UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-33402

Trico Marine Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		72-1252405 (I.R.S. Employer Identification No.)
10001 Woodloch Forest Drive, Suite 610 The Woodlands, Texas (Address of principal executive offices)		77380 (Zip code)

Registrant’s telephone number, including area code: (281) 203-5700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No o

The number of shares of the registrant’s common stock, $0.01 par value per share, issued and outstanding at August 13, 2010 was 19,438,339

 

 

TRICO MARINE SERVICES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010

TABLE OF CONTENTS

			Page
Part I. Financial Information			1
Item 1. Financial Statements (Unaudited)			1
Condensed Consolidated Balance Sheets — June 30, 2010 and December 31, 2009			1
Condensed Consolidated Statements of Operations — Three and Six Months Ended June 30, 2010 and 2009			2
Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2010 and 2009			3
Notes to the Condensed Consolidated Financial Statements			4
Cautionary Statement Regarding Forward-Looking Statements			39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			58
Item 4. Controls and Procedures			58
Part II. Other Information			61
Item 1. Legal Proceedings			61
Item 1A. Risk Factors			61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			67
Item 3. Defaults Upon Senior Securities			67
Item 4. (Removed and Reserved)			67
Item 5. Other Information			67
Item 6. Exhibits			67
Signature			70
EX-10.9
EX-31.1
EX-31.2
EX-32.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

		June 30,				December 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	32,478			$	52,981
Restricted cash			7,258				3,630
Accounts receivable, net			99,155				98,600
Prepaid expenses and other current assets			45,621				18,761
Assets held for sale			248				15,223
Total current assets			184,760				189,195
Property and equipment:
Marine vessels			477,145				522,169
Subsea equipment			170,179				182,576
Construction-in-progress			111,797				168,879
Transportation and other			9,399				6,649
			768,520				880,273
Less accumulated depreciation and amortization			(166,798	)			(152,116	)
Net property and equipment, net			601,722				728,157
Restricted cash, noncurrent			3,557				3,926
Intangible assets			91,979				116,471
Other assets			22,693				38,510
Total assets		$	904,711			$	1,076,259
LIABILITIES AND EQUITY
Current liabilities:
Short-term and current maturities of long-term debt		$	768,510			$	52,585
Accounts payable			68,798				45,961
Accrued expenses			74,354				88,990
Accrued interest			22,705				12,738
Foreign taxes payable			—				4,594
Income taxes payable			3,743				9,182
Other current liabilities			3				104
Total current liabilities			938,113				214,154
Long-term debt			—				681,312
Long-term derivative			108				6,003
Foreign taxes payable			—				31,886
Deferred income taxes			74,085				19,219
Other liabilities			14,987				11,357
Total liabilities			1,027,293				963,931
Commitments and contingencies (See Note 14)			—				—
Total equity:
Common stock, $.01 par value, 50,000,000 shares authorized and 20,030,022 shares issued at June 30, 2010 and December 31, 2009, respectively			200				201
Warrants			—				1,640
Additional paid-in capital			341,466				340,803
Accumulated deficit			(359,018	)			(120,069	)
Accumulated other comprehensive loss, net of tax			(135,269	)			(153,301	)
Phantom stock			47,643				47,643
Treasury stock, at cost, 570,207 shares			(17,604	)			(17,604	)
Total Trico Marine Services, Inc. equity (deficit)			(122,582	)			99,313
Noncontrolling interest			—				13,015
Total equity (deficit)			(122,582	)			112,328
Total liabilities and equity		$	904,711			$	1,076,259

The accompanying notes are an integral part of these condensed consolidated financial statements.

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Revenues		$	144,561			$	179,732			$	240,276			$	301,550
Operating expenses:
Direct operating expenses			118,463				130,221				197,619				228,709
General and administrative			18,593				19,390				36,650				40,829
Depreciation and amortization			17,895				18,547				35,708				36,619
Impairments			84,188				14,023				84,188				14,023
Gain on sales of assets			(4,377	)			(17,684	)			(5,241	)			(17,693	)
Total operating expenses			234,762				164,497				348,924				302,487
Operating income (loss)			(90,201	)			15,235				(108,648	)			(937	)
Equity in net income (loss) of investee			187				—				(1,637	)			—
Interest expense, net of amounts capitalized			(21,606	)			(11,665	)			(43,959	)			(22,578	)
Interest income			175				790				1,103				1,862
Unrealized gain on mark-to-market of embedded derivative			614				476				5,895				1,415
Gain on conversions of debt			—				551				—				11,330
Refinancing costs			—				(6,224	)			—				(6,224	)
Reorganization costs			(9,142	)			—				(9,142	)			—
Foreign exchange gain (loss)			(47,209	)			2,956				(66,663	)			2,563
Other expense, net			(301	)			(1,099	)			(120	)			(1,435	)
Income (loss) before income taxes			(167,483	)			1,020				(223,171	)			(14,004	)
Income tax (benefit) expense			(7,082	)			(3,641	)			15,778				(18,669	)
Net income (loss)			(160,401	)			4,661				(238,949	)			4,665
Less: Net income attributable to the noncontrolling interest			—				(514	)			—				(1,264	)
Net income (loss) attributable to Trico Marine Services, Inc.		$	(160,401	)		$	4,147			$	(238,949	)		$	3,401
Earnings (loss) per common share:
Basic		$	(7.74	)		$	0.22			$	(11.54	)		$	0.19
Diluted		$	(7.74	)		$	0.22			$	(11.54	)		$	0.19
Weighted average shares outstanding:
Basic			20,716				18,601				20,704				17,657
Diluted			20,716				26,345				20,704				18,011

The accompanying notes are an integral part of these condensed consolidated financial statements.

TRICO MARINE SERVICES, INC.
AND SUBSIDIARIES

		Six Months Ended June 30,
		2010				2009
Cash flows from operating activities:
Net income (loss)		$	(238,949	)		$	4,665
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization			35,708				36,619
Amortization of non-cash deferred revenues			(159	)			(286	)
Amortization of deferred financing costs			4,687				1,437
Noncash (benefit) expense related to change in Norwegian tax law			21,242				(18,568	)
Accretion of debt discount			7,044				6,361
Deferred income taxes			5,505				(3,156	)
Equity in loss of non-consolidated affiliates			1,637				—
Impairment			84,188				14,023
Change in fair value of derivatives			(5,895	)			(1,415	)
Gain on conversions of 6.5% Debentures			—				(11,330	)
Cash paid for make-whole premium related to conversions of 6.5% Debentures			—				(6,915	)
Foreign currency (gains)/losses, net			45,176				—
Gain on sales of assets			(5,241	)			(17,693	)
Provision on doubtful accounts			409				(140	)
Stock based compensation			(1,253	)			1,787
Change in operating assets and liabilities			26,183				23,286
Net cash provided by (used in) operating activities			(19,718	)			28,675
Cash flows from investing activities:
Purchases of property and equipment			(31,519	)			(48,848	)
Proceeds from sales of assets			19,339				30,024
Dividend from unconsolidated affiliate			980				—
Investment in unconsolidated affiliate			(5,839	)			—
(Increase) decrease in restricted cash			(3,869	)			215
Net cash used in investing activities			(20,908	)			(18,609	)
Cash flows from financing activities:
Proceeds from issuance of credit facilities			70,444				—
Payments of credit facilities			(42,840	)			—
Payment for exchange of convertible debentures			—				(12,676	)
Repayments of revolving credit facilities, net			—				(49,353	)
Dividend to noncontrolling partner			—				(6,120	)
Debt issuance or refinancing costs			(5,964	)			(6,224	)
Net cash provided by (used in) financing activities			21,640				(74,373	)
Effect of exchange rate changes on cash and cash equivalents			(1,517	)			4,763
Net decrease in cash and cash equivalents			(20,503	)			(59,544	)
Cash and cash equivalents at beginning of period			52,981				94,613
Cash and cash equivalents at end of period		$	32,478			$	35,069

The accompanying notes are an integral part of these condensed consolidated financial statements.

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

1. Organization and Basis of Presentation

     The condensed consolidated financial statements include the accounts of Trico Marine Services, Inc. (the “Company”) and its consolidated subsidiaries. The consolidated financial statements of the Company include the accounts of those subsidiaries where the Company directly or indirectly has more than 50% of the ownership rights and for which the right to participate in significant management decisions is not shared with other shareholders. Beginning January 1, 2010, in accordance with new guidelines for consolidation of variable interest entities, the Company deconsolidated Eastern Marine Services Limited (“EMSL”). See Note 13. All intercompany balances and transactions have been eliminated in consolidation. For comparative purposes, certain amounts in 2009 have been adjusted to conform to the current period’s presentation.

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information required for complete financial statements under accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, which consist of normal recurring items considered necessary for a fair presentation, have been included. The results of operations for the interim periods are not necessarily indicative of results of operations to be expected for the full year.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires estimates and assumptions that affect the reported amounts as well as certain disclosures. The Company’s financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.

     The consolidated balance sheet as of December 31, 2009 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America, since certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted for interim periods as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 Form 10-K”).

2. Risks, Uncertainties and Going Concern

     The Company’s inability to meet its past and current commitments, and uncertainties associated with the Company’s ability to meet its other commitments as they come due, to comply with its debt covenants or to repay its outstanding debt raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might result from these uncertainties.

     The Company’s cash and credit capacity have not been sufficient to enable it to meet its obligations, and the Company’s forecasted cash and available credit capacity are not expected to be sufficient to meet its other commitments as they come due over the next twelve months. The Company did not make the approximately $8 million interest payment due on May 15, 2010 for the 8.125% secured convertible debentures due 2013 (the “8.125% Debentures”) prior to the expiration of the applicable 30-day grace period, the approximately $10.1 million principal payment due on August 1, 2010 for the 8.125% Debentures (for which there is no grace period) and the approximately $2.3 million interest payment due on July 15, 2010 for the 3% senior convertible debentures due 2027 (the “3% Debentures”). As a result, events of default have occurred under the 8.125% Debentures and the 3% Debentures. As described below, the Company has entered into a forbearance agreement with the holders on 51% of the outstanding principal amount of the 8.125% Debentures.

     In addition, the Company believes it is highly unlikely that it will remain in compliance in future periods with covenants requiring it to achieve financial thresholds, including an EBITDA threshold in its $25 million U.S. credit facility agreement (the “U.S. Credit Facility”), the 11 7/8% senior secured notes due 2014 (the “Senior Secured Notes”) issued by Trico Shipping AS (“Trico Shipping”) and Trico Shipping’s working capital facility (the “Trico Shipping Working Capital Facility”) and a liquidity threshold in the Senior Secured Notes and the Trico Shipping Working Capital Facility. In particular, the Company expects that it may not be in compliance with financial covenants requiring the Company to achieve EBITDA targets measured over the trailing twelve months as specified in the U.S. Credit Facility, Senior Secured Notes and Trico Shipping Working Capital Facility. If the Company fails to maintain compliance with these covenants under the various indentures and forbearance agreements, its creditors may take certain actions, including declaring the outstanding principal of the applicable debt to be due and payable immediately. In addition, the Company’s results of operations may limit Trico Shipping’s ability to access additional funds under the Trico Shipping Working Capital Facility. In its current circumstances, if such indebtedness were accelerated, the Company would be unable to satisfy its obligations under the 8.125% Debentures, the 3% Debentures, the Senior Secured Notes, the 6.11% notes due 2014 (the “6.11% Notes”), the U.S. Credit Facility or the Trico Shipping Working Capital Facility. In an effort to avoid the acceleration of such indebtedness, the Company has entered into (i) a forbearance agreement with holders of the 8.125% Debentures, (ii) a First Supplemental Indenture (as defined in Note 5) with respect to the Senior Secured Notes, (iii) an amendment to the Trico Shipping Working Capital Facility and (iv) an amendment to the U.S. Credit Facility. For additional information, see Notes 5 and 18.

     The Company, its financial advisor, Evercore Partners, and its restructuring advisor, AP Services, LLC (“AlixPartners”), are in discussions with some of the Company’s existing debt holders regarding restructuring certain of these obligations. While the Company has completed additional financing for both Trico Other (as defined below) and Trico Supply (as defined below), the Company’s liquidity at both Trico Other and Trico Supply is limited and if unable to reach agreement within a limited time period with certain of its debt holders, the Company will need to commence a voluntary case in a United States Bankruptcy Court (the “Bankruptcy Court”) concerning each of the Company, Trico Marine Assets, Inc. (“TMA”), Trico Marine Operators, Inc. (“TMO”), Trico Marine Cayman, LP (“Trico Cayman”), Trico Marine International, Inc. (“TMI”) and Trico Holdco, LLC (“Trico Holdco”) prior to September 8, 2010 to avoid an event of default under the U.S. Credit Facility and cross-defaults under its other debt agreements. Additionally, even if agreements regarding debt restructuring are reached within the necessary time periods, the Company may need to undertake bankruptcy proceedings in order to implement the debt restructurings and/or achieve other changes to its cost structure. The Company may also be required to undertake bankruptcy proceedings as a result of its inability to meet its past, current and future commitments. In addition, some or all of our subsidiaries may be required to seek protection under Chapter 11 of the Bankruptcy Code, and our creditors may seek to force us or some of our subsidiaries into insolvency or bankruptcy proceedings. The credit and business risk profiles of the Company could be adversely affected by a bankruptcy filing which may have a materially adverse effect on its business and results of operations.

