Case Document 3876 Filed in TXSB on 11/08/16 Page 1 of 10

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1 Case Document 3876 Filed in TXSB on 11/08/16 Page 1 of 10 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: Case No ATP OIL & GAS CORPORATION, CHAPTER 7 Debtor, ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. Rodney Tow, Trustee (the Trustee ), hereby files this Motion to Compromise Controversy with Silverback Arbitrage Master Fund Limited under Rule 9019 of the Federal Rules of Bankruptcy Procedure. I. SUMMARY OF RELIEF REQUESTED 1. The Trustee seeks approval of a proposed settlement reached between the Trustee Silverback Arbitrage Master Fund Limited in Adversary Proceeding No ; Rodney Tow, Trustee v. Allen G. Lozier, et al.; in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 1

2 Case Document 3876 Filed in TXSB on 11/08/16 Page 2 of Under the proposed settlement, the Trustee will release his claims related to ATP Preferred Stock against Silverback Arbitrage Master Fund Limited for $75, in exchange for a payment of $365, (App. 1-3) 3. The full Settlement Silverback Arbitrage Master Fund Limited is attached hereto. II. JURISDICTION AND VENUE 4. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is proper before this Court pursuant to 28 U.S.C and III. ADVERSARY TO BE COMPROMISED 5. On August 17, 2012, ATP filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. 6. On June 26, 2014, the Bankruptcy Case was converted to a Chapter 7 proceeding, and Rodney Tow was appointed Trustee for ATP. 7. On September 29, 2009, ATP issued approximately 1,400, shares of Convertible Preferred Stock ( Series A Preferred Stock ). 8. In June, 2011, ATP issued approximately 1,700, shares of 8% convertible perpetual preferred stock ( Series B Preferred Stock ). 9. The Series B Preferred Stock has terms and features which are substantially identical to the Series A Preferred Stock ATP Oil & Gas issued in 2009 (collectively, the Preferred Stock ). According to the SEC filings created by ATP, each share of Preferred Stock is perpetual, has no voting rights, has a liquidation preference of $100, pays cumulative ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 2

3 Case Document 3876 Filed in TXSB on 11/08/16 Page 3 of 10 dividends at an annual rate of 8% payable in cash, shares of ATP s common stock, or a combination thereof, and is convertible at any time, at the option of the holder, into shares of common stock. 10. According to the SEC filings created by ATP, there were 3,105,000 shares of 8% convertible perpetual preferred stock outstanding as of March 2, According to the SEC filings created by ATP, if declared by ATP s Board of Directors, holders of the Preferred Stock would be entitled to receive cumulative dividends at the rate per annum of 8% per share on the liquidation preference thereof of $ per share of Preferred Stock (equivalent to $8.00 per annum per share), payable in cash, by delivery of shares of ATP common stock or through any combination of cash and shares of ATP common stock. 12. If declared by ATP s Board of Directors, dividends on each share of Preferred Stock is $8.00 and is payable quarterly on each January 1, April 1, July 1 and October 1, commencing on January 1, 2010 for Series A Preferred Stock and on October 1, 2011 for Series B Preferred Stock. 13. According to the SEC filings by ATP, the company s ability to declare and pay cash dividends and make other distributions with respect to ATP s capital stock, including the Preferred Stock, was limited by the terms of ATP s outstanding indebtedness and by applicable Texas law. 14. ATP s Board of Directors authorized or ratified the payment of preferred stock dividend of $1.99 per share on Preferred Stock, which was to be paid on or about January 3, As of January 3, 2012, there were 3,125,000 total shares of Preferred Stock outstanding and aggregated dividends of $6,312, were paid. ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 3

