UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

Hercules Offshore, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

HERCULES OFFSHORE, INC.
9 Greenway Plaza, Suite 2200
Houston, Texas 77046

 

 

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 11, 2010

 

To the Stockholders

of Hercules Offshore, Inc.:

 

The annual meeting of stockholders of Hercules Offshore, Inc. will be held on May 11, 2010, at 8:00 a.m., local time, at the Renaissance Hotel, 6 Greenway Plaza East, Houston, Texas for the following purposes:

 

1. To elect five directors to the class of directors whose term will expire at the 2013 Annual Meeting of Stockholders;

 

2. To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2010; and

 

3. To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

 

Attached to this notice is a proxy statement setting forth information with respect to the above items and certain other information.

 

The board of directors has fixed the close of business on March 15, 2010 as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting or any adjournment or postponement thereof. Only holders of record of our common stock at the close of business on the record date are entitled to notice of and to vote at the meeting. For a period of ten (10) days prior to the meeting, a complete list of such stockholders will be available at our executive offices for inspection by stockholders during normal business hours for proper purposes.

 

Your vote is important. All stockholders are cordially invited to attend the meeting. We urge you, whether or not you plan to attend the meeting, to vote your shares electronically on the Internet, by telephone or by completing, signing, dating and mailing the enclosed proxy card in the postage-paid envelope provided. If a stockholder who has submitted a proxy attends the meeting in person, such stockholder may revoke the proxy and vote in person on all matters submitted at the meeting.

 

By Order of the Board of Directors

 

 

James W. Noe

Senior Vice President, General Counsel,

and Chief Compliance Officer

 

Houston, Texas

March 26, 2010

Proxy Statement for the
2010 Annual Meeting of Stockholders of
HERCULES OFFSHORE, INC.
To Be Held on May 11, 2010

 

TABLE OF CONTENTS

 

 

HERCULES OFFSHORE, INC.
9 Greenway Plaza, Suite 2200
Houston, Texas 77046

 

PROXY STATEMENT
For 2010 Annual Meeting of Stockholders
To Be Held on May 11, 2010

 

This proxy statement is furnished to stockholders of Hercules Offshore, Inc. in connection with the solicitation of proxies by our board of directors for use at the annual meeting of stockholders to be held on May 11, 2010, or at any adjournment or postponement thereof, at the time and place and for the purposes specified in the accompanying notice of annual meeting. The mailing of the Notice Regarding the Availability of Proxy Materials to stockholders will commence on or about March 29, 2010.

 

 

If you hold shares of our common stock in your name, you may vote your shares in a number of ways:

 

 

If you hold shares of our common stock through someone else, such as a bank, broker or other nominee, you will receive voting instructions from the organization holding your account. You will receive a Notice Regarding the Availability of Proxy Materials that will tell you how to access our proxy materials and vote your shares via the Internet. It also will tell you how to request a paper or e-mail copy of our proxy material.

 

You may revoke your proxy at any time prior to its exercise by:

 

 

Your attendance at the annual meeting in person without voting will not automatically revoke your proxy. If you hold shares through someone else, such as a bank, broker or other nominee, and you desire to revoke your proxy, you should follow the instructions provided by your nominee.

 

 

We will appoint one or more inspectors of election to act at the annual meeting and to make a written report thereof. The inspectors will ascertain the number of shares outstanding and the voting power of each, determine the shares represented at the annual meeting and the validity of proxies and ballots, count all votes and ballots, and perform certain other duties. The determination of the inspectors as to the validity of proxies will be final and binding.

 

All properly executed written proxies delivered pursuant to this solicitation, and not later revoked, will be voted at the annual meeting in accordance with the instructions given in the proxy. Stockholders should vote their shares on the enclosed proxy card. If no choice is indicated, proxies that are signed and returned will be voted “FOR” the election of all director nominees, and “FOR” approval of the ratification of the appointment of Ernst & Young LLP as our

independent registered public accounting firm for the year ending December 31, 2010, and in the discretion of the proxies as to all other matters properly brought before the meeting. All shares of our common stock represented by properly executed and unrevoked proxies will be voted if such proxies are received in time for the meeting.

 

The five nominees for director who receive the greatest number of votes cast at the meeting will be elected as directors. Cumulative voting is not permitted in the election of directors. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2010 is subject to the approval of a majority of the shares of common stock voting on the matter.

 

Abstentions and broker non-votes (proxies submitted by brokers that do not indicate a vote for a proposal because they do not have discretionary voting authority and have not received instructions as to how to vote on the proposal) are counted as present in determining whether the quorum requirement for the annual meeting is satisfied. For purposes of determining the outcome of any matter to be voted upon as to which the holder has abstained or as to which the broker has physically indicated on the proxy that the broker does not have discretionary authority to vote, these shares will be treated as not voting with respect to that matter.

 

With regard to the election of directors, votes may be cast in favor of or withheld from each nominee. Votes that are withheld will be excluded entirely from the vote and will have no effect. Broker non-votes will be treated as set forth below in the section entitled “Effect of Not Casting Your Vote.”

 

With regard to the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2010, abstentions and broker non-votes will not affect the outcome of the voting on the proposal.

 

If you hold your shares in street name, it is critical that you cast your vote if you want it to count in the election of directors (Item 1 of this Proxy Statement). In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of directors, your bank or broker was allowed to vote those shares on your behalf in the election of directors as they felt appropriate. Recent changes in regulation were made to take away the ability of your bank or broker to vote your uninstructed shares in the election of directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote in the election of directors, no votes will be cast on your behalf. If you are a shareholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the items of business at the Annual Meeting.

 

Our only outstanding voting securities are shares of our common stock. Only holders of record of our common stock at the close of business on March 15, 2010, the record date for the annual meeting, are entitled to notice of and to vote at the annual meeting. On the record date for the annual meeting, there were 114,957,009 shares outstanding and entitled to be voted at the annual meeting. A majority of such shares, present in person or represented by proxy, is necessary to constitute a quorum. Each share is entitled to one vote.

 

This proxy statement and our 2009 annual report to stockholders are available at the following address on the internet: http://www.proxydocs.com/hero. Pursuant to rules adopted by the Securities and Exchange Commission, or SEC, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice Regarding the Availability of Proxy Materials to certain of our stockholders of record and beneficial owners (excluding those record and beneficial owners who have previously requested that they receive electronic or paper copies of our proxy materials). All stockholders will have the ability to access our proxy materials on the website referred to above and in the Notice Regarding the Availability of Proxy Materials. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

 

Our certificate of incorporation provides for three classes of directors serving staggered three-year terms. There are five Class II directors whose terms expire at the 2010 annual meeting: Suzanne V. Baer, Thomas R. Bates, Jr., Thomas M Hamilton, Thomas J. Madonna, and Thierry Pilenko. The nominating and governance committee of our board of directors has approved, and our board has unanimously nominated, each of Ms. Baer, and Messrs. Bates, Hamilton, Madonna, and Pilenko for reelection as directors of Hercules Offshore to serve until the 2013 annual meeting of stockholders or until his or her successor is elected and qualified. If any of the nominees becomes unavailable for any reason, which is not anticipated, the board of directors in its discretion may designate a substitute nominee. If you have filled out the accompanying proxy card in favor of the unavailable nominee, your vote will be cast for the substitute nominee designated by the board of directors.