     For the quarter ended June 30, 2010, the Company incurred $9.1 million in costs related to pursuing measures to improve the Company’s liquidity and capital structure. These expenses are primarily related to legal and consulting fees and are reflected as “reorganization costs” in the Company’s condensed consolidated statement of operations and as a use of operating cash flows in the Company’s condensed consolidated statement of cash flows.

     Due to the defaults mentioned above on the 8.125% Debentures and the 3% Debentures and cross-defaults and cross- acceleration on the Senior Secured Notes, 3% Debentures Trico Shipping Working Capital Facility, U.S. Credit Facility, and, the likelihood that the Company will not remain in compliance in future periods with certain covenants related to the Senior Secured Notes and Trico Shipping Working Capital Facility, the cross defaults to the U.S. Credit Facility, and the bankruptcy requirement in the U.S. Credit Facility, all of the Company’s debt has been classified as current as of June 30, 2010.

     The Company will need to commence a voluntary case in the Bankruptcy Court concerning each of the Company, TMA, TMO, Trico Cayman, TMI and Trico Holdco prior to September 8, 2010 to avoid an event of default under the U.S. Credit Facility and cross-defaults under the Company’s other debt agreements. Additionally, even if agreements regarding debt restructuring are reached within the necessary time periods, the Company may need to undertake bankruptcy proceedings in order to implement the debt restructurings and/or achieve other changes to its cost structure. The Company may also be required to undertake bankruptcy proceedings as a result of our inability to meet its past, current and future commitments. The Company’s credit and business risk profiles could be adversely affected by a bankruptcy filing which may have a materially adverse effect on its business and results of operations.

     The Company’s interest payment obligations are concentrated in the months of May and November with approximately $24 million of interest due on the Senior Secured Notes on each of May 1 and November 1, in addition to the payments due on the 8.125% Debentures on each of May 15 and November 15. During the forbearance period, the Company has agreed to pay an additional 2.00% interest on the Senior Secured Notes which increases the semi-annual interest payments by approximately $4.0 million. Additionally, the terms of the Company’s credit agreements require that some or all of the proceeds from certain asset sales be used to permanently reduce outstanding debt which could substantially reduce the amount of proceeds it retains. There was $22 million of availability under the Company’s credit facilities as of June 30, 2010, but drawing on this availability remains subject to completion of certain deliverables and the absence of an event of default under such facility. In addition, on August 16, 2010, the Company and Trico Shipping each agreed not to draw on this availability prior to December 31, 2010. See Note 18. The Company’s ability to refinance any of its existing indebtedness on commercially reasonable terms or to access additional amounts under the Trico Shipping Working Capital Facility may be materially and adversely impacted by the Company’s financial condition and the current credit market conditions.

     At June 30, 2010, the Company had available cash of $32 million. (This amount and other amounts in this section reflecting U.S. Dollar equivalents for foreign denominated debt amounts are translated at currency rates in effect at June 30, 2010.) As of June 30, 2010, payments due on the Company’s contractual obligations during the next twelve months were approximately $1.0 billion. This includes $818 million of principal payments of debt as of June 30, 2010, $203 million of which can be paid in cash or converted into stock at the Company’s option (however the availability of the Company’s common stock to satisfy such conversions is limited), $97 million of time charter obligations, $29 million of vessel construction obligations, $97 million of estimated interest expense, and approximately $3 million of other operating expenses such as operating leases and pension obligations. The Company expects it will need to complete additional actions to have sufficient liquidity to satisfy these obligations. The Company took action to cancel construction by Tebma shipyard in India (“Tebma”) of four new build multi-purpose platform supply vessels (“MPSVs”) on July 15, 2010, which, if effective, would reduce its committed future capital expenditures to approximately $20 million for two remaining MPSVs. During the second quarter of 2010, the Company took delivery of the second VS-470 vessel. See the discussion under the caption “Tebma” in Note 14.

     The Company is highly leveraged and its debt imposes significant restrictions on it and increases its vulnerability to adverse economic and industry conditions. Under the terms of the Senior Secured Notes, the Company’s business has been effectively split into two groups: (i) “Trico Supply”, where substantially all of its subsea services business and all of its subsea protection business resides along with its North Sea towing and supply business and (ii) “Trico Other”, whose business is comprised primarily of the Company’s non-North Sea towing and supply businesses. Trico Other has the obligation, among other things, to pay the debt service related to the 8.125% Debentures, the 3% Debentures, the U.S. Credit Facility, and the 6.11% Notes and to pay the majority of corporate related expenses while Trico Supply has the obligation to make debt service payments related to the Senior Secured Notes and the Trico Shipping Working Capital Facility. Under the terms of the Senior Secured Notes, the ability of Trico Supply to provide funding on an ongoing basis to Trico Other is limited by restrictions on Trico Supply’s ability to pay dividends and principal and interest on intercompany debt unless certain financial measures are met. Other than an annual reimbursement of up to $5 million related to the reimbursement of corporate expenses, a one-time $5 million restricted payment basket, and certain carve outs related to the sale of one vessel, the Company does not expect Trico Supply to be able to transfer additional funds to Trico Other in the foreseeable future. During the forbearance period for the Senior Secured Notes, the total amount transferred is limited to $5.0 million. During the first six months of 2010, a total of $3.5 million was transferred from Trico Supply to Trico Other under the one-time $5 million restricted payment basket and approximately $1.1 million was transferred related to the $5 million annual reimbursement for corporate expenses.

     In addition to the previously mentioned actions being taken to increase their liquidity, the ability of each of Trico Supply, Trico Other, and the Company overall to obtain minimum levels of operating cash flows and liquidity to fund their operations, meet their debt service requirements, and remain in compliance with their debt covenants, is dependent on their ability to accomplish the following: (i) secure profitable contracts through a balance of spot exposure and term contracts, (ii) achieve certain levels of vessel and service spread utilization, and (iii) deploy vessels to the most profitable markets. The forecasted cash flows and liquidity for each of Trico Supply, Trico Other, and the Company are dependent on each meeting certain assumptions regarding fleet utilization, average day rates, operating and general and administrative expenses, and in the case of Trico Supply, new vessel deliveries, which could prove to be inaccurate. Within certain constraints, the Company can conserve capital by reducing or delaying capital expenditures, deferring non-regulatory maintenance expenditures and further reducing operating and administrative costs through various measures.

     The Company’s revenues are primarily generated from entities operating in the oil and gas industry in the North Sea, the Asia Pacific regions, West Africa, Brazil and the Mexican Gulf of Mexico (“Mexico”). The Company’s international operations for the quarter ended June 30, 2010 account currently for 100% of revenues and are subject to a number of risks inherent to international operations including exchange rate fluctuations, unanticipated assessments from tax or regulatory authorities, and changes in laws or regulations. In addition, because of the Company’s corporate structure, it may not be able to repatriate funds from Trico Supply without adverse tax or debt compliance consequences. These factors could have a material adverse affect on the Company’s financial position, results of operations and cash flows.

     Because the Company’s revenues are generated primarily from customers who have similar economic interests, its operations are also susceptible to market volatility resulting from economic, cyclical, weather or other factors related to the energy industry. Changes in the level of operating and capital spending in the industry, decreases in oil and gas prices, or industry perceptions about future oil and gas prices could materially decrease the demand for the Company’s services, adversely affecting its financial position, results of operations and cash flows.

     The Company’s operations, particularly in the North Sea, the Asia Pacific regions, West Africa, Mexico, and Brazil, depend on the continuing business of a limited number of key customers and some of its long-term contracts contain early termination options in favor of its customers. If any of these customers terminate their contracts with the Company, fail to renew an existing contract, refuse to award new contracts or choose to exercise their termination rights, the Company’s financial position, results of operations and cash flows could be adversely affected.

     The Company’s certificate of incorporation effectively requires that it remain eligible under the Merchant Marine Act of 1920, as amended, or the Jones Act, and together with the Shipping Act of 1916, the Shipping Acts. The Shipping Acts require that vessels engaged in the U.S. coastwise trade and other services generally be owned by U.S. citizens and built in the U.S. For a corporation engaged in the U.S. coastwise trade to be deemed a U.S. citizen: (i) the corporation must be organized under the laws of the U.S. or of a state, territory or possession thereof, (ii) each of the president or other chief executive officer and the chairman of the board of

directors of such corporation must be a U.S. citizen, (iii) no more than 25% of the directors of such corporation necessary to the transaction of business can be non-U.S. citizens and (iv) at least 75% of the interest in such corporation must be owned by U.S. “citizens” (as defined in the Shipping Acts). The Jones Act also treats as a prohibited “controlling interest” any (i) contract or understanding by which more than 25% of the voting power in the corporation may be exercised, directly or indirectly, on behalf of a non-U.S. citizen and (ii) the existence of any other means by which control of more than 25% of any interest in the corporation is given to or permitted to be exercised by a non-U.S. citizen. The Company expects decommissioning and deep water projects in the Gulf of Mexico to comprise an important part of its subsea strategy, which may require continued compliance with the Jones Act. Any action that risks its status under the Jones Act could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.

     Asset Sales. During the first quarter of 2010, the Company sold three offshore supply vessels (“OSVs”) and one subsea platform supply vessel (“SPSV”) for net proceeds of $2.8 million and a gain of $0.9 million. The sale of these vessels did not require a debt prepayment. During the second quarter of 2010, the Company sold one anchor handling, towing and supply vessel (“AHTS”) and one OSV for $16.5 million in net proceeds and a gain of $4.5 million which did require a partial debt repayment of $14.5 million on the U.S. Credit Facility.

     On April 28, 2009, the Company sold a platform supply vessel for $26.0 million in net proceeds and recognized a gain on sale of $15.2 million. The sale of this vessel required a prepayment of approximately $14.9 million of the $200 million Revolving Loan Facility (as defined in Note 5) as the vessel served as security for that facility. During June 2009, the Company sold five supply vessels for a total of $3.8 million, resulting in a gain of $2.5 million. The sale of these vessels did not require a debt prepayment.

     Assets Held for Sale. Marine vessels held for sale at June 30, 2010 included one OSV which is included in the Company’s towing and supply segment. This vessel was subsequently sold for approximately $1.0 million on July 16, 2010 and the sale did not require a debt prepayment.

4. Intangible Assets

     Intangible assets consist of trade names and customer relationships. The Company classified trade names as indefinite lived intangible assets. Under authoritative guidance for goodwill and other intangibles, indefinite lived assets are not amortized but instead are reviewed for impairment annually and more frequently if events or circumstances indicate that the asset may be impaired. At December 31, 2009, the Company performed an impairment analysis of intangible assets. The Company did not recognize an impairment in 2009. Due to further deterioration in the Company's operational results in the second quarter and further reductions in its forecasted revenue outlook, an interim impairment assessment of intangible assets was performed at June 30, 2010. Based on this assessment, an impairment charge, using the "relief-from-royalty" valuation method, of $10.2 million was recognized in the second quarter of 2010 on trade name assets. Customer lists were also evaluated for impairment based on estimated undiscounted future cash flows. No impairments were necessary at December 31, 2009 or June 30, 2010 for the Company's customer list assets. Further deterioration in the Company's operating performance, reductions in its revenue forecast or the loss of key customer relationships could result in further impairments to the Company's intangible assets in future periods and such amounts could be material.

     The following table provides information relating to the Company’s intangible assets as of June 30, 2010 and December 31, 2009 (in thousands):

		As of June 30, 2010																As of December 31, 2009
										Foreign																Foreign
		Gross Carrying				Accumulated				Currency Translation								Gross Carrying				Accumulated				Currency Translation
		Amount				Amortization				Adjustment				Total				Amount				Amortization				Adjustment				Total
Amortized intangible assets:
Customer relationships		$	118,057			$	(16,284	)		$	(27,834	)		$	73,939			$	118,057			$	(12,454	)		$	(20,386	)		$	85,217
Total		$	118,057			$	(16,284	)		$	(27,834	)		$	73,939			$	118,057			$	(12,454	)		$	(20,386	)		$	85,217

										Foreign																Foreign
		Gross Carrying								Currency Translation								Gross Carrying								Currency Translation
		Amount				Impairment				Adjustment				Total				Amount				Impairment				Adjustment				Total
Unamortized intangible assets:
Trade name		$	40,881			$	(13,302	)		$	(9,539	)		$	18,040			$	40,881			$	(3,114	)		$	(6,513	)		$	31,254
Total		$	40,881			$	(13,302	)		$	(9,539	)		$	18,040			$	40,881			$	(3,114	)		$	(6,513	)		$	31,254

     Amortization expense associated with the Company’s customer relationships was $1.9 million and $3.8 million for the three and six months ended June 30, 2010, respectively, and $1.8 million and $3.5 million for the three and six months ended June 30, 2009, respectively. The estimated amortization expense for the remainder of 2010 is estimated to be $3.4 million and for the years 2011, 2012, 2013 and 2014 is estimated to be $7.3 million per year.

     See Note 18 for additional information on the Company’s indebtedness.