4 Case Document 3876 Filed in TXSB on 11/08/16 Page 4 of ATP s Board of Directors authorized or ratified the payment of preferred stock dividend of $1.99 per share on Preferred Stock, which was to be paid on or about April 1, As of April 1, 2012, there were 3,105,000 total shares of Preferred Stock outstanding and aggregated dividends of $6,178, were paid. 16. ATP s Board of Directors authorized or ratified the payment of preferred stock dividend of $1.99 per share on Preferred Stock, which was to be paid on or about April 1, As of April 1, 2012, there were 3,105,000 total shares of Preferred Stock outstanding and aggregated dividends of $6,178, were paid. 17. ATP s Board of Directors authorized or ratified the payment of preferred stock dividend of $1.99 per share on Preferred Stock, which was to be paid on or about July 1, As of July 1, 2012, there were 3,104,999 total shares of Preferred Stock outstanding and aggregated dividends of $6,178, were paid. 18. The July 1, 2012 dividend was paid within less than ninety (90) days prior to ATP filing its Chapter 11 bankruptcy case. 19. Due to its financial struggles, ATP had initially intended on not making the July 2, 2012 dividend payment. Mr. Bulmahn disagreed with the decision not to make the dividend payment and ultimately the other Officers and Directors of ATP merely rubber-stamped Mr. Bulmahn s desires for ATP. 20. Through the transfer agent, American Stock Transfer & Trust Company, LLC, the dividend payments were made to Cede & Co., also known as Depository Trust Company, who held the ATP Preferred Stockholder certificates. Through a proxy system Depository Trust Company distributed the funds to the Brokerage Defendants. ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 4

5 Case Document 3876 Filed in TXSB on 11/08/16 Page 5 of Upon information and belief, depending on the type of Brokerage Defendant in question, those funds were either held by the Brokerage Defendants or distributed directly to the Preferred Stockholder Defendants. 22. In response, the Trustee filed the case, Rodney Tow, Trustee v. Allen G. Lozier, et al., Adversary No ; United States Bankruptcy Court for the Southern District of Texas, Houston Division, alleging claims against the Preferred Stockholders and the Brokerage Defendants, including Silverback Arbitrage Master Fund Limited. 23. The Trustee has reached a settlement with Silverback Arbitrage Master Fund Limited contingent upon Court approval. The $75, settlement represents approximately twenty (20) percent of the $364, received by Silverback Arbitrage Master Fund Limited for the January, February, and July 2012 preferred stock transfers. IV. FACTORS TO CONSIDER FOR THE MERITS OF COMPROMISE 24. Pursuant to Section 105(a) of the Bankruptcy Code and Rule 9019(a) of the Bankruptcy Rules, this Court may approve a compromise or settlement agreement. 25. One of the goals of Congress in fashioning the Bankruptcy Code was to encourage parties in a distress situation to work out a deal among themselves. In re Mirant Corp., 334 B.R. 800, 811 (Bankr. N.D. Tex. 2005). Compromises are favored in bankruptcy because they minimize litigation costs and further the parties interest in expediting the administration of a bankruptcy case. Martin v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996) (quoting 9 COLLIER ON BANKRUPTCY [1] (15th ed. Rev. 1993)). 26. Bankruptcy Rule 9019 governs the procedural requirements to be followed before a settlement may be approved. Bankruptcy Rule 9019(a) provides in relevant part that: [o]n motion by the trustee and after notice and a hearing, the court may approve a compromise and ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 5

6 Case Document 3876 Filed in TXSB on 11/08/16 Page 6 of 10 settlement. FED. R. BANKR. P. 9019(a). Rule 9019(a) empowers a bankruptcy court to approve compromises and settlements if they are fair and equitable and in the best interest of the estate. In re Cajun Elec. Power Coop., Inc., 119 F.3d 349, 355 (5th Cir. 1997); Conn. Gen. Life Ins. Co. v. United Cos. Fin. Corp. (In re Foster Mortgage Corp.), 68 F.3d 914, 917 (5th Cir. 1995). Moreover, Bankruptcy Code Section 105(a) provides that [t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). 27. Approval of a proposed settlement is left to the sound discretion of the reviewing court. See, e.g., In re Hibbard Brown & Co., Inc., 217 B.R. 41, 46 (Bankr. S.D.N.Y. 1998) (noting that courts should exercise their discretion in light of the general public policy favoring settlements. ). The burden of establishing the fairness of a compromise rests on the proponent(s) of the compromise; however, a trustee is not required to present a full mini-trial or evidentiary hearing to adjudicate the issues being settled. Rather, when determining whether to approve an agreement, the Court is not to decide the numerous questions of law and fact raised by the compromise, but is to canvass the issues and see whether the settlement falls below the lowest point in the range of reasonableness. ARS Brook, LLC v. Jalbert (In re ServiSense.com, Inc.), 382 F.3d 68, 72 (1st Cir. 2004); Vaughn v. Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham Lambert Group, Inc.), 134 B.R. 499, 505 (Bankr. S.D.N.Y. 1991). 28. Further, in ruling on the propriety of the settlement agreement, the Court should determine whether the settlement agreement is in the best interests of the bankruptcy estate. See Conn. Gen. Life Ins. Co. v. United Cos. Fin. Corp. (In re Foster Mortgage Corp.), 68 F.3d 914, 917 (5th Cir. 1995); U.S. v. Aweco, Inc. (In re Aweco, Inc.), 725 F.2d 293, 298 (5th Cir. 1984), cert, denied, 469 U.S. 880 (1984). To make such a determination, the Court should compare the ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 6