 

The directors nominated for election this year will be elected by a plurality of the shares of our common stock present in person or represented by proxy at the annual meeting and entitled to vote. In other words, the five nominees for director who receive the greatest number of votes cast at the meeting will be elected as directors. All duly submitted and unrevoked proxies will be voted for the nominees selected by our board, except where authorization to do so has been withheld.

 

Our board recommends that stockholders vote FOR the election of its nominees for director.

 

Information with respect to the directors nominated for election this year, and the directors whose terms do not expire at the 2010 annual meeting, is presented below. Effective December 31, 2009, Mr. Bates became Chairman of the Board following the resignation of John T. Reynolds as Chairman and director, and we reduced the size of our Board of Directors from ten to nine.

 

Nominees for Election as Class II Directors

 

 

Directors Not Standing for Election

 

Class III Director (Term Expiring in 2011)

 

 

Class I Directors (Term Expiring in 2012)

 

 

 

It is the policy of our board of directors that a substantial majority of the members of our board qualify as “independent directors” in accordance with the qualification requirements of the NASDAQ Global Select Market. It is also the policy of our board that all of the members of our audit committee, compensation committee, and nominating and governance committee qualify as “independent directors” in accordance with the qualification requirements of the NASDAQ Global Select Market, and that all of the members of the audit committee satisfy the criteria for independence under applicable provisions of the Securities Exchange Act of 1934 and SEC rules. Our board has determined that all of our directors and nominees for director, except Mr. Rynd, who is employed by Hercules Offshore, satisfy the independence standards of the NASDAQ Global Select Market. Our board also has determined that each member of the audit committee qualifies as “independent” under Rule 10A-3 under the Securities Exchange Act of 1934.

 

In determining that each such director is independent, the board considered that Hercules Offshore and its subsidiaries in the ordinary course of business sell services to, or purchase products and services from, companies in which some of the directors have a direct or indirect ownership interest, or are or have been employed as officers or serve as directors.

 

In determining Mr. Hamilton’s independence, our board considered Mr. Hamilton’s position as a director of HCC Insurance Holdings Inc. (“HCC”). In 2009, Hercules Offshore purchased director and officer liability insurance and rig package insurance from certain of HCC’s subsidiaries.

 

In determining Mr. Bates’ independence, our board considered his position as principal and senior advisor of Lime Rock Management LP (“Lime Rock”). In 2009, Hercules purchased products and services from certain of Lime Rock’s portfolio companies. Our board also considered Mr. Bates’ position as a director of T-3 Energy Services, Inc. In 2009, Hercules purchased products and services from and sold equipment to T-3 Energy Services, Inc.

 

In determining Mr. Parker’s independence, our board considered his position as a director of Carrizo Oil & Gas Inc. (“Carrizo”). In 2009, Hercules provided drilling services to Carrizo.

 

In determining Mr. Webster’s independence, our board considered his position as a director of Carrizo and of Peregrine Oil & Gas. In 2009, Hercules provided drilling services to Carrizo and to Peregrine Oil & Gas.

 

Hercules Offshore considers each of these business relationships to be at arms-length and in the ordinary course of business. The board determined that Messrs. Hamilton, Bates, Parker and Webster do not have a material direct or material indirect interest in any of such business relationships.

 

We have a standing audit committee, compensation committee, and nominating and governance committee of the board of directors, as well as a special governance committee that will cease to exist on the third anniversary of our acquisition of TODCO. Each of these committees operates under a written charter that has been adopted by the respective committee and by our board. The charters are published under the “Corporate Governance” section of our website at www.herculesoffshore.com.

 

The current members of the committees, the number of meetings held by each committee in 2009 and a description of the functions performed by each committee are set forth below:

 

Audit Committee (5 meetings).  The current members of the audit committee are Suzanne V. Baer, Thomas J. Madonna and F. Gardner Parker (chair). John T. Reynolds was a member of the audit committee in 2009, but the audit committee was reduced to three members upon his resignation as a director and chairman of the board, effective as of December 31, 2009. The committee’s purpose is to assist the board of directors in overseeing our accounting and financial reporting processes, the audits of our financial statements and our internal control over financial reporting. In addition, the audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public

accounting firm. The board of directors has determined that each member of our audit committee qualifies as an “audit committee financial expert,” as such term is defined in the rules of the SEC. The board of directors also has determined that each member of the audit committee qualifies as “independent” under Rule 10A-3 under the Securities Exchange Act of 1934.

 

Compensation Committee (6 meetings).  The current members of the compensation committee are Thomas M Hamilton (chair), F. Gardner Parker and Thierry Pilenko. Thomas R. Bates, Jr. was a member of the compensation committee in 2009, but the compensation committee was reduced to three members upon his appointment as chairman of the board, effective as of December 31, 2009. The purposes of the committee are, among other things, to discharge the responsibilities of the board relating to the compensation of our Chief Executive Officer and other executive officers, to administer our equity-based compensation plans and to review and approve our objectives and elements of executive compensation.

 

The compensation committee annually reviews the performance of our Chief Executive Officer and makes compensation decisions regarding the Chief Executive Officer based on that review. The Chief Executive Officer annually reviews the performance of each of the other executive officers and, based on this review, makes recommendations to the committee with respect to their compensation. The recommendations, including with respect to salary adjustments, bonus percentages, equity awards and perquisites, are presented to the committee by our Chief Executive Officer and President, and our Senior Vice President and Chief Financial Officer. The committee can exercise its discretion in determining adjustments to the recommended salary, bonus percentages, perquisites or equity awards to the executive officers. The committee approves the elements of compensation relevant to Chief Executive Officer and executive officer compensation based on, among other information, established corporate goals and objectives, company performance targets, personal performance objectives, and the compensation paid by the company’s competitors.

 

In addition, the responsibilities of the compensation committee include, among other things:

 

 

Nominating and Governance Committee (2 meetings).  The current members of the nominating and governance committee are Thomas N. Amonett, Thomas J. Madonna (chair) and Steven A. Webster. Thomas R. Bates, Jr. was a member of the nominating and governance committee in 2009, but the nominating and governance committee was reduced to three members upon his appointment as chairman of the board, effective as of December 31, 2009. The purposes of the committee are, among other things, to identify and recommend individuals qualified to become board members consistent with criteria approved by the board and by the special governance

committee, to assist the board in determining the composition of the board and its committees, to develop, implement and review our corporate governance guidelines, practices and procedures and to oversee a process to assess board and committee effectiveness. Until the third anniversary of the effective time of the TODCO acquisition, the nominating and governance committee will adopt and implement the director nominations and proposals and other actions taken by the special governance committee in accordance with its charter.

 

In assessing the qualifications of prospective nominees to our board of directors, the nominating and governance committee considers factors it deems relevant, including each nominee’s general understanding of marketing, finance, accounting, or other elements relevant to the success of a publicly traded company in the current business environment, understanding of our business on an operational level, integrity, education and professional background, and willingness to devote time to the board of directors’ duties. In addition, the committee evaluates each individual in the context of the board of directors as a whole, with the objective of recommending individuals that can best perpetuate the success of our business and represent stockholder interests through the exercise of sound business judgment using their diversity of experience in these various areas. The nominating and governance committee does not specifically consider diversity in regards to ethnicity, gender, race, or age in assessing the qualifications of director nominees nor does it have a policy regarding diversity of nominee candidates. However, as stated above, the committee does consider the diversity of professional experiences and background of nominees, both individually, and in the context of the whole board.