     Unless otherwise specified, amounts in these footnotes disclosing U.S. Dollar equivalents for foreign denominated debt amounts are translated at currency rates in effect at June 30, 2010. The Company’s debt at June 30, 2010 and December 31, 2009 consisted of the following (in thousands):

		Current Debt at				December 31, 2009
		June 30, 2010(7)				Current				Long-Term				Total
$25 million U.S. Credit Facility (1), maturing in December 2011		$	24,500	(3), (4)		$	11,347				—			$	11,347	(3), (4)
$202.8 million face amount, 8.125% Debentures, net of unamortized discount of $9.5 million and $12.3 million as of June 30, 2010 and December 31, 2009, respectively, interest payable semi-annually in arrears, maturing on February 1, 2013			193,309				19,774				170,696				190,470
$150.0 million face amount, 3% Debentures, net of unamortized discount of $26.9 million and $30.0 million as of June 30, 2010 and December 31, 2009, respectively, interest payable semi-annually in arrears, maturing on January 15, 2027			123,113	(5)			—				119,992				119,992	(5)
$400.0 million face amount, Senior Secured Notes, net of unamortized discount of $13.0 million and $14.1 million as of June 30, 2010 and December 31, 2009, respectively, interest payable semi-annually in arrears, maturing on November 1, 2014			387,011	(6)			—				385,925				385,925	(6)
$65 million Trico Shipping Working Capital Facility (2), maturing December 2011 and January 2014			35,254	(6)			20,000				—				20,000	(6)
6.11% Notes, principal and interest due in 30 semi-annual installments, maturing April 2014			5,028				1,258				4,399				5,657
Insurance note			—				119				—				119
Motor vehicle leases			72				87				47				134
Fresh-start debt premium			223				—				253				253
Total debt		$	768,510			$	52,585			$	681,312			$	733,897

     All of the Company’s debt was classified as current as of June 30, 2010. As of June 30, 2010, the Company was in default on the 8.125% Debentures due to non-payment of interest and principal within applicable grace periods. The Company did not make the interest payment due on July 15, 2010 for the 3% Debentures. As of June 30, 2010, the Senior Secured Notes and Trico Shipping Working Capital Facility are subject to forbearance agreements that require the Company to remain in compliance with certain requirements, including minimum liquidity and minimum consolidated cash flow. If the Company fails to maintain compliance with the requirements of these forbearance agreements, the holders and/or lenders may take certain actions, including declaring the outstanding principal of the applicable debt to be due and payable immediately. The Company believes it is highly unlikely that it will remain in compliance in future periods with covenants requiring it to achieve financial thresholds, including an EBITDA threshold in its U.S. Credit Facility, Senior Secured Notes and the Trico Shipping Working Capital Facility and a liquidity threshold in the Senior Secured Notes and the Trico Shipping Working Capital Facility the Senior Secured Notes and Facility. The U.S. Credit Facility is classified as current due to the requirement that the Company files for bankruptcy by September 8, 2010. The 6.11% Notes are classified as current due to the requirement that Trico Marine Services, Inc., as guarantor under the 6.11% Notes, file bankruptcy by September 8, 2010 to avoid an event of default under the U.S. Credit Facility.

     Deferred financing costs related to the Company’s existing debt remain recorded as of June 30, 2010. These costs would be expensed in the period the related debt is either extinguished or it becomes evident that the Company will not be able to negotiate a waiver or restructure the debt and the debt is puttable by the lenders.

     The Company’s capitalized interest totaled $4.4 million and $7.6 million for the three and six months ended June 30, 2010 and $4.9 million and $9.7 million for the three and six months ended June 30, 2009.

     As of August 16, 2010, the Company was in default on $352.8 million principal amount of debt (net of unamortized discounts), plus $16.3 million of interest on such debt that is due and payable.

     U.S. Credit Facility. In January 2008, the Company entered into the U.S. Credit Facility secured by an equity interest in direct material domestic subsidiaries, first preferred mortgages on vessels owned by TMA and a pledge on the intercompany note due from Trico Supply AS to TMO A voluntary prepayment of $15 million was made on January 14, 2009 which reduced the commitment to $35 million. In October 2009, $10 million of the proceeds from the sale of the Northern Challenger were used to permanently reduce the commitment under the facility to $25 million.

     On January 15, 2010, the U.S. Credit Facility was amended to change the definition of Free Liquidity such that any amounts that were committed under the facility, whether available to be drawn or not, would be included for the purposes of calculating the free liquidity covenant. In March 2010, the Company received waivers related to the requirement that an unqualified auditors’ opinion without an explanatory paragraph in relation to going concern accompany its annual financial statements.

      In March 2010, the Company received a waiver related to the consolidated leverage ratio of the U.S. Credit Facility for the period ending March 31, 2010. Absent this waiver, the Company would not have been in compliance with this covenant.

     In April 2010, the U.S. Credit Facility was amended which (i) enabled the Company to re-borrow certain amounts used to cash collateralize letters of credit, (ii) provided that specified asset sales will not require a reduction in the Total Commitment (as defined in the U.S. Credit Facility), (iii) allowed the Company and its subsidiaries to make cash capital contributions and/or loans to joint ventures and other subsidiaries of the Company with the written consent of Nordea Bank Finland plc, New York Branch (“Nordea”), provided that no written consent is necessary if the ultimate recipient of the proceeds is a credit party under and as defined in the Trico Shipping Working Capital Facility and (iv) updated a financial condition representation.

     In June 2010, the U.S. Credit Facility was amended (the “Amendments”) to:

	(i)		provide for the assignment of the loans and commitments,
	(ii)		provide for the consent to and reflect the resignation of Nordea as administrative agent under the U.S. Credit Facility and the assumption by Obsidian Agency Services, Inc. (“Obsidian”) of all of Nordea’s rights, interests, liabilities and obligations as the administrative agent under the U.S. Credit Facility,
	(iii)		terminate the letter of credit facility,
	(iv)		convert the revolving credit commitments to term loan commitments,
	(v)		increase the borrowing availability of the Company up to $25 million (the borrowing availability is currently limited to $24.5 million pending acceptable resolution of certain due diligence items),
	(vi)		increase the pricing margin to LIBOR (subject to a minimum floor of 2.5%) plus 11.5% and eliminate the utilization fee of 3.00%,
	(vii)		replace the financial covenants with new financial covenants providing for (a) minimum cumulative EBITDA levels from June 1, 2010 with the first measurement period being the month ended June 30, 2010, (b) minimum consolidated cash flows for various periods beginning with the period between June 11, 2010 and ending on July 23, 2010 and for successive four or five week periods thereafter and (c) minimum cumulative cash flows as of the same measurement ending dates as provided for in (b) and beginning on June 11, 2010, (d) limiting maintenance related capital expenditures to $2.0 million during the term of the loan, and (e) requiring that the appraised value of the vessels that serve as collateral for the facility be at least 120% of the amount of the facility. The cash flows in (b) and (c) are determined by changes in the cash flows of the borrower and the guarantors to the facility which excludes Trico Supply AS and any of its subsidiaries. The minimum EBITDA levels are determined by the EBITDA of the borrower and the guarantors to the facility plus the EBITDA of the Company’s Mexican joint venture whose results are included in the Company’s financial statements,
	(viii)		add additional guarantors of the indebtedness incurred by Trico under the U.S. Credit Facility, and
	(ix)		provide that all net cash proceeds from asset sales be deposited into the blocked account from which the lenders, at their option, may apply as a repayment of the outstanding loans, except that lenders may not apply proceeds from the sale of any equity interest in the Mexican joint venture in excess of $8.0 million, up to an additional $5.0 million of proceeds, to repay the outstanding loans, and may only apply only 50% of proceeds in excess of $13.0 million received from such a sale to repay the outstanding loans.

     The U.S. Credit Facility was subsequently amended on June 25, 2010 to (i) permit the creation of certain liens, (ii) except the bankruptcy filing by certain subsidiaries of the Company from the events of default, and (iii) suspend the effectiveness of the guarantee by TMI until such time as the Company files for bankruptcy protection.

     The U.S. Credit Facility was subsequently amended on July 23, 2010 to permit the entry by subsidiaries of the Company into certain restrictive covenants under the Senior Secured Notes and Trico Shipping Working Capital Facility.

     The U.S. Credit Facility was subsequently amended on August 10, 2010 to increase the interest rate, retroactive to August 1, 2010, to LIBOR (subject to a minimum floor of 2.5%) plus 15.5%.

     The U.S. Credit Facility was subsequently amended on August 16, 2010 to (i) prevent defaults under the 3% Debentures from creating a cross-default under the U.S. Credit Facility and (ii) make certain changes to the Events of Default as reflected below. In addition, the amendment allows, in certain circumstances, the Company to consent to relief under an involuntary proceeding against the Company in the District of Delaware under Chapter 11 of the Bankruptcy Code. For additional information, see Note 18.

     The U.S. Credit Facility may be used by the Company (i) to cash collateralize certain outstanding letters of credit in an amount up to 105% of the stated amount of such letters of credit, (ii) to pay fees and expenses incurred in connection with the entering into of the Amendments and (iii) for the Company and its subsidiaries’ general corporate and working capital purposes. Immediately after entering into the Amendments, the Company borrowed the full term loan amount of $25.0 million less a hold-back of $0.5 million pending resolution of certain due diligence issues of which approximately $11.5 million was used to pay outstanding amounts under the U.S. Credit Facility and approximately $3.6 million was used to cash collateralize the existing letters of credit. Proceeds of the Amendments have been funded into a blocked account. The Company must satisfy certain conditions in order to access such funds including (i) there having occurred no default or event of default, (ii) accuracy of all representations and warranties in all material respects and (iii) not more than $1.0 million on deposit in the Company’s operating accounts. The Company may not request a release of funds from the blocked account more than twice per week. Amounts in the blocked account may only be released in accordance with a budget provided by the Company to the lenders at closing of the Amendments.

     The U.S. Credit Facility’s maturity date is December 31, 2011. The term loan will bear interest at the one-month LIBOR rate (subject to a 2.50% floor) plus a margin of 15.5%. The U.S. Credit Facility is secured by first preferred ship mortgages on certain vessels, the equity of TMA and TMO, 65% of the equity of Trico Cayman, a pledge of an intercompany note between Trico Supply AS and TMO, all deposit accounts of TMS, TMA and TMO and guarantees from TMA, TMO and certain of the direct and indirect subsidiaries of Trico Marine Services, Inc., excluding Trico Supply AS and any of its subsidiaries.

     In addition, the U.S. Credit Facility contains non-financial covenants, including but not limited to, covenants limiting the Company and its subsidiaries’ ability to incur additional indebtedness, to create or incur certain liens on their property, to consolidate, merge or transfer assets, to make dividends or distributions, to dispose of property, to make investments, or to engage in business activities materially different from those presently conducted.

     The U.S. Credit Facility provides that certain events, will be an event of default, including the failure to commence a voluntary case in the Bankruptcy Court concerning each of the Company, TMA, TMO, Trico Cayman, TMI and Trico Holdco prior to the earlier of (i) September 8, 2010, and (ii) the later of (x) August 23, 2010 and (y) if a forbearance agreement has been entered into with the holders of not less than a majority of the outstanding principal amount of the 3% Debentures, then the second business day after forbearance agreements are no longer in effect both with the holders of not less than 51% of the outstanding principal amount of the 8.125% Debentures and with the holders of not less than a majority of the outstanding principal amount of the 3% Debentures. Also it is an event of default if the forbearance agreement with the holders of not less than 51% of the outstanding principal amount of the 8.125% Debentures is terminated or expires on or after August 23, 2010 and a voluntary bankruptcy case is not commenced within two business days of the termination or expiration. It is also an event of default if at any time the Company ceases diligently to pursue a prepackaged plan of reorganization acceptable to the lenders or if the Company fails to satisfy the conditions precedent to the funding of the Debtor-in-Possession Term Loan Credit Facility (a “DIP Facility”) described below within 30 days after the commencement of a voluntary bankruptcy. During the continuance of an event of default, the lenders may take a number of actions, including declaring the entire amount then outstanding under the U.S. Credit Facility due and payable.

     On June 11, 2010, the Company entered into (i) a Reimbursement Agreement (the “Reimbursement Agreement”) by and among the Company, TMA, TMO and Nordea and (ii) a L/C Cash Collateral Agreement (together with the Reimbursement Agreement, the “Letter of Credit Agreements”) pursuant to which six letters of credit (as amended, the “Continuing Letters of Credit”) with an aggregate stated amount of $3.5 million were (a) kept outstanding after the termination of the letter of credit facility pursuant to the Amendments and (b) cash collateralized in an amount equal to 105% of the stated amount of such letters of credit. Nordea has no obligation to issue new letters of credit pursuant to the Letter of Credit Agreements. Two letters of credit, with stated amounts of approximately $0.3 million expired in July 2010. The remaining letters of credit have various expiration dates through December 2010 for (i) securing certain payments under vessel operating leases and (ii) payment of certain taxes in Trinidad and Tobago. Pursuant to these agreements, the letters of credit, which the Company previously issued under the U.S Credit Facility, transitioned to being cash collateralized at 105% of face value.

