULES DRILLING COMPANY, LLC, covering the Panamanian vessel HERCULES 21 and DOES HEREBY ACCEPT, on behalf of the Mortgagee, the said Mortgage in all respects and agrees to all terms and conditions of the said Mortgage. IN WITNESS WHEREOF, the said Mortgagee has caused this Acceptance of Mortgage to be executed this be effective as of June , 2005. day of June, 2005, to

For and on behalf of COMERICA BANK, as Administrative Agent By: Name: Title: NOTARIAL CERTIFICATION TO THE ACCEPTANCE OF MORTGAGE On this day of June, 2005 before me personally appeared known to me to be the Authorized Signatory of Comerica Bank the party described in and that executed the foregoing instrument on behalf of said corporation and acknowledged to me that signed name thereto by authority of said corporation and I, the Notary, hereby certify that the signature of the said on the foregoing Acceptance of Mortgage was placed thereon in my presence and is therefore authentic. Notary Public (Seal) (AUTHENTICATION) Exhibit E-5 - 21

Exhibit A Credit Agreement and Notes (See Attached) Exhibit E-5 Exhibit A

EXHIBIT E-6 FORM OF FIRST PREFERRED FLEET MORTGAGE by HERCULES DRILLING COMPANY, LLC, as Shipowner, to COMERICA BANK as Administrative Agent, as Mortgagee FIRST PREFERRED FLEET MORTGAGE dated June 28, 2005, to be effective as of June 29, 2005, by HERCULES DRILLING COMPANY, LLC, a limited liability company organized and existing under the laws of the State of Delaware, with offices at 2929 Briarpark Drive, Suite 435, Houston, Texas 77042 (the ― Shipowner ‖), to COMERICA BANK., with offices at 910 Louisiana, Suite 410, Houston, Texas, 77002, as administrative agent (in such capacity, together with its successors in such capacity, the ― Mortgagee ‖) for (i) the lenders (the ― Lenders ‖) from time to time parties to the Credit Agreement referred to below, and (ii) the Secured Swap Providers under the Secured Swap Agreements (each as defined below). RECITALS A. The Shipowner is the sole owner of the whole of the vessels identified in Exhibit A hereto (the ― Vessels ‖). B. Hercules Offshore, LLC, a Delaware limited liability company (the ― Borrower ‖), has entered into that certain Credit Agreement dated as of June 29, 2005 (as amended, supplemented or otherwise modified from time to time, the ― Credit Agreement ‖), among the Borrower, the Mortgagee and the Lenders, a copy of which is attached hereto as Exhibit B and incorporated herein by reference, providing for the making of the Loans to the Borrower, all as contemplated therein. C. The Shipowner is a wholly-owned subsidiary of the Borrower, and the Shipowner will derive substantial benefits from the making of the Loans to the Borrower. D. It is a condition precedent to the obligation of the Lenders to make the Loans to the Borrower under the Credit Agreement that the Shipowner shall have executed and delivered this Mortgage to the Mortgagee. E. Pursuant to the Credit Agreement, the Mortgagee has agreed to act as Administrative Agent on behalf of the Lenders with respect to this Mortgage. Exhibit E-6

F. The Shipowner has heretofore agreed to execute and deliver this First Preferred Fleet Mortgage (the ― Mortgage ‖) on the Vessels to secure, inter alia , the Borrower’s indebtedness pursuant to the Credit Agreement in the original principal amount of USD 190,000,000 and interest thereon and premium, if any, and all other amounts payable hereunder and under the other Loan Documents and the Secured Swap Agreements and to secure the full and punctual performance and observance of all agreements, covenants and conditions contained herein and contained in the Credit Agreement, the Notes and the other Loan Documents. The formula for the calculation of interest, premium and the terms of their payment together with the terms of the repayment and prepayment of principal, as well as certain agreements, covenants and conditions, are provided in the Credit Agreement. In consideration of the premises and the additional covenants herein contained and for other good and valuable consideration, the receipt and accuracy of which are hereby acknowledged, and for the purpose of securing as a priority in favor of the Mortgagee, for the benefit of the Lenders, the due and punctual payment and performance of the Obligations (as defined below), the Shipowner has granted, conveyed, mortgaged, pledged, confirmed, assigned, transferred and set over and by these presents does grant, convey, mortgage, pledge, confirm, assign, transfer and set over, unto the Mortgagee, for the benefit of the Lenders, and its successors and assigns, the whole 100% of the Vessels owned by the Shipowner and described in Exhibit A hereto, including, without limitation, all of the boilers, engines, machinery, masts, spars, boats, anchors, cables, chains, rigging, tackle, capstans, outfit, tools, pumps and pumping equipment, apparel, furniture equipment, drilling equipment, drill pipes, drilling masts, rotary tables, substructures, draw work, drill bits, blowout prevention equipment, collars, racking, housing, spare parts and supporting inventory, vehicles and living quarters (excluding equipment aboard the Vessels which is not owned by the Shipowner) and all other appurtenances to said Vessels appertaining or belonging, whether now owned or hereafter acquired, whether on board or not, and also any and all additions, improvements and replacements in general effected subsequently on or to the Vessels, or any part thereof, or appurtenance thereto; TO HAVE AND TO HOLD all and singular the above mortgaged and described property unto the Mortgagee and its successors and assigns, to its and to its successors’ and assigns’ own use, benefit and behoof forever; PROVIDED, HOWEVER, and these presents are upon the condition, if the Shipowner or the other Obligors (as defined below) or their successors or assigns shall pay or cause to be paid to the Mortgagee and the Lenders the Obligations (as defined below), as and when the same shall become due and payable in accordance with the terms of the Credit Agreement, the other Loan Documents and this Mortgage, and shall duly perform the agreements, covenants and conditions herein and in the Credit Agreement and other Loan Documents, then this Mortgage and the rights hereby granted shall cease and be void, otherwise to remain in full force and effect. Exhibit E-6