 

The nominating and governance committee will consider director candidates recommended by stockholders. If a stockholder wishes to recommend a director for nomination by the committee, the stockholder should submit the recommendation in writing to the Chair, Nominating and Governance Committee, in care of the Corporate Secretary, Hercules Offshore, Inc., 9 Greenway Plaza, Suite 2200, Houston, Texas 77046. In accordance with our Policy Regarding Director Recommendations by Stockholders, which can be found under the “Corporate Governance” section of our website at www.herculesoffshore.com, the recommendation should contain the following information:

 

 

Candidates recommended by stockholders are evaluated on the same basis as candidates recommended by the board of directors, executive officers, third-party search firms or other sources.

 

Special Governance Committee (no meetings).  The current members of the special governance committee are Thomas N. Amonett, Thomas J. Madonna (chair) and Steven A. Webster. Thomas R. Bates, Jr. was a member of the special governance committee in 2009, but the special governance committee was reduced to three members upon his appointment as chairman of the board, effective as of December 31, 2009. The merger agreement under which we acquired TODCO contains provisions intended to maintain, for a period of three years following the effective time of the merger, a ratio on our board of directors of seven directors nominated by Hercules Offshore and three directors nominated by TODCO. Our bylaws and the charter of the special governance committee include provisions related to the composition of our board, including that ratio. Our bylaws and the special governance committee charter were amended, effective as of December 31, 2009, to change this ratio to six directors nominated by Hercules Offshore and three directors nominated by TODCO. The purpose of the committee is to nominate individuals to fill any vacancies on the board created by the cessation of service of any director of Hercules Offshore or TODCO, as the case may be, who was designated to be a director of our company as of the effective time of the merger and any other director who takes office thereafter who is nominated, or proposed to the committee for

election or appointment, to the board by recommendation of a majority of Hercules Offshore directors or legacy TODCO directors, as the case may be.

 

In 2009, our board of directors held fourteen meetings. Each director attended at least 75% of the total number of meetings of the board of directors and of the committees of the board on which he served. Directors are expected to attend meetings of the board of directors and meetings of committees on which they serve and to spend as much time and meet as frequently as necessary to properly discharge their responsibilities. In addition, directors are expected to attend annual meetings of our stockholders. All of our directors who were serving as directors at our 2009 annual meeting of stockholders attended that meeting.

 

Compensation Committee Interlocks and Insider Participation.  None of our executive officers have served as a member 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.

 

Board Leadership Structure

 

Our board is comprised of individuals who possess substantial experience in the oil and gas and oilfield services industries, as well as significant financial and management experience. Our chairman is the presiding director at each of our board meetings.

 

Mr. Bates was appointed chairman of the board effective as of December 31, 2009. In connection with his appointment, Mr. Bates resigned from each of the committees on which he served to focus on his role as chairman. Mr. Bates has extensive management experience during his long career in the oilfield services industry, having served as President of the Discovery Group of Baker Hughes Inc., President and Chief Executive Officer of Weatherford Enterra, Inc., and as President of Anadrill at Schlumberger Limited, among other positions. Mr. Bates also provides investment and capital markets experience gained from his time as a managing director and senior advisor of Lime Rock Management LP. He also serves as a director of two other public companies. We believe that Mr. Bates’s vast and varied professional experience provides great benefit to the board and to the company in his role as chairman.

 

Our committees are designed to leverage the relevant knowledge and expertise of our directors. The chairman of our audit committee, Mr. Parker, has significant experience in the public accounting sector, working for fifteen years (six as a partner) for a major accounting firm. In addition, he serves on the audit committee of three other public companies. We believe Mr. Parker’s combination of corporate and public accounting firm experience allows him to effectively oversee the audit process and facilitate the accomplishment of the committee’s purposes.

 

Ms. Baer, also a member of our audit committee, has spent her entire career in investor relations, finance and accounting positions, most recently serving as chief financial officer of an upstream natural gas company. Ms. Baer also has been a director and served on the audit committee of another public company since August 2005.

 

Mr. Madonna is the final member of our audit committee and, like Mr. Parker, has 33 years of experience in both public accounting and in the private sector, specializing in the international energy and oilfield industries. He worked for more than thirty years for a major public accounting firm, including twenty years as a partner, and has since held senior finance positions with a Houston-based foundation.

 

All three members of our audit committee have been designated by the Board and are qualified as “financial experts.”

 

Two members of our compensation committee have served or are currently serving as a chief executive officer of a publicly traded company in industries related to ours. Mr. Hamilton, the chairman of our compensation committee, has extensive executive management experience in the energy industry, including serving as chief executive officer and president of an exploration and production company for almost six years. In addition, he currently serves as a director of three other public companies and on the compensation committee of two of these companies. We believe that Mr. Hamilton’s leadership roles in these other organizations provide him with the background to oversee our compensation program and to use the compensation program to effectively motivate and incentivize our executive officers and other employees.

Mr. Pilenko has worked in executive management positions across the globe throughout his career. He has been the chairman and chief executive officer of two companies and currently serves in this role at Technip. Mr. Pilenko’s international management experience provides our board and the compensation committee with important insight from a broader global perspective. Mr. Parker is the final member of our compensation committee and, as described above, has significant experience as a director and committee member of publicly traded companies.

 

Mr. Amonett has served as chief executive officer of Champion Technologies, Inc. for the past ten years. In addition, he was the chairman of TODCO for over two years prior to it being acquired by Hercules in 2007 and was the chief executive officer of Weatherford Enterra Inc. from 1996-1997. He also is a director of two other publicly traded companies, serving on the audit committee of both of these companies and on the compensation committee of one of these companies.

 

Mr. Webster has a long career in our industry, having founded and served as the chairman and chief executive officer of one of TODCO’s predecessor entities. He also co-founded a private equity investment firm and serves as a director of four other public companies, including some in our industry. Mr. Webster’s experience provides our board specific expertise about our drilling rigs and industry, as well as insight into the capital markets.

 

As a whole, the structure of our board lends knowledge specific to our industry and to our assets, and is composed of directors that provide a wealth of experience both from a management and director, as well as a customer and an investor, perspective. In addition, our board members provide a balance of individual expertise in the financial, legal, operational, accounting and marketing sectors. Our committees are structured to take advantage of the individual experiences of their respective members in order to accomplish the purposes of each committee.

 

The nominating and governance committee reviewed the composition of the board and each of the committees at its meeting in the fourth quarter of 2009 and determined not to make any changes to the composition of any of the committees for 2010, with the exception of the reduction in the number of members of the board of directors and of each committee.

 

Since our inception, the roles of our chief executive officer (who is also our president) and our chairman of the board have been separated, which we believe is the best governance model for Hercules at this time. Our chief executive officer is primarily responsible for managing our day-to-day operations and strategic initiatives. Our chairman of the board is an independent director who interfaces with our other board members to provide objective guidance on our performance and strategy, approves the agendas for all board meetings and sees that the objectives of the board are carried into effect.

 

Under this model, we believe that separating these positions enables our chief executive officer to concentrate his efforts on managing our operations and strengthening our business, while the chairman assures that our overall performance and strategy objectives are being met and that management has the support it needs from the board to carry out Hercules’ strategic initiatives. Especially in this difficult economic environment, the separation of these roles has enabled our chairman and chief executive officer, respectively, to efficiently and effectively work toward achieving their respective strategic and operational objectives to the benefit of our shareholders.