     The U.S. Credit Facility subjects the Company’s subsidiaries that are parties to the credit agreement to certain financial and other covenants including, but not limited to, affirmative and negative covenants with respect to indebtedness, liens, declaration or payment of dividends, sales of assets, investments, minimum cumulative EBITDA, minimum consolidated cash flows and collateral coverage. Payment under the U.S. Credit Facility may be accelerated following certain events of default including, but not limited to, failure to make payments when due, noncompliance with covenants, breaches of representations and warranties, expiration of certain forebearance agreements (as described above), commencement of insolvency proceedings, entry of judgment in excess of $1 million, defaults by any of the credit parties under certain other indebtedness in excess of $1 million and occurrence of certain changes of control.

     Per the terms of the commitment letter entered into between the Company and Tennenbaum DIP Opportunity Fund, LLC (“Tennenbaum”) on June 8, 2010 (the “Commitment Letter”), the U.S. Credit Facility may be converted to a DIP Facility should the Company and certain of its affiliates file voluntary petitions for relief (the “U.S. Chapter 11 Cases”) under the Bankruptcy Code. Pursuant to the Commitment Letter, Tennenbaum has agreed, subject to the terms and conditions contained therein, to refinance the U.S. Credit Facility. With respect to the existing commitment under the Commitment Letter, based on discussions with Tennenbaum, the Company believes that the conditions to borrowing under the existing commitment may not be satisfied. Accordingly, the Company has begun and is currently engaged in discussions with Tennenbaum concerning the terms of a revised or new commitment for debtor-in-possession financing, which will include, among other things a reduction of the amount of the facilities from $50 million to $35 million (of which $10 million would be new funds). There can be no assurance that the Company will be able to obtain such revised or new commitment or that the Company will be able to draw on the existing commitment if a revised or new commitment is not obtained.

     8.125% Debentures. On May 11, 2009, the Company entered into exchange agreements (the “Exchange Agreements”) with existing holders (the “Investors”) of its 6.5% senior convertible debentures due 2028 (the “6.5% Debentures”). In accordance with the exchange (the “Exchange”) contemplated by the Exchange Agreements, on May 14, 2009, the Company exchanged $253.5 million in aggregate principal amount of its 6.5% Debentures (representing all of the outstanding 6.5% Debentures) for, in the aggregate, approximately $12.7 million in cash, 3,042,180 shares of the Company’s common stock (or warrants exercisable for $0.01 per share in lieu thereof) and $202.8 million in aggregate principal amount of the 8.125% Debentures.

     This Exchange was accounted for under modification accounting which required the Company to defer and amortize any change in value exchanged. The amount deferred was approximately $10 million and was reflected as a discount to the 8.125% Debentures, which is being amortized under the effective interest method over the life of the 8.125% Debentures. This discount represented the fair value of the warrants and common shares of stock that were tendered in the Exchange. The warrants issued in the Exchange were required to be recorded as a liability due to the net-cash settlement terms included in the Exchange Agreements and were revalued each reporting period based upon the Company’s stock price each period they were outstanding. All warrants were exercised by December 2009. Additionally, the debt issue costs previously recorded for the 6.5% Debentures continue to be amortized over the life of the 8.125% Debentures and the new debt issue costs were expensed.

     The Company pays interest on the unpaid principal amount of the 8.125% Debentures at a rate of 8.125 percent per annum. The Company will pay interest semiannually on May 15 and November 15 of each year. Interest on the 8.125% Debentures will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from May 15, 2009. The Company did not make the interest payment due on May 15, 2010.

     The 8.125% Debentures are subject to quarterly principal amortizing payments beginning August 1, 2010 of 5% of the aggregate principal amount per quarter, increasing to 14% of the aggregate principal amount per quarter beginning February 1, 2012 until the final payment on February 1, 2013 (the “Maturity Date”). The Company has the right to elect at each payment date whether to pay principal installments in common stock, subject to certain limitations, or cash. The Company did not make this election in regards to the August 1, 2010 payment. The August 1, 2010 principal amortization payment has not been made. Separate from and prior to the Company’s election, a majority of the holders of the 8.125% Debentures can elect to have the payment of all or any portion of an installment of principal deferred until the Maturity Date. The 8.125% Debentures are also subject to mandatory prepayments, applied on a pro-rata basis, related to net cash proceeds of asset sales. Asset sales of greater than $5 million require a prepayment equal to 50% of net cash proceeds. Net cash proceeds exclude among other items, required repayment of debt. Asset sales between $0.5 million and $5 million do not require a prepayment of the 8.125% Debentures unless total gross proceeds of all asset sales between $0.5 million and $5 million exceed $10 million in any given year based on the issuance date of the 8.125% Debentures. If the total gross proceeds of asset sales between $0.5 million and $5 million during any given year exceed $10 million, a prepayment of 50% of net cash proceeds is required for all completed asset sales. After each twelve month period, the cumulative amount of total gross proceeds is reduced by $5 million for calculation purposes. The Company has the option to redeem the 8.125% Debentures at par plus accrued interest on or after May 1, 2011, if the trading price of the common stock exceeds 135% of the conversion price (currently $14.00 per share), subject to adjustment, for 20 consecutive trading days.

     The holders of the 8.125% Debentures have the option at any time to convert the 8.125% Debentures into the requisite number of shares of common stock. Holders who convert after May 1, 2011 are entitled to receive, in addition to the shares due upon conversion, a cash payment equal to the present value of remaining interest payments until final maturity. Holders of the 8.125% Debentures are entitled to require the Company to repurchase the debentures at par plus accrued interest in the event of certain fundamental change transactions. For more information regarding the conversion, redemption, and repurchase options of the 8.125% Debentures, see Note 5 of the 2009 Form 10-K.

     The conversion feature associated with the 8.125% Debentures is considered an embedded derivative as defined in the derivative instrument and hedging activities authoritative guidance. Under this guidance, the Company is required to bifurcate the conversion option as its fair value is not “clearly and closely” related to the debt host as the make-whole interest is based on the treasury bond rate. This embedded derivative is recorded at fair value on the date of issuance. The estimated fair value of the derivative on the date of issuance was $4.7 million, which was recorded as a non-current derivative liability on the balance sheet with the offset recorded as a discount on the 8.125% Debentures. The derivative liability must be marked-to-market each reporting period with changes to its fair value recorded in the consolidated statement of income as other income (expense) and the discount being accreted through an additional non-cash charge to interest expense over the term of the debt. See Note 6 for further discussion on the derivative liability.

     The 8.125% Debentures and the shares of common stock issuable upon the conversion of the 8.125% Debentures have not been registered because the Company sold the 8.125% Debentures in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933.

     The 8.125% Debentures are senior secured obligations of the Company, rank senior to all other indebtedness of the Company with respect to the collateral (other than indebtedness secured by permitted liens on the collateral), rank on parity in right of payment with all other senior indebtedness of the Company, and rank senior in right of payment to all subordinated indebtedness of the Company. The 8.125% Debentures shall rank senior to all future indebtedness of the Company to the extent the future indebtedness is expressly subordinated to the 8.125% Debentures. The 8.125% Debentures are secured by a perfected security interest in certain assets of the Company and its subsidiaries. These assets include, as of June 30, 2010, three SPSVs and nine OSVs and, among other assets, one of three intercompany notes between Trico Supply and Trico Other. Due to the vessel sale in July 2010, there are now eight OSVs. The note that is pledged as security has an approximate principal amount of $163.1 million as of June 30, 2010 and is between Trico Supply AS (borrower) and TMO (lender). The two notes which are not pledged to the 8.125% Debentures are between Trico Shipping (borrower) and Trico Marine Services, Inc. (lender) with a principal amount of approximately $321.0 million as of June 30, 2010 and between Trico Supply AS (borrower) and Trico Cayman (lender) with a principal amount of approximately $33.5 million as of June 30, 2010. These three intercompany notes do not include any subordination provisions among themselves but are each subordinated to the Senior Secured Notes.

     The Company failed to make the approximately $8.0 million interest payment due on May 15, 2010 on the 8.125% Debentures. On June 17, 2010, the 30-day grace period permitted under the indenture governing the 8.125% Debentures (the “8.125% Indenture”) expired. The expiration of this 30-day grace period triggered an event of default. As a result of this event of default, the Trustee for the 8.125% Debentures or 25% of the holders (as defined in the 8.125% Indenture) thereof, may elect to accelerate the 8.125% Debentures, making them immediately due and payable. Pursuant to the 8.125% Indenture, the Trustee may also exercise certain rights and remedies with respect to the collateral securing the 8.125% Debentures. However, on June 27, 2010, the Company and certain consenting holders of the 8.125% Debentures entered into a forbearance agreement (the “Forbearance Agreement”). On August 1, 2010, the Company failed to make the scheduled principal amortization payment of $10.1 million.

     Under the Forbearance Agreement, each Consenting Holder agreed, among other things, not to (i) pursue any remedy (including, without limitation, the acceleration of any obligation owing in respect of the 8.125% Indenture and/or the 8.125% Debentures) against the Company under the 8.125% Debentures or the 8.125% Indenture for not making interest or principal payments as scheduled or within the applicable grace period, as applicable, or (ii) initiate, or have initiated on its behalf, any litigation or proceeding of any kind with respect to the 8.125% Debentures other than to enforce Forbearance Agreement. Further, each Consenting Holder agreed to request that the trustee of the 8.125% Indenture not enforce remedies (including acceleration) pursuant to the terms of the 8.125% Debentures or the 8.125% Indenture until the Forbearance Agreement has terminated. Under the Forbearance Agreement, the Company shall not (and shall direct its subsidiaries not to) consummate any financing transaction or material transactions outside the ordinary course of business without providing the consenting holders and their advisors advance notice of at least 48 hours; provided that the foregoing shall not apply to, among other things, the granting of certain security interests or liens in collateral for the benefit of the secured parties under Trico Shipping’s outstanding notes and related indenture. The Forbearance Agreement terminated on August 15, 2010. On August 16, 2010 the Company and the consenting holders of the 8.125% Debentures entered into a new forbearance agreement (the “August Forbearance Agreement”). For additional information, see Note 18.

     3% Debentures. In February 2007, the Company issued $150.0 million of its 3% Debentures. The Company received net proceeds of approximately $145.2 million after deducting commissions and offering costs of approximately $4.8 million. Net proceeds of the offering were used for the acquisition of Active Subsea ASA, financing of the Company’s fleet renewal program and for general corporate purposes. Interest on the 3% Debentures is payable semiannually in arrears on January 15 and July 15 of each year. The 3% Debentures will mature on January 15, 2027, unless earlier converted, redeemed or repurchased. Effective January 1, 2009, the 3% Debentures were subject to new authoritative guidance.

     The 3% Debentures are senior unsecured obligations of the Company and rank equally in right of payment to all of the Company’s other existing and future senior indebtedness. The 3% Debentures are effectively subordinated to all of the Company’s existing and future secured indebtedness to the extent of the value of its assets collateralizing such indebtedness and any liabilities of its subsidiaries. The 3% Debentures and shares of common stock issuable upon the conversion of the debentures have been registered under the Securities Act of 1933.

     The 3% Debentures are convertible into cash and, if applicable, shares of the Company’s common stock, par value $0.01 per share, based on an initial conversion rate of 23.0216 shares of common stock per $1,000 principal amount of the 3% Debentures (which is equal to an initial conversion price of approximately $43.44 per share), subject to adjustment and certain limitations. Should the holders of the 3% Debentures convert, the Company would pay the holders $1,000 in cash for each $1,000 in principal plus the number of shares of stock equal to the value of the conversion option in excess of $43.44 per share. For more information regarding the conversion and redemption options of the 3% Debentures, see Note 5 of the 2009 Form 10-K.

     The holders of the Company’s 3% Debentures have the right to require the Company to repurchase the debentures upon the occurrence of a “Fundamental Change” in its business. See Note 5 of the 2009 Form 10-K for more information.

     The amount of interest cost recognized for the three and six months ending June 30, 2010 relating to both the contractual interest coupon and amortization of the discount on the liability component is $2.7 million and $5.4 million, respectively, compared to $2.6 million and $5.1 million for the three and six months ending June 30, 2009, respectively. The coupon and the amortization of the discount on the debt will yield an effective interest rate of approximately 8.9% on these convertible notes.

     The Company did not make the scheduled interest payment of $2.25 million when due on July 15, 2010. On August 14, 2010, the 30-day grace period permitted under the indenture governing the 3% Debentures (the “3% Indenture”) expired. The expiration of this 30-day grace period triggered an event of default. As a result of such event of default, the Trustee for the 3% Debentures or 25% of the holders (as defined in the 3% Indenture) thereof, may elect to accelerate the 3% Debentures, making them immediately due and payable. In addition, holders of the 3% Debentures may seek to force the Company into a proceeding under Chapter-11 of the Bankruptcy Code.