This Mortgage secures and enforces the following (collectively, the ― Obligations ‖, it being acknowledged and agreed that the ―Obligations‖ shall include extensions of credit and amounts owing of the types described below, whether outstanding on the date hereof or extended or owing from time to time after the date hereof): (a) all indebtedness, liabilities, obligations and undertakings of every kind or description of the Shipowner, the Borrower and its Subsidiaries (collectively, the ― Obligors ‖), (including, without limitation, all Indebtedness) to the Administrative Agent, the Lenders, or any Secured Swap Provider, arising out of or outstanding or owing under, advanced or issued pursuant to, or evidenced by, the Credit Agreement, the Notes and each other Loan Document to which any of them is a party or the Secured Swap Agreements to which any Secured Swap Provider is a party, including, without limitation, the unpaid principal of and interest and premium on the Loans and all other obligations and liabilities of the Obligors (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to any Obligor, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, arising out of or outstanding under, advanced or issued pursuant to, or evidenced by, the Credit Agreement, the Notes, any other Loan Document or any Secured Swap Agreement, and whether on account of principal, interest, premium, reimbursement obligations, amounts owing upon liquidation, acceleration of obligations under, or termination (including early termination) of any Secured Swap Agreement, fees, indemnities, costs, expenses or otherwise (including, without limitation, all costs, fees and disbursements of counsel to the Mortgagor or any Agent, Lender or Secured Swap Provider that are required to be paid by the Obligors pursuant to the terms of the Credit Agreement, the Notes, any other Loan Document or any Secured Swap Agreement): (b) the prompt and complete payment when due of any and all additional loans or advances made by the Lenders to or for the benefit of the Borrower or any other Obligor pursuant to the Credit Agreement or any other Loan Document (it being contemplated that the Lenders may lend additional sums to the Obligors pursuant to the Credit Agreement or the other Loan Documents from time to time, but shall not be obligated to do so except as expressly set forth in the Credit Agreement or such other Loan Document, and the Shipowner and the Mortgagee agree that the payment of any such additional loans shall be secured by this Mortgage); (c) the prompt and complete payment when due of any and all sums which may be advanced or paid by the Mortgagee or the Lenders under the terms hereof or of the Credit Agreement or other Loan Documents on account of the failure of the Shipowner to comply with the covenants of the Shipowner contained herein, or the failure of the Shipowner or any other Obligor to comply with the covenants of the Shipowner or any other Obligor contained in the Credit Agreement or any other Loan Documents; and all other indebtedness of the Shipowner arising pursuant to the provisions of this Mortgage, including penalties, indemnities, legal and other fees, charges and expenses, and amounts advanced by and expenses incurred in order to preserve any collateral or security interest, whether due after acceleration or otherwise; (d) the timely and complete performance of all agreements, covenants and conditions contained in this Mortgage, the Credit Agreement, the Notes and the other Loan Documents; and Exhibit E-6

(g) all renewals, modifications, amendments, restatements, rearrangements, consolidations, substitutions, replacements, enlargements, and extensions of all or any part of the Obligations. The Shipowner certifies that true forms of the Credit Agreement (including the Notes) are attached to this Mortgage as Exhibit B, and that the terms and conditions of the Credit Agreement and the Notes are incorporated by reference into this Mortgage and form a part hereof. The Shipowner for itself, its successors and assigns, hereby represents, warrants, covenants, declares and agrees with the Mortgagee and its successors and assigns that the Vessels are to be held subject to the further covenants, conditions, terms and uses hereinafter set forth. ARTICLE I DEFINED TERMS; REPRESENTATIONS & WARRANTIES; COVENANTS Section 1.01 Certain Defined Terms . The following terms used herein have the meanings given to them as follows: ― Secured Swap Agreement ‖ any Swap Agreement entered into by the Borrower, the Shipowner or any Subsidiary permitted by the terms of Section 9.17 of the Credit Agreement. ― Secured Swap Provider ‖ means any Lender or Agent (or Affiliate of any Lender or Agent) party to any Secured Swap Agreement with the Borrower or any Subsidiary while such Lender or Agent (or in the case of its Affiliate, the Person affiliated therewith) is a Lender or an Agent under the Credit Agreement. Section 1.02 Payment and Performance of Obligations . The Shipowner agrees that it will promptly and faithfully pay or cause to be paid the Obligations secured hereby and that it will perform and observe all agreements, covenants and conditions, on its part to be performed or observed, contained herein, in the Credit Agreement and each other Loan Document to which it is a party. Section 1.03 Legal Existence; Citizenship; Authorization . The Shipowner is duly organized and validly existing as a limited liability company under the laws of the State of Delaware; it is duly qualified to engage in the trade in which each Vessel operates; it is duly authorized to mortgage the Vessels; all limited liability company action necessary as required by law for the execution and delivery of this Mortgage has been duly and effectively taken; it has full power and authority to own and mortgage the Vessels; the Mortgage, the Credit Agreement and the Obligations hereby secured are and will be valid and enforceable obligations of the Shipowner enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles. All necessary consents and approvals of any Governmental Authority or any other entity to the entering into and performance of this Mortgage have been duly obtained or given and the entering into and performance of this Mortgage does not and will not contravene the terms of or constitute a default under (with or without giving of notice or lapse of time or both) any material Exhibit E-6