 

Board’s Role in Risk Oversight

 

Our board, primarily through our committees, plays an important role in assessing, managing and overseeing the various risks to which the company is exposed. On an annual basis, our chief compliance officer makes a comprehensive presentation to the nominating and governance committee regarding the governance and compliance risks that are impacting or that could potentially impact our business. Included in this presentation is an overview and analysis of our Foreign Corrupt Practices Act (“FCPA”) compliance program, a review of our insurance policies, and a discussion of enforcement trends relevant to our company. In addition to this annual update, management also provides periodic updates throughout the year as issues arise. Furthermore, the nominating and governance committee evaluates the board leadership and overall composition of the board.

 

Our audit committee, with input from our internal audit group and our finance and accounting personnel, oversees the financial reporting and Sarbanes-Oxley compliance processes. Additionally, the committee monitors

compliance in the human resources area through the internal audit group’s activities. The committee also meets periodically with management to discuss our major financial risk exposures and the steps management has taken to monitor and control those exposures.

 

Our compensation committee assesses risks arising out of the company’s compensation program. As discussed in Compensation Discussion and Analysis below, the compensation committee establishes and monitors our compensation program in order to incentivize and motivate our officers and employees, while taking into account potential risks associated with such compensation program.

 

Our board, with input from management, also assesses and oversees our operational risks. The board receives detailed reports on Health, Safety and Environmental (“HSE”) issues at each board meeting from senior operations and HSE managers. In addition, the board receives detailed reports on operational issues at each board meeting from senior operations personnel and receives and reviews detailed contract status and marketing reports at each board meeting from senior marketing personnel. We have a Vice President of Risk who reports directly to our General Counsel. These individuals manage and monitor our claims and litigation and provide periodic reports to the board. Included in these updates are annual presentations about our insurance packages and management’s discussions with our underwriters. Given the dynamic nature of the insurance market in our industry, the board plays an active role in evaluating the adequacy of our insurance packages in managing our operational risks.

 

Our board also assesses transactional and capital structure risks. The board receives periodic updates from management on our capital structure and compliance with debt covenants. Additionally, the board considers the risks associated with merger and acquisition and capital markets transactions that are contemplated in the execution of the strategy of the company.

 

Each of the committees communicates directly with our management team to implement the company’s risk management objectives. At the regularly scheduled committee meetings, management provides feedback on the achievement of these objectives and receives input from the respective committees regarding future actions. Management also keeps the full board apprised of any significant risks that the company is encountering or expects to encounter as such risks arise.

 

The committees report their respective assessments of risks to the full board of directors. We believe our board and committee structure, and the communication among the committees and between the board and our management team, allows the board to effectively oversee the management of our risks by our officers.

 

 

Corporate Governance Guidelines.  The board of directors has established Corporate Governance Guidelines to assist the board in the exercise of its responsibilities under applicable law. The guidelines provide a framework for the governance of our company and the board, covering such matters as determining director independence; director orientation and continuing education; director responsibilities; director access to officers, management and advisors; annual evaluations of the board; and other corporate governance practices and principles. The guidelines are available on our website at www.herculesoffshore.com under the “Corporate Governance” section. In addition, the guidelines, as well as the charters of the audit committee, the compensation committee, the nominating and governance committee and the special governance committee, and our Code of Business Conduct and Ethics, are available in print to any investor requesting a copy. Requests should be directed to our Investor Relations Department.

 

Code of Business Conduct and Ethics.  All of our directors and employees must act ethically at all times and in accordance with the policies comprising our Code of Business Conduct and Ethics. The code is a reaffirmation that we expect all directors and employees to uphold our standards of honesty, integrity, ethical behavior and compliance with the law, and to avoid actual or apparent conflicts of interest between their personal and professional affairs. Directors and employees are obligated to promptly report any good faith concerns or problems or any actual or suspected violations of the code. The code sets forth the procedures for the confidential and anonymous reporting of a violation of the code. We prohibit any form of retaliation against any employee for reporting, in good faith, suspected violations of the code. The code also sets forth procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters, and to allow for

the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. In the event of any change or waiver, including an implicit waiver, of the code granted by us to one of our executive officers or directors, we will make disclosure of such waiver available on our website at www.herculesoffshore.com.  The code is available on our website at www.herculesoffshore.com, as described above.

 

Policy Regarding the Granting of Equity-Based Compensation Awards.  We make equity grants to our employees and directors in accordance with our Policy Regarding the Granting of Equity-Based Compensation Awards. This policy establishes guidelines and procedures for the granting of equity compensation. The policy is intended to ensure that we comply with applicable laws and regulations as well as leading governance practices with respect to the granting of equity compensation. The policy is available on our website at www.herculesoffshore.com under the “Corporate Governance” section.

 

Clawback Policy.  In February 2009, our board adopted a clawback policy applicable to our executive officers and directors. The clawback policy provides that, in the event that an executive officer or director of ours, while employed by us, is found to have engaged in fraud or misconduct that resulted in a material restatement of our financial statements or caused us to violate in any material respect the United States securities laws and regulations or the FCPA, we shall have the right to (i) reimbursement of any bonus or retainer previously paid to such executive officer or director, (ii) forfeit or cancel any unvested equity compensation award and the reimbursement of the fair market value of any vested equity compensation award, and (iii) reimbursement of any gains or profits realized from the exercise of stock options or from any other disposition of securities attributable to an award of equity compensation, in each case awarded to, paid to or realized by the executive officer or director, or vested, within the two-year period prior to such restatement or violation. In addition, the board may terminate the employment of such executive officer or demand the resignation of such director and take any other lawful actions as it deems appropriate to enforce the executive officers’ and directors’ obligations to us.

 

Executive Sessions.  The independent directors meet regularly in executive session without management participation before each regular non-telephonic board meeting. Currently, the director who presides at these meetings is the Chairman of the Board. If the Chairman ceases to be independent, then the presiding director will be chosen by a vote of the independent directors.

 

Communication with the Independent Directors.  Stockholders and other interested parties may make their concerns known confidentially to the independent directors by submitting a communication in an envelope marked “Confidential” addressed to the “Board of Directors,” a specifically named independent director or the “Independent Directors” as a group, in care of our corporate secretary. All such communications will be conveyed, as applicable, to the full board of directors, the specified independent director or the independent directors as a group.

 

 

We have presented below information about our executive officers as of March 15, 2010. Officers are appointed annually by the board of directors and serve until their successors are chosen or until their resignation or removal.

 

 

 

James W. Noe has served as Senior Vice President, General Counsel and Chief Compliance Officer since April 2007 (and as Secretary until February 2010) and as Chief Executive Officer and President of our Delta Towing division since December 2008. From October 2005 to April 2007, Mr. Noe served as Vice President, General Counsel, Chief Compliance Officer and Secretary of Hercules Offshore. From July 2002 to October 2005, Mr. Noe was Corporate Counsel for BJ Services Company, a worldwide oilfield services company. He was in private legal practice from October 1997 to July 2002.

 

Lisa W. Rodriguez became Senior Vice President and Chief Financial Officer in March 2007. Ms. Rodriguez served as chief financial officer on an interim basis from January 2007 to March 2007. Prior to joining Hercules Offshore, Ms. Rodriguez was Senior Vice President and Chief Financial Officer of Weatherford International Ltd. from June 2002 to November 2006. Ms. Rodriguez joined Weatherford in 1996 and served in several positions, including Vice President — Accounting and Finance from February 2001 to June 2002 and Vice President — Accounting from June 2000 to February 2001.