     Senior Secured Notes. On October 30, 2009, the Company’s wholly-owned subsidiary, Trico Shipping, issued $400.0 million aggregate principal amount of the Senior Secured Notes. These notes have a final bullet maturity of November 1, 2014 with no scheduled amortization payments. Interest is payable on May 1 and November 1 and accrues at a rate of 11.875% per annum. The Senior Secured Notes are not callable for three years and are subject to a declining prepayment premium until November 2013 after which they can be repaid at par. The Senior Secured Notes are secured by the assets and earnings of Trico Supply AS, and its subsidiaries, including Trico Shipping, DeepOcean AS and CTC Marine Projects, Ltd. (the “Trico Supply Group”) and the proceeds from the sale of these assets. The Senior Secured Notes are guaranteed by the Company’s wholly owned subsidiary, Trico Supply AS, and by Trico Supply’s direct and indirect subsidiaries (other than Trico Shipping) and Trico Marine Services, Inc., Trico Cayman and Trico Holdco (the “Guarantors”). The Senior Secured Notes are pari passu in right of payment with all existing and future senior debt of Trico Shipping and the Guarantors (excluding Trico Marine Services) and senior to all existing and future subordinated debt of Trico Shipping and the Guarantors (excluding Trico Marine Services), including any intercompany debt; except that debt under the U.S. Credit Facility will be senior in right of payment to the Company’s guarantee of the Senior Secured Notes. The Senior Secured Notes are subject to certain prepayment provisions related to the sale of assets if the proceeds from these sales are not reinvested within six months. The Senior Secured Notes may be put to the Company at 101% of face value in the event of a Change of Control as defined in the indenture.

     The Senior Secured Notes restrict Trico Supply and its direct and indirect subsidiaries from incurring additional indebtedness or paying dividends to the parent of Trico Supply unless the consolidated leverage ratio, which includes certain intercompany indebtedness, is less than 3.0:1 subsequent to the incurrence of the additional indebtedness. The Senior Secured Notes also limit the ability of Trico Supply and its subsidiaries from paying interest on existing intercompany debt agreements to Trico Marine Services and certain of its subsidiaries unless the fixed charge coverage ratio is less than 2.5:1. However, payments of up to $5 million by year to Trico Marine Services may be made for payment of general corporate, overhead and other expenses. As of June 30, 2010, payments in the amount of $1.1 million have been made by Trico Supply under this provision.

     The indenture provides that each of the following is an event of default: default for 30 days (5 days during the forbearance period as defined below) in the payment when due of interest; default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the Senior Secured Notes; failure for 30 days after notice to the borrower by the Trustee or the holders of at least 25% in aggregate principal amount of the Senior Secured Notes then outstanding voting as a single class to comply with any of the other agreements in the indenture governing the Senior Secured Notes or any security document or the occurrence of any event of default under any mortgage, equipment pledge or other security document; default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness, if that default: (i) is caused by a failure to make any payment when due at the final maturity of such indebtedness; or (ii) results in the acceleration of such indebtedness prior to its express maturity, and, in each case, the principal (or face) amount of any such indebtedness, together with the principal (or face) amount of any other indebtedness with respect to which an event described herein has occurred, aggregates $20.0 million or more ($5 million or more during the forbearance period); a default under the Trico Shipping Working Capital Facility which is caused by a failure to make any payment when due at maturity or results in the acceleration of such indebtedness prior to its express maturity; and if certain significant subsidiaries (excluding the Guarantors: Trico Marine Services, Trico Holdco, and Trico Cayman, during the forbearance period) within the meaning of the bankruptcy law commences a voluntary case, consents in writing to the entry of an order for relief against it in an involuntary case, consents in writing to the appointment of a custodian of it or for all or substantially all of its property, makes a general assignment for the benefit of its creditors, or admits in writing it generally is not paying its debts as they become due.

     If any event of default occurs and is continuing, the Trustee, by notice to the Company, or the holders of at least 25% in principal amount of the then outstanding Senior Secured Notes, by notice to the Company and the Trustee, may declare all the Senior Secured Notes to be due and payable immediately.

     Within 210 days of the issuance date of the Senior Secured Notes (October 30, 2009), the Company was required to file a registration statement with the SEC to effect the exchange of the issued notes for replacement notes covered by the registration statement and not subject to restrictions on transfer. If the registration statement is not effective within 270 days of the original issuance date of the Senior Secured Notes, which may be extended in certain circumstances, the Company will be required to pay additional interest on the Senior Secured Notes of 0.25% per annum initially up to a maximum of 0.50% per annum. The Company did not file the registration statement as required on May 31, 2010 which has resulted in a 0.25% increase in the interest rate. A further increase of an additional 0.25% occurred on July 31, 2010 when the Company did not have an effective registration in place. In accordance with the accounting guidance for contingent interest, the Company recorded $1.6 million as “Interest Expense” in the accompanying condensed consolidated statements of operations as it is probable that the additional interest will be paid. Upon the filing of a registration statement and the declaration of the registration statement as effective by the SEC, the additional 0.50% in interest will no longer be in effect.

     On June 25, 2010, Trico Shipping and the Guarantors entered into the first supplemental indenture with Deutsche Bank, as trustee (the “First Supplemental Indenture”), to the Senior Secured Notes which became effective following the receipt of the requisite consents of the holders and the payment of a consent fee of 0.25% of the total principal amount of the Senior Secured Notes at the time of the amendment (equal to $1.0 million). An additional 0.25% payment will be due 45 days following the effective date of the amendment.

     The First Supplemental Indenture modifies certain terms and conditions of the indenture. Certain of these changes are effective for the forbearance period while certain other changes are permanent. The forbearance period commenced on June 17, 2010 and expires on the earlier of June 17, 2011 and the effective date of a plan of reorganization related to Trico Marine Services, Trico Holdco and/or Trico Cayman subsequent to the filing of a bankruptcy case under Chapter 11 of the Bankruptcy Code.

     The First Supplemental Indenture, among other things, (i) waives certain defaults and events of default related to a voluntary bankruptcy case undertaken by Trico Marine Services, Trico Holdco, and/or Trico Cayman pursuant to Chapter 11 of the U.S. Bankruptcy Code during the forbearance period, (ii) waives certain defaults and events of default related to indebtedness issued by

Trico Marine Services including acceleration of this indebtedness and nonpayment of interest and/or principal during the forbearance period, (iii) adds a minimum liquidity financial covenant that requires Trico Supply and its subsidiaries to maintain a minimum liquidity of at least $20 million at each month end during the forbearance period, (iv) adds a minimum LTM consolidated cash flow covenant at each month end during the forbearance period, (v) increases the amount of indebtedness that can be issued and secured by the collateral of the Senior Secured Notes from $450 million to $465 million, (vi) limits the amount of funds that can be paid to Trico Other during the forbearance period to $5 million, and (vii) permanently eliminates the ability to transfer any proceeds related to the cancellation of the last four VS-470 vessels under construction to Trico Other.

     Under the terms of the Senior Secured Notes, the Company’s business has been effectively split into two groups: (i) Trico Supply, where substantially all of its subsea services business and all of its subsea protection business resides along with its North Sea towing and supply business and (ii) Trico Other, whose business is comprised primarily of the Company’s non-North Sea towing and supply businesses. Trico Other has the obligation, among other things, to pay the debt service related to the 8.125% Debentures, the 3% Debentures, the U.S. Credit Facility, and the 6.11% Notes and to pay the majority of corporate related expenses while Trico Supply has the obligation to make debt service payments related to the Senior Secured Notes and the Trico Shipping Working Capital Facility. Under the terms of the Senior Secured Notes, the ability of Trico Supply to provide funding on an ongoing basis to Trico Other is limited by restrictions on Trico Supply’s ability to pay dividends and principal and interest on intercompany debt unless certain financial measures are met. Other than an annual reimbursement of up to $5 million related to the reimbursement of corporate expenses, a one-time $5 million restricted payment basket, and certain carve outs related to the sale of one vessel, the Company does not expect Trico Supply to be able to transfer additional funds to Trico Other in the foreseeable future. During the forbearance period for the Senior Secured Notes, the total amount transferred is limited to $5.0 million. During the first six months of 2010, a total of $3.5 million was transferred from Trico Supply to Trico Other under the one-time $5 million restricted payment basket and approximately $1.1 million was transferred related to the $5 million annual reimbursement for corporate expenses.

     Trico Shipping Working Capital Facility. In conjunction with the issuance of the Senior Secured Notes, the Company entered into the Trico Shipping Working Capital Facility with Trico Shipping as the borrower.

     On June 21, 2010, Trico Shipping entered into the Second Amendment to Credit Agreement and Forbearance Agreement (the “Second Amendment”), which provided a forbearance from enforcement of remedies and waives any defaults arising from the failure of the Company to make a scheduled interest payment on its 8.125% Debentures and certain related matters, including a potential voluntary bankruptcy filing by the Company and certain of its subsidiaries. The Second Amendment also amends the Trico Shipping Working Capital Facility, to, among other things, (i) increase the interest rate by 2% during the forbearance period, (ii) permit the incurrence of additional indebtedness by Trico Shipping, (iii) revise the manner in which certain prepayments are applied to scheduled commitment reductions, and (iv) add financial covenants relating to minimum cash and minimum consolidated cash flow. The Second Amendment became effective on June 30, 2010. The forbearance period and financial covenants are the same as those for the Senior Secured Notes.

     On June 29, 2010, Trico Shipping entered into the Third Amendment to Credit Agreement and Forbearance Agreement (the “Third Amendment”) to provide for the addition of a term loan facility (the “Term Loan Facility”) to be provided by affiliates of Tennenbaum Capital Partners, LLC, in addition to the originally issued revolving loans (the “Revolving Loan Facility”). In conjunction with the issuance of the Term Loan Facility, the Revolving Loan Facility was reduced to $15.0 million with quarterly amortizations of approximately $2.3 million beginning on October 1, 2010. In connection with the reduction in capacity under this facility, the Company included a $0.6 million write-off of deferred financing costs in its consolidated statements of operations for the quarter ended June 30, 2010. The Revolving Loan Facility will expire on December 31, 2011. Interest is payable on the outstanding principal amount of the Revolving Loan Facility at the Eurodollar rate designated by the British Bankers Association plus 5.0% and is subject to an additional utilization fee of 3.0%, payable quarterly in arrears, if the facility is more than 50% drawn. An additional 2.0% is payable during the forbearance period. Up to $10 million of the facility may be used for letters of credit.

     On July 23, 2010, Trico Shipping entered into the Fourth Amendment to Credit Agreement, which provided for the granting of certain additional liens to the Collateral Agent under certain circumstances.

     The Term Loan Facility includes up to $50 million in Tranche A Term Loans and up to $15 million in Tranche B Term Loans (collectively, the “Term Loans”). Proceeds of the Term Loans may be used (i) to pay fees and expenses relating to the Third Amendment and the Trico Shipping Working Capital Facility, (ii) for general corporate and working capital purposes and (iii) to repay outstanding revolving loans. The Tranche A Term Loans are available in up to two borrowings (not including the borrowing on the date of the Third Amendment) for six months following the date of the Third Amendment, such availability being subject to certain conditions, including the delivery to the lenders of certain additional documents and legal opinions. The Tranche B Term Loans are available in one borrowing until March 31, 2011, such availability being subject to certain conditions, including the termination and

repayment in full (and cash collateralization of letters of credit) of the Revolving Loan Facility and delivery to the lenders of certain additional documents and legal opinions. On the date of the Third Amendment, Trico Shipping borrowed approximately $28 million of Tranche A Term Loans, which were used (i) to repay the revolving lenders in connection with the reduction of the Revolving Loan Facility to $15 million, (ii) to pay fees and expenses relating to the Third Amendment and (iii) for working capital and general corporate purposes. The Term Loans mature on January 31, 2014 and will bear interest at the initial rate of 13.5% per annum until June 30, 2013 and 14.5% per annum thereafter. Undrawn amounts under the Term Loan Facility are subject to a fee equal to 1.5% per annum until December 31, 2010 and 2.5% per annum thereafter. The Term Loans may be prepaid as follows provided no prepayments may be made prior to January 1, 2011: (i) from January 1, 2011 to December 31, 2011, $20 million of Term Loans may be prepaid without premium with any further amounts prepaid during such period being subject to a 5% prepayment premium, (ii) from January 1, 2012 to December 31, 2012, $20 million of Term Loans may be prepaid without premium with any further amounts prepaid during such period being subject to a 3% prepayment premium and (iii) from January 1, 2013 and thereafter, prepayments may be made without premium. Additionally, the Third Amendment amended certain of the restrictive covenants, including those relating to the ability of Trico Shipping and certain of its affiliates to make dividends or investments. In addition, on August 16, 2010, the Company and Trico Shipping each agreed not to draw on this availability prior to December 31, 2010. See Note 18.

     As of June 30, 2010, the Company had outstanding letters of credit under the Trico Shipping Working Capital Facility of $7.8 million with various expiration dates through August 2011 for securing performance under certain subsea services contracts.

     The Trico Shipping Working Capital Facility subjects the Company’s subsidiaries that are parties to the agreement to certain customary non-financial covenants including, but not limited to, affirmative and negative covenants. Payments under the Trico Shipping Working Capital Facility may be accelerated following certain events of default, including, but not limited to, failure to make payments when due, noncompliance with covenants, breaches of representations and warranties, commencement of insolvency proceedings, occurrence of certain changes of control, and defaults under other debt agreements which permit the holders to declare the indebtedness due and payable prior to stated maturity provided the aggregate amount of indebtedness affected is at least $5 million. The Trico Shipping Working Capital Facility also cross defaults to the U.S. Credit Facility.