agreement, instrument or document to which the Shipowner is a party or by which it or its properties are bound or affected. The Shipowner is now, and shall so remain until this Mortgage is discharged, a citizen of the United States pursuant to Section 2 of the Shipping Act of 1916, as amended (46 USC §802), and is fully qualified to own and operate vessels documented under the laws of the United States. Section 1.04 Ownership of Vessels; Warranty and Defense of Title . The Shipowner lawfully owns and is lawfully possessed of the whole of the Vessels free from any lien or encumbrance whatsoever (other than Liens permitted by Section 9.03 of the Credit Agreement (― Permitted Liens ‖)) and will warrant and defend the title and possession thereto and to every part thereof for the benefit of the Mortgagee against the claims and demands of all persons whomsoever, provided, however, that notwithstanding anything herein to the contrary, no intention to subordinate the first priority security interest and Lien granted in favor of the Mortgagee herein is to be hereby implied or expressed by the permitted existence of the Permitted Liens. The Shipowner is the sole owner of the whole of the Vessels. Section 1.05 Registry . The Vessels are, and during the term of this Mortgage shall continue to be, duly and lawfully registered under the laws and flag of the United States of America, and the Shipowner will cause this Mortgage to be duly recorded at the U.S. Coast Guard National Vessel Documentation Center in accordance with the provisions of 46 U.S.C. §31321, and will otherwise comply with and satisfy all of the provisions of the U.S. Code, Tit. 46, Ch. 301 and 313, as amended in order to establish and maintain this Mortgage as a first preferred mortgage lien thereunder upon the Vessels and upon all renewals, replacements and improvements made in or to the same for the amount of the Obligations hereby secured. Section 1.06 Operation of Vessels . The Shipowner will not cause or permit the Vessels to be operated in any manner contrary to applicable law, engage in any unlawful trade or operations or violate any applicable law or carry any cargo, in the case of any of the foregoing, that will unreasonably expose the Vessels to penalty, forfeiture or capture and will not do, or suffer or permit to be done, anything which can or may injuriously affect the registration of the Vessels under the laws and regulations of the United States of America and will at all times keep the Vessels duly documented thereunder. Section 1.07 Claims, Taxes, Fees etc . The Shipowner will pay and discharge or cause to be paid and discharged prior to delinquency, all claims and demands in respect of, and all taxes, assessments, governmental charges, levies, fees, fines and penalties imposed on any Vessel, its cargoes or any income or profits therefrom, in each case on a timely basis, and all lawful claims which, if unpaid, might become a lien or charge upon such Vessel or any income therefrom not constituting a Permitted Lien; provided that the Shipowner shall not be required to pay any such claim, demand, fee, tax, assessment, charge, fine, levy, or penalty which is being contested in good faith and by proper proceedings if the Shipowner has maintained adequate reserves with respect thereto in accordance with GAAP, and such Vessel shall not have been arrested or detained therefor, and provided further that such contest shall not subject such Vessel, or any part thereof, to forfeiture or loss. Section 1.08 Liens . Neither the Shipowner, any charterer, the Master of any Vessel nor any other Person has or shall have any right, power or authority to, and shall not, create, incur or Exhibit E-6

permit to be placed or imposed or continued upon any Vessel, its freights, profits or hire, any Lien whatsoever other than Permitted Liens. Section 1.09 Notice of Mortgage . The Shipowner will place, and at all times and places will retain, a properly certified copy of this Mortgage on board each Vessel with her papers and will cause such certified copy and such Vessel’s marine document to be exhibited to any and all persons having business therewith which might give rise to any lien thereon other than liens for crew’s wages and salvage, and to any representative of the Mortgagee; and will place and prominently display in the chart room and in the Master’s cabin of such Vessel a framed printed notice in plain type reading as follows: “NOTICE OF MORTGAGE This Vessel is owned by Hercules Drilling Company, LLC (― the Owner ‖) and is subject to a First Preferred Fleet Mortgage (the ― Mortgage ‖) in favor of Comerica Bank, as Administrative Agent, Mortgagee. Under the terms of said Mortgage neither the Owner, any Charterer, the Master of this Vessel nor any other person has any right, power or authority to create, incur or permit to be placed or imposed or continued upon this Vessel any lien whatsoever other than said Mortgage and liens permitted by said Mortgage.‖ Section 1.10 Libel or Attachment . If a libel or complaint be filed against any Vessel or any Vessel is otherwise attached, levied upon or taken into custody or sequestered by virtue of any legal proceeding in any court or by a government or other authority, the Shipowner will promptly notify the Mortgagee thereof by facsimile, telex, cable or telegram, as appropriate, confirmed by letter, at its office, and within thirty (30) days of any arrest arising out of such libel or complaint will cause such Vessel to be released and all Liens thereon (other than Permitted Liens) to be discharged and will promptly notify the Mortgagee thereof in the manner aforesaid. In the event that the Shipowner does not appear in such action by filing a claim of owner or similar pleading within such thirty (30) day period, the Shipowner does hereby authorize and empower the Mortgagee, in the name of the Shipowner, or its successor or assigns, to apply for and receive possession of and to take possession of such Vessel with all the rights and powers that the Shipowner, or its successors or assigns, might have, possess or exercise in any such event; and this power of attorney shall be irrevocable and may be exercised not only by the Mortgagee hereinabove named but also by any one such appointee or the appointees of the Mortgagee, with full power of substitution, to the same extent as if the said appointee or appointees had been named as one of the attorneys above named by express designation. The Shipowner will notify the Mortgagee within three (3) Business Days after it has become known to the Shipowner of any average or salvage incurred by any Vessel. Section 1.11 Maintenance of Vessels . (a) Except while such Vessel is undergoing repairs, maintenance or is stacked or in lay up, the Shipowner will at all times and without cost or expense to the Mortgagee maintain and preserve, or cause to be maintained and preserved, each Vessel in good running order and repair, so that each Vessel shall be, insofar as due diligence can make it so, tight, staunch, strong and well and sufficiently tackled, appareled, furnished, equipped and in every respect seaworthy and in good operating condition and fit for its intended service; and will keep Exhibit E-6