 

Stephen M. Butz was appointed Vice President, Finance and Treasurer of Hercules Offshore in October 2006. He joined the company in February 2005 as the Director of Corporate Development. During 2004, Mr. Butz served as a consultant to Noble Corporation. From 1996-2004, he worked in the investment banking industry as an equity research analyst at Deutsche Bank and Jefferies & Company. Before joining Jefferies & Company, Mr. Butz held positions in corporate lending.

 

Terrell L. Carr joined Hercules Drilling Company, LLC as Vice President of Operations in January 2007. He is now Hercules Offshore’s Vice President of Worldwide Operations (Drilling) and is responsible for Hercules Offshore’s day-to-day drilling operations. From 2006 to January 2007, Mr. Carr served as Manager, Operations for the Asia Pacific Region of ENSCO International Incorporated and from 2001-2006, he served as a Rig Manager and Country Manager in various international locations for Ensco International Incorporated. Prior to joining ENSCO, from 1982 to 2001, Mr. Carr was employed by Reading & Bates Corporation (later R&B Falcon Corporation) in various key international operations and marketing roles.

 

Troy L. Carson was named Vice President and Corporate Controller of the company in March 2007 and was named Principal Accounting Officer in July 2008. Previously, Mr. Carson served in a variety of roles, including as the Assistant Corporate Controller, at Weatherford International Ltd., an international oilfield services company, from June 2002 to March 2007. In addition, he was a member of the Commercial Assurance Practice of Arthur Andersen LLP from 1997 to 2002.

 

Todd A. Pellegrin was appointed Vice President of Worldwide Liftboat Operations in December 2008. From June 2008 to December 2008, Mr. Pellegrin served as Vice President of International Liftboats. From July 2007 to June 2008, Mr. Pellegrin served as the Managing Director for the West Africa Region. Prior to this appointment, Mr. Pellegrin held the position of Managing Director of Hercules Offshore Nigeria from March 2006 to July 2007. Mr. Pellegrin was the Managing Director of Danos & Curole Nigeria, Ltd. from January 2004 to February 2006. From August 1998 to December 2003, he served in several capacities for Danos & Curole, including International Business Development Representative. From February 1997 to July 1998, he was the Chief Executive Officer of South Central Planning & Development Commission in Louisiana.

 

Don P. Rodney has served as President of Hercules International Holdings Ltd. since December 2005 and President of Hercules Oilfield Services Ltd. since September 2006. From July 2004 to December 2005, Mr. Rodney served as Vice President, Finance of Hercules Drilling Company, LLC. From October 2003 to June 2004, Mr. Rodney was Chief Financial Officer of Hercules Offshore Corporation, which is not related to our company. 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 October 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.

 

The following table sets forth information as of March 15, 2010 with respect to the beneficial ownership of our common stock by (1) each stockholder who is known to us to be a beneficial owner of more than 5% of our common stock, (2) our directors and director nominees and the persons named in the “Summary Compensation Table” below, and (3) all current executive officers and directors 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.

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and beneficial owners of more than ten percent (10%) of any class of equity securities to file initial reports of ownership and reports of changes in ownership of our common stock with the SEC and, pursuant to rules promulgated under Section 16(a), such individuals are required to furnish us with copies of Section 16(a) reports they file. Based solely on a review of the copies of such reports furnished to us during the year ended December 31, 2009 and written representations from our officers and directors, all Section 16(a) reports applicable to our officers and directors and any beneficial owners of ten percent (10%) or more of a class of equity securities were filed on a timely basis, except for the filing of a Form 5 on behalf of Mr. Pellegrin in February 2010.

 

Overview of Compensation Program

 

The compensation committee of the board of directors (the “committee”) has responsibility for establishing, implementing and monitoring adherence to our compensation philosophy. The committee seeks to provide total compensation paid to our executive officers that is fair, reasonable and competitive and that rewards our executive officers for furthering our strategic objectives of being a leading shallow water services provider and expanding our international presence. Generally, the types of compensation and benefits we provide to our executive officers are similar to those provided to executive officers of our peer companies, which are identified later in this compensation discussion and analysis.

 

In this compensation discussion and analysis, our executive officers named in the Summary Compensation Table below are referred to as the named executive officers.

 

Compensation Philosophy and Objectives

 

The committee believes that the most effective executive compensation program is one that attracts, retains and motivates executives to achieve specific annual, long-term and strategic goals of our company, with a view toward aligning executives’ interest with those of the stockholders. It is the objective of our compensation program to enhance stockholder value by attracting and retaining executives who show exceptional leadership abilities needed by a dynamic international company. The committee evaluates individual and company performance and competitive conditions in determining compensation in an effort to retain highly qualified employees in key

positions. To that end, the committee believes the executive compensation packages we provide to our executives, including the named executive officers, should include base salary, annual incentive compensation that rewards performance as measured against established goals, and longer-term incentive compensation. The committee believes the form of compensation should include both cash and stock-based compensation.

 

Role of Executive Officers in Compensation Decisions

 

Each of our Chief Executive Officer and President, our Senior Vice President, Chief Financial Officer, and our Senior Vice President, General Counsel and Chief Compliance Officer plays a role in our compensation process. On an annual basis, our Chief Executive Officer and President reviews the performance of each of the other named executive officers and, based on this review, makes recommendations to the committee with respect to the compensation of the named executive officers. The Chief Executive Officer and President considers internal pay equity issues, individual performance and company performance in making his recommendations to the committee. The Senior Vice President, Chief Financial Officer and the Senior Vice President, General Counsel and Chief Compliance Officer provide general administrative support for the committee, such as providing legal and market updates and advice to the committee and overseeing the documentation of equity plans and awards as approved by the committee.

 

Establishing Executive Compensation

 

Consistent with our compensation objectives, the committee has structured our annual and long-term incentive-based executive compensation to encourage executives to achieve our strategic goals and reward our executives for achieving these goals. To assist it in structuring our compensation program in 2009, the committee engaged Frederic W. Cook & Co., Inc. (“F.W. Cook”), an outside compensation consulting firm, to conduct an annual review of our total compensation program for our key employees, including the named executive officers. F.W. Cook provided the committee with relevant market data and alternatives to consider when making decisions with respect to the Chief Executive Officer’s compensation and his recommendations with respect to the compensation of the other named executive officers. Our management did not engage F.W. Cook in any other capacity for 2009 and does not direct or oversee the retention or activities of F.W. Cook with respect to our executive compensation program. The committee has retained the services of F.W. Cook for 2010.

 

In making compensation decisions, the committee compares each element of total compensation against a peer group of publicly traded offshore drilling and oilfield service companies. Peer group information is considered by the committee in its business judgment and is not applied according to any formula in making compensation decisions. The committee periodically reviews and adjusts the composition of the peer group. In August 2009, with F.W. Cook’s assistance and input from senior management, the committee revised our peer group to include companies that compete with us in our business and better match our revenue, net income, market capitalization, and number of employees. Changes to our peer group also reflect the elimination of companies that have been acquired and the addition of a newly formed company. The current peer group consists of companies against which the committee believes we compete for talent, business and stockholder investment. The companies that the committee selected to comprise our peer group were:

 

 

In addition, the committee also determined it would be useful for informational purposes to review general compensation information of ENSCO International Incorporated and Pride International, Inc.