     6.11% Notes. In 1999, TMI issued $18.9 million of notes due 2014 to finance construction of two supply vessels, of which $5.0 million is outstanding at June 30, 2010. The notes are guaranteed by the Company and the U.S. Maritime Administration and secured by first preferred mortgages on two vessels. Failure to maintain the Company’s status as a Jones Act company would constitute an event of default under such notes.

6. Derivative Instruments

     As discussed in Note 5, the Company’s 8.125% Debentures provide the holder with a conversion option, which if exercised after May 15, 2011, entitles the holder to a make-whole interest payment that is indexed to the U.S. Treasury Rate. Because the terms of this embedded option are not clearly and closely related to the debt instrument, it represents an embedded derivative that must be accounted for separately. Under authoritative guidance for derivative instruments and hedging activities, the Company is required to bifurcate the embedded derivative from the host debt instrument and record it at fair value on the date of issuance, with subsequent changes in its fair value recorded in the consolidated statement of operations. The conversion option in the 3% Debentures is settled in cash and potentially stock and therefore is not required to be separately accounted for as a derivative as the value of the consideration is determined solely by the price of the stock. The warrants issued in the Exchange were also derivative instruments and required to be recorded as a liability due to the net-cash settlement terms included in the Exchange Agreements. Changes in fair value were re-measured in each subsequent period based upon the Company’s stock price each quarter the warrants were outstanding. All of the warrants were exercised in 2009 and are no longer outstanding.

     For the debentures, the estimate of fair value was determined through the use of a Monte Carlo simulation lattice option-pricing model that included various assumptions at December 31, 2009 and the Company’s updated fair value projection at June 30, 2010 (see Note 7 for further discussion). The 6.5% Debentures were exchanged for the 8.125% Debentures in May 2009. The coupon and the amortization of the discount on the debt will yield an effective interest rate of approximately 11.3% on the 8.125% Debentures and yielded approximately 11.2% on the 6.5% Debentures. The variation in the Company’s stock price as well as the passage of time are the primary factors influencing the change in value of the derivatives and their impact on the Company’s net income (loss). Variations in the Company’s stock price result in non-cash unrealized gains and losses being recognized in future periods for the debentures and such amounts could be material.

     On January 1, 2009, the Company adopted a newly issued accounting standard regarding disclosure of derivative instruments and hedging activities. The new standard requires entities that use derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. It also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of derivative instruments and hedging activities have been applied, and the impact that hedges have on an entity’s financial position, financial performance and cash flows. The tables below reflect (i) Fair Values of Derivative Instruments in the Balance Sheets and (ii) the Effect of Derivative Instruments on the Statements of Operations (in thousands).

Liability Derivative

June 30, 2010

December 31, 2009

Derivatives Not Designated as Hedging

Balance Sheet

Fair

Balance Sheet

Fair

Instruments under Accounting Guidance

Location

Value

Location

Value

Other contract - 8.125% Debentures

Long-term derivative

$

108

Long-term derivative

$

6,003

Total derivatives

$

108

$

6,003

Derivatives Not
Designated as Hedging		Location of Gain (Loss)				Amount of Gain (Loss) Recognized on Derivative
Instruments under		Recognized in Income				Three Months Ended June 30,								Six Months Ended June 30,
Accounting Guidance		on Derivative				2010				2009				2010				2009
Other contract		Unrealized gain on mark-to-market of warrant liabilities - 8.125% Debentures				$	—			$	18			$	—			$	18
Other contract		Unrealized gain (loss) on mark-to-market of embedded derivative - 6.5% Debentures					—				(503	)			—				436
Other contract		Unrealized gain on mark-to-market of embedded derivative - 8.125% Debentures					614				979				5,895				979
						$	614			$	494			$	5,895			$	1,433

7. Fair Value Measurements

     On January 1, 2009, the Company adopted a newly issued accounting standard for fair value measurements of all non-financial assets and liabilities, including the fair value measurements used in assessing impairment of tangible and intangible assets. At June 30,

2010, the Company recognized impairments related to certain tangible and intangible assets that required the use of non-recurring fair value measurements. These charges are recognized under “Impairments” in the Statements of Operations and were all measured using Level 3 inputs. The Company recognized a $10.2 million impairment write down of intangible assets related to its trade names in subsea services based on a “relief from royalty” valuation methodology. The fair value for intangible assets, after consideration of the impairment charge, at June 30, 2010 was $92.0 million. See Note 4 for further discussion. The Company also recognized a $5.0 million impairment charge related to an acquired asset representing the value of a CTC Marine contract. See Note 14 for further discussion. The fair value determination for this impairment was based upon the reassessment of the value of the acquired asset as a result of the facts presented at a second quarter 2010 arbitration hearing. The remaining fair value at June 30, 2010 was $3.6 million. The Company also recorded $69.0 million of impairment charges related to vessels currently under construction by Tebma. The fair values were based on appraised values for similar completed vessels less the estimated costs to complete construction, as well as an estimated value for certain vessel related equipment. The remaining fair value for the vessels and equipment at June 30, 2010 was $34.0 million. See Note 14 for further discussion.

     The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The accounting standard established a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required as well as the assets and liabilities that the Company values using those levels of inputs.

	•		Level 1 — Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
	•		Level 2 — Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
	•		Level 3 — Unobservable inputs that reflect the reporting entity’s own assumptions.

     Financial liabilities subject to fair value measurements on a recurring basis are as follows (in thousands):

		Fair Value Measurements
		at June 30, 2010
		Using Fair Value Hierarchy
		Fair Value as of
		June 30, 2010				Level 1				Level 2				Level 3
Liabilities
Long-term derivative (8.125% Debentures)		$	108			$	—			$	—			$	108
		$	108			$	—			$	—			$	108

		Fair Value Measurements
		at December 31, 2009 Using Fair Value
		Hierarchy
		Fair Value as of
		December 31, 2009				Level 1				Level 2				Level 3
Liabilities
Long-term derivative (8.125% Debentures)		$	6,003			$	—			$	—			$	6,003
		$	6,003			$	—			$	—			$	6,003

     The estimated fair values of financial instruments have been determined by the Company using available market information and valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

     Cash, cash equivalents, accounts receivable and accounts payable. The carrying amounts approximate fair value due to the short-term nature of these instruments.

     Debt. The fair value of the Company’s fixed rate debt is based partially on quoted market prices as well as prices for similar debt based on recent market transactions.

     The carrying amounts and fair values of debt were as follows (in thousands):

		June 30, 2010				December 31, 2009
Carrying amount		$	768,510			$	733,897
Fair value			610,464				687,401

     As discussed in Note 6, the Company’s conversion feature contained in its 8.125% Debentures and the prior 6.5% Debentures is required to be accounted for separately and recorded as a derivative financial instrument measured at fair value. The estimate of fair value was determined through the use of a Monte Carlo simulation lattice option-pricing model at December 31, 2009. As of December 31, 2009, there were no assumptions used in the valuation model for the 6.5% Debentures as they were exchanged for the 8.125% Debentures in May 2009. At June 30, 2010, the Company reviewed the assumptions that were previously used. As a result of the Company’s closing price of $0.50 on such date and an expected increased discount rate, the Company revalued the embedded derivative at $0.1 million. The following table sets forth a reconciliation of changes in the fair value of the Company’s derivative liability as classified as Level 3 in the fair value hierarchy (in thousands).

		8.125%				6.5%
		Debentures				Debentures
Balance on December 31, 2008		$	—			$	1,119
Unrealized (gain) loss for 2009			1,278				(436	)
Final valuation of 6.5% Debentures due to exchange for 8.125% Debentures			—				(683	)
Issuance of long-term derivative (8.125% Debentures)			4,725				—
Balance on December 31, 2009			6,003				—
Unrealized gain for 2010			(5,895	)			—
Balance on June 30, 2010		$	108			$	—

8. Earnings (Loss) Per Share

     Earnings (loss) per common share was computed based on the following (in thousands, except per share amounts):

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Basic EPS
Net income (loss) attributable to Trico Marine Services, Inc.		$	(160,401	)		$	4,147			$	(238,949	)		$	3,401
Weighted-average shares of common stock outstanding:
Basic			20,716				18,601				20,704				17,657
Earnings (loss) per share:
Basic		$	(7.74	)		$	0.22			$	(11.54	)		$	0.19
Diluted EPS
Net income (loss) attributable to Trico Marine Services, Inc.		$	(160,401	)		$	4,147			$	(238,949	)		$	3,401
Add: interest on 8.125% convertible debentures, net of tax			—	(1)			1,736				—	(1)			—	(1)
Net income attributable to Trico Marine Services, Inc. with assumed conversions		$	(160,401	)		$	5,883			$	(238,949	)		$	3,401
Weighted-average shares of common stock outstanding:
Basic			20,716				18,601				20,704				17,657
Add dilutive effect of:
Phantom stock units			—				229				—				304
8.125% convertible debentures			—	(1)			7,482				—	(1)			—	(1)
Stock options and nonvested restricted stock			—				33				—				50
Total			20,716				26,345				20,704				18,011
Earnings (loss) per share:
Diluted		$	(7.74	)		$	0.22			$	(11.54	)		$	0.19

     In May 2009, the existing holders of the 6.5% Debentures entered into the Exchange Agreements exchanging their 6.5% Debentures for 8.125% Debentures. See Note 5 for more information.

     Diluted earnings (loss) per share is computed using the if-converted method for the 8.125% Debentures and using the treasury stock method for the 3% Debentures and the 6.5% Debentures. The scheduled principal amortizations for the 8.125% Debentures can be paid either in stock or cash based upon the Company’s election. However, if the 8.125% Debentures are converted at the option of the holders prior to maturity, the bondholders will be paid in stock.

     The Company’s 3% Debentures and 6.5% Debentures (through May 2009 only) were not dilutive as the average price of the Company’s common stock was less than the conversion price for each series of the debentures during the presented periods they were outstanding. As the principal amount for the 3% Debentures can only be settled in cash, they are not considered in the diluted earnings per share. Although the Company had the option of settling the principal amount of 6.5% Debentures in either cash, stock or a combination of both, management’s intention at that time was to settle the amounts when converted with available cash on hand, through borrowings under the Company’s existing lines of credit or other refinancing as necessary.

9. Comprehensive Income (Loss)

     The components of total comprehensive income (loss) were as follows (in thousands):

		Three Months Ended June 30,
		2010				2009
						Shareholders of
						Trico Marine				Noncontrolling
		Total				Services, Inc.				Interests				Total
Net income (loss)		$	(160,401	)		$	4,147			$	514			$	4,661
Foreign currency translation gain			11,538				22,862				—				22,862
Amortization of unrecognized actuarial gains			74				87				—				87
Total comprehensive income (loss)		$	(148,789	)		$	27,096			$	514			$	27,610

		Six Months Ended June 30,
		2010				2009
						Shareholders of
						Trico Marine				Noncontrolling
		Total				Services, Inc.				Interests				Total
Net income (loss)		$	(238,949	)		$	3,401			$	1,264			$	4,665
Foreign currency translation gain			17,869				35,952				—				35,952
Amortization of unrecognized actuarial gains			163				184				—				184
Total comprehensive income (loss)		$	(220,917	)		$	39,537			$	1,264			$	40,801

10. Stock-Based Compensation

     The Company has stock-based compensation plans, which are described in more detail in Note 14 to the Notes to Consolidated Financial Statements in the 2009 Form 10-K. Net loss for the three and six months ended June 30, 2010 included $1.7 million and $1.3 million, respectively, of stock-based compensation gains compared to $1.1 million and $1.8 million of expenses, respectively, for the same three and six month periods of 2009. The Company records all of its stock based compensation costs as general and administrative expenses in the accompanying condensed consolidated statements of operations. As of June 30, 2010, there was $0.6 million of total unrecognized compensation costs related to unvested stock-based compensation that is expected to be recognized over a weighted-average period of 0.9 years. The Company expects that its total fixed stock-based compensation gains for the year ended December 31, 2010 will total approximately $0.7 million. The gains primarily result from the reversal of previously recognized compensation expense associated with restricted stock forfeited in the second quarter of 2010.

     On April 28, 2010, the Company granted stock appreciation awards (“SARs”) and phantom stock awards (“phantom stock”) to each independent member of the Board of Directors, executives and certain key employees. The exercise price of $2.39 for the SARs was based on the Company’s closing stock price on the date of the grant. See the table below.

Number of

Date of Grant

Grants

Vesting Period

Shares

April 28, 2010

SARs

Ratably over three years

493,030

April 28, 2010

Phantom stock

Ratably over three years

232,540

     The grant-date fair value for the SARs and phantom stock awards was estimated using a Black-Scholes option valuation model which incorporated the following assumptions.

		April 28, 2010 Grant Date
		SARs and Phantom
		Stock - Vested
		Ratably
Grant-Date Fair Value		$	1.20
Expected Term			4.5
Expected Volatility			60	%
Risk-Free Interest Rate			2.30	%
Expected Dividend Distributions			N/A

     As SARs and phantom stock provide the participant the right to receive a cash payment only when they are exercised, they will be classified as liabilities and the fair value will be measured in each subsequent reporting period with changes in fair value reflected as a component of stock-based compensation costs in the Statements of Operations. See below for the updated assumptions as of June 30, 2010.