each Vessel, or cause it to be kept in such condition as will entitle it to at least the current classification and rating for each Vessel in the American Bureau of Shipping, or other classification society of like standing. The Shipowner will at all times keep each Vessel (other than a Vessel that is stacked or in lay up) in such condition to ensure that it maintains its current classification rating from the American Bureau of Shipping, and the Shipowner shall furnish to the Mortgagee annually, commencing July 30, 2005, a certificate from the American Bureau of Shipping confirming that such classification has been maintained. Each Vessel shall, and the Shipowner covenants that it will, at all times comply in all material respects with all applicable laws, treaties and conventions to which the United States of America is a party, and rules and regulations issued thereunder, and shall have on board as and when required thereby valid certificates showing compliance therewith. The Shipowner will not make, or permit to be made, any substantial change in the structure, rig or type of any Vessel that would materially diminish the value of such Vessel without first receiving the written consent of the Mortgagee, which consent shall not be unreasonably withheld. (b) So long as any of the Obligations are outstanding, the Shipowner will cause each Vessel (other than any Vessel that is then stacked or in lay up) to be repaired and overhauled as the need arises in order to keep such Vessel well maintained and in seaworthy condition. (c) The Shipowner will promptly, but in any event within forty-eight (48) hours thereof, give notice to the Mortgagee if any Vessel is put into the possession of any yard for the purpose of repairs in an amount exceeding or likely to exceed ten percent (10%) of the insured total loss value of such Vessel at any time. Section 1.12 Inspection . Subject to the terms of the Credit Agreement, the Shipowner will at all reasonable times afford the Mortgagee or its authorized representatives at their risk and expense full and complete access to each Vessel during normal business hours for the purpose of inspecting such Vessel, its cargoes and its papers, and the Shipowner will deliver for inspection copies of such contracts and documents relating to such Vessel, whether on board or not, as the Mortgagee may request, provided however, that (a) non public information obtained by the Mortgagee pursuant to any Loan Document concerning the Shipowner, any Vessel, any other assets of the Shipowner or the Shipowner’s financial condition and prospects shall be kept confidential by the Mortgagee in accordance with Section 12.11 of the Credit Agreement (subject to the exceptions contained therein), unless such non governmental parties shall agree prior thereto to be bound by this Section 1.11 and (b) any inspection of any Vessel and its papers shall be subject to the requirements of any operators of such Vessel and any applicable Governmental Authority. Section 1.13 No Change in Registry . The Shipowner will not transfer or change the flag or port of documentation of any Vessel without the written consent of the Mortgagee first had and obtained, and any such written consent to any one transfer or change of flag or port of documentation shall not be construed to be a waiver of this provision with respect to any subsequent proposed transfer or change of flag or port of documentation for any Vessel. Section 1.14 Sale or other Dispositions . Except as permitted by the Credit Agreement, the Shipowner will not sell, mortgage, bareboat charter, transfer or in any other way dispose of Exhibit E-6