 

The committee targets total direct compensation for named executive officers, which includes base salary, annual cash incentives and long-term equity incentives, valued at the grant date, at the median of total compensation paid to similarly situated executives within the peer group. The committee also targets total cash compensation, which includes base salary and annual cash incentives received in 2009, at the median of total cash compensation

paid to similarly situated executives within the peer group. Significant variations from this range of compensation may occur based on the experience level of the individual, individual and company performance, the individual’s responsibilities and the individual’s total compensation relative to other executives. Variations from this range may also result because certain executive officers may have a more expansive role in executing the management of our company compared to similarly situated executives in the peer group. The committee’s compensation objectives reflect the committee’s expectation that, over the long term, we will generate growth and stockholder returns in excess of the average of the peer group.

 

A significant percentage of total compensation is allocated to annual and long-term incentives and therefore is at risk. There is no pre-established policy or target for the allocation between either cash and noncash or short-term and long-term incentive compensation. Rather, the committee reviews market data that is gathered from public filings of members of our peer group and, in 2009, market data that was provided by its outside compensation consultant, prior pay history and individual and company performance, and makes a subjective determination about the appropriate level and mix of incentive compensation. Income from such incentive compensation is realized as a result of the performance of our company and the individual, depending on the type of award, compared to established goals.

 

The committee reviews compensation matters throughout the year. For example, in the first quarter of 2009, the committee approved 2008 bonuses and approved equity awards to our executive officers. Additionally, in February 2009, the committee approved a retention plan for certain of the named executive officers which was paid in the first quarter of 2010. In the first quarter of 2009, the committee reviewed base salaries and target bonus levels for executive officers whose positions or responsibilities changed during the prior year. Additionally, in response to the economic conditions, the committee implemented a base pay reduction in the second quarter of 2009 for certain executive officers and reduced and subsequently eliminated the 401(k) company match. At the regularly scheduled meeting in the third quarter of 2009, F.W. Cook presented the results of an executive compensation study covering trends in compensation as well as the regulatory environment regarding executive compensation. In the fourth quarter of 2009, the committee further discussed the compensation information provided by F.W. Cook, reviewed the progress made to date against the bonus targets for the second half of 2009, confirmed the structure of the 2010 cash incentive plan, and reviewed the succession plans for our executive officers.

 

2009 Executive Compensation Components

 

For 2009, the principal components of compensation for named executive officers were:

 

 

Base Salary

 

The committee believes base salary is a critical element of executive compensation because it provides executives with a base level of monthly income. The committee determines the base salary of each named executive officer based on his or her position and responsibility. During its review of base salaries for executives, the committee primarily considers:

 

 

 

The committee typically considers base salary levels annually as part of its review of the performance of our named executive officers and from time to time upon a promotion or other change in job responsibilities. In light of the industry downturn and company financial conditions, the committee approved a ten percent reduction in the base salary for each of John T. Rynd, Chief Executive Officer and President, Lisa W. Rodriguez, Senior Vice President and Chief Financial Officer, James W. Noe, Senior Vice President, General Counsel and Chief Compliance Officer, Terrell L. Carr, Vice President, Worldwide Operations (Drilling), and Todd A. Pellegrin, Vice President, Worldwide Liftboat Operations. These salary reductions were made at the request of each of Mr. Rynd, Ms. Rodriguez, Mr. Noe, Mr. Carr, and Mr. Pellegrin and took effect on May 1, 2009.

 

The following table reflects these salary reductions for our named executive officers:

 

 

The committee reviewed the base salaries of our named executive officers in the first quarter of 2010 and decided to maintain the salaries at their current levels without any increase, given the current economic environment and performance of the company.

 

Incentive and Retention Compensation

 

Cash Program

 

The Hercules Offshore Incentive Compensation Program, referred to in this proxy statement as the “HERO Plan,” is an annual cash incentive program the committee approved for use beginning in 2006. The HERO Plan provides guidelines for the calculation of annual non-equity incentive-based compensation, subject to committee oversight. The committee, in its discretion, from time to time may modify certain elements of the guidelines in order to account for special events, such as acquisitions made by the company, or to more closely align the guidelines with the strategic objectives of the company. At the end of 2008, the committee established a target range of eligibility for potential payouts for the named executive officers. The various incentive levels are based on competitive information and the participant’s responsibility for and impact on our results, with threshold, target and maximum award opportunities established as a percentage of base salary.

 

In December 2008, the committee determined the components of the HERO Plan for 2009. Depending upon the role of the participant in the company, the components included income excluding the results from our discontinued operation (“Net Income”), Free Cash Flow (as described below), divisional earnings adding back interest and taxes (“EBIT”), maintenance capital expenditures, safety goals, and personal goals. The committee set annual performance objectives for the safety and personal goals components. For all other components, which are financial in nature, the committee set objectives for the six months ended June 30, 2009. In June 2009, the committee established the objectives for the financial components for the six months ended December 31, 2009.

 

Certain components of the objectives have threshold, target and maximum, or stretch, objectives. The named executive officers participating in the HERO Plan receive payment of a percentage of his or her salary based on the

achievement of the objectives. Each component is weighted with the total potential threshold, target and maximum award opportunities as a percent of salary for the named executive officers set forth below:

 

 

 

 

For 2009, the named executive officers’ HERO Plan awards, excluding Messrs. Carr and Pellegrin, were based upon achievement of corporate objectives relating to Net Income, Free Cash Flow and personal goals, with the components accounting for 30%, 30% and 40%, respectively. Free Cash Flow is calculated as cash flow from operations less maintenance capital and drydock expenditures. The 2009 HERO Plan award for Mr. Carr was based upon achievement of Net Income, drilling division financial objectives relating to EBIT, as adjusted, maintenance capital expenditures, safety goals, and personal goals, with these components accounting for 5%, 40%, 25%, 15% and 15%, respectively. The 2009 HERO Plan award for Mr. Pellegrin was based on achievement of Net Income, liftboat division financial objectives relating to EBIT, maintenance capital and drydock expenditures, safety, and personal goals, with these components accounting for 5%, 40%, 25%, 15% and 15%, respectively.

 

The payout guidelines are as follows:

 

 

Upon completion of the fiscal year, the committee assesses performance for each objective of the HERO Plan comparing the actual results to the predetermined threshold, target and stretch levels for each objective, and a payment for each objective is calculated.

 

The following table shows the performance objectives, other than the safety goal and personal goals, and the actual 2009 results:

 

2009 HERO Plan Performance Objectives and Results

 

Corporate:

 

 

Drilling:

 

 

Liftboats:

 

 

The safety objective for Mr. Carr was to achieve a ten percent reduction from the December 31, 2008 drilling division Total Recordable Incident Rate, which is calculated as the total number of recordable incidents, multiplied

by 200,000, and then divided by the actual number of man hours worked (“TRIR”), as of December 31, 2009. As of December 31, 2009, the drilling division TRIR was 41 percent lower than the TRIR as of December 31, 2008, therefore the safety component was paid out at Target for Mr. Carr. The safety objective for Mr. Pellegrin was to achieve a ten percent reduction from the December 31, 2008 liftboat division TRIR as of December 31, 2009. As of December 31, 2009, the liftboat division TRIR was 46 percent lower than the TRIR as of December 31, 2008. Therefore, for the six month period ending June 30, 2009, the liftboat division’s safety component was paid out at Target, however, since the liftboat division’s EBIT was above stretch for the six month period ending December 31, 2009, the liftboat division’s safety component for this six month period was paid out at the same level as EBIT.