		March 13, 2009 Grants								April 28, 2010 Grants
										SARs and Phantom
		SARs - Vested				SARs - Cliff				Stock - Vested
		Ratably				Vested				Ratably
Fair Value at June 30, 2010		$	0.05			$	0.04			$	0.06
Expected Term			3.3				3.7				4.3
Expected Volatility			60	%			55	%			60	%
Risk-Free Interest Rate			1.10	%			1.28	%			1.52	%
Expected Dividend Distributions			N/A				N/A				N/A

11. Taxes

     The Company’s income tax expense/(benefit) for the three and six months ended June 30, 2010 was $(7.1) million and $15.8 million compared to $(3.6) million and $(18.7) million for the comparable prior year periods. The income tax expense/(benefit) for each period is primarily associated with the Company’s U.S. federal, state and foreign taxes. The Company’s tax expense/(benefit) for the three and six months ending June 30, 2010 differs from that under the statutory rate primarily due to nondeductible interest expense in the United States as a result of the 6.5% Debenture exchange described in Note 5, the one-time expense related to the Norwegian Supreme Court ruling on February 12, 2010 (described below) and state and foreign taxes. The Company’s effective tax rate is subject to wide variations given its structure and operations. The Company operates in many different taxing jurisdictions with differing rates and tax structures. Therefore, a change in the Company’s overall plan could have a significant impact on the estimated rate. At June 30, 2009, the Company’s tax benefit differed from that under the statutory rate primarily due to tax benefits associated with the Norwegian Tonnage Tax Regime and a change in law enacted on March 31, 2009 (described below) and state and foreign taxes.

     Since the Company currently has no U.S. operations, the history of negative earnings from these operations and the emphasis to expand the Company’s presence in growing international markets constitutes significant negative evidence substantiating the need for a full valuation allowance against the U.S. net deferred tax assets, including the current deferred tax assets, as of June 30, 2010. The Company will use cumulative profitability and future income projections as key indicators to substantiate subsequent release of the valuation allowance. This will result in an increase in additional paid-in-capital at the time the valuation allowance is reduced. If the Company’s future U.S. operations are profitable, it is possible the Company will release the valuation allowance at some future date.

     The Company conducts business globally and, as a result, one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities worldwide, including such major jurisdictions as Norway, Mexico, Brazil, Nigeria, Angola, Hong Kong, China, United Kingdom, Australia and the United States. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003.

     The accounting for income taxes prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. As of December 31, 2009, the Company recognized $2.4 million in uncertain tax positions and $2.0 million in penalties and interest. During the six months ended June 30, 2010, the Company recognized $0.4 million in uncertain tax positions, penalties and interest. The entire balance of unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

     Norwegian Tonnage Tax legislation was enacted as part of the 2008 Norwegian budgetary process. At this time, new tonnage tax regime was applied retroactively to January 1, 2007 and was similar to other European Union tonnage tax regimes. As a result, all shipping and certain related income, but not financial income, was exempt from ordinary corporate income tax and subjected to a tonnage-based tax. Unlike the previous regime, where the taxation was only due upon a distribution of profits or an outright exit from the regime, the new regime provided for a tax exemption on profits earned after January 1, 2007.

     As part of the legislation, the previous tonnage tax regime covering the period from 1996 through 2006 was repealed. Companies that were in the then current regime, and entered into the new regime, would be subject to tax at 28% for all accumulated untaxed shipping profits generated between 1996 through December 31, 2006 in the tonnage tax company. Under the original provisions, two-thirds of the liability (NOK 251 million, $38.7 million at June 30, 2010) was payable in equal installments over 10 years. The remaining one-third of the tax liability (NOK 126 million, $19.4 million at June 30, 2010) could be met through qualified environmental expenditures.

     Under the initial legislation enacted, any remaining portion of the environmental part of the liability not expended at the end of ten years would be payable to the Norwegian tax authorities at that time. In 2008, the ten year limitation was extended to fifteen years. On March 31, 2009, the need to invest in environmental measures within fifteen years was abolished. As a result, the Company recognized a one-time tax benefit in the first quarter of 2009 earnings of $18.6 million related to the change. Although qualifying expenditures were still required, there was no time constraint to make these expenditures before it would become payable to the Norwegian tax authorities.

     On February 12, 2010, the Norwegian Supreme Court ruled that the transitional rules, whereby the untaxed profits under the old regime became taxable upon entrance into the new regime, were unconstitutional. As a result, the Company received $9.3 million in cash refunds related to tax payments made in 2008 and 2009 pursuant to the transitional regime that was ruled unconstitutional. This refund and related interest was received by the Company in March 2010.

     As a result of the unconstitutionality ruling and lack of new tax regulations as of March 31, 2010, the distribution tax regime in place prior to the 2008 Tonnage Tax Legislation is presumed to apply again. Consequently, the Company recorded a deferred tax liability of approximately $59.8 million and $21.2 million of deferred tax expense as of June 30, 2010 related to the calculated gains under the transition rules. These taxes are not due until earnings are distributed from one of the Company’s Norwegian tonnage tax entities.

     In response to the Supreme Court Ruling, the Norwegian Ministry of Finance introduced amendments to the tonnage tax regulations that were approved and signed into law on June 25, 2010. The amendments include two options: a voluntary settlement or a distribution regime. Under the voluntary regime, 10% of the settlement account (two-thirds of the gain calculated on transition to the new regime in 2007, NOK 251 million) is to be paid as tax. Companies that do not elect voluntary settlement of the tax liability will be subject to continued taxation as under the old tonnage tax regime. This implies a 28% taxation of untaxed profits upon distributions to shareholders outside the tonnage tax regime or at exit from the tonnage tax regime. The possibility to waive one-third of the tax liability by investing in environmental measures was abolished. As a result, the whole gain (NOK 376.9 million) calculated at the time of entry into the new tonnage tax regime at the end of 2007 forms the basis for the future distribution tax. The election to enter the voluntary regime would be made on the Company’s applicable 2010 year-end tax return filed during the second quarter of 2011. Although the Company would seek to avail itself of this benefit, the Company’s current financial situation and liquidity concerns may preclude it from electing into the voluntary regime. As a result, the Company will continue to account for this potential liability under the disclosure regime until it is certain that it can avail itself of the benefit or actual election.

12. Employee Benefit Plans

     The annual costs and liabilities under the Norwegian defined benefit pension plans are determined each year based on actuarial assumptions. The components of net periodic benefit costs related to the Company’s Norwegian defined benefit pension plans were as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Service cost		$	1,109			$	919			$	2,201			$	1,945
Interest cost			223				215				459				467
Return on plan assets			(217	)			(247	)			(449	)			(534	)
Social security contributions			158				134				312				283
Recognized net actuarial loss			74				87				163				184
Net periodic benefit cost		$	1,347			$	1,108			$	2,686			$	2,345

     The Company’s contributions to the Norwegian defined benefit plans totaled $0.8 million and $1.7 million for the three and six month periods ended June 30, 2010. The Company’s contributions for the three and six month periods ended June 30, 2009 totaled $0.7 million and $1.4 million, respectively.

     Certain of the Company’s United Kingdom employees are covered by the Merchant Navy Officers Pension Fund (the “MNOPF Plan”), a non-contributory, multiemployer defined benefit pension plan. Plan actuarial valuations are determined every three years. During the second quarter of 2010, the Company was notified that the most recent valuation resulted in a funding deficit of approximately $3.3 million. The Company recognized costs of $3.3 million for the three and six months ended June 30, 2010 and $0.1 million for the three and six months ended June 30, 2009, respectively, for the MNOPF Plan.

     The Company’s United Kingdom employees are covered by a non-contributory multi-employer defined benefit plan. Contributions to this plan were $0.2 million and $0.4 million for each of the three and six month periods ended June 30, 2010 and $0.1 million for each of the three and six month periods ended June 30, 2009.

13. Investment in EMSL

     Beginning January 1, 2010, in accordance with new authoritative guidance for variable interest entities, the Company no longer consolidates its investment in EMSL. Because the Company holds a 49% ownership interest, EMSL is now accounted for under the equity method. There was no gain or loss recognized in connection with the deconsolidation of EMSL. As of June 30, 2010, EMSL currently has total assets of $24.7 million and equity of $23.6 million. EMSL generated revenues of $3.5 million and net income of $0.3 million for the quarter ended June 30, 2010 and $5.8 million of revenues and a $3.4 million net loss for the six months ended June 30, 2010.

14. Commitments and Contingencies

     General. In the ordinary course of business, the Company is involved in certain personal injury, pollution and property damage claims and related threatened or pending legal proceedings. The Company does not believe that any of these proceedings, if adversely determined, would have a material adverse effect on its financial position, results of operations or cash flows. Additionally, the Company’s insurance policies may reimburse all or a portion of certain of these claims. At June 30, 2010 and December 31, 2009, the Company accrued for liabilities in the amount of approximately $5.1 million and $3.3 million, respectively, based upon the gross amount that management believes it may be responsible for paying in connection with these matters. Additionally, from time to time, the Company is involved as both a plaintiff and a defendant in other civil litigation, including contractual disputes. The Company does not believe that any of these proceedings, if adversely determined, would have a material adverse effect on its financial position, results of operations or cash flows. The amounts the Company will ultimately be responsible for paying in connection with these matters could differ materially from amounts accrued.

     Tebma. The Company is currently in a dispute with Tebma regarding the construction of the following six vessels for Trico Subsea AS: Hulls No. 120, 121, 128 and 129 (the “Four Cancelled Tebma Vessels”) and Hulls No. 118 and 119 (the “Two Remaining Tebma Vessels”). Trico Subsea AS and Tebma dispute whether the construction contracts of each of the vessels remains in effect; if not, by whom and for what reason the contracts were cancelled; and whether Trico Subsea AS has the right to call on refund guarantees issued for its benefit. The refund guarantees are issued by several Indian financial institutions in the aggregate amount of approximately $19 million with respect to the Four Cancelled Tebma Vessels, and in the aggregate amount of approximately $22 million with respect to the Two Remaining Tebma Vessels. Since July 1, 2010, (i) Trico Subsea AS has taken action to cancel the construction contracts for the Four Cancelled Tebma Vessels, and submitted draw requests to the financial

institutions issuing the refund guarantees for the same vessels, in the approximate aggregate amount of $19 million, and (ii) Tebma has taken action to cancel the construction contracts for all six vessels, and initiated court proceedings in India to restrain Trico Subsea AS and the issuing financial institutions from acting in respect of the refund guarantees. The Company is in discussions with Tebma to resolve these disputes. In the case of the Four Cancelled Tebma Vessels, there is no assurance that the financial institutions that issued the refund guarantees will allow Trico Subsea AS to draw on such guarantees, in part or in whole, or that the total proceeds from such guarantees would equal approximately $19 million. In the case of the Two Remaining Tebma Vessels, there is no assurance that the vessel construction contracts remain in place, or that Tebma will complete the construction of such vessels. Further, there is no assurance that the refund guarantees on the Two Remaining Tebma Vessels, which have expiration dates and need to be periodically renewed, will continue to be renewed and be available if called upon by Trico Subsea AS. In connection with the commencements of these disputes during the second quarter, the Company reassessed the carrying value of these assets for impairment, as defined by accounting guidance for long-lived assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset from its use or eventual disposition. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As a result of its assessment, the Company recognized an impairment of $69.0 million for the quarter ended June 30, 2010 on the Two Remaining Tebma Vessels and the Four Cancelled Tebma Vessels. The fair values were based on appraised values for similar completed vessels less the estimated costs to complete construction, as well as an estimated value for certain vessel related equipment. The remaining fair value for the vessels and equipment at June 30, 2010 was $34.0 million. To the extent the Company is unable to resolve these disputes in a manner satisfactory to the Company, or if there is further deterioration in market conditions affecting the value of the underlying vessels and equipment, the Company could be subject to further impairments to these assets in future periods and such amounts could be material.

     Saipem. Prior to their acquisition by the Company, CTC Marine entered into a sub-contract (“the Sub-contract”) dated March 30, 2007 with Saipem S.p.A (“Saipem”), an Italian-registered company. Saipem had previously been contracted by oil and gas operator Terminale GNL Adriatico Srl (“ALNG”) to lay, trench and backfill an offshore pipeline in the northern Adriatic Sea. The Sub-contract related to the trenching and backfilling work. Work on location commenced on February 13, 2008 and was completed on May 5, 2008. The project took longer than originally anticipated and the target depth of cover for the pipeline was not met for the whole of the route due to CTC Marine encountering significantly different soils on the seabed to those which had been identified in the geotechnical survey documentation. In conjunction with the acquisition of CTC Marine in May of 2008, the Company recorded an asset in purchase accounting related to the estimated fair value of this claim as of the acquisition date. In the summer of 2008, CTC Marine submitted a contractual claim to Saipem in relation to the different soils. Saipem in turn made submissions to ALNG. ALNG rejected Saipem’s submission and Saipem has, in turn, refused to pay CTC Marine the additional sums. The Sub-contract is governed by English law and specifies that disputes that are incapable of resolution must be referred to arbitration before three Arbitrators under the International Chamber of Commerce rules. Arbitration is a commercial rather than a court remedy. The decision of the Arbitral Tribunal is enforceable in the courts of all major nations.