all or any part of any Vessel, provided, however, the Shipowner may bareboat charter any Vessel in the ordinary course of business. Section 1.15 Insurance . (a) Types and Coverage . The Shipowner will, at its own expense, when and so long as this Mortgage shall be outstanding, insure or cause to be insured each Vessel against the risks indicated below, in addition to such other risks which would be covered by experienced, prudent, and responsible owners of similar vessels engaged in similar operations in places and under conditions comparable to those in which such Vessel is employed from time to time and possessing financial and operating characteristics similar to the Shipowner (―Similar Companies‖) in accordance with the usual and customary practices of Similar Companies, and keep it insured, in the aggregate, in lawful money of the United States, for not less than the higher of (i) the full commercial value of such Vessel as reasonably determined by the Shipowner, (ii) the amount of coverage that would be obtained by Similar Companies on such Vessel, or (iii) an amount with respect to such Vessel when aggregated with the coverage on all other Drilling Rigs and Lift Boats equals at least USD 190,000,000. Each Vessel shall in no event be insured for an amount less than the agreed valuations as set forth in the applicable marine and war risk policies. Such insurance shall be on the basis of ―new for old‖ with no deduction for depreciation and shall cover marine and war risk perils, on hull and machinery (including excess value), and shall be maintained in the broadest forms available in the American, British or equivalent insurance markets for vessels of the same type as such Vessel, provided that war risk insurance shall only be required if such Vessel operates outside of the United States territorial waters in the Gulf of Mexico. The Shipowner shall also obtain such workmen’s compensation or longshoremen’s and harbor worker’s insurance as shall be required by applicable law, including endorsements for Outer Continental Shelf operations, borrowed servant, voluntary compensation, and in rem claims. In addition, the Shipowner shall maintain or cause to be maintained protection and indemnity insurance, including coverage for contractual liability, contractual and legal wreck removal, crew coverage, excess collision, salvage, general average, care, pollution, custody and control coverage through underwriters or associations reasonably acceptable to the Mortgagee in an amount equal to the higher of (i) the full commercial value of each Vessel as reasonably determined by the Shipowner, (ii) the amount of coverage that would be obtained by Similar Companies on each Vessel, and (iii) an amount with respect to each Vessel when aggregated with the coverage on all other Drilling Rigs and Lift Boats equals at least USD 190,000,000, provided, however, that war risk protection and indemnity insurance shall be in an amount not less than the amount of insurance against total loss. The Shipowner shall at all times during which any Vessel is operating within the jurisdiction of the United States of America, maintain or cause to be maintained insurance or post bond or maintain or cause to be maintained approved evidence of financial responsibility with respect to such Vessel to cover the actual cost of removal of discharged oil for which the Shipowner or such Vessel may be held strictly liable (or held liable due to the negligence of the Shipowner, any charterer or any other Person) under the Clean Water Act of 1977, OPA or the Outer Continental Shelf Lands Act, or under any other federal or state law which, in the future, may apply to such Vessel or to the Shipowner; and the Shipowner shall maintain insurance covering similar pollution risks or liabilities incident thereto under any law, regulation, or judicial decision of any foreign jurisdiction or jurisdictions or political subdivision thereof applicable to the Shipowner, such Vessel, or its operations. Exhibit E-6

(b) Deductibles . No insurance required to be carried by the Shipowner pursuant to this Section 1.15 shall include a deductible or self-insured retention in excess of USD 2,000,000 per occurrence. (c) Insurers; Provisions . The policy or policies of insurance shall be issued by responsible underwriters reasonably acceptable to the Mortgagee, shall contain conditions, terms, stipulations and insuring covenants reasonably satisfactory to the Mortgagee and shall be kept in full force and effect by the Shipowner so long as this Mortgage shall be outstanding. All insurance policies, binders and other interim insurance contracts (with the exception of Workers’ Compensation, U.S. Longshoremen & Harbor Workers Compensation and Maritime Employers Liability) shall be executed and issued in the name of the Shipowner, shall name the Mortgagee and the Lenders in a manner such that they are afforded the stature of additional insureds, and shall provide that loss shall be payable to the Mortgagee for distribution by it to itself and the Shipowner as their interests may appear. The Mortgagee shall permit all insurance proceeds to be applied in the manner set forth in this Mortgage and in the Credit Agreement. All insurance policies shall provide (i) for at least thirty (30) days’ prior notice to be given to the Mortgagee by the underwriters or association in the event of (A) cancellation or reduction in amount or material change in coverage or (B) the failure of the Shipowner to pay any premium or call which would suspend coverage under the policy or the payment of a claim thereunder and (ii) that (A) there shall be no recourse against the Mortgagee (or its assignee) for the payment of premiums or commissions and (B) if such policies provide for the payment of club calls, assessments or advances, there shall be no recourse against the Mortgagee (or its assignee) for the payment thereof. (d) Compliance . The Shipowner shall not do any act, nor voluntarily suffer nor permit any act to be done, whereby any insurance required by this Section 1.15 shall or may be suspended, impaired or defeated, or suffer or permit any Vessel to undertake any drilling operations, carry any cargoes or proceed into an area then excluded by trading warranties under its marine and war risk policies (including protection and indemnity) without obtaining all necessary additional coverage, satisfactory in form and substance, and evidence of which shall be furnished, to the Mortgagee. (e) Loss . In the event of an actual or constructive total loss or a compromised constructive total loss or requisition of any Vessel, (i) all insurance payments therefor shall be paid to the Mortgagee and, at the Shipowner’s option, shall be applied to the Obligations in the manner required by the Credit Agreement or turned over to the Shipowner in accordance with Section 3.04(c)(iv) of the Credit Agreement, and (ii) the Mortgagee shall retain out of the insurance payments received on account of such loss and held by the Mortgagee, any sum or sums that shall be or become owing to the Mortgagee under this Mortgage for the cost, if any, of collecting the insurance, which sum or sums shall become the sole property of the Mortgagee. The Shipowner shall not declare or agree with underwriters that any Vessel is a constructive or compromised, agreed or arranged constructive total loss without the prior written consent of the Mortgagee. (f) Policies . The Shipowner upon execution of this Mortgage, shall deliver to the Mortgagee a broker’s certificate evidencing the insurance maintained under this Section 1.15. If the Shipowner executes any new or renewal policies of insurance under this Section 1.15, the Exhibit E-6