 

For the personal goals component, each executive set three to five goals to accomplish during the year which were approved by the committee. These personal goals primarily relate to various organizational, operational, administrative and other matters that are important to the functioning and efficiency of the executive’s area of responsibility or department or are important for the accomplishment of our long-term strategic objectives. Where the goals are not quantitative, the extent to which the executive (other than the Chief Executive Officer) accomplishes or exceeds the goals is determined subjectively by the Chief Executive Officer and reviewed with the compensation committee, and the extent to which the Chief Executive Officer accomplishes or exceeds the goals is determined subjectively by the compensation committee. These judgments are reflected in the amount of the executive’s bonus attributable to this metric.

 

The table below reflects the percentage of the personal goal component that each named executive officer achieved:

 

 

The named executive officers received the following payments, expressed as a percentage of base salary and in dollars, in March 2010 under the HERO Plan based on the 2009 performance objectives set forth above.

 

 

 

 

The table below sets forth the potential threshold, target and maximum awards that each of our named executive officers is eligible to receive in 2011 based on 2010 performance.

 

 

Retention Program

 

In February 2009, the committee established a cash-based program to retain key personnel. The objective of the plan was to retain key officers and other critical employees as the company faced economic challenges and financial uncertainty resulting from the global economic and drilling industry downturn. This retention program also ensured that we retained the necessary personnel to successfully manage the company through these challenging times. The following table sets forth the retention bonus that each of our named executive officers was eligible to receive, and was paid, on March 1, 2010.

 

 

2010 Executive Officer Cash Performance Incentive and Retention Plan

 

At its meeting in the first quarter of 2010, the compensation committee approved a cash performance incentive and retention plan (the “Cash Performance Incentive and Retention Plan”) amount payable to each of the named executive officers. The Cash Performance Incentive and Retention Plan is based upon a target cash payout (the “Target Cash Payout”) for each named executive officer and upon the achievement of certain financial objectives to be established by the compensation committee of the company in each of fiscal years 2010 and 2011. Each of the executive officers is guaranteed to receive 50% of his or her Target Cash Payout each year and can receive a maximum of 150% of his or her Target Cash Payout each year based upon the extent to which the company achieves the budgeted financial objectives. The Target Cash Payouts for the executive officers for 2011 and 2012 are as follows:

 

 

Equity-Based Program

 

Our Amended and Restated Hercules Offshore 2004 Long-Term Incentive Plan, referred to in this proxy statement as the “LTIP,” encourages participants to focus on our long-term performance and provides an opportunity for executive officers and certain designated key employees to increase their stake in our company through

grants of restricted common stock and stock options. For this purpose, the committee valued stock options by using the Binomial Lattice Option Pricing Model. By using a mix of stock options and restricted stock grants, we are able to compensate our executive officers for sustained increases in our stock performance as well as long-term growth.

 

In 2009, option grants to executives comprised 100% of the total value of long-term incentives to emphasize long-term growth and align the performance of our executive officers with the interests of our shareholders.

 

The LTIP was designed prior to our initial public offering in November 2005 with an initial goal of attracting high-caliber executives to join a start-up company and take it public. Beginning with 2007 awards, the committee reviewed compensation data prepared by our outside compensation consultant from published proxies and other publicly available information related to long-term incentive levels in place for competitors and members of the peer group of companies identified by the committee. The committee recognized that even though various accepted models for valuing long-term incentive awards must be relied on for making assumptions, predictions and accounting treatments, restricted stock and especially stock options have uncertain values both at the time of award and over the life of the award. Therefore, the committee recognized there may be years when awards appear to lead the competition, but there may also be years when the awards lag relative to the competition. With this variability in mind, and the fact that we have been public since only November 2005, the committee used its discretion and made subjective judgments in determining the level of long-term incentive awards to the named executive officers.

 

In total, we currently have approximately 462 key employees, including the named executive officers, and nonemployee directors who have received awards under the LTIP.

 

Under the LTIP, the committee may grant participants stock options, restricted stock, performance stock awards and other stock-based awards. In granting these awards, the committee may establish any conditions or restrictions it deems appropriate within the limits of the plan. Awards of restricted stock or stock options issued to our named executive officers to date under the LTIP vest within three years after the date of the grant. Awards to officers subject to Section 16(b) of the Securities Exchange Act of 1934, including the named executive officers, require the approval of the committee.

 

The exercise price of stock options granted prior to 2008 equals the average of the high and low trading price of our common stock on the NASDAQ Global Select Market on the date of grant. For option grants made in 2008 and going forward, the committee determined that the exercise price of stock options will equal the closing price of our common stock on the date of grant. This change was made because it is a more standard method of determining the exercise price and provides greater transparency to the determination of the price. The committee reviewed awards to each named executive officer under the LTIP in detail prior to its regularly scheduled meeting in the first quarter of the past year. On occasion the committee approves awards for newly hired employees, newly promoted employees, or other key employees during other times of the year. The committee may also delegate its authority to approve awards of stock options or restricted stock to a committee consisting of one director in order to effectuate awards to newly hired employees or to existing employees for promotion and retention purposes. Awards granted by this committee of one are limited to only new hire, promotion, and retention awards and such awards are reported to the committee at each of its meetings. Grants of stock options and restricted stock to eligible newly hired executive officers and newly elected directors are reviewed at the next regularly scheduled committee meeting following their hire date or election.

 

All of the options granted by the committee vest one-third per year on each of the first three anniversaries of the grant date and have a ten year term. All of the shares of restricted stock granted by the committee to our named executive officers have a three-year cliff vesting schedule (i.e., the restricted stock vests 100% on the third anniversary of the grant date), except for the 2008 restricted stock grants to Mr. Pellegrin and the February 2007 restricted stock grant to Mr. Carr, each of which vest one-third per year for three years.

At its meeting in the first quarter of 2010, the committee approved annual equity awards to its named executive officers for 2010, which consisted solely of options to purchase shares of our common stock. The table below sets forth the option awards made by the committee to the named executive officers:

 

 

All of these stock options have an exercise price equal to the closing price of our common stock on the NASDAQ Global Select Market on the grant date, February 24, 2010, and vest according to a 3-year vesting schedule on an annual pro rata basis on each of the first three anniversaries of the grant date.

 

Retirement, Perquisites and Other Personal Benefits

 

401(k) Plan

 

All eligible employees, including the named executive officers, may participate in our 401(k) plan. The plan is a tax-qualified, defined contribution retirement plan, which is designed to assist participants with saving for retirement. Eligible employees, including the named executive officers, are allowed to direct pre-tax contributions (up to an annual limit prescribed each year by the Internal Revenue Service) to the plan from their compensation. During 2007, we matched 100% of the first 3% of pay that was contributed to the plan and 50% of the next 2% of pay contributed. Beginning January 1, 2008, we made matching contributions equal to the amount of each employee’s contribution, up to a maximum of 6% of compensation each pay period. Effective as of April 1, 2009, we reduced the matching contributions to equal the amount of each employee’s contribution, up to a maximum of 3% of compensation each pay period. Subsequently, effective as of August 1, 2009, we eliminated the matching contribution for an indefinite period of time. All employee contributions to the plan, as well as our matching contributions, are fully vested from the time of contribution.

 

Deferred Compensation Plan

 

The named executive officers, in addition to other executives and certain other key employees, are entitled to participate in our deferred compensation plan. Participating employees can defer up to 80% of their base salary and 100% of any annual bonus paid from the HERO Plan. Participants are also eligible for discretionary contributions that we may choose to make under this plan. Discretionary contributions could be made in particular circumstances where, for example, a participant’s deferrals under the deferred compensation plan adversely affected the matching contributions under the 401(k) plan for that employee. In addition, a discretionary contribution could be made if a participant’s “compensation” for purposes of computing matching contributions under the 401(k) plan were to exceed the Internal Revenue Service limit on the amount of “compensation” that is eligible for match under the 401(k) plan. The purpose of the deferred compensation plan is to provide the participants with the ability to defer federal income taxation on a portion of their compensation. Please see “— Tax Matters” below for additional information about tax considerations related to deferred compensation.

