Linwood, PA, April 21, 2006--Foamex International filed a motion with the U.S. Bankruptcy Court, requesting that the court approve measures to protect the company's federal tax net operating losses (NOLs).
Foamex believes the NOLs, estimated at approximately $292 million as of January 1, 2006, may prove to be a valuable asset of its bankruptcy estate.
Foamex is asking the court to establish notification and hearing procedures that must be satisfied before certain transfers or trading of Foamex's equity securities are deemed effective. Under certain circumstances specified in the U.S. tax code, acquisitions by shareholders with equity holdings of five percent or more, or who could thereby become owners of five percent or more, of Foamex's common stock may give rise to an ownership change that would limit the company's utilization of its NOLs.
If granted, the relief sought will enable Foamex to closely monitor certain transfers and acquisitions of equity securities so that it can act expeditiously to prevent such transfers or acquisitions, if necessary, to preserve the value of its NOLs. The requested relief does not bar all trading in Foamex's equity securities. The company is seeking only to establish procedures enabling it to monitor those stock transfers or acquisitions that pose a serious risk under the U.S. tax code's "ownership change" test, so that Foamex can move quickly to block a proposed trade that, if allowed to proceed, could limit Foamex's ability to fully utilize its NOLs.
Foamex reserves the right to seek further relief from the court in the form of a motion to void or limit prior transfers or acquisitions of shares or other securities in the event that such transfers or acquisitions threaten to or actually impair the utilization of its NOLs. Any such relief could apply to transfers or acquisitions since the date of Foamex's chapter 11 filing (September 19, 2005) to the date of the granting of the motion being filed today as such transfers or acquisitions could have violated the automatic stay under the Bankruptcy Code.
The U.S. tax code permits corporations to carry NOLs forward to offset future income, thereby reducing federal income tax liability on such future income and significantly improving its cash position. As a result, Foamex's NOLs could prove to be a valuable asset of its estate. The company's ability to use its NOLs, however, could be severely limited as a result of the trading and accumulation of equity securities of Foamex prior to consummation of a plan of reorganization. The motion intends to preserve the availability of the NOLs to the greatest possible extent.
Foamex is asking that the motion be heard at its previously scheduled May 3, 2006 omnibus hearing.
More information about Foamex's chapter 11 case is available on the company's web site: foamex.com/restructuring.