Shipowner will promptly, but in any event within 5 days thereafter, deliver to the Mortgagee a true and complete copy of a broker’s certificate with respect to such policies. Upon the request of the Mortgagee, but so long as no Event of Default has occurred and is continuing not more than once in each calendar year, the Shipowner shall provide to the Mortgagee copies of all insurance policies, binders and other evidences of the insurances on each Vessel. (g) Certificates . Annually, commencing July 30, 2005, the Shipowner shall furnish to the Mortgagee, a certificate of a reputable insurance broker, in form and substance reasonably satisfactory to the Mortgagee as to the insurance maintained by the Shipowner pursuant to this Section 1.15, specifying the respective policies of insurance covering the same and attaching certificates of confirmation evidencing the same and stating with regard to the insurance maintained by the Shipowner pursuant to this Section 1.15 the amounts, deductibles, and the risks against which such insurance is issued. (h) Obligation to Collect . The Shipowner shall, at no cost or expense to the Mortgagee, have the duty and responsibility to make all proofs of loss and take any and all other steps necessary to effect collections from underwriters for any loss under any insurance on or in respect of any Vessel or the operation thereof. Section 1.16 Reimbursement . The Shipowner will reimburse the Mortgagee promptly with interest at the rate provided for in Section 3.02(c) of the Credit Agreement, for any and all expenditures which the Mortgagee may, from time to time, make, lay out or expend in providing such protection in respect of insurance, discharge or purchase of liens, taxes, dues, assessments, governmental charges, fines and penalties lawfully imposed, repairs, attorneys’ fees, translation fees for documents made in a language other than English and other matters as the Shipowner is obligated herein to provide, but fails to provide. Such obligation of the Shipowner to reimburse the Mortgagee shall be an additional indebtedness due from the Shipowner, secured by this Mortgage, and shall be payable by the Shipowner on demand. The Mortgagee, though privileged so to do, shall be under no obligation to the Shipowner to make any such expenditures, nor shall the making thereof relieve the Shipowner of any default in that respect. Section 1.17 Contracts . The Shipowner will use its commercially reasonable efforts to fully perform any and all charter parties or drilling contracts which are or may be entered into with respect to each Vessel. Section 1.18 Taxes . If at any time taxes should be levied anywhere on the principal or the interest in respect of or arising out of this Mortgage or any other instruments to be effected thereunder or in any other manner whatsoever as a consequence of or in connection with the Obligations, such taxes shall be borne and paid by the Shipowner. If by the provisions of the relevant law such an arrangement cannot be legally made, the Mortgagee may require immediate payment of all sums secured under this Mortgage. Section 1.19 Further Assurances . (a) In the event that this Mortgage or any provision hereof shall be deemed invalidated in whole or in part by reason of any present or future law or any decision of any authoritative court, or if the documents at any time held by the Mortgagee shall be deemed by the Exhibit E-6

Mortgagee for any reason insufficient to carry out the true intent and spirit of this Mortgage, then from time to time, the Shipowner will execute, on its own behalf, such other and further assurances and documents as in the reasonable opinion of the Mortgagee may be required more effectively to subject each Vessel to the payment of the Obligations, as in this Mortgage provided, and the performance of the terms and provisions of this Mortgage, the Notes and the Credit Agreement. (b) From time to time on the request of the Mortgagee, the Shipowner will furnish to the Mortgagee: (i) such favorable opinions of counsel, including United States legal opinions, in form and substance reasonably satisfactory to the Mortgagee and (ii) such instruments executed by the Shipowner or on its behalf or by any or all officers, members, managers or directors of the Shipowner, in each case, relating to this Mortgage or any of the transactions contemplated hereby, as the Mortgage may reasonably request. ARTICLE II EVENTS OF DEFAULT AND REMEDIES Section 2.01 Events of Default . The occurrence and continuation of an Event of Default under the Credit Agreement shall constitute an ― Event of Default ‖ hereunder. Section 2.02 Remedies . Upon the occurrence and during the continuance of any Event of Default, the Mortgagee may, at the Mortgagee’s option, and by or through itself or otherwise, do any one or more of the following: (a) exercise all of the rights and remedies in foreclosure and otherwise given to mortgagees by the laws and regulations of the United States of America or of any country where any Vessel may be found or of any other applicable jurisdiction. (b) bring suit at law, in equity or in admiralty, in any court of any nation of the world, or initiate and prosecute such other judicial, extrajudicial, or administrative proceedings, as it may be advised, to recover judgment for the Obligations, and collect the same out of any and all of the properties of the Shipowner, whether covered by this Mortgage or otherwise. (c) take and enter into possession of any Vessel, at any time, wherever the same may be, without legal process and without being responsible for loss or damage, and the Shipowner or other person in possession forthwith upon demand of the Mortgagee shall surrender to the Mortgagee possession of such Vessel. (d) without being responsible for loss or damage, the Mortgagee may hold, lay up, lease, charter, operate or otherwise use any Vessel for such time and upon such terms as it may deem to be for its best advantage, and demand, collect and retain all hire, day rates, freights, earnings, issues, revenues, income, profits, return premiums, salvage awards or recoveries, recoveries in general average, and all other sums due or to become due in respect of such Vessel or in respect of any insurance thereon from any person whomsoever, accounting only for the net profits, if any, arising from such use of such Vessel and charging upon all receipts from the use of such Vessel or from the sale thereof by court proceedings or pursuant to Section 2.02(e), all costs, expenses, charges, damages or losses by reason of such use; and if at Exhibit E-6