 

Perquisites and Other Personal Benefits

 

We provide named executive officers with perquisites and other personal benefits that we and the committee believe are reasonable and consistent with the overall compensation program to better enable us to attract and retain superior employees for key positions. The committee compared the levels of limited perquisites and other personal benefits provided to named executive officers in 2009 with those common among the peer group, and determined to continue that level of perquisites and other personal benefits in 2010.

 

Each of the named executive officers is eligible for reimbursement for financial planning assistance (up to $5,000 per year) and an annual health physical, and certain of our executive officers are eligible for club

memberships, limited to one social club membership and one country club membership. We also provide additional life insurance and disability benefits as follows:

 

 

Employment Agreements

 

We have entered into executive employment agreements with each of the named executive officers. For additional information about these agreements and the payments that may be made under these agreements in the event of a termination or change in control, please read “— Summary Compensation Table,” “— Potential Payments Upon Termination or Change of Control” and “— Employment Agreements” below.

 

Compensation as Compared to the Peer Group

 

The committee compares the base compensation, actual cash compensation and total actual compensation to the peer group for all of our named executive officers, except for Mr. Pellegrin for whom there is no comparable data within our peer group. The current base salary of $630,000 for our Chief Executive Officer is slightly above the median of the peer group. The base salaries of Ms. Rodriguez and Mr. Noe are slightly above the 75th percentile of our peer group. The base salary of Mr. Carr is below the median of our peer group. For 2009, actual cash compensation was below the median for all of our named executive officers for whom we have comparable data available. Also, for 2009, total direct compensation was below the median for all of our named executive officers for whom we have comparable data available among our peer group.

 

Equity Ownership Guidelines

 

In order to align further the interests of our management and our stockholders and further promote our commitment to sound corporate governance, we have established the following equity ownership guidelines applicable to executive officers:

 

 

Executive officers are expected to attain these minimum levels of stock ownership by January 1, 2012, for executives employed on January 1, 2007, and, for any executive officer appointed after January 1, 2007, on the fifth January 1 that occurs at least one year following the date of appointment. Until an executive officer achieves the ownership guidelines, the executive officer is required to retain at least 50% of the net shares received under the LTIP. Net shares refer to the number of shares received after shares are sold or netted to pay the applicable exercise price and/or applicable taxes.

 

In addition to common stock owned, the value of shares of restricted stock granted under the LTIP is included in the calculation. For this purpose, common stock and restricted stock are valued based on the average daily closing price of our common stock during 2009, which was $4.12.

As of January 1, 2010, none of our named executive officers exceed the equity ownership guidelines described above, as set forth in the following table:

 

 

We have also established equity ownership guidelines for our directors. The guidelines provide that each of our outside directors is expected to own equity in the company valued at three times their annual retainer, by March 24, 2011, or within three (3) years from the date that such outside director joins our board.

 

Tax Matters

 

Deductibility of Executive Compensation

 

As part of its role, the committee gives some consideration to the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that we may not deduct certain compensation in excess of $1,000,000 that is paid to certain individuals. The committee may approve compensation that will be subject to and in excess of the deduction limitations under Section 162(m) of the Internal Revenue Code to ensure competitive levels of total compensation for executive officers.

 

Non-Qualified Deferred Compensation

 

To the extent one or more elements of compensation provided to our employees are subject to Section 409A of the Internal Revenue Code, we intend that those elements comply with the necessary requirements so that the employees will not be subject to increased income taxes, penalty and interest. Section 409A was added to the Internal Revenue Code by the American Jobs Creation Act of 2004 and requires that certain elements of “deferred compensation” comply with specific deferral and payment rules to avoid the imposition on the employee of an additional 20% income tax and, in some circumstances, penalties and interest. We believe that, if the adverse tax consequences of Section 409A become applicable to elements of our compensation arrangements, such arrangements would be less efficient and less effective in incentivizing and retaining our employees. Therefore, to the extent reasonably practical, we intend to operate our compensation arrangements and to amend or modify our programs and awards as necessary to make them compliant with Section 409A.

 

The Compensation Committee has reviewed and discussed with our management the Compensation Discussion and Analysis included in this proxy statement. Based on that review and discussion, the Compensation Committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION COMMITTEE

 

Thomas M Hamilton, Chairman
F. Gardner Parker
Thierry Pilenko

 

March 26, 2010

 

Summary Compensation Table

 

The table below summarizes the total compensation paid or earned for the years ended December 31, 2009, 2008 and 2007 by our Chief Executive Officer, our Chief Financial Officer, and the three next most highly compensated executive officers for 2009. We have entered into employment agreements with all of the named executive officers currently employed by our company.

 

 

 

 

 

 

 

The table below reports all grants of plan-based awards made during 2009.

 

 

 

 

 

 

 

None of the named executive officers exercised stock options and four grants of restricted stock vested during 2009 as follows:

 

 

 

 

In January 2007, we implemented the Hercules Offshore, Inc. Deferred Compensation Plan, effective as of January 1, 2007. The plan was approved by our board of directors. Directors and, subject to the discretion of a committee appointed by the board of directors to administer the plan, certain management and other highly compensated employees of our company, including our Chief Executive Officer and our Chief Financial Officer, are eligible to participate in the plan. Participants may elect to defer, on a pre-tax basis, up to 80% of base salary and up to 100% of any director fees, bonus or compensation under the LTIP. All deferrals are credited to a deferred compensation account. We may make contributions to a participant’s deferred compensation account (1) to restore any 401(k) matching contribution the participant may forego because of compensation deferred into the plan and (2) at the discretion of the board of directors, to recognize a participant’s service to our company. Participants are fully vested in their deferrals at all times; however, contributions by us to a participant’s deferred compensation account may be subject to vesting requirements. Compensation deferred under the plan earns interest based on the performance of measurement funds selected by the participant.

 

Under certain circumstances, including in connection with a change in control of our company, distributions of amounts deferred under the plan may accelerate. We may terminate the plan at any time. An optional termination of the plan by us will not result in a distribution acceleration except as permitted by the Internal Revenue Code and related Treasury guidance in connection with a change in control.

 

The plan is administered by the compensation committee. Following a change in control, the members of the committee in place immediately prior to the change in control may appoint an independent third party to administer the plan.

 

In connection with the adoption of the plan, we adopted a trust agreement with JPMorgan Chase Bank, N.A. as the trustee. We currently deposit amounts to the trust under the trust agreement as such amounts are deferred by participants or contributed by us. The trust is a “rabbi trust,” meaning that the funds held by the trustee remain subject to the claims of our general creditors in the event of our insolvency.

 

 

 

 

The tables below reflect the amount of compensation that would be payable to each of our named executive officers in the event of termination of the executive’s employment without cause, termination by the executive for “good reason” and termination in the event of disability or death of the executive, and in the event of a termination following a change of control. The amounts shown in the table assume that the termination was effective as of December 31, 2009, and thus include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out and the value of shares of common stock can be determined only at the time of the executive’s separation from our company.

 

Payment or Benefit Upon Change of Control