7 Case Document 3876 Filed in TXSB on 11/08/16 Page 7 of 10 relative strengths and weaknesses of each party s claims and the probability of success for each of the parties should the claims and disputes continue to be litigated. 29. The merits of a proposed compromise should be judged under the criteria set forth in Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968). TMT Trailer requires that a compromise must be fair and equitable. 390 U.S. at 424; In re AWECO, Inc., 725 F.2d 293, 298 (5th Cir.), cert. denied, 469 U.S. 880 (1984). The terms fair and equitable mean that (i) senior interests are entitled to full priority over junior interests; and (ii) the settlement is reasonable in relation to the likely rewards of litigation. In re Cajun Electric Power Coop., 119 F.3d 349, 355 (5th Cir. 1997). 30. In determining whether a proposed compromise is fair and equitable, a Court should consider the following factors: (i) (ii) (iii) (iv) the probabilities of ultimate success should the claim be litigated; the complexity, expense, and likely duration of litigating the claim; the difficulties of collecting a judgment rendered from such litigation; and, all other factors relevant to a full and fair assessment of the wisdom of the compromise. TMT Trailer, 390 U.S. at 424. The Trustee believes that the proposed settlement satisfies the requirements established by the Supreme Court in TMT Trailer. V. ANALYSIS OF PROPOSED COMPROMISE 31. Probabilities of Ultimate Success. The $75, received by Silverback Arbitrage Master Fund Limited is a cumulative amount from three (3) transfers that occurred in January, April and July While the Trustee believes he has valid claims for fraudulent transfer and preference action, there are numerous legal hurdles. For example, the Trustee will likely need to seek a factual determination to decide the matter of actual fraudulent intent. The Trustee also faces statute of limitations defense from the Silverback Arbitrage Master Fund ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 7

8 Case Document 3876 Filed in TXSB on 11/08/16 Page 8 of 10 Limited defendant. In the instant matter, Silverback Arbitrage Master Fund Limited has stronger alleged evidence to support its defenses than the other Preferred Stockholders. The Trustee disputes this evidence, but in light of the additional questions of fact the Trustee believes the settlement for $75, is reasonable. 32. Complexity, Expense and Likely Duration. The $75, amount is approximately twenty (20) percent of what is owed by Silverback Arbitrage Master Fund Limited to the Trustee. Litigation against Silverback Arbitrage Master Fund Limited will likely include the expense of a possible Motion to Dismiss, Motions for Summary Judgment, written discovery and numerous depositions. Continued litigation would be costly and a large administrative expense in light of the complexity and volume of claims associated with the Preferred Stocks. 33. The difficulties of collecting a judgment. The Trustee does not believe there would be any difficulty in collecting on a judgment against Silverback Arbitrage Master Fund Limited. 34. Other Factors. Silverback Arbitrage Master Fund Limited received a total of $364, in relation to the ATP Preferred Stockholder transfers from January to July 2012 and is settling for $75,000.00, approximately twenty (20) percent of what is owed to the Trustee. This settlement is reasonable in light of the defenses that could be brought and the likely costs and time expenditure that would accompany litigation. VI. PRAYER 35. The Trustee therefore submits that the Release satisfies the requirements established under Bankruptcy Rule 9019, the Supreme Court in TMT Trailer Ferry, and applicable law. In light of these considerations, the Trustee believes that the Release falls well ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 8