any time the Mortgagee shall avail itself of the right herein given it to take any Vessel, the Mortgagee shall have the right to dock such Vessel, for a reasonable time at any dock, pier or other premises of the Shipowner without charge, or to dock her at any other place at the cost and expense of the Shipowner. (e) sell any Vessel without judicial process and without being responsible for any loss or damage arising therefrom, except as may be directly and proximately caused by its willful misconduct, recklessness or gross negligence, in such place, time and manner as the Mortgagee may, in its sole judgment, deem fit. In the event that any Vessel shall be offered for sale by private sale, reasonable notice must be given to the Shipowner but need not be more than twenty (20) days before the private sale, and no newspaper publication of notice shall be required, nor notice of adjournment of sale; sale may be held at such place and at such time as the Mortgagee by notice may have specified, or may be adjourned by the Mortgagee from time to time by announcement at the time and place appointed for such sale or for such adjourned sale, and without further notice or publication the Mortgagee may make any such sale at the time and place to which the same shall be so adjourned. At the sale, the Mortgagee may acquire such Vessel in satisfaction of all or a portion of the outstanding Obligations. Section 2.03 Finality of Sale . It is expressly agreed that upon payment of the purchase price, the purchaser shall acquire good and peaceful title to the Vessel subject of such sale, and shall not be affected by any claim or potential claim of the Shipowner, whether or not such claim or potential claim comes to the knowledge of the purchaser. Any sale of any Vessel made in pursuance of this Mortgage, whether under the power of sale hereby granted or any judicial proceedings, shall operate to divest all right, title and interest of any nature whatsoever of the Shipowner therein and thereto, and shall bar the Shipowner, its successors and assigns, and all persons claiming by, through or under them, from asserting any claim or right, title or interest therein or thereto. No purchaser shall be bound to inquire whether notice has been given, or whether any default has occurred, or as to the propriety of the sale, or as to the application of the proceeds thereof. Section 2.04 Place of Sale; Conveyance . Any sale may be conducted without bringing the Vessel subject of such sale to the place designated for such sale and in such manner as the Mortgagee may deem to be for its best advantage. The Shipowner hereby irrevocably constitutes and appoints the Mortgagee and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Shipowner or in the Mortgagee’s own name, to make in the name and on behalf of the Shipowner, all necessary transfers of a Vessel in accordance with this Article II for a good conveyance of the title to such Vessel, and for that purpose the Mortgagee shall execute all necessary instruments of assignment and transfer (including bills of sale), the Shipowner hereby ratifying and confirming all that its said attorney shall lawfully do by virtue hereof. Nevertheless, the Shipowner shall, if so requested by the Mortgagee, ratify and confirm any sale of a Vessel by executing and delivering to the purchaser thereof such proper bills of sale, conveyances, instruments of transfer and releases as may be designated in such request. Exhibit E-6

Section 2.05 Revenues and Proceeds of Vessels; Prior Liens . (a) The Shipowner hereby irrevocably constitutes and appoints the Mortgagee and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Shipowner or in the Mortgagee’s own name, to demand, collect, receive, compromise and sue for, so far as may be permitted by law, all freights, hire, earnings, issues, revenues, income and profits of each Vessel and all amounts due from underwriters under any insurance thereon as payment of losses or as return premiums or otherwise, salvage awards and recoveries, recoveries in general average or otherwise, and all other sums due or to become due in respect of such Vessel or in respect of any insurance thereon from any person whomsoever, and to make, give and execute in the name of the Shipowner acquittances, receipts, releases or other discharges for the same, whether under seal or otherwise, all checks, notes, drafts, warrants, agreements and other instruments in writing with respect to the foregoing. To the extent permitted by law, the Shipowner hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and is irrevocable. The powers conferred on the Mortgagee hereunder are solely to protect its interests in the Vessels and shall not impose any duty upon it to exercise any such powers. THE MORTGAGEE SHALL BE ACCOUNTABLE ONLY FOR THE AMOUNTS THAT IT ACTUALLY RECEIVES AS A RESULT OF THE EXERCISE OF SUCH POWERS, AND NEITHER IT NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS SHALL BE RESPONSIBLE TO THE SHIPOWNER FOR ANY ACT OR FAILURE TO ACT, EXCEPT FOR THE MORTGAGEE’S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Notwithstanding the foregoing, the Mortgagee agrees that it will not exercise any rights under the power of attorney provided for in this Section 2.05(a) unless an Event of Default shall have occurred and be continuing. (b) The Mortgagee is hereby irrevocably authorized to pay or furnish indemnity in the proper amounts against any Liens which have or may (in the opinion of the Mortgagee) have priority over the Lien of this Mortgage and which are not permitted under this Mortgage or the Credit Agreement. Section 2.06 Delivery of Vessels . Whenever any right to enter and take possession of any Vessel accrues to the Mortgagee, it may require the Shipowner to deliver, and the Shipowner shall on demand, at its own cost and expense, deliver to the Mortgagee such Vessel at the location reasonably designated by the Mortgagee. Section 2.07 Additional Rights . The Shipowner covenants and agrees that in addition to any and all other rights, powers and remedies elsewhere in this Mortgage granted to and conferred upon the Mortgagee, the Mortgagee in any suit to enforce any of its rights, powers or remedies shall be entitled as a matter of right and not as a matter of discretion (a) to seek the appointment of a receiver or receivers of any Vessel and any receiver or receivers so appointed shall have full right and power to use and operate such Vessel as shall be ordered by the federal court, and (b) to a decree ordering and directing the sale and disposal of any Vessel, and the Mortgagee may become the purchaser at such sale and shall have the right to credit against the purchase price any and all sums of money due hereunder. Section 2.08 Judgment . The Shipowner covenants that upon the occurrence of and continuance of any one or more of the Events of Default, upon written demand of the Mortgagee, the Shipowner will pay to the Mortgagee the whole amount due and payable on the Obligations Exhibit E-6

