By Patrick Cronin
Hampton Union, Friday, September 23, 2005
[The following article is courtesy of the Hampton Union and Seacoast Online.]
HAMPTON - In the aftermath of filing for Chapter 11 bankruptcy protection amid allegations of fraud, the people running Foss Manufacturing are considering all of their options, including selling the company.
"Our goal is to stabilize the operation and then focus on an exit strategy," said Andrew Schwartz, a Boston lawyer representing the company.
The privately held company, which employs 370 people and makes engineered fibers and fiber solutions, does not plan to fold. If it is not sold, it will be restructured, said Schwartz.
"Foss Manufacturing is not going away," said Schwartz. "No layoffs have taken place and we don't anticipate any. The company will continue to run uninterrupted."
The bankruptcy filing was spawned by the refusal of the company's primary lender, CapitalSource Finance LLC, to continue to fund the company's day-to-day operations.
CapitalSource stopped payments after it was discovered that Foss was providing misleading financial information over the last several months that led CapitalSource to overadvance millions of dollars to the company.
Foss Manufacturing admitted in court documents that information given to the finance company was incorrect but put the blame on former CEO and President Stephen Foss.
After the board of directors discovered the situation, it asked for and received the resignation of Foss on Aug. 8, according to court documents.
CapitalSource said the board was making Foss out to be the scapegoat and thinks it was in on the fraud.
The current board of directors includes Foss's wife and daughter.
Schwartz didn't want to comment on the CapitalSource allegations.
"Our focus is going forward and not backwards," said Schwartz. "We are focusing on the future and we believe the company has good prospects."
Last week, CapitalSource and Foss Manufacturing agreed in U.S. Bankruptcy Court to let the company spend cash to fund its operations for one week.
The company also asked the judge to prevent electricity and utility companies from shutting them off because of not paying the bills.
Both parties will go before the judge again on Monday.
According to the bankruptcy filing, the company estimated assets of $10 million to $50 million and estimated debts in the same range.
The 20 largest unsecured creditors include Cigna Healthcare, Irving Oil and the town of Hampton.
CapitalSource says in court documents that Foss Manufacturing has been losing money for years. It also says the company was unaware for six months that it owed more than $1 million to its pension fund and that its health insurance company has filed a notice of lien on all of its assets.
Schwartz said those claims are being investigated.
The company has hired financial advisers to investigate.
Charles R. Powell III, a Manchester lawyer who is representing CapitalSource, said he didn't want to comment at this time.