     CTC Marine submitted a Claim to Arbitration on April 9, 2009 based upon the Sub-contract for payment of 7.7 million Sterling ($11.6 million as of June 30, 2010) plus interest and costs. Saipem sought an extension to the time for their answer and provided this on June 4, 2009, together with a Counterclaim for Liquidated Damages in terms of the Sub-contract. CTC Marine submitted its reply to the Counterclaim as well as amendments to the request. Based on a reassessment of the value of the asset, as a result of preliminary mediation efforts, the Company recognized a $2.0 million impairment charge in December 2010. The parties made arguments to the Arbitral Tribunal of three, comprising one nomination from each side and an independent chairman, during a three-week arbitration hearing in June 2010. The parties presented final submissions in July 2010 and the Arbitral Tribunal is expected to announce its decision in November 2010. Based on a reassessment of the value of the acquired asset as a result of the facts presented at the arbitration hearing, the Company recognized a $5.0 million impairment charge for the quarter ended June 30, 2010. The remaining amount expected to be recoverable by the Company as of June 30, 2010 was approximately $3.6 million and is reflected in "Prepaid expenses and other current assets" in the accompanying condensed consolidated balance sheet.

     Brazilian Tax Assessments. On March 22, 2002, the Company’s Brazilian subsidiary received a non-income tax assessment from a Brazilian state tax authority for approximately 52.0 million Reais ($28.9 million at June 30, 2010). The tax assessment is based on the premise that certain services provided in Brazilian federal waters are considered taxable by certain Brazilian states as transportation services. The Company filed a timely defense at the time of the assessment. In September 2003, an administrative court upheld the assessment. In response, the Company filed an administrative appeal in the Rio de Janeiro administrative tax court in October 2003. In November 2005, the Company’s appeal was submitted to the Brazilian state attorneys for their response. On December 8, 2008, the final hearing took place and the Higher Administrative Tax Court ruled in favor of the Company. On April 13, 2009, the State Attorney’s Office filed its appeal with the Special Court of the Higher Administrative Tax Court. The Company filed its response on June 9, 2009. The Company is under no obligation to pay the assessment unless and until such time as all appropriate appeals are exhausted. The Company intends to vigorously challenge the imposition of this tax. Many of the Company’s competitors in the marine industry have also received similar non-income tax assessments. Broader industry actions have been taken against the tax in the form of a suit filed at the Brazilian Federal Supreme Court seeking a declaration that the state statute attempting to tax the industry’s activities is unconstitutional. This assessment is not income tax based and is therefore not accounted for under authoritative accounting guidance for income taxes that prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The Company has not accrued any amounts for the assessment of the liability.

     During the third quarter of 2004, the Company received a separate non-income tax assessment from the same Brazilian state tax authority for approximately 4.8 million Reais ($2.7 million at June 30, 2010). This tax assessment is based on the same premise as

noted above. The Company filed a timely defense in October 2004. In January 2005, an administrative court upheld the assessment. In response, the Company filed an administrative appeal in the Rio de Janeiro administrative tax court in February 2006. On January 22, 2009, the Company filed a petition requesting for the connection of the two cases, and asking for the remittance of the case to the other Administrative Section that ruled favorable to the Company in the other case mentioned above. The President of the Higher Administrative Tax Court is analyzing this request. This assessment is not income tax based and is therefore not accounted for under authoritative accounting guidance for income taxes that prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The Company has not accrued any amounts for the assessment of the liability.

     If the Company’s challenges to the imposition of these taxes (which may include litigation at the Rio de Janeiro state court) prove unsuccessful, current contract provisions and other factors could potentially mitigate the Company’s tax exposure. Nonetheless, an unfavorable outcome with respect to some or all of the Company’s Brazilian state tax assessments could have a material adverse affect on the Company’s financial position and results of operations if the potentially mitigating factors also prove unsuccessful.

     Operating Leases. On September 30, 2002, one of the Company’s subsidiaries, TMO, entered into a master bareboat charter agreement (the “Master Charter”) with General Electric Capital Corporation (“GECC”) for the sale-lease back of three crew boats. The lease agreements have various term dates with the latest term ending in 2015. All obligations under the Master Charter are guaranteed by TMA, and the Company. The Company has provided GECC with a pledge agreement (the “Pledge Agreement”) and $1.7 million cash deposit pursuant to the Master Charter. The deposit has been classified as “Other Assets” in the accompanying consolidated balance sheet.

     The Master Charter also contains cross-default provisions, which could be triggered in the event of certain conditions, including a bankruptcy filing, or the default and acceleration of the Company or certain subsidiaries with respect to any loan agreement which results in an acceleration of such loan agreement. Upon any event of default under the Master Charter, GECC could elect to, among other things, terminate the Master Charter, repossess and sell the vessels, and require the Company or certain subsidiaries to make up to a $9.7 million stipulated loss payment to GECC. If the conditions of the Master Charter requiring the Company to make a stipulated loss payment to GECC were met, such a payment could impair the Company’s liquidity.

15. Segment Information

     The Company operates through three business segments: (i) subsea services (ii) subsea trenching and protection and (iii) towing and supply.

						Subsea Trenching
		Subsea				and				Towing and
		Services				Protection				Supply				Corporate				Total
										(in thousands)
Three Months Ended:
June 30, 2010
Revenues from Unaffiliated Customers		$	75,755			$	50,871			$	17,935			$	—			$	144,561
Intersegment Revenues			6,393				—				1,450				—				7,843
Operating (Income) Loss			(82,436	)			513				(1,642	)			(6,636	)			(90,201	)
Loss Before Income Taxes			(87,370	)			(100	)			(61,041	)			(18,972	)			(167,483	)
June 30, 2009
Revenues from Unaffiliated Customers		$	78,916			$	68,353			$	32,463			$	—			$	179,732
Intersegment Revenues			6,623				—				—				—				6,623
Operating (Income) Loss			(10,392	)			14,915				17,443				(6,731	)			15,235
Income (Loss) Before Income Taxes and Noncontrolling Interests			(7,957	)			9,965				18,486				(19,474	)			1,020

						Subsea
						Trenching
		Subsea				and				Towing and
		Services				Protection				Supply				Corporate				Total
										(in thousands)
Six Months Ended:
June 30, 2010
Revenues from Unaffiliated Customers		$	131,386			$	72,666			$	36,224			$	—			$	240,276
Intersegment Revenues			7,427				—				3,710				—				11,137
Operating Loss			(90,279	)			(1,475	)			(3,150	)			(13,744	)			(108,648	)
Loss Before Income Taxes			(99,307	)			(3,422	)			(94,198	)			(26,244	)			(223,171	)
June 30, 2009
Revenues from Unaffiliated Customers		$	137,562			$	94,403			$	69,585			$	—			$	301,550
Intersegment Revenues			7,308				—				—				—				7,308
Operating Income (Loss)			(15,871	)			11,679				16,984				(13,729	)			(937	)
Income (Loss) Before Income Taxes and Noncontrolling Interests, as adjusted			(15,466	)			5,944				18,422				(22,904	)			(14,004	)

16. Recent Accounting Standards

     In January 2010, the Financial Accounting Standards Board issued an amendment to the disclosure requirements for fair value measurements. The update requires entities to disclose the amounts of and reasons for significant transfers between Level 1 and Level 2, the reasons for any transfers into or out of Level 3, and information about recurring Level 3 measurements of purchases, sales, issuances and settlements on a gross basis. The update also clarifies that entities must provide (i) fair value measurement disclosures for each class of assets and liabilities and (ii) information about both the valuation techniques and inputs used in estimating Level 2

and Level 3 fair value measurements. Except for the requirement to disclose information about purchases, sales, issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis, the update is effective for interim and annual periods beginning after December 15, 2009. The requirement to separately disclose purchases, sales, issuances, and settlements of recurring Level 3 measurements is effective for interim and annual periods beginning after December 15, 2010. The Company’s adoption did not have a material effect on the disclosures contained in its notes to the consolidated financial statements.

17. Supplemental Condensed Consolidating Financial Information

     On October 30, 2009, Trico Shipping issued the Senior Secured Notes. The Senior Secured Notes are unconditionally guaranteed on a senior basis by Trico Supply AS and each of the other direct and indirect parent companies of Trico Shipping (other than the Company) and by each direct and indirect subsidiary of Trico Supply AS other than Trico Shipping (collectively, the “Subsidiary Guarantors”). The Senior Secured Notes are also unconditionally guaranteed on a senior subordinated basis by the Company. The guarantees are full and unconditional, joint and several guarantees of the Senior Secured Notes. The Senior Secured Notes and the guarantees rank equally in right of payment with all of Trico Shipping’s and the Subsidiary Guarantors’ existing and future indebtedness and rank senior to all of Trico Shipping’s and the Subsidiary Guarantors’ existing and future subordinated indebtedness. The Company’s guarantee ranks junior in right of payment to up to $25 million principal amount of indebtedness under the U.S. Credit Facility. All other subsidiaries of the Company, either direct or indirect, have not guaranteed the Senior Secured Notes (collectively, the “Non-Guarantor Subsidiaries”). Trico Shipping and the Subsidiary Guarantors and their consolidated subsidiaries are 100% owned by the Company.

     Under the terms of the indenture governing the Senior Secured Notes and the Trico Shipping Working Capital Facility, Trico Supply AS is restricted from paying dividends to its parent, and Trico Supply AS and its restricted subsidiaries (including Trico Shipping) are restricted from making intercompany loans to the Company and its subsidiaries (other than Trico Supply AS and its restricted subsidiaries).

     The following tables present the condensed consolidating balance sheets as of June 30, 2010 and December 31, 2009, and the condensed consolidating statements of operations for the three and six months ended June 30, 2010 and 2009 and the condensed consolidating statements of cash flows for the six months ended June 30, 2010 and 2009 of (i) the Company, (ii) Trico Shipping, (iii) the Subsidiary Guarantors, (iv) the Non-Guarantor Subsidiaries, and (v) consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions, (b) eliminate the investments in the Company’s subsidiaries and (c) record consolidating entries.

     The additional tables represent consolidating information for the Trico Supply Group as follows: the condensed consolidating balance sheets as of June 30, 2010 and December 31, 2009 and the condensed consolidating statements of operations for the three and six months ended June 30, 2010 and 2009 and the cash flows for the six months ended June 30, 2010 and 2009 of (i) Trico Shipping, (ii) the Subsidiary Guarantors, excluding the parent companies of Trico Supply AS, and (iii) consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions, (b) eliminate the investments in the Company’s subsidiaries and (c) record consolidating entries. The purpose of these tables is to provide the financial position, results of operations and cash flows of the group of entities which own substantially all of the collateral securing the Senior Secured Notes and are subject to the restrictions of the indenture. For purposes of this presentation, investments in consolidated subsidiaries are accounted for under the equity method.

     Prior periods have been prepared to conform to the Company’s current organizational structure.

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2010

																						Consolidated
		Parent Guarantor																				(Trico Marine
		(Trico Marine				Issuer				Subsidiary				Non-Guarantor								Services, Inc. and
		Services, Inc.)				(Trico Shipping AS)				Guarantors(1)				Subsidiaries(2)				Eliminations				Subsidiaries)
		(in thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	17,540			$	7,387			$	7,551			$	—			$	32,478
Restricted cash			3,665				—				2,566				1,027				—				7,258
Accounts receivable, net			—				24,758				50,668				23,729				—				99,155
Prepaid expenses and other current assets			735				5,700				37,985				1,201				—				45,621
Assets held for sale			—				—				—				248				—				248
Total current assets			4,400				47,998				98,606				33,756				—				184,760
Net property and equipment, net			—				79,333				461,811				60,578				—				601,722
Intercompany receivables (debt and other payables)			324,306				(133,200	)			(308,865	)			117,759				—				—
Intangible assets			—				—				91,979				—				—				91,979
Other assets			6,158				1				1,894				5,292				—				13,345
Investments in subsidiaries			(103,639	)			90,459				(422,210	)			12,906				435,389				12,905
Total assets		$	231,225			$	84,591			$	(76,785	)		$	230,291			$	435,389			$	904,711
LIABILITIES AND EQUITY
Current liabilities:
Short-term and current maturities of long-term debt		$	340,814			$	422,373			$	72			$	5,251			$	—			$	768,510
Accounts payable			—				2,983				57,629				8,186				—				68,798
Accrued expenses			336				5,368				47,822				20,828				—				74,354
Accrued interest			12,411				10,294				—				—				—				22,705
Income taxes payable			135				(77	)			2,022				1,663				—				3,743
Other current liabilities			3				—				—				—				—				3
Total current liabilities			353,699				440,941				107,545				35,928				—				938,113
Long-term derivative			108				—				—				—				—				108
Deferred income taxes			—				65,858				8,227				—				—				74,085
Other liabilities			1				—				13,631				1,355				—				14,987
Total liabilities			353,808				506,799				129,403				37,283				—				1,027,293
Commitments and contingencies
Total equity			(122,583	)			(422,208	)			(206,188	)			193,008				435,389				(122,582	)
Total liabilities and equity		$	231,225			$	84,591			$	(76,785	)		$	230,291			$	435,389			$	904,711