hereby secured together with any other amounts due hereunder or under any other Loan Document; and in case the Shipowner shall fail to pay same forthwith upon such demand, the Mortgagee shall be entitled to recover judgment for the whole amount so due and unpaid, together with such further amounts as shall be sufficient to cover the reasonable fees and expenses of the Mortgagee’s or the Lenders’ agents, attorneys and counsel and any necessary advances, expenses and liabilities made or incurred by any of them hereunder. All moneys collected by the Mortgagee under this Section 2.08 shall be applied by the Mortgagee in accordance with the provisions of Section 2.11. Section 2.09 Acceptance of Cure . If at any time after an Event of Default and prior to any foreclosure action having been taken by the Mortgagee under any of the Loan Documents to realize upon the security provided by such documents, the Shipowner offers completely to cure all Events of Default and to pay all expenses, advances and damages to the Mortgagee consequent to such Events of Default, with interest at the rate provided for late payments in the Credit Agreement, then the Mortgagee may, but shall not be required to, accept such offer and payment and restore the Shipowner to its former position, but such action shall not affect any subsequent Event of Default or impair any rights consequent thereon. Section 2.10 Restoration of Position . In case the Mortgagee shall have proceeded to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Mortgagee, then and in every such case the Shipowner and the Mortgagee shall be restored to their former positions and rights hereunder with respect to the property subject or intended to be subject to this Mortgage, and all rights, remedies and powers of the Mortgagee shall continue as if no such proceedings had been taken. Section 2.11 Application of Proceeds . The proceeds of any sale or other disposition of any Vessel received by the Mortgagee and the net earnings of any charter operation or other use of any Vessel received by the Mortgagee under any of the rights, powers or remedies herein specified and any and all other moneys received by the Mortgagee pursuant to or under the terms of this Mortgage or in any proceeding hereunder, the application of which has not elsewhere herein been specifically provided for, shall be applied as follows: (i) first , to the payment of all reasonable expenses and charges, including the expense of sale, the expenses of retaking, attorney’s fees, court costs, and any other expenses or advances made or incurred by the Mortgagee in the protection of its rights or the pursuance of its remedies hereunder; and (ii) second , in accordance with Section 10.02(c) of the Credit Agreement. Section 2.12 Deficiency . To the extent the proceeds of the sale of any Vessel are not sufficient to pay the aggregate amount of the Obligations, any Person liable for the Obligations (including without limitation, the Shipowner, the Borrower and any Subsidiary to the extent such Persons are liable) shall remain jointly and severally liable for such deficiency. Without limiting the generality of the foregoing, the rights and remedies of the Mortgagee under this Mortgage and the other agreements, documents and instruments securing or guarantying any of the Obligations shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any right or remedy. Exhibit E-6

ARTICLE III GENERAL POWERS OF MORTGAGEE Section 3.01 Arrest or Detention of Vessel . In the event that any Vessel shall be arrested or detained by a marshal or other officer of any court of law, equity or admiralty jurisdiction in any country or nation of the world or by any government or other entity and shall not be released from arrest or detention within thirty (30) days from the date of arrest or detention, the Shipowner does hereby authorize and empower the Mortgagee, in the name of the Shipowner, or its successors or assigns, to apply for and receive possession of and to take possession of such Vessel with all the rights and powers that the Shipowner, or its successors or assigns, might have, possess or exercise in any such event; and this power of attorney shall be irrevocable and may be exercised not only by the Mortgagee but also by its appointee or appointees, with full power of substitution, to the same extent as if the said appointee or appointees had been named as the attorney above named by express designation. All expenditures made or incurred by them or any of them for the purpose of the foregoing shall be a debt due from the Shipowner, its successors and assigns, to the Mortgagee and shall be secured by the Lien of this Mortgage in like manner and extent as if the amount and description thereof were written herein. Section 3.02 Suits . The Shipowner also authorizes and empowers the Mortgagee or its appointees or any of them to appear in the name of the Shipowner, its successors or assigns, in any court of any country or nation of the world where a suit is pending against any Vessel because of or on account of any alleged Lien against such Vessel from which such Vessel has not been released and to take such proceedings as to it may seem proper towards the defense of such suit and the discharge of such Lien, and all expenditures made or incurred by them or any of them for the purpose of such defense or purchaser or discharge shall be a debt due from the Shipowner, its successors and assigns, to the Mortgagee and shall be secured by the Lien of this Mortgage in like manner and extent as if the amount and description thereof were written herein. Section 3.03 Performance of Shipowner’s Obligations . If the Shipowner fails to perform any obligation or covenant under this Mortgage, the Mortgag