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In re Trico Marine Services

February 21, 2008


The opinion of the court was delivered by: Denise Cote, District Judge


Appellants Steven Salsberg ("Mr. Salsberg") and his mother Gloria Salsberg ("Ms. Salsberg") (collectively, the "Salsbergs" or the "appellants") appeal from the judgment entered in this adversary proceeding by the United States Bankruptcy Court for the Southern District of New York (Bernstein, C.J.). They also appeal from the bankruptcy court's denial of their motion to amend their pleadings. For the following reasons, the decisions of the bankruptcy court are affirmed.


I. Trico's Bankruptcy

These facts are not in dispute, and are drawn from the decisions of the bankruptcy court. See In re Trico Marine Servs., Inc., 374 B.R. 529 (Bankr. S.D.N.Y. 2007) ("Trico IV"); In re Trico Marine Servs., Inc., 360 B.R. 53 (Bankr. S.D.N.Y. 2006) ("Trico III"); In re Trico Marine Servs., Inc., 343 B.R. 68 (Bankr. S.D.N.Y. 2006) ("Trico II"); In re Trico Marine Servs., Inc., 337 B.R. 811 (Bankr. S.D.N.Y. 2006) ("Trico I"). In 2001, Trico Marine Services, Inc., a business providing marine support services to the oil and gas industry, began experiencing a precipitous decline in its operating results. (Trico Marine Services, Inc. and its domestic subsidiaries, Trico Marine Assets, Inc. and Trico Marine Operators, Inc., will be referred to collectively as "Trico"). Trico began negotiating a pre-petition bankruptcy plan with a group of its debtors in June 2004. The parties reached agreement in September 2004 on a plan that proposed to cancel Trico's existing common stock and to distribute new common stock to certain debtors in satisfaction of their claims. Holders of the old, cancelled common stock would receive warrants exercisable at times and prices set forth in the proposal.

Trico filed a disclosure statement outlining the plan with the Securities and Exchange Commission on November 12, 2004. Exhibit C to the disclosure statement included Trico's financial projections for revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) from 2004 through 2009. Trico projected total revenue of $103.7 million and EBITDA of $13.6 million for 2004. These projections were based on Trico's actual financial results through September 30, 2004, and the projected results for the fourth quarter.

Trico commenced prepackaged bankruptcy proceedings on December 21, 2004. At the time, its estimated total pre-restructuring indebtedness was nearly $400 million, and its interest expense for 2004 was estimated to be $32.4 million. Approximately $250 million of Trico's indebtedness was attributable to its Senior Notes; an additional $28.4 million was attributable to interest on those Notes. The prepackaged plan presented to the bankruptcy court would eliminate the entire Senior Note debt. As The Honorable Stuart M. Bernstein observed, "[a]bsent confirmation, the projected 2004 EBITDA would fall approximately $19 million short of the amount needed just to pay the 2004 interest expense due on the Senior Notes."

Trico IV, 374 B.R. at 533. Mr. Salsberg, a Trico shareholder, filed an objection to the plan on January 10, 2005.

II. Plan Confirmation

A hearing was held on January 19 to address the disclosure statement, the plan, and Mr. Salsberg's objection. Trico's sole witness, Richard NeJame, a director in the restructuring advisory group at Lazard Freres, was qualified to testify as an expert in the fields of valuation and restructuring. NeJame described his extensive due diligence of Trico, and opined that Trico was insolvent. Absent the restructuring, NeJame testified, Trico's shareholders would receive nothing. Were the restructuring approved, the Senior Noteholders would receive between thirty-five and forty-five percent of what they were owed.

Mr. Salsberg cross-examined NeJame, who testified that his valuations of Trico were based on information available to him in October 2004. He had not updated his estimates based on subsequent data, and he did not know Trico's fourth quarter results. Under questioning from Mr. Salsberg concerning the potential effects of any misstatements contained in Trico's revenue projections, NeJame averred that, because a large component of Trico's operating costs were fixed, between seventy and eighty percent of any additional revenue would go "straight down to EBITDA." That is, NeJame clarified, any error in revenue projection would "make a big difference in the EBITDA bottom line." NeJame emphasized, however, that his valuation of Trico assumed a quadrupling in EBITDA from 2004 to 2008.

Mr. Salsberg called as his sole witness Trevor Turbidy, Trico's chief financial officer. Because the instant action turns entirely on Turbidy's testimony, it is quoted at some length. The direct examination began as follows:

Q: Good afternoon. Do you know what the fourth quarter revenues are for Trico?

A: We have not finished our fourth quarter consolidation yet. So, no, I don't have an estimate for that number.

Q: Do you have a preliminary estimate?

A: I wouldn't be allowed to disclose that under

FD at this point.

According to Chief Judge Bernstein, Turbidy's reference to FD was to SEC Regulation FD, 17 C.F.R. § 243.100 et seq., which prohibits certain disclosures of material non-public information regarding an issuer or its securities. At this point in the examination, counsel for Trico objected, reiterating Turbidy's FD concern and questioning the relevance of Mr. Salsberg's examination. The bankruptcy court engaged the parties in a brief colloquy concerning the objections. The colloquy, in pertinent part, went as follows:

TRICO COUNSEL: I think the issue that we have here as Mr. Turbidy has testified is that he doesn't have the actual and with regard to preliminary I'm just not quite sure why that's probative when at this point [in] time there could be a number of variables that would not be included in a preliminary est[im]ate. So the point is given the risk of inadvertent FD and the fact that it's very preliminary just doesn't really serve any probative value.

THE COURT: What's the probative value of a preliminary estimate when the --- what's the probative value of a preliminary estimate?

MR. SALSBERG: The probative value is that they're saying that revenue growth isn't that great and I think maybe it is and I'm trying to find out.

THE COURT: But you're talking about one more quarter since projections.

MR. SALSBERG: Well, they bottomed out in the first quarter of '04 and then since then they grew very, very handsomely in the second and third quarter compared to the first quarter of '04. If the fourth quarter of '04 is up that shows --- that shows that very positive things are happening and then --- and they said that their revenue is only going to increase 5 point something percent from '04 to '05. That may imply that their forecasts are far too conservative to be reasonable.

TRICO COUNSEL: Your Honor, if I could just address that point again. The plan here, the projections in the plan are based on ...

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