9 Case Document 3876 Filed in TXSB on 11/08/16 Page 9 of 10 within the range of reasonableness, especially in light of the practical reality that compromises are... often times desirable and wise methods of bringing to a close proceedings otherwise lengthy, complicated and costly. Rivercity v. Herpel (In re Jackson Brewing Co.), 624 F.2d 599, 602 (5th Cir. 1980) (quoting Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 130 (1939)). Consequently, the Trustee respectfully requests that the Court grant this Motion and approve the Release, settling the claims against Silverback Arbitrage Master Fund Limited. WHEREFORE, PREMISES CONSIDERED, Rodney Tow, Chapter 7 Trustee for the Bankruptcy Estate of ATP Oil & Gas Corporation, respectfully requests that if the Court approves the settlement with Silverback Arbitrage Master Fund Limited, that this Court then approve the proposed settlement and compromise set forth above and for such other and further relief, at law and in equity, as this Court deems just. OF COUNSEL: COOPER & SCULLY, P.C. TIMOTHY MICAH DORTCH State Bar No SDTX Bar No Jackson Street, Suite 100 Dallas, Texas Respectfully Submitted, By: /s/ Lauren Tow LAUREN TOW State Bar No SDTX Bar No COOPER & SCULLY, P.C. 900 Jackson Street, Suite 100 Dallas, Texas Telephone: (214) Facsimile: (214) Lauren.Tow@cooperscully.com COUNSEL FOR PLAINTIFF RODNEY TOW, TRUSTEE ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 9

10 Case Document 3876 Filed in TXSB on 11/08/16 Page 10 of 10 Telephone: (214) Facsimile: (214) ATTORNEY IN CHARGE FOR PLAINTIFF RODNEY TOW, TRUSTEE R. BRENT COOPER State Bar No SDTX Bar No Jackson Street, Suite 100 Dallas, Texas Telephone: (214) Facsimile: (214) CHRISTOPHER D. LINDSTROM State Bar No SDTX Bar No Walker, Suite 1040 Houston, Texas Telephone: (713) Facsimile: (713) CERTIFICATE OF SERVICE I certify that on November 8, 2016 a true and correct copy of the foregoing document was served by (i) the Electronic Case Filing System for the United States Bankruptcy Court for the Southern District of Texas to all parties registered to receive such service; and (ii) transmitted to the parties listed on the attached Master Service List by pursuant to the Order Establishing Notice Procedures [Dkt. 3189]. /s/ Lauren Tow LAUREN TOW ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 Page 10

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14 Case Document Filed in TXSB on 11/08/16 Page 1 of 1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: ATP OIL & GAS CORPORATION, DEBTOR. CASE NO CHAPTER 7 JUDGE ISGUR ORDER ON MOTION TO COMPROMISE CONTROVERSY WITH SILVERBACK ARBITRAGE MASTER FUND LIMITED UNDER BANKRUPTCY RULE 9019 On this date, the Court considered Trustee Rodney Tow s Motion to Compromise Controversy with Silverback Arbitrage Master Fund Limited. The Court finds that the settlement with Silverback Arbitrage Master Fund Limited for $75, for the Preferred Stock dividend referenced in Adversary No is fair and equitable and complies with the factors established by the Supreme Court in Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968). As such, Trustee Rodney Tow s Motion to Compromise Controversy with Silverback Arbitrage Master Fund Limited is GRANTED; and it is further ORDERED that the Settlement Agreement attached to Trustee Rodney Tow s Motion to Compromise Controversy with Silverback Arbitrage Master Fund Limited is approved. SIGNED this day of, THE HONORABLE MARVIN ISGUR UNITED STATES BANKRUPTCY JUDGE ORDER ON MOTION TO COMPROMISE CONTROVERSY Page 1 of 1 D/